SCHERMERHORN | DAVIDSON | FACTOR | WOODS | SIMON | MCBARRON

management 6th Asia–Pacific edition

John Schermerhorn, Paul Davidson, Aharon Factor, Peter Woods, Alan Simon, Ellen McBarron
Management
6TH ASIA – PACIFIC EDITION

John R. Schermerhorn
Paul Davidson
Aharon Factor
David Poole
Peter Woods
Alan Simon
Ellen McBarron
Sixth edition published 2017 by
John Wiley & Sons Australia, Ltd
42 McDougall Street, Milton Qld 4064

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National Library of Australia

Cataloguing-in-Publication entry

Title: Management/
John R. Schermerhorn Jr  .  .  .  [et al.].
Edition: 6th Asia–Pacific edition
ISBN: 9780730329534 (ebook)
Subjects: Management — Asia.
Management — Pacific Area.
Other Authors/
Contributors: Davidson, Paul, author.
Factor, Aharon, author.
Woods, Peter, author.
Simon, Alan, author.
McBarron, Ellen, author.
Dewey Number: 658.0095

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10 9 8 7 6 5 4 3 2 1
CONTENTS
About the authors  xi Scientific management  36
Applications at a glance  xiv Administrative management  38
Bureaucratic management  40
CHAPTER 1 Hierarchy in organisations  41
The contemporary 2.2 Behavioural approaches to management  41
The Hawthorne Studies and human relations  42
workplace 1 Relay assembly test‐room studies  42
Managing the fresh food people  2 Employee attitudes, interpersonal relations and
Introduction 3 group processes  42
1.1 Working in today’s economy  3 Lessons from the Hawthorne Studies  42
Intellectual capital  4 Maslow’s theory of human needs  43
Globalisation 4 McGregor’s Theory X and Theory Y  44
Technology 5 2.3 Quantitative approaches to management  45
Diversity 6 Management science  45
Ethics 8 Quantitative analysis today  45
Careers 8 2.4 Modern approaches to management  46
1.2 Organisations in today’s workplace  9 Systems thinking  46
What is an organisation?  10 Contingency thinking  47
Organisations as systems  10 2.5 Continuing management themes  48
Organisational performance  11 Quality and performance excellence  48
The changing nature of organisations  12 Global awareness  49
1.3 Managers in today’s workplace  13 Learning organisations  49
The organisational environment and the Looking ahead  51
manager 13
Summary 54
What is a manager?  16 Key terms  55
Managerial performance  18 Applied activities  55
Changing nature of managerial work  19 Endnotes 55
1.4 The management process  20 Acknowledgements 57
Functions of management  21
Managerial activities and roles  23 CHAPTER 3
Managerial agendas and networks  24
1.5 Managerial learning  25
Environment and diversity  58
Australia a diverse country but older workers still
Essential managerial skills  26
struggle to find employment  59
Skill and outcome assessment  27
Introduction 60
Summary 28
Key terms  29 3.1 Environment and competitive advantage  61
Applied activities  30 What is competitive advantage?  61
Endnotes 30 The general environment  62
Acknowledgements 32 The specific environment  65
Environmental uncertainty  65
CHAPTER 2 3.2 Internal environment and organisational
culture 67
Historical foundations of What strong cultures do  67
management 33 Levels of organisational culture  68
Looking back to look forward  34 Leadership and organisational culture  69
Introduction 36 3.3 Customer‐driven organisations  70
2.1 Classical approaches to management  36 Who are the customers?  70
 What customers want  70 CHAPTER 5
Customer relationship management  71
3.4 Quality‐driven organisations  72
Ethical behaviour and social
Total quality management  72 responsibility 122
Quality and continuous improvement  73 Taking corporate social responsibility to
Quality, technology and design  74 the next level  123
3.5 Diversity and multicultural organisations  75 Introduction 124
What is a multicultural organisation?  75 5.1 What is ethical behaviour?  125
Organisational subcultures  75 Law, values and ethical behaviour  125
Challenges faced by minority groups and Alternative views of ethical behaviour  126
women 76 Cultural issues in ethical behaviour  128
Managing diversity  80 5.2 Ethics in the workplace  129
Summary 83 What is an ethical dilemma?  129
Key terms  84 Ethical problems faced by managers  129
Applied activities  85 Rationalisations for unethical behaviour  130
Endnotes  85 Factors influencing ethical behaviour  131
Acknowledgements 88
5.3 Maintaining high ethical standards  133
Ethics training  133
CHAPTER 4
Whistleblower protection  134
International dimensions of Ethical role models  134
management 89 Codes of ethics  135
5.4 Social responsibility  135
Selling out Australia  90
Stakeholder issues and practices  136
Introduction 91
Perspectives on social responsibility  138
4.1 International management and
Evaluating social performance  139
globalisation 92
Social responsibility strategies  140
Asia and the Pacific Rim  93
5.5 Organisations and society  142
Europe 95
How government influences
The Americas  98
organisations 142
Africa 98
How organisations influence government  143
4.2 International business challenges  99
Why managers make the difference  144
Competitive global business environment  99
Summary 145
Forms of international business  100
Key terms  146
4.3 Multinational corporations  103 Applied activities  146
Types of multinational corporations  103 Endnotes 147
Pros and cons of multinational corporations  104 Acknowledgements 150
Ethical issues for multinational operations  105
4.4 Culture and global diversity  106 CHAPTER 6
Popular dimensions of culture  106
Values and national cultures  108
Sustainability 151
Understanding cultural diversity  109 Are you pouring money down the drain?  152
4.5 Management across cultures  111 Introduction 153
Planning and controlling  111 6.1 What is sustainability?  153
Organising and leading  112 Defining sustainability  154
Are management theories universal?  113 Why sustainability?  154
Global organisational learning  114 Energy and the natural environment  156
Summary 116 Social justice  157
Key terms  117 The business case  158
Applied activities  118 6.2 International sustainability guidelines
Endnotes 118 for business 158
Acknowledgements 121 The UN Global Compact  159

iv  CONTENTS
 The Millennium Development Goals  160 Individual and group decision‐making  194
The Sustainable Development Goals  161 Ethical decision‐making  195
6.3 Sustainability and organisations  162 7.5 Knowledge management and organisational
Shared value  162 learning 195
Model of the sustainable business What is knowledge management?  195
organisation 163 Organisational learning  196
Corporate governance  163 Summary 197
Circular economy  164 Key terms  198
6.4 Organisational change: developing the Applied activities  199
sustainable firm  164 Endnotes 199
Incremental change  165 Acknowledgements 200
Sustainability reporting  165
CHAPTER 8
The bottom of the pyramid  166
6.5 Current trends in business sustainability  166 Planning 201
Waves of change in the business Planning for Port Shorts  202
environment 167
Introduction 203
Rio+20 Corporate Sustainability Forum  167
8.1 How and why managers plan  204
Summary 169
Importance of planning  205
Key terms   169
The planning process  207
Applied activities  170
8.2 Types of plans used by managers  209
Endnotes 170
Acknowledgements 173 Short‐range and long‐range plans  209
Strategic and tactical plans  210
CHAPTER 7 Policies and procedures  211
Budgets and project schedules  212
Information and decision 8.3 Planning tools, techniques and
making 174 processes 212
Where we are on the road to driverless cars  175 Forecasting 213
Destination: autonomy  175 Contingency planning  213
Getting behind the wheel  175 Scenario planning and contingency
planning 214
Introduction 176
Benchmarking 217
7.1 Information technology and the new
workplace 177 Staff planners  218
Management by objectives  218
Work and the virtual office  177
Participation and involvement  219
How information technology is changing
organisations 178 Summary 221
Key terms   221
How information technology is changing
Applied activities  222
business 180
Endnotes 222
7.2 Information and information systems  181
Acknowledgements 223
What is useful information?  181
Information needs of organisations  181 CHAPTER 9
Developments in information systems  183
Decision support systems  183 Strategic management  224
Information systems and the manager’s job  185 Rise of the new tech companies  225
7.3 Information and decision making  187 Introduction 226
Types of managerial decisions  187 9.1 Sustainable strategic competitiveness  226
Decision conditions  188 What is organisational strategy?  227
How managers approach decisions  188 Strategic management  228
7.4 The decision‐making process  189 Strategic management goals  228
Steps in decision‐making  190 9.2 The strategic management process  231
Behavioural influences on decision‐making  192 Analysis of mission, values and objectives  232

CONTENTS  v
 Analysis of organisational resources and Team structures  275
capabilities 234 Network structures  276
Analysis of industry and environment  234 10.6 Subsystems design and integration  278
9.3 Strategies used by organisations  237 Subsystem differences  278
Levels of strategy  237 How to achieve integration  279
Growth and diversification strategies  238 10.7 Organising trends  281
Restructuring and divestiture strategies  240 Shorter chains of command  281
Cooperation in business strategies  240 Less unity of command  281
E‐business strategies  241 Wider spans of control  282
9.4 Strategy formulation  242 More delegation and empowerment  282
Porter’s generic strategies  243 Decentralisation with centralisation  283
Product life cycle planning  244 Summary  285
Portfolio planning  246 Key terms  286
Adaptive strategies  248 Applied activities  287
Incrementalism and emergent strategy  248 Endnotes  287
9.5 Strategy implementation  249 Acknowledgements 290
Management practices and systems  249
Corporate governance  249 CHAPTER 11
Strategic leadership  250 Controlling 291
Summary  251
Relying on quality to bring control  292
Key terms  252
Introduction 293
Applied activities  253
Endnotes  253 11.1 Organisational control  294
Acknowledgements 255 Rationale for controlling  294
Steps in the control process  295
CHAPTER 10 11.2 Types of controls  298
Feedforward controls  298
Organising 256 Concurrent controls  298
The ‘no manager’ company: how does it Feedback controls  299
work? 257 Internal and external control  300
Introduction 258 11.3 Organisational control systems  301
10.1 Organising as a management function  258 Remuneration and benefits  301
What is organisational structure?  259 Employee discipline systems  302
Formal structure  259 Information and financial controls  303
Informal structure  260 Operations management and control  304
10.2 Traditional organisation structures  261 Project management and control  306
Functional structures  261 Balanced scorecards  307
Divisional structures  262 MBO: integrated planning and controlling  308
Matrix structures  264 Summary  309
10.3 Essentials of organisational design  266 Key terms  309
Bureaucratic designs  266 Applied activities  310
Adaptive designs  269 Endnotes  310
Virtual designs  270 Acknowledgements 311
10.4 Contingencies in organisational
design 271 CHAPTER 12
Environment 271
Strategy 272
Human resource
Size and life cycle  272 management 312
Human resources  273 Others can learn from the ways tech firms find and
10.5 Developments in organisation keep staff  313
structures 274 Ways of managing  313

vi  CONTENTS
 Communication and culture  313 Focus on leadership behaviours  359
Treating each other well reaps benefits  313 13.3 Contingency approaches to leadership  361
Introduction 314 Fiedler’s contingency model  362
12.1 Diversity and the importance of people  315 Hersey–Blanchard situational leadership
Why people make the difference  316 model 363
The diversity advantage  316 House’s path–goal leadership theory  364
12.2 HRM  318 Vroom–Jago leader‐participation model  365
Employment discrimination  318 13.4 Issues in leadership development  367
Occupational health and safety  321 Transformational leadership  367
Industrial relations in the Asia–Pacific region  323 Emotional intelligence  369
International HRM  325 Gender and leadership  370
The HRM process  326 Drucker’s ‘old‐fashioned’ leadership  370
Strategic HRM  326 Moral leadership  371
12.3 Attracting a quality workforce  327 Summary  373
The recruiting process  328 Key terms  374
Making selection decisions  330 Applied activities  374
12.4 Developing a quality workforce  333 Endnotes 375
Acknowledgements 377
Employee orientation  333
Training and development  334
CHAPTER 14
Performance management systems  335
Purpose of performance appraisal  335 Communication and
12.5 Engagement: maintaining a quality interpersonal skills  378
workforce 338
Communication in a digital age  379
Career development  339
Introduction 380
Work–life balance  340
14.1 The communication process  380
Remuneration and benefits  342
What is effective communication?  380
Retention and turnover  343
Persuasion and credibility in
Summary  345
communication 381
Key terms  346
Barriers to effective communication  382
Applied activities  347
Endnotes  347 14.2 Improving communication  385
Acknowledgements 350 Transparency and openness  385
Active listening  385
CHAPTER 13 Body language  386
Constructive feedback  387
Leading 351 Use of communication channels  387
Traits of an ethical leader  352 Proxemics and space design  389
The personality to defy groupthink  352 Technology use  390
The ability to set a good example  352 Valuing culture and diversity  392
Selflessness 352 Language and organisational change  392
Their door is always open  352 14.3 Perception  393
They’re not afraid to be challenged  352 Perception and attribution  394
They take responsibility for everything  353 Perceptual tendencies and distortions  394
Introduction 353 14.4 Communication and conflict
13.1 The nature of leadership  354 management 396
Leadership and vision  355 Consequences of conflict  396
Power and influence  355 Causes of conflict  397
Ethics and the limits to power  357 How to deal with conflict  397
Leadership and empowerment  357 Conflict management styles  398
13.2 Leadership traits and behaviours  358 Structural approaches to conflict
Search for leadership traits  358 management 399

CONTENTS  vii
14.5 Negotiation  400 Introduction 440
Negotiation goals and approaches  400 16.1 The meaning of work  441
Gaining integrative agreements  401 Psychological contracts  441
Avoiding negotiation pitfalls  402 Work and the quality of life  442
Cross‐cultural negotiation  403 16.2 Satisfaction, performance and job
Ethical issues in negotiation  403 design 444
Summary  404 Job satisfaction  444
Key terms  405 Individual performance  446
Applied activities  406 Job design alternatives  448
Endnotes 406 16.3 Directions in job enrichment  451
Acknowledgements 408 Core characteristics model  451
CHAPTER 15
Technology and job enrichment  454
Questions and answers on job enrichment  454
Motivation and rewards  409 16.4 Alternative work arrangements  454
Culture Amp pioneers employee share The compressed work week  455
options 410 Flexible working hours  455
Introduction 411 Job sharing  456
15.1 What is motivation?  411 Telecommuting 456
Motivation and rewards  411 Part‐time and casual work  458
Rewards and performance  412 16.5 Job stress  460
15.2 Content theories of motivation  413 Sources of stress  460
Hierarchy of needs theory  414 Consequences of stress  462
ERG theory  415 Stress management strategies  464
Two‐factor theory  415 Summary 466
Acquired needs theory  416 Key terms  467
Questions and answers on content theories  417 Applied activities  467
15.3 Process theories of motivation  419 Endnotes 468
Equity theory  419 Acknowledgements 470
Expectancy theory  420
CHAPTER 17
Goal‐setting theory  421
Self‐efficacy theory  423 Teams and teamwork  471
15.4 Reinforcement theory of motivation  424
Telstra and Cisco create a new approach
Reinforcement strategies  424 to teamwork  472
Positive reinforcement  425 Introduction 473
Punishment 426 17.1 Teams in organisations  473
Ethical issues in reinforcement  426 Challenges of teamwork  473
15.5 Motivation and remuneration  427 Synergy and the usefulness of teams  474
Pay for performance  428 Formal and informal groups  475
Incentive remuneration systems  430 17.2 Trends in the use of teams  476
Summary  433 Committees 476
Key terms  434
Project teams and task forces  476
Applied activities  434
Cross‐functional teams  477
Endnotes 435
Acknowledgements 437 Employee involvement teams  477
Virtual teams  477
CHAPTER 16 International teams  479
Self‐managing work teams  479
Individuals, job design 17.3 Team processes and diversity  482
and stress  438 What is an effective team?  482
IBM and NAB introduce ‘mindfulness’ among Stages of team development  485
staff 439 Norms and cohesiveness  487

viii  CONTENTS
 Task and maintenance needs  489 Applied activities  537
Communication networks  489 Endnotes 537
17.4 Decision‐making in teams  491 Acknowledgements 540
How teams make decisions  491
Assets and liabilities of group decisions  492 CHAPTER 19
Creativity in team decision‐making  493 Entrepreneurship and
17.5 Leading high‐performance teams  494
The team‐building process  494
new ventures  541
Team leadership challenges  495 Asylum seekers could be our next wave of
Summary 497 entrepreneurs 542
Key terms  498 Introduction 543
Applied activities  499 19.1 The nature of entrepreneurship  543
Endnotes 499 Characteristics of entrepreneurs  547
Acknowledgements 501 Diversity and entrepreneurship  549
The role of governments in entrepreneurship  549
CHAPTER 18 19.2 Entrepreneurship and small business  550
Leading and managing Internet entrepreneurship  551
International business entrepreneurship  552
change 502 Family businesses  553
Snail mail versus email: changes afoot at Why small businesses fail  554
Australia Post  503 19.3 New venture creation  555
Introduction 504 Life cycles of entrepreneurial organisations  555
18.1 Challenges of change  505 Writing the business plan  556
Strategic competitiveness  506 Choosing the form of ownership  557
Continuous innovation  507 Business start‐up finance  558
Characteristics of innovative 19.4 Entrepreneurship and business
organisations 509 development 558
Innovation and industry clusters  509 Intrapreneurship and large enterprises  559
18.2 Organisational change  511 Business incubation  559
Change leadership  512 Summary 560
Models of change leadership  512 Key terms   560
Planned and unplanned change  514 Applied activities  561
Forces and targets for change  514 Endnotes 561
18.3 Managing planned change  516 Acknowledgements 563
Phases of planned change  516
Choosing a change strategy  518 CHAPTER 20
Understanding resistance to change  521
Operations and services
Dealing with resistance to change  522
Managing technological change  522 management 564
Virtual organisations  523 Forget siestas, ‘green micro‐breaks’ could boost
18.4 Organisation development  526 work productivity  565
Organisation development goals  526 Testing ‘micro‐breaks’  565
How organisation development works  527 Healthier workplaces and cities  565
Organisation development interventions  528 Introduction 566
Organisational transformation  530 20.1 Operations management essentials  567
The Prosci® ADKAR® model  531 Productivity 567
18.5 Personal change and career Competitive advantage  567
readiness 532 Operations technologies  568
Sustaining career advantage  533 20.2 Value chain management  570
Summary 535 Value chain analysis  571
Key terms  536 Supply chain management  571

CONTENTS  ix
 Inventory management  572 Case study 4
Break‐even analysis  573
IKEA’s international strategy  595
20.3 Service and product quality  574
Customer relationship management  574 Case study 5
Quality management  577 The IT industry: who says there’s no such thing
Statistical quality control  578 as a free lunch? 599
20.4 Work processes  578
How to re‐engineer core processes  579 Case study 6
Process‐driven organisations  580 Quality can endure despite environmental
20.5 Physical factors in the workplace  581 shocks 602
Lighting the workplace  581
Ergonomic workstations  581 Case study 7
Climate control  581 Nespresso 605
Summary 583
Key terms  583
Case study 8
Applied activities  584 A flood of decisions  608
Endnotes 585
Acknowledgements 586 Case study 9
Scenario planning at Royal Dutch Shell  611

Case study 10
Case study 1 Sick leave costing employers  614
Economic downturns and the business
environment 587 Case study 11
Twitter — rewriting (or killing)
Case study 2 communication? 617
Boost Juice Bars in a global, digital
marketplace 590 Case study 12
Zara International: fashion at the speed of
Case study 3 light 620
Coal seam gas: the sustainable business
response 592

x  CONTENTS
ABOUT THE AUTHORS
John R. Schermerhorn Jr
Dr John R. Schermerhorn Jr is the Charles G. O’Bleness professor of management emeritus in the
College of Business at Ohio University. John earned a PhD in organisational behaviour from North-
western University, an MBA (with distinction) in management and international business from New
York University, and a BS in business administration from the State University of New York at Buffalo.
He previously taught at Tulane University, the University of Vermont, and Southern Illinois University at
Carbondale, where he also served as head of the Department of Management and associate dean of the
College of Business Administration.
Management educators and students alike know John as the author of several leading international
textbooks, including Exploring Management and Management 13th edition, and as a senior co-author
of Organizational Behavior 13th edition and Core Concepts of Organizational Behavior. John has
also published numerous articles in leading management journals and is a member of the Academy of
Management.

Paul Davidson
Dr Paul Davidson is associate professor of management in the Queensland University of Technology
Business School. He has 35 years’ university teaching experience and more than 100 academic publi-
cations, including nine books, to his credit. He has studied and taught at the University of Queensland,
the University of Birmingham, the University of Geneva, the University of Otago, Stanford University
and Southern Cross University. He has degrees in science (psychology), theology and business admin-
istration. In addition, Paul has consulted and taught nationally and internationally to many public and
private sector organisations, including the Sheraton Hotel Group in Australia and Asia, Royal Dutch
Shell in the Netherlands and the United States, and extensively to the Royal Australian Navy in Sydney.
He has been a visiting professor in management at Reims Management School and Grenoble Graduate
School of Business in France, Jyväskylä Polytechnic in Finland, Euromed Business School at Marseille
in France, and at the University of Texas at Austin in the United States.
His doctoral research was in the area of management education and development, and his current
research interests are in the development of HR management competencies and international human
resource management, and in project management. Prior to his academic career, Paul was an officer in
the Royal Australian Air Force and a clinical psychologist. Between academic appointments, he has been
chief executive officer of a company with some 650 employees. He was a state councillor (1994–2007)
and president (2000–05) of the Australian Human Resources Institute in Queensland, and chairman of
its National Accreditation Committee (2004–10), as well as being a fellow of the Australian Human
Resources Institute. He is also a fellow of the Australian Institute of Company Directors.

Aharon Factor
Aharon Factor began his academic career studying at Kings College, University of London, and holds
a PhD from the Aarhus Business School, University of Aarhus, in Denmark. He has a diverse working
background and has recently opened a sustainability consulting firm, Sustainable SME, after a period
engaging in academic teaching and research. He most recently worked as a lecturer in business sustain-
ability at ­Swinburne University of Technology, and was previously at Curtin University of Technology
and the University of New England. His field of research is focused upon the sustainability behav-
iours of ­Australian small- and medium-sized businesses. He has worked in this area with the Australian
Government in Canberra and the Australian Academy of Sciences.

ABOUT THE AUTHORS xi

Peter Woods
Dr Peter Woods is an associate professor in the Department of International Business and Asian Studies,
Griffith University Business School. His teaching has been recognised by multiple awards, including the
prestigious 2010 Australian Learning and Teaching Council Award for Teaching Excellence (Interna-
tionalisation); Griffith University’s Excellence in Teaching Award (Business and Law) in 2010; and he
was a co-recipient of the Pro-Vice Chancellor’s award for innovation in 2011. In 2012, he was awarded
‘Brisbane’s Best Lecturer’ by the Golden Key International Honour Society. Peter has also served as
academic fellow at the Griffith Institute of Higher Education, helping academic staff to improve teaching
in the multicultural classroom. He specialises in teaching introductory management, intercultural man-
agement, the social context of Asian business and strategic management.
Peter has provided management consulting to multinational corporations, tertiary  education insti-
tutions, government agencies and private sector businesses. He has delivered cross-cultural training in
Abu Dhabi, Hong Kong, New Zealand and a number of Australian cities. Peter is in demand as a keynote
conference speaker internationally and nationally, providing training for tertiary educators in institutions
such as the University of Queensland, University of Canberra, QANTM college (Brisbane), University
of Victoria (Wellington, NZ), University of Canterbury (NZ) and many Indonesian universities. He is a
speaker of Mandarin Chinese and Bahasa Indonesian.
Prior to joining Griffith University, Peter worked for many years helping to establish a number of
non-government organisations, including the Multicultural Community Centre in Brisbane’s Fortitude
Valley. Prior to this, he worked at a range of hospitals as a supervising medical social worker, special-
ising in rehabilitation and aged care. Peter is a member of the Academy of Management, Griffith Asia
Institute, Australia Indonesia Business Council, Austcham Shanghai, and Griffith Academy of Learning
and Teaching Scholars.
Peter received his PhD in 2007 after researching ‘Cross-Cultural Performance Management in the
Expatriate Context’. His research interests include cross-cultural management, Chinese leadership, Indo-
nesian leadership, performance management, diversity management and teaching in the multicultural
context. He has received multiple international and Australian awards for his research and has published
in leading international academic journals, including the Journal of Business Ethics and Information
Technology and People.

Alan Simon
Dr Alan Simon is an associate professor in management in the University of Western Australia’s Busi-
ness School. He has 35 years’ university teaching experience and more than 80 publications to his credit,
including several books and monographs. He teaches introductory management, managing organisational
change, strategic capabilities and organisational success, and business research methods at the Univer-
sity of Western Australia. He has won Excellence in Undergraduate and Postgraduate Teaching Awards
at UWA, and was awarded the Pearson prize for Australian and New Zealand Academy of Management
Educator of the Year in 2012. His doctorate was awarded by Rhodes University and in it he developed a
new method for conducting research.
Alan has consulted widely to industry and government and he worked and consulted for the P&S
Business Consulting Group in Melbourne for many years. He has also delivered several short courses
on management, both in Australia and overseas. His client list, to name a few, includes the Australian
Institute of Management, Barclays Bank, Comcater CCE, Holden’s Engine Company, Lend Lease,
Main Roads WA, Mercor Consulting and Pioneer Concrete. He is a member of the Australian and New
­Zealand Academy of Management and the British Academy of Management.
He has played and coached cricket, played rugby union, and still plays competition squash and touch
rugby. He is also a boating enthusiast, holding an offshore skipper’s ticket.

xii  ABOUT THE AUTHORS

Ellen McBarron
Ellen McBarron is a lecturer in management and HR and is based at the Brisbane campus of the
Australian Catholic University. Her background includes 30 years in the finance industry, where she
left as a national training manager in 1999 to move to academia. She has taught at both undergraduate
and postgraduate levels in Burma, Thailand, Hong Kong and China. Ellen is an experienced manager
and leader, actively researching the organisation management of expatriates, and has experience with
international HRM, performance management, social entrepreneurship and refugee employability. She
is actively involved in social justice issues within the university community, and has regular consultancy
work with the Queensland Government and the mining industry. Ellen won a Carrick Award for the
development of a replicable and sustainable model that delivers empowering tertiary education to camp-
based refugees.

ABOUT THE AUTHORS xiii

APPLICATIONS AT
A GLANCE
The real-world examples in Management, 6th Asia–Pacific edition, have been carefully chosen to include
a balance of small to medium-sized enterprises and larger multinational corporations operating in our
region, and a diverse range of relevant product and service industries.

Chapter Opening vignette Features

1 The contemporary Managing the fresh Australian project management goes global (globalisation)
workplace food people The challenge of managing across cultures (diversity —
Asian)
First, let’s fire all the managers (counterpoint)
Workplace motivation and culture (counterpoint — Asian)

2 Historical foundations Looking back to look Classical management in the Haier Group (innovation —
of management forward Asian)
Blackmores rewards staff with slice of profits (innovation)
Asian leaders value creativity and intuition more than
New Zealand leaders (globalisation)
Think about your management theories (counterpoint)

3 Environment and Australia a diverse Interaction through screens replaces face-to-face contact
diversity country but older (technology)
workers still struggle Carbon taxes and emissions trading schemes (sustainability)
to find employment Greed and the big four banks (ethics)
Queensland women motorcycle police beating the odds
(counterpoint)
Diversity and the multicultural organisation in Singapore
(diversity — Asian)

4 International Selling out Australia Australian Volunteers International in Vietnam

dimensions of (globalisation — Asian)
management Challenges of a slowing Chinese economy for Australia
(counterpoint — Asian)
Australia, New Zealand and the United States (diversity)
Supply and demand of labour — a global phenomenon
(globalisation)

5 Ethical behaviour and Taking corporate Sustainability at CSR Limited (ethics)

social responsibility social responsibility to BHP’s Ok Tedi mine in Papua New Guinea (sustainability)
the next level Two views on nuclear energy and uranium mining
(counterpoint)
Singapore Compact tries to cover every angle (social
responsibility — Asian)
Corporate social responsibility in South-East Asia
(sustainability — Asian)
Two views on 7-Eleven: a sweatshop on every street corner
or income provider to Indian students? (diversity)

xiv  APPLICATIONS AT A GLANCE

Chapter Opening vignette Features

6 Sustainability Are you pouring Saving gorillas through phone design (sustainability)
money down the South-East Asia’s haze problem: will legislation improve
drain? sustainability practices in business? (globalisation — Asian)

7 Information and Where we are on the The downside of technology and global access
decision-making road to driverless cars (globalisation)
How earning the right to an opinion on the internet makes it
that much more valuable (technology)

8 Planning Planning for Port Planning for better health (social responsibility)

Shorts BP plans for a greener future (sustainability)
Creating an innovation culture (innovation)
The absurdity of planning in a rapidly changing global
economy (counterpoint)

9 Strategic Rise of the new tech Rescuing a flagging icon (globalisation)

management companies Why does strategy fail? (counterpoint)
Overseas diasporas — more than just ethnic restaurants
(diversity)
The last mover advantage (innovation)

10 Organising The ‘no manager’ How big is too big? (globalisation)

company: how does Crisis time for Australian mines (counterpoint)
it work? Discrimination in the workplace (diversity)
Innovation, rubbish and sustainability (sustainability)
Is it possible for a company to outgrow its name?
(technology)

11 Controlling Relying on quality to Organisation structure as a form of control in emerging

bring control (Asian) markets (social responsibility — Asian)
The Chinese perception of quality (counterpoint — Asian)

12 Human resource Others can learn from Business must show the lead on intergenerational
management the ways tech firms employment (diversity)
find and keep staff Discrimination at work in Asia (counterpoint — Asian)
Corporate scandals (ethics)
Is psych testing a great tool or a great disappointment?
(counterpoint)
From chief executive to philanthropist: a personal story
(social responsibility)

13 Leading Traits of an ethical Why we should fight at work — leadership style

leader (counterpoint)
The death of an innovator (technology)
Why Australian business needs another Gail Kelly (diversity)

14 Communication and Communication in a The fragility of organisational reputation (technology)

interpersonal skills digital age Managers as storytellers (counterpoint)

15 Motivation and Culture Amp pioneers Glaxo exposed in Chinese scandal (globalisation — Asian)
rewards employee share BHP Billiton: creating opportunities for diversity and
options inclusiveness (diversity)
LinkedIn goes local in Sydney (globalisation)
Can extra benefits compensate for money? (counterpoint)

(continued)

APPLICATIONS AT A GLANCE xv
(continued)

Chapter Opening vignette Features

16 Individuals, job IBM and NAB Job satisfaction in China (social responsibility — Asian)
design and stress introduce Similarities in job satisfaction in Malaysian and Indonesian
‘mindfulness’ among organisations (globalisation — Asian)
staff The Australian Network on Disability: recognising disability
as a diversity issue (diversity)
Helping business identify mental stressors (ethics)
Work–life balance in Australia (social responsibility)

17 Teams and teamwork Telstra and Cisco Social work in Australia: virtual teams offer supervision
create a new approach (technology)
to teamwork Reward the team or the individual? (counterpoint)
Working in multicultural teams (diversity)

18 Leading and Snail mail versus First there was a brick, now there’s an iPhone (technology)
managing change email: changes afoot Australia — an innovative country (innovation)
at Australia Post Potential in constraints: finding other avenues to exploit in a
flourishing industry (sustainability)
Chance and fate determine organisational survival
(counterpoint)
Change needed in Australian Defence Force culture
(diversity)

19 Entrepreneurship and Asylum seekers could Entrepreneurial success stories (innovation)

new ventures be our next wave of Indigenous entrepreneurship and self-employment on the
entrepreneurs rise (diversity)
Mildura’s first coworking space opens for local entrepreneurs
(technology)

20 Operations and Forget siestas, Finding a unique path for Australia’s manufacturing future
services management ‘green micro-breaks’ (sustainability)
could boost work Corporate social media needs to be two-way communication
productivity (technology)
Will your next phone be Fair Trade? (technology)

xvi  APPLICATIONS AT A GLANCE

CHAPTER 1

The contemporary
workplace
LEA RNIN G OBJE CTIVE S

1.1 What are the challenges in the contemporary workplace?

1.2 What are organisations like in the contemporary workplace?
1.3 Who are managers and what do they do?
1.4 What is the management process?
1.5 How do you learn essential managerial skills and competencies?
Managing the fresh food people
Since being founded in Sydney in 1924, Woolworths Ltd had grown to be number two of the top 2000
companies in Australia by 2015.1 It now dominates the hypercompetitive Australian supermarket sector
(worth in total 6 per cent of the nation’s gross domestic product). With its 3000 stores across Australia
and New Zealand, and more than 190 000 employees, it serves over 28 million customers each week.
Operating profits exceed $60 billion.2 However, Woolworths and its chief competitor Wesfarmers (owner
of Coles Group Limited) now face efficient and successful rivals: the German discount supermarket Aldi
and the US membership warehouse club Costco. Both Woolworths and Wesfarmers exhibit high levels
of total liabilities compared to their total tangible assets, due to goodwill and intangibles making up a
significant proportion of total assets. Although both have strong operational cash flows, this may mean
they carry higher risk in a trade downturn if they need to rely on increasing borrowings to fund capital
expenditure.3 Add to this the predictions that 2015–20 will offer challenging conditions for the retail
sector generally, and the task facing the Woolworths management team is significant. For example, does
it stick with its espoused mission statement: ‘[Woolworths is] built on a passion for retail, attention to
detail, working hard, ensuring the safety of our customers and our people, and having fun. Our mission
is to deliver to customers the right shopping experience — each and every time’? 4
It sounds good, but is the customer really likely to prefer an explicit mission for the employees to ‘have fun’
over an option to have lower prices? What might this ‘right shopping experience’ be? Rivals with lower prices
pose a threat. Fresh food, convenience and value for money might not be enough. How good does Woolworths
have to be to attract customers from its competitors, or at least to retain those customers it still has?
What are the options available to the decision‐makers? Does it offer a scheme to build customer inti­
macy, and thus loyalty and share of the shopping basket? Does the management team invest time and
money in innovative software to extract value for the shareholders from the digital revolution? Will
mobile platforms and online shopping change everything or just some things? Will flatter organisational
structures improve internal communication and capitalise on implicit knowledge? In short, is there a
management choice between strategies aimed at increasing customer intimacy and loyalty, those aimed
at operational efficiency and those targeting organisational integrity and brand leadership?
Woolworths is not alone in confronting such challenges. What kind of workplaces are likely to be
needed to support this new trend for innovation and flexibility, with improved efficiency and prod­
uctivity? What can managers do to create them?

QUESTION
How has the workplace changed in the past twenty years and what are the implications of the changes? Where
are the trends likely to take us in the next twenty years?

2  Management
Introduction
The 21st century has brought demands for a new workplace — one in which everyone must adapt to a
rapidly changing society with constantly shifting expectations and opportunities. Learning and speed are
in; habit and complacency are out. Organisations are evolving, as is the nature of work itself. The global
economy, is sustained by innovation and technology. Even the concept of success — personal and organ­
isational — is changing as careers take new forms and organisations transform to serve new customer
expectations. Such developments affect us all, offering both unparalleled opportunity and unprecedented
uncertainty. In this age of continuous challenge, a compelling message must be heard by all of us —
smart people and smart organisations create their own futures!5
In the quest for a better future, the best employers share an important commitment to people. Amid
high performance expectations, they offer supportive work environments that allow people’s talents to be
fully used while providing them with both valued rewards and respect for work–life balance. In the best
organisations employees benefit from flexible work schedules, onsite child care, onsite health and fit­
ness centres and domestic partner benefits, as well as opportunities for profit sharing, cash bonuses and
competitive salaries. In short, the best employers are not just extremely good at attracting and retaining
talented employees. They also excel at supporting them in a high‐performance culture workplace so that
their talents are fully used and their contributions highly valued.
Today’s dynamic new workplace also has huge implications for how individuals manage and shape
their careers. Employees are increasingly committed to their own development. Their aim is continuous
improvement in order to optimise their chances of employment. Fewer and fewer employees depend on
an organisation for their identity and they are no longer committed to just one employer.
After studying high‐performing companies, management scholars Charles O’Reilly and Jeffrey Pfeffer
concluded that those companies achieve success because they are better than their competitors at getting
extraordinary results from the people working for them. ‘These companies have won the war for talent’,
they say, ‘not just by being great places to work — although they are that — but by figuring out how
to get the best out of all of their people, every day’.6 This, is what Management and your management
course are all about. Both are designed to introduce you to the concepts, themes and directions that are
consistent with the successful management of organisations in today’s high‐performance work settings.
As you begin, consider further the challenge posed by the title of O’Reilly and Pfeffer’s book: Hidden
Value: How Great Companies Achieve Extraordinary Results with Ordinary People. Let your study of
management be devoted to learning as much as you can to prepare for a career‐long commitment to get­
ting great things accomplished through working with people.

1.1 Working in today’s economy

LEARNING OBJECTIVE 1.1 What are the challenges in the contemporary workplace?
As painful as the global financial crisis became, we now live and work in a post–global financial crisis
economy, marked by challenging opportunities and dramatic uncertainty.7 It is a networked economy
in which people, institutions and nations are increasingly influenced by the internet and continuing
developments in information and communications technology (ICT).8 Where once the internet was
the key to an exciting future, understood by only a few, it is now expected as a threshold technology
and relied upon routinely by the many. Massive connectivity between systems and people and com­
prehensive automation of seemingly all our everyday processes is now simply ‘business as usual’.
The new economy is a global economy whose scope increases daily. The nations of the world and
their economies are increasingly interdependent, and this globalisation generates great challenges as
well as opportunities. The new economy is knowledge‐driven. We must all accept that success must
be forged in workplaces reinvented to unlock the great potential of human intelligence. The high‐per­
formance themes of the day are ‘empowerment’, ‘respect’, ‘participation’, ‘flexibility’, ‘teamwork’,
‘creativity’ and ‘innovation’.

CHAPTER 1 The contemporary workplace  3

 Undoubtedly, the new economy is performance driven. Expectations of organisations and their
members are very high. Success is not guaranteed, but must be earned in a society that demands nothing
less than the best from all its institutions. Organisations are expected to continuously excel on perfor­
mance criteria that include innovation, concerns for employee development and social responsibility, as
well as more traditional measures of profitability and investment value. When organisations fail, cus­
tomers, investors and employees are quick to let them know. For individuals, there are no guarantees
of long‐term employment. Jobs are subject to constant change. Increasingly they must be earned and
re‐earned every day through performance and accomplishments. Careers are being redefined in terms
of ‘flexibility’, ‘skill portfolios’ and ‘entrepreneurship’. Today, it takes initiative and discipline and con­
tinuous learning to navigate one’s own career path. Tomorrow’s challenges are likely to be even greater.
What then are some of the challenges ahead for managers?

Intellectual capital
The dynamic pathways into the future are evident among new benchmarks being set in and by pro­
gressive organisations everywhere. Many will be introduced throughout Management. What will become
evident is that the ultimate foundations of an organisation’s success are its people — what they know,
what they learn and what they do with it. They carry not just the corporate memory, but also represent
the firm’s intellectual capital — defined as the collective brain power or shared knowledge of a work­
force that can be used to create value.9 Indeed, the ultimate elegance of the new workplace may well be
its ability to combine the talents of many people, sometimes thousands of them, to achieve unique and
significant results.
This is the age of the knowledge worker — someone whose mind is a critical resource for employers
and who adds to the intellectual capital of the organisation.10 If you want a successful career in the new
economy you must be willing to reach for the heights of personal competency and accomplishment. You
must be a self‐starter, willing to learn from experience continuously, even in an environment that grows
daily more complex and challenging.

Globalisation
Japanese management consultant Kenichi Ohmae suggested that the national boundaries of world busi­
ness have largely disappeared.11 At the very least we can say that they are fast disappearing. Who can
state with confidence where their favourite athletics shoes or the parts for their personal computer were
manufactured? Does it matter anyway? More and more products are designed in one country, their com­
ponent parts are made in others and the assembly of the final product takes place in yet another country.
Top managers at Apple, Sony and other global corporations, for example, have no real need for the word
‘overseas’ in everyday business vocabulary. They operate as global businesses that view themselves
as equidistant from customers and suppliers, wherever in the world they may be located. ‘Overseas’
becomes a permanent state of mind, not a nation state on a map. With their vast populations and particu­
larly vibrant middle classes, India and China are likely to become even more significant producers and
consumers. Managers in so‐called ‘Western’ countries find they need to think globally, act locally, and
then incorporate India and China in any strategic decision.
This is part of the force of globalisation, the worldwide interdependence of resource flows, product
markets and business competition that characterises our new economy.12 In a globalised world, coun­
tries and peoples are increasingly interconnected through the news, in travel and lifestyles, in labour
markets and employment patterns, and in business dealings. Government leaders now worry about
the competitiveness of nations just as corporate leaders worry about business competitiveness.13 The
world is increasingly arranged in regional economic blocs, with North and Latin America, Europe and
the Asia–Pacific region as key anchors, and with Africa yet to claim its economic potential. Like any
informed citizen, you too must understand the forces of globalisation and be prepared to participate
in it.

4  Management
 GLOBALISATION

Australian project management goes global

In spite of a worldwide decline in the resources
sector, Ausenco, a Brisbane‐based engineering
and project management company, has
achieved global success through a careful
and well-planned approach to business. The
company was founded by Zimi Meka and
Bob Thorpe in Brisbane in 1991. It proved
remarkably successful, with a ‘can do’ culture
built on providing superior levels of innovative
professional engineering services to its clients,
both large and small. Their work ranged from
minor pre‐feasibility studies to assessing the
viability of a proposed project, to designing, constructing and commissioning complex projects in some of
the world’s most challenging and remote regions. It is this approach and strong business ethos that has seen
their installed capital value running into the billions.
In 2008, the company expanded by purchasing US engineering companies Sandwell, Vector and PSI.
The expansion provided the company with comprehensive capabilities in everything from consulting
in the initial design phase to slurry transport and tailings dams. Still headquartered in Brisbane, with
over 3000 staff globally and growing, Ausenco delivered major mining services projects in Canada and
China, and a high‐tech copper project in Laos, along with other successful projects in Africa, Australia
and South America. By 2015 the ‘resources boom’ was all but over and the Chinese steel mills were
slowing, along with the price paid for iron ore. Coal, oil and gas prices were all reduced by 30–50 per
cent over the previous five years, and the outlook remained stubbornly ‘subdued’. Community resis-
tance to coal mines in pastoral regions sapped the will of governments and miners alike.
Previously, careful focus on its activities, organisational capabilities and the continuing professional devel-
opment of its staff, plus the flexibility to meet client needs while still providing innovative project solutions,
had meant that Ausenco survived the financial downturn in good shape, and with an optimistic forecast for
its share price. However, a lack of new projects gradually took its inevitable toll, and Ausenco management
had to contemplate layoffs and moving operations into new sectors such as renewable energy projects.
Nowadays, providing sustainable solutions for a cleaner environment has become the company’s objective.
The key to Ausenco’s success has certainly been the careful management of its operations and mutually
productive relationships with its clients. Zimi Meka, Ausenco’s CEO, was named by Engineers Australia
magazine as one of Australia’s most influential engineers in 2015 and has earned his place in the ranks of
Australia’s most successful managers — even through the tough times.

QUESTION
Thinking about the challenges of managing in a fast‐moving technology‐rich multinational environment,
how will the manager of tomorrow be successful? We can and should learn from the past, but what can
we learn from the future? Where is it taking us?

Technology
The global economy is not the only beneficiary of developments in new technology. Who has not been
affected by the internet? Those who are not willing to become a participant in the exploding world of
ICT will be left behind. It is a mandatory requirement in the contemporary workplace.
We now live in a technology‐driven world dominated by interactive technologies that are compact,
visually appealing and versatile — offering users conveniences such as remote internet access at the
click of a button. Computers allow organisations of all types and sizes, locally and internationally, to
speed transactions and improve decision‐making.14 From the small retail store to the large multinational
firm, technology is an indispensable part of everyday operations — whether you are managing the inven­
tory, making a sales transaction, ordering supplies or analysing customer preferences. Recently, scanning
technologies have become integral to streamlining operations for many businesses.

CHAPTER 1 The contemporary workplace  5

 Local and international governments increasingly take advantage of the internet. When it comes to
communication — within the many parts of an organisation or between the organisation and its suppliers,
customers and external constituents — geographical distances hardly matter anymore. Computer‐based
networking can bring together almost anyone from anywhere in the world at the touch of a keyboard.
People in remote locations can hold meetings, access common databases, share information and files in
real time, and make plans and solve problems together — all without ever meeting face to face.
As the pace and complexities of technological change accelerate, the demand for knowledge workers
with the skills to use technology to full advantage is increasing. The information‐based economy is dra­
matically changing employment. The fastest growing occupations are computer‐related. Workers with
ICT skills are in demand — low‐skill workers displaced from declining industries find it difficult to find
new jobs offering adequate pay. In a world where technological change is occurring at an accelerating
rate, computer literacy must be mastered and continuously developed as a foundation for career success.
For example, around 90 per cent of Australia and New Zealand’s population are internet users. The per­
centages are similarly high in Hong Kong and Singapore, with 80 and 82 per cent respectively.15

Diversity
Along with many other countries in the world, the populations of both Australia and New Zealand are ageing,
due to people having fewer children and generally living longer than in past generations. Consider this fact:
currently, about 1 in 10 people in both countries are aged over 65. By 2050, there will be as many people
aged over 65 in both countries as there are people between 15 and 40.16 The Australian workforce consists
of a large proportion of employees aged over 45 years. The global financial crisis has severely impacted
superannuation funds, so much so that many pre‐retirees have deferred their retirement, and many who have
retired have sought to rejoin the workforce. Consequently, as increasing numbers of the workforce belong
to older age groups, it could be expected that age could become an important basis for the development of
diversity management initiatives. However, research on 7500 Australian companies has found that less than
one in three are attempting to attract mature‐age workers.17 This is surprising in view of the benefits when
older workers are employed: more taxes are paid, wisdom and experience are contributed to the workplace,
and productivity increases. Without an increase in the participation rate by mature‐age workers, the burden of
pensions and healthcare will increase steeply. At the Older Australians At Work Summit, the Age Discrimi­
nation Commissioner, Susan Ryan, stated: ‘Rather than inflicting an intolerable burden on the declining pro­
portion of taxpaying workers aged less than 60 years, we can spread the load by a straightforward change: by
lengthening the working life of all Australians’.18 Furthermore, it was reported that:
Increasing employment of older people will have extraordinary benefits. An increase of 5 per cent in
paid employment of Australians over the age of 55 would boost the economy by $48 billion  .  .  .  each year.
Such a change presents opportunities for businesses as well. As a cohort, older Australians are diverse,
talented, energetic, and willing to work.19

The term workforce diversity is used to describe the composition of a workforce in terms of differences
among the members.20 These differences include gender, age, race, ethnicity, religion, sexual orientation and
able‐bodiedness. In Australasia the legal context of human resource management is very strict in prohibiting
the use of demographic characteristics for staffing decisions such as hiring and promotion. Discrimination
against older employees continues in some sectors. Australasian organisations have been reluctant to hire
older staff in spite of evidence to indicate that beliefs in their lessened capacity are false. Similarly, other
forms of discrimination persist, despite laws designed to prevent them. This is discussed in later chapters.
The issues of managing workforce diversity extend beyond legal considerations. Today’s increasingly
diverse and multicultural workforce offers great opportunities with respect to potential performance gains.21
By ‘valuing diversity’ organisations can tap into a rich talent pool and help people work to their full potential.
But what does this really mean? It should mean ‘enabling every member of your workforce to perform to his
or her potential’. A vice‐president at Avon once posed the challenge of managing diversity this way: ‘con­
sciously creating an environment where everyone has an equal shot at contributing, participating, and most of

6  Management
all advancing’.22 Although easy to say, meeting social responsibilities to truly value diversity has proven dif­
ficult to accomplish. Even though progress in equal opportunity continues to be made, lingering inequalities
remain in the workplace. Not only will the composition of the workforce change in the future, but the nature
of the relationships people have with organisations will also continue to change. The past two decades have
been characterised by an upward trend in all types of non‐standard forms of employment. There has been an
increase in casual work, temporary work, outsourcing and offshoring, the use of agencies and other labour‐
market intermediaries. Given the continuing need for organisations to respond quickly in the marketplace, it
could be expected that these forms of flexible employment will increase. Differences in approaches to pay,
conditions of employment and opportunities for development are ready examples of the inequality this can
involve.23 Diversity bias can still be a limiting factor in too many work settings. Managing a diverse work­
force needs to take into account the different needs of members of different identity groups.
Prejudice, or the holding of negative, irrational opinions and attitudes regarding members of
diverse populations, sets the stage for diversity bias in the workplace. This bias can take the form of
discrimination that actively disadvantages people by treating them unfairly and denying them the full
benefits of organisational membership. It can also take the form of any barrier or ‘ceiling’ that prevents
people from rising above a certain level of organisational responsibility. Researcher Judith Rosener sug­
gests that the organisation’s loss is ‘undervalued and underutilised human capital’.24

DIVERSIT Y

The challenge of managing across cultures

Managing in an international environment is a
significant challenge for organisational leaders
in multinational corporations. Managing across
cultures is never easy, and undertaking inter-
national leadership roles can be particularly
difficult. Global supply chains, marketing
strategies and human resource management
approaches require constant coordination and
fine‐tuning. Whether you wish to lead a global
corporation one day, or simply hope to develop
international leadership skills, an overseas job
assignment can provide an array of new skills
and experiences.
A survey of 300 Australian general managers found that the traditional highly individualistic, consultative
Australian leadership style is inappropriate when transferred to the hierarchical, group‐oriented
cultures of many Asian countries. A global mindset is required in which managers adapt their style to the
cultures in which they operate. This mindset can be developed through regular exposure to the business
cultures of Asia–Pacific, and an international assignment is one obvious way to achieve this. Undertaking
international management and cross‐cultural subjects at university is also highly recommended.
Workers in Asian countries can often be expected to show great respect to seniors and those in
authority. In contrast, in Western cultures such as in Australia and New Zealand, workers may be
expected to emphasise self‐interests more than group loyalty. Outsiders may find that the workplace
in more ‘masculine’ societies, such as Japan, displays more rigid gender stereotypes. Also, corporate
strategies in more long‐term cultures are likely to be just that — more long‐term oriented. Potential
reasons for these phenomena are discussed in relation to the well‐known international study conducted
by Geert Hofstede in the chapter on the international dimensions of management.25

QUESTION
By definition, cultures are different from each other, with differing values, attitudes, feelings and behaviours.
Is it possible to have an approach to management that flies over all these differences, like a one‐size‐fits‐all
theory that’s infinitely adaptable?

CHAPTER 1 The contemporary workplace  7

Ethics
When a well‐known business executive goes to prison for some corporate misdeed, we notice. When a
major environmental catastrophe occurs because of a business misdeed, we notice. In 2015, Volkswagen
famously admitted to systematic fraud by installing software in 11 million of its diesel cars to allow
them to pass emissions tests. Once the cars were out of the laboratory the software deactivated their
controls and the engines spewed fumes at up to 40 times the permitted level.26 The Volkswagen CEO,
Martin Winterkorn, resigned but the reputational and financial damage to the company was immense. It
was to Volkswagen what Deepwater Horizon was to BP — at least that was an accident. Volkswagen’s
deception was deliberate.
Increasingly, we notice the ‘moral’ aspects of the everyday behaviour of organisations, their executives
and employees.27 Society is becoming strict in its expectation that social institutions conduct their affairs
according to high moral standards. A global recession, coupled with a spate of corporate failures, poor
corporate governance and the apparent indifference of some businesspeople to shareholders, employees
and local communities are reasons for some businesses’ poor image. Add to this a negative reaction to
globalisation, cost‐cutting and the gap between the wages of workers and those of senior executives, and
a bleak picture emerges regarding the image of Australian big businesses.28 These issues have also put
the spotlight on the quality and moral standards of Australian boards and managers. Equally, the col­
lapses of financial services organisations in and after the turmoil of the global financial crisis has raised
serious questions about management incompetence, greed, corruption and CEO remuneration; indeed,
about corporate ethics generally.
The pressure for ethical and socially responsible conduct is on, and justifiably so. Organisations and their
managers are becoming more responsive. Quite simply, they will not be able to keep customers if they do
not treat them well and act in ways that are consistent with society’s values. The expectations character­
istic of this new century include sustainable development and protection of the natural environment; protec­
tion of consumers through product safety and fair practices; and the protection of human rights in all aspects
of society, including employment.29 Workplace concerns include equal employment opportunity, equity of
compensation and benefits, participation and employee involvement, privacy and due process, job security,
occupational health and safety, and freedom from sexual harassment. Employees are demanding more self‐
determination on the job — they want to be part of everyday decisions on how and when to do their jobs, and
they expect real opportunities to participate in job‐related decisions. Job security is a concern at a time when
many organisations are cutting back their full‐time workers and hiring more part‐time or casual workers.
Ethical and social responsibility issues involve all aspects of organisations, the behaviour of their
members and their impact on society. You must be ready to understand the ethical context of working in
the new economy and you must be prepared to perform in ways that fulfil your ethical commitments as
well as those of your employer. Consider, for example, the ethical framework set by this statement from
the credo of Johnson & Johnson:
We are responsible to the communities in which we live and work and to the world community as well.
We must be good citizens — support good works and charities and bear our fair share of taxes. We must
encourage civic improvements and better health and education.30

Careers
The nature of work has changed, and the challenges of change make personal initiative and self‐renewal
the demands du jour. The career implications of the new employment patterns characteristic of this
dynamic environment are extremely significant. British management scholar Charles Handy suggested
the analogy of the Irish shamrock to describe and understand them.31
Picture an organisation as a shamrock with three leaves. Each leaf has a different career implication.
•• In one leaf are the core workers. These full‐time employees pursue traditional career paths. With
success and the maintenance of critical skills, core employees can advance within the organisation and
may remain employed for a long time.

8  Management
•• In the second leaf of the shamrock organisation are contract workers (including daily or weekly hire).
They perform specific tasks as needed by the organisation and are compensated on a contract or fee‐
for‐services basis rather than by a continuing wage or salary. Contract workers sell a skill or service
to employers — they are likely to work for many different employers over time and may work for
several employers at the same time.
•• In the third leaf are the casual and part‐time workers who are hired only as needed and only for a
set number of hours. Employers expand and reduce their casual staff as business needs rise and fall.
Casual and part‐time work can be a training ground for the full‐time work of the first leaf, when
openings are available. Other modes of employment include outworkers (e.g. working from home),
shift workers and fly‐in‐fly‐out workers.
People need to be prepared to work in any of the employment modes. The typical career is not uni­
formly full‐time and limited to a single large employer. It is more likely to unfold opportunistically and
involve several employment options over time. ‘Free agency’ is a term used to describe career man­
agement in the new workplace.32 What it means is that workers must be prepared to change jobs and
employers over time, but their skills must be portable and of current value in the employment markets.
Skills are not gained once and then forgotten — they must be carefully maintained and upgraded all the
time. A career consultant suggested that careers be approached with the analogy of a surfer: ‘You’re
always moving. You can expect to fall into the water any number of times, and you have to get back up
to catch the next wave’.33
Handy’s advice is to maintain a ‘portfolio of skills’ that are always up to date and valuable to potential
employers, to build a portfolio that includes a professional résumé and work samples that demonstrate
critical managerial skills and competencies. A well‐constructed student portfolio can be an important
source of advantage in competitive markets when searching for jobs.

CRITICAL ANALYSIS

1. Think back to how things have changed in the past five years, in terms of the role of the
manager; at least, as you perceive it. Taking the big‐picture view, what changes do you see? For
example, is there greater or lesser emphasis on people against profit, or on technology against
entrepreneurship? Keep these thoughts in mind as you progress through the chapter.
2. Diversity management might be seen as a necessary encumbrance — something managers do
because they have to — or it may be seen as a source of competitive advantage. What do you
think? Does it have your grudging acceptance, profit‐oriented approval, or ethical support? What
difference does this make?
3. Shareholders express resentment when corporate bosses take bonuses while their companies are
appealing for government bailout funding. Are CEO packages in the many millions really justifiable?
Is there an ethical dimension to executive remuneration, or should companies just pay whatever the
market will bear to get the managers they want?

1.2 Organisations in today’s workplace

LEARNING OBJECTIVE 1.2 What are organisations like in the contemporary workplace?
The world of work is a ‘wired’ world, one tied to the connectivity made possible by ICT. Manage­
ment consultant Tom Peters says that in coming years, companies of all sizes will have virtual teams
spread across the globe who will never meet in person. He describes work in new organisations
this way:

Every project will call for a new team, composed of people with specially tailored skills  .  .  .  Every player
on this team will be evaluated  .  .  .  for the quality and uniqueness and timeliness and passion of her or
his contribution.34

CHAPTER 1 The contemporary workplace  9

 Organisations in the new workplace are challenging settings, but exciting for their great opportunities
and possibilities. Peters calls it a ‘wired, wild new age of work’. Whether these organisations are large
or small, business or not‐for‐profit, each should make real and positive contributions to society. We each
have a stake in making sure that they perform up to expectations. For individuals, organisations are also
the main source of careers and economic livelihoods. In his article ‘The company of the future’, Harvard
Professor Robert Reich says:

Everybody works for somebody or something — be it a board of directors, a pension fund, a venture
capitalist or a traditional boss. Sooner or later you’re going to have to decide who you want to work for.35

In order to make good employment choices and perform well in a career, a fundamental understanding
of the nature of organisations in the new workplace is required. Manager’s notepad 1.1 provides a first
look at some of the critical survival skills required to work well in the organisations of today  .  .  .  and
tomorrow.36

MANAGER’S NOTEPAD 1.1

Critical survival skills for the contemporary workplace

• Mastery. You need to be good at something; you need to be able to contribute something of value
to your employer.
• Contacts. You need to know people; links with peers and others within and outside the organisation
are essential to get things done.
• Entrepreneurship. You must act as if you are running your own business, spotting ideas and
opportunities, and stepping out to embrace them.
• Love of technology. You have to embrace technology; you do not have to be a technician, but you
must be willing and able to fully use IT effectively and creatively.
• Marketing. You need to be able to communicate your successes and progress, both yours personally
and those of your work group.
• Passion for renewal. You need to be continuously learning and changing and updating yourself to
best meet future demands.

What is an organisation?
Formally stated, an organisation is a collection of people working together to achieve a common pur-
pose.37 It is a unique social phenomenon that enables its members to perform tasks far beyond the reach
of individual accomplishment. This description applies to organisations of all sizes and types, from busi­
nesses such as Harvey Norman and eBay, to not‐for‐profit organisations such as a government agency
or community hospital. From society’s perspective they all share a broad purpose — providing useful
goods or services. Each in its own way should return value to society and satisfy customers’ needs in
order to justify continued existence.
Having a clear sense of purpose that is tied to ‘quality products’ and ‘customer satisfaction’ is increas­
ingly viewed as a source of organisational strength and performance advantage. Belief in a strong and
compelling organisational purpose is one of the reasons given by employees for remaining very loyal to
their employers.

Organisations as systems
Organisations can be seen as systems with subsystems, composed of interrelated parts that function
together to achieve a common purpose.38 It is helpful to view them as open systems that interact with
their environments in the continual process of transforming resource inputs into product outputs in the
form of finished goods and/or services. As shown in figure 1.1, the external environment is a critical

10  Management
element in the open‐systems view of organisations. It is both a supplier of resources and the source
of customers, and it has a significant impact on operations and outcomes. Both the boundaries of any
organisation — the supply side and the customer side — and its internal operations must be well man­
aged for performance success.

The environment The organisation The environment

supplies: creates: consumes:

Resource inputs Product outputs

People Finished
Money Workflows goods and/or
Materials turn resources services
Technology into outputs
Information
Transformation process

Consumer feedback

FIGURE 1.1 Organisations as open systems

The organisation is a structure in which people meet to work together for agreed purposes. As a
system, the organisation has inputs (raw materials, effort, ideas, etc.), strategy and policies, transform­
ation processes and outputs (finished goods and services), and operates with its own internal environ­
ment of culture and history. Depending on its legal status (e.g. the corporation is a ‘fictitious person’
that can own property), it can sue and be sued, and as such, the boundaries of the organisation become
significant. It can even survive beyond the lifetimes of its members.
In the open‐systems view of organisations feedback from the internal and external environments tells
an organisation how well it is doing. Factors in the environment interact with each other and influence
the manager’s intent and strategy. The overall aim is to meet and exceed customer expectations. Without
customer willingness to use the organisation’s products, it is difficult to operate or stay in business over
the long term. The ultimate test for any organisation rests with the marketplace — once people use a
product, the question becomes: Will they do so again  .  .  .  and will they recommend that others do the
same?

Organisational performance
Resources and customers are two critical elements in the open‐systems view of organisations. For an
organisation to perform well, resources must be put to good use and customers must be well served. The
notion of value creation is very important in this context. If operations add value to the original cost of
resource inputs, then a business organisation can earn a profit — that is, sell a product for more than the
cost of making it. A not‐for‐profit organisation can add wealth to society — that is, provide a public ser­
vice that is worth more than its cost (e.g. fire prevention services in a community). Value is created when
an organisation’s resources are used in the right way, at the right time and at minimum cost to create
high‐quality goods and services.
The best organisations use a variety of performance measures. On the customer side, high‐performing
organisations measure customer satisfaction and loyalty, as well as market share. On the employee
side, they measure retention, career development, job satisfaction and related issues.39 One of the most
common indicators of organisational performance overall is productivity, a summary measure of the
quantity and quality of work performance with resource use taken into account. Productivity can be
measured at the individual and group levels as well as at organisational levels.

CHAPTER 1 The contemporary workplace  11

 Figure 1.2 links productivity with two terms commonly used in management — effectiveness and
efficiency. Performance effectiveness is a measure of task output or goal accomplishment. If you are
working in the manufacturing area of a computer firm, for example, performance effectiveness may
mean that you meet a daily production target in terms of the quantity and quality of work done. By so
doing, the company as a whole can maintain its production schedule and meet customer demands for
timely delivery and high‐quality products. Performance efficiency is a measure of the resource cost
associated with goal accomplishment. Cost of labour is a common measure of efficiency. Others include
equipment use, facilities maintenance and returns on capital investment. Returning to the example of
computer assembly, the most efficient production is that accomplished at a minimum cost in materials
and labour. If fewer completed products are made in a day than the work group is capable of, this contri­
butes to inefficiency in organisational performance; similarly, if a lot of mistakes are made or materials
wasted in the assembly process, this is also inefficient work that raises costs for the organisation.

Effective but not efficient Effective and efficient

● Goals achieved ● Goals achieved
High
● Resources wasted ● Resources put to good use
● High productivity
Goal
attainment
Neither effective nor efficient Efficient but not effective
● Goals not achieved ● Goals not achieved
Low ● Resources wasted ● No wasted resources

Poor Good
Resource use

FIGURE 1.2 Productivity and the dimensions of organisational performance

The changing nature of organisations

Change is a continuing theme of this text, and organisations are certainly undergoing dramatic changes
today. Among the many forces and trends in the new workplace, the following organisational transitions
set an important context for the study of management.
•• Pre‐eminence of technology. New opportunities appear with each new development in ICT; they
continually change the way organisations operate and how people work.
•• Demise of ‘command‐and‐control’. Traditional hierarchical structures with ‘do as I say’ bosses
are proving too slow, conservative and costly to do well in today’s competitive environments.
Contemporary management relies on collaboration and coaching.
•• Focus on speed. Everything moves fast today; in business those who get products to market first have
an advantage, and in any organisation work is expected to be both well done and timely.
•• Adoption of networking. Organisations are networked for intense real‐time communication and coordination,
internally among departments and externally with partners, contractors, suppliers and customers.
•• Belief in empowerment. Demands of the new economy place premiums on high‐involvement and
participatory work settings that rally the knowledge, experience and commitment of all members.
•• Emphasis on teamwork. Today’s organisations are less vertical and more horizontal in focus; they are
increasingly driven by teamwork that pools talents for creative problem‐solving.
•• New workforce expectations. A new generation of workers brings to the workplace less tolerance for
hierarchy, more informality and more attention to performance merit than to status and seniority.
•• Concern for work–life balance. As society increases in complexity, workers are forcing organisations
to pay more attention to balance in the often‐conflicting demands of work and personal affairs.40

12  Management
 There are many forces driving these changes in organisations. Along with the pressures of compe­
tition, globalisation and emerging technologies, there also has been a revolution of sorts among modern‐
day consumers. They are unrelenting in their demand for quality products and services. Organisations
that fail to listen to their customers and fail to deliver quality goods and services at reasonable prices will
be left struggling in a highly competitive environment. References are made throughout this text to the
concept of total quality management (TQM) — managing with an organisation‐wide commitment to
continuous improvement and meeting customer needs completely.41 For the moment, the quality com­
mitment can be recognised as a hallmark of enlightened productivity management in any organisation.

CRITICAL ANALYSIS

1. What is the benefit of seeing an organisation as a system of inputs, transformation processes and
outputs? What difference would this view make to you as a manager?

1.3 Managers in today’s workplace

LEARNING OBJECTIVE 1.3 Who are managers and what do they do?
In an article entitled ‘Putting people first for organisational success’, Jeffrey Pfeffer and John F. Veiga
argued forcefully that organisations perform better when they treat their members well. However, they
also point out that too many organisations fail to operate in this manner and, as a consequence, suffer
performance failures. Pfeffer uses the term ‘toxic workplaces’ to describe organisations that treat their
employees mainly as costs to be reduced. True high‐performing organisations, he points out, treat people
as valuable strategic assets that should be carefully nurtured.42 The themes and concepts set forth in
Management support the view that high‐performing organisations operate with a commitment to people
as their most important assets. Importantly, in the day‐to‐day flow of events in any workplace, those who
serve in managerial roles have a special responsibility for ensuring that this commitment is fulfilled.

The organisational environment and the manager

Managers manage organisations that exist in relation to their environments; they need to know what’s in
the environment, and what opportunity or threat it poses.
Specifically, managers need to know the difference between the good and the bad — the dangerous
threats and the opportunities confronting the organisation in relation to what it wants to do (its mission
and objectives), using its abilities and assets (its strengths), and its constraints (its weaknesses).
This section is about the relationship between the organisation and its environment. These environ­
ments are very influential for management and need to be understood and factored into decision‐making.
The external environment is made up of all those elements that are of general relevance to the organ­
isation: the economy, political and legal factors, technology and the national culture.
Anything of specific relevance to the organisation is the specific or task environment. These are the
forces or other organisations in the environment whose behaviour influences the organisation — typically
those with whom an organisation conducts business.43 These are typically outside of the direct control of
the manager, so the challenge is to adapt and change according to the environment. According to Leon
Megginson, a Louisiana State University business professor, whose interpretation of the central idea
outlined in Darwin’s On the Origin of Species is typically and frequently invoked:

It is not the most intellectual of the species that survives; it is not the strongest that survives; but the
species that survives is the one that is able best to adapt and adjust to the changing environment in which
it finds itself.44

The point is that the ability to adapt to one’s environment is crucial to success and even survival.

CHAPTER 1 The contemporary workplace  13

The process of management
In overview, management is the process of bringing resources together to produce services or products.
Of course, the mere acquisition of resources is not sufficient for organisational success. It requires some
expression of:
•• the purpose of why the organisation intends to undertake some activity
•• a strategy of how this purpose can be carried forward
•• the coordinated application of what processes and operations are proposed
•• the use of specified resources and raw materials to transform these processes
•• the provision of the intended services or products to a market willing to purchase or otherwise make
use of them, thereby fulfilling the purpose.
Thus, the process of management usually starts with, and depends for its direction on, some kind of
vision about why an organisation of people is desirable or necessary. Whether a vision is essential is the
subject of debate in management thinking but most scholars agree with the seminal work of Jim Collins
and Jerry Porras.
Collins and Porras reported findings that while not all successful companies began with one out­
standing product or idea or even charismatic visionary leader, those that enjoy enduring success are more
likely than more average performers ‘to have core values and a clearly articulated purpose, while their
business strategies and practices endlessly adapt to a changing world’.45 They detailed their research in a
hugely influential book called Built to Last: Successful Habits of Visionary Companies, the key message
of which is that the character of the company is expressed in its values and purpose.46
Usually, this vision is then given shape in the form of a mission (as in the ‘mission statement’). The
organisation’s mission allows the creation of goals that, when expressed in numerical terms (such as
dates, profits, results, outcomes and benefits), are known as objectives. These objectives are measurable
and are thought to provide inherent motivation as well as a basis for evaluation and possible correction
or refinement.
Whether or not the organisation succeeds in its mission also depends on its having the necessary
competencies and resources to carry out its strategy — the specific way in which it intends to operate,
coordinating its activities and making use of its capability and its resources.
The selection of an appropriate strategy is critical to good management and the implemen­
tation of the strategy brings the alignment of purpose and capability into reality as a set of objec­
tives achieved, which bring desired outcomes, thus providing the expected benefits. This process is
depicted in figure 1.3.

The vision
headlines the
Vision and mission
organisation’s
purpose.

The strategy
states how
Strategy
the objectives
will be achieved.

The implementation
details the resource
Implementation allocation and
operations needed
to fulfil the strategy.

FIGURE 1.3 The process of management

14  Management
Metaphors for management
Given the inherent complications and complexities of management, it is no surprise that many authors
have sought to highlight one aspect or another with some powerful metaphor or simile. Some are strange
indeed, pointing to paradoxes involved, but perhaps all have something to inspire reflection, along with
their obvious weaknesses. The following are examples of some ‘out of left field’ metaphors listed by two
Australian authors.47
The orchestra
Typically, under the firm and expert guidance of the CEO conductor, this is a fine metaphor except when
the context changes and the need for improvisation makes adherence to a script inadvisable. Another
departure from the orchestra is that management often has to create a sense of purpose — something
that presumably the musician already has in abundance, without the influence of a conductor. However,
few doubt that the organisation relies on every member doing their best, and knowing what is expected
of them, like in an orchestra.
War
A stirring metaphor reflecting the great strategists of war such as Sun Tzu, Carl von Clausewitz and
Horatio Nelson. The metaphor may appeal to the hero‐minded manager, but traps abound. Identifying
the enemy is just one. Is it the competition? The customer? It’s true that coordinating resources and
motivating trained staff are tasks common to both management and military but the greatest insights to
come from the study of military engagements are usually in the category of warning the manager what
not to do. This can be seen in individual incompetence displayed by military commanders as managers
of people and assets throughout history48 or by reviewing military commanders’ spectacular failure to
correctly judge the situation.49
Sport
Sport is an evergreen popular analogy for management, and celebrity sports stars metamorphose into
motivational speakers on the business lecture circuit with disarming ease, regardless of actual business
qualifications or experience. In business, it is thought fashionable and insightful to refer to ‘the team’
and the ‘scoreboard’, along with that mythical ‘level‐playing field’ and ‘goalposts on wheels’. Caution
against self‐deception is needed when metaphors fail to capture organisational complexities, or when
they are appealing but misleading. Fair play and impartial umpires with final whistles may occur in
sport, but are not always in evidence in business. Calling a group a team doesn’t immediately create
loyalty and self‐sacrifice, or even engagement of its members.
Resources management
Even common expressions such as ‘knowledge management’ or ‘human resources’ carry their own
inherent but questionable logic that knowledge or human activity can be ‘managed’ like any other
resource such as finance. The language may confer respectability but perhaps it invites false conclusions
that should be examined.
The science of management
Numbers in management may convey accuracy and reality but closer examination shows they may be
nominal rather than ratio data; only a fool adds or multiplies the numbers in car registration plates. They
are nominal data. To do so would be as pointless as saying a summer’s day of 24 °C was twice as hot as
an autumn day of 12 °C. Yet budgets are seen to be set for a 10 per cent improvement regardless of the
determinative context. The presence of a number with its illusionary power of accuracy and thus authen­
ticity somehow drives out common sense.
In summary, management is not easily reduced to simple processes or memorable aphorisms.
Metaphors may appeal and picturesque similes strike a chord but the reification of the metaphor does not
create a new reality; it merely and properly throws a new light on an existing reality. Metaphors need to
be examined for their power to deceive and distort.

CHAPTER 1 The contemporary workplace  15

What is a manager?
Managers exist in all organisations. They have job titles such as team leader, department head, pro­
ject manager, unit supervisor, senior executive and administrator. They always work directly with
other people who depend on them for critical support and assistance in their own jobs. We call them
managers — the people in organisations who directly support and help activate the work efforts and
performance accomplishments of others.
For those serving as managers, the responsibility is challenging and substantial. Any manager
is responsible not just for his or her own work, but for the overall performance accomplishments of
a team, work group, department, or even the organisation as a whole. Whether these people are called
team members, work associates, subordinates or something else, they are the essential human resources
whose tasks represent the real work of the organisation. Those people working with and reporting to
managers are, in short, the critical human capital upon whose intellects and efforts the performance of
any organisation is ultimately built. How well the manager performs in supporting them makes a critical
difference in their performance and that of the organisation.
Every manager’s job thus entails a key responsibility — to help other people achieve high perfor­
mance. As pointed out by management theorist Henry Mintzberg, being a manager in this sense is a
most important and socially responsible job:
It is the manager who determines whether our social institutions serve us well or whether they squander
our talents and resources. There is every good reason to strip away the folklore about managerial work,
and to study it realistically so that we can begin the difficult task of making significant improvement in its
performance.50

Levels of management
Customer‐centred thinking can be applied to levels of management in an organisation. Each level has the
level above and below it as its customer. Each has an implicit contract to meet the needs of the other, as
shown in figure 1.4.

Governance of
the organisation,
Board of directors
approves strategy
and resources

Top management PLOC

Operational Strategy
management implementation

FIGURE 1.4 Levels of management

The board of directors

The decisions as to what purpose the organisation is to serve, in which environment it is to operate and
how it is to undertake its mission are the responsibility of the board of directors (by whatever name) as
the most senior level of management in the organisation, to whom other levels report and who are held
legally responsible for the organisation’s operations.51

16  Management
 Boards have a chairperson and a secretary who manages the board meeting minutes under the super­
vision of the chairperson and, on behalf of the board, undertakes the reporting to external entities (such
as government departments and regulators).
A third office‐bearer is the treasurer who is responsible for reporting to the board on the finan­
cial operations of the company. Boards often number 8–12 persons. Organisations vary and the
CEO is usually not a member of the board but attends board meetings, which are usually held about
10–12 times per year. Typically it is this board that reports to the shareholders (the company’s owners)
if the organisation is a public company. The board of directors of a company is a group of elected and/or
appointed people with the responsibility to protect the overall interests of the organisation.52
Top management
Top management refers to the most senior appointed manager in the organisation (usually titled chief
executive officer), who reports to the board, with the chairman of the board as his or her reference point.
The relationship between the chairman of the board of directors and the CEO is crucial, as the CEO is
entrusted with the resources approved by the board through the budget and must report on the effective­
ness and efficiency of how the board’s strategies are implemented.
Typically, top management undertakes its tasks through the functions of planning, leading, organising
and controlling (PLOC) (see figure 1.6). This functional view of management was conceived by French
industrialist Henri Fayol in about 1900 and it became very influential in the English‐speaking manage­
ment literature in the middle of the last century.
Top managers are responsible for the performance of an organisation as a whole, or for one of its
larger parts. They pay special attention to the external environment, are alert to potential long‐term prob­
lems and opportunities, and develop appropriate ways of dealing with them. The best top managers are
future‐oriented strategic thinkers who make many decisions under highly competitive and uncertain con­
ditions. Top managers scan the environment, create and communicate the long‐term vision, and ensure
that strategies and performance objectives are consistent with the organisation’s purpose and mission.
The boundaries between these levels are at times blurred, as top managers may also participate in
operational activities and operational managers may propose strategy for consideration and approval.
However, good management requires that board members do not become involved in day‐to‐day oper­
ational decisions and operations, which are the responsibility of the CEO and other managers.
Operational management
Managers who report to the CEO, and thus to the board, are responsible for implementing the board’s
strategies and for the efficient and effective deployment of organisational assets and resources in the ser­
vice of achieving the organisation’s objectives.
Middle managers are in charge of relatively large departments or divisions consisting of several smaller
work units. Examples are clinic directors in hospitals; heads of departments in universities; and division
managers, factory managers and branch sales managers in businesses. Middle managers work with top
managers and coordinate with peers to develop and implement action plans consistent with organisational
objectives. They should be team‐oriented and able to work well with people from all parts of an organ­
isation to get work accomplished. An important example is the job of project managers — people who
coordinate complex projects with task deadlines while working with many people of different exper­
tise, both within and outside the organisation. At GE, for example, corporate troubleshooters or ‘black
belts’ have been organised to manage groups that solve problems and create change across divisions
and geographic boundaries within the company. At one stage a cross‐functional team was recruited from
marketing, human resources and field operations staff to design a new compensation system.53
First jobs in management typically occur as assignments as team leaders or supervisors — people
in charge of small work groups composed of non‐managerial workers. Even though most people enter
the workforce as technical specialists, sooner or later they advance to positions of initial managerial res­
ponsibility. Job titles for these first‐line managers vary greatly but include such designations as depart­
ment head, group leader and unit manager. For example, the leader of an auditing team is considered
a first‐line manager, as is the head of an academic department in a university. Managers at this level of

CHAPTER 1 The contemporary workplace  17

responsibility ensure that their work teams or units meet performance objectives that are consistent with
higher level organisational goals. Manager’s notepad 1.2 offers advice on the performance responsi­
bilities of team leaders and supervisors.54

MANAGER’S NOTEPAD 1.2

Nine responsibilities of team leaders

1. Plan meetings and work schedules.
2. Clarify goals and tasks, and gather ideas for
improvement.
3. Appraise performance and counsel team
members.
4. Recommend pay increases and new
assignments.
5. Recruit, train and develop team to meet
performance goals.
6. Encourage high performance and teamwork.
7. Inform team members about organisational
goals and expectations.
8. Inform higher levels of team needs and
accomplishments.
9. Coordinate with other teams and support
the rest of the organisation.

Types of managers
The nature of managerial work is evolving as organisations change and develop with time. A Wall Street
Journal report describes the transition as follows: ‘Not so long ago they may have supervised ten people
sitting outside their offices. Today they must win the support of scores more — employees of different
backgrounds, job titles and even cultures’, perhaps they will have ‘direct reports’ in different countries.
The report goes on to say ‘these new managers are expected to be skilled at organising complex subjects,
solving problems, communicating ideas and making swift decisions’.55
In addition to serving at different levels of authority, managers work in different capacities within
organisations. Line managers are responsible for work activities that make a direct contribution to the
organisation’s outputs. For example, the general manager, retail manager and department supervisors
of a local department store all have line responsibilities. Their jobs in one way or another are directly
related to the sales operations of the store. Staff managers, on the other hand, use special technical
expertise to advise and support the efforts of line workers. In a department store, the director of human
resources and the chief financial officer would have staff responsibilities.
In business, functional managers have responsibility for a single area of activity, such as finance,
marketing, production, human resources, accounting or sales. General managers are responsible for
more complex units that include many functional areas. An example is a plant manager who over­
sees many separate functions, including purchasing, manufacturing, warehousing, sales, personnel and
accounting. It is not unusual for managers working in public or not‐for‐profit organisations to be called
administrators. Examples include hospital administrator, public administrator and local government
administrator.

Managerial performance
Managers everywhere face a common problem. They must all set the conditions through which others,
working individually and in groups, can contribute their talents to the accomplishment of organisational
goals. Furthermore, managers must do this while being held personally ‘accountable’ for results achieved.
The team leader reports to a middle manager, the middle manager reports to a top manager, and even

18  Management
the most senior top manager typically reports to a board of directors. In these reporting relationships,
accountability exists as the requirement of one person to answer to a higher authority for performance
results achieved in his or her area of work responsibility. These results are typically measured in terms
of team or work unit productivity, including the accomplishment of both performance effectiveness and
performance efficiency.
However, the concept of performance accountability alone does not tell the whole story. Managerial
performance is multidimensional. Effective managers help others both to achieve high‐performance out­
comes and experience satisfaction in their work. This dual concern for performance and satisfaction is a
central theme in the contemporary workplace, and it runs throughout Management.
The emphasis on satisfaction helps focus attention on quality of work life (QWL) issues as an
indicator of the overall quality of human experiences in the workplace. A ‘high‐QWL’ workplace
expresses a true respect for people at work by offering such things as fair pay, safe working con­
ditions, opportunities to learn and use new skills, room to grow and progress in a career, protec­
tion of individual rights, and pride in the work itself and in the organisation. Part of any manager’s
accountability is to achieve high‐performance outcomes while maintaining a high‐quality work
environment.56 Simply put, in the new workplace, performance, satisfaction and a high‐quality work
life can and should go hand in hand.

Changing nature of managerial work

Managerial work in the organisations of today is also changing. The words ‘coordinator’, ‘coach’ and
‘team leader’ are heard as often as ‘supervisor’ or ‘manager’. The work managers perform is less direc­
tive and more supportive than in the past. It has to be in a world where high performance comes only to
those who truly value and sustain human capital. There is little tolerance or need in today’s organisations
for those who simply sit back and tell others what to do. The best managers are well informed regarding
the needs of those reporting to or dependent on them. They can often be found working alongside those
they supervise. They will always be found providing advice and developing the support needed for
others to perform to the best of their abilities. High‐performing managers are good at building working
relationships with others, helping others develop their skills and performance competencies, fostering
teamwork, and otherwise creating a work environment that is both performance‐driven and satisfying to
those who do the required work.
An emphasis on customers increasingly drives managerial work in these new settings. Among the
many changes taking place, the concept of the ‘upside‐down pyramid’ is one of the most descriptive.
As shown in figure 1.5, it offers an alternative way of viewing organisations and the role played by
managers within them. The operating workers are at the top of the upside‐down pyramid, just below
the customers and clients they serve. They are supported in their work efforts by managers located at
the bottom. These managers are not just order‐givers, they are there to mobilise and deliver the support
others require to best serve customer needs. The implications of this notion are dramatic, and they are
consistent with the adage that people are an organisation’s most important asset.
Each member of the upside‐down pyramid is a value‐adding worker — someone who creates eventual
value for the organisation’s customers or clients. The whole organisation is devoted to serving the cus­
tomer, and this is made possible with the support of managers.
Many trends and emerging practices in organisations, such as the upside‐down pyramid concept,
require new thinking from people who serve as managers. As noted earlier, we are in a time when
the best managers are known more for ‘helping’ and ‘supporting’ than for ‘directing’ and ‘order‐
giving’. Even in an age of high technology and ‘smart’ machines, the human resource is indispen­
sable. Worker involvement and empowerment are critical building blocks of organisational success.
Full human resource use increasingly means changing the way work gets done in organisations by
pushing decision‐making authority to the point where the best information and expertise exist —
with the operating workers.57

CHAPTER 1 The contemporary workplace  19

 Customers and clients
Ultimate beneficiaries of the organisation’s efforts

Serve

Operating workers
Do work directly affecting customer/client satisfaction

Support

Team leaders and managers

Help the operating workers do their jobs
and solve problems

Support

Top managers
Keep organisation’s
mission and
strategies
clear

FIGURE 1.5 The organisation as an ‘upside‐down pyramid’

Being an effective manager in today’s workplace also means managing in an ‘emotionally intelligent’
manner. Emotional intelligence is the ‘ability to be aware of emotions, and to manage and utilise them in
dealing with others and challenging situations’.58

CRITICAL ANALYSIS

1. Is the ‘core’ of management just the same, irrespective of where you work, with the difference being
the applications of management in particular organisations and environments? Why or why not?
2. The global financial crisis and subsequent economic downturn put so much pressure on companies
to perform and survive that the niceties of HRM have been swept to one side. Is this a fair
statement? Why or why not?

1.4 The management process

LEARNING OBJECTIVE 1.4 What is the management process?
The ultimate ‘bottom line’ in every manager’s job is to succeed in helping an organisation to achieve
high performance by using all of its human and material resources. If productivity in the form of high
levels of performance effectiveness and efficiency is a measure of organisational success, managers are
largely responsible for ensuring its achievement. It is their job to successfully mobilise technology and
talent by creating work environments within which others work hard and perform to the best of their

20  Management
abilities.59 However, while the tasks of a manager may be as lofty as creating the organisation’s culture
or as technical as reporting on productivity, the functional activities of managers that French industrialist
Henri Fayol famously described a century ago are still relevant to what managers do, as outlined below.

Functions of management
All managers must have the capabilities to recognise performance problems and opportunities in daily events,
make good decisions and take appropriate action. They do this through the process of management — plan­
ning, organising, leading and controlling the use of resources to accomplish performance goals. These four
classic functions of management and their interrelationships are shown in figure 1.6. All managers, regardless
of title, level, type and organisational setting, are responsible for the four functions.60 However, it is important
to know that they most often do not accomplish these functions in a linear, step‐by‐step fashion. Rather, the
reality of managerial work is that the functions are being continually engaged as a manager moves from task to
task and opportunity to opportunity in the process of mobilising resources to accomplish goals.

Planning
Setting performance
objectives and deciding
how to achieve them

Controlling Organising
The
Measuring performance Arranging tasks, people
management
and taking action to and other resources
process
ensure desired results to accomplish the work

Leading
Inspiring people to
work hard to achieve
high performance

FIGURE 1.6 Four functions of management

Put simply, the task of the manager is to bring the organisation’s resources into alignment with its
purpose, in a way that is sustainable in the organisation’s operating environment. Without resources
(physical, technological, financial, and so on), change cannot happen; without clear intent, change is
meaningless; and without an environment in which to operate (e.g. a market), there can be no return on
investment. So management is all about alignment.

Planning
In management, planning is the process of setting performance objectives and determining what
actions should be taken to accomplish them. Through planning, a manager identifies desired work
results and the means to achieve them. For example, an organisation that views people as its most
important asset may plan to ensure staff retention. This would involve the setting of a measurable
objective in terms of reducing staff turnover, and determining measures to facilitate achieving this
objective over time.

CHAPTER 1 The contemporary workplace  21

Controlling
A key issue in how well plans are implemented is how well the organisation adapts to rapid change. In
today’s dynamic times, things do not always go as expected and plans must be modified and redefined
with the passage of time. The management function of controlling is the process of measuring work
performance, comparing results with objectives, and taking corrective action as needed. Through con­
trolling, managers maintain active contact with people in the course of their work, gather and interpret
reports on performance, and use this information to plan constructive action and change. Through
measurement management is able to track progress against objectives.
Organising
Even the best plans may fail without effective implementation. The implementation phase begins
with organising — the process of assigning tasks, allocating resources and arranging the coordinated
activities of individuals and groups to implement plans. Through organising, managers turn plans into
actions by defining jobs, assigning staff and supporting them with technology and other resources.
Leading
In management, leading is the process of arousing people’s enthusiasm to work hard and direct their
efforts to fulfil plans and accomplish objectives. Through leading, managers build commitments to a
common vision, encourage activities that support goals, and influence others to do their best work on the
organisation’s behalf.

COUNTERPOINT

First, let’s fire all the managers

Harvard Business School professor Gary Hamel suggested this radical step in the December 2011
edition of the Harvard Business Review. At first glance, this seems more than a little inconsistent
in a text about learning to be a manager — but he has a point. He argues that what is needed in
organisations is not ‘no management’, but better leadership — just one of Fayol’s four management
functions.
Management, says Hamel, is both inefficient and expensive for organisations. In his view, manage-
ment allows calamitous decisions by those at top level, yet systematically disempowers those lower in
the hierarchy. It also adds layers of people in the organisational structure, thereby slowing responses.
In private life, we can go out and buy an expensive car; as managers, we are not able to requisition so
much as an office stapler. Managers, thus, separate the ‘doers’ from the ‘customers’, and we shrink the
incentive to dream and to innovate.
Hamel notes that even though markets work best only when the needs of each party are simple,
stable and easy to quantify, hierarchies are better than markets in bringing activities together produc-
tively. What is important is that we manage things and lead people — and that we do so by appealing
to their natural desire to be responsible for the outcomes of their work.61
Another writer with this counter‐view of managers was Ricardo Semler, whose successful Brazilian
manufacturing company Semco became the famous subject of his book Maverick! (1994). His much‐
cited article in the Harvard Business Review (January–February 1993) outlines how he restructured his
company by partnering with his employees and employing them as external contractors, leasing them
his company’s equipment. Rather than using the PLOC approach, he was able to cut his costs and
increase revenue, while providing his workers with autonomy and flexibility.62
Semler encouraged his workers to select their own bosses and to be responsible in teams for
workplace output. In fact, he doesn’t like the word ‘boss’, preferring to see the role of coordinator
as the key role to organising teams and groups. Workers have access to financial records, and the
company provides courses to help them learn to read balance sheets and profit and loss statements.
Workers even set their own salaries and budgets, which is definitely not part of the PLOC model!
Semco’s workplace culture is relaxed, along with its dress code, with no secretaries or receptionists.
Even the role of CEO rotates around a group of leaders, each assuming the day‐to‐day tasks for
six months at a time.

22  Management
 It is interesting to note that Ricardo Semler’s ideas became popular two decades ago. Some
people now may dismiss them as being out of fashion, or at least not the latest management
fad. However, his ideas have stood the test of time, and he has demonstrated success in an
environment of withering recession, galloping inflation and market turbulence. Some of Semler’s
worker participation practices have even become mainstream and his methods remain a source of
guidance.

QUESTION
How relevant are Fayol’s four management functions — planning, leading, organising and controlling —
to describing what managers do and/or should do? What does he omit? Has the workplace moved on
such that these functions are no longer central to what managers do?

Managerial activities and roles

Although the management process may seem straightforward, things are more complicated than they
appear at first glance. In his classic book, The Nature of Managerial Work, Henry Mintzberg offers this
observation on the daily activities of corporate chief executives:

There was no break in the pace of activity during office hours. The mail  .  .  .  telephone calls  .  .  .  and meet­
ings  .  .  .  accounted for almost every minute from the moment these executives entered their offices in the
morning until they departed in the evenings.63

Today we would have to add ever‐present email to Mintzberg’s list of executive preoccupations,
especially with mobile devices such as smartphones and tablets capable of receiving and sending emails
remotely.64
In trying to systematically describe the nature of managerial work and the demands placed on those
who do it, Mintzberg offers the set of ten roles depicted in figure 1.7. The roles involve managing
information, people and action. They are interconnected, and all managers must be prepared to perform
them.65 In Mintzberg’s framework, a manager’s informational roles involve the giving, receiving and
analysing of information. The interpersonal roles involve interactions with people inside and outside the
work unit. The decisional roles involve using information to make decisions to solve problems or tackle
opportunities.

Interpersonal roles Informational roles Decisional roles

How a manager interacts How a manager exchanges How a manager uses

with other people and processes information information in
● Figurehead ● Monitor decision-making
● Leader ● Disseminator ● Entrepreneur
● Liaison ● Spokesperson ● Disturbance handler
● Resource allocator
● Negotiator

FIGURE 1.7 Mintzberg’s ten managerial roles

Mintzberg is also careful to note that the manager’s day is unforgiving in the intensity and pace of
these role requirements. The managers he observed had little free time because unexpected problems and
continuing requests for meetings consumed almost all the time that became available. Importantly, the

CHAPTER 1 The contemporary workplace  23

responsibility of executive work was all–encompassing in the pressure it placed on the executives for
continuously improving performance results. Says Mintzberg:

The manager can never be free to forget the job, and never has the pleasure of knowing, even tempor­
arily, that there is nothing else to do  .  .  .  Managers always carry the nagging suspicion that they might be
able to contribute just a little bit more. Hence they assume an unrelenting pace in their work.66

Managerial work is busy, demanding and stressful, not just for chief executives but for managers
at all levels of responsibility in any work setting. A summary of research on the nature of managerial
work offers this important reminder — managers work long hours.67 They work at an intense pace, at
fragmented and varied tasks, with many communication media, and they accomplish their work largely
through interpersonal relationships.
Managerial work, by nature, is dynamic and constantly changing. Traditionally, managers are sup­
posed to direct and lead subordinates to carry out tasks, in addition to performing other managerial
functions, such as planning, organising and controlling. In order to remain competitive in today’s global
knowledge‐based economy, organisations are increasingly moving towards management policies or
practices that promote learning and knowledge sharing among organisational members. Recent studies68
show that successful organisational learning enhances organisational effectiveness and competitiveness.
These findings, to a certain extent, highlight the important role of managers as learning facilitators. In
addition to the conventional managerial roles identified by Henry Mintzberg, managers are often seen
as ‘coaches’ and ‘developers’ who help build the learning capability of employees. The multiple ways
in which managers facilitate and develop employees’ learning within organisations have already been
examined and reported in research.69 These behaviours, such as providing feedback to employees, cre­
ating and promoting a learning environment and broadening employees’ perspectives, likely expand the
dimensions of conventional managerial roles.

Managerial agendas and networks

It is not only the complexity and pace of managerial work that makes it challenging. There are subtle
intricacies in the day‐to‐day flow of events and interactions that must also be mastered. Consider this
description of a brief incident in the day of the general manager (GM) of a business.

On his way to a meeting, a GM bumped into a staff member who did not report to him. Using this oppor­
tunity, in a two‐minute conversation he (a) asked two questions and received the information he needed,
(b) reinforced their good relationship by sincerely complimenting the staff member on something he had
recently done, and (c) got the staff member to agree to do something that the GM needed done.70

The description provides a glimpse of an effective general manager in action. It portrays two activities
that management consultant and scholar John Kotter considers vital to a general manager’s success in mas­
tering two important challenges — agenda setting and networking. Through agenda setting, good managers
develop action priorities for their jobs that include goals and plans that span long and short time frames.
These agendas are usually incomplete and loosely connected in the beginning, but become more specific as
the manager uses information that is continually gleaned from many different sources. The agendas are kept
always in mind and are ‘played out’ whenever an opportunity arises, as in the example.
Good managers implement their agendas by working with a variety of people inside and outside the
organisation. In Kotter’s example, the GM was getting things done through a staff member who did not
report directly to him. This is made possible by networking, the process of building and maintaining posi­
tive relationships with people whose help may be needed to implement your work agendas. Since net­
works are indispensable to managerial success in today’s complex work environments, excellent managers
devote much time and effort to network development. In the case of this general manager, for example, the
networks included relationships with peers, higher level executives, subordinates and members of their
work teams, as well as with external customers, suppliers and community representatives.

24  Management
 COUNTERPOINT

Workplace motivation and culture

An issue that has received an increasing
amount of research attention lately is that
of Guanxi. Guanxi (pronounced guan‐shee)
refers to networks of relationships and favours
that influence business activity throughout
China. It is an ancient system and is based on
informal relationships; as opposed to Western
management practice, which is based largely
on formal agreements and written contracts.
With the increasing economic power of China,
Western businesspeople are faced with an
increasing need to be able to not only operate
in non‐Western systems, but also understand
the perspectives and values of the millions of
Chinese people currently working outside of
China.71 Guanxi systems depend on reputations and trust between individuals and mean that social
interactions and social needs become much more important than in Western (individualist) contexts.72

QUESTION
While admitting that different cultures give different emphases to various work practices (such as the importance
of seniority as counted in years of service to the company), do you see a common core of management tasks
across cultures? Do you think generational differences are as important as cultural differences?

CRITICAL ANALYSIS

1. If the environment really is changing so quickly and unpredictably, is all planning a waste of time?
How can we plan for an environment that we cannot predict? Is it reasonable to expect managers
to produce realistic long‐term plans?
2. Are all good managers also good leaders? Can you be a good leader and not a good manager? Are
the functions of manager and leader fundamentally different? Keep your thoughts in mind as you
progress through the chapter.
3. Why is the management of control systems so critical to good management? Are there risks in
taking control beyond merely monitoring into areas of innovation? For example, does an emphasis
on control act to stifle creativity? Why or why not? Use examples to justify your answer.

1.5 Managerial learning

LEARNING OBJECTIVE 1.5 How do you learn essential managerial skills and competencies?
British educator and management consultant Charles Handy called today’s turbulent times ‘the age of
unreason’.73 Above all, it is an era of high‐performance expectations for organisations and their members.
Change is a way of life, and it demands new organisational and individual responses. And along with all this,
the quest for high performance is relentless. Everywhere new workers are expected to use new ways to achieve
high productivity under new and dynamic conditions. They are expected to become involved, fully participate,
demonstrate creativity, and find self‐fulfilment in their work. They are expected to be team players who under­
stand the needs and goals of the total organisation and who use new technologies to their full advantage.
All of this, of course, places a premium on your commitment to learning — not just formal learning
in the classroom, but also lifelong learning. This is the process of continuously learning from our daily
experiences and opportunities. Especially in a dynamic and ever changing environment, a commitment

CHAPTER 1 The contemporary workplace  25

to lifelong learning helps us build portfolios of skills that are always up to date and valuable in the
labour markets. A vital part of job‐related learning, furthermore, comes from ‘learning by doing’. This
means that you must always look for good job opportunities that make such learning possible.

Essential managerial skills

A skill is an ability to translate knowledge into action that results in desired performance. Many skills
are required to master the challenging nature of managerial work, but the most important ones are those
that allow managers to help others become more productive in their work. Harvard scholar Robert L.
Katz has classified the essential skills of managers into three categories: technical, human and con­
ceptual.74 Although all three skills are essential for managers, he suggests that their relative importance
tends to vary by level of managerial responsibility, as shown in figure 1.8.

Lower-level Middle-level Top-level

managers managers managers

Conceptual skills — the ability to think analytically and achieve integrative problem solving

Human skills — the ability to work well in cooperation with other people

Technical skills — the ability to apply expertise and perform a special task with proficiency

FIGURE 1.8 Essential managerial skills

A technical skill is the ability to use a special proficiency or expertise to perform particular tasks.
Accountants, engineers, market researchers, business planners and computer scientists, for example,
possess technical skills. These are initially acquired through formal education and are further developed
by training and job experience. Technical skill in the new network economy is also increasingly tied to
computer literacy and use of the latest information technology. Figure 1.8 shows that technical skills are
very important at career entry levels. The important question to be asked and positively answered by you
in this respect, and in preparation for any job interview, comes down to this simple test: what can you
really do for an employer?
The ability to work well in cooperation with other people is a human skill. It emerges in the work­
place as a spirit of trust, enthusiasm and genuine involvement in interpersonal relationships. A man­
ager with good human skills will have a high degree of self‐awareness and a capacity to understand
or empathise with the feelings of others. An important component of the essential human skills is
emotional intelligence.75 Emotional intelligence is defined by scholar and consultant Daniel Goleman
as the ‘ability to manage ourselves and our relationships effectively’.76 Given the highly interpersonal
nature of managerial work, human skills are essential for all managers. Figure 1.8 shows that they are
consistently important across all the managerial levels. Again a straightforward question puts you to the
test of interpersonal skills and emotional intelligence: how well do you work with others?
All good managers ultimately have the ability to view situations broadly and to solve problems to
the benefit of everyone concerned. This ability to think critically and analytically is a conceptual skill.
It involves the ability to break down problems into smaller parts, to see the relationships between the
parts, and to recognise the implications of any one problem for others. As we assume ever‐higher res­
ponsibilities in organisations, we are called on to deal with more ambiguous problems that have many

26  Management
complications and longer term consequences. Figure 1.8 shows that conceptual skills gain in relative
importance for top managers. At this point, you should ask ‘Am I developing critical‐thinking and
problem‐solving capabilities for long‐term career success?’

Skill and outcome assessment

Business and management educators are increasingly interested in helping people acquire essential
skills and develop specific competencies that can help them achieve managerial success. A managerial
competency is a skill‐based capability that contributes to high performance in a management job.77 A
number of these competencies have been implied in the previous discussion of the management process,
including those related to planning, organising, leading and controlling. Competencies are also implicit
in the information, interpersonal and decision‐making demands of managerial roles, as well as agenda
setting and networking as managerial activities.
Manager’s notepad 1.3 further highlights some of the skills and personal characteristics business
schools emphasise in helping students develop the foundations for continued professional development
and career success. You can use this notepad as a preliminary checklist for assessing your career readi­
ness in terms of professional skills and competencies.

MANAGER’S NOTEPAD 1.3

Managerial skill and outcome assessment template

• Communication — demonstrates ability to share ideas and findings clearly in written and oral
expression. This includes competencies in writing, oral presentation, giving/receiving feedback and
technology use.
• Teamwork — demonstrates ability to work effectively as a team member and team leader. This
includes competencies in team contribution, team leadership, conflict management, negotiation and
consensus building.
• Self‐management — demonstrates ability to self‐evaluate, modify behaviour and meet performance
obligations. This includes competencies in ethical understanding/behaviour, personal flexibility,
tolerance for ambiguity, and performance responsibility.
• Leadership — demonstrates ability to influence and support others to perform complex and
sometimes ambiguous tasks. This includes competencies in diversity awareness, global awareness,
project management and strategic action.
• Critical thinking — demonstrates ability to gather and analyse information for creative problem‐
solving. This includes competencies in problem‐solving, judgement and decision‐making, information
gathering and interpretation, and creativity/innovation.
• Professionalism — demonstrates ability to sustain a positive impression, instil confidence and
maintain career advancement. This includes competencies in personal presence, personal initiative
and career management.

In summary, the manager’s top three tasks involve analysing the environment to clarify what can be
done — what the market wants and will ‘bear’, establishing the intent of the organisation’s leaders, and
then acquiring the resources necessary to build the products or provide the services. So, this ‘what’ of
management is implemented through the ‘how’ of strategy, and by applying the personal skills of the
manager — whose task it is to explain to employees the ‘why’, to make sense of the organisation’s
activities.

CRITICAL ANALYSIS

1. In what proportions do you think management is about knowledge, skills and abilities? Justify your
answer.

CHAPTER 1 The contemporary workplace  27

SUMMARY
1.1 What are the challenges in the contemporary workplace?
•• The contemporary environment challenges everyone to understand and embrace continuous change
and developments in a new information‐driven and global economy.
•• Work in the new economy is increasingly knowledge‐based and people, with their capacity to bring
valuable intellectual capital to the workplace, are the ultimate foundation of organisational performance.
•• The forces of globalisation are bringing increased interdependencies among nations and economies as
customer markets and resource flows create intense business competition.
•• Ever present developments in information technology and the continued expansion of the internet are
reshaping organisations, changing the nature of work, and increasing the value of people capable of
performing as knowledge workers.
•• Organisations must value the talents and capabilities of a workforce whose members are increasingly
diverse with respect to gender, age, race and ethnicity, able‐bodiedness and lifestyles.
•• Society has high expectations for organisations and their members to perform with commitment to high
ethical standards and in socially responsible ways, including protection of the natural environment and
human rights.
•• Careers in the new economy require great personal initiative to build and maintain skill ‘portfolios’
that are always up to date and valuable to employers challenged by intense competition and the
opportunities of the information age.
1.2 What are organisations like in the contemporary workplace?
•• Organisations are collections of people working together to achieve a common purpose.
•• As open systems, organisations interact with their environments in the process of transforming
resource inputs into product outputs.
•• Productivity is a measure of the quantity and quality of work performance, with resource use taken
into account.
•• High‐performing organisations are both effective, in terms of goal accomplishment, and efficient, in
terms of resource use.
•• Organisations today continue to emphasise total quality management in a context of technology use,
more empowerment and teamwork, and concern for work–life balance, among other trends.
1.3 Who are managers and what do they do?
•• Managers directly support and facilitate the work efforts of other people in organisations.
•• Top managers scan the environment, create vision and emphasise long‐term performance goals;
middle managers coordinate activities in large departments or divisions; team leaders and supervisors
support performance at the team or work‐unit level.
•• Functional managers work in specific areas such as finance or marketing; general managers are
responsible for larger multifunctional units; administrators are managers in public or not‐for‐profit
organisations.
•• A key aspect of managerial work is accountability to higher levels for performance results that the
manager depends on other people to accomplish.
•• The upside‐down pyramid view of organisations shows operating workers at the top responsible for
meeting customer needs while being supported from below by various levels of management.
•• A key aspect in the changing nature of managerial work is emphasis on being good at coaching and
supporting others, rather than simply directing and giving orders.
1.4 What is the management process?
•• The management process consists of planning, organising, leading and controlling. Planning sets the
direction; organising assembles the human and material resources; leading provides the enthusiasm
and direction; controlling ensures results.

28  Management
•• Managers implement the four functions in daily work that is intense and stressful, involving long
hours and continuous performance pressures.
•• Managerial success in this demanding context requires the ability to perform well in interpersonal,
informational and decision‐making roles.
•• Managerial success in this demanding context also requires the ability to use interpersonal networks
to accomplish well‐selected task agendas.
1.5 How do you learn essential managerial skills and competencies?
•• Career success in the new economy requires continual attention to the process of lifelong learning
from all aspects of daily experience and job opportunities.
•• Skills considered essential to managerial success are broadly described as technical (ability to use
knowledge and technology), human (ability to work well with other people) and conceptual (ability to
analyse and solve complex problems).

KEY TERMS
Accountability  is the requirement to show performance results to a supervisor.
Administrators  are managers who work in public or not‐for‐profit organisations.
A conceptual skill  is the ability to think analytically and solve complex problems.
Controlling  is the process of measuring performance and taking action to ensure desired results.
Discrimination  occurs when someone is denied a job or a job assignment for reasons not job‐relevant.
Emotional intelligence  is the ability to manage ourselves and our relationships effectively.
Functional managers  are responsible for one area of activity, such as finance, marketing, production,
human resources, accounting or sales.
General managers  are responsible for complex organisational units that include many areas of
functional activity.
Globalisation  is the worldwide interdependence of resource flows, product markets and business competition.
A human skill  is the ability to work well in cooperation with other people.
Intellectual capital  is the collective brain power or shared knowledge of a workforce.
A knowledge worker  is someone whose knowledge is a critical resource for employers.
Leading  is the process of arousing enthusiasm and directing efforts towards organisational goals.
Lifelong learning  is continuous learning from daily experiences and opportunities.
Line managers  directly contribute to the production of the organisation’s basic goods or services.
Management  is the process of planning, organising, leading and controlling the use of resources to
accomplish performance goals.
A managerial competency  is a skill‐based capability for high performance in a management job.
Managers  are responsible for and support the work of others.
Middle managers  oversee the work of large departments or divisions.
Open systems  transform resource inputs from the environment into product or service outputs.
An organisation  is a collection of people working together with a division of labour to achieve a
common purpose.
Organising  is the process of assigning tasks, allocating resources and arranging activities to
implement plans.
Performance effectiveness  is an output measure of task or goal accomplishment.
Performance efficiency  is a measure of resource cost associated with goal accomplishment.
Planning  is the process of setting objectives and determining how to accomplish them.
Prejudice  is the display of negative, irrational attitudes towards members of diverse populations.
Productivity  is the quantity and quality of work performance, with resource use considered.
Project managers  coordinate complex projects with task deadlines and people with many areas of
expertise.
Quality of work life (QWL)  is the overall quality of human experiences in the workplace.

CHAPTER 1 The contemporary workplace  29

A skill  is the ability to translate knowledge into action that results in desired performance.
Staff managers  use special technical expertise to advise and support line workers.
Team leaders or supervisors  report to middle managers and directly supervise non‐managerial workers.
A technical skill  is the ability to use a special proficiency or expertise in your work.
Top managers  guide the performance of the organisation as a whole, or of one of its major parts.
Total quality management (TQM)  is managing with commitment to continuous improvement,
product quality and customer satisfaction.
Workforce diversity  describes differences among workers in gender, race, age, ethnic culture,
able‐bodiedness, religious affiliation and sexual orientation.

APPLIED ACTIVITIES
1 What are some of the opportunities an increasingly diverse and multicultural workforce offers with
respect to potential performance gains in organisations? How can managers stimulate and encourage
this contribution?
2 Why are concepts such as ethical and socially responsible conduct increasingly important?
3 What are some important survival skills for the new workplace? List and explain them.
4 What is ‘globalisation’ and how does it relate to Kenichi Ohmae’s notion of the borderless world?
5 You have been a very successful civil engineer for ten years and your technical skills are excellent.
However, you have no management experience. You are being interviewed for a team leader position.
The team consists of eight members of three different nationalities and has equal numbers of men
and women. Explain what you would say to the selection panel in relation to meeting the challenge
of effectively managing a diverse team.

ENDNOTES
  1. IBISWorld, ‘Woolworths Ltd — Premium Company Report Australia’ (28 June 2015), www.ibisworld.com.au.
  2. ibid; Elio D’Amato. ‘Woolworths v Westfarmers: Which should you invest in?’, The Australian Financial Review, (13 October
2015), www.afr.com.
  3. D’Amato, op. cit.
  4. Woolworths Limited, ‘Doing the Right Thing. Sustainability Strategy 2007–2015’ (2015), www.woolworthslimited.com.au.
  5. Fast Company website, www.fastcompany.com.
  6. Charles O’Reilly III and Jeffrey Pfeffer, Hidden Value: How Great Companies Achieve Extraordinary Results with Ordinary
People (Boston: Harvard Business School Publishing, 2000), p. 2.
  7. For a research perspective see Denise M. Rousseau, ‘Organizational Behavior in the New Organizational Era’, Annual Review
of Psychology, vol. 48 (1997), pp. 515–46; for a consultant’s perspective see Tom Peters, The Circle of Innovation (New York:
Knopf, 1997); and Joan Magretta, Managing in the New Economy (Boston: Harvard Business School Press, 1999).
  8. See Kevin Kelly, New Rules for a New Economy: 10 Radical Strategies for a Connected World (New York: Penguin, 1999).
  9. Thomas A. Stewart, Intellectual Capital: The Wealth of Organizations (New York: Bantam, 1998).
10. See Peter F. Drucker, The Changing World of the Executive (New York: T. T. Times Books, 1982) and The Profession of
Management (Cambridge, MA: Harvard Business School Press, 1997); and Francis Horibe, Managing Knowledge Workers:
New Skills and Attitudes to Unlock the Intellectual Capital in Your Organization (New York: Wiley, 1999).
11. Kenichi Ohmae’s books include The Borderless World: Power and Strategy in the Interlinked Economy (New York: Harper,
1989); The End of the Nation State (New York: Free Press, 1996); The Invisible Continent: Four Strategic Imperatives of the
New Economy (New York: Harper, 1999).
12. For a discussion of globalisation see Thomas L. Friedman, The Lexus and the Olive Tree: Understanding Globalization
(New York: Bantam Doubleday Dell, 2000); and John Micklethwait and Adrian Woolridge, A Future Perfect: The Challenges
and Hidden Promise of Globalization (New York: Crown, 2000).
13. Michael E. Porter, The Competitive Advantage of Nations: With a New Introduction (New York: Free Press, 1998).
14. See, for example, Carl Shapiro and Hal R. Varian, Information Rules: A Strategic Guide to the Network Economy (Cambridge,
MA: Harvard Business School Press, 1998).
15. Internet world statistics for Australia, www.internetworldstats.com; Internet world statistics for New Zealand
www.internetworldstats.com.

30  Management
16. Statistics from Population by Age and Sex, Australian States and Territories, 2005 (Canberra: Australian Bureau of Statistics,
2005); and National Population Projections 2004 (Base) — 2051, 2006 (Auckland: Statistics New Zealand, 2006).
17. ‘HR Drags Ageing Workforce Chain’, Human Resources, issue 50 (25 February 2004), p. 1.
18. Australian Human Resource Institute, ‘The Longevity Revolution’, Older Australians At Work Summit (September 2015),
www.humanrights.gov.au.
19. ibid.
20. See Richard D. Bucher, Diversity Consciousness: Opening Our Minds to People, Cultures, and Opportunities (Upper Saddle
River, NJ: Prentice Hall, 2000).
21. For a discussion of diversity issues see R. Roosevelt Thomas Jr, ‘From Affirmative Action to Affirming Diversity’, Harvard
Business Review (November–December 1990), pp. 107–17; and Beyond Race and Gender: Unleashing the Power of Your Total
Workforce by Managing Diversity (New York: AMACOM, 1992).
22. Quotations from Thomas, ibid; and Business Week (8 August 1990), p. 50.
23. Robin Kramar, ‘Managing Diversity: Challenges and Future Directions’, in Retha Wiesner and Bruce Millett (eds),
Management and Organisational Behaviour: Contemporary Challenges and Future Directions (Brisbane: John Wiley &
Sons, 2001).
24. Judith B. Rosener, ‘Women Make Good Managers, So What?’, Business Week (11 December 2000), p. 24.
25. Adapted from ‘Power, Politics and Influence in Organisations’, in Jack Wood, Rachid Zeffane, Michele Fromholtz, Retha
Wiesner, Pi‐Shen Seet, Rachel Morrison, John R Schermerhorn, James G Hunt and Richard N Osborn, Organisational
Behaviour: Core Concepts and Applications, 3rd Australasian Edition (Brisbane: John Wiley & Sons, 2013).
26. ‘The Volkswagen Scandal: A Mucky Business’, The Economist (26 September 2015), p. 24.
27. See, for example, Clarence Walton, The Moral Manager (New York: Harper Business, 1990).
28. T. Skotnicki, ‘Big, Bad Business’, BRW (26 May 2004), www.brw.com.au.
29. R. W. Judy and C. D’Amico, Workforce 2020: Work and Workers in the 21st Century (Indianapolis: Hudson Institute, 1997).
30. Johnson & Johnson, ‘Credo selection’, www.jnj.com.
31. Charles Handy, The Age of Unreason (Cambridge, MA: Harvard Business School Press, 1990).
32. See the issue feature ‘Free Agent Nation’, Fast Company (December 1997).
33. ‘Is Your Job Your Calling?’, Fast Company (February–March 1998), p. 108.
34. Tom Peters, ‘The New Wired World of Work’, Business Week (28 August 2000), pp. 172–3.
35. Robert Reich, ‘The Company of the Future’, Fast Company (November 1998), pp. 124 ff.
36. Developed from Peters (2000), op. cit.
37. For an overview of organisations and organisation theory, see W. Richard Scott, Organizations: Rational, Natural and Open
Systems (Upper Saddle River, NJ: Prentice Hall, 1997).
38. For a discussion of organisations as systems, see Lane Tracy, The Living Organization (New York: Quorum Books, 1994).
39. ‘Measuring People Power’, Fortune (2 October 2000), p. 186.
40. Developed from Jay A. Conger, Winning ‘em Over: A New Model for Managing in the Age of Persuasion (New York: Simon
& Schuster, 1998), pp. 180–1; Stewart D. Friedman, Perry Christensen and Jessica DeGroot, ‘Work and Life: The End of the
Zero‐Sum Game’, Harvard Business Review (November–December 1998), pp. 119–29; Chris Argyris, ‘Empowerment: The
Emperor’s New Clothes’, Harvard Business Review (May–June 1998), pp. 98–105; John A. Byrne, ‘Management by Web’,
Business Week (28 August 2000), pp. 84–98.
41. Philip B. Crosby, Quality Is Still Free: Making Quality Certain in Uncertain Times (New York: McGraw‐Hill, 1995). For
a comprehensive review see Robert E. Cole and W. Richard Scott (eds), The Quality Movement & Organization Theory
(Thousand Oaks, CA: Sage, 2000).
42. Jeffrey Pfeffer and John F. Veiga, ‘Putting People First for Organizational Success’, Academy of Management Executive,
vol. 13 (May 1999), pp. 37–48; and Jeffrey Pfeffer, The Human Equation: Building Profits by Putting People First (Boston:
Harvard Business School Press, 1998).
43. J. R. Schermerhorn, P. Davidson, D. Poole, P. Woods, A. Simon and E. McBarron, Management, 5th edn (Brisbane, Australia:
Wiley, 2014), p. 63.
44. Leon Megginson, Lessons from Europe for American Business’, Southwestern Social Science Quarterly, vol. 44, no. 1 pp. 3–13.
45. Jim Collins and Jerry Porras, ‘Building Your Company’s Vision’, Harvard Business Review, vol. (Sept–Oct 1996), pp. 65–77.
46. Jim Collins and Jerry Porras, Built to Last: Successful Habits of Visionary Companies (New York, NY: HarperBusiness, 1994).
47. D. James, and L. Gettler, ‘Ideas out of Left Field’, Management Today (March, 2003). pp. 15–18.
48. N. Dixon, On The Psychology of Military Incompetence (London, UK: Jonathon Cape, 1976).
49. G. Regan, Naval Blunders (London, UK: Andre Deutsch, 2001).
50. Henry Mintzberg, ‘The Manager’s Job: Folklore and Fact’, Harvard Business Review, vol. 53 (July–August 1975), p. 61.
See also his book The Nature of Managerial Work (New York: Harper & Row, 1973, and HarperCollins, 1997).
51. G.C. Kiel, G. Nicholson, J.A. Tunny and J. Beck, Directors at Work: A Practical Guide for Boards, (Pyrmont, NSW: Thomson
Reuters, 2012).
52. B. Behan, Great Companies Deserve Great Boards: a CEO’s Guide to the Boardroom (Palgrave Macmillan, 2011).
53. Hal Lancaster, ‘Middle Managers Are Back — But Now They’re “High‐Impact” Players’, Wall Street Journal (14 April 1998),
p. B1.

CHAPTER 1 The contemporary workplace  31

54. For a perspective on the first‐level manager’s job, see Leonard A. Schlesinger and Janice A. Klein, ‘The First‐Line Supervisor:
Past, Present and Future’, in Jay W. Lorsch (ed.), Handbook of Organizational Behavior (Englewood Cliffs, NJ: Prentice Hall,
1987), pp. 370–82. Research reported in ‘Remember Us?’, The Economist (1 February 1992), p. 71.
55. Lancaster, op. cit.
56. Friedman, Christensen and DeGroot, op. cit.
57. Anne Fisher, ‘Six Ways to Supercharge Your Career’, Fortune (13 January 1997), pp. 46–57.
58. Stephen P. Robbins, Bruce Millett, Ron Cacioppe and Terry Waters‐Marsh, Organisational Behaviour, Leading and Managing
in Australia and New Zealand, 3rd edn (Frenchs Forest: Prentice Hall, 2001), p. 105.
59. Information from Marc Weingarten, ‘The Next Napster’, Smart Business (March 2001), pp. 48–9.
60. For a classic study see Thomas A. Mahoney, Thomas H. Jerdee and Stephen J. Carroll, ‘The Job(s) of Management’, Industrial
Relations, vol. 4 (February 1965), pp. 97–110.
61. Gary Hamel, ‘First, Let’s Fire All the Managers’, Harvard Business Review (December 2011).
62. Ricardo Semler, ‘Why My Former Employees Still Work for Me’, Harvard Business Review (January–February 1993).
63. Mintzberg (1973), op. cit., p. 30.
64. See for example, John R. Veiga and Kathleen Dechant, ‘Wired World Woes: www.help’, Academy of Management Executive,
vol. 11 (August 1997), pp. 73–9.
65. Mintzberg (1973), op. cit.; and Henry Mintzberg, ‘Covert Leadership: The Art of Managing Professionals’, Harvard Business
Review (November–December 1998), pp. 140–7.
66. Mintzberg (1973) op. cit., p. 60.
67. For research on managerial work see Morgan W. McCall Jr, Ann M. Morrison and Robert L. Hannan, Studies of Managerial Work:
Results and Methods, Technical Report #9 (Greensboro, NC: Center for Creative Leadership, 1978), pp. 7–9. See also John P. Kotter,
‘What Effective General Managers Really Do’, Harvard Business Review (November – December 1982), pp. 156–7.
68. P. L. Gomez, J. C. Lorente, and R. V. Cabrera, ‘Training Practices and Organizational Learning Capability’, Journal
of European Industrial Training, vol. 28, issue 2–3 (2004), pp. 234–56; S. P. Lopez, M. M. Peon and C. J. V. Ordas,
‘Organizational Learning as a Determining Factor in Business Performance’, The Learning Organization, vol. 12, issue 3
(2005), pp. 227–45; J. D. Pemberton, G. H. Stonehouse, and D. J. Yarrow, ‘Benchmarking and the Role of Organizational
Learning in Developing Competitive Advantage’, Knowledge and Process Management, vol. 8, issue 2 (2001), pp. 123–35.
69. Ellinger and Bostrom, ‘Managerial Coaching Behaviours in Learning Organisations’, Journal of Management, vol. 18, issue 9
(1999), pp. 752–71.
70. Kotter, op. cit., p. 164. See also his book The General Managers (New York: Free Press, 1986); and David Barry, Catherine
Durnell Crampton and Stephen J. Carroll, ‘Navigating the Garbage Can: How Agendas Help Managers Cope with Job
Realities’, Academy of Management Executive, vol. 11 (May 1997), pp. 43–56.
71. Steve Lovett, L. C. Simmons & R Kali, ‘Guanxi Versus the Market: Ethics and Efficiency’, Journal of International Business
Studies, vol. 30, no. 2 (1999), pp. 231–47.
72. ‘Motivation and Empowerment’, in Wood et. al., op cit.
73. See Handy, op. cit., and Beyond Certainty: The Changing Worlds of Organizations (Cambridge, MA: Harvard Business School
Press, 1997).
74. Robert L. Katz, ‘Skills of an Effective Administrator’, Harvard Business Review (September–October 1974), p. 94.
75. Hendrie Weisinger, Emotional Intelligence at Work (San Francisco: Jossey‐Bass, 2000).
76. See Daniel Goleman’s books Emotional Intelligence (New York: Bantam Books, 1995), and Working with Emotional Intelligence
(New York: Bantam Books, 1998); and his articles ‘What Makes a Leader’, Harvard Business Review (November–December 1998),
pp. 93–102, and ‘Leadership that Gets Results’, Harvard Business Review (March–April 2000), pp. 79–90, quote from p. 80.
77. Richard E. Boyatzis, The Competent Manager: A Model for Effective Performance (New York: Wiley, 1982).

ACKNOWLEDGEMENTS
Photo: © TK Kurikawa / Shutterstock.com
Photo: © maradon 333 / Shutterstock.com
Photo: © Kzenon / Shutterstock.com
Photo: © Pressmaster / Shutterstock.com
Photo: © manfeiyang / Shutterstock.com
Text: © Adapted from ‘Power, Politics and Influence in Organisations’, in Jack Wood, Rachid Zeffane,
Michele Fromholtz, Retha Wiesner, Rachel Morrison and Pi-Shen Seet, Organisational Behaviour:
Core Concepts and Applications, 3rd edn (Milton: John Wiley & Sons, 2012).
Text: © ‘Workplace Motivation and Culture’ box, ‘Motivation and Empowerment’, in Jack Wood, Rachid
Zeffane, Michele Fromholtz, Retha Wiesner, Rachel Morrison and Pi-Shen Seet, Organisational
Behaviour: Core Concepts and Applications, 3rd edn (Milton: John Wiley & Sons, 2012).

32  Management
CHAPTER 2

Historical foundations
of management  

LEA RNIN G OBJE CTIVE S

2.1 What can be learned from classical management thinking?

2.2 What ideas were introduced by the human resource approaches?
2.3 What is the role of quantitative analysis in management?
2.4 What is unique about the systems view and contingency thinking?
2.5 What are the continuing management themes of the 21st century?
Looking back to look forward
The paradox of studying the past is that it illuminates the present, and perhaps also the future. Historia
magistra vitae est (history is life’s teacher) — provided we pay attention. Consider the light shed on the
contemporary management of organisations by the ideas of two US scholars almost a century ago.
The first is Mary Parker Follett (1868–1933). A thoughtful, concerned observer of conflict in organ-
isations, Follett drew on the emerging fields of Gestalt psychology and scientific management to propose
that even though efficiency is key to productivity, an understanding of the functioning of the human
group, and of the organisational significance of leadership and authority, is essential to the resolution of
conflict and the proper functioning of management. It was radical then and, for some, may still be. For
example, Follett saw that reduction in conflict could come from the integration of interests, and leader-
ship could be based on reciprocal influence of leader and follower in the context of the situation. Any
situation would spin out of control when interests were not reconciled. Thus, the best leaders ask people
not to serve them, but to join in serving a common purpose. Management then becomes a matter of com-
municating organisational purpose, coordinating group and individual functions and creating a motive of
service to the community. A century ago this was a challenging perspective (and still is for some people
today). The observation that she was far ahead of her time is an understatement.
When in 1995, Harvard University Press released Mary Parker Follett — Prophet of Management:
A Celebration of Writings from the 1920s, it clearly reminded us of the wisdom to be gained from his-
tory.1 Although a management treatise written in a different age, Follett’s ideas are rich with foresight.
She advocated cooperation and better horizontal relationships in organisations, taught respect for the
experience and knowledge of workers, warned against the dangers of too much hierarchy, and called for
visionary leadership. Today we pursue similar themes while using terms like ‘empowerment’, ‘involve-
ment’, ‘flexibility’ and ‘self‐management’. Rather than naively believing that we are reinventing man-
agement practice, it may be better to recognise the historical roots of many modern ideas and admit that
we are still trying to perfect them.2

34  Management
 A second management theorist from the past is Chester Barnard (1886–1961). A successful and erudite
company executive, he scandalised traditional thinking about authority in organisations by insisting that
individuals needed to assent to authority (rather than just to work in a command and control setting). This,
Barnard said, they would do only if four conditions were met: they understood the instruction; they saw it as
consistent with the purpose of the organisation; they believed the instruction was compatible with their per-
sonal interests; and they believed they were mentally and physically able to comply. Thus, if the order ran
counter to an individual’s moral code, it was unlikely to be obeyed. The benefits of remaining employed would
be weighed by the employee against his or her personal value system. This put a new slant on the nature of
authority, which therefore depended on the confidence and respect in which it was held by those subject to it.
One can only observe that this is a lesson still being learned by current political leaders worldwide.
Barnard extended this by proposing executive functions as being those providing a system of formal
and informal communication, promoting essential personal efforts through incentives and rewards, and
formulating and defining purpose. Barnard saw moral leadership as the creative force that provided the
basis for an organisation to endure. This included taking personal responsibility for decisions affecting
all stakeholders internal and external, and the community. As an early proponent of the ‘boundaryless
organisation’, Barnard’s concept included employees, suppliers and customers. By doing so, he could
recommend establishing an equilibrium between organisation and environment — now a basic tenet in
our thoughts on sustainable organisations.3 Interestingly, he also wrote of decision‐making as relying
on logical as well as ‘non‐logical’ processes. In this, he prefaced the awareness of the importance of
intuition and tacit knowledge in the way managers analysed problems.4
Chester Barnard was influential in the work of Australian management theorist Elton Mayo, who later
became famous for the Hawthorne studies and the notion of organisational equilibrium, and Herbert
Simon, with his ideas on organisational decision‐making. Both Follett and Barnard sought to redefine
concepts of authority, cooperation and unity, emphasising the role of the leader in coordinating organ-
isational functions to enhance the wellbeing of people.
Is this history relevant for today’s world? It is. Are we still talking about these ideas? We are. Why? In
The History of Management Thought, Professor Daniel Wren traces ‘management’ as far back as 5000 BC,
when ancient Sumerians used written records to assist in governmental and commercial activities.5 Man-
agement was important to the construction of the Egyptian pyramids, the rise of the Roman Empire and the
commercial success of 14th century Venice. By the time of the Industrial Revolution in the 1700s, social
changes helped prompt a great leap forward in the manufacture of basic staples and consumer goods.
Industrial change was accelerated by Adam Smith’s ideas of efficient production through specialised tasks
and the division of labour. By the beginning of the 20th century, Fredrick Winslow Taylor, Henry Ford and
others were making mass production a mainstay of the modern economy. Since then, the science and prac-
tices of management have been on a rapid and continuing path of development.
The legacies of this rich history of management must be understood as we confront the challenges of con-
temporary management. The historical context of management thinking can be understood in the following
framework. The classical management approaches focus on developing universal principles for use in
various management situations. The behavioural management approaches focus on human needs, the work
group and the role of social factors in the workplace. The quantitative management approaches focus on
applying mathematical techniques for the management of problem‐solving. The modern approaches focus
on the systems view of organisations and contingency thinking in a dynamic and complex environment.
Continuing themes build from an emphasis on quality and performance excellence to embrace diversity and
global awareness, and describe new leadership roles for a new era of management.

QUESTION
Ask yourself what difference the ideas of Mary Parker Follett and Chester Barnard could make if applied to
contemporary thinking about management. For example, what would happen if Follett’s ideas on
communication were implemented in an organisation known to you? If they were applied today, what difference
would they make to more ‘modern’ concepts like self‐managed teams or adaptive groups?

CHAPTER 2 Historical foundations of management  35

Introduction
The problems and opportunities facing organisations today are complex. All institutions feel the pressure of
a new and very challenging environment. But even in the rush to an exciting future, history should not be
ignored. Knowledge gained through past experience can and should be used as a foundation for future success.

2.1 Classical approaches to management

LEARNING OBJECTIVE 2.1 What can be learned from classical management thinking?
There are three major branches within the classical approach to management: scientific management,
administrative management and bureaucratic management. Figure 2.1 associates each with a prominent
person in the history of management thought. These names are important to know since they are still
widely used in management conversations today. Also, the figure shows that the branches all share a
common assumption: people at work act in a rational manner that is driven mainly by economic con-
cerns. Workers are expected to rationally consider opportunities made available to them and do whatever
is necessary to achieve the greatest personal and monetary gain.6

Classical
approaches
Assumption: People are
rational

Scientific Administrative
Bureaucratic
management management
management
Frederick Taylor Henry Fayol
Max Weber
Frank and Lillian Gilbreth Mary Parker Follett

FIGURE 2.1 Major branches in the classical approach to management

Scientific management
In 1911 Frederick W. Taylor published The Principles of Scientific Management in which he made the
following statement: ‘The principal object of management should be to secure maximum prosperity for
the employer, coupled with the maximum prosperity for the employee’.7 Taylor, often called the ‘father
of scientific management’, noticed that many workers did their jobs their own way and without clear and
uniform specifications. He believed that this caused them to lose efficiency and perform below their true
capacities. He thought this problem could be corrected if workers were taught and then helped by super-
visors to always perform their jobs in the right way.
Taylor used the concept of ‘time study’ to analyse the motions and tasks required in any job and to
develop the most efficient ways to perform them.8 He then linked these job requirements with both
training for the worker and support from supervisors in the form of proper direction, work assistance and
monetary incentives. This approach is known as scientific management and includes these four guiding
action principles.
1. Develop for every job a ‘science’ that includes rules of motion, standardised work processes and
proper working conditions.
2. Carefully select workers with the right abilities for the job.
3. Carefully train workers to do the job and give them the proper incentives to cooperate with the job ‘science’.
4. Support workers by carefully planning their work and by smoothing the way as they go about their jobs.

36  Management
 Taylor tried to use scientific techniques to improve the productivity of people at work. The impli-
cations of his efforts, if not his exact scientific management principles, are found in many management
settings today. A number of these are summarised in Manager’s notepad 2.1.

MANAGER’S NOTEPAD 2.1

Practical lessons from scientific management

• Use results‐based compensation as a performance incentive.
• Carefully design jobs with efficient work methods.
• Carefully select workers with the abilities to do these jobs.
• Train workers to perform jobs to the best of their abilities.
• Train supervisors to support workers so they can perform jobs to the best of their abilities.

Mentioned in Taylor’s first principle, motion study is the science of reducing a job or task to its
basic physical motions. As contemporaries of Taylor, husband and wife team Frank and Lillian Gilbreth
became known through the book and film Cheaper by the Dozen. They pioneered motion studies as a
management tool. In one famous study, they reduced the number of motions used by bricklayers and
tripled their productivity.9 The Gilbreths’ work established the foundation for later advances in the areas
of job simplification, work standards and incentive wage plans — all techniques still used in the modern
workplace.

INNOVATION

Classical management in the Haier Group

The Haier Group is a Chinese electronics and
household appliances company. With 10.2 per
cent market  share  of the world’s white goods
market (more than any other manufacturer) and
a state‐owned enterprise, it is a formidable com­
petitor  in the electronics  market.10 In the early
1980s, the group was merely a general refriger­
ator manufacturer in Qingdao, China. It was close
to bankruptcy when it appointed a young assis­
tant city manager, Zhang Ruimin. A customer
brought back a faulty refrigerator and Zhang went
through his entire inventory of 400 refrigerators
looking for a replacement. Struck by a 20 per cent
failure rate in its products, Zhang issued sledge
Chinese electronics company Haier achieved success
hammers to staff with instructions to destroy by introducing Western management theory.
76 faulty refrigerators in the inventory rather than
let them be sold.11 He introduced Western management theory to the plant, with a focus on quality and relia­
bility. By 1992, Haier was a certified ISO 9001 organisation — a remarkable demonstration of establishing
quality management principles in a very short time.
Sales improved and by 2002 Haier was opening plants in the United States, Pakistan, Africa and
India, as well as partnering with European firms and buying a factory in Italy. By 2008, it had sur­
passed the giant American manufacturer Whirlpool. Zhang’s management approach was summarised
by the letters OEC — O (Overall), E (Everyone, Everything, Every day), C (Control, Clear). Haier’s Human
Resource Management Director Wang Yingmin explained the acronym:

OEC means that every employee has to accomplish the target work every day. The OEC management‐
control system aims at overall control of everything that every employee finishes on his or her job every day,
with a 1% increase over what was done the previous day.12

CHAPTER 2 Historical foundations of management  37

 Performance measurement is crucial and tasks  are allocated to achieve greatest efficiency across
several departments with instructions so that all employees understand their jobs and how their jobs
align with the corporate goals. Employees are shown how their wages are tied to market performance.
Short production lines were created to ensure a close match between design and customer.
Daily control and clarity is the basis of fulfilling those objectives. Every Haier employee has a
‘3E card’, used to record each day that they have done everything required. This is combined with the
plan–do–check–act cycle to check everything. The 3E card has seven criteria: job quantity, usage of
parts, usage of materials, equipment, safety, work attitudes and labour discipline. Every staff member is
required to constantly improve their work skills and ensure that they can achieve the 1 per cent increase
in productivity each day.
However, not everything about the approach is positive: the emphasis on individual performance
and  incentives has created a competitive internal culture where teamwork suffers and synergy is
problematic.13

QUESTION
The numbers are difficult to dispute: Haier was the number one brand of major appliances in the world
from 2009–14, with spectacular efficiencies and affordability. What do you think is the source of the
organisation’s success?

By applying Taylor’s ‘scientific’ methods of measurement and management, many US companies made
huge efficiency gains, and North Americans developed a reliance on mass production that is still present
today. Many workers, however, have felt over the years that scientific management was just a device for
some managers to get more work from each employee and to reduce the total number of workers needed
by a business. ‘Taylorism’ remains a term tinged with resentment because of the inappropriate appli-
cation of his measurement technique to oppressive management. Unfortunately, the efficiencies derived
from such standardisation were not matched by the required flexibility when the environment demanded
it, and many of the world’s banks, as well as companies such as General Motors, have paid a huge price
for their slowness or inability to respond to the global financial crisis and the ensuing economic down-
turn. They were humiliated by their need to seek public bailout funding.
The ideas of Taylor and the Gilbreths are evident in the growing call centre industry. It is an industry,
however, with a big problem — an alarmingly high staff‐attrition rate. For some companies, call centres
are their main point of contact with customers. But in many cases, the staff in those call centres are
bored, disgruntled and inexperienced. Some say call centres are sweatshops. The cost of training new
operators and the poor customer service that results from the high turnover have made staff recruitment
and employee training programs a priority for call centre managers.14

Administrative management
A second branch in the classical approach to management is based on attempts to document and under-
stand the experiences of successful managers. Two prominent writers in this school of thought are Henri
Fayol and (as previously mentioned) Mary Parker Follett.
Henri Fayol
In 1916, after a career in French industry as a CEO of a large mining conglomerate, Henri Fayol pub-
lished Administration Industrielle et Générale.15 The book outlines his views on the proper management
of organisations and the people within them. It identifies the following five ‘rules’ or ‘duties’ of manage-
ment, which closely resemble the four functions of management — planning, organising, leading and
controlling — that we talk about today:
1. foresight — to complete a plan of action for the future
2. organisation — to provide and mobilise resources to implement the plan
3. command — to lead, select and evaluate workers to get the best work towards the plan

38  Management
4. coordination — to fit diverse efforts together and ensure information is shared and problems solved
5. control — to make sure things happen according to plan and to take necessary corrective action.
Most importantly, Fayol believed that management could be taught. He was very concerned about
improving the quality of management and set forth a number of ‘principles’ to guide managerial action.
A number of them are still part of the management vocabulary. They include Fayol’s scalar chain prin-
ciple (there should be a clear and unbroken line of communication from the top to the bottom in the
organisation), the unity of command principle (each person should receive orders from only one boss),
and the unity of direction principle (one person should be in charge of all activities that have the same
performance objective).
Mary Parker Follett
As detailed at the beginning of this chapter, Mary Parker Follett was another significant contributor
to the administrative management school. In her writings about businesses and other organisations in
the early 20th century, Follett displayed an understanding of groups and a deep commitment to human
cooperation — ideas that are highly relevant today. For her, groups were mechanisms through which
diverse individuals could combine their talents for a greater good. She viewed organisations as ‘com-
munities’ in which managers and workers should labour in harmony, without one party dominating the
other, and with the freedom to talk over and truly reconcile conflicts and differences. She believed it was
the manager’s job to help people in organisations cooperate with one another and achieve an integration
of interests.
A review of the publication Dynamic Administration: The Collected Papers of Mary Parker Follett helps to
illustrate the modern applications of her management insights.16 Follett believed that making every employee
an owner in the business would create feelings of collective responsibility. Today, we discuss the same issues
under such labels as ‘employee ownership’, ‘profit sharing’ and ‘gain‐sharing plans’. Follett believed that
business problems involve a wide variety of factors that must be considered in relationship to one another.
Today, we talk about ‘systems’ when describing the same phenomenon. Follett believed that businesses were
services and that private profits should always be considered vis‐à‐vis the public good. Today, we pursue the
same issues under the labels of ‘managerial ethics’ and ‘corporate social responsibility’.

INNOVATION

Blackmores rewards staff with slice of profits

Founded by Maurice Blackmore in Brisbane, Australia over 80 years ago, Blackmores has grown
to become a global leader in the vitamin trade. In 2014–15, profits increased by 83 per cent on the
previous year. This momentum was reflected in the company’s performance on the Australian Stock
Exchange, jumping from a share price of $27 in August 2014 to over $200 by the end of 2015, earning
it a position on S&P/ASX 200 index — a list of Australia’s top 200 companies.
As part of its long‐standing profit share scheme, 10 per cent of Blackmores’ $46 million profit was dis­
tributed to its 900‐strong staff — equating to approximately 6 weeks’ additional pay for each team member.
Blackmores chief executive, Christine Holgate, says the bonus scheme is a great motivator for staff.
‘It really aligns everyone, from the lady on the factory floor to the chief executive’, she said.
Additionally, the family‐oriented company encourages its staff to purchase shares in the business.
10 of the top 30 shareholders in Blackmores are either employees or former employees.
Blackmores staff aren’t merely rewarded with monetary benefits — the offices in Australia,
New Zealand, Asia and the United Kingdom have wellbeing centres, subsidised cafes and family‐friendly
environments.
The company is taking advantage of societal trends that see people increasingly focused on their health
and wellbeing. This, combined with a rising demand for safe vitamin products in China, will ensure that the
Blackmores stock continues to rise — and they are bringing their staff along for the ride.17

QUESTION
Can you discern the relevance of Mary Parker Follett’s ideas in Blackmores’ management approach?

CHAPTER 2 Historical foundations of management  39

Bureaucratic management
Max Weber was a late 19th century German intellectual whose insights have had a major impact on the
field of management and the sociology of organisations. His ideas developed somewhat as a reaction to
what he considered to be performance deficiencies in the organisations of his day. Among other things,
Weber was concerned that people were in positions of authority not because of their job‐related capa-
bilities, but because of their social standing or ‘privileged’ status in German society. For this and other
reasons he believed that organisations largely failed to reach their performance potential.
At the heart of Weber’s thinking was a specific form of organisation he believed could correct the
problems just described — a bureaucracy.18 This is an ideal, intentionally rational and very efficient
form of organisation founded on principles of logic, order and legitimate authority. The defining charac-
teristics of Weber’s bureaucratic management are as follows.
•• Clear division of labour. Jobs are well defined, and workers become highly skilled at performing
them.
•• Clear hierarchy of authority. Authority and responsibility are well defined for each position, and each
position reports to a higher level one.
•• Formal rules and procedures. Written guidelines direct behaviour and decisions in jobs, and written
files are kept for historical record.
•• Impersonality. Rules and procedures are impartially and uniformly applied with no one receiving
preferential treatment.
•• Careers based on merit. Workers are selected and promoted on ability and performance, and managers
are career employees of the organisation.
Weber believed that organisations would perform well as bureaucracies. They would have the advan-
tages of efficiency in using resources, and of fairness or equity in the treatment of employees and clients.
In his words:

The purely bureaucratic type of administrative organisation  .  .  .  is, from a purely technical point of view,
capable of attaining the highest degree of efficiency  .  .  .  It is superior to any other form in precision, in
stability, in the stringency of its discipline, and in its reliability. It thus makes possible a particularly high
degree of calculability of results for the heads of the organisation and for those acting in relation to it. It
is finally superior both in intensive efficiency and in the scope of its operations and is formally capable
of application to all kinds of administrative tasks.19

This is the ideal side of bureaucracy. However, the terms bureaucracy and bureaucrat are now
often used with negative connotations. The possible disadvantages of bureaucracy include excessive
paperwork or ‘red tape’, slowness in handling problems, rigidity in the face of shifting customer or
client needs, resistance to change and employee apathy. These disadvantages are most likely to cause
problems for organisations that must be flexible and quick in adapting to changing circumstances —
a characteristic of challenges in today’s dynamic organisational environments. Researchers now try
to determine when and under what conditions bureaucratic features work best. They also want to
identify alternatives to the bureaucratic form. Indeed, current trends in management include many
innovations that seek the same goals as Weber but with different approaches to how organisations can
be structured.

CRITICAL ANALYSIS

1. Do Weber’s principles still hold true, providing both benefits and challenges for contemporary
organisations?
2. Is there a way of obtaining the benefits of bureaucracy, such as efficiency, objectivity and procedural
predictability, without becoming ‘overcontrolled or cluttered with pointless rules’? Are there Weberian
principles that you would trade off? Why? How would you compensate for their loss?

40  Management
Hierarchy in organisations
Elliott Jaques (1917–2003) was a Canadian management psychologist who unfashionably espoused the
value of hierarchies in organisations at a time when companies were flattening pyramids and building
matrices. His controversial theory is that the layers in an organisation relate to the levels of work
required of different people, distinguished by the degree of discretion exercised. A key variable for
Jaques is the length of time a decision made by an employee is expected to endure. Thus, a CEO’s
decision is expected to last well into the future, and the role is rewarded appropriately.20
Clearly defining roles and responsibilities is critical to Jaques’s approach, along with getting the systems
and structures right. Managers are held accountable for the work of their subordinates in a hierarchy of
capabilities. Jaques thought organisations could be layered into a maximum of seven levels between
CEO and frontline, these being determined by the complexity of the work required of individuals at
each level. His view was that your manager’s manager (your ‘manager once removed’, or MOR) is not
involved in your everyday management but protects you by drawing you up through career levels. While
opinion is divided about the influence of Jaques on management thinking, there seems little doubt that he
has served to re‐emphasise the undeniable significance of hierarchy and structure, and of clarifying roles
and accountabilities.21 In Australia, Westpac, CBA and Telstra have all used Jaques’ thinking to delayer
and restructure.22

CRITICAL ANALYSIS

1. How are the ideas proposed by Jaques useful for organisations? What light do they shed on
organisations and their behaviour?
2. Is the notion of hierarchy too rigid for today’s free‐floating concepts of how organisations ought to
operate in conditions of constant change?

2.2 Behavioural approaches to management

LEARNING OBJECTIVE 2.2 What ideas were introduced by the human resource approaches?
During the 1920s, an emphasis on the human side of the workplace began to establish its influence on
management thinking. Major branches that emerged in this behavioural or human resource approach to
management are shown in figure 2.2. They include the famous Hawthorne Studies and Maslow’s theory
of human needs, as well as theories generated from these foundations by Douglas McGregor, Chris
Argyris and others. The behavioural approaches maintain that people are social and self‐actualising.
People at work are assumed to seek satisfying social relationships, respond to group pressures and
search for personal fulfilment.

Hawthorne Studies Theory X and Theory Y

Elton Mayo Douglas McGregor
Human resource
approaches
Assumption:
People are social
and self-actualising
Theory of human needs
Abraham Maslow

FIGURE 2.2 Foundations in the behavioural or human resource approaches to management

CHAPTER 2 Historical foundations of management  41

The Hawthorne Studies and human relations
In 1924, the Western Electric Company (predecessor of today’s Lucent Technologies) commissioned
a research program to study individual productivity at the firm’s Hawthorne Works in Chicago.23 The
initial ‘Hawthorne Studies’ had a scientific management perspective and sought to determine how
economic incentives and the physical conditions of the workplace affected the output of workers. An
initial focus was on the level of illumination in the manufacturing facilities — it seemed reasonable to
expect that better lighting would improve performance. After failing to find this relationship, however,
the researchers concluded that unforeseen ‘psychological factors’ somehow interfered with their illumi-
nation experiments. This finding and later Hawthorne Studies directed attention towards human inter-
actions in the workplace and ultimately had a major influence on the field of management.

Relay assembly test‐room studies

In 1927, a team led by Harvard’s Elton Mayo (an Australian psychologist) began more research to
examine the effect of worker fatigue on output. Care was taken to design a scientific test that would be
free of the psychological effects thought to have confounded the earlier illumination studies. Six workers
who assembled relays were isolated for intensive study in a special test room. They were given various
rest pauses, and workdays and work weeks of various lengths, and production was regularly measured.
Once again, researchers failed to find any direct relationship between changes in physical working con-
ditions and output. Productivity increased regardless of the changes made.
Mayo and his colleagues concluded that the new ‘social setting’ created for workers in the test room
accounted for the increased productivity. Two factors were singled out as having special importance.
One was the group atmosphere — the workers shared pleasant social relations with one another and
wanted to do a good job. The other was more participative supervision. Test‐room workers were made to
feel important, were given a lot of information and were often asked for their opinions. This was not the
case in regular jobs elsewhere in the plant.

Employee attitudes, interpersonal relations and

group processes
Mayo’s studies continued to examine these factors until the worsening economic conditions of the
Depression forced their termination in 1932. Until then, interest focused on employee attitudes, inter-
personal relations and group relations. In one study, over 21  000 employees were interviewed to learn
what they liked and disliked about their work environment. ‘Complex’ and ‘baffling’ results led the
researchers to conclude that the same things (e.g. work conditions or wages) could be sources of satis-
faction for some workers and of dissatisfaction for others. The final Hawthorne Study was conducted in
the bank wiring room and centred on the role of the work group. A surprise finding here was that people
would restrict their output in order to avoid the displeasure of the group, even if it meant sacrificing pay
that could otherwise be earned by increasing output. Thus, it was recognised that groups can have strong
negative, as well as positive, influences on individual productivity.

Lessons from the Hawthorne Studies

As scholars now look back, the Hawthorne Studies are criticised for poor research design, weak empirical
support for the conclusions drawn and the tendency of researchers to overgeneralise their findings.24 Yet
the significance of these studies as a turning point in the evolution of management thought remains
intact. The Hawthorne Studies helped shift the attention of managers and management researchers away
from the technical and structural concerns of the classical approach and towards social and human con-
cerns as keys to productivity. They showed that people’s feelings, attitudes and relationships with co‐
workers should be impor­tant  to management, and they recognised the importance of the work group.

42  Management
They also identified the Hawthorne effect — the tendency of people who are singled out for special
attention to perform as anticipated merely because of expectations created by the situation.
The Hawthorne Studies contributed to the emergence of the human relations movement as an impor-
tant influence on management thought during the 1950s and 1960s. This movement was largely based
on the viewpoint that managers who used good human relations in the workplace would achieve prod-
uctivity. Furthermore, the insights of the human relations movement set the stage for what has now
evolved as the field of organisational behaviour, the study of individuals and groups in organisations.

Maslow’s theory of human needs

Among the insights of the human relations movement, the work of Abraham Maslow in the area of
human ‘needs’ has been very influential. Needs are physiological or psychological deficiencies a person
feels the compulsion to satisfy. Though now surpassed as a theory of workplace motivation this has been
a significant concept for managers, because needs create tensions that can influence a person’s work atti-
tudes and behaviours.
Maslow identified the five levels of human needs, shown in figure 2.3. From lowest to highest, in
order, they are: physiological, safety, social, esteem and self‐actualisation needs. Maslow’s theory is
based on two underlying principles.25 The first is the deficit principle — a satisfied need is not a motiv-
ator of behaviour (though in spite of this, Maslow’s theory is often spoken of erroneously as a theory
of motivation). People act to satisfy ‘deprived’ needs, those for which a satisfaction ‘deficit’ exists. The
second is the progression principle — the five needs exist in a hierarchy of ‘prepotency’. A need at any
level only becomes activated once the next‐lower‐level need has been satisfied.

Self-actualisation needs
Highest level: need for self-fulfilment;
to grow and use abilities to fullest
and most creative extent

Esteem needs
Need for esteem in eyes of others;
need for respect, prestige, recognition
and self-esteem, personal sense of
competence, mastery

Social needs
Need for love, affection, sense of
belongingness in relationships
with other people

Safety needs
Need for security, protection and
stability in the events of
day-to-day life

Physiological needs
Most basic of all human needs: need
for biological maintenance; food,
water and physical wellbeing

FIGURE 2.3 Maslow’s hierarchy of human needs

CHAPTER 2 Historical foundations of management  43

 According to Maslow, people try to satisfy the five needs in sequence. They progress step by
step from the lowest level in the hierarchy to the highest. Along the way, a deprived need domi-
nates individual attention and determines behaviour until it is satisfied. Then, the next‐higher‐level
need is activated and progression up the hierarchy occurs. At the level of self‐actualisation, the
deficit and progression principles cease to operate. The more this need is satisfied, the stronger it
grows.
Consistent with the human relations thinking, Maslow’s theory implies that managers who can help
people satisfy their important needs at work will achieve productivity. Although scholars now recognise
that things are more complicated than this Maslow’s ideas are still relevant to everyday management.
Consider, for example, the case of dealing with volunteer workers who do not receive any monetary
compensation. Managers in not‐for‐profit organisations have to create jobs and work environments that
satisfy the needs of volunteers. If the work isn’t fulfilling, the volunteers will redirect their energies and
volunteer to work somewhere else.

McGregor’s Theory X and Theory Y

Harvard‐based social psychologist Douglas McGregor was heavily influenced by both the Hawthorne
Studies and Maslow’s theory of needs. His classic book The Human Side of Enterprise advances the
thesis that managers should give more attention to the social and self‐actualising needs of people at
work.26 McGregor urged managers to shift their view of human nature away from a set of assumptions
he called ‘Theory X’ and towards ones he called ‘Theory Y’.
According to McGregor, managers holding Theory X assumptions approach their jobs believing that
those who work for them generally dislike work, lack ambition, are irresponsible, are resistant to change
and prefer to be led rather than to lead. McGregor considers such thinking inappropriate. He argues
instead for the value of Theory Y assumptions in which the manager believes people are willing to
work, are capable of self‐control, are willing to accept responsibility, are imaginative and creative, and
are capable of self‐direction.
An important aspect of McGregor’s ideas is his belief that managers who hold either set of
assumptions can create self‐fulfilling prophecies, that is, through their behaviour they create situ-
ations where subordinates act in ways that confirm the original expectations. Managers with Theory
X assumptions act in a very directive ‘command‐and‐control’ fashion that gives people little per-
sonal say over their work. These supervisory behaviours often create passive, dependent and
reluctant subordinates who tend to do only what they are told or required to do. This reinforces
the original Theory X viewpoint. In contrast, managers with Theory Y perspectives behave in ‘par-
ticipative’ ways that allow subordinates more job involvement, freedom and responsibility. This
creates opportunities to satisfy esteem and self‐actualisation needs, and causes workers to perform
as expected with initiative and high performance. This time the self‐fulfilling prophecy is a positive
one.
Theory Y thinking is very consistent with developments in the new workplace and its emphasis on
valuing workforce diversity. It is also central to the popular notions of employee participation, involve-
ment, empowerment and self‐management.27

CRITICAL ANALYSIS

1. Do you think Maslow’s needs hierarchy is realistic? As a need‐based theory, it survives only
if people do change their behaviour in order to meet specified needs. Does the need for self‐
actualisation, for example, drive people to seek experiences that confer meaning to life, as in a
higher cause? Or are people more interested in ‘getting and spending’?
2. Is Theory X just old Taylorist coercion revisited? Is Theory Y not much more than common sense? If
we all prefer a Theory Y model, why do Theory X managers survive?

44  Management
2.3 Quantitative approaches to management
LEARNING OBJECTIVE 2.3 What is the role of quantitative analysis in management?
About the same time that some scholars were developing human resource approaches to management,
others were investigating how quantitative techniques could improve managerial decision‐making. The
foundation of the quantitative approach to management is the assumption that mathematical techniques
can be used to improve managerial decision‐making and problem‐solving. Today these applications are
increasingly driven by computer‐based technology.

Management science
The terms management science and operations research are often used interchangeably to describe
the scientific applications of mathematical techniques to management problems. A  typical approach
proceeds as follows. A problem is encountered, it is system­atically analysed, appropriate mathematical
models and calculations are applied, and the most appropriate solution is identified. In this process, a
number of management science applications are commonly used. Mathematical forecasting helps make
future projections that are useful in the planning process. Inventory modelling helps control inventories
by mathematically establishing how much to order and when. Linear programming is used to calculate
how best to allocate scarce resources among competing uses. Queuing theory helps allocate service
personnel or workstations to minimise customer waiting time and service cost. Network models break
large tasks into smaller components to allow for better analysis, planning and control of complex pro-
jects. And simulation makes models of problems so different solutions under various assumptions can
be tested.
Regardless of the specific technique used, the essence of the quantitative management approach
includes these characteristics. There is a focus on decision‐making that has clear implications for
management action. The techniques use ‘economic’ decision criteria, such as costs, revenues and
return on investment. They also involve mathematical models that follow sophisticated rules and
formulas.

Quantitative analysis today

Tertiary courses in management science, operations research and quantitative business analysis typi-
cally provide an introduction to these quantitative management foundations. Courses in operations
management apply quantitative analysis to the physical production of goods and services. Since
many of the techniques are highly sophisticated, organisations often employ staff specialists to help
managers take advantage of them effectively. But software developments are making these tech-
niques more readily available through easy‐to‐use applications for the desktop and mobile electronic
devices. This availability greatly expands their use throughout the workplace and makes it even more
important for managers to understand the value of each technique. In all cases, of course, mathemat-
ical solutions to problems must be supported by good managerial judgement and an appreciation of
the human factor.

CRITICAL ANALYSIS

1. The advent of readily available spreadsheets on personal computers should have seen a huge
upsurge in management science and quantitative management. Have we become so used to
using software to explore our decision‐making options that we don’t consider alternatives to
quantitative management anymore?
2. Are the methods of management science like blood test results — valuable, and perhaps critical,
but not conclusive without human judgement to interpret them? Does wisdom have a role after all?

CHAPTER 2 Historical foundations of management  45

2.4 Modern approaches to management
LEARNING OBJECTIVE 2.4 What is unique about the systems view and contingency thinking?
The modern approaches to management grew directly from foundations established by the classical,
human resource and quantitative schools of thought. Importantly, they also recognise that no one model
or theory applies universally in all situations or to the exclusion of the others.
According to the modern management approaches, people are complex and variable. They have many
different needs that can change over time. They possess a range of talents and capabilities that can
be developed. Organisations and managers, therefore, should respond to individual differences with a
wide variety of managerial strategies and job opportunities. Key foundations of the modern management
approaches include the systems view of organisations and contingency thinking.

GLOBALISATION

Asian leaders value creativity and intuition more than

New Zealand leaders
A 2014 study by Grant Thornton found that business leaders in South‐East Asian countries place a
greater emphasis on creativity and innovation than leaders in New Zealand.28 While 90 per cent of leaders
in South‐East Asia responded that creativity is important and 85 per cent recognised the importance of
intuition, only 62 per cent of New Zealand leaders valued creativity and 66 per cent valued intuition.
The National Managing Partner at Grant Thornton New Zealand, Tim Downes, explains that this
survey reveals how South‐East Asian leaders take a ‘modernist’ approach that emphasises creativity
and intuition in the coaching of team members, compared to the ‘traditionalist’ management philosophy
of more developed economies. Although Quinn Mills from Harvard Business School has predicted that
emerging economies will become more like developed countries as they mature, Downes believes that
leaders in South‐East Asia will develop responsive solutions relevant to local markets.
Shedding more light as to how the future of Asian leadership may look, another Grant Thornton study
of Chinese leaders suggests that although analytics has become more prominent, the role of intuition
will still have a role to play in a new ‘Chinese way’ of leadership.
Certainly, in a swiftly changing and digital world, creativity and intuition will play an important role in
leveraging innovation as a competitive market tool. This view of the future of Asian leadership styles is
supported by recent research findings that show that intuition has a role to play in strategic decision‐
making, positively affecting organisational performance.29 Furthermore, a study of Singaporean and
Malaysian companies demonstrates that intuition plays a significant role when making decisions in
uncertain environments.

QUESTION
What are the advantages and disadvantages of introducing Eastern ‘modernist’ styles into contemporary
Western management practices?

Systems thinking
A system is an aggregate of interrelated elements, where the properties of the relationships between the
elements are as significant as the properties of the elements themselves. This perspective on a system
allows examination of the processes involved in the interaction between the elements. A subsystem is a
smaller component of a larger system.30 One of the earliest management writers to adopt a systems per-
spective was Chester Barnard. His 1938 groundbreaking book Functions of the Executive was based on
years of experience as a telephone company executive.31 Barnard described organisations as cooperative
systems in which the contributions of individuals are integrated for a  common purpose. Importantly,
Barnard considered this cooperation ‘conscious, deliberate and purposeful’. It was the job of the exec-
utives, or managers, through communication to make this cooperation happen.

46  Management
 Systems thinking continues to influence management theory and practice today.32 One application is
described in figure 2.4. This figure first depicts the larger organisation as an open system that interacts with
its environment in the continual process of transforming inputs from suppliers into outputs for customers.
Within the organisation any number of critical subsystems can be described. In the figure, the operations and
service management systems are a central point. They facilitate the interactions between other subsystems —
such as purchasing, accounting, sales and information — that are essential to the work of the organisation.
Importantly, and as suggested by Barnard, high performance by the organisation as a whole occurs only
when each subsystem performs its tasks well and works well in cooperation with the other subsystems. It is
the job of managers throughout the organisation to make this coordinated action possible.

Organisational
network of subsystems

Purchasing and Marketing, sales

inventory and distribution
systems systems

Operations and
Inputs service Outputs
management
systems Customers
Suppliers

Accounting Information
and financial and technology
systems systems

FIGURE 2.4 Organisations as complex networks of interacting subsystems

Contingency thinking
Modern management is situational in orientation — that is, it attempts to identify management practices
that are the best fit with the unique demands of a situation. It uses contingency thinking that tries to
match managerial responses with the problems and opportunities specific to different settings, particu-
larly those posed by individual and environmental differences. In the modern management approach,
there is no expectation that you can or should find the ‘one best way’ to manage in all circumstances.
Rather, the contingency perspective tries to help managers understand situational differences and res-
pond to them in appropriate ways.33
Contingency thinking is an important theme in this text, and its implications extend to all of the manage-
ment functions — from planning and controlling for diverse environmental conditions, to organising for dif-
ferent environments and strategies, to leading in different performance situations. For example, consider again
the concept of bureaucracy — something Weber offered as an ideal form of organisation. From a contingency
perspective the strict bureaucratic form is only one possible way of organising things. What turns out to be the
‘best’ structure in any given situation will depend on many factors, including environmental uncertainty, an
organisation’s primary technology and the strategy being pursued. Only when the environment is relatively
stable and operations are predictable does the bureaucracy work best; in other situations, alternative structures
may be needed. Contingency thinking recognises that what is a good structure for one organisation may not
work well for another, and what works well at one time may not work as well in the future as circumstances
change.34 This contingency approach to organisation structure and design is examined further later in the text.

CHAPTER 2 Historical foundations of management  47

 CRITICAL ANALYSIS

1. If we affirm contingency management, does this contradict the ‘excellence’ movement, or the
notion of ‘best practice’? Is the notion of one best way a delusion?
2. Systems thinking may have helped popularise project management and supply chain management,
but does it have its limitations? If so, what are they?

2.5 Continuing management themes

LEARNING OBJECTIVE 2.5 What are the continuing management themes of the 21st century?
The many accumulating insights into management practice have set the foundation for important trends
and directions in management thought that are well in evidence in the 21st century. Among the most
important is the recognition that we live and work in a dynamic and ever changing environment that
puts unique and never‐ending competitive pressures on organisations. Key themes reflected in dis-
cussions throughout Management include continuing pressures for quality and performance excellence,
an expanding global awareness, and the importance of new leadership in an age of information, knowl-
edge workers and highly competitive business environments.

Quality and performance excellence

The quality theme was first introduced in chapter 1 and will continue throughout this text.35 It remains a
very important direction in management today. Managers and workers in truly progressive organisations
are quality conscious. They understand the basic link between competitive advantage and the ability to
always deliver quality goods and services to their customers. The best organisational cultures include
quality as a core value and reinforce the quality commitment in all aspects of the work environment.
Every effort is made in total quality management (TQM) to build quality into all aspects of operations
— from initial acquisition of resources, through the transformation processes and work systems, all the
way to ultimate product delivery to customers or clients. Figure 2.5 describes the systems context for
TQM in respect to the value chain — a specific sequence of activities that transform raw materials into
a finished good or service.36 Quality must be maintained at each point in the value chain, whether this is
done directly by the organisation or is part of its network of relationships with suppliers and contractors.

Organisation as a
transformation system

Materials People and

Resources and Finished
received and technology Customers
materials products
organised create served
flow in distributed
for use products

Management of the
value chain

FIGURE 2.5 The organisational value chain

48  Management
 Closely aligned with the pursuit of quality is management commitment to performance excellence, a
theme that became prominent when the book In Search of Excellence: Lessons from America’s Best‐Run
Companies was published by Tom Peters and Robert Waterman.37 Peters and Waterman investigated the
practices of successful companies and identified the eight attributes of performance excellence shown in
Manager’s notepad 2.2. These attributes are further representative of many themes and directions that
are now common practice in organisations today. In the Asia–Pacific region, Singapore is renowned for
its focus on productivity. There is a government body known as SPRING (Standards, Productivity and
Innovation Board) whose purpose is to promote productivity and innovation in Singaporean enterprises.

MANAGER’S NOTEPAD 2.2

Eight attributes of performance excellence

1. Bias towards action — making decisions and making sure that things get done.
2. Closeness to the customers — knowing their needs and valuing customer satisfaction.
3. Autonomy and entrepreneurship — supporting innovation, change and risk‐taking.
4. Productivity through people — valuing human resources as keys to quality and performance.
5. Hands‐on and value‐driven — having a clear sense of organisational purpose.
6. Sticking to the knitting — focusing resources and attention on what the organisation does best.
7. Simple form and lean staff — minimising management levels and staff personnel.
8. Simultaneous loose–tight properties — allowing flexibility while staying in control.

Global awareness
We have emerged from a period in which the quality and performance excellence themes have been reflected
in the rise of ‘process re‐engineering’, ‘virtual organisations’, ‘agile management’, ‘network firms’ and other
new concepts reviewed in this text. But while the best formulas for success continue to be tested and debated,
an important fact remains — much of the pressure for quality and performance excellence is created by a
highly competitive global economy. Nowhere is this challenge more evident than in the continuing efforts of
businesses around the globe to transform themselves into truly world‐class operations.
Like the lessons of performance excellence, current trends and directions in global awareness have
ties back to the 1980s. That was a time when the success of Japanese industry caught worldwide atten-
tion and both scholars and consultants rushed to identify what could be learned from Japanese manage-
ment practices. The books Theory Z by William Ouchi and The Art of Japanese Management by Richard
Tanner Pascale and Anthony  G. Athos were among the first that called attention to the possible link
between unique Japanese practices and business success.38
Ouchi used the term ‘Theory Z’ to describe a management framework that incorporates into
Australasian and US practices a variety of insights found in the Japanese models.39 Prominent in the
Theory Z management approach are things such as long‐term employment, slower promotions and more
lateral job movements, attention to career planning and development, use of consensus decision‐making,
and emphasis on use of teamwork and employee involvement. And even though the Japanese economy
and management systems now face pressures of their own, these early insights into the Japanese busi-
ness experience helped to establish a global awareness that continues to enrich management thinking
today. This international dimension of management is examined thoroughly in the next chapter, with
special attention on understanding cultural influences on management practices.

Learning organisations
This remains the age of the learning organisation, described in the chapter on information and decision‐
making as an organisation that operates with values and systems that result in ‘continuous change and
improvement based on the lessons of experience’.40 Learning organisations require for their success a
value‐driven organisational culture that emphasises information, teamwork, empowerment, participation
and leadership. Learning organisations also depend for their success on special leadership qualities. This

CHAPTER 2 Historical foundations of management  49

topic is so important that several chapters of this text are devoted to it. Perhaps no other management
theme is more influenced by directions in the new economy. Once again, history sets the stage for the
future. In his book No Easy Victories, John Gardner speaks of leadership as a special challenge and his
words from more than forty years ago are well worth considering today.

Leaders have a significant role in creating the state of mind that is the society. They can serve as symbols
of the moral unity of the society. They can express the values that hold the society together. Most impor-
tant, they can conceive and articulate goals that lift people out of their petty preoccupations, carry them
above the conflicts that tear a society apart, and unite them in the pursuit of objectives worthy of their
best efforts.41

Former US President, Barack Obama, in seeking to avoid the groupthink phenomenon (discussed in
further detail in the later chapter on information and decision‐making), brought together rivals such as
Hilary Clinton as Secretary of State and Joe Biden as Vice President, along with powerful Republicans
in his cabinet, who felt free to question even his own authority and who were unafraid to argue with him.
In the aftermath of the global financial crisis, a brave new style of leadership is required — with leaders
needing to be capable of confronting the challenges that may still be ahead.
Leadership and the new directions of learning organisations will be singled out again and again in
Management as important keys to personal and organisational performance. And performance by people
and organisations, in turn, is the key to any society’s economic development and growth. Managers of
the 21st century have to excel as never before to meet the expectations held of them and of the organ-
isations they lead. Importantly, we must all recognise that new managerial outlooks and new managerial
competencies appropriate to the new workplace are requirements for future leadership success.
At the very least, the 21st‐century manager must be:
•• a global strategist — understands interconnections among nations, cultures and economies; plans and
acts with due consideration of them
•• a master of technology — comfortable with information technology; understands technological trends
and their implications; able to use technology to best advantage
•• an effective politician — understands growing complexity of government regulations and the legal
environment; able to relate them with the interests of the organisation
•• an inspiring leader — attracts highly motivated workers and inspires them with a high performance
culture where individuals and teams can do their best work.
In the chapter on information and decision‐making we will discuss the special challenges of this age
of information. It is an age in which management expert Peter Drucker considered knowledge the prin-
cipal resource of a competitive society. Drucker also cautioned that knowledge constantly makes itself
obsolete.42 In a society where knowledge workers are increasingly important, new managers must be
well educated and they must continue that education throughout their careers. Success in turbulent times
comes only through continuous improvement. Born in Vienna in 1809, the author of 35 books and more
articles in the Harvard Business Review than anyone else ever, Drucker is best known for popularising
the concept of management by objectives (MBO) in his 1954 book The Practice of Management. He
advocated a process that required managers to allocate tasks according to objectives that served higher
order objectives, set collaboratively with subordinates, and involved giving regular feedback on progress.
However, in Drucker’s approach the key question is ‘What business are we in and what business should
we be in?’ He wanted businesses to aim high, to focus on opportunities rather than on problems and not
merely imitate each other.
Drucker’s interest was always in managing for business effectiveness. Although he was an advocate
of the human relations approach to management, his areas of study were wide and deep. His view was
that the first duty and continuing responsibility of the business manager is to strive for the best poss-
ible economic results from the resources currently employed or available. He also gave us a memorable
quote distinguishing effectiveness from efficiency: ‘There is surely nothing so useless as doing with
great efficiency what should not be done at all’.43

50  Management
 According to Drucker, 90 per cent of results are produced by 10 per cent of events; this is true for profits
and for losses. The other 90 per cent of events contribute little either way. His three recommendations were
to: (1) know and analyse the facts, (2) allocate resources according to the results anticipated and (3) decide
what products or staff activities need to be pursued, and what can be dropped. His categorisation was simple:
1. tomorrow’s breadwinners (new products or today’s breadwinners modified)
2. today’s breadwinners (the innovations of yesterday)
3. products capable of becoming net contributors if something drastic is done
4. yesterday’s breadwinners (high volume but costly to produce)
5. also rans (the high hopes of yesterday that consume too much support and managerial ego, and should
be dropped)
6. the failures (that liquidate themselves).
It may be that his greatest legacy lies in his unswerving adherence to common sense in decision‐
making: ‘in allocating resources, especially human resources of greatest potential, the needs of those
areas which offer greatest promise must first be satisfied to the fullest extent possible. This calls for
painful decisions, and risky ones. But that, after all, is what managers are paid for’.44
Drucker’s contribution to management thinking has been enormous. He was the first to:
•• define the role of top managers as the keepers of corporate culture
•• advocate mentoring, career planning and executive development as top management tasks
•• say that success hinges on the vision expressed by the CEO
•• show that structure follows strategy
•• suggest a reduction of management layers between the top and the bottom
•• argue that success comes from sticking to the basics
•• state that the primary purpose of the organisation is to create a customer
•• say that success boils down to consumer sensitivity and the marketing of innovative products
•• suggest that quality is a measure of productivity
•• describe the knowledge worker
•• state that new approaches to management would be needed in the post‐industrial age.
One thing Drucker forecasted that has not quite happened as he foretold, however, was that the middle
manager would continue to develop and evolve into the knowledge worker of post‐industrial society.
In summary, the new economy requires everyone to be unrelenting in efforts to develop, refine and
maintain job‐relevant skills and competencies. It requires leaders with strong people skills, who are
attuned to the nature of an information or service society, who understand the international dimensions,
and who establish commitments to work–life balance.
The new economy places a premium on personal leadership qualities. The 21st‐century manager must
do the ‘right’ things — the things that really count, the things that add value to the organisation’s goods
and/or services, the things that make a real difference in performance results and competitive advantage,
and the ethical things. Those are challenging directions for leadership, learning organisations and career
success in the new economy.

Looking ahead
The next 50 years may prove challenging for management thinkers. Changes in the workplace, and in
society, are likely to demand considered approaches to the new realities. Some topics for consideration are
as follows.
•• Automation. Anything that can be automated is being automated to save costs. Smart machines are likely
to take over a lot of tasks formerly undertaken by managers. Analysing complex data, recruiting staff
(e.g. using social media), compensation and benefits, inventory control and supply chain management
are obvious candidates. IT is hastening management development with gains being made through, for
example, lean production, agile technology, cloud‐based computing and 3D printing.
•• Changing demographics. One trend of significance is the world’s ageing population along with falling
rates of fertility. Countries such as Korea, Japan, Russia and Germany expect their populations to

CHAPTER 2 Historical foundations of management  51

 shrink, and it is expected that the world’s population will plateau. This trend sits alongside the mass
movements of peoples from war‐affected regions seeking a better life in Europe, which will pose
enormous challenges for managers of social services in many countries for decades to come.
•• Productivity. It is likely that productivity will become of greater importance as the number of people
employed will increase by only 0.03 per cent over the next 50 years. This will produce enormous
economic strain, and perhaps a redefinition of growth from quantity to quality, from being bigger to
being better.
•• Sustainability. With an increasing realisation that we live on a planet with finite space and material
resources, management is giving greater attention to sustainability, to the use and reuse of materials and
to replacing suboptimal materials with better ones (e.g. carbon‐fibre composites to replace metal in cars).
•• Technology. Advances in technology will bring a new age of artificial intelligence. Computing power
will continue to expand exponentially with lower prices and proliferating devices. Only 20 years ago
less than 3 per cent of the world’s population had a mobile phone and less than 3 per cent had access
to the internet. Now, two‐thirds of the world has a mobile phone and one‐third has net access.
•• Globalisation. Half the world’s GDP growth between 2010 and 2025 is expected to come from
440 cities in emerging markets by 2025. Forty five per cent of the Fortune 500 global companies will
come from emerging countries, compared to only 5 per cent in 2000.45 Just as Japanese companies
Toyota and Sony shook the world in the 1970s, Samsung, LG, Hyundai and other massive Korean
companies will continue to overturn trends in the future.
In terms of population growth, India looks likely to overtake China by 2022, and both India and China
face massive challenges with ageing populations: ‘China’s working age population is already shrinking
as the country greys. By 2050 about 500 million Chinese and 330 million Indians will be over 60’.46
While globalisation may bring economic benefits, management across cultures is not without chal-
lenges. Failure to take national culture into account can neutralise the best efforts of managers. An
example was the retailing disaster when US giant Walmart bought German chains Wertkauf and Interspar.
The imposition of heavy‐handed US expatriate management practices was a social and economic failure
and Walmart lost US$150 million a year before selling out to German rival Metro.47 In Fish Can’t See
Water, Danish recruitment professional Kai Hammerich argues that company directors need to see the
water they are swimming in.48
Failure to appreciate cultural differences almost certainly brings management failure. Interestingly, com-
panies that show local sensitivity early on when entering foreign markets sometimes become more defen-
sively nationalistic and revert to their old‐country culture as they become more successful. With greater
maturity they may become polycentric, taking country cultures more seriously and adapting to local cultures
and traditions, appointing host rather than home country managers and using short‐term expatriate assign-
ments for professional development instead of enforcing headquarters culture and practices.

COUNTERPOINT

Think about your management theories

Management books tend to reflect the positive side of management theories, but it is important that stu­
dents of management realise that management theories aren’t the same as scientific principles because
they should be constantly reviewed and re‐evaluated. Therefore, the various theories of management need
to be appraised in terms of the evidence supporting them and their relevance to practising managers. For
example, a theory such as Maslow’s was developed on the basis of clinical data about neurotic people. It
was not based on information from a work setting. Indeed, Maslow himself had reservations about whether
his theory could be generalised to explain work motivation.49 Furthermore, empirical testing of Maslow’s
theory has provided little support for its ability to explain work behaviour. Despite this, in the mid 1970s it was
still the most widely accepted theory of work motivation and ranked as the second most significant contribu­
tion in management and it is still widely accepted as an important motivational theory today. It is important
that managers take a multi‐perspective view that would allow them to cover a number of different expla­
nations of people’s behaviour instead of relying on just one theory.

52  Management
 QUESTION
If Maslow’s theory of needs is now regarded as largely obsolete, what do we replace it with? Daniel Pink’s
famous TED Talk about motivation suggests that we are less likely to be motivated in our behaviour by
money than by our desire for mastery of some particular skill, our sense of purpose in an activity in which
we are engaged and autonomy.50 He suggests that monetary rewards are effective only in very limited
circumstances with simple tasks. Is this a new management theory in the making?

CRITICAL ANALYSIS

1. Is the list of ideal leader characteristics just too much? Are we setting our managers and leaders up
to fail?
2. If developing a learning organisation is so important to maintaining ‘the edge of innovation’, what
steps can managers in diverse organisations take to create this new way of working?
3. How important is it for a manager to be aware of their individual management style and of the
alternatives available? Can the same be said for organisations and their management style?

CHAPTER 2 Historical foundations of management  53

SUMMARY
2.1 What can be learned from classical management thinking?
•• Frederick Taylor’s four principles of scientific management focused on the need to carefully select,
train and support workers for individual task performance.
•• Henri Fayol suggested that managers should learn what are now known as the management functions
of planning, organising, leading and controlling.
•• Max Weber described bureaucracy with its clear hierarchy, formal rules and well‐defined jobs as an
ideal form of organisation.
•• Jaques emphasised hierarchy in organisations and the crucial role of the manager.
2.2 What ideas were introduced by the human resource approaches?
•• The human resource approaches shifted attention towards the human factor as a key element in
organisational performance.
•• The historic Hawthorne Studies suggested that work behaviour is influenced by social and
psychological forces and that work performance may be improved by better ‘human relations’.
•• Abraham Maslow’s hierarchy of human needs introduced the concept of self‐actualisation and the
potential for people to experience self‐fulfilment in their work.
•• Douglas McGregor urged managers to shift away from Theory X and towards Theory Y thinking,
which views people as independent, responsible and capable of self‐direction in their work.
•• Peter Drucker’s influence on management thinking continues to be felt as a humanising
common sense approach to the many and complicated tasks involved in managing contemporary
organisations.
2.3 What is the role of quantitative analysis in management?
•• The availability of high‐powered desktop computing provides new opportunities for mathematical
methods to be used for problem‐solving.
•• Many organisations employ staff specialists in quantitative management science and operations
research to solve problems.
•• Quantitative techniques in common use include various approaches to forecasting, linear programming
and simulation, among others.
2.4 What is unique about the systems view and contingency thinking?
•• Organisations are complex open systems that interact with their external environments to transform
resource inputs into product outputs.
•• Resource acquisition and customer satisfaction are important requirements in the organisation–
environment relationship.
•• Organisations are composed of many internal subsystems that must work together in a coordinated
way to support the organisation’s overall success.
•• Contingency thinking avoids ‘one best way’ arguments, and recognises the need to understand
situational differences and respond appropriately to them.
2.5 What are the continuing management themes of the 21st century?
•• The commitment to meet customer needs 100 per cent of the time guides organisations towards total
quality management and continuous improvement of operations.
•• The global economy is a dramatic influence on organisations today, and opportunities abound to learn
new ways of managing from practices in other countries.
•• This is the age of information in which knowledge and knowledge workers are major resources of
modern society.
•• New managers must accept and excel at leadership responsibilities to perform as global strategists,
technology masters, consummate politicians and leader–motivators.

54  Management
KEY TERMS
A bureaucracy  is a rational and efficient form of organisation founded on logic, order and legitimate
authority.
Contingency thinking  tries to match management practices with situational demands.
The Hawthorne effect  is the tendency of people singled out for special attention to perform as
expected.
The human relations movement  suggests that managers using good human relations will achieve
productivity.
A learning organisation  continuously changes and improves using the lessons of experience.
Management science  uses mathematical techniques to analyse and solve management problems.
Motion study  is the science of reducing a task to its basic physical motions.
Needs  are unfulfilled physiological or psychological desires.
Open systems  transform resource inputs from the environment into product or service outputs.
Organisational behaviour  is the study of individuals and groups in organisations.
Scientific management  emphasises careful selection and training of workers, and supervisory support.
Self‐fulfilling prophecies  occur when people act in ways that confirm another’s expectations.
A subsystem  is a smaller component of a larger system.
A system  is a collection of interrelated parts working together for a purpose. The relationships
between the parts may be as important as the characteristics of the parts themselves
Theory X  assumes people dislike work, lack ambition, are irresponsible and prefer to be led.
Theory Y  assumes people are willing to work, accept responsibility and are self‐directed and creative.
Theory Z  describes a management framework emphasising long‐term employment and teamwork.
A value chain  is the sequence of activities that transform materials into finished products.

APPLIED ACTIVITIES
1 What were some of Henri Fayol’s main contributions to the field of management?
2 How does systems thinking continue to influence management theory and practice today?
3 Is the Theory Z management approach still relevant today?
4 What are some continuing management themes in the 21st century?
5 According to the self‐fulfilling prophecy, managers, through their behaviour, can create situations
where employees act in ways that confirm the manager’s original expectations. If you are a newly
appointed manager, what would you do to create positive self‐fulfilling prophecies in relation to your
employees’ behaviour?

ENDNOTES
1. Pauline Graham, Mary Parker Follett — Prophet of Management: A Celebration of Writings from the 1920s (Boston: Harvard
Business School Press, 1995).
2. For a timeline of 20th‐century management ideas, see ‘75 Years of Management Ideas and Practice: 1922–1997’, Harvard
Business Review, supplement (September–October 1997).
3. D. Dunphy and A. Griffiths, The Sustainable Corporation (St Leonards, Australia: Allen and Unwin, 1998).
4. C. Barnard, The Functions of the Executive (Cambridge, MA: Harvard University Press, 1938).
5. A thorough review and critique of the history of management thought, including management in ancient civilisations, is
provided by Daniel A. Wren, The History of Management Thought, 5th edn (New York: Wiley, 2005).
6. For a sample of this work, see Henry L. Gantt, Industrial Leadership (Easton, MD: Hive, 1921; Hive edition published in
1974); Henry C. Metcalfe and Lyndall Urwick (eds), Dynamic Administration: The Collected Papers of Mary Parker Follett
(New York: Harper & Brothers, 1940); James D. Mooney, The Principles of Administration, rev. edn (New York: Harper &
Brothers, 1947); Lyndall Urwick, The Elements of Administration (New York: Harper & Brothers, 1943) and The Golden Book
of Management (London: N. Neame, 1956).

CHAPTER 2 Historical foundations of management  55

  7. References on Taylor’s work are from Frederick W. Taylor, The Principles of Scientific Management (New York:
W. W. Norton, 1967), originally published by Harper & Brothers in 1911. For a criticism, see Charles W. Wrege and
Amedeo G. Perroni, ‘Taylor’s Pig‐Tale: A Historical Analysis of Frederick W. Taylor’s Pig‐Iron Experiments’, Academy
of Management Journal, vol. 17 (March 1974), pp. 6–27. See Edwin A. Locke, ‘The Ideas of Frederick W. Taylor: An
Evaluation’, Academy of Management Review, vol. 7 (1982), p. 14, for an examination of the contemporary significance of
Taylor’s work. See also the biography by Robert Kanigel, The One Best Way (New York: Viking, 1997).
  8. Kanigel, op. cit.
  9. See Frank B. Gilbreth, Motion Study (New York: Van Nostrand, 1911).
10. Peter Day, ‘Smashing Way to Start a Global Business’, BBC News (23 October 2013), www.bbc.com/news.
11. Mark Landler, ‘In China, a Management Maverick Builds a Brand’. The New York Times (23 July 2000).
12. T. W. Lin, ‘Effective OEC Management at China’s Haier group’, Strategic Finance, vol. 86, no. 11 (2005), pp. 39–45.
13. Q. Xu, L. Zhu, G. Zheng and F. Wang, ‘Haiers Tao of Innovation: A Case Study of the Emerging Total Innovation
Management Model’, Journal of Technology Transfer, vol. 32, no. 1–2 (2007), pp. 27–47; X. Chan, ‘A SWOT Study of the
Development Strategy of Haier Group as One of the Most Successful Chinese Enterprises’, International Journal of Business
and Social Science, vol. 2, no. 11 (2011); H. Liu, H. and K. Li, ‘Strategic Implications of Emerging Chinese Multinationals:
The Haier Case Study’, European Management Journal, no. 6 (December 2002), pp. 699–706.
14. Simon Jeffery, ‘Call Centres’, The Guardian (20 February 2001), www.guardian.co.uk.
15. Available in the English language as Henri Fayol, General and Industrial Administration (London: Pitman, 1949);
subsequent discussion is based on M. B. Brodie, Fayol on Administration (London: Pitman, 1949).
16. Judith Garwood, ‘A Review of Dynamic Administration: The Collected Papers of Mary Parker Follett’, New Management,
vol. 2 (1984), pp. 61–2.
17. Simon Evans, ‘Blackmores to Give Six Weeks’ Bonus Pay for 900 Staff After Profit Surge’, The Sydney Morning Herald
(26 August 2015), www.smh.com.au.
18. M. Henderson and Talcott Parsons (eds and trans), Max Weber: The Theory of Social Economic Organization (New York:
Free Press, 1947).
19. ibid, p. 337.
20. Elliott Jaques, Requisite Organization, (Arlington MD: Cason Hall & Co, 1989).
21. J. Fairfield, Levels of Excellence: A Management Novel, (Australia: Random House, 2002).
22. N. Timo, ‘The Social Scientist as Change Agent: Elliot Jaques and the Individualist Imperative’, Journal of Australian
Political Economy, 47 (June 2001).
23. The Hawthorne Studies are described in detail in F. J. Roethlisberger and William J. Dickson, Management and the Worker
(Cambridge, MA: Harvard University Press, 1966); and G. Homans, Fatigue of Workers (New York: Reinhold, 1941). For an
interview with three of the participants in the relay assembly test‐room studies, see R. G. Greenwood, A. A. Bolton and
R. A. Greenwood, ‘Hawthorne a Half Century Later: “Relay Assembly Participants Remember”’, Journal of Management,
vol. 9 (1983), pp. 217–31.
24. The criticisms of the Hawthorne Studies are detailed in Alex Carey, ‘The Hawthorne Studies: A Radical Criticism’, American
Sociological Review, vol. 32 (1967), pp. 403–16; H. M. Parsons, ‘What Happened at Hawthorne?’, Science, vol. 183 (1974),
pp. 922–32; B. Rice, ‘The Hawthorne Defect: Persistence of a Flawed Theory’, Psychology Today, vol. 16 (1982), pp. 70–4.
See also Wren (op. cit.).
25. This discussion of Maslow’s theory is based on Abraham H. Maslow, Eupsychian Management (Homewood, IL: Richard D.
Irwin, 1965), and Abraham H. Maslow, Motivation and Personality, 2nd edn (New York: Harper & Row, 1970).
26. Douglas McGregor, The Human Side of Enterprise (New York: McGraw‐Hill, 1960).
27. Information from ‘About AIMD’, American Institute for Managing Diversity website, www.aimd.org.
28. G. Ramirez, ‘Asian Leaders Value Creativity and Intuition More than New Zealand Leaders’, Grant Thornton (23 June 2014),
www.grantthornton.co.nz.
29. V. Cheng, J. Rhodes and P. Lok, ‘A Framework for Strategic Decision Making and Performance Among Chinese Managers’,
The International Journal of Human Resource Management, vol. 21, no. 9 (2010), pp. 1373–95.
30. The ideas of Ludwig von Bertalanffy contributed to the emergence of this systems perspective on organisations. See his
article, ‘The History and Status of General Systems Theory’, Academy of Management Journal, vol. 15 (1972), pp. 407–26.
This viewpoint is further developed by Daniel Katz and Robert L. Kahn in their classic book, The Social Psychology of
Organizations (New York: Wiley, 1978). For an integrated systems view, see Lane Tracy, The Living Organization
(New York: Quorum Books, 1994). For an overview, see W. Richard Scott, Organizations: Rational, Natural and Open
Systems, 4th edn (Upper Saddle River, NJ: Prentice Hall, 1998).
31. Chester I. Barnard, Functions of the Executive (Cambridge, MA: Harvard University Press, 1938).
32. See discussion by Scott (op. cit.), pp. 66–8.
33. Peter F. Drucker, ‘The Future That has Already Happened’, Harvard Business Review, vol. 75 (September–October 1997),
pp. 20–4.
34. For an overview, see Scott (op. cit.), pp. 95–7.
35. For the classics, see W. Edwards Deming, Quality, Productivity and Competitive Position (Cambridge, MA: MIT Press,
1982); Joseph M. Juran, Quality Control Handbook, 3rd edn (New York: McGraw‐Hill, 1979).

56  Management
36. Jay R. Galbraith, ‘Designing the Networked Organization: Leveraging Size and Competencies’, in Susan Albers Mohrman,
Jay R. Galbraith, Edward E. Lawler III and Associates, Tomorrow’s Organization: Crafting Winning Capabilities in a
Dynamic World (San Francisco: Jossey‐Bass, 1998), pp. 76–102.
37. Thomas J. Peters and Robert H. Waterman Jr, In Search of Excellence: Lessons from America’s Best‐Run Companies
(New York: Harper & Row, 1982).
38. William Ouchi, Theory Z: How American Businesses Can Meet the Japanese Challenge (Reading, MA: Addison‐Wesley,
1981); Richard Tanner Pascale and Anthony G. Athos, The Art of Japanese Management: Applications for American
Executives (New York: Simon & Schuster, 1981).
39. Ouchi, op. cit.; see also the review by J. Bernard Keys, Luther Tray Denton and Thomas R. Miller, ‘The Japanese
Management Theory Jungle — Revisited’, Journal of Management, vol. 20 (1994), pp. 373–402.
40. The classic work is Peter Senge, The Fifth Discipline (New York: Harper, 1990).
41. John Gardner, No Easy Victories (New York: Harper & Row, 1968).
42. Peter F. Drucker, Esther Dyson, Charles Handy, Paul Daffo and Peter M. Senge, ‘Looking Ahead: Implications of the
Present’, Harvard Business Review (September–October, 1997), pp. 18–32.
43. Peter Drucker, The New Realities (London: Mandarin, 1990).
44. Peter Drucker, ‘Managing for Business Effectiveness’, Harvard Business Review (May–June, 1963).
45. Richard Dobbs, Sree Ramaswamy, Elizabeth Stephenson, and S. Patrick Viguerie, ‘Management Intuition for the Next
50 Years’, McKinsey Quarterly (September 2014).
46. ‘Population forecasts’, The Economist (15 August 2015), p. 21.
47. K. Hammerich and R. Lewis, Fish Can’t See Water: How National Cultures Can Make or Break Your Corporate Strategy
(New York, NY: John Wiley & Sons, 2013).
48. ibid.
49. A. Maslow, Eupsychian management (Homewood, IL: Richard D. Irwin, 1965).
50. See ‘Daniel Pink on the Surprising Science of Motivation’, TED website (2009), www.ted.com/talks/dan_pink_on_motivation
.html.

ACKNOWLEDGEMENTS
Photo: © suphakit73 / Shutterstock.com
Photo: © Kobby Dagan / Shutterstock.com
Text: © ‘Asian Leaders Value Creativity and Intuition More than New Zealand Leaders’, in Jack
Wood, Rachid Zeffane, Michele Fromholtz, Retha Wiesner and Rachel Morrison, Organisational
Behaviour: Core Concepts and Applications, 4th edn (Milton: John Wiley & Sons, 2016).

CHAPTER 2 Historical foundations of management  57

CHAPTER 3

Environment and
diversity
LEA RN IN G OBJE CTIVE S

3.1 What is the external environment of organisations?

3.2 What is the internal environment and organisational culture?
3.3 What is a customer‐driven organisation?
3.4 What is a quality‐driven organisation?
3.5 How is diversity managed in a multicultural organisation?
Australia is a diverse country, but older workers still
struggle to find employment
Australia, along with Sweden, is the second most diverse country in the world after Luxembourg1,
thus the federal government actively encourages the employment of a diverse workforce. The
Business.gov.au website states that ‘diversity in the workplace means having employees from a
wide range of backgrounds. This can include having employees of different ages, gender, ethnicity,
physical ability, sexual orientation, religious belief, work experience, educational background,
and so on’. Furthermore, it is illegal to disadvantage employees and job seekers in any way because
of their:
•• race
•• colour
•• gender
•• sexual preference
•• age
•• physical or mental disability
•• marital status
•• family or carer’s responsibilities
•• pregnancy
•• religion
•• political opinion
•• national extraction
•• social origin.2
Focusing on age, because of Australia’s rapidly ageing population, Churchill and colleagues sug­
gest that ‘to minimise the fiscal and economic impact of population ageing, the IGR [Intergenerational
Report] asserts that greater labour force participation and increased productivity will be critical’.3
However, it does seem that in reality it is extremely difficult for older workers to find employment.
Verity Edwards writes about the case of Richard Evans, 62, a former Liberal Party MP and exec­
utive director of the Australian Retailers Association, for whom securing full‐time work has been
very difficult. Evans claims that his years of experience in retail and business management have been
overlooked by many employers, who have gone on to hire younger workers. He says ‘older workers
are more reliable, less likely to take sick leave and likelier to stay in the role longer compared with
many younger workers who change jobs after a year or two without building experience. Evans has
applied for more than 50 jobs and been interviewed for about 20 per cent of those. Out of frus­
tration he is opening a consultancy business’.4 Edwards also writes about international consultant
Phil Rutherford, 65, who ‘has spent more than a decade looking for a permanent job. He spends more
time consulting on vocational and further training industries overseas than in Australia. He was over‐
qualified for one position he sought but was passed over, and the company asked him to mentor the
younger candidate instead. Rutherford was also listed with a prominent jobs agency for more than a
decade but lost hope because it was not advocating for him. “It was because of my age,” Rutherford
says. “I had a number of experiences like that.” Rutherford stopped putting his age on applications
and was regularly short‐listed for interviews, but when he sat before panels he noticed members
would almost immediately put down their pens and cross their arms’.5 This seems like a waste of
valuable human resources.
A refreshing step in the right direction, however, is that of the company John Holland, a member
of the publicly listed Leighton Group. In a case study from the Employ Outside The Box: Mature Age
People guide produced by the Chamber of Commerce and Industry of Western Australia, Glen Palin, the
Group Managing Director of John Holland, is reported as saying ‘We have created the Flexible Futures
Program to encourage and support employees aged 55 years of [sic] over to plan the next phase of their
working life. People have always been central to John Holland’s success and today it is more important

CHAPTER 3 Environment and diversity  59

than ever for us to have the skills, knowledge and experience we need to meet the challenges of growing
our business. At the same time we know that more than one‐third of our employees may be considering
retirement in the next five to ten years. We want to ensure that those employees have flexible options to
allow them to continue working for John Holland while preparing for their eventual retirement  .  .  .  John
Holland created the Flexible Futures Program to support their employees to plan the next phase of their
working life in line with changing needs and goals – while ensuring they support people in the work­
place so they are able to pass on their considerable skills and knowledge to other colleagues’.6

QUESTIONS
1. What strategies would you suggest the Australian Government implement to make the employment of older
people more attractive to businesses?
2. How can the John Holland success story be promoted to other companies so that they too employ older
workers?

Introduction
Once a benchmark for science fiction writers, the 21st century is now placing unrelenting new demands
on organisations and their members. Managers today are learning to operate in a world that places a
premium on information, technology use, quality, customer service and speed. They are learning how
to succeed in a world of intense competition, continued globalisation of markets and business activities,
and rapid technological change. Indeed, the technology revolution is now spoken of in the same breath
as the industrial revolution. This has major ramifications for businesses and their management around
the world. This chapter introduces the external and internal environments of organisations as two impor­
tant considerations in the quest for high performance in demanding and dynamic times. It also shows

60  Management
how the contemporary manager needs to ensure that quality products, services and customer care are
provided to help withstand environmental economic turbulence. The modern manager should consider
diversity to be another key to achieving competitive advantage. The chapter opening example of the
problems faced by older workers sets the stage. It introduces the concepts of changing demographics,
organisational culture and diverse workforces. It raises the question: What must organisations do to
remain successful in the dynamic, complex and ever changing environment of today?

3.1 Environment and competitive advantage

LEARNING OBJECTIVE 3.1 What is the external environment of organisations?
Environmental shifts constantly affect companies and their operations. For example, widespread use of
the personal computer, internet and mobile phones only began in Australia as recently as the last decade
of the 20th century. Another example is the decline of Australia’s manufacturing industry from about
25 per cent of gross domestic product (GDP) in 1960 to 6.5 per cent in 2014.7 High‐quality Japanese
products, especially cars and electronic items; the rapid rise of China; and the advent of sweatshops in
many developing countries have simply decimated Australia’s manufacturing sector.
Companies, therefore, need to develop strategic or dynamic capabilities in order to advantageously
compete in the face of these far reaching changes that emanate from the environment. Strategic
capabilities are difficult to imitate, are of value to the customer, and are better than those possessed by
the majority of competitors.8 An example is a unique or differentiated product or service.
Taking the concept of strategic capabilities one step further, dynamic capabilities can be matched
to environmental contingencies and opportunities, because they enable an organisation to reconfigure
its resources to cope with exogenous shocks. Dynamic capabilities are physical (e.g. state‐of‐the‐art
equipment or advantageous location), organisational (e.g. an outstanding sales force) and human (e.g.
expertise in a specialised field).9 For this reason, in an ‘information is power’ age, the company that
employs knowledgeable staff with a canny ability to scan the environment for shifts and ideas might
gain a competitive advantage. Former IBM chief executive officer (CEO) Louis Gerstner Jr described the
challenge this way:

We believe very strongly that the age‐old levers of competition — labour, capital and land — are being
supplemented by knowledge, and that most successful companies in the future will be those that learn
how to exploit knowledge — knowledge about customer behaviour, markets, economies, technology —
faster than their competitors.10

Land has not really been supplanted by knowledge in Australia. Australians remain deeply hooked on
escalating property prices much to the delight of estate agents, government stamp duty collectors and the
banks but to the dismay of their children. Australia also remains the farm and quarry for a great many
other countries. However, knowledge and speed are indispensable to success in this new economy.

What is competitive advantage?

Astute executives understand the management implications in the previous observations. They are ever
alert to environmental trends that require adjustments in the ways their organisations operate and that
offer opportunities to achieve competitive advantage.11 This term refers to the use of a core compe­
tency that clearly sets an organisation apart from its competitors and gives it an advantage over them in
the marketplace. Simply put, competitive advantage comes from an ability to do things better than your
competitors. An organisation may achieve competitive advantage in many ways, including through its
products, pricing, customer service, cost efficiency, quality, and even diversity, among other aspects of
operating excellence. But regardless of how the advantage is achieved, the key result is the same — an
ability to consistently do something of high value that your competitors cannot replicate quickly or do
as well.

CHAPTER 3 Environment and diversity  61

 TECHNOLOGY

Interaction through screens replaces face‐to‐face contact

Baby boomers who were schooled in the
1960s and went to university in the 1970s
would readily agree that the technology revol-
ution can be spoken of in the same breath as
the industrial revolution. A teenager in the final
years of high school in the late 1960s would go
to a local church or recreation centre social on
a Friday or Saturday night to meet and hope-
fully dance with members of the opposite sex.
He might thereafter use a landline dial phone
to ask a girl out on a date. Black‐and‐white TV
and a mono radio were the only sources of
entertainment in the house, and the idea of a
home theatre was inconceivable.
At university, lecturers would debate theories
and write the occasional note on a chalkboard.
The lecturers spoke so fast that students could not write everything down, so they would go to the
library in the evenings and read hard‐copy journals to fill in the missing bits. If they wanted to use a
computer, they entered their data cards into mainframes via mechanical card readers.
In the last decade of the 20th century, all this changed. PCs appeared on desks, facilitating wide-
spread use of the internet. Originally accessed on 286 MB PCs, the world wide web was under-
standably jokingly referred to as the ‘world wide wait’. Simultaneously, brick‐sized mobile phones,
which could be serendipitously used to ward off potential muggers, appeared. Like computers, they
were soon replaced by much smaller models that could access TV and radio. By 2011, smartphones
could access the internet, be used as still and video cameras, and even as a GPS and handheld
gaming device (not to mention to access social media sites like Facebook, Twitter and Google+).
Nowadays, a range of services can be accessed using relevant apps on smartphones and tablets;
for example, a receipt for a visit to the doctor can now be photographed using the phone, uploaded
and submitted as a claim to Medicare via its app. These days, students can be seen walking around
university campuses interacting with one another over mini screens. When asked for a metaphor
to represent his university, one student suggested ‘Apples’. When Steve Jobs died in 2011, United
States President Barack Obama referred to him as a visionary who changed the world.12 Such was
the outpouring of tributes to his creative genius at the time of his death that one is driven to wonder
whether he will one day be beatified as Saint Steven.
The face of university lecturing has also changed indelibly. Electronic versions of lectures, some-
times even recorded, are placed on learning systems via WebCT, Blackboard and Moodle. This has
led to a marked drop in attendance at lectures, with some students now leaving university without
ever making a friend.

QUESTION
Should managers allow workers to access social networking sites during their lunch hours? List the pros
and cons that may affect this decision.

The general environment

Business excellence in organisations is only possible when business leaders understand the interdepen­
dencies between their organisation and the external environment. Studies by the International Institute
for Management Development have highlighted the importance of Australia maintaining its world com­
petitiveness. This is particularly important given that Australia trails just behind Hong Kong and the
United States in the world rankings, after dropping from fifth place in 2010 to a lowly eighteenth place in
2015.13 Competitive advantage in the demanding global economy can be achieved only by continuously

62  Management
scanning the environment for opportunities, and taking effective action based on what is learned.14 The
ability to do this begins with the answer to a basic question: what is in the external environment of
organisations?
The general environment consists of all the background conditions in the external environment of an
organisation. This part of the environment forms a general context for managerial decision‐making. The
major external environmental issues of our day include the factors listed in figure 3.1.

Economic conditions
This includes the general state of the economy in terms of inflation, interest rates, income levels,
gross domestic product and unemployment and related indicators of economic health.

Sociocultural conditions
This includes the general state of prevailing social values on matters such as human rights, trends in education and
related social institutions, and demographic patterns.

Political–legal conditions
This includes laws and government regulations and the general state of the prevailing philosophy and objectives
of the political party or parties running the government.

Technological conditions
This includes the general state of the development and availability of technology, including
scientific advancements.

Natural environment conditions

This includes the general state of nature and the conditions of the natural environment, including levels
of public concern expressed through environmentalism.

FIGURE 3.1 Major elements of an organisation’s general environment

While all of these forces in the general environment can influence business activities, three in par­
ticular have received much attention in recent times — economic, sociocultural and natural environ­
ment conditions. The global financial and Eurozone crises, the slowdown in China’s economy in 2015
and their subsequent effects on economies around the world provided stark examples of how economic
conditions can change quickly and dramatically. Managers can find themselves facing a very different
economic environment within a short period of time. For example, as the global economic crisis began
to undermine business investment, the demand for commodities such as coal and iron ore fell away
dramatically. The economic slowdown in China, in particular, reduced demand for Australian mineral
exports, and thus prices began to drop significantly. Further, the lower demand for Australian exports
triggered a massive fall in demand for Australian currency, with the Australian dollar losing about
30 per cent of its value in a period of months after the global financial crisis emerged. This made exports
cheaper and imports more expensive, which at the time helped local producers. However, in a roller­
coaster ride, within twelve months the Australian dollar had rebounded to ‘pre GFC’ levels, much faster
than had been anticipated. Indeed, by 2010, Chinese demand for Australian minerals soared again, and
the Australian dollar reached US$1.06. However, it then fell back to 98c during the Eurozone crisis in
2011, but strengthened in January 2012. After the Chinese economic boom subsided in 2015 the dollar
fell below 70c. This global financial uncertainty and the high Australian dollar were cited as the main
reasons for Toyota axing 350 jobs at its Melbourne plant in 2012 and many Australian mines laying off

CHAPTER 3 Environment and diversity  63

workers in 2015, so these changes underscore just how volatile the general environment can be in the
new millennium.15 Unless attitudes soften towards older workers and jobs are found for them in Australia
and overseas, taxation revenues will be reduced and aged pension liabilities increased. Managers need to
keep a sharp eye out for such economic turbulence and make contingency plans.
The natural environment has also emerged as an increasingly important issue, with the world as a
whole generally becoming more aware of the need to minimise the impact of human and organisational
behaviour on our planet. This issue, and its potential implications for managers, is discussed in more
detail in the boxed feature.

SUSTAINABILIT Y

Carbon taxes and emissions trading schemes

Amid warnings from scientists of global
warming, pollution, the exhaustion of
fossil fuels and the extinction of flora and
fauna species, individuals, businesses and
governments have begun to give much
more weight to the need for business
activities to be more responsible and sus-
tainable for future generations.
One of the options to help achieve this
is to allow market forces to reduce carbon
pollution, which is one of the main con-
tributors to global warming, in the form of a
carbon tax. There is no limit to emissions,
but a tax must be paid by companies that
do emit. Under a carbon tax regime, com-
Emissions trading schemes aim to reduce the amount
panies cannot trade emissions permits,
of carbon pollution generated by organisations and have
and all taxation revenue generated goes to been the focus of considerable debate in recent times.
the government.16
A second approach is an ‘emissions trading scheme’. The potential introduction of such schemes has
been the focus of much political debate in many countries, including Australia, in recent years. Most
schemes and proposed schemes are based on creating carbon permits, which entitles the organisation
owning the permit to create a certain amount of carbon pollution. The number of permits is limited, so
those organisations that generate carbon pollution need to buy enough permits to offset their emissions
from organisations that do not require the permits. The theory is that this will push up the price of prod-
ucts that require carbon pollution, reducing demand, whereas carbon‐friendly products will fall to be
relatively low in price, increasing demand.
Although Australia only emits approximately 1.5 per cent of total global carbon emissions, it is the
world’s third largest emitter of carbon dioxide per capita. About 1000 Australian companies currently
emit more than 25  000 tonnes of carbon dioxide equivalents a year.17 By targeting these with a pro-
posed emissions trading scheme, the Australian government hopes to reduce emissions to 26–28 per
cent of 2005 levels by 2030.18 Despite some debate as to whether or not a scheme would hurt small‐ to
medium‐sized enterprises, the Senate cleared the carbon tax legislation on 9 November 2011 (having
been passed by the House of Representatives a month before).19 However, when a new conservative
government was elected in 2014 it repealed the carbon tax, stating it did so to relieve cost pressures
on families and businesses.20 New Zealand had made an earlier start, with the first transaction in its
greenhouse gas emissions trading market taking place in 2009. New Zealand’s emissions market deals
in New Zealand Units (NZUs). New Zealand’s first sale involved 50  000 NZUs at $20 a unit, and repre-
sented the sequestration of 50  000 tonnes of carbon in forests.21

QUESTION
Can you think of some ways that your university or workplace can reduce its carbon emissions? Provide
an example.

64  Management
The specific environment
The specific environment consists of the actual organisations, groups and people with whom an organ­
isation interacts and conducts business. These are environmental elements of direct consequence to the
organisation as it operates on a day‐to‐day basis. The specific environment is often described in terms
of stakeholders — the individuals, groups and institutions who are affected in one way or another by
the organisation’s performance. Figure 3.2 shows multiple stakeholders as they may exist in the external
environment of a typical business.

Federal, state, Educational

local governments institutions

Employees

Competitors Suppliers

Court and
Political parties Organisation legal institutions

Labour
Customers
unions

Shareholders
Public-interest Financial
groups institutions

FIGURE 3.2 Multiple stakeholders in the environment of organisations

Sometimes called the task environment, the specific environment and the stakeholders are distinct for
each organisation. They can also change over time according to the company’s unique customer base,
operating needs and circumstances. Important stakeholders common to the specific environment of most
organisations include:
•• customers — specific consumer or client groups, individuals and organisations that purchase the
organisation’s goods and/or use its services
•• suppliers — specific providers of the human, information and financial resources and raw materials
needed by the organisation to operate
•• competitors — specific organisations that offer the same or similar goods and services to the same
consumer or client groups
•• regulators — specific government agencies and representatives, at the local, state and national levels,
that enforce laws and regulations affecting the organisation’s operations.

Environmental uncertainty
The fact is that many organisations today face great uncertainty in their external environments. In this
sense, environmental uncertainty means that there is a lack of complete information regarding what
developments will occur in the external environment. This makes it difficult to predict future states of
affairs and to understand their potential implications for the organisation. Figure 3.3 describes environ­
mental uncertainty along two dimensions — complexity, or the number of different factors in the
environment, and the rate of change in these factors.22

CHAPTER 3 Environment and diversity  65

 High
High uncertainty
High–moderate
uncertainty Requires greatest
Rate of flexibility and adaptation
change in
environment

Low Low–moderate
uncertainty uncertainty
Low

Low High
Complexity of environment

FIGURE 3.3 Dimensions of uncertainty in organisational environments

In general, the greater the environmental uncertainty, the more attention that management in an organ­
isation must direct towards the external environment. It has to be continually studied and monitored to
spot emerging trends. Also, the greater the environmental uncertainty, the more need there is for flexi­
bility and adaptability in organisational designs and work practices. Because of this uncertainty, organ­
isations must be able to respond quickly as new circumstances arise and information becomes available.
Throughout this text you will find many examples of how organisations are becoming more flexible in
the attempt to better deal with the high degree of environmental uncertainty that so often prevails in
today’s dynamic times.

ETHICS

Greed and the big four banks

The rollercoaster ride of interest rates in
Australia illustrates how the general environ-
ment can have a major impact on business
activities; but it also raises ethical questions.
When Australian official rates were lowered
several times during the global financial crisis
(GFC), none of the big four banks passed on
the full extent of the rate cuts.23 Yet every time
rates have been increased in the past, all four
banks have very quickly passed on the full
extent of the mark‐up to their mortgage holders
(and they have sometimes even increased rates
despite no official increase from the Reserve
Bank of Australia).24 Their primary focus
appears to be increased share price.
By 2015 the RBA had lowered the official interest rate to a record low of 2 per cent due to apprehen-
sion about the impact on the Australian economy of lessening demand for resources from China. How-
ever, the best variable mortgage rate on offer from the big four banks was 4.53 per cent, a mark‐up
of 2.53 per cent. A former second‐in‐command of the Bank of Melbourne stated that a fair margin for
lending was between 1.5 and 2.0 per cent.25 While not passing on rate cuts in full against a background
of record profits is not illegal, it is questionable on moral grounds. Moreover, despite the RBA leaving the
official cash rate unchanged at 2 per cent, the big four banks unilaterally increased their mortgage rates in
October 2015 by a minimum of 0.15 basis points (CBA, 0.15; NAB, 0.17; ANZ, 0.18; Westpac, 0.20).26

66  Management
 What compounds the problem is that homeowners who hold big mortgages are scared of the RBA
increasing the official cash rate, or banks not passing on cuts in full. As a result, many homeowners
with mortgages are putting every spare cent into paying off their loans as soon as possible. Even when
interest rates are lowered almost no one reduces the amount they pay off on their mortgage each
month. Shane Wright, Economics Editor of The West Australian, wrote that ‘most commercial lenders
have reported Australians sticking with repayments struck when interest rates were higher, refusing to
reduce their monthly payments in line with interest rates’.27 Gail Kelly, former CEO of Westpac, said that
customers were more likely to make additional debt repayments or put the money into savings than help
stimulate a sluggish economy by spending.28 Customers are spending less at retail outlets these days
and many shoppers now make their smaller retail purchases online due to convenience and cheaper
prices. This compounds to drive retailers to the wall, and one wonders whether the banks won’t even-
tually get caught in a series of bad loans to their small business customers.
Had the Commonwealth Bank of Australia (CBA) not been privatised in the 1990s, it would have
passed on rates cuts in full, and, consequently, the other banks would have had to follow suit. This
raises questions about ethical considerations in privatisation, and the more recent privatisation of com-
panies such as Qantas, Telstra and Medibank further highlight the issue.

QUESTION
Do you think privatisation of the CBA, Telstra, Qantas and Medibank has been good for the Australian
economy and for consumers? Provide reasons for your answer.

CRITICAL ANALYSIS

1. Which dimensions of the general and specific environments can be related to the greedy banks
case? Provide reasons for your answer.
2. Which dimensions of the general and specific environments can be related to the diversity case that
opened this chapter? Provide reasons for your answer.

3.2 Internal environment and organisational culture

LEARNING OBJECTIVE 3.2 What is the internal environment and organisational culture?
Culture is a popular word in management these days. Important differences in national cultures are discussed
in the chapter on the global dimensions of management. Here we talk about cultural differences in the internal
environments of organisations. Organisational culture is defined by noted scholar and consultant Edgar
Schein as the system of shared beliefs and values that develops within an organisation and guides the behav­
iour of its members.29 Sometimes called the corporate culture, it is a key aspect of any organisation and work
setting. Whenever people speak, for example, of ‘the way we do things here’, they are talking about the culture.

What strong cultures do

Although it is clear that culture is not the sole determinant of what happens in organisations, it is an
important influence on what they accomplish and how they accomplish it. The internal culture has the
potential to shape attitudes, reinforce common beliefs, direct behaviour and establish performance expec­
tations and the motivation to fulfil them. A widely discussed study of successful businesses concluded that
organisational culture made a major contribution to their long‐term performance records.30 Importantly,
the cultures in these organisations provided for a clear vision of what the organisation was attempting to
accomplish, allowing individuals to rally around the vision and work hard to support and accomplish it. In
these and related ways, organisational culture is a bond that further mobilises resources for action.31
Strong cultures — ones that are clear and well defined and widely shared among members —
discourage dysfunctional work behaviours and encourage positive ones. They commit members to do

CHAPTER 3 Environment and diversity  67

things for and with one another that are in the best interests of the organisation, and then they reinforce
these habits. The best organisations have strong cultures that show respect for members and encourage
adaptability and continuous improvement in all areas of operations. They are likely to have cultures that
are performance‐oriented, emphasise teamwork, allow for risk taking, encourage innovation and make
the wellbeing of people a top management priority.32 Google, Apple and the Virgin Group, are excel­
lent examples of strong cultures. Honda is another good example. The firm’s culture is tightly focused
around what is known as ‘The Honda Way’ — a set of principles emphasising ambition, respect for
ideas, open communication, work enjoyment, harmony and hard work.

Levels of organisational culture

Organisational culture is usually described from the perspective of the two levels shown in figure 3.4 —
the ‘observable’ culture and the ‘core’ culture.33 The observable culture is visible — it is what one sees
and hears when walking around an organisation as a visitor, a customer or an employee. In strong culture
organisations the observable culture will be readily apparent. It can be seen in the way people dress at
work, how they arrange their offices, how they speak to and behave towards one another, the nature of
their conversations and how they talk about and treat their customers. More formally stated, the observ­
able culture includes the elements of daily organisational life — through them, new members learn the
organisation’s culture and all members share and reinforce its special aspects over time:
•• stories — oral histories and tales, told and retold among members, about dramatic sagas and incidents
in the life of the organisation
•• heroes — the people singled out for special attention and whose accomplishments are recognised with
praise and admiration among members; they include founders and role models
•• rites and rituals — the ceremonies and meetings, planned and spontaneous, that celebrate important
occasions and performance accomplishments
•• symbols — the special use of language and other non‐verbal expressions to communicate important
themes of organisational life.

Observable culture
Stories
● Tales about events
conveying core values

Core culture
Rites and rituals
Core values Heroes
● Celebration of heroes
● Beliefs about the ● People (past and present)
and events displaying
right ways to who display core values
core values
behave

Symbols
● Language and other
symbols conveying core
values

FIGURE 3.4 Levels of organisational culture — observable culture and core culture

68  Management
 Standing at the foundation of what can be observed directly in the daily life of an organisation is a
second and deeper level of culture. This is the core culture, and it determines why things are the way
they are. It consists of core values or underlying assumptions and beliefs that influence behaviour and
actually give rise to the aspects of observable culture just described. Values are essential to strong culture
organisations and are often widely publicised in formal statements of corporate mission and purpose.
Strong culture organisations operate with a small but enduring set of core values. Researchers point
out that the enduring commitment to core values is a major ingredient of organisations that achieve
long‐term success. Highly successful companies typically emphasise the values of performance excel­
lence, innovation, social responsibility, integrity, worker involvement, customer service and teamwork.
Examples of core values that drive companies such as Australia Post include: to act with integrity
and fairness; to recognise the needs of the community; to be commercially competitive; to foster a
performance‐driven culture; to create a safe, challenging and fun workplace; and to encourage innovation
and technological leadership.34

Leadership and organisational culture

Leadership of the organisational culture involves establishing and maintaining appropriate core values.
Although this is most often considered a top management job, the same requirement holds for any man­
ager or team leader at any level of responsibility. Just like the organisation as a whole, any work team or
group will have a culture. How well this culture operates to support the group and its performance objec­
tives will depend in part on the strength of the core values. At any level, these values should meet the test
of three criteria: (1) relevance — core values should support key performance objectives; (2) pervasive-
ness — core values should be known by all members of the organisation or group; and (3) strength —
core values should be accepted by everyone involved.35
Attention is increasingly being given to the concept of a symbolic leader — someone who uses
symbols well to establish and maintain a desired organisational culture. Symbolic managers and leaders
talk the ‘language’ of the organisation. They are always careful to use spoken and written words to
describe people, events and even the competition in ways that reinforce and communicate core values.
Language metaphors — the use of positive examples from another context — are very powerful in this
regard.
Good symbolic leaders highlight the observable culture. They tell key stories over and over again,
and they encourage others to tell them. They often refer to the ‘founding story’ about the entrepreneur
whose personal values set a key tone for the business. They often talk about organisational heroes, past
and present, whose performances exemplify core values. They often use symbolic rites and rituals that
glorify the performance of the organisation and its members. For example, Ken Terry, former Managing
Director of Otis Elevator, used symbolic leadership to get staff behind him. Otis was losing market
share, so Terry held meetings around Australasia shortly after joining the company. The best way he
thought he could make his point was to dress up in military uniform half way through each meeting,
and say: ‘Right, the war is on, we are going to take on our competition [and so on]’. He used this as a
symbol of aggression and marketing, and positive outlook.36
Managers previously focused mainly on elements of the external and internal environment. However,
the modern manager must also consider quality, customers and diversity if he or she wants to construct
an efficient and effective organisation and achieve a competitive advantage.

CRITICAL ANALYSIS

1. What do you believe are the key elements of a strong organisational culture?
2. Could Virgin Group Chairman Sir Richard Branson be considered a symbolic leader? Why or
why not?

CHAPTER 3 Environment and diversity  69

3.3 Customer‐driven organisations
LEARNING OBJECTIVE 3.3 What is a customer‐driven organisation?
Question: What’s your job?
Answer: I run the cash register and pack groceries.
Question: But isn’t it your job to serve the customer?
Answer: I guess, but it’s not in my job description.
This conversation illustrates what often becomes the missing link in the quest for total quality and com­
petitive advantage — customer service.37 On the other hand, many companies recognise that maintaining
a customer focus is vital for their continuing success. The customer is ‘captain’ in the eyes of Singtel,
one of Singapore’s leading telecommunications operators. Its stated vision is to be Asia’s best communi­
cations group and the company measures this by delivering sustainable shareholder value, maximising
customer satisfaction and being an employer of choice. Singtel’s commitment to customers is evident
from its numerous awards, including the awards for Asia’s best managed company, best corporate gover­
nance and best investor relations.38

Who are the customers?

Figure 3.5 expands the open‐systems view of organisations introduced in chapter 1 to depict the com­
plex internal operations of the organisation as well as its interdependence with the external environment.
In this figure, the organisation’s external customers purchase the goods produced or use the services
provided. They may be industrial customers — other firms that buy a company’s products for use in
their own operations — or they may be retail customers or clients who purchase or use the goods and
services directly. Internal customers, on the other hand, are found within the organisation. They are the
individuals and groups who use or otherwise depend on the results of others’ work in order to do their
own jobs well. Any job or function is both a supplier and a customer. Customers have the right to expect
high‐quality and on‐time inputs from the earlier points in the workflow; suppliers, in turn, have the res­
ponsibility to deliver high‐quality and on‐time inputs to the next point. The notion of customer service
applies equally well to workflows within the organisation and to the relationship between the organ­
isation and its ultimate consumers in the external environment.

Resource Transformation processes and workflows Product

inputs outputs
Suppliers Customers
Job Job Job Job

Internal customer/client service points

External customer/client service points

Organisation as recipient
Organisation as provider

FIGURE 3.5 The importance of external and internal customers

What customers want

Customers sit at the top when organisations are viewed as the upside‐down pyramids described in
chapter 1. And without any doubt, customers put today’s organisations to a very stiff test. In the main,
they want three things in the goods and services they buy — high quality, low cost and on‐time delivery.
Offering them anything less is unacceptable.

70  Management
 Organisations that can’t meet these customer expectations suffer the market consequences — they
lose competitive advantage. Some time ago, for example, Intel Corporation faced a crisis in customer
confidence when a defect was found in one of its Pentium chips. At first, top management of this highly
regarded company baulked at replacing the chips, suggesting that the defect was not really impor­
tant. But customers were angry and unrelenting in their complaints. Eventually the customers won, as
they should. Intel agreed to replace the chips without any questions asked. The company also learned
two important lessons of successful businesses today: (1) always protect your reputation for quality
products — it is hard to get and easy to lose — and (2) always treat your customers right — they, too,
are hard to get and easy to lose.

Customer relationship management

When pursued relentlessly as a goal, customer service can be an important source of competitive advan­
tage. Just imagine the ramifications if every customer or client contact for an organisation was positive.
Not only would they return again as members of a loyal customer base, but they would also tell others and
expand the size of that base. Progressive managers understand this concept and work hard to establish and
maintain high standards of customer service. They try to provide every customer with goods and services
that are high in quality and low in cost, meet their needs and require only short waiting times. Operating
a business or other type of organisation with a customer‐centred focus that strategically tries to build
relationships with, and add value for, customers is known as customer relationship management (CRM).

The use of CRM in pursuit of competitive advantage is rapidly evolving with the support of infor­
mation technology that allows organisations to maintain intense communication with customers as well
as to gather and use data regarding customers’ needs and desires. At Marriott International, for example,
CRM is supported by special customer management software that tracks information on customer pref­
erences. When you check in, the likelihood is that your past requests for things like a king‐size bed, no
smoking room and computer access will already be entered in your record. Says Marriott’s chairman:
‘It’s a big competitive advantage’.39

CHAPTER 3 Environment and diversity  71

 Customer relationship management clearly belongs on the list of any manager’s top strategic priorities.
To meet the challenge, organisations must first find out what customers want and then give it to them.
This simple prescription is at the heart of a comprehensive strategy for CRM. Just as organisations need
to manage customers on the output side, they are also customers of their suppliers. Supplier relationships
must be well managed too.40 The concept of supply chain management involves strategic manage­
ment of all operations relating an organisation to the suppliers of its resources, including purchasing,
manufacturing, transportation and distribution.41 The goals of supply chain management are straight­
forward — achieve efficiency in all aspects of the chain while ensuring the necessary flow and on‐time
availability of quality resources for customer‐driven operations.42

CRITICAL ANALYSIS

1. Provide an example of how an organisation with which you are familiar, either as a customer or staff
member, could sustainably exceed its customer’s expectations.
2. Why could a strategic alliance with one or two suppliers be preferable to using multiple suppliers?

3.4 Quality‐driven organisations

LEARNING OBJECTIVE 3.4 What is a quality‐driven organisation?
If managing for high performance and competitive advantage is the theme of the day, ‘quality’ is one
of its most important watchwords. Customers want quality whether they are buying a consumer product
or receiving a service. The achievement of quality objectives in all aspects of operations is a universal
criterion of organisational performance in manufacturing and service industries alike. The competi­
tive demands of a global economy are an important force in this race towards total quality operations.
The ISO certification standards set by the International Organization for Standardization in Geneva,
Switzerland, have been adopted by many countries of the world as quality benchmarks. Businesses that
want to compete as ‘world‐class companies’ in delivering consistent quality are increasingly expected
to have ISO 9000 certification at various levels. To gain certification in this family of standards, they
must refine and upgrade quality in all operations and then undergo a rigorous assessment by outside
auditors to determine whether they meet ISO requirements. Increasingly, the ISO ‘stamp of approval’ is
viewed as a necessity in international business — the ISO certification provides customers with assur­
ance that a set of solid quality standards and processes is in place. In respect to quality of environmental
management systems, for example, the ISO 14000 series sets international standards. In 2010, volun­
tary ISO 26000 social responsibility standards were introduced. They contain seven core principles —
organisational governance, community involvement and development, human rights, labour practices,
the environment, fair operating practices, and consumer issues.43

Total quality management

The term total quality management (TQM) was introduced in chapter 1. It describes the process of
making quality principles part of the organisation’s strategic objectives, applying them to all aspects
of operations, committing to continuous improvement, and striving to meet customers’ needs by doing
things correctly the first time. The quality movement around the world has been strongly influenced
by the pioneering work of W. Edwards Deming and Joseph M. Juran. Interestingly, their ideas became
popular in Japan, starting in the early 1950s, and gained prominence in Western countries only after the
Japanese became so successful in world markets by competing with a product quality advantage.44 The
commitment to total quality operations is now a way of life in world‐class organisations everywhere.
The Australian Business Excellence Awards are the showcase for Australian organisations that have
achieved high performance across 12 principles in business excellence according to a quality framework.

72  Management
 There are many quality improvement approaches being tested and used around the world. Most
begin with an insistence that the total quality commitment applies to everyone in an organisation and
to all aspects of operations, right from resource acquisition through to the production and distribution
of finished goods and services.45 One well‐known consultant, Philip Crosby, became quite famous for
offering these ‘four absolutes’ of management for total quality control: (1) quality means conformance
to standards — workers must know exactly what performance standards they are expected to meet;
(2) quality comes from defect prevention, not defect correction — leadership, training and discipline
must prevent defects in the first place; (3) quality as a performance standard must mean defect‐free
work — the only acceptable quality standard is perfect work; and (4) quality saves money — doing
things right the first time saves the cost of correcting poor work.46

Quality and continuous improvement

Among the many approaches to quality commitment, the work of W. Edwards Deming is another useful
benchmark. The story begins in 1951, when he was invited to Japan to explain quality control techniques
that had been developed in the United States. The result was a lifelong relationship epitomised in the
Deming prize, which is still awarded annually in Japan for excellence in quality. When Deming spoke,
we might say, the Japanese listened. The principles he taught the Japanese were straightforward  .  .  .  and
they worked: tally defects, analyse and trace them to the source, make corrections, and keep a record of
what happens afterward.47 Deming’s ‘14 points to quality’ emphasise constant innovation, use of stat­
istical methods and commitment to training in the fundamentals of quality assurance.48
The search for quality is closely tied to the emphasis on continuous improvement — always looking
for new ways to improve on current performance.49 A basic philosophy of total quality management
is that one can never be satisfied — something always can and should be improved on. Continuous
improvement must be a way of life. Another important aspect of total quality operations is cycle time —
the elapsed time between receipt of an order and delivery of the finished product. The quality objective
here is to reduce cycle time by finding ways to serve customer needs more quickly.

MANAGER’S NOTEPAD 3.1

Key principles of TQM

• Continuous improvement of the quality of products, processes and services.
• Reduced waste.
• Less variation and defect prevention.
• Supplier partnership.
• Team process.
• Reduced cycle time.
• Commitment and participation by all.
• Customer focus.
• Exceeding the external customer’s needs.

Employee participation is crucial for the success of a TQM program.50 One way to combine employee
involvement and continuous improvement is through the popular quality circle concept.51 This is a
group of workers (usually no more than ten) who meet regularly to discuss ways of improving the
quality of their products or services. Their objective is to assume responsibility for quality and apply
every member’s full creative potential to ensure that it is achieved. Such worker empowerment can result
in cost savings from improved quality and greater customer satisfaction. It can also improve morale and
commitment, as the following remarks from quality circle members indicate: ‘This is the best thing the
company has done in 15 years  .  .  .  The program proves that supervisors have no monopoly on brains  .  .  .  It
gives me more pride in my work’.52

CHAPTER 3 Environment and diversity  73

Quality, technology and design
This is the age of technology, and technology plays a major role in the quality aspects of operations.
It also facilitates the customisation of products to suit specific requirements. For example, Stuck On
You is a highly innovative labelling company in Melbourne that uses flexible manufacturing systems to
offer a range of personalised products including notepads, dog tags and even children’s wristbands that
contain identification details for security. Tamawood Homes is another organisation that uses the latest
developments in computer‐aided design, computerised estimating and project management to provide
numerous plans from which clients can choose. These plans can then be customised to the specifications
of potential homeowners.
These are examples of how new technologies are changing the nature of manufacturing and improving
both quality and efficiency of operations. Among the terms describing these developments, lean pro-
duction uses new technologies to streamline systems and allow work to be performed with fewer workers
and smaller inventories. The use of flexible manufacturing allows processes to be changed quickly and
efficiently to produce different products or modifications to existing ones. Through such techniques as
agile manufacturing and mass customisation, organisations are able to make individualised products
quickly and with production efficiencies once only associated with the mass production of uniform
products.53 All such systems use computer‐based technologies to better integrate the various aspects
of manufacturing with customer preferences. They allow modifications to be made quickly, with high
quality and in a cost‐efficient fashion.
Another timely and important contribution to quality management is found in product design. We
are all aware of design differences among products, be they cars, computers, mobile phones, stereos,
watches, clothes or whatever. But what may not be recognised is that design makes a difference in how
things are produced and at what level of cost and quality. A ‘good’ design has eye appeal to the customer
and is easy to manufacture with productivity. In today’s competitive global economy, such designs are
strategic weapons. ‘Design is it’, says consultant Tom Peters, arguing that it will be the key to competi­
tive advantage in the future.54 We have already shown how exceeding customers’ needs can produce a
major source of competitive advantage for a company. But a company that is innovative can also create
value and competitive advantage.55 So an innovative company with a strong customer focus places itself
at a very strong advantage.
Progressive manufacturers now emphasise design for manufacturing. This means that products are
styled to lower production costs and smooth the way towards high‐quality results in all aspects of the
manufacturing processes.56 Styling is now often developed on the computer and then tested via simu­
lation for its manufacturing implications.
Teamwork among engineering, production, marketing and other functional areas is also improving
the design process. A manufacturing approach that shows respect for the natural environment is design
for disassembly. The goal is to design products taking into account how their component parts will
be reused at the end of product life. For example, car manufacturers are using more parts that can be
recycled; computer makers are now more willing to take back obsolete machines, disassemble them and
recycle the parts.
Quality products, such as Mercedes Benz cars and Haines Signature boats, and services, such as those
provided by Apple stores or Flight Centre travel agencies, are better able to withstand environmental
economic shocks. These companies also possess excellent strategic and dynamic capabilities.

CRITICAL ANALYSIS

1. How do you think Japanese companies may have benefited from the philosophies of W. Edwards
Deming?
2. Why are both employee participation and top management commitment critical to the success of a
TQM initiative?

74  Management
3.5 Diversity and multicultural organisations
LEARNING OBJECTIVE 3.5 How is diversity managed in a multicultural organisation?
At the very time that we talk about the culture of an organisation as a whole, we must also recognise the
presence of diversity. Organisations are made up of people, each of whom comes as a unique individual.
An important key to competitive advantage is respecting this diversity and allowing everyone’s talents
to be fully realised.
As first introduced in chapter 1, diversity is a term used to describe differences among people
at work. Diversity includes mainly age, race, ethnicity, gender, physical ability, disability, person­
ality, culture and sexual orientation.57 But workplace diversity is a broader issue still, also including
such things as religious beliefs, education, experience and family status, among others.58 In his book
Beyond Race and Gender, consultant R. Roosevelt Thomas Jr makes the point that ‘diversity includes
everyone’. He says: ‘In this expanded context, white males are as diverse as their colleagues’.59
Thomas also links diversity and organisational culture, believing that the way people are treated at
work — with respect and inclusion, or with disrespect and exclusion — is a direct reflection of the
organisation’s culture.
Thomas’s diversity message to those who lead and manage organisations is straight to the point.
Diversity is a potential source of competitive advantage,60 offering organisations a mixture of talents and
perspectives that is ready and able to deal with the complexities and uncertainty in the ever changing
21st century environment. If you do the right things in organisational leadership, in other words, you
will gain competitive advantage through diversity. If you do not, you will lose it.

What is a multicultural organisation?

A key issue in the culture of any organisation is inclusivity — the degree to which the organisation is
open to anyone who can perform a job, regardless of age, race, sexual preference, gender or other diver­
sity attribute.61 The term multiculturalism refers to pluralism and respect for diversity in the workplace.
There is no reason organisational cultures cannot communicate core values and encourage common
work directions that respect and empower the full demographic and cultural diversity that is now charac­
teristic of our workforces. The ‘best’ organisational cultures in this sense are inclusive.62 They value the
talents, ideas and creative potential of all members. The model in this regard is the truly multicultural
organisation with these characteristics.
•• Pluralism. Members of both minority cultures and majority cultures are influential in setting key
values and policies.
•• Structural integration. Minority‐culture members are well represented in jobs at all levels and in all
functional responsibilities.
•• Informal network integration. Various forms of mentoring and support groups assist in the career
development of minority‐culture members.
•• Absence of prejudice and discrimination. A variety of training and task force activities continually
deal with the need to eliminate culture‐group biases.
•• Minimum intergroup conflict. Diversity does not lead to destructive conflicts between members of
majority and minority cultures.63

Organisational subcultures
Like society as a whole, organisations contain a mixture of subcultures — that is, cultures common to
groups of people with similar values and beliefs based on shared work responsibilities and personal char­
acteristics. There are occupational cultures in organisations, and they must be understood for their work
and managerial implications.64 For example, salaried professionals such as lawyers, scientists, engineers
and accountants have been described as having special needs for work autonomy and empowerment that
may conflict with traditional management methods of top‐down direction and control.65 Unless these

CHAPTER 3 Environment and diversity  75

needs are recognised and properly dealt with, salaried professionals may prove difficult to integrate into
the culture of the larger organisation.
There are also functional subcultures in organisations, and people from different functions often
have difficulty understanding and working well with one another. For example, employees of a busi­
ness may consider themselves ‘systems people’ or ‘marketing people’ or ‘manufacturing people’
or ‘finance people’.66 When such identities are overemphasised, there is a tendency to separate in‐
group members from the rest of the organisation. Members of the functional groups may spend most
of their time with each other, develop a ‘jargon’ or technical language that is shared among them­
selves, and view their role in the organisation as more important than the contributions of the other
functions.
Differences in ethnic or national cultures are discussed in the chapter on the global dimensions of
management.67 Although it is relatively easy to recognise that people from various countries and regions
of the world may have different cultural backgrounds, it is far harder to turn this awareness into the
ability to work well with people whose ethnic cultures differ from our own. The best understanding is
most likely gained through direct contact and a personal commitment to remaining open‐minded when
working with people from different ethnic backgrounds. As imprecise as our understanding of ethnic
subcultures may be, things seem even less clear on matters of race. Importantly, a key question remains
largely unanswered: Where can we find frameworks for understanding ethnic and racial subcultures?
If improved cross‐cultural understanding can help people work better across national boundaries, why
can’t improved cross‐cultural understanding help people from different racial subcultures work better
together?
We live at a time when the influence of generational subcultures at work is of growing importance.
But these are more subtle than young–old issues alone. It is possible to identify ‘generational gaps’
among ‘baby boomers’ now in their 50s, 60s and early 70s, ‘generation X’ now in their 30s and
40s, ‘generation Y’ now in their 20s and early 30s and the next generation still in school, finishing
or just finished school. Members of these generations grew up and are growing up in quite different
worlds — they have been and are being influenced by different values and opportunities. Their work
preferences and attitudes tend to reflect the influence of those differences. Someone who is 60 years
old today, a common age for senior managers, may have difficulty understanding, supervising and
working with younger managers who were teenagers during the 1970s, 1980s and 1990s. And if you
are one of the younger generations, you’ll need to ponder how well you will do in the future when
working with colleagues who grew up in the early years of the 21st century.68 Montana and Lenaghan
believe that generations X and Y are motivated by steady employment and promotional opportunities,
unlike their older counterparts who seek freedom on the job and respect.69
Issues of gender relationships and gender discrimination also continue to complicate the workplace.
Some research shows that when men work together, a group culture forms around a competitive atmos­
phere, in which the games and stories deal with winning and losing in various situations. It also often
involves the use of sport metaphors.70 As one of the interviewees in a recent research study said:
A defining moment was when someone gave me an opportunity to work in a finance role, which I
asked for, for which I had no qualifications. I was a male in a male dominated structure. I played golf
and I was in the cricket team. I had no management experience but I was ‘normal’ (meaning white
male).71

When women work together, a rather different culture may form, with more emphasis on personal
relationships and collaboration. One can reasonably ask: What happens when gender subcultures mix in
the organisation?

Challenges faced by minority groups and women

The term diversity basically means the presence of differences. But what does it mean when
those differences are distributed unequally across organisational levels or among work functions?

76  Management
What difference does it make when one subculture is in ‘majority’ status while others become
‘minorities’ in respect to representation within the organisation? For example, even though
organisations are changing today, it is still the case that most senior executives in large organ­
isations are older, white and male. There is still likely to be more workforce diversity at lower
and middle levels of most organisations than at the top. Take a look at the situation described by
figure 3.6. What are the implications for members of minority groups such as women, people with
a disability, people from non–English speaking backgrounds or people of colour in organisations
traditionally dominated by a majority culture, such as English‐speaking white males? Recently
the phrase ‘bamboo ceiling’ was coined for Asian immigrants to Australia.72 What are the likely
implications for Australian society of discrimination against the large professional class of Asian
migrants? Consider disability discrimination. This type of discrimination occurs when a person is
treated unfairly or badly compared with others because they have an impairment or disability. Very
often this happens because people have unfair, old‐fashioned, stereotypical or prejudiced ideas or
beliefs about people with disabilities. Discrimination could also occur indirectly when a condition,
rule or policy that seems to be fair or neutral has a negative impact on people with a particular dis­
ability or impairment. For example, it would be indirect discrimination against those with visual
impairments if everyone were required to provide a drivers licence for identification; a visually
impaired person is ineligible for such a licence and therefore would not be able to comply with the
requirement.73

Dominant
culture: Glass ceilings limiting
white males advancement of women
● Hold most top and minority groups
positions
● Present at all levels
● Included in entry-level
hiring Minority cultures:
women, people of colour,
other minority groups
● Hold few top positions
● Distributed in lower–middle
levels
● Not always included in entry-level hiring

FIGURE 3.6 Glass ceilings as barriers to women and minority cultures in traditional organisations

The daily work challenges faced by minority cultures or populations in organisations can range
from having to deal with misunderstandings and lack of sensitivity on the one hand to suffering har­
assment and discrimination, active or subtle, on the other. Sexual harassment in the form of unwanted
sexual advances, requests for sexual favours and sexually laced communications is a problem female
employees in particular may face. Minority‐group workers can also be targets of cultural jokes —
one survey reports some 45 per cent of respondents had been the targets of such abuse. Minority‐
group members may also face job discrimination. Microsoft, for example, has been criticised for
treating the firm’s temporary workers unfairly in terms of access to benefits and work assignments.
Some temporaries (who wear orange identification badges at work) claim that they are treated as

CHAPTER 3 Environment and diversity  77

second‐class citizens by the permanent employees (who wear blue badges).74 Discrimination against
pregnant women is another issue.
All parties to the employment relationship should be well informed about their rights and responsi­
bilities with regard to workplace discrimination. Various national and state laws in Australia cover
equal employment opportunity and workplace discrimination. The Equal Employment Opportunities
(EEO) Trust in New Zealand advises employers on how to avoid discriminatory practices and maintain
good workplace relationships. It recommends employers adopt a flexible policy in relation to parental
leave. In 2002, New Zealand introduced government‐funded paid maternity leave — Australia and the
United States were the only OECD countries with no paid maternity leave up to 2009.75 However, the
Australian government instituted 18 weeks of paid parental leave from 1 January 2011 for families
whose primary carer earned less than $150  000 a year.

COUNTERPOINT

Queensland women motorcycle police beating the odds

Queensland will see its first female motorcycle cops hitting the road, as the police force celebrates
a major milestone. Senior Constables Rozanna Henriksen and Linda Tajnai were among five officers
who passed the force’s rigorous motorcycle training course. Officers must be able to handle motor-
bikes weighing more than 300 kilograms and three failed the most recent test. Police Commissioner Ian
Stewart said it was a very demanding course.
‘The size of our standard motorcycles is an issue for some of the people who participate, both men
and women,’ he said.
‘This is the first time that a female has successfully completed it.’
Police Minister Jo‐Ann Miller said the last time a female officer did the course was in the 1970s and
she had to pull out when she discovered she was pregnant. Senior Constable Henriksen said she had
been determined to get through the gruelling three‐week course.
‘Giving up was not an option for me and it is a very proud moment — I’m excited to get out on the
road,’ she said.
Mr Stewart said no special concessions were made for the female senior constables.
‘It just shows that gender diversity is alive and well in our organisation and it’s supported, but we will
never drop our standards,’ he said.
‘They have met the standards and gone over and above and I wish them well in the future to ensure
that our roads are safe.’76

QUESTION
If Queensland female motorcycle cops were given smaller and lighter motorcycles than their male
counterparts could they be accused of being weaker and softer? Do you think they would therefore be
treated with less respect than they deserve?

Sometimes the adaptation of minority groups to organisations dominated by a majority culture takes
the form of tendencies towards biculturalism — the display by members of minority cultures of charac­
teristics of the majority culture that seem necessary to achieve success in the organisational environment.
For example, you might find gays and lesbians hiding their sexual orientation from co‐workers out of
fear of prejudice or discrimination. Similarly, you might find a person from a non‐English‐speaking
background carefully training herself not to use certain words or phrases at work that might be con­
sidered part of her cultural ‘slang’.
The special economic and work challenges faced by minority groups are not always highly visible.
We all know, for example, that much of the last two decades was one of global economic expansion.
But how many of us know that workers with disabilities largely failed to share in the gains? At the
same time that demand for workers in general rose, the employment rate of the disabled fell. Fortunately

78  Management
there are not‐for‐profit organisations working hard to reverse this trend. For example, Employers
Making a Difference operates as a strategic partner with businesses and governments employing people
with a disability. It also develops and implements solutions to problems relating to workplace disability
and works with employers to better manage problems associated with the employment of staff with
disabilities.77

The special economic and work challenges faced by minority groups

are not always highly visible, even in modern workplaces

Manager’s notepad 3.2 highlights important diversity trends in the sociocultural environment of
organisations.78 It is also important to note that differences in any and all general environmental factors
are especially noticeable when organisations operate internationally. External conditions vary signifi­
cantly from one country and culture to the next. Managers of successful international operations under­
stand these differences and help their organisations make the operating adjustments needed to perform
within them.

MANAGER’S NOTEPAD 3.2

Diversity trends in the sociocultural environment

• People from a non‐English‐speaking background are an increasing percentage of the workforce.
• More women are working.
• People with disabilities are gaining more access to the workplace.
• Workers are increasingly from non‐traditional families (e.g. single parents, dual wage earners).
• Average age of workers is increasing.
• Diversity of workers’ religious beliefs is increasing.

CHAPTER 3 Environment and diversity  79

Managing diversity
There is no doubt today what minority‐group workers want.79 They want the same thing everyone
wants. They want respect for their talents and a work setting that allows them to achieve their full
potential. It takes the best in diversity leadership at all levels of organisational management to meet these
expectations. Companies must evolve to meet the changing workforces in countries such as Australia,
New Zealand and Singapore as they continue to become more diverse. Achieving this diversity will
benefit the organisation also, as diversity is becoming a key factor in giving an organisation a degree
of competitive advantage. R. Roosevelt Thomas Jr defines managing diversity as the process of com­
prehensively developing a work environment that is for everyone. He says that it involves creating an
internal environment that allows ‘all kinds of people to reach their full potential’ in the pursuit of organ­
isational objectives.
Figure 3.7 describes managing diversity as the most comprehensive of three leadership
approaches to diversity. The first is affirmative action, in which leadership commits the organ­
isation to hiring and advancing minority groups and women. The second is valuing diversity,
in which leadership commits the organisation to education and training programs designed to
help people better understand and respect individual differences. The third is managing diver-
sity, in which leadership commits to changing the organisational culture to empower and include
all people. For Thomas, managing diversity offers the most value in respect to competitive
advantage.80

Affirmative action Valuing differences Managing diversity

Create upward mobility Build quality Realise full
for minority groups relationships with respect potential of diverse
and women for diversity human resources

FIGURE 3.7 Multicultural organisations — from affirmative action to managing diversity

Source: Developed from R. Roosevelt Thomas Jr, Beyond Race and Gender (New York: AMACOM, 1992), p. 28.

A diverse workforce offers a rich pool of talents, ideas and viewpoints useful for solving the com­
plex problems of highly competitive and often uncertain environments. When well managed, this
diversity becomes a major asset. A diverse workforce is best aligned with the needs and expectations
of a diverse customer and supplier base, including those increasingly distributed around the world
and among its cultures. For example, Alcatel‐Lucent Technologies’ clients come from diverse markets
throughout the world. To help understand the needs of the global marketplace, Alcatel‐Lucent Tech­
nologies developed a management team and workforce that reflects that diversity through all areas of
its business.81
Organisations that Thomas calls ‘diversity mature’ are well positioned to tap into these and other
sources of competitive advantage. In these organisations there is a diversity mission as well as an organ­
isational mission — diversity is viewed as a strategic imperative and the members understand diversity
concepts.82 Ultimately, however, he considers the basic building block of a diversity‐mature organisation
to be the diversity‐mature individual. This is someone who can positively and honestly answer questions
such as those posed in Manager’s notepad 3.3.83

80  Management
 MANAGER’S NOTEPAD 3.3

Are you mature about diversity?

• Do you accept responsibility for improving your performance?
• Do you accept responsibility for improving the performance of your organisation?
• Do you understand yourself and your organisation?
• Do you understand important diversity concepts?
• Do you make decisions involving differences based on ability to meet job requirements?
• Do you understand that diversity is complex and accompanied by tensions?
• Are you able to cope with tensions when dealing with diversity?
• Are you willing to challenge the way things are?
• Are you willing to learn continuously?

Managing diversity is both a personal and an organisational challenge. On a personal level, it

means accepting the goal of diversity maturity as described in the notepad. As an organisation, it
means committing leadership to making fundamental changes in the organisational culture and its
guiding mission and practices. Managers and people working at all levels of responsibility must ben­
efit from a strong organisational culture based on true participation, involvement and empowerment.
Such cultures value the talents, ideas and creative potential of all members, not just the majority
members.
Perhaps the most important word in human resource management today is ‘inclusiveness’. By
valuing diversity and building multicultural organisations that include everyone, we can strengthen
organisations and bring them into better alignment with the challenges and opportunities of today’s
environment. Importantly, the foundations of future success will be built on the foundations of
diversity. As Michael R. Losey, former president of the Society for Human Resource Management
(SHRM), said:

Companies must realise that the talent pool includes people of all types, including older workers; people
with disabilities; people of various religious, cultural and national backgrounds; people who are not
heterosexual; minorities; and women.84

DIVERSIT Y

Diversity and the multicultural organisation in Singapore

At first sight, Singapore might not seem
to be a very diverse society. The lan-
guage of choice for politics and busi-
ness is English, and Chinese people
make up more than three‐quarters
(76.7 per cent) of the island’s population.
The remaining populations are Malay
(14 per cent), Indian (7.9 per cent), with
a combination of other ethnicities
making up the remaining 1.4 per cent.
Singapore has attempted to promote a
national identity since its independence
from Britain in 1965. However, Singa-
pore has four national languages —
Mandarin, Malay, Tamil and English.

CHAPTER 3 Environment and diversity  81

 Coca‐Cola Singapore has 680 employees at its plant in Tuas and, together with its bottler, has
12 different nationalities represented in the company. Hence, it has implemented a diversity workplace
strategy in striving for an inclusive culture. Coca‐Cola Singapore defines diversity as ‘(1) respecting
individuals, (2) valuing differences and (3) representing our consumers and the markets where we do
business’.85
On the other hand, an Australian expatriate manager or tourist could be forgiven for thinking that
Singapore is ‘just like home’. They would be struck by the plethora of modern buildings and shopping
malls, the metropolitan train service and the general first‐world state of the infrastructure, economy and
communication systems. In reality, though, there are significant cultural differences between the two
societies. For example, the group is more important than the individual in Singapore, there is greater
respect for the extended family, Singaporeans do not like losing face, and pay more deference to older
people in the workplace. This is a result of Confucianism, which emphasises respect for and obedience
to one’s elders. Disagreeing with, or criticising, an older person in a business meeting may lead to a
loss of face and destroy the personal relationship — which is the key to doing successful business in
Singapore.
Singaporeans will also often rely on non‐verbal signals such as tone of voice, body language
and facial expression more than the spoken word. In general, communications are less direct than
in Australia. Importantly, Singaporeans want multi‐national companies to demonstrate that they have
come to the island for the long‐term, rather than just to make short‐term gains. This would also apply
to an Australian manager, not just the company they work for. Singaporeans prefer expatriate managers
who learn Mandarin and immerse themselves in the precepts of the host culture. In particular, they are
averse to expatriates who come along just for a short time with a view to returning home to a promotion
position as quickly as possible. So, an Australian manager on an expatriate assignment in Singapore (or
anywhere else, for that matter) needs to understand cultural differences before taking up appointment.86

QUESTION
Do you think Singapore really is diverse, or is it still largely a Western state?

CRITICAL ANALYSIS

1. Describe the ways in which a travel agency could utilise a diverse workforce in order to create a
competitive advantage.
2. Why do you think it is that relatively few women have been able to break through the glass ceiling?

82  Management
SUMMARY
3.1 What is the external environment of organisations?
•• Competitive advantage and distinctive competency can only be achieved by organisations that deal
successfully with dynamic and complex environments.
•• Strategic and dynamic capabilities assist organisations to gain a competitive advantage and deal with
environmental economic shocks.
•• The external environment of organisations consists of both general and specific components.
•• The general environment includes background conditions that influence the organisation, including
economic, sociocultural, legal–political, technological and natural environment conditions.
•• The specific or task environment consists of the actual organisations, groups and people an organisation
deals with, including suppliers, customers, competitors, regulators and pressure groups.
•• Environmental uncertainty challenges organisations and their management to be flexible and
responsive to new and changing conditions.
3.2 What is the internal environment and organisational culture?
•• The internal environment of organisations includes organisational culture, which establishes a
personality for the organisation as a whole and has a strong influence on the behaviour of its
members.
•• The observable culture is found in the rites, rituals, stories, heroes and symbols of the organisation.
•• The core culture consists of the core values and fundamental beliefs on which the organisation is
based.
•• In organisations with strong cultures, members behave with shared understandings that support the
accomplishment of key organisational objectives.
•• Symbolic managers are good at building shared values and using stories, ceremonies, heroes and
language to reinforce these values in daily affairs.
3.3 What is a customer‐driven organisation?
•• Any organisation must develop and maintain a base of loyal customers or clients, and a customer‐
driven organisation recognises customer service and product quality as foundations of competitive
advantage.
•• Customer service is a core ingredient of total quality operations, and it includes concerns for both
internal customers and external customers.
•• The ‘upside‐down pyramid’ is a symbol of how organisations of today are refocusing on customers
and on the role of managers to support work efforts to continually improve quality and customer
service.
•• Operations management is specifically concerned with activities and decisions through which
organisations transform resource inputs into product outputs.
•• Supply chain management involves strategic management of all operations relating an organisation to
its suppliers.
3.4 What is a quality‐driven organisation?
•• To compete in the global economy, organisations are increasingly expected to meet ISO 9000, ISO
14000 and ISO 26000 certification standards of quality.
•• Total quality management involves making quality a strategic objective of the organisation and
supporting it by continuous improvement efforts.
•• The commitment to total quality operations requires meeting, or preferably exceeding, customers’
needs — on time, the first time and all the time.
•• The use of quality circles — groups of employees working to solve quality problems — is a form of
employee involvement in quality management.

CHAPTER 3 Environment and diversity  83

3.5 How is diversity managed in a multicultural organisation?
•• The organisational culture should display a positive ethical climate or shared set of understandings
about what is considered ethically correct behaviour.
•• Multicultural organisations operate through a culture that values pluralism and respects diversity.
•• Organisational cultures typically include the existence of many subcultures, including those based on
occupational, functional, ethnic, racial, age and gender differences in a diverse workforce.
•• Challenges faced by organisational minority groups include sexual harassment, pay discrimination,
job discrimination and the glass ceiling effect.
•• Managing diversity is the process of developing a work environment that is inclusive and allows
everyone to reach their full work potential.
•• Diversity leadership helps mobilise the full talents of an organisation to achieve and sustain competitive
advantage.

KEY TERMS
Affirmative action  commits the organisation to hiring and advancing minority groups and women.
A competitive advantage  allows an organisation to deal with market and environmental forces better
than its competitors.
Continuous improvement  involves always searching for new ways to improve operations quality and
performance.
Core values  are underlying beliefs shared by members of the organisation that influence their
behaviour.
Customer relationship management  strategically tries to build lasting relationships with, and add
value for, customers.
Diversity  describes race, gender, age and other individual differences.
Dynamic capabilities  enable an organisation to quickly reconfigure its resources in the face of
environmental economic shocks.
Environmental uncertainty  is a lack of complete information about the environment.
The general environment  comprises economic, sociocultural (including demographic patterns),
political–legal, technological and natural environment conditions.
ISO certification  indicates conformance with a rigorous set of international quality standards.
Managing diversity  is building an inclusive work environment that allows everyone to reach their full
potential.
A multicultural organisation  is based on pluralism and operates with respect for diversity.
Multiculturalism  involves pluralism and respect for diversity.
Organisational culture  is the system of shared beliefs and values that develops within an organisation
and guides the behaviour of its members.
A quality circle  is a group of employees who periodically meet to discuss ways of improving work
quality.
The specific environment  includes the people and groups with whom an organisation interacts.
Stakeholders  are individuals, groups and institutions directly affected by an organisation’s
performance.
Strategic capabilities  are difficult to imitate, of value to customers and better than the competition.
Subcultures  are common to groups of people with similar values and beliefs based on shared work
responsibilities and personal characteristics.
Supply chain management  strategically links all operations dealing with resource supplies.
A symbolic leader  uses symbols to establish and maintain a desired organisational culture.
Total quality management (TQM)  is managing with commitment to continuous improvement,
product quality and customer satisfaction.

84  Management
APPLIED ACTIVITIES
1 What is competitive advantage and why is it important to contemporary organisations?
2 What is the difference between a strong and a weak organisational culture? Give an example of a
company with a strong organisational culture.
3 What is the difference between an organisation’s external customers and its internal customers?
4 In general, the greater the environmental uncertainty, the more attention management in
organisations must direct towards the external environment. What is the external environment of an
organisation? Use examples to illustrate your explanation.
5 After you have read the section on organisational culture, choose an organisation to analyse and
discuss. What are the observable elements in the culture of your chosen organisation?

ENDNOTES
  1. Meredith Griffiths, ‘Australia Second Most Multi‐cultural Country’, ABC News (17 November 2010), www.abc.net.au/news.
  2. ‘Diversity in the Workplace’, Australian Government: Business, www.business.gov.au.
  3. Brendan Churchill, Lisa Denny and Natalie Jackson, ‘Thank God You’re Here: The Coming Generation and Their Role in
Future‐Proofing Australia from the Challenges of Population Ageing’, Australian Journal of Social Issues, vol. 49, no. 3,
pp. 373–95.
  4. Verity Edwards, ‘Age Still a Barrier to Older Workers’, The Australian (25 April 2015), www.theaustralian.com.au.
 5. ibid.
 6. Employ Outside the Box: Mature Age People. The Rewards of a Diverse Workforce: A Quick Guide for WA Employers,
(Perth, WA: Chamber of Commerce and Industry of Western Australia).
  7. Victorian Government, The Australian Manufacturing Industry Regeneration Through Innovation, Economic Development and
Infrastructure Committee Submission no. 5 (9 November 2009), www.parliament.vic.gov.au; Anthony Kryger, ‘Performance
of Manufacturing Industry: A Quick Guide’, Research Paper Series, 2014–15 (Parliament of Australia, 17 November 2014),
www.aph.gov.au.
  8. Veronique Ambrosini, Cliff Bowman and Nardine Collier ‘Dynamic Capabilities: An Exploration of How Firms Renew Their
Resource Base,’ British Journal of Management, vol. 20 (2009), pp. S9–S24; and Graham Hubbard, Delyth Samuel, Graeme
Cocks and Simon Heap, The First XI: Winning Organisations in Australia 2e (Milton, Queensland: John Wiley & Sons, 2007);
Alan Simon, Vanya Kumar, Peter Schoeman, Pirrie Moffat and Damien Power, ‘Strategic Capabilities and Their Relationship
with Organisational Success and Its Measures: Some Pointers from Five Australian Studies’, Management Decision, vol. 49,
no. 8 (2011), pp. 1305–26.
  9. Kathleen Eisenhardt and Jeffrey Martin, ‘Dynamic Capabilities: What are they?’, Strategic Management Journal,
vol. 21, no. 10/11(2000), pp. 1105–21.
10. IBM, 1997 Annual Report: The New Blue (1997), p. 8.
11. See Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980) and
Competitive Advantage: Creating and Sustaining Superior Performance (New York: Free Press, 2004); also Richard A. D’Aveni,
Hyper‐Competition: Managing the Dynamics of Strategic Maneuvering (New York: Free Press, 1994).
12. ‘Steve Jobs, the Man Who Revolutionised Modern Life, Dies at Age of 56’, Herald Sun (6 October, 2011),
www.heraldsun.com.au.
13. International Institute for Management Development, ‘WCY 2011 Rankings’, IMD World Competitiveness Yearbook (2015),
www.imd.org.
14. Michael E. Porter, The Competitive Advantage of Nations (New York: Free Press, 1989).
15. Kylie Angus Thompson and Paul Glover, ‘Toyota Axes 350 Australian Workers Due To Dollar Pressures’, Herald Sun
(23 January 2012), www.heraldsun.com.au.
16. Pannell Discussions, ‘When is a Carbon Tax Not a Carbon Tax’ (5 August 2011), www.dpannell.fnas.uwa.edu.au.
17. Kelmeny Fraser, ‘Why Government is Pushing an Emissions Trading Scheme’, The Courier Mail (5 December 2009),
www.news.com.au.
18. Department of the Environment, ‘Australia’s 2030 Climate Change Target’, Australian Government, www.environment.gov.au.
19. Phillip Hopkins, ‘Trading Scheme to Hurt Freight’, The Age (16 July 2008), www.theage.com.au; Shane Wright, ‘Political
Judgements Now Begins’, The West Australian (9 November 2011), p. 4.
20. ‘Repeal of the Carbon Tax’, Australian Government: Business (17 July 2014), www.business.gov.au.
21. A. Hallett, ‘We Have Lift Off’, New Zealand Management (April 2009), p. 19.

CHAPTER 3 Environment and diversity  85

22. James D. Thompson, Organizations in Action (New York: McGraw‐Hill, 1967); and Robert B. Duncan, ‘Characteristics of
Organizational Environments and Perceived Environmental Uncertainty’, Administrative Science Quarterly, vol. 17 (1972),
pp. 313–27. For discussion of the implications of uncertainty see Hugh Courtney, Jane Kirkland and Patrick Viguerie, ‘Strategy
Under Uncertainty’, Harvard Business Review (November–December 1997), pp. 67–79.
23. Gareth Hutchens and Eric Johnson, ‘Passing on Cuts “Lacks Logic”’, The Sydney Morning Herald (17 December 2011),
www.smh.com.au.
24. Colin Brinsden, ‘Westpac Follows ANZ Despite Swan Warning’, The Sydney Morning Herald (10 February 2012),
www.smh.com.au.
25. Reserve Bank of Australia website, www.rba.gov.au; Rod Lambert, ‘Crises of Confidence in Retail Financial Institutions’,
Unpublished PhD thesis (Melbourne: Monash University, 1998).
26. Peter Martin, ‘Mortgage Rates: Why the Big Four Think They’ll Get Away With It’, The Age (27 October 2015),
www.theage.com.au.
27. Shane Wright, ‘Home‐loan Grief Rates Fall on Low Interest Rates’, The West Australian (26 December 2015), p. 14.
28. Tracy Withers, ‘Australians May Save Not Spend Rate‐cut Cash, Kelly Says’, Bloomberg Business Week, (7 November 2011).
29. Edgar H. Schein, ‘Organizational Culture’, American Psychologist, vol. 45 (1990), pp. 109–19. See also Schein’s
Organizational Culture and Leadership, 2nd edn (San Francisco: Jossey‐Bass, 1997); and The Corporate Culture Survival
Guide (San Francisco: Jossey‐Bass, 1999).
30. James C. Collins and Jerry I. Porras, Built to Last: Successful Habits of Visionary Companies (New York: Harper Business,
1997).
31. Schein, op. cit.; Terrence E. Deal and Allan A. Kennedy, Corporate Cultures: The Rites and Rituals of Corporate Life
(Reading, MA: Addison‐Wesley, 1982); Ralph Kilmann, Beyond the Quick Fix (San Francisco: Jossey‐Bass, 1984).
32. In their book Corporate Culture and Performance (New York: Macmillan, 1992), John P. Kotter and James L. Heskett make
the point that strong cultures have the desired effects over the long term only if they encourage adaptation to a changing
environment. See also Collins and Porras, op. cit.
33. This is a simplified model developed from Schein, op. cit.
34. ‘Australia Post’s Red‐Letter Day’, The Sydney Morning Herald (22 October 2001), www.smh.com.au.
35. Ralph H. Kilmann, Mary J. Saxton and Roy Serpa, ‘Issues in Understanding and Changing Corporate Culture’, California
Management Review, vol. 28 (1986), pp. 87–94; see also David P. Spicer, ‘Changing culture: A Case Study of a Merger Using
Cognitive Mapping’, Journal of Change Management, vol. 11, no. 2 (2011), pp. 245–64.
36. ‘Entering the CEO Role in a New Industry; Getting to Speed Fast’, CEO Forum (November 2004), www.ceoforum.com.au.
37. Quotation from a discussion by Richard J. Shonberger and Edward M. Knod Jr, Operations Management: Serving the
Customer, 3rd edn (Plano, TX: Business Publications, 1988), p. 4. For further reading on the importance of customer service,
see R. Saravanan and K.S.P. Rao, ‘Measurement Of Service Quality From the Customer’s Perspective — An Empirical Study’,
Total Quality & Business Excellence, vol. 8, no. 4 (2007), pp. 435–41.
38. SingTel, http://home.singtel.com.
39. Information from ‘How Marriott Never Forgets a Guest’, Business Week (21 February 2000), p. 74.
40. Angappa Gunasekaran, Kee‐hung Lai, and T. C. Edwin Chang, ‘Responsive Supply Chain: A Competitive Strategy in a
Networked Economy’, Omega, vol. 36, no. 4 (August 2008), pp. 549–64.
41. Roger D. Blackwell and Kristina Blackwell, ‘The Century of the Consumer: Converting Supply Chains into Demand Chains’,
Supply Chain Management Review (Fall 1999); Jan Olhager and Daniel Prajogo, ‘The Impact of Manufacturing and Supply
Chain Initiatives: A Survey Comparing Make‐to‐order and Make‐to‐stock Firms’, Omega, vol. 40, no. 2 (April 2012),
pp. 159–165.
42. See Michael Dell, Direct from Dell: Strategies that Revolutionized an Industry (New York: Harper Business, 1999).
43. International Standards Organization, ‘ISO 26000: Social Responsibility’ (2011), www.iso.org.
44. See Joseph M. Juran, Quality Control Handbook, 3rd edn (New York: McGraw‐Hill, 1979) and ‘The Quality Trilogy: A
Universal Approach to Managing for Quality’, in H. Costin (ed.), Total Quality Management (New York: Dryden, 1994);
W. Edwards Deming, Out of Crisis (Cambridge, MA: MIT Press, 1986) and ‘Deming’s Quality Manifesto’, Best of Business
Quarterly, vol. 12 (Winter 1990–91), pp. 6–10. See also Howard S. Gitlow and Shelly J. Gitlow, The Deming Guide to Quality
and Competitive Position (Englewood Cliffs, NJ: Prentice Hall, 1987); Joseph M. Juran, ‘Made in USA: A Renaissance in
Quality’, Harvard Business Review (July–August 1993), pp. 42–50.
45. Philip B. Crosby, Quality is Free (New York: McGraw‐Hill, 1979); The Eternally Successful Organization (New York:
McGraw‐Hill, 1988); and Quality Is Still Free: Making Quality Certain in Uncertain Times (New York: McGraw‐Hill, 1995).
46. Christopher Knowlton, ‘What America Makes Best’, Fortune (28 March 1988), pp. 40–54; Roger L. Hale, Douglas R.
Hoelscher and Ronald E. Kowal, Quest for Quality (Minneapolis, MN: Tennant Company, 1989); and Roger L. Hale, Donald
D. Carlton, Ronald E. Kowal and Tim K. Sehnert, Made in the USA: How One American Company Helps Satisfy Customer
Needs through Strategic Supplier Quality Management (Minneapolis, MN: Tennant Company, 1991); Dominique Drake, J. S.
Sutherfield and Christopher Ngassam, ‘The Revolution of Six‐Sigma: An Analysis of its Theory and Application’, Academy of
Information and Management Sciences Journal, vol. 11, no. 1 (January 2008), pp. 29–44.
47. Rafael Aguay, Dr. Deming: The American Who Taught the Japanese about Quality (New York: Free Press, 1997).
48. See Deming, Out of Crisis, op. cit.

86  Management
49. See Edward E. Lawler III, Susan Albers Mohrman and Gerald E. Ledford Jr, Employee Involvement and Total Quality
Management: Practices and Results in Fortune 1000 Companies (San Francisco: Jossey‐Bass, 1992); Roger Hilton, Margaret
Balla and Amrik S. Sohal, ‘Factors Critical to the Success of a Six‐Sigma Quality Program in an Australian Hospital’, Total
Quality Management, vol. 19, no. 9 (September 2008), pp. 887–902.
50. Dilruski Welikala and Amrik Sohal, ‘Total Quality Management and Employees’ Involvement: A Case Study of an Australian
Organisation’, Total Quality Management, vol. 19, no. 6 (June 2009), pp. 627–42.
51. Edward E. Lawler III and Susan Albers Mohrman, ‘Quality Circles After the Fad’, Harvard Business Review
(January–February 1985), pp. 65–71; Salaheldin Ismail Salaheldin ‘Problems, Success Factors and Benefits of QCs
Implementation: A Case of QASCO’, TQM Journal, vol. 21, no. 1 (2009), pp. 87–100.
52. Quotes from Arnold Kanarick, ‘The Far Side of Quality Circles’, Management Review, vol. 70 (October 1981), pp. 16–17.
53. See B. Joseph Pine II, Bart Victor and Andrew C. Boynton, ‘Making Mass Customization Work’, Harvard Business Review
(September–October 1993), pp. 108–19; and ‘The Agile Factory: Custom‐made, Direct from the Plant’, Business Week, special
report on ‘21st Century Capitalism’ (23 January 1995), pp. 158–9; and Justin Martin, ‘Give ‘Em Exactly What They Want’,
Fortune (10 November 1997), p. 283; Steve Brown and John Bessant, ‘The Manufacturing Strategy‐Capabilities Links in
Mass Customization and Agile Manufacturing — An Exploratory Study’, International Journal of Operations and Production
Management, vol. 23 (2003), pp. 707–30.
54. Tom Peters, The Circle of Innovation (New York: Knopf, 1997), p. 429.
55. Geoff Simmons, Brychan Thomas and Gary Rockham, ‘Opportunity and Innovation, Synergy Within and Entrepreneurial Approach
to Marketing’, International Journal of Entrepreneurship and Innovation, vol. 10, no. 1, (February 2009), pp. 63–72.
56. Martin, op. cit.
57. Jie Shen, Ashok Chanda, Brian D’Netto and Manjit Monga, ‘Managing Diversity Through Human Resource Management: An
International Perspective and Conceptual Framework’, The International Journal of Human Resource Management, vol. 20,
no. 2 (February 2009), pp. 235–51.
58. Lee Gardenswartz and Anita Rowe, Managing Diversity: A Complete Desk Reference and Planning Guide (Chicago: Irwin,
1993).
59. R. Roosevelt Thomas Jr, Beyond Race and Gender: Unleashing the Power of Your Total Workforce by Managing Diversity
(New York: AMACOM, 1992), p. 10; see also R. Roosevelt Thomas Jr, ‘From Affirmative Action to Affirming Diversity’,
Harvard Business Review (November–December 1990), pp. 107–17; R. Roosevelt Thomas Jr with Marjorie I. Woodruff,
Building a House for Diversity (New York: AMACOM, 1999).
60. Lee Gardenswartz, Jorge Cherbosque and Anita Rowe, ‘Coaching Teams for Emotional Intelligence in Your Diverse
Workplace’, T+D, vol. 63, no. 2 (February 2009), pp. 44–9.
61. Gardenswartz and Rowe, op. cit., p. 220 ff.
62. Flannery Stevens, Victoria Plaut and Jeffrey Sanchez‐Burks, ‘Unlocking the Benefits of Diversity: All Inclusive
Multiculturalism and Positive Organizational Change’, The Journal of Applied Behavioral Science, (March 2008), vol. 44,
no. 1, pp. 116–33.
63. Taylor Cox Jr, Cultural Diversity in Organizations (San Francisco: Berrett‐Koehler, 1994).
64. Joseph A. Raelin, Clash of Cultures (Cambridge, MA: Harvard Business School Press, 1986).
65. Ingo Forstenlechner and Fiona Lettice, ‘Well Paid but Undervalued and Overworked; The Highs and Lows of Being a
Junior Lawyer in a Leading Law Firm’, Employee Relations, vol. 5, no. 6 (2008), pp. 640–52; Geert Hofstede, Culture’s
Consequences: Comparing Values, Behaviors, Institutions and Organizations Across Nations (Beverly Hills: Sage, 1981).
66. Sarah Foppleton, Rob Briner and Tina Kiefer, ‘The Roles of Context and Everyday Experience in Understanding Work‐ and
Non‐Work Relationships: A Qualitative Diary Study of White‐ and Blue‐Collar Workers’, Journal of Occupational and
Organizational Psychology, vol. 81, no. 3 (September 2008), pp. 481–502.
67. For examples of role model approaches, see Anthony Robbins and Joseph McClendon III, Unlimited Power: A Black Choice
(New York: Free Press, 1997); and Augusto Failde and William Doyle, Latino Success: Insights from America’s Most Powerful
Latino Executives (New York: Free Press, 1996).
68. Barbara Benedict Bunker, ‘Appreciating Diversity and Modifying Organizational Cultures: Men and Women at Work’, in
Suresh Srivastva and David L. Cooperrider, Appreciative Management and Leadership: The Power of Positive Thought and
Action in Organizations (San Francisco: Jossey‐Bass, 1990), pp. 127–49; Patrick J. Montana and Janet A. Lenaghan, ‘What
Motivates and Matters Most to Generation X and Y’, Journal of Career Planning and Employment, vol. 59, no. 1 (summer,
1999), pp. 27–30.
69. Montana and Lenaghan, op. cit.
70. See Gary N. Powell, Women & Men in Management (Thousand Oaks, CA: Sage, 1993) and Cliff Cheng (ed.), Masculinities in
Organizations (Thousand Oaks, CA: Sage, 1996). For added background, see also Sally Helgesen, Everyday Revolutionaries:
Working Women and the Transformation of American Life (New York: Doubleday, 1998).
71. Isabel Metz and Alan Simon, ‘A Focus on Gender Similarities in Work Experiences in Senior Management: A Study of an
Australian Bank Builds the Case’, Equal Opportunities International, vol. 27, no. 5 (2008), pp. 433–54.
72. Natasha Bita, ‘Race Watchdog Warns “Bamboo Ceiling” At Work’, The Australian (11 July 2014), www.theaustralian.com.au.
73. Anti‐Discrimination Commission Queensland, ‘Disability Discrimination: Your Rights and Responsibilities’,
www.adcq.qld.gov.au.

CHAPTER 3 Environment and diversity  87

74. Information from ‘The Bugs in Microsoft Culture’, Fortune (8 January 2001), p. 128.
75. Australian Human Rights Commission, ‘Pregnant and Productive: It’s a Right Not a Privilege to Work While Pregnant’,
www.hreoc.gov.au; Australian Human Rights Commission, ‘Inquiry Into Paid Maternity, Paternity, and Parental Leave’
(24 November 2008), www.hreoc.gov.au; EEO Trust, www.eeotrust.org.nz; Inland Revenue, ‘Paid Parental Leave’ (4 July
2008), www.ird.govt.nz; Australian Government, ‘Paid Parental Leave Scheme’ (19 October 2011), www.fahcsia.gov.au.
76. AAP, ‘Queensland’s first motorcycle cops to hit the road’, ABC News (25 September 2015), www.abc.net.au.
77. The Australian Employers’ Network on Disability, www.emad.asn.au.
78. See Richard D. Bucher, Diversity Consciousness: Opening Our Minds to People, Cultures, and Opportunities (Upper Saddle
River, NJ: Prentice Hall, 2000), p. 201.
79. This section is based on ideas set forth by R. Roosevelt Thomas Jr (op. cit.) and Thomas and Woodruff (op. cit.).
80. Thomas, op. cit., p. 17.
81. Alcatel‐Lucent Technologies, www.alcatel‐lucent.com.
82. Thomas and Woodruff, op. cit., pp. 211–26.
83. ibid, pp. 11–12.
84. ‘Diversity Today: Corporate Recruiting Practices in Inclusive Workplaces’, Fortune (12 June 2000), p. S4.
85. Coca‐Cola Singapore, ‘Workplace Diversity’ (2011), www.coca‐cola.com.sg.
86. Kwintessential, ‘Singapore: Language, Culture, Etiquette and Doing Business’ (n.d.), www.Kwintessential.co.uk; Sally
Rundle, Managerial Responsiveness: Flexibility Adaptiveness and Responsiveness (‘FAR‐Ness’) as the Key Success Factors
in Market Entry in the South‐East Asian Growth Wedge — Indonesia, Malaysia And Singapore (unpublished thesis, Monash
University, Melbourne, 1997).

ACKNOWLEDGEMENTS
Photo: © Rawpixel.com / Shutterstock.com
Photo: © View Apart / Shutterstock.com
Photo: © DyziO / Shutterstock.com
Photo: © Creativa Images / Shutterstock.com
Photo: © g-stockstudio / Shutterstock.com
Photo: © Alis Leonte / Shutterstock.com
Photo: © Potstock / Shutterstock.com
Extract: © Commonwealth of Australia 2016
Extract: © Verity Edwards, ‘Age still a barrier to older workers’, The Australian, 25 April 2015.
Extract: © AAP, ‘Queensland’s first female motorcycle cops to hit the road’, ABC News,
25 September 2015.

88  Management
CHAPTER 4

International dimensions
of management  

LEA RNIN G OBJE CTIVE S

4.1 What are the international management challenges of globalisation?

4.2 What are the forms and opportunities of international business?
4.3 What are multinational corporations and what do they do?
4.4 What is culture and how does it relate to global diversity?
4.5 How do management practices and learning transfer across cultures?
Selling out Australia
Australia has robust mining and farming industries and China’s attempts to buy mines, farms and blue
chip real estate, particularly in Sydney and Melbourne, has troubled many Australians. A Daymark mon-
itoring survey found that 41 per cent of Australians were uneasy about Chinese direct investment in
agriculture and commercial real estate.1 One of the concerns voiced by federal Member of Parliament
Bob Katter is that the Chinese are not really investing, ‘they’re not opening mines or building dams or
anything of that nature, they’re just buying the asset that is there. So it’s not investment, it’s selling your
country off’.2
The Chinese are looking to secure a food supply for their burgeoning population, but ques-
tions are being raised about why the Australian Government is not doing the same for future
Australian generations, allowing land to be seized by the banks from Australian farmers and sold to
the Chinese.3
Also of concern is that Chinese demand for commercial and residential properties, particularly in
Sydney and Melbourne, is swelling house prices as the cost of an apartment in Beijing can be the same
as a small house in Melbourne.4
Additional concerns were raised about the leasing of the Port of Darwin to a Chinese company because
there is a strong US and Australian military presence in that city.5
The purchase of 43 New South Wales farms for coal exploration for A$213 million also caused
alarm.6
New Zealand is not exempt from this trend, with a Chinese property developer winning approval in
2012 to buy 16 farms for the purposes of exporting dairy products to Asia.7
Lastly, the Electrical Trades Union feared that the Free Trade Agreement signed by Australia and
China in June 2015 would mean the loss of Australian jobs to temporary 457 Visa Chinese workers
on building sites. The Union was especially bothered by what it ‘called a “secretive side deal” made
by the federal government to remove China from a list of nations where skills tests are mandatory
before obtaining a skilled migrant visa’.8 However, regulation was put in place that will ensure Chinese
workers have the right skills to work on Australian construction sites and that foreign workers’ salaries
are benchmarked against those of local workers, reducing any incentive to bring a worker who could be
paid less than an Australian into the country.9
It may be the case that many of the concerns are being overstated. Firstly, China is now Australia’s
major trading partner, as will be seen in this chapter. It imports almost twice as much from
Australia in dollar terms than it exports to it. Verrender points out that the Australia–China Free
Trade Agreement is mutually beneficial because it gives Australian businesses improved access to a
huge market.10
Secondly, by mid‐2013, 87.5 per cent of farmland was in fact Australian, not foreign, owned.11 Thirdly,
overseas companies will invest in Australia and develop rural land in a country where the plight of so
many drought stricken farmers is sometimes ignored by government. Rodney Bell, a property lawyer at
McCullogh Robertson, believes that astute Chinese investors will employ experienced local managers,
thus increasing employment opportunities.12
Furthermore, the Foreign Investment Review Board introduced a tougher monitoring system on
1 December 2015: ‘the Turnbull Government’s robust new foreign investment regime provid[es] stronger
enforcement and a better resourced system with clearer rules for foreign investors  .  .  .  The Government
welcomes foreign investment that is not contrary to our national interest. Without foreign investment,
production, employment and income would all be lower. But it is important that foreign investment
is appropriately monitored to ensure that it benefits all Australians’, Treasurer Scott Morrison said.13
A month earlier, Australia had blocked the sale of the country’s largest landowner, private farming group
S. Kidman and Co., to foreign investors, saying ‘an agricultural area the size of South Korea should
remain in Australian hands’.14

90  Management
QUESTIONS
1. What form of international business strategy has been used by China to acquire Australian farms,
mines and real estate? What forms of international business do you think are most advantageous for
Australia?
2. List the advantages and disadvantages of Chinese investment in Australia.

Introduction
There is no doubt about it, we live and work in an increasingly global community, one that seemingly
becomes smaller and more immediately accessible by the day. Network television brings on‐the‐spot
news from around the world into our homes 24 hours a day. Newspapers from around the world — such
as The New York Times, The Times of India and The Japan Times — can be read on your desktop com-
puter or tablet via the internet at the touch of a keyboard. Increasingly, mobile phones offer the same
opportunity. Soon it will be possible to board a plane in Sydney and fly nonstop to London; it is some-
times less expensive to fly from Brisbane (Australia) to New Zealand than to Melbourne. Universities
and other tertiary institutions offer an increasing variety of study‐abroad programs. Email, Skype, online
chat rooms and social networking sites link us to friends and work partners around the world and at low
cost.
This world of opportunities isn’t just for tourists and travellers. It is time to recognise the emergence and
implications of a global workplace. Multinationals are increasingly locating parts of their ‘value chains’ in
different countries or time zones. For example, most of Nike’s manufacturing is located in Indonesia, with
its marketing and advertising located in the United States.15 In today’s business world, national boundaries
are increasingly blurred. The petrol station with the ‘BP’ logo in green, yellow and white is by British
Petroleum, known as BP; the familiar ‘Shell’ station is brought to you courtesy of Royal Dutch Shell.

CHAPTER 4 International dimensions of management  91

And did you know that the majority of McDonald’s sales are outside the United States, and that some
of its most profitable restaurants are located in places like Moscow, Budapest and Beijing? Astute busi-
ness investors know all this and more. They buy and sell only with awareness of the latest financial news
from Hong Kong, London, Tokyo, New York, Johannesburg, Singapore, Sydney and other world financial
centres. In this time of high technology, furthermore, they don’t even have to leave home to do it — the
latest information is readily available on the internet.
Yes, we live and work today in a truly global village. You, like the rest of us, must get connected with
the world’s opportunities.

4.1 International management and globalisation

LEARNING OBJECTIVE 4.1 What are the international management challenges of globalisation?
This is the age of the global economy in which resource supplies, product markets and business
competition are worldwide rather than purely local or national in scope.16 It is also a time heavily
influenced by the forces of globalisation, the process of growing interdependence among these com-
ponents in the global economy. Harvard scholar and consultant Rosabeth Moss Kanter describes it as
‘one of the most powerful and pervasive influences on nations, businesses, workplaces, communities
and lives’.17
The global economy offers great opportunities for worldwide sourcing, production and sales capa-
bilities.18 But as businesses spread their reach around the world, the processes of globalisation also bring
many adjustments to traditional patterns. Large multinational businesses are increasingly adopting trans-
national or ‘global’ identities, rather than being identified with a singular home. The growing strength
and penetration of these businesses worldwide is viewed by some as a potential threat to national econ-
omies, and their local business systems, labour markets and cultures.19 All this adds up to great uncer-
tainty as executives move into new and uncharted competitive territories. AOL’s co‐founder, Stephen M.
Case, once described the scene this way:

I sometimes feel like I’m behind the wheel of a race car. One of the biggest challenges is there are no
road signs to help navigate. And in fact  .  .  .  no one has yet determined which side of the road we’re sup-
posed to be on.20

The term used to describe management in organisations with business interests in more than
one country is international management. There is no denying its importance. Procter & Gamble
for example, one of the largest consumer goods manufacturers in the world, pursues a global
strategy with a presence in more than 70 countries. As the leaders of companies press forward with
global initiatives, the international management challenges and opportunities of working across
borders — national and cultural — must be mastered. New tests of managerial skills and view-
points are emerging. A new breed of manager, the global manager, is increasingly sought after.
This is someone informed about international developments, transnational in outlook, competent
in working with people from different cultures, and always aware of regional developments in a
changing world.
In order to survive, organisations have to ensure that their people are ready, willing and able to manage
in the global environment. Having the right people in the right place at the right time is essential to a
company’s successful international growth. However, when an employee accepts an international assign-
ment there are numerous administrative issues to deal with. These include managing the cost of the
entire assignment; minimising security risk and healthcare in certain countries; continuing to operate in
a legal fashion taking into account changing laws across the world; making a link between career devel-
opment and the international assignment; and career disruption of the partner of the expatriate. What
about you? Are you prepared for the challenges of international management? Are you informed about
the world and the forces of globalisation?

92  Management
 GLOBALISATION

Australian Volunteers
International in Vietnam
In this age of globalisation, it’s not just
big business that spreads its tentacles
to all four corners of the world. Volunteer
organisations have been doing this for
years, and one good example of these is
Australian Volunteers International (AVI).
On its homepage, AVI notes that it works
in an increasingly globalised world charac-
terised by poverty, climate change, global
financial and political instability, and pan-
demics. For this reason, AVI’s vision is
to contribute to a:

peaceful, just and sustainable world; a world of respectful global relationships where all people have access
to the resources they need, the opportunity to achieve their potential, the right to make decisions about the
kind of development they want and to participate in the future of their communities.21

Its values are ‘guided by principles of equity and social justice, integrity, diversity and inclusion,
partnership and respect for human rights’.22
In 2012, AVI was honoured at their celebration of sixty years of volunteering in Hanoi. Mr Vu Hong
(on behalf of the President of the Socialist Republic of Vietnam) presented AVI with the prestigious
Friendship Medal.23 This is a real turnaround from the days of the Vietnam War (when Australia and
North Vietnam were deadly enemies) and the early years following its end in 1976. In recent times,
Communist Vietnam has taken some steps towards opening up its economy, but poverty remains
an issue, as does spreading inequality and deforestation. Health has improved for the Vietnamese,
but traffic accidents, air pollution and discharge of wastewater into rivers have increased due to the
larger population.
Clearly, there is a huge amount for an organisation like AVI to do, and it has been working in the ter-
ritory since 1985. In total, about 380 personnel have been deployed in Vietnam since 1985, but there
were only 21 placements in July 2011.24 Over the years, its AVI volunteers have included teachers
(especially English language teachers), nurses, foresters, and helpers to deal with duck plague and
increase pig nutrition.

QUESTION
What other types of volunteers can organisations like AVI engage in order to assist developing countries
that are attempting to embrace a market economy?

Asia and the Pacific Rim

Asia has attained superpower status in the world economy. China looms centre stage and its economy is
closely intertwined with the world at large. This country of more than 1.3 billion people is the world’s
largest consumer marketplace. In the years preceding the global financial crisis, its economy averaged
over 10 per cent growth.25 Notwithstanding the subsequent global economic downturn and problems
in the Eurozone, Asian and Pacific Rim economies are soon expected to be larger than those of the
current European Union (EU). In Asia, the historical strength of Japanese businesses must be recog-
nised — Honda, Toyota and Sony, to name just three. Then there is the growing prominence of firms
like Samsung and Hyundai of South Korea, as well as those in other regional powers like Taiwan and
Singapore. Elsewhere in South‐East Asia, countries such as Malaysia and Thailand are prominent,

CHAPTER 4 International dimensions of management  93

Vietnam is fast advancing, and the Philippines is gaining strategic importance with a high literacy rate,
an educated workforce, and a population that speaks English.26 Asian countries, while subject to econ-
omic cycles like the rest of the world, are well positioned to take advantage of economic recoveries.
Their building blocks are neatly in place.
The Asia–Pacific Economic Cooperation (APEC) group has become the region’s leading forum. The
APEC countries are shown in figure 4.1.

Russia

Canada

United States
Japan of
China America
South Korea

Taiwan
Hong Kong Mexico
Vietnam
Thailand
Philippines
Brunei
Malaysia
Singapore
Papua New Guinea

Indonesia Peru

Australia

Chile

New Zealand N

0 1000 2000 km
APEC member countries

FIGURE 4.1 The Asia–Pacific Economic Cooperation member countries

The APEC forum aims to strengthen ‘regional economic integration’ and ‘regional links’ and
encourages the pursuit of common trade goals.27 Businesses from the 21 APEC member nations —
including Australia and New Zealand — have potential access to over 2.7 billion consumers and around
60 per cent of the global income that is generated by these economies. Much of APEC members’ trade
is with other APEC members. For example, APEC accounts for about 70 per cent of Australia’s total
trade with the rest of the world.28 Table 4.1 shows the significance of major APEC players in terms of
Australia’s and New Zealand’s trade.
Australia and New Zealand pursue their trading interests bilaterally, regionally and in international
forums. Both are members of the Organisation for Economic Co‐operation and Development (OECD,
www.oecd.org), which brings together representatives from 30 developed, democratic countries that
have open market economies. Its aim is ‘to play a critical role in analysing developments in the
international trading system’ as well as ‘to analyse the impact of government policies on trade and
performance’.29

94  Management
 TABLE 4.1 Significance of major APEC nations to Australia and New Zealand’s trade

Australia New Zealand

Exports

Total goods and services $327 billion $67.5 billion

Top merchandise export markets 1.  China $98 billion 1.  Australia $13 billion
2.  Japan $50 billion 2.  China $10.3 billion
3.  Republic of Korea $22 billion 3.  EU & United States $8 billion
4.  United States $18 billion 4.  Japan $3.6 billion
5.  NZ & Singapore 12 billion 5.  Republic of Korea $2.1 billion

Imports

Total goods and services $336 billion $65.1 billion

Top import APEC countries 1.  China $54 billion 1.  EU & Australia $11 billion
2.  United States $41 billion 2.  China $9.4 billion
3.  Japan $20 billion 3.  United States $8 billion
4.  Singapore $18 billion 4.  Japan $3.3 billion

Source: ‘Australian Government, ‘Composition of Trade Australia, 2013–14’, www.dfat.gov.au; Statistics New Zealand, ‘Exports
and Imports Tables 2015’, www.stats.govt.nz.

Australia’s engagement with South‐East Asia at a regional level remains an important priority.
North Asia’s economic importance to Australia is also on the increase. Strengthening its cooperation
with these economies contributes to Australia’s security and is integral to promoting international
interests. The rise in trade with China and South Korea is particularly strong. This deepening econ-
omic relationship with China is evident from increased trade collaboration between the two countries.
For example, an Australian insurance company secured a Chinese insurance licence soon after China
entered the World Trade Organization (WTO) (the largest international body dealing with the
rules of trade between nations, discussed later in the chapter) in 2001. By 2007, China had, in fact,
overtaken Japan to become Australia’s overall largest trading partner (when analysing both imports
and exports).30 Table 4.1 shows that in 2014 China was Australia’s biggest trading partner by far and
in 2015 the government signed the China–Australia Free Trade Agreement, which will solidify this
relationship.
Notwithstanding some of the issues discussed in the case on diversity in this chapter, the bilateral
relationship between Australia and New Zealand remains strong, as is evident from the progress on the
continuing trans‐Tasman trade and economic agenda. There is significant convergence between the two
countries regarding their respective business law regimes — in seeking to ensure that they reflect devel-
oping international norms and that there is a reduction in compliance costs for companies operating in
both countries, for example. There is a drive to increase industry competitiveness by closer collaboration
between industry sectors in both countries in the interests of maximising the global competitiveness of
Australian and New Zealand companies.31

Europe
Europe is a place of dramatic political and economic developments.32 The European Union (EU) is
an institutional framework for the construction of a united Europe. It was created after World War II
to unite the nations of Europe economically so another war among them would be unthinkable. This
grouping of countries has agreed to support mutual economic growth by removing barriers that pre-
viously limited cross‐border trade and business development. There are 27 member (and 5 candidate)
countries, and some 500 million people share the common institutions and policies that have brought

CHAPTER 4 International dimensions of management  95

an unprecedented era of peace and prosperity (up until 2010) to Western Europe.33 Recent events in
the Eurozone, most notably in Greece, Italy and Ireland, have caused financial turmoil and led to the
Eurozone crisis. Until 2010, markets acted as though the:

debt of peripheral EU countries, such as Greece and Ireland, was as safe as that of core EU countries,
such as Germany. But when bond investors realized that Greece had been cooking its books and that
Ireland’s fiscal posture was unsustainable, they ran for the door.34

In short, lenders wanted their money paid back — so, all over Europe, member states responded by
reducing their deficits and repaying public debt. However, these austerity measures were insufficient to
satisfy lenders for long.35 Citizens of several of these countries also rejected these measures and voted in
favour of alternative political parties who opposed them.36 The European Union countries (and candidate
countries) are shown in figure 4.2.

ICELAND

European Union member country

Candidate country

Non-union country FINLAND

SWEDEN

UNITED ESTONIA
REPUBLIC OF KINGDOM
IRELAND LATVIA
DENMARK
LITHUANIA

NETHERLANDS

BELGIUM POLAND
GERMANY

LUXEMBOURG
CZECH REP.
SLOVAKIA
FRANCE AUSTRIA
HUNGARY
SLOVENIA ROMANIA
Croatia
PORTUGAL

ITALY
BULGARIA
SPAIN
FYROM*

GREECE Turkey

N
MALTA
CYPRUS
0 300 600 900 km
*Former Yugoslav Republic of Macedonia

FIGURE 4.2 The European Union countries

In June 2016 a referendum was held to decide whether the UK should leave or remain in the EU.
Despite widespread expectations that the leave campaign would fail, 52 per cent of voters elected to exit
the EU. The formal exit process will take some time and the long-term economic and political impli-
cations remain to be seen.

96  Management
 As an economic union, the EU for many years put the rest of the world on notice that European busi-
ness was a global force to be reckoned with. Members are linked through favourable trade and customs
laws intended to facilitate the free flow of workers, goods and services, and investments across national
boundaries. Businesses in each member country have access to a market of about 500 million consumers,
compared with about 300 million in the United States and about 120 million in Japan. Among the impor-
tant business and economic developments in the EU are agreements to eliminate frontier controls and
trade barriers, create uniform minimum technical product standards, open government procurement to
businesses from all member countries, unify financial regulations, lift competitive barriers in banking
and insurance, and even offer a common currency — the euro. The growing worldwide impact of the
euro is being watched carefully. The GFC and Eurozone crisis have caused major headaches for the
euro as the serious debt levels of member countries have been exposed. Although there are still political
and economic uncertainties, especially the in aftermath of the GFC, the expected regional benefits of an
expanding EU include higher productivity, lower inflation and slower but steady growth. Table 4.2 shows
the major trading partners of the European Union.

TABLE 4.2 European Union major trade partners

Partners Total trade in euros (million) %

World 3  383  079 100.0

1. USA   517  162  15.3

2. China   466  826  13.8

3. Russia   284  583   8.4

4. Switzerland   236  998   7.0

5. Norway   136  993   4.0

6. Turkey   129  013   3.8

7. Japan   108  483   3.2

8. South Korea   81  

992   2.4

9. India   72  
587   2.1

10. Brazil   67  

961   2.0

11. Saudi Arabia   63  

852   1.9

12. Canada   59  

093   1.7

13. Algeria   52  

849   1.6

14. United Arab Emirates   50  

934   1.5

15. Mexico   46  

419   1.4

16. Hong Kong   45  

584   1.3

17. Singapore   45  

176   1.3

18. South Africa   41  

872   1.2

19. Taiwan   40  

174   1.2

20. Nigeria   39  

706   1.2

Source: Adapted from European Commission, Directorate General for Trade, ‘Top Trading Partners — Trade Statistics’ (2014),
http://trade.ec.europa.eu/doclib/docs/2006/september/tradoc_122530.pdf.

CHAPTER 4 International dimensions of management  97

 All of this must also be considered in context with another dynamic element in the European scene —
continuing legacies of the collapse of communism in the former Soviet Union and in nations formerly
dominated by it. Changes in political systems and governments can add to the risk for foreign investors,
but can also create opportunities. Western businesses are responding to opportunities not only in Russia
but also in such diverse places as Belarus, Latvia and the Ukraine. The EU is among New Zealand’s
major trading partners in terms of two‐way trade, and is a large source of foreign direct investment. One
of the main objectives for Australia and New Zealand is the advancement of trade and investment in the
EU economies, notwithstanding recent problems.

The Americas
Turning now to the Americas, the United States, Canada and Mexico have joined together in the
North American Free Trade Agreement (NAFTA). This agreement largely frees the flow of goods and
services, workers and investments within a region that has more potential consumers than its European
rival, the EU. Getting approval for NAFTA from all three governments was not easy. Whereas Canadian
firms worried about domination by US manufacturers, American politicians were concerned about the
potential loss of jobs to Mexico. Some calls were made for more government legislation and support
to protect domestic industries from foreign competition. Mexicans feared that free trade would bring
a further intrusion of US culture and values into their country, and Americans complained that Mex-
ican businesses did not operate by the same social standards, particularly with respect to environmental
protection and the use of child labour. Often at issue in NAFTA controversies are the operations of
maquiladoras, foreign manufacturing plants allowed to operate in Mexico with special privileges in
return for employing Mexican labour.37
Along with Asia and the EU, the United States is among Australia’s and New Zealand’s largest trading
partners and sources of foreign direct investment. Australia’s and New Zealand’s interests in high‐quality
US engagement in the Asia–Pacific region continues, especially the importance of good US relations
with Japan, China, Indonesia and the Republic of Korea.38 In 2005, Australia entered into a bilateral
free trade agreement with the United States, known as the Australia–United States Free Trade Agree-
ment (AUSFTA). This agreement was designed to encourage even stronger trade links between the two
countries through measures such as reducing tariffs, easing various market restrictions and streamlining
investment processes. The United States is Australia’s fourth largest export market (behind China, Japan
and Korea), and New Zealand’s joint third largest (with the EU and behind Australia and China).39
Australia and New Zealand also maintain extensive bilateral cooperation with Canada, with exchanges
on a range of government issues such as health and migration.40
Optimism regarding business and economic potential extends throughout Central America and
South America as well. Many countries of the region are cutting tariffs, updating their economic policies
and welcoming foreign investors.
Australia and New Zealand are working towards greater opportunities for increased trade and invest-
ment with Latin America and improved market access. Examples of successful collaborations include a
tariff exemption for wool, access for cereals and meat, and the supply of coal to Mexico’s power industry.
Other examples of collaborations include he opening of the Argentine markets to Australian producers,
the exemption of Australian dairy products from Brazilian anti‐dumping measures, the signing of the
Cooperation on Education and Training Agreement, the initialling of a Nuclear Safeguards Agreement
with Argentina, and the finalisation of the text of an Investment Promotion and Protection Agreement
between Australia and Uruguay.41 The significance of Latin America to world trade is increasingly being
recognised by international businesses and government leaders.

Africa
Africa is a continent increasingly featured in the news.42 Although the focus of reports is often on ethnic
turmoil and civil strife in countries struggling along pathways to peace and development, Africa also

98  Management
stands as a region that beckons international business. Whereas foreign businesses tend to avoid the risk
of trouble spots, they are giving increased attention to stable countries with growing economies. The
Congo, Nigeria and Angola are especially rich in natural resources. On the discouraging side, many
parts of the region suffer from terrible problems of poverty and the ravages of a continuing HIV/AIDS
epidemic. Africa’s need for sustained assistance from the industrialised countries, including business
investments and foreign aid, is well established.
The Southern Africa Development Community (SADC) links 14 countries of southern Africa in trade
and economic development efforts. The objectives of SADC include harmonising and rationalising strat-
egies for sustainable development among member countries.43 Post‐apartheid South Africa, in particular,
has benefited from political revival. A country of nearly 50 million people and great natural resources,
South Africa is experiencing economic recovery and attracting outside investors. It already accounts for
half the continent’s purchasing power.44 Foreign investments in the country increased sharply after min-
ority white rule ended and Nobel‐prize winner Nelson Mandela became the nation’s first black president.
Since the end of apartheid (1993–94), Australia’s exports to South Africa have more than doubled and it
is Australia’s largest trading partner on the African continent.45 However, in relative terms, South Africa
still only ranks as Australia’s 21st largest trading partner in the world.46

CRITICAL ANALYSIS

1. Why is it important that managers understand the importance of global issues?

2. What characteristics might help a manager to be successful internationally?

4.2 International business challenges

LEARNING OBJECTIVE 4.2 What are the forms and opportunities of international business?
John Chambers, CEO of Cisco Systems, Inc., a major networking technology firm with a world-
wide reach, says: ‘I will put my jobs anywhere in the world where the right infrastructure is, with the
right educated workforce, with the right supportive government’.47 Cisco and other firms like it are
international businesses. They conduct for‐profit transactions of goods and services across national
boundaries. International businesses of all types and sizes are the foundations of world trade. They are
the engines for moving raw materials, finished products and specialised services from one country to
another in the global economy. The reasons for international business, the forces that drive companies
to the marketplaces of the world, include the search for:
•• profits — global operations offer profit potential
•• customers — global operations offer new markets to sell products
•• suppliers — global operations offer access to needed raw materials
•• capital — global operations offer access to financial resources
•• labour — global operations offer access to lower labour costs.

Competitive global business environment

The global environment of international business is complex and dynamic, and highly competitive. At
the level of the task environment, global business executives must master the demands of operating with
worldwide suppliers, distributors, customers and competitors. They must also understand and deal suc-
cessfully with general environment conditions that present many differences in economic, legal–political
and educational systems, among other aspects of business infrastructure.
Regional economic cooperation is increasing, but differences in economic systems around the world
must still be recognised. Countries such as Russia, Poland, Estonia and others of the former Soviet Union
used to operate with central‐planning economies. That is, the central government made basic economic

CHAPTER 4 International dimensions of management  99

decisions for an entire nation. Such decisions largely determined the allocations of raw materials, set
product or service output quotas, regulated wages and prices, and even distributed qualified personnel
among alternative employers. Now these countries are trying to establish viable free‐market economies
such as those common to Australia, New Zealand, Germany, Canada, the United States and other indus-
trialised nations. Although they may vary in exact form, free‐market economies operate under capi-
talism and the laws of market supply and demand. As economies transform from central planning to
free markets, they often face controversies over rising prices, unemployment, business competition and
the challenges of privatisation — the selling of state‐owned enterprises into private ownership. Foreign
investment is crucial to the success of these developments.48
Among the chief worldwide economic issues, the WTO deserves special attention. The WTO is
organised around an international accord setting up a mechanism for monitoring international trade
and resolving disputes among countries. Member nations agree to ongoing negotiations and the reduc-
tion of tariffs and trade restrictions, but trading relationships are often complicated. Protectionism,
in the form of political calls for tariffs and favourable treatments to help protect domestic businesses
from foreign competition, is a common and complicating theme. For example, in the past Australia
has registered its concern over US assistance to agricultural exports and the impact of US food‐
aid allocations in commercial markets, especially of grains and dairy products, which disadvantaged
Australian farmers.49
Legal environments vary widely from place to place, and organisations are expected to abide by the
laws of the host country in which they are operating. The more home and host‐country laws differ, the
more difficult and complex it is for international businesses to adapt to local ways. Common legal prob-
lems in international business involve incorporation practices and business ownership; negotiating and
implementing contracts with foreign parties; protecting patents, trademarks and copyrights; and handling
foreign exchange restrictions. In countries such as Australia, New Zealand and the United States, exec-
utives of foreign‐owned companies must worry about competition (antitrust) issues that prevent competi-
tors from regularly talking to one another. They also must deal with a variety of special laws regarding
occupational health and safety, equal employment opportunity, sexual harassment and other matters —
all constraints potentially different from those they find at home. For example, the global company
Levi Strauss & Co. responds to the needs of its global employees by incorporating into its training pro-
grams detailed instruction on assessing compliance with discrimination standards.50 An earlier extract
from the Levi Strauss and Co. timeline reads:

The Human Rights Campaign Foundation rates Levi Strauss & Co. among the top of Fortune
500 companies based on how it treats gay, lesbian, bisexual and transgender employees, consumers and
investors. LS&CO. receives a perfect score of 100 percent.51

People are essential resources of organisations, and as education systems vary from one country to the
next so too does the availability of labour. A survey of business leaders around the world reports that
many are worried about actual or potential ‘human resource deficits’.52 They recognise that problems of
illiteracy and the absence of appropriate skills in the available workforce can compromise operations.
They also recognise, increasingly, the broader social challenge of becoming more actively involved in
education and training to help build supplies of qualified labour in a host country.

Forms of international business

The common forms of international business are shown in figure 4.3. When a business is just getting
started internationally, global sourcing, exporting/importing and licensing and franchising are the usual
ways to begin. These are market entry strategies that involve the sale of goods or services to foreign
markets but do not require expensive capital investments. Joint ventures and wholly owned subsidiaries
are direct investment strategies. They require major capital commitments but create rights of ownership
and control over operations in the foreign country.

100  Management
 Market entry strategies Direct investment strategies

Global Exporting and Licensing and Wholly owned

Joint ventures
sourcing importing franchising subsidiaries

Increasing involvement in ownership and control of foreign operations

FIGURE 4.3 Common forms of international business — from market entry to direct investment strategies

Market entry strategies

A common first step into international business, global sourcing is the process of purchasing on a con-
tract basis manufacturing components and/or services from points around the world. It is an international
division of labour in which activities are performed in countries where they can be done well at the
lowest cost. In manufacturing, global sourcing for cars assembled in Australia may mean purchasing
windshields, instrument panels, seats and fuel tanks from Asia as well as electronics for antilock braking
systems from Germany. In services, global sourcing is rapidly expanding in a variety of white‐collar
fields ranging from accounting, IT and customer support to scientific research and technology develop-
ment, and more. In all cases the global sourcing opportunity is to take advantage of international wage
gaps and the availability of skilled labour by dispersing more and more work to foreign locations.
A second form of international business involves exporting, selling locally made products in foreign
markets, and/or importing, buying foreign‐made products and selling them in domestic markets.
Because the growth of export industries creates local jobs, governments often offer special advice and
assistance to businesses that are trying to develop or expand their export markets. Austrade’s Australian
Export Awards and the New Zealand Trade & Enterprise Awards aim to showcase and promote leading
exporters and to identify home‐grown corporate role models.53
A foreign firm may pay a fee and enter into a licensing agreement, giving it the rights to make or
sell another company’s products. This international business approach typically grants access to a unique
manufacturing technology, special patent, or trademark rights held by the licensor. It is one way to
transfer technology from one country to another. Ripcurl, the Victorian manufacturer of iconic wetsuits
and other surfwear, established its first offshore licence in California in 1981. Today there are a total
of eight other licensees in France, South Africa, Indonesia, Brazil, Japan, Argentina, Chile and Peru.54
Franchising is a form of licensing in which the licensee buys the complete ‘package’ of support needed
to open a particular business. Firms such as McDonald’s, Subway and others sell facility designs, equip-
ment, product ingredients and recipes, and management systems to foreign investors, while retaining
certain product and operating controls.

Direct investment strategies

To establish a direct investment presence in a foreign country, many organisations enter into joint
ventures or co‐ownership arrangements that pool resources and share risks and control for business
operations. This form of international business may be established by equity purchases and/or direct
investments by a foreign partner in a local operation; it may also involve the creation of an entirely new
business by foreign and local partners. International joint ventures are ‘strategic alliances’ that help
participants gain things through cooperation that otherwise would be difficult to achieve independently.
This is a popular and expanding form of international business. In return for its investment in a local
operation, for example, the outside or foreign partner often gains new markets and the assistance of
a local partner who understands them. In return for its investment, the local partner often gains new
technology as well as opportunities for its employees to learn new skills by working in joint operations.
Manager’s notepad 4.1 offers a checklist for choosing joint venture partners.55

CHAPTER 4 International dimensions of management  101

 MANAGER’S NOTEPAD 4.1

Checklist for joint ventures

Choose a partner:
• familiar with your firm’s major business.
• with a strong local workforce.
• with future expansion possibilities.
• with a strong local market for its own products.
• with shared interests in meeting customer needs.
• with good profit potential.
• with a sound financial standing.

A wholly owned subsidiary is a local operation completely owned and controlled by a foreign firm.
Like joint ventures, foreign subsidiaries may be formed through direct investment in start‐up operations
or through equity purchases in existing ones. When making such investments, foreign firms are clearly
taking a business risk. They must be confident that they possess the expertise needed to manage and
conduct business affairs successfully in the new environment. This is where previous experience gained
through joint ventures can prove very beneficial.

COUNTERPOINT

Challenges of a slowing Chinese economy for Australia

A prominent Australian investor says a slowing Chinese economy is one of the challenges facing the
global economy and Australia.
Billionaire Kerr Neilson runs Platinum Asset Management in Sydney, which invests in international
shares, not Australian stocks.
Mr Neilson said he was not unusually worried about China and noted that the world economy faced
several challenges.
‘In China, the country is slowing down quite quickly and they will have rising bad debts, non‐
performing assets on their banking,’ he said in an interview with the ABC on the sidelines of an investor
presentation to another Sydney‐based fund manager Park Street Group.
Mr Neilson travels frequently overseas, including to China and India. He said the Chinese economy
is likely to grow much more slowly than the government’s target, and official statistics bureau result, of
7 per cent per annum.
‘All the indicators we look at, and I’m not talking about electricity or those old fashioned measures,
but the other measures suggest that it’s growing more like 4 [per cent] or so,’ Mr Neilson said.
‘The reason the government is sticking to a high growth figure is a sort of confidence boosting
measure as far as we can see and, to some extent, face saving.’
Mr Neilson thinks the volatility may continue on Chinese share markets and the government had mis-
managed the situation.
He said Chinese authorities should have taken steps to reduce the amount of margin lending much
sooner.
‘Where the mistake was made is to allow the amount of margin credit to be used to buy shares and
the consequence of that is that it became a bit of a free for all and we had very extraordinary levels of
speculation,’ Mr Neilson argued.
‘Then, of course, we found valuations that were just crazy.’56

QUESTION
What contingency plans should Australian managers have made for a slowing Chinese economy?

102  Management
 CRITICAL ANALYSIS

1. What role could education and training play for organisations choosing to operate internationally?
2. What are some potential advantages and disadvantages of each of the different market entry
strategies?

4.3 Multinational corporations

LEARNING OBJECTIVE 4.3 What are multinational corporations and what do they do?
Many companies participate in international business in one form or another. A true multinational
corporation (MNC) is a business firm with extensive international operations in more than one foreign
country. Premier MNCs found in annual listings such as Fortune magazine’s Global 500 include such
global giants as Telstra, News Corporation, AMP and National Australia Bank from Australia, Rio
Tinto from the United Kingdom and Australia, China Mobile and Hang Seng Bank from Hong Kong,
Taiwan Semiconductor from Taiwan, Singapore Telecommunications from Singapore and General Elec-
tric and Wal‐Mart from the United States. Also important on the world scene are multinational organ-
isations (MNOs) — such as the International Federation of Red Cross and Red Crescent Societies, the
United Nations and the World Bank — with not‐for‐profit missions and operations that span the globe.

Types of multinational corporations

A typical MNC operates in many countries but has corporate headquarters in one home or host country.
Microsoft, Rio Tinto and McDonald’s are among the ready examples. Although deriving substantial
sales and profits from international sources, they and other companies like them typically also have
strong national identifications. Yet, as the global economy grows more competitive, many multinationals
are acting more like transnational corporations. They increasingly operate worldwide without being
identified with one national home.57 Executives in transnationals view the entire world as the domain for
acquiring resources, locating production facilities, marketing goods and services, and for brand image.
They seek total integration of global operations, try to operate across borders without home‐based preju-
dices, make major decisions from a global perspective, distribute work among worldwide points of
excellence, and employ senior executives from many different countries.58 BHP Billiton and Pricewater-
houseCoopers are good examples of this. Microsoft, Facebook, Twitter, Google and eBay are examples
of virtual borderless companies.
One major challenge transnational companies face is how they should respond to human rights
violations in a country in which they operate, because the impact on business performance and public
perceptions of the company could be severe. A comprehensive, transparent and verifiable corporate
human rights policy has increasingly become essential. Visit the United Nations website www.un.org to
learn more about the ‘Norms on the Responsibilities of Transnational Corporations and Other Business
Enterprises with regard to Human Rights’ (UN Norms).
Born global companies
Traditionally, firms have started out by selling products or services in domestic markets and thereafter
developed their international activities incrementally.59 More recently, however, this has changed. Firms
that commence operating internationally at or near their inception are known as born global companies.
These firms are usually new ventures that are designed to be international from the first day of their
operations. This definition distinguishes them from companies that have grown into global operations
from their domesticity over time.60 Examples include Skype and Logitech.61 Some computers do not
have inbuilt cameras, so Logitech supplies devices that can be attached to computers to enable live video
streaming during Skype conversations.

CHAPTER 4 International dimensions of management  103

 However, it is not just large multinationals that can start international operations from the word go.
Small‐ and medium‐sized companies that face competition from international firms are also able to enter
the global market. The proviso is that their CEOs should be entrepreneurs with an international out-
look.62 Stormy Australia is a Tasmanian company that makes comfortable lifejackets that can be worn
at all times and is accredited with the international standard ISO 12402‐3; Stormy, in fact, invented the
first internationally accredited wearable lifejacket.63 These days, born global companies are often hi‐tech
enterprises. A well‐known recent example is wi‐fi. The technology enables users to tap into the internet
virtually anywhere — at home, in cafés or at work — and is an Australian invention that rapidly went
global.64

Pros and cons of multinational corporations

Now that consumer demand, resource supplies, product flows and labour markets often span national
boundaries, the actions of MNCs are increasingly influential in the global economy. The United Nations
has reported that MNCs hold one‐third of the world’s productive assets and control 70 per cent of
world trade. Furthermore, more than 90 per cent of these MNCs are based in the Northern Hemisphere.
Although this may bring a sense of both accomplishment and future opportunity to some business
leaders, it can also be very threatening to countries and their domestic industries.

Host‐country issues
Both the global corporations and the countries that ‘host’ their foreign operations should benefit from
any business relationship. Figure 4.4 shows how things can and do go both right and wrong in MNC–
host‐country relationships. The potential host‐country benefits include larger tax bases, increased
employment opportunities, technology transfers, the introduction of new industries and the development
of local resources. In respect to potential host‐country costs, it has been claimed that MNCs extract
excessive profits, dominate the local economy, interfere with the local government, do not respect local
customs and laws, fail to help domestic firms develop, hire the most talented of local personnel and do
not transfer their most advanced technologies.65

MNC–host-country MNC–host-country
relationships relationships
What should go right What can go wrong

Host-country MNC complaints about

Mutual benefits complaints about MNCs host countries
Shared opportunities ● Excessive profits ● Profit limitations
with potential for ● Economic domination ● Overpriced resources
● growth ● Interference with government ● Exploitative rules
● income ● Hire best local talent ● Foreign exchange
● learning ● Limited technology transfer restrictions
● development ● Disrespect for local customs ● Failure to uphold contracts

FIGURE 4.4 What should go right and what can go wrong in MNC–host‐country relationships

Of course executives of MNCs sometimes feel exploited as well in their relations with host coun-
tries. Consider China, for example, where major cultural, political and economic differences confront
the outsider.66 Profits have proved elusive for some foreign investors; some have faced government
restrictions that make it difficult to take profits out of the country; some have struggled to get needed
raw materials, both domestically and from abroad.67 The protection of intellectual property is an
ongoing concern for foreign manufacturers, and managing relationships with government agencies

104  Management
can be very complicated. When Motorola ran the largest foreign‐owned operation inside China, for
example, it still had to negotiate business plans with the government. The firm’s chief country rep-
resentative, K. P. To, said ‘Even if you’re wholly owned, you still need strong support from the
government’.68

Home‐country issues
MNCs may also encounter difficulties in the country where their headquarters are located. Even as
many MNCs try to operate more globally, home‐country governments and citizens tend to identify them
with local and national interests. When an MNC outsources, cuts back or closes a domestic operation
to shift work to lower cost international destinations, the loss of local jobs is controversial. Corporate
decision‐makers are likely to be engaged by government and community leaders in critical debate about
a firm’s domestic social responsibilities. Home‐country criticisms of MNCs, such as Westpac, BHP
Billiton, Blundstone and Pacific Brands, include complaints about transferring jobs out of the country
and shifting capital investments abroad.

Ethical issues for multinational operations

The ethical aspects of international business deserve special attention, and will be discussed further in
the chapter on managerial ethics and social responsibility. However, the issue of questionable practices
must be raised in the international business context.
Corruption, engaging in illegal practices to further your business interests, is a source of continuing
controversy in various countries. The heads of government within the Commonwealth have committed
themselves to a policy of ‘zero tolerance’ of corruption. APEC has developed principles, albeit voluntary,
that focus on issues such as transparency in the tender process and accountability; and the Council of
Europe and the European Union have finalised comprehensive anti‐corruption policies. However, critics
believe these policies fail to recognise the ‘reality’ of business as practised in many foreign nations.
They complain that companies adhering to these policies are at a competitive disadvantage because they
can’t offer the same ‘deals’ as competitors from other nations — deals that locals may regard as standard
business practice.
Sweatshops, business operations that employ workers at low wages for long hours and in poor
working conditions, are another concern in the global business arena. Networks of outsourcing contracts
are now common as manufacturers follow the world’s low‐cost labour supplies — countries such as the
Philippines, Sri Lanka and Vietnam are popular destinations. Yet Nike has learned from problems in
Asia that a global company will be held publicly accountable for the work standards and employment
practices of its foreign subcontractors. Facing activist criticism, the company revised its labour practices
with recommendations from a review by the consulting firm Goodworks International. Nike now offers
a special website, Transparency 101, which contains reports and audit results on its international labour
practices.69
The use of child labour, the full‐time employment of children for work otherwise done by adults, is
another controversial issue in some countries, along with global concerns for environmental protection.
Not only are the world’s citizens worried about pollution, but more generally they expect global corpor-
ations to respect the natural environment and pursue safe industrial practices. Industrial pollution of
cities, hazardous waste, depletion of natural resources and related concerns are now worldwide issues.
The concept of sustainable development is gaining increasing awareness. Sustainable development is
‘development that meets the needs of the present without compromising the ability of future gener-
ations to meet their own needs’.70 As global corporate citizens, MNCs are increasingly expected to
uphold high standards in dealing with sustainable development and protection of the natural environ-
ment — whenever and wherever they operate. The available guidelines for responsible environmental
policies include ISO 14000, a set of certification standards developed by the International Organization
for Standardization and recognised worldwide.

CHAPTER 4 International dimensions of management  105

 CRITICAL ANALYSIS

1. What are the alternatives to international companies transferring jobs out of their home countries?
2. In what ways can MNCs contribute towards sustainable development in both their home and host
countries?

4.4 Culture and global diversity

LEARNING OBJECTIVE 4.4 What is culture and how does it relate to global diversity?
Culture is the shared set of beliefs, values and patterns of behaviour common to a group of
people. Anyone who has visited another country knows that cultural differences exist. Culture
shock, the confusion and discomfort a person experiences when in an unfamiliar culture, is a
reminder that many of these differences must be mastered just to travel comfortably around the
world. But the important business and managerial implications of sociocultural differences must also
be understood.
Ethnocentrism is the tendency to view your own culture as superior to others. It is surprisingly
common in international business, but it must be avoided. Local customs vary in too many ways for
most of us to become true experts in the many cultures of our diverse world. Yet there are things we
can do to respect differences, successfully conduct business abroad and minimise culture shock. Self‐
awareness and reasonable sensitivity are the basic building blocks of cultural awareness, as suggested in
Manager’s notepad 4.2.71

MANAGER’S NOTEPAD 4.2

Stages in adjusting to a new culture

• Confusion. First contacts with the new culture leave you anxious, uncomfortable and in need of
information and advice.
• Small victories. Continued interactions bring some ‘successes’, and your confidence grows in
handling daily affairs.
• The honeymoon. A time of wonderment, cultural immersion and infatuation, with local things viewed
most positively by you.
• Irritation and anger. A time when the ‘negatives’ overtake the ‘positives’, and the new culture
becomes a target of your criticism.
• Reality. A time of rebalancing; you are able to enjoy the new culture while recognising its less
desirable elements.

Popular dimensions of culture

The first impressions of a traveller often include recognition and even ‘shock’ over cultural differences.
Among the popular dimensions of culture that should be understood are those relating to language, use
of space, time orientation, religion and the role of contracts.72 When executives at British Airways (BA)
surveyed international customers, for example, a simple lesson emerged — don’t assume people from
different cultures will have the same dining habits and preferences. Japanese passengers, for example,
commented that BA’s food was ‘not bad for Westerners’. They also pointed out that the white china
dishes were similar to those used in Japanese hospitals and prisons. ‘The further away from our Western
culture we go, the less satisfied our customers are’, said one BA marketing manager. ‘People from other
cultures have felt looked down upon.’ A major overhaul was undertaken to give the carrier a more truly
global identity.73 Having an appreciation of different cultural views is vital for organisations like BA that
wish to achieve a global identity.

106  Management
Language
Language is a medium of culture. It provides access to the type of cultural understanding needed to
conduct business and develop relationships. Not only do languages vary around the world; the same lan-
guage (such as English) can vary in usage from one country to the next (as it does from the United States
to England to Australia to New Zealand). Although it isn’t always possible to know a local language,
such as Hungarian, it is increasingly usual in business dealings to find some common second language
in which to communicate, such as English, French, German or Spanish. The importance of good foreign
language training is vital for the truly global manager.
According to anthropologist Edward T. Hall, there are systematic and important differences in the
way cultures use language in communication.74 He describes low‐context cultures as those in which
most communication takes place via the written or spoken word. In places such as the United States,
Canada, Germany, New Zealand and Australia, for example, the message is delivered in very precise
wording. You have to listen and read carefully to best understand what the message sender intends.
Things are quite different in high‐context cultures, where much communication takes place through
non‐verbal and situational cues, in addition to the written or spoken word. In such settings the words
communicate only a (sometimes small) part of the message. The rest must be interpreted from
the situational ‘context’ — body language, physical setting and even the past relationships among
those involved. This process is often time‐consuming and very deliberate. In high‐context Japan, for
example, much emphasis is given to social settings in which potential partners develop a relation-
ship and get to know one another; once this is accomplished, future business dealings can then be
formulated.

Interpersonal space
Hall considers the use of interpersonal space as one of the important ‘silent languages’ of culture.75
Arabs and many Latin Americans, for example, prefer to communicate at much closer distances than is
standard in Australian and New Zealand practice. Misunderstandings are possible if one businessperson
moves back as another moves forward to close the interpersonal distance between them. Some cultures
of the world also value space more highly than others. Americans tend to value large and private office
space. The Japanese are highly efficient in using space; even executive offices are likely to be shared in
major corporations.

Time orientation
Time orientation is another dimension of the silent language of culture.76 The way people approach
and deal with time tends to vary widely. In some countries it may not be expected (or even impolite)
to arrive punctually or early for a scheduled appointment. When working in Vietnam, in contrast,
punctuality is important and communicates respect for your host.77 Hall describes monochronic
cultures in which people tend to do one thing at a time, such as scheduling a meeting and giving the
visitor your undivided attention for the allotted time.78 This is standard business practice in Australia
and New Zealand. In polychronic cultures, on the other hand, time is used to accomplish many
different things at once. The New Zealand or Australian visitor to an Egyptian client may be frus-
trated by continued interruptions as people flow in and out of the office and various transactions are
made.

Religion
Religion is also important as a cultural variable, and you should always be aware of religious traditions
when visiting and working in other cultures. Religion is a major influence on many people’s lives, and
its impact may extend to practices regarding dress, food and interpersonal behaviour. It is a source of
ethical and moral teaching, with associated personal and institutional implications. Islamic banks in the
Middle East, for example, serve their customers without any interest charges to remain consistent with

CHAPTER 4 International dimensions of management  107

the teachings of the Koran. The traveller and businessperson should be sensitive to the rituals, holy days
and other expectations associated with religions in other countries. When working with Muslims in
Malaysia, for example, it is polite to schedule business dinners after 8 pm. This allows them to complete
the evening prayer before dining. Similarly, it should be remembered that the Islamic holy month of
Ramadan is a dawn‐to‐dusk time of fasting.

Role of agreements
Cultures vary in their use of contracts and agreements. In Australia and New Zealand, a contract
is viewed as a final and binding statement of agreements. This tends to hold true in general with
low‐context cultures. In other parts of the world with high‐context cultures, such as China, the written
contract may be viewed as more of a starting point. Once in place, it will continue to be modified
as the parties work together over time. McDonald’s found this out when the Chinese government
ignored the firm’s lease on a restaurant site in Beijing and tore down the building to make room for
a development project. In Australia and New Zealand, contracts are expected to be in writing; how-
ever, requesting a written agreement from an Indonesian who has given his ‘word’ may be quite
disrespectful.

Values and national cultures

As companies go global, their managers must become more global in their viewpoints, experiences
and cultural appreciation. An Australian project manager, for example, who started work on a project
in Bandung, Indonesia, did not fully appreciate the significance of religious holidays in Indonesia,
and that the office staff devoutly observed these. She also did not understand the emphasis staff
placed on tending to the needs of their families in the morning — particularly their elderly rela-
tives and their children — as she had only herself to look after each morning. During the month
of Ramadan, staff would often leave early and arrive late to meet the requirements of fasting and
religious devotion. She felt quite frustrated until a colleague explained to her the importance of these
issues to Indonesians.79
Westerners often have trouble recognising which is a Chinese person’s given name and which is the
family name when seeing them written down. Names are usually written in the following order: the
family name, followed by any middle name and finally the given name. Titles are also used with names
whenever possible. An understanding of these protocols can make a big difference when meeting Asian
business associates.
It is helpful to have a framework for understanding how basic cultural differences can influence
management and organisational practices. Geert Hofstede, a Dutch scholar and international man-
agement consultant, studied personnel from a US‐based MNC operating in 40 countries. First pub-
lished in his book Culture’s Consequences: International Differences in Work‐Related Values, his
research offers one framework for understanding the management implications of broad differences
in national cultures.80 Figure 4.5 shows how selected countries rank on the five dimensions Hofstede
now uses in his model:
1. power distance — the degree to which a society accepts or rejects the unequal distribution of power
in organisations and the institutions of society
2. uncertainty avoidance — the degree to which a society tolerates risk and situational uncertainties
3. individualism–collectivism — the degree to which a society emphasises individual accomplishment
and self‐interests, versus collective accomplishments and the good of groups
4. masculinity–femininity — the degree to which a society values assertiveness and material success,
versus feelings and concern for relationships
5. time orientation — the degree to which a society emphasises short‐term considerations versus greater
concern for the future.81

108  Management
 Philippines Japan Australia New Zealand
High power distance Low power distance

Greece Japan Australia USA Singapore

High uncertainty Low uncertainty
avoidance avoidance

USA Australia Japan Thailand Venezuela

Individualism Collectivism

Japan Australia USA Portugal Sweden

Masculinity Femininity

USA Australia Netherlands India Japan

Short-term thinking Long-term thinking

FIGURE 4.5 How countries compare on Hofstede’s dimensions of national culture

Hofstede’s framework helps identify useful managerial implications from these potential cultural dif-
ferences. For example, workers from high power‐distance cultures, such as Singapore, can be expected
to show great respect to seniors and those in authority. In high uncertainty‐avoidance cultures, employ-
ment practices that increase job security are likely to be favoured. In highly individualistic societies
(the United States ranked as the most individualistic in Hofstede’s sample), workers may be expected to
emphasise self‐interests more than group loyalty. Outsiders may find that the workplace in more mascu-
line societies, such as Japan, displays more rigid gender stereotypes. Also, corporate strategies in more
long‐term cultures are likely to be just that — more long‐term oriented.

Understanding cultural diversity

Consider this not uncommon scenario — a senior Western manager being brought into an Asian oper-
ation. Both the manager and staff will likely experience some degree of clash between two different
business cultures. While Western managers may be used to working with staff in their own countries
who feel free to express their ideas and work towards clear objectives; staff in Asian countries may be
more used to following orders and working through relationships. Such situations require understanding
and a process of learning how to work effectively together.
Stepping into cross‐cultural work and managerial situations of any sort is complicated; those associ-
ated with mergers and acquisitions are especially so. It takes all of your understanding and skills to deal
well with the challenges. In addition to the descriptions of popular and national cultures already dis-
cussed, the integrative framework of management scholar Fons Trompenaars can be helpful. In research
with some 15 000 respondents from 47 countries, he identifies systematic cultural differences in the
ways relationships are handled among people, attitudes towards time, and attitudes towards the environ-
ment.82 By better understanding these patterns of difference, he suggests we can improve our cross‐
cultural work effectiveness.

CHAPTER 4 International dimensions of management  109

 DIVERSIT Y

Australia, New Zealand and the United States

New Zealand’s dairy products are renowned
worldwide, but the country is probably best
known for its mighty All Blacks rugby team,
winner of the World Cup in 1987, 2011 and
2015. New Zealand is the only country to
have won the Rugby World Cup three times.
Given that both Australia and New Zealand
have enjoyed enormous successes in their
own right and appear (at least on paper) to
be very similar culturally, one is driven to
wonder why New Zealand might appear ‘in
awe’ of Australia and why trans‐Tasman
rivalry is so fierce, rather than just friendly.
New Zealanders may worry about being New Zealand is probably best known for its rugby team.
Australianised and losing their national
identity, and they also express concern that Australia takes advantage when they begin business oper-
ations across the Tasman. In an article titled ‘Kicked By the Same Kangaroo? Metaphor’s Effects in
Tragic Tales of Acquisition’, Liu and Riad discuss three cases in which New Zealand companies have
acquired Australian ones. These are The Warehouse’s acquisitions of Silly Solly’s and Clint’s Crazy Bar-
gains, New Zealand Telecom’s takeover of Australian Associated Press Telecommunications (AAPT), and
Air New Zealand’s purchase of the failed Ansett Airlines.
The Warehouse is the biggest retailer in New Zealand, and Liu and Riad believe that it is also the most
popular one. However, the company failed to repeat its New Zealand success in Australia, and eventu-
ally sold its acquired companies. Telecom wrote off billions of the value of AAPT’s network and, even-
tually, closed it down — integrating with PowerTel with the aim of continuing operations in Australia’s
telecommunications market.83 AAPT was subsequently purchased by iiNet for AU$60 million, and later
also acquired Intermode for AU$105 million.84
Air New Zealand took a well‐documented hammering when it placed its wholly owned subsidiary,
Ansett Airlines, in voluntary administration. To rescue Air New Zealand from collapse, the government
took an 83 per cent holding by injecting more than $850 million to keep it flying. So, as a result of the
perceived ‘Australianisation’ of New Zealand by Australian businesses and expatriate personnel who
take up senior positions in New Zealand firms, and the belief that Australian companies are taking
New Zealand firms that invest there to the cleaners, the rivalry is sometimes not quite so friendly
anymore.85
At the same time, Australia appears in awe of the United States, a reasonably similar English‐
speaking country with a much bigger population. Many North Americans have been appointed
as CEOs of Australian blue‐chip listed companies — such as Paul Anderson at BHP, Bob Joss at
Westpac; Sol Trujillo at Telstra and Don Voelte at Woodside. Similarly, it is common for North American
academics to be appointed to senior academic positions at Australian universities. International
appointments to senior local positions can potentially be seen as casting aspersions on the efficacy
of homegrown talent.

QUESTION
What would you suggest to New Zealanders and Australians to help them get over their cultural rivalry?

Relationships with people

According to Trompenaars’s framework, there are five ways in which people differ culturally in how
they handle relationships with one another: Universalism vs particularism is the degree to which a
culture emphasises rules and consistency in relationships, or accepts flexibility and the bending of
rules to fit circumstances. Individualism vs collectivism is the degree to which a culture emphasises

110  Management
individual freedoms and responsibilities in relationships, or focuses more on group interests and con-
sensus. Neutral vs affective is the degree to which a culture emphasises objectivity and reserved
detachment in relationships, or allows more emotion and expressed feelings. Specific vs diffuse is
the degree to which a culture emphasises focused and in‐depth relationships, or broader and more
superficial ones. Finally, achievement vs prescription is the degree to which a culture emphasises an
earned or performance‐based status in relationships, or awards status based on social standing and
non‐performance factors.

Attitudes towards time

Attitudes towards time in the Trompenaars framework differ in the relative emphasis given to the present
versus the past and future. In cultures that take a sequential view, time is considered a continuous and
passing series of events. This somewhat casual view of time may be represented by a circle and the
notion that time is recycling, in the sense that a moment passed will return again. In cultures that take a
synchronic view, on the other hand, time takes on a greater sense of urgency. It is more linear, with an
interrelated past, present and future. Pressures to resolve problems quickly so that time won’t be ‘lost’
are more likely in synchronic than sequential cultures.

Attitudes towards the environment

Trompenaars also recognises that cultures vary in their approach to the environment. In cultures that are
inner‐directed, people tend to view themselves as quite separate from nature. They are likely to consider
the environment as something to be controlled or used for personal advantage. In cultures that are outer‐
directed, people tend to view themselves as part of nature. They are more likely to try and blend with or
go along with the environment than to try to control it.

CRITICAL ANALYSIS

1. What forms of culture shock might an Australian or New Zealand sporting coach experience if he or
she took up an appointment in South Africa?
2. Use Hofstede’s dimensions to compare managing in Japan, Singapore and Australia.

4.5 Management across cultures

LEARNING OBJECTIVE 4.5 How do management practices and learning transfer across cultures?
The management process — planning, organising, leading and controlling — is as relevant to inter-
national operations as to domestic ones. Yet, as the preceding discussion of culture should suggest,
these functions must be applied appropriately from one country and culture to the next. Comparative
management is the study of how management systematically differs between countries and/or cultures.
Today we recognise the importance of learning about how management is practised around the world.
Competition and the global economy have given rise to global managers, defined earlier as managers
comfortable with cultural diversity, quick to find opportunities in unfamiliar settings, and able to marshal
economic, social, technological and other forces for the benefit of the organisation.86 Global managers,
simply put, apply the management functions successfully across national and cultural borders.

Planning and controlling

The complexity of the international operating environment makes global planning and controlling
especially challenging. Picture a home office in Auckland, New Zealand. Foreign operations are scat-
tered in Asia, Africa, South America and Europe. Planning must somehow link the home office and
foreign affiliates, while taking into account different environments, cultures and needs. Increasingly, new

CHAPTER 4 International dimensions of management  111

technology facilitates the planning and control of global operations through vastly improved communi-
cations systems. Computer‐based global networks allow home and field offices to share databases, elec-
tronically transfer documents, and even hold conferences and make group decisions through computer
links and videoconferencing.
Organisations with investments in foreign countries must also factor into their planning the risks of
doing business across political and economic borders. One risk is currency risk. Companies such as
McDonald’s, for example, must eventually convert their foreign currency earnings into dollars. But, the
value of the dollar against other currencies varies over time and is not always easy to predict. Another
risk is political risk, the potential loss of an investment in, or managerial control over, a foreign asset
because of political changes in the host country. In general, the major threats of political risk come
from social instabilities as a result of ethnic or other differences, armed conflicts and military disrup-
tions, shifting government systems through elections or forced takeovers, and new laws and economic
policies. Think about the political risks occurring in the world today. What ramifications can you see for
organisations?
Political‐risk analysis is a planning process that forecasts the probability of these and other pol-
itical events that can threaten the security of a foreign investment. The stakes can be quite high. It
is obvious, for example, that foreign investors suffer in the political turmoil of war and terrorism.
It may be less obvious that an Australian company in a developing country could lose most of its
foreign assets in a single day. This could happen if the host country decided to float its currency in
the international money markets, resulting in the loss in Australian dollar value of the company’s
assets in that country. Organisations that do political‐risk analysis would be able to take protective
measures against such a situation.

Organising and leading

The same factors that challenge the planning and controlling functions in the international arena also
affect managerial efforts to organise and lead. The forces of globalisation are complex indeed. For
Caltex, it has meant closing a corporate headquarters in Dallas, Texas, and moving to Singapore. It
has meant setting up a website development division in South Africa and an accounting division in the
Philippines. Large companies such as Caltex are increasingly locating centres of excellence around the
world.
A rule of thumb for staffing international operations can be stated this way: ‘Hire competent locals,
use competent locals and listen to competent locals’. But, in addition, global success also often depends
on the work of expatriates, employees who live and work in foreign countries on short‐term or
long‐term assignments. For progressive firms, assigning home‐office personnel to foreign operations
is increasingly viewed as a strategic opportunity.87 Not only does this offer the individuals challenging
work experiences, it also helps bring into the executive suite culturally aware managers with truly global
horizons and interpersonal networks of global contacts. Of course, not everyone performs well in an
overseas assignment. Among the foundations for success are such personal attributes as a high degree of
cultural awareness and sensitivity, a real desire to live and work abroad, family flexibility and support, as
well as technical competence in the job.
Of great importance, but not often discussed, is repatriation. This occurs at the time when the
expatriate manager goes home. Often, the company simply places the repatriate in his or her former
job, but this is usually unsatisfactory for an executive who has moved on from a previous position and
has gained a wealth of experience overseas. This often results in the employee leaving the company or
heading off on another expatriate adventure.88
A common organising approach for organisations just getting started in international business is
to appoint a senior manager to oversee all foreign operations. This may be fine for limited inter-
national activity, but as global involvement expands it usually requires a more complex arrangement.
The global area structure shown in figure 4.6 arranges production and sales functions into separate
geographical units. This allows activities in major areas of the world to be given special executive

112  Management
attention. Another organising option is the global product structure, also shown in the figure. It gives
worldwide responsibilities to product group managers, who are assisted by area specialists on the
corporate staff. These specialists provide expert guidance on the unique needs of various countries or
regions.

Global area structure CEO

Area Manager Area Manager Area Manager Area Manager Area Manager
North America Latin America Australia Europe Asia

Global product structure CEO

Area
Manager Manager Manager Manager
Specialists
Product Product Product Product
Group A Group B Group C Group D ● North America
● Latin America
● Australia
● Europe
● Asia

FIGURE 4.6 Alternative multinational structures for global operations

Are management theories universal?

Management practices in the United States and Western Europe have often been used as models around
the world. Increasingly, however, a significant question is asked: ‘Are management theories universal?’
Geert Hofstede, whose framework for understanding national cultures was introduced earlier, believes
they should not be applied universally.89 He worries that many of these theories are ethnocentric and
fail to take into account cultural differences. For example, he argues that the United States emphasis on
participation in leadership reflects the culture’s moderate stance on power distance. National cultures
with lower scores, such as Sweden and Israel, are characterised by even more ‘democratic’ leadership
initiatives. France and some Asian countries with higher power‐distance scores seem less concerned with
participative leadership.
Hofstede also points out that the motivation theories of United States scholars are value laden, with an
emphasis on individual performance. He considers this viewpoint consistent with the high individualism
found in Anglo‐American countries such as the United States, Canada, New Zealand and Australia.
Elsewhere, where values are more collectivist, the theories may be less applicable. Even a common
value, such as the desire for increased humanisation of work, may lead in different management direc-
tions. Until recently, practices in the United States largely emphasised designing jobs for individuals.
Elsewhere in the world, such as in Sweden, the emphasis has been on designing jobs to be performed by
groups of workers.
Consider as well the implications of transferring to the United States and other Western countries
some of the Japanese management practices that have attracted great interest over the years.90 These

CHAPTER 4 International dimensions of management  113

include lifetime employment, gradual career advancement, collective decision‐making and quality
emphasis. All have been associated in one way or another with past successes in Japanese industry.91
But as interesting as the practices may be, any transfers of practice must factor into account the distinc-
tive Japanese cultural traditions in which they emerged, such as long‐term orientation, collectivism and
high power distance.92 Note also that management and organisational practices are changing in Japan,
some argue towards the Western models, as its businesses adjust to the demands of a new economy and
shifting trends in social values.93
Context also counts in evaluating management and organisational practices. In Japan, keiretsu have
been part of the success stories. They are long‐term industry alliances or business groups that link
together various businesses — manufacturers, suppliers and finance companies — to attain common
interests. The companies involved often own shares in one another, their boards of directors often
overlap and they often do business with one another on a preferential basis. Not only must the influence
of keiretsu on Japanese business success be recognised, it may be considered an unfair business practice
in other countries such as the antitrust‐conscious United States.

Global organisational learning

In the dynamic and ever expanding global economy, cultural awareness is helping to facilitate more
informed transfers of management and organisational practices. We live at a fortunate time when man-
agers around the world are realising they have much to share with and learn from one another. Global
organisational learning is a timely and relevant theme. This point is evident in the following words of
Kenichi Ohmae, noted Japanese management consultant and author of The Borderless World:
Companies can learn from one another, particularly from other excellent companies, both at home and
abroad. The industrialized world is becoming increasingly homogeneous in terms of customer needs and
social infrastructure, and only truly excellent companies can compete effectively in the global market-
place.94

Yes, we do have a lot to learn from one another. Yet it must be learned with full appreciation of the
constraints and opportunities of different cultures and country environments. Like the United States
management practices before them, Japanese approaches and those from other cultures must be studied
very carefully and adapted for local use. This applies to the way management is practised in Singapore,
Korea, Indonesia, New Zealand, or any other part of the world. As Hofstede states:

Disregard of other cultures is a luxury only the strong can afford  .  .  .  [The] consequent increase in cultural
awareness represents an intellectual and spiritual gain. And as far as management theories go, cultural
relativism is an idea whose time has come.95

The best approach to comparative management and global management learning is an alert, open,
inquiring and always cautious one. It is important to identify both the potential merits of management
practices found in other countries and the ways cultural variables may affect their success or failure
when applied elsewhere. We can and should be looking for new ideas to stimulate change and inno-
vation. But we should hesitate to accept any practice, no matter how well it appears to work somewhere
else, as a universal prescription to action. Indeed, the goal of comparative management studies is not
to provide definitive answers but to help develop creative and critical thinking about the way managers
around the world do things, and about whether they can and should be doing them better.

CRITICAL ANALYSIS

1. Why do you think that returning home — that is, repatriation — can sometimes be more challenging
than expatriation?
2. Why are management and organisational practices in Japan changing towards the Western models?

114  Management
GLOBALISATION

Supply and demand of labour — a global phenomenon

Labour shortages have significantly contributed
to the need to increase the mobility of workers
around the globe. Organisations in some countries
have had problems attracting and retaining good
workers, but the workplace issues of an ageing
population and widespread skills shortages have
not been prevalent worldwide. While the popu-
lation statistics for Australia and New Zealand are
similar to those for other developed countries such
as Northern America and much of Europe, many
countries have older or younger populations. For
example, Japan, Latvia, Slovenia, Italy and Estonia
are expected to have the oldest populations
midway through this century — with a median age of around 53 years. Much younger populations are antici-
pated in future years in Africa, Asia (broadly), Latin America and the Caribbean.96 As populations age and
when labour markets become strained in Australia and New Zealand, it is predicted skilled people in ‘younger’
nations will be attracted to more rewarding job opportunities available to workers who are prepared to migrate
elsewhere. This trend towards migrating for better work conditions and pay might result in a ‘brain drain’ from
‘younger’ countries, but it will also likely help meet rising organisational demands in associated nations.
In Australia, where labour shortages and an ageing population have caused considerable concern, the
federal government has a Migration Occupations in Demand List (MODL) which explicitly states the occu-
pations that will be favoured for immigration purposes. These range from the general to the specific, for
example, construction project managers and project builders to dental technicians and dental therapists.97
A number of options for employers to help cope with ‘importing’ workers is also available.98 For instance, a
program assisting electricians with migrating to Australia from India, Sri Lanka, the United Kingdom, South
Africa and the Philippines began in September 2007. The workers were given assistance in gaining pro-
visional licences and getting work under supervision as well as help with gap training until full licences could
be obtained. Immigration New Zealand also has lists for immediate skills shortages and long‐term short-
ages.99 In 2009, the global financial crisis led the Australian Government to temporarily cut back its immi-
gration target by 14 per cent.100 However, whenever China’s demand for Australian resources picks up, it
leads to an increased need for foreigners to work in the Australian mining sector.101 For example, many
temporary 457 visas were granted by the Western Australian Government during the resources boom of
2006–12. The top three countries from which workers came were the United Kingdom, the Philippines and
South Africa.102 The Australian Government immigration targets have remained at 190 000 (128 550 skilled
and 61 450 family stream migrants) since 2012.103
The implications for focusing on motivating workers are significant. It is likely workforces will be more
diverse in the future. In some organisations, a good percentage of the workforce may be from different
cultural backgrounds. Our current approaches to understanding needs and the cognitive processes
of motivation may need to broaden if we are to move beyond Western cultural biases. For example,
individualistic Western cultures (such as Australia and the United States) may have different ways of
perceiving what people need from their work than what Islamic cultures do. In Islamic cultures, work is
valued for sustaining confidence and self‐reliance and it has moral, psychological and social (relational)
dimensions.104 Such differences require more research and societal understanding.
Immigrant workers might have new needs that develop as their circumstances change. For example, the
challenge of working in a new country without the security of family and community ties they had at ‘home’
may affect their motivational experience. Importing workforces can appear to be straightforward, but there
are inherent problems. Managers of migrant workers need to be alert to cultural differences in motivation if
they want to attract and retain these workers and also encourage productivity in the workplace.

QUESTION
What can you, as a potential manager and leader, do to help integrate migrant workers into the Australian
or New Zealand workforce?

CHAPTER 4 International dimensions of management  115

SUMMARY
4.1 What are the international management challenges of globalisation?
•• International management is practised in organisations that conduct business in more than one country.
•• Global managers are informed about international developments, transnational in outlook, competent
in working with people from different cultures, and always aware of regional developments in a
changing world.
•• The global economy is making the diverse countries of the world increasingly interdependent
regarding resource supplies, product markets and business competition.
•• The global economy is now strongly influenced by regional developments that involve growing
economic integration in Europe, the Americas, Asia and Australasia, and the economic emergence of
Africa.
4.2 What are the forms and opportunities of international business?
•• Five forms of international business are global sourcing, exporting and importing, licensing and
franchising, joint ventures and wholly owned subsidiaries.
•• The market entry strategies of global sourcing, exporting/importing and licensing are common for
organisations wanting to get started internationally.
•• Direct investment strategies to establish joint ventures or wholly owned subsidiaries in foreign
countries represent substantial commitments to international operations.
4.3 What are multinational corporations and what do they do?
•• Global operations are influenced by important environmental differences among the economic, legal–
political and educational systems of countries.
•• A multinational corporation (MNC) is a business with extensive operations in more than one other
country.
•• True MNCs are global firms with worldwide missions and strategies that earn a substantial part of
their revenues abroad.
•• MNCs offer potential benefits to host countries in broader tax bases, new technologies and employment
opportunities. MNCs can also disadvantage host countries if they interfere in local government, extract
excessive profits and dominate the local economy.
•• Virtual borderless MNCs use the internet to expand globally.
•• Born global companies operate internationally from inception.
4.4 What is culture and how does it relate to global diversity?
•• Management and global operations are affected by the dimensions of popular culture, including
language, space perception, time perception, religion and the nature of contracts.
•• Management and global operations are affected by differences in national cultures, including Hofstede’s
dimensions of power distance, uncertainty avoidance, individualism–collectivism, masculinity–femininity
and time orientation.
•• Differences among the world’s cultures may be understood with respect to how people handle
relationships with one another and their attitudes towards time and the environment.
4.5 How do management practices and learning transfer across cultures?
•• The management process must be used appropriately and applied with sensitivity to local cultures and
situations.
•• The field of comparative management studies how management is practised around the world and
how management ideas are transferred from one country or culture to the next.
•• Cultural values and management practices should be consistent with one another. Practices that are
successful in one culture may work less well in others.
•• The concept of global management learning has much to offer as the ‘borderless’ business world begins
to emerge and as the management practices of diverse countries and cultures become more visible.

116  Management
KEY TERMS
Born global companies  trade internationally from their beginning.
Child labour  is the full‐time employment of children for work otherwise done by adults.
Comparative management  studies how management practices differ between countries and cultures.
Corruption  involves illegal practices to further one’s business interests.
Culture  is a shared set of beliefs, values and patterns of behaviour common to a group of people.
Culture shock  is the confusion and discomfort a person experiences when in an unfamiliar culture.
Ethnocentrism  is the tendency to consider one’s culture superior to others.
The euro  is the common European currency.
The European Union (EU)  is a political and economic alliance of European countries.
The Eurozone crisis  has been caused by unsustainable debt levels in several member countries.
Expatriates  live and work in a foreign country.
In exporting,  local products are sold abroad.
Franchising  provides the complete ‘package’ of support needed to open a particular business.
In the global economy,  resources, markets and competition are worldwide in scope.
The global financial crisis  was a consequence of sub‐prime mortgage defaults in the United States in
2008 and culminated in a worldwide recession.
A global manager  is culturally aware and well informed on international affairs.
In global sourcing,  materials or services are purchased around the world for local use.
Globalisation  is the worldwide interdependence of resource flows, product markets and business
competition.
High‐context cultures  rely on non‐verbal and situational cues as well as spoken or written words in
communication.
Importing  is the process of acquiring products abroad and selling them in domestic markets.
International businesses  conduct commercial transactions across national boundaries.
International management  involves managing operations in more than one country.
ISO 14000  offers a set of certification standards for responsible environmental policies.
Joint ventures  establish operations in a foreign country through joint ownership with local partners.
A keiretsu  is a group of Japanese manufacturers, suppliers and finance firms with common interests.
A licensing agreement  occurs when a firm pays a fee for the rights to make or sell another company’s
products.
Low‐context cultures  emphasise communication via spoken or written words.
In monochronic cultures  people tend to do one thing at a time.
A multinational corporation (MNC)  is a business with extensive operations in more than one foreign
country.
NAFTA  is the North American Free Trade Agreement linking Canada, the United States and Mexico
in a regional economic alliance.
Political risk  is the possible loss of investment or control over a foreign asset because of political
changes in the host country.
Political‐risk analysis  forecasts how political events may affect foreign investments.
In polychronic cultures  time is used to accomplish many different things at once.
Privatisation  is the selling of state‐owned enterprises into private ownership.
Protectionism  is a call for tariffs and favourable treatments to protect domestic firms from foreign
competition.
Repatriation  occurs when an expatriate manager returns to their home country.
Sustainable development  meets the needs of the present without hurting future generations.
Sweatshops  employ workers at very low wages, for long hours and in poor working conditions.
Transnational corporations  are MNCs that operate worldwide without being identified with one
home country.

CHAPTER 4 International dimensions of management  117

Virtual borderless companies  are MNCs that make use of the internet to conduct business worldwide
on a borderless basis.
A wholly owned subsidiary  is a local operation completely owned by a foreign firm.
In the World Trade Organization (WTO),  member nations agree to negotiate and resolve disputes
about tariffs and trade restrictions.

APPLIED ACTIVITIES
1 What is the difference between ‘global economy’ and ‘globalisation’?
2 Why do companies engage in international business?
3 What are some of the main functions of the World Trade Organization (WTO)?
4 What is the meaning of the term ‘global sourcing’? Write a definition.
5 Kim has just returned from her first business trip to Japan. While there, she was impressed with
the use of quality circles and work teams. Now back in Brisbane, she would like to start the same
practices in her book publishing company of 75 employees. Based on the discussion of culture and
management in this chapter, what advice would you offer Kim?

ENDNOTES
  1. Damon Kitney, ‘Concern Over Chinese Agriculture Property Investments’, The Australian Business Review
(24 November 2015), www.theaustralian.com.au/business.
  2. Mark Furier, ‘Watercooler: Should We be Selling Our Farms to Chinese?’, Sunshine Coast Daily (6 July 2015),
www.sunshinecoastdaily.com.au.
  3. ibid.; AAP, ‘WA Government Not Privy To Chinese Farm Deal’, The Australian (30 November 2012), www.theaustralian.com.au.
  4. Sunny Liu, ‘Why Are Chinese Buyers Snapping Up So Much Australian Property?’, Crikey.com (14 October 2015),
www.crikey.com.au.
  5. Andrew Greene, ‘Port of Darwin: US Ambassador John Berry Weighs in on Controversial Lease to Chinese Company’,
ABC News (24 November 2015), www.abc.net.au/news.
  6. Lanai Vasek, ‘Treasury Chief Issues Warning Over the Push Against Foreign Ownership’, The Australian (1 July 2011).
  7. Tracy Withers and Phoebe Sedgman, ‘Chinese Developer Wins Approval to Buy 16 New Zealand Farms’, Bloomberg Business,
(27 January 2012), www.bloomberg.com.
  8. Amy Remeikis, ‘China Free Trade Agreement Needs Scrutiny for Workplace Safety: Deputy Premier’, The Brisbane Times
(28 July 2015).
  9. Eliza Borrello, ‘China FTA: Labor Agrees to Support Free Trade Deal; Says New Agreement Secures Protections for Workers’,
ABC News (21 October 2015), www.abc.net.au/news.
10. Ian Verrender, ‘Don’t Worry Australia Was Built on Foreign Investment’, ABC News (24 November 2014), www.abc.net.au/news.
11. Nick Evershed, ‘How Much of Australia’s Farmland is Owned by Foreign Companies?’, The Guardian (12 February 2015),
www.theguardian.com/australia‐news.
12. Matthew Cranston, Angus Grigg and Lisa Murray, ‘Chinese Investors Heat Up Australian Farm Buying Spree’, Australian
Financial Review (27 September 2015), www.afr.com/real‐estate.
13. Australian Government Foreign Investment Review Board website, ‘Stronger Foreign Investment Regime Comes into Force’
(1 December 2015), https://firb.gov.au.
14. Reuters, ‘Australia Blocks Sale of Largest Farm Owner to Foreigners’, CNBC (18 November 2015) www.cnbc.com.
15. David James, ‘The World is Going Global: What Will It Look Like?’, BRW (4 August 2000).
16. See Kenichi Ohmae, The Next Global Stage: Challenges and Opportunities in Our Borderless World (Upper Saddle River NJ:
Pearson, 2005).
17. Rosabeth Moss Kanter, ‘Preface’, World Class: Thriving Locally in the Global Economy (New York: Simon & Schuster, 1995).
18. For a discussion of globalisation see Thomas L. Friedman, The Lexus and the Olive Tree: Understanding Globalization
(New York: Bantam Doubleday Dell, 2000); John Micklethwait and Adrian Woolridge, A Future Perfect: The Challenges
and Hidden Promise of Globalization (New York: Crown, 2000); and Robert Hormats and Ariel Ratner, ‘World War II to
2011: Changes and Challenges in the Global Economy’, Business Economics, vol. 44, no. 3 (September 2011), pp. 144–53.
19. For a discussion of issues, see James H. Mittelman, The Globalization Syndrome (Princeton, NJ: Princeton University
Press, 2000).
20. Quote from Jeffrey E. Garten, ‘The Mind of the CEO’, Business Week (5 February 2001), p. 106.
21. ‘Who We Are’, Australian Volunteers International (2011), www.australianvolunteers.com.

118  Management
22. ibid.
23. ‘AVI Receives Friendship Medal at Viet Nam 60th’, Australian Volunteers International (25 January 2012),
www.australianvolunteers.com.
24. ‘Viet Nam: Latest Assignments Available’, Australian Volunteers International (2011), www.australianvolunteers.com.
25. BBC News, ‘Chinese Economy Growth Rate Slows’ (20 October 2008), http://news.bbc.co.uk.
26. Information from Hiawatha Bray, ‘Philippines Vies for “Back‐Office” Operations’, International Herald Tribune
(23 May 2003), p. 14.
27. Australian Department of Foreign Affairs and Trade (DFAT), ‘Asia–Pacific Economic Cooperation (APEC) and Australia’,
Overview 2002, www.dfat.gov.au/apec; ‘Trade Development/Policy Coordination and Asia–Pacific Economic Cooperation’,
Annual Report 2007–08, regional economic integration, www.dfat.gov.au.
28. The APEC Region Trade and Investment Report 2006, p. 9, www.dfat.gov.au.
29. Australian Department of Foreign Affairs and Trade, ‘Australia and the OECD’, www.dfat.gov.au.
30. Australian Department of Foreign Affairs and Trade, ‘North Asia’, Annual Report 2000–01, www.dfat.gov.au; ‘North Asia:
China’, Annual Report 2007–08, www.dfat.gov.au.
31. Mark Vaile, Minister for Trade, Australia, ‘Australia New Zealand Trade Ministers’ Meeting’, Christchurch, New Zealand,
joint communique, 29–30 August 2002, www.dfat.gov.au; ‘Pacific: New Zealand’, Annual Report 2007–08, www.dfat.gov.au.
32. The Economist is a good weekly source of information on Europe. See www.economist.com.
33. ‘EU Offices’, www.eurunion.org.
34. Henry Farrell and John Quiggin, ‘How To Save the Euro and the EU’, Foreign Affairs (May–June 2011), vol. 90, no. 3,
pp. 96–103.
35. Vivien Schmidt, ‘The European Union’s Eurozone Crisis and What (not) to Do About It’, Brown Journal of World Affairs
(Fall–Winter 2010), vol. 27, no. 1, pp. 199–213.
36. Damien McEvoy, ‘Europe on Edge as Greeks Set to Elect Hard‐Left Government’, Irish Independent (17 May 2012),
www.independent.ie; David McKittrick, ‘Irish Government Falls and Calls 11 March Poll’, The Independent
(21 January 2011), www.independent.co.uk.
37. A monthly publication that covers the maquiladora industries is the Twin Plant News (El Paso, Texas);
see www.twin‐plant‐news.com.
38. Australian Department of Foreign Affairs and Trade, ‘Americas and Europe’, Annual Report 2000–01, www.dfat.gov.au; see
also ‘Americas’, Annual Report 2007–08, www.dfat.gov.au; DFAT ‘Australia–United States Relations’, 2010, www.dfat.gov.au.
39. See Australian Government, ‘Composition of Trade Australia, 2013–14’, www.dfat.gov.au; Statistics New Zealand, ‘Exports
and Imports Tables 2011’, www.stats.govt.nz.
40. ‘Americas and Europe’, Annual Report 2000–01 and ‘Americas’, Annual Report 2007–08 (op. cit.).
41. ibid.
42. The Economist is a good weekly source of information on Africa. See www.economist.com.
43. MBendi Information for Africa website www.mbendi.co.za.
44. See ‘Inside View: South Africa’, The New York Times (18 September 2000), pp. A15–A17.
45. Anne Hodgkinson and Andre Jordaan, ‘Logic of an Australia–South Africa FTA’, Agenda, vol. 13, issue 2 (2006), pp. 147–60.
46. AI Group, ‘South Africa’, www.aigroup.com.au/trade/export/southafrica.
47. Quote from John A. Byrne, ‘Visionary vs. Visionary’, Business Week (28 August 2000), p. 210.
48. For research discussions of privatisation and transitional economies, see R. Duane Ireland, Shaker A. Zahra, Isabel Gutierrez
and Michael A. Hitt (special issue editors), ‘Special Topic Forum on Privatization and Entrepreneurial Transformation’,
Academy of Management Review, vol. 25 (July 2000), pp. 509–669.
49. ‘Americas and Europe’, Annual Report 2000–01 (op. cit.).
50. Business for Social Responsibility, ‘Discrimination’, white paper, www.bsr.org.
51. Levi Strauss & Co., ‘Timeline’, 2004, www.levistrauss.com.
52. Sylvia Ann Hewlett, ‘The Boundaries of Business: The Human Resource Deficit’, Harvard Business Review
(July–August 1991), pp. 131–3. See also William B. Johnston, ‘Global Workforce 2000: The New World Labor Market’,
Harvard Business Review (March–April 1991), pp. 115–27; Yu Fu and Nicolina Kamenou, ‘The Impact of Chinese Cultural
Values on Human Resource Policies and Practices Within Transnational Corporations in China’, The International Journal
of Human Resource Management, vol. 22, no. 16 (2011), pp. 3270–89.
53. Austrade, ‘Export Market Development Grants’, www2.austrade.gov.au; Austrade, ‘Australian Export Awards’, www.austrade.
gov.au; New Zealand Trade & Enterprise, ‘New Zealand International Business Awards 2009’, www.nzte.govt.nz.
54. Ripcurl website www.ripcurl.com.au/index.php?international
55. Developed from Anthony J. F. O’Reilly, ‘Establishing Successful Joint Ventures in Developing Nations: A CEO’s Perspective’,
Columbia Journal of World Business (spring 1988), pp. 65–71; and ‘Best Practices for Global Competitiveness’, Fortune
(30 March 1998), pp. S1–S3, special advertising section.
56. Sue Lannin, ‘Billionaire investor looking to India as China growth slows’, ABC News, (29 Jul 2015), www.abc.net.au/news.
57. See Peter F. Drucker, ‘The Global Economy and the Nation‐State’, Foreign Affairs, vol. 76 (September–October 1997),
pp. 159–71; and Jan Toporowski, ‘The Transnational Company After Globalisation’, Futures, vol. 42, no. 9, (November 2010),
pp. 920–5.

CHAPTER 4 International dimensions of management  119

58. This framework is introduced in David P. Rutenberg, Multinational Management (Boston: Little Brown, 1982).
59. Erik Rasmussen and Tage Madsen, ‘The Born Global Concept’, Paper for the 28th EIBA Conference (December 2002).
60. Stoyan Tanev, ‘Global From the Start: The Characteristics of Born‐Global Firms in the Technology Sector’, Technology
Innovation Management Review (March 2012), www.timreview.ca.
61. N. Karra, N. Phillips and P. Tracey, ‘Building the Born Global Firm: Developing Entrepreneurial Capabilities for International
New Venture Success’, Long Range Planning (2008), vol. 41, pp. 440–58.
62. Rassmussen and Madsen (2002), op. cit; Karra et al. (2008), op. cit.
63. ‘New Display Range From Raymarine’, Ausmarine, vol. 33, no. 12 (October 2011), p. 32.
64. Louise Burke, ‘Australian Invention an Online Phenomenon’, The West Australian (2 April 2012), www.au.news.yahoo.com/
thewest/business.
65. Adapted from R. Hall Mason, ‘Conflicts between Host Countries and Multinational Enterprise’, California Management
Review, vol. 17 (1974), pp. 6, 7.
66. For a good overview, see Randall E. Stross, Bulls in the China Shop and Other Sino–American Business Encounters
(New York: Pantheon, 1991); as well as John Studdard and James G. Shiro, The New Silk Road: Secrets of Business Success in
China Today (New York: Wiley, 2000).
67. For an interesting discussion of one company’s experience in China, see Jim Mann, Beijing Jeep: A Case Study of Western
Business in China (Boulder, CO: Westview Press, 1997).
68. Craig Smith, ‘Foreign Investors Break Free From Chinese Partners’, Wall Street Journal (11 June 1998), p. A17.
69. Information from corporate website www.nikeBiz.com.
70. Definition from World Commission on Environment and Development, Our Common Future (Oxford: Oxford University
Press, 1987), reported on International Institute for Sustainable Development website, www.iisd.org. See also Gary P.
Sampson, The World Trade Organization and Sustainable Development (Tokyo: United Nations University Press, 2006).
71. Based on Barbara Benedict Bunker, ‘Appreciating Diversity and Modifying Organizational Cultures: Men and Women at
Work’, in Suresh Srivastva and David L. Cooperrider, Appreciative Management and Leadership: The Power of Positive
Thought and Action in Organizations (San Francisco: Jossey‐Bass, 1990), pp. 127–49.
72. For a good overview of the practical issues, see Philip R. Harris and Robert T. Moran, Managing Cultural Differences,
2nd edn (Houston: Gulf Publishing, 1987); and Martin J. Gannon, Understanding Global Cultures (Thousand Oaks,
CA: Sage, 1994).
73. Information from Ronald B. Lieber, ‘Flying High, Going Global’, Fortune (7 July 1997), pp. 195–7.
74. Edward T. Hall, Beyond Culture (New York: Doubleday, 1976). See also Thomas Holtgraves, ‘Styles of Language Use:
Individual and Cultural Variability in Conversational Indirectness’, Journal of Personality and Social Psychology, vol. 73,
no. 3, (September 1997), pp. 624–37.
75. Edward T. Hall, The Silent Language (New York: Anchor Books, 1959); and The Hidden Dimension (New York:
Anchor Books, 1969).
76. ibid.
77. Lady Borton, ‘Working in the Vietnamese Voice’, Academy of Management Executive, vol. 14 (December 2000), pp. 20–31.
78. Edward T. Hall, Hidden Differences (New York: Doubleday, 1990).
79. Personal communication with Australian project manager, interviewed by Retha Wiesner, 10 April 2002.
80. Geert Hofstede, Culture’s Consequences: Comparing Values, Behaviors, Institutions and Organizations Across Nations
(Beverly Hills: Sage, 1981). Hofstede and Michael H. Bond further explore Eastern and Western perspectives on national
culture in their article ‘The Confucius Connection: From Cultural Roots to Economic Growth’, Organizational Dynamics,
vol. 16 (1988), pp. 4–21, which presents comparative data from Bond’s ‘Chinese Values Survey’. For a more recent treatise,
see Geert Hofstede, ‘What Did Globe Really Measure? Researchers’ Minds Versus Respondents’ Minds’, Journal of
International Business Studies, vol. 37 (2006), pp. 882–96.
81. For an introduction to the fifth dimension, see Hofstede and Bond, ibid.
82. Fons Trompenaars, Riding the Waves of Culture: Understanding Cultural Diversity in Business (London: Nicholas Brealey
Publishing, 1993).
83. Cindy Liu and Sally Riad, ‘Kicked by the Same Kangaroo? Metaphor’s Effects in Tragic Tales of Acquisition’,
CD Proceedings of the 2008 ANZAM Conference held in Auckland New Zealand (December 2008).
84. Mitchell Bingemann, ‘iiNet Beats TPG to Snare AAPT’s Struggling Consumer Division’, The Australian (30 July 2010),
www.theaustralian.com.au; Mitchell Bingemann, ‘iiNet to Buy Internode for $105m’, The Australian (22 December 2011),
www.theaustralian.com.au.
85. Liu and Riad (2008), op. cit.
86. See Robert B. Reich, ‘Who Is Them?’, Harvard Business Review (March–April 1991), pp. 77–88; and Zsusanna Tungli and
Maury Peipert, ‘Expatriate Practices in German, UK and US Multinational Companies: A Comparative Survey of Changes’,
Human Resource Management, vol. 48, no. 1 (January–February 2009), pp. 153–71.
87. For a perspective on the role of women in expatriate managerial assignments, see Marianne Jelinek and Nancy J. Adler,
‘Women: World‐Class Managers for Global Competition’, Academy of Management Executive (February 1988), pp. 11–19;
and Susan Shortland, ‘Networking: A Valuable Career Intervention for Women Expatriates?’, Career Development
International, vol. 16, no. 3 (2011), p. 271.

120  Management
  88. Robin Pascoe, A Broad Abroad (Canada: Expatriate Press Ltd, 2009).
  89. Geert Hofstede, ‘Motivation, Leadership, and Organization: Do American Theories Apply Abroad?’, Organizational
Dynamics (summer 1980), p. 43. See also Hofstede’s ‘Cultural Constraints in Management Theories’, Academy of
Management Review, vol. 7 (1993), pp. 81–94.
  90. The classics are William Ouchi, Theory Z: How American Businesses Can Meet the Japanese Challenge (Reading, MA:
Addison‐Wesley, 1981); and Richard Tanner Pascale and Anthony G. Athos, The Art of Japanese Management: Applications
for American Executives (New York: Simon & Schuster, 1981).
  91. For a good discussion, see chapters 4 and 5 in Miriam Erez and P. Christopher Early, Culture, Self‐Identity and Work
(New York: Oxford University Press, 1993).
  92. J. Bernard Keys, Luther Tray Denton and Thomas R. Miller, ‘The Japanese Management Theory Jungle — Revisited’,
Journal of Management, vol. 20 (1994), pp. 373–402.
  93. See Yumiko Ono and Bill Spindle, ‘Standing Alone: Japan’s Long Decline Makes One Thing Rise — Individualism’,
Wall Street Journal (29 December 2000), pp. A1, A4.
  94. Quote from Kenichi Ohmae, ‘Japan’s Admiration for US Methods is an Open Book’, Wall Street Journal (10 October 1983),
p. 21. See also his book The Borderless World: Power and Strategy in the Interlinked Economy (New York: Harper, 1989).
  95. Geert Hofstede, ‘A Reply to Goodstein and Hunt’, Organizational Dynamics, vol. 10 (summer 1981), p. 68.
  96. Australian Bureau of Statistics, ‘Scenarios for Australia’s Aging Population’ (Australian Social Trends, 2004, 4102.0),
www.abs.gov.au; Asiya Nasreen, Urban Elderly: Coping Strategies and Societal Responses, (New Delhi: Concept
Publishing Company, 2009).
  97. Department of Immigration and Border Protection, ‘Skilled Occupations List (SOL)’, www.border.gov.au.
 98. ibid.
  99. Department of Education, Employment and Workplace Relations, ‘Australian Labour Market Update’ (January 2008),
www.workplace.gov.au; Department of Labour (NZ), ‘Skills in the Labour Market at a Glance’ (28 February 2008)
www.dol.govt.nz.
100. ABC News, ‘Immigration Cut Only Temporary: Evans’ (16 March 2009), www.abc.net.au/news.
101. Cecilia Jamasmie, ‘Australian Mines Desperate for Skilled Workers’, Mining.com (13 February 2012), www.mining.com;
AAP, ‘Desperate Miners Less Selective With Hiring’, The Telegraph (1 May 2012), www.dailytelegraph.com.au.
102. Susanne Bahn, Ghialy Yap and Llandis Barratt‐Pugh, ‘457 workers in the Western Australian Resources Industry’
(Joonalup, WA: Centre for Innovative Practice, Edith Cowan University), www.amma.org.au/wp‐content/uploads/
2012/11/20121107ECU_Research_Report.pdf.
103. Department of Immigration and Border Protection, ‘Australia’s Migration Trends 2012–13 at a glance’, www.border.gov
.au/LegacyPagesandAboutUs/Documents/statistics/migration‐trends‐2012‐13‐glance.pdf; ‘Australia to maintain immigration
at 190,000 in 2013/14’,(17 May 2013), www.workpermit.com/news/2013‐05‐17/australia‐to‐maintain‐immigration‐
at‐190000‐in‐20134; Department of Immigration and Border Protection, ‘Setting the Migration Programme for 2015‐2016’,
www.border.gov.au/ReportsandPublications/Documents/discussion‐papers/Migration‐Programme‐2015‐16‐Discussion‐
Paper.pdf; ‘Australia’s 2015‐16 Migration Programme’, The Australian Government Migration Blog (9 July 2015),
http://migrationblog.border.gov.au/2015/07/09/australias‐2015‐16‐migration‐programme.
104. Abbas J. Ali and Abdullah Al‐Owaihan, ‘Islamic Work Ethic: A Critical Review’, Cross‐Cultural Management: An
International Journal, vol. 15, no. 1 (2008), pp. 5–19.

ACKNOWLEDGEMENTS
Photo: © Orin Lucke / Newspix
Photo: © wavebreakmedia / Shutterstock.com
Photo: © AAP Image / David Davies
Photo: © Dean Drobot / Shutterstock.com
Figure 4.2: © Spatial Vision
Table 4.1: © All data and other material produced by Statistics NZ constitutes Crown copyright
administered by Statistics NZ. Unless otherwise specified, content produced by Statistics NZ is
licensed under the Creative Commons Attribution 4.0 International licence.
Table 4.2: © European Union, 1995–2016
Text: © ABC News, ‘Billionaire investor looking to India as China growth slows’, 29 July 2015.

CHAPTER 4 International dimensions of management  121

CHAPTER 5

Ethical behaviour and

social responsibility  

LEA RN IN G OBJE CTIVE S

5.1 What is ethical behaviour?

5.2 How do ethical dilemmas complicate the workplace?
5.3 How can high ethical standards be maintained?
5.4 What is organisational social responsibility?
5.5 How do organisations and government work together in society?
Taking corporate social responsibility to the
next level

In Australia, the charity and not‐for‐profit sector makes up a $55 billion industry owing to Australian
tax payers’ generous values and billions of dollars in tax concessions. There are a plethora of registered
charities for Australians to choose from when electing to ‘dig deep’ — in 2016 there were more than
54  000 registered charities.1
Many corporations that subscribe to the quadruple bottom line of being accountable for their finan­
cial, environmental and social performance, and staff wellbeing want to give something back and
so make donations to one or more of these registered charities. McDonald’s sponsoring of Ronald
McDonald Houses is a well‐documented example of a business donating to a worthy charitable cause.
Ronald McDonald Houses are ‘attached to major women’s or children’s hospitals and provide a home
away from home for seriously ill children and their families’.2 Notwithstanding attacks on the fast‐food
chain for contributing to unhealthy eating habits and obesity, it does provide a good example of how a
business can help a worthwhile cause.
But how do you decide upon what is a worthwhile charity? Given that it is such a huge industry in
Australia and elsewhere in the developed world, aspersions are sometimes cast and questions raised
about how much money actually gets through to the needy once salaries, administrative costs and govern­
ment commissions have been deducted. For this reason, the alternative presented by Richard Branson’s
Branson Centre for Entrepreneurship is an attractive one. Taking as its springboard the misery caused
by unemployment, the charity provides seeding loans to small businesses in townships in developing
countries. While this is not a brand new idea — the Nobel prize‐winning Grameen bank was founded

CHAPTER 5 Ethical behaviour and social responsibility  123

in 1976 to give microloans to impoverished Bangladeshis, effectively founding a business on corporate
social responsibility (CSR) principles — Branson says:

For too many years we’ve been trying to solve the world’s issues by pouring trillions of dollars into aid.
While this has been (and still is) absolutely necessary to ensure we stop human suffering in times of
emergency, we all need to start looking beyond the emergencies, to stop constantly trying to save the
world and instead look at reinventing how we live in the world. It can no longer be about putting sticking
plasters on issues and hoping they will go away; it has to be about creating opportunities for people so
that they can build the lives they deserve. And who better to create opportunities than entrepreneurs?
Every time I visit our Branson Centre of Entrepreneurship in South Africa I leave feeling that I just
emerged from the epicentre of hope in the world.3

One might think that these loans would never be paid back, but perhaps somewhat surprisingly
95 per cent of them are.4

QUESTION
Can a case be made for companies to continue donating to charities as part of their CSR obligations? Or should
they only help clean up the environment and provide seeding loans to budding young entrepreneurs in developing
countries or outlying communities?

Introduction
The good news is that some organisations employ ‘environmental’ managers to work on everything from
a company’s recycling program to long‐term corporate environmental policies. Global warming, global
sustainability and environmental protection are all on the agenda as organisations pursue what some
call ‘the greening of the bottom line’.5 More and more companies are engaging in social outreach and
including environmental issues and social concerns among top corporate goals.6 Says the CEO of one
large firm:

A lot of the blue‐chip multinationals have a long tradition of charitable and community programs that
date back to their foundation. What is new is that corporate responsibility is being written into the busi­
ness model.7

Lend Lease is a good example. A statement on the company’s website reads:

Sustainability has been an integral part of our culture for more than 50 years. Today, our employees insist
that making a difference in our communities, improving health and safety standards, and reducing our
environmental impacts are central to our business strategy.8

Perhaps one of the ‘best’ news stories in recent years was the willingness of Australian businesses
and sports heroes to make substantial donations to victims of the horrific bushfires that affected Victoria
in 2009. Telstra employees worked around the clock to restore damaged telephone lines, and the com­
pany donated $500  000 to the bushfire appeal fund, promising to match dollar for dollar any donations
made by its employees. Wesfarmers donated the profits from a day of trading in its Coles supermarkets
to the appeal, while Cricket Australia donated the proceeds from a one‐day match played between
Australia and New Zealand in Adelaide.9 Australian soccer players handed match fees to the fund too.
More recently, many Australians and Australian businesses even donated money to the victims of the
Fukushima disaster via the Save the Children Fund.10 Another good news story is Richard Branson’s
strategy of making small loans to help create employment, which could provide the impetus for partici­
pation by more companies.
There are many other examples, which are too numerous to mention. The bad news is that not all
stories from the corporate world are positive examples. Consider these actual reports from past news
stories: ‘Firm admits lowering phone contract bid after receiving confidential information from an

124  Management
insider that an initial bid “was not good enough to win”’; ‘Company admits overcharging consumers
and insurers more than $13 million for repairs to damaged rental cars’; ‘Executives get prison terms for
selling adulterated apple juice — the juice labelled “100% fruit juice” was actually a blend of synthetic
ingredients’. In Eastern China, Zhang Yujun, a cattle farmer, allegedly made $1.5 million from selling a
toxic concoction that milk buyers used to doctor dairy products and increase profits. He was sentenced
to death after eight babies died and nearly 300  000 children were harmed.11 Perhaps one of the worst
examples of ethical misconduct in recent times is the News of the World voicemail hacking scandal.
And that is not all. Consider these words from an address delivered some years ago at a well‐known
US business school: ‘Greed is all right’, the speaker said. ‘Greed is healthy. You can be greedy and
still feel good about yourself.’ The students, it is reported, greeted these remarks with laughter and
applause. The speaker was Ivan Boesky, once considered the ‘king of the arbitragers’.12 It was not long
after his speech that Boesky was arrested, tried, convicted and sentenced to prison for trading on inside
information.
It is time to get serious about the moral aspects and social implications of decision‐making in
organisations. In your career and in the work of any manager, the ultimate task must be more than
simply meeting performance expectations. Performance goals must always be achieved through eth­
ically and socially responsible action. The following reminder from Desmond Tutu, the former arch­
bishop of Cape Town, South Africa, and a winner of the Nobel Peace Prize, is applicable to managers
everywhere:

You must take a stand on important issues: the environment and ecology, affirmative action, sexual
harassment, racism and sexism, the arms race, poverty, the obligations of the affluent West to its less‐
well‐off sisters and brothers elsewhere.13

5.1 What is ethical behaviour?

LEARNING OBJECTIVE 5.1 What is ethical behaviour?
For our purposes, ethics can be defined as the code of moral principles that sets standards of good or
bad, or right or wrong, in a person’s conduct and thereby guides the behaviour of that person or group.14
These principles guide behaviour and help people make moral choices among alternative courses of
action. In practice, ethical behaviour is that which is accepted to be ‘good’, ‘right’ and ‘proper’ as
opposed to ‘bad’, ‘wrong’ or ‘improper’ in the context of the governing moral code.

Law, values and ethical behaviour

It makes sense that there should be a legal component to ethical behaviour; that is, you would expect that
any legal behaviour should be considered ethical. Yet the White Australia Policy — which determined
Australia’s approach to immigration from the time of Federation until the latter part of the 20th century
and which favoured applicants from certain countries — was once law in Australia.15 That does not
mean the policy was ever ethical; it was clearly not. Furthermore, just because an action is not strictly
illegal doesn’t make it ethical. Living up to the ‘letter of the law’ is not sufficient to guarantee that your
actions will or should be considered ethical.16 Is it truly ethical, for example, for an employee to take
longer than necessary to do a job? to make personal telephone calls on company time? to call in sick to
take a day off for leisure? to fail to report rule violations by a co‐worker? None of these acts is strictly
illegal, but many people would consider any one or all of them to be unethical.
Most ethical problems in the workplace arise when people are asked to do, or find themselves about
to do, something that violates the dictates of their conscience. For some, if the act is legal they proceed
with confidence. For others, the ethical test goes beyond the legality of the act alone. The ethical ques­
tion extends to personal values — the underlying beliefs and attitudes that help determine individual
behaviour. To the extent that values vary among people, we can expect different interpretations of what
behaviour is ethical or unethical in a given situation.

CHAPTER 5 Ethical behaviour and social responsibility  125

Alternative views of ethical behaviour
There are many different interpretations of what constitutes ethical behaviour. Figure 5.1 shows four views
of ethical behaviour that philosophers have discussed over the years.17 The first is the utilitarian view.
Behaviour that would be considered ethical from this perspective delivers the greatest good to the greatest
number of people. Founded in the work of 19th century philosopher John Stuart Mill, this is a results‐
oriented point of view that tries to assess the moral implications of decisions in terms of their consequences.
Business decision makers, for example, are inclined to use profits, efficiency and other performance criteria
to judge what is best for the most people. A manager may make a utilitarian decision to cut 30 per cent of a
factory’s workforce in order to keep the factory profitable and save jobs for the remaining 70 per cent.

Individualism view
Does a decision or
behaviour promote
our long-term
self-interests?
Moral-rights view Utilitarian view
Does a decision or Does a decision or
behaviour maintain behaviour do the
the fundamental rights greatest good for
of all human beings? the most people?
Justice view
Does a decision or
behaviour show
fairness and
impartiality?

FIGURE 5.1 Four views of ethical behaviour

The individualism view of ethical behaviour is based on the belief that our main commitment is to
the advancement of long‐term self‐interests. When people pursue individual self‐interests, they suppos­
edly become self‐regulating. For example, such things as lying and cheating for short‐term gain should
not be tolerated. If one person does it, everyone will do it, and no‐one’s long‐term interests will be
served. The individualism view is supposed to promote honesty and integrity. But in business practice it
may result in a pecuniary ethic, described by one business executive as the tendency to ‘push the law to
its outer limits’ and ‘run roughshod over other individuals to achieve one’s objectives’.18
Ethical behaviour under a moral‐rights view is that which respects and protects the fundamental rights
of people. For example, the rights of all people in Australia, New Zealand, the United States, the United
Kingdom and other countries to life, freedom and fair treatment under the law are considered inviolate. In
many organisations today, this concept extends to ensuring that employees are always protected in their
rights to privacy, due process, free speech, free consent, health and safety, and freedom of conscience. The
issue of human rights, so characteristic of ethical concerns in the international business environment, is cen­
tral to this perspective. The United Nations stands by the Universal Declaration of Human Rights passed by
the General Assembly in 1948. Peter Drucker would probably subscribe to this view because he:

recognised and preached that people are not a cost; they are a resource. He concluded that considerations
for workers in and out of the workplace were the responsibility of the corporate leader just as much as
the profits, survival, and growth of the business or organisation.19

Starbucks, for example, seeks to enhance the lives of the small independent coffee bean farmers who make
up their suppliers, and mentioned them first in an annual report, while shareholders were mentioned last.20

126  Management
 Finally, the justice view of moral behaviour is based on the belief that ethical decisions treat people
impartially and fairly according to guiding rules and standards. This approach evaluates the ethical
aspects of any decision on the basis of whether it is ‘equitable’ for everyone affected.21 One justice issue
in organisations is procedural justice — the degree to which policies and rules are fairly administered.
For example, does a sexual harassment charge levied against a senior executive receive the same full
hearing as one made against a first‐level supervisor? A second issue is distributive justice — the degree
to which outcomes are allocated without respect to individual characteristics based on ethnicity, race,
gender, age or other criteria. For example, does a woman with the same qualifications and experience as
a man receive the same consideration for hiring or promotion? A third issue is interactional justice —
the degree to which others are treated with dignity and respect. For example, does a bank loan officer
take the time to fully explain to an applicant why he or she was turned down for a loan?22

ETHICS

Sustainability at CSR Limited

CSR Limited (CSR), founded in 1855 as the
Colonial Sugar Refinery, has diversified and
grown to become one of Australia’s leading
publicly listed companies. It is now Australia’s
largest sugar producer, a leading supplier of
building products (including plasterboard,
cement, bricks, roof tiles and insulation) to the
construction industry, and smelts aluminium. It
has operations for its three principal businesses
throughout Australia as well as in New Zealand
and Asia. It describes its charter as a commit­
ment to act responsibly, ensuring staff deal
appropriately with the communities in which
they operate, in order to gain their support. CSR Limited places strong emphasis on corporate social
responsibility and sustainability initiatives. Employees at the
This philosophy is consistent with the general
company have pledged funds to various charitable causes in
business notion of corporate social responsi­ recent years, including to the Queensland Premier’s Disaster
bility, which often also goes by the abbreviation Relief Appeal for flood-affected areas.
‘CSR’, and is the focus of much of this chapter.
Sustainability is a related concept, requiring the use of resources to enable society to satisfy current
needs without compromising the ability of future generations to meet their needs.
Corporate social responsibility and sustainability initiatives are in evidence in CSR’s activities. The com­
pany has a Workplace Giving program in which the company matches employee contributions to charity —
dollar for dollar. CSR’s employees have selected 14 charities that benefit from this initiative and in its first
11 years of operation until 2015, $2.6 million was donated. In addition, CSR donated more than $30  000 of
building products and installation services to the Habitat for Humanity organisation, which helped to build
12 homes for needy Australians. CSR also contributed $50  000 to the Queensland Premier’s Disaster
Relief Appeal for communities affected by floods in the north of the state, and donated laptops and
secondary schooling packages to the Youth off the Streets organisation, one of its three main partner
charities, for its scholarship program. It has also assisted Youth Off the Streets provide short‐ and long‐
term accommodation. CSR Sugar pledged $30  000 over six years for university scholarships to econ­
omically and educationally disadvantaged Australian South Sea Islanders in North Queensland.
Ancestors of this ethnic group had been brought into Australia as indentured labourers to work on sugar
plantations in the late 19th century. CSR supports Assistance Dogs Australia and the Salvation Army, its
other two major partner charities. The company also planted 300 trees and removed harmful weeds at its
Gyprock site at Coopers Plains in Queensland. It undertakes regular testing upstream from the site in an
effort to improve water quality. Since 2011 CSR employees volunteered 970 hours of their time for men­
toring in the community. The company reduced its total greenhouse emissions by 13 per cent, its solid
waste by 33 per cent and potable water usage by 13 per cent between 2011 and 2014.23

CHAPTER 5 Ethical behaviour and social responsibility  127

 QUESTION
What are some other ways that the company could contribute to corporate social responsibility? Do you
think the company does enough considering in 2015 it earned A$2 billion in revenue and its statutory net
profit was A$125.5 million?24

Cultural issues in ethical behaviour

The influence of culture on ethical behaviour is increasingly at issue as businesses and individuals travel
the world. Corporate leaders must master difficult challenges when operating across borders that are cul­
tural as well as national. Those who believe that behaviour in foreign settings should be guided by the
classic rule of ‘when in Rome, do as the Romans do’ reflect an ethical position of cultural relativism.25
This is the notion that there is no one right way to behave and that ethical behaviour is always deter­
mined by its cultural context. When it comes to international business, for example, a Western executive
guided by rules of cultural relativism might argue that the use of child labour is okay if it is consistent
with local laws and customs.
Figure 5.2, however, contrasts this position with the alternative of universalism. This ethical position
suggests that if a behaviour or practice is not okay in your home environment, it shouldn’t be accept­
able practice anywhere else. In other words, ethical standards are universal and should apply absolutely
across cultures and national boundaries. Critics of such a universal approach claim that it is a form of
ethical imperialism, or the attempt to externally impose your ethical standards on others.

Cultural relativism Ethical imperialism

No culture’s ethics are superior. Certain absolute truths apply everywhere.

The values and practices of the local Universal values transcend cultures
setting determine what is right or wrong. in determining what is right or wrong.

When in Rome, do as the Romans do. Don’t do anything you wouldn’t do at home.

FIGURE 5.2 The extremes of cultural relativism and ethical imperialism

Source: Based on information in Thomas Donaldson, ‘Values in Tension: Ethics Away from Home’, Harvard Business Review,
vol. 74 (September–October 1996), pp. 48–62.

Business ethicist Thomas Donaldson discusses the debate between cultural relativism and ethical
imperialism. Although there is no simple answer, he finds fault with both extremes. He argues instead
that certain fundamental rights and ethical standards can be preserved while values and traditions of a
given culture are respected.26 The core values or ‘hyper‐norms’ that should transcend cultural boundaries
focus on human dignity, basic rights and good citizenship.27 With a commitment to core values creating
a transcultural ethical umbrella, Donaldson believes international business behaviours can be tailored
to local and regional cultural contexts. In the case of child labour, for example, the Western executive
might ensure that any children working in a factory under contract to his or her business would be given
schooling as well as employment. See Manager’s notepad 5.1 for Donaldson’s suggestions on how cor­
porations can respect the core or universal values.28

128  Management
 MANAGER’S NOTEPAD 5.1

How multinationals can respect universal values

Respect for human dignity
• Create a culture valuing employees, customers and suppliers.
• Keep a safe workplace.
• Produce safe products and services.
Respect for basic rights
• Protect rights of employees, customers and communities.
• Avoid any threats to safety, health, education and living standards.
Be good citizens
• Support social institutions, and economic and educational systems.
• Work with governments and institutions to protect environment.

CRITICAL ANALYSIS

1. Some corporate social responsibility initiatives of CSR Limited were outlined earlier in the chapter.
Interestingly, in its annual Corporate Sustainability Report it also lists direct and indirect donations
to political parties to support the democratic process as an initiative.29 Do you believe this is
acceptable in a sustainability program? Why or why not?
2. Can you think of any business actions that are unethical but not illegal?

5.2 Ethics in the workplace

LEARNING OBJECTIVE 5.2 How do ethical dilemmas complicate the workplace?
‘Ethical business is good business’ is a classic quote. The same can be said for all persons and insti­
tutions throughout society. But the real test is when managers or workers encounter a situation that chal­
lenges their ethical beliefs and standards. Often ambiguous and unexpected, these ‘ethical dilemmas’ are
part of the challenge of modern society.

What is an ethical dilemma?

An ethical dilemma occurs when our own behaviour, or the behaviour we witness from others, con­
flicts with our values and beliefs. Such dilemmas cause stress to us until they are resolved. An ethical
dilemma arises when action must be taken but there is no clear ‘ethically right’ option. The burden
is on the individual to make good choices. An engineering manager, speaking from experience, sums
it up this way: ‘I define an unethical situation as one in which I have to do something I don’t feel
good about’.30

Ethical problems faced by managers

There are many potential sources of discomfort in managerial decision‐making, including those with
ethical overtones. Some of the problem areas or situations where managers can get caught in ethical
dilemmas include:
•• discrimination — where a manager denies promotion or appointment to a job candidate because of
the candidate’s race, religion, gender, age or other criterion not relevant to the job
•• sexual harassment — where a manager makes a co‐worker feel uncomfortable because of inappropriate
comments or actions regarding sexuality; or where a manager requests sexual favours in return for
favourable job treatment

CHAPTER 5 Ethical behaviour and social responsibility  129

•• conflicts of interest — where a manager takes a bribe or kickback or extraordinary gift in return for
making a decision favourable to the gift giver
•• customer confidence — where a manager has privileged information regarding the activities of a
customer and shares that information with another party
•• organisational resources — where a manager uses official stationery or a company email account to
communicate personal opinions or requests to community organisations.31
In a survey of Harvard Business Review subscribers, many of the ethical dilemmas reported by man­
agers involved conflicts with superiors, customers and subordinates.32 The most frequently occurring
issues involved dishonesty in advertising and communications with top management, clients and govern­
ment agencies. Problems in dealing with special gifts, entertainment and kickbacks were also reported.
Significantly, the managers’ bosses were singled out as sometimes pressuring their subordinates to
engage in such unethical activities as supporting incorrect viewpoints, signing false documents, over­
looking the boss’s wrongdoings and doing business with the boss’ friends.

Rationalisations for unethical behaviour

Why might otherwise reasonable people act unethically? Think back to the earlier examples and to those
from your experiences. Consider the possibility of being asked to place a bid for a business contract
using insider information, paying bribes to obtain foreign business, falsifying expense account bills,
and so on. ‘Why’, you should be asking, ‘do people do things like this?’ In fact, there are at least four
common rationalisations that are used to justify misconduct in these and other ethical dilemmas.33
1. Convince yourself that the behaviour is not really illegal.
2. Convince yourself that the behaviour is really in everyone’s best interests.
3. Convince yourself that nobody will ever find out what you’ve done.
4. Convince yourself that the organisation will ‘protect’ you.
After doing something that might be considered unethical, a rationaliser says, ‘It’s not really illegal’.
This expresses a mistaken belief that your behaviour is acceptable, especially in ambiguous situations.
When dealing with ‘shady’ or borderline situations in which you are having a hard time defining pre­
cisely what is right and what is wrong, the advice is quite simple. When in doubt about a decision to be
made or an action to be taken, don’t do it.
Another common statement by a rationaliser is: ‘It’s in everyone’s best interests’. This response
involves the mistaken belief that because someone can be found to benefit from the behaviour, the
behaviour is also in the individual’s or the organisation’s best interests. Overcoming this rationalisation
depends in part on the ability to look beyond short‐term results to consider longer term implications, and
to look beyond results in general to the ways in which they are obtained. For example, in response to
the question ‘How far can I push matters to obtain this performance goal?’, the recommended answer is
often, ‘Don’t try to find out’.
Sometimes rationalisers tell themselves: ‘No one will ever know about it’. They mistakenly believe
that a questionable behaviour is really ‘safe’ and will never be found out or made public. Unless it is
discovered, the argument implies, no crime was really committed. Lack of accountability, unrealistic
pressures to perform and a boss who prefers ‘not to know’ can all reinforce such thinking. In this case,
the best deterrent is to make sure that everyone knows that wrongdoing will be punished whenever it is
discovered.
Rationalisers may proceed with a questionable action because of a mistaken belief that ‘the organ­
isation will stand behind me’. This is misperceived loyalty. The individual believes that the organ­
isation’s best interests stand above all others. In return, the rationaliser thinks that top managers will
condone the behaviour and protect the individual from harm. But loyalty to the organisation is not an
acceptable excuse for misconduct; organisational loyalty should not stand above the law and social mor­
ality. You should keep in mind that to rationalise the dilemma is only one option. People can change
their values and beliefs (which is very hard to do), change the behaviour of themselves or attempt to
change the behaviour of others.

130  Management
Factors influencing ethical behaviour
It is easy to confront ethical dilemmas from the safety of a textbook or a classroom. In practice, people
are often challenged to choose ethical courses of action in situations where the pressures may be contra­
dictory and great. Increased awareness of the factors influencing ethical behaviour, shown in figure 5.3,
can help you deal with them more appropriately in the future.

Manager as a person Employing organisation External environment

● Family influences ● Policies, codes of conduct ● Government regulations
● Religious values ● Behaviour of supervisors, ● Norms and values of
● Personal standards and peers society
needs ● Organisational culture ● Ethical climate of industry

Ethical managerial
behaviour

FIGURE 5.3 Factors influencing ethical managerial behaviour — the person, organisation and environment

The person
Family influences, religious values, personal standards and personal needs, financial and otherwise, will
help determine a person’s ethical conduct in any given circumstance. Managers who lack a strong and
consistent set of personal ethics will find that their decisions vary from situation to situation as they
strive to maximise self‐interests. Those who operate within strong ethical frameworks (personal rules
or strategies for ethical decision‐making) will be more consistent and confident since choices are made
against a stable set of ethical standards.

The organisation
The organisation is another important influence on ethics in the workplace. The first port of call is at the
staff selection stage. Unethical or unsavoury characters should not be recruited and appointed in the first
instance. We noted earlier that a person’s immediate supervisor can have an important effect on the employ­
ee’s behaviour. Just exactly what a supervisor requests, and which actions are rewarded or punished, can
certainly affect an individual’s decisions and actions. The expectations and reinforcement provided by peers
and group norms are likely to have a similar impact. Formal policy statements and written rules are also very
important in establishing an ethical climate for the organisation as a whole. They support and reinforce the
organisational culture, which can have a strong influence on members’ ethical behaviour.
The late Anita Roddick, founder of The Body Shop, created an 11‐point charter to guide the com­
pany’s employees:

Honesty, integrity and caring form the foundations of the company and should flow through everything
we do — we will demonstrate our care for the world in which we live by respecting fellow human
beings, by not harming animals, by preserving our forests.

The fact that The Body Shop still has to respond to occasional criticisms about its operations demon­
strates the inadequacy of formal policies alone to guarantee consistent ethical behaviour. A visit to The
Body Shop website, however, shows the firm’s ongoing ethical commitments and provides answers to fre­
quently asked questions regarding such controversial issues as animal testing in the cosmetics industry.34

CHAPTER 5 Ethical behaviour and social responsibility  131

The environment
Organisations operate in external environments composed of competitors, government laws and reg­
ulations, and social norms and values, among other influences. Laws interpret social values to define
appropriate behaviours for organisations and their members; regulations help governments monitor these
behaviours and keep them within acceptable standards.
The climate of competition in an industry sets a standard of behaviour for those who hope to prosper
within it. Sometimes the pressures of competition contribute further to the ethical dilemmas of man­
agers. The late Australian billionaire Richard Pratt, founder of the multibillion dollar cardboard and
packaging company Visy, provided a prime example of this. Although widely known as a generous
philanthropist throughout his life, in his later years Pratt became embroiled in a price fixing scandal.
His company was forced to pay a fine of $36 million after Pratt signed a statement admitting guilt in
colluding with competitors to fix the price of cardboard, forcing customers to pay artificially high prices.
Subsequent criminal charges against Pratt were dropped on health grounds just a day before he passed
away from prostate cancer in 2009.35

CRITICAL ANALYSIS

1. What types of conflicts between superiors and subordinates and staff and customers might
constitute ethical dilemmas?
2. In what ways can an organisation improve ethical behaviour in the workplace?

SUSTAINABILIT Y

BHP’s Ok Tedi mine in Papua New Guinea (PNG)

The Ok Tedi mine is a classic example in
the study of ethics, sustainability and social
responsibility, as both sides of the argument
are presented in this case. BHP, the operator
of the mine until 2002, did not build a sug­
gested tailings dam to retain noxious sediment,
resulting in massive pollution of the Fly River
and the surrounding environment on which
many local villagers depended for their liveli­
hood. High concentrations of cyanide and acid
rock drainage in the river killed many fish. Many
trees along the river course also died. How­
ever, the company provided employment for
many villagers, built infrastructure — including
BHP’s Ok Tedi mine is a classic example in the study of
a hospital — and helped increase life expec­
ethics, sustainability and social responsibility. As part of
tancy and reduce the malaria and infant mor­ the project, BHP provided employment and health facilities
tality rates. for villagers. However, the company was also responsible
BHP left the mine early in 2002, shifting the for massive pollution of the Fly River and the surrounding
company’s 52 per cent stake to a trust fund for environment — an ecosystem on which many villagers
Papua New Guinea’s people. The PNG govern­ depend on for their livelihood.
ment took over ownership of about 30 per cent
of the stake in the mine. Agreement was reached that the mine should be closed in 2010, although this
was later extended to 2025, with the government seizing 100 per cent ownership in 2013. A class action
by law firm Slater & Gordon in Melbourne, on behalf of 50  000 PNG villagers whose environment was
severely damaged by the mining operations, was abandoned in early 2004.

132  Management
 Nevertheless, the mine proved very profitable, producing about 10 per cent of PNG’s gross domestic
product (GDP) and contributing 20 per cent of its export income. Also, it is argued that life expectancy
increased in the area near the mine from about 30 years to more than 50. Malaria decreased more than
fourfold for children and from 35 per cent to less than 6 per cent for adults in the region near the mine.
The infant mortality rate improved from 129 per 1000 live births to 15 per 1000 live births.
However, the environmental concerns were not fully addressed, other than continued dredging of the
polluted Fly River and the planting of some new trees by local villagers. When the PNG government took
full ownership of the mine in 2013 they also passed legislation that removed BHP’s immunity in relation
to environmental claims.36

QUESTION
Does BHP’s social responsibility programme of employment, building of a hospital and other infrastructure
and health improvements let it off the hook for the damage it did to PNG’s environment?

5.3 Maintaining high ethical standards

LEARNING OBJECTIVE 5.3 How can high ethical standards be maintained?
Progressive organisations support a variety of methods for maintaining high ethical standards in work­
place affairs. Some of the most important efforts in this area involve ethics training, whistleblower pro­
tection, top management support, formal codes of ethics and strong ethical cultures.

Ethics training
Ethics training, in the form of structured programs to help participants understand the ethical aspects of
decision‐making, is designed to help people incorporate high ethical standards into their daily behaviour.
An increasing number of university curricula now include courses on ethics, and seminars on this topic
are popular in the corporate world. But it is important to keep the purpose of ethics training in perspec­
tive. An executive once put it this way:
We aren’t teaching people right from wrong — we assume they know that. We aren’t giving people moral
courage to do what is right — they should be able to do that anyhow. We focus on dilemmas.37

Many ethical dilemmas arise as a result of the time pressures of decisions. Ethics training is designed
to help people deal with ethical issues while under pressure.
Manager’s notepad 5.2 presents a seven‐step checklist for making ethical decisions when confronting
an ethical dilemma. It offers a convenient reminder that the decision‐making process includes responsi­
bility for double‐checking a decision before taking action. The key issue in the checklist may well be
step 6 — the risk of public disclosure of your action and your willingness to bear it. This is a strong way
to test whether a decision is consistent with your personal ethical standards.
MANAGER’S NOTEPAD 5.2

Checklist for making ethical decisions

Step 1.
Recognise the ethical dilemma.
Step 2.
Get the facts.
Step 3.
Identify your options.
Step 4.
Test each option: Is it legal? Is it right? Is it beneficial?
Step 5.
Decide which option to follow.
Step 6.
Double‐check decision by asking follow‐up questions:
‘How would I feel if my family found out about my decision?’
‘How would I feel about this if my decision were printed in the local newspaper?’
Step 7. Take action.

CHAPTER 5 Ethical behaviour and social responsibility  133

Whistleblower protection
Erin Brockovich, a legal clerk, was instrumental in constructing a case against the Pacific Gas & Electric
Company in California for contaminating drinking water. Her actions were later portrayed in a popular
Hollywood film starring Julia Roberts. Jeffrey Wigand exposed his US tobacco company’s practice of
intentionally manipulating the effect of nicotine in cigarettes (this was also turned into a film starring
Russell Crowe).38 Toni Hoffman, a nurse in charge of the Intensive Care Unit at Bundaberg Base Hospital
in Queensland, tried for two years to raise concerns about the lethal activities of a surgeon, Jayant Patel,
who was committed to stand trial on 14 charges involving the death of three people, in 2009. Patel was
sentenced to seven years’ jail but served only 2 years and 3 months before the High Court overturned his
medical negligence convictions in 2012.39 Detective Sergeant Simon Illingworth spent four years working
for Police Internal Affairs in Victoria, weeding out crooked police and putting his life at risk.40 They were
whistleblowers, people who expose the misdeeds of others in organisations in order to preserve ethical
standards and protect against wasteful, harmful or illegal acts.41 Whistleblowers face the risks of impaired
career progress and other forms of organisational retaliation, up to and including dismissal. Many workers
become whistleblowers unintentionally when reporting workplace fraud, corruption or maladministration.
Today, federal and state laws in countries such as Australia and New Zealand increasingly offer whis­
tleblowers some defence against ‘retaliatory discharge’. But although signs indicate that the courts are
growing supportive of whistleblowers, legal protection for them can still be inadequate. Laws vary from
state to state, and federal laws mainly protect government workers. Furthermore, even with legal protec­
tion, potential whistleblowers  may find it hard to expose unethical behaviour in the workplace. Some
organisational barriers to whistleblowing include a strict chain of command that makes it hard to bypass
the boss, strong  work group identities that encourage loyalty and self‐censorship, and ambiguous pri-
orities that make it hard to distinguish right from wrong.42
In the attempt to remove these and other blocks to the exposure of unethical behaviours, some
organisations have formally appointed staff members to serve as ‘ethics advisers’. Others have set
up formal staff units to process reported infractions. One novel proposal goes so far as to suggest
the convening of moral quality circles to help create shared commitments for people to work at their
moral best.43

Ethical role models

The late Anita Roddick, founder and former executive director of The Body Shop International opened
the business’s first store in Brighton, England, in 1976. By 2016 there were over 2500 stores worldwide.
Undoubtedly one of the world’s most outspoken business leaders, Roddick was also an activist. She
devoted most of her working life to finding new ways of doing business and looking for ways business
can take the lead in making the world a better place.
Top managers in large and small businesses have the power to shape their organisation’s policies and
set its moral tone. They also have a major responsibility to use this power well. They can and should
serve as role models of appropriate ethical behaviour for the entire organisation. Not only must their
day‐to‐day behaviour be the epitome of high ethical conduct, but top managers must also communicate
similar expectations throughout the organisation, and reinforce positive results. Unfortunately, communi­
cation from the top may subtly suggest that top management does not want to know about deceptive or
illegal practices by employees, or simply doesn’t care.
Even though top managers bear a special responsibility for setting the ethical tone of an organisation,
every manager is also in a position to influence the ethical behaviour of the people who work for and
with them. This means that all managers must act as ethical role models and set an ethical tone in their
areas of responsibility. Care must be taken to do this in a positive and informed manner. The impor­
tant supervisory act of setting goals and communicating performance expectations is a good case in
point. A surprising 64  per  cent of 238 executives in one study, for example, reported feeling under
pressure to compromise personal standards to achieve company goals. A Fortune survey also reported

134  Management
that 34  per  cent of its respondents felt that the head of a company can create an ethical climate by
setting reasonable goals ‘so that subordinates are not pressured into unethical actions’.44 Clearly, any
manager, in his or her relationships with subordinates, may unknowingly encourage unethical practices
by exerting too much pressure for them to accomplish goals that are too difficult. Part of the manager’s
ethical responsibility is to be realistic in setting performance goals for others.

Codes of ethics
Formal codes of ethics are official written guidelines on how to behave in situations susceptible to
the creation of ethical dilemmas. They are found in organisations and in professions such as engi­
neering, medicine, law and public accounting. In the professions such as accounting and engineering,
ethical codes try to ensure that individual behaviour is consistent with the historical and shared norms
of the professional group. Most codes of ethical conduct identify expected behaviours in terms of
general organisational citizenship, the avoidance of illegal or improper acts in a person’s work, and
good relationships with customers. In a related survey of companies with written codes, the items
most frequently covered included workforce diversity, bribes and kickbacks, political contributions,
the honesty of books or records, customer–supplier relationships and the confidentiality of corporate
information.45
In the increasingly complex world of international business, codes of conduct for manufacturers and
contractors are becoming more prevalent. At Gap Inc., global manufacturing is governed by a formal
Code of Vendor Conduct.46 Among the many areas covered, the document specifically deals with:
•• discrimination — stating ‘Factories shall employ workers on the basis of their ability to do the job,
not on the basis of their personal characteristics or beliefs’
•• forced labour — stating ‘Factories shall not use any prison, indentured or forced labour’
•• working conditions — stating ‘Factories must treat all workers with respect and dignity and provide
them with a safe and healthy environment’
•• freedom of association — stating ‘Factories must not interfere with workers who wish to lawfully and
peacefully associate, organize or bargain collectively’.
Although interest in codes of ethical conduct is growing, it must be remembered that the codes have
limits. They cannot cover all situations, and they are not automatic insurance for universal ethical con­
duct. But they do play important roles in setting the ethical tone and expectations in organisations. When
fully integrated into the organisational culture, furthermore, the moral fabric created has a strong influ­
ence on day‐to‐day behaviour. Ultimately, of course, the value of any formal code of ethics still rests on
the underlying human resource foundations of the organisation — its managers and other employees.
There is no replacement for effective hiring practices that ensure organisations employ honest and
moral people. And there is no replacement for leadership by committed managers who are willing to set
examples and act as positive ethical role models to ensure desired results.

CRITICAL ANALYSIS

1. What topics would you expect to see covered in an organisation’s ethics training manual?
2. Why are whistleblowers harassed, blacklisted and shunned, even today?

5.4 Social responsibility

LEARNING OBJECTIVE 5.4 What is organisational social responsibility?
It is now time to shift our interest in ethical behaviour from the level of the individual to that of the
organisation. It is important to remember that all organisations exist in complex relationships with
elements in their external environment. In the chapter on environment and diversity we described

CHAPTER 5 Ethical behaviour and social responsibility  135

the environment of a business firm as composed of a network of other organisations and institutions
with which it must interact. An important frame of reference is the field of organisational stake-
holders, those people, groups and other organisations directly affected by the behaviour of the organ­
isation and holding a stake in its performance.47 In this context, corporate social responsibility is
defined as an obligation of the organisation to act in ways that serve both its own interests and the
interests of its many external stakeholders.48 The organisation’s stakeholders comprise government,
competitors, shareholders, customers, employees, civil society, suppliers, pressure groups and regula­
tors.49 In other words, stakeholders include anyone that can be affected by the organisation.

Through the adoption of comprehensive programs and policies that support fair and equitable treatment
of stakeholders, the organization is able to establish a clear corporate social responsibility program that
will have direct implications for the way in which the organization does business.50

Stakeholder issues and practices

The positive examples are there. You just have to look for them. Hewlett‐Packard started the e‐Inclusion
program to help rural villagers around the world gain access to technology and its advantages. The online
auctioneer eBay gave 100  000 of its pre‐IPO shares to charity  and another 100  000‐plus after going
public.51 Singaporean manufacturer DuPont actively supports community causes such as the CareCancer
Society via its DuPont Community Fund. Richard Branson’s employment-creating initiative described at
the beginning of this chapter is an exciting new development.
There is increasing evidence that national governments and private corporations must make progress
on environmental issues or feel the negative response of their citizens and consumers, who will not
stand for inaction on what they see as key survival issues. The stakeholder pressures are there, too.
Consumers, activist groups, not‐for‐profit organisations and governments are increasingly vocal and
influential in directing organisations towards socially responsible practices. In today’s information age,
business activities are increasingly transparent. Irresponsible practices are difficult to hide, wherever in
the world they take place. Not only do news organisations find and disseminate the information, well‐
known activist organisations lobby, campaign and actively pressure organisations to respect and protect
everything from human rights to the natural environment. Prominent among these are Amnesty Inter­
national, Greenpeace International, World Wildlife Fund and Friends of the Earth. Increasingly impor­
tant also are investor groups, such as the Interfaith Centre on Corporate Responsibility, that publicise
and lobby for social causes through share ownership. The groups pool resources, buy shares in com­
panies and then advance resolutions and lobby corporate leadership to ensure the businesses perform in
socially responsible ways.
Ultimately, organisational leadership is a critical influence on behaviour by organisations and their
members. The leadership beliefs that guide socially responsible organisational practices have been
described as follows:
•• people — belief that people do their best in healthy work environments with a balance of work and
family life
•• communities — belief that organisations perform best when located in healthy communities
•• natural environment — belief that organisations gain by treating the natural environment with
respect
•• long term — belief that organisations must be managed and led for long‐term success
•• reputation — belief that the organisation’s reputation must be protected to ensure consumer and
stakeholder support.52
Organisations that subscribe to the triple bottom line of respect for people, communities and the
natural environment are arguably more sustainable over the long term. Customers may be more likely to
purchase products or services from ethically reputable companies.

136  Management
COUNTERPOINT

Two views on nuclear energy and uranium mining

The nuclear industry is based on uranium mining out of the ground  .  .  .  Using the nuclear process, electricity
is created without any carbon dioxide, sulphurous fumes and heavy metals being spewed into the atmos­
phere as is done using the coal‐burning generators. It is also more efficient than the other renewable energy
sources.

It should be pointed out that these are

the views of a letter writer who added
that because Australia’s potential uranium
mining sites are safe, nuclear meltdowns
like those that occurred in the United
States, Ukraine and Japan will not arise.
He added, very controversially, that even
those disasters were well managed, and
the effects much less harmful than pre­
dicted. In addition, there is huge demand
for Australian uranium, and the export of
these minerals results in increased employ­
ment and massive financial gains for
mining companies. Some of his opinions
may find support from Associate Professor Kakadu National Park is under threat from mining activity.
Martin Sevior from the School of Physics at
Melbourne University. Professor Sevior is in favour of nuclear energy because of a looming oil crunch,
insufficient other options and the cleanliness of nuclear power. He said that ‘greenhouse gas emissions
resulting from nuclear power will be one per cent that of, say, coal’. Professor Sevior added ‘I don’t think
Chernobyl will ever happen again. It was a terrible design with terrible safety procedures, and the world
has learnt the lessons from Chernobyl’.54
There is, however, a countervailing view. The first of these is that it is unethical to mine uranium in
the first place, never mind use the ore in nuclear reactors to generate so‐called ‘clean’ energy. Uranium
mining in iconic Kakadu Park particularly concerns many Greens, Indigenous Australians and other
environmentalists. Indigenous Australians have traditionally referred to a mountain containing massive
uranium deposits as a ‘mountain of sickness’. Recently, the top end has experienced record rainfalls,
which caused a threat of the overflowing of contaminated water from Rio Tinto’s tailings dam at its
Ranger Uranium Mine into the Kakadu Wetlands.
Others question whether the use of nuclear energy is ethical. The Three Mile Island and Chernobyl dis­
asters in the United States and Ukraine are well documented. More recently, Japan’s tsunami and con­
sequent nuclear explosion at the Fukushima nuclear plant has really fuelled the debate. An earthquake
measuring 8.9 on the Richter scale struck Japan on 12 March 2011. This triggered a ten‐metre‐high
tsunami, which hit the north‐eastern coast. Aside from the terrible damage caused by the earthquake
and tsunami, a radiation leak was confirmed at the Fukushima plant. A survey conducted in Fukushima
in late March found that almost half of 1000 children tested returned positive results for thyroid expo­
sure to radiation. The leak was so serious that, some five months later, a nursery school, some sixty
kilometres away from the crippled plant, removed topsoil from its playground and banned the children
from playing outside.
As a result of such disasters, public sentiment has moved away from nuclear energy. However, the
sight of a coal‐fuelled electricity generator’s cooling towers belching smoke into the atmosphere is also
not pretty.55

QUESTION
Based on the arguments presented here, do you think Australia should go nuclear? Why?

CHAPTER 5 Ethical behaviour and social responsibility  137

Perspectives on social responsibility
In academic and public‐policy circles, two contrasting views of corporate social responsibility have
stimulated debate, with one side arguing against it and the other arguing for it.56 The classical view holds
that management’s only responsibility in running a business is to maximise profits. In other words —
the business of business is business and the main concern of management should always be to maxi­
mise shareholder value. This narrow ‘shareholder’ and ‘profit‐driven’ model was supported by Milton
Friedman, a respected free market economist and Nobel Laureate. He said:

Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by
corporate officials of social responsibility other than to make as much money for their stockholders as
possible.

The arguments against corporate social responsibility include fears that the pursuit of CSR as a goal
will reduce business profits, raise business costs, dilute business purpose, give business too much social
power, and do so without business accountability to the public. Friedman’s view was, of course, heavily
criticised. However, his supporting argument that big business is already powerful and that if it involves
itself in social issues then it becomes even more powerful, was given more credibility.
In contrast, the socioeconomic view holds that management of any organisation must be concerned for
the broader social welfare and not just for corporate profits. This broad‐based and stakeholder model is
supported by Paul Samuelson, another distinguished economist and Nobel Laureate. He states: ‘A large
corporation these days not only may engage in social responsibility, it had damn well better try to do
so’.57 Among the arguments in favour of corporate social responsibility are that it will add long‐term
profits for businesses, improve the public image of businesses, and help them to avoid more government
regulation. Businesses have the resources and ethical obligation to act responsibly.58
Today, there is little doubt that the public at large wants businesses and other organisations to act
with genuine social responsibility. Stakeholder expectations are increasingly well voiced and include
demands that organisations integrate social responsibility into their core values and daily activities.
On the research side, there is increasing evidence that high performance in social responsibility can
be associated with strong financial performance and, at worst, has no adverse financial impact. The argu­
ment that acting with a commitment to social responsibility will negatively affect the ‘bottom line’ is
hard to defend. Indeed, recent evidence suggests the existence of a virtuous circle in which corporate
social responsibility leads to improved financial performance for the firm, with any negative impact
limited to the first few years of implementation, and this in turn leads to more socially responsible
actions in the future.59 There seems little reason to believe that businesses cannot serve the public good
while advancing the financial interests of their shareholders. Indeed, Trudel and Cotte conclude that it
pays to be good, because customers will pay more for ethically produced products than for unethically
produced goods.60
Even as the research and debate continues on this important concept, these comments by management
theorist Keith Davis may still best sum up the corporate social responsibility debate:

Society wants business as well as all other major institutions to assume significant social responsibility.
Social responsibility has become the hallmark of a mature, global organization  .  .  .  The business which
vacillates or chooses not to enter the arena of social responsibility may find that it gradually will sink into
customer and public disfavor.61

The Corporate Responsibility Index offers a self‐assessment process for organisations in Australia and
New Zealand to voluntarily measure their level of corporate social responsibility. Although the index is
primarily for organisational self‐assessment and evaluation, companies can subsequently submit their
assessment, if they so choose, for it to be validated by an independent third party. Organisations that
have done this and been independently awarded a ‘gold star’ in terms of their corporate social responsi­
bility efforts include ANZ, Caltex, Energy Australia and Minter Ellison Lawyers.62

138  Management
 The issue of social responsibility is more challenging for developing countries in the Asia–Pacific
region, which are under pressure to exploit their economic resources and which are particularly vulner­
able to activities that can lead to environmental and social disasters. Ecologically sustainable develop­
ment and management of natural resources within the context of social responsibility must begin with
engagement of and informed decision‐making by local communities. Kleinrichert takes this a step fur­
ther by arguing that relations between a business and the community should be ‘based on reciprocity and
exchange of sustainability in a community, rather than a traditional notion of paternal responsibility to
some particular stakeholder in society’.63 Social responsibility is strengthened if allies in the community
develop because the company has the community’s wellbeing at heart, rather than by simply providing
economic support. For example, Kleinrichert points out that the CEO of Starbucks ‘establishes an inter‐
organizational ally in the communities in which his small independent supplier–farmers reside and work
towards coffee bean farming’. He does this by investing in schools, medical clinics and housing, but also
by including the farmers in decision‐making.64

Evaluating social performance

There are many action domains in which social responsibility can be pursued by business firms and other
organisations. These include concerns for ecology and environmental quality, in particular, relating to
reducing carbon emissions. According to Barker, the association between economic activity and green­
house gas emissions has long been recognised. He says that for the past couple of decades, the accumu­
lation of greenhouse gases has been noted as a side-effect of economic activity. This has the potential to
result in climate change.
This already threatens development in poor countries that are most vulnerable to climate variability. If
unchecked, it will threaten future generations with unknown but potentially catastrophic climate events,
given the availability of fossil carbon at current prices relative to carbon‐free alternatives, which could
raise concentrations to levels not seen for millions of years.65

Other action domains include truth in lending and consumer protection and aid to education. They
also include service to community needs, employment practices, diversity practices, progressive labour
relations and employee assistance, and general corporate philanthropy, among other possibilities. At the
organisational level, a social audit can be used at regular intervals to report on and systematically assess
an organisation’s resource commitments and accomplishments in these and other areas. You might think
of social audits as attempts to assess the social performance of organisations.
A formal assessment of corporate social performance might include questions posed at these four
levels.
1. Is the organisation’s economic responsibility met? Is it profitable?
2. Is the organisation’s legal responsibility met? Does it obey the law?
3. Is the organisation’s ethical responsibility met? Is it doing the ‘right’ things?
4. Is the organisation’s discretionary responsibility met? Does it contribute to the broader
community?66
As you move up these levels, the assessment inquires into ever‐greater demonstrations of social per­
formance. An organisation is meeting its economic responsibility when it earns a profit through the pro­
vision of goods and services desired by customers. Legal responsibility is fulfilled when an organisation
operates within the law and according to the requirements of various external regulations. An organ­
isation meets its ethical responsibility when its actions voluntarily conform not only to legal expectations
but also to the broader values and moral expectations of society. The highest level of social perfor­
mance comes through the satisfaction of an organisation’s discretionary responsibility. Here, the organ­
isation voluntarily moves beyond basic economic, legal and ethical expectations to provide leadership in
advancing the wellbeing of individuals, communities and society as a whole. For Jenkins, at this level,
business is encouraged to go beyond compliance with legislation and to assume roles previously per­
formed by government, such as becoming involved in the education and governance of communities.67

CHAPTER 5 Ethical behaviour and social responsibility  139

 SOCIAL RESPONSIBILIT Y

Singapore Compact tries to cover every angle

Singapore Compact is a national society that was founded in 2005 to promote corporate social res­
ponsibility. The formation of this ‘watchdog’ increased the awareness and development of CSR on the
island city–state. Singapore Compact notes that some businesses associate CSR with philanthropy and
charity, but asserts that companies should do much more:

Corporate Social Responsibility is essentially about businesses doing well and doing good at the same
time. CSR is about the long term strategy of aligning business strategy and operations with universal values
to achieve positive and sustainable outcomes for customers, suppliers, employees, shareholders, commu­
nities, other stakeholders and as well as the environment.68

Singapore Compact suggests that if a company does this, it can look forward to increased profit­
ability over the long term, increased employee morale and pride in their company, improved perfor­
mance, and a good reputation. It adds that all of this will, in turn, prove attractive to investors.
However, Singapore Compact observes that in 2008 a Ministry of Trade and Industry survey found
that only 40 per cent of 507 companies canvassed were even aware of the term CSR. Two thirds of
these had implemented CSR activities. So, a lot more needs to be done in order to get companies
to implement Singapore Compact’s suggested CSR strategies. By 2009, it had established a website
and held an inaugural conference on corporate CSR, and in 2011 it launched an award for young CSR
leaders in Singapore.69 Certainly, the Singapore stock exchange takes CSR seriously, and in August
2010 ‘issued a policy statement on sustainability reporting and proposed guide for sustainability
reporting for its listed companies’.70
Greenpeace, however, believes that the proposals put forward by Singapore Compact and the Sin­
gapore stock exchange are not nearly enough. At the same time that the stockmarket was issuing its
policy statement, Greenpeace held its own press conference to release evidence that the palm oil arm
of the Sinar Mas company had been destroying Indonesia’s rainforests, despite previous promises by
the company to stop. Unusually, this issue was reported in the financial section of the local paper —
such confrontations with the corporate world in Singapore are rare.71 Greenpeace also issued a press
release stating that security personnel from Sinar Mas had violently assaulted anti‐logging protestors in
Indonesia. The company had also planned to acquire additional land in Papua New Guinea for logging
purposes.72
While Singapore Compact has made grounds towards increasing awareness of CSR and getting
companies to implement CSR practices, it clearly still has a long way to go.

QUESTION
What other strategies could Singapore Compact use to raise awareness of CSR in Singapore and get
more companies to implement CSR activities?

Social responsibility strategies

Figure 5.4 describes four strategies of corporate social responsibility. The continuum shows a desir­
able shift in emphasis from obstructionism, at the lowest level, to displaying progressive citizenship,
at the highest.73 An obstructionist strategy (‘fight the social demands’) reflects mainly economic pri­
orities — social demands lying outside the organisation’s perceived self‐interests are resisted. If the
organisation is criticised for wrongdoing, it can be expected to deny the claims. A defensive strategy
(‘do the minimum legally required’) seeks to protect the organisation by doing the minimum legally
necessary to satisfy expectations. Corporate behaviour at this level conforms only to legal require­
ments, competitive market pressure and perhaps activist voices. If criticised, intentional wrongdoing
is likely to be denied.

140  Management
 Proactive ‘Take leadership in social initiatives’
strategy Meet economic, legal, ethical and discretionary responsibilities

Accommodative ‘Do minimum ethically required’

strategy Meet economic, legal and ethical responsibilities

Defensive ‘Do minimum legally required’

strategy Meet economic and legal responsibilities

Obstructionist ‘Fight social demands’

strategy Meet economic responsibilities

FIGURE 5.4 Four strategies of corporate social responsibility, from ‘obstructionist’ to ‘proactive’ behaviour

Organisations pursuing an accommodative strategy (‘do the minimum ethically required’) accept
their social responsibilities. They try to satisfy economic, legal and ethical criteria. Corporate behaviour
at this level is congruent with society’s prevailing norms, values and expectations, but at times it may be
so only because of outside pressures. An oil firm, for example, may be willing to ‘accommodate’ with
cleanup activities when a spill occurs, but remain quite slow in taking action to prevent them in the first
place. Finally, the proactive strategy (‘take leadership in social initiatives’) is designed to meet all the
criteria of social performance, including discretionary performance. Corporate behaviour at this level
takes preventive action to avoid adverse social impacts from company activities, and it even anticipates
or takes the lead in identifying and responding to emerging social issues. One strategy might be chari­
table contributions, although cynics suggest that such philanthropic giving may be a legitimisation tool.74

SUSTAINABILIT Y

Corporate social responsibility in South‐East Asia

Traditionally, promotion of corporate social responsibility (CSR) has been local in nature. This has
changed over the past decade; however, in 2009, the CSR Club was launched by the 27 members of the
Thai Listed Companies Association, with the key objective to build networking among CSR practitioners
in Thailand.75 Similarly, in 2010, seven Singapore companies were awarded for the first time for their
special contributions to CSR at the International Singapore Compact Summit.76 The growing recognition
of the importance of CSR among organisations in the various Association of South East Asian Nations
(ASEAN) countries combined with the identification that there were synergies to be gained by cooperation
and also that many of the organisations had regional operations led to the formation of a new network.
In 2011, the ASEAN Corporate Social Responsibility (CSR) Network was established to encourage
firms and organisations in the region to increase their CSR efforts. The ASEAN CSR Network holds
regular workshops to further this goal. One such example was an anti-corruption workshop held in 2016
in Myanmar, hosted in partnership with the Myanmar Centre for Responsible Business. Participants
spoke candidly about their experiences of corruption, and how to handle these dilemmas appropriately,
both as individuals and businesses.77

QUESTION
Asia has quickly become the developed world’s factory. Do you think that the establishment of the
ASEAN CSR network will help put a stop to sweatshops and other exploitative work practices in Asia?

CHAPTER 5 Ethical behaviour and social responsibility  141

 CRITICAL ANALYSIS

1. In what circumstances today could Milton Friedman’s view that the only responsibility of business is
to maximise profits for its shareholders, be valid?
2. Choose an organisation and outline some proactive social responsibility strategies it has or could
potentially implement. What impact might this have on its performance?
3. Pfizer assists with community housing but also with the policing of a local railway station in
Brooklyn, New York. Is this an example of a big business becoming too powerful?

5.5 Organisations and society

LEARNING OBJECTIVE 5.5 How do organisations and government work together in society?
The fact remains, not all managers and not all organisations accept the challenge of committing to a
proactive social responsibility strategy. Some may accept it, but have difficulty meeting the challenge.
Government, as the voice or instrument of the people, is often called on to act in the public behalf.

How government influences organisations

Governments often pass laws and establish regulating agencies to control and direct the behaviour of
organisations. It may not be too far‐fetched to say that behind every piece of legislation — national, state
or local — is a government agency charged with the responsibility of monitoring and ensuring com­
pliance with its mandates.
Many themes already discussed as being key areas of social responsibility are backed by major laws.
Business executives often complain many laws and regulations are overly burdensome.78 Public outcries
to ‘dismantle the bureaucracy’ or ‘deregulate business’ reflect concerns that specific agencies and their
supportive legislation are not functional. But the reality is that the legal environment is both complex
and constantly changing. Managers must stay informed about new and pending laws as well as existing
ones.
Like most other developed countries, Australia and New Zealand have many pieces of  legislation
specifically designed to enforce social responsibility on businesses. These laws and regulations are
usually in the form of minimum standards that must be met in terms of work health and safety (WHS),
fair labour practices, environmental protection and the like. Regarding WHS, for example, Safe Work
Australia leads much of the push to ensure and improve the health and safety record of Australian busi­
nesses. This organisation sets national standards, provides WHS statistics, and advises on research, con­
sulting and training matters. WorkSafe New Zealand provides similar services.79
Another example of legislation that could profoundly affect businesses concerns discrimination
in labour practices. The federal anti‐discrimination legislation in Australia includes the Racial
Discrimination Act 1975, the Sex Discrimination Act 1984, the Disability Discrimination Act 1992,
the Equal Opportunity for Women in the Workplace Act 1999, the Age Discrimination Act 2004
and the Sex and Age Discrimination Legislation Amendment Act 2011.80 In New Zealand, anti‐
discrimination legislation is covered by the Human Rights Act 1993 and the Employment Relations
Act 2000.
Consumer protection is another area in which the government takes an active role in regulating
business affairs. In Australia, the Competition and Consumer Act 2010 aims to promote competition
and protect consumer interests. For example, it gives the government the authority to force a busi­
ness to withdraw from sale any product that it feels is hazardous to the consumer — for example,
children’s toys with small parts and flammable fabrics. In New Zealand, consumers are protected by
laws such as the Consumer Guarantee Act 1993, the Fair Trading Act 1986 and the Commerce Act
1986.81

142  Management
How organisations influence government
The line of influence between government and organisations is not one way, with the government simply
passing legislation and acting as a regulator. Just as governments take a variety of actions to influence
organisations, so the leaders and representatives of organisations take action to influence government.
There are a number of ways in which businesses, in particular, try to influence government to adopt and
pursue policies favourable to them.
Through personal contacts and networks, executives get to know important people in government.
These contacts can be used for persuasion. Through public relations campaigns, executives can com­
municate positive images of their organisations to the public at  large, with the potential for them to
speak positively on the business’s behalf. Through lobbying, often with the assistance of professional
lobbying consultants, executives can have their positions and preferences communicated directly to
government officials. It must also be admitted, however, that illegal acts sometimes occur. Executives
can unfortunately resort to use of bribes or illegal financial campaign contributions in the attempt to gain
influence over public officials.

DIVERSIT Y

Two views on 7‐Eleven: a sweatshop on every street corner or income

provider to Indian students?
Russell Withers, a long‐time member of
Australia’s Olympic Committee, and his sister
Beverley Barlow, two of the wealthiest people
in Australia, bought the franchise licence to
establish 7‐Eleven outlets in Australia in 1977.
By 2015 there were more than 600 stores
in New South Wales, Victoria, Queensland,
Western Australia and the ACT.82 The stores are
open 24 hours, 7 days a week, making salaries
a huge expense especially when accounting for
late night and weekend penalty rates. Most of
the 4000 workers employed in the stores are
students, many of them from overseas, in par­
ticular from India.83
A joint Fairfax media and ABC Four Corners investigation in mid‐2015 obtained explosive internal
documents and its review of 225 stores found that almost 70 per cent of franchisees manipulated their
rosters and had payroll compliance issues. When rosters were cross‐checked against CCTV footage,
it could be seen that several workers were not actually on the roster. Instead they were international
students who were paid in cash but at well below the legal minimum Australian wage. Many were
being paid between $11 and $15 an hour, when the legal minimum wage at the time was $24.69 during
the week and $28.49 on weekends.84 Tess Hardy notes the investigation reported that approximately
two‐thirds of 7‐Eleven employees have been ‘severely underpaid and grossly overworked in deliberate
contravention of key employment standards’.85 Laura Hayes reported that ‘a 7‐Eleven franchisee with
several convenience stores was investigated for several counts of immigration fraud. The immigration
investigation regarding allegations against one set of owners caused 7‐Eleven franchisees to be inves­
tigated nationwide. 7‐Eleven was subjected to significant negative publicity, and some of the news
articles likened the convenience stores to modern day plantations’.86
In the wake of this report, Professor Alan Fels, the first chairperson of Australian Competition and Con­
sumer Commission (ACCC) was appointed head of a two‐person panel, supported by independent assis­
tants from Deloitte Australia, to receive and examine claims of underpayment to 7‐Eleven employees. On
its website, 7‐Eleven stated that past and present staff should come forward and give evidence to the Fels
enquiry and that the results of their work, but not the names of individual claimants, would be made
public.87 In May 2016 7-Eleven fired Fels and the independent panel, taking the investigation in-house.

CHAPTER 5 Ethical behaviour and social responsibility  143

 There is, however, another side to the story. It could be argued that these students are at least getting
some money to help them make ends meet. This is the same argument often used to justify sweatshop
labour for a dollar a day in China, namely, that a bowl of rice is better than no rice at all. This argument
is unlikely to gain much sympathy in Australia, however, as these workers could be much better paid
working for another employer that compensated them with the minimum wage. More convincingly, how­
ever, Hardy writes that once the 7‐Eleven franchisee ‘covers labour costs, meets interest repayments
and pays the necessary royalty fees to the head franchisor, the store owner – which is often a small
business operator – may make only a modest profit of about $40,000 a year’.88 For this reason, many
of the franchisees have put their stores up for sale. ‘Since the Four Corners–Fairfax Media investigation
into 7‐Eleven began, the number of stores for sale by franchisees ballooned from 50 to 76’.89

QUESTION
Discuss the argument that $11 per hour is better than nothing. Given that paying legal wages would
drive many franchisees to the wall, what would you consider to be a fair wage? Provide reasons for your
answer.

Why managers make the difference

Trends in the evolution of social values point to ever‐increasing demands from governments and other
organisational stakeholders that managerial decisions reflect ethical as well as high‐performance stan­
dards. Today’s workers and managers, as well as tomorrow’s, must accept personal responsibility for
doing the ‘right’ things. Broad social and moral criteria must be used to examine the interests of multiple
stakeholders in a dynamic and complex environment. Decisions must always be made and problems
solved with ethical considerations standing side by side with high‐performance objectives, be they indi­
vidual, group or organisational. Indeed, the point that profits and social responsibility can go hand in
hand is being confirmed in new and creative ways.
As public demands grow for organisations to be accountable for ethical and social performance as
well as economic performance, the manager stands once again in the middle. It is the manager whose
decisions affect ‘quality‐of‐life’ outcomes in the critical boundaries between people and organisations
and between organisations and their environments. Everyone must be more willing to increase the weight
given to ethical and social responsibility considerations when making these decisions. The full weight of
this responsibility holds in every organisational setting — small to large, and private or not‐for‐profit —
and at every managerial level, from bottom to top. There is no escaping the ultimate reality — being a
manager is a very socially responsible job!

CRITICAL ANALYSIS

1. Should all lobbying of government by business be outlawed?

2. Why should being a manager necessarily be a socially responsible job?

144  Management
SUMMARY
5.1 What is ethical behaviour?
•• Ethical behaviour is that which is accepted as ‘good’, ‘right’ or ‘proper’ as opposed to ‘bad’, ‘wrong’
or ‘improper’.
•• Simply because an action is not illegal does not necessarily make it ethical in a given situation.
•• Because values vary, the question of ‘What is ethical behaviour?’ may be answered differently by
different people.
•• Four ways of thinking about ethical behaviour are the utilitarian, individualism, moral‐rights and
justice views.
•• Cultural relativism argues that no culture is ethically superior to any other.

5.2 How do ethical dilemmas complicate the workplace?

•• When managers act ethically they have a positive impact on other people in the workplace and on the
social good performed by organisations.
•• An ethical dilemma occurs when someone must decide whether to pursue a course of action that,
although offering the potential for personal or organisational benefit or both, may be considered
potentially unethical.
•• Managers report that their ethical dilemmas often involve conflicts with superiors, customers and
subordinates over such matters as dishonesty in advertising and communications as well as pressure
from their bosses to do unethical things.
•• Common rationalisations for unethical behaviour include believing the behaviour is not illegal, is in
everyone’s best interests, will never be noticed, or will be supported by the organisation.

5.3 How can high ethical standards be maintained?

•• Ethics training in the form of courses and training programs helps people better deal with ethical
dilemmas in the workplace.
•• Whistleblowers expose the unethical acts of others in organisations, even while facing career risks for
doing so.
•• Top management sets an ethical tone for the organisation as a whole, and all managers are responsible
for acting as positive models of appropriate ethical behaviour.
•• Written codes of ethical conduct formally state what an organisation expects of its employees
regarding ethical conduct at work.

5.4 What is organisational social responsibility?

•• Corporate social responsibility is an obligation of the organisation to act in ways that serve both its
own interests and the interests of its many external publics, often called stakeholders.
•• Criteria for evaluating corporate social performance include economic, legal, ethical and discretionary
responsibilities.
•• Corporate responses to social demands include obstructionist, defensive, accommodative and
proactive, with more progressive organisations taking proactive stances.

5.5 How do organisations and government work together in society?

•• Government agencies are charged with monitoring and ensuring compliance with the law.
•• Managers must be well informed about existing and pending legislation in a variety of social
responsibility areas, including environmental protection and other quality‐of‐life concerns.
•• Organisations exert their influence on government in many ways, including interpersonal contacts of
executives and use of lobbyists.
•• All managerial decisions and actions in every workplace should fulfil performance accountability with
commitments to high ethical standards and socially responsible means.

CHAPTER 5 Ethical behaviour and social responsibility  145

KEY TERMS
An accommodative strategy  accepts social responsibility and tries to satisfy prevailing economic,
legal and ethical performance criteria.
Codes of ethics  are written guidelines that state values and ethical standards intended to guide the
behaviour of employees.
Corporate social responsibility  is the obligation of an organisation to act in ways that serve both its
own interests and the interests of its stakeholders.
Cultural relativism  suggests there is no one right way to behave; ethical behaviour is determined by
its cultural context.
A defensive strategy  seeks to protect the organisation by doing the minimum legally required to
satisfy social expectations.
Distributive justice  is concerned that people are treated the same regardless of individual
characteristics.
Ethical behaviour  is accepted as ‘right’ or ‘good’ or ‘proper’ in the context of a governing moral code.
An ethical dilemma  arises when action must be taken but there is no clear ‘ethically right’ option.
Ethical imperialism  is an attempt to impose your ethical standards on other cultures.
Ethics  sets standards as to what is good or bad, or right or wrong in a person’s conduct.
Ethics training  seeks to help people understand the ethical aspects of decision‐making and to
incorporate high ethical standards into their daily behaviour.
The individualism view  considers ethical behaviour as that which advances long‐term self‐interests.
Interactional justice  is the degree to which others are treated with dignity and respect.
The justice view  considers ethical behaviour as that which treats people impartially and fairly
according to guiding rules and standards.
Lobbying  expresses opinions and preferences to government officials.
The moral‐rights view  considers ethical behaviour as that which respects and protects the
fundamental rights of people.
An obstructionist strategy  avoids social responsibility and reflects mainly economic priorities.
Organisational stakeholders  are directly affected by the behaviour of the organisation and hold a
stake in its performance.
A proactive strategy  meets all the criteria of social responsibility, including discretionary performance.
Procedural justice  is concerned that policies and rules are fairly administered.
A social audit  is a systematic assessment of an organisation’s accomplishments in areas of social
responsibility.
Universalism  suggests ethical standards apply across all cultures.
The utilitarian view  considers ethical behaviour as that which delivers the greatest good to the
greatest number of people.
Values  are broad beliefs about what is or is not appropriate behaviour.
Whistleblowers  expose the misdeeds of others in organisations.

APPLIED ACTIVITIES
1 What are the alternative ways of thinking about ethical behaviour discussed in this chapter?
2 What is an ethical dilemma?
3 What are five leadership beliefs guiding socially responsible practices? Describe them.
4 What are the four stances adopted by organisations in response to demands for social responsibility?
5 Identify three ethical role models you respect. What do you most admire about these people? Search
on the internet to find out more about these people and provide examples and information to support
your choices.

146  Management
ENDNOTES
  1. Australian Charities and Not-for-profits Commission website, ‘Find a Charity on the ACNC Register’, www.acnc.gov.au.
  2. Ronald McDonald House Charities website, ‘Our Programs: Houses’, www.rmhc.org.au.
  3. Richard Branson, Screw Business as Usual, (Penguin Group, 2011), pp. 53–4.
 4. ibid.
  5. See Joel Makower, Beyond the Bottom Line: Putting Social Responsibility to Work for Your Business and the World (New York:
Simon & Schuster, 1994).
  6. See a variety of information at Business for Social Responsibility website, www.bsr.org.
  7. Information and quotes from ‘The Socially Correct Corporate’, Fortune (24 July 2000), pp. S32–S34, special advertising
section.
  8. Lend Lease, ‘Welcome to Lend Lease Sustainability: Every Action Adds Up’, www.lendlease.com.
  9. ‘Millions of Dollars Donated to Bushfire Appeal’, ABC News (9 February 2009), www.abc.net.au.
10. Save The Children Australia, ‘Current Partners’ (2010), www.savethechildren.org.au.
11. ‘Farmer to Die for $1.5 m Role in China’s Milk Scandal’, The West Australian (28 January 2009), p. 35.
12. Reported in Adam Smith, ‘Wall Street’s Outrageous Fortunes’, Esquire (April 1987), p. 73.
13. Desmond Tutu, ‘Do More Than Win’, Fortune (30 December 1991), p. 59.
14. For an overview, see Francis Joseph Aguilar, Managing Corporate Ethics: Learning from America’s Ethical Companies
How to Supercharge Business Performance (New York: Oxford, 1994); and Linda K. Trevino and Katherine A. Nelson,
Managing Business Ethics (New York: Wiley, 2011). Recent texts for suggested further reading on business ethics
include Colin Fisher and Alan Lovell, Business Ethics and Values: Individual Corporate and International Perspectives
(Harlow, England; New York: FT Prentice Hall, 2006); Damian Grace and Stephen Cohen, Business Ethics: Problems
and Cases 3e (South Melbourne: Oxford University Press, 2005); Mike Harrison, Business Ethics (Basingstoke, United
Kingdom: Palgrave MacMillan, 2005); and Peter Singer, One World: the Ethics of Globalisation (Melbourne: Text
Publishing, 2002).
15. Department of Immigration & Multicultural & Indigenous Affairs, ‘Abolition of the “White Australia” Policy’, fact sheet,
www.immi.gov.au.
16. Trevino and Nelson (1995), op. cit., p. 20.
17. See Gerald F. Cavanagh, Dennis J. Moberg and Manuel Velasquez, ‘The Ethics of Organizational Politics’, Academy of
Management Review, vol. 6 (1981), pp. 363–74; Justin G. Longenecker, Joseph A. McKinney and Carlos W. Moore, ‘Egoism
and Independence: Entrepreneurial Ethics’, Organizational Dynamics (Winter 1988), pp. 64–72; Justin G. Longenecker,
Joseph A. McKinney and Carlos W. Moore, ‘The Generation Gap in Business Ethics’, Business Horizons (September–October
1989), pp. 9–14.
18. Raymond L. Hilgert, ‘What Ever Happened to Ethics in Business and in Business Schools’, The Diary of Alpha Kappa Psi
(April 1989), pp. 4–8.
19. William Cohen, ‘What Drucker Taught Us About Social responsibility’, Leader To Leader, no. 51 (Winter 2009), pp. 29–34.
20. Dennis Kleinrichert, ‘Ethics, Power and Communities: Corporate Social Responsibility Revisited’, Journal of Business Ethics,
vol. 78, no. 3 (March 2008), pp. 475–85.
21. Jerald Greenburg, ‘Organizational Justice: Yesterday, Today, and Tomorrow’, Journal of Management, vol. 16 (1990), pp.
399–432; and Mary A. Konovsky, ‘Understanding Procedural Justice and its Impact on Business Organizations’, Journal of
Management, vol. 26 (2000), pp. 489–511. See also Jerald Greenburg and Jason Colquitt, Handbook of Organizational Justice,
(2005), Routledge.
22. Interactional justice is described by Robert J. Bies, ‘The Predicament of Injustice: The Management of Moral Outrage’,
in L. L. Cummings and B. M. Staw (eds), Research in Organizational Behavior, vol. 9 (Greenwich, CT: JAI Press,
1987), pp. 289–319. The example is from Carol T. Kulik and Robert L. Holbrook, ‘Demographics in Service Encounters:
Effects of Racial and Gender Congruence on Perceived Fairness’, Social Justice Research, vol. 13 (December 2000),
pp. 375–402.
23. CSR, ‘Facts about CSR’ and ‘Results Presentation’, www.csr.com.au; CSR, CSR Sustainability Report 2008 www.csr.com.au;
CSR, ‘Community’, www.csr.com.au; CSR Community and Sustainability Pages 2010; CSR, CSR Sustainability Report
2014,www.csr.com.au; CSR, ‘Community’, www.csr.com.au.
24. CSR, Annual Report 2015, www.csr.com.au
25. Thomas Donaldson, ‘Values in Tension: Ethics Away from Home’, Harvard Business Review, vol. 74 (September–October
1996), pp. 48–62. See also John Tilley, ‘Cultural Relativism’, Human Rights Quarterly, vol. 22, no. 2 (2000), pp. 501–47.
26. Thomas Donaldson and Thomas W. Dunfee, ‘Towards a Unified Conception of Business Ethics: Integrative Social Contracts
Theory’, Academy of Management Review, vol. 19 (1994), pp. 252–85.
27. See also Daryl Koehn and Alicia Leung, ‘Dignity in Western Versus in Chinese Cultures: Theoretical Overview and Practical
Illustrations’, Business and Society Review, vol. 113, no. 4, (Winter 2008), pp. 477–504. These authors argue that major
differences exist between Chinese and Western concepts of dignity but that it is possible to devise courses of action that
honour both types.

CHAPTER 5 Ethical behaviour and social responsibility  147

28. Developed from Donaldson and Dunfee (1994), op. cit.
29. CSR, ‘Facts About CSR’, www.csr.com.au; CSR, CSR Sustainabality Report 2008, www.csr.com.au.
30. Reported in Barbara Ley Toffler, ‘Tough Choices: Managers Talk Ethics’, New Management, vol. 4 (1987), pp. 34–9. See also
Barbara Ley Toffler, Tough Choices: Managers Talk Ethics (New York: Wiley, 1986).
31. See discussion by Trevino and Nelson, Managing Business Ethics, (New York: Wiley, 1995), pp. 47–62.
32. Information from Steven N. Brenner and Earl A. Mollander, ‘Is the Ethics of Business Changing?’, Harvard Business Review,
vol. 55 (January–February 1977).
33. Saul W. Gellerman, ‘Why “Good” Managers Make Bad Ethical Choices’, Harvard Business Review, vol. 64 (July–August
1986), pp. 85–90.
34. The Body Shop came under scrutiny over the degree to which its business practices actually live up to this charter and the
company’s self‐promoted green image. See, for example, John Entine, ‘Shattered Image’, Business Ethics (September–October
1994), pp. 23–8; and Bert Van De Ven, Andre Nijhof and Ronald Jeurissen, Corporate Social Responsibility: A Case Study
Approach, (UK: Edward Elgar, 2009).
35. AAP, ‘Billionare Richard Pratt Dies’ (29 April 2009), www.news.com.au; and Leonie Wood and Marika Dobbin, ‘Tycoon
Dies, Fighting To The End’, The Age (29 April 2009), www.theage.com.au.
36. Alison Middleton, ‘PNG Govt Seizes Ok Tedi’, PNG Industry News (19 September 2013), www.pngindustrynews.net;
ABC Four Corners, ‘After the Gold Rush’ (Broadcast 10 April 2000), www.abc.net.au/4corners; ASAP, ‘PNG Must Plan for
OK Tedi Mine Closure Garnaut’, Business Spectator (2 June 2009), www.businessspectator.com.au; Don Henry,  ‘Leaving
the Scene of the Mine’, Australian Conservation Foundation (May 2005), www.acfonline.org.au; Tedi Mining,  ‘Health
Improvements’, (2008), www.oktedi.com; Andrew Trounson,  ‘Ok Tedi Keeps Haunting BHP’, The Australian (18 January
2007), www.theaustralian.news.com.au; Jane Williams, ‘Ethics Update BHP’s View of Ok Tedi’, The Age (16 June 2004),.
37. Alan L. Otten, ‘Ethics on the Job: Companies Alert Employees to Potential Dilemmas’, Wall Street Journal (14 July, 1986),
p. 17; and ‘The Business Ethics Debate’, Newsweek (25 May 1987), p. 36.
38. The Internet Movie Database (IMBD), ‘Erin Brokovich’, www.imdb.com; Michael Janofsky, ‘For a Trial Lacking in Drama, a
Star Witness, of Sorts’, The New York Times (1 February 2005), www.nytimes.com.
39. Mark Oberhardt, ‘Doctor Jayant Patel To Face Trial On 14 Charges’, The Courier Mail (20 April 2009), www.news.com
.au/couriermail; Mark Oberhardt, ‘Doctor Jayant Patel Sentenced To Seven Years in Jail’, The Courier Mail (1 July 2010),
www.news.com.au/couriermail; Sarah Elks, ‘Jayant Patel Guilty of Fraud as Crown Gives Up Chase’, The Australian
(16 November, 2013), www.theaustralian.com.au.
40. ABC Victoria, ‘Vic Corruption Fighter Tells Of Intimidation’ (24 May 2004), www.abc.net.au.
41. For a review of whistleblowing, see Marcia P. Micelli and Janet P. Near, Blowing the Whistle (Lexington, MA: Lexington
Books, 1992); see also Micelli and Near, ‘Whistleblowing: Reaping the Benefits’, Academy of Management Executive, vol. 8
(August 1994), pp. 65–72.
42. Information from James A. Waters, ‘Catch 20.5: Mortality as an Organizational Phenomenon’, Organizational Dynamics,
vol. 6 (Spring 1978), pp. 3–15.
43. Robert D. Gilbreath, ‘The Hollow Executive’, New Management, vol. 4 (1987), pp. 24–8.
44. Developed from recommendations of the Government Accountability Project reported in ‘Blowing the Whistle without Paying
the Piper’.
45. All reported in Charles D. Pringle and Justin G. Longenecker, ‘The Ethics of MBO’, Academy of Management Review, vol. 7
(April 1982), p. 309. See also Barry Z. Posner and Warren H. Schmidt, ‘Values and the American Manager: An Update’,
California Management Review, vol. 26 (Spring 1984), pp. 202–16.
46. Information from corporate website www.gapinc.com.
47. See Thomas Donaldson and Lee Preston, ‘The Stakeholder Theory of the Corporation’, Academy of Management Review,
vol. 20 (January 1995), pp. 65–91.
48. For a good review, see Robert H. Miles, Managing the Corporate Social Environment (Englewood Cliffs, NJ: Prentice Hall,
1987); and Graham Hubbard and Paul Beamish, Strategic Management 4e (Frenchs Forest: Pearson, 2011).
49. Yves Fassin, ‘The Stakeholder Model Refined’, Journal of Business Ethics, vol. 84 (2009) pp. 113–135.
50. Arinaitwe Stephenson, ‘The Pursuit of CSR and Business Ethics Policies: Is it a Source of Competitive Advantage for
Organisations? The Journal of American Academy of Business, vol. 14, no. 2 (March 2009), p. 252.
51. Information from ‘The Socially Correct Corporate’ (2000), op. cit.; and David Kirkpatrick, ‘Looking for Profits in Poverty’,
Fortune (5 February 2001), pp. 174–6.
52. Developed from a discussion in Makower (1994), op. cit., pp. 17–18.
53. Clive Simon Eastwood, letter to the editor, Sydney Morning Herald, (12 July 2011), www.smh.com.au.
54. SBS World News, ‘At‐A‐Glance: Nuclear Power — Cure or Curse?’ (1 December 2010), www.sbs.com.au/news.
55. B. Cubby and G. Kwek, ‘2000 Bodies Washed Up as Japan Shaken by New Tsunami Scare and Reactor Blast’, The Age
(14 March 2011), www.theage.com.au; T. Eastley, ‘Japanese Schools Grapple with Nuclear Crisis’, ABC AM (15 August
2011), www.abc.com.au; L. Murdoch., ‘Radioactive Water Threatens Kakadu’, The Age (16 April 2011), www.theage.com.au;
and ‘Japan Tsunami and Earthquake — part one’, The Guardian (12 March 2011), www.guardian.co.uk.
56. The historical framework of this discussion is developed from Keith Davis, ‘The Case for and Against Business Assumption
of Social Responsibility’, Academy of Management Journal (June 1973), pp. 312–22; Keith Davis and William Frederick,

148  Management
 Business and Society: Management: Public Policy, Ethics, 5th edn (New York: McGraw‐Hill, 1984). The debate is also
discussed by Makower, op. cit., pp. 28–33. See also ‘Civics 101’, The Economist (11 May 1996), p. 61 and Mike Peng and
Erin Pleggenkuhle‐Miles, ‘Current Debates in Global Strategy’, International Journal of Management Reviews, vol. 11, no. 1
(March 2009), pp. 51–68.
57. The Friedman quotation is from Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1962); the
Samuelson quotation is from Paul A. Samuelson, ‘Love That Corporation’, Mountain Bell Magazine (spring 1971). Both are
cited in Davis (1973), op. cit.
58. Davis (1973) and Frederick (1984), op. cit.
59. See Makower (1994), op. cit., pp. 71–5; Sandra A. Waddock and Samuel B. Graves, ‘The Corporate Social Performance —
Financial Performance Link’, Strategic Management Journal (1997), pp. 303–19; Eva‐Maria Hamann, Andre Habisch
and Harald Pechlaner, ‘Values That Create Value: Socially Responsible Business Practices in SMEs — Empirical
Evidence From German Companies’, Business Ethics: A European Review, vol. 18, no. 1 (January 2009), pp. 37–51;
and M. Victoria Lopez, Arminda Garcia and Lazaro Rodriguez, ‘Sustainable Development and Corporate Performance:
A Study Based on the Dow Jones Sustainability Index’, Journal of Business Ethics, vol. 75, no. 3 (October 2007),
pp. 285–300.
60. Remi Trudel and June Cotte, ‘Does it Pay to be Good?’, MIT Sloan Management Review, vol. 50, no. 2 (Winter 2009),
pp. 61–68.
61. Davis (1973) and Frederick (1984), op. cit.
62. St. James Ethics Centre, Corporate Responsibility Index: 2008 Index Results (2008), www.corporate‐responsibility.com.au.
63. Kleinrichert (2008), op. cit., p. 478.
64. ibid, p. 481.
65. Terry Barker, ‘The Economics of Avoiding Dangerous Climate Change. An Editorial Essay on The Stern Review’, Climatic
Change, vol. 89 (2008), pp. 173–94.
66. Archie B. Carroll, ‘A Three Dimensional Model of Corporate Performance’, Academy of Management Review, vol. 4 (1979),
pp. 497–505.
67. Harold Jenkins, ‘A “Business Opportunity” Model of Corporate Social Responsibility for Small‐ and Medium‐Sized
Enterprises’, Business Ethics: A European Review, vol. 18, no. 1 (January 2009), pp. 21–36.
68. Eugene Tay, ‘Corporate Social Responsibility in Singapore: Awareness and Implementation’, Green Business Times
(2 October 2009), www.greenbusinesstimes.com.
69. ibid; Singapore Compact, ‘CDL‐Singapore Compact Young CSR Leaders Award 2012’ (2012), www.csrsingapore.org/c.
70. ‘Corporate Social Responsibility in Asia Business Solutions for Global Challenges’, CSR Asia (29 August 2010),
www.csr‐asia.com.
71. ibid.
72. SIIA, ‘Greenpeace and Sinar Mas’, Singapore Institute of International Affairs (30 March 2009), www.siiaonline.org.
73. Elizabeth Gatewood and Archie B. Carroll, ‘The Anatomy of Corporate Social Response’, Business Horizons, vol. 24
(September–October 1981), pp. 9–16.
74. Jennifer Chen, Dennis Patten and Robin Roberts, ‘Corporate Charitable Contributions: A Corporate Social Performance or
Legitimacy Strategy’, Journal of Business Ethics, vol. 82, no. 1 (September 2008), pp. 131–44.
75. http://thailca.com/csrclub.
76. www.csrsingapore.org.
77. www.aseanfoundation.org; ‘Insights From the Anti-corruption Workshop in Myanmar’, www.asean-csr-network.org.
78. For the other side of this issue and the support available through government sources for small businesses, see ‘When
Bureaucrats Are a Boon’, Business Week, enterprise issue (1 September 1997), pp. ENT 4–6.
79. Safe Work Australia website, www.safeworkaustralia.gov.au; WorkSafe New Zealand website, ‘About Us’, www.business.govt
.nz/worksafe/about.
80. Raymond J. Stone, Human Resource Management, 3rd edn (Brisbane: John Wiley & Sons, 1998), p. 693; Attorney‐General’s
Department, Age Discrimination Act 2004 (Canberra: Commonwealth of Australia, 2004); and Sex and Age Discrimination
Legislation Amendment Act 2011(Canberra: Australian Government ComLaw).
81. Asia Pacific Consumer Law, www.ciroap.org.
82. 7‐Eleven website, ‘About Us’, www.7eleven.com.au/about‐us.
83. Adele Ferguson, Sarah Danckert and Klaus Toft, ‘7‐Eleven: A Sweatshop on Every Corner’, The Sydney Morning Herald
(29 August, 2015), www.smh.com.au/business.
84. ibid.
85. Tess Hardy, ‘7‐Eleven: How the Franchise System Allows Exploitation’, The Age (31 August, 2015), www.theage.com.au.
86. Laura Hayes, ‘Immigration issues: A basic guide for franchise counsel’, Franchise Law Journal, vol. 34, no. 4 (2015),
pp. 587–97.
87. 7‐Eleven website, ‘Media Centre: Hotline and Website Now Available’ (9 September 2015), www.7eleven.com.au/
media‐centre.
88. Hardy, op. cit.
89. Ferguson, Danckert and Toft, op. cit.

CHAPTER 5 Ethical behaviour and social responsibility  149

ACKNOWLEDGEMENTS
Photo: © winnond / Shutterstock.com
Photo: © paintings / Shutterstock.com
Photo: © AAP Image / Lloyd Jones
Photo: © John Carnemolla / Shutterstock.com
Photo: © Takamex / Shutterstock.com

150  Management
CHAPTER 6

Sustainability 
LEA RNIN G OBJE CTIVE S

6.1 What is business sustainability?

6.2 What are some of the international guidelines for business sustainability, and how can these
guidelines be effectively implemented?
6.3 What is the relationship between sustainability and corporate governance?
6.4 How can organisations change to become more sustainable?
6.5 What are some current trends in business sustainability?
Are you pouring money down the drain?
What would you say to the proposition that your household could save up to US$200 a month? That’s
the claim an Australian company made in 2015 — if householders introduced a recycling system for
household water. Nexus eWater says their NEXheater harnesses the heat from household waste water
to heat clean water. Their accompanying invention, called the NEXtreater, treats the greywater from
showers and washing machines so that it becomes near‐potable and can be used for flushing toilets and
irrigating lawns, with the added environmental benefit of reducing water use in homes by about a third.1
The water is treated without using the traditional slow system that introduces bacteria to digest organic
compounds. The new system employs a three‐step process where dirty water is injected with air, passed
through a carbon filter and disinfected using ultraviolet light. The product is proving popular in the
United States and potentially pays back the initial investment in under five years.2
Such technological innovations offer hope for individuals and organisations who wish to reap the
potential benefits from a sustainable approach to doing business. The imperatives for incorporating
environmentally sustainable initiatives in business are no longer just altruistic, the drivers for sustain­
able business now include economic benefits that can be derived from using less water, less electricity
obtained from fossil fuels, more recycling and the added benefit of some government sponsored incen­
tives and discounts to encourage sustainable practices.
The trend towards greater sustainability in business is also providing opportunities for new start‐ups
and for the development of new products and services. Nexus eWater has grown from one Canberra office
in 2009, expanding to the United States with offices in Lancaster (California), San Diego and Huntsville
(Alamaba) in 2015.3 Existing companies are also benefitting by diversifying into sustainable initiatives.
Research on sustainability innovations indicate that between 2010 and 2013 revenues from sustainable
products and services grew about six times the rate of overall revenues in premier companies.4 Sustaina­
bility in business has moved from a peripheral issue to a mainstream trend in business management.

QUESTION
Do you think it is possible for companies to be more profitable while taking a sustainable approach to business?
In what kind of business might this be possible (e.g. household appliances), and what kind of business might it
be close to impossible (e.g. mining)?

152  Management
Introduction
In recent years, a focus on developing green businesses, sustainable development and reducing the
environmental impact of businesses has become a global trend.5 Many of the world’s leading com­
panies are embracing the vision and the reality of sustainable management. Nexus eWater provides
one example; however, large companies including Unilever, Toyota, BHP Billiton, ASUS and Westpac
are all at the forefront of developing sustainable businesses. Leading business thinkers, such as the
late Elinor Ostrom, have encouraged businesses to ‘go green’.6 She was awarded the Nobel Prize in
Economics in 2009 for her work on how humans interact with ecosystems to maintain long‐term sus­
tainable resource yields. In particular, she constructed an analysis of how societies effectively manage
natural resources so that they can avoid ecosystem collapse. This work may prove helpful as businesses
around the world adapt to limited resources, environmental pollution and the spectre of climate change.
However, not everyone agrees that we are heading towards climate change or environmental catastrophe,
so why should businesses pay any attention to sustainability?
Consider the public debates around government responses to environmental pressures such as carbon
trading, regulations (new building restrictions) and alternative energy sources (e.g. wind power).
One could gain the impression that businesses are generally reactive and resistant to sustainable man­
agement practices. However, there are many organisations that have identified themselves as pioneers,
leaders and trendsetters in sustainable management.7 Harish Manwani, the chief operating officer of Uni­
lever, for example, believes that sustainability is at the core of business success over the long term. He
asks the question ‘How do we really make growth not just competitive growth but responsible growth?’8
Rather than taking business existence for granted, Manwani and other leaders take each day as a new
day to ‘earn their right to generate business’. These attitudes reflect a broader concern with how busi­
ness interacts with society and reflect the broader concerns of sustainability beyond just concern over
the natural environment. How, then, can businesses enact this concern for sustainability? First, we must
define sustainability.

6.1 What is sustainability?

LEARNING OBJECTIVE 6.1 What is business sustainability?
The buzzword in many organisations since the early 2000s has been ‘sustainability’, but what does
it really mean? Sustainability can be described as the use of resources to enable society to satisfy
current needs, without compromising the ability of future generations to meet their needs.9 This defi­
nition was coined in 1987 with the release of the United Nations report Our Common Future. This
report, sometimes known as the Brundtland report, defined environmental and economic development as
one single issue. Thus, the report helped to create a political agenda recognising that economic devel­
opment required a focus on human resource development along with acknowledgement of environmental
limits to economic growth in industrialised and industrialising societies.
In Australia, New Zealand, the United States and many European nations, sustainability is the
focus for a new value debate about the shape of the future — our common future. In general,
sustainable development has been conceptualised in terms of three pillars since the Second Earth
Summit, held in Rio de Janeiro in June 1992. This definition sees sustainability in terms of environ­
mental, social and economic processes.10 Figure 6.1 illustrates this point. Thus, these three issues
are combined into one sustainability issue. These three issues are also combined into the ‘triple
bottom line’ approach (which will be discussed in further detail later in the chapter). Although
there is agreement about the need for sustainability, there is great debate about the best path to take
organisations forward.

CHAPTER 6 Sustainability  153

 Sustainability

Economic Social Environmental

FIGURE 6.1 Three pillars of sustainable development

Defining sustainability
Sustainability results from activities that:
1. extend the productive life of organisations and maintain high levels of corporate performance
2. maintain decent levels of welfare for present and future generations
3. enhance society’s ability to maintain itself to solve its major problems
4. enhance the planet’s ability to maintain and renew the biosphere and protect all living species.11
Although many organisations remain preoccupied with extending their productive life and maintaining
high profitability, an increasing number of organisations are actively dealing with the other three activities.
Rather than reducing productivity and profits, many organisations are discovering that embracing sustain­
ability can actually enhance these outcomes.12 This is the idea behind creating shared value — the concept
discussed at the beginning of this chapter. Developing a strategy is an important part of achieving such goals.
Some organisations, such as Interface, the world’s largest manufacturer of modular carpets, are pur­
suing a goal of zero emissions; that is, eliminating all waste or recycling it.13 Through eliminating
waste, recycling and developing environmentally friendly production processes, products and services,
it is possible to ‘reduce the footprint’ of our activities on the planet. Recycling has been the most fre­
quently used method in Australasia.
However, there are enormous differences in the readiness of organisations to develop and implement sus­
tainable competitive practices. Some organisations are highly advanced in investment in their human capital
through educating, training and developing their staff, but have devoted meagre or no resources to ecological
sustainability. In other organisations, the reverse applies. So far, very few have vigorously pursued both.
Pressure to pursue greater ecological sustainability has come from political parties, such as ‘Green’ parties
around the world, and is increasingly becoming a mainstream political issue. Many governments around the
world are now seriously debating the merits and potential introduction of various emissions trading schemes,
with the aim of reducing the amount of carbon pollution produced by organisations.

Why sustainability?
The simultaneous processes of industrialisation and urbanisation have created the large cities in which
much of the population lives. Even in countries that have substantial open spaces — such as Australia,
Canada and the United States — a large proportion of the population lives in cities because of the oppor­
tunities that exist in metropolitan areas.14 In the last 200 years, an extraordinary global process of urban­
isation has occurred, driven by the rapid expansion and development of the Western market economy.
Business growth and urban growth have gone hand in hand. In 1800, there were only two cities in the
world with a population of more than one million people — London and Beijing — and the world’s
100 largest cities had a total population of 20 million. By 2030, it is estimated that around 662 of the
world’s cities will have populations in excess of 1 million people.15 Population growth has seen the

154  Management
emergence of a new kind of city — the ‘megacity’ of 10 million or more residents. By 2014 there were
28 of these megacities, the majority of them in the developing world, and it is estimated that by 2030
there will be 41 of them.16 Today, we do not live in a civilisation, we live in a ‘globalisation’ — with a
globalisation of resources, a globalisation of business activity and a globalisation of humanity.
Cities in the developing world now look like New York or Sydney, and the industries, buildings and
transportation systems depend on fossil fuels such as oil, gas and coal. Do businesses need to dig deeper
into the earth’s crust to provide the resources? Is it acceptable for companies to fill containers with con­
sumable goods and transport them halfway around the world to be used for a couple of weeks and end
up as landfill? Sustainability is about calculating human impact on the future, based on current activities.
We have to look at the metabolism of our urban areas, viewing the cities as super‐organisms in terms of
resource use. Currently, our cities and industries have an essentially linear metabolism — goods, water,
fuel and food go in and then come out as waste materials at the other end. This is not sustainable in the
long term. The key concept for the future is how to convert this linear metabolism into a loop or cyclical
metabolism (the circular economy) that minimises resource consumption and reduces waste. The diffi­
culty is that on the one hand governments and businesses are increasingly supporting sustainable devel­
opment, but on the other they are signed up to economic growth.17
In the United States and Europe, major achievements have been made in the field of recycling. For
example, pulp mills are no longer built next to forests but next to cities because the raw material for
new paper, such as disused clothing and old newspapers, accumulates there. Authorities in the modern
Chinese city of Shanghai have a policy of ensuring that the vegetables eaten in the city come from the
city. In fact, half of the city area is set aside for the purpose of growing vegetables.
How can cities and industries, which are mainly the product of the availability of fossil fuels, develop
energy systems to make them sustainable in the future? There are hybrid sustainable business solutions
that use fossil fuels and passive and active solar energy to dramatically reduce energy consumption.
However, the future lies with totally renewable energy. There are many prototype building and factory
designs which demonstrate that it is possible to operate on solar, wind and recycled energy sources. For
example, Denmark will source over half of its entire electricity needs from renewable sources, mainly
wind power.18 The Australian government has developed a renewable energy target (RET), aiming for
at least 23.5 per cent of Australia’s electricity to come from renewable sources by 2020.19 Companies
such as Royal Dutch Shell and BP are also trying to encourage the adoption of renewable energy sources
(principally wind and biofuels).20 The road is not always easy for these organisations, with BP Solar
winding down its solar operations in 2011 due to the falling prices of solar panels.
As the benefits of a sustainable approach for cities and industries are increasingly promoted, organ­
isations are finding that renewing natural resources rather than wasting or degrading them, and investing
in people rather than divesting them, also makes good business sense. These corporate strategies are the
secret to creating the high‐performance organisations of the future, and will inevitably contribute to the
sustainability of society and our general way of life.

SUSTAINABILIT Y

Saving gorillas through phone design

For many consumers, the release of new versions of popular mobile phones produces stifled yawns
rather than genuine excitement. Slightly better cameras, slightly bigger screens, faster processers and
extra security features are not the kind of innovations that drove consumers from established com-
panies such as Nokia and Motorola into the arms of innovators such as Apple and Samsung. Major
advances in smartphones seem to be coming from innovators creating modular devices, such as
PuzzlePhone and Phonebloks.21 These designers are attempting to build a more sustainable product by
creating products with interchangeable modules that could be upgraded, repaired or customised. This
means that instead of upgrading your mobile phone every 18 months (the lifespan of the average smart-
phone), you could change modules of the phone on a more regular basis.

CHAPTER 6 Sustainability  155

 Designed in Finland, the PuzzlePhone is
made up of the easy‐to‐change modules of the
spine (display), brain (CPU, memory, cameras)
and heart (battery).22 As of 2015, versions of
the phone are available for pre‐order, with
products expected to be shipped in late
2016.23
Phonebloks is an organisation which tries to
inspire and connect companies that are devel-
oping aspects of modular devices.24 Project
Ara is one of these groups and this Google‐
sponsored project has already produced oper-
ational prototypes such as the Spiral 3, which
is now being developed for the market. Project
Ara aims to develop an open hardware plat-
form for modular smartphones, thus lowering
the entry barrier for phone manufacturers
and, in turn, potentially lowering costs for the
consumer.
The need to move towards more sustainable
mobile phones is also driven by the need to
reduce toxic e‐waste. Another driving force for
new phone design is to reduce the demand for
the rare earth materials used in mobile phones.
These materials are sometimes acquired from
conflict zones, similar to the processes involved
in obtaining ‘blood diamonds’. An effect of the
demand for these materials can also be seen by
visitors to Sydney’s Taronga Zoo or Melbourne
Zoo, who are being called to save the gorilla habitat in the Democratic Republic of Congo by recycling
their phones. The gorilla habitat is being reduced as land is cleared to mine for the metal coltan, which
is used in mobile phones and other electronic products.25
The push to develop and sell modular phones is likely to increase and eventually expand to other
electronic products, such as computers, tablets and digital televisions. Sustainable products are the
way of the future and businesses that innovate in this direction will have a better chance of being sus-
tainable themselves.

QUESTION
Do you believe that a technology company such as PuzzlePhone can truly produce products that are
sustainable and use production processes that are sustainable, or is the company just using sustainability
as a marketing ploy?

Energy and the natural environment

Environmental concerns are crucial to global sustainability. Business, governments and individuals
must consider the metabolism of industries and cities, turning this metabolism from a linear process
(consuming resources and generating waste) to something cyclical (renewing resources and recycling
waste). The abundance of sunshine in Australia and New Zealand provides opportunities to become
world leaders in the development of solar‐powered industries and cities in the 21st century. Governments
can play an important role in encouraging this through subsidies, tax incentives and education.
While environmental issues drove much of the earlier discussions in the 1980s and 1990s about
sustainability, the debate around the issue of what is sustainable business development has broad­
ened in the new millennium. Current research is defining sustainability to include the long‐term

156  Management
maintenance and reproduction of environmental, economic, social and cultural systems.26 Sometimes
referred to as a quadruple bottom line approach, this more holistic view of sustainability argues that
organisations should focus on developing strategies and policies that, ideally, tackle these four areas
simultaneously. This approach differs from the triple bottom line as it adds the dimension of cultural
systems to the usual three areas of economic, social and environmental performance. Other perspec­
tives have labelled the fourth dimension as spiritual, political or company performance. However,
the cultural dimension has emerged as being relevant to countries where indigenous or multicultural
populations are well represented. In fact, a number of organisations and some local governments
in New Zealand, with a significant Maori population, have emphasised the quadruple bottom line
approach.27
Broader notions of sustainability, such as the quadruple bottom line approach, are gaining mainstream
acceptance among international companies. The success of organisations in managing, measuring and
reporting their impact on society and the natural environment is of growing importance and prestige.
This impact occurs both through their business operations, products and services; and through their
interactions with important stakeholders, such as employees, suppliers, customers, government and local
communities. The outcomes of this measurement and managing process are increasingly compiled and
reported by the media.

Social justice
As we have outlined, sustainability as a business concept has evolved from environmental concerns, to
embracing economic and social concerns, and to an emphasis on ethical and cultural concerns.28 Along
with the growing emphasis on corporate social responsibility, the emergence of the social dimension
of sustainability became apparent in the 1990s. How business operations impact on local communities,
such as timber‐ or mining‐related communities, remained a business focus for many years. As sustain­
ability embraces the need to build a sustainable workforce, the concept includes an emphasis on labour
rights. This emphasis can be seen in concern regarding the operation of international sweatshops  and
human rights relevant to cultural integrity and viability. The principle of social justice is foundational to
these concerns. In this context, social justice is concerned with:

a more just and equitable world, whether between rich consumers in the West and poor workers in devel­
oping countries, between the urban rich and the rural poor, or between men and woman, remains the
central concern in the social perspective on sustainability.29

Business concern with social justice extends not just to issues regarding fairness between countries
and across geographical and socio‐economic boundaries, but also issues in considering future gen­
erations. A focus on short‐term profit can lead to an exploitative approach to dealing with human and
environmental resources. Unfortunately, both human and environmental resources have limits, and
a widespread and persistent exploitative approach will leave very little for future generations. This
problem has been seen in Australia when a leak of the chemical chromium and other chemical spills
from an Orica factory on Koorangang Island affected the residents of the nearby town of Stockton
near Newcastle in New South Wales.30 Persistent breaches of environmental standards have led to
ongoing problems, and many residents have lost faith in the way that they are informed of industrial
accidents.
Investigations of the Fukishima nuclear accident in Japan in 2011 have uncovered a lax approach
to safety standards, and poor communication with residents has created an atmosphere of mistrust.31
Unfortunately, the towns and countryside surrounding the nuclear plant cannot be used for many years.32
Indeed, there are many places on earth today that are toxic to humans due to the negligent and destructive
approach of businesses, governments and organisations. Examples include the polluted air due to coal
mining in Linfen in China, mercury poisoning due to gold mining in Central Kalimantan in Indonesia
and chemical weapons manufacture waste in Dzerhinsk, Russia.33

CHAPTER 6 Sustainability  157

The business case
The business case for responsible business is also a reason that companies are working towards improving
their social and environmental performance. Research published by the non‐profit Carbon Disclosure
Project in 2014 found that S&P 500 companies that enshrined sustainability as a core strategy were
outperforming those companies with no such strategies.34 Embedding energy efficiency into business
strategy, for example, can lead to cost savings from less energy use. Developing sustainability in the
supply chain may lead to cost savings associated with less waste, more recycling and more efficient
transportation as a consequence of action to reduce carbon emissions. For example, using video con­
ferencing rather than travelling to meet face to face can reduce carbon emissions and reduce business
expenses.

CRITICAL ANALYSIS

1. Why should businesses be concerned with sustainability issues?

2. Why should businesses be concerned with social justice? Is there a danger that businesses may be
trying to do too many things other than making a profit?
3. How convincing is the business case for a sustainable approach to managing organisations?

6.2 International sustainability guidelines

for business
LEARNING OBJECTIVE 6.2 What are some of the international guidelines for business sustainability, and
how can these guidelines be effectively implemented?
In order to remain accountable and focused in the pathway towards business sustainability, a number of
organisations are following internationally developed sustainability guidelines.
The International Organization for Standardization (ISO) was established in 1947 and is the
world’s largest developer of voluntary international standards.35 In recognising the worldwide trend
towards sustainability, the organisation has now developed a number of international ISO standards
focusing on sustainability. Some of these standards are listed in table 6.1.36 These standards provide
guidance, accountability, certification and stakeholder assurance for organisations that adopt the relevant
standards.

TABLE 6.1 Major ISO standards relevant to business sustainability

Standards Focus Description

ISO 20121:2012 Event sustainability A standard to support the organisers of events of all types in
management systems integrating sustainability with their activities.

ISO 14000 Environmental management A set of standards relating to aspects of environmental

management. Provides practical tools for organisations
to control their impact on the environment and constantly
improve their environmental performance.

ISO 26000:2010 Guidance on social Guidance on how organisations can operate in a socially
responsibility responsible way.

ISO 50001:2011 Energy management Standards to assist organisations to use energy more
efficiently, through the development of an energy management
system (EnMS).

Source: International Organization for Standardization, www.iso.org.

158  Management
 ISO standards, however, are only one part of the growing list of international sustainability guidelines
for business. The following sections will explore some of the more significant guidelines, including
the UN Global Compact, the Millennium Development Goals and the Rio+20 Corporate Sustaina­
bility Forum. These guidelines should not be considered as competing, but rather as complementary in
reporting the many aspects and perspectives of organisational sustainability performance.37

The UN Global Compact

One of the challenges of a focus on sustainability in business is that there appear to be very few global
standards that provide a practical focus for managers when managing across national and cultural boun­
daries. This challenge applies to managers of multinational corporations, as well as managers focusing
on sustainable practices within the business environment of their domestic economies. Some critics
argue that there can be no universal standards considering differences between nations based on culture,
economic development and business practices. There are, however, a number of initiatives in this area,
including the Global Reporting Initiative (GRI), the World Business Council for Sustainable Develop­
ment (WBCSD) and the UN‐backed Principles for Responsible Investment (PRI).38 The UN Global
Compact has provided some ‘universal’ guidance to businesses in developing sustainable practices, and
sets some standards in relation to businesses that aim to operate ethically.
The compact was first ratified at the World Economic Forum in Davos, Switzerland, on 31 January
1999.39 The UN Secretary‐General at that time, Kofi Annan, challenged world business leaders to
ascribe to and operationalise the set of universal principles that has become known as the UN Global
Compact. The compact does not just focus on environmental sustainability. The focus is, in fact, in
the areas of human rights, labour standards and the environment. The principles are derived from The
Universal Declaration of Human Rights,40 the International Labour Organization’s Declaration on Fun­
damental Principles and Rights at Work,41 the Rio Declaration on Environment and Development,42 and
the United Nations Convention Against Corruption.43 Following further consultation and feedback, a
tenth principle was added in 2004. This principle focuses on anti‐corruption. By 2015, over 8300 busi­
nesses in 162 countries around the world had signed up to the Global Compact.44 The UN Global Com­
pact is the world’s largest corporate sustainability initiative, and its principles are listed in table 6.2.45

TABLE 6.2 Principles of the UN Global Compact

Human rights

Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights
Principle 2: Businesses should make sure that they are not complicit in human rights abuses

Labour standards
Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to
collective bargaining
Principle 4: Businesses should ensure the elimination of all forms of forced and compulsory labour
Principle 5: Businesses should ensure the effective abolition of child labour
Principle 6: Businesses should ensure the elimination of discrimination in respect of employment and occupation

Environment

Principle 7: Businesses should support a precautionary approach to environmental challenges

Principle 8: Businesses should undertake initiatives to promote greater environmental responsibility
Principle 9: Businesses should encourage the development and diffusion of environmentally friendly technologies

Anti‐corruption

Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery

Source: UN Global Compact, www.unglobalcompact.org.

CHAPTER 6 Sustainability  159

 Principles seven, eight and nine focus on developing environmentally sustainable business practices.
Principle seven suggests a ‘precautionary’ approach to environmental challenges. Could this mean a
sceptical approach? In fact, a precautionary approach stands in contrast to dismissive or combative
approaches to environmental challenges, where organisations seek to ignore or avoid environmental
regulations imposed by governments. The UN describes precaution in this context of environmental
challenges as involving ‘the systematic application of risk assessment (hazard identification, hazard
characterization, appraisal of exposure and risk characterization), risk management and risk communi­
cation’.46 Steps that the company could take to promote environmental responsibility include:
•• re‐defining company vision, policies and strategies to include the ‘triple bottom line’ of sustainable
development — economic prosperity, environmental quality and social equity
•• developing sustainability targets and indicators (economic, environmental, social)
•• establishing a sustainable production and consumption programme with clear performance objectives
to take the organisation beyond compliance in the long term
•• working with suppliers to improve environmental performance, extending responsibility up the
product chain and down the supply chain
•• adopting voluntary charters, codes of conduct or practice internally as well as through sectoral and
international initiatives to confirm acceptable behaviour and performance
•• measuring, tracking and communicating progress in incorporating sustainability principles into
business practices, including reporting against global operating standards
•• ensuring transparency and unbiased dialogue with stakeholders.47
In June 2014, the UN Global Compact launched a new initiative that petitions governments
to implement anti‐corruption practices and support good governance systems.48 The campaign, ‘Call
to Action: Anti‐Corruption and the Global Development Agenda’, focuses on what companies can
do to enhance anti‐corruption activities. Corruption continues to be a major challenge for businesses,
undermining their efforts to be honest and transparent in building sustainability into their business prac­
tices.49 Furthermore, in 2013 the UN developed the Post‐2015 Business Engagement Architecture that
provides a practical way forward for companies to build sustainability into their planning and take action
in practice.50 The architecture draws on insights gathered during a series of worldwide consultations on
the development agenda beyond 2015 and was developed in collaboration with Global Compact LEAD
companies.51 Both of these initiatives provide guidelines and examples as to how businesses can work
towards building a sustainable future.

The Millennium Development Goals

Another major focus of the United Nations has been the development of the Millennium Development
Goals (MDGs). The goals were a global partnership to reduce extreme poverty based on a series of
time‐bound targets. The goals were adopted by 189 United Nations member states, who pledged in
September 2000 to meet the following eight goals by 2015:
•• eradicate extreme poverty and hunger
•• achieve universal primary education
•• promote gender equality and empower women
•• reduce child mortality
•• improve maternal health
•• combat HIV/AIDS, malaria and other diseases
•• ensure environmental sustainability
•• develop a global partnership for development.52
These goals, and the projects associated with them, attempted to build economic and social sustaina­
bility amongst the poorest people in the world. The first goal was partially achieved with the number of
people living on less than $1.25 a day reduced from 1.9 billion in 1990 to 836 million in 2015. Although
primary school enrolments rose substantially, 9 per cent of the world’s eligible children are still out of
school. 53

160  Management
 Goal seven specifically aimed to ensure environmental sustainability. Some of the subgoals in this
category were achieved with a significantly higher proportion of people having access to improved water
sources and a lower share of urban residents living in slums in the developing world. Other goals were
not achieved, with global emissions of CO2 increasing by 50 per cent between 1990 and 2012 and
forests still disappearing at an alarming rate.54 The MDGs, however, provided a focus for action for
businesses as they worked in partnership with governments and not‐for‐profit organisations in building
global sustainability.

The Sustainable Development Goals

The Sustainable Development Goals (SDGs), which effectively replaced the MDGs, are 17 goals
agreed by all 193 member states of the United Nations, with 169 targets to be reached by 2030.55 The
SDGs were developed in consultation with the private business community and include sustainability‐
related areas such as sustainable cities and communities, responsible consumption and production, cli­
mate action, life below water and life on land.56 The SDGs build on the argument that many MDGs were
achieved through the economic growth of middle and developing income countries such as China and
India by supporting private sector growth as the engine for poverty reduction.57 The goals include the
phrase ‘decouple economic growth from environmental degradation’, which could become a rallying
cry for sustainable business management.58 The goals include a number of pro‐business themes, such
as removing trade barriers and phasing out fossil‐fuel and fishery subsidies. Supply chain auditing and
sustainability reporting are all emphasised in the non‐binding agreement.

CRITICAL ANALYSIS

1. What are the pros and cons of following the ISO standards relevant to sustainable business?
2. What role do you think business can play in reaching the MDGs?

GLOBALISATION

South‐East Asia’s haze problem:

will legislation improve sustain-
ability practices in business?
The governments of many countries have put
sustainability on the agenda for managers of
corporations. Indonesia is one example where
recent legislation has attempted to change
the behaviour of managers. For example,
articles 1 and 74 in the revised Companies
Act states that a company having its busi-
ness activities in the field of and/or related to
natural resources is obliged to undertake
activities to reinforce social and environ-
mental responsibility while participating in
sustainable economic development.59 The
activities need to be planned to improve the
quality of life of local residents and be envi-
ronmentally beneficial to both the company
and the community. In addition, government
sanctions apply to those companies that do
not comply with the regulation.

CHAPTER 6 Sustainability  161

 In 2012, the Indonesian government issued GR No. 47/2012, requiring all companies whose oper-
ations affect environmental sustainability to engage in corporate social responsibility (CSR) activities.
Companies were allowed to set their own CSR budget through decisions undertaken at their annual
general meeting, but non‐complying firms were subject to legal sanction. In fact corporations in
Indonesia have funded philanthropic, community development and environmental activities for a long
time through charitable foundations (the Indonesian term is yayasan).
Despite the best intentions of governments and some companies, some managers deliberately ignore
sustainable business practices in order to maximise their short‐term business gains. Each year a number
of firms in Indonesia orchestrate illegal slash and burn practices to clear land of unwanted vegetation
and peat.60 Clearing land by burning is cheap, it helps avoid the costly requirement of reforestation for
owners who ‘officially’ clear their land and it helps to clear plantations of unproductive palm oil trees.61
In 2015, however, the consequences of these actions were catastrophic. The fires caused a thick pall
of deadly smoke to descend on areas of Indonesia and neighbouring countries. The South‐East Asian
haze of air pollution during the extra dry conditions of El Niño caused widespread health and visi-
bility problems that led to businesses, schools, transportation and events closing in Indonesia and her
neighbours.
Although at least seven Indonesian company executives were arrested in connection with the fires
in 2015, the slow and weak enforcement of laws had little effect on management practices that con-
tribute to this annual environmental disaster.62 The problems had persisted for at least 18 years to
2015 but very few companies have been prosecuted.63 It appears, therefore, that new laws, sustain-
ability reporting and even international outrage have not stemmed a regular environmental disaster.
The profits of the palm oil industry of Indonesia apparently take precedence over a clear environ-
mental disaster.

QUESTION
Why do you think that legislation has not stopped the annual slash and burn practices in Indonesia? What
more needs to be done to stop this environmental disaster unfolding every year?

6.3 Sustainability and organisations

LEARNING OBJECTIVE 6.3 What is the relationship between sustainability and corporate governance?
The concept of ecologically sustainable organisations has been discussed for many years. Researchers
in 1995 identified that developing ecologically sustainable organisations would require building a
consensus within and amongst organisations and their stakeholders.64 The process of building such a
consensus, however, would start with incorporating the values of sustainability into the organisation.
With a growing awareness of environmental fragility and the impending challenge of global warming,
more business leaders today are willing to incorporate the values of sustainability into the organisation.
The costs of operationalising these values, however, are challenging and, to many organisations, the ben­
efits of a sustainable approach do not always seem to outweigh the costs.65

Shared value
One approach to the problem of building a consensus in organisations is the concept of shared value.66
This concept recognises that if a business wants to survive over the long term, it needs to look after the
needs not just of its employees, its customers and its shareholders but of the broader community as well.
Thus, an emphasis on sustainability may have value for businesses, whether one believes in climate
change or not.
Creating ‘shared value’ is a concept that has arisen to challenge the idea that ‘social responsibility’ is
something that is at the periphery of what businesses are about. In fact, Michael Porter and Mark Kramer
argue that it is societal needs, and not just economic needs, that define markets.67 When organisations
waste energy, waste raw materials, pollute the environment and have to compensate for poor education

162  Management
systems in preparing workers, they are increasing their own internal costs. When organisations address
issues that are harming the environment or society, they are often innovating with technology, operating
methods and management approaches. Thus, by working with societies in these ways, organisations
create value for themselves and value for the society. This is how shared value is created.

Model of the sustainable business organisation

There are a number of models of the sustainable business organisation.68 The models are in their infancy,
as the concept of the sustainable business organisation is still relatively new in terms of research and
practice. Figure 6.2 represents one of these models. This model is part of an industrial ecosystem of
companies that have adopted the closed‐loop economic production model. In this example, the com­
pany’s operations are powered by renewable energy inputs.

Renewable energy inputs

Sun, wind, wave, tidal, geothermal

Outputs
Transport Biomimetic (re)design Product services Customers
● Zero emission vehicles of business processes,
products and services Natural
Materials inputs Investment
capital
Sustainable
● Landfill
business
● Cities Social
organisation
● Upcycled equity
[SBO]
materials
● Renewables
Industrial ecosystem By-products
reuse
SBO SBO and recycle

SBO SBO

FIGURE 6.2 Closed‐loop model of a sustainable business organisation

Source: Gianna Moscardo, Geoff Lamberton and Geoff Wells et. al., Sustainability in Australian Business (Brisbane: John Wiley
& Sons, 2013), p. 153.

Corporate governance
A major consideration in sustainability is how a company governs itself. The scope of governance
includes the methods of corporate decision‐making; the ways in which stakeholders are included in
the process, and their interests represented; and the transparent, ethical principles that are applied to all
decision‐making. Stakeholders are considered to be both internal and external. However, responsibilities
to the firm’s own employees are primary, and under sustainability principles such responsibilities can
redefine the nature of the employment relationship.
Research exploring how Australian private and public managers perceived sustainable corporate gover­
nance found four different approaches.69 In the first approach, managers saw sustainable corporate gover­
nance as primarily about corporations working towards long‐term economic survival and performance.

CHAPTER 6 Sustainability  163

Managers in the second category considered sustainable corporate governance in terms of corporations
working towards positive outcomes for the natural environment. This was represented mainly in eco­
logical outcomes, such as conservation and eco‐efficiency behaviour. Managers in the third category saw
sustainable corporate governance in terms of supporting people and social outcomes. A fourth category
of managers emphasised corporate sustainability in terms of a systems‐thinking approach. Managers
expressing this view acknowledged the need to balance economic, social and natural environment
outcomes.
The research uncovered a relationship between the categories. Managers from private organisations
saw sustainable corporate governance in terms of sustainable economic performance with enough com­
pliance to environmental and social legislation and regulations to give them to a ‘license to operate’.70
Managers from public organisations (including government‐owned corporations) emphasised category 2
and 3 perspectives, in that they saw sustainable corporate governance as emphasising environmental and
social outcomes. However, managers in category 2 and category 3 expressed lesser emphasis on category
1 issues (economic outcomes). Participants expressing a category 4 understanding (a systems‐thinking
approach) tended to see sustainable corporate governance as a balance of category 1, 2 and 3 outcomes.
The research indicates that, in practice, managers tend to emphasise different aspect of governance in
relation to sustainability, and their emphasis is influenced by whether they were in private, public or
government‐owned organisations.

Circular economy
The concept of the circular economy is one that has been gaining momentum in recent years;71 the
first large‐scale event for the concept being held in 2014 in London with over 11 000 attendees from all
over the world. The European Union developed an ambitious circular economy strategy in 2015.72 The
concept encourages businesses and governments to move from a linear ‘take–make–consume–dispose’
pattern of growth to a circular ‘re–use–repair–refurbish — recycle’ approach where ‘waste’ can be used
as a resource.73 For example, chances are that your mobile phone is less than two years old. This fast
replacement approach to consumerism has lead to an incredible inefficiency in the way that we manage
the limited resources of planet Earth, with pollution, loss of natural habitat and loss of value with the
disposal of such expensive products. The circular economy, however, emphasises material efficiency,
renewable energy and energy efficiency, so that eventually your phone will be upgradable, repairable,
made with recycled materials and will be made and maintained with energy‐efficient processes. This
circular approach may cut carbon emissions by 70 per cent by 2030, and its labour intensive approach
may increase jobs throughout the world.74

CRITICAL ANALYSIS

1. In what way is the concept of shared value feasible for businesses?

2. What evidence do you see that organisations simply pay ‘lip service’ to sustainability in business?

6.4 Organisational change: developing the

sustainable firm
LEARNING OBJECTIVE 6.4 How can organisations change to become more sustainable?
The process of organisational change towards sustainable business practices requires the organisation
to find new ways of doing business. Sometimes this process involves the whole organisation. In
marketing, the organisation may be able to respond to the significant growth of ethical consumerism
in the marketplace.75 Ethical consumers will buy or avoid buying products based on ethical grounds,

164  Management
or these customers seek more information about the ethical standards associated with goods and ser­
vices. An example of this is the growth in sales of free‐range eggs, despite the higher price tag of
this product compared with cage‐produced 6+ eggs. It is evident from the description of sustainable
business outlined thus far that in adopting sustainability principles, most firms must find new ways
of doing business, often across the whole organisation. Change principles thus become central to
sustainable business. The principles of change are well established in the business discipline of organ­
isational behaviour. However, these principles take on new dimensions when considered from sustain­
ability perspectives.

Incremental change
Dunphy, Griffiths and Benn76 distinguish four phases in the transition of a sustainable organisation from
the base level, compliance, to the most developed level.
1. From non‐responsiveness to compliance. Non‐responsive organisations are those who disregard the
impact of their actions on the environment, or on local communities with which they interact, or
on their own people. The impetus for such organisations to change is likely to come from sources
external to the organisation, such as media exposure, public protests or court action.
2. From compliance to sustainable efficiency. Efficiency gains are likely to come from poorly performing
units, pilot projects and capability improvement. Identification of leverage points and sharing of suc­
cess are central.
3. From efficiency to strategic proactivity. Strategic proactivity relates to the extension of sustainability
practice to products, and to suppliers and customers; to recruitment and internal development that
enhances sustainability capabilities; and to active engagement with community groups in the devel­
opment of new products and services.
4. From strategic proactivity to the sustaining corporation. The ‘sustaining’ corporation is characterised
by a shift in the values and behaviours of the corporation, collectively and individually, towards the
role of business in creating a sustainable society. There is an interaction with other organisations
within the sector, or in the supply chain, to promote the implementation of sustainability practice.
The authors note that incremental change has important benefits, such as internal capability develop­
ment, positive culture change and competence in the change process itself.77

Sustainability reporting
The Global Reporting Initiative is a not‐for‐profit organisation established to promote environmental,
economic and social sustainability.78 The G3 guidelines (released in 2006), established by the group,
provided a comprehensive sustainability reporting framework used by organisations around the world.
The guidelines indicated what and how to report on management and performance indicators relevant to
sustainability. There were five performance indicators in the environmental category and these include
biodiversity‐related issues such as the size of land owned in protected areas, the impacts of activities and
strategies for managing impacts on biodiversity. The framework is the world’s most widely used sustain­
ability reporting framework.
The new G4 guidelines, published by the GRI in 2013 apply to all sustainability reports published
after 31 December 2015. Reports must now focus on materiality, an accounting principle that describes
the importance or significance of something. In the context of GRI reporting, materiality is the threshold
at which performance aspects become important enough to be reported. Determining such a threshold
for sustainability reporting is no easy task, but if something potentially meets the needs of the present
but may compromise the needs of future generations then it should be reported.79 For example, after an
analysis in 2013, the Nestlé food company determined that some of the material issues that it should
report on include business ethics, maternal infant and young child nutrition, resource efficiency and
waste.80 They then analysed and reported these issues on a matrix that assessed the strength of stake­
holder concern against the strength of the issue’s impact on Nestlé. In 2014 the issue with the strongest

CHAPTER 6 Sustainability  165

stakeholder concern and strongest impact on Nestlé was determined to be ‘over and under nutrition’.81 In
very simple terms, this could be translated as obesity and malnutrition.
Sustainability reporting is maturing in many countries around the world. The Singapore broadcaster
Channel NewsAsia launched the Asian region’s first sustainability index in 2014. The index ranks the
100 leading firms in corporate sustainability in economies including India, China, Indonesia, Japan, the
Philippines, Thailand, South Korea, Malaysia, Taiwan, Hong Kong and Singapore. The index analyses
and compares performance on ESG indicators (environment, social, governance). The index helps to
motivate companies to improve their sustainability practices through an independent ranking system of
company performance.82
In Australia, an increasing number of companies are participating in sustainability reporting. From
2007 to 2012, GRI reporting grew in Australia by more than 30 per cent each year and 95 per cent of the
world’s 250 biggest companies now report their sustainability performance.83

The bottom of the pyramid

One of the challenges to managing sustainably is that much of the economic growth in the future is
likely to be in developing countries. According to Unilever research, developing markets will lead
growth, accounting for 94 per cent of the growth in population (representing 750 million people or
nearly 1 billion new customers) and 72 per cent of incremental consumer expenditure (representing
US$23 trillion).84 The emerging world population will be 7.5 billion by 2020. Such large‐scale con­
sumption will lead to opportunities for people’s livelihoods as well as challenges for the environment
and biodiversity. There are lessons to be learned from organisations like Unilever, which has a vision to
double in size while reducing its environmental impact by working across the value chain and measuring
its total footprint right across the value chain.
The late C.K. Prahlad of the University of Michigan identified that there is a ‘fortune at the bottom
of the bottom of the pyramid’.85 By this, he meant that the poor of the world are not victims but, rather,
they are resilient and creative entrepreneurs. In addition, the poor are value‐demanding consumers. Thus,
he encouraged multinational corporations and other organisations to recognise that designing products
and services for this group of consumers and potential entrepreneurs can not only be helpful for commu­
nities, but also potentially profitable. Thus, firms need to orient themselves towards this growing market.

CRITICAL ANALYSIS

1. In what way would reporting on sustainability help an organisation to improve its sustainability
performance?
2. Considering the low availability of finance in the bottom of the pyramid, is there really a fortune there?

6.5 Current trends in business sustainability

LEARNING OBJECTIVE 6.5 What are some current trends in business sustainability?
In order for sustainability to remain a priority for businesses, ultimately the need for a value proposition
allows sustainability to be sustainable! That is, sustainability must help organisations to create value for
customers and ultimately to help companies earn profit. The shared value approach, explained in the
introductory section of this chapter, is one useful approach. The price of a non‐sustainable future is high;
however, the price will be paid by future generations, and so companies do not include such costs in
their current accounting practices.
In fact, many organisation have recognised that the ‘bubble’ of wasteful and environmentally harmful
business practices cannot be sustainable over the long term as businesses cannot ‘defy gravity’ if gravity
is the reality of the limited resources of our fragile planet. In recognising the link between corporate

166  Management
social responsibility and sustainability, businesses are not only embedding CSR throughout their busi­
ness processes but are also making sustainable decisions recognising that the global economy is experi­
encing an ongoing crisis. However, the current trend towards business sustainability could be seen as one
of many waves that have made an impact on the global economy. The following section explores these
apparent waves.

Waves of change in the business environment

Alvin Toffler was the first management writer to introduce the concept of waves of change. This con­
cept was explained in his book The Third Wave, which was published in 1980.86 Toffler argued that
the First Wave of change was the agricultural revolution in the 18th and 19th centuries, which began
in the United Kingdom and was necessary for the subsequent Industrial Revolution. The revolution
required substantial increases in agricultural output to feed the rapidly growing industrial cities of the
19th and early 20th centuries. The Second Wave was the Industrial Revolution, which began in the
northern English towns of Manchester and Leeds, spread across many countries and continues to spread
in rapidly expanding developing countries such as India and China. This Second Wave is rooted in mat­
erialism and the supremacy of humankind and is epitomised by a world‐view emphasising individuality,
competition and profit maximisation. Decision‐making is supposed to be based on rational criteria and
unaffected by emotions, intuition or politics. From this orientation flows an emphasis on competition,
self‐­preservation and consumption, which many believe has created such current problems as pollution,
solid‐waste disposal, crime, family violence and international terrorism.
The Third Wave marks growing concern for balance and sustainability and is epitomised by a world‐
view stressing the connectedness of individuals, cooperation and value creation. The business environ­
ment is rapidly changing as companies move towards a distributed workforce that uses advanced
communications technology to link workers and functions at scattered sites. This change is altering the
nature of work and redefining the organisation. North American and European companies are leading
these changes.
This Third Wave assigns validity to intuition and non‐rational processes. As this wave unfolds, we
become more sensitive to the issues of conservation, sanctity of life and cooperation. Material gain is
but one force driving activity in the wider environment. Reducing environmental risk, providing service
to others, and creating opportunities for personal growth and self‐fulfilment become important consider­
ations. Material wealth assumes less importance in a world where dignity, integrity and inner harmony
play an important role in gaining a sense of personal validation.
In the Fourth Wave, individuals will focus on integrating all dimensions of their life, achieving res­
ponsibility for the whole and acting as global stewards. Material gain will not be a sufficient end in
itself. True wealth will be concentrated in each individual and expressed as an inner trust. People in the
Fourth Wave will be integrated into the full range of human cognitive and perceptual abilities.87
Moving through the different waves has and will involve many dislocations, often very disruptive
and painful (such as the destruction of rural communities and rural–urban migration as the First and
Second Waves created an urbanised, industrial economy in Europe, North America and beyond). The
Third and Fourth Waves are creating dislocations, but of a different nature. These include the emergence
of industry clusters involving cooperation between businesses, and the introduction of environmentally
friendly products and manufacturing processes involving the elimination of existing polluting plants.

Rio+20 Corporate Sustainability Forum

In 2012, just prior to the UN Conference on Sustainable Development, nearly 3000 representatives com­
prising private businesses, governments, academics and community activists met to develop business
initiatives to support sustainable development.88 The Rio+20 Corporate Sustainability Forum devel­
oped over 200 commitments regarding business and sustainability in areas including energy, finance,
climate change, water, food, anti‐corruption and women’s empowerment. The outcomes from this forum

CHAPTER 6 Sustainability  167

are important for managers, as they provide broad guidelines and policies that are likely to impact busi­
nesses in the coming years.
Some of the commitments include frameworks for public–private policy collaboration on biodiversity,
food and agriculture and access to water for people and industries. A new initiative at the forum brought
together stock exchanges from the North and South to explore how to include sustainability factors in
the listings of member businesses. Governments at the forum agreed to define a new set of Sustainable
Development Goals that would extend and broaden progress already made in the context of the Millen­
nium Development Goals (as discussed in an earlier section).
Despite this promising forum and strong commitment to the SDGs, corporate sustainability has not
penetrated the majority of companies around the world. We still haven’t seen the depth of action needed
to address the most pressing challenges confronting our planet. Ultimately, a continuing partnership
between businesses, communities and government will be needed so that sustainable business initiatives
can reach scale, and so that economic incentive structures must be realigned so that sustainability is
valued and profitable.

CRITICAL ANALYSIS

1. What evidence (if any) in our society do you see of a Third Wave as Toffler has described?
2. What are the pitfalls of a government–business–community consensus represented by the Rio+20
Corporate Sustainability Forum?

168  Management
SUMMARY
6.1 What is business sustainability?
•• Sustainability is defined as the use of resources to enable society to satisfy current needs, without
compromising the ability of future generations to meet their needs.
•• Sustainable businesses are based on the three pillars of sustainable development, which are the
development of social, environmental and economic aspects of businesses and their communities.
6.2 What are some of the international guidelines for business sustainability, and how can these
guidelines be effectively implemented?
•• The guidelines include the ISO 14000 family, the UN global compact and the Millennium Development
Goals.
•• These guidelines and goals can only be effectively implemented and achieved as organisations take
responsibility for specific aspects of the guidelines/goals.
6.3 What is the relationship between sustainability and corporate governance?
•• Corporate governance in relation to sustainability is only effective when organisations are accountable
through reporting progress to an external agency such as the Global Reporting Initiative.
6.4 How can organisations change to become more sustainable?
•• The four stages of change for organisations to become more sustainable could be described as from
non‐responsiveness to compliance, from compliance to sustainable efficiency, from efficiency to
strategic proactivity and from strategic proactivity to the sustaining corporation.
•• Organisations can change to become more sustainable by adopting business models such as the
closed‐loop model of a sustainable business organisation.
6.5 What are some current trends in business sustainability?
•• The Third (and current) Wave of socio‐economic development marks growing concern for balance
and sustainability and is epitomised by a world‐view stressing the connectedness of individuals,
cooperation and value creation.
•• In the Fourth Wave, individuals will focus on integrating all dimensions of their life, achieving
responsibility for the whole and acting as global stewards.
•• The Rio+20 Corporate Sustainability Forum established a stronger partnership between businesses,
governments and not‐for‐profit organisations in addressing sustainability issues. However, further
work is needed for sustainable initiatives to be sufficiently incentivised in order to be profitable.

KEY TERMS 
A circular economy  is an economy based on a circular re‐use‐repair‐refurbish‐recycle approach to
consumption rather than a linear ‘take‐make‐consume‐dispose’ approach to production.
Ethical consumerism  is the practice of purchasing products and services produced in a way that
minimises social and/or environmental damage, while avoiding products and services deemed to
have a negative impact on society or the environment.
The Global Reporting Initiative  promotes environmental, economic and social responsibility.
The International Organization for Standardization (ISO)  is the world’s largest developer of
voluntary international standards.
Materiality  is an accounting principle which recognises that some information is important or
‘material’ to performance or to an issue.
The Millennium Development Goals (MDGs)  are a UN‐sponsored set of eight time‐bound goals that
aim to reduce global extreme poverty.
The quadruple bottom line  is a measure of company performance covering results in terms of
economic, social, environmental and cultural factors.

CHAPTER 6 Sustainability  169

A renewable energy target  is a percentage of total energy production that is generated by renewable
sources.
The Rio+20 Corporate Sustainability Forum  was a UN‐sponsored forum comprising private
business, governments, academics and community activists that met in Rio de Janeiro in 2012 to
develop sustainability initiatives.
Shared value  is the policies and operating practices that enhance the competitiveness of a company while
simultaneously advancing the economic and social conditions in the communities in which it operates.
Social justice  is concerned with creating a more just and equitable world.
The Sustainable Development Goals (SDGs)  are 17 goals with 169 targets to be reached by 2030
that include sustainability‐related areas such as sustainable cities and communities, responsible
consumption and production, climate action, life below water and life on land.
Sustainability  is the use of resources to enable society to satisfy current needs, without compromising
the ability of future generations to meet their needs.
Sustainable development  meets the needs of the present without hurting future generations.
The UN Global Compact  provides ‘universal’ guidance to businesses in developing sustainable
practices, and sets some standards in relation to businesses that aim to operate ethically.
Zero emissions  occur when carbon or polluting emissions are reduced and/or offset so that there is no net
addition of emissions that are harmful to the environment or climate, usually by the emitting source.

APPLIED ACTIVITIES
1 What is the three‐pillar definition of sustainable development?
2 Explain the notion of shared value in relation to business sustainability?
3 What are the Sustainable Development Goals and what role have they played in building global
sustainability?
4 Outline the four stages of the incremental model of change towards the sustainable business.
5 What changes could you make in the way that you shop and use energy to contribute to a more
sustainable future?

ENDNOTES
  1. Vaidehi Shah, ‘Turning Grey Water into a Golden Opportunity’, Eco‐Business (27 October 2015), www.eco‐business.com.
 2. ibid.
  3. Nexus eWater, ‘The Home Water and Energy Recycler’, 2015, www.nexusewater.com.
  4. Thomas Singer, Driving Revenue Growth through Sustainable Products and Services, The Conference Board Inc. (June 2015),
www.conference‐board.org.
  5. Thomas N. Gladwin, James J. Kennelly and Tara‐Shelomith Krause, ‘Shifting Paradigms for Sustainable Development:
Implications for Management Theory and Research’, The Academy of Management Review, vol. 20, no. 4 (October 1995),
pp. 874–907.
  6. ‘Elinor Ostrom, Nobel Laureate’, University of Indiana website, http://elinorostrom.indiana.edu.
  7. Paul Shrivastava, ‘The Role of Corporations in Achieving Ecological Sustainability’, The Academy of Management Review,
vol. 20, no. 4 (October 1995), pp. 936–60.
  8. Mrinalini Reddy, ‘CSR: A New Model for Capitalism?’ New Knowledge INSEAD (13 September 2010),
http://knowledge.insead.edu.
  9. This is commonly referred to as the ‘Brundtland’ definition, based on the United Nations Brundtland Commission that
published its report in 1987. See World Commission on Environment and Development, Our Common Future
(Oxford: Oxford University Press, 1987).
10. ‘Sustainable Development in Switzerland’, Swiss Platform for Rio+20 website, http://rio20.ch/en.
11. Dexter Dunphy, Jodie Benveniste, Andrew Griffiths and Philip Sutton (eds), Sustainability: The Corporate Challenge of the
21st Century (Allen & Unwin: St Leonards, NSW, 2000), p. 6.
12. Michael T. Hannan and John Freeman, ‘The Population Ecology of Organizations’, American Journal of Sociology, vol. 82
(1977), pp. 929–64.

170  Management
13. ‘Our Sustainability Journey — Mission Zero’, Interface Global website, www.interfaceglobal.com.
14. ‘Urbanisation’, Macquarie University website, www.es.mq.edu.au.
15. United Nations, Department of Economic and Social Affairs, Population Division (2015). World Urbanization Prospects: The
2014 Revision (ST/ESA/SER.A/366) (July 2015), New York: United Nations.
16. ibid.
17. S. Banerjee, ‘Managerial Perceptions of Corporate Environmentalism: Interpretations from Industry and Strategic Implications
for Organisations’, Journal of Management Studies, vol. 38, no. 4 (2001), pp. 479–513; M. Polansky, ‘Incorporating the Natural
Environment in Corporate Strategy: A Stakeholder Approach’, Journal of Business Strategy, vol. 12, no. 2 (1995), pp. 152–5;
H. Tibbs, ‘Industrial Ecology: An Environmental Agenda for Industry’, Whole Earth Review (September–October 1995), pp. 120–34.
18. Arthur Nelson, ‘Wind Power Generates 140% of Denmark’s Electricity Demand’, The Guardian (10 July 2015),
www.theguardian.com.
19. ‘The Renewable Energy Target (RET) scheme’, Department of the Environment website, www.environment.gov.au.
20. Shell website, www.shell.com; BP website, www.bp.com.
21. Mike Hower, ‘These Companies Want to Make Your Smartphone Truly Smart’, Sustainable Brands (27 January 2015),
www.sustainablebrands.com.
22. PuzzlePhone website, www.puzzlephone.com.
23. Mikael Ricknas, ‘Circular Devices to Reveal More Details about Its Modular PuzzlePhone’, Computerworld (24 August 2015),
www.computerworld.com.
24. Phonebloks website, https://phonebloks.com.
25. Damien Glurco, ‘Sustainable Mining: A Vision for Australia to Lead the World’, The Conversation (29 September 2015),
http://theconversation.com.
26. An in‐depth discussion of this approach to sustainability and an analysis of the latest international research on this topic can
be found in John T. Campling, The Sustainability Revolution: New Business Paradigms for a Globalised Economy (Brisbane:
John Wiley & Sons, 2005).
27. Paul G. Luckman, ‘KiwiGrow — A New Approach to Sustainable Development Reporting’, Australasian Journal of
Environmental Management, vol. 13, no. 4, (2006), pp. 261–71.
28. Geoffrey Wells, Sustainabililty in Australian Business [supplement] (Brisbane: John Wiley & Sons, 2011), p. 14.
29. Andrew Crane and Dirk Matten, Business Ethics, 2nd edn (Oxford: Oxford University Press, 2007), p. 27.
30. ‘Orica: How Not to Deal with a Toxic Leak’, Background Briefing (ABC Radio National), broadcast 12 February 2012;
transcript available at www.abc.net.au.
31. Mitsury Obe and Phred Dvorak, ‘Japan Panel Blames Disaster on Negligence’, The Wall Street Journal (5 July 2012),
http://online.wsj.com.
32. Winifred Bird, ‘As Fukushima Cleanup Begins, Long‐term Impacts are Weighed’, Yale Environment 360 (9 January 2012),
http://e360.yale.edu.
33. John Pickrell, ‘Ten of the Most Polluted Places on the Planet’, ABC Environment (23 July 2012), www.abc.net.au/environment.
34. CDP website, www.cdp.net/en‐US/Pages/HomePage.aspx.
35. ‘About ISO’, International Organization for Standardization website, www.iso.org.
36. For further information on these standards, visit the International Organization for Standardization website, www.iso.org.
37. Anna Zinenko, Maria Rosa Rovira and Ivan Montiel, ‘The Fit of the Social Responsibility Standard ISO26000 within Other
CSR Instruments: Redundant or Complementary?’, Sustainability Accounting, Management and Policy Journal, vol. 6, no. 4
(2015), pp. 498–526.
38. Rio+20 Corporate Sustainability Forum, Summary and Outcomes, Rio De Janeiro, 15–18 June 2012; report available at
www.unglobalcompact.org.
39. UN Global Compact website, www.unglobalcompact.org.
40. ‘The Universal Declaration of Human Rights’, United Nations website, www.un.org/en.
41. ‘ILO Declaration on Fundamental Principles and Rights at Work’, International Labour Organization website,
www.ilo.org/declaration.
42. ‘Agenda 21’, UN Department of Economic and Social Affairs, Division for Sustainable Development website,
www.un.org/esa/dsd/agenda21.
43. ‘United Nations Convention Against Corruption’, United Nations Office on Drugs and Crime website, www.unodc.org/unodc.
44. UN Global Compact website, www.unglobalcompact.org.
45. For further information and illustration of the principles in action, see the UN Global Compact website
www.unglobalcompact.org.
46. ‘Global Compact Principle 7’, UN Global Compact website www.unglobalcompact.org.
47. ‘Global Compact Principle 8’, UN Global Compact website www.unglobalcompact.org.
48. Medilyn Manibo, ‘UNGC Urges Businesses to Press Action Against Corruption’, Eco‐Business (30 June 2014),
www.eco‐business.com.
49. ibid.
50. ‘UN Global Compact and the Sustainable Development Goals’, United Nations Global Compact website,
www.unglobalcompact.org.

CHAPTER 6 Sustainability  171

51. UN Global Compact Office, ‘Architects of a Better World: Building the Post‐2015 Business Engagement Architecture’
(November 2014), www.unglobalcompact.org/docs/about_the_gc/Architecture.pdf.
52. Millennium Development Goals website, www.un.org/millenniumgoals.
53. Achilleas Galatsidas, Finbarr Sheehy, ‘What have the millennium development goals achieved?’, The Guardian
(7th July 2015), www.theguardian.com.
54. United Nations, ‘Goal 7: Ensure Environmental Sustainability’, UN We Can End Poverty: Millennium Development Goals and
Beyond 2015 website, www.un.org/millenniumgoals/environ.shtml.
55. Jeffrey D. Sachs, ‘From Millennium Development Goals to Sustainable Development Goals’, The Lancet, vol. 379, no. 9832, 9
(15 June 2012), pp. 2206–11.
56. United Nations ‘Sustainable Development Goals’, www.un.org/sustainabledevelopment/sustainable‐development‐goals.
57. Tim Smedley, ‘Sustainable Development Goals: What Business Needs to Know’, The Guardian (24 September 2015),
www.theguardian.com.
58. ibid.
59. Rifeald Romauli, Bradley Bowden and Peter Woods, ‘Benefits of Corporate Social Responsibility and Reporting for the
Mining Industry In Indonesia’ (2015), Griffith Business School unpublished paper.
60. Georgia McCafferty and Tom Sater, ‘Indonesian Haze: Why It’s Everyone’s Problem’, CNN (18 September 2015),
http://edition.cnn.com.
61. Arkhelaus Wisnu ‘Former Riau Police Chief Reveals Three Motives for Forest Burning’, Tempo (16 September 2015),
http://en.tempo.co.
62. ‘Palm Oil’, Indonesia Investments website, www.indonesia‐investments.com/business.
63. Karishma Vaswani, ‘Indonesia’s Costly Haze Problem’, BBC News (12 October 2015), www.bbc.com.
64. P. Devereaux Jennings and Paul A. Zandbergen, ‘Ecologically Sustainable Organizations: An Institutional Approach’,
The Academy of Management Review, vol. 20, no. 4 (October 1995), pp. 1015–52.
65. Pratima Bansal, ‘The Corporate Challenges of Sustainable Development’, Academy of Management Perspectives, vol. 16, no. 2
(May 2002), pp. 122–31.
66. Michael Porter and Mark Kramer, ‘Creating Shared Value’, Harvard Business Review, vol. 89, no. 1–2
(January–February 2011), pp. 62–77.
67. ibid.
68. Geoff Lamberton, ‘Sustainable Business Models’ in Gianna Moscardo, Geoff Lamberton and Geoff Wells et. al., Sustainability
in Australian Business (Brisbane: John Wiley & Sons, 2013), pp. 133–60.
69. Paul Dargusch, ‘Understandings of Sustainable Corporate Governance by Australian Managed Investment Schemes and Some
Implications for Small‐Scale Forestry in Australia’, Small‐Scale Forestry, vol. 7, no. 1 (2008), pp. 67–75.
70. R. Russell, N. Haigh and A. Griffiths, ‘Understanding Corporate Sustainability’, in S. Benn and D. Dunphy (eds), Corporate
Governance and Sustainability (London: Routledge, 2007), pp. 36−56.
71. ‘Our Mission is to Accelerate the Transition to a Circular Economy’, Ellen Macarthur Foundation website,
www.ellenmacarthurfoundation.org.
72. ‘Circular Economy Strategy: Closing the loop — An EU action plan for the Circular Economy’, European Commission
website, http://ec.europa.eu/environment/index_en.htm.
73. ibid.
74. Anders Wijkman, ‘Circular Economy Could Bring 70 Percent Cut in Carbon Emissions by 2030’, The Guardian
(15 April 2015), www.theguardian.com.
75. ‘Ethical Consumerism’, IGD website, www.igd.com/Ethical_Consumerism.
76. D. Dunphy, A. Griffiths and S. Benn, Organizational Change for Corporate Sustainability (London: Routledge, 2003).
77. This section has been adapted from Geoffrey Wells, Sustainability in Australian Business [supplement] (Brisbane: John Wiley
& Sons, 2011), pp. 59–60.
78. Global Reporting Initiative website, www.globalreporting.org.
79. ‘Materiality’, G4 Sustainability Reporting Guidelines website, https://g4.globalreporting.org.
80. ‘Materiality’, Nestlé website, www.nestle.com/csv/what‐is‐csv/materiality.
81. ibid.
82. Mediacorp News Group, ‘Channel NewsAsia Sustainability Ranking’, http://sustainability‐ranking.channelnewsasia.com.
83. Probono Australia, ‘Corporate Community’, www.probonoaustralia.com.au/corporate‐community/reports‐research‐publications.
84. ‘Unilever Sustainable Living Plan: Progress Report 2012’, Unilever, www.unilever.co.uk/Images/USLP‐Progress‐Report‐2012‐
FI_tcm28‐352007.pdf.
85. C.K. Prahalad, The Fortune at the Bottom of the Pyramid (Wharton School Publishing, 2004); C.K. Prahalad, and S.L. Hart,
‘The Fortune at the Bottom of the Pyramid’, Strategy+Business, vol. 26, pp. 54–67.
86. Alvin Toffler, The Third Wave (New York: Morrow, 1980).
87. H.E. Maynard and S.E. Mehrtens, The Fourth Wave: Business in the 21st Century (San Francisco: Berrett‐Koehler, 1996).
88. A summary on this event can be found at Overview and Outcomes: Summary Report, UN Global Compact website,
www.unglobalcompact.org.

172  Management
ACKNOWLEDGEMENTS
Photo: © nexus 7 / Shutterstock.com
Photo: © Maxx-Studio / Shutterstock.com
Photo: © AlexLMX / Shutterstock.com
Photo: © CHOKCHAI POOMICHAIYA / Shutterstock.com
Figure 6.2: © From Structural Approaches To Conflict Management in John Schermerhorn et al.,
Management, 4th edn (Hoboken: John Wiley & Sons, 2011).
Table 6.2: © United Nations

CHAPTER 6 Sustainability  173

CHAPTER 7

Information and
decision making
LEA RN IN G OBJE CTIVE S

7.1 How is information technology changing the workplace?

7.2 What are the current directions in information systems?
7.3 How is information used for decision making?
7.4 How do managers make decisions?
7.5 Why are knowledge management and organisational learning important?
Where we are on the road to driverless cars1
Who doesn’t like the idea of getting in your car, sitting back, finishing off your coffee and reading the
paper while the vehicle whisks you to your destination? We’re not quite there yet, but what is available
are technologies and systems that can make the driving experience a little easier and much safer.
Currently, most vehicle manufacturers offer some kind of autonomous driving features, including
automatic parking, forward collision avoidance, adaptive cruise control and lane departure warning.
Those features are either available in their high‐end models or as an option in base models. This kind
of feature availability follows a model that vehicle manufacturers have been using for a very long time.
Take the example of anti‐lock braking systems (ABS) or airbags. These were once only available in
high‐end brands and models but nowadays there aren’t many cars around that don’t come with standard
ABS and airbags. In fact, if you want to score a reasonable Australasian New Car Assessment Program
(ANCAP) safety rating for your vehicle, ABS and airbags are a must.

Destination: autonomy
So when are we likely to see vehicles driving around fully autonomously? There are already some
experimental autonomous vehicles driving around. Google has been advertising the fact that its auton-
omous vehicles have done more than one million miles, with no accidents being the fault of autonomous
systems.
In fact, even before Google, we had the US Defence Advanced Research Projects Agency (DARPA)
issue three Grand Challenges. The first two, in 2004 and 2005, were to race autonomous vehicles across
a desert, and the third, in 2007, was in a simulated urban environment.
We’ve had autonomous vehicle demonstrations and challenges happening for a while, so it’s not the
technology stopping autonomous vehicles from being on our roads. Rather, it’s concerns around integration
and acceptance, both of which require a fair amount of coordination. We need to be able to integrate these
fully autonomous driverless vehicles into traffic that has conventional vehicles. Then there is the issue of
road and weather conditions. We need to implement systems that let vehicles talk to each other and the road
infrastructure to ensure the safe passage of autonomous and non‐autonomous vehicles.
It’s not likely that we will have fully autonomous or driverless vehicles until these sorts of communi-
cation technologies are rolled out over the road network. These Cooperative Intelligent Transport Sys-
tems (C‐ITS) technologies are also being trialled in Australia and internationally, so we should see this
available sooner rather than later.

Getting behind the wheel

There are also issues around legislation. It is currently illegal to drive a car that a human is not controlling.
So the legislation needs to be changed before fully autonomous cars can hit the roads. In South Australia
the state government was one of the first to introduce the changes required for ­autonomous/driverless
vehicles to be able to be driven on our roads legally.
Another issue is around public acceptance. While driverless cars might sound exciting, would you feel
safe in one? And whose fault is it if something goes wrong? If there is an accident, who will the car try
to protect, the occupant or the pedestrians about to be hit?
Autonomous vehicle trials are a good way of getting these vehicles accepted by the public. Flinders
University is looking at trialling an autonomous bus to link its Tonsley and Bedford Park campuses,
which could also provide links to Flinders Medical Centre, Clovelly Park and Tonsley train stations and
Marion shopping centre. The aim of this and other trials should be to gain acceptance of these sorts of
technologies. Given all these integration and acceptance issues, there needs to be a degree of coordi-
nation to ensure that all vehicles are complying and performing in ways we expect.
To this end ARRB Group has taken the lead in starting the Australian Driverless Vehicle Initiative
(ADVI), which has a vision to accelerate the safe and successful introduction of driverless vehicles onto
Australian roads.

CHAPTER 7 Information and decision making  175

 Currently there are about 30 stakeholders that have joined the initiative, including Flinders, in order
to achieve the common vision. ARRB together with the South Australian Government hosted the Inter-
national Conference on Driverless Vehicles in Novemeber 2015, which also saw the first trial of auton-
omous vehicles on the southern expressway in Adelaide.
So within the next 10 to 20 years — which is only a few vehicle model cycles — we should see
changes in laws, implementation of C‐ITS in cars and roads, and many more trials of autonomous
vehicle features and vehicles before we see their widespread uptake on Australian roads.
The last thing we would want is for overseas autonomous/driverless vehicles to come to Australia and
have these features turned off because we don’t have the appropriate integration technologies available
or public acceptance.

Source: Rocco Zito (Flinders University), originally published on The Conversation.

QUESTION
What additional steps can vehicle manufacturers take to convince stakeholders and decision‐makers that
driverless cars are the way of the future?

Introduction
Technology is changing the way we do business. We can source so much information from thousands of
websites: Google helps us find information in a matter of seconds, storing and using information has never
been easier, and we seek new information by attending conferences and training sessions. We send staff
out to bring new information into the organisation. We recruit externally hoping the employee will bring
in the ‘edge’ we are constantly seeking. We expect performance and delivery of information from our
employees — and, yet, a question mark hangs over us all. How are we using this information? How can we
trust this information? How do we value and protect the value of what we know and what we learn? The key
to performance in this world is information, and the way it flows and is used by people in organisations.

176  Management
 Over half a century ago, Peter Drucker coined the phrase knowledge worker. His definition was lim-
iting: professionals who are relatively well educated and who create, modify, and/or synthesise knowl-
edge as a fundamental part of their jobs. Today, the definition encompasses any worker whose effort is
centred around creating, using, sharing and applying knowledge;2 or a worker who transforms infor-
mation into a product or service. With globalisation and the competitive edge that knowledge provides,
the knowledge worker is valued within the organisation. The use of information is focused on achieving
organisational goals, and, as such, adds value to the outcomes.
In this era of information, there is no doubt that intellectual capital is a major source of competitive
advantage. Intellectual capital is knowledge held within the firm that is not known to competitors. It can
be processes, research or innovation that needs to be protected. Patents are one method of protecting
the valuable intellectual capital of a company. Knowledge is an irreplaceable organisational resource,
and the goal should always be to grow and create it. The information from which knowledge is created
increasingly moves at high speed through electronic computer and telecommunication networks that link
each of us to the world at large, with an access and intensity never before possible. Intellectual capital
can include the skills and knowledge that a company has developed about how to make its goods or ser-
vices; individual employees or groups of employees whose knowledge is deemed critical to a company’s
continued success; and the aggregation of documents about processes, customers, research results and
other information that might have value for a competitor that is not common knowledge.
An example of how intellectual capital can be undervalued to the detriment of the organisation lies
in the story of how Edwin Drake started the oil rush with his invention and yet died penniless. In 1858,
Seneca Oil Company asked Edwin Drake to go to Pennsylvania and find ways to extract oil from the
ground. The concept of drilling for oil seemed far‐fetched; until then, the only collection of oil was from
the sources that bubbled to the surface. After many attempts, Drake figured out a way to get a cast‐iron
pipe deep into the earth to successfully bring oil to the surface from 69 feet below. Despite the oil rush,
neither Drake nor Seneca had the business sense to patent the drill. Others copied what Drake had done,
and the boom led to lower prices for all. However, Drake the inventor was left penniless.3

7.1 Information technology and the new workplace

LEARNING OBJECTIVE 7.1 How is information technology changing the workplace?
Progressive organisations are doing all they can to design work settings for high performance in an
environment where ‘speed to market’, ‘quick response’, ‘fast cycle time’ and ‘time‐based competition’
are top priorities. They drive investments in IT that have changed dramatically what most of us still call
the office.

Work and the virtual office

People work at ‘smart’ stations supported by computers that allow sophisticated voice, image, text and
other data‐handling operations. Many of these stations are temporary spaces that telecommuters ‘visit’
during those times when they are in the main office; otherwise they work from virtual offices — on the
road, anywhere. Voice messaging uses the voice recognition capabilities of computers to take dictation,
answer the telephone and relay messages. Databases are easily accessed and shared to solve problems,
and to prepare and analyse reports.
Documents drafted via word processing are stored for later retrieval and/or sent via electronic mail or
facsimile transmission to other people. Filing cabinets are few, and little paper is found. Meeting notes
are written on electronic pads or jotted in palm‐held electronic diaries. All are easily uploaded into com-
puter files. Mail arrives and is routed to its destination via computer, where it is electronically prioritised
according to its importance and linked to relevant databases to speed problem‐solving. Computer con-
ferencing and videoconferencing are commonplace. E‐meetings allow people separated by great dis-
tances — distributed even around the world — to work together on projects every day without meeting
personally face to face.

CHAPTER 7 Information and decision making  177

 There are more developments coming to the networked office every day. Instant messaging —
instan­taneous communication between people online at the same time — isn’t just for friends; it is also
a work facilitator. Peer‐to‐peer file sharing (P2P) — PCs connected directly to one another over the
internet — gained fame as a way for friends to swap music and video files. It is now becoming indispen-
sable as a way for workers to share information and otherwise collaborate ‘peer‐to‐peer’. Network and
drive sharing also assists this process. Progressive organisations are doing all they can to use computers
and information technology to streamline work, improve operating efficiencies and make overall perfor-
mance improvements. Such work settings are designed for high performance in a workplace dominated
by concerns for speed — of decision‐making and action.
Although the internet has made a significant contribution to enhancing the way organisations com-
municate, there are a few drawbacks. Organisations worldwide are losing productivity because employees
are visiting websites not related to their work during work hours. A global internet provider found that
70 per cent of pornography sites are visited between 9 am and 5 pm on working days. Organisations
have to take steps to manage potentially inappropriate email (spam) and internet access, freeing online
resources for use by more appropriate online ‘traffic’.
Internet abuse carries a lot of consequences. Loss of productivity and litigation issues such as sexual
harassment, a hostile work environment and discrimination are a few of the possible outcomes. Many
organisations have chosen to monitor internet access and then deal with the employee directly, which can
limit the liability for the organisation. This is a double‐edged sword, as generation Y employees coming
into the workforce have never been without technology access. In fact, members of this generation have
a reputation for their ability to multi‐task. They can listen to music while on Facebook, simultaneously
instant messaging, while researching and writing an assignment. Controlling their internet access in the
workplace could potentially have a negative affect if productivity is being otherwise achieved.
Fear of missing out (FOMO) is a phenomenon that has started permeating social relationships.
Increasingly, people feel the need to constantly be ‘connected’ through social media platforms such as
Facebook, Twitter and Instagram, making it more difficult to ‘switch off’ or concentrate on more impor-
tant tasks (such as work).4 One solution might be for employers to set their staff a time limit for ‘outside
work’ online activities (such as checking personal emails and engaging in social networking). The key to
effectively regulating internet access is negotiation and communication with employees.

How information technology is changing organisations

Without doubt, the most significant way in which IT is changing organisations today can be summed up
in one sentence: Information technology is breaking down barriers.5 It breaks down barriers by making
communication easy, immediate, inexpensive and important. IT use is breaking down barriers within
organisations and between the organisation and  its  environment. The benefits are important and the
impact far-reaching. It is making the organisations more efficient and effective, and much more competi-
tive in the process.6
Within organisations the increasing use of IT means that individuals and teams, working in different
departments, levels and physical locations, can more easily communicate and electronically share infor-
mation with one another. It also means that the organisation can operate with fewer middle managers,
whose jobs otherwise would be to facilitate these information flows. Instead of people moving infor-
mation among and across levels, computers do the job for them. This means that IT‐intensive organ-
isations are ‘flatter’ and operate with fewer levels than their more traditional organisational counterparts.
It brings them opportunities for competitive advantage in increased speed of decision‐making, use of
better and more timely information for decision‐making, and more coordination of decision‐making and
action among relevant components. It also offers the advantage of increasing flexibility in reconfiguring
operations and organising special projects in response to competitive needs and opportunities.
This is essential when we consider most organisations have some aspect of their business overseas and
communication must be immediate. New communication systems are being created every day. Twitter,

178  Management
largely regarded as one of the most influential technologies of the modern era, was responsible for
facilitating the Arab Spring in the Middle East (the revolutionary wave of demonstrations that occurred
across the Arab world in late 2010 and early 2011). Twitter was created over lunch by two ex‐Google
employees, Evan Williams and Biz Stone. Facebook offered US$500 million for Twitter in 2008, but
Williams and Stone declined the offer.7

GLOBALISATION

The downside of technology and global access

Not all email scams to businesses and homes
are from Nigeria. Such emails usually include
a request for bank details so that they can
deposit money. A so‐called ‘Nigerian’ scam is
a form of upfront payment or money transfer.
They are called Nigerian scams because the
first letters came from Nigeria, but they can
come from anywhere in the world. Increasingly,
as more developing nations around the world
gain access to technology, such emails are
originating in regions closer to home, such as
Asia.
The scammers usually contact you by email
or letter and offer you a share in a large sum
of money that they want to transfer out of their
country. Usually, the money is restricted by
central banks due to civil wars or coups, often in countries you’ve heard of in the news. The email or
letter is usually very polite, but in broken English. The following email, which originated in Malaysia,
is about massive inheritances that are supposedly unclaimed.

I am Mr. Davies Abraham the director of Accounts & auditing dept (CIMB Bank Group Malaysia) With due
respect, I have decided to contact you on a business transaction that will be beneficial to both of us and
our family. At the bank’s last accounts/auditing evaluations, my staffs came across an old account which
was being maintained by a foreign client who we learn was among the deceased passengers of motor acci-
dent on (November 2003) the deceased was unable to run this account since his death.
  The account has remained dormant without the knowledge of his family since it was put in a safe deposit
account in the bank for future investment by the client and we have tried to contact the details of the next
of the kin but our effort is in vain so CIMB Bank gathered that every body in the family died in the Accident.

The recipient is asked to pay money or give the sender bank account details to help them transfer
the  money. They are then asked to pay fees, charges or taxes to help release or transfer the money
out of the country through their bank. These ‘fees’ may even start out as quite small amounts. If paid,
the scammer will make up new fees that require payment before they can send the ‘reward’. They will
keep making up these excuses until they think they have got all the money they can.8

QUESTION
What decisions can businesses make to ensure that their communication with overseas suppliers is
legitimate?

The best organisations also take advantage of IT in managing their relationships with key elements in
the external environment. IT plays an important role in customer relationship management by quickly
and accurately providing information for decision‐makers regarding customer needs, preferences and
satisfaction. IT helps manage and control costs in all aspects of the supply chain from initiation of pur-
chase to logistics and transportation to point of delivery and ultimate use. IT also helps build and manage
relationships with strategic partners. It enables business contracts to be continuously maintained and
efficiently fulfilled regardless of physical location. Figure 7.1 shows how IT is breaking down barriers.

CHAPTER 7 Information and decision making  179

 People, teams and Organisations are
departments are better flatter as IT replaces
connected by IT management levels

IT
Suppliers breaks Customers
barriers

Supply chain Customer relationship

management management is
is improved by Strategic improved by
IT connections partners IT connections

More things are done by

outsourcing and
partnerships using IT

FIGURE 7.1 Information technology is breaking down barriers and changing organisations

SAI Global’s business excellence framework is an integrated information and knowledge model
focusing on leadership and management. Each element in this model is essential to sustainable organ-
isational excellence.9 Information and knowledge are boundaryless in order to assist with decision‐
making, facilitate process improvement and promote innovation, and, conversely, if communication
channels are closed or information and knowledge is restricted in an organisation, then long‐term organ-
isational performance is likely to be hindered.10

How information technology is changing business

One of the most significant business developments of all time is electronic commerce, or ‘e‐commerce’. This
is the process of buying and selling goods and services electronically through use of the internet and related
information technologies.11 Business transactions between buyers and sellers are completed online rather
than face to face. In business‐to‐consumer e‐commerce, or B2C, businesses like Amazon.com and Dell.com
sell directly to customers over the internet. In business‐to‐business e‐commerce, or B2B, businesses use the
internet to collaborate and make transactions with one another. E‐collaboration can build positive e‐futures.
The stages of development in e‐commerce are as follows.
1. Secure an online identity. Organisations at this stage have a web address and most likely a posted
home page.
2. Establish a web presence. Organisations at this stage use their home page for advertising or pro-
motional purposes; it offers company and/or product information, but does not allow visitors online
queries or ordering.
3. Enable e‐commerce. Organisations at this stage are viable e‐commerce businesses whose websites
allow visitors to order products online.
4. Provide e‐commerce and customer relationship management. Organisations at this stage use their
websites to develop and maintain relationships with customers by serving key processes, such as
checking status of orders or inventory levels online.
5. Use a service application model. Organisations at this stage use advanced website capabilities to fully
serve business functions and processes such as financial management and human resources.12

180  Management
 The domain of electronic commerce is developing rapidly, and it is one of the forces of globalisation
that opens the world at large to competition and business opportunity. An emerging force in Australasia
and Europe that is making a major worldwide impact is known as m‐commerce — the use of mobile
phones to act as electronic wallets that allow users to perform banking transactions, purchase goods and
services, and pay bills. For example, CommBank Kaching is a revolutionary iPhone app that allows
users to do their banking on the go, and even transfer funds directly to their Facebook friends.13

CRITICAL ANALYSIS

1. It seems today that all retailers have an online presence that encourages point of sale purchasing.
Many stores have reduced expensive floor space. How do you see this affecting future development
of the IT online environment?
2. Is technology forecasting important or a futile exercise given the rapid pace of development? Justify
your answer.

7.2 Information and information systems

LEARNING OBJECTIVE 7.2 What are the current directions in information systems?
Data are any quantifiable measured values, observations or statistical counts that have little value on
their own but, when collated into information through any form of information system (electronic or
otherwise), become useful for decision‐making. People in any work setting, large or small, must have
available to them the right information at the right time and in the right place if they are to perform
effectively. This is made possible by information systems that use the latest in information technology
to collect, organise and distribute data in such a way that they become meaningful as information. The
integration of information systems is an essential element of high productivity.

What is useful information?

IT and the information systems that support work and decision‐making in organisations must provide
information that is truly useful. The five essential characteristics of useful information are as follows.
1. Timeliness. The information is available when needed; it meets deadlines for decision‐making and
action.
2. Quality. The information is accurate and reliable; it can be used with confidence.
3. Completeness. The information is complete and sufficient for the task at hand; it is as current and as
up to date as possible.
4. Relevance. The information is appropriate for the task at hand; it is free from extraneous or irrelevant
material.
5. Understandability. The information is presented in proper form, easily understood by the user; it is free
from unnecessary detail; and the scope of the collected information is neither too narrow nor too broad.

Information needs of organisations

The availability of advanced IT has made information more readily available and useful than ever before.
This information serves the variety of needs described in figure 7.2. At the organisation’s boundaries,
information in the external environment must be accessed and used to successfully manage relationships
with key stakeholders. Managers need this intelligence information to deal effectively with such outside
parties as competitors, government agencies, creditors, suppliers and shareholders. As Peter Drucker
says about the information age, ‘a winning strategy will require information about events and conditions
outside the institution’. He goes on to add that organisations must have ‘rigorous methods for gathering
and analysing outside information’.14

CHAPTER 7 Information and decision making  181

 Many organisations use ‘mystery shoppers’ to gain feedback on service; survey clients to ensure ser-
vices are relevant; send employees to networking events; and encourage study at university to bring new
knowledge into the organisation. Networking is invariably listed as a necessary skill and quality for perfor-
mance management and recruitment and selection. In addition to the gathering of intelligence information,
organisations also provide to the external environment many types of public information. This serves a var-
iety of purposes ranging from image building to product advertising to financial reporting for taxes.
Within organisations, people need vast amounts of information to make decisions and solve problems
in their daily work. These vertical and horizontal information flows are also shown in figure 7.2. Higher
level managers tend to emphasise information use in strategic planning, whereas middle and lower man-
agers focus more on operational considerations involving the implementation of these plans. The infor-
mation needs of workers centre on accomplishing tasks. This involves gathering, storing, sharing and
using information to solve operating problems in order to best meet the needs of internal and external
customers. Organisations that are best able to facilitate the fast and easy sharing of information inter-
nally are well positioned for competitive advantage.

Intelligence information Public information

is gathered from the is disseminated to the
external environment external environment
Top
managers
formulate strategy,
policies, long-term
plans and objectives;
make strategic decisions

Middle managers
formulate operational plans and objectives
to implement strategy; make operational decisions

First-level managers
implement operational plans and objectives; make
short-term decisions; transact day-to-day business operations

Information flows vertically and horizontally within an organisation

to facilitate problem-solving and decision-making.

FIGURE 7.2 External and internal information needs of organisations

One of the greatest advantages of IT use within organisations is its contribution to empowerment. The
ability to gather and move information quickly, and from top to bottom, allows top levels to stay in control
while freeing lower levels to make speedy decisions and take the actions they need to best perform their
jobs. This helps build competitive and customer — responsive organisations. Voice, video and data traffic,
the internet and internet commerce, and telecommuting are some of the factors driving today’s growth of
networking. These things are priorities for Cisco Systems. Silicon Valley pioneer and Cisco Systems CEO
John Chambers, for example, points out that he always has the information he needs to be in control from
the top — be it earnings, expenses, profitability, gross margins or anything else. He also says:

Because I have my data in that format, every one of my employees can make decisions that might have
had to come all the way to the president  .  .  .  Quicker decision‐making at lower levels will translate into
higher profit margins  .  .  .  Companies that don’t do that will be non‐competitive.15

182  Management
 However, some aspects of IT are overtaking work–life balance. Emails carry an expectation of
immediate response and workers find themselves expected to check emails even when they are not
working or when they are on holidays. Volkswagen AG has stopped its BlackBerry servers from routing
emails when employees are not at work. This applies to all union members in Germany, but senior
management is exempt. Some companies are declaring ‘no email’ periods during holidays. Paris‐based
IT services company Atos SA is considering banning the internal use of email altogether.16

Developments in information systems

You will encounter many types of information systems in your career. At times you may be the designer
of a new system and you may serve on an information steering committee, but you will always be an
end user. In this sense, your task will be to use information systems well to make good decisions, to
master the performance requirements of complex projects, and more generally to contribute regularly
to enhanced organisational productivity. As you look ahead, keep in mind the advice in Manager’s
notepad 7.1.

MANAGER’S NOTEPAD 7.1

Avoiding common information systems mistakes

• Don’t assume more information is always better.
• Don’t assume that computers eliminate human judgement.
• Don’t assume the newest technology is always best.
• Don’t assume nothing will ever go wrong with your computer.
• Don’t assume that everyone understands how the system works.
• Don’t accept all internet sources as valid information.
• Do ensure you follow internet policies.
• Do ensure you follow email etiquette policies.

Decision support systems

A decision support system (DSS) allows users to interact directly with a computer to organise and
analyse data for solving complex and sometimes unstructured problems. Decision support systems are
now available to help with such business decisions as mergers and acquisitions, plant expansions, new
product developments and share portfolio management, among many others.
A fast‐growing technology involves group decision support systems (GDSSs), which are inter-
active computer‐based information systems that facilitate group efforts to solve complex and unstruc-
tured problems. GDSS software, called groupware, allows several people to simultaneously work on
a file or database and work together on computer networks. It facilitates information exchange, group
decision‐making, work scheduling and other forms of group activity without the requirement of
face‐to‐face meetings. Groupware is especially useful in facilitating work by team members who work
different shifts or are spread over large geographic distances, even globally. The willingness and skills
needed to participate effectively in these virtual teams are increasingly essential in the workplace.

Expert systems
Another developing area of information technology is artificial intelligence (AI), a field of study that is
concerned with building computer systems with the capacity to reason the way people do, even to the
point of dealing with ambiguities and difficult issues of judgement. These expert systems mimic the
thinking of human experts and, in so doing, offer consistent and ‘expert’ decision‐making advice to
the user. Some expert systems are rule‐based and use a complicated set of ‘if  .  .  .  then’ rules to analyse
problems. These rules are determined by specialists who work with actual human experts in a certain

CHAPTER 7 Information and decision making  183

problem area and then build their problem‐solving rules into a computer program. One complaint about
the technology is that the use of expert systems ‘de‐skills’ work by requiring the employee to know less
because the computer does more.17 Advocates, however, point out that expert systems make it easier to
concentrate your attention and problem‐solving skills on the more complex matters.
Intranets and extranets
Central to the electronic office is the integration of computers and software into networks that allow
users to easily transfer and share information through computer‐to‐computer linkages. It is now very
common for organisations to have intranets and corporate portals that allow employees, by password
access, to share databases and communicate electronically, from anywhere in the world. These networks
of computers use special software to allow people working in various locations for the same organisation
to share databases and communicate electronically. The goal is to promote more integration across the
organisation and improve operational efficiency and quality.
A related trend is the emergence of fully integrated extranets and enterprise portals that allow com-
munication and data sharing between the organisation and special elements in its external environment.
They typically link organisations with strategic partners, vendors, outsourcers, suppliers and consultants.
An important and rapidly expanding development in this area is called electronic data interchange, or
EDI. It uses controlled access to enterprise portals and supporting software to enable firms to transact
business electronically with one another; for example, by sharing purchase orders, bills, receipt confir-
mations and payments. The goals of EDI include improved transaction speed and cost savings.18
Purchase orders, purchase order responses, purchase order changes, advance shipping notices and
electronic invoices are all part of Woolworths’ EDI. The organisation believes that the potential ben-
efits of having EDI include reduced manual intervention, reduced duplication and general process
automation. Other companies have seen decreased costs by introducing EDI to establish ‘just‐in‐time’
inventory systems.

TECHNOLOGY

How earning the right to an opinion on the internet makes it that

much more valuable19
Of all of the things that people do online, the
act of offering an opinion is not only one of
the most popular activities, it also underpins
almost everything else that happens. Sharing
opinions is also the foundation for creating
communities, whether that is around blogs,
news, social networks or e‐commerce sites.
Very early on, some sites recognised that
opinions would carry much more weight if
there was some way of increasing the level of
trust between those offering the opinion and
those seeking it. In the ‘real’ world, this is nor-
mally done through a person having earned a
reputation. Review sites like Yelp, for example,
signal the reputation of reviewers by listing the number of connections they have on the site, how many
reviews they have done and, most importantly, whether they have earned an ‘elite’ status.
Technological question and answer site Stack Overflow explicitly awards reputation points to those
asking or answering questions that get ‘upvoted’. Only people with a certain reputation are allowed to
upvote and so the system allows people to very quickly filter relevant questions and the answer that
the most trustworthy people thought was best. What Stack Overflow has done is establish an extremely
effective ‘reputation system’ that allows everyone to be able to quickly assess the quality of an opinion
or review expressed by users of that site.

184  Management
 Sites like eBay used the mutual rating of buyers and sellers to establish enough trust to enable trans-
actions to happen between unknown people online. This in turn allowed companies like Airbnb and Uber
to also be able to establish trust in the physical world through reputations managed online. Without
trust between a host and guest, Airbnb would not be able to function. Reputation on Airbnb comes from
the company allowing host and guest to review each other and for this information to be publicly available.
For a host wanting to succeed in renting out a property, having positive reviews is important, but
perhaps less obviously it is also important for a guest who is interested in using the service on an
ongoing basis to maintain their own high rating. Having the guests being reviewed not only improves
their chances of being trusted by hosts, but it enhances the reputation of their reviews, making them of
more value to other hosts and guests alike. Airbnb could have implemented a simple one-way review
system, and even allowed anonymous reviews. What Airbnb would have lost, however, is the mutual
interest that is created by the public review of both hosts and guests and as a result of that, also lost the
social network, or community it has built around its company.
The principle works in the same way for ride sharing company Uber, where drivers and passengers
give each other mutual ratings. As with Airbnb, the mutual ratings have forged a community and also
helped to maintain high levels of good behaviour on the part of the riders and ‘drivers’.
It turns out that the ability to create a community of users in this way is an essential characteristic of
companies that have been dubbed ‘network orchestrators’. When researchers compared this type of
company to traditional technology and other service or manufacturing companies, they found that they
made much larger revenues and were valued significantly more highly. Uber, for example, is valued at a
massive US$50 billion.
A common problem encountered in establishing reputation is how to avoid manipulation and gaming
of the system. Concerns have been expressed, for example, that the pressure to rate an Uber driver
with a 5 star rating has led to the rating being meaningless. This doesn’t seem to have been borne out
in practice, however, and Uber will (and does) intercede with drivers whose ratings drop below a certain
level, suggesting that riders are prepared to give less than perfect ratings.
If mutual rating enables an effective system of establishing reputation and increases the value of
opinion, the reverse is also true. Not establishing the reputation of those people giving opinions render
those views far less valuable.
Asking people to rate medical services, universities and academics without qualifying those giving
opinions makes the overall ratings provided much less meaningful. For students rating a university, for
example, there is a big difference between the opinion of a student who scraped through and didn’t
attend regularly and that of a high-performing student who had perfect attendance.
The ratings in these types of surveys also suffer even more when they are done anonymously, which
can encourage the transition from constructive opinion to trolling.
In the physical world, there are a range of cues that help establish trust in both people and organisations.
This trust, in turn, forms social capital, which has an implicit value. As the basis of online reputation systems,
mutual rating takes the idea of social capital one step further by surfacing its explicit value through the com-
munities it enables. For those companies that manage to create these online communities, it really has
proved to be the digital ‘philosopher’s stone’, turning social capital into huge financial gains.
Source: David Glance (University of Western Australia), originally published on The Conversation.

QUESTION
How can opinion and review sites leverage the information they receive from consumers by sharing with
companies, while maintaining ethical responsibility?

Information systems and the manager’s job

Specific to the management context, a management information system (MIS) is designed to use infor-
mation technology to meet the information needs of managers as they make a variety of decisions on a
day‐to‐day basis. For example, a long‐haul refrigerated trucking company might use a computerised MIS
to monitor organisational performance. The system could track everything from billing accuracy to arrival
times to driver satisfaction with company maintenance on their vehicles. Pay bonuses and extra annual leave
days could be awarded based on driver performance on such goals as safety and fuel consumption.20

CHAPTER 7 Information and decision making  185

 All of the vital managerial roles identified by Henry Mintzberg and discussed in chapter 1 involve
communication and information processing.21 To be effective, any manager must act as a nerve centre
of information flows — gathering, giving and receiving information from many sources (see figure 7.3).

Decisional roles
Information used for
entrepreneurship, resource
allocation, disturbance
Information handling and negotiation Computer
technology literacy

Manager as
information
processing
Informational ‘nerve centre’ Interpersonal
roles roles
Information sought, Information used
received and for ceremonies,
transferred among motivation and
insiders and networking
outsiders

Information
literacy

FIGURE 7.3 Information systems and the nature of managerial work

Today’s developments in IT support all aspects of the management process, making possible performance
levels that are truly extraordinary. Among the advantages of appropriate MIS use in the manager’s job are
as follows.
•• Planning advantages. MIS use allows for better and more timely access to useful information, as well
as for the involvement of many people in the planning process.
•• Organising advantages. MIS use allows for more ongoing and informed communication  among all
parts of the organisation, helping ensure better coordination and integration.
•• Leading advantages. MIS use allows for better and more frequent communication with all organisation
members and key environmental stakeholders.
•• Controlling advantages. MIS use allows for more immediate and complete measurement of
performance results and real‐time solutions to performance problems.

CRITICAL ANALYSIS

1. Do IT systems potentially demand too much from non‐IT staff? Are we being deskilled in other areas such
as creative thinking and group work, by sitting alone at terminals all day — and seemingly all night?
2. Are our human ‘soft skills’ keeping pace with our technological developments? For example, have
we adapted social discourse to our Skype use, and our marketing and other workplace behaviour
to social networking and blogging? What difference do ‘soft skills’ make in an organisation?
3. A website is often the only ‘front door’ of a business, and the MIS provides a constant stream of
information. Should IT planning be a fundamental management task?
4. Are the benefits of MIS generally exploited to the full extent in contemporary organisations? Why or
why not?

186  Management
7.3 Information and decision making
LEARNING OBJECTIVE 7.3 How is information used for decision making?
Information sets the foundations for management and organisational success. The work of managers can
be described as engaging in planning, organising, leading and controlling in the process of solving a
continuous stream of daily problems. The most obvious problem situation is a performance deficiency —
that is, when actual performance is less than desired. For example, a manager faces a possible problem
when turnover or absenteeism suddenly increases in the work unit, when a subordinate’s daily output
decreases, or when a higher executive complains about something that has been said or done. However,
another important problem emerges as a performance opportunity when an actual situation either turns
out better than expected or offers the potential to do so. The challenge in dealing with a performance
deficiency or performance opportunity is to proceed with effective problem‐solving — the process of
identifying a discrepancy between an actual and desired state of affairs and then taking action to resolve
the deficiency or take advantage of the opportunity.
The entire problem‐solving process depends on the right information being available to the right
people at the right times so that they can make good problem‐solving decisions. A decision, to be pre-
cise, is a choice between alternative courses of action. The process of decision‐making is driven in part
by the quality of information available. Information systems help managers to gather data, turn them into
useful information, and use that information to make effective problem‐solving decisions.

Types of managerial decisions

Managers resolve problems by making different types of decisions in their day‐to‐day work. Some are
programmed decisions — that is, solutions already available from past experience to solve problems
that are familiar, straightforward and clear with respect to information needs. These decisions apply best
to problems that are matters of routine; although perhaps not predictable, they can at least be anticipated.
This means that decisions can be planned or programmed in advance, to be implemented as needed.
In human resource management, for example, problems are common whenever decisions are made on
pay rises and promotions, leave requests, committee assignments and the like. Knowing this, forward‐
looking managers plan ahead on how to make decisions on such issues when and if they should arise.
Managers must also deal with new or unexpected situations that present unstructured problems full
of ambiguities and information deficiencies. These problems are typically unanticipated and must be
dealt with as they occur. Unstructured problems require non‐programmed decisions that craft novel
solutions to meet the demands of the unique situation at hand. Most problems faced by higher level man-
agers are of this type, with the problems often involving choice of strategies and objectives in situations
of some uncertainty.
An extreme type of non‐programmed decision must be made in times of crisis — the occurrence of
an unexpected problem that can lead to disaster if not resolved quickly and appropriately. The growing
dependence of organisations on technology raises many such opportunities. Any organisation main-
taining a website, for example, may face occasional crisis shutdowns because of server failures. Hacker
attacks on websites are also increasingly common, as firms such as Microsoft, eBay and Amazon know
only too well.22
The ability to handle crises may be the ultimate test of a manager’s problem‐solving capabilities.
Unfortunately, research indicates that managers may react to crises by isolating themselves and trying
to solve the problem alone or in a small ‘closed’ group.23 This tendency actually denies them access
to crucial information and assistance at the very time they are most needed. The crisis may even be
accentuated if more problems are created because critical decisions are made with poor or inadequate
information and from a limited perspective. Managers in progressive organisations expect that crises will
occur and plan ahead on how to deal with them. Consider growing concerns about workplace bullying in
Australia and New Zealand. Safe Work Australia and the Occupational Safety and Health Service of the

CHAPTER 7 Information and decision making  187

Department of Labour, New Zealand, offer guidelines for employers in each respective country on how
to recognise situations that are prone to violence and how to prepare for such crises.
Some managers fail to notice what is happening in their organisation. They are in touch only through
their keyboard, and this makes them out of touch with the real world. They risk seeking information that
satisfies breadth and not depth. Mintzberg says that research shows that we may have more connections
today, but fewer relationships.24 Facebook and LinkedIn can never replace community or replace the
personal interactions at the heart of managing effectively. Managers may miss the meaning completely
by relying on email rather than talking to staff in person, as email does not convey impressions and body
language.

Decision conditions
People in organisations make decisions under each of the three conditions described in figure 7.4 —
environments of certainty, risk and uncertainty. Although managers make decisions in each environment,
the conditions of risk and uncertainty are common at higher management levels where problems are
more complex and unstructured.

Certain environment Risk environment Uncertain environment

Alternative courses of action Decision maker views alternatives Decision maker doesn’t know
and their outcomes are known and their outcomes in terms all alternatives and outcomes,
to decision maker of probabilities even as probabilities

0.7 0.4
Alternative 1 Outcome A Alternative 1 Outcome A Alternative 1 Outcome A
0.5 ?
Problem Alternative 2 Outcome B Problem Alternative 2 Outcome B Problem Alternative 2 Outcome ?
0.2
Alternative 3 Outcome C Alternative 3 Outcome C Alternative ?

FIGURE 7.4 Three environments for managerial decision‐making and problem‐solving

In a certain environment, one where sufficient information is available about possible alternative
courses of action and their outcomes, decision‐making is generally less risky and more predictable. This
is an ideal decision‐making environment condition where the task is simply to study the alternatives and
choose the best solution.
Very few managerial problems occur in certain environments, but steps can sometimes be taken to
reduce uncertainty. Even in a risk environment, one where information on action alternatives and their
consequences is incomplete, some reliable estimates of ‘probabilities’ may be able to be made. A prob-
ability, in turn, is the degree of likelihood (e.g. four chances out of ten) that an event will occur. Risk is
a common decision condition for managers. It is especially typical for entrepreneurs and organisations
that depend on ideas and continued innovation for their success.
When information is so poor that managers are unable even to assign probabilities to the likely
outcomes of alternatives that are known, an uncertain environment exists. This is the most difficult
decision condition.25 The high level of uncertainty forces managers to rely heavily on creativity in
solving problems; it requires unique, novel and often totally innovative alternatives to existing patterns
of behaviour. Groups are often used for problem‐solving in such situations. In all cases, the responses
to uncertainty depend greatly on intuition, judgement, informed guessing and hunches — all of which
leave considerable room for error.

How managers approach decisions

In practice, people display three quite different approaches or ‘styles’ in the way they deal with problem
situations. Some are problem avoiders who ignore information that would otherwise signal the pres-
ence of an opportunity or performance deficiency. Such people are inactive and do not want to make

188  Management
decisions and deal with problems. Problem solvers, in contrast, are willing to make decisions and try to
solve problems, but only when forced to by the situation. They are reactive in gathering information and
responding to problems after they occur. As a result they may deal reasonably well with performance
deficiencies, but they miss many performance opportunities. Problem seekers actively process infor-
mation and constantly look for problems to solve or opportunities to explore. True problem seekers are
proactive and forward thinking; they anticipate problems and opportunities and take appropriate action
to gain the advantage. Success at problem seeking is one of the ways exceptional managers distinguish
themselves.
Another distinction in the way managers approach decisions contrasts tendencies towards ‘systematic’
and ‘intuitive’ thinking. In systematic thinking a person approaches problems in a rational, step‐by‐step
and analytical fashion. This type of thinking involves breaking a complex problem into smaller com-
ponents and then tackling them in a logical and integrated fashion. Managers who are systematic can be
expected to make a plan before taking action and then to search for information to facilitate problem‐
solving in a step‐by‐step fashion.
Someone using intuitive thinking, on the other hand, is more flexible and spontaneous and may also
be quite creative.26 This type of thinking allows us to respond imaginatively to a problem based on a
quick and broad evaluation of the situation and the possible alternative courses of action. Managers
who are intuitive can be expected to deal with many aspects of a problem at once, jump quickly from
one issue to another and consider ‘hunches’ based on experience or spontaneous ideas. This approach
tends to work best in situations of high uncertainty where facts are limited and few decision precedents
exist.27
Managers should feel confident in approaching decisions from the perspectives of both systematic
and intuitive thinking. Senior managers, in particular, must deal with portfolios of problems and oppor-
tunities that consist of multiple and interrelated issues. This requires multidimensional thinking, or the
ability to view many problems at once, in relationship to one another and across long and short time
horizons.28 The best managers also ‘map’ multiple problems into a network that can be actively man-
aged over time as priorities, events and demands continuously change. And importantly, they are able
to make decisions and take actions in the short term that benefit longer term objectives. It is important
not to be sidetracked from long‐term goals while making decisions and sorting through a shifting mix
of daily problems. Somehow a consistent long‐term direction must be retained, even as each short‐term
problem is being resolved. This requires skill in strategic opportunism — the ability to remain focused
on long‐term objectives while being flexible enough to resolve short‐term problems and opportunities in
a timely manner.29

CRITICAL ANALYSIS

1. What are the psychological impediments to good decision‐making? Given the availability of copious
information, why do good people sometimes still make bad decisions?
2. Can intuition really be a legitimate basis for decision‐making? Why or why not? Use examples to
justify your answer.

7.4 The decision‐making process

LEARNING OBJECTIVE 7.4 How do managers make decisions?
The specific act of decision making involves making a choice between alternative courses of action.
However, the decision‐making process involves a cycle of activities and events that begins with identi-
fication of a problem and ends with the evaluation of implemented solutions.30

CHAPTER 7 Information and decision making  189

Steps in decision making
The common steps in a rational approach to decision making are described in figure 7.5. They are:
(1) identify and define the problem; (2) generate and evaluate possible solutions; (3) choose a preferred
solution and conduct the ‘ethics double‐check’; (4) implement the solution; and (5) evaluate results.
Importantly, step 3 in this model includes a built‐in ‘checkpoint’ as a way to verify the ethical aspects of
a decision before any action is taken.

Step 1 Step 2 Step 3 Step 4 Step 5

Generate and Select preferred
Find and define evaluate solution and Implement Evaluate
the problem alternative conduct ethics the solution results
solutions double-check

Recycle process
as necessary

FIGURE 7.5 Steps in decision making and problem solving

Decision making step 1: Identify and define the problem

The first step in decision making is to find and define the problem. This is a stage of information gath-
ering, information processing and deliberation.31
The way a problem is originally defined can have a major impact on how it is eventually
resolved. Three common mistakes may occur at this vital first step in decision‐making. Mistake
number 1 is defining the problem too broadly or too narrowly. To take a classic example, the problem
stated as ‘build a better mousetrap’ might be better defined as ‘get rid of the mice’. That is, man-
agers should define problems so as to give themselves the best possible range of problem‐solving
options. Mistake number 2 is focusing on symptoms instead of causes. Symptoms are indicators that
problems may exist, but they shouldn’t be mistaken for the problems themselves. Managers should
be able to spot problem symptoms (e.g. a drop in performance). But instead of treating the symp-
toms (such as simply encouraging higher performance), managers should deal with their root causes
(such as discovering the workers’ need for training in the use of a complex new computer system).
Mistake number 3 is choosing the wrong problem to deal with. Managers should set priorities and
deal with the most important problems first. They should also give priority to problems that are truly
solvable.

Decision making step 2: Generate and evaluate possible solutions

Once the problem is defined, it is possible to formulate one or several potential solutions. At this stage,
more information is gathered, data are analysed, and the pros and cons of possible alternative courses
of action are identified. This effort to locate, clarify and evaluate alternative solutions is important to
successful problem‐solving. The involvement of other people is vital here in order to maximise infor-
mation and build commitment. The end result can only be as good as the quality of the alternative
solutions generated in this  step. The better the pool of alternatives, the more likely a good solution
will be achieved.
Common errors in this stage include selecting a particular solution too quickly and choosing an alter-
native that, although convenient, has damaging side effects or is not as good as others that might be
discovered with extra effort. The analysis of alternatives should determine how well each possible course
of action deals with the problem while taking into account the environment within which the problem

190  Management
exists. A very basic evaluation involves cost–benefit analysis, the comparison of the cost of an alter-
native and the expected benefits. At a minimum, the benefits of a chosen alternative should be greater
than its costs. Typical criteria for evaluating alternatives include the following.
•• Benefits. What are the ‘benefits’ of using the alternative to solve a performance deficiency or take
advantage of an opportunity?
•• Costs. What are the ‘costs’ of implementing the alternative, including resource investments as well as
potential negative side effects?
•• Timeliness. How fast will the benefits occur and a positive impact be achieved?
•• Acceptability. To what extent will the alternative be accepted and supported by those who must work
with it?
•• Ethical soundness. How well does the alternative meet acceptable ethical criteria in the eyes of the
various stakeholders?

Decision making step 3: Choose a solution

At this point in the decision‐making process an actual decision is made to select a particular
course of action. Just how this is done and by whom must be successfully resolved in each
problem situation. Management theory recognises differences between the classical model
and the behavioural model of decision‐making, as shown in figure 7.6. The classical  decision
model views the manager as acting in a certain world. Here, the manager faces a clearly defined
problem and knows all possible action alternatives as well as their consequences. As a result,
he or she makes an optimising decision that gives the absolute best solution to the problem.
The classical approach is a very rational model that assumes perfect information is available for
decision‐making.

Classical model Behavioural model Judgemental heuristics

Views manager as acting with Views manager as having approach
complete information in a certain cognitive limitations and acting Heuristics are adopted to simplify
environment with incomplete information in risk managerial decision-making
and uncertain environments
● Clearly defined problem ● Problem not clearly defined Decisions are influenced by:
● Knowledge of all possible ● Knowledge is limited on ● Information readily available in
alternatives and their possible alternatives and their memory — the availability
consequences consequences heuristic
● Optimising decision — ● Satisficing decision — ● Comparisons with similar
choice of the ‘optimum’ choices of ‘satisfactory’ circumstances — the
alternative alternative representativeness heuristic
● Current situation — the
anchoring and adjustment
heuristic

FIGURE 7.6 Classical, behavioural and judgemental heuristics approaches in decision‐making

Behavioural scientists question these assumptions. Perhaps best represented by the work of
Herbert Simon, they recognise the existence of cognitive limitations, or limits to our human
information‐processing capabilities.32 These limitations make it hard for managers to be fully
informed and make perfectly rational decisions. They create a bounded rationality such that
managerial decisions are rational only within the boundaries defined by the available information.
The administrative or behavioural decision model, accordingly, assumes that people act only in
terms of what they perceive about a given situation. Because such perceptions are often imperfect,
the decision maker has only partial knowledge about the available action alternatives and their

CHAPTER 7 Information and decision making  191

consequences. So the first alternative that appears to give a satisfactory resolution of the problem
is likely to be chosen. Simon, who won a Nobel Prize for his work, calls this the tendency towards
satisficing decisions — choosing the first satisfactory alternative that comes to your attention. This
model seems especially accurate in describing how people make decisions about ambiguous prob-
lems in risky and uncertain conditions.
Decision making step 4: Implement the solution
Given the choice of preferred solution, appropriate actions must be taken to fully implement it. This
is the stage at which directions are finally set and problem‐solving actions are initiated. Nothing
new can or will happen according to plan unless action is taken. Managers not only need the
determination and creativity to arrive at a decision, they also need the ability and willingness to
implement it.
The ‘ways’ in which previous steps have been accomplished can have an additional and powerful
impact at this stage of implementation. Difficulties at this stage often trace to the lack‐of‐participation
error, or the failure to adequately involve those people whose support is necessary to ensure a deci-
sion’s complete implementation. Managers who use participation wisely get the right people involved
in decisions and problem‐solving from the beginning. When they do, implementation typically follows
quickly, smoothly and to everyone’s satisfaction. Involvement not only makes everyone better informed,
it also builds the commitments needed for implementation.
Decision making step 5: Evaluate results
The decision‐making process is not complete until results are evaluated. If the desired results are not
achieved, the process must be renewed to allow for corrective actions. In this sense, evaluation is a
form of managerial control. It involves a continuing commitment to gather information on performance
results. Both the positive and negative consequences of the chosen course of action should be examined.
If the original solution appears inadequate, a return to earlier steps in problem‐solving may be required
to generate a modified or new solution. In this way, problem‐solving becomes a dynamic and ongoing
activity within the management process. Evaluation is also made easier if the solution involves clear
objectives that include measurable targets and timetables.

Behavioural influences on decision making

The manager’s decision‐making world is most often imperfect, subject to the influences of cognitive
limitations, risk and uncertainty. As a result, the behavioural model is more common in decision‐
making practice than the rational model. Faced with complex environments, limited information and
cognitive limitations, people also tend to use simplifying strategies for decision‐making. These strat-
egies, shown in figure 7.6, are called heuristics, and their use can cause decision errors. An aware-
ness of judgemental heuristics and their potential biases can help improve your decision‐making
capabilities.33
The availability heuristic occurs when people use information ‘readily available’ from memory as a
basis for assessing a current event or situation. An example is deciding not to invest in a new product
based on your recollection of how well a similar new product performed in the recent past. The potential
bias is that the readily available information may be fallible and represent irrelevant factors. The new
product that recently failed may have been a good idea that was released to market at the wrong time of
year.
The representativeness heuristic occurs when people assess the likelihood of something occurring
based on its similarity to a stereotyped set of occurrences. An example is deciding to employ someone
simply because he or she graduated from the same school attended by your last and most successful
new employee. The potential bias is that the representative stereotype may fail to identify important and
unique factors relevant to the decision. For instance, the abilities and career expectations of the newly
hired person may not fit the job requirements.

192  Management
 The anchoring and adjustment heuristic involves making decisions based on adjustments to a pre-
viously existing value or starting point. An example is setting a new salary level for an employee by
simply raising the previous year’s salary by a reasonable percentage. The potential problem is that this
may inappropriately bias a decision towards only incremental movement from  the starting point. For
instance, the individual’s market value may be substantially higher than the existing salary. A simple
adjustment won’t keep this person from looking for another job.
Good managers are also aware of another behavioural tendency and source of potential decision‐
making error called escalating commitment. This is a decision to increase effort and perhaps apply
more resources to pursue a course of action that is not working.34 In such cases, managers let the
momentum of the situation overwhelm them, and end up ‘throwing good money after bad’. They are
unable to decide to ‘call it quits’, even when experience indicates that this is the most appropriate thing
to do. Manager’s notepad 7.2 offers advice on avoiding this tendency.

MANAGER’S NOTEPAD 7.2

How to avoid the escalation trap

• Set advance limits on your involvement and commitment to a particular course of action; stick with
these limits.
• Make your own decisions; don’t follow the lead of others since they are also prone to escalation.
• Carefully determine just why you are continuing a course of action; if there are insufficient reasons to
continue, don’t.
• Remind yourself of what a course of action is costing; consider the saving of such costs as a reason
to discontinue.
• Watch for escalation tendencies; be on guard against their influence on both you and others
involved in the course of action.
• Put in place multiple evaluation steps to ensure the goal is met.

CHAPTER 7 Information and decision making  193

Individual and group decision making
One of the important issues in decision‐making is the choice of whether to make the decision individu-
ally or with the participation of a group. The best managers and team leaders don’t limit themselves to
just one way. Instead, they switch back and forth among individual and group decision‐making to best fit
the problems at hand. A managerial skill is the ability to choose the ‘right’ decision method — one that
provides for a timely and quality decision, and one to which people involved in the implementation will
be highly committed. To do this well, however, managers must understand both the potential assets and
potential liabilities of moving from individual to more group‐oriented decision‐making.35
The potential advantages of group decision‐making are highly significant, and they should be
actively sought whenever time and other circumstances permit. Team decisions make greater amounts
of information, knowledge and expertise available to solve problems. They expand the number of
action alternatives that are examined; they help to avoid tunnel vision and consideration of only
limited options. Team decisions increase the understanding and acceptance of outcomes by members.
And, importantly, team decisions increase the commitments of members to work hard to implement
final plans.
The potential disadvantages of group decision‐making trace largely to the difficulties that can be
experienced in a group process. In a team decision there may be social pressure to conform. That is,
individual members may feel intimidated or compelled to go along with the apparent wishes of others.
There may also be minority domination, where some members feel forced or ‘railroaded’ to accept
a decision advocated by one vocal individual or small coalition. Also, there is no doubt that the time
required to make team decisions can sometimes be a disadvantage. As more people are involved in the
dialogue and discussion, decision‐making takes longer. This added time may be costly, even prohibi-
tively so, in certain circumstances.36
A special case of group behaviour in decision‐making, especially in a highly cohesive group, is that
of ‘groupthink’ — when the group pressure for consensus and demand for unanimity overwhelm the
rational evaluation of options.37 It can manifest as a blind, irrational loyalty to the group, or at least to
what the members think the group leader wants. Some characteristics of groupthink are as follows.
•• Illusions of invulnerability. Members believe the group is beyond criticism.
•• Illusions of group unanimity. Members believe, usually prematurely and incorrectly, that they are all
in agreement (so beware of people saying ‘We’re all on the same page here’ when you have suspicions
that there are individuals whose opinions are unheard).
•• Illusions of group morality. Members believe that the group is acting with moral justification for its
distasteful actions, and is above reproach by others.
•• Rationalisation of unpleasant information. Members refuse to accept or thoroughly consider
contradictory or unpalatable information.
•• Negative stereotyping of others. Members view competitors as weak, stupid or evil, which they see as
justifying their extraordinary group behaviour.
•• Self‐censorship. Members become unwilling to communicate personal concerns or alternative points
of view to the group as a whole.
•• Pressure on deviant members to conform. Members refuse to tolerate anyone in the group who
questions decisions or suggests that the group may be wrong.
•• Mind guarding. Members keep outsiders away and try to protect the group from hearing disturbing
ideas or viewpoints, even to the point that some members assume the role of ‘mind guards’ to defend
the group’s views and to ensure compliance by any ‘wavering’ members.
•• Bullying. Stronger personalities may bully others to ensure group compliance.
Some remedies for groupthink can be found in keeping the group open to new and different ideas,
opting for diversification of membership and opinion, and appointing a devil’s advocate who can safely
challenge the decision‐making process within the group. Encourage everyone to challenge and ask
‘Why?’

194  Management
Ethical decision making
Ethics and social responsibility has already been discussed in a dedicated chapter. It is important to
recognise that any business decision should be ethical. It should meet the test described in step 3 of
decision‐making as the ‘ethics double‐check’. This involves asking and answering two straightforward
but powerful questions: ‘How would I feel if my family found out about this decision?’ and ‘How would
I feel if this decision were published in the local newspaper?’
Although it adds time to decision‐making, the ethics double‐check is increasingly necessary to ensure
that the ethical aspects of a problem are properly considered in the complex, fast‐paced and often‐
uncertain decision conditions so common in today’s organisations. It is also consistent with the
demanding moral standards of modern society. A  willingness to pause to examine the ethics of a pro-
posed decision may well result in both better decisions and the prevention of costly litigation. Again, the
chapter devoted to ethics and social responsibility explores these and related issues in depth.

CRITICAL ANALYSIS

1. It is said that groupthink occurs often imperceptibly in every group, at least to some extent, and
most dangerously in cohesive groups. What can be done to guard against it?
2. What practical steps would you take to limit escalation of commitment in a situation of strong
groupthink?

7.5 Knowledge management and organisational

learning
LEARNING OBJECTIVE 7.5 Why are knowledge management and organisational learning important?
Management theorist Peter Drucker considers knowledge the principal resource of a competitive
society and warns that ‘knowledge constantly makes itself obsolete’.38 This is an age in which intel-
lectual capital counts highly, and knowledge workers — the people who have the knowledge — are
vital assets.39 It is an age of transformation that places increasing value on learning and knowledge
management.40

What is knowledge management?

A new term is earning a significant place in management theory and practice. The concept of knowl-
edge management is used to describe the processes through which organisations develop, organise
and share knowledge to achieve competitive advantage.41 It is a mobilisation of intellectual capital.
The significance of knowledge management as a strategic and integrating force in organisations is
represented by the emergence of a new executive job title — chief knowledge officer (CKO). The
CKO is responsible for energising learning processes and making sure that an organisation’s portfolio
of intellectual assets and pool of knowledge are well managed and continually enhanced. The intel-
lectual assets, furthermore, include such things as patents, intellectual property rights, trade secrets
and special processes and methods, as well as the accumulated knowledge and understanding of the
entire workforce.
Knowledge management involves the understanding of and commitment to the information tech-
nology described in this chapter. It requires the creation of an organisational culture in which infor-
mation sharing, learning and knowledge creation are part of the norm. It requires a special form of
organisational leadership that recognises that intellectual capital is an invaluable asset in this age of
transformation. And at the bottom of it all, knowledge management requires managerial and leadership
respect for people and their wonderful creative potential in organisations.

CHAPTER 7 Information and decision making  195

 Effective knowledge management can help alleviate the problem of knowledge created disappearing
from the organisation, such as when staff members retire and take their tacit knowledge with them.42
An example showing organisational awareness of knowledge loss is from the National Aeronautics and
Space Administration (NASA), an organisation that more obviously than most relies on brain power in
a complex project environment. It reports its concern about retiring engineers’ taking ‘deep smarts’ out
the door, causing a serious intellectual and cultural loss to the organisation of the most valuable form of
expertise:

Deep smarts provide insights drawn from tacit knowledge …as close as we get to wisdom,  based on
know‐how more than know‐what — the ability to comprehend complex, interactive relationships and
make swift, expert decisions based on …hard‐won experience.43

Organisations like NASA now have sophisticated procedures for retaining this critical knowledge,
which can be transferred within and beyond the organisation by the knowledge management process and
translating tacit knowledge into explicit knowledge that remains with individuals and the organisation,
rather than being lost. Tacit knowledge relates to individual experience, including aptitudes, perceptions,
insights and know‐how that are not held by others within an organisation.

Organisational learning
A learning organisation is an organisation that ‘by virtue of people, values and systems is able to
continuously change and improve its performance based upon the lessons of experience’.44 Consultant
Peter Senge, author of the popular book The Fifth Discipline, identifies the core ingredients of learning
organisations.45
1. Mental models. Everyone sets aside old ways of thinking.
2. Personal mastery. Everyone becomes self‐aware and open to others.
3. Systems thinking. Everyone learns how the organisation works.
4. Share vision. Everyone understands and agrees to a plan of action.
5. Team learning. Everyone works together to accomplish the plan.46
Senge’s concept of the learning organisation places high value on developing the ability to
learn and then make that learning continuously available to all organisational members. Organ­
isations can learn from many sources. They can learn from their own experience. They can learn
from the experiences of their contractors, suppliers, partners and customers. And they can learn from
firms in unrelated businesses.47 All of this, of course, depends on a willingness to seek out learning
opportunities from these sources and to make information sharing an expected and valued work
behaviour.
The problem with the concept of a learning organisation is that it relies on the ability of workers to
make mistakes, to have permission to take risks, and then to learn from mistakes. Unfortunately, the
focus on bottom‐line results does not support cultures that allow this freedom to learn and grow. Contin-
uous improvement programs are often driven by promise of reward if employees find better processes to
improve productivity.

CRITICAL ANALYSIS

1. What can we do to ensure that we as a business, grow and build our knowledge? Justify your
answer.
2. How do we overcome the ‘brain drain’ that occurs with downsizing?

196  Management
SUMMARY
7.1 How is information technology changing the workplace?
•• Anyone entering the modern workplace, with its premium on intellectual capital and knowledge
workers, must possess both computer competency and information competency.
•• Today’s ‘electronic’ offices are changing the way work is accomplished in and by organisations.
•• A major and rapidly growing force in the economy is e‐business, which uses the internet and computer
networking to engage in business‐to‐consumer and business‐to‐business electronic commerce.

7.2 What are the current directions in information systems?

•• A management information system (MIS) collects, organises, stores and distributes data in a way that
meets the information needs of managers.
•• Decision support systems (DSSs) provide information and help managers make decisions to solve
complex problems.
•• Group decision support systems (GDSSs) use groupware to allow the computer‐mediated exchange of
information and decision‐making by group members.
•• Intranets and computer networks allow people within an organisation to share databases and
communicate electronically; extranets and enterprise portals allow communication and data sharing
between the organisation and special elements in its external environment.

7.3 How is information used for decision making?

•• Information is data that are made useful for decision making and problem solving.
•• A problem is a discrepancy between an actual and a desired state of affairs.
•• Managers face structured and unstructured problems in environments of certainty, risk and
uncertainty.
•• The most threatening type of problem is the crisis, which occurs unexpectedly and can lead to disaster
if it is not handled quickly and properly.

7.4 How do managers make decisions?

•• The steps in the decision‐making process are find and define the problem, generate and evaluate
alternatives, choose the preferred solution, implement the solution and evaluate the results.
•• An optimising decision, following the classical model, chooses the absolute best solution from a
known set of alternatives.
•• A satisficing decision, following the administrative model, chooses the first satisfactory alternative to
come to attention.
•• Judgemental heuristics — such as the availability heuristic, the anchoring and adjustment heuristic
and the representativeness heuristic — can bias decision‐making.
•• Group decisions offer the potential advantages of greater information and expanded commitment, but
they are often slower and add more cost than individual decisions.

7.5 Why are knowledge management and organisational learning important?

•• The old ways of management aren’t good enough anymore; an age of transformation demands
that the best of the past be combined with new thinking so organisations can be competitive in the
21st century.
•• Knowledge management is the process of capturing, developing and using the knowledge of an
organisation to achieve competitive advantage.
•• A learning organisation is one in which people, values and systems support continuous change and
improvement based on the lessons of experience.

CHAPTER 7 Information and decision making  197

KEY TERMS
The behavioural decision model  describes decision‐making with limited information and bounded
rationality.
Certain environments  offer complete information on possible action alternatives and their
consequences.
The classical decision model  describes decision‐making with complete information.
Cost–benefit analysis  involves comparing the costs and benefits of each potential course of action.
A crisis  is an unexpected problem that can lead to disaster if not resolved quickly and appropriately.
A decision  is a choice between alternative courses of action.
Decision making  is the process of choosing between alternative courses of action.
A decision support system  allows a computer to help organise and analyse data for problem‐solving.
Electronic commerce  is buying and selling goods and services through use of the internet.
Electronic data interchange  uses controlled access to enterprise portals and supporting software to
enable firms to transact business electronically with one another.
Escalating commitment  is the continuation of a course of action even though it is not working.
Expert systems  allow computers to mimic the thinking of human experts for applied problem‐solving.
Explicit knowledge  is codified and shared with others through dialogue, demonstration or media.
Extranets and enterprise portals  use the web for communication and data sharing between the
organisation and its environment.
Fear of missing out (FOMO)  occurs when individuals feel the need to be constantly socially
connected, often to the detriment of more important tasks.
Heuristics  are mental shortcuts that allow people to solve problems and make judgements quickly and
efficiently.
Information systems  use IT to collect, organise and distribute data for use in decision‐making.
Instant messaging  is instantaneous communication between people online at the same time.
Intellectual capital  is the collective brain power or shared knowledge of a workforce.
Intranets and corporate portals  use the web for communication and data sharing within an
organisation.
Intuitive thinking  approaches problems in a flexible and spontaneous fashion.
Knowledge management  is the processes using intellectual capital for competitive advantage.
A knowledge worker  is someone whose knowledge is a critical resource for employers.
A learning organisation  continuously changes and improves using the lessons of experience.
A management information system  is a computer system that stores and distributes information on
how to successfully manage an organisation. It is usually regarded as a subset of the internal controls
of a business.
Non‐programmed decisions  apply specific solutions crafted for a unique problem.
An optimising decision  chooses the alternative giving the absolute best solution to a problem.
Peer‐to‐peer file sharing  connects PCs directly to one another over the internet.
Problem‐solving  involves identifying and taking action to resolve problems.
Programmed decisions  apply solutions from past experience to a routine problem.
A risk environment  lacks complete information, but offers ‘probabilities’ of the likely outcomes for
possible action alternatives.
Satisficing decisions  choose the first satisfactory alternative that comes to your attention.
Strategic opportunism  focuses on long‐term objectives while being flexible in dealing with short‐
term problems.
Systematic thinking  approaches problems in a rational and analytical fashion.
An uncertain environment  lacks so much information that it is difficult to assign probabilities to the
likely outcomes of alternatives.

198  Management
APPLIED ACTIVITIES
1 What is the difference between an optimising decision and a satisficing decision?
2 How can a manager double‐check the ethics of a decision?
3 How would a manager use systematic thinking and intuitive thinking in problem‐solving?
4 How can the members of an organisation be trained in crisis management?
5 You are the newly appointed operations manager at a small firm. One of your tasks is to decide
whether the firm should invest in expensive new information technology to increase the effective
workflow of staff. However, doing this will mean that one junior staff member who is the sole
income earner of her family may lose her job because her tasks would mainly be taken over by
automating the existing processes. What process of decision‐making will you follow in deciding
what to do?

ENDNOTES
  1. Rocco Zito, ‘Where We Are on the Road to Driverless Cars’, The Conversation (5 November 2015),
www.theconversation.com.
  2. Peter F. Drucker, ‘Knowledge‐Worker Productivity: The Biggest Challenge’, California Management Review, vol. 41, no. 2
(winter 1999).
  3. Urja Davé, ‘Edin Drake and the Oil Well Drill Pipe’, Literary and Cultural Heritage Map of Pennsylvania (summer 2008),
www.pabook.libraries.psu.edu.
  4. John Grohol, ‘How Social Media Can Induce Feelings of “Missing Out”’, World of Psychology (n.d.) www.psychcentral.com.
  5. See Susan G. Cohen and Don Mankin, ‘The Changing Nature of Work: Managing the Impact of Information Technology’,
chapter 6 in Susan Albers Mohrman, Jay R. Galbraith, Edward E. Lawler III and Associates, Tomorrow’s Organization:
Crafting Winning Capabilities in a Dynamic World (San Francisco: Jossey‐Bass, 1998), pp. 154–78.
  6. Information from example in ‘Management by Web’, Business Week (28 August 2000), p. 88.
  7. Vito Pilieci, ‘Twitter Co‐Founder Biz Stone Shares Secrets with Ottawa Audience’, Ottawa Citizen (21 September 2012),
www.ottawacitizen.com.
  8. Rohan Pearce, ‘Why “Nigerian Scammers” Say They’re from Nigeria’, Techworld Australia (20 June 2012),
www.techworld.com.au.
  9. For more information on the business excellence framework, visit www.saiglobal.com/improve/excellencemodels/
businessexcellenceframework.
10. ‘Business Excellence Framework’, SAI Global, www.saiglobal.com.
11. Efraim Turban, R. Kelly Rainer Jr and Richard E. Potter, Introduction to Information Technology (New York: Wiley, 2001).
12. Information from Robert W. Bly, ‘Does Your “Second Generation” Site Get a Passing Grade?’ (8 September 2000),
www.mcknightpartners.com.
13. ‘CommBank Kaching’, Commonwealth Bank website, www.commbank.com.au.
14. Peter F. Drucker, Esther Dyson, Charles Handy, Paul Daffo and Peter M. Senge, ‘Looking Ahead: Implications of the Present’,
Harvard Business Review (September–October 1997), p. 22.
15. Information from John A. Byrne, ‘Visionary vs. Visionary’, Business Week (28 August 2000), pp. 210–14.
16. Henry Mintzberg and Peter Todd, ‘The Offline Executive’, Strategy+Business (16 July 2012), www.strategy‐business.com.
17. The article by Dorothy Leonard‐Barton and John J. Sviokla, ‘Putting Expert Systems to Work’, Harvard Business Review
(March–April 1988), pp. 91–8, provides a practical overview of expert systems and their management applications. See also
Barbara Garson, The Electronic Sweatshop (New York: Viking Penguin, 1989).
18. ‘EDI (Electronic Data Interchange)’, Woolworths Wowlink website, www.wowlink.com.au.
19. David Glance, ‘How Earning the Right to an Opinion on the Internet Makes it that Much more Valuable’, The Conversation
(8 September 2015), www.theconversation.com.
20. Jaclyn Fierman, ‘Winning Ideas from Maverick Managers’, Fortune (6 February 1995), pp. 66–80.
21. Henry Mintzberg, The Nature of Managerial Work (New York: Harper & Row, 1973, and HarperCollins, 1997).
22. Information from Peter Burrows, ‘Sun’s Bid to Rule the Web’, Business Week (24 July 2000), pp. EB31–42.
23. For scholarly reviews, see Dean Tjosvold, ‘Effects of Crisis Orientation on Managers’ Approach to Controversy in Decision
Making’, Academy of Management Journal, vol. 27 (1984), pp. 130–8; and Ian I. Mitroff, Paul Shrivastava and Firdaus E.
Udwadia, ‘Effective Crisis Management’, Academy of Management Executive, vol. 1 (1987), pp. 283–92.
24. Mintzberg and Todd, op. cit.
25. See Hugh Courtney, Jane Kirkland and Patrick Viguerie, ‘Strategy Under Uncertainty’, Harvard Business Review
(November–December 1997), pp. 67–79.

CHAPTER 7 Information and decision making  199

26. For a good discussion, see Watson H. Agor, Intuition in Organizations: Leading and Managing Productively (Newbury Park,
CA: Sage, 1989); Herbert A. Simon, ‘Making Management Decisions: The Role of Intuition and Emotion’, Academy of
Management Executive, vol. 1 (1987), pp. 57–64; Orlando Behling and Norman L. Eckel, ‘Making Sense Out of Intuition’,
Academy of Management Executive, vol. 5 (1991), pp. 46–54.
27. Agor, ibid, p. 11. See also David H. Myers, Intuition: Its Powers and Perils (New Haven, CT: Yale University Press, 2002).
28. Daniel J. Isenberg, ‘How Senior Managers Think’, Harvard Business Review, vol. 62 (November–December 1984), pp. 81–90.
29. Daniel J. Isenberg, ‘The Tactics of Strategic Opportunism’, Harvard Business Review, vol. 65 (March–April 1987), pp. 92–7.
30. See George P. Huber, Managerial Decision Making (Glenview, IL: Scott, Foresman, 1975). For a comparison, see the steps
in Xerox’s problem‐solving process as described in David A. Garvin, ‘Building a Learning Organization’, Harvard Business
Review (July–August 1993), pp. 78–91.
31. Peter F. Drucker, Innovation and Entrepreneurship: Practice and Principles (New York: Harper & Row, 1985).
32. For a sample of Simon’s work, see Herbert A. Simon, Administrative Behavior (New York: Free Press, 1947); James G. March
and Herbert A. Simon, Organizations (New York: Wiley, 1958); Herbert A. Simon, The New Science of Management Decision
(New York: Harper, 1960).
33. This presentation is based on the work of R. H. Hogarth, D. Kahneman, A. Tversky and others, as discussed in Max H.
Bazerman, Judgment in Managerial Decision Making, 3rd edn (New York: Wiley, 1994).
34. Barry M. Staw, ‘The Escalation of Commitment to a Course of Action’, Academy of Management Review, vol. 6 (1981),
pp. 577–87; Barry M. Staw and Jerry Ross, ‘Knowing When to Pull the Plug’, Harvard Business Review, vol. 65 (March–
April 1987), pp. 68–74.
35. The classic work is Norman R. F. Maier, ‘Assets and Liabilities in Group Problem Solving’, Psychological Review, vol. 74
(1967), pp. 239–49.
36. ibid.
37. Irving Janis, Victims of Groupthink, 2nd edn (Boston: Houghton Mifflin, 1982).
38. Peter F. Drucker, ‘The Future That Has Already Happened’, Harvard Business Review, vol. 75 (September–October 1997),
pp. 20–4.
39. Leanne Whicker and Kate Andrews, ‘HRM and the Knowledge Economy: Realising the Potential’, Asia Pacific Journal of
Human Resources, vol. 42, no. 2 (2004), pp. 156–165.
40. Drucker et al. (1997), op. cit.
41. See, for example, Thomas H. Davenport and Laurence Prusak, Working Knowledge: How Organizations Manage What They
Know (Cambridge, MA: Harvard Business School Press, 1997).
42. Paul Davidson and Jillian Rowe, ‘Systematising Knowledge Management in Projects’, The International Journal of Managing
Projects in Business, vol. 2, no. 4 (2009).
43. D. Leonard and W. Swap, Deep Smarts: How to Cultivate and Transfer Enduring Business Wisdom (Boston, MA:
Harvard Business Press, 2005).
44. Peter Senge, The Fifth Discipline (New York: Harper, 1990).
45. ibid.
46. ibid.
47. Steven E. Prokesch, ‘Unleashing the Power of Learning’, Harvard Business Review (September–October 1997), pp. 147–68.

ACKNOWLEDGEMENTS
Photo: © Zorabc / Shutterstock.com
Photo: © AFANASEV IVAN / Shutterstock.com
Photo: © racorn / Shutterstock.com
Photo: © Monkey Business Images / Shutterstock.com
Extract: © The Conversation, Rocco Zito, 5 November 2015, https://theconversation.com/
where-we-are-on-the-road-to-driverless-cars-50079
Extract:© The Conversation, David Glance, 8 September 2015, www.theconversation.com/
how-earning-the-right-to-an-opinion-on-the-internet-makes-it-that-much-more-valuable-47180

200  Management
CHAPTER 8

Planning
LEA RNIN G OBJE CTIVE S

8.1 How do managers plan?

8.2 What types of plans do managers use?
8.3 What are the useful planning tools, techniques and processes?
Planning for Port Shorts
Like many start‐ups, Port Shorts began as an idea among friends. It’s a short‐film festival held in Port
Douglas, Far North Queensland that offers $15  000 in prizes (including a $4000 course on filmmaking
from the New York Film Academy), and in 2015 ran a two‐night extravaganza showcasing local film­
makers alongside visitors from around the world. It is now recognised as a leading festival of its kind
and the Douglas Shire Council has acknowledged the festival’s contribution to Port Douglas as an
international destination.
Like most things in this sleepy tropical resort town, Port Shorts is a relaxed affair that mirrors its local
environment. The grassroots not‐for‐profit unincorporated association runs like a local tennis club, on
the back of a dedicated team of volunteers who had a vision for their own film festival. And like in much
of regional Australia, a handshake goes a long way. Goodwill is crucial.
Perhaps it’s the photogenic light in the tropics or the unique world heritage rainforest scenery along­
side the Great Barrier Reef that attracts increasing global attention; the area is now a magnet not only
for tourists but also international filmmaking. A favourable exchange rate for the Australian dollar
helps, along with a local community with many artistic and experienced people for hire in the industry.
Television series, such as The Code, and major international productions, such as The Thin Red Line and
The Pacific, have been shot in the area, contributing valuable economic benefits as well as providing
local school children the opportunity to learn skills in filmmaking and television.
The festival committee organises Port Shorts, gets sponsors to donate prizes, manages the media and
coordinates the judging of entries in the various categories—from four‐minute films by beginners to
seven‐minute shorts by experienced filmmakers. The committee sets up the two evenings of outdoor
projection of the 40 or so finalist short films for the public to enjoy. Overall, the festival attracts several
hundred visitors, offers a genuine community artistic activity and helps locals and others to learn skills
and gain industry insight. Mossman High School film and television teacher Elliot Davidson is a key
organiser of Port Shorts and runs full‐day workshops for his students with visiting nationally acclaimed
writers, directors actors and producers. Asked about how the planning function is managed, Davidson
acknowledges that after the initial meeting to allocate work area responsibilities, the committee meets
only as needed in the five months leading up to the October event, with most communication and
decisions made by group email. As might be expected, the better the planning goes in the lead‐up, the
better the festival runs at the time.

Outdoor movie theatres are gaining popularity across Australia, with effective planning crucial to their success.

202  Management
 What’s special about it? It’s a project‐based model for management, producing a one‐off event with
many different stakeholders (sponsors, judges, producers, industry participants, contributors, suppliers
and attendees). Each relationship with each stakeholder group has to be managed and integrated with all
the others.
The key to success is continual communication between organisers, so everyone knows what everyone
else is doing. Planning starts at the top in overview and spirals out to the detail with plans becoming
more short‐term as the event gets closer. However, being a community group with a flat organisational
structure, it is not so much top‐down as inside‐out. The driving force comes from within the group, and
as planning proceeds it takes in information from the environment. Contingencies planned for include
power failures and inclement weather.

QUESTIONS
1. It is said that management involves using strategy and planning to align the organisation’s mission and
purpose with its resources and its operating environment. How are these elements — the mission, the
resources and the market — being brought together to influence the planning function in Port Shorts?
2. How critical is planning for the successful operation of the organisation? What might the organisers do
to improve the outcomes? What planning are they not doing that they should be doing? What might the
organisers have to do to take the festival ‘global’?

Introduction
‘I arise each morning torn between the desire to improve the world and the desire to enjoy the world. It
makes it difficult to plan the day.’ (E. B. White)
‘One of the nice things about not planning is that failure comes as a complete surprise, and is not
preceded by a long period of anxiety and worry.’ (Anon)
‘Failing to plan is planning to fail.’ (Anon)

The dry humour in these quotes points to the significance of planning. It is a major part of the work of
many managers, and an essential function in the responsibilities of every manager. For various reasons,
we humans engage in planning. We may do it to feel more certain of future outcomes in uncertain situ­
ations, to be ready to cope with undesirable events. We also plan so that we can organise and coordinate
our activities, acquisition of raw materials and deployment of our resources to produce goods and deliver
services to meet market needs and stakeholder expectations.
Sometimes we get it right and our planning pays off because we are better prepared for something
that happens. Other times, our planning is inadequate or inaccurate and we miss valuable opportunities
because we did not prepare for them, or we suffer failure or accident because we ‘did not expect it would
happen to us’. Tragically, all too often we learn too late that time spent planning is rarely time wasted
and, after the event, we naïvely wish that we had been less reckless and more thoughtful.
Strategic management researcher Gary Hamel believes many of today’s companies aren’t going to
make it in the long term. Why? ‘Organisations that succeed in this new century will be as different from
industrial‐era organisations as those companies themselves were different from craft‐based industries,’
he says. ‘Companies are going to have to re‐invent themselves much more frequently than before.’1 His
book, Leading the Revolution,2 became something of a classic when it was published in 2000, and it is
still a standard reference book in many Western business schools.
The global financial crisis gave way to an economic downturn, which, in turn, gave way to widespread
caution and organisational restructuring. The Arab Spring saw governments fall amid violence and terror.
Financial upheavals in Greece, Spain and other countries brought massive unemployment and a height­
ened sense of vulnerability that such enormous change could happen so quickly. Tunisia, then Egypt,
Turkey and Syria all experienced revolution of varying severity. Millions of Syrians and other nation­
alities fled violence and became refugees, risking their lives to escape and seek asylum in Germany
and other Western countries, in the largest mass movement of people since 1945. Now, companies and

CHAPTER 8 Planning  203

governments are trying to figure out what might lie ahead, and how they can prepare for it. As econ­
omies and domestic demand slowly recover, and share markets return to pre‐downturn values, optimism
is oscillating with pessimism. The pessimistic viewpoint is that unemployment might continue to rise,
that manufacturing capacity may remain under‐utilised, and that endemic problems have been cushioned
by governmental fiscal stimulus — propping up a financial system with deep, difficult‐to‐solve problems.
For example, the United States is still the world’s largest national economy and is recovering in the
wake of the global financial crisis, allowing the Federal Reserve to lift the interest rate from zero in late
2015. However, it is still also the world’s largest debtor nation. In recent times, already‐indebted US
consumers have cut their spending and have imported less. The US$13 trillion debt is about 74 per cent
of its GDP, and it is expected to go even higher.3 Policymakers have to balance keeping demand up and
growth in unemployment (still a gloomy 8 per cent) down, while encouraging innovation and trade —
the engines of economic growth.
All this they must do in an international environment where reforms are likely to bring a stronger
currency in China (and thus increased prices for goods produced there), hopefully accompanied by a
stronger domestic market with increased exports to the growth nations of Indonesia and Malaysia, and to
the ‘sleeping giant’ economy of India, which may yet become the world’s greatest consumer market. As
the world’s private sector recovers and tax takes improve, governments can afford to repair their balance
sheets with spending cuts, and possibly with taxes on carbon and consumption. This will be of great
interest to managers everywhere. Added to this is the imperative that governments need to encourage the
development of new and sustainable industries and work together to offer global policy reform.
To ensure that regional and national interests are adequately served by companies in newly privatised
industries, all governments must legislate planning and strategy obligations. All organisations need to be
able to look ahead, make good plans, and then help others work effectively to best meet the challenges
ahead. Organisations need to do this knowing that things will probably never get back to ‘normal’;
rather, there may be a shift to a world of lower consumer spending and increased cost of capital. How­
ever, with the future uncertain, the likelihood is that even the best of plans made today may have to be
changed tomorrow, in spite of improvements in economic forecasting software. Thus, managers also
need the courage to be flexible in response to new circumstances, and the discipline to maintain control
even as situations become hectic and the performance pressures are unrelenting.

8.1 How and why managers plan

LEARNING OBJECTIVE 8.1 How do managers plan?
In Australia, approximately 65  000 businesses cease to operate each year and one in five of these is the
result of ‘catastrophic failure’, typically involving bankruptcy or liquidation. By contrast, businesses
with sound business plans generally perform much better than those without, in terms of both revenue
growth and profit growth.
In chapter 1 the management process was described as planning, organising, leading and controlling
the use of resources to achieve performance objectives. The first of these functions, planning, sets the
stage for the others. Planning involves deciding exactly what you want to accomplish and the best way
to go about it.
As interesting as it is to examine why organisations plan, it is equally fascinating, if embarrassing, to
examine why they do not. Indeed, with the benefit of hindsight, what is amazing is the resistance to plan­
ning in organisations. As recently as 1977, the president of leading IT company Digital Equipment Cor­
poration, Ken Olsen, opined ‘there is no reason for any individual to have a computer in their home’.4
It might be observed that these experts were not keen on planning — or, at least, did not have an open
mind about planning for possible developments in technology.
Perhaps the first requirement for being a good planner is an open mind, to be able to free oneself from
prejudice to contemplate new ways of solving problems old and new. This is why planning the right
answer demands that we first ask the right question. Setting the right objective is critical to good planning.

204  Management
Importance of planning
Although many management experts and senior managers consider objectives setting and planning to
be an old‐fashioned practice, there is still considerable support for long‐term planning in many large and
small organisations. It is extremely important when planning how to structure an organisation to com­
pete with retail services in turbulent and fast‐moving markets. What has changed in many companies
is that planning is not so rigidly tied to a complex series of five‐or ten‐year plans produced by senior
corporate managers. It is a process that generates a series of ‘what if’ scenarios. This scenario planning
process is used to get general managers at all levels of the organisation to think about the environ­
ment in which they operate, so that they can be better prepared for ‘shocks’ to their industry. These
may be caused by the introduction of revolutionary new technologies; major terrorist events such as the
911 attack on the World Trade Center in 2001; or the outbreak of wars such as those in Afghanistan,
Iraq and Syria, in addition to ongoing tensions in Pakistan and Iran. As dramatic as these conflicts have
been, and as significant as they are for the regions concerned, it is the global financial and Eurozone
crises, and the continuing financial and structural reforms involved in their wake that are likely to have
the greatest impact on organisations worldwide.
When scenario planning is used properly it produces a solid base from which further managerial
actions can emanate. These include: organising — allocating and arranging organisational resources
to achieve key tasks; leading — guiding the efforts of the organisation’s staff to ensure high levels
of task accomplishment; and controlling — monitoring and assessing task accomplishment and taking
necessary corrective action.
The importance of planning in the management process is illustrated in figure 8.1 — it provides the
guiding direction for the other important management functions of organising, controlling and leading.
Planning may involve strategies for obtaining and maintaining an organisation’s competitive edge over
other organisations in its industry, but it may equally involve joint ventures and cooperative arrange­
ments with competitors. Daimler‐Chrysler is an example of a partnership that has led to the capture of
a sustainable market share in a highly competitive and volatile market. The German‐based car manu­
facturer purchased a majority shareholding in Japanese competitor Mitsubishi in order to increase its
presence in the Asian market. It was particularly interested in exploiting the rapidly expanding Chinese
domestic market for cars in which its German rival Volkswagen has succeeded, through establishing
two new assembly plants in the communist state.

Planning —
to set the direction
● Decide where you
want to go
● Decide the best way
to go about it
Organising — Leading —
to create structures to inspire effort
Controlling —
to ensure results
● Measure performance
● Take corrective action

FIGURE 8.1 The role of the planning function in the management process

Where market conditions prove too turbulent, or capital costs are too high, firms move to secure a foot­
hold using alliance relationships to share associated costs and risks. For example, huge gas deposits off
Australia’s north‐west coast are being developed by a consortium of companies, including ‘­competitors’
Exxon Mobil, Chevron and Royal Dutch Shell.

CHAPTER 8 Planning  205

 Defending or improving an organisation’s market position is likely to involve a combination of com­
petitive strategies that mean that the organisation must become more effective at its core tasks and must
cooperate with other organisations to share costs. Planning should identify these possibilities, based on
likely future environmental conditions, and guide the necessary decisions to allow the organisation to
fully exploit any opportunities.
There are several ways managers in organisations try to gain a competitive advantage over other
organisations. First, they can survey customers about their product or service requirements. This can
be in terms of both prospecting for new customers, and surveying existing customers about how the
company’s products and services can be improved.
Second, they can scan the environment searching for technologies, techniques or methods from their
own industry or from other sectors that they can modify or apply. For example, a boat‐building firm in
Melbourne, ARF Marine, adopted computer‐aided design and testing software developed for the aero­
space industry to design faster and more stable yachts.
Third, managers can search for joint‐venture partners to strengthen their current market pos­
ition or to diversify into other markets. For example, the merger between Australia’s BHP and
the United Kingdom’s Billiton to form BHP Billiton, the world’s largest resource company, was
designed to create a stronger company with a greater resource and knowledge base. Through the
planning process, both companies had identified merging as the most effective way to secure
their long‐term future. Even with the apparent demise of the ‘resources boom’ and dramatic drop
in the price of iron ore (within three years from over A$150 per tonne to less than A$40 per
tonne in 2015) the result has been impressive. BHP Billiton remains one of the world’s strongest
companies. It has massive assets and skilful top management, with a resilient and powerful future
almost assured.
Thus, planning is a core management task that is integrated with environmental analysis, control and
leadership. The Apple iPad is an example of an innovative product introduced after extensive market
analysis, product development and corporate strategy for distribution and sale worldwide. It was a game
move — and proved to be a game changer by putting mobile computing literally into the hands of
millions — all on the back of detailed planning.

SOCIAL RESPONSIBILIT Y

Planning for better health

Healthcare professionals responsible for
planning for influenza pandemics, with com-
plex issues of scale and consequences, face
special ethical challenges. Any plan needs
to be assessed in terms of its alignment
with competing values and priorities. Plan-
ners are required to deal with the necessary
limitations on personal liberty imposed by
quarantine, and the unavoidable demand to
prioritise healthcare resources, such as anti‐
viral drugs, in what would be a time of crisis.
Questions of fairness should be discussed
beforehand — to determine obligations for
Planning is important for healthcare professionals, who face
providing preventive measures for healthcare special ethical challenges, such as allocating resources in a
workers, other emergency workers, able‐ time of crisis, and balancing the importance of treating for
bodied adults, the elderly and more vulner- ‘the common good’ with the need to safeguard their own
able members of the population. health.

206  Management
 The ethical standard of treating for ‘the common good’ needs to be debated as to moral value and
application in particular situations (such as when an individual healthcare worker refuses to work in a
pandemic because of a perceived risk to themselves or their dependants). Guidelines are that any inter-
vention should be both necessary and effective, that decision‐making should be transparent, and that
public health officials should be flexible and responsive. This is no easy task, as planners do their work
in the midst of ethical examination of scenarios that call into question a broad range of moral issues. It
is likely that planning needs to be done with a diversity of inputs.5

QUESTION
The ethical dialectic of utilitarianism (‘the greatest good for the greatest number’) and duty to the individual
makes planning difficult in the individual healthcare case. Should we plan for the many while treating the
individual? Justify your answer.

The planning process

The planning process begins with an organisation identifying specific outcomes that it wishes to achieve.
It may set different targets depending on the environment it encounters, especially where the environ­
ment is uncertain or changing rapidly. This ‘what‐if’ or scenario planning is practised by an increasing
number of organisations. Organisations may also include in their plans action to help shape or stabilise
the environment. Such action could include lobbying governments locally and overseas, creating industry
networks, or philanthropy. The organisation’s plan is a statement of the actual steps required to achieve
its objectives. There are five sequential action steps in the systematic planning process.
1. Define your objectives. Identify desired outcomes or results in very specific ways. Know where you
want to go; be specific enough that you will know you have arrived when you get there or know how
far off the mark you are at various points along the way.
2. Determine where you currently stand in relation to objectives. Evaluate current accomplishments rela­
tive to the desired results. Know where you stand in reaching the objectives; know what strengths
work in your favour and what weaknesses may hold you back.
3. Develop perspectives regarding future conditions. Try to forecast potential future events. Generate
alternative ‘scenarios’ for what may happen; identify for each scenario things that may help or hinder
progress towards your objectives. Systematically vary the drivers for each scenario to determine poss­
ible outcomes.
4. Analyse and choose among action alternatives. List and carefully evaluate the possible actions that
may be taken. Choose the alternative(s) most likely to accomplish your objectives; describe step by
step what must be done to follow the chosen course of action.
5. Implement the plan and evaluate results. Take action and carefully measure your progress towards objec­
tives. Do what the plan requires; evaluate results; take corrective action, and revise plans as needed.
The planning process described is an application of the decision‐making process introduced in the
chapter on information and decision‐making. It is a systematic way to approach two important tasks: set­
ting performance objectives, and deciding how to best achieve them. Importantly, in the complex setting
of the modern workplace this is not a process that managers do while working alone in quiet rooms, free
from distractions, and at scheduled times. Rather, planning should be part of a manager’s everyday work
routine. It should be an ongoing activity that is done continuously even while dealing with an otherwise
hectic and demanding work setting.6 Importantly, the best planning in management always involves
those people whose work efforts will eventually determine whether the objectives are accomplished.
It is important that the objectives for any organisational plan be clearly articulated. Table 8.1 out­
lines the SMART model for establishing objectives, in which an effective objective needs to possess
five characteristics — being specific, measurable, actionable, reasonable and timetabled. For example,
an objective to ‘increase revenue’ would not be classified as an effective objective under the SMART

CHAPTER 8 Planning  207

model. For this objective to be ‘SMART’, it would need to be made more specific and measurable, and
be timetabled (assuming too that it is actionable and reasonable). An objective to ‘Increase 2016 cal­
endar year revenue by 5 per cent over 2015 calendar year revenue, with progress towards this measured
and reported to management quarterly’ would be an example of a SMART objective.

TABLE 8.1 The SMART model of establishing effective organisational objectives

Characteristic Explanation

Specific Objectives need to be clearly defined so that it easy to understand what is to be

achieved and what will be considered successful.

Measurable The exact measure must be stated and the objective must be able to be measured
through some means.

Actionable An organisation needs to ensure that its business‐unit managers have the authority and
resources to take the actions necessary to attempt to achieve the objectives that are set.

Reasonable There is no point setting unrealistic objectives. Unrealistic objectives are a disincentive for
both managers and their employees.

Timetabled Objectives should have milestone dates or deadlines at which progress towards
achieving them will be measured.

It is one thing to set effective objectives as the basis of a plan. It is quite another, particularly in larger
organisations, to make sure that objectives and plans are well integrated among people at an individual
level, in work units and across levels of an organisation as a whole. Objectives set anywhere in the
organisation should ideally help advance its overall mission or purpose. Yet, we sometimes work very
hard to accomplish things that simply don’t make much of a difference in organisational performance.
This is why the alignment of organisational objectives is an important part of managerial planning.

SUSTAINABILIT Y

BP plans for a greener future

While occasionally beset by flooding rains,
much of Australia is, for most of the time, a wide
brown land afflicted by drought — with water
shortages increasing in city and rural areas alike.
Water restrictions have become all too familiar,
and the cost of water is increasing. Management
at BP’s Kwinana refinery in Western Australia
realised more than a decade ago that they could
not use more fresh water than their region could
replenish. The plant needed water as fresh (‘pot-
able’ or drinking‐quality), steam (purchased from
a third party supplier) and reclaimed (‘grey’)
water for its various processes. BP set itself
SMART goals to bring into effect a water min-
Having specific and measurable objectives to achieve
imisation program, using reverse osmosis to was an essential part of the success of BP’s water
produce industrial‐grade grey water. It thereby minimisation program at its Kwinana refinery.
greatly reduced its use of potable water for
cooling. The cost of building the plant to recycle the water was initially expensive, but the benefits have
been both financial — equating to savings of over $1 million annually — and environmental. Recently, the
refinery reported it had met all its programs, objectives and targets for its water use. Having specific and
measurable objectives to achieve was an essential part of the success of this plan.

208  Management
 QUESTION
Local governments have been successful in encouraging households to use less water and less
electricity, providing consumption comparisons with ‘same period last year’ and with average use by other
consumers. How could this approach be applied to industrial organisations? What kind of feedback would
be most helpful?

CRITICAL ANALYSIS

1. Given the rate of change in organisational environments, how far should planning go? Can the
planning process actually impede our ability to respond to changes? Why or why not?
2. Leaving out our inability to think of all possible likely and unlikely scenarios, what are the limits to
scenario analysis? How would you run a scenario planning workshop?

8.2 Types of plans used by managers

LEARNING OBJECTIVE 8.2 What types of plans do managers use?
Managers face different planning challenges in the flow of activity in organisations. In some cases the
planning environment is stable and quite predictable; in others it is more dynamic and uncertain. In all
cases managers must understand the different types of plans and be able to use them effectively.

Short‐range and long‐range plans

Organisations require plans that cover different time horizons. A rule of thumb is that short‐range plans
cover one year or less, intermediate‐range plans cover one to two years and long‐range plans look three or
more years into the future. Top management is most likely to be involved in setting long‐range plans and
directions for the organisation as a whole, and lower management levels focus more on intermediate and
short‐range plans that serve the long‐term objectives. Importantly, all levels should understand the organ­
isation’s long‐range plans. In the absence of an integrated hierarchy of objectives and a long‐range plan, there
is always risk that the pressures of daily events may create confusion and divert attention from important
tasks. In other words, we may be working hard but without achieving sustainable and clear long‐term results.
Organisational psychologist and management researcher Elliott Jaques suggested that people vary in
their capability to think out, organise and work through events of different time horizons.7 In fact, he
believed that most people work comfortably with only three‐month time spans; a smaller group works
well with a one‐year span; and only about one person in several million can handle a 20‐year time frame.
Although his unscientific research may lead us to dispute these exact figures, they are nonetheless pro­
vocative ideas. It is true that individuals have different capacities for long‐range planning, but all people
can improve their range through education and training. Surprisingly, this important intervention was
not considered by Jacques. Although a team leader’s planning challenges may rest mainly in the weekly,
monthly or quarterly range, a chief executive is expected to have a vision extending five or more years
into the future. Career progress to higher management levels requires the conceptual skills to work well
with longer range time frames.8 Today, many organisations assist their staff in developing enhanced time
horizon planning as part of a more strategic approach to organisational sustainability.9
Complexities and uncertainties in today’s environments are putting pressure on these planning horizons.
In an increasingly global economy, planning opportunities and challenges are often worldwide in scope,
not just local. And, of course, the information age is ever present in its planning implications. We now talk
about planning in internet time or in real time, where businesses are continually changing and updating
plans. Even top managers must now face the reality that internet time keeps making the ‘long’ range of

CHAPTER 8 Planning  209

planning shorter and shorter. The virtual organisation is an important response to the pressures of con­
tinual change in a globalised economy. It allows businesses to more quickly establish new enterprises and
to change them in response to rapid shifts in the external environment. The virtual organisation can be
fine‐tuned, restructured or re‐born in response to such changes at a global or local level. In many respects,
they are the ‘Special Forces’ of business organisations, allowing quick and agile responses to threatening
and unfamiliar situations in order to maximise future opportunities.10 Not all businesses are well suited to
the virtual environment. Retailers such as David Jones and Myer are finding that, while some customers
will shop online, most Australians and New Zealanders prefer to inspect items before purchase. The most
successful e‐retailers sell services, where there is less need to inspect before buying. The success of online
service retailing and airline ticket sales, such as at Flight Centre, illustrates this important point.

Strategic and tactical plans

Plans differ not only in time horizons but also in scope. Strategic plans define long‐term needs and
set comprehensive directions for an organisation or subunit. Top management planning of this scope
involves determining objectives for the entire organisation and then deciding on the actions and resource
allocations to achieve them. There was a time, for example, when many large businesses sought to diver­
sify into unrelated areas. A successful oil firm might have acquired an office products company, or a
successful cereal manufacturer might have acquired a clothing company. These decisions represent stra­
tegic choices regarding future directions for these companies and their use of scarce resources. Instead
of reinvesting in areas of core competency, they were spending available monies on unrelated and prob­
ably unfamiliar areas of business activity. In the chapter on strategic management we examine the pro­
cess through which such strategic choices are made and how they can be analysed. For now, it is enough
to say that diversification strategies haven’t always proved successful. Many companies following them
have since reversed course, divesting themselves of unrelated businesses and following the alternative
strategy of focusing on their core areas of expertise.

INNOVATION

Creating an innovation culture

Shutterstock, 25th on the most innovative companies list in 2014, is certainly not one of those com-
panies that can be accused of becoming slower innovators after going public.11 The company achieved
a 40 per cent growth in revenue and has been consistently releasing new programs. Through Spectrum,
users can search images by colour; through Skillfeed, various online video classes and imaging soft-
ware are made accessible; and through Offset, higher quality visuals are available. In addition to inte-
grating with Dropbox, Shutterstock’s images are freely available to Facebook advertisers who formerly
littered the site’s ad space with cheap but poor‐quality photos.
Shutterstock’s founder and CEO, John Oringer, explained to Fast Company that the Facebook adver-
tising deal is a win–win: advertisers are happy as their ads have high‐quality photos for no cost; Face-
book gets more advertisers and better looking ads and Shutterstock sells more images. Oringer said
that Facebook pays Shutterstock a fee per image, with the photograph contributor receiving approxi-
mately 30 per cent of that fee. That all of Shutterstock’s images are ready to be used commercially also
helps advertisers avoid the threat of litigation that they would be exposed to had they simply copied and
pasted an image from the internet.12
The company has brought in the concept of collaborative experimentation, which can help com-
panies to not only boost their products but instil a progressive innovative mentality into the company
culture. Shutterstock’s Vice President of Product, Wyatt Jenkins, argues that through the continuous
testing of ideas, a culture of experimentation can begin to manifest in the organisation. Jenkins says
that the benefits of an experimental culture include the death of ‘HiPPOs’, which he describes as the
‘highest paid person’s opinion’. ‘A/B testing is a sure way to get to the bottom of a decision without
relying on anyone’s gut instinct. At Shutterstock, if a senior executive has an idea in a meeting, the res-
ponse is simply, “Let’s test it”.’13

210  Management
 This process spills over into teams, which results in better engagement since their ideas are valued
and will be tested. Even if the result is failure, many positive spin‐offs are achieved such as improved
self‐esteem and employee growth, especially the growth of critical ideas. Jenkins is an advocate
of keeping the testing teams small, for example, a business analyst, an engineer and a designer/
front‐end developer (in the case of Shutterstock). The idea is to get a mix of different business func-
tions, but related to what is being tested. The concept of the ‘20 per cent time’ phenomena of the
tech world is relevant here. In essence, it allows employees to use some of their work time to work
on any company‐related product they want. They experiment with ideas that would not normally
see the light of day. This kind of experimentation has led to Gmail, Adsense and many other Google
initiatives.14

QUESTION
Shutterstock is empowering its employees by investing in a culture of experimentation. What are the
benefits and limitations of allowing lower level employees to have a say in the strategic direction of the
business? What steps might Shutterstock executives be taking to minimise the risks involved with this
approach?

Operational plans
Operational plans describe what needs to be done in the short term to progress strategic objectives.
Typical operational plans in an organisation include:
•• production plans — dealing with the methods and technology needed by people in their work
•• financial plans — dealing with the money required to support various operations
•• facilities plans — dealing with the facilities and work layouts required to support task activities
•• marketing plans — dealing with the requirements of selling and distributing goods or services
•• human resource plans — dealing with the recruitment, selection and placement of people into various
jobs.

Policies and procedures

Among the many plans in organisations, standing plans in the form of organisational policies and pro­
cedures are designed for use over and over again. They set guidelines that direct behaviour in uniform
directions for certain types of situations, regardless of where or when they occur in an organisation. A
policy communicates broad guidelines for making decisions and taking action in specific circumstances.
In matters relating to the workforce, for example, typical human resource policies deal with such matters
as employee hiring, termination, performance appraisals, pay increases and discipline.
Policies should focus attention on matters of particular importance to the organisation and then
direct people in how they are supposed to deal with them. Consider the issue of ‘blowing the whistle’
on unethical or unlawful activities within an organisation. In recent years, many public sector organ­
isations have established procedures to protect staff who disclose information about wrongdoing
within the workplace. State laws in Australia have also assisted. For example, each state has legis­
lation that clearly outlines procedures on how information should be disclosed and the protection
afforded to those disclosing it. This legislation, together with initiatives taken by individual organ­
isations, has helped to expose corruption and unethical practices in the public and private sectors.
Procedures and rules are plans that describe exactly what actions are to be taken or not taken in
specific situations. Procedures are often found stated in employee handbooks or manuals as ‘SOPs’ —
standard operating procedures. They define the recommended sequence of events needed to accomplish
a task or a set of tasks. Rules clearly indicate what is and what is not acceptable behaviour, and often
specify the outcome of breaking them. They are often to do with occupational health and safety and
anti‐discrimination legislation.

CHAPTER 8 Planning  211

Budgets and project schedules
In contrast to standing plans, which remain in place for extended periods of time, single‐use plans
are each used once to meet the needs of well‐defined situations in a timely manner. Budgets are
single‐use plans that commit resources to activities, projects or programs. They are powerful tools
that allocate scarce resources among multiple and often competing uses. Good managers are able
to bargain for and obtain adequate budgets to support the needs of their work units or teams. They
are also able to achieve performance objectives while keeping resource expenditures within the allo­
cated budget. A fixed budget allocates resources on the basis of a single estimate of costs. The
estimate establishes a fixed pool of resources that can be used, but not exceeded, in support of the
specified purpose. For example, a manager may have a $25  000 budget for equipment purchases
in a given year. A flexible budget, on the other hand, allows the allocation of resources to vary in
proportion with various levels of activity. Managers operating under flexible budgets can expect
additional resource allocations when activity increases from one estimated level to the next. For
example, a manager may have a budget allowance for hiring temporary workers if production orders
exceed a certain volume.
In a zero‐based budget, a project or activity is budgeted as if it were brand new. There is no assump­
tion that resources previously allocated to a project or activity will simply be continued in the future.
Instead, all projects compete anew for available funds. The intent is to totally reconsider priorities,
objectives and activities at the start of each new budget cycle. For example, ARMS Reliability offers
assistance to large client organisations in Australia, New Zealand and other countries in setting up zero‐
based budgets to track project management and asset management, especially where the true costs of
breakdowns and maintenance need to be incorporated. Businesses, government agencies and other types
of organisations use zero‐based budgeting to make sure that only the most desirable and timely programs
receive funding.
Project schedules are single‐use plans that identify the activities required to accomplish a specific
major project — for example, the completion of a new student activities building on a campus, the
development of a new computer software program, or the implementation of a new advertising campaign
for a sports team. In each case, the project schedule would define specific task objectives, activities to be
accomplished, due dates and timetables for the activities, and resource requirements. Importantly, a good
project schedule sets priorities so that everyone involved knows not only what needs to be done but also
in what order so that the entire project gets finished on time.

CRITICAL ANALYSIS

1. Budgets are plans expressed in financial terms. Accurate, realistic budgets can function as effective
instruments of control. In what situations would budgets be likely to cause problems?
2. How much emphasis should be given to managing changes in budgets in response to changing
environments and changing demands? Should managers have to stick to budgets to allow tough
decisions to be carried through, no matter what?

8.3 Planning tools, techniques and processes

LEARNING OBJECTIVE 8.3 What are the useful planning tools, techniques and processes?
Planning is essential for successful management in any organisation. Planning works best when it is
comprehensive, systematic and based on well‐established foundations. Today’s planners use a broad
array of planning tools, techniques and processes. These include forecasting, specific contingency plan­
ning, benchmarking, participatory or team‐based planning, and staff planners.

212  Management
Forecasting
A forecast is a vision of the future. Forecasting is the process of making assumptions about what
will happen in the future.15 All good plans involve forecasts, either implicit or explicit. Business
journals such as BRW or The Economist regularly report a variety of business and economic fore­
casts for their readers. These include forecasts of consumer spending, business investment, interest
rates, unemployment, balance of payments and inflation. For companies operating on a global scale
it is essential to access forecasts for economies outside their immediate region. Journals and finan­
cial newspapers such as the Financial Times, The Guardian, The Wall Street Journal, Fortune and
Business Week cover much of North America and Europe, whereas the The Singapore Business Times,
China Daily, The Straits Times and The Asian Wall Street Journal provide forecasts for the Asia–
Pacific region.
Some forecasts are based on qualitative forecasting, which uses expert opinions to predict the future.
In this case, a single person of special expertise or reputation or a panel of experts may be consulted.
Others involve quantitative forecasting that uses mathematical and statistical analysis of data banks
to predict future events. Time‐series analysis makes predictions by using statistical routines such as
regression analysis to project past trends into the future. General economic trends are often forecast by
econometric models that simulate events and make predictions based on relationships discovered among
variables in the models. Statistical analysis of opinion polls and attitude surveys, such as those reported
in newspapers and on television, is typically used to predict future consumer tastes, employee prefer­
ences and political choices, among other issues.
In the final analysis, forecasting always relies on human judgement. Even the results of highly
sophisticated quantitative approaches still require interpretation. Forecasts should always be viewed
as subject to error and therefore treated cautiously. Managers should remember that forecasting is not
planning; planning is a more comprehensive activity that involves deciding what to do about the impli­
cations of forecasts once they are made. Large multinational corporations such as Sony, Pfizer, AEG,
Ford, BHP Billiton and News Corporation analyse economic and business forecasts for each region
and country. They must ascertain the correct mix of products and services and the correct marketing
strategies before committing to an investment plan. Although some requirements may be generic in an
increasingly standardised global economy, there are still substantial regional or country‐specific differ­
ences that need to be considered. Many US‐based multinational corporations have assumed that what
works in the United States will be successful elsewhere. They have not taken into account important
social, cultural, historical and religious differences between nations.

Contingency planning
Planning, by definition, involves thinking ahead. But, the more uncertain the planning environment,
the more likely the original assumptions, predictions and intentions may prove to be incorrect. Even
the most carefully prepared projections may prove inadequate as experience develops. Unexpected
problems and events frequently occur. When they do, plans may have to be changed. It is best to
realise during the planning process that things might not go as expected. Alternatives to the existing
plan can then be developed and readied for use when and if circumstances make them appropriate.
The attacks on New York City and Washington on 11 September 2001 and the explosion on the
Macondo Deepwater Horizon oil well in 2010 are extreme examples of the type of events to be con­
sidered when planning for the unexpected. By 2015 a pattern of terrorist attacks in major Western
cities, North Africa and elsewhere had become established. Counter terrorism management is now
a major focus of government and organisational planning in most Western countries. It consumes
increasing resources and seems to have almost limitless scope of demand and range. Traditional plan­
ning procedures appear to be inadequate to cope with previously unthinkable atrocities. Planners are
forced to commit resources to deal with ever more complicated scenarios. For example, government
managers must plan for the predictable services that need to be provided in the community, while

CHAPTER 8 Planning  213

simultaneously planning for the ‘what if’ event that comes completely unexpectedly with devastating
effects and requiring urgent response.
This is the process of contingency planning, identifying alternative courses of action that can be
implemented if and when an original plan proves inadequate because of changing circumstances. Of
course, changes in the planning environment must be detected as early as possible. ‘Trigger points’ that
indicate that an existing plan is no longer desirable must be preselected and then monitored. Sometimes
this is accomplished simply by good forward thinking on the part of managers and staff planners. At
other times, it can be assisted by a ‘devil’s advocate’ method, in which planners are formally assigned to
develop worst‐case forecasts of future events.

Scenario planning and contingency planning

Scenario planning is the long‐term version of contingency planning. As we have seen earlier in this
chapter, recognition of the need to identify and plan for a variety of possible future scenarios or situations
should be at the heart of all planning. Identifying a range of different possible future scenarios helps
organisations operate more flexibly and respond more rapidly in uncertain and changing environments.
In Asia, the Taiwanese information technology manufacturer Acer has adopted a flexible and dynamic
approach to corporate planning because of the uncertainty of the markets for personal computers and
other IT‐based products, such as mobile phones, and concerns about Taiwan’s long‐term relationship
with mainland China. Whereas the mainland China market is critical so that Acer can operate as a global
company, it also injects ‘uncertainty’ into the equation because of the political tensions between the two
nations.
Although recognising that planning scenarios can never be inclusive of all future possibilities, a plan­
ning coordinator once said that scenarios help ‘condition the organisation to think’ and remain better
prepared than its competitors for ‘future shocks’. Among the issues and concerns for scenario planning
today are geopolitical change, terrorism, climate change, sustainable development, human rights and
biodiversity.

Benefits of scenario planning

Scenario planning is not forecasting what planners think will happen. Rather, it consists of developing
possible plausible scenarios of the future, with reference to a particular firm, that make different assump­
tions about forces driving the market and including different uncertainties.16 This allows the manager or
planner to consider how these environmental uncertainties might affect the firm’s strategy, and thus to
plan for such eventualities should they occur.
In today’s uncertain and dynamic global economy, organisations are facing pressures from many
sources. External pressures include regulations imposed by governments (such as the introduction of
the goods and services tax in New Zealand and Australia, and the introduction of carbon emissions
trading schemes and taxes); increasingly complex or changing technologies (such as genetic modifi­
cation and animal cloning); economic uncertainties (such as those exacerbated by the conflicts in the
Middle East); and the costs of investment in capital, labour and other supporting resources (such as
increasingly scarce natural resources, the escalating costs of office locations in metropolitan areas and
highly priced scientific and business consultancy expertise). Internal pressures include the need for oper­
ating efficiencies through work practice reforms, new management structures and technologies (such as
individual workplace agreements, virtual organisations and project management structures), increased
workplace diversity, heightened job expectations from an increasingly tertiary‐educated workforce, and
related managerial challenges.
Given the growing uncertainty and complexity of the environment, scenario planning offers a number
of benefits. Typically undertaken by experienced managers in a workshop setting, it allows organisations
to plan for the most likely course of events, but also allows for other scenarios that may occur. Many
organisations now include multiple scenarios (all of which are plausible) in their planning, with different

214  Management
high‐impact, high‐uncertainty environmental variables (avoiding highly improbable values) that are
weighted for degree of criticality to the organisation. Interaction between variables can be considered as
potentially relevant in preparing for the impact of various scenarios.
The aim in scenario planning is not to predict the most probable future and adapt to it, but to enable
strategic decisions to be made around all plausible futures. Therefore, scenarios are not the end products
of a predictive or forecasting exercise, but the foundation for rethinking afresh the strategy formulation
needs of the organisation.
Briefly, scenario planning involves some variation on the following steps.
1. Identify the driving forces that represent game changers in any plot or scenario. This may require
thinking the unthinkable to shake free of past ‘certainties’.
2. Build a scenario where these drivers change significantly. Systematically vary the drivers to create
new scenarios.
3. Consider options available within the scenarios, however unlikely. Check for interaction effects
between the drivers.
4. Generate new options, products, processes or services to address the requirements inherent in the
scenario.
5. Examine implications of these scenarios for outcomes in relation to existing strategies.
6. Develop an action plan to manage differently as a result of these considerations. Such a plan ought
to include an early warning system to monitor whether the drivers are changing in the manner
contemplated.
Scenario planning improves focus and flexibility
Thorough scenario planning improves organisational focus and flexibility, both of which are essential
for successful individual and group performance in highly competitive and dynamic environments. An
organisation with focus knows what it does best, knows the needs of its customers and knows how to
serve them well. An individual with focus knows where he or she wants to go in a career or situation
and is able to retain that objective even when difficulties or setbacks arise. An organisation with flexi-
bility is willing and able to change and adapt to shifting circumstances, and operates with an orientation
towards the future rather than the past or present. An individual with flexibility factors into career plans
the problems and opportunities posed by new and developing situations — personal and organisational.
The challenges and opportunities presented by the emergence of virtual organisations is a good example
of the impact of external changes on the individual.
Scenario planning improves action orientation
Scenario planning helps individuals and organisations weather difficult circumstances and stay ahead
of the competition. It places organisations in a state of readiness for a variety of situations and coun­
ters tendencies towards complacency, both in individuals and in the organisation. It also keeps the
future visible as a performance target and reminds us that the best decisions are often made before
events force them upon us. Management consultant Stephen R. Covey, points out that the most suc­
cessful executives ‘zero in on what they do that “adds value” to an organisation’. Instead of working
on too many things, Covey advises us to step back and identify the most important things to do.17
Indeed, planning helps us to take the initiative rather than be reactive in our approach to things. It
does so because it makes us more:
•• results oriented — creating a performance‐oriented sense of direction
•• priority oriented — making sure the most important things get first attention
•• advantage oriented — ensuring that all resources are used to best advantage
•• change oriented — anticipating problems and opportunities so they can be dealt with in the best
way.18
Scenario planning improves coordination
The many different individuals, groups and subsystems in organisations are each doing many different
things at the same time. But even as they pursue their specific tasks and objectives, their accomplishments

CHAPTER 8 Planning  215

must add up to meaningful contributions towards the needs of the organisation as a whole. Good plan­
ning throughout an organisation creates a hierarchy of aims in which objectives at each level of work are
linked together in means–ends fashion. Higher level objectives as ends are directly tied to lower level
objectives as the means for their accomplishment.
Figure 8.2 uses the example of quality management to show how a hierarchy of objectives can
guide and integrate efforts within a large manufacturing firm. The corporate‐level quality objec­
tive is ‘Deliver error‐free products that meet customer requirements 100 per cent of the time’. This
translates down the hierarchy in means–ends fashion as a series of supporting objectives at each
level. For one of the team leaders, it finally becomes a formal commitment to ‘assess capabilities
of machine operators and provide/arrange appropriate training’. Good planning helps ensure that
the team leader’s hard work in this example will make a positive contribution to the corporate‐level
quality objective.

Mission and purpose Serve the world as the number one

supplier of recyclable food containers.

Top management objective Firm

Deliver error-free products meeting customer
requirements 100% of the time.

Senior management objective Manufacturing division

100% on-time production of error-free products.

Middle management objective Plant

Increase error-free product acceptance
rate by 16%.

Line management objective Shift supervisor

Assess machine operator skills and train
for error-free production.

FIGURE 8.2 A sample hierarchy of objectives for total quality management

Scenario planning improves time management

One of the side benefits that planning offers is better time management. Lewis Platt, former chairman
of Hewlett‐Packard, says: ‘Basically, the whole day is a series of choices.’19 These choices have to be
made in ways that allocate your time to the most important priorities. Platt says that he is ‘ruthless about
priorities’ and that you ‘have to continually work to optimise your time’. Most of us have experienced
the difficulties of balancing available time with the many commitments and opportunities we would like
to fulfil. Each day, we are bombarded by a multitude of tasks and demands in a setting of frequent inter­
ruptions, crises and unexpected events — the manager’s job is especially subject to such complications.
It is easy to lose track of time and fall prey to what consultants identify as ‘time wasters’. In the pro­
cess, too many of us allow our time to be dominated by other people and/or by what can be considered
non‐essential activities.20 ‘To do’ lists can help, but it is important to determine which ‘to dos’ are the
priorities, and then deal with them.21 Some additional tips on how to manage your time are included in
Manager’s notepad 8.1.

216  Management
 MANAGER’S NOTEPAD 8.1

Tips on how to manage your time

• Do say ‘No’ to requests that divert you from work you should be doing.
• Don’t get bogged down in details that should be left to others.
• Do establish a system for screening telephone calls and email.
• Don’t let ‘drop‐in’ visitors use too much of your time.
• Do prioritise work tasks in order of importance and urgency.
• Don’t become ‘calendar bound’ by losing control of your schedule.
• Do work tasks in priority order.

Scenario planning improves control

When planning is done well, it is easier to exercise control by measuring performance results and taking
action to improve things as necessary. Planning helps make this possible by defining the objectives along
with the specific actions through which they are to be pursued. If results are less than expected, either
the objectives or the action being taken, or both, can be evaluated and then adjusted in the control pro­
cess. In this way, planning and controlling work closely together in the management process. Without
planning, control lacks a framework for measuring how well things are going and what could be done
to make them go better. Without control, planning lacks the follow‐through needed to ensure that things
work out as intended.

COUNTERPOINT

The absurdity of planning in a rapidly changing global economy

In the new globalised economy in which uncertainty and change is continuous, planning is no longer
a guarantee of long‐term survival. In fact, traditional planning is likely to turn an organisation into a
dinosaur because by its very nature it lays down sets of actions based on what has been or is currently
happening rather than future circumstances. To survive, organisations must develop agility and core
strengths to allow rapid responses to continuous and sudden changes in the globalised business land-
scape. Rather than developing 5‐, 10‐ and 20‐year business plans, organisations should establish flex-
ible management structures, use the latest technologies, and develop in all their staff key skills and the
ability to deal with continuous change. Virtual organisations are one such response to this new business
environment. They exist only for the sustainable length of a project, after which they can be modified,
restructured or reinvented to suit changing market imperatives. They are an agile and responsive solu-
tion to the inertia that exists in ‘planned organisations’. These are the politically correct control methods
of the modern, profit‐maximising company.

QUESTION
Given the rate of change in organisational environments, how far should planning go? Can the planning
process actually impede our ability to respond to changes? Why or why not?

Benchmarking
Another important influence on the success or failure of planning involves the frame of reference used
as a starting point. All too often planners have only a limited awareness of what is happening outside
the immediate work setting. Successful planning must challenge the status quo; it cannot simply accept
things the way they are. One way to do this is through benchmarking, a technique that makes use
of external comparisons to better evaluate an organisation’s current performance and identify possible
actions for the future.22 The purpose of benchmarking is to find out what other people and organisations
are doing very well and then to plan how to incorporate these ideas into your organisation’s operations.

CHAPTER 8 Planning  217

This powerful planning technique is increasingly popular in today’s competitive business world. It is a
way for progressive companies to learn from other ‘excellent’ companies, not just competitors. It allows
them to analyse and thoroughly compare all systems and processes for efficiencies and opportunities for
innovation.

Staff planners
As the planning needs of organisations grow, there is a corresponding need to increase the sophistication
of the overall planning system itself. In some cases, staff planners are employed to help coordinate
planning for the organisation as a whole or for one of its major components. These planners should be
skilled in all steps of the formal planning process, including the benchmarking and scenario‐planning
approaches just discussed. They should also understand the advisory nature of their roles. Given clear
responsibilities and their special planning expertise, staff planners can bring focus to efforts to accom­
plish important planning tasks. But one risk is a tendency for a communication ‘gap’ to develop between
staff planners and line managers. This can cause a great deal of difficulty. Resulting plans may lack
relevance, and line personnel may lack commitment to implement them even if they are relevant. One
trend in organisations today is to de‐emphasise the role of large staff planning groups and to place much
greater emphasis on the participation and involvement of line managers in the planning process.

Management by objectives
A useful planning technique that helps integrate planning and controlling is management by objec-
tives, or just MBO. This is a structured process of regular communication in which a manager or team
leader works with staff or team members to jointly set performance objectives and review results accom­
plished.23 As shown in figure 8.3, MBO creates an agreement between the two parties regarding:
1. performance objectives for a given time period
2. plans through which they will be accomplished
3. standards for measuring whether they have been accomplished
4. procedures for reviewing performance results.
Of course, both parties in any MBO agreement are supposed to work closely together to fulfil the
terms of the agreement.

Team leader

Jointly plan Individually act Jointly control

● Setting objectives ● Performing tasks ● Reviewing results
and ● Setting standards (member) ● Discussing implications
● Choosing actions ● Providing support ● Renewing MBO cycle
(leader)

Team member

FIGURE 8.3 Performance objectives in MBO

Three types of objectives may be specified in an MBO contract.

1. Improvement objectives document intentions for improving performance in a specific way. An
example is ‘To reduce quality rejects by 10 per cent’.

218  Management
2. Personal development objectives pertain to personal growth activities; often those resulting in
expanded job knowledge or skills. An example is ‘To learn the latest version of a computer software
package’.
3. Some MBO contracts also include maintenance objectives that formally express intentions to main­
tain performance at an existing level.
One of the more challenging aspects of MBO is the need to make performance objectives as meas­
urable as possible. Ideally there is agreement on a measurable objective, for example, ‘To reduce travel
expenses by 5 per cent by the end of the fiscal year’. However, performance in some jobs, particularly
managerial ones, is sometimes hard to quantify. Rather than abandon MBO in such cases, it is often
possible to agree on performance objectives that are stated as verifiable work activities. The accomplish­
ment of the activities serves as an indicator of performance progress. An example is ‘To improve com­
munications with my team in the next three months by holding weekly team meetings’. Whereas it can
be difficult to measure ‘improved communications’, it is easy to document whether the ‘weekly team
meetings’ have been held.
MBO pros and cons
MBO is one of the most talked about and debated management concepts.24 As a result, advice is avail­
able. Common mistakes to avoid include focusing too much attention on ‘easy’ objectives, requiring
excessive paperwork, and having managers simply tell employees their objectives. The advantages of
MBO are that it can focus workers on the most important tasks and objectives, and focus managers
on areas of support that can truly help their employees meet the agreed‐upon objectives. Because
of the direct face‐to‐face communication, MBO can also contribute to relationship building. Further,
by giving people the opportunity to participate in decisions that affect their work, MBO encourages
self‐management.25

Participation and involvement

Planning is a process, not an event, and ‘participation’ is a key component of the planning process. Par-
ticipatory planning means that the process includes people who will be affected by the resulting plans
and/or who will be asked to help implement them. This brings to the organisation many benefits. Partici­
pation can increase the creativity and information available for planning. It can also increase the under­
standing, acceptance and commitment of people to final plans. Indeed, planning should be organised
and accomplished in a participatory manner that includes the contributions of many people representing
diverse responsibilities and vantage points. This includes the level of strategic planning, once considered
only the province of top management. The more aware all levels are of strategic plans and the more they
are involved in helping to establish them, the greater the commitment throughout the organisation to
their accomplishment.
The centrality of participation in the planning process is highlighted in figure 8.4. To create and
implement the best plans, proper attention must be given to genuinely involving others during all plan­
ning steps. Even though this process may mean that planning takes more time, it can improve results by
improving implementation. Sustainable Futures Australia is a small multidisciplinary organisation based
in Byron Bay in New South Wales. With a strong and upfront philosophy of sustainability, they work
with local government and regional communities to facilitate genuinely participative planning, working
on implementation of plans for policy and governance applications. They emphasise solutions that are
practical, environmentally appropriate, economically viable and socially acceptable. To enable this, the
firm has developed a planning web tool related to key elements of sustainability, which incorporates the
values of group participants.26

CHAPTER 8 Planning  219

 Define
planning
objectives

Implement Determine where

plans and things stand
evaluate results vis-à-vis objectives
Build commitments
to plans
Allow others to
participate and be involved
at all steps in the
planning process

Identify action Develop

alternatives and premises regarding
make plans future conditions

Formal planning process

FIGURE 8.4 How participation and involvement help build commitments to plans

CRITICAL ANALYSIS

1. Is scenario planning limited by the predictive power of the participants in the process? If not, why
not? How could it be improved?
2. Is MBO too limiting in terms of emergent issues and personal creativity? How might you ensure that
it does not become so?
3. How can participatory planning be used in organisations? What resistance might it potentially
create, and how would you deal with this?
4. Does the planning process, with its emphasis on resource utilisation and transformation processes
to produce particular outcomes, inhibit innovation? What can be done to ensure that planning does
not interfere with innovative thinking in organisations?

220  Management
SUMMARY
8.1 How do managers plan?
•• Planning is the process of setting performance objectives and determining what should be done to
accomplish them.
•• A plan is a set of intended actions for accomplishing important objectives.
•• Scenario planning sets the stage for the other management functions — organising, leading and
controlling.
•• The steps in the planning process are: define your objectives; determine where you stand vis‐à‐vis
objectives; develop your premises regarding future conditions; identify and choose among alternative
ways of accomplishing objectives; and implement action plans and evaluate results.
•• The SMART Model is an approach to determining effective organisational objectives that requires that
they be Specific, Measurable, Actionable, Reasonable and Timetabled.
•• The benefits of scenario planning include better focus and flexibility, action orientation, coordination,
control and time management.
8.2 What types of plans do managers use?
•• Short‐range plans tend to cover a year or less, whereas long‐range plans extend up to five years or
more.
•• Strategic plans set critical long‐range directions; operational plans are designed to implement strategic
plans.
•• Organisational policies, such as a sexual harassment policy, are plans that set guidelines for the
behaviour of an organisation’s members.
•• Organisational procedures and rules are plans that describe actions to be taken in specific situations,
such as the steps to be taken when people believe they have been sexually harassed or victimised, or
have witnessed unethical or corrupt practices.
•• Organisational budgets are plans that allocate resources to activities, projects or programs.
8.3 What are the useful planning tools, techniques and processes?
•• Forecasting, which attempts to predict what might happen in the future, is a planning aid but not a
planning substitute.
•• Contingency planning identifies alternative courses of action that can be implemented if and when
circumstances change in certain ways over time.
•• Planning, through the use of alternative versions of the future, is a useful form of contingency planning.
•• Planning through benchmarking uses external comparisons to identify desirable action directions.
•• Management by objectives is a process of joint objective‐setting between a manager and a staff
member.
•• Participation and involvement open the planning process to valuable inputs from people whose efforts
are essential to the effective implementation of plans.

KEY TERMS 
Benchmarking  uses external comparisons to gain insights for planning.
Budgets  are plans that commit resources to projects or activities.
Contingency planning  identifies alternative courses of action for use if and when circumstances
change with time.
A forecast  is an attempt to predict future outcomes.
Management by objectives, or MBO,  is a process of joint objective‐setting between a manager and a
staff member.

CHAPTER 8 Planning  221

Objectives  are specific results usually expressed in measurable indices that someone wishes to achieve
and may relate to the individual, a group or the whole organisation.
Operational plans  define specific activities to implement strategic plans.
Participatory planning  includes the people who will be affected by plans and/or whose help is
needed to implement them.
A plan  is a statement of intended means for accomplishing objectives.
Planning  is the process of setting objectives and determining how to accomplish them.
A policy  is a standing plan that communicates broad guidelines for decisions and action.
Procedures  precisely describe actions that are to be taken in specific situations. They define the
recommended sequence of events needed to accomplish a task or a set of tasks.
Project schedules  are single‐use plans for accomplishing a specific major project.
Rules  indicate what is and what is not acceptable behaviour and often specify the outcome of breaking
them.
Scenario planning  identifies alternative future scenarios and makes plans to deal with each. In a
fast‐changing and unpredictable world, it is often necessary to have multiple scenarios for planning
purposes.
The SMART model  is an approach to determining effective organisational objectives that requires that
they be specific, measurable, actionable, reasonable and timetabled.
Strategic plans  define long‐term needs and set action directions for the organisation. Tactical plans are
developed and used to implement strategic plans.
A zero‐based budget  allocates resources to a project or activity as if it were brand new.

APPLIED ACTIVITIES
1 In your own words, briefly explain the steps in the planning process.
2 What are the main advantages of scenario planning?
3 Outline the various types of plans used by managers, and appropriate circumstances in which each
can be used.
4 Provide an overview of planning tools, techniques and processes potentially available for managers,
and an example of how each can be used.
5 Put yourself in the position of the CEO of a well‐known Asia–Pacific corporation such as Mitsubishi
Motor Company. You have been asked to make a 30‐minute presentation to the Australian Chamber
of Commerce at the biannual meeting. The topic is corporate planning and ethical management
practices. What information would you include in your presentation and why?

ENDNOTES
  1. Quote from ‘Today’s Companies Won’t Make It, and Gary Hamel Knows Why’, Fortune (4 September 2000), pp. 386–7.
  2. Gary Hamel, Leading the Revolution (Boston: Harvard Business School Press, 2000).
  3. US Congressional Budget Office, ‘The 2015 Long‐Term Budget Outlook’ (16 July 2015).
  4. Ken Olsen, quoted in Jonathan Gaitlin, Bill Gates: The Path to the Future (Perennial Currents, 1999), p. 39.
  5. J. Letts, ‘Ethical Challenges in Planning for an Influenza Epidemic’, NSW Public Health Bulletin (2009) vol. 17, no. 9–10.
  6. Henry Mintzberg, ‘The Manager’s Job: Folklore and Fact’, Harvard Business Review, vol. 53 (July–August 1975),
pp. 54–67; Henry Mintzberg, ‘Planning on the Left Side and Managing on the Right’, Harvard Business Review, vol. 54
(July–August 1976), pp. 46–55.
  7. See Elliot Jaques, The Form of Time (New York: Russak & Co., 1982). For an executive commentary on his research, see
Walter Kiechel III, ‘How Executives Think’, Fortune (21 December 1987), pp. 139–44.
  8. See Henry Mintzberg, ‘Rounding Out the Manager’s Job’, Sloan Management Review (Fall 1994), pp. 1–25.
  9. J. T. Campling, The Sustainability Revolution: New Business Paradigms for a Globalised Economy (Brisbane: John Wiley &
Sons, 2005).
10. For a detailed account and explanation of the rise of the virtual organisation see Campling, ibid.

222  Management
11. Matt McCue, ‘The World’s 50 Most Innovative Companies 2014: Shutterstock’, Fast Company (2014), www.fastcompany.com.
12. ibid.
13. Cameron Edmond, ‘How Experimentation Can Bolster Company Culture’, HR Magazine (11 February 2014), www.hcamag.com.
14. ibid.; Matt McCue, op. cit.
15. For a thorough review of forecasting, see J. Scott Armstrong, Long‐Range Forecasting, 2nd edn (New York: Wiley, 1985).
16. P. Kotler, Marketing Management (New York: Prentice‐Hall, 2003), p. 69.
17. Quote from Stephen Covey and Roger Merrill, ‘New Ways to Get Organized at Work’, USA Weekend (6–8 February
1998), p. 18. Books by Stephen R. Covey include The 7 Habits of Highly Effective People: Powerful Lessons in Personal
Change (New York: Fireside, 1990); and Stephen R. Covey and Sandra Merril Covey, The 7 Habits of Highly Effective
Families: Building a Beautiful Family Culture in a Turbulent World (New York: Golden Books, 1996).
18. For a classic study, see Stanley Thune and Robert House, ‘Where Long‐Range Planning Pays Off’, Business Horizons, vol. 13
(1970), pp. 81–7. For a critical review of the literature, see Milton Leontiades and Ahmet Teel, ‘Planning Perceptions and
Planning Results’, Strategic Management Journal, vol. 1 (1980), pp. 65–75; and J. Scott Armstrong, ‘The Value of Formal
Planning for Strategic Decisions’, Strategic Management Journal, vol. 3 (1982), pp. 197–211. For special attention to the small
business setting, see Richard B. Robinson Jr, John A. Pearce II, George S. Vozikis and Timothy S. Mescon, ‘The Relationship
Between Stage of Development and Small Firm Planning and Performance’, Journal of Small Business Management, vol. 22
(1984), pp. 45–52; and Christopher Orphen, ‘The Effects of Long‐Range Planning on Small Business Performance: A Further
Examination’, Journal of Small Business Management, vol. 23 (1985), pp. 16–23. For an empirical study of large corporations,
see Vasudevan Ramanujam and N. Venkatraman, ‘Planning and Performance: A New Look at an Old Question’, Business
Horizons, vol. 30 (1987), pp. 19–25.
19. Quotes from Business Week (8 August 1994), pp. 78–86.
20. See William Oncken Jr and Donald L. Wass, ‘Management Time: Who’s Got the Monkey?’, Harvard Business
Review, vol. 52 (September–October 1974), pp. 75–80; and featured as an HBR classic, Harvard Business Review,
(November–December 1999).
21. Covey and Covey op. cit., p. 18.
22. See, for example, Robert C. Camp, Business Process Benchmarking (Milwaukee: ASQ Quality Press, 1994); Michael J.
Spendolini, The Benchmarking Book (New York: AMACOM, 1992); and Christopher E. Bogan and Michael J. English,
Benchmarking for Best Practices: Winning Through Innovative Adaptation (New York: McGraw‐Hill, 1994).
23. See Dale D. McConkey, How to Manage by Results, 3rd edn (New York: AMACOM, 1976); Stephen J. Carroll Jr. and
Henry J. Tosi Jr., Management by Objectives: Applications and Research (New York: Macmillan, 1973); and Anthony P. Raia,
Managing by Objectives (Glenview, Illinois: Scott, Foresman, 1974).
24. For a discussion of research, see Carroll and Tosi, op. cit.; Raia, op. cit.; and Steven Kerr, ‘Overcoming the Dysfunctions
of MBO’, Management by Objectives, vol. 5, no. 1 (1976). Information in part from Dylan Loeb McClain, ‘Job Forecast:
Internet’s Still Hot’, New York Times (30 January 2001), p. 9.
25. See Douglas McGregor, The Human Side of Enterprise (New York: McGraw Hill, 1960).
26. Sustainable futures Australia website, www.sustainablefutures.com.au.

ACKNOWLEDGEMENTS
Photo: © Moonlight Cinema
Photo: © Spotmatik Ltd / Shutterstock.com
Photo: © BP Australia Pty Ltd
Extract: © From ‘Creating an Innovation Culture’, in Jack Wood, Rachid Zeffane, Michele Fromholtz,
Retha Wiesner, Rachel Morrison and Aharon Factor, Organisational Behaviour: Core Concepts and
Applications, 4th edn (Milton: John Wiley & Sons, 2016).

CHAPTER 8 Planning  223

CHAPTER 9

Strategic management
LEA RN IN G OBJE CTIVE S

9.1 What are the foundations of strategic competitiveness?

9.2 What is strategic management?
9.3 What types of strategies are used by organisations?
9.4 How are strategies formulated?
9.5 What are current issues in strategy implementation?
Rise of the new tech companies
Let’s take a quick quiz. Can you name the world’s largest taxi company? Hint: it owns no vehicles. The
answer is Uber. Can you name the world’s most popular media company? Hint: it creates no content.
The answer is Facebook. Can you name the world’s most valuable retailer? Hint: it has no inventory.
The answer is Alibaba. Can you name the world’s largest accommodation provider? Hint: it owns no real
estate. The answer is Airbnb.1 (Note: These answers were correct at the end of 2015 but the commercial
landscape is changing so rapidly that these facts may change quickly.)
Something interesting is happening in the commercial world where ownership of significant physical
assets is no longer a perquisite to major business success. Traditionally, it was those who owned the
means of production who ruled the business world. This is no longer the case. Even those who are res­
ponsible for transporting, storing and retailing goods are no longer the leaders of business. The internet,
coupled with the smartphones and other mobile devices, is changing the way that customers access infor­
mation and interact with businesses. Even more significantly, these changes are affecting who makes a
profit and who fails in business.
So what is it that companies such as Uber, Facebook and Airbnb actually do to make a profit? In short,
they are an interface between potential customers and businesses. The internet provides an unprecedented
opportunity for businesses to provide dynamic and detailed information to customers, while providing
a chance for customers to interact with each other. The smartphone and other mobile devices provide
almost continuous communication and access for customers, coupled with GPS tracking, environmental
scanning and an increasing range of information gathering systems. When these two seemingly limit­
less systems are paired, the company that provides an effective interface system which harnesses these
systems while linking providers and customers can make a profit. For example, Uber provides privately
owned cars in a premium way. Facebook provides information from friends who have visited the res­
taurant that you are considering. And Airbnb has empowered residents with spare accommodation to
rent it to people who want unique, affordable accommodation options.2

CHAPTER 9 Strategic management  225

 So how can companies develop strategies to harness this new environment where enhanced internet and
mobile devices connect with customers to earn significant profit? Clearly, companies need to be aware
of technological changes that alter the rules of competition. In addition, companies need to be aware of
how customers may interact with these technologies and where the technologies may provide access
to certain ‘slack’ resources, such as privately owned vehicles or vacant residential accommodation. It
could be said, therefore, that these marketplace companies enable existing infrastructure to be used more
efficiently.
Strategic management, however, is more than just being aware of how environmental trends interact
with each other to provide new opportunities and a changed business landscape. For instance, not every
company who is aware of these trends can turn the opportunity into profit. The company must be able
to harness its own resources and in some cases change itself to turn opportunity into profit. This is the
essence of strategic management, and this chapter will explore how you as a manager can be an effective
part of the strategic management process.

QUESTION
Name and describe other companies that have been able to make a profit from new customer interface
opportunities. Why do these companies make a profit while many others do not?

Introduction
Companies such as Facebook don’t achieve long‐term success and growth without strategy. Service inno­
vation is just one way for an organisation to potentially grow (and is also no guarantee of success). Other
ways that companies in a wide variety of industries can grow and prosper are via the pursuit of pricing
and cost leadership strategies. IKEA is an example of product or concept differentiation. IKEA has used
a uniquely Scandinavian minimalist and functional approach to furniture design and lifestyle products
to develop a successful global market for its products. Richard Branson’s Virgin Group has achieved
similar results in a range of industries, from airlines to mobile phones to credit cards, by attaching the
values associated with the Virgin brand to a variety of products and services.
In developed economies such as Australia and New Zealand, there is often considerable market frag­
mentation, allowing companies to use different strategies to capture different fragments of national
markets. In addition, as an increasing number of industries are being deregulated, more organisations
are being exposed to market forces. Consequently, more than ever, today’s environment places a great
premium on effective ‘strategy’ and ‘strategic management’ as prerequisites for organisational success.
Strategy formulation must become an important part of all senior managers’ work.

9.1 Sustainable strategic competitiveness

LEARNING OBJECTIVE 9.1 What are the foundations of strategic competitiveness?
Competitive advantage arises when an organisation acquires or develops an attribute or combination
of attributes that allows it to outperform its competitors. These attributes can include access to natural
resources, such as high‐grade ores or inexpensive power, or access to highly trained and skilled per­
sonnel — human resources. New technologies such as robotics and information technology — either to
be included as part of the product, or to assist in making it — are often important sources of competitive
advantage. In Australia and New Zealand considerable advances in agricultural technologies have given
the livestock and wine industries a competitive advantage over international rivals. This has also been
the case for the nickel, copper and strategic metals and energy resources industries, where companies
like Rio Tinto have patented numerous techniques for improving efficiency and quality. The aim for any
organisation, however, is not just to achieve competitive advantage but to make it sustainable in spite of
competitors’ attempts to copy or duplicate a success story.

226  Management
 Sustainable competitive advantage is the hallmark of successful companies such as Facebook, Sony
and IKEA. In all these companies, technological and design leadership has been central to the strategy
of sustainable competitive advantage and has been driven by senior management with almost crusading
zeal and passion. Sustainable competitive advantage can also be achieved through applying technol­
ogies developed by other industries. For example, in Australia and New Zealand the supermarket chain
Woolworths has used continuous IT improvement, supply chain innovation and a strong customer focus
as a centrepiece of its corporate strategies.
Achieving and sustaining competitive advantage is a challenging task for even the largest organ­
isations, all of which are very aware that new technologies, changes in the global economy or world
geopolitics, and sudden shifts in consumer demand could lead to their demise. Indeed, the history of
capitalism is littered with examples of corporate extinction. For example, in 1950 there were more than
100 car manufacturers in the United States and more than 60 in the United Kingdom. Today, there
are fewer than ten major car manufacturers worldwide. Many ceased operation, while others, such as
Australian‐owned Holden, were taken over by companies such as General Motors, which expanded
globally through acquisition. The global financial crisis, with the associated cash flow crunch, subse­
quently saw the once‐mighty General Motors famously struggle under the weight of thousands of unsold
vehicles. General Motors required a US government bailout package, and, more than anything, con­
fronted the reality of having lost strategic competitiveness —with the company even having to sell off its
subsidiary Saab because of the circumstances.
Competition tends to destroy competition, leading to a concentration of ownership and control in
many industries. The telecommunications, insurance, airline, and retailing industries increasingly have
fewer players as the process of competition ‘weeds out’ the weaker organisations. How many of today’s
big corporate names will be tomorrow’s dinosaurs? Which ones will cease to operate or be swallowed
up by their competitors? In other words, which organisations have the right strategy to survive and have
a sustainable future? This process is not unlike what the 19th century British scientist Charles Darwin
described for the biological world in his seminal book The Origin of Species by Means of Natural Selec-
tion. ‘Survival of the fittest’, in evolutionary terms, refers to those species that ‘fit’ themselves best to
their environment. A species that fails to adapt fails to survive. Adaptation is the key concept. Hannan
and Freeman have developed a very similar argument for the organisational world, which they call the
‘population ecology of organisations’.3

What is organisational strategy?

Canadian management researcher Henry Mintzberg describes organisational strategy as ‘a pattern in
a stream of decisions’.4 This decision‐based concept of strategy has two important implications. First,
strategy is not necessarily apparent from the analysis of just one decision, because it must be viewed
in the context of several decisions and the consistency among the decisions. Second, the organisation
must be aware of alternatives in all of its decisions. A deliberate strategy can be contained in a formal
document that identifies long‐term goals and outlines resource use to accomplish them. These are useful
in focusing attention on the competitive environment and indicating how corporate objectives can be
secured even as conditions alter. Of course, it is also important to recognise that new strategies and
objectives may emerge as the environment changes in ways that could not be predicted. Unfortunately,
it is not always possible to accurately predict the future based on the past in a fast‐changing global
economy. Organisations need to be prepared for a wide range of eventualities. Importantly, a strategy
provides the plan for allocating and using resources with consistent strategic intent — that is, with all
organisational energies directed towards a unifying and compelling target or goal.5
In our fast‐paced world of globalisation, changing technologies and shifting social and economic
needs, the ‘long‐term’ aspect of strategy is becoming ever shorter. As it does so, the challenges to the
strategist become even greater. It used to be that companies could count on traditional ‘build‐and‐sell’
business models that put them in control. In the early days of the car‐making industry, for example,

CHAPTER 9 Strategic management  227

Henry Ford once said: ‘The customer can have any colour he wants as long as it’s black.’ His firm, quite
literally, was in the driver’s seat. Today things have changed and strategy is increasingly driven by cus­
tomers and flexibility. Says John M. Jordan, former director of e‐commerce research for Ernst & Young:
‘Customers are calling the shots, telling companies what they want, and companies have to respond to
those desires or lose out.’ Stephen Haeckel, former director of strategic studies at IBM’s Advanced Busi­
ness Institute, describes the shift in approach this way: ‘It’s a difference between a bus, which follows
a set route, and a taxi, which goes where customers tell it to go.’6 A number of writers have identified
broader waves of change in the environment that force business strategists to restructure, and often rein­
vent, their corporate strategies.

Strategic management
On the surface, devising strategy may seem a simple task. Find out what customers want, then develop
or use the appropriate production or product technologies to deliver it to them at an affordable price
and with the best service. In practice this task is made much more complex because of the uncertainties
and unpredictability of global markets. Every strategist must remember that at the same time they are
trying to create competitive advantage for an organisation, competitors are always attempting to do the
same. This gives rise to demands for strategies that can be called ‘bold’, ‘aggressive’, ‘fast‐moving’ and
‘innovative’. But call them what you will, strategies don’t just happen. They must be created. And strat­
egies alone don’t automatically bring success. They must be both well chosen and well implemented.
Strategic management is the process of formulating and implementing strategies to accomplish long‐
term goals and sustain competitive advantage. The essence of strategic management is looking ahead,
understanding the environment and the organisation, and effectively positioning the organisation for
competitive advantage in changing times. Chief executives must think strategically as they try to position
their organisations for contemporary markets. They must think strategically in deciding how to use new
technologies to maximum advantage. They must think strategically in analysing the conditions in the
global economy, highlighted by the ‘global financial crisis induced’ economic downturn. And they must
think strategically where it really counts — in respect of what customers and clients really want.

Strategic management goals

Michael Porter, a strategy academic and consultant, says that ‘sound strategy starts with having the right
goal’.7 He argues that the ultimate goal for any business should be superior profitability. This creates
value for investors in the form of above‐average returns, returns that exceed what an investor could
earn by investing in alternative opportunities of equivalent risk.8 At ANZ Bank, this goal is stated as
‘Creating value for our shareholders’.9
The nature of the competition within an organisation’s environment largely determines whether above‐
average returns are achievable. An understanding of the organisation’s markets is crucial for setting stra­
tegic management goals. Good economic analysis is therefore essential. Indeed, the business strategist
Michael Porter has long recognised that the roots of the structural and market analysis within strategic
management lie within economics.10
Organisations compete in environments that vary according to their market structures. Where a
monopoly environment exists there is only one organisation and no competition. This creates absolute
competitive advantage, delivering sustainable and probably excessive business profits. This absolute
competitive advantage may not be in the public interest — lack of consumer choice and high prices
are the likely outcomes. Consequently, most Western governments have passed legislation preventing
or limiting monopolies. For example, the Australian Competition and Consumer Commission inves­
tigates market dominance and competitive activity that is contrary to the Australian public interest.
New Zealand’s equivalent body is the Commerce Commission.
Until recent years, most monopolies in Australia and New Zealand were government‐owned organ­
isations accountable to the people through the democratic process. With the privatisation of many of

228  Management
these organisations, in industries such as telecommunications, transport and energy retailing, private
monopolies have been created that have little or no accountability. To provide accountability their market
structures must be changed to be more competitive, but in many cases this has been difficult to achieve.
Some economists have called for the re‐nationalisation of these companies to better serve the public
interest, rather than making monopoly profits for their shareholders.
An oligopoly environment or oligopolistic competition is a market where a small number of competi­
tors feel themselves constrained more by the actions of their rivals than by those of their customers.
Organisations within an oligopoly sustain long‐term competitive advantages within defined market seg­
ments. In the absence of competition within these segments, they can reap excessive business profits. Air­
craft manufacturers, major machine tool producers, defence manufacturers, national newspapers, natural
resource extraction operations and segments of the food manufacturing industry are in an oligopolistic
environment. Aircraft manufacture is a particularly good example, where the European consortium
Airbus Industrie and the US‐based Boeing need to keep a close eye on each other’s actions if they are to
prosper. This often leads to industrial espionage, with Airbus Industrie claiming that the US government
uses its intelligence‐gathering organisations, such as the CIA, to obtain confidential information about its
operations for its competitor.11
An effective understanding of the principles of game theory therefore becomes a critical skill of strat­
egists under an oligopoly.12 They need to guess correctly what a rival’s response to a price change
will be; to understand when a new entrant to the industry should be accommodated rather than driven
out; and to know when to collude with a rival, either explicitly or implicitly, rather than fighting a
cut‐throat action. The domestic airline industry in Australia, with its rivalry between Qantas and Virgin
Australia, previously constituted a duopoly — a form of oligopolistic competition. The emergence of
discount operators, such as Jetstar (which is owned by Qantas and is now effectively in competition with
its parent company), as well as the entry of Asian carriers, such as Singapore‐based Tiger Airways, is
making for a crowded market — at least while differences in prices and service levels stabilise.

GLOBALISATION

Rescuing a flagging icon

It would be no surprise to most management
students that as of May 2015, McDonald’s was
the sixth most valuable brand according to
Forbes magazine. In terms of global restaurant
brands it was the clear leader, with Starbucks
being the next entry on the list at number 52.13
The golden arches of the fast‐food restaurant
chain are instantly recognisable to people
of all ages around the world. What is sur­
prising, however, is that this franchising giant
is suffering flagging sales in the United States.
In the second quarter of 2015, US sales slid by
2 per cent and the company’s net profits fell
13 per cent.14 What is going wrong with this
iconic brand and does it matter?
From 2002 onwards, McDonald’s in the US underwent a period of store remodelling and upgrading
in an attempt to lure customers to return. Up until 2015, however, the sales problem persisted. The res­
taurant chain is now experimenting with greater food variety, greater customer choices and healthier
food options. This strategy, however, is somewhat contrary to the company’s traditional image as
offering convenient, fast and cheap food. Some commentators have described McDonald’s as under­
going an identity crisis, as customers are opting for higher priced and healthier food options in res­
taurants such as Grill’d burgers in Australia and Chipotle Mexican Grill in the United States.

CHAPTER 9 Strategic management  229

 McDonald’s identity crisis, however, may be accelerating as it finds its sales and store openings
soaring in China. In 2013, McDonald’s opened 275 new stores in China with an aim of opening 300
in 2014. This contrasts with their activity in the United States, where there were 225 new restaurants
in 2013 and 250 in 2014. The impressive expansion in China aims to tap into the expanding middle
class there; the number of people earning between $17 000 to $35 000 in China is estimated to grow
from 6 per cent in 2010 to 50 per cent by 2020. However, to succeed in China, McDonald’s must
change.15
McDonald’s must change in China because its growth has been weak compared to KFC’s spec­
tacular growth from 1987 to 2012.16 KFC succeeded, to some extent, by de‐Westernising its stores and
menu, offering, for example, Peking Duck burritos and creating a clean, upscale dining environment.
McDonald’s is trying to follow suit. There is indeed a limit as to how much Western culture a Chinese
customer wants or expects in dining out, and so the architecture of a new McDonald’s restaurant China
often follows regional as well as more typical national trends. Some tables in the restaurant are round
and seat up to ten people, which is more in line with the expectations of groups that are going out to
dine in China. Menu offerings are more locally oriented, with pork and chicken, rather than beef, being
included in more items.
Although global expansion and cultural adaptation is a strategy that is working for McDonald’s, the
fall of KFC in China from 2012 to 2015 is instructive. Major food scandals and intense local competition
had a huge impact on KFC’s sales in China, and the parent company Yum! Brands decided to spin off
its Chinese unit as a separate publically listed company to decouple itself from China’s roller coaster
consumer ride. KFC suffered, in particular, after consumers became aware of reports outlining the use
of expired meat.17 Strategists at McDonald’s will hopefully realise that there is no substitute for product
quality and food safety and that it must continually innovate to survive against the inevitable onslaught
of persistent, quality local competition. 

QUESTION
What growth strategy would you recommend for McDonald’s in China? How can McDonald’s overcome
the current challenges that it faces in the United States?

The global economy has helped to create for many businesses today an environment of hypercom-
petition.18 This is an environment in which there are at least several players who directly compete
with one another. An example is the fast‐food industry where McDonald’s, KFC, Pizza Hut and many
other restaurant chains all compete for largely the same customers. Because the competition is direct
and intense, any competitive advantage that is realised is temporary. Successful strategies are often
copied and organisations must be agile, in that they must continue to find new strategies that deliver
new sources of competitive advantage, even while trying to defend existing ones.19 In hypercompe­
tition, there are always some winners and losers. Business profits can be attractive but intermittent.
The customer generally gains in this environment through lower prices and more product/‐service
innovation.
In the internet search engine market, Google quickly emerged as the world’s most popular choice.
Since its 1998 debut, Google — nimble, streamlined and reliable in returning relevant results — has
set a benchmark in search technology. Its strategy was to design a search engine that directly serves
the interest of the consumer first; and the advertiser second. Currently, Google’s market leadership
is largely unchallenged, but the organisation is constantly evolving in order to maintain and leverage
its competitive edge. The organisation derives its revenue from advertising, and in 2006 it purchased
YouTube for $1.65  billion, within a year of the popular video site first appearing. The acquisition,
however, is yet to become a profitable business for Google; YouTube attracts over 1 billion views each
month but still struggles to expand its viewers from the beyond the teens and tweens demographics.20
YouTube hopes to change this through higher quality programming, subscription services and better
ad‐targeting, however, its strategy must improve if it is to reach profitability 10 years after acquisition
by Google.

230  Management
 CRITICAL ANALYSIS

1. What do you think determines the kind of strategy a firm adopts? Is the environment of an organisation
more important than management intent or organisational resources (including capacity)?
2. Is growth the only real goal of organisations? In some operating environments, where growth is all
but impossible, what strategies are appropriate?
3. What is the role of time when developing strategy? Is it a part of strategy development, and if so,
under what circumstances?

9.2 The strategic management process

LEARNING OBJECTIVE 9.2 What is strategic management?
Strategic management is successful when organisations, even those operating in environments of hyper­
competition, achieve sustainable competitive advantage and earn above‐average returns. Successful
strategies are crafted from insightful understandings of the competitive environment as well as intimate
knowledge of the organisation. And they are implemented with commitment and resolution. Figure 9.1
describes a series of steps involved in fulfilling the two major responsibilities of the strategic manage­
ment process — strategy formulation and strategy implementation.
Strategy formulation — Strategy implementation —
creating strategies putting strategies into action

Identify and Analyse external and Revise mission Implement Evaluate results
analyse current internal environments and objectives, strategies ● Strategic
● Mission ● Industry and external select new ● Corporate control
● Objectives environment strategies governance ● Renew
● Strategies (opportunities and ● Corporate ● Management strategic
threats) ● Business systems and management
● Organisational ● Functional practices process
resources and ● Strategic
capabilities (strengths leadership
and weaknesses)

FIGURE 9.1 Strategy formulation and implementation in the strategic management process

The first strategic management responsibility is strategy formulation, the process of creating strategy.
This involves assessing existing strategies, the organisation and your environment to develop new strat­
egies and strategic plans capable of delivering future competitive advantage. Peter Drucker associates
this process with a set of five strategic questions: What is our business mission? Who are our customers?
What do our customers consider value? What have been our results? What is our plan?21
The second strategic management responsibility is strategy implementation, the process of allo­
cating resources and putting strategies into action. Once strategies are created, they must be successfully
acted on to achieve the desired results. As Drucker says: ‘The future will not just happen if one wishes
hard enough. It requires decision — now. It imposes risk — now. It requires action — now. It demands
allocation of resources, and above all, of human resources — now. It requires work — now.’22 This is the
responsibility for putting strategies and strategic plans into action. Every organisational and management
system must be mobilised to support and reinforce the accomplishment of strategies. Scarce resources
must be used for maximum impact on performance. All of this, in turn, requires a commitment to mas­
tering the full range of strategic management tasks posed in Manager’s notepad 9.1.23

CHAPTER 9 Strategic management  231

 MANAGER’S NOTEPAD 9.1

Five strategic management tasks

1. Identify organisational mission and objectives. Ask: ‘What business are we in? Where do we want to go?’
2. Assess current performance in relation to mission and objectives. Ask: ‘How well are we currently
doing?’
3. Create strategic plans to accomplish purpose and objectives. Ask:‘How can we get where we really
want to be?’
4. Implement the strategic plans. Ask: ‘Has everything been done that needs to be done?’
5. Evaluate results; change strategic plans and/or implementation processes as necessary. Ask: ‘Are
things working out as planned? What can be improved?’

Analysis of mission, values and objectives

The strategic management process begins with a careful assessment and clarification of the organ­
isational mission, values and objectives.24 A clear sense of mission and objectives sets the stage for
assessing the organisation’s resources and capabilities as well as competitive opportunities and threats in
the external environment.

Mission
As first discussed in chapter 1, the mission or purpose of an organisation may be described as its reason
for existence in society. Strategy consultant Michael Hammer believes that a mission should represent
what the strategy or underlying business model is trying to accomplish. He suggests asking: ‘What are
we moving to? What is our dream? What kind of a difference do we want to make in the world?’25
National governments often take the lead in defining the mission for the domestic economy, and, in
doing so, provide vision and direction for business organisations. For  example, China’s broad objec­
tives in the 21st century are to achieve sustainable levels of development aimed at improving domestic
economic and political stability, and to legitimise the continuation of one‐party rule. This national
mission is being pursued through promotion of a peaceful regional and global environment in order to
guarantee economic, political and territorial security for the Chinese government, which enhances its
international status and power. The actions and behaviour of Chinese businesses are strongly influenced
by their government’s overall mission. In liberal democracies, such as Australia, the United Kingdom,
Canada and France, governments also play an important role in developing the broader national mission
that businesses and other domestic organisations will be influenced to follow.
The Special Broadcasting Service (SBS), Australia’s multicultural and multilingual public broadcaster,
was established with the mission to give voice and exposure to multicultural Australia. Specifically, the
broadcaster was established by the federal government to define, facilitate and promote Australia’s cul­
tural heterogeneity in accordance with its charter obligation.
A good mission statement identifies the domain in which the organisation intends to operate —
including the customers it intends to serve, the products and/or services it intends to provide, and the
location in which it intends to operate. The mission statement should also communicate the underlying
philosophy that will guide employees in these operations. Consider the mission statement for Merck, one
of the world’s leading pharmaceutical companies: ‘To discover, develop and provide innovative products
and services that save and improve lives around the world’.26
An important test of corporate purpose and mission is how well it serves the organisation’s stake-
holders. Remember that these are individuals and groups — customers, shareholders, suppliers, creditors,
community groups and others — who are directly affected by the organisation and its accomplishments.
In the strategic management process, the stakeholder test can be done as a constituencies analysis. Here,
the specific interests of each stakeholder are assessed along with the organisation’s record in responding
to them. Figure 9.2 gives an example of how stakeholder interests can be reflected in a mission statement.

232  Management
 Employees Communities
We respect the individuality We are committed to being caring and
of each employee . . . creativity supportive corporate citizens within the
and productivity are encouraged, worldwide communities in which
valued and rewarded. we operate.

Mission
Create value for our stakeholders

Shareholders Customers
Suppliers
We are dedicated to . . . We are committed to
We think of our suppliers
performing in a manner providing superior
as partners who share our
that will enhance returns value in our products
goal of . . . highest quality.
on investments. and services.

FIGURE 9.2 External stakeholders and the mission statement

Core values
Behaviour in and by organisations will always be affected in part by values, which are broad beliefs about
what is or is not appropriate. Organisational culture was first defined in the chapter on environment
and diversity as the predominant value system of the organisation as a whole.27 Through organisational
cultures, the values of managers and other members are shaped and pointed in common directions. In
strategic management, the presence of strong core values for an organisation helps build institutional
identity. It gives character to an organisation in the eyes of its employees and external stakeholders, and
it backs up the mission statement. Shared values also help guide the behaviour of organisation members
in meaningful and consistent ways. For example, Merck backs up its mission with a public commitment
to core values that state ‘our core values are driven by a desire to improve human life, achieve scientific
excellence, operate with the highest standards of integrity, expand access to our products and employ a
diverse workforce that values collaboration’.28
Objectives
Whereas a mission statement sets forth an official purpose for the organisation and the core values
describe appropriate standards of behaviour for its accomplishment, operating objectives direct
activities towards specific performance results. These objectives are shorter term targets against which
actual performance results can be measured as indicators of progress and continuous improvement. Any
and all operating objectives should have clear means–ends links to the mission and purpose. Any and all
strategies should, in turn, offer clear and demonstrable opportunities to accomplish operating objectives.
According to Peter Drucker, the operating objectives of a business might include:
1. profitability — producing at a profit in business
2. market share — gaining and holding a specific market share
3. human talent — recruiting and maintaining a high‐quality workforce
4. financial health — acquiring capital; earning positive returns
5. cost efficiency — using resources well to operate at low cost
6. product quality — producing high‐quality goods or services
7. innovation — developing new products and/or processes
8. social responsibility — making a positive contribution to society.29

CHAPTER 9 Strategic management  233

Analysis of organisational resources and capabilities
Two important steps in the strategic management process are analysis of the organisation and analysis
of its environment. They may be approached by a technique known as SWOT analysis — the internal
analysis of organisational Strengths and Weaknesses as well as the external analysis of environmental
Opportunities and Threats. The origin of the SWOT framework is obscure; however, it has been in use
in business since the 1960s.30
As shown in figure 9.3, a SWOT analysis begins with a systematic evaluation  of the organisation’s
resources and capabilities. A major goal is to identify core competencies in the form of special strengths
that the organisation has or where it does exceptionally well in comparison with competitors. They are
capabilities that by virtue of being rare, costly to imitate, and non‐substitutable become viable sources of
competitive advantage.31 Core competencies may be found in special knowledge or expertise, superior
technologies, efficient manufacturing technologies or unique product distribution systems, among many
other possibilities. But always, and as with the notion of strategy itself, they must be viewed relative to
the competition. Simply put, organisations need more competencies that do important things better than
the competition and that are very difficult for competitors to duplicate.

Internal assessment
of the organisation

What are our strengths? What are our weaknesses?

● Manufacturing efficiency? ● Outdated facilities?
● Skilled workforce? ● Inadequate R & D?
● Good market share? ● Obsolete technologies?
● Strong financing? ● Weak management?
● Superior reputation? ● Past planning failures?

SWOT
analysis
What are our opportunities? What are our threats?
● Possible new markets? ● New competitors?
● Strong economy? ● Shortage of resources?
● Weak market rivals? ● Changing market tastes?
● Emerging technologies? ● New regulations?
● Growth of existing market? ● Substitute products?

External assessment
of the environment

FIGURE 9.3 SWOT analysis of strengths, weaknesses, opportunities and threats

Figure 9.3 highlights several reference points for the internal analysis of organisational strengths. Organ­
isational weaknesses, of course, are the other side of the picture. They can also be found in the same or
related areas and must be identified if you are to gain a realistic perspective on the formulation of strategies.
The goal in strategy formulation is to create strategies that make the most of core competencies for competi­
tive advantage by building upon organisational strengths and minimising the impact of weaknesses.

Analysis of industry and environment

A SWOT analysis is not complete until opportunities and threats in the external environment are also
analysed. They can be found among macroenvironment factors such as technology, government, social
structures and population demographics, the global economy and the natural environment. They can also

234  Management
include developments in the industry environment of resource suppliers, competitors and customers. As
shown in figure 9.3, opportunities may exist as possible new markets or a strong economy; threats may
be identified in such things as the emergence of new competitors or technologies, resource scarcities,
changing customer tastes and new government regulations, among other possibilities.
In respect to the external environment as a whole, the more stable and predictable it is, the more
likely that a good strategy can be implemented with success for a longer period of time. But when the
environment is composed of many dynamic elements that create uncertainties, more flexible strategies
that change with time are needed. Given the nature of competitive environments today, strategic manage­
ment must be considered an ongoing process in which strategies are formulated, implemented, revised
and implemented again in a continuous manner.
Michael Porter offers the five forces model shown in figure 9.4 as a way of adding sophistication to
this analysis of the environment.32

New entrants
Threat of potential
new competitors

Suppliers Industry competition Customers

Bargaining power of Rivalry among Bargaining power of
suppliers competing organisations buyers

Substitute products
Threat of substitute
products or services

FIGURE 9.4 Porter’s model of five strategic forces affecting industry competition

Source: Developed from Michael E. Porter, Competitive Strategy (New York: Free Press, 1980).

Porter’s framework for competitive industry analysis directs attention towards understanding the
following forces:
1. industry competitors — intensity of rivalry among firms in the industry
2. new entrants — threats of new competitors entering the market
3. suppliers — bargaining power of suppliers
4. customers — bargaining power of buyers
5. substitutes — threats of substitute products or services.
From Porter’s perspective, the foundations for any successful strategy rest with a clear understanding
of these competitive environmental forces. He calls this the ‘industry structure’. The strategic manage­
ment challenge is to position an organisation strategically within its industry, taking into account the
implications of forces that make it more or less attractive. In general, an unattractive industry is one in
which rivalry among competitors is intense, substantial threats exist in the form of possible new entrants
and substitute products, and suppliers and buyers are very powerful in bargaining over such things as
prices and quality. An attractive industry, on the other hand, has less existing competition, few threats
from new entrants or substitutes, and low bargaining power among suppliers and buyers.33 By systemat­
ically analysing industry attractiveness with respect to the five forces, Porter believes that strategies can
be chosen to give the organisation a competitive advantage relative to its rivals.34

CHAPTER 9 Strategic management  235

 COUNTERPOINT

Why does strategy fail?

One of the great weaknesses of strategic management is a failure to pay attention to the implementation
of the strategy. In fact, recently over 400 global CEOs reported that effective execution of strategy was
their number one challenge out of a list of 80 issues.
The reasons for inadequate execution of strategy have been identified by a large‐scale research pro­
ject that included over 40 experiments to explore the effects of changes on strategy execution. The pro­
ject also explored responses to a survey administered to almost 8000 managers in over 250 companies.
The research discovered five common myths that some managers believe regarding strategy execution.
The five myths are summarised below.
Myth 1: Execution equals alignment
The research discovered that although managers can rely on their bosses and direct reports, they
couldn’t rely on colleagues in other functions and other units. This leads to managers duplicating organ­
isation efforts, letting promises to customers slip, passing up attractive opportunities and delaying deliv­
erables. A failure to coordinate, therefore, is a common reason for failure in executing strategy.
Myth 2: Execution means sticking to the plan
Developing budgets, assigning responsibilities and setting realistic goals is usually performed well in
organisations. However, plans are made on the basis of assessments of circumstances and situations
that inevitably will turn out to be different in reality. Thus, managers who craft creative solutions to
unforeseen problems are mastering execution rather than failing by following the plan. Agility is key to
strategy execution and fluid reallocation of funds, people and attention is more important than sticking
to an out‐dated budget. Agility also means that companies should disinvest from declining businesses
sooner rather than later. Managers must also be careful not to get carried away with the common mis­
take of pursuing attractive opportunities outside of their strategic objectives.
Myth 3: Communication equals understanding
The project found that although top managers were relentlessly communicating the strategy within the
organisation, the recall of organisational priorities by middle managers was found to be poor. In fact,
only 55 per cent of middle managers could name even one of their company’s top five priorities. The
research also found that middle managers could not see how the priorities fit together. Executives need
to move from measuring effectiveness by how many meetings and emails they send regarding strategy
(inputs) to how well their leaders understand what is communicated.
Myth 4: A performance culture drives execution
The mantra of hiring, rewarding and promoting high performers and firing low performers is widely
appreciated in strategy execution. However, such an approach usually fails to appreciate that individual
performance is not the only game in town and that other things such as agility, teamwork and ambition
should also be recognised and rewarded. Agility means trying new things and, inevitably, some new
initiatives will fail. Emphasising performance can also cause workers to be conservative in setting goals
and so lack of ambition may ultimately be rewarded. Once again, coordination between work units is
important to success, but rarely will a worker be corrected if they meet their targets yet fail to collab­
orate with colleagues across units.
Myth 5: Execution should be driven from the top
If the organisation relies too heavily on top‐driven execution, it remains vulnerable to poor performance
after the personnel at the top move on (as they inevitably do). Although concentrating decision‐making
at the top can boost performance in the short term, such a process degrades organisational capacity in
the long term. Distributing leadership and decision‐making is a process to help broaden the organisa­
tion’s capacity to execute strategy.
The research suggests that effective strategy execution is more about seizing strategically aligned
opportunities and developing organisation wide coordination in achieving goals. Emphasising these
organisational aspects is regarded as key to effective strategy execution.35

QUESTION
Emphasising performance in developing strategy is considered essential by many managers. Explain why
this may be a mistake.

236  Management
 CRITICAL ANALYSIS

1. Think of an industry known to you. Do an analysis of the environment it is facing in terms of Porter’s
five forces model.
2. An understanding of Porter’s forces is unlikely to provide every answer to every question in every
different environment, but it is a good platform on which to build particular strategies for particular
situations. What additional factors might need to be considered?

9.3 Strategies used by organisations

LEARNING OBJECTIVE 9.3 What types of strategies are used by organisations?
The strategic management process encompasses the three levels of strategy shown in figure 9.5. Strat­
egies are formulated and implemented at the organisational or corporate level, business level and
functional level. All should be integrated in means–ends fashion to accomplish objectives and create
sustainable competitive advantage.

Corporate strategy
What businesses are Corporation
we in?

Business strategy
How do we compete Division 1 Division 2 Division 3
in each of our major
businesses?

Functional strategy
Research and Human
How do we best Manufacturing Marketing
development resources
support each of our
business strategies?

FIGURE 9.5 Levels of strategy in organisations

Levels of strategy
The level of corporate strategy directs the organisation as a whole towards sustainable competitive
advantage. For a business it describes the scope of operations by answering the following question: In
what industries and markets should we compete? The purpose of corporate strategy is to set direction
and guide resource allocations for the entire enterprise. In large, complex organisations like General
Electric (GE), corporate strategy identifies the different areas of business in which a company intends
to compete. The organisation presently pursues business interests in aviation, home and businesses solu­
tions, financial (capital) services, healthcare, energy and transportation, for example.36 Typical strategic
decisions at the corporate level relate to the allocation of resources for acquisitions, new business devel­
opment, divestitures and so on across the business portfolio. Increasingly, corporate strategies for many
businesses include an important role for global operations such as international joint ventures and stra­
tegic alliances.

CHAPTER 9 Strategic management  237

 Business strategy is the strategy for a single business unit or product line. It describes intent to com­
pete within a specific industry or market. Large conglomerates such as GE, the biggest company in
the world, are composed of many businesses, with many differences among them in product lines and
even industries. The term strategic business unit (SBU) is often used to describe a single business or
a component that operates with a separate mission within a larger enterprise. The selection of strategy
at the business level involves answering the question: How are we going to compete for customers in
this industry and market? Typical business strategy decisions include choices about product/service mix,
the location of facilities and new technologies. In single‐business enterprises, business strategy is the
corporate strategy.
Functional strategy guides the use of organisational resources to implement business strategy.
This level of strategy focuses on activities within a specific functional area of operations. Looking
again at figure 9.5, the standard business functions of marketing, manufacturing, human resources,
and research and development illustrate this level of strategy. The question to be answered in
selecting functional strategies becomes: How can we best use resources to implement our business
strategy? Answers to this question typically involve the choice of progressive management and organ­
isational practices that  improve operating efficiency, product or service quality, customer service or
innovativeness.

Growth and diversification strategies

Traditionally one of the most common and popular of the grand or master strategies pursued by organ­
isations at the corporate or business levels is growth.37 Growth strategies pursue an increase in size and
the expansion of current operations. They are popular in part because growth is viewed as necessary for
long‐term survival in some industries.
One approach to growth is through concentration, where expansion is within the same business area.
The Bank of Queensland, for example, has pursued an aggressive market share growth strategy. It grew
by increasing activity among existing customers and by attracting new customers, particularly in regional
Queensland. The bank’s traditional emphasis on personal service is central to its strategy.38

DIVERSIT Y

Overseas diasporas — more than just ethnic restaurants

A diasporic community is usually defined as a
group of people who have been dispersed from
their homeland. Diasporas are often thought
of in connection with Jewish people, Irish,
Chinese and many other ethnic and religious
groups. Diasporas play an important role in
many economies through mutually supportive
business associations, remittances sent home
to emigrants’ families, trading relationships
between host and home country, a source of
investment for home countries and other ben­
efits between host and home country, such as
building bridges of cultural understanding, new
skills and new technologies.39 Remittances, for
example, can be as much as half of a nation’s GDP, as was the case of Tajikistan in 2015.40
Sometimes diasporas are seen negatively when loyalty to the host country is questioned, and the
outflow of capital from host countries is seen as having a negative effect on the host economy. Busi­
ness strategists, however, note that companies should pay attention to diasporas if they are to tap into
potential benefits available from diverse communities in host countries.41

238  Management
 Business strategists are paying particular attention to the opportunity of borrowing technologies
and knowledge from the host to develop new industries in the home country, and taking home
country technologies and products and exporting them to the host country. An example of host‐to‐
home transfer would be the business process outsourcing industry in India where some companies
were established by diasporic business people using internet‐based technology originally developed
in advanced economies. Disapsoric business people establishing restaurants featuring their home
country cuisine and importing food products from their home country are examples of home‐to‐host
transfers.42
One way to encourage the transfer of technologies and knowledge between countries is for host
country businesses to facilitate and encourage the development of business and professional net­
works among diasporic communities. The Australia Africa Business Council (AABC), African Pro­
fessionals in Australia (APA) and the Council for Young Africans Living Abroad (CYALA) in Australia are
examples of the kind of networks that build businesses opportunities between Africa and Australia.
By organising trade conferences, facilitating trade missions, promoting investment opportunities, and
providing networking opportunities, the AABC helps build trade and investment.43 APA facilitates
mentoring, scholarships, networking events, runs professional workshops and runs an annual awards
program to build the African professional community in Australia.44 In building the diasporic commu­
nity, the host nation benefits by helping professionals realise their creative and vocational potential,
thus positioning the professionals to facilitate knowledge and technology transfer between Africa
and Australia.
Companies that recognise the potential to expand their business internationally through diasporic
communities build an ethnically diverse workforce and encourage their members to participate in organ­
isations such as the AAP and the CYALA. Businesses often join organisations such as the AABC as cor­
porate members, to help inform their strategic expansion. Thus, diversity in the organisation becomes a
key resource for strategic expansion. 

QUESTION
Explain the different business strategies to harness the potential of diasporas from the host country and
home country perspectives.

Another approach to growth is through diversification, where expansion takes place through the
acquisition of, or investment in, new and sometimes different business areas. A strategy of related diver-
sification involves growth by acquiring new businesses  or  entering business areas that are related to
what the organisation already does. This strategy seeks the advantages of growth in areas that use core
competencies and existing skills. For  example, Coles Group Limited, now owned by Wesfarmers, has
established a network of Officeworks superstores throughout Australia, including regional locations.45
Although Officeworks specialises in office stationery and equipment and photocopying services, the
business is related to Coles’ expertise in the retail industry.
A corporate strategy of unrelated diversification involves growth by acquiring businesses or entering
business areas that are different from what the organisation already does. For example, before the cre­
ation of St George Bank, which has since merged with Westpac, the organisation was a building society
providing mortgages for home buyers. It acquired banking status in order to offer a full range of finan­
cial services to consumers and commercial customers. Optus, a telecommunications company, formed
OptusTV in partnership with News Corporation’s Foxtel, at one time dominating the pay television
industry. Occasionally, a company will invest in a market that is completely unrelated to its current oper­
ations. For example, the US‐based conglomerate ITT, which designs and manufactures telecommuni­
cation equipment, purchased the Sheraton Hotels chain and several banks and insurance companies.
Similarly, General Electric has a large number of business units across a diverse range of industries,
including heavy engineering, jet propulsion, lighting, finance and transport.
Diversification can also take the form of vertical integration, where a business seeks added value
creation by acquiring suppliers (backwards vertical integration) or distributors (forwards vertical

CHAPTER 9 Strategic management  239

integration). In the car‐making industry, backwards vertical integration has been common as firms pur­
chased suppliers of key parts to ensure  quality and control over their availability. In beverages, both
Coca‐Cola and PepsiCo have pursued forward vertical integration by purchasing some of their major
bottlers.
There is a tendency to equate growth with effectiveness, but that is not necessarily true. Any growth
strategy, whether by concentration or some form of diversification, must be well planned and well man­
aged to achieve the desired results. Increased size of operation in any form adds challenge to the manage­
ment process. Diversification, in particular, brings the difficulties of complexity and the need to manage
and integrate very dissimilar operations. Research indicates that business performance may decline with
too much unrelated diversification.46

Restructuring and divestiture strategies

When organisations experience performance problems, perhaps due to unsuccessful diversification,
retrenchment of some sort often takes place. The most extreme retrenchment strategy is liquidation,
when operations cease, owing to the complete sale of assets or the declaration of bankruptcy. Less
extreme but still of potential dramatic performance impact is restructuring. This changes the scale and/
or mix of operations in order to gain efficiency and improve performance. The decision to restructure
can be difficult for managers to make because, at least on the surface, it seems to be an admission of
failure. But in today’s era of challenging economic conditions and environmental uncertainty, restruc­
turing is used frequently and with new respect.
Restructuring is sometimes accomplished by downsizing, which decreases the size of operations with
the intention of becoming more streamlined.47 The expected benefits are reduced costs and improved
operating efficiency. A common way to downsize is to cut the size of the workforce. Research has shown
that such downsizing is most successful when the workforce is reduced in a way that allows for better
focusing of resources on key performance objectives.48 Retrenchment with a strategic focus is some­
times referred to as rightsizing. This contrasts with the less‐well‐regarded approach of simply cutting
staff ‘across the board’.
Restructuring by divestiture involves selling off parts of the organisation to refocus on core com­
petencies, cut costs and improve operating efficiency. This is a common strategy for organisations that
find they have become overdiversified and are encountering problems managing the complexity of
diverse operations. It is also a way for organisations to take advantage of the value of internal assets by
‘spinning off’ or selling to shareholders a component that can stand on its own as an independent busi­
ness. The  Anglo‐Australian company BHP Billiton sold off its steel‐making operation, now known as
Arrium Limited, in order to concentrate on the core revenue earner and strategic direction of the com­
pany: resource extraction. Steel making used to be important to the former BHP but became increasingly
less important as global steel‐making capacity outstripped demand and the world price fell. Low‐cost
competition from Japan, Korea, China and Taiwan further reduced the importance of BHP’s steel‐making
operations.

Cooperation in business strategies

In recent years increasing globalisation and regionalisation of markets has led to the dramatic growth
of cross‐border cooperation between companies. The steady reduction of trade barriers has been accom­
panied by considerable economic turbulence and uncertainty in world markets, and the spread of a high
degree of trade liberalisation in most countries of the world. A major response to this has been the
growth of strategic alliances and other forms of cooperative strategy between companies, particularly in
technology and marketing. For Porter and Fuller, the basic motivation for an alliance is that: ‘Coalitions
that arise when performing a value chain activity with a partner are superior to any other way  .  .  .  Coali­
tions can be a valuable tool in many aspects of global strategy, and the ability to exploit them will be an
important source of international advantage.’49

240  Management
 In the chapter on the global dimensions of management, international joint ventures were discussed
as a common form of international business; they constitute one among many forms of strategic alliance.
For example, in the airline industry most companies have entered into some form of strategic marketing
alliance. Qantas, British Airways, Cathay Pacific and American Airlines established oneworld Alliance
to give customers seamless access to global routes covering much of the Western world. A further eleven
companies — including LAN, Japan Airlines and Royal Jordanian Airlines — have since joined the alli­
ance, working with the other companies to give customers a better service.50
In the television broadcasting industry, the British Broadcasting Corporation (BBC) and the Public
Broadcasting Service (PBS) in the United States jointly produce numerous documentaries and dramas in
order to share production costs and gain access to larger audiences. Similar alliances have been formed
between the BBC and Discovery Channel. The Australian Broadcasting Corporation (ABC) and the
BBC have jointly produced programs for use in both home markets and overseas.
Another way to cooperate strategically is through outsourcing alliances — contracting to purchase
important services from another organisation. Many organisations are outsourcing their payroll, recruit­
ment, information technology and security functions to specialised companies. This is often driven by
a combination of motives — the desire to reduce costs and to gain access to expertise that does not
exist within the company. Supplier alliances, in which preferred supplier relationships ensure a smooth
and timely flow of supplies among alliance partners, stem from cooperation in the supply chain. For
example, car manufacturers such as General Motors and Ford relied on multisourcing during much of
the 20th century, but in the 1980s began to develop supplier alliances which were necessary for their
just‐in‐time (JIT) production systems and to guarantee improved component quality.51
Distribution alliances are another cooperative approach. These involve organisations joining together
to accomplish product or service sales and distribution. For example, Telstra in Australia and Cisco
Systems in the United States have an alliance to jointly market internet services to business customers.
In Europe, the French electronics manufacturer Thomson and Japan’s Matsushita established an alli­
ance in the 1990s whereby Thomson would use its European marketing and sales network to sell the
Japanese company’s electrical products. Thomson possessed expert knowledge of the European market,
and Matsushita had considerable expertise in efficient production of televisions, video recorders and
music systems for a mass market.

E‐business strategies
Without a doubt, one of the most frequently asked questions these days for the business executive
is: ‘What is your e‐business strategy?’ This is the strategic use of the internet to gain competitive
advantage.
Popular e‐business strategies involve B2B (business‐to‐business) and B2C (business‐to‐customer)
applications. B2B business strategies involve the use of IT and the internet to vertically link organ­
isations with members of their supply chains. One of the interesting developments in this area involves
the use of online auctions as a replacement for preferred supplier relationships and outsourcing alliances.
Organisations can now go to the internet to participate in auction bidding for supplies of many types.
Whether small or large in size they immediately have access to potential suppliers competing for their
attention from around the world.
B2C business strategies use IT and the internet to link organisations with their customers.
A common B2C strategy is e‐tailing; that is, the sale of goods directly to customers via the internet.
For some organisations, e‐tailing is all that they do; these are ‘new economy’ organisations and the
business strategy is focused entirely on internet sales — examples include Amazon.com, priceline.
com and Dell.com. For others who are part of the traditional or ‘old economy’, e‐tailing has been
added as a component in their business strategy mix — including David Jones, Coles, Woolworths,
ANZ and BNZ. By way of further introduction, Manager’s notepad 9.2 lists some of the web‐based
business models now being tried.52

CHAPTER 9 Strategic management  241

 MANAGER’S NOTEPAD 9.2

Web‐based business models

1. Brokerage — bringing buyers and sellers together to make transactions (e.g. eBay).
2. Advertising — providing information or services while generating revenue from advertising
(e.g. Facebook).
3. Merchant model — selling products wholesale and retail through the web, e‐tailing (e.g. Alibaba).
4. Subscription model — selling access to the site through subscription (e.g. Australian Financial
Review).
5. Infomediary model — collecting information about users and selling to other businesses
(e.g. ePinions.com).
6. Community model — supporting site by donations from a community of users (e.g. Wikipedia).
7. Manufacturer or direct model — creating a product or service and reaching buyers directly (e.g. Dell).
8. Affiliate — providing purchasing opportunities wherever people may be browsing, while offering a
percentage of revenue to affiliated partners sites (e.g. Amazon).
9. Utility or on‐demand model based on metering usage — requiring customers to ‘pay as you go’
(e.g. Slashdot).

CRITICAL ANALYSIS

1. If growth through acquisition is a strategy, along with backwards or forwards vertical integration,
and diversification is the ‘horizontal’ counterpart, what is the place of ‘creative destruction’ —
where a deliberate ‘demolish and rebuild’ strategy is embarked upon?
2. When should vertical integration not be used as a strategy, independent of the merits of other
strategic options?
3. What strategies emerged during the global financial crisis and subsequent economic downturn?
Were they successful? What have we learned as a result about strategy?

9.4 Strategy formulation

LEARNING OBJECTIVE 9.4 How are strategies formulated?
Michael Porter says: ‘The company without a strategy is willing to try anything’.53 With a good
strategy in place, on the other hand, the resources of the entire organisation can be focused on the
overall goal — superior profitability or above‐average returns. Whether one is talking about building
e‐business strategies for the new economy or crafting strategies for more traditional operations, it is
always important to remember this goal and the need for sustainable competitive advantage. The
major opportunities for competitive advantage are found in the following areas, which should always be
considered in the strategy formulation process:54
1. cost and quality — where strategy drives an emphasis on operating efficiency and/or product or ser­
vice quality
2. knowledge and speed — where strategy drives an emphasis on innovation and speed of delivery to
market for new ideas
3. barriers to entry — where strategy drives an emphasis on creating a market stronghold that is pro­
tected from entry by others
4. financial resources — where strategy drives an emphasis on investments and/or loss sustainment that
competitors can’t match.
Importantly, any advantage gained in today’s global and information‐age economy of intense
competition must always be considered temporary, at best. Things change too fast. Any advan­
tage of the moment will sooner or later be eroded as new market demands, copycat strategies

242  Management
 and innovations by rivals take their competitive toll over time.55 The challenge of achieving sus­
tainable competitive advantage is thus a dynamic one. Strategies must be continually revisited,
modified and changed if the organisation is to keep pace with changing circumstances. Formu­
lating strategy to provide overall direction for the organisation thus becomes an on‐going leadership
responsibility.56
Fortunately, a number of strategic planning models or approaches are available to help executives in
the strategy formulation process. At the business level, one should understand Porter’s generic strategies
model and product lifecycle planning. At the corporate level, it is helpful to understand portfolio plan­
ning, adaptive strategies and incrementalism and emergent strategies.

Porter’s generic strategies

Michael Porter’s five forces model for industry analysis was introduced earlier. Use of the model
helps answer the question: Is this an attractive industry for us to compete in? Within an industry,
however, the initial strategic challenge becomes positioning your organisation and products relative
to competitors. The strategic question becomes: How can we best compete for customers in this
industry?57 Porter advises managers to answer this question by using his generic strategies frame­
work shown in figure 9.6.

Cost leadership Differentiation

strategy strategy
Broad
Hyundai,
BMW, Volvo
Market scope

KIA

Focused low cost Focused differentiation

strategy strategy
Narrow
Land Rover,
Suzuki
Subaru

Low price Uniqueness

Source of competitive advantage

FIGURE 9.6 Porter’s generic strategies framework: motor vehicle industry examples

According to Porter, business‐level strategic decisions are driven by two basic factors: (1)
market scope — ask: ‘How broad or narrow is your market target?’ and (2) source of competitive
advantage — ask: ‘How will you compete for competitive advantage, by lower price or product unique­
ness?’ As shown in the figure, these factors combine to create the following four generic strategies
that organisations can pursue. The examples in the figure are of competitive positions within the motor
vehicle industry:
1. differentiation — where the organisation’s resources and attention are directed towards distinguishing
its products from those of the competition (e.g. BMW, Volvo)
2. cost leadership — where the organisation’s resources and attention are directed towards minimising
costs to operate more efficiently than the competition (e.g. Hyundai, KIA)
3. focused differentiation — where the organisation concentrates on one special market segment and
tries to offer customers in that segment a unique product (e.g. Land Rover, Subaru)
4. focused cost leadership — where the organisation concentrates on one special market segment and
tries in that segment to be the provider with lowest costs (e.g. Suzuki).

CHAPTER 9 Strategic management  243

 Organisations pursuing a differentiation strategy seek competitive advantage through uniqueness.
They try to develop goods and services that are clearly different from those made available by the com­
petition. The objective is to attract customers who become loyal to the organisation’s products and lose
interest in those of competitors. This strategy requires organisational strengths in marketing, research
and development, technological leadership and creativity. It is highly dependent for its success on con­
tinuing customer perceptions of product quality and uniqueness. An example in the apparel industry is
Polo Ralph Lauren, retailer of upscale classic fashions and accessories.
Organisations pursuing a cost leadership strategy try to continuously improve the operating
efficiencies of production, distribution and other organisational systems. The objective is to have lower
costs than competitors and therefore achieve higher profits. This requires tight cost and managerial con­
trols as well as products that are easy to manufacture and distribute. Of course, quality must not be
sacrificed in the process. In fast food, McDonald’s remains the most cost‐effective operation of its type
through preferential bulk‐purchasing agreements with suppliers, de‐skilled and often automated in‐house
operations, and large customer volume providing economies of scale. It also uses one of the youngest
and least expensive labour forces. It pays the minimum wage and keeps most staff on part‐time or casual
employment, thereby escaping government requirements to pay superannuation and other statutory full‐
time entitlements.58
Since its inception in the early 1990s, Aussie Home Loans has captured a small but significant
share of the Australian mortgage market from the traditional lenders — banks and building societies
— through keeping its costs low and passing these savings on to the consumer. Its low overheads
and younger staff profile have been key ingredients of its low‐cost strategy. The company has since
applied this low‐cost strategy to additional product offerings including car and personal loans, credit
cards and insurance. Interestingly, since 2012, the Commonwealth Bank has owned 80 per cent of the
company.59
Organisations pursuing a focused differentiation strategy or a focused cost leadership strategy
concentrate attention on a special market segment with the objective of serving its needs better than
anyone else. The strategies focus organisational resources and expertise on a particular customer group,
geographical region or product or service line. They seek to gain competitive advantage in product dif­
ferentiation or cost leadership. Importantly, focused strategies require willingness to concentrate and the
ability to use resources to special advantage in a single area.

Product life cycle planning

Another way to consider the dynamic nature of business strategy formulation is in terms of product life
cycle. This is a series of stages a product or service goes through in the ‘life’ of its marketability (see
figure 9.7). In terms of planning, different business strategies are needed to support products in the life­
cycle stages of new product development, introduction, growth, maturity and decline.60 Products in the
new product development, introduction and growth stages lend themselves to differentiation strategies.
They require investments in market research, product development and advertising in order to establish a
product, market presence and customer base. In the maturity stage, the emphasis shifts towards keeping
customers and gaining production efficiencies. This may involve focused and an attempt at cost leader­
ship. These strategies may hold initially as the product moves into decline. But at some point, strategic
planners must seek new ways to extend product life.
Understanding product life cycles and adjusting strategy accordingly is an important business skill.
Especially in dynamic times, managers need to recognise when a product life cycle is maturing.
They should have contingency plans for dealing with potential decline, and they should be devel­
oping alternative products with growth potential. Consider what happened at IBM, an organisation
that dominated the market for large mainframe computers for years. As customers began to use more
powerful and smaller PCs, the mainframe became less important to their operating systems. When the
mobile phone industry was starting to use new digital technologies, Motorola continued to emphasise

244  Management
its successful, but older, analogue products. Both IBM’s and Motorola’s top managers failed to prop­
erly consider industry trends. Their companies lost momentum against very aggressive competitors
such as Hewlett‐Packard, Compaq and Dell in the computer industry and Nokia and Ericsson and in
the mobile phone industry.

Sales
Dollars

Profit
0 Time
Loss

New product Introduction Growth Maturity Decline

development

FIGURE 9.7 The product life cycle

INNOVATION

The last mover advantage

Management strategists are usually on the
lookout for innovations and new opportunities
so that their organisation can achieve a first
mover advantage. The first mover in a new
market can usually help to define the param­
eters of the new market and can achieve high
brand awareness to the point where the brand
name is also the name of the new innovation.
For example, Walkman or Fitbit are product
names that have often been associated with
a family of products as they were seen as the
first famous brands in that family.
However, Moore’s law would seem to sug­
gest that first mover advantage can be quickly
lost by advancing technology. Gordon Moore
originally observed in 1965 that the number of transistors in a dense integrated circuit doubles approxi­
mately every two years. This ‘law’ has now come to describe the driving force of technological advance­
ment, with the initial observation equated with the doubling of computer chip performance every
two years or so.61 While these same improving conditions give rise to an innovation that you may be
able to capture, the conditions also suggest that your success as a first mover is at risk from others who
develop later. WhatsApp, for example, rose quickly, but its successors rose just as quickly due to con­
stant innovation in the environment.62 Thus, because advances in technology are so rapid, first mover
advantage can be lost rapidly as the new innovation replaces the old.

CHAPTER 9 Strategic management  245

 WhatsApp and other innovations also taught businesses to chase users rather than consumers. WhatsApp
started out in 2009 and in 2014 Facebook acquired the company for approximately US$19 billion. At that
time, WhatsApp had about 500 million active monthly users, but the company had almost no revenue from its
operations. Thus, the company was sold for US$19 billion with 500 million users but almost no customers.63
This move to chase users rather than customers has been associated with ‘Metcalf’s law’.64 In 1980, when
discussing the ethernet, Robert Metcalf suggested that the value of a telecommunications network is pro­
portional to the square of the number of connected compatible devices using the system.65
Today this law is understood in relation to the ‘users’ of a system, hence WhatsApp could be valued in
relation to its users rather than paying customers.These examples serve to demonstrate that those who are
first to market with an innovation are not always the market share winners. Innovation is a continual evolving
process that requires a dynamic approach to strategy in order to successfully turn ideas into profit. 

QUESTION
What implications does Moore’s law have for companies planning to invest in research and development?
Why, or why not, is it worth including research and development in your strategic plan?

Portfolio planning
In a single‐product or single‐business organisation the strategic context is one industry. Corporate strategy
and business strategy are the same, and resources are allocated on that basis. When organisations move
into different industries, resulting in multiple product or service offerings, they become internally more
complex and often larger in size. This makes resource allocation a more challenging strategic manage­
ment task, since the mix of businesses must be well managed. The strategy problem is similar to that
faced by an individual with limited money who must choose between alternative shares, bonds and real
estate in a personal investment portfolio. In multi‐business situations, strategy formulation also involves
portfolio planning to allocate scarce resources among competing uses.66
BCG matrix
Figure 9.8 summarises an approach to business portfolio planning developed by the Boston Consulting
Group and known as the BCG matrix. This framework ties strategy formulation to an analysis of business
opportunities according to industry or market growth rate and market share.67 This comparison results in the
following four possible business conditions, with each being associated with a strategic implication: stars —
high market share, high‐growth businesses; cash cows — high market share, low‐growth businesses; question
marks — low market share, high‐growth businesses; and dogs — low market share, low‐growth businesses.
High
‘Question marks’ — poor competitive ‘Stars’ — dominant competitive position
position in a growing industry in a growing industry
Recommended strategy = growth or Recommended strategy = growth; add
retrenchment; apply resources to resources and build the business further
accomplish positive turnaround or pull based on market projections
back if outlook poor
Market growth rate for
SBU products/services ‘Dogs’ — poor competitive position in ‘Cash cows’ — dominant position in
low-growth industry low-growth industry
Recommended strategy = retrenchment; Recommended strategy = stability or
divest, sell, liquidate the business to modest growth; maintain benefits of
eliminate resource drain strong cash flow while keeping resource
investments minimum
Low
Low High
SBU = strategic business unit Market share of SBU products/services

FIGURE 9.8 The BCG matrix approach to corporate strategy formulation

246  Management
 Stars are high market share businesses in high‐growth markets. They produce large profits through sub­
stantial penetration of expanding markets. The preferred strategy for stars is growth, and further resource
investments in them are recommended. Question marks are low market share businesses in high‐growth
markets. They do not produce much profit but compete in rapidly growing markets. They are the source
of difficult strategic decisions. The preferred strategy is growth, but the risk exists that further investments
will not result in improved market share. Only the most promising question marks should be targeted for
growth; others are restructuring or divestiture candidates. Cash cows are high market share businesses in
low‐growth markets. They produce large profits and a strong cash flow. Because the markets offer little
growth opportunity, the preferred strategy is stability or modest growth. ‘Cows’ should be ‘milked’ to gen­
erate cash that can be used to support needed investments in stars and question marks. Dogs are low market
share businesses in low‐growth markets. They do not produce much profit, and they show little potential
for future improvement. The preferred strategy for dogs is retrenchment by divestiture.
General electric (GE) business screen
The appeal of portfolio planning is its ability to help managers focus attention on the comparative strengths
and weaknesses of multiple businesses and/or products. Although the BCG matrix is easy to understand and
use, it is criticised for limiting attention to only market share and business growth. Business situations are
more complex than that. At GE, for example, corporate strategy must achieve the best allocation of resources
among the mix of some 150‐plus businesses owned by the conglomerate at any point in time. The busi­
nesses operate in very different environments, use different business models, and have different competitive
advantages. What is known as the GE Business Screen, shown in figure 9.9, was developed as an alternative
portfolio planning framework. In fact, GE became famous under the leadership of former CEO Jack Welch
for following a rigorous decision rule in strategic planning — either a business is or has the potential to be
number 1 or number 2 in its industry, or it is removed from the GE portfolio.

Winner Winner Question mark

High
Industry attractiveness

Grow Grow Grow?

Winner Average Loser

Medium

business
Grow Maintain? Sell

Profit Loser Loser

producer
Low

Maintain Sell Sell

Strong Average Weak

Business strength/competitive position

FIGURE 9.9 The GE Business Screen as a portfolio planning framework

In the GE Business Screen, the key planning dimensions are business strength and industry attrac­
tiveness.68 Each is analysed on multiple factors similar to a SWOT analysis. Industry attractiveness is
considered in terms of market size and growth, capital requirements and competitive intensity. Business
strength or competitive position is assessed not only on market share but also on things such as techno­
logical advantage, product quality, operating costs and price competitiveness. The resulting nine‐cell
matrix allows for a finer classification of business units as ‘winners’, ‘question marks’, ‘average busi­
nesses’, ‘profit producers’ or ‘losers’. The recommended strategic directions are to invest for growth in
winners and question marks, maintain or stabilise average businesses and profit producers, and retrench
or sell losers.

CHAPTER 9 Strategic management  247

Adaptive strategies
The Miles and Snow adaptive model of strategy formulation suggests that organisations should pursue
product/market strategies congruent with their external environments.69 A  well‐chosen strategy, in this
sense, allows an organisation to successfully adapt to environmental challenges. The prospector strategy
involves pursuing innovation and new opportunities in the face of risk and with prospects for growth.
This is best suited to a dynamic and high‐potential environment. A prospector ‘leads’ an industry by
using existing technology to new advantage and creating new products to which competitors must res­
pond. This contrasts with a defender strategy, in which an organisation avoids change by emphasising
existing products and current market share without seeking growth. Defence as a strategy is suited only
for a stable environment and perhaps declining industries. Defenders, as do many small local retailers,
try to maintain their operating domains with only slight changes over time. As a result, many suffer
long‐term decline in the face of competition.
The analyser strategy seeks to maintain the stability of a core business while exploring selective
opportunities for innovation and change. This strategy lies between the prospector and reactor strategies.
It is a ‘follow‐the‐leader‐when‐things‐look‐good’ approach. Many of the ‘clone’ makers in the personal
computer industry are analysers; that is, they wait to see what the industry leaders do and how well it
works out before modifying their own operations. Organisations pursuing a reactor strategy are mainly
responding to competitive pressures in order to survive. This is a ‘follow‐as‐last‐resort’ approach. Reac­
tors do not have long‐term and coherent strategies. Some public utilities and other organisations oper­
ating under government regulation may use this strategy to some extent.

Incrementalism and emergent strategy

Not all strategies are clearly formulated at one point in time and then implemented step by step. Not all
strategies are created in systematic and deliberate fashion and then implemented as dramatic changes
in direction. Instead, strategies sometimes take shape, change and develop over time as modest adjust­
ments to past patterns. James Brian Quinn calls this a process of incrementalism, whereby modest and
incremental changes in strategy occur as managers learn from experience and make adjustments.70 This
approach has much in common with Henry Mintzberg’s and John Kotter’s descriptions of managerial
behaviour, as described in chapter 1.71 They view managers as planning and acting in complex interper­
sonal networks and in hectic, fast‐paced work settings. Given these challenges, effective managers must
have the capacity to stay focused on long‐term objectives while still remaining flexible enough to master
short‐term problems and opportunities as they occur.
Such reasoning has led Mintzberg to identify what he calls emergent strategies.72 These are strat­
egies that develop progressively over time as ‘streams’ of decisions made by managers as they learn
from and respond to work situations. There is an important element of ‘craftsmanship’ here that
Mintzberg worries may be overlooked by managers who choose and discard strategies in rapid suc­
cession while using the formal planning models. He also believes that incremental or emergent stra­
tegic planning allows managers and organisations to become really good at implementing strategies,
not just formulating them.

CRITICAL ANALYSIS

1. Aren’t all strategies ‘adaptive’? What would distinguish others?

2. GE successfully chose to reduce costs and improve efficiency, while pulling out of businesses
where it wasn’t the number 1 or 2 player.73 What strategies were being used here? As
business conditions improve, and companies outsource more of their IT needs, what strategies
are open to GE?

248  Management
9.5 Strategy implementation
LEARNING OBJECTIVE 9.5 What are current issues in strategy implementation?
No strategy, no matter how well formulated, can achieve longer term success if it is not properly imple­
mented. This includes the willingness to exercise control and make modifications as required to meet
the needs of changing conditions. More specifically, current issues in strategy implementation include
re‐emphasis on excellence in all management systems and practices, the responsibilities of corporate
governance, and the importance of strategic leadership.

Management practices and systems

The rest of Management is all about strategy implementation. In order to successfully put strategies
into action the entire organisation and all its resources must be mobilised in support of them. This, in
effect, involves the complete management process from planning and controlling through organising and
leading. No matter how well or elegantly selected, a strategy requires supporting structures, the right
technology, a good allocation of tasks and workflow designs, and the right people to staff all aspects
of operations. The strategy needs to be enthusiastically supported by leaders who are capable of motiv­
ating everyone, building individual performance commitments, and using teams and teamwork to best
advantage. And the strategy needs to be well and continually communicated to all relevant persons and
parties. Only with such total systems support can strategies succeed in today’s environments of change
and innovation.
Common strategic planning pitfalls that can hinder implementation include both failures of sub­
stance and failures of process. Failures of substance reflect inadequate attention to the major strategic
planning elements — analysis of mission and purpose, core values and corporate culture, organisational
strengths and weaknesses, and environmental opportunities and threats. Failures of process reflect
poor handling of the ways in which the various aspects of strategic planning were accomplished. An
important process failure is the lack of participation error. This is failure to include key people in the
strategic planning effort.74 As a result, their lack of commitment to all‐important action follow‐through
may severely hurt strategy implementation. Process failure also occurs with too much centralisation of
planning in top management or too much delegation of planning activities to staff planners or separate
planning departments. Another process failure is the tendency to get so bogged down in details that
the planning process becomes an end in itself instead of a means to an end. This is sometimes called
‘goal displacement’.
Recent research on strategy implementation has identified that information flow and decision rights
are two of the most important drivers in strategy execution.75 Clarification on what decisions and
actions each person in the organisation is responsible for is one of the most important factors in strategy
implementation. Also, in terms of decision rights, once decisions are made they should only rarely be
second‐guessed, as second‐guessing tends to slow down implementation. In terms of information flow,
information about the competitive environment must flow to headquarters quickly and information must
flow freely across organisational boundaries.

Corporate governance
Organisations today are experiencing new pressures at the level of corporate governance, especially
since the spate of high‐profile corporate collapses in the past decade. Corporate governance is the system
of control and performance monitoring of top management that is maintained by boards of directors and
other major stakeholder representatives. In businesses, for example, corporate governance is enacted
by boards, institutional investors in a company’s assets, and other ownership interests. Each in its own
way is a point of accountability for top management.76 The trend towards strategic alliances within and
between industries raises new issues for corporate governance.77

CHAPTER 9 Strategic management  249

 Boards of directors are formally charged with ensuring that an organisation operates in the best
interests of its owners and/or the representative public in the case of not‐for‐profit organisations.
Controversies often arise over the role of inside directors, who are chosen from the senior manage­
ment of the organisation, and outside directors, who are chosen from other organisations and pos­
itions external to the organisation. In the past, corporate boards may have been viewed as largely
endorsing or confirming the strategic initiatives of top management. Today they are increasingly
expected to exercise control and take active roles in ensuring that the strategic management of an
enterprise is successful.
If anything, the current trend is towards greater emphasis on the responsibilities of corporate gover­
nance. Top managers probably feel more accountable for performance than ever before to boards of
directors and other stakeholder interest groups. Furthermore, this accountability relates not only to finan­
cial performance but also to broader social responsibility concerns.78

Strategic leadership
Strategic management is a leadership responsibility. Effective strategy implementation and control
depends on the full commitment of all managers to supporting and leading strategic initiatives within
their areas of supervisory responsibility. To successfully put strategies into action, the entire organisation
and all its resources must be mobilised in support of them. In our dynamic and often uncertain environ­
ment, the premium is on strategic leadership — the capability to enthuse people to successfully engage
in a process of continuous change, performance enhancement and implementation of organisational
strategies.79
Porter argues that the managing director or CEO of an organisation has to be the chief strategist,
someone who provides strategic leadership.80 He describes the task in the following way: a strategic
leader has to be the guardian of trade‐offs. It is the leader’s job to make sure that the organisation’s
resources are allocated in ways consistent with the strategy. This requires the discipline to sort through
many competing ideas and alternatives to stay on course and not get sidetracked. A strategic leader also
needs to create a sense of urgency, not allowing the organisation and its members to grow slow and com­
placent. Even when doing well, the leader keeps the focus on getting better and being alert to conditions
that require adjustments to the strategy. A strategic leader needs to make sure that everyone understands
the strategy. Unless strategies are understood, the daily tasks and contributions of people lose context
and purpose. Everyone might work very hard, but without alignment to strategy the impact is dispersed
rather than advancing in a common direction to accomplish the goals. Importantly, a strategic leader
must be a teacher. It is the leader’s job to teach the strategy and make it a ‘cause’, says Porter. In order
for strategy to work it must become an ever present commitment throughout the organisation. People
must understand the strategy that makes their organisation different from others. This means that a stra­
tegic leader must be a great communicator.
Finally, it is important to note that the challenges faced by organisations today are so complex that
it is often difficult for one individual to fulfil all strategic leadership needs. Strategic management in
large firms is increasingly viewed as a team leadership responsibility. It takes hard work and special
circumstances to create a real team — at the top or anywhere else in the organisation.81 Top management
teams must work up to their full potential in order to bring the full advantages of teamwork to strategic
leadership.

CRITICAL ANALYSIS

1. Think of a company that responded proactively to the economic downturn. Were they successful?
2. Is the process of strategic planning the critical element in an effective strategy, and is it perhaps
even as important as the strategy itself? Justify your answer.

250  Management
SUMMARY
9.1 What are the foundations of strategic competitiveness?
•• Competitive advantage is achieved by operating in ways that are difficult for competitors to imitate.
•• A strategy is a comprehensive plan that sets long‐term direction and guides resource allocation to
achieve sustainable competitive advantage.
•• The strategic goals of a business should include superior profitability and the generation of above‐
average returns for investors.
•• Strategic thinking involves the ability to understand the different challenges of monopoly, oligopoly
and hypercompetition environments.
9.2 What is strategic management?
•• Strategic management is the process of formulating and implementing strategies that achieve
organisational goals in a competitive environment.
•• The strategic management process begins with analysis of mission, clarification of core values and
identification of objectives.
•• A SWOT analysis systematically assesses organisational resources and capabilities and industry/
environmental opportunities and threats.
•• Porter’s five forces model analyses industry attractiveness in terms of competitors, new entrants,
substitute products and the bargaining power of suppliers and buyers.
9.3 What types of strategies are used by organisations?
•• Corporate strategy sets direction for an entire organisation; business strategy sets direction for a
business division or product/service line; functional strategy sets direction for the operational support
of business and corporate strategies.
•• The grand or master strategies used by organisations include growth — pursuing expansion;
retrenchment — pursuing ways to scale back operations; stability — pursuing ways to maintain the
status quo; and combination — pursuing the strategies in combination.
9.4 How are strategies formulated?
•• The three options in Porter’s model of competitive strategy are: differentiation — distinguishing your
products from the competition; cost leadership — minimising costs relative to the competition; and
focus — concentrating on a special market segment.
•• The product lifecycle model focuses on different strategic needs at the introduction, growth, maturity
and decline stages of a product’s life.
•• The BCG matrix is a portfolio planning approach that classifies businesses or product lines as ‘stars’,
‘cash cows’, ‘question marks’ or ‘dogs’.
•• The adaptive model focuses on the congruence of prospector, defender, analyser or reactor strategies
with demands of the external environment.
•• The incremental or emergent model recognises that many strategies are formulated and implemented
incrementally over time.
9.5 What are current issues in strategy implementation?
•• Management practices and systems — including the functions of planning, organising, leading and
controlling — must be mobilised to support strategy implementation.
•• Among the pitfalls that inhibit strategy implementation are failures of substance, such as poor analysis
of the environment, and failures of process, such as lack of participation in the planning process.
•• Corporate governance, involving the role of boards of directors in the performance monitoring of
organisations, is an important element in strategic management today.
•• Strategic leadership involves the ability to manage trade‐offs in resource allocations, maintain a sense
of urgency in strategy implementation, and effectively communicate the strategy to key constituencies.
•• Increasingly, organisations use top management teams to energise and direct the strategic management
process.

CHAPTER 9 Strategic management  251

KEY TERMS
Above‐average returns  exceed what could be earned from alternative investments of equivalent risk.
The BCG matrix  analyses business opportunities according to market growth rate and market share.
A business strategy  identifies how a division or strategic business unit will compete in its product or
service domain.
A competitive advantage  allows an organisation to deal with market and environmental forces better
than its competitors.
Growth through concentration  is within the same business area.
Core competencies  are special strengths that give an organisation a competitive advantage.
Corporate governance  is the system of control and performance monitoring of top management.
A corporate strategy  sets long‐term direction for the total enterprise.
A cost leadership strategy  seeks to operate with lower costs than competitors.
A differentiation strategy  offers products that are unique and different from the competition.
Growth through diversification  is by acquisition of or investment in new and different business areas.
Divestiture  sells off parts of the organisation to focus attention and resources on core business areas.
Downsizing  or retrenchment decreases the size of operations with the intention of becoming more
streamlined.
An e‐business strategy  strategically uses the internet to gain competitive advantage.
Emergent strategies  develop over time as managers learn from and respond to experience.
A focused cost leadership strategy  seeks the lowest costs of operations within a special market
segment.
A focused differentiation strategy  offers a unique product to a special market segment.
A functional strategy  guides activities within one specific area of operations.
The GE Business Screen  analyses business strength and industry attractiveness for strategy
formulation.
Growth strategies  involve expansion of the organisation’s current operations.
The mission  is the organisation’s reason for existence in society.
Operating objectives  direct activities towards specific performance results.
Organisational culture  is the system of shared beliefs and values that develops within an organisation
and guides the behaviour of its members.
A portfolio planning  approach seeks the best mix of investments among alternative business
opportunities.
Product life cycle  is the series of stages a product or service goes through in the ‘life’ of its
marketability.
Restructuring  changes the scale and/or mix of operations to gain efficiency and improve performance.
A retrenchment strategy  involves reducing the scale of current operations.
Stakeholders  are individuals, groups and institutions directly affected by an organisation’s
performance.
In strategic alliances  organisations join together in partnership to pursue an area of mutual interest.
A strategic business unit (SBU)  is a major business area that operates with some autonomy.
Strategic intent  focuses and applies organisational energies on a unifying and compelling goal.
Strategic leadership  enthuses people to continuously change, refine and improve strategies and their
implementation.
Strategic management  is the process of formulating and implementing strategies.
A strategy  is a pattern in a stream of organisational decisions.
Strategy formulation  is the process of creating strategies.
Strategy implementation  is the process of putting strategies into action.
Sustainable competitive advantage  exists through realising cost and quality, knowledge and speed,
creating a market stronghold and protecting financial resources.

252  Management
A SWOT analysis  examines organisational strengths and weaknesses and environmental opportunities
and threats.
Growth through vertical integration  is by acquiring suppliers or distributors.

APPLIED ACTIVITIES
1 What is the difference between corporate, business and operational strategies?
2 What are the advantages of performing a SWOT analysis?
3 Why are European organisations leading the world in their approach to sustainable business?
4 Why is strategic leadership important to organisations?
5 Allie Haroum is the owner of a small independent café in Sydney. Her café serves the local
inner‐city area, which has an increasing number of female office workers. She sells high‐quality
European and Middle Eastern food. A large food court has just opened across the street from her
store. It sells American and Australian fast food at lower prices. It is a no‐frills operation and its
lower prices are attracting business away from Allie’s café. Assume you are part of a student team
assigned to do a management class project for Allie. Her question for the team is: ‘How can I apply
Porter’s generic business strategies to better deal with my strategic planning challenges in this
situation?’ How will you reply?

ENDNOTES
  1. Hamish McRae, ‘Facebook, Airbnb, Uber, and the Unstoppable Rise of the Content Non‐Generators’, The Independent (6 May
2015), www.independent.co.uk.
  2. Tom Goodwin, ‘The Battle Is for the Customer Interface’, Techcrunch (3 Mar 2015), http://techcrunch.com.
  3. Ernst Von Weizsacker, Amory B. Lovins and L. Hunter Lovins, Factor 4: Doubling Wealth, Halving Resource Use (Sydney:
Allen & Unwin, 1997); John Campling, A Strategy for Sustainable Industry and Regional Economic Development in Far North
Queensland, occasional paper (Townsville: James Cook University School of Business, 2003). See also Adrian Wilkinson,
Malcolm Hill and Paul Gollan, ‘The Sustainability Debate’, International Journal of Operations and Production Management,
vol. 21, no. 12 (2001), p. 1492.
  4. Henry Mintzberg, ‘Patterns in Strategy Formation’, Management Science, vol. 24 (1978), pp. 327–36.
  5. Gary Hamel and C. K. Prahalad, ‘Strategic Intent’, Harvard Business Review (May–June 1989), pp. 63–76.
  6. Information and quotes from Marcia Stepanek, ‘How Fast Is Net Fast?’, Business Week E‐Biz (1 November 1999),
pp. EB52–EB54.
  7. Keith H. Hammond, ‘Michael Porter’s Big Ideas’, Fast Company (March 2001).
  8. Michael A. Hitt, R. Duane Ireland and Robert E. Hoskisson, Strategic Management: Competitiveness and Globalization
(Minneapolis: West, 1997), p. 5.
  9. ANZ website, www.anz.com.
10. Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980);
Michael E. Porter, ‘Clusters and the New Economics of Competition’, Harvard Business Review (November–December 1998),
pp. 77–90.
11. Joseph Fitsanakis, ‘Airbus to Sue Germany for Helping US Spy in its Operations’, intelNews (1 May 2015).
12. Romualdas Gineviˇcius and Algirdas Krivka, ‘Application of Game Theory for Duopoly Market Analysis’, Journal of Business
Economics and Management, vol. 9 (2008), pp. 207–17.
13. ‘The World’s Most Valuable Brands’, Forbes (May 2015), www.forbes.com.
14. Jeremy Story Carter, ‘McDonald’s Struggles with Identity and Changing Tastes’, ABC Blueprint for Living (5 August 2015),
www.abc.net.au/radionational.
15. James Brumley, ‘McDonald’s Is about To Tap into a Huge Growth Opportunity’, Business Insider (23 April 2014),
www.businessinsider.com.
16. Liyan Chen, ‘Yum! Empire: The 10‐Year Rise And Fall Of KFC, Pizza Hut In China’, Forbes (22 October 2015),
www.forbes.com.
17. ibid.
18. Richard A. D’Aveni, Hyper‐Competition: Managing the Dynamics of Strategic Maneuvering (New York: Free Press, 1994).
19. Mike Richardson, ‘Agility is King’, Business Strategy Review, vol. 23 (2012), pp. 61–3.
20. Rolfe Winkler, ‘YouTube: 1 Billion Viewers, No Profit’, The Wall Street Journal (25 February 2015), www.wsj.com.

CHAPTER 9 Strategic management  253

21. Peter F. Drucker, ‘Five Questions’, Executive Excellence (6 November 1994), pp. 6–7.
22. Peter F. Drucker, Management: Tasks, Responsibilities, Practices (New York: Harper & Row, 1973), p. 122.
23. ibid.
24. See Laura Nash, ‘Mission Statements: Mirrors and Windows’, Harvard Business Review (March–April 1988), pp. 155–6.
James C. Collins and Jerry I. Porras, ‘Building Your Company’s Vision’, Harvard Business Review (September–October 1996),
pp. 65–77; James C. Collins and Jerry I. Porras, Built to Last: Successful Habits of Visionary Companies (New York: Harper
Business, 1997).
25. Gary Hamel, Leading the Revolution (Boston, MA: Harvard Business School Press, 2000), pp. 72–3.
26. Merck website, ‘About Us’, www.merck.com.
27. Terrence E. Deal and Allan A. Kennedy, Corporate Cultures: The Rites and Rituals of Corporate Life (Reading,
MA: Addison‐Wesley, 1982), p. 22. For more on organisational culture see Edgar H. Schein, Organizational Culture and
Leadership, 2nd edn (San Francisco: Jossey‐Bass, 1997).
28. Merck website, ‘About Us: Our Values’, www.merck.com.
29. Peter F. Drucker’s views on organisational objectives are expressed in his classic books, The Practice of Management
(New York: Harper & Row, 1954); and Management: Tasks, Responsibilities, Practices (op. cit.). See also his article
‘Management: The Problems of Success’, Academy of Management Executive, vol. 1 (1987), pp. 13–19.
30. Terry Hill and Roy Westbrook, ‘SWOT Analysis: It’s Time for a Product Recall’, Long Range Planning, vol. 30 (1997) no. 1,
pp. 46–52.
31. C. K. Prahalad and Gary Hamel, ‘The Core Competencies of the Corporation’, Harvard Business Review (May–June 1990),
pp. 79–91; Hitt et al. op. cit.
32. For a discussion of Michael Porter’s approach to strategic planning, see his books Competitive Strategy (op. cit.) and
Competitive Advantage: Creating and Sustaining Superior Performance (New York: Free Press, 1986); his article, ‘What
Is Strategy?’, Harvard Business Review (November–December 1996), pp. 61–78; and Richard M. Hodgetts’ interview
‘A Conversation with Michael E. Porter: A Significant Extension Toward Operational Improvement and Positioning’,
Organizational Dynamics (summer 1999), pp. 24–33.
33. Hitt et al. op. cit.
34. Michael E. Porter, ‘The Five Competitive Forces that Shape Strategy’, Harvard Business Review, vol. 57 (January 2008),
pp. 57–1.
35. This case was adapted from Donald Sull, Rebecca Homkes, Charles Sull, ‘Why Strategy Execution Unravels—and What to
Do About It’ (March 2015), https://hbr.org.
36. GE website, www.ge.com.
37. The four grand strategies were originally described by William F. Glueck, Business Policy: Strategy Formulation and
Management Action, 2nd edn (New York: McGraw‐Hill, 1976).
38. ‘Hot Stock Pick Bank of Queensland’, Money (5 August 2015), http://moneymag.com.au.
39. Bryan Mezue, ‘Emerging Market Firms Need a Diaspora Strategy’, Harvard Business Review (14 October 2013), https://hbr.org.
40. ‘How Is a Diaspora Relevant to Developing Business Strategy?’ The Economist (25 June 2015), https://youtu.be/
HjPQkktD‐Kw.
41. ibid.
42. Naana Otoo‐Oyortey, ‘How to … Mobilise a Diaspora Movement’, The Guardian (31 May 2013), www.theguardian.com.
43. Australia Africa Business Council website, www.aabc.net.au.
44. African Professionals of Australia website, www.apaau.com.
45. Wesfarmers website, www.wesfarmers.com.au.
46. Hitt et al. op. cit.
47. See William McKinley, Carol M. Sanchez and A. G. Schick, ‘Organizational Downsizing: Constraining, Cloning, Learning’,
Academy of Management Executive, vol. 9 (August 1995), pp. 32–44.
48. Kim S. Cameron, Sara J. Freeman and A. K. Mishra, ‘Best Practices in White‐Collar Downsizing: Managing Contradictions’,
Academy of Management Executive, vol. 4 (August 1991), pp. 57–73.
49. Michael E. Porter and Mark B. Fuller, ‘Coalitions and Global Strategy’, in Michael E. Porter (ed.), Competition in Global
Industries (Cambridge, MA: Harvard University Press, 1986).
50. oneworld website, www.oneworld.com.
51. John Campling, Organisational and Locational Change in the Canadian Automotive Industry: A Proposed Framework for
Industrial Analysis, unpublished Master’s Thesis (Canada: Queen’s University, 1984).
52. Information from Michael Rappa, ‘Business Models on the web’, www.ecommerce.ncsu.edu and digitalenterprise.org.
53. D’Aveni op. cit.
54. ibid.
55. ibid.
56. See the discussion in Thomas L. Wheelen and J. David Hunger, Strategic Management & Business Policy, 7th edn (Upper
Saddle River, NJ: Prentice Hall, 2000), pp. 133–47.
57. Porter op. cit.

254  Management
58. John Campling, ‘International Economic Restructuring, Enterprise Bargaining and Gender Outcomes: Predictions for
Australia’, The International Journal of Comparative Labour Law and Industrial Relations, vol. 10, no. 1 (spring 1994),
pp. 36–54.
59. Aussie Home Loan, ‘Aussie Welcomes Commonwealth Bank of Australia’s Increased Investment’ (18 December 2012),
www.aussie.com.au.
60. Information from Suzanne Steel, ‘Quality in Bloom’, Business Today (22 August 1994), pp. 1–2; Greg Elliott, Sharyn
Rundle‐Thiele and David Waller, Marketing (Brisbane: John Wiley & Sons, 2010), pp. 210–11.
61. Tom Goodwin, ‘The Last Mover Advantage’, Technocrunch (17 June 2015), http://techcrunch.com.
62. Parmy Olsen, ‘The Rags‐To‐Riches Tale Of How Jan Koum Built WhatsApp Into Facebook’s New $19 Billion Baby’, Forbes
(2 February 2014).
63. Reed Albergotti, Douglas MacMillan, Evelyn M. Rusli, ‘Facebook’s $19 Billion Deal Sets High Bar’, The Wall Street Journal
(20 February 2014), pp. A1, A6.
64. Bob Metcalfe, ‘Metcalfe’s Law after 40 Years of Ethernet’, IEEE Computer (2013).
65. Xing‐Zhou Zhang, Jing‐Jie Liu, Zhi‐Wei Xu, ‘Tencent and Facebook Data Validate Metcalfe’s Law’, Journal Of Computer
Science And Technology, vol. 30, no. 2 (13 March 2015), pp. 246–51.
66. Richard G. Hamermesh, ‘Making Planning Strategic’, Harvard Business Review, vol. 64 (July–August 1986), pp. 115–20;
Richard G. Hamermesh, Making Strategy Work (New York: Wiley, 1986).
67. See Gerald B. Allan, ‘A Note on the Boston Consulting Group Concept of Competitive Analysis and Corporate Strategy’,
Harvard Business School, Intercollegiate Case Clearing House, ICCH9‐175‐175 (Boston: Harvard Business School,
June 1976).
68. Hamermeshop. cit.
69. The adaptive model is described in Raymond E. Miles and Charles C. Snow’s book, Organizational Strategy, Structure, and
Process (New York: McGraw‐Hill, 1978); and their articles, ‘Designing Strategic Human Resources Systems’, Organizational
Dynamics, vol. 13 (summer 1984), pp. 36–52, and ‘Fit, Failure, and the Hall of Fame’, California Management Review,
vol. 26 (spring 1984), pp. 10–28.
70. James Brian Quinn, ‘Strategic Change: Logical Incrementalism’, Sloan Management Review, vol. 20 (Fall 1978), pp. 7–21.
71. Henry Mintzberg, The Nature of Managerial Work (New York: Harper & Row, 1973, and HarperCollins, 1997); John P. Kotter,
The General Managers (New York: Free Press, 1986).
72. Henry Mintzberg, ‘Planning on the Left Side and Managing on the Right’, Business Review, vol. 54 (July–August 1976),
pp. 46–55; Henry Mintzberg and James A. Waters, ‘Of Strategies, Deliberate and Emergent’, Strategic Management Journal,
vol. 6 (1985), pp. 257–72; Henry Mintzberg, ‘Crafting Strategy’, Harvard Business Review, vol. 65 (July–August 1987),
pp. 66–75.
73. Business Week (19 January 2009), p. 41.
74. For research support, see Daniel H. Gray, ‘Uses and Misuses of Strategic Planning’, Harvard Business Review, vol. 64
(January–February 1986), pp. 89–97.
75. Gary L. Neilson, Karla L. Martin and Elizabeth Powers, ‘Strategy Execution’, Harvard Business Review (2008), pp. 61–70.
76. For a discussion of corporate governance issues, see Hugh Sherman and Rajeswararao Chaganti, Corporate Governance and
the Timeliness of Change (Westport, CT: Quorum Books, 1998).
77. H. Chen and T. J. Chen, ‘Governance Structures in Strategic Alliances: Transaction Cost Versus Resource‐based Perspective’,
Journal of World Business, vol. 38, no. 1 (2003), pp. 1–14.
78. M.E. Porter and M.R. Kramer, ‘Strategy and Society: The Link Between Competitive Advantage and Corporate Social
Responsibility’, Harvard Business Review (December, 2006), pp. 78–92.
79. See R. Duane Ireland and Michael A. Hitt, ‘Achieving and Maintaining Strategic Competitiveness in the 21st Century’,
Academy of Management Executive, vol. 13 (1999), pp. 43–57.
80. Matt Murray, ‘As Huge Companies Keep Growing, CEOs Struggle to Keep Pace’, Wall Street Journal (8 February 2001),
p. A6.
81. Hammond op. cit.

ACKNOWLEDGEMENTS
Photo: © AstroStar / Shutterstock.com
Photo: © Sorbis / Shutterstock.com
Photo: © OPIS Zagreb / Shutterstock.com
Photo: © Quka / Shutterstock.com

CHAPTER 9 Strategic management  255

CHAPTER 10

Organising 
LEA RN IN G OBJE CTIVE S

10.1 What is organising as a management function?

10.2 What are the major types of organisation structures?
10.3 What are the essentials of organisational design?
10.4 How do contingency factors influence organisational design?
10.5 What are the new developments in organisation structures and operating systems?
10.6 What are the major issues in subsystems design?
10.7 What organising trends are changing the workplace?
The ‘no manager’ company: how does it work?
Imagine a company where there are no managers, no‐one has a private office, there is no clear organ­
isation structure, and employees choose who they work with, what projects they work on and what hours
they work. Perhaps this sounds like an ideal workplace for you, or maybe it sounds like chaos.
It may be a surprise to know that this is the organisational approach of one of the world’s largest com­
puter games design and social entertainment platform companies. The company is Valve and is famous
for games series such as Half‐Life, Left 4 Dead, Counterstrike, Portal and Team Fortress. They are also
responsible for Steam, which is the world’s largest online gaming platform with over 35 million active
users. The game engine Source is also part of the Valve Corporation’s stable of products and services.1
So with no managers to plan, lead, control and organise, how does the company achieve its enviable
record of growth and innovation? The short answer is that they hire the right people and work together
to develop a corporate culture that rewards performance and innovation. In reality, however, the answer
is more complex.2
The kind of person that Valve looks to employ is someone with a broad range of skills, including
the ability to work effectively in teams, coupled with expertise in a more narrow field. These could be
called ‘T–shaped’ people, with the horizontal line of the ‘T’ representing generalist breadth in terms of
teamwork and customer orientation and the vertical line representing narrow skill depth in areas such as
programming or digital art. Most importantly, however, the person must have a passion for what they do,
so that motivation comes largely from within rather than from external sources. Valve hires staff from
around the world, and because they have such a large fan base of active gamers who interact in online
forums, attend conventions and create modifications for games, they have no shortage of suitable appli­
cants knocking on their electronic door every day.3
To build the right organisational culture, the company issues each new employee with The Valve
Handbook for New Employees. The handbook reads a little like a ‘game guide’ and is structured around
frequently asked questions and explains how the company performance reward system works, the history
of the company, how they can move their desk on wheels, how to prepare for the annual company vac­
ation and how they can participate in choosing the next group of new employees.4

CHAPTER 10 Organising  257

 The company does have a structure, which is based around multidisciplinary project teams called cabals.
The teams exist to ship products to consumers and the ‘lead’ person for each team emerges rather than being
appointed by an external authority. Temporary structures that set expectations on deadlines, roles and tasks
do emerge, but these exist only as long as is needed. Some former employees have criticised this as being a
little like high school, with hints of bullying, and a clear line of the ‘in‐group’ separating the ‘out‐group’.5
While there may be some healthy scepticism that the flat organisational structure of Valve is really as flat
as claimed, the reality is that the company is a leader in innovative games design and games delivery. The
company is growing with over 330 employees, however, there are sometimes struggles to agree on who the
next new employee should be. In attempting to emphasise company culture over structure Valve may be
having some success, but the company’s continued growth may eventually limit this approach. Problems
are emerging as customers complain that their favourite game is not receiving enough development focus
but it remains to be proven whether this is related to the employees’ freedom to choose the projects they
work on. The development of the company, however, remains a challenge to traditional ways of thinking
about company structure and may be an indication of the direction of companies of the future.6

QUESTION
Do you think that having no designated managers in an organisation is a good or bad idea? Justify your
perspective.

Introduction
Valve’s structure challenges long‐held ideas that management and managers are essential to an organ­
isation’s success. On closer examination, however, is appears that, although there are no employees with
the title of ‘manager’, the company does have a structure and a culture that fulfils the management func­
tion or organising.
The Canadian management scholar and consultant Henry Mintzberg is well known internationally for his
work in the area of strategy and structure. Writing with a colleague in the Harvard Business Review, he points
out that organisations are changing very quickly in today’s world and that the people within them are strug­
gling to find their place.7 The point is, people need to understand how their organisations work if they are to
work well within them. Mintzberg notes some common questions: What parts connect to one another? How
should processes and people come together? Whose ideas have to flow where? These and related questions
raise critical issues about organisation structures and how well they meet an organisation’s performance needs.
Among the vanguard organisations — those that consistently deliver above‐average returns and out­
perform their competitors — consistent themes are found. Regardless of the specific approaches taken,
they all emphasise empowerment, support for employees, responsiveness to client or customer needs,
flexibility in dealing with a dynamic environment, and continual attention to quality improvements. They
also strive for positive cultures and high quality of work–life experiences for members and employees.
Importantly, nothing is constant, at least not for long. Change is always a possibility. Managers in pro­
gressive organisations are always seeking new ways to better organise the workplace to support strategies
and achieve high‐performance goals. By attending to these performance factors, Valve has developed in
a short time into a strong, high‐performing company in the computer gaming industry.8

10.1 Organising as a management function

LEARNING OBJECTIVE 10.1 What is organising as a management function?
Formally defined, organising is the process of arranging people and other resources to work together to
accomplish a goal. As one of the basic functions of management, organising involves creating a division
of labour for task performance and coordinating results to achieve a common purpose. Figure 10.1 shows
the central role organising plays in the management process. Once plans are created, the ­manager’s task
is to see that they are carried out.

258  Management
 Organising —
to create structures
● Divide up the work
● Arrange resources
● Coordinate activities

Planning — Controlling —
to set the direction to ensure results

Leading —
to inspire effort

FIGURE 10.1 Organising viewed in relationship with the other management functions

Given a clear mission, core values, objectives and strategy, organising begins the process of imple­
mentation by clarifying jobs and working relationships. It identifies who is to do what, who is in charge
of whom, and how different people and parts of the organisation relate to and work with one another.
All of this, of course, can be done in different ways. This is where an understanding of situational con­
tingencies becomes important. The leadership challenge is to choose the best organisational form to fit
the strategy and the situation.

What is organisational structure?

The way in which various parts of an organisation are formally arranged is usually referred to as the
organisational structure. The organisational structure is the system of tasks, workflows, reporting
relationships and communication channels that link the work of diverse individuals and groups. Any
structure should both allocate task assignments, through a division of labour, and provide for the
coordination of performance results. A good structure that does both of these things well can be an
important asset to an organisation.9 Unfortunately, it is easier to talk about good structures than it
is to create good structures. This is why you often read and hear about organisations restructuring,
or changing their structures in an attempt to improve performance. However, there is no structure
that meets the needs of all circumstances. Structure must be handled in a contingency fashion; as
environments and situations change, structures must often be changed too. To make good choices,
a manager must know the alternatives and be familiar with current trends and developments. They
must also be prepared to create ‘chaos’ to help produce innovative solutions to complex problems,
when necessary. Nothing new and innovative can emerge from organising systems that are highly
ordered and stable. Chaotic systems, such as revolutions and resistance, create new configurations of
decision‐making and power.

Formal structure
You may know the concept of structure best in the form of an organisation chart, which is a dia­
gram that shows reporting relationships and the formal arrangement of work positions within an
organisation.10 A typical organisation chart identifies various positions and job titles, as well as the
lines of authority and communication between them. This is the formal structure, or the structure of
the organisation in its official state. It represents the way the organisation is intended to function.
Manager’s notepad 10.1 identifies some of the things that you can learn by reviewing an organisation
chart.

CHAPTER 10 Organising  259

 MANAGER’S NOTEPAD 10.1

What you can learn from an organisation chart

• Division of work. Positions and titles show work responsibilities.
• Supervisory relationships. Lines show who reports to whom.
• Communication channels. Lines show formal communication flows.
• Major subunits. Positions reporting to a common manager are shown.
• Levels of management. Vertical layers of management are shown.

Informal structure
Behind every formal structure typically lies an informal structure. This is a ‘shadow’ organisation
made up of the unofficial, but often critical, working relationships between organisational members. This
is the way that things get done at Valve, even if the processes seem like those in high school at times. If
the informal structure could be drawn, it would show who talks to and interacts regularly with whom,
regardless of their formal titles and relationships. The lines of the informal structure would cut across
levels and move from side to side. They would show people meeting for coffee, in exercise groups and
in friendship cliques, among other possibilities. Importantly, no organisation can be fully understood
without first gaining insight into the informal structure, as well as the formal one.11
Informal structures can be very helpful in getting needed work accomplished in any organisation.
Indeed, they may be considered essential in many ways to organisational success. This is especially true
during times of change, when out‐of‐date formal structures may simply not provide the support people
need to deal with new or unusual situations. Because it takes time to change or modify formal structures,
this is a common occurrence. Through the emergent and spontaneous relationships of informal structures,
people gain access to interpersonal networks of emotional support and friendship that satisfy important
social needs. They also benefit in task performance, by being in personal contact with others who can help
them get things done when necessary. In fact, what is known as informal learning is increasingly recog­
nised as an important resource for organisational development.12 This is learning that takes place as people
interact informally throughout the working day, and in a wide variety of unstructured situations.
Of course, informal structures also have potential disadvantages. Because they exist outside the formal
authority system, the activities of informal structures can sometimes work against the best interests of the
organisation as a whole. They can also be susceptible to rumour, carry inaccurate information, breed resis­
tance to change and even divert work efforts from important objectives. In addition, ‘outsiders’ or people
who are left out of informal groupings may feel less a part of daily activities, and may suffer a loss of satis­
faction. Some expatriate managers of Japanese firms, for example, complain at times about being excluded
from the ‘shadow cabinet’, which is an informal group of Japanese executives who hold the real power to get
things done in the organisation — and sometimes do so without the participation of others.13 In some work­
places, staff consciously or unconsciously exclude new workers from the informal structure. Recent migrants
are particularly vulnerable to this form of discrimination, as they may be unfamiliar with the social protocols
of the ‘in’ group. For example, many new migrants are surprised that staff who join other colleagues in social
activities are regarded as ‘team players’ — more so than staff members who work long hours at the office.14

CRITICAL ANALYSIS

1. Think of your current workplace or your university. How many parts and personalities of the
organisation chart can you identify? Why do you think that most organisational members can only
identify the details of the very top of the chart and the part to which they belong?
2. Think of organisations in which you have been a member. Reflecting on your experience, do you
think that informal structures or formal structures are more influential in getting things done? Why
do you think this is?

260  Management
10.2 Traditional organisation structures
LEARNING OBJECTIVE 10.2 What are the major types of organisation structures?
A traditional principle of organising is that performance gains are possible when people are allowed to
specialise and become experts in specific jobs or tasks. Given this division of labour, however, decisions
must then be made on how to group work positions into formal teams or departments, and then link them
together in a coordinated fashion within the larger organisation. These decisions involve a process called
departmentalisation, which has traditionally resulted in three major types of organisation structures —
the functional, divisional and matrix structures.15

Functional structures
In functional structures, people with similar skills and performing similar tasks are formally
grouped together into work units. Members of functional departments share technical exper­
tise, interests and responsibilities. The first example in figure 10.2 shows a common functional
structure in a business. In this case, senior management includes the functions of marketing,
finance, production and human resources. In this functional structure, manufacturing prob­
lems are the responsibility of the production director; marketing problems are the province of the
marketing director, and so on. The key point is that members of each function work within their
areas of expertise. If each function works properly, the expectation is that the business will operate
successfully.
Functional structures are not limited to businesses. The figure also shows how this form of departmen­
talisation can be used in other types of organisations, such as banks and hospitals. These types of struc­
tures typically work well for small organisations that produce only one or a few products or services.
They also tend to work best in relatively stable environments, where problems are predictable and there
are limited demands for innovation and change. The major advantages of functional structures include
the following:
•• economies of scale with efficient use of resources
•• task assignments consistent with expertise and training
•• high‐quality technical problem‐solving
•• in‐depth training and skill development within functions
•• clear career paths within functions.
There are also potential disadvantages of functional structures. Common problems with functional
structures involve difficulties in pinpointing responsibilities for things like cost containment, product
or service quality, timeliness and innovation in response to environmental changes. Such problems
with functional structures are magnified as organisations grow in size and environments begin to
change.
Another significant concern is often called the functional chimneys problem. An  alternative term
for chimneys is ‘silos’. This refers to the lack of communication, coordination and problem‐solving
across functions. Because the functions become formalised, not only on an organisation chart, but
also in the mindsets of people, the sense of cooperation and common purpose breaks down. When
functional units develop self‐centred and narrow viewpoints, they lose the total system perspective.
When problems occur with another unit, they are often referred up to higher levels for resolution,
rather than being solved by people at the same level. This slows decision‐making and problem‐
solving, and can result in a loss of advantage in competitive situations. For example, the former
chairman of the Jaguar car company blamed many of Jaguar’s infamous quality problems on what
he called ‘excessive compartmentalisation’. In building cars, the different departments did very little
talking and working with one another.16

CHAPTER 10 Organising  261

 Managing director

Business

Director Director Director Director

Marketing Finance Production Human Resources

Branch manager

Bank
branch
Manager Manager Manager Manager
Loans Investments Operations Trusts

Administrator

Public
hospital
Director Director Director Director
Medical staff Nursing Ancillary Administrative
services services

Vice-chancellor

Deputy Vice-chancellor

University

Dean Dean Dean Dean

Arts, Education Law, Business and Medicine, Science and
and Humanities the Creative Arts Molecular Sciences Engineering
and Nursing

FIGURE 10.2 Functional structures in a business, a bank branch, a public hospital and a university

Divisional structures
A second organisational alternative is the divisional structure. It groups together people who work on
the same product or process, serve similar customers, and/or are located in the same area or geographical
region. As illustrated in figure 10.3, divisional structures are common in complex organisations that
have multiple and differentiated products and services, serve diverse customers, pursue diversified strat­
egies, and/or operate in various and different competitive environments. The major types of divisional
approaches are the product, geographical, customer and process structures.

262  Management
 Type Focus Example

General manager
Good or
Product
service produced
Grocery products Drugs and toiletries

Managing director
Location of
Geographical
activity
Asian division European division

Agency administrator
Customer or
Customer
client serviced
Problem youth Senior citizens

Catalogue sales manager

Activities part
Process
of same process
Product purchasing Order fulfilment

FIGURE 10.3   Divisional structures based on product, geography, customer and process

Divisional structures attempt to avoid problems common to functional structures. They are especially
popular among organisations with diverse operations that extend across many products, territories, cus­
tomers and work processes.17 The potential advantages of divisional structures include:
•• more flexibility in responding to environmental changes
•• improved coordination across functional departments
•• clear points of responsibility for product or service delivery
•• expertise focused on specific customers, products and regions
•• greater ease in changing size by adding or deleting divisions.
As with other alternatives, there are potential disadvantages of divisional structures. They can reduce
economies of scale and increase costs, through the duplication of resources and efforts across divisions.
They can also create unhealthy rivalries — as divisions compete for resources and attention, and they
emphasise division needs and goals to the detriment of the goals of the organisation as a whole.
Product structures
Product structures group together jobs and people working on a single product or service. They clearly
identify costs, profits, problems and successes in a market area with a central point of accountability.
Consequently, managers are encouraged to be responsive to changing market demands and customer
tastes. Common in large organisations, product structures may even extend into global operations.
Product structures are becoming less common in major companies, as many companies are constantly
trying to innovate and create new products. Heinz, Intel and Apple have all moved away from product
structures in recent years.
Geographical structures
Geographical structures group together jobs and activities being performed in the same location or
geographical region. They are typically used when there is a need to differentiate products or services in
various locations, such as in different regions of a country. They are also quite common in international

CHAPTER 10 Organising  263

operations, where they help to focus attention on the unique cultures and requirements of particular
regions. For example, the French‐based, Chinese‐owned global resort and tourism operator Club
Med (now owned by Fosun International)18 groups its operations into three areas: (1) Europe Africa,
(2) Americas and (3) Asia.19 With increasing market pressure for corporate ‘globalisation’, a number of
companies have restructured into either product or customer‐based divisions. The development of better
internet‐based communications systems and the dismantling of trade barriers will promote further organ­
isational changes from geographical to product (or customer) structures.
Customer structures
Customer structures group together people and jobs that are serving the same customers or clients. The
major appeal is the ability to serve the special needs of the different customer groups. With increasing
differentiation of global markets, this structure is often well suited to complex businesses.
Process structures
A work process is a group of tasks related to one another that collectively create something of value to
a customer.20 An example is order fulfilment — when you email a catalogue retailer and request a par­
ticular item. The process of order fulfilment takes the order from point of initiation by the customer to
point of fulfilment by a delivered order. Process structures group together jobs and activities that are part
of the same processes. In the example in figure 10.3, this might take the form of product‐purchasing teams,
order‐fulfilment teams and systems‐support teams for the mail‐order catalogue business. The importance
of understanding work processes and designing process‐driven organisations has been popularised by man­
agement consultant and author Michael Hammer.21 These concepts are explored later in this chapter.

Matrix structures
The matrix structure, often called the matrix organisation, combines the functional and divisional
structures just described. In effect, it is an attempt to gain the advantages and minimise the disadvan­
tages of each. This is accomplished in the matrix by using permanent cross‐functional teams to integrate
functional expertise, in support of a clear divisional focus on a product, project or program.22 As shown
in figure 10.4, workers in a matrix structure belong to at least two formal groups at the same time — a
functional group and a product, program or project team. They also report to two bosses — one within
the function and the other within the team.
The matrix organisation has gained a strong foothold in the workplace, with applications in diverse
settings, such as manufacturing (e.g. aerospace, electronics, pharmaceuticals), service industries
(e.g.  banking, brokerage, retailing), professional fields (e.g. accounting, advertising, law) and the not‐
for‐profit sector (e.g. city, state and federal agencies; hospitals; universities). Matrix structures are also
in multinational organisations, in which they offer the flexibility to deal with both regional differences
and multiple product, program or project needs. Matrix structures are common in organisations pursuing
growth strategies in dynamic and complex environments.
The main contribution of matrix structures to organisational performance lies in the use of permanent
cross‐functional teams. Team members work closely together, and in a timely manner, to share expertise
and information to solve problems. The potential advantages of matrix structures include:
•• better inter‐functional cooperation in operations and problem‐solving
•• increased flexibility in adding, removing and/or changing operations to meet changing demands
•• better customer service, since there is always a program, product or project manager informed and
available to answer questions
•• better performance accountability through the program, product or project managers
•• improved decision‐making, as problem‐solving takes place at the team level — where the best
information is available
•• improved strategic management, since top managers are freed from unnecessary problem‐solving and
can focus on strategic issues.

264  Management
 General
manager

Manager Manufacturing Engineering Sales

of projects manager manager manager

Project A
manager

Project B
manager

Project C
manager

Functional personnel assigned to both projects and

functional departments

FIGURE 10.4   Matrix structure in a small multiproject business

Predictably, there are also potential disadvantages of matrix structures. The two‐boss system is sus­
ceptible to power struggles, as functional supervisors and team leaders vie with one another to exercise
authority. The two‐boss system can also be frustrating for matrix members, if it creates task confusion
and conflicts in work priorities. Team meetings in the matrix are also time‐consuming. Teams may
develop ‘groupitis’, or strong team loyalties that cause a loss of focus on larger organisational goals, and
the requirements of adding the team leaders to a matrix structure can result in increased costs.23

GLOBALISATION

How big is too big?

In recent years, three global vehicle manu-
facturers have hit or neared the staggering
mark of selling over 10 million vehicles per
year — Toyota, Volkswagen and General
Motors. Unfortunately, this growth trajec-
tory also coincided with significant prob-
lems for the global giants. From 2009
onwards, Toyota faced significant vehicle
recall problems and a US$1.2 billion settle-
ment associated with reports of accel-
eration problems in some vehicles. GM
recalled millions of vehicles in 2014 linked
with reported faulty ignition switches.
Volkswagen faced multiple problems after
admitting in 2015 that it manipulated diesel
emissions tests.

CHAPTER 10 Organising  265

 Partially in response to its own issues, Toyota changed its global structure to be region focused,
with one unit dealing with developed markets, another with emerging markets, a third handling impor-
tant components such as transmissions and engines, and the fourth with the luxury Lexis brand. This
change has allowed Toyota to respond to global issues more rapidly, although the change naturally
required staff to adjust to changing conditions. However, the distinction between emerging and devel-
oped markets in terms of vehicles has become less clear. For example, in response to growing pollution
problems, many emerging markets such as China and India are introducing more stringent pollution
control restrictions that are similar to those in developed markets. As the middle class expands in
emerging markets, vehicle tastes and preferences are merging with those of developed markets.
In recognition of this and other trends, Toyota is restructuring again in 2016 and 2017. This change
will realign the structure based on vehicle size and type, such as compact cars, sedans and commer-
cial vehicles. In early 2016 the new structure had not yet been announced, but what is clear is that
new structures would be based on changing market conditions and ensure that Toyota’s growth does
not compromise its strategic emphasis on quality, reliability and safety. Toyota has learned from past
mistakes and its structure is likely to continue to evolve based on maintaining its strategic focus in an
ever‐changing environment.24

QUESTION
What do you think of the idea that companies can grow too large for effective quality control and legislative
compliance? How can companies structure themselves to avoid such problems in the future?

10.3 Essentials of organisational design

LEARNING OBJECTIVE 10.3 What are the essentials of organisational design?
Organisational design is the process of choosing and implementing structures that best arrange
resources to serve the organisation’s mission and objectives.25 The ultimate purpose of organisational
design is to create an alignment between supporting structures and situational challenges. As shown in
figure 10.5, this includes taking into consideration the implications of environment, strategies, people,
technology and size.26 Importantly, the process of organisational design is a problem‐solving activity
that should be approached in a contingency fashion that takes all of these factors into account. There is
no universal design that applies in all circumstances. The goal is to achieve a best fit between the struc­
ture and the unique situation faced by each organisation. In the contemporary global economy, one of
the key developments in organisational design is the emergence of the virtual organisation. The idea of
a deliberately formless and fluid organisation might seem at odds with notions of organisational design.
However, virtual organisations are the antithesis of the rigid hierarchies and bureaucracies that often
characterise conventional organisations.
Key directions for changes in organisations today involve a basic shift in attention  — from  a tra­
ditional emphasis on more vertical or authority‐driven structures to  an  emphasis on structures that are
more horizontal and task‐driven. In management theory, these developments are framed by the distinc­
tion between bureaucratic designs that are mechanistic and vertical in nature, and adaptive designs that
are more organic and horizontal in nature. This distinction itself is viewed from the contingency position
that there is no one best way to organise, and that the choice of organisational design should always
achieve the best fit with situational needs.

Bureaucratic designs
As first introduced in the chapter on historical foundations of management, a bureaucracy can be
described as a form of organisation based on logic, order and the legitimate use of formal authority. Its
distinguishing features include a clear‐cut division of labour, a strict hierarchy of authority, formal rules

266  Management
and procedures, and promotion based on competency. According to sociologist Max Weber, bureauc­
racies were supposed to be orderly, fair and highly efficient.27 In short, they were a model form of organ­
isation. Yet, if you use the term ‘bureaucracy’ today, it may well have a negative connotation. If you call
someone a ‘bureaucrat’, they may feel insulted. Instead of operating efficiency, the bureaucracies that we
know are often associated with ‘red tape’. Instead of being orderly and fair, they are often cumbersome
and impersonal, to the point of insensitivity to customer or client needs. And the bureaucrats: do we not
assume that they work only according to rules, diligently following procedures and avoiding any oppor­
tunities to take initiative or demonstrate creativity?

Environment

People Strategy
Organisational design
aligns structures
with situational
contingencies

Size Technology

FIGURE 10.5 A framework for organisational design — aligning structures with situational contingencies

Management researchers recognise that there are limits to bureaucracies, particularly in the sense that
they tend to become unwieldy and rigid.28 Instead of viewing all bureaucratic structures as inevitably
flawed, however, management theory takes a contingency perspective. Some critical contingency ques­
tions to ask include: When is a bureaucratic form a good choice for an organisation? What alternatives
exist when it is not a good choice?
A basis for answering these questions lies in pioneering research conducted in England during the
early 1960s, by Tom Burns and George Stalker.29 After investigating 20 manufacturing companies, Burns
and Stalker concluded that two quite different organisational forms could be successful, with the choice
between them depending on the nature of an organisation’s external environment. A more bureaucratic
form, which Burns and Stalker called a mechanistic approach, thrived when the environment was stable,
but experienced difficulty when the environment was rapidly changing and uncertain. In these dynamic
situations, a much less bureaucratic form, called an organic approach, performed best. Figure 10.6 por­
trays these two approaches as opposite extremes on a continuum of organisational design alternatives.
Organisations that operate with highly mechanistic designs are very bureaucratic in nature. As shown
in the figure, they typically operate with more centralised authority, many rules and procedures, a pre­
cise division of labour, narrow spans of control and formal means of coordination. Mechanistic designs
are described as ‘tight’ structures of the traditional vertical or pyramid form.30 An example is your local
KFC or McDonald’s. A  relatively small operation, each store operates quite like others in the fran­
chise chain and according to rules established by the corporate management. Service personnel work in
orderly and disciplined ways, guided by training, rules and procedures, and with close supervision by
crew leaders who work alongside them. Even the appearance of service personnel is carefully regulated,
with everyone working in a standard uniform. These restaurants perform well, as they repetitively deliver
items that are part of their standard menus. You quickly encounter the limits, however, if you try to order

CHAPTER 10 Organising  267

something not on the menu. The servers do not prepare anything out of the ordinary. The chains also
encounter difficulty when consumer tastes change or take on regional preferences that are different from
what the corporate menu provides. Adjustments to the system are typically a long time coming.

Bureaucratic Adaptive
organisations organisations
mechanistic designs organic designs

Centralised Authority Decentralised

Many Rules and procedures Few

Narrow Spans of control Wide

Specialised Tasks Shared

Few Teams and task forces Many

Formal and Informal and

Coordination
impersonal personal

FIGURE 10.6 A continuum of organisational design alternatives — from bureaucratic to adaptive organisations

COUNTERPOINT

Crisis time for Australian mines

In 2015, Australian mining faced a crisis. The
crisis started with a cooling in the resource‐
hungry Chinese economy, leading to resource
oversupply, which in turn lead to falling com-
modity prices. This meant that the margin for
returns on mining investment shrunk dramati-
cally. In addition to falls in the market price for
mining commodities, a falling Australian dollar
(relative to many Australian trading partner cur-
rencies) meant that profit margins for investors
shrunk even further. Companies that borrowed
heavily to fund the construction of mines and
mining infrastructure found that their creditor
banks and financial institutions were soon
knocking on their door, seeking to salvage some return on their investment. Many investors lost confi-
dence in the Australian mining industry, and so share prices in the sector fell sharply.
Some mines were closed as they were either not profitable or not profitable enough compared to
other units in an organisation. Overall, mining in Australia shifted from a construction and production
phase to almost production only, putting further pressure on industries or organisational units associ-
ated with mining construction.

268  Management
 This process of adjusting company operations is often referred to as organisational restructuring, as
unprofitable or barely profitable organisational units are sold off, consolidated or closed. Financial sur-
vival of the company is often the fundamental strategic goal of the process, but managers with a short‐
term survival perspective may be restructuring their company towards death rather than life. This is the
case when companies divest themselves of units and operations that eventually become more profitable
when economic conditions improve.
The managers and boards who took the high‐risk strategy of borrowing heavily to build mines and
those who decided to incorrectly believe in an optimistic view of the industry future were often the
managers and boards who were then charged with restructuring the company to survive the industry
downturn. This can be a risky proposition in restructuring as sticking with the same decision‐makers
and same decision processes may not lead to optimal organisational outcomes. Some Australian mining
organisations called in organisational restructuring experts to help the companies get back on their feet.
Often the restructuring decisions are not popular, especially when mines close, staff are made redun-
dant and salaries may be reviewed. A restructuring that focuses on long‐term opportunities, however,
and helps the company prepare for the inevitable upswing in mining activity, may help the company
thrive when the golden days finally return.31

QUESTION
Organisational restructuring sometimes takes place in an environment where a company sees itself as
losing its competitive position as well as losing money. What do you see as the risks of restructuring in this
environment as opposed to an environment where the company is financially strong?

Adaptive designs
The limits of bureaucracy are especially apparent in organisations that must operate in the highly com­
petitive environments created by the forces of globalisation and new technologies. It is hard, for example,
to find a technology company, consumer products firm, financial services business or dot‐com retailer
today that is not making continual adjustments to its operations and organisational design.
‘It’s a millennial change’, says Dee Hock, the founder of Visa International. ‘We can’t run 21st century
society with 17th century notions of organization.’32 Enlightened managers are helping organisations
reconfigure into new forms that emphasise flexibility and speed, while retaining sight of important per­
formance objectives. Harvard scholar and consultant Rosabeth Moss Kanter notes that the ability to
respond quickly to shifting environmental challenges often distinguishes successful organisations from
less successful ones. Specifically, Kanter states that to be successful, an organisation must be flexible.

They will need to be able to bring particular resources together quickly, on the basis of short‐term recog­
nition of new requirements and the necessary capacities to deal with them .  .  . The balance between static
plans — which appear to reduce the need for effective reaction — and structural flexibility needs to shift
toward the latter.33

The organisational design trend now is towards more adaptive organisations that operate with a
minimum of bureaucratic features and with cultures that encourage worker empowerment and partici­
pation.34 Such organisations display features of the organic designs portrayed in figure 10.6, including
more decentralised authority, fewer rules and procedures, less precise division of labour, wider spans
of control and more personal means of coordination. They are described as relatively loose systems
in which a lot of work is done through informal structures and networks of interpersonal contacts.35
Organic designs recognise and legitimise these links, and give them the resources they need to operate
best. This works well for organisations facing dynamic environments that demand flexibility in dealing
with changing conditions. They are also increasingly popular in the new workplace, where the demands
of total quality management and competitive advantage place more emphasis on internal teamwork and
responsiveness to customers.

CHAPTER 10 Organising  269

 Above all, adaptive organisations are built on trusting that people will do the right things on their own
initiative. They move organisational design in the direction of what some might call self‐­organisation,
where the focus is on freeing otherwise capable people from unnecessarily centralised control and
restrictions. Moving towards the adaptive form means letting workers take over production scheduling
and problem‐solving; it means letting workers set up their own control techniques; it means letting
workers use their ideas to improve customer service. In the ultimate adaptive organisations, it means that
members are given the freedom to do what they can do best — get the job done. This creates what has
been described in earlier chapters as a learning organisation — one designed for continuous adaptation
through problem‐solving, innovation and learning.36

Virtual designs
Virtual organisations are emerging as new and distinctive organisational forms designed to create value
in the global economy. Definitions of the virtual organisation tend to be ‘fuzzy’; however, a number of
common features define virtual organisations. First, the lack of physical structure compared with con­
ventional organisations means there are fewer tangible assets, such as office buildings, warehouses and
fleet vehicles. Bleeker describes virtual firms as ‘defined not by concrete walls or physical space, but by
collaborative networks’.37 Organisations are emerging that are structured entirely in virtual reality, with
computer links replacing physical infrastructure, so that companies exist only in cyberspace.
Second, electronic communications technologies — the internet, social media platforms, instant and
text messaging, and other forms of electronic communication — form the basis of the virtual organ­
isation, linking people, assets, knowledge and ideas. Communications technology is the enabler for
the virtual organisation. A third feature of the virtual organisation is mobility of work. In other words,
communication networks, rather than buildings and physical assets, become the ‘workspace’ for organ­
isational members. Some workers keep their electronic files and programs on an internet‐based virtual
‘cloud’, rather than carrying memory hardware, such as portable hard drives, with them. Consequently,
work groups and teams do not have to work in close contact with each other; rather, they can be geo­
graphically dispersed locally, nationally or globally. The workplace is wherever the worker can produc­
tively undertake tasks and create value.
A fourth feature of virtual organisations is their hybrid nature. They can consist of a loose framework
of human resources, assets and knowledge involving organisational units, a consortia of companies, and
autonomous members brought together for a given time period to achieve a mutual objective. Once the
objective is achieved, the virtual organisation either ceases to exist or reconfigures itself to tackle the
next goal. These hybrids can be short‐term but also long‐term if they are tackling difficult research or
infrastructure projects, or are part of an ongoing supply chain. A fifth and related feature is their lack of
boundaries and inclusiveness. Virtual organisations are not constrained by what is traditionally thought
of as an individual company or corporation and how they are legally defined. Virtual organisations often
encompass suppliers and distributors to such an extent that it is difficult to unravel where one ­company
ends and the other begins. Finally, virtual organisations embody flexibility, through their ability to
restructure and to redeploy assets to meet changing requirements. This requires human resources that are
equally able to show flexibility in their deployment and job tasks.38

CRITICAL ANALYSIS

1. Online gaming communities and social networking websites, such as Facebook, Twitter and
LinkedIn, may make it easier to create virtual organisations. Consider if you are a part of a virtual
organisation. If so, describe advantages and disadvantages that you have experienced as a
member of online communities.
2. In light of the increasing popularity of virtual organisations, do you think that Westpac’s decision to
reopen bank branches is a mistake? Why or why not?

270  Management
10.4 Contingencies in organisational design
LEARNING OBJECTIVE 10.4 How do contingency factors influence organisational design?
Good organisational design decisions should result in supportive structures that satisfy situational
demands and allow all resources to be used to best advantage. This is true contingency thinking. Among
the contingency factors in the organisational design checklist featured in Manager’s notepad 10.2 are the
environment, strategy, technology, size and life cycle, and human resources. Recent research indicates
that another factor that should be considered in organisational design is the approach to restructuring
as led by internal and external organisational design consultants. Thus, the approach to organisational
redesign may be the seventh contingency. However, this research requires further empirical testing for
validation.39

MANAGER’S NOTEPAD 10.2

Organisational design checklist

• Check 1. Does the design fit well with the major problems and opportunities of the external
environment?
• Check 2. Does the design support the implementation of strategies and the accomplishment of key
operating objectives?
• Check 3. Does the design support core technologies and allow them to be used to best advantage?
• Check 4. Can the design handle changes in organisational size and different stages in the
organisational life cycle?
• Check 5. Does the design support and empower workers and allow their talents to be used to best
advantage?

Environment
The organisation’s external environment and the degree of uncertainty it offers are of undeniable impor­
tance in organisational design.40 The decline of the Australian mining industry is an example of this. A
certain environment is composed of relatively stable and predictable elements. As a result, an organ­
isation is able to succeed with relatively few changes in the goods or services produced or in the manner
of production over time. Bureaucratic organisations and mechanistic designs are quite adequate under
such conditions. An uncertain environment will have more dynamic and less predictable elements.
Changes occur frequently and may catch decision‐makers by surprise. As a result, organisations must
be flexible and responsive over relatively short time horizons. This requires more adaptive organisations
and organic designs. This applies particularly to companies that expand internationally.41 Figure 10.7
summarises these relationships, showing how increasing uncertainty in organisational environments calls
for more horizontal and adaptive designs.

Horizontal
structures and
adaptive designs
Vertical Strategic focus: innovation
structures and and flexibility
bureaucratic designs
Strategic focus: efficiency and predictability

Low High
Environmental uncertainty

FIGURE 10.7 Environmental uncertainty and the performance of vertical and horizontal designs

CHAPTER 10 Organising  271

Strategy
The nature of organisational strategies and objectives should influence the choice of structure. Research
on these contingency relationships is often traced to the pioneering work of Alfred Chandler.42 Chandler
concluded that ‘structure follows strategy’. An organisation’s structure must support its strategy if the
desired results are to be achieved.43
When strategy is stability oriented, the choice of organisational design should be based on the premise
that little significant change will be occurring in the external environment. This means that plans can be
set and operations programmed to be routinely implemented. To best support this strategic approach, the
organisation should be structured to operate in well‐defined and predictable ways. This is most charac­
teristic of bureaucratic organisations that use more mechanistic design alternatives.
When strategy is growth oriented and likely to change frequently, the situation as a whole becomes more
complex, fluid and uncertain. Operating objectives are likely to include the need for innovation and flexible
responses to changing competition in the environment. Operations and plans are likely to have short life
spans, and require frequent and even continuous modification over time. The most appropriate structure is
one that allows for internal flexibility and freedom to create new ways of doing things. This is most charac­
teristic of the empowerment found in adaptive organisations using more organic design alternatives.44

Size and life cycle

Organisational size, typically measured by number of employees, is another contingency factor in organisational
design.45 The situations at Toyota and Volkswagen provide examples of growing pains. Although research indi­
cates that larger organisations tend to have more mechanistic structures than smaller ones, it is clear that this is
not always best for them.46 In fact, a perplexing managerial concern is that organisations tend to become more
bureaucratic as they grow in size and consequently have more difficulty adapting to changing environments.
It is especially important to understand the design implications of the organisational life cycle, or
the evolution of an organisation over time through different stages of growth. The stages in the organ­
isational life cycle can be described as:
1. birth stage — when the organisation is founded by an entrepreneur
2. youth stage — when the organisation starts to grow rapidly
3. midlife stage —when the organisation has grown large with success
4. maturity stage — when the organisation stabilises at a large size.47
In its birth stage, the founder usually runs the organisation. It stays relatively small, and the structure is quite
simple. The organisation starts to grow rapidly during the youth stage and management responsibilities extend
among more people. Here, the simple structure begins to exhibit the stresses of change. An organisation in the
midlife stage is even larger, with a more complex and increasingly formal structure. More levels appear in the
chain of command, and the founder may have difficulty remaining in control. In the maturity stage, the organ­
isation stabilises in size, typically with a mechanistic structure. It runs the risk of becoming complacent and slow
in competitive markets. Bureaucratic tendencies towards stability may lead an organisation at this stage towards
decline. Steps must be taken to counteract these tendencies and allow for needed creativity and innovation.
One way of coping with the disadvantages of large size is downsizing; that is, taking action to reduce the
scope of operations and number of employees. This response is often used when top management is challenged
to reduce costs quickly and to increase productivity.48 Research indicates, however, that downsizing is often
associated with decreases in subsequent firm profitability, and that research and development industries in par­
ticular may suffer many negative effects from downsizing.49 But, perhaps more significantly, good managers in
many organisations find unique ways to overcome the disadvantages of large size — before the crisis of down­
sizing hits. They are creative in fostering intrapreneurship, which is the pursuit of entrepreneurial behaviour
by individuals and subunits within large organisations.50 They also find ways for smaller entrepreneurial units
to operate with freedom and autonomy within the larger organisational framework. Simultaneous systems, for
example, are organisations that use both mechanistic and organic designs to meet the need for production effi­
ciency and continued innovation. This ‘loose–tight’ concept in organisational design is depicted in figure 10.8.

272  Management
 Mechanistic designs Organic designs

● Work efforts centrally coordinated ● Work efforts highly interdependent

● Standard interactions in well-defined jobs ● Intense interactions in self-defined jobs
● Limited information-processing capability ● Expanded information-processing capability
● Best at simple and repetitive tasks ● More effective at complex and unique tasks
● Good for production efficiency ● Good for innovation and creativity

FIGURE 10.8 Simultaneous ‘loose–tight’ properties of team structures support efficiency and innovation

Human resources
A contingency factor in organisational design is people — the human resources that staff the organ­
isation for action. A good organisational design provides people with the supporting structures they need
to achieve both high performance and satisfaction in their work.
Modern management theory views people–structure relationships in a contingency fashion. The pre­
vailing argument is that there should be a good ‘fit’ between organisation structures and the human
resources.51 An important human resource issue in organisational design is skill. Any design should
allow the expertise and talents of organisational members to be realised to the full. High‐involvement
organic designs, with their emphasis on empowerment, are crucial. When IBM purchased the software
firm Lotus, for example, the intention was to turn it into a building block for the organisation’s net­
working business, but Lotus was small and IBM was huge. The whole thing had to be carefully handled,
or IBM might have lost many of the talented people who created the popular Lotus Notes and related
products. The solution was to adapt the design to fit the people. IBM gave Lotus the space it needed to
retain the characteristics of a creative software house. The organisation’s head of software at the time
said: ‘You have to keep the people, so you have to ask yourself why it is they like working there’.52
Another aspect of organisational design related to preserving competitive advantage, by keeping and
developing talent, is how knowledge is governed or managed in the organisation.53 For example, if the
organisational structure does not effectively bring talented people together to collaborate on innovation,
nor does it govern who owns or transfers knowledge, then employees are less likely to continue to transfer
innovations to build the organisation’s competitive advantage. Employees feel that they have ownership and
control of good ideas, eventually restricting organisational access to and utilisation of ideas.

DIVERSIT Y

Discrimination in the workplace

Businesses and workplaces in Australia have
generally recognised the value of cultural diver-
sity in their workforce, particularly when they are
designing and delivering services to ­Australia’s
multicultural consumers. Occasionally, how-
ever, these organisations have to deal with
incidents of discrimination and perceived dis-
crimination. Often these incidents are sparked
by external events, such as a perceived rise in
the discrimination of Muslims associated with

CHAPTER 10 Organising  273

 Sydney’s Martin Place siege in December 2014. In this incident, a gunman took 17 hostages, two of
whom died during efforts to break the siege. The gunman identified himself as a Muslim and in the
aftermath of the incident many Australian Muslims reported a rise in apparent anti‐Muslim sentiment in
workplaces and on public transport.54
As a response to the original incident, many Australian Muslim groups condemned the actions of the
lone gunman. Social media also played a role in diffusing community tensions associated with the tragic
incident. People from the broader Australian community began posting images and statements with
the hashtag ‘#illridewithyou’ in an attempt to support Muslims who felt intimidated when using public
transportation. Also, community leaders such as Associate Professor Mohamad Abdalla from Griffith
University and Ali Kadri from the Islamic Council of Queensland provided balanced commentary on the
situation through media outlets in an attempt to build bridges of understanding between Muslims and
others.
In addition, many Muslim groups in Australia stepped up their efforts to build bridges of understanding
between followers of Islam and others, and leaders from the Prime Minister down called on Muslim
communities to do more to combat homegrown terrorism in Australia. Many of these organisations were
originally established as religious and community support organisations and they have expressed that
they are ill‐equipped to deal with counter terrorism or even to try and deal with the negative commu-
nity perceptions directed against their members. Muslim organisations in Australia have struggled with
the competing pressures of community education, mutual support for members, assistance for newly
arrived refugees and assistance with counter‐terrorism. All of this is often in the context of organisations
that are sometimes led by relatively conservative men who are appointed to leadership on the basis of
religious expertise, rather than other qualities associated with community dialogue.55
From an organisational perspective, however, this situation demonstrates the contrast between ‘vir-
tual’ organisations such as the initiators of the #illridewithyou movement and traditional organisations
such as the Islamic Council of Queensland. One is organic, reactive and short‐lived, whereas the other
eventually adapts in order to deal with discrimination through expansion and improvement of its commu-
nity education resources. Both structures seem relevant to dealing with negative community sentiment.
The rise in reports of workplace discrimination demonstrate that the challenge remains for many busi-
nesses and workplaces to build organisations that are effectively able to respond to increased discrimi-
nation associated with terror‐related incidents.56

QUESTION
How should companies be structured to deal with negative community sentiment about those they
represent?

CRITICAL ANALYSIS

1. The most important contingencies in organisational design have changed over time. Previously,
the most important contingencies were size, strategy and environment. With the arrival of more
advanced information and communication technologies, some say that technology is now the most
important contingency. What do you think is the most important contingency in organisational
design and why?

10.5 Developments in organisation structures

LEARNING OBJECTIVE 10.5 What are the new developments in organisation structures and operating
systems?
The environmental realities of a global economy and the demands of strategies driven by competition
are putting increasing pressures on organisation structures. There are performance demands for more
speed to market, greater customer orientation, constant productivity improvements and better tech­
nology use.

274  Management
 Structural innovation is always important in the search for productivity improvement and competitive
advantage.57 Today, the vertical and control‐oriented structures of the past are proving less sufficient for
mastering the tasks at hand. The matrix structure is a first step towards improving flexibility and problem‐
solving, through better cross‐functional integration. This structure is part of a broader movement towards
horizontal structures that drive performance by decreasing hierarchy, increasing empowerment and mobil­
ising employees to better use their talents. When combined with the ever increasing power of information
technologies, horizontal structures are more responsive to environmental demands and much better aligned
with organisational strategies. Manager’s notepad 10.3 offers guidelines for effective horizontal structures.58

MANAGER’S NOTEPAD 10.3

Guidelines for effective horizontal structures

• Focus the organisation around processes, not functions.
• Put people in charge of core processes.
• Decrease hierarchy and increase the use of teams.
• Empower people to make decisions important to performance.
• Make use of information technology.
• Emphasise multiskilling and multiple competencies.
• Teach people how to work in partnership with others.
• Build a culture of openness, collaboration and performance commitment.

Team structures
Organisations are being restructured for greater internal integration. As the traditional vertical structures
give way to more horizontal ones, teams are serving as the basic building blocks.59 Organisations using
team structures extensively mobilise both permanent and temporary teams to solve problems, complete
special projects and accomplish day‐to‐day tasks.60 Valve’s use of cabals is an example of a team structure.
As illustrated in figure 10.9, a team structure involves teams of various types working together as
needed to solve problems and explore opportunities, either on a full‐time or part‐time basis. These are
often cross‐functional teams composed of members from different areas of work responsibility.61 The
intention is to break down the functional chimneys or barriers inside the organisation and create more
effective lateral relations for ongoing problem‐solving and work performance. There are also often
­project teams that convene for a particular task or project and disband once it is completed. The inten­
tion here is to quickly convene people with the needed talents and focus their efforts intensely to solve a
problem or take advantage of a special opportunity.

Plant
manager

Manufacturing Sales Engineering Human resource

manager manager manager manager

New
Valuing
product
diversity
development
task force
team Team assignments

FIGURE 10.9 How a team structure uses cross‐functional teams for improved lateral relations

CHAPTER 10 Organising  275

 There are many potential advantages of team structures. They are frequently tried when an organ­
isation has trouble with communication and decision‐making because of the functional chimneys
problem. At the same time that team assignments help to break down barriers between operating
departments, they can also boost morale when people from different parts of an organisation get to
know more about one another. Because teams focus shared knowledge and expertise on specific prob­
lems, they can also improve the speed and quality of decisions in many situations. People working in
teams can experience a greater sense of involvement and identification, increasing their enthusiasm
for the job.
All organisation structures should harness the full talents of the workforce. However, in team struc­
tures, this goal is relentlessly pursued, with full recognition of the value of group, as well as indi­
vidual, contributions. Within teams and under the guidance of formal and informal leaders, individuals
are expected to work together through cooperation, shared commitments to a common purpose and
consensus.62 Multidisciplinary teams of doctors, nurses, technicians, social workers and allied health
professionals provide a good example of how patient care teams provide effective service for patients
with complex health problems.63 After a research team at Polaroid Corporation developed a new medical
imaging system in three years, when most had predicted it would take six, a senior executive said: ‘Our
researchers are not any smarter, but by working together they get the value of each other’s intelligence
almost instantaneously’.64

Network structures
Organisations using variations of the network structure operate with a central core that is linked
through ‘networks’ of relationships with outside contractors and suppliers of essential services. With
the great advantages offered by communications and information technology, network structures can
simplify and streamline organisational structures. Network structures accomplish this by engaging in
a shifting variety of strategic alliances and business contracts that sustain operations. The old model
was for organisations to own everything and for the hierarchy to control everything. The new model
is to network and operate without the costs of owning all supporting functions or directly employing
persons with all needed expertise. Network organisations only own the most essential or ‘core’ com­
ponents. They are able to do this by using information technology to support aggressive outsourcing
strategies.65
Figure 10.10 illustrates a network structure as it might work for a mail‐order company
selling outdoor furniture through a catalogue. The company itself is very small, consisting of rela­
tively few full‐time employees working from a central headquarters. Beyond that, it is structured
as a series of business relationships, maintained operationally using the latest in information
technology.
The creative use of information technology adds to the potential advantages of network struc-
tures. With the technological edge, the mail‐order company in the first example can operate with
fewer full‐time employees and less complex internal systems. Network structures are very lean and
streamlined. The structure has the potential to help organisations reduce costs by cutting overheads
and increasing operating efficiency. Network concepts allow organisations to use outsourcing strat­
egies and to contract out specialised business functions, rather than maintaining full‐time staff to do
them. A bank may contract with local firms to provide mailroom, café and legal services; an airline
might contract out customer service jobs at various airports. Information technology also allows the
business relationships of networks to operate across great distances, rather than face to face. Such
arrangements are increasingly common in the international arena, where the internet, email, online
conferences and other computer networks bring the advantages of global operations into easy reach
at minimum cost.

276  Management
 Offshore Port-of-entry
manufacturing and warehouse and
packaging company Information distribution company

Business
core
Mail-order
outdoor furniture

Technology National accounting

Furniture
and financial
design studio
management company

Other home
Contracts furnishing businesses to share
mail-order catalogue
Strategic alliance

FIGURE 10.10 A network structure for a catalogue‐based retail business

SUSTAINABILIT Y

Innovation, rubbish and sustainability

Innovation, rubbish and sustainability are not usually concepts that are positively associated when used
in the same sentence. The complementary interaction of these concepts, however, is evident in the for-
mation of a successful company called Solar Bins Australia. The company focuses on the distribution
and management of high‐tech Bigbelly solar bins manufactured in the United States. These rubbish bins
contain an automatic solar powered compactor that increases the bin’s capacity by five. The bins are
wirelessly connected to a central control platform that allows the operator to monitor and control the
unit.66
A surprising aspect of Solar Bins Australia is that the founder of the company, Leon Hayes, prefers to
give the bins away for free. The company earns its money by deploying advertising on the four panels
of the bin. The company also offers a full service rental option for customers who do not opt for adver-
tising on the bins. When the full service option is utilised, the company plants 250 trees for every station
deployed.67
Organisationally, the company is a relatively small start‐up venture with ten staff as of 2015. They out-
source their warehousing and logistics but keep their design and marketing functions in‐house. Some
of the team are employed on a part‐time basis and other contract work is outsourced. The company
focuses on providing fast, responsive and intelligent customer service. The company distinguishes itself
in the waste management industry through their customer service, so this core function will always be
kept in‐house.
The company is headquartered in Brisbane and is structuring itself for growth through establishing
a regional office in Melbourne and branches in Sydney. Solar Bins Australia provides a good example
of a company that embraces sustainability not only in its product offerings, but also in its operations.68

QUESTION
In what way do you think that Solar Bins Australia are a good example of integrating sustainability both in
products and in production? How does their structure play a role in this example?

CHAPTER 10 Organising  277

 CRITICAL ANALYSIS

1. Many students are given team projects to complete at university. What do you like and what do
you dislike about team projects? Considering your response, why do you think that so many
organisations are structured around teams?
2. What are the advantages and disadvantages of shorter chains of command?

10.6 Subsystems design and integration

LEARNING OBJECTIVE 10.6 What are the major issues in subsystems design?
Organisations are composed of subsystems, such as a department or work unit headed by a manager,
that operate as smaller parts of a larger and total organisational system. Ideally, the work of subsystems
serves the needs of the larger organisation. Ideally, too, the work of each subsystem supports the work of
others. However, things do not always work out this way. Another challenge of organisational design is
to create subsystems and to coordinate relationships to meet the entire organisation’s interests.
Important research in this area was reported in 1967 by Paul Lawrence and Jay Lorsch of Harvard
University.69 They studied ten companies in three different industries — the plastics, consumer goods
and container industries. The companies were chosen because they differed in performance. The indus­
tries were chosen because they faced different levels of environmental uncertainty. The plastics industry
was uncertain; the consumer goods industry was moderately uncertain; and the containers industry was
certain.
The results of the Lawrence and Lorsch study can be summarised as follows. Firstly, the total system
structures of successful companies in each industry matched their respective environmental challenges.
Successful plastics companies in uncertain environments had more organic designs; successful container
companies in certain environments had more mechanistic designs. This result was consistent with the
earlier research by Burns and Stalker.70 Secondly, Lawrence and Lorsch found that subsystem structures
in the successful companies matched the challenges of their respective sub‐environments. Subsystems
within the successful companies assumed different structures to accommodate the special problems and
opportunities of their operating situations. Thirdly, the researchers found that subsystems in the suc­
cessful companies worked well with one another, even though they were very different from one another.

Subsystem differences
Figure 10.11 depicts operating differences between three divisions in one of the companies studied by
Lawrence and Lorsch. The illustration shows how research and development, manufacturing, and sales
subunits may operate differently in response to unique needs. This illustrates differentiation, which is the
degree of difference that exists between the internal components of an organisation.
There are four common sources of subsystems differentiation. Firstly, the planning and action horizons
of managers vary from short‐term to long‐term. Sometimes, differences in time orientation become char­
acteristic of work units themselves. In a business, for example, the manufacturing subsystem may have
a shorter‐term outlook than the research and development group. These differences can make it difficult
for personnel from the two units to work well together. Secondly, the different tasks assigned to work
units may also result in differences in objectives. For example, cost‐conscious production managers and
volume‐conscious marketing managers may have difficulty agreeing on solutions to common problems.
Thirdly, differences in interpersonal orientation can affect subsystem relations. To the extent that pat­
terns of communication, decision‐making and social interaction vary, it may be harder for personnel
from different subsystems to work together. And fourthly, differences in formal structure can also affect
subsystem behaviours. Someone who is used to flexible problem‐solving in an organic setting may find
it very frustrating to work with a manager from a mechanistic setting who is used to strict rules.

278  Management
 Managing director

R&D Manufacturing Sales

division division division

deals deals deals

with with with

scientific manufacturing marketing

subenvironment subenvironment subenvironment

and and and

emphasises emphasises emphasises

● Product quality ● Cost efficiency ● Customer satisfaction

● Long time horizons ● Short time horizons ● Short time horizons
● Organic structures ● Mechanistic structures ● Mechanistic structures

FIGURE 10.11 Subsystems differentiation among research and development (R&D), manufacturing and
sales divisions

How to achieve integration

The term integration in organisation theory refers to the level of coordination achieved among an organ­
isation’s internal components. Organisational design involves the creation of both differentiated struc­
tures and appropriate integrating mechanisms. A basic organisational design paradox, however, makes
this a particularly challenging managerial task. Increased differentiation among organisational subsys­
tems creates the need for greater integration; however, integration becomes harder to achieve as differ­
entiation increases.
Manager’s notepad 10.4 identifies several mechanisms for achieving subsystem integration.71 The first
integrating mechanisms listed rely more on vertical coordination and the use of authority relationships in the
chain of command. Rules and procedures, hierarchical referral, and planning work best when differentiation
is low. Integrating mechanisms that emphasise horizontal coordination and improved lateral relations work
best when differentiation is high.72 These mechanisms include the use of direct contact between managers,
liaison roles, task forces, teams and matrix structures. Too much integration, however, may lead to lower
levels of organisational learning. Moderate levels of cross‐group linking may help superior ideas to diffuse
across organisational groups without reducing organisational diversity too quickly.73

MANAGER’S NOTEPAD 10.4

How to improve subsystem integration

• Rules and procedures. Clearly specify required activities.
• Hierarchical referral. Refer problems upwards to a common superior.
• Planning. Set targets that keep everyone headed in the same direction.
• Direct contact. Have subunit managers coordinate directly.
• Liaison roles. Assign formal coordinators to link subunits together.
• Task forces. Form temporary task forces to coordinate activities and solve problems on a timetable.
• Teams. Form permanent teams with the authority to coordinate and solve problems over time.
• Matrix organisations. Create a matrix structure to improve coordination on specific programs.

CHAPTER 10 Organising  279

 TECHNOLOGY

Is it possible for a company to outgrow its name?

Over the years, Google has gradually devel-
oped from a company founded on a brilliant
algorithm that gave the world an effective
internet search engine. From 1998 onwards,
the company has continually developed new
products, such as Google Glass in 2013, and
has acquired a number of significant innovative
services such as Android in 2005 and YouTube
in 2006. Some of the lesser known business
units that have their origin with Google include
GV (Google Ventures), a venture capital invest-
ment firm that invests in innovative ideas in
fields such as technology, the internet, health-
care and artificial intelligence; Google Capital,
a business unit that invests for profit in large
established technology companies; Google
Fibre, which provides cable television and
broadband internet services; Nest Labs, which produces home automation products and was acquired
by Google in 2014; and Google Life Sciences, a spinoff company from Google X (Google’s research and
development group), which began developing products such as contact lenses for people with diabetes
to check their glucose levels non‐intrusively.74
Such a wide range of companies associated with an internet search engine does pose challenges
for both brand identity and effective operations. Thus, in 2015 Google’s founders Larry Page and
Sergey Brin announced the formation of a company called Alphabet. Alphabet is a conglomerate
structure formed as a parent for Google and other companies such as GV, Nest Labs and Google
Fibre. Some business units changed their name after the restructuring, with Google Life Sciences
becoming  Verily  and Google X becoming X. Larry Page is CEO of Alphabet and Sergey Brin is
President.75
The new structure allows the internet company ‘Google’ to provide a more focussed approach to its
internet services. Similar to the ‘clean’ page characteristic of the Google search engine, the internet
company can now be more accountable for its core business, while the other Alphabet companies can
focus on their core business. The link to the original Google logo is retained through the name Alphabet,
as Google is well known for the creative use of the letters in its logo to reflect seasonal and historical
events.76

QUESTION
What challenges might the Alphabet and Google teams encounter when creating and navigating the new
organisational design?

CRITICAL ANALYSIS

1. Have you ever worked for an organisation in which departments or units could not work well
together? If so, what was the cause of the conflict? Did the problems relate to differences in
objectives, or differences in time or interpersonal orientation?
2. Do you agree that clear rules and procedures can help to achieve work‐unit or department
integration? Do you agree with the statement that ‘some people, or departments, only follow the
rules when it suits them?’ What are some strategies to stop departments from not consistently
following rules?

280  Management
10.7 Organising trends
LEARNING OBJECTIVE 10.7 What organising trends are changing the workplace?
Change is part of organisational life. Even as traditional structures are modified, refined and abandoned
in the search for new ones, the organising practices that create and implement them must change too.
In chapter 1, the concept of the upside‐down pyramid was introduced as an example of new directions
in management. By putting customers on top — served by workers in the middle, and supported by
managers at the bottom — this notion tries to refocus attention on the marketplace and customer needs.
Although more of a concept than a depiction of an actual structure, such thinking is representative of
forces shaping new directions as to how the modern workplace is organised. A common theme runs
among the organising trends discussed shortly: that it is important to make the adjustments needed to
streamline operations for cost efficiency, higher performance and increased participation by workers.

Shorter chains of command

A typical organisation chart shows the chain of command, or the line of authority that vertically links
each position with successively higher levels of management. The classical school of management sug­
gested that the chain of command should operate according to the scalar principle; that is, there should
be a clear and unbroken chain of command linking every person in the organisation with successively
higher levels of authority up to and including the top manager.
When organisations grow in size, they tend to get taller, as more and more levels of management are
added to the chain of command. This increases overhead costs; it tends to decrease communication and
access between top and bottom levels; it can greatly slow decision‐making; and it can lead to a loss of
contact with the client or customer. These are all reasons that ‘tall’ organisations with many levels of
management are often criticised for inefficiencies and poor productivity. The current trend in organising
seeks to solve this problem directly.
In summary, organisations are being ‘streamlined’ by cutting unnecessary levels of management, with
flatter and more horizontal structures being viewed as a competitive advantage.

Less unity of command

Another classical management principle describes how the chain of command should operate in daily
practice. The unity‐of‐command principle states that each person in an organisation should report to one
and only one supervisor. This notion of ‘one person–one boss’ is a foundation of the traditional pyramid
form of organisation. It is intended to avoid the confusion potentially created when a person gets work
directions from more than one source. Unity of command is supposed to ensure that everyone clearly
understands assignments and does not get conflicting instructions. It is violated, for example, when a
senior manager bypasses someone’s immediate supervisor to give orders to the subordinate. This can
create confusion for the subordinate and also undermine the supervisor’s authority.
The ‘two‐boss’ system of the matrix structure is a clear violation of unity of command. Whereas the
classical advice is to avoid creating multiple reporting relationships, the matrix concept creates them
by design. It does so in an attempt to improve lateral relations and teamwork in special programs or
projects.77 Unity of command is also less predominant in the team structure and in other arrangements
that emphasise the use of cross‐functional teams or task forces. Clearly, the current trend is for less, not
more, unity of command in organisations.
The greatest advantage of this management trend is its ability to facilitate rapid and innovative res­
ponses to new situations, without the incursion of ‘red tape’ and without the need for constant refer­
rals upwards, but within a context that allows for scrutiny and performance challenge. Intel’s Centrino
microchip technology, which is designed specifically for mobile computing applications, was developed
rapidly within the corporation as the need to support greater mobile computing and wireless internet
connection grew quickly among the business sector.

CHAPTER 10 Organising  281

 In summary, organisations are using more cross‐functional teams, task forces and horizontal struc­
tures, and they are becoming more customer conscious. As these changes take place, employees are
often finding themselves working for more than one ‘boss’.

Wider spans of control

The span of control relates to the number of people directly reporting to a manager. When span of
control is ‘narrow’, only a few people are under a manager’s immediate supervision; a ‘wide’ span of
control indicates that the manager supervises many people. There was a time in the history of manage­
ment thought when people searched for the ideal span of control. Although the magic number was never
found, this span‐of‐control principle evolved: there is a limit to the number of people one manager can
effectively supervise; care should be exercised to keep the span of control within manageable limits.
Figure 10.12 shows the relationship between span of control and the number of levels in the hierarchy
of authority. Flat structures have wider spans of control — they have few levels of management; tall
structures have narrow spans of control — they have many levels of management. Because tall organ­
isations have more managers, they are more costly. They are also generally viewed as less efficient, less
flexible and less customer‐sensitive than flat organisations. Before plans are made to make spans of con­
trol smaller, serious thought should be given to both the cost of the added management overhead and
the potential disadvantages of a taller chain of command. When spans of control are increased, overhead
costs are reduced, and workers with less direct supervision in the flatter structure may benefit from more
independence.78

Wide span of control Manager

creates a flat structure

Narrow span of control General manager

creates a tall structure

Team A leader Team B leader

FIGURE 10.12 Spans of control in ‘flat’ versus ‘tall’ structures

In summary, many organisations are shifting to wider spans of control as levels of management are
eliminated and empowerment gains prominence. Individual managers are taking responsibility for larger
numbers of subordinates who operate with less direct supervision.

More delegation and empowerment

All managers must decide what work they should do themselves and what should be left for others. The
issue here is delegation — the process of entrusting work to others by giving them the right to make
decisions and take action. There are three steps to delegation. In step 1, the manager assigns responsi-
bility by carefully explaining the work or duties someone else is expected to do. This responsibility is

282  Management
an expectation for the other person to perform assigned tasks. In step 2, the manager grants authority
to act. Along with the assigned task, the right to take necessary actions (e.g. to spend money, direct the
work of others or use resources) is given to the other person. Authority is a right to act in ways needed to
carry out the assigned tasks. In step 3, the manager creates accountability. By accepting an assignment,
the person takes on a direct obligation to the manager to complete the job as agreed on. Accountability
is the requirement to answer to a supervisor for performance results.
A classical principle of organisation warns managers not to delegate without giving the subordinate
sufficient authority to perform. When insufficient authority is delegated, it will be very hard for someone
to live up to performance expectations. They simply don’t have the authority needed to get the job done.
The authority‐and‐responsibility principle states: authority should equal responsibility when work is
delegated from a supervisor to a subordinate. Useful guidelines are offered in Manager’s notepad 10.5.79

MANAGER’S NOTEPAD 10.5

Ground rules for effective delegation

• Carefully choose the person to whom you delegate.
• Define the responsibility; make the assignment clear.
• Agree on performance objectives and standards.
• Agree on a performance timetable.
• Give authority; allow the other person to act independently.
• Show trust in the other person.
• Provide performance support.
• Give performance feedback.
• Recognise and reinforce progress.
• Help when things go wrong.
• Don’t forget your accountability for performance results.

A common management failure is unwillingness to delegate. Whether due to a lack of trust in others
or to a manager’s inflexibility in the way things get done, failure to delegate can be damaging. It over­
loads the manager with work that could be done by others; it also denies others many opportunities to
fully use their talents on the job. When well done, however, delegation leads to empowerment, in that
people have the freedom to contribute ideas and do their work in the best possible way. This involvement
can increase job satisfaction for the individual, and often results in better job performance.
To summarise, managers in progressive organisations are delegating more — they are finding more
ways to empower people at all levels to make more decisions affecting themselves and their work.

Decentralisation with centralisation

A question often asked by managers is: should most decisions be made at the top levels of an organ­
isation, or should they be dispersed by extensive delegation throughout all levels of management?
The former approach is referred to as centralisation; the latter is called decentralisation. There is no
classical principle on centralisation and decentralisation. The traditional pyramid form of organisation
may give the impression of being a highly centralised structure, whereas decentralisation is character­
istic of newer structures, and many recent organising trends. However, the issue does not have to be
framed as an either/or choice. Today’s organisations can operate with greater decentralisation without
giving up centralised control. This can be facilitated by developments in information technology.
With computer networks and advanced information systems, managers at higher levels can more
easily stay informed about a wide range of day‐to‐day performance matters. Because they have infor­
mation on results readily available, they can allow more decentralisation in decision‐making.80 If some­
thing goes wrong, presumably the information systems will sound an alarm and allow corrective action
to be quickly taken.

CHAPTER 10 Organising  283

 In summary, whereas empowerment and related forces are contributing to more decentralisation in
organisations, advances in information technology are simultaneously allowing for the retention of cen­
tralised control.

CRITICAL ANALYSIS

1. Trends such as wider spans of control, increased delegation and empowerment and shorter chains
of command imply that there are now fewer managers (particularly middle managers). What are the
dangers of having fewer managers in an organisation? Do you think that these trends limit future
career opportunities in management?
2. Delegation and empowerment shifts responsibility to lower levels in organisations, without
necessarily compensating lower‐level workers for the increased responsibility. Alternatively,
managers have to take responsibility for areas that they have no control over, as control is
delegated to lower levels within organisations. Do you agree that there are dangers with current
organisational trends? Why or why not?

284  Management
SUMMARY
10.1 What is organising as a management function?
•• Organising is the process of creating work arrangements of people and resources, be it for a small
unit, a large division or an entire enterprise.
•• To organise a work setting, decisions must be made about how to divide up the work that needs
to be done, how to allocate people and resources to do it, and how to coordinate results to achieve
productivity.
•• Structure is the system of tasks, reporting relationships and communication that links together the
people and positions within an organisation.
•• Formal structure, such as that shown on an organisation chart, describes how an organisation is
supposed to work.
•• The informal structure of organisation consists of the unofficial working relationships among members.
10.2 What are the major types of organisation structures?
•• Departmentalisation is the process of creating structure by grouping people together in formal work
units or teams.
•• In functional structures, people with similar skills who perform similar activities work together under
a common manager.
•• In divisional structures, people who work on a similar product, work in the same geographical region,
serve the same customers, or participate in the same work process are grouped together under common
managers.
•• A matrix structure combines the functional and divisional approaches to create permanent cross‐
functional project teams.
10.3 What are the essentials of organisational design?
•• Organisational design is the process of choosing and implementing structures that best arrange
resources to serve an organisation’s mission and purpose.
•• Bureaucratic or mechanistic organisational designs are vertical in nature and are best suited to routine
and predictable tasks.
•• Adaptive or organic organisational designs are horizontal in nature and are best suited to conditions
requiring change and flexibility.
10.4 How do contingency factors influence organisational design?
•• Environment, strategy, technology, size and people are all contingency factors influencing organisational
design.
•• Certain environments lend themselves to more vertical and mechanistic organisational designs.
Uncertain environments require more horizontal and adaptive organisational designs.
•• Technology — including the use of knowledge, equipment and work methods in the transformation
process — is an important consideration in organisational design.
•• Although organisations tend to become more mechanistic as they grow in size, designs must be used
to allow for innovation and creativity in changing environments.
10.5 What are the new developments in organisation structures and operating systems?
•• Increasing complexity and greater rates of change in the environment are challenging the performance
capabilities of traditional organisation structures.
•• New developments include the growing use of team structures that create horizontal organisations using
cross‐functional teams and task forces to improve lateral relations and improve problem‐solving at all levels.
•• New developments are also under way with respect to network structures that cluster systems of
contracted services and strategic alliances around a core business or organisational centre.
•• Virtual organisations aim to eliminate external organisational boundaries and to mobilise a shifting
mix of strategic alliances to accomplish specific tasks and projects.

CHAPTER 10 Organising  285

10.6 What are the major issues in subsystems design?
•• Organisations are composed of subsystems that must work well together.
•• Differentiation is the degree of difference that exists between various subsystems; integration is the
level of coordination achieved among them.
•• As organisations become more highly differentiated, they develop a greater need for integration, but
as differentiation increases, integration is harder to accomplish.
•• Low levels of differentiation can be handled through authority relationships and more vertical
organisational designs.
•• Greater differentiation requires more intense coordination through horizontal organisational designs,
with an emphasis on cross‐functional teams and lateral relations.
10.7 What organising trends are changing the workplace?
•• Traditional vertical command‐and‐control structures are giving way to more horizontal structures that
have an emphasis on employee involvement and flexibility.
•• Many organisations today are operating with shorter chains of command and less unity of command.
•• Many organisations today are operating with wider spans of control and fewer levels of management.
•• The emphasis in many organisations today is on effective delegation and empowerment.
•• Advances in information technology are making it possible to operate with decentralisation, while still
maintaining centralised control.

KEY TERMS
Adaptive organisations  operate with a minimum of bureaucratic features and encourage worker
empowerment and teamwork.
Centralisation  is the concentration of authority for most decisions at the top level of an organisation.
The chain of command  links all persons with successively higher levels of authority.
Cross‐functional teams  bring together members from different functional departments.
Customer structures  group together people and jobs that serve the same customers or clients.
Decentralisation  is the dispersion of authority to make decisions throughout all levels of the
organisation.
Delegation  is the process of distributing and entrusting work to other persons.
Departmentalisation  is the process of grouping together people and jobs into work units.
A divisional structure  groups together people working on the same product, in the same area, with
similar customers, or involved in the same processes.
Functional structures  group together people with similar skills who perform similar tasks.
Geographical structures  group together people and jobs performed in the same location.
The informal structure  is the set of unofficial relationships among an organisation’s members.
A learning organisation  continuously changes and improves using the lessons of experience.
A matrix structure  combines functional and divisional approaches to emphasise project or program
teams.
Mechanistic designs  are centralised with many rules and procedures, a clear‐cut division of labour,
narrow spans of control and formal coordination.
A network structure  links networks of outside suppliers and service contractors to a company’s core
functions.
Organic designs  are decentralised with fewer rules and procedures, open divisions of labour, wide
spans of control and more personal coordination.
A organisation chart  describes the arrangement of work positions within an organisation.
Organisational design  is the process of creating structures that best serve a company’s mission and
objectives.
In the organisational life cycle  an organisation passes through different stages from birth to maturity.

286  Management
Organisational structure  is a system of tasks, workflows, reporting relationships and communication
links.
Organising  is the process of assigning tasks, allocating resources and arranging activities to
implement plans.
Process structures  group together jobs and activities that are part of the same processes.
Product structures  group together jobs and people working on a single product or service.
Project teams  are convened for a particular task or project and disbanded once it is completed.
Span of control  refers to the number of subordinates directly reporting to a manager.
Subsystems  are smaller components of a larger system.
The upside‐down pyramid  puts customers at the top; served by workers whose managers support
them.
Virtual organisations  are shifting networks of strategic alliances linked by technology, with very little
physical infrastructure, that are engaged as needed.

APPLIED ACTIVITIES
1 What is the difference between a functional structure and a geographical or area divisional structure?
2 What is a virtual organisation structure? Explain the concept by providing an example.
3 What positive and negative results might be expected when levels of management are reduced and
the chain of command is shortened in an organisation?
4 What factors are reshaping the design of organisations in the global economy?
5 What difference do the environment and technology make in organisational design?
6 What is the relationship between differentiation, integration and globalisation as issues in subsystems
design?
7 As a member of a major management consultancy firm, you have been asked to design a
management structure for the next Olympic Games. Using your knowledge of management theory
and design, outline a structure for developing the infrastructure, sporting venues and participants’
accommodation for this special event.

ENDNOTES
  1. Christian Nutt, ‘Gabe Newell Shares How a Flat Structure Helps Valve Succeed’, Gamasutra (25 March 2015),
http://gamasutra.com.
  2. Leo Kelion, ‘Valve: How Going Boss‐Free Empowered the Games‐Maker’, BBC News (23 September 2013), www.bbc.com.
  3. Nicolai J. Foss and Magdalena Dobrajska, ‘Valve’s Way: Vayward, Visionary, or Voguish?’ Journal of Organization Design,
vol. 4, no. 2 (2015), pp. 12–5.
  4. Matthew Panzarino, ‘Valve’s New Employee Handbook Is as Inspiring as the Games It Makes’, TNW News (21 April 2012),
http://thenextweb.com.
  5. Mike Gaston, ‘Ex‐Valve employee Blasts the Company for Feeling Like “High School”’, Gamespot (8 July 2013),
www.gamespot.com.
  6. Yanis Varoufakis, ‘Why Valve? Or, What Do We Need Corporations for and How Does Valve’s Management Structure Fit into
Today’s Corporate World?’, Valve Economics Blog (3 August 2012), http://blogs.valvesoftware.com/economics.
  7. Henry Mintzberg and Ludo Van der Heyden, ‘Organigraphs: Drawing How Companies Really Work’, Harvard Business
Review (September–October 1999), pp. 87–94.
  8. Varoufakis, op. cit.
  9. The classic work is Alfred D. Chandler Jr, Strategy and Structure: Chapters in the History of the Industrial Enterprise
(Cambridge, MA: MIT Press, 1962).
10. See Alfred D. Chandler Jr, ‘Origins of the Organization Chart’, Harvard Business Review (March–April 1988), pp. 156–7.
11. Information from Maggie Jackson, ‘Work’s Lessons Occurring in Unexpected Places’, Rockland Journal News (7 January
1998), pp. 4A, 4E.
12. Carla Curado, ‘Organisational Learning and Organisational Design’, The Organisational Learning, vol. 13 (2006), pp. 25–48.
13. Information from www.nami.org.hk.

CHAPTER 10 Organising  287

14. Drew Nesdale and Anita S. Mak. ‘Ethnic Identification, Self‐Esteem and Immigrant Psychological Health’, International
Journal of Intercultural Relations, vol. 27 (2003), pp. 23–40.
15. For a discussion of departmentalisation, see H. I. Ansoff and R. G. Bradenburg, ‘A Language for Organization Design’,
Management Science, vol. 17 (August 1971), pp. B705–B731; Mariann Jelinek, ‘Organization Structure: The Basic
Conformations’, in Mariann Jelinek, Joseph A. Litterer, and Raymond E. Miles (eds), Organizations by Design: Theory
and Practice (Plano, TX: Business Publications, 1981), pp. 293–302; Henry Mintzberg, ‘The Structuring of Organizations’,
in James Brian Quinn, Henry Mintzberg and Robert M. James (eds), The Strategy Process: Concepts, Contexts and Cases
(Englewood Cliffs, NJ: Prentice Hall, 1988), pp. 276–304.
16. Robert L. Simison, ‘Jaguar Slowly Sheds Outmoded Habits’, Wall Street Journal (26 July 1991), p. A6; and Richard
Stevenson, ‘Ford Helps Jaguar Get Back Old Sheen’, International Herald Tribune (14 December 1994), p. 11.
17. These alternatives are well described by Mintzberg, op. cit.
18. ‘China’s Fosun Wins Bidding for Club Med after Two Years’, BBC News (11 February 2015).
19. Club Méditerranée website, ‘An International Base’, www.clubmed‐corporate.com.
20. The focus on process is described in Michael Hammer, Beyond Reengineering (New York: Harper Business, 1997).
21. ibid.
22. Excellent reviews of matrix concepts are found in Stanley M. Davis and Paul R. Lawrence, Matrix (Reading, MA: Addison‐
Wesley, 1977); Paul R. Lawrence, Harvey F. Kolodny and Stanley M. Davis, ‘The Human Side of the Matrix’, Organizational
Dynamics, vol. 6 (1977), pp. 43–61; and Harvey F. Kolodny, ‘Evolution to a Matrix Organization’, Academy of Management
Review, vol. 4 (1979), pp. 543–53.
23. Davis and Lawrence, op. cit.
24. Yoko Kubota, ‘Toyota Reorganises to More Nimble Structure’, The Wall Street Journal (2 March 2016).
25. For a classic work, see Jay R. Galbraith, Organizational Design (Reading, MA: Addison‐Wesley, 1977).
26. This framework is based on Harold J. Leavitt, ‘Applied Organizational Change in Industry: Structural, Technological and
Humanistic Approaches’, in James G. March (ed.), Handbook of Organizations (Chicago: Rand McNally, 1965), pp. 1144–70;
and Edward E. Lawler III, From the Ground Up: Six Principles for Building the New Logic Corporation (San Francisco:
Jossey‐Bass, 1996), pp. 44–50.
27. M. Henderson and Talcott Parsons (eds and trans), Max Weber: The Theory of Social Economic Organization (New York: Free
Press, 1947).
28. For classic treatments of bureaucracy, see Alvin Gouldner, Patterns of Industrial Bureaucracy (New York: Free Press, 1954);
and Robert K. Merton, Social Theory and Social Structure (New York: Free Press, 1957).
29. Tom Burns and George M. Stalker, The Management of Innovation (London: Tavistock, 1961; republished by Oxford
University Press, London, 1994).
30. See Henry Mintzberg, Structure in Fives: Designing Effective Organizations (Englewood Cliffs, NJ: Prentice Hall, 1983).
31. ‘Restructuring and Insolvency Developments in Australia’s Commodity and Mining Sectors’, Financier Worldwide (July
2015), www.financierworldwide.com.
32. Information from Thomas Petzinger Jr, ‘Self‐Organization Will Free Employees to Act Like Bosses’, Wall Street Journal
(3 January 1997), p. B1.
33. See Rosabeth Moss Kanter, The Change Masters (New York: Simon & Schuster, 1983). Quotation from Rosabeth Moss Kanter
and John D. Buck, ‘Reorganizing Part of Honeywell: From Strategy to Structure’, Organizational Dynamics, vol. 13 (winter
1985), p. 6.
34. Sebastian Raisch and Julian Birkinshaw, ‘Organizational Ambidexterity: Antecedents, Outcomes, and Moderators’, Journal of
Management, vol. 34 (2008), pp. 375–409.
35. See, for example, Jay R. Galbraith, Edward E. Lawler III and Associates, Organizing for the Future (San Francisco: Jossey‐
Bass, 1993); Susan Albers Mohrman, Jay R. Galbraith, Edward E. Lawler, III and Associates, Tomorrow’s Organization:
Crafting Winning Capabilities in a Dynamic World (San Francisco: Jossey‐Bass, 1998).
36. Peter Senge, The Fifth Discipline: The Art and Practice of the Learning Organization (New York: Doubleday, 1994).
37. S. E. Bleeker, ‘The Virtual Organization’, in G. R. Hickman (ed.), Leading Organizations (Thousand Oaks, CA: Sage, 1998);
and Harvard Business Essentials, Managing Creativity and Innovation (Boston: Harvard Business School, 2003).
38. See the collection of articles by Cary L. Cooper and Denise M. Rousseau (eds), Trends in Organizational Behavior, Volume 6,
The Virtual Organization (New York: Wiley, 2000).
39. Klaasjan Visscher and J. Irene. A. Visscher‐Voerman, ‘Organizational Design Approaches in Management Consulting’,
Management Decision, vol. 48 (2010), pp. 713–31.
40. A classic treatment of environment and organisational design is found in James D. Thompson, Organizations in Action
(New York: McGraw‐Hill, 1967); see also Scott, op. cit.
41. Paola Conconi, Patrick Legros, Andrew F. Newman, ‘Trade Liberalization and Organizational Change’, Journal of
International Economics, vol. 86 (2012), pp. 197–208.
42. Alfred D. Chandler Jr, Strategy and Structure: Chapters in the History of the American Industrial Enterprise (Cambridge, MA:
MIT Press, 1962).
43. See, for example, Danny Miller, ‘Configurations of Strategy and Structure: Towards a Synthesis’, Strategic Management
Journal, vol. 7 (1986), pp. 233–49.

288  Management
44. Peter C. Fiss, ‘A Set Theoretic Approach to Organisational Configurations’, Academy of Management Review, vol. 32 (2007),
pp. 1180–1198.
45. See Peter M. Blau and Richard A. Schoennerr, The Structure of Organizations (New York: Basic Books, 1971); and Scott op.
cit.
46. D. E. Gumpert, ‘The Joys of Keeping the Company Small’, Harvard Business Review (July–August 1986), pp. 6–8, 12–14.
47. John R. Kimberly and Robert H. Miles, The Organizational Life Cycle (San Francisco: Jossey‐Bass, 1980).
48. Kim Cameron, Sarah J. Freeman and Naneil K. Mishra, ‘Best Practices in White‐Collar Downsizing: Managing
Contradictions’, Academy of Management Executive, vol. 5 (August 1991), pp. 57–73.
49. James P. Guthrie and Deepak K. Datta, ‘Dumb and Dumber: The Impact of Downsizing on Firm Performance as Moderated
by Industry Conditions’, Organization Science, vol. 19 (2008), pp. 108–23.
50. See Gifford Pinchot III, Intrapreneuring: Or Why You Don’t Have to Leave the Corporation to Become an Entrepreneur
(New York: Harper & Row, 1985).
51. See Jay Lorsch and John Morse, Organizations and Their Members: A Contingency Approach (New York: Harper & Row,
1974); and Scott, op. cit.
52. ‘The Rebirth of IBM’, The Economist (6 June 1998), pp. 65–8.
53. Nicolai J. Foss, ‘The Emerging Knowledge Governance Approach: Challenges and Characteristics’, Organization, vol. 14
(2007), pp. 29–52.
54. Riaz Hassan and Bill Martin, ‘Islamophobia, Social Distance and Fear of Terrorism in Australia: a Preliminary Report’,
International Centre for Muslim and non‐Muslim Understanding (2015), p. 6.
55. Kerstin Rosenow‐Williams, ‘Organising Muslims and Integrating Islam: Applying Organisational Sociology to the Study of
Islamic Organisations’, Journal of Ethnic and Migration Studies, vol. 40, no. 5 (2014), pp. 759–77.
56. Andrew Markus, ‘Mapping Social Cohesion: The Scanlon Foundation Surveys 2014’, Scanlon Foundation, Australian
Multicultural Foundation and Monash University, p. 24.
57. See Mintzberg and Van der Heyden, op. cit.
58. Developed from Frank Ostroff, The Horizontal Organization: What the Organization of the Future Looks Like and How it
Delivers Value to Customers (New York: Oxford University Press, 1999).
59. The nature of teams and teamwork is described in Jon R. Katzenbach and Douglas K. Smith, ‘The Discipline of Teams’,
Harvard Business Review (March–April 1993), pp. 111–20.
60. Susan Albers Mohrman, Susan G. Cohen and Allan M. Mohrman Jr, Designing Team‐Based Organizations: New Forms for
Knowledge Work (San Francisco: Jossey‐Bass, 1995).
61. See Glenn M. Parker, Cross‐Functional Teams (San Francisco: Jossey‐Bass, 1995).
62. See Ron Ashkenas, Dave Ulrich, Todd Jick and Steve Kerr, The Boundaryless Organization: Breaking the Chains of
Organizational Structure (San Francisco: Jossey‐Bass, 1996); and Rupert F. Chisholm, Developing Network Organizations:
Learning from Practice and Theory (Reading, MA: Addison‐Wesley, 1998).
63. Lynne B. Sinclair, Lorelei A. Lingard, and Ravindra N. Mohabeer, ‘What’s So Great About Rehabilitation Teams? An
Ethnographic Study of Interprofessional Collaboration in a Rehabilitation Unit’, Archives of Physical Medicine and
Rehabilitation, vol. 90 (2009), pp. 1196–201.
64. Information from William Bridges, ‘The End of the Job’, Fortune (19 September 1994), pp. 62–74; and Alan Deutschman,
‘The Managing Wisdom of High‐Tech Superstars’, Fortune (17 October 1994), pp. 197–206.
65. See the discussion by Jay R. Galbraith, ‘Designing the Networked Organization: Leveraging Size and Competencies’, in
Susan Albers Mohrman, Jay R. Galbraith, Edward E. Lawler III and Associates, Tomorrow’s Organizations: Crafting Winning
Capabilities in a Dynamic World (San Francisco: Jossey‐Bass, 1998), pp. 76–102.
66. ‘Aiming for the Sun’, Business First Magazine (December 2015), pp. 16–19.
67. Annmarie Unwin, ‘How Bigbelly Bins Are Cleaning Up In Australia’, Waste Management Review (8 October 2015),
http://wastemanagementreview.com.au.
68. Solar Bins Australia website, www.solarbins.com.au.
69. Paul R. Lawrence and Jay W. Lorsch, Organizations and Environment (Boston: Division of Research, Graduate School of
Business Administration, Harvard University, 1967).
70. Burns and Stalker, op. cit.
71. See Galbraith, op. cit.; and Susan Albers Mohrman, ‘Integrating Roles and Structure in the Lateral Organization’, chapter 5 in
Galbraith et al., op. cit.
72. For a good discussion of coordination and integration approaches, see Scott, op. cit., pp. 231–9.
73. Christina Fang, Jeho Lee and Melissa A. Schilling, ‘Balancing Exploration and Exploitation Through Structural Design: The
Isolation of Subgroups and Organizational Learning’, Organization Science, vol. 21 (2010), pp. 625–42.
74. Alphabet website, ‘G is Google’, https://abc.xyz/.
75. Paul Lin, ‘Alphabet: Google’s Mid Life Crisis or Apple iPod Moment’, Business Spectator (31 August 2015),
www.businessspectator.com.au.
76. Alex Hern, ‘How Alphabet Became the Biggest Company in the World’, The Guardian (2 February 2015), www.theguardian.com.
77. Monique Aubry, Brian Hobbs, Denis Thuillier, ‘A New Framework for Understanding Organisational Project Management
through the PMO’, International Journal of Project Management, vol. 25 (2007), pp. 328–36.

CHAPTER 10 Organising  289

78. David Van Fleet, ‘Span of Management Research and Issues’, Academy of Management Journal, vol. 26 (1983), pp. 546–52.
79. Developed from Roger Fritz, Rate Your Executive Potential (New York: Wiley, 1988), pp. 185–6; Roy J. Lewicki, Donald D.
Bowen, Douglas T. Hall and Francine S. Hall, Experiences in Management and Organizational Behavior, 3rd edn (New York:
Wiley, 1988), p. 144.
80. See George P. Huber, ‘A Theory of Effects of Advanced Information Technologies on Organizational Design, Intelligence, and
Decision Making’, Academy of Management Review, vol. 15 (1990), pp. 67–71.

ACKNOWLEDGEMENTS
Photo: © Milles Studio / Shutterstock.com
Photo: © FotograFFF / Shutterstock.com
Photo: © Jason Benz Bennee / Shutterstock.com
Photo: © Yeamake / Shutterstock.com
Photo: © Kylie Challenor

290  Management
CHAPTER 11

Controlling
LEA RNIN G OBJE CTIVE S

11.1 What does control mean in an organisational context and what are the steps in the control process?
11.2 What are the broad types of controls that managers can utilise?
11.3 What control systems are used in organisations?
Relying on quality to bring control
In 2009, Fortune magazine praised Japanese conglomerate Toyota as the world’s third most admired
company. By 2011 it had slipped to thirty‐third.1 What had caused this considerable decline in the
reputation of the world’s favourite automobile manufacturer? One contributing factor were accidents
involving their vehicles, which had been reported by the media. In one notable case, a Californian family
were all killed in 2009 when the accelerator in the Lexus they had on loan from a dealership stuck. The
engine propelled them into a 200 kilometre/hour crash.2 A number of other crashes contradicted the
company’s marketing slogan of ‘safety first’. In 2013 Toyota settled a class action for US$1.6 billion. In
2014 US authorities imposed a US$1.2 billion penalty, with the Federal Bureau of Investigation judge­
ment that ‘Toyota put sales over safety, and profits over principle’.3 The issues were not about quality
control but from trying to hide the problems. Denials of responsibility were followed by apologies, but
repeated promises to remedy the lack of quality control were never implemented. A culture of a hierar­
chical organisation can encourage a safety orientation but can also inhibit employees’ from speaking up
about control failures if they fear retribution for challenging their bosses.
The problems so evident in Toyota are not limited to just this one carmaker. In 2015, General Motors
was fined US$900 million for failing to act on ignition problems that directly claimed 124 lives. In 2014,
Hyundai‐Kia was fined US$300 million for misstating fuel‐economy figures. In 2015, Volkswagen CEO
Martin Winterkorn resigned due to the giant scandal that erupted when it became public news that the
respected German firm had deliberately falsified engine emissions data by ‘fixing’ computer software in
reporting procedures to deceive US regulators, resulting in a drop of €26 billion to the company’s value.4
Part of the problem may be that car manufacturers are faced with a competitive market of continually
rising standards for economy and emissions, and are struggling to introduce more efficient engine tech­
nology at acceptable costs and thus prices to demanding customers not yet ready to embrace a trade‐off
with reduced performance in their cars.
All of this prompts the question: can good management implement controls that militate against bad
management behaviour to deliver on the needed promises?
Some of the controls that need to be implemented are internal controls. The culture of profit over prin­
ciple for which Toyota was criticised in 2014 is obviously damaging. Honesty and integrity are corporate
values in need of re‐emphasis. VW’s infamous cheating by tampering with its own software has alerted
everyone to the insidious corruption of which even great companies are capable. Tighter procedural con­
trols in monitoring and reporting internally are obviously required.
Other controls relate to external regulations. The Environmental Protection Agency in the United States
is contemplating imposing a vehicle emissions standard similar to the European standard of 95 grams of
CO2 kilometre (due to be phased in from 2020). Unsurprisingly, the industry is resisting such initiatives.5
The hope has been that improvements in diesel engines and their generation of more power per litre of
fuel burned (but with more emissions than petrol engines) would appeal even to markets where the use
of frugal diesel engines is not yet common, such as in the United States. Diesel engines power about half
the vehicles sold in Europe but less than 1 per cent of US cars. Questions relating to globalisation and
sustainability loom large.
However, the concerns of environmentalists about diesel engines’ higher output of nitrous oxides and
other particulates are potentially bringing forward an industry shift from internal combustion technology
and diesel engines to electric vehicles, as battery technology improves and governments in countries
such as India and China move to limit pollution caused by carbon emissions. In a world market worth
US$2 trillion, it is expected that cashed‐up non‐car manufacturers like Apple and Google will be scan­
ning for opportunities. Even the difference between the 40 per cent gross profit margin that Apple cur­
rently makes and the 20 per cent that BMW makes might not be large enough to inhibit Apple’s market
entry.6 We have yet to see if we can control the apparently out‐of‐control car in our lives, and if so, how
we are to attempt to do so. The question of control as a function of management is likely to be with us
for some time to come, and perhaps permanently.

292  Management
QUESTION
The cases referred to above indicate the importance of the management of quality in manufacturing as an
example of the control function in management. How could the same relationship between quality and control
be demonstrated in other sectors, such as tourism or healthcare?

Introduction
The management function of control refers to all processes that keep the manager up to date with what
is happening in key areas of the organisation’s operations, and which facilitate any necessary organ­
isational changes being made. This is often more complex than it may seem at first glance. If this func­
tion is not attended to properly, chaos rapidly ensues. The phrase ‘out of control’ signals management
failure. How the management function of control works varies from one organisation to another but, at
the very least, it always requires knowledge of what is happening.
As such, a speedometer is part of a vehicle’s control system and provides feedback to the driver
about the vehicle’s speed (and thus allows the driver to make a better executive decisions about whether
to accelerate or brake). This is part of the bigger considerations of direction, destination and expected
time of arrival. Put this metaphor into management thinking. How often have we seen managers defend
their failure to make good decisions by saying they did not know that certain things were or were not
happening in their organisations? Such poor managerial decision‐making has led to organisations losing
their way, and managers failing to report accurately to the market on their performance. The conse­
quences of poor managerial decision‐making can be serious. It all comes down to establishing and main­
taining appropriate control.

CHAPTER 11 Controlling  293

11.1 Organisational control
LEARNING OBJECTIVE 11.1 What does control mean in an organisational context and what are the
steps in the control process?
All organisations require some form of control to ensure that their planning objectives are achieved and
the consequent benefits realised. If there is agreement in the organisation about its aims and objectives,
and the means to achieve them, then control is less likely to be a contentious issue. If there is dissen­
sion surrounding these objectives then individuals or groups of stakeholders may disrupt the planned
objectives through resisting or boycotting the control mechanisms that are designed to facilitate goal
compliance and  organisational performance. This is why the word ‘control’ often has negative conno­
tations, almost inviting automatic rebellion and resistance from those who do not understand its value
in the management of an organisation. Of course, if the actual control mechanisms are perceived to be
too demanding, nonsensical or inconsequential, and alienating for staff, then there is likely to be col­
lective resistance. The scientific management approach to organisational control, pioneered by Frederick
Taylor in the United States, is widely viewed in a negative light for its dehumanising attitude towards
work control.7 This approach caused a great deal of industrial conflict between management and labour
in companies such as Ford, General Motors, Alcoa and BHP from the 1930s to the 1980s. It has since
been largely replaced by more humanistic concepts of management. Control can therefore take a variety
of different forms and is likely to change form as social values shift. Broadly speaking, controlling is
the process of measuring performance and taking action to ensure the planned outcomes are achieved.

Rationale for controlling

Control is aimed at ensuring that plans are fulfilled and that performance targets are met. Control can be
important not only for guaranteeing that the performance level is met but also for ensuring that perfor­
mance is consistent. Carefully controlling the performance levels of an organisation requires accurate
and timely flows of information on the key operational variables and outcomes. There is a need for con­
trol mechanisms that can quickly detect and correct unlawful and corrupt behaviour at all levels within
an organisation.
Figure 11.1 illustrates the role of controlling in the overall management process. Planning sets the
directions and allocates resources. Organising brings people and material resources together in working
combinations. Leading inspires people to best use these resources. Controlling sees to it that the right
things happen, in the right way, and at the right time. It helps ensure that the performance contribu­
tions of individuals and groups are consistent with organisational plans. It helps ensure that performance
accomplishments throughout an organisation are consistent with one another in a means–ends fashion.
And it helps ensure that people comply with organisational policies and procedures.

Planning —
to set the direction
● Decide where you want
to go
● Decide the best way to
go about it
Organising — Leading —
to create structures to inspire effort
Controlling —
to ensure results
● Measure performance
● Take corrective action

FIGURE 11.1 The role of the controlling function in the management process

294  Management
Steps in the control process
The classic example of the control process operating in its purest form is the thermostat on an air­
conditioner. The thermostat is set to a desired temperature. When the room gets too cold or hot, the
thermostat senses the deviation and takes corrective action by heating or cooling. Once the desired
temperature is achieved, the heating system or air‐conditioner is automatically turned off. This illus­
trates a cybernetic control system — one that is self‐contained in its performance‐monitoring and
correction capabilities. The control process as practised in organisations is not cybernetic, but it does
follow similar principles.
As shown in figure 11.2, the management control process involves four steps.
1. Establish objectives and standards.
2. Measure actual performance.
3. Compare results with objectives and standards.
4. Take corrective action as needed.

Step 1
Establish
performance
objectives and
standards

Step 4 Step 2
Take The control Measure
necessary process actual
action performance

Step 3
Compare actual
performance with
objectives and standards

FIGURE 11.2 Four steps in management control

While essential to management, the control process and its implications apply equally well to personal
career planning. Think about it. Without career objectives, how do you know where you really want
to go? How can you allocate your time and other resources to take best advantage of available oppor­
tunities? Without measurement standards, how can you assess any progress being made? How can you
adjust current behaviour to improve the prospects for future results?

Step 1: Establish objectives and standards

The control process starts with planning, when performance objectives and standards for measuring
them are set. It can’t begin without them. Performance objectives, furthermore, should represent key
results to be achieved. The focus in planning should be on describing ‘critical’ or ‘essential’ results
that will make a substantial difference in the success of the organisation. The standards are impor­
tant, too, and they must also be considered right from the beginning. As key results are identified,

CHAPTER 11 Controlling  295

the standards or specific measures that will be taken to indicate success or failure in their accom­
plishment must also be specified. For example, an oral health service in a large Australian public
hospital gets its specialist dentists together regularly to review patient feedback and treatment results.
The dentists review the feedback and results of their work in relation to demand and the resources
available, as well as in relation to their knowledge of developments in their professional field of
public health dentistry. They then decide on how they need to allocate and prioritise their work and
what changes they need to make in their service provision, to get maximum value for the resources
expended.
Two types of standards are common to the organisational control process. Output standards
measure performance results in terms of outcomes like quantity, quality, cost or time taken to
accomplish work. Examples of output standards include percentage error rate, dollar deviation from
budgeted expenditures, and the number of units produced or customers served in a time period. Input
standards, on the other hand, measure effort in terms of the amount of work expended in task per­
formance. They are used in situations where outputs are difficult or expensive to measure. Examples
of input standards include conformance to  rules and procedures, efficiency in the use of resources,
and work attendance or punctuality.

Step 2: Measure actual performance

The second step of the control process is to measure actual performance. The goal here is to accurately
measure the performance results (output standards) and/or the performance efforts (input standards). In
both cases, the measurement must be accurate enough to spot significant differences between what is
really taking place and what was originally planned. A common management failure in this regard is
an unwillingness or inability to measure the performance of people at work. Yet without measurement,
effective control is not possible.
Increasingly, managers are required to assess organisational performance. This means measuring actual
outcomes. It can be achieved through analysing statistical/quantitative data collected by employees,
supervisors or managers, or by an external organisation, and typically presented in the form of spread­
sheets. Alternatively, managers can use qualitative techniques such as observing employees at work. This
is often referred to as ‘management by wandering around’ (MBWA).8

Step 3: Compare results with objectives and standards

The third step in the control process is to compare measured performance with objectives and
standards to establish the need for action. This step can be expressed as the following control
equation:

Need for action = Desired performance − Actual performance

There are different ways of comparing desired and actual performance. A historical comparison uses
past performance as a benchmark for evaluating current performance. A relative comparison uses the
performance achievements of other people, work units or organisations as the evaluation standard. An
engineering comparison uses engineered standards that are set scientifically through such methods as
time and motion studies. For instance, the delivery routines of drivers for a courier company are care­
fully measured in terms of the expected time taken to make a delivery on various routes.
In an earlier chapter, the concept of benchmarking was formally introduced as a planning approach.
Its importance to the control process is also clear. Benchmarking gained popularity as a means of identi­
fying best practices, with emphasis always on the question: what can I or we do better? Without rigorous
and regular measurement comparisons — be they historical, relative or engineering driven — answers to
this question are difficult to get. In Australia, one major bank is so convinced of the benefits of bench­
marking that it provides internet access to benchmarking tools: an industry analysis to allow a business
to compare itself against others in the same industry, a break‐even analysis to help businesses calculate

296  Management
break‐even points, and financial ratio calculators for managers to track key performance indicators (such
as debt ratios, profitability ratios and liquidity ratios).9

Step 4: Take corrective action

The control equation indicates that the greater the measured difference between desired and actual per­
formance, the greater the need for action. The final step in the control process, accordingly, is taking
any action necessary to correct or improve things. This allows for a judicious use of management by
exception — the practice of giving priority attention to situations that show the greatest need for action.
This approach can save valuable time, energy and other resources, while allowing all efforts to be con­
centrated on the areas of greatest need.
Two types of exceptions may be encountered. The first is a problem situation in which actual perfor­
mance is below the standard. The reasons for this performance deficiency must be understood. Correc­
tive action is required to restore performance to the desired level. The second exception is an opportunity
situation in which actual performance is above the standard. The reasons for this extraordinary perfor­
mance must also be understood. Action should then be taken to continue this higher level of accom­
plishment in the future. The original plan, objectives and standards can also be reviewed to determine
whether they should be updated.
Measurement is certainly an important key to the control process. But so too is the willingness to con­
front the implications of the measurements, to learn from experience, and to actively plan to improve
future performance. The healthcare facility that monitors the results of surgical procedures in terms of
resources expended and benefits achieved is using after‐action review processes to inform its decision‐
making. These are structured reviews of problems encountered, lessons learned and actual outcomes
achieved on completed projects or special events. Staff members may be asked to respond to questions
about the stated objectives of the project, the actual outcomes, the lessons learned and how future pro­
jects or service provision might best be managed Many organisations use team‐based structures, and
such reviews may also consider how the team can be more effective. However, improving team perfor­
mance may require upgrading the knowledge base and job skills of individuals. The after‐action review
is an integral part of an organisation’s continuous improvement process because it makes review a part
of the organisational culture and it encourages the people involved to take responsibility for their perfor­
mance and accomplishments.
Questions typically asked in such a session are as follows.
•• What did we say we were going to do?
•• What did we do?
•• How are what we said we would do and what we actually did different?
•• What did we learn from this?
•• Who can we tell so the organisation as a whole will benefit?
•• What changes do we now recommend, and what are their expected benefits if the recommendations
were to be implemented?
•• What new resources need to be introduced and what needs to be removed from our practices or assets
to enable these changes to proceed and benefits to be realised?
•• What does the organisation as a whole need to ‘unlearn’?

CRITICAL ANALYSIS

1. Given that controls are essential to any organisation’s operational success, should progress be
reported to top management against internal objectives or external benchmarks? Justify your
answer.
2. What is the link between management controls and organisational planning? Should controls be
built into the planning process?

CHAPTER 11 Controlling  297

11.2 Types of controls
LEARNING OBJECTIVE 11.2 What are the broad types of controls that managers can utilise?
There are three major types of managerial controls — feedforward, concurrent and feedback controls,
as shown in figure 11.3.10 Each is relevant to a different phase of the organisation’s input–throughput–
output cycle of activities. Each offers significant opportunities for actions to be taken that advance
organisational productivity and high performance. And, importantly, each offers the opportunity for
­performance‐oriented organisational and personal learning through systematic assessment of actions and
results.

Work inputs Work throughputs Work outputs

Feedforward controls Concurrent controls Feedback controls

Ensure the right directions Ensure the right things are Ensure that final results are
are set and the right resource being done as part of up to desired standards
inputs are available work-flow operations

FIGURE 11.3 Feedforward, concurrent and feedback controls in the management process

Feedforward controls
Feedforward controls, also called preliminary controls, are accomplished before a work activity begins.
They ensure that objectives are clear, that proper directions are established, and that the right resources
are available to accomplish them. By making sure that the stage is properly set for high performance,
feedforward controls are preventive in nature. They are designed to eliminate the potential for prob­
lems later on in the process by asking an important but often‐neglected question: what needs to be done
before we begin? This is a forward‐thinking and active approach to control rather than a reactive and
defensive one.
The quality of resources is a key concern of feedforward controls. At McDonald’s, for example, pre­
liminary control of food ingredients plays an important role in the organisation’s quality program. The
company requires that suppliers of its hamburger buns produce them to exact specifications, covering
everything from texture to uniformity of colour. Internationally, the organisation works hard to develop
local suppliers that can offer dependable quality.11

Concurrent controls
Concurrent controls focus on what happens during the work process. Sometimes called steering con-
trols, they monitor ongoing operations and activities to make sure things are being done according to
plan. Ideally, concurrent controls allow corrective actions to be taken before a task is completed. The
key question is: What can we do to improve things before we finish? Here, the focus is on quality of
activities during the work process. This approach to control can reduce waste in the form of unaccept­
able finished products or services.
Taking McDonald’s again as an example, shift leaders provide concurrent control through direct
supervision. They constantly observe what is taking place even while helping out with the work. They
are trained to intervene immediately when something is not done in the right way and to correct things
on the spot. Detailed instruction manuals also ‘steer’ workers in the right directions as their jobs are
performed.

298  Management
 SOCIAL RESPONSIBILIT Y

Organisation structure as a form of control in emerging markets

Emerging markets in Asia pose special chal-
lenges to managers along with the opportunity
of vast numbers of customers. The favoured
organisational structure is the diversified con-
glomerate, such as the Tata Group in India,
that accounts for 6 per cent of the country’s
GDP. With subsidiaries in carmaking, agricul-
tural chemicals, food production, hotels and
telecommunications, it has the ability to shift
its emphasis across many market sectors,
depending on changing conditions such as
rising and falling talent shortages. Indeed,
emerging markets are leading the way in many
sectors through their application of familiar
management theories such as lean production, paring away non‐essential features down to ‘frugal pro-
duction’, to compete on productivity and not just on cost. Innovative management models are using
mass‐production techniques to supply sophisticated services in markets once thought to be too frag-
mented and geographically constrained.
An Indian company redesigned mobile phone base stations to run on a solar‐powered battery — not
only helping people in remote areas who have little or erratic access to electricity, but creating a new
green technology. The emerging markets of the developing world are implementing business models
that see these regions enjoying growth rates that are proving sustainable.
Adaptability is the key. For example, the business model of Indian high‐end leather goods manufac-
turer Hidesign relies on quality control in production. Another structure in emerging markets is the hybrid
design, where private and government ownership is used to bring the advantages of both to balance
the disadvantages of either. Instead of merely scaling up to gain economies of scale by reducing costs
through long production runs of standardised items, hybrid structure organisations scale out rather than
up, to involve a wider circle of people where large populations are scattered — thereby avoiding trans-
port costs and the expense of layers of bureaucracy in centralised structures.
Some see the hybrid business model as temporary, and likely to disappear as local stockmarkets
and investors assume control and the risk management. Hybrid organisations are inherently confusing,
responsible to both the state and the market. While the path to privatisation is long, the flexibilities that
hybrids offer make them viable structures for many emerging markets such as China and India.
These are examples of how the organisation structure serves as a form of management control. It is a
matter of balance and relevance. Too tight or coupled a structure, and adaptability to changing circum-
stances is impaired. Too loose or uncoupled, and the benefits of controls are unrealised: information,
coordination and performance, along with compliance and efficiency.12

QUESTION
Recall an organisation known to you, and think out how it uses its structure to facilitate the control
function.

It seems clear that with the right organisational structure, companies can use various methods to
manage the control function. Having discussed feedforward and concurrent controls, we now turn our
attention to feedback controls.

Feedback controls
Feedback controls, also called postaction controls, take place after work is completed. They focus on
the quality of end results rather than on inputs and activities. They ask the question: Now that we are
finished, how well did we do? Restaurants, for example, ask how you liked a meal — after it is eaten;

CHAPTER 11 Controlling  299

a final exam mark tells you how well you performed — after the course is over; a budget summary
informs managers of any cost overruns — after a project is completed. In these and other circumstances
the feedback provided by the control process is useful information for improving things in the future. It
also provides formal documentation of accomplishments that may be used for allocating performance‐
based rewards.
Employees at a McDonald’s restaurant never know when a corporate evaluator may stop in to sample
the food and the service. When this happens, however, the evaluator provides feedback with the goal of
improving future operations.

Internal and external control

Managers have two broad options with respect to control. They can rely on people to exercise self‐­
control over their own behaviour. This strategy of internal control allows motivated individuals and
groups to exercise self‐discipline in fulfilling job expectations. Alternatively, managers can take direct
action to control the behaviour of others. This is a strategy of external control that occurs through per­
sonal supervision and formal administrative systems. Organisations with effective control typically use
both strategies to good advantage. However, the trend today is to increase the emphasis on internal con­
trol, or self‐control. This is consistent with the renewed emphasis on participation, empowerment and
involvement in the workplace.
Internal control is exercised by people who are motivated to take charge of their own behaviour on the
job, and who are given the chance to do so. Douglas McGregor’s Theory Y perspective, introduced in the
chapter on the historical foundations of management, recognises the willingness of people to exercise
self‐control in their work.13 Of course, McGregor also recognised that people are most likely to do this
when they participate in setting performance objectives and standards. Reliance on an internal control
strategy also requires a high degree of trust. When people are expected to work on their own and exer­
cise self‐control, managers must give them a chance to meet performance expectations.
The potential for self‐control is increased when capable people have a clear sense of organisational
mission, know their performance objectives, and have the resources necessary to do their jobs well. It is
also enhanced by participative organisational cultures, in which people are expected to treat each other
with respect and consideration, are allowed to exercise personal initiative, and are given ample oppor­
tunities to experience satisfaction through job performance.
Bureaucratic control
A classic form of external control is bureaucratic control. It uses authority, policies, procedures,
job descriptions, budgets, and day‐to‐day supervision to make sure that people’s behaviour is con­
sistent with organisational interests. This form of control flows through the organisation’s hierarchy
of authority. Organisations typically have policies and procedures regarding sexual harassment, for
example, with the goal being to make sure that members behave toward one another respectfully and
in ways that offer no suggestion of sexual pressures or improprieties. Organisations also use budgets
for staff, equipment, travel expenses, and the like to keep behaviour targeted within set limits.
Another level of bureaucratic control comes from the organisation’s external environment. Here, laws
and regulations govern behaviour of organisations. For example, with detailed reporting requirements
of financial management, companies in the Western world are under continuous scrutiny by stock
exchanges and regulators to provide maximum certainty for the business community and investors in
general.
Clan control
Whereas bureaucratic control emphasises hierarchy and authority, clan control influences behaviour
through norms and expectations set by the organisational culture. This is the power of collective identity,
where persons who share values and identify strongly with one another tend to behave in ways that are
consistent with one another’s expectations. Just look around your university classroom and campus.

300  Management
You’ll see clan control reflected in dress, language and behaviour as students tend to act consistent with
the expectations of peers and groups they identify with. The same holds true in organisations, where clan
control influences employees and members to display common behaviour patterns.
Market control
Market control is essentially the influence of market competition on the behaviour of organisations
and their members. Businesses show the influence of market control in the way that they adjust prod­
ucts, pricing, promotions, and other practices in response to customer feedback and what competitors
are doing. A good example is the growing emphasis on ‘green’ products and sustainable practices. For
example, when an organisation receives positive publicity from a commitment to increasing its use of
renewable energy sources, the effect is likely to be felt by its competitors, who may have to adjust their
practices in order to avoid giving up the public relations advantage to their environmentally conscious
competitor. In this sense, the time‐worn phrase ‘keeping up with the competition’ is really another way
of expressing the dynamics of market controls in action.

CRITICAL ANALYSIS

1. Describe how organisational culture is a form of control in an organisation known to you.

2. Explain how the concepts of internal and external control relate to Douglas McGregor’s Theory X
and Theory Y managerial assumptions of employees (outlined in the chapter on the historical
foundations of management).

11.3 Organisational control systems

LEARNING OBJECTIVE 11.3 What control systems are used in organisations?
Each component in an organisation’s control systems should contribute to maintaining predictably high
levels of performance. Internal control should be encouraged and supported; external control should
be appropriate and rigorous. The management process provides for a certain amount of control when
planning, organising and leading are well done. Additional and comprehensive control is provided by
appropriate systems such as those dealing with remuneration and benefits, employee discipline, financial
information and operations management.

Remuneration and benefits

Base remuneration plays an important role in attracting a highly qualified workforce to the organisation.
If remuneration is attractive and competitive in the prevailing labour markets, it can make the organ­
isation highly desirable as a place of employment. If employers get the right people into jobs, costs are
reduced and productivity is boosted over the long term. Generally, more capable people exercise a higher
level of self‐control. When the wage and salary structure of an organisation is unattractive and uncom­
petitive, however, it will be difficult to attract and retain highly competent workers. The less capable the
workforce, the greater the burden on external controls to ensure that desired levels of performance are
achieved and maintained.
The use of incentive remuneration systems also helps. When properly implemented, ‘pay‐for‐­
performance’, ‘performance‐related pay’ and ‘merit pay’ plans serve as control systems. They can be
strong influences on individual and group behaviour. The logic typically used is quite straightforward,
as described this way by a corporate executive: ‘Pay very poorly for poor performance; pay poorly
for average performance; pay well for above‐average performance; pay obscenely well for outstanding
performance.’14 However, the global financial crisis brought widespread cynicism about senior bank
executives rewarding themselves with millions of dollars in bonuses while they brought the global finan­
cial system to its knees. There is trenchant criticism in business publications of executives being paid

CHAPTER 11 Controlling  301

20–30 times the wages of their employees.15 A recent change in thinking about remuneration is advo­
cating the logic of ‘pay enough to get money off the negotiating table, and reward people with jobs that
offer autonomy and mastery’.16
Pay‐for‐performance systems have been more widely adopted in countries with a strong emphasis on
individualism, such as Australia, the United Kingdom and the United States, rather than on collectivism,
such as in Scandinavia. In addition, non‐unionised, private sector firms are more likely to implement
these systems than unionised or public sector organisations.17 Despite these moves in Australia, in many
cases more men than women are benefiting from pay‐for‐performance systems at an executive level, and
in the UK a national survey showed that a persistent and large gender gap continues to exist in the board­
room, with salaries and careers favouring males.18 Government equal opportunity agencies are reporting
that women still hold a low percentage of senior management positions in Australia. Despite having
had such female role models as the prime minister, governor‐general, along with judges and senior
officers in defence and the public service, CEO and senior management positions in many Australian
organisations are still more likely to be male than female. The percentage of Australian companies with
female board members is growing, but only slowly.
Because of the growing importance of a worker’s total remuneration package, fringe benefits also
have control implications. Their attractiveness can also affect an organisation’s ability to recruit and
retain a qualified workforce. In today’s environment of rising costs and workforce diversity, fringe
benefits — from increased superannuation contributions to company cars — can be very expensive.
Many employers are now trying to provide individuals with more choice in selecting benefits that suit
their diverse needs. At the same time, employers are seeking ways to reduce expenditures by asking
employees to pay more of the fringe benefits’ cost — an unpopular move with employees and trade
unions alike.

Employee discipline systems

Absenteeism, tardiness, sloppy work — the list of undesirable conduct can go on to even more extreme
actions: falsifying records, sexual harassment, embezzlement. All are examples of behaviours that can
and should be formally tackled in employee discipline systems. Discipline is the act of influencing
behaviour through reprimand. Ideally, this form of managerial control is handled in a fair, consistent and
systematic way.
Progressive discipline ties reprimands to the severity and frequency of the employee’s infractions.
Under such a system, penalties vary according to how significant a disruptive behaviour is and how often
it occurs. For example, the progressive discipline guidelines of one university state: ‘The level of disci­
plinary action shall increase with the level of severity of behaviour engaged in and based on whether the
conduct is of a repetitive nature.’ In this particular case, the ultimate penalty of ‘discharge’ is reserved
for the most severe behaviours (e.g. any criminal act) or for continual infractions of a less severe nature
(e.g. being continually late for work and failing to respond to a series of written reprimands and/or
suspensions).
The goal of a progressive discipline system is to achieve compliance with organisational expectations
through the least extreme reprimand possible. But even this type of control can have unpleasant conse­
quences. Sometimes the relationships between managers and disciplined workers take on an adversarial
character. Sometimes managers wait too long and fail to take disciplinary action until a problem is very
severe. Sometimes poor attitudes form among people who can’t seem to change and so keep receiving
ever harsher punishments.19
One way to develop a consistent personal approach to disciplinary situations is to remember the ana­
logy of the ‘hot stove rules’ of discipline. They begin with a simple rule: ‘When a stove is hot, don’t
touch it.’ We also know that when this rule is violated, you get burned — immediately, consistently, but
usually not beyond the possibility of repair. Six ‘hot stove rules’ for using reprimands in disciplinary
action are described in Manager’s notepad 11.1.20

302  Management
 MANAGER’S NOTEPAD 11.1

‘Hot stove rules’ of employee discipline

• A reprimand should be immediate; a hot stove burns the first time you touch it.
• A reprimand should be directed towards someone’s actions, not the individual’s personality; a hot
stove doesn’t hold grudges, doesn’t try to humiliate people and doesn’t accept excuses.
• A reprimand should be consistently applied; a hot stove burns anyone who touches it, and it does
so every time.
• A reprimand should be informative; a hot stove lets a person know what to do to avoid getting
burned in the future — ‘Don’t touch’.
• A reprimand should occur in a supportive setting; a hot stove conveys warmth but with an inflexible
rule — ‘Don’t touch’.
• A reprimand should support realistic rules; the don’t‐touch‐a‐hot‐stove rule isn’t a power play, a
whim or an emotion of the moment; it is a necessary rule of reason.

Information and financial controls

The pressure is ever present today for all organisations to use their resources well and to perform with
maximum efficiency. The use of information in financial analysis of organisational performance is vital
to managerial control. At a minimum, managers should be able to understand and assess for control
purposes the following important financial aspects of organisational performance: liquidity — ability
to generate cash to pay bills; leverage — ability to earn more in returns than the cost of debt; asset
­management — ability to use resources efficiently and operate at minimum cost; and profitability —
ability to earn revenues greater than costs.
These financial performance indicators can be assessed using a variety of financial ratios, including
those shown in Manager’s notepad 11.2. Such ratios provide a framework for historical comparisons
within the organisation and external benchmarking relative to industry performance. They can also
be used to set financial targets or goals to be shared with employees and tracked to indicate success
or failure in their accomplishment. For example, global eyewear manufacturer Luxottica is based in
Milan and has businesses in 38 markets — including a family of companies in Australasia. Its manu­
facturing business supplies products to its 800 retail stores and its licensed operations have strong
market share, with most of the world’s best known brands in its product portfolio. Its extraordinary
success has been built on many corporate acquisitions, but especially on quality and customer orien­
tation. Staff are closely involved in design and development, and managers meet regularly to discuss
goals (including financial goals) and to provide feedback to employees about quarterly and annual
key financial performance and technological information. The company believes that providing a
financial scorecard to staff has numerous benefits. It informs them of the company’s current position,
helps them focus on how they can work more effectively and strengthens personal commitments
to improving corporate profitability. This sharing of information is coupled with profit sharing and
­performance‐related pay systems.

MANAGER’S NOTEPAD 11.2

Popular financial ratios with preferred directions ↑ or ↓

Liquidity ratios:
• [ ↑ ] Current ratio = Current assets/Current liabilities
• [ ↑ ] Acid test = (Current assets − Inventory)/Current liabilities
Leverage ratios:
• [ ↓ ] Debt ratio = Total debts/Total assets
• [ ↑ ] Times interest earned = Profit before interest and tax/Total interest

CHAPTER 11 Controlling  303

 Asset management ratios:
• [ ↑ ] Inventory turnover = Sales/Average inventory
[ ↑ ] Total asset turnover = Sales/Total assets
Profitability ratios:
• [ ↑ ] Net margin = Profit after tax/Sales
• [ ↑ ] Return on investment (ROI) = Profit after tax/Total assets.

Budgets are also widely used as both a planning and a control mechanism in organisations. As out­
lined in the chapter on planning, a budget is a single‐use plan that commits resources to activities, pro­
jects or programs. For example, organisations may set weekly, monthly, quarterly and yearly budgets
for revenues and expenses. In terms of the controlling function, it is important that performance against
these budgets is monitored on a regular basis, and corrective action is taken if necessary.21

Operations management and control

Control is integral to operations management, where the emphasis is always on using people, resources
and technology to best advantage. The areas of purchasing control, inventory control and statistical
quality control are all receiving current managerial attention.

Purchasing control
Rising costs of materials are a fact of life in today’s economy. Controlling these costs through efficient pur­
chasing management is an important productivity tool. Like an individual, a thrifty organisation must be con­
cerned about how much it pays for what it buys. To leverage buying power, more organisations are centralising
purchasing to allow buying in volume. They are committing to a small number of suppliers with whom they
can negotiate special contracts, gain quality assurances and get preferred service. They are also finding ways
to work together in supplier–purchaser partnerships so they can operate in ways that allow each partner to
better contain its costs. It is now more common, for example, that parts suppliers keep warehouses in their
customers’ facilities. The supplier maintains inventory and stocks it in accordance with forecast demand. The
customer provides the space; the supplier does the rest. The benefits to the customer are lower purchasing
costs and preferred service; the supplier gains an exclusive customer contract and more sales volume.

Inventory control
Inventory is the amount of raw materials or products held by an organisation that it has purchased or man­
ufactured with the intention of selling them as part of its business model. Organisations maintain inven­
tories of raw materials, and works in process and/or finished goods. The goal of inventory control is to
make sure that an inventory is just the right size to meet performance needs, subject to considerations of
risk, thus minimising the carrying costs. Carrying costs also depend on factors such as interest rates (if
money must be borrowed to finance procurement) and factors such as whether the items require secure or
air‐conditioned storage. The economic order quantity (EOQ) is the order quantity that minimises the total
variable costs associated with changing order quantities. Inventory carrying costs vary with order quantity
and with order costs. The higher the demand and the cost per order, the higher the EOQ. Also, the higher
the carrying costs and the variable costs per unit of inventory, the lower the EOQ. The EOQ is the square
root of twice the cost per order and the period demand (usually annual) divided by the period carrying cost
(expressed as a percentage of the item cost) multiplied by the variable cost per unit inventory.
The reorder point method of inventory control involves ordering a replacement stock when each
time an inventory level falls to a predetermined point. When this point is reached, a decision is auto­
matically made (typically by computer) to place a standard order to replenish the stock. Order sizes are
mathematically calculated (using the EOQ equation) to minimise the costs of holding inventory. The
best example is the local supermarket, where daily orders are routinely made on this basis. ­Typically,
the reorder instruction is triggered automatically by the sales of an item recorded by the inventory

304  Management
management system on information from the check‐out computer showing that the stock of that item has
been reduced by sales to a predetermined level. The size of the reorder is ideally the EOQ.
Another approach to inventory control is just‐in‐time (JIT) scheduling. Made popular by the prod­
uctivity of Japanese industry, JIT systems try to reduce costs and improve workflow by scheduling mat­
erials to arrive at a workstation or facility ‘just in time’ to be used. This minimises carrying costs since
almost no inventories are maintained — materials are ordered or components produced only as needed.
The just‐in‐time approach is an important productivity‐enhancing management innovation. The system
allows production and purchasing to be done in small quantities and no earlier than necessary for use.
Quality control
Consistent with the total quality management theme in today’s workplace, the practice of quality control
involves checking processes, materials, products and services to ensure that they meet high standards.
This responsibility applies to all aspects of operations, from the selection of raw materials and supplies
right down to the last task performed to deliver the finished good or service. This process may be sup­
ported by rigorous statistical analysis. Typically this means taking samples of work, measuring quality
in the samples, and then determining the acceptability of results. Unacceptable results in a sample call
attention to the need for investigation and corrective action to bring operations back up to standard. The
power of statistics allows the sampling to be efficiently used as the basis for decision making. At Gen­
eral Electric, for example, a Six Sigma program drives the quest for competitive advantage. This means
that statistically the firm’s quality performance will tolerate no more than 3.4 defects per million — a
perfection rate of 99.9997 per cent! As tough as it sounds, ‘Six Sigma’ is a common quality standard for
contemporary, highly automated manufacturing environments.

COUNTERPOINT

The Chinese perception of quality

Research by Cheng, Li and Luo (2014) provides an important contribution to our view of quality — the
fact that it is dynamic and may be determined by context. They suggest that the evaluation of quality
in China can only partly take into consideration existing mature quality evaluation models traditionally
accepted by Western economies (particularly the methods of evaluating customer satisfaction) because
there are conditions that are unique to China, including the conditions it has experienced during its
economic transition.
While there is a general perception, both nationally and internationally that, overall, product quality is
poor in China (with widespread media attention on the outbreak of serious product safety incidents such
as milk powder and infant formula containing melamine), there is less recognition of quality indicators —
such as that China is now the largest commodity exporter in the world, particularly to countries with
strict quality standards such as the United States and European countries.
Using four measures of quality: consumer satisfaction with quality; product safety; government regu-
lations on quality; and citizens’ concept of quality, Cheng, Ki and Luo suggest that the overall evaluation
of quality in China is summarised as having just reached a general standard. What is most revealing
about the study is that they find that while product safety remains steady as a whole, government
quality regulations are ineffective because it is Chinese citizens’ perceptions about the concept of
quality that are actually poor. Supporting this are their findings of a positive relationship between the
effectiveness of government regulation on quality and Chinese citizens’ concept of quality, consumer
satisfaction with quality and product safety. This shows it is not enough to simply have controls in place,
it is also important to communicate them. This perspective adds a twist to our traditional notions of
continuous improvement, with the authors calling not only for an emphasis on product safety during
quality evaluation and quality improvement systems, but also for the constant enhancement of quality
regulation effects on Chinese citizens’ concept of quality, as the means to drive quality development.22

QUESTION
Why is it important to communicate quality control measures to customers?

CHAPTER 11 Controlling  305

Project management and control
Projects are tasks with multiple components that have to happen in a certain sequence. They must be
completed by a specified date; usually within a specified budget and to a particular quality standard.
­Project management is the responsibility for overall planning, supervision and control of projects. A
project manager’s job is to ensure that a project is well planned and then completed according to plan —
on time, within budget, and consistent with objectives. Two useful techniques for project management
and control are Gantt charts and CPM/PERT.

Gantt charts
A Gantt chart, such as the one depicted in figure 11.4, graphically displays the scheduling of tasks
required to complete a project. This approach was developed in the early 20th century by Henry Gantt,
an industrial engineer, and it has become a mainstay of project management ever since. In the figure, the
left column lists major activities required to complete a new mobile phone prototype. The bars extending
from the right indicate the time required to complete each activity.

Activities
A Complete research and
4
development work
B Complete engineering 2
design
C Prepare budgets 1

D Build prototype 3

E Test prototype 1

0 2 4 6 8 10
Time (months)

FIGURE 11.4 Simplified Gantt chart for the development of a new mobile phone prototype

The Gantt chart provides a visual overview of what needs to be done on the project. This facilitates
control by allowing progress checks to be made at different time intervals. It also assists with event or
activity sequencing, making sure that things get accomplished in time for later work to build upon them.
One of the biggest problems with projects, for example, is when delays in early activities create prob­
lems for later ones. A project manager can actively use Gantt charts in an attempt to avoid such diffi­
culties, or to plan contingencies. Obviously, the chart in the figure is oversimplified; an actual project
to develop a new mobile phone — even a product modification such as an updated version of a smart­
phone  — would be a lot more complicated. However, with contemporary computer assistance, Gantt
charts can play a useful role in helping project managers track and control progress — even through high
levels of complexity.

CPM/PERT techniques
A companion to the Gantt chart is CPM/PERT, a combination of the critical path method and the pro­
gram evaluation and review technique. Project planning based on CPM/PERT uses a network chart like
the one shown in figure 11.5. Such charts are developed by breaking a project into a series of small sub‐
activities that each have clear beginning and end points. These points become ‘nodes’ in the charts, and
the arrows between nodes indicate the order in which things must be completed. The full diagram shows
all the interrelationships that must be coordinated during the entire project.

306  Management
 6
4 3 5 2

10 2 8
8
1
12 2 9 10
1 6

15
12
4 7
10

8 Activities Critical
Events
(days) path

FIGURE 11.5 Sample CPM/PERT network activity‐on‐node diagram

Use of CPM/PERT techniques helps project managers track and control activities, and make sure
they happen in the right sequences — and on time. The activities can be listed on the arrows for
tracking purposes, known as the activity‐on‐arrows (AOA) diagram; they can also be listed on the
nodes, resulting in activity‐on‐nodes (AON) diagrams. The network in figure 11.5 is an AON dia­
gram. If you look at it again, you should notice that the time required for each activity can be easily
computed and tracked. The pathway with the longest completion time from start to finish is called the
critical path. It represents the shortest possible time in which the entire project can be completed,
assuming everything goes according to plan. In the example, you will find that the critical path is
38 days.

Balanced scorecards
If ‘what gets measured happens’, then managers should, consequently, take advantage of ‘scorecards’ to
record and track performance results. For example, if a lecturer takes class attendance and assigns marks
based on it (in itself an educationally dubious practice, of course), students tend to come to class; if an
employer tracks the number of customers each employee serves per day, employees tend to serve more
customers. Do the same principles hold for organisations? Strategic management consultants Robert S.
Kaplan and David P. Norton believe they do, and advocate using the balanced scorecard for manage­
ment control.23 It gives top managers, as they say, ‘a fast, but comprehensive view of the business’. The
basic principle is that to do well and to win, you have to keep score. Developing a balanced scorecard
for any organisation begins with a clarification of the organisation’s mission and vision — what it wants
to be, and how it wants to be perceived by its key stakeholders. The following questions are used to
develop specific scorecard goals and measures.
•• Financial performance. To improve financially, how should we appear to our shareholders? Sample
goals: survive, succeed and prosper. Sample measures: cash flow, sales growth and operating income,
increased market share and return on equity.
•• Customer satisfaction. To achieve our vision, how should we appear to our customers? Sample goals:
new products and responsive supply. Sample measures: percentage sales from new products and
percentage on‐time deliveries.
•• Internal process improvement. To satisfy our customers and shareholders, at what internal business
processes should we excel? Sample goals: manufacturing excellence, design productivity and new
product introduction. Sample measures: cycle times, engineering efficiency and new product time.
•• Innovation and learning. To achieve our vision, how will we sustain our ability to change and
improve? Sample goals: technology leadership and time to market. Sample measures: time to develop
new technologies and new product introduction time versus competition.

CHAPTER 11 Controlling  307

MBO: integrated planning and controlling
Planning and controlling must work together. A useful technique for integrating them in day‐to‐day
practice is management by objectives (MBO), which was outlined in the chapter on planning. This is a
structured process of regular communication in which a supervisor or team leader and a subordinate or
team member jointly set performance objectives and review results accomplished.24
Although many managers may describe what they are doing by different names, it will often have a
common thread that is consistent with the MBO concept. If you want high performance from individual
contributors, you must hire the best people, work with them to set challenging performance objectives,
give them the best possible support and hold them accountable for results.
Many of Australasia’s large and medium‐sized corporations use some form of MBO system. However,
like a number of European and Asian companies, they have increasingly used the concept for teams
rather than individuals. As more companies set group‐ or team‐based tasks they have fine‐tuned the
control system to reflect a collective responsibility for outcomes. And countries and cultures that take
a collective rather than an individualistic  approach to decision‐making and accountability, such as the
Asian, Scandinavian and Germanic countries, have extensively modified MBO systems to reflect a group
or team perspective.
The disadvantages of MBO as both a planning and control mechanism can be both generic and cul­
turally specific. In terms of the controlling aspect, the exact quantification of objectives can be difficult
in some industries, particularly those involving a large ‘service’ component in the final ‘product’. Also,
the benefits of an employee’s actions and behaviour may not be realised until a considerable time later.
This is particularly true with training and teaching where ideas and concepts discussed in the classroom
or workplace may not be fully appreciated at the time of delivery, when trainee or student feedback is
measured. The real benefits may not be realised until months or even years later, and this may not be
captured in formal feedback measures.
Culturally specific disadvantages relate mainly to the appropriateness of focusing on the individual.
Although this may seem acceptable in individualistic societies such as Australia, North America and
Britain, it is considered inappropriate in more collective societies. Even within Australia, MBO would
be considered culturally unacceptable in Indigenous organisations where there is a strong ‘collective
culture’.

CRITICAL ANALYSIS

1. How can an organisation attempt to ensure that its remuneration and benefits program actually
increases organisational control?
2. What might be potential sources of resistance to MBO and the balanced scorecard approaches?

308  Management
SUMMARY
11.1 What does control mean in an organisational context and what are the steps in the control
process?
•• Controlling is the process of monitoring performance and taking corrective action as needed.
•• The four steps in the control process are: establish performance objectives, measure actual
performance, compare results with objectives, and take necessary action to resolve problems or
explore opportunities.
11.2 What are the broad types of controls that managers can utilise?
•• Feedforward controls are accomplished before a work activity begins; they ensure that directions are
clear and that the right resources are available to accomplish objectives.
•• Concurrent controls monitor ongoing operations and activities to make sure that things are being done
correctly; they allow corrective action to be taken while the work is being done.
•• Feedback controls take place after an action is completed and focus on end results; they answer the
question ‘Now that we are finished, how well did we do and what did we learn for the future?’
•• External control is accomplished through personal supervision and the use of formal administrative
systems.
•• Internal control is self‐control and occurs as people exercise self‐management and take personal
responsibility for their work.
11.3 What control systems are used in organisations?
•• An appropriate remuneration and benefits system assists in organisational control by helping to attract
and retain a high‐quality workforce.
•• Discipline, the process of influencing behaviour through reprimand, must be handled in a fair and
systematic way.
•• Use of financial information and the analysis of financial ratios, such as those dealing with liquidity,
assets and profitability, are important aspects of organisational control systems.
•• Operations management contributes to the control process with a focus on efficiencies in such areas
as purchasing and inventory control, as well as in the use of statistical approaches to quality control.
•• A project manager’s job is to ensure that a project is well planned and then completed according to
plan  — on time, within budget, and consistent with objectives. Two useful techniques for project
management and control are Gantt charts and CPM/PERT.
•• Management by objectives (MBO) is a process through which supervisors work with their subordinates
to ‘jointly’ set performance objectives and review performance results.

KEY TERMS
An after‐action review  formally examines results to identify lessons learned in a completed project
or special operation. Such a process ought to be part of the organisation’s knowledge management
process.
A balanced scorecard  tallies organisational performance in financial, customer service, internal
process, and innovation and learning areas.
Bureaucratic control  influences behaviour through authority, policies, procedures, job descriptions,
budgets and day‐to‐day supervision.
Clan control  influences behaviour through norms and expectations set by the organisational culture.
Concurrent controls  focus on what happens during the work process.
Controlling  is the process of measuring performance and taking action to ensure desired results.
CPM/PERT  is a combination of the critical path method and the program evaluation and review
technique.

CHAPTER 11 Controlling  309

A critical path  is the shortest possible time in which an entire project can be completed if all project
tasks go according to plan. It is the path ‘with no slack’.
A cybernetic control system  is one that is self‐contained in its performance‐monitoring and correction
capabilities.
Discipline  is the act of influencing behaviour through reprimand.
External control  occurs through direct supervision or administrative systems such as rules and
procedures.
Feedback controls  take place after an action is completed.
Feedforward controls  ensure that directions and resources are right before the work begins.
A Gantt chart  graphically displays the scheduling of tasks required to complete a project.
Input standards  measure work efforts that go into a performance task.
Internal control  occurs through self‐discipline and self‐control.
Just‐in‐time (JIT) scheduling  minimises inventory by routing materials to workstations ‘just in time’
to be used.
Management by exception  focuses managerial attention on substantial differences between actual and
desired performance.
Management by objectives, or MBO,  is a process of joint objective‐setting between a manager and a
staff member.
Market control  is essentially the influence of market competition on the behaviour of organisations
and their members.
Output standards  measure performance results in terms of quantity, quality, cost or time.
Progressive discipline  is the process of tying reprimands to the severity and frequency of
misbehaviour.
Quality control  checks processes, materials, products and services to ensure that they meet high
standards.
Inventory control by reorder point method  orders replacements whenever inventory level falls to a
predetermined point.

APPLIED ACTIVITIES
1 In your own words, briefly outline the steps in the controlling process.
2 Explain the difference between feedforward, concurrent and feedback controls, providing your own
examples for each.
3 Outline the potential benefits of organisational control systems.
4 Explain how MBO can be utilised by managers to facilitate both their planning and controlling
functions.
5 Choose an organisation with which you are relatively familiar, either as a customer or employee.
Outline how that organisation makes effective use (or potentially could make use) of two of the
organisational control systems that are outlined in this chapter.

ENDNOTES
1. ‘World’s Most Admired Companies’, Fortune (21 March 2011), www.fortune.com.
2. ‘Toyota pays $10m to fatal Lexus crash family’, BBC News (23 December 2010), www.bbc.com.
3. From press release ‘Criminal Charge Against Toyota Motor Corporation and Deferred Prosecution Agreement with $1.2 Billion
Financial Penalty’, Federal Bureau of Investigation (19 March 2014), www.fbi.gov.au.
4. ‘The Volkswagen Scandal: A Mucky Business’, The Economist (26 September 2015), p. 24.
5. David Morgan, ‘U.S. proposes tighter emission standards for big trucks’, Reuters (19 June 2015), www.reuters.com.
6. ‘Apple: From iPhones to iCars’, The Economist (26 September 2015), p. 59.
7. Frederick W. Taylor, The Principles of Scientific Management (New York: W. W. Norton, 1967), originally published by Harper
& Brothers in 1911.

310  Management
  8. Thomas J. Peters and Robert H. Waterman Jr, In Search of Excellence: Lessons from America’s Best‐Run Companies
(New York: Basic Books, 1984).
  9. ANZ website, ‘Benchmark Your Business’, Tools, Forms & Guides (n.d.), www.anz.com.
10. Based on discussion by Harold Koontz and Cyril O’Donnell, Essentials of Management (New York: McGraw‐Hill, 1974),
pp. 362–5; see also Rob Cross and Lloyd Baird, ‘Technology Is Not Enough: Improving Performance by Building
Organizational Memory’, Sloan Management Review (spring 2000), pp. 69–78.
11. See John F. Love, McDonald’s: Behind the Arches (New York: Bantam Books, 1986); Ray Kroc and Robert Anderson,
Grinding It Out: The Making of McDonald’s (New York: St Martin’s Press, 1990).
12. Special report on India, The Economist (29 September 2012), www.theeconomist.com.
13. Douglas McGregor, The Human Side of Enterprise (New York: McGraw‐Hill, 1960).
14. Cited in Peter F. Drucker, Management: Tasks, Responsibilities, Practices (New York: Harper & Row, 1973), p. 797.
15. D. James, ‘Remuneration under the microscope’, BRW (16–22 February 2012), p. 34.
16. Dan Pink, ‘The Puzzle of Motivation’, TED Talk (July 2009), www.ted.com/talks.
17. J. T. Campling and P. J. Gollan, Bargained Out: Negotiating Without Unions in Australia (Sydney: Federation Press, 1999).
18. Chartered Management Institute (2012), www.managers.org/uk.
19. Eric L. Harvey, ‘Discipline vs. Punishment’, Management Review, vol. 76 (March 1987), pp. 25–9.
20. The ‘hot stove rules’ are developed from R. Bruce McAfee and William Poffenberger, Productivity Strategies: Enhancing
Employee Job Performance (Englewood Cliffs, NJ: Prentice Hall, 1982), pp. 54–5. They are originally attributed to
Douglas McGregor, ‘Hot Stove Rules of Discipline’, in G. Strauss and L. Sayles (eds), Personnel: The Human Problems of
Management (Englewood Cliffs, NJ: Prentice Hall, 1967).
21. Luxottica website, http://luxottica.com/en.
22. H Cheng, D Li and L Luo, ‘The Chinese Perception of Quality: Model Building and Analysis Based on Consumers’
Perception’, Journal of Chinese Management, vol. 1, no. 3 (May 2014).
23. Robert S. Kaplan and David P. Norton, ‘The Balanced Scorecard: Measures That Drive Performance’, Harvard Business
Review (July–August 2005); see also Robert S. Kaplan and David P. Norton, The Balanced Scorecard (Cambridge,
Massachusetts: Harvard Business School Press, 1996).
24. See Dale D. McConkey, How to Manage by Results, 3rd edn (New York: AMACOM, 1976); Stephen J. Carroll Jr and Henry J.
Tosi Jr, Management by Objectives: Applications and Research (New York: Macmillan, 1973); Anthony P. Raia, Managing by
Objectives (Glenview, IL: Scott, Foresman, 1974).

ACKNOWLEDGEMENTS
Photo: © vx69 / Shutterstock.com
Photo: © paul prescott / Shutterstock.com

CHAPTER 11 Controlling  311

CHAPTER 12

Human resource
management
LEA RN IN G OBJE CTIVE S

12.1 Why do people make the difference in an organisation?

12.2 What is strategic human resource management?
12.3 How do organisations attract a quality workforce?
12.4 How do organisations develop a quality workforce?
12.5 How do organisations maintain a quality workforce?
Others can learn from the ways tech firms find and
keep staff1
Tech businesses are among the most innovative organisations because they have to be — they face a fast‐
changing industry of rapidly advancing technology, evolving consumer needs and competitors emerging
from all corners of the world. They need to be adaptable.
Tech firms are knowledge intensive: they are significantly more dependent on knowledge than other
industries. This also means they depend on their employees for knowledge and new ideas and on the
ability to transfer and use that information within the organisation. It is vital that they attract and retain
smart, dynamic employees with the key knowledge and skills they need.
Such expertise tends to be widely dispersed across the workforce, so tech firms, compared to other
more traditional industries, must also be able to motivate their employees to learn, share and collaborate
in generating new ideas.

Ways of managing
In this context, management styles tend to be more participative. The term ‘management by walking
around’ was coined to describe the style of Dave Packard, co‐founder of electronics giant Hewlett
Packard, who would drop in on staff to get a sense of staff morale and progress. Tech businesses also
pioneered the ‘flat’ hierarchy, eliminating hierarchy and status distinctions as barriers to the flow of
knowledge between staff.
The challenge for managers and those designing people management systems, is to ensure knowl-
edge flows quickly and easily. The need for speed (and responsiveness) places a premium on horizontal
knowledge flows among experts as much as vertically up and down a corporate hierarchy.

Communication and culture

It is much easier to share knowledge and learn where there is a common understanding among col-
leagues. On one level this means understanding the jobs that others do — which can present difficulties
of its own, if you imagine marketing, engineering and finance trying to communicate. On another level
it is an understanding of the organisation, its informal rules, culture and strategy.
It is this need for talent, knowledge sharing and common understanding that is significantly
affected by management style. So it’s no surprise that technology firms often buck the trend in
how they go about it. Recent examples are music streaming service Spotify and hotel booking site
­Laterooms, which emphasise the importance of culture and that the candidate’s values fit those of the
company.
Google has also shifted its approach from its infamous ‘brainteaser’ interview questions (such as
‘How many golf balls fit in a school bus?’) to one that attempts to measure how the candidate’s experi-
ence will suit the company.
Some may think that salary is very important, but arguably it is not the top priority for employees in
the intellectually stimulating environments provided by leading technology businesses. Pay packages in
leading tech firms are not always as stratospheric as one might imagine, coming in second behind the
intrinsic benefits of working with other smart people, designing world‐class products and creating things
that make the world better.

Treating each other well reaps benefits

It’s important for firms to hire people that fit, but also to retain them even in hard times. Historically
some of the world’s most long‐lived and successful businesses emphasise a long‐term relationship with
their people. This creates the trust and confidence required to encourage employees to give their all for
the business, in good times and in bad. Avoiding cutting staff is often difficult and costly.

CHAPTER 12 Human resource management  313

 IBM has recently undertaken a programme to retrain employees, while asking them to take a tem-
porary pay cut. This allows IBM to balance the cost of retaining employees with outdated skill sets,
with the value created when the company signals to employees: ‘We can be trusted to care for you’.
Employers that keep the social contract with their employees will reap the benefits of commitment, trust
and greater effort from employees reciprocating that care.
Tech firms are more likely to show creative approaches for attracting and keeping staff. They are more
likely to organise work in collaborative teams, empower employees with greater autonomy, invest in
training hard and soft skills and to commit to their long‐term job security. These kinds of practices are
commonly found in knowledge‐intensive industries and will bring significantly greater benefits to them
than to more traditional industries.
A quick thought experiment reveals the wisdom of this view: how many high‐tech firms do you hear
about using a factory metaphor, versus using a campus metaphor?
Source: James Hayton (University of Warwick), originally published on The Conversation.

QUESTION
Do you think a creative approach to attracting and keeping staff would work outside of the technology industry?
Consider the culture of your past and present workplaces. Would a flat hierarchy promote higher productivity?

Introduction
The case to support better HRM has grown dramatically in the last twenty years. Three areas have
affected this; globalisation, outsourcing and de‐regulation in the labour market have all strengthened
the case for accountable HR practices.2 Today, perhaps more than ever before, the pressures of global
competition and social change are influencing not just the organisations in which we work but the very
nature of employment itself. Governments have shifted from regulator to facilitator, which allows organ-
isations to compete on new levels. The attraction and retention of employees often reflects the brand
recognition and the practices that organisations employ. Some organisations attract simply because they
have sound equity paths, just internal democracy and ethical perspectives as seen externally. Others

314  Management
retain employees because these practices are supported internally by management. Societal demands
have an impact on organisations in the way they do business. No longer is a decision made in the board-
room private. Decisions in particular that affect the working relationship are scrutinised and discussed
and, in some cases, reversed by public opinion. The watchwords and buzzwords of changing times are
all around: work–life balance, emotional labour, psychological contracts, diversity, off‐shoring, talent
retention, benchmarking, process re‐engineering and virtual work. Each and everyone of these has an
impact on you as a worker, a manager and a leader.
The choices and possibilities in the new economy are already bringing about fundamental changes in
the employer–employee relationship. Reich, for example, points to a shift away from a system in which
people work loyally as traditional ‘employees’ for ‘employers’ who provide them with career‐long job
and employment security. He sees a shift towards a system where people become sellers of their services
(talents) to those buyers (employers) who are willing to pay for them. Those who do ‘buy’ are looking
for the very best people, whose capabilities and motivations match the demands of high‐performance
organisations. At Cisco Systems, chief executive officer (CEO) John Chambers says:
We realized early on that a world‐class engineer with 5 peers can out‐produce 200 regular engineers  .  .  .  So
your success is dependent on your ability to attract the very best talent and then get out of the way and
empower them.3

A study of the best companies to work for in Australia found that they shared four characteristics. Firstly,
they were strong on ‘people leadership’. They contained leaders who could effectively and enthusiastically
communicate with their people. Next, they provided a ‘compelling employment offer’. They were competi-
tive in terms of remuneration, benefits and the promise of rewards for high achievement. Thirdly, they pro-
vided accelerated career development and training. Finally, the companies possessed an appropriate culture,
balancing the need for high performance with the need for celebration, recognition and fun.4 Clearly, all
four characteristics indicate that people management is a vital management skill. Recruiting, developing and
retaining the best people is crucial for the success of organisations in every sector.
A decade later, Branson states:
Good people are crucial to business success. Finding them, managing them, inspiring them and then
holding onto them are among the most important challenges a good business leader faces. How you deal
with these matters often determines the long‐term success and growth of your business.5

This chapter aims to give you an overview of these crucial tasks, and to demonstrate just how impor-
tant human resource management (HRM) is to the knowledge‐driven organisations of the 21st century.

12.1 Diversity and the importance of people

LEARNING OBJECTIVE 12.1 Why do people make the difference in an organisation?
With flattening structures within organisations proving to be more effective than the traditional hierar-
chical structures, the use of teams has grown. Whether this incorporates the concepts of self‐directed
teams, traditional teams or cross‐functional teams, the ability to work in teams is essential. Many
employers look for this ability in their recruiting process, and at university teamwork is used to pre-
pare students for the inevitable success and failure of the team environment. The focus on strategic
achievement means that the image of HR needs to move from a cost centre to an investment centre.
Accountability through scorecard targets is the norm in most organisations, with emphasis on ensuring
that employees are well trained, skilled and engaged to deliver the highest productivity. Many organ-
isations have seen devolution of HR processes to line managers, with the productivity improvement
within the teams. This is where the policies meet reality, and HR needs to ensure this targeted group is
fully supported. This means that HR policies must be in place to ensure that there is no detraction from
the highest possible productivity through negative influences such as bullying, discrimination or the lack
of value for diversity in the workplace.

CHAPTER 12 Human resource management  315

Why people make the difference
Human resource (HR) development has to be a top priority in any organisation with high performance
aspirations. Testimonials from organisations in the past appear to support this view, if not all in spirit.
‘People are our most important asset’; ‘It’s people who make the difference’; ‘It’s the people who work
for us who  .  .  .  determine whether our company thrives or languishes’.6 Found on websites, in annual
reports and in executive speeches, they communicate a very specific understanding. Even with the guid-
ance of the best strategies and supported by the best designs, an organisation must be well staffed with
capable and committed people if it is to fully achieve its objectives.
There is ample research available to support this viewpoint. In an Academy of Management Executive
article entitled ‘Putting People First for Organizational Success’, Jeffrey Pfeffer and John F. Veiga state:
‘There is a substantial and rapidly expanding body of evidence  .  .  .  that speaks to the strong connection
between how firms manage their people and the economic results achieved’.7 They forcefully argue that
organisations perform better when they treat their members better. The management practices associated
with successful organisations are employment security, decentralisation, use of teams, good remuneration,
extensive training and information sharing. However, Pfeffer also points out that too many organisations
fail to operate in this manner, and calls them ‘toxic workplaces’ that treat their employees poorly.8
Additional backup for the primacy of people is offered by James Baron and David Kreps in their
book Strategic Human Resources: Frameworks for General Managers.9 They summarise empirical
research showing a positive relationship between HR policies and organisational performance, stating:
‘human resources are key to organizational success or failure.’10 A study of 170 organisations in the
high‐­technology sector shows that the founders’ initial decisions on HR policies and practices had long‐
term impact on company performance. Those start‐ups whose founders showed strong and early com-
mitments to a positive HR philosophy were able to operate in the future with fewer managers and with
greater reliance on self‐management by their employees.
Australian companies increasingly seem to be accepting the view that a focus on people is good for
business. Organisational policies that link employee remuneration with individual and organisational
performance are on the rise, as are policies that provide flexibility in working hours and the design of
jobs. Performance management systems have also grown in popularity, with 96 per cent of Australian
organisations now reporting their use. Around 90 per cent of organisations use performance appraisals
to evaluate past performance and to determine the training and development needs of their employees,
while 75 per cent use appraisals to align individual and corporate objectives.11
A study of 1600 companies in the United Kingdom, Europe and the Asia–Pacific region found that
organisations that reported the use of high‐quality HR practices experienced a 107 per cent increase in
their share price over five years. This compares with a return of negative 3 per cent among organisations
reporting poor HR practices.12
McKinsey’s Michael Rennie says of a people‐focused management style implemented at Australia’s
Woodside Petroleum: ‘We get up to an 800 per cent difference between the highest performing group and
the average.’13 According to DDI Asia‐Pacific chief executive David Tessman‐Keys, HRM is taking on
higher significance because of the effects of the ageing population, the shrinking executive talent pool and
the steady fall in the retirement age for many in the workforce. Companies are increasingly looking for the
best staff at the same time that the pool of top‐quality people shrinks due to these kinds of factors.14

The diversity advantage

Throughout this book diversity has been linked with competitive advantage. It brings to problem‐solving
and strategy formulation an array of talents, perspectives, experiences and world views that broaden any
organisation’s repertoire of skills and capabilities. That’s one side of the diversity story — finding the
best talent available. The other side of the story is tapping it — finding ways to allow diversity to work
its advantages to help create high‐performing organisations. To do this, the diversity advantage not only
must be recognised, it must be fully unlocked.

316  Management
 Job‐relevant talent is not restricted because of anyone’s race, gender, religion, marital or parental
status, sexual orientation, ethnicity or other diversity characteristics. If an organisation lets these char-
acteristics interfere with finding, hiring and developing the best job talents available, the loss will be
someone else’s gain. The best employers and the best managers know that. They know that to succeed
in building high‐performing organisations with a sustainable competitive advantage, they must place a
primacy on people with the talent and desire to do good work. While cultural and gender diversity have
received significant attention in the literature, little attention has been paid to the impact of age diversity
on HRM practices. The Commonwealth Bank says that with an ageing population:

.  .  .  age diversity is becoming more and more relevant; older generations are more active than ever before,
are living longer and are continuing to work well into what was once standard retirement time. Economic
changes and talent shortages are also motivating people to lengthen their working years.15

The bank says that it is building a ‘workforce that reflects our customers, shareholders and community
and we need to ensure that we continue to support our people, whatever age, while offering the work–
life balance they need’.16

DIVERSIT Y

Business must show the lead on intergenerational employment17

We all understand the population is ageing, and while comments that the first person to live to 150 may
have already been born tend to attract some derision, it should come as no surprise. What is less easy
to understand is the curious paradox that, as the workforce ages, the age at which workers are being
labelled by organisations and recruiters as ‘old’ is getting younger.
The way that many organisations and those recruiting for organisations construct old age is very dif-
ferent to the way that the authors of the 2015 Intergenerational Report are likely to construct older age.
Our research into the management of age in organisations has found overwhelmingly that employees
over the age of 45 self‐identify as older. Further, there is a general sense among organisational decision-
makers that if you haven’t ‘made it’ by the age of 40 you aren’t going to ‘make it’ at all.
Declaring that you must have made it by 40 not only ignores the huge potential of people in their 50s,
60s and 70s, it also doesn’t account for the fact that many women and men are ready to hit their stride
in their 50s. Relieved of the heavy lifting responsibilities of parenting, they are able to devote themselves
to their careers and to their employers.
Some companies have managed to see this potential and are beginning to think creatively about what
having an older workforce profile means and how they can leverage its opportunities for increased prod-
uctivity and innovation.
The advent of the corporation in the early and mid‐twentieth century created a prototypical career/life
cycle in which youth meant education, adulthood meant work and old age meant retirement. This may
have served bureaucratic corporations of the past because it provided order and calculability to those
who passed through it.
However, it is an out‐dated way of thinking for the modern corporation. Much of the discourse in
the lead‐up to the release of the Intergenerational Report pitted old against young. Older people are
constructed as an economic burden and younger people as resentful and angry. Yet research into inter-
generational relations in organisations found high levels of respect between younger and older people.
In particular, the research found that younger employees greatly respected the knowledge and resili-
ence that their older co‐workers brought to their work. As the workforce ages and people stay in work
longer, there is a huge opportunity to capitalise on the diversity of ideas, customer segments and
product markets that an intergenerational workforce can open up to an organisation. Research with a
global engineering firm showed that the most innovative divisions were the ones in which teams were
configured to include a broad range of ages, from new graduates to experienced workers over the age
of 65. Respondents reporting learning from one another, and the shared experience flowed both ways.
In these teams, the notion of experience wasn’t limited to time served, nor was it seen to expire once
people had reached a certain age.

CHAPTER 12 Human resource management  317

 Words do matter. The way that we talk about age in organisations affects both internal employee
engagement and also recruitment strategies. Those older and younger than the magic age of 35 to 45
often receive an unintended but powerful message that they have less to contribute to the organisation,
and report lower levels of workplace engagement as a result. The language organisations use in their
general marketing and specifically in their recruitment can send unintended signals that those over 45
need not apply.
One organisation we worked with wanted to recruit people 45 and older but was having trouble
attracting candidates. We could show them that the wording of their job advertisements, ‘join a vibrant
team that works hard and plays hard’ and ‘working space is fresh and funky’ was unintentionally sig-
nalling that older candidates were not welcome. We encouraged them to highlight aspects of the job
that are most important to older workers: recognition of skills, work and life experience; the culture and
values of the organisation; and the opportunity to learn new things. This last one is important because
it is perhaps the most pervasive yet blatantly false stereotype about ageing. We don’t stop wanting to
learn new things as we age.
If the fourth Intergenerational Report is to have the impact that the government, policymakers and
employees of all ages are hoping it will, then it is business that needs to take the lead in re‐­imagining
careers, shifting to an age‐inclusive culture and establishing the organisational structures whereby
employees of all generations can work with, for and alongside one another. Our prosperity and prod-
uctivity as a nation relies on it.
Source: Leanne Cutcher (University of Sydney), originally published on The Conversation.

QUESTION
Imagine you are the hiring manager for a boutique marketing company based in Melbourne. What
strategies would you put in place to ensure you undertake a fair and ethical hiring process?

CRITICAL ANALYSIS

1. Is diversity always a good thing? Won’t employees who have personal and demographic similarities
to each other work together more easily and experience less conflict?
2. Many executives speak of people being their greatest asset; however, many companies downsized
during the economic downturn. What alternatives are available to companies when business is
threatened as in the GFC?

12.2 HRM
LEARNING OBJECTIVE 12.2 What is strategic human resource management?
The process of human resource management (HRM) involves attracting, developing and maintaining
a talented and energetic workforce to support the organisation’s mission, objectives and strategies. In
order for strategies to be well implemented, workers with relevant skills and enthusiasm are needed. A
key task of HRM is to make them available.

Employment discrimination
Discrimination involves ‘making a distinction between individuals or groups so as to advantage some
and disadvantage others’.18 Employers specifically and managers generally must take care in their HRM
practices not to discriminate between people on the basis of characteristics such as age, disability,
marital status, ethnicity, family responsibilities, social origin or sexual preference. Recent census and
survey data in Australia and New Zealand reveal that diversity in race and ethnic background and sexual
preference is increasing. There are far greater numbers of Asians, Pacific Islanders and gays and lesbians
in mainstream businesses and public services in Sydney, Melbourne and Auckland than there were in the
early 1990s.19 What might be behind this trend?

318  Management
 In sum, employers must provide equal employment opportunity (EEO), wherever this is reasonable,
for all. Further, as shown in table 12.1, both direct and more subtle, indirect forms of discrimination
must be avoided.20

TABLE 12.1 Direct discrimination versus indirect discrimination

Direct discrimination Indirect discrimination

Definition Treating a person or group less favourably A practice that appears inoffensive but
than another person or group in similar that results in a person or group being
circumstances. unreasonably disadvantaged.

Example An employer dismisses a female purely on A company makes promotion dependent

the basis of her gender. on five years continuous service. This
disadvantages women who need to take
time off to have children.

Remedy Damages — pecuniary loss, hurt, loss of Damages — pecuniary loss, hurt, loss of
career prospects, stress, humiliation. career prospects, stress, humiliation.

Source: Based on information in Raymond J. Stone, Human Resource Management, 7th edn (Brisbane: John Wiley & Sons,
2010), table 4.1.

Anti‐discrimination measures are incorporated into a number of Australian laws, including the Racial
Discrimination Act 1975 (Cwlth), the Sex Discrimination Act 1984 (Cwlth), the Human Rights and
Equal Opportunity Commission Act 1986 (Cwlth), the Disability Discrimination Act 1992 (Cwlth), the
Equal Opportunity for Women in the Workplace Act 1999 (Cwlth) and the Age Discrimination Act 2004
(Cwlth). In New Zealand, an example of such legislation is the Human Rights Act 1993 (which replaced
the Race Relations Act 1971), and sexual harassment is dealt with in the Employment Relations Act
2000.21
Discrimination may occur in any part of the HRM process, from recruitment and selection to pro-
motion and appraisal. For instance, in one New Zealand case a service station owner advertised for
a ‘keen Christian person aged 16–18 who is not afraid of work’. The Equal Opportunity Tribunal
found that it was unlawful for the employer to discriminate for this position on the basis of religious
beliefs.22
Discrimination is permitted, however, where it can be demonstrated that certain characteristics are
essential in the performance of a job. For instance, ministers of religion and teachers at religious schools
can be selected for their observance of particular religious beliefs, whereas jobs demanding bilingual or
multilingual capabilities can discriminate among applicants on the presence or absence of such skills.23
Employers must also consider other relevant discrimination‐related legislation, such as affirmative
action (AA) legislation. The Equal Opportunity for Women in the Workplace Act 1999 (EOWW Act)
applies to all organisations employing 100 or more workers and demands that employers develop pol-
icies and practices that respond to the existence of historical and structural workplace discrimination.
The Act requires that employers report annually to the federal government on their progress on AA. It
aims to encourage employers to consider whether any of their current or historical practices diminish the
likelihood of women taking on roles long dominated by men. For instance, an employer may see that
requesting five years continuous employment in order to be considered for promotion can work against
women who may take time off for family responsibilities and then return to the workplace. A positive
response to this inequity may involve adjusting promotion criteria to reflect the different, but not necess-
arily less valuable, career decisions taken by women.24
The leading economies in Asia have very few women in senior positions. A recent McInsey and Com-
pany report issued in July 2012 says that companies are missing out on the pool of talent required to
support the region’s growth.25 Almost 750 firms covering 10  major stock markets in the Asia–Pacific
region found that only 6 per cent of board seats were occupied by women, compared to 17 per cent in

CHAPTER 12 Human resource management  319

Europe and 15 per cent in the US. Only 8 per cent of executive committee seats are held by women in
the Asian firms, 10 per cent in Europe and 14 per cent in the US. The report states that this is a huge
waste of talent, as half of Asian graduates are female.
Of the countries with female presence in the boardroom, Australia, Hong Kong and China topped the
list (13, 9 and 8 per cent, respectively). At the other end of the scale, South Korea (1 per cent), Japan
(2 per cent) and India (5 per cent) were the most disappointing. Culture is blamed for this result, with
gender diversity not on the strategic agenda for most Asian companies. Malaysia and South Korea have
set quotas for public jobs and offer incentives for firms, and the report encourages other governments to
follow suit.26
Recognising organisations that prioritise diversity management and recognise the value of an
inclusive workplace for individuals and the organisation, AHRI awarded the inclusive Workplace of
the Year for 2012 to Deloitte. Deloitte is seen as being committed to creating an environment where
every individual has the opportunity to achieve. The management say they recognise the benefits to be
gained from a diverse workforce that allows for differing skills, varied perspectives and a wide range of
experiences from individuals. This can lead to more innovative, efficient and effective business practices
supporting client offerings. Deloitte focuses strategy on human rights, health and wellbeing, innovation,
leadership and culture, impact and outcomes, sustainability, and measurement. Deloitte has a  current
strategic focus on gender diversity (the Inspiring Women program) and cultural diversity (the IDentity
program).27

COUNTERPOINT

Discrimination at work in Asia

A persistent form of discrimination in South
Asia has been caste‐based discrimination. For
example, this form confines Dalits to occu-
pations often involving the most menial tasks,
such as ‘manual scavenging’ or the removal
of dead animals. Dalits are generally not
accepted for any work involving contact with
water or food for non‐Dalits or entering a non‐
Dalit residence. They are thus excluded from a
wide range of work opportunities in the areas
of production, the processing or sale of food
items, domestic work and the provision of cer-
tain services in the private and public sectors
(e.g. office helpers).
Limited access to education, training and
resources, such as land or credit, further impair their equal opportunities for access to non‐caste‐based
occupations and decent work. The deprivation stemming from discrimination in all areas of their life
leads to higher levels of poverty among Dalits compared to non‐Dalits. Equally serious and pervasive is
discrimination confronting indigenous peoples in the region, as in other regions. These peoples account
for over 15 per cent of the world’s poor, although they make up 5 per cent of the world’s population.
In Nepal, the indigenous peoples from the hill areas, the Hill Janajatis, lacking opportunities at home,
make up the largest share of migrants working abroad (29 per cent) in countries other than India, and
have the highest average remittance income (almost 35 per cent of annual household income). The
growing numbers of migrant workers in the region face new forms of discrimination. Racial discrimi-
nation, xenophobia and intolerance are all reflected in low wages, long and exhausting working hours
and violence.
In Japan, the United Nations Special Rapporteur on contemporary forms of racism, racial discrimi-
nation, xenophobia and related intolerance expressed concern in a 2006 report about discrimination
against descendants of former Japanese colonies. Trade unions have taken important steps to address
this; for example, Rengo, the largest union in Japan, has created a union for Chinese workers.

320  Management
 In Malaysia, the Malaysian Trade Union Congress (MTUC) have put in place mechanisms to ensure
better protection of the 1.5 million documented migrant workers living in the country. In Pakistan, official
statistics show a growth since 2004 in the numbers of workers migrating from the tribal areas in search
of jobs, mainly in the construction sector in the Gulf countries. Because of their limited access to official
channels of migration and official travel documents, indigenous and tribal peoples appear to be more
likely than other groups to become undocumented migrant workers. Indigenous women are especially
vulnerable to falling prey to trafficking.
In China, the situation is slightly different, where a swell of rural migrants — an estimated 150 million —
are labouring in the coastal cities but are finding it difficult to obtain permits largely due to the con-
straints of the hukou system. Owing to their social status, rural migrants suffer from institutionalised
discrimination. In some cities, authorities deny them access to better jobs so they end up working in
informal, low‐paid, menial jobs that urban workers refuse. Since rural migrant workers currently rep-
resent 40 per cent of the urban workforce, this will remain an important social and economic concern for
China. In recent years, the Chinese government has taken important steps to help disadvantaged rural
migrant workers, such as ensuring a guaranteed minimum wage, the enforcement of a labour contract
system, as well as access to employment services and job training.

QUESTION
Imagine you were working for an organisation that supports these attitudes. Will the local beliefs be
stronger than your sense of justice and diversity?

Sadly racism is common in Australia too. Prominent examples in recent years include Indigenous
Elder and opera singer Delmae Barton, who lay semi‐conscious at a university bus stop in Brisbane for
more than five hours before she received help;28 and a group of young leaders from Yuendumu in the
Northern Territory, who were ejected from an Alice Springs hostel because tourists complained that they
were ‘afraid of Aborigines’.29

Occupational health and safety

A total of 146 Australian workers lost their lives at worksites in a recent 12‐month period. A further
16 bystanders lost their lives in the same period.30 The major causes of work‐related deaths include
mechanical failure, being hit by a moving object, contamination by chemicals and other substances, and
falls, trips and slips.31 In New Zealand, it is estimated that around 100 workplace deaths occur each year,
as well as 200  000 occupational injuries.32
The statistics for workplace injuries present a bleak picture, with approximately 650  000 Australians
on average being injured at work each year, with the annual losses to the economy from poor workplace
safety said to be more than $34 billion.33 According to Stone:
Poor occupational health and safety (OHS) performance equates with poor human resource management,
and poor ethical, legal and social responsibility. It represents a management failure to realise that safe
organisations are more effective organisations.34

The benefits of sound OHS are obvious. Organisations can enjoy lower workers compensation costs
and absenteeism, and employees can be more productive knowing that they can operate in a safe working
environment. On the other hand, sick leave benefits are open to abuse. A study of 2200 ­Australian
employees found that almost half admitted to faking sick leave in order to care for sick children or to
take advantage of generous sick leave entitlements at their workplace.35
Companies like Wesfarmers and Orica demonstrate that good safety management is good business.
Wesfarmers ties executive incentive rewards to safety performance. Orica Australia reduced injuries by
more than 50 per cent within five years — from 20 per million working hours to less than 9 per million
working hours — for a total saving of around $3 million.36
The Australian government sets national workplace occupational health and safety standards through
Safe Work Australia. State governments have generally set state‐wide occupational health and safety

CHAPTER 12 Human resource management  321

laws consistent with the standards established by Safe Work Australia. In Victoria, for instance, the
Occupational Health and Safety Act 1985 establishes the responsibilities of employers and employees
for the maintenance of safe workplaces. Employer responsibilities include providing and maintaining
safe plant and systems of work, and providing adequate welfare facilities such as change rooms, dining
areas and lockers. The Act encourages employers and employees to work together in the pursuit of
workplace safety via the establishment of health and safety representatives and committees.37
Safety standards vary around the Asia–Pacific region. Australia’s coalmining industry has one of the
world’s best safety records, but in China, where government regulations have yet to take effect and
mining practices remain poorly controlled, the death rate from accidents is some 500 to 1000 times that
experienced in Australian mines. In 2007, 3786 Chinese miners died in mining accidents.38 In recent
years, that number has fallen, with 931 deaths in 2014. However, Chinese officials believe there is still a
way to go, and safety conditions remain ‘grim’.39

ETHICS

Corporate scandals
A number of corporate scandals have been exposed around the globe in recent times, affecting sev-
eral industries. German car manufacturer Volkswagen was shamed for deliberately installing ‘defeat
devices’, software that altered the running of diesel engines and ensured it passed emissions tests.
Eleven million cars were equipped with the software over a period of seven years. German public
prosecutors and United States attorneys are undertaking criminal investigations. The company’s CEO,
Martin Winterkorn, resigned as a result of the revelations but could still face criminal charges if impli-
cated in the program.40
Predatory pricing was exposed when Turing Pharmaceuticals acquired the drug Daraprim and quickly
raised the price from $13.50 to $750 per tablet. The medication is used to treat infections that can
cause complications in people with weakened immune systems, including HIV and AIDS patients. The
move was met with widespread public vilification. The company attempted to win back some respect by
lowering the price by up to 50 per cent for hospitals and ensuring outpatients with health insurance are
only out‐of‐pocket $10 per prescription. The company’s chief executive officer, Martin Shrekli, has since
resigned after being arrested on unrelated fraud charges.41
Closer to home, a joint investigation by Fairfax and ABC’s Four Corners into convenience store chain
7‐Eleven shocked the nation, with evidence of exploitative practices within the company’s stores. Fran-
chisees paid many of their staff as little as $10 an hour before tax, less than half the legal minimum
wage of $24 an hour — not including penalty rates for working nights, weekends or public holidays.
Young, foreign workers on restricted visas were especially targeted. Forced to work longer hours to earn
enough money to survive, if workers complained about their salary or conditions, managers threated to
tell authorities that they were working in breach of their visa entitlements. The scandal saw the resig-
nations of chairman, Russ Withers, and chief executive officer, Warren Wilmot.42
The ethical issues outlined above relate to cheating, lying, deception, lawbreaking, exploitation and
merciless profiteering. As far as any common understanding of ethics is concerned, these things are
on the far side of the thick and grey line that separates right from wrong. What do the cases have in
common? Each suggests there was an ethos in place that held that ‘bad ethics is good business’.
Seven years of highly orchestrated cheating at VW meant increased sales — in 2009 VW became the
world’s biggest car manufacturer. Institutionalised wage fraud and labour exploitation at 7‐Eleven kept
store costs down, increasing profits for franchisees and the parent company. 7‐Eleven has twice been
named Australia’s ‘franchisor of the year’. Price gouging at Turing meant a drug listed on the World
Health Organization’s essential medicines list could bolster the company’s profits by exploiting the sick
and vulnerable.

QUESTIONS
1. Many victims of the 7‐Eleven fraud were university students. What would you have done if a victim
confided in you about their situation?
2. Do you think these companies can regain public support and rebuild their brand?

322  Management
Industrial relations in the Asia–Pacific region
Australia and New Zealand have broadly similar industrial relations systems. Industrial relations
(sometimes called workplace relations) is the process of negotiation and bargaining between employers
and employees. Though there are several players in the Australian industrial relations system, individual
employers and employees tend to have the most significant roles in the contemporary workplace. Overall,
the proportion of employees who are members of unions has declined in the long term. Union mem-
bership was around 60 per cent in the 1950s, but today unions directly represent only about 20 per cent
of the workforce, with around 14 per cent of private sector employees holding union membership com-
pared to close to 80 per cent of government employees.43
In total, Australia has around 1.8 million union members. Interestingly, the long‐term declining trend of
union membership was reversed in 2008, with membership increasing by 3 per cent. This may have been
because of the focus on industrial relations that occurred during the 2007 federal election campaign, as well
as the growth in employment in highly unionised sectors such as mining and government services.44 Business
associations that represent a number of employers in the same industry, such as the Metal Trades Industry
Association, remain common, but are also considerably less influential than in the days when employers were
required to band together to negotiate with unions under the system of compulsory arbitration.45
Industrial relations legislation has been the focus of much debate in Australia in recent decades, and
especially so in recent years. To effectively gain a broad appreciation of these developments and how
the industrial relations landscape has evolved over this time, it is necessary to look at some significant
events and legislation. The Howard government extended the reform process of the Labor government of
the 1980s and early 1990s by enacting the Workplace Relations Act 1996 (Cwlth). The provisions of this
Act encouraged direct negotiations between employers and employees without the involvement of third
parties, such as industrial courts and unions. The Act also encouraged individuals to negotiate Australian
workplace agreements (AWAs) directly with their employer.
The Howard government sought to make the nation’s industrial relations system more flexible and less
subject to the influence of unions through this legislation. The power of unions to visit worksites, ware-
houses and factories was significantly weakened as the government hoped to encourage an industrial
relations system focused more on individual negotiation at the workplace level.46
The Labor Party made industrial relations a key issue in the 2007 federal election campaign. Under
the banner of ‘Your Rights at Work’, the party and the trade union movement organised a massive pub-
licity campaign to highlight what they saw as unfairness inherent in the Coalition’s industrial relations
philosophy. Accordingly, following the election of the Labor Party under the leadership of then–Prime
Minister Kevin Rudd, legislation was enacted to abolish many of the Howard government’s reforms and
to reinstate a more centralised industrial relations system.
The Labor government’s Fair Work Bill was passed on 20 March 2009 and was implemented progres-
sively from 1 July 2009. Key components of the Fair Work Act 2009 (Cwlth) include the abolition of AWAs
and the establishment of a new No Disadvantage Test covering ten minimum conditions for all workplace
agreements. These included maximum weekly hours of work, parental leave, minimum annual leave, com-
munity service leave, the right to request flexible working arrangements, and provisions for termination and
redundancy pay. In addition, the capacity of employees to pursue unfair dismissal claims against employers
was substantially restored, apart from some concessions for small businesses.
A new industrial relations tribunal, Fair Work Australia, was created by the federal government to establish
minimum wages for all employees except those still covered by AWAs, to progressively modernise awards
as they become due for renewal, and to review awards at least once every four years to ensure they meet the
needs of the community and those employees who work under them.47 On the introduction of the changes on
1 July 2009, then–Minister for Employment and Workplace Relations Julia Gillard stated:

What [this] will mean for Australian workers is that there will be a safety net that they can rely on that no
one can strip away. There will be a fair, enterprise based bargaining system, where employees and their
employers and their representatives have to treat each other in good faith. There will be an ability for

CHAPTER 12 Human resource management  323

 good workers to complain if they are unfairly dismissed. And there will be this new industrial umpire at
the heart of the system able to provide advice and assist parties, employers, and employees, if they need
that assistance.48

In 2010, the federal government also announced the introduction of 18 weeks of paid parental leave
at the federal minimum wage, for families whose primary carer (usually the mother) earns less than
$150  000 per year. The government payment is in addition to any parental leave payment the person may
receive from their employer.49
In 2012, the federal government launched a review into the Fair Work Act. The panel consisted of a
labour academic, a federal court judge, an economist and Reserve Bank of Australia board member, who
made number of key recommendations, including:
•• including a minimum model flexibility template in individual flexibility agreements
•• limiting the number of public holidays that attract penalty rates to 11
•• changing the name of the FWA
•• leaving unfair dismissal laws unchanged
•• leaving union rights of entry unchanged
•• removing the ‘strike first, bargain later’
•• leaving allowable matters content unchanged
•• disallowing individual agreements
•• subjecting employees who transfer to a related company to the terms and conditions of the new
employer.50
Note that many employees in Australia are covered by state‐based industrial relations laws. This
includes employees in professions such as nursing, teaching and policing, as well as state government
employees in areas such as transport and housing.51 Similar industrial relations processes occur in New
Zealand. Employers and unions involved in collective bargaining must use their best endeavours to agree
to an effective bargaining process, meet and consider and respond to proposals made by each other,
respect the role of the other’s representative by not seeking to bargain directly with those for whom
the representative acts, and not do anything to undermine the bargaining process or the authority of the
other’s representative.
Industrial relations and HRM processes are quite different in some countries of the Asia–Pacific
region, such as China. According to Stone, specific challenges facing the industrial relations or HR man-
ager in China include the fact that nothing is ever black and white — everything is negotiable. He cites
the popular saying that ‘nothing is illegal in China, but at the same time, nothing is legal either’.52 In
addition, politics affects all HRM activities, so that the State has some influence over virtually all HR
issues.
Since 2005, many large Chinese workplaces have become unionised. While the country’s ten industrial
unions, grouped together as the All China Federation of Trade Unions, remain state‐controlled, unions
have won the right to be consulted whenever significant changes are proposed in the workplace. While
unions are charged with the challenging and dualistic role of protecting the interests of both the state
and employees, one practical result of these changes has been a change in the role of managers generally
and HR managers in particular. Formerly given a free hand to make changes, managers at unionised
organisations such as Wal‐Mart (40  000 employees in China) and McDonald’s (50  000 employees) are
now compelled to consult with unions or employee representatives whenever changes to HR policies are
being considered.53
Labour laws often differ substantially between Chinese provinces, and remuneration usually involves
complex legal arrangements and an array of benefits unique to the country. In contrast, company‐based
unions are very common in Japan and the objectives of the unions will usually be similar to those of
management. The emphasis of the Japanese industrial relations and HRM systems is on maintaining har-
monious relations within the organisation, so that individually based pay‐for‐performance systems are
less common than having base pay, a twice‐yearly company bonus, and allowances based on position,

324  Management
merit, housing requirements and special skills. It is mainly through the allowance system that individuals
receive greater or lesser rewards than others.54
Partha Bhattacharyya, former chairman of Coal India, says that good industrial relations are very
important. Having led the mining company to a successful initial public offering, despite opposition
from trade unions, he says that usually HR is about improving managerial competence. However, the
welfare of workers must be considered and the communication must be transparent. Bhattacharyya says
that industrial relations needs to get the most attention.55
Plant management, line management and HR need to be equally responsible for managing relations
with employees. In Australia, we have been very successful in devolving HR roles to line managers —
OH&S, performance management, training and development. This must be backed by strong HR support
and training, and the accountability still stays with HR.

International HRM
HRM practices generally need to become more sophisticated and culturally sensitive when an organ-
isation operates in the international context. For instance, when supporting staff leave their home
country to work in an international office, the HR manager’s responsibilities must be expanded to ensure
the employee is appropriately relocated, oriented to the new context, satisfied in the work and retained
following the assignment.
When relocating staff, issues such as immigration and travel details, housing, shopping, medical care,
recreation, and schooling for children must be considered. The expatriate will no doubt be subject to a
different taxation regime, so salaries and benefits must be adjusted to ensure that the employee is no
worse off by taking an international assignment. The costs associated with inconvenience and the selling
or renting of the employee’s home should also be considered. A number of other issues also arise, par-
ticularly if the language and culture of the new country differ from that of the employee’s home country.
Translation options, cross‐cultural awareness and communication training, and ethical differences need
to be investigated, discussed and resolved.56 Recent research identifies weaknesses in Australian and
Asian firms in providing pre‐departure training.57
HR managers involved in supporting international employees need to take a broader perspective
than do HR personnel looking after local employees. They must incorporate national and regional
differences into the development of equitable and attractive international HR policies. They will
generally assume a greater degree of involvement in the lives of international employees, frequently
being called on to assist employees in managing the detail of their lives, from banking to visits home.
International HR managers should be familiar with the government structures and business systems
of the countries in which international staff are located, and contingency plans should be developed
in case unrest, terrorism or natural disasters affect the security of the international employees in their
care.
Some interesting research was undertaken by Nick Forster of the University of Western ­Australia
on the experiences of UK‐based women managers who had taken international assignments.
Although the rate of expatriate failure (around 3 per cent) was significantly lower than that for men
(8 per  cent), many of the companies tended to send women for more junior management positions
than would occur in their local operations. Not surprisingly, a number of the women reported that
adaptation was quite difficult in East Asian cultures such as China and Japan. This was as a result of
differences in culture between Asia and the United Kingdom in relation to the general acceptance of
women managers.58
The significance of cultural differences in the implementation of industrial relations and HRM
systems in Asia should not be underestimated. As is discussed throughout this text, the challenges
of international management are immense, and perhaps most challenging of all in the HRM domain.
A recent book by Hugh Bucknall and Reiji Ohtaki describes a number of these challenges. They
note that Asia remains characterised by a multiplicity of networks, often encompassing an array of

CHAPTER 12 Human resource management  325

business and government influences and participants. Asia’s national cultures continue to be fluid
and dynamic as Western and other external influences are absorbed. Beyond this, whether HRM
strategies succeed or fail will depend on the culture of the local organisation, a culture that may
differ markedly from one organisation to another. In China, for instance, state‐owned enterprises
(SOEs) may have quite different cultures from former SOEs. The culture of a business driven by
a  local entrepreneur will tend to reflect the values and approach of its founder. International busi-
nesses that establish operations in Asia will have cultures that reflect that of the home country and
parent corporation. When they partner with a local organisation, the culture may reflect the influence
of the dominant partner or evolve to become a hybrid or mix of the partner companies. What is of
crucial importance across these differing contexts, however, is that HRM strategies and programs
appear to be most successful when local staff are directly involved in their creation and subsequent
implementation.59

The HRM process

The HRM process involves attracting, developing and maintaining a quality workforce. The first res-
ponsibility of attracting a quality workforce includes HR planning, recruitment and selection. The second
responsibility of developing a quality workforce includes employee orientation, training and develop-
ment, and career planning and development. The third responsibility of maintaining a quality workforce
includes management of employee retention and turnover, performance appraisal and remuneration and
benefits.
HR specialists often help line managers fulfil these three responsibilities. A HR department appears
on many organisation charts and is often headed by a senior executive reporting directly to the chief
executive officer. It is also increasingly common to find organisations outsourcing various technical
aspects of the HRM process. There are a growing number of career opportunities with consulting firms
that provide such specialised services as recruiting, remuneration planning, outplacement and the like.
In a dynamic environment complicated by legal issues, labour shortages, economic turmoil, changing
corporate strategies, new organisation and job designs, high technology, and changing personal values
and expectations, HR specialists become ever more important. Many belong to the Australian Human
Resources Institute (AHRI), a professional organisation dedicated to keeping its membership up to date
in all aspects of HRM and its complex legal environment.

Strategic HRM
Any organisation should at all times have the right people available to do the work required to achieve
and sustain competitive advantage. Strategic HRM applies the HRM process to ensure the effective
accomplishment of the organisation’s mission.60 Strategic HRM mobilises human resources to implement
strategies and sustain competitive advantage. This requires a top‐level commitment to HR planning, a
process of analysing staffing needs and planning how to satisfy these needs in a way that best serves the
organisation’s mission, objectives and strategies.61
The major elements in strategic human resource planning are shown in figure 12.1. The pro-
cess begins with a review of the organisation’s mission, objectives and strategies. This establishes
a frame of reference for forecasting HR needs and labour supplies, both within and outside the
organisation. Ultimately, the planning process should help managers identify staffing requirements,
assess the existing workforce, and determine what additions and/or replacements are required to meet
future needs. It is no secret, for example, that high‐tech workers are in great demand today and
many organisations are experiencing or expecting difficulty in meeting their staffing needs. At GE
Medical Systems, a multigenerational staffing plan is used to help resolve the problem. Every new
product plan has a HR plan associated with it — a plan that covers all generations of the product’s
expected life.

326  Management
 Step 1: Review
organisation’s mission,
objectives and strategies

Step 2: Review
human resource objectives
and strategies

Step 3: Assess current Make comparison Step 4: Forecast human

human resources resource needs

Step 5: Develop and implement

human resource plans
● Correct/avoid
personnel surplus
● Correct/avoid
personnel shortage

Legal, environment and government regulations

FIGURE 12.1 Steps in strategic HR planning

To plan successfully to meet strategic HR requirements, managers must understand not only the
mission and strategies but also the jobs that need to be done. The foundations for HR planning are set
by job analysis — the orderly study of job facts to determine just what  is done, when, where, how,
why, and by whom in existing or potential new jobs.62 The job analysis provides useful information that
can then be used to write and/or update a job description. This is a written statement of job duties and
responsibilities. The information in a job analysis can also be used to create a job specification that lists
the qualifications — such as education, previous experience and skill requirements — needed by any
person hired for or placed in a given job.

CRITICAL ANALYSIS

1. In strategic HRM, HR managers are meant to serve both the needs of employers as ‘strategic
partners’ and those of employees as ‘employee champions’. To what extent is this possible?
2. It may be argued that undertaking the steps in the strategic HR planning process is only possible
when the economy is growing at predictable levels. In economically volatile times, how should
managers view this process?

12.3 Attracting a quality workforce

LEARNING OBJECTIVE 12.3 How do organisations attract a quality workforce?
With a HR plan prepared, the process of attracting a quality workforce begins. An advertisement once run by
the Motorola Corporation identified the goal this way: ‘Productivity is learning how to hire the person who is
right for the job’. To attract the right people to its workforce, an organisation must first know exactly what it
is looking for — it must have a clear understanding of the jobs to be done and the talents required to do them
well. Then it must have the systems in place to excel at employee recruitment and selection.

CHAPTER 12 Human resource management  327

The recruiting process
Recruitment is a set of activities designed to attract a qualified pool of job applicants to an organisation.
Emphasis on the word ‘qualified’ is important. Effective recruiting should bring employment oppor-
tunities to the attention of people whose abilities and skills meet job specifications. The three steps in a
typical recruitment process are advertising a job vacancy, preliminary contact with potential job candi-
dates and initial screening to create a pool of qualified applicants.
In university recruiting, for example, advertising is done by the company posting short job descrip-
tions in print or online through a careers resource or campus placement centre and/or in the student news-
paper. Preliminary contact is made after candidates register for interviews with company recruiters on
campus. This typically involves a short 20‐ to 30‐minute interview, during which the candidate presents
a written résumé and briefly explains his or her job qualifications. As part of the initial screening, the
recruiter shares interview results and résumés from the campus visits with appropriate line managers.
Decisions are then made about who to include in the final pool of candidates to be invited for further
interviews during a formal visit to the organisation.
Given that both the shortage of skilled people in some sectors and an ageing workforce are creating
greater competition for the best people, recruiting has become a crucial HRM process for organisations
seeking to retain or build their competitive advantage. In Australia, for instance, significant skill short-
ages have persistently existed in a number of industries for several years, including within the medical,
nursing, teaching, accounting and engineering professions, as well as among people with trade skills.63
Skill shortages may occur both at senior levels and at relatively more junior levels of an organisation.
A survey of job prospects in Australia has found that there will continue to be significant demand for
tradespeople, childcare workers, waiters and retail assistants. Managers seeking to employ workers in
these areas may find it difficult to obtain solid employees at the right price, so it is essential to plan for
future job openings in their organisations.
Companies such as David Jones, Colorado and McDonald’s work hard to train and develop staff
so that the best people can be promoted from within the organisation, bringing with them an intimate
knowledge of customers and the company culture. Dynamic Property Services (Dynamic) was the top‐
ranked small and medium enterprise in the 2009 BRW Great Places to Work survey. Dynamic executives
like Karen Belcher and Jodie Gardener have gladly remained with the firm for more than a decade.
Belcher has received constant mentoring from Dynamic co‐founder Pamela Pearce, as well as leadership
training in the United States, while Gardener takes advantage of Dynamic’s flexible workplace policies
to combine property management with looking after her two young children.
Dynamic also provides its employees with travel passes, social activities, a fully stocked kitchen and
opportunities to move through the organisation via more challenging and responsible roles. The com-
pany’s positive and engaging culture brings a reciprocal commitment from its staff. When a building
in Sydney’s eastern suburbs was evacuated following a gas explosion that destroyed its penthouses,
Dynamic staff worked through the Easter break to support and assist the building’s tenants. As a strata
management company, Dynamic is responsible for responding to the problems of tenants in its buildings.
Some staff worked 14 days straight, on this occasion, to help the affected residents. Other staff travelled
for long periods to provide consistent service during a time of great stress for the building residents.64
External and internal recruitment
The university recruiting already mentioned earlier in the chapter is an example of external recruitment,
in which job candidates are sought from outside the hiring organisation. Specialist websites such as Seek
(www.seek.com), newspapers, employment agencies, universities, personal contacts, walk‐ins, employee
referrals and even people in competing organisations are all sources of external recruits. Competition
is especially tough in the very tight labour markets characteristic of the contemporary economy. When
Nokia, the Finnish mobile‐phone maker, needed high‐tech talent it went global with its recruiting pro-
cess. Nokia posted all job openings on a website and received thousands of résumés from all over the
world. In just two years, the percentage of non‐Finns in the company workforce rose by some 10 per

328  Management
cent. The head of Nokia’s recruiting strategy says: ‘There are no geographical boundaries anymore’.65
Internal recruitment seeks applicants from inside the organisation. Most organisations have a procedure
for announcing vacancies through newsletters, electronic bulletin boards and the like. They also rely
on managers to recommend subordinates as candidates for advancement. Internal recruitment creates
opportunities for long‐term career paths.
Both recruitment strategies offer potential advantages and disadvantages. External recruiting brings in
outsiders with fresh perspectives. It also provides access to specialised expertise or work experience not
otherwise available from insiders. Internal recruitment is usually less expensive. It also deals with people
whose performance records are well established. A history of serious internal recruitment can also be
encouraging to employees. It builds loyalty and motivation, showing that you can advance in the organ-
isation by working hard and achieving high performance at each point of responsibility. Kim Sutton, HR
manager at the Sofitel Hotel on Queensland’s Gold Coast, first advertises all positions internally via the
company’s intranet, only moving to a strategy of external recruitment if the internal strategy fails to yield
appropriate recruits.66
A rather innovative recruitment strategy is worth considering. First, financial services companies such
as Deloitte, KPMG and Ernst & Young have created Facebook groups for their employees as well as for
those considering a career in financial services. According to KPMG director Malcolm Alder, organ-
isations need to support the kinds of networking tools that their employees are increasingly using to
build and maintain relationships inside and outside the workplace. In addition, companies who rely on
such innovations to brand their organisations as great places to work simultaneously demonstrate that
they understand and share the values of their generation Y recruits.67

Realistic job previews

There is another important recruitment issue that must be considered — honesty and full information. In
what may be called traditional recruitment, the emphasis is on selling the organisation to job applicants.
In this case, only the most positive features of the job and organisation are communicated to potential
candidates. Bias may even be introduced as these features are exaggerated while negative features are
concealed. This form of recruitment is designed to attract as many candidates as possible. The problem
is that it may create unrealistic expectations that result in costly turnover when new employees leave
prematurely. Often the job descriptions are outdated. They do not reflect all the additional tasks taken on
over the years or the diluted focus of the job. Sometimes employers state a degree as essential, and when
recruits start to work they realise very quickly that their degree is not required. The individual suffers a
career disruption, and the employer suffers lost productivity and the additional recruiting costs of finding
another candidate.
The alternative is to provide realistic job previews that give the candidate all pertinent information
about the job and organisation without distortion and before the job is accepted.68 Instead of ‘selling’
only positive features of a job, this approach tries to be realistic and balanced in the information provided.
It tries to be fair in depicting actual job and organisational features, both favourable and unfavourable.
The interviewer providing a realistic job preview to a job candidate, for example, might be overheard to
use phrases such as these: ‘Of course, there are some downsides  .  .  .’, ‘Things don’t always go the way
we hope  .  .  .’, ‘Something that you will want to be prepared for is  .  .  .’, ‘We have found that some new
employees had difficulty with  .  .  .’
When engaged in this type of conversation about the job and organisation, the candidate gets a more
complete and balanced view of the future employment possibility. This helps to establish more ‘realistic’
job expectations when starting work as a new employee. With expectations more realistic, the individual
is better prepared to handle the ‘ups and downs’ of a new job. A better perspective on the employment
relationship, higher levels of early job satisfaction, and less inclination to quit prematurely are among
the benefits of this interview approach.
In recruiting the best staff, providing realistic job previews may provide a competitive edge. A study
of job seekers in New Zealand found that most organisations could do far more to provide potential

CHAPTER 12 Human resource management  329

recruits with answers to their questions. Rather than having questions about the future direction of the
organisation, many job seekers are far more interested in finding out about the colleagues with whom
they will work, the culture of the company, and even the location of the desk at which they will work.69
In a competitive job market, like that for the best accounting graduates, providing realistic job previews
can be a key means of attracting the best people and minimising any concerns they may have before starting a
job. According to an HR manager at Brisbane accounting firm BDO Kendalls, which hires 20 new graduates
a year, the best graduates may receive offers from six large accounting firms. For this reason, BDO Kendalls
works hard to become the employer of choice, staying in regular contact with potential recruits and inviting
them to office social functions. In addition, the firm promotes itself as an attractive employer, emphasising its
positive work environment and opportunities for graduates to grow with their roles.70
When the economy contracts, however, as has recently been true for most nations, employers obtain
the advantages that arise when the number of jobs shrinks. In this environment, graduates are encouraged
to adapt their expectations to new realities. For some, this may mean accepting a lower‐level and less
desirable position, or accepting work in a different industry to that which may have been preferred.71

Making selection decisions

The process of selection involves choosing from a pool of applicants the person or persons who offer
the greatest performance potential. Steps in a typical selection process are shown in figure 12.2. They
are completion of a formal application form, interviewing, testing, reference checks, physical examin-
ation and final analysis and decision to hire or reject. As with all aspects of the HRM process, the best
employers exercise extreme care in making selection decisions.

Reasons for rejection

Selection process

1. Formal application Deficient qualifications

Insufficient ability or ambition, or

2. Interview or site visit
poor interpersonal qualities

3. Testing Poor test scores

4. Reference checks Poor references

5. Physical exam Physically unfit for the job

6. Analysis and decision Overall potential is low

FIGURE 12.2 Steps in the selection process: the case of a rejected job applicant

In using any selection devices, including such testing, it is important to know that they meet the
important criteria of reliability and validity. Reliability means that the device is consistent in measure-
ment; it returns the same results time after time. Validity means that there is a demonstrable relationship
between a person’s score or rating on a selection device and eventual job performance. In simple terms,
validity means that a good score really does predict good performance. Many university students, for
example, question the validity of employers using their grades as predictors of future job performance
when screening job applicants. Are they just making excuses for not using their time well in university,
or do they have a legitimate point?

330  Management
Application forms
The application form declares the individual to be a formal candidate for a job. It documents the appli-
cant’s personal history and qualifications. The personal résumé is often included with the job appli-
cation. This important document should accurately summarise an applicant’s special qualifications. As a
job applicant, you should exercise great care in preparing your résumés for job searches. As a recruiter,
you should also learn how to screen applications and résumés for insights that can help you make good
selection decisions. Importantly, the application should request only information that is directly relevant
to the job and the applicant’s potential job success.

Interviews
Interviews are extremely important in the selection process because of the information exchange they
allow. It is a time when both the job applicant and potential employer can learn a lot about one another.
However, interviews are also recognised as potential stumbling blocks in the selection process. Some-
times interviewers ask the wrong things, sometimes they talk too much, sometimes the wrong people do
the interviewing. Other times, the interviewer falls prey to personal biases and makes a judgement that
fails to fully consider the applicant’s capabilities.
Behavioural interview questions are becoming increasingly popular in many job interviews. Through
such questions, applicants are invited to reflect on their own previous work and life experiences.
­Candidates might be asked to cite a time when they performed well under pressure or dealt effectively
with a difficult customer or colleague, for example. Among the recommendations for how to interview a
job applicant are those shown in Manager’s notepad 12.1.

MANAGER’S NOTEPAD 12.1

How to conduct job interviews

• Plan ahead. Review the job specifications and job description as well as the candidate’s application;
allow sufficient time for a complete interview.
• Create a good interview climate. Allow sufficient time; choose a quiet place; be friendly and show
interest; give the candidate your full attention.
• Conduct a goal‐oriented interview. Know what information you need and get it; look for creativity,
independence and a high energy level.
• Avoid questions that may imply discrimination. Focus all questioning on the job applied for and the
candidate’s true qualifications for it.
• Answer the questions asked of you, and others that may not be asked. Do your part to create a
realistic job preview.
• Take notes. Document details and impressions for later deliberation and decision‐making.
• Keep your notes and records. In case of future litigation, keep your records in a safe location.

Employment tests
Testing is often used in the screening of job applicants. Some common employment tests are designed
to identify intelligence, aptitudes, personality and interests; others ask the applicant to indicate how he
or she would respond to a series of job‐relevant situations. Australian corporations using psychological
tests include ANZ, Lion Nathan, Qantas, Macquarie Bank and Boral.72 Whatever test is used, however,
the goal should be to gather information that will help predict the applicant’s eventual performance suc-
cess. An employment test should meet the criteria of reliability and validity described earlier, and should
be legally defensible on the grounds that it actually measures an ability required to perform the job. A
New South Wales‐based trade union, the Rail, Tram and Bus Union, has called for an end to psycho-
logical testing, arguing that it may only serve to over‐categorise people and limit the potential for accept-
able applicants to obtain a suitable job.73

CHAPTER 12 Human resource management  331

 New developments in testing extend the process into actual demonstrations of job‐relevant skills and
personal characteristics. An assessment centre evaluates a person’s potential by observing his or her
performance in activities designed to simulate daily work, such as interviews, group discussions, in‐
basket exercises, psychological tests and business games. Although popular in the United States and the
United Kingdom, assessment centres have proven less popular in the Asia–Pacific region. Organisations
that use assessment centres for internal selection (promotion) and employee development include BHP
Billiton, Cathay Pacific and the New South Wales Government.74

COUNTERPOINT

Is psych testing a great tool or a great disappointment?

Different types of screening methods are used by employers to make smart hiring decisions — including
tests that measure cognitive ability, physical ability, aptitude, personality traits and honesty. There
are various considerations that must be taken into account when implementing and managing a pre‐
employment testing program, and to avoid legal challenges, the reliability and validity of a selection test
must be established.
Psychological testing need not only be for recruitment and selection. The tests available today
include a range of personality tests, as well as ability, aptitude and reasoning tests for use in develop-
ment, team‐building, coaching and individual career development. These tests, however, are usually too
expensive to use on an everyday basis.
Some recruitment agencies can use personality profiling, such as MBTI or DISC, to help companies
recruit specifically to suit culture or to fit with an existing team. This is a relatively cheap process, and
can provide great insight for the recruiter and manager.

QUESTIONS
1. Have you experienced any psychological testing for a position? What form did it take?
2. How would you determine behavioural issues when recruiting?

Reference and background checks

Reference checks are inquiries to previous employers, academic advisers, co‐workers and/or acquaint-
ances regarding the qualifications, experience and past work records of a job applicant. Although they
may be biased if friends are prearranged ‘to say the right things if called’, reference checks can be
helpful in revealing important information not discovered elsewhere in the selection process. According
to Steve Van Aperen of the Melbourne‐based training company SVA Training, around 45 per cent of all
job candidates lie during job interviews. Lying is particularly common when candidates talk about their
hobbies, past salaries or skills.75
References given by a job applicant can also add credibility to an application if they include a legit-
imate and even prestigious list of persons. An organisation that does not disclose negative information
about ex‐employees may be held responsible for economic losses suffered by another organisation
that relied on this information when employing a  new staff member.76 For this reason, references are
becoming a less reliable source of information about potential employees as increasing numbers of
employers provide only the bare minimum of information about departing staff. Some companies out-
source reference checking to specialised providers in order to ensure that the most value is extracted
from this process. Reference Check is Australia’s largest provider of this service, conducting around
10  000 thorough and impartial reference checks each year.77
Physical examinations
Many organisations ask job applicants to take a physical examination. This health check helps ensure that
the person is physically capable of fulfilling job requirements. It may also be used as a basis for enrolling
the applicant in health‐related fringe benefits such as life, health and disability insurance programs. A
recent and controversial development in this area is the emerging use of drug testing. This has become part

332  Management
of pre‐employment health screening and a basis for continued employment at some organisations. This is
viewed as particularly important given the reality that alcohol and drugs are estimated to cause 11 per cent
of workplace injuries and death and cost around $2 billion in lost productivity each year.78 At a minimum,
care must be exercised that any required test is job relevant and does not discriminate in any way against the
applicant.
Final decisions to hire or reject
The best selection decisions are most likely to be those involving extensive consultation among the
manager or team leader, potential co‐workers and HR staff. Importantly, the emphasis in selection must
always be comprehensive and focus on all aspects of the person’s capacity to perform in a given job.
After all, the selection decision poses major consequences for organisational performance and for the
internal environment or work climate. Just as a ‘good fit’ can produce long‐term advantage, a ‘bad fit’
can be the source of many (and perhaps long‐term) problems. Sometimes the people who know this
lesson best are those who run small businesses. Says one store owner who knew the importance of cus-
tomer service in retail sales: ‘If applicants have a good attitude, we can do the rest  .  .  .  but if they have a
bad attitude to start with, everything we do seems to fail.’79

CRITICAL ANALYSIS

1. How realistic can a job preview be during this era of constantly changing job roles and
responsibilities? Is this a problem?
2. The outcomes of job interviews usually reflect the biases and preferences of those conducting the
interview. How can such bias be minimised?

12.4 Developing a quality workforce

LEARNING OBJECTIVE 12.4 How do organisations develop a quality workforce?
When people join an organisation, they must ‘learn the ropes’ and become familiar with the way things
are done. It is important that newcomers are helped to fit into the work environment in a way that fur-
thers their development and performance potential. Socialisation is the process of influencing the expec-
tations, behaviour and attitudes of a new employee in a way considered desirable by the organisation.80
The intent of socialisation in HRM is to help achieve the best possible fit between the individual, the job
and the organisation.

Employee orientation
Socialisation of newcomers begins with orientation — a set of activities designed to familiarise new
employees with their jobs, co‐workers and key aspects of the organisation as a whole. This includes
clarifying the mission and culture, explaining operating objectives and job expectations, communicating
policies and procedures, and identifying key personnel.
The first six months of employment are often crucial in determining how well someone will perform
over the long term. It is a time when the original expectations are tested, and patterns are set for future
relationships between an individual and employer. Unfortunately, orientation is sometimes neglected and
newcomers are often left to fend for themselves. They may learn job and organisational routines on their
own or through casual interactions with co‐workers, and they may acquire job attitudes the same way.81
The result is that otherwise well‐intentioned and capable persons may learn inappropriate attitudes and/
or behaviours. Good orientation, on the other hand, enhances a person’s understanding of the organ-
isation and adds purpose to his or her daily job activities. Increased performance, greater job satisfaction
and greater work commitment are the desired results. Orientation is particularly important for employees
being sent on international assignments.

CHAPTER 12 Human resource management  333

Training and development
Training is a set of activities that provide the opportunity to acquire and improve job‐related skills.
This applies both to the initial training of an employee and to upgrading or improving someone’s skills
to meet changing job requirements. A major concern of US employers is the lack of educational prep-
aration of some workers for jobs, often high technology jobs, in the new workplace. These concerns
even extend to the basic skills of reading, writing and arithmetic, as well as to computer skills. Progres-
sive organisations offer extensive training programs to ensure that their workers always have the skills
and computer literacy needed to perform well.
A survey of the training practices of the Western Australian hospitality sector found that over 90 per
cent of companies offered their employees internal and external training programs. The majority iden-
tified improved employee productivity and commitment and almost 90 per cent reported reduced staff
turnover as a result of training their people.82 Similarly, a study of training programs in the healthcare
fields in the United States and New Zealand found that employees who feel that they have appropriate
access to training are more likely to have a greater degree of commitment towards their organisations.83
An innovative and successful training program is used by Bendigo Bank to assist its staff to build
better relationships with customers. Based on the Herrmann Brain Dominance Instrument, staff com-
plete a 120‐question diagnostic survey to determine their dominant thinking style. The results divide
people into one of four dominant styles, each known via a colour. Blue thinkers are logical and critical,
and favour analysis and quantification. As  a  bank customer, they will be particularly concerned with
interest rates, account and loan rules, and how Bendigo Bank’s products compare with its competitors.
A red thinker is empathetic, supportive, social, and sensitive, and may be more concerned with the
company’s environmental policies and community activities. As customer service officers determine the
key style of their customers, they are able to tailor their messages and product offerings accordingly.
Thousands of Bendigo Bank staff have undergone training in the model, either via seminars or two‐day
training programs. The results are impressive, with Bendigo Bank consistently beating its competitors
in customer service surveys.84 Bendigo Bank has been named Business Bank of the Year (2011) at Roy
Morgan Research’s inaugural Customer Satisfaction Awards. The accolade follows the bank recording
the highest business customer satisfaction score in a survey, with a rating of 75.4 per cent. This was
almost six points ahead of its nearest competitor.85
On‐the‐job training
On‐the‐job training takes place in the work setting while someone is doing a job. A common approach
is job rotation that allows people to spend time working in different jobs to expand the range of their
job capabilities. Another is coaching, in which an experienced person provides performance advice to
someone else. One form of coaching is mentoring, in which employees at the early stages of their
careers are formally assigned as protégés of senior people. The mentoring relationship gives them
regular access to advice on developing skills and getting a good start in their careers. An informal type
of coaching involves modelling. This occurs when someone demonstrates through day‐to‐day personal
behaviour what is expected of others. One way to learn managerial skills, for example, is to observe and
practise the techniques displayed by good managers. Modelling is a very important influence on behav-
iour in organisations. A good example is how the behaviour of senior managers helps set the ethical cul-
ture and standards for other employees.
Off‐the‐job training
Off‐the‐job training is accomplished outside the work setting. It may be done within the organisation at
a separate training room or facility or at an offsite location. Examples of the latter include attendance at
special training programs sponsored by universities, trade or professional associations, or consultants.
The willingness of organisations to invest in training is a good indicator of their commitment to the
people they hire. Intel, for example, allocates a percentage of its annual payroll to spend on training
through its in‐house university.86

334  Management
 An important form of off‐the‐job training involves management development, designed to
improve a person’s knowledge and skill in the fundamentals of management. For example, beginning
managers often benefit from training that emphasises delegating duties; middle managers may ben-
efit from training to better understand multifunctional viewpoints; top managers may benefit from
advanced management training to sharpen their decision‐making and negotiating skills and to expand
their awareness of corporate strategy and direction. Moves to blend different types of training are
becoming increasingly popular. Because individuals have different learning styles and approaches, it
makes sense to provide employees with a range of training options to meet their needs. E‐learning,
for instance, uses the internet to encourage less pressured, more reflective, self‐paced learning. It can
be used to supplement other methods such as outdoor experiences or face‐to‐face discussions.87

Performance management systems

Performance has to be measured. The rule holds whether you are talking about a hospital’s contribution
to the community, a business’s quarterly financial results, a work team’s project accomplishment or an
individual’s job performance. With measurement comes the opportunity not only to document results
but also to take steps towards their future improvement. Part of the HRM responsibility is design and
implementation of a successful performance management system. This is a system that ensures that
performance standards and objectives are set, that performance is regularly assessed for accomplish-
ments, and that actions are taken to improve performance potential in the future. Unfortunately, many
managers believe that the appraisal is the beginning and end of performance management. It is only
one aspect of ongoing feedback and development, and a continuous process of setting goals and objec-
tives, watching performance, and then giving and receiving feedback and ongoing coaching. Managers
must ensure through performance management that all activities and outputs are aligned with strategic
goals — thus ensuring the company can achieve competitive advantage through well‐trained and devel-
oped people. Performance management provides a direct link between ‘employee performance and
organizational goals and makes the employee’s contribution “explicit”’.88

Purpose of performance appraisal

Usually performance appraisal is a once‐a‐year contribution to feedback. It does not provide the ongoing
coaching that allows for improvement, but instead measures the strengths and weaknesses of the
employee. An appraisal is an important part of a performance management, because performance man-
agement is much more than performance appraisal. The process of formally assessing someone’s work
accomplishments and providing feedback is performance appraisal. It serves two basic purposes in the
maintenance of a quality workforce: evaluation and development. The evaluation purpose is intended
to let people know where they stand relative to performance objectives and standards. The development
purpose is intended to assist in their training and continued personal development.89
The evaluation purpose of performance appraisal focuses on past performance and measures results
against standards. Performance is documented for the record and to establish a basis for allocating
rewards. The manager acts in a judgemental role in which he or she gives a direct evaluation of another
person’s accomplishments. The development purpose of performance appraisal, on the other hand,
focuses on future performance and the clarification of success standards. It is a way of discovering per-
formance obstacles and identifying training and development opportunities. Here the manager acts in a
counselling role, focusing on a subordinate’s developmental needs.
Like employment tests, any performance appraisal method can fulfil these purposes only when the
criteria of reliability and validity are met. To be reliable, the method should consistently yield the same
result over time and/or for different raters; to be valid, it should be unbiased and measure only factors
directly relevant to job performance. Both these criteria are especially important in today’s complex
legal environment. A manager who hires, fires or promotes someone is increasingly called on to defend

CHAPTER 12 Human resource management  335

such actions — sometimes in specific response to lawsuits alleging that the actions were discriminatory.
At a minimum, written documentation of performance appraisals and a record of consistent past actions
will be required to back up any contested evaluations.
Performance appraisal methods
Organisations use a variety of performance appraisal methods. One of the simplest is a graphic rating
scale, such as the example in figure 12.3. Such scales offer the appraisers checklists of traits or charac-
teristics thought to be related to high‐performance outcomes in a given job. A manager rates the indi-
vidual on each trait using a numerical score. The main appeal of graphic rating scales is that they are
relatively quick and easy to complete. Their reliability and validity are questionable, however, because
the categories and scores are subject to varying interpretations.

Name Leslie Whiteson

Job title Financial Analyst

Supervisor Anthony Chang

Date 1 July

Rating factors Rating

Quantity of work: amount of work

normally accomplished 3

Quality of work: accuracy and quality of

work normally accomplished 2

Job knowledge: understanding of job

requirements and task demands 3

Cooperation: willingness to accept

assignments and work with others 1

Dependability: conscientiousness in
attendance and in completion of work 2

Enthusiasm: initiative in offering ideas

and seeking increased responsibilities 2

Ratings:
3 = Outstanding
2 = Satisfactory
1 = Unsatisfactory

FIGURE 12.3 Sample graphic rating scale for performance appraisal

A more advanced approach is the behaviourally anchored rating scale (BARS), which offers an
appraiser rating scales for actual behaviours that exemplify various levels of performance achievement
in a job. Look at the case of a customer service representative illustrated in figure 12.4. Unsatisfactory
performance is clearly defined as rude or disrespectful treatment of a customer. Because performance
assessments are anchored to specific descriptions of work behaviour, a BARS is more reliable and valid
than the graphic rating scale. The behavioural anchors can also be helpful in training people to master
job skills of demonstrated performance importance.

336  Management
 Outstanding
performance If a customer has defective merchandise that is not the responsibility
5 of the store, you can expect this representative to help the customer
arrange for the needed repairs elsewhere.

You can expect this representative to help a customer by sharing

4
complete information on the store’s policies on returns.

After finishing with a request you can expect this representative

3
pleasantly to encourage a customer to ‘shop again’ in the store.

You can expect this representative to delay a customer without

2
explanation while working on other things.

You can expect this representative to treat a customer rudely and

1
with disrespect.
Unsatisfactory
performance

FIGURE 12.4 Sample behaviourally anchored rating scale for performance appraisal

The critical‐incident technique involves keeping a running log or inventory of effective and inef-
fective job behaviours. By creating a written record of positive and negative performance examples,
this method documents success or failure patterns that can be specifically discussed with the individual.
Using the case of the customer service representative again, a critical‐incidents log might contain the
following types of entries: positive example — ‘Took extraordinary care of a customer who had pur-
chased a defective item from a company store in another city’; negative example — ‘Acted rudely in
dismissing the complaint of a customer who felt that a sale item was wrongly advertised’.
Some performance management systems use multiperson comparisons, which formally compare
one person’s performance with that of one or more others. Such comparisons can be used on their own
or in combination with some other method. They can also be done in different ways. In rank ordering,
all people being rated are arranged in order of performance achievement. The best performer goes at
the top of the list, the worst performer at the bottom; no ties are allowed. In paired comparisons, each
person is compared with every other person and rated as either the superior or the weaker member of
the pair. After all paired comparisons are made, each person is assigned a summary ranking based on
the number of superior scores achieved. In forced distribution, each person is placed into a frequency
distribution that requires that a certain percentage fall into specific performance classifications, such as
top 10 per cent, next 40 per cent, next 40 per cent and bottom 10 per cent.
Not all performance appraisals are completed only by an employee’s immediate boss. It is increas-
ingly popular today to expand the role of a job’s stakeholders in the appraisal process. The new work-
place often involves use of peer appraisal, including in the process others who work regularly and
directly with a job holder, and upward appraisal, including in the process subordinates reporting to the
job holder. An even broader stakeholder approach is known as 360° feedback, where superiors, sub-
ordinates, peers and even internal and external customers are involved in the appraisal of a job holder’s
performance.90
It is estimated that around 20 per cent of Australian companies use some kind of ratings system.
Whereas the head of human resources at a leading Australian bank views ratings systems as a way of
promoting communication and understanding between employers and employees, Griffith University
lecturer Campbell Fraser argues that an employee’s ratings are often a reflection of their ‘likeability’ and
personality rather than an objective measure of performance — ‘it becomes a popularity vote’.91

CHAPTER 12 Human resource management  337

 Research suggests that performance appraisals are often undertaken poorly or inappropriately, and
that many appraisals are actually a waste of an organisation’s time and resources. An Australian study
by Bradley and Ashkanasy found that the effectiveness of performance appraisals related directly to the
effectiveness of employee support and supervision at other times of the year. That is, when supervisors
did not provide appropriate support and feedback at other times, the appraisals were not seen as particu-
larly useful. Interestingly, when consistent and regular feedback and support were provided throughout
the year, appraisals were viewed as somewhat of a ‘waste of time’ since the appraisal was occurring in
other ways on an ongoing basis.92

CRITICAL ANALYSIS

1. The results of performance appraisals can be strongly influenced by the state of the economy.
During prosperous times, virtually everyone will potentially look like a strong performer. Do you
agree?
2. How would you ensure that the performance management system in your organisation is achieving
competitive advantage?

12.5 Engagement: maintaining a quality workforce

LEARNING OBJECTIVE 12.5 How do organisations maintain a quality workforce?

AtlantiCare, a large New Jersey‐based health provider, enjoys a sterling reputation. Loyalty among its
5100 employees ranks among the highest in the industry. Nurse turnover is far below the local norm.
Customers also are pleased. Patient volume is up, and revenues are climbing faster than at other hospitals
in the state.93

AtlantiCare was selected for the Malcolm Baldrige National Quality Award, the US’s highest honour
for innovation and performance excellence. While most organisations appear to be lowering standards
in order to maximise profit, this company attributes its enviable result to organisational culture that
views quality and high performance as journeys, not destinations. ‘Without a framework for continuous
improvement, you will have a great deal of difficulty sustaining these results.’ HR is a catalyst for devel-
oping work processes that result in high levels of employee engagement.
The 2012 Employee Engagement Trends Report released in early 2012 by Quantum Workplace con-
tained an analysis of ten areas of engagement: teamwork, manager effectiveness, trust in senior leaders,
trust with co‐workers, retention, alignment with goals, feeling valued, individual contribution, job satis-
faction and benefits. Quantum found that the strongest overall engagement levels were associated with:
•• feeling valued
•• teamwork
•• trust in senior leadership.
Quantum concluded that organisations that do very well in these three areas ‘will have a very high
level of overall engagement’.94 According to The Employee Engagement Mindset, highly engaged
employees share six behavioural drivers.
•• Connecting. They participate in activities that produce a high ‘return on connection’.
•• Shaping. They seize opportunities to customise their professional experience.
•• Learning. They become self‐directed learners at or above the speed of change.
•• Stretching. They move out of their comfort zone and move towards their outer limits.
•• Achieving. They regenerate through the intrinsic rewards of meaningful achievement.
•• Contributing. They direct their effort beyond themselves to create growth in others and value in the
organisation.95

338  Management
 Aon Hewitt states ‘each disengaged employee costs your organisation an average of $10  000 in
profit annually’, and identifies programs most likely to have a positive impact on engagement, based on
research. These include career opportunities, recognition, organisational reputation and communication.96
The company says that there are clear links between employee engagement, discretionary effort and
productivity, as Aon Hewitt Best Employers deliver 9 per cent more profit on average per employee,
with double the revenue growth of other organisations. However, only 31 per cent of Australian and
New Zealand organisations are improving employee engagement levels, despite an increasingly competi-
tive global market.97
Aon Hewitt announced its 2012 Best Employers in Australia and New Zealand (ANZ) survey, with
Microsoft being named the ‘Best of the best’ for 2012. Fourteen organisations received the Aon Hewitt
Best Employer accreditation in 2012, including Chorus New  Zealand Limited, Express Data, FedEx
Express (Australia), FedEx Express (New Zealand), Frucor Beverages Australia, Hilti Australia, Janssen
Australia and New Zealand, Microsoft Australia Pty Ltd, Peoplebank Australia Limited, SEEK Limited,
Shire Australia Pty Ltd, Starlight Children’s Foundation, Trilby Misso Lawyers, and Wood & Grieve
Engineers Limited.98
The 2012 study identified five distinguishable characteristics of a Best Employer:
•• unwavering commitment from senior leaders to the importance of developing highly engaged and
productive employees
•• clear performance expectations that align people to the organisation’s goals and values, and bring
meaning to their work
•• people managers who create the conditions for their people to excel
•• reward and recognition practices that encourage employees to contribute discretionary effort
•• clear communication on what employees can expect that in turn helps the organisation to be more
competitive in attracting and retaining in a tight labour market.
You cannot establish engagement strategies and then expect them to work. Getting employees engaged
is like planting a tree — if you walk away from it, it’s unlikely to grow. These companies work con-
sistently to ensure quality through sound human resource strategies that are continually addressed and
improved.

Career development
The money spent on career development in the past is no longer available. Employees expect training and
development to be able to do their job, while their focus is on ensuring they are developing skills for the next
career move. So, is there any point in developing employees who will probably leave your organisation?
Capelli believes we should recruit and train our employees on a ‘just in time’ approach.99 Historically,
there has been a push strategy in place, where 70 per cent of firms used succession planning to ensure
that management positions could be filled when required. This has seen a complete turnaround, with
63 per cent of firms now having no succession planning. Capelli sees this as a move to a pull strategy,
which would bring HR into line with current business strategies. He sees much of the downsizing of the
1980s and ‘90s as a deliberate strategy to shed employees who were a result of mismatched recruiting
strategies of earlier times. This approach saw a change in attitude where whatever was needed could be
sourced in the markets.
From an employee perspective, the career of choice appears to be protean — tending or able to change
frequently or easily and able to do many different things. This means that the employee determines when
they will progress, not the organisation, and this can be determined as the person or the environment
change. (The term ‘protean’ means readily taking on various shapes or forms; it is derived from the
Greek god Proteus, who could change shape at will.) The decision, according to Capelli, is whether we
develop or wait and buy talent developed by other organisations. This depends on certainty. If you are
working in a certain environment you can afford to develop talent, which is the cheaper option. If, how-
ever, we are in an uncertain age (as in post‐GFC era), then our option is to buy talent when needed and
reduce our uncertainty. If the plan shows additional employees will be needed in the future, then recruit

CHAPTER 12 Human resource management  339

and train. If there is uncertainty as to what talent will be required, wait and buy from the market ‘just in
time’. Recruiting externally can dilute current culture. This can be positive or negative depending on the
organisational history. External recruitment can also bring new knowledge into the organisation, which,
again, can contribute positively to the organisation. Capelli believes that HR can be run in the same way
as a production line. You forecast and buy when required, and, just like inventory, do not carry costs that
are not needed.
Although employees obviously have a role to play in their own career development, the best com-
panies do not leave career development just to individual employees. This argument that we do not
develop people because they can be poached by other organisations is not the only perspective on career
development strategy. According to Ingham:

taking advantage of this opportunity is about finding the best people and bringing them into an organ-
isation, knowing that they will create advantage for an organisation (e.g. job sculpting) rather than just
plugging them into a particular hole in the organisation.100

Many organisations recruit people who fit the core of the business, who support the values of the busi-
ness, and who will therefore be uninterested in being poached from organisations who do not support
the same ethics.
From a different perspective, the Catalyst report ‘Pay it forward’ reveals that high potentials who have
received career development are now ‘paying it forward’ and developing others while also receiving tan-
gible career benefits for investing in the development of future leaders. Findings show that:
•• critical career experiences lead talent to pay it forward
•• paying it forward pays off in the form of greater advancement and higher compensation
•• women do pay it forward to a greater extent than men.101
Career planning is the process of systematically matching career goals and individual capabilities
with opportunities for their fulfilment. It involves answering such questions as ‘Who am I?’, ‘Where do
I want to go?’ and ‘How do I get there?’ Whereas some people suggest that a career should be allowed
to progress in a somewhat random but always opportunistic way, others view a career as something to
be rationally planned and pursued in a logical step‐by‐step fashion. In fact, a well‐managed career will
probably include elements of each. The carefully thought‐out plan can point you in a general career
direction; an eye for opportunity can fill in the details along the way.
When you think about adult life stages or transitions, you should note that sooner or later most peo-
ple’s careers level off. A career plateau is a position from which someone is unlikely to move to a
higher level of work responsibility.102 Three common reasons for  career plateaus are personal choice,
limited abilities and limited opportunities. For some, the plateau may occur at a point in life when it suits
their individual needs; for others, the plateau may be unwanted and frustrating. Perhaps it is because
of career plateaus that older employees are far more likely than younger employees to move into self‐
employment, consulting, community service, retirement or some combination of these choices.103
Historically, many employees expected their supervisors or managers to take responsibility for their
career development. However, career plateaus seem increasingly likely for those who do not take a high
degree of responsibility for their own career development in today’s organisations. Even though enlight-
ened companies provide career development policies and opportunities, employees must also regularly
reflect on their own careers and make decisions in the broader context of these reflections and their own
experiences.

Work–life balance
The Society for Human Resource Management (SHRM) 2006 Job Satisfaction Study found that 58 per
cent of employees cite the flexibility to balance work–life issues as a very important aspect of job satis-
faction.104 Perrin states that work–life balance was ranked number three out of the top ten attraction
drivers for the last two years.105 Employers interested in maintaining a diverse workforce, retaining

340  Management
ageing baby boomers and attracting new talent cannot afford to overlook the work–life balance concerns
of today’s workforce. In fact, according to the Families and Work Institute’s national study of employers,
92  per  cent of organisations offer at least eight work–life balance initiatives, and 47 per  cent report
implementing such initiatives to recruit and retain employees.106 Bond says that HR practitioners can
affect recruitment and retention by first understanding the importance of work–life balance programs
in today’s workplace and then championing strategies that maximise the effectiveness of work–life bal-
ance initiatives. This issue of work–life balance deals with how people balance the demands of careers
and their personal and family needs. ‘Family’ in this context includes not just children, but also elderly
parents and other relatives in need of care. Among progressive employers, HR policies and practices that
support a healthy work–life balance are increasingly viewed as positive investments.
Benchmarks are available and they are growing in number. Technology has blurred the lines of
work and play. Many employees can be on call or working from home using PDAs, computers, and
phones for email and calls traditionally taken in work ‘time’. The most available form is flexitime or
the nine day fortnight. The Alliance for Work–Life Progress (AWLP) cites ‘several innovative pro-
grams that organizations are adding to their work–life program portfolios’. These include ‘childcare
and eldercare resources and referral services, employee assistance programs, concierge and work-
place convenience services, and financial planning services.’ They also found that 90 per cent believe
that work–life issues are everyone’s issues, but only 15 per cent believe that they have achieved this
balance. The reasons cited are lack of management and supervisory support for such programs and a
lack of cultural fit.107
Adapted from Bird, there are five elements of effective work–life initiatives. Firstly, you need a cul-
ture that promotes work–life balance (e.g. working from home one day a week). Secondly, you need
clear and consistent communication, with HRM reinforcing the use of the initiatives. Thirdly, work–life
training should be provided that suits both on‐the‐job and off‐the‐job learning. Fourthly, organisations
need to discover ways to enhance the program. And, finally, organisations need to know that everyone
will have different needs and not try provide all staff with the same options.108 While organisations may
have initial difficulty with performance management and supervision and will need to come to terms
with mistrust of employees and belief of lost productivity, in the long term the work–life balance pro-
grams will enhance recruitment and retention.
In Glassdoor’s survey of work–life balance organisations in 2011, Nestle Purina Petcare received the
highest rating (4.6 on a 5‐point scale) from its employees. Employees appreciate perks like the company
store, gym, onsite daycare and credit union, as well as the freedom to bring their pets to work. Plus,
employees note the flexible work schedules and management’s understanding of the need to fulfil non‐
company‐related obligations.109 Nestle Purina Petcare CEO W. Patrick McGinnis stated:

At Nestle Purina, we recognize the importance that work‐life balance plays in our associates’ satisfac-
tion at work. This is why we have placed such a strong emphasis on providing amenities and resources
to help our associates achieve a healthy balance, a  factor that we feel contributes to the organization’s
high‐performing culture.

Included among work–life balance concerns are the unique needs of single parents, who must balance
complete parenting responsibilities with a job, and dual‐career couples, who must balance the career
needs and opportunities of each partner. The special needs of both working mothers and working fathers
are also being recognised. An Australian study of male and female managers from dual‐career couples
found that pursuing a balance between the demands of work and family requires deliberate attention to
managing time and priorities so that individual, work and family needs can be met. Imbalances are more
likely when employees do not give serious attention to these issues but instead allow external events and
factors to control their time and priorities.110 Many of the examples of successful work–life balance pro-
grams appear to be in large organisations. Australia has a high percentage of small business, and there
needs to be more research into what is possible in this arena. The talent strategies of large organisations
focus heavily on the work–life balance attractiveness.

CHAPTER 12 Human resource management  341

 SOCIAL RESPONSIBILIT Y

From chief executive to philanthropist: a personal story

Bill Gates, co‐founder and chairman of Micro-
soft, appeared on American TV interview show
Charlie Rose in July 2012. He spent the bulk
of his hour‐long interview discussing the work
of the charitable Bill and Melinda Gates Foun­
dation in impoverished countries like India.
Gates stepped down as chief executive of
Microsoft in 2000, and in 2006 began transi-
tioning from full‐time duties at the company to
spending the bulk of his time with the charitable
organisation he founded with his wife six years
earlier. Initiatives the Bill and Melinda Gates
Foundation have overseen include vaccination
programs and the distribution of mosquito nets
in malaria‐stricken regions.
The Bill and Melinda Gates Foundation has contributed more than $US1 billion to combat disease and
poverty in India. The country has now been polio free for over five years. Gates (pictured), who recently
visited the country, told Rose that ‘health is improving in India as fast as any place in the world’. Asked
by Rose to compare China and India in terms of a culture of innovation, Gates said India’s leadership
in producing software engineers was unparalleled, but, overall, China’s engineering and manufacturing
sectors were ‘much further ahead of India’. Gates also described the reasoning behind his transition
from cutthroat businessman to philanthropist.

I think the world’s best companies are built by fanatics, and when you’re in your 20s and 30s, being f­anatical
comes easy, at least it came pretty naturally to me. I didn’t feel that bad that that’s what I was doing  .  .  .  I
think now in my 50s, this way of operating, where I’m backing a lot of these great scientists [developing
health care programs and technologies] is what is the most natural for me.111

QUESTION
What does corporate social responsibility mean to you? Can you provide examples of positive CSR? When
does CSR become a marketing tool?

Remuneration and benefits

The chapter on controlling pointed out that good remuneration and benefit systems improve control
by attracting qualified people to the organisation and helping the organisation to retain them. Base
remuneration in the form of salary or hourly wages can make the organisation a desirable place of
employment. It can help get the right people into jobs to begin with; by making outside opportunities
less attractive it can also help keep them there. Unless an organisation’s prevailing wage and salary
structure is competitive in the relevant labour markets, it will be difficult to attract and retain a staff of
highly competent workers. A basic rule of thumb is to carefully study the labour market and pay at least
as much as, and perhaps a bit more than, competitors are offering. The additional area of incentive pay
is discussed in detail later in the book.
In Australia, the average remuneration for a national sales manager or director of sales is between
$120  000 and $200  000, plus additional bonuses and incentive pay.112 A company financial controller can
expect around $175  000 to $200  000 in base pay and another $15  000 to $25  000 in annual incentives,
whereas a product development manager in the manufacturing sector earns around $80  000 to $110  000
in base pay and another $5000 to $10  000 in incentive pay.113 The typical Australian manager’s package
is composed of 52 per cent salary, 17 per cent short‐term incentives (such as bonuses) and 31 per cent

342  Management
long‐term incentives (such as share options). In recent years, the comparatively exorbitant million‐dollar
salaries of the chief executives of many large companies have come under much media and public scru-
tiny. Telstra, for example, was forced to fend off criticism of the $13.4 million annual salary package
of its CEO, Sol Trujillo, who departed the role in 2009 with a further payout estimated to be around
$20 million.114
The organisation’s employee benefit program also plays a role in attracting and retaining capable
workers. Fringe benefits are the additional non‐wage or non‐salary forms of remuneration provided
to an organisation’s workforce. Among senior executives in Australia, the most popular fringe benefits
offered are salary‐sacrificed superannuation (offered by 80 per cent of companies); company cars (79 per
cent); additional employer‐paid superannuation (71 per cent); performance rewards (39 per cent); laptop
computers (39 per cent); a second company car (32 per cent); mobile phones (30 per cent); and member-
ship of professional associations (28 per cent).
Interestingly, Mercer Human Resource Consulting has found that there is a gap between the benefits
that executives would like to receive and those that are offered by their companies. For instance, 67 per
cent of executives would like home loans provided by or through their employer, but only 15 per cent of
employers offer such loans. Whereas 56 per cent of managers would like holidays or entertainment to be
provided within their package, only 11 per cent of companies offer these. And 57 per cent of executives
wish that their employers could help with health insurance, but just 21 per cent of companies provide
health insurance to their executives.115
An increasingly common approach overall is flexible benefits, sometimes known as cafeteria ben-
efits, which let the employee choose a set of benefits within a certain dollar amount. The employee
gains when such plans are better able to meet individual needs; the employer gains from being more
responsive to a wider range of needs in a diverse workforce. It is crucial that organisations design their
reward systems to take account of their employees’ individual preferences for different rewards. It is also
critical that organisations ensure that they reward performance towards key objectives and goals so that
employee behaviour is consistently channelled in this direction. According to Jarek Czechowicz, many
reward systems fail, whether they are designed for executives or other employees of the organisation. He
states that the main problem with current reward programs is that a minority of people are recognised for
outstanding performance, while the rest feel inferior.

This has a flow‐on effect. Customers and others can tell when someone is unhappy or being friendly only
because they want a bonus, a commission or a promotion. The intended result of reward systems is to
improve behavior; but the real result for many employees is just more stress.116

It is essential for rewards and benefits to fit with the strategic objectives of the organisation. Linking
rewards and benefits to performance management ensure full understanding of what has to be achieved
and what that achievement can offer the employee.

Retention and turnover

The several steps in the HRM process both conclude and recycle with replacement decisions — that is,
with the management of promotions, transfers, terminations, lay‐offs and retirements. Any replacement
situation should be approached as an opportunity to review HR plans, update job analyses, rewrite job
descriptions and job specifications, and ensure that the best people are selected to perform the required
tasks.
Some replacement decisions shift people between positions within the organisation. Promotion is
movement to a higher level position; transfer is movement to a different job at a similar level of res-
ponsibility. Another set of replacement decisions relates to retirement, something most people look
forward to until it is close at hand. Then the prospect of being retired often raises fears and apprehen-
sions. Many organisations offer special counselling and other forms of support for retiring employees,

CHAPTER 12 Human resource management  343

including advice on company benefits, money management, estate planning and use of leisure time.
Downsizing is sometimes accompanied by special offers of early retirement — that is, retirement before
formal retirement age but with special financial incentives. Where this is not possible, organisations may
provide outplacement services to help laid‐off employees find other jobs.
The most extreme replacement decisions involve termination, the permanent dismissal of an employee.
In some cases the termination is based on performance problems. The person involved is not meeting
the requirements of the job or has violated key organisational policy. In other cases the termination may
be due to financial conditions of the employer, such as those requiring downsizing or restructuring. The
people involved may be performing well, but are being laid off as part of a workforce reduction. In any
case, it may be hard for the person being dismissed to accept the decision. Especially in the case of
workforce reduction, the termination notice may come by surprise and without the benefit of advance
preparation for either the personal or the financial shock. The experts’ advice to the employee is to ask
at least three tough questions of the ex‐boss: Why am I being released? What are my termination ben-
efits? Can I have a good reference? Advice for the manager who must handle a termination is offered in
Manager’s notepad 12.2.
Employee turnover in places such as Australia and Hong Kong has historically been high, and is
viewed as a significant factor hampering the growth of workforce productivity. The costs of turnover
can be quite high, with one US study estimating that labour turnover costs a $30 billion company
almost $150 million a year in lost productivity and in the costs associated with recruiting, selecting
and training new employees.117 A New Zealand study found that 42 per cent of businesses did not
monitor the costs of turnover and absenteeism, indicating significant potential for improvement in
HR practices.118

MANAGER’S NOTEPAD 12.2

Things to remember when handling a dismissal

• Dismissal can be as personally devastating as a divorce or the death of a loved one.
• Dismissal should always be legally defensible and done in complete compliance with organisational
policies.
• Dismissal should not be delayed unnecessarily; it is best done as soon as the inevitability of the
dismissal is known.
• Dismissal of good performers should include offers of assistance to help them re‐enter the
labour market.
• All records associated with dismissal should be kept.

CRITICAL ANALYSIS

1. Work–life balance goes out the window during challenging times since most employees will work
whatever hours are required to keep their jobs and maintain their rewards. Do you agree with this
statement? Why or why not?
2. How should we respond if faced with a career plateau? If we are managing people on a plateau, in
what creative ways might we respond in order to maintain their enthusiasm and productivity?
3. How does the concept of a protean career (discussed) effect the career plateau, and how should
this be managed by the employee and the manager?

344  Management
SUMMARY  
12.1 Why do people make the difference in an organisation?
•• Even in this age of information, high technology and globalisation, people still drive the system; they
make organisations work.
•• Organisations with positive HR policies and practices are gaining significant performance advantages
in such areas as lower turnover, more sales, higher profits and increased shareholder wealth.
•• The commitment to human resources made by founders of start‐ups has long‐term consequences for
organisational performance.
•• The challenges of complexity and uncertainty in highly competitive environments are best met by a
diverse and talented workforce.
•• The diversity advantage is gained only when the talents of all people, regardless of personal
characteristics, are unlocked and they are given the opportunity to perform.
12.2 What is strategic human resource management?
•• The HRM process is the process of attracting, developing and maintaining a quality workforce.
•• A complex legal environment influences HRM, giving special attention to equal employment
opportunity.
•• HR planning is the process of analysing staffing needs and identifying actions to satisfy these needs
over time.
•• The purpose of HR planning is to make sure the organisation always has people with the right abilities
available to do the required work.
12.3 How do organisations attract a quality workforce?
•• Recruitment is the process of attracting qualified job candidates to fill vacant positions.
•• Recruitment can be both external and internal to the organisation.
•• Recruitment should involve realistic job previews that provide job candidates with accurate information
on the job and organisation.
•• Managers typically use interviews, employment tests and references to help make selection decisions;
the use of assessment centres and work sampling is becoming more common.
12.4 How do organisations develop a quality workforce?
•• Orientation is the process of formally introducing new employees to their jobs, performance
requirements and the organisation.
•• On‐the‐job training may include job rotation, coaching, apprenticeship, modelling and mentoring.
•• Off‐the‐job training may include a range of formal courses and programs, as well as simulations and
other training specifically tailored to job needs.
•• Performance management systems focus on the establishment of work standards and the assessment
of results through performance appraisal.
•• Common performance appraisal methods are graphic rating scales, behaviourally anchored rating
scales and multiperson comparisons.
12.5 How do organisations maintain a quality workforce?
•• Career planning systematically matches individual career goals and capabilities with opportunities for
their fulfilment.
•• Programs that tackle work–life balance and the complex demands of job and family responsibilities
are increasingly important in HRM.
•• Remuneration and benefits packages must be continually updated so the organisation maintains a
competitive position in external labour markets.
•• Whenever workers must be replaced over time because of promotions, transfers, retirements and
terminations, the goal should be to treat everyone fairly while ensuring that jobs are filled with the
best personnel available.

CHAPTER 12 Human resource management  345

KEY TERMS
360° feedback  includes in the appraisal process superiors, subordinates, peers and even customers.
Affirmative action  commits the organisation to hiring and advancing minority groups and women.
An assessment centre  examines how job candidates handle simulated work situations.
Base remuneration  is a salary or hourly wage paid to an individual.
A behaviourally anchored rating scale  uses specific descriptions of actual behaviours to rate various
levels of performance.
Business associations  represent the interests of organisations in an industry or region.
Career planning  is the process of systematically matching career goals and individual capabilities
with opportunities for their fulfilment.
A career plateau  is a position from which someone is unlikely to move to a higher level of work
responsibility.
Coaching  involves an experienced person offering performance advice to a less‐experienced person.
The critical‐incident technique  keeps a log of someone’s effective and ineffective job behaviours.
Discrimination  occurs when someone is denied a job or a job assignment for reasons not job‐relevant.
Diversity management  involves identifying and managing those employee characteristics likely to
have a significant impact on the organisation’s ability to achieve its strategic objectives.
Equal employment opportunity (EEO)  is the right to employment and advancement without regard
to race, sex, religion, colour or national origin.
Flexible benefits  programs allow employees to choose from a range of benefit options.
Fringe benefits  are additional non‐wage or non‐salary forms of remuneration.
A graphic rating scale  uses a checklist of traits or characteristics to evaluate performance.
Human resource management (HRM)  comprises a set of policies designed to maximise
organisational integration, employee engagement, flexibility and quality of life balance, and improve
bottom‐line results and competitive advantage.
HR planning  analyses staffing needs and identifies actions to fill those needs.
Industrial relations  is the process of negotiation and bargaining between employers and employees.
Job analysis  studies job requirements and facts that can influence performance.
A job description  details the duties and responsibilities of a job holder.
A job specification  lists the qualifications required of a job holder.
Management development  is training to improve knowledge and skills in the management process.
Mentoring  assigns early‐career employees as protégés to more senior ones.
Modelling  demonstrates through personal behaviour the job performance expected of others.
Multiperson comparisons  compare one person’s performance with that of others.
Orientation  familiarises new employees with jobs, co‐workers and organisational policies and
services.
Performance appraisal  is the process of formally evaluating performance and providing feedback to a
job holder.
Performance management  is a continuous process of identifying, measuring, and developing
the performance of individuals and teams, through genuine feedback, mentoring and training,
and ensuring alignment of every single job in the organisation with the strategic goals of the
organisation.
A performance management system  sets standards, assesses results and plans for performance
improvements.
Realistic job previews  provide job candidates with all pertinent information about a job and the
organisation.
Recruitment  is a set of activities designed to attract a qualified pool of job applicants.
Selection  is choosing from a pool of the best qualified job applicants.

346  Management
Sexual harassment  occurs as behaviour of a sexual nature that affects a person’s employment
situation.
Socialisation  systematically changes the expectations, behaviour and attitudes of new employees.
Strategic HRM  involves attracting, developing and maintaining a quality workforce to implement
organisational strategies.
Training  provides learning opportunities to acquire and improve job‐related skills.
Unions  represent the interests of employees in an industry, occupation or organisation.
Work–life balance  involves balancing career demands and personal and family needs.

APPLIED ACTIVITIES
1 How do internal recruitment and external recruitment compare in terms of advantages and
disadvantages for the employer?
2 Why is orientation an important part of the staffing process?
3 What is the difference between the graphic rating scale and the BARS as performance appraisal
methods?
4 How does mentoring work as a form of on‐the‐job training?
5 Simon Smith is not doing well in his job. The problems began to appear shortly after Simon’s job
was changed from a manual to a computer‐based operation. He has tried but is just not doing well
in terms of learning to use the computer and meet the performance expectations. As a 55‐year‐old
employee with over 30 years with the company, Simon is both popular and influential among his
work peers. Along with his performance problems you have also noticed the appearance of some
negative attitudes — a tendency for Simon to ‘badmouth’ the company. As Simon’s manager, what
options would you consider in terms of dealing with the issue of his retention in the job and in the
company? What would you do and why?

ENDNOTES
  1. James Hayton, ‘Others Can Learn from the Ways Tech Firms Find and Keep Staff’, The Conversation (6 October 2014),
www.theconversation.com.
  2. Jane Bryson and Rose Ryan, Human Resource Management in the Workplace (Auckland: Pearson, 2012), p. 115.
  3. Quote from John A. Byrne, ‘Visionary vs. Visionary’, Business Week (28 August 2000), pp. 210–14.
  4. Simon Lloyd, ‘Branding From the Inside Out’, BRW (14 March 2002), www.brw.com.au.
  5. Richard Branson, ‘People Power: The Engine of Any Business’, Entrepreneur (29 September 2010).
  6. See, for example, ‘Rethinking Work’, Business Week, special report (17 October 1994), pp. 74–87.
  7. Jeffrey Pfeffer and John F. Veiga, ‘Putting People First for Organizational Success’, Academy of Management Executive,
vol. 13 (May 1999), pp. 37–48.
  8. Jeffrey Pfeffer, The Human Equation: Building Profits by Putting People First (Boston: Harvard Business School Press, 1998).
  9. James N. Baron and David M. Kreps, Strategic Human Resources: Frameworks for General Managers (New York: Wiley,
1999), pp. 4–6.
10. ibid, pp. 471–502.
11. Alan R. Nankervis and Robert‐Leigh Compton, ‘Performance Management: Theory in Practice’, Asia Pacific Journal
of Human Resources, vol. 44, no. 1 (2006), pp. 83–101.
12. Ann‐Maree Moodie, ‘Do Better People Management Strategies Create Higher Shareholder Value?’, MGSM Magazine,
issue 1 (2003), www.gsm.mq.edu.au.
13. Tim Treadgold, ‘Love in a Hot Climate’, BRW (17–23 January 2002), pp. 52–5, www.brw.com.au.
14. John Kavanagh, ‘Human Frailty’, BRW (7 March 2002), www.brw.com.au.
15. ‘Age Diversity’, Commonwealth Bank website, www.commbank.com.au.
16. Chris Ball, ‘Manage Age Diversity in the Workplace’, Strategic HR Review, vol. 7, no. 5 (2008).
17. Leanne Cutcher, ‘Business Must Show the Lead on Intergenerational Employment’, The Conversation (25 February 2015),
www.theconversation.com.
18. Raymond J. Stone, Human Resource Management, 4th edn (Brisbane: John Wiley & Sons, 2002), p. 99.
19. Diversity@work, ‘Indigenous Australia: The Facts’, www.work.asn.au; Director of Equal Opportunity in Public Employment,
‘Workforce Diversity in the NSW Public Sector 2000’, www.eeo.nsw.gov.au.

CHAPTER 12 Human resource management  347

20. ibid.
21. ibid.
22. Stone (2002), op. cit., pp. 100–1.
23. ibid, pp. 100–3.
24. ibid, pp. 693–4.
25. AFP, ‘“Strikingly” Few Women in Asia’s Top Jobs: Report’, Yahoo Finance (1 July 2012), http://au.finance.yahoo.com/news.
26. ‘Inclusive Workplace of the Year’, AHRI Diversity Awards website, www.awards.ahri.com.au.
27. See www.deloitte.com/au.
28. Robyn Ironside, ‘Opera Singer Delmae Barton “Ignored” After Collapse’, News.com.au (22 October 2010),
www.news.com.au.
29. ‘Racism in Australia facts’, ANTaR website, www.antar.org.au.
30. Kath Walters, ‘Talk about Grief’, BRW (16–22 October 2008), p. 19.
31. ibid.
32. Sourced from www.whss.govt.nz.
33. F. Buffini, ‘Funds Expand Disclosure Push’, Australian Financial Review (8 April 2003), p. 4 in R. J. Stone, Managing Human
Resources, 3rd edn (Milton, Queensland: John Wiley & Sons, 2010).
34. Stone (2002), op. cit.
35. ‘Sickies on the Rise’, Sun‐Herald (22 February 2004), p. 17.
36. Stone (2002), op. cit., p. 645.
37. ibid., pp. 646–51.
38. Gina McColl, ‘Strike Force’, BRW (8 January–4 February 2009), pp. 50–52.
39. ‘Shaft of light’, The Economist (18 July 2015), www.economist.com.
40. ‘Former Volkswagen Boss, Martin Winterkorn, Investigated for Fraud amid Emissions Cheating Scandal’, ABC News
(29 September 2015), www.abc.net.au.
41. Emily Mullin. ‘Turing Pharma Says Daraprim Availability Will Be Unaffected By Shrekli Arrest’, Forbes (21 December 2015),
www.forbes.com.
42. Adele Ferguson, Sarah Danckert and Klaus Toft, ‘7–Eleven: Investigation exposes shocking exploitation of convenience store
workers’, Sydney Morning Herald (29 August 2015), www.smh.com.au.
43. Mark Skulley, ‘Reform, But Slowly Does It’, Australian Financial Review (14 November 2003), p. 80.
44. ‘Union Membership Increases in Australia’, Sydney Morning Herald (17 April 2009), www.smh.com.au.
45. Stone (2002), op. cit. pp. 536–57.
46. ‘Workchoices — a Simpler, Fairer, National Workplace Relations System for Australia’, Australian Government, 2005.
47. Department of Education, Employment and Workplace Relations website, www.deewr.gov.au.
48. Hon Julia Gillard MP, press conference (10am, 1 July 2009), Sydney.
49. Patricia Karvelas, ‘Wait on for Paid Parental Leave’, The Australian (11 May 2009), www.theaustralian.com.au.
50. Raymond J. Stone, ‘Industrial Relations’, Managing Human Resources, 4th edn (John Wiley & Sons: Brisbane, 2014), p. 505.
51. Hon Julia Gillard MP (2009), op. cit.
52. Stone (2002), op. cit. p. 745.
53. McColl (2009), op. cit, p. 52.
54. ibid., pp. 748–9.
55. Devjyot Ghosal ‘Few Takers for Industrial Relations at B‐Schools’, Business Standard (23 July 2012).
56. P. J. Dowling, M. Festing and A. D. Engle, International Human Resource Management: Managing People in a Multinational
Context, 5th edn (London: Cengage Learning, 2008).
57. McBarron, E. and Butrous, N. ‘Neophytes to Cosmopolitans: Across All Borders’, The International Journal of Knowledge,
Culture and Change Management, vol. 10 (2011).
58. Nick Foster, ‘Another “Glass‐Ceiling”?: The Experiences of Women Professionals and Managers on International
Assignments’, paper presented at the ANZAM 2000 Conference, Sydney, 3–6 December 2000.
59. Hugh Bucknall and Reiji Ohtaki, Mastering Business in Asia — Human Resource Management (Singapore: John Wiley &
Sons, 2005).
60. See Baron and Kreps (1999), op. cit.
61. See Boris Yavitz, ‘Human Resources in Strategic Planning’, in Eli Ginzberg (ed.), Executive Talent: Developing and Keeping
the Best People (New York: Wiley, 1988), p. 34.
62. See Ernest McCormick, ‘Job and Task Analysis’, in Marvin Dunnette (ed.), Handbook of Industrial and Organizational
Psychology (Chicago: Rand McNally, 1976), pp. 651–96.
63. P. Cleary, ‘Business Failing the Skill Test’, Australian Financial Review (19 August 2002), p. 1.
64. Jane Lindhe, ‘Action Stations’, BRW (30 April–3 June 2009), pp. 44–5.
65. Information from Gautam Naik, ‘India’s Technology Whizzes find Passage to Nokia’, Wall Street Journal (1 August 2000),
p. B1.
66. Raymond J. Stone, Human Resource Management, 6th edn, (Brisbane: John Wiley & Sons, 2008), p. 220.
67. Foad Fadaghi, ‘Accountants Warm to Facebook’, BRW (1–7 October 2007), pp. 66–67.

348  Management
  68. See John P. Wanous, Organizational Entry: Recruitment, Selection, and Socialization of Newcomers (Reading, MA: Addison‐
Wesley, 1980), pp. 34–44.
  69. Anonymous, ‘Are Your Workers Looking for New Jobs?’, NZ Business (May 2008), p. 10.
  70. Tony Thomas, ‘Recruitment: The Battle for Talent’, BRW (12 April 2001), www.brw.com.au.
  71. Melinda Ham, ‘Stretch Yourself Further’, Sydney Morning Herald (MyCareer, 14–15 March 2009), p. 3.
  72. Stone (2002), op. cit., p. 220.
  73. Annabel Day, ‘Job Applicants Go Psycho When Put to the Test’, Australian Financial Review (31 December 2003 to
4 January 2004), p. 5.
  74. Stone (2002), op. cit., p. 243.
  75. Sherrill Nixon, ‘Clues Point to Job Tale‐tellers’, Sydney Morning Herald (19–20 July 2003), p. 3.
  76. Stone (2002), op. cit., p. 236.
  77. Bina Brown, ‘Checks That Pay Off’, The Australian, Human Resources Special Report (5 March 2003), p. 7.
  78. Jill Margo, ‘Sober Message on Alcohol Excess’, Australian Financial Review (11 June 2004), p. 16.
  79. Information from William M. Bulkeley, ‘Replaced by Technology: Job Interviews’, Wall Street Journal (22 August 1994),
pp. B1, B4.
  80. For a scholarly review, see John Van Maanen and Edgar H. Schein, ‘Toward a Theory of Socialization’, in Barry M. Staw
(ed.) Research in Organizational Behavior, vol. 1 (Greenwich, CT: JAI Press, 1979), pp. 209–64; for a practitioner’s view,
see Richard Pascale, ‘Fitting New Employees into the Company Culture’, Fortune (28 May 1984), pp. 28–42.
  81. This involves the social information processing concept as discussed in Gerald R. Salancik and Jeffrey Pfeffer, ‘A Social
Information Processing Approach to Job Attitudes and Task Design’, Administrative Science Quarterly, vol. 23 (June 1978),
pp. 224–53.
  82. Doug Davies, Lawson Savery and Ruth Taylor, ‘The Effectiveness of Training in Improving Staff Relations and Reducing
Turnover in Services Industries’, paper presented at the ANZAM 2000 Conference, Sydney (3–6 December 2000).
  83. Kenneth R. Bartlett, ‘The Relationship between Training and Organizational Commitment in the Health Care Field: A
US–New Zealand Comparison’, paper presented at the ANZAM 2000 Conference, Sydney (3–6 December 2000).
  84. Mike Hanley, ‘The Colours of Success’, BRW (25 October–28 November 2007), pp. 120–21.
  85. Bendigo Bank website, www.bendigobank.com.au.
  86. ‘Key to Success: People, People, People,’ Fortune (27 October 1997), p. 232.
  87. Dick McCann and Nikki Mead, ‘E‐learning: Part of the Solution’, Management Today (April 2002), p. 40.
  88. H. Aguinis, Performance Management, 2nd ed. (New Jersey: Pearson, 2009).
  89. See Larry L. Cummings and Donald P. Schwab, Performance in Organizations: Determinants and Appraisal (Glenview, IL:
Scott, Foresman, 1973).
  90. See Mark R. Edwards and Ann J. Ewen, 360‐Degree Feedback: The Powerful New Tool for Employee Feedback
and Performance Improvement (New York: AMACOM, 1996).
  91. Emily Ross, ‘Take a Number, and Fret’, BRW (1 November 2001), www.brw.com.au.
  92. Lisa Bradley and Neil Ashkanasy, ‘Performance Appraisal in Australia: Does It Serve Its Purpose?’, paper presented at the
ANZAM 1998 Conference, Adelaide (6–9 December 1998).
  93. Rita Zeidner, ‘Questing for Quality: For High‐Performing Organizations, “Good Enough” is Not Good Enough’,
HR Magazine, vol. 55, no. 7 (1 July 2010).
  94. Rebecca R. Hastings, ‘Employee Engagement: How to Get It and Keep It’ (20 June 2010), SHRM website, www.shrm.org.
  95. Tim Clark, The Employee Engagement Mindset (McGraw‐Hill, 2012).
  96. Aon website, www.aon.com.au/australia.
  97. ‘Aon Hewitt Announces 2010 Best Employers’ (24 June 2012), Aon website, www.aon.com.au.
 98. ibid.
  99. Peter Capelli, ‘A Supply Chain Approach to Workforce Planning’, Organizational Dynamics, vol. 38, no. 1 (January–March
2009), p. 8.
100. J. Ingham, ‘Harnessing Social Media for Organisational Effectiveness’, John Ingham’s Strategic HCM Blog (29 June 2012),
http://strategic‐hcm.blogspot.com.
101. Sarah Dinolfo, Christine Silva and Nancy M. Carter, ‘High Potentials in the Pipeline: Leaders Pay it Forward’, Catalyst
(June 2012), www.catalyst.org.
102. See Thomas P. Ference, James A. F. Stoner and E. Kirby Warren, ‘Managing the Career Plateau’, Academy of Management
Review, vol. 2 (October 1977), pp. 602–12.
103. Leon Gettler, ‘‘Career Management’, Management Today (April 2002), p. 5.
104. SHRM 2006 Job Satisfaction Study, www.shrm.org.
105. Riding the wave of growth and restructuring: Global workforce study US findings (Towers Perrin, 2006), www.towersperrin.com.
106. J. Bond, E. Galinsky, S. Kim and E. Brownfield, National Study of Employers. Highlights of Findings (New York,
NY: Families and Work Institute, 2005).
107. See www.awlp.org.
108. J. Bird, ‘Work–Life Balance: Doing it Right and Avoiding the Pitfalls’, Employee Relations Today, vol. 33 (2006), pp. 21–30;
‘Survey Findings’, SHRM website, www.shrm.org.

CHAPTER 12 Human resource management  349

109. Glassdoor website, www.glassdoor.com.
110. Jill McLean and Margaret Lindorff, Work‐Family Balance Among Dual‐Career Parents, paper presented at the ANZAM 2000
Conference, Sydney (3–6 December 2000).
111. Damon Poeter, ‘Bill Gates Talks Microsoft Surface Tabs, Charitable Work & Steve Jobs’, ITProPortal (4 July 2012),
www.itproportal.com.
112. Tony Blackie, ‘Deal or No Deal’, BRW (13–19 March 2009), p. 31.
113. Michael Laurence, ‘The Bucks Stop Here’, BRW (30 May to 5 June 2002), pp. 46–52.
114. Gerard McManus, ‘Sol Trujillo Leaves Telstra With a Cool $20 Million’, Herald Sun (27 February 2009), www.news.com.au.
115. Laurence (2002), op. cit.
116. Jarek Czechowicz, ‘Where There’s an Incentive  .  .  .’, Management Today (March 2002), pp. 10–11.
117. Stone (2002), pp. 799–801.
118. Vicki Jayne, ‘Measuring ROI — Return on Individuals’, New Zealand Management (October 2003), pp. 34–7.

ACKNOWLEDGEMENTS
Photo: © Asif Islam / Shutterstock.com
Photo: © Gautier Willaume / Shutterstock.com
Photo: © Inc / Shutterstock.com
Photo: © JStone / Shutterstock.com
Extract: © The Conversation, James Hayton, 6 October 2014, https://theconversation.com/
others-can-learn-from-the-ways-tech-firms-find-and-keep-staff-32187
Extract: © The Conversation, Leanne Cutcher, 25 February 2015, https://theconversation.com/
business-must-show-the-lead-on-intergenerational-employment-37974

350  Management
CHAPTER 13

Leading  

LEA RNIN G OBJE CTIVE S

13.1 What is the nature of leadership?

13.2 What are the important leadership traits and behaviours?
13.3 What are the contingency theories of leadership?
13.4 What are current issues in leadership development?
Traits of an ethical leader1
In recent years we have seen many major business scandals: the emissions-cheating scandal at Volkswagen,
the employee exploitation scandal at 7-Eleven and the Turing Pharmaceuticals scandal — where the price
of the drug Daraprim was hiked 5000 per cent — to name a few. All pointed to a business culture using
the ‘end justifies the means’ argument to justify unethical if not illegal practices. While hopefully the
exception and not the rule, these cases all left the public asking whether getting caught was seen by some
leaders as the worst crime of all. What are the qualities of an ethical leader and how might someone with
those qualities think and act?

The personality to defy groupthink

Good leaders display certain personality traits that are common across cultures and history; those of
intelligence and imagination to create a compelling vision of the future, and bring those who can deliver
it with them.
A good leader must also be trustworthy and display unshakeable integrity, be action‐oriented, resilient in
the face of setbacks while treating people with respect, not as mere units of production. They have rid them-
selves of delusion and are brutally honest with themselves, know when to take risks and when to play it safe.
Leaders are courageous, defy groupthink and accept the backlash against their unorthodox practices.
Outwardly, leadership can be expressed in countless ways, yet if a person embodies these traits, they
will be perceived as a leader by those around them.

The ability to set a good example

A defining feature of the ethical leader is that in addition to the foundational qualities mentioned above,
they are seen to act from their own well-developed set of ethical principles, setting a consistently good
example for others to follow.
The steady force of their attitude over time trickles down and becomes embedded in the culture. They
have created a moral matrix that people internalise and operate from day to day. This was as true in
ancient China as it is today, nicely summed up by Lao Tzu who observed that ‘A leader is best when
people barely know he exists, when his work is done, his aim fulfilled, they will say “we did it ourselves”’.

Selflessness
Ethical leaders are strong when it comes to selfless service in the interests of the greater good. They
would probably resonate with this quote from Nobel Prize winner George Bernard Shaw:
This is the true joy in life, the being used for a purpose recognised by yourself as a mighty one; the being
thoroughly worn out before you are thrown on the scrap heap; the being a force of Nature instead of a
feverish selfish little clod of ailments and grievances complaining that the world will not devote itself to
making you happy.

Shaw was not one to mince words.

Their door is always open

With strong leaders, the whole topic of ethics is open for discussion and everyone is encouraged to become
part of the ongoing conversation. The moral DNA of the organisation is a work in progress; a living entity
that evolves, becomes stronger. It is not enshrined in a framed mission statement, then forgotten about.

They’re not afraid to be challenged

Having one’s subordinates call you out, disagree with you, challenge your judgement; all of this calls
for great understanding and tolerance. Ethical leaders understand that it’s part of a culture of continuous
improvement. There can be no ‘I’m the boss, don’t you dare challenge my authority’. It is part of not
taking oneself too seriously. Self‐deprecating humour is used to good effect.

352  Management
 Ethical leaders do not identify too closely with the position they occupy, such that they will be tempted
to overstay their welcome. They cultivate successors and know when to step aside, leaving on a high
rather than being pushed. New blood rejuvenates; it’s often the best strategy for moving with the times.

They take responsibility for everything

The ethical leader accepts that they are either directly or indirectly responsible for everything that hap­
pens in the organisation. They understand that blame shifting and finger pointing is a failure of leadership,
as we saw in the VW fiasco when the CEO sought to put the blame on the engineers and technicians.
The ethical leader does not resort to the ‘plausible deniability’ defence.
Ultimately, good ethics is good business. The organisation that does the right thing, and is seen to be
doing the right thing is the one that will prosper in today’s more connected and accountable world. The
community expects moral behaviour from our leaders, and will punish those that transgress through loss
of reputation and jail. The old paradigm of win–lose is giving way to win–win.

Volkswagen chief executive Martin Winterkorn resigned after the company was caught deliberately cheating on
emissions tests.
Source: David Tuffley (Griffith University) and Amy Antonio (University of Southern Queensland), originally published on The
Conversation.

QUESTION
Drawing on your own experiences, identify another trait that should be displayed by ethical leaders.

Introduction
Different leadership styles can be successful in different situations; but, equally, different styles could be
rejected by members of the organisation or members of the public. Similarly, a leadership style favoured in
one organisation may not be favoured in others. Senior managers often find that they cannot match earlier
leadership successes when they switch organisations. Why? Because other elements are at play, including the
culture of the organisation, the actions of its competitors and the general economic environment. Yet there is
little doubt that leaders do make a difference, and many leave a lasting imprint on the organisations they lead.

CHAPTER 13 Leading  353

 Leadership can be viewed in different ways. It can be seen as the expression of individual character-
istics that leaders bring to their jobs. For example, naturally outgoing people may display an open and
friendly approach in the way they seek to lead others. It can be viewed as a flexible, situation‐specific
response to the particular events confronting leaders at particular times, so that the leader appears more
or less outgoing, depending on the situation. Leadership can be seen as most useful when it is simply
creating an environment in which others can perform.
This chapter encourages a complex and realistic understanding of leadership, where individual charac-
teristics are important but not entirely fixed. You can work to develop your leadership strengths and
respond to your leadership weaknesses. Situations are important, but do not fully determine your effec-
tiveness as a leader. You choose your response to situations. In reading this chapter, we hope that you
will begin to understand how organisations identify, develop and evaluate leadership, and that you will
reflect on your own potential to lead.

13.1 The nature of leadership

LEARNING OBJECTIVE 13.1 What is the nature of leadership?
A glance at the shelves in your local bookstore will quickly confirm that leadership or leading — the
process of inspiring others to work hard to accomplish important tasks — is one of the most popular
management topics. As shown in figure 13.1, it is also one of the four functions that constitute the man-
agement process. Planning sets the direction and objectives; organising brings the resources together to
turn plans into action; leading builds the commitments and enthusiasm needed for people to apply their
talents fully to help accomplish plans; and controlling makes sure things turn out in the right way.

Leading —
to inspire effort
● build enthusiasm
● communicate the
vision
● maintain
momentum

Planning — Controlling —
to set the direction to ensure results

Organising —
to create structures

FIGURE 13.1 Leading viewed in relationship to the other management functions

Today’s leaders are being challenged in new and demanding ways. The time frames for getting things
accomplished are becoming shorter; leaders are expected to get things right the first time, with second
chances few and far between; the problems to be resolved through leadership are complex, ambiguous
and multidimensional; leaders are expected to be long‐term oriented, even while meeting demands for
short‐term performance results.2 Anyone aspiring to career success in leadership must rise to these chal-
lenges, and more.3 To succeed as a leader in the new workplace, you must be good at dealing with all
aspects of communication, interpersonal relations, motivation, job design, teamwork and change — all
topics covered in Management.

354  Management
Leadership and vision
‘Great leaders’, it is said, ‘get extraordinary things done in organisations by inspiring and motivating
others toward a common purpose’.4 Today, leadership is often associated with vision — a future that
you hope to create or achieve in order to improve on the present state of affairs. The term visionary
leadership describes a leader who brings to the situation a clear and compelling sense of the future, as
well as an understanding of the actions needed to get there successfully.5 But there is more to it than
that — simply having the vision of a desirable future is not enough. Truly great leaders are extraordi-
narily good at turning their visions into concrete results. Importantly, this involves the essential ability to
communicate your vision in such a way that others commit their hard work to its fulfilment. Visionary
leaders, simply put, inspire others to take the actions necessary to turn vision into reality.
Manager’s notepad 13.1 offers five principles for meeting the challenges of visionary leadership.6
Recognise that the suggestions go beyond a manager’s responsibilities for making long‐term plans and
drafting budgets, putting structures in place, assigning people to jobs, and making sure that results are
consistent with the original plan. Leadership with vision means doing all these things and more — it
means beginning with a clear vision, communicating that vision to all concerned, and getting people
motivated and inspired to pursue the vision in their daily work. It means bringing meaning to the work
that people do — making what they do worthy and valuable. Visionary leadership is a cornerstone of
managerial success in dynamic leadership settings around the world.

MANAGER’S NOTEPAD 13.1

Five principles of visionary leadership

• Challenge the process. Be a pioneer; encourage innovation and support people who have ideas.
• Show enthusiasm. Inspire others through personal enthusiasm to share in a common vision.
• Help others to act. Be a team player and support the efforts and talents of others.
• Set the example. Provide a consistent role model of how others can and should act.
• Celebrate achievements. Bring emotion into the workplace and rally ‘hearts’ as well as ‘minds’.

Power and influence

The foundations of effective leadership lie in the way a manager uses power to influence the behav-
iour of other people. Power is the ability to get someone else to do something you want done. It is the
ability to make things happen the way you want them to.7 Research recognises that a need for power is
essential to executive success.8 But this need for power is not a desire to control for the sake of personal
satisfaction; it is a desire to influence and control others for the good of the group or organisation as a
whole. This ‘positive’ face of power is the foundation of effective leadership. Figure 13.2 shows one set
of power sources that is based on the position you hold and a second set that is based on your personal
qualities.9

Position power Personal power

Based on things managers can offer to others Based on the ways managers are viewed by others

Reward — ‘If you do what I ask, I’ll give you a reward.’ Expert — as a source of special knowledge and
information
Coercion — ‘If you don’t do what I ask, I’ll punish you.’
Referent — as a person with whom others like to identify
Legitimacy — ‘Because I am the boss; you must do
as I ask.’

FIGURE 13.2 Sources of position power and personal power used by managers

CHAPTER 13 Leading  355

Sources of position power
One important source of power is a manager’s official status, or position, in the organisation’s
hierarchy of authority. Whereas anyone holding a managerial position theoretically has this power,
how well it is used will vary from one person to the next. Consequently, leadership success will
vary as well. The three bases of position power are reward power, coercive power and legitimate
power.
Reward power is the ability to influence through rewards. It is the capacity to offer something of
value — a positive outcome — as a way of influencing the behaviour of other people. This involves the
control of rewards or resources such as pay rises, bonuses, promotions, special assignments and verbal
or written compliments. To mobilise reward power, a manager says, in effect, ‘If you do what I ask, I’ll
give you a reward’.
Coercive power is the ability to influence through punishment. It is the capacity to punish or with-
hold positive outcomes as a way of influencing the behaviour of other people. A  manager may try
to coerce someone by threatening him or her with verbal reprimands, pay penalties and even termin-
ation. To mobilise coercive power, a manager says, in effect, ‘If you don’t do what I want, I’ll punish
you’.
Legitimate power is the ability to influence through authority — the right by virtue of organisational
position or status to exercise control over people in subordinate positions. To mobilise legitimate power,
a manager says, in effect, ‘I am the boss and therefore you are supposed to do as I ask’.
Sources of personal power
Another source of power lies in the individual manager and the unique personal qualities that person
brings to a leadership situation. Two bases of personal power are expert power and referent power.
Expert power is the ability to influence through special expertise. It is the capacity to
influence the behaviour of other people because they recognise your knowledge, understanding
and skills. Expertise derives from the possession of technical know‐how or information pertinent
to the issue at hand. This is developed by acquiring relevant skills or competencies or by gaining a
central position in relevant information networks. Leaders maintain this power by protecting their
credibility and not overstepping the boundaries of their own understanding. When a manager uses
expert power, the implied message is, ‘You should do what I want because of my special expertise or
information’.
Referent power is the ability to influence through identification. It is the capacity to influence the
behaviour of other people because they admire you and want to identify positively with you. Reference
is a power derived from charisma or interpersonal attractiveness. It is developed and maintained through
good interpersonal relations that encourage the admiration and respect of others. When a manager uses
referent power, the implied message is, ‘You should do what I want in order to maintain a positive self‐
defined relationship with me’.

Turning power into influence

To succeed at leadership, you must be able to acquire all types of power and appropriately  use them
to achieve goals and pursue a shared vision.10 The best leaders and managers understand that different
outcomes are associated with use of the various power bases. When a leader relies on rewards and legit-
imacy to influence others, the likely outcome is temporary compliance. The follower will do what the
leader requests, but only so long as the reward continues and/or the legitimacy persists. Inability to con-
tinue the reward or attempting to influence outside the range of legitimacy will result in a loss of com-
pliance. When a leader relies on coercion to gain influence, compliance also depends on the continued
threat of punishment. In this case, however, the compliance is very temporary and often accompanied by
resistance. Use of expert and referent power creates the most enduring influence; they create commit-
ment. Followers respond positively because of internalised understanding or beliefs that create their own
long‐lasting effects on behaviour.

356  Management
 Position power alone is often insufficient to achieve and sustain needed influence. Personal power
and the bases of expert and referent power often make the difference between leadership success and
mediocrity. This is particularly true in the ability to influence the behaviour of peers and superiors in
the organisation. Four points to keep in mind are: (1) there is no substitute for expertise; (2) likeable
personal qualities are very important; (3) effort and hard work breed respect; and (4) personal behaviour
must support expressed values.11
In organisations, power and influence are also linked to where you fit and how you act in the struc-
tures and networks of the workplace. Centrality is important. Managers, for example, must establish
a broad network of interpersonal contacts and get involved in the important information flows within
them. They must avoid becoming isolated. Support is important. To gain power, managers must take
good care of others who depend on them. They should take care to support them exceptionally well, by
doing things that add value to the work setting. Visibility is also important. It helps to become known
as an influential person in the organisation. Good managers don’t hesitate to make formal presentations,
participate in key task forces or committees, and pursue special assignments that can display their lead-
ership talents and capabilities.

Ethics and the limits to power

On the issue of ethics and the limits to power, it is always helpful to remember Chester Barnard’s
acceptance theory of authority. He identified four conditions that determine whether a leader’s directives
will be followed and true influence achieved.
•• The other person must truly understand the directive.
•• The other person must feel capable of carrying out the directive.
•• The other person must believe that the directive is in the organisation’s best interests.
•• The other person must believe that the directive is consistent with personal values.12
When the complexities of ethical dilemmas were discussed in the chapter on ethical behaviour and
corporate social responsibility, it was noted that many such dilemmas begin when leaders and managers
pressure followers to do questionable things. Using the acceptance theory of authority as a starting point,
the ethical question a follower must always be prepared to ask is: ‘Where do I (or will I) draw the line; at
what point do I (or will I) refuse to comply with requests?’ Some day you may face a situation in which
you are asked by someone in authority to do something that violates personal ethics and/or even the law.
Can you  .  .  .  will you  .  .  .  when will you say ‘no’? After all, as Barnard said, it is ‘acceptance’ that estab-
lishes the limits of managerial power.

Leadership and empowerment

At many points in this book we have talked about empowerment, the process through which man-
agers enable others to gain power and achieve influence within the organisation. Effective leaders
empower others by providing them with the information, responsibility, authority and trust to make
decisions and act independently within their areas of expertise. They know that when people feel
empowered to act, they tend to follow through with commitment and high‐quality work. They also
realise that power in organisations is not a ‘zero‐sum’ quantity. That is, in order for someone to gain
power, it isn’t necessary for someone else to give it up. Indeed, today’s high‐performance organ-
isations are masters at mobilising power and commitment to the vision throughout all ranks of
employees.
Trust is undeniably a crucial part of effective empowerment. Management consultant Peter Stephenson
argues that empowerment can provide people with a sense of responsibility and accountability, which,
in turn, can improve service across the organisation. In the case of a hotel chain, for example, he pro-
vides a scenario where staff who interact heavily with customers be given budgets to rectify customers’
problems, with no need to seek authorisation first. In such a scenario, the employees, in effect, become
business leaders.13

CHAPTER 13 Leading  357

 Manager’s notepad 13.2 offers tips on how leaders can empower others.14 There are many ben-
efits for managers who are successful at doing so. On the one hand, empowerment allows people
to act independently and feel more ‘adult’ in their work activities. On the other hand, a manager
who empowers others tends to gain power, too. Having a high‐performing work unit certainly helps
cement the manager’s position. The very act of empowering others may create a positive relationship
and build referent power.15 What better way to demonstrate expertise than to show that your team
does a great job?

MANAGER’S NOTEPAD 13.2

How to empower others

• Get others involved in selecting their work assignments and the methods for accomplishing tasks.
• Create an environment of cooperation, information sharing, discussion and shared ownership
of goals.
• Encourage others to take the initiative, make decisions and use their knowledge.
• When problems arise, find out what others think and let them help design the solutions.
• Stay out of the way; give others the freedom to put their ideas and solutions into practice.
• Maintain high morale and confidence by recognising successes and encouraging high performance.

CRITICAL ANALYSIS

1. When we think of leadership, we tend to view it through a US lens that emphasises vision,
inspiration and charisma. What might this perspective miss?
2. Think of a contemporary leader in any field that you admire and identify their source(s) of power.
How do (or could) they empower others?

13.2 Leadership traits and behaviours

LEARNING OBJECTIVE 13.2 What are the important leadership traits and behaviours?
For centuries, people have recognised that some people perform very well as leaders, whereas others do
not. The question still debated is ‘Why?’ Historically, the issue of leadership success has been studied
from the perspective of the trait, behavioural and contingency approaches discussed here. Each takes
a slightly different tack in trying to both explain leadership effectiveness and identify the pathways to
leadership development.

Search for leadership traits

An early direction in leadership research involved the search for universal traits or distinguishing per-
sonal characteristics that would separate effective and ineffective leaders.16 Sometimes called the great
person theory, the notion was to identify successful leaders and then determine what made them great. If a
listing of definitive universal leadership traits could be made, it would then be easy to select for leadership
positions only those people with the requisite characteristics. Those wanting to become leaders or those
seeking to improve their leadership success could set personal development goals for acquiring them.
Historically, researchers struggled with their inability to find consistent patterns of leader-
ship traits. More recent research indicates that certain personal traits may be important, but that
they must be considered along with other situational factors. Briefly, the results of many years of
research in this direction can be summarised as follows. Physical characteristics such as a person’s

358  Management
height, weight and physique make no difference in determining leadership success. On the other
hand, certain personal traits do seem to differentiate leaders. A study of more than 3400 managers,
for example, found that followers rather consistently admired certain things about leaders.17 The
most respected leaders were described by their followers as honest, competent, forward‐looking,
inspiring and credible. Such positive feelings may enhance a leader’s effectiveness, particularly with
respect to creating vision and a sense of empowerment. In a comprehensive review of research to
date, Shelley Kirkpatrick and Edwin Locke further identify these personal traits as being common
among successful leaders.
•• Drive. Successful leaders have high energy, display initiative and are tenacious.
•• Self‐confidence. Successful leaders trust themselves and have confidence in their abilities.
•• Creativity. Successful leaders are creative and original in their thinking.
•• Cognitive ability. Successful leaders have the intelligence to integrate and interpret information.
•• Business knowledge. Successful leaders know their industry and its technical foundations.
•• Motivation. Successful leaders enjoy influencing others to achieve shared goals.
•• Flexibility. Successful leaders adapt to fit the needs of followers and the demands of situations.
•• Honesty and integrity. Successful leaders are trustworthy; they are honest, predictable and dependable.18
An Australian study of senior executives from a range of industries found that these traits continue
to be identified as important in determining whether managers progress to senior leadership positions.
According to those surveyed, leaders differentiate themselves from their colleagues by possessing a
strong need to achieve results, the ability to see the big picture, the ability to exercise initiative, the
ability to persuade and influence others, high internal work standards and sound overall business sense.
Clearly, interpersonal qualities such as the ability to work both alone and with others and to think strate-
gically are viewed as crucial if leadership roles are to be assumed.19

Focus on leadership behaviours

Recognising that the possession of certain traits alone is not a guarantee of leadership success, researchers
next turned their attention to examine how leaders behave when working with followers. In effect, this
shifted attention from a focus on who leaders are to concern for what leaders do. Generally known as
behavioural theories of leadership, work in this tradition sought to determine which leadership style —
the recurring pattern of behaviours exhibited by a leader — worked best.20 If the preferred style could be
identified, the implications were straightforward and practical — train leaders to become skilled at using
the ideal style to best advantage.
Most research in the leader behaviour tradition focused on two dimensions of leadership style: con-
cern for the task to be accomplished and concern for the people doing the work. The terminology used
to describe these dimensions varies among many studies. Concern for task is sometimes called initiating
structure, job‐centredness and task orientation; concern  for people is sometimes called consideration,
employee‐centredness and relationship orientation. Regardless of the terminology, the behaviours charac-
teristic of each dimension are quite clear. A leader high in concern for task plans and defines work to be
done, assigns task responsibilities, sets clear work standards, urges task completion and monitors perfor-
mance results. The late Run Run Shaw, who stepped down as chairman of the successful Television Broad-
cast company in China at the age of 104, exemplified such a leader. Shaw’s leadership style was regarded
by some people as disciplined and driven; others considered him ‘iron-fisted’. In contrast, a leader high in
concern for people acts in a manner that is warm and supportive towards followers, maintains good social
relations with them, respects their feelings, is sensitive to their needs and shows trust in them.
The results of leader behaviour research at first suggested that followers of people oriented leaders
were more productive and satisfied than those working for more task oriented leaders.21 Later results,
however, suggested that truly effective leaders were high in both concern for people and concern for
task. Figure 13.3 describes one of the popular versions of this conclusion — the Leadership Grid® of
Robert Blake and Jane Mouton.22

CHAPTER 13 Leading  359

High
Country club Team manager
manager Focuses on building
Focuses on people’s needs, commitments to shared
Concern for people building relationships purpose

Middle-of-the-road
manager
Focuses on balancing
work output and morale

Impoverished Authority-obedience
manager manager
Focuses on minimum Focuses on efficiency
effort to get work done of tasks and operations
Low

Low Concern for production High

FIGURE 13.3 Managerial styles in Blake and Mouton’s Leadership Grid®

This grid is designed not only to describe alternative leadership styles and identify a preferred
one, but also to assist in the process of leadership development. The approach uses assessments
to first determine where someone falls with respect to people and task concerns. Then a training
program is designed to help shift the person’s style in the preferred  direction of becoming strong
on both dimensions. Blake and Mouton called this preferred style team management. This leader
shares decisions with subordinates, encourages  participation and supports the teamwork needed
for high levels of task accomplishment. In today’s terminology, this could also be a manager who
‘empowers’ others.

COUNTERPOINT

Why we should fight at work — leadership style23

Transformational leaders are known to have
high expectations and like to set goals and
lead by example. They’re also thought to be
well‐suited to teamwork. Yet, while these
leaders can increase motivation to work
across occupational boundaries, this focus on
cooperation can lead to premature consensus
and conformity. When this occurs, it is said
that negative mood (reflecting hostility, upset
and tension) can provide an effective counter.
Negative mood signals to the team that some-
thing is wrong, promoting team members
to question existing ideas and rely less on
assumptions.
In the absence of negative mood, the motiv-
ation to work cooperatively reduces effec-
tiveness, but a tension between cooperation and hostility enhances performance. The same tension
between positive and negative dynamics enhances other styles of leadership. Inclusive leaders strive to
assure team members that their individual voices and unique perspectives will be valued.

360  Management
 But while creating a participative climate allows team members to express their viewpoints, it may
not motivate them to do so. The capacity of inclusive leaders to engender innovation is dependent on
whether team members perceive a threat to their profession. Feeling threatened drives members to
advocate the distinguishing attributes of their profession’s position.
It is the tension between feeling included and feeling threatened that motivates teams to find a solu-
tion that incorporates diverse and dissenting viewpoints and increases the likelihood of innovation.
When teams appear to move towards compromise at the expense of dissent and critical analysis, nega-
tive mood and conflict may introduce a useful tension.
But managers should be cautious about engendering such moods, which have also been linked to
team failure. One approach with potential for encouraging conflict within safe parameters is through
interventions such as devil’s advocacy which direct dissent to task‐related, rather than personal, issues.
Source: Rebecca Mitchell (University of Newcastle), originally published on The Conversation.

QUESTION
Do you agree that employees need to feel threatened in order to be innovative? Can you think of another
leadership style that would motivate a team just as well?

An important personal question in leadership development is, of course: Which type of leader are you?
Is your style most typically perceived by others as one of team management? Or is it one of the following
styles that are considered by Blake and Mouton to be much less effective? Impoverished management dis-
plays low concern for both people and tasks. Leaders with this style turn most decisions over to the work
group and show little interest in the work process or its results. Authority‐obedience management shows
high concern for the task and low concern for people. Leaders with this style make most of the decisions
for the work group, give directions and expect their orders to be followed. Country club management
shows high concern for people and low concern for tasks. Leaders with this style are warm in interpersonal
relationships, avoid conflict and seek harmony in decision‐making. Middle‐of‐the‐road management is non‐
committal in emphasising both task and people concerns. This leader puts forth minimum required effort
in balancing the task and people needs of the group to maintain adequate but not exemplary performance.

CRITICAL ANALYSIS

1. In Blake aınd Mouton’s Leadership Grid®, the ‘middle of the road’ style is generally viewed as less
effective than the ‘team manager’. Arguably, however, it is impossible to be simultaneously fully
committed to both people and to production. What do you think?
2. Given that many of the most influential ideas about management and leadership derive from the
United States, how should Australian business leaders view such North American ideas?

13.3 Contingency approaches to leadership

LEARNING OBJECTIVE 13.3 What are the contingency theories of leadership?
As leadership research developed, scholars recognised the need to probe still further beyond leader
behaviours alone and examine them in relationship to situational attributes. Interest thus turned to yet
another question: When and under what circumstances is a particular leadership style preferable to
others? Why, for example, would Run Run Shaw’s leadership style lead to company success over many
years, when his style would generally be regarded as being too authoritarian? This is the essence of the
following contingency approaches, which share the goal of understanding the conditions for leadership
success in widely varying situations.

CHAPTER 13 Leading  361

Fiedler’s contingency model
An early contingency leadership model developed by Fred Fiedler was based on the premise that good lead-
ership depends on a match between leadership style and situational demands.24 Leadership style is measured
on what Fiedler calls the least‐preferred co‐worker scale, also known as the LPC scale. According to Fiedler,
a person’s LPC score describes tendencies to behave either as a task‐motivated or relationship‐motivated
leader. This either/or concept is important. Fiedler believes that leadership style is part of a person’s person-
ality; therefore, it is relatively enduring and difficult to change. Instead of trying to train a task‐motivated
leader to behave in a relationship‐motivated manner, or vice versa, Fiedler suggests that the key to leadership
success is putting the existing styles to work in situations for which they are the best ‘fit’. This is true contin-
gency leadership thinking, with the goal of successfully matching style with situational demands.
Understanding leadership situations
In Fiedler’s theory, the amount of control a situation allows the leader is important in determining the cor-
rect style–situation fit. Three contingency variables are used to diagnose situational control. The quality of
leader–member relations (good or poor) measures the degree to which the group supports the leader. The
degree of task structure (high or low) measures the extent to which task goals, procedures and guidelines are
clearly spelt out. The amount of position power (strong or weak) measures the degree to which the position
gives the leader power to reward and punish subordinates. Figure 13.4 shows eight leadership situations that
result from different combinations of these variables. They range from the most favourable situation of high
control (good leader–member relations, high task structure, strong position power), to the least favourable
situation of low control (poor leader–member relations, low task structure, weak position power).
Combinations of situational characteristics
Leader—
Good Good Good Good Poor Poor Poor Poor
member
relations
Task High High Low Low High High Low Low
structure
Position
Strong Weak Strong Weak Strong Weak Strong Weak
power

Situational
Very high Very low
control

Preferred
leadership Task oriented Relationship oriented Task oriented
styles

FIGURE 13.4 Matching leadership style and situation: summary predictions from Fiedler’s contingency theory

Matching leadership style and situation

Figure 13.4 also summarises Fiedler’s extensive research on the contingency relationships between situ-
ation control, leadership style and leader effectiveness. Neither the task oriented nor the relationship‐
oriented leadership style is effective all the time. Instead, each style appears to work best when used in
the right situation. The results can be stated as two propositions. Proposition 1 is that a task‐oriented
leader will be most successful in either very favourable (high‐control) or very unfavourable (low‐­control)
situations. Proposition  2 is that a relationship‐oriented leader will be most successful in situations of
moderate control.

362  Management
 Fiedler believes that leadership success depends on a good leader–situation match. This means that
prospective leaders should actively seek situations for which their predominant style is most appropriate.
Run Run Shaw, for example, produced his movies and television shows using a fairly standard formula.
Due to his age and reputation, the production team and actors were highly supportive of him, and their
jobs were clearly defined in the production team. Shaw had the authority to evaluate their performance
and to make pay and bonus recommendations. This is a high‐control situation consisting of good leader–
member relations, high task structure and strong position power. Figure 13.4 shows that a task‐oriented
leader would be most effective in this situation.
Now take another example. Suppose that you are chairperson of a committee asked to improve
labour–management relations in a manufacturing plant. Although the goal is clear, no‐one can say for
sure how to accomplish it. Task structure is low. Because committee members are free to resign any time
they want, the chairperson has little position power. Because not all members believe the committee is
necessary, poor leader–member relations are apparent. According to figure 13.4, this low‐control situ-
ation also calls for a task‐oriented leader.
Finally, assume that you are the new head of a retail section in a large department store. Because you
were selected over one of the popular sales clerks you now supervise, leader–member relations are poor.
Task structure is high, since the clerk’s job is well defined. Your position power is low because the clerks
work under a seniority system and fixed wage schedule. Figure 13.4 shows that this moderate‐control
situation requires a relationship‐oriented leader.

Hersey–Blanchard situational leadership model

The Hersey–Blanchard situational leadership model suggests that successful leaders adjust their styles
depending on the maturity of followers, indicated by their readiness to perform in a given situation.25
‘Readiness’, in this sense, is based on how able and willing or confident followers are to perform required
tasks. As shown in figure 13.5, the possible leadership styles that result from different combinations of
task‐oriented and relationship‐oriented behaviours are as follows:
•• delegating — allowing the group to make and take responsibility for task decisions; a low‐task, low‐
relationship style
•• participating — emphasising shared ideas and participatory decisions on task directions; a low‐task,
high‐relationship style
•• selling — explaining task directions in a supportive and persuasive way; a high‐task, high‐relationship
style
•• telling — giving specific task directions and closely supervising work; a high‐task, low‐relationship style.

High
Participating Selling
Relationship behaviour

Share ideas Explain decisions

Followers able and Followers unable and
Support required

unwilling, insecure willing, confident

Delegating Telling
Turn over decisions Give instructions
Followers able and Followers unable and
willing, confident unwilling, insecure
Low

Low Task behaviour High

Guidance required

FIGURE 13.5 Leadership implications of the Hersey–Blanchard situational leadership model

CHAPTER 13 Leading  363

 Managers using this model must be able to implement the alternative leadership styles as needed. The
delegating style works best in high‐readiness situations of able and willing or confident followers; the
telling style works best at the other extreme of low readiness, where followers are unable and unwilling
or insecure. The participating style is recommended for low‐to‐moderate readiness (followers able
but unwilling or insecure) and the selling style for moderate‐to‐high readiness (followers unable but
willing or confident). Hersey and Blanchard further believe that leadership styles should be adjusted
as followers change over time. This model differs from Fiedler’s model in that leaders can adjust their
styles; whereas Fiedler argued that a different leader should be appointed in differing circumstances. The
Hersey‐Blanchard model also implies that if the correct styles are used in lower readiness situations,
followers will ‘mature’ and grow in ability, willingness and confidence. This allows the leader to become
less directive as followers mature.26
A significant Australian study was undertaken on this model. Gayle Avery of the Macquarie Graduate
School of Management found that senior and middle managers preferred using the participating style
over the other styles, whereas supervisors and junior managers preferred using the participating and
selling styles. Avery argues that this may reflect the traditional Australian value of ‘mateship’ influ-
encing leadership styles, general trends towards more empowered and democratic workplaces, and lead-
ership ‘success’ in Australian workplaces relying more strongly on managers relating individually with
their subordinates compared with their counterparts in other countries. The study also found that sub-
ordinates did not perceive their managers’ preferred leadership styles as particularly effective, indicating
that Australian managers may actually be overly supportive in their leadership approach.27

House’s path–goal leadership theory

A third contingency leadership approach is the path–goal theory advanced by Robert House.28 This
theory suggests that an effective leader is one who clarifies paths through which followers can achieve
both task‐related and personal goals. The best leaders help people progress along these paths, remove
any barriers that stand in their way, and provide appropriate rewards for task accomplishment. House
identifies four leadership styles that may be used in this ‘path–goal’ sense:
•• directive leadership — letting subordinates know what is expected; giving directions on what to do
and how; scheduling work to be done; maintaining definite standards of performance; clarifying the
leader’s role in the group
•• supportive leadership — doing things to make work more pleasant; treating group members as equals;
being friendly and approachable; showing concern for the wellbeing of subordinates
•• achievement‐oriented leadership — setting challenging goals; expecting the highest levels of
performance; emphasising continuous improvement in performance; displaying confidence in meeting
high standards
•• participatory leadership — involving subordinates in decision‐making; consulting with subordinates;
asking for suggestions from subordinates; using these suggestions when making a decision.
Path–goal predictions and managerial implications
The path–goal leadership theory is summarised in figure 13.6. It advises a manager to always use leader-
ship styles that complement situational needs. This means that leaders add value by contributing things that
are missing from the situation or that need strengthening; they specifically avoid redundant behaviours. For
example, when team members are expert and competent at their tasks it is unnecessary for the leader to tell
them how to do things. The important contingencies for making good path–goal leadership choices include
the personal characteristics of subordinates (ability, experience and locus of control) and the work environ-
ment characteristics (task structure, authority system and work group).
In path–goal theory, for example, the match of leader behaviours and situation might take the following
forms.29 When job assignments are unclear, directive leadership is appropriate to clarify task objec-
tives and expected rewards. When worker self‐confidence is low, supportive leadership is appropriate to
increase confidence by emphasising individual abilities and offering needed assistance. When performance

364  Management
incentives are poor, participatory leadership is appropriate to clarify individual needs and identify appro-
priate rewards. When task challenge is insufficient in a job, achievement‐oriented leadership is appropriate
to set goals and raise performance aspirations. In all these examples, the value added by the choice of lead-
ership style is expected to lead to greater effort by subordinates and improve satisfaction and performance.

Leader behaviours
Directive
Leader
Supportive
effectiveness
Achievement oriented
Participatory

Situational contingencies
Subordinate:
● Ability
● Experience
● Locus of control
Environment:
● Task structure
● Authority system
● Work group

FIGURE 13.6 Contingency relationships in the path–goal leadership theory

Substitutes for leadership

Path–goal theory has also contributed to the recognition of what some theorists call substitutes for
leadership.30 These are aspects of the work setting and the people involved that can reduce the need for
a leader’s personal involvement. In effect, they make leadership from the ‘outside’ unnecessary because
leadership is already built into the situation. Possible substitutes for leadership include subordinate char-
acteristics such as ability, experience and independence; task characteristics such as routineness and
availability of feedback; and organisational characteristics such as clarity of plans and formalisation of
rules and procedures. When substitutes are present, managers should avoid redundant leadership behav-
iours and concentrate on things that truly require outside attention.

Vroom–Jago leader‐participation model

The Vroom–Jago leader‐participation model is designed to help a leader choose the method of decision‐
making that best fits the nature of the problem being faced. In this approach, an effective leader is
someone able to consistently choose and implement the most appropriate decision methods from the
following alternatives.31
An authority decision is one made by the leader and then communicated to the group. Partici­
pation is minimised. No input is asked of group members other than to provide specific information
on request. A consultative decision is made by the leader after asking group members for information,
advice or opinions. In some cases, group members are consulted individually; in others, the consul-
tation occurs during a meeting of the group as a whole. In a group decision, all members participate in
making a decision and work together to achieve a consensus regarding the preferred course of action.
This approach to decision‐making is a form of empowerment, and it is successful to the extent that each
member of the group is ultimately able to accept the logic and feasibility of the final group decision.32
For a manager who wants to be successful at leading through participation, the challenge in effec-
tively managing the decision process is twofold. First, the leader must know when each decision method
is the preferred approach. Second, the leader must be able to properly implement each when needed.

CHAPTER 13 Leading  365

As shown in figure 13.7, Vroom–Jago’s normative model of leadership effectiveness recommends using
more group‐oriented and participatory decision methods when:
•• leaders lack sufficient information to solve a problem by themselves
•• the problem is unclear and help is needed to clarify the situation
•• acceptance of the decision by others is necessary for implementation
•• adequate time is available for true participation.

Leader Who has information/expertise? Followers

No Acceptance critical for implementation? Yes

High Time pressure for decision-making? Low

Authority decision Consultative decision Group decision

Recommended decision methods

FIGURE 13.7 Leadership implications of the Vroom‐Jago leader‐participation model

In true contingency fashion, no one decision method is considered by the Vroom–Jago model as univer-
sally superior to any of the others. Rather, leadership success results when the decision method, used
correctly, matches the characteristics of the problem to be solved. Each of the three decision methods is
appropriate in certain situations, and each has its advantages and disadvantages. The key rules guiding
the choice relate to: decision quality, which is based on the location of information needed for problem‐
solving; and decision acceptance, which is based on the importance of subordinate acceptance to
eventual solution implementation. You may think of these in the context of an equation:
Decision effectiveness = Decision quality × Decision acceptance
Use of participatory decision methods offers important benefits to the leader.33 They help improve
decision quality by bringing more information to bear on the problem. The methods help improve
decision acceptance as participants gain understanding and become committed to the process. They also
contribute to the development of leadership potential in others through the experience of active partici-
pation in the problem‐solving process. However, there is also a cost to be considered. The greater the
participation, the more time required for the decision process. Leaders do not always have sufficient time
available; some problems must be resolved immediately. In such cases, the authority decision may be
the only option. As shown in figure 13.7, authority‐oriented decisions work best when leaders personally
have the expertise needed to solve the problem, they are confident and capable of acting alone, others are
likely to accept the decision they make, and little or no time is available for discussion.

CRITICAL ANALYSIS

1. Fiedler’s contingency model looks like a useful leadership tool. However, can you really imagine
leaders thinking through each of the dimensions to arrive at a preferred leadership style?
Regardless, what can we still learn from this model?
2. Hersey and Blanchard present a somewhat simpler model, yet still expect leaders to move between
each leadership style, depending on the abilities of followers. What might be some potential
downsides to this approach?

366  Management
13.4 Issues in leadership development
LEARNING OBJECTIVE 13.4 What are current issues in leadership development?
As organisations continue to change there is an ongoing challenge for leaders to cope with new chal-
lenges. A survey of managers in New Zealand and Australia revealed four key leadership challenges
for the future. Leaders will be challenged to build high‐performance teams, to achieve an appropriate
work–life balance, to flexibly respond to new ideas, and to create and deliver effective organisational
change.34
Current trends in leadership thinking seek to integrate and extend the insights discussed so far in
this chapter.35 The era of ‘superleaders’ who, through vision and strength of  personality, have a truly
inspirational impact on others, seems to be waning.36 However, although shared leadership is gaining
in popularity, the expectations on CEOs as superleaders still exists. Their leadership efforts result in
followers not only meeting performance  expectations but performing above and beyond them. These
are charismatic leaders who develop special leader–follower relationships and inspire others in extra-
ordinary ways. The presence of charismatic leadership is reflected in followers who are enthusiastic
about the leader and his or her ideas, who work very hard to support them, who remain loyal and
devoted, and who seek superior performance accomplishments.37 Followers are also likely to see their
leader as charismatic if the leader’s values match with the follower’s values.38 A charismatic leader is
also communicative and shares knowledge effectively.39
Noting the growing interest in the role of emotions in leadership, Bono and Ilies set out to examine
how charismatic leaders ‘use emotion to influence followers’. From their studies, they concluded that
positive emotions are an important aspect of charismatic leadership. They found that leaders rated high
in charisma choose words with more positive emotional content for vision statements and speeches.
They also found that the positive emotions of leaders were transferred into positive moods among fol-
lowers; that is, the positive leader moods were contagious. They also found that followers with positive
moods had more positive perceptions of leader effectiveness. One of the limitations of these studies, as
pointed out by Bono and Ilies, is that they only focused on positive leader emotions. This leaves open
the questions of how leaders use negative emotions and how these emotions affect followers.40 Never-
theless, many charismatic leaders are able to transform either people or organisations, and this will be
discussed in the next section.

Transformational leadership
The term transformational leadership describes someone who is truly inspirational as a leader and
who arouses others to seek extraordinary performance accomplishments. The late Steve Jobs, men-
tioned in the technology box in this chapter, exemplifies such a leader. A transformational leader uses
charisma and related qualities to raise aspirations and shift people and organisational systems into new
high‐­performance patterns. Scholars differentiate this from transactional leadership, which describes
someone who is more methodical in keeping others focused on progress towards goal accomplishment.
A transactional leader adjusts tasks, rewards and structures to move followers towards accomplishing
organisational objectives.41
Importantly, these are not mutually exclusive leadership approaches. Transactional leadership is a
foundation or building block that helps support transformational leadership. On its own, however, trans-
actional leadership is acknowledged to be insufficient to meet the leadership challenges and demands
of today’s dynamic work environments. In settings where continuous and often large‐scale change is a
high priority, the additional inspirational impact of transformational leadership is essential to achieving
sustainable high performance results.
The notion of transformational leadership offers a distinct management challenge, with impor-
tant personal development implications. It is not enough to possess leadership traits, know the lead-
ership behaviours and understand leadership contingencies to act effectively from a transactional

CHAPTER 13 Leading  367

perspective. Any manager must also be prepared to lead in  an  inspirational way and with a com-
pelling personality. The transformational leader provides a strong aura of vision and contagious
enthusiasm that substantially raises the confidence, aspirations and commitments of followers to meet
high‐performance demands. Transformational leadership is also often associated with followers iden-
tifying the leader espousing values consistent with corporate social responsibility, such as altruism
and universal rights.42 The special qualities that are often characteristic of such transformational
leaders include the following:
•• vision — having ideas and a clear sense of direction; communicating them to others; developing
excitement about accomplishing shared ‘dreams’
•• charisma — arousing others’ enthusiasm, faith, loyalty, pride and trust in themselves through the
power of personal reference and appeals to emotion
•• symbolism — identifying ‘heroes’, offering special rewards and holding spontaneous and planned
ceremonies to celebrate excellence and high achievement
•• empowerment — helping others develop, removing performance obstacles, sharing responsibilities
and delegating truly challenging work
•• intellectual stimulation — gaining the involvement of others by creating awareness of problems and
stirring their imagination to create high‐quality solutions
•• integrity — being honest and credible, acting consistently out of personal conviction and following
through commitments.43
A study of how Australian executives perceive their own leadership styles found that although Aus-
tralian leaders claimed to possess many of the qualities of transformational leadership, they appeared
to be particularly strong in using intellectual stimulation and inspirational motivation (charisma) in
their interactions with staff.44 Another study indicates that transformational leadership behaviours are
critically important for team cohesion, team potency, efficacy and leadership effectiveness.45

TECHNOLOGY

The death of an innovator

The death of Steve Jobs in 2011 sent the
world into mourning for the loss of a great
innovator. No longer would the world witness
Apple’s enthusiastic CEO clad in his charac-
teristic black turtleneck sweater and faded
jeans extolling the virtues of a new product
at its official launch. However, as United
States President Barrack Obama pointed
out, millions of people would learn of this sad
news through a device designed by his com-
pany. This was testimony not just to his eye
for innovation, but his ability to bring inno-
vations to market and to turn a profit from these innovations. Indeed, Steve Jobs is remembered more
for his presentations on stage rather than his time in a laboratory.
Steve Jobs, therefore, was able to develop unique products that were so innovative they did not need
to compete on price. As a leader, he was able to inspire, but many observers of Apple wondered aloud
if the company would survive without his inspiration.
In the years since, it has become clear that current leader, Tim Cook, lacks the vision and clout that
his predecessor was famous for when it comes to big decisions. Recent product launches have failed to
elicit the buzz we have come to expect from an Apple announcement.
‘Apple is at a disadvantage [compared to rivals such as Google and Samsung] because its disrupter
has gone’, says journalist and author Tukari Iwatani Kane.

368  Management
 Sources say Cook likes to delegate, a contrast to Steve Jobs’ perfectionist style that saw him focus
on every detail of the company’s products and marketing. With some recent product releases earning
widespread criticism for software flaws, critics wonder if Jobs would have allowed the same mistakes
to occur.
Cook also encourages his team to have a work–life balance — employees now take more holidays.
Kane believes this is to the detriment of the company saying, ‘I think to continue to be the edgy com-
pany that drives innovation requires an intensity that’s just insane’.46

QUESTION
Do you agree that an ‘edgy company that drives innovation requires an intensity that’s just insane’? Explain
why you agree or disagree with this statement.

Emotional intelligence
An area of leadership development currently very popular is emotional intelligence, first discussed in
chapter 1 as an element of the essential human skills of managers. As popularised by the work of Daniel
Goleman, emotional intelligence is defined as ‘the ability to manage ourselves and our relationships
effectively’.47 According to his research, a leader’s emotional intelligence is an important influence on
his or her effectiveness, especially in more senior management positions.
In Goleman’s words, ‘the higher the rank of the person considered to be a star performer, the more
emotional intelligence capabilities showed up as the reason for his or her effectiveness’.48 This is a
strong endorsement, indeed, for consideration of a person’s emotional intelligence in a developing port-
folio of comprehensive leadership capabilities. Important, too, is Goleman’s belief that emotional intelli-
gence skills can be learned at any age — it’s never too late.
For purposes of research and training, Goleman breaks emotional intelligence down into five critical
components.49 He argues that each of us should strive to build competencies in each component and
thereby maximise our ability to use emotional intelligence and build better relationships with others. The
critical components of emotional intelligence are the following.
1. Self‐awareness is an ability to understand our own moods and emotions, and understand their impact
on our work and on others.
2. Self‐regulation is the ability to think before we act and to control otherwise disruptive impulses.
3. Motivation is the ability to work hard with persistence and for reasons other than money and
status.
4. Empathy is the ability to understand the emotions of others and to use this understanding to better
relate to them.
5. Social skill is the ability to establish rapport with others and to build good relationships and
networks.
According to Goleman, these skills in emotional intelligence are necessary for leadership success. A
person lacking in emotional intelligence, might fail to recognise how excessive stress is contributing to
bad attitudes and negative behaviour among team members. As a team leader, he or she might push too
hard for performance results and further complicate the situation. A leader high in emotional intelligence
will be quicker to notice that emotions are running high because of stress and thus take action to help
the team members better deal with the stressful conditions. Team performance is likely to improve as a
result of this more ‘emotionally intelligent’ leadership response to a problem situation. Effective leaders
use their emotional radar to understand the ways in which emotions are used and displayed in the work-
place, and to take subsequent actions to promote more positive emotions and limit more destructive
emotions in their organisations.

CHAPTER 13 Leading  369

Gender and leadership
Female executives interviewed for an Australian study noted that they faced the difficult balancing act
of needing to appear strong and effective in order to be taken seriously, while also needing to appear
feminine so that they would not be perceived as a threat by ‘blokey’ Australian males. They saw them-
selves as being less autocratic and directive and more adaptable and flexible than their male counter-
parts, while still being just as results‐focused. This approach is typified in the comments of Gillian
Franklin, owner of the cosmetics company, The Heat Group, which distributes Max Factor, Cover Girl
and Caboodles cosmetics in Australia, as well as its own brand, Goss. Franklin describes her manage-
ment style as ‘visionary, educational and motivational; tough, but appreciative of the talents of others’,
noting ‘I expect a lot, but I give a lot’.50
Like Franklin, former Westpac CEO Gail Kelly, who was once voted as among the world’s most
influential women by Forbes magazine,51 has a unique leadership style. Appraising her approach to
leadership, former Commonwealth Bank CEO David Murray commented: ‘She has a nice mix of being
very pleasant and being very clear about her agenda. People have to have the right skills to do complex
jobs, but ultimately it’s the leadership qualities that make the difference’.52 Kelly, who fronted up to an
interview for an executive position with two of her four infant children in tow in 1990 — and got the
job — achieved success in Australia after growing up in the unstable political environment created by
the apartheid regime in South Africa.53
The evidence clearly supports that both women and men can be effective leaders.54 As suggested by
the previous example, however, they may tend towards somewhat different styles.55 Victor Vroom and
his colleagues have investigated gender differences in respect to the leader‐participation model discussed
earlier.56 They find women managers to be significantly more participatory than their male counterparts.
Although followers in their studies value participation by all leaders, they tend to value participation by
female leaders more highly than by male leaders. Women may tend towards a style sometimes referred
to as interactive leadership. This style focuses on the building of consensus and good interpersonal
relations through communication and involvement. Leaders of this style display behaviours typically
considered democratic and participatory — such as showing respect for others, caring for others, and
sharing power and information with others. This interactive style also has qualities in common with
the transformational leadership just discussed.57 Men, on the other hand, may tend towards more of a
transactional approach to leadership — relying more on directive and assertive behaviours, and using
authority in a traditional ‘command and control’ sense.
Given the emphasis on shared power, communication, cooperation and participation in the new‐form
organisations of today, these results are provocative. Gender issues aside,  the interactive leadership
style seems to be an excellent fit with the demands of a diverse workforce and the new workplace.
As Harvard professor and consultant Rosabeth Moss Kanter says: ‘Women get high ratings on exactly
those skills required to succeed in the Global Information Age, where teamwork and partnering are so
important’.58
Regardless of whether the relevant behaviours are displayed by women or men, it seems clear that
future leadership success will rest more often on capacity to lead through positive relationships and
empowerment than through aloofness and formal authority. The chapters that follow on leading through
motivation, communication, interpersonal relations, group dynamics and teamwork, change leadership,
and operations management are highly relevant to this issue.

Drucker’s ‘old‐fashioned’ leadership

Peter Drucker offers another very pragmatic approach to leadership in the new workplace. It is based on
what he refers to as a ‘good old‐fashioned’ view of the plain hard work it takes to be a successful leader.
Consider, for example, Drucker’s description of a telephone conversation with a potential consulting
client who was the human resources vice‐president of a big bank: ‘We’d want you to run a seminar for
us on how one acquires charisma’, she said. Drucker’s response was not what she expected. He advised

370  Management
her that there’s more to leadership than the popular emphasis on personal qualities that offer a sense of
personal ‘dash’ or charisma. In fact, he said, ‘leadership  .  .  .  is work’.59
Drucker’s observations on leadership offer a useful complement to the transformational leadership
ideas just discussed. He identifies the following three essentials of leadership. First, Drucker believes
that the foundation of effective leadership is defining and establishing a sense of mission. A good leader
sets the goals, priorities and standards. A good leader keeps them all clear and visible, and maintains
them. In Drucker’s words, ‘The leader’s first task is to be the trumpet that sounds a clear sound.’ Second,
he believes in accepting leadership as a responsibility rather than a rank. Good leaders surround them-
selves with talented people. They are not afraid to develop strong and capable subordinates. And they do
not blame others when things go wrong. As Drucker says, ‘The buck stops here’ is still a good adage to
remember. Third, Drucker stresses the importance of earning and keeping the trust of others. The key
here is the leader’s personal integrity. The followers of good leaders trust them. This means that they
believe the leader means what he or she says and that his or her actions will be consistent with what
is said. In Drucker’s words again, ‘Effective leadership  .  .  .  is not based on being clever; it is based pri-
marily on being consistent’.

Moral leadership
As discussed many times in this book, society expects organisations to be run with moral leadership.
This is leadership by ethical standards that clearly meet the test of being ‘good’ and ‘correct’.60 The
expectation is that anyone in a leadership position will practise high ethical standards of behaviour,
help to build and maintain an ethical organisational culture, and both help and require others to behave
ethically in their work. Some leaders in Asia and elsewhere are looking to the teachings of Confucius
to guide them in moral leadership.61 The regional research section of this chapter examines the sub-
stance of this trend. Other leaders look to other religious traditions for guidance including Daoism62
and Islam.63
Moral leadership begins with personal integrity, a concept fundamental to the notion of transform-
ational leadership. A leader with integrity is honest, credible and consistent in putting values into action.
When a leader has integrity, he or she earns the trust of followers. And when followers believe leaders
are trustworthy, they try to behave in ways that live up to the leader’s expectations. For managers in
our high‐pressure and competitive work environments, nothing can substitute for leadership strongly
anchored in personal integrity. When viewed through the lens of what is truly the right thing to do, even
the most difficult decisions become easier.
In his book Transforming Leadership: A New Pursuit of Happiness, James MacGregor Burns explains
that transformational leadership creates significant, even revolutionary, change in social systems, while
still based on integrity. Notably, he eliminates certain historical figures from this definition: Napoleon
is out — too much order‐and‐obey in his style; Hitler is obviously out — no moral foundations; Mao
is out, too — no true empowerment of followers. Among Burns’s positive role models from history are
Gandhi, George Washington and Eleanor Roosevelt. Burns firmly believes that such great leaders follow
agendas true to the wishes of their followers. Burns also says that wherever in the world great leadership
is found, it will always have a moral anchor point.64
The concept of servant leadership is consistent with this thinking.65 So, too, is the notion of authentic
leadership advanced by Fred Luthans and Bruce Avolio.66 An authentic leader has a high level of self‐
awareness and clearly understands his or her personal values. This leader also acts consistent with those
values, being honest and avoiding self‐deceptions. Because of this the authentic leader is perceived as
genuine, gaining the respect of followers and developing a capacity to positively influence their behav-
iours. Luthans and his colleagues believe that authentic leadership is activated by the positive psycho-
logical states  of confidence, hope, optimism and resilience. The result is positive self‐regulation that
helps authentic leaders clearly frame moral dilemmas, transparently respond to them, and consistently
serve as ethical role models.67 This concept is not unlike the practice of self‐regulation in the teachings
of Confucius.68

CHAPTER 13 Leading  371

 DIVERSIT Y

Why Australian business needs another Gail Kelly69

Gail Kelly’s departure as Westpac chief exec-
utive was a real and symbolic loss for women,
many of whom saw her as a role model.
Women in Australia now make up just 3 per
cent of CEO roles in the top 200 companies.
It is unlikely this will change any time soon as
the pipeline of women coming up the ranks,
in terms of numbers, does not look promising.
Kelly is unique as she is seen as a woman who
managed to ‘have it all’. She was chief exec-
utive of one of the Big Four banks while being
a mother of four children. This combination is a
rarity as a woman’s rise to the top often occurs
at the expense of having a family.
She is therefore an important role model for many women facing a societal climate that does not value
female leadership. A report by Randstad found more than one in four Australian employees believed
their employer would choose a male over a female candidate of equal merit, regardless of the gender
ratio in their organisation. The findings support the view that people think men make better leaders than
women.
Study after study finds organisations do better on both financial and non‐financial measures when
women are included in executive and board positions. This includes better returns for investors. Yet
women are still seen as outsiders for senior leadership roles. Sadly, many women internalise societal
discrimination and see themselves as imposters. The imposter syndrome is hard to break when there
are so few female role models and female competence is judged by higher, harder and shifting stan-
dards. Society all too often waits for a woman in leadership to fail as proof that women are incompetent,
inept or uncommitted.
Most women who make it to the top do so by tolerating male‐dominated cultures and accommo-
dating the dominant style. This means neither setting the cultural agenda nor radically changing the
work environment. For women at the top, family and work remain incongruent. The rhetoric of family‐
friendly workplaces remains just rhetoric. A landmark study by the Human Rights Commission found
49 per cent of pregnant women and working mothers experienced discrimination both in the corporate
world and the public service.
Source: Hannah Piterman (Monash University), originally published on The Conversation.

QUESTION
Many suggest that the best way to ensure gender equality in business is to introduce a quota for the
number of women on board. Do you agree? List some strengths and limitations of this approach.

CRITICAL ANALYSIS

1. Why might leaders who need to develop greater emotional intelligence be less capable of
identifying such a need?
2. Integrity may be a core component of authentic leadership; however, leaders must also be
pragmatic. Few issues in business are ethically black or white. Do you agree or disagree? Justify
your answer.

372  Management
SUMMARY
13.1 What is the nature of leadership?
•• Leadership is the process of inspiring others to work hard to accomplish important tasks.
•• Vision, or a clear sense of the future, is increasingly considered to be an essential ingredient of
effective leadership.
•• Visionary leaders are able to communicate their vision to others and build the commitments needed to
perform the required work.
•• Power, the ability to get others to do what you want them to do, is an essential ingredient of effective
leadership.
•• Managerial power may be gained through the formal position in the organisation and/or through
personal sources of influence.
•• Sources of position power include rewards, coercion and legitimacy or formal authority; sources of
personal power include expertise and reference.
•• Effective leaders empower others; that is, they help and allow others to take action and make job‐
related decisions on their own.

13.2 What are the important leadership traits and behaviours?

•• Early leadership studies searched unsuccessfully for a definitive set of personal traits that differentiated
successful and unsuccessful leaders.
•• Traits that seem to have a positive impact on leadership include drive, integrity and self‐confidence.
•• Research on leader behaviours focused on alternative leadership styles that involved concerns for task
and concerns for people.
•• One suggestion of leader‐behaviour researchers is that effective leaders will be good at team based or
participatory leadership that is high in both task and people concerns.

13.3 What are the contingency theories of leadership?

•• Contingency leadership approaches point out that no one leadership style always works best; rather,
the best style is one that properly matches the demands of each unique situation.
•• Fiedler’s contingency theory describes how situational differences in task structure, position power
and leader–member relations may influence which leadership style works best.
•• House’s path–goal theory suggests leaders add value to situations by responding with supportive,
directive, achievement‐oriented and/or participatory styles as needed.
•• The Hersey–Blanchard situational model recommends using task‐oriented and people‐oriented
behaviours, depending on the ‘maturity’ of the group.
•• The Vroom–Jago leader‐participation theory advises leaders to choose decision‐making methods
(individual, consultative, group) that best fit the problems they are trying to resolve.

13.4 What are current issues in leadership development?

•• Transactional leadership focuses on tasks, rewards and structures to influence follower behaviour.
•• Charismatic leadership creates a truly inspirational relationship between leader and followers.
•• Transformational leaders use charisma and related qualities to inspire extraordinary efforts in support
of innovation and large‐scale change.
•• Emotional intelligence, the ability to manage our relationships and ourselves effectively, is an
important dimension of leadership capability.
•• The interactive leadership style seems consistent with the demands of the new workplace and the
emphasis on communication, involvement and interpersonal respect.
•• All leadership is ‘hard work’ that always requires a personal commitment to meeting the highest
ethical and moral standards.

CHAPTER 13 Leading  373

KEY TERMS
Authentic leadership  activates logical states to achieve self‐awareness and positive self‐regulation.
An authority decision  is a decision made by the leader and then communicated to the group.
Charismatic leaders  develop special leader–follower relationships and inspire followers in
extraordinary ways.
Coercive power  is the capacity to punish or withhold positive outcomes as a way of influencing other
people.
A consultative decision  is a decision made by a leader after receiving information, advice or opinions
from group members.
Emotional intelligence  is the ability to manage ourselves and our relationships effectively.
Empowerment  distributes decision‐making power through an organisation.
Expert power  is the capacity to influence other people because of specialised knowledge.
A group decision  is a decision made with the full participation of all group members.
Integrity  in leadership is honesty, credibility and consistency in putting values into action.
Leadership style  is the recurring pattern of behaviours exhibited by a leader.
Leading  is the process of arousing enthusiasm and directing efforts towards organisational goals.
Legitimate power  is the capacity to influence other people by virtue of formal authority, or the rights
of office.
Moral leadership  is always ‘good’ and ‘right’ by ethical standards.
Power  is the ability to get someone else to do something you want done or to make things happen the
way you want.
Referent power  is the capacity to influence other people because of their desire to identify personally
with you.
Reward power  is the capacity to offer something of value as a way of influencing other people.
Substitutes for leadership  are factors in the work setting that direct work efforts without the
involvement of a leader.
Transactional leadership  is leadership that directs the efforts of others through tasks, rewards and
structures.
Transformational leadership  is inspirational leadership that gets people to do more in achieving high
performance.
Vision  is a term used to describe a clear sense of the future.
Visionary leadership  brings to the situation a clear sense of the future and an understanding of how to
get there.

APPLIED ACTIVITIES
1 Why does a person need both position power and personal power to achieve long‐term managerial
effectiveness?
2 What is the major insight offered by the Vroom–Jago leader‐participation model?
3 What are the three variables that Fiedler’s contingency theory uses to diagnose the favourability of
leadership situations, and what does each mean?
4 How does Peter Drucker’s view of ‘good old‐fashioned leadership’ differ from the popular concept
of transformational leadership?
5 When Jasmine Singh took over as leader of a new product development team, she was both excited and
apprehensive. ‘I wonder’, she said to herself on the first day in her new assignment, ‘if I can meet the
challenges of leadership’. Later that day, Jasmine shares this concern with you during a coffee break.
Based on the insights of this chapter, describe to her the essential implications for her personal leadership
development of the current thinking on charismatic or transformational leadership.

374  Management
ENDNOTES
  1. David Tuffley and Amy Antonio, ‘Five Traits of an Ethical Leader’, The Conversation (30 December 2015),
www.theconversation.com.
  2. See Jean Lipman‐Blumen, Connective Leadership: Managing in a Changing World (New York: Oxford University Press,
1996), pp. 3–11.
  3. Two periodicals that follow current leadership topics in a variety of organisational settings are Non‐Profit Management and
Leadership and Leader to Leader, both published by Jossey‐Bass.
  4. James M. Kouzes and Barry Z. Posner, ‘The Leadership Challenge’, Success (April 1988), p. 68. See also their books
The Leadership Challenge: How to Get Extraordinary Things Done in Organizations (San Francisco: Jossey‐Bass, 1987);
Credibility: How Leaders Gain and Lose It, Why People Demand It (San Francisco: Jossey‐Bass, 1996); and Encouraging the
Heart: A Leader’s Guide to Rewarding and Recognizing Others (San Francisco: Jossey‐Bass, 1999).
  5. Burt Nanus, Visionary Leadership: Creating a Compelling Sense of Vision for Your Organization (San Francisco: Jossey‐Bass,
1992).
  6. See Kouzes and Posner (1988), op. cit.; and James C. Collins and Jerry I. Porras, ‘Building Your Company’s Vision’, Harvard
Business Review (September–October 1996), pp. 65–77.
  7. Rosabeth Moss Kanter, ‘Power Failure in Management Circuits’, Harvard Business Review (July–August 1979), pp. 65–75.
  8. For a good managerial discussion of power, see David C. McClelland and David H. Burnham, ‘Power is the Great Motivator’,
Harvard Business Review (March–April 1976), pp. 100–10.
  9. The classic treatment of these power bases is John R. P. French Jr and Bertram Raven, ‘The Bases of Social Power’, in Darwin
Cartwright (ed.), Group Dynamics: Research and Theory (Evanston, IL: Row, Peterson, 1962), pp. 607–13. For managerial
applications of this basic framework, see Gary Yukl and Tom Taber, ‘The Effective Use of Managerial Power’, Personnel,
vol. 60 (1983), pp. 37–49; and Robert C. Benfari, Harry E. Wilkinson and Charles D. Orth, ‘The Effective Use of Power’,
Business Horizons, vol. 29 (1986), pp. 12–16. Gary A. Yukl, Leadership in Organizations, 4th edn (Englewood Cliffs, NJ:
Prentice Hall, 1998), includes ‘information’ as a separate, but related, power source.
10. Based on David A. Whetten and Kim S. Cameron, Developing Management Skills, 2nd edn (New York: HarperCollins, 1991),
pp. 281–97.
11. ibid, p. 282.
12. Chester I. Barnard, Functions of the Executive (Cambridge, MA: Harvard University Press, 1938).
13. Quoted in Peter Stephenson, Naked Leadership (Frenchs Forest: Prentice Hall, 2002), p. 215.
14. Jay A. Conger, ‘Leadership: The Art of Empowering Others’, Academy of Management Executive, vol. 3 (1989), pp. 17–24.
15. For example, see Esther Wachs, ‘Leadership for the Millennium’, Working Woman (March 1998), pp. 29–34; Charles Garfield,
‘Innovation Imperative’, Executive Excellence (21 November 2000), www.pcconnection.com.
16. The early work on leader traits is well represented in Ralph M. Stogdill, ‘Personal Factors Associated with
Leadership: A Survey of the Literature’, Journal of Psychology, vol. 25 (1948), pp. 35–71. See also Edwin E. Ghiselli,
Explorations in Management Talent (Santa Monica, CA: Goodyear, 1971), and Shelley A. Kirkpatrick and Edwin A. Locke,
‘Leadership: Do Traits Matter?’, Academy of Management Executive (1991), pp. 48–60.
17. See also John W. Gardner, ‘The Context and Attributes of Leadership’, New Management, vol. 5 (1988), pp. 18–22; John
P. Kotter, The Leadership Factor (New York: Free Press, 1988); and Bernard M. Bass, Stogdill’s Handbook of Leadership
(New York: Free Press, 1990).
18. Kirkpatrick and Locke (1991), op. cit.
19. James B. Hunt, ‘Senior Executive Leadership Profiles: An Analysis of 54 Australian Top Managers’, paper presented to the
ANZAM 2000 Conference, Sydney, 3–6 December 2000.
20. See, for example, Jan P. Muczyk and Bernie C. Reimann, ‘The Case for Directive Leadership’, Academy of Management
Review, vol. 12 (1987), pp. 637–47.
21. Bass (1990), op. cit.
22. Robert R. Blake and Jane Srygley Mouton, The New Managerial Grid III (Houston: Gulf Publishing, 1985).
23. Rebecca Mitchell, ‘Team Innovation and Success: Why We Should Fight at Work’, The Conversation (21 January 2014),
www.theconversation.com.
24. For a good discussion of this theory, see Fred E. Fiedler, Martin M. Chemers and Linda Mahar, The Leadership Match
Concept (New York: Wiley, 1978). Fiedler’s current contingency research with the cognitive resource theory is summarised in
Fred E. Fiedler and Joseph E. Garcia, New Approaches to Effective Leadership (New York: Wiley, 1987).
25. Paul Hersey and Kenneth H. Blanchard, Management and Organizational Behavior (Englewood Cliffs, NJ: Prentice Hall,
1988). For an interview with Paul Hersey on the origins of the model, see John R. Schermerhorn Jr, ‘Situational Leadership:
Conversations with Paul Hersey’, Mid‐American Journal of Business (Fall 1997), pp. 5–12.
26. See Claude L. Graeff, ‘The Situational Leadership Theory: A Critical View’, Academy of Management Review, vol. 8 (1983),
pp. 285–91.
27. Gayle C. Avery, ‘Situational Leadership Preferences in Australia: Congruity, Flexibility and Effectiveness’, Leadership &
Organization Development Journal, vol. 22, no. 1 (2000), pp. 11–21.

CHAPTER 13 Leading  375

28. See, for example, Robert J. House, ‘A Path–Goal Theory of Leader Effectiveness’, Administrative Sciences Quarterly,
vol. 16 (1971), pp. 321–38; and Robert J. House and Terence R. Mitchell, ‘Path–Goal Theory of Leadership’, Journal of
Contemporary Business (Autumn 1974), pp. 81–97. The path–goal theory is reviewed by Bass (1990), op. cit. and Yukl (1998),
op. cit. A supportive review of research is offered by Julie Indvik, ‘Path–Goal Theory of Leadership: A Meta‐Analysis’, in
John A. Pearce II and Richard B. Robinson Jr (eds), Academy of Management Best Paper Proceedings (1986), pp. 189–92.
29. See the discussions of path–goal theory in Yukl (1998), op. cit.; and Bernard M. Bass, ‘Leadership: Good, Better, Best’,
Organizational Dynamics (winter 1985), pp. 26–40.
30. See Steven Kerr and John Jermier, ‘Substitutes for Leadership: Their Meaning and Measurement’, Organizational Behavior
and Human Performance, vol. 22 (1978), pp. 375–403; Jon P. Howell and Peter W. Dorfman, ‘Leadership and Substitutes
for Leadership Among Professional and Nonprofessional Workers’, Journal of Applied Behavioral Science, vol. 22 (1986),
pp. 29–46.
31. Victor H. Vroom and Arthur G. Jago, The New Leadership: Managing Participation in Organizations (Englewood Cliffs,
NJ: Prentice Hall, 1988). This is based on earlier work by Victor H. Vroom, ‘A New Look in Managerial Decision‐Making’,
Organizational Dynamics (spring 1973), pp. 66–80; and Victor H. Vroom and Phillip Yetton, Leadership and Decision‐Making
(Pittsburgh: University of Pittsburgh Press, 1973).
32. For a good discussion see Edgar H. Schein, Process Consultation Revisited: Building the Helping Relationship (Reading, MA:
Addison‐Wesley, 1999).
33. See the discussion by Victor H. Vroom, ‘Leadership and the Decision Making Process’, Organizational Dynamics, vol. 28
(2000), pp. 82–94.
34. Mt Eliza Business School, 2002 Mt Eliza Leadership Index, p. 5.
35. For a review see Yukl (1998), op. cit.
36. Among the popular books discussing this point of view are Warren Bennis and Burt Nanus, Leaders: The Strategies for Taking
Charge (New York: Harper Business 1997); Max DePree, Leadership is an Art (New York: Doubleday, 1989); Kotter (1988),
op. cit.; and Kouzes and Posner (1988), op. cit.
37. See, for example, Jay A. Conger, ‘Inspiring Others: The Language of Leadership’, Academy of Management Executive, vol. 5
(1991), pp. 31–45.
38. Sefa Hayibor, Bradley Agle, Greg Sears, Jeffrey Sonnenfeld, Andrew Ward, ‘Value Congruence and Charismatic Leadership in
CEO‐Top Manager Relationships: An Empirical Investigation’, Journal of Business Ethics, vol. 102, no. 2 (2011), pp. 237–54.
39. Reinout E. De Vries, Angelique Bakker‐Pieper, and Wyneke Oostenveld, ‘Leadership = Communication? The Relations of
Leaders, Communication Styles with Leadership Styles, Knowledge Sharing and Leadership Outcomes’, Journal of Business
& Psychology, vol. 25, no. 3 (2010), pp. 367–80.
40. Joyce E. Bono and Remus Ilies, ‘Charisma, Positive Emotions and Mood Contagion’, Leadership Quarterly, vol. 17 (2006),
pp. 317–34 in John R. Schermerhorn Jr., Management, 10th edn (Hoboken, NJ: John Wiley & Sons, 2010), p. 449.
41. The distinction was originally made by James McGregor Burns, Leadership (New York: Harper & Row, 1978) and was
further developed by Bernard Bass in Leadership and Performance Beyond Expectations (New York: Free Press, 1985) and in
‘Leadership: Good, Better, Best’ (1985), op. cit.
42. Kevin Groves and Michael LaRocca, ‘An Empirical Study of Leader Ethical Values, Transformational and Transactional
Leadership, and Follower Attitudes toward Corporate Social Responsibility’, Journal of Business Ethics, vol. 103, no. 4
(2011), pp. 511–28.
43. This list is based on Kouzes and Posner (1988), op. cit., and Gardner (1988), op. cit.
44. Australian Institute of Management, Australian Business Leadership Survey, AIM Management Research Series, 1/2002,
pp. 8–9.
45. Michael B. Hargis, John D. Watt, and Chris Piotrowski, ‘Developing Leaders: Examining the Role of Transactional and
Transformational Leadership across Contexts Business’, Organization Development Journal, vol. 29, no. 3 (2011), pp. 51–66.
46. Tim Danton, ‘Why Apple Can’t Be Insanely Great after Steve Jobs’, Alphr (13 March 2014), www.alphr.com.
47. Daniel Goleman, ‘Leadership that Gets Results’, Harvard Business Review (March–April 2000), pp. 78–90. See also his books
Emotional Intelligence (New York: Bantam Books, 1995) and Working with Emotional Intelligence (New York: Bantam Books,
1998).
48. Daniel Goleman, ‘What Makes a Leader?’, Harvard Business Review (November–December 1998), pp. 93–102.
49. ibid.
50. James C. Sarros and Rosetta J. Moors, Right from the Top: Profiles in Australian Leadership (Sydney: McGraw Hill, 2001),
pp. 36–141; Michelle Hannen and Emily Ross, ‘Leaders for All Seasons’, Business Review Weekly (10–16 January 2002),
pp. 51–5.
51. Sarah McInerney, ‘Gail Kelly outranks the Queen on Forbes list’ (20 August 2009), The Age, www.theage.com.au.
52. ‘INSPIRE: Gail Kelly’, The Australian (2 August 2008), www.theaustralian.com.au.
53. ibid.
54. A. H. Eagly, S. J. Daran and M. G. Makhijani, ‘Gender and the Effectiveness of Leaders: A Meta‐Analysis’, Psychological
Bulletin, vol. 117 (1995), pp. 125–45.
55. Research on gender issues in leadership is reported in Sally Helgesen, The Female Advantage: Women’s Ways of
Leadership (New York: Doubleday, 1990); Judith B. Rosener, ‘Ways Women Lead’, Harvard Business Review

376  Management
 (November–December 1990), pp. 119–25; and Alice H. Eagly, Steven J. Karau and Blair T. Johnson, ‘Gender and Leadership
Style Among School Principals: A Meta‐Analysis’, Administrative Science Quarterly, vol. 27 (1992), pp. 76–102. See also
Jean Lipman‐Blumen (1996), op. cit.
56. Vroom (1973), op. cit.
57. For debate on whether some transformational leadership qualities tend to be associated more with female than male leaders,
see ‘Debate: Ways Women and Men Lead’, Harvard Business Review (January–February 1991), pp. 150–60.
58. Quote from ‘As Leaders, Women Rule’, Business Week (20 November 2000), pp. 75–84. Rosabeth Moss Kanter is the author
of Men and Women of the Corporation, 2nd edn (New York: Basic Books, 1993).
59. Peter F. Drucker, ‘Leadership: More Doing Than Dash’, Wall Street Journal (6 January 1988), p. 16. For a compendium
of writings on leadership sponsored by the Drucker Foundation, see Frances Hesselbein, Marshall Goldsmith and Richard
Beckhard, Leader of the Future (San Francisco: Jossey‐Bass, 1997).
60. Based on the discussion by John W. Dienhart and Terry Thomas, ‘Ethical Leadership: A primer on ethical responsibility’ in
John R. Schermerhorn Jr., Management, 7th edn (New York: Wiley, 2003).
61. Peter Woods and David Lamond, ‘What Would Confucius Do? Confucian Ethics and Self‐Regulation in Management’,
Journal of Business Ethics, vol. 102, no. 4 (2011), pp. 669–83.
62. Yijun Xing and David Sims, ‘Leadership, Daoist Wu Wei and Reflexivity: Flow, Self‐Protection and Excuse in Chinese Bank
Managers, Leadership Practice’, Management Learning, vol. 43, no. 1 (2012), pp. 97–112.
63. Ali Mohammad Mir, ‘Leadership in Islam’, Journal of Leadership Studies, vol. 4, no. 3 (2010), pp. 69–72.
64. James MacGregor Burns, Transforming Leadership: A New Pursuit of Happiness (New York: Atlantic Monthly Press, 2003);
information from Christopher Caldwell, book review, International Herald Tribune (29 April 2003), p. 18.
65. Lora Reed, Deborah Vidaver‐Cohen and Scott Colwell, ‘A New Scale to Measure Executive Servant Leadership: Development,
Analysis, and Implications for Research’, Journal of Business Ethics, vol. 101, no. 3 (2011), pp. 415–34.
66. Fred Luthans and Bruce Avolio, ‘Authentic Leadership: A Positive Development Approach’, in K. S. Cameron, J. E. Dutton
and R. E. Quinn (eds.), Positive Organizational Scholarship (San Francisco: Berrett‐Koehler, 2003), pp. 241–58.
67. Doug May, Adrian Chan, Timothy Hodges and Bruce Avolio, ‘Developing the Moral Component of Authentic Leadership’,
Organizational Dynamics, vol. 32 (2003), pp. 247–60.
68. Woods and Lamond, op. cit.
69. Hannah Piterman, ‘Why Australian Business Needs Another Gail Kelly’, The Conversation (17 November 2014),
www.theconversation.com.

ACKNOWLEDGEMENTS
Photo: © Krisztian Bocsi / Bloomberg via Getty Images
Photo: © Rawpixel.com / Shutterstock.com
Photo: © ymgerman / Shutterstock.com
Photo: © AAP Image / Dean Lewins
Extract: © The Conversation, David Tuffley & Amy Antonio, 30 December 2015, http://
theconversation.com/five-traits-of-an-ethical-leader-51181
Extract: © The Conversation, Rebecca Mitchell, 21 January 2014, http://theconversation.com/
team-innovation-and-success-why-we-should-fight-at-work-20651
Extract: © The Conversation, Hannah Piterman, 17 November 2014, http://theconversation.com/
why-australian-business-needs-another-gail-kelly-34188

CHAPTER 13 Leading  377

CHAPTER 14

Communication and
interpersonal skills  

LEA RN IN G OBJE CTIVE S

14.1 What is the communication process?

14.2 How can communication be improved?
14.3 How does perception influence communication?
14.4 How can we deal positively with conflict?
14.5 How can we negotiate successful agreements?
Communication in a digital age
The dawn of the digital age is having a profuse effect on communications management. As business
communication becomes digitalised the manner by which businesses communicate is changing forever.1
Recently, for example, the Chinese company Alibaba has shown how e‐commerce is going to play a key
role in handling big data and driving significant change in Asia.2 In Australia, AMP and Australia Post have
shown how long‐standing relationships can be used to transform organisations in this new digital world.
Established in 1849, AMP is Australia’s top independent wealth management company and has 5 mil­
lion customers, almost 6000 employees, 400 institutional clients as well as $172 billion of assets. AMP
has been provided with mail services for more than 165 years by Australia Post.3
In 2011 the chief executives of AMP and Australia Post met to develop this relationship in line with the
communication needs of the 21st century. This led to a new joint digital initiative, intended to increase
understandings of the customer, improve the provision of information to customers and act on customer
feedback. Meeting these goals challenged AMP to develop a rigorous data management system, capable
of monitoring customer correspondence, and a comprehensive communications management system.
Ajit Thillainathan, Head of AMP’s Product Alliances, Banking and Wealth Management Products
reveals that the long standing alliance between AMP and Australia Post has laid the platform to roll out
the new strategy. The strategy includes access for AMP to Australia Posts’ Reconnect service, allowing
AMP to compare shareholder movement data with a Movers Database of 2.5 million people, and the
outsourcing of AMP’s scanning and mailroom services to Decipha, a subsidiary of Australia Post. The
importance of the AMP–Decipha relationship is noted by Thillainathan, who says that Australia Post
plays a large part in helping them serve their customers, handling an approximate 11.8 million docu­
ments a year for AMP. 4
The relationship between AMP and Australia Post has also allowed for the development of a signif­
icant digital initiative: the Australia Post Digital MailBox. This is a user friendly, no‐cost solution for
AMP customers to correspond through a secure online internet service. It also allows AMP to advance
its communication and customer in an increasingly digitised business environment.
‘As they move online, customers want to have the ability to interact digitally with AMP in a secure manner,
so Australia Post and AMP have come together to satisfy this customer need. The Australia Post Digital
MailBox allows us to engage with customers in a more interactive and meaningful way’, says Thillainathan.
He adds that the partnership enables them to save on print costs, enhance online customer engagement and
create a closer relationship with customers, with both the business and consumer benefiting’.5

QUESTIONS
1. Do you think the partnership between AMP and Australia Post provides AMP with a competitive
advantage?
2. How are AMP’s direct competitors communicating with their customers online?

CHAPTER 14 Communication and interpersonal skills  379

Introduction
Anyone heading into the contemporary workplace must understand that the work of managers and team
leaders is highly interpersonal and communication‐intensive. Whether you work at the top of the organ­
isation, communicating strategies and building support for organisational goals, or at a lower level, inter­
acting with others to support their work efforts and your own, communication and interpersonal skills are
essential to your personal toolkit. Think back to the descriptions of managerial work by Henry Mintzberg,
John Kotter and others as discussed in chapter 1. For Mintzberg, managerial success involves performing
well as an information ‘nerve centre’, gathering information from and disseminating information to internal
and external sources.6 For Kotter, it depends largely on your ability to build and maintain a complex web of
interpersonal networks with insiders and outsiders, so as to implement work priorities and agendas.7
Amy Rees Anderson explains that the way we communicate has an impact on business outcomes. She
notes that ‘becoming a good communicator takes practice and consistent attention and effort on our part,
and it is a skill that we cannot afford to overlook’.8 Neil Clark describes how this skill is critical in cre­
ating effective shared understanding, between managers and employees, during performance appraisals
and in increasing job performance. 9
The ability to communicate well, both verbally and in writing, is a vital managerial skill and the foun­
dation of effective leadership.10 Through communication, people exchange and share information with
one another, and influence one another’s attitudes, behaviours and understanding. Communication allows
managers to establish and maintain interpersonal relationships, listen to others, and otherwise gain the
information needed to create an inspirational workplace. No manager can handle conflict, negotiate suc­
cessfully and succeed at leadership without being a good communicator. It is no wonder that ‘communi­
cation skills’ often top the list of attributes employers look for in job candidates. Any career portfolio
should include adequate testimony to your abilities to communicate well in interpersonal relationships,
in various forms of public speaking and increasingly through the electronic medium of the computer. At
Intel Inc., for example, millions of email messages a day move through the firm’s computer networks.
Some workers personally process as many as 300 per day; the average worker spends 2.5 hours per day
‘communicating’ with others via computer.11

14.1 The communication process

LEARNING OBJECTIVE 14.1 What is the communication process?
Communication is an interpersonal process of sending and receiving symbols with messages attached to
them. In more practical terms, the key elements in the communication process are shown in figure 14.1. They
include a sender, who is responsible for encoding an intended message into meaningful symbols, both verbal
and non‐verbal. The message is sent through a communication channel to a receiver, who then decodes or
interprets its meaning. This interpretation, importantly, may or may not match the sender’s original inten­
tions. Feedback, when present, reverses the process and conveys the receiver’s response to the sender.
Another way to view the communication process is as a series of questions. ‘Who?’ (sender) ‘says what?’
(message) ‘in what way?’ (channel) ‘to whom?’ (receiver) ‘with what result?’ (interpreted meaning).

What is effective communication?

Effective communication occurs when the intended message of the sender and the interpreted meaning
of the receiver are one and the same. Although this should be the goal in any communication attempt, it is
not always achieved. Efficient communication occurs at minimum cost in terms of resources expended.
Time, in particular, is an important resource in the communication process. Picture your instructor taking
the time to communicate individually with each student about this chapter. It would be virtually imposs­
ible. Even if it were possible, it would be costly. This is why managers often leave voicemail messages
and interact by email rather than visit their subordinates personally. Simply put, these alternatives are
more efficient ways to communicate than through one‐on‐one and face‐to‐face communication.

380  Management
 Noise
● Semantic problems
● Absence of feedback
● Improper channels
● Physical distractions
● Status effects
● Cultural differences
Sender Receiver

Message/Channel
Encodes Decodes
intended meaning perceived meaning
Feedback/Channel

FIGURE 14.1 The process of interpersonal communication

One problem is that efficient communications are not always effective. A low‐cost approach such
as an email note to a distribution list may save time but it does not always result in everyone getting
the same meaning from the message. Without opportunities to ask questions and clarify the message,
different interpretations are possible. By the same token, an effective communication may not always
be efficient. If a work team leader visits each team member individually to explain a new change in
procedures, this may guarantee that everyone truly understands the change. But it may also be very
costly in the demands it makes on the leader’s time. A team meeting would be more efficient. In
these and other ways, potential tradeoffs between effectiveness and efficiency must be recognised in
communication.

Persuasion and credibility in communication

Communication is not only about sharing information or being ‘heard’. It often includes the intent of
one party to influence or motivate the other in a desired way. Persuasive communication results in
a recipient agreeing with or supporting the message being presented.12 Managers get things done by
working with and persuading others who are their peers, teammates, co‐workers and bosses. They often
get things done more by convincing than by giving orders.
Scholar and consultant Jay Conger says that many managers ‘confuse persuasion with taking bold
stands and aggressive arguing’.13 He points out that this often leads to ‘counter‐persuasion’ responses
and may even raise questions about credibility, something managers can’t afford to lose. Credible
communication earns trust, respect and integrity in the eyes of others. And without credibility, Conger
sees little chance that persuasion can be successful. Conger’s advice is to build credibility for persuasive
communication through expertise and relationships.
To build credibility through expertise, you must be knowledgeable about the issue in question or have
a successful track record in dealing with similar issues in the past. In a hiring situation where you are
trying to persuade team members to select candidate A rather than B, for example, you must be able to
defend your reasons. And it will always be better if your past recommendations turned out to be good
ones. To build credibility through relationships, you must have a good working relationship with the
person to be persuaded. And it is always easier to get someone to do what you want if that person likes
you. In a hiring situation where you want to persuade your boss to provide a special bonus package to
attract a top job candidate, for example, having a good relationship with your boss can add credibility to
your request.14

CHAPTER 14 Communication and interpersonal skills  381

Barriers to effective communication
Effective communication is a two‐way process that requires effort and skill on the part of both the sender and
the receiver. Noise, as figure 14.1 shows, is anything that interferes with the effectiveness of the communi­
cation process. For instance, translating from one language to another can often lead to a loss of intended
meaning. To cite one example: a foreign executive touring shopping centres in China often said ‘Is that so?’
as he was shown around. The interpreter translated this to mean that the executive had no real interest in pur­
suing business in China. This interpretation was the opposite of the executive’s intentions. Not only did he
have considerable interest in doing business in China, his use of the phrase was merely intended to indicate
that he was listening with interest.15 In addition to these obvious problems, common sources of noise when
different languages are involved in a communication attempt include poor choice of channels, poor written or
oral expression, failure to recognise non‐verbal signals, physical distractions and status effects.

Poor choice of channels

A communication channel is the medium through which a message is conveyed from sender to
receiver. Good managers choose the right communication channel, or combination of channels, to
accomplish their intended purpose in a given situation.16 In general, written channels are acceptable
for simple messages that are easy to convey and for those that require extensive dissemination quickly.
They are also important, at least as follow‐up communications, when formal policy or authoritative
directives are being conveyed. Oral channels work best for messages that are complex and difficult to
convey, where immediate feedback to the sender is valuable. They are also more personal and can create
a supportive, even inspirational, emotional climate.

Poor written or verbal expression

Communication will be effective only to the extent that the sender expresses a message in a way that
can be clearly understood by the receiver. This means that words must be well chosen and properly
used to express the sender’s intentions. When they are not, semantic barriers to communication occur
as encoding and decoding errors and as mixed messages. Consider the following gobbledegook found
among some executive communications:

A business report said: ‘Consumer elements are continuing to stress the fundamental necessity of a stabil­
isation of the price structure at a lower level than exists at the present time.’ (Translation: Consumers
keep saying that prices must go down and stay down.)
A manager said: ‘Substantial economies were effective in this division by increasing the time interval
between distribution of data‐eliciting forms to business entities.’ (Translation: The division was saving
money by sending fewer questionnaires to suppliers.)

The use of jargon can be a barrier to effective communication. Sometimes we need to become familiar
with the jargon associated with doing business. At other times, however, jargon can be overused or used
incorrectly. Accounting firm Deloitte once developed ‘jargon‐buster’ software to detect the sort of jargon
often used in business communication, including words like ‘leverage’, ‘value‐added’ and ‘knowledge
capital’.17
Leo D’Angelo Fisher, a columnist in Business Review Weekly, often writes about the tendency of
many organisations to use jargon at the expense of clarity. Fisher says that he is fighting a losing battle
against jargon. He is sick and tired, for example, of reading job advertisements seeking ‘proactive’ man­
agers given the vagueness of the word ‘proactive’. If the advertisement read ‘entrepreneurial’ rather than
‘proactive’, its meaning would immediately become much clearer. Still, Fisher laments that he is on the
losing side:

The all‐powerful jargon junta is impervious to the derision that their convoluted cant attracts. What most
of us consider indecipherable sludge these preening nitwits consider masterstrokes of modern manage­
ment communication.18

382  Management
 Jargon is also misleading to the public. In 2014, Coles, the Australian supermarket giant was facing
fines of more than $3  million after the Federal Court ruled on the side of the consumer. The ACCC
initiated proceedings after they found that Coles falsely advertised pre‐cooked bread as freshly baked.
The bread actually originated in Ireland, Denmark and Germany.19 Chief Justice Allsop made a ruling
that Coles breached three sections of the Australian Consumer Law and the ‘Baked Today, Sold Today’
labels were a misrepresentation. He said that although it is not the court’s role to advise whether or not
Coles should sell par-baked bread, they should:

Make it tolerably clear to the public that the recent baking was the completion of a baking process that
had taken place sometime before, off site, and that ‘freshly baked’ actually meant the completion of the
baking process of frozen product prepared and frozen off site by suppliers.20

Both written and oral communication require skill. It is not easy, for example, to write a concise
letter or to express your thoughts in a computer email report. Any such message can easily be misunder­
stood. It takes practice and hard work to express yourself well. The same holds true for oral communi­
cation in telephone calls, face‐to‐face meetings, formal briefings, videoconferences and so on. Manager’s
notepad 14.1 identifies guidelines for an important oral communication situation faced by managers —
the executive briefing or formal presentation.21

MANAGER’S NOTEPAD 14.1

How to make a successful presentation

• Be prepared. Know what you want to say, know how you want to say it, and rehearse saying it.
• Set the right tone. Act audience‐centred, make eye contact, be pleasant and confident.
• Sequence points. State your purpose, make important points, follow with details, summarise.
• Support your points. Give specific reasons for your points; state them in understandable terms.
• Accent the presentation. Use good visual aids and provide supporting ‘handouts’ when possible.
• Add the right amount of polish. Attend to details — have room, materials and arrangements ready
to go.
• Check your technology. Check everything ahead of time; make sure it works and know how to use it.
• Don’t bet on the internet. Beware of plans to make real‐time internet visits; save sites on a disk and
use a browser to open the file.
• Be professional. Be on time, wear appropriate attire, and be organised, confident and enthusiastic.

Failure to recognise non‐verbal signals

Non‐verbal communication takes place through such things as hand movements, facial expressions, body
posture, eye contact and the use of interpersonal space. It can be a powerful means of transmitting messages.
Eye contact or voice intonation can be used intentionally to accent special parts of an oral communication.
The astute observer notes the ‘body language’ expressed by other people. At times our body may be ‘talking’
for us even as we maintain silence. And when we do speak, our body may sometimes ‘say’ different things
from the words we use. A mixed message occurs when a person’s words communicate one message and
his or her actions, body language, appearance or use of interpersonal space communicate something else.
Watch how people behave in a meeting. A person who feels under attack may move back in a chair or lean
away from the presumed antagonist, even while expressing verbal agreement. All of this is done quite uncon­
sciously, but it sends a message to those alert enough to pick it up.
Non‐verbal channels probably play a more important part in communication than most people realise.
One researcher indicates that gestures alone may make up as much as 70 per cent of communication.22
In fact, a side effect of the growing use of electronic mail, computer networking and other communi­
cation technologies is that gestures and other non‐verbal signals that may add important meaning to the
communication event are lost.

CHAPTER 14 Communication and interpersonal skills  383

Physical distractions
Any number of physical distractions can interfere with the effectiveness of a communication attempt.
Some of these distractions, such as telephone interruptions, drop‐in visitors and lack of privacy, are evi­
dent in the following conversation between an employee, George, and his manager:

Okay, George, let’s hear your problem [phone rings, boss picks it up, promises to deliver a report ‘just as
soon as I can get it done’]. Uh, now, where were we — oh, you’re having a problem with your technician.
She’s [manager’s secretary brings in some papers that need his immediate signature; secretary leaves]  .  .  .  you
say she’s overstressed lately, wants to leave  .  .  .  I tell you what, George, why don’t you [phone rings again,
lunch partner drops by]  .  .  .  uh, take a stab at handling it yourself  .  .  .  I’ve got to go now.23

Besides what may have been poor intentions in the first place, the manager in this example did not do
a good job of communicating with George. This problem could be easily corrected. If George has some­
thing important to say, the manager should set aside adequate time for the meeting. Furthermore, issuing
appropriate instructions to the secretary could eliminate additional interruptions such as telephone calls
and drop‐in visitors. Many communication distractions can be avoided or at least minimised through
proper planning.

Status effects
‘Criticise my boss? I don’t have the right to.’ ‘I’d get fired.’ ‘It’s her company, not mine.’ As suggested in
these comments, the hierarchy of authority in organisations creates another potential barrier to effective
communications. Consider the ‘corporate cover‐up’ once discovered at an electronics company. Product
shipments were being predated and papers falsified to meet unrealistic sales targets set by the CEO. His
managers knew the targets were impossible to attain, but at least 20 people in the organisation cooperated
in the deception. It was months before the top found out. What happened in this case is filtering — the
intentional distortion of information to make it appear favourable to the recipient.
The presence of such information filtering is often found in communications between lower and higher
levels in organisations. Tom Peters, management author and consultant, has called such information dis­
tortion ‘Management Enemy Number 1’.24 Simply put, it most often involves someone ‘telling the boss
what he or she wants to hear’. Whether the reason behind this is a fear of retribution for bringing bad
news, an unwillingness to identify personal mistakes, or just a general desire to please, the end result is
the same. The person receiving filtered communications can end up making poor decisions because of a
biased and inaccurate information base.

TECHNOLOGY

The fragility of organisational reputation

When organisations are viewed as unethical
or earn a poor reputation, their share price and
employer brand will likely plummet alongside the
morale of their staff and their long‐term chances
of survival. On 25 January 2013, Juliette Garside,
telecoms correspondent to The Guardian,
wrote an article titled ‘Child Labour Uncovered
in Apple’s Supply Chain’. In the article she dis­
closed how Apple’s own internal audits across
400 suppliers revealed that 106 children were
employed by its Chinese‐based suppliers in the
previous year. In one company, 74 children under
the age of 16 were employed, some of them
having been employed with forged documents.25

384  Management
 The audit followed the reporting of multiple suicides due to poor working conditions at Foxconn,
Apple’s Taiwanese‐based assembler of iPads and iPhones.26
The internal audit also found evidence of mandatory pregnancy tests, wage confiscation to pay off
recruitment agencies in addition to a list of other human rights abuses. Apple’s CEO, Tim Cook, who
was previously involved in setting up Apple’s supply chain, has come under increasing pressure to
bring changes. Jeff Williams, senior vice president of operations at Apple claims, ‘Underage labour is
a subject no company wants to be associated with, so as a result I don’t believe it gets the attention it
deserves, and as a result it doesn’t get fixed like it should’.27 In vowing to purge the companies supply
chain of this practice he also warned that it would take some time. Ten per cent of audited companies
were found not to be in compliance with Apple’s child labour laws and were forced to return underage
children to schools selected by their families and pay their debts. In addition, Apple claims that
US$6.4 million was given back to contract workers. Apple also set in place a comprehensive whistle­
blowers program to protect those claiming intimidation.

QUESTION
Should Apple have been more aware of human rights abuses prior to the internal audits? How could Apple
have acted prior to the audits to have improved the findings?

CRITICAL ANALYSIS

1. Technology is increasingly being used to improve communication in organisations, but what are the
barriers that technology brings to the communication process?
2. How may overcoming barriers to communication improve organisational performance?

14.2 Improving communication

LEARNING OBJECTIVE 14.2 How can communication be improved?
A number of things can be done to overcome barriers and improve the process of communication. They
include transparency, use of electronic media, active listening, body language, making constructive use
of feedback, opening upward communication channels, understanding proxemics and the use of space,
using technology, valuing diversity and using effective language.

Transparency and openness

Communication transparency involves being honest and openly sharing accurate and complete infor­
mation about the organisation and workplace affairs. A lack of communication transparency is evident
when managers try to hide such information and restrict the access of organisational members to it.
The expected result of being transparent and open in communication is a positive impact on employee
engagement and greater feelings of trust between them and their managers.
This emphasis on communication transparency is sometimes associated with the notion of open‐book
management, in which managers provide employees with essential financial information about their
companies.28

Active listening
Managers must be very sensitive to their listening responsibility. When people ‘talk’, they are trying to
communicate something. That ‘something’ may or may not be what they are saying. Active listening
is the process of taking action to help the source of a message say exactly what he or she really means.

CHAPTER 14 Communication and interpersonal skills  385

 There are five rules for being an active listener.
1. Listen for message content. Try to hear exactly what content is being conveyed in the message.
2. Listen for feelings. Try to identify how the source feels about the content in the message.
3. Respond to feelings. Let the source know that the feelings are being recognised.
4. Note all cues. Be sensitive to non‐verbal and verbal messages; be alert for mixed messages.
5. Paraphrase and restate. State back to the source what you think you are hearing.29
Different responses to the following two questions contrast how a ‘passive’ listener and an ‘active’
listener might act in real workplace conversations. Put yourself in the position of the questioner in each
case and then consider how you would react to each listener’s response.

Question Passive listener’s response Active listener’s response

Don’t you think employees should No, I don’t. It seems to you that they should,
be promoted on the basis of I take it?
seniority?

What does the supervisor expect Do the best you can, I guess. You’re pretty disgusted with those
us to do about these out‐of‐date machines, aren’t you?
computers?

These examples should give you a sense of how the active listening approach can facilitate and
encourage communication in difficult circumstances, rather than discourage it. Manager’s notepad 14.2,
based on the work of prominent Australian social researcher Hugh Mackay, offers an additional set of
useful guidelines for good listening.30

MANAGER’S NOTEPAD 14.2

Hugh Mackay’s ten laws of human communication

 1. It’s not what our message does to the listener, but what the listener does with our message, that
determines our success as communicators.
 2. Listeners generally interpret messages in ways which make them feel comfortable and secure.
 3. When people’s attitudes are attacked head‐on, they are likely to defend those attitudes and, in the
process, to reinforce them.
 4. People pay most attention to messages that are relevant to their own circumstances and point of
view.
 5. People who feel insecure in a relationship are unlikely to be good listeners.
 6. People are more likely to listen to us if we also listen to them.
 7. People are more likely to change in response to a combination of new experience and
communication than in response to communication alone.
 8. People are more likely to support a change that affects them if they are consulted before the
change is made.
 9. The message in what is said will be interpreted in the light of how, when, where and by whom it is
said.
10. Lack of self‐knowledge and an unwillingness to resolve our own internal conflicts make it harder
for us to communicate with other people.

Body language
Since non‐verbal communication is a critical element of face‐to‐face communication, it makes sense that
you work to ensure that your body language reinforces your message and remains consistent with that
message. Kris Cole, a well‐known communications consultant in Australia, New Zealand and Asia, says
that effective body language is SO CLEAR.

386  Management
•• S relates to how you sit or stand or use space. Open, less confrontational communication is more likely
if you stand at an angle rather than directly opposite the person with whom you are communicating.
You should also be aware not to infringe on the other person’s ‘personal space’.
•• O stands for the openness of your movements and expression. Having your arms and legs crossed
indicates that you are probably going to be defensive in your expression and responses.
•• C is for how you centre your attention on the other person. Good communication demands that you
focus your mind and eliminate distracting thoughts.
•• L concerns how you lean towards the other person. Leaning towards someone can indicate interest;
however, leaning too far can create undue pressure in the conversation.
•• E stands for eye contact. In European cultures, eye contact indicates interest and engagement; although
less eye contact may be appropriate if communicating with people from Asian cultures.
•• A relates to how appropriately you respond to the speaker, with active listening being particularly
important.
•• R is about how relaxed you appear during communication. Being appropriately relaxed includes
eliminating annoying habits such as jangling your keys or nibbling on a pen or pencil.31

Constructive feedback
The process of telling other people how you feel about something they did or said, or about the situ­
ation in general, is called feedback. The art of giving feedback is an indispensable skill, particularly for
managers who must regularly give feedback to other people. Often this takes the form of performance
feedback given as evaluations and appraisals. When poorly done, such feedback can be threatening to
the recipient and cause resentment. When properly done, feedback — even performance criticism — can
be listened to, accepted and used to good advantage by the receiver.32 Managers at GE, for example, are
evaluated on how they give performance feedback to employees. Each subordinate must be annually
rated by the manager on a low–high performance curve; the weakest are advised to find jobs elsewhere.
By the same token, GE managers are also evaluated on how well they receive feedback. Employees are
encouraged to let their bosses know how they are performing, and they can do so anonymously if they
prefer.33
There are ways to help ensure that feedback is useful and constructive rather than harmful. To begin
with, the sender must learn to recognise when the feedback he or she is about to offer will really benefit
the receiver and when it will mainly satisfy some personal need. A supervisor who berates a computer
operator for data analysis errors, for example, actually may be angry about personally failing to give
clear instructions in the first place. Also, a manager should make sure that any feedback is considered
from the recipient’s point of view as understandable, acceptable and plausible.
Usefully accepted guidelines for giving ‘constructive’ feedback include the following.
•• Give feedback directly and with real feeling, based on trust between you and the receiver.
•• Make sure that feedback is specific rather than general — use good, clear and preferably recent
examples to make your points.
•• Give feedback at a time when the receiver seems most willing or able to accept it.
•• Make sure the feedback is valid and limit it to things the receiver can be expected to do something
about.
•• Give feedback in small doses — never give more than the receiver can handle at any particular time.34

Use of communication channels

Channel richness is the capacity of a channel or communication medium to carry information in an
effective manner.35 Figure 14.2 shows that face‐to‐face communication, for example, is very high in
richness, enabling personal two‐way interaction and real‐time feedback. At the other end of the con­
tinuum, posted email or hard‐copy bulletins are very low in richness, representing impersonal one‐way
interaction and largely insulated from quick feedback. In between, you can see how the other common

CHAPTER 14 Communication and interpersonal skills  387

channels of electronic and traditional letters and memos, as well as telephone conversations and voice‐
mail messages, are distributed. Managers need to understand the limits of a channel and choose wisely
when using them to communicate various types of messages.

Low High
richness richness
Postings, Memos, Email, Telephone, Face-to-face
● Impersonal ● Personal
e-bulletins letters voicemail e-meetings meetings
● One-way ● Two-way
● Fast ● Slow

Richness of communication channel

FIGURE 14.2 Channel richness and the use of communication media

There are a number of steps that can be taken to keep communication channels open to reduce the
harmful consequences of status effects and filtering, described earlier. A popular approach is called
‘management by wandering around’, or MBWA. This means dealing directly with subordinates by
regularly spending time walking around and talking with them about a variety of work‐related matters.
Instead of relying on less rich and more formal channels to bring information to your attention, MBWA
involves finding out for yourself what is going on in a rich face‐to‐face communication channel. The
basic objectives are to break down status barriers, increase the frequency of interpersonal contact and
get more and better information from lower level sources. Of course, this requires a trusting relation­
ship. One Australian CEO who is well known for moving around his retail outlets is Gerry Harvey,
executive chairman of Harvey Norman. Terry Davis, former group managing director and executive
director of Asia–Pacific softdrink giant Coca‐Cola Amatil, also encourages his staff to manage by
walking around, since so much can be missed if executives anchor themselves to their desks every
day, saying:

I recently asked one of our rising tax people how often they spent time in a supermarket and they said,
‘As little as possible’. I said ‘How about thinking about it from a Coke point of view and go and have a
look?’ All of a sudden you have created an opportunity for someone to think outside the square.

Management practices designed to open channels and improve upward communications have tra­
ditionally involved open office hours, whereby busy senior executives set aside time in their calendars
to welcome walk‐in visits during certain hours each week. Today, this approach can be expanded to
include online discussion forums and ‘chat rooms’ that are open at certain hours. Programs of regular
employee group meetings are also helpful. Here, a rotating schedule of team meetings brings top
managers into face‐to‐face contact with mixed employee groups throughout an organisation. In some
cases, a comprehensive communications program includes an employee advisory council composed
of members elected by their fellow employees. Such a council may meet with top management regu­
larly to discuss and react to new policies and programs that will affect employees. Again, the face‐
to‐face groups can be supplemented with a variety of computer‐based meetings that serve similar
purposes, overcoming the time and distance limitations that might otherwise make communication
less frequent or intense.
When bosses suspect that they are having communication problems, communication consultants can
be hired to conduct interviews and surveys of employees on their behalf. Ingrid Jackson, for instance,
consulted for a major Australian bank during a period of key strategic change at the organisation. Jackson
coordinated a two‐year communications strategy designed to involve and inform the bank’s 23  000 retail
staff in the change process. Moving away from the bank’s traditional top–down communication

388  Management
processes, Jackson and an internal steering group applied a range of communication strategies to tackle
the diversity of communication needs and styles present in such a large organisation, including:
•• cascade briefings, which involved providing overhead transparencies and accompanying speaker notes
so that regional, zone and branch managers could communicate effectively with their staff
•• reverse cascades, so that questions that could not be answered at the cascade briefings were sent back
up the line for a response
•• visible executive leadership, in which key executives spent time travelling across Australia to speak to
groups of staff
•• staff booklets outlining the bank’s new strategy and detailing the new organisation structures, roles
and career streams
•• national and state newsletters discussing the success of pilot projects and implementation across
different states
•• ten‐minute staff videos, provided monthly with discussion guides
•• audio tapes for managers with interviews, discussions, and questions and answers
•• staff ‘hotline’ to respond to questions
•• supervisor scripts, so that front‐line managers could access appropriate form letters and implementation
information.36
Another communication approach that seeks to broaden the awareness of ‘bosses’ regarding the feel­
ings and perceptions of other people that they work closely with is 360 degree feedback.37 This typically
involves upward appraisals done by a manager’s subordinates as well as additional feedback from peers,
internal and external customers, and people higher up. A self‐assessment is also part of the process.
Often this feedback is gathered through questionnaires in which respondents can remain anonymous.
The goal of 360 degree feedback is to provide the manager with information that can be used for con­
structive improvement. Managers who have participated in the process often express surprise at what
they learn. Some have found themselves perceived as lacking vision, having bad tempers, being bad
listeners, lacking flexibility and so on.38
In addition to the more traditional use of financial and other quantitative indicators, the ANZ Banking
Group uses 360 degree feedback to analyse the leadership qualities of its managers, as well as their
ability to generally ‘add value’ to the corporation.39 Seeking to send a message to both ANZ employees
and its other stakeholders, ANZ CEO Mike Smith announced in 2012 that the pay packages of the
bank’s 900 most senior executives would be frozen for a second consecutive year. Having said that,
ANZ’s profit in the 12 months to 30 June 2012 increased 5.5 per cent to $4.5 billion and it is likely that
Smith’s own pay packet will not shrink below $10 million each year!40

Proxemics and space design

An important but sometimes neglected part of communication involves proxemics, or the use of interpersonal
space.41 The distance between people conveys varying intentions in terms of intimacy, openness and status; the
proxemics or physical layout of an office is an often‐overlooked form of non‐verbal communication. See for
yourself — offices with two or more chairs available for side‐by‐side seating, for example, convey different
messages from those where the manager’s chair sits behind the desk and those for visitors sit facing in front.
Office or workspace architecture is becoming increasingly recognised for its important influence on
communication and behaviour. Office designs increasingly reflect deliberate attempts to encourage open
communications among employees from different departments and from different levels of the organ­
isational hierarchy.
Proxemics takes on a different meaning when we consider the increasing use of telecommuting, or
working from a place other than your normal office. Asher Moses, IT specialist at Melbourne‐based
newspaper The Age explains that, although companies such as Yahoo and Google in the United States
are focused on limiting their staffs’ exposure to telecommuting, in Australia telecommuting is becoming
increasingly prevalent.42 He reports that research from the University of Melbourne suggests that

CHAPTER 14 Communication and interpersonal skills  389

Australians are benefiting from teleworking; working three extra hours a day, increasing productivity and
reducing stress levels. Tim Fawcett, the general manager of government affairs and policy at Cisco Aus­
tralia, suggests that Yahoo and Google are ‘working against the tide’, with about 90 per cent of Cisco’s
75  000 global workforce telecommuting a minimum of one day a week and approximately 40 per cent
being classified as ‘mobile workers’.43 In addition the federal government set a goal for 12 per cent of
its workers to telecommute one day a week by 2020 and Deloitte claims that teleworking will be worth
some $3.2 billion a year to the Australian GDP by 2020/21.44

COUNTERPOINT

Managers as storytellers
Reissner and Pagan describe how storytelling
is emerging as a management approach, even
though there is ambiguity concerning the
meaning of ‘story’ and ‘storytelling’ as a man­
agement practice, not only as a management
communication tool, but also in how stories
and storytelling are understood by employees.
As a consequence, managers and consultants
will have difficulty using stories and storytelling
in making informed decisions.
Reissner and Pagan’s research demonstrates
that storytelling in the modern organisation is
represented at three levels: corporate story­
telling (macro level), managerial storytelling
(meso level) and peer storytelling (micro level). Each level is distinctly defined in the organisation, with
actors at each level displaying differing levels of consciousness as to how stories and storytelling are
applied within the organisation.
Of particular importance in the researchers findings was that the more managers understand the use
and limits of stories and storytelling, the more effectively they can communicate with employees and
other stakeholders. Storytelling can be used to communicate corporate visions and strategic goals (cor­
porate storytelling), assist in attaining principal business results (managerial storytelling) and enhance
relationships within an organisation (peer storytelling). However, corporate storytelling at Northern­
Services Ltd in the United Kingdom, through a monthly newsletter, a communications forum and a
meeting with senior managers, was shown to be insufficient alone to convey the corporate message
and required further support through managerial behaviours that go beyond the spoken word:
Senior managers definitely follow up any points raised during the round tables. We’ve just received some­
thing today from our last meeting where they’ve listed all the questions and queries that were brought up
and given some answers of why this is happening or what’s going to happen in the future. They do try to
follow up on everything, tiny things as well. Yes, they’re really good for that.45

The authors explain further that without addressing the ‘small details’ manager’s stories may not
necessarily bring out the positive image of the corporate story.46

QUESTION
How do you think that managers’ storytelling differ at the three different levels (macro, meso and micro)?
What particular challenges do you envisage at each level of storytelling? How can managers overcome
these challenges?

Technology use
Prerequisites to entry into just about any workplace with career value are basic computer literacy and
a willingness to use the new technologies to maximum advantage. The new age of communication is
one of email, voicemail, online discussions, videoconferencing, virtual or computer‐based meetings and

390  Management
more. A related and important development is the growing use of in‐house or corporate intranets to pro­
vide opportunities for increased communication and collaboration. Progressive organisations use data­
base programs to host continuous online forums for internal communication and knowledge sharing
among employees. The purposes are to encourage fast and regular communication and provide a source
of up‐to‐date information for problem‐solving and work implementation. For example, Vodafone New
Zealand, with some 1400 employees, relies heavily on effective internal communications but were faced
with a range of problems such as ineffective internal email use, low staff survey response rates, ineffec­
tive team meetings, challenges with movement to the global intranet and a need to reduce administration.
As a response they collaborated with Snap Communications, providing employees with a customised
internal software communication tool that allow them to be informed and empowered in dealing with
customers.47
The Radicati Group issued their Email Statistics Report in 2014, which showed that on average the
number of business emails will increase from 121 per day in 2014 to 140 in 2018.48 With increasing
numbers of emails clogging inboxes, David Dercho of Wallmans Lawyers says that although emails
have become a ‘critical communication tool’ employees need proper strategies to manage them and that
‘relationships are personal, that face‐to‐face and relationship‐based communication methods build that
level of trust which is important in business’.49
Perhaps of even greater concern is the widespread use of surveillance by organisations over our use
of emails and the internet. According to Elisabeth Sexton, ‘Every time we make a phone call, click on
a website link, send an email or swipe a card through an electronic reader, we are creating a record that
can be stored and later analysed by computers’.50 Many companies are already doing so, of course.
The relaunch of the Coles supermarkets Flybuys scheme was substantially motivated by the company’s
desire to track the buying habits of different customer groups and then target special offers to them on
the basis of such past purchases.51 Such strategies are not without their dangers, however. In December
2014, for example, one of Australia’s largest travel insurance companies had their computer system
hacked, resulting in the personal information of hundreds of thousands of customers being stolen. At the
time the company hid the event from customers. 52
It is also the case that many organisations, and their employees, do not really understand which kinds
of email and internet surveillance are permissible and which are not. In the Australian Capital Territory,
the Greens have sought to implement legislation to protect the rights of workers, particularly in terms of
their privacy. Nonetheless, industrial lawyer Greg Robertson emphasises that ‘the email system belongs
to the employer’ and that employers have the right to monitor and review emails, as well as web usage,
as long as such monitoring complies with the relevant legislation. Nonetheless, ‘grey areas’ remain
around the use of personal email accounts such as Hotmail and Gmail, particularly given that many
organisations permit ‘some internet use’ for their staff.53 Arguably, clarifying these areas of confusion is
now long overdue.
Communications systems are also, increasingly, becoming more integrated. For example,
Swedish company SAAB’s integrated communication system Tacticall is a fundamental part of
the Australian Navy’s combat system. SAAB’s Gunilla Fransson explains the importance of such
systems in that, ‘Our Australian operations support more than 300 employees developing Australia’s
future combat system for the next generation frigates and new technologies in unmanned surface
vessels’.54
Several gadgets with swift take‐up rates in recent years have included smartphones. Such tools enable
users to access their email and the internet, as well as send text messages at any time and from virtually
any place.
According to Martina Sheehan, founder of mind‐training organisation Mind Gardener, such gadgets
add an enormous load to our often already overcrowded brains. As the owner of two businesses, Sheehan
juggles Facebook, Twitter and her smartphone, as well as the different thinking processes that each
business requires. Such multi‐tasking is now a common demand for many managers, particularly those
whose workloads have risen as organisations have downsized to reduce costs. University of Sydney

CHAPTER 14 Communication and interpersonal skills  391

lecturer Dr Chris Chapparo notes that while the upsides of multi‐tasking include higher productivity, the
downsides can include a loss of morale and, eventually, burnout. A recent UK study found that two out
of three employees check their emails while on vacation or out of the office!
Martina Sheehan provides five tips for making the most of multi‐tasking in a world of constant inter­
ruptions and the constant demands of multiple technologies for our attention.
1. Do brain warm‐ups by visualising your day progressing smoothly.
2. Focus on your achievements rather than your to‐do list.
3. Consciously set aside one task, clear your mind, then think about the next to facilitate a smooth
switch.
4. Don’t ignore distractions. Acknowledge them and name them, then refocus on the task at hand.
5. Tackle one task at a time.55

Valuing culture and diversity

Workforce diversity and globalisation are two of the most talked‐about trends in modern society.
Communicating under conditions of diversity, where the sender and receiver are part of different
cultures, is certainly a significant challenge. Cross‐cultural communication challenges were first
discussed in the chapter on the international dimensions of management. It is useful to recall that
a major source of difficulty is ethnocentrism, the tendency to consider your culture superior to
others. Ethnocentrism can adversely affect communication in at least three major ways: it may cause
someone to not listen well to what others have to say; it may cause someone to address or speak
to others in ways that alienate them; and it may lead to the use of inappropriate stereotypes when
dealing with people from another culture.56
For years, cultural challenges have been recognised by international travellers and executives. But,
as we know, you don’t have to travel abroad to come face‐to‐face with communication and cultural
diversity. Just going to work is a cross‐cultural journey for most of us today. The workplace abounds
with subcultures based on gender, age, ethnicity, race and other factors. As a result, the importance
of cross‐cultural communication skills applies at home just as much as it does in a foreign country.
Remember, too, that cultural skills are gained by reaching out, crossing cultural boundaries and
embracing differences.
Communications issues also arise because of gender differences. A study of female managers in
Australian organisations found that the participants indicated that there were differences between
their communication style and the style used by many male managers. Their views are captured in the
following quotations.

I think that there is a general recognition that I communicate in a different way within the executive team
to the men and that I will get my message across in a different way. I probably am a little softer in some
situations, but just as determined.
My personal viewpoint is that it’s style. Women are definitely less likely to be openly dogmatic: ‘You
will do this, you will do that.’ I mean they’re more likely to say: ‘I think it would be a better idea if we
did this’, or ‘Have you thought about that?’57

Language and organisational change

The words we choose can have a powerful impact on our effectiveness as communicators. In a study
of two New Zealand organisations, it was found that the language used had a strong influence on how
the organisations responded to environmental changes. In the case of multinational IT company Info­
tech (not its real name), the New Zealand office decided to pursue its own strategies while its parent
company suffered heavy worldwide losses. These were viewed as its ‘rebel’ days. In responding to
challenges, Infotech’s managers saw the company’s survival as a ‘1000‐day journey’ to recover faster
than its competitors. They invoked a strongly positive view of ‘the Kiwi way’ as a motivator for

392  Management
the journey. As Infotech recovered, the managers referred to ‘standing on our own two feet’ to explain
the New Zealand subsidiary’s determination to succeed on its own terms. Then, as the parent com­
pany itself began to recover, managers used the word ‘reglobalisation’ to illustrate the parent company’s
desire to regain control over its New Zealand operation. The term became a rallying cry for employees
keen to retain local control over Infotech operations.
Similarly, with reference to the world‐changing events of 11 September 2001, when terrorists brought
down the World Trade Center buildings in New York, well‐known New Zealand manager Ian Clark
argued that although a single organisation or manager can do little to influence world events, they do
have control over how they respond in terms of their own area of influence. New strategies imple­
mented in response to such events are much easier to carry out when managers pay ongoing attention
to effectively managing communications within their companies. For Clark, ‘the challenge is to give
[employees] meaningful information without ringing alarm bells  .  .  .  tell them what you are doing or
planning to do about it [because] staff want the truth, leadership and plans for the future [rather than]
misinformation, uncertainty, confusion and surprises’. As many staff give credibility to the views of their
immediate supervisors, frontline managers and supervisors should assume a major role in any communi­
cation strategy.58
The global financial crisis was not dissimilar to the 9/11 crisis in its influence on the style of com­
munication needed during a challenging period. A rule for managing during a recession is: Don’t
stop talking! Managers are exhorted to be as open and honest as possible with their staff, and to
create open lines of communication.59 For Alan Oppenheim, managing director of Australian skincare
manufacturer Ego Pharmaceuticals, ignoring the crisis when communicating with staff would be like
pretending there was no elephant in the room. In this case, staff at Ego Pharmaceuticals were given
regular updates about the elephant (the economy) via meetings, newsletters, and a message from
Oppenheim and  his colleagues that emphasised the company’s heritage and ongoing commitment to
its people.60

CRITICAL ANALYSIS

1. What strategies should global corporations pursue to integrate local cultures into their business
operations? Can these strategies help overcome regional differences and build globally cohesive
organisations?
2. How can managers balance the need for constant, real‐time organisational communication with the
simultaneous need to take time out for reflection and deeper thinking?

14.3 Perception
LEARNING OBJECTIVE 14.3 How does perception influence communication?
The process through which people receive and interpret information from the environment
is called perception. It is the way we form impressions about ourselves, other people and daily
life experiences and the way we process information into the decisions that ultimately guide our
actions.61
As shown in figure 14.3, perception acts as a filter through which information must pass before it has
an impact on communication, decision‐making and action. The results of this screening process vary
because individual perceptions are influenced by such things as values, cultural background and other
circumstances of the moment. Simply put, people can and do perceive the same things or situations
very differently. And, importantly, people behave according to their perceptions. Unless the potential
for alternative perceptions is recognised and understood, this influence on individual behaviour may be
neglected.

CHAPTER 14 Communication and interpersonal skills  393

 Sender’s Receiver’s
perceptions perceptions
Message
SENDER RECEIVER
Feedback

Perceptual distortions
● Stereotypes
● Halo effects
● Selective perception
● Projection

FIGURE 14.3   Perception and communication

Perception and attribution

It is natural for people to try to explain what they observe and the things that happen to them. This pro­
cess of developing explanations for events is called attribution. The fact that people can perceive the
same things quite differently has an important influence on attributions and their ultimate influence on
behaviour. In social psychology, attribution theory describes how people try to explain the behaviour of
themselves and other people.62 One of its significant applications is in the context of people’s perfor­
mance at work.
Fundamental attribution error occurs when observers blame another person’s performance failures
more on internal factors relating to the individual than on external factors relating to the environment.
In the case of someone who is producing poor‐quality work, for example, a supervisor might blame a
lack of job skills or laziness — an unwillingness to work hard enough. These internal explanations of the
performance deficiency, moreover, are likely to lead the supervisor to try to resolve the problem through
training, motivation or even replacement. The attribution error leads to the neglect of possible external
explanations. They might suggest, for example, that the poor‐quality work was caused by unrealistic
time pressures or substandard technology. Opportunities to improve these factors through managerial
action will thus be missed.
Another confounding aspect of perception and attribution is the self‐serving bias. This occurs because
individuals tend to blame their personal failures or problems on external causes, and attribute their suc­
cesses to internal causes. In this instance, the individual may give insufficient attention to the need for
personal change and development. Instead, he or she may be prone to take credit for successes and focus
on the environment to explain away failures.

Perceptual tendencies and distortions

In addition to the attribution errors just discussed, a variety of perceptual distortions can also influence
human behaviour in the workplace. Of particular interest are the use of stereotypes, halo effects, selec­
tivity and projection.

Stereotypes
A stereotype occurs when someone is identified with a group or category, and then oversimplified attri­
butes associated with the group or category are linked to the individual. Common stereotypes include
those of young people, old people, teachers, students, union members, males and females. The phen­
omenon, in each case, is the same: a person is classified into a group on the basis of one piece of
information, such as age. Characteristics commonly associated with the group are then assigned to the

394  Management
individual. What is generalised about the group (e.g. ‘Young people dislike authority’) may or may not
be true about the individual. Stereotypes based on factors such as gender, age and race can and do bias
the perceptions of people in some work settings.
In the world of international business, only about 7 per cent of expatriate managers working
in the Asia–Pacific region are women.63 Why? A Catalyst study of opportunities for women in
global business points to gender stereotypes that place women at a disadvantage to men for these
types of opportunities. The tendency is to assume they lack the ability and/or willingness to work
abroad.64
Finally, ability stereotypes and age stereotypes also exist in the workplace. Their inappropriate use
may place disabled and older workers at a disadvantage in various work situations. A worker with a
disability may be overlooked in the hiring process because the recruiter assumes that someone with a
disability would have a difficult time meeting a normal work schedule. A talented older worker may
not be promoted to fill an important and challenging job, because a manager assumes older workers
lack creativity, are cautious and tend to avoid risk. A study found that less than 11 per cent of recently
hired staff in Australian organisations were aged 45 or older, and 47 per cent of organisations had
no staff older than 55. With an ageing workforce, however, employers in some industries may have
little choice but to employ older workers. It is estimated that by 2020 there will be as many people
approaching retirement in Australia as there will be entering the workforce. As older workers can be
just as productive and creative as younger employees, the pressure to employ more older staff is not
necessarily a bad thing.65

Halo effects
A halo effect occurs when one attribute is used to develop an overall impression of a person or situation.
When meeting someone new, for example, the halo effect may cause one trait, such as a pleasant smile,
to result in a positive first impression. On the other hand, a particular hairstyle or manner of dress may
create a negative reaction. Halo effects cause the same problem for managers as do stereotypes — that
is, individual differences become obscured. This is especially significant with respect to a manager’s
view of subordinates’ work performance. One factor, such as a person’s punctuality, may become the
‘halo’ for a positive overall performance evaluation.

Selectivity
Selective perception is the tendency to single out for attention those aspects of a situation or person that
reinforce or appear consistent with one’s existing beliefs, values or needs.66 What this often means in
an organisation is that people from different departments or functions — such as marketing and manu­
facturing — tend to see things from their own points of view and tend not to recognise other points of
view. Like the other perceptual distortions just discussed, selective perception can bias a manager’s view
of situations and individuals. One way to reduce its impact is to gather additional opinions from other
people.

Projection
Projection is the assignment of personal attributes to other individuals. A classic projection error is to
assume that other people share our needs, desires and values. Suppose, for example, that you enjoy a lot
of responsibility and challenge in your work. Suppose, too, that you are the newly appointed supervisor
for people whose work you consider dull and routine. You might move quickly to start a program of job
enrichment to help them experience more responsibility and challenge. This may not be a good decision.
Instead of designing jobs to best fit their needs, you have designed their jobs to fit yours. In fact, your
subordinates may be quite satisfied and productive doing jobs that, to you, seem routine. Such projection
errors can be controlled through self‐awareness and a willingness to communicate and empathise with
others — that is, to try to see things through their eyes.

CHAPTER 14 Communication and interpersonal skills  395

 CRITICAL ANALYSIS

1. ‘The halo effect occurs repeatedly because of the blinding impacts of beauty. Too many managers,
particularly male executives, ignore a whole raft of flaws that may exist in the character of their
beautiful employees.’ Is this true? If so, what can be done?
2. Given that projection often occurs when members of one generation assume that subsequent
generations share their values and attitudes to work, how can managers guard against distorted
thinking?

14.4 Communication and conflict management

LEARNING OBJECTIVE 14.4 How can we deal positively with conflict?
Communication and related interpersonal skills must be at the forefront of any attempt to develop man­
agerial and leadership expertise. Among these essential skills, the ability to deal with interpersonal con­
flicts is critical. Formally defined, conflict is a disagreement between people on substantive or emotional
issues.67 Managers and leaders spend a lot of time dealing with conflicts of various forms. Substantive
conflicts involve disagreements over such things as goals; the allocation of resources; the distribution
of rewards, policies and procedures; and job assignments. Emotional conflicts result from feelings of
anger, distrust, dislike, fear and resentment, as well as from personality clashes. Both forms of conflict
can cause problems in the workplace. But when managed well, they can be helpful in promoting high
performance, creativity and innovation.

Consequences of conflict
Whether or not conflict benefits people and organisations depends on two factors: the intensity of the
conflict and how well the conflict is managed. The inverted ‘U’ curve in figure 14.4 shows that conflict
of moderate intensity can be good for performance. This functional conflict, or constructive conflict,
stimulates people to greater work efforts, cooperation and creativity. At very low or very high inten­
sities dysfunctional conflict, or destructive conflict, occurs. Too much conflict interferes with other
more task‐relevant activities; too little conflict may promote complacency and the loss of a creative,
high‐performance edge.

Positive
Functional conflict
Moderate
levels of conflict
are constructive
Impact on
Neutral
performance

Dysfunctional conflict
Too little or too much
conflict is destructive
Negative

Low High
Intensity of conflict

FIGURE 14.4 The relationship between conflict and performance

396  Management
Causes of conflict
Conflict in organisations may arise for a variety of reasons. Indeed, the following conditions can make
the eventual emergence of conflict very likely. Role ambiguities set the stage for conflict. Unclear job
expectations and other task uncertainties increase the probability that some people will be working at
cross‐purposes, at least some of the time. Resource scarcities cause conflict. Having to share resources
with others and/or compete directly with them for resource allocations creates a potential situation con­
flict, especially when resources are scarce. Task interdependencies cause conflict. When individuals or
groups must depend on what others do to perform well themselves, conflicts often occur. Competing
objectives are opportunities for conflict. When objectives are poorly set or reward systems are poorly
designed, individuals and groups may come into conflict by working to one another’s disadvantage.
Structural differentiation breeds conflict. Differences in organisation structures and in the characteristics
of the people staffing them may foster conflict because of incompatible approaches to work. And unre-
solved prior conflicts tend to erupt in later conflicts. Unless a conflict is fully resolved, it may remain
latent in the situation as a lingering basis for future conflicts over the same or related matters. Increasing
numbers of employees are communicating their high levels of frustration, stress and anxiety via verbal
outbursts.68

How to deal with conflict

When any one or more of these conditions is present, an informed manager expects conflicts to occur.
And when they do, the conflicts then can either be ‘resolved’, in the sense that the sources are corrected,
or be ‘suppressed’, in that the sources remain but the conflict behaviours are controlled. Suppressed con­
flicts tend to fester and recur at a later time. They can also contribute to other conflicts over the same
or related issues. True conflict resolution eliminates the underlying causes of conflict and reduces the
potential for similar conflicts in the future.
Managers can try several approaches to restructure situations in order to resolve conflicts between
individuals or groups. There are times when appealing to superordinate goals can focus the attention
of conflicting parties on one mutually desirable end state. The appeal to higher level goals offers all
parties a common frame of reference against which to analyse differences and reconcile disagree­
ments. Conflicts whose reasons lie in the competition for scarce resources can also be resolved by
making more resources available to everyone. Although costly, this technique removes the reasons
for the continuing conflict. By changing the people, that is, by replacing or transferring one or more
of the conflicting parties, conflicts caused by poor interpersonal relationships can be eliminated. The
same holds true for altering the physical environment by rearranging facilities, work space or work­
flows to physically separate conflicting parties and decrease opportunities for them to come into con­
tact with one another.
A variety of integrating devices or coordinating mechanisms — ways to improve integration in organ­
isations — can also be used with success in many settings. Implementing liaison personnel, special task
forces and cross‐functional teams, and even the matrix form of organisation, can change interaction pat­
terns and assist in conflict management. Changing reward systems may reduce the competition between
individuals and groups for rewards. Creating systems that reward cooperation can encourage behaviours
and attitudes that promote teamwork and keep conflict within more constructive limits. Changing poli-
cies and procedures may redirect behaviour in ways that minimise the likelihood of unfortunate conflict
situations. Finally, training in interpersonal skills can help prepare people to communicate and work
more effectively in situations that are conflict prone.
Kathy Adams trains around 800 middle managers each year in the art of delivering criticism to
colleagues and staff in the most appropriate and diplomatic ways. This is particularly important since
many executives avoid giving criticism, thinking that it will only create unnecessary conflict, or give
criticism in an overly aggressive manner. According to Adams, criticism is best given when it is
positive, thus giving employees some ideas about how to perform more effectively in the future;

CHAPTER 14 Communication and interpersonal skills  397

proactive, being given at the right time and place; and upbeat, ideally delivered alongside praise and
encouragement for solid performance.69
An innovative approach to conflict resolution has been trialled by organisations such as Sydney‐based
WSN Environmental Solutions (WSN), a company that experienced significant conflict between sales
and operations staff when it expanded from 110 to 400 employees. It brought in Primed, a training
company whose staff includes actors skilled in performing organisational conflict roleplays, to give the
warring staff a different perspective on their problems. As they watched their conflict portrayed, WSN
employees could ask questions of the actors and were encouraged to suggest constructive solutions to
the conflict. The actors then resumed their parts and played out the new scenarios, thus providing valu­
able hints about how the real conflict could be resolved.70

Conflict management styles

Interpersonally, people respond to conflict through different combinations of cooperative and assertive
behaviours.71 Cooperativeness is the desire to satisfy another party’s needs and concerns. Assertiveness
is the desire to satisfy one’s own needs and concerns. Figure 14.5 shows five interpersonal styles of con­
flict management that result from various combinations of the two. Briefly stated, these conflict manage­
ment styles involve the following behaviours.
•• Avoidance — being uncooperative and unassertive; downplaying disagreement, withdrawing from the
situation and/or staying neutral at all costs.
•• Accommodation or smoothing — being cooperative but unassertive; letting the wishes of others rule;
smoothing over or overlooking differences to maintain harmony.
•• Competition or authoritative command — being uncooperative but assertive; working against the
wishes of the other party, engaging in win–lose competition and/or forcing through the exercise of
authority.
•• Compromise — being moderately cooperative and assertive, bargaining for ‘acceptable’ solutions in
which each party wins a bit and loses a bit.
•• Collaboration or problem‐solving — being both cooperative and assertive; trying to fully satisfy
everyone’s concerns by working through differences; finding and solving problems so that everyone
gains.72

High

Accommodation or Collaboration or
smoothing problem-solving
Playing down the conflict and Searching for a solution that meets
seeking harmony among parties each other’s needs

Degree of Compromise
cooperativeness Bargaining for gains and losses to each party

Competition or authoritative
Avoidance
command
Denying the existence of conflict
Forcing a solution to impose one’s
and hiding one’s true feelings
will on the other party
Low
Low High
Degree of assertiveness

FIGURE 14.5 Alternative conflict management styles

398  Management
 The various conflict management styles can have quite different outcomes.73 Therefore they should
be selected and used with caution, and with the requirements of each unique conflict situation care­
fully considered. Conflict management by avoiding or accommodating often creates lose–lose conflict.
No‐one achieves his or her true desires and the underlying reasons for conflict often remain unaffected.
Although a lose–lose conflict may appear settled or may even disappear for a while, it tends to recur in
the future. Avoidance is an extreme form of non‐attention. Everyone pretends that conflict doesn’t really
exist and hopes that it will simply go away. Accommodation plays down differences and highlights simi­
larities and areas of agreement. Peaceful coexistence through a recognition of common interests is the
goal. In reality, such smoothing may ignore the real essence of a conflict.
Competing and compromising tend to create win–lose conflict. Here, each party strives to gain at the
other’s expense. In extreme cases, one party achieves its desires to the complete exclusion of the other
party’s desires. Because win–lose methods fail to confront the root causes of conflict, future conflicts of
the same or a similar nature are likely to occur. In competition, one party wins, as superior skill or out­
right domination allows his or her desires to be forced on the other. This occurs in the form of authori­
tative command, where the forcing is accomplished by a higher level supervisor who simply dictates a
solution to subordinates. Compromise occurs when tradeoffs are made such that each party to the con­
flict gives up and gains something of value. As a result, neither party is completely satisfied, and reasons
for future conflicts are established.
Collaborating in true problem‐solving tries to reconcile underlying differences and is often the most
effective conflict management style. It is a form of win–win conflict whereby issues are resolved to the
mutual benefit of all conflicting parties. This is typically achieved by confronting the issues and through
the willingness of those involved to recognise that something is wrong and needs attention. Win–win
conditions are created by eliminating the underlying causes of the conflict. All relevant issues are raised
and discussed openly. Win–win methods are clearly the most preferred of the interpersonal styles of con­
flict management.
Developing an organisational culture that encourages collaboration involves three key
dimensions. First, establishing clear tasks and roles provides employees with a framework through
which conflicts can be understood. Next, people in the workplace can be encouraged to learn from
experience, therefore providing a shared base of knowledge and learning so that conflicts can be
dealt with in mature ways. Finally, managers should create an environment in which employees are
encouraged to raise concerns about tasks and roles, and ensure that these concerns are listened to and
considered.74

Structural approaches to conflict management

Most managers will tell you that not all conflict management in groups and organisations can be resolved
at the interpersonal level. Think about it. Aren’t there likely to be times when personalities and emotions
prove irreconcilable? In such cases, a structural approach to conflict management can often help.
When conflict traces back to a resource issue, the structural solution is to make more resources available
to everyone. Although costly and not always possible, this is a straightforward way to resolve resource‐
driven conflicts. When people are stuck in conflict and just can’t seem to appreciate one another’s points
of view, appealing to higher level goals can sometimes focus their attention on one mutually desirable
outcome. In a student team where members are arguing over content choices for a PowerPoint presen­
tation, for example, it might help to remind everyone that the goal is to impress the instructor and get
an ‘A’ for the presentation. An appeal to higher goals offers a common frame of reference for analysing
differences and reconciling disagreements.
When appeals to higher goals don’t work, it may be that changing the people is necessary. There are
times when a manager may need to replace or transfer one or more of the conflicting parties to eliminate
the conflict. When the people can’t be changed, they may have to be separated by altering the physical
environment. Sometimes it is possible to rearrange facilities, work spaces or workflows to physically
separate conflicting parties and decrease opportunities for contact with another. Organisations also use

CHAPTER 14 Communication and interpersonal skills  399

a variety of integrating devices to help manage conflicts between groups. These approaches include
assigning people to formal liaison roles, convening special task forces, setting up cross‐functional teams,
and even switching to the matrix form of organisation.
Providing training in interpersonal skills can also help prepare people to communicate and work
more effectively in situations where conflict is likely. When corporate recruiters list criteria for
recruiting new college graduates, such ‘soft’ or ‘people’ skills are often right at the top. In today’s
horizontal and team‐oriented organisations, you can’t succeed if you can’t work well with other
people even when disagreements are inevitable. Finally, by changing reward systems it is sometimes
possible to reduce conflicts that arise when people feel they have to compete with one another for
attention, pay and other rewards. An example is shifting pay bonuses or even student project grades
to the group level so that individuals benefit in direct proportion to how well the team performs as a
whole. This is a way of reinforcing teamwork and reducing the tendencies of team members to com­
pete with one another.75

CRITICAL ANALYSIS

1. The collaborative approach to problem‐solving appears to be the preferred approach to conflict

resolution; however, the other styles may be useful at different times. Suggest several situations in
which you might use alternative styles.
2. Dysfunctional conflict may occur when there is too little conflict. At such times, executives should
carefully introduce conflicts to energise people and engage them in constructive debate. How might
they do this without moving towards the other extreme and creating too much conflict?

14.5 Negotiation
LEARNING OBJECTIVE 14.5 How can we negotiate successful agreements?
Put yourself in the following situations. How would you behave, and what would you do?
1. You have been offered a promotion and would really like to take it. However, the pay increase being
offered is less than you hoped.
2. You have enough money to order one new computer for your department. Two of your subordinates
have each requested a new computer for their individual jobs.76
These are two examples of the many negotiation situations that involve managers and other people in the
typical workplace.
Negotiation is the process of making joint decisions when the parties involved have different pref­
erences. Stated a bit differently, it is a way of reaching agreement when decisions involve more than
one person or group. People negotiate over such diverse matters as salary, merit raises and perfor­
mance evaluations, job assignments, work schedules, work locations, special privileges and many
other considerations. All such situations are susceptible to conflict and require exceptional communi­
cation skills.

Negotiation goals and approaches

There are two important goals in negotiation. Substance goals are concerned with outcomes — they are
tied to the ‘content’ issues of the negotiation. Relationship goals are concerned with processes — they
are tied to the way people work together while negotiating and how they (and any constituencies they
represent) will be able to work together again in the future.
Effective negotiation occurs when issues of substance are resolved and working relationships among
the negotiating parties are maintained or even improved in the process. The three criteria of effec­
tive negotiation are (1) quality — negotiating a ‘wise’ agreement that is truly satisfactory to all sides,

400  Management
(2) cost — negotiating efficiently, using up minimum resources and time and (3) harmony — negotiating
in a way that fosters, rather than inhibits, interpersonal relationships.77 The way each party approaches a
negotiation can have a major impact on these outcomes.78
Distributive negotiation focuses on ‘claims’ made by each party for certain preferred outcomes.
This can take a competitive form in which one party can gain only if the other loses. In such ‘win–lose’
conditions, relationships are often sacrificed as the negotiating parties focus only on their respective
self‐interests. It may also become accommodative if the parties defer to one another’s wishes simply ‘to
get it over with’.
Principled negotiation, often called integrative negotiation, is based on a ‘win–win’ orientation.
The focus on substance is still important, but the interests of all parties are considered. The goal is
to base the final outcome on the merits of individual claims and to try to find a way for all claims
to be satisfied if at all possible. No‐one should ‘lose’ and relationships should be maintained in the
process.

Gaining integrative agreements

In their book Getting to Yes, Roger Fisher and William Ury point out that truly integrative agreements
are obtained by following four negotiation rules.79
1. Separate the people from the problem.
2. Focus on interests, not on positions.
3. Generate many alternatives before deciding what to do.
4. Insist that results are based on some objective standard.
Proper attitudes and good information are important foundations for such integrative agreements. The
attitudinal foundations of integrative agreements involve the willingness of each negotiating party to
trust, share information with, and ask reasonable questions of the other party. The informational foun­
dations of integrative agreements involve each party knowing what is really important to them and
finding out what is really important to the other party. In addition, each should understand his or her
personal best alternative to a negotiated agreement, or BATNA. This is an answer to the question: what
will I do if an agreement can’t be reached?
Figure 14.6 introduces a typical case of labour–management negotiations over a new contract and
salary increase. This helps to illustrate elements of classic two‐party negotiation as they occur in
many contexts.80 To begin, look at the figure and case from the labour union’s perspective. The union
negotiator has told her management counterpart that the union wants a new wage of $24.00 per hour.
This expressed preference is the union’s initial offer. However, she also has in mind a minimum
reservation point of $20.00 per hour. This is the lowest wage rate that she is willing to accept for the
union. But the management negotiator has a different perspective. His initial offer is $18.00 per hour,
and his maximum reservation point, the highest wage he is prepared eventually to offer to the union,
is $21.50 per hour.

Bargaining zone

$18.00/h $20.00/h $21.50/h $24.00/h

Mi Ur Mr Ui

Mi = Management’s initial offer Mr = Management’s maximum reservation point

Ur = Union’s minimum reservation point Ui = Union’s initial offer

FIGURE 14.6 The bargaining zone in classic two‐party negotiation

CHAPTER 14 Communication and interpersonal skills  401

 In classic two‐party negotiations of this type, the bargaining zone is defined as the zone between one
party’s minimum reservation point and the other party’s maximum reservation point. The bargaining
zone of $20.00 per hour to $21.50 per hour in this case is a ‘positive’ one, since the reservation points
of the two parties overlap. If the union’s minimum reservation point were greater than management’s
maximum reservation point, no room would exist for bargaining. Whenever a positive bargaining zone
exists, there is room for true negotiation.
A key task for any negotiator is to discover the other party’s reservation point. Until this is known
and each party becomes aware that a positive bargaining zone exists, it is difficult to proceed effectively.
When negotiation does move forwards, each negotiator typically tries to achieve an agreement that is
as close as possible to the other party’s reservation point. Returning to figure 14.6, the union negotiator
would like to get an offer as close to $24.00 per hour as possible. The management negotiator would like
to get a contract for as close to $18.00 per hour as possible.

Avoiding negotiation pitfalls

The negotiation process is admittedly complex, and negotiators must guard against common mistakes.
Four negotiator pitfalls that can be avoided by proper discipline and personal attention should be recog­
nised. The first is the tendency of falling prey to the myth of the ‘fixed pie’. This involves acting on the
distributive assumption that in order for you to gain, the other person must give something up. Nego­
tiating this way fails to recognise the integrative assumption that the ‘pie’ can sometimes be expanded
and/or used to everyone’s advantage. A second negotiation error is the non‐relational escalation of con-
flict. The negotiator in this case becomes committed to previously stated ‘demands’ and allows concerns
for ‘ego’ and ‘face saving’ to increase the perceived importance of satisfying these demands. The third
error is overconfidence and ignoring the other’s needs. The error here is becoming overconfident that
your position is the only correct one and failing to see the needs of the other party and the merits in its
position. The fourth error is the tendency to do too much ‘telling’ and too little ‘hearing’. When com­
mitting the ‘telling’ problem, parties to a negotiation don’t really make themselves understood to each
other. When committing the ‘hearing’ problem neither party listens sufficiently to understand what the
other is saying.81
It is also important to ensure that we don’t assume that the world views, perspectives or frames of
those with whom we are negotiating are the same as ours. When negotiating, we are influenced by our
individual characteristics, the context of the situation, and by the views, characteristics and approaches
of those on the other side of the negotiation. Good negotiators recognise that the way in which they
frame situations may differ significantly from others. They work hard to empathise with the perspective
of others and actively consider how they can adapt their own negotiating position to best complement
the approach of those with whom they are negotiating. They also work hard to subject their own views
and positions to adaptation and change, given the facts of the situation and the evolving context of the
negotiation.
It may not always be possible to achieve integrative agreements. When disputes reach the point of
impasse, mediation and arbitration can be useful. Mediation involves a neutral third party who tries
to improve communication between negotiating parties and keep them focused on relevant issues. The
mediator does not issue a ruling or make a decision, but can take an active role in discussions. This
may include making suggestions in an attempt to move the parties towards agreement. Arbitration is a
stronger form of dispute resolution. It involves a neutral third party, the arbitrator, who acts as a ‘judge’
and issues a binding decision. This usually includes a formal hearing in which the arbitrator listens to
both sides and reviews all facets of the case before making a ruling. Some organisations formally pro­
vide for a process called alternative dispute resolution. This approach uses mediation and/or arbitration
but only after direct attempts to negotiate agreements between the conflicting parties have failed. Often
an ombudsman, or designated neutral third party who listens to complaints and disputes, plays a key role
in the process.

402  Management
Cross‐cultural negotiation
Negotiating in other countries can bring particular challenges not normally faced in a manager’s home
country. Many such challenges can be traced to cultural differences. When negotiating in India, for
example, an awareness of status differences is essential. Communication should be directed first to
the most senior person in an organisation, and negotiators should be aware of the common practice of
‘name dropping’ during conversations, because the level and quality of the relationship between the
person and his or her ‘contact’ may require additional investigation. As access to key players in the
government bureaucracy is often vital to doing business in India, secretaries and assistants are often
valuable sources of information and advice, and relationships with them should be cultivated where
appropriate. Whereas Indian businesspeople will often take great pride in having Westerners to their
homes for a meal, the Chinese will rarely invite foreigners to their home unless the relationship is very
well developed. One of the main reasons for this is that the Chinese may view their dwellings as quite
small in comparison to homes in many parts of the West. Another difference concerns the importance
of time. Whereas Indians are ‘habitually late’ for appointments, the Chinese view punctuality as ‘a
positive asset in others’.
Such cultural differences abound throughout the Asia–Pacific region, and the effective manager is
well prepared for such differences.82 This is not as easy to achieve as it sounds. Australian managers,
for instance, have a reputation for being direct in their willingness to take a leadership position during
negotiations. This style is often called a ‘crash through or crash’ approach. The downside of this style is
that it may be perceived by other cultures as reflecting aggressiveness, impatience and an ignorance of
cultural difference.83

Ethical issues in negotiation

Managers, and anyone else involved in negotiation, should maintain high standards of ethical conduct
even when they are personally engaged in a dynamic and challenging situation. The motivation to behave
unethically sometimes arises from an undue emphasis on the profit motive. This may be experienced as
a desire to ‘get just a bit more’ or to ‘get as much as you can’ from a negotiation. The motivation to
behave unethically may also result from a sense of competition. This may be experienced as a desire
to ‘win’ a negotiation just for the sake of it or in the misguided belief that someone else must ‘lose’ in
order for you to gain.
When unethical behaviour occurs in negotiation, the persons involved sometimes try to rationalise
or explain it away. We first discussed such rationalisations for unethical conduct in the chapter on
ethical behaviour and corporate social responsibility. In a negotiation situation, the following com­
ments may be indicative of inappropriate rationalising: ‘It was really unavoidable’, ‘Oh, it’s harm­
less’, ‘The results justify the means’, or ‘It’s really quite fair and appropriate’.84 Moral issues aside,
tendencies to use or accept such explanations can be challenged by the possibility that any short‐term
gains may be accompanied by long‐term losses. Unethical parties should also realise that they may
be targeted for later ‘revenge’ from those disadvantaged by their tactics. Furthermore, once people
behave unethically in one situation, they may consider such behaviour acceptable in similar circum­
stances in the future.

CRITICAL ANALYSIS

1. Indra Nooyi, chairman and CEO of PepsiCo, argues that it is better to walk away from negotiations
than permit ‘win–lose’ outcomes. Do you agree? Why or why not?
2. Given the challenges of cross‐cultural negotiation, how can executives develop the cross‐cultural
sensitivity to ensure positive negotiation outcomes?

CHAPTER 14 Communication and interpersonal skills  403

SUMMARY
14.1 What is the communication process?
•• Communication is the interpersonal process of sending and receiving symbols with messages attached
to them.
•• Effective communication occurs when the sender and the receiver of a message both interpret it in the
same way. Efficient communication occurs when the message is sent at low cost for the sender.
•• Persuasive communication occurs when a recipient agrees with or supports the message being
presented.
•• Noise is anything that interferes with the effectiveness of communication. It occurs in the form of
poor use of channels, poor written or oral expression, physical distractions and status effects, among
other possibilities.
14.2 How can communication be improved?
•• Transparency and openness results in a positive impact on employee engagement and greater feelings
of trust between them and their managers.
•• Active listening, through reflecting and paraphrasing, can help overcome communication barriers.
•• Upward communication may be improved through MBWA (managing by wandering around) and by
the use of structured meetings, suggestion systems, advisory councils and the like.
•• Space can be used and designed to improve communication in organisations.
•• The appropriate use of information technology, such as e‐mail and intranets, can improve
communication in organisations.
•• Greater cross‐cultural awareness and sensitivity can help reduce the difficulties of communication and
diversity.
14.3 How does perception influence communication?
•• Perception acts as a filter through which all communication passes as it travels from one person to
the next.
•• Because people tend to perceive things differently, the same message may be interpreted quite
differently by different people.
•• Attribution is the process of assigning explanations to events.
•• Attribution theory identifies tendencies towards fundamental attribution errors when judging the
performance of others and self‐serving bias when judging our own performance.
•• Common perceptual distortions that may reduce communication effectiveness include stereotypes,
projections, halo effects and selective perception.
14.4 How can we deal positively with conflict?
•• Conflict occurs as disagreements over substantive or emotional issues.
•• Managers should support functional conflict that facilitates a high‐performance edge and creativity;
they should avoid the harmful effects of too little or too much conflict that becomes dysfunctional.
•• Conflict may be managed through structural approaches that involve changing people, goals, resources
or work arrangements.
•• Personal conflict management styles include avoidance, accommodation, compromise, competition
and collaboration.
•• True conflict resolution involves problem‐solving through a win–win collaborative approach.
14.5 How can we negotiate successful agreements?
•• Negotiation is the process of making decisions in situations in which the participants have different
preferences.
•• Both substance goals (those concerned with outcomes) and relationship goals (those concerned with
processes) are important in successful negotiation.

404  Management
•• Effective negotiation occurs when issues of substance are resolved and the process results in good
working relationships.
•• Distributive approaches to negotiation emphasise win–lose outcomes and are usually harmful to
relationships.
•• Integrative approaches to negotiation emphasise win–win outcomes and the interests of all parties.

KEY TERMS
Accommodation  or smoothing, plays down differences and highlights similarities to reduce conflict.
Active listening  helps the source of a message say what he or she really means.
In arbitration  a neutral third party issues a binding decision to resolve a dispute.
Avoidance  pretends that a conflict doesn’t really exist.
A bargaining zone  is the area between one party’s minimum reservation point and the other party’s
maximum reservation point.
BATNA  is the best alternative to a negotiated agreement.
Channel richness  is the capacity of a communication channel to effectively carry information.
Collaboration  or problem‐solving, involves working through conflict differences and solving problems
so everyone wins.
Communication  is the process of sending and receiving symbols with meanings attached.
A communication channel  is the medium through which a message is sent.
Communication transparency  involves openly sharing honest and complete information about the
organisation and workplace affairs.
Competition  or authoritative command, uses force, superior skill or domination to ‘win’ a conflict.
Compromise  occurs when each party to the conflict gives up something of value to the other.
Conflict  is a disagreement over issues of substance and/or an emotional antagonism.
Conflict resolution  is the removal of the substantial and/or emotional reasons for a conflict.
Credible communication  earns trust, respect, and integrity in the eyes of others.
Distributive negotiation  focuses on ‘win–lose’ claims made by each party for certain preferred
outcomes.
Dysfunctional conflict  is destructive and hurts task performance.
In effective communication  the intended meaning of the source and the perceived meaning of the
receiver are identical.
Efficient communication  occurs at minimum cost.
Emotional conflicts  result from feelings of anger, distrust, dislike, fear and resentment as well as from
personality clashes.
Ethnocentrism  is the tendency to consider one’s culture superior to others.
Feedback  is the process of telling someone else how you feel about something that person did or said.
Filtering  is the intentional distortion of information to make it appear more favourable to the recipient.
By considering the frames  of ourselves and others, we may more easily achieve an acceptable
outcome to both sides of the negotiation.
Functional conflict  is constructive and helps task performance.
Fundamental attribution error  overestimates internal factors and underestimates external factors as
influences on someone’s behaviour.
A halo effect  occurs when one attribute is used to develop an overall impression of a person or
situation.
In lose–lose conflict  no‐one achieves his or her true desires and the underlying reasons for conflict
remain unaffected.
In MBWA  managers spend time outside of their offices to meet and talk with workers at all levels.
In mediation,  a neutral party tries to help conflicting parties improve communication to resolve their
dispute.

CHAPTER 14 Communication and interpersonal skills  405

A mixed message  results when words communicate one message as actions, body language or
appearance communicate something else.
Negotiation  is the process of making joint decisions when the parties involved have different preferences.
Noise  is anything that interferes with communication effectiveness.
Non‐verbal communication  takes place through gestures and body language.
Open‐book management  is where managers provide employees with essential financial information
about their companies.
Perception  is the process through which people receive, organise and interpret information from the
environment.
Persuasive communication  presents a message in a manner that causes the other person to support it.
Principled/integrative negotiation  uses a ‘win–win’ orientation to reach solutions acceptable to each
party.
Projection  is the assignment of personal attributes to other individuals.
Selective perception  is the tendency to define problems from your own point of view.
Self‐serving bias  explains personal success by internal causes and personal failures by external causes.
A stereotype  is when attributes commonly associated with a group are assigned to an individual.
Substantive conflicts  involve disagreements over goals, resources, rewards, policies, procedures and
job assignments.
In win–lose conflict  one party achieves its desires and the other party does not.
In win–win conflict  the conflict is resolved to everyone’s benefit.

APPLIED ACTIVITIES
1 Briefly describe what a manager would do to be an ‘active listener’ when communicating with
subordinates.
2 What is the difference between the halo effect and selective perception?
3 How do tendencies towards assertiveness and cooperativeness in conflict management result in
win–lose, lose–lose and win–win outcomes?
4 What is the difference between substance and relationship goals in negotiation?
5 After being promoted to store manager for a new branch of a large department store chain, Jane
Gordon was concerned about communication in the store. Six department heads reported directly
to her, and fifty full‐time and part‐time sales associates reported to them. Given this structure, Jane
worried about staying informed about all store operations, not just those coming to her attention as
senior manager. What steps might Jane take to establish and maintain an effective system of upward
communication in her store?

ENDNOTES
  1. Anthony Dejolde, ‘How the Digital Age Has Shaped Communication Management’, LifeHack, www.lifehack.org.
  2. ‘Interview: Jim Wilkinson’, Communication Director, www.communication‐director.com.
  3. ‘AMP and Australia Post Working Together to Benefit Customers’, Australia Post website, www.auspost.com.au/media/
documents/case‐study‐AMP.pdf.
 4. ibid.
 5. ibid.
  6. Henry Mintzberg, The Nature of Managerial Work (New York: Harper & Row, 1973, and HarperCollins, 1997).
  7. John P. Kotter, ‘What Effective General Managers Really Do’, Harvard Business Review (November–December 1982),
pp. 156–7; and The General Managers (New York: Free Press, 1986).
  8. Amy Rees Anderson, ‘Successful Business Communication: It Starts at the Beginning’, Forbes Magazine (28 May 2013),
www.forbes.com.
  9. Neil Clark, ‘Employee Appraisals Unmasked’, Australian Business Solutions (27 September 2012), http://absmagazine.com.au.
10. See Mintzberg, op. cit. and Kotter op. cit.

406  Management
11. Alison Overholt, ‘Intel’s Got (Too Much) Mail’, Fast Company (March 2001), pp. 56–8.
12. Jay A. Conger, Winning ‘Em Over: A New Model for Managing in the Age of Persuasion (New York: Simon & Schuster,
1998), pp. 24–79.
13. ibid.
14. This section is taken from John R. Schermerhorn, Management, 11th edition (Hoboken: John Wiley & Sons, 2011), p. 416.
15. Carolyn Blackman, Negotiating China (Sydney: Allen & Unwin, 1997), p. 64.
16. See Robert H. Lengel and Richard L. Daft, ‘The Selection of Communication Media as an Executive Skill’, Academy of
Management Executive, vol. 2 (August 1988), pp. 225–32.
17. ‘Word Matador to Slay Corporate Bull’, Sydney Morning Herald (18 June 2003), p. 11.
18. Leo D’Angelo Fisher, ‘The Jargon Monkey Trap’, Business Review Weekly (21 March 2012), www.brw.com.au.
19. ‘Coles Found Guilty of Misleading Customers over Freshly Baked Bread’, News Limited (18 June 2014), www.news.com.au.
20. ibid.
21. See also Eric Matson, ‘Now That We Have Your Complete Attention’, Fast Company (February–March 1997), pp. 124–32.
22. David McNeill, Hand and Mind: What Gestures Reveal about Thought (Chicago: University of Chicago Press, 1992).
23. Adapted from Richard V. Farace, Peter R. Monge and Hamish M. Russell, Communicating and Organizing (Reading, MA:
Addison‐Wesley, 1977), pp. 97–8.
24. Tom Peters and Nancy Austin, A Passion for Excellence (New York: Random House, 1985).
25. Juliette Garside, ‘Child Labour Uncovered in Apple’s Supply Chain’, The Guardian (25 January 2013), www.theguardian.com.
26. ibid.
27. ibid.
28. This section is taken from John R. Schermerhorn, Management, 11th edition (Hoboken: John Wiley & Sons, 2011), pp. 420–1.
29. This discussion is based on Carl R. Rogers and Richard E. Farson, Active Listening (Chicago: Industrial Relations Center of
the University of Chicago, n.d.).
30. Hugh Mackay, extract from The Good Listener (Sydney: Pan Macmillan, 1998), pp. 332–3. Reprinted by permission of Pan
Macmillan Australia Pty Ltd. © Mackay Research Pty Limited, 1994.
31. © Kris Cole, Crystal Clear Communication, 2nd edn (Sydney: Prentice Hall, 2000), pp. 94–100.
32. A useful source of guidelines is John J. Gabarro and Linda A. Hill, Managing Performance, Note 9‐96‐022 (Boston, MA:
Harvard Business School Publishing, n.d.).
33. Information from Carol Hymowitz, ‘How to Tell Employees All the Things They Don’t Want to Hear’, Wall Street Journal
(22 August 2000), p. B1.
34. Developed from John Anderson, ‘Giving and Receiving Feedback’, in Paul R. Lawrence, Louis B. Barnes and Jay W. Lorsch
(eds), Organizational Behavior and Administration, 3rd edn (Homewood, IL: Richard D. Irwin, 1976), p. 109.
35. Lengel and Daft, op. cit.
36. Richard Lepsinger and Antoinette D. Lucia, The Art and Science of 360° Feedback (San Francisco: Jossey‐Bass, 1997).
37. Allan Pease and Alan Garner, Talk Language (Sydney: Pease Training, 1999), pp. 103–21.
38. See Brian O’Reilly, ‘360° Feedback Can Change Your Life’, Fortune (17 October 1994), pp. 93–100.
39. Richard Walsh, Executive Material (Sydney: Allen & Unwin, 2002), p. 140.
40. Neil Hume, ‘ANZ Extends Pay Freeze for 900 Top Staff’, The Financial Times (17 August 2012).
41. A classic work on proxemics is Edward T. Hall, The Hidden Dimension (Garden City, NY: Doubleday, 1986).
42. Asher Moses, ‘Telecommuting – the Future Ain’t What It Used to Be’, The Age (25 February 2013), www.theage.com.au.
43. ibid.
44. ibid.
45. Stephanie Reissner and Victoria Paganm, Storytelling in Management Practice: Dynamics and Implications (Abingdon, Oxon:
Routledge, 2013).
46. This case was adapted from information in Stephanie Reissner and Victoria Paganm, Storytelling in Management Practice:
Dynamics and Implications (Abingdon, Oxon: Routledge, 2013).
47. SNAP Communications website, www.snapcomms.com/hs‐fs/hub/492690/file‐2543484196‐pdf/docs/CaseStudyVodafone
NZTelco.pdf?t=1446223611485.
48. Cara Jenkin, ‘Emails Expected to Rise to 140 a Day in 2018’, News Limited (4 May 2014), www.news.com.au/finance.
49. ibid.
50. Elisabeth Sexton, ‘Every Click You Make, They’ll Be Watching You’, The Sydney Morning Herald (14 July 2012), p. 6.
51. ibid.
52. Will Ockendon and Benjamin Sveen, ‘Aussie Travel Cover Has Hundreds of Thousands of Records Stolen in Hacking Policy
Holders Not Informed’ ABC News (19th January 2015), www.abc.net.au/news.
53. ‘Greens Propose Landmark Employee Email Protection’, Canberra Times (20 February 2011), p. 30.
54. Saab Press Release, ‘SAAB at Pacific 2015’ (3 October 2015), www.saab.com/pacific.
55. Josh Jennings, ‘Time to Refocus’, The Sydney Morning Herald (21 August 2010), p. 6.
56. See Edward T. Hall, The Silent Language (New York: Doubleday, 1973).
57. © James C. Sarros and Rosetta J. Moors, Right From the Top: Profiles in Australian Leadership (Sydney: McGraw‐Hill,
2001), pp. 136–7.

CHAPTER 14 Communication and interpersonal skills  407

58. Richard Dunford and Deborah Jones, ‘Managers as Sensegivers: Narrative in Strategic Change’, paper presented at the
ANZAM 2000 Conference, Sydney, 3–6 December 2000; Ian Clark, ‘Spreading the Right Word’, New Zealand Management,
vol. 48, no. 11 (2001), pp. 115–16.
59. Kate Mills, ‘Dummies Guide’, Business Review Weekly (9–15 April 2009), p. 28.
60. Leo D’Angelo Fisher, ‘The Value of Human Capital’, Business Review Weekly (19–25 February 2009), pp. 46–47.
61. See H. R. Schiffman, Sensation and Perception: An Integrated Approach, 3rd edn (New York: Wiley, 1990).
62. A good review is E. L. Jones (ed.), Attribution: Perceiving the Causes of Behavior (Morristown, NJ: General Learning Press,
1972). See also John H. Harvey and Gifford Weary, ‘Current Issues in Attribution Theory and Research’, Annual Review of
Psychology, vol. 35 (1984), pp. 427–59.
63. ECA, Managing Mobility Survey: Asian Region Interim Report (London, 1996), quoted in Alan Nankervis, Robert Compton
and Marian Baird, Strategic Human Resource Management, 4th edn (Melbourne: Nelson Thomson Learning, 2002), p. 636.
64. Information from ‘Misconceptions About Women in the Global Arena Keep Their Numbers Low’, Catalyst study, www.
catalystwomen.org.
65. James Thomson, ‘The Rise of Grey Labour’, BRW (21 March 2002), www.brw.com.au.
66. The classic work is Dewitt C. Dearborn and Herbert A. Simon, ‘Selective Perception: A Note on the Departmental
Identification of Executives’, Sociometry, vol. 21 (1958), pp. 140–4. See also J. P. Walsh, ‘Selectivity and Selective Perception:
Belief Structures and Information Processing’, Academy of Management Journal, vol. 24 (1988), pp. 453–70.
67. Richard E. Walton, Interpersonal Peacemaking: Confrontations and Third‐Party Consultation (Reading, MA: Addison‐Wesley,
1969), p. 2.
68. Based on information in Carl Hammerschmidt, ‘Dummy Spits’, Sydney Morning Herald, Radar section (18 February, 2004),
p. 4.
69. Rebecca Martin, ‘Be Firm But Fair’, Sydney Morning Herald (MyCareer, 19–20 April 2009), p. 8.
70. Kath Walters, ‘Peace Act’, Business Review Weekly (31 July–3 September 2008), p. 90.
71. See Kenneth W. Thomas, ‘Conflict and Conflict Management’, in M. D. Dunnett (ed.), Handbook of Industrial and
Organizational Behavior (Chicago: Rand McNally, 1976), pp. 889–935.
72. See Robert R. Blake and Jane Strygley Mouton, ‘The Fifth Achievement’, Journal of Applied Behavioral Science, vol. 6
(1970), pp. 413–27; and Alan C. Filley, Interpersonal Conflict Resolution (Glenview, IL: Scott, Foresman, 1975).
73. This discussion is based on Filley, ibid.
74. Susan Long, ‘Cooperation and Conflict: Two Sides of the Same Coin’, in Retha Wiesner and Bruce Millett (eds), Management
and Organisational Behaviour: Contemporary Challenges and Future Directions (Brisbane: John Wiley & Sons, 2001),
pp. 95–107.
75. This section is taken from John R. Schermerhorn, Management, 11th edition (Hoboken: John Wiley & Sons, 2011), p. 429.
76. Portions of this treatment of negotiation originally adapted from John R. Schermerhorn Jr, James G. Hunt and Richard N.
Osborn, Managing Organizational Behavior, 4th edn (New York: Wiley, 1991), pp. 382–7. Used by permission.
77. See Roger Fisher and William Ury, Getting To Yes: Negotiating Agreement Without Giving In (New York: Penguin, 1983);
James A. Wall Jr, Negotiation: Theory and Practice (Glenview, IL: Scott, Foresman, 1985); and William L. Ury, Jeanne M.
Brett and Stephen B. Goldberg, Getting Disputes Resolved (San Francisco: Jossey‐Bass, 1997).
78. Fisher and Ury, ibid.
79. ibid.
80. Developed from Max H. Bazerman, Judgment in Managerial Decision Making, 4th edn (New York: Wiley, 1998), ch. 7.
81. Fisher and Ury, op. cit.
82. Sanjyot P. Dunung, Doing Business in Asia, 2nd edn (San Francisco: Jossey‐Bass, 1998).
83. Stuart Washington, ‘Worlds Apart’, Business Review Weekly (1 December 2003), www.brw.com.au.
84. Roy J. Lewicki and Joseph A. Litterer, Negotiation (Homewood, IL: Irwin, 1985).

ACKNOWLEDGEMENTS
Photo: © Scott Barbour / Getty Images
Photo: © ymgerman / Shutterstock.com
Photo: © Vytautas Kielaitis / Shutterstock.com
Photo: © Dragon Images / Shutterstock.com
Extract: © ‘T ransparency and openness’, taken from John R. Schermerhorn, Management, 11th edition
(Hoboken: John Wiley & Sons: Hoboken, 2011), pp. 420–1.
Extract: © Taken from Gianna Moscardo, Geoff Lamberton and Geoff Wells et. al., Sustainability in
Australian Business (Brisbane: John Wiley & Sons, 2013), p. 153.

408  Management
CHAPTER 15

Motivation and rewards

LEA RNIN G OBJE CTIVE S

15.1 What is motivation?

15.2 What are the different types of individual needs?
15.3 What are the process theories of motivation and why is self‐efficacy so important?
15.4 What role does reinforcement play in motivation?
15.5 What are the trends in motivation and remuneration?
Culture Amp pioneers employee share options
The Australian federal government has developed new legislation aimed at helping small start‐up companies
attract high‐quality recruits and retain existing staff. The new legislation allows companies with less than $50
million turnover to offer employee share option plans (ESOPs) with deferred tax payments for up to 15 years.
The start‐ups must also be companies that are unlisted and incorporated for less than 10 years.
One of the first companies to take advantage of the new legislation, which came into effect on
1 July 2015, was Melbourne‐based software company Culture Amp. Culture Amp has grown s­ ubstantially
since January 2015, more than doubling its staff from 14 to 39 and adding a San Francisco office to its
Head Office in Melbourne. Didier Elzinga, Culture Amp’s CEO and co‐founder, said that, given the rate
of growth, the company will be able to provide the scheme as an incentive to employees only at this
early stage of development and as the company matures there will be other ways to motivate staff. The
concept behind the offering was to allow staff to feel they have an ownership in the firm. Elzinga said
that employees feel empowered in the knowledge that they are a part-owner of the company and that can
only lead to positives in terms of performance.
In implementing the scheme, Culture Amp consulted Herbert Smith Freehills, a specialist company
who had advised the federal government in setting up the ESOPs legislation. Peter Dunne, partner at
Herbert Smith Freehills, explained that there is a growing global trend of start‐up technology companies
offering stock options and that employees are increasingly savvy about what benefits are available to
them on top of traditional remuneration, with stock options now a big currency. Dunne said that more
and more companies are looking at doing this, with it unlikely to abate any time soon.
Dunne also claims that in Australia, especially, employees need to be educated about the way share
option schemes operate. ‘It’s incumbent on any company that puts this in place — and the Culture Amp
guys do this well — to take people through how the plan works so it’s seen as a good offering, and not
something clouded in mystique and uncertainty’.1

QUESTION
What benefits do ESOPs provide to employees? How far can share options substitute for salaries in motivating
employees?

410  Management
Introduction
Why do some people work enthusiastically, often doing more than required to turn out extraordinary
performance? Why do others hold back and do the minimum needed to avoid reprimand or termination?
How can a team leader or manager build a high‐performance work setting? What can be done to ensure
that the highest possible performance is achieved by every person in every job on every workday? These
questions are, or should be, asked by managers in all work settings. Good answers begin with a true
respect for people, with all of their talents and diversity, as the human capital of organisations. The best
managers already know this. The work cultures they create invariably reflect an awareness that ‘prod-
uctivity through people’ is an essential ingredient of long‐term organisational success.
It is easy to say as a leader or in a mission statement that ‘people are our most important asset’.
But the proof comes with backing such a statement up with actions that support it. This means consis-
tently demonstrating that the organisation is committed to people and that it offers a truly ‘motivational’
work environment. In this sense, however, human nature is always both fascinating and challenging. The
human side of the workplace becomes complicated as the intricacies of human psychology come into
play with daily events and situations. At a packaging plant, for example, senior executive Kevin Kelley
learned that a supervisor was starting to retire on the job. The man had worked his 20 years and felt it
was time to slow down. He was unresponsive to gentle ‘nudging’ from co‐workers and managers. But
when Kelley politely confronted him with the facts, saying, ‘We need your talent, your knowledge of
those machines’, the supervisor responded with new vigour in his work and earned the praise of his
peers. For his part, Kelley believes in employee involvement and claims that one of the best motivators is
information on the company’s competitive environment. With information comes the motivation to work
hard and keep the company competitive.2

15.1 What is motivation?

LEARNING OBJECTIVE 15.1 What is motivation?
This chapter contains many ideas on how managers exercise leadership in ways that encourage other
people to work hard in their jobs. The concept of motivation is central to this goal. The term is used
in management theory to describe forces within the individual that account for the level, direction and
persistence of effort expended at work. Simply put, a highly motivated person works hard at a job; an
unmotivated person does not. A manager who leads through motivation does so by creating conditions
under which other people feel consistently inspired to work hard. A highly motivated workforce is indis-
pensable to the achievement of sustained high‐performance results.

Motivation and rewards

A reward is a work outcome of positive value to the individual. A motivational work setting is rich in
rewards for people whose performance accomplishments help meet organisational objectives. In man-
agement, it is useful to distinguish between two types of rewards, extrinsic and intrinsic. Extrinsic
rewards are externally administered. They are valued outcomes given to someone by another person,
typically a supervisor or higher level manager. Common workplace examples are pay bonuses, pro-
motions, time off, special assignments, office fixtures, awards and verbal praise. In all cases, the motiv­
ational stimulus of extrinsic rewards originates outside of the individual; the rewards are made available
by another person or by the organisational system.3
Intrinsic rewards, on the other hand, are self‐administered. They occur ‘naturally’ as a person per-
forms a task and are, in this sense, built directly into the job itself. The major sources of intrinsic rewards
are the feelings of competency, personal development and self‐control people experience in their work.4
In contrast to extrinsic rewards, the motivational stimulus of intrinsic rewards is internal and does not
depend on the actions of some other person. Being self‐administered, they offer the great advantage and

CHAPTER 15 Motivation and rewards  411

power of ‘motivating from within’. An air traffic controller, for example, says ‘I don’t know of anything
I’d rather be doing. I love working the airplanes’.5 Intrinsic rewards are particularly important for motiv­
ating knowledge workers, those who come to work to use their minds rather than engaging solely in
repetitive or routine work.6 Since knowledge work is common to so many professions and occupations
these days, learning how to motivate via the use of intrinsic rewards is now more important than ever.

Rewards and performance

Like so many aspects of management, effectively linking rewards and performance is easier said than
done. After all, we are dealing with complex human beings who possess individual desires, needs,
and dreams, as well as complex organisations that confront constantly changing internal and external
environments, challenges and threats. There are many possible ways to creatively link rewards and per-
formance in the contemporary workplace; that is, to establish performance‐contingent rewards. To take
full advantage of the possibilities, however, managers must respect diversity and individual differences,
clearly understand what people want from work and allocate rewards to satisfy the interests of both indi-
viduals and the organisation.
Michael Vavakis, vice‐president of human resources for Hewlett‐Packard Asia–Pacific, suggests that
we must move beyond ‘one size fits all’ approaches to motivation and rewards, and, instead, embrace
the ‘I’. In this age of personal empowerment and freedom, typified by the rise of weblogs and social
networking sites such as Twitter and Facebook, Vavakis argues that ‘employees will increasingly become
individuals within a team as opposed to simply being part of a team’. HP has sought to creatively res-
pond to this philosophy by customising the rewards that employees may receive in recognition of their
efforts. They may choose between cash, gifts, and an array of services in personalising their rewards to
suit their individual needs and desires. While it is difficult to personalise an entire rewards system in this
way, adapting elements of such systems to individual needs makes good sense if our ‘I’s’ are to be truly
satisfied.7
CRITICAL ANALYSIS

1. Individuals will have differing needs for intrinsic and extrinsic rewards. The balance between them will
also change over time. What can organisational leaders do to best meet this shifting balance?
2. It is often said that you can’t motivate people. Instead, you can only create an environment in which
they may choose to motivate themselves. Do you agree? Why or why not?

GLOBALISATION

Glaxo exposed in Chinese scandal

In May 2014, and after a 10‐month investigation
into corruption in the Chinese operations of the
British pharmaceutical giant GlaxoSmithKline
(GSK), the Chinese government accused the com-
pany of ‘massive and systemic’ corruption. By
July 2014 the situation became more fraught for
GSK with revelations concerning covert sex tapes.
Events began in 2012 when China’s State Admin-
istration for Industry and Commerce had received
anonymous emails claiming corruption at GSK.
Then in 2013 a whistleblower emailed GSK exec-
utives suggesting that bribes had been paid and
records had been altered. One particular email
from March 2013 revealed a covertly filmed video
of Mark Reilly, Head of GSK’s Chinese operations, in a sexual act with his girlfriend. Mark Reilly remon-
strated that this was part of a smear campaign against him.

412  Management
 GSK responded by hiring corporate investigator Peter Humphrey, head of Shanghai‐based company
ChinaWays. GSK withheld knowledge of the accusations of corruption from Peter Humphrey who was
asked to investigate the source of the video and the background of Vivian Shi, a previous employee of
GSK who had denied being the whisteblower. GSK’s engagement in China was important for the com-
pany as China’s healthcare spending was set to jump from US$357 billion in 2011 to US$1 trillion in 2020.
Initially, Humphrey’s investigations did not establish who had planted the video recorder. How-
ever, after the investigation GSK shared the accounts of the corruption accusations with Peter Hum-
phrey, and in a sharp twist to the story Peter Humphrey himself was arrested and his American wife
Yu Yingzeng was detained. He was later exposed on Chinese television in handcuffs and confessed
to the illegal appropriation of personal data, saying that he was ‘very regretful’ and apologising to the
Chinese government.
Furthermore, the Chinese government had shown that corruption was endemic throughout GSK. For
example, corrupt practices included the use of internal units to bribe medical staff and officials with money
and gifts, paid for with higher priced medicines. The company responded by stating that the matters
relating to its Chinese business were ‘very difficult and complicated’ with some employees being dis-
missed after an external audit. Overall, however, the company claimed that the ‘investigation did not
find evidence to substantiate the allegations made in the “whistleblowers emails”’. The investigations
into GSK’s commercial practices, however, did not end there. Following a report by the UK Serious
Fraud Office, US$2.2 billion was wiped off GSK’s share value.
More broadly, corruption is rife in China and the Chinese government is keen to make an example,
especially of foreign companies and corrupt Communist party officials. As Xinhua, the state‐run news
agency, states, ‘GSK is a warning’. The Chinese healthcare system is susceptible to corrupt practices
due to poorly paid doctors and hospitals dependant on the sale of pharmaceutical drugs. However, the
GSK case has startled foreign pharmaceutical companies keen to take advantage of the huge emerging
market in China.8

QUESTION
Do you believe there is a link between corruption and motivation? Why/why not?

15.2 Content theories of motivation

LEARNING OBJECTIVE 15.2 What are the different types of individual needs?
Among the available insights into the complex process of motivation, the content theories of motivation
help us to understand human needs and how people with different needs may respond to different work
situations. The process theories of motivation offer additional insights into how people give meaning to
rewards and then respond with various work‐related behaviours. The reinforcement theory of motivation
focuses attention on the environment as a major source of rewards and influence on human behaviour.
We will examine each of these three broad theories in turn, including examples of each, beginning with
content theories.
Most discussions of motivation begin with the concept of individual needs — the unfulfilled physio-
logical or psychological desires of an individual. Content theories of motivation use individual needs
to explain the behaviours and attitudes of people at work. The basic logic is straightforward. People
have needs. They engage in behaviours to obtain extrinsic and intrinsic rewards to satisfy these needs.
Although each of the following theories discusses a slightly different set of needs, all agree that needs
cause tensions that influence attitudes and behaviours. Good managers and leaders establish conditions
in which people are able to satisfy important needs through their work. They also take action to elim-
inate work obstacles that interfere with the satisfaction of important needs. Salaries and benefits are
important sources of need satisfaction. In countries that emphasise individualism, rewards are usually
linked closely to individual performance. In countries organised more strongly around groups (family
or work), reward systems generally emphasise group and team performance and downplay individual
performance.9

CHAPTER 15 Motivation and rewards  413

Hierarchy of needs theory
The theory of human needs developed by Abraham Maslow was introduced in chapter 5 as an
important foundation of the history of management thought. According to his hierarchy of human 
needs, lower order needs are physiological, safety and social concerns, and higher order needs
are esteem and self‐actualisation concerns.10 Whereas lower order needs are desires for social and
physical wellbeing, the higher order needs represent a person’s desires for psychological develop-
ment and growth.
Maslow offers two principles to describe how these needs affect human behaviour. The deficit prin-
ciple states that a satisfied need is not a motivator of behaviour. People are expected to act in ways
that satisfy deprived needs; that is, needs for which a ‘deficit’ exists. The progression principle states
that a need at one level does not become activated until the next lower level need is already satisfied.
People are expected to advance step‐by‐step up the hierarchy in their search for need satisfactions. At
the level of self‐actualisation, the more these needs are satisfied, the stronger they are supposed to grow.
According to Maslow, a person should continue to be motivated by opportunities for self‐fulfilment as
long as the other needs remain satisfied.
Although research has not verified the strict deficit and progression principles just presented, Maslow’s
ideas are very helpful for understanding the needs of people at work and for determining what can be
done to satisfy them. His theory advises managers to recognise that deprived needs may negatively influ-
ence attitudes and behaviours. By the same token, providing opportunities for need satisfaction may have
positive motivational consequences. Figure 15.1 illustrates how managers can use Maslow’s ideas  to
better meet the needs of the people with whom they work. Note that the higher order self‐­actualisation
needs are served entirely by intrinsic rewards. The esteem needs are served by both intrinsic and extrinsic
rewards. Lower order needs are served solely by extrinsic rewards.

What satisfies higher order needs?

● Creative and challenging work

Self-actualisation needs ● Participation in decision-making
● Job flexibility and autonomy

● Responsibility of an important job

Esteem needs ● Promotion to higher status job
● Praise and recognition from boss

What satisfies lower order needs?

● Friendly co-workers
Social needs ● Interaction with customers
● Pleasant supervisor

● Safe working conditions

Safety needs ● Job security
● Base compensation and benefits

● Rest and refreshment breaks

Physiological needs ● Physical comfort on the job
● Reasonable work hours

FIGURE 15.1 Opportunities for satisfaction in Maslow’s hierarchy of human needs

414  Management
 For some people, satisfying their lower order needs is enough, or needs to be if they are to earn their
way. Consider 35‐year‐old driller Matt Brown as he downs a cold beer at the Rock Inn and Hotel in the
mining town of Kalgoorlie, 600 kilometres east of Perth, Western Australia. The average pay for miners
is $2113 a week (almost double the average Australian wage), and many earn more than $5000 a week.
While he is able to return home every few weeks, the work has cost him his relationship with his girl-
friend. In fact, at Kalgoorlie, there are 23 unmarried men in their 40s for each single woman in the town.
Says Brown, ‘For a lot of us, it’s the money. If you want to work, there’s a job here for you’. So, for
Matt Brown it is the lower order needs — those for financial security and for a roof over his head — that
trump self‐actualisation and, to a fair degree, also triumph over his social needs, at least as far as the
opposite sex is concerned.11

ERG theory
One of the most promising efforts to build on Maslow’s work is the existence, relatedness and growth
(ERG) theory proposed by Clayton Alderfer.12 This theory collapses Maslow’s five needs categories
into three. Existence needs are desires for physiological and material wellbeing. Relatedness needs are
desires for satisfying interpersonal relationships. Growth needs are desires for continued psychological
growth and development. Alderfer’s ERG theory also differs from Maslow’s theory in other respects.
This theory does not assume that lower level needs must be satisfied before higher level needs become
activated. According to ERG theory, any or all of these three types of needs can influence individual
behaviour at a given time. Alderfer also does not assume that satisfied needs lose their motivational
impact. ERG theory thus contains a unique frustration–regression principle, according to which an
already satisfied lower level need can become reactivated and influence behaviour when a higher level
need cannot be satisfied. Alderfer’s approach offers an additional means for understanding human needs
and their influence on people at work.

Two‐factor theory
Another framework for understanding the motivational implications of work environments is the
two‐factor theory of Frederick Herzberg.13 The theory was developed from a pattern identified in the res-
ponses of almost 4000 people to questions about their work. When questioned about what ‘turned them
on’, they tended to identify things relating to the nature of the job itself. Herzberg calls these satisfier
factors. When questioned about what ‘turned them off’, they tended to identify things relating more to
the work setting. Herzberg calls these hygiene factors.
As shown in figure 15.2, the two‐factor theory associates hygiene factors, or sources of job dissatis-
faction, with aspects of job context. That is, ‘dissatisfiers’ are considered more likely to be a part of the
work setting than of the nature of the work itself. The hygiene factors include things such as working
conditions, interpersonal relations, organisational policies and administration, technical quality of super-
vision and base wage or salary. It is important to remember that Herzberg’s two‐factor theory argues that
improving the hygiene factors, such as by adding piped music or implementing a no‐smoking policy,
can make people less dissatisfied with these aspects of their work. But they would not in themselves
contribute to increases in satisfaction. That requires attention to an entirely different set of factors and
managerial initiatives.
To really improve motivation, Herzberg advises managers to give proper attention to the satisfier
factors. As part of job content, the satisfier factors deal with what people actually do in their work. By
making improvements in what people are asked to do in their jobs, Herzberg suggests that job satis-
faction and performance can be raised. The important satisfier factors include such things as a sense
of achievement, feelings of recognition, a sense of responsibility, the opportunity for advancement and
feelings of personal growth.

CHAPTER 15 Motivation and rewards  415

 Job dissatisfaction Herzberg’s Job satisfaction
two-factor principles

Improving the satisfier

(motivator) factors Influenced by satisfier
Influenced by increases (motivator) factors
hygiene factors job satisfaction ● Achievement
● Working conditions ● Recognition
● Co-worker relations ● Responsibility
Improving the
● Policies and rules ● Work itself
hygiene factors
● Supervisor quality ● Advancement
decreases
● Base wage, salary ● Personal growth
job dissatisfaction

FIGURE 15.2 Herzberg’s two‐factor theory

The founder of experiences provider RedBalloon, Naomi Simson, seeks to respond to these needs
at her Sydney office. To make work more enjoyable for her relatively young employees, the office is
designed in an open‐plan layout with splashes of red — the colour associated with the company — on
the walls. Simson’s dog trots around the office, and staff have access to regular further development
opportunities. According to Simson, at the core of her approach lies a philosophy that seeks to balance
both hygiene factors and satisfiers:

Employees are the new customers. We honour our people. We listen to them the same way as we do our
customers and in so doing they can create amazing experiences for our customers. I know if we’re having
fun, our customers will have fun  .  .  .  We challenge people, we set them big games.14

Scholars have criticised Herzberg’s theory as being method‐bound and difficult to replicate.15 For his
part, Herzberg reports confirming studies in countries located in Europe, Africa, the Middle East and
Asia.16 Other studies indicate that there is, at best, limited support for the theory. One study undertaken
in New Zealand, for instance, found that the quality of supervision and interpersonal relationships were
significant causes of satisfaction and motivation, but these are hygiene factors (associated with dissatis­
faction) in the Herzberg model. Nonetheless, the model remains popular around the world, perhaps
because of its simplicity and the intuitive appeal of its concepts.17 At the very least, the two‐factor theory
remains a useful reminder that there are two important aspects of all jobs: job content — what people
do in terms of job tasks; and job context — the work setting in which they do it. Herzberg’s advice
to managers is still timely: always correct poor context to eliminate actual or potential sources of job
dissatisfaction, and be sure to build satisfier factors into job content to maximise opportunities for job
satisfaction.
The two‐factor theory also cautions managers not to expect too much by way of motivational improve-
ments from investments in such things as special office fixtures, attractive lounges for breaks, and even
high base salaries. Instead, it focuses on the nature of the job itself and directs attention towards things
such as responsibility and opportunity for personal growth and development. These directions are very
consistent with themes in the contemporary workplace.

Acquired needs theory

In the late 1940s, David McClelland and his colleagues began experimenting with the Thematic Apper-
ception Test (TAT) as a way of examining human needs. The TAT asks people to view pictures and
write stories about what they see. The stories are then content analysed for themes that display indi-
vidual needs.18 From this research, McClelland identified three needs that are central to his approach

416  Management
to motivation. Need for achievement (nAch) is the desire to do something better or more efficiently,
to solve problems, or to master complex tasks. Need for power (nPower) is the desire to control other
people, to influence their behaviour, or to be responsible for them. Need for affiliation (nAff) is the
desire to establish and maintain friendly and warm relations with other people.
According to McClelland, people acquire or develop these needs over time as a result of individual
life experiences. In addition, he associates each need with a distinct set of work preferences. Managers
are encouraged to recognise the strength of each need in themselves and in other people. Attempts can
then be made to create work environments responsive to them. People high in the need for achievement,
for example, like to put their competencies to work, take moderate risks in competitive situations and
are willing to work alone. As a result, the work preferences of people with a high need for achieve-
ment include individual responsibility for results, achievable but challenging goals and feedback on
performance.
Through his research McClelland concludes that success in top management is not based on a concern
for individual achievement alone. It requires broader interests that also relate to the needs for power and
affiliation. People high in the need for power are motivated to behave in ways that have a clear impact
on other people and events. They enjoy being in control of a situation and being recognised for this res-
ponsibility. A person with high need for power prefers work that involves control over other people, has
an impact on people and events, and brings public recognition and attention.
Importantly, McClelland distinguishes between two forms of the power need. The need for ‘personal’
power is exploitative and involves manipulation for the pure sake of personal gratification. This type of
power need is not successful in management. In contrast, the need for ‘social’ power is the positive face
of power. It involves the use of power in a socially responsible way, one that is directed towards group or
organisational objectives rather than personal ones. This need for social power is essential to managerial
leadership.
People high in the need for affiliation seek companionship, social approval and satisfying inter-
personal relationships. They take a special interest in work that involves interpersonal relationships,
work that provides for companionship and work that brings social approval. McClelland believes
that people very high in the need for affiliation alone may not make the best managers. For these
managers, the desire for social approval and friendship may complicate managerial decision‐making.
There are times when managers and leaders must decide and act in ways that other people may dis-
agree with. To the extent that the need for affiliation interferes with someone’s ability to make these
decisions, managerial effectiveness will be sacrificed. Thus, the successful executive, in McClelland’s
view, is likely to possess a high need for social power that is greater than an otherwise strong need
for affiliation.

Questions and answers on content theories

Figure 15.3 shows how the human needs identified by Maslow, Alderfer, Herzberg and McClelland com-
pare with one another. Although the terminology varies, there is a lot of common ground. The insights
of the theories can and should be used together to add to our understanding of human needs in the work-
place. By way of summary, the following questions and answers further clarify the content theories and
their managerial implications.19
How many different individual needs are there? Research has not yet identified a perfect list of
individual needs at work. But, as a manager, you can use the ideas of Maslow, Alderfer, Herzberg
and McClelland to better understand the various needs that people may bring with them to the work
setting.
Can a work outcome or reward satisfy more than one need? Yes, work outcomes or rewards can sat-
isfy more than one need. Pay is a good example. It is a source of performance feedback for the person
with a high need for achievement. It can be a source of personal security for someone with strong exist-
ence needs. It can also be used indirectly to obtain things that satisfy social and ego needs.

CHAPTER 15 Motivation and rewards  417

 Maslow Alderfer Herzberg McClelland

Self-actualisation Achievement
Higher order
Growth Satisfier factors
needs
Esteem Power

Social Relatedness Affiliation

Lower order
Safety Hygiene factors
needs
Existence
Physiological

FIGURE 15.3 Comparison of Maslow’s, Alderfer’s, Herzberg’s and McClelland’s motivation theories

Is there a hierarchy of needs? Research does not support the precise five‐step hierarchy of needs pos-
tulated by Maslow. It seems more legitimate to view human needs as operating in a flexible hierarchy,
such as the one in Alderfer’s ERG theory. However, it is useful to distinguish between the motivational
properties of lower order and higher order needs.
How important are the various needs? Research is inconclusive as to the importance of different
needs. Individuals vary widely in this regard. For example, money may be an important reward, but
studies show that it may not be the main motivator for many employees. A New Zealand study of more
than 600 people found that being able to contribute to organisational decisions, learn new things and con-
front exciting challenges, and having appropriate freedom and autonomy top the list of workplace motiv­
ators.20 People may also value needs differently at different times and at different ages or career stages.
A number of writers have argued that the needs of baby boomer employees (those born in the years 1946
to 1964, following World War II) are significantly different from those of generation X and generation Y
employees. Baby boomers tend to be loyal and ambitious, value job status and security, and believe in
process over outcomes. Generation X (born between 1965 and 1978) tend to be resourceful, individu-
alistic, irreverent and difficult to retain, given their preference for new career challenges and disdain
for organisational hierarchies. In a recent survey, they listed job satisfaction, recognition and diversity
of work/special projects as the three most important elements they desired in a job. Generation Y (born
between 1978 and 1994) are characterised by their information technology savvy and even greater idea-
lism than generation X. Their focus on individuality will make traditional ‘one size fits all’ approaches
to motivation even more outdated than they are today.21 This is another reason that managers should use
the insights of all the content theories to understand the differing needs of people at work.
Are these theories equally relevant across cultures? Significant differences between cultures make
the relevance of some elements of the content theories potentially questionable. The concept of achieve-
ment, so important to McLelland’s acquired needs theory, is almost impossible to translate into lan-
guages other than English. People from non‐Western cultures may also find difficulty in understanding
a highly Westernised concept such as self‐actualisation, since other needs may be more important for
them. The highly individual notion of self‐actualisation may simply be irrelevant for such people, as they
place greater value on security, relationships or physical needs.

CRITICAL ANALYSIS

1. It has been argued that the term ‘self‐actualisation’ does not readily translate in the languages of
some cultures. Is this a problem?
2. If Herzberg thinks that an employee’s base wage and salary is little more than a hygiene factor,
why do university students normally rate money as their number one motivator?

418  Management
15.3 Process theories of motivation
LEARNING OBJECTIVE 15.3 What are the process theories of motivation and why is self‐efficacy so
important?
Although the details vary, each of the content theories described in the previous section can help
managers better understand individual differences and deal positively with workforce diversity.
Another set of theories, the process theories, adds to this understanding. The equity, expectancy
and goal‐setting theories each offer advice and insight on how people actually make choices to
work hard or not, based on their individual preferences, the available rewards and possible work
outcomes.

Equity theory
The equity theory of motivation is best known through the work of J. Stacy Adams.22 It is based on
the logic of social comparisons and the notion that perceived inequity is a motivating state. That is,
when people believe that they have been unfairly treated in comparison to others, they will be motiv-
ated to eliminate the discomfort and restore a perceived sense of equity to the situation. The classic
example is pay. The equity question is: In comparison with others, how fairly am I being compen-
sated for the work that I do? According to Adams’s equity theory, people who perceive that they are
being treated unfairly in comparison with others will be motivated to act in ways that reduce the
perceived inequity.
Figure 15.4 shows how the equity dynamic works in the form of input‐to outcome comparisons.
Equity comparisons are especially common whenever managers allocate extrinsic rewards, such as
remuneration, benefits, preferred job assignments and work privileges. The comparison points may be
co‐workers in the group, workers elsewhere in the organisation and even people employed by other
organisations. Perceived inequities occur whenever people feel that the rewards received for their work
efforts are unfair, given the rewards others appear to be getting for their work efforts. Adams predicts
that people will try to deal with perceived negative inequity, the case where the individual feels disad-
vantaged in comparison with others, by:
•• changing their work inputs by putting less effort into their jobs
•• changing the rewards received by asking for better treatment
•• changing the comparison points to make things seem better
•• changing the situation by leaving the job.

Personal rewards Others’ rewards

in relation to are compared with in relation to
personal inputs others’ inputs

with the result

Perceived equity Perceived inequity

The individual is satisfied and The individual feels discomfort and
does not change behaviour acts to eliminate the inequity

FIGURE 15.4 Equity theory and the role of social comparison

The research on equity theory has largely been accomplished in the laboratory. It is most conclusive
with respect to perceived negative inequity. People who feel underpaid, for example, experience a sense
of anger. This causes them to try to restore perceived equity to the situation by pursuing one or more

CHAPTER 15 Motivation and rewards  419

of the actions described in the list, such as reducing current work efforts to compensate for the missing
rewards or even resigning from the job.23 By the same token, there is evidence that the equity dynamic
occurs among people who feel overpaid. This time the perceived inequity is associated with a sense
of guilt. The attempt to restore perceived equity may involve, for example, increasing the quantity or
quality of work, taking on more difficult assignments, or working overtime.
Equity theory is another good reminder that people behave according to their perceptions. Here,
the issue is the way rewards are perceived by their recipients. What influences individual behaviour is
neither the reward’s absolute value nor the manager’s intentions. Rather, the recipient’s perceptions of
the reward in its social context determine motivational outcomes. Rewards perceived as equitable should
have a positive result on satisfaction and performance; those perceived as inequitable may create dis-
satisfaction and cause performance problems.
It is every manager’s responsibility to ensure that any negative consequences of the equity comparison
are avoided, or at least minimised, when rewards are allocated. Informed managers anticipate per-
ceived negative inequities whenever especially visible rewards such as pay or promotions are allocated.
Instead of letting equity concerns get out of hand, they carefully communicate the intended value of
rewards being given, clarify the performance appraisals on which they are based and suggest appropriate
comparison points.
As mentioned earlier, pay is a common source of equity controversies in the workplace, and
its significance should never be underestimated. In addition to the general equity issues involved,
two additional equity situations deserve special consideration. First is the issue of gender equity.
Research indicates that average earnings in Australia are around $87  000 for men but only $69  000
for women.24 Male managers earn around 28.9 per cent more than female managers in equivalent
positions.25 This difference is most evident in occupations traditionally dominated by men, such as
the financial and insurance services, but it also includes occupations where females have traditionally
held most jobs, such as community and personal service work, and clerical and administrative roles.
Second is the issue of comparable worth. This is the concept that people doing jobs of similar value
based on required education, training and skills (such as nursing and accounting) should receive
similar pay. Advocates of comparable worth claim that it corrects historical pay inequities and is a
natural extension of the ‘equal‐pay‐for‐equal‐work’ concept. Critics claim that ‘similar value’ is too
difficult to define and that the dramatic restructuring of wage scales would have a negative economic
impact on society as a whole.
A growing issue of workplace equity concerns the massive salaries paid to company CEOs and other
senior managers. Some employees feel it is simply unfair that their own wage or salary seems so small
compared with that of their organisation’s leader. This issue will be discussed in more detail later in the
chapter.

Expectancy theory
Victor Vroom introduced to the management literature another process theory of work motivation
that has made an important contribution.26 The expectancy theory of motivation asks a central
question: What determines the willingness of an individual to work hard at tasks important to
the organisation? In response to this question, expectancy theory suggests that ‘people will do
what they can do when they want to do it’. More specifically, Vroom suggests that the motiv-
ation to work depends on the relationships between the three expectancy factors depicted in
figure 15.5.
•• Expectancy is a person’s belief that working hard will result in a desired level of task performance
being achieved (this is sometimes called effort–performance expectancy).
•• Instrumentality is a person’s belief that successful performance will be followed by rewards and
other potential outcomes (this is sometimes called performance–outcome expectancy).
•• Valence is the value a person assigns to the possible rewards and other work‐related outcomes.

420  Management
Person exerts Task Work-related
to achieve and realise
work effort performance outcomes

Expectancy Instrumentality
Valence
‘Can I achieve the ‘What work outcomes will
‘How highly do I
desired level of task be received as a result
value work outcomes?’
performance?’ of the performance?’

FIGURE 15.5 Elements in the expectancy theory of motivation

Expectancy theory posits that motivation (M), expectancy (E), instrumentality (I) and valence (V) are
related to one another in a multiplicative fashion: M = E × I × V. In other words, motivation is deter-
mined by expectancy times instrumentality times valence. This multiplier effect among the expectancy
factors has important managerial implications. Mathematically speaking, a zero at any location on the
right‐hand side of the equation (that is, for E, I or V) will result in zero motivation. Managers are thus
advised to act in ways that maximise all three components of the equation — expectancy (people must
believe that if they try they can perform), instrumentality (people must perceive that high performance
will be followed by certain outcomes) and valence (people must value the outcomes). Not one of these
factors can be left unattended.
Suppose, for example, that a manager is wondering whether the prospect of earning a promotion
will be motivational to a subordinate. A typical assumption is that people will be motivated to work
hard to earn a promotion. But is this necessarily true? Expectancy theory predicts that a person’s
motivation to work hard for a promotion will be low if any one or more of the following three con-
ditions apply. First, if expectancy is low, motivation will suffer. The person may feel that he or she
cannot achieve the performance level necessary to get promoted. So, why try? Second, if instrumen-
tality is low, motivation will suffer. The person may lack confidence that a high level of task perfor-
mance will result in being promoted. So, why try? Third, if valence is low, motivation will suffer. The
person may place little value on receiving a promotion. It simply isn’t much of a reward. So, once
again, why try?
Expectancy theory makes managers aware of such issues. It can help them better understand and res-
pond to different points of view in the workplace. As shown in figure 15.6, the management implications
include being willing to work with each individual to maximise his or her expectancies, instrumentalities
and valences in ways that support organisational objectives. Stated a bit differently, a manager should
work with others to clearly link effort and performance, confirm performance–outcome relationships and
reward performance with valued work outcomes.

Goal‐setting theory
Another process theory, as described by Edwin Locke, focuses on the motivational properties of task
goals.27 The basic premise of this goal‐setting theory is that task goals can be highly motivating — if
they are properly set and if they are well managed. Goals give direction to people in their work. Goals
clarify the performance expectations between a supervisor and subordinate, between co‐workers, and
across subunits in an organisation. Goals establish a frame of reference for task feedback. Goals also
provide a foundation for behavioural self‐management.28 In these and related ways, Locke believes goal
setting can enhance individual work performance and job satisfaction.

CHAPTER 15 Motivation and rewards  421

To maximise expectancy

● Select workers with ability

Make the person feel competent and capable ● Train workers to use ability
of achieving the desired performance level ● Support work efforts
● Clarify performance goals

To maximise instrumentality

● Clarify psychological contracts

Make the person confident in understanding ● Communicate performance–
which rewards and outcomes will follow outcome possibilities
performance accomplishments ● Demonstrate what rewards are
contingent on performance

To maximise valence

● Identify individual needs

Make the person understand the value of
● Adjust rewards to match these
various possible rewards and work outcomes
needs

FIGURE 15.6 Managerial implications of expectancy theory

To achieve the motivational benefits of goal setting, research by Locke and his associates indicates that
managers and team leaders must work with others to set the right goals in the right ways. The key issues and
principles in managing this goal‐setting process are described in Manager’s notepad 15.1, and ‘participation’
is an important element. The degree to which the person expected to do the work is involved in setting the
performance goals can influence his or her satisfaction and performance. Research indicates that a positive
impact is most likely to occur when the participation allows for increased understanding of specific and diffi-
cult goals and provides for greater acceptance and commitment to them. Along with participation, the oppor-
tunity to receive feedback on goal accomplishment is also essential to motivation.

MANAGER’S NOTEPAD 15.1

How to make goal setting work for you

• Set specific goals. They lead to higher performance than generally stated ones, such as ‘Do your best’.
• Set challenging goals. When viewed as realistic and attainable, more difficult goals lead to higher
performance than do easier goals.
• Build goal acceptance and commitment. People work harder for goals they accept and believe in;
they resist goals forced on them.
• Clarify goal priorities. Make sure that expectations are clear as to which goals should be
accomplished first and why.
• Provide feedback on goal accomplishment. Make sure that people know how well they are doing in
respect to goal accomplishment.
• Reward goal accomplishment. Don’t let positive accomplishments pass unnoticed; reward people for
doing what they set out to do.

The concept of management by objectives (MBO) is a good illustration of a participative approach

to joint goal setting by supervisors and subordinates. The MBO process helps to unlock and apply the
motivational power of goal‐setting theory. In addition to MBO, managers should be aware of the partici-
pation options. It may not always be possible to allow participation when selecting exactly which goals
need to be pursued, but it may be possible to allow participation in the decisions about how to best

422  Management
pursue them. Furthermore, the constraints of time and other factors operating in some situations may not
allow for participation. In these settings, research suggests that workers will respond positively to exter-
nally imposed goals if the supervisors assigning them are trusted and if the workers believe they will be
adequately supported in their attempts to achieve them.

Self‐efficacy theory
Closely related to both the expectancy and goal‐setting approaches to motivation is self‐efficacy theory,
also referred to as social learning theory. Based on the work of psychologist Albert Bandura, the notion
of self‐efficacy refers to a person’s belief that she or he is capable of performing a task.29 You can think
of self‐efficacy using terms such as confidence, competence and ability. From a manager’s perspective,
the major insight of self‐efficacy theory is that anything done to boost feelings of confidence, com-
petence and ability among people at work is likely to pay off with increased levels of motivation.
Self‐efficacy dynamics
The essence of self‐efficacy theory is that, when people believe themselves to be capable, they will be
more motivated to work hard at a task. But self‐efficacy is not an undifferentiated feeling of confidence,
according to Bandura. Rather, it is a capability‐specific belief in one’s competency to perform a task.
The link between Bandura’s ideas, elements of Vroom’s expectancy theory, and Locke’s goal‐setting
theory should be clear. With respect to Vroom, a person with higher self‐efficacy will have higher expectancy
that he or she can achieve a high level of task performance; this increases motivation. With respect to Locke,
self‐efficacy links with a person’s willingness to set challenging performance goals. In both respects, man-
agers who help create feelings of self‐efficacy in others should be boosting their motivation to work.
Enhancing self‐efficacy
According to Bandura’s work, there are four major ways in which self‐efficacy can be enhanced.30 First is
enactive mastery — when a person gains confidence through positive experience. The more you work at a
task, so to speak, the more your experience builds and the more confident you become at doing it. Second
is vicarious modelling — basically, learning by observing others. When someone else is good at a task and
we are able to observe how they do it, we gain confidence in being able to do it ourselves. Third is verbal
persuasion — when someone tells us or encourages us that we can perform the task. Hearing others praise
our efforts and link those efforts with performance successes is often very motivational. Fourth is emotional
arousal — when we are highly stimulated or energised to perform well in a situation. A good analogy for
arousal is how athletes get ‘psyched up’ and highly motivated to perform in key competitions.
Positive psychological capital
A concept known as PsyCap, or psychological capital, is defined by Fred Luthans and his colleagues
as ‘an individual’s positive psychological state of development’. This positive state is composed of
(1) high personal confidence and self‐efficacy in working on a task, (2) optimism about present and
future success, (3) hope and perseverance in pursuing goals and adjusting them as needed and (4) resil-
iency in responding to setbacks and problems.
A briefings report from the Gallup Leadership Institute points out that psychological capital deals
with ‘who you are’ and ‘who you are becoming’. They contrast this with human capital (‘what you
know’) and social capital (‘who you know’). It also summarises studies that address the measurement of
PsyCap, and the impact of PsyCap on work attitudes and performance.
In samples of management students and managers, researchers report success with a training inter-
vention designed to raise the level of PsyCap for participants. When performance measures were taken
among the manager samples, increases in performance were associated with the PsyCap gains. In com-
paring the costs of the training intervention with the performance gains, the researchers calculated
the return on investment as 270 per cent. Overall conclusions for this stream of research are that the
measurement of PsyCap is reliable and valid, and that PsyCap is positively related to individual perfor-
mance and satisfaction.31

CHAPTER 15 Motivation and rewards  423

 CRITICAL ANALYSIS

1. Many organisations formally advise employees not to divulge details of their remuneration with their
co‐workers. In terms of equity theory, is this effective advice?
2. Self‐efficacy appears to be a very Western‐oriented concept, focusing as it does on the individual.
Is it possible that more collectivist and group‐orientated cultures have a similar concept that
focuses on groups? Undertake some research to determine if this is so.

15.4 Reinforcement theory of motivation

LEARNING OBJECTIVE 15.4 What role does reinforcement play in motivation?
The content and process theories described so far use cognitive explanations of behaviour. They are
concerned with explaining ‘why’ people do things in terms of satisfying needs, resolving felt inequities,
and/or pursuing positive expectancies and task goals. Reinforcement theory, in contrast, views human
behaviour as determined by its environmental consequences. Instead of looking within the individual to
explain motivation and behaviour, it focuses on the external environment and the consequences it holds
for the individual. The basic premises of the theory are based on what E. L. Thorndike called the law of
effect — behaviour that results in a pleasant outcome is likely to be repeated; behaviour that results in
an unpleasant outcome is not likely to be repeated.32

Reinforcement strategies
Psychologist B. F. Skinner popularised the concept of operant conditioning as the process of applying the
law of effect to control behaviour by manipulating its consequences.33 You may think of operant conditioning
as learning by reinforcement. In management the term is often discussed with respect to organisational
behaviour modification (OB Mod), the application of operant conditioning techniques to influence human
behaviour in the workplace.34 The goal of OB Mod is to use reinforcement principles to systematically
reinforce desirable work behaviour and discourage undesirable work behaviour (see figure 15.7).
Supervisor’s Individual Reinforcement Type of
objective behaviour strategy reinforcement

Praise employee;
Positive
recommend pay
reinforcement
Meets production goals increase
with zero defects
Stop Negative
complaints reinforcement
High-quality
production
Withhold praise
Extinction
and rewards
Meets production goals but
with high percentage of defects
Reprimand
Punishment
employee

FIGURE 15.7 Applying reinforcement strategies: case of total quality management

Four strategies of reinforcement are used in operant conditioning. Positive reinforcement strengthens
or increases the frequency of desirable behaviour by making a pleasant consequence contingent on
its occurrence. For example, a manager nods to express approval to someone who makes a useful com-
ment during a staff meeting. Negative reinforcement increases the frequency of or strengthens desirable

424  Management
behaviour by making the avoidance of an unpleasant consequence contingent on its occurrence. For
example, a manager who has been nagging a worker every day about tardiness does not nag when the
worker comes to work on time one day. Punishment decreases the frequency of or eliminates an undesir-
able behaviour by making an unpleasant consequence contingent on its occurrence. For example, a man-
ager issues a written reprimand to an employee who reports late for work one day. Extinction decreases
the frequency of or eliminates an undesirable behaviour by making the removal of a pleasant consequence
contingent on its occurrence. For example, a manager observes that a disruptive employee is receiving
social approval from co‐workers; the manager counsels co‐workers to stop giving this approval.
An example of how these four reinforcement strategies can be applied in management is shown in
figure 15.7. The supervisor’s goal in the example is to improve work quality as part of a total quality
management program. Note how the supervisor can use each of the strategies to influence continuous
improvement practices among employees. Note, too, that the strategies of both positive and negative
reinforcement strengthen desirable behaviour when it occurs. The punishment and extinction strategies
weaken or eliminate undesirable behaviours.

Positive reinforcement
Among the reinforcement strategies, positive reinforcement deserves special attention. It should be a
central part of any manager’s motivational strategy. The multilevel marketing sector is one of the best
examples of the successful use of this approach. Amway has long provided recognition pins for its dis­
t­ributors as they reach new levels of success, and companies such as Nutrimetics and Tupperware pro­
vide company cars to their best performers.
All managers would do well to understand two important laws of positive reinforcement. First, the
law of contingent reinforcement states: For a reward to have maximum reinforcing value, it must be
delivered only if the desired behaviour is exhibited. Second, the law of immediate reinforcement states:
The more immediate the delivery of a reward after the occurrence of a desirable behaviour, the greater
the reinforcing value of the reward. Managers should use these laws to full advantage in the everyday
pursuit of the benefits of positive reinforcement.
The power of positive reinforcement can be mobilised through a process known as shaping. This is the
creation of a new behaviour by the positive reinforcement of successive approximations to it. The timing of
positive reinforcement can also make a difference in its impact. A continuous reinforcement schedule admin-
isters a reward each time a desired behaviour occurs. An intermittent reinforcement schedule rewards behav-
iour only periodically. In general, a manager can expect that continuous reinforcement will elicit a desired
behaviour more quickly than will intermittent reinforcement. Also, behaviour acquired under an intermittent
schedule will be more permanent than will behaviour acquired under a continuous schedule. One way to
succeed with a shaping strategy, for example, is to give reinforcement on a continuous basis until the desired
behaviour is achieved. Then an intermittent schedule can be used to maintain the behaviour at the new level.

DIVERSIT Y

BHP Billiton: creating opportunities for diversity and inclusiveness

PwC’s 2015 Global CEO Survey identifies that Australian CEOs are strongly involved in developing work-
force diversity practices and are ahead of developments worldwide. The survey shows that 86 per cent of
Australian companies have diversity and inclusiveness strategies, with 92 per cent of their CEOs believing
these strategies have improved the financial bottom line. Eighty three per cent of Australian respondents feel
that such strategies have improved their brand and corporate reputation. Luke Sayers, PwC Australia’s CEO,
sheds more light on current workplace diversity practices in Australia by stating ‘The philosophical argument
about the benefits of a more diverse workforce has been won. What we now need is both genuine improve-
ment in area’s like gender, and also a more sophisticated understanding of diversity, one that extends to
diversity of cultural experience and skills’. The PwC report goes further, citing that although over half of all
graduates are women, only 26 per cent of senior managers and 17 per cent of CEOs are women.

CHAPTER 15 Motivation and rewards  425

 One company that recognises the importance of women in the Australian workplace is the
Australian mining giant BHP Billiton. Mike Fraser, BHP Billiton’s Human Resource President,
describes how they ‘are addressing the historical gender imbalance we have seen in our industry by
having a particular emphasis on increasing female representation in key operational roles’. In pre-
senting the keynote address at the inaugural Women in Resources Awards in Brisbane in September
2014, Fraser used the context of BHP Billiton’s four finalists, including The Exceptional Women in
Australian Resources Award to discuss the way diverse workforces improve performance, safety and
production in resource companies. Critically, he stated that ‘We have found that where our work-
places are more inclusive and collaborative, we achieve superior performance results. Safety results
are better, production is more stable, employee engagement is higher and turnover is lower’. He
added that ‘diversity was not just about gender, but includes different aspects of individual unique-
ness including thought, experience, age, disability, nationality, ethnicity, orientation, gender and
perspective’.
Mike Fraser points to the particular example of Queensland operations at Daunia and Caval Ridge
operations, where a comprehensive commitment to narrowing the gender gap has been made:

From the start of development of these projects seven years ago, BHP Billiton Mitsubishi Alliance (BMA)
committed to create a diverse workforce at Daunia and Caval Ridge with at least 30 per cent female and
5 per cent Indigenous employees. The operations offered training for female employees new to the industry
and interested in taking on more responsibility. We are now on track to achieve this goal by 2015 with
female employees now making up 25 per cent at Daunia and 20 per cent at Caval Ridge.35

QUESTIONS
1. What are the key drivers at BHP Billiton that have allowed for women to be better represented in the
workforce?
2. How might Australian corporations benefit on a global stage from their strong workforce diversity
programs?

Punishment
As a reinforcement strategy, punishment attempts to eliminate undesirable behaviour by making an
unpleasant consequence the result of its occurrence. To punish an employee, for example, a manager
may deny the individual a valued reward, such as verbal praise or merit pay, or administer an unpleasant
outcome, such as a verbal reprimand or pay reduction. Like positive reinforcement, punishment can be
done poorly or it can be done well. Unfortunately, it may often be done poorly. Remember, too, that
punishment can be combined with positive reinforcement.

Ethical issues in reinforcement

The use of OB Mod and reinforcement techniques in work settings has produced many success
stories of improved safety, decreased absenteeism and tardiness, and increased productivity.36 But
there are also debates over both the results and the ethics of controlling human behaviour. Oppo-
nents are concerned that use of operant conditioning principles ignores the individuality of people,
restricts their freedom of choice and ignores the fact that people can be motivated by things other
than externally administered rewards. Advocates, however, attack these criticisms. They agree that
reinforcement involves the control of behaviour, but they argue that control is part of every manager’s
job. The real question may not be whether it is ethical to control behaviour but whether it is ethical
not to control behaviour well enough so that the goals of both the organisation and the individual are
well served. Even as research continues, the value of reinforcement techniques seems confirmed. This
is especially true when they are combined with the insights of the other motivation theories discussed
in this chapter.37

426  Management
 CRITICAL ANALYSIS

1. Provide your own example to demonstrate the difference between negative reinforcement and
extinction.
2. Some people think that encouraging others is nice but doesn’t make up for an increase in salary
or a promotion. What do you think?

MANAGER’S NOTEPAD 15.2

The ten foundations of motivation

Moving widely across our theories of motivation, Shawn Doyle argues that managers and leaders
should keep the following tips in mind:
• provide a purpose for what people do
• encourage people to be passionate about what they do
• provide continuous opportunities for learning and development
• both have a mentor and act as a mentor
• understand what motivates your people and act on this
• reward their people appropriately for their achievements
• keep the long‐term big picture in mind while managing a day at a time
• never allow complacency — continuous improvement is required
• regularly evaluate progress
• aim for balance across life’s elements.38

15.5 Motivation and remuneration

LEARNING OBJECTIVE 15.5 What are the trends in motivation and remuneration?
By way of summary, figure 15.8 offers an integrative view of motivation that takes advantage of insights from
each of the theoretical perspectives discussed so far. It shows how they can be combined into one model of
motivational dynamics in the workplace. In this figure motivation leads to effort that, when combined with
appropriate individual abilities and organisational support, leads to performance. The motivational impact of
any rewards received for this performance depends on equity and reinforcement considerations. Ultimately,
satisfaction with rewards should lead to increased motivation to work hard in the future.

Perceived equity
Individual of rewards
ability

Motivation Rewards
Work Performance Satisfaction
Willingness to for
effort accomplishments with rewards
work hard performance

Organisational
support Reinforcement
value of rewards

FIGURE 15.8 An integrated approach to motivational dynamics

CHAPTER 15 Motivation and rewards  427

 Of the motivation issues that can be discussed within this framework, perhaps none receives as much
attention as the special case of remuneration.39 There are many advantages, both individual and organ-
isational, to be gained from a truly motivational remuneration scheme. In general, the success of any
such system lies in its ability to apply the alternative motivation theories in positive and credible ways.
In practice, however, the link between motivation and remuneration is usually very complicated.

Pay for performance

The notion of paying people for their performance is consistent with the equity, expectancy and rein-
forcement theories.40 Formally defined, merit pay is a remuneration system that awards pay increases
in proportion to individual performance contributions. By allocating pay increases in this way, managers
are attempting to recognise and positively reinforce high performers and encourage them to work hard
for similar accomplishments in the future. They are also attempting to remind low performers of their
lack of achievement and send a signal that they must do better in the future.
The concept of merit pay is a logical extension of the motivation theories. In principle, at least, it makes
sense to reward people in proportion to their work contributions. Because of the difficulty of actually linking
pay with performance in a truly contingent and equitable manner, however, merit pay does not always
achieve the desired results. A successful merit pay system must have a solid foundation in agreed‐upon and
well defined ‘performance measures’. Any weakness in the performance appraisal methods can undermine
a merit pay system, and lack of consistency in applying merit pay at all levels of the organisation can jeopar-
dise its credibility. There is concern today, for example, that CEO pay isn’t adequately linked to performance.
Magazines such as BRW and Fortune regularly report on the issue of CEO remuneration, and it has
been the subject of a Productivity Commission report in Australia, which revealed that the average annual
remuneration for CEOs of the top 20 companies in Australia is almost $10 million — or 150 times average
earnings.41 The impression of some is that CEOs are well rewarded no matter how well the company per-
forms. For example, after recording a $291 million annual loss, failed telecommunications company One.
Tel paid directors Jodee Rich and Brad Keeling a $6.9 million bonus on top of their $500  000 salaries. The
bonus was based on the company’s sharemarket value at the time, rather than on profits. One.Tel appears
to have been struggling during the period in which the bonuses were paid and the company collapsed just
months later. When One.Tel’s investors, customers, and the general public claimed mismanagement, Rich
and Keeling offered to return their bonuses. Their pain may not have been too great, however, since they had
earlier shared more than $50 million when James Packer and Lachlan Murdoch bought into the company.42
Contrast the One.Tel example with a recent decision made by Nicholas Moore, CEO of the Mac-
quarie Group. After a 52 per cent decline in profits saw Macquarie’s net profit decline for the first time
in 17 years, Moore gave himself a 99 per cent pay cut, reducing his annual salary from $26.7 million to
$290  756. Other Macquarie executives also had their remuneration slashed, with Moore noting that the
savage reductions were part of the bank’s broader remuneration structure, which directly linked payment
to profit. ‘My pay‐packet and the pay‐packets of all Macquarie Group executives are based on the under-
lying profitability of the organisation’, he commented.43
Phil Chronican, former CEO of ANZ Bank, claimed that public concern about the very high salaries
paid to executives in the finance and banking sectors was misplaced and an example of ‘bank bashing’.
According to Chronican, executives like himself are subject to potentially short careers at the highest
level, and are paid so well because of the risks that they take, the returns they make for shareholders,
their heavy responsibility for the welfare of their employees and their obligation to ensure that customer
service is of the highest possible quality.44 On the other hand, business writer David James argues that
the salaries paid to banking executives both before and after the global financial crisis reveal a very weak
link, if any, between remuneration and organisational performance. Many executives have continued to
receive massive salaries and enormous bonuses whether the fortunes of their companies have risen or
fallen. James quotes consultancy director Martin Lawrence, whose view is that the argument linking
the level of executive remuneration to the size of the organisations being led is, at best, questionable.
Says Lawrence, ‘You could actually argue that it is easier to run those companies (since) the risk is not a

428  Management
real risk, not in the way ordinary people understand it. In public companies (that is, companies listed on
the share market), you become spectacularly wealthy or wealthy; they are the choices’.45
Consider also a radical performance‐related pay scheme used at one of Australia’s largest companies,
Wesfarmers. While the company’s managing director, Richard Goyder, earned $6.9 million in 2010, the
head of Coles Supermarkets, a company owned by Wesfarmers, received $15.6 million.46 The reason for this
seems to be that Goyder and his board of directors would rather pay a ‘star performer’ as much as they need
to in order to grow the entire organisation. One would think that Goyder would benefit from this strategy in
the longer term via an increase in the value of the many shares that they would hold in the company.
One trend among the efforts to improve pay for performance systems is the use of ‘double hurdles’.
One hurdle may continue to be traditional performance targets such as defined goals for new sales,
customer retention or cost control. An increasingly common second hurdle compares the company’s
total shareholder return with that of the overall stockmarket or a select group of comparison companies.
This ensures that executives are not rewarded simply for achieving targets that other companies may also
be achieving in a growing market or a buoyant economy, but for guiding the company to better perfor-
mance relative to the market and competitors.47
Not everyone believes in merit pay. John Whitney, author of The Trust Factor, suggests that pay for perfor-
mance may not work very well. While pointing out that market forces should determine base pay, Whitney
believes that organisations can benefit by making the annual merit increase an equal percentage of base sal-
aries from one employee to the next. This communicates a universal sense of importance and helps to avoid
frustrations and complaints when merit increases are tied to performance differences. Says Whitney: ‘Quib-
bling over whether someone should get a 4.7 per cent raise or 5.1 per cent is a colossal waste of time’.48

GLOBALISATION

LinkedIn goes local in Sydney

Although all human beings yearn for the same
fundamental workplace benefits such as good
pay, time off work and affiliation with others,
organisations operating at a global level face the
complex task of motivating employees with a
diverse set of backgrounds, cultures and expec-
tations.49 LinkedIn recognised this challenge in
redesigning their Sydney office in 2015.50
LinkedIn, the world’s leading web‐based pro-
fessional network, originally employed Cliff
Rosenberg in 2009 to establish a Sydney office
after building a comprehensive Australian mem-
bership. Jeff Weiner, LinkedIn’s CEO said at the
time: ‘Establishing our first office in Australia
allows us to accelerate our efforts to deliver the best user experience and expand our local partnerships’.51
By 2015, Rosenberg had become the managing director of LinkedIn for South‐East Asia, Australia
and New Zealand, and described how the global giant maintained its emphasis on local development
through the redesign of its Sydney office. The focus was to create a ‘global office with a local feel’. The
‘local feel’ was designed to motivate staff by providing an Australian theme, such as kangaroo images
on the walls and boardrooms named Strewth and Ozzy. Further changes also included a games arcade,
cinema, indoor barbeque and smoothie station.52 And it is this ‘feel’ factor the new workplace environ-
ment provides that is critical in relationship cultures where employees may be concerned about how they
are looked after.53

QUESTION
How can global corporations benefit by developing cultural themes in the local setting of their operations?
How might managers deliver global goals at local levels?

CHAPTER 15 Motivation and rewards  429

Incentive remuneration systems
Today, employees at all levels in more and more organisations are benefiting from various special incen-
tive remuneration systems. Examples include pay for knowledge, bonus pay plans, profit‐sharing plans,
gain‐sharing plans and employee share ownership plans.54 Some companies reward employees with over-
seas trips. For example, a Taiwanese insurance company rewarded 2000 of its best insurance agents with
a three‐day visit to Australia. The agents patted Australian animals brought to the Sydney Opera House,
visited Koala Park, undertook a Bridge Climb and enjoyed the music of a 60‐piece marching band.55
As you consider the descriptions that follow, however, remember that any incentive remuneration system
will work only as well as its implementation. The well‐known remuneration scholar and consultant Edward
Lawler, for example, tells of this experience.56 While consulting for a furniture manufacturer, he became
convinced that a ‘gain sharing’ incentive plan would be helpful and thus advised the factory manager on
starting one. The manager proceeded only reluctantly, claiming, ‘These guys are already paid enough .  .  . they
should be happy to have a job’. Says Lawler: ‘Although the program was somewhat successful, the manag-
er’s continuing tendency to call it an “employee bribe program” definitely limited its success’.
Pay for knowledge
In addition to paying for performance, some organisations now emphasise paying for knowledge. A
concept called skills‐based pay, for example, pays workers according to the number of job‐relevant
skills they master. Many government departments and agencies reward their people in this way. The
government of the Australian Capital Territory, for instance, has developed a framework that incorpor-
ates more than 200 individual competency units, 21 qualifications and an overall assessment regime that
seeks to link rewards to the skills, competencies and qualifications of its employees.57 Skills‐based pay
systems are common in self‐managing teams where part of the ‘self‐management’ includes responsi­
bilities for the training and certification of co‐workers in job skills.
Bonus pay
Bonus pay plans provide one‐off or lump‐sum payments to employees based on the accomplishment of
specific performance targets or some other extraordinary contribution, such as an idea for work improve-
ment. They typically do not increase base salary or wages. Bonuses have been most common at the
executive level, but they are now being used more extensively. Bonuses are not always inevitable, and
are raised or cut in line with company performance.
Profit sharing
Profit‐sharing plans distribute to some or all employees a proportion of profits earned by the organisation
during a stated performance period. The exact amount typically varies according to the level of profits
and each person’s base remuneration and/or length of service. Profit‐sharing schemes have long been
common in professions such as accounting and law and are becoming increasingly common elsewhere.
Gain sharing
Gain‐sharing plans extend the profit‐sharing concept by allowing groups of employees to share in any
savings or ‘gains’ realised through their efforts to reduce costs and increase productivity. Specific for-
mulas are used to calculate both the performance contributions and gain‐sharing awards. The classic
example is the Scanlon plan, which usually results in 75 per cent of gains being distributed to workers
and 25 per cent being kept by the company. Recognising that each work situation is different, there is
a general move away from predefined formulas to custom‐designed approaches that reinforce the link
between pay and performance for specific work groups.58
Employee share ownership
Employee share ownership plans (ESOPs) involve employees in ownership through the purchase of shares
in the companies that employ them. Whereas formal ESOPs are often used as financing schemes to save jobs
and prevent business closures, share ownership by employees is an important performance incentive. It can
be motivating to have an ownership share in your place of employment. An approach to employee ownership

430  Management
through share options gives the option holder the right to buy shares at a future date at a fixed price. This links
ownership directly with a performance incentive, since employees holding share options presumably are
motivated to work hard to raise the price of the company’s shares. When the price has risen they can exercise
their option and buy the shares at a discount, thus realising a financial gain. Share options are most common
in senior executive remuneration, but their use is spreading to include lower level employees.
Many of the most admired companies in the Asia–Pacific region offer share options to their work-
forces. At Flight Centre, more than 50 per cent of all employees bought shares in the company when
they were initially offered during 1995. By early 2016, the share price was trading above $35, a signif-
icant increase from its listing price of 75 cents. One of the issues to be considered with share options,
however, relates to their risk. If a company’s shares perform poorly, the options it is offering as a per-
formance incentive are worth less; their motivational value is largely eliminated. When the technology
companies experienced a downturn in the stockmarket, for example, many employees were disappointed
with incentive pay that was tied to share options. Many firms experienced turnover problems as talented
employees resigned to pursue other and more promising opportunities. As a result, there was a resur-
gence of interest in adding cash bonuses to the incentive remuneration packages. In an industry where
human capital is paramount for success, the most progressive employers responded.
This discussion leaves us with the question of whether money motivates more than other incentives
such as job satisfaction or the opportunity to develop meaningful relationships at work. There is no final
answer. There are as many ways of designing motivation, incentive and reward systems as there are indi-
viduals who work under such systems. Dexter Dunphy and Tyrone Pitsis of the University of Technology,
Sydney, argue that greed is the most common of the ‘seven deadly sins’ in Western organisations. Effec-
tive managers, they suggest, recognise that they do not make decisions about rewards and incentives in a
vacuum. Such decisions should reflect the broader responsibilities of managers to their stakeholders and
environments. Considered in this light, our traditional rewards systems are potentially very blunt instru-
ments for creating high‐performance organisations and corporate cultures. If we place material rewards
at the forefront of employee thinking, we should not be surprised if employee behaviour therefore focuses
on what is to be rewarded rather than what is to be desired. For these reasons, becoming the kind of man-
ager who can develop and refine an approach to motivation that reflects the complexity of individuals and
organisations is one of the most significant challenges you will face in your career.

COUNTERPOINT

Can extra benefits compensate for money?

Mercer is one of the world’s leaders in talent,
health, retirement and investments. Their 2014
Australian Benefit’s Review found that organ-
isations with effective employee benefit plans
reduce their staff turnover to 12 per cent from
the general rate of 15 per cent. Their report,
based on the findings from 353 organisations,
showed that companies with such employee
benefit plans provide more equality in the
workplace, improved work–life balance and
associate benefit with anticipated business
outcomes.
Head of Talent for Mercer’s Pacific business,
Garry Adams, states ‘On one level it’s simple,
when employers give more they get more, but for real business impact, employers need to estab-
lish meaningful links between innovative benefits and the desired behaviour of their workers  .  .  .  Today’s
workforce holds the attitudes, values, and goals of four generations, which presents a massive chal-
lenge for employers to engage and retain workers to achieve business success.’ He goes on to say that

CHAPTER 15 Motivation and rewards  431

 way are already seeing a shift away from stock standard competitive benefits and that the trend will
continue. The report reveals that a range of benefits that companies are starting to offer include the
development of sustainable commute benefits, such a $10 for employees who arrive to work any way
other than solo commute, reducing demand for car parks, decreasing the environmental footprint and
boosting the health of employees if they get to work by walking or cycling. Other schemes include
mental health days, flexible workplaces and earlier finishing on summer days.59

QUESTION
Why may multiple benefit programs be effective in reducing staff turnover?

CRITICAL ANALYSIS

1. In order to survive in a very challenging industry Sydney’s Belvoir St Theatre operated on a parity
pay system between 1984 and 2010. From the general manager to the box‐office staff, every
employee was paid the same amount.60 Identify two or three advantages and disadvantages of this
rewards system.
2. The average pay of CEOs among leading publicly listed companies increased from 18 times the
average adult weekly earnings of all employees to more than 63 times average earnings over a
recent 15‐year period.61 Why might this be cause for concern among the broader community?
3. Multinational companies usually keep salaries at similar levels between countries to ensure
consistency. On the other hand, the buying power of a dollar and the cost of living can be very
different from one country to another. What can multinational companies do to eliminate such
inequities?

432  Management
SUMMARY
15.1 What is motivation?
•• Motivation involves the level, direction and persistence of effort expended at work; simply put, a
highly motivated person works hard.
•• Extrinsic rewards are given by another person; intrinsic rewards derive naturally from the work itself.
•• To maximise their motivational impact, rewards should be allocated in ways that respond to both
individual and organisational needs.
•• The three major types of motivation theories are the content, process and reinforcement theories.
15.2 What are the different types of individual needs?
•• Maslow’s hierarchy of human needs suggests a progression from lower order physiological, safety and
social needs to higher order ego and self‐actualisation needs.
•• Alderfer’s ERG theory identifies existence, relatedness and growth needs.
•• Herzberg’s two‐factor theory points out the importance of both job content and job context factors in
satisfying human needs.
•• McClelland’s acquired needs theory identifies the needs for achievement, affiliation and power, all of
which may influence what a person desires from work.
•• Managers should respect individual differences and diversity to create motivating work environments.
15.3 What are the process theories of motivation and why is self‐efficacy so important?
•• Adams’s equity theory recognises that social comparisons take place when rewards are distributed in
the workplace.
•• People who feel unfairly treated are motivated to act in ways that reduce the sense of inequity;
perceived negative inequity may result in someone working less hard in the future.
•• Vroom’s expectancy theory states: Motivation = Expectancy × Instrumentality × Valence.
•• Expectancy theory encourages managers to make sure that any rewards offered for motivational
purposes are both achievable and individually valued.
•• Locke’s goal‐setting theory emphasises the motivational power of goals; people tend to be highly
motivated when task goals are specific rather than ambiguous, difficult but achievable and set through
participatory means.
•• Self‐efficacy has become an increasingly important concept for managers and leaders because it
encompasses the contemporary trend towards individuals focusing on their own self‐confidence,
competence and mastery. By acknowledging the importance of self‐efficacy, managers can create
work environments in which individuals will choose to motivate themselves.
•• By modelling expected behaviours, giving employees the chance to learn new skills in safe environments,
encouraging their people, and adding an emotional dimension to their communications, organisational
leaders can encourage the development of an individual’s feelings of self‐efficacy.
15.4 What role does reinforcement play in motivation?
•• Reinforcement theory recognises that human behaviour is influenced by its environmental consequences.
•• The law of effect states that behaviour followed by a pleasant consequence is likely to be repeated;
behaviour followed by an unpleasant consequence is unlikely to be repeated.
•• Reinforcement strategies used by managers include positive reinforcement, negative reinforcement,
punishment and extinction.
•• Positive reinforcement works best when applied according to the laws of contingent and immediate
reinforcement.
15.5 What are the trends in motivation and remuneration?
•• The area of remuneration provides a good test of a manager’s ability to integrate and apply the insights
of all motivation theories.
•• Pay for performance, in the form of merit pay plans, ties pay increases to improvements in performance.

CHAPTER 15 Motivation and rewards  433

•• Various incentive remuneration programs, such as bonuses, gain sharing and profit sharing, allow
workers to benefit materially from improvements in profits and productivity.
•• Pay‐for‐knowledge systems typically link pay to the mastery of job‐relevant skills.

KEY TERMS
Expectancy  is a person’s belief that working hard will result in high task performance.
Extinction  discourages a behaviour by making the removal of a desirable consequence contingent on
its occurrence.
Extrinsic rewards  are provided by someone else.
Higher order needs  are esteem and self‐actualisation needs in Maslow’s hierarchy.
Hygiene factors  are found in the job context, such as working conditions, interpersonal relations,
organisational policies and salary.
Instrumentality  is a person’s belief that various outcomes will occur as a result of task performance.
Intrinsic rewards  occur naturally during job performance.
The law of effect  states that behaviour followed by pleasant consequences is likely to be repeated;
behaviour followed by unpleasant consequences is not.
Lower order needs  are physiological, safety and social needs in Maslow’s hierarchy.
Merit pay  awards pay increases in proportion to performance contributions.
Motivation  accounts for the level, direction and persistence of effort expended at work.
Need for achievement (nAch)  is the desire to do something better, solve problems or master complex
tasks.
Need for affiliation (nAff)  is the desire to establish and maintain good relations with people.
Need for power (nPower)  is the desire to control, influence or be responsible for other people.
Needs  are unfulfilled physiological or psychological desires.
Negative reinforcement  strengthens a behaviour by making the avoidance of an undesirable
consequence contingent on its occurrence.
Operant conditioning  is the control of behaviour by manipulating its consequences.
Organisational behaviour modification (OB Mod)  is the application of operant conditioning to
influence human behaviour at work.
Positive reinforcement  strengthens a behaviour by making a desirable consequence contingent on its
occurrence.
Punishment  discourages a behaviour by making an unpleasant consequence contingent on its
occurrence.
Satisfier factors  are found in job content, such as a sense of achievement, recognition, responsibility,
advancement and personal growth.
Self‐efficacy  is a person’s belief that she or he is capable of performing a task.
Shaping  is positive reinforcement of successive approximations to the desired behaviour.
Skills‐based pay  is a system of paying workers according to the number of job‐relevant skills they
master.
Valence  is the value a person assigns to work‐related outcomes.

APPLIED ACTIVITIES
1 What types of preferences do people high in the need for achievement bring with them to the
workplace?
2 Why is participation important to goal‐setting theory?
3 What is motivation to work?

434  Management
4 What is the managerial significance of Herzberg’s distinction between factors in the job content and
job context?
5 How can a manager combine the powers of goal setting and positive reinforcement to create a highly
motivational environment for workers with high needs for achievement?

ENDNOTES
  1. This case was adapted from Trent Taylor and Lara Rush ‘Proposed Tax Changes Signal Rebirth of Employee Share Schemes’,
Holding Redlich Weekly Brief (21 October 2014), www.holdingredlich.com and Caitlin Fitzsimmons, ‘CultureAmp among the
First to Grasp New Employee Share Scheme Opportunity’, BRW (29 July 2015), www.brw.com.au.
  2. Example taken from Kevin Kelley, ‘I’m the Boss, That’s Why’, Business Week, Enterprise issue (9 June 1997), p. ENT 32.
  3. For a comprehensive treatment of extrinsic rewards, see Bob Nelson, 1001 Ways to Reward Employees (New York: Workman
Publishing, 1994).
  4. For a research perspective, see Edward Deci, Intrinsic Motivation (New York: Plenum, 1975); and Edward E. Lawler III, ‘The
Design of Effective Reward Systems’, in Jay W. Lorsch (ed.), Handbook of Organizational Behavior (Englewood Cliffs, NJ:
Prentice Hall, 1987), pp. 255–71.
  5. Michael Maccoby, Why Work: Leading the New Generation (New York: Simon & Schuster, 1988) deals extensively with this
point of view.
  6. Sharon K. Parker, ‘Unleash the Power of Your Workforce’, AGSM, issue 3 (2001), pp. 24–6.
  7. Michael Vavakis, ‘The I Factor’, Management Today (June 2009), pp. 40–41.
  8. This case was adapted from N.D., ‘Corporate Corruption in China: A Bitter Pill for GlaxoSmithKline,’ The Economist (4 July
2014), www.economist.com.
  9. Raymond J. Stone, Human Resource Management, 4th edn (Brisbane: John Wiley & Sons, 2002), p. 741.
10. See Abraham H. Maslow, Eupsychian Management (Homewood, IL: Richard D. Irwin, 1965); Abraham H. Maslow,
Motivation and Personality, 2nd edn (New York: Harper & Row, 1970). For a research perspective, see Mahmoud A. Wahba
and Lawrence G. Bridwell, ‘Maslow Reconsidered: A Review of Research on the Need Hierarchy’, Organizational Behavior
and Human Performance, vol. 16 (1976), pp. 212–40.
11. Angus Whitley, ‘Lovelorn Miners Find Job Is the Pits’, The Sydney Morning Herald (Weekend Business), (3–4 September),
p. 8.
12. See Clayton P. Alderfer, Existence, Relatedness, and Growth (New York: Free Press, 1972).
13. The complete two‐factor theory is in Frederick Herzberg, Bernard Mausner and Barbara Block Synderman, The Motivation
to Work, 2nd edn (New York: Wiley, 1967); Frederick Herzberg, ‘One More Time: How Do You Motivate Employees?’,
Harvard Business Review (January–February 1968), pp. 53–62, and reprinted as an HBR classic (September–October 1987),
pp. 109–20.
14. Jackie Range, ‘More Than Hot Air’, Business Review Weekly (23 June 2011).
15. Critical reviews are provided by Robert J. House and Lawrence A. Wigdor, ‘Herzberg’s Dual‐Factor Theory of Job Satisfaction
and Motivation: A Review of the Evidence and a Criticism’, Personnel Psychology, vol. 20 (winter 1967), pp. 369–89; Steven
Kerr, Anne Harlan and Ralph Stogdill, ‘Preference for Motivator and Hygiene Factors in a Hypothetical Interview Situation’,
Personnel Psychology, vol. 27 (winter 1974), pp. 109–24.
16. Frederick Herzberg, ‘Workers’ Needs: The Same Around the World’, Industry Week (21 September 1987), pp. 29–32.
17. Anne Marie Francesco and Barry Allen Gold, International Organizational Behaviour (New Jersey: Prentice Hall, 1998),
pp. 90–1.
18. For a collection of his work, see David C. McClelland, The Achieving Society (New York: Van Nostrand, 1961); ‘Business
Drive and National Achievement’, Harvard Business Review, vol. 40 (July–August 1962), pp. 99–112; David C. McClelland
and David H. Burnham, ‘Power is the Great Motivator’, Harvard Business Review (March–April 1976), pp. 100–10; David C.
McClelland, Human Motivation (Glenview, IL: Scott, Foresman, 1985); and David C. McClelland and Richard E. Boyatsis,
‘The Leadership Motive Pattern and Long‐Term Success in Management’, Journal of Applied Psychology, vol. 67 (1982),
pp. 737–43.
19. Developed originally from a discussion in Edward E. Lawler III, Motivation in Work Organizations (Monterey, CA: Brooks/
Cole Publishing, 1973), pp. 30–6.
20. ‘Smart Motivating’, New Zealand Management (October 2000), p. 19.
21. Allison Ashby, ‘Staff: How to Land, and Retain, the Elusive Generation X’, Business Review Weekly (2 June 2000),
www.brw.com.au; Nick Way, ‘Battle of the Chromosomes’, Management Today (August 2000), pp. 14–18.
22. See, for example, J. Stacy Adams, ‘Toward an Understanding of Inequity’, Journal of Abnormal and Social Psychology,
vol. 67 (1963), pp. 422–36; J. Stacy Adams, ‘Inequity in Social Exchange’, in L. Berkowitz (ed.), Advances in Experimental
Social Psychology (New York: Academic Press, 1965), pp. 267–300.
23. See, for example, J. W. Harder, ‘Play for Pay: Effects of Inequity in a Pay‐For‐Performance Context’, Administrative Science
Quarterly, vol. 37 (1992), pp. 321–35.

CHAPTER 15 Motivation and rewards  435

24. Australian Bureau of Statistics, Average Weekly Earnings, Australia, May 2015, cat. no. 6302.0, Canberra: ABS.
25. Workplace Gender Equality Agency, ‘Gender Pay Gap Biggest in Manager Ranks’ (Media Release, November 2014),
www.wgea.gov.au/media‐releases.
26. Victor H. Vroom, Work and Motivation (New York: Wiley, 1964; republished by Jossey‐Bass, 1994).
27. The work on goal‐setting theory is well summarised in Edwin A. Locke and Gary P. Latham, Goal Setting: A Motivational
Technique That Works! (Englewood Cliffs, NJ: Prentice Hall, 1984). See also Edwin A. Locke, Kenneth N. Shaw, Lisa A. Saari
and Gary P. Latham, ‘Goal Setting and Task Performance 1969–1980’, Psychological Bulletin, vol. 90 (1981), pp. 125–52;
Mark E. Tubbs, ‘Goal Setting: A Meta‐Analytic Examination of the Empirical Evidence’, Journal of Applied Psychology,
vol. 71 (1986), pp. 474–83; and Terence R. Mitchell, Kenneth R. Thompson and Jane George‐Falvy, ‘Goal Setting: Theory and
Practice’, chapter 9 in Cary L. Cooper and Edwin A. Locke (eds), Industrial and Organizational Psychology: Linking Theory
With Practice (Malden, MA: Blackwell Business, 2000), pp. 211–49.
28. Gary P. Latham and Edwin A. Locke, ‘Self‐Regulation Through Goal Setting’, Organizational Behavior and Human Decision
Processes, vol. 50 (1991), pp. 212–47.
29. Albert Bandura, Social Learning Theory (Englewood Cliffs, NJ: Prentice Hall, 1977); Albert Bandura, Self‐Efficacy: The
Exercise of Control (New York: W. H. Freeman, 1997).
30. Bandura, op. cit. (1977 and 1997).
31. ‘Psychological Capital (PsyCap) Measurement, Development, and Performance Impact’, Briefings Report 2006–01 (Gallup
Leadership Institute); Fred Luthans, James B. Avey, Bruce J. Avoilio, Steven M. Norman, and Gwendolyn M. Combs,
‘Psychological Capital Development: Toward a Micro‐Intervention’, Journal of Organizational Behaviour, vol. 27 (2006),
pp. 387–93.
32. E. L. Thorndike, Animal Intelligence (New York: Macmillan, 1911), p. 244.
33. See B. F. Skinner, Walden Two (New York: Macmillan, 1948); Science and Human Behavior (New York: Macmillan, 1953);
and Contingencies of Reinforcement (New York: Appleton‐Century‐Crofts, 1969).
34. OB Mod is clearly explained in Fred Luthans and Robert Kreitner, Organizational Behavior Modification (Glenview, IL:
Scott, Foresman, 1975), and Fred Luthans and Robert Kreitner, Organizational Behavior Modification and Beyond
(Glenview, IL: Scott, Foresman, 1985); see also Fred Luthans and Alexander D. Stajkovic, ‘Reinforce for Performance: The
Need to Go Beyond Pay and Even Rewards’, Academy of Management Executive, vol. 13 (1999), pp. 49–57.
35. This case was adapted from Robin Christie, ‘Diversity Critical to Business Performance: PwC’, Australian Banking and
Finance (28 November, 2015), www.australianbankingfinance.com and ‘BHP Billiton Congratulates Women in Resources’,
BHP Billiton News Release (2 September 2014), www.bhpbilliton.com.
36. For a good review, see Lee W. Frederickson (ed.), Handbook of Organizational Behavior Management (New York: Wiley–
Interscience, 1982); Luthans and Kreitner, op. cit.; and Alexander D. Stajkovic and Fred Luthans, ‘A Meta‐Analysis of the
Effects of Organizational Behavior Modification on Task Performance 1975–95’, Academy of Management Journal, vol. 40
(1997), pp. 1122–49.
37. Edwin A. Locke, ‘The Myths of Behavior Mod in Organizations’, Academy of Management Review, vol. 2 (October 1977),
pp. 543–53.
38. Shawn Doyle, The 10 Foundations of Motivation, www.sldoyle.com/10form.pdf.
39. For a discussion of compensation and performance, see Rosabeth Moss Kanter, ‘The Attack on Pay’, Harvard Business
Review, vol. 65 (March–April 1987), pp. 60–7; and Edward E. Lawler III, Strategic Pay (San Francisco: Jossey‐Bass, 1990).
40. Kathryn M. Bartol and Cathy C. Durham, ‘Incentives: Theory and Practice’, chapter 1 in Cooper and Locke, op. cit.
41. Catherine Fox and Narelle Hopper, ‘Pay Fray’, AFRBoss (November 2009), www.afrboss.com.au.
42. Anne Davies and Jeni Porter, ‘Poor Little Rich Kids’, Sydney Morning Herald (2 June 2001), www.smh.com.au.
43. Scott Murdoch, ‘Salary Cut at Macquarie is Normal Practice, says Nicholas Moore’, The Australian (1 May 2009),
www.theaustralian.com.au.
44. Trevor Chappell, ‘CEOs Need High Pay — Just Like Sports Stars, Says ANZ CEO Phil Chronican’, Herald Sun, (5 April,
2012), www.heraldsun.com.au.
45. David James, ‘Under the Microscope’, Business Review Weekly (15 February 2012), www.brw.com.au.
46. Andrew Heathcote, ‘Earn More Than the Boss’, Business Review Weekly (6–12 October 2011), pp. 36–7.
47. Michael Lawrence, ‘Salaries: Nightmare on Payday’, Business Review Weekly (5 June 2003), www.brw.com.au.
48. Information from Jaclyn Fierman, ‘The Perilous New World of Fair Pay’, Fortune (13 June 1994), pp. 57–61.
49. Matthew MacLachlan, ‘Motivating Your International Workforce’, Communicaid (16 September 2013),
www.communicaid.com.
50. Marianne Calnan, ‘LinkedIn Redesigns Sydney Office to Motivate Staff’, Employee benefits website (4 August 2015),
www.employeebenefits.co.uk.
51. ‘LindedIn Opens Australian Office Headed by Cliff Rosenberg’, Mumbrella (19 November 2009), http://mumbrella.com.au.
52. Calnan, op. cit.
53. MacLachlan, op. cit.
54. Tove Helland Hammer, ‘New Developments in Profit Sharing, Gain Sharing, and Employee Ownership’, chapter 12 in John P.
Campbell and Richard J. Campbell (eds), Productivity in Organizations: New Perspectives from Industrial and Organizational
Psychology (San Francisco: Jossey‐Bass, 1988).

436  Management
55. Anthony Dennis, ‘Pampered and Patted On the Back — We’ve Earned It’, Sydney Morning Herald (1 June 2004), p. 3.
56. Edward E. Lawler III, From the Ground Up: Six Principles For Building the New Logic Corporation (San Francisco:
Jossey‐Bass, 1996), pp. 217–18. See also Lawler’s Rewarding Excellence (San Francisco: Jossey‐Bass, 2000).
57. Information from ACT Chief Minster’s Department website, www.cmd.act.gov.au.
58. Stone, op. cit., p. 483.
59. This case was adapted from ‘Leading Companies Reduce Turnover Costs with Creative Employee Benefits’, Mercer
Newsroom (2 September 2014), www.mercer.com.au/newsroom.
60. Louise Schwartzkoff, ‘The Theatre Company Where Nobody Gets Top Billing’, Sydney Morning Herald (21–22 February,
2009), p. 13.
61. Tony Featherstone, ‘Carrots Cop Some Stick,’ Business Review Weekly (27 March – 30 April 2009), pp. 48–52.

ACKNOWLEDGEMENTS
Photo: © Tupungato / Shutterstock.com
Photo: © imtmphoto / Shutterstock.com
Photo: © Roman Pyshchyk / Shutterstock.com
Photo: © Rawpixel.com / Shutterstock.com
Extract: © BHP Billiton

CHAPTER 15 Motivation and rewards  437

CHAPTER 16

Individuals, job design

and stress
LEA RN IN G OBJE CTIVE S

16.1 What is the meaning of work?

16.2 What are the issues in satisfaction, performance and job design?
16.3 How can jobs be enriched?
16.4 What are alternative work arrangements?
16.5 How can job and workplace stress be managed?
IBM and NAB introduce ‘mindfulness’ among staff
In 2006, the Melbourne entrepreneur James Tutton, founder of the Moonlight Cinema Group,
began to recognise his own children’s stress as they prepared for their NAPLAN tests. In response he
developed a meditation program called Smiling Mind, which is now used in 4500 Australian schools
and some key companies such as IBM Australia and Google. The program applies the concept of
‘mindfulness’, which Tutton describes as making people more aware of their own emotions and
getting people ‘to focus on far more positive things than work, work, work and not doing anything
else’.
Professor Amanda Sinclair teaches mindfulness as part of the Melbourne Business School MBA pro-
gram and executive workshops and says that mindfulness is about paying attention and being present
in the present moment without judgment. She also describes mindfulness as being about teaching staff
about meditation and how to regulate their thoughts. Key aspects of this include slowing down thoughts,
staying mindful during meetings and stepping away from the clutter in your head to be fully present
in a situation. At the end of the day mindfulness allows for greater productivity, creativity and more
harmonious workplaces. It also provides clarity, hence Sinclair suggests that one of the most powerful
things we can learn from being mindful is that stress isn’t caused by what happens to us, but how we
process it and how it influences us. By becoming more aware of the ways of thinking that contribute
to stress, we are able to establish coping mechanisms. Mindfulness can help an individual to release
the past and live in the present as well as slow the heart rate. As Olivia Downing, mindfulness consul-
tant, says ‘Our thoughts often go to the past which can be tainted by guilt and shame, and mindfulness
encourages us to turn up and live for the present and for us.’

CHAPTER 16 Individuals, job design and stress  439

 IBM Australia and New Zealand have been pioneering the use of mindfulness in the corporate
sector bringing focus and clarity to employee’s tasks. Anna Phillips, IBM’s People and Change leader
describes how this is achieved through a range of practices to tackle workplace stress and promote
positive leadership and resilience, including developing responsive capabilities among HR staff. After
significant experimentation with mindfulness in leadership training, not only were management teams
healthier but interaction between management and workers was improved. Furthermore, National
Australia Bank with its 43  000 employees is also facing growing stress in the workplace. Michela
Healey, NAB People, Communications and Governance Group Executive, describes how ‘Like any
large employer if people are not able to be their best or their work is impacted, that has an impact on
service’.
A recent VicHealth funded study further highlights the importance of mindfulness programs within
the corporate sector revealing that job strain‐attributable depression and stress takes $730 million out of
the Australian economy each year. In addition, SafeWork Australia’s 2009–10 study showed that mental
stress was the highest cost of all workers’ compensation. Even more worryingly, the Australian Bureau
of Statistics Work‐related Injuries Survey 2009–10 revealed that 70 per cent of work‐related mental
stress sufferers failed to claim workers compensation. The study also shows that since 2010/11 the
modern economy is suffering from psychological effects created by 24-7 working environments, around
the clock accessibility and tablet and smartphone usage. Peter Cotton, a clinical and organisational psy-
chologist, says the first step must be to identify stress; this could be done by HR personnel who can
assess the interaction between staff and management and can tackle stress in a variety of ways beyond
just assistance programs and GP visits’.1

QUESTIONS
1. How could mindfulness help a company become more efficient and effective? Provide two examples to
demonstrate this.
2. What challenges would be faced in introducing mindfulness into an organisation?

Introduction
For managers in organisations of all types and sizes, in both the profit and not‐for‐profit
sectors, a critical pathway towards performance improvement is better mobilising and unlocking
the great potential of human talent.2 The ideal situation is a loyal and talented workforce that is
committed to organisational goals and highly motivated to work hard on behalf of the organisation.
But saying this is one thing; achieving it is quite another. Even in the best of circumstances the
management of human resources is a challenging task. It becomes even more complicated when
organisations aggressively seek operating efficiencies by outsourcing more work, restructuring oper-
ations, downsizing payrolls, and so on.3 Further, some organisations and industries are increas-
ingly using tools of surveillance that limit the freedom of employees when the consensus is that
empowering individuals and giving them the autonomy and freedom that they need to do their jobs
makes for higher productivity and greater job satisfaction. Call centres, fast‐food chains and super-
markets are among the leaders in the trend to limit employee discretion in the interest of achieving
ever‐greater efficiencies in highly competitive markets (thus, acting in the interests of the organ-
isations, not staff).
No‐one doubts that every employer must attract, develop and maintain a talented pool of human
resources. This is, however, just the starting point. In order for the talent to have an impact on organ-
isational performance, it must be supported, nurtured and allowed to work to its best advantage. All too
often it is not, observe Jeffrey Pfeffer and Charles O’Reilly. They believe that too many organisations
underperform because they operate with great untapped ‘hidden value’ in human resources — they fail to
take full advantage of the talent they already have available.4 O’Reilly and Pfeffer criticise organisations

440  Management
‘with smart, motivated, hard‐working, decent people who nevertheless don’t perform very well because
the company doesn’t let them shine and doesn’t really capitalise on their talent and motivation’. They
also praise true high‐performance organisations as ones able to ‘produce extraordinary results from
almost everybody’.
This praise frames our inquiry into the topics of this chapter and the next — to learn how to design
jobs and build work settings so that almost everybody can produce extraordinary work results. The
present chapter considers this challenge in terms of individuals, job design and work stress; the next one
focuses on teams and teamwork. A central premise of both chapters, consistent with all of Management,
is that when the work experience is well designed, people — the essential and irreplaceable human
resources of organisations — can both achieve high‐performance results and experience a high‐quality
work life.

16.1 The meaning of work

LEARNING OBJECTIVE 16.1 What is the meaning of work?
What do you think about when you see or hear the word work? Is it a ‘turn‐on’ or a ‘turn‐off’?
Perceptions, personalities, attitudes, emotions and moods all influence individual behaviour at work.
When people work under conditions that fail to provide them with respect, their behaviour is more
likely to tend towards low performance, poor customer service, absenteeism and even being anti-
social. But when people work in supportive settings, more positive work behaviours — higher
performance, less withdrawal and dysfunction — are common. Unfortunately, too many people work
under conditions that fail to provide them with respect and satisfaction. It does not have to be this
way. More and more employers are coming to the same conclusion — people, individuals like you
and me, are the foundation for high performance in the workplace. When managers value people and
create jobs and work environments that respect people’s needs and potential, everyone gains.

Psychological contracts
Work should involve a positive give and take, or exchange of values, between the individual and
the organisation. This sense of mutual benefit is expressed in the concept of a psychological
contract, which is defined as an informal understanding about what an individual gives to and
receives from an organisation as part of the employment relationship.5 The ideal work situation
is one in which the exchange of values in the psychological contract is considered fair. When the
psychological contract is broken, however, morale problems easily develop. This problem sur-
faced in Japan where workers historically had enjoyed high job security and, in return, put in
long work hours at great personal sacrifice. But when the Japanese economy experienced diffi-
culty during the Asian financial crisis of the late 1990s and companies cut back on jobs, overall
worker morale declined. The psychological contract shared between worker and employer had been
damaged.6
As shown in figure 16.1, a healthy psychological contract offers a balance between
contributions made to the organisation and inducements received in return. A person offers con-
tributions, or valued work activities, such as effort, time, creativity and loyalty. These are among
the things that make the individual a desirable resource. Inducements are things of value that the
organisation gives to the individual in exchange for these contributions. Typical inducements include
pay, fringe benefits, training and opportunities for personal growth and advancement. Such induce-
ments should be valued by employees and should make it worthwhile for them to work hard for the
organisation.
An Australian management consultant, Tim Baker, argues that our view of the psychological
contract should be updated to reflect the modern decline in job security confronting individuals
in most industries, as well as the challenges facing organisations in managing employees who are

CHAPTER 16 Individuals, job design and stress  441

more independent and ambitious than ever before. In response to today’s realities, where employees
expect to work in a range of organisations and receive progressively greater responsibilities and
challenges, organisations should provide greater flexibility in employment, focus on rewarding
performance rather than long‐term loyalty, and provide work that is stimulating and which offers
meaning.7

Offers contributions
Individual

Serving needs of the individual Serving needs of the organisation

● Pay ● Opportunity ● Effort ● Cooperation
● Training ● Respect ● Time ● Commitment
● Fringe benefits ● Creativity ● Knowledge

Organisation
Offers inducements

FIGURE 16.1 Components in the psychological contract

Work and the quality of life

The term quality of work life (QWL) describes the overall quality of human experiences in the
workplace. Most people spend many hours a week, and many years of their lives, at work. What
happens to them at work, how they are treated and what their work is like all have an influence
on their overall lives. Simply put, the quality of work is an important component in the quality of
life for most of us.8 Anyone who serves as a manager, therefore, must accept that this job carries a
high level of social responsibility. The way managers treat people at work may have consequences
extending far beyond the confines of the actual work setting. Our experiences at work can and often
do spill over to affect our non‐work activities and lives, just as our non‐work experiences sometimes
affect our attitudes and performance at work. Poor management practices can diminish a person’s
overall quality of life, not just the QWL. Good management, on the other hand, has the potential to
enhance both.
Today’s managers are increasingly expected to focus their attention on creating work environ-
ments within which people can have positive experiences while performing to high levels of expec-
tation. A term relevant in this respect is work–life balance, described earlier in this book as the fit
between one’s job or work responsibilities and their personal or  family needs. When job demands
start interfering with personal responsibilities and vice versa, stress and performance problems
are likely results. Flexible working arrangements are becoming more common as organisations
attempt to respond to employees’ needs. The government sectors in countries like Australia and
New Zealand are increasingly encouraging their staff to pursue alternative working arrangements
such as job sharing and telecommuting in an effort to improve the quality of their experience in the
workplace.

442  Management
 SOCIAL RESPONSIBILIT Y

Job satisfaction in China

Improving ethical behaviour in organisations
has been strongly associated with elevating
corporate social responsibility.9 Research has
also shown that ethical leadership can elicit
positive responses from workers.10 Creating
a better quality of life for workers is critically
important in creating positive responses from
workers or avoiding high levels of burnout and
stress. Two Chinese studies show how different
organisational and geographical settings can
shape employees’ workplace experiences.
In one study that a large Chinese chemical
company conducted to understand what
factors influenced job satisfaction and staff
retention, it was found that staff responded well to the company’s image, working atmosphere and
supervisor’s expertise. In addition, staff members were keen for the company to develop wellbeing pol-
icies such as job rotation, promotion, staff benefits and compensation. The top nine reasons for staying
with the company conformed to Herzberg’s hygiene factors and met the basic working conditions for
staying with the company. Staff members responded moderately well to the ‘thriving facilitation work-
place’ (thriving being a ‘psychological state in which individuals experience both a sense of vitality and
learning’11) and were proud to be working for the company.12
Another study of Chinese community workers compared intrinsic and extrinsic job satisfaction experi-
enced by community health workers in the larger Chinese city of Shenyang with its smaller counterpart
Benxi. While workers in both cities expressed a moderate level of satisfaction, the study goes on to
report that ‘Nine per cent were either very dissatisfied or dissatisfied with their jobs; 16.9 per cent were
dissatisfied to moderate; 8.2 per cent were moderate; 59.1 per cent were moderate to not fully satisfied,
while 14.9 per cent were very satisfied or satisfied with their jobs’. The study showed that in Shenyang
job satisfaction was lower than in Benxi, with the authors suggesting that ‘community health workers
undergo more stress, burnout and competition in the big city’. While workers in both cities suffered from
emotional exhaustion and ‘cynicism of burnout’, lower job satisfaction in Shenyang is possibly associ-
ated with a lack of personal development. The study goes on to conclude that the S ­ henyang govern-
ment should provide more opportunity for personal development and, hence, accomplishment. This
would increase the intrinsic job satisfaction among staff through community engagement and enable
personal creativity.13
The two studies reveal the importance of doing the right thing by the workers and shows how ethical
considerations are important in enhancing both corporate social responsibility and business performance.

QUESTION
Describe the relationship between job satisfaction and social responsibility. Do the two research studies
demonstrate that social responsibility can be good for business? How would ethical leadership improve job
satisfaction among workers in each study?

The goal of flexible working arrangements, of course, is to achieve a productive and satisfying balance
of career and family pursuits. The themes of this chapter all relate in one way or another to this goal,
with many examples of how progressive employers can increase employee involvement through better
job designs and become more family friendly through alternative work schedules and stress‐management
assistance.
If a better work–life balance is to be achieved, employers must consider the demands they are placing
on their people. A 2008 survey of Australian employees engaged in knowledge work roles in sectors
such as information technology, accounting and the law found that the typical knowledge worker spends

CHAPTER 16 Individuals, job design and stress  443

more than 48 hours per week in the office, almost 6 hours a week commuting to and from work, over
4 hours a week doing extra work for their employers while at home and 2 hours a week in career
development activities. When chores at home, childcare and eldercare are added, only 11 hours per
week remain for leisure activities.14 As a result, more and more Australians have sought to work from
home to balance their work–life commitments. A 2013 survey by McRindle Research, however, found
that 58 per cent of homeworkers sought greater social interaction and face‐to‐face contact.15 Although
organisational commitment to helping people achieve a better work–life balance seems to be growing,
corporate cultures and individual values and goals make this one of the toughest management challenges
of the 21st century.

CRITICAL ANALYSIS

1. It has been argued that the psychological contract should be updated to reflect the fact that many
contemporary jobs are characterised more by insecurity than security. It could be further argued
that with today’s challenging business environment, the psychological contract has become virtually
redundant. What do you think?
2. Whatever its merits, many people do not appear to value work–life balance. Entrepreneurs working
to build their businesses, workaholics and those employed in organisational cultures that value
‘presenteeism’ come to mind. Is this necessarily wrong?

16.2 Satisfaction, performance and job design

LEARNING OBJECTIVE 16.2 What are the issues in satisfaction, performance and job design?
A job is a collection of tasks performed in support of organisational objectives. The process of job
design is one of creating or defining jobs by assigning specific work tasks to individuals and groups.
Job design uses the insights of motivation theories discussed in the chapter on motivation and rewards to
help accomplish two major goals — high levels of both job satisfaction and job performance. Jobs can
and should be designed so that satisfaction and performance go hand in hand. One without the other is
simply insufficient to meet the high standards expected of today’s workplace. There is no reason that you
cannot experience personal satisfaction while making high‐performance work contributions.

Job satisfaction
One measure of QWL is job satisfaction.16 This is the degree to which an individual feels positively or
negatively about various aspects of the job. We have all heard someone criticised for having a ‘bad atti-
tude’. In the present context, job satisfaction is an important attitude that can and does influence behav-
iour at work. The question becomes: How can we develop job satisfaction and positive work attitudes?
In answering this question, satisfaction with such things as pay, tasks, supervision, co‐workers, work
setting and advancement opportunities must be considered. These are all facets of job satisfaction that
can be handled through job design in the attempt to improve attitudes and raise the QWL.
Researchers know that there is a strong relationship between job satisfaction and absenteeism. Workers
who are more satisfied with their jobs attend more regularly; they are absent less often than those who
are dissatisfied. There is also a relationship between job satisfaction and turnover. Satisfied workers are
more likely to stay and dissatisfied workers are more likely to quit their jobs. Both of these findings are
important, since absenteeism and turnover are costly in terms of the additional recruitment and training
that are needed to replace workers, as well as in the productivity lost while new workers are learning
how to perform to expectations.
Closely related to job satisfaction are two other concepts with implications for the QWL. Job
involvement is defined as the extent to which an individual is dedicated to a job. Someone with
high job involvement, for example, would work beyond expectations to complete a special project.

444  Management
Organisational commitment is defined as the loyalty of an individual to the organisation itself. People
with high organisational commitment identify strongly with the organisation and take pride in consid-
ering themselves members.
There appears to be a link between organisational commitment and job satisfaction. Professor Amanda
Sinclair of the Melbourne Business School argues that many jobs in areas such as retail, banking and
call centres have been stripped of their ability to provide intrinsic satisfaction to employees, limiting
the potential of these jobs to foster organisational commitment. She says that because of factors such
as ‘unachievable targets, queues that get longer, [and] co‐workers who hardly know one another’ there
is little time for employees in these areas to communicate. She argues that such jobs lead to even keen
employees becoming both less productive and less committed.17
A survey of 1000 Australian workers found that although 70 per cent had a positive attitude to at least
some aspects of their work lives, 22 per cent found their work uninteresting and 20 per cent worried
about their career prospects. Interestingly, levels of workplace dissatisfaction as recorded in the survey
tended to increase with the age of workers. In addition, another survey of 2400 workers undertaken by
Leadership Management Australia found that 40 per cent of employees indicated only low levels of
commitment to their jobs.18
In an effort to provide job satisfaction, managers should always seek to find the real reasons for job
dissatisfaction rather than relying too superficially on the comments of workers. Managers and stu-
dents of management regularly indicate that higher pay and rewards will maximise job satisfaction,
but monetary rewards may not be the answer.19 A  survey of Australia’s best employers undertaken by
Hewitt Associates found that although their levels of remuneration and benefits were competitive, the
companies were seen as attractive by employees because of their ability to provide ‘engagement’ with
employees through challenging work assignments, flexibility in work arrangements and regular training.
Having said this, the results of surveys of employee engagement in Australia are mixed, at best. A study
undertaken by the Queensland branch of the Australian Institute of Management found that, while 37 per
cent of employees surveyed indicated that they were engaged (defined as ‘enthused and in gear’) in their
work, 17 per cent of survey participants were actively disengaged from their work.20
It is argued by some that material comforts can never fully satisfy people in the workplace or elsewhere
since people are ‘human beings’ with the need for relationships rather than merely ‘human resources’.21
Managers risk workers becoming bored and dissatisfied unless they pay attention to potential satisfiers
for individuals and teams. It may be useful, for instance, to inject a sense of fun into the workplace.
Without going too far, this could range from allowing staff to play the occasional game on their com-
puters to giving employees the freedom to decorate their own office space.22

Job satisfaction in the Asia–Pacific region

Levels of job satisfaction in other parts of the Asia–Pacific are not dissimilar to those indicated by
research findings in Australia and New Zealand. However, significant differences exist between nations,
with employees in Japan and Hong Kong, for instance, being more likely to express dissatisfaction
with staffing issues and with managers changing work objectives and priorities too frequently. By com-
parison, employees in the Philippines and Malaysia are generally more positive across a range of job
satisfaction indicators. This is not to say that working conditions and morale are necessarily worse in
Japan and Hong Kong, but may be due to cultural differences in relation to work expectations.23
Employees in the United States claim higher levels of job satisfaction. A survey undertaken by the Society
for Human Resource Management indicated that 86 per cent of employees were satisfied with their jobs,
including 41 per cent who stated that they were very satisfied.24 Again, however, we should be cautious about
making conclusions about such surveys. Perhaps people in the United States expect job satisfaction and then
convince themselves that their jobs are satisfying in order to create a self‐fulfilling prophecy.
Throughout the Asia–Pacific region, increasing numbers of executives are turning to coaches and
mentors to help them achieve job satisfaction. Danielle Luton, co‐founder of Richard Luton Properties,
one of Australia’s fastest growing companies for several years, attributes much of her organisation’s

CHAPTER 16 Individuals, job design and stress  445

success to the coaching she obtains. Luton compares her coach to the judges on the television show
Australian Idol, since he provides honest, focused advice rather than just telling her what she wants
to hear. Effective business coaches help employees focus on their own and their organisation’s goals,
provide motivation and inspiration, and give encouragement, support and constructive feedback. When
these are improved, people naturally feel more satisfied with themselves and with their jobs.
Middle‐level executives, in particular, may find coaches and mentors to be of particular value in
improving their job satisfaction. Only 40 per cent of 1400 middle managers in 9 countries across Asia,
Europe and the United States stated that they were satisfied with their jobs. Primary reasons for this dis-
satisfaction included concern that their organisations were poorly run, the fact that many saw their own
future prospects for promotion as extremely limited and personal concern that they were struggling to
manage their work–life balance.25

GLOBALISATION

Similarities in job satisfaction in Malaysian and

Indonesian organisations
A Malaysian research study has investigated
job satisfaction among faculty members in
two leading Malaysian universities. Using
Herzberg’s two‐factor theory, ten key factors
contributing to job satisfaction were inves-
tigated. The study showed that salary and
policy and administration were most important
in creating job satisfaction. This was surprising
as Herzberg’s theory presents these factors
as hygiene factors (conditions that create job
dissatisfaction). In addition, it was found that
all of Herzberg’s motivators such as achieve-
ment, recognition, the work itself, responsi-
bility, advancement and growth were related to
dissatisfaction.26
Similar findings from a 2015 study at PT. Dada, a medium‐sized exporting business in Indonesia, show
that although work discipline, motivation and job satisfaction have a positive effect on organisational
commitment, they are closely associated with Herzberg’s hygiene factors, such as work conditions and
salary. The study reveals that although work discipline is high, absenteeism low and self‐motivation
moderately good, the researchers found that job satisfaction would be higher if working conditions and
salary, such as providing adequate overtime pay, were improved — that is, by recognising the hygiene
factors as motivators.27
Nonconformity with the contemporary Herzberg model may suggest that the job satisfaction is depen-
dent upon cultural sensitivities and the concept may not necessarily be applied beyond Western cultural
settings. This has significant ramifications for human resources operations in global corporations.

QUESTION
Why should global corporations pay attention to local cultures in designing job rewards? What are the key
motivators that would satisfy you most in the workplace? How would this differ from the South‐East Asian
examples above?

Individual performance
It is one thing for people to come to work; it is quite another for them to perform at high levels on the
job. Job performance is the quantity and quality of tasks accomplished by an individual or group at
work. Performance, as is commonly said, is the ‘bottom line’ for people at work. It is a cornerstone

446  Management
of productivity, and it should contribute to the accomplishment of organisational objectives. As earlier
examples have suggested, however, some workers achieve a sense of personal satisfaction from their
jobs and others do not; some perform at high levels of accomplishment, others do not. The test of a
manager’s skill is to discover what work means to other people and then to create job designs that help
them to achieve satisfaction along with high performance.
Consider the insights of the individual performance equation:

Performance = Ability × Support × Effort

The logic of this equation is straightforward and very practical. If high performance is to be achieved
in any work setting, the individual contributor must possess the right abilities (the capacity to perform),
work hard at the task (the willingness to perform) and have the necessary support (the opportunity to
perform).28 All three factors are important and necessary; failure to provide for any one is likely to cause
performance losses and establish limited‐performance ceilings.
Performance begins with ability
Ability counts. As the basic foundation of aptitudes and skills, it establishes an individual’s capacity
to perform at a high level. This is the central issue in human resource management. Proper employee
selection brings people with the right abilities to a job; poor selection does not. Good training and devel-
opment keep people’s skills up to date and their jobs relevant; poor or insufficient training does not.
The goal of maintaining and increasing the ability of workers in every job should be central to all
human resource development initiatives and policies. The best managers never let a job vacancy or
training opportunity pass without giving it serious attention. The best managers make sure every day that
all jobs under their supervision are staffed properly with talented people. By renewing and redoubling
their commitments to the ability factor and best practices in human resource management, managers can
make substantial contributions to performance development.
Performance requires support
The support factor in the individual performance equation can be easily neglected in day‐to‐day man-
agement practice. But such oversight comes at a high cost. Even the most capable and hard‐working
individual will not achieve the highest performance levels unless proper support is available. Support
creates a work environment rich in opportunities to apply people’s talents to maximum advantage. To
fully realise their abilities, workers need sufficient resources, clear goals and directions, freedom from
unnecessary rules and job constraints, appropriate technologies and performance feedback. Providing
these and other forms of direct work support is a basic managerial responsibility. Doing it correctly,
however, requires a willingness to get to know the jobs to be done and the people doing them. The best
information on the need for support, of course, comes from the workers themselves. Wouldn’t it be nice
to hear more managers say the following in everyday conversations with their subordinates: How can I
help you today?

Performance involves effort

Effort — the willingness to work hard at a task — is an irreplaceable component of the high‐perfor-
mance workplace. Even the most capable workers won’t achieve consistent high performance unless
they are willing to try hard. But the decision by anyone to work hard or not rests squarely on the shoul-
ders of the individual. This is the ultimate test of motivation theories.
All any manager (or teacher, or parent) can do is try to create the conditions under which the answer
to the all‐important question — ‘Should I work hard today?’ — is more often ‘Yes!’ than ‘No!’ Frankly,
the most powerful and enduring ‘Yes’ is the one driven by forces within the individual — intrinsic
motivation — rather than by outside initiatives such as supervisory appeals, offers of monetary reward
or threats of punishment. Good managers understand this reality as they design jobs for people in
organisations.

CHAPTER 16 Individuals, job design and stress  447

 DIVERSIT Y

The Australian Network on Disability: recognising disability as a

diversity issue
Diverse groups where diversity management
and cross‐cultural communication strategies
are used experience greater creativity and less
stressful and unproductive conflicts.29 The
growing trend of diversity management pro-
grams being developed in Australia to take
advantage of such benefits is exemplified by
the strong industry support for the Australian
Network on Disability, a not‐for‐profit organ-
isation. The organisation claims that 20 per
cent of Australians suffer from disability, which
affects two million working Australians.30
Companies involved in supporting the organ-
isation include Platinum and Silver members,
such as the top four Australian banks, Telstra, IBM, Australia Post, PricewaterhouseCoopers, Woolworths
and Origin Energy, and Bronze members, such as Macquarie Bank, the Diversity Council of Australia and
the Human Rights Commission. Westpac, a founder of the network has revealed that 12 per cent of their
employees have disability of some type. Jane Councel, Head of Diversity and Flexibility for Westpac, reflects
that serving the customer also means bringing the best skill sets together regardless of disability, which
she states is ‘not cost prohibitive’ and that ‘the whole reason we’re so focused on diversity and inclusion
is because we want to reflect the community that we serve. If you look at the incidence of disability and
cultural diversity, having a diverse workplace means we can provide the best service to our customers’.
While targets to employ people with disability may be promoted by advocates such as Graeme Innes (Fed-
eral Dis­ability Discrimination Commissioner), Peter Wilson (Chairperson of the Australian Human Resources
Institute) contests that targets are just something to show progress in annual reports.31 Insights into more
meaningful recruitment strategies have shown that targeting the demographic characteristic (such as dis-
ability) is less successful than focusing efforts on deep‐level differences such as a person’s attitudes or
values.32

QUESTION
Why are leading Australian companies driving initiatives to enable employees with disability to thrive in the
workplace? What do you believe would be the challenges facing such organisations?

Job design alternatives

Job design is in many ways an exercise in ‘fit’. A good job design provides a good fit between the
individual worker and the task requirements. To explore this notion further, consider a short case.33
Datapoint Corporation manufactures a line of personal computers. Jackson White has just been
employed by Datapoint. He is a competent person who enjoys interpersonal relationships. He also likes
to feel helpful or stimulating to others. How do you think he will react to each of the following job
designs?
In Job 1, Jackson reports to a workstation on the computer assembly line. A partially assembled circuit
board passes in front of him on a conveyor belt every 90 seconds. He adds two pieces to each board and
lets the conveyor take the unit to the next workstation. Quality control is handled at a separate station
at the end of the line. Everyone gets a 10‐minute break in the morning and afternoon and a 30‐minute
lunch period. Jackson works by himself in a quiet setting.
In Job 2, Jackson works on the same assembly line. Now, however, a circuit board comes to his
station every 12 minutes, and he performs a greater number of tasks. He adds several pieces to the board,
adds a frame and installs several electric switches. Periodically, Jackson changes stations with one of

448  Management
the other workers and does a different set of tasks on earlier or later stages of the same circuit board. In
all other respects, the work setting is the same as in the first job described.
In Job 3, Jackson is part of a team responsible for completely assembling circuit boards for the com-
puters. The team has a weekly production quota but makes its own plans for the speed and arrange-
ment of the required assembly processes. The team is also responsible for inspecting the quality of the
finished boards and for correcting any defective units. These duties are shared among the members and
are discussed at team meetings. Jackson has been selected by the team as its factory liaison. In addition
to his other duties, he works with people elsewhere in the factory to resolve any production problems
and achieve factory‐wide quality objectives.
These three job design alternatives are identified in figure 16.2 as job simplification, job rotation and enlarge-
ment, and job enrichment, respectively. Each varies in how specialised the division of labour becomes — that
is, in how narrowly job tasks are defined. Although not every one of these designs may be a good choice to
maximise Jackson White’s performance and satisfaction, each has a role to play in the modern workplace.
Job simplification Job rotation and Job enrichment
enlargement

Job scope — number

narrow wide wide
and variety of tasks

Job depth — extent of

planning, controlling low low high
responsibility

Task specialisation —
high moderate low
division of labour

FIGURE 16.2 A continuum of job design alternatives

Job simplification
Job simplification involves standardising work procedures and employing people in well‐defined and
highly specialised tasks. This is an extension of the scientific management approach discussed in the chapter
on the ethical dimensions of management. Simplified jobs are narrow in job scope — that is, the number
and variety of different tasks a person performs. Jackson White’s first job on the assembly line was highly
simplified. He isn’t alone. Many employees around the world earn their living working at highly simplified
tasks. The most extreme form of job simplification is automation, or the total mechanisation of a job.
The logic of job simplification is straightforward. Because the jobs don’t require complex skills,
workers should be easier and quicker to train, less difficult to supervise and easy to replace if they leave.
Furthermore, because tasks are well defined, workers should become good at them while performing the
same work over and over again. Consider the case of the fast‐food sector. Of every dollar Australians
spend on food, 33 cents is spent on meals out and fast food — significant, if still behind the US average
of about 48 cents of every dollar. The fast‐food sector focuses on minimising costs to ensure maximum
efficiency. This occurs through a reliance on the principles of scientific management (see the chapter on
the historical foundations of management) to ensure that every job is as simple as efficiency demands
dictate. Jobs have been simplified to ensure that they can be filled by relatively low‐skilled workers
who are paid relatively low wages. Jobs in every McDonald’s outlet, for instance, must conform to the

CHAPTER 16 Individuals, job design and stress  449

requirements of station observation checklists (SOCs) that provide guidance on everything from the need
for hygiene to the presentation of customer orders.
Problems can arise in highly simplified jobs. Productivity can suffer as unhappy workers drive up
costs through absenteeism and turnover, and through poor performance caused by boredom and alien-
ation. Although simplified jobs appeal to some people, disadvantages can develop with the structured
and repetitive tasks. For example, in the Datapoint case, Jackson White’s social need is thwarted in
Job 1 because the assembly line prevents interaction with co‐workers. We would predict low satisfaction,
occasional tardiness and absenteeism, and boredom, which may cause a high error rate. White’s overall
performance could be just adequate enough to prevent him from being fired. This is hardly sufficient for
a computer maker trying to maintain a high‐performance edge in today’s competitive global economy.
Job rotation and job enlargement
One way to move beyond simplification in job design is to broaden the scope through job rotation —
increasing task variety by periodically shifting workers between jobs involving different task assign-
ments. Job rotation can be done on a regular schedule; it can also be done periodically or occasionally.
The latter approach is often used in training to broaden people’s understanding of jobs performed by
others. Another way to broaden scope is job enlargement, increasing task variety by combining two
or more tasks that were previously assigned to separate workers. Often these are tasks done immedi-
ately before or after the work performed in the original job. Figure 16.3 shows how such horizontal
loading — pulling pre‐work and/or later work stages into the job — can be used to enlarge jobs. In this
job design strategy the old job is permanently changed through the addition of new tasks.
Vertical loading
increases job depth

Pull down responsibilities

from above

To improve this job,

Horizontal loading
Pull pre-work in rearrange its task Pull later work in
increases job scope
elements

Push down or
automate routine tasks

FIGURE 16.3 How to improve job design by horizontal and vertical loading

Jackson White’s second job on the modified assembly line is an example of job enlargement with
occasional job rotation. Instead of doing only one task, he now does three. Also, he occasionally switches
jobs to work on a different part of the assembly. Because job enlargement and rotation can reduce some
of the monotony in otherwise simplified jobs, we would expect an increase in White’s satisfaction and
performance. Satisfaction should remain only moderate, however, because the job still does not respond
completely to his social needs. Although White’s work quality should increase as boredom is reduced,
some absenteeism is likely.
Job enrichment
Frederick Herzberg, whose two‐factor theory of motivation was discussed earlier in the text, questions
the true value of horizontally loading jobs through enlargement and rotation. ‘Why’, he asks, ‘should a
worker become motivated when one or more meaningless tasks are added to previously existing ones or
when work assignments are rotated among equally meaningless tasks?’ He says, ‘If you want people to

450  Management
do a good job, give them a good job to do’.34 He argues that this is best done through job enrichment,
the practice of building more opportunities for satisfaction into a job by expanding its content.
In contrast to job enlargement and rotation, job enrichment focuses not just on job scope but also on
job depth — that is, the extent to which task planning and evaluating duties are performed by the indi-
vidual worker rather than the supervisor. As depicted in figure 16.3, changes designed to increase job
depth are sometimes referred to as vertical loading. Herzberg’s recommendations for enriching jobs
through vertical loading are found in Manager’s notepad 16.1.35 There are some elements of job enrich-
ment in Job 3 in the Datapoint case. Jackson White works in a team responsible for task planning and
evaluation, as well as actual product assembly. The job provides opportunities to satisfy his social needs,
and allows for added challenge from acting as the team’s factory liaison. Higher performance and satis-
faction are the predicted results.

MANAGER’S NOTEPAD 16.1

Job enrichment checklist

• Check 1 Remove controls that limit people’s discretion in their work.
• Check 2 Grant people authority to make decisions about their work.
• Check 3 Make people understand their accountability for performance results.
• Check 4 Allow people to do ‘whole’ tasks or complete units of work.
• Check 5 Make performance feedback available to those doing the work.

Some companies are seeking to re‐enrich jobs that have long been progressively simplified.
Wollongong‐based industrial company Thomas & Coffey recognises the need to retain good staff for as
long as possible and pursues several strategies to enrich jobs. Apprentices, for instance, are made aware
of future opportunities to assume supervisory and management roles at the company, and are given the
skills and training to progressively evolve beyond their core trade responsibilities. Many complete intro-
ductory management training courses during the period of their apprenticeship.36

CRITICAL ANALYSIS

1. How can organisational leaders ensure that the fit between individuals and jobs is optimised?
2. While it may offer speed and efficiency, job simplification only seems to be a recipe for mindless
repetition, boredom and routine. If this is true, shouldn’t we forget about job simplification all
together as job design strategy?

16.3 Directions in job enrichment

LEARNING OBJECTIVE 16.3 How can jobs be enriched?
Job enrichment is an important strategy, with the potential to improve individual performance and satis-
faction in the new workplace. But modern management theory takes job enrichment a step beyond the
suggestions of Frederick Herzberg. Most importantly, it adopts a contingency perspective and recognises
that job enrichment may not be best for everyone. Among the directions in job design, the core charac-
teristics model developed by J. Richard Hackman and his associates offers a way for managers to create
jobs, enriched or otherwise, that best fit the needs of people and organisations.37

Core characteristics model

The model described in figure 16.4 offers a diagnostic approach to job enrichment. Five core job charac-
teristics are identified as task attributes of special importance. A job that is high in the core character-
istics is considered enriched; the lower a job scores on the core characteristics, the less enriched it is.

CHAPTER 16 Individuals, job design and stress  451

 Core job Critical Individual work
characteristics psychological states outcomes

Skill variety Experienced High intrinsic work

Task identity meaningfulness of motivation
Task significance the work
High-quality work
performance

Experienced
Autonomy High satisfaction with
responsibility for
the work
outcomes of the work

Low absenteeism and

Knowledge of turnover
Feedback actual results of the
work

Moderators

Growth-need strength
Knowledge and skill
‘Context’ satisfactions

FIGURE 16.4 Core job characteristics and individual work outcomes

Source: Adapted from J. Richard Hackman and Greg R. Oldham, Work Redesign (Reading, MA: Addison‐Wesley, 1980), p. 90.

There are five core job characteristics:

1. skill variety — the degree to which a job requires a variety of different activities to carry out the work
and involves the use of a number of different skills and talents of the individual
2. task identity — the degree to which the job requires completion of a ‘whole’ and identifiable piece of
work; that is, one that involves doing a job from beginning to end with a visible outcome
3. task significance — the degree to which the job has a substantial impact on the lives or work of other
people elsewhere in the organisation or in the external environment
4. autonomy — the degree to which the job gives the individual substantial freedom, independence and
discretion in scheduling the work and in determining the procedures to be used in carrying it out
5. feedback from the job itself — the degree to which carrying out the work activities required by the job
results in the individual obtaining direct and clear information on the results of his or her performance.
According to figure 16.4, this model of job design views job satisfaction and performance as being
influenced by three critical psychological states of the individual: experienced meaningfulness of the
work, experienced responsibility for the outcomes of the work, and knowledge of actual results of work
activities. These psychological states, in turn, are influenced by the presence or absence of the five
core job characteristics. In true contingency fashion, however, the core characteristics will not affect
all people in the same way. Generally speaking, people who respond most favourably to enriched jobs
will have strong higher order needs and appropriate job knowledge and skills. They will also be other-
wise satisfied with job context. One of the key contingency or moderator variables in the model is
growth‐need strength, described in Alderfer’s ERG theory as the degree to which an individual seeks
psychological growth in his or her work. The expectation is that people with strong growth needs will
respond most positively to enriched jobs.

452  Management
 When job enrichment is a good job design choice, Hackman and his colleagues recommend five
ways to improve the core characteristics. First, you can form natural units of work. Make sure that
the tasks people perform are logically related to one another and provide a clear and meaningful task
identity. Second, try to combine tasks. Expand job responsibilities by pulling together into one larger job
a number of smaller tasks previously done by others. Third, establish client relationships. Put people in
contact with others who, as clients inside and/or outside the organisation, use the results of their work.
Fourth, open feedback channels. Provide opportunities for people to receive performance feedback as
they work and to learn how performance changes over time. Fifth, practise vertical loading. Give people
more control over their work by increasing their authority to perform the planning and controlling pre-
viously done by supervisors.

ETHICS

Helping business identify mental stressors

Between 2004 and 2014 psychological dis-
orders associated with workplace environ-
ments accounted for 95 per cent of all mental
disorders. Not only are psychological disorders
recognised as a form of mental illness by the
Australian worker’s compensation laws but due
to the long layoff times experienced by workers
suffering from workplace stress, they are also
expensive to businesses and the broader
Australian economy.38
In 2012, Safe Work Australia joined the
People at Work Project, who provide a free
psychosocial risk assessment process for businesses. The assessment identifies workplace features
that affect workers health and wellbeing, with an emphasis placed on risks to psychological health.
Funded by the Australian Research Council and partner organisations, People at Work is a research
collaboration between the Queensland University of Technology, Australian National University, Work-
place Health and Safety Queensland, WorkSafe Victoria, Comcare, WorkCover New South Wales
and Beyondblue. The aim of People at Work is to provide ‘a nationally consistency non‐commercial
psychosocial risk assessment tool and associated procedures’. More broadly the organisation pro-
vides a national database across states, sectors, industries, occupations and employment status,
conducts an analysis of Australian trends in psychosocial risk factors, researches ways to reduce
stress factors created in relationships between supervisors and employees and looks to identify and
manage psychosocial health risks. The outcome of the project has been to significantly reduce con-
flict and stress in the workplace. So far, in the early phase of the project the most important findings
have been the cognitive overload felt by employees and the poor level of engagement concerning
organisational change.39
In 2014 People at Work published a case study demonstrating how these issues manifest within the
corporate division of an Australian public agency. Across the geographically broadly spread organ-
isation, workplace absenteeism and high turnover had become problematic, as has work‐related
injuries due to high demands and low resources. In response the organisation adopted the People
at Work assessment tool, which included completing the People at Work survey, consulting on out-
comes, taking action and undertaking a full review. The results were published on the staff intranet
and embedded in the human resource systems to ensure the ongoing monitoring of psychological
issues in the workplace.40

QUESTION
Why would managers benefit from identifying mental stressors in their workplace? Would the People at
Work approach work in a workplace environment you have experienced?

CHAPTER 16 Individuals, job design and stress  453

Technology and job enrichment
An important issue of job enrichment involves the impact of technology on job design.41 The managerial
challenge is quite clear: job design should proceed with the goal of increasing productivity through inte-
grated sociotechnical systems. These are job designs that use technology to best advantage while still
treating people with respect and allowing their human talents to be applied to their fullest potential.42
The continuing inroads made by computers into the workplace are changing structures, workflows and
the mix of skills needed in many settings. Consider the special case of robotics — the use of computer‐
controlled machines to completely automate work tasks previously performed by hand. Such automation
of work is the most extreme form of job simplification and has both its limits and critics. On the positive
side, technology offers an opportunity to take over many routine tasks previously assigned to individuals
and thereby frees human talents for more enriched job assignments. In this and other ways, technology
use and job enrichment can be complementary strategies.

Questions and answers on job enrichment

Is it expensive to implement job enrichment? Job enrichment can be costly. The cost grows as the
required changes in technology, workflow and other facilities become more complex.
Will people demand more pay for doing enriched jobs? Herzberg believes that if people are being paid
truly competitive wages (i.e. if pay dissatisfaction does not already exist), the satisfactions of performing
enriched tasks will be adequate compensation for the increased work involved. But a manager must be
cautious on this issue. Any job‐enrichment program should be approached with recognition that pay may
be an issue for the people involved.43
Should everyone’s job be enriched? No, contingency counts. The people most likely to respond
favourably to job enrichment are those seeking higher order or growth‐need satisfactions at work and
who have the levels of training, education and ability required to perform the enriched job.

CRITICAL ANALYSIS

1. Since job enrichment can be expensive to implement, why is it used?

2. The core characteristics model appears theoretically sound, but how might it be implemented in
practice? Nominate a job and provide suggestions as to how each of the core job characteristics
could be enhanced so that the job becomes enriched.

16.4 Alternative work arrangements

LEARNING OBJECTIVE 16.4 What are alternative work arrangements?
Not only is the content of jobs changing for people in today’s workplace, the context is
changing too. Among the more significant developments is the emergence of a number of alternative
ways for people to schedule their work time. This is especially important as employers deal with
work–life balance issues affecting today’s highly diverse workforce. Many are finding that alternative
work schedules can help attract and retain the best workers. It is popular in this sense to talk about
a new and more ‘flexible’ workplace in which alternative work schedules such as the compressed
work week, flexible working hours, job sharing, telecommuting and part‐time work are increasingly
common.
There seems to be a growing imbalance in work values for which alternative work arrangements pro-
vides an increasingly popular response. John Buchanan of the University of Sydney has found that more
than 30 per cent of full‐time workers say they would like to work fewer hours, while many part‐time
workers would prefer longer hours.44

454  Management
The compressed work week
A compressed work week is any work schedule that allows a full‐time job to be completed in less
than the standard five days of seven‐ to eight‐hour shifts. A common form is the ‘4–40’, that is, accom-
plishing 40 hours of work in four 10‐hour days. One advantage of the 4–40 schedule is that the employee
receives three consecutive days off from work each week. This benefits the individual through more
leisure time and lower commuting costs. The organisation should also benefit through lower absenteeism
and any improved performance that may result. Potential disadvantages include increased fatigue and
family adjustment problems for the individual, and increased scheduling problems, possible customer
complaints and union objections for the organisation.
In the Australian minerals and mining sector, many workers operate under a fly‐in/fly‐out system,
which involves flying into the mines for an intense period of work before flying out for rest and to spend
time with their families. The most common pattern is for workers to fly into a site and work 12‐hour
shifts on 14 consecutive days, then return home for a 7‐day break before beginning the cycle again. The
shifts during the 14 days of work are generally split between 7 days of day shift and 7 days of night
shift. Though the work is paid well and many employees view this kind of remote work as a challenge,
studies indicate that there is a high divorce rate among workers and there are often difficulties in main-
taining relationships in such conditions.45

Flexible working hours

The term flexible working hours, also called flexitime or flextime, describes any work schedule that gives
employees some choice in the pattern of their daily work hours. A sample flexible working schedule
offers choices of starting and ending times, such as the program depicted in figure 16.5. Employees in
this example work four hours of ‘core’ time, or the time they must be present at work. In this case, core
time falls between 9 and 11 am and 1 and 3 pm. They are then free to choose another four work hours
from ‘flexitime’ blocks. Such flexible schedules give employees greater autonomy while ensuring that
they maintain work responsibility. Early risers may choose to come in earlier and leave earlier, while
still completing an 8‐hour day; late sleepers may choose to start later in the morning and leave later.
In between these extremes are opportunities to attend to personal affairs, such as dental appointments,
home emergencies, visits to children’s schools and so on.

Flexitime Core time* Flexitime Core time* Flexitime

6 am 9 am 11 am 1 pm 3 pm 6 pm

Sample schedules
Early schedule 6:30−3:00
Standard schedule 8:00−4:30
Late schedule 9:00−5:30
*Everyone must work during core time.

FIGURE 16.5 A sample flexible working hours schedule

A 2014 Galaxy survey has shown that Australian employers are not taking flexible work arrange-
ments seriously. Even though 72 per cent of the Australians surveyed said they would like more flexible
working arrangements, only 44 per cent of employees currently have flexible arrangements. In addition,
employees recognised the opportunity to work the saved commute times, an average of 51.4 minutes a
day, while 73 per cent of older employees suggested they would stay in the workplace longer if offered

CHAPTER 16 Individuals, job design and stress  455

more flexible working arrangements. Lindsay Brown, Regional Director Mobility Apps for Citrix (the
company who commissioned the study) says ‘The harsh reality is the majority of organisations do not
trust their employees to be as productive at home as they do in the office, even though the economic
and social benefits offer a compelling argument that we can no longer ignore’. This is even though, as
Mr Brown claims, flexible work arrangements have the potential to add an extra 2.1 million work years
to the national productivity resource — equalling $134.8 billion, or 1.3 per cent of Australian GDP.46
The advantages of flexible working hours are especially important to members of a diverse workforce.
By offering flexibility, organisations can attract and hold employees with special non‐work responsi-
bilities. The work schedule is important to many dual‐career couples, who face the complications of
managing careers and other responsibilities, including parenting. Single parents with young children and
employees with aged‐care responsibilities also find it very attractive to have the option of adjusting work
schedules to allow for other obligations to be met. The added discretion that flexitime provides may also
encourage workers to have more positive attitudes towards the organisation.

Job sharing
Another important development for today’s workforce is job sharing, whereby one full‐time job is split
between two or more persons. Job sharing often involves each person working half of the day, but it can
also be done on weekly or monthly sharing arrangements. When it is feasible for jobs to be split and
shared, organisations can benefit by employing talented people who would otherwise be unable to work.
The qualified specialist who is also a parent may be unable to stay away from home for a full workday
but may be able to work half a day. Job sharing allows two such people to be employed as one. Although
there are sometimes adjustment problems, the arrangement can be good for all concerned.
During this period of challenging conditions for businesses, many organisations have developed job‐
sharing strategies as a means of avoiding downsizing via the reduction of workforce numbers. Holden,
Toyota and Ford introduced three‐ and four‐day working weeks at their Australian plants in order to
cut costs, while maintaining morale. At accounting firm PricewaterhouseCoopers, 5000 employees were
asked to take 10 to 15 days of unpaid leave in an effort to achieve a similar outcome.47
Job sharing is sometimes viewed sceptically by those who don’t believe two workers can perform a
shared job as productively as one person alone. However, when such concerns were investigated at Lotus
Development Corporation early in the life of its job‐sharing program, the results turned out to be just the
opposite. When performance was studied, none of the initial nine teams of job sharers had to apologise
to anybody. They were among the top performers in annual merit pay appraisals.48
Job sharing should not be confused with a more controversial concept called work‐sharing. This involves
an agreement between employees who face lay‐offs or terminations to cut back their work hours so they can
all keep their jobs. Instead of losing 20 per cent of a firm’s workforce to temporary lay‐offs in an unexpected
business downturn, for example, a work‐sharing program cuts everyone’s hours by 20 per cent to keep them
all employed. This allows employers to retain trained and loyal workers even when forced to temporarily
economise by reducing labour costs. For employees whose seniority might otherwise protect them from lay‐
off, the disadvantage is lost earnings. For those who would otherwise be terminated, however, it provides
continued work — albeit with reduced earnings — and with a preferred employer. A survey of 500 Australian
businesses found that many were creatively dealing with the challenge of remaining profitable during the
‘global financial crisis induced’ economic downturn. More than 40 per cent had frozen salaries and bonuses,
17 per cent had reduced the remuneration of senior executives, 14 per cent had cut salaries and bonuses and
14 per cent had established work‐sharing/job‐sharing opportunities.49

Telecommuting
Another significant development in work scheduling is the growing popularity of a variety of
ways for people to work away from a fixed office location. This includes alternatives ranging from
self‐employment and entrepreneurship based at home, to using the latest in computer and information

456  Management
technology to maintain a ‘virtual’ office that travels from point to point with you. Telecommuting is a
work arrangement that allows at least some scheduled work hours to be completed outside of the office,
with work‐from‐home one of the options. Often this is facilitated by computer links to clients or cus-
tomers and a central office.
Telecommuting frees the jobholder from the normal constraints of commuting, fixed hours, special
work attire and even direct contact with supervisors. It is popular, for example, among computer pro-
grammers and is found increasingly in such diverse areas as marketing, financial analysis and adminis-
trative support. New terms are becoming associated with telecommuting practices. We speak of hotelling
when telecommuters come to the central office and use temporary office facilities; we are immersed in a
world of telemarketing where customers are contacted and orders taken by service personnel working in
diverse locations; and we often refer to virtual offices that include everything from an office at home to
mobile workspace in cars and trucks.
Overall, there is no doubt that telecommuting is with us to stay as an important aspect of the
continually developing workplace.50 Along with it, predictably, come potential advantages and dis-
advantages from a job design and management perspective. When asked what they like about these
alternatives, telecommuters tend to report increased productivity, fewer distractions, the freedom to
be their own boss and the benefit of having more time for themselves. On the negative side, they cite
working too much, having less time to themselves, difficulty separating work and personal life, and
having less time for family.51 Other considerations for the individual include feelings of isolation
and loss of visibility for promotion. Managers, in turn, may be required to change their routines
and procedures to accommodate the challenges of supervising people from a distance. Such prob-
lems tend to be magnified in situations where employees feel forced into these work arrangements
rather than opting for them voluntarily.52 One telecommuter’s advice to others is ‘You have to have
self‐discipline and pride in what you do, but you also have to have a boss that trusts you enough to
get out of the way’.53 Manager’s notepad 16.2 offers several guidelines for how to make telecom-
muting work for you.54

MANAGER’S NOTEPAD 16.2

How to make telecommuting work for you

• Treat telecommuting like any work day; keep regular hours.
• Limit non‐work distractions; set up a private space dedicated to work.
• Establish positive routines and work habits; be disciplined.
• Report regularly to your boss and main office; don’t lose touch.
• Seek out human contact; don’t become isolated.
• Use technology: instant messaging, intranet links, net meetings.
• Keep your freedoms and responsibilities in balance.
• Reward yourself with time off; let flexibility be an advantage.

A study of 79 telecommuters employed by large Australian organisations provides some inter-

esting findings about the positive benefits and negative effects of telecommuting. In terms of the
job characteristics model introduced earlier in this chapter, although the majority of those surveyed
reported that they had some autonomy and flexibility in terms of their work schedule, only half of
the employees thought that they had control of their workload, discretion in how they performed
their work, and the ability to predict what they would be required to do from day to day. They
generally believed their work to be significant, and viewed it as requiring skill, creativity, attention
and awareness. Those surveyed also thought that they received appropriate feedback and reward for
their efforts. Whereas most were comfortable with their working relationships, some felt psychologi-
cally isolated from their organisation and work colleagues. Work overload was a commonly identified
problem for the telecommuters, resulting in difficulty in taking advantage of one of the key perceived

CHAPTER 16 Individuals, job design and stress  457

benefits of telecommuting — achieving a balance between work and family responsibilities. In
addition, many of the survey’s respondents thought that telecommuting could impact negatively on
their future career development. The study concluded that although there are potential benefits of
telecommuting, including flexibility and variety, the problems noted by some telecommuters such
as overload, inappropriate supervision and poor work–family balance, indicate that telecommuting
‘cannot be seen as the ideal work form for all’.55
A study conducted in New Zealand found broadly similar results.56 Interestingly, non‐telecommuting
staff were significantly more positive about the potential benefits of telecommuting than telecommuters.
For instance, 75 per cent of non‐telecommuters thought that telecommuting would improve their ability
to balance work and family commitments; however, only 56 per cent of telecommuters were positive
about telecommuting’s ability to achieve this balance. Among the recommendations of the study are that
those companies serious about integrating telecommuting should establish a formal work – personal life
balance policy, undertake regular staff satisfaction surveys and implement training courses to help staff
maximise the potential benefits of telecommuting.
Jenne Tzavaras is one person who can vouch for the benefits of telecommuting. Working from an
office in Colombo, Sri Lanka, she continues to serve law firm DLA Phillips Fox in her role as a partner
heading the company’s insurance and risk‐management group. Tzavaras moves location as her husband’s
role with a multinational corporation changes, and returns to her Sydney office for a week every two
months to maintain physical contact with her clients and colleagues.57

Part‐time and casual work

The growing use of part‐time and casual workers is another striking employment trend. The number of
casual workers has doubled over the last two decades, as organisations have pursued more flexible work-
forces in the face of increasingly complex and dynamic business environments. In 2013, over 2 million
of Australia’s workers were employed on a casual basis. Female casual workers represented 26.7 per
cent and male casual workers 21.2 per cent of the total Australian workforce. Most notably, 39 per cent
of all casual workers were found to be under 25 years of age.58 Many casual and part‐time employees
would like to work additional hours.
Part‐time work is permanent employment where the work is done on a schedule less than the stan-
dard working week and does not qualify the individual as a full‐time employee. Employees holding part‐
time positions have a continuing agreement of employment and are generally entitled to a proportion of
salary and benefits consistent with the number of hours worked.59
Casual work is a type of part‐time employment where there is no agreement or promise of ongoing
employment or availability to work. Casual employees are often employed during peak times when an
organisation’s workload is too high for its permanent workforce, or they may be hired during periods
when permanent employees are ill or unavailable. Casual workers may work full‐time hours during a
particular period; however, most will work less than this, with availability of one to three days per week
being common. Casual employees usually receive a salary loading in lieu of other benefits such as paid
holidays and paid sick days.60 Some employers use casual workers on a long‐term basis to supplement
the permanent workforce.
Casual work has increased in importance in recent years, with more than half of all new jobs created
in Australia since 1988 being casual roles. Many casual employees have uncertainty about how much
they will earn from one week to the next, and around one‐third of all casuals indicate that they would
like to work longer hours.61
A number of industries rely heavily on part‐time and casual workers. Retail outlets such as Kmart
employ an army of casual employees during the busy Christmas period as well as for stocktakes and
sales, and during these times some of the casual workers might work full‐time hours. Up to 90 per cent
of workers in the fast‐food sector are employed on a part‐time or casual basis. This enables store man-
agers to adjust labour costs according to demand (i.e. to have many workers on during the peak lunch

458  Management
and dinner periods, but not during the quiet periods in between).62 It is possible to hire on a part‐time or
casual basis everything from executive support, such as a chief financial officer, to such special expertise
as engineering, computer programming and market research.
Because casual workers can be easily hired and/or terminated and their hours can be adjusted in res-
ponse to changing needs, many employers like the flexibility to control costs and deal with cyclical
demand. On the other hand, some employers worry that casual workers lack the commitment of perma-
nent workers and may lower productivity. Perhaps the most controversial issue of the casualisation of the
workforce relates to the different treatment that casual workers may receive from employers. They may
miss out on important benefits available to permanent staff and may also miss out on some of the social
aspects of work. Of course, casual workers also lack security and stability of income. There is no doubt
that many casual and part‐time workers would like to achieve full‐time status with their employers. On
the other hand, some full‐time workers would prefer to work fewer hours.
In a study undertaken by the Productivity Commission, around one‐third of male part‐time workers
and a quarter of female part‐time workers stated that they would prefer to work additional hours over
and above their current workloads. Women re‐entering the workforce and retirees aged over 60 have
entered the part‐time workforce in significant numbers in recent years, thus assuming work that may
have previously gone to those looking to add to their existing hours of work.63

SOCIAL RESPONSIBILIT Y

Work–life balance in Australia

A University of London study focusing on
Irish high‐tech companies has found that the
development of flexible work arrangements
may significantly contribute to innovation and
creativity in the IT sector. Nearly a quarter
of all employees were women whose family
responsibilities conflicted with the difficult
demands of the IT sector being global such
as working across time‐zones, weekends and
keeping abreast of rapid technological change.
This caused women in particular to miss out on
children’s activities, leisure time and hobbies, to
have interrupted sleeping patterns, to suffer the
effects of stress and exhaustion on personal
relationships, to work when feeling unwell and experience reduced quality of life. The biggest impact on
women’s work–life balance were long commute times, so it is not surprising that the study found that
reducing working weeks and allowing working from home provided a positive effect on innovation and
creativity, and reduced stress and conflict between colleagues.64
Although work–life balance has been shown to reduce stress and conflict and promote innovation
and creativity, Australia is only ranked 29 of 35 leading countries, according to the OECD Better
Life Index and people work significantly longer hours (1693 hours per year) than the OECD average
(1176 hours per year). Nevertheless, Australians still feel that they have a good quality of life and are
‘more satisfied with their lives than the OECD average, with 84 per cent of people saying they have
more positive experiences in an average day (feelings of rest, pride in accomplishment, enjoyment,
etc) than negative ones (pain, worry, sadness, boredom, etc.). This figure is higher than the OECD
average of 80 per cent’.65

QUESTION
Would more flexible working arrangements (as discussed in the Irish study) benefit Australian
organisations? Why do Australians feel more satisfied with their lives than the OECD average even though
they work longer hours than many other countries?

CHAPTER 16 Individuals, job design and stress  459

16.5 Job stress
LEARNING OBJECTIVE 16.5 How can job and workplace stress be managed?
Flexibility in work scheduling can go a long way towards helping with the pressures and tensions of
achieving a satisfactory work–life balance. However, it is also necessary to recognise and consider an
important fact of working life. The jobs that people are asked to perform, and the relationships and
circumstances under which they have to do them, are often causes of significant stress. Formally defined,
stress is a state of tension experienced by individuals facing extraordinary demands, constraints or
opportunities.66 Any look towards your future work career would be incomplete without considering
stress as a challenge that you are sure to encounter along the way — and a challenge that you must be
prepared to help others learn to deal with.
With the ever present and ever changing demands of working in the contemporary economy,
it is not surprising that people are experiencing more stress in their daily lives. In his book The
Future of Success, for example, Robert Reich says that even though there is much to cel-
ebrate in modern working life, its ‘rewards are coming at the price of lives that are more fren-
zied, less secure, more economically divergent, more socially stratified’.67 At centre stage in this
milieu stands job stress and its implications for the managerial role. Consider this statement by a
psychologist working with top‐level managers who have alcohol abuse problems: ‘All executives
deal with stress. They wouldn’t be executives if they didn’t. Some handle it well, others handle it
poorly’.68
There are high costs associated with handling stress poorly. A report completed by the Inspire
Foundation and Ernst & Young estimates that mental illness in males aged under 25 costs the
Australian economy $3.27 billion a year. In addition, the National Survey of Mental Health and Well-
being found that over 45 per cent of all Australians experience some form of mental illness at least
once during their lives.69 Researchers from Queen’s University in Northern Ireland studied 142 cases
of suicide among young men, and concluded that 45  per cent of the cases could be classified as
‘executive stress’, where the men were affected by severe workplace stress for which they had not
sought medical help.70
Consistent with this finding, more than half of managers surveyed in Australia and the
United Kingdom indicated that their long working hours impacted negatively on their health
and wellbeing. In addition to the physical symptoms of irritability, sleep loss and heartburn,
45 per cent of all the respondents stated that their overwork actually contributed to lower levels
of productivity.71 In fact, over 20 per cent of Australian workers are reported to work more than
50 hours a week.72
Figure 16.6 presents a model of stress that indicates its major sources or causes and its consequences.

Sources of stress
The things that cause stress are called stressors. Whether they originate directly in the work setting or in
personal and non‐work situations, they all have the potential to influence one’s work attitudes, behaviour
and job performance.
Work factors have an obvious potential to create job stress. Today, we often experience such stress
in long hours of work, excessive emails, unrealistic work deadlines, difficult bosses or co‐workers,
and unwelcome or unfamiliar work. It is associated with excessively high or low task demands,
role conflicts or ambiguities, poor interpersonal relations, or career progress that is too slow or too
fast. As noted elsewhere in this chapter, a great deal of stress can arise when there is a mismatch
between people and their jobs and work environment. An introvert working in a job where outgoing,
extroverted behaviour is required may quickly find the job to be highly stressful. Similarly, a work
environment characterised by low morale and job insecurity could rapidly ‘infect’ employees who
may otherwise be high performers.73

460  Management
 Work factors
● Task demands
● Role dynamics
● Interpersonal relationships
● Career progress

Non-work factors Individual factors

● Family ● Needs
Job stress
● Economics ● Capabilities
● Personal affairs ● Personality

Potential consequences
For the individual — For the organisation —
behavioural, decreased performance, morale
psychological and and motivation; increased turnover
medical problems and absenteeism

FIGURE 16.6 Potential consequences of work, non‐work and personal stressors for individuals and
organisations

A study undertaken by researchers at Macquarie University found that ‘my future career’ was first
among the top five everyday concerns of Australians of all ages, genders and backgrounds. Commentator
Richard Denniss made note of the overwhelming focus on work and careers among those aged between
28 and 35 in the study. He suggested that the pressures are two‐fold — employees are worried about
their job security, and the lengths they have to go to get ahead.

People feel anxious that other people appear to be working longer and harder than them, because at
11 pm their colleague will send out an email copying in everyone in the office so that everyone knows
they are still working late at night.74

Where and when work is performed can be significant work‐related contributors to stress. For instance,
over half of the mining industry employees in Western Australia work on ‘fly‐in fly‐out’ rosters in which
they travel to their remote workplace for periods of seven days to a month (or more) before returning
home for a break and then doing it all over again. Some employees are ‘on call’ and only contacted
when work is available for them. One oil driller on $150  000 a year sat at home for six months of a
one‐year period while waiting for the message that he was needed on‐site. The Perth‐based wife of one
miner, Nicole Ashby, told a parliamentary inquiry about the impacts of fly‐in fly‐out employment that
‘it’s hard to explain to a two‐year‐old that dad’s at work, he’s on an oil rig, and he’s not coming back for
four weeks’.75 It’s not only the friends and family left behind who pay the costs of fly‐in fly‐out rosters.
The employees themselves live in ‘manufactured’ communities when not on the job, lack opportunities
to relax and recreate, and may not integrate into the local community, even when stationed near substan-
tial country towns.76
Stress tends to be high during periods of work overload, when office politics are common, and among
persons working for organisations undergoing staff cutbacks and downsizing. This latter situation and
lack of ‘corporate loyalty’ to the employee can be especially stressful to employees who view them-
selves as ‘career’ employees and who are close to retirement age. Two of the common work‐related
stress syndromes are (1) set up to fail, where the performance expectations are impossible or the support

CHAPTER 16 Individuals, job design and stress  461

is totally inadequate for the task, and (2) mistaken identity, where the individual ends up in a job that
doesn’t match talents or that he or she simply doesn’t like.77
Various personal factors are also sources of potential stress for people at work. Such individual
characteristics as needs, capabilities and personality can influence how one perceives and responds to
the work situation. Researchers identify a Type A personality that is high in achievement orientation,
impatience and perfectionism. Type A people are likely to create stress in circumstances that others find
relatively stress‐free. In this sense, Type A people bring stress on themselves. The stressful behaviour
patterns of Type A personalities include the following:78
•• always moving, walking and eating rapidly
•• impatient, hurrying others, disliking waiting
•• doing, or trying to do, several things at once
•• feeling guilty when relaxing
•• trying to schedule more in less time
•• using nervous gestures such as a clenched fist
•• hurrying or interrupting the speech of others.
Finally, stress from non‐work factors can have spillover effects that affect the individual at work.
Stressful life situations including such things as family events (e.g. the birth of a new child), economics
(e.g. a sudden loss of extra income) and personal affairs (e.g. a preoccupation with a bad relationship)
are often sources of emotional strain. Depending on the individual and his or her ability to deal with
them, preoccupation with such situations can affect people’s work and add to the stress of work–life
conflicts.

Consequences of stress
The discussion of stress so far may give the impression that it always acts as a negative influence on our
lives. Stress actually has two faces — one constructive and one destructive.79 The relationship between
these types of stress and performance is shown in figure 16.7. The model demonstrates that, up to a
point, moderate levels of stress can be healthy as they move us towards performing at our best. Above
these levels, however, stress can become a destructive force in our lives.

Constructive stress Destructive stress

High

Zone of constructive
stress (i.e. performance
gains from enhanced
effort, creativity and
Individual diligence)
performance
Zone of destructive
stress (i.e. performance
losses from absenteeism,
Low

turnover, withdrawal,
errors and accidents)
Low Moderate High
Stress intensity

FIGURE 16.7 How stress intensity affects individual performance

Consider the analogy of a violin.80 When a violin string is too loose, the sound produced by even
the most skilled player is weak and raspy. When the string is too tight, the sound gets shrill and the
string might even snap. However, when the tension on the string is just right — neither too loose
nor too tight — beautiful sound is created. With just enough stress, in other words, performance is
optimised.

462  Management
 The same argument tends to hold in the workplace. Constructive stress acts in a positive way for
the individual and/or the organisation. It occurs in moderation and proves energising and performance
enhancing.81 The stress is sufficient to encourage increased effort, stimulate creativity and enhance dili-
gence in a person’s work, while not overwhelming the individual and causing negative outcomes. Indi-
viduals with a Type A personality, for example, are likely to work long hours and to be less satisfied with
poor performance. For them, challenging task demands imposed by a supervisor may elicit higher levels
of task accomplishment. Even non‐work stressors such as new family responsibilities may cause them to
work harder in expectation of greater financial rewards.
Just like tuning the violin string, however, achieving the right balance of stress for each person and
situation is difficult. The question is: When is a little stress too much stress? Destructive stress is dys-
functional for the individual and/or the organisation. It occurs as intense or long‐term stress that, as
shown in figure 16.8, overloads and breaks  down a person’s physical and mental systems. Destructive
stress can lead to job burnout — a form of physical and mental exhaustion that can be incapacitating
both personally and with respect to one’s work. Productivity can suffer as people react to very intense
stress through turnover, absenteeism, errors, accidents, dissatisfaction and reduced performance. Today
as well, there is increased concern for another job consequence of excessive stress, workplace rage —
overtly aggressive behaviour towards co‐workers and the work setting in general. Lost tempers are a
common example — the unfortunate extremes are tragedies involving physical harm to others.82 Depres-
sion may also result from the impacts of destructive stress. A study undertaken by the University  of
Melbourne estimated that stressful jobs were the primary cause of depression among 21  000 employees
in Victoria.83 This may understate the true reality of depression, since,  whatever its causes, estimates
of up to six million lost working days per year make its prevalence more like an epidemic than a mere
disruption to organisational performance.84

Exhaustion and Possible effects

burnout ● Lower performance
Intense Lack of energy
● ● Lower satisfaction
or long-term Emotional distress
● ● Workplace rage
stress Bad attitude
● ● Personal problems
● Poor self-esteem ● Poor health

FIGURE 16.8 Potential negative consequences of a destructive job stress–burnout cycle

Medical research is also concerned that too much stress can reduce resistance to disease and increase
the likelihood of physical and/or mental illness. It may contribute to health problems such as hyperten-
sion, ulcers, substance abuse, overeating, depression and muscle aches, among others.85 Also important
to understand is that excessive work stress can have spillover effects on someone’s personal life. A study
of dual‐career couples found that one partner’s work experiences can have psychological consequences
for the other — as one person’s work stress increases, the partner is likely to experience stress, too.86
The bottom line here is that any stress we experience at work is contagious — it can affect our family
and friends.

CHAPTER 16 Individuals, job design and stress  463

Stress management strategies
There are at least four reasons managers should also be skilled at dealing with workplace stress.87 The
first is humanitarianism. To the extent that managerial awareness and action can enhance employee
health, managers have a humanitarian responsibility to do so. The fact that very few managers seem
capable of such humanitarian behaviour is a real cause for concern. According to a recent Australian
survey, almost one in every four employees who categorised their manager as a poor performer said that
they took sick days when  they weren’t sick at all purely because they hated their boss!88 The second
is productivity. Healthy employees are absent less often, make fewer errors and must be replaced less
frequently than less healthy ones. The third is creativity. People in poor health tend to be less creative
and are less likely to take reasonable risks than their healthy counterparts. The fourth is return on invest-
ment. When poor health reduces or removes the individual’s contribution to the organisation, return on
the time and money invested in human resources is lost.
Managers should be alert to signs of excessive stress in themselves and the people with whom they
work. The multiple and varied symptoms of excessive stress include changes in work attitudes and
performance as well as personal restlessness, irritability and stomach upsets. The best stress manage-
ment alternative is to prevent it from reaching excessive levels in the first place. Stressors emerging
from personal and non‐work factors must be recognised so that action can be taken to prevent them
from adversely affecting the work experience. Family difficulties may be relieved by a change of work
schedule, or the anxiety they cause may be reduced by an understanding supervisor.
Among the work factors with the greatest potential to cause excessive stress are role ambiguities,
conflicts and overloads. Role clarification through a management by objectives (MBO) approach can
work to good advantage here. By bringing the supervisor and subordinate together in face‐to‐face task‐
oriented communications, MBO offers an opportunity to spot stressors and take action to reduce or
eliminate them. Another issue is often a poor fit between individual abilities and aspirations and job
demands. In this case job redesign may be helpful to better configure task requirements. Alternatively,
changing jobs altogether can help achieve the desired person–job fit. People can also be encouraged to
maintain adequate self‐awareness and take a realistic approach to their responsibilities.
Sometimes others need help to combat the tendency of ‘working too much’. They need to be reminded
not to forgo holidays, or not to work excessive overtime, for example. Many organisations provide
special help in the form of employee assistance programs. These programs help employees deal with
special problems that may be adding excessive stress to their lives, such as personal financial problems,
difficulties with childcare or aged care, substance abuse and so on. In organisations undergoing down-
sizing, lay‐offs or cutbacks, it is important to understand the survivor syndrome — stress experienced by
people who remain but fear for their jobs in the future. As more organisations experience this phenom-
enon, they are responding with programs to help those employees who remain employed to cope better
after major staff cutbacks have occurred.
Personal wellness is a term used to describe the pursuit of one’s physical and mental potential
through a personal health promotion program.89 This form of preventive stress management recognises
the individual’s responsibility for enhancing his or her personal health through a disciplined approach to
such things as smoking, alcohol use, maintaining a nutritious diet, and engaging in a regular exercise and
physical fitness program. The essence of personal wellness is a lifestyle that reflects a true commitment
to health.
Personal wellness makes a great deal of sense as a personal stress‐management strategy. Those who
aggressively maintain their personal wellness are better prepared to deal with the inevitable stresses of
work and work–life conflicts. They may be able to deal with levels of workplace stress that are higher
than others can tolerate; they may also have more insight into the personal wellness needs of their sub-
ordinates. Indeed, many organisations are now formally sponsoring wellness programs for employees.
Among the health promotion activities typically offered are smoking control, health risk appraisals, back
care, stress management, exercise/physical fitness, nutrition education, high blood pressure control and
weight control. The expectations are that investments in such programs benefit both the organisation

464  Management
and its employees. Failing to recognise the importance of stress management can contribute to serious
mental health problems. There is evidence to suggest that too much stress can contribute to longer term
mental problems.90
A recent audit of Melbourne’s Council House 2 (CH2), an office building rated at six stars for its
green design and focus on sustainability, found that employee productivity and happiness rose after relo-
cation to CH2. These positive outcomes were attributed to the building’s use of natural light and low‐
energy light fittings, the installation of LCD computer monitors, and the provision of bicycle parking,
showers and changing rooms. For Melbourne’s Lord Mayor, John So, the results were ‘outstanding’.91
While major companies including Woolworths, Computershare, ING and Ernst & Young have installed
company gyms in recent years, psychologist James Dimmock notes that many employees may not take
advantage of such facilities if they are worried about how colleagues may evaluate and judge their
bodies.92
The national body tasked with educating the community about the destructive impacts of depression,
beyondblue, has trained tens of thousands of Australian employees in identifying and responding to
depression in their lives and in the lives of their colleagues and friends. A researcher from the Queensland
University of Technology, Michael Hilton, estimates the cost of untreated depression as being around
$10  000 per employee. Thankfully, much of this cost can be recovered if sufferers receive appropriate
treatment.93
Ultimately, the keys to personal stress management throughout a career rest with knowing how to help
yourself. It is fitting, therefore, to end this discussion with Manager’s notepad 16.3 and its useful guide-
lines for coping with workplace stress.94

MANAGER’S NOTEPAD 16.3

Six ways to cope with workplace stress

1. Take control of the situation. Do your best, know your limits and avoid unrealistic deadlines.
2. Pace yourself. Plan your day to do high‐priority things first, but stay flexible and try to slow down.
3. Open up to others. Discuss your problems, fears and frustrations with those who care about you.
4. Do things for others. Think about someone else’s needs, and try to help satisfy those needs.
5. Exercise. Engage in regular physical activity as recommended by your doctor.
6. Balance work and recreation. Schedule time for recreation, including holidays from your work.

CRITICAL ANALYSIS

1. Employees with Type A personalities tend to experience greater stress than those with calm and
even temperaments. On the other hand, several Type A characteristics are often viewed as essential
to giving the appearance of high levels of workplace achievement. How can these realities be
reconciled?
2. In an increasingly competitive and high‐pressure business environment, instances of workplace rage
will inevitably increase. How can managers minimise the potential for such rage in organisations?

CHAPTER 16 Individuals, job design and stress  465

SUMMARY
16.1 What is the meaning of work?
•• Work is an activity that produces value for people; it is something people do to ‘earn a living’.
•• Work is an exchange of values between individuals who offer contributions such as time and effort to
organisations that offer monetary and other inducements in return.
•• A healthy psychological contract occurs when a person believes that his or her contributions and
inducements are in balance. It is one component in a high quality of work life (QWL).
•• QWL is an important issue in creating opportunities for positive work–life balance.
16.2 What are the issues in satisfaction, performance and job design?
•• Job design is the process of creating or defining jobs by assigning specific work tasks to individuals
and groups.
•• Jobs should be designed so workers enjoy high levels of both job performance and job satisfaction.
•• The high‐performance equation states: Performance = Ability × Support × Effort.
•• Job simplification creates narrow and repetitive jobs consisting of well‐defined tasks with many
routine operations, such as the typical assembly‐line job.
•• Job enlargement allows people to perform a broader range of simplified tasks. Job rotation allows
people to transfer between different jobs of similar skill levels on a rotating basis.
•• Job enrichment results in more meaningful jobs that involve more autonomy in decision‐making and
broader task responsibilities.
16.3 How can jobs be enriched?
•• The diagnostic approach to job enrichment involves analysing jobs according to five core characteristics:
skill variety, task identity, task significance, autonomy and feedback.
•• Jobs deficient in one or more of these core characteristics can be redesigned to improve their level of
enrichment.
•• Jobs can be enriched by forming natural work units, combining tasks, establishing client relationships,
opening feedback channels and vertically loading to give workers more planning and controlling
responsibilities.
•• Job enrichment does not work for everyone. It works best for people with a high growth‐need
strength — the desire to achieve psychological growth in their work.
16.4 What are alternative work arrangements?
•• Alternative work schedules can make work hours less inconvenient and enable organisations to
respond better to individual needs and personal responsibilities.
•• The compressed work week allows a full‐time work week to be completed in fewer days.
•• Flexible working hours allow people to adjust the starting and ending times of their daily schedules.
•• Job sharing allows two people to share one job.
•• Telecommuting allows people to work at home or in mobile offices through computer links with their
employers and/or customers.
•• An increasing number of people work on part‐time schedules. More and more organisations are
employing part‐timers or casual workers to reduce their commitments to full‐time positions.
16.5 How can job and workplace stress be managed?
•• Stress occurs as the tension accompanying extraordinary demands, constraints or opportunities.
•• Stress can be destructive or constructive — a moderate level of stress typically has a positive impact
on performance.
•• Stressors are found in a variety of work, personal and non‐work situations.
•• For some people, having a Type A personality creates stress as a result of continual feelings of
impatience and pressure.
•• Stress can be effectively managed through both prevention and coping strategies, including a
commitment to personal wellness.

466  Management
KEY TERMS
Automation  is the total mechanisation of a job.
Casual work  is a type of part‐time employment where there is no agreement or promise of ongoing
work. Casual employees may be employed during peak business periods to supplement a permanent
workforce and to provide management with greater flexibility in managing labour.
A compressed work week  allows a full‐time job to be completed in less than five days.
Constructive stress  acts in a positive way to increase effort, stimulate creativity and encourage
diligence in one’s work.
Destructive stress  impairs the performance of an individual.
Flexible working hours  give employees some choice in the pattern of daily work hours.
Growth‐need strength  is the desire to achieve psychological growth in one’s work.
Job burnout  is physical and mental exhaustion that can be incapacitating personally and with respect
to work.
Job design  is the allocation of specific work tasks to individuals and groups.
Job enlargement  increases task variety by combining into one job two or more tasks previously
assigned to separate workers.
Job enrichment  increases job depth by adding work planning and evaluating duties normally
performed by the supervisor.
Job involvement  is defined as the extent to which an individual is dedicated to a job.
Job performance  is the quantity and quality of task accomplishment by an individual or group.
Job rotation  increases task variety by periodically shifting workers between jobs involving different tasks.
Job satisfaction  is the degree to which an individual feels positively or negatively about a job.
Job sharing  splits one job between two people.
Job simplification  involves employing people in clearly defined and very specialised tasks.
Organisational commitment  is defined as the loyalty of an individual to the organisation.
Part‐time work  is a form of permanent employment in which the worker works for less than the full‐
time working week.
Personal wellness  is the pursuit of your full potential through a personal health promotion program.
A psychological contract  is the set of expectations held by an individual about working relationships
with the organisation.
A sociotechnical system  integrates technology and human resources in high‐performance systems.
Stress  is a state of tension experienced by individuals facing extraordinary demands, constraints or
opportunities.
Stressors  are the things that cause stress.
Telecommuting  involves working at home or other places using computer links to the office.
A Type A personality  is a person oriented towards extreme achievement, impatience and perfectionism.

APPLIED ACTIVITIES
1 What is a ‘healthy’ psychological contract?
2 What difference does growth‐need strength make in the job enrichment process?
3 Why is it important for a manager to understand the Type A personality?
4 Why might an employer not be interested in offering employees the option of working on a
compressed work week schedule?
5 Tony Cheah just attended a management development program in which the following ‘high‐
performance equation’ was discussed:
Performance = Ability × Support × Effort

CHAPTER 16 Individuals, job design and stress  467

 As a factory manager, he is interested in implementing the concept. He plans to hold a meeting for
all his team leaders to explain the implications of this equation. If you were Tony, how would you
explain the importance of each performance factor — ability, support, effort — and how would you
explain the significance of the multiplication signs in the equation?

ENDNOTES
  1. Verity Edwards, ‘How IBM, NAB and Other Companies Are Encouraging Mindfulness among Staff’, The Australian
(19 March 2015), www.theaustralian.com.au.
  2. Jeffrey Pfeffer and John F. Veiga, ‘Putting People First for Organizational Success’, Academy of Management Executive,
vol. 13 (May 1999), pp. 37–48; see also Jeffrey Pfeffer, The Human Equation: Building Profits By Putting People First
(Boston: Harvard Business School Press, 1998).
  3. See Mary Williams Walsh, ‘Luring the Best in an Unsettled Time’, The New York Times (30 January 2001).
  4. Charles O’Reilly III and Jeffrey Pfeffer, Hidden Value: How Great Companies Achieve Extraordinary Results Through
Ordinary People (Boston: Harvard Business School Publishing, 2000), p. 2.
  5. John P. Kotter, ‘The Psychological Contract: Managing the Joining Up Process’, California Management Review,
vol. 15 (spring 1973), pp. 91–9; Denise Rousseau (ed.), Psychological Contracts in Organizations (San Francisco: Jossey‐
Bass, 1995); Denise Rousseau, ‘Changing the Deal While Keeping the People’, Academy of Management Executive,
vol. 10 (1996), pp. 50–9; and Denise Rousseau and Rene Schalk (eds), Psychological Contracts in Employment: Cross‐
Cultural Perspectives (San Francisco: Jossey‐Bass, 2000).
  6. Linda Grant, ‘Unhappy in Japan’, Fortune (13 January 1997), p. 142.
  7. Tim Baker, ‘The New Employment Co‐Dependency’, Management Today (October 2000), pp. 6–7; see also David M. Noer,
Breaking Free: A Prescription for Personal and Organisational Change (San Francisco: Jossey‐Bass, 1997), pp. 214–17.
  8. For a thought‐provoking discussion of this issue, see Ben Hamper, Rivethead: Tales From the Assembly Line (New York:
Warner, 1991).
  9. S. Valentine and G. Fleischman, ‘Professional Ethical Standards, Corporate Social Responsibility, and the Perceived Role of
Ethics and Social Responsibility’, Journal Of Business Ethics, vol. 82, no. 3 (October 2008), pp. 657–66; J. L. Godos‐Díez,
R. Fernández‐Gago and A. Martínez‐Campillo, ‘How Important Are CEOs to CSR Practices? An Analysis of the Mediating
Effect of the Perceived Role of Ethics and Social Responsibility’, Journal of Business Ethics, vol. 98 (2011),
pp. 531–48.
10. R. Pablo, R. Carmen and M. Ricardo, ‘Improving the ‘Leader–Follower’ Relationship: Top Manager or Supervisor? The
Ethical Leadership Trickle‐Down Effect on Follower Job Response’, Journal of Business Ethics, vol. 99, no. 4 (April 2011),
pp. 587–608.
11. G. Spreitzer, C. L. Porath, and C. B. Gibson, ‘Toward Human Sustainability: How to Enable More Thriving at Work’,
Organizational Dynamics, vol. 41, issue 2 (April–June 2012), pp. 155–162.
12. Chien, Ju‐Chun, 2013, ‘Examining Herzberg’s Two Factor Theory in a Large Chinese fiber Company’, International Journal
of Social, Behavioral, Educational, Economic, Business and Industrial Engineering, vol. 7, no. 6, pp. 1679–84.
13. Cuixia Ge, Jialiang Fu, Ying Chang and Lie Wang. ‘Factors Associated with Job Satisfaction among Chinese Community
Health Workers: A Cross‐Sectional Study’, BMC Public Health (24 November 2011), doi:10.1186/1471‐2458‐11‐884.
14. Linda Duxbury and Chris Higgins, 2008 Executive Summary, Executive Summary to the Report: ‘Work‐life balance in
Australia in the New Millennium: Rhetoric versus Reality’, www.worklifebalance.com.au.
15. Ben Pike, ‘Australian Bureau of Statistics says 1 in 12 People Work More at Home, but New Research Shows it Can Leave
You a Little Bit Lonely’, News Corp Australia Network, 6 July 2013, www.news.com.au.
16. For an overview, see Paul E. Spector, Job Satisfaction (Thousand Oaks, CA: Sage, 1997); and Timothy A. Judge and Allan
H. Church, ‘Job Satisfaction: Research and Practice’, chapter 7 in Cary L. Cooper and Edwin A. Locke (eds), Industrial and
Organizational Psychology: Linking Theory With Practice (Malden, MA: Blackwell Business, 2000).
17. Amanda Sinclair, ‘A Feeling for Business’, BRW (22 February 1999), www.brw.com.au.
18. Jim O’Rourke, ‘We Like Our Work But Also a Whinge’, Sun‐Herald (14 April 2002), p. 38.
19. Anne Fellowes, ‘Can’t Buy Me Love’, Management Today (November–December 1999), pp. 20–1.
20. Accessed at www.aim.com.au.
21. Leon Gettler, ‘Do You Get What You Pay For?’, Management Today (November–December 2000), pp. 4–5.
22. Emma‐Kate Dobbin, ‘Funny Business’, Sydney Morning Herald, Radar section (25 February 2004), p. 4.
23. Norman F. Ramion, ‘Satisfaction Guaranteed’, Asian Business, vol. 35, no. 6 (1999), pp. 61–2, and ‘Weathering the Storm’,
Asian Business, vol. 35, no. 7 (1999), pp. 56–7.
24. Anonymous, ‘Employee Job Satisfaction: The Latest Ratings’, HR Focus (August 2008), pp. 3–4.
25. Mike Berry, ‘Middle Managers Lacking Satisfaction in Workplace’, Personnel Today (16 January 2007), p. 1.
26. Edward Sek Khin Wong and Teoh Ngee Heng, ‘Case study of Factors Influencing Job Satisfaction in Two Malaysian
Universities’, International Business Research, vol. 2, no. 2 (April 2009), pp. 86–98.

468  Management
27. Anwar Prabu Mangkunegara and Tinton Rumbungan Octorend, ‘Effect of Work Discipline, Work Motivation and Job
Satisfaction on Employee Organizational Commitment in the Company (Case Study in PT. Dada Indonesia)’, Universal
Journal of Management, vol. 3, no. 8 (2015), pp. 318–28.
28. See Melvin Blumberg and Charles D. Pringle, ‘The Missing Opportunity in Organizational Research: Some Implications for a
Theory of Work Motivation’, Academy of Management Review, vol. 7 (1982), pp. 560–9.
29. ‘Managing Cultural Diversity: Training Program Resource Manual’, Australian Multicultural Foundation and Robert Bean
Consulting (2010), p.23, http://amf.net.au.
30. ‘Disability Diversity Targets — Diversity Opportunity or Red Tape Burden?’, iHR Australia (16 July 2013), www.ihraustralia.
com.
31. ibid.
32. Wendy J. Casper, Julie Holliday Wayne and Jennifer Grace Manegold, ‘Who Will We Recruit? Targeting Deep‐and‐surface‐
level Diversity with Human Resource Policy Advertising’, Human Resource Management, vol. 52, issue 3 (May/June 2013),
pp. 311–32.
33. Based on an example in Edward E. Lawler III, Motivation in Work Organizations (Monterey, CA: Brooks/Cole, 1973),
pp. 154–5.
34. See Frederick Herzberg, Bernard Mausner and Barbara Block Synderman, The Motivation To Work, 2nd edn (New York: Wiley,
1967). The quotation is from Frederick Herzberg, ‘One More Time: How Do You Motivate Employees?’, Harvard Business
Review (January–February 1968), pp. 53–62, and reprinted as an HBR classic (September–October 1987), pp. 109–20.
35. Herzberg (1987), ibid.
36. Leo D’Angelo Fisher, ‘The Hunt For a New Work Order’, Business Review Weekly, (15–21 May 2008), pp. 47–52.
37. For a complete description of the core characteristics model, see J. Richard Hackman and Greg R. Oldham, Work Redesign
(Reading, MA: Addison‐Wesley, 1980).
38. Safe Work Australia, Australian Work Health And Safety Strategy 2012–2022: Helping Business Identify Mental Stressors,
Safe Work Australia (August 2014), www.safeworkaustralia.gov.au.
39. ibid.
40. People at Work Project, An Assessment of Psychosocial Hazards in the Workplace:Public Sector Case Study (2014),
www.peopleatworkproject.com.au/case‐studies.
41. See Richard E. Walton, Up and Running: Integrating Information Technology and the Organization (Boston, MA: Harvard
Business School Press, 1989).
42. Richard Walton, ‘From Control To Commitment in the Workplace’, Harvard Business Review (March–April 1985), pp. 77–94;
and William A. Pasmore, Designing Effective Organizations: A Sociotechnical Systems Perspective (New York: Wiley, 1988).
43. Paul J. Champagne and Curt Tausky, ‘When Job Enrichment Doesn’t Pay’, Personnel, vol. 3 (January–February 1978),
pp. 30–40.
44. Andrew Taylor, ‘Overtime Blues’, Sydney Morning Herald, Radar section (21 July 2004), p. 6.
45. Lisa Phillips, ‘Long Distance Commuting’, Management Today (September 2000), p. 23.
46. ‘Australian Bosses Are Keeping Workers at the Desk While Embracing Flexible Work for Themselves’, News.com.au
(29 October 2015).
47. Anthony Siblin, ‘A Burden Shared’, Business Review Weekly (21–27 May 2009), pp. 20–21.
48. ‘Networked Workers’, Business Week (6 October 1997), p. 8; and Diane E. Lewis, ‘Flexible Work Arrangements As Important
As Salary To Some’, Columbus Dispatch (25 May 1998), p. 8.
49. Kirsty Needham, ‘Half of Businesses Have Cut Staff Hours to Avoid Losses’, Sydney Morning Herald (12 August 2009), p. 6.
50. For a review see Wayne F. Cascio, ‘Managing a Virtual Workplace’, Academy of Management Executive, vol. 14 (2000),
pp. 81–90.
51. ibid.
52. See Sue Shellenbarger, ‘Overwork, Low Morale Vex the Mobile Office’, Wall Street Journal (17 August 1994), pp. B1, B7.
53. Quote from Phil Porter, ‘Telecommuting Mom is Part of a National Trend’, Columbus Dispatch (29 November 2000),
pp. H1, H2.
54. These guidelines are collected from a variety of sources, including The Southern California Telecommuting Partnership,
www.socalcommute.org, and ISDN Group www.isdnzone.com.
55. Margaret Lindorff, ‘Closing the Divide Between Work and Home: The Case of Teleworking’, paper presented at the ANZAM
2001 Conference, Auckland, 5–8 December 2001.
56. Phil Kerslake ‘Is the Grass Greener on the Other Side?’, New Zealand Management (May 2001), pp. 30–2.
57. Katherine Towers, ‘Working From Home . . . in Sri Lanka’, Australian Financial Review (20 August 2004), pp. 1, 53.
58. Anthony Kryger, ‘Casual Employment in Australia: A Quick Glance, Parliament of Australia’, Parliament of Australia
(20 January 2015), www.aph.gov.au.
59. Alan Nankervis, Robert Compton and Marian Baird, Strategic Human Resource Management, 4th edn (Melbourne: Nelson
Thomson Learning, 2002), p. 232.
60. ibid.
61. Aban Contractor, ‘More Than Quarter of Jobs Casual’, Sydney Morning Herald (7 June 2004), p. 2.

CHAPTER 16 Individuals, job design and stress  469

62. Cameron Allan, Greg J. Bamber and Nils Timo, ‘The McDonaldisation of Employment Relations: A Case Study of Fast Food
in Australia’, paper presented at the ANZAM 2000 Conference, Sydney, 3–6 December 2000.
63. John Kehoe, ‘Part‐Time Doesn’t Please All’, Australian Financial Review (13 June 2008), p. 15.
64. Al James, ‘Work–life (im) “Balance” and Its Consequences for Everyday Learning and Innovation in the New Economy:
Evidence from the Irish IT Sector’, Gender, Place & Culture, vol. 18, no. 5 (Sep 2011), pp. 655–84.
65. Cameron Edmond, ‘Australia Falling Behind in Work‐life Balance’, HC Online (14 January 2014), www.hcamag.com.
66. See Arthur P. Brief, Randall S. Schuler and Mary Van Sell, Managing Job Stress (Boston: Little, Brown, 1981), pp. 7, 8.
67. Robert Reich, The Future of Success (New York: Knopf, 2000), p. 8.
68. Michael Weldholz, ‘Stress Increasingly Seen as Problem With Executives More Vulnerable’, Wall Street Journal
(28 September 1982), p. 31.
69. Jackie Range, ‘When it Comes to Mental Health, Who Cares Wins’, Business Review Weekly (23 July 2012), www.brw.com.au.
70. Michael Atkinson, ‘A Stress of the Imagination?’, Management Today (June 1999), p. 42.
71. Leo D’Angelo Fisher, ‘Management is a Health Hazard’, Business Review Weekly (18–24 September 2008), p. 50.
72. Statistics from www.belindamerry.com/mm/killerstats.html.
73. Peter Kelleher, ‘Let Me Stress’, Management Today (August 1999), pp. 14–19.
74. Melissa Davey, ‘Top of Worry List: Work, Work, Work’, The Sydney Morning Herald (5–6 May 2012), p. 1.
75. Rania Spooner, ‘Flying In and Flying Out, and Often Sitting Idle’, The Sydney Morning Herald (21–22 April 2012), Weekend
Business, p. 8.
76. Nicole Hasham, ‘The Outsiders: Mining Camp Splits a Town’, Sydney Morning Herald, (4–5 August 2012), News Review, p. 7.
77. Carol Hymowitz, ‘Impossible Expectations and Unfulfilling Work Stress Managers, Too’, Wall Street Journal (16 January
2001), p. B1.
78. The classic work is Meyer Friedman and Ray Roseman, Type A Behavior and Your Heart (New York: Knopf, 1974).
79. See Hans Selye, Stress in Health and Disease (Boston: Butterworth, 1976).
80. Carol Hymowitz, ‘Can Workplace Stress Get Worse?’, Wall Street Journal (16 January 2001), pp. B1, B3.
81. See Steve M. Jex, Stress and Job Performance (San Francisco: Jossey‐Bass, 1998).
82. Reported in Sue Shellenbarger, ‘Finding Ways to Keep a Partner’s Job Stress From Hitting Home’, Wall Street Journal
(29 November 2000), p. B1; Daniel Costello, ‘Incidents of ‘Desk Rage’ Disrupt America’s Offices’, Wall Street Journal
(16 January 2001), pp. B1, B3.
83. Jane Lindhe, ‘Job Stress Leads to Depression’, Business Review Weekly (5–11 June 2008), p. 11.
84. Ann‐Maree Moodie, ‘Beware the Vicious Cycle’, The Sydney Morning Herald (MyCareer, 7–8 February 2009), p. 8.
85. See Daniel C. Ganster and Larry Murphy, ‘Workplace Interventions to Prevent Stress‐Related Illness: Lessons From Research
and Practice’, chapter 2 in Cooper and Locke (eds) (2000), op. cit.
86. ibid.
87. See John M. Ivancevich and Michael T. Matteson, ‘Optimizing Human Resources: A Case for Preventive Health and Stress
Management’, Organizational Dynamics, vol. 9 (autumn 1980), pp. 6–8. See also John M. Ivancevich, Michael T. Matteson
and Edward P. Richards III, ‘Who’s Liable for Stress On the Job?’, Harvard Business Review (March–April 1985), pp. 60–71.
88. Kelly Burke, ‘Workers Throw a Sickie to Save Their Sanity — Unless They Live by the Beach’, The Sydney Morning Herald
(11 November 2011), p. 3.
89. Robert Kreitner, ‘Personal Wellness: It’s Just Good Business’, Business Horizons (May–June 1982), pp. 28–35.
90. Jackie Woods, ‘Stress Heads’, The Sydney Morning Herald, Radar section (9 June 2004), p. 10.
91. ‘Green Building More Productive’, Business Review Weekly (14–20 February 2008), p. 13.
92. John Kehoe, ‘Corporate Gyms Offer New Way to get Red in the Face’, Australian Financial Review (13 June 2008), p. 3.
93. Kath Walters, ‘Healthy Improvements’, Business Review Weekly (18–24 October 2007), pp. 52–3.
94. Developed from Kreitner (1982), op. cit.; and ‘Plain Talk About Stress’, National Institute of Mental Health publication
(Rockville, MD: US Department of Health and Human Services).

ACKNOWLEDGEMENTS
Photo: © wavebreakmedia / Shutterstock.com
Photo: © XiXinXing / Shutterstock.com
Photo: © Creativa Images / Shutterstock.com
Photo: © Goodluz / Shutterstock.com
Photo: © Jakub Zak / Shutterstock.com
Photo: © nmphoto / Shutterstock.com

470  Management
CHAPTER 17

Teams and teamwork

LEA RNIN G OBJE CTIVE S

17.1 How do teams contribute to organisations?

17.2 What are current trends in the use of teams?
17.3 How do teams work?
17.4 How do teams make decisions?
17.5 What are the challenges of high‐performance team leadership?
Telstra and Cisco create a new approach
to teamwork
Telstra is Australia’s principal telecommunication and information provider, with 16.7 million mobile
services customers, 7.3 million fixed‐voice services and 3.1 million retail fixed broadband services by
2016. The company also has a presence in 15 other countries, including China, and is committed to digi­
tally connecting businesses, government, communities and individuals.1 Some of the challenges Telstra
faced in meeting this goal were the need to improve ways to communicate and collaborate — existing
email technologies being too slow and often without context — and enable more effective team col­
laboration.2 Therefore, in 2015 Telstra adopted Cisco’s new service Spark, which allows collaborative
teamwork via a ‘chat service’ rather than through the slower use of emails.
Spark, the new software application, enables users to work from any mobile device as well as desk­
tops. The application aids teamwork through chatrooms, voice and video calls, virtual meetings and
screen sharing, and can manage 25 callers in a single video call. Telstra’s unified communications director,
Boris Corluka, said ‘the platform had been designed to have the look and feel of a consumer platform,
because that is what employees are demanding now.3 Now that Telstra are using Spark, a Telstra senior
product manager, Akash Jattan, describes how team members can be more forthcoming in Spark stating
that ‘with Spark I say it as it is  .  .  .  It takes me about 30 percent less time than composing an email’.
The ease by which Spark also allows sharing of photos and whiteboard sessions also contributes to the
efficiency of collaboration, ‘The information in a Spark team room provides the context for the conver­
sation  .  .  .  Outcomes have improved, and meetings that used to take me an hour can now take 20 minutes’. 4
All in all, the Telstra–Cisco relationship enables a new approach to teamwork in a faster pace digital age.

QUESTIONS
1. How might the use of digital resources aid or hinder the development of team relationships?
2. Would team relationships be improved by the faster flow of information provided by digital technologies?

472  Management
Introduction
Henriette Rothschild, the Melbourne‐based director of international management consultancy Hay
Group, notes that focused and strong leadership teams become particularly crucial to organisational sur­
vival during tough times, observing: ‘The so‐called “Lone Ranger CEO” is losing credibility. A leader­
ship team can prove invaluable when making complex decisions in light of share‐price meltdowns, profit
erosion, inflation and increased public scrutiny on management performance.’5
The contemporary workplace is rich in teams and teamwork. In building high performance organ­
isations driven by speed, innovation, efficiency, spontaneity and continuous change, harnessing the great
potential of teams and teamwork is a part of the process. The overall goal is always to create work
environments within which the full talents of people are enthusiastically mobilised in support of organ­
isational goals. The human capital of organisations must be nurtured and developed both at the level of
the individual contributor and at the level of the work group or team, our present concern. But even as
we recognise that finding the best ways to use teams as performance resources is an increasingly impor­
tant managerial task, the ability to successfully lead through teamwork is not always easy to achieve.
The words group and team elicit both positive and negative reactions in the minds of many people. As
noted by Australian writer Adele Ferguson, teams can represent the very best or the very worst, although
most teams are probably somewhere between these two extremes:
Teams are appealing because they hold out the promise of something along the lines of the family unit:
caring, sharing, loving and committed. The belief is that the ideal team is a miracle of autonomous cross‐
functional efficiency. It shares knowledge and creates solutions. It cuts costs and is close to the customer.
Put simply, teams increase productivity, improve communication and improve processes.

She goes on to say that the rules for work have been changing. Employees are being assessed by their
ability to work in a team, affecting who is hired, promoted, or let go. Ferguson suggests that supporters
of the ‘dream team’ forget that drawbacks, such as rivalry and bitchiness, also occur. Individuals can be
caught between wanting to belong and wanting to be recognised for their own merits. These elements
often serve to subvert the ‘dream team’.6

17.1 Teams in organisations

LEARNING OBJECTIVE 17.1 How do teams contribute to organisations?
Most tasks in organisations are well beyond the capabilities of individuals alone — they can only be
accomplished by people working together in teams. Especially in this age of intellectual capital and
knowledge work, true managerial success will be earned in substantial part through success at mobil­
ising, leading and supporting high‐performing teams. The new organisational designs and cultures
require it, as does any true commitment to empowerment and employee involvement.7 There is no doubt
that teams are indispensable to the new workplace. The question for managers and team leaders, and the
guiding theme of this chapter, thus becomes: how do we make sure that teams and teamwork are used to
everyone’s best advantage?
Before proceeding, let’s be specific about the terminology. A team is a small group of people with
complementary skills, who work together to accomplish shared goals while holding themselves mutually
accountable for performance results.8 Teamwork is the process of people working together to accom­
plish these goals.

Challenges of teamwork
Figure 17.1 shows four important roles that managers must perform in order to fully master the chal­
lenges of teams and teamwork. These roles, along with examples, are: supervisor — serving as the
appointed head of a formal work unit; facilitator — serving as the peer leader and networking hub for
a special task force; participant — serving as a helpful contributing member of a project team; and

CHAPTER 17 Teams and teamwork  473

coach — serving as the external sponsor of a problem‐solving team staffed by others. In all of these
settings, performance results will depend on both understanding how teams operate and actively helping
them succeed.

Supervisor Network facilitator Helpful participant External coach

How managers get involved with teams and teamwork

FIGURE 17.1 Team and teamwork roles for managers

Experience has taught all of us that teams and teamwork are not problem‐free. Who hasn’t heard
people complain about having to attend what they consider to be another ‘time‐wasting’ meeting? 9 And
who hasn’t encountered social loafing — the presence of ‘free‐riders’ who slack off because responsi­
bility is diffused in teams and others are present to do the work?10 Things don’t have to be this way.
The time we spend in groups can be productive and satisfying, but to make it so we must understand the
complex nature of groups and their internal dynamics.11
An important skill is knowing when a team is the best choice for a task. Another is knowing how to
work with and manage the team to best accomplish that task. Take social loafing as an example. What
can a leader or other concerned team member do when someone is free‐riding? It’s not easy, but the
problem can be handled. Actions can be taken to make individual contributions more visible, reward
individuals for their contributions, make task assignments more interesting, and keep group size small so
that free‐riders are more visible and subject to peer pressure and leader evaluation.12
As we proceed, keep in mind other problems encountered when we work in teams. Personality con­
flicts are commonplace. Individual differences in personality and work style can disrupt the team. Tasks
are not always clear. Ambiguous agendas and/or ill‐defined problems can cause teams to work too long
on the wrong things. Not everyone is always ready to work. Sometimes the issue is motivation, but it
may be due to conflicts with other work deadlines and priorities. It may also be caused by a lack of team
organisation and/or progress. Time is wasted when meetings lack purpose and when members come
unprepared. Effective teams have members who perform a variety of roles. As well as the leadership
function, teams need people who can record their progress, provide new ideas and manage conflicts.
These and other difficulties can turn the great potential of teams into frustration and failure.
Clearly, teams are hard work. But, they are also worth it.

Synergy and the usefulness of teams

A major reason that teams are worth the effort is synergy — the creation of a whole that is greater than
the sum of its parts. Teamwork in our society makes available everything from aircraft to the internet to
music videos. It all happens because of synergy, the bringing together of individual talents and efforts
to create things. Synergy occurs when a team uses its membership resources fully and thereby achieves
through collective action far more than could otherwise be achieved. This is an important advantage for
organisations facing the uncertainties and demands of increasingly complex operating environments.
Teams are also useful in other ways. They can be very beneficial for their members. Being part
of a team can have a strong influence on individual attitudes and behaviours. When the experience
is positive, working in and being part of a team helps satisfy important individual needs. Sometimes
these are needs that may be difficult to meet in the regular work setting. Thus, teams can be very

474  Management
good for both organisations and their members. They are an indispensable human resource whose
usefulness in the work setting includes:
•• more resources for problem‐solving
•• improved creativity and innovation
•• improved quality of decision‐making
•• greater commitments to tasks
•• higher motivation through collective action
•• better control and work discipline
•• more individual need satisfaction.13

Formal and informal groups

The teams officially recognised and supported by the organisation for specific purposes are formal groups.
They are part of the formal structure and are created to fulfil a variety of essential operations. A good example
is the work group consisting of a manager and subordinates, and responsible for the continuing performance
of tasks important to the organisation. Work groups exist in various sizes and go by different labels. They
may be called departments (e.g. market research department), units (e.g. product assembly unit), teams (e.g.
customer service team) or divisions (e.g. office products division), among other possibilities. In all cases,
they are the building blocks of organisation structures. Indeed, in Rensis Likert’s classic view of organ­
isations, they are interlocking networks of groups in which managers and leaders serve important ‘linking
pin’ roles.14 Each manager or leader serves both as a superior in one functional group and as a subordinate in
the next higher level group. When the resulting vertical and horizontal links are well managed, they help inte­
grate the diverse activities and accomplishments of teams throughout an organisation.
Standing in contrast to the formal groups just described are the informal groups that are also present
and important in every organisation. These informal groups are not recognised on organisation charts
and are not officially created to serve an organisational purpose. They emerge as part of the informal
structure and from natural or spontaneous relationships among people. You might recognise these as
interest groups in which workers band together to pursue a common cause or special position, such as a
concern for poor working conditions. Some emerge as friendship groups that develop for a wide variety
of personal reasons, including shared non‐work interests. Others emerge as support groups in which the
members basically help one another do their jobs.
Informal groups may also include people from outside the immediate organisation. For instance,
increasingly complex Australian tax laws are encouraging accountants with small practices to develop
informal alliances with friendly, often larger firms, who can share expertise and knowledge. Small prac­
tices may use the services of a tax barrister based at a larger practice to provide written advice or rep­
resentation for a client.15 Two points about informal groups are especially important for managers to
understand. First, informal groups are not necessarily bad. Indeed, they can have a positive impact on
work performance. In particular, the relationships and connections made possible by informal groups
may actually help speed the workflow or allow people to ‘get things done’ in ways not possible within
the formal structure. Second, informal groups can help satisfy social needs that members find otherwise
thwarted or not met in the formal work setting. Among other things, members of informal groups often
find that the groups offer social satisfactions, security, support and a sense of belonging.

CRITICAL ANALYSIS

1. John works in the marketing department of a sports clothing company as a product development
specialist. He joined the company mainly because of his love of sports and has recently set up a
sports group that meets on the weekend. What types of groups does John belong to in each case?
Why is each group an important contributor to improving organisational performance?
2. What skill sets must John have to succeed in these types of groups? How can such skills be
developed?

CHAPTER 17 Teams and teamwork  475

17.2 Trends in the use of teams
LEARNING OBJECTIVE 17.2 What are current trends in the use of teams?
The trend toward greater empowerment in organisations has been associated with developments that
extend the use of teams beyond the formal group or work team described earlier.16 This is supported by
more recent research in China which showed that decentralisation improves team empowerment.17 In pre­
vious chapters, for example, we noted the growing use of cross‐functional teams to improve integration.
A variety of employee involvement teams, including quality circles, are also increasingly commonplace
as managers seek to expand opportunities for broad‐based participation in workplace affairs. Develop­
ments in information technology are also creating further opportunities for people to work together in
computer‐mediated or virtual teams.

Committees
A committee brings people together outside of their daily job assignments to work in a small team for
a specific purpose. The task agenda is typically narrow, focused and ongoing. Membership changes over
time as the committee remains in existence. Committees are led by a designated head or chairperson,
who is held accountable for performance results. Organisations usually have a variety of permanent or
standing committees dedicated to a wide variety of concerns — diversity and compensation are two
common examples.18
At retailer David Jones, a management committee meets regularly to consider issues relating to how
well they are implementing the company’s strategy. The committee, consisting of the chief executive
officer (CEO) and senior executives, also oversees all of the organisation’s administrative processes.

Project teams and task forces

Task forces or project teams perform important work for the organisation, but exist only tempor­
arily. Importantly, the task assignments for project teams and task forces are very specific; com­
pletion deadlines are also clearly defined. Once the project or task is completed, the team disbands.
On long‐running projects, the membership of the team may change over time. Creativity and inno­
vation are very important. Project teams, for example, might be formed to develop a new product or
service, redesign an office layout or provide specialised consulting for a client.19 Like committees,
project teams and task forces bring together people from various parts of an organisation to work
on common problems. They bring to the team special skills and expertise critical to its purpose.
In order to achieve the desired results, any project team or task force must be carefully established
and then well run. Some guidelines for managing projects and task forces are found in Manager’s
notepad 17.1.20

MANAGER’S NOTEPAD 17.1

Guidelines for managing projects and task forces

• Select appropriate team members who will be challenged by the assignment, who have the right
skills and who seem able to work well together.
• Clearly define the purpose of the team to ensure that members and important outsiders know what
is expected, why, and on what timetable.
• Carefully select a team leader who has good interpersonal skills, can respect the ideas of others and
is willing to do what needs to be done.
• Periodically review progress to ensure that all team members feel collectively accountable for results,
and that they receive performance feedback.

476  Management
Cross‐functional teams
Organisational design today emphasises adaptation and horizontal integration.21 It emphasises problem‐
solving and information sharing. It tries to eliminate the functional chimneys problem — the tendency of
workers to remain within their functions and restrict communication with other parts of an organisation.
Cross‐functional teams, whose members come from different functional units and parts of an organ­
isation, are indispensable to the fulfilment of these design goals.
Typically, the members of a cross‐functional team come together to work on a specific problem or
task with the needs of the whole organisation in mind. They are expected to share information, explore
new ideas, seek creative solutions and meet project deadlines. Importantly, they are expected not to be
limited by narrow functional concerns and demands. Rather, the team members collectively and individ­
ually are to think and act cross‐functionally and in the best interests of the total system.

Employee involvement teams

Another development in today’s organisations is the use of employee involvement teams. These are
groups of workers who meet on a regular basis outside of their formal assignments, with the goal of
applying their expertise and attention to important workplace matters. The general purpose of employee
involvement teams is continuous improvement. Using a problem‐solving framework, the teams try to
bring the benefits of employee participation to bear on a wide variety of performance issues and concerns.
Another popular form of the employee involvement team is the quality circle, a volunteer group
of people who discuss workplace and service improvements and suggest these ideas to their managers.
They relate mainly to the quality of output or services to boost organisational performance and enhance
staff motivation. They operate continuously to control organisation‐wide activities and involve all organ­
isational members.22 Quality circles became popular with some companies in Western countries, in part
because of their place in Japanese management. Along with other types of involvement teams, they are
now found in organisations where empowerment and participation are valued as keys to high performance.

Virtual teams
A newer form of group that is increasingly common in today’s organisations is the virtual team, some­
times called a computer‐mediated group or electronic group network.23 This is a team of people who
work together and solve problems largely through computer‐based rather than face‐to‐face interactions.
The chapter on information and decision‐making highlighted the role of new technology in today’s
organisations. Among the many developments, the sophistication of networking technologies and group­
ware programs is highly significant. As organisations become increasingly global in their operations and
perspectives, the opportunity to use virtual teams whose members are physically dispersed, even among
locations around the world, is highly advantageous.
The use of intranets and special software support for computerised meetings is changing the way
many committees, task forces and other problem‐solving teams function.24 Working in virtual environ­
ments, team members consider problems and seek consensus on how to best deal with them. This is just
like any team in respect to what gets done. How things get done, however, is different for virtual teams.
This can be a source of both problems and advantages, which should be understood by managers consid­
ering the use of virtual teams in daily affairs.
Problems in virtual teamwork can occur when the members have difficulty establishing good working
relationships. Relations among team members can become depersonalised as the lack of face‐to‐face
interaction limits the role of emotions and non‐verbal cues in the communication process.25 But virtual
teams also have many advantages. They can save time and travel expenses. They can allow members
to work collectively in a time‐efficient way, and without interpersonal difficulties that might otherwise
occur — especially when the issues are controversial. Virtual teams can also be easily expanded to
include additional experts (as needed), and the discussions and information shared among team members
can be stored online for continuous updating and access.

CHAPTER 17 Teams and teamwork  477

 Developing insights on virtual teams suggests that following some basic guidelines can help ensure
that the advantages outweigh the disadvantages. The critical ingredients relate to the creation of positive
impressions and the development of trust among team members who lack face‐to‐face meeting oppor­
tunities. Firstly, virtual teams should begin with social messaging that allows the exchange of infor­
mation to personalise the process. Secondly, virtual team members should be assigned clear roles so that
they can focus while working alone and also know what others are doing. Thirdly, virtual team members
must bring to the team positive attitudes that support a willingness to work hard to meet team goals.26
Ideally, the virtual team members should have at least one opportunity to meet face‐to‐face as the
team is established. This allows members to develop a better understanding of their colleagues and more
rapidly build trust and protocols for positive communications. Although potentially costly, increasing
numbers of organisations believe the benefits from such meetings outweigh the costs.

TECHNOLOGY

Social work in Australia: virtual teams offer supervision

Social welfare in rural Australia is being ham-
pered by high levels of turnover and burnout
among social workers and problems retaining
and recruiting staff. Limitations in supervision
and professional development have exacer-
bated these difficulties. Amanda Nickson, a
lecturer in social work and human services at
James Cook University in Queensland, under-
took a 12‐month research trial to investigate
how peer supervision in virtual teams may
operate in rural and remote Australia.
Seven themes emerged from the research:
professional association, support, education,
reflection on practice, structure and process,
technology, and the challenges of time, prep-
aration and priority.
Nickson found that traditional social work
supervision models had withered in workplaces across rural, remote and regional Australia to the extent
that 80 per cent of participants had not received any supervision. A small minority were supervised by
health professionals acting in an administrative capacity rather than in a manner that affected social
work interventions.
Her research found that the use of basic technologies such as conference telephone calls allowed
for effective virtual supervision as many participants in remote and rural areas lacked access to reliable
video technology and internet connections. She describes how participants benefited from ‘a clear
structure and process’ that ‘contributed to a safe space where peers could share and reflect on suc-
cesses and challenges in practice, discuss ethical dilemmas, receive feedback and ideas from trusted
colleagues, give and receive support, learn, and experience connection with fellow like‐minded social
workers’ when working virtually.
Over the 12‐month period the virtual teams that adhered to the ‘structure and process’ approach
lasted the year of monthly supervision sessions compared to teams without such an organised
approach, who failed after only a few months.
Overall, Nickson’s research showed that virtual teams provide a conduit for peer supervision of pro-
fessionals working in rural or remote Australia. Furthermore, virtual teams promote the retention of
social workers in these regions and can be applied to the supervision of virtual teams in city environs.27

QUESTION
If you were the manager of a remote team how would you use technologies to shape the structure and
processes of your team? What rules would you use to maintain these structures and processes?

478  Management
International teams
Employees are increasingly being asked to become members of international teams, particularly if they
are undertaking an overseas assignment or working within a multinational company. International teams
comprise members of different nationalities, and so the real challenge is to manage the cultural differ­
ences so that the team performs effectively.
International teams have arisen in response to a number of contemporary pressures on organisations.
Globalisation has encouraged the view that companies in many industries, such as pharmaceuticals and
motor vehicles, should take advantage of the opportunity to have a presence in international markets,
and this usually requires that people work together across two or more countries. Many organisations are
pursuing international strategic alliances, mergers, acquisitions or joint ventures. International teams are
often established to help manage the new organisational structures created from these moves. In addition,
the increased scientific and environmental complexities of many of the issues confronting today’s organ­
isations demand that the best expertise is used, no matter where it is located within the organisation, and
the rise of better communications and IT makes interacting with colleagues in different locations far
easier than in the past, as was noted in the previous discussion of virtual teams.
Issues arising from cultural differences can easily derail the performance of international teams,
whether these differences involve language, understanding, communication styles, or the simple fact that
members of the team may be located in different countries. For instance, a Hong Kong Chinese manager
working in Hong Kong for a British‐owned bank stated: ‘When I went to Australia, I had to learn to
interrupt or else I would never have spoken at all.’28
Few managers from ‘doing’ and ‘action‐oriented’ cultures such as the North American, British,
Australian, New Zealand and Scandinavian cultures are comfortable with the reality that teams that work
first on their personal interactions start slowly, plan carefully and often speed up exponentially as they
move further into their work. Managers from these cultures can easily become frustrated if they find
their team colleagues working methodically and systematically when all they want to do is ‘dive in’ and
move as quickly as possible.
Many companies use skilled facilitators to maximise the effectiveness of their international teams.
These facilitators can help international teams move more quickly towards high performance by using
appropriate support processes such as undertaking regular team reviews and helping teams to clearly
specify their key goals and targets.29

Self‐managing work teams

In a growing number of organisations the functional team consisting of a first‐level supervisor and his
or her immediate subordinates is disappearing. It is being replaced with a new organisational form built
from the foundation of self‐managing work teams. Sometimes called autonomous work groups, these
are teams of workers whose jobs have been redesigned to create a high degree of task interdependence
and who have been given authority to make many decisions about how they go about doing the required
work.30
It is reported that one of the keys to Barack Obama’s election as US President was the evolution of
a grassroots support organisation — comprising millions of North Americans — who organised them­
selves into self‐managing teams based on their shared passion for the presidential candidate. Manage­
ment writer David James argues that such a spontaneous organisation would be unlikely to occur in
Australia, whether in politics or elsewhere, because of the preferences of the nation’s managers to pursue
more authoritarian styles of leadership.31
Self‐managing teams operate with participative decision‐making, shared tasks and responsibility  for
many of the managerial tasks performed by supervisors in more traditional settings. The ‘self‐­management’
responsibilities include planning and scheduling work, training members in various tasks, sharing tasks,
meeting performance goals, ensuring high quality and solving day‐to‐day operating problems. In some
settings, the team’s authority may even extend to ‘hiring’ and ‘firing’ its members when necessary.

CHAPTER 17 Teams and teamwork  479

A key feature is multi‐tasking, in which team members each have the skills to perform several different
jobs. As shown in figure 17.2, typical characteristics of self‐managing teams are as follows.
•• Members are held collectively accountable for performance results.
•• Members have discretion in distributing tasks within the team.
•• Members have discretion in scheduling work within the team.
•• Members are able to perform more than one job on the team.
•• Members train one another to develop multiple job skills.
•• Members evaluate one another’s performance contributions.
•• Members are responsible for the total quality of team products.

Top Top
manager manager

Middle Middle
manager manager
Supervisor Team
done by
Supervisor
Team
leader

Work unit Self-managing team

● Planning and scheduling work

● Assignment of work tasks
● Training of workers
● Performance evaluation
● Quality control

FIGURE 17.2 Organisational and management implications of self‐managing work teams

The structural implications of self‐managing teams are also shown in figure 17.2. Members of a self‐
managing team report to higher management through a team leader rather than a formal supervisor,
making the role of first‐line supervisor unnecessary. This is an important change in the traditional struc­
ture because each self‐managing team handles the supervisory duties on its own, and each team leader
handles the upward reporting relationships. High‐level managers to whom self‐managing teams report
must learn to work with teams rather than individual subordinates. This can be a difficult challenge for
some managers who are used to more traditional operating methods. As the concept of self‐managing
teams spreads globally, researchers are examining the receptivity of different cultures to self‐­management
concepts.32 Such cultural dimensions as high power distance and individualism, for example, may gen­
erate resistance that must be considered when implementing this and other team‐based organisational
practices.
Within a self‐managing team the emphasis is always on participation. The leader and members
are expected to work together not only to do the required work but also to make the decisions that
determine how the work gets done. A true self‐managing team emphasises team decision‐making,
shared tasks, high involvement and collective responsibility for accomplished results. The expected
advantages include better performance, decreased costs and higher morale. Of course, these results
are not guaranteed. Managing the transition to self‐managing teams from more traditional work set­
tings isn’t always easy — the process requires leadership committed to both empowerment and a lot
of support.

480  Management
 A study of self‐managing teams in New Zealand found that the major benefits arising from their intro­
duction were increased employee morale and motivation, increased employee knowledge gained from the
experience of working in teams, improved quality and productivity, and the development of better solu­
tions for problems. There were a number of reasons for the success of self‐managing teams, including
the provision of appropriate resources and information, the use of effective communication, sponsorship
from senior management and empowerment to ensure that the teams were truly self‐managing. Major
problems encountered by self‐managing teams included overdependence on the leader by other team
members, team members feeling that consensus was sometimes ‘imposed’, and complacency occurring
when the team ‘rested on its laurels’.33
One solution suggested in response to these problems is the creation of chartered teams. Developed
by Harold Resnick, a chartered team is a self‐managing team that creates and relies on a performance
contract to guide its behaviour. This contract — which will include details of the team’s core purpose,
membership, mission, linkages to other parts of the organisation, boundaries, responsibilities, measure­
ments, operating guidelines, and endorsement from the individual or group to which it reports — is
communicated with others in the organisation to formally provide the team with clarity in its own oper­
ations, and to ensure that it receives sufficient support and resourcing from others in the organisation.
Resnick argues that without attention to these dimensions of team development and operation, most self‐
managing teams will eventually succumb to vagueness in direction and become beset by interpersonal
conflicts.34
The use of self‐managing work teams appears to vary by industry sector and business size. An
Australian study found that although most small and medium‐sized Australian organisations have imple­
mented teams — chiefly to enable employees to participate in decisions and in order to achieve higher
workplace productivity — few had become more than semiautonomous in operation. In other words,
most teams in small and medium‐sized businesses have emerged naturally, based on existing work
groups. Few have been deliberately designed to function as self‐managing work teams.35

COUNTERPOINT

Reward the team or the individual?

In 2015 researchers based at the University
of Sydney and Western Sydney University in
Australia, in collaboration with researchers at
Leicester University in England, discovered
that rewarding team performance delivers
better outcomes than individual bonus
rewards. The researchers found that ‘poor per-
formers may not be free riders or shirkers but
may be essential to the effective functioning
of the group. We call them self‐sacrificers
and believe their role is underappreciated and
misunderstood’ and that they also ‘play an
important role in boosting the performance of
others’.36 You have probably run across such
people in your own work groups, the nice guy who helps everyone else but whose own work may suffer.
If they get sacked the group falls apart. These people don’t seem to have attracted much research
attention in real groups, but they should. It was found that this group is critical for creating the environ-
ment in which high‐performing individuals can operate.37
The researchers used biological theories to understand group versus individual selection, notably
drawn from experiments to improve breeds of egg‐laying hens. Traditionally the best egg‐laying hens
were used to create breeds of hens that increased egg production but produced a hostile environment
of ‘mean bad birds’. Taking an alternative approach William Muir bred whole groups of hens taken from
the top laying cages. In response ‘kind friendly chickens’ were able to produce higher quality eggs.38

CHAPTER 17 Teams and teamwork  481

 The UK and Australian researchers describe how they ‘applied these ideas to work groups by
building  computer models that allowed us to consider all types of group situations’. By using over
14  000 computer‐game simulations that mimicked diverse group settings, the researchers were able
to assess individual and group rewards dynamics. The researchers concluded that ‘Group rewards
generate the top‐performing individuals because of supportive group ecology, a mix of strategies that
supports and sustains them. Individual rewards produce non‐cooperative groups of individuals bent
on exploiting each other. No strategy, like tit‐for‐tat dominates, and different mixes of strategies can
emerge to support high performing groups’.39
Reporting in Business Insider Australia, John Ryan, CEO of the prestigious US‐based Center for the
Creative Leadership, discusses how group success has more meaning than individual accomplishments
and creates trust and positive group cultures.40 In this environment Monica Patrick identifies the advan-
tages of group performance rewards; they improve morale, increase communication, provide a more
focused vision, enable individual improvement and better relationships. She explains, in particular, how
everyone in the group improves, as top performers lend assistance to slower workers, helping them
achieve the group goals.41
One company in Australia that recognises the need to reward group work is Asciano. The company
employs some 10  000 personnel across its Australian logistics, haulage and forestry operations and
states in its employee benefits manual that ‘Through daily, monthly, quarterly and annual recognition, we
want to create a culture where we are recognising those individuals and teams who consistently demon-
strate our values and are pro‐actively contributing to building a more collaborative organisation’.42

QUESTION
What kind of team rewards would improve team performance? How would these rewards provide the
environment for top achievers to thrive?

CRITICAL ANALYSIS

1. Why are self‐managing teams necessary in companies operating in turbulent market environments?
2. If you managed a team in markets that are changing rapidly how would you empower team
members to respond swiftly?

17.3 Team processes and diversity

LEARNING OBJECTIVE 17.3 How do teams work?
Regardless of its form and purpose, any team must achieve three key results — perform tasks, satisfy
members and remain viable for the future.43 On the performance side, a work group or team is expected
to transform resource inputs (such as ideas, materials and objects) into product outputs (such as a report,
decision, service or commodity) that have some value to the organisation. The members of a team should
also be able to experience satisfaction from both these performance results and their participation in the
process. And in respect of future viability, the team should have a social and work climate that makes
members willing and able to work well together in the future, again and again as needed.

What is an effective team?

An effective team is one that achieves and maintains high levels of both task performance and member
satisfaction, and retains its viability for future action.44 Figure 17.3 shows how any team can be viewed
as an open system that transforms various resource inputs into these outcomes. Among the important
inputs are such things as the organisational setting, the nature of the task, the team size and the mem­
bership characteristics.45 Each of these factors plays a role in setting the stage for group performance.

482  Management
 Inputs
Nature of task
● Clarity
● Complexity
Organisational setting Throughputs Outputs
● Resources
● Technology
Group process Team effectiveness
● Structures
● Rewards The way members Accomplishment of
● Information interact and work together desired outcomes
Team size to transform inputs into ● Task performance

● Number of members outputs ● Member satisfaction

● Even/odd number ● Communication ● Team viability

● Decision making
Membership
● Norms
characteristics
● Cohesion
● Abilities
● Conflict
● Values
● Personalities
● Diversity

Feedback

FIGURE 17.3 An open‐systems model of work team effectiveness

Group inputs
The nature of the task is always important. It affects how well a team can focus its efforts and how
intense the group process needs to be to get the job done. Clearly defined tasks make it easier for team
members to focus their work efforts. Complex tasks require more information exchange and intense
interaction than do simpler tasks. The organisational setting can also affect how team members relate
to one another and apply their skills towards task accomplishment. A key issue is the amount of sup­
port provided in terms of information, material resources, technology, organisation structures, available
rewards and spatial arrangements.
Increasingly, for example, organisations are being architecturally designed to directly facilitate team­
work. Junkee Media (formerly Sound Alliance), a company that has created popular music websites
like www.fasterlouder.com.au and www.inthemix.com.au, is located in a funky converted warehouse in
Sydney’s trendy inner‐city Surry Hills, encourages staff to start their day at 10 am, has a casual dress
code, provides free concert tickets to staff and stages an annual staff table tennis competition. As one
employee said ‘It’s easier to get to work if the hours are from 10 am to 6 pm, and it’s a better place to be
if everyone’s open and clear that we’re all heading in the same direction’. The evidence suggests that the
company’s teams achieve high performance, since it was recognised as one of the Great Places to Work
in Australia in 2009.46
Team size affects how members work together, handle disagreements and reach agreements. The
number of potential interactions increases as teams increase in size and communications become more
congested. Teams larger than about six or seven members can be difficult to manage for the purpose
of creative problem‐solving. When voting is required, teams with odd numbers of members are often
preferred so as to prevent ‘ties’. In all teams, the membership characteristics are important. Teams must
have members with the right abilities or skill mix to master and perform tasks well. They must also have
values, personalities and diversity appropriate to the task that are sufficiently compatible for everyone to
work well together.

CHAPTER 17 Teams and teamwork  483

Group process
Although having the right inputs available to a team is important, it is not a guarantee of effectiveness.
What is called group process counts too. Group process is the way the members of any team actually
work together as they transform inputs into outputs. The process aspects of any group or team include
how well members communicate with one another, make decisions and handle conflicts, among other
things. When process breaks down and the internal dynamics fail in any way, team effectiveness can
suffer. This team effectiveness equation is a helpful reminder:

Team effectiveness = Quality of inputs + (Process gains – Process losses)

Team diversity
Team diversity, in the form of different values, personalities, experiences, demographics and cultures
among the membership, can present significant group process challenges. The more homogeneous the
team — the more similar the members are to one another — the easier it is to manage relationships. As
team diversity increases, so too does the complexity of interpersonal relationships among members. But
with the complications also come special opportunities. More heterogeneous teams (teams with more
diversity among members), have a greater variety of available ideas, perspectives and experiences that
can add value to problem‐solving and task performance.
In teamwork, as with organisations at large, the diversity lesson is very clear. There is a lot to
gain when membership diversity is valued and well managed. The process challenge is to maximise
the advantages of team diversity while minimising its potential disadvantages. In the international
arena, for example, research indicates that culturally diverse work teams have more difficulty
learning how to work well together than do culturally homogeneous teams.47 That is, they tend to
struggle more in the early stages of working together. However, once the process challenges are
successfully mastered, the diverse teams eventually prove to be more creative than the homogeneous
ones.
Some clues about why diversity can make for better team outcomes have been provided in
some recent research undertaken by Rebecca Mitchell and Brendan Boyle of the University of New­
castle. They argue that cultural diversity will generally equate with cognitive diversity, or different
ways of thinking, and that the presence of such differing perspectives will potentially generate new
ideas, new solutions and new knowledge. In addition, since diversity will generally create greater
potential for conflict as the worldviews and philosophies of team members collide, team leaders will
need to exert significant effort to ensure that emotional displays within the group are kept to manage­
able levels.48
Although we often think of diversity in multicultural terms, diversity within teams can also relate
to age, gender and status within the organisation, as well as to other differences. An interesting study
by Elizabeth George and Prithviraj Chattopadhyay of the Australian Graduate School of Management
demonstrates how challenging the management of diversity within teams can be. They found that
permanent employees preferred to work in teams with other permanent employees rather than with
temporary workers, and men preferred to work in teams in which the majority of members were also
male. In contrast, women preferred to work in teams with men, and temporary workers preferred to
serve in teams comprising mainly permanent employees. George and Chattopadhyay conclude that
this may be due to the perceived advantages gained in working with people of higher organisational
status (in the view of women and temporary workers). Permanent employees and men may con­
sciously or subconsciously steer away from working in teams with colleagues of a perceived lower
status.49

484  Management
 DIVERSIT Y

Working in multicultural teams

Academic literature has suggested that teams
made up of members from different countries
may perpetuate ‘cultural differences’ and
may lead to a diversity of working behav-
iours and expectations. Recent research by
Juliet Bourke, consulting partner at Deloitte
Australia delved into the issue of working in
a multicultural team by asking deeper ques-
tions relating to individual personality, the
influence of racial background and team
dynamics.
The research was conducted by estab-
lishing a three‐month project in New South
Wales, Australia. A project team was assem-
bled, comprising seven members. The aim was to capture the perspectives of the Spanish team
leader and team members from Australia, Japan, the United States and Germany, as well as the
Australian client. Particular focuses of the research were the perceptions of each individual behav-
iour (such as whether the perception related to their home country or their personality), teamwork
experiences (positive or negative), the manner by which effective interactions were enabled and what
the challenging concerns were.
The interviewees all concluded that the diversity of the project team allowed for positive outcomes
to both task performance and process outcomes (i.e. overall team cohesiveness) but perhaps not as is
commonly discussed in academic literature.
Bourke describes the four key insights drawn from the interviews.
1. Cultural and/or personality diversity is in the eye of the beholder.
2. Cultural diversity can positively contribute to people’s professional and personal enjoyment of the
project, as well as a project’s outcome.
3. Cultural diversity can indirectly encourage project members to rethink their usual working habits and
expectations, behave with fewer assumptions about the ‘right’ way to address an issue and promote
linguistic clarity.
4. The dominance of cultural diversity among team members reduces the bias to interact with people
who have common characteristics and create a unique bond.
Juliet goes on to explain that:

. . . cultural diversity had a positive impact on team performance, both in terms of output and team inter-
actions. In the words of the client ‘the team has been more productive and less stressed — when I compare
them to employees in other places. I think they have worked longer hours because they are valued and
appreciated. They have given 150% and have stretched themselves. Plus they have been upfront about
issues – so open channels of communication’.50

QUESTION
If you were in a multicultural team of people from different cultures and ethnicities, what would be the
effect on the team if all team members were of the same age group?

Stages of team development

A synthesis of research on small groups suggests that there are five distinct phases in the life cycle of
any team:
1. forming — a stage of initial orientation and interpersonal testing
2. storming — a stage of conflict over tasks and working as a team

CHAPTER 17 Teams and teamwork  485

3. norming — a stage of consolidation around task and operating agendas
4. performing — a stage of teamwork and focused task performance
5. adjourning — a stage of task completion and disengagement. 51
Forming stage
The forming stage involves the first entry of individual members into a team. This is a stage of initial
task orientation and interpersonal testing. As individuals come together for the first time or two, they ask
a number of questions: What can or does the team offer me? What will I be asked to contribute? Can my
needs be met while my efforts serve the task needs of the team?
In the forming stage, people begin to identify with other members and with the team itself. They are
concerned about getting acquainted, establishing interpersonal relationships, discovering what is con­
sidered acceptable behaviour and learning how others perceive the team’s task. This may also be a
time when some members rely on or become temporarily dependent on another member who appears
‘powerful’ or especially ‘knowledgeable’. Such things as prior experience with team members in other
contexts and individual impressions of organisation philosophies, goals and policies may also affect
member relationships in new work teams. Difficulties in the forming stage tend to be greater in more
culturally and demographically diverse teams.

Storming stage
The storming stage of team development is a period of high emotionality. Tension often emerges
between members over tasks and interpersonal concerns. There may be periods of outright hostility and
infighting. Coalitions or cliques may form around personalities or interests. Subteams form around areas
of agreement and disagreement involving group tasks and/or the manner of operations. Conflict may
develop as individuals compete to impose their preferences on others and to become influential in the
group’s status structure.
Important changes occur in the storming stage as task agendas become clarified and members begin to
understand one another’s interpersonal styles. Here attention begins to shift towards obstacles that may
stand in the way of task accomplishment. Efforts are made to find ways to meet team goals while also
satisfying individual needs. Failure in the storming stage can be a lasting liability, whereas success in the
storming stage can set a strong foundation for later team effectiveness.

Norming stage
Cooperation is an important issue for teams in the norming stage. At this point, members of the team
begin to coordinate as a working unit and tend to operate with shared rules of conduct. The team feels
a sense of leadership, with each member starting to play useful roles. Most interpersonal hostilities give
way to a precarious balancing of forces as norming builds initial integration. Harmony is emphasised,
but minority viewpoints may be discouraged.
In the norming stage, members are likely to develop initial feelings of closeness, a division of labour
and a sense of shared expectations. This helps protect the team from disintegration. Holding the team
together may become even more important than successful task accomplishment.

Performing stage
Teams in the performing stage are more mature, organised and well functioning. This is a stage of total
integration in which team members are able to deal in creative ways with both complex tasks and any
interpersonal conflicts. The team operates with a clear and stable structure, and members are motivated
by team goals.
The main challenges of teams in the performing stage are to continue refining the operations and
relationships essential to working together as an integrated unit. Such teams need to remain coordinated
with the larger organisation and adapt successfully to changing conditions over time. A team that has
achieved total integration will score highly on the team maturity criteria, such as those in the checklist
in figure 17.4.52

486  Management
 Very poor Very good
1. Trust among members 1 2 3 4 5

2. Feedback mechanisms 1 2 3 4 5

3. Open communications 1 2 3 4 5

4. Approach to decisions 1 2 3 4 5

5. Leadership sharing 1 2 3 4 5

6. Acceptance of goals 1 2 3 4 5

7. Valuing diversity 1 2 3 4 5

8. Member cohesiveness 1 2 3 4 5

9. Support for each other 1 2 3 4 5

10. Performance norms 1 2 3 4 5

Where you Where you
don’t want do want
to be to be

FIGURE 17.4 Criteria for assessing the maturity of a team

Adjourning stage
The final stage of team development is adjourning, when team members prepare to achieve closure and dis­
band. It is especially common for temporary groups that operate in the form of committees, task forces and
project teams. Ideally, the team disbands with a sense that important goals have been accomplished. Members
are acknowledged for their contributions and the group’s overall success. This may be an emotional time,
and disbandment should be managed with this possibility in mind. For members who have worked together
intensely for a period of time, breaking up the close relationships may be painful. In all cases, the team would
like to disband with members feeling they would work with one another again sometime in the future.

Norms and cohesiveness

A norm is a behaviour expected of team members.53 It is a ‘rule’ or ‘standard’ that guides their behaviour.
When violated, a norm may be enforced with reprimands and other sanctions. In the extreme, violation of
a norm can result in a member being expelled from a team or socially ostracised by other members. The
performance norm, which defines the level of work effort and performance that team members are expected
to contribute, is extremely important. It can have positive or negative implications for team performance and
organisational productivity. In general, work groups and teams with positive performance norms are more
successful in accomplishing task objectives than are teams with negative performance norms. Other impor­
tant team norms relate to such things as helpfulness, participation, timeliness, quality and innovation.
Because a team’s norms are largely determined by the collective will of its members, it is difficult for
a manager or designated leader simply to dictate which norms will be adopted. Instead, the concerned
manager or team leader must help and encourage members to develop norms that support organisational
objectives. During forming and storming steps of development, for example, norms relating to member­
ship issues such as expected attendance and levels of commitment are important. By the time the stage
of performing is reached, norms relating to adaptability and change become most relevant. Guidelines
for how to build positive norms are as follows.
•• Act as a positive role model.
•• Reinforce the desired behaviours with rewards.

CHAPTER 17 Teams and teamwork  487

•• Control results by performance reviews and regular feedback.
•• Train and orient new members to adopt desired behaviours.
•• Recruit and select new members who exhibit the desired behaviours.
•• Hold regular meetings to discuss progress and ways of improving.
•• Use team decision‐making methods to reach agreement.54
Norms vary in the degree to which they are accepted and adhered to by team members.
Conformity to norms is largely determined by the strength of cohesiveness, defined as the degree
to which members are attracted to and motivated to remain part of a team.55 People in a highly
cohesive team value their membership and strive to maintain positive relationships with other team
members. They experience satisfaction from team identification and interpersonal relationships.
Because of this, highly cohesive teams are good for their members. They can also be very good
for organisations, but not always. It all depends on the performance norm that the cohesiveness is
paired with.
A basic rule of group dynamics is: The more cohesive the team, the greater the conformity of
members to team norms. This has important implications for team performance. Look at figure 17.5.
When the performance norm of a team is positive, high cohesion and the resulting conformity to
norms has a beneficial effect on overall team performance. This is a ‘best case’ scenario for both
the manager and the organisation. Competent team members work hard and reinforce one another’s
task accomplishments while experiencing satisfaction with the team. But when the performance
norm is negative in a cohesive team, high conformity to the norm can have undesirable results.
The figure shows this as a ‘worst case’ scenario where team performance suffers from restricted
work efforts by members. Between these two extremes are mixed situations of moderate to low
performance.

Low performance High performance

High Strong commitments to Strong commitments to
harmful norms supportive norms
Team
cohesiveness
Low to moderate performance Moderate performance
Low Weak commitments to Weak commitments to
harmful norms supportive norms

Negative Positive

Performance norms

FIGURE 17.5 How cohesiveness and norms influence team performance

To achieve and maintain the best case scenario shown in figure 17.5, managers should be skilled at
influencing both the norms and cohesiveness of any team. They will want to build and maintain high
cohesiveness in teams whose performance norms are positive. Guidelines on how to increase cohesion
include the following.
•• Induce agreement on team goals.
•• Increase membership homogeneity.
•• Increase interactions among members.
•• Decrease team size.
•• Introduce competition with other teams.
•• Reward team rather than individual results.
•• Provide physical isolation from other teams.

488  Management
Task and maintenance needs
Research on the social psychology of groups identifies two types of activities that are essential if team
members are to work well together over time.56 Task activities contribute directly to the team’s perfor­
mance purpose, whereas maintenance activities support the emotional life of the team as an ongoing
social system. Although a person with formal authority, such as a chairperson or supervisor, will often
handle them, the responsibility for both types of activities should be shared and distributed among all
team members. Any member can help lead a team by taking actions that help satisfy its task and main­
tenance needs. This concept of distributed leadership in teams thus makes every member continually
responsible for recognising when task and/or maintenance activities are needed and then stepping in to
provide them.
Figure 17.6 offers useful insights on distributed leadership in teams. Leading through task activities
involves making an effort to define and solve problems and apply work efforts in support of accomplishing
tasks. Without relevant task activities, such as initiating agendas, sharing information and other activities
listed in the figure, teams will have difficulty accomplishing their objectives. Leading through maintenance
activities helps strengthen and perpetuate the team as a social system. When the maintenance activities
such as encouraging others and reducing tensions are performed well, good interpersonal relationships are
achieved and the ability of the team to stay together over the longer term is ensured.
Distributed leadership
roles in teams

Team leaders Team leaders

provide task activities provide maintenance activities
● Initiating ● Elaborating ● Gatekeeping ● Following
● Information sharing ● Opinion giving ● Encouraging ● Harmonising
● Summarising ● Reducing tension

Team leaders
avoid disruptive activities
● Being aggressive ● Competing
● Blocking ● Withdrawal
● Self-confessing ● Horsing around
● Seeking sympathy ● Seeking recognition

FIGURE 17.6 Distributed leadership helps teams meet task and maintenance needs

Both team task and maintenance activities stand in distinct contrast to the dysfunctional activities also
described in figure 17.6. Activities such as withdrawing and horsing around are usually self‐serving to
the individual member. They detract from, rather than enhance, team effectiveness. Unfortunately, very
few teams are immune to dysfunctional behaviour by members. Everyone shares in the responsibility for
minimising its occurrence and meeting the distributed leadership needs of a team by contributing func­
tional task and maintenance behaviours.

Communication networks
Figure 17.7 depicts three interaction patterns and communication networks that are common in teams.57
When teams are interacting intensively and their members are working closely together on tasks, close
coordination of activities is needed. This need is best met by a decentralised communication network
in which all members communicate directly with one another. Sometimes this is called the all‐channel
or star communication network. At other times and in other situations, team members work on tasks

CHAPTER 17 Teams and teamwork  489

independently, with the required work being divided up among them. Activities are coordinated and
results pooled by a central point of control. Most communication flows back and forth between individual
members and this hub or centre point. This creates a centralised communication network, as shown in
the figure. Sometimes this particular network is called a wheel or chain communication structure.

Pattern Diagram Characteristics

Interacting group High interdependency

Decentralised around a common task
communication network Best at complex tasks

Independent individual
Coacting group efforts on behalf of
Centralised common task
communication network Best at simple tasks

Counteracting group Subgroups in disagreement

Restricted with one another
communication network Slow task accomplishment

FIGURE 17.7 Interaction patterns and communication networks in teams

Source: © John R. Schermerhorn Jr, James G. Hunt and Richard N. Osborn, Organizational Behavior, 6th edn (New York:
Wiley, 1997), p. 351. This material is used by permission of John Wiley & Sons, Inc.

When teams are composed of subgroups experiencing issue‐specific disagreements, such as a tem­
porary debate over the best means to achieve a goal, the resulting interaction pattern involves a restricted
communication network. Here, the polarised subgroups contest one another and may engage in antag­
onistic relations. Communication between the subgroups is often limited and biased, with the result that
problems can easily occur.
The best teams use communication networks in the right ways, at the right times, and for the right
tasks. In general, centralised communication networks seem to work better on simple tasks.58 These tasks
require little creativity, information processing and problem‐solving, and lend themselves to more cen­
tralised control. They tend to be performed faster and more accurately by coacting groups. The reverse
is true for more complex tasks, where interacting groups do better. Here, the decentralised networks
work well, since they are able to support the more intense interactions and information sharing required
to perform under such task conditions. Interacting groups tend to be the top performers when tasks get
complicated. When subgroups have difficulty communicating with one another, task accomplishment
typically suffers, for the short run at least. If the team is able to restore good communication between
subgroups, it can benefit from the creativity and critical evaluation that typically accompanies conflict. If
the subgroups drift further and further apart, negative dynamics set in and the team may suffer long‐term
damage.

490  Management
 CRITICAL ANALYSIS

1. The number of members in each team is usually determined by executives. Given the importance of
working with other people of competence, shouldn’t team members decide on how big their team
should be? Justify your answer.
2. Given the conflicts that can arise in the storming stage, many organisational activities would arguably
be better performed by individuals. What do you think?

17.4 Decision‐making in teams

LEARNING OBJECTIVE 17.4 How do teams make decisions?
Decision‐making, discussed extensively in the chapter on environment and diversity, is the process of
choosing between alternative courses of action. It is one of the most important group processes. It is also
complicated by the fact that decisions in teams can be made in several different ways.

How teams make decisions

Edgar Schein, a respected scholar and consultant, notes that teams make decisions by at least six methods:
lack of response, authority rule, minority rule, majority rule, consensus and unanimity.59 In decision by
lack of response, one idea after another is suggested without any discussion taking place. When the team
finally accepts an idea, all others have been bypassed and discarded by simple lack of response rather
than by critical evaluation. In decision by authority rule, the leader, manager, committee head or some
other authority figure makes a decision for the team. This can be done with or without discussion and
is very time efficient. Whether the decision is a good one or a bad one, however, depends on whether
the authority figure has the necessary information, and on how well this approach is accepted by other
team members. In decision by minority rule, two or three people are able to dominate or ‘railroad’ the
team into making a mutually agreeable decision. This is often done by providing a suggestion and then
forcing quick agreement by challenging the team with such statements as ‘Does anyone object?  .  .  .  Let’s
go ahead, then’. People’s experiences of teams vary widely, and the decisions made by these teams can
be both good and bad. The quality of team decisions can reflect the quality of the processes for making
the decision, the qualities of team members or, sometimes, plain good luck.
One of the most common ways teams make decisions, especially when early signs of disagreement arise,
is decision by majority rule. Here, formal voting may take place, or members may be polled to find the
majority viewpoint. This method parallels the democratic political system and is often used without aware­
ness of its potential problems. The very process of voting can create coalitions; that is, some people will be
‘winners’ and others will be ‘losers’ when the final vote is tallied. Those in the minority — the ‘losers’ —
may feel left out or discarded without having had a fair say. They may be unenthusiastic about implementing
the decision of the ‘majority’, and lingering resentments may impair team effectiveness in the future.
Teams are often encouraged to follow decision by consensus. This is when discussion leads to one
alternative being favoured by most members and the other members agree to support it. When a con­
sensus is reached, even those who may have opposed the chosen course of action know that they have
been heard and have had an opportunity to influence the decision outcome. Consensus, therefore, does
not require unanimity. But it does require that team members are able to argue, engage in reasonable
conflict, and yet still get along with and respect one another.60 And it requires there to be opportunity for
any dissenting members to speak — and to feel they have been listened to.
A decision by unanimity may be the ideal state of affairs. Here, all team members agree on the course
of action to be taken. This is a ‘logically perfect’ method for decision‐making in teams, but it is also
extremely difficult to attain in actual practice. One of the reasons that teams sometimes turn to authority
decisions, majority voting or even minority decisions, in fact, is the difficulty of managing the team pro­
cess to achieve consensus or unanimity.

CHAPTER 17 Teams and teamwork  491

Assets and liabilities of group decisions
The best teams do not limit themselves to just one decision‐making method. Instead, they vary methods
to best fit the problems at hand, in true contingency management fashion. A very important team leader­
ship skill is the ability to help a team choose the ‘best’ decision method — one that provides for a timely
and quality decision and one to which the members are highly committed. This reasoning is consistent
with the Vroom–Jago leader‐participation model.61 This model describes how leaders should use the
full range of individual, consultative and group decision methods as they resolve daily problems. To do
this well, however, team leaders must understand the potential assets and potential liabilities of group
decisions.62
The potential advantages of group decision‐making are significant. Because of this, the general
argument is that team decisions should be sought whenever time and other circumstances permit.
Team decisions make greater amounts of information, knowledge and expertise available to solve prob­
lems. They expand the number of action alternatives that are examined, and they help groups to avoid
tunnel vision and tendencies to consider only a limited range of options. Team decisions increase the
understanding and acceptance of outcomes by members. And, importantly, team decisions increase the
commitments of members to follow through to implement the decision once it has been made. Simply
put, team decisions can result in quality decisions that all members of the team work hard to make
successful.
The potential disadvantages of group decision‐making largely trace to the difficulties that can be
experienced in group processes. In a team decision there may be social pressure to conform. Individual
members may feel intimidated or compelled to go along with the apparent wishes of others. There may
be minority domination, where some members feel forced or ‘railroaded’ to accept a decision advocated
by one vocal individual or small coalition. Also, the time required to make team decisions can some­
times be a disadvantage. As more people are involved in the dialogue and discussion, decision‐making
takes longer. This added time may be costly, even prohibitively so, in certain circumstances.63
Groupthink
A high level of cohesiveness can sometimes be a disadvantage during decision‐making. Members of very
cohesive teams feel so strongly about the group that they may not want to do anything that might detract
from feelings of goodwill. This may cause them to publicly agree with actual or suggested courses of
action while privately having serious doubts about them. Strong feelings of team loyalty can make it
hard for members to criticise and evaluate one another’s ideas and suggestions. Unfortunately, there are
times when desires to hold the team together at all costs and avoid disagreements may result in poor
decisions.
Psychologist Irving Janis calls this phenomenon groupthink, the tendency for highly cohesive groups
to lose their critical evaluative capabilities.64 You should be alert to the following symptoms of group­
think when they occur in your decision‐making teams.
•• Illusions of invulnerability. Members assume the team is too good for criticism or beyond attack.
•• Rationalising unpleasant and disconfirming data. Members refuse to accept contradictory data or to
thoroughly consider alternatives.
•• Belief in inherent group morality. Members act as though the group is inherently right and above
reproach.
•• Stereotyping competitors as weak, evil and stupid. Members refuse to look realistically at other groups.
•• Applying direct pressure to deviants to conform to group wishes. Members refuse to tolerate anyone
who suggests the team may be wrong.
•• Self‐censorship by members. Members refuse to communicate personal concerns to the whole team.
•• Illusions of unanimity. Members accept consensus prematurely, without testing its completeness.
•• Mind guarding. Members protect the team from hearing disturbing ideas or outside viewpoints.
If you encounter groupthink, Janis suggests taking action along the lines shown in Manager’s
notepad 17.2.

492  Management
 MANAGER’S NOTEPAD 17.2

How to avoid groupthink

• Assign the role of critical evaluator to each team member; encourage a sharing of viewpoints.
• Do not, as a leader, seem partial to one course of action; do absent yourself from meetings at times
to allow free discussion.
• Create subteams to work on the same problems and then share their proposed solutions.
• Have team members discuss issues with outsiders and report back on their reactions.
• Invite outside experts to observe team activities and react to team processes and decisions.
• Assign one member to play a ‘devil’s advocate’ role at each team meeting.
• Hold a ‘second‐chance’ meeting after consensus is apparently achieved to review the decision.

Creativity in team decision‐making

Among the potential benefits that teams can bring to organisations is increased creativity. Two tech­
niques that are particularly helpful for creativity in decision‐making are brainstorming and the nominal
team technique.65 Both can now be pursued in computer‐mediated or virtual team discussions, as well as
in face‐to‐face formats.66
In brainstorming, teams of five to ten members meet to generate ideas. Brainstorming teams typically
operate within the following guidelines.
•• All criticism is ruled out. Judgement or evaluation of ideas must be withheld until the idea‐generation
process has been completed.
•• ‘Freewheeling’ is welcomed. The wilder or more radical the idea, the better.
•• Quantity is important. The greater the number of ideas, the greater the likelihood of obtaining a
superior idea.
•• Building on one another’s ideas is encouraged — participants should suggest how ideas of others can
be turned into better ideas, or how two or more ideas can be joined into still another hybrid idea.
By prohibiting criticism, the brainstorming method reduces fears of ridicule or failure on the part
of individuals. Ideally, this results in more enthusiasm, involvement and a freer flow of ideas among
members. But there are times when team members have very different opinions and goals. The dif­
ferences may be so extreme that a brainstorming meeting might deteriorate into antagonistic arguments
and harmful conflicts. In such cases, a nominal group technique could help. This approach uses a highly
structured meeting agenda to allow everyone to contribute ideas without the interference of evaluative
comments by others. It allows for many alternatives to be generated and evaluated without inhibitions
or hostilities.
The basic steps for running a nominal group session are easy to implement. Participants are first asked
to work alone and respond in writing with possible solutions to a stated problem. Ideas are then shared
in round‐robin fashion without any criticism or discussion; all ideas are recorded as they are presented.
Ideas are next discussed and clarified in round‐robin sequence, with no evaluative comments allowed.
Next, members individually and silently follow a written voting procedure that allows for all alternatives
to be ranked in priority order. Finally, the last two steps are repeated as needed to further clarify the
process.

CRITICAL ANALYSIS

1. What individual skills are needed for effective brainstorming? Would different psychological traits
among team members aid or hinder the brainstorming process?
2. How would the pairing of individuals to create initial ideas benefit nominal groups?

CHAPTER 17 Teams and teamwork  493

17.5 Leading high‐performance teams
LEARNING OBJECTIVE 17.5 What are the challenges of high‐performance team leadership?
When we think of the word ‘team’, sports teams often come to mind. And we know these teams cer­
tainly have their share of problems. Members slack off or become disgruntled — even world‐champion
teams have losing streaks — and the most highly talented players sometimes lose motivation, quibble
with other team members and lapse into performance slumps. When these things happen, the owners,
managers and players are apt to take corrective action to ‘rebuild the team’ and restore what we have
called team effectiveness. Work teams are similar. Even the most mature work team is likely to experi­
ence problems over time. When such difficulties arise, structured efforts at team building can help.

The team‐building process

Team building is a sequence of planned activities used to gather and analyse data on the functioning of
a team and to implement constructive changes to increase its operating effectiveness.67 Most systematic
approaches to team building follow the steps described in figure 17.8. The cycle begins with the aware­
ness that a problem may exist or may develop within the team. Members then work together to gather
and analyse data so that the problem is finally understood. Action plans are made by members and col­
lectively implemented. Results are evaluated in similar fashion by team members working together. Any
difficulties or new problems that are discovered serve to recycle the team‐building process.

Step 1:
Problem
awareness

Step 2:
Step 6: Data
Evaluation gathering
Hospital’s top
management
team
● Chief executive
● Four directors
● Staff planner
Step 3:
Step 5:
Data
Action
analysis
implementation
and
diagnosis
Step 4:
Action
planning

FIGURE 17.8 Steps in the team‐building process: case of the hospital top management team

Consider the following scenario.

A management consultant received a call from a hospital’s human resource manager. The HR manager
indicated that a new hospital chief executive felt that the hospital’s top management team lacked cohe­
siveness and was not working well together as a team. The consultant agreed to facilitate a team‐building
activity for the hospital’s managers that would include a day‐long retreat at a nearby resort hotel. The

494  Management
 process began when the consultant conducted interviews with the chief executive and other members of
the hospital’s executive team. During the retreat, the consultant reported these results to the team as a
whole. She indicated that the hospital’s goals were generally understood by all but that they weren’t clear
enough to allow agreement on action priorities. Furthermore, she reported that interpersonal problems
between the director of nursing services and the director of administration were making it difficult for the
team as a whole to work together comfortably.
These and other issues were considered by the team at the retreat. Working sometimes in small sub­
teams and at other times together as a whole, they agreed first of all that action should be taken to clarify
the hospital’s overall mission and create a list of objectives for the current year. Led by the chief exec­
utive, activity on this task would involve all team members and was to be completed within a month. The
chief executive asked for progress on the action plans to be reviewed at each of the next three monthly
executive staff meetings. Everyone agreed.

This example, adapted from a real occurrence and represented conceptually in figure 17.8, introduces
team building as a way to assess a work team’s functioning and take corrective action to improve its
effectiveness. It can and should become a regular work routine. There are many ways to gather data on
team functioning, including structured and unstructured interviews, questionnaires and team meetings.
Regardless of the method used, the basic principle of team building remains the same. The process
requires a careful and collaborative assessment of the team’s inputs, processes and results to be made.
All members should participate in data gathering, help with data analysis and collectively decide on
actions to be taken.
Companies such as Quest Group Australia and Footprints Waipoua in New Zealand offer team‐building
activities and tools for diagnosing problems and developing competencies among team members. Team
members can, for instance, evaluate their progress, identify training needs and gauge their performance
against other teams. Sometimes teamwork can be improved when people share the challenges of unusual
and even physically demanding experiences. Sydney‐based company Bushsports provides team‐building
activities to a range of companies. For instance, the company has taken more than 250 Common­
wealth Bank staff through an 8‐sport adventure, staff from pharmaceutical company Novartis on an
abseiling trip and employees of superannuation giant AMP on a mini‐Olympics at Sydney Olympic
Park. Bushsports also offers team‐building programs with themes such as ‘survivor’, ‘wet ‘n’ wild’,
‘shipwrecked’, ‘mission: possible’ and ‘the mole’. Senior Qantas manager Gary Furlong attested to the
benefit of such programs. After a team‐building day involving abseiling and whitewater rafting, he said:
‘I managed to take a lot away from the day and incorporate it into our two days of classroom training
for the supervisors’.68
While some employees can be sceptical about the benefits from such experiences, even an Australian
fire‐walking instructor with the unlikely name of Flame Amazon readily agrees that extreme experiences
are unlikely to add value unless they are built upon a foundation of personal change.

If people aren’t getting along, building a raft together won’t necessarily make a difference — they could
return to the office and play out their old behaviours. People need activities that heighten self‐awareness
and personal power first. Improved group decision‐making, trust, communication, conflict resolution and
cooperation will flow on from that.69

Team leadership challenges

Among the many developments in the workplace today, the continuing effort to refine and apply cre­
ative team concepts should be at the forefront of any progressive manager’s action agendas. But har­
nessing the full potential of teams involves special leadership challenges. We know, for example, that
high‐performance teams generally share common characteristics. These include a clear and elevating
goal, a task‐driven and results‐oriented structure, competent and committed members who work hard,
a collaborative climate, high standards of excellence, external support and recognition, and strong and
principled leadership.70

CHAPTER 17 Teams and teamwork  495

 The last point on this list — the need for strong and principled leadership — may be the key to them
all. In their book Teamwork: What Must Go Right, What Can Go Wrong, Carl Larson and Frank LaFasto
state: ‘The right person in a leadership role can add tremendous value to any collective effort, even to the
point of sparking the outcome with an intangible kind of magic’.71 They further point out that leaders of
high‐performing teams share many characteristics with the ‘transformational leader’.
Successful team leaders establish a clear vision of the future. This vision serves as a goal that inspires
hard work and the quest for performance excellence — it creates a sense of shared purpose. Successful
team leaders help to create change. They are dissatisfied with the status quo, influence team members
towards similar dissatisfaction, and infuse the team with the motivation to change in order to become
better. Finally, successful team leaders unleash talent. They make sure the team has members with the
right skills and abilities. And they make sure these people are highly motivated to use their talents to
achieve the group’s performance objectives. Included in this responsibility is developing future leaders
for the team.
According to Kevin Gaunt, chief executive of the New Zealand Institute of Management, successful
team leaders model the kinds of positive team behaviours they are seeking from team members. Team
leaders who demonstrate authentic trust in their people and who take the time and effort to actively sup­
port and mentor team members will see these actions mirrored in the behaviour of team members. The
environment thus created becomes one in which future leaders can be identified and nurtured.72
You don’t get a high‐performing team by just bringing a group of people together and giving them
a shared name or title. David Vaux, former chief executive of aged care and radiology company DCA
Group (now subsumed within private equity company CVC) and a former first grade rugby player with
Sydney University, compares high‐performance business teams with great sports teams:

I always understood the value of being part of a team; you can never win if you’re not working together
or if everyone doesn’t share the commitment. It is just the same here: you get a good team together who
support the goals and are committed to achieving them, and you’re three‐quarters of the way there.73

Leaders of high‐performance teams create supportive climates in which team members know what
to expect from the leader and each other, and know what the leader expects from them. They empower
team members. By personal example they demonstrate the importance of setting aside self‐interests to
support the team’s goals. And they view team building as an ongoing leadership responsibility. As said
before, teams are hard work. But they are worth it.74

CRITICAL ANALYSIS

1. As a team leader you have just come back from a meeting with your senior managers who have
informed you of the new vision of the company. How would you motivate your team to respond to
the new vision?
2. Conflicting views have been presented about the perceived benefits of team‐building activities,
particularly those of a more ‘extreme’ nature. What do you think?

496  Management
SUMMARY
17.1 How do teams contribute to organisations?
•• A team is a collection of people who work together to accomplish a common goal.
•• Organisations operate as interlocking networks of formal work teams that offer many benefits to the
organisations and to their members.
•• Teams help organisations through synergy in task performance, the creation of a whole that is greater
than the sum of its parts.
•• Teams help satisfy important needs for their members, providing various types of support and social
satisfactions.
•• Social loafing and other problems can limit the performance of teams.

17.2 What are current trends in the use of teams?

•• Teams are important mechanisms of empowerment and participation in the workplace.
•• Committees and task forces are used to facilitate operations and allow special projects to be completed
with creativity.
•• Cross‐functional teams bring members together from different departments and help improve lateral
relations and integration in organisations.
•• Employee involvement teams, such as the quality circle, allow employees to provide important insights
into daily problem‐solving.
•• New developments in information technology are making virtual teams, or computer‐based teams,
more commonplace.
•• Self‐managing teams are changing organisations by allowing team members to perform many tasks
previously reserved for their supervisors.

17.3 How do teams work?

•• An effective team achieves high levels of task performance, member satisfaction and team viability.
•• Important team input factors include the organisational setting, the nature of the task, size and
membership characteristics.
•• A team matures through various stages of development, including forming, storming, norming,
performing and adjourning.
•• Norms are the standards or rules of conduct that influence the behaviour of team members. Cohesion
is the attractiveness of the team to its members.
•• In highly cohesive teams, members tend to conform to norms; the best situation for a manager or
leader is a team with positive performance norms and high cohesiveness.
•• Distributed leadership in serving a team’s task and maintenance needs will help to achieve long‐term
effectiveness.
•• Effective teams make use of alternative communication networks to best complete tasks.

17.4 How do teams make decisions?

•• Teams can make decisions by lack of response, authority rule, minority rule, majority rule, consensus
and unanimity.
•• The potential advantages of team decision‐making include having more information available and
generating more understanding and commitment.
•• The potential liabilities of team decision‐making include social pressures to conform and greater time
requirements.
•• Groupthink is a tendency of members of highly cohesive teams to lose their critical evaluative
capabilities and make poor decisions.
•• Techniques for improving creativity in team decision‐making include brainstorming and the nominal
group technique.

CHAPTER 17 Teams and teamwork  497

17.5 What are the challenges of high‐performance team leadership?
•• Team building helps team members develop action plans for improving the way they work together
and the results they accomplish.
•• The team‐building process should be collaborative, involving a high level of participation by all team
members.
•• High‐performance work teams have a clear and shared sense of purpose as well as strong internal
commitment to its accomplishment.

KEY TERMS
In a centralised communication network,  communication flows only between individual members
and a hub or centre point.
A chartered team  is a self‐managing team that creates and relies on a performance contract to guide
its behaviour.
Cohesiveness  is the degree to which members are attracted to and motivated to remain part of
a team.
A committee  is a formal team designated to work on a special task on a continuing basis.
Cross‐functional teams  bring together members from different functional departments.
A decentralised communication network  allows all members to communicate directly with one
another.
Decision‐making  is the process of choosing between alternative courses of action.
An effective team  achieves high levels of both task performance and membership satisfaction.
Employee involvement teams  meet on a regular basis to use their talents to help solve problems and
achieve continuous improvement.
Formal groups  are officially recognised and supported by the organisation.
Group process  is the way team members work together to accomplish tasks.
Groupthink  is a tendency for highly cohesive teams to lose their evaluative capabilities.
Informal groups  are unofficial and emerge from relationships and shared interests among members.
International teams  are teams that include members from at least two different countries.
Maintenance activities  are actions taken by team members that support the emotional life of the
group.
A norm  is a behaviour, rule or standard expected to be followed by team members.
A quality circle  is a group of employees who periodically meet to discuss ways of improving work
quality.
Members of self‐managing work teams  have the authority to make decisions about how they share
and complete their work.
Social loafing  is the tendency of some people to avoid responsibility by ‘free‐riding’ in groups.
Synergy  is the creation of a whole greater than the sum of its individual parts.
Task activities  are actions taken by team members that directly contribute to the group’s performance
purpose.
Task forces  are formal teams convened for a specific purpose and expected to disband when that
purpose is achieved.
A team  is a collection of people who regularly interact to pursue common goals.
Team building  is a sequence of collaborative activities to gather and analyse data on a team and make
changes to increase its effectiveness.
Teamwork  is the process of people actively working together to accomplish common goals.
Members of a virtual team  work together and solve problems through computer‐based
interactions.

498  Management
APPLIED ACTIVITIES
1 How can a manager improve team effectiveness by modifying inputs?
2 What is the relationship between a team’s cohesiveness, performance norm and performance results?
3 How would a manager know that his or her team was suffering from groupthink (give two
symptoms) and what could he or she do about it (give two responses)?
4 What makes a self‐managing team different from a traditional work team?
5 Dieter Reise has just been appointed manager of a production team operating the 11 pm to 7 am
shift in a large manufacturing firm. An experienced manager, Dieter is concerned that although the
team members really like and get along well with one another they appear to be restricting their task
outputs to the minimum acceptable levels. What could Dieter do to improve things in this situation
and why should he?

ENDNOTES
  1. Telstra website, ‘Our Company’, Telstra, www.telstra.com.au.
  2. ‘Better Teamwork Quicker Decision: Telstra Gets Work Done Faster with Cisco® Spark’, Cisco, (2015), www.cisco.com.
  3. Josh Taylor, ‘Telstra Adopts Cisco Spark for Collaboration’, ZDnet (17 March 2015), www.zdnet.com.
  4. Cisco, op. cit.
 5. Management Today, ‘Survival Tips’ (January–February 2009), pp. 8–9.
  6. Adele Ferguson, ‘A World of Shifting Goalposts’, Management Today (January–February 1999), pp. 14–19.
  7. See, for example, Edward E. Lawler III, Susan Albers Mohrman and Gerald E. Ledford Jr, Employee Involvement and Total
Quality Management: Practices and Results in Fortune 1000 Companies (San Francisco: Jossey‐Bass, 1992); and Susan Albers
Mohrman, Susan G. Cohen and Allan M. Mohrman Jr, Designing Team‐Based Organizations: New Forms for Knowledge Work
(San Francisco: Jossey‐Bass, 1995).
  8. Jon R. Katzenbach and Douglas K. Smith, The Wisdom of Teams: Creating the High Performance Organization (Boston:
Harvard Business School Press, 1993).
  9. For insights on how to conduct effective meetings, see Mary A. De Vries, How to Run a Meeting (New York: Penguin, 1994).
10. A classic work is Bib Latane, Kipling Williams and Stephen Harkins, ‘Many Hands Make Light the Work: The Causes and
Consequences of Social Loafing’, Journal of Personality and Social Psychology, vol. 37 (1978), pp. 822–32.
11. See Marvin E. Shaw, Group Dynamics: The Psychology of Small Group Behavior, 2nd edn (New York: McGraw‐Hill, 1976);
and Harold J. Leavitt, ‘Suppose We Took Groups More Seriously’, in Eugene L. Cass and Frederick G. Zimmer (eds), Man
and Work in Society (New York: Van Nostrand Reinhold, 1975), pp. 67–77.
12. John M. George, ‘Extrinsic and Intrinsic Origins of Perceived Social Loafing in Organizations’, Academy of Management
Journal (March 1992), pp. 191–202; and W. Jack Duncan, ‘Why Some People Loaf in Groups While Others Loaf Alone’,
Academy of Management Executive, vol. 8 (1994), pp. 79–80.
13. See Leavitt (1975), op. cit.
14. The ‘linking pin’ concept is introduced in Rensis Likert, New Patterns of Management (New York: McGraw‐Hill, 1962).
15. John Stensholt, ‘Tax: Teamwork Beats the Trauma’, BRW (4 October 2001), www.brw.com.au.
16. See discussion by Susan G. Cohen and Don Mankin, ‘The Changing Nature of Work: Managing the Impact of Information
Technology’, chapter 6 in Susan Albers Mohrman, Jay R. Galbraith, Edward E. Lawler III and Associates, Tomorrow’s
Organization: Crafting Winning Capabilities in a Dynamic World (San Francisco: Jossey‐Bass, 1998), pp. 154–78.
17. Paul S. Hempel, Zhi‐Xue Zhang and Yulan Han, ‘Team Empowerment and the Organizational Context: Decentralization and
the Contrasting Effects of Decentralization’, Journal of Management, vol. 38, no. 2 (March 2012), pp. 475–501.
18. Information from ‘Diversity: America’s Strength’, Fortune, special advertising section (23 June 1997); American Express
corporate communication (1998).
19. See Susan D. Van Raalte, ‘Preparing the Task Force to Get Good Results’, S.A.M. Advanced Management Journal, vol. 47
(winter 1982), pp. 11–16; and Walter Kiechel III, ‘The Art of the Corporate Task Force’, Fortune (28 January 1991),
pp. 104–6.
20. Developed from ibid.
21. Mohrman et al. (1992), op. cit.
22. Udaysinh R. Manepatil, ‘Quality Circle an Effective Management Tool’, Golden Research Thoughts, vol. 2, no. 7 (January
2013), pp. 1–4.
23. See Wayne F. Cascio, ‘Managing a Virtual Workplace’, Academy of Management Executive, vol. 14 (2000), pp. 81–90.
24. Wanda J. Orlikowski and J. Debra Hofman, ‘An Improvisational Model for Change Management: The Case of Groupware
Technologies’, Sloan Management Review (winter 1997), pp. 11–21.

CHAPTER 17 Teams and teamwork  499

25. R. Brent Gallupe and William H. Cooper, ‘Brainstorming Electronically’, Sloan Management Review (fall 1993), pp. 27–36;
Cascio (2000), op. cit.
26. Cascio (2000), op. cit.
27. Amanda Nickson, ‘Social Work in Australia: Virtual Teams Offer Supervision’, The Guardian (11 July 2014),
www.theguardian.com.
28. Example from Sue Canney Davison and Karen Ward, Leading International Teams (London: McGraw‐Hill, 1999).
29. ibid.
30. See, for example, Paul S. Goodman, Rukmini Devadas and Terri L. Griffith Hughson, ‘Groups and Productivity: Analyzing
the Effectiveness of Self‐Managing Teams’, chapter 11 in John P. Campbell and Richard J. Campbell (eds), Productivity in
Organizations: New Perspectives from Industrial and Organizational Psychology (San Francisco: Jossey‐Bass, 1988); Jack
Orsbrun, Linda Moran, Ed Musslewhite and John H. Zenger, with Craig Perrin, Self‐Directed Work Teams: The New American
Challenge (Homewood, IL: Business One Irwin, 1990); Dale E. Yeatts and Cloyd Hyten, High Performing Self‐Managed Work
Teams (Thousand Oaks, CA: Sage, 1997).
31. David James, ‘Obama’s Model of Motivation’, Business Review Weekly (29 January–4 March, 2009), pp. 20–1.
32. Bradley L. Kirkman and Debra L. Shapiro, ‘The Impact of Cultural Values on Employee Resistance to Teams: Toward a
Model of Globalized Self‐Managing Work Team Effectiveness’, Academy of Management Review, vol. 22 (1997), pp. 730–57.
33. Antonias Vitalis, David Tweed and Ngai Weng Low, ‘New Zealand Managers’ Perceptions of Success Factors in the
Implementation of Selfmanaging Teams: An Exploratory Study’, paper presented at the ANZAM 2001 Conference, Auckland,
5–8 December 2001.
34. James Nelson, ‘Chartering Success’, Management Today (July 2008), pp. 36–37.
35. Stephanie Miller, ‘Real Teams in Small Australian Firms’, paper presented at the ANZAM 2001 Conference, Auckland,
5–8 December 2001.
36. Ian Wilkinson, Daniel Ladley and Louise Young, ‘Bonus Time? Research Shows It’s Better to Reward Groups than Individual’,
The Conversation (20 November 2015), http://theconversation.com.
37. Daniel Ladley, Ian Wilkinson and Louise Young, ‘The Impact of Individual Versus Group Rewards on Work Group
Performance and Cooperation: A Computational Social Science Approach’, Journal of Business Research, vol. 68, no. 11
(November 2015), pp. 2412–25.
38. Wilkinson, Ladley and Young, op. cit.
39. ibid.
40. John Ryan, ‘Employee Incentives Are Good But Group Rewards Foster Teamwork And Collaboration’, Business Insider
Australia (25 August 2010), www.businessinsider.com.au.
41. Monica Patrick, ‘The Advantages of Group Performance Awards’, Houston Chronicle, http://smallbusiness.chron.com.
42. ‘Your Employee Benefits at Asciano: Toolkit for Salaried Employees’, p. 19, Asciano, http://asciano.com.au.
43. For a discussion of effectiveness in the context of top management teams, see Edward E. Lawler III, David Finegold and Jay
A. Conger, ‘Corporate Boards: Developing Effectiveness at the Top’, in Mohrman et al. (1998), op. cit., pp. 23–50.
44. For a review of research on group effectiveness, see J. Richard Hackman, ‘The Design of Work Teams’, in Jay W. Lorsch
(ed.), Handbook of Organizational Behavior (Englewood Cliffs, NJ: Prentice Hall, 1987), pp. 315–42; and J. Richard
Hackman, Ruth Wageman, Thomas M. Ruddy and Charles L. Ray, ‘Team Effectiveness in Theory and Practice’, chapter 5 in
Cary L. Cooper and Edwin A. Locke (eds), Industrial and Organizational Psychology: Linking Theory with Practice (Malden,
MA: Blackwell Business, 2000).
45. ibid; Lawler et al. in Mohrman et al. (1998), op. cit.
46. Jeanne‐Vida Douglas, ‘The Right Fit’, Business Review Weekly (30 April–3 June, 2009), pp. 46–9.
47. See Warren Watson, ‘Cultural Diversity’s Impact on Interaction Process and Performance’, Academy of Management Journal,
vol. 16 (1993); and Christopher Earley and Elaine Mosakowski, ‘Creating Hybrid Team Structures: An Empirical Test of
Transnational Team Functioning’, Academy of Management Journal, vol. 5 (February 2000), pp. 26–49.
48. Rebecca Mitchell and Brendan Boyle, ‘Explaining Diversity’s Impact on Team Performance: The ABC of Diverse Teams’,
paper presented to the 2008 ANZAM Conference, Auckland, 2–5 December 2008.
49. Elizabeth George and Prithviraj Chattopadhyay, ‘Do Differences Matter?’, AGSM, issue 2 (2003), pp. 14–15.
50. Juliet Bourke, ‘Working in Multicultural Teams: A Case Study. Diversity and Inclusion’, Deloitte, www2.deloitte.com.
51. J. Steven Heinen and Eugene Jacobson, ‘A Model of Task Group Development in Complex Organizations and a Strategy of
Implementation’, Academy of Management Review, vol. 1 (1976), pp. 98–111; Bruce W. Tuckman, ‘Developmental Sequence
in Small Groups’, Psychological Bulletin, vol. 63 (1965), pp. 384–99; Bruce W. Tuckman and Mary Ann C. Jensen, ‘Stages of
Small‐Group Development Revisited’, Group & Organization Studies, vol. 2 (1977), pp. 419–27.
52. Based on information in Shannon L. Lloyd, Debra P. Panipucci, Charmine E. J. Haartel, ‘Challenges and Solutions for
Culturally Diverse Work Teams’, paper presented to the ANZAM 2003 Conference, Fremantle, 25 December 2003.
53. For a good discussion, see Robert F. Allen and Saul Pilnick, ‘Confronting the Shadow Organization: How to Detect and Defeat
Negative Norms’, Organizational Dynamics (spring 1973), pp. 13–16.
54. See Edgar Schein, Process Consultation (Reading, MA: Addison‐Wesley, 1988), pp. 76–9.
55. Shaw (1976), op. cit.

500  Management
56. A classic work in this area is Kenneth D. Benne and P. Sheets, ‘Functional Roles of Group Members’, Journal of Social
Issues, vol. 2 (1948), pp. 42–7; see also Likert (1962), op. cit., pp. 166–9; Schein (note 40), pp. 49–56.
57. Based on John R. Schermerhorn Jr, James G. Hunt and Richard N. Osborn, Organizational Behavior, 7th edn (New York:
Wiley, 2000), pp. 345–6.
58. Research on communication networks is found in Alex Bavelas, ‘Communication Patterns in Task‐Oriented Groups’, Journal
of the Acoustical Society of America, vol. 22 (1950), pp. 725–30; Shaw, op. cit.
59. Schein (1988), op. cit., pp. 69–75.
60. See Kathleen M. Eisenhardt, Jean L. Kahwajy and L. J. Bourgeois III, ‘How Management Teams Can Have a Good Fight’,
Harvard Business Review (July–August 1997), pp. 77–85.
61. Victor H. Vroom and Arthur G. Jago, The New Leadership: Managing Participation in Organizations (Englewood Cliffs, NJ:
Prentice Hall, 1988); Victor H. Vroom, ‘A New Look in Managerial Decision‐Making’, Organizational Dynamics (Spring
1973), pp. 66–80; Victor H. Vroom and Phillip Yetton, Leadership and Decision‐Making (Pittsburgh: University of Pittsburgh
Press, 1973).
62. Norman R. F. Maier, ‘Assets and Liabilities in Group Problem Solving’, Psychological Review, vol. 74 (1967), pp. 239–49.
63. ibid.
64. See Irving L. Janis, ‘Groupthink’, Psychology Today (November 1971), pp. 43–6; Victims of Groupthink, 2nd edn (Boston:
Houghton Mifflin, 1982).
65. These techniques are well described in Andre L. Delbecq, Andrew H. Van de Ven and David H. Gustafson, Group Techniques
for Program Planning (Glenview, IL: Scott, Foresman, 1975).
66. Gallupe and Cooper (1993), op. cit.
67. A very good overview is provided by William D. Dyer, Team‐Building (Reading, MA: Addison‐Wesley, 1977).
68. Information from Bushsports website, www.bushsports.com.au.
69. Marcella Bidinost, ‘Fire Up the Workers’, Sydney Morning Herald, (MyCareer, 9–10 May, 2009), p. 5.
70. Information from Jennifer Scott, ‘Working Better Together Is the Challenge’, Columbus Dispatch (3 November 1997),
pp. 10–11.
71. Carl E. Larson and Frank M. J. LaFasto, Team Work: What Must Go Right, What Can Go Wrong (Newbury Park, CA: Sage,
1990).
72. Kevin Gaunt, ‘Consultation: Teams Behaving Badly’, New Zealand Management (September 2008), p. 70.
73. Beth Quinlivan, ‘A Commitment Shared’, Business Review Weekly (22–28 July 2004), pp. 32–4.
74. See Jon R. Katzenbach, ‘The Myth of the Top Management Team’, Harvard Business Review, vol. 75 (November–December
1997), pp. 83–91.

ACKNOWLEDGEMENTS
Photo: © wavebreakmedia / Shutterstock.com
Photo: © robert paul van beets / Shutterstock.com
Photo: © Pressmaster / Shutterstock.com
Photo: © michaeljung / Shutterstock.com
Extract: © The Conversation, Ian Wilkinson, Daniel Ladley and Louise Young, 20 November 2015,
https://theconversation.com/business-must-show-the-lead-on-intergenerational-employment-37974
Extract: © Juliet Bourke
Figure 17.7: © Interaction patterns and communication networks in teams by J. R. Schermerhorn, Jr,
J. G. Hunt & R. N. Osborn, Organizational Behavior 6th edn, Hoboken: John Wiley & Sons Inc.

CHAPTER 17 Teams and teamwork  501

CHAPTER 18

Leading and managing

change  

LEA RN IN G OBJE CTIVE S

18.1 What are the challenges of change and innovation in the 21st century?
18.2 What is the nature of organisational change in an increasingly globalised and integrated economy?
18.3 How can planned organisational change be managed in a more rapidly changing world economy,
including resistance to change and the advent of virtual organisations?
18.4 What are organisation development, organisational transformation and the Prosci® ADKAR® model?
18.5 How do you build career readiness in a change environment?
Snail mail versus email: changes afoot at
Australia Post

The technology revolution has resulted in the disappearance of many familiar everyday objects. Telephone
directories, landline phones, street maps, encyclopaedias, alarm clocks, radios, CD players, newspapers,
printed photos, birthday and Christmas cards are now either obsolete or on their way to being obsolete.
Most of the functions of these objects can now be accessed using a smartphone, tablet or computer. How
then has the technological advance of email affected the good old fashioned letter — nowadays referred to
in derogatory terms as ‘snail mail’? In Australia letters have traditionally been delivered by the more than
200‐year‐old Australia Post, but as communication for more and more people involves emailing, instant
messaging and social networking Australia Post ‘is facing significant structural decline’.1
In March 2015, the then‐Communications Minister Malcolm Turnbull announced that ‘Australians are
now sending 1 billion fewer letters a year than they were in 2008, with letter losses rising to more than
$300 million a year. While Australia Post has been able to offset these losses by growing its parcels busi­
ness, losses in letters are now so large that they are overwhelming all profitable areas of the business’.2
While the post is still delivered every day, email has replaced a huge amount of ‘snail mail’. In addition
many customers pay their bills online using Paypal or other secure payment methods instead of sending
a cheque in the mail. To offset these losses, Australia Post has had to adapt and change its offerings.
Today it is in fact no longer just a postal service but a retailer, courier and parcel deliverer.3 As part of
the diversification Australia Post acquired Star Track Express couriers in 2013, which led to a 10 per
cent increase in domestic parcel delivery.4 Between 2010 and 2015, under the guidance of CEO Ahmed
Fahour, parcel revenue at Australia Post tripled to $3 billion.5 In May 2016 Australia Post controversially
announced plans to start charging customers to pick up undelivered parcels held for more than five days.
Another strategy to ensure the survival of Australia Post is a two‐tier mail service proposed by
Mr Turnbull and approved by the Australian Competition and Consumer Commission (ACCC).6 ‘Aus­
tralia Post would introduce a two‐speed mail service, with a regular service operating two days slower
than the current delivery speed, and a premium‐rate priority service’. From 4 January 2016 the cost of a
stamp for the regular (2 days slower) service is 70c and rises to $1 for the express service.7
To increase revenues, Australia Post now offers a whole suite of additional products and services,
including passport applications, travel cards and travellers cheques, travel insurance, land title trans­
actions, driver and vehicle licences, police checks and firearms licences.8

CHAPTER 18 Leading and managing change  503

 What a change: from a smiling postie on a bicycle or scooter popping letters into your mailbox to a
retailer, courier, quasi‐financial institution and major parcel delivery service.

QUESTIONS
1. What other basic household items can you think of that have become obsolete due to the technology
revolution?
2. What strategic changes has Australia Post implemented to lessen the impact of the decrease in the volume
of letters?

Introduction
Navigating through difficult or changing circumstances often requires managers to introduce changes,
and lead and foster new and better ways of doing things, which is a challenge Mr Fahour will continue
to face at Australia Post in the coming years. Innovative organisations find successful ways of managing
change. Take a look at benchmark innovative organisations such as www.apple.com, www.virgin.com
and www.google.com. To succeed in an innovation‐driven and highly competitive global economy, it is
essential to have good ideas, and to be able to help others put their ideas into action.
Now consider the following example. When a group of Japanese students drove out of Tokyo one
day, the event wouldn’t have seemed remarkable to bystanders. But when they arrived some 900 kilo­
metres later on the northern island of Hokkaido, Mitsubishi’s president was very pleased. The students’
car, powered by a new engine technology, had made the trip without refuelling! In fact, there was fuel
to spare in the tank. It was an important breakthrough for the company. For a long time, engineers had
known the feat was technically possible, but they didn’t know how to do it. Finally, through a great deal
of hard work, a lot of information sharing and problem‐solving, and through learning, they found the
answer.9 Reducing emissions is the foremost response to the problem of climate change. Toyota is inno­
vating in a similar fashion. Its 3rd generation Prius hybrid car gets a boost from solar power and claims
to use just 3.9 litres of fuel per 100 kilometres, about half that of other small cars. Hybrid versions of
several other Toyota models are planned for the future.10 Some appeared in 2012 and by 2014 Toyota
sold its fifty‐thousandth hybrid vehicle in Australia.11
Finding answers to problems is what moves people, organisations and societies continuously ahead
in our dynamic and very challenging world. We are living and working at a time when intellectual
capital, knowledge management and learning organisations are taking centre stage. Michael Beer and
Nitin Nohria observe:

The new economy has ushered in great business opportunities and great turmoil. Not since the Industrial
Revolution have the stakes of dealing with change been so high. Most traditional organisations have
accepted, in theory at least, that they must either change or die.12

Recent experiences of many organisations as a result of the global financial crisis and subsequent econ­
omic downturn followed by a recovery period prior to the Eurozone crisis certainly lends support to this view.
From the vantage point of a corporate leader always looking towards the future, John Chambers, chief exec­
utive officer (CEO) of Cisco Systems, would also no doubt agree. ‘Companies that are successful will have
cultures that thrive on change’, he says, ‘even though change makes most people uncomfortable’.13
Creating positive change in organisations, as suggested by Chambers, is not an easy task. Change
involves complexity, uncertainty, anxiety and risk. Leading organisations on the pathways of change
takes great understanding, discipline and commitment to creativity and human ingenuity.14 Consultant
Tom Peters further warns that we must refocus the attention of managers and leaders away from past
accomplishments and towards the role of innovation as the main source of competitive advantage. Doing
well in the past, simply put, is no guarantee of future success.15 Peters also argues that innovations are
produced by passionate people who are alarmed by what they see around them. Passionate people inno­
vate because they are not content to simply sit on the sidelines.16

504  Management
 Future and emerging organisational structures, processes and practices are the major issues in this chapter.
It is time therefore to inquire once more into your managerial abilities to master the challenges of innovation
and change and career readiness in the evolving workplace. Take the opportunity to expand your portfolio of
career skills to include the capacity for change leadership and self‐renewal. As always, get connected!

18.1 Challenges of change

LEARNING OBJECTIVE 18.1 What are the challenges of change and innovation in the 21st century?
The World Economic Forum is a famous and futuristic think‐tank for global business, government and civic
leaders. At their most recent forums, the most popular new concepts discussed have been virtual organ­
isations, web networks, value networks, molecular organisations and more. The following trends and poss­
ibilities were prominent among observations about the changing nature of business in the new economy.
•• Companies that design and brand their own products, build and package them, and then deliver them
to customers will soon no longer exist.
•• Companies now have the ability to strip down their business to its essence, to focus on where the
greatest value creation (and profits) lies.
•• Extraneous functions can be eliminated through partnerships and newly supercharged forms of
outsourcing.
•• Instead of one big monolithic entity, companies start to look like clusters of distributed capabilities.17
There are those who might go so far as to say that the company as we have traditionally known it is
dead, or at least dying.18 The traditional forms, practices and systems of the past are being replaced by
dramatic new developments driven by the forces of information technology and the relentless pressures
of global competitiveness. The global financial crisis and subsequent economic downturn increased these
pressures, and this is why organisations have to deal with ‘as much chaos as order and change’.19 And
this is all happening very fast. No leader in any organisation, no matter how big or small, and whether
operating for‐profit or not‐for‐profit, can fail to take notice. What lies ahead in the emerging digital, net­
worked and financially different world of the 21st century is far too challenging for that.

TECHNOLOGY

First there was a brick, now there’s an iPhone

When we first started using mobile phones in
Australia back in the early 1990s, one of the first
to appear on the market was the Motorola
‘brick’. This was a very heavy phone and the
joke doing the rounds at the time was that it
was more useful as a weapon to deter potential
muggers. Nonetheless, it did work rather well,
but was considered too big to be easily carried
around. Nokia quickly capitalised on this draw-
back and began producing a range of much
smaller phones. Interestingly, Nokia phones are
manufactured in Finland, a country about the
size of the city of Chicago, by a company that
specialised in gumboots and rubber products,
forestry, cable, electricity and electronics. Yet,
Nokia knocked Motorola off its perch and
became the number one mobile phone seller for
a long time. One imagines the strategists at
Motorola engaging in groupthink and dismissing the threat of Nokia by saying ‘How can a company that
manufactures fishermen’s boots compete with our quality product?’

CHAPTER 18 Leading and managing change  505

 Motorola was indeed a quality product. Its fundamental objective was total customer satisfaction and
this was every employee’s overriding responsibility. In addition, Motorola disliked flaws and considered
that anything that dissatisfied either an external or internal customer should be treated as a defect. A
dialogue would then be entered into between management and staff or staff and customers in order
to fix the defect. But this could not prevent the Finnish mobile giant from dominating the world and
Australian markets for more than a decade. Nokia ended Motorola’s reign in the late 1990s and, by
2008, its market share in Australia was 71 per cent, while Apple’s was only 8.4 per cent. As recently as
the first quarter of 2010, Nokia’s market share in Australia was still about 50 per cent. But, as we note in
this chapter, change is the only constant. By the first quarter of 2011, Nokia’s market share had plunged
by half that, to just 24.6 per cent. By 2011, Nokia had lost its crown to Apple.20 What went wrong for
Nokia? (Or, rather, what went right for Apple?)
Apple has always been one of the most innovative companies on earth. It started off as a com-
puter company but struggled to wrest market share from Microsoft (even though graphic designers
and finished artists in advertising agencies are said to ‘like their PCs but love their Apples’). Unable to
compete as well as it wanted to in the computer industry, Apple simply decided to switch games and
produced an incredible mobile phone. What made this phone so desirable — a ‘must have’? Besides
being able to actually make telephone calls and send text messages (which is what mobile phones
were originally meant to do), the iPhone enabled video calling (known as ‘face time’), a retina display,
two cameras for two views, multitasking, HD video recording and editing, and a 5 megapixel camera
with flash. Of course, it also facilitated access to email and the internet (including Facebook, iTunes
and iBooks), as well as maps, a GPS function and other features just too numerous to mention. Each
new model of the iPhone is even more sophisticated and it seemed as if Apple was set to dominate
the market for a long time to come. But will it? In mid‐2015 Samsung asserted its dominance as the
smartphone leader.21 In order to regain its place as number one, Apple will have to change quickly with
the times — or, like Motorola and Nokia, it, too, will be dominated by another competitor. Samsung is
already dominating, while Huawei waits in the wings.

QUESTION
Change or be changed — that’s what Apple has to do. Can you think of some exciting additional features
that Apple could add to give its iPhone the ‘edge’ over its competitors?

Strategic competitiveness
Although the points and details may differ, the conclusion reached by futurists is the same. The years
ahead will be radically different from those past. We and our organisations must be prepared not only
to change, but to change continuously and in the face of ever present uncertainties. In earlier chapters
we discussed the implications of this prospect for learning organisations — ones that mobilise people,
values and systems to achieve continuous change and performance improvements driven by the lessons
of experience.22 Manager’s notepad 18.1 lists the characteristics of the learning organisation.

MANAGER’S NOTEPAD 18.1

The learning organisation

The learning organisation is characterised by:
• a provision of learning spaces
• a willingness to experiment
• no blame — mistakes are seen as an opportunity to learn
• a celebration of diversity
• a truly shared vision
• rewarding learning.23

506  Management
 Consultant Peter Senge, author of the popular book The Fifth Discipline, advises managers to stimu­
late and lead change in ways that create true learning organisations in which everyone sets aside old
ways of thinking, becomes self‐aware and open to others, learns how the whole organisation works,
understands and agrees to action plans and works with others to accomplish the plans.24 For this reason,
Beer et al. note that learning organisations are ideal vehicles for coping with environmental changes.25
Furthermore, according to Beer and his colleagues:

the most creative ideas and novel approaches to solving problems may well originate from members of
the organisation’s lower levels, who are in touch with customers and the competitive environment and
who can grasp subtle discontinuities as they take place.26

Senge’s learning organisation is the ideal — it is the target. It is what change leaders should strive
for as they move organisations forward into the complicated world of tomorrow. This is a challenge of
strategic leadership, defined by Duane Ireland and Michael Hitt as the ‘ability to anticipate, envision,
maintain flexibility, think strategically and work with others to initiate changes that will create a viable
future for the organisation’.27
Strategic leaders are change leaders who build learning organisations and keep them competitive even
in difficult and uncertain times. The goal is to institutionalise as a core competency the ability to suc­
cessfully and continuously change. Manager’s notepad 18.2 highlights strategic leadership components
that best prepare managers to meet this challenge.28

MANAGER’S NOTEPAD 18.2

Six components of strategic leadership

• Determine the organisation’s purpose or vision.
• Exploit and maintain the organisation’s core competencies.
• Develop the organisation’s human capital.
• Sustain an effective (flexible) organisational culture.
• Emphasise and display ethical practices.
• Establish balanced organisational controls.

Continuous innovation
The 21st century world of organisations will be driven by innovation, the process of creating new ideas
and putting them into practice29 — in other words, invention plus exploitation. Innovation is the embod­
iment, combination or synthesis of knowledge in original, relevant, valued new products, processes or
services. Management consultant Peter Drucker calls innovation ‘an effort to create purposeful, focused
change in an enterprise’s economic or social potential’.30 Innovation in and by organisations occurs
in two broad forms: process innovations, which result in better ways of doing things; and product
innovations, which result in the creation of new or improved goods and services. The management of
both requires active encouragement and support for invention (the act of discovery) and for application
(the act of use). Managers need to be concerned about building new work environments that stimu­
late creativity and an ongoing stream of new ideas. Managers must make sure that good ideas for new
or modified work processes are actually implemented. They must also make sure that the commercial
potential of ideas for new products or services is fully realised.
One way to describe the full set of leadership responsibilities for the innovation process is in these
five steps, constituting what is known as Hamel’s wheel of innovation after consultant Gary Hamel.31
1. Imagining — thinking about new possibilities; making discoveries by ingenuity or communication
with others; extending existing ways.
2. Designing — testing ideas in concept; discussing them with peers, customers, clients or technical
experts; building initial models, prototypes or samples.

CHAPTER 18 Leading and managing change  507

3. Experimenting — examining practicality and financial value through experiments and feasibility
studies.
4. Assessing — identifying strengths and weaknesses, potential costs and benefits, and potential markets
or applications, and making constructive changes.
5. Scaling — gearing up and implementing new processes; putting to work what has been learned; com­
mercialising new products or services.
One of the major features of organisational innovation is that the entire process must be related to the
needs of the organisation and its marketplace. New ideas alone are not sufficient to guarantee success in
this setting — they must be implemented effectively in order to contribute to organisational performance.
Figure 18.1 uses the example of new product development to further highlight how the various steps
of the innovation process contribute to something of great business significance, commercialising inno-
vation.32 This is the process of turning new ideas into products or processes that can make an econ­
omic difference in increased profits through higher sales or reduced costs. In Australasia and the Pacific
Rim region, companies such as OneSteel, CSR, Proton, LG, Sony and Matsushita generate a substantial
proportion of their revenue from new products embodying new technologies. Novelty and the use of
external change agents to help organisations think outside the square are keys.33 Globally, Siemens,
BP, Apple and 3M are pioneers of new product and process technologies. 3M, for example, is known
globally for its Post‐it® Notes and the Scotchguard™ stain repellent range. It also produces a large range
of innovative computer data storage technologies for industrial and consumer use. Many of these com­
panies are able to successfully commercialise their knowledge through collaborative partnerships with
other organisations that possess essential technology or knowledge. Often joint ventures allow com­
panies to exploit their knowledge.34

External environment and market sensitivity

Idea creation Initial experimentation

Discovering a potential product Sharing the idea with others and
or way to modify an existing one testing it in prototype form
Internal
organisational
sensitivity
Final application Feasibility determination
Commercialising the product for Testing the practicality and financial
sale to customers or clients viability of the new product

FIGURE 18.1 Process of innovation in organisations: the case of new product development

Most decisions taken in a sizeable organisation with respect to idea generation and development are
accomplished by middle‐level managers and people below them on the organisational chart. However,
senior management also has an important role to play in shaping the organisational culture, giving direc­
tion, championing new technologies, allocating resources, and creating balance between current and
future demands. Fujio Cho, current Chairman of the Toyota Motor Corporation in Japan, became per­
sonally involved in the development of Toyota’s innovative and environmentally friendly Prius car. He
helped champion the project from its inception.
Organisational leaders should be visible and personally involved in the early stages of the innovation
process. This brings four important benefits.
1. It sends a powerful signal to employees that innovation matters.
2. It provides senior management with opportunities to publicise the strategic direction of the firm and
the boundaries within which innovation should be pursued.

508  Management
3. It gives senior management direct input into the design of products and services that will define the
company in the future.
4. It educates leaders on technical and market issues and prepares them to act as recognisers and patrons
of good ideas.

Characteristics of innovative organisations

Innovative organisations such as Apple, Google, Facebook, 3M and Toyota mobilise talent and intellec­
tual capital to support creativity and entrepreneurship. Their managers at all levels are masters at actively
leading the innovative process. In highly innovative organisations, the corporate strategy and culture
support innovation. The visions and values of senior management, the strategies of the organisation, and
the framework of policies and expectations emphasise an entrepreneurial spirit. Innovation is expected,
failure is accepted, and the organisation is willing to take risks. Highly deregulated industries often pro­
duce innovative organisations.35
In highly innovative organisations, organisation structures support innovation. More and more large
organisations are trying to capture the structural flexibility of smaller ones. That is, they are striving for
more organic operations with a strong emphasis on lateral communications and cross‐functional teams
and task forces. In particular, research and development, historically a separate and isolated function,
is being integrated into a team setting. As Peter Drucker points out: ‘Successful innovations  .  .  .  are now
being turned out by cross‐functional teams with people from marketing, manufacturing and finance par­
ticipating in research work from the very beginning’.36 Innovative organisations are also reorganising
to create many smaller divisions that allow creative teams to operate and to encourage ‘intrapreneurial’
new ventures.
In highly innovative organisations, top management supports innovation. They understand the inno­
vation process, are tolerant of criticisms and differences of opinion, and take all possible steps to keep
the goals clear and the pressure on. The key, once again, is to allow the creative potential of people to
operate fully.37
In highly innovative organisations, the organisation’s staffing supports innovation as well. Organ­
isations need different kinds of people to succeed in all stages of the innovation process. The critical
innovation roles to be filled include:
•• idea generators — people who create new insights from internal discovery or external awareness, or
both
•• information gatekeepers — people who serve as links between people and groups within the
organisation and with external sources
•• product champions — people who advocate and push for change and innovation in general and for the
adoption of specific product or process ideas in particular
•• project managers — people who perform the technical functions needed to keep a new project on
track with all the necessary resource support
•• innovation leaders — people who encourage, sponsor and coach others to keep the innovation values
and goals in place and channel energies in the right directions.38

Innovation and industry clusters

Increasingly, small to medium‐sized businesses are realising the advantages of collaboration
and information sharing. These collaborative interactions within regions involving government,
industry, research and development organisations, and educational and academic institutions are
referred to variously as industry clusters or learning regions. At the core of industry clusters are
interaction and communication between companies and other stakeholders that produce learning,
innovation and a shared vision. Australia is recognised as a world leader in the development and
application of industry clusters. Far North Queensland was one of the first regions to establish this
mechanism for learning and innovation. It has industry clusters in tourism, biotechnology, tropical

CHAPTER 18 Leading and managing change  509

and exotic fruit production, tertiary education and marine engineering. The Cairns Regional Econ­
omic Development Corporation (CREDC) has played a pivotal role in establishing and maintaining
these clusters. Another well‐known example is the winery region near Margaret River in Western
Australia.

INNOVATION

Australia — an innovative country

Australia is a country with a rich history of devel-
oping unique and creative products and ser-
vices. Thousands of years ago, boomerangs and
woomeras were invented for hunting by Indige-
nous Australians. Did you know that in the last
170 years, the following products were invented
in Australia?
• Mechanical ice‐maker (1854)
• Electric drill (1889)
• Automatic Totalisator for betting on horse
races (1913)
• Aspro (1915)
• Rotary clothes hoist (1911)
• The heart pacemaker (1926)
• The black box flight recorder (1950s)
• The ultrasound scanner (1961)
• Saltwater pool chlorination system (1970s)
• The cochlear implant (1979)
• The baby safety capsule (1984)
• In‐vitro fertilisation (IVF) (1984)
• Plastic bank notes (1988)
• Multi‐focal contact lenses (1992)
• The underwater computer (1993)
• Relenza (the world’s first anti‐flu drug) (1996)
• The skin polarprobe® (1998)
• Biodegradable packaging (2000)
• The cervical cancer vaccine (2006)
• Wi‐fi hotspots (2009)39
One of Australia’s greatest inventions has been the cochlear implant.
Australia is a mining country, and in this area, national innovations have included the first fully inte-
grated two‐way mine emergency communication system, the first automated system for mapping the
minerals in drill cores, and new methods of rehabilitation on mine sites. Australian firms develop about
60 per cent of the world’s mining software.
In medicine, perhaps one of the best known recent innovations was the breakthrough made in
the treatment of ulcers by the University of Western Australia’s Barry Marshall and Robin Warren.
They won a Nobel Prize for Medicine, by demonstrating that ulcers are very often caused by bac-
teria rather than stress, as was previously commonly believed. This is a case study in resistance
to change, because they threatened the subject matter being taught in medical schools and also
the profits of pharmaceutical companies. Previously, cessation of treatment would sometimes see
ulcers return, meaning that sufferers might have to be on drugs for the rest of their lives. In their
Nobel Prize citation, it was noted that with ‘tenacity and a prepared mind, [they] challenged pre-
vailing dogmas’.40

QUESTION
How do you think the medical profession and pharmaceutical industry would have tried to discredit the
professors’ innovative theory?

510  Management
 Manager’s notepad 18.3 shows some of the ways to inspire innovation in organisations.41

MANAGER’S NOTEPAD 18.3

Inspiring innovation
• Make it the norm.
• Put aside ego.
• Don’t fear failure.
• Ask ‘what if?’
• Abandon the crowd — search for areas your competitors have overlooked.
• Mix people up.
• Hire outsiders.
• Merge patience and passion.
• Fight negativity.
• Experiment like crazy.
• Make it meaningful.

CRITICAL ANALYSIS

1. In what ways have the global financial crisis and subsequent economic fluctuations such as the
slowdown in the Chinese economy highlighted that companies must adapt or die?
2. Why is innovation the main source of competitive advantage? Can you think of any other
organisational capabilities that might also result in a competitive advantage?
3. Could it be argued that the learning organisation is the ultimate vehicle for enabling change? Why?

18.2 Organisational change

LEARNING OBJECTIVE 18.2 What is the nature of organisational change in an increasingly globalised
and integrated economy?
Change is intertwined with the processes of creativity and organisational innovation. Creativity fosters
innovation and, according to Drucker, purposeful innovation should result in changes of positive econ­
omic or social consequence.42 This all sounds quite positive and not very controversial. But what about
the realities of trying to systematically change organisations and the behaviours of people within them?
Organisational change has often been promoted by governments as well as company managers. For
example, from the mid 1990s Australia pursued a reform agenda, aimed at increasing organisational
productivity. Successive federal and state governments deregulated industries, reduced trade union
power and actively encouraged non‐union workplaces.43 The Howard government’s short lived and con­
troversial WorkChoices legislation encouraged individual workplace agreements between employees and
employers, over collective agreements and awards. However, the succeeding Labor government’s Fair
Work legislation revoked many of the provisions of the WorkChoices legislation, with collective bar­
gaining arrangements being once again more central to employment relations.44
In Malaysia, the government is fostering wide‐scale organisational change through its Vision 2020
initiative, which aims to make the country an economic powerhouse by 2020. Innovation, advanced tech­
nology, world‐class productivity and high living standards, similar to those in neighbouring Singapore,
are the government’s goals. More muted attempts at microeconomic reform have been made in China,
Korea and Japan. State‐run industry bureaucrats in China have opposed changes to their organisations,
whereas in Korea the trade unions have resisted reductions in pay and conditions. Japanese resistance to
change, on the other hand, has come from private family‐dominated industries, such as retailing, where
they have considerable control and influence over their protected markets.

CHAPTER 18 Leading and managing change  511

 Many contemporary organisations around the world live in an environment of constant change, and the
rate of change is only expected to accelerate with new technologies and economic pressures to increase
revenue and cut costs. Virtual organisations will allow for even greater rates of change. However, one
potential barrier to organisations changing to meet changing demands can be complacency. Collectively,
organisational leaders can challenge complacency by highlighting legitimate concerns or realities, such as:
1. using information about the organisation’s competitive situation to generate discussion with employees
about current and prospective problems and challenges
2. creating discussion on the organisation’s data
3. creating opportunities for employees to educate management about the dissatisfaction and problems
they experience
4. setting high standards and expecting people to achieve them. The act of establishing high standards
creates dissatisfaction with the current level of performance.
To create a favourable environment for changing the culture of an organisation, the following precon­
ditions should exist in the organisation:
1. Leaders are respected, credible and effective.
2. People are dissatisfied with the current situation and feel personally motivated to change.
3. The organisation is non‐hierarchical.
4. People are accustomed to and value collaborative work.

Change leadership
A change agent is a person or group who takes leadership responsibility for changing the existing pat­
tern of behaviour of another person or social system. Change agents make things happen, and part of
every manager’s job is to act as a change agent in the work setting. This requires being alert to situations
or to people needing change, being open to good ideas and being able to support the implementation
of new ideas in actual practice. Figure 18.2 contrasts a change leader with a ‘status quo manager’. The
former is forward‐looking, proactive and embraces new ideas; the latter is backward‐looking, reactive
and comfortable with habit. The new workplace demands change leadership at all levels of management.

Change Status quo

leadership management
● Confident of ability ● Threatened by change
● Willing to take Promotes ● Bothered by
Creativity Avoids
risks and uncertainty
and and even
● Seizes opportunity actively ● Prefers predictability
innovation discourages
● Expects surprise supports ● Supports the status
● Makes things happen quo
● Waits for things to
happen

FIGURE 18.2 Change leadership versus status quo management

Models of change leadership

Consider the concept of distributed leadership in teams. It is argued that every team member has the
potential to lead by serving group needs for task and maintenance activities. The same notion applies
when it comes to change leadership in organisations. The responsibilities for change leadership are
­ideally distributed and shared top to bottom.
Top‐down change
In top‐down change, strategic and comprehensive changes are initiated with the goal of major impact
on the organisation and its performance capabilities. This is the domain of strategic leadership as

512  Management
discussed earlier in the chapter. Importantly, however, reports indicate that some 70 per cent or more of
large‐scale change efforts actually fail.45 The most common reason is poor implementation. The success
of top‐down change is usually determined by the willingness of middle‐level and lower level workers
to actively support top‐management initiatives. Change programs have little chance of success without
the support of those who must implement them. Any change that is driven from the top runs the risk
of being perceived as insensitive to the needs of lower level personnel. It can easily fail if implemen­
tation suffers from excessive resistance and insufficient commitment to change. Thus, it is not enough to
simply prescribe change from the top — it must be supported by effective change leadership.
Listed in Manager’s notepad 18.4 are several lessons learned from the study of successful large‐scale
transformational change in organisations.46

MANAGER’S NOTEPAD 18.4

How to lead transformational change

• Establish a sense of urgency for change.
• Form a powerful coalition to lead the change.
• Create and communicate a change vision.
• Empower others to move change forwards.
• Celebrate short‐term ‘wins’ and recognise those who help.
• Build on success — align people and systems with new ways.
• Stay with it — keep the message consistent, champion the vision.

A version of top‐down change in business is called Theory E change, or change based on activities that
increase shareholder or economic value as soon as possible.47 Managers who pursue Theory E change use
economic incentives, major restructuring and downsizing, and similar activities in the attempt to improve
a firm’s financial performance. The approach is very much top‐down in nature and may carry heavy costs
for employees and even corporate traditions. An example is the major restructuring of BHP Steel before
its merger with Billiton. Thousands of production staff were retrenched when the Newcastle steelworks in
Australia was closed and other operations were rationalised before selling off the steel‐making division.
It is now an independent company trading as OneSteel. Financial markets responded favourably to the
organisational change, with share values and dividends increasing. Theory E change, demonstrated by this
example, is driven from the top, emphasises changes in structures and systems, and tries to gain employee
support through financial incentives. However, for those staff who are retrenched, this type of change is
viewed very negatively. Beer observes that top‐down TQM programs often fail because of the gap between
senior management’s rhetoric and the realities of implementation faced by junior staff.48
Bottom‐up change
Bottom‐up change is also important in organisations. In such cases, the initiatives for change come from
people throughout an organisation and are supported by the efforts of middle‐level and lower level man­
agers acting as change agents. This type of behaviour would be evident in virtual organisations. Bottom‐
up change is essential to organisational innovation and is very useful in terms of adapting operations and
technologies to the changing requirements of work. It is made possible by empowerment, involvement
and participation as discussed in earlier chapters. For example, at the Malaysian car manufacturer Proton,
workers contribute ideas on product and process change through suggestion boxes and workgroup meet­
ings. Many of the solutions are adopted. The system is based on the Japanese kaizen concept that empha­
sises continuous improvement based on worker input. Proton strongly encourages workers to use their job
knowledge, skills and practical expertise to improve products, productivity and the workplace.
A version of bottom‐up change in business is called Theory O change, or change based on activities
that increase organisational performance capabilities.49 Change leaders pursuing the Theory O model
try various approaches to improve organisational culture, and develop human capital to improve per­
formance capabilities. Historical examples are The Body Shop and Sony Corporation, with a focus on

CHAPTER 18 Leading and managing change  513

organisational improvements via building employee commitment to new directions. Theory O change
encourages participation from the bottom up, values employee attitudes, progresses step by step through
experimentation and evolution, and tries to inspire support through employee involvement.

Integrated change leadership

The most successful and enduring change leadership is that which can harness the advantages of both top‐
down and bottom‐up change. Top‐down initiatives may be needed to break traditional patterns and implement
difficult economic adjustments; bottom‐up initiatives are necessary to build institutional capability for sus­
tainable change and organisational learning. An international example is the two‐decade‐long transformation
efforts of former CEO Jack Welch at General Electric. When first taking over as CEO in the 1980s, he began
an aggressive top‐down E‐type restructuring that led to major workforce cuts and a trimmer organisation
structure. Once under way, however, this evolved into O‐type change focusing on employee involvement.50

Planned and unplanned change

We are particularly interested in planned change that occurs as a result of the specific efforts of a change
agent. Planned change is a direct response to a person’s perception of a performance gap, or a discrep­
ancy between the desired and actual state of affairs. Performance gaps may represent problems to be
resolved or opportunities to be explored. In each case, managers as change agents should be ever alert
to performance gaps and take action to initiate planned changes to deal with them. Kurt Lewin is the
‘father’ of planned change theory, which is discussed in more detail a little further on in this chapter.
But unplanned changes are important too. They occur spontaneously or randomly and without the
benefit of a change agent’s attention. Unplanned changes may be disruptive, such as a strike that results
in a plant closure, or beneficial, such as an interpersonal conflict that results in a new procedure on inter­
departmental relations. Catastrophic events such as the destruction of NASA’s space shuttles Challenger
in 1986 and Columbia in 2003 trigger unplanned change for organisations. Of course, the global finan­
cial crisis and subsequent economic downturn and variable economic activity in China has resulted in
many unplanned changes for organisations around the world in recent times. As a result of injudicious
lending that precipitated the global financial crisis, several US and British financial institutions have been
re‐regulated. These types of organisational failure produce immediate pressure for changes in structure,
processes and practices to avoid recurrences. The appropriate goal in managing unplanned change is to
act immediately once it is recognised in order to minimise negative consequences and maximise poss­
ible benefits. Contingency management means always having a Plan B. For example, Western Australia
has become known as the ‘shark attack capital’ of the world. Surfing schools and scuba diving charters
there will need to make alternative plans, such as surfing inside netted enclosures or using their boats
for whale watching cruises, to avoid any negative effects these shark attacks have on their businesses.

Forces and targets for change

The impetus for organisational change can arise from a variety of external forces.51 These include the
global economy and market competition, local economic conditions, government laws and regulations,
technological developments, market trends and social forces, among others. As an organisation’s general
and specific environments develop and change over time, the organisation must adapt as well. Internal
forces for change are important too. Indeed, any change in one part of the organisation as a complex
system — perhaps a change initiated in response to one or more of the external forces just identified —
can often create the need for change in another part of the system.
The many targets for planned change are found among all the aspects of organisations already dis­
cussed in this book. All of them, including the following common organisational targets for change —
tasks, people, culture, technology and structure — are highly interrelated:
•• tasks — the nature of work as represented by organisational mission, objectives and strategy, and the
job designs for individuals and groups

514  Management
•• people — the attitudes and competencies of the employees and the human resource systems that
support them
•• culture — the value system for the organisation as a whole and the norms guiding individual and
group behaviour
•• technology — the operations and information technology used to support job designs, arrange
workflows and integrate people and machines in systems
•• structure — the configuration of the organisation as a complex system, including its design features
and lines of authority and communications.52

SUSTAINABILIT Y

Potential in constraints: finding other avenues to exploit

in a flourishing industry
Tasmanian businesses are being warned they
will miss out on the benefits of a booming
mountain biking sector if they do not get on
board.
The state’s cycling tourism industry has
met in Launceston to look at ways to reach
its multi‐million‐dollar potential.
Around 30,000 cycling tourists arrive in
the state each year, and Chris Griffin from
Tourism Northern Tasmania said they were a
welcome sight.
‘We know when [riders] come to Tasmania
they tend to spend more than the average
visitor,’ he said.
He said it took 15 years for local businesses to realise the value of the trails.
Our business community actually engaging with the cycle tourism market has been the biggest change that
we’ve seen. Since they’ve started promoting and marketing cycling we’ve seen a really dramatic change in
the number of visitors coming to the region. They actually develop cultural places for people to go and hang
out and be amongst like‐minded people and that’s been the most critical thing.

Dorset Council’s Manager of Economic Development Susie Bower said the region was enjoying the
success of its mountain bike trails.
There was only one cafe open prior to the mountain trials going in, there’s now three open in Derby.
  ‘Others have converted their houses into accommodation and we’ve had other investment with people
buying properties and doing the same thing.

Ms Bower said there had been some trepidation.

Tasmania is conservative and we always have been looking at venturing into a new business. But now that
people can see the success, they can see what is possible at Derby so I think now is the time we’ll actually
start seeing more people coming into the town and opening up new businesses and driving the economy.53

QUESTION
What are some other enterprises that can piggyback on a booming tourism industry?

CRITICAL ANALYSIS

1. Is a Theory E leader more suitable than a Theory O leader in times of financial crises? Justify your
answer.
2. What other contingency plans do you think Australia’s diving and surfing schools need to make in
order to survive the consequences of the increasing incidences of fatal shark attacks?

CHAPTER 18 Leading and managing change  515

18.3 Managing planned change
LEARNING OBJECTIVE 18.3 How can planned organisational change be managed in a more rapidly
changing world economy, including resistance to change and the advent of virtual organisations?
Change is a complicated phenomenon in any setting, and human nature always stands at the heart of it.
People tend to act habitually and in stable ways over time. They may not want to change, even when circum­
stances require it. As a manager and change agent, you will need to recognise and deal with such tendencies
in order to lead planned change successfully. With constant changes in the global economy, planned change
is no longer a periodic event occurring every five to ten years. Organisations are having to change more fre­
quently and, in some industries such as IT and bio‐tech, change is almost a constant. Inflexible organisations
will be battered and beaten by the real world of managing and dealing with change.54

Phases of planned change

Kurt Lewin recommends that any planned‐change effort be viewed as the three‐phase process shown in
figure 18.3.55 Lewin’s three phases of planned change are unfreezing — preparing a system for change;
changing — making actual changes in the system; and refreezing — stabilising the system after change.
This normative model of how change should be conducted was formulated when change was a much
more infrequent event and before the importance and impact of organisational politics was fully appre­
ciated. Although the model is a useful simple abstraction of the change process and its ice metaphor is
attractive, it lacks specificity and does not fully appreciate the complexity of environmental factors that
shape change outcomes. However, it is still widely used by management consultants.

Change leader’s task:

create a felt need for change

Phase 1
Unfreezing This is done by:
● establishing a good relationship with the people involved
● helping others realise that present behaviours are not effective
● minimising expressed resistance to change.

Change leader’s task:

implement change

Phase 2
Changing This is done by:
● identifying new, more effective ways of behaving
● choosing appropriate changes in tasks, people, culture, technology and/or structure
● taking action to put these changes into place.

Change leader’s task:

stabilise change

Phase 3
Refreezing This is done by:
● creating acceptance and continuity for the new behaviours
● providing any necessary resource support
● using performance-contingent rewards and positive reinforcement.

FIGURE 18.3 Lewin’s three phases of planned organisational change

516  Management
Unfreezing
In order for change to be successful, people must be ready for it. Planned change has little
chance for long‐term success unless people are open to doing things differently. Unfreezing is
the stage in which a situation is prepared for change, and felt needs for change are developed. It
can be facilitated in several ways: through environmental pressures for change, declining perfor­
mance, the recognition that problems or opportunities exist, and through the observation of behav­
ioural models that display alternative approaches. When handled well, conflict can be an important
unfreezing force in organisations. It often helps people break old habits and recognise alternative
ways of thinking.

Changing
In the changing phase, something new takes place in a system, and change is actually implemented.
This is the point at which managers initiate changes in organisational targets such as tasks, people,
culture, technology and structure. Ideally, all change is done in response to a good diagnosis of a
problem and a careful examination of alternatives. However, Lewin believes that many change
agents enter the changing phase prematurely, are too quick to change things, and end up creating
resistance to change. When managers implement change prematurely, there is an increased likelihood
of failure.

Refreezing
The final stage in the planned‐change process is refreezing. Here, the manager is concerned about
stabilising the change and creating the conditions for its long‐term continuity. Refreezing is accom­
plished by appropriate rewards for performance, positive reinforcement and necessary resource sup­
port. It is also important to evaluate results carefully, provide feedback to the people involved, and
make any required modifications in the original change. When refreezing is done poorly, changes are
too easily forgotten or abandoned with the passage of time. When it is done well, change can be more
long‐lasting.

COUNTERPOINT

Chance and fate determine organisational survival

The idea that organisations can change
from being ‘dinosaurs’ to agile, flexible
organisations through applying change
management strategies, such as Lewin’s
model or others, is incredibly attractive
to most senior managers and share-
holders. However, the reality for many
organisations is that change is simply
too difficult to achieve because organ-
isational structures and processes have
become so embedded that they cannot
be changed in any substantial way. It
may be better to allow these organ-
isations to be ‘naturally’ selected out by
the market through bankruptcy or closure, because, like the dinosaurs of prehistoric time, they cannot
change sufficiently to adapt to their new environment. An example of where this ‘natural’ selection could
have occurred, but didn’t, is in the US car industry. Less than a year after the onset of the global finan-
cial crisis, GM and Chrysler had both filed for bankruptcy and only massive injections of US government
financial aid saved them from collapse.

CHAPTER 18 Leading and managing change  517

 However, Kodak Eastman looked likely to be ‘naturally’ weeded out. Founded in 1888, Kodak
filed for bankruptcy in January 2012. Kodak generally sold cheap cameras, but made its money
out of the expensive film they used. Even though the company spent $4 billion on developing the
photo technology that enables mobile phones to take pictures, its heavy reliance on film led to its
collapse. It was also unable to adapt to digital technology as quickly as its competitors Canon and
Sony, which helped contribute to its near demise.56 However, in September 2013 Kodak announced
that it had restructured and exited bankruptcy and would now focus on commercial products, such
as high‐speed digital printing technology and printing on flexible packaging for consumer goods.57
A trend in the film industry to print on film rather than using cheaper digital video formats saw Star
Wars: The Force Awakens manufactured in a Kodak factory, which contributed to the recovery of the
company.58
New organisations will always arise that are better adapted to new or changing situations. In other
words, Darwin’s survival of the fittest principle applies not only to natural species but also to organ-
isations. It must, therefore, be recognised that managers have limited control over organisational out-
comes, and that chance, luck and fate — environmental determinism — may be powerful forces that
determine long‐term survival.

QUESTION
If history ever repeats itself and there is another recession or global financial crisis, do you think that over‐
geared banks should be allowed to fail rather than be bailed out by governments?

Choosing a change strategy

Managers use various approaches when trying to get others to adopt a desired change. Figure 18.4
summarises three common change strategies known as force‐coercion, rational persuasion and shared
power.59 Each can have very different consequences for change agent and change target alike.

Change strategy Power bases Managerial behaviour Likely results

Force-coercion Legitimacy Direct forcing Temporary

Using position power to and unilateral action Fast compliance
Rewards
create change by decree Political manoeuvring
and formal authority Punishments and indirect action

Rational persuasion Expertise Informational efforts

Creating change through using credible knowledge,
rational persuasion and demonstrated facts and
empirical argument logical argument

Shared power Reference Participative efforts

Developing support for to share power and involve
change through personal others in planning and
Slow Longer term
values and commitments implementing change
internalisation

FIGURE 18.4 Alternative change strategies and their leadership implications

Force‐coercion strategies
A force‐coercion strategy uses the power bases of legitimacy, rewards and punishments as the main
inducements to change. A change agent who seeks to create change through force‐coercion believes that
people who run things are basically motivated by self‐interest and by what the situation offers in terms
of potential personal gains or losses.60 This change agent believes that people change only in response

518  Management
to such motives, tries to find out where their vested interests lie, and then puts the pressure on. Once a
weakness is found, it is exploited. The change agent is always quick to work ‘politically’ by building
supporting alliances wherever possible. If the change agent has formal authority, he or she uses it, along
with whatever rewards and punishments are available. As figure 18.4 shows, the likely outcomes of
force‐coercion are immediate compliance but little commitment.
Force‐coercion can be pursued in at least two ways, both of which can be commonly observed in
organisations. In a direct forcing strategy, the change agent takes direct and unilateral action to ‘com­
mand’ that change take place. This involves the exercise of formal authority or legitimate power, offering
special rewards and/or threatening punishment. In political manoeuvring, the change agent works indi­
rectly to gain special advantage over other people and thereby make them change. This involves bar­
gaining, obtaining control of important resources or granting small favours.
Regardless of the exact approach taken, the force‐coercion strategy on its own produces limited
results. Although it can be implemented rather quickly, most people respond to this strategy out of fear
of punishment or hope for a reward. This usually results in only temporary compliance with the change
agent’s desires. The new behaviour continues only so long as the opportunity for rewards and punish­
ments is present. For this reason, force‐coercion is most useful as an unfreezing device that helps people
break old patterns of behaviour and gain initial impetus to try new ones.

Rational persuasion strategies

Change agents using a rational persuasion strategy attempt to bring about change through per­
suasion, backed by special knowledge, empirical data and rational argument. A change agent following
this strategy believes that people are inherently rational and are guided by reason in their actions and
decision‐making.61 Once a specific course of action is demonstrated to be in a person’s self‐interest, the
change agent assumes that reason and rationality will cause the person to adopt it. Thus, he or she uses
information and facts to communicate the essential desirability of change.
The likely outcome of rational persuasion is eventual compliance, with reasonable commitment.
When successful, a rational persuasion strategy helps both unfreeze and refreeze a change situation.
Although slower than force‐coercion, it tends to result in longer lasting and internalised change.
To be successful, a manager using rational persuasion must convince others that the cost–benefit
value of a planned change is high and that it will leave them better off than before. This can come
directly from the change agent if he or she has personal credibility as an ‘expert’. If not, it can be
obtained in the form of consultants and other outside experts, or from credible demonstration pro­
jects and benchmarks. Rational persuasion strategies have been adopted by LG, Matsushita, Rio Tinto
and Qantas, but with some minor local modifications to account for cultural differences between
regions. Local management practices in the Asia–Pacific region are a fusion of global and home‐
grown approaches.

Shared power strategies

A shared power strategy engages people in a collaborative process of identifying values, assumptions
and goals from which support for change will naturally emerge. The process is slow, but it is likely to
yield high commitment. Sometimes called a normative re‐educative strategy, this approach is based on
empowerment and is highly participative in nature. It relies on involving others in examining personal
needs and values, group norms and operating goals as they relate to the issues at hand. Power is shared
by the change agent and other people as they work together to develop a new consensus to support
needed change.
Managers using shared power as an approach to planned change need referent power and the skills
to work effectively with other people in group situations. They must be comfortable allowing others to
participate in making decisions that affect the planned change and the way it is implemented. Because it
entails a high level of involvement, this strategy is often quite time‐consuming. But, importantly, power
sharing is likely to result in a longer lasting and internalised change.

CHAPTER 18 Leading and managing change  519

 A change agent who shares power begins by recognising that people have varied needs and complex
motives.62 He or she believes people behave as they do because of sociocultural norms and commitments
to the expectations of others. Changes in organisations are understood to inevitably involve changes in
attitudes, values, skills and significant relationships, not just changes in knowledge, information or intel­
lectual rationales for action and practice. Thus, when seeking to change others, this change agent is sen­
sitive to the way group pressures can support or inhibit change. In working with people, every attempt
is made to gather their opinions, identify their feelings and expectations, and incorporate them fully into
the change process.
The great ‘power’ of sharing power in the change process lies with unlocking the creativity and
experience available from within the system, and often missed at the top. Unfortunately, many managers
are hesitant to engage this process for fear of losing control of the strategic direction, or of having to
compromise on important organisational goals. Harvard Professor of Business Administration Teresa
M. Amabile, however, points out that managers and change leaders should have the confidence to share
power regarding means and processes, but not overall goals. ‘People will be more creative’, she says, ‘if
you give them freedom to decide how to climb particular mountains. You needn’t let them choose which
mountains to climb’.63
A similar framework for strategic change can be seen in the Dunphy and Stace64 matrix of change
strategies illustrated in figure 18.5. Dictatorial change is the more likely response to environmental
emergencies such as that caused for many organisations by financial crises. As mentioned earlier, after
the global financial crisis, many UK and US financial institutions have simply been re‐regulated or taken
over by governments without much room for negotiation. This is an example of dictatorial change.

Scale of change
Incremental Modular Corporate
Fine-tuning adjustment transformation transformation
Collaborative

Type 1 Type 2
Participative Charismatic
evolution transformation
Consultative
Style of change management

Directive

Type 3 Type 4
Forced Dictatorial
evolution transformation
Coercive

FIGURE 18.5 The Dunphy and Stace matrix of change strategies

520  Management
Understanding resistance to change
Change typically brings with it resistance.65 When people resist change, furthermore they are defending
something important that appears to them to be threatened by the attempted change. There are any
number of reasons people in organisations may resist planned change (see Manager’s notepad 18.5).
Such resistance is often viewed by change agents and managers as something that must be ‘overcome’
in order for change to be successful. This is not necessarily true. Resistance is better viewed as feedback
that the informed change agent can use to constructively modify a planned change to better fit situational
needs and goals. It might even be the conscience of the organisation. When resistance appears, it usually
means that something can be done to achieve a better ‘fit’ between the planned change, the situation and
the people involved.

MANAGER’S NOTEPAD 18.5

Why people may resist change

• Fear of the unknown —not understanding what is happening or what comes next.
• Disrupted habits — feeling upset when old ways of doing things can’t be followed.
• Loss of confidence — feeling incapable of performing well under the new ways of doing things.
• Loss of control — feeling that things are being done to you rather than by or with you.
• Poor timing — feeling overwhelmed by the situation or that things are moving too fast.
• Work overload — not having the physical or psychic energy to commit to the change.
• Loss of face — feeling inadequate or humiliated because it appears that the ‘old’ ways weren’t
‘good’ ways.
• Lack of purpose — not seeing a reason for the change and/or not understanding its benefits.

A second negative reaction to change akin to resistance is organisational silence. Some

studies have suggested that, at times, employees are afraid to speak up about issues or problems
that they have encountered at work.66 These ‘undiscussables’ include decision‐making processes,
managerial incompetence, organisational inefficiency and poor organisational performance. A cli­
mate of silence is engendered by managers’ fear of negative feedback. For some managers, nega­
tive feedback is so threatening that they try to dismiss the information as inaccurate, ignore it, or
attack the credibility of the source. Managers’ values also play a part — particularly if they believe
that employees are self‐interested and untrustworthy. When they unconsciously adopt this thinking,
managers will implicitly or explicitly discourage upward communication. The second belief is that
managers know best about most issues of organisational importance. The third belief is that unity,
agreement and consensus are signs of organisational health, whereas disagreement and dissent should
be avoided. An outcome of these three beliefs is centralised decision‐making and a lack of formal
upward feedback mechanisms. The lack of diversity of opinion and the lack of feedback on per­
formance can inhibit both innovation and organisational change and development, particularly the
organisation’s ability to detect and correct errors.67 Silence might also be interpreted as support and
consensus.
A third negative reaction to change is cynicism. This often occurs when staff lose faith in their change
leaders. People may see them as incompetent and lazy, or greedy, exploitative and uncaring. It can also
be a response to a history of change attempts that were unsuccessful. For example, one telecommuni­
cations company advertises that customers will have access to Australian‐based staff. This is in response
to Telstra’s strategy of directing customers to off‐shore call centres — a practice that had resulted in
widespread cynicism about Australia’s biggest telephone company.
Cynicism also results from violation of the psychological contract. When one‐on‐one verbal agree­
ments with employees are broken by managers, the result is distrust and disillusionment. Cynicism can
also become a self‐fulfilling prophecy if cynics do not support the change. If the change fails, that

CHAPTER 18 Leading and managing change  521

reinforces cynical attitudes that stop staff from trying to make the change initiative work. Behaviour may
manifest in smirks, sneers and eye rolling. There might also be critical specific statements made — for
example, about lack of honesty, sincerity or humour; or pessimistic predictions about the future such as
‘they won’t bother with quality when it starts to get expensive’.
Cynicism can also increase absenteeism and decrease motivation and commitment. In the end, man­
agers usually claim success and blame their staff for poor attitudes or unions, while employees usually
blame management. Notwithstanding Peter Senge’s view that there should be no blame in a learning
organisation, it is common for people to deflect blame externally. However, as resistance can be used
positively to help modify a planned change, so, too, can cynicism reflect past experiences of failure. In
this sense, it can also be seen as the conscience of the organisation.68

Dealing with resistance to change

Once resistance to change is recognised and understood, it can be dealt with in various ways.69 Among
the alternatives for effectively managing resistance, the education and communication approach uses
discussions, presentations and demonstrations to educate people beforehand about a change. Partici­
pation and involvement allow others to contribute ideas and help design and implement the change. The
facilitation and support approach involves providing encouragement and training, actively listening to
problems and complaints, and helping to overcome performance pressures. Facilitation and agreement
provide incentives that appeal to those who are actively resisting or ready to resist. This approach makes
tradeoffs in exchange for assurances that change will not be blocked. The manipulation and cooption
approach tries to covertly influence others by providing information selectively and structuring events
in favour of the desired change. Explicit and implicit coercion forces people to accept change by threat­
ening those who resist with a variety of undesirable consequences if they do not go along as planned.
The last two approaches carry great risk and potential for negative side effects.

Managing technological change

Technological change is common in today’s organisations, but it also brings special challenges to change
leaders. For the full advantages of new technologies to be realised, a good fit must be achieved with
work needs, practices and people. This, in turn, requires sensitivity to resistance and continual gathering
of information so that appropriate adjustments can be made during the time a new technology is being
implemented. In this sense, the demands of managing technological change have been described using
the analogy of contrasting styles between navigators from the Micronesian island of Truk and their
European counterparts.70
The European navigator works from a plan, relates all moves during a voyage to the plan, and tries
to always stay ‘on course’. When something unexpected happens, the plan is revised systematically, and
the new plan followed again until the navigator finds the ship to be off course. The Trukese navigator,
by contrast, starts with an objective and moves off in its general direction. Always alert to information
from waves, clouds, winds etc., the navigator senses subtle changes in conditions and steers and alters
the ship’s course continually to reach the ultimate objective.
Like the navigators of Truk, technological change may best be approached as an ongoing process
that will inevitably require improvisation as things are being implemented. New technologies are often
designed external to the organisation in which they are to be used. The implications of such a tech­
nology for a local application may be difficult to anticipate and plan for ahead of time. A technology
that is attractive in concept may appear complicated to new users; the full extent of its benefits and/
or inadequacies may not become known until it is tried. This, in turn, means that the change leader
and manager should be alert to resistance, should continually gather and process information relating
to the change, and should be willing to customise the new technology to best meet the needs of the
local situation.71

522  Management
Virtual organisations
In an age of increasing global competitiveness, companies need to be fast and agile to respond to their
customers. Many corporations have discovered decreasing market shares and reduced profits before real­
ising this essential fact and this has been exacerbated by successive financial crises. The search for solu­
tions has led to the discovery that inflexible, monolithic organisations are absolutely incapable of this
speed. A new type of organisation is therefore required, one that integrates speed with flexibility and
agility, is very responsive to its customers, and provides the best product in the most efficient manner.
The virtual organisation (VO) is becoming more common. Virtual organisations are shifting net­
works of strategic alliances, linked by technology, with very little infrastructure, that are engaged as
needed. A key concept behind VOs is how multiple entities can come together, without the end con­
sumer even realising it at times, to provide the consumer with the final product. Such a move obviously
requires immense sharing of responsibilities and information, rendering traditional boundaries between
organisations irrelevant. A VO involves the traditional roles of consumer, competitor and company being
redefined. Markets and opportunities are becoming increasingly fluid. To fill these needs consumers,
competitors and companies can become integrated or networked in new nebulous forms. Competitors
in one area may join forces to form companies and cooperative partnerships in others, customers may
participate in an organisation to improve products, and potential or horizontal competitors may become
customers.
Competitors may also become customers when companies try to use up excess capacity in their plants
and optimise their resources. As markets mature over time and generic products wane in demand, alli­
ances may form in the lower ends of the value chain, with more fierce competition existing in the
branding stages for differentiated products. Such arrangements make use of complementary core com­
petencies in fast‐changing marketplaces. Rivals may cooperate for short periods and make use of a peak
in demand for a product before others can exploit the opportunity.
VOs are also emerging that have new and unique, even patented, ways of conducting business. This
is especially important in the emerging markets for sustainable capital and consumer goods, where the
multiple high‐technology requirements make it difficult for single companies to develop or acquire all
the competencies within their organisation.
In addition, VOs that are web‐based and depend largely on customer participation in making their
business sites successful, are becoming more common. For example, eBay provides nothing more than
a virtual auction area for its customers. But it has millions of items in thousands of categories waiting
to be traded, a substantial number of which would find useful applications as ‘recycled’ products and
are therefore important to a global sustainability strategy. eBay is sustained by customer interaction and
claims to have 88 million active users globally.72 Facebook and YouTube are, of course, also sustained
by customer interaction.
Similarly, www.priceline.com uses a patented model where customers can file the price they are
willing to pay for an airline flight between two chosen cities and airlines can bid for the order to fill up
unused seats in the required sector. In this model, Priceline owns nothing except the page, and its sole
business is getting the customers together — and in a temporary way making them part of the company
while the transaction is occurring. This is also beginning to happen in other areas where traditional
markets are failing to bring together producers and potential customers — including alternative energy
sources, product recycling, and organically produced foods, drinks and natural fibre clothing. This blur­
ring of lines will lead to situations where an organisation will have to be sure which competitive market
it is operating in and who its immediate competitors are.
In the same way that a computer with ‘virtual memory’ appears to have more memory than it really
possesses, virtual organisations similarly use new cooperative methods to perform beyond their resource,
technology and geographical constraints. Boundaries, hierarchies, and cultural and geographical
restraints should not become barriers to effective functioning. Information, resources, ideas and energy
should pass throughout the virtual organisation quickly, so that the organisation as a whole functions

CHAPTER 18 Leading and managing change  523

far better than each of its separate parts. Definition and distinction still exist: leaders have authority and
accountability, people with special functional skills still exist, and there are still distinctions between
customers and suppliers. It is just that the distinctions are sufficiently porous to allow for meaningful
exchange.
What such a ‘reorganisation’ of boundaries should result in is speed instead of size, flexibility instead
of role definition, integration instead of specialisation, and innovation instead of control. Manager’s
notepad 18.6 outlines how VOs are distinguishable from conventional organisations.

MANAGER’S NOTEPAD 18.6

Characteristics of virtual organisations (VOs)

• Complementary core competencies and resource pooling.
• Changing participants and participant equality.
• Flat, non‐hierarchical structures.
• Sharing and mutual appreciation of knowledge and its antecedents.
• Geographical or spatial dispersion.
• Temporal discontinuity.
• Electronic communication/transaction/business.

It is wrong to assume that such partnerships should exist at the macro level of the organisation alone.
In fact, a virtual organisation would not be possible if a similar concept was not applied at the micro
level within a company, between its employees, processes and departments. At the macro level, the ideal
virtual organisation is characterised by partnerships between complementing partners coming together to
pool their resources to create the desired product or service for the customer. The relationships require a
high level of trust, compatibility and mutual benefit, and fit well with the strategic objectives of a holistic
model of sustainability that emphasises economic, social, cultural and environmental objectives. Virtu­
ality offers a ‘structure’ for sustainability strategies, one that is best suited for implementing objectives.
The entertainment industry, for example, is today seeing the rapid growth of such networks, where
a firm can simultaneously participate in computing, cinema, communication and publishing by stra­
tegically choosing partners with competencies in the necessary field. This is especially possible since
the ‘software’ remains essentially the same, and the distribution or media technology is what provides
product line depth and therefore increased likelihood of economic sustainability. Software is proprietary
and cannot easily be copied without copyright infringement. This model has been used by Paramount
Communication in positioning itself to use strategic alliances to exploit as many stages of the entertain­
ment industry value chain as possible.
The efficiency of such partner networks depends on the seamless sharing of what is often very sensi­
tive proprietary knowledge. Patent laws are usually not enough to ensure its safety. An organisation must
therefore make sure that it participates in a partner network or chain with a core competency that is not
able to be immediately replicated by another partner organisation. Prior to entering into such arrange­
ments, an organisation must conduct careful strategic analysis of each potential network partner’s attri­
butes and potential benefits, to compensate for this partial loss of control. This aspect of today’s VOs is
the natural culmination of yesterday’s joint ventures with their benefits of shared costs and shared risks,
but also the prospect of sharing increased rewards.
A common vision is essential in getting the most out of a VO. Sometimes, a lack of cultural fit or phil­
osophy mismatch can sour an alliance. VOs, especially the more stable ones, must look at these aspects
carefully. At the micro level, the VO should consist of people working in small independent teams,
often at geographically dispersed locations, overcoming the restrictions of time and space by the use of
modern communications and technology. Such people move away from the definition of employees and
are closer to ‘partners’ who function independently, take decisions independently, and work as a part of
high‐powered and self‐sufficient teams. They are, ultimately, empowered to make their own decisions.

524  Management
 The flat organisational structures, empowerment and ‘super’ teams that partially define VOs not only
make the external boundaries between macro organisational alliances more seamless, but also on a micro
level inside the organisation require the breaking down of barriers between managers and workers,
between different departments and units. The leaner VO structure requires ‘process teams’ that consist
of fewer, more‐educated and versatile people who take care of a large number of functions in a process.
This prevents job‐related shortsightedness from setting in and allows each person to continually improve
the process, since everyone knows generally how the system works in its entirety.
In a knowledge‐driven VO, tasks are likely to be complex — if not, they will most likely be automated.
Naturally, there will be a tendency to use leaner process teams for complicated service jobs such as insur­
ance, banking and telecommunication. The greatest resistance to these fluid teams often comes from
middle management who are there because of their specialisation and focus — attributes that now must be
complemented with all‐round competency if the managers and their organisations are to succeed.
The VO model raises questions about how to reward networks and teams for innovation and enterprise,
both in terms of money and promotion. Also, with less need for managers and flatter hierarchies, what
can possible career paths be like? This is a fundamentally new way of looking at team empowerment and
the authority structure in such an organisation. In the search for the perfect organisation that can make
good use of available tools to best serve the customer and create value for society, virtual organisations
appear a viable and feasible option. This form of organisation will not just be an option but increasingly
a necessity in the future. Driven by demands to streamline organisations and make them more agile and
responsive, VOs can form to provide the best product and service to the customer in the most efficient
way. Knowledge is the main resource and continuous learning is imperative in virtual organisations.

Virtual organisations and information technology

VOs exist on the fundamental premise that information is freely and instantly available to all alliances
and members. Whereas, in traditional organisations, information technology (IT) was an enabler, in VOs
it is a vital component of overall strategy. As companies increasingly produce tailor‐made products it is
essential to send specifications from the retailer to the factory at the highest speeds possible — digital
speed. Most of these systems use the internet as a cheap and relatively robust means of transferring data
between retailers, factories, suppliers and customers.
For distributed VOs (i.e. those with alliances or units in varied geographical locations), most forms
of communication between the partners or fragments are carried out via the internet, email, online com­
munication, videoconferencing and so on. People across continents and time zones can communicate
face‐to‐face with videoconferencing. Digital video cameras and 3D panoramic video software enable
teams or specialists to look at products or machines with life‐like reality.
For pure VOs, the internet, of course, is the central pillar of the business models. These pure VOs have
characteristics of all the other three — they have few or no physical structures such as offices, factories
and warehouses; they communicate between the alliances and their customers using electronic channels;
and the alliances and customers are geographically dispersed. The best example of these pure VOs are
companies such as Amazon.com, eBay, Wotif, Webjet and Priceline, all of which feature the internet
as the core of their business models. For example, Wotif is a virtual internet ‘travel agency’ that takes
bookings for hotels right around Australia. It was founded by Graeme Wood in 2000 when he formed an
alliance with hotels and resorts to market rooms at discount prices that would otherwise have remained
vacant. Webjet operates in a similar fashion, comparing domestic and international airfares and ranking
them by price.
Without the internet, Amazon could not, in fact, exist. Amazon.com began life in a small, nondescript
building, three floors above an art gallery on a street in Seattle in the United States. What is now argu­
ably the world’s biggest bookstore began operating with a refrigerator‐sized computer server in the com­
pany’s storeroom. Amazon.com can only do business via the internet, and holds little physical product.
In fact, Amazon keeps only a minimal supply of best sellers as inventory — the rest are ordered from
their allies, book wholesalers and publishers, as customers order them.

CHAPTER 18 Leading and managing change  525

 Amazon’s claimed inventory of over 3 million titles is a virtual inventory. The customer ‘visits’
Amazon through his or her internet service provider (ISP). Once the customer arrives at Amazon’s web­
site and places an order, Amazon dispatches it if it has it in its warehouse, or places an order with the
supplier for later shipment if it does not have it in stock. Thus, Amazon’s network of suppliers acts as a
virtual warehouse — Amazon’s own warehouse is really just a point for assembling parcels of books. It
does not even ship them, but uses courier services. In recent times apps on smartphones and tablets are
taking the concept of virtual organisations to the next level.

CRITICAL ANALYSIS

1. Using Hofstede’s model as a basis, which of the three change strategies would be most applicable
to Asian and Australian contexts? Substantiate your answers.
2. What is the future for ‘non‐virtual’ organisations?

18.4 Organisation development

LEARNING OBJECTIVE 18.4 What are organisation development, organisational transformation and the
Prosci® ADKAR® model?
Among consulting professionals, organisation development (OD) is known as a comprehensive
approach to planned organisational change that involves the application of behavioural science in a
systematic and long‐range effort to improve organisational effectiveness.73 Organisation development
is supposed to help organisations cope with environmental and other pressures for change while also
improving their internal problem‐solving capabilities. OD, in this sense, brings the quest for continuous
improvement to the planned‐change process.
There will always be times when the members of organisations should sit together and systematically
reflect on strengths and weaknesses as well as performance accomplishments and failures. Organisation
development is one way to ensure that this happens in a supportive and action‐oriented environment.
OD is an important avenue through which leaders can advance planned‐change agendas, foster creativity
and innovation, and more generally help people and systems to continuously improve organisational
performance. It often involves the assistance of an external consultant or an internal staff member with
special training. But, importantly, all managers should have the skills and commitment to use the various
elements of OD in their continuous‐improvement agendas. The notion of organisation development
dovetails nicely with the popular concepts of total quality management (TQM) and employee involve­
ment discussed throughout this book. In fact, the OD approach may offer added opportunities to use
them to the best advantage.74

Organisation development goals

In organisation development, two goals are pursued simultaneously. The outcome goals of OD focus on
task accomplishments, and the process goals of OD focus on the way people work together. It is this
second goal that strongly differentiates OD from more general attempts at planned change in organ­
isations. You may think of OD as a form of ‘planned change plus’, with the ‘plus’ meaning that change
is accomplished in such a way that organisation members develop a capacity for continued self‐renewal.
That is, OD tries to achieve change while helping organisation members become more active and self‐
reliant in their ability to continue changing in the future. What also makes OD unique is its commitment
to humanistic values and principles of behavioural science. OD is committed to improving organisations
through freedom of choice, shared power and self‐reliance, and by taking advantage of what we know
about human behaviour in organisations.

526  Management
 OD is unashamedly people‐oriented. Staff are viewed as having intellectual, emotional and social
needs and these need to be accounted for in the workplace. So, it focuses less on productivity and
performance than on the needs, aspirations, morale and satisfaction of members of the organisation.
For this reason, many OD practitioners assume that a more satisfied workforce is a more productive
workforce. However, while it is generally accepted that there is a relationship between job satisfaction
and productivity, this has never been empirically proven. Indeed, it might be the other way around — a
more productive worker is a more satisfied worker. Nonetheless, in an ideal OD culture, people feel
fulfilled by meaningful work, are highly motivated, belong to effective teams and are led by exem­
plary supervisors. These humanistic supervisors achieve change by sharing information and negotiating
compromise.

How organisation development works

Figure 18.6 presents a general model of OD and shows its relationship to Lewin’s three phases of planned
change. To begin the OD process successfully, any consultant or facilitator must first establish a working
relationship with members of the client system. The next step is diagnosis — gathering and analysing
data to assess the situation and set appropriate change objectives. This helps with unfreezing as well
as pinpointing appropriate directions for action. Diagnosis leads to active intervention, wherein change
objectives are pursued through a variety of interventions, a number of which are discussed shortly.

Organisation development process

Diagnosis Intervention Evaluation

Gathering and Taking Following up to
Establish a Achieve a
analysing data, collaborative reinforce and
change terminal
setting change action to support change
relationship relationship
objectives implement
desired change
Withdraw to
Create links
leave members
with members of
of client system
client system
Unfreezing Changing Refreezing self-reliant

Planned change process

FIGURE 18.6 Organisation development and the planned change process

Essential to any OD effort is evaluation. This is the examination of the process to determine whether
things are proceeding as desired and whether further action is needed. Eventually, the OD consultant or
facilitator should achieve a terminal relationship that leaves the client able to function on its own. If OD
has been well done, the system and its members should be better prepared to manage their ongoing need
for self‐renewal and development.
The success or failure of any OD program lies in part in the strength of its methodological foun­
dations. As shown in figure 18.7, these foundations rest on action research — the process of system­
atically collecting data on an organisation, feeding it back to the members for action planning, and
evaluating results by collecting more data and repeating the process as necessary. Action research is
initiated when someone senses a performance gap and decides to analyse the situation to understand
its problems and opportunities. Data gathering can be done in several ways. Interviews are a common
way of gathering data in action research. Formal written surveys of employee attitudes and needs are
also growing in popularity. Many such ‘climate’, ‘attitude’ or ‘morale’ questionnaires have been tested
for reliability and validity. Some have even been used so extensively that norms are available so that

CHAPTER 18 Leading and managing change  527

an organisation can compare its results with those from a broad sample of counterparts. The action
research methodology has two aims:
1. an action aim to bring about some change
2. a research aim to increase knowledge and understanding.
The action research cycle is best explained as a continuous process or cycle of planning, taking action,
monitoring, evaluating and replanning.

Problem
sensing

Evaluation Data
and follow-up gathering

Un
n
ezi

fre
fre

ez
ing
Participative
Re process

Action Data analysis

Changing
implementation and feedback

Action
planning

FIGURE 18.7 Action research is a foundation of organisation development

Organisation development interventions

The foundations of organisation development include respect for people and a commitment to their
full participation in self‐directed change processes. It is employee involvement in action. OD rallies an
organisation’s human resources through teamwork in support of constructive change. This process is
evident in the variety of OD interventions or activities that are initiated to directly facilitate the change
processes. Importantly, these interventions are linked to concepts and ideas discussed elsewhere in this
book and that are well represented in the practices and approaches of the new workplace.75
Individual interventions
Concerning individuals, organisation development practitioners generally recognise that the need for per­
sonal growth and development is most likely to be satisfied in a supportive and challenging work environ­
ment. They also accept the premise that most people are capable of assuming responsibility for their own
actions and of making positive contributions to organisational performance. Based on these principles, some
of the more popular individual OD interventions designed to help improve individual effectiveness include:
•• sensitivity training — unstructured sessions (T‐groups) where participants learn interpersonal skills
and increased sensitivity to other people
•• management training — structured educational opportunities for developing important managerial
skills and competencies

528  Management
•• role negotiation — structured interactions to clarify and negotiate role expectations among people
who work together
•• job redesign — realigning task components to better fit the needs and capabilities of the individual
•• career planning — structured advice and discussion sessions to help individuals plan career paths and
programs of personal development.

Team interventions
The team plays a very important role in OD. OD practitioners recognise two principles in this
respect. First, teams are viewed as important vehicles for helping people satisfy important
needs. Second, it is believed that improved collaboration within and among teams can improve
organisational performance. Selected team OD interventions designed to improve team effectiveness
include:
•• team building — structured experiences to help team members set goals, improve interpersonal
relations and become a better functioning team
•• process consultation — third‐party observation and advice on critical team processes (e.g.
communication, conflict and decision‐making)
•• intergroup team building — structured experiences to help two or more teams set shared goals,
improve intergroup relations and become better coordinated.

Organisation‐wide interventions
At the level of the total organisation, OD practitioners operate on the premise that any changes in one
part of the system will also affect other parts. The organisation’s culture is considered to have an impor­
tant impact on member attitudes and morale. And it is believed that structures and jobs can be designed
to bring together people, technology and systems in highly productive and satisfying working combi­
nations. Some of the organisation‐wide OD interventions often applied with an emphasis on organ­
isational effectiveness include:
•• survey feedback — comprehensive and systematic data collection to identify attitudes and needs,
analyse results and plan for constructive action
•• confrontation meeting — one‐day intensive, structured meetings to gather data on workplace problems
and plan for constructive actions
•• structural redesign — realigning the organisation structure to meet the needs of environmental and
contextual forces
•• management by objectives — formalising this throughout the organisation to link individual, group
and organisational objectives.

DIVERSIT Y

Change needed in Australian Defence Force culture

The so‐called ‘Skype scandal’ of the Australian
Defence Force (ADF) in 2011 resulted in a
review of past  sexual misdemeanours and
brought to light some 775 plausible allegations
of sexual abuse dating back to 1951.76 In April,
2011:

a clearly distressed female cadet identified only

as Kate went public after discovering that her
sexual encounter with a male colleague had
been broadcast on Skype to a group of his
mates in another room.77

CHAPTER 18 Leading and managing change  529

 The male participant had set up a web camera to beam the encounter to a group of his friends in
another room. The broadcasting of consensual sex between two naval cadets on Skype was to have
ramifications that reached as far as the Commandant of the ADF academy, Commodore Bruce Kafer.
Immediately following Kate’s complaint, Kafer decided to proceed with disciplinary proceedings against
her for allegations that included alcohol and absenteeism. The then‐Minister of Defence Stephen Smith
strongly criticised Commodore Kafer for this. Kafer was stood down on leave for almost a year, but
returned to work in March 2012 after being cleared by the Kirkham report. In the wake of this, Smith was
roundly criticised, and there were calls from prominent retired senior ADF officers for him to apologise.
However, other key reviews released:

found a ‘boy’s club’ culture pervaded Defence, punishing part‐time workers and treating children as ‘career
killers’. A review of alcohol abuse within ADF found there was a ‘high prevalence’ of hazardous drinking.78

The Defence Department secretary Duncan Lewis and Chief of the Defence Force General David
Hurley admitted that ‘our culture has tolerated shortfalls in performance’, and that steps needed to be
taken in order to quickly and consistently address issues and reshape aspects of ADF culture.79
Lieutenant General David Morrison was made chief of the Australian Army in 2011. As part of a review by
the Sex Discrimination Commission, he spent six hours listening to three Army women who had experienced
abuse. For him, this was a life‐changing moment and he stated that he considered himself personally res-
ponsible for the anguish suffered by these and other women. He called all his commanding officers together
and told them that things must change. He also changed the recruitment campaign so that more women
would be attracted to the Army, and as a result successfully gained 600 more female recruits. In 2013 a new
scandal had to be confronted. Members of a ‘Jedi Council’ were sharing pornographic images by email. So
he recorded a YouTube video in which he warned that such behaviour would no longer be tolerated and that
‘the Army has to be an inclusive organisation in which both male and female soldiers are able to reach their
fullest potential’. Any serving soldier who is not up to that should find ‘something else to do with [their] life’.80
In 2016, David Morrison was named Australian of the Year.

QUESTION
Watch the YouTube video (www.youtube.com/watch?v=QaqpoeVgr8U) recorded by Lieutenant General
Morrison. Do you think that his methods will result in the successful elimination of the boy’s club culture in
the Australian Army?

Organisational transformation
Top‐down Theory E change was discussed earlier in the chapter. Leaders who institute top‐down change
are intent on radically transforming their organisations. On the other hand, leaders who favour bottom‐
up change, or Theory O change, would probably select more incremental OD to make changes in their
organisations. OD is concerned with human resource development. It is long‐range, organisation‐wide
planned change, which, ideally, involves almost all employees in the change program.
Organisational transformation (OT), on the other hand, is paradigmatic change that usually includes
radically altering an organisation’s mission, vision and strategy and restructuring or re‐engineering that often
involves massive downsizing — a euphemism for retrenchments. This occurred on a large scale in the after­
math of the global recession of the early 1990s, in 2008–09 as a consequence of the global financial crisis and
again, particularly in Queensland and Western Australia, after the resources boom ended in 2014.
Often, metaphors are used by organisations to help articulate the necessity for change. For example,
we might say that a particular organisation is like a dinosaur. This metaphor has negative connotations,
because it conjures up an image of an antiquated, inflexible organisation that will soon become extinct.
If we then say that this organisation should mutate from a dinosaur to a chameleon or snow leopard,
then a much more flexible outcome should result. OD often uses a medical metaphor of the organisation
being unhealthy and in need of healing or cure. OT also uses medical metaphors to assist the change
process but these are likely to be trimming the fat or unclogging blocked arteries. It might also use agri­
cultural metaphors of getting rid of dead wood or pruning. All of these clearly suggest downsizing.81

530  Management
The Prosci® ADKAR® model
An exciting recent development in change management theory has been the Prosci® ADKAR® model.
If you log onto seek.com.au and search for a role in Management & Change Consulting, under the
Consulting & Strategy classification, you will sometimes see job adverts that stipulate Prosci certifi­
cation as one of the essential qualifications required of prospective candidates. The Prosci® ADKAR®
model, based on research of more than 2600 companies over 14 years, has five stages that represent the
five milestones an individual must achieve in order to change successfully:
•• awareness of the need for change
•• desire to support the change
•• knowledge of how to change
•• ability to demonstrate new skills and behaviours
•• reinforcement to make the change stick.82
Table 18.1 shows the critical considerations for each of the five stages.

TABLE 18.1 Critical considerations for each of the five Prosci® ADKAR® model stages

Stage Considerations

Awareness • What is the nature of the change?

• Why is the change needed?
• What is the risk of not changing?

Desire • What’s in it for me (WIIFM)?

• A personal choice.
• A decision to engage and participate.

Knowledge • Understanding how to change.

• Training in new processes and tools.
• Learning new skills.

Ability • The demonstrated capability to implement the change.

• Achievement of the desired change in performance or behaviour.

Reinforcement • Actions that increase the likelihood that a change will continue.
• Recognition and rewards that sustain the change.

Source: J. M. Hiatt, J. M., Employee’s Survival Guide to Change 3rd edn (Loveland, CO: Prosci Inc. Learning Center).

Before implementing the ADKAR approach it must first be asked why the change is needed. Some
answers might be:
•• loss of market share
•• loss of profits by the company
•• new product or capability offers from competitors
•• lower prices of competitors’ products
•• a new business opportunity or growth
•• technology revolution (eg. online purchasing).
Once the reason for change has been established and accepted there are some actions that can increase
the likelihood that the change will endure.
1. Reinforce the change with peers and subordinate staff.
2. Introduce a results‐orientation to help the achievement of the business’s objectives.
3. Avoid reverting back to old processes or ways of doing work when problems arise with the new pro­
cesses and systems.
4. Help solve problems that arise with new work processes and tools.83

CHAPTER 18 Leading and managing change  531

 In the Prosci® ADKAR® model, optimism replaces cynicism, resulting in a positive or appreciative
response to a change initiative (see table 18.2).

TABLE 18.2 From cynicism to optimism in the Prosci® ADKAR® model

Response before ADKAR model Appreciative response

This is a waste of time. How soon will it happen?

How will this affect me?

If it ain’t broke, don’t fix it. How will the new process work?

They never tell us what is going on. Will I receive training in the new way?

Source: Adapted from J. M. Hiatt, Employee’s Survival Guide to Change, 3rd edn (Loveland, CO: Prosci Inc., 2013).

CRITICAL ANALYSIS

1. Which of the three broad organisational development intervention methods do you believe has the
most potential for achieving tangible organisational change through organisational development. Why?
2. Do you believe OD or OT would be more effective in helping organisations adversely affected by the
global financial crisis and subsequent economic downturn? Justify your answer.
3. Do you think that the optimistic Prosci® ADKAR® model would find favour in large organisations
like universities?

18.5 Personal change and career readiness

LEARNING OBJECTIVE 18.5 How do you build career readiness in a change environment?
In times like ours, where change is ever-present, fast‐moving and often unpredictable, the management
of your career and career development is extremely challenging. The challenges become even more
magnified in the context of career entry, or when you are beginning a new job with a new employer. In
terms of early career advice, lesson 1 is clear: there is no substitute for performance. No matter what
the assignment, you must work hard to quickly establish your credibility and value in any new job. The
advice of lesson 2 is also undeniable: you must be and stay flexible. Don’t hide from ambiguity; don’t
depend on structure. Instead, you must be always able and willing to adapt personally to reasonable
new work demands, new situations and people, and new organisational forms. The demands of lesson 3
help keep the focus: you can’t go forward without talent. You must commit to continuous learning and
professional development. In order to get and stay ahead in a career during very competitive times, you
must become a talent builder  — someone who is always adding to and refining one’s talents to make
them valuable to an employer. This requires discipline in continuously seeking the learning opportunities
from your daily experiences, including the ones that present problems and prove difficult for you. The
‘ability’ to learn can only benefit you personally when accompanied by the ‘willingness’ to learn.
According to author and consultant Stephen Covey, the foundations for career success are within every­
one’s grasp. But both the motivation and the effort required to succeed must come from within. Only you
can make this commitment, and it is best made right from the beginning. Covey’s advice is to take charge
of your destiny, and to move your career forwards by showing initiative, continually seeking feedback on
your performance, setting up your own mentoring systems, getting comfortable with teamwork, taking
risks to gain experience and learn new skills, being a problem‐solver and keeping your life in balance.84
The best career advice returns again and again to the same message — what happens is largely up to
you. Don’t let yourself down. Step forward and take charge of your continued learning and professional
development. Build, refine and market what author and consultant Tom Peters refers to as the ‘brand
called “you”’. Peters advises each of us to continually work hard to create and maintain a unique and

532  Management
timely package of skills and capabilities with career potential. In Peters’ words, your personal brand
should be ‘remarkable, measurable, distinguished and distinctive’ relative to the competition — others
like you.85
Consider this example. When faced with a veritable sea of faces in a theatre, a lecturer teaching Intro­
ductory Management might be forgiven for wondering how all 300 of the fresh‐faced students sitting in
front of him are going to find good jobs after graduating. An enthusiastic student, who sits near the front
and obtains the top mark in the cohort, begins to differentiate herself. When she hears that a tutor for a
third‐year subject, Business Research Methods (which is taught by the same lecturer), has been offered
a better position at another university, the star student enrols in that elective unit. She knows that most
students enrol in other ‘easier’ electives in which they do not have to study difficult topics, such as log
linear analysis for hierarchical models. For this reason, the student is also aware that lecturing positions
in Business Research Methods are ultimately easier to come by than such positions in subjects including
Human Resource Management and Organisational Behaviour. In time, she might be able to teach her
beloved Change Management subject.
Later, she is awarded an undergraduate degree and hands the lecturer her résumé. It contains a string
of outstanding grades in the appended academic transcript as well as a record of representative sport at
state level and volunteer work among autistic children in the ‘other activities’ section. A tutoring pos­
ition is thus secured to help fund completion of a first‐class honours degree. Clearly, this young student
is very much in the business of differentiating herself by building outstanding personal strategic capa­
bilities, and these do indeed lead to early wins. Later on, she will build on these initial successes by
volunteering to assist on valuable research projects and obtaining good references from colleagues.

Sustaining career advantage

As with organisations that must innovate to achieve competitive advantage in their markets, you must be
able to adapt quickly to the demands of an ever changing workplace, economy and career environment. As
shown in figure 18.8, this means that you must establish and maintain a sustainable career advantage. This
is a combination of personal attributes — skills and capabilities — that allow you to consistently outperform
others, that are continuously improving and that are always timely and relevant to the needs of employers.

Continuous learning

Professionalism

Teamwork Leading

Career portfolio Sustained

Building the brand career
called ‘you’ advantage
Critical Self-
thinking management

Communication

Personal development

FIGURE 18.8 Building a career portfolio for sustainable career advantage

CHAPTER 18 Leading and managing change  533

 You should also build up a personal career advancement portfolio to document your academic and
personal accomplishments for external review. Of particular importance is a skill and outcome assess­
ment that shows potential employers your capabilities in the important areas of professionalism, lead­
ership, self‐management, communication, teamwork and critical thinking. Talent that builds from these
foundations is what today’s employers are looking for, both among full‐time employees and students on
work experience.
Use your career portfolio to show important skills and outcomes gained from your management
studies. Put the entire package online as a means of further distinguishing yourself from the competition.
Once started, your electronic career portfolio can be easily maintained as a continuing resource for self‐
assessment and personal development, as well as to communicate your talents to potential employers.
As you move forwards in this exciting world of work, you must continue the process of brand building
and strengthen your potential for a satisfying lifelong career. You have to master the challenges of change
without forgetting the goal — sustainable career advantage. Also, you can never forget that career devel­
opment is a personal responsibility. Although many foundations have been set during your management
course and other university studies, what happens next and in your career future is up to you. There is no
better time than the present to begin the process of career advancement.

CRITICAL ANALYSIS

1. What items could you insert into your résumé to differentiate yourself and to help you secure a
good job in the constantly changing contemporary work environment?
2. How do you plan to develop a sustainable career advantage?

534  Management
SUMMARY
18.1 What are the challenges of innovation and change in the 21st century?
•• The future will be like our past — always unpredictable, very challenging and full of continuous
change.
•• A learning organisation is one in which people, values and systems support innovation and continuous
change based on the lessons of experience.
•• Organisations need strategic leaders who work with a strategic direction to initiate and successfully
implement changes that help organisations perform well in changing environments.
•• Innovation allows creative ideas to be turned into products and/or processes that benefit organisations
and their customers.
•• Highly innovative organisations tend to have supportive cultures, strategies, structures, staffing and
top management.
•• The possible barriers to innovation in organisations include a lack of top management support,
excessive bureaucracy, short time horizons and vested interests.
18.2 What is the nature of organisational change in an increasingly globalised and integrated
economy?
•• Change leaders are change agents who take responsibility for helping to change the behaviour of
people and organisational systems.
•• Managers should be able to spot change opportunities and lead the process of planned change in their
areas of work responsibilities.
•• Although organisational change can proceed with a top‐down emphasis, inputs from all levels of
responsibility are essential to achieving successful implementation.
•• Theory E change seeks to improve economic performance through restructuring. Theory O change
seeks to build organisational capability through improved culture and human resource development.
•• The many possible targets for change include organisational tasks, people, cultures, technologies and
structures.
18.3 How can planned organisational change be managed in a more rapidly changing world
economy, including resistance to change and the advent of virtual organisations?
•• Lewin identified three phases of planned change: unfreezing (preparing a system for change), changing
(making a change) and refreezing (stabilising the system with a new change in place).
•• Good change agents understand the nature of force‐coercion, rational persuasion and shared power
change strategies.
•• People resist change for a variety of reasons, including fear of the unknown and force of habit.
•• Organisational silence is a form of resistance that occurs when employees fear speaking up about
issues in the workplace. Managers often willingly interpret it as tacit approval.
•• Cynicism occurs because of a loss of faith in the organisation’s leadership or is a response to a history
of unsuccessful changes.
•• Good change agents deal with resistance positively and in a variety of ways, including education,
participation, facilitation, manipulation and coercion. However, manipulation and coercion are last
resort strategies.
•• The special case of technological change requires an openness to resistance and willingness to
improvise as implementation proceeds.
•• Technology is enabling virtual organisations to increasingly form with the ability to be fast and agile
in responding to customer and organisational needs.
18.4 What are organisation development, organisational transformation and the Prosci® ADKAR®
model?
•• Organisation development (OD) is a comprehensive approach to planned organisation change that
uses principles of behavioural science to improve organisational effectiveness over the long term.

CHAPTER 18 Leading and managing change  535

•• OD has both outcome goals, with a focus on improved task accomplishment, and process goals, with
a focus on improvements in the way people work together to accomplish important tasks.
•• The OD process involves action research wherein people work together to collect and analyse data on
system performance and decide what actions to take to improve things.
•• OD interventions are structured activities that are used to help people work together to accomplish
change; they may be implemented at the individual, group and/or organisational levels.
•• Organisational transformation (OT) involves changing an organisation’s mission, vision and strategy,
and vast restructuring, which often includes massively reducing the number of staff.
•• The positive Prosci® ADKAR® model is a five‐stage approach to managing change. Five milestones
ensure that the change sticks.
18.5 How do you build career readiness in a change environment?
•• What happens in your career is up to you — take responsibility for building and maintaining a
competitive ‘brand called “you”’.
•• Take charge of your learning — create a career portfolio that documents your career readiness at all
times by displaying critical skills and accomplishments.
•• Use the insights, examples and concepts from Management and your introductory management course
as a strong foundation for lifelong personal development and career advancement.

KEY TERMS
Action research  is a collaborative process of collecting data, using it for action planning and
evaluating the results.
In bottom‐up change  change initiatives come from all levels in the organisation.
A change agent  tries to change the behaviour of another person or social system.
Commercialising innovation  turns ideas into products or processes with economic value added.
Cynicism  occurs because of a loss of faith in the organisation’s leadership or is a response to a history
of unsuccessful changes.
A force‐coercion strategy  pursues change through formal authority and/or the use of rewards or
punishments.
Hamel’s wheel of innovation  involves five steps for leading the innovation process in organisations —
imagining, designing, experimenting, assessing and scaling.
Individual OD interventions  try to achieve change through helping organisation members become
more active and self‐reliant in their ability to continue changing in the future.
Industry clusters  are groups of enterprises with common or complementary business interests,
including the public and private entities on which they depend.
Innovation roles  are the different functions that need to be filled in the innovation process and include
idea generator, information gatekeeper, product champion, project manager and innovation leader.
Learning organisations  continuously change and improve using the lessons of experience.
Organisation development  is a comprehensive effort to improve an organisation’s ability to deal with
its environment and solve problems.
Organisation‐wide OD interventions  are based on the system theory notion that any changes in one
part of the system will also affect other parts.
Organisational silence  is a form of resistance that occurs when employees fear speaking up about
workplace problems. Managers often interpret it as agreement.
Organisational transformation  (OT) is radical transformation of an organisation’s vision and
structure, usually involving large‐scale downsizing of its workforce.
A performance gap  is a discrepancy between the desired and actual state of affairs.
Process innovations  involve new or improved ways of manufacturing the product or providing the
service.

536  Management
Product innovations  involve the use of new or improved design principles or technologies for
incorporation in products or services.
The Prosci® ADKAR® model  is a positive five‐stage approach to planned organisational change that
ensures the change endures.
A rational persuasion strategy  pursues change through empirical data and rational argument.
Refreezing  is the phase in which change is stabilised.
A shared power strategy  pursues change by participation in assessing values, needs and goals.
Strategic leadership  enthuses people to continuously change, refine and improve strategies and their
implementation.
Sustainable career advantage  is a combination of personal attributes that allow you to consistently
outperform others in meeting the needs of employers.
Team OD interventions  recognise the importance of collaboration and mutual support and include
team building, process consultation and intergroup team building.
Theory E change  is based on activities that increase shareholder or economic value.
Theory O change  is based on activities that increase organisational performance capabilities.
In top‐down change  the change initiatives come from senior management.
Unfreezing  is the phase during which a situation is prepared for change.
Virtual organisations  are shifting networks of strategic alliances, linked by technology, with very
little physical infrastructure, that are engaged as needed.

APPLIED ACTIVITIES
1 What are some of the major factors forcing organisations to make regular changes to their structure
and management operating practices?
2 How applicable is Lewin’s three‐phase organisational change model for contemporary organisations?
3 What are the major similarities and differences in potential outcomes achieved by managers using
the force‐coercion, rational persuasion and shared power strategies to bring about organisational
change?
4 How can organisations incorporate principles of sustainability into their organisational change
strategies?
5 You have just been appointed as CEO to an inadequately performing Australian telecommunications
company. Its customer service record is very poor, it is a technological follower rather than a leader
and staff morale is low. Drawing from the concepts and ideas in this chapter, devise an organisational
change strategy for the company. Would you adopt OD or OT? Why?

ENDNOTES
1. Emma Griffiths, ‘Australia Post: Malcolm Turnbull Confirms Plans for Two‐tier Mail Service, Wants Postage Stamp Cost to
Rise from 70c to $1’, ABC News (3 March 2015), www.abc.net.au/news.
2. ibid.
3. Danny John, ‘Bank on Big Changes at Australia Post’, The Sydney Morning Herald (31 December 2009), www.smh.com.au.
4. Peter Cai, ‘Australia Post “at Turning Point” for Letter or Worse’, The Sydney Morning Herald (19 October 2013), www.smh.
com.au.
5. Jane Cadzow, ‘Ahmed Fahour, delivering the goods for Australia Post?’, The Sydney Morning Herald (8 August 2015),
www.smh.com.au.
6. Heath Aston, ‘Price of Private Post to Double but ACCC to Monitor Two‐tier System’, The Sydney Morning Herald (16 August
2015), www.smh.com.au.
7. Emma Griffiths, op. cit.
8. Australia Post website, www.auspost.com.au.
9. Information from ‘On the Road to Innovation’, special advertising section, ‘Charting the Course: Global Business Sets Its
Goals’, Fortune (4 August 1997).

CHAPTER 18 Leading and managing change  537

10. John Spinks, ‘New Toyota Prius Looks to the Sun’, Westnet (13 January 2009), http://westnet.drive.com.au.
11. Toyota Australia website, www.toyota.com.au.
12. Michael Beer and Nitin Nohria, ‘Cracking the Code of Change’, Harvard Business Review (May–June 2000), pp. 133–41.
13. Quote from John A. Byrne, ‘Visionary vs. Visionary’, Business Week (28 August 2000), p. 210.
14. See Peter F. Drucker, ‘The Discipline of Innovation’, Harvard Business Review (November–December 1998), pp. 3–8; and
Theodore Levitt, ‘Creativity is Not Enough’, Harvard Business Review, vol. 80, no. 8 (August 2002), pp. 137–45.
15. Tom Peters, The Circle of Innovation (New York: Knopf, 1997).
16. Sunil Erevelles, Review of Re‐Imagine: Business Excellence in a Disruptive Age, (2003), In Academy of Marketing Science
Journal, vol. 34, no. 2 (Spring 2006), pp. 263–5.
17. David Kirkpatrick, ‘From Davos, Talk of Death’, Fortune (5 March 2001), pp. 180–2.
18. ibid.
19. Marie Kavanagh and Neil Ashkanasy, ‘The Impact of Leadership and Change Management Strategy on Organizational
Culture and Individual Acceptance of Change During a Merger’, British Journal of Management, vol. 17, special issue (2006),
pp. 81–103.
20. F. Foo, ‘Apple Ends Nokia’s 10 Year Domination in Australia’, The Australian (28 June 2011), p. 33; and Apple iPhone
website, www.apple.com/au/iphone.
21. ‘Smartphone Vendor Market Share, 2015 Q2’ International Data Corporation, (August 2015), www.idc.com.
22. Peter Senge, The Fifth Discipline (New York: Harper, 1990); see also Peter Senge, ‘Building Vision: New Roles for New
Leaders’, Executive Excellence, vol. 21, no. 7 (July 2004), p. 16.
23. Senge, op. cit.; see also Neil Kimberley, Change Management lecture slide notes (2002).
24. Senge, op. cit.; see also Brian Dumaine, ‘Mr. Learning Organization’, Fortune (17 October 1994), pp. 147–57.
25. Michael Beer, Sven Voelpel, Marius Leipold and Eden Tekie, ‘Strategic Management as Organizational Learning’, Long Range
Planning, vol. 38, no. 5 (October 2005), p. 463.
26. ibid.
27. R. Duane Ireland and Michael A. Hitt, ‘Achieving and Maintaining Strategic Competitiveness in the 21st Century: The Role of
Strategic Leadership’, Academy of Management Executive, vol. 19, no. 4 (November 2005), p. 63.
28. ibid, pp. 67–72.
29. See, for example, Roger von Oech, A Whack on the Side of the Head (New York: Warner Books, 1983) and A Kick in the Seat
of the Pants (New York: Harper & Row, 1986); and Alan G. Lafley and Ram Charan, Game Changer: How Every Leader Can
Drive Everyday Innovation (London: Profile Books, 2008).
30. Peter F. Drucker, ‘The Discipline of Innovation’, Harvard Business Review, vol. 80, no. 8 (August 2002), p. 96.
31. Based on Edward B. Roberts, ‘Managing Invention and Innovation’, Research Technology Management (January–February
1988), pp. 1–19; and Gary Hamel, Leading the Revolution (Boston, MA: Harvard Business School Press, 2000).
32. Based on Hamel, ibid., pp. 293–5.
33. Julian Birkinshaw, Gary Hamel and Michael J. Mol, ‘Management Innovation’, Academy of Management Review, vol. 33,
no. 4 (2008), pp. 825–45.
34. Iris Berdrow and Henry W. Lane, ‘International Joint Ventures: Creating Value Through Successful Knowledge Management’,
Journal of World Business, vol. 38, no. 1 (2003), pp. 15–30.
35. This discussion is stimulated by James Brian Quinn, ‘Managing Innovation Controlled Chaos’, Harvard Business Review,
vol. 63 (May–June 1985); and John T. Campling, Competitive Shock and the Employment Relationship: A Study of the
Transformation of Employee Relations in UK Commercial Television, 1985 to 1991, unpublished PhD Thesis, University of
Cambridge (1992).
36. Peter F. Drucker, ‘Best R&D Is Business Driven’, Wall Street Journal (10 February 1988), p. 11.
37. Developed in part from Quinn, op. cit.
38. See Roberts, op. cit.
39. ‘100 Years of Innovation’, Questacon website, www.questacon.edu.au; Erin Frick, ‘10 Aussie Innovations That Make Your Life
Easier’, Australian Geographic (7 March 2014), www.australian geographic.com.au.
40. Australian Government, ‘About Australia: Innovative Australia’ (March 2008), www.dfat.gov.au; Jason Briant, ‘Consensus Can
be Wrong’, Institute of Public Affairs Review (December 2005), p. 35, www.ipa.org.au; The Nobel Assembly at Karolinska
Institute, ‘The 2005 Nobel Prize in Physiology or Medicine’ (3 October 2005), press release, http://nobelprize.org.
41. Craig Wynett, Thomas Fogarty, Ronald T. Kadish and Michael Dell, ‘Inspiring Innovation’, Harvard Business Review, vol. 80,
no. 2 (August 2002), pp. 39–49.
42. Drucker, op. cit.
43. John T. Campling and Paul J. Gollan, Bargained Out: Negotiating Without Unions in Australia (Sydney: Federation Press,
1999).
44. N. Balnave, J. Brown, G. Maconachie, R. J. Stone, Employment Relations in Australia, 2nd edn (Milton, Queensland: John
Wiley & Sons, 2009), p. 493.
45. Beer and Nohria; op. cit.; and ‘Change Management, An Inside Job’, The Economist (15 July 2000), p. 61.
46. Based on John P. Kotter, ‘Leading Change: Why Transformation Efforts Fail’, Harvard Business Review (March–April 1995),
pp. 59–67.

538  Management
47. The model is described by Beer and Nohria, op. cit.
48. Michael Beer, ‘Why Total Quality Management Programs Do Not Persist: The Role of Management Quality and Implications
for Leading a TQM Transformation’, Decision Sciences, vol. 34, no. 4 (Fall, 2003), pp. 623–41.
49. Beer and Nohria, op. cit.
50. ibid.
51. See Edward E. Lawler III, ‘Strategic Choices for Changing Organizations’, chapter 12 in Allan M. Mohrman Jr, Susan
Albers Mohrman, Gerald E. Ledford Jr, Thomas G. Cummings, Edward E. Lawler III and Associates (eds), Large Scale
Organizational Change (San Francisco: Jossey‐Bass, 1989).
52. The classic description of organisations on these terms is by Harold J. Leavitt, ‘Applied Organizational Change in Industry:
Structural, Technological and Humanistic Approaches’, in James G. March (ed.), Handbook of Organizations (Chicago: Rand
McNally, 1965), pp. 1144–70.
53. Lauren Waldhuter, ‘Tasmanian businesses urged to “get on board” as cycling tourism takes off’, ABC News (12 November
2015), www.abc.net.au/news.
54. Tom Peters cited by William Bolger, ‘Tom Peters on the Real World of Business’, Academy of Management Executive, vol. 16,
issue 1 (February 2002), pp. 40–4.
55. Kurt Lewin, ‘Group Decision and Social Change’, in G. E. Swanson, T. M. Newcomb and E. L. Hartley (eds), Readings in
Social Psychology (New York: Holt, Rinehart, 1952), pp. 459–73.
56. Ben Dobbin, ‘Former Trailblazer Kodak Files for Chapter 11’, Sydney Morning Herald (19 January 2012), www.smh.com.au;
and Rupert Neate, ‘Kodak Files for Bankruptcy Protection’, Sydney Morning Herald (20 January 2012), www.smh.com.au.
57. Nick Brown and Tanya Agrawal, ‘Kodak Emerges from Bankruptcy with Focus on Commercial Printing’, Reuters
(3 September 2013), http://www.reuters.com.
58. Geoff Herbert, ‘How “Star Wars: The Force Awakens” helped save Kodak’s film division in Rochester’, Syracuse
(17 December 2015), www.syracuse.com/business‐news.
59. This discussion is based on Robert Chin and Kenneth D. Benne, ‘General Strategies for Effecting Changes in Human
Systems’, in Warren G. Bennis, Kenneth D. Benne, Robert Chin and Kenneth E. Corey (eds), The Planning of Change,
3rd edn (New York: Holt, Rinehart, 1969), pp. 22–45.
60. The change agent description is developed from an exercise reported in J. William Pfeiffer and John E. Jones, A Handbook of
Structured Experiences for Human Relations Training, vol. 2 (La Jolla, CA: University Associates, 1973).
61. ibid.
62. ibid.
63. Teresa M. Amabile, ‘How to Kill Creativity’, Harvard Business Review (September–October, 1998), pp. 77–87.
64. Dexter Dunphy and Doug Stace, ‘The Dunphy/Stace model of change’, in Under New Management: Australian Organisations
in Transition (Sydney: McGraw‐Hill, 1990), p. 82. Reprinted with permission of the McGraw‐Hill Book Companies; and
Fiona Graetz, Malcolm Rimmer, Aan Lawrence and Aaron Smith, Managing Organisational Change, 2nd edn (John Wiley &
Sons, 2006).
65. David Stanley, John Meyer and Laryssa Topolnytsky, ‘Employee Cynicism and Resistance to Organizational Change’, Journal
of Business and Psychology, vol. 19, issue 4 (Summer 2005), pp. 429–459; and W. Scott Sherman and Gail Garland, ‘Where
to Bury the Survivors? Exploring Possible Ex Post Effects of Resistance to Change’, SAM Advanced Management Journal
(winter 2007), pp. 52–62.
66. Elizabeth Morrison and Frances Milliken, ‘Organizational Silence: A Barrier to Change and Development in a Pluralistic
World’, The Academy of Management Review, vol. 25, issue 4 (October 2000), pp. 706–25; and Frances Milliken, Elizabeth
Morrison and Patricia Hewlen, ‘An Exploratory Study of Employee Silence: Issues That Employees Don’t Communicate
Upward and Why’, Journal of Management Studies, vol. 40, issue 6 (September 2003), pp. 1453–76.
67. ibid; and Kimberley, Change Management lecture slide notes (2002).
68. Kimberley, op. cit; Senge, op. cit.; James W. Dean, Pamela Brandes and Ravi Dharwadkar, ‘Organizational Cynicism’, Academy
of Management Review, vol. 23, no. 2 (1998), pp. 341–52; and John P. Wanous, Arnon E. Reichers and James T. Austin, ‘Cynicism
About Organizational Change’, Group & Organization Management, vol. 25, no. 2 (June 2000), pp. 132–53.
69. John P. Kotter and Leonard A. Schlesinger, ‘Choosing Strategies for Change’, Harvard Business Review, vol. 57 (March–April
1979), pp. 109–12.
70. Wanda J. Orlikowski and J. Debra Hofman, ‘An Improvisational Model for Change Management: The Case of Groupware
Technologies’, Sloan Management Review (Winter 1997), pp. 11–21.
71. ibid.
72. Ebay, ‘E‐commerce’, www.ebayinc.com.
73. Overviews of organisation development are provided by Dianne M. Waddell, Thomas G. Cummings and Christopher G.
Worley, Organisation Development & Change, 4th edn (Melbourne: Thomson, 2011); W. Warner Burke, Organization
Development: A Normative View (Reading, MA: Addison‐Wesley, 1987); William Rothwell, Roland Sullivan and Gary N.
McLean, Practicing Organization Development (San Francisco: Jossey‐Bass, 1995); and Wendell L. French, Cecil H. Bell Jr,
and Robert A. Zawacki, Organization Development and Transformation, 5th edn (Boston:McGraw‐Hill, 2000).
74. See, for example, Edward E. Lawler III, Susan Albers Mohrman and Gerald E. Ledford Jr, Employee Involvement and Total
Quality Management: Practices and Results in Fortune 1000 Companies (San Francisco: Jossey‐Bass, 1992).

CHAPTER 18 Leading and managing change  539

75. See French, Bell and Zawacki op. cit.
76. Patrick Lion, ‘Australian Defence Force Enquiry Reveals 1000 Abuse Claims’, Daily Telegraph (7 March, 2012), www.
dailytelegraph.com.au.
77. Laurie Oakes, ‘No Need for an Apology’, Sunday Times (11 March 2012), p. 50.
78. Brendan Nicholson and Ben Packham, ‘Australian Defence Force Lifts Lid on History of Abuse After Legal Review’, The
Australian (8 March 2012), www.theaustralian.com.au.
79. ibid.
80. ‘Boots and All’, ABC Australian Story (25 May 2015), www.abc.net.au/austory.
81. Robert J. Marshak, ‘Metaphors, Metaphoric Fields And Organizational Change’, in David Grant and Clifford Oswick (eds),
Metaphor And Organizations (London: Sage, 1996), pp. 147–65; Robert J. Marshak, ‘Changing The Language of Change:
How New Contexts And Concepts Are Challenging The Way We Think and Talk About Organizational Change’, Strategic
Change, vol. 11, no. 5, (August 2002), pp. 279–86; and Kimberley, Change Management lecture slide notes (2002).
82. J. M. Hiatt, Employee’s Survival Guide to Change 3rd edn (Loveland, CO: Prosci Inc., 2013); Prosci website, www.prosci.
com/adkar.
83. J. Mm Hiatt, op. cit.
84. Stephen Covey, ‘How to Succeed in Today’s Workplace’, USA Weekend (29–31 August 1997), pp. 4–5.
85. Tom Peters, ‘The Brand Called “You”’, Fast Company (August–September 1997).

ACKNOWLEDGEMENTS
Photo: © AAP Image / Australia Post
Photo: © Zeynep Demir / Shutterstock.com
Photo: © Elsa Hoffmann / Shutterstock.com
Photo: © inigocia / Shutterstock.com
Photo: © kevin brine / Shutterstock.com
Photo: © GTS Production / Shutterstock.com
Extract: © Lauren Waldhuter, ‘Tasmanian businesses urged to “get on board” as cycling tourism takes
off’, ABC News (12 November 2015).
Table 18.1: © The Prosci® ADKAR® Model

540  Management
CHAPTER 19

Entrepreneurship and
new ventures
LEA RNIN G OBJE CTIVE S

19.1 What is entrepreneurship?

19.2 What is special about small businesses?
19.3 How do you start a new venture?
19.4 What resources support entrepreneurship and business development?
Asylum seekers could be our next wave of
entrepreneurs1
In 2015, Maria Sorkhi started a photography business, Sima Mahboobifard began selling leather bags,
the Dendo brothers — Rony, Luay and Duraed — began their photography and videography business,
while Bassam Jabar set up a business to sell his art work.
At first glance these are just everyday stories of entrepreneurs in Australia. What sets them apart is
that they have only been in Australia since 2013. They arrived not as wealthy business migrants, but
as penniless refugees from Iran and Iraq. Newly arrived refugees are at first glance the most unlikely
candidates to start up a business less than two years after arriving in Australia. They have no capital, no
credit history, no assets to mortgage and no security, lacking the financial capital necessary for a start‐up.
These refugees all have stories of displacement from their homelands and are recognised as refugees
under the UN Convention. They are not economic migrants.
Their educational qualifications are often not recognised meaning they often can’t get a job or, if they
do, get one well below their ability. Most have no social networks of established family and friends to
provide capital, advice and support, lacking the social capital that many non‐refugee immigrant entre­
preneurs in Australia have been able to draw on. Newly arrived refugees also have little or no knowledge
of the Australian rules and regulations and red tape that all new entrepreneurs must overcome. They also
have little familiarity with the local market and business opportunities — informal knowledge so critical
to new entrepreneurs. Their English‐language fluency is usually not strong.
Refugees face the highest unemployment rates of non‐Indigenous Australians. The traditional model
to assist budding entrepreneurs is that they enrol in MBA courses. Here they study economics, finance,
accounting, marketing and management to gain all the business knowledge that starting‐up a business
requires. But there’s more than one way to facilitate an enterprise. And successful entrepreneurship pro­
grams have shown attributes such as passion, determination, intelligence and resourcefulness are just as
important as business skills.
Refugees, like many immigrant minorities, move into entrepreneurship because of blocked mobility:
starting a business is perhaps their only point of access to the Australian economy because of formal or
informal racial discrimination in the labour market. Indigenous entrepreneurs also move into entrepreneur­
ship in response to racial discrimination, but in their case it also constrains their activities as entrepreneurs:
one recent national study found only 9 of 248 Indigenous entrepreneurs had been able to access bank
finance.
Australia has a strong tradition of refugee entrepreneurs. Westfield founder Frank Lowy, one of
Australia’s richest men, was a 15‐year‐old refugee from a war‐devastated Slovakia. Huy Truong arrived
in Australia on a small fishing boat carrying him and 40 other Vietnamese people in 1978 at the age of
seven. His father was an ethnic Chinese businessman with an import business. In 1999 Truong set up
the gifting site wishlist.com.au with his wife and sisters, which was sold to Qantas in 2012. Truong is
now a private equity investor. Tan Le is another boat person from Vietnam. Le co‐founded the company
Emotiv — a producer of headsets that read brain signals and facial movements to control technology in
computer games or apps. She then co‐founded SASme, a pioneering business that provided platforms for
the SMS applications market and employed 35 employees worldwide.
The refugee entrepreneurs introduced in the first paragraph will probably never achieve such business
success. They are the first cohort of graduates of the Ignite small business start‐ups initiative established
in 2013. As of late 2015, 129 refugees from 25 countries have entered the program — seven out of ten are
males. Most come from countries in the Middle East, with most from Iran (33), Iraq (20) and Syria (10).
Businesses range from clothing alterations, fashion design and hat retail to car/motorcycle sales, carpentry
and joinery, services, art and import businesses. To date around 30 new businesses have been established
or are nearly there. Another successful program assists micro business start‐ups for women of refugee and
migrant backgrounds. The Brotherhood of St Laurence Stepping Stones initiative saw 60 women from the
Australian business community recruited, trained and matched with program participants.

542  Management
Frank Lowy, one of Australia’s richest men, came to Australia as a refugee at the age of 15.
Source: Jock Collins (University of Technology Sydney), originally published on The Conversation.

QUESTION
Research some examples of community programs that are available to aid entrepreneurs. What are some
additional initiatives that could be put in place to provide further assistance to underprivileged entrepreneurs?

Introduction
The examples in this chapter will show what is possible using initiative and patience in the world of
work. Its goal is not only to inform you — make you more familiar with the nature of entrepreneur­
ship and new venture creation — but also to enthuse and stimulate you to consider starting your own
business, become self‐employed and make your own contribution to society. Today’s interface between
companies and customers is highly dynamic. Problems and opportunities such as increased product and
service complexity, rapidly changing customer expectations, and the introduction of new technologies
and innovation point to the need for organisations and their managers to adapt and renew themselves
continually to succeed over time.

19.1 The nature of entrepreneurship

LEARNING OBJECTIVE 19.1 What is entrepreneurship?
People and organisations must change often and at a rapidly accelerating pace. Success in highly com­
petitive business environments, in particular, depends on entrepreneurship. This term is used to describe
dynamic, creative, risk‐taking behaviour that results in the creation of new opportunities for individuals
and/or organisations. Entrepreneurship can often be seen in small, medium, large, private, public and
government organisations. In other words, it comes in many shapes and forms.

CHAPTER 19 Entrepreneurship and new ventures  543

 An entrepreneur creates a new enterprise, opportunity or business venture. In the business context,
an entrepreneur starts new ventures that bring to life new products or services. Entrepreneurs have been
responsible for many innovative and useful products and services in the modern marketplace. Many
believe entrepreneurs to be high risk takers but in every successful venture these risks are calculated
risks.
Many different terms are increasingly being used to describe particular types of entrepreneurs. For
example, there are technopreneurs, who are involved in high‐technology industries (such as Facebook’s
Mark Zuckerberg); social entrepreneurs, who run social enterprises that are driven by community
needs rather than profit;2 and intrapreneurs, who innovate for change from within large organisations.
(Intrapreneurs will be discussed in further detail later in the chapter.)
Entrepreneurs such as the late Steve Jobs (who co‐founded Apple Computers), Sir Richard Branson
(who established the Virgin Group) and all the entrepreneurs who set up small businesses worldwide
provide many of the new products, processes and marketing technologies that allow the global economy
to evolve, innovate and prosper. In recent years, the importance of these entrepreneurs has been recog­
nised through awards, which not only raise the profiles of their businesses locally but also enhance
their  profiles worldwide. The value of entrepreneurs is also evident by their inclusion in government
think tanks. Entrepreneurs often participate in programs encouraging other budding entrepreneurs, where
they can share success stories and advice on business plans and networking opportunities, and possibly
identify new markets.
Researchers are interested in the characteristics of entrepreneurs. They want to know whether and
how entrepreneurs are different, and what it takes to achieve entrepreneurial success. Before examining
the findings, let’s meet some real, high‐profile entrepreneurs. Their stories are rich with ideas for all of
us to consider. Although the people and what they have accomplished differs, they share something in
common. These entrepreneurs have all built successful long‐term businesses from good ideas and hard
work.3

INNOVATION

Entrepreneurial success stories

Kristina Karlsson
A staple for students, professionals and
stationary addicts alike, kikki.K was born
from a ‘3 am moment’ experienced by then
24‐year‐old founder, Kristina Karlsson. She
woke her husband in the night, worried about
the direction of her career. He suggested she
write down what was important to her. Armed
with her list —‘drive to work every day and
be excited, run my own business, Swedish
design and earn $500 a week’ — she set out
to furnish a home office. Karlsson was unin­
spired by the products available in Australian
stores. ‘I felt depressed for a few seconds
then I thought, “This is an opportunity — I am going to open stores all over the world selling beautiful
stationary.”’4
Over 15 years later, that dream is a reality. In 2001, at the height of the global financial crisis,
kikki.K opened its first retail outlet in Melbourne. Since then, the company has grown to over
80 bricks‐and‐mortar stores in Australia, New Zealand, Hong Kong, Singapore and the United Kingdom.
An online store ships to close to 150 countries, with expansion into Europe and the United States next
on the horizon.5

544  Management
 Karlsson lists vision, plan, network and decisions as the biggest business lessons for up‐and‐comers.
The four lessons work best when combined.
On vision: ‘If you start out with a clear vision, it will guide you through the ups and downs’.
On planning: ‘Putting it in paper cements your vision and gives you direction’.
On decisions: ‘There is no such thing as a bad decision’.
On networking: ‘You’ll be surprised by how many people are happy to help’.6
Daniel Flynn, Justine Flynn and Jarryd Burns
In 2008, Daniel Flynn — then a university
student — was watching a video about the world
water crisis and felt compelled to try to make a
difference. Flynn shared his goal with friend,
Jarryd Burns, and now‐wife Justine Flynn, and
together they devised the concept for Thankyou
Group. The company donates 100 per cent of
its profits to water, health and food initiatives in
developing countries. ‘We wanted to tackle a
huge global problem with a huge global product,
and the product to get us there was bottled
water.’ 7
At the time, the three had a combined net
worth of $1000 and they admit to not knowing
a thing about starting a company. ‘We did what any good young person would do: we just “Googled” it.’
Flynn embraced the idea that ‘if an idea’s good enough, the money will come’.8
Their concept gradually gained traction. A 10‐minute meeting with the director of the largest bev­
erages distributor in Australia lasted an hour — and ended with an order for 50  000 bottles. Of course,
there were also setbacks — many potential investors claimed Thankyou didn’t have the stamina needed
to shake up the global beverage industry.
Undeterred, the team harnessed the power of social media to prove there was consumer demand,
subsequently landing a deal with 7‐Eleven. From there, the team decided to expand, with food and
bodycare products added to their offering. Another successful social media campaign convinced retail
giants Coles and Woolworths to stock the Thankyou range.9
By the start of 2016, Thankyou had given over $4 million to funding initiatives in 17 countries; pro­
viding safe water access, hygiene and sanitation training and food aid to hundreds of thousands of
people in need.10
In recent years Daniel’s efforts have been rewarded, winning Young Victorian of the Year in 2014 and
Ernst & Young Southern Region Entrepreneur of the Year in 2015. However, he says he didn’t set out to
win awards.
‘I was just a kid who got an idea, got a great team and made it happen, and anyone can.’11
Le Ho
When Le Ho’s first business, a chain of bridal
stores, closed due to the upsurge in popularity
of internet shopping, few could have predicted
her next career move. She decided she wanted
to find a business that would always be in
demand, regardless of economic climate.
Opportunity soon struck. In 2009, a friend
asked her to help oversee their business —
Capital City Waste Services. Ho realised that
the company, then losing $20  000 a month,
was about to go into liquidation. Despite the
possibility of failure, after working with the
company for just a year, she offered to buy it
for $50  000. ‘I had to take on board the risk of continually losing money if my strategies didn’t work. I
bought out all the shareholders and in the first month I turned it around to break even.’12

CHAPTER 19 Entrepreneurship and new ventures  545

 Working 18 hours a day for the first 12 months to save on costs, Ho was hands‐on in all aspects of
the business — she even took on her own garbage run. ‘Garbage drivers that drove past me would do a
double take and see if this was really a female, or if it was a man with long hair.’13 A mother in her 20s,
Ho found herself dealing with men over double her age. ‘People were making bets on how long it would
take me to go under.’14
Her perseverance paid off. Business doubled in the first 12 months and today it has an annual turn­
over of more than $10 million. She credits the criticism she received as a factor in her success. ‘I believe
being female in a male dominated industry gave me more reasons to succeed. I wanted to make a point
that any business or job that men can do, women can do too. And when we are not given that oppor­
tunity, then we have to create it for ourselves.’15

Dr James Muecke
Dr James Muecke founded Sight for All in
2009, a not‐for‐profit organisation with the
vision to ‘Create a world where everyone
can see’.16 The organisation focuses its
efforts in rural Aboriginal and urban commu­
nities, as well as in select developing Asian
countries. In 2015, Dr Muecke was awarded
National Social Entrepreneur of the Year by
Ernst & Young (EY) after taking out the South
Australian category.

As an ophthalmologist, Dr James Muecke felt a strong sense of moral duty to help people in disad­
vantaged countries. He established Sight For All to work towards eliminating blindness in Australia and
internationally.17

Instead of flying in eyecare specialists to treat patients, Sight For All trains and equips local specialists
so that they can continue in a sustainable manner. Importantly, the organisation focuses on childhood
blindness, as well as cataracts, glaucoma and diabetic retinal disease. The organisation has over 100 pro­
fessionals in its program, all of whom provide their time and expertise on a voluntary basis.18
Dr Muecke is hoping to develop ‘a sustainable source of funding from individuals, organisations,
corporate, family trusts’, and concedes that it’s difficult in the current economic climate to find support
for projects operated outside of Australia. His goal is a simple one: to ‘maintain the services offered by
Sight for All for the foreseeable future’.19

Juliette Wright
Juliette Wright, founder and chief executive of
not‐for‐profit GIVIT, launched the online plat­
form in 2009 after she couldn’t find a charity
in need of her young son’s baby clothes.
‘Instead, local charities were searching des­
perately for essential items such as sanitary
products for women who had fled domestic
violence, steel‐capped boots to enable
unemployed fathers to secure work and clean
mattresses to stop children living below the
poverty line sleeping on the floor.’20
Recognising an opportunity, she set about
creating an online platform to connect chari­
table Queenslanders with people in need.
When people realised the affect a simple donation could have on someone’s life, the operation grew
rapidly. Within the first year, hundreds of charities had benefited from the generosity of thousands of
Australians.21 ‘It’s often really simple things that can rise people out of poverty. One woman had four
children and was a widow  .  .  .  she spent her mornings washing all of her children’s clothes by hand. She
got a washing machine  .  .  .  now she has a job.’22

546  Management
 In January 2011, Wright was standing in front of the television taking in the devastation of the Brisbane
floods, when she received a phone call from then‐Premier Anna Bligh asking for her help. GIVIT became
the official website through which to make donations and in a three‐week period 33  500 goods were
matched with Queenslanders in immediate need. ‘It was an incredible honour to be in the whirlwind of
donations  .  .  .  it was the honour of my life.’23
To date, GIVIT has helped over 130  000 people and there are no plans to slow down. Wright plans to
focus on helping those living in rural and regional areas, as well as responding to national disasters of
any kind. 24 In 2015 she was named Australian Local Hero in recognition of her efforts.
Wright says that it is important for people who are launching a not‐for‐profit to have a strong support
network. ‘Although I had a lot of support around me, a lot of people told me that GIVIT couldn’t be done
and it was too risky. I would say to people “hear the nos but do it anyway.”’25
Simon Griffiths
Social entrepreneur Simon Griffiths doesn’t take
life sitting down. The engineering and econ­
omics graduate began a career in the corporate
world before moving into the NGO sector. How­
ever, when he set out to fund his newest ven­
ture, an ethical toilet paper company, he found
himself sitting for longer than he may like. For
51 hours, on a toilet, to be precise. The plan
worked. He crowdfunded $50  000 and in the
process, got people talking.
The aptly named business, Who Gives
a Crap, was born out of a desire to support
sanitation projects in developing countries,
where diarrhoea‐related illnesses kill over
4000 children under five every day.26 ‘We wanted to find a way to use mass‐market products that are
available anywhere in Australia. The answer: toilet paper! Everyone needs toilet paper and as a con­
cept, it lends itself perfectly to supporting sanitation projects.’27 Every roll purchased provides access
to a toilet for a week.
Griffiths decided early on that he would split the profits 50/50, keeping half and donating the rest to
WaterAid. ‘If you shift the incentives, you draw more entrepreneurs into the social impact world and
make it easier for them to reinvest in staying there. We’re all rewarded for growing this company — and
that means the company ultimately does more good.’28 The plan seems to be working.
In its first two years of operation, Who Gives a Crap donations to WaterAid provided over 70  000 people
living in the developing world with access to a toilet. Griffiths has learnt to roll with the setbacks.
‘You learn that mistakes are really beneficial so you stop fearing them and kind of relish them. But on
top of that, I guess you learn to ride the rollercoaster better and make sure that the peaks are really high
and you get all the excitement out of that.’

Characteristics of entrepreneurs
A common image of an entrepreneur is as the founder of a new business enterprise that achieves large‐
scale success, like most of the ones just mentioned. But many entrepreneurs also operate on a smaller
and less‐public scale. Those who take the risk of buying a local McDonald’s franchise, opening a small
retail shop or going into a self‐employed service business are also entrepreneurs. Similarly, anyone who
assumes responsibility for introducing a new product or service or change in operations within an organ­
isation is also demonstrating the qualities of entrepreneurship.
Obviously there’s a lot to learn about entrepreneurs and entrepreneurship. Starting with the indi­
vidual, however, indications are that entrepreneurs tend to share certain attitudes and behavioural ten­
dencies:29 self‐confidence, determination, resilience, adaptability and drive to excel.30 You should be
able to identify these attributes in the previous examples. Entrepreneurial passion — intense, positive

CHAPTER 19 Entrepreneurship and new ventures  547

feelings experienced by engagement in entrepreneurial activities — is also important in driving the
entrepreneur forward.31 In addition, the following typical characteristics of entrepreneurs are also
evident.
•• Internal locus of control. Entrepreneurs believe that they are in control of their own destiny; they
are self‐directing and like autonomy. They do not wait to win the lotto (external event) to start their
business.
•• High energy level. Entrepreneurs are persistent, hardworking and willing to exert extraordinary efforts
to succeed.
•• High need for achievement. Entrepreneurs are motivated to accomplish challenging goals; they thrive
on performance feedback.
•• Tolerance for ambiguity. Entrepreneurs are risk takers; they tolerate situations with high degrees of
uncertainty.
•• Self‐confidence. Entrepreneurs feel competent, believe in themselves and are willing to make decisions.
•• Action‐oriented. Entrepreneurs try to act ahead of problems; they want to get things done quickly and
do not want to waste valuable time.
•• Desire for independence. Entrepreneurs want independence; they are self‐reliant and want to be their
own boss, not work for others.32 This can sometimes be their downfall, as they are unwilling to accept
feedback and advice.
The entrepreneurs, intrapreneurs, social entrepreneurs and technopreneurs in this chapter have three
things in common: they see markets that could exist; they see ways to enter existing markets from a
very different or enhanced perspective; and they move quickly to take advantage of opportunities. This
first‐mover advantage is crucial to bringing products or services to the market as quickly as possible.
Globalisation and technology usually means ease of duplication. The illegal trade in pirated copies of
software and merchandise means there is a narrow window, and first movers can succeed here.
Entrepreneurs are sometimes distinguishable in terms of background and experiences, not just the
personal characteristics previously listed. Childhood experiences and family environment seem to make
a difference. Evidence links entrepreneurs with parents who were entrepreneurial and self‐employed.
Similarly, entrepreneurs tend to be raised in families that encourage responsibility, initiative and
independence. Another issue is career or work history. Entrepreneurs who try one venture often go
on to others. Previous career or personal experience in the business area or industry is also helpful.
It also appears that entrepreneurs tend to emerge during certain windows of career opportunity. Most
entrepreneurs start their businesses between the ages of 22 and 45, but in this technological age many
start out as teenagers. This appears to be an age spread that allows for both taking risk and seeing
opportunity. Manager’s notepad 19.1 gives some additional thoughts on the nature of entrepreneurs
and entrepreneurship.

MANAGER’S NOTEPAD 19.1

Challenging the myths about entrepreneurs

• Entrepreneurs are born, not made. Not true! Talent gained and enhanced by experience is a
foundation for entrepreneurial success.
• Entrepreneurs are gamblers. Not true! Entrepreneurs are risk takers, but the risks are informed and
calculated.
• Money is the key to entrepreneurial success. Not true! Just having money is no guarantee of
success — there’s a lot more to it than that; many entrepreneurs start with very little.
• You have to be young to be an entrepreneur. Not true! Age alone is no barrier to entrepreneurship;
with age often comes experience, contacts and other useful resources.
• You have to have a degree in business to be an entrepreneur. Not true! You may not need a degree
at all and you don’t necessarily need a business degree in preference to a degree from another
discipline.

548  Management
Diversity and entrepreneurship
The structural shift in the Australian and New Zealand economies to more casual and part‐time positions
and fewer secure, full‐time jobs has forced many individuals to create their own full‐time employment
through self‐employment. Increased levels of education and training have also given confidence to many
individuals to strike out on their own and become entrepreneurs.
Immigrants have contributed greatly to entrepreneurial activity in small, medium and large organ­
isations in Australasia. Entrepreneurial immigrants have been responsible for bringing diversity to the
Australasian hospitality industry, with many opening ethnic restaurants. They have also been active in
other areas of the service economy, such as in the retail sector.
Globally, we have seen opportunities created for budding entrepreneurs in underdeveloped countries
such as Bangladesh.33 Muhammad Yunus, founder of the Grameen Bank and the 2006 Nobel Peace
prize winner, is an example of such a person. Loans are given to the poor (usually as little as $30)
to start their business. This has expanded to enable many people to start up ‘rural non‐farm micro‐­
enterprises’ and move out of poverty. Yunus is a social entrepreneur who wanted to change the face
of poverty in his country. Many institutions are now using this model in other parts of the world.34

DIVERSIT Y

Indigenous entrepreneurship and

self‐employment on the rise35
Findings by ANU’s Centre for Aboriginal
Economic Policy Research indicates improve­
ments to skills and policy changes have made
it easier for Indigenous entrepreneurs to set up
successful businesses. The number of Indige­
nous self‐employed has also increased, albeit
from a low base. While the research indicates
that Indigenous business is characteristically
more similar to non‐Indigenous business than
general employment statistics indicate, it is
critical of the loose definition of the term.
Source: Australian National University, originally published on The Conversation.

QUESTION
Use the above article as a starting point for your own research. What public and private sector programs
are currently in place to foster the talent of Indigenous entrepreneurs?

The role of governments in entrepreneurship

Although some critics claim that governments obstruct or stifle entrepreneurship, an objective analysis
reveals that governments divert substantial resources into encouraging and supporting entrepreneurs. In
fact, many entrepreneurs would never have succeeded without government help. Even well‐established
businesses often owe their continued existence to government financial and technical support.
Govern­ments in Australia, Canada, New Zealand and the United States have attempted to stimulate
­entrepreneurship among their often socially marginalised indigenous populations in order to create
employment. They have done this through business grants, financial subsidies, awards and other types
of recognition, tax incentives, joint ventures and the provision of technical and management training.

CHAPTER 19 Entrepreneurship and new ventures  549

 Reducing the much higher levels of unemployment and social deprivation among indigenous people
compared with the general population has been the main objective of programs. Whereas some coun­
tries, such as Australia and Canada, have experimented with self‐governing agencies to lead these
efforts, others have concentrated on channelling support through various departments and at different
levels of government. Such programs are highly vulnerable to potential discontinuity with changes in
government.

CRITICAL ANALYSIS

1. Do you agree with the statement that entrepreneurs are born, not made? Why or why not?
2. Think of an entrepreneur that you admire. What is it about them that you would emulate? Is there
anything about them that you would avoid emulating?
3. Do you think there is a strong growth in social entrepreneurship? Why?

19.2 Entrepreneurship and small business

LEARNING OBJECTIVE 19.2 What is special about small businesses?
Over 90 per cent of all businesses in Australia and New Zealand are small businesses, with two‐
thirds of all small businesses being home‐based.36 According to the Australian Bureau of Statistics, a
small business is defined as a business employing less than 20 people.37 They usually tend to have the
following management or organisational characteristics: independent ownership and operations; close
control by owners/managers who also contribute most, if not all, the operating capital; and principal
decision‐making by the owners/managers. Medium businesses employ more than 20 people but less than
200 people, and large businesses employ 200 or more people.
Most small businesses are run by one owner who oversees virtually all aspects of the busi­
ness, from marketing and hiring staff to budgeting and operations. Approximately 60 per cent of
small businesses are non‐employing businesses, 27 per cent employ between 1 and 4 people, and
12 per cent employ 5 to 19 people. In total, small businesses provide employment for more than
five million Australian workers, which is about half of all private sector employment.38 A growing
number of women are joining the small business ranks, with over 30 per cent of all small businesses
owned by women. Almost half the small businesses are in the service sector; the next largest group
is retail businesses; and manufacturing operations are the third largest group. Only 50 per cent of all
new businesses survive the critical first three years of operation. This high failure rate does not stem
from the owners’ lack of technical expertise in their field; rather, it is often from weak managerial
and business skills.
Most Australians (80 per cent) view small businesses as a positive influence on national life. Small
businesses account for more than 40 per cent of the offline economy, create three of every four new
jobs, and generate a majority of Australian innovations. Small businesses and home offices account for
40 per cent of all technology investment in Australia and New Zealand.39
The entrepreneurial spirit embodies inventiveness, an ability to think laterally, enthusiasm, energy and
a willingness to take risks — and is independent of race, ethnicity, gender and class. Most small business
success stories have a common theme. Small business entrepreneurs take advantage of opportunities they
have identified in niche markets through their specialised skills and expertise. They make intelligent or
appropriate use of technology and develop close working relationships with their clients, which gives
them a distinct edge over their competitors.
The future of small business entrepreneurship is vital for the future of all communities in the
Asia–Pacific region and there has never been a time when managing a small business has been more
challenging. The impact of new technology, increasing competition and the accessibility of new

550  Management
markets through e‐commerce and the internet have been the catalyst for new and smarter ways of
doing business.
The most common ways for an entrepreneur to get involved in a small business are to start one, buy an
existing one or buy and run a franchise — where a business owner sells to another the right to operate
the same business at a specific location or in a specific geographical area. A franchise runs under the
original owner’s business name and guidance. In return the franchise parent receives a share of income
or a flat fee from the franchisee. Some examples are the right to operate a fast‐food operation such as
McDonald’s, or a petrol provider such as a Caltex station.

Internet entrepreneurship
The growth of internet entrepreneurship in Australia and New Zealand has been less rapid than in the
United States. In some respects, purchasing over the internet is an extension of catalogue purchasing,
which has always been more popular in the United States — retailers such as Sears generated a large
proportion of their income from catalogue sales. Also, the United States has the highest percentage
of households in the world connected to the internet, which increases the potential for e‐businesses.
Whereas many Australasian businesses have a website, not all will necessarily offer internet purchasing.
Even when they do, companies such as Wow Sight and Sound have reported relatively modest sales over
the internet compared with total revenue.
Although Australasian entrepreneurs are embracing the internet, the region’s unique cultural and geo­
graphic characteristics are likely to produce slightly different outcomes from those in the United States
and Europe. The smaller, more fragmented markets in Australasia may not warrant the costs of estab­
lishing a sophisticated e‐business for all entrepreneurs. It is important to determine the appropriate busi­
ness model for the market that the product or service is targeting.
Organisations intent on using the internet to enter new markets, expand in current markets, and/or
transform their relationships with suppliers, customers and employees often find that the key to success
is not the technology. E‐business is not about technology any more than it is about finding ways of using
new tools, and there is as much opportunity for small business to use the new e‐business tools as there
is for large organisations. Using the internet to establish a new organisation, to revolutionise business
practices or to change the way an existing organisation does business requires information technology
(IT) governance. That is, senior management must develop the processes for making decisions about IT
and monitoring IT performance. And rather than using a single e‐business strategy, it is better to adopt
a portfolio approach.
Some guiding principles for e‐business success for small to large organisations were identified by
two directors from the Boston Consulting Group, David C. Michael and Greg Sutherland. The six organ­
isational principles followed by the most successful companies were the following.
1. Create a sense of urgency.
2. Carefully balance the need to boost the core business with the reality that e‐business often disrupts
that business.
3. Adopt a small but powerful central function to make e‐business decisions.
4. Bring in outside people and ideas and incorporate them effectively.
5. Design management processes that are ready for e‐business.
6. Develop partnerships to improve the core and accelerate the online business.40
Another area for internet entrepreneurship is B2B, specialised business‐to‐business websites that link
buyers and sellers. But as with all entrepreneurship, B2B in the small business sector is considered risky.
Analysts are cautious about its future, questioning whether they can garner enough users to withstand
early start‐up costs, whether enough small businesses are sufficiently automated to take advantage of the
services, and whether smaller businesses are willing to give up their traditional distributor relationships
for the online exchange.41

CHAPTER 19 Entrepreneurship and new ventures  551

 TECHNOLOGY

Mildura’s first coworking space opens for local entrepreneurs42

The directors of Mildura’s first coworking space
hope it will help local small businesses embrace
the ‘entrepreneurial spirit’ of the region. Tucked
away in a laneway in the city’s centre, UpStart
was officially launched in February 2016 by the
Victorian Minister for Regional Development,
Jaala Pulford. The project, designed to bring
people together to share skills and knowledge, is
the brainchild of Mildura locals and co‐directors
James Price and Deborah Bogenhuber.
Mr Price said while coworking spaces had
been popping up in metropolitan areas for
a while, the venture was completely new for
Sunraysia. ‘A coworking space is an open plan space for people who are working on start‐up businesses or
social enterprises to work in a collaborative space,’ he said. ‘People who are staring out in business might
not always have the capital behind them to take out a lease on an office  .  .  .  or on a shopfront of their own.’
Located in an old warehouse building, the concept follows other Mildura initiatives, including the
Empty Space Project, which filled vacant shops in town with installations and artwork. ‘Our city was
kind of developed and founded on entrepreneurialism,’ Mr Price said. ‘If you think about the Chaffeys,
when they came here and settled, it was a pretty big punt that they took and they had some entrepre­
neurial spirit. ‘We know that that spirit still does exist here in our community. It’s not always embraced
anymore, which has been a little bit sad, so that’s what’s kind of exciting in starting this space. ‘It’s cre­
ating not just a place for people to come and physically work, but a place for people to come and share
ideas, to be encouraged, to take that punt, to be entrepreneurial.’
Place of inspiration and collaboration
Paul Dorotich is a Mildura entrepreneur, who is designing a new type of motorcycle helmet. ‘Ten years
ago, I realised that motorcycle helmets hadn’t changed  .  .  .  so I decided to try to think of a better solu­
tion, and it wasn’t until I was riding through Mexico on a motorbike that I thought up my new design,’
Mr Dorotich said. ‘It’s only been the last two and a half years that I’ve been working on it fulltime. When
my grandfather passed away, the last thing he said to me was to keep going with it.’
Mr Dorotich said shared working spaces were ideal for people like himself. ‘I was losing motivation —
I’d spring out of bed to get to work, but sitting in a shed talking to the dog was getting uninspiring,’ he
said. ‘I needed somewhere to meet with other people who were on the same journey as myself. ‘I said
there must be other people who don’t know how to write a business plan or other people who don’t know
how to get a patent protection, so we can help each other out with things like that,’ Mr Dorotich said.
Ms Pulford said she hoped the project would help to encourage small business growth in regional
areas like Mildura. ‘This is exactly the type of innovation and creativity that creates a strong future for
any rural community, and this is the kind of thing that the Victorian Government is delighted to lend its
support to,’ she said. ‘[It’s] a fabulous space, it exudes energy and I think it’ll be a great little incubator
for people who want to take their first tentative steps into creating small businesses.’

QUESTION
What are some limitations of using a coworking space when starting a new business venture?

International business entrepreneurship

In the chapter on the international dimensions of management, the reasons businesses venture abroad
were discussed. The same reasons apply to the opportunities for smaller businesses. They also often find
that international business brings opportunities for expanded markets, additional financing, access to
quality and possibly lower cost resources, access to labour and technical expertise, and onsite locations

552  Management
for low‐cost manufacturing or outsourcing. With increasing globalisation, however, many businesses are
launching themselves directly as global businesses — bypassing the domestic incubation stage com­
pletely.43 The internet now makes selling overseas relatively easy; today’s advanced distribution organ­
isations also make product delivery quick and easy. Additionally, smaller businesses can find alliance
opportunities in strategic ventures with foreign partners.
As the economies of the world’s countries improve and the overall standards of living rise, consumer
demand for goods and services grows as well. With this also come more international business oppor­
tunities for exporting and importing. Both national and state governments encourage exporting and
try to support the growth of small businesses. The state government of Victoria, for example, like the
governments of most Australian states, offers export development assistance to entrepreneurs through its
Department of State and Regional Development.
The Australian government’s export and investment facilitation agency Austrade — the Australian
Trade Commission — assists Australian organisations in winning export business and generating inward
and outward investment. Austrade helps organisations determine their readiness to export and provides
initial advice and market statistics to guide them on how best to proceed. It provides suggestions to
organisations of all sizes on which overseas markets have the highest sales potential for their product,
how they can develop a presence in these markets, and the kinds of business assistance that are available.
Austrade operates an international network of offices located in over 110 cities in more than 60 countries
and is able to identify potential buyers or agents and pass on specific business opportunities as they arise.
It works closely with Australian organisations to link Australian suppliers with interested local contacts
and provide access to local business and government networks.
New Zealand Trade and Enterprise undertakes similar functions for its country’s organisations. It also
links investors with competitive New Zealand companies and creates international business alliances,
with a strong emphasis on supporting entrepreneurs and small business. New Zealand has a stronger
central government structure, unlike Australia’s federal system, so the New Zealand government is the
main provider of export assistance to industry. In Australia, all the state governments have their own
departments to encourage expansion of their state’s businesses overseas and to attract foreign investors
to their region.

Family businesses
Family businesses — ones owned and financially controlled by family members — represent the
largest percentage of businesses operating worldwide. Companies owned by ethnic Chinese families
in South‐East Asia make up about 70 per cent of the private business sector in Singapore, Malaysia,
Thailand, Indonesia and the Philippines.44 In Australia, family businesses account for almost two‐thirds
of all businesses operating in the country, with most of these being relatively small.45
Family businesses must solve the same problems as other small or large businesses — meeting the
challenges of strategy, competitive advantage and operational excellence. When everything goes right,
the family business is almost an ideal situation — everyone working together, sharing values and a
common goal, and knowing that what they do benefits the family. But it doesn’t always work out this
way or stay this way over time and successive generations. Family businesses face problems that are
unique to their situation.
‘Okay, Dad, so he’s your brother. But does that mean we have to put up with inferior work and an
erratic schedule that we would never tolerate from anyone else in the business?’46 This line introduces a
problem that can all too often set the stage for failure in a family business — the family business feud.
Simply put, members of the controlling family get into disagreements about work responsibilities, busi­
ness strategy, operating approaches, finances or other matters. The example is indicative of an intergen­
erational problem, but the feud can be between spouses, among siblings, between parents and children; it
really doesn’t matter. The key point is that unless the disagreements are resolved satisfactorily and to the
benefit of the business itself, the business will have difficulty surviving, especially in a highly competi­
tive environment.

CHAPTER 19 Entrepreneurship and new ventures  553

 Another significant problem faced by family businesses is the succession problem — transferring
leadership from one generation to the next. A survey of small and medium‐sized family businesses indi­
cated that 66 per cent planned on keeping the business within the family.47 The management question is:
how will the assets be distributed and who will run the business when the current head leaves? Although
this problem is not specific to small business, it is especially significant in the family business context,
and particularly in those cases where the current head of the business is the founder — the entrepreneur
who started the business and built it into what it is today. The statistics on succession are eye‐opening:
about 30 per cent of family businesses survive to the second generation; only 12 per cent survive to the
third; only 3 per cent are expected to survive beyond that.48
A family business that has been in operation for some time is a source of both business momentum
and financial wealth. Both must be maintained in the process of succession. Business advisers recom­
mend that this problem be resolved ahead of time through a succession plan — a formal statement that
describes how the leadership transition and related financial matters will be handled when the time for
changeover arrives. Operational considerations of the plan should include, among other possibilities,
procedures for choosing or designating the business’s new leadership, legal aspects of any ownership
transfer, and any financial and estate plans relating to the transfer. Ideally, the foundations for effective
implementation of a succession plan are set up well ahead of the need to use it. The plan should be
shared and understood by all affected by it. Ideally, the leadership successor is identified ahead of time,
and then well prepared through experience and training to perform the new role when needed.
In recent years organisations have been established to help family businesses to tackle short‐term and
longer term organisational and strategic issues. An important organisation in Australia is Family Busi­
ness Australia (FBA). It is a national, member‐based, not‐for‐profit organisation existing ‘to improve the
effectiveness of Australian families in business through the sharing of practical experience and knowl­
edge, to promote the value and contribution that family businesses make to our society, and to represent
Australian family businesses as a strong and united voice’.49 FBA was established in 1998 following
the merger of the Family Business Council and the Foundation for Family and Private Business. It deals
with a very real need to understand the demands of family businesses and their social and economic sig­
nificance to Australia. It attempts to increase the performance of family‐based businesses and provides
advice to member businesses. Its website also provides a range of information for family businesses
(www.fambiz.org.au).

Why small businesses fail

Small businesses have a high failure rate — one high enough to be scary; with as many as 60 to 80 per
cent of new businesses failing in their first five years of operation. Succession problems account for part
of the failures. But a large part comes from management mistakes. Business failures are largely due
to poor decision‐making by the original entrepreneurs and owners on matters of consequence. Often,
the entrepreneur is unable to successfully make the transition from entrepreneur to strategic leader and
manager. Among the reasons for new business failures are:
•• lack of experience — not having sufficient know‐how to run a business in the chosen market or area
•• lack of expertise — not having expertise in the essentials of business operations, including finance,
purchasing, selling and production
•• lack of strategy and strategic leadership — not taking the time to craft a vision and mission, and
formulate and properly implement strategy
•• poor financial control — not keeping track of the numbers and failure to control business finances
•• growing too fast — not taking the time to consolidate a position, fine tune the organisation, and
systematically meet the challenges of growth
•• lack of commitment — not devoting enough time to the requirements of running a competitive business
•• ethical failure — falling prey to the temptations of fraud, deception and embezzlement
•• over‐optimism — an overly optimistic view of the business potential can negatively affect judgement
and decision‐making, and can also impair the ability to learn from previous failures.50

554  Management
 CRITICAL ANALYSIS

1. Most people have come into contact with family businesses through personal experiences, friends
or extended family. What attracts you to, or repels you from, starting your own family business in
the future?
2. Some would say that governments should stay out of business support, as they have a habit of
picking losers rather than winners. Would you agree or disagree with this statement? Why?

19.3 New venture creation

LEARNING OBJECTIVE 19.3 How do you start a new venture?
Now that the reasons for business failure have been described, let’s talk about doing it correctly.
Whether your interest is low‐tech or high‐tech, online or offline, opportunities for new ventures
are always there for the true entrepreneur.51 To pursue the entrepreneurship process and start a new
venture, you need good ideas, passion and the courage to give your ideas a chance. Every entrepre­
neurial venture requires some measure of courage. You must also be prepared to meet and master
the test of strategy and competitive advantage. Can you identify a market niche that is being missed
by other established businesses? Can you identify a new market that has not yet been discovered by
others? Can you generate first‐mover advantage by exploiting a niche or entering a market before
competitors? These are the questions that entrepreneurs ask and answer in the process of begin­
ning a new venture. A focus on the customer is vital, as suggested by the guidelines in Manager’s
notepad 19.2.52

MANAGER’S NOTEPAD 19.2

Questions that keep a new venture customer‐focused

• Who is your customer?
• How will you reach key customer market segments?
• What determines customer choices to buy your product/service?
• Why is your product/service a compelling choice for the customer?
• How will you price your product/service for the customer?
• How much does it cost to make and deliver your product/service?
• How much does it cost to attract a customer?
• How much does it cost to support and retain a customer?

Life cycles of entrepreneurial organisations

The traditional stages of an entrepreneurial life cycle are usually infancy, exploration and start up, expan­
sion and growth, maturity, stagnation, and decline. A much more understandable view allows re‐birth or
dissolution at the decline stage; a continuous entrepreneurial spirit is essential in order to avoid stag­
nation and decline. A successful quality environment is dependent on leadership type and the maintenance
of the entrepreneurial spirit in the face of dynamic external and internal change. The entrepreneur may
be considered a visionary, but for a visionary to act on his or her vision it requires leadership. They need
the capacity to organise resources, motivate and give direction to people, and generally sustain the effort
to realise the vision.53
The organisation begins with the birth stage — where the entrepreneur struggles to get the new ven­
ture established and to survive long enough to test the viability of the underlying business model in the

CHAPTER 19 Entrepreneurship and new ventures  555

marketplace. The organisation then passes into the breakthrough stage — where the business model
begins to work well, growth is experienced, and the complexity of managing the business operation
expands significantly. Next is the maturity stage — where the entrepreneur experiences the advantages
of market success and financial stability, while also facing continuing challenges of meeting needs for
professional management skills. Technology failure or unsustainable growth can lead to the decline
stage. Here, the entrepreneur has the opportunity to revitalise, or strategically diversify. If this is not
possible, then dissolution is the only option. The possible stages in the life cycle of an entrepreneurial
organisation are outlined in figure 19.1.

Birth stage Breakthrough stage Maturity stage

● Establishing the oraganisation ● Working on finances ● Refining the strategy
● Getting customers ● Becoming profitable ● Continuing growth
● Finding the money ● Growing ● Managing for success
Fighting for existence Coping with growth Investing wisely
and survival and take-off and staying flexible

FIGURE 19.1 Stages in the life cycle of an entrepreneurial organisation

Entrepreneurs often face control and management dilemmas when their businesses experience growth,
including possible diversification or global expansion. These are very challenging in terms of the
management and strategic leadership skills required to maintain success. It is here that entrepreneurs
encounter a variation of the succession problem described earlier for family businesses. This time the
problem is succession from entrepreneurial leadership to professional strategic leadership. The former
brings the venture into being and sees it through the early stages of life; the latter manages and leads
the venture into maturity as an ever evolving and perhaps still growing corporate enterprise. If the entre­
preneur is incapable or unwilling to meet the organisation’s needs in later life cycle stages, continued
business survival and success may well depend on the business being sold or management control being
passed to professionals.

Writing the business plan

When people start new businesses, either independent ones or as new components of larger organ­
isations, they can greatly benefit from having a good business plan. This is a plan that describes the
details needed to obtain start‐up financing and operate a new business. When well done, a business plan
offers clear direction to an enterprise.54 Banks and other financiers want to see a business plan before
they lend money or invest in a new venture; senior managers want to see a business plan before they
allocate scarce organisational resources to a new project. Importantly, the detailed thinking required to
prepare a business plan can contribute to the success of the new initiative.55
Although there is no single template for a successful business plan, there is general agreement that
a plan should have an executive summary, cover certain business fundamentals, be well organised with
headings, be easy to read, and be no more than about 20 pages in length. Basic items that should be
included in a business plan are summarised in Manager’s notepad 19.3. One of the great advantages of
such a plan, of course, is forcing the entrepreneur to think through all of these issues and challenges
before starting out.

556  Management
 MANAGER’S NOTEPAD 19.3

What to include in a business plan

• Executive summary — overview of business purpose and key elements of the plan.
• Industry analysis — nature of the industry, including economic trends, important legal or regulatory
issues and potential risks.
• Company description — mission, owners and legal form.
• Products and services description — major goods or services, with special focus on uniqueness in
relation to competition.
• Market description — size of market, competitor strengths and weaknesses, five‐year sales goals.
• Marketing strategy — product characteristics, distribution, promotion, pricing and market research.
• Operations description — manufacturing or service methods, supplies and suppliers, and control
procedures.
• Staffing description — management and staffing skills needed and available, compensation, human
resource systems.
• Financial projection — cash flow projections for 1–5 years, break‐even points and phased
investment capital.
• Capital needs — amount of funds needed to run the business, amount available, amount requested
from new sources.

Thomas Harrison, CEO of Diversified Agency Services, recommends a pronged approach for formalising
a solid business plan. First, identify why your company is relevant and where the place in society exists for
your company. Consider market and current trends and why your product or service will meet current or
future trends. Next, consider who are your customers, who are your competitors, and what other product or
service offerings are in the market. Finally, consider what resources you have and you will need, including
specific financial plans that realistically look at tracking revenues, margins, expenses and profits.56
Entrepreneurial failure can be attributed to many things. Research identifies some common problems,
including starting without a written plan; not considering revenue models; having limited business oppor­
tunities; the inability (or unwillingness) to make decisions; lack of research, particularly of the activity of
competitors; having an idea that can be easily replicated by competitors; an inexperienced team; under­
estimating the resources required to succeed; not having a solid marketing plan; and giving up too easily.57

Choosing the form of ownership

One of the important choices that must be made in starting a new venture is the legal form of ownership.
There are a number of alternatives, and the choice involves careful consideration of their respective
advantages and disadvantages. Briefly, the ownership forms include the following.
A sole proprietorship is simply an individual pursuing business for a profit. This does not involve
incorporation; it is simple to start, run and terminate. However, the business owner is personally liable
for business debts and claims. This is the most common form of small business ownership in Australia
and New Zealand.
A partnership is formed when two or more people agree to contribute resources to start and operate
a business together. Most typically it is backed by a legal and written partnership agreement. Business
partners agree on the contribution of resources and skills to the new venture, and on the sharing of
profits, losses and management responsibilities. The general partnership just described is the simplest
and most common form. A limited partnership consists of a general partner and one or more ‘limited’
partners who do not participate in day‐to‐day business management. They share in profits, but their
losses are limited to the amount of their investment.
A company, commonly identified by the ‘Ltd’ designation in a name, is a legal entity that exists separ­
ately from its owners. The company can be for profit, such as Coles Group Ltd, or not for profit, such
as Melbourne University Private Ltd. The company form grants the organisation certain legal rights (for

CHAPTER 19 Entrepreneurship and new ventures  557

example, to engage in contracts), and it is also responsible for its own liabilities. This separates the owners
from personal liability and gives the company a life of its own that can extend beyond that of its owners.
Both are important advantages. However, if an organisation continues to trade when it is insolvent, its
senior managers will be personally liable for corporate losses. Insolvency law is designed to protect credi­
tors and has grown in importance over the last few decades following a series of dramatic bankruptcies of
high profile organisations. Insolvency law was also heavily relied on during the global financial crisis and
the ensuing downturn, with many Australian companies going bust in the economic upheaval.

Business start‐up finance

Start‐up finance is one of the most difficult aspects of starting your own business. In the examples in this
chapter, we have seen examples of using family and friends to raise capital. Alternatively, funds have
been raised through investors. Let’s have a look at some of the most common finance options available:
debt or equity finance.
Debt finance
Gaining a bank loan to fund a business start‐up is one form of debt finance. This is a bank loan, repaid
over a certain period with a certain interest rate. These loans are usually secured against an asset (e.g. a
house). If you fail to pay the loan, the bank can take the assets provided for security. For a new business,
this means tight repayments, starting work immediately, and the company being locked in until repay­
ment is achieved or the loan is refinanced. There are also other forms of debt finance — credit cards
and leasing. The term leasing refers to the borrowing of money to buy specific business equipment or
machinery. In this case, small businesses borrow against the store sales.
Equity finance
Equity finance is risk capital. If you have been turned down for a loan or cannot meet the required
repayments, equity finance could be the answer. Investors invest in your company and are prepared to
risk their capital for a growth share of your business profits. This means there are no repayments.
The investors give you the money that you need to get your business off the ground and to cover all
aspects of business start‐up costs such as rent, the purchasing of equipment and staff wages, as well as
utility bills for the first few months.
Whatever finance businesses decide to use for their venture, it’s important to make a realistic and
informed decision based on business needs. It is advisable to seek expert advice when making financial
decisions.

CRITICAL ANALYSIS

1. Many new venture entrepreneurs report that they lose a lot of money when their businesses fail.
How exactly do you think failed businesses lose money and what can be done to safeguard
finances when launching a new venture?
2. Some national governments try to encourage new venture creation, but the bankruptcy laws in
those countries require failed entrepreneurs to pay back all of their debtors before they are released
from bankruptcy. Argue whether such laws are a good or bad idea.

19.4 Entrepreneurship and business development

LEARNING OBJECTIVE 19.4 What resources support entrepreneurship and business development?
Entrepreneurship, the creative spark to launch new ventures, is indispensable to the economy at large.
It drives the formation of small businesses and new ventures that are so important to job creation and
economic development. Larger enterprises need the same spark. Even as they operate more flexibly, in

558  Management
networks and with the advantages of IT, they too depend on entrepreneurship within the system to drive
innovation for sustained competitive advantage.

Intrapreneurship and large enterprises

Just like their smaller counterparts, large organisations depend on the entrepreneurial spirit. High per­
formance is increasingly based on the contributions of workers who are willing to assume risk and
encourage the creativity and innovation so important to continued success in dynamic and competitive
environments. Yet this task is especially challenging in very large and complex systems whose natural
tendencies may be towards stability, rigidity and avoidance of risk. The concept of intrapreneurship —
described as entrepreneurial behaviour on the part of people and subunits operating within large organ­
isations — brings deserved attention to this situation.58 Through the efforts of intrapreneurs large
organisations are able to turn new ideas into profitable new products, services and business ventures.
Many large organisations are also making greater use of the knowledge in their various subsidiaries and
far‐flung business units.59
To enhance their competitive edge through intrapreneurship, however, managers often find that suc­
cess depends on the ability of large organisations to act like small ones. To do this, some large organ­
isations create small subunits, often called innovation groups, in which teams work together in a unique
setting that is highly creative and free of operating restrictions in the larger parent organisation. A
classic example occurred at Apple Computer, where a small group of enthusiastic employees was once
sent off to a separate facility in Cupertino, California. Their mandate was straightforward: to create a
state‐of‐the‐art, user‐friendly personal computer. The group operated free of the organisation’s normal
product development bureaucracy; setting its own norms, and working together without outside interfer­
ence. It worked. This is the team that brought the now‐famous Macintosh computer into being.

Business incubation
One of the advantages of intrapreneurship is that it takes place in a larger organisational environment
that can be highly supportive in terms of money and other start‐up resources. Individual entrepreneurs
who must start on their own face quite a different set of challenges. Even though it can be exciting to
start a new venture, it can also be daunting in terms of complexity and required resources. One way
that the motivation towards entrepreneurship can be maintained without suffering the discouragement of
start‐up requirements is through the support of a business incubator. This is a special facility that offers
space, a variety of shared administrative services, and management advice to help small businesses get
started. Some ideas are focused on specific areas such as technology or manufacturing or services; some
are in more rural areas, others are city‐based. But regardless of focus and location, incubators share
the common goal of helping to build successful new businesses that create jobs and improve economic
development. They pursue this goal by nurturing start‐up businesses in the incubators to improve the
chances for them to grow more quickly and become healthy enough to survive on their own. And, of
course, with survival the economic benefits of job creation and new members joining the local business
community are expected. Business Innovation and Incubation Australia is an association that attempts to
facilitate the concept of business incubation (www.businessincubation.com.au).

CRITICAL ANALYSIS

1. Some managers are afraid of encouraging intrapreneurship as it may lead to the intrapreneur taking
the new venture outside of the company’s sphere of influence. What do you think are the risks and
opportunities involved in intrapreneurship?
2. Business development is sometimes guided by people who understand the theory of how
businesses develop, but who have had little experience with entrepreneurship themselves. Do you
think that entrepreneurial experience is essential for business developers? Why or why not?

CHAPTER 19 Entrepreneurship and new ventures  559

SUMMARY
19.1 What is entrepreneurship?
•• Entrepreneurship is risk‐taking behaviour that results in the creation of new opportunities for
individuals and/or organisations.
•• An entrepreneur is someone who takes strategic risks to pursue opportunities in situations others may
view as problems or threats.
•• There are many examples of entrepreneurs worldwide like Kristina Karlsson, Daniel Flynn, Le Ho,
Dr James Muecke, Juliette Wright and Simon Griffiths whose experiences can be a source of learning
and inspiration for others.
•• Entrepreneurs tend to be creative people who are very self‐confident, determined, resilient, adaptable
and driven to excel; they like to be masters of their own destinies.
•• Entrepreneurship is rich in diversity, with women and minority‐owned business start‐ups increasing
in numbers.
19.2 What is special about small businesses?
•• Entrepreneurship results in the founding of many small businesses that offer job creation and other
benefits to economies.
•• The internet has opened a whole new array of entrepreneurial possibilities, including online buying
and selling.
•• Smaller businesses are pursuing more global opportunities in the quest for expanded markets, access
to labour and technical expertise, and locations for low‐cost manufacturing or outsourcing.
•• Family businesses that are owned and financially controlled by family members represent the largest
percentage of businesses operating worldwide.
•• A significant problem faced by family businesses is the succession problem of transferring leadership
from one generation to the next.
•• Small businesses have a high failure rate; as many as 60 to 80 per cent of new businesses fail in their
first five years of operation.
•• Small business failures are largely due to poor management, when owners make bad decisions on
matters of major business consequence.
19.3 How do you start a new venture?
•• Entrepreneurial organisations tend to follow the life cycle stages of acceptance, breakthrough and
maturity, with each stage offering different management challenges to the entrepreneur.
•• New start‐ups should be guided by a good business plan that describes the intended nature of the
business, how it will operate, and how financing will be obtained to operate it.
•• An important issue is choice of the form of business ownership, with the sole proprietorship,
partnership and company forms offering different advantages and disadvantages.
•• Two basic ways of financing a new venture are through debt financing, by taking loans and equity
financing, which involves exchanging ownership shares in return for outside investment.
19.4 What resources support entrepreneurship and business development?
•• Intrapreneurship, or entrepreneurial behaviour within larger organisations, is important in today’s
competitive environments.
•• Business incubators offer space, shared services and advice to small businesses in the start‐up stages.

KEY TERMS 
A business incubator  offers space, shared services and advice to help small businesses get started.
A business plan  describes the direction for a new business and the financing needed to operate it.
A company  is a legal entity that exists separately from its owners.

560  Management
Debt finance  involves borrowing money that must be repaid over time with interest.
An entrepreneur  is a person (or group of people) who creates the new enterprise, opportunity or
business venture.
Entrepreneurship  is a process of creating new enterprises, opportunities and business ventures.
Equity finance  involves exchanging ownership shares for outside investment money.
Family businesses  are owned and controlled by family members.
A first‐mover advantage  comes from being first to exploit a niche or enter a market.
A franchise  is when one business owner sells to another the right to operate the same business in
another location, using its name and operating methods.
Innovation groups  are teams allowed to work creatively together, free of constraints from the larger
organisations.
Intrapreneurs  are those innovating for change inside large organisations, such as corporate
multinationals.
Intrapreneurship  is entrepreneurial behaviour displayed by people or subunits within large
organisations.
A partnership  is when two or more people agree to contribute resources to start and operate a
business together.
A small business  has fewer than 20 employees, is independently owned and operated and is normally
one of many competitors in its industry.
A social entrepreneur  runs a social enterprise, a business with primarily social objectives whose
surpluses are principally reinvested for that purpose in the business or in the community, rather than
being driven by the need to maximise profit for shareholders and owners.
A sole proprietorship  is an individual pursuing business for a profit.
A succession plan  describes how the leadership transition and related financial matters will be
handled.
The succession problem  is the issue of who will run the business when the current head leaves.
Technopreneurs  are entrepreneurs that are involved in high‐technology industries.

APPLIED ACTIVITIES
1 What is the relationship between gender and entrepreneurship?
2 In what ways can the internet be a driving force for entrepreneurship?
3 What are the advantages of choosing a limited company structure for a small business operation?
4 How can a large government‐owned organisation, such as a university, stimulate entrepreneurship
within itself?
5 You have an opportunity to buy a river cruise business from a friend. Although the number of
tourists visiting your region has increased in recent years the business has not been very successful,
making quite low profits. Your friend is willing to sell you the business for a little below market
price. What information do you need to help you make your purchase decision?

ENDNOTES
1. Jock Collins, ‘Asylum Seekers Could Be Our next Wave of Entrepreneurs’, The Conversation (27 October 2015),
www.theconversation.com.
2. ‘What is a Social Entrepreneur?’ Lab for Culture, www.labforculture.org.
3. Let’s Talk Business Network website, www.ltbn.com.
4. Barbara Drury, ‘Paper Trail to Success’, The Sydney Morning Herald (14 March 2012), www.smh.com.au.
5. Sue Mitchell, ‘David Jones’ former CEO Iain Nairn to Oversee Kikki.K Expansion’, The Sydney Morning Herald
(10 February, 2016), www.smh.com.au.
6. Peter Switzer, ‘Fine Art of Crafting a Success Story: Kikki.K’, The Australian (24 September 2010), www.theaustralian.com.au.

CHAPTER 19 Entrepreneurship and new ventures  561

  7. Sarah Kimmorley. ‘IN GOOD COMPANY: How Thankyou Water Got the Attention of Australia’s Biggest Retailers’, Business
Insider Australia (5 May 2015), www.businessinsider.com.au.
  8. ‘Young Entrepreneur Offers Lessons to New Advisers, Riskinfo (16 October 2014), www.riskinfo.com.
 9. ibid.
10. Correspondence with Melissa Morris, PR & Communications Manager at Thankyou.
11. ibid.
12. Cara Waters, ‘Garbage Queen’s $10 Million Business’, The Sydney Morning Herald (23 November 2015), www.smh.com.au
13. Andrew Moon, ‘Not Wasting any Opportunities: a Migrant Tale of Business Success in Australia’, Radio Australia
(19 December 2014), www.radioaustralia.net.au.
14. ibid.
15. Cindy Tran, ‘The Glamorous Garbage Queen: Meet the Entrepreneur Who Migrated to Australia with Nothing — and Now
Owns a $10 Million Rubbish Empire’, Daily Mail (26 November 2015), www.dailymail.co.uk.
16. Sight For All website, www.sightforall.org/.
17. Ernst & Young website, www.ey.com.
18. Brett Williamson, ‘Adelaide Ophthalmologist Dr James Muecke Takes Vision of Curing Blindeness to the World’, ABC News
(13 November 2014), www.abc.net.au.
19. ibid.
20. ‘Trailblazer: Juliette Wright of GIVIT’, Woman Rising (25 March 2015), www.womanrising.com.au.
21. GIVIT website, www.givit.org.au.
22. Kate Higgins. ‘Brisbane Mum Wants People to Givit over to Charity’, Brisbane Times (14 April 2010), www.brisbanetimes
.com.au.
23. Jessica Hinchcliffe, ‘2011 Brisbane Floods: Juliette Wright, Founder of GIVIT, Reflects on Generosity in Wake of Disaster’,
ABC News, (11 January 2016), www.abc.net.au.
24. ibid.
25. Jorge Branco, ‘Inspiring Queensland Businesswomen, Jean Madden and Juliette Wright, Honoured’, Brisbane Times
(3 March 2015), www.brisbanetimes.com.au.
26. Chris Paine, ‘HOLY CRAP: Why’s This Guy Stuck on a Toilet?’, News.com.au (12 July 2012), www.news.com.au.
27. ‘Who Gives A Crap — Social Business Australia’, Australian Ethical (1 June 2015), www.australianethical.com.au.
28. Michael Bailey, ‘Keeping Half the Profits Beats Non‐profits for Social Impact: Who Gives A Crap Founder Simon Griffiths’,
BRW (24 September 2015), www.brw.com.au.
29. Julian Yim and Rae Weston, ‘The Characteristics of Bioentrepreneurs in the Australian Biotechnology Industry: A Pilot Study’,
Journal of Management and Organization, vol. 13, no. 4 (2007), pp. 383–406.
30. For a review and discussion of the entrepreneurial mind see Jeffry A. Timmons, New Venture Creation: Entrepreneurship for
the 21st Century (New York: Irwin/McGraw‐Hill, 1999), pp. 219–25.
31. Melissa Cardon, Joakin Wincent, Jagdip Singh and Mateja Drnovsek, ‘The Nature and Experience of Entrepreneurial Passion’,
The Academy of Management Review, vol. 34, no. 3 (2009), pp. 511–32.
32. See the review by Robert D. Hisrich and Michael P. Peters, Entrepreneurship, 4th edn (New York: Irwin/McGraw‐Hill, 1998),
pp. 67–70.
33. Stephen Robbins, Rolf, Bergman, Ian Stagg and Mary Coulter, Management, 6th edn (Sydney: Pearson, 2012).
34. Grameen Bank website, www.grameen‐info.org.
35. Australian National University, ‘Indigenous Entrepreneurship and Self‐employment on the Rise’, The Conversation
(15 August 2013), www.theconversation.com.
36. Australian Bureau of Statistics, Counts of Australian Businesses, Including Entries and Exits, June 2003 to June 2007,
cat. no. 8165.0, p. 18.
37. ibid.
38. ibid.
39. Australian Bureau of Statistics, Small Business Series (2002).
40. David C. Michael and Greg Sutherland, Asia’s Digital Dividends (New York: Wiley, 2001).
41. Information from Kevin Ferguson, ‘To B2B or Not B2B’, Business Week Frontier (14 August 2000), pp. F36–F42.
42. Sophie Malcolm, ‘Mildura’s First Co‐working Space Opens for Local Entrepreneurs’, ABC News (3 February 2016),
www.abc.net.au.
43. Daniel Isenberg, ‘The Global Entrepreneur’, Harvard Business Review (December 2008), pp. 107–111.
44. Michael Schaper and Thierry Volery, Entrepreneurship and Small Business (Brisbane: Wiley, 2004).
45. KPMG and Family Business Australia Survey of Family Businesses 2009, sourced from www.fambiz.org.au.
46. Quote from the case ‘Am I My Uncle’s Keeper?’ by Paul I. Karofsky (Northeastern University Center for Family Business)
and published at www.fambiz.com.
47. Survey of Small and Mid‐Sized Businesses: Trends for 2000 (Arthur Andersen, 2000).
48. ibid.
49. Family Business Australia www.fambiz.com.au.

562  Management
50. Based on Norman M. Scarborough and Thomas W. Zimmer, Effective Small Business Management (Englewood Cliffs, NJ:
Prentice Hall, 2000), pp. 25–30; and Scott Clark, ‘Most Small‐Business Failures Tied to Poor Management’, Business Journal
(10 April 2000); and Keith Hmielski and Robert Baron, ‘Entrepreneurs’ Optimism and New Venture Performance: A Social
Cognitive Perspective’, Academy of Management Journal, vol. 53, no. 3 (2009), pp. 473–88.
51. See, for example, John L. Nesheim, High Tech Start Up (New York: Free Press, 2000).
52. Developed from William S. Sahlman, ‘How to Write a Great Business Plan’, Harvard Business Review (July–August 1997),
pp. 98–108.
53. Discussion based on ‘The Life Cycle of Entrepreneurial Firms’, in Ricky Griffin, Management, 6th edn (New York: Houghton
Mifflin, 1999), pp. 309–10; and Neil C. Churchill and Virginia L. Lewis, ‘The Five Stages of Small Business Growth’,
Harvard Business Review (May–June 1993), pp. 30–50.
54. See Griffin, op. cit., and Churchill and Lewis, op. cit.; Linda Pinson and Jerry Jinnett, Anatomy of a Business Plan: A
Step‐By‐Step Guide to Starting Smart, Building the Business, and Securing Your Company’s Future, 4th edn (Chicago:
Dearborn Trade, 1999).
55. Paul Reynolds, ‘The Truth about Start‐Ups’. Inc. (February 1995), p. 23.
56. Alan Hall, ‘How to Build a Billion Dollar Business Plan: 10 Top Points’, Forbes (26 August 2012), www.forbes.com.
57. Martin Zwilling, ‘10 Top Reasons Why First‐Time Entrepreneurs Fail’, Young Entrepreneur (14 September 2012),
www.entrepreneur.com.
58. Gifford Pinchot III, Intrapreneuring, or Why You Don’t Have to Leave the Corporation to Become an Entrepreneur
(New York: Harper & Row, 1985).
59. Kazuhiro Asakawa and Mark Lehrer, ‘Managing Local Knowledge Assets Globally: The Role of Regional Innovation Relays’,
Journal of World Business, vol. 38, no. 1 (2002), pp. 31–42.

ACKNOWLEDGEMENTS
Photo: © Richard Milnes / Alamy Stock Photo
Photo: © Rob Baird / Newspix
Photo: © Thankyou Company
Photo: © Le Ho
Photo: © Sight For All
Photo: © Ray Strange / Newspix
Photo: © Martin Reddy / Newspix
Photo: © Xavier Arnau / Getty Images
Extract: © Sophie Malcolm, ‘Mildura’s first co-working space opens for local entrepreneurs’, ABC
News (3 February 2016)
Extract: © The Conversation, Australian National University, 15 August 2013, http://theconversation
.com/indigenous-entrepreneurship-and-self-employment-on-the-rise-16587
Extract: © The Conversation, Jock Collins, 27 October, 2015, https://theconversation.com/
asylum-seekers-could-be-our-next-wave-of-entrepreneurs-49591

CHAPTER 19 Entrepreneurship and new ventures  563

CHAPTER 20

Operations and
services management
LEA RN IN G OBJE CTIVE S

20.1 What are the essentials of operations management?

20.2 What is value chain management?
20.3 How do organisations manage service and product quality?
20.4 How can work processes be designed for productivity?
20.5 What physical factors in the workplace can affect employee productivity and wellbeing?
Forget siestas, ‘green micro‐breaks’ could boost
work productivity1
Most of us know firsthand that spending time in nature can make us feel better. This isn’t just a placebo
effect: decades of research show that seeing vegetation, water, light and animals is linked with many
psychological benefits.
Evidence suggests that viewing nature can also help improve attention spans. Being able to maintain
our attention to concentrate on tasks and ignore distractions is important for everyday life. At work,
better concentration helps us stay on track, attend to important information, block out distracting email
alerts and chatting colleagues, work more efficiently and maintain performance across the day.

Testing ‘micro‐breaks’
A research team at the University of Melbourne set out to uncover whether a short 40‐second break
viewing a city green roof could boost attention. Green roofs are an increasingly common way of intro-
ducing more nature into cities and normally consist of low‐growing plants in lightweight, thin soil‐like
mixes that sit over drainage layers on a building rooftop.
The experiment used a neuropsychology test called the ‘Sustained Attention to Response Task’
(SART). Participants had to work at a computer and respond correctly to numbers flashing up on the
screen. Each time a number flashed up, they had to press a key unless, that is, that number was ‘3’. For
the number ‘3’, participants had to refrain from pressing a key. The test is not very hard, but it is boring,
and you have to really pay attention to perform well.
Once the 150 participants became tired from the SART, they were given a 40-second micro‐break.
During the micro‐break each participant saw a city scene on the computer. The scene was a view from a
city high rise but with one difference: half the participants saw a normal concrete roof, while the other
half saw a flowering meadow green roof. After the micro‐break, participants performed the SART again
and the performance between the two groups was compared.
After the break, participants who saw the green roof performed better than those who saw the concrete roof.
That is, they made fewer errors on the task and showed steadier response patterns towards the flashing numbers.
Observing steadier responses in participants who saw the green roof is quite important. Changes
in attention can be analysed by breaking down each person’s response patterns into two parts: ‘quick
changes’ in responding and ‘gradual changes’ in responding. Steadier quick changes in responding sug-
gests fewer brief attention ‘slips’ during the task and better attention control. Steadier gradual changes in
responding suggest consistent levels of alertness across the task.
In the study, participants who saw the green roof showed fewer attention slips and as a result, better
attention control. Compared with their concrete roof counterparts, they also showed more consistent
alertness after the green roof micro‐break.

Healthier workplaces and cities

For decades researchers have wondered whether brief glimpses of nature could boost attention. Until
now, however, they have only found these benefits in studies where participants were exposed to nature
for longer periods of time — at least minutes, and often hours.
A multidisciplinary team used theory and methods from environmental psychology, neuropsychology,
organisational psychology and horticulture to uncover new insights on the benefits of urban nature. As a
result, they uncovered attention benefits after a 40‐second micro‐break with a flowering meadow green
roof view. For office workers, this suggests that ‘green micro‐breaks’ can provide a simple and effective
strategy for boosting attention between longer breaks.
Importantly, the study shows attention benefits after seeing a city green roof. Most research on the ben-
efits of nature has used lush and tall nature, particularly forests, woodlands and parks. The green roof the
participants were shown was realistic, using low growing plants that could survive on an irrigated roof.

CHAPTER 20 Operations and services management  565

 The research demonstrates that even a modest area of flowering meadow can boost attention. For
urban planners and developers, these results are yet another incentive to add more plants into our cities
and workplaces, to provide real benefits for people by creating healthy, productive and liveable spaces.
Green roofs are a practical solution for high density cities.

Source: Kate Lee, Katherine Johnson, Kathryn Williams, Leisa Sargent and Nicholas Williams (University of Melbourne),
originally published on The Conversation.

QUESTION
Change your computer desktop background to a nature scene and test the theory of green micro‐breaks while
studying for an exam or writing an assignment. Later, change it to your normal background and continue to
take micro‐breaks. Do you perceive a difference in your attention levels after the green micro‐breaks?

Introduction
Organisations today operate in a world that places a premium on quality, customer service, productivity,
technology utilisation and speed. Businesses large and small are struggling and innovating as they try to suc-
ceed in a world of intense competition, continued globalisation of markets and business activities, and rapid
technological change. Just how top executives approach these challenges differs from one organisation to
the next, but they all focus on moving services and products into the hands of customers in ways that create
loyalty and profits.2 While the opening case illustrated operations management and supply chain issues with
physical products, businesses in the service industry also have operations management issues.
A common experience among many consumers in Australia today is dissatisfaction with their tele-
communications service provider (telco). Many consumers have experienced customer service problems
including billing errors, failure to cancel direct debit, failure to follow through with account cancellation
requests and poor provision of information. According to the Telecommunications Industry Ombudsman
(TIO), costly mobile phone data plans are increasingly the result of complaints. This has resulted in a
new Telecommunications Consumer Protection Code that requires telcos to notify consumers about the

566  Management
TIO at the beginning of their complaint process, and will also ‘bring greater awareness about what cus-
tomers can do to have their complaints resolved’.3

20.1 Operations management essentials

LEARNING OBJECTIVE 20.1 What are the essentials of operations management?
In one way or another, all organisations must master the challenges of operations management —
getting work done by managing the systems through which organisations transform resources into
finished products, goods and services for customers and clients.4 The span of operations management
covers the full input–throughput–output cycle. Typical operations management decisions address things
such as resource acquisition, inventories, facilities, workflows, technologies and product quality. To
ensure competitive advantage and meet shareholder expectations, many companies are turning to out-
sourcing and offshoring as a means to reduce costs.5
The essentials of operations management apply to all types of organisations, not just to product manu-
facturers. Companies such as Hyundai, BMW and Toyota transform inputs into attractive, high‐quality
cars; but also in the services sector, telcos transform staff and technology inputs into telephone and
mobile data service, and governments transform inputs into public services. All such organisations must
consider the final output when making operational decisions.
The core issues in operations and services management boil down to how ‘productivity’ and ‘competitive
advantage’ are achieved. This focuses management attention on the various processes and activities that turn
resources — in the form of people, materials, equipment and capital — into finished goods and services.

Productivity
Operations management in both manufacturing and services is concerned with productivity — a quanti-
tative measure of the efficiency with which inputs are transformed into outputs. The basic productivity
equation is:

Productivity = Output/Input.

If, for example, a local Red Cross centre collects 100 units of donated blood in one 8‐hour day, its prod-
uctivity would be 12.5 units per hour. If we were in charge of centres in several locations, the productivity
of the centres could be compared on this measure. Alternatively, one might compare the centres using
a productivity measure based not on hours of inputs, but on numbers of full‐time staff. Using this input
measure, a centre that collects 500 units per week with two full‐time staff members (250 units per person)
is more productive than one that collects 600 units per week with three staff (200 units per person).
When Microsoft studied productivity of office workers in an online survey of more than 38  000 people
across 200 countries, results showed a variety of productivity shortfalls.6 Although people reported
working 47 hours per week, they were unproductive during 17 of the hours: 69 per cent said time spent
in meetings was unproductive. Productivity obstacles included unclear objectives and priorities, as well
as procrastination and poor communication.

Competitive advantage
Inefficiencies like those reported by Microsoft are costly; lost productivity by any measure is a drain on
organisational competitiveness. Operating efficiencies that increase productivity, by contrast, are among the
ways organisations may gain competitive advantage. Competitive advantage is defined as ‘anything that
a firm does especially well compared to rival firms.7 Getting and keeping competitive advantage is abso-
lutely essential for organisational survival. Potential drivers of competitive advantage include things such
as the ability to outperform based on product innovation, customer service, speed to market, manufacturing

CHAPTER 20 Operations and services management  567

flexibility, and product or service quality. Regardless of how organisations achieve competitive advantage,
the key result is the same: an ability to consistently do something of high value that one’s competitors cannot
replicate quickly or do as well. Most organisations have a continuing improvement process that relies on
employees finding better ways to do the things they do every day. Some organisations reward staff through a
transparent monetary process and performance management system.
Some organisations gain competitive advantage through the use of robotics on their assembly lines.
Robots perform applications with consistency and precision, which means higher quality products.
There are financial savings with no ongoing payroll issues such as leave and superannuation, as well
as increased production as the use of inputs is reduced. Of course, the most obvious impact of indus-
trial mechanisation is that it eliminates many unskilled job positions. This has especially been the
case in United States and Japan — two countries that illuminate important factors in the robot take-
over. Japan has a negative growth population, so robots have taken over the drudge jobs their young
people choose not to do. The United States, on the other hand, has lost so much of its manufacturing
to China that it is impossible for even a localised robotic workforce to compete with lower pro-
duction costs offshore.
Sustainability is not new nor does it need to be huge. Sustainability has seen McDonald’s move from
a polystyrene container for their Big Mac to a paper wrap; shopping centres charge for plastic bags or
not supply them; John West ensure that their salmon is not caught at the expense of dolphin deaths;
car manufacturers produce cars that do not need petrol; and not‐for‐profit Cerebral Palsy League adopt
Brendan McGufficke’s Metal for Mobility plan, where industries recycle their waste bins instead of
placing rubbish in landfill (creating sustainability), and the sustainable income (regular and consistent)
pays for wheelchairs for children who cannot walk.

Operations technologies
The foundation of any transformation process is technology — the combination of knowledge, skills,
equipment and work methods used to transform resource inputs into organisational outputs. It is the way
tasks are accomplished using tools, machines, techniques and human knowledge. The availability of
appropriate technology is a cornerstone of productivity and the nature of the core technologies in use is
an important element in competitive advantage.
Manufacturing technology
It is common to classify manufacturing technology into three categories: (1) small‐batch production,
(2) mass production and (3) continuous‐process production. In small‐batch production, such as in a
racing bicycle shop, the manufacturer makes a variety of custom products to order. The manufacturer
makes each item or batch of items somewhat differently to fit customer specifications. The equipment
used may not be elaborate, but a high level of worker skill is often needed. In mass production, such as
manufacturing the popular brands of recreational bicycles, the firm produces a large number of uniform
products in an assembly‐line system. Workers are highly dependent on one another as the product passes
from stage to stage until completion. Equipment may be sophisticated, and workers often follow detailed
instructions while performing simplified jobs.
Organisations using continuous‐process production continuously feed raw materials — such as
liquids, solids and gases — through a highly automated production system with largely computerised
controls. Such systems are equipment intensive, but they can often be operated by a relatively small
labour force. Classic examples are oil refineries and power plants. Among the directions in manufac-
turing technology today, the following trends are evident.
•• There is increased use of robotics, where computer‐controlled machines perform physically repetitive
work with consistency and efficiency. If you visit any car manufacturer today, chances are that robotics
is a major feature of the operations.
•• There is increased use of flexible manufacturing systems that allow automated operations to quickly
shift from one task or product type to another. The goal is to combine flexibility with efficiency,

568  Management
 allowing what is sometimes called mass customisation — efficient mass production of products
meeting specific customer requirements.
•• There is increased use of cellular layouts that place machines doing different work together, so that
the movement of materials from one to the other is as efficient as possible. Cellular layouts also
accommodate more teamwork on the part of machine operators.
•• There is increased use of computer‐integrated manufacturing, in which product designs, process
plans, and manufacturing are driven from a common computer platform. Such approaches are now
integrated with the internet, so that customer purchasing trends in retail locations can be spotted and
immediately integrated into production schedules at a manufacturing location.
•• There is increased focus on lean production that continuously innovates and employs best practices
to keep increasing production efficiencies. A master is Toyota, and as a BusinessWeek headline once
said, ‘No one does lean like the Japanese’.
•• There is increased attention to design for disassembly. The goal here is to design and manufacture
products in ways that consider how their component parts will be recycled at the end of their lives.
•• There is increased value in remanufacturing. Instead of putting things together, remanufacturing
takes used items apart and rebuilds them as products to be used again. One estimate is that using
remanufactured materials saves up to 30 per cent on costs.
•• There is an increased emphasis on sustainable manufacturing. Sustainable manufacturing is defined
as manufacturing where the exploitation of resources and use of technology is made consistent with
the future as well as present needs.8 This concept of sustainability usually includes economic, social
and environmental aspects.
Service technology
When it comes to service technology, the classifications are slightly different.10 In health care, education
and related services, intensive technology focuses the efforts of many people with special expertise on
the needs of patients, students or clients. In banks, real estate firms, insurance companies, employment
agencies and others like them, mediating technology links together parties seeking a mutually ben-
eficial exchange of values — typically a buyer and a seller. Long‐linked technology can function like
mass production, where a client is passed from point to point for various aspects of service delivery.

SUSTAINABILIT Y

Finding a unique path for

Australia’s manufacturing future9
As the manufacturing landscape shifts in res-
ponse to new economic and social pressures,
Australia is looking for an answer to the
question: what does the future look like for
Australian manufacturing?
Irrespective of the wide-ranging views on
what alternate futures for manufacturing
might look like, Australian manufacturers
need to be competitive in global markets and
be highly productive and sustainable in their
business operations. Manufacturing firms
also need to capture the opportunities offered
by Australia’s comparative advantage in natural resources in minerals and agriculture, as well as
emerging markets for products and services that support more sustainable living in transport,
­construction, energy, health and wellbeing.

CHAPTER 20 Operations and services management  569

 Over the next decade, success factors that will influence the competitiveness of Australian manu-
facturing firms will include the need for faster discovery and development to respond more quickly
to dynamic markets, advanced design to create much more competitive and sustainable products,
improved collaboration across our innovation system to maximise the exchange and transfer of knowl-
edge, an increase in our ability to leverage our national broadband infrastructure, and encouraging a
better understanding of supply chains.
Another key success factor will be our ability to develop, adapt, adopt and integrate the right enabling
technologies that provide a competitive advantage for Australian manufacturing firms. There are a number
of potential game changers in terms of enabling technologies and advanced capabilities. This includes
additive manufacturing, assistive automation, advanced design and smart information systems.
Globally, we have seen a major shift towards technology‐led manufacturing focused on large scale
industrial automation. In countries such as Germany, production lines are increasingly dominated by
automated processes and robotics. More recently, China has embarked on a large‐scale industrial auto-
mation program. However, we need to think about how such technological leaps work for Australia. We
have our own unique manufacturing DNA, made up of tens of thousands of SMEs. This is very different
to some other industrialised countries, where there are many more large‐scale manufacturing enter-
prises. Australian SMEs often find it difficult to embrace industrial automation because of cost and the
risk of disruption to their production.
However, there may be other paths to large‐scale industrial automation. Simple repetitive tasks have
largely been addressed by automation (robotics) in manufacturing environments. However, there are
many complex tasks that still require human involvement; it may be these technologies that ‘assist’
(rather than replace) human processes that may become more prominent in Australia. The emerging
field of assistive automation may play an important role in the future of Australian manufacturing.
There is no doubt that Australian manufacturing will need to take its own path to innovation and main-
taining its competitiveness. Global influences will play their part, but Australia’s unique manufacturing
DNA, natural resource endowment and increasingly strong communication infrastructure will help shape
a uniquely Australian manufacturing future.
Source: Swee Mak (CSIRO), originally published on The Conversation.

QUESTION
What are the benefits of assistive automation as opposed to complete automation in the manufacturing
environment?

CRITICAL ANALYSIS

1. Do you think that increasing productivity by using technology is suitable in all industries? Consider
the use of automated pizza ordering by app and the replacement of banking functions by an app.
2. Companies that try to improve their competitive advantage through improving operations
sometimes reduce the ‘slack’ in their systems. How do you think these companies adjust to
seasonal variations in demands on their operations (such as peak holiday periods for airlines)?

20.2 Value chain management

LEARNING OBJECTIVE 20.2 What is value chain management?
Whereas productivity may be considered the major efficiency measure in both manufacturing and
services, ‘value creation’ should be the targeted effectiveness measure. In this sense value creation
means that the end result of a task or activity or work process is worth more than the effort and resources
invested to accomplish it. In a manufacturing operation, for example, value is created when a raw mat-
erial such as copper wire is combined with transistors and other electrical components to create a com-
puter chip. In a service setting, value is created when a trained financial analyst provides a customer with
advice that leads to profitable brokerage transactions in a stock portfolio.

570  Management
Value chain analysis
An organisation’s value chain, as shown in figure 20.1, is the specific sequence of activities resulting
in the creation of products or services with value for customers. The value chain includes all primary
activities — from inbound logistics to operations to outbound logistics to marketing and sales to after
sales service, as well as support activities — such as procurement, human resource management, tech-
nology development and support, and financial and infrastructure maintenance.11

Organisation as a
transformation system

Materials People and

Resources and Finished
received and technology Customers
materials products
organised create served
flow in distributed
for use products

Management of the
value chain

FIGURE 20.1 Elements in an organisation’s value chain

Analysis of any organisation’s value chain will show an intricate sequence of activities that step‐
by‐step adds value to inputs, right up to the point at which finished goods or services are delivered
to customers or clients. The essence of value chain management is to manage each of these steps for
maximum efficiency and effectiveness.
Part of the logic of being able to identify and analyse a value chain is to focus management attention
on three major questions. First: what value is being created for customers in each step? Second: how
efficient is each step as a contributor to overall organisational productivity? Third: how can value cre-
ation be improved overall?
As the customer of an online retailer such as Amazon.com, for example, you can think of this value
in such terms as the price you pay, the quality you receive, and the timeliness of the delivery. From the
standpoint of value chain management, Amazon’s value creation process can be examined from the point
where books are purchased, to their transportation and warehousing, to electronic inventorying and order
processing, and to packaging and distribution to the ultimate customer.

Supply chain management

An essential element in any value chain is the relationship between the organisation and the many people
and businesses that supply it with needed resources and materials (the market stage). All of these sup-
plier relationships on the input side of the input–throughput–output action cycle must be managed well
for productivity.
The concept of supply chain management (SCM) involves strategic management of all operations
linking an organisation and its suppliers, including areas such as purchasing, manufacturing, transpor-
tation and distribution.12 The goals of supply chain management are to achieve efficiency in all aspects
of the supply chain, while ensuring on‐time availability of quality resources and products. Wal‐Mart
is still considered a master of supply chain management. As one example, the firm uses an advanced
information system that continually updates inventory records and sales forecasts based on point‐of‐sale

CHAPTER 20 Operations and services management  571

computerised information. Suppliers access this information electronically, allowing them to adjust their
operations and rapidly ship replacement products to meet the retailer’s needs.
Purchasing plays an important role in supply chain management. Just as any individual tries to control
how much they spend, a thrifty organisation must be concerned about how much it pays for what it buys.
To leverage buying power, more organisations are centralising purchasing to allow buying in volume.
They are trimming supply chains and focusing on a small number of suppliers with whom they negotiate
special contracts, gain quality assurances and get preferred service. They are also finding ways to work
together in supplier–purchaser partnerships. It is now more common, for example, that parts suppliers
maintain warehouses in their customer’s facilities. The customer provides the space; the supplier does
the rest. The benefits to the customer are lower purchasing costs and preferred service; the supplier gains
an exclusive customer contract and more sales volume.
Sustainable supply chain management and green supply chain management have become important
trends in recent years. Sustainable supply chain management is defined as the management of mat-
erial, information and capital flows as well as cooperation among companies along the supply chain,
while taking goals from all three dimensions of sustainable development (economic, environmental and
social) into account.13 For example, McDonald’s Australia sources its coffee only from ‘Rainforest Alli-
ance Certified’ farms. These farms must meet standards balancing all aspects of production, including
protecting the environment and protecting the rights and welfare of workers and the interests of coffee
growing communities.14
Green supply chain management focuses on a number of practices designed to reduce the environ-
mental impact of the supply chain, including reducing the carbon footprint of the logistics and manufac-
turing parts of the supply chain. Organisations have a responsibility to not only manage the environmental
impact of their supply chain but to report on their triple bottom line management. The Australian Federal
Government, through its emissions reduction fund, is supporting the move by subsidising the transform-
ation of the energy sector away from high‐polluting sources such as brown coal and storing carbon in the
land through better land management strategies.15
There are local and global threats that can impact on the supply chain, such as the sourcing of inputs.
Is the organisation able to maintain supply? Are there competitors who are also sourcing the same mat-
erial? Is the quality what is required? Can the organisation afford to hold more supply than that immedi-
ately required in case of non‐supply? How will this affect the bottom line?
Then, the manufacturing process needs to be considered. Is there opportunity for economies of scale?
Should the organisation consider increasing machinery? Are there emergency options for non‐supply
of inputs? There are many management decisions to be considered when contemplating the risks and
threats to the supply chain. Inventory management has always been seen as a lean, well‐managed source
of advantage. Many profess the just‐in‐time inventory system (discussed in the following sections),
where products are only ordered when required. However, with global commerce this may in fact be a
detriment to the firm.

Inventory management
Another important issue in the value chain is management of inventory, the amount of materials or
products kept in storage. Organisations maintain a variety of inventories of raw material, work in process
and finished goods. Whenever anything is held in inventory there is an associated cost, and controlling
these costs is an important productivity tool. Controlling inventory is one of the key organisational con-
trol measures available to managers, and it is a key component of operations and services management.
As such, it is worth reiterating two important inventory control measures here — the economic order
quantity method and just‐in‐time scheduling.
Economic order quantity
As outlined in the chapter on controlling, the goal of inventory control is to make sure that an inventory
is just the right size to meet performance needs, thus minimising the cost. The economic order quantity

572  Management
(EOQ) method of inventory control involves ordering a fixed number of items every time an inventory
level falls to a predetermined point. When this point is reached, as shown in figure 20.2, a decision is
automatically made (typically by computer) to place a standard order to replenish the stock. The order
sizes are mathematically calculated to minimise costs of inventory. The best example is the local super-
market, where hundreds of daily orders are routinely made on this basis.

Maximum
inventory

Lead Lead
time time
Optimum
re-order
quantity
(Q)

Minimum
inventory Re-order Re-order
point point

FIGURE 20.2 Inventory control by economic order quantity (EOQ)

Just‐in‐time systems
Another approach to inventory control, also outlined in the chapter on controlling, is just‐in‐time sched-
uling (JIT), first made popular by the Japanese. JIT systems reduce costs and improve workflow by
scheduling materials to arrive at a workstation or facility ‘just in time’ to be used. Since almost no inven-
tories are maintained, the just‐in‐time approach is an important productivity tool.

Break‐even analysis
Another important value chain management issue relates to capacity planning for the production of
products or services, and the pricing of them for sales. In basic business terms: too much capacity raises
costs, and too little capacity means unmet sales; too low a price fails to deliver revenues that cover costs,
and too high a price drives away customers. Thus, when business executives are deliberating new prod-
ucts or projects, a frequent question is: ‘What is the “break‐even point”?’
The graph in figure 20.3 shows that the break‐even point is where revenues just equal costs. You can
also think of it as the point where losses end and profit begins. The formula for calculating break‐even
points is:
Break-even point = Fixed costs/(Price − Variable costs).

Managers use break‐even analysis to improve control and perform ‘what if’ calulations under dif-
ferent projected cost and revenue conditions. See if you can calculate some break‐even points, doing
the types of analyses that business executives perform every day. Suppose the proposed target price
for a new product is $8 per unit, fixed costs are $10  000, and variable costs are $4 per unit? What sales
volume is required to break even? (Answer: the break‐even point is at 2500 units.) What happens if you
are good at cost control and can keep variable costs to $3 per unit? (Answer: the break‐even point is at
2000 units.) Now, suppose you can only produce 1000 units in the beginning and at the original costs. At
what price must you sell them to break even? (Answer: $14.)

CHAPTER 20 Operations and services management  573

 Total sales
revenue

it
of
Break-even point Pr
Revenues = costs
Total costs =
Dollar costs fixed + variable
and revenues
($)
Variable costs

ss
Lo
Fixed costs

Unit sales

FIGURE 20.3 Graphical approach to break‐even analysis

CRITICAL ANALYSIS

1. Why might customers pay more for a green supply chain?

2. Outline potential problems you can imagine might occur with just‐in‐time scheduling.

20.3 Service and product quality

LEARNING OBJECTIVE 20.3 How do organisations manage service and product quality?
Have a look at the wait lines at some service establishments. How long does it take you to be served
or have your phone call answered at the bank, Medicare, electricity suppliers or insurance companies?
Most service establishments have sought to cut costs and have been left with too few staff actually ser-
ving customers. The remaining staff are overworked and, in the end, the the costs are not reduced —
they are simply replaced with stress leave, sick leave and high retention costs. Research suggests that
direct replacement costs can reach as high as 5–60 per cent of an employee’s annual salary, with total
costs associated with turnover in the range of 90–200 per cent of annual salary.16
Cutting back on customer service when times are tough is not the answer. Winning customers back
is difficult, especially if they have experienced loss of value because of your decision. Many managers
view service efficiency and customer satisfaction as incompatible goals. However, not only are they
compatible, but businesses will not succeed unless they have achieved this compatibility.17 Companies
need to maintain superior service operations, especially when the economy has a slowdown or a heavy
hit like the global financial crisis. Higher customer loyalty has shown to correlate with sustained growth
and a competitive edge. Continuously improving service is part of the job of improving the delivery of
products or services. When services are improved leaders, can determine what to focus on and what to
measure, and then use these metrics to create business processes that succeed.

Customer relationship management

Without any doubt, customers put today’s organisations to a very stiff test. Like you, most want three
things: (1) high quality, (2) low price and (3) on‐time delivery of the goods and services they buy. And,
these are the types of customer stories that cause headaches for managers.18

574  Management
 Internet and phone providers are regularly subject to customer backlash when service levels decrease
(or become non‐existent, in extreme cases). In late 2015, more than 45  000 Western Australian cus-
tomers of internet service provider iiNet were left without internet access (some of them for several
days).19 In February 2016, up to 20 per cent of Telstra mobile customers were prevented from making
calls or going online.20 In an effort to provide some compensation to customers, Telstra offered a day of
free data for all mobile customers the following weekend; however, there was some criticism of the way
this was conveyed to customers — by using a ‘cheer up’ cat meme on Facebook.21
While some customers still choose to phone customer service lines to speak to a represen-
tative, these days it is more common for people to vent their frustration via social media
(particularly Twitter and Facebook, as in the cases of iiNet and Telstra). Social media can make or
break a company’s reputation, and with these new customer service demands, supply and quality
are now openly discussed (and often trashed or praised). Legal requirements (such as environmental
restrictions) and expectations, as well as social responsibility and ethical demands, make manage-
ment necessarily very transparent. Supply processes and deliverables are scrutinised more now than
ever before.
Service is not always about the delivery in person but delivery through technology. Most large
organisations have moved to having an online presence, and many are using online stores to sell
at reduced prices. Some online stores might be run by one person, and some (like large electronics
retailers) are run by whole armies of employees. Some of the sources of competitive advantage in
this forum are delivery times, delivery costs, return policies and pricing. Seeking to meet the service
demands of online shoppers is an evolving practice, and now customer service has even extended to
fast food delivery, with the likes of McDonalds and Domino’s having developed apps for ordering.
Like Siri for Apple and Cortana for Microsoft, customers can simply open the app and ‘speak’ their
order.

Essentials of CRM
Many organisations now use the principles of customer relationship management (CRM) to establish
and maintain high standards of customer service. CRM entails all aspects of interaction that a company
has with its customer, whether it is sales or service‐related. CRM is a company‐wide strategy that is
designed to reduce costs and increase profitability, with the focus being on customer satisfaction and
building loyalty. Bringing information from all data sources enables a holistic view of each customer,
enabling informed decisions for all aspects of sales and marketing. This approach uses the latest infor-
mation technologies to maintain intense communication with customers as well as to gather and utilise
data regarding their needs and desires. The days when you bought a used car from a ‘dodgy’ salesperson
should be over. A salesperson does not want to sell you one car, but a number of cars over many years.
This means that they want your repeat business, and will do what they need to do to ensure you come
back to them for the next car.
There are probably many times in your experiences as a customer that you wonder why more man-
agers don’t get this message. Consider, for example, the case of Mona Shaw, a 76‐year‐old retired nurse
in the United States. After arriving at a cable television office to complain about poor installation of
cable service to her home, she sat on a bench for two hours waiting to see a manager. She then left and
came back with a hammer. She smashed a keyboard and telephone in the office, yelling ‘Have I got your
attention now?’ It cost Shaw an arrest and a $375 fine, but she became a media sensation and a rallying
point for unhappy customers everywhere. As for the cable television office, a spokesperson said ‘We
apologise for any customer service issues that Ms. Shaw experienced’.22
The company’s apology is nice, but don’t you also wonder: Did the system change as a result of this
incident? Was customer relationship management activated so that service improved for Shaw and other
customers in the future? Was the experience of this branch incident reviewed by top management and
the learning disseminated throughout the company’s operations nationwide? Or did things quickly slide
back into business‐as‐usual?

CHAPTER 20 Operations and services management  575

 TECHNOLOGY

Corporate social media needs to be two‐way communication23

A few years ago a new bakery in an inner
Sydney suburb had a novel idea. Every time
it baked some rolls or cakes the owner sent
a tweet to announce it. Local people working
on their computers saw the tweet and found
themselves salivating. In proof that the Pavlov’s
dog theory is true, they flocked to the bakery in
large numbers to satisfy their taste buds. It is a
wonderful example of the skilful use of social
media as a marketing tool. It quickly became
an award winning business.
However, the University of Sydney’s social
media guru, Laurel Papworth, said just using
Twitter or Facebook for marketing is short
sighted. ‘Companies use social media to push information out as if it was traditional media like a
television station or newspaper’, she said. To be really effective though, Laurel Papworth said social
media should be a two‐way communication. ‘A good customer service approach is a lot more beneficial
for companies attempting to connect with and engage with their clients’, she added.
A case in point is Telstra. Telstra recognised early that standard responses to customer comments
and complaints do not work on social media. But the marketers at Telstra are clearly dominant.
When I look at the main Telstra page on Facebook, which is a marketing and promotion page, and then look at its
customer service page, it’s hard to tell the difference. It’s such a shame because they used to get it right.

Both pages are dominated by advertisements for Telstra products and services.
Woolworths is another example. It has a presence on Facebook but not on Twitter. Woolworths
described Twitter as ‘a window to customer complaints it doesn’t want to open’. It also said it can have
a more detailed conversation with its customers on Facebook.
Laurel Papworth said that is a bit like calling a company that keeps redirecting you to a new depart-
ment each time. ‘If you’re on Twitter and don’t like Facebook, being told to go to Facebook won’t
empower you to feel better about Woolworths’, she added. She said there are many positive comments
about Woolworths on Twitter, about some of its campaigns, about some of its social entrepreneurship.
‘Yes, there are complaints as well, but Woolworths is not hearing them by insisting on listening on
another channel’, she added. Which means it is not addressing those complaints.
So what does a good corporate social media strategy look like? According to Laurel Papworth there
are five key considerations.
1. Know the purpose and value of channels like Twitter and Facebook and understand why you use them.
2. Keep marketing and customer service separate. Marketing and PR people should not be answering
customer service questions.
3. Know your target audience (e.g. is it retirees or teenagers?).
4. Be where your customers are (i.e. if they are on Facebook, that is where you should be).
5. The best marketing and public relations is fantastic customer service.

QUESTION
Have you, or someone you know, engaged with a company on social media recently? Thinking
about the interaction, are you now more or less likely to use the company’s product or service? Why?

External and internal customers

Customer relationship management applies equally well to external and internal customers. Figure 20.4
expands the open‐systems view of organisations to depict the complex internal operations of the organ-
isation, as well as its interdependence with the external environment. In this figure the organisation’s
external customers purchase the goods produced or utilise the services provided. They may be industrial

576  Management
customers — other firms that buy a company’s products for use in their own operations — or they may
be retail customers or clients who purchase or use the goods and services directly. Internal customers,
by contrast, are found within the organisation. They are the individuals and groups who use or otherwise
depend on one another’s work in order to do their own jobs well.

Resource Transformation processes and workflows Product

inputs outputs
Suppliers Customers
Job Job Job Job

Internal customer/client service points

External customer/client service points

Organisation as recipient
Organisation as provider

FIGURE 20.4 The importance of external and internal customers

Quality management
ISO certification by the International Organization for Standardization in Geneva, Switzerland, serves
as a major indicator of quality accomplishments. Organisations and companies often want to get certified
to ISO’s management system standards to improve the efficiency and effectiveness of their company
operations. There are many other reasons for seeking this certification, such as:
•• regulatory requirements
•• to meet customer expectations
•• for a risk management program
•• to help motivate staff by setting clear goals.24
Most total quality management (TQM) approaches insist that the total quality commitment applies
to everyone in an organisation and throughout the value chain — from resource acquisition and supply
chain management, through production and into the distribution of finished goods and services, and
ultimately to customer relationship management.25

TIME: Early 1980s and beyond

1940s 1960s
1900s

Satistical Organisational
FOCUS: Inspection Customer driven quality
sampling quality focus

New concept of quality:

Old concept of quality: Build quality into the process.
Inspect for quality after production. Identify and correct causes of
quality problems.

FIGURE 20.5 The evolution of total quality management (TQM)

Source: Dan R. Reid and Nada R. Sanders, Operations Management, 2nd edn (New York: John Wiley & Sons, 2005), figure 5.3, p. 143.

CHAPTER 20 Operations and services management  577

Statistical quality control
For Deming, quality principles are straightforward: tally defects, analyse and trace them to the sources,
make corrections and keep records of what happens afterwards.26 He championed statistical quality
control, a concept that takes samples of work, measures quality in the samples and determines accept­
ability of results. Unacceptable results trigger investigation and corrective action.
Statistical quality control can be divided into three broad categories.
1. Descriptive statistics are used to describe quality characteristics and relationships. Included are stat-
istics such as the mean, standard deviation, the range, and a measure of the distribution of data.
2. Statistical process control (SPC) involves inspecting a random sample of the output from a process
and deciding whether the process is producing products with characteristics that fall within a pre­
determined range. SPC answers the question of whether the process is functioning properly or not.
3. Acceptance sampling is the process of randomly inspecting a sample of goods and deciding whether
to accept the entire lot based on the results. Acceptance sampling determines whether a batch of
goods should be accepted or rejected.27
According to Reid and Sanders:

The tools in each of these categories provide different types of information for use in analyzing quality.
Descriptive statistics are used to describe certain quality characteristics, such as the central tendency
and variability of observed data. Although descriptions of certain characteristics are helpful, they are
not enough to help us evaluate whether there is a problem with quality. Acceptance sampling can help
us do this. Acceptance sampling helps us decide whether desirable quality has been achieved for a batch
of products, and whether to accept or reject the items produced. Although this information is helpful in
making the quality acceptance decision after the product has been produced, it does not help us identify
and catch a quality problem during the production process. For this we need tools in the statistical pro-
cess control (SPC) category  .  .  .  Statistical process control (SPC) tools are used most frequently because
they identify quality problems during the production process.28

CRITICAL ANALYSIS

1. Companies sometimes proclaim that ‘customer service is our first priority’. As a customer, what are
the signs you look for when evaluating whether this claim is true?
2. The SPC checks on processes or products as part of a quality management system rarely reveal
faults or defects. At what point, if ever, do checks become a waste of time and resources? Justify
your answer.

20.4 Work processes

LEARNING OBJECTIVE 20.4 How can work processes be designed for productivity?
Work processes are a set of coordinated tasks and activities, both manual and automated, with the pur-
pose of accomplishing a specific business goal. Work processes are related to knowledge management,
in that a process can be seen as a codified piece of ‘“know‐how” knowledge’. Over the years, work
processes have been given different names and functions, such as re‐engineering, re‐structuring or down-
sizing. They have all ended up meaning a reduction in workforce to achieve efficiencies, and this is
sometimes achieved through redundancies, offshoring or outsourcing. Many companies have seen great
improvement in their bottom line results as a result of these strategic decisions.
On the other hand, organisations are genuinely interested in improving the task flow: what is better
for the customer, the employees, the bottom line and the stakeholders in general. This need to improve
workflow and processes is called continuous improvement processes (CIP), and allows employees to
be part of the solution.29

578  Management
 The various aspects of a work process must all be completed to achieve the desired results, and they
must typically be completed in a given order. An important starting point for a re‐engineering effort is to
diagram or map these workflows as they actually take place. Then each step can be systematically ana-
lysed to determine whether it is adding value and to consider ways of streamlining to improve efficiency.
Since some form of computer support is typically integral to organisational workflows, special attention
should be given to maximising the contribution of new technology to the re‐engineering of processes.
Some processes, however, cannot be standardised, and a company that attempts to standardise such
procedures may lose their competitive advantage.30 For example, a world‐class architect creates and
varies some construction methods to create unique buildings. These processes work best when they’re
treated like artistic work rather than utilising rigid standardisation procedures. When a process is artistic,
managers must invest in giving employees the judgement, skills and cultural appreciation to create an
outstanding product or service. For example, Ritz‐Carlton Hotels empower their employees to improvise
responses to exceed individual guests’ needs.

How to re‐engineer core processes

In the case of many businesses, processes were based some time ago on a set of existing constraints at
the time, including money, computerisation and employees. Some time later, it’s likely there have been
changes to the expectations of customers and stakeholders; bottom‐line results; staffing numbers; and
challenges from legislative bodies and compliance issues. Those assumptions made in the past con-
cerning existing work processes and constraints may no longer hold true.
To maintain or develop a competitive advantage, businesses need to create efficiency and effective-
ness through operational redesign. Finding new operating efficiencies is an ongoing exercise for most
organisations. Some organisations employ quality assurance managers whose job incorporates the
assessment of work processes, including establishing a corporate quality assurance system to promote
customer satisfaction and to positively impact on financial performance. They need to champion con-
tinuous improvement efforts and identify any defect reduction initiatives in establishing an effective
quality management system (QMS). Then they initiate and implement quality improvement activities
(for example, Kaizen standard or Six Sigma) to increase the performance of the company’s products or
services. They also need to train employees so that they understand their contribution to the continuous
improvement process and, subsequently, the quality management system.
If the role of quality assurance is not formalised, each and every employee takes on the responsibility
for continuous improvement. A strategy that businesses use to determine whether all of their operational
expenses are necessary and if they could be operating more efficiently is called process value analysis.
Core processes are identified and carefully evaluated for their performance contributions to satisfy cus-
tomer wants. Each step in a workflow is examined that does not contribute to this outcome. Process
value analysis typically involves the following steps.
1. Identify the core processes necessary to satisfy customer wants.
2. Map the core processes in respect to workflows.
3. Evaluate all tasks for the core processes.
4. Search for ways to eliminate unnecessary tasks or work.
5. Search for ways to eliminate delays, errors and misunderstandings.
6. Search for efficiencies in how work is shared and transferred among people and departments.31
Figure 20.6 shows an example of how re‐engineering and better use of computer technology can streamline
a purchasing operation. Ideally, a purchase order should result in at least three value‐added outcomes: (1) order
fulfilment, (2) a paid bill and (3) a satisfied supplier. For this to happen, processes such as ordering, shipping,
receiving, billing and payment must all be well‐handled. A traditional business system might have purchasing,
receiving and accounts payable as separate functions, with each function communicating with the others and
with the supplier. As the figure shows, there are lots of inefficiencies here. Alternatively, process value analysis
might result in re‐engineering the workflow and redesigning it to include a new purchasing support team. Its
members can handle the same work more efficiently with the support of the latest computer technology.32

CHAPTER 20 Operations and services management  579

 Before re–engineering After re–engineering
Sends Sends Sends Pays
order goods order bill
Supplier
Supplier
Sends
Sends goods
Purchasing Receiving
invoice Enters order
Purchasing Computer
Enters receipt
Accounts support team system
Sends order payable Sends goods
copy ● Matches order, receipt ● Matches order,
invoice, receipt with receipt
● Pays bill

FIGURE 20.6 How re‐engineering can streamline work processes

Process‐driven organisations
Customers, teamwork and efficiency are central to Michael Hammer’s notion of process re‐engineering.
He describes the case of Aetna Life & Casualty Company (a healthcare benefits company), where a
complex system of tasks and processes once took as much as 28 days to accomplish.33 Customer ser-
vice requests were handled in a step‐by‐step fashion by many different people. After an analysis of
workflows, the process was redesigned into a ‘one and done’ format, where a single customer service
provider handled each request from start to finish. After the change was made, one of Aetna’s customer
account managers said ‘Now we can see the customers as individual people. It’s no longer “us” and
“them”’.34
Hammer also describes re‐engineering at GTE, now a unit of Verizon Communications in the
United States. Before re‐engineering, customer inquiries for telephone service and repairs required
extensive consultation between technicians and their supervisors. After process value analysis, tech-
nicians were formed into geographical teams that handled their own scheduling, service delivery and
reporting. They were given mobile telephones and laptop computers to assist in managing their work,
resulting in the elimination of a number of costly supervisory jobs. The technicians enthusiastically
responded to the changes and opportunities. ‘The fact that you’ve got four or five people zoned in
a certain geographical area’, said one, ‘means that we get personally familiar with our customers’
equipment and problems’.35
These examples describe the essence of process re‐engineering. The approach tries to redesign pro-
cesses to assign control for them to an identifiable group of people, and to focus each person and the
entire system on meeting customer needs and expectations. It tries to eliminate duplication of work
and systems bottlenecks, and in so doing tries to reduce costs and increase efficiency, while creating
an ever present capacity for change. Hammer says in describing the ultimate process‐driven organ-
isation, traditional organisations were not designed for change, but instead, execution. They lacked
the ability to identify and respond to change, and rigid organisational structures made accommo-
dating change difficult. However, in a process enterprise its:

intrinsic customer focus and its commitment to outcome measurement make it vigilant and proactive in
perceiving the need for change; the process owner, freed from other responsibilities and wielding the
power of process design, is an institutionalized agent of change; and employees who have an appreci-
ation for customers and who are measured on outcomes are flexible and adaptable.36

580  Management
 CRITICAL ANALYSIS

1. Some workplaces have implemented process re‐engineering because they have heard reports
of massive improvements in productivity in other workplaces. Outline circumstances where
implementing process re‐engineering may result in a massive drop in productivity?
2. What are some of the likely signs that work processes in an organisation are not effective?

20.5 Physical factors in the workplace

LEARNING OBJECTIVE 20.5 What physical factors in the workplace can affect employee productivity
and wellbeing?
Physical factors in the workplace were the original inspiration for much early management research, such
as the Hawthorne Studies in the 1920s. Although much contemporary management research emphasises
the importance of social and psychological factors, the importance of physical factors must not be over-
looked. Some of the key physical factors affecting workplace productivity and wellbeing are discussed
in the following sections.
If societal standards are not maintained, there is an expectation of a loss of productivity. Some
of the key physical factors affecting workplace productivity and wellbeing are recognised as collegiality
and respect, fair wages and pride in the organisation, protection of conditions for staff to carry out
their daily work, and an expectation that if these are provided then an increase in productivity should
follow.

Lighting the workplace

Of all the machinery and systems used in industry, most dependence is placed on the human eye. Relevant
information about materials and tools being used must be clearly visible, as must the tools and materials
themselves. This is particularly important in industries such as electronics, biotechnology, medical and
personal‐care services, and advanced manufacturing. Workers must be able to pay attention to the task
object, surface texture and colours, shape of machines and tools, size of details to be resolved, duration of
task, degree of physical activity and stroboscopic effects.

Ergonomic workstations
Injuries to staff resulting from poorly designed workplace equipment and furniture substantially reduce
productivity. Many European companies, such as Volvo in Sweden and Siemens in Germany, have pion­
eered the development of ergonomic workstations and equipment to reduce common problems such
as premature fatigue and back injuries and joint and muscle stress disorders resulting from repetitive
movements.

Climate control
Appropriate temperature and humidity levels maximise the physical and mental performance of people,
thereby increasing productivity and reducing possible workplace accidents. US, Japanese and European
companies have pioneered developments in this area, including air‐conditioning systems that produce
the correct electromagnetic balance to maximise human alertness, and computer‐controlled feedback
systems to ensure the best climate control in the workplace. The Japanese company Daikien is a world
leader in workplace climate control systems, supplying global organisations such as Toyota, Nissan,
Ford and P&O.

CHAPTER 20 Operations and services management  581

 TECHNOLOGY

Will your next phone be Fair Trade?37

Organic, cage‐free or home‐grown? We think
about our purchasing ethics in many areas of
daily life, but not often in relation to technology.
As with any product, though, we should think
about the effects of our actions on workers
and the environment. The idea of cage‐free
phones may sound silly, but for certain types of
workers it’s a stark reality.
A mobile phone contains rare minerals that
are often linked with violent conflicts. It is pro-
duced in difficult conditions by low‐paid fac-
tory workers. (And if you’d like to play a game
showing the production story of an iPhone, have
a look at PhoneStory.)38 A phone is also difficult
to recycle safely at the end of its lifespan.
Technologies like mobile phones are often, by nature, small objects purchased infrequently. It’s diffi-
cult to put our ethics on the line when the object seems so meagre in size and when you don’t buy one
that often.
And it often feels like we don’t have a lot of choice in the ethics of the phones we buy. All mobile
phones are produced using the same materials, and some of these come from warzones. So choosing
between Samsung and HTC can feel like choosing between a punch in the face and a kick in the guts.
Part of the problem is that we really feel like we have no choice but to buy a phone. Can we realisti-
cally expect to ‘go without’ a phone when our work, family and friends expect us to be available at all
times? And when our carrier invites us to upgrade our phone for next to nothing every two years, what
incentive do we have to slow down?

QUESTION
What initiatives could tech companies put in place to ensure they are acting ethically? Would your
purchase decision be influenced if you knew one product was ‘more ethical’ than another?

CRITICAL ANALYSIS

1. Do you think it is possible to have a workplace that is too physically comfortable for workers?
Justify your answer.
2. Look around your normal study area. Do you think that it is ergonomically suitable for long periods
of work? What could be done to improve it?

582  Management
SUMMARY
20.1 What are the essentials of operations management?
•• The challenges of operations management relate to managing productive systems that transform
resources into finished goods and services for customers and clients.
•• Productivity measures the efficiency with which inputs are transformed into outputs: Productivity
− Output/Input.
•• Technology, including the use of knowledge, equipment, and work methods in the transformation
process, is an important consideration in operations management.
20.2 What is value chain management?
•• The value chain is the sequence of activities that create value at each stage involved in producing
goods or services.
•• Value chain analysis identifies each step in the value chain to ensure it is efficient.
•• Supply chain management, or SCM, is the process of managing all operations linking an organisation
and its suppliers, including purchasing, manufacturing, transportation and distribution.
•• Efficient purchasing and inventory management techniques such as just‐in‐time and economic order
quantities are important forms of cost control.
•• Break‐even analysis identifies the point where revenues will equal costs under different pricing and
cost conditions.
20.3 How do organisations manage service and product quality?
•• Customer relationship management builds and maintains strategic relationships with customers.
•• Quality management addresses the needs of both internal customers and external customers.
•• To compete in the global economy, organisations seek to meet ISO 9000 quality standards.
•• Total quality management tries to meet customers’ needs — on time, the first time and all the time.
•• Organisations use control charts and statistical techniques such as the Six Sigma system to measure
the quality of work samples for quality control purposes.
20.4 How can work processes be designed for productivity?
•• A work process is a related group of tasks that together create value for a customer.
•• Process engineering is the systematic and complete analysis of work processes and the design of new
and better ones.
•• In process value analysis all elements of a process and its workflows are examined to identify their
exact contributions to key performance results.
•• Re‐engineering eliminates unnecessary work steps, combines others, and uses technology to gain
efficiency and reduce costs.
20.5 What physical factors in the workplace can affect employee productivity and wellbeing?
•• The visibility of material and tools and relevant information about materials and tools can affect
productivity in the workplace.
•• The design of workplace equipment and furniture can affect productivity in the workplace.
•• Temperature and humidity levels can affect productivity in the workplace.

KEY TERMS
Break‐even analysis  calculates the point at which revenues cover costs under different ‘what if’ conditions.
The break‐even point  is where revenues = costs.
A competitive advantage  allows an organisation to deal with market and environmental forces better
than its competitors.
Continuous improvement processes  are ongoing efforts to improve products, services or processes.
These efforts can seek ‘incremental’ improvement over time or ‘breakthrough’ improvement all at once.

CHAPTER 20 Operations and services management  583

In continuous‐process production  raw materials are continuously transformed by an automated system.
Customer relationship management  strategically tries to build lasting relationships with, and add
value for, customers.
Inventory control by economic order quantity  orders replacements whenever inventory level falls to a
predetermined point.
Green supply chain management  utilises practices designed to reduce the environmental impact of
the supply chain.
Intensive technology  focuses the efforts and talents of many people to serve clients.
Inventory  is an amount of materials or products kept in storage.
ISO certification  indicates conformance with a rigorous set of international quality standards.
Just‐in‐time (JIT) scheduling  minimises inventory by routing materials to workstations ‘just in time’
to be used.
The Kaizen standard  is a Japanese method of doing business based on the management theory of
gradual and continuous change. It focuses on aspects of a company’s processes that can be refined,
improved and made constant, with a resulting increase in efficiency and productivity. (Kaizen is the
Japanese word for continuous improvement.)
In long‐linked technology  a client moves from point to point during service delivery.
Mass production  manufactures a large number of uniform products with an assembly‐line system.
Mediating technology  links people together in a beneficial exchange of values.
Offshoring  is a decision to allow one or more of a company’s value chain activities to be performed
by offshore independent specialist companies that focus all their skills and knowledge on just one
kind of activity.
Operations management  is the process of managing productive systems that transform resources into
finished products or services.
Outsourcing  is a decision to allow one or more of a company’s value chain activities to be performed
by onshore independent specialist companies that focus all their skills and knowledge on just one
kind of activity.
Process value analysis  identifies and evaluates core processes for their performance contributions to
customer satisfaction.
Productivity  is the quantity and quality of work performance, with resource use considered.
Six Sigma  is a system for reducing defects in manufacturing and other operations to 3.4 errors per
million. One of the key steps is analysing data to locate defects and identify the causes.
Small‐batch production  manufactures a variety of products crafted to fit customer specifications.
Statistical quality control  measures work samples for compliance with quality standards. It is the
term used to describe the set of statistical tools used by quality professionals.
Supply chain management  strategically links all operations dealing with resource supplies.
Sustainable manufacturing  is manufacturing where the exploitation of resources and use of
technology is consistent with the future as well as present needs.
Sustainable supply chain management  addresses economic, environmental and social goals, while
managing material, information and capital flows among companies along the supply chain.
Total quality management (TQM)  is managing with commitment to continuous improvement,
product quality and customer satisfaction.
A value chain  is the sequence of activities that transform materials into finished products.

APPLIED ACTIVITIES
1 What operating objectives are appropriate for an organisation seeking competitive advantage through
improved customer service; price competitiveness; or product quality?
2 What is the difference between an organisation’s external customers and its internal customers?
3 Why is supply chain management considered important in operations management?

584  Management
4 If you were a re‐engineering consultant, how would you describe the steps in a typical approach to
process value analysis?
5 What would be possible productivity measures for: (a) a post office, (b) a university, (c) a hospital,
(d) a theme park or (e) a restaurant?

ENDNOTES
  1. Kate Lee et al, ‘Forget Siestas, ‘Green Micro‐breaks’ Could Boost Work Productivity’, The Conversation (28 May 2015),
www.theconversation.com.
  2. Examples from Anne Mulcahy, ‘How I Compete’, BusinessWeek (21–28 August 2006), p. 55; Gail Edmond‐son, ‘BMW’s
Dream Factory’, BusinessWeek (16 October 2006), pp. 68–80; Amy Merrick, ‘Asking “What Would Ann Do?”’ Wall Street
Journal (16 September 2006), pp. B1, B2.
  3. Claire Connelly, ‘Rising Bills and Poor Coverage Leads to Surge in Complaints to Telecommunications Ombudsman’, Herald
Sun (29 October 2012), www.heraldsun.com.au.
  4. Good overviews are available in R. Dan Reid and Nada R. Sanders, Operations Management: An Integrated Approach,
2nd edn (Hoboken, NJ: John Wiley & Sons, 2006); and Roberta S. Russell and Bernard W. Taylor III, Operations
Management: Quality and Competitiveness in a Global Environment (Hoboken, NJ: John Wiley & Sons, 2005).
  5. C. W. Hill and G. R. Jones, Theory of Strategic Management, 10th edn (Cengage: Canada, 2013).
  6. Microsoft, ‘Survey Finds Workers Average Only Three Productive Days Per Week’ (March 2005), press release,
www.microsoft.com.
  7. F. R. David, Strategic Management (Concepts and Cases), 14th edn (Pearson: New Jersey, 2012).
  8. F. H. Jovane, L. Yoshikawa, C. R. Alting, E. Boër, D. Westkamper, M. Williams, G. Seliger Tseng and A. M. Paci,
‘The Incoming Global Technological and Industrial Revolution Towards Competitive Sustainable Manufacturing.’ CIRP
Annals — Manufacturing Technology, vol. 57, (2008), pp. 641–59.
  9. Abbreviated version of Swee Mak, ‘Finding a Unique Path for Australia’s Manufacturing Future’, The Conversation
(6 August 2012), www.theconversation.com.
10. This treatment is from James D. Thompson, Organizations in Action (New York: McGraw‐Hill, 1967).
11. Value Chain Group website, www.value‐chain.org.
12. See Michael Hugos, Essentials of Supply Chain Management, 2nd edn (Hoboken, NJ: John Wiley & Sons, 2006).
13. Stefan Seuring and Martin Müller. ‘From a Literature Review to a Conceptual Framework for Sustainable Supply Chain
Management.’ Journal of Cleaner Production, vol. 16 (2008), pp. 699–710.
14. McDonald’s Rainforest Alliance Certified™ Coffee website, www.mcdonaldssustainablecoffee.com/home.asp.
15. ‘Emissions Reduction Fund’, Department of the Environment website, www.environment.gov.au/climate‐change.
16. W. F. Cascio, Managing Human Resources: Productivity, Quality of Work Life, Profits, 7th edn (Burr Ridge, IL: Irwin/
McGraw‐Hill, 2006); and T. R. Mitchell, B. C. Holtom and T. W. Lee, ‘How to Keep Your Best Employees: Developing an
Effective Retention Policy’, Academy of Management Executive (vol. 15, 2001), pp. 96–108.
17. Jeff Melton and Pratap Mukharji, ‘Don’t Cut Customer Service’, CEO Forum, www.ceoforum.com.au.
18. Information from Brian Hindo, ‘Satisfaction Not Guaranteed’, BusinessWeek (19 June 2006), pp. 32–8.
19. Graeme Powell, ‘iiNet Internet Outage: “Incident Now Resolved”, ABC News (30 December 2015), www.abc.net.au.
20. Andrew Findlay, ‘Telstra Outage Shows Customers Pay Extra for False Peace of Mind’, Australian Financial Review
(15 February 2016), www.afr.com.
21. Jessica Rapana, ‘Telstra Outage: “Puss in Boots” Meme Outrages Frustrated Customer as Woes Go on’, The Daily Telegraph
(11 February 2016), www.dailytelegraph.com.au.
22. Example and quote from Jena McGregor, ‘Customer Service Champs’, BusinessWeek (3 March 2008), pp. 37–42.
23. Andrew Robertson, ‘Corporate Social Media Needs to Be Two‐way Communication’, ABC News (19 February 2015),
www.abc.net.au.
24. ‘Certification to ISO Management System Standards’, International Organization for Standardization website, www.iso.org.
25. Dan R. Reid and Nada R. Sanders, ‘Chapter 5: Total Quality Management’, Operations Management, 2nd edn
(New York: John Wiley & Sons, 2005).
26. Rafael Aguay, Dr. Deming: The American Who Taught the Japanese about Quality (New York: Free Press, 1997).
27. Adapted from Reid and Sanders, ‘Chapter 6: Statistical Quality Control’, op. cit., pp. 172–3.
28. ibid.
29. ‘Continuous Improvement’, American Society for Quality website, http://asq.org.
30. Joseph Hall and M. Eric Johnson. ‘When Should a Process Be Art, Not Science?’ Harvard Business Review, vol. 87 (2009),
pp. 58–65.
31. Ronni T. Marshak, ‘Workflow Business Process Reengineering’, special advertising section, Fortune (1997).
32. A similar example is found in Michael Hammer, Beyond Reengineering (New York: Harper Business, 1997), pp. 9, 10.
33. ibid, pp. 28–30.

CHAPTER 20 Operations and services management  585

34. ibid, p. 29.
35. ibid, p. 27.
36. Quote from Hammer and Company website, www.hammerandco.com.
37. Robbie Fordyce and Luke van Ryn, ‘Will Your Next Phone be Fair Trade?’, The Conversation (6 December 2013),
www.theconversation.com.
38. Phone Story website, www.phonestory.org.

ACKNOWLEDGEMENTS
Photo: © Alison Hancock / Shutterstock.com
Photo: © Andrei Kholmov / Shutterstock.com
Photo: © Jag_cz / Shutterstock.com
Photo: © nenetus / Shutterstock.com
Figure 20.5: © Illustration from ‘The evolution of TQM’, The evolution of total quality management
Dan R. Reid and Nada R. Sanders, Operations Management, 2nd edn New York: John Wiley &
Sons, 2005
Extract: © Andrew Robertson, ‘Corporate social media needs to be two-way communication’, ABC
News (19 February 2015)
Extract: © The Conversation, Kate Lee, Katherine Johnson, Kathryn Williams,
Leisa Sargent and Nicholas Williams, 28 May 2015, https://theconversation.com/
forget-siestas-green-micro-breaks-could-boost-work-productivity-42356
Extract: © The Conversation, Swee Mark, 6 August 2012, https://theconversation.com/
finding-a-unique-path-for-australias-manufacturing-future-8600
Extract: © The Conversation, Robbie Fordyce, Luke can Ryan, 6 December 2013, https://
theconversation.com/will-your-next-phone-be-fair-trade-21190

586  Management
CASE STUDY 1
Economic downturns and the business environment
The subprime mortgage crisis of 2008 and the now famous failure of investment bank Lehmann Brothers
in the United States brought the world’s financial system to the brink of chaos in what became known
as the global financial crisis. Even the acronym ‘GFC’ became commonly used in everyday speech.
Hundreds of banks in the United States and other countries collapsed, and governments injected ‘fiscal
stimulus packages’ into economies, aimed at spending their way out of — or at least delaying the onset
of — the recession they feared. Once proud icons of industry appealed for increasingly large govern­
ment grants and loans, and banks that had previously been free with credit tightened loan criteria to the
point at which some businesses failed for want of operating capital. Even the United States government
did the formerly unthinkable and virtually nationalised banks (as did the British government), and made
staggeringly large ‘loans’ to big business, just to keep the economy turning over. Large and formerly
profitable companies like insurance giant AIG and car empires General Motors and Chrysler suffered
severely. United States President Barack Obama told them their bailout support would not continue, and
that they could not expect to live on as ‘wards of the state’. Management had to accept the downside of
their behaviour along with the upside they had enjoyed for years. Ordinary people were furious as their
superannuation funds were savaged while corporate high flyers took large bonuses. The crisis became an
enduring downturn, and many household names simply disappeared from the market.
By 2009, it was clear that this was not just a temporary downturn. Leaders of nations, including
Australia, joined together in an unprecedented initiative for coordinated action. It took a year of fiscal
stimulus by Western governments before optimism and signs of global recovery emerged. The tightly
regulated Australian banking sector remained conservative throughout the GFC; while the banks needed
and got government guarantees, they had no need of the rescues required by their foreign counterparts.

CASE STUDY 1  587

 The speed with which the global financial crisis took hold in many of the world’s countries showed
our degree of international interconnectedness, as organisations everywhere cut production and laid off
staff in a struggle to survive. Share markets tanked, commodity prices fell quickly, and even the oil price
sank within months from US$140 per barrel to less than US$40 per barrel, only to resume former price
levels within a year. Unemployment rates in both rich and poor countries rose relentlessly, housing
prices dropped by a third or more in many countries, and people watched their wealth erode. Managers
were put under pressure to somehow, anyhow, keep people in meaningful work. Jobs became the new
mantra, as millions — in the United States, Asia, Australia, the United Kingdom, and elsewhere — lost
the employment they thought was secure. The war for talent became the war for survival, and human
resource management was in the front line, trying to save people’s jobs and keep organisations operating
in a business environment of turbulence and uncertainty. It was a shakeout of monumental proportions.
Some firms restructured and cut costs to become more efficient and succeeded. Others folded.
By 2015, seven years on from the start of the GFC, equities markets had gone sideways; the United
States economy had shown only sporadic recovery; and China was enduring a slowdown of its prev­
iously high growth rate. India, and Brazil were not showing the robust optimism hoped for. It is an
understatement to say that business confidence in the West was severely damaged. Whole countries had
their securities downgraded to junk bond status — Greece became a mendicant nation, propped up by
Germany in a fragile Eurozone that had lived beyond its means for too long without making the reforms
necessary for economic stability. Greece particularly suffered severe austerity measures in return for
bailout finance from other European countries. European finance ministers needed to loosen monetary
policy to stimulate demand, but to keep a tight rein on fiscal policy to allow massive debt to be serviced.
Even the Euro currency itself sank to unanticipated lows against the United States dollar. In Australia
the exchange rate dropped from parity with the US$ to only 70c to the US$ as the prices of mineral
resources bottomed and Chinese demand for coal and iron ore declined.. Queensland alone exports one
third of the world’s coking coal (the kind used to make steel), and estimated reserves of coal seam gas
in that one state are sufficient to power a city of a million population for a thousand years. Meanwhile,
huge deposits off the northwest shelf are being tapped and the gas exported to nearby Asia with its bur­
geoning appetite for energy and iron ore. The Pilbara area in Western Australia has iron ore for at least
30 years of exports.
It is instructive to reflect that in 2012 the Australian dollar was predicted to remain stubbornly high
for some time to come, and companies were advised to adapt or perish in this new operating environ­
ment. Export prices offered strong growth, but costs also rose; by 2012, the pressure for operational
efficiency and sound corporate strategy assumed centre stage. Past booms have ended in inflation and
recession, so close attention is being given to ensuring this wealth does not evaporate, and to upgrading
infrastructure to support a different kind of economy in the years ahead. Sustainable energy availability
and reliable water supply are obvious considerations. Though the A$ is less coupled to the US$ than
before, if inflation rebounds in a slow United States recovery, Australia’s exchange rate will fall and
its terms of trade will decline. There is also the likelihood of Australia catching the ‘Dutch disease’, a
term coined in the 1970s to describe how ownership of natural gas pushed up the Dutch exchange rate
to levels where manufacturing became less competitive. However, abundance (having lots of resources)
is different from dependence (having a high proportion of exports in resource-related industries). The
key is whether Australia can develop the infrastructure and political institutions to spread the benefits
across the economy and develop other sectors too.1 Regardless, a slowing global economy in 2015 was
a drag on Australian growth. The formerly high Australian dollar had meant Australians could travel
internationally far more readily. However, this had the downside of making Australian-manufactured
goods  —  and the formerly profitable tourism sector  —  less competitive on world markets, so factory
closures and job losses became disturbingly frequent media headlines.
By 2015, the reverse swing had occurred and a lower A$ ushered in the expected rebound in (especially
Chinese) inbound tourism and manufactured goods became profitable again as more products could be
sold for lower prices internationally, and with higher margins.

588  Management
 What is the significance of this for managers? More than ever, the business environment is telling
organisations everywhere that if they are to survive, they need to be better managers of their assets and
better leaders of their people. Even Hollywood, when it was not offering escapism with stories about
unpopular wars, was quick to capitalise on a trend and reflect both fear and favour, releasing movies
showing organisations selling off toxic assets to unsuspecting buyers and terminating the employment of
loyal and productive staff. Romantic comedies took a back seat to risk management. Movies, as a bar­
ometer of the times, showed that the tough decisions demanded by the new workplace could be better
made by managers with a strong moral compass. Business ethics became ranked with finance as impor­
tant topics to be studied, in a new age of uncertainty.

QUESTIONS
1. Was there a simple cause of the economic downturn of the first decade of the twenty-first century, and is
there a simple solution?
2. What can we learn from the responses by the Greek government to the financial downturns in 2012–15?
3. Do you think that 2016–18 are likely to be years of slow and steady recovery, and what are the likely
implications for managers in Australian, New Zealand and Asian companies?
4. How risk averse should the individual manager be? What factors might influence your answer?

ENDNOTE
1. The Economist (18 February 2012), p. 59.

ACKNOWLEDGEMENT
Photo: © JMiks / Shutterstock.com

CASE STUDY 1  589

CASE STUDY 2
Boost Juice Bars in a global, digital marketplace
After identifying a trend for juice bars in the United States, and studying the local retail sector to find
there was a lack of healthy fast food choices, Janine Allis decided to open a juice bar in Adelaide in
2000. This flagship store was so popular that Australians demanded Boost Juice stores in their own
towns and new stores opened rapidly all over Australia. The chain soon expanded globally, resulting in
a group turnover of $158 million in 2015 from over 350 stores established across Australia and in the
United Kingdom, Ireland, Thailand, Chile, Singapore, Malaysia, the Baltics, South Africa and more.1
Boost Juice’s international strategy aims to respect ‘the different values, tastes, customs, purchasing
powers and media habits’ of their global customers; to that end, Boost Juice works with their franchising
partners, who are experts in their own regions, to adapt, localise and customise their drinks for each local
market.2 In an example of just how flexible and adaptive to local markets they can be, their juice bars are
known as ‘Joost Juice Bars’ in India.

Janine Allis is the founder of Boost Juice.

Boost Juice has adapted well to a changing digital landscape both in their marketing and media
strategy and in-store. The brand can boast well over 500 000 likes on Facebook, over 50 000 Instagram
followers and over 10 000 Twitter followers. In-store, Boost has electronic tills, pay wave capability,
digital posters and a Boost app that enables customers to order a juice in advance. The Boost app was
downloaded over 250 000 times in its first three months and was the first Australian retail application to
be integrated with the in-store point of sale system. The Boost Juice website hints that further app devel-
opment is yet to come.

590  Management
 In 2016, a Boost Juice Bars staff member leaked the recipes of several top-selling smoothies on Face-
book.3 Responding to the leak in a statement on her website, Janine wrote that rather than melting down
and worrying that competitors would replicate her product, she was instead questioning whether product
secrets really mattered in business.

Businesses are more than one element. Think of your favourite brand and ask yourself why you like
them, of course the product is something you love, but it is also the service, the experience, how you feel
when you interact with them and what they do when things go wrong.4

Embedded in the same statement were five videos featuring Janine talking the audience through the
recipes to five of her most popular juices, even discussing the various health benefits and reasoning
behind the pairing of flavours.
Both Janine Allis and her husband Jeff Allis (who is Executive Chairman of Boost Juice) remain in
corporate roles at Boost Juice.5 This is no doubt a positive move, given the reputation that Janine has
earned for her business skills and leadership style.
Janine’s leadership style is natural, warm, giving and inspiring. People are extremely motivated by
her to achieve amazing results. Janine describes herself as having a very ‘hands on’ approach toward the
running of Boost Juice, which has enabled her to fully understand and develop the growing business.
She now recognises that her role currently is less of a manager and more of a leader.6
Janine’s business acumen has been recognised time and again — she has been awarded Telstra Business-
woman of the Year, Amex Retailer of the year, Exporter of the year and has been named by BRW as one of
fifteen people in the last 35 years who have changed the way Australia does business. In addition, Janine is a
star on Channel Ten’s reality competition television series Shark Tank, where she is part of a panel of inves-
tors that judges aspiring entrepreneur contestants on the viability and ingenuity of their pitches.7

QUESTIONS
1. Do you think finding a franchise partner is a good idea, or would you rather retain control and do it yourself?
2. What do you think of Janine Allis’s response to the leaking of the secret recipes for her juices?
3. Boost Juice has branched out into other products, such as banana bread, protein balls and flavoured
popcorn. Do you think that this is a positive or negative move? How might Boost Juice be able to expand its
product line further to cater for different markets?
4. Boost’s app was ahead of the curve, being the first to fully integrate to the in-store POS system. Do some
research on the app — has Boost made any significant updates to the app in the time since its launch? What
next step would you like to see the app take?

ENDNOTES
1. ‘Boost Around the World’, Boost Juice, www.boostjuice.com.au.
2. ‘Boost International Strategy’, Boost Study Kit 2015, Boost Juice, www.boostjuice.com.au.
3. Monique Hore and Sunny Liu, ‘Boost Juice Recipes Revealed Online, Founder Janine Allis Confirms’, Herald Sun (25 April
2016).
4. Janine Allis, ‘Secret Recipes Revealed…Do Secrets Matter in Business?’, Janine Allis (28 April 2016), www.janineallis.com.au.
5. Eli Greenblat, ‘Boost Juice Sells Majority of Stake for $65M’, The Age (3 May 2010), www.theage.com.au.
6. ‘A Bit About Boost Juice Bars’, Boost Juice, www.boostjuice.com.au.
7. Janine Allis, ‘Shark Tank’, Janine Allis, www.janineallis.com.au.

ACKNOWLEDGEMENT
Photo: © Eugene Hyland / Newspix

CASE STUDY 2  591

CASE STUDY 3
Coal seam gas: the sustainable business response1
‘Coal seam gas is a volatile and divisive fuel, dubbed by the industry as a greenhouse hero, but
perceived by environmentalists as a water villain.’2 In Australia, the rapid expansion of coal seam
gas (CSG) mining may risk other important natural resources. The resources at risk include clean,
fertile agricultural land; safe, long-term water supplies; and a safe and pleasant countryside.3 Other
risks include uncertain environmental damage, growing social disharmony and a break-down in
corporate management regulators and systems that are struggling to keep pace with the devel-
opment of CSG.
The CSG industry is, at present, thriving across the globe, and with less greenhouse gas emissions
and risk of climate change CSG has been widely promoted as a ‘cleaner’ alternative to coal.4 Yet,
recent research has cast doubt on this, stating that gas may be an obstacle rather than a bridge to
a cleaner energy future.5 This doubt therefore places many ethical and social responsibilities on
CSG mining organisations. Queensland specifically represents one of the largest economic havens
for this profitable resource, and many multinational corporations come from all over the world in
order to drill within the Surat and Bowen Basins. These small pockets of energy-rich gas, found
within coal seam fracture lines hundreds of metres under the earth, come at an enormous expense
to the mining companies that harvest them. In addition, the expense also appears to include the
environments that accommodate the gas deposits. At present, these mining magnates in pursuit of
CSG are facing many environmental issues. Governments such as the Queensland state govern-
ment heavily regulate mining operations in order to enforce a strict set of standards that protect
both heritage and environmental sustainability. However, with some organisations, the motivation
for these ethical responsibilities lies within the continuation of profitable operations and evasion of
legislative enforcements.6 Governments clearly have a responsibility to ensure that these projects do
deliver real benefits to local regions and beyond, while minimising harm to the regions via social
and environmental damage. Achieving this balance is vital in ensuring the long-term success of a
CSG project by organisations.
CSG operations currently involve wells dug hundreds of metres into the earth’s surface to reach
pockets of gas. In order to achieve this, large drills are used to bore into the earth’s surface and, in order
to keep these drills lubricated and cool, large deposits of toxic water are pumped into drilled wells. At
present, this toxic water is then mixed with cuttings of the coal seams and pumped to the surface as a
contaminated mud waste. This waste product is then removed and pumped into large sump pits, which
are then buried under the earth’s surface at a cost paid to the government.
Environmental concerns raised about CSG include the disposal of toxic waste in water, soil and
air; as well as the excessive use of water required in the production of CSG. The disposal of toxic
waste is a vast issue by itself, impacting on environmental ecosystems and causing groundwater con-
tamination. Other issues include the drawbacks of produced water treatment and the level of salt in
the water found in coal seams that comes to the surface.7 Another important issue is the process of
fracking. Fracking occurs when CSG is released with the use of high pressure pumps, sand, water
and chemicals. These are injected into bore wells to fracture rocks and open cracks (cleats) to release
natural gas. This process uses significant quantities of water, as extracting CSG relies heavily on
reducing groundwater pressure that is absorbed between layers of rock. Due to decreasing levels of
water, the salt that was present in the water increases.8 This is concerning, as the increased levels
of salt can flow and resurface into groundwater that will, in turn, affect the drinking water, agricul-
ture and wildlife. This can also impact on stakeholders such as communities, farmers and users of
this water.

592  Management
 Contamination of water is a major concern for productive farmlands and communities as they bear
the risk of health hazards. Farmlands, in relation to vegetation, livestock and agricultural crops, are also
being affected through the contamination of water and soil. In addition to these water management risks,
‘CSG development could also cause significant social impacts by disrupting current land-use practices
and the local environment through infrastructure construction and access’.9
Communities have therefore raised concerns that many of these projects will have major environ-
mental and social impacts, as large CSG development poses poorly assessed, yet potentially serious,
health risks to the community.10 Consequently, there is the potential for long-term impacts on rural
communities and for public health to be affected indirectly or directly through contamination of soil, air
or water. Current monitoring, regulation and assessment of CSG impacts on public health, the environ-
ment and vulnerable communities may be insufficient in providing confidence of adequate safeguards.11
During these uncertain times, the allocation of management teams and expertise will call for the involve-
ment of diverse professions in order to cover a range of responsibilities that are needed to be applied if
sustainable decisions are to be made. To Australia, the CSG industry presents important economic ben-
efits. However, at the same time, it risks having long-term, significant impacts on adjacent surface and
groundwater systems if not effectively regulated or managed.

QUESTIONS
1. Based on this example, how can mining companies respond to the seemingly conflicting needs of exploiting
natural resources that are helpful in reducing greenhouse gas emissions while minimising environmental
impact?
2. Suggest how a shared value approach to this dilemma may assist companies to produce a win–win
solution.
3. How might a quadruple bottom line assessment of performance by mining companies change the approach
to CSG extraction?

CASE STUDY 3  593

ENDNOTES
  1. This case study was prepared with the assistance of Griffith Business School students Chris Stewart, Emma Evans, Pu Chen
(Harry) and Widaad Mohammed (Suhana).
  2. Richard Collins, ‘The Coal Seam Gas Explosion’, Waste Management and Environment, vol. 22, no. 5 (2011) p. 36.
  3. Marion Carey, ‘Coal Seam Gas: Future Bonanza or Toxic Legacy?’, Viewpoint, no. 8 (2012), pp. 26–31.
  4. Klaus Noack, ‘Control of Gas Emissions in Underground Coal Mines’, International Journal of Coal Geology, vol. 35, no. 4
(1998), pp. 57–82.
  5. Carey (2012), op. cit.
  6. Yves Fassin, ‘The Reasons Behind Non-Ethical Behaviour in Business and Entrepreneurship’, Journal of Business Ethics,
vol. 60, no. 3 (2005), pp. 265–79.
  7. Mariann Lloyd-Smith and Rye Sengen, ‘Hydraulic Fracturing in Coal Seam Gas Mining: The Risks to our Health,
Communities, Environment and Climate’, National Toxics Network (September, 2011), http://ntn.org.au.
  8. Trevor Smith, ‘Environmental Considerations of Shale Gas Development’, Chemical Engineering Progress, vol. 108, no. 8
(2012), pp. 53–9.
  9. ‘The Coal Seam Gas and Water Challenge: National Water Commission Position’ (2012), National Water Commission website,
www.nwc.gov.au.
10. Stephen Hancock and Christian Wolkersdorfer, ‘Renewed Demands for Mine Water Management’, Mine Water and the
Environment, vol. 31, no. 2 (2012) pp. 147–58.
11. Carey (2012), op. cit.

ACKNOWLEDGEMENT
Photo: © naten / Shutterstock.com

594  Management
CASE STUDY 4
IKEA’s international strategy
IKEA is one of the largest furniture makers and retailers in the world and is well known for its low‐
cost, stylish furniture and bold, sometimes controversial, advertising campaigns. Established by Swedish
entrepreneur Ingvar Kamprad in 1943, by 2015 the company had an estimated turnover of €31.9 billion
(A$46.5 billion), net profits of €3.5 billion (A$5.1 billion) and 328 stores in 28 countries.1 While IKEA
has undoubtedly succeeded in foreign markets, establishing stores in countries as far apart as Australia
and Romania, around 70 per cent of its sales still come from Europe and its overseas expansion has not
always progressed smoothly. Adapting the company’s culture to national norms has proved challenging
and there have been mistakes along the way.
A brief company history
Brought up in a small farming community in southern Sweden, Kamprad was an enterprising individual
who even as a boy sold small items like matches and Christmas cards to his neighbours. He came
up with the name IKEA by combining his initials (IK) with the first letters of the name of the farm
and village in which he grew up (Elmtaryd, Agunnaryd). At first, IKEA was a vehicle for Kamprad’s
trading and mail‐order activities. He added furniture to his product lines in 1947, mainly by accident,
but quickly recognised that there was a growing demand in post‐war Sweden for inexpensive household
goods. Owing to problems with Swedish manufacturers, the company started to procure furniture from
Poland and found this to be a cost‐effective strategy. By 1951, Kamprad had decided to focus exclu-
sively on furniture and the first IKEA showroom was opened in Sweden in 1953 to allow mail‐order
customers to establish the quality of the items they were ordering by seeing and touching them. In 1955,
the company started designing its own products and a few years later opened retail stores.
The company offered well‐designed, stylish items that drew on Swedish design traditions at inex-
pensive prices. Costs were kept down by designing furniture with a target price in mind. Furniture was
flat‐packed to minimise transportation costs, assembled by the customer to keep operating costs low and
production was sourced from low‐cost locations. IKEA became known for its cost‐minimising approach
and its associated capabilities in cost‐efficient design, sourcing and logistics. Kamprad, reflecting on his
upbringing in a Southern Swedish farming community, placed a high value on thriftiness and morality
and shaped IKEA’s culture accordingly. The company’s stated mission was to ‘offer a wide range of
well‐ designed, functional home furnishing products at prices so low that as many people as possible
will be able to afford them’2 and co‐workers were recruited as much on the basis of their values and
beliefs as on their experience and skills. In 1976, Kamprad published his manifesto, The Testament of a
Furniture Dealer, which contained slogans like ‘expensive solutions to any kind of problem are usually
the work of mediocrity’; in many respects this document represented the credo of the company.3
The pattern of IKEA’s internationalisation
The company’s forays into international markets began first by opening stores in other Scandinavian
countries but the company quickly moved farther afield. In the early years, the formula for international
expansion was a simple one. The company identified markets with the potential for high sales vol-
umes and then purchased cheap land on the outskirts of a big city to establish a base. A tight‐knit team
of trusted and experienced Swedish managers relocated to the country in question and supervised the
building of the new store, led the operational team and ran the business until it was deemed mature and
could be handed over to local managers. Once a beachhead was established, IKEA tended to cluster fur-
ther stores in the same geographical area.
In its first phase of internationalisation, IKEA entered new markets by keeping its product catalogue
and its management processes the same. There were sometimes minor adjustments to items to reflect

CASE STUDY 4  595

national differences, for example standard bed sizes tended to differ between countries, but the over-
whelming majority of the products sold by IKEA were common across countries. The Swedish roots of
the company were celebrated as a source of distinctiveness not only in the design of the firm’s products
but also in its management style. Managers across the organisation were strongly encouraged to adopt a
Swedish, open and non‐hierarchical management style because Kamprad felt that this mode motivated
employees and had universal appeal. A pragmatic problem‐solving style and egalitarian approach to
decision making became the cornerstone of IKEA’s unique culture and was referred to by the founder
and his team as the ‘IKEA way’.4

An IKEA store in Melbourne, Australia.

The challenges of internationalisation

As the company moved further from its Scandinavian base and became more dependent on overseas
­operations, the pressure for the company to be more nationally responsive grew. One of IKEA’s first
­challenges came when it entered the US market. The company expected its standard range to sell as well
as it did in Europe but instead faced some unexpected problems. IKEA executives were, for example,
initially perplexed by the number of vases they were selling until they realised that Americans were
buying vases to drink from rather than put flowers in because European style glasses were too small for
American tastes. Conversely, IKEA’s first forays into Japan were unsuccessful, partly because its furniture
products were viewed as too large to fit into small, Japanese living spaces. While recognising the need
to adapt some of its products to local demands, IKEA’s low‐cost business model depended on the high
volume sales that came from standardisation. The IKEA headquarters team recognised the need for some
country‐specific adaptations and made it possible for area managers to put forward suggestions, but to
achieve economies of scale, the extent of adaptation was limited to 5–10 per cent of the product range.

596  Management
 As well as adapting the company’s product lines, there was also pressure to adapt the management
style. The democratic approach to management characteristic of Swedish organisations was not per-
ceived universally to be as favourable as the top team expected.
Grol and Schoch, for example, point out that in Germany Swedish management was considered pecu-
liar.5 Older workers felt uncomfortable calling managers by their first names and employees, in general,
disliked the lack of formality. Similarly, in France, rather than seeing IKEA’s flat organisation structure
as enabling, many employees saw it as stripping them of status and removing opportunities for pro-
motion. The fact that the key decision‐making and training centres were located in Sweden (and required
managers to be fluent in Swedish) made it very difficult for non‐Scandinavians to progress to the higher
echelons of management.
IKEA faced a different set of challenges in Asia, particularly when it entered the Chinese market.6
The company had always positioned itself as a low‐cost provider, but in China it was seen as an expen-
sive brand by its target market of young professionals. Import duties and exchange rate fluctuations
made it difficult for IKEA to compete with domestic furniture producers on cost and IKEA’s designs
were quickly copied and prices undercut by local producers. China had huge market potential for IKEA
because its population was growing more affluent and home ownership was increasing rapidly, but it was
very difficult to maintain a low‐cost market position in this environment. Faced with this dilemma, IKEA
chose to maintain its competitive positioning and cut its prices significantly, with some of its products
selling at prices 70% lower in China than in other countries. The decision to sacrifice short‐term profits
in order to gain a foothold in the market and achieve long‐term growth seemed to pay off: 12 years after
its initial entry, IKEA’s Chinese retail stores began to show a profit.
The move into Asia also highlighted for IKEA the fact that one size did not fit all in other aspects
of its strategy. In Europe and the US, most customers used private transport to get to IKEA stores,
but in China the majority of customers used public transport. As a result, IKEA had to alter its
location strategy, situating its retail stores near rail and metro hubs on the outskirts of cities rather
than opting for more out‐of‐town sites. Similarly, the company had to adapt its environmental
strategy. Like many other European retailers, IKEA sought to improve its green credentials by
charging for plastic bags and requiring its suppliers to provide environmentally friendly products.
The majority of Chinese suppliers were unable to provide products that met IKEA environmental
standards and, rather than welcoming IKEA’s environment‐friendly approach, price‐sensitive Chinese
customers were irritated by charges for plastic bags. Consumers in China were unfamiliar with the
concept of flat‐pack furniture, did not own the tools necessary for assembling flat packs and lacked
the means of transporting furniture to their homes. IKEA, inadvertently, created a new industry com-
prised of enterprising individuals who set up a business delivering and making up IKEA furniture.
Unfortunately for IKEA, this also created the impression that there were hidden charges associated
with the purchase of their products.
Internationalisation has presented IKEA with challenges but it has also opened up opportunities for
innovation and learning. While much of the information flow within IKEA is from the headquarters to
the stores, knowledge also flows in the reverse direction. The centre issues retail stores with detailed
instructions about operating practices that need to be copied exactly, including how stores should be
laid out, how the IKEA catalogue should be presented, what the product range should contain and
what colours bags and staff uniforms should be, but operatives are also encouraged to explore new
work methods and new product ideas. For example, the layout of each IKEA store needs to include
the presentation of five living rooms for customers to view but the specific content and design of
those rooms can be tailored to local tastes. New ideas emanating from employees are passed first to
the service office in the relevant store, then to the service office in the relevant market and finally
to the global service office. At each stage, new ideas can be rejected or passed on but, in all cases,
the rationale for acceptance or rejection is articulated via the company’s intranet. A formal system
of store audits monitors individual stores’ adherence to the IKEA concept but also identifies good
practices and new ideas that are shared across the organisation. Expatriates play an important role

CASE STUDY 4  597

as mentors and, when IKEA enters a new country, co‐workers are sent to other countries to learn
about IKEA.
IKEA, like most other multinationals, struggles to balance global and local pressures but, over time,
has found ways of replicating its core business model and operating practices in flexible ways.

QUESTIONS
1. Porter’s diamond model explains why some nations have an international competitive advantage with respect
to particular industries. Does IKEA gain a competitive advantage from being Swedish? If so, how?
2. List five pros of IKEA globalising its supply chain.
3. IKEA has attempted to standardise its stores, product range and management practices in all the countries in
which it operates. List some drawbacks of such an approach.

ENDNOTES
1. IKEA 2015 Yearly Summary, ‘Reports & Downloads’, IKEA, www.ikea.com.
2. ‘The IKEA Concept’, IKEA (2014), www.ikea.com.
3. Ingvar Kamprad, ‘The Testament of a Furniture Dealer’, IKEA (1976), www.ikea.com.
4. I. Kamprad and B. Torekull, Leading by Design: The IKEA story (New York: HarperBusiness, 1999).
5. P. Grol and C. Schoch, IKEA: Culture as competitive advantage (Paris: Group ICPA Case Study, 1998).
6. See, for example, P. Girija and S. Chaudhuri, IKEA in China: Competing through low‐cost strategies (IBSCDC Case
Study, 2006).

ACKNOWLEDGEMENT
Photo: © Nils Versemann / Shutterstock.com

598  Management
CASE STUDY 5
The IT industry: who says there’s no such thing as a
free lunch?
In BRW’s ‘Best Places to Work in Australia: 100 or more employees’ list for 2015, nine of the top
25 spots were filled by an IT company. Atlassian headed up the list in first place, with Adobe Systems,
NetApp Australia, Autodesk Australia, Distribution Central, SAS Institute, InfoTrack, Odecee Pty Ltd
and EMC Australia also making the cut.1 Information technology companies’ saturation of the cov-
eted employers list occurred despite less than 2 per cent of Australia’s workforce being employed in
IT-related roles as at February 2016.2
Atlassian can boast single-digit staff turnover,3 and the company’s HR Business Partner Kelly Kirby
credits their high employee engagement with Atlassian’s focus on employee job satisfaction and making
sure people are doing meaningful work. Here is how she describes attracting and retaining the very best
people, and keeping them motivated during their time with company:

We have a wonderful experience team who create events all the time for us as a company, so we have a
big annual event; we have Thank God it’s Friday events, just to celebrate and do something fun; and we
also have random, irregular ‘sillybrations’. It might be National Beard Day or National Dr Seuss Day
. . . you might get a little gift on your table just to say, ‘Hey it’s National Rubber Ducky Day, here’s
a rubber duck’. So there’s lots of fun interspersed throughout the company at any given time which
contributes to motivation and engagement… Whilst we’re doing the celebratory parties and special
events, we also have on a regular basis in each of our offices wellness programs, so we provide Pilates
classes, yoga classes, we have boot camp classes; so we’re trying to make sure we have something for
everyone.4

Atlassian’s office in Sydney also has a billiard room, a fully stocked kitchen with free meals and
snacks for all employees, beers on tap after hours and a chocolate-filled skill-tester. Given the demand
for IT workers far exceeds the supply of qualified applicants, such perks communicate to employees that
their companies value them and wish to retain them.
Why do IT companies like Atlassian focus so heavily on looking after their people? According to
some, it is essential for IT companies to recruit, select, develop and retain the very best employees who
suit this kind of work, since having great people is the key to creating and maintaining a competitive
advantage in the dynamic IT sector. Consider two employees of Google Australia, for instance, which
won the prestigious Best Place to Work title in 2011 and won third place in 2012.5 Leticia Lentini
joined Google when the company’s Australian office had only 17 employees. After ten interviews, she
moved from roles in recruitment and payroll until she became Google’s ‘events magician’ — tasked
with the responsibility of ensuring that Google’s many events, from sales presentations and seminars
to product launches, go off without a hitch.6 James McGill, a programmer at Google Australia, says of
his job:

What we do every day at work is genuinely difficult, the problems we solve are really interesting and
every conversation I have at work is fascinating. That’s what’s so great about coming to work, everyone
is so interesting to talk to.7

It is clear from this quote that McGill’s social needs are being met (well, being more than met!),
and his self-esteem is being generated at a great rate as he reflects on working at such a great company
with wonderful, ever-fascinating colleagues. It is also clear that James is deep into self-actualisation —
because he’s convinced that he works in the best job in the world.

CASE STUDY 5  599

Atlassian designs and distributes t-shirts in honour of special events; some of these are displayed proudly in
their Sydney office.

What about some of the other IT companies on the list? While IT staff often work ridiculously long
hours with real intensity, fast-growing IT companies tend to be characterised by relatively informal
workspaces and provide many perks for the services of the employees — for instance, healthcare sub-
sidies, free massages, additional time for leave, games rooms and free food. Adobe has a heavy focus
on employee health and wellbeing as part of their incentive package, providing on-site health seminars,
wellness competitions, flu vaccinations and free healthy snacks. Autodesk does not limit the number of
sick days an employee uses in a given year, instead trusting their workers to use their sick leave in a
responsible manner.8 InfoTrack provides free breakfast, gym memberships, massages and arcade games
for employees, with their chairman noting, ‘take care of your staff, and your staff will take care of your
customers’.9
Arguably, it is much easier for the Atlassians and the Googles of this world to offer such bounty to
their staff. When a company is established from scratch, its leaders have a huge amount of freedom to
design the workspaces that they want; create the reward systems and values that express their desired
culture; and, where they achieve rapid profitability or have money to invest, pay their people attractively
and provide all sorts of perks that most organisations could never afford to. Does this make the IT com-
panies exemplars of best practice in motivating and rewarding people, or does it make them outliers and
exceptions that are worth a quick look but little else — because, quite simply, the rest of the world just
doesn’t work like that?
After all, doesn’t everyone want to work at an organisation that looks great, has a sense of fun, goes
out of its way to look after them and makes them feel that they are contributing to something greater
than themselves? If they are not in the highly profitable IT sector, how can today’s managers and leaders
even begin remaking their organisations in these ways?

QUESTIONS
1. Do you agree that the IT companies described in this case study have lessons for every organisation? If so,
what are these lessons?

600  Management
2. In sectors such as government (also known as the public sector), managers have relatively little room to move
in providing the kinds of perks discussed in this case study. What else can they do to make their workplaces
more attractive and motivating?
3. Can you see any hidden dangers or traps in the happiness that James McGill expresses about his life at
Google? List and describe two or three of the potential downsides to James’s view of work.

ENDNOTES
1. ‘Best Place to Work 2015 — Over 100 employees’, Australian Financial Review (3 March 2016), www.afr.com.
2. ‘Employment by industry statistics: a quick guide’, Parliament of Australia (14 April 2016), www.parlinfo.aph.gov.au.
3. ‘Where You Wish You Worked: Inside Atlassian’s Sydney Offices’, Kochie’s Business Builders (12 October 2014),
www.kochiesbusinessbuilders.com.au.
4. K. Kirby interviewed by Beth Klan for ‘Practitioner Speaks’, Human Resource Management 9e (23 March 2016).
5. ‘The list: Australia’s Top 50 employers 2012’, Australian Financial Review (20 June 2012), www.afr.com.
6. Jeanne-Vida Douglas, ‘No Need for Algorithms, She’s a Google Magician’, Business Review Weekly (23 June–3 August 2011).
7. ibid.
8. ‘It really is all about you: total rewards program’, Autodesk (2005), www.autodesk.com.
9. ‘InfoTrack — A Day in the Life’ Video, InfoTrack (4 November 2014), www.infotrack.com.au.

ACKNOWLEDGEMENT
© John Wiley and Sons Ltd

CASE STUDY 5  601

CASE STUDY 6
Quality can endure despite environmental shocks
Strategic capabilities are very difficult to imitate, better than the majority of the competition, and of
excellent value to customers. Six generic strategic capabilities are quality, visionary leadership, inno-
vation, staff with good technical skills, differentiated products or services, adaptability and flexibility.1
Three crucial dynamic capabilities are flexible leadership, flexible organisational culture, and strategic
thinking about the big-picture and the long-term — which enable an organisation to reconfigure its
resources quickly in uncertain economic times.2 This is particularly well demonstrated by the Mercedes
car group in their production of the legendary Mercedes Benz vehicles.

Over a period of about 120 years, Mercedes has consistently developed and manufactured vehicles that
are recognised all over the world as quality products par excellence.3 Having focused on the strategic
capabilities of innovation, technical knowledge and quality,4 the Mercedes Benz is considered to be in
the forefront of engineering, technology, comfort and safety. Its trademarked emergency sensing brake
assist and electronic stability program are designed to keep the occupants out of harm’s way. Further-
more, it is so strongly differentiated through branding that it is really hard to imitate, with the brand
having achieved folklore status. A Mercedes was gifted to Nelson Mandela on his release from prison,
and the name was even eulogised by the late Janice Joplin in a song entitled Mercedes Benz. In the
film The Rookie, Clint Eastwood referred to a Mercedes Benz as a precision-engineered vehicle after
escaping unscathed from a major crash. Notwithstanding the efficacy of their products, competing cars
produced by BMW and Lexus are still not spoken of in the same breath as Mercedes Benz, despite the
fact that it is an expensive vehicle.5

602  Management
 In the boating world, Haines Marine Industries is a family business in south-east Queensland that
produces the Haines Signature range of runabouts and cabin cruisers. It has been doing this for almost
60 years. These boats are known among small power craft operators as the ‘Mercedes Benz of boats’.
Compared to its competitors in Australia, Signature boats are much more aesthetic, and have better
instrumentation and hatches, more comfortable seating and superior finishes. More importantly, the Sig-
nature range is differentiated by a trademarked variable deadrise hull. This hull is the result of enter-
prising work by highly skilled and creative staff in the research and development team committed to
producing the most innovative and finest quality trailerable boat in the industry.
By definition, the variable deadrise hull is impossible to imitate, but this special feature also makes
the craft so stable that small five-metre boats are able to operate in the shipping lanes and submarine
channels off Australia’s coast. Measures of the Signature’s success are 15 ‘Boat of the year’ awards,
including three such awards in 2007 alone from the Australian Marine Industry Federation; and, incred-
ibly, a successful sea crossing of a 5.5-metre Signature from Australia to Japan. This has also differenti-
ated the boat, giving it a brand name that is almost impossible to imitate — just like Mercedes. Also like
the Mercedes Benz, it is relatively costly — but its strategic capabilities conduce in the end to a quality
product that can override price considerations and recessionary conditions.6
It’s not only ‘traditional’ businesses that are differentiated and adapt well to exigencies. AC/DC is an
Australian hard rock band that has experienced enduring popularity around the world since it was formed
in 1973. When the lead singer Bon Scott died prematurely in 1980, he was replaced by Brian Johnson who
slotted into the group seamlessly — meaning that the fans did not have to adapt to a new ‘sound’. Not only
does the band comprise outstanding musicians and songwriters, but their lead guitarist and sole constant
member, Angus Young, is known around the world for his trademark school uniform and duckwalk.
The band’s Black Ice concert tour of 2008–10 was seen by almost five million people around the
world, grossing almost half a billion dollars in revenue. AC/DC merchandise branded with the band’s
logo remains hugely popular, and not just at their concerts. Stubby coolers, beach towels, key rings,
clothing, action figures and even board games all form a part of the familiar AC/DC global brand. In
addition, the band’s online fan club — which includes access to advance concert tickets and exclusive
merchandise — demonstrates how a band from the 1970s has been able to adapt to changing technol-
ogies in order to remain current for fans both young and old, while retaining its trademark ‘sound’.7
There are many smaller Australian businesses and enterprises that also adapt or reconfigure in the face
of turbulence and/or provide outstanding services or products, delivered with care to their customers.
Word-of-mouth recommendations and reviews on social networking sites serve to assist in maintaining
business through economic challenges. Such small businesses can often provide superior service that is
rendered for a price less than that of their larger competitors because overheads are comparatively lower.
Even in instances where small businesses are more expensive than large enterprises, they are often able
to withstand tough economic conditions due to positive referrals (with the ability to receive a more ‘per-
sonalised service’ often a deciding factor for consumers).
On the other hand, not all businesses are successful at adapting to changing times; for example, think
of a shop, office or restaurant where you’ve seen a ‘staff wanted’ sign displayed in the window. There
are so many more effective methods of recruiting even casual staff, like posting an ad on Seek.com.au
or LinkedIn; and yet, these businesses are relying on the right candidate walking past and glancing in.

QUESTIONS
1. What elements of the general environment would have most impact on Mercedes cars and Haines Signature
boats?
2. What do you feel the cultures of these companies would be like?
3. What strategic and dynamic capabilities would you imagine these companies and the band possess in order
to keep ahead of the competition and thrive in changing economic environments?
4. What are some businesses that you know of that haven’t been able to keep up with fast-paced environmental
change? Why?

CASE STUDY 6  603

ENDNOTES
1. Simon, Kumar, Schoeman, Moffat and Power, op. cit.
2. Alan Simon, ‘Resources, Dynamic Capabilities and Australian Business Success’, Journal of Global Business and Technology,
vol. 1, no. 2 (2010), pp. 12–31.
3. Information from www.mercedes-benz.com.au.
4. Simon, Kumar, Schoeman, Moffat and Power, op. cit.
5. Information from www.mercedes-benz.com.au.
6. Information from www.signatureboats.com.
7. Tara Brown, ‘Dirty Deeds’ [transcript], Sixty Minutes (22 May 2009), sixtyminutes.ninemsn.com.au.

ACKNOWLEDGEMENT
© Art Konovalov / Shutterstock.com

604  Management
CASE STUDY 7
Nespresso
Nespresso is the brand name of a coffee brewing system developed in the late 1970s by Nestlé, the
multinational food company founded and headquartered in Switzerland. Nespresso allows consumers
to brew high‐quality coffee at the push of a button by placing hermetically sealed, aluminium covered,
coffee capsules into a specially designed machine. While the idea sounds simple, the technology behind
Nespresso is, in fact, complex because it requires air and water to be passed through ground coffee at the
right temperature and pressure. At the time of its development, Nespresso constituted a major departure
for Nestlé from its core operations that were based on the large‐scale production and mass marketing of
food products. In the late 1970s Nestlé’s presence in the coffee market centred on instant coffees with
products like Nescafé accounting for 80 per cent of its revenue from coffee sales.
Early development
The original technology underpinning Nespresso was developed by the Battelle Institute, an independent
research organisation based in Geneva,1 but Nestlé acquired the rights to develop the idea commercially
in 1974 and went on to file a large number of patents on the product.2 Camillo Pagano, who was at that
time the senior executive in charge, felt that the product had potential despite the fact that sales in the
coffee market were sluggish. At the time, the gourmet coffee market was beginning to expand and Nestlé
saw Nespresso as a vehicle by which it could expand coffee sales by moving into the restaurant market.
Many of Pagano’s colleagues were sceptical about the innovation, questioning whether Nespresso could
be commercialised and expressing concern about the amount of time and effort that would be taken up in
launching such a niche product that had a poor fit with Nestlé’s mainstream operations. Pagano felt that
in order to flourish the Nespresso project needed to be taken outside of Nestlé’s day‐to‐day operations
so, in 1984, he established Nespresso as a separate company (100 per cent owned by Nestlé) which was
free to develop its own marketing, operations and personnel policies.
Nespresso developed its system in conjunction with a number of partners: it collaborated with a Swiss
company to improve the design of the machines; it licensed the manufacture of the machines to Turmix,
a Swiss domestic appliance manufacturer; it partnered with Sobal, a distributor, to sell the product to
end‐users. The Nespresso system was launched in 1986 in Italy, Switzerland and Japan but the product
flopped. By the end of 1987, only half the machines that had been manufactured had been sold and
without sales of machines there could be no sales of the specially designed capsules. It looked very
likely that Nestlé headquarters would kill off the project but it was decided to give it a further chance by
bringing in an outsider to see whether a turnaround could be achieved. The person selected for this role
was Jean‐Paul Gaillard, a former executive with Philip Morris, the tobacco company.3
The turnaround
Rupert Gasser, head of research at Nestlé, described Gaillard as ‘ambitious and strong headed. He
wanted to do something outstanding. [Gaillard] had personality; he was a force. And importantly, he did
not carry all the trappings of the company history.’4 Gaillard made a number of changes, the most impor-
tant of which were as follows.
•• Changing the customer focus. Gaillard reasoned that the Nespresso system was more suited to the
household than the restaurant market. Although his intuition was not supported by explicit market
research, market trends in the late 1980s pointed in that direction. Gaillard’s strategy was to target
high‐income households and, in line with that strategy, he sought to ensure that the coffee machines
were retailed through high‐end stores.
•• Establishing a direct channel to the end‐users through the establishment of Nespresso Clubs. Selling
Nespresso coffee capsules through supermarkets did not fit well with the exclusive brand image Gaillard

CASE STUDY 7  605

 wished to create, and so he had the idea of establishing the Nespresso Club. When households bought
a machine, they automatically became members of the Club that offered around‐the‐clock ordering of
coffee capsules, prompt delivery of orders and advice on coffee making and machine maintenance. The
Club had the additional advantage of providing the company with up‐to‐date customer information.
•• Positioning the brand at the top end of the market. The company developed partnerships with kitchen
appliance makers such as Alessi, Krups, Magimix and Philips to produce well‐designed machines sold
through upmarket retail outlets.
By the time Gaillard left Nespresso in 1996, sales had taken off and there were 220 000 club members
across Europe.
After Gaillard’s departure, Nespresso continued to grow as it expanded geographically, extending its
target market into small offices and businesses, while widening its range of coffee capsules. The range
of machines was increased to offer a number of sophisticated design options and the company opened
a number of retail outlets – Nespresso boutiques – that sold coffee‐related paraphernalia as well as the
Nespresso system. Augmenting a marketing campaign that relied heavily on social media, Nespresso
launched a long‐running and successful television and billboard advertising campaign featuring George
Clooney to further promote the product. By 2014, Nespresso had estimated annual sales of SFr 4 billion
(A$5.3 billion), margins on earnings before interest and tax (most of which came from pods rather than
machines) of more than 30 per cent and accounted for around 8 per cent of Nestlé’s total operating profit.5
More recent challenges
As might be expected, the success of Nespresso paved the way for new competitors to enter the market.
Despite having more than 1700 patents on Nespresso capsules and machinery, more than 20 years had
elapsed since the product was first developed and early patents were beginning to expire. In addition, the
product had proved relatively simple for new players to re‐engineer without infringing Nestlé’s patents.
Nonetheless, Nestlé had built a strong brand and was the global market leader in 2014 (Table 6.4). In the
US however, Keurig Green Mountain and its Keurig K‐Cup system dominated the market, along with
several other players, including both Starbucks and Walmart. In 2014, Nespresso launched its Vertuo-
Line range designed to make the larger coffee servings preferred by Americans.

TABLE CS.1 Suppliers of single‐serve coffee systems

Parent company Brand Estimated global market share in 2014 (%)

Nestlé Nespresso 35

Sara Lee Senseo 18

Keurig Green Mountain Keurig (K-Cup system)  8

Kraft Tassimo  8

The bulk of the profit from single‐serve pod coffee makers came from selling capsules rather than the
machines themselves and this opened up a second route for new entrants. A number of companies, including
one set up by Nespresso’s former head, John‐Paul Galliard, started selling substitute coffee pods for Nes-
presso machines. Nestlé robustly defended its property rights but in a landmark case in 2013 the UK High
Court ruled that Dualit, a UK manufacturer of small domestic appliances, had not infringed Nestlé’s patents
by making substitute capsules for its Nespresso regime. Similar rulings followed in test cases in other Euro-
pean countries with significant repercussions for the viability of Nespresso’s business model.
Nespresso and other makers of pod coffee machines also found themselves under increasing pressure
from environmental campaigners, who highlighted the fact that capsules were difficult to recycle and
added to waste and environmental damage. Nespresso launched a recycling campaign allowing consumers
to return the single‐use aluminium containers in special bags but this did little to dampen criticism.

606  Management
 By 2014, Nespresso was faced with a number of dilemmas with regard to its future direction. Could
it sustain rapid growth in the face of increasing competition? Was it possible for Nespresso to retain and
develop its exclusive image or should it move downmarket to increase its target market? Should Nestle
re‐integrate Nespresso into its mainstream organisation to stimulate a new wave of innovation?

QUESTIONS
1. What insights into the innovation process can be gained from this case?
2. The Nespresso innovation took more than 20 years to come to fruition. How would you account for the slow
commercialisation of this product?
3. Nespresso’s patents have not prevented competitors from offering coffee pods which fit Nespresso machines.
How big a problem is this for Nespresso?
4. Do you think that Nespresso has a sustainable competitive advantage? What suggestions would you make to
Nespresso’s management regarding future strategy?

ENDNOTES
1. J. Miller, Innovation and Renovation: The Nespresso story, ‘Case 543’ (Lausanne: IMD, 2003).
2. ‘Nespresso’, Wikipedia (26 September 2014), www.wikipedia.org.
3. Jean‐Paul Gaillard is referred to as Yannick Lang in the IMD case, see P. Silberzahn, ‘Nespresso: Victim of low‐end disruption?’,
Philippe Silberzahn Wordpress Blog: The Management of Innovation (13 April 2010), philippesilberzahneng.wordpress.com.
4. Miller, op. cit.
5. J. Shotter, ‘Nespresso brews plans to see off rivals’, Financial Times (1 January 2014); L. Ludes, ‘Nespresso’s bitter taste of
defeat’, Financial Times (24 April 2013).

ACKNOWLEDGEMENT
Photo: © Leonard Zhukovsky / Shutterstock.com

CASE STUDY 7  607

CASE STUDY 8
A flood of decisions
The management of water supply in south-east Queensland over the last decade provides an interesting
example of engineers working in new and rapidly changing contexts. They have had to manage their own
time, set priorities, and learn to operate the water supply and flood mitigation systems during periods of
extreme weather conditions: firstly, during long periods of drought between 2001 and 2009, when the
combined water storage in the region’s three largest dams dropped to less than 17 per cent; and then over
the 2010–11 summer, when record-breaking rainfall events were experienced.1
The largest dam in the system, Wivenhoe Dam, was built by the Queensland government following
the devastating Brisbane flood in 1974. The dam was designed to augment Brisbane’s water supply and
to protect the city from similar flood events in the future. It holds 1 165 000 megalitres (ML) when its
water supply compartment (i.e. its base capacity) is at 100 per cent, and a further 1 420 000 ML when
its mitigation compartment (i.e. its top-up capacity) is at 100 per cent.2 Thus, the dam’s total capacity is
2 585 000 ML. The flood mitigation compartment is designed to temporarily store upstream floodwaters
and then release that water in a controlled manner to minimise flows in the Brisbane River, and thus
minimise downstream flooding in Brisbane and Ipswich. The personnel who manage the dam are, under
Queensland legislation, required to follow the operating manual to avoid any liability for losses resulting
from water releases from the dam. Because approximately 50 per cent of the Brisbane River catchment
lies below Wivenhoe Dam, the dam can only be used to mitigate floods, not prevent them.
During 2010, the controlling weather pattern shifted from El Niño to La Niña, resulting in increased
rainfalls and, in some areas, record-breaking rains. There had been celebrations in April 2009 when
Wivenhoe Dam reached 40 per cent capacity and water restrictions were relaxed. However, many people
did not believe the drought was over until the dam reached 100 per cent of its water supply capacity on
4 October 2010 and the flood gates were opened for the first time since 2001.3 By the end of December
2010, the dam was at 102 per cent capacity, and the catchment was saturated following record rain-
falls during the month. At 12.26 pm on Wednesday 5 January 2011, operations personnel at Brisbane’s
Wivenhoe Dam received a timely alert from Wivenhoe Dam engineering officer Graham Keegan. It was
entitled ‘Bureau of Meteorology (BOM) severe weather warning — dam flood operations’, and warned
that significant rainfall of 100 mm to 200 mm ‘may occur during the next few days’ and that:

Somerset and Wivenhoe Dams are still above (full supply level) and rising slowly due  to  continuing
base-flows from their catchments. As the catchments are still wet it is likely that we will be releasing
floodwaters in the near future if BOM’s forecasts are accurate. Please be prepared. We will keep you up
to date with our plans as this event develops.4

Instead of draining the dam’s flood compartment as the waters rose with the heavy rainfall on
9–10 January 2011, the water levels were permitted to rise, eroding the dam’s capacity for flood storage.
This delay resulted in an emergency release of water on 11 January when the levels got so high that
they threatened the stability of the dam. Prior to this, the government advised the residents of south-east
Queensland that the release of this water into the Brisbane River, together with the peak flows from
Lockyer Creek and other tributaries, would lead to severe flooding in Brisbane and Ipswich on Thursday
13 January. The rest is history and, although the flood did not reach the 1974 peak, it caused enormous
damage to both cities.
In the following week, the government established the Queensland Floods Commission of Inquiry to
report on, among other matters, flood modelling and warning systems, the operating manual, and the
management of Wivenhoe Dam and other flood mitigation systems. The Commission’s report found that
the dam was operated in breach of the manual over 8 and 9 January, and one of its 172 recommendations
was that the Crime and Misconduct Commission should investigate the documents prepared by three

608  Management
of the four approved flood engineers and their oral evidence.5 Clearly, over the last decade the water
engineers working for south-east Queensland water authorities have learnt to manage the infrastructure
at both ends of the climate spectrum. During the long periods of drought, they learnt to manage dwin-
dling water supplies across the region and advised government on the strategies that could be used to
guarantee water supplies should the drought continue into the future. To do this, they would have used a
range of rainfall and water use patterns to develop and analyse the different scenarios. They would have
then advised the relevant government and water supply agencies about water restriction policies and
their implementation.
They would have also managed decreasing water levels and the large tracts of land that emerged
as water levels dropped in Wivenhoe and other dams. In late 2010, the system moved to the other
extreme, and the management focus switched from water supply to flood mitigation. In the first week of
January 2011, the Wivenhoe operations team were managing a system that had reached critical levels.
John Truman, national president of the Institute of Public Works Engineering Australia, highlighted the
lessons that could be learnt from the many flood events that occurred over the 2010–11 summer:
The scale of these events will provide many lessons and new information. These lessons will be at each
of the individual local areas that have been affected and they will also be at the broader engineering pro-
fession level where standards and policies will need to be reviewed.6

The management of Wivenhoe Dam during the south-east Queensland floods demonstrates the importance of
accurate information in the workplace.

Generally, good decisions are consultative decisions, but when is consultation finite, and who decides
that? For example, former Queensland Water Minister Stephen Robertson was briefed in October 2010
by the Bureau of Meteorology that the impending wet season would be ‘unusually intense’. He then
sought advice from the water grid manager, who had no direct role in managing the dams — but not
from the government department responsible for flood mitigation and dam safety. In March 2012, the

CASE STUDY 8  609

Flood Commission handed down its findings, which included a recommendation that the Crime and
Misconduct Commission (CMC) investigate the conduct of the dam operators.7
In August 2012, the CMC ruled that the engineers concerned had, in fact, acted appropriately in the
stressful situation. The Commission also found that some of the information presented in the dam’s
operating manual was contradictory, which meant that there was little evidence of misconduct by the
engineers themselves.8 This presents a perfect example of the importance of clear, consistent and accu-
rate information in the workplace, which serves to aid the decision-making processes of both staff and
management.9

QUESTIONS
1. What information sources (or potential information sources) could have been used to assist with the decision-
making process for Wivenhoe Dam in this case?
2. With reference to decision-making theory covered in the chapter, describe the type of managerial decision-
making evident in this case, and the conditions under which decisions were made.
3. Evaluate the decisions made in the case in relation to the classical, behavioural and judgemental heuristics
approaches to decision-making that are outlined in the chapter. Which model do you believe best describes
the situation and subsequent decision-making process in this case? Justify your answer.

ENDNOTES
1. SEQWater, Historical dam levels, www.seqwater.com.au/public/dam-levels.
2. Queensland Floods Commission of Inquiry, Interim Report (2011), p. 39; see www.floodcommission.qld.gov.au.
3. See SEQWater, op. cit.
4. H. Thomas, ‘The Great Avoidable Flood: An Inquiry’s Challenge’, The Australian (22 January 2011), www.theaustralian.com.au.
5. Queensland Floods Commission of Inquiry, Final Report (2012); see www.floodcommission.qld.gov.au.
6. Engineers Australia, ‘Learning from the floods’, Engineers Australia Magazine, Civil Edition (February 2011), pp. 30–1.
7. See Queensland Floods Commission of Inquiry (2011 and 2012).
8. Bridie Jabour, ‘CMC Clears Wivenhoe Dam Engineers’, Brisbane Times (21 August 2012), www.brisbanetimes.com.au.
9. This case study was adapted from David Dowling, Anna Carew and Roger Hadgraft, ‘Self-Management: Introduction’,
Engineering Your Future: An Australasian Guide, 2nd edn (Milton: John Wiley & Sons, 2012); and Jack Wood, Rachid Zeffane,
Michele Fromholtz, Retha Wiesner, Rachel Morrison and Pi-Shen Seet, ‘Dealing With a Flood of Decisions, Organisational
Behaviour, 3rd Australasian edn (Milton: John Wiley & Sons, 2012).

ACKNOWLEDGEMENT
Photo: © Markus Gebauer / Shutterstock.com

610  Management
CASE STUDY 9
Scenario planning at Royal Dutch Shell
On 16 October 1973, a great oil crisis began when Organization of Petroleum Exporting Countries
(OPEC) raised the price of oil by 70 per cent and reduced production. This was in response to the
decision by the United States to re-supply the Israeli military during the Yom Kippur war, lasting until
March 1974. As a consequence, the market price of oil rose substantially — from $3 a barrel to $12. The
trend of recessions and high inflation in the world financial systems until the 1980s meant that the price
of oil continued to increase until 1986.1 This, according to Shell, meant that ‘An era of cheap energy had
come to an end and oil was no longer a buyer’s market’.2
However, when the oil shock came in October 1973 after the Yom Kippur war, Shell was the only oil
major prepared for it. In the early 1970s, Pierre Wack was a planner in Royal Dutch Shell in London,
and had calculated the impact of a possible rise in the oil price and a likely increase in the world’s appe-
tite for oil. He and his colleagues had mapped out a scenario in which the OPEC demanded much higher
prices for their oil following the 1967 Arab–Israel six-day war. In effect, Shell’s managers were able to
plan for this eventuality and apply this planning to the crisis following the Yom Kippur war while other
oil companies struggled.3
In order to survive, Shell adopted a policy of diversification, branching out into the areas of coal,
nuclear power and metals. Firstly, in 1970 Shell purchased Billiton, an established metals mining com-
pany (which it later sold). In 1973, the company moved into nuclear power by forming a partnership
with Gulf Oil to manufacture gas-cooled reactors and their fuels. Shell’s success in coal was limited. In
the 1970s, the company also continued its work in developing the oil fields in the North Sea. While a
huge investment was required due to the adverse weather conditions and the instability of the sea bed,
the cost was justified due to the sheer size of the oil fields in the North Sea, as well as the fact that
supply from the Middle East was reduced at the time.4
Royal Dutch Shell became a leader in profitability, and continues to use scenario planning as an aid to
opportunity-framing and strategy formulation.5 With the world making commendable efforts to limit its
consumption of fossil fuels in the face of ‘peak oil’ (the time when demand exceeds supply) and increasing
its reliance on wind and solar power, the long-established ‘legacy expectations’ of enduring access to easily
accessible oil remain stubbornly fixed in the minds of both developed and developing nations. Scenario
planning is using careful research inputs to examine the prejudices of policy-makers and the demands of
populations to arrive at sustainable solutions to energy needs, and to avoid the catastrophe of a war over
oil. Is such a crisis likely, or even possible? Consider the following somewhat less conservative analysis.
Firstly, we know that drilling for oil in shallow seas is much safer and less technologically difficult
(and, therefore, less expensive) than deepwater drilling. When, in 2010, the BP Macondo Deepwater
Horizon oil well off the coast of Louisiana blew out and spilled many thousands of litres of oil into the
Gulf of Mexico each day for months before it could be shut down, it created the greatest environmental
disaster in the history of the United States. An immediate two-year ban on deep-sea drilling in the US
gave BP a chance to clear up the damage, although it cost the CEO his job and many people along the
Louisiana coast their livelihoods, as their businesses failed amidst the massive pollution. Some say that
one failure out of the 5000 wells in the Gulf is not an unacceptable risk, but the Macondo rig was one of
the most advanced platforms, operating at the depth limits of deepwater exploration and extraction. Only
about 40 other platforms were so complex. Critics respond that odds like that encourage a much more
cautious regulation to manage the risks involved. In spite of this, oil companies are embarking on ever
more challenging projects, drilling in the Arctic, Russia and the deep waters off Africa.6
Secondly, in the years since Macondo exploded, public opinion has moved towards more opposition
to deep drilling, along with a general push to limit carbon emissions and oil consumption. Our motor

CASE STUDY 9  611

vehicles are increasingly powered by smaller, more efficient engines, and automobile manufacturers
care — committing research and production resources to hybrid power systems and electric propulsion.
The constraints of battery technology are gradually being reduced.

Shell uses scenario planning as an aid to opportunity-framing and strategy formulation.

Thirdly, the discovery of vast reserves of coal seam gas in Australia, China and other countries, plus
the development of commercially viable technology to extract oil from shale deposits in the US and
Canada, is causing a reassessment of the global energy situation. Remarkably, some observers believe
that by 2050 the US could be a net exporter of oil — something unanticipated just a few years ago.
Alternative sources such as solar and wind power are increasingly attractive to many governments, as
profound suspicion about nuclear power in the years after the Fukushima earthquake and tsunami dis-
aster has prompted the shutdown of many nuclear plants worldwide. Where does this leave us?

QUESTIONS
1. If you were a regulator responsible for planning your government’s energy policy, how would you decide on
your priorities? Safety and environmental sustainability would loom large as principles guiding your planning,
but what else?
2. To keep all the variables in play, is there likely to be any better planning approach than scenario planning?
What other planning approach might you investigate?
3. In relation to energy planning, can you compare scenario planning with contingency planning? Which do you
think is most useful, and why?
4. The global agreement on the reduction of climate change forged in Paris in late 2015 carries with it the
responsibility for all participant countries to plan their future energy generation and usage carefully. What are
the obvious questions that will need to be asked at organisation, community and government levels? How will
an organisation begin to contemplate the management of its planning process in relation to climate change
and sustainability?

612  Management
ENDNOTES
1. Daniel Yergin, The Prize: The Epic Quest for Oil, Money, and Power (New York: Simon and Schuster, 2008), p. 587;
David Frum, How We Got Here: The ’70s (New York: Basic Books, 2000), p. 318.
2. ‘The 1960s to the 1980s’, Our History, Shell website, www.shell.com.
3. P. J. H. Schoemaker and C. A. J. M. Van der Heijden, ‘Integrating Scenarios into Strategic Planning at Royal Dutch Shell’,
Planning Review, vol. 20 (1992), pp. 41–6.
4. ‘The 1960s to the 1980s’, Our History, Shell website, www.shell.com.
5. J. Van der Veer, 1ntroduction to Shell Global Scenarios to 2025 (London: Royal Dutch Shell, 2007).
6. Jamie Grierson, ‘BP Still Paying for Gulf of Mexico Oil Spill’, The Independent (31 July 2012), www.independent.co.uk; Sarah
Jane Tasker, ‘BP CEO Tony Hayward to Step Down: Report’, The Australian (21 July 2010), www.theaustraliancom
.au; Guy Chazan, ‘Louisiana Oil Spill Threatens Turnaround Efforts by BP CEO Tony Hasker’, The Australian (3 May 2010),
www.theaustralian.com.au.

ACKNOWLEDGEMENT
Photo: © Nightman1965 / Shutterstock.com

CASE STUDY 9  613

CASE STUDY 10
Sick leave costing employers
Sick leave is leave that employees can take when they can’t attend work because they are sick or injured;
however, the Australian ‘sickie’ originally in work agreements to protect sick workers from pay reduc-
tion has turned into a national pastime without any consequences for the impact that this theft has on
business. Stealing time that you are not entitled to — the sickie — is so entrenched in the work cul-
ture in Australia that it is seen as an entitlement. Employers struggle with the fine line of trust and
betrayal. Should employees need to produce a doctor’s certificate for a missed day? This puts consider-
able pressure on the health system for what could be a genuine sickness — say, a migraine that only
needs sleep and medication. Is this a deterrent for workers if they have to spend half their day going to
the doctor?
According to a 2016 survey by Clipp, Australia Day is the most popular day of the year to take a
sickie.1 In fact, Australia Day in 2016 was projected to cost employers $62 million, as workers gave
themselves an unofficial long weekend ahead of the Tuesday public holiday. It was estimated that more
than 180 000 people nationwide were expected to dial in a sickie.2 A lack of flexibility in an organisation
can cause an increase in the sick leave rate. An employee requesting two hours to go to the dentist
reflects a need, and the time can be made up if permitted by managers. However, refusing this request
could result in a full day off and the lost productivity that entails.
A 2015 Direct Health Solutions survey of 97 organisations, that employ 220 000 employees across
Australia, found that Monday was the most popular days for employees to call in sick, with a whop-
ping 40 per cent of sick days falling on a Monday.3 The same survey estimated that ‘sickies’ are
costing Australian businesses $32.5 billion a year — which equates to an average of $347 per day per
employee. Paul Dundon from Direct Health Solutions says that 6.5 days of sick leave absenteeism
each year is an acceptable level; however, Australians are currently clocking up an average of 8.6 days
per year.
One mid-career consultant from a big-name firm said she took ‘sickies’ that were really ‘stress leave’,
but had never been quizzed over them. ‘I don’t think you’re allowed . . . but I take them’, she says. ‘I
think it makes up for the fact that people do heaps of overtime. It’s overlooked if they are a bit flexible
with their interpretation of sick leave.’
She said sickies in the corporate world were not a big issue, and that the most she had seen taken was
when she was working as a retail assistant. ‘People just don’t show up. They don’t even get paid for it.
Maybe it’s correlated to how dreadful your job is.’
Dundon says that an average of one in every forty workers is off sick on any given day. Conversely, in
some organisations, it can be common for staff to take no, or very few, sick days. Often this is because
employees feel that their work is so urgent that they can’t contemplate having a day off — even when
they are genuinely sick. Dundon’s company offered absentee management, whereby staff are required to
phone a call centre and talk to a nurse rather than phoning in to their immediate manager. It is claimed
that this has halved the levels of absenteeism for some of his clients, as ‘People taking a sickie are more
reluctant to fake it to a kindly nurse on the other end of the phone line’.
The national president of the Australian Human Resources Institute, Peter Wilson, says that a high
level of absenteeism can indicate that something is not quite right in an organisation — such as ‘indus-
trial unrest, job insecurity and redundancies, and bad job design’. Mary Wyatt, an occupational phys-
ician and manager of Return to Work Matters, says sickness absence comes down to management by
individual organisations. She says workers’ perceptions of how they are treated by management can be
an indicator of the likelihood of large amounts of sick leave — as is having a large number of workers
doing the same thing (such as working on a factory line or in a call centre).4

614  Management
 However, sickies are not only an Australian phenomenon; unauthorised absenteeism occurs inter-
nationally. Asia and Africa have the lowest rates of absenteeism, whereas the United States and Western
European countries such as Germany and France have the highest rates, with Australia and New Zealand
falling in the middle.5

Caring for (sick) family members and worker job dissatisfaction are cited by most workers as the
main causes of absenteeism. Some reasons for taking a sickie are far less obvious; for example, an Air
New Zealand employee was sacked because she took a sick day to see a Robbie Williams concert. She
would not have been caught had she not flown from Auckland to Wellington using her staff discount on
the airfare.6 In some countries, legislation supports an employer’s right to request a medical certificate
for the purpose of establishing the genuineness of an application for paid sick leave — even for a single
sick day.7 However, organisational psychologist Dr Peter Cotton asserts that everyone, at some stage,
wakes up in the morning and just doesn’t feel like going to work, for a variety of reasons. Cotton’s belief
is that employers should sanction ‘doona days’ twice a year so that, for those rare mornings, employees
can just put the doona back over their head and not go into work. The belief is that this will help to
reduce stress, particularly in an era where up to 20 per cent of workers in Australia and New Zealand
work more than 50 hours per week.8

QUESTIONS
1. Do you take sickies? Why or why not? Would your perspective change as a manager, as opposed to being an
employee?
2. Many organisations have very generous leave plans for their employees. Do you think that this approach will
ultimately reduce the abuse of sick leave?
3. How do you counter your employee’s statement, ‘It’s part of the Australian culture’?
4. What approaches could managers take to reduce a high sick leave cost to the bottom line?

CASE STUDY 10  615

ENDNOTES
1. Ronelle Richards, ‘Why Australia Day is a favourite for pulling sickies’, Smart Company, (21 January 2016),
www.smartcompany.com.au.
2. Marissa Calligeros and Nick Toscano, ‘Nearly 200,000 expected to chuck a sickie on Monday before Australia Day’,
The Sydney Morning Herald (21 January 2016), www.smh.com.au.
3. ibid.
4. Jason Murphy, Fiona Smith and Peter Roberts, ‘Absenteeism Reflects Sick Organisation’, Australian Financial Review
(7 February 2012), www.afr.com.
5. See www.cch.com.au.
6. ‘Sick worker went to concert’, Dominion Post (9 November 2002), p. A20.
7. For example, Workplace Relations Act 1996 (Cth), Schedule 1A, 1C (1) in Australia.C; Larmer, ‘Doona days’, Sunday
Telegraph (8 May 2005), p. 2; part of this case study was adapted from chapter 2 of Jack Wood, Rachid Zeffane, Michele
Fromholtz, Retha Wiesner, Rachel Morrison and Pi-Shen Seet, Organisational Behaviour, 3rd edition (Brisbane: John Wiley &
Sons, 2012), p. 65.
8. ibid.

ACKNOWLEDGEMENT
Photo: © luckyraccoon / Shutterstock.com

616  Management
CASE STUDY 11
Twitter — rewriting (or killing) communication?
Twitter’s 140-character text-based messages, or ‘Twitter-speak’, permeate everyday life. But questions
about its influence are being asked — by parents, relationship partners, teachers and employers. Is Twitter
reinventing social communication or just abbreviating it? Do tweets create meaningful conversations or
dumb down our abilities to write and communicate effectively, and respectfully, with one another?
Twitter was conceived on a playground slide during a burrito-fuelled brainstorming session by
employees of podcasting company Odeo. Co-founder Jack Dorsey, now Twitter’s CEO, suggested the
idea of using short, SMS-like messages to connect with a small group. ‘[W]e came across the word
twitter, and it was just perfect,’ Dorsey said. ‘The definition was “a short burst of inconsequential infor-
mation” and “chirps from birds.” And that’s exactly what the product was.’1
Dorsey, also CEO and founder of Square, a mobile payments company, developed a working proto-
type based on an instant messaging platform. It was first used internally by Odeo employees, but was
refined and released to the public. Within three months and sensing the magnitude of the invention,
Dorsey and other members of Odeo, including product strategist Evan Williams and creative director Biz
Stone, acquired Odeo and picked up Twitter.com in the process.
A channel with capacity
Twitter has become a vehicle for communicating carefully crafted messages of self-promotion and
branding by major companies, not-for-profits, activist groups, politicians, actors, athletes, musicians and
media personalities. Top Twitter topics or ‘trends’ driving tweets include sports, politics and music as
well as natural disasters, human conflicts and crises. According to an internet study by Pew Research,
Twitter usage is pervasive among technology early adopters and widespread among a range of demo-
graphic groups.2
Messages with(out) meanings
Twitter’s 140-character limit keeps messages terse and to the point. However, there’s no guarantee
they’ll be pertinent or that each message will be meaningful. Market research firm Pear Analytics ana-
lysed 2000 tweets sent during daytime hours over two weeks and concluded that 40 per cent of them
represented ‘pointless babble’.3 While avid Twitter users may agree that not all tweets are gems, the
service has found a place in digital culture. Social network researcher Danah Boyd has criticised Pear
Analytics’ results, pointing out that pointless babble could be better characterised as social grooming,
where tweeters ‘want to know what the people around them are thinking and doing and feeling’.4
Tweets travel faster
Twitter’s low overhead translates into instantaneous broadcast communication. And for some users,
that’s part of the appeal. ‘Twitter lets me hear from a lot of people in a very short period of time,’ says
tech evangelist Robert Scoble.5 In addition, Twitter has become a de facto emergency broadcast network
for breaking news. It is a means to transmit up-to-date information during disasters and other unfolding
situations.6 Real-time news, video clips and images rapidly spread through the ‘Twitterverse’, often pro-
viding faster information than formal news media.7
More managers are using Twitter and it’s becoming essential for teams, whose leaders and members
use it as a fast-channel way to send announcements about upcoming events, post rapid-response items
and share links that bear on what’s happening within the organisation. Twitter is also being used in edu-
cational settings as a way to promote student interactions with faculty and administration and with one
another.

CASE STUDY 11  617

Impulse leads to apology
Twitter’s quick and short messages are shortening the stages of communication — quick thoughts war-
rant a tweet. They’re increasing the frequency of communication — more time efficient than a direct
message or an email. But, it’s not uncommon for well-known tweeters to apologise and explain a tweet
or two after it was misinterpreted. The immediacy of tweeting can make it impulsive communication —
tweets are so easy to send out — and regret later.
Trolls
Twitter has a problem with abuse that has long attracted headlines. ‘Trolls’, those who post deliberately
inflammatory messages on Twitter or other online platforms in order to incite a reaction, are often not
held accountable for what they write on Twitter, as users can choose to remain anonymous. Facebook
has a real-name policy, and as such, it is easier to hold users accountable for their content.8 In one case
of online behaviour having real-life ramifications, Australian feminist writer Clementine Ford posted
a screenshot of a vile Facebook message she had received from troll Michael Nolan, tagging Meriton
Apartments, who he’d listed on his profile as his employer, in the post. Nolan was subsequently fired
from his job.9 Dick Costolo, who was the CEO of Twitter up until 2015, wrote in an internal memo that
was leaked to tech website The Verge, ‘we suck at dealing with abuse and trolls on the platform and
we’ve sucked at it for years’.10 In early 2016 however, Twitter announced the formation of the Twitter
Trust and Safety Council, ‘to ensure that people feel safe expressing themselves on Twitter’.11

QUESTIONS
1. What are the advantages and disadvantages of communicating via Twitter? Can a 140-character tweet really
be effective? What guidelines would you recommend for maximising the effectiveness of a tweet?
2. Choose a national brand or entertainment personality and discuss how the use of Twitter has helped to create
a following and desired brand image. How about a university course? How could a lecturer use Twitter to

618  Management
 improve the in-class or online learning experience? Is Twitter more appropriate for the national brand and
entertainment personality than for an academic instructor? Why or why not?
3. You’ve been given a first assignment as the new intern in the office of a corporate CEO. The task is to analyse
Twitter and make a presentation to the CEO and her executive team recommending whether or not it should
be used for corporate purposes. What points will you make in the presentation to summarise its potential
uses, possible downsides and overall strategic value to the firm?
4. Research current developments with Twitter’s Trust and Safety Council. What are the actions the council is
taking to combat abuse? Has this resulted in decreased levels of trolling on the platform?

ENDNOTES
  1. Lauren Duggan, ‘Twitter to Surpass 500 Million Registered Users’, Media Bistro (21 February 2012), mediabistro.com.
  2. Pew Research, ‘The Demographics of Twitter Users’, Mind Jumpers (15 January 2013), mindjumpers.com; and Shea
Bennet, ‘22% of Black Internet Users Are Active on Twitter (Compared to 16% of White)’, Media Bistro (15 January 2013),
mediabistro.com.
  3. Ryan Kelly, ‘Twitter Study Reveals Interesting Results About Usage—40% is Pointless Babble’, Pear Analytics (12 August
2009), pearanalytics.com.
  4. Danah Boyd, ‘Twitter: “Pointless Babble” or Peripheral Awareness 1 Social Grooming?’, Zephoria (26 February 2014),
zephoria.org.
  5. Alex Santoso, ‘10 Quickie Quotes about Twitter’, (26 Febraury 2014), netorama.com.
  6. Jochan Embley, ‘Twitter Alerts: Service to Help During Emergencies, Natural Disasters Comes to the UK’, Independent
(18 November 2013), independent.co.uk.
  7. Jolie O’Dell, ‘How Egyptians Used Twitter During the January Crisis’, Mashable (31 January 2011), mashable.com.
  8. ‘What names are allowed on Facebook?’, Facebook Help Centre, www.facebook.com.
  9. Rebecca Sulivan, ‘Sydney man fired after calling feminist writer Clementine Ford a ‘sl**’, News.com.au (1 December 2015),
www.news.com.au.
10. Nitasha Tiku and Casey Newton, ‘Twitter CEO: “We suck at dealing with abuse”’, The Verge (4 February 2015)
www.theverge.com.
11. ‘Announcing the Twitter Trust & Safety Council’, Twitter (9 February 2016), www.twitter.com.

ACKNOWLEDGEMENT
Photo: © Ellica / Shutterstock.com

CASE STUDY 11  619

CASE STUDY 12
Zara International: fashion at the speed of light
In this world of rapidly moving trends, no company does fast fashion better than Zara International.
Shoppers in a growing number of countries — 88 as of April 2016 — are fans of Zara’s knack for
bringing the latest styles from sketchbook to shopfront at lightning speed and reasonable prices.1
In fast fashion, moments matter
Zara’s parent company Inditex is known for year-on-year strong sales gains. Low prices and a rapid res-
ponse to fashion trends have pushed it into the top ranks of global clothing vendors. The chain special-
ises in lightning-quick turnarounds of the latest designer trends at prices tailored to the young — about
A$35 an item.2 Louis Vuitton fashion director Daniel Piette has described Zara as ‘possibly the most
innovative and devastating retailer in the world’.3
Inditex shortens the time from order to arrival using a complex system of just-in-time production and inven-
tory management that keeps Zara ahead of the competition. Their distribution centres can have items in Euro-
pean stores within 24 hours of order receipt, and in American and Asian stores in less than 48 hours.4 ‘They’re
a fantastic case study in terms of how they manage to get product to their stores so quick’, said Stacey Cart-
wright, executive vice president and CFO of Burberry Group PLC. ‘We are mindful of their techniques.’5
The firm carefully controls design, production, distribution and retail sales to optimise the flow of
goods, without having to share profits with wholesalers or intermediary partners. Customers win with
access to new fashions while they’re still fresh off the runway.6 Twice a week Zara’s finished garments
are shipped to physical distribution centres that all simultaneously distribute products to stores world-
wide. These small production batches help the company avoid the risk of oversupply. Because batches
always contain new products, Zara’s stores perpetually energise their inventories.7 Most clothing lines
are not replenished. Instead they are replaced with new designs to create scarcity value — shoppers
cannot be sure that designs in stores one day will be available the next day.

The Zara store in Melbourne’s CBD is located on a busy thoroughfare near other flagship stores.

620  Management
 Store managers track sales data with handheld devices. They can reorder hot items in less than an
hour. Zara always knows what’s selling and what’s not. When a look doesn’t pan out, designers promptly
put together new products. New arrivals are rushed to shop sales floors still on the black plastic hangers
used in shipping. Shoppers who are in the know recognise these designs as the newest of the new; soon
after, any items left over are rotated to Zara’s standard wood hangers.8
Inside and out, Zara’s stores are designed to strengthen the brand. Inditex considers this to be very
important because that is where shoppers ultimately decide which fashions make the cut. In a faux shop-
ping street in the company’s headquarters, stylists craft and photograph eye-catching layouts that are
emailed every two weeks to store managers for replication.9
Zara stores sit on some of the hottest shopping streets, including Bourke St Mall in Melbourne, near
the flagship stores of Sportsgirl, General Pants and Myer. While those adjacent stores all vie for the same
consumer dollar, Zara sells fashion items at a lower price point. It’s all part of the strategy. ‘Inditex gives
people the most up-to-date fashion at accessible prices,’ said Luca Solca, senior research analyst with
Sanford C Bernstein in London. That is good news for Zara as many shoppers trade down from higher
priced chains.10
A single fashion culture
The Inditex group began in 1963 when Amancio Ortega Gaona, chairman and founder of Inditex, got his
start in textile manufacturing.11 After a period of growth, he assimilated Zara into a new holding com-
pany, Industria de Diseño Textil.12 Inditex has a tried-and-true strategy for entering new markets: start
with a handful of stores and gain a critical mass of customers. Generally, Zara is the first Inditex chain
to break ground in new countries, paving the way for the group’s other brands, including Pull and Bear,
Massimo Dutti and Bershka.13
Inditex farms out much of its garment production to specialist companies, located on the Iberian
Peninsula, which it supplies with its own fabrics. Although some pieces and fabrics are purchased in
Asia — many of them not dyed or only partly finished — the company manufactures about half of its
clothing in its hometown of La Coruña, Spain.14 Inditex CEO Pablo Isla believes in cutting expenses
wherever and whenever possible. Zara spends just 0.3 per cent of sales on ads, making the 3–4 per cent
typically spent by rivals seem excessive in comparison. Isla disdains markdowns and sales as well.15
H&M, one of Zara’s top competitors, uses a slightly different strategy. Around one-quarter of its
stock is made up of fast-fashion items that are designed in-house and farmed out to independent
factories. As at Zara, these items move quickly through the stores and are replaced often by fresh
designs. But H&M also keeps a large inventory of basic, everyday items sourced from inexpensive
Asian factories.16
Ethical fashion
How can a company turn fashion items around quickly and sell them at such an inexpensive price point
while turning a solid profit? Is there a human price to be paid? According to the 2016 Australian Fashion
Report — an annual report that assesses fashion companies’ labour rights systems in a bid to illuminate
how they are addressing the alarming issues of forced labour, child labour and worker exploitation over-
seas, and then rates them from A to F — Zara ticks all of the right boxes when it comes to their trans-
parent labour rights system. The 2016 report gave Inditex a rating of A, the highest performing company
after two Fairtrade companies Etiko and Audrey Blue. This rating is not reflective of actual conditions on
the ground, but is an analysis of the strength of Zara’s labour rights systems. Their high rating implies
that Inditex makes a concerted effort to trace back where the source materials for their clothing have
come from, and is transparent with the public about this information. Ratings are based on four key
elements of the labour rights management system:
1. policies
2. knowing suppliers
3. auditing and supplier relationships
4. worker empowerment.

CASE STUDY 12  621

 Inditex’s score of A was averaged from an A+ rating on numbers 1–3 of the above elements and a B
for worker empowerment.17
Is Zara expanding too quickly — opening about 400 stores per year?18 Will its existing logistics
system carry it into another decade of intense growth? Can fast-fashion win the long-term retailing
race?

QUESTIONS
1. In what ways are elements of the classical and behavioural management approaches evident in how things are
done at Zara International? How can systems concepts and contingency thinking explain the success of some
of Zara’s distinctive practices?
2. Zara’s logistics system and management practices can handle the current pace of growth, but they will need
updating at some point in the future. How could quantitative management approaches and data analytics help
Zara executives plan for the next generation of its logistics and management approaches?
3. As a consultant chosen by Zara to assist with the expansion of its Australian stores, you have been asked
to propose how evidence-based management might help the company smooth its way to success with an
Australian workforce. What areas will you suggest to be looked at for evidence-based decision making, and
why?
4. Gather the latest information on competitive trends in the apparel industry, and on Zara’s latest actions and
innovations. Is the firm continuing to do well? Are other retailers getting just as proficient with the fast-fashion
model? Is Zara adapting and innovating in ways needed to stay abreast of both its major competition and the
pressures of a changing global economy? Is this firm still providing worthy management benchmarks for other
firms to follow?

ENDNOTES
  1. ‘Inditex: Who We Are: Concepts: Zara’, Inditex (21 February 2012), inditex.com.
  2. Cecilie Rohwedder, ‘Zara Grows as Retail Rivals Struggle’, Wall Street Journal (26 March 2009),
www.wsj.com.
  3. ‘Zara, a Spanish Success Story’, CNN.com (15 June 2001), edition.cnn.com.
  4. ‘Inditex Press Dossier’, INDITEX (2010), www.inditex.com.
  5. Cecile Rohwedder and Keith Johnson, ‘Pace-setting Zara Seeks More Speed to Fight Its Rising Cheap-Chic Rivals’,
Wall Street Journal (20 February 2008), p. B1.
  6. ‘The Future of Fast Fashion’, The Economist (16 June 2005), www.economist.com.
  7. Rachel Tiplady, ‘Zara: Taking the Lead in Fast-Fashion’, Bloomberg BusinessWeek (4 April 2006),
www.bloomberg.com.
  8. Rohwedder and Johnson, op. cit.
 9. ibid.
10. Rohwedder, op.cit.
11. Inditex Press Dossier, op. cit.
12. ibid.
13. ibid.
14. ‘Shining Examples’, The Economist (15 June 2006), www.economist.com.
15. ‘The Future of Fast Fashion’, op. cit.
16. Inditex Press Dossier, op. cit.
17. ‘The 2016 Australian Fashion Report: the truth behind the barcode’, Baptist World Aid Australia (20 April 2016),
www.baptistworldaid.org.au.
18. Susan Berfield and Manuel Baigorri, ‘Zara’s Fast Fashion Edge’, Bloomberg BusinessWeek (14 November 2013),
businessweek.com.

ACKNOWLEDGEMENT
Photo: © Nils Versemann / Shutterstock.com

622  Management
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