Determine Your BATNA

In order to negotiate better, you must determine what your BATNA is prior to negotiating. BATNA, first coined by Fisher and Ury, stands for “best alternative to a negotiated agreement.” If you are unable to reach an agreement with the other party, what is your next best option? Knowing your BATNA helps you to decide at what point the deal the other side is offering you is no longer beneficial to you. Remember, the whole point of negotiating with someone is to get something better than what you would get without negotiating. So, you should consider sealing a deal only if you are able to come out ahead.

For example, let’s say you own a small advertising agency and are looking for a seasoned account executive for one of your largest accounts. You are in the process of negotiating an offer with the leading candidate. Generate a list of as many alternatives as you can think of for not hiring this candidate and then pick the one option that seems to be the best. Bear in mind that you have a stronger position if your BATNA is to hire a freelancer who used to be an employee of your company until a permanent employee is hired. This person would require little or no training since she is familiar with how your company does things and would be able to produce work immediately. If, however, you have no other prospects in mind, have to advertise the position to generate resumes, and the official start date of the project is next week, you have a weaker BATNA.

Once you have determined your BATNA, you should consider the BATNA of the other party, keeping in mind that the party with the stronger BATNA tends to be the more powerful party in the negotiation process. If the prospective candidate you are interested in hiring has another job, she has a more powerful BATNA than if her second best alternative is to remain unemployed for an indefinite amount of time until another suitable job is offered. If both parties have strong BATNAs, the best solution may be to not negotiate with each other and instead negotiate with other parties or not at all.

Generate Options That Meet Interests of Both Parties

Once you have figured out what the opposing party really wants, you can start to develop a list of creative options that meets the interests of both parties. Remember, if you meet only your own interests, you risk alienating the other party and the possibility that they will lose their patience and walk away. You may want to consider Fisher and Ury’s suggestion of holding a brainstorming session with five to seven colleagues off-site with a facilitator to generate a comprehensive list of ideas. Have the facilitator display the ideas on an easel or whiteboard and record all ideas mentioned, realistic or not. Remind all participants that all ideas should provide a win-win solution for both sides. The unrealistic ideas can be tossed out when the group meets again before the negotiation to select the best ideas that will be discussed during the negotiation.

Make sure that all the ideas selected meet the following basic human needs that motivate the positions people choose so that you can reach mutual agreement more quickly:

. Risk reduction and security—job security.
. Sense of belonging—fitting in at home and at work with specific roles and responsibilities.
. Economic security—being able to afford basic necessities (food, shelter, etc.).
. Recognition and approval—feeling valued for accomplishing challenging work.
. Control over one’s life—managing, organizing, and running one’s life in the desired way.

Consider this next example:

Employee: Thank you for agreeing to meet with me to discuss my raise for next year.

Boss: I want you to know that I think you are an asset to my company and I appreciate everything you do around here. I think your review went well this year, and I have decided to give you an 8 percent raise for all your hard work.

Employee: I appreciate the 8 percent but I have to say that I was hoping for 15 percent.
Boss: Please tell me why you were hoping for 15 percent.
Employee: Well, I really like my job but it’s expensive to keep my kids in day care from 3:30 to 5:30 every day. I was hoping for a 15 percent raise so that I can keep up with the rising costs of day care.

Boss: I’ll tell you what I can do. What about letting you work flexible hours? Maybe you could work from 6:30 A.M. to 3:00

P.M. each weekday with a 30-minute lunch. This way you can still work 40 hours a week and be home in time to take care of your kids when they come home from school. Not only would you get to spend more quality time with your kids, but you also wouldn’t have to send them to day care.

Employee: Wow, that’s a great idea. The 8 percent raise sounds fine. Thank you.

The boss was able to meet his own needs of wanting to give his employee a raise of 8 percent and those of his employee by solving his day-care cost increase problems, leaving both parties feeling that they had won.

Use Objective Standards

In order to convince the other party that what you are asking for is fair and reasonable, try to use objective standards whenever possible. If you are in the negotiation process with a prospective candidate, you will want to pay her as little as possible and she will want to earn as much as possible. Rather than feeling that the other party is trying to rip you off and haggling back and forth, the easiest solution is to use an independent objective standard. Independent objective standards may include market value, replacement cost, depreciated book value, competitive prices, precedents for similar cases, scientific judgment, professional standards, moral or ethical standards, or government standards. You can also speak to experts in the field to learn what is considered fair market value for whatever goods or services the negotiation is about. Using objective standards can reduce the amount of time it takes to conclude a negotiation because they are more likely to be accepted by the other party as a fair and reasonable offer.

If the other party offers to pay or accept a specific amount, always ask how they arrived at that specific number. Did they use an objective standard? If so, which one? If not, suggest one be used in order to eliminate bias and be fair, and to create a win-win situation for both parties. If they are unable to provide you with details for how they arrived at that amount and refuse to budge, you should seriously consider to agree to disagree and not negotiate. If, however, the price seems fair and is based on a trustworthy objective standard, be willing to be open-minded when confronted with a reasonable offer. Think about the following example:

Doctor: I am pleased to tell you that I met with everyone you in terviewed with and would like to extend you an offer of $45,000 per year as your salary.

Employee: How did you arrive at that amount exactly?


Doctor: Well, we think it is a very fair salary. According to our human resources department, the average salary paid to pediatric nurses with your level of experience in this city is $43,789. Not only do we pay slightly more than average, but we also offer additional benefits. While most doctors offer their nurses two weeks of vacation, we would give you three. You would also be able to begin contributing to your 401(k) plan immediately rather than waiting for six months as in many other offices. Additionally, the vast majority of our nurses have been with us for more than 10 years. The average tenure at our office for nurses is 14.5 years. And every year for the past five years, we have been working with a market research firm to conduct an employee satisfaction survey. According to last year’s results, 92 percent of our employees are either satisfied or very satisfied with their jobs, 94 percent with the benefits, and 90 percent with their bosses. We really value our employees here and I think they recognize that.

Employee: Sounds like once nurses are hired at your office, they don’t want to work anywhere else.
Doctor: Exactly. We have one of the highest retention rates in the city for nurses.
Employee: Well, now that you explained how happy your employees are, I think I would like to work here as well.
Doctor: I’m glad to hear it. I’ll notify the human resources department and have them send your paperwork by the end of the day. You should receive it by the end of the week.

Focus on the Other Side’s Interests Rather Than Stated Positions

It is almost always in your best interest to find a win-win solution for both parties, to complete a negotiation knowing that both sides are satisfied with the results. If the other party is dissatisfied, it can have negative consequences for you. For example, if a customer feels he was cheated, you will lose her as a customer and perhaps future customers because of her negative comments. If a new hire feels cheated out of a better salary, he may quit his job in a few months when he finds something else that pays more after you just invested time and money in training him. Leaving the other side feeling disgruntled, cheated, or deceived destroys relationships, which could be risky for your business.

The next step in preparing for negotiation is to imagine that you have to negotiate for the other side and develop a list of questions you should ask them. Put yourself in their shoes and do their homework. What questions will they ask your team? Be prepared to answer them.

Although it seems like the most important question to ask the other side is what they want, Roger Fisher states that there is another even more crucial question that looks at the underlying interests of the other party. Why do they want what they want? Walk a mile in their shoes and determine what you think motivates their stated positions.

You may already be familiar with this story, but imagine that one of your coworkers, Lisa, finds a bag of 30 oranges on sale at a local grocery store. She needs only 10 of them so she brings the remaining 20 oranges to the office to share with anyone who wants them. Both Karen and Anna decide they want them. After negotiating for a few minutes, they decide to each take home 10 oranges.

However, if they had focused on their interests (one wants just the peels and the other wants only the juice) instead of their stated positions (wanting the oranges), they would have been able to share the 20 oranges and achieve their goals. Karen wanted the oranges so she could squeeze fresh orange juice in her juicer. Anna wanted the oranges so she could grate the orange peels for an orange muffin recipe.
Since neither side asked the opposing side why she wanted the oranges, both Karen and Anna had to make a trip to the supermarket.
Anna’s recipe called for the rinds of 20 oranges and Karen needed enough juice for her family of five for breakfast, which also required the juice from 20 oranges. If they had focused on interests, they would not each have had to make a trip to the grocery store, and the peels of Karen’s oranges and the orange juice from Anna’s oranges would not have been wasted.

Don’t assume that every party’s interests and motivations revolve around money. Let’s assume that you own a small marketing research firm and are looking for a new project manager. You have completed the interviews and are in the process of negotiating an offer with a prospective candidate. When you offer him a salary of $50,000 a year, he states that he thinks you should offer him $55,000. When you ask him why he thinks he deserves $5,000 more than you offered him, you realize that money is not what is motivating him. He feels he should get an extra $5,000 in return for settling for the title of project manager. He has 10 years of project management experience and thinks he should have the title of project director instead of project manager. He is considering applying to an executive MBA evening program at the local university and feels that the title of project director would be viewed more favorably by the university. Once he has shared his true interests with you, you agree to give him the title of project director and agree to pay your new project director a salary of $50,000 a year.

Consider this example:

Boss: Based on our conversations over the past few days, I would like to extend an offer to you for $44,000 a year plus 10 days of vacation time and 5 sick days.

Employee: Well, I’m going to be honest and say that I am a bit surprised. I was expecting the offer to be closer to the $50,000 salary range.

Boss: Why were you expecting an offer of approximately $50,000?


Employee: Well, since I have been freelancing for the past few years, I have grown accustomed to having more time to go on vacations. I work hard for most of the year but I am also able to take a few weeks at a time to travel abroad. I will be unable to do much traveling if I have only two weeks of vacation time a year. So if I won’t be able to travel as much, I should at least make more money.

Boss: I see. How about this? I’ll throw in an extra week of vacation for the next three years so you’ll have 15 days of vacation time. In addition to those 15 days of vacation time, you will have 5 days of sick time. If you do not get sick during the year, you can use them as vacation days during the last quarter of the year. So, you could have up to 20 vacation days your first three years! And, if you work with me for three years, I’ll increase that to 20 vacation days plus 5 sick days. And, once a quarter, you can work 10 hours either Monday through Thursday or Tuesday through Friday and take a long weekend off. I think that sounds fair. What do you think?

Employee: I think I’ll accept the offer—$44,000 sounds good as long as I have enough vacation time to travel.
Boss: Great, welcome aboard then!

At first glance it may appear that both parties want completely different things and have no interests in common. However, once you start to think about what motivates the other team and what their goals are, you will notice that sometimes both teams have more shared interests than opposing ones. Let’s go back to the example about the small marketing research firm owner and the newly hired project director. You, as the business owner, and your new employee have a few interests in common. First, you both want the company to perform well.

You both rely on your company’s sales to support your families. Second, you both want stability. You, the owner, want your company to grow and would like to keep your valuable employees; you do not want to lose them to the competition, so you offer them competitive salaries, vacation time, and benefits. Your new project director is also looking for job security. He doesn’t want to have to switch jobs and move his family every few years to get a competitive salary and benefits. Third, you are both interested in maintaining a good relationship with each other. You want your employee to be happy with his job so that he stays around, and your project director wants to be able to use you as a reference or for networking possibilities in the future.

Make a List of Assumptions, Gather Facts and Conduct Research

Make a List of Assumptions

Skilled negotiators realize that people sometimes have mistaken assumptions that they believe to be facts. When negotiating with another party for the first time, we have to make certain assumptions as to what some of their body language, expressions, or phrases mean. Ask for clarification! Don’t assume anything. Make a list of assumptions to bring to the negotiation and clarify any points that are unclear or uncertain.

Gather Facts and Conduct Research

The next step involves gathering as much information as you can about the subject of the negotiation. Let’s say that you own a pizza restaurant and you are negotiating prices with the landlord who owns the building in which you operate your restaurant. To persuade the other side that you are asking for something that is reasonable, you need to provide supporting data.

For example, if you would like to renew your lease at the same price you paid the previous year, you would need to prove why it would be unfair of your landlord to increase your rent. Research regarding real estate prices in similar buildings located in the surrounding area of your restaurant, restaurant occupancy rates in your city, the number of new restaurant openings in the past year in your city, and the average increase in rent in your city would be some topics worth researching prior to the negotiation. You can find this type of information on the Internet, by asking for assistance at your local community library, by speaking to a local real estate leasing agent, or by meeting with other building owners in your area. You may also want to find out about what the current issues are in the real estate industry. Another way to get the latest news and information regarding the real estate industry is to read trade publications or visit the web sites of real estate trade associations for current articles.

Research the Other Team’s Members and Personalities

Once you have established your goals and objectives and those of the other party, the next step in preparing for negotiation is gathering as much information as you can about the opposing party’s personalities. If you do not have a relationship with them already, begin to establish one by setting up a meeting or two prior to the negotiation. Perhaps you can meet informally over lunch one afternoon. If you are unable to meet with your counterparts prior to the negotiation, consider calling their assistants to find out more information regarding how to make them comfortable during the negotiation. Ask their assistants what they like to eat and drink so that you can have things prepared at the time of the negotiation.

Also think about how you will get their attention at the start of the negotiation meeting. What do you have in common with them? Perhaps you both like to hike and you can discuss trails you have hiked recently. What do they like to do for fun? If they like to play tennis, you can ask about the last game they played or how well they played. Or you could bring up the latest professional tennis tournament that you recently saw on television. This is a great way to get their attention before you begin negotiating.

Do you think the other side uses a hard or soft bargaining strategy? Can you trust them? How long do they anticipate the process will take? Do you know anyone acquainted with a member of the opposite team who can give you some information about them? What makes them tick? Are they impatient? Demanding? How long do they anticipate this process to take?

The more you know about the people on the other side, the more prepared you will be for the negotiation. And the more prepared you are, the more confident you will be because you will know what to expect.

Ideal Meeting Location, Evaluate Your Negotiation Style, Establish Your Goals and Objectives

To be a successful negotiator, it is imperative that you do your homework. Fisher and Ury suggest that you spend about half the time you spend negotiating on preparing for the negotiation.

Ideal Meeting Location

Once you have established a relationship with someone or have negotiated with that party before, you may feel comfortable negotiating over the telephone. Otherwise, conducting the meeting in person would be better than over the phone because it will give you the opportunity to observe the other person’s body language and maintain eye contact.

If you decide to meet in person, offer to meet at your office if possible. Not only will you feel more comfortable in your office, but you also will be able to get quicker approval from senior people (if necessary); and it gives you the home advantage. The main advantage of meeting at the other side’s offices is that you can withhold information until you return to your office. Of course, if neither party is willing to agree to meet at either office, you can always meet at a neutral location.

Evaluate Your Negotiation Style

Before you can improve your negotiation style, you should think about evaluating your current style and your personality. Thinking about the last few negotiations you participated in, what tactics do you think were successful? In what areas do you think you could improve? Would you say you used hard or soft bargaining techniques? Did you tend to be direct or indirect in your negotiation dealings? What would you say are your hot buttons? If you think about how you react in different situations and what your turn-ons and turnoffs are, you will be better prepared to handle yourself professionally while maintaining your composure during your next negotiation. And this can be an advantage when dealing with people whose tempers get the best of them.

Establish Your Goals and Objectives

You need to determine your primary goal and objectives—that is, what you want to get out of the negotiation. Your primary goal should be realistic and accessible. Let’s say your main goal is to hire a new office manager. It is unrealistic to assume that you will be able to hire an office manager at $0 per year and no benefits. You should expand your main goal to include other objectives. For example, you would like to hire a new office manager and pay $4,000 per month and 75 percent of health and dental insurance, offer 10 days of vacation and 5 days of sick time for the first year, and match up to 3 percent of salary in the company’s 401(k) plan.

Primary goal of negotiation. Negotiation styles

PRIMARY GOAL OF NEGOTIATION

Negotiation is like neither a game nor a war. It is about cooperation and signing an agreement that makes both parties feel that they have been successful. The primary goal of effective negotiation should be to achieve a deal that both parties can live with and that accomplishes your goals without making the other party walk away from the deal or harming a valuable relationship. Basically, the whole point of negotiating with someone is to get something better than what you would get without negotiating.

NEGOTIATION STYLES

There are two main types of negotiation styles, hard and soft. Hard bargaining is also referred to as positional, aggressive, contending, or competitive bargaining; and soft bargaining is synonymous with relational or cooperative bargaining.

Hard Bargainers

In a nutshell, hard bargainers want to be victorious and are willing to jeopardize relationships to accomplish their goal of winning. While this negotiation style eliminates the need to make concessions, it also increases the likelihood that the other party will walk away, resulting in no agreement, and that the relationship will be severed or severely damaged.

Hard bargainers consider satisfying the other party’s needs only if it helps to accomplish their goals and objectives. They tend to withhold important information, purposely provide incorrect bottom-line figures, and embellish facts. As a result of their sometimes deceptive behavior, they tend to distrust the other party. Other traits displayed by hard bargainers are their inflated demands and threats, impatience, pressure tactics, and insistence on their own positions.

Because this approach involves little to no preparation, it is used by many negotiators. However, this negotiation style usually does not yield the best results because it alienates the opposing party and leaves them dissatisfied with the outcome. Before deciding to use this approach, serious consideration should be given to the following questions:

. How important is it that the other party does not walk away from the negotiation?
. How much do you value your relationship with the other party?
. How complicated are the issues?

If you value the relationship you have with the other side, it is important to you that the other party not walk away from the negotiation, or if the matter involves complex issues, hard bargaining will most probably not yield the desired results.

Soft Bargainers

In contrast to hard bargainers, the primary concern of soft bargainers is to maintain or improve relationships by finding a solution that appeases all parties. However, to avoid conflict with the other side, soft bargainers will quickly concede, make concessions, and agree to conditions that are clearly unfavorable for them. The major disadvantages of this approach are that often soft bargainers feel that they are taken advantage of or become bitter and resentful following a negotiation. Soft bargainers tend to be more patient, indirect, accommodating, and trusting than their hard-bargaining counterparts.

So, which negotiation style should you adopt—hard or soft bargaining? According to Roger Fisher, director of the Harvard Negotiation Project, and William Ury, director of the Negotiation Network, the answer is neither. Fisher and Ury suggest a third negotiation style called principled or win-win negotiation. The main idea behind principled negotiation is that both sides explore the interests of both parties and discover a creative solution that makes both sides feel like winners. Fisher and Ury base principled negotiation on the following four points:

1. Focus on the interests of all parties, not their positions.
2. Separate the people from the issue.
3. Make a list of creative options that meet the interests of both parties.
4. Base the end result on an objective standard.

Negotiation. Common misconception about negotiation

Business owners’ ability to negotiate skillfully is important because typically, whether they realize it or not, they spend hours every week negotiating with subordinates, suppliers, lenders, significant others, children, parents, in-laws, car dealers, and others. Deciding how much to pay a new office manager or where to go to lunch with a client involves negotiation. The office manager may choose to accept less money if 100 percent of health benefits are paid, while a client may agree to go for Mexican food if Chinese food will be the choice on the next occasion. Even though all business owners are experienced negotiators, they may not be skilled negotiators. Being a skillful negotiator requires patience, attentiveness, flexibility, and awareness of personal negotiation style, issues and details of the case, as well as the goals and objectives of the other party.

Negotiation can be described as nonviolent communication between two or more parties who may have conflicting and common interests in an attempt to reach an agreement that meets the goals of one or both parties. In simple terms, negotiation is a process for getting something you want. Gary Karrass, author of Negotiate to Close, once said, “We don’t get what we want in this life, we get what we negotiate.”

COMMON MISCONCEPTIONS ABOUT NEGOTIATION

Many people are afraid to negotiate because of all the stereotypes associated with negotiation. Although business owners spend up to half their time at work negotiating, many still feel uncomfortable with the process. Some fear that they may come across to the other party as impolite, pushy, unfair, or even cheap.

One common misconception about negotiation is that good negotiators use tactics similar to the stereotypical deceitful, conniving used car salesman. Being a good negotiator does not mean you have to resort to being a slick, smooth talker.

Contrary to popular belief, negotiating should not be compared to a game or a war in which both parties enter the process with the goal of winning and crushing the other party’s spirit. The end result of war or a game is that one party comes out as the clear winner and the other as the absolute loser. Upon completion of a successful negotiation, in contrast, both parties should feel that they have won something.

Another reason business owners feel uncomfortable negotiating is because they feel they have to make trade-offs between getting along with the other side and getting what they want. It is not uncommon for business owners to feel that they have to either give in to the other side’s demands or play hardball in order to avoid conflict, damaging their future relationship, or being taken advantage of by the other party.

Many people feel more relaxed when they find out that they will be negotiating with a woman because they assume that women are not as aggressive as their male counterparts and, therefore, cannot be as effective as negotiators. This is another common misconception. While women tend to be more concerned with preserving relationships and men with arriving at an agreement as quickly as possible, this is not always the case. Some men are patient and are more interested in achieving a deal that meets the needs of all parties while some women prefer to enter the negotiation with a competitive drive to win. Whether you are negotiating with women or men, you should always do your homework. Learn as much as you can about the members of the other team, develop a relationship with them and, if necessary, alter your negotiation style so that it resonates with the other team’s personality.

Corporate social responsibility and citizenship

Corporate social responsibility (CSR) can be defined as the concern of a business for society as a whole that goes beyond contractual or legal obligations. Many firms today are taking on CSR initiatives because, although they may not appear to help the company’s bottom line in the short term, they often coincide with long-term sustainability and profitability.

Areas for Corporate Social Responsibility

CSR covers a wide range of issues, including, but not limited to the following areas:

Unfair Business Practices. Firms will adhere to fair selling tactics, produce quality products, and price their products fairly. They will obey laws regarding business practices.

Workplace and Employee Issues. This includes upholding the rights of employees’ individual freedoms, equal opportunity employment, and protecting employees from sexual harassment. It also involves paying employees fair wages, adhering to legal employment statutes, and ensuring employee safety. Firms may also try to promote a balance of family life and work for employees by offering family leave, flexible hours, or day care services.

Organizational Governance. As outlined earlier, it is necessary that the firm be governed ethically. Leadership must be ethical and spread the message of ethics from the top down.

Environmental Impact. Firms must ensure that their impact on the environment is at a minimum. This includes using environmentally sound manufacturing processes and producing products that do not damage the environment. Many companies have found that they can be successful financially while also being ecologically sound.

Marketplace and Consumer Issues. This involves ensuring consumer safety with the products that are produced and may involve monitoring and responding to consumer complaints. It may also involve ensuring fairness in the marketplace, giving consumers a choice, and pricing products fairly.

Social Development. Companies can aid the social development of communities by creating jobs and contributing resources.

Community Involvement

Corporate social responsibility also involves becoming active in the communities where the company operates. Activities may include funding local charitable organizations, sponsoring cultural events, or having volunteer days for employees to go into the community and participate in community service projects. An organization may also choose to create its own philanthropic arm, such as the Gap Corporation’s Gap Foundation, which matches employee giving to philanthropic organizations.

Another term used frequently is corporate citizenship, the concept of companies holding to high ethical standards, demonstrating environmental responsibility, providing safe and reliable products, and working to improve conditions in the community. Corporate citizenship encompasses business ethics, but also has an element that goes above and beyond the legal and contractual obligations, similar to CSR.

A theory that has been cropping up recently is called the “triple bottom line.” The basis of this theory is that companies should be working just as hard at increasing their social and environmental worth as they do with their financial results. The three bottom lines are society, economy, and environment, and the lines are interdependent. But how can working hard at social and environmental worth benefit a company’s bottom line financially?

Benefits of Corporate Citizenship

According to the World Economic Forum white paper The Business Case for Corporate Citizenship, there are eight areas where corporations can benefit from good governance and corporate citizenship:

1. Reputation management. Companies can avoid a damaged reputation by adhering to ethical practices.
2. Risk profile and risk management. Companies that adhere to more stringent policies (environmental, for example) are less likely to pose as much risk for investors because they are not taking chances with their reputations.
3. Employee recruitment, motivation, and retention. Companies that are better corporate citizens are more attractive to potential employees; companies whose reputations are tarnished may have much difficulty recruiting new employees.
4. Investor relations and access to capital. Recent studies have shown that companies with sound environmental policies and environmentally safe products have been able to increase their earnings per share and are more likely to win contracts.
5. Learning and innovation. Adopting corporate citizenship principles can lead to creativity and employee innovation because it requires finding solutions to problems while enhancing the company’s bottom line.
6. Competitiveness and market positioning. Today, consumers are very concerned about trusting companies and their products. Being a good corporate citizen will make a company more competitive and will help its position in the market.
7. Operational efficiency. Becoming more environmentally efficient often means reducingmaterial use and waste, which enhances a company’s bottom line.
8. License to operate. Companies that are good citizens are more likely to be given a second chance in case of a slipup than companies that have a negative image in the minds of citizens.

Ethics: Best practises

Some businesses stand out from others as far as their attempts at good corporate governance and business ethics are concerned.

General Mills

In 2003 Business Ethics magazine ranked the 100 Best Corporate Citizens. General Mills, the Minnesota-based producer of cereals and other food products, ranked number one on the list. So what is this company doing that sets it apart from other companies?

At General Mills, the corporate culture is based on business ethics and corporate social responsibility. Employees are successful at being ethical because they follow their own standards and adhere to their core values. Employees are supplied with the company’s written code of ethics and are expected to uphold the values of the corporation:

• We strive for the highest quality in our products, services, and relationships.

• We set and maintain the highest standards for all aspects of our work.

• We advance and grow our businesses honestly and ethically, taking no shortcuts that might compromise our high standards.

• We comply with local laws in every nation where we operate. We recognize and respect the cultures, customs, and practices of our consumers and customers in nations around the world.

• We steer clear of conflicts of interest and work to avoid even the perception of conflict.

• We set very high expectations for ourselves—and for the integrity of our company. We will not compromise those standards.

• We deliver on our promises.

• We are ever mindful of the trust our consumers, customers, partners, and employees place in General Mills. We will never knowingly or willfully undermine that trust. (www.generalmills.com/corporate/about/ethics/)

Hewlett-Packard

Another company that has been recognized internationally for its outstanding corporate governance and ethics is Hewlett-Packard (HP), the computer and accessory manufacturer. HP has set high ethical standards to which employees are expected to adhere. Its core ethical values are:

• Honesty in communicating within the company and with our business partners, suppliers, and customers, while at the same time protecting the company’s confidential information and trade secrets.

• Excellence in our products and services, by striving to provide high-quality products and services to our customers.

• Responsibility for our words and actions.

• Compassion in our relationships with our employees and the communities affected by our business.

• Citizenship in our observance of all the laws of any country in which we do business, respect for environmental concerns and our service to the community by improving and enriching community life.

• Fairness to our fellow employees, stakeholders, business partners, customers, and suppliers through adherence to all applicable laws, regulations, and policies, and a high standard of
behavior.

• Respect for our fellow employees, stakeholders, business partners, customers, and suppliers while showing willingness to solicit their opinions and value their feedback. (www.hp.com/hpinfo/globalcitizenship/ethics/index.html)

Whistle-blowing, Ethics today

WHISTLE-BLOWING

A common method for detection of occupational fraud is employee tips. While many employees choose to handle fraud accusations internally by reporting wrongdoings to executives, whistle-blowing is the employee’s disclosure to the media or government of a company’s unethical activities. Before employees step forward with information, there are several factors that they must consider.

. Can the ethical problems that a company is having be better handled internally?

. Is it worth staying with a company that does not value ethics?

. Does the unethical damage that has been done outweigh the risk of retaliation by the company?

. Can the whistle-blower risk the possibility of being harassed, disciplined, or fired, in spite of regulatory protection?

There are some state and federal regulations that have been put in place to protect whistle-blowers once they have decided to step forward. According to the Sarbanes-Oxley Act of 2002:

(e) Whoever knowingly, with the intent to retaliate, takes any action harmful to any person, including interference with the lawful employment or livelihood of any person, for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any Federal offense, shall be fined under this title or imprisoned not more than 10 years, or both. (www.sarbanes-oxley.com)

ETHICS TODAY

Enron and WorldCom have caused many citizens to take a skeptical view of large corporations. The managerial negligence that has been brought to light in recent years has caused global distrust of the U.S. financial markets. The economic impact of these scandals, combined with distrust, has taken a financial toll on many U.S. investors.

As evident in the Sarbanes-Oxley Act, the U.S. government is doing more these days to protect citizens against unethical corporations. Attempts have been made by creating new regulations, requiring more stringent accounting practices, encouraging an increase in transparency, and protecting those who step forward with information regarding corporate wrongdoings.

The cynical view of business ethics in the United States has caused organizations to go above and beyond what was done in the past to ensure that ethics are being enforced. As seen with MCI, corporations are now creating positions for chief ethics officers. Tyco is another company whose past questionable ethics led it to create this position in the organization.

But will these moves toward stringent ethical policies be enough to convince the world that U.S. companies are ethical? A new term has been created: “Enron ethics,” meaning an ironic difference between a company’s outwardly ethical appearance and its internal ethical failure. From the outside, Enron appeared to be a model company, with its corporate social responsibility practices and thick book of ethical guidelines that was handed out to employees, while on the inside, the company was falling apart due to its faulty accounting practices. But Enron managed to pull the wool over the public’s eyes for years. It’s difficult for people to trust that other companies are not doing the same.

Ethics training, consequences of poor ethical decisions, Government regulations

ETHICS TRAINING

As noted in the case of MCI, with increasing frequency companies are conducting ethics training sessions with employees. These training sessions involve the discussion and analysis of ethical dilemmas. Ethics training seminars are helpful in providing employees with the tools to make the right decisions in situations where their ethics are being tested.

CONSEQUENCES OF POOR ETHICAL DECISIONS

Enron illustrates how large-scale ethics violations can cause the downfall of a company and legal entanglements for executives. Enron filed for Chapter 11 bankruptcy and sold off many of its holdings. Several executives face trial. The ethics violations did not stop with Enron, but spread to its accounting firm, Arthur Andersen, whose reputation was also irreparably tarnished for covering up Enron’s accounting wrongdoings.

Despite the attention that has been given to ethics abuse by large corporations, smaller businesses suffer most from fraudulent activities. Small organizations reported losses of up to 25 percent more than those of larger organizations due to fraud.

MONITORING COMPLAINTS AND ENCOURAGING FEEDBACK

Companies can deal with ethical violations by monitoring complaints and encouraging feedback. Companies monitor complaints against the company made by customers, shareholders, and employees. Many companies also encourage feedback by having toll-free telephone lines for customers to call or by providing suggestion boxes for employees. This system of feedback makes customers, employees, and shareholders feel as though the executives are hearing their voices. Organizations that have hotlines set up were able to cut their losses from fraud by 50 percent, according to a 2002 survey by the Association of Certified Fraud Examiners.

GOVERNMENT REGULATIONS

As is the case when a social harm is identified, the federal government will step in and design regulations that will prevent further damage by unethical companies. Currently the government protects consumers from unethical companies in several ways.

The Federal Trade Commission (FTC) monitors advertising to ensure that companies are not misleading the public with false advertising. The goal is to stamp out deceptive practices. Another government agency, the Food and Drug Administration (FDA), protects consumers by monitoring the safety and quality of many products. Additionally, the government has many policies in place to encourage competition in the market in order to ensure that consumers will not be charged unfair prices for goods and services. To this end, the government’s antitrust statutes prevent monopolies from forming. The government has also protected consumers from unfair pricing by deregulating industries, such as the telecom industry, in order to allow more competition to enter the market.

Creating an ethical standard

Deciding what is right and what is wrong is not always clear-cut. The subjective nature of ethics creates the need for organizations to define their ethical standards. Company leaders often set the example for ethical standards. As discussed in Chapter 3, the job of the leader is to serve as a role model for employees. This is part of the reason why Martha Stewart’s personal financial dealings are a concern to the company bearing her name.
CREATING AN ETHICAL STANDARD
Creating an ethical standard is an important way for a leader to spread his or her ethical beliefs throughout an organization. Often the ethical standards will cover a wide range of business areas.

Interorganizational Relations

An organization’s ethics policies cover the areas of internal policies, which explain the company’s responsibility to employees. These policies often include equal opportunities, sexual harassment, diversity, and employee safety.
Equal opportunity employment is protected by the Civil Rights Act of 1964, which prohibits employers from discriminating against prospective employees due to their race, religion, gender, or national origin. Today, employers include sexual preference as being protected by this act as well. Many companies have enacted policies of affirmative action to increase the employment opportunities for minorities and women within their organization. The Equal Employment Opportunity Commission (EEOC) enforces equal opportunity employment. Employees who feel their civil rights have been violated can file an official complaint with this organization.

Sexual harassment lawsuits have been much publicized over the past 20 years, and for that reason many companies have enacted stringent policies and comprehensive employee training. These measures have been taken in order to increase employee awareness of what behaviors are not acceptable, as well as to make employees aware of their rights for dealing with sexual harassment by fellow employees.

Diversity in the workplace refers to the numbers of women and minorities employed by an organization. Many organizations hold diversity seminars in order to break down barriers and to increase cultural awareness and understanding among employees.

External Organizational Relations

Many firms also create an ethical standard that covers issues concerning the organization’s effect on the outside world, including its responsibility to shareholders, customers, and the community.

One of the firm’s responsibilities to shareholders is to make decisions with the best interest of the shareholders in mind. Many organizations encourage shareholder activism, which gives the shareholders the opportunity to influence management practices. As ethical concerns have been embraced by shareholders, activism has also included influencing practices such as employee relations, social awareness, environmental practices, and other socially oriented concerns.

An organization has an obligation to its customers with regard to its production practices. Customers expect that a company will not produce a product or provide a service that has inherent defects or safety issues. Companies also will establish a standard for sales practices that discourages deceptive or aggressive sales methods, ensuring that employees understand what is acceptable and not acceptable behavior.

The social obligation that a company has can include environmentally sound practices. Environmental obligations include preventing air, water, and land pollution. A growing movement suggests that a company’s social obligation also includes producing products that somehow benefit society or are not harmful.

Importance of Written Standards for Ethical Policies

Many organizations opt for a written document that not only outlines the company’s ethical policies, but also follows government regulations. This document is then distributed throughout the organization so that there can be no question of what the company policies are. This standard will often include guidelines for internal company behavior as well as for product quality and customer relations.

Ethics

Although ethics in business has been an issue for centuries, today there are numerous examples of corporations and individuals who have run into legal and financial trouble due to their questionable ethics. Martha Stewart is an example of an individual whose ethics have been called into question. The accusation that she lied when asked if she participated in insider trading, a violation of Securities and Exchange Commission (SEC) regulations, brought her to court and made her the center of a negatively charged media frenzy. While she is accused of committing the violation with her personal investments, the question of character has already cast a shadow on her business. She stepped down from her role as CEO of her company, Martha Stewart Living Omnimedia, Inc., and Kmart, which carried her brand-name products, is bringing a lawsuit against her. This is a clear situation where ethical standards, whether it is the individual representing the company or the company itself, are tied to the company’s bottom line.

ENRON

An example of a company that committed serious ethical violations was Enron, the energy trading company. In 15 years Enron grew to be one of the largest companies in the United States, with more than 20,000 employees in over 40 countries. But by December of 2001 it became clear that Enron was involved in a huge accounting scandal, the ramifications of which were the largest Chapter 11 bankruptcy filings in U.S. history and subsequent government hearings were conducted to evaluate just how severe the wrongdoing was.

As a result of Enron’s deceptive accounting practices, thousands of Enron employees lost their retirement savings, while several Enron executives received multimillion-dollar bonuses.

WORLDCOM

The largest financial fraud in U.S. history began to unravel WorldCom in 2002. WorldCom had overstated its income by more than $9 billion by means of its misleading accounting practices, and the CEO at the time was granted $400 million in loans with the approval of the company’s board of directors. By July 2002, WorldCom was forced into bankruptcy and laid off thousands of workers.

WorldCom changed its name to MCI and hired a chief ethics officer in 2003. The company now requires that all 55,000 remaining employees take an online ethics course, and more than 2,000 MCI employees have participated in a full-day ethics training seminar. MCI is being closely watched by the government and by competitors for any future ethical errors, and the company is not willing to take any chances.

ETHICS—A DEFINITION

Ethics are the moral standards used to judge right from wrong. In the business setting, ethics are the standards of moral values and conduct that govern decisions made and actions carried out in the work environment.

Unethical decisions are often made for the benefit of the decision maker as opposed to the organization’s stakeholders. Some examples of unethical behavior in business practice are:

. Saying things that you know not to be true.

. Taking something that doesn’t belong to you.

. Buying influence.

. Hiding or divulging information.

CORPORATE GOVERNANCE

Often thought of as the system by which organizations are directed and controlled, corporate governance has come to take on more of an ethical slant over the past decade. According to World Bank president James Wolfenson, “Corporate governance is about promoting corporate fairness, transparency, and accountability.”

Stages of development

Team development has been broken into four stages: form, storm, norm, and perform.

Forming the Team

The first stage involves assembling the team and defining the goals, which should provide focus and be attainable. It is important that the team leadership understands the strengths of each of the team members in order to assemble a cohesive team. Often in the forming stage, team members will be extremely polite to one another; they will be feeling each other out.

An example of a goal that the team may set would be the project schedule. For a construction team, for example, there are many stages of the project that should be completed in a certain time frame to ensure that the project is completed on time for the owner. The design team designates the appropriate amount of time for the construction phase in which the builder will make a profit. It is important to agree upon and set this schedule from the beginning.


Storming Stage of Team Development

The second phase involves coordinating efforts and solving problems. If the teamwork starts to slip because of a difficult problem, it is necessary for the team members to get the project back on track. Team members should be conscious of the team’s health and whether the team is taking steps in the right direction to reach the goals. It may be necessary to think creatively about approaches to solving a problem.

Communication is extremely important to effective team performance in the storming stage. Effective teams communicate clearly and openly about problems. Ineffective communication can cause unnecessary tension and stress to team members. It is important that communication be relevant and responsive. Relevant communication is task-oriented and focused. Responsive communication involves the willingness of team members to gather information, to actively listen, and to build on the ideas and views of other team members.

Establishing Team Norms

The project norms are an informal standard of conduct that guides the behavior of team members. This stage involves defining team roles, rights, and responsibilities. It is important to establish these norms at the beginning of the team-building process in order to avoid problems along the way. In addition to allocating responsibilities, it may also be necessary to allocate the risk that is to be undertaken by each team member. Each member of the team should have a sense of ownership of the project.

Allocating responsibility also means establishing a team leader. Team leadership should not be a top-down effort, but should be more of a coaching role. The team leader must act as a cheerleader, encouraging the team members to work together, providing ideas, and serving as a role model.

There is often a period after the team has been formed when a conflict of personalities or ideas will arise. Team members begin to show their own styles; they are no longer worried about being polite. At this stage, there will be pessimism on the part of team members in relation to the project and there may also be confusion.


Team Performance Stage

By this stage, the team is working together effectively, problems have been smoothed out, and achievements begin to become evident. A great deal of work will be accomplished at this stage. The team will be able to tackle new tasks easily and confidently. They will be comfortable using creative means. It is essential at this point to evaluate and report on progress that has been made.

Project Completion and Team Disbanding Stage

The last phase of the project is completion. Often at this time the team will evaluate the results, debrief, and take time to learn and improve its processes for use in future team-based projects.

Team building and types of teams

TEAM BUILDING

“Teamwork” is defined as a group of people working together to achieve a common goal. Team members are mutually responsible for reaching the goal toward which they are working. Team building is a process meant to improve the performance of the team and involves activities designed to foster communication and encourage cooperation.

Additionally, the objective is to avoid potential disputes and problems and to keep the morale of team members high.

Many different industries and organizations use teams to accomplish goals, because people working together can often achieve more than they could individually. How do you know if you need a team to complete a project? Ask yourself the following questions: Can I achieve this goal by myself? Do I have the resources and time to undertake this project? Can other people or a team of other people be more effective than I would be in achieving this goal? If your answers favor the involvement of others, it’s time to consider forming a team.

In an increasingly complex environment, organizations are using a team approach to bring a diverse set of skills and perspectives into play. An effective use of teams often draws upon a creative approach of bringing together specialists who combine their efforts and develop intrateam synergies to meet the challenges of their often complex organizational environment.

An example of an industry that often uses teamwork is the construction industry. A successful construction project cannot take place without the formation of teams. A design team will be formed at the beginning of the project and is made up of architects, engineers, and project consultants. The design team alone, however, will not be able to complete the project. They will also need to form a team with the owner of the project and the contractor.

TYPES OF TEAMS

Throughout different organizations there are different types of teams that are used to accomplish goals. Two of the most common team varieties are problem-solving and cross-functional teams.

Problem-Solving Teams

These teams are formed for a temporary period until a problem issolved, and then they disband. Team members often consist of one level of management. Let’s say XYZ Corporation has lost 10 percent of its North American market share to MNO Widgets. XYZ wants to get this back by increasing sales across North America. All of XYZ’s regional salespeople will be called in to form a team to regain that market share. Although their regional focus will remain, they will have to work together to solve the problem of regaining that market share, and when they achieve that goal, they will individually work on maintaining their hold in theirmarket.

Cross-Functional Teams

This type of team is made up of members from different areas of the business and often from a common managerial level.

If a shampoo company wants to bring a new conditioner to market, a team will be formed and its members will consist of managers from different departments such as brand management, product development, market research, and finance. It is also likely that there will be involvement by marketing, communications, and design when the product comes closer to being launched.

Pursuing a leadership role

When pursuing a leadership role in an organization, it is important to gain insight into effective leadership.

Firsthand Experience

Draw upon your firsthand experience in leadership roles; think of the lessons you have learned from leading clubs, teams, or other groups.

Leader Memoirs

It is also important to read about other leaders. Most world leaders read books about leaders whom they admire. The books provide important insights into what it takes to be a leader and how to make decisions.

Find a Mentor

Learning from an accomplished leader is a great way to improve your own leadership abilities; find someone in your organization or community whose leadership you admire and ask this person to serve as your mentor; they will probably be flattered and happy to help.

Research

It is important to research management and leadership trends and tolearn skills and techniques that are relevant to the particular field in which you are working so that you can then implement them.

Leadership trends

In today’s competitive environment, leaders are continually searching for new ideas and approaches to improving their understanding of leadership. Here are thumbnail descriptions of current leadership trends.

Coaching

A new trend in effective leadership, coaching, has become extremely popular throughout different organizations. This style of leadership involves guiding employees in their decision-making process. When coaching, management provides employees with ideas, feedback, and consultation, but decisions will ultimately be left in the hands of the employees. Coaching prepares employees for the challenges they will face. The lower an employee’s skill and experience level, the more coaching the worker will require. The interactions that an employee has with the manager are the best opportunities they have for enhancing their respective skills. Coaching enables the employees to excel at their tasks. Instilling confidence in employees is extremely important. If management conveys the belief that employees will exceed expectations, it helps them do so.

A good coach will draw out the strengths of each employee and focus on how those strengths can be directed most effectively to achieve the organization’s purpose and objectives. A good coach will also facilitate personal development and an improvement process through which the employee will be able to play a more effective role in achieving the organization’s purpose and objectives. An effective coach also realizes that each employee is unique, with different strengths and weaknesses, and that a coaching strategy must reflect this individualistic approach.

Employee Empowerment

As organizations and companies become increasingly borderless, employee empowerment becomes ever more important. This trend in leadership has allowed employees to participate in the decision-making processes. Employee empowerment is also a method for building employee self-esteem and can also improve customer satisfaction. It also ties them more closely to the company goals and will serve to increase their pride in their work and loyalty to the organization.

Global Leadership

As corporations become increasingly international in scope, there is a growing demand for global leaders. Although many of the qualities that make a successful domestic leader will make a successful global leader, the differences lie in the abilities of the leader to take on a global perspective. Global leaders are often entrepreneurial; they will have the ambition to take their ideas and strategies across borders. They will also have to develop cultural understanding; global leaders must be sensitive to the cultures of those working under them, no matter where they are based. Global leaders must also be adaptable; this is part of accepting the cultural norms of different countries in which they are operating. They must know when to adapt the operational structure of the organization or adjust their leadership styles in order to relate to those around them. However, as adaptable as they must be, the global leader should not adapt his or her ethics or values to suit local tastes. Global leaders must also serve as role models, fighting corruption, not giving in to it.

Equitable Treatment

An important trend in leadership is the equitable treatment of employees. This does not mean that each employee will be treated the same; it means that every employee will be given the amount of individual attention they require, and it will involve leadership knowing his or her employees. A good leader will get to know employees well enough to give them what they need in order to best perform. For some employees that may mean more structure; for others it may mean more freedom. Some employees may need to be monitored more carefully, while others may work better independently. Leaders must know how to bring out the best in employees and how to build solid relationships with them; the most effective way of doing this is by getting to know them individually.

Feedback

Employees thrive on feedback, and by providing feedback and communicating effectively, managers can give employees the tools they need to improve their performance.

Providing feedback will not dampen employee morale in most cases, but will allow opportunities for employees to learn from their mistakes and move on to performing their tasks better. Positive reinforcement should be used to encourage employees’ positive behavior, but when criticism is necessary, make sure it is constructive. Managers can do this best by telling employees exactly what was observed and how they interpreted it; this also will allow employees to better understand what the manager saw in their performance and to explain if there has been a misunderstanding.

Leadership and motivation. Corporate culture.

LEADERSHIP AND MOTIVATION

An important role for a leader is motivating employees to do the best job possible. There are many ways a leader can motivate employees, and many of them do not require additional monetary compensation.

Sometimes motivation is brought about through creative means. The Container Store, a Dallas-based retailer, offers its employees free yoga classes, a personalized online nutrition diary, and a free monthly chair massage. These techniques help relieve employee stress and make workers feel appreciated. The company has ranked near the top of Fortune’s 100 Best Companies to Work For since 2000.

Open communication is also a key to motivating employees. When employees feel that they will be listened to and managers openly discuss matters with employees, a trusting relationship is created. At Harley-Davidson’s headquarters executives don’t have doors on their offices, creating an open, trusting environment.

Another method to motivate is to ensure that employees are matched up with the right job. It is the leader’s job to learn what employees’ abilities and preferences are and match them accordingly to tasks that utilize their skills and when possible match with their preferences.

If a leader is a good role model, showing enthusiasm for his or her work and pride in the company, this will positively affect employee motivation. At W. L. Gore, a salesperson’s motivation will come from the approval of his or her peers. Compensation is based on rankings by the sales team members. Further, the company bases monetary rewards or bonuses on long-term growth and customer retention, unlike most companies that base bonuses on the bottom line. Gore also presents a Proud Octopus award trophy to employees who have performed “special achievements” during the quarter.

CORPORATE CULTURE

A corporate culture is the system of beliefs, goals, and values that an organization possesses. Many aspects of an organization influence the corporate culture including workplace environments, communications networks, and managerial philosophies.

Strong cultures cause employees to march to the same beat and create high levels of employee motivation and loyalty. Corporate culture also provides control and structure to the company.

Having a strong corporate culture is not always the key to an organization’s success. If the corporate culture is an obstacle to change, it can hinder a company’s performance and ultimately its success. A misdirected culture can lead employees to strive for the wrong goals.

Leadership and Culture

Leadership style is extremely important in an organization, as it often affects the organization’s culture. Which style of management is right? It depends greatly on the type of organization and on the top management within the organization.

If managers are strong leaders, their style of leadership often predominates throughout the different levels of management within the organization. The leadership style is then responsible for creating the culture of the organization. There are good and bad hallmarks for leadership within an organization. If the corporate leadership style is deceptive, then often the management culture within the organization will be deceptive. The same would hold true if the leadership was ethical.

It takes a strong leader to create a lasting culture within an organization. For ordinary leaders it can take years to shape the attitudes and environment; only an extraordinary leader is capable of making revolutionary change.

Characteristics of Successful Corporate Culture

Here are some examples of characteristics of successful corporate cultures. By no means is this list exhaustive.

Caring. This involves employees taking responsibility for their actions, caring about both the customer and the good of the company. It creates high-quality customer service and a positive atmosphere in which to work.

Challenge. If the CEO of a company states that employees should “think outside the box,” but then squashes ideas because of their perceived chance of failure, a contradictory environment is created. In this type of situation, a challenge to conventional thinking and performing causes employees to fear losing their jobs; creative employees will leave and a culture of yes-men will be created.

Risk. A successful company will be able to manage risk and even turn it into a strategic and profitable advantage. It involves paying attention to reputation and earnings. Employees must anticipate the consequences of their decisions and actions. This type of risk management can add significant shareholder value.

Ethics. Often ethics can be the glue that holds the culture of an organization together. An effective leader should create a written ethical code for the organization. This code of ethics should not only be enforced but continuously reinforced. The employee’s ethics should serve as a standard by which performance is evaluated.

Focus. There is a saying, “If you don’t know where you are going, then any road will take you there.” A leader has done his or her job well if the managers have a sense of continuity, if they know where the company or organization is heading. If managers feel that the direction of the organization is decided on by which way the wind is blowing that day, goals will not be met It is important for employees to know where they are going and what they should be achieving, and it is the job of the leader to define this for them. The leader should always know where he or she is going at all times.

However, this does not mean that a leader should not be willing to change. In fact, a leader should be an agent for change, because stagnation does not often lead to success. It is important that while being accepting to change a leader is able to align employees with goals.

Trust. Mutual trust is an important hallmark of effective leadership. Management should trust the leader and the leader should trust management. It is important to note that micromanaging can kill the trusting culture. When employees come to trust one another, it creates a team environment, where everyone is working for the common goals of the organization.

Merit. Organizations often meet their goals by rewarding employee performance based on merit. Merit systems create fairness and help to further foster a team environment.

Leadership styles

Leadership is the art of getting someone else to do something you want done because he wants to do it.

—Dwight D. Eisenhower

Individual managers have their own styles of managing, and within organizations there is often a predominant style of leadership. The predominant leadership styles—autocratic, democratic, and laissez-faire—have many variations. We can compare and contrast the effectiveness of each of these styles as it affects employee performance.

Autocratic Leadership

This style of leadership is both directive and controlling. The leader will make all decisions without consulting employees and will also dictate employee roles. Micromanaging is a form of autocratic leadership in which upper management controls even the smallest tasks undertaken by subordinates. The autocratic style of leadership limits employee freedom of expression and participation in the decision-making process. It may result in alienating employees from leadership and will not serve to create trust between managers and subordinates. Further, creative minds cannot flourish under autocratic leadership.

Autocratic leadership may best be used when companies are managing less experienced employees. U.S. companies operating in less developed countries often use autocratic leadership. It allows the parent corporation more control over its overseas investment. In countries where the government controls the economy, U.S. corporations often use autocratic leadership because the employees are used to making decisions to satisfy the goals of the government, not the parent corporation.

Managers should not use the autocratic leadership style in operations where employees expect to voice their opinions. It also should not be used if employees begin expecting managers to make all the decisions for them, or if employees become fearful or resentful.

Democratic Leadership

This style of management is centered on employee participation and involves decision making by consensus and consultation. The leader will involve employees in the decision-making process and they will be encouraged to give input and delegate assignments. Democratic leadership often leads to empowerment of employees because it gives them a sense of responsibility for the decisions made by management. This can also be a very effective form of management when employees offer a different perspective than the manager, due to their daily involvement with work. A successful leader will know when to be a teacher and when to be a student.

Democratic leadership may best be used when working with highly skilled and experienced employees. It is most useful for implementing organizational changes, for resolving group problems, and when the leader is uncertain about which direction to take and therefore requires input from knowledgeable employees. One of the downsides of democratic leadership is that it may lead to endless meetings and therefore create frustration among employees if used for every decision made by a company. Democratic leadership is not a good idea in situations when the business cannot afford to make mistakes—for instance, when a company is facing a crisis situation such as bankruptcy.

Laissez-Faire Leadership

Delegating work works, provided the one delegating works, too.

—Robert Half

This free-rein form of leadership, if it is to be successful, requires extensive communication by management with employees. It is the style of leadership that makes employees responsible for most of the decisions that are made, and in which they are minimally supervised. Employees are responsible for motivating and managing themselves on a daily basis under this leadership style.

Laissez-faire leadership may best be used when employees are educated, knowledgeable, and self-motivated. Employees must have the drive and ambition to achieve goals on their own for this style to be most effective. Laissez-faire leadership is not a good idea in situations where employees feel insecure about the manager’s lack of availability or the manager is using the employees to cover for his or her inability to carry out his or her own work. This type of situation can create resentment and result in an unhealthy work environment.

As with many categories that describe business concepts, an organization and its leadership may apply any or all of these leadership styles. For instance, the managing partners of an architectural firm may utilize autocratic leadership style with the lower levels in its clerical and administrative functions but employ a democratic or laissez-faire leadership style with its professional staff of architect-associates and partners.

Transformational and Transactional Leadership

Two additional styles of leadership worth exploring are transformational and transactional. Both have strong ethical components and philosophical underpinnings.

Transformational Leadership. Leaders who have a clear vision and are able to articulate it effectively to others often characterize this style of leadership. Transformational leaders look beyond themselves in order to work for the greater good of everyone. This type of leader will bring others into the decision-making process and will allow those around them opportunity to learn and grow as individuals. They seek out different perspectives when trying to solve a problem and are able to instill pride into those who work under them. Transformational leaders spend time coaching their employees and learning from them as well.

Transactional Leadership. This leadership style is characterized by centralized control over employees. The transactional leader will control outcomes and strive for behavioral compliance. Employees under a transactional leader are motivated by the transactional leader’s praise, reward, and promise. They may also be corrected by the leader’s negative feedback, threats, or disciplinary action.

The most effective leadership style is using a combination of styles. Leaders should know when it is best to be autocratic and when to be democratic. They can also be transformational and transactional at the same time; these are not mutually exclusive styles and in fact can complement one another extremely well.

Leadership versus management and roles of managers

LEADERSHIP VERSUS MANAGEMENT

Management is doing things right; leadership is doing the right things.

—Peter F. Drucker

Although sometimes used synonymously, leadership and management can be quite different. Leaders may be managers, but not all managers are leaders. So just what are the differences?

While managers tend to have their eyes on the bottom line, leaders are more often looking toward the horizon, trying to find new opportunities for growth and development. A manager is usually satisfied with the status quo, whereas the leader is often challenging it.

Leadership often involves reinventing the job; strong leaders create their role in an organization or in the world system. Managers are often responsible for executing the task at hand, not thinking of future goals. Managers are responsible for maintaining, but leaders look to innovate. Managers may involve employees in their activities, but often on a “need to know” basis. Leaders, in contrast, work to inspire those around them by trying to help others gain personal growth and development from their activities and by turning weaknesses into strengths.

Companies that have “leader-managers” throughout the corporate hierarchy are the most successful.

ROLES OF MANAGERS

Management is often expressed as the process of achieving an organization’s objectives through guiding development, maintenance, and allocating resources. The primary roles of managers are planning, organizing, leading, and controlling.

Planning

The very essence of leadership is that you have to have vision. You can’t blow an uncertain trumpet.

—Theodore M. Hesburgh

Planning is the process of determining a course of action for future conditions and events with the goal of achieving the company’s objectives. Effective planning is necessary for any business or organization that wants to avoid costly mistakes. There are four different types of planning that are associated with management: strategic, tactical, operational, and contingency planning.

Strategic planning involves creating long-range goals and determining the resources required for achieving these goals. Strategic planning is the most far-reaching level of planning and involves plans with time frames from one to five years. Essential to the notion of strategic planning is that it involves an assessment and consideration of the organization’s external environment, and that the organization is adaptive to these outside, noncontrollable variables, adjusting and possibly redirecting its strategy to account for this changing environment.

Tactical planning denotes the implementation of the activities defined by the strategic plans. Generally, tactical planning involves shorter-range plans with time frames of less than one year.

Operational planning involves the creation of specific methods, standards, and procedures for different functional areas of an organization. In addition, the organization chooses specific work targets and assigns employees to teams to carry out plans.

Contingency planning involves the creation of alternative courses of action for unusual or crisis situations. In today’s society, companies are placing greater importance on contingency planning in order to respond to crisis situations. For example, realizing the impact of terrorism on businesses in the wake of September 11, 2001, many companies have developed contingency plans to respond to potential terrorism events.

Organizing

This management role involves blending human and capital resources in a formal structure. The manager will divide and classify work by determining which specific tasks need to be carried out in order to accomplish a set of objectives.

Leading

Managers also have the role of leading or directing employees and plans. Some managers may be more successful at leadership than others. The goal of leading is to guide and motivate employees in order to accomplish organizational objectives. This role involves explaining procedures, issuing directives, and ensuring that any mistakes are corrected.

Controlling

Controlling allows a manager to measure how closely an organization is adhering to its set goals. It is also a process that provides feedback for future planning.

1. Setting performance standards. A company needs to set the standards by which performance will be measured. In a sales organization it may be sales growth or quarterly sales figures. Perhaps the manager will set the dollar amount for sales that are to be made that quarter.
2. Measuring performance. Using the previous example, measuring performance for sales will require tallying up the number of sales made during the quarter.
3. Comparing actual performance to the set performance standards. Now the difference between the set performance sales and the dollar amount of actual sales made during the quarter must be determined.
4. Taking the necessary corrective action steps. If the sales were much below the set level, it is important to analyze what went wrong and try to correct it.
5. Using information from the process to set future performance standards.

Leadership and Team Building

What are the qualities of good leaders? What makes them successful? Think of some of the greatest leaders of all time. What made them stand out from others? We may think of adjectives such as “heroic,” “charismatic,” and “strategic.” These are all leadership qualities, but what really makes for a strong and successful leader?

Successful leaders are able to influence others. They use their innate qualities to inspire a workforce, a team, or a nation to achieve goals. Leaders can see beyond themselves and beyond the task at hand to look at achieving long-term goals by utilizing their strengths combined with the strengths of others. Effective leaders are able to manage relationships with others and create positive outcomes.

Winston Churchill often comes to mind as one of the greatest leaders in history. He was a talented orator and politician, but what made Churchill a phenomenal leader was his ability to mobilize and strengthen the will of his people through his words and policies. Although his strategic actions were often criticized at the time for being impulsive, Churchill allowed his belief in democracy and his intolerance for fascism to dictate his wartime policies. It was not only his passion for the policies but his ability to carry out his plans that made him a successful leader.

Leadership, such as that demonstrated by Churchill, is about inspiring others and doing the right thing. Leaders make change happen, but their values remain steady and unchanging. Most leaders not only have a long-term perspective on goals, but they also have innovative ways of achieving their goals.

World leaders and business leaders alike can create triumph from disasters. Leaders learn from failure and have a steadfastness of purpose that keeps them focused on a goal or objective in spite of near-term setbacks or adverse conditions. Leaders are flexible in their execution and will make midcourse corrections and iterative improvements—leaders “bend but don’t break.” They inspire those around them to stretch and do their best to fulfill the organizational mission. Leaders are able to energize those around them in order to create desired results without compromising their ethical standards.

Current trends in organizational behavior and design

Modern organizational structures are currently undergoing changes in response to new trends in the global business environment.

One of the more prevalent trends is the increase in the network organization. A network organization is one that consists of a group of independent firms communicating via the latest advances in information technology. It can include suppliers, customers, and even competitors.

These firms operate as an alliance in order to share skills, costs, and access to each other’s markets in order to work together quickly and take advantage of business opportunities. These types of firms are characterized by technology, opportunism, trust, and a lack of borders. They assemble and disperse in response to business opportunities.

Another trend affecting organizational structures is the increase in large global mergers. By their very nature these types of mergers necessitate that a firm reexamine its existing structure in light of its new position within the larger structure. In addition, management decisions designed to increase employee motivation must take into account the culture context in which they are made. Global mergers can also increase the use of virtual groups and the diversity of membership characteristics.

Organizational behavior is the study of how individuals and groups perform together within an organization. It focuses on the best way to manage individuals, groups, organizations, and processes. This chapter has covered the basics of organizational behavior by defining the nature of managerial behavior, addressing the fundamental theories and practices of motivation, explaining the basics of organizational structure, and discussing some methods of control.

Methods of control.

Managers achieve organizational goals by managing intellectual capital in order to get the most out of organizational resources. An important part of this process is monitoring performance and outcomes. This can be done in several ways. Two of the more common ways that directly affect organizational behavior are output controls and process controls. Controls relate to setting standards, obtaining measurements of results related to these standards, and taking corrective actions when these standards are not met. Managers must be judicious in their use of controls so as not to overburden the organization.

Output Controls

Output controls are about setting desired outcomes and allowing managers to decide how these outcomes can best be achieved. Output controls promote management creativity and flexibility. This type of control serves to separate methods from outcomes and subsequently decentralizes power by shifting it down the hierarchical structure.

Process Controls

Once effective methods have been determined for solving organizational problems, managers sometimes institutionalize them in order to prevent the problem from recurring. These types of controls are called process controls and are a way of regulating how specific tasks are conducted. Three types of process controls are (1) policies, procedures, and rules; (2) formalization and standardization; and (3) total quality management controls.

Policies, Procedures, and Rules. These are often used in the absence of direct management control. Policies are general recommendations for conducting activities, while procedures are a more focused set of guidelines. Rules are the strictest set of limits and establish things that should and should not be done.

Formalization and Standardization.
Formalization involves creating a written set of policies, procedures, and rules that simplifies procedures in order to guide decision making and behavior. Standardization is the degree to which the actions necessary to accomplish a task are limited. It attempts to make sure that when certain tasks are carried out they are carried out in a similar fashion.

Total Quality Management Controls.
The previous methods of process control are based on organizational experience. TQM management controls differ in that they are based on an ongoing statistical analysis of a firm’s operations. TQM involves all levels of management and has proved to be the most effective when it is instituted in an organization that has clearly defined outcomes and is done in conjunction with employee empowerment or participatory management programs.

Reengineering , High-Performance Organizations

Reengineering

Reengineering involves the complete redesign of a firm’s structures and processes. It is done in the hope of increasing a firm’s operational efficiency and effectiveness by controlling costs, improving quality, improving customer service, and increasing the speed at which business is conducted. Once a firm has examined itself in light of the five factors of organizational structure, it can better understand where it can make changes to align its structure with the firm’s goals and objectives.

High-Performance Organizations

The goal of the high-performance organization is to effectively and efficiently utilize intellectual capital. High-performance organizations focus on employee involvement, teamwork, organizational learning, total quality management (TQM), and integrated production techniques. Employee involvement is accomplished through worker empowerment or participative management. Teamwork is accomplished though self-directed groups. Organizational learning involves gathering, communicating, and storing organizational information in order to anticipate changes and challenges and make more informed decisions about the future. TQM focuses on high quality, continuous improvement, and customer satisfaction. Integrated production techniques implement flexibility in manufacturing and services and involve job design and information systems to more effectively and efficiently utilize the resources, knowledge, and techniques that a business uses to create goods or services. It stresses the use of just-in-time production and service systems and relies heavily on computers to assist, control, and integrate different organizational functions. Implementing integrated production techniques requires speeding up communication and decision making within the organizational structure.

The process of transforming an organization into a high-performance organization begins by actively seeking to understand an organization’s work site problems and opportunities and its purpose, mission, strategy, and vision. These elements must be tied together into a new mission statement and vision for the firm that is aligned with the organization’s core values. In order to be successful, this process requires the active involvement of individuals from various levels and groups within the organization. The broad level of participation will also ensure a greater level of acceptance in the organization. Once these initial steps have been taken, the factors of employee involvement, teamwork, organizational learning, total quality management, and integrated production techniques can result in organizational, individual, and community benefits. The organization will be more effective in achieving its goals, job satisfaction and employee motivation will increase, and the organization will be better able to contribute to the community as a whole.

Although there are numerous benefits associated with high-performance organizations, establishing and maintaining them is a difficult task. One of the most daunting elements is successfully integrating employee involvement, teamwork, organizational learning, total quality management, and integrated production techniques. These are not separate functions; teamwork must contain elements of employee involvement, organizational learning, and total quality management. This can be especially challenging for managers who, in addition to their regular functions, are asked to implement these changes. Managers can experience many kinds of resistance. Employees may feel that the changes could put them out of a job. They may be resistant to participating in group decision making or in team-based activities. Managers may also experience obstacles related to cultural differences regarding hierarchy and participation. In light of these challenges, some firms succeed in implementing only some of the elements associated with high-performance organizations.

Successfully creating a high-performance organization requires a high degree of cooperation and a strong level of commitment and acceptance from all employees. It is a challenging and difficult process, but it offers significant rewards throughout the organization.