What is Rebranding?

Rebranding is one of those terms that has cropped up in the last decade or so. Branding means to link a name, trademark or service mark with a product or service. However, rebranding can mean both to assign new name, etc. to a product or service and it can mean to reposition an existing brand. That is, rebranding can mean to make the brand mean something else. Consider that brands have multidimensional properties, such as brand attitude (i.e., consumer's perspective) and brand personality (i.e., manufacturer's perspective); in which case, to rebrand we would start by defining the manufacturer's perspective and try to shape the consumer's perspective toward that end. I realize that this is slightly different than what you'll read in Wikipedia, but I apologize for not updating that page yet...

Accounting Assumptions, Principles, and Constraints: A Short Review

Now, let’s backtrack a little to a short review of accounting theory to consider a few concepts useful to the process of extracting meaning from financial statements. All the accounting rules behind Generally Accepted Accounting Principles (GAAP) may seem overly complicated but they can be understood mostly as a complex give and take between the following accounting assumptions, principles, and constraints (Keiso, Weygandt, & Warfield, 2002). By the way, these concepts underpinning how financial statements are constructed really help unite the themes of most MBA-level financial accounting courses.

Accounting Assumptions

Economic Entity – the financial statements assume that we are dealing with a single organization, but this gets tricky when we want to slice and dice the financial statements to understand what is happening with a particular product or division within the organization.

Going Concern or Continuing Operations – we assume that the economic entity has a meaningful past and future for purposes of recording costs of assets and inventory, and decision making based on those costs in the present.

Monetary Unit – we keep score with money and we typically ignore inflation and deflation of currencies; the value and unit of currency is assumed to be stable, unless we are transacting with international divisions that use other currencies besides the U.S. Dollar.

Accounting Periods –we assume that it makes sense to have monthly, quarterly, and annual accounting periods where we stop to assemble financial statements. Fiscal years sometimes don’t align with calendar years.

Accounting Principles

Historical Costs – assets (and liabilities) are typically reported at the historical cost and then adjusted with fair market value when the needs of reporting require it. However, the cost of an asset 10 years ago does not reflect what it is worth to another buyer or the cost of replacement.

Revenue Recognition – we record revenues when they are realized (i.e., we become aware) and earned (i.e., we do or ship something). This is one of challenges that accrual-based accounting is trying to solve. Just because we received cash from a sales order doesn’t mean that we did everything we had to do to earn the revenue or ship the product. Also, we may have sold something but not received cash.

Matching Expenses to Revenues – we match expenses to the revenues, so recorded profit in the income statement is based on the best fit of revenues and expenses. This is another feature of accrual-based accounting; expenses are aligned with associated revenues in the same or future accounting period. For example, most fixed expenses for buildings and equipment must be depreciated to align the expense with the revenue that was earned.

Full Disclosure – in general, accountants record and report every bit of information in the numbers and footnotes of financial statements that fairly represent the activities of the business entity in that accounting period. That is fine and dandy but for decision-making we want to leave out or add things that are relevant to the decision we are making.

Accounting Constraints

Cost and Benefit Paradox – there is a very real cost to recording and reporting accounting information. Hence, some potentially important events relevant to a business may not be disclosed because it was too expensive or cumbersome to gather the data. We must read between the lines of financial statements and add information to which we have access in order to make the best decisions.

Materiality – small financial events are not as important large financial events to the typical, reasonable reader of financial statements. That makes sense but our decision making process may be different from the typical user of financial statements as understood by the accounting folks; some small financial event may not be disclosed even though it is very relevant to our decision.

Industry Practice – one size does not fit all when reporting financial activities. Some industries have peculiar products/services or have special ways of distributing the products/services to customers, so we cannot understand an Internet retailer the same way we would analyze and automobile manufacturer.

Conservatism – to avoid investor misinterpretation of assets and income, accountants choose accounting methods that do not overstate what the business owns or the profits achieved. Again, this is an important consideration for financial reporting, but we need to modify the notion somewhat to make decisions about the business between accounting periods.

Important! As an MBA-level manager, it will be your responsibility to challenge the assumptions behind accounting principles and constraints, when interpreting financial statements to make decisions. It is incumbent upon MBAs to logically and judiciously tweak available financial information to make sound financial or investment decisions that put our organizations ahead of the competition.

Reference

Keiso, D, Weygandt, J, & Warfield, T. (2002). Intermediate Accounting, 11th Ed. New York, New York: John Wiley & Sons.

Six Disciplines Business Excellence Franchise

Looking for an interesting MBA-level professional services franchise or career opportunity? Have a look at Six Disciplines (http://www.sixdisciplines.com/). The Six Disciplines (TM) Methodology is based on practicing a series of repeatable cycles to promote executive, manager, and organizational learning. Step 1 requires the team to decide what is important. Step 2 involves setting goals that exercise leadership. Step 3 promotes alignment of internal groups and systems. Step 4 fosters working the plan. Step 5 encourages team members to innovate toward the purpose behind the goal. Step 6 uses what was learned as 360 degree feedback for improvement in the next cycle. I like this cookie cutter approach; the Six Discplines system could work for many medium-sized businesses that have lost the focus provided by an entrepreneurial presence. What I thought was nonsense was the notion of an annual performance appraisal in Step 6; personal feedback should be continuous, as team's change too fast and feedback more than a few weeks old is typically irrelevant to the person and the process.

Note: all copyrights and trademarks are owned by their respective holders.

Reference

Six Discplines (2007). http://www.sixdisciplines.com/

Necessity of Leadership Charisma

The human quality of charisma can be best characterized as human expressiveness (Kouzes & Posner, 1993). As Kouzes and Posner (1993) suggested, the term charisma has been used to describe so many different variations of qualities expressed by leaders that it has lost a great deal of its true meaning. The whole idea of the type of leadership quality that leaders need to be attractive to followers has become a bit of an overworked cliché.

What the Kouzes and Posner (1993) discovered in their research is that leaders need an attractive human expressiveness that involves sharing, touching appropriately, smiling and making body movements that gain the attention of those being led. As to whether leaders need charisma for leadership, it is difficult to imagine that a leader could communicate effectively with followers without some form of charisma. Another situational factor may be that groups that are formed in an unstructured fashion will simply look to another person in the group that communicates in a way that gains their confidence and inspires them to act in accordance to the direction set forth by the leader. This is to say, the leader with the most influential form of charisma as defined above will rise to be the leader. In a workplace setting, where groups are formed in a structured fashion, an appointed leader may be charged with leadership and not have the strongest expressiveness tendencies or charisma within the group.

With regard to whether managers who are judged less adept at human expressiveness can lead effectively, depends a large part on the situation, the task faced by the group and whether the group was formed in a structured or unstructured context. In sum, the level of charisma required to get the job done all depends on the situation, but in general, all leaders must possess the ability to express themselves in a way that resonates with and gains the confidence of those who would follow.


Reference

Kouzes, J.M., & Posner, B.Z. (1995). The leadership challenge (2nd ed.). San Francisco, CA: Jossey-Bass.

Jevons’ Utility Theory

Much of William Stanley Jevons’ (1835-1882) work in utility theory was his alone, especially the discovery of marginal utility (Ekelund & Hébert, 1990). Later he realized that others such as Dupuit and Cournot preceded him, to which he aptly gave credit. Nevertheless, Jevons’ work went beyond others in that he recast value theory in terms of utility maximization. Jevons was at heart a statistician and he expressed reservation that subjective analysis of an individual’s pleasure and pain (i.e., net utility) were at best only ordinal (not cardinal) estimates of the actual values around which valuation of goods in the entire economy revolved. Being the empirical statistician that he was, Jevons did not state that utility was directly measurable, but instead he defined the utility function as a relationship between the consumption behavior of an individual and the ethereal act of valuation.

Like Jeremy Bentham, he argued that positive utility was simply the net gain of pleasure over pain in the use of a commodity in four types of circumstances: (1) intensity; (2) duration; (3) certainty or uncertainty; (4) nearness or remoteness. Unlike Bentham, he distinguished between total utility and marginal utility, analysis of marginal utility and definition of the equimarginal principle. These were the hallmark of his study.

Jevons noted the difference between the additional utility provided by an additional unit of the commodity vs. the total utility of all the units of the commodity consumed to date. In summary, within a given time period the increase in utility offered by the addition of units of a commodity is not linear. In fact, it will decrease total utility if more units are added. For example, those first bites of a meal are of high utility and the last bites of the meal are comparatively the lowest in utility.

Further applications of Jevons’ utility theory can be seen in the Equimarginal Principle and Theory of Exchange. The Equimarginal principle illustrates how an individual maximizes behavior by allocating to uses in utility-equivalent portions. The Theory of Exchange shows how a trading body comprised of individuals maximizes utility by trading goods that have different marginal utilities.

I disagree with Ekelund and Hébert (1990) that the concept of a trading body always constitutes a “fallacy of composition” (p. 365) in aggregating the members’ individual utility functions because the participants in a trading body could be assumed to have implicitly charged the corporate body with the fiat to make utility maximizing decisions for all, at least for purposes of analysis of the trading body and not an ordinary group. Therefore, increasing the group’s utility (i.e., maximizing general welfare) could constitute a maximization of utility for most of the individuals, by definition.

(For purpose of analysis of a trading body, it seems wise to assume that if one has improved the utility of a group in the aggregate, that most of the members of the group are better off, because of the presumed choice to be part of the trading body. An example might be defending the country against a hegemonic enemy, whereas the country as a whole is better off, but the intensity of pain and pleasure among citizens may vary drastically. This is unlike the specific case of criticism of Jeremy Bentham’s conclusion on p. 131 of the Ekelund and Hébert (1990) where total welfare is calculated by summing the individual welfares. In sum, apportionment of utility seems wise where aggregation does not.)

Reference

Ekelund, R. B., Jr., & Hébert, R. F. (1990). A history of economic theory and method (3rd ed.). New York: McGraw Hill.

Data Collection Examples and Strategies

New Housing Development. A personal interview may be the best way to adjust the stream of questions to probe about specific problems experienced by the residents of a new neighborhood. The fact that the respondents live in a new neighborhood may make telephone and mailing lists unavailable. The open-ended nature of a study about what they like and dislike about life in a small subdivision may require probing on the part of the interviewer. An advantage of a personal interview in this situation is that the respondents are physically close together and that the newness of the neighborhood may make the respondents more approachable.

College Students Voting for Student Government. The university environment would make it difficult to use telephone or mail surveys. Some students may not have a telephone number, and if they do, they may be difficult to reach or they may be from only one particular socio-economic class. A mail survey would probably take too long to reach the students and be responded to, especially with off campus students. A personal interview including a small set of screening questions such as age, gender, ethnic background, and income conducted in the student union building would probably yield results accurate enough to project a favored candidate for the presidency.

Human Resources Professionals in Grocery Distribution. A personal interview of this population would be extremely expensive. However, with only few major companies involved, it is desirable to contact almost all of the companies. A telephone interview is a reasonable compromise from contacting each one personally. A mail survey would probably result in very low response rate, and a higher response rate is needed because of the small population, so it is not recommended.

Attitudes toward Economic Outlook by Fortune 500 CFOs. This is a hard to reach, geographically spread out group of respondents. Personal interviews would be far too expensive. Mail surveys may not be returned in sufficient numbers. The closed-ended nature of the mail survey may limit the answers given. A telephone survey seems provide the best balance of expense, accessibility, and flexibility. Furthermore, a telephone interview would give the greater flexibility needed to probe and get predictions for the next year’s economic forecast. If the research budget is limited, then a mail survey would be the best choice.

Surveying Retail Pharmacies. This audience could be very numerous and spread out geographically. This topic would be of great interest to this audience, not always typical of mail surveys, so a high return rate would be possible. A mailing list for this audience could be easily secured. The expense of a personal interview would not be necessary, as the respondents are too many in number and too spread out geographically. Telephone interviews would yield good results, but the extra expense would not be justifiable.

Marx’s Law of Crises and Depressions

All five of Karl Marx’s Laws of Capitalist Motion supposedly lead to economic crises and permanent depression (Ekelund & Hébert, 1990):

• Law of Accumulation and the Falling Rate of Profit
• Law of Increasing Concentration and the Centralization of Industry
• Law of a Growing Industrial Reserve Army
• Law of Increasing Misery of the Proletariat
• Law of Crises and Depressions (p. 276-278)

Each of these laws simply highlights imperfections present in pure capitalism, if such a system actually exists. Together these laws do not constitute a valid alternative to capitalism, but taken individually they offer some valid criticism -- Marx did not leave implementation instructions though.

Marx’s law of Crises and Depressions is an extension of Marx’s increasing misery doctrine. According to Marx, a crisis would ensue and a depression would take hold because of the capitalists’ never ending propensity to accumulate -- that is, pure capitalism would be pursued, without modification, no matter what the outcome.

There are several questionable assumptions behind the notion of permanence of the Law of Crises and Depression (Ekelund & Hébert, 1990):

• Technological advances have stopped. Labor is a perfect substitute for machinery and vice versa. Does a computer replace a secretary or instead make he/she more productive?
• Machinery does not require a significant number of associated workers. Does a foundry completely eliminate the role of the blacksmith or simply change the job?
• Workers do not readily adapt to displacement by machinery from old specialized jobs and therefore develop new skills. Will new skills be in demand? Is the division of labor a curse or a blessing?
• Long cycles of low wages among a mass of workers will exist.
• The capitalist’s drive for accumulation will always be unbridled and always leads to overinvestment -- information about the general level of overinvestment in other businesses supposedly would not be available, and thereby no change in behavior of individual capitalists would occur.
• Capitalists are innately blind to the plight of the workers and that pure capitalism would always be pursued regardless of the human cost.
• Class divisions are discrete and unchanging. Clearly, a democratic form of government might alter the class rigidity and social immobility that Marx described.

Perhaps the major implication of Marx’s law of Crises and Depression is that the depression would be permanent. This would result in an expanding industrial reserve army and social revolution. In practice though there is a group of persons who are unemployed, but this pool of talent is added to and drawn from as jobs are created, worker skills change, and jobs are eliminated over time. Certainly, in the West, the industrialized nations of the Far East, and the former Soviet Bloc, the law of Crises and Depression has not held a grip on an economy for long periods as Marx suggested.

Reference

Ekelund, R. B., Jr., & Hébert, R. F. (1990). A history of economic theory and method (3rd ed.). New York: McGraw Hill.

Alfred Marshall’s Time and Ceteris Paribus Theory

One of the most confusing aspects of economic analysis is the wide range of interrelated forces that can affect the behavior of an individual or firm over extended periods. Alfred Marshall (1842-1924) constructed an ingenious methodology for isolating the influence that these forces could exert over periods and which could be used to treat these variables separately (Ekelund & Hébert, 1990). Marshall proposed that one variable could be examined in isolation, while other variables were assumed constant. This new methodological construct called Ceteris Paribus, meaning other things being equal, allowed the researcher, who often had limited data, resources, and analytical tools at his disposal to study a phenomenon by breaking a problem into its component parts. The effect of each component part could then be ruled out in having an effect on the variable under study.

Ceteris Paribus was a breakthrough because it provided a clear name and methodology to a technique that had been employed somewhat sporadically in classical economic analysis. The Historicists among others rejected classical economic analysis in favor of their own holistic views because of the very point that economic forces were too complex overall to comprehend. Marshall’s advancement of Ceteris Paribus shattered the notion that internal and external forces exerted on both the firm and the industry were always too complex for analysis.

Marshall’s own example of the fishing firm within the context of the fishing industry gives clear examples of the importance of judicious application of Ceteris Paribus. Seasons and weather affect the demand for fish in the short run. Availability of substitutes and changes in consumer tastes affect the long run demand. Underemployed anglers and existing boats being used for other nautical purposes could then fish existing waters to help allow for responses to short-run demand. Training new anglers and building new boats allow for long-run response to increased demand. Clearly, isolating these forces allows one to choreograph changes in competitive equilibrium with some sort of rational explanation. With Ceteris Paribus, Marshall demonstrated in his example of the fishing industry that some long run and short-run factors that do affect the fishing trade can be ignored or assumed constant for short periods.

Through application of Ceteris Paribus, one can understand the problems of continuous change over time on various forces that affect demand and supply. Marshall applied Ceteris Paribus to define the relationship between changing demand and production costs with normal price and competitive equilibrium. Marshall further noted that variables held constant under a Ceteris Paribus assumption are done so on a provisional basis only—problems unfolding over long periods of time could make special study of some variables necessary to determine the validity of holding the variables constant with Ceteris Paribus.

Reference

Ekelund, R. B., Jr., & Hébert, R. F. (1990). A history of economic theory and method (3rd ed.). New York: McGraw Hill.

Leadership Behaviors that Support Shared Values

Modeling the way is how to set the example through behavior that supports and is consistent with shared values. Setting the example or modeling the way is all about leaders doing what they say will do. Leaders must therefore execute the following principles that underlie the strategies in Commitment #7: "Set the Example by Behaving in Ways That are Consistent with Shared Values" (Kouzes & Posner, 1995, p. 232):

1. Clarify personal values and beliefs and those of others;
2. Unify constituents around shared values;
3. Pay attention constantly to how self and others living the values. There is a simple and time-honored religious principle that applies to this discussion: “We’d rather see a sermon than hear one, any day.”
   

Clearly, a leader must provide an example that matches what they are promoting. Kouzes and Posner (1995) provide the following guidance on aligning the messenger with the message:

• A. "Take a look in the mirror" (p. 232) – spend some time reflecting on who you are and what your values are in order to become more self-aware.
• B. "Write your leadership credo" (p. 233) – translate your personal values into a personal leadership credo that describes how you wish your team to proceed in your extended absence.
• C. "Write a personal tribute and a tribute to your organization" (p. 234) – draft an ideal, lofty vision of yourself and then of your organization.
• D. "Open a dialogues about personal and shared values" (p. 235) – ask your team and other important players in your organization to craft credo paragraphs and then share them, melding them into one common understanding. Go first.
• E. "Audit your actions" (p. 236) – contrast what you preach with what you do on a daily basis.
• F. "Trade places" (p. 237) – spend some time doing other jobs in the organization, especially those of your constituents, to gain a perspective of how others view your position and how you might view their positions.
• G. "Be dramatic" (p. 238) – dramatizing events is a great way of driving home points and making them memorable.
• H. "Tell stories about teachable moments" (p. 239) – look for teachable moments and then tell them as parables to instruct various constituencies; these stories will become part of the organization’s oral history.
  

Reference

Kouzes, J.M., & Posner, B.Z. (1995). The leadership challenge (2nd ed.). San Francisco, CA: Jossey-Bass.

Values in Highly Successful Organizations

Kouzes and Posner (1995) adapt three central themes from management professors David Caldwell and Charles ORielly with respect to the values that are practiced in highly successful organizations: "(1) High performance standards; (2) A caring attitude toward people; (3) A sense of uniqueness and pride" (p. 216).

It is fascinating to note that while each of the organizations studied had different business strategies, they had important core values in common. The highly successful organizations exhibited many other values but three central values that were present stressed a commitment to excellence, a concern for how others were being treated, and a sense of pride in the organization. These values must be ever present and easily measurable when interacting with employees. Employees must allow the values to influence how they work. High performance, a caring attitude, and pride in the organization must be endorsed and supported throughout the organization.

Reference

Kouzes, J.M., & Posner, B.Z. (1995). The leadership challenge (2nd ed.). San Francisco, CA: Jossey-Bass.

Dysfunctional Management Teams: Focus on Programmed Decisions

Programmed decisions are routine, recurring decisions about well understood situations where a precise set of procedures and policies have been developed to deal with their occurrence (Gibson, Ivancevich, & Donnelly, 1994). For example, shipping and installing products at a customer’s site can be handled by a programmed decision. Nonprogrammed decisions are nonroutine, possibly unique and complex, decisions where the situations do not occur frequently enough for procedures and policies to have been developed. For example, defining the market requirements and developing a new product line cannot be handled by a programmed decision making process. Procedures for making programmed decisions can be developed for almost any recurring business issue and the organization can be trained to cope with their occurrence. Methodologies exist for identifying unique problems and developing complex solutions, but there is nothing routine about the process.

There are a number of implications to how an organization handles programmed and nonprogrammed decisions, if programmed decisions can be thought of as often being tactical and nonprogrammed decisions as strategic. The executive team should be delegating decisions that can be programmed to their direct reports and their respective organizations. If the executive team is spending more time on programmed decisions than on nonprogrammed decisions, this could be indicative of a dysfunctional management team. By its very nature, the executive team should be spending more time on strategic issues and planning than on handling tactical recurring issues.

Reference

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

Defining Customer Relationship Management (CRM)

While we barely talked about issues such as customer relationship management (CRM) a decade ago, managing the relationship with our customers and the entire customer experience (i.e., CEM) has moved onto center stage. Managing how our customers consume the organization’s product or service is the central marketing issue in business-to-consumer (B2C) enterprises. Greenberg (2004) quotes Goldman Sachs research that places CRM as the number two strategic issue behind security, but one could argue that all forms of managing the customer relationship are and always have been the number one marketing and strategic issue facing businesses. After having spent over 20 years in marketing and marketing management positions, I thought we were always doing this…!

There is a problem though with this new focus on CRM and CEM. Becoming more nimble and responsive to our customers is often presented to the organization as a software initiative, but it remains an organizational issue that must be envisioned, led, and planned. For example, to build walls we must envision striking the head of the nail with the hammer and approach the problem without confusing the tool (i.e., hammer) with pounding nails in building walls; we want to pound nails not swing hammers. That is so simple it sounds corny. However, CRM-related software initiatives are not usually perceived as implementations of customer-centric processes in the organization; the software is a tool to deal with CRM and not CRM itself.

Most organizations would be best served by learning thoroughly what changes to existing CRM processes could and should occur before implementing CRM software. In fact, I wonder if organizations would be better served if they bought software, implemented the changes that the software implies, and sent the software back to the vendor. A long discovery and planning phase, and the organizational introspection it implies, is the best way to keep CRM initiatives at center stage and the star of the show.

Reference

Greenberg, P. (2004). CRM at the speed of light: Essential strategies for the 21st Century (3rd. Ed.) New York: McGraw Hill.

Walras’ Law in Economic Analysis

Walras’ Law of Markets, defined by Léon Walras (1834-1910), which is a part of his theory of General Equilibrium, is particularly significant to macroeconomic analysis because it allows one to make conclusions about three sectors of an economy by analyzing only two (Ekelund & Hébert, 1990). For example, when zero excess demand exists (i.e., Walrasian Equilibrium) between any two of the consumption/investment market, the money market and the bond market, the third market is in equilibrium also.

Application of Walras’ Law to the entire economic system is an extension of the economic activity of individual consumers. Fundamentally, demand by consumers is a mirrored reflection of supply by other consumers. Whereas, each consumer trades to achieve an optimal set of holdings within their budget constraints, the “excess demand for any good depends upon the sum of the excess demands for other goods” (Ekelund & Hébert, 1990, p. 438). In other words, an individual must have excess supplies of goods in equivalent values to those goods demanded.

The zero-sum exchange that is present in the condition of general equilibrium in a market applies to both the individual and the economy. Through Walras’ Law, Walras’ General Equilibrium Theory demonstrates the relationships and interconnections between markets in a competitive, idealized economy as well as relationships between the demand functions of individual consumers.

Reference

Ekelund, R. B., Jr., & Hébert, R. F. (1990). A history of economic theory and method (3rd ed.). New York: McGraw Hill.

Leadership Planning With Small Wins

Achieving a goal through the process of small wins requires careful planning as well motivating constituencies and building commitment into action through managing behavioral aspects (Kouzes & Posner, 1995). Attention to detail in project management is an essential aspect of writing a potentially successful plan. Here are some issues to consider:

1. Vision and values drive planning – using planning tools and theory are the means to develop a good plan but not an end;
2. The people who are responsible for executing the plan should be empowered with writing the plan;
3. Every project should be broken down into definable, manageable pieces;
4. Manage the visualization and aspirations of members by walking through planning the entire project.

Projects that have high visibility and high importance to the organization must be meticulously planned and using the principle of small wins ensures that progress is incremental toward the goal.

Reference

Kouzes, J.M., & Posner, B.Z. (1995). The leadership challenge (2nd ed.). San Francisco, CA: Jossey-Bass.

Motivating Through Recognizing Contributions

It is important for individual contributions to be recognized, so that constituencies feel that what they have contributed is valuable. People need encouragement when working long hours toward completion of important group goals. Kouzes and Posner noted that the ability to recognize the contributions of others is a highly desirable attribute in leaders. Here are some of the essentials for recognizing the contributions of individuals (Kouzes & Posner, 1997):

1. “Building self-confidence through high expectations” (p. 271) – help create a self-fulfilling prophecy by giving people a reputation they must then live up to;
2. “Connecting performance and rewards” (p. 275) – leaders help people know what is expected of them, provide feedback on performance and reward those who are judged to meet the standards;
3. Using a variety of rewards (p. 278) – intrinsic rewards within the context of the job such as challenge and recognition should be balanced with extrinsic rewards such as compensation packages and positional power;
4. “Being positive and hopeful” (p. 283).

Each of these techniques offers a new dimension for bolstering the worth of individuals. Although rewarding through the recognition of contributions does not preclude giving financial rewards, the thrust is to provide non-monetary recognitions due to their often-greater value in motivation.

Reference

Kouzes, J.M., & Posner, B.Z. (1997). The leadership challenge (2nd ed.). San Francisco, CA: Jossey-Bass.

Leaders Instill Shared Values

The author cannot emphasize enough the importance of alignment between individual and organizational values. Kouzes and Posner (1997) made an excellent point about the increased effectiveness of this alignment. The author worked for a few years with an executive leader who did not share the same values, which was a frustrating waste of time. Overall, this difference in values was one of the main reasons that the initial business plan was not entirely successful and the second venture struggled. Shared values among business leaders are very important because they serve as standing orders, so to speak. When the team members or entire organization wonders how it should react to a new situation, they always refer to their perception of shared values for guidance.

For example, General George S. Patton, Jr. dictated this standing tactical order: “To so use the means at hand to inflict the maximum about of wounds, death, and destruction on the enemy in the minimum amount of time.” In many ways this single order summed Patton’s general approach to warfare and provided direction and values that must have been shared and understood by all his officers. Therefore, the same principles can be seen in other organizational contexts: values shared by all are wholly efficacious.

Specifically, the presence of shared values in an organization results in following byproducts (Kouzes & Posner, 1997):

• A. Strong feelings of member effectiveness
• B. Members are more loyal to the organization
• C. Consensus regarding key organizational goals androles of stakeholders in those goals.
• D. Ethical behavior is encouraged.
• E. Strong norms about working hard and caring about quality are encouraged.
• F. Jobs stress and tension are reduced.
• G. Organizational pride is fostered.
• H. Job performance expectancy.
• I. Feelings of belonging, cohesiveness, and cooperation are advanced.

Reference

Kouzes, J.M., & Posner, B.Z. (1997). The leadership challenge (2nd ed.). San Francisco, CA: Jossey-Bass.

Small Wins Lead Organizational Change

A small win is a baby step toward the goal. The individual steps to complete any large task can usually be identified by breaking down a problem into its component parts. The author is reminded of an expression often used by an acquaintance, “You can eat a whole cow one bite at a time.” While the saying is a bit unusual, it does illustrate the simple point that small, deliberate steps toward a goal, no matter how large the goal, will result in what seems impossible being achieved. Long journeys always begin with a single step and leaders can effect incredibly difficult and large organizational changes by considering the projects as a series of actionable tasks proceeding toward measurable goals and milestones. It is important for constituents to realize that persistent, organized effort over a long period can result in enormous accomplishments. “Small wins breed success and propel us down the path" (Kouzes & Posner, 1997, p. 258).

Reference

Kouzes, J.M., & Posner, B.Z. (1997). The leadership challenge (2nd ed.). San Francisco, CA: Jossey-Bass.

Organizational Development Evaluation: Tip of an Iceberg?

When attempting to understand an organization for purposes of diagnosis and prescription of an intervention, the iceberg provides the executive with a useful model. By its very nature the organization possesses tangible, observable characteristics that can be thought of as part of the formal organization and intangible, immeasurable qualities that comprise the informal organization (Gibson, Ivancevich, & Donnelly, 1994). The formal organization can be understood by examining structural qualities such as job tasks, department bases, operating policies, and personnel policies. The informal organization can be appreciated by rationalizing inter-group behavior, intra-group behavior, individual behavior, and individual group behavior. Formal targets can be better addressed because of their quantitative nature while informal targets are less easily addressed due to their qualitative nature. The formal aspects of the organization can be addressed with interventions such as job redesign, Likert’s System-4, sociotechnical system design and management by objectives (MBO) initiatives. The informal aspects of the organization can be addressed with interventions such as the managerial grid, team building, sensitivity training, and process consultation initiatives.

The corporate manager, like the seafaring ship captain faced with an iceberg, would do well to observe carefully the visible portions (i.e., formal) of the organization while estimating and paying respect to the invisible contours (i.e., informal) of the organization that are below the waterline when considering organizational development targets or groups of targets. Considering both the formal and informal aspects of an organization allows the manager to assess properly what organizational development intervention(s) is most appropriate.

Reference

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

Organizational Development Characteristics

Contemporary organizational development has the following distinguishing characteristics (Gibson, Ivancevich, & Donnelly, 1994): (1) It is planned and long-term–the process is based on gathering data and planned with the expectation of changes taking years; (2) It is problem-oriented–a multidisciplinary approach is taken to apply theory and research to effect solutions; (3) It reflects a systems approach–the organization is viewed as a system and as part of system with respect to managers, technology and organizational structure; (4) It’s action-oriented–instead of being descriptive of necessary changes, organizational development is diagnostic and prescriptive, seeking measurable results; (5) It involves change agents–there is a distinct role for an active facilitator and ombudsmen of the process, to ensure that changes are real; (6) It involves learning principles–individuals, groups and managers at all levels of the organization must re-learn how to function together. Managers who embrace organizational development must be committed to effecting fundamental changes in the organization, if the change processes employed are to resemble those described in the characteristics above.

Reference

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

Holland’s Personality Theory and Career Choices

Employees often face important career choice issues. A person presumably chooses a career path from available opportunities. The preparation for a particular career, however, involves a choice from a wide range of education and vocational opportunities, which will have an often-unknown impact on their family, ethics, security, and friendships. An organization must seek to match individuals to the sustainable career paths that contribute to ongoing business success. An individual must seek to acquire the skills and maintain an interest in a particular career over an extended period. Either organizations or individuals may change their notion about the acceptability of a particular career. How can organizations select the best candidates and develop them along the way? How can an individual select the career to which they are most well suited? Holland’s theory may help answer these questions.

John L. Holland’s six personality types seek to classify an individual in one of six groups of characteristics (Gibson, Ivancevich, & Donnelly, 1994): (1) Realistic; (2) Investigative; (3) Social; (4) Conventional; (5) Enterprising; and (6) Artistic. Holland sought to develop a general model that would aid in matching individuals to personality types and thereby identify the general direction of their careers. At the very least, the theory may be able to identify career choices that the individual may be least likely in which to succeed or be “happy”, to the degree that a career path can define in discrete terms the qualify of family life, financial security, physical security, self-esteem, etc.

Reference

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

Classical Value Theory (Part 5 of 5)

In terms of long run costs of production, Smith distinguished between the natural price as a measure of value, which is determined by the long run costs of production, and the market price that is determined by the short run interaction of forces of supply and demand. It was Ricardo who argued that the long run costs of production, with labor being the primary one, were worthy of the most interest and that short run interaction of supply and demand were too insignificant to be worthy of great concern. Malthus, however, accurately countered Ricardo by pointing out that simplifying the discussion to the point that shifts in the supply and demand schedules were not a consideration in the short run was a considerable oversight.

Ricardo borrowed from Smith but sought to simplify his theory of value as much as possible (Ekelund & Hébert, 1997). Ricardo thought that Smith’s idea of natural value when applied to a price change of one of the factors was inadequate. For Ricardo it was more important to analyze a single important variable than to consider extraneous variables that may or may not have an effect on value. In this sense, he was dead wrong in developing a theory of value that actually explained prices. Clearly, manufacturers would ask a price that would allow them to recover their costs of production, with labor being the primary component, but what about intermediaries. What about short-term excesses in the labor supply? What about differences in the quality of labor? What about the qualitative differences in skills among workers in different regions or even countries? The Ricardian system also failed to explain the demand side of price determination. Malthus noted this and pointed out many flaws, but unfortunately, Malthus did not explain his reasoning as tightly as Ricardo did.

Unlike Smith, Ricardo attempted to develop a general explanation of relative prices. On the other hand, Malthus kept trying to infuse short-term dynamics into the discussion. Ricardo’s consistency upheld the notion that labor was generally the most important factor in the determination of value. (Commodities that did not fit into this model were considered generally to not be mainstream products.) In doing so, Ricardo argued that capital was in a sense stored as embodied labor and that the more capital employed in manufacturing the product, the greater rate that value would increase. Consequently, Ricardo contributed especially in the area of how employing capital increases the value of goods. Ricardo pointed out that capital used and the time value of capital employed also adds value to a product.

Smith, Ricardo, and Malthus all shared the belief that the markets were best able to determine optimal outcomes for individuals rather than planned economies. Supply and demand theory was a chief adversary of the labor theory of value, and classical economics did not resolve this paradox. Smith, Malthus, and Ricardo all missed a point in the value analysis that was later discovered by Senior: utility value of a good and scarcity value of a good combine to produce value.

Reference

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

Classical Value Theory (Part 4 of 5)

Thomas Malthus debated with Ricardo over the course of two decades on the subject of the Corn Law and Ricardo’s approach to general economic method (Ekelund & Hébert, 1997). Malthus obviously saw the importance of Ricardo’s real cost theory of value in the long run applications but sought to apply supply and demand analysis to explain the practicalities of short term market behavior. Malthus applied some of Smith’s ideas about supply side market determinants to Ricardo’s system and brought it into sharper clarity. Mathus saw several shortcomings to the Ricardian system but often supported his own position weakly. Mathus’ contribution in this area did not have a lasting impression on economic theory in the wake of Ricardo’s extensive skills as a debater and logician.

Unlike the Physiocrats before him, Smith actually sought to analyze how value arises in the context of exchange and used this as a means to better understand how macroeconomic growth takes place. In this respect, Smith’s attempt to build an economic system far exceeded what the Physiocrats achieved. Ricardo’s theory of value hinged upon the real costs of factors of production, specifically labor, in constructing an argument to explain why artificially keeping the price of grain high in England would actually hinder capital accumulation and economic growth. Although essentially correct in the Corn Law instance, Ricardo modified Smith’s theory of value to treat what was essentially a special short run case of grain subsidies. Malthus attacked Ricardo’s emphasis on real costs alone and sought a better, more generally applicable model using the principles of supply and demand analysis. Perhaps Malthus’ intent was to refine Ricardo’s thoughts (as Smith would have done if he were alive) to explain what would be short term adjustments to exchange value instead of the long term effects on exchange value of putting an increased amount of labor into the production of a good.

Smith considered profits in his value theory but not price from a demand schedule perspective. Ricardo sought to remove rents and profits from the analysis. Perhaps value is best considered as a supply-side discussion while price is a demand-side discussion. Smith’s discussions of value more clearly have application in understanding prices. Ricardo sought to uncouple the consideration of value with discussions of price while Smith considered the final price to be comprised of rent, wages, and profits. Smith felt that labor was the primary factor in the supply-side determinants of value but certainly not the only factor.

In discussing the demand-side determinants of value, Mathus and Ricardo argued about demand and quantity demanded as if they were the same. Malthus and Ricardo seemed to confuse a shift of demand with a change in quantity demanded. If only they had been privy to the revelation of demand schedules, they could have discussed whether they were talking about price shifting the quantity demanded or whether some other demand factor had actually shifted demand.

Malthus sought to relate Ricardo’s analysis more realistically into the workings of a complex economy. Malthus recognized that buyers could want goods at varying levels of desire, while Ricardo just assumed that the buyer would pay what the good was worth in terms of labor. Malthus extended Ricardo’s analysis to include the rigors of supply and demand. Malthus’ view of exchange value evolved and he often wavered in his later writings, and this left him open to be “dashed against the rocks” of Ricardo’s system. The strength of Ricardo’s arguments was not always in that they best explained the economic phenomenon, but that they were part of a tightly evolved system.

Ricardo’s view of market forces in relation to Smith’s and Malthus’ seems quaint in our own time of relatively efficient markets. Ricardo focused on the theoretical side and that is why the short-term effects of market equilibrium were not interesting to him. To Ricardo, a specific and direct relationship existed between the addition of labor and an increase in value. Moreover, vice versa, a subtraction of labor led to a decrease in value. Ricardo assumed that the market would automatically shift prices, in general, to reflect these changes.
Smith included rents in his discussion of the increases in value, while Ricardo did not. Unlike Smith, who sought to treat all variables that affect value determination, Ricardo built a system out of focusing on a single dominant idea. Ricardo unrealistically assumed that land only had one use in the long run and rent paid for its use was a minor variable in the analysis.

Reference

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

Classical Value Theory (Part 3 of 5)

Smith chose labor employed as the common denominator of the supply side elements of price determination (i.e., valuation.) It is worth noting that Smith’s value theory (and Ricardo’s, too) only fits the case where long run costs of production are constant and not increasing or decreasing (Ekelund & Hébert, 1997). Wages vary between different types of jobs and skills -- especially between services and commodities. Smith did not produce a satisfactory explanation of the theory of determination of wages, rent, and profit. Unfortunately, too, Smith’s theory of natural value (like Ricardo’s) is circular in that it explains prices of goods with prices of factors of production, some of which are goods themselves. On the other hand, a complete theory of value should explain the cause and determination of payments for labor, capital, rent, and profit. Smith effectively argued that in a mobile and communicative society, that efficiency of the market arises and these forces have a significant effect on the actual market price. On the subject of market forces, Smith noted that effectual demand is different than regular demand in that it represents aggregate desire to purchase plus purchasing power. Effectual demand is the total demand of buyers who are willing to pay the natural price. With respect to value, unlike the Physiocrats, who lacked a coherent theory of value, Smith’s economic system rested on sound microeconomic foundations.

Ricardo argued for a real cost theory of value that emphasized labor as the primary cost. With this position, he could base his value theory and economic system on a single dominant variable that would allow for sweeping general conclusions. He thought that each unit of labor applied toward the production of a good should be reflected in the value of the good. Each unit of labor not applied would of course lower the value of the good. Scarce or non-reproducible goods were exceptions to this rule because they possessed value in exchange possibly without the associated labor. Investments in factors of production such as capital equipment were viewed by Ricardo as embodied labor that added value to the good. Ricardo understood that capital employed at different times should have the time value of money considered in its application. Ricardo did not adjust the value of labor (i.e., wages) for qualitative differences such as ingenuity. Furthermore, Ricardo, like Smith, seemed to miss the point that the relative measurement of qualitative differences and changes in the market price for labor would affect exchange value. In that sense, he was thinking of the short term effects instead of the long-term effects. Probably the most obvious mistake by Ricardo was that he did not consider the role of demand in determining prices for non-commodity goods. Within a demand framework, competition affects prices and actual value.

Smith and Ricardo both viewed long run costs or production to be constant and did not allow for the continual adjustments in the markets for differences in wage costs. Some labor may be less skilled than other labor. Still, some of the labor may be more easily obtained than other labor. Ricardo assumed constant average costs of production, primarily labor, in the long run. Where Ricardo also failed was in not realizing that not all labor involved with the production of a good or service produces an increase in utility value (i.e., demand.) All of these assumptions led to a system that pegged value measurement at the point of long run costs of production while ignoring the effect of short-term economic realities. In summary, Smith’s theory of value treats a special case where a firm, in general, faces static long-term costs of production. Note that labor as a cause of value might actually be under or overvalued in this instance.

Reference

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

Classical Value Theory (Part 2 of 5)

In the classical period of economics, from the 1770’s to the 1870’s, Smith, Ricardo and Malthus all made important contributions to value theory (Ekelund & Hébert, 1997). Smith laid the groundwork for the classical school and focused his discussions of value theory relative to value that arises from exchange, albeit the supply side of the discussion. Moreover, in so doing, Smith noted problems with reconciling the market price with value that could be attributed to labor alone (i.e., natural price). This signpost left the door open for others to follow. Smith, Ricardo, and Malthus all contributed to the refinement of value theory, at times expounding on the work of the predecessor, but all approached the analysis of value differently.

Smith developed the basic concept of the wages-fund for capital investment that influenced other economists including Ricardo and Malthus. The connection between Ricardo and Smith essentially is the wages-fund doctrine. This is evidenced by Ricardo’s discussion of how changes occur in land, labor, capital, and the effect those changes have on capital accumulation and economic growth. Ricardo, inspired by Smith in this way, sought to explain value in terms of the measure of labor involved being the primary actual cost, with exceptions to this rule for scarce and non-reproducible goods. Malthus contributed by applying the forces of supply and demand in his analysis of Ricardo’s labor (i.e., real cost) theory of value to explain how value that arises from factors of production (i.e., labor) leads to exchange value. In that sense, Malthus injected a fair bit of reality into the internally rigorous theory of Ricardian economics.

Smith’s discussion of value centered on the surplus value that is created when the division of labor is allowed to run its course. The division of labor gives surplus to each member of the work force who can then trade it for the goods and services they need above minimal subsistence. Smith supported the idea of using labor as a measure of value but proposed that labor was the primary cause of value only in primitive economies. Smith explains that in all but the simplest economies, labor alone cannot explain market price. In the analysis, Smith noted that value can be influenced by utility or effectual demand, but he did not really develop the demand side of the analysis. Smith acknowledged that utility or intensity of desire can effect market price, but centered his analysis around the supply-side determinants. Regardless, Smith clearly recognized that the market must determine the final price for a good (i.e., market price).
Smith made many important contributions while describing exchange value and natural price. Smith recognized that the value of a good could arise from the ways in which it can be used. Smith noted that the value of the good is subject to the scrutiny of the exchange process. The amount of labor used in production of a good is another measure of value, according to Smith. Smith also discussed capital, rent, and profits extensively. Profit is also a necessary component of exchange value, which in the case of the merchant may be completely separate from the labor employed—unlike Ricardo, Smith considered the importance of profits in respect to suppliers.

Reference

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

Classical Value Theory (Part 1 of 5)

Value theory is an important microeconomic building block of any macroeconomic system (Ekelund & Hébert, 1997). The subject typically arises when the economist attempts to explain how income is distributed, possibly as part of a larger economic system. The importance of value theory in economic discussions can be seen through analogy: one cannot engage in a discussion of the growth of the forest without considering how individual trees grow. Classical economists were faced with this sort of paradox. They were faced with the task of reconciling the labor theory of value with the supply/demand theory of value while explaining the macroeconomic workings of a relatively new phenomenon: the post-mercantile industrial economy. It is worth noting that while conducting such an inquiry, the approach to how income is distributed may be influenced by the initial biases of the economist. So too, Adam Smith, David Ricardo and Thomas Malthus approached value theory and analysis from their own perspectives.

In the classical sense, value can arise in a number of ways. Products have value in use and in exchange. They can have high exchange value and little value in use, high value in use and little exchange value or some measure of both. Some products have little exchange value unless combined with other products through a manufacturing process. The amount of labor employed can be an important measure of a product’s value, especially in an economy where labor is the primary factor of production and the markets are primitive. Labor employed can also influence long run costs of production in a more advanced economy. In some cases, additional labor does not add a proportional amount of value. (Note that a labor theory of value can be further confused by adding the notion that the value of a good is tied to its convertibility into labor or other goods that were produced by labor.) Classical economists argued on both sides of the value in use vs. value in exchange discussion but did not adequately resolve it.

A labor theory of value leads to development of a central rallying point for the price of a product. The seller is compelled to adhere to this “price” at the time of the exchange transaction. Nevertheless, of course, the seller may be inclined to accept a lower price on any individual transaction. The result is that real costs can be ignored in the short run but will have an effect on valuation in the long term. Still another point where real costs may not accurately reflect reality is in the production of goods past the break-even point or on the margin. In such an instance, the costs of production are indeed falling for the firm in question. However, another firm may not be at break-even, and so its costs are not falling. Therefore, when the production of these two firms is aggregated in an analysis of the marketplace, the long run costs of production are not an accurate determinant of price at any moment in time. Nevertheless, costs of production are linked to value and the economists have traditionally argued about the details of this relationship.

Reference

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

Leadership Strategies for Facilitating Small Wins

Leaders help facilitate the small wins process by finding the small and sometimes insignificant ways that people can succeed by doing things differently. Progress is made systematically through leaders helping team members mobilizing for fast action and sustaining commitment. Consider also that these steps can be broken down in the six steps (Kouzes & Posner, 1997): (1) Fast action: continuous experimentation; (2) Fast action: reducing items to their essence; (3) Fast action: acting with a sense of urgency; (4) Commitment: providing choices; (5) Commitment: make choices visible; (6) Commitment: make choices hard to revoke.

When mobilizing the organization for fast action, one of the first strategies of the small wins process is that experimentation can take place continuously. Changes can be introduced into the system all the time and the team members are accustomed to change. A second strategy of the small wins process is that items requiring attention are broken into small chunks, which fit into the highly fragmented time available. Projects divided into small chunks also seem more doable. A third strategy of the small wins process is that the team is mobilized to move with a sense of urgency and often without explicit permission–the small wins process does not require permission but it does require urgency. A fourth strategy relates to sustaining commitment by giving team members options about joining the adventure. Following the fourth strategy is to make choices visible so that others can see the commitment and possibly offer assistance. The six strategies for facilitating the small wins process is making the choices available to participants more like ownership and less like leasing–consider what Cortez did when he burned the ships when arriving in the New World, which is a bit drastic but he suddenly had many committed volunteers to the vision of survival in the New World.

Reference

Kouzes, J.M., & Posner, B.Z. (1997). The leadership challenge (2nd ed.). San Francisco, CA: Jossey-Bass.

Johari Window on Interpersonal Communication and Managerial Styles

The Johari window illustrates how differences in interpersonal communication styles and perceptions can account for differences in how managerial styles are understood by the organization (Gibson, Ivancevich, & Donnelly, 1994). The Johari window describes a conceptual area where information is known and is organized along two axes: Feedback and Exposure.

The region of relevant information that is known to others (subordinates) and to self (manager) is named the Arena, a conceptual area that is most conducive to effective personal relationships and communication. Adjacent to the Arena is an area named the Blind Spot, a region where the same level of information is known to self (manager) and more information is known to others (subordinates). The Blind Spot is an area where interpersonal relationships suffer due to lack of feedback from others about reactions, feelings and perceptions. The Arena of effective communication can be extended into the Blind Spot with more Feedback to self (manager) from others (subordinate). Below the Arena is an area named the Façade where more information is known to self (manager) than is known to others (self). The Façade is an area of limited communication where a “false front” can limit honest communication. The Arena of effective communication can be extended toward the Façade, thus reducing its influence by self (manager), by providing more exposure to others (subordinate). Diagonally located from the Arena, below the Blind Spot, and to the right of the Façade is an area named Unknown, where individuals with little or nothing in common must attempt to communicate.

Feedback from others to self (manager) or exposure of self (manager) to others extends the arena in a balanced (diagonal) direction toward the unknown, and thus, expanding the area of shared feelings, experiences, data, assumptions and skills.

Reference

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

Leaders Integrating Performance and Rewards

The author spent several years in a start-up company that developed software to implement variable pay and pay-for-performance systems. While it is relatively simple to conceptualize the principles of an integrated performance reward system, these systems are difficult and complex to implement with regard to information technology. Kouzes and Posner (1997, p. 276) listed three criteria for integrating performance-reward systems: (1) Make certain that people know what’s expected of them; (2) Provide feedback about contributors’ performance; and (3) Reward only those who meet the standards. Consider that it sometimes can be difficult to implement these elements.

In order to make certain that people know what is expected of them, the leader and the organization must have a clear idea of what they should be doing and communicate that message clearly – with sales personnel, this can be relatively straightforward in terms of compensating based upon closing sales. However, with other team members the goals and how to achieve them are far less straightforward, leaving some doubt about the reasonableness of the goal and the measure being applied.

Providing feedback about contributors’ performance is another challenging but important concern. Leaders must give clear and fair feedback on the shortest time schedule possible. The author has been in organizations that give formal performance and salary reviews every year–this process has little positive value and some negative value. The feedback as well as the reward for the outcome must be far closer to the actual performance. Suppose that the team member does something that requires instructive feedback on Day 22 and then the performance review is conducted on Day 365–the team member could have been working on improvement throughout the year–the team member may be hostile and defensive about receiving feedback so far separated from the action. Leaders need to give informal feedback (good and bad) on at least a weekly basis, if not sooner.

Rewarding only those who meet the standards is also fraught with challenges. There is often the need to motivate the individual and the team, instead of just the individual. Rewarding the team can sometimes run counter to the need to reward the individual for their contribution. Recall the Prisoner’s Dilemma scenario: if one works in a team, one expects to be rewarded as a team to receive an appropriate but not maximum payoff. However, if one works as an individual, the payoff is greater to each person. This edgy conflict and symbiosis between group and individual rewards is difficult to manage fairly. Consider also that the information technology challenges of rewarding multiple teams financially for achieving goals can get very expensive unless the entire reward is diluted among the teams. Finally, the blending of intrinsic and extrinsic rewards is not a simple process.

Reference

Kouzes, J.M., & Posner, B.Z. (1997). The leadership challenge (2nd ed.). San Francisco, CA: Jossey-Bass.

Models of Organization Design: Mechanistic, Organic, or Contingency?

By means of contrast, the mechanistic and organic models of organizational design can be thought of as occupying two ends of a hypothetical spectrum. Mechanistic design principles state that the most effective organizational structure has centralized authority, narrow spans of control, more specialist positions, and homogeneous, functional departments. Organic design principles state that the most effective organizational structure has decentralized authority, wide spans of control, more generalist positions, and heterogeneous, cross-functional departments.

Which model is most effective? It all depends on the situation, as each model, if followed exactly, will result in organizations with distinctly different strengths. As the Gibson, Ivancevich, and Donnelly (1995) stated, “While the mechanistic model seeks to maximize efficiency and product, the organic model seeks to maximize satisfaction, flexibility and development” (p. 542). In a very general sense, organizations designed after the mechanistic model might tend to be larger, well-established, mass-production enterprises, while organizations designed after the organic model might tend to be smaller, newer, service producing firms.

The contingency theory of organizational design presupposes that neither mechanistic nor organic design principles are most effective in every situation, especially with respect to today’s highly fluid environment, use of the Internet, manufacturing technology, and volatile capital markets. In fact, the demands of a particular situation may dictate what set of principles or blend thereof would be most effective. Specifically, the technology employed by the firm, ability to process and assimilates external and internal information resources, uncertainties present in the environment, and the strategy being pursued by the executive might alter the choice of either mechanistic or organic design principles. The contingency theory of organization design will often manifest itself in individual departments and workgroups organizing somewhere along the mechanistic/organic spectrum regardless of the structure of the main organization.

Reference

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

Leadership in Competitive Settings

Perhaps the reason that competition was not cited as a part of anyone’s personal best leadership experience is because it can be an exhausting, frustrating situation (Kouzes & Posner, 2002). There are myths here in Silicon Valley about companies and teams achieving superior performance by competing against one another with precisely the same mission–I have rarely witnessed this effect–in fact, I have observed quite the opposite. When executive leaders give two teams similar tasks and encourage them to compete for resources within the organization, the outcome is usually conflict and inefficiency. Obviously, competition has its place in the marketplace but it is often a suboptimal way of managing and leading in the organizational setting; groups should have small and defined overlap in mission and responsibilities.

In organizational settings, there is a subtle difference between collaboration and cooperation. Collaboration is active participation with others to achieve a common goal, while cooperation may be passive participation in the process. Contrast collaboration and cooperation with competition. In competitive environments, teams are not supporting a vision as we see in neither cooperation nor working toward completing a common goal as we see in collaborative efforts. The essence of competition is that there can be only one winner, which is a zero sum game that is not advantageous in organizations where a persistent relationship between groups and group members must be maintained. The persistent relationship of team members within the context of the organizational boundaries sets up the Prisoner’s Dilemma scenario, which limits the payoff. Otherwise, that is, absent the boundaries of the organization and limited resources, competition might provide a reasonable alternative, as it does in the marketplace.

Reference

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

Leadership and Empowerment

The paradox of power diffusion and expansion is a fascinating topic. The lesson that Arnold Tannenbaum published in his research is that constituencies that perceive greater power within their field of influence, especially over the organization, tend to have higher satisfaction (Kouzes & Posner, 2002). Power sharing with group members demonstrates trust and respect. Tannenbaum also found that organizational effectiveness tended to be higher when members perceived that they possessed greater power. Obviously, the leaders most closely associated with these group members had created a climate of empowerment, where each member felt as if they could act as they saw fit on behalf of the organization. The author has experienced delegation of significant amounts of power, when working for a past manager who made each team member the “CEO” of each functional marketing area. There seems to be a certain gestalt in this type of situation with regard to total amount of power being wielded exceeding the leaders own formal organizational power – this may be that the reference, expert, etc. power of other members is exercised in addition to the positional power of the leader.

Reference

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

Job Analysis Leads to Optimal Job Design

The term job design is an all-encompassing term for the process of assigning tasks and authority to a job. Optimal job design or redesign depends on job analysis and thus job analysis can be best understood as the first step in job design or job redesign. The result of job analysis is a thorough understanding of the range, depth, and relationships of the job.

A thorough understanding of a job can be developed through job analysis along three dimensions (Gibson, Ivancevich, & Donnelly, 1994): job content, job requirements, and job context. Functional job analysis is a widely used method for determining job content such as what the worker does in relation to other jobs, what methods and techniques are employed, what tools and equipment are used, and what is the resultant output in terms of goods and services. Job requirements are the job candidate’s / employee’s personal attributes that are needed to perform the job content, such as education, credentials, experience and special skills, which can be discerned from methods like the position analysis questionnaire. Job context is the dimension that describes the working conditions, physical demands, accountability, responsibility, managerial role, and supervision needed.

Job design or job redesign can take place with respect to job range, job depth and job relationships. Job range is a term referring to the number of tasks an individual is expected to perform. Job depth refers to the amount of control, discretion, or influence that an individual can exercise in the performance of their duties. Job relationships are the way in which individual jobs are included within the context of the next level of managerial authority, specifically the span of control and departmentalization of related jobs. These three aspects of job design can help managers describe the observed, objective characteristics of jobs, which can be different from the subjective experiences of those actually filling the position.

Reference

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

Leaders Effecting Intrinsic and Extrinsic Rewards

Intrinsic rewards are those rewards that are built into and incidental to performance of the job. Intrinsic rewards are within the context of the job and are strongly correlated with leaders and constituents performing at their best. Recognition is an example of an intrinsic reward. The challenge of the job and satisfaction of doing a good job can be an intrinsic reward. Praise and other alternative rewards outside the company’s formal reward system are other forms of intrinsic compensation.

On the other hand, extrinsic rewards are those rewards that are supplied from outside of the performance of the job. Financial rewards such as salary, stock options, bonus, and benefits of the job, prestige and title are examples of extrinsic rewards. Kouzes and Posner (2002) suggest that intrinsic motivation must be a part of the entire perceived reward package for the team member to perform at their personal best. Moreover, Kouzes and Posner (2002) suggest that extrinsic rewards and intrinsic rewards might negate one another instead of being additive.

Employees cannot be expected to work for free, but if the job is intrinsically rewarding, then the addition of external rewards may not make that much difference. Why is this the case? I am reminded of a mentor’s stance on variable pay (paraphrased): “If I have to pay someone extra to do the job as best as they can, then I’ve hired the wrong person for the job.” He definitely has a point, when one considers positions outside of sales, where the control over outcomes is often limited. If a person is well-suited and motivated to do a job, should they do less than their absolute best if we pay them less? No, and many professionals would still uphold professional standards even if they were paid minimum wage, because they are professionals. Of course, their professional job status and economic contribution often warrants more than minimum wage though. In some positions, altering the extrinsic rewards may have some effect but not a considerable amount because the job has professional standards of performance. However, if you increase intrinsic rewards for professionals, the quality of output may increase because the team member feels subconsciously that they are doing a better job and, therefore, are more closely adhering to professional standards.

Reference

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

Leadership Strategies for Recognizing Accomplishments

Leaders should have expectations for their own performance and for their followers. I am reminded of the true story of the Soviet submarine K-19 that was recently made into a movie. One of the problems faced by the crew was that they were not completely trained and the officers were not doing much about the issue, presumably due to the lack of proper equipment. The Captain of the submarine called all the officers together and told them that they (i.e., the officers) had failed the crew for not setting high standards. They could have built a stronger crew by recognizing accomplishments that met the requirements communicated by their expectations. According,to Kouzes and Posner (2002), here are some of the ways that leaders can recognize accomplishments:

• Be creative about rewards and give them to team members personally – constituents respond to many different intrinsic rewards and do not necessarily need or always want extrinsic rewards.
• Make recognition of employees public – the conventional wisdom has been that building up people in public may cause jealousy but a more common reaction is that others wish to emulate those who receive the rewards and increase their performance accordingly.
• Design the reward and recognition system in a participatory fashion – let people have a say in how they want to be recognized and rewarded, within reason, of course.
• Provide feedback en route – the author believes this is one of the most powerful principles discussed by Kouzes and Posner (2002): give people timely, nurturing feedback and you can turbocharge the performance of your team. Yearly performance reviews are not timed close enough with good or bad behavior to be anything but perfunctory paper pushing.
• Create Pygmalions – feedback can be observation alone but feedback can also be treatment, meaning that if we honestly treat people like winners; there is a high probability that they will attempt to live up to that image.
• Find people who are doing things right – leaders actually should be looking for people to reward for exhibiting behaviors consistent with the vision of the organization. In effect, they are looking for “poster children” to build up and promote as positive examples for the organization.
• Coach – coaching expands upon the notion of providing feedback en route and in real time. Leaders need to provide feedback in a way that incorporates input from those being coached, which includes talking and strategizing about how to move forward toward the goal day by day.
  

Reference

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

Leading Through Organizational Celebrations

Every society must mark milestones and “bury its dead” – we must celebrate and wish people well in their new endeavors. Still, there are many reasons to celebrate both inside and outside the organizational context, but I have noted in my career that it is important to maintain continuity and regularity without making the celebrations seem tired and worn out. Setting aside a standard time for celebration such as the first Friday of the month or second Thursday of the month helps facilitate celebrations at regular intervals. Regardless of the time allocated for celebrating all the various events, there should be a person tasked with responsibility and a budget to host the events. Some might argue that you can celebrate too much, but there is important information sharing and acknowledgement of effort that takes place at these meetings.

Here are some of the reasons for spontaneous celebrations catalogued by Kouzes and Posner (2002), including some additional thoughts:

• Stages of organization change – the company is expanding, opening new offices, reorganizing the management structure, closing/altering capacity, merging with another company/operation, the sun setting of old technology, the dawning of new technology and occupying new office space, etc.
• Successes – financial, promotions, individual awards, company awards, new customers, new strategic partnerships, product extensions and market expansions, etc.
• Losses – old practices/procedures are retired, financial opportunities, contracts, retiring/resigning employees, job changes, status changes, death of a colleague and recap of an experiment that failed.
• People – teamwork, team success, founders’ contribution, winners of sales contests, President’s/100% club, employee of the month/quarter/year awards, individual birthdays, marriages, and group reunions.
• Events – a company’s anniversary, grand opening days, holidays, new company vision or mission, change in company vision or mission, etc.
• “The Unknown” – paradox, ambiguity in the marketplace, or just simply to rally the troops because they seem to need it, etc.

Reference

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

Elements of Giving Life to Vision

Four elements that leaders should be employing while trying to give life to a vision are (Kouzes & Posner, 2002):

• Powerful Language
• Powerful Communication Style
• Non-verbal Expressiveness
• Positive Attitude

A positive attitude is extremely important to giving a life to a vision. In many ways, a positive attitude comes from really believing in the vision to the very core of your being. Many leaders try to lead people or inspire a vision without really believing in the vision. This is especially true when it comes to start-up companies. Instead, in which case, many so-called leaders just want to get rich quickly and are cynical about a pure vision. The vision in that respect is just a horse that is ridden for a while. A positive attitude is not just upbeat, but healthy and beneficial for the company and for society. A positive attitude toward the vision and how meaning can be created from it is important.

Another important element is breathing life into visions with a powerful language. Kouzes and Posner (2002) suggest that using all manner of figures of speech, metaphors, stories and quotations, etc., helps to communicate a shared identity to constituencies that mobilizes them toward pursuing the vision. A number clichés could also evoke the proper mental imagery necessary to bring the abstraction to the concrete form. Language is a powerful tool for driving home to employees what the company stands for. Professor Hart’s list of four categories of words used by leaders (Kouzes & Posner, 2002) provides some guidance to those would like to improve their ability to lead through language: (1) Words that convey realism; (2) Words that convey optimism; (3) Words that show motion; (4) Words that express certainty.

Related to possessing a positive attitude is the adoption of a positive communication style. Leaders need to communicate in an enthusiastic style that tells people they can and should participate to complete the goal. If followers do not get the impression that the leaders think it can be done, they will not believe it either. Followers need to see a high-energy, can-do attitude in everything we do at work.

Nonverbal expressiveness is a way of communicating without directly using words. Some followers might think of this personality trait of being simply charismatic. Certainly, charisma is part of nonverbal expressiveness in terms of having a strong, magnetic, and inspiring personality. Note that expressiveness is not aggressiveness per se but a strong display of warmth and friendship. One can certainly have an impact on people without explicitly saying what you want or need to have done in the organization. The answer to the following question extends the discussion of what human expressiveness is and how it relates to charisma.

Reference

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

Leadership Processes to Share Vision

In order to share their vision with others, leaders should engage in the following processes (Kouzes & Posner, 2002):

• Discover and appeal to a common purpose.
• Communicate expressively, thereby bringing the vision to life in such a way that people can see themselves in it.
• Sincerely believe in what they are saying and demonstrate their personal conviction.

To discover a common purpose we must start by asking our constituents what it is they seek. If those we would like to motivate are seeking something that we cannot provide or seem to move them toward, they will be less likely to follow. The author’s view is that members of the organization will follow even though they do not see a common purpose. The real question is of degree in which they will follow without seeing their aspirations fulfilled within the leader’s dream. For example, if one thinks it would really nice to build a startup organization and get really rich doing it, then those that buy into that common purpose would be willing to give up vast portions of their personal life in pursuit of that dream, while those who didn’t aspire to be rich, would only work for a paycheck and not put in the extra time to really follow the leader’s dream. Leaders who can sense the purpose in followers and develop a shared sense of direction are more likely to be successful. Leaders should be able to structure the opportunities within the organization in such a way that a meaning beyond financial reward is created.

Giving life to a vision is another critical element in enlisting others. Kouzes and Posner (2002) provide interesting commentary when they state that a leader makes the vision tangible “so that others can see it, hear it, taste it, touch it, feel it.” Leaders can give life to a vision by employing powerful language, a positive communication style, and nonverbal expressiveness. Powerful language employs metaphors, figures of speech, and action-oriented vocabulary to paint word pictures in followers’ minds. By using a positive communications style, leaders convey the possibility of unleashing the power within to “accomplish whatever they desire.” Non-verbal expressiveness is that magnetic quality that draws people near and provides them with strong incentives to follow through application of warmth and friendship.

The ability of the leader to demonstrate personal conviction is vital to recruiting and motivating people to join your program. The attribute being described goes far beyond doing a good job because it was simply required. A leader must both internalize conviction and exude unabashedly the support/belief and that can truly move others toward common goals. A leader both inspires and motivates.

Reference

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

Outsight and Effective Leadership

Leaders need to be in touch with what is going on outside the organization and not be isolated by institutional boundaries. Kouzes and Posner (2002) suggest that changes can come from either outside or inside the organization. Successful innovation rarely comes from within. While the bulk of new product and product improvement ideas come from customers through salespeople and executives, this input should be rationalized by the marketing function before entering the product plan. However, this market research filtering mechanism is not precisely the outsight that leaders need. Outsight can be thought of as sensitivity to external realities presented by all constituents regardless of the context. Just as the metaphor presented in the textbook of turning our back on the ocean, we cannot let ourselves be swept away by not looking at the changes going on outside our companies. Leaders need to stay in touch with contacts in the marketplace and those with different social, political, technological, economic, and artistic backgrounds. Experienced managers can sometimes be at a real disadvantage when it comes to effective use of outsight – they fall into the trap of thinking that they have heard about that issue before. One of the keys to understanding outsight can be found in one of my Grandfather’s sayings, “Remember, the book of what you DO NOT know is a lot bigger that the book of what you DO know.” In sum, successful leaders work to tear down the walls that confine the organization, boundaries that are often self-imposed.

Reference

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

Enhancing Leadership Capacity to Envision the Future

Here are some action items for leaders to envision a bright future for their organizations (Kouzes & Posner, 2002):

• Think first about your past—by examining the history of the organization, including accomplishments and failures the leader can better understand strengths, weaknesses, opportunities, threats and trends relative to visionary thinking.
• Determine what you want—the leader’s organization needs to determine what needs to be accomplished in the next five years from now and beyond. This process will help identify some of the basic values that drive the leader’s philosophy of leadership. What do we want to do? What are we passionate about? What do we want to prove by building this organization? And so on and so forth.
• Write an article about how you have made a difference—the article describing a future flashback of one’s accomplishments would be a very useful way of fleshing out what things the leader is most proud of and what things could potentially provide the greatest contribution to the surrounding community or the community’s growth. Showing the article to one’s colleagues and peers might be uncomfortable but also very instructive.
• Write a short vision statement—the vision statement is a more comprehensive version of the time-honored process of writing a mission statement. In the vision statement, the leader would write about the ideal vision of his career and the business success of the organization. A related process is to write a short slogan that captures the essence of the vision. The short slogan is a great way of communicating the fundamental reason for the organization’s existence to all constituencies. The author has personally found that such slogans are especially useful for developing short sales pitches for field sales people to learn how to describe concisely the company.
• Act on your intuition—if one has an idea that brings life to a vision, then a great way of testing the realism is to go try something that validates the vision. Try it. Model it. Prototype it. For example, if the vision is to build a company that is more closely in touch with customers, then a good way to test out that notion is to start trying to be closer in communication with customers.
• Test your assumptions—it is often instructive to look at the reasons why you have formulated a certain vision. The assumptions underlying our visions may make sense or they may not make sense. Kouzes and Posner (2002) suggest that our visions may be based on faulty assumptions, so it seems prudent to test out a few of our ideas before committing to a certain vision.
• Become a futurist—whose view of the future does the organization have? There are a number of popular books on future trends as well as organizations that prognosticate about future trends. A committee or group of individuals in the organization should be designated with the responsibility to examine the horizon for future trends, which goes beyond just staying current. Organizations must develop visions within the context of what might be possible in the future, instead of what might probably happen.
• Rehearse with visualizations and affirmations—rehearsing with visualization is a common practice in athletics, but it is surprising that we do not practice the technique more in organizational settings. Managers can practice the skill of visualizing the future by choosing a reference organization and brainstorming about what an appropriate vision for the future would be. The more leaders spend time imagining what it will be like for the organization to attain its vision, the more likely they are going to identify potential obstacles that can be resolved and also be mentally hardened to accept stumbling blocks along the way.

Reference

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

Leadership Vision: An Essential Influencing Mechanism

Kouzes and Posner (2002) have established the need for vision. However, the question remains as to whether vision is necessary for the organization to move forward toward the goal. Moreover, is the presence of leadership vision sufficient for an organization to more toward a common purpose? Consider that some members of any constituency will follow instructions provided by leaders and move toward a goal—an ideal notion or image of the goal or leadership is not required. Providing a clear vision for the organization provides an additional and sometimes essential influencing mechanism, but, clearly, organizations can and do accomplish tasks without a clear vision from leadership. The employees may not be very happy, productive or stay with the organization very long, but possessing a vision is not an absolute necessity. Some constituents will simply follow the example of other leaders without grasping the organizational vision. Still other members of the team will proceed because they are paid to or see advancement opportunity. Consider also that there may be degrees of effectively communicating a vision to some or all members of a group. A clearly articulated vision may not be necessary to make some progress, but a vision is necessary to achieve sustained progress toward a goal.

Reference

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

Project Teams Function by Group Processes

In general, people become a part of groups for diverse reasons such as the satisfaction of needs, sheer closeness of social interaction, attraction between individuals, identification with group goals and economic benefits that arise from group participation (Gibson, Ivancevich, & Donnelly, 1994). People of like interests, needs and abilities are naturally drawn into one another's company. Teams function much the same way.

Individuals may seek to form groups for specific reason. A group that must confront a common foe or enemy may band together for security reasons. Most individuals seek interaction with others who have similar interests, and the group setting provides the necessary context. Some individuals are lacking adequate life stimuli to achieve the level of esteem that they feel that they need--once again, the group provides a context to make this possible. Teams can supply these group by-products as well.

Regardless of the needs that are fulfilled by group participation, group participation may occur as a natural happenstance. The numerous opportunities to interact with individuals who are close to one another, such as in teams, are a fact in many job settings. Furthermore, group members who perceive events in a like fashion or who have the same attitudes are also drawn to one another.

A group that forms because of some common goal or vision can serve as a magnet for individuals who identify or who are working toward the same goal. The formation of groups or teams can be both a catalyst for human interaction and a result of human interaction.

Reference

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