DOES ORGANIZATIONAL BEHAVIOR MATTER?

Having described exactly what OB is, its time to discuss another

fundamental question: Does it really matter? s there any value in ta!ing
a class on this sub"ect, other than fulfilling some requirement of your
#rogram? $%ou might guess that were biased in our answers to these
questions, given that we wrote a boo! on the sub"ect&' (ew would
disagree that organi)ations need to !now #rinci#les of accounting and
finance to be successful* it would be im#ossible to conduct business
without such !nowledge+ ,imilarly, few would disagree that
organi)ations need to !now #rinci#les of mar!eting, as consumers need
to !now about the firms #roducts and what ma!es those #roducts
unique or noteworthy+
However, #eo#le sometimes wonder whether a firms ability to
manage OB has any bearing on its bottom-line #rofitability+ .fter all, if a
firm has a good-enough #roduct, wont #eo#le buy it regardless of how
ha##y, motivated, or committed its wor!force is? /erha#s for a time, but
effective OB can hel# !ee# a #roduct good over the long term+ 0his same
argument can be made in reverse: f a firm has a bad-enough #roduct,
isnt it true that #eo#le wont buy it, regardless of how ha##y, motivated,
or committed its wor!force is? .gain, #erha#s for a time, but the
effective management of OB can hel# ma!e a #roduct get better,
incrementally, over the long term+
1onsider this #o# qui) about the automotive industry: 2hich
automa!er finished behind only 3exus and /orsche in a recent study of
initial quality by 4+D+ /ower and .ssociates?
56
0oyota? 7o#e+ Honda? 8h-
uh+ 0he answer is Hyundai $yes, Hyundai'+ 0he automa!er has come a
long way in the decade since comedian 4ay 3eno li!ened a Hyundai to a
bobsled $9t has no room, you have to #ush it to get going, and it only
goes downhill&:'+
5;
<ore recent models=including those built in a
manufacturing #lant in <ontgomery, .labama=are regarded as good
loo!ing and well made, with Consumer Reports tabbing the Hyundai
>lantra ,> as the best small sedan in a recent set of ran!ings+
5?
,ays one
investor, 9Hyundai is a brand that is on the verge of being as#irational+
/eo#le are saying they are #roud to own it, not "ust to settle for it+:
5@
0hat
turnaround can be credited to the com#anys increased em#hasis on
quality+ 2or! teams devoted to quality have been ex#anded eightfold,
and almost all em#loyees are enrolled in s#ecial training #rograms
devoted to quality issues+
5A
Hyundai re#resents a case in which OB
#rinci#les are being a##lied across cultures+ Our OB
Internationally feature s#otlights such international and cross-cultural
a##lications of OB to#ics in each cha#ter+
OB INTERNATIONALLY
BUILDING A CONCEPTUAL ARGUMENT
Of course, we shouldnt "ust acce#t it on faith that OB matters, nor
should we merely loo! for s#ecific com#anies that a##ear to su##ort the
#remise+ 2hat we need instead is a conce#tual argument that ca#tures
why OB might affect the bottom-line #rofitability of an organi)ation+ One
such argument is based on the resource-based view of
organi)ations+ 0his #ers#ective describes what exactly ma!es resources
valuable=that is, what ma!es them ca#able of creating long-term #rofits
for the firm+
BB
. firms resources include financial $revenue, equity, etc+'
and #hysical $buildings, machines, technology' resources, but they also
include resources related to organi)ational behavior, such as the
!nowledge, ability, and wisdom of the wor!force, as well as the image,
culture, and goodwill of the organi)ation+
Hyundais emphasis on work teams and training has increased the quality of its cars, like these
models built in its
0he resource-based view suggests that the value of resources
de#ends on several factors, shown in Figure 1-2+ (or exam#le, a
resource is more valuable when it is rare.Diamonds, oil, Babe Cuth
baseball cards, and .ction 1omics D5 $the debut of ,u#erman' are all
ex#ensive #recisely because they are rare+ Eood #eo#le are also rare=
witness the adage 9good #eo#le are hard to find+: .s! yourself what
#ercentage of the #eo#le youve wor!ed with have been talented,
motivated, satisfied, and good team #layers+ n many organi)ations,
cities, or "ob mar!ets, such em#loyees are the exce#tion rather than the
rule+ f good #eo#le really are rare, then the effective management of OB
should #rove to be a valuable resource+
Figure 1-2 What Maes a Resource !a"uab"e#
0he resource-based view also suggests that a resource is more
valuable when it is i$i%itab"e&meaning that it cannot be imitated+
<any of the firms resources can be imitated, if com#etitors have enough
money+ (or exam#le, a new form of technology can hel# a firm gain an
advantage for a short time, but com#eting firms can switch to the same
technology+ <anufacturing #ractices can be co#ied, equi#ment and tools
can be a##roximated, and mar!eting strategies can be mimic!ed+ Eood
#eo#le, in contrast, are much more difficult to imitate+ .s shown
in Figure 1-2, there are three reasons #eo#le are inimitable+
HISTORY.
/eo#le create a histor'=a collective #ool of ex#erience, wisdom, and
!nowledge that benefits the organi)ation+ History cannot be bought+
1onsider an exam#le from the consumer electronics retailing industry
where <icrosoft, ta!ing a cue from .##le, launched its first retail store in
,cottsdale, .ri)ona, in BFFA+
BG
0he com#any ho#es that the stores will
give it a chance to showcase its com#uter and mobile #hone o#erating
systems, along with its hardware and gaming #roducts+ <icrosoft faces
an u#hill climb in the retail s#ace, however, because .##le has an eight-
year head start after o#ening its first store in BFF5, in <c3ean,
Hirginia+
BI
<icrosofts #osition on the 9retail learning curve: is therefore
quite different, suggesting that it will gra##le with many of the same
issues that .##le resolved years ago+
Microsoft opened its first retail stores in 2009, including this one in Mission Vieo, !alifornia"
#he look and feel of
NUMEROUS SMALL DECISIONS.
0he conce#t of $u%erous s%a"" decisio$s ca#tures the idea that
#eo#le ma!e many small decisions day in and day out, wee! in and wee!
out+ 9,o what?: you might say, 92hy worry about small decisions?: 0o
answer that question, as! yourself what the biggest decisions are when
launching a new line of retail stores+ 0he location of them maybe, or
#erha#s their loo! and feel? t turns out that <icrosoft #laced their
stores near .##les, and mimic!ed much of their o#en, 9Jen: sensibility+
,aid one #atron, 9t a##ears that the <icrosoft ,tore in <ission Hie"o is
dressed u# as the .##le ,tore for Halloween+:
B6
Big decisions can be
co#ied* they are visible to com#etitors and observable by industry
ex#erts+ n contrast, the 9behind the scenes: decisions at the .##le ,tore
are more invisible to <icrosoft, es#ecially the decisions that involve the
hiring and management of em#loyees+ .##le seems to understand the
inimitable advantage that such decisions can create+ . recent article
in Workforce Management included features on the to# human
resources executives for BF of the most admired com#anies in
.merica+
B;
nterestingly, the entry for .##les executive was cry#tic,
noting only that the com#any 9!ee#s its human resources executive
shrouded in secrecy and refuses to res#ond to any questions about HCs
contribution to the com#anys most admired status+:
SOCIALLY COMPLEX RESOURCES.
/eo#le also create socia""' co%("e) resources& li!e culture,
teamwor!, trust, and re#utation+ 0hese resources are termed 9socially
com#lex: because its not always clear how they came to develo#, though
it is clear which organi)ations do $and do not' #ossess them+ One
advantage that .##le has over <icrosoft in the retail wars is the unusual
amount of interest and enthusiasm created by #roducts li!e the i/ad,
i/hone, i/od, and <acBoo! .ir+ 0hose #roducts have an 9it factor: that
brings customers into the store, and .##le itself sits ato# Fortunes list
of 6F most admired com#anies in the world+
B?
1om#etitors li!e <icrosoft
cant "ust acquire 9coolness: or 9admiration:=they are com#lex
resources that evolve in ways that are both mur!y and mysterious+ (or a
loo! at how the resource-based view could ex#lain (aceboo!s early
success, see our OB on Screen feature, which a##ears in each cha#ter
and uses well-!nown movies to demonstrate OB conce#ts+
OB ON *+REEN
RESEARCH EVIDENCE
1.4
Why might firms that are good at OB tend to be more profitable?
0hus, we can build a conce#tual argument for why OB might affect an
organi)ations #rofitability: Eood #eo#le are both rare and inimitable
and therefore create a resource that is valuable for creating com#etitive
advantage+ 1once#tual arguments are hel#ful, of course, but it would be
even better if there were hard data to bac! them u#+ (ortunately, it turns
out that there is a great deal of research evidence su##orting the
im#ortance of OB for com#any #erformance+ ,everal research studies
have been conducted on the to#ic, each em#loying a somewhat different
a##roach+
One study began by surveying executives from A;@ #ublicly held
firms with 5FF or more em#loyees+
BA
0he survey assessed so-called high
#erformance wor! #ractices=OB #olicies that are widely agreed to be
beneficial to firm #erformance+ 0he survey included 5G questions as!ing
about a combination of hiring, information sharing, training,
#erformance management, and incentive #ractices, and each question
as!ed what #ro#ortion of the com#anys wor!force was involved in the
#ractice+ Table 1-2 #rovides some of the questions used to assess the
high #erformance wor! #ractices $and also shows which cha#ter of the
textboo! describes each #articular #ractice in more detail'+ 0he study
also gathered the following information for each firm: average annual
rate of turnover, #roductivity level $defined as sales #er em#loyee',
mar!et value of the firm, and cor#orate #rofitability+ 0he results revealed
that a one-unit increase in the #ro#ortion of the wor!force involved in
the #ractices was associated with an a##roximately ? #ercent decrease in
turnover, KB?,FFF more in sales #er em#loyee, K5@,FFF more in mar!et
value, and KG,@FF more in #rofits+ /ut sim#ly, better OB #ractices were
associated with better firm #erformance+
Tab"e 1-2 *urve' ,uestio$s -esig$ed to Assess .igh /er0or%a$ce
Wor /ractices Source: From M
.lthough there is no doubting the im#ortance of turnover,
#roductivity, mar!et value, and #rofitability, another study examined an
outcome thats even more fundamental: firm survival+
GF
0he study
focused on 5G; nonfinancial com#anies that made initial #ublic offerings
$/Os' in 5A@@+ (irms that undergo an /O ty#ically have shorter
histories and need an infusion of cash to grow or introduce some new
technology+ Cather than conducting a survey, the authors of this study
examined the #ros#ectus filed by each firm $the ,ecurities and >xchange
1ommission requires that #ros#ectuses contain honest information, and
firms can be liable for any inaccuracies that might mislead investors'+
0he authors coded each #ros#ectus for information that might suggest
OB issues were valued+ >xam#les of valuing OB issues included
describing em#loyees as a source of com#etitive advantage in strategy
and mission statements, em#hasi)ing training and continuing education,
having a human resources management executive, and em#hasi)ing full-
time rather than tem#orary or contract em#loyees+ By 5AAG, @5 of the 5G;
firms included in the study had survived $;F #ercent'+ 0he !ey question
is whether the value #laced on OB #redicted which did $and did not'
survive+ 0he results revealed that firms that valued OB had a 5A #ercent
higher survival rate than firms that did not value OB+
. third study focused on Fortunes 95FF Best 1om#anies to 2or!
(or: list, which has a##eared annually since 5AA@+
G5
Table 1-3 #rovides
some highlights from the BF55 version of the list+ f the 5FF firms on the
list really do have good OB #ractices, and if good OB #ractices really do
influence firm #rofitability, then it follows that the 5FF firms should be
more #rofitable+ 0o ex#lore this #remise, the study went bac! to the
original 5AA@ list and found a 9matching firm: for those com#anies that
were included+
GB
0he matching firm consisted of the most similar
com#any with res#ect to industry and si)e in that #articular year, with
the added requirement that the com#any had not a##eared on the 95FF
Best: list+ 0his #rocess essentially created two grou#s of com#anies that
differ only in terms of their inclusion in the 95FF Best+: 0he study then
com#ared the #rofitability of those two grou#s of com#anies+ 0he results
revealed that the 95FF Best: firms were more #rofitable than their #eers+
ndeed, the cumulative investment return for a #ortfolio based on the
5AA@ 95FF Best: com#anies would have doubled the return for the
broader mar!et+
Tab"e 1-1 The 2133 4est +o%(a$ies to Wor For5 i$ 2311 Source: From
M. Moskoit!" #. $e%ering
SO WHATS SO HARD?
1learly this research evidence seems to su##ort the conce#tual argument
that good #eo#le constitute a valuable resource for com#anies+ Eood OB
does seem to matter in terms of com#any #rofitability+ %ou may wonder
then, 92hats so hard?: 2hy doesnt every com#any #rioriti)e the
effective management of OB, devoting as much attention to it as they do
accounting, finance, mar!eting, technology, #hysical assets, and so on?
,ome com#anies do a bad "ob when it comes to managing their #eo#le+
2hy is that?