Chapter Objectives

After studying this chapter, you should be able to

* Identify the main environmental trends influencing managers like Paul Orfalea

* Explain, with examples, what managers do

* Describe why the behavioral or "people" side of managing is so important

* Show how modern organizations are managed.

What's Ahead?

Since starting his first copy shop near the University of California's Santa Barbara campus, Paul "Kinko" Orfalea, whose nickname refers to his kinky red hair, has become an expert at managing change. He began his career working nights, selling pens and spiral notebooks on the Santa Barbara campus, and borrowed $5,000 to open his first Kinko Copy Center. He built a loyal following nationwide by giving students 24-hour access to word processors and copiers for their reports. As PCs and campus copiers became more readily available, Orfalea shifted to offering more expensive office equipment like desktop color printers, and to services like duplicating teaching materials and compiling students' reports. Now, with color printers selling for under $300, he's shifting his company again, focusing on business firms and offering new services like KinkoNet: Work on your sales presentation until the last minute, zap it from your PC to Kinko's, and pick up your bound color copies when you arrive at the meeting on the opposite coast.1 Orfalea's only question is, "What's in store for us next?"


The Office of the American Workplace page maintained by the Department of Labor has a singular purpose--disseminate information regarding "best practices" employed by high performance companies and the unions representing their employees. The 47 company profiles contained in this listing outline practices in ten areas of high performance. Visit the page and see what high performance organizations are doing to develop a competitive advantage in an era of change. Could Kinkos use any of these practices?


Managing in an Era of Change

The opportunities and challenges facing Kinko's illustrate the rapid change and unpredictability that all managers face today. Kinko's has survived and thrived because of the remarkable management talent of Paul Orfalea. However, not all companies have been so successful. Japanese firms have surpassed Chrysler as the third largest car maker, and Intel president Andy Grove predicts an industrywide shakeout among PC makers, noting that "there are 500 suppliers--and 450 should not exist."2 Dozens of banks have been forced to merge to survive, and many U.S. airlines--Eastern, Braniff, USAir, Pan Am--have either gone out of business or been forced to merge.3 In the process hundreds of thousands of employees have been thrown out of work ("downsized") as companies have tried to drive up their efficiency by squeezing more productivity from a smaller employee base.

The main purpose of this chapter is to explain what managers do, but in point of fact that's impossible to do until we first discuss the sorts of changes managers and their organizations must increasingly respond to. We turn to these changes next. They include: technological innovation; globalization; deregulation; new political systems; a new workforce; more service-oriented jobs; and a new emphasis on "knowledge work."


As Kinko's Paul Orfalea knows, technological innovations like information highways, the Internet, microprocessors, and automated factories are proliferating. The number of U.S. patents issued rose from 67,000 annually in the 1970s to 77,200 in 1985, and to over 100,000 per year in the 1990s. The number of U.S. trademarks issued has risen from almost 66,000 in the 1980s to over 120,000 per year in the 1990s. And this total reflects just U.S. patents and trademarks, not those issued in other industrial countries.

Technological innovations are changing the way companies compete. For example, Inter-Design of Ohio sells plastic clocks, refrigerator magnets, soap dishes, and similar products. Its president explains the impact of information technology, which merges communications systems with computers, this way: "In the seventies we went to the post office to pick up our orders. In the early 80s, we put in an 800 number. In the late 80s, we got a fax machine. In 1991, pressured by Target [stores, a customer], we added electronic data interchange." Now, just two years later, more than half of Inter-Design's orders arrive via modem, straight into company computers. Errors in order entry and shipping have all but disappeared.4

And that, of course, is just one of millions of examples. Netscape Navigator has changed how many companies do business and how people shop, almost overnight.5 has gone from zero book sales to tens of millions, thanks to the Internet.6 Jim Manzi, former head of Lotus, hopes to rebuild his new company Industry.Net, into a huge Internet-based market for businesses.7

Information technology like this has been a boon to many companies but a near-disaster for others. In the 1980s and 1990s, Wal-Mart ballooned in size, in part because its managers used information technology to directly link their stores with their suppliers: Levi Straus & Co., for instance, always knew exactly how many size-10, 501-style jeans were being sold and could replenish the stores' supplies almost at once. But Wal-Mart's technology advantage almost torpedoed K-Mart, which struggled for many years without the speed and cost-effectiveness of such a system.

As more and more firms expand abroad to make the business environment truly global, investment banking firm Goldman Sachs hopes to mine new business in Moscow under Evan Newmark's leadership.


Globalization is the tendency of firms to extend their sales or manufacturing to new markets abroad. For businesses everywhere, the rate of globalization in the past few years has been nothing short of phenomenal.

For instance, in the early 1980s General Electric, long accustomed to being the dominant lighting manufacturer in the United States, had a rude awakening. Its relatively weak competitor, Westinghouse, sold its lamp operations to Dutch electric powerhouse Philips Electronics; overnight GE's competitive picture changed. As one GE executive put it, "Suddenly we have bigger, stronger competition. They're coming into our market, but we're not in theirs. So we're on the defensive."8

GE did not stay there for long. It soon bought Hungary's Tungstram electronics and is fast moving into Asia through a partnership with Hitachi.9 In 1990, GE lighting got less than 20 percent of its sales from abroad; by 1993, the figure was 40 percent, and for 1996 the estimate is more than half.

Globalization is manifesting itself in U.S. firms in many ways. The value of U.S. imports/exports grew from 9.4 percent of GNP in 1960 to almost 23 percent in the 1990s.10 U.S. exports are also reaching new markets, with big gains since 1988 in sales to countries ranging from Uruguay and Mexico to the Netherlands, Hungary, and Kuwait.11

Production is becoming globalized, too, as manufacturers around the world put manufacturing facilities where they will be most advantageous. Thus, the Toyota Camry--what many would claim is "obviously" a Japanese car--is produced in Georgetown, Kentucky and contains almost 80 percent U.S.-made parts. At the same time, the General Motors Pontiac LeMans ("obviously" a U.S. car) actually contains almost two-thirds foreign-made parts.12

Globalization of markets and manufacturing is important, in part because it has vastly increased international competition. Throughout the world, firms that formerly competed only with local firms--from airlines to car makers to banks--have discovered they must now face an onslaught of new foreign competitors.

Many firms have successfully responded to this new international environment, while others have failed. For instance, when Swedish furniture retailer Ikea built its first U.S. furniture superstore in New Jersey, its superior styles and management systems grabbed market share from numerous domestic competitors, driving several out of business.

Global competition is a two-way street, though. Ford and GM have huge market shares in Europe, for instance, while IBM, Microsoft, Apple, and countless smaller firms have major market shares around the world. As one international business expert puts it, "the bottom line is that the growing integration of the world economy into a single, huge marketplace is increasing the intensity of competition in a wide range of manufacturing and service industries."13


Meanwhile, the comfortable protection provided to thousands of businesses around the world by government regulations has been stripped away in country after country. In the United States, as mentioned earlier, a dozen airlines including Eastern, People's Express, Braniff, and Piedmont have either been bought up or gone bust as airline deregulation exposed inefficiencies that less-responsive competitors couldn't eliminate in time. In 1997, AT&T--formerly only a long-distance phone service provider--was poised to invade the regional Bells' local-phone service turf: in 1996 Congress had approved sweeping deregulation of local and long distance phone service, allowing carriers to invade each other's markets.14 The Morris Air Entrepreneurs in Action box shows how one small firm dealt with deregulation.



The business philosophy at tiny Morris Air was simple: offer low enough fares, and travelers will dream up their own excuses to journey by air. Then all you have to do is operate efficiently, and the increased volume will translate into profits. But that last part is not as easy as it sounds.

Founder June Morris was the driving force behind Morris Air. With characteristic understatement, Morris says that in starting the company she simply identified a need and filled the niche. She believed she had talent, but perhaps more importantly, she found good people and let them use their own abilities in building Morris Air.

The Salt Lake City-based regional carrier grew to 2,000 employees, including Morris's son Rick Fendt, the airline's chairman, and a few others who went as far back as grade school with June Morris. She thinks Utah was a good place to find good employees; work ethics are solid and people are well educated and polite. That, too, is important, because despite low fares and cost-conscious operations, Morris insists customer service be the best. Since her management style focuses on the human side, she wants to hear about problems, too. Personally, Morris stays on top of what's happening by monitoring in-flight surveys, reading complaint letters, and occasionally fielding telephone calls.

One way the airline has managed to keep fares low--often below competitors' fare-war prices--was by leasing many of its planes and contracting flight crews. Another tactic was more ingenious, an advertising strategy that encourages flyers to see that their own best interests coincide with those of Morris Air. One of the company's promotional brochures summed it up: "A ticket on Morris Air is a vote for permanent low fares!" When the carrier began Salt Lake City to Denver service with four flights daily, Delta, American, and United had to slash fares as much as 50 percent.

The increased competition hit Delta the hardest. In mid-1992, 75 percent of passengers boarding flights in Salt Lake were Delta flyers. A little over a year later that number had dropped to 67 percent while Morris Air's market share rose from 8 to 14 percent. Analysts said the big airline underestimated Morris Air. Whatever the case, it's safe to assume Delta management was not amused, and retaliation was swift. Delta notified travel agents in mid-1993 that booking flyers on Morris Air could cost them lucrative commissions from the big carrier. Delta even gave away free tickets to loyal agents as a further inducement. Morris was forced to hire new reservation agents, but the small carrier quickly won back the 20 percent loss in business.

June Morris patterned much of her airline operations around Texas-based Southwest Airlines. The two carriers have much in common. Both flew 737 jets exclusively and concentrated on short flights of around 500 miles. Today, they have even more in common, as deregulation continues to churn airlines and their management. In December 1993, Southwest announced it was buying Morris Air. The relationship has proved to be very beneficial. For example, Morris Air helped show Southwest how to switch to a ticketless travel system in 1995, so it could keep up with rivals' competitive moves. *

source: John Accola, "Tiny Morris Air Is Making the Big Airlines Nervous with Its Cut-Rate Fares," Rocky Mountain News, 88A, 90A; Judy B. Rollins, "Morris Air Owner Says Every Cloud Has a Silver Lining," Salt Lake Tribune, 10 January 1993, F8, F9; Julie Schmit and Jefferson Graham, "When Morris Took Flight, Fares Fell," USA Today, 30 August 1993, B1; Carlene Canton, "Flying High," The Costco Connection #6, no. 8 (August 1992): 1 15; and Terry Maxon, "Southwest to Buy Carrier," Dallas Morning News, 14 December 1993, 1A, 10A; Ron Levine, "Southwest Soars with Ticketless Travel," Lan Times On Line (1995):


As nations ranging from the Philippines to Argentina, Russia, and Chile join the ranks of democracies, central planning and communism are being replaced by capitalism. This prompted Francis Fukuyama, a State Department planner, to declare "the end of history." Fukuyama characterized the conquest of capitalism over communism and its consequences as the end of the historical conflict between two economic ideologies.15 To him, the overthrow of Marxist-Leninist ideology means the victory of the principles of liberty and equality, and thus the strengthening of economic liberalism, capitalism, and competition. "Indeed," says Fukuyama, "the meaning of 'great power' will be based increasingly on economic rather than military, territorial, or other traditional measures of might."16

Such political changes have triggered an explosive opening of new markets, markets with hundreds of millions of potential customers in countries from Russia to Chile. For business firms, the opportunities are enormous: see for instance, the photo of Evan Newmark, head of investment banker Goldman Sachs' new Moscow office.17 Yet with the burgeoning demand for goods and services comes increased global competition. See, for instance, the photo of the new Hungarian-built bus now cruising the streets of Portland, Oregon.18

Global competitors can reach new U.S. markets as well, as did a Hungarian bus company whose vehicles now ply the streets of Portland, Oregon.


The workforce is changing dramatically, too. During the 1990s, the white labor force will have grown less than 15 percent, while the black labor force will have grown by about 29 percent and the Hispanic by more than 74 percent. During the period 1986­2000, Hispanics will have accounted for nearly 29 percent of the labor force's growth; Asian and other nonwhite races (including Alaskan natives) will account for more than 11 percent.

These demographic changes are already changing how companies are managed. Special diversity-management programs are proliferating, equal opportunity protection laws are being aggressively applied, and organizations from IBM to the Citadel are instituting new training and other programs to assist in the assimilation of this new minority and multicultural workforce.19

At the same time, more U.S. firms are transferring their operations abroad, not just to seek cheaper labor but also to tap what Fortune magazine calls "a vast new supply of skilled labor around the world."20 Even today, in fact, most multinational firms set up manufacturing plants abroad, partly to establish beachheads in promis ing markets and partly to utilize other countries' professionals and engineers. For example, ASEA Brown Boveri (a $30 billion-a-year Swiss builder of transportation and electric generation systems) has 25,000 new employees in former Communist countries and thus has shifted many jobs from Western to Eastern Europe.

Tapping such overseas labor markets is a two-edged sword for managers. Employers gain thousands of potential new highly skilled employees, but also the challenge of managing a geographically dispersed workforce.



The nation's most populous state, California, passed a milestone in April, 1997: One in four residents is now foreign-born, the highest proportion for any state since the great European migration of the early twentieth century. The number of foreign-born residents in the United States as a whole now exceeds 24.6 million, or 9.3% of the country's population.

Such enormous diversity can lead to clashes, and California's demographic political wars made news in 1996. By a margin of 54­46, California voters passed a ballot measure called the California Civil Rights Initiative. The initiative--which bans racial and gender preferences and discrimination in education, contracting, and employment in state and local agencies--has been challenged in the lower courts and is likely to reach the U.S. Supreme Court. In the meantime, it continues to stir up conflict among people living in the state, both in the college and university system and at companies large and small. *

source: Claire Cooper, "Appellate Court Upholds Curbs on Affirmative Action." Sacremento Bee, 9 April 1997, 1A, 12A; Ken Chavez, "Wilson Planning Renewed Attack on PReferences." Sacramento Bee, 9 April 1997, 1A, 12A; David Westphal, Bee Washington Bureau, 9 April 1997, 1A, 8A. For a continuing update on affirmative action policies and politics, see on the Internet:


Another characteristic change in companies today is the growing emphasis on human capital21--the knowledge, training, skills, and expertise of a firm's workers--at the expense of physical capital like equipment, machinery, and the physical plant.22

This shift is illustrated in Figure 1.1.23 The U.S. human capital investment (including direct outlays for all forms of formal schooling and worker training) rose from about 42 percent of total productive investment to about 58 percent between 1950 and 1990. During the same time, the investment in physical capital as a percentage of total productive investment dropped from about 58 percent to about 45 percent.


U.S. Investment in Human Capital Compared to U.S. Investment in Physical Capital, 1950 to 1989

The human capital investment in things like schooling and training has risen from about 42 percent of industry's total productive investments to about 58 percent between 1950 and 1989.

source: Adapted from Richard Crawford, In the Era of Human Capital (New York: Harper Business, 1991), 31.

The growing emphasis on education and human capital reflects several trends in the business environment. One is the growing importance of service work in today's society. Over two-thirds of the U.S. workforce is now involved in producing services, not things. And of the 21 million jobs added to the U.S. economy in the 1990s, virtually all will be in service industries like retailing, consulting, teaching, and law. Service jobs like these put a bigger premium on worker education and knowledge than do traditional jobs, and thus they add more to the fund of a company's "human capital." As James Brian Quinn, an expert in this area, puts it, "Intellect is the core resource in producing and delivering services."24

Human capital is also more important today because of the fact that manufacturing jobs are changing, too. Particularly in the United States, manufacturing-intensive jobs in the steel, auto, rubber, and textile industries are being replaced by knowledge-intensive high tech manufacturing in such industries as aerospace, computers, and telecommunications.25 At Alcoa Aluminum's Davenport, Iowa, plant, for instance, a computer stands at each work station to help employees control their machines or communicate data. As Fortune magazine recently put it, "practically every package deliverer, bank teller, retail clerk, telephone operator, and bill collector in America works with a computer [today]."

Innovation, driven by competition, demands more highly skilled employees, too. It is not unusual for more than one-fourth of many firms' sales to come from products less than five years old. As a result, "innovating--creating new products, new services, new ways of turning out goods more cheaply--has become the most urgent concern of corporations everywhere."26 This means that companies are relying more on employees' creativity and skills, thus placing more stress on the employee's brain power. As Fortune magazine recently said:

For managers, the challenge of increasing human capital is that "knowledge workers" must be managed differently than were those of previous generations. "The center of gravity in employment is shifting fast from manual and clerical workers to knowledge workers, who resist the command and control model that business took from the military 100 years ago."28 Knowledge workers, in other words, cannot just be ordered around and closely monitored. New management skills will be required, and the behavioral side of managing will become more important.

What Managers Do

Managers can have the most remarkable effects on organizations. IBM floundered through much of the 1980s and early 1990s, losing market share, seeing costs rise, and watching its stock price dwindle from almost $180 per share to barely $50. Within three years, new chairman Louis Gerstner revamped the company's product line, dramatically lowered costs, changed the company's culture, and oversaw a rise in the firm's stock price from $50 back to almost $180 again. At American Airlines, Chairman Richard Crandall navigated his company to a position of profitable industry dominance in the 1990s, buying the right planes, picking the right routes, and keeping a vise-like grip on costs, even as slews of his airline's competitors struggled to stay aloft.

"Manager" effects like these don't happen just at giant corporations. At this moment--as you read these words--managers at thousands and thousands of small businesses--diners, drycleaning stores, motels--are running their business well, with courteous, prompt, and first-class service; high-morale employees; and a minimum of problems like "My dinner's cold," or "You didn't press my pants." What do you think would happen if you took the competent managers out of those small businesses and dropped in managers without the training or skills to do their jobs? You know the answer, because you've probably experienced the effects yourself--businesses with untrained or unprepared staff, orders not prepared on time, lost reservations, or dirty rooms. About 90 percent of the new businesses started this year will fail within five years, and Dun & Bradstreet says the reason is generally "poor management."

The effect of good management is nothing short of remarkable. Take an underperforming--even chaotic--organization and install a skilled manager, and he or she soon can have the enterprise humming like a well-tuned machine. Take a successful enterprise that's been managed well for years by its proprietor--say, a neighborhood stationery store--and watch as a new, less-competent manager takes over. Shelves are suddenly in disarray, products are out of stock, and bills go unpaid as the new owner tries in vain to run the little store and its handful of employees.

All these enterprises--IBM, American Airlines, the diner, the motel, and the neighborhood store--are organizations. An organization consists of people with formally assigned roles who must work together to achieve stated goals.

Organizations needn't just be business firms; obviously the definition applies equally well to colleges, local governments, and to nonprofits like the American Red Cross, as well as to many other institutions. The U.S. government is an organization--certainly a not-for-profit one--and its head manager, or chief executive officer, until 2000 is President Bill Clinton.

Organizations, by their nature, cannot simply run themselves--they can't just "run on compressed air," as an engineer might joke. Review the definition of an organization again and you'll see why. Who would ensure that each of the people actually knew what to do? Who would see that they are trained? Who would hire them? Who would ensure that they work together, more or less harmoniously? Who would decide what the organization's goals would be, and then monitor whether each employee was doing his or her share to reach those goals?

All organizations are run by managers. A manager is someone who plans, organizes, leads, and controls the people and the work of the organization in such a way that the organization achieves its goals. Management refers to two things: (1) collectively to the managers of an organization; and (2) to the study of what managers do. This is a book about management. It is our hope and belief that carefully studying it will put you well on the road to being a better manager.


Management writers traditionally refer to the manager's four basic functions of planning, organizing, leading, and controlling as the management process. Following is a synopsis of what each entails (the rest of the book will cover each of these in detail).

PLANNING. Planning is setting goals and deciding on courses of action, developing rules and procedures, developing plans (both for the organization and for those who work in it), and forecasting (that is, predicting or projecting what the future holds for the firm).

ORGANIZING. Organizing entails identifying jobs to be done, hiring people to do them, establishing departments, delegating or pushing authority to subordinates, establishing a chain of command (in other words, channels of authority and communication), and coordinating the work of the manager's subordinates.

LEADING. Leading means influencing other people to get the job done, maintaining morale, molding company culture, and managing conflicts and communication.

CONTROLLING. Controlling is setting standards (such as sales quotas or quality standards), comparing actual performance with these standards, and then taking corrective actions as required.

Managers get the job done by working with people, making leadership the key ingredient among many in the management task.


Most organizations with which you are familiar contain several types of managers. In your college, for instance, there are presidents, vice presidents, deans, associate deans, and department chairs, as well as various administrators like human resource managers. At your place of work (if you work) you might find first-line supervisors, financial controllers, sales managers, plant managers, and top executives including the chief executive officer, president, and vice presidents. All these people are managers, because they all plan, organize, lead, and control the people and the work of that particular organization in such a way that their organization achieves its goals.

However, you would find that each of these managers spends his or her time very differently depending on the specific type of manager he or she is. For convenience, we can roughly distinguish three types of managers, based on their organizational level, position, and functional title. They are illustrated in Table 1.1.

Table 1.1 Types of Managers
Based on Organizational Level Based on Position Based on Functional Title (Examples)
Top Managers Executives President
(Have managers as subordinates) Vice President, Production
Vice President, Sales
Vice President, HR
Chief Financial Officer
Middle Managers Managers or Directors Production Manager
(Have managers as subordinates) Sales Manager
HR Manager
Finance Manager
First-line Managers Supervisors Production Supervisor
(Have non-managers as subordinates) Regional Sales Manager
Assistant HR Manager
Chief Bookkeeper

The managers at the top of an organization like IBM of course represent the firm's top management. These managers are usually referred to as executives. Functional titles include President, Chief Executive Officer, HR Vice President, and Chief Financial Officer.

Beneath this top management level and reporting to it may be one or more levels of middle managers, positions that typically have the term "manager" or "director" in their titles. (Particularly in larger companies like IBM, managers would report to directors, who in turn would report to top managers like vice presidents.) Examples of functional titles here include Production Manager, Sales Manager, HR Manager, and Finance Manager.

First-line managers are at the bottom management ladder rung. These managers are often called as supervisors, and they might for instance include the Production Supervisors who actually supervise the assembly-line employees at Toyota as they carry out their day-to-day tasks.

All managers have a lot in common. Whether top, or middle, or first-line, they all plan, organize, lead, and control the people and the work of their organizations in such a way that their organizations achieve their goals. And--of particular importance--all managers at all levels and with every functional title spend an enormous part of their day with people--talking, listening, influencing, motivating, and attending one-on-one conferences or committee meetings.29 In fact, even chief executives (whom you might expect to be somewhat insulated from other people, up there in their executive suites) reportedly spend about three-quarters of their time dealing directly with other people.30

However, there are two big differences between the management levels. First, as you can see, executives and middle managers both have managers for subordinates; in other words, they are in charge of other managers. Supervisors have workers--non-managers--as subordinates.

Managers at different levels also use their time somewhat differently. Top managers typically spend more time planning and setting goals. Middle managers then take these goals (like "double sales in the next two years") and translate them into specific projects (like "hire two new salespeople and introduce three new products") for their subordinates to execute. First-line supervisors then concentrate on directing and controlling the employees who work on these projects.

Yet the manager's job is changing so fast that some--like Peter Drucker--say, "I'm not comfortable with the word manager anymore, because it implies subordinates."31 Forces such as globalization, computerization, and deregulation have so changed the nature of what managers do that in some respects the job today would be unrecognizable to a time traveler from the 1940s.

The Behavioral Side of Management

Managing has always been a decidedly behavioral or people-oriented occupation, since managers do their work by interacting with others. Over 20 years ago, for instance, Professor Henry Mintzberg conducted a study of what managers actually do, in part by walking around and watching managers as they worked. Basically, Mintzberg found that as they went from task to task, managers wore various hats, and most of these hats meant the managers had to deal with people. Here is a sampling of the hats they wore--or the roles they filled:

The Figurehead Role: Every manager spends part of his or her time performing some duties of a ceremonial nature. For example, the president of the United States might have to greet representatives of the state legislature, a supervisor might attend the wedding of a front-desk clerk, or the sales manager might take an important client to lunch.

The Leader Role: Every manager must also function as a leader, motivating and encouraging his or her employees, for instance.32

The Liaison Role: Managers also spend a lot of time in contact with people outside their own departments, essentially acting as the liaison between their departments and other people within and outside the organization. For example, the assembly-line supervisor might field a question from the sales manager about how a new order is coming, or the vice president for sales might meet with the vice president of finance to make sure that a new customer has the credit required to place an order.

The Spokesperson Role: The manager is often the spokesperson for his or her organization. For example, the supervisor may have to keep the plant manager informed about the flow of work through the shop, or the president may make a speech to lobby the local county commissioners for permission to build a new plant on some unused land.

The Negotiator Role: Mintzberg found that managers also spend a lot of their time negotiating: the head of the airline tries to negotiate a new contract with the pilots' union, or the first-line supervisor negotiates a settlement to a grievance with the union's representative, for instance.


Chairman Lawrence A. Bossidy's people skills have had a remarkable effect on Allied-Signal, a huge industrial supplier of aerospace systems, automotive parts, and chemical products.33 In 1991 he took over a troubled company that was "hemorrhaging cash."34 After just three years under Bossidy, Allied-Signal's net income (profits) had doubled from $359 million to $708 million, profit margins had doubled, and the company's market value (the total value of its shares) had more than doubled as well, to almost $10 billion.

What did Bossidy do to bring about such a dramatic transformation in just three years? A lot of his changes were operational: under his guidance the company merged business units, closed factories, reduced suppliers from 9,000 to 3,000, and cut 19,000 salaried jobs from the payroll, for instance.35

But much of what Bossidy focused on was behavioral in nature. In other words, he focused on applying his knowledge of how people, as individuals and groups, act within organizations to help bring about change. For example, in his first two months on the job, "I talked to probably 5,000 employees. I would go to Los Angeles and speak to 500 people, then to Phoenix and talk to another 500. I would stand on a loading dock and speak to people and answer their questions. We talked about what was wrong and what we should do about it."36 His job, as he saw it, was not just to cut jobs and merge operations, since actions like these would have only short-term effects on profitability. In the longer run, Bossidy knew, he had to excite his giant firm's many employees by promoting "our employees' ability to win," by uniting the top management team "with vision and values," and in general by convincing all his employees that there was a tremendous need to change--that their "platform was burning," as Bossidy put it.37

Trends like technological innovation, global competition, and deregulation have created an environment that's merciless to those companies and other organizations whose employees aren't fully committed to doing even more than their best, every day. That's why Bossidy says that when he looks for managers, he looks for ones who have a gift for working with and turning on employees:

Today's corporation is a far cry from the old authoritarian vertical hierarchy I grew up in. The cross-functional ties among individuals and groups are increasingly important. There are channels of activity and communication. The traditional bases of managerial authority are eroding. In the past, we used to reward the lone rangers in the corner offices because their achievements were brilliant even though their behavior was destructive. That day is gone. We need people who are better at persuading than at barking orders, who know how to coach and build consensus. Today, managers add value by brokering with people, not by presiding over empires.38


Two management experts, Sumantra Ghoshal and Christopher Bartlett, also emphasize the importance of the behavioral or people side of managing in creating a responsive and change-oriented company.39 Successful managers today, say Bartlett and Ghoshal, can't afford to focus just on mechanical aspects of management work, like designing organization charts or drawing up plans. Instead successful managers cultivate three processes aimed at getting the people in the company to focus their attention on creating change. Specifically, these are the entrepreneurial process, the competence-building process, and the renewal process.

THE ENTREPRENEURIAL PROCESS. Entrepreneurship, say Bartlett and Ghoshal, refers to "the externally-oriented, opportunity-seeking attitudes that motivate employees to run their operations as if they own them."40 In their study of 20 companies in Japan, the United States, and Europe, they found that successful managers focused much of their time and energy on getting employees to think of themselves as entrepreneurs, and on giving those employees the authority, support, and rewards that self-disciplined and largely self-directing employees should have to run their operations like their own.

THE COMPETENCE-BUILDING PROCESS. Bartlett and Ghoshal found that "in a world of converging technologies, large companies have to do more than match their smaller competitors' flexibility and responsiveness. They must also exploit their big-company advantages, which lie not only in scale economies but also in the depth and breadth of employees' talents and knowledge."41 Successful managers therefore also devote much of their efforts to creating an environment that lets their employees' competence flourish--encouraging them to take on more responsibility, providing the education and training they need to build their self-confidence, and allowing them to make mistakes without fear of punishment, instead coaching them and supporting them to learn from their mistakes. Part of the competence-building process, say these experts, is "shaping an environment for collaborative behavior,"42 for instance, by encouraging the sort of teamwork in which employees learn to work with one another--much as the confidence and competence of football players rise as the team successfully masters new plays and learns to anticipate each other's moves.

THE RENEWAL PROCESS. Successful managers also concentrate today on fostering what Bartlett and Ghoshal call a renewal process, one "designed to challenge a company's strategies and the assumptions behind them."43 Managers, in other words, have to make sure they and all their employees guard against complacency, develop the habit of continuously questioning why things are done as they are and whether it might not be better to disrupt the status quo and do things differently, and deal as productively as possible with any arguments or conflicts that arise.


An ongoing study by Harvard business professor Renato Tagiuri also helps to illustrate how people-oriented is the job of managing today. How exactly do managers "get the job done"? As you can see in Figure 1.2, Tagiuri found that managers get their jobs done by working with and interacting with people--working intensively with their subordinates when needed, accepting that there's going to be a certain amount of hostility and resentment from their subordinates, helping subordinates assess their strengths and weaknesses, and dealing with the challenges of competition and conflict within their organizations, for instance.44 Certainly planning, organizing, leading, and controlling are the basic functions that all managers perform, but doing each of these things requires that the manager work with his or her people--that is the "behavioral side of management." Therefore, leading (which is the management function that focuses on the behavioral or people aspects of what managers do) can't just be viewed with planning, organizing, and controlling as one step in a sequence. "Leading" really applies to almost everything.


How Managers Get the Job Done

source: Reprinted by permission of Harvard Business Review. "How Managers Get the Job Done." From Briefing from the Editors: Managing People, Ten Essential Behaviors, January­February 1995. ©1995 by the President and Fellows of Harvard College; all rights reserved.


This means we have to adjust our view of the management process, to see what managers actually do. Specifically (to repeat), the leading or behavioral side of what managers do is not just another step in the management process, but an integral part of almost everything the manager does. This is shown in Table 1.2.

Table 1.2 Everything a Manager Does Requires Leading.

Note: Leading, the management function that focuses on the behavioral or people aspects of what managers do, is not just another step in the management process but an integral part of everything the manager does.

Management Function Behavioral (Leadership) Side of the Management Function: Some Examples
Planning Getting department heads to work together to craft a new strategic plan; working with small groups of employees to encourage more creative ways of looking at the company's situation; dealing with the interdepartmental conflicts that may arise when one department's plans may conflict with another's.
Organizing Dealing with the questions of power and company politics that arise as employees in various departments jockey for positions of dominance; encouraging communication across departmental lines; understanding how personality, motivation, and skills can influence who should or should not be put in charge of various departments.
Controlling Influencing subordinates to correct "out of control" behavior; dealing with the fact that employees may be motivated to subvert the control system to make themselves look better in the short run; and using effective interpersonal communication skills to encourage employees to change the way they do things.


Much of this book will focus on understanding behavior at work, since the behavioral side of managing is so important to what managers do.

WHAT IS ORGANIZATIONAL BEHAVIOR? Organizational behavior (OB) has been defined as "...the study and application of knowledge about how people--as individuals and as groups--act within organizations."45 As used in this book, organizational behavior isn't simply a common sense, seat-of-the-pants approach to dealing with people at work; it is a scientific discipline in which research studies are used to help show managers how to build effective practices in their own or others' organizations. OB, in other words, is an applied science.

As the study and application of knowledge about how people--as individuals and as groups--act within organizations, the science of OB gives managers a useful set of tools they can use at several different levels. For example, OB helps managers look at how and why individuals in organizations behave as they do--how, say, a subordinate's personality might make her particularly suited (or unsuited) for a job that has to be done.

OB also helps managers understand the dynamics of interpersonal behavior--such as when the manager and a subordinate seem to keep talking and talking although neither seems to hear what the other is saying. Managers are also always interested in OB's insights into what makes small groups behave as they do--such as when a worker restricts his or her output to win coworkers' approval. And OB helps managers understand intergroup behavior as well, such as how to manage potentially lethal conflict between, say, the production and sales departments. OB findings and insights help managers at the level of the overall organization, as when a manager uses the results of a companywide morale survey to better understand how to implement a major organizational change like that achieved by Allied-Signal's Lawrence Bossidy.

THE BUILDING BLOCKS OF OB. What topics are included within the overall discipline of OB? A representative list would include the following.

* Individual differences between people, for instance in terms of needs, values, motivation, attitudes, personality, and perception.

* The sources and management of power and politics in organizations.

* Groups and teams within organizations and related topics like how to build group cohesiveness and reduce intergroup conflicts.

* Leadership, specifically how to influence subordinates to willingly attain goals that you've set for them.

* Conflict resolution, including the sources of interpersonal, group, and intergroup conflict and how to manage such conflicts.

* Organizational culture, and specifically how to influence the values that are the signposts employees use to decide what to do and what not to do within their organizations.

* Job satisfaction, for instance, why providing some employees with higher pay might temporarily make them more satisfied but not increase their motivation to do their jobs.

* Work stress, in particular the sources of stress and how to manage stress so that its effects are beneficial and not crippling to the people in the organization.

* Job design, for instance, the pros and cons of giving employees enlarged and more challenging jobs to do.

* Interpersonal and organizational communication, including barriers and ways to overcome them.

* Organizational change and development, including why employees may resist change and how to cultivate an atmosphere in which change can successfully be implemented.


Managers cannot separate the leadership or behavioral parts of their jobs from the managerial parts. For example, planning is a management activity, but getting department heads to work together to cooperatively produce a new plan is a behavioral one. Much of the OB material you'll need as a manager to more effectively manage is concentrated in the six leadership chapters in part IV of this book, chapters 10 through 15. However, it is also important to see how OB applies to the manager's work in each and every chapter of the book.

This is why you'll find OB in Action features throughout all the chapters in this book. Each illustrates how OB studies have been used by real managers to do a better job of managing. Perhaps the best way to explain how these work is to turn to the following example.


If you're thinking of being a manager, there's a wealth of OB research to help you decide whether that's the occupation for which you're best suited.

PERSONALITY AND INTERESTS. Career counseling expert John Holland says that personality (including values, motives, and needs) is an important determinant of career choice. Specifically, he says there are six basic "personal orientations" that determine the sorts of careers to which people are drawn. Research with his Vocational Preference Test (VPT) suggests that almost all successful managers fit at least one of the two following personality types or orientations from that group.

Social orientation. Social people are attracted to careers that involve working with people in a helpful or facilitative way (managers as well as others like clinical psychologists and social workers would exhibit this orientation). Generally speaking, socially oriented people find it easy to talk with all kinds of people, are good at helping people who are upset or troubled, are skilled at explaining things to others, and enjoy doing social things like helping others with their personal problems, teaching, and meeting new people.46

Enterprising orientation. "Enterprising" people tend to like working with people in a supervisory or persuasive way, in order to achieve some goal. They especially enjoy verbal activities aimed at influencing others (not just managers but lawyers and public relations executives would exhibit this orientation). Enterprising people often characterize themselves as being good public speakers, as having reputations for being able to deal with difficult people, as successfully organizing the work of others, and as being ambitious and assertive. They enjoy influencing others, selling things, serving as an officer of a group, and supervising the work of others.

COMPETENCIES. It's not just your interests but your competencies too that will help determine how successful you might be at managing others. Professor Edgar Schein says that career planning is a continuing process of discovery--one in which a person slowly develops a clearer occupational self-concept in terms of what his or her talents, abilities, motives, and values are. Schein also says that as you learn more about yourself, it becomes apparent that you have a dominant career anchor, a concern or value that you will not give up if a choice has to be made.

Based on his study of MIT graduates, Schein concluded that managers had a strong managerial competence career anchor.47 These people showed a strong motivation to become managers, "and their career experience enables them to believe that they have the skills and values necessary to rise to such general management positions." A management position of high responsibility is these people's ultimate goal. When pressed to explain why they believed they had the skills required to gain such positions, many said they saw their competencies in a combination of three areas: (1) analytical competence (ability to identify, analyze, and solve problems under conditions of incomplete information and uncertainty); (2) interpersonal competence (ability to influence, supervise, lead, manipulate, and control people at all levels); and (3) emotional competence (the capacity to be stimulated by emotional and interpersonal crises rather than exhausted or debilitated by them, and the capacity to bear high levels of responsibility without becoming paralyzed).

ACHIEVEMENTS. Organizational behavior research also suggests that you might gain some insight into your prospects as a manager by looking closely at your achievements to date. For example, industrial/organizational psychologists at AT&T conducted two long-term studies of managers to determine how their pre-management achievements were related to their managerial success on the job.48

Some of their findings were not too surprising. For example, employees who had gone to college showed much greater potential when first hired for middle and upper management positions than did those who had not gone to college, and eight years later the differences between these two groups were even more pronounced. Specifically, those who went to college rose (on average) much faster and higher in management than did those in the noncollege sample. College grades were important, too: People with higher college grades showed greater potential for promotion early in their careers, and in fact they rose higher in management than did those with lower college grades.

Also, perhaps not too surprisingly, the quality of the college the person attended meant a lot more early in the person's management career than it did later. Those who had attended what were considered to be better-quality colleges at first ranked higher as potential managers, but within several years "college quality" seemed to have little effect on who was promoted and who was not.

The manager's college major did seem to have a big effect, however, and here there were some surprises. Managers who had majored in humanities and social sciences initially scored higher as potential managers and eventually moved faster and further up the corporate ladder.49 Business administration majors ranked second, and math, science, and engineering majors ranked third.

What accounted for the surprising performance of the humanities and social science majors? At least in this study, conducted in one company, these majors turned out to score the highest in decision making, intellectual ability, written communication skills, creativity in solving business problems, and motivation for advancement. Both the humanities and social science majors and the business administration majors ranked higher in leadership ability, oral communication skills, interpersonal skills, and flexibility than did the math, science, and engineering majors.50 Findings like these obviously don't suggest that business and science majors are lost--do not switch majors! They may just be unique to this specific group of managers, or to AT&T. However, they may suggest that, whatever your major, it's important for future managers to work on improving things like their decision-making, creativity, and written communication skills.

The Future Is Now: Snapshots of the Modern Organization

To fit today's fast-changing, globally competitive and increasingly high-tech environments, a new breed of organization is arising. It goes by many names: the postentrepreneurial organization,51 the information-based organization,52 and the post-modern organization.53 Whatever it is called, a new kind of business firm has been born, one for which responsiveness is a top priority. Probably no single firm exemplifies all the traits of a postmodern organization. However, examples of firms that exemplify specific features abound. Let's close this chapter by looking at a few.


Zurich-based electrical equipment maker ABB Asea Brown Boveri is a good example of a firm that "dis-organized itself to compete in the fast-moving global market."54 ABB did four things to make itself super-responsive: It organized around mini-units, empowered its workers, flattened its hierarchy, and eliminated central staff. How did ABB do it?

First, within two years of taking over this $30 billion firm, former chairman Percy Barnevik "dis-organized" its 215,000 employees into 5,000 minicompanies, each averaging only about 50 workers each.55 For example, the ABB hydropower unit in Finland is a minicompany that serves just its own Finnish customers. Such direct customer contact transformed the unit into a highly customer-focused little business, one in which employees' efforts are all centered on its local market. Each of ABB's 50-person units is run by its own manager and three or four lieutenants. Such small units are very manageable; it's a lot easier to monitor what everyone is doing when there are only 50 people to keep track of than when there are 1,000 people, let alone 5,000 or 10,000.

Next, to speed decision making, the 5,000 minicompanies were made autonomous and their employees empowered with the authority to make most of their own business decisions. They also have the self-confidence and motivation to do so. For example, if a customer has a complaint about a $50,000 machine, a minicompany employee has the authority to approve a replacement on the spot, rather than having to wait for review by several levels of management. Giving employees this much authority means that ABB's 5,000 businesses must be staffed by, as management expert Tom Peters put it, "high-performance team members," highly skilled employees with the capacity and commitment to make those big decisions.

Third, unlike most big firms, ABB's 215,000-employee organization has only three management levels (a comparably sized company might have seven or eight). There is a 13-member top-management executive committee based in Zurich. Below this is a 250-member executive level that includes country managers and executives in charge of groups of businesses. Last is a third level consisting of the 5,000 minicompany managers and their management teams. ABB thus flattened the hierarchy or chain of command. By slicing out layers of management and letting lower-level employees make their own on-the-spot decisions, ABB empowered its employees to respond more quickly to customers' needs and competitors' moves.

Fourth, since decision making was pushed down to front-line ABB employees, ABB could eliminate most headquarters staff. For example, when Barnevik became CEO in 1980, he found a total of 2,000 people working at headquarters, basically reviewing and analyzing (and slowing down) the decisions of the firm's lower-level employees. Within a few months, Barnevik reduced the total headquarters staff to 200--and he reduced its advisory staff from 800 to 25. Similarly, he reduced German ABB headquarters staff in Mannheim from 1,600 to 100.

Responsiveness is the net effect of all these managerial changes: A lean, flat organization is staffed with highly committed employees organized into small, empowered teams, each able to quickly respond to competitors' moves and customers' needs with no need to wait for approval from headquarters.


One of the most responsive and progressive companies today is part of the huge General Motors Corporation, which many management experts still use as an example of yesterday's unresponsive, bureaucratic organization.

Its team-based organization is one thing that sets the GM subsidiary, Saturn Corporation, apart. For example, virtually all the work on the shop floor is organized around work teams of 10 to 12 employees. Each team is completely responsible for a task, such as installing door units, checking electrical systems, or maintaining automated machines.

These work teams don't have supervisors in the traditional sense. Instead, the teams' highly trained workers do their own hiring, control their own budgets, monitor the quality of their own work, and generally manage themselves. Are too many of the door parts not fitting right? Then the team must find the problem and get the parts supplier to solve it. Is there a co-worker who is always late? Then the team must discipline him or her in order to manage its own (and its team members') time.


AT&T has undergone tremendous management changes in the past decade. In 1984, the U.S. government split the huge AT&T local phone monopoly into seven regional operating companies (the "Baby Bells"). That left AT&T with the long-distance phone business, and with Western Electric, the telephone equipment maker.56 Decades of operating as a regulated monopoly (with virtually no competition) had made AT&T slow and bureaucratic. Deregulation and divestiture meant that it had to get moving--and fast--if it wanted to compete with the likes of MCI. In the process, AT&T has moved to remake itself into a postmodern organization, by downsizing, improving internal communications, empowering workers, and changing employees' values.

Here's a synopsis of what AT&T did. First, the company eliminated 140,000 jobs--and the employees who went with them. Chairman Robert Allen also reorganized AT&T to promote communication between the firm's units and to dramatically speed up decision making. AT&T now consists of three major business groups: the telephone network itself, makers of equipment for the telecommunications network, and makers of user products (like telephones and answering machines). The heads of these three groups (along with the company's top financial officer) comprise a four-person presidency known as the "Operations Committee." Communication is also encouraged by having lots of interdepartmental teams. These teams "mix it up, get people talking, and figure out the businesses and structures that AT&T as a company will need."57

AT&T managers also empower their employees. For example, the president of AT&T's global business communications systems unit reportedly not only never shuts his office door--he had the lock removed.58 He wants and expects his employees to interact with him often--"I am not a boss," he says--and prefers to be called "Coach." His job, as he sees it, is not to manage a group of subordinates. Instead, he wants to get what he calls his "associates" to focus on their customers' needs. His job is to make sure he gets employees the training, authority, resources, and self-confidence they need to satisfy those customer needs.

None of this, Allen knew, would be possible without instilling new business values throughout AT&T. Allen says that one of his highest priorities today is defining and disseminating the new values AT&T will need to compete in the new millennium. These include respect for individuals, dedication to helping customers, integrity, innovation, and teamwork.59

Today, AT&T continues to change, and fast. A new president, John R. Walter, lasted barely a year before being ousted by the board of directors. A top-to-bottom review of AT&T's most senior managers and business plans is taking place. At AT&T, as at most other firms today, change is the order of the day.60


Let's briefly summarize where we stand. Organizations today need to grapple with a number of revolutionary forces: accelerating product and technological change, globalized competition, deregulation, political instability, demographic changes, and trends toward a service society and the information age. Forces like these have changed the playing field on which firms must compete. In particular, they have dramatically increased the need for firms to be responsive, flexible, and capable of competing and reacting rapidly in a global marketplace.

Firms like ABB, Saturn, and AT&T are in the vanguard of thousands of other firms that are re-creating themselves to fit these new conditions. From their experiences, and from those of others, here is a summary of what management experts believe "the new management" will look like.

THE AVERAGE COMPANY WILL BE SMALLER, EMPLOYING FEWER PEOPLE. More people will set up businesses for themselves, and many firms like GM and IBM will continue to downsize or break themselves up. Even within big firms (like ABB), the operating units will be divided into small, self-contained mini-units.

Cypress Semiconductor is an example. Tom Rogers, president of this California firm, believes that large organizations stifle innovation. So when a new product must be developed he doesn't do it within the existing corporation. Instead, he creates a separate start-up company under the Cypress umbrella. "I would rather see our billion-dollar company of the 1990s be ten $100-million companies, all strong, growing, healthy and aggressive as hell," Rogers says. "The alternative is an aging billion-dollar company that spends more time defending its turf than growing." True to his words, Rogers already has four successful start-ups under development.61

THE TRADITIONAL ORGANIZATION STRUCTURE WILL BECOME MORE TEAM-BASED AND "BOUNDARYLESS."62 As at AT&T, the new organization will stress cross-functional teams and interdepartmental communication. There will be a corresponding de-emphasis on "sticking to the chain of command" to get decisions made. At General Electric, Chairman Jack Welch talks of the boundaryless organization, in which employees do not identify with separate departments but instead interact with whomever they must to get the job done.

EMPLOYEES WILL BE EMPOWERED TO MAKE MORE DECISIONS. Work will require constant learning, "higher-order" thinking, and much more worker commitment. The result for employees will be more empowerment and less of a 9-to-5 mentality. Experts like Karl Albrecht argue for turning the typical organization upside down. They say today's organization should put the customer on top and emphasize that every move the company makes must be geared toward satisfying the customer's needs. To do so, management must empower its front-line employees--the front desk clerks at the hotel, the cabin attendants on the Delta plane, and the assemblers at Saturn--with the authority to respond quickly to the customer's needs. The main purpose of managers in this "upside-down" organization is to serve the frontline employees, to see that they have what they need to do their jobs--and thus to serve the customers.

FLATTER ORGANIZATIONS WILL BE THE NORM. Instead of the pyramid-shaped organization with its seven or more layers of management, flat organizations with just three or four levels will prevail. Many companies have already cut the management layers from a dozen to six or fewer, and with them the number of managers.63 As the remaining managers are left with more people to supervise, they will be less able to meddle in the work of their subordinates, who will thus have more autonomy.

WORK ITSELF--ON THE FACTORY FLOOR, IN THE OFFICE--WILL BE ORGANIZED AROUND TEAMS AND PROCESSES RATHER THAN SPECIALIZED FUNCTIONS. On the plant floor, for instance, workers won't just have the job of installing the same door handle over and over again. Instead, they'll be part of multifunction teams, ones that manage their own budgets and control their own quality.

THE BASES OF POWER WILL CHANGE. In these new organizations, says management theorist Rosabeth Moss Kanter, leaders will no longer be able to rely on their formal positions or authority to get their jobs done.64 Instead, "success depends increasingly on tapping into sources of good ideas, on figuring out whose collaboration is needed to act on those ideas, and on working with both to produce results. In short, the new managerial work implies very different ways of obtaining and using power."65 Peter Drucker puts it this way: "You have to learn to manage in situations where you don't have command authority, where you are neither controlled nor controlling."66 In other words, managers will have to win the respect and commitment of their highly trained and empowered employees.

THE NEW ORGANIZATION WILL BE KNOWLEDGE BASED. Management specialist Tom Peters says the new organizations will be "knowledge based," the way consulting firms and hospitals are today. Here teams of highly trained and educated professionals apply their knowledge to clients' problems, working in an atmosphere in which they direct and discipline their own activities.67

One thing this means is that managers' big role will be to help their employees get their jobs done by training and coaching them, removing roadblocks, and getting them the resources they need: You can't simply "boss" teams of professionals.

This highlights one big difference between the old and the new manager. Yesterday's manager thinks of himself or herself as a "manager" or "boss," whereas the new manager thinks of himself or herself as a "sponsor," "team leader," or "internal consultant." The old-style manager makes most decisions alone; the new one invites others to join in the decision making. The old-style manager hoards information to build his or her personal power. The new manager shares information to help subordinates get their jobs done.68

THE NEW COMPANY WILL STRESS VISION AND VALUES. Formulating a clear vision and values to which employees can commit themselves will be more important than ever. Managers will have to communicate clear values regarding what is important and unimportant, and regarding what employees should and should not do. As GE's CEO Jack Welch has said:

Other experts agree. Peter Drucker says today's organizations--staffed as they are by professionals and other employees who largely control their own behavior--require "clear, simple, common objectives that translate into particular actions." In other words, they need a clear vision of where the firm is heading.70 Even without a lot of supervisors to guide them, employees can then be steered by the company's vision and values.

MANAGERS MUST BE CHANGE AGENTS. As GE's Jack Welch puts it, "You've got to be on the cutting edge of change. You can't simply maintain the status quo, because somebody's always coming from another country with another product, or consumers' tastes change, or the cost structure does, or there's a technology breakthrough. If you are not fast and adaptable, you are vulnerable."71

LEADERSHIP WILL BE MORE IMPORTANT. Empowered workers, service jobs, and the need to get workers thinking like owners will put a premium on the "leading" portion of the manager's job; understanding how to work with and through people and how to use behavioral science concepts and techniques at work will be more important than ever before.


Figure 1.3 summarizes where 21st-century managing is heading, and the forces propelling it there. Tom Peters says forces (on the left of the figure) including uncertainty, technological revolution, new competitors, and changing tastes are interacting with one another to create a new and rapidly changing context for doing business. This has led to outcomes like demands for more quality and responsiveness and to more uncertainty for managers. As a result, the company winners today and tomorrow, he says, will have to be designed and managed to be as responsive as possible.

With that in mind, one theme of this book is how managers can use planning, organizing, leading, and controlling to make their firms more responsive.


1. Managers and the organizations they manage have to confront rapid change and unpredictability today. Trends contributing to this change and unpredictability include technological innovation, globalization, deregulation, new political systems, a new workforce, more service-oriented jobs, and a new emphasis on "knowledge work."

2. An organization consists of people who have formally assigned roles and who must work together to achieve the organization's goals. Organizations needn't be just business firms.

3. Organizations cannot simply run themselves. Instead, they are run by managers. A manager is someone who plans, organizes, leads, and controls the people and the work of the organization in such a way that the organization achieves its goals.

4. Management writers traditionally refer to the manager's four basic functions of planning, organizing, leading, and controlling as the management process.

5. We can classify managers based on an organizational level (top, middle, or first-line), position (executives, managers or directors, or supervisors), and functional title (vice president of production, sales manager, or chief bookkeeper). All managers get their work done through people and by planning, organizing, leading, and controlling. Top managers spend more time planning and setting goals, while lower-level managers concentrate more on implementing those goals and directing and controlling employees to achieve them.

6. Managing has always been a behavioral or people-oriented occupation, since almost everything a manager does involves interacting with and influencing people. The bottom line is that the leading, or "people," or behavioral, side of what managers do is not just another step in the management process, but an integral part of almost everything the manager does.

7. Organizational behavior is the study and application of knowledge about how people--as individuals and as groups--act within organizations. In this book we'll emphasize how managers can use organizational behavior knowledge to do a better job of managing.

8. Companies like ABB Asea Brown Boveri, Saturn, and AT&T illustrate the new organization of today and the 21st century, in which responsiveness is now a top priority and effective leadership is extraordinarily important.


Key Terms





management process


first-line managers


organizational behavior (OB)

interpersonal behavior


intergroup behavior

career anchor

managerial competence

postentrepreneurial organization

information-based organization

postmodern organization

21st-century managing

Self Test

1. T F Only a few managers in the largest companies are facing rapid change and unpredictability in their environments.
2. T F One of the primary reasons for "downsizing" is so companies can improve their competitive efficiency.
3. T F The rate of globalization for businesses worldwide has been phenomenal in the last few years.
4. T F One aspect of change for organizations has been the increase in regulations being established in country after country.
5. T F The ethnic group estimated to grow the most as part of the U.S. labor force is African Americans.
6. T F The shift from an industrial economy to a service and knowledge-based economy is creating a growing emphasis on "human capital."
7. T F Competition-driven innovation demands more highly skilled employees than a stable environment with limited competition.
8. T F All organizations are run by managers.
9. T F Based on a study of what managers actually do, three roles emerged: the figurehead, the leader, and the liaison.
10. T F The organizational process consists of four basic processes: planning, organizing, leading, and controlling.


1. Which of the following is not noted in the text as a major factor in "managing in an era of change"?

a) technological innovation
b) globalization
c) stable political systems
d) changing demographics and the new global workforce

2. According to the text, if we include non-Hispanic white women in our demographic projections, women and minorities will account for more than ___ percent of the labor force's recent growth:

a) 25
b) 47
c) 73
d) 90

3. The two primary reasons for U.S. firms transferring their operations abroad are:

a) cheaper labor and more competitive labor markets.
b) skilled labor and stable political climates.
c) cheaper labor and skilled labor.
d) skilled labor and limited growth in the U.S. economy.

4. A manager is someone who plans, organizes, leads, and ___ the ___ and the ___ of the organization so it can achieve its ___:

a) manages, production, work, mission.
b) controls, people, work, goals.
c) controls, mission, goals, work.
d) controls, people, production, competitive edge.

5. We can distinguish among three types of managers based on the managers':

a) organizational level.
b) position.
c) functional title.
d) all of the above are correct.

6. In Mintzberg's analysis of what managers actually do, the role that involves motivating and encouraging employees is called:

a) figurehead.
b) liaison.
c) negotiator.
d) leader.

7. According to management experts Sumantra and Bartlett, managers should cultivate all but which of the following processes in building the organization's core?

a) bureaucratic process
b) entrepreneurial process
c) competence-building process
d) renewal process

8. Which of the processes of management is "not just another step in the management process, but an integral part of almost everything the manager does"?

a) planning
b) organizing
c) leading
d) controlling

9. What has been defined as "...the study and application of knowledge about how people--as individuals and as groups--act within organizations"?

a) organizational theory
b) systems analysis
c) organizational behavior
d) none of the above

10. According to a recent study, managers who had majored in ___ and social sciences initially scored higher as potential managers and eventually moved faster and farther up the corporate ladder.

a) humanities
b) business
c) engineering
d) science


1. The traditional organization is usually depicted as a pyramid-shaped hierarchy with authority and decision making flowing from the top down. As this chapter has pointed out, the changing environment demands that new forms of organization be designed. Your assignment is to graphically depict some new organizational designs. Draw whatever shapes you think represent the boundaryless, team-focused, and process-oriented organizations that are evolving. Then write a brief narrative describing what you have drawn and what you think the implications behind your designs are.

2. The world today is very different from the business world of even 10 years ago. Your audience is the newly "downsized" employees of IBM, AT&T, and other large companies that survived and prospered in the early years, who are now confused by the new and evolving rules of the corporate game. As a student of today's perspective, explain to them the "new rules" for corporate survival based on the information presented in this chapter. Write a one-page report describing the business world today, and a second page predicting how it might evolve in the next 10 years.


1. The Internet is a major feature of today's business world. Visit the Internet home page of one of the companies discussed in this first chapter and explore what it has to offer and what (if anything) it says about how the company is managed. Then write up a one-page description of the site, explaining to customers and shareholders how the firm is managed.

2. An excellent way to find out about entrepreneurship is to talk to an entrepreneur. By asking your professor, other professors, the Small Business Administration in your region, or another small business organization such as the Small Business Chamber of Commerce, you should be able to identify an entrepreneur or entrepreneurs who have started a business in the last five years. Contact the person and conduct an informational interview. Some questions you might want to ask are: (1) What did it take to establish the business? (2) Did you have a business plan? (3) Where did you get your financing? (4) What management challenges do you face today? (5) How did you develop your human resource policies? Also ask any other questions that specifically fit the type of business. Then prepare a page on the major points you found out about entrepreneurship and be ready to present your findings in class or in a small group.

You may want to do this project with two or three other students and divide the labor according to expertise.

Use references like Inc. or Fast Company magazines that are devoted to entrepreneurship. These resources may help you find an entrepreneur or decide what questions you want to ask your entrepreneur.

Diversity Case

We saw in this chapter that the workforce and the customer base that most companies deal with are becoming increasingly diverse. Managers must, therefore, be skilled at understanding how to deal with people with diverse ethnic, gender, racial, cultural, and other backgrounds. To help you develop this skill, a Diversity Case like the following can be found at the end of each chapter.

What Is the Future of Trend Micro?

Managing in the 21st century will not be like what it was in the previous 100 years or, certainly, the previous 1,000. A global, knowledge-based market has evolved.

No one knows that better than Steve Chang, native of Taiwan, graduate of Lehigh University (PA), and entrepreneur in California and Taipei. Founder of Trend Micro, Chang is a computer "virus doctor." Realizing the threat from the more than 5,000 known computer viruses (programs that intentionally disrupt a computer's normal functions) and the potential profit in thwarting that threat, Chang used money from the sale of another business to start Trend Micro in Los Angeles. Once the company was up and running, he moved back home where there is a labor pool of skilled engineers at salaries about half the level of their U.S. counterparts. In August 1996 alone, 800,000 people logged onto his "virus alert" Web site to protect their computers. In all, over 7 million computer users rely on Chang's protective software.

After much trial and error Chang has become a global force, licensing his products to Intel and Novell, who sell it under their names. Facing the endless challenge from some 200 new viruses discovered every month, Chang sells his new program for Microsoft Windows 95 software, called PC-cillin, in 18 languages under the Trend brand name. Chang has also given Netscape the right to use Trend's antivirus software in its server products. A Japanese conglomerate, Softbank, plans to buy a 40 percent stake in Chang's company.


1. In what ways is Trend Micro a model of 21st century management?

2. What issues facing U.S. companies are reflected in the story of Trend Micro?

3. How does the United States compete with the salary differences and mobility of Chang's organization?

4. What do you think the future holds for Trend Micro? Why?

source: Louis Kraar, "Trend Micro," Fortune, 28 October 1996, 162­63.

Strategy Case

Every company needs a strategy. A strategy is a plan that states how the company is going to use its strengths to compete with other firms in its industry. For example, the strategy of the Coca Cola Company is basically to specialize in producing and selling through bottlers the ingredients for high-quality drinks, such as Coca Cola and Minute Maid juices.

One reason a strategy is important is that it provides a framework within which the manager makes his or her other decisions. For example, Coca Cola's managers know that their strategy means they should not waste much time thinking about selling products other than high-quality drinks. That is because selling other products would not be consistent with their company's strategy. It's, therefore, important for managers and future managers to get used to thinking about how their management decisions--such as who to hire and how to motivate employees--fit with or are consistent with the company's strategy. You'll find a Strategy Case like the following at the end of each chapter.

United We Own, Divided We Lose

When the airline industry was deregulated in 1978 there was a predictable fallout. Companies went bankrupt, merged, and struggled to realign themselves. Price wars, strikes, and competition from tiny air carriers such as Morris Air and innovators like Southwest made the market very competitive. What strategies do companies use to survive in such a dynamic environment?

Many traditional carriers were looking for ways to stay alive. United was in trouble, and a radically new strategy called employee ownership was needed. In 1994 the employees agreed to take pay cuts averaging 17 percent in return for 55 percent ownership of the company and three seats on the board of directors. Through this new arrangement, United's skies have become much friendlier, with efficiency rising, grievances falling, market share inching up, and profit margins holding strong.

However, making major changes in a company isn't like waving a magic wand. For starters, the flight attendants refused to take a pay cut and join the team. In addition, the pilots are at loggerheads with management rather than working as a team. They want more money and more workplace initiatives to improve morale, while management wants competitive compensation and would like to put some employee pay at risk through profit sharing. Management and the pilots are now trying to negotiate, and the stakes are high for the firm's 84,000 employees and their $5 billion company.


1. What impact do you think United's strategy has on the firm's planning, organizing, leading, and controlling?

2. What do you think is changing United's problems?

3. What do you think management should do?

4. Do you think the turmoil in the airline industry is typical of most industries today? Why or why not?

source: Susan Chandler, "United They Don't Stand," Business Week, 3 March 1997, 86­88.

The Business Team, Inc.

Their First Assignment

Like most professors who teach the business program's final, capstone course in strategic management, Professor Cynthia Thomas liked to split her class into groups of five or six students, who then spent the rest of the semester analyzing cases and developing a strategic plan for a company in the vicinity of State University.

From the day they got together to analyze their first case and create their presentation, the five members of Group 1--Maria, Sid, Len, Hal, and Ruth--seemed to hit it off, and during the rest of the semester their friendship grew. Maria was a specialist in accounting and planned on earning her CPA and then perhaps joining a "big six" accounting firm. Sid was a finance major, whose professors described him as "one of the sharpest students ever." Len was a sales and marketing major with a particularly strong interest in small businesses. Hal was majoring in production and operations management and was also a skilled mathematician. Ruth's specialty was human resource management, an area in which her intelligence and understanding of people made her especially effective.

Something students generally learn in analyzing strategy management cases is that problems and solutions rarely affect only one department in a company. For example, one case this team of students worked on involved developing a new strategy for K-Mart, the large discount firm that was being battered by the increasingly successful Wal-Mart. When group members thought about changing K-Mart's computer systems to make the company more competitive, they immediately found that other departments would feel the change. For instance, the HR department would have to hire new computer people and retrain current employees to use the new systems; the finance department would have to determine if buying new computers was cost effective; and the accounting department would have to change most of the accounting control paperwork in the company to make it consistent with the new computer system. The group also learned the importance of teamwork. As the team analyzed company after company, the confidence of these five young business majors grew. By the end of the semester they'd decided that after graduation they wanted to set up a consulting firm together.

The Business Team, Inc., is the company they formed. The idea behind the company was to create a consulting firm in which each person on the five-person team would bring his or her expertise to the analysis of client problems. Clients would get complete and comprehensive top-down solutions. A Business Team, Inc., Case can be found at the end of each chapter.

The Business Team, Inc., didn't have to wait long for their first client. The hurricane that blew away thousands of homes in Dade County, Florida, created a tremendous demand for plumbing supplies. The storm turned out to be a boon to Len's parents, who ran a small plumbing-supply business. Sales mushroomed from $4 million before the hurricane to almost $8 million two years after. Hernandez Plumbing Supply Company went almost overnight from a traditional "mom-and-pop" operation to a sizable company with nearly 100 employees. Len's parents, who ran the company, knew they needed some management advice, and fast. They had never had the advantages of college and formal management training. Here are the questions Len's parents posed to The Business Team, Inc. Help the team answer them.


1. "What do managers do? Exactly which of the management functions described in management textbooks do we as business owners need to address as we look at our company?"

2. "We have almost 100 employees, split between plumbing-parts retail-store employees and delivery people. Most of our employees work in the store or the adjacent warehouse. How do you think we should organize our company, and what sorts of managers would you appoint to run a company like ours?"

3. "We already see that by getting bigger we're losing a lot of the personal contact we used to have with each of our employees, and morale is beginning to become a problem. What are the sorts of 'people' issues you think we should be addressing as our company grows?"


Knitting Music is Up and Running

When it comes to managing a business, the rubber really hits the road, so to speak, when the business is a small, fast-growing enterprise. Managing a large company like an IBM or GE is a complex task, since decisions about how to organize, hire, motivate, and keep track of the activities of tens of thousands (and sometimes hundreds of thousands) of employees are required. One way to see what managing is like is to focus on someone who has to start and manage a small firm, since for most of us the kinds of things that a manager does are easier to grasp than the kinds of sweeping decisions that the president of IBM must make.

At the end of every chapter in this book, you'll have an opportunity to meet Michael Dorf and apply that chapter's materials to the challenges faced by him and KnitMedia, LLC. KnitMedia is an alternative music and entertainment company. Its businesses include an independent record label and a live performance club. But, as we'll see, Michael Dorf and his company are involved in other businesses, too. These include touring and festival promotion, music publishing, and multimedia, including radio, TV, and the internet and video conference interactive performances. You'll find a good deal of information about KnitMedia and its businesses in each of these end-of-chapter Web exercise cases, and more information on our Web sites <> as well as on KnitMedia's Web site <>.

KnitMedia began, to some extent, as a result of economic necessity. In 1985, while still a college student in Madison, Wisconsin, Michael began managing the band Swamp Thing. He and the band started Flaming Pie records to record and distribute songs. After struggling for two years to get Swamp Thing some exposure, Michael and his partner Louis Spitzer found themselves in New York's SoHo district (an area so-named because it is the area south of Houston Street in southern Manhattan). They found a dilapidated office on Houston Street between the Bowery and Broadway, and they were in business: The Knitting Factory Club was born. The initial idea (as Michael Dorf describes in his book Knitting Music) was to have an art gallery/performance space that sold coffee, tea, and a small assortment of foods. As they said in their first press release,

The Knitting Factory Club is primarily a showcase. Our aim is to weave strands of art mediums into a congruent whole, from the Wednesday night poetry series to the works on the walls. The Knitting Factory Club is also a café. It serves interesting forms of food like a fondue with fresh fruit. The Knitting Factory Club considers many things art and is open to suggestions. Hope to see you soon.1

Michael's real motivation at the time was " earn enough money to live and to cover the rent for Flaming Pie records."

Ten years ago there wasn't, strictly speaking, much "managing" to do since KnitMedia had few employees. Today, however, is a different story: As you'll see on the WEB exercise for Chapter 1, KnitMedia, LLC includes several separate businesses and at least seven executive personnel, including numerous other key personnel. The executive staff in 1997 included Michael Dorf, President and Chief Executive Officer; Kenneth Ashworth, Executive Vice President and Chief Operating Officer; Mitchell Goldman, Director, Knitting Factory Productions; Rachel McBeth, Business Manger; Edwin Greer, Director, KnitWork Operations; Mark Perlson, Record Label Manager; and Arthur Phillips, Director, European Operations.

These managers know that they are in a competitive business that is changing very fast. They want to know about the competitive challenges they will face in the next few years.

Team Exercises and Questions

Use what you learned in this chapter to answer the following questions:

1. Few industries are undergoing as much rapid change as music, entertainment, and Internet/new media industries that KnitMedia is in. Compile a list of the trends (such as consolidation of the music companies) taking place today for which Michael and his colleagues will have to plan.

2. Using WEB resources, make a list of the competitors in New York City for the Knitting Factory Club.

1Michael Dorf, Knitting Music (New York: Knitting factory Works, 1992), 4.


Foundations of Modern Management


It would be impossible to imagine a modern society without organized effort or the managers who help to synchronize that effort, but the roots of management can actually be traced back to antiquity. Hunters banded into tribes for protection; the Egyptians used organizations to build pyramids and control the rise and fall of the Nile; and the Romans relied on organizing to build their armies and control their empire. Management is thus a very old idea.

Some recurring themes become apparent when we view management over the ages. First, many of the management concepts we take for granted today, such as dividing employees into departments, can be traced to the earliest organizations including those of the Egyptians and the ancient Greeks. Similarly, the close supervision and reliance on coercion and rules that management expert Peter Drucker has called "command and control" is also a product of earlier times, in particular of the militaristic organizations of Egypt and ancient Rome.

Second, we will see that the forms organizations take and the ways managers manage have always been a product of the environments of the time. As futurist Alvin Toeffler has said (in describing nineteenth-century management):

So management is also an evolutionary process. Let us look back to the beginning of modern management theory.


Management theory as we know it today is an outgrowth of the first attempts to view the management process with new and almost scientific rigor.


By 1750, with the advent of the Industrial Revolution, what Toeffler referred to as "the long epic of agricultural civilization" was about to end. The Industrial Revolution was a period of several decades during which machine power was increasingly substituted for hand labor. During these years several major trends converged. Scientific and technological discoveries, including the invention of the steam engine and the use of electricity, all contributed to the rise of industrialization. England, generally recognized as the epicenter of the Industrial Revolution, at that time had a stable, constitutional government, a sensitivity to laissez-faire (hands-off) economics, and a strong spirit of self-reliance. In his book The Wealth of Nations, Adam Smith described the division and specialization of work as a pillar of the burgeoning competitive market system and accurately predicted that it would lead to enormous increases in productivity and output.2


For firms in the 1800s, industrialization meant emphasizing resource accumulation and company growth. Division of work and specialization--two pillars of industrialization--required the high volume and stability that only growth could bring. And growth led to higher profits; as sales, volume, and stability increased, unit costs decreased.

But enlarged operations created new problems for the entrepreneurs of the 1800s. They needed management techniques through which they could run their new, large-scale enterprises. These industrialists therefore quickly adopted the structures and principles followed by managers of an earlier day, such as centralized decision making, a rigid chain of command, specialized division of work, and autocratic leadership. All of these had been born and nurtured in military and religious organizations like those of ancient Rome and Egypt.


The race to grow and accumulate resources was particularly pronounced in the United States. The War of 1812 severed the United States from England economically and spurred the growth of domestic manufacturing operations. Technological advances flourished and included the steamboat, the cotton gin, the iron plow, the telegraph, the electric motor, and the expansion of a railroad and canal network that opened new markets for producers. In turn, these new markets provided the volume that was a basic requirement for effective division of work.

Historian Alfred Chandler has pointed out that by the late 1800s many new industries were completing the resource-accumulation stage of their existence and beginning to move into what he calls a rationalization stage.3 The management focus shifted from growth to efficiency. As organizations became large and unwieldy, and as competition became more intense, managers needed better ways to utilize the resources they had accumulated. They sought new concepts and techniques that would cut costs and boost efficiency. It was out of this industrial environment that the classical school of management emerged.

Frederick W. Taylor was among the first of what historians today call the "classical management writers"; he specifically developed a set of principles that became known as scientific management. Taylor's basic theme was that managers should study work scientifically to identify the "one best way" to get the job done. Taylor's framework for scientific management can be summarized as consisting of four principles:

1. The "one best way." Management, through observation and "the deliberate gathering...of all the great mass of traditional knowledge, which in the past has been in the heads of the workmen...," finds the "one best way" for performing each job.

2. Scientific selection of personnel. This principle requires "the scientific selection and then the progressive development of the workmen." Management must uncover each worker's limitation, find his or her "possibility for development," and give each worker the required training.

3. Financial incentives. Taylor knew that putting the right worker on the right job would not by itself ensure high productivity. Some plan for motivating workers to do their best and to comply with their supervisors' instructions was also required. Taylor proposed a system of financial incentives, in which each worker was paid in direct proportion to how much he or she produced, instead of according to a basic hourly wage.

4. Functional foremanship. Finally, Taylor called for a division of work between manager and worker such that managers did all planning, preparing, and inspecting while the workers did the actual work. Taylor proposed using specialized experts, or functional foremen, who would be responsible for specific aspects of the worker's task, such as choosing the best machine speed, determining job priorities, and inspecting the work. The worker was to take orders from each of these foremen, depending upon whether the matter concerned machine speed, planning, or inspecting, for example.4


The work of the husband-and-wife team Frank and Lillian Gilbreth also exemplifies the techniques and points of view of the scientific management approach. Born in 1868, Frank Gilbreth passed up an opportunity to attend MIT, deciding instead to enter the contracting business. He began as an apprentice bricklayer and became intrigued with the opportunities for improving bricklayers' efficiency. By carefully studying bricklayers' motions he developed innovations--in the way bricks were stacked, in the way they were laid, and in the number of motions bricklayers used, for instance--that nearly tripled the average bricklayer's efficiency.5

In 1904 Frank married Lillian, who had a background in psychology, and together they began to develop the principles and practices to more scientifically analyze tasks. In addition to using stopwatches to improve production efficiencies, these experts developed various tools, including motion-study principles, to assist them in their quest for efficiency. They concluded, for example, that:

1. The two hands should begin as well as complete their motions at the same time.

2. The two hands should not be idle at the same time except during rest periods.

3. Motions of the arms should be made at opposite and symmetrical directions and should be made simultaneously.6

Therbligs, another example of the tools used by the Gilbreths, were elemental motions like searching, grabbing, holding, and transporting. (The Gilbreths created the term therblig by using their last name spelled backward and transposing the th.) Micromotion study was the Gilbreths' process of taking motion pictures of a worker doing his or her job and then running the film forward and backward at different speeds so that details of the job could be examined and re-examined. Used in conjunction with timing devices, micromotion study made it possible to determine precisely how long it took to complete each component activity of a task. The worker's performance could then be improved by modifying or eliminating one or more of these components.


The work of Henri Fayol also illustrates the classical approach to management and behavior at work. Fayol had been a manager with a French iron and steel firm for 30 years before writing his book General and Industrial Management. In it, Fayol said that managers performed five basic functions: planning, organizing, commanding, coordinating, and controlling.

He also outlined a list of management principles that he found useful during his years as a manager. He argued that other managers should use these principles in planning, organizing, commanding, coordinating, and controlling. Fayol's 14 principles are summarized in the list below and include his famous principle of unity of command: "For any action whatsoever, an employee should receive orders from one superior only."7

1. Division of work. The worker, always on the same part, and the manager, concerned always with the same matters, acquired ability, sureness, and accuracy, which increased their output.

2. Authority and responsibility. Authority is the right to give orders and the power to exact obedience. Distinction must be made between a manager's official authority, deriving from office, and personal authority, compounded of intelligence, experience, moral worth, and ability to lead.

3. Discipline. The best means of establishing and maintaining [discipline] are: good superiors at all levels; agreements as clear and fair as possible; sanctions [penalties] judiciously applied.

4. Unity of command. For any action whatsoever, an employee should receive orders from one superior only. . . .

5. Unity of direction. There should be one head and one plan for a group of activities serving the same objective.

6. Subordination of individual interests to general interests. This principle means that in a business, the interests of one employee or group of employees should not prevail over those of the concern. . . . Means of effecting it are: firmness and good example on the part of superiors; agreements as far as is possible.

7. Remuneration of personnel. Remuneration should be fair and as far as possible afford satisfaction to both personnel and firm.

8. Centralization. The question of centralization or decentralization is a simple question of proportion; it is a matter of finding the optimum degree for the particular concern. What appropriate share of initiative may be left to intermediaries depends on the personal character of the manager, on his moral worth, on the reliability of his subordinates, and also on the condition of the business. The degree of centralization must vary according to different cases.

9. Scalar chain. The scalar chain is the chain of superiors ranging from the ultimate authority to the lowest ranks. . . . It is an error to depart needlessly from the line of authority, but it is an even greater one to keep to it when detriment to the business ensues.

10. Order. For social order to prevail in a concern, there must be an appointed place for every employee and every employee must be in his appointed place.

11. Equity. For the personnel to be encouraged to carry out its duties with all the devotion and loyalty of which it is capable, it must be treated with kindliness, and equity results from the combination of kindness and justice. Equity excludes neither forcefulness nor sternness. . . .

12. Stability of tenure of personnel. Time is required for an employee to get used to new work and succeed in doing it well, always assuming that he possesses the requisite abilities. If, when he has gotten used to it, or before then, he is removed, he will not have had time to render worthwhile service.

13. Initiative. Thinking out a plan and ensuring its success is one of the keenest satisfactions for an intelligent man to experience. . . . This power of thinking out and executing is what is called initiative. . . . It . . . represents a great source of strength for business.

14. Esprit de corps. "Union is strength." Harmony, union among the personnel of a concern, is a great strength in that concern. Effort, then, should be made to establish it.


Max Weber was a contemporary of Taylor, Fayol, and the Gilbreths. His work, first published in Germany in 1921, provides further insight into the ideals of the classical management writers, but unlike most of these writers, Weber was not a practicing manager but an intellectual. He was born in 1864 to a well-to-do family and studied law, history, economics, and philosophy at Heidelberg University.

During the 1920s, Weber saw the growth of the large-scale organization and correctly predicted that this growth would require a more formal set of procedures for how to administer organizations. Managers, at the time, had few principles they could apply in managing their organizations. He, therefore, created the idea of an ideal or "pure form" of organization, which he called bureaucracy. This term, as developed by Weber and his followers, did not refer to red tape and inefficiency as it often does today. Indeed bureaucracy, for Weber, was the most efficient form of organization. Weber described bureaucracy as having certain characteristics:

1. A well-defined hierarchy of authority.

2. A clear division of work.

3. A system of rules covering the rights and duties of position incumbents.

4. A system of procedures for dealing with the work situation.

5. Impersonality of interpersonal relationships.

6. Selection for employment, and promotion based on technical competence.8


The classical approach to management generally focused on boosting efficiency. To Taylor, Fayol, Weber, and the Gilbreths, an efficiently designed job and organization were of prime importance. These writers, therefore, bent their efforts on developing analytical tools, techniques, and principles that would enable managers to create efficient organizations. Human work behavior was not unimportant to the classical writers; they simply assumed its complexities away by arguing that financial incentives would suffice to ensure motivation. As a result, intentionally or not, the classicists left the impression that workers could be treated as givens in the system, as little more than appendages to their machines. "Design the most highly specialized and efficient job you can," assumed the classicist, and "plug in the worker who will then do your bidding if the pay is right."



In the 1920s and 1930s, many changes swept across the United States, and indeed the world. Increasing numbers of people moved from farms to cities and thus became more dependent on each other for goods and services. Factories became more mechanized and the jobs became more specialized and interdependent.9 Instead of continuing its hands-off policy, government became more deeply involved in economic matters, and a number of lawsuits were filed to break up big industrial monopolies. Many social movements aimed at giving women the right to vote, electing senators by direct popular vote, establishing a minimum wage, and encouraging trade unions. Even the literature of the period became more anti-individualistic, as people questioned whether a philosophy based on hard work, individualism, and maximizing profits--the building blocks of the classical management era--might actually have some drawbacks.


In 1927, the Hawthorne Studies began at the Chicago Hawthorne Plant of the Western Electric Company. They eventually added an entirely new perspective to the management of people at work. Three main sets of studies took place, one of which became known as the "relay assembly test studies." A group of workers was isolated and studied as a series of changes was made, such as modifying the length of the workday and altering the morning and afternoon rest breaks. Researchers noted with some surprise that these changes did not greatly affect worker performance, underscoring their growing belief that performance depended on factors other than physical conditions or rate of pay.

The relay assembly test studies led the researchers to conclude that the social situations of the workers, not just the working conditions, influenced their behavior and performance at work. The researchers discovered, for instance, that in countless ways, their observations had inadvertently made the workers feel they were each "special." The observer had changed the workers' situation by "his personal interest in the girls and their problems. He had always been sympathetically aware of their hopes and fears. He had granted them more and more privileges."10

These results have been codified as the Hawthorne effect. The Hawthorne effect is what happens when the scientist, in the course of his or her investigation, inadvertently influences the subjects so that it is not the scientist's intended changes that affect the subject's behavior but the way the scientist acts. In the relay assembly test, for instance, the researchers wanted to schedule rest periods where they would be most advantageous. They, therefore, called a meeting during which they showed the workers their output curves and pointed out the low and high points of the day. "When asked at what times they would like to have their rest, they unanimously voted in favor of ten o'clock in the morning and two o'clock in the afternoon." Accordingly, the investigators agreed to the rest schedules at these times. In retrospect, however, the researchers concluded that the subsequent rise in employee morale and performance was due to more than just the rest breaks; it was also due to the fact that the researchers had inadvertently involved the workers in the decision.


The Hawthorne studies were a turning point in the study of management. As the research became more widely known, managers and management experts began to recognize that human behavior at work is a complex and powerful force to be dealt with. The human relations movement, inspired by this realization, emphasized that workers were not just givens in the system but instead had needs and desires that the organization and task had to accommodate.


Historian Alfred Chandler has suggested that after accumulating and then rationalizing resources, managers traditionally moved to a third stage in which they attempted to better utilize their organizational resources by developing new products and new markets--by diversifying. In the United States, movement into this third stage was hampered in the 1930s by the Depression. However, excess production capacity did ultimately stimulate research and development activities. Coupled with the technological and managerial advancements that emerged in the years surrounding World War II, this excess capacity finally shifted most U.S. industries into Chandler's third, diversification stage.11

To understand the evolving management theory, it is important to recognize that this period was characterized by differentiated, complex, and rapidly changing environments. Even before World War II, many firms had embarked upon extensive research and development activities to utilize their resources by developing new products. For example, at General Electric and Westinghouse, research and development activities resulted in the manufacture of plastics as well as a variety of other products based on electronics. The automobile companies had begun to produce airplane engines, electrical equipment, and household appliances before the war. After the war, companies in the rubber industry--such as United States Rubber and BFGoodrich, which had concentrated on tire manufacturing--entered into systematic research and development and began to market such items as latex, plastics, and flooring.

These changes in the business environment contributed to the development of management theory in several ways. First, the increased rate of change and novelty triggered by diversification meant that managers and management theorists could no longer view organizations as closed systems that were essentially operating within the predictable, unchanging environments.12 Second, efficiency was no longer a manager's main concern. It was eclipsed by the drives to diversify and then to monitor the activities of previously unrelated companies. Third, the shift toward making organizations more responsive to their environments was characterized by a trend toward decentralization, which in essence meant letting lower-level employees make more of their own decisions. Decentralization, though, required a new managerial philosophy: allowing subordinates to do more problem solving and decision making meant that managers had to rely on their employees' self-control. This change (coming as it did just after Hawthorne's results became popularized) led to a new emphasis on participative, people-oriented leadership and a more behavioral approach to management.


The work of Douglas McGregor is a good example of this more behavioral approach to management. According to McGregor, the classical organization (with its highly specialized jobs, centralized decision making, and top-down communications) was not just a product of the need for more efficiency. Instead, McGregor said it was a reflection of certain basic managerial assumptions about human nature.13 These assumptions, which McGregor somewhat arbitrarily classified as Theory X, held that most people dislike work and responsibility and prefer to be directed; that they are motivated not by the desire to do a good job but simply by financial incentives; and that, therefore, most people must be closely supervised, controlled, and coerced into achieving organizational objectives.

McGregor questioned the truth of this view and asked whether management practices such as specialized division of work are appropriate for the sorts of tasks faced by more modern organizations. He felt that management needed new organizations and practices to deal with diversification, decentralization, and participative decision making. These new practices had to be based on a revised set of assumptions about the nature of human beings, which McGregor called Theory Y. Unlike Theory X, Theory Y held that people could enjoy work and that an individual would exercise substantial self-control over his or her performance if the conditions were favorable. Implicit in Theory Y is the belief that people are motivated by the desire to do a good job and by the opportunity to affiliate with their peers, rather than just by financial rewards.


Researcher Rensis Likert's work is another example of the trends in management theory during these post-war years. Likert concluded that effective organizations differ from ineffective ones in several ways. Less effective job-centered companies focus on specialized jobs, efficiency, and close supervision of workers, he said. More effective organizations, on the other hand, "focus their primary attention on endeavoring to build effective work groups with high performance goals."14 As Likert noted, in these employee-centered companies:


Chris Argyris reached similar conclusions but approached the problem from a different perspective.16 In his view, the classical command and control approach to managing was unhealthy for workers. Argyris argued that healthy people go through a maturation process. As they approach adulthood, they move to a state of increased activity, greater independence, and stronger interests, and they pass from the subordinate position of a child to an equal or superordinate position as an adult. Gaining employees' compliance by assigning them to highly specialized jobs with no decision-making power and then closely supervising them inhibits these normal maturation processes by encouraging workers to be dependent, passive, and subordinate. Argyris concluded that it would be better to give workers more responsibility and broader jobs.


Behavioral scientists like Argyris, McGregor, and Likert soon translated their ideas into practical methodologies that became the heart of the emerging subject of organizational behavior. Likert, for example, emphasized leadership style and group processes. "The low-producing managers, in keeping with the traditional practice, feel that the way to motivate and direct behavior is to exercise control through authority."17 In contrast, "the highest-producing managers feel, generally, that this manner of functioning does not produce the best results, that the resentment created by direct exercise of authority tends to limit its effectiveness."18 Therefore, said Likert, "widespread use of participation is one of the more important approaches employed by the high-producing managers."19 Likert found that the value of participation applied to all aspects of the job and of work, "as, for example, in setting work goals and budgets, controlling costs, organizing the work, etc."20

McGregor had his own prescriptions, too. He said decentralization and pushing decision making down should be the norm in order to free people from the "too-close control of conventional organization." Management should encourage job enlargement (in which the variety of tasks an employee performs is increased), so that workers' jobs are made more challenging and more interesting. Participative management (which McGregor said would give employees some voice in decisions that affect them) would similarly enhance self-control. Finally, McGregor urged using management by objectives (MBO) to encourage self-control. In MBO subordinates set goals with their supervisors and are measured on the accomplishment of these goals, thus avoiding the need for close day-to-day supervision.


The work of Chester Barnard and Herbert Simon does not fit neatly into any one school of management theory. Their research actually spanned several schools and contributed to the development of an integrated theory of management.

CHESTER BARNARD. Chester Barnard used his experience as an executive to develop an important new management theory. He was the president of New Jersey Bell Telephone Company and, at various times, president of the United Service Organization (the USO of World War II), president of the Rockefeller Foundation, and chairman of the National Science Foundation.

Barnard was the first major theorist after the Hawthorne studies to emphasize the importance and variability of the individual in the work place. He said, for example, that "an essential element of organizations is the willingness of persons to contribute their individual efforts to the cooperative system." And he added that "the individual is always the basic strategic factor in organization. Regardless of his history or obligations, he must be induced to cooperate, or there can be no cooperation."

Barnard, therefore, set about developing a theory of how to get workers to cooperate. According to Barnard the question is, how do you get the individuals to surrender their personal preferences and to go along with the authority exercised by their supervisors?21

Barnard believed the answer could be found in what he called the person's zone of indifference, a range within each individual in which he or she would willingly accept orders without consciously questioning their authority.22 Barnard saw willingness to cooperate as an expression of the net satisfactions or dissatisfactions experienced or anticipated by each person. In other words, organizations had to provide sufficient inducements to broaden each employee's zone of indifference and thus increase the likelihood that the boss's orders would be obeyed.

But Barnard, in a clear break with the classicists, said that material incentives by themselves were not enough: "The unaided power of material incentives, when the minimum necessities are satisfied, in my opinion, is exceedingly limited as to most men."23 Instead, said Barnard, several other classes of incentives, including "the opportunities for distinction, prestige, [and] personal power" are also required.

HERBERT SIMON. Whereas Barnard wrote from the vantage point of an executive, Herbert Simon was a scholar who had mastered organization theory, economics, natural science, and political science, and who went on to win the Nobel Prize in economics. Like Barnard, Simon viewed getting employees to do what the organization needed them to do as a major issue facing managers. He proposed two basic ways to gain such compliance, which can be paraphrased as follows:

Thus, according to Simon, managers can ensure that employees carry out tasks in one of two ways. They can impose control by closely monitoring subordinates and insisting that they do their jobs as they have been ordered (thereby using the classicists' command and control approach to managing). Or managers can foster employees' self-control by providing better training, encouraging participative leadership, and developing commitment and loyalty. As rapid change forced employers to depend more and more on employee initiative, developing such self-control would soon become a major theme in management writings. First, we should discuss The Quantitative School


After World War II, a trend developed among management theorists to apply quantitative techniques to a wide range of managerial problems. This movement is usually referred to as operations research or management science and has been described as "the application of scientific methods, techniques, and tools to problems involving the operations of systems so as to provide those in control of the system with optimum solutions to the problems."25


Management science has three distinguishing characteristics. First, management scientists generally deal with well-defined problems that have clear and undisputable standards of effectiveness. They want to know, for instance, whether inventory costs have been too high and should be reduced by 20 percent, or whether a specific number of items should be produced at each of a company's plants to minimize transportation costs to customers.

Second, management scientists generally deal with problems that have well-defined alternative courses of action. Thus, a company might have four different plants from which to ship products, or various levels of product A and product B that can be produced to maximize sales revenues. The management scientist's task is to recommend a solution. Finally, management scientists must develop a theory or model describing how the relevant factors are related. Like any scientist, management scientists must understand the problem and relationships clearly enough to formulate a mathematical model.

Historian Daniel Wren points out that operations research/management science has "direct lineal roots in scientific management."26 Like Taylor and the Gilbreths, today's management scientists try to find optimal solutions to management problems. As Taylor and his people used scientific methods to find the one best way to do a job, management scientists use the scientific method to find the best solution to industrial problems. The difference in the two approaches is two-fold. First, modern-day management scientists have at their disposal much more sophisticated mathematical tools and computers. Second, management science's goal is not to try to find a science of management (as did Taylor) so much as it is to use scientific analysis and tools to solve management problems.


The management science approach is closely associated with what is called the systems approach to management. A system is an entity--a hospital, a city, a company, or a person, for instance--that has interdependent parts and a purpose. Systems approach advocates argue that viewing an organization as a system helps managers to remember that a firm's different parts, departments, or subsystems are interrelated and all must contribute to the organization's purpose.

According to systems advocates like C. West Churchman, all systems have four basic characteristics.27 First, they operate within an environment, which can be defined as those things outside and important to the organization but largely beyond its control. For a company these might include clients, competitors, unions, and governments.

Second, all systems are composed of building blocks called elements, components, or subsystems. In an organization, these basic building blocks might be departments, like those for production, finance, and sales. The subsystems may also cut across traditional departmental lines. For example, the marketing subsystem might include sales, advertising, and transportation, because each of these elements has an impact on the marketing task of getting the product to the customer.

Third, all systems have a central purpose against which the organization's efforts and subsystems can be evaluated. For example, the optimal inventory level for a firm that serves top-of-the-line customers would probably be higher than for a firm whose customers want the best buy in town and are willing to wait for shelves to be restocked.

Fourth, focusing on the interrelatedness among the subsystems (and between the subsystems and the firm's environment) is an essential aspect of systems thinking. For example, interrelatedness emphasizes the fact that a manager can't change one subsystem without affecting the rest--hiring a new production manager might have repercussions in the sales and accounting departments, for instance. Similarly, managers and management theorists need to be sensitive to the way changes taking place in industrial environments affect the organization and management of the firm, a point to which we now turn.


In the early 1960s, at about the same time the systems approach was popular, organizational research studies in England and the United States began to underscore the need for a situational or contingency view of management, one in which the appropriateness of the organization and its management principles were contingent on the rate of change in an organization's environment and technology. In one such study, Tom Burns and G.M. Stalker analyzed a number of industrial firms in England. They concluded that whether what they called a "mechanistic" or an "organic" management system was appropriate depended on the nature of the organization's environment.

Burns and Stalker argued that a mechanistic management system was appropriate if the company's tasks were routine and unchanging. Thus, in a textile mill they studied, it was important to have long, stable production runs that kept surprises to a minimum and thereby prevented the necessity of shutting down huge machines. In such unchanging conditions, Burns and Stalker found that a mechanistic (or classical) management approach--characterized by an emphasis on efficiency, specialized jobs, elaborate procedures for keeping behavior in line, and an insistence that everyone play by the rules--was appropriate.

On the other hand, Burns and Stalker found that the more behavioral organic management system was appropriate if innovative, entrepreneurial activities were important. In high-tech electronic firms, for instance, companies and their employees are constantly under pressure to come up with new devices so that they can compete effectively with rival firms. Burns and Stalker found that management often ran such firms with an organic approach that emphasized creativity rather than efficiency. These firms placed less emphasis on specialized jobs and issued fewer rules and procedures. Instead, they delegated decisions to employees who then exercised self-control in getting their jobs done.

Also in England, Joan Woodward and researchers from the Tavistock Institute analyzed a group of firms to discover the relationship between an organization and its production technology. The organic, flexible system described by Burns and Stalker again appeared to be more appropriate where dealing with unexpected, unpredictable occurrences was of paramount concern. Thus it was used in small, custom-made job shops, and in large factories that were built to run continuously and in which unexpected breakdowns were a main concern. On the other hand, Woodward and her team found that the mechanistic, classical approach was appropriate where predictability and efficiency were paramount, such as where mass production technologies and assembly lines were utilized.28 These findings and others like them culminated in what came to be called a situational, or contingency, approach to management theory, the main findings of which we will address in chapter 8.