Business Regulation and Political Ideology

Consider freedom, order, and equality; each is a diametrically opposed goal in political ideology and free enterprise. Freedom could be understood as an absence of constraints on behavior. Order is adherence to safeguards that preserve life, protect property, and maintain patterns of society. Equality might both refer to equality of opportunity and outcome simultaneously in social and political areas. For example, to increase freedom, government may decrease order and decrease equality. Still, to increase order, government may decrease freedom and decrease equality. Moreover, to increase equality, government may decrease order and decrease freedom.

Libertarianism, Populism, Liberalism, and Conservatism each have differing views on the government’s role and purpose in restraining freedoms to promote order and equality, including the degree to which those freedoms can be traded for order or equality (Janda, Berry, and Goldman, 1995). Business related freedoms relative to individuals are likewise restricted to promote order in the markets or equality of opportunities in free enterprise to other individuals. Libertarians oppose government policies that interfere with personal freedoms to promote equality and order, even for business entities. Populists favor government policies that promote social equality while also favoring policies that promote order, which is manifested in different types of business regulation. Liberals favor government policies that promote social equality such as affirmative action while they typically oppose legislation, judicial opinion, or executive action that restrains individual liberties; businesses are likewise asked / regulated to implement those government policies in what amounts to unfunded mandates. Conservatives oppose government policies that interfere with free market forces for purposes of promoting equality but tend to favor government policies that promote social order and help business entities.

The traditional dilemma in American government has been to balance freedom and order while the modern day dilemma is to balance freedom and equality. When the government acts to increase order or equality within its jurisdiction, freedoms to engage in business enterprises are restrained accordingly. There are no absolutes with regard to the positions that holders of these ideologies will take, but a useful framework can be derived from the views that one holds toward government limiting freedoms and the purpose behind the government’s action. Libertarians are willing to relinquish very few freedoms to gain more equality or order; businesses are neither strongly aided or strongly regulated. Populists are willing to relinquish certain freedoms to gain more equality and order; businesses are not aided but strongly regulated. Liberals are willing to relinquish some freedoms to gain equality but willing to relinquish even fewer freedoms to gain order; businesses are weakly aided but regulated to implement equality of opportunity and outcome for individuals. Conservatives are willing to relinquish some freedom to gain order but willing to relinquish even fewer freedoms to gain equality, and, hence, businesses enjoy the most help and least regulation from conservative ideologues.

Reference

Janda, K., Berry, J.M., & Goldman, J. (1995) The challenge of democracy: Government in America, (4th Ed.). Boston, MA: Houghton Mifflin.

Selling Democracy to Iraq: Cross-Cultural Marketing Strategy

First Principles

As businesses globalize, the degree to which marketing strategies are standardized (i.e., not localized) within a culture is an important issue for marketing teams to consider. Product packaging, publicity campaigns, and advertising creative executions typically need fine-tuning from one culture and country (i.e., geographic area) to another to achieve maximum return on investment (ROI). However, the expense with respect to elapsed time, effort, and resources expended must be less than the incremental revenue attributable to tailoring the campaign for the culture or geographic area. Hawkins, Best, and Coney (2001) suggested seven cross-cultural considerations for framing the decision to localize geographic marketing campaigns:

• Homogenous Culture
• Product Needs Fulfilled
• Consumer Affordability
• Consumer Values and Behavior Patterns
• Distribution Channels, Regulations, and Applicable Laws
• Available Media to Impact Culture
• Ethics of Targeting Geographic Area
  
  

Application

For example, if an organization were to attempt marketing of democracy in a country with a large Islamic population, such as Iraq the following cross-cultural considerations should be addressed:

• Homogeneous Culture – The Iraqi population is far from homogenous and is comprised of three ethnic groups that traditionally have been in conflict over religious, social, and political issues.
• Product Needs Fulfilled – Democracy would help under-represented groups under the Sunni-controlled government, such as Kurds, Shia, and women, gain more voice in political dialogue. Is democracy needed or wanted in Iraq?
• Consumer Affordability – Can Iraqis afford the religious, social, and political capital required to implement and maintain democratic processes? Participating in democracy could have unanticipated costs to individuals as the adopt beliefs that may not be supported by friends, family, or neighbors.
• Consumer Values and Behavior Patterns – is individual choice or political representation important to the Iraqi people? Allowing women to vote in elections could be perceived as undermining traditional Islamic family values.
• Distribution Channels, Regulations, and Applicable Laws – in what ways is it possible to education the population on democracy, encourage democratic social structures, and make it legal for democratic political processes to take root? It may not be legal to sell or possess democracy or any other product.
• Available Media to Impact Culture – are radio, print, outdoor, and other media available to educate, encourage, and affect political processes toward democratic goals? Existing media infrastructure must be exist to promote awareness.
• Ethics of Targeting Geographic Area – is it ethical to encourage democracy in Iraq? Perhaps what is legal, desirable, or expedient is not ethical or in the best interest of the consumer.
  
  

The above application example of cross-cultural marketing strategies is not meant make a political statement but to show how marketing an idea, service, or product is highly dependent on the geographical and cultural context.

Reference

Hawkins, D.I., Best, R.J, & Coney, K.A. (2001). Consumer behavior: Building marketing strategy (8th ed.). New York: Irwin McGraw-Hill.

Cantillon’s Stock, Flow, and Velocity of Money

The insights of Richard Cantillon (? – 1734), both a banker and merchant by trade, on the flow and velocity of money have withstood the test of time (Ekelund and Hébert, 1997). Cantillon, as a banker with firsthand knowledge, had many accurate notions about how the stock, velocity, and flow of money affected the economy. Being also a merchant, he understood the importance of the entrepreneur as a mediator of economic risk in the market. Cantillon is clearly different from the other writers of the mercantilist period. He came closest to establishing a new system of economic thought most likely due to his empirical approach to discovering basic economic principles. Unfortunately, Richard Cantillon was murdered in his sleep by a servant who had been terminated from employment and his book, entitled Essai sur la nature du commerce en general, is his single contribution to economic thought.

Cantillon’s contributions to pre-classical economic philosophy are various and sundry. He correctly perceived the economy as a set of interconnected sub-markets, each with corresponding income flows, back and forth. Cantillon developed a notion of intrinsic value, value of the good which in and of itself did not change, except for the subjective evaluation of the marketplace. Cantillon saw labor adjusting to fit demand without government intervention, in the same basic manner as entrepreneurial activities are shifted to meet demand. When speaking of entrepreneurs he boiled down their activities to bearing the inherent risk of the market by responding to demand, whenever and wherever -- this human response to demand defines the essence of competition. Cantillon also identified and studied the causal chain that connects changes in the money stock to changes in aggregate expenditures. Cantillon comprehensively defined monetary velocity. Cantillon observed what those who followed him failed to notice: loaning funds obtained from precious metals lowered interested rates while spending the same funds ultimately raised interest rates. Perhaps these contributions, which were unique insights for his time, inspired Ekelund and Hébert (1997) to dub Richard Cantillon’s Essai a masterpiece of insight and clarity before the age of Adam Smith.

Reference

Ekelund, R. B., Jr., & Hébert, R. F. (1997). A history of economic theory and method (4th ed.). New York: McGraw Hill.

Leader Traits Followers Admire Most

Kouzes and Posner (2002) noted the top four leader characteristics in both the 1987 and 1995 surveys described in the “The Leadership Challenge” are (1995 order): (1) honesty, (2) forward-looking, (3) inspiring, and (4) competent. These characteristics are not necessarily those characteristics that would be admired in an actual leadership situation, but the list of top attributes gives us some insights into how followers think. The order of the characteristics is slightly different in the 1995 and 1987 lists, which could represent a change in attitude toward leadership.

Rank 1987 1995
1. Honesty Honesty
2. Competent Forward-Looking
3. Forward-Looking Inspiring
4. Inspiring Competent

Honesty

Honesty was listed as the top leader characteristic in both versions (i.e., 1987 and 1995) of the report. Honesty is a fundamental leadership attribute. If followers cannot trust what the leader tells them, then it is unlikely that a relationship can continue for very long. Kouzes and Posner (2002) reported that nearly ninety percent of the respondents reported honesty in leaders is very important. (I had the opportunity to conduct a survey a few years ago concerning what attributes venture capitalists look for in entrepreneurs and the percentage who look for honesty was over eighty percent but still not as high as was expected.) It is surprising that the expectation of honesty is not closer to one hundred percent. Kouzes and Posner (2002) make an excellent point about constituents looking at the leader’s behavior for clues about whether it is consistent with public verbiage. In essence, leaders model honesty for followers.

Forward-Looking

The ability to be forward-looking or visionary in planning for and communications with the organization is another very important leadership characteristic. The characteristic has increased in importance over the years. This term might overlap in some respondents’ minds with traits such as broadminded, independent and imaginative. Regardless of the exact definition of the term, employees or any constituents are looking for leaders that have a “sense of direction and a concern for the future of the organization” (Kouzes and Posner, 2002, p. 23).

Inspiring

The ability to be inspiring was listed as the third most important characteristic in the 1995 survey and the fourth most important characteristic in the 1987 survey. The ability to be inspiring or show passion toward an organizational goal is very important. Kouzes and Posner (2002) make an excellent point about constituents who want more than a job, but instead want to feel, in essence, that they are part of a game. Frankly, many leaders are not particularly adept at whipping up enthusiasm for the mission of the company and this is why many employees are just there to collect paychecks. While it is true that there are many mundane jobs out there to be performed, the final goal being strived for by those performing those jobs is definitely worthwhile. Competence was listed as one of the most important leadership characteristics. What is interesting is the shift in importance of this attribute from 1987 to 1995.

Compentence

Competence has become less important than the abilities to be forward-looking and inspiring. This change seems to be counter-intuitive. Do constituents really want leaders who are less competent? My view is no. Given an appropriate level of competence leaders are expected to provide more of other leadership characteristics – Competence is just expected and non-negotiable. The question regarding competence is exactly what was competence, as the respondents understood it. Kouzes and Posner (2002) drove the point home that value added competence in leadership is important and that general management ability separated from competence in a discipline is not so widely sought after in today’s job marketplace.

Leader Context

The importance or unimportance of leader characteristics depends on the situation. Leader characteristics of honesty, forward-looking, inspiring and competent are universal in business, but leaders in other contexts may be called upon to exude other qualities. For example, a military leader may be called upon to be more courageous than forward-looking. Being ambitious might also be an important leader characteristic, depending on the leader situation. Moreover, the leadership characteristics that people say they admire are attitudes that the researchers have measured, which could be different from following behaviors that could be observed.

Reference

Kouzes, J.M., & Posner, B.Z. (2002). The leadership challenge (3rd ed.). San Francisco, CA: Jossey-Bass.

Employee Evaluation Methods: Advantages and Disadvantages

Each method of employee evaluation has strengths and weaknesses, and the human resources department may predetermine the selection of the method. The four main categories of employee performance assessment approaches are (a) comparison to agreed objectives, (b) comparison to job standards, (c) comparison between individuals, and (d) comparison to subjective judgments by peers. The first three approaches are based upon management’s view of the employee’s performance while the fourth approach is predicated upon peer evaluation. The results of employee evaluation methods are contextual.

Management by Objectives (MBO) is a widely used method for establishing individual goals that are congruent with organizational goals and measuring performance against those goals. MBO implementations are good for providing feedback about specific problems, identifying plans and rating performance. MBOs are time-consuming and expensive to implement and use. Moreover, the use of MBOs is difficult to compare across individuals performing the same job functions and in different departments.

There are a number of techniques that are useful for comparing individual performance to job standards: (a) Physical observation, (b) Checklists, (c) Rating scales, (d) Critical incidents, (e) Behaviorally anchored rating scales (BARS), and (f) Essays and diaries. Each of these methods facilitates comparisons with standards at varying degrees of precision. BARS is particularly good at providing feedback and counseling information. The use of BARS and checklists are the best at allocating rewards and opportunities. The graphic rating scale is the best method for minimizing costs among the standards-based techniques. The checklist and BARS techniques are less error prone with respect to rating participants.

There are two primary ways of conducting comparisons between individuals: (a) Ranking, and (b) Forced Distribution. These techniques are relatively inexpensive to develop and use, and are average in terms of their ability to avoid ranking errors. However, these techniques are less useful for providing feedback, counseling and allocating rewards/opportunities. In fact, employees could have very little information about why they achieved a specific ranking or how to make positive changes to that ranking.

Comparison to the subjective judgment of peers, also known as 360-Degree Appraisal, may provide some insights to how the employee’s work behaviors are being perceived that are otherwise unavailable. Many high technology managers have experienced this evaluation technique in the workplace and have found the results to be both interesting and informative. The 360-Degree Appraisal process has the advantages of supplying feedback from the subordinate to the superior and gathering group perceptions of individual performance, correct or incorrect. Some of the disadvantages of the process are the potential for use of Machiavellian tactics by respondents rating everyone lower than themselves or multiple individuals in the group ganging up by giving lower scores to a targeted individual.

Reference

Milkovich, G.T., & Boudreau, J.W. (1996). Human resources management (8th ed.), New York: Irwin.

Incentive Compensation Systems: Strengths and Weaknesses

Pay-for-performance and incentive compensation systems are becoming increasingly popular as a way for companies to directly link employee behavior with desired organizational outcomes. Associated with these systems are several identifiable strengths and weaknesses (Gibson, Ivancevich and Donnelly, 1994).

Some of the strengths of pay-for-performance systems are that they provide tangible results to personalities who are so motivated, they offset employee resentment of tenure-based rewards, and if applied properly, increase and decrease with effort expended. Weaknesses of pay-for-performance techniques include poor goal communication, extrinsic rewards being ineffective motivators for some employees, and the common occurrence that employees do not always notice the connection between behaviors and outcomes.

Regardless of their strengths and weaknesses, pay-for-performance rewards are an essential element of performance evaluation systems. One of the most controversial applications of pay-for-performance reward systems is in the realm of executive compensation. The problems with linking compensation to overall performance of the organization typifies the problem of assessing the outcomes for the organization, positive or negative, and allocating rewards accurately.

In summary, pay-for-performance rewards can be effective in environments where actions that lead to desirable organizational outcomes are neither of high enough quantity nor quality without its presence. However, one could advance the argument that if an employee has to be motivated by extrinsic rewards alone to excel at their position, they may not be the best person for the job.

Reference

Gibson, J.L., Ivancevich, J.M., & Donnelly, J.H., Jr. (1994). Organizations: Behavior, structure, processes (8th ed.). Boston, MA: Irwin.

State of the FAQ – November 24, 2006

Well, it has been a crazy busy week with travel, work, and the Thanksgiving holiday. I knew this was going to be a working vacation, but there was really quite a bit to push out this week, especially on MBAFAQ. Thanks for your encouragement and I appreciate the support of our sponsors.

I hope you had a chance to keep up with the readings. In the future, I want to establish an email list to keep you updated with news and special features on the website. If you want to be added to the list, please drop me an email (please put List Request in the subject) to say hi and I’ll add your name to the list.

Some of the new features that are planned are co-authored entries with some of my outstanding students and descriptions of recent non-traditional Ph.D. research that comes to my attention. The big vision is that I’ll be inviting some of my students to co-author blog articles with me. I have asked these students based on my familiarity with their work, and if their interests parallel my own research interests in marketing, consumer behavior, and social psychology. If you know me from another context and/or you think we have comment interests, please write me to see if co-authoring is something that interests you. Finally, I’m interested in hearing from some of our regular readers about features they would like to see.

Those of you who know me from some other context know that I’m a huge fan of the online education revolution. U.S. News & World Report has a new e-Learning guide to schools that offer online MBA and doctoral degrees in business / management that you’ll want to keep handy:

http://www.usnews.com/usnews/edu/elearning/elhome.htm

This resource is a good companion to the DANTES catalogue:

http://www.dantes.doded.mil/dantes_web/danteshome.asp?Flag=True

Last Thursday, November 16, 2006, Dr. Milton Friedman passed away. This is not news to those of you who follow current events, but it was worth noting. What always impressed me about Dr. Friedman was that he labored in obscurity for many years until his ideas about free markets over government intervention and paying attention to the money supply caught on – his unorthodox ideas became orthodoxy through the boldness of his genius.

Talk to you soon!

Best wishes,

Dave

Rise and Fall of Mercantilism

Mercantilism was a loosely defined economic system practiced by the colonial powers of Europe during the sixteenth, seventeenth, and eighteenth centuries. Mercantilist writers held many views, but the following views were held by many and served as a transitory economic system after the medieval times until well into the industrial revolution. Mercantilists attempted to deal with economic problems in the real world and set an important precedent of keeping real world economic statistics. Mercantilist policy hinged on the assumption that the accumulation of Gold and Silver (i.e., specie) were to be equated with wealth; that is, with no regard to the cyclical nature of the balance of payments and international accounts between nations. Specie could be acquired by maximizing international trade through exports while minimizing imports, whenever possible. Imports should be bartered for and not paid for with specie. Von Harnick codified these ideas governing a national economy in his nine points described by Ekelund and Hebert (1997):

1. Use all land in the country for agriculture, mining, or manufacturing.
2. Employ all raw materials in the country for domestic manufacturing, because finished goods have a higher value than raw materials.
3. Encourage a large working population.
4. Prohibit all export of gold and silver be prohibited, and keep all domestic money in circulation.
5. Discourage imports of foreign goods.
6. Obtain indispensable imported goods by trading domestic goods rather than with gold and silver.
7. Restrict imports to raw materials for domestic manufacturing.
8. Obtain gold and silver when selling surplus domestic manufacturing to foreign countries.
9. Disallow imports if suitable goods in sufficient supplies can be obtained inside the country.
   

In the interest of promoting Mercantilist ideas, the government, whatever its form, was relied upon to regulate economic life. These regulations frequently appeared in the form of legal monopolies such as franchises and patents. Another form of regulation that was common was a downward pressure on wages and the working classes in order to keep the cost of labor low, and therefore, maximize the profits obtained (especially in the form of specie accumulation) from exportation to other countries. A fundamental misunderstanding of the quantity theory of money, that is, the direct positive correlation between money supply and price levels thwarted the success of Mercantilism as a doctrine.

Mercantilism thrived as a system of rent-seeking and monopolies granted by a central authority. Exclusivity and durability in monopolies are extremely important features. These attributes were virtually assured when a single authority granted the monopoly. However, as the power shifted away from one individual to many individuals, it became more difficult to gain the attention of and influence over those who would grant the monopoly. The shift in monopoly granting authority in the form of patents from the English monarchy to Parliament was a result of increasing competition in the English court systems. Eventually the monarch’s courts became less influential, and therefore, monopolies granted by the monarchy could be overturned by competing courts. The competing common law courts respected Parliament as the highest court in the land and its power as a legislative body. Parliament eventually became the ultimate granter of monopoly privileges that were enforceable in the lower courts. Parliament, as the sole supplier of economic regulation, soon became bogged down in the overhead of group communication and diverse interests when it came to exercising its power to grant monopolies. Soon, fewer and fewer regulations, on which Mercantilism rested, where implemented. Mercantilism as an economic policy on the national level subsequently stalled in England and was undermined in the other colonial powers for similar reasons.

Reference

Ekelund, R. B., Jr., & Hébert, R. F. (1997). A history of economic theory and method (4th ed.). New York: McGraw Hill.

Commonly Confused Research Terms

Concept vs. Construct

A concept is a bundle of meanings and characteristics created by classifying and categorizing objects or events. A construct is an image or idea specifically invented for a given set of research and / or theory-building purposes. Concepts are often borrowed from another field of study and then applied in a new way during a research study. An abstract concept can often be considered a construct. For example, pass percentage of completion for the quarterback in football is a relatively well-understood concept that could be considered a construct, while ability to win is also an important, but abstract concept. Both pass percentage of completion and ability to win are skills expected of a good quarterback that can be researched and quantified to some degree, but there are vast differences in their measurability and precise definitions. Furthermore, a researcher may build a construct from other simpler concepts to assist in a theory building exercise. For example, pass percentage of completion could be one of concepts that comprises a construct named ability to win.

Deduction vs. Induction

Dewey’s so-called Double Movement of Reflective Thought (Cooper and Schindler, 2003) refers to the use of Induction and Deduction in tandem; it is an essential part of hypothesis formulation and testing prevalent in scientific thought processes. Deduction is a form of inference that presumes to be conclusive in that the conclusion follows from the reasons given and the reasons actually imply the conclusion (and represent a proof.) Induction is another form of inference in which a conclusion is drawn from one or more facts, and the process of inducing a conclusion represents an inferential jump beyond the evidence presented. In effect, Induction produces hypotheses that are tested through Deduction; Deductive / Inductive processes only produce hypotheses that must be later confirmed with data collection and analysis.

Operational Definition vs. Dictionary Definition

Clear definition of terms is an essential element of research. Dictionary-based definitions are provided through language synonyms. Often times, these synonyms are used to define one another or related word groups of similar, but not precisely the same meaning. This lack of precise definition is why dictionary definitions of concepts are unsuitable in a research environment. Operational definitions, however, are instead defined in terms of specific testing criteria or operations. An operational definition is one in which we must be able to measure, count, or collect data to verify a particular meaning. The operational definition of a concept must specify the characteristics to study and how those characteristics are to be observed, so that another researcher would classify the objects likewise.

Concept vs. Variable

A concept is a set of characteristics created by classifying objects or events that have common characteristics in two or more observations. Meanwhile, a variable is a synonym for the property under examination in an empirical setting; that is, a variable is defined in such a way that it takes an observed value at an instant, when we measure it. Observed variables may comprise an overall concept or construct in research, if they possess common characteristics.

Hypothesis vs. Proposition

Although there may be some dispute over the exact definition of a proposition and its relationship to a hypothesis, a proposition can be defined simply as a statement about concepts which can be judged to be either true or false, if the concepts are rooted in observable phenomena. A hypothesis is different in that it specifically refers to a variable or variables that can be empirically tested. A hypothesis is also more formally stated than a proposition, so that it can be accepted or rejected based on the actual observed phenomena. A hypothesis may describe the existence or magnitude of some variable, or it may describe a relationship between two variables with respect to some case. The most important role for the hypothesis in research is that it guides the direction of the study. In more lengthy research articles, it is common to find propositions stated quite generally that are later refined into testable hypotheses.

Scientific Method vs. Scientific Attitude

The Scientific Method can be thought of as the mind of science while the Scientific Attitude is the spirit driving scientific inquiry. The scientific method is structured inquiry into a well-defined topic. The scientific attitude is the underlying curiosity, imagination, and motivation to capture the most important element of a problem and apply the best technique for observing related phenomena in the most natural state. By analogy, business travel is a set of methods (i.e., scientific method) for traveling to the city of Chicago, whereas, desire to get to Chicago is the spirit of motivation (i.e., scientific attitude) to apply those business travel methods in the most optimal way. A scientific attitude in research provides the motivation continually to pursue inquiry in a scientific manner.

Examples of Variable Operationalization

Perhaps the distinguishing feature between concepts and constructs can be understood best as steps from an "abstract" research question toward a "concrete" variable. Consider these progressive stages in operationalization:

1. Research Question: Do parents have affection and concern for their children?
2. Conceptualization: Love (i.e., the concepts affection and concern might be conceptualized as "love")
3. Theoretical Construct: Parental Love for Children (i.e., a specific type of love is identified).
4. Operationalized Construct: Parental Love for Children as Time Spent with Children
5. Measurable Variable: Parental Love for Children as Time Spent with the Child per day.
6. Alternative Hypothesis: Parental Love for Children will be positively correlated with happiness of the child (not operationalized in this example).
   

The underlying lesson is that variables can be operationalized in multiple ways. In operationalizing Parental Love for Children, we could measure time spent with children, money spent in their care, number of words spoken to them, a qualitative analysis of themes discussed when speaking to the child, or we could even administer a survey to the child to ascertain perceived love as a proxy for parental love. All of those ways to measure love approximate the actual love experienced. There are many ways to operationalize a variable and these ways are determined (or bounded) by the original conceptualization.

An example of the many ways that variables can be operationalized, either optimally or otherwise, can be explained in attempting to measure whether Aunt Sally is at home baking pies on Sunday night after church. In order to test whether Aunt Sally is at home, we must decide how we are going to operationalize what the variable at home means for purposes of measurement. Do we see the lights on in the house? Does she answer the telephone? Does she answer a knock on the door? Does she answer her email? Is the Sunday paper still out front? Has she picked up her postal mail from the mailbox? Did she update her Apple Pie Blog website? Can you see her baking pies through the kitchen window? Is her Harley still parked in the driveway? Is the dog tied up out back? Are there spent shotgun shells on the back porch? Measuring whether Aunt Sally is indeed at home can be accomplished in many ways but there are only one or two best ways to stipulate an operational definition to arrive at a testable hypothesis.

Reference

Cooper, D.R., & Schindler, P.S. (2003). Business research methods, (8th ed.). Boston, MA: McGraw Hill.

Leaders Create and Maintain Social Support Networks

A minister friend once told me that the difference in success rates between close friends and mental health professional in helping those struggling with psychological challenges was statistically insignificant. Whether this is precisely correct or not has been debated, but it does serve to illustrate how important social relationships can be to our mental health and well-being. By extension, one can see that social networks in the workplace setting can play an important role. Moreover, leaders have a responsibility to help create social support networks among constituents to help recognize contributions and celebrate accomplishments. The result from encouraging the formation and expansion of social networks among employees is better performance, health, and well-being for those who would otherwise not have an opportunity to achieve maximum performance.

Email, blogs, and internal discussion forums can provide the means for fostering internal corporate social networking. However, many companies have yet to establishing policies on external and internal communication issues surrounding blogs. Software and networks typically have important operational uses and unique security concerns that preclude use their use for social networking in the corporate context. Employees also have tasks to perform that should preoccupy them.

Some of the benefits of maintaining social support networks to exchange information in both official and informal interactions are described by Kouzes and Posner (2002):

• Coworkers can help one another avoid work burnout.
• Those with low self-esteem can be encouraged and made to feel that they are an important part of the work team, which they are.
• High quality social support can enhance work productivity, psychological well being, and physical health.
• The California Department of Mental Health reports that social support enhances wellness and buffers against disease when cases were subjected to stressful situations.
• There were benefits of friendships that were not documented completely but apparently resulted in a lower incidence of deaths in those who had a number of friendships.
• Social networks enhanced collaborative efforts and facilitated amiable interpersonal relationships. Group interaction provides courage to survive tough physical and stressful times.
  

Reference

Kouzes, J.M., & Posner, B.Z. (2002). The leadership challenge (3rd ed.). San Francisco, CA: Jossey-Bass.

Corporate and Cross-cultural Evolution: Domain Expertise and Language Skills Required

The characteristics of managers who succeed in a domestic corporation are very different from those in a global corporation. Management techniques that are expected to achieve results in one cultural context will not necessarily produce positive results in another. The reasons for this shift are many and rooted in the vast differences in company structure and orientation that come about when a company’s orientation moves from a domestic to international, international to multinational, and, finally, multinational to global enterprise (Gibson, Ivancevich, and Donnelly, 1994).

In Phase One, the domestic stage, the primary orientation of the company is toward production through centralized divisions and delivery of the product or service within one country. The product is new and often features proprietary technology. The product is marketed in a niche within the context of local competition, if any. Profit margins are high and provide for high expenditures for research and development. Production and marketing goals are achieved within an mono-cultural context, and management largely ignores cultural factors.

In Phase Two, the international stage, the company is oriented toward production through functional, but decentralized divisions with an international division to deliver products/service outside the primary country. The product is less unique than in Phase One and more standardized, and takes advantage of shared technology. The product is marketed to a large market in several countries and faces some competition. As profit margins tighten, lower spending for R&D results. Sensitivity to cultural issues, especially those of clients, is an important consideration at this stage.

In Phase Three, the multinational stage, the company produces outputs through multinational locations under centralized control to deliver products in many countries. The product has reached a commodity status and the technology factors are generally available to potential competitors. The product is delivered to many countries through separate business enterprises within the context of many competitors. The cost pressures of competing in a commodity business keep profit margins low as well as restrict investment in research and development. Cultural issues in production and marketing are less of a concern than in Phase Two because products are often produced and delivered in the same country – acquiring the human factors within the local population and local management are key issues.

In Phase Four, the global stage, the company produces in the least cost country through coordinated, decentralized activities and through global alliances. Products are customized in myriad of ways by workers in several countries for uses in the various regional applications by rapidly changing technology. The company faces competition of significant size in each of its market and product lines. Revenues fluctuate rapidly as new products are introduced in customized form – initially high margins fund the typically higher research and development costs. The global emphasis on product and marketing makes cultural sensitivity to issues of employees, clients and management a central theme at this stage.

A significant factor in management success in a cross-cultural environment is the existence of broad experience and training for flexibility. Managers with strong domain expertise and language skills have an advantage in this environment. As a corporation evolves, the demands of marketing in several environments and the rigors of producing products into these markets makes rapid and broad change the rule and not the exception. Each culture has different distinguishing characteristics that require precise adjustments in obtaining the various factors of production and producing products for the marketplace. If they are to succeed, managers and expatriate managers must be aware of the challenges in adapting the corporation to specific cultural settings.

Reference

Gibson, J.L., Invancevich, J.M., & Donnelly, J.H., Jr. (1994). Organizations: Behavior, structure, processes (8th ed.). Boston, MA: Irwin.

Auditing Consumer Behavior: A Process for Building Marketing Strategy

A complete understanding of the influences that affect consumer behavior is an essential foundation for building a marketing strategy. Hawkins, Best, and Coney (2001) suggested a process for identifying information associated with the critical decisions that marketing managers must make about major elements of marketing. The outline for auditing consumer behavior has been simplified and generalized below, but the execution of the process can be invaluable for identifying challenges and opportunities for improving marketing strategy.

Marketing Decision Areas

Market segmentation – division of all possible product users (i.e., consumers) into groups with similar needs to satisfy for product development and media selection.

Product positioning – determination of a desirable product or brand position in the mind of the consumer relative to competing brands.

Price – pricing policy consistent with the determined product position. The price is the all inclusive set of consideration that the consumer must tender in exchange for the product or service, such as time, patience, learning, and money.

Place (Distribution Strategy) – channel or distribution strategy, such as retail, wholesale, or Internet, etc. consistent with the determined product position at which title to the product is relinquished or the service is performed.

Promotion – advertising, visual packaging, publicity, promotion, website, telemarketing and direct sales force activities.

Product – physical product characteristics or service to be experienced for each market segment.

Customer satisfaction – post-purchase policies to promoted customer use, loyalty, reference and repeat purchases.

Customer Influences

External influences

• Culture, subculture, and values


• Demographics, income, and social class


• Reference groups and family / households


• Marketing activities by the company (e.g., product attributes, packaging,
  advertisements, sales presentation, and retail outlet)

Internal influences

• Needs, motives, and emotions


• Perceptions, learning and memory


• Personality and lifestyle


• Attitudes

Situation influences

• Physical features


• Time perspective


• Social surroundings


• Task definition


• Antecedent states and situations (e.g., product or offer communications, purchase, use, or definition)

Decision process influences (i.e., stages)

• Problem recognition


• Information search


• Alternative evaluation


• Outlet selection


• Purchase


• Post-purchase processes (e.g., use, disposition, and evaluation)
  

By interweaving the decision areas with the relevant customer influences listed above, it is possible to outline the areas in which data should be gathered in order to construct a complete consumer behavior audit template as follows:

• Step 1: Market segmentation (…) Identify customer influences
  
• Step 2: Product positioning (…) Identify customer influences
  
• Step 3: Price (…) Identify customer influences
  
• Step 4: Place (Distribution strategy) (…) Identify customer influences
  
• Step 5: Promotion (…) Identify customer influences
  
• Step 6: Product (…) Identify customer influences
  
• Step 7: Customer satisfaction (…) Identify customer influences
  

By completing the above steps and answering all the associated questions regarding customer influences at each of the stages, the marketing manager should have a thorough understanding of the influences on consumer behavior and the key decision areas in which the influences are activated.

Reference

Hawkins, D.I., Best, R.J, & Coney, K.A. (2001). Consumer behavior: Building marketing strategy (8th ed.). New York: Irwin McGraw-Hill.

Scholastic Economic Analysis: Foundation of Modern Economics

Scholastic Economic Analysis developed as a school of economic thought in the 13th and 14th century by Roman Catholic clergy. As Ekelund and Hébert (1997) described, the scholastics were first clergy and secondly economic philosophers, so naturally justice and salvation were the areas of their greatest concern, rather than the analysis of economic exchange alone. The five pillars of Scholasticism, Albertus Magnus, Thomas Aquinas, Henry of Friemar, Jean Buridan, and Gerald Odonis, devoted their efforts to extending and applying Aristotle’s theory of value and exchange to the individual. Aristotle’s ideas formed a foundation for economic thought in medieval times, but they lacked much, especially a notion of cost-based value.

Slowly the Scholastics reasoned beyond Aristotle’s profound but limited concepts of value theory. Albertus Magnus developed the idea that the cost of production is a determining element of the value of exchange. Furthermore, he argued that the market price must cover the costs of production or the production will cease. Thomas Aquinas took the analysis beyond costs of production to extend the labor theory by factoring in human wants (indigentia). Henry of Friemar sought to aggregate individual wants into a common value measurement that included features of both supply and demand - that is, the common need of something scarce. Buridan distinguished between individual need and aggregate need, the valuations placed on a good (i.e., product) by the market in general. Odonis examined scarcity and concluded that there were different scarcity levels for labor and hence, different valuations of the contribution of the labor of individuals.

It was in the Doctrine of Usury that we see the largest disconnect from reality in Scholastic Economic Analysis, even in the Scholastics’ own era. A literal interpretation of Deuteronomy 23:20 would support the implementation of the Usury Doctrine and not the self serving reason of the Roman Catholic Church keeping its own cost of funds low, as Ekelund and Hébert suggested. (They were referring to verse 23:20 which allows the charging a foreigner interest, but not a brother Israelite. Consider that Christians believe they are not bound by civil and ceremonial laws of Judaism: only the moral code is in force.) The Scholastics may not have understood that the lending of money for interest could stimulate economic growth and help the very poor about which they were concerned. Hence, there was a time value of money, and this, too, the Scholastics did not reason about with great clarity, perhaps because of their loyalty to Roman Catholic Church doctrine.

Throughout the nearly two thousand years of economic activity and thought from Aristotle to the Scholastics, the basic economic structure of western civilization was dependent upon the extremely low cost of labor provided by either slavery or serfdom. The economic analysis of political economy in the 18th century arose from this background to modern economic history.

Reference

Ekelund, R. B., Jr., & Hébert, R. F. (1997). A history of economic theory and method (4th ed.). New York: McGraw Hill.

State of the FAQ – November 17, 2006

Here’s an update on events here at MBAFAQ. After listening to a few of Al Franken’s books on CD, I always wanted to make it sound like I was reporting from some important news desk in a studio somewhere, even though I’m reporting from a web page… Well, back to business. While the daily entries on MBAFAQ are generally textbook quality, I’ll try to take a day each week to write something chatty about how things are going and what is on my mind. I’m sure that these stream of consciousness entries in the FAQ will convince you that I can write poorly when necessary. ;-)

We’ve been live for one week and it has been exciting so far! There already have been over 85 visitors and over 200 page views in just one week! That is a tiny amount of traffic for an established website but huge interest for a new website. There has also been several new advertisers join, including University of San Francisco, John F. Kennedy University, St. Joseph’s College of Maine, Cornell University and Gallup University / University of Nebraska – Lincoln. Those are just a few of the advertisers. Be sure to visit these links of interest and our other fine advertisers.

Of course, you’ll probably say, “Hey, why advertising? Doesn’t that ruin the website?” Well, there is a very good reason for advertising; it helps to defray the cost of library fines and gasoline to travel to various libraries. I keep asking the librarian at UC Santa Cruz whether there is a lifetime achievement award for the largest cumulative amount of library fines paid. Of course, she just looks at me as if I’d said something almost funny.

As I mentioned in the About Me section, the goal of MBAFAQ is provide high quality articles on a daily basis that will eventually serve as a substantial resource archive for MBA alumni, newly-minted MBAs, MBAs in training, and those who have different formal training but who could benefit from some of the meat from business school.

You’re probably wondering were I get all this material. Well, I have over 300 semester hours of college training, of which 170 hours is at the graduate level. I’ve taught undergraduate and graduate students for the last several years, and they always teach me something new about the subject. In addition, I’m a speed reader, so I read quite a lot.

Please be sure to comment on threads of interest and I’ll moderate and respond to those comments.

If you are traveling over the Thanksgiving holiday, please have a safe trip and check in back here when you can. I’ll be here everyday, I hope. We are flying to Branson, Missouri and then driving to Southern Illinois for the holidays.

Talk to you soon!

Best wishes,

Dave

Organizational Conflict is a Many-Splendored Thing

In most organizations, conflict is a natural phenomenon, which can have both positive and negative influences on organizational processes and structure. Whether disputes manifested as conflict serve as a catalyst for change or as an impediment to progress is largely in the hands of managers. Managers often attempt to reduce or eliminate all forms of conflict. Dispute resolution is not simple or even necessary in all cases (Kolb and Putnam, 1992). For example, it may be a mistake to attempt to resolve disputes and conflict about delighting the customer or making the company more competitive.

The management challenge associated with conflict is to first understand the implications of the two basic form of conflict process: functional (i.e., positive) and dysfunctional (i.e., negative). Managers must control and direct conflict, especially dysfunctional conflict among groups that does not promote progress toward organizational goals. By definition, functional conflict helps groups within the organization achieve their goals. Therefore, a manager should not try to eliminate all forms of conflict, especially without understanding the circumstances that gave rise to the conflict and the nature of the conflict process. Moreover, conflict may not be formal or recognized as such, as Kolb and Putnam (1992) noted,

Nor is conflict usually bracketed into discrete public events and sequences, where parties formally negotiate or involve officially designated third parties in the resolution of their differences. Rather, disputes and their ongoing management are embedded in the interactions among organization members as they go about their daily activities. Even though some differences may be publicly aired, the vast majority occur informally and out of sight (pp. 1-2).

A realistic view of intergroup conflict starts with keeping and perhaps even fostering some types of conflict, especially open conflict that can be recognized and facilitated. Conflict may help the organization to grow and change. Groups that cooperate on one point may strongly disagree on another issue. The critical issue is how to manage this conflict. Groups may not agree on the means to achieve a goal, but they may agree that it is indeed a worthy goal to be achieved. Managing intergroup conflict can often involve negotiating jurisdiction over specific responsibilities and/or resources within the organization. A diverse set of ideas on how to proceed toward goals can be good, even splendid, for the organization, and is often a requirement for meaningful progress.

Reference

Kolb, D.M., & Putnam, L.L. (1992). The multiple faces of conflict in organizations. Journal of Organizational Behavior, 13(3), 311-324.

Green Day’s American Idiot: Conceptual Frames for Understanding News

“Don't want to be an American idiot.

One nation controlled by the media.

Information age of hysteria.

It's calling out to idiot America.”
-- Excerpt from American Idiot by Green Day

Consumers use conceptual frames or opinion schemas to interpret product and political news, despite what media critics suggest (Neuman, Just, & Crigler, 1992). Facts, images, and perceptions typically are organized into opinion schemas that are a means of understanding the images, connections and values that an individual attributes to a subject. According to Neuman, Just and Crigler’s (1992) oft quoted work; five such opinion schemas for interpreting news information have been reported:

1. Economic Frame – “reflects the preoccupation with ‘the bottom line,’ profit and loss, and wider values of the culture of capitalism.” (p. 63)
2. Conflict Frame – stressing of conflict between the parties involved.
3. Powerlessness Frame – interpreting events in terms of submissive and dominant forces.
4. Human Impact Frame – framing of events by focusing on specific people or groups.
5. Morality Frame – reference to G-d, his law, morality and other religious tenets.

At times, the news media do not seem understand how their viewers and readers interpret the news, given that the majority of coverage frames stories by emphasizing conflict between the parties in the news story. The news media frequently report from an angle that implies that the parties or institutions involved in a story are involved in conflict. The conflict perspective may even be created by the medium in an attempt to polarize the parties, such as the possibility of adding more fuel to the fire in race-related issues. Viewers and readers in the study used the conflict frame less than the other conceptual schemas and far less than the media that covered the story (Neuman, Just, & Crigler, 1992).

A person’s opinion schema can be influenced by a fully-developed ideology and serves as a proxy for an realized ideology on some issues. Furthermore, the opinion schemas (i.e., conceptual frames), being networks of organized knowledge and beliefs, affect how people filter, sort, and reorganize information while they construct political meaning. If a reporter or ordinary citizen tends toward employing a particular conceptual frame over another, everything they say or read while they construct political meaning and reality will be influenced by that conceptual frame. For example, if the news item is reported using a conflict frame and is interpreted with a morality frame, then some viewers may see the issue as a holy war. As another example, if the news item is reported from an economic frame and is interpreted from a powerlessness frame, then some viewers may see the issue as capitalism exploiting the masses. Taken to the extreme, the possible alternative views of reality are endless. Hence, it is certainly possible that the news media can influence what think about (i.e., public agenda) but the media far from control us, as the song suggests.

Reference

Neuman, W. R., Just, M.R., & Crigler, A. N. (1992). Common knowledge: news and the construction of political meaning. Chicago, IL: University of Chicago Press.

eBay and Aristotle’s Model of Isolated Economic Exchange

Aristotle’s writings about the dismal science of economics lack the attention and favor that has been shown his philosophy. Why? Perhaps the magnificence of his collected works overshadows his important contributions to the theory of isolated exchange. Isolated exchange occurs when two parties arrive at terms of an exchange of non-uniform products without (objective) consideration of market forces and alternatives in the market for said goods. In effect, the exchange is negotiated in isolation and based on the subjective preferences of the individual parties. An underlying assumption is that there is no organized or informed market on which to base the transaction. Isolated exchange was commonplace in Aristotle’s time and can be found in pre-industrial economies employing barter in our own age. By way of comparison, consider eBay.com and the market information it provides as the ultimate safeguard to the perils and advantages of isolated exchange to both buyer and seller.

Many economic historians might be unaware of the extensive writing of the Greeks on economics and their related commentaries written throughout the intervening centuries. This is understandable because economics was not organized into a separate discipline in antiquity. Economic science developed its own identity in the late 18th century as political economy when it was discovered that the market was a self-regulating system, and thus afforded its treatment as a unique discipline. Until this realization, the lines of demarcation between the social sciences were not significant enough for economics to be recognized as a unique scientific discipline, and hence the thread of thought stretching from Aristotle is not immediately obvious.

Those historians who are aware of Aristotle’s writings by way of the Scholastics of the Middle Ages, who dealt extensively with Aristotelian ideas, may be predisposed to dismiss his ideas based on the Scholastic interpretation and point of view. (Aristotle had a marked effect on the Scholastics some of which is felt among economists today.) Despite his historical influence, Aristotle did not understand the concept of a self-regulating market -- he would not have approved of the selfish motives behind using money to accumulate wealth and the subsequent influences of those motives on cognitive evaluation of utility and value in market exchange. Aristotle’s analysis of two-party exchange did not include an analysis of how market price is arrived at, and this led to continual confusion about his model. The confusion over Aristotle’s isolated-exchange model made it foundational for discussions of value during the Middle Ages. Furthermore, he condemned the charging of interest, so he would have also been skeptical of modern notions of the cost of capital that lubricate today’s markets. Nevertheless, Aristotle’s ideas are fundamental to modern economic theory and he influenced many of the early thinkers. I do wonder what the Greeks and the Scholastics would think of eBay.com…

Reference

Ekelund, R. B., Jr., & Hébert, R. F. (1997). A history of economic theory and method (4th ed.). New York: McGraw Hill.

Kouzes and Posner's Five Leadership Practices Common to Successful Leaders

Kouzes and Posner (2002) listed the five exemplary leadership practices as: (a) Challenging the Process, (b) Inspiring a Shared Vision, (c) Enabling Others to Act, (d) Modeling the Way, and (e) Encouraging the Heart. The thesis underpinning the book The Leadership Challenge is that all of these leadership practices can be found in the styles of successful leaders. The CEO must seize the opportunity to lead the organization to greater paths by executing a similar model of successful leadership.

Challenging the Process is first in the cycle of outstanding leadership practices. Leading effectively cannot mean standing still but moving the organization forward. The organization must be pushed, pulled, cajoled, kicked, and persuaded, etc. to move forward in a meaningful, substantive way – hopefully, leaders can pull the organization and not have to push, which is what the book is all about. Some change might come from within the organization, from the front lines or middle management, but ultimately it is the CEO’s job to lead the company toward success and profitability.

The most important leadership practice is Challenging the Process. Engaging in this practice starts the cycle of effective leadership. If the status quo is not challenged, then the organization continues in set patterns of operation. A leader must be an early adopter of innovation and without this passion for change, the organization may not move forward successfully. Leaders must ask what should be, instead of being satisfied with what is. Kouzes and Posner (2002) made a strong case for the primacy of challenging the way things are, “The leader’s primary contribution is in the recognition of good ideas, the support of those ideas, and the willingness to challenge the system in order to get new products, processes, services, and systems adopted” (p. 11).

After challenging the way things are done, the leader must motivate those who would follow by Inspiring a Shared Vision. It is not enough to tell others what must be done. The leader should package their vision of what must be done in a form that can be owned and executed by followers. Inspiring this shared vision requires enthusiasm and an understanding of how to tie the vision of what must be done into the dreams of others. For example, years ago I read in the Santa Clara University catalog that the purpose of the Leavey Business School was to train leaders in the Jesuit tradition – that is, produce business leaders capable of considering not only what is, but also capable of considering what should be. That vision of graduate business education has stuck with me all these years.

Beyond Inspiring a Shared Vision is Enabling Others to Act. In essence, leaders must develop a relationship with constituents that shares power in such a way that enables followers to move toward the direction of the vision. Leaders cannot move toward the dream alone; coordinated actions and ownership of the vision by followers are needed. I found it particularly interesting that Kouzes and Posner (2002) used the test of how often “we” was used in speech as an indication of growing leadership abilities – early in my career I reported to a manager who used the personal pronoun “I” often in company-wide communication and the effect was disenfranchising on his team. Consider how leaders can enable others to act through sharing power, “When people have more discretion, more authority, and more information, they’re much more likely to produce extraordinary results” (Kouzes and Posner, 2002, p. 12).

Modeling the Way is another important practice of leadership. Modeling the desired path requires articulating guiding principles and then operationally putting them into practice. When considering the importance of rolling up the sleeves and getting involved as a daily leadership regimen, I am reminded of the old religious axiom, “We’d rather see a sermon than hear one any day.” Nothing could be truer than acting out an example that builds motivation and commitment in those we are charged with leading. Leaders need to facilitate, educate, do, and be the behaviors that they are asking from followers in order to move effectively toward goals.

Encouraging the Heart is a leadership practice that is frequently overlooked. Most managers seem to believe that mature employees should just do their job without being coddled or spoon-fed. The need for encouragement is not a sign of immaturity but an important component of employee motivation. The point that Kouzes and Posner (2002) made is that employees (i.e., followers) will do an outstanding job of moving toward the organizational goal if encouragement is built into leadership practices. If encouragement must come from the constituents’ own grit and determination, then ultimately that needs to be refreshed or generated anew by the leader.

Reference

Kouzes, J.M., & Posner, B.Z. (2002). The leadership challenge (3rd ed.). San Francisco, CA: Jossey-Bass.

Defining Business Research

Research is systematic inquiry of a topic for the purposes of solving a problem. Pure research is theoretical in nature and deals with problem solving which has little direct impact on business action items or policy decisions. Applied research has a more practical foundation in that its resulting conclusions have a direct influence on specific actions taken or policies developed. Pure research is often not the first type of research to take place in a given field of investigation. Applied research is more often the first type of research undertaken because it involves addressing a specific problem. After the problem is more adequately defined, pure research studies defined from what was concluded in applied research studies can tackle the more complex issue of developing a more complete theoretical framework for understanding a whole category of related business problems.

Establishing a definition of research is important in that it sets a minimum threshold for what is considered to be an original and valuable inquiry as opposed to studies which simply report what is commonly understood within a body of knowledge. Descriptive research is useful for defining a subject, but it is often not deep enough to provide working models of processes or explanation of phenomena. Explanation of a phenomenon that required a more penetrating study of the subject data and could lead to a predictive model. Prediction involves the development of a working model that forecasts certain outcomes based upon specific courses of action or natural occurrences. Mere reporting of a set of circumstances in a well-understood body of knowledge is often of little value in that it does not advance the body of knowledge, so it does not qualify as research, per se. In a general sense, a study, regardless of its nature, which advances understanding in a specific area such as a business problem, uses systematic, pre-defined procedures, and has specific goals may be considered to be research.

Reference

Cooper, D.R., & Schindler, P.S. (2003). Business research methods, (8th ed.). Boston, MA: McGraw Hill.

The Original "Nuclear" Power: French and Raven's Bases of Interpersonal Power

Power is an influence over others that can be used persuade them to do things that they might not normally otherwise do. Power flows from a variety of situations and contexts, especially consumption and organization contexts. Three broad contexts of power are interpersonal powers, structural powers, and situational powers.

Consider the five interpersonal bases of power described in the work of John French and Bertram Raven. The five interpersonal bases for exerting power are legitimate power, reward power, coercive power, expert power, and referent power. These bases for power blend the concepts of influence and authority as they relate to subsets of power. Expert and referent power flow from personal circumstances while reward, coercive and legitimate power flow from organizational roles.

Being employed in a more powerful position in an organization offers one legitimate power over others. Others comply with the wishes of one in legitimate power because their contract with the organization gives the one in authority over them legitimate power to control their actions. For example, a first line supervisor exercises legitimate authority over her staff by virtue of their reporting authority to her – her legitimate authority over them gives her the ability to use coercive and reward powers, if necessary.

The fear of punishment is the basis of coercive power. The threat of negative consequences gives coercive power its motivating effect on subordinates. This possibility of negative consequences has the effect of being the exact opposite of reward power. Coercive power forces compliance. Subordinates will comply with a supervisor whom they feel can punish them for poor performance. For example, a manager can pass over subordinates for pay raise or promotion in response to noncompliance.

The expectation of positive outcomes is the basis of reward power. The promise of positive consequences and outcomes gives reward power its positive motivating effect. Reward power is the opposite of coercive power. Reward power encourages compliance. An example would be for managers to recommend subordinates who comply with their wishes for promotion, pay raises, and desirable job assignments.

Expert power is another form of interpersonal power that is present in individuals that have special expertise that is of high value. Contrast this with an individual that has special expertise that is not necessarily of high value. On the other hand, consider the person who provides highly valuable service in a number of areas, but does not have special expertise in a particular area. The implication is that expert power highly valuable and not easily substitutable. This highly valued special expertise gives the expert influence over other regardless of their position in the formal organization. An example of this principle would be an engineer who cannot commit the organization to any legal obligation and may not even be aware of the overall company strategy, but can have a tremendous influence over the long-term health and well-being of the company by developing and registering patents. Possessing special expertise enables one to exercise expert power, or power which is disassociated from rank or position within the organization.

The personality of an individual can be a source of power. The attitudes, actions, and behaviors of an individual can provide charisma, a source of referent power. Many highly effective CEOs and industry luminaries lead their organizations on the strength of their charisma and the reputation that it has earned them. For example, a popular manager can gain compliance from subordinates or whole departments with the strength of the reputations and personalities. The dynamic nature of one’s behavior can equip one with referent power over others.

Each of the five powers is interrelated, with the exercise of any one power being dependent upon the others. Managers can gain compliance with legitimate power, but the literature suggests that the use expert and referent power also gain compliance without lowering employee satisfaction. The use of reward and coercive powers can be effective in some situations as well, but negative employee satisfaction could possibly result from extinction of rewards or overuse of punishment.

Reference

French, J. R. P., Jr., & Raven, B. H. (1959). The bases of social power. In D. Cartwright (Ed.), Studies in social power (pp. 150-167). Ann Arbor, MI: Institute for Social Research.

W. Edwards Deming's Analysis of American Industry Weaknesses

W. Edwards Deming struck at the heart of whether management can make a difference in organizational effectiveness (Gibson, Ivancevich and Donnelly, 1994). Deming’s basic point was that in many instances organizational failure is the result of improper management. However, instead of admitting failure and implementing necessary changes, management typically attributes the problems to symptoms such cost overruns or stiff competition. This denial of responsibility by management has created a disease-like atmosphere in American industry that can be significantly improved.

Deming describes seven major weaknesses (i.e., diseases) which hinder management from effectively managing their organizations:

1. Lack of organizational planning in producing products and technology that will be successful in the future.
2. Emphasis on short term profits at the expense of long term capabilities for the primary benefit of stockholders and financiers.
3. Performance of management is not assessed by merit rating or annual review.
4. Management is far too mobile to be good stewards of their organizations.
5. Management makes too many decisions on limited quantitative data while ignoring the limitations of the data.
6. Medical costs associated with employing workers are far too expensive.
7. The liability associated with running a business is excessive and legal reform is needed.

We cannot know whether Deming's list of diseases was complete, but the list has a certain intuitive appeal that qualifies it for careful consideration.

To combat the seven diseases described above, Deming also suggested areas where management can become deeply involved in organizational processes to improve effectiveness:

1. Develop specific knowledge about the processes and outputs of the organization.
2. Apply analytical problem solving techniques.
3. Commit to serve customers as they define acceptable service.
4. Encourage an organizational culture where employees participate in decision making.

Through consideration of these suggestions, Deming pointed out that management can embrace the organization as a complex system, instead of a series of loosely connected pieces. Managers who avoid the temptation to treat the organizational issues in a short term, piecemeal fashion, but as a whole, stand the best chance of leading their organization to peak effectiveness.

Reference

Gibson, J.L., Ivancevich, J.M., & Donnelly, J.H., Jr. (1994). Organizations: Behavior, structure, processes (8th ed.). Boston, MA: Irwin.