Strategic management is a set of managerial decisions and actions that

help determine the

long-term performance of an organization. It includes environmental
scanning (both external
and internal), strategy formulation (strategic or long-range planning),
strategy implementation,
and evaluation and control. Originally called business policy, strategic
management
has advanced substantially with the concentrated efforts of researchers and
practitioners.
Today we recognize both a science and an art to the application of strategic
management
techniques.
Strategic management consists of four basic elements:
Environmental scanning
External
Internal

Strategy formulation

Mission
Objectives
Strategies
Policies

Strategy implementation

Programs and Tactics

Budgets
Procedures

Evaluation and control

Performance

Phases of Strategic Management

Phase 1Basic financial planning: Managers initiate serious planning
when they are
requested to propose the following years budget. Projects are proposed on
the basis of
very little analysis, with most information coming from within the firm. The
sales force
usually provides the small amount of environmental information. Such
simplistic operational
planning only pretends to be strategic management, yet it is quite time
consuming.
Normal company activities are often suspended for weeks while managers
try to cram
ideas into the proposed budget. The time horizon is usually one year.

Phase 2Forecast-based planning: As annual budgets become less

useful at stimulating
long-term planning, managers attempt to propose five-year plans. At this
point, they
consider projects that may take more than one year. In addition to internal
information,
managers gather any available environmental datausually on an ad hoc
basisand
extrapolate current trends five years into the future. This phase is also time
consuming,
often involving a full month or more of managerial activity to make sure all
the proposed
budgets fit together. The process gets very political as managers compete
for larger shares
of limited funds. Seemingly endless meetings take place to evaluate
proposals and justify
assumptions. The time horizon is usually three to five years.
Phase 3Externally oriented (strategic) planning: Frustrated with
highly political yet
ineffectual five-year plans, top management takes control of the planning
process by
initiating strategic planning. The company seeks to increase its
responsiveness to changing
markets and competition by thinking strategically. Planning is taken out of
the hands
of lower-level managers and concentrated in a planning staff whose task is
to develop
strategic plans for the corporation. Consultants often provide the
sophisticated and innovative
techniques that the planning staff uses to gather information and forecast
future
trends. Organizations start competitive intelligence units. Upper-level
managers meet
once a year at a resort retreat led by key members of the planning staff to
evaluate
and update the current strategic plan. Such top-down planning emphasizes
formal strategy
formulation and leaves the implementation issues to lower-management
levels. Top
management typically develops five-year plans with help from consultants
but minimal
input from lower levels.
Phase 4Strategic management: Realizing that even the best strategic
plans are worthless
without the input and commitment of lower-level managers, top
management
2

forms planning groups of managers and key employees at many levels, from
various
departments and workgroups. They develop and integrate a series of
strategic plans
aimed at achieving the companys primary objectives. Strategic plans at this
point
detail the implementation, evaluation, and control issues. Rather than
attempting to
perfectly forecast the future, the plans emphasize probable scenarios and
contingency
strategies. The sophisticated annual five-year strategic plan is replaced with
strategic
thinking at all levels of the organization throughout the year. Strategic
information,
previously available only centrally to top management, is available virtually
to people
throughout the organization. Instead of a large centralized planning staff,
internal and
external planning consultants are available to help guide group strategy
discussions.
Although top management may still initiate the strategic planning process,
the resulting
strategies may come from anywhere in the organization. Planning is typically
interactive
across levels and is no longer strictly top down. People at all levels are now
involved.
General Electric, one of the pioneers of strategic planning, led the transition
from strategic
planning to strategic management during the 1980s.2 By the 1990s, most
other corporations
around the world had also begun the conversion to strategic management.
Benefits of Strategic Management
A survey of nearly 50 corporations in a variety of countries and industries
found the three
most highly rated benefits of strategic management to be:
A clearer sense of strategic vision for the firm.
A sharper focus on what is strategically important.
An improved understanding of a rapidly changing environment. 8
A survey by McKinsey & Company of 800 executives found that formal
strategic
planning
processes
improved
overall
satisfaction
with
strategy
development.9 To be effective,
however, strategic management need not always be a formal process. It can
begin with a few
simple questions:
1. Where is the organization now? (Not where do we hope it is!)
3

2. If no changes are made, where will the organization be in one year? Two
years? Five
years? Ten years? Are the answers acceptable?
3. If the answers are not acceptable, what specific actions should
management undertake?
What are the risks and payoffs involved?

Globalization, Innovation, and Sustainability: Challenges

to Strategic Management
Impact of Globalization
Today,
everything
has
changed.
Globalization,
the
integrated
internationalization of markets
and corporations, has changed the way modern corporations do business. As
Thomas Friedman points out in The World Is Flat, jobs, knowledge, and
capital are now able to move across borders with far greater speed and far
less friction than was possible only a
few years ago.18
Innovation, as the term is used in business, is meant to describe new
products, services,
methods and organizational approaches that allow the business to achieve
extraordinary
returns. Innovation has become such an important part of business that
Bloomberg Businessweek
has a weekly section of articles on the topic. A 2012 survey of more than
160 CEOs
in the United States administered by consulting group PWC found that CEOs
expected the
following areas of change in their innovation portfolios: 20
New Business Models56%
New Products/Services72%
Significant Changes to Existing Products/Services57%
Cost Reductions for Existing Processes6%
Innovation is the machine that generates business opportunities in the
market; however,
it is the implementation of potential innovations that truly drives businesses
to be remarkable.
While there is a value in being a first mover, there is also a tremendous
value in being a second or third mover with the right implementation.
Impact of Sustainability
Sustainability refers to the use of business practices to manage the triple
bottom line as was
discussed earlier. That triple bottom line involves (1) the management of
traditional profit/
4

loss; (2) the management of the companys social responsibility; and (3) the
management of
its environmental responsibility.
The company has a relatively obvious long-term responsibility to the
shareholders of
the organization. That means that the company has to be able to thrive
despite changes in the
industry, society, and the physical environment. This is the focus of much of
this textbook and
the focus of strategy in business.
earnings per share (EPS)
The company also has a responsibility to treat the environment well. This is
usually defined as trying to achieve (or approach) zero impact on the
environment. Recycling, increased use of renewable resources, reduction of
waste, and refitting buildings to reduce their impact on the environment,
among many other techniques, are included in this element of the triple
bottom line. The most recognized worldwide standard for environmental
efficiency is the ISO 14001 designation. It is not a set of standards, but a
framework of activities aimed at effective environmental management.
Central American Free Trade Agreement (CAFTA).
Association of Southeast Asian Nations (ASEAN)

Theories of Organizational Adaptation

The theory of
population ecology suggests that once an organization is successfully
established in a particular
environmental niche, it is unable to adapt to changing conditions
Institution theory, in contrast, proposes that organizations can and do
adapt to changing
conditions by imitating other successful organizations.
The strategic choice perspective
goes one step further by proposing that not only do organizations adapt to a
changing
environment, but they also have the opportunity and power to reshape their
environment.
This perspective is supported by research indicating that the decisions of a
firms management have
at least as great an impact on firm performance as overall industry factors. 30
Because of its
emphasis on managers making rational strategic decisions,
organizational learning theory, which says that an organization
adjusts defensively to a changing environment and uses knowledge
offensively to improve
the fit between itself and its environment. This perspective expands the
strategic choice perspective
to include people at all levels becoming involved in providing input into
strategic
decisions

Environmental Scanning
Environmental scanning is the monitoring, evaluating, and disseminating
of information
from the external and internal environments to key people within the
corporation. Its
purpose is to identify strategic factorsthose external and internal
elements that will
assist in the analysis in deciding the strategic decisions of the corporation.
The simplest
way to conduct environmental scanning is through SWOT analysis. SWOT
is an acronym used to describe the particular Strengths, Weaknesses,
Opportunities, and Threats that are
strategic factors for a specific company. The external environment
consists of variables
6

(Opportunities and Threats) that are outside the organization and not
typically within the
short-run control of top management. Figure 13 depicts key
environmental variables. They may be general
forces and trends within the natural or societal environments or specific
factors that operate
within an organizations specific task environmentoften called its industry.
The analysis
techniques available for the examination of these environmental variables
are the focus of
Chapter 4.
The internal environment of a corporation consists of variables (Strengths
and Weaknesses)
that are within the organization itself and are not usually within the shortrun control
of top management. These variables form the context in which work is done.
They include
the corporations structure, culture, and resources. Key strengths form a set
of core competencies
that the corporation can use to gain competitive advantage. While strategic
management
is fundamentally concerned with strengths, weaknesses, opportunities, and
threats, the
methods to analyze each has developed substantially in the past two
decades.
Strategy Formulation
Strategy formulation is the process of investigation, analysis, and decision
making that provides
the company with the criteria for attaining a competitive advantage. It includes
defining
the competitive advantages of the business (Strategy), crafting the corporate
mission, specifying
achievable objectives, and setting policy guidelines.

Mission: Stating Purpose

An organizations mission is the purpose or reason for the organizations
existence. It announces
what the company is providing to societyeither a service such as consulting or a
product such as automobiles. A well-conceived mission statement defines the
fundamental,
unique purpose that sets a company apart from other firms of its type and
identifies the scope
or domain of the companys operations in terms of products (including services)
offered.
narrow mission statement A narrow mission very clearly
7

states the organizations primary business and will limit the scope of the firms
activities
in terms of the product or service offered, the technology used, and probably the
market
served.

Objectives: Listing Expected Results

Objectives are the end results of planned activity. They should be stated as action
verbs and
tell what is to be accomplished by when and quantified if possible. The
achievement of corporate
objectives should result in the fulfillment of a corporations mission. In effect, this
is
what society gives back to the corporation when the corporation does a good job of
fulfilling its mission
The term goal is open-ended statement of what one wants to accomplish
increased
profitability is thus a goal, not an objective

Strategy: Defining the Competitive Advantages

A strategy of a corporation forms a comprehensive master approach that states
how
the corporation will achieve its mission and objectives.

Corporate strategy describes a companys overall direction in terms of its

general
attitude toward growth and the management of its various businesses and product
lines.

Business strategy usually occurs at the business unit or product level, and
it emphasizes
improvement of the competitive position of a corporations products or services
in the specific industry or market segment served by that business unit

Functional strategy is the approach taken by a functional area to achieve

corporate and
business unit objectives and strategies by maximizing resource productivity. It is
concerned
with developing and nurturing a distinctive competence to provide a company
or business unit with a competitive advantage

Policies: Setting Guidelines

policy is a broad guideline for decision making that links the formulation of a
strategy
with its implementation. Companies use policies to make sure that employees
throughout the
8

firm make decisions and take actions that support the corporations mission,
objectives, and strategies.

Strategy Implementation
Strategy implementation is a process by which strategies and policies are put
into action
through the development of programs, budgets, and procedures. This process
might involve
changes within the overall culture, structure, and/or management system of the
entire organization.

Programs and Tactics: Defining Actions

program or a tactic is a statement of the activities or steps needed to support a
strategy.
The terms are interchangeable. In practice, a program is a collection of tactics
where
a tactic is the individual action taken by the organization as an element of the
effort to
accomplish a plan. A program or tactic makes a strategy action-oriented.

Budgets: Costing Programs

A budget is a statement of a corporations programs in terms of dollars. Used in
planning
and control, a budget lists the detailed cost of each program. Many corporations
demand
a certain percentage return on investment, often called a hurdle rate, before
management
will approve a new program.

Procedures: Detailing Activities

Procedures, sometimes termed Standard Operating Procedures (SOP), are a
system of
sequential steps or techniques that describe in detail how a particular task or job is
to be done.

Evaluation and Control

Evaluation and control is a process in which corporate activities and
performance results
are monitored so that actual performance can be compared with desired
performance. Managers
at all levels use the resulting information to take corrective action and
resolve problems.
Performance is the end result of activities.50 It includes the actual
outcomes of the
strategic management process. The practice of strategic management is
justified in terms of its
9

ability to improve an organizations performance, typically measured in

terms of profits and
return on investment. For evaluation and control to be effective, managers
must obtain clear,
prompt, and unbiased information from the people below them in the
corporations hierarchy.
Using this information, managers compare what is actually happening with
what was originally
planned in the formulation stage.
Feedback/Learning Process
Note that the strategic management model depicted in Figure 12 includes
a feedback/learning
process. Arrows are drawn coming out of each part of the model and taking
information to each
of the previous parts of the model. As a firm or business unit develops
strategies, programs,
and the like, it often must go back to revise or correct decisions made earlier
in the process.

Role of the Board of Directors

corporation is a mechanism established to allow different parties to
contribute capital,
expertise, and labor for their mutual benefit. The investor/shareholder
participates in the
profits (in the form of dividends and stock price increases) of the enterprise
without taking
responsibility for the operations. Management runs the company without
being responsible
for personally providing the funds. To make this possible, laws have been
passed that give
shareholders limited liability and, correspondingly, limited involvement in a
corporations
activities. That involvement does include, however, the right to elect
directors who have a
legal duty to represent the shareholders and protect their interests. As
representatives of the
shareholders, directors have both the authority and the responsibility to
establish basic corporate
policies and to ensure that they are followed.1
The board of directors, therefore, has an obligation to approve all decisions
that might
affect the long-term performance of the corporation. This means that the
corporation is fundamentally
10

governed by the board of directors overseeing top management, with the

concurrence
of the shareholder. The term corporate governance refers to the
relationship among
these three groups in determining the direction and performance of the
corporation.2
Responsibilities of the Board

five board of director responsibilities:

1. Effective Board Leadership including the processes, makeup and
output of the board
2. Strategy of the Organization
3. Risk vs. initiative and the overall risk profile of the organization
4. Succession planning for the board and top management team
5. Sustainability3
Role of the Board in Strategic Management

The role of the board of directors in strategic management is to carry out

three basic tasks:
Monitor: By acting through its committees, a board can keep abreast
of developments
inside and outside the corporation, bringing to managements attention
developments it
might have overlooked. A board should at the minimum carry out this task.
Evaluate and influence: A board can examine managements proposals,
decisions, and
actions; agree or disagree with them; give advice and offer suggestions; and
outline alternatives.
More active boards perform this task in addition to monitoring.
Initiate and determine: A board can delineate a corporations mission
and specify strategic
options to its management. Only the most active boards take on this task in
addition
to the two previous ones.
Members of a Board of Directors

The boards of most publicly owned corporations are composed of both

inside and outside directors. Inside directors (sometimes called
management directors) are typically officers or executives employed
by the corporation. Outside directors (sometimes called nonmanagement directors) may be executives of other firms but are not
employees of the boards corporation. Although there is yet no clear
11

evidence indicating that a high proportion of outsiders on a board

results in improved financial performance,

Codetermination: Should Employees Serve on Boards?

Codetermination, the inclusion of a corporations workers on its board, began only recently
in the United States. Corporations such as Chrysler, Northwest Airlines, United Airlines
(UAL), and Wheeling-Pittsburgh Steel added representatives from employee associations to
their boards as part of union agreements or Employee Stock Ownership Plans (ESOPs).

strategy formulation: situation

analysis and Business Strategy
Situational Analysis: SWOT Approach
Strategy formulation, often referred to as strategic planning or long-range
planning, is
concerned with developing a corporations mission, objectives, strategies, and
policies. It begins
with situation analysis: the process of finding a strategic fit between external
opportunities and
internal strengths while working around external threats and internal weaknesses.
As shown in
the Strategic Decision-Making Process in Figure 15, step 5(a) is analyzing
strategic factors in
light of the current situation using a SWOT approach. SWOT is an acronym used to
describe the
particular Strengths, Weaknesses, Opportunities, and Threats that are potential
strategic factors
for a specific company. A SWOT approach should not only result in the
identification of a corporations
distinctive competenciesthe particular capabilities and resources that a firm
possesses
and the superior way in which they are usedbut also in the identification of
opportunities that
the firm is not currently able to take advantage of due to a lack of appropriate
resources.
It can be said that the essence of strategy is opportunity divided by capacity.1 An
opportunity by itself has no real value unless a company has the capacity (i.e.,
resources)
to take advantage of that opportunity. By itself, a distinctive competency in a key
resource
or capability is no guarantee of competitive advantage. Weaknesses in other
resource areas
can prevent a strategy from being successful. SWOT can thus be used to take a
broader view
12

of strategy through the formula SA = O/(SW)that is, (Strategic Alternative

equals Opportunity
divided by Strengths minus Weaknesses). This reflects an important issue strategic
managers face: Should we invest more in our strengths to make them even
stronger (a distinctive
competence) or should we invest in our weaknesses to at least make them
competitive?
SWOT, by itself, is just a start to a strategic analysis. Some of the primary
criticisms of
SWOT are:
It is simply the opinions of those filling out the boxes
Virtually everything that is a strength is also a weakness
Virtually everything that is an opportunity is also a threat
Adding layers of effort does not improve the validity of the list
It uses a single point in time approach
There is no tie to the view from the customer
There is no validated evaluation approach
Originally developed in the 1970s, SWOT was one of the original approaches as the
field
moved from business policy (looking at examples and inferring long-range plans)
to strategy.
In the intervening years, many techniques have developed that provide strategists
with a keener
insight into the elements of SWOT. However, as strategists, we need to understand
our strengths,
calculate the impact of weaknesses (whether they are real or perceived), take
advantage of opportunities
that match our strengths and minimize the impact of outside threats to the
success of
the organization. Thus, SWOT as a means of conceptualizing the organization is
quite effective.

Review of Mission and Objectives

A reexamination of an organizations current mission and objectives must be
made before
alternative strategies can be generated and evaluated. Even when
formulating strategy, decision
makers tend to concentrate on the alternativesthe action possibilities
rather than on a
mission to be fulfilled and objectives to be achieved. This tendency is so
attractive because it
is much easier to deal with alternative courses of action that exist right here
and now than to
really think about what you want to accomplish in the future. The end result
is that we often
choose strategies that set our objectives for us rather than having our
choices incorporate clear
objectives and a mission statement.
13

Problems in performance can derive from an inappropriate statement of

mission, which
may be too narrow or too broad. If the mission does not provide a common
thread (a unifying
theme) for a corporations businesses, managers may be unclear about
where the company is
heading. Objectives and strategies might be in conflict with each other.
Divisions might be
competing against one another rather than against outside competitionto
the detriment of
the corporation as a whole.
A companys objectives can also be inappropriately stated. They can either
focus too
much on short-term operational goals or be so general that they provide
little real guidance.
There may be a gap between planned and achieved objectives. When such a
gap occurs, either
the strategies have to be changed to improve performance or the objectives
need to be adjusted
downward to be more realistic. Consequently, objectives should be
constantly reviewed to
ensure their usefulness. This is what happened at Boeing when management
decided to change
its primary objective from being the largest in the industry to being the most
profitable. This
had a significant effect on its strategies and policies. Following its new
objective, the company
canceled its policy of competing with Airbus on price and abandoned its
commitment
to maintaining a manufacturing capacity that could produce more than half
a peak years
demand for airplanes

14

Corporate Strategy
The vignette about Pfizer illustrates the importance of corporate strategy to
a firms survival
and success. Corporate strategy addresses three key issues facing the
corporation as a whole:
1. The firms overall orientation toward growth, stability, or retrenchment
(directional strategy)
2. The industries or markets in which the firm competes through its products
and business
units (portfolio analysis)
3. The manner in which management coordinates activities and
Corporate strategy is primarily about the choice of direction for a firm as a
whole and
the management of its business or product portfolio. 1 This is true whether
the firm is a small
company or a large multinational corporation (MNC). In a large multiplebusiness company,
in particular, corporate strategy is concerned with managing various product
lines and business
units for maximum value. In this instance, corporate headquarters must play
the role of the organizational
parent, in that it must deal with various product and business unit
children. Even
though each product line or business unit has its own competitive or
cooperative strategy that it
uses to obtain its own competitive advantage in the marketplace, the
corporation must coordinate
these different business strategies so that the corporation as a whole
succeeds as a family.2
To deal with each of the key issues, this chapter is organized into three parts
that examine
corporate strategy in terms of directional strategy (orientation toward
growth), portfolio
analysis (coordination of cash flow among units), and corporate parenting
(the building of
corporate synergies through resource sharing and development). 4
A corporations directional strategy is composed of three general
orientations (sometimes
called grand strategies):
Growth strategies expand the companys activities.
Stability strategies make no change to the companys current activities.
Retrenchment strategies reduce the companys level of activities.

15

The two basic growth strategies are concentration on the current product
line(s) in one industry
and diversification into other product lines in other industries.

Concentration
If a companys current product lines have real growth potential, the
concentration of resources
on those product lines makes sense as a strategy for growth. The two basic
concentration strategies
are vertical growth and horizontal growth. Growing firms in a growing
industry tend to
choose these strategies before they try diversification.
Vertical growth can be achieved by taking over a function previously
provided by a supplier or distributor. The company, in effect, grows by
making its own supplies
and/or by distributing its own products.
Transaction cost economics proposes that vertical integration is more
efficient than
contracting for goods and services in the marketplace when the transaction
costs of buying
goods on the open market become too great
Full integration, a firm internally makes 100% of its key supplies and
completely controls its distributors.
taper integration (also called concurrent sourcing), a firm internally
produces less than half of its own requirements and buys the rest from
outside suppliers (backward taper integration)
quasi-integration, a company does not make any of its key supplies but
purchases most of its requirements from outside suppliers that are under its
partial control (backward quasi-integration)
Long-term contracts are agreements between two firms to provide
agreed-upon goods and services to each other for a specified period of time.
This cannot really be considered to be vertical integration unless it is an
exclusive contract that specifies that the supplier or distributor cannot have
a similar relationship with a competitive firm
Horizontal Growth. A firm can achieve horizontal growth by expanding
its operations
into other geographic locations and/or by increasing the range of products
and services
offered to current markets. Research indicates that firms that grow
horizontally by broadening
16

their product lines have high survival rates. 20 Horizontal growth results in
horizontal
integrationthe degree to which a firm operates in multiple geographic
locations at the
same point on an industrys value chain
Horizontal growth is increasingly being achieved in todays world through
international
expansion.

17

5- 2
Defect: Any instance when a process fails to satisfy its customer.

costs of Quality
1. prevention costs: Costs associated with preventing defects
before they happen.
2. appraisal costs: Costs incurred when the firm assess the
performance level of its processes.
3. internal failure costs: Costs resulting from defects that are
discovered during the production of a service or product.
4. external failure costs: Costs that arise when a defect is
discovered after the customer receives the service or product.
Warranty: A written guarantee that the producer will replace or repair
defective parts or perform the service to the customers satisfaction.
total quality management (TQM): A philosophy that stresses three
principles for achieving high levels of process performance and quality:
(1) customer satisfaction,
(2) employee involvement, and
(3) continuous improvement in performance.
Quality: A term used by customers to describe their general
satisfaction with a service or product.
quality at the source: A philosophy whereby defects are caught and
corrected where they were created.
Teams: Small groups of people who have a common purpose, set their
own performance goals and approaches, and hold themselves
accountable for success.
employee empowerment: An approach to teamwork that moves
responsibility for decisions further down the organizational chartto
the level of the employee actually doing the job.
quality circles: Another name for problem-solving teams; small
groups of supervisors and employees who meet to identify, analyze,
and solve process and quality problems.
18

special-purpose teams: Groups that address issues of paramount

concern to management, labor, or both.
self-managed team: A small group of employees who work together
to produce a major portion, or sometimes all, of a service or product.
Process measurement is the key to quality improvement.
continuous improvement: The philosophy of continually seeking ways
to improve processes based on a Japanese concept called kaizen.
plan-do-study-act cycle: A cycle, also called the Deming Wheel,
used by firms actively engaged in continuous improvement to train
their work teams in problem solving.

Six Sigma: A comprehensive and flexible system for achieving,

sustaining, and maximizing business success by minimizing defects
and variability in processes.

19

Total Quality Management

Total quality management (TQM) is a philosophy that stresses
three principles
for achieving high levels of process performance and quality.
These principles are related to (1) customer satisfaction, (2)
employee involvement, and (3) continuous improvement in
performance. As Figure 5.1 indicates, TQM also involves a
number of other important elements. we just focus on the three
main principles of TQM.
Customer Satisfaction

Customers, internal or external, are satisfied when their

expectations regarding
a service or product have been met or exceeded. Often,
customers
use the general term quality to describe their level of satisfaction
with
a service or product. Quality has multiple dimensions in the mind
of the
customer, which cut across the nine competitive priorities we
introduced
in Chapter 1, Using Operations to Compete. One or more of the
following
five definitions apply at any one time.
Employee Involvement

One of the important elements of TQM is employee involvement, as shown in

Figure 5.1. A program
in employee involvement includes changing organizational culture and
encouraging
teamwork.
Cultural Change One of the main challenges in developing the proper culture for

TQM is to
define customer for each employee. In general, customers are internal or external.
External customers
are the people or firms who buy the service or product. Some employees, especially
those
having little contact with external customers, may have difficulty seeing how their
jobs contribute
to the whole effort.
Teams Employee involvement is a key tactic for improving processes and quality.
One way
to achieve employee involvement is by the use of teams, which are small groups of
people who
have a common purpose, set their own performance goals and approaches, and
hold themselves
accountable for success.

20

Continuous Improvement
Continuous improvement, based on a Japanese concept called kaizen, is
the philosophy of
continually seeking ways to improve processes. Continuous improvement
involves identifying
benchmarks of excellent practice and instilling a sense of employee
ownership in the process.
The focus of continuous improvement projects is to reduce waste, such as
reducing the length
of time required to process requests for loans at a bank, the amount of scrap
generated at a
milling machine, or the number of employee injuries at a construction site.
The basis of the continuous
improvement philosophy are the beliefs that virtually any aspect of a
process can be
improved and that the people most closely associated with a process are in
the best position to
identify the changes that should be made. The idea is not to wait until a
massive problem occurs
before acting.

21

six sigma
Six Sigma, which relies heavily on the principles of TQM, is a comprehensive and
flexible system
for achieving, sustaining, and maximizing business success by minimizing defects
and variability
in processes. Six Sigma has a different focus than TQM: It is driven by a close
understanding of
customer needs; the disciplined use of facts, data, and statistical analysis; and
diligent attention
to managing, improving, and reinventing business processes. Figure 5.3 shows how
Six Sigma
focuses on reducing variation in processes as well as centering processes on their
target measures
of performance. Either flawtoo much variation or an off-target processdegrades
performance
of the process. For example, a mortgage loan department of a bank might
advertise
loan approval decisions in 2 days. If the actual performance ranges from 1 day to 5
days, with
an average of 2 days, those customers who had to wait longer than 2 days would
be upset. Process
variability causes customer dissatisfaction. Similarly, if actual performance
consistently produced
loan decisions in 3 days, all customers would be dissatisfied. In this case, the
process is
consistent, but off the target. Six Sigma is a rigorous approach to align processes
with their target
performance measures with low variability.
The name Six Sigma, originally developed by Motorola for its manufacturing
operations, relates
to the goal of achieving low rates of defective output by developing processes
whose mean
output for a performance measure is +/- six standard deviations (sigma) from the
limits of the
design specifications for the service or product. We will discuss variability and its
implications on
the capability of a process to perform at acceptable levels when we present the
tools of statistical
process control.
Although Six Sigma was rooted in an effort to improve manufacturing processes,
credit
General Electric with popularizing the application of the approach to nonmanufacturing processes
such as sales, human resources, customer service, and financial services. The
concept of
eliminating defects is the same, although the definition of defect depends on the
process involved.
For example, a human resource departments failure to meet a hiring target counts
as a
defect. Six Sigma has been successfully applied to a host of service processes,
including financial
22

services, human resource processes, marketing processes,

and health care administrative processes.

Six Sigma Improvement Model

Figure 5.4 shows the Six Sigma Improvement Model, a fivestep
procedure that leads to improvements in process performance.
The model bears a lot of similarity to Figure 4.1,
the Blueprint for Process Analysis, for good reason: Both
models strive for process improvement. Either model can
be applied to projects involving incremental improvements
to processes or to projects requiring major changes, including
a redesign of an existing process or the development of a
new process. The Six Sigma Improvement Model, however,
is heavily reliant on statistical process control. The following
steps comprise the model:
Define. Determine the characteristics of the processs output that are
critical to customer satisfaction and identify any gaps between these
characteristics and the processs capabilities. Get a picture of the current
process by documenting it using flowcharts and process charts.
Measure. Quantify the work the process does that affects the gap. Select
what to measure,
identify data sources, and prepare a data collection plan.
Analyze. Use the data on measures to perform process analysis, applying
tools such as Pareto
charts, scatter diagrams, and cause-and-effect diagrams and the statistical
process control (SPC) tools in this chapter to determine where improvements
are necessary. Whether or not major redesign is necessary, establish
procedures to make the desired outcome routine.
Improve. Modify or redesign existing methods to meet the new
performance objectives. Implement the changes.
Control. Monitor the process to make sure that high performance levels
are maintained. Once again, data analysis tools such as Pareto charts, bar
charts, scatter diagrams, as well as the statistical process control tools can
be used to control the process.
Green Belt: An employee who achieved the first level of training in a Six
Sigma program and spends part of his or her time teaching and helping
teams with their projects.
Black Belt: An employee who reached the highest level of training in a Six
Sigma program and spends all of his or her time teaching and leading teams
involved in Six Sigma projects.
23

Master Black Belt: Full-time teachers and mentors to several Black Belts.

Acceptance sampling
Before any internal process can be evaluated for performance, the inputs to that
process must
be of good quality. Acceptance sampling, which is the application of statistical
techniques to
determine if a quantity of material from a supplier should be accepted or rejected
based on the
inspection or test of one or more samples, limits the buyers risk of rejecting goodquality materials
(and unnecessarily delaying the production of goods or services) or accepting badquality
materials (and incurring downtime due to defective materials or passing bad
products to customers).
Relative to the specifications for the material the buyer is purchasing, the buyer
specifies an
acceptable quality level (AQL), which is a statement of the proportion of
defective items (outside
of specifications) that the buyer will accept in a shipment. These days, that
proportion is getting
very small, often measured in parts per ten-thousand. The idea of acceptance
sampling is to take
a sample, rather than testing the entire quantity of material, because that is often
less expensive.
Therein lies the riskthe sample may not be representative of the entire lot of
goods from the
supplier. The basic procedure is straightforward.
1. A random sample is taken from a large quantity of items and tested or
measured relative to
the specifications or quality measures of interest.
2. If the sample passes the test (low number of defects), the entire quantity of
items is accepted.
3. If the sample fails the test, either (a) the entire quantity of items is subjected to
100 percent
inspection and all defective items repaired or replaced or (b) the entire quantity is
returned to
the supplier.

c-chart: A chart used for controlling the number of defects when more than
one defect can be present in a service or product.
p-chart : A chart used for controlling the proportion of defective services or
products generated by the process.
quality engineering: An approach originated by Genichi Taguchi that
involves combining engineering and statistical methods to reduce costs
and improve quality
by
optimizing product design
and
manufacturing processes.
24

international Quality Documentation

standards
Once a company has gone through the effort of making its
processes capable, it must document its level of quality so as to
better market its services or products. This documentation of
quality is especially important in international trade. However, if
each country had its own set of standards, companies selling in
international markets would have difficulty complying with quality
documentation standards in each country where they did
business. To overcome this problem, the International
Organization for Standardization devised a family of standards
called ISO 9000 for companies doing business in the European
Union. Subsequently, ISO 14000 was devised for environmental
management systems and ISO 26000 for guidance on social
responsibility.
The ISO 9001:2008 Documentation Standards
ISO 9001:2008 is the latest update of the ISO 9000 standards governing
documentation of a quality program. According to the International
Organization for Standardization, the ISO 9001:2008 standards address
quality management by specifying what the firm does to fulfill the
customers quality requirements and applicable regulatory requirements,
while aiming to enhance customer satisfaction and achieve continual
improvement of its performance in pursuit of these objectives. Companies
become certified by proving to a qualified external examiner that they
comply with all the requirements. Once certified, companies are listed in a
directory so that potential customers can see which companies are certified
and to what level. Compliance with ISO 9001:2008 standards says nothing
about the actual quality of a product. Rather, it indicates to customers that
companies can provide documentation to support whatever claims they
make about quality. As of 2009, more than 1 million organizations worldwide
have been certified in the ISO 9000 family of documentation standards.
ISo 9001:2008: A set of standards governing documentation of a quality
program.
ISo 14000:2004: Documentation standards that require participating
companies to keep track of their raw materials use and their generation,
treatment, and disposal of hazardous wastes.
ISo 26000:2010:
responsibility.

International

guidelines

25

for

organizational

social

6- Capacity is the maximum rate of output of a

process or a system.

capacity Timing and sizing strategies

Operations managers must examine three dimensions of capacity strategy
before making capacity decisions:
(1) sizing capacity cushions
capacity cushion: The amount of reserve capacity a process uses to handle
sudden increases in demand or temporary losses of production capacity; it
measures the amount by which the average utilization (in terms of total
capacity) falls below 100 percent.
Capacity cushion = 100 (%) - Average Utilization rate (%)

(2)timing and sizing expansion,

how much. At times, capacity expansion can be done in response to
changing market trends.

(3) linking process capacity and other operating decisions.

Capacity decisions should be closely linked to processes and supply chains
throughout the organization. When managers make decisions about
designing processes, determining degree of resource flexibility and
inventory, and locating facilities, they must consider its impact on capacity
cushions. Capacity cushions in the long run buffer the organization against
uncertainty, as do resource flexibility, inventory, and longer customer lead
times. If a change is made in any one decision area, the capacity cushion
may also need to be changed to compensate.

26

16-ERP
resource planning: A process that takes sales and operations plans;
processes information in the way of time standards, routings, and other
information on how services or products are produced; and then plans the
input requirements.
enterprise process: A companywide process that cuts across functional
areas, business units, geographical regions, and
product lines.
enterprise resource planning (ERP) systems: Large, integrated
information systems that support many enterprise processes and data
storage needs.
Resource Planning across the Organization
Resource planning lies at the heart of any organization, cutting across all of
its different functional areas. It takes sales and operations plans; processes
information in the way of time standards, routings, and other information on
how services or products are produced; and then plans the input
requirements. It also can create reports for managers of the firms major
functional areas, such as human resources, purchasing, sales and marketing,
and finance and accounting. In essence, resource planning is a process in
and of itself that can be analyzed relative to the firms competitive priorities.
Enterprise Resource Planning
An enterprise process is a companywide process that cuts across functional
areas, business units, geographic regions, product lines, suppliers, and
customers. Enterprise resource planning (ERP) systems are large, integrated
information systems that support many enterprise processes and data
storage needs. By integrating the firms functional areas, ERP systems allow
an organization to view its operations as a whole rather than having to try to
put together the different information pieces produced by its various
functions and divisions. Today, ERP systems are being used by traditional
brick-and-mortar organizations such as manufacturers, restaurants,
hospitals, and hotels, as well as by Internet companies that rely extensively
on Web connectivity to link their customers and suppliers.
How ERP Systems Are Designed
ERP revolves around a single comprehensive database that can be made
available across the entire organization (or enterprise). Passwords are
generally issued to allow certain personnel to access certain areas of the
system. Having a single database for all of the firms information makes it
much easier for managers to monitor all of the companys products at all
locations and at all times. The database collects data and feeds them into
the various modular applications (or suites) of the software system. As new
information is entered as a transaction in one application, related
information is automatically updated in the other applications, including the
firms financial and accounting databases, its human resource and payroll
27

databases, sales, supplier and customer databases, and so forth. In this way,
the ERP system streamlines the data flows throughout the organization and
supply chain and provides employees with direct access to a wealth of realtime operating information scattered across different functions in the
organization. Figure 16.1 shows
some of the typical applications with a few subprocesses nested within each
one. Some of the applications are for back-office operations such as
manufacturing and payroll, while others are for front-office operations such
as customer service.
Amazon.com is one company that uses an ERP system. The supply chain
application of Amazons system is particularly important because it allows
Amazon.com to link customer orders to warehouse shipments and,
ultimately, to supplier replenishment orders. Other applications are more
important in other businesses. For example, universities put particular
emphasis on the human resources and accounting and finance applications,
and manufacturers have an interest in almost every application suite. Not all
applications in Figure 16.1 need to be integrated into an ERP system, but
those left out will not share their information with the ERP system.
Sometimes, however, ERP systems are designed to interface with a firms
existing, older information systems (called legacy systems).
Designing an ERP system requires that a company carefully analyze its
major processes so that appropriate decisions about the coordination of
legacy systems and new software can be made. Sometimes, a companys
processes that involve redundancies and convoluted information flows must
be completely reengineered before the firm can enjoy the benefits of an
integrated information system. However, a recent study showed that
companies reap the greatest rewards when they keep their ERP
implementations simple, work with a small number of software vendors, and
use standardized systems rather than customizing them extensively. Firms
can otherwise end up spending excessive amounts of money on ERP
systems that are complex to use and costly to manage. UK confectionary
giant Cadbury had to take a 12- million pound hit to their profits due to a
build-up of excess inventory of chocolate bars caused by information
technology problems arising from the roll out of a new SAP-based ERP
system.
Most ERP systems today use a graphical user interface, although the older,
keyboard-driven, text based systems are still popular because of their
dependability and technical simplicity. Users navigate through various
screens and menus. Training, such as during ERP implementation, focuses
on these screens and how users can utilize them to get their jobs done. The
biggest suppliers of these off-the-shelf commercial ERP packages are SAP
AG, a German company that was also used by Dow Corning in the opening
vignette, followed by Oracle Corporation.
28

Material Requirements Planning

The Manufacturing and Supply Chain Management modules in Figure 16.1
deal with resource planning. Understanding resource planning begins with
the concept of dependent demand, which sets it apart from the techniques
covered in Chapter 9, Supply Chain Inventory Management. Material
requirements planning (MRP) is a computerized information system
developed specifically to help manufacturers manage dependent demand
inventory and schedule replenishment orders.
The key inputs of an MRP system are a bill of materials database, a master
production schedule, and an inventory record database, as shown in Figure
16.2. Using this information, the MRP system identifies the actions planners
must take to stay on schedule, such as releasing new production orders,
adjusting order quantities, and expediting late orders.
An MRP system translates the master production schedule and other sources
of demand, such as independent demand for replacement parts and
maintenance items, into the requirements for all subassemblies,
components, and raw materials needed to produce the required parent
items.
This process is called an MRP explosion because it converts the
requirements of various final products into a material requirements plan that
specifies the replenishment schedules of all the subassemblies, components,
and raw materials needed to produce final products.
We first explore the nature of dependent demand and how it differs from
independent demand, followed by a discussion of each of the key inputs to
the MRP system shown in Figure 16.2.

Material Requirements Planning

Bill of Materials
Master Production Scheduling
Inventory Record
29

dependent demand : The demand for an item that occurs because the
quantity required varies with the production plans for other items held in the
firms inventory.
Parent: Any product that is manufactured from one or more components.
Component: An item that goes through one or more operations to be
transformed into or become part of one or more parents.
bill of materials (BOM) : A record of all the components of an item, the
parentcomponent relationships, and the usage quantities derived from
engineering and process designs.
master production schedule (MPS): A part of the material requirements
plan that details how many end items will be produced within specified
periods of time. It breaks the sales and operations plan into specific product
schedules.

1. The sums of the quantities in the MPS must equal those in the sales and operations
plan.
2. The production quantities must be allocated efficiently over time. The specific mix

of chair typesthe number of each type as a percent of the total familys quantity
is based on historic demand and on marketing and promotional considerations. The
planner must select lot sizes for each chair type, taking into consideration economic
factors such as production setup costs and inventory carrying costs.
3. Capacity limitations and bottlenecks, such as machine or labor capacity, storage
space, or working capital, may determine the timing and size of MPS quantities. The
planner must acknowledge these limitations by recognizing that some chair styles
require more resources than others and setting the timing and size of the
production quantities accordingly.
Developing a Master Production Schedule

The process of developing a master production schedule includes (1)

calculating the projected on-hand inventory and (2) determining the timing
and size of the production quantities of specific products. We use the
manufacturer of the ladderback chair to illustrate the process. For simplicity,
we assume that the firm does not utilize safety stocks for end items, even
though many firms do. In addition, we use weeks as our planning periods,
even though hours, days, or months could be used.
Step 1. Calculate Projected On-Hand Inventories. The first step is to calculate
the projected onhand inventory, which is an estimate of the amount of
inventory available each week after demand has been satisfied:

(Projected on_hand inventory at end of this week) =( On_hand inventory at

end of last week)
+ (MPS quantity due at start of this week) - (Projected requirements this
week)
30

In some weeks, no MPS quantity for a product may be needed because

sufficient inventory
already exists. For the projected requirements for this week, the scheduler
uses whichever is

31

HRM
Four objectives form the foundation of all HR activity:

Staffing objectives
HR managers are first concerned with ensuring that the business is appropriately
staffed and thus able to draw on the human resources it needs.
Performance objectives
Once the required workforce is in place, HR managers seek to ensure that people
are well motivated and committed so as to maximise their performance in their
different roles.
Change-management objectives
A third set of core objectives in nearly every business relates to the role played by
the HR function in effectively managing change. Frequently change does not come
along in readily defined episodes precipitated by some external factor. Instead it is
endemic and wellnigh continuous, generated as much by a continual need to
innovate as from definable environmental pressures. Change comes in different
forms. Sometimes it is merely structural, requiring reorganisation of activities or
the introduction of new people into particular roles. At other times cultural change
is sought in order to alter attitudes, philosophies or long-present organisational
norms. In any of these scenarios the HR function can play a central role.
Administration objectives
The fourth type of objective is less directly related to achieving competitive
advantage, but is focused on underpinning the achievement of the other forms of
objective. In part it is simply carried out in order to facilitate an organisations
smooth running

personnel management is essentially workforce centred , while

HRM is resource centred .

Personnel versus HRM:

Time and planning perspective
Short term, reactive, ad hoc, marginal
Long term, proactive, strategic, integrated
Psychological contract
Compliance
Commitment
Control systems
External controls
Selfcontrol
Employee relations perspective
Pluralist, collective, low trust
unitarist, individual, high trust
32

Preferred structures/ systems

Bureaucratic/mechanistic, centralised, formal defined roles
Organic, devolved, flexible roles
Roles
Specialist/professional
Largely integrated into line management
Evaluation criteria
Cost minimisation
Maximum utilization

Summary propositions
1.1 It is possible to identify two distinct definitions of the term human resource
management.
The first describes a body of management activities, while the second signifies a particular
approach to carrying out those activities.
1.2 HR managers are concerned with meeting four distinct sets of organisational
objectives:
staffing, performance, change management and administration.
1.3 HRM activities are carried out in various ways through various forms of organisational
structure. In some larger organisations HR generalists work alongside specialists in
particular HR disciplines.
1.4 HRM can be characterised as one of the more recent in a series of incarnations that
personnel
practitioners have developed since the origins of the profession over 100 years ago.
1.5 The HRM function contributes to the achievement of different dimensions of
organisational
effectiveness. Prominent are the gaining and maintaining of competitive advantage, the
fostering of a positive standing in financial markets and the development of a reputation
for
corporate social responsibility.

The causes of globalization

interrelated factors have combined together to facilitate the change. Of these, two stand out as
being particularly signifi cant: technological developments and government policy.

The impact of globalization:

Competition
Industrial restructuring
The rise of multinational corporations
Volatility

IHRM
In terms of its aims and objectives IHRM (i.e. HRM in an international or
multinational
organisation) is no different from HRM in an organisation based in one
country.
The purpose is to mobilise an appropriately qualified workforce, and
subsequently to
retain it, motivate it and develop it. IHRM, however, is more complex and
necessarily
33

has a rather different emphasis:

IHRM involves working with an organisational structure that is more
complex.
There are a greater number of more diverse stakeholder groups to take
account of.
There is greater involvement in peoples private/family lives because of
the need to
expatriate employees with their families.
Diversity is necessary in terms of management style.
There are greater numbers of external influences and risks to understand
and manage.
purpose of the HRM function : to recruit, retain, develop, motivate
and engage employees more effectively than competitors are able
to in order to sustain superior levels of performance.

:

.

The relationship between business strategy and HR

strategy
separation model (A)
fi t model (B)
dialogue model (C)
integrated / holistic model (D)
HR-driven model (E)

34

Summary propositions
3.1 Strategic HRM encourages us to consider strategy as a process, strategic thinking and
strategic
orientation, rather than limit ourselves to a strategy which is written down and exists as
a physical entity.
3.2 The nature of the link between business strategy and HR strategy is critical and can be
played
out in a variety of ways.
3.3 Three theoretical perspectives on strategic HR management can be identified:
universalist/
best practice; contingency/fit; and the resource-based/human capital view. Each has
advantages
and disadvantages.
3.4 The black box research seeks to explain how HR practices impact on performance, and
is
associated with the universalist and contingency approaches.

3.5

Globalisation presents more challenges for understanding and implementing HR

strategy.

Workforce planning

distinguished between strategic thinking , which is about synthesis, intuition and creativity
to produce a not too precisely articulated vision of direction, and strategic planning , which
is about collecting the relevant information to stimulate the visioning process and also
programming the vision into what needs to be done to get there.

The scope of workforce planning

35

Originally workforce planning was concerned with balancing the projected demand
for and supply of labour, in order to have the right number of the right employees
in the right place at the right time.

Increasingly organisations now plan, not just for hard numbers, but for the
softer issues of employee behaviour and organisational culture; organisation
design and the make-up of individual jobs; and formal and informal systems.

Organisation design
Organisational design relates to the shaping of an organisation to ensure
efficient delivery of its activity.
Activities focus on: [ensuring] that the organisation is appropriately
designed to deliver organisation objectives in the short and long-term and
that structural change is effectively managed.
Organisation design requires that choices made on a number of issues are
consistent with contextual factors, such as the organisations strategy and
its environment. Three key issues are high versus low formality ,
differentiation versus integration , and decentralisation versus
centralisation .
High versus low formality refers to the design of organisational procedures. Typically
small fi rms are relatively informal, low employee numbers meaning that facetoface
communication is usually possible in order to discuss and agree a way forward
Differentiation requires specialisation of effort to ensure that an individual job or task is
undertaken effectively, and integration is coordinating the output of the individual
people so that the whole task is completed satisfactorily
Centralisation / decentralisation refers to the extent to which certain aspects of
authority and decision making are held at the centre of the organisation, as opposed to
being devolved down to local level

recruitment
recruitment which includes those practices and activities carried out by the organisation
with the primary purpose of identifying and attracting potential employees
Selection refers to the methods used to decide which applicant to appoint to a vacancy

36

dismissal
In the UK there are three forms of dismissal claim that can be brought to a tribunal.
Rights associated with the law of wrongful dismissal are the longest established. A
person who claims wrongful dismissal complains that the way they were dismissed
breached the terms of their contract of employment.
Constructive dismissal : occurs when someone feels forced to resign as a direct result of
their employers actions. In this area the law aims to deter employers from seeking to
avoid dismissing people by pushing them into resignation.
The third category, unfair dismissal, is by far the most common. It is best defined as a
dismissal which falls short of the expectations of the law as laid down in the Employment
Rights Act 1996.

Unfair dismissal
Automatically unfair reasons

Dismissal for a reason relating to pregnancy or maternity.

Dismissal for a health and safety reason (e.g. refusing to work in unsafe conditions).
Dismissal because of a spent conviction.
Dismissal for refusing to work on a Sunday (retail and betting workers only).
Dismissal for a trade union reason.
Dismissal for taking official industrial action (during the first twelve weeks of the action).

37

Dismissal in contravention of the part-time workers or fixed-term employees regulations.

Dismissal for undertaking duties as an occupational pension fund trustee, employee

representative, member of a European Works Council or in connection with jury service.
Dismissal for asserting a statutory right (including rights exercised under the Employment
Rights Act, as well as those connected with the Working Time Regulations,
the National Minimum Wage Regulations, the Public Interest Disclosure Act and the
Information and Consultation of Employees Regulations; the right to request flexible
working, the right to time off for dependants, the right to adoptive, parental or paternity
leave, the right to be accompanied at disciplinary and grievance hearings and the
claiming of working tax credits).

Potentially fair reasons

Lack of capability or qualifications: if an employee lacks the skill, aptitude or physical

health to carry out the job, then there is a potentially fair ground for dismissal.
Misconduct: this category covers the range of behaviours that we examine in considering
the grievance and discipline processes: disobedience, absence, insubordination
and criminal acts. It can also include taking industrial action.
Redundancy: where an employees job ceases to exist, it is potentially fair to dismiss
the employee for redundancy.
Statutory bar: when employees cannot continue to discharge their duties without breaking
the law, they can be fairly dismissed. Most cases of this kind follow disqualification of
drivers following convictions for speeding, drunk or dangerous driving. Other common
cases involve foreign nationals whose work permits have been terminated.
Some other substantial reason: this most intangible category is introduced in order to
cater for genuinely fair dismissals for reasons so diverse that they could not realistically
be listed. Examples have been security of commercial information (where an employees
husband set up a rival company) or employee refusal to accept altered working conditions.
Dismissals arising from official industrial action after twelve weeks have passed.

Dismissals that occur on the transfer of an undertaking where a valid ETO (Economic,
Technological or Organisational) reason applies.

Determining reasonableness
Having decided that potentially fair grounds for the dismissal exist, the tribunal then proceeds to
consider whether the dismissal is fair in the circumstances

Lack of capability
Misconduct
Redundancy
Some other substantial reason
Written statement of reasons

Constructive dismissal
When the conduct of the employer causes an employee to resign, the ex-employee may still be
able to claim dismissal on the grounds that the behaviour of the employer constituted a repudiation
of the contract, leaving the employee with no alternative but to resign.

38

Leadership and management

four components that characterise leadership:
leadership is a process; it involves infl uence; it occurs within a group context; and it involves goal
attainment.

What are the traits of (effective) leaders?

Five components of emotional intelligence:

Self-awareness
Self-regulation
Motivation
Empathy
Social skill

trait or behavior

What is the best way to lead? Leadership styles and

behaviours
McGregor argued that American corporations
managed their employees as if they were work-shy, and needed constant
direction,
monitoring and control (theory x), rather than as if they were responsible
individuals
who were willing and able to take on responsibility and organise their own
work (theory
y). McGregor argued that the underlying assumptions of the manager
determined the
way he or she managed the employees and this in turn determined how the
employees
would react. Thus if employees were managed as if they operated on theory
x then
they would act in a theory x manner; conversely, if employees were
managed as if they
operated on theory y then they would respond as theory y
employees would respond.
The message was that management style should reinforce theory y and
thus employees
would take on responsibility, be motivated by what they were doing and
work hard.
Blake and Moutons (1964) famous Managerial Grid. The grid is based on
two aspects of leadership behaviour: concern for production, that is taskorientated
39

behaviours such as clarifying roles, scheduling work, measuring outputs; and

concern
for people, that is people-centred behaviour such as building trust,
camaraderie, a
friendly atmosphere.

Blake and Mouton proposed that individual leaders could be

measured on a nine-point scale in each of these two aspects, and
by combining them in grid form they
identifi ed the four leadership styles presented in Table 11.1 .
High concern for people
High concern for people
Low concern for production
High concern for production
Country Club management
Team management
Low concern for people
Low concern for people
Low concern for production
High concern for production
Impoverished management Authority-compliance
management
Hersey and Blanchards four styles of Leadership:
High relationship behavior
High relationship behaviour
Low task behavior
High task behaviour
Followers are able, but unwilling or insecure
Followers are unable, but willing or confident
Supportive (participating) style (3)
Coaching (selling) style (2)
Low relationship behaviour
Low task behaviour

Low relationship behaviour

High task behaviour

Followers are both able and willing or confident

Delegation style (4)

Followers are unable and unwilling or insecure

Directing (telling) style (1

Followership
There are a number of studies which have started to develop thinking in
terms of followership,
for example Rigio et al . (2008) have presented an edited collection of
papers from a
1996 conference on followership. Jackson and Parrys (2008) work suggests
ways of thinking
that will support the examination of followers, for example social identity
theories.
Further, Smothers et al . (2012) argue that followers want equity rather than
personalised
treatment. These are early days for the study of followers but those who are
engaging in
this research have gone so far as to suggest that including the study of
followers in leadership
theory may call into question much of the existing theory.
40

Summary propositions
11.1 Leadership is a process where one person influences a group of others to achieve
group or
organisational goals leadership is thus about motivation.
11.2 The trait model of leadership, although often discredited, continues to play a part in
our
understanding of leadership.
11.3 Behavioural models are more helpful than earlier models as they concentrate on
what
leaders do rather than on what they are.
11.4 Some behavioural models offer a one best way of leadership, but more
sophisticated
models take account of contingency factors such as maturity of followers and the nature of
the task.
11.5 Models of transformational leadership treat the leader as a hero who can (singlehandedly)
turn the organisation around and deliver it from a crisis, whereas empowering and
postheroic
leadership models conceptualise the leader as teacher and facilitator, who involves
many in the leadership task.
11.6 There is an increasing interest in authentic and ethical leadership as an appropriate
response
to leading in turbulent economic times.
11.7 Critical perspectives on leadership argue for the surfacing of the role of followers and
suggest
that this may call into question much current leadership theory.

41

Process and causes of absence

Rhodes and Steers suggest that attendance motivation
is directly affected by two factors: satisfaction with the
job and pressure to attend.
Rhodes and Steers suggest that satisfaction with the job is determined by
the job situation
and moderated by employee values and job expectations . Factors in the job
situation are
identifi ed as job scope and level of responsibility and decision making; role
stress such
as work overload, underload, diffi cult working conditions or hours; work
group size;
leadership style of an individuals immediate manager, particularly the
openness of the
relationship and how easy it is to discuss and solve problems jointly;
strength of relationships
with co-workers; and the opportunity for promotion. On this basis higher
levels of
responsibility and the opportunity to make decisions in relation to job
demands, balanced
workload and good working conditions, small work group size, an open
relationship
with the immediate manager, good relationships with colleagues and the
opportunity for
promotion should all improve attendance motivation.
However, job satisfaction is moderated by the values and expectations of
the employee.
Such values and expectations are shaped by both personality and personal
characteristics
and life experiences, but can also change during the course of ones life. The
extent to
which the job matches up to expectations and values will have a bearing on
job satisfaction;
a close match is more likely to lead to satisfaction than a mismatch.
Personality and personal characteristics infl uence expectations and values
and job
satisfaction. We have previously referred to the infl uence of age and sex on
absence rates.
Length of service has also been identifi ed as having an infl uence. However,
none of these
relationships is clear cut, and different pieces of research often produce
different fi ndings.
There is most evidence for suggesting that younger workers and female
workers have the
42

highest rates of absence, and it is argued that younger workers value free
time to a greater
extent than older workers.
This brings us to the last infl uence on attendance, which is the ability to
attend . This
infl uence is interposed between attendance motivation and actual
attendance. For example,
an employee could be highly motivated to attend, but may have
insurmountable transportation
diffi culties, family or domestic responsibilities, or may be genuinely ill. In
these cases motivation to attend does not result in attendance.

43

The nature of change and the role of planned change

There are many reasons why a business has to change, such as
competitor behaviour,
customer expectations, development of technology and
communications, response to a
crisis, or a need to maximise shareholder value and for a thorough
analysis of the causes
of change.
Sometimes change is an initiative to seize an advantage and make
something happen (proactive); on other occasions it is an attempt to
catch up with what is already happening (reactive).
Other distinctions are made, for example whether the push for change
comes externally or internally. The change may be revolutionary,
sudden and dramatic, or incremental; it may be planned or
evolutionary.
However, underlying all of this is the fundamental reason for change,
which is to enable organisations to survive and thrive in our complex
global world.
It has been assumed that leaders can plan and manage change given
the right processes
and tools to use. There is a variety of models in the literature, and used
by consultants,
with most focusing on such stages as:
identify the need for change;
define the current state;
envisage the future desired state;
identify the gap;
diagnose capacity for change including barriers and how they can be
overcome;
plan actions and behaviours needed to close the gap;
implement required actions;
manage the transition;
constantly reinforce changes, sustain momentum and measure
progress.

.
:

.

.
.
44

.

.
.

How can organisations be responsive to change?

On a very practical level one way of trying to enable organisations to be more
responsive to change is to design them so that they can change more easily.
Lawler and Worley (2009) suggest that, given the increasing pace of change,
organisations need to anticipate change and constantly reconfigure, and hence
require a built-in capacity to change continuously. To do this Lawler and Worley
suggest that organisations need to design themselves so that they can
adjust their strategic intents, structures and human deployments as a matter of
routine ( p. 28 ), and need to develop the ability to think creatively about the
future to achieve sustained success.

Reconceptualising change
In response to concerns about the leadership of change, Binney and Williams
(2005), among others, suggest alternative ways in which change can be led by
reconceptualizing change, based on the metaphor of the organisation as a living
system rather than a machine.
They suggest that this perspective helps us see organisations as adaptive (as
behaviour and thinking shift of their own accord in response to the pressure of
events), as self-organising (to achieve an equilibrium), as interdependent with their
environment (interacting in complex ways), and as dynamic.
This is different to planned change models where there is a danger of assuming a
static environment and constant environmental scanning may be neglected.
They propose that this perspective suggests change is natural, if painful, and that
the challenge is to release the potential for change rather than drive it. In addition
they identify the need for some stability as well as change. They suggest that this
perspective encourages the view that managers cannot control change, and that
the problem with a vision for the future is that it denigrates the present and the
past of the organisation.
This thinking fi ts well with the increasing attention being paid to the importance of
continuity alongside change (see e.g. Saboohi and Saboohi 2011), and the idea of
recognising current strengths and not destroying everything.

Summary of the HR role in change

The discourse of strategic involvement suggests that in some organisations
HR specialists may have a role in determining the need for change and the
content of that change.
In other organisations the HR role may be more limited to facilitating change
and proposing, providing or supporting change processes, for example
communication and training. HR specialists have a unique role in raising
awareness of how employees and other stakeholders might respond to the
intended changes; propose/provide/support processes for participation
where this is appropriate; and propose other ways of engaging employees
with the intended changes.
45

suMMAry propositions
13.1 Change is constantly increasing and leaders use the planned change model in an
attempt to
manage change, but it has limitations.
13.2 It may be possible to design organisations to be more responsive to change.
13.3 I t is important to take the employee experience into account and consider all four
forms of
response: behavioural; emotional; cognitive; physical.
13.4 C ommunication and involvement are important aspects of successful change
management
as are basic aspects of HRM such as sufficient staffing and appropriate reward.
13.5 A n alternative approach to change is based on reconceptualising the organisation as
a
human living system rather than a machine.
13.6 O D is a specific approach to change and the key characteristics of OD are that it is
based
on humanistic values, aiming to get the best fit between both individual and organisational
goals, and has a systemic and processual approach.
13.7 O D has received more attention of late and recent trends in OD encompass social
constructivist
principles and appreciative inquiry (AI). OD is increasingly paired with HRM.
13.8 I n some organisations HR specialists may have a hands-on role in determining the
need for
and content of change, while in others they may be restricted to facilitating change.

Investors in People (IiP)

From 2010 UKCES became the champion and guardian of IiP. Compared
with many government initiatives it has had a long-lasting impact since
being introduced in 1991, although since then there have been several
major revisions.
More recent versions are increasingly less prescriptive and have more
emphasis on outcomes rather than the process by which the business
achieves IiP recognition. In addition attempts have been made to
simplify the framework and make it more user friendly. There are now
three principles, namely plan, do and review, and there are ten
criteria in total set against the three principles in the latest
2009 framework.
There are thirty-nine outcome-based evidence requirements in the
plandoreview cycle which are intended to give a full picture of how
the business is managing its people and where improvements can be
made.
The current approach is more flexible, providing more opportunities to
build on existing organisational processes; assessment no longer
requires huge amounts of paperwork, as assessors now take on the
responsibility of collecting mainly verbal evidence by interviewing a
range of employees in relation to the standard.
46

Following the 2009 consultation with customers IiP launched three

levels of recognition (bronze, silver and gold) beyond the standard,
depending on the number of evidence based requirements the
organisation has met, and a new way of working with the framework,
focusing more fully on the needs and priorities of the client in what IiP
terms a choice-based approach.
A commitment to IiP requires significant time and effort, and the
benefits from gaining recognition of IiP status have been debated.
Some studies have found that an increase in commitment to HR
development, a belief in the value of the process and perceived
performance gains (see e.g. Alberga et al . 1997) and that such firms
are more likely to achieve organisational goals (Bourne 2008).
Hoque (2008), reporting on the 2004 WERS survey data, found that
training incidence and duration are higher in workplaces with the IiP
standard and employees were more likely to agree with the statement
Managers here encourage people to develop their skills.
However, the author found no evidence to suggest greater equality in
the distribution of development opportunities and in fact IiP workplaces
demonstrated less equality than non-IiP workplaces.
In addition Hoque found that those workplaces with the standard were
no better than others in respect of training apartheid where the
unskilled and those with no academic qualifications are provided with
fewer training opportunities.
There is considerable evidence that the standard is sought for its
stamp of approval rather than because of a genuine commitment to
improving training and it is often those organisations that have most to
gain from pursuing the standard that are least likely to attempt to do
this. There is a tendency in the IiP process to focus on formal
qualifications, such as NVQs, and for the significance of informal
development to be neglected.

47