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CHAPTER ONE
OVERVIEW OF ORGANIZATIONAL BEHAVIOR

Introduction
In this chapter, general overview of the course Organizational Behavior is made.
Understanding the items included in this section paves ways for being able to grasp the
substance of the subsequent chapters. Hence, the student should make sure whether
he/she has clearly understood the basic concepts of this section by going through what is
presented under each sub topic. The points that will be addressed in this part include how
organizational behavior is evolved into such a discipline, its nature and meaning, its
relationship with management, challenges and opportunities for it and finally, those
disciplines that contributed towards its development. While reading, try to understand the
essence of each section before starting the study of the subsequent sections. To this end,
you can use quick check and chapter end self test questions.

Learning Objectives:
Upon the completion of this chapter, you should be able to:
 Understand the historical background of organizational behavior
 Differentiate those individuals who played significant roles in relation to the
advancement of organizational behavior as a discipline
 Elucidate the nature and meaning of organizational behavior
 Know the relationship between organizational behavior and management
 Recognize the nature of managerial work and the roles played by managers.
 Identify the major challenges and opportunities to organizational behavior
 Differentiate the major disciplines that contributed towards the development of
organizational behavior

1.1 Historical Foundations of Organizational Behavior

As organizations increased in size and complexity, the need for human concern also
increased. Different management theorists studied employees’ needs and motives or

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behavior in an organization and the impact of employee behavior on productivity. Casual

or common sense approaches to obtaining knowledge about human behavior are
inadequate. Underlying the systematic approach is the belief that behavior is not random.
It is caused and directed towards some end that the individual believes rightly or
wrongly, is in his best interest. Behavior generally is predictable if we know how the
person perceived the situation and what is important to him/her. While people’s behavior
may not appear rational to an outsider, there is reason to believe it usually is intended to
be rational and it is seen as rational by them. Certainly there are differences between
individuals. Placed in similar situations all people do not act alike. However, certain
fundamental consistencies underlie the behavior of all individuals that can be identified
and then modified to reflect individual differences.

As coined by Luthans, the early management pioneers such as Henry Fayol, Henry Ford,
Alfred P. Salon and even the scientific management advocators at the end of the 19 th
century such as Frederic W. Taylor, recognized the behavioral side of management.
However, they did not emphasize the human dimension; they let it play only a minor role
in comparison with the roles of hierarchical structure, specialization, and the management
functions of planning, organizing, staffing, leading and controlling.

About the time of World War I, Fayol headed up what was at that time the largest coal
mining firm in Europe. Writing the generally considered first book in management, he
emphasized that the purpose of organization was to get the work done in specialized,
machine like functions. He did not emphasize that the organization is made up of people;
it is not a machine. Yet, perhaps, the most widely recognized management expert in
modern times, peter Druker, has stated, “The organization is, above all it is social. It is
people.” There are varied and complex reasons for the emergence of the importance of
the organization as social system, but it is the famous Hawthorne studies that provide
historical roots for the notion of a social organization made up of people and makes the
generally recognized starting point for the field of organizational behavior.

The historical background of organizational behavior can be learned by having a through

look at the following theories of management forwarded by various individuals. As

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forwarded by Mishra, these theories can be grouped into four main categories as Classical
Approach, Neo Classical Approach, Behavioral approach and Modern Approach.

1.1.1 Classical Approach

Theories developed at the early stages were included under classical approach. The
theories included in this category are bureaucratic, administrative, and scientific
approaches. They emphasize on the structural or functional factors. The classical
approach stresses on four S’s that is, structure, specialization, scalar principle, and the
span of control. This theory lays emphasis on the organizational structure. Moreover, it
treats employees as economic beings like machines and money. Their maximum
exploitation is suggested by applying the bureaucratic and coercive approach. Hire and
fire is the basic approach of this theory. It led to a dehumanized organizational structure
without considering the factors of flexibility and adaptability. The rules and regulations
become the governing factors. Specialization based on the division of labor, scalar chain
hierarchical organization, discipline, are the advantages of the classical approach. This
approach ignores the significance of human beings in organizational growth. There is an
absence of flexibility, adaptability, intrinsic rewards and personal attachment. Ignoring
initiative, innovation and changes is not beneficial for the health of an organization.

Among the categories of classical theories the most recognized one is the scientific
management theory. Hence, now let us have a brief look at scientific management theory
as forwarded by Frederic W. Taylor.

a) Scientific Management Theory

The scientific management theory was propounded by F.W.Taylor and was carried out by
Frank and Lillian Gilbreth, Henry L Gantt and Emerson. Taylor was considered as the
father of the principles of scientific management. His primary concern was to increase
productivity through greater efficiency in production and increase in payment for
workers. As to this approach, the personal talent of the manager guided the workers who
were motivated by bonus and monetary benefits. To this end, he tried to find out the basic
principles of management by using time and work study, detailed analysis, investigation
and planning of work allocation. It is known as scientific management because

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systematized knowledge is used for work allocation and assignment of specific jobs. The
slary, wages, etc are to be decided as per the work performance of individuals. Taylor
described how the scientific method could be used to define the “one best way” for a job
to be done.

The scientific management approach was concerned with the principles mentioned below
among others:
 developing a standard method of doing a job
 scientific selection of personnel
 assigning workers to jobs depending on their abilities
 training workers on the work method
 eliminating interruptions
 offering economic incentives
 specialization
 functional foremanship
 work order and
 coordination

1.1.2 Neo Classical Approach

The classical theories concentrated on discipline and the economic well being of people.
They ignored their morale and desires. Neo classical theories while accepting the merits
of classical theories have given more importance to human relations and behavioral
sciences. These theories modified, added, and extended the classical theories by realizing
the fact that management exists in social system wherein human factors have noteworthy
roles in performance. Employees can play crucial roles in decision making process
provided that they are allowed to take part. Human relations and behavioral science have
become two important approaches of neo classical theories.

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a) Human Relations:
This theory was developed by Elton Mayo and his colleagues from 1924 to 1932 at the
Hawthorne plant of western Electric Company. Below the Hawthorne study which was
conducted in four phases is described in brief.
Elton Mayo and His Hawthorne Experiment: without any question, the most important
contribution to the human relations movement within organizational behavior came out
of the Hawthorne studies undertaken at the western electric company. The four phases of
this study are:
1. The Illumination Experiments: this phase of the study revealed that light had
no significance impact on productivity of workers. The intensity of light did not
influence the productivity of telephone relays. Here attempts to predict behavior
were made by studying the relationship between physical variables in the work
environment such as illumination, rest periods, length of work weeks, length of
work periods, and employee productivity.
2. Relay Assembly Test: this one provided several facilities to telephone relay
assembly wherein it was observed that special attention and treatment caused
employees to increase their productivity. It was termed as the Hawthorne Effect,
where people feel the pride of belonging to a group. Herein, the relationship
between non physical variables such as improved human relations, supervisory
methods, social interaction, incentive systems, workers’ authority, and
productivity was studied.
3. Interviewing Programs: this one tested on human relations rather than on
favorable physical conditions. It revealed that employees are unwilling to answer
direct questions. They gave important clues towards management style when
asked indirectly.
4. The Bank Wiring Observation Room Experiments: here sufficient freedom
was given to the informal groups. It revealed that employees were not only
economic beings but social and psychological beings as well. Their productivity
was influenced by sentiments, beliefs and the group behavior of employees.

1.1.3 Behavioral Management Theory

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The proponents of behavioral school recognized employees as individuals with concrete

human needs as part of the work groups and as members of a large society. This theory
believes in interpersonal relations. It states that employees are assets that can be
developed not nameless robots expected to follow orders blindly.
F. Herzberg and V.Vroom suggested more rational models after Maslow who developed
the need hierarchy. Robbert Owen, a successful textile mill manager in Scotland, is
considered as the father of modern personnel management. He emphasized that
management should show concern for employees.

Abraham Maslow- a humanistic psychologist- proposed a theoretical hierarchy of five

needs; physiological, safety, social, esteem and self actualization needs. From a
motivation standpoint, he argued that each step in the hierarchy must be satisfied before
the next can be activated and that once a need is substantially satisfied, it no longer
motivates behavior. Mcgregor, Likert and others emphasized democratic values and
human motivation. Unlike the beliefs of classical theory, behavioral science believes that
human beings like work and but it should not be super imposed rather be self realized.

Some of the major contributions of the aforementioned theory are described below.
Individual behavior: behavior of individual employees has been considered
important in the field of management. Their behavior is influenced by their
respective feelings, perception, learning, and personality.
Group behavior: the cultural and social backgrounds of employees have a
significant role to play in management. People work together to accomplish the
corporate objective, i.e., group objectives.
Task: effective performance of a task is important while giving due importance
to coordinated efforts and achievement.
Participative management: employees have the right to take part in management
decisions. Giving such opportunities to workers in the management process will
help increase productivity and efficiency.
Motivation: monetary and non monetary incentives should be used for
motivating people. Employee development and worker satisfaction contribute
greatly to production.

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Communication: two way communications is essential to establish a common

flow of understanding in any organization. Formal and informal communication
is exercised for managing people, although informal communication has more
impact on management success. Group communication, team sprit, man to man
relations and group harmony have been realized by neo classical theorists.

1.1.4 Modern Approach

According to Mishara, the modern organizational theory has become complex for it
synthesizes the classical and neo classical theories, while incorporating technological
development. The modern theory is classified into quantitative, systems and contingency.

Quantitative Theory: this theory includes operations research and quantification of

the problem. It analyses the problem from quantifiable angles and provides solutions to
complex problems only with the help of statistical and mathematical models such as
linear and non linear programming, decision tree, game theory, simulation, probability,
and many others.

Systems Theory: a system is a set of interconnected and interrelated elements of

management activity. It is an arrangement of components of activities performed for
achieving certain objectives. Here the importance of considering an organization as
composed of different work units/ sections striving to achieve a common goal and
thereby the need of paying due attention to every unit is emphasized. According to this
approach, if one section of the organization fails to accomplish its tasks then the overall
wellbeing of the organization would be in jeopardy.

Contingency Management Theory: this theory is based on the premises that

managers prefer actions or approaches depending on the variables of the situation they
face. It recognizes that there is “no one best way” to manage people in organizations and
no single set of simple principles that can be applied universally. A contingency approach
to the study of organizational behavior is intuitively logical because organizations
obviously differ in size, objectives, and environmental uncertainty. Similarly, employees
differ in their values, attitudes, needs, and experiences. Therefore, it would be surprising

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to find that there are universally applicable principles that work in all situations, but it is
one thing to say “it all depends.”
�Quick Test Questions
1) The historical development of organizational behavior can be traced to four
categories of theories. Identify these categories along with their sub categories?
2) What are the four phases of Elton Mayo’s Hawthorne Experiment?
3) What is the essence of systems theory?

1.2 The Nature and Meaning of Organizational Behavior

As coined by Stephen P. Robbins, Organizational behavior (OB) is a field of study that
investigates the impact of individuals, groups, and organizational structure on behavior
within organizations for the purpose of applying such knowledge towards improving an
organization’s efficiency.

Let us break the definition down and see each term included in it thoroughly.
Organizational behavior is a field of study which means it is a distinct area of expertise
with a common body of knowledge. It studies three determinants of behavior in
organizations: individuals, groups, and structure. Moreover, organizational behavior
applies the knowledge gained about individuals; groups and the effect of structure on
behavior so as to enable organizations perform more effectively.

As per the definition forwarded by Mishra, “Organizational Behavior has been defined
as the knowledge of people’s behavior at work. It is meaningful solution to complex
human problems. Organizational behavior is the study and application of knowledge
about how people act within organization. It is a human tool for human benefits. It
applies to the behavior of people in all types of organizations.”

The behavior of people at work depends on numerous factors such as technology,

structure, group, social set up, and so on. The organizational structure has a significant
place in shaping the behavior of people. Technology helps in the performance of the job
in successful and systematic manner. Fred Luthans has rightly emphasized on behavior.

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“Organizational behavior is directly concerned with the understanding, prediction and

control of human behavior in organizations.” It is the study of the behavior of people to
improve the efficiency of organizations. The understanding and analysis of the behavior
of people helps in motivation to achieve the organization’s goals. The study of behavior
is essential because of the different nature of people. Besides individual differences,
people are whole persons and total human beings. Behavior is changed as a result of
motivation. Human dignity and ethics are observed in their behavior. An organization’s
internal environment, social environment, individual perception and learning, group
affiliations and technological developments are instrumental in shaping behavior.

Organizational behavior is the study and use of information relating to the behavior of
people at work. The majority of work takes place within the structured organization
wherein groups of individuals put in unified common effort in the environment. People
use technology to get work done for achieving the common objectives of the
organization. Therefore, organizational behavior concentrates on the individual, the
group, structure, technology, and environment.

To sum up, Organizational behavior is concerned with the study of what people do in an
organization and how that behavior affects the performance of the organization. It is
academic disciplines that can help managers make good decisions while working with
people in a complex and dynamic environment.

1.2.1 Developing an organizational behavior model

When organizational researchers study human behavior, they usually try to draw
conclusions about casual relationships of two (dependent & independent) variables-what
causes what.

According to Stephen P. Robbins, a model is an abstraction of reality; a simplified

representation of some real world phenomenon. There are three levels of analysis in
Organizational behavior. As we move from the individual level to the organization
systems level, we add systematically to our understanding of behavior in organizations.
The three basic levels are analogous to building blocks-each level is constructed on the

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previous model. Group concepts grow out of the foundation laid in the individual section;
we overlay structural constraints on the individual and group in order to arrive at
organizational behavior

Organizational System Level

Group Level

Individual Level

Figure 1.1 Basic organizational behavior model

1.2.1.1Dependent variables: are those which are caused by independent variables.

The primary dependent variables given by different scholars are; productivity,
absenteeism, turn-over and job satisfaction. We use these as the critical determinants of
human resource’s effectiveness in an organization.

a) Absenteeism: is failure to report to work. It is obviously difficult for an

organization to operate smoothly and to attain its objectives if employees fail to report to
their jobs. The work flow is disrupted and often important decisions must be delayed. In
organizations that rely heavily in assembly line technology, absenteeism can be
considerably more than disruption-it can result in a drastic reduction in quality of output,
and in some cases, it can bring about a complete shutdown of the production facility.
Levels of absenteeism beyond the normal range in any organization have a direct impact
on that organization’s effectiveness and efficiency. We can conceive of situations where
the organization may benefit by an employee voluntarily choosing not to come to work.
For instance, fatigue or excess stress can significantly decrease an employee’s
productivity .In jobs where an employee needs to be alert- surgeons and air line pilots are

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obvious examples- it may well be better for the organization if the employee does not
report to work rather than show up and perform poorly.

b) Productivity: an organization is productive if it achieves its goals, and does so by

transferring inputs to outputs at the lowest possible cost. As such, productivity implies a
concern for both efficiency and effectiveness. A hospital, for example, is effective when
it successfully meets the needs of its clients. It is efficient when it can do this at a low
cost. According to Mishara, the refined and improved behavior of employees has a direct
reflection on productivity. The effectiveness, efficiency, and economy of the organization
are observed at individual and group levels. An organization achieves effectiveness when
it achieves its goals. Efficiency relates to the wise utilization of available resources so as
to achieve the desired end state/goal.

C. Turnover: as coined by Robbins, a high rate of turnover in an organization means

increased recruiting, selection, and training costs. It can also mean a disruption in the
efficient running of an organization when knowledgeable and experienced personnel
leave and replacements must be found and prepared to assume positions of responsibility.
If the right people are leaving the organization-the marginal and sub marginal employees,
turnover can be positive. It may create the opportunity to replace an underperforming
individual with someone with higher skills or motivation, open up increased opportunities
for promotion, and add new and fresh ideas to the organization. But turnover often means
the loss of people the organization does not want to lose. All organizations, of course,
have some turnover. Turn over is for the good of the organization when low performing
workers are leaving and high performers come in.

d) Job satisfaction: is the difference between the amount of rewards workers receive
and the amount they believe they should receive. Unlike the previous three factors job
satisfaction represents an attitude rather than a behavior. In improved situation and group
behavior will increase the satisfaction of individuals. The expectations of the employees
are met. The difference between the amount of reward and its expectation is the level of
satisfaction. The quality of performance depends on the satisfaction of employees.
Individual satisfaction is the legitimate result of organizational behavior.

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1.2.1.2 Independent variables: is the presumed cause of some change in the

dependent variable. The major determinants of productivity, absenteeism, turnover and
job satisfaction are independent variables at different levels of organizational behavior
model. The independent variables influencing the organization’s model of behavior are
individuals, groups and the structure of the organization.

Individual Level Variables: people enter organizations with certain characteristics that
influence their behavior at work. The common ones include- personality characteristics,
value, attitudes and basic ability levels. Individuals having their own personalities,
preferences, values, attitudes and learning influence the work environment directly.
Management cannot control these variables; rather they have to use these factors for
effective performances. The degree of influences of these factors is studied with
perception, learning, and personality which will be discussed in the next chapter of this
module.

Group Level Variables: people’s behavior when they are in groups is different from
their behavior when they are alone. The individual in groups are expected to exhibit what
the group considers to be acceptable standard of behavior and the degree to which the
group members are attracted to each other. Group variables are important factors
influencing organizational behavior. A group has more impact than the sum of
individual’s contributions. Synergy (i.e. contribution of people in groups is more than the
sum total of the contributions of each individual) is obtained through group variables.
However, if group behavior is not controlled, it may damage more than the individual
employees.

Organization system variables/structural variables: just as groups are more

than the sum of their individual members; so are organizations more than the sum of their
member groups. The structures of an organization have their own functional relations.
Straight line communication and unity of command have disciplined behavior. Multiple
commands may create conflicts. Organizational behavior reaches its highest level of
sophistication when we add formal structure to our previous knowledge of individuals

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and group behavior. The design of the formal organization, technology and work
processes, and jobs; the organization’s human resource policies and practices (like
selection, training programs, performance appraisal methods); the internal culture and
levels of work stress all have an impact on the dependent variables.

�Quick Test Questions

1) Define what organizational behavior is all about.
2) Differentiate the three levels of basic organizational behavior model.
3) Can you mention situations where it may be better for the organization if an
employee does not report to work/absent from his/her regular job?

1.3 Organizational Behavior and Management

As stated earlier, organizational behavior applies the knowledge acquired about
individuals, groups and the effect of structure on behavior in order to make organizations
work more effectively. What people do in an organization shows their behavior and how
such behavior exhibited while on work affects, either positively or negatively, the
performance of the organization. Organizational Behavior is specifically concerned with
employment related situations. Management is working with and through individuals and
groups to accomplish organizational goals.

As Luthans stated, organizational behavior represents the human side of management, not
the whole of management. Other organized approaches to management include the
process, quantitative, systems, knowledge, and contingency approaches. In other words,
organizational behavior does not intend to portray the whole of management.

Agarwal, in his book titled” Organization and Management”, contends that management
is the integrating force in all organized activity. Whenever two or more people work
together to attain a common objective, they have to coordinate their activities. They have
to organize and utilize their resources in such away as to optimize the results. We are all
intimately associated with many kinds of organizations, like government, schools,
hospitals and many others which play a tremendous role in our life. Management is
concerned with the process of decision making and control over the actions of human

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beings for the expressed purpose of achieving predetermined goals. Management is very
broad which encompasses such functions as planning, organizing, staffing,
leading/directing and controlling whereas organizational behavior as stated above mainly
deals with the behavior of individuals and groups and the effect of structure on their
behavior. Hence, it can be said that organizational behavior is only some portion of
management.

Generally, management is there in every organization to:-

 Govern the actions of its members towards enhancing their productivity for the
attainment of organizational goals
 Create conducive work environment by encouraging appropriate work habits
(culture) among its members.
 Work with and through people for the common good of the members.
 Coordinate the efforts of the organization for higher performance level.
Thus, management uses organizational behavior to have the knowledge to be utilized in
organizational situations for solving work related social problems.

�Quick Test Question

1) Explain how organizational behavior and management are related?

1.4 Organizational Behavior and the Work Place

Organizational behavior is a discipline that can assist managers to make appropriate
decisions while working with and through individuals and groups in complex and
dynamic work place. Realities of the new work place include:
1. The work force is changing: managers in a work place must be prepared to deal
with a workforce with a change in diversity, ethnic, racial backgrounds, gender,
age, life style and abilities.
2. Consumer expectations are changing: in today’s market place only those
organizations that are able to deliver what customers want in terms of quality,
service and cost will prosper.
3. Organizations are changing: organizations are changing and will continue to
change in order to survive and prosper in a rapidly changing environment. Under

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different pressures nowadays we see organizations down sizing, forming

alliances, creating new structures, going global and employing more
technologies.

1.5 Managers and Organizational Behavior

Managers are those individuals who are in charge of ensuring the healthy operation of a
given unit/ organization by coordinating or integrating the various resources available.
Since they are responsible for the overall aspect of the unit they are heading, they should
clearly understand organizational behavior. Knowledge of organizational behavior
enables them to lead the unit effectively and efficiently. Managers need to develop their
interpersonal or people skill if they are going to be effective in their jobs.

Organizational behavior focuses on how to improve productivity, reduce absenteeism

turnover and increase employee job satisfaction. To develop valid generalization about
the behavior of people, organizational behavior uses systematic study to improve
behavior predictions that would be made from intuition alone. Since people are different,
we have to look at organizational behavior in a contingency framework using situational
variables to moderate cause effect relationships. Organizational behavior offers a number
of challenges and opportunities for managers.

Organizational behavior recognizes differences and helps managers see the value of work
force diversity and practice that may need to be made when managing in different
countries. It can also help managers learn to cope in a world of temporariness and
declining employee loyalty in terms of rapid and ongoing changes.

1.6 Organizations and Organizational Behavior

Mishra states that an organization is a social system wherein its members try to achieve
their private goals while achieving the organization’s goals. The seemingly contradictory
goals are resolved by effective organizational behavior. The organization, namely a unit,
a business company, government, army, a charitable institution or any association of
persons, has some objectives which are attained by organizing the activities of their
members. An organization is a structure, a process, and a relationship to achieve

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corporate objectives under the given environment. An organization is not static; rather it
is dynamic and ever changing as per the needs of society, its members, corporate
objectives and environmental changes. People form and develop organizations because
they are unable to achieve the desired goals individually. They evolve different types of
organizations according to their needs. An organization is a composition of people having
different authorities and responsibilities to utilize the existing resources for achieving the
organization’s objectives.

Robins asserts that an organization is a consciously coordinated social unit, composed of

two or more people, that functions on relatively continuous basis to achieve a common
goal or set of goals.

Mooney and Reiley defined an organization as “the form of human associations for
attaining common objectives.” The authority, responsibilities and the relationships
between and amongst the members of an organization are also part of organizational
function.

Hence, organizations are mechanisms through which many people combine their efforts
together to accomplish more than any one person could do alone. Since an organization is
a group of people working together to attain some common objectives, understanding,
managing and controlling the behavior of individuals as well as groups is highly
important to ensure the smooth operation of the unit and thereby realizing the set goals is
crucial for survival and growth of the organization. Therefore, it can be concluded that
organizations and organizational behavior, which deals the behavior of workers who
make up the organization, are closely linked. If there is organization, obviously the need
arises to have employees who will accomplish the objectives of the unit.

The organization as open system interacts with various factors operating in their
environment. They acquire different types of inputs from the environment and process
them into various forms of outputs which in return will be provided to the environment.
This implies the organization affects and is being affected by its environment. How well
it is doing can be recognized with the help of feedback which may come to the

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organization in the form of complaints, suggestions, showing loyalty and in many other
ways. This is depicted in the figure below.

Resources/ inputs
 human
 financial Transformation Output
As o
 material processes Products-goods & services
pen
 information
 facilities -Work activities
 equipments

Feedback
Open system organizations interact with their environment.

1.7 Nature of Managerial Work

As per Robbins, managers get things done through others. They make decisions, allocate
resources, and direct the activities of others to attain goals. If you do not know where you
are going, any road will get you there. Since organizations exist to achieve goals,
someone has to define these goals and the means by which they can be achieved.
Management is that someone.

In the early part of 1960’s Heneri Fayol wrote that all managers perform five
management functions- planning, organizing, commanding, coordinating and controlling.
Today, authors condensed these down to four- planning, organizing, leadership and
controlling.

In the late 1960’s Henry Mintizberg concluded that managers perform ten different
highly interrelated roles or sets of behaviors attributable to their jobs. The ten roles can be
categorized into three broad categories as follows:

1. Interpersonal Roles: all managers are required to perform duties that are ceremonial
and symbolic in nature. When the president of a university hands out diplomas at
commencement or a factory supervisor gives a group of high school students a tour of the

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plant, he or she is acting in figurehead role. The interpersonal roles consist of three sub
categories as indicated below:
a) Figurehead/symbolic head: as figurehead a manager is required to perform a
number of routine duties of legal or social nature. Example, attending official
ceremonies,
b) Leadership: here the manager is responsible for the motivation & direction of
subordinates. All mangers have a leadership role. It includes hiring, training,
motivating, and disciplining employees.
c) Liaison: in this case the manager maintains a network with important people and
groups. It is concerned with contacting outsiders who provide the manager with
information. They may be individuals or groups inside or outside the
organization. Example, acknowledgement of mail, external board work

2. Information Roles: all managers, to some degree, receive and collect information
from organizations and institutions outside their own. Typically, this is done through
reading magazines and talking with others to learn of changes or new things that may
affect his/her unit directly or indirectly. This role has got three important sub roles as
described below.
a) Monitor: a manager receives wide variety of information, serves as nerve center
of internal and external information of an organization. Example, handling all
mail and contacts categorized as concerned primarily with receiving information.
b) Disseminator: a manager transmits information received from outsiders or from
other subordinates to concerned parties. Examples include forwarding mail into
organization for informational purposes; verbal contacts involving information
flow to subordinates such as review sessions.
c) Spokes person: is concerned with transmitting and sharing relevant information
with outsiders by representing the organization. Examples include
communicating to interested parties an organization’s plans, actions, policies, and
the like.

3. Decisional Roles: all managers are required to make decisions. This role has four
important sub categories as stated below.

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a) Entrepreneurship: initiates and oversees new projects that will improve their
organization’s performance. Example, strategy and review sessions involving
initiation or design of improvement projects
b) Disturbance Handler- engages in resolving conflicts
c) Resource allocator: the manager is supposed to allocate various resources in an
efficient manner to various section/departments.
d) Negotiator: involves dealing with other parties representing the organization For
example, contract negotiation

Still another way of considering what managers do is to look at the skills or competencies
they need to successfully attain their goals. Three essential managerial skills are:-
1. Technical skill: encompasses the ability to apply specialized knowledge or
expertise.
2. Human skill: is about the ability to work with, understand and motivate other
people both individually or in groups.
3. Conceptual skill: is the mental ability to analyze and diagnose complex
situations. Decision making, for example, requires managers to spot problems,
identify alternatives that can correct them, evaluate these alternatives, and select
the best one.

�Quick Test Questions

1) Describe the three categories of informational role
2) As management is working with and through people, what skills do you
assume are important to managers holding various positions in a given
organizational structure?

1.8 Challenges and Opportunities for Organizational Behavior

There are a lot of challenges and opportunities to day for managers to use organizational
behavior concepts. Some of the more critical issues confronting managers for which
organizational behavior offer solutions or at least some meaningful insights towards
solutions are:

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1. Improving Quality and Productivity: most managers are confronting the

challenges to improve their organizations’ productivity and the quality of the
products and services they offer. Towards improving quality and productivity,
managers are implementing programs like Total Quality Management (TQM) and
Business Process Reengineering (BPR)-programs that require extensive employee
involvement. Today’s contemporary managers understand the success of any
efforts at improving quality and productivity must include their employees. These
employees will not only be a major force in carrying out changes but increasingly
will participate actively in planning those changes.

2. Improving people skill: since managers work with and get things done through
others, they must have good human skills to communicate, motivate and delegate.
Organizational behavior theories and concepts can help managers explain and
predict the behavior of people at work. In this regard, managers are required to
have the skills of effective listener, the proper way to give performance feedback,
how to delegate authority, and how to create effective teams.

3. Managing Work Force Diversity: one of the most important and broad based
challenges currently facing organizations across the globe is adapting to people
who are different. Organizations are becoming heterogeneous in terms of gender,
race, and ethnicity of their employees. But the term encompasses anyone who
varies from the so called norm. Managers should shift their philosophy from
treating every one alike to recognizing differences and responding to those
differences in ways that will ensure employee retention and greater productivity-
while, at the same time not discriminating. Diversity, if positively managed, can
increase creativity and innovation in organizations as well as improve decision
making by providing different perspectives on problems.

4. Responding to Globalization: management is no more constrained by national

borders. Globalization affects a manager’s people skills in at least two ways. First,
managers are increasingly likely to be assigned in foreign country. He/she will be
transferred to the employer’s operating division or subsidiary in another country.

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Once there, the manager has to manage a workforce that is likely to be very
different in needs, aspirations, and attitudes from the ones he/she were used to
back home. Second, even in one’s own country, managers find themselves
working with bosses, peers, and subordinates who were born and raised in
different cultures. What motivates you may not motivate them. While your style
of communication may be straightforward and open, they may find this style
uncomfortable and threatening. This suggests that if a manager has to work
effectively with these people, he needs to understand their culture, how it is
shaped them, and learns to adapt your management style to these differences.

5. Empowering People: nowadays managers put employees in charge of what they

do previously. They act as coaches, advisers, sponsors, or facilitators; apart from
acting as bosses. In many organizations employees are becoming associates and
there is a blurring between the roles of managers and workers. Decision making is
being pushed to the operating level, where workers are being given the freedom to
make choices about schedule, procedures, and solving work related problems.
Managers encourage their employees to participate in work related decisions.
Now managers are going considerably further by allowing employees’ full control
of their work.
6. Stimulating Innovation and Change: employees can be the impetus for
innovation & change or they can be a major stumbling block. The challenge for
the manger is to stimulate employees’ creativity and tolerance for change.
Today’s successful organizations must foster innovation and master the art of
change or they will become candidates for extinction. Victory will go to those
organizations that maintain their flexibility, continually improve their quality and
beat their competition to the market place with a constant stream of innovative
products and services.

7. Coping with Temporariness: managers have always been concerned with

change. What is different nowadays is the length of time between change
implementations. They are required to deal with flexibility, spontaneity, and

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unpredictability. Managing today would be more accurately described as long

periods of ongoing change, interrupted occasionally by short periods of stability.
The world that most managers and employees face today is one of permanent
temporariness. Workers need to continually update their knowledge and skills to
perform new job requirements.

8. Declining Employee Loyalty: corporate employees used to believe their

employers would reward their loyalty and good work with job security, generous
benefits, and pay increases. But in response to global competition, unfriendly
takeovers, leveraged buyouts, and the like, corporations began to discard
traditional policies on job security, seniority, and compensation. On the other
hand, these changes have resulted in a sharp decline in employee loyalty. An
important challenge for managers would be to devise ways to motivate workers
who feel less committed to their employers while maintaining global
competitiveness.

� Quick Test Question

How would you respond if you were assigned as a leader of certain team that
is concerned with improving quality and productivity of their unit?

1.9 Disciplines that Contributed to Organizational Behavior

Organizational behavior is an applied behavioral science that is built on contributions
from a number of disciplines such as psychology, sociology, social psychology,
anthropology and political science.

1. Psychology: is the science that seeks to measure, explain, and sometimes change
the behavior of human and other animals. Psychologists concern themselves with
studying and attempting to understand individual behavior. Those which
contributed and continue to contribute to the knowledge of organizational
behavior include learning, motivation, personality, perception, counseling
psychologist, and most important, industrial and organizational psychologist.

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2. Sociology: whereas psychologists focus their attention on the individual,

sociologists study the social system in which individuals fill their roles; that is,
sociology studies people in relation to their fellow human beings. Specifically
sociologists have made their greatest contribution to organizational behavior
through their study of group behavior in organizations, particularly formal and
complex organizations. The following are among the major contributors to
organizational behavior. Group dynamics, work teams, communication, power,
conflict, inter group behavior and others.
3. Social psychology: is an area with in psychology, but blends concepts from both
psychology and sociology such as behavioral change, attitude change group
processes and so on.
4. Anthropology: it studies societies to learn about human beings and their
activities. The work of anthropologists on cultures and environments, for instance,
has helped us understand differences in fundamental values, attitudes and between
people in different countries and within different organizations. It focuses on
comparative values and attitudes cross cultural analysis, organizational culture
and environment.
5. Political science: this one deals with the behavior of individuals and groups with
in a political environment. Areas such as conflict, intra- organizational politics,
power and others are investigated here.

Chapter Summary
After World War I, experts began paying attention to the human side of organizations.
The famous Hawthorne study provided historical roots for the notion of social
organization that is made up of people. It is generally believed that the Hawthorne study
gave rise to the beginning of the filed of organizational behavior. The historical
development of organizational behavior can be traced to four schools of thought, viz. the
classical approach, the neo classical approach, the behavioral approach and modern
approach.

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Organizational behavior can be defined as a filed of study that investigates the impact of
individuals, groups, and organizational structure on behavior within organizations for the
purpose of applying such knowledge towards improving an organization’s efficiency. It is
the knowledge of people’s behavior at work. The behavior of people at work depends on
such factors as technology, structure, group, social setup and others. There are three
levels of analysis in organizations behavior, that is, individual, group and organizational
level. Organizational researchers while studying human behavior tried to draw
conclusions about casual relationships of two variables-dependent and independent.
Accordingly, the primary dependent variables given by different scholars are
absenteeism, productivity, turn over and job satisfaction. The independent variables
include individual level variables, group level variables and organizational system
variables.

Management is there in every organization to govern the actions of its members towards
enhancing their productivity, create conducive work environment and coordinate the
efforts. An organization is an open system that interacts with various forces operating at
its environment. Managers play ten different but highly interrelated roles and these roles
can be grouped into three as interpersonal, informational and decisional roles.
Organizational behavior is an applied behavioral science that is built on contributions
from such disciplines as psychology, sociology, social psychology, anthropology,
economics, and political science.

Self Check Exercise 1

Choose the best answer among the alternatives given
1. Which one of the statements below is false?
A. The classical approach treats employees as economic beings like machines
and money.
B. The classical approach includes bureaucratic, administrative and scientific
approaches
C. F. W. Taylor’s primary concern was to increase productivity through greater
efficiency in production and increase payment for employees.

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D. Taylor described how the scientific method could be used to define “one best
way” for a job to be done.
E. None of the above
2. The phase of Hawthorne study in which the relationship between physical variables in
the work environment such as illumination, rest periods, length of work hours, length
of work weeks, and employee productivity is studied is
A. Relay assembly test D. Interviewing program
B. The illumination experiment E. B&C
C. The bank wiring observation room experiment
3. ______ theory states that employees are assets that can be developed; not nameless
robots expected to follow orders blindly.
A. Scientific management theory
B. Behavioral management theory
C. Contingency theory of management
D. Systems theory
E. None
4. Identify the incorrect statement among the following
A. Quantitative theory analyzes organizational problems from quantifiable angels
and provides solutions to complex problems with the help of statistical and
mathematical models.
B. An organization can be considered as a system composed of different work
units operating towards the achievement of common goal
C. Organizational behavior is the study and application of knowledge about how
people act within organizations.
D. Systems theory contends that there is no ‘one best way’ to manage people in
organizations
E. None
5. Which one of the following is not a dependent variable?
A. Absenteeism C. personality
B. Turnover D. Job satisfaction E. Productivity

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6. Realities of the new work place is manifested through

A. Changing consumer expectations C. Changing organizations
B. Changing workforce D. All of the above E. Only B&C
7. All the statements below are true except____
A. Mangers need to develop their interpersonal or people skill if they want to be
effective in their jobs.
B. Organizational behavior focuses on how to improve productivity, reduce
absenteeism and turnover and increase employee job satisfaction
C. An organization is not dynamic; rather it is static
D. Organizations are mechanisms through which many people combine their
efforts together to accomplish more than any one person could do alone.
E. None
8. A manager who hands over certificates to individuals who actively participated in the
establishment of a company at the time of its opening ceremony is playing the role of
A. Leadership C. Spokes person
B. Liaison D. Figure head E. Monitor
9. A discipline that contributed towards the development of organizational behavior and
which manly seeks to measure, explain, and sometimes change the behavior of
human and other animals is
A. anthropology C. psychology
B. sociology D. political science E. social psychology
10. The challenges and opportunities for organizational behavior include
A. managing workforce diversity
B. responding to globalization
C. empowering people
D. coping with temporariness
E. all of the above

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CHAPTER TWO
UNDERSTANDING AND MANAGING BEHAVIOR

Introduction
Dear student, welcome to the second chapter of the module! Here two important issues
will be addressed. The first part deals with individual behavior, whereas the second part
emphasizes on group behavior. In the first section, foundations of the individual behavior
which include biographical characteristics, ability, personality and learning will be
discussed and next, perception, values, attitudes and job satisfaction will be taken care of.

In the second part of the chapter, you will be introduced to group behavior that
incorporates what a group is, its types, reasons for its formation, stages of its
development, and factors that determine group performance and satisfaction. Enjoy
reading each section sequentially.

Learning Objectives:
After completing the study of this chapter, you should be able to
 know the foundations of individual behavior
 comprehend what perception is and identify those factors that allow a stimuli
to be perceived or not
 realize the major factors that may distort our perception on others and
appreciate their role in individual as well as organizational life
 differentiate among values, attitudes and job satisfaction
 define what a group is and identify the reasons why people join groups
 know the types of groups and the stages of group development
 list down group member resources

2.1. The Individual Behavior

The outcomes of an organization depend partly on how its individual members behave.
Thus, it is important to understand individual behavior. According to Agarwal, a manger
has to deal with a large number of people inside as well as outside his organization.

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Inside his organization, he interacts with his subordinates, peers, and superiors. He has to
get things done through and with his subordinate, seek the cooperation and support of his
peers for his job performance, and constructively respond to the initiatives of his
superiors. Outside the boundaries of his organization, he has to deal with a large number
of people including customers, suppliers, competitors, legislators, public officials, etc.
His success as a manager significantly depends on his ability to get the desired responses
from the people with whom he deals.

In order to achieve his ends with and through others, he must understand why people
behave as they do, why they act, react, and respond the way they do. This understanding
of the causation of behavior will help him in two ways. First, it will help him in being
able to predict the actions, reactions, and responses of others to his initiatives, and to
environmental stimuli. For example, let us assume that a manager wants one of his
subordinates to finish some urgent work even if he has to stay after office hours. Before
initiateing this request or order, the manager will like to predict the subordinate’s
response. Will he, or will he not comply with it; and if he will comply, will he do so
willingly or unwillingly? Or, if will not, why will not he do it? This will help the manager
in formulating his strategy for dealing with the subordinate. Similarly, if he wants to ask
his superior for additional office space, he ought to anticipate or predict his response.
Such predictions of responses of people with whom a manager deals help him in
formulating effective strategy for dealing with people.

Second, a manager has also to influence other’s behavior in order to achieve his ends. In
our daily lives, we are most of the time directly or indirectly, consciously or
unconsciously trying to influence the behavior of the people with whom we interact. We
try to make these others think, believe, do or not do things to the end of serving our own
ends. A manager does the same thing because he needs others’ help and coordination for
his success. In relation to his subordinates, it is his responsibility as a leader to influence
their behavior so as to optimize their contribution to the organization, and minimize their
dysfunctional and negative behavior. He also needs to influence the behavior of his peers
in order to secure from them their contribution and support for his effective performance.

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He is also required to influence his superiors’ behavior and policies in such away that he
gains their favor and other things which he wants.

Understanding human behavior with the objective of predicting and influencing it is as

difficult as important it is to the manager. However, some generalizations have been
developed about human behavior which helps us in gaining its understanding.

2.1.1 Foundations of the Individual Behavior

Our behavior is somewhat shaped by our personalities and the learning experience we
have encountered. In this section four individual level variables-biographical
characteristics, ability, personality and learning- will be discussed. Finally, how these
variables affect employee performance and satisfaction will be addressed.

a. Biographical characteristics
These are personal characteristics such as age, sex, and marital status as well as the
length of the service.
1. Age: seems to have no relationship with productivity. Older people and those with
longer tenure are less likely to resign. In other words, the older you get; the less
likely you are to quit your job. This is true because as workers get older, they
have fewer alternative job opportunities and also older workers are less likely to
resign because their longer tenure tends to provide them with higher wage rates,
longer paid vacations, and more attractive pension benefits. Generally, older
employees have lower rates of avoidable absence than do younger employees.
However, they have higher rates of unavoidable absence. This is probably true
due the poorer health associated with aging and the longer recovery period that
older workers need when injured.

2. Marital Status: there are not enough studies to draw any conclusions about the
effect of marital status on productivity. But consistent research indicates that
married employees have fewer absence, turnover and reporting higher job
satisfaction than do unmarried ones. This information can help managers in

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making choice among job applicants. Marriage imposes increased responsibilities

that may make a steady job more valuable and important.

3. Number of Dependents: strong evidence indicates that the number of children an

employee has is positively correlated with absence, especially among females.
Similarly, the evidence seems to point to a positive relationship between number
of dependents and job satisfaction. In contrast, studies relating number of
dependents and turnover produce mixed results. Some indicate that children
increase turnover; others show that they result in lower turnover.

4. Tenure: extensive reviews of the seniority-productivity relationship have been

conducted. While past performance tends to be related to output in a new position,
seniority by itself is not a good predictor of productivity. In other words, holding
all other things equal, there is no reason to believe that people who have been on a
job are more productive than those with less seniority. As to the relationship
between tenure to absence is quite straight forward. Studies consistently
demonstrate seniority to be negatively correlated to absenteeism. Research also
indicates that tenure on an employee’s previous job is a powerful predictor of that
employee’s future turnover.

b. Ability: Ability refers to an individual’s capacity to perform the various tasks in a

job. Everyone has strengths and weaknesses in terms of ability that make him/her
relatively superior or inferior to others in performing certain tasks or activities. The issue
from management’s point of view is to know how people differ in abilities and using that
knowledge to increase the likelihood an employee will perform his or her job well.

Jobs differ in the demands they place on incumbents to use their intellectual abilities.
Generally speaking, the more information processing demands that exist in a job, the
more general intelligence and verbal abilities will be necessary to perform the job
successfully. The specific intellectual or physical abilities required for adequate job
performance depend on the ability requirements of the job. Ability directly influences an

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employee’s level of performance and satisfaction through ability – job – fit. Ability – job
– fit can be ensured by employing the following methods.
1. by ensuring effective selection process
2. Conducting promotion and transfer decisions affecting individual employees in
organization according to abilities of candidates.
3. By fine – tuning the job to better match an incumbent’s abilities
4. By providing training for employees

c. Personality: as coined by Luthans, through the years there has not been universal
agreement on the exact meaning of personality. Much of the controversy can be attributed
to the fact that people in general and those in the behavioral science in particular define”
personality” from different perspectives. Personality means how people affect others and
how they understand and view themselves, as well as their pattern of inner and outer
measurable traits and the person- situation interactions.

Robbins asserts that personality is the sum total of ways in which an individual reacts and
interacts with others. Though not the only factor, heredity plays an important part in
determining an individual’s personality. Factors that exert pressures on our personality
are the culture in which we were raised, the norms among our family, friends and social
groups. An individual’s personality is now generally considered to be made up of both
heredity and environmental factors, moderated by situational conditions.

Heredity refers to those factors that were determined at conception. Physical stature,
facial attractiveness, sex, temperament, muscle composition, and reflexes, energy level,
and biological rhythms are characteristics that generally considered to be either
completely or substantially influenced by who your parents were, that is, by their
biological, physiological, and inherent psychological makeup.

The environment we are exposed to plays a substantive role in shaping our personalities.
For example, culture in which we are grown up establishes our norms, attitudes, and
values that are passed along from one generation to the next and create consistencies over

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time. An ideology that is intensely fostered in one culture may have only moderate
influence in another.

Popular characteristics include shy, aggressiveness, submissive, lazy, ambitious, loyal,

and timid. These characteristics, when exhibited in a large number of situations are called
personality traits. The more consistent the characteristics and the more frequently it
occurs in diverse situations, the more important that traits is in describing the individual.
In recent years, an impressive body of research supports that five basic personality
dimensions underlie all others. They are referred to as the Big Five Factors. They are:
 Extraversion: sociable, talkative, assertive
 Agreeableness: good-natured, cooperative, and trusting
 Conscientiousness: responsible, dependable, persistent, and achievement oriented
 Emotional stability: calm, enthusiastic, secure(positive) to tense, nervous,
depressed, and insecure(negative)
 Openness to experience: imaginative, artistically sensitive, and intellectual.

The major personality attributes influencing organizational behavior include:

 Locus of control: some people believe that they are masters of their own fate.
Others see themselves as pawns of fate; believe that what happens to them in their
lives is due to luck or chance. The first types, those who believe they control their
destines, have been labeled as internals, whereas the latter, who see their lives as
being controlled by outside forces, are called externals.
 Machiavellianism: an individual who is high in Machiavellianism is pragmatic,
maintains emotional distance, and believes that ends can justify the means.
 Self Esteem: people differ in the degree to which they like or dislike themselves.
This trait is called self esteem.
 Self Monitoring: this refers to an individual’s ability to adjust his or her behavior
to external, situational factors.
 Risk Taking: people differ in their willingness to take risks. This propensity to
assume or avoid risk has been shown to have an impact on how long it takes

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managers to make a decision and how much information they require before
making their choices.
d. Learning: as affirmed by Robbins, learning is any relatively permanent change in
behavior that occurs as the result of experience. It is the process by which people acquire
the competencies and beliefs that affect their behavior in organizations. Ironically, we can
say that changes in behavior indicate learning has taken place and that learning is a
change in behavior.

Mishra opined that learning is the process by which individuals acquire the knowledge
and experience to be applied in future behavior. The learning process may be intentional
or incidental. It encompasses the total learning process from the beginning of life to its
end, going through reflexive responses to knowing abstract concepts and complex
problems solving. The learning process involves motivation, cues, responses and
reinforcement. Motivation acts as a spur to learning. Motivation decides the degree of
involvement for the search of knowledge. The learning starts with motivation which is
given direction by cues. Motives are stimuli, while cues are attention and recognition of
the stimuli for learning. Cues guide employees to behave in the right way. If behavior is
shaped through the learning process, the response is visible. Response accepted for
behavior becomes reinforcement, which moulds the behavior of employees. If an
employee is motivated to learn about computers, he tries to find out the cues of its uses in
employment. Getting favorable cues, he responds to learning. With constant
reinforcement of computer operation, he acquires the changed behavior of computer.

The Learning Process

The outcome of learning is a permanent change in behavior. Therefore, learning is a
permanent change in behavior as result of a cognitive process. A temporary change in
behavior is not learning because it is purely reflexive. Change in behavior is the
necessary outcome of learning. It is purely theoretical or attitudinal, it would not be
learning. A cognitive change process in the mind of an employee resulting in behavioral
change is learning. Learning is the process by which an activity originates or is changed
by reacting to an encountered situation, provided that the characteristics of the change in

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activity cannot be explained on the basis of native response tendencies, maturation or

temporary states of the organism.
Behavior is learned through a cognitive process. It is not a spontaneous and natural
process. Hence, a learning process is a mental and habit formation process. Attention is
paid to certain stimuli used for learning which are recognized and transited into
reinforcement and behavior. The learning process is depicted in the figure below.

Stimuli Attention Recognition Translation

Reinforcement

Behavior

Efforts Motives Habit Reward

Figure 2.1The Learning Process: Adopted from S.P.Robbins: ‘Organizational Behavior’,

Prentice Hall of India, 1996, P.105.

Below each of the elements included in the above figure are briefly described for easy
understanding of the matter.
1. Stimuli: are any objects and language which draw the attention of people. The
stimuli available at work are numerous. Social, political, cultural, and
geographical factors provide varieties of stimuli for learning.
2. Attention: the degree of attention depends on the nature of stimuli. All stimuli
are not paid attention to. The personality level of employees influences their
desires to learn, motives for need fulfillment and tension reduction. Attention is
the allocation of our mental capacity to various stimuli that take place in our
surroundings.

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3. Recognition: attention paid stimuli is recognized as acceptable factors of

improvement and new life styles. The level of recognition depends upon the
levels of values, preferences, needs, and desires of the employee.
4. Translation: recognized stimuli are evaluated at the mental level to eliminate the
irrelevant points for accepting a part of the stimulus for changing behavior. The
evaluation and appraisal of the recognized stimuli helps in reinforcement.
5. Reinforcement: perception itself is not learning unless it is reinforced. Repeated
action is reinforced. Reinforcement can be positive, negative, punishment or
extinction.
6. Behavior: employees expect rewards for learning. If the translated behavior
provides a reward, it is accepted; otherwise, it is not accepted.
7. Habits: a permanent change in behavior becomes a habit which helps continuous
improvement in behavior and performance. Habits help the development of
capability and capacity of employees.
8. Motives: depend on the level of satisfaction. Employees getting more satisfaction
through learning develop high motives while less satisfied learners have low
motives.
9. Efforts: habits help achieve good efforts and performance. This is a continuous
process. Efforts are the automatic outcomes of good habits which are acquired
through the learning process.

� Quick Test Questions

1. A manager has to deal with people inside as well as outside his organizations.
Identify those individuals with whom a manager interacts inside and outside his
organization.
2. What is perception is all about?
3. Identify four individual level variables that are assumed to be foundations of his/
her behavior.
4. What are the components of the learning process?

2.1.2. Perception and the Individual Behavior

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Perception can be defined as a process by which individuals organize and interpret their
sensory impressions in order to give meaning to their real environment. However,
perception is not necessarily the same as reality, nor is the perception of two people
necessarily the same. This means what one perceives can be substantially different from
objective reality. Perception is a way of forming impressions about oneself, other people
and daily life experience. People respond to situations in terms of their perception.

The perceiver, the target, and the situation are among the major factors that influence
perception. For example, have you ever bought a new jacket and then suddenly notice a
large number of people wearing like your jacket on the road? That is not because all those
individuals got their jacket by donation at once but your own purchase has influenced
your perception so now you are more likely to notice them. Characteristics in the target
that is being observed can affect what is perceived. Loud people are more likely to be
noticed in a group than quiet ones. So, too, are extremely attractive or unattractive
individuals. Again the situation affects our perception. The time at which an object or
event is seen can influence attention, as can location, light, heat or any number of
situational factors.

Luthans opines that the key to understand perception is to recognize that it is unique
interpretation of the situation, not an exact recording of it. In short, perception is a very
complex cognitive process that yields a unique picture of the world, a picture that may be
quite different from reality. Applied to organizational behavior, an employee’s perception
can be thought of as a “filter.” Because perception is largely learned, not one has the
same learning and experiences, then every employee has a unique filter, and the same
situation/stimuli may produce very different reactions and behaviors.

Numerous stimuli are constantly confronting everyone. The noise of the air conditioner
or printer, the sound of people talking and moving, and outside noises from cars, planes,
or street repair work are a few of the stimuli affecting the senses plus. Sometimes the
stimuli are below the person’s conscious threshold, a process called subliminal
perception. With all these stimuli impinging on people, how and why do they select out

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only a very few stimuli at a given time? Part of the answers can be found in the principles
of perceptual selectivity which are described as follows:
1. Intensity: this principle states that the more intense the external stimuli, the
more likely it is to be perceived. A loud noise, strong odor, or bright light will
be noticed more than a soft sound, weak odor, or dim light. Advertisers use
intensity to gain the consumers’ attention.
2. Size: this principle states that the larger the object, the more likely it will be
perceived. The largest machine sticks out when personnel view a factory
floor.
3. Contrast: states that the external stimuli that stands out against the
background or that are not what people are expecting will receive attention.
4. Repetition: as to this principle, a repeated external stimulus is more attention
getting than a single one. Thus, a worker will generally ‘hear’ better when
directions are given more than once.
5. Motion: people will pay more attention to moving objects in their field of
vision than they will to stationary objects.
6. Novelty and Familiarity: this principle states the novel and familiar external
situations can serve as an attention getter. New objects or events in familiar
setting or familiar objects or events in a new setting will draw the attention of
the perceiver.

Factors That May Distort our Judgment on Others

In this section the major factors that may distort our judgment on others like selective
perception, hallo effect, contrast effect, projection, and stereotyping will be discussed.

1. Selective perception: any characteristic that makes a person, object, or event stand out
will increase the probability it will be perceived. Why? Because it is impossible for us to
assimilate everything we see-only certain stimuli can be taken in. Since we can not
observe every thing going on about us, we engage in selective perception. We selectively
interpret what we see on the basis of our interests, attitudes, background and experiences.
For example, we are more likely to notice items like our own. Generally, individuals

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perceive what they want to perceive not everything they come across in their
surroundings.
2. Hallo Effect: is concerned with drawing general impressions about an individual in the
basis of a single character. When we draw a general impression about an individual based
on a single characteristic such as intelligence, sociability, or appearance, a halo effect is
operating. Hallo effect is operating when interviewers make an error in judging a
person’s total personality and/or performance on the basis of a single positive trait such
as intelligence, appearance, dependability, or cooperativeness.

3. Contrast Effects: we do not evaluate a person in isolation. Other persons we have

encountered influence our reaction to one person. An illustration of how contrast effects
operate is an interview situation in which one sees a pool of applicants. Distortions in any
candidate’s evaluation can occur as result of his or her place in the interview schedule.
The candidate is likely to receive a more favorable evaluation if preceded by mediocre
applicants, and a less favorable evaluation if preceded by strong applicants.

4. Projection: it is easy to judge others if we assume they are similar to us. For instance,
if you want challenge and responsibility in your job, you assume others want the same.
People who engage in projection tend to perceive others according to what they
themselves are like rather than according to what other people being observed is really
like. We assume that others are similar to us. For example, if manager is trust worthy, he
may also treat his subordinates as if they were trustworthy.

5. Stereotyping: is judging some one on the basis of one’s perception of the group to
which he/she belongs. Generalization is a means of simplifying a complex world.
Assume that you want to hire someone who is ambitious, hardworking, who can deal well
with adversity. You have had good success in the past by hiring individuals who
participated in athletics during college. So you focus your search by looking for a
candidate who participated in college athletics. In so doing, you have cut down
considerably on your search time.

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Stereotyping is based on an ideal situation or the type of impression formed about the
group. It is the consideration of individual’s characteristics as being representative of the
whole group. According to it, if an employee is found to well behaved, the whole group
of employees is considered to be good.

2.1.3. Values, Attitudes and Job Satisfaction

a. Values: can be defined as broad principles or preferences concerning appropriate
courses of actions or outcomes. Values reflect the person’s sense for rights and wrong or
what ought to be. For example, equal rights for all. Values represent basic convictions
that “a specific mode of conduct or end-state of existence is personally or socially
preferable to an opposite or converse mode of conduct or end-state of existence.” Values
contain a judgmental element in that they carry an individual’s ideas about what is right,
good or desirable.

Mishra asserts that values are the basic convictions which lead to formation of conduct or
social preferences. Values are a combination of different attitudes and attributes of
individuals. They help employees decide what is right, good, desirable, favorable, and so
on. Values are a code of conduct developed by an individual and the social system.
Values show the importance we attach to something. Honesty, self respect, equality,
sincerity, obedience, trustfulness, etc are various examples of values. Values are
significant in organizational behavior. Employees behave properly if they give
importance to values. Learning helps employees develop high values and favorable
behavior.

Values have both content and intensity attributes. The content attribute says that a mode
of conduct or end state of existence is important. The intensity attribute specifies how
important it is. When we rank an individual’s values in terms of their intensity, we obtain
that person’s value system. All of us have a hierarchy of values that forms our value
system. This system is identified by the relative importance we assign to such values as
freedom, pleasure, self respect, and equality. Values generally influence attitudes and
behavior. Suppose you enter an organization with the view that allocating pay on the

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basis of performance is right, where as allocating pay on the basis of seniority is wrong or
inferior. How are you going to react if you find the organization you have just joined
rewards seniority and not performance? You are likely to be disappointed and this can
lead to job dissatisfaction and the decision not to exert a high level of effort.

Allport and associates identified six types of values in their effort to categories values.
They are described as follows:
1) Theoretical: places high importance on the discovery of truth through a critical
and rational approach.
2) Economic: emphasizes the useful and practical aspects
3) Aesthetic: places the highest values in form and harmony.
4) Social: assigns the highest value to the love of people.
5) Political: places emphasis on acquisition of power and influence.
6) Religious: is concerned with unity of experiences and understanding of the
cosmos as a whole. Using this approach, it’s been found that people in different
occupations place different importance on the six value types.

Milton Rokeach has also classified values into two categories.

a) Terminal values: refers to desirable end states of existence. These are the goals a
person would like to achieve during his/her life time.
1. Instrumental values: refers to the means of achieving the terminal values.

Maglino and associates categorized values at work places as follows:

1. Achievement: getting things done and working hard to accomplish different
things in life.
2. Helping and concern for others: being concerned with other people and helping
others.
3. Honesty: letting the truth and doing what you feel is right.
4. Fairness: being impartial and doing what is fair for all concerned.

b. Attitudes: Like values, attitudes are important organizational behavior component.

Attitudes are evaluative statements either favorable or unfavorable concerning objects,

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people or events. They reflect how one feels about something. When someone says “I
like my job,” he/she is expressing his/her attitude about the work. An attitude is
predisposition to respond in a positive or negative way to some one or something in one’s
environment. In contrast to values, your attitudes are less stable.

Beliefs and values create attitudes that predispose behavior.

There are three components of an attitude: cognition, affect, and behavior. The belief that
“discrimination is wrong” is a value statement. Such an opinion is the cognitive
component of an attitude. It sets the stages for the more critical part of attitude- its
effective component. Affect is the emotional or feeling segment of an attitude and is
reflected in the statement “I do not like Kebede because he discriminates against
minorities.” Finally, affect can lead to behavioral outcomes. The behavioral component
of an attitude refers to an intention to behave in certain way toward someone or
something. So, the above individual may say “I want to stop the relationship between me
and kebede because of my feeling about him.”

Types of Attitudes
A person can have thousands of attitudes, but organizational behavior focuses on a very
limited number of job related attitudes. These job related attitudes tap positive or negative
evaluations that employees hold about aspects of their work environment. Below the
major job related attitudes including job satisfaction, job involvement, organizational
commitment and organizational citizenship are discussed.

a) Job satisfaction: the term job satisfaction refers to an individual’s general attitude
towards his/her job. A person with a high level of job satisfaction holds positive
attitudes towards the job; a person who is dissatisfied with her/ his job holds negative
attitude about the job. This will be discussed in detail latter.

b) Job Involvement: this term is a more recent addition to the organizational behavior
literature. It measures the degree to which a person identifies psychologically with his
or her job and considers his/ her perceived performance level important to self worth.

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Employees with a high level of job involvement strongly identify with and really care
for the kind of job they do.

c) Organizational Commitment: it is defined as a state which an employee identifies

with a particular organization and its goals, and wishes to maintain membership in the
organization. So high job involvement means identifying with one’s specific job; high
organizational commitment means identifying with one’s employing organization.
For example, an employee may be dissatisfied with his or her particular job and
considers it as a temporary condition, yet not be dissatisfied with the organization as a
whole.

d) Organizational citizenship: refers to the behavior that contributes to the well-being

of the organization. Organizational citizenship behavior results from job satisfaction.
It involves more than just performing your job.

Measuring Job satisfaction

There are various ways of measuring job satisfaction. The two most widely used
approaches are a single global rating and a summation score made up of a number of job
facets. Below these two methods are described.

1. The Single Global Rating: involves asking an individual to respond to one question
such as “All things considered, how much satisfied are you with your job?”
Respondents then reply by circling a number between 1and 5 that corresponds with
answers from “highly satisfied” to “highly dissatisfied” as indicted below.
5- Highly satisfied
4-reasonably satisfied
3-satisfied
2-dissatisfied
1- highly dissatisfied
The other approach, a summation of job tests, is more sophisticated. It identifies key
elements in a job and asks for the employee’s feeling about each. Typical factors that
would be included are the nature of the work, supervision, present pay, promotion

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opportunities, and relation with coworkers. These factors are rated on a standardized
scale and then added up to create an overall job satisfaction score.

Determinants of Job Satisfaction

 Mentally challenging work: employees tend to prefer jobs that give them
opportunities to use their skills and abilities and offer a variety of tasks, freedom,
and feed back on how well they are doing. These characteristics make work
mentally challenging. Jobs that have too little challenge create boredom, but too
much challenge creates frustration and feelings of failure. Under conditions of
moderate challenge, most employees will experience pleasure and satisfaction.
 Equitable rewards: employees want pay systems and promotion polices that they
perceive as being just, unambiguous, and in line with their expectation. When pay
is seen as fair based on job demands, individual skill level, and community pay
standards, satisfaction is likely to result.
 Supportive working conditions: employees are concerned with their work
environments for both personal comfort and facilitating doing a good job. Most
employees prefer working relatively close to home in clean and relatively modern
facilities and with adequate tools and equipment.
 Supportive colleagues: For most employees work does not only satisfy financial
needs but also the need for social interaction. Thus, having friendly and
supportive coworkers lead to increased job satisfaction. Employee satisfaction is
increased when the immediate supervisor understands and friendly, offers praise
for good performance, listens to employee’s opinions and shows a personal
interest.
 Personality – job – fit: people with personality types congruent with their chosen
vocations should find they have the right talents and abilities to meet the demands
of their jobs are more likely to be successful on those jobs and because of this
success have a grater probability of achieving high satisfaction from their work.

The Effect of Job Satisfaction on Employee Productivity

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1. Job satisfaction and productivity: Productivity leads to satisfaction. How? By

creating a sense of accomplishment. The most recent research indicates that when
satisfaction and productivity data is gathered for the organization as a whole,
rather than at the individual level, we find that organizations with more satisfied
employees tended to be more productive than organizations with less satisfied
employees.
2. Job Satisfaction and Absenteeism: We find a consistent negative relationship
between satisfaction and absenteeism, but the correlation is moderate. In general
satisfied workers are more regular in attendance and less likely to be absent for
unexplained reasons than dis-satisfied workers.
3. Satisfaction and Turnover: satisfied workers are less likely to quit than dis-
satisfied workers. Satisfaction is also negatively related to turnover, but the
correlation is stronger than what we found for absenteeism.

�Quick Test Questions

1) Define what values are and give examples
2) Define an attitudes and describe its types
3) Describe five factors that may distort our judgment on others
4) List down determinants of job satisfaction

2.2. Group Behavior

Marvin Show defines a group as any number of persons who interact with each other
in such a manner that the behavior of one is influenced by the behavior of other
persons. It seems from this definition that group involves interactions among two or
more people. It may be added that these interactions should be accompanied by
psychological awareness of one another, and interacting people should perceive
themselves as a group. Another aspect of group that emerges from the above
definition is that behavior of group members is influenced by one another. In fact,
behavior of group members influenced not so much by one another as by group
norms that develop through continuous interactions among members.

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According to Robbins, a group is defined as two or more individuals interacting and

interdependent, who have come together to achieve particular objectives, who thereby
experience process of interdependence, interaction and mutual influence that results
in group behavior. The interactions that exist among group members and between
groups are called group dynamics that involves both enter- group and intra- group
behavior.
2.2.1. Types of Groups
Groups can be either formal or informal. These two forms of groups are described
here under.
1. Formal Groups: are those defined by the organization’s structure, with
designated work assignments to accomplish tasks. In formal groups, the behavior
that one should engage in are stipulated by and directed toward organizational
goals.
2. Informal Groups: are alliances that are neither formally structured nor
organizationally determined. These groups are natural formation in the work
environment that appears in response to the need for social contact. Three
employees from different departments who regularly eat lunch together are
example of an informal group. Informal groups provide a very important service
by satisfying their member’s social needs.
3. Command Group: are made up of individuals performing the same basic tasks
and who directly report to a given superior in the structure. It is also referred to as
a functional group. It is determined by the organizational chart.
4. Task Groups: refers to employees who work together to complete a project or a
job. These are also organizationally determined. A task group’s boundaries are
not limited to its immediate hierarchical superior. It can cross command
relationships.
5. Interest Groups: are people may or may not be aligned into common command
or task groups who may affiliate to attain a specific objective with which each is
concerned. For example, employees who band together to have their vacation
schedule altered, to support a peer who has been fired, or to seek increased fringe

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benefits represent the formation of a united body to further their characteristics,

that is the formation of interest groups.
6. Friendship Groups: groups often develop because the individual members have
one or more common characteristics. We call this formation friendship group.

2.2.2. Group Formation

There is no single reason why individuals join groups. Since most people belong to a
number of groups, it is obvious that different groups provide different benefits to their
members. Group formation has certain objectives. The purpose behind group formation
may be task achievement, problem solving, proximity or other socio-psychological
requirements. It is based on activities, interactions and sentiments. The most popular
reasons among others why people join a group are the following:

a) Physical (proximity) reasons: workers placed together in similar jobs as result of

their increased interaction form a group. The most basic theory explaining
affiliation is propinquity which means individuals affiliate with one another
because of spatial or geographical proximity. According to this theory, students
sitting next to one another in class are more likely to form into a group than
students sitting at opposite ends of the room. In an organization, employees who
work in same area of the plant or office or managers with offices close to one
another would more probably from into groups than would those who are not
physically located together.
b) Economic reasons: work groups form because individuals believe that they can
derive more economic benefits from their jobs if they are in groups.
c) Socio Psychological reasons: workers are motivated to form work groups to
satisfy their security and social needs. People in groups feel more secured and
such social interaction also helps them feel important. People cooperate with
members of the group on social as well as economic grounds to reach satisfactory
levels.

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d) Security: by joining a group individuals can reduce the insecurity of standing

alone. People feel stronger, have fewer self doubts, and are more resistant to
threats when they are part of a group.
e) Status: inclusion in a group that is viewed as important by others provides
recognition and status for its members.
f) Self esteem: groups can provide people with feelings of self worth. That is, in
addition to conveying status to those outside the group, membership can also give
increased feelings for its members.
g) Affiliation: groups can fulfill social needs. People enjoy the regular interaction
that comes with group membership.
h) Power: what cannot be achieved individually often becomes possible through
group action. There is power in groups.
i) Goal achievement: there are times when it takes more than one person to
accomplish a particular task-there is a need to pool talents, knowledge, or power
in order to get a job completed. In such cases management relies on formal
groups. In any organization, task accomplishment is the reason for which different
groups such as an engineering group, marketing groups, foremen’s groups and
others are formed for achieving certain stated goals.

2.2.3 The Dynamics of Informal Groups

As coined by Luthans, besides the formally designed groups and teams, informal groups
in the work place play a significant role in the dynamics of organizational behavior. The
major difference between formal and informal groups is that the formal has officially
prescribed goals and relationships, whereas the informal one does not. Despite this
distinction, it is a mistake to think of formal and informal as two distinctly separate
entities. The two types of groups coexist and are inseparable. Every formal organization
has informal groups, and every informal organization eventually evolves some semblance
of formal groups.

Group dynamics describes how a group should be organized and conducted. Democratic
leadership, member participation, and overall cooperation are stressed. Another view of
group dynamics is that it consists of a set of techniques. Here role playing, brain

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storming, focus groups, leaderless groups, group therapy, sensitivity training, team
building and others are traditionally equated with group dynamics.

Like the formal organization, the informal organization has both functions and
dysfunctions. In contrast to the formal organization analysis, the dysfunctional aspect of
informal organization has received more attention than the functional ones. For example,
conflicting objectives, restriction of output, conformity, blocking of ambition, inertia and
resistance to change are frequently mentioned dysfunctions of the informal organization.
More recently, however, organizational analysis has begun to recognize the functional
aspects as well. The following are some practical benefits that can be derived from the
informal organization:
1. makes for a more effective total system
2. lightens the workload of management
3. fills in the gaps on managers’ abilities
4. provides a safety valve for employees emotions
5. improves communication

Because of the inevitability and power of the informal organization, the functions should
be exploited in the attainment of objectives rather than futilely combated by management.
Group dynamics is a fundamental aspect of psychological systems. Human inclination
toward sociability is demonstrated by the number of small groups to which we belong.
Group dynamics stresses face to face relationships and interaction among individuals. It
involves many modes of communication and implies continually changing and adjusting
relationships among members.

2.2.4 Group Development

Groups do not form over nights. They go through various common stages of
development. The process of developing from a group of strangers to a unit of cohesive,
well coordinated team requires time and a great deal of interaction among group
members. Groups usually follow the following stages of development.

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1. Forming: this stage is characterized by a great deal of uncertainty about the

group’s purpose, structure, and leadership. As the group comes together
communication will be guarded and members are reluctant to express their true
attitudes and feelings. This stage is trying out stage in which each person attempts
to find out as much as possible about the rest of the group with out exposing much
of his/her self.
2. Storming: at this stage the group members begin to communicate more openly
with each other. Member’s individual goals or personal agendas are expected to
be revealed. It is characterized by intra- group conflict – members accept the
existence of the group but resist the constraints the group imposes on
individuality. Further, there is conflict over who will control the group. Members
storm their views. They put forth their views forcibly with strength, and this
evidences interpersonal conflicts. Many problems are brought to the group for
discussion and solution. Many conflicting views may be expressed.

3. Norming: close relationship and cohesiveness characterize this stage. The group
establishes the norms and patterns of work under which it will operate.
Disagreements and conflicts are resolved; group achieves unity, consensus about
who holds the power and understanding of the role of members. This norming
stage is complete when the group structure solidifies and the group has
assimilated a common set of expectations of what defines correct member
behavior.

4. Performing: the structure at this point is fully functional and accepted. Members
enjoy belonging to the group and develop synergy. A strong sense of group
identity and a companionship is developed. Group energy has moved from getting
to know and understand each other to performing the task at hand. Here the group
dominates the individuals; group norms have now been established to control
individual behavior and the social structure of the group is now firmly
established. The group begins to function and moves toward accomplishing its
objectives.

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5. Adjourning: for permanent work groups performing is the last stage in their
development. However, for temporary committees, teams, task forces, and similar
groups that have a limited task to perform, there is an adjourning stage.
Adjourning can take place even before completing the task, due to
misunderstandings, and storming. In this stage the group prepares to disbandment.
High task performance is no longer their propriety. Instead, attention is directed
toward wrapping up activities. Responses of group members vary in this stage.
Some may be happy of the group’s accomplishment while others may be
depressed due to the loss of friendships gained during the work group’s life.

The group development stages are recycled for achieving fresh objectives. A change in
leadership, membership drive, physical location and revitalizing the task recycles the
group development stage from adjoining to forming, storming, norming, performing and
adjourning. Management should try find out which stage the group is passing through and
who is the leader for the effective control and guidance of the group.

2.2.5 Factors That Determine Group Performance and Satisfaction

1. Organizational strategy: strategy is abroad goal established by top management
group. Strategy outlines the organizations goals and the means for attaining these
goals. If the organizational strategy is to help the supervisor on all fronts, the
employees will be directed towards that goal. Similarly, the behavior of
employees should be such as to reduce costs, improve quality, expand market
share, etc. The strategy of an organization influences the power of various groups.
The willingness of management to allocate resources influences the various
activities of the organization and the behavior of employees is influenced
accordingly.
2. Authority structure: identifies who reports to whom, who makes decisions and
what decisions individuals or groups are empowered to make. This structure
typically determines where a given work group is placed in the organization’s
hierarchy, the formal leader of the group, and formal relationships between
groups.

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3. Formal regulations: Organizations create rules, procedures, policies and other

forms of regulations to standardize employee behavior. The more strictly
implements the organization its regulations, the more predictable the behavior of
the group.
4. Organizational Resources: what a group actually accomplishes is, to a large
degree, determined by what it is capable of accomplishing. The presence or
absence of resources such as money, time, raw materials and equipment – which
are allocated to the group by the organization, has large bearing on the group’s
behavior.
5. Personnel selection process: The criteria that an organization uses in its selection
process will determine the kinds of people that will be in its work groups.
6. Performance evaluation and reward system: Since work groups are part of the
large organizational system, group members will be influenced by how the
organization evaluates performance and what behaviors are rewarded.
7. Organizational culture: every organization has an unwritten culture that defines
standards of acceptable and unacceptable behavior for employees, while many
organizations have sub cultures – often created around work groups -with an
additional or modified set of standards; they still have a dominant culture that
conveys to all employees those values the organization holds dearest.
8. Physical work setting: the physical work setting that is imposed on the group by
external parties has an important bearing on work group behavior.
9. Group member resources: A group’s potential level of performance depends to
a large extent, on the resources its members individually bring to the group. The
following are among the major resources of the group members.
 Abilities: expressed capacity is ability. A talented employee demonstrates
high performance abilities. Trained, experienced, and highly motivated
employees perform better because they develop high abilities for task
performance. Part of a group’s performance can be predicted by assessing
the task related and intellectual abilities of its individual members.
 Personality characteristics: personal characteristics such as age, sex,
physical features, personality, appearance, and mental aptitudes have an

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impact on group behavior and performance. Attributes tending to have a

positive connotation in our culture tend to be positively related to group
productivity, morale and cohesiveness. These include traits such as
sociability, self reliance, and independence.
 Group structure: Work groups have a structure that shape the behavior of
member and makes it possible to explain and predict a large portion of
individual behavior with in the group as well as the performance of the
group itself. As coined by Mishra, group structure is the framework of a
group which has greater influence on the behavior and interaction of
members of a group. Group structure as its outer framework and inner
relationships are guiding and controlling factors of behavior. Group
structure has different variables such as interpersonal relations, roles
played, norms, group status, group size and social density.
 Leader ship: Almost every work group has a formal leader. Obviously the
way the leader acts has a direct bearing on the performance as well as
behavior of the group members.
 Roles: are a set of expected behavior patterns attributed to someone
occupying a given position in social unit. All the employees and group
members play their respective roles as per their positions. They not only
behave in particular manner, but expect specific behavior from others.
Employees may be required sometimes to perform more diverse roles than
expected. Many organizations have multiple role performing jobs. To
understand role behavior it is essential to note role identity, role
perception, role enactment, role ambiguity, and role conflict.
- Role identity: the behavior and attitude attached to the role
together form what is known as role identity. Role identity
simply is certain attitudes and behaviors consistent with the role
being played.
- Role perception: is a set of activities or behavior that an
individual is supposed to perform. It is the supposed role to be

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performed in a given situation. It is an individual’s view of how

he expects to perform the job in the given situation.
- Role expectations: is the behavior expected by others from the
employee. How others believe the employee should perform the
job in a given situation is role expectation.
- Role enacted: is the actual behavior of individual and group
members. The enacted role depends on the perceived and
expected role. If there is no difference between the expected role,
perceived role and enacted role, the organization will be free
from role ambiguity and role conflict. There will not be any
problems regarding duties, responsibilities, uncertainty and
dissatisfaction. There will not be any deviation, stress, tension,
and anxiety.
- Role ambiguity: the difference between the expected role and the
perceived role creates role ambiguity. It occurs due to lack of
clarity regarding job duties, job descriptions and job designs.
- Role conflict: the differences between the perceived role and the
enacted role create role conflict. When an individual’s perception
is influenced by multiple demands, and directions from one or
more supervisor, employees face uncertainty.
Role behavior discussed above is depicted in the following figure for easy understanding.

Role ambiguity Role conflict

Role Expectation Role perception Role enactment

Figure 2.2 role behavior

 Norms: group structure incorporates certain norms to be followed by
group members. Norms are acceptable standards of behavior shared by the
group’s members. Norms tell members what they ought and out not to do
under certain circumstances. From an individual’s point of view, they tell

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what is expected of you in certain situations. Norms are traditionally

accepted rules of behaviors which are developed through explicit
statement, critical events, and primary and carry over behavior.
 Status: is a socially defined position or rank given to groups or group
members by others. Members of a group are recognized by their status.
Group members are proud of the status of their group and organization.
Status is a significant motivator as it influences the behavioral pattern of
employees. Status may be formal or informal. Formal status is given by a
particular group. Status is attached to an impressive title, high pay,
preferred work style and so on.
 Size: Large groups are good for gaining diverse input, but smaller groups
are better at doing something productive with that input. People feel free
when they work collectively, because they get the chance to relax while
this is not possible during individual working. A large group encourages
social loafing, i.e. the tendency to extend less effort when working
collectively. A small size group is more easily managed and can produce
more qualitative goods. Small groups result in faster completion of work
than proportionately higher groups.
 Composition: Heterogeneous groups those composed of dissimilar
individuals would be more likely to have diverse abilities, information and
should be more effective. Cultural diversity brings diverse views and
attitudes to improve efficiency. Heterogeneous groups perform more
effectively than homogenous groups. Heterogeneous groups give high
performance because members are motivated by other groups. Problems
are solved through diverse approaches because of multiple choices.
However, diversity receive unification by higher authority, otherwise, it
would create conflicts.
 Group cohesiveness: group cohesiveness is an atmosphere of closeness or
common attitudes, behavior and performance. There is common
agreement on group views. Group members develop a cooperative spirit
which is important for the successful completion of tasks. It refers to the

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degree to which members are attracted to one another and motivated to

stay in the group. The frequencies of interaction, favorable evaluation, and
inter group competition are increased under group cohesiveness.
Cohesiveness can be affected by such factors as time spent together, group
size, the gender make up of the group members, external threats, previous
success, group goals, frequency of interaction, severity of initiation,
personal characteristics and the like..

� Quick Test Questions

1) Mention the reasons why workers join a group in organizations
2) A group does not form overnight; rather before becoming a well functioning one,
it goes through various stages of development. What are the stages of
development a group usually follows?
3) Define the following words/ phrases
 Roles
 Norms
 Group cohesiveness
 Role conflict
 Role ambiguity

Chapter Summary
Understanding the behavior of individuals and groups helps a manager in two ways.
First, it allows him in being able to predict the actions, reactions and responses of others
to his initiatives and to environmental stimuli. Second, it helps him influence others’
behavior in order to achieve his ends. Human behavior is developed not in a vacuum but
is shaped every time by the behavior of others and environmental factors. Major factors
that shape individual’s behavior are biographical characteristics, ability, personality and
learning. Biographical characteristics include age, marital status, number of dependents
and tenure.

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Ability refers to an individual’s capacity to perform the various tasks in a job. Personality
can be defined as the sum total of ways in which individuals react and interact with
others. Such factors as heredity, environment, culture, norms among our family, friends
and social groups, religion, and others play a significant role in determining our
personality. Learning is the process by which individuals acquire the knowledge and
experience to be applied in their behavior. It is relatively permanent change in behavior
that occurs as a result of experience. Perception can be defined as a process by which
individuals organize and interpret their sensory impressions in order to give meaning to
their real environment. The perceiver, the target and the situation are among the major
factors that influence perception.

Selective perception, hallo effect, contrast effect, projection and stereotyping are factors
that may distort our judgment on others. We selectively interpret what we see on the basis
of our interest, attitudes, background and experience as we cannot observe everything
going on about us. Hallo effect is concerned with drawing general impressions about an
individual on the basis of a single character. We do not evaluate a person in isolation;
instead we compare and contrast him with others. Projection is assuming that other
individuals are similar to us. Due to projection people tend to perceive others according
to what they themselves like rather than according to what others being observed like.
Stereotyping is about judging someone on the basis of one’s perception of the group to
which he/she belongs. Values reflect a person’s sense of right or wrong or what ought to
be. Attitudes are evaluative statements either favorable or unfavorable concerning
objects, people or events. The main job related attitudes include: job satisfaction, job
involvement, organizational commitment and organizational citizenship. Determinants of
job satisfaction include mentally challenging work, equitable rewards, supportive
working conditions, supportive colleagues, and personality job fit.

A group can be defined as two or more individuals interacting and interdependent, who
have come together to achieve some common goal. Individuals in groups exhibit
behavior that is different from the one they exhibit while they are alone. We can have
formal, informal, command, task, interest, and friendship groups. The main reasons why
people join groups are physical/ proximity reasons, economic reasons, socio

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psychological reasons, security, status, self esteem, affiliation, power and goal
achievement. Groups go through various common stages of development including
forming, storming, norming, performing and adjourning.

Self Check Exercise 2

Choose the best answer among the alternates given
1) Understanding the behavior of individuals and groups helps a manager
A. Predict the actions, reactions and responses of others to his initiatives and to
environmental stimuli
B. Influence the behavior of others
C. Formulate effective strategy for dealing with people.
D. All of the above
E. Only B&C
2) Identify the incorrect statement among the following
A. Age seems to have no relationship to productivity
B. Married employees have fewer absence, turnover, report higher job satisfaction
than do unmarried ones.
C. Studies show seniority to be positively correlated to absenteeism.
D. Behavior is goal oriented
E. None
3) Ability-job-fit can be ensured by employing all the following except____
A. Ensuring effective selection process
B. Conducting promotion and transfer decisions based on abilities
C. Fine tuning the job to better match an incumbent’s abilities
D. Providing training for employees
E. None of the above
4) Which one of the statements below is untrue?
A. An individual’s personality is considered to be made up of both heredity and
environment, shaped by situational conditions.
B. Those individuals who see their lives as being controlled by others are internals
C. Learning can be either intentional or incidental

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D. The learning process involves motivation, cues, responses and reinforcement

E. A&C
5) The process by which individuals organize and interpret their sensory impressions to
give meaning to their environment is referred to as
A. personality C. perception
B. attitude D. learning E. values
6) Mr. Daniel while conducting an interview with an applicant to a position in his
organization has made a mistake by concluding that the applicant is best suit to the
position based only on the applicant’s appearance without considering other job
related factors. Such a mistake can be attributed to
A. contrast effect C. stereotyping
B. projection D. hallo effect E. elective perception
7) Which one of the following is not among the categories of values given by Maglino
and associates?
A. achievement C. helping and concern for others
B. aesthetic D. honesty E. fairness
8) Dejene, one of the employees of XYZ Company, is disstaified with his current job,
but he considers it as a temporary condition and not dissatisfied with the organization.
Dejene’s attitude shows
A. organizational commitment C. Organizational citizenship
B. job satisfaction D. Job involvement E. None
9) ____ refers to employees who work together to complete a project or a job.
A. interest group C. command group
B. informal group D. task group E. friendship group
10) A group development stage whereby disagreements and conflicts are resolved, the
group achieves unity, consensus about who holds the power and understanding of the
role of members takes place is
A. forming C. performing
B. norming D. storming E. adjourning
11) Identify the statement which is right among the following
A. norms are acceptable standards of behavior shared by group members

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B. set of expected behavior pattern attributed to someone occupying a given position

in social unit is termed as status
C. role identity is a set of activities or behavior that an individual is supposed to
perform
D. the difference between perceived role and enacted role creates role ambiguity
E. B&D

CHAPTER THREE
ORGANIZATIONL CONFLICT
Introduction
Dear student, in this chapter you will learn about one of the pervasive issues in
organizations, i.e., conflict. With respect to conflict, you are going to learn about its
meaning and nature, approaches to it, the levels of conflict, sources of conflict, its
outcomes, its management and how to manage interpersonal relations. Since conflict is
common in our day to day activities, in family, organizations and the like, I hope you will
gain valuable knowledge and even you will be benefited by applying such knowledge
while dealing with conflict of various natures. Therefore, it will be advisable to
comprehend the subject matter so that you will be in a position to get the stated benefits.

Learning objectives:
Upon the completion of this chapter, you are expected to
 realize what conflict is all about and its nature
 identify the approaches to conflict
 know the different levels of conflict
 elucidate the sources of conflict and conflict outcomes
 become aware of how conflict can be managed
 recognize the methods through which interpersonal relations can be managed

3.1 Meaning and Nature of Conflict

According to Robbins, conflict can be defined as a process that begins when one party
perceives that another party has negatively affected or is about to negatively affect
something that the first party cares about. This definition is broad. It describes that point

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in any ongoing activity when an interaction crosses over to become an inter-party

conflict. It encompasses a wide range of conflicts that people experience in
organizations-incompatibility of goals, differences over interpretations of facts,
disagreements based on behavioral expectations, and the like. Additional commonalities
in the definitions are opposition or incompatibility and some form of interaction. Conflict
must be perceived by the parties to it; whether or not a conflict exists is a perception
issue. If no one is aware of a conflict, then it is generally agreed no conflict exists.

It can also be defined as all oppositions or antagonistic interactions by a person or a

group. Mishra stated that Conflict is the incompatibility of goals and differences or
disagreements over a fact. Conflict arises when an interpersonal relationships which is
expected to be productive, cooperative, and satisfying does not fulfill the expectations.

3.2 Approaches to Conflict

Conflict in management has attracted significant attention because managers devote
much of their time to conflict management. One school of thought has argued that
conflict must be avoided because it refers to malfunctioning within the group. Another
school considers that conflict is natural and inevitable where human behavior is involved,
while the third group believes that conflict is a positive force in organizations, as it helps
effective performance. These approaches to conflict are known respectively as the
traditional approach, human relation approach and interactional approach.

a) Traditional Approach: The traditional approach believes conflicts are violent

and destructive. It is viewed as a negative instrument of performance. Conflict is
the outcome of the malfunctioning of an organization such as poor
communication, lack of trust, failure of the management to meet the aspirations of
employees and so on. The causes of conflict are revealed to avoid the conflict,
because conflict avoidance increases performance.

The view that all conflict is bad certainly offers a simple approach to looking at
the behavior of people who create conflict. Since all conflict is to be avoided, we

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need merely direct our attention to the causes of conflict and correct these
malfunctioning in order to improve group and organizational performance.

b) Human Relations Approach: The human relations approach argued that conflict
was a natural occurrence in all groups and organizations. Since conflict is
inevitable, this approach advocated acceptance of conflict. They rationalized its
existence. It cannot be eliminated, and there are even times when conflict may
benefit a group’s performance. Conflict has to be used by management for its
positive results.

c) The Interactionist Approach: this approach encourages conflicts for converting

them into force. Employees are encouraged to express their views so that the
reasons for differences are brought to the surface. Employees are developed to
understand their viewpoints so that they can improve themselves. They should be
self critical and creative for improving their respective performance. This
approach believes that minimum level of conflict is essential for performance, as
some conflicts are helpful for performance. These are known as functional
conflicts because they are constructive and are essential part of an organization.
On the other hand, there are dysfunctional conflicts which hinder the performance
of an organization. The functional and dysfunctional types of conflicts will be
discussed in greater detail in the subsequent sections of the chapter.

�Quick Test Questions

1. How would you define conflict?
2. What is the precondition to say there is conflict between two parties?
3. Describe the three approaches to conflict

3.3 Levels of Conflict

Conflict arises at different level. They are viewed accordingly for resolution. Intra
individual conflict, interpersonal conflict, inter-group, and organizational conflicts are
discussed in this section separately.

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a) Intrapersonal Conflict
Employees are expected to perform their respective roles. However, in reality, employees
having different needs and roles are unable to cooperate with the management. There are
positive and negative aspects of goal compatibility which causes conflicts. Intra-
individual conflicts arise due to frustration, goals and roles.

 Conflict Due to Frustration: frustration occurs when expectations are not

fulfilled. There are several barriers to achievement of desired goals. These
barriers create frustration. Employees react to the barriers and resort to
aggression, withdrawal, fixation and compromise techniques. The expectation
arises out of a need deficiency. When employees feel the need, they develop
drives to achieve the goal after overcoming the barriers. The drive to achieve
goals is reduced by barriers which may be overt and covert. Over barriers are
outward and physical. Covert barriers are inward and mental. The employees
resort to defense mechanisms for reducing the impacts of barriers. First, they
blame the barriers and abuse them for non achievement of the goal. Secondly
they withdraw from the barriers and abuse them for non-achievement of the
goal. Thirdly, they fix the goal and try again to attain the goal. Fourthly, they
compromise with the situation if they are unable to achieve the goals, and
satisfy themselves with whatever is achieved.

 Goal Compatibility: employees face intra-individual conflicts on the account

of goal incompatibility. Frustration arises when a single motive is blocked
before the goal is achieved; and in goal conflicts, two or more motives are
blocked in the process. Goal conflicts are witnessed in approach- approach
conflicts, approach-avoidance conflicts, and avoidance-avoidance conflicts.
The approach-approach conflicts are related to two or more positive but
exclusive goals. The choice between two goals becomes more difficult and
hence causes goal conflict. Approach-avoidance conflict here both positive
and negative characteristics are observed. Individuals are sometimes
motivated to achieve the goal and at other times they are motivated to avoid
the goal. When this happens, employees are anxious to take corrective

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decisions. Internal conflict and stress are visible in such cases. The avoidance-
avoidance conflict reveals two or more negative but mutually exclusive goals.
It is easily resolved. People may leave the organization if they are unable to
get adequate salary. It is an example of avoidance conflict.

 Role conflicts: role ambiguity is another cause of intra individual conflict.

People play their respective roles in an organization as per their status and
cadre. An employee has to also perform different roles outside the
organization as father, son, teacher, friend, and so on. Considering the
different roles to be played in and outside an organization, it becomes for an
employee to perform all the roles successfully. Conflicts are bound to arise.
Organizational roles are more important than multiple individual roles in
organizational behavior.

b) Interpersonal Conflicts
Interpersonal conflict is visible in organization and group behavior, as employees have to
act and react with other employees. The interdependence causes interpersonal conflict.
Interpersonal conflict is analyzed under three sub parts, viz. transactional analysis, Johari
window and strategies for interpersonal conflict resolution.
 Transactional Analysis: it refers to people’s interaction with reference to
social transactions. This analysis provides a better understanding of how people
react with one another while communicating and behaving in society.

 Johari window: pints out interpersonal styles and possible interpersonal

conflict situations. It helps to solve conflicts through feedback, disclosure, self
perception and late strategies. Accordingly, subordinates should be encouraged
to provide feedback. Feedback is the willingness of others to open and frank to
provide fair and correct feedback. Disclosure is related to the extent to which a
leader willingly shares his feelings with others. The subordinates should be
looked at from their viewpoints. Only then can the manager really understand
them and have them understand his feelings. Self perception of the manager
means that whether he knows himself as well as he enters the public and private

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arena. Late strategies if any thing has gone wrong, the manager has to set things
right. Mere regret and feeling of sorry for the mistake cannot cure the problem.
He should try to avoid errors in the future. It is never too late to amend the
situation.

 Strategies for interpersonal conflict resolution: apart from transactional

analysis and Johari window, other strategies are used for resolving interpersonal
conflict.

They are: lose-lose, win-lose, win-win, role set, linking pin and resolving conflicting
groups.
- Lose- lose: under this strategy both parties lose and this may take several
forms. A middle path is taken to resolve conflicts where both parties lose to a
certain extent. Arbitrators or judges are appointed to resolve the problem,
where both the parties suffer.
- Win-lose: here two parties are fighting to achieve success, but only one of
them can win while the other loses the struggle. For example, a manager may
be successful in suppressing the employees’ demand or the employees will be
successful in getting their demand addressed resulting in loss of money by the
organization.
- Win-win: both the conflicting parties win the battle. No one is the loser.
Creativity, productivity, and profitability are increased by mutual agreement.
The manager asks striking employees to raise productivity for getting more
bonuses, for which they are on strike.
- Role set: many interpersonal conflicts are due to overlapping and ambiguous
role sets. Rearranging of overlapping and interlocking role sets is crucial for
resolving conflicting problems.
- Linking pin: each group has linking pins which is used for resolving the
conflicts. Linkages for communication, influence, motivation and
coordination are considered for resolving the conflicts.

c) Organizational conflict

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Organizational conflicts include intra-individual, inter-group conflicts and structural

conflicts. Multiple organs such as production, marketing, fiancé, personnel,
subordinate-supervisor relations and customer’s expectations create problems and
conflicts.

3.4. Sources of conflict

The major sources of conflicts, discussed under three levels above, among others are:
1. Competition for limited resources: Resources of an organization are finite. As a
result there are times when groups or individuals in an organization fight for
resources. The greater the scarcity of resources, the greater the potential for
conflict.
2. Work flow relationship: When group’s performance is dependent on another
group or if interdependence allows one group gain at another’s expense, opposing
sources are stimulated.
3. Communication problems: May arise because all groups may not have the same
information or may not have adequate information or information overload.
Supervisors should consider the status, education and experience of subordinates
while communicating with them, for their proper understanding or instructions.
Poor communication leads to conflicts while open and frank communication
reduces it. Insufficient exchange of information, noise in the communication
channel and semantic difficulty arises as the result of differences in training,
selective perception, in values, and attitudes.
4. Overlapping or unclear boundaries. If which activities or resources are allocated
to whom is not clearly delineated, it can lead to conflict the parties working
around the overlapping responsibilities/ authorities.
5. Unclear authority structure: people may not know how far their authority extends.
6. Unreasonable or unclear procedures or rules: When rules and regulations are
stipulated in ambiguous manner, conflict may arise.
7. Collective decision making: The greater the number of people participating in a
decision, the greater the potential for conflict as group members may have

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different background, level of information, experience and the like. They can
view the thing upon which decision is to be made from different perspective.
� Quick Test Questions
1. Give an example of intrapersonal conflict
2. What are the strategies that can be employed to resolve interpersonal conflict?
3. List down the major sources of conflict
4. How work flow relationship can lead to conflict?

3.5. Conflict Outcomes

Conflict outcomes may be either functional, in that the conflict results in an improvement
in the group’s performance, or dysfunctional, in that it hinders group performance.

1. Functional outcomes
It is hard to visualize a situation where open or violent aggression could be functional.
But there are a number of instances where it is possible to envision how low or moderate
levels of conflict could improve the effectiveness of a group. Generally, conflict is
constructive when it stimulates creativity and innovation, improves the quality of
decisions and encourages interest among group members, provides the medium through
which problems can aired and tensions released, and fosters environment of self
evaluation and change. The evidence suggests that conflict can improve the quality of
decision making by allowing all points, particularly the ones that are unusual or held by a
majority, to be weighted in important decisions. Conflict is an antidote for groupthink.
Conflict challenges the status quo and therefore, furthers the creation of new ideas,
promotes reassessment of group goals and activities, and increases the probability that the
group will respond to change.

Not only do better and more innovative decisions result from situations where there is
conflict, but evidence indicates that conflict can be positively related to productivity. It
was demonstrated that, among established groups, performance tended to improve more
when there was conflict among members than when there was fairly close agreement.
The investigators observed that when groups analyzed decisions that had been made by
the individual members of that group, the average improvement among the high conflict

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groups was 73 percent greater than was that of those groups characterized by low conflict
conditions. Generally speaking, groups composed of members with different interests
tend to produce higher quality solutions to a variety of problems than do homogeneous
groups.

Basic positive outcomes of conflict include:

- The energy level of individuals or groups increases with conflict.
- Group cohesion increases – external threats tend to cause a group to pull together
as a unit.
- Blind faith is replaced by logical understanding
- Minorities views are given due attention
- Inactive decisions are revealed due to conflict

2. Dysfunctional outcomes
The destructive consequences of conflict on a group or organization’s performance are
generally well known. Uncontrolled opposition breeds discontent which acts to dissolve
commonalities, and eventually leads to the destruction of the group.

The more undesirable consequences of conflict are:

- Decline in communication between conflicting parties
- Reduction in group cohesiveness
- Subordination of group goals to the primacy of infighting between members.
- Delay in decision making which need to be done urgently
- Common links are broken and destructive ideas crop up
- Hostility and aggression development which disrupts harmony and peace among
groups from the organization’s point of view.
- Over conformity to group demands – members of a group faced with outside
threats may over conform to the group demands.
- At the extreme, conflict can bring group functioning to halt and potentially
threaten the group’s survival.

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- Conflicts increase employee turnover, decrease employee satisfaction and

increases inefficiencies of work units.

To conclude, the two extremes of conflict (too little and too much) are dysfunctional
whereas the optimum level of conflict is functional. Therefore, managers should strive to
maintain optimum level of conflict in their organizations. Evidence indicates that the type
of group activity is significant factor for determining functionality. The more non routine
the tasks of a group are, the greater the probability that internal conflict will be
constructive. Groups that are required to tackle problems demanding new and novel
approaches- as research, advertising and other professional activities- will benefit more
from conflict than will groups performing highly routine activities.

3.6 Conflict Management

In this sub section, three important issues, that is, analysis of the conflict situation,
conflict stimulation and conflict resolution are discussed as tools of conflict management.

3.6.1 Analysis of the conflict situation

A viable strategy for conflict management begins with an analysis of the conflict
situations and then moving to the development of strategy options. Management can
analyze a conflict situation by identifying:
 The conflicting parties – the conflict may be between individuals, between
individuals and groups, or between departments.
 The source of conflict – competition, personal difference, inadequate
communication and the like.
 The level of conflict – the situation may be at a stage where the manager must
deal with it immediately or the conflict may be at a moderate level of intensity.

3.6.2 Conflict stimulation

We can stimulate conflict by employing the following mechanisms:
 Competition: At times a manager may wish to increase the level of conflict
and competition in work situations. For instance, a conflict between new
individuals and existing employees may result in new approaches or methods

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of work. A conflict raised from restructuring an organization may bring about

better way of doing a task. Encouraging competition by offering bonuses,
incentive pay and citation of outstanding performance may lead to productive
conflicts as groups struggle to out do each other.
 Bringing outsiders: - adding employees to a group whose back grounds,
values, attitudes or managerial styles differ from those of present members
can be adopted as means of stimulating conflict to its functional level.
 Restructuring the organization: realigning work groups, altering ruler and
regulations, increasing interdependence and making similar structural changes
to disrupt the status quo is also used to further conflict with in or among
individuals/groups.
 Appointing devil’s advocate: - designating a critic to purposely argue against
the majority positions held by the group. The devil’s advocate role can help
prevent group think

3.6.3 Conflict Resolution

Managers as well as other individuals who are in charge of resolving conflicts that arise
in their organizations or units can employ one or more of the following tools towards
their target. The situation, the parties involved in conflict, its cause, and extent highly
determines which technique ought to be used at a time.
a) Dominance and suppression: they create a win- lose situation in which the loser
is forced to give way. Usually ends up disappointing and breeds hostile
environment.
b) Avoidance: this strategy calls for a manager to withdraw or ignore the conflict.
Letting the participants resolve it themselves.
c) Smoothing: in this strategy an obliging person neglects his/ her own concern to
satisfy the concern of the other party. This option involves playing down
differences while emphasizing commonalities.
d) Compromise: with compromise each party is required to give up something of
value in order to get another thing. Each party moves to find a middle ground.
There is no clear winner or loser, rather there is a willingness to share the object

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of the conflict and accept a solution that provides incomplete satisfaction for both
parties concerned.
e) Collaboration: here the manager promotes mutual problem solving by both
parties. It is a situation where the parties to a conflict each desire to satisfy fully
the concern of all parties.
f) Confrontation: if this option is used, conflicting parties are forced to verbalize
their positions and disagreements. The objective is to identify a reason to favor
one solution or another and thus resolve the conflict.
g) Accommodation: Use accommodations when you find you are wrong, and to
allow a better position to be heard, to learn and to show that you are responsible.
h) Negotiation: negotiation can be defined as a process in which two or more parties
exchange goods or services and attempt to agree on the exchange rate of for them.
Negotiation permits the interactions of almost everyone in groups and
organizations. It occurs when two or more parties- either individuals or groups-
discuss specific proposals in order to find out a mutually acceptable agreement.
For example, when organizations use it to solve internal disputes (between labor
and management) and external conflict (when dealing with customers or
suppliers).

Due to its wide application and importance in our daily lives, negotiation is discussed in
more detail below.

I. Negotiation strategies: there are two general approaches to negotiation: distributive

bargaining and integrative bargaining.
a) Distributive Bargaining: - the most identifying feature of it is that it operates
under zero sum conditions. That is, any gain A makes is at B’s expense, and vice
versa. Assume you see a used car advertised for sale in the newspaper. It appears
to be just what you have been looking for. You go out to see the car. It is great
and you want it. The owner tells you the asking price. You do not want to pay that
much. The two of you then negotiate over the price. The negotiating strategy you
are engaging in is called distributive bargaining because every Birr you can get
the seller to cut from the car’s price is a Birr you save. Conversely, every Birr he

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can get from you comes at your expense. So the essence of distributive bargaining
in negotiating is negotiating over who gets what share of a fixed pie.

When engages in distributive bargaining, one’s tactics focus on trying to get one’s
opponent to agree to one’s specific target or to get as close as possible. Examples of such
tactics are persuading your opponent of the impossibility of getting to his or her target
point and advisability of accepting a settlement near yours; arguing that your target is
fair, but your opponent’s is not; and attempting to get your opponent to feel emotionally
generous toward you and thus accept an outcome close to your target point.

b) Integrative Bargaining: in contrast to distributive bargaining, integrative

problem solving operates under the assumption that there exists one or more
settlements that can create a win-win solution. In terms of intra-organizational
behavior, all things being equal, integrative bargaining is preferable to distributive
bargaining. Because the former builds long term relationships and facilitates
working together in the future. It bonds negotiators and allows each to leave the
bargaining table feeling he/she has achieved a victory. Distributive bargaining, on
the other hand, leaves one party a loser. It tends to build animosities and deepen
divisions when people have to work together on an ongoing basis.

II. Decision Making Biases That Hinder Effective Negotiation

All of us have had negotiating experiences where the results have been less than we
had hoped for. As we tend to be blind to opportunities that prevent us from getting as
much as possible out of a negotiation. The following identifies seven decision making
biases that can blind us.
1) Irrational escalation of commitment- people tend to continue a previously
selected course of action beyond what rotational analysis would
recommend. Such misdirected persistence can lead to wasting a great deal
of time, energy, and money.
2) The mythical fixed pie- bargainers assume their gain must at the expense
of the other party. As noted with integrative bargaining, that need not be
the case. There are often win- win solutions.

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3) Anchoring and adjustments- people often have a tendency to anchor their

judgments on irrelevant information, such as an initial offer. Many factors
influence the initial positions people take when entering a negotiation.
4) Framing negotiations- people tend to be overly affected by the way
information is presented to them.
5) Availability of information- negotiators often rely too much on readily
available information while ignoring more relevant data. Things or events
that people have encountered more often are usually easy to remember-
they are more available in their memory.
6) The winners curse- the regret one feels after closing a negotiation- because
your opponent accepted your offer, you become concerned that you
offered too much. This post negotiation reaction is not unusual. In most
negotiations, one side, usually the seller, has much better information than
the other.
7) Overconfidence- many of the previous biases can combine to inflate a
person’s confidence in his or her judgment and choices. When people hold
certain beliefs and expectations, they tend to ignore information that
contradicts them.

III. Third party negotiation: occasionally, individuals or group representatives reach a

settlement and are unable to solve their differences through direct negotiation. In such
cases they may turn to a third party to help them find a solution.

1. Arbitration: it is used where a neutral third party acts as a judge and issues a
binding decision affecting parties at negotiation. However, the authority of the
arbitrator may also vary according to the rules set by the negotiators. Arbitration
can be voluntary (requested) or compulsory (forced on the parties by law or
contract.)
2. Mediation: is used when a neutral third party acts/facilitates negotiated
solutions by using reasoning and persuasion, suggesting alternatives, etc.

3.7 Managing Interpersonal Relations

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A manager can effectively manage interpersonal relations by devising things such as:
 establishing rules and regulations, hierarchy, planning specific goals to be
attained,
 designing liaison roles to facilitate communication between two independent
work units,
 assigning task forces to solve a particular problem,
 naming permanent teams to handle frequently occurring problems and
 Finally, creating interacting departments to integrate tasks between two or more
departments.

�Quick Test Questions

1) Can you mention a situation where conflict outcome is positive?
2) When do you think is conflict outcome will be dysfunctional?
3) How would you stimulate conflict?
4) Differentiate between arbitration and mediation.

Chapter Summary
Conflict is a natural occurrence in all groups and organizations. It can be defined as a
process that begins when one party perceives that another party has negatively affected or
is about to negatively affect something that the first party cares about. It can also be
stated as all oppositions and antagonistic interactions by person or a group. The three
approaches to conflict are traditional, human relations and inter-actionist approach. The
first approach argues that conflict must be avoided as it refers to malfunctioning within
the group. The second approach contends that conflict is natural and inevitable where
human behavior is involved. Finally, the third one believes that conflict is positive force
in organizations which helps effective performance. The levels of conflict include
intrapersonal conflict-conflict within oneself, interpersonal conflict, and organizational
conflict.

The major sources of conflict are competition for limited resources, work flow
relationship, communication problems, overlapping boundaries, unclear authority

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structure, unclear procedures and collective decision making. The outcomes of conflict
can be either functional or dysfunctional. While managing conflict, it is important to
analyze the situation, stimulate the conflict when it is below the desired level, and resolve
it.

Self Check Exercise 3

i. Choose the right answer among the alternatives given.
1) Conflict is a natural process which is inevitable wherever human behavior is
involved. This statement best describes
A. human relations approach
B. traditional approach
C. inter-actionist approach
D. all
2) Which one of the following shows approach-avoidance conflict?
A. it is related to two or more positive but exclusive goals
B. it involves both positive and negative characteristics
C. It reveals two or more negative but mutually exclusive goals.
D. B&C
3) In win-lose strategy for interpersonal conflict resolution
A. both the conflicting parties win the battle
B. both parties lose
C. only one of the parties wins while the other loses
D. None
4) If which activities or resources are allocated to whom is not clearly delineated, it can
lead the parties working around to conflict. To which source of conflict can this be
attributed?
A. work flow relationship
B. communication problem
C. competition for limited resources
D. overlapping boundary
E. unclear authority

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5) Identify the one that is not a dysfunctional outcome of conflict?

A. reduction in group cohesiveness
B. blind faith is replaced by logical understanding
C. decline in communication
D. delay in decision making
E. None
6) A conflict resolution technique whereby conflicting parties are forced to verbalize
their positions and disagreements so that the judges can identify the reason to favor
one solution or another is
A. negotiation
B. compromise
C. confrontation
D. smoothing
E. collaboration
7) when a neutral third party acts/ facilitates negotiated solutions by using reasoning,
persuasion and suggesting alternatives, we say
A. arbitration is used
B. mediation is exercised
C. distributive bargaining has taken place
D. integrative bargaining has taken place
E. None
ii. Match column ‘A’ with ‘B’
Column ‘A’ Column ‘B’
1. intrapersonal conflict A. win-win
2. source of conflict B. conflict due to frustration
3. appointing devil’s advocate C. conflict stimulation method
4. the winners curse D. collective decision making
5. managing interpersonal relations E. the regret one feels after closing a
negotiation
F. assigning taskforce to solve a particular
Problem

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CHAPTER FOUR
MOTIVATION
Introduction
Hoping that you enjoyed reading the third chapter, in this chapter you will be learning
about motivation. Motivation is one of the important factors that greatly determine the
performance of a given unit. There are three sub sections in this part. The first section is
concerned with foundations of motivation wherein the definitions and nature of
motivation will be discussed. The second section deals with basic model of motivation
which reveals how and why people get motivated. In the final section, theories of
motivation forwarded by various individuals will be covered. You have learnt some of
these theories in your Introduction to Management course; hence you can refresh your
memory by recalling/ revising those you have seen in the stated course and expand your
knowledge of motivation further by reading the theories given here. The theories of
motivation which you will learn include: Abraham Maslow’s hierarchy of needs theory,
ERG Theory, the two factor theory, equity theory, expectancy theory, Theory X&Y, goal
setting theory, McCelland’s theory of needs and reinforcement theory. Have nice study
session!

Learning objectives:
After completing the study of this chapter, you are supposed to
 define what motivation
 comprehend the basic model of motivation and thereby identify how individuals
become motivated
 depict the need hierarchy theory of Maslow along with its components
 be familiar with the other theories of motivation mentioned above

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4.1 Foundations of Motivation

Mishra states that motivation is related to motives of the people- by what they are moved
and activated to achieve their goals. The Latin word ‘Movere’ is the basis of motivation.
Motivation is the spirit of the people which is ignited by something, such as a message,
appeal and so on. In organizations, the job design, managerial relationship, reward
system, performance appraisal and interaction with employees are important components
of motivation. The same author contends that motivation is an inner condition of people
which energizes people to work hard. Motivation is used to direct employees to achieve
goals in the right perspective.

Many people incorrectly view motivation as a personal trait-that is, some have it and
others do not. But motivation is the result of the interaction of the individual and the
situation. Certainly, individuals differ in their basic motivational drive. So as we analyze
the concept of motivation, keep in mind that level of motivation varies both between
individuals and within individuals at different times.

Robbins defines motivation as the willingness to exert high level of efforts toward
organizational goals, conditioned by the effort’s ability to satisfy an individual’s need.
While general motivation is concerned with efforts toward any goal, we narrow the focus
to organizational goals in order to reflect our singular interest in work related behavior.
The three key elements in our definition are effort, organizational goal, and needs. The
effort element is a measure of intensity. When someone is motivated, he/she tries hard.
But high level of efforts is unlikely to lead to favorable job performance outcomes unless
the effort is channeled in a direction that benefits the organization. Therefore, we must
consider the quality of the effort as well as its intensity. Effort that is directed towards
and consistent with the organization’s goals is the kind of effort we should be seeking.

Finally we treat motivation as a need satisfying process. A need, in our definition, means
some internal state that makes certain outcomes appear attractive. An unsatisfied need
creates tension that stimulates drives within the individual. These drives generate a search
behavior to find particular goals that if attained, will satisfy the need and lead to the

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reduction of tension. But since we are interested in work behavior, this tension reduction
effort must also be directed toward organizational goals. Therefore, inherent in our
definition of motivation is the requirement that the individual’s needs be compatible and
consistent with the organizational goals. Where this does not occur, we can have
individuals exerting high levels of effort that actually run counter to the interests of the
organization. For example, some employees regularly spend a lot of time talking with
friends at work in order to satisfy their social needs. There is a high level of effort, only it
is being unproductively directed.

4.2 Basic Model of Motivation

According to Mishra, motivation is based on need which is a feeling of lacking
something. A feeling of need or unsatisfied need creates tension that stimulates drives
within individuals. These drives generate search behavior to find ways of satisfying the
needs. It will try to achieve the goals. Satisfied needs reduce the tension and provide
satisfaction. Basic model of motivation is depicted below.

Motivation Model

Environment Opportunity Goals

Unsatisfied Reward or Reduction of

Need punishment Tension
n

Search
Tension Drives Behavior Action Satisfaction
n
Figure 4.1 Basic model of motivation

Need is a feeling of deficiency. It creates physiological and psychological imbalances

which creates tension in the mind of the employees. The employee’s drives are energized
and activated to find satisfaction through goal achievement. Drives are strong feelings of
deprivation which target certain goals. They lead to action and provide energy for
achievement. Drives lead to search for the proper action which provides satisfaction.

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Goal achievement leads to reduction of tension. It resorts physiological and psychological

balance. Motivation is a natural process, wherein felt needs are recognized. Needs create
a state of disequilibrium, i.e. tension which is to be reduced through behavior. An
individual will search for the right for getting satisfaction. He/she will select suitable
strategies for the purpose if he is adequately qualified. Motivation, therefore, depends on
ability, experience, education, background, and skills of individuals. The satisfying tools
may be financial and non financial rewards and punishment. The motivation cycle leads
to satisfaction.

�Quick Test Questions

1. What is motivation?
2. What are the three key issues that ought to be incorporated the definition of
motivation?
3. Based on the basic motivation model, show how an unsatisfied need leads a
person to motivation.

4.3 Theories of Motivation

4.3.1 Hierarchy of Needs Theory
It is probably safe to say that the most well known theory of motivation is Abraham
Maslow’s hierarchy of needs. This theory is derived from a general understanding of
people’s needs, which can be instrumental to motivate employees at their work. The
figure below shows the five categories of needs as proposed by Abrham Maslow.

Self
Actualization Needs
Esteem Needs

Social Needs

Safety Needs

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Physiological Needs

Figure 4.2 Abraham Maslow’s Hierarchy of Needs

Maslow hypothesized that within every human being there exists a hierarchy of the
following five needs.
1. Physiological Needs: includes the need for biological maintenance such as food,
water, shelter, sex, air and other bodily needs. These are used as motivators till
they are fulfilled. Once they are fulfilled, they do not remain important factors of
motivation. Employees need salaries and wages, healthy working conditions, a
canteen and other basic amenities at their workplace.
2. Safety Needs: includes security and protection from physical and emotional
harm. Maslow laid emphasis on emotional and physical safety after basic needs
are satisfied. People become highly cautious about increasing problems of
pollution of air, water and the environment. If employees are given with fresh air,
water and hygienic working conditions, they will be motivated to work hard.
3. Social Needs: includes need for affection, belongingness, acceptance and
friendship. Employees like comradeship interaction with colleagues, a friendly
boss, a compatible work group, professional friendship and group enjoyment.
4. Esteem Needs: Includes internal esteem factors such as self respect, autonomy
and achievement and external esteem factors such as status, recognition and
attention. Some employees work for more than the allotted period, because they
need job satisfaction, work achievement, and responsibility. They need more
appreciation and recognition by bosses and peers. They develop self confidence,
prestige, and performance.
5. Self Actualization Needs: The drive to become what one is capable of becoming
includes growth, achieving one’s potential and self, fulfillment. Self actualization
is the highest of needs where people want self satisfaction. They need self
realization and self satisfaction. The soul and universe become topics of
realization for such people. Since they have fulfilled the other needs, they search
for new things and to work differently in a better manner.

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The following Assumptions were made while hypothesizing the theory by Maslow.
a. A fully satisfied need is no more a motivator. So if we want to motivate someone,
according to Maslow, we need to understand at what level of the hierarchy an
employee currently is and focus on satisfying those needs at or above that level.
As each of these needs becomes substantially satisfied, the next need becomes
dominant.
b. The needs are put in the order of importance. Maslow separated the five needs in
to higher and lower orders. Physiological and safety needs were described as
lower order and social, esteem and self actualization needs as the higher order
needs. The differentiation between the two orders was made on the premises that
higher order needs are satisfied internally (within the person), whereas lower
order needs are predominantly satisfied externally (by pay, union contracts, and
tenure).
c. One should minimally satisfy the lower level need in order to think of the next
higher level needs.
d. If a need is not fully satisfied or threatened by something, the individual will
regret/retreat back to it from the one above it. When an employee gets his already
satisfied need disturbed, he redirects his effort towards the satisfaction of that
particular need.

4.3.2 ERG Theory

Clayton Alderfer had conducted some empirical research and converted Maslow’s theory
into ERG theory. ERG theory is a modification of the need hierarchy theory that proposes
three categories of needs-existence, relatedness and growth.
1. Existence needs: Concerned with providing our basic material existence
requirements. It includes the items that Maslow considered as physiological and
safety needs.
2. Relatedness needs: the desire we have for maintaining important interpersonal
relationships. These social and status desires require interaction with others if they
are to be satisfied, and they align with Maslow’s social need and the external
component of esteem classification.

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3. Growth needs: focuses on an intrinsic desire for personal development and the
need for increased competence. These include the intrinsic component from
Maslow’s esteem category and the characteristics included under self-
actualization.
The ERG theory is less rigid than Maslow’s need hierarchy theory suggesting that
individuals may move up as well as down the hierarchy depending on their ability to
satisfy needs. A person can, for example, be working on growth even though existence or
relatedness needs are unsatisfied, or all three need categories could be operating at the
same time. If a person fails to satisfy the already satisfied and passed need due to
different reasons, he redirects his effort to start satisfying it by leaving the one above it.
Inability to gratify for social interaction for instance, might increase the desire for more
money or better working conditions. The theory reduced Maslow’s five needs in to three
and allowed for more than one need to be activated at a time. He suggested that
frustration in attempting to satisfy a higher level need can result in regression to lower
level need.

In summary, ERG theory argues, like Maslow, that satisfied lower order needs lead to the
desire to satisfy higher order needs; but multiple needs can be operating as motivators at
the same time, and frustration in attempting to satisfy a higher need can result in
regression to a lower need. ERG theory is more consistent with our knowledge of
individual differences among people. Variables such as education, family background,
and cultural environment can alter the importance or driving force that a group of needs
holds for particular individual .The evidence demonstrating that people in other cultures
rank the need categories differently- for instance, natives of Spain and Japan place social
needs before their physiological requirements-would be consistent with the ERG theory.
In general, ERG theory represents a more valid version of the need hierarchy.

4.3.3 The two- Factor Theory-Motivation-Hygiene Theory

Robbins contends that an individual’s relation to his/her work is a basic one and that
his/her attitude toward his work can very well determine the individual’s success.
Herzberg investigated the question “what do people want from their jobs?” he asked
people to describe, in detail, situations when they felt exceptionally good and bad about

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their jobs. The findings of the two- factor theory suggested that the work characteristics
associated with dissatisfaction are different from those pertaining to satisfaction, which
formulated the notion that two factors influence work motivation factors. They are
hygiene factors and motivation factors.
Hygiene Factors/dissatisfires
 Salary
 Job security
 Working conditions Job Context Factors
 Status
 Company policy and adminstration
 Quality of technical supervision

When present in sufficient quantity they have no effect (People will neither be
satisfied nor be dissatisfied), when absent they can lead to job dissatisfaction.

Motivation factors
 Achievement
 Recognition Related with the job content
 Responsibility
 Advancement
 The work itself and possibility of growth
These are the characteristics that people find intrinsically rewarding.

According to Herzberg, the factors leading to job satisfaction are separate and distinct
from those that lead to job dissatisfaction. Therefore, managers who seek to eliminate
factors that create job dissatisfaction can bring about peace, but not necessarily
motivation.
Satisfaction No satisfaction
Dissatisfaction No dissatisfaction

The motivation-hygiene theory is not with out drawbacks. The criticisms of the theory
include the following:

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1. The procedure that Herzberg used is limited in its methodology. When

things are going well, people tend to take credit themselves. Contrarily,
they blame on the external environment.
2. The reliability of Herzberg’s methodology is questioned. Since raters have
to make interpretations, it is possible they may contaminate the findings
by interpreting one response in one manner while treating another similar
response differently.
3. The theory, to the degree it is valid, provides an explanation of job
satisfaction. It is not really a theory of motivation.
4. No overall measure of satisfaction was utilized. In other words, a person
may dislike part of his or her job, yet still think the job is acceptable
5. The theory is consistent with previous research. The motivation hygiene
theory ignores situational variables.
6. Herzberg assumed a relationship between satisfaction and productivity.
But the research methodology he used looked only at satisfaction, not at
productivity. To make such research relevant, one must assume a high
relationship between satisfaction and productivity.

�Quick Test Questions

1. Differentiate between social and esteem needs as proposed by Maslow
2. The ERG theory is less rigid than Maslow’s need hierarchy theory. Do you agree
with this?
3. Identify the components of the two factor theory

4.3.4. The Equity Theory

Equity theory focuses on individual’s perception of how fairly they are treated compared
with others. Individuals compare their job inputs and outcome with those of others and
then respond so as to eliminate any inequalities. We perceive what we get from a job
situation (outcomes) in relation to what we put into it (inputs), and then we compare
outcome input ratio with the outcome input ratio of relevant others. When we see the
ratio as unequal, we experience equity tension. The referent that an employee selects adds

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to the complexity of equity theory. Evidence indicates that the referent chosen is an
important variable in equity theory.

There are four referent comparisons an employee can use:

1. Self- inside: an employee’s experiences in a different position inside his or her
current organization.
2. Self-outside: an employee’s experience in a situation or position outside his/her
current organization.
3. Other-inside: another individuals or group of individuals inside the employee’s
organization.
4. Other- out side: another individual or group of individuals outside the employee’s
organization.

So employees might compare themselves to friends, neighbors, coworkers, colleagues

in other organizations, or past jobs they themselves have had. Which referent an
employee chooses will be influenced by the information the employee holds about
referent as well as by the attractiveness of the referent. Employees with short tenure
in their current organizations tend to have little information about others inside the
organization, so rely on their own personal experience. However, employees with
long tenure rely more heavily on coworkers for comparison.

If employees perceive their compensation is equal to what others receive for similar
contributions, they will believe that their treatment is fair and equitable. Employees
evaluate equity by a ratio of inputs to outcomes. Inputs to a job include education,
experience, effort and ability (competence). Outcomes from a job include pay,
recognition, benefits and promotions. A state of equity exists when ever the ratio of
one person’s outcomes to input equals the ratio of another person’s outcomes to
inputs. That is, a manager allocates rewards, individuals make equity comparisons
and job satisfaction and performance are affected.

As per equity theory, when employees perceive an inequity they can be predicted to
make one of six choices.

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1. Change their inputs: for example, do not exert as much effort.

2. Change their outcomes: e.g. individuals paid on a piece-rate basis can increase
their pay by producing a higher quantity of units of lower quality.
3. Distort perception of self: e.g. “I used to think I worked at a moderate pace but
now I realize that I work a lot harder than everyone else.”
4. Distort perception of others: e.g. “Abebe’s job is not as desirable as I previously
thought it was.”
5. Choose a different referent. E.g. I may not make as much as my brother, but I am
doing a lot better than my Dad when he was my age.
6. Leave the field: e.g. quit the job.

Equity theory recognizes that individuals are concerned not only with the absolute
amount of rewards they receive for their efforts, but also with the relationship of this
amount to what others receive. Based on one’s inputs, such as effort, experience,
education, and competence, one compares outcomes such as salary levels, raises, and
recognition and other factors. When people perceive an imbalance in their outcome-input
ratio relative to others, tension is created. This tension provides the basis for motivation,
as people strive for what they perceive as equity and fairness.

Specifically, the theory establishes four propositions relating to inequitable pay.

1. Given payment by time, over rewarded employees produce more than
equitably paid employees. Hourly and salaried employees generate high
quantity or quality of production in order to increase the input side of the
ratio and bring about equity.
2. Given payment by quantity of production, over rewarded employees
produce fewer, but higher quality, units than equitably paid employees.
3. Given payment by time, under rewarded employees produce less or poorer
quality of output. Effort is decreased which brings about lower
productivity or poorer quality output than equitably paid subjects.
4. Given payment by quantity, under rewarded employees produce a large
number of low-quality units in comparison with equitably paid employees.

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It is also important to note that while most research on equity theory has focused on pay,
employees seem to look for equity in the distribution of other organizational rewards. For
instance, it has been shown that the use of high-status job titles as well as large and
lavishly furnished offices may function as outcomes for some employees in their equity
equation. In conclusion, equity theory demonstrates that, for most employees, motivation
is influenced significantly by relative rewards as well as by absolute rewards.

4.3.5. The Expectancy Theory -Victor Vroom

This theory argues that the strength of a tendency to act in a certain way depends on the
strength of an expectation that the act will be followed by a given outcome and on the
attractiveness of those outcomes to the individual. In more practical terms, expectancy
theory says an employee is motivated to exert a high level of effort when he/she believes
effort will lead to a good performance appraisal. A good appraisal will lead to
organizational rewards like a bonus, a salary increase, or a promotion and the rewards
will satisfy the employee’s personal goals. An employee is motivated to exert a high level
of effort when he/she believes that the effort will lead to good performance and rewards.
Generally, this theory is based on the relationships among the individual’s effort,
performance and the desirability of outcomes associated with high performance.

1. Effort- Performance (E-P) Expectation: involves whether putting effort into a

task will lead to high performance. For this expectancy to be high, the individual
must has the ability to perform. If I give a maximum effort, will it be recognized
in my performance appraisal? For a lot of employees, the answer is no. why?
Their skill level may be deficient, which means no matter how hard they try, they
are not likely to be a high performer. The organization’s performance appraisal
system may be designed to assess nonperformance factors like loyalty, initiative,
or courage, which means more effort will not necessarily result in a higher
evaluation.
2. Performance outcome (p-o) Expectancy: involves whether successful
performance will lead to the desired reward. This expectancy concerns the belief
that high performance will truly lead to reward. If I get a good performance
appraisal, will it lead to organizational rewards? Many employees see the

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performance- reward relationship in their job as weak. The reason is that

organizations reward things besides just performance.
3. Valence or preference: the value of outcomes or attractions for outcomes for the
individual. If employees do not value the outcomes that are available from high
effort and good performance, motivation will be low. If I am rewarded, are they
the rewards I find personally attractive? The employee works hard in hope of
getting a promotion, but gets a pay raise instead. Or the employee wants a more
interesting and challenging job, but receives only a few words of praise.

Note: For an employee to be highly motivated, all three factors in the expectancy model
must be high.

E-P expectancy- probability that effort Valence- value of outcome

will lead to desired performance

Performance Outcomes: pay, recognition and

Effort other rewards

P-O expectancy: probability

that performance will produce
desired outcomes
Figure 4.3 Major dimensions of expectancy theory

To conclude, the key to expectancy theory is the understanding of an individual’s goals

and the linkage between effort and performance, between performance and rewards, and
finally, between the rewards and individual’s goal satisfaction.

4.3.6 Theory ‘X’ and Theory ‘Y’

Douglas McGregor proposed two distinct views of human beings: one basically negative,
labeled theory x, and the other basically positive labeled theory y. After viewing the way
in which mangers dealt with managers, McGregor concluded that a manager’s view of

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the nature of human beings is based on certain grouping of assumptions and that he or she
tends to mold his or her behavior toward subordinates according to these assumptions.

According to Theory X, the four assumptions held by managers are as follows:

1. Employees inherently dislike work and whenever possible will attempt to
avoid it.
2. Since employees dislike works, they must be coerced, controlled or threatened
with punishment to achieve goals.
3. Employees will avoid responsibilities and seek formal direction whenever
possible.
4. Most workers place security above all other factors associated with work and
well display little ambition.

In contrast to these negative views about the nature of human beings McGregor listed
four positive assumptions which he called Theory Y.
1. Employees can view work as being as natural as rest or play.
2. People will exercise self-direction and self control if they are committed to the
objectives.
3. The average person can learn to accept, even seek responsibility.
4. The ability to make innovative decisions is widely dispersed through out the
population and is not necessarily the sole province of those in management
positions.

To sum up, even today, less educated and traditionally labor dominated industries have to
depend on theory x for driving workers to work more. It should be noted that like Theory
X, Theory Y is not useful for all sort of industrial undertakings. Theory X can be
effective for less developed and educated workers whereas Theory Y is feasible for
developed and educated workers. Individuals with creative thinking and high ambitions
are more successful under Theory Y and the opposite holds true for those who lack
creativity and ambition.

4.3.7 Goal Setting Theory

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This theory states that specific and difficult goals lead to higher performance. Goals tell
an employee what needs to be done and how much effort will need to be expended. More
to the point, we can say that specific goals increase performance; that difficult goals
when accepted result in higher performance than do easy goals; and that feedback leads
to higher performance than does non feedback. Specific hard goals produce a higher level
of output than does the generalized goal of “do your best.” The specificity of the goal
itself acts as an internal stimulus. If factors like ability and acceptance of the goals are
held constant, we can also state that the more difficult the goal, the higher will be the
level of performance. However, it is logical to assume that easier goals are more likely to
be accepted.

Goal setting theory presupposes that an individual is committed to the goal that is,
determined not to lower or abandon the goal. This is most likely to occur when goals are
made public, when the individual has an internal locus of control, and when the goals are
self set rather than assigned. Self- efficacy refers to an individual’s belief that he/she is
capable of performing a task. The higher your efficacy, the more confidence you have in
your ability to succeed in a task.

4.3.8 McCelland’s Theory of Needs

McCelland’s theory of needs focuses three needs: achievement, power and affiliation.
Each of the needs is discussed in greater detail as follows:
1. Needs for Achievement: the desire to excel, to achieve in relation to a set of
standards, to strive to succeed. Need for achievement has requirement for
motives and achievement. It discusses the present requirements and future
motives simultaneously. A motive of achievement is a desire to perform in
terms of a standard of excellence. Many people have a thrust or compelling
drive to succeed. Individuals strive for personal achievement and want to do
something better to distinguish themselves from lower performers.

The following are some of the characteristics of high performers.

 Personal responsibility: high performers seek personal responsibility for
solving problems. They desire to establish outstanding goals. Gambling or

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windfall gain is not the motive of high performers because they prefer to
hard work and challenging job and enjoy performance without caring
much about the result derived thereof. They feel personally responsible for
their success or failure. Chance, luck or favorable conditions have no
place in their minds as they believe in work.
 Satisfaction with performance: They are not dissatisfied with the low
result, but are dissatisfied if they are unable to perform the job. They do
not leave a job unfinished. Satisfaction is derived from a completed job.
They feel satisfied when they put in maximum efforts.
 Need for feedback: Money is not a motivator for high achievers, but they
use it as feedback or measurement of their performance. They prefer
accomplishment to monetary rewards. They are self-reformers and need
immediate feedback.
 Moderate risk: when a high probability of success is attached to a job,
high performers do not get satisfaction. They take moderate risks. They
like to establish realistic goals which can be achieved with the given
strength and opportunities.
 Job autonomy: high achievers like personal freedom to complete the job.
A lonely job has a definite responsibility which is a motivating factor to
them. They have the desire to excel which is possible when they are given
job autonomy.

2. Need for power: is the desire to influence and control others. Individuals like
power as they enjoy being in charge. They prefer to be placed in competitive
and status oriented situations. They enjoy prestige and gaining influence over
others. They do not believe in performance. Power is enjoyable and effective for
influencing others. Hence, people strive for superiority by gaining power rightly
or wrongly. They need conquest and drive for upward movement.

3. Need for Affiliation: people being social beings, desire friendship and
associations. They prefer cooperation rather than competitive situations.
Individuals desire relationships involving a high degree of mutual understanding

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and cohesiveness. It is the unlearned behavior as has been observed in animals

that move about in groups. People working in groups get more energy to
perform the job. Synergy developed through group behavior is always an
effective motivator.

To summarize, high achievers are motivated by entrepreneurial activities, self oriented

units and personal relationships. High need people are generally not good managers. The
need for power makes leaders. Similarly, the need for affiliation is an essential quality of
managers. Employees should be motivated based on the above three needs as per their
characteristics and individual differences and personalities.

4.3.9 Reinforcement Theory

According to Mishra, persons tend to repeat behavior that is accompanied by favorable
outcomes and tend not to repeat behavior that is accompanied by unfavorable outcomes.
This theory is based on the learning process. It tries to develop the behavior of employees
because favorable behavior automatically motivates people to exert their effort.
Reinforcement is contingent upon stimuli, attention and translation. The reinforcement
period should be shortened as much as possible for getting effective behavior.

There are four types of reinforcement, namely, positive, negative, punishment and
extinction.
1. Positive Reinforcement: this increases the favorable behavior of
employees. It provides favorable consequences that reinforce the behavior.
Regular feedback and recognition provides the employees positive
reinforcement. For example, if a manger gives a prize to an outperforming
employee, the receiver will be highly likely to maintain his/her performance.
2. Negative Reinforcement: is concerned with the removal of an unfavorable
consequence. Unfavorable behavior is repeatedly removed until it is avoided.
A mechanic working on machines listens to abnormal sounds and tries to stop
the machine to prevent unpredictable danger. Negative reinforcement is
avoidance learning. For instance, a manager can reinforce attendance of

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employees by making them aware of the possible consequences of being

absent from work.
3. Punishment: is reprimand to prevent unfavorable consequences. It is used
to influence employees not to resort to any undesirable behavior. It is used to
decrease undesirable behavior. Punishment minimizes or eliminates
undesirable behavior through reprimand which leads to unfavorable
consequences. A manager can minimize the number of absences by
penalizing the employee for being absent for insufficient reasons.
4. Extinction: is similar to punishment and is the reinforcement to reduce or
dominate undesirable behavior. It is the withholding of positive
reinforcement. With continuous non reinforcement, undesirable behavior may
disappear or may totally be eliminated.

�Quick Test Questions

1. According to the expectancy theory, what is valence?
2. What are the assumptions held by McGregor while proposing theory Y?
3. Identify the three needs upon which McCelland’s Theory of Needs focuses.
4. Differentiate between negative reinforcement and punishment

Chapter Summary
Motivation can be defined as an inner condition of people which energizes them to work.
It is a need satisfying process. The key elements in that need to be incorporated in a
definition of organizational motivation are effort, goals and needs. An unsatisfied need
creates tension that stimulates drives within the individual. These drives generate a search
behavior to find particular goals that if attained, will satisfy the need and hence reduce
the tension.

Abraham Maslow has proposed the need hierarchy theory of motivation; which states
within every human being a hierarchy of five needs exists. These needs are physiological
needs, safety needs, social needs, esteem needs and self actualization needs. ERG theory
is a modification of the need hierarchy theory of Maslow. This theory proposes three
categories of needs, that is, E-existence, R- relatedness, G- growth needs. As to

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Herzberg’s two-factor theory, the work characteristics associated with satisfaction are
different from those pertaining to dissatisfaction. He stated two factors, hygiene factors/
dis-satisfiers and motivation factors/satisfiers, influence work motivation. Equity theory
contends that individuals compare their job inputs and outcomes with those of others and
then respond to eliminate any inequalities.

According to the expectancy theory, an employee is motivated to exert a high level of

effort when he/she believes that the effort will lead to good performance and rewards.
McGregor’s theory X&Y asserts that managers may consider their subordinates as if they
belong to theory X-which hold a negative attitude towards, or theory Y- that holds a
positive attitude towards them. Specific and difficult goals lead to higher performance as
they tell employees what needs to be done and how much effort ought to be exerted.
Need for achievement, power and affiliation are the three components of McCelland’s
theory of needs. Finally, the reinforcement theory suggests that individuals tend to repeat
behavior that is accompanied by favorable outcomes; otherwise, they quit it. Four types
of reinforcement are given, viz. positive, negative, punishment and extinction.

Self Check Exercise 4

I. Multiple Choice Questions
Choose the correct answer
1. Which one of the statements below is not true?
A. motivation is a personal trait which some people have and others do not have
B. from organizational perspective, only effort that is directed towards and
consistent with its goals is useful
C. when someone is motivated, he/she tries hard
D. motivation is a need satisfying process
E. None
2. Which one of the following is different from others?
A. need for affection C. need for recognition
B. need for belongingness D. need for friendship E. B&D
3. Identify the one that is not among motivation factors according to the two factor
theory.

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A. achievement C. responsibility
B. advancement D. Salary E. recognition
4. As to equity theory, when employees perceive inequity they can
A. change their outcomes C. distort perception of self
B. change their inputs D. leave the organization E. all of the above
5. All the statements below are true about theory Y except____
A. employees view work as natural as rest or play
B. an average person can learn to accept, even seek to responsibility
C. since employees dislike work, they must be coerced, controlled or threatened
with punishment to achieve goals
D. people exercise self direction and self control if they are committed to the
objectives
E. None
6. If a manger of certain company reinforces attendance of employees by emphasizing
on the undesirable consequence that would follow if they are absent, he is using
A. Positive reinforcement
B. Extinction
C. Punishment
D. Negative reinforcement
E. None

II. Short Answer Questions

1. State the assumption held by Maslow while proposing hierarchy of needs theory.
2. What are the four referent comparisons an employee may use to determine whether
his/her reward is equitable or not?
3. Explain performance outcome (p-o) expectancy
4. List down the characteristics of high performers

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CHAPTER FIVE
LEADERSHIP
Introduction
Dear learner, as you have seen in your Introduction to Management Module, leadership is
one of the functions of management. Here, the chapter is divided into five subsections. In
the first section, general overview of leadership- including its definition, what it
encompasses and other things are covered. The next section compares and contrasts
leadership and management. In the third section of the chapter, nature of leadership is
assessed. The forth section of the chapter is devoted to the theories of leadership
forwarded by various scholars. The theories which will be discussed there include: Trait
Theory, Behavioral Theory of Leadership, Charismatic Leadership Theory, Fielder’s
Contingency Theory of Leadership, Path Goal Theory and Hersey & Blanchard’s
Situational Theory. In the final section of the chapter, leadership styles will be seen.
Upgrade your knowledge of management by meticulously reading the sections one after
the other!

Learning Objectives
At the end of this chapter, you are expected to:
 give definition of leadership
 distinguish whether leadership is the same to forcing/ coercing or not
 differentiate between leadership and management
 comprehend the nature of leadership
 be familiar with various theories of leadership

5.1 Overview of Leadership

Robbins opines that while almost everyone seems to agree that leadership involves an
influence process, differences tend to center around whether leadership must be non-
coercive (as opposed to using authority, rewards, and punishments to exert influence over
followers) and whether it is distinct from management.

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Leadership is the process of influencing individuals and groups towards achievement of

pre-stated goals. It is an act of influencing and motivating people to perform certain tasks
to achieve organizational objectives. The source of this influence may be formal, such as
that provided by the possession of managerial rank in an organization. Since management
positions come with some degree of formally designated authority, a person may assume
a leadership role simply because of the position he or she holds in the organization. But
not all the leaders are managers; nor, for that matter, all managers are leaders.

The success of an organization depends on the leader- his attributes, approaches, and
problem solving techniques. Leadership simply means the quality of a good manager. It
is the personality and style of treatment of a leader which influences the behavior of his
followers. Leadership is the focus of activity through which the objectives of the
organization are achieved by motivating the employees. Leadership is the process of
influencing and supporting employees or others to work enthusiastically toward
achieving the objectives.

All groups need skilled leaders to accomplish their objectives. This skill has three
ingredients:
1. The understanding that people’s motivation varies at different times.
2. The ability to inspire, persuade and communicate and
3. The ability to create a climate for motivation.

5.2 Leadership Vs Management

Leadership and management are not synonyms.
 Leadership is about coping with change. Leaders establish direction by
developing a vision of the future; then they align people by communicating this
vision and inspiring them to overcome hurdles.
 Management, the process, is about coping with complexity. Good management
brings about order and consistency by drawing up formal plans, designing rigid
organizational structure, and monitoring results against the plans.

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 Non sanctioned leadership- the ability to influence that arises outside the formal
structure of the organization- is as important as or more important than formal
influence. In other words, leaders can emerge from within a group as well as by
formal appointment to lead a group.
 Just because an organization provides its managers with certain formal rights is no
assurance they will be able to lead effectively.
 Leaders inspire and empower others to voluntarily commit themselves to achieve
their vision regardless of their position in organization. Leadership activities may
or may not relate to the position one holds in the organization.
 Management gets authority from their formal rank on the structure. Managers
implement plans and control performance.

Warren G. Bennis put forth some characteristics of managers versus leaders as

follows.
Managers Leaders
 Administrators -innovators
 Maintains -develops
 Focuses on systems and structure -focuses on people
 Relies on control -inspires trust
 Short range view -long range perspective
 Asks how and when -asks what and why
 Eye on the bottom line -eye on the horizon
 Imitates -originates
 Accepts the status quo -challenges the status quo
 Classic good soldier -own person
 Does things right -does the right thing
Adopted from G. Bennis, ‘Journal of Organizational Change Management’ vol.2 No 1, 1989, p.7

�Quick Test Questions

1. Is leadership exactly similar to coercing/ forcing or it is different?
2. What skills are required by a leader to be a successful one?
3. Leadership is about coping with change, whereas management is coping with
complexity. Clarify this statement further.

5.3 Nature of Leadership

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Leadership has definite characteristics which are retained by effective leaders. The
features of leadership include:
 Performance: the performance of a leader directly influences the leader also. If
he asks his employees to come on time, he himself has to reach the work place
on time. The workers follow his behavior and functions automatically. Leaders
have to influence followers by their action.
 Communication: leadership starts with communication either by deeds or
words. The followers can develop themselves by observing and accepting the
work or verbal communication of a leader. A leader must use the communication
appropriate to a particular situation.
 Influence: without influencing others, a leader cannot function at all. Influence
denotes any change in behavior of a person or group due to anticipation of the
response of others.
 Power base: the influence depends on the power base enjoyed by the leader.
 Interaction: the relationship between two persons is essentially desired in the
management. The leader and followers interact on a particular subject and the
followers follow their boss’s advice to accomplish the subject of interest.
 Acceptance: if the influence is not recognized by the subordinates, leadership
does not take place. The behavior of followers is changed and developed by the
acceptance of the power of leadership.
 Followers: leadership has followers. The link between the leader and his
followers is communication. Since leadership is influencing others, there must
be others who are being influenced to attain goals.
 Situation: leadership is visible in a situation. In routine and regular functions
leadership may be less important but in other cases it is highly important.
 Attributes: leadership is the attribute of a leader. The qualities of a leader are
specific. The main quality is to influence others.

5.4 Theories of Leadership

In this section, theories of leadership, which are contributed by various scholars, will be
assesses. Read each of the theories vigilantly with the aim of grasping its crux.

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5.4.1 Trait Theory

This theory refers to what a leader is. It concerns with the identification and measurement
of traits or attitudes that are associated with the leader’s behavior. It emphasizes the
personality characteristics and value system of leaders. It tries to seek personality, social,
physical, or intellectual traits that differentiate leaders from non-leaders. As it was found
out through research, the six traits on which leaders tend to differ from non-leaders are:-
ambition and energy, the desire to lead, honesty and integrity, self confidence,
intelligence and job relevant knowledge. Though these qualities are not the only
determining factors, an individual possessing them may have a higher probability of
becoming successful leader than some one with out them.

Luthans opines that under the influence of the behaviorist school of psychological
thought, researchers accepted the fact that leadership traits are not completely inborn but
can also be acquired through learning and experience. Attention turned to the search for
universal traits possessed by leaders. The results of this voluminous research effort were
generally very disappointing. Only intelligences seemed to hold up with any degree of
consistency. In general, research findings do not agree on which traits are generally found
in leaders or even which ones are more important than others. The trait approach to
leadership has provided some descriptive insight but has little analytical or predictive
value.

Research findings show some key competencies that are related to leadership
effectiveness.
 Drive or the inner motivation to pursue goals
 Leadership motivation, which is the use of socialized power to influence others to
succeed.
 Integrity, which includes truthfulness and the will to translate words into deeds
 Self confidence that leads others to feel confidence, usually exhibited through
various forms of impression management directed at employees

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 Intelligence, which is usually focused in the ability to process information,

analyze alternatives, and discover opportunities.
 Knowledge of the business so that ideas that are generated help the company
survive and thrive.
 Emotional intelligence based on a self-monitoring personality, making quality
leaders strong in situation sensitivity and the ability to adapt to circumstances.

Trait Theory suffers from the following limitations

1. There are no universal traits that predict leadership in all situations.
2. There is no clear evidence separating cause from effect, that is to whether the
leader’s self confidence caused success or success as a leader builds self
confidence.
3. Generally, it fails to clarify the relative importance of various traits.
4. It ignores situational factors.

5.4.2 Behavioral Theory of Leadership

Mishra asserts that leadership is based on the behavior of the leader. His explicit and
implicit actions influence the employees. Leader’s philosophy, traits, attitude and skills
are generally imitated by his followers. His style of functioning is reflected implicitly or
explicitly in the employees. Competent leaders are likely to influence their employees
rather than incompetent leaders. Employees perceive what the leader actually does.

Robbins states that the inability to strike “gold” in the trait “mines” led researchers to
look at the behaviors that specific leaders exhibited. They wondered if there was some
thing unique in the way effective leaders behave. If trait research had been successful, it
would have provided a basis for selecting the “right” person to assume formal position in
groups and organizations requiring leadership. In contrast, if behavioral studier were to
turn up critical behavioral determinants of leadership, we could train people to be leaders.
If training worked, we could have an infinite supply of effective leaders. The difference
between trait and behavioral theories, in terms of application, lies in their underlying
assumptions. If trait theories valid, then leadership is basically inborn. You either have it
or you do not. On the other hand, if there were specific behaviors that identify leaders,

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then we could teach leadership-we could design programs that implanted these behavioral
patterns in individuals who desired to be effective leaders.
There are various leadership theories that fall under behavioral leadership theory. The
following are among such theories.

a) Research at Ohio State University

The most comprehensive and replicated of the behavioral theories resulted from research
that began at Ohio state university in the late 1940’s. These researchers sought to identify
independent dimensions of leader behavior. The two dimensions of leadership behaviors
as proposed by the researchers are:

1. Initiating structure: refers to the extent to which a leader is likely to define and
structure his or her role and those of subordinates in the search for goal
attainment. The leader characterized as high in initiating structure could be
described in terms such as “assigns group member to particular tasks, expects
workers to maintain definite standards of performance and” emphasize is the
meeting of deadlines

2. Consideration: is described as the extent to which a person is likely to have job

relationships that are characterized by mutual trust, respect of subordinates’ ideas
and regard for their feedings. He or she shows concern for followers’ comfort,
well- being, status and satisfaction. A leader high in consideration could be
described as one who helps subordinates with personal problems, is friendly and
approachable, and treats all subordinates as equals.
High L, H H, H

Initiating structure

Low L, L H, L

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Low consideration High

Figure 4.4 Ohio State University study

The researchers of these two dimensions found that leaders high in initiating structure
and consideration (H, H leaders) tend to achieve high employee performance and
satisfaction more frequently than those who rated low in either consideration, initiating
structure or both. However, “high, high” style did not always result in positive
consequences. The Ohio state university studies suggested that the high –high style
generally resulted in positive outcomes but enough reasons were found to indicate that
situational factors needed to be integrated in to the theory.

b) University of Michigan Studies (Employee Oriented and

Production /Task Oriented)
Leadership studies undertaken at the University of Michigan’s survey research center at
about the same time as those being done at Ohio State, Proposed two leadership
behaviors: employee oriented and production /task oriented. Leaders who were described
as employee oriented were emphasizing interpersonal relations; they took a personal
interest in the needs of their subordinates and accepted individual differences among
members. Production oriented leaders in contrast, tended to emphasize the technical or
task aspects of the job. Their main concern was in accomplishing their group’s tasks, and
the group members were a means to that end.

The conclusion arrived by the Michigan researchers strongly favored the leaders who
were employee oriented in their behavior. Employee oriented leaders were associated
with higher group productivity and higher job satisfaction. Production oriented leaders
tended to be associated with low group productivity and low job satisfaction.

c) The Managerial Grid

The managerial grid perspective was developed by R. Blake and J. Mouton. They
proposed a managerial grid based on the styles of “concern for people “ and “ concern
for productivity” which essentially represent the Ohio state dimensions of consideration
and initiating structure or the Michigan dimensions of employee oriented and production

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oriented. It measures a manager’s concern for people and concern for production and then
plots the results on the nine- position grid that places concern for people on the vertical
axis and concern for production on the horizontal axis, as shown in the figure below.
High
9 1,9 9,9

5,5

1,1 9,1

Concern for people

Low 1 2 3 4 5 6 7 8 9
Low Concern for production High
The Managerial Grid

As the above figure shows each type of concern is ranked on a scale from 1 to 9 resulting
in five major contribution of leader behavior.
1. Impoverished Style (1, 1): the manager is less concerned with people and least
bothered about production. The leader is dormant and does not bother much about
the people’s welfare and quantum of production.
2. Efficiency style (9, 1): it is similar to autocratic style wherein high concern for
production and low concern for People is given. Here people are the least
important factors while production is the more important and desired task. This
condition is not always desirable because the employees cannot be exploited

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forever. They would demand more perks if production is increased in their

account.
3. Country Club (1, 9): this approach resembles laissez-faire style wherein low
concern for production and high concern for people is given. The leader thinks
that production will improve if the people’s welfare is looked after. Satisfied
employees are assets to the organization. However, it may create a negative
productivity if the employees are given too much attention. They become reckless
and managerial inefficiencies develop.
4. Middle of the road style (5, 5): Moderate level of concern for both people and
production is given. This style balances needs through compromise, resulting in
adequate performance. Many managers adopt the middle path style for achieving
the production target. This style gives equal weight to task and relationship.
5. Common stage style (9, 9): here high levels of concern for people and production
is given. This type of management results in superior performance from
committed employees. It is the ideal position. The leader is considered as a team
builder and production maker. This is the point which should be achieved by
every manager, although this point is rarely achieved by them.

�Quick Test Questions

1. Mention any four of the features of leadership
2. List down the six traits on which leaders tend to differ from non-leaders
3. What are the two dimensions of leadership behaviors that are taken into account
by the University of Michigan Studies?

5.4.3 Charismatic Leadership Theory

Studies at charismatic leadership have, for the most part, been directed at identifying
those behaviors that differentiate charismatic leaders from their non-charismatic counter
parts. Several authors have attempted to identify personal characteristics of the
charismatic leader and proposed three such features as extremely high confidence,
dominance, and strong conviction in his or her beliefs. This theory says that charismatic
leaders have heroic or extra ordinary leadership abilities. Several studies suggested that

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charismatic leaders have vision, are willing to take risks to achieve that vision, are
sensitive to both environmental constraints and followers’ needs and exhibit extra
ordinary behavior.

The ways by which charismatic leaders influence followers are:

 The leader articulates an appealing vision,
 The leader communicates performance expectations,
 The leader coveys through words and actions a new set of values,
 The leader makes self sacrifices to demonstrate courage and convictions about the
vision,
 Avoids confusions, builds self confidence on subordinates,
 Becomes a model/ good example to his/her followers.
 Uses power to serve others
 Align vision with followers’ needs and aspirations
 Considers and learns from criticism
 Stimulates followers to think independently and to question the leader’s view
 Open-two way-communication is used
 Coaches, develops and supports followers; shares recognition with others
 Relies on internal moral standards to satisfy organizational and societal interests.

Studies show that people working for charismatic leaders are motivated to exert extra
work effort, and because they like and respect their leader, experience greater
satisfaction. Most experts believe that individuals can be trained to exhibit charismatic
behaviors and can thus enjoy the benefits that accrue to being labeled “a charismatic
leader.”

5.4.4 Fielder’s Contingency Theory of Leadership

The failure to obtain consistent results led various researchers to focus on situational
influences. The relationship between leadership style and effectiveness suggested that
under Condition A, Style X would be appropriate whereas Style Y would be more
suitable for Condition B and Style Z for Condition C. It was one thing to say leadership
effectiveness is dependent up on the situation and another to be able to isolate those

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situational conditions. Many people agree that effective leadership style is dependent/
contingent upon situations. The best way to lead depends on the leader, the followers and
the situations, the nature of the task, the authority relationship and the group dynamics.

Leadership effectiveness is determined by:

1. Leader- member relationship: how the leader and follower relate to one another. If
they like, trust and have confidence in one another, the situation is more
favorable.
2. Task structure: the extent to which job assignments are defined/structured/
procedurized from the leader’s vantage point. The situation is more favorable with
high task structure. When task structure is low the group will need more guidance.
3. Position power: the degree of influence a leader has over power variables such as
hiring, discipline, promotion, and salary increases. The higher the leader’s
position, the more favorable the situation.

Overall, Fiedler has provided one of the major breakthroughs for leadership theory,
research and practice. Although some of the criticisms are justified, there are several
reasons that Fiedler’ model has made the following contributions among others.
 It was the first highly visible leadership theory to present the contingency
approach
 It emphasized the importance of both the situation and the leader’s characteristics
in determining leader effectiveness
 It stimulated a great deal of research, including tests of its perditions and attempts
to improve on the model, and inspired the information of alternative contingency
theories.

5.4.5 Path Goal Theory

The term path-goal is derived from the belief that effective leaders clarify the path to help
their followers get from where they are to the achievement of their work goals and make
the journey along the path easier by reducing road backs and pitfalls. This theory asserts
that leadership is a process of making valued outcomes available, assisting followers in
attaining these out comes by providing the necessary direction and or support and

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persuading them that they can succeed. In other words, leaders show employees the path
to wards the desired goal. According to path-goal theory, a leader’s behavior is
acceptable to subordinates to the degree that it is viewed by them as immediate source of
satisfaction. A leader’s behavior is motivational to the degree it:
1. Makes subordinates need satisfaction contingent on effective performance, and
2. Provides the coaching, guidance, support and rewards that are necessary for
effective performance and may otherwise be lacking in subordinates or in their
environment.
Path-goal theory proposes two classes of situational or contingency variables that
moderate the leadership behavior- outcome relationship: those in the environment that are
outside the control of the subordinate (task structure, the formal authority system, and the
work group) and those that are part of the personal characteristics of the subordinate
(locus of control, experience, and perceived ability). Environmental factors determine the
type of leader behavior required as a complement if subordinate outcomes are to be
maximized; personal characteristics of the subordinate determine how the environment
and leader behavior are interpreted. Therefore, the theory proposes that leader behavior
will be ineffective when it is redundant with sources of environmental structure or
incongruent with subordinate characteristics.

To sum up, leader behavior will be acceptable to subordinates to the extent that the
subordinates see such behavior as either an immediate source of satisfaction or as
instrumental to future satisfaction. The leader does the following to influence
subordinates’ perception and motivates them.
 Recognizes and/or arouses subordinates’ needs for outcomes over which the
leader has some control
 Increases personal payoffs to subordinates for work goal attainment
 Makes the path to those payoffs easier to travel by coaching and direction
 Helps subordinates clarify expectations
 Reduces frustrating barriers
 Increases opportunities for personal satisfaction contingent on effective
performance

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5.4.6 Hersey and Blanchard’s Situational Theory

Situational leadership is contingency theory that focuses on the followers. Successful
leadership is achieved be selecting the right leadership style, which Hersey and
Blanchard argue is contingent upon the level of the followers’ readiness or maturity.
The emphasis on the followers in leadership effectiveness reflects the reality that it is
they who accept or reject the leader. Regardless of what the leader does, effectiveness
depends on the actions of his or her followers. This is an important dimension that has
been overlooked or underemphasized in most leadership theories. The term readiness, as
defined by Hersey and Blanchard, refers to the extent to which people have the ability
and willingness to accomplish specific goals.

Situational leadership uses the same two leadership dimensions that Fiedler identified:
task and relationship behavior. However, Hersey and Blanchard go a step further by
considering each as either high or low and then combining them into four specific leader
behaviors: telling, selling, participating and delegating. They are described one by one
below.
1) Telling (high task- low relationship): the leader defines roles and tells people
what, how, and where to do various tasks. It emphasizes directive behavior.
2) Selling (high task-high relationship): the leader provides both directive behavior
and supportive behavior.
3) Participating (low task- high relationship): the leader and followers share in
decision making, with the main role of the leader being facilitating and
communicating.
4) Delegating (low task-low relationship): the leader provides little direction or
support.

�Quick Test Questions

1) Describe any five ways by which charismatic leaders influence their followers
2) State the contingency theory
3) What is the essence of path goal theory?

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5.5 Leadership styles

It involves the degree to which a leader shares decision making authority with
subordinates.
1. Autocratic style: “I” approach: - is a leadership approach in which a manager
does not share decision making authority with subordinates. It is used when the
subordinates are unskilled, when the decision is more of secret and there is high
degree of risk. Subordinates are instructed to perform the job in specific manner.
A leader is considered as superior and the employees as inferior.
2. Supportive Leadership: unlike directive leadership, the leader is friendly and
sympathetic to the employees. He helps them in times of need. He is always
concerned with the problems of employees. A distance between the leader and the
employees is maintained but is not inappropriate. The leader demonstrates helping
attitude for developing the employees’ wellbeing. A healthy and helpful
atmosphere is created for the satisfaction of employees.
3. Democratic /participative style: “We” approach: is a leadership approach in
which a manager shares decision making authority with subordinates. It involves
others and lets them bring their unique view points, talents and experiences to
bear on an issue. It is applied when the subordinates are committed and the
manager trusts them.
4. Free -ride/Laissez-faire style “They” approach: it empowers individuals or
groups to function on their own without direct involvement from the higher level
managers to whom they report. This style relies heavily on delegation of
authority. It is employed when the subordinates are experts, professionals and
have a good knowledge about the subject matter under consideration.

Chapter Summary
Leadership is the process of influencing individuals and groups towards achievement of
pre-stated goals. It is an act of influencing and motivating people to perform certain tasks
to achieve organizational objectives. The source of this influence may be formal or
informal. As leadership is only one of the functions of management, the two are not

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synonymous. Leadership has definite characteristics which are retained by effective

leaders.

Trait theory is concerned with the identification and measurement of traits or attitudes
that are associated with the leader’s behavior. It emphasizes on the personality
characteristics and value system of leaders. It tries to seek personality, social, physical, or
intellectual traits that differentiate leaders from non-leaders. As to the behavioral theory
of leadership, leadership is based on the behavior of the leader. Three researches
conducted in line with behavioral theory are dealt in this chapter, viz. Research at Ohio
state university, Research at Michigan University and the Managerial Grid. Charismatic
theory of leadership attempts to identify those behaviors that differentiate charismatic
leaders from their non-charismatic counter parts. Extremely high confidence, dominance,
and strong conviction in his/her beliefs are among such features. Effective leadership
style is dependent/ contingent upon situations-the leader, the follower, the nature of the
task, the authority relationship and the group dynamics. Successful leaders clarify the
path to help their followers get from where they are to the achievement of their work
goals and make the journey along the path easier by reducing road backs and pitfalls.
Situational leadership uses the same two leadership dimensions that Fiedler identified:
task and relationship behavior. However, Hersey and Blanchard go a step further by
considering each as either high or low and then combining them into four specific leader
behaviors: telling, selling, participating and delegating. We can apply any of three types
of leadership styles-autocratic, participative or laissez-faire- as the situation calls.

Self Test Exercise 5

i. Choose the best answer among the alternatives given
1. Which one of the statements below is untrue?
A. leadership is the process of influencing and supporting employees to work
enthusiastically
B. all leaders are managers
C. all groups need skilled leaders to accomplish their objectives
D. leadership is the act of forcing or threatening employees to work hard

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E. B&D
2. Identify the one that correctly describes managers and leaders
A. managers are innovators whereas leaders are administrators
B. managers do things right whereas leaders do the right thing
C. leaders accept the status quo but managers challenge the status quo
D. managers inspire trust but leaders rely on control
E. None of the above
3. Leadership
A. is visible in situation
B. is the attribute of leaders
C. has followers
D. cannot take place without influencing others
E. all of the above
4. Impoverished style of leadership
A. is similar to autocratic style
B. resembles laissez faire style of leadership
C. is characterized by a leader who does not bother much about people and
production
D. is characterized by a leader with moderate level of concern for both people
and production
E. None
5. Successful leadership style is achieved be selecting the right leadership style which is
contingent upon the level of followers’ readiness or maturity. This statement best
describes
A. situational theory of leadership C. charismatic theory
B. trait theory D. behavioral theory E. C&D
6. Ato Admike, manager of Brothers’ Limited Company, shares decision making
authority with his subordinates, lets them bring their unique view points, talents and
experiences to bear on the issue. Ato Admike is adopting
A. laissez faire leadership style C. autocratic leadership style
B. participative leadership style D. democratic leadership style E. B&D

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ii. Short Answer Questions

1) Describe the limitations of trait theory
2) Mention about five of the ways by which charismatic leaders influence their followers
3) When do you recommend a manager to employ laissez faire style of leadership?

CHAPTER SIX
ORGANIZATION AND ITS ENVIRONMENT
Introduction
As open systems, organizations interact with their internal as well as external
environment. Here, you will be learning about these two sources of influence- external
and internal environmental factors. To make it easy to comprehend, the chapter is divided
into four sub parts. In the first part of the chapter, overview of environment is made.
Next, the concept of an organization as open system is clarified. Section three is
concerned with the internal environment which consists of physical resources, financial
resources, human resources and managerial values and ethics. The final section assesses
the external environment that incorporates the political and legal forces, economic forces,
social forces, technological forces and internationals influences. Enjoy reading each
section with the intention of seizing its substance.

Learning objectives
After completing the study of this chapter, you should be able to:
 Identify the groups-within and outside- to which an organization is accountable
 Differentiate between the views of environmental determinism and organizational
determinism
 Describe what is meant by ‘an organization is open system.’
 Recognize the purpose why internal environment analysis is made
 Elucidate the components of external environment

6.1 Overview

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Organizations are accountable to a number of different groups including customers,

suppliers, creditors, government agencies and the public. They must be responsive to
these groups and operate within the boundaries they establish. Managers do not have the
luxury of being able to do whatever they choose. They must make decisions within a
framework of external and internal forces. That framework defines the environment of
management. These forces can be constraints or opportunities for a company. Since we
know without a doubt that environmental forces surround organizations, the question
becomes what determines successful business performance. Two schools of thought
attempt to answer this question from diametrically different viewpoints: those of
environmental determinism and organizational determinism.

In support of environmental determinism scholars in the field of industrial organization

argue that business performance fundamentally is affected only by competition in the
industry and that the firm cannot influence its environment. Those in organizational
theory and behavior maintain that a business’s success depends largely on how an
organization fits with its environment. Environmental determinism has its roots in
Darwin’s Theory of Natural Selection, that is, nature ultimately selects which species will
survive and which will become extinct.

In support of organizational determinism, scholars in sociology, economics and more

recently strategic managements have different arguments. They believe that an
organization not only adapts to its environment but also it influences its surroundings.
The success of the business depends on how well it can influence the environmental
forces in its favor. The issue is close to the hotly debated question of whether individuals
affect their environment or whether the environment affects the individual.

We can assume that organizations are influenced by environmental forces. We can also
accept the idea that firms can use the external environment to their own advantage. It is
safe to assume that large, powerful organizations with greater resources can have more
influence on external environmental forces than small, less powerful organizations can.

6.2 The Organization as Open System

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A system is a set of integrated and mutually dependent parts arranged in a manner that
produces a unified whole. The words arrangement and interrelated describe the
interdependent elements forming an entity that is the system. Thus, when taking a
systems approach, one begins by identifying the individual parts and then seeks to
understand the nature of their collective interaction.
The systems theory holds that a manager must be able to see the interrelationships of the
different parts of his or her organization and must understand how the organization fits in
to its larger environment. Today’s organizations are generally considered open system;
that is, they are affected by environmental forces. A manager must be aware of those
forces and must adapt the organization to them. By viewing a firm as a single unit and as
part of a larger system managers will have better perspective when it comes to planning,
organizing, leading and controlling.

A system is desired to have certain qualities like:

 A system must be designed to accomplish an objective / asset of objectives
 A system is composed of interrelated parts called subsystems. These subsystems
must have an established arrangement
 Interrelationships must exist among the individual elements of a system and these
interrelationships must be synergetic in nature.
 The basic ingredients (the flow of information, energy and materials) of a process
are more vital than the basic elements of a system.
 Organizational objectives are more important than the objectives of its
subsystems.

Task Environment
-competitors
-suppliers
-customers
- Unions

Structure
Inputs
-Material Outputs
ts
-Capital Task Technology -Products
-human -Services
-Information

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Figure 6.1 system

People General Environment

-Political forces
Figure 6.1 Components of an organization as open system -Technological forces
-Economic forces
Organization is viewed as an open system. It interacts with internal and external factors.
-Socio cultural forces
An organization as open system is characterized by the following.
 Subsystems: the components that make up the big system are referred to as
subsystems. The subsystems must have an established arrangement and need to
have interdependencies.
 Synergy: synergy means that the whole is greater than the sum of its parts. The
system is to be viewed as a whole, not merely the sum of its individual parts; its
performance should be viewed as an integrated system.
 The input-output model: all open systems transform inputs into outputs. The
system is to be viewed as a transformation process in dynamic interaction with its
environment.
 Goal seeking- open system: goal seeking open systems exchange information,
energy, or material with their environment. Interaction among elements results in
some final state or goal.
 Entropy: every transformation process involves the degradation or use of energy
and resources. The tendency toward entropy is a movement toward disorder and
eventually termination of functioning. To keep a system operating there must be
an infusion of energy and resources.
 Steady state: the notion that systems are goal seeking implies that they are
adaptive and self-regulating. The open system seeks a state of dynamitic
equilibrium.
 Feedback: the feedback of information regarding performance is used to adjust
and control performance. Feedback is information input which indicates that the
system is deviating from goals and needs to readjust.

�Quick Test Questions

1. What does environmental determinism assert?
2. What is meant by the following terms/phrase?

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-Subsystem -Steady state

-Feedback -Entropy
-Synergy
6.3 The Internal Environment
A business’s environment is affected not only by external forces but also by internal
forces. These include the physical, financial and human resources of the firm and the
value systems of managers. Internal forces provide both problems and opportunities for
the firm. The resources of an organization include money, men, machines, materials,
minutes and information. Hence, managers should know how the resources are deployed,
how are they performing, and their interrelationships so to understand the internal
environment.

6.3.1 Purposes of Internal Environment Analysis

The following are various reasons for undertaking internal environment analysis:
 To identify resources, capabilities, core competencies, and competitive
advantages
 To evaluate value adding activities( input, process, and output activities)
 To evaluate the performance and progress of the products in the market
 To evaluate financial performance against the industry/ competitors
 To evaluate the investment potentials of outsiders in the organization
 To evaluate marketing performance of the organization
 To assess the role of research and development activities
 To assess the production performance, and
 To assess the performance of human resources.

Below the major resource types such as physical resources, financial resources, human
resources as well as managerial values and ethics are discussed in greater detail.

6.3.2 Physical Resources

Every firm has physical resources that either aid or hinder its performance. They include
the physical plant and its location, manufacturing equipment, raw materials,
transportation and distribution facilities and other resources vital to its operations. Access

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to a dependable supply of raw materials and component parts gives a firm a competitive
edge in the market place. International Paper Company, for example, benefits from
owning sources of raw materials. Other firms, particularly giant manufacturing
companies, own factories that produce component parts for their products. Still others
protect themselves with long term contracts that ensure an uninterrupted supply of raw
materials. Firms that are subject to supply interruptions operate under less favorable
conditions because of the uncertainty surrounding future operations.

A firm’s environment is also influenced by its manufacturing equipments. Japan’s steel

producers, for example, have made significant in roads into world market because their
modern equipment and processes enabled them to produce steel more efficiently than do
American steel mills that rely on older, less efficient equipment. Perhaps the best
example of how physical resources affect an organization is the health care industry.
Hospitals that offer state of the art diagnostic services and complete surgical facilities
have an advantage over those that do not provide complete health services. Because of
their resources, they are better able to attract health care personnel and generate capital.

6.3.3 Financial Resources

A firm’s financial resources include the assets that enable it to meet its operating costs,
expand, conduct research and development, borrow additional funds and so on. A
business’s financial position affects its stock price, its ability to raise additional capital,
and its ability to take advantage of profitable opportunities when they arise. Financially
sound firms can borrow money at lower interest rates, insists on special services as a
highly valued customer, and maintain the goodwill of suppliers, stock holders, creditors
and others. Financially unstable company, on the other hand, most likely will find it
difficult to raise capital, maintain a highly competitive position, or take advantage of
income producing opportunities.

6.3.4 Human Resources

The third resource that shapes a firm’s character and differentiates it from other
companies is its people. Although a company’s investment in its human resources is not
reflected on the balance sheet, people are just as important-perhaps more important- than

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its physical and financial resources. Human resources include blue-collar workers,
technical and professional employees, staff support personnel and managers. Especially
important are people whose technical and professional expertise set the firm apart from
its competitors. One of the most important human resources, however, is the company’s
management. Experienced managers who have the necessary human, technical and
conceptual skills are a firm’s single most important asset. Many companies have grown
from very modest operations to giant economic powers because of effective management.

6.3.5 Managerial Values and Ethics

Human values are basic convictions about what is right or wrong. Managers, like all other
people, operate within the scope and limitations of their moral convections. This value
systems help define the firm’s internal environment. Every manager has needs, ambitions
preferences and desires, and every manager must make decisions that fulfill or detract
from these needs and wants. Thus, a manager’s decision making is shaped by his or her
needs, desires and moral beliefs and by the expectations of the organization.
What seems unethical to one person may seem perfectly ethical to another. This is
especially true of people who live in countries with cultures different from ours.
Therefore, a manager working in international market must constantly struggle to balance
personal values with his/her employer’s expectations. An organization can be thought of
as a subsystem of the socio-cultural environment in which it operates.

It seems appropriate to define an organization as a social system which is organized for

the attainment of a particular goal. The values of the organizations are therefore strongly
influenced by norms and ideologies of the society. In this case, the value of the
organization legitimizes its existence and activities in the broader social system. Values
are a primary basis for guiding decision making and other actions and therefore set the
basic framework for the development of organizational theory and management practice.

Quick Test Questions

1) List down any four of the proposes of internal environment analysis

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2) Physical resources can either aid or hinder performance of a given organization.

Elaborate this statement further with examples supporting your position.

6.4 The External Environment

External environmental forces are those that operate beyond a firm’s boundaries and
affect its operations. They include political and legal, economic social and technological
influences. Each of these forces, working independently or in combination with others,
impose constraints or creates opportunities for the firm.

6.4.1 Political and Legal Forces

State and local governments are given the power to enact laws that regulate economic
activity. Government intervention occurs whenever government policies affect the
allocation of society’s resources. Such intervention and allocation can be direct or
indirect. Direct intervention and allocation of resources occurs when the government acts
as a consumer and purchase goods and services, or when it employs people. Indirect
intervention comes through legislation.

Government administration generally can be considered either pro-business or anti

business. A pro-business stance encourages new business ventures and expansion. An
anti-business attitude imposes obstacles and curtails growth. Government intervention is
evident in the banking and transportation industries when deregulation has resulted in
numerous new financial firms, airlines and trucking companies.

The rationale for government intervention is to enable the market economy respond to the
following three questions.
1) What goods should be produced?
2) How should they be produced? and
3) Who should produce them?

Each member of society pursues his or her own self interest when making private
purchases. Added together, these purchases influence allocation, production and

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distribution. That is, consumers purchase good and services in ways that give them the
greatest satisfaction, firms manufactures goods in ways that minimize their costs and
maximize their profits and are distributed among consumers according to their
preferences and incomes. Thus, when individuals pursue their personal self interest,
society’s interest as a whole is served.

The political and legal sector includes legislation, decrees of regulatory agencies, court
decisions, foreign policy and tariffs, all of which provide opportunities and constraints to
business.

6.4.2 Economic Forces

The economic environment includes trends in the Gross National Product (GNP),
disposable personal income, consumer spending, industrial investment, employment,
population growth, money markets, capital markets, the structure of industry, the nature
of competition, demand for products and similar variables.

Some economic forces affect all businesses while others influence only selected
industries. A higher GNP and higher consumer spending levels generally benefit most
businesses. But recessions, which usually are bad for most firms tend to be beneficial for
movie makes.
It is important to remember that business can influence economic forces to its advantages
just as influences political and legal forces. For example, a firm or an industry can
stimulate the economy by infusing money into it or by inducing people to spend more.

The type of industry and the nature of the competition are primary economic forces
affecting business operations. For instance there is intense price competition among firms
in some industries while firms in other industries may tend to compete in service, product
quality or availability, or other areas. While price is important to most customers; it is
only one of several considerations. Remember that a manager often has little control over
the price of the product. The market structure largely determines the selling price. For
example, in a purely competitive industry a seller has absolutely no control over the price
of the product. In a monopoly a firm sells a product or service for which there are no

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close substitutes. Without regulation, a monopolist would price the product at level that
would give him or her greatest profit.

6.4.3 Social Forces

Ultimately all organizations are affected by the social forces of their environment. These
forces include national traditions, values, customs, consumer’s psychology and social
responsibility. Social trends have presented both opportunities and threats to the business
sector over the years. Increased awareness of pollution has resulted in laws that severely
restrict the operations of many chemical, steel, textile and paper companies. Pollution
control devices, modifications in manufacturing processes, and pollution abatement
equipment have escalated operating costs.

Remember that business acts as well as reacts to social forces by trying to sway social
forces in its favor. A business can enhance its environment and reap financial rewards. A
business also can use the social environment to its advantage by creating new customers
and by expanding existing customers.

6.4.4 Technological Forces:

Often technological variables are breakthroughs that result in improved products or
services, and production methods. Because of the current alarming pace of technological
change, top level managers face the future with increasing anxiety. Today’s well-thought-
out corporate decisions may prove disastrous in the future if there are technological
innovations by competitions or supplies. For instance, capital expenditures may provide
little benefit if the resources they purchase today become obsolete tomorrow.
Improvements in microcomputers technology have meant greater precision and speed in
banking, insurance and investment firms.

6.4.5 International Influences

International influences on a company’s external environment pose constraints and
opportunities for businesses. Because of the growing impact of international trade on
domestic firms, we will examine these influences. The political and legal climate

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surrounding international trade sometimes inhibits businesses while sometimes

encourages it. Political sanctions, tariffs, subsidies, import quotas and the like constrain
some firms but create opportunities for others. The forces of popular culture in
international markets are also important. The international monetary exchange rate also
affects businesses. For example, let us take a company situated in America. When the
dollar is strong relative to foreign currencies, foreign made products become relatively
inexpensive and Americans can buy them at “bargain” prices. This hurts American
manufactures, who then demand protection. A strong Dollar also makes American made
goods relatively expensive in foreign markets, consequently, sales overseas are adversely
affected.

�Quick Test Questions

1) Explain how political and legal forces can influence the performance of
organizations
2) Take any two of the economic forces and show how they can either support or
impede a firm’s success.

Chapter Summary
Organizations must be responsive to different groups including employees, customers,
suppliers, competitors, creditors, government agencies, and the public at large.
Environmental determinism and organizational determinism are two schools of thought
that attempt to answer the question, ‘what determines successful business performance?’
A system is a set of integrated and mutually dependent parts arranged in a manner that
produces a unified whole. The systems theory holds that a manager must be able to see
the interrelationships of the different parts of his or her organization and must understand
how the organization fits into its larger environment.

The internal environment of an organization comprises of physical resources, financial

resources, human resources and managerial values and ethics. The external environment
encompasses such forces as political & legal, economic, social, technological, and
international influences. Each of the external as well as internal forces of a particular
organization can either facilitate or impede its smooth operation.

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Self Check Exercise 6

i. Choose the right answer
1. Which one of the statements below is not correct?
A. Managers can do whatever they like to do irrespective of environmental
influences
B. Environmental forces can be constraints or opportunities for a company
C. An organization not only adapts to its environment but also it influences its
surroundings
D. All E. None
2. Identify the erroneous statement
A. synergy means that the whole is greater than the sum of its parts
B. the components that make up the big system are referred to as subsystems
C. feedback about performance is essential to adjust and control the system
D. the subsystems of an organization need not have interdependencies
E. A&C
3. Internal environmental analysis is conducted to
A. evaluate value adding activities
B. assess the role of research and development activities
C. to evaluate financial performance
D. to identify resources, capabilities, core competencies and competitive advantages
E. all
4. A business’s financial position affects its
A. stock price
B. ability to raise additional funds
C. ability to take advantage of profitable opportunities when they arise
D. all E. only A&B
5. Which one of the statements below is not correct?
A. government administration can be either pro business or anti business
B. in purely competitive industry, a seller has absolute control of setting price
C. some economic forces affect all businesses while others influence only few
industries

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D. When a Dollar is strong relative to other currencies, foreign made products

become relatively expensive
E. B&D

CHAPTER 7
ORGANIZATIONAL STRUCTURE AND DESIGN
Introduction
Here, you will be learning about the third determinants of behavior apart from individuals
and groups which you have already seen in the second chapter of the module. This
chapter includes eight sub topics dealing with different aspects of organizational structure
and design. Overview, objectives and outcomes of organizational structure and design are
discussed in the first three sub topics. Factors affecting organizational structure and
design, guidelines to organizational structure and design and steps to be gone through
while designing such a structure are assesses in sub sections four to six respectively.

The rest two sub sections are devoted to departmentalization and some basic concepts of
organizational structure and design. In light of departmentalization, the basis for
departmentalization will be taken care of. Finally, concepts which are highly interlinked
with organizational structure and design such as line, staff and functional relationships,
power and its basis, chain of command, span of control, centralization vs.
decentralization, and delegation will be discussed. Expand your knowledge of
management by digesting the essence of each section. Have pleasant study session!

Learning Objectives
At the end of this chapter, you are expected to:
 Define what organizational structure is
 State the objectives of designing structure
 Identify the outcomes of organizational structure and design
 Know factors that affect organizational design
 Comprehend departmentalization and its basis
 be familiar with concepts related to organizational structure and design

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7.1 Overview of Organizational Structure and Design

Robbins asserts that organizational structure and design are important factors that
influence the behavior of individuals and groups that comprise the organization. Through
the design of the structure, management establishes expectations for what individuals and
groups will do to achieve the organization’s purposes. Managers achieve coordinated
efforts through the design of a structure of tasks and authority relationships. Design in
this context implies that managers make a conscious effort to predetermine the way
employees do their work. Structure refers to relatively stable relationships and processes
of the organization. Organizational structure is considered by many to be the anatomy of
the organization-providing a foundation within which the organization functions. Thus,
the structure of an organization similar to the anatomy of a living organism can be
viewed as a framework. The idea of structure as a framework focuses on the
differentiation of positions, formulation of rules, and regulations, and prescriptions of
authority. Therefore, the purpose of structure is to regulate or at least to reduce
uncertainty in the behavior of individual employees.

Organizations are purposive and goal oriented, so it follows that the structure of
organizations also is purposive and goal oriented. Our concept of organizational structure
takes into account the existence of purposes and goals and our attitude is that
management should think of structure in terms of its contributions to organizational
effectiveness, even though the exact nature of the relationship between structure and
effectiveness is inherently difficult to know.

7.2 Objectives of Organizational Structure and Design

Managers design an organizational structure in order to achieve the following objectives
among others:

1. Create new institution for new organization

2. Responding to changes: for an organization to stay adaptive, it must respond to
changes in the environment, technology and customer’s needs as well as to
changes that emerge from the organizations revolutionary development.

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3. Integrating new elements: as organizations grow and respond to changes they add
new positions and departments to deal with factors in the external environment or
with new strategic needs.
4. Coordinate the components: simply placing a department in a structure is not
enough. Managers need to find a way to tie all the departments to ensure
coordination and collaboration across the department. If this objective is not
accomplished, the departments may not work together whether through reporting
relationships, team or task forces, work groups. Departments must collaborate so
as to avoid conflicts and problems.

�Quick Test Questions

1. What is organizational structure?
2. Describe the objectives which managers strive to achieve through design of
organizational structure.

7.3 Organizational Structure and Design Outcomes

The outcome of organizational design decisions is the framework or structure of the
organization. In this section we briefly examine two general organizational design models
that have had significant impact on management theory and practice. While there is a
little uniformity in the terms used to designate the models, we refer to them as
mechanistic and organic.

7.3.1 Mechanistic Organizational Structure

The term mechanistic aptly describes organizations that function in a machine like
manner to accomplish the organization’s goals in a highly efficient manner. Mechanistic
organizations emphasize the importance of achieving high levels of production and
efficiency through the use of extensive rules and procedures, centralized authority and
high specialization.

It is characterized by the following assumptions:

1. Activities are specialized into clearly defined jobs and tasks

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2. Persons of higher rank typically have greater knowledge of the problem facing the
organization than those at lower levels. Unresolved problems are thus passed up
the hierarchy.
3. Standardized policies, procedures and rules guide much of the decision making in
the organization.
4. Rewards are chiefly obtained through obedience to instructions from superiors.

The mechanistic model achieves high levels of efficiency due to its structural
characteristics. It is highly complex because of its emphasis on specialization of labor, it
is highly centralized because of its emphasis on authority and accountability; and it is
highly formalized because of its emphasis on function as the primary basis of
departmentalization.

7.3.2 Organic Organizational Structure

The organic model of organizational design stands in sharp contrast to the mechanistic
organizational structure model. The organizational characteristics and practices that
underline the organic model are distinctly different from those that underlie the organic
model. The most distinctive differences between the two models result from the different
effectiveness criteria that each seek to maximize. While the mechanistic model seeks to
maximize efficiency and production, the organic model seeks to maximize flexibility and
adaptability.

The organic structure is characterized by the following assumptions:

1. There is a de-emphasis on job descriptions and specialization.
Persons become involved in problem solving when they have the knowledge and
skill that will help solve the problem.
2. It is not assumed that persons holding higher positions are necessarily better
informed than those at lower levels.
3. Horizontal and lateral organizational relationships are given much more attention
as vertical relationships
4. Status and rank differences are de-emphasized
5. The formal structure of the organization is less permanent and more changeable.

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The organic organization is flexible and adaptable to changing environmental demands

because its design encourages greater utilization of the human potential. Managers are
encouraged to adopt practices that tap the full range of human motivations through job
design which stresses personal growth and responsibility. Decision making, control, and
goal setting processes are decentralized, not simply down the chain command. These
practices are intended to implement a basic assumption of organic model, which states
that an organization will be effective to the extent that its structure allows to ensure the
maximum probability that in all interactions and in all relationships with the organization,
each member in light of his background, values decisions and expectations will view the
experiences as supportive and one which builds and maintains a sense of personal worth
and importance.

An organizational design that provides individuals with this sense of personal worth and
motivation and that facilitates flexibility and adaptability would have the following
characteristics:
 It would be relatively simple because of its de-emphasis on specialization and its
emphasis on increasing job range.
 It would be relatively decentralized because of its emphasis on delegation of
authority and increasing job depth.
 It would be relatively in formalized because of its emphasis on product and
customer as basis for departmentalization.

7.4 Factors that Affect Organizational Design

The major factors that have been identified as causes or determinants of an organization’s
design are:
1. Strategy: an organization’s structure is a means to help management achieve its
objectives. Since objectives are derived from the organizations overall strategy, it
is only logical that strategy and structure should be closely linked. More
specifically, structure should follow strategy. If management makes significant
changes in its organization’s strategy, the structure will need to be modified to
accomplish and support this change. Most current strategy frameworks focus on

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three strategic options, that is, innovation, cost minimization and imitation & the
structural design that works best with each. An innovation strategy does not mean
a strategy merely for simple or unique innovations; rather it is a strategy that
emphasizes the introduction of major products and services. An organization
pursuing a cost minimization strategy controls costs, refrains from incurring
unnecessary innovation or marketing expenses and cuts in the prices in selling
basic products. Organizations following an imitation strategy try to capitalize on
the best of both of the previous strategies. They seek to minimize risk and
maximize opportunity for profit. Their strategy is to move into new products or
new markets only after viability has been proven by innovators. They take the
successful ideas of innovators and copy them.

2. Size of the organization: a quick glance at organizations we deal with

regularly in our lives would lead most of us to conclude that size would have
some bearing on an organization’s structure. Considerable evidence supports the
idea that an organization’s size significantly affects its structure. Large
organizations those typically employing 2000 or more employees tend to have
more specialization, more departmentalization, more vertical level and more rules
and regulations than do small organizations.

3. Technology: this term refers to how an organization transfers its inputs in to

outputs. Every organization has at least one technology for converting financial,
human and physical resources in to products or services. Although the
relationship between technology and structure is not overwhelmingly strong, we
find that routine tasks are associated with taller and more departmentalized
structure. The relationship between technology and formalization, however, is
stronger. Studies consistently show routine ness to be associated with the presence
of rule manuals, job descriptions and other formalized documentation.

Finally, there has been found to be an interesting relationship between technology and
centralization. It seems logical that routine technologies would be associated with a

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centralized structure, where as non routine technologies, which rely more heavily on
the knowledge of specialists, would be characterized by delegated decision authority.

4. Environment: an organization’s environment is composed of those institutions

or forces that are outside the organization and potentially affect the organization’s
performance. These typically include suppliers, customers, competitors,
government regulatory agencies, public pressure groups and the like. Some
organizations face relatively static environment-few forces in their environment
are changing. There are for example, no new competitors, no new technological
breakthroughs by current competitors, or little pressure by public. Other
organizations face very dynamic environment-rapidly changing government
regulations, new competitors, difficulties in acquiring raw materials, continuously
changing product preferences by customers and the like. Static environments
create significantly less uncertainty for managers than do dynamic ones.

5. Characteristics of personnel: not everyone responds in the same way to

organizational rules, policies, procedures and control methods. One reason is that
young workers who have been raised in more affluent conditions than their elders
are usually less willing to be subjected to bureaucratic rules. For these people
more flexible designs are needed. Conversely, older employees tend to accept
restrictions more willingly. Professional and experienced employees tend to work
more effectively under democratic rule. They want more freedom to make
decisions and lose supervision as compared with unqualified employees.

6. Age of the organization: the longer an organization operates, the more

formalized it is likely to become. With age come standardized systems,
procedures, and regulations. Therefore, older organizations have characteristic of
mechanistic structure whereas new or young organizations tend to have organic
structure.
�Quick Test Questions
1) Differentiate between mechanistic and organic organizational structure with
respect to their characteristics

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2) How do characteristics of personnel affect organizational design?

3) State the relationship between structure and technology
7.5 Guidelines for Organizational Structure and Design
Organizational structure is the differentiation of functions to facilitate the achievement of
goals. Jobs are differentiated according to the nature and specialization of the jobs. The
major guidelines among others for organizational structure and design are:
1. There should be clear definition of the duties and responsibilities of personnel
employed in the organization.
2. The structure must be directed towards promoting effective working at all level is
of management.
3. Adequate decentralization of decision making through the delegation of
responsibilities
4. Clear lines of responsibility linking the chief executive to the various points of
decisions or operations.
5. The span of responsibility of a manager should be limited to a reasonable number
of subordinates
6. The structure should make accountable each manager in every level for his/her
actions and the actions of his/her subordinates
7. The organizational structure should define the policies, procedures and rules that
guide the activities and relationship of people in the organization.

7.6 Steps in the Structure Designing Process

The following steps need to be followed while designing an organizational structure.
1. Reviewing plans and objectives
2. Determining work activities that are necessary to accomplish the objectives
3. Classifying and grouping activities into manageable work units-departments
4. Assigning work and delegating authority to accomplish the task
5. Designing a hierarchy relationship to determine the vertical and horizontal
operating relationships of the organization as a whole

7.7 Departmentalization

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The process of defining the activities and authority of jobs is analytical that is, the total
task of the organization is broken down into successively smaller ones. But the
management must combine the divided tasks into groups or departments. The crucial
managerial consideration when creating departments is the determination of the basis for
grouping jobs. These bases are termed as departmentalization bases and some of the most
widely used ones are described below.

7.7.1 Functional Departmentalization

Managers can combine jobs according to the functions of the organization. Every
organization must undertake certain activities in order to do its work, and these necessary
activities are the organization’s functions. The necessary functions of a manufacturing
firm include products, marketing, finance, accounting and personnel activities necessary
to create, produce, and sell a product. Departmentalization by function can be used in all
types of organizations. Only the functions change to reflect the organization’s objectives
and activities. The major advantage of this type of grouping is obtaining efficiencies from
putting like specialists together. Functional departmentalization seeks to achieve
economies of scale by placing people with common skills and orientation in to common
units.

An organization that has divided its operations among various functional units can adopt
the following type of structure.

Top Level Management

Production Research
Marketing Human Resource Finance
&Development
Management
Figure 6.2 Functional Departmentalization

7.7.2. Product Departmentalization

Many large and diversified companies group jobs on the basis of product where all jobs
associated with producing and selling a product or a product line are placed under the

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direction of one manager. As a firm grows by increasing the number of products it

markets, it is difficult to coordinate the various functional departments, and it becomes
advantageous to establish product unit. This form of organization allows personnel to
develop total expertise in researching, manufacturing, and distributing a product line.
Centralization of the authority, responsibility, and accountability in a specific product
department allows top management to coordinate actions. The major advantage of this
type of grouping is increased accountability for product performance, since all activities
related to a specific product are under the direction of a single manager. If an
organization’s activities are services rather than product related, each service would be
autonomously grouped.

An organization which is engaged in the manufacturing of five different product types

can frame its structure as depicted below.

Top Level Management

Product A Product B Product C Product D Product E

Figure 6.3 Product Departmentalization

7.7.3. Geographic Departmentalization

Another commonly adopted method for departmentalization is to establish groups on the
basis of geographic area. The logic is that all activities in a given region should be
assigned to one manager who would be in charge of all operations in that particular
geographical area. In large organizations territorial arrangements are advantageous
because physical dispersion of activities makes centralized coordination difficult.
Territorial departmentalization provides a training ground for managerial personnel. The
companies are able to place managers in territories and then assess their progress in that
geographical region. The experience that managers acquire in a territory away from head
quarters provides valuable insights about how products and or services are accepted in
the field.

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A firm which undertakes its operation in various parts of a country or region may frame
its structure as follows.
Top Level Management

North Branch South branch East Branch West Branch

Figure 6.4 Geographic Departmentalization

7.7.4. Matrix Departmentalization

Essentially the matrix departmentalization combines the two forms of
departmentalization; functional and product. The strength of functional
departmentalization lies in putting like specialists together, while it allows the pooling
and sharing of specialized resources across products. Its major disadvantage is the
difficulty of coordinating the tasks of diverse functional specialists so that their activities
are completed on time and with in budget.

Product departmentalization on the contrary, has exactly the opposite benefits and
disadvantages. It facilitates coordination among specialists to achieve on time completion
and meet budget targets. Therefore, the matrix attempts to gain the strengths of both
while avoiding their weakness. The most obvious structural characteristic of the matrix is
that it breaks the unity of command concept. Employees in the matrix have two bosses-
their functional department manager and their product manager. Therefore, matrix has a
dual chain of command. The strength of matrix departmentalization lies in its ability to
facilitate coordination when the organization has a multiplicity of complex and
interdependent activities. Still another advantage of matrix is it facilitates the efficient
allocation specialists. The major disadvantages of the matrix lie in the confusion it
creates, its propensity to foster power struggles and the stress it places on individuals.

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7.7.5. Team Organizations

Teams have become an extremely popular means around which to organize work
activities. When management uses teams as its central coordination device, you have a
team structure. The primary characteristics of the team structure are that it breaks down
departmental barriers and decentralizes decision making to the level of the work team.
Team structure also requires employees to be generalists as well as specialists. In smaller
organizations the team structure can define the entire organization. Particularly among
larger organizations the team structure complements what is typically a bureaucracy. This
allows the organization to achieve the efficiency of bureaucracy’s standardization while
gaining the flexibility that teams provide.

�Quick Test Questions

1) List down the steps that need to be followed while designing organizational
structure
2) What is the major advantage of product departmentalization?
3) What are the two components of matrix departmentalization?

7.8 Some Basic Concepts of Organizational Structure and Design

7.8.1 Line, Staff & Functional Relationships
Three distinct types of authority are evident in business organizations, that is, line, staff
& functional.
1. Line authority: enables managers to tell subordinates what to perform. Both line
and staff managers have line authority over their subordinates. Line authority may
be defined as those in the organization directly responsible for achieving goals.
2. Staff authority: people in staff position assist and advise line managers. They
relieve some of the line mangers’ burdens by giving them the information they
need to make operational decisions. People in these positions have the authority to
offer advice and make recommendations.
3. Functional authority: is exercised over people or activities in other departments.
Usually limited in scope and duration, it is exercised one level below the person
who has it. The safety director may be given functional authority over people who

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work under the production supervisor when it comes to establish safety

procedures for instance.

7.8.2 Power
According to Robbins, power refers to a capacity that A has to influence the behavior of
B, so B does something he/she would not otherwise do. Probably the most important
aspect of power is that it is a function of dependency. The greater B’s dependence on A,
the greater is A’s power in the relationship. A person can have power over you only if
he/she controls some thing you desire. How organizational subunits and individuals are
controlled is related to the issues of power and influence. Influence is a transaction in
which person B is induced by person A to behave in a certain way. For example, if an
employee works overtime at the boss’s request, that employee has been influenced by the
boss. Like influence, power involves a relationship between two people. We frequently
speak of someone having power over someone else. While this is correct, it is important
to stress that power is not an attribute of a particular person. Rather it is an aspect of the
relationship that exists between two (or more) people. No individual or group can have
power in isolation; power must exist in relation to some other person or group.

The pioneering sociologist Max Weber defined power as “the probability that one actor
within a social relationship will be in a position to carryout his own will despite
resistance.” Other organizational theorists define it as the ability to influence behavior, to
change the course of events, to overcome resistance, and to get people to do things that
they would not otherwise do.

It is important to distinguish among power, authority and influence as the definitions

given above interrelated with the concept of authority and influence.
 Power can be defined as the ability to get an individual or group to do
something- to get the person or group to change in someway. The individual
who possesses power has the ability to manipulate others.
 Authority legitimatizes and is the source of power. Authority is the right to
manipulate or change others. Power need not be legitimate. Thus, authority is
different from power because of its legitimacy and acceptance.

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 Influence is usually conceived of as being broader in scope than power. It

involves the ability to alter other people in general ways, such as by changing
their satisfaction and performance.

Power Basis
Power can be derived from many sources. Psychologists John French & Bertram Raven
proposed five bases or sources of power as coercive, reward, legitimate, expert &
referent.
1) Coercive power: the coercive power base is identified as being dependent on
fear. One reacts to this power out of fear of the negative results that might occur if
one fails to comply. It rests on the application or threat of application of physical
sanctions such as the infliction of pain, the generation of frustration through
restriction of movement, or the controlling by force of basic physiological or
safety needs. A manager may block a promotion or harass a subordinate for poor
performance. These practices and the fear they will be used are coercive power.

2) Reward power: the opposite of coercive power is reward power. People comply
with the wishes or directions of another because it produces positive benefits;
therefore, one who can distribute rewards that others view as valuable will have
power over them. These rewards can be anything another person values. In an
organizational context, we think of money, favorable performance appraisals,
promotions, interesting work assignments, friendly colleagues, important
information and preferred work shifts, sales territories. Coercive and reward
power are actually counterparts of each other. If you can remove something of
positive value from another or inflict some thing of negative value up on him/her,
you have coercive power over that person. If you can give some one something of
positive value or remove some thing of negative value, you have reward power
over that person.

3) Legitimate power: in formal groups and organizations, probably the most

frequent access to one or more of the power bases is one’s structural position. It
represents the power a person receives as a result of his/her position in the formal

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hierarchy of an organization. Legitimate power is broader than the power to

coerce and reward. Specifically, it includes acceptance by members of an
organization of the authority of a position.

4) Referent power: its base is identification with a person who has desirable
resources or personal traits. If you admire and identify with some one, someone
can exercise power over you because you want to please someone. Referent
power develops out of admiration of another and a desire to be like that person. In
a sense, then, it is a lot likely to charisma. If you admire someone to the point of
modeling your behavior and attitudes after him/her, this person possesses referent
power over you.

5) Expert power: is influence wielded as result of expertise, special skill or

knowledge. Expertise has become one of the most powerful sources of influence
as the world has become more technologically oriented. As jobs become
specialized, we become increasingly dependent on “experts” to achieve goals.

7.8.3 Chain of command

Is an unbroken line of authority that extends from the top of the organization to the
lowest echelon and clarifies who reports to whom. It answers for employees questions
such as “who do I go to if I have a problem?” and” whom am I responsible to?” Authority
refers to the rights inherent in a managerial position to give orders and expects the orders
to be obeyed. To facilitate coordination, each managerial position is given a place in the
chain of commands; and each managerial position is given a degree of authority in order
to meet his/her responsibilities. The unity of command principle helps preserve the
concept of an unbroken line of authority. It states that a person should have one and only
one superior to whom he/she is directly responsible. The concept of chain of command,
authority, and unity of command have substantially less relevance today because of
advancements in computer technology and the trend toward empowering employees.

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7.8.4 Span of Control

How may subordinates can a manager effectively and efficiently direct? This question of
span of control is important because to a large degree it determines the number of levels
and managers an organization has. All things being equal, the wider or larger the span,
the more efficient the organization will be. Wide span of control are consistent with
recent efforts by companies to reduce costs, cut overhead, speedup decisions, increase
flexibility, get closer to customers and empower employees.

7.8.5 Centralization and Decentralization

In some organizations, top managers make all the decisions. Lower level managers
merely carryout top managements’ directions. At the other extremes, are organizations
where decision making is pushed down to those mangers that are closer to the action. The
former organizations are highly centralized, the latter are decentralized. The term
centralization refers to the degree to which decision making is concentrated at a single
point in the organization. In contrast, the more that lower level personnel provides input
or are actually given the discretion to make decisions, the more decentralization is there.

7.8.6 Delegation
Delegation means to delegate or grant authority to the subordinates to reach the peak of
achievement. A superior sets goals and tells his subordinates what he wants to get
accomplished. He decides what to do and how to do it. It includes communication
element. The information is accompanied with the power to perform. The subordinates
while performing their respective jobs are given some power so that they perform
effectively. Delegation is pressure or a push on the men, so that work is performed as per
the schedule.

Delegation becomes essential because superiors have no sufficient time to perform all the
work effectively and efficiently. They are responsible for the ultimate results which are
achieved by specialists. Generally, superiors are not as specialized as the subordinates.
Superiors are unable to perform the total work efficiently. If they delegate the work to
their subordinates, quality work will be performed as the subordinates are specialized in

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different fields. The talents and abilities of subordinates will be developed through
delegation.

Managers decide how much authority is to be delegated to each job and each job holder.
As we have noted authority refers to the right of individuals to make decisions without
approval by higher management and to exact obedience from others. It is important to
understand that delegation refers specifically to making decisions-not to doing work. For
any particular job there is a range of alternative configuration of authority delegation and
managers must balance the relative gains and losses of these alternatives. Relatively high
delegation of authority encourages the development of professional mangers.

�Quick Test Questions

1) Give examples that help distinguish between staff and functional authority
2) From power and influence, which one is broader? Why?
3) Explain referent power by giving examples
4) What is meant by delegation?

Chapter Summary
Organizational structure and design are important factors that influence the behavior of
individuals and groups that comprise the organization. Structure refers to relatively stable
relationships and processes of the organization. It is analogous to the anatomy of a living
organism. The two major outcomes/ models of organizational design are mechanistic and
organic. Mechanistic model describes an organization in a machine like manner which
emphasizes on the importance of achieving high levels of production and efficiency
through the use extensive rules and procedures, centralized authority and high
specialization. The organic model seeks to maximize flexibility and adaptability.

The factors that affect the design of an organization’s structure include: strategy, size of
the organization, technology, environment, characteristics of personnel and age of the
organization. Departmentalization is the process of defining the activities and authority of
jobs, that is, the total task of the organization is broken down into successively smaller

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ones. The commonly employed bases of departmentalization are product, geographic,

functional, matrix and team.

Power is the ability to get an individual to do something he/she would not otherwise
do. The most important aspect of power is that it is a function of dependency. The five
bases of power are coercive, reward, legitimate, referent and expert power. Chain of
command is an unbroken line of authority that extends from the top of the organization to
the lowest echelon. It clarifies who reports to whom. Line authority enables one to tell
followers what to do. Staff authority is concerned with providing assistance to the line
managers. Functional authority is exercised over people in other departments. Span of
control refers to the number of subordinates directed by one manager/ boss. Delegation
becomes essential because superiors have no sufficient time to perform all the work
effectively and efficiently.

Self Test Exercise 7

I. Multiple Choice Questions
1) Which one of the following is true about organizational structure?
A. it refers to relatively stable relationships and processes of the organization
B. it provides the foundation within which the organization functions
C. its purpose is to regulate or at least to reduce uncertainty in the behavior of
employees
D. all E. only A&B
2) Which one of the following does not correctly characterize mechanistic
organizational structure?
A. activities are specialized into clearly defined jobs and tasks
B. there is de-emphasis on job description and specialization
C. rewards are chiefly obtained through obedience to instructions from superiors
D. standardized policies, procedures and rules guide much of decision making
E. None
3) Identify the one that does not affect organizational structure?
A. Technology D. characteristics of personnel
B. size of the organization E. None

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C. age of the organization

4) The first step in organizational structure and design is
A. assigning work and delegating authority to accomplish the task
B. reviewing plans and objectives
C. classifying and grouping activities into manageable work units
D. determining work activities that are necessary to accomplish the objectives
E. None
5) Which one of the following is strength of matrix departmentalization?
A. it provides a training ground for managerial personnel
B. it allows putting like specialists together
C. it breaks the unity of command principle
D. it attempts to gain the strengths of product and functional departmentalization
while avoiding their weakness
E. B&D
6) Identify the false statement
A. power is ability to get an individual to do something he/she would not otherwise
do
B. authority is the source of power and it legitimatizes power
C. authority is different from power because of its legitimacy and acceptance
D. influence is broader than power
E. None
7) If Wasihun admires, identifies with and wants to be like Lakerw, then we can say
Lakew is exercising
A. coercive power D. referent power
B. expert power E. reward power
C. legitimate power
8) How many subordinates can a manager effectively and efficiently direct? This
question is related to
A. chain of command C. span of control
B. Unity of command D. delegation E. None

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CHAPTER 8
DECISION MAKING
Introduction
Dear student, in this chapter you are going to learn about decision making which is one of
the key activities managers perform. The sub topics to be discussed include: nature of
decision making, decision making situations, steps in decision making, barriers to
decision making, improving decision making effectiveness and group decision making.
Read each sub section with curiosity so as to grasp its gist. Enjoy studying!

Learning Objectives
Upon completion of studying this chapter, you should be able to:
 Comprehend the nature of decision making
 Be familiar with decision making situations
 Know the steps that need to be gone through in order to make a good decision
 Identify barriers to decision making
 Recognize how to improve decision making effectiveness
 Appreciate group decision making and know the techniques associated with such
a decision

8.1 Nature of Decision Making

The quality of the decision that managers reach is the yardstick of their effectiveness.
Indeed, it has been suggested that management is decision making and because it is, the
very essence of the entire managerial process is to be found in its study. Managers in
various kinds of organizations may be separated by background, lifestyle and distance,
but sooner or later they must all make decisions. Even when the decision process is
highly participative in nature with full involvement by subordinates, it is the manager
who ultimately is responsible for the outcomes of the decision.

As E. Kast affirms, to decide means to make up one’s mind. It implies two or more
alternatives are under consideration with the decision maker to make choice. Choosing
may have an overt or explicit action implication, such as taking a new job, buying a new

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typewriter, or publishing a new administrative procedure. Or choosing may involve only

the intent to behave in a certain way at some future time. Such decisions result in a
propensity on the part of individuals and organizations to decide a certain way if a
particular issue should arise in the future such as anticipating decrease in the price of a
firm’s products after two months.

Stephen P. Robbins contends that individuals in organizations make decisions. That is,
they make choices from among two or more alternatives. Top managers, for example,
determine their organization’s goals, what products or services to offer, how best to
organize corporate headquarters, or where to locate a new manufacturing plant. Middle
and lower level mangers determine production schedules, select new employees, and
decide how pay raises are to be allocated. How individuals in organizations make
decisions and the quality of their final choices are largely influenced by their perception.
Decision making is the responsibility of not only mangers but also it is everybody’s duty
as individuals are required to make decisions regarding numerous issues they encounter
in their life.

8.2 Types of Decisions

The two most common types of decisions are:
1. Programmed Decisions: are those involving routine and frequently occurring
problems. programmed decisions have been handled through rules, standard
operating procedures and the structure of the organization that develops specified
procedures for handling them. Programmed decisions ensure uniformity of
decisions and save the manager’s scarce resources. Moreover, it avoids
impersonality (bias). The shortcoming of programmed decision is that it does not
allow the manager to be flexible-future conditions usually do not conform to the
present.

2. Non Programmed Decision: decisions are non programmed when they are novel
and unstructured. There is no established procedure for handling the problem
either because it has not arisen in exactly the same manner before or because it is
complex or extremely important. Such decisions deserve special treatment. Non

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programmed decision’s importance increases as we go up the ladder of

management.

8.3 The Decision Making Situations

Decisions can be made under certainty, average certainty and under complete uncertainty.
a) Decision making under certainty
Takes place when we have full information pertaining to the condition requiring
decision to be made. A state of certainty exists when the decision maker knows what
alternatives are available, the nature of each alternative, the pay off from each
alternative and likely hood of chance events associated with each alternative. The
decision maker has information about the outcomes of the decision before it is made.

b) Decision making under risk/uncertainty

The risk situation exists when the decision maker has some information regarding the
outcome of the decision but does not know everything. When making decisions under
conditions of risk, the decision maker may find it helpful to use probabilities.

c) Decision Making Under Uncertainty: Uncertainty exists when the

probabilities of various outcomes are not known. The decision maker does not
know the alternatives, the risk associated with each or the likely consequences of
each alternative. The likelihood of success and failure associated with the
alternatives is not clear. In this situation, the decision maker has no information
about the problem or the problem is one that has never been faced before.

�Quick Test Questions

1) How would you define decision making?
2) Distinguish between programmed and non programmed decisions
3) State decision making under risk

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8.4 Steps in Decision Making Process

Decision should be thought of as means rather than ends. They are the organizational
mechanisms through which an attempt is made to achieve a desired state. You need to
understand that decision making is not a fixed procedure; it is a sequential process- a
series of steps.

The major steps that ought to be gone through by a decision maker are:
1. Identifying problems: a necessary condition for a decision is a problem. If
problems do not exist, there would be no need for decisions. Some of the
situations that alert managers to possible problems are:
 Deviations from past experience: for example, decrease in sales, increase
in turnover and the like.
 Deviations from the plan: when projections or expectations are not being
met.
 Other people’s information: such as customers’ complaint about late
delivery
 Performance of competitors: improved products or performance of
competitors.
2. Developing Decision Criteria: once an individual has determined the need for a
decision, the criteria that will be used in making the decision should be identified.
Criteria are standards of judgment used in evaluating alternatives. The decision
criteria need to be explicitly written in order of priority and should be developed
before alternative solutions are developed. The criteria should be developed in
such a manner that it is specific and as much as possible measurable.

3. Developing Alternative Solutions: the decision maker has to list all the viable
alternatives that could possibly succeed in resolving the problem. No attempt is
made at this step to appraise the alternatives, only to list them. The more the
alternatives we have, the more opportunity there is to select the best courses of
actions. When developing alternatives, the decision maker has to take into
account the time and cost spent.

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4. Evaluating Alternatives: once the alternatives have been identified, the decision
maker must critically evaluate each one. The strengths and weaknesses of each
alternative will become evident when they are compared against the criteria and
weights established in steps 2 and 3. By evaluating the relative merits of each
alternative the decision maker will be able to identify the advantages and
disadvantages of each.

5. Select the Best Alternative: The best choice is the one with minimiem
disadvantages and maximum advantages. Thus, the decision maker is required to
choose the best alternative within the given situations out of the given
alternatives based on the given criteria. Here the decision maker merely chooses
the alternative that generated the largest total score in the evaluation step.

6. Implementing the Decision: this involves putting the decision in to effect. When
the decision is put into action, resources are allocated, budgets are set and
responsibility is assigned.

7. Controlling and Evaluation : this system should provide feed back on how well
the decision is being implemented, what the negative and positive results are and
what adjustments are necessary to achieve the results desired. This step involves
measuring actual performance, comparing it with standard developed in step two
above and then tasking corrective action if there is any significant deviation
between actual performance results and the standard. To this end, finding the real
causes of the deviations is very important to bring the desired result.

8.5 Barriers to Rational Decision Making

To be effective, the decision of a manager has to be rational, that is, it has to be objective,
logical and designed to achieve desired organizational goals with maximum efficiency.
Rationality also refers to choices that are consistent and value maximizing. It implies that
the decision maker can be fully objective and logical. The individual is assumed to have a
clear objective, know all options, and choice will maximize the outcome.

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But managerial decision is not absolutely rational. It is best characterized by what March
and Simon called ‘Bounded Rationality.’ Bounded rationality represents the notion that
decision makers are bounded up or restricted by a variety of constraints when making
decisions. The satisficing model shows that when faced with complex problems, decision
makers respond by reducing the problems to a level at which they can be readily
understood. This is because the information processing capability of human beings makes
it impossible to assimilate and understand all the information necessary to optimize.
Since the capacity of the human mind for formulating and solving complex problems is
far too small to meet all the requirements for full rationality, individuals operate within
the confines of bounded rationality. They construct simplified models that extract the
essential features from problems without capturing all their complexity.

In bounded rationality, the final solution represents a satisficing choice, rather than
optimum one. Satisficing is choosing the first available alternative rather than searching
for an optimum solution.

The rationality of a decision is bounded or limited by the following internal or external

factors:
Internal factors include among others:
 Conflicting and unusually changing goals
 Vaguely defined problems
 Limited resources for gathering data
 Limited capacity of the human mind
 Inadequate knowledge of the consequences of the alternative courses of actions.

Some of the most common external factors that influence decision making are politics,
technology and the economy. A manager must attempt to make the best decisions he/she
can within the limit of rationality and in the light of the size and nature of risk involved.

�Quick Test Questions

1) How should a decision criterion be developed?
2) Describe bounded rationality

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8.6 Improving Decision Making Effectiveness

The effectiveness of decisions can be improved by employing the following.
1. Provide time for decision making: unless conditions dictate avoid pushed
decisions
2. Have self confidence
3. Encourage others to make decisions: allow subordinates to make decisions
4. learn from past decisions: focus on past successes
5. Consider the different decision making situations
6. Recognize the importance of quality information: reliable, relevant, concrete
information is very important.
7. Communicate the outcomes of your decisions to concerned and interested parties
if necessary.
8. Be ready to ask help

8.7 Group Decision Making

The foregoing part of this chapter focused on individual decision making. In most
organizations, however, a great deal of decision making is achieved through committee,
teams, taskforces and other kinds of groups. This is because managers frequently face
situations in which they must seek and combine judgments in group meetings. This is
especially true for non programmed problems, which are novel and have much
uncertainty regarding the outcome. The increased complexity of many of the problems
requires specialized knowledge in numerous fields, usually not possessed by one person.
This requirement coupled with the reality that the decisions made eventually must be
accepted and implemented by many units throughout the organization has increased the
use of the collective approach to the decision making process. The result for many
managers has been an endless amount of time spent in meetings of committee and
groups.

8.7.1 Group Decision Making Techniques

1. Interacting Group Decisions: hare group members openly discuss, argue about
and agree on the best alternative. But interacting groups often represses
themselves and pressure individual members to toward conformity of opinion.

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2. Brainstorming: here group members are expected to produce creative and

imaginative solutions to organizational problems. The technique of brainstorming
includes a strict series of rules. The purpose of the rules is to encourage the
generation of ideas, while at the same time avoiding the inhibitions of members
that usually are caused by face to face groups. The basic rules of brainstorming
are:
 No idea is too ridiculous: group members are encouraged to state any
extreme or outlandish idea, that is, unusual, strange and unreasonable.
Members are given full autonomy to suggest anything they like. When
numerous ideas are collected by group leader, they are appraised one by
one.
 Each idea presented belongs to the group not to the person stating it
 No idea can be criticized.
 Only one member is allowed to speak at a time.
 Every member is given the chance to suggest new ideas.

3. The Delphi Technique: this technique involves the solicitation and comparison
of anonymous judgments on the topic of interest through a set of sequential
questionnaires that are interspersed/distributed with summarized information and
feedback of opinions from earlier responses. The Delphi technique retains the
advantage of having several judges while removing the biasing effect that might
occur during face to face interaction. It is similar to nominal group technique
except it does not require the physical presence of the group members. In fact, it
does not allow group members to meet face to face. Hence, it can be used for
decision making among geographically scattered groups.

The following steps characterize the Delphi technique.

1) The problem is identified and members are asked to provide potential
solutions through a series of carefully designed questionnaires.
2) Each member anonymously and independently completes the first
questionnaire.

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3) Results of the first questionnaire are compiled at a central location,

transcribed and reproduced.
4) Each member receives a copy of the result
5) After reviewing the results, members are again asked for their solutions.
The results typically trigger new solutions or cause changes in the original
position.
6) Steps 4 and 5 are repeated as often as necessary until consensus is reached.

This technique suffers from the following drawbacks.

 As the method is extremely time consuming, it is frequently not applicable where
a speedy decision is necessary.
 It may not develop the rich array of alternatives as the interacting or nominal
technique does. Ideas that might surface from the heat of face to face interaction
may never arise.

4. The Nominal Group Technique (NGT): this is a structured group meeting that
proceeds as follows:
1) A group of individuals sit around a table but do not speak to one another,
rather each person writes ideas on a pad of paper. After five minutes, a
structured sharing of ideas takes place. Each person around the table
represents one idea. A person designated as recorder writes the ideas on a flip
chart in full view of the entire group. This continues until all of the
participants indicate that they have no further ideas to share. There is still no
discussion.
2) The next phase involves structured discussion in which each idea receives
attention before a vote is taken. This is achieved by asking for clarification or
stating the degree of support for each idea.
3) The third step involves independently voting in which each participant in
private selects priorities by ranking or voting. The group decision is the
mathematically pooled outcome of the individual votes.

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8.7.2 Strengths and weaknesses of Group Decision

a) Strengths of Group Decision Making
Groups should be used in the decision making process:
1. If additional information would increase the quality of the decision as groups have
greater expertise, more information, and motivational factor.
2. If acceptance is important. Manages should include those individuals whose
acceptance and commitment is important
3. If people have a stake on the issue of the decision
4. if people can be developed through their participation
5. Group decisions are free from individual prejudices.

b) Weaknesses of Group Decision Making

1. It is time consuming. It may result in delay of decisions on matters that need
urgent decision.
2. It is costly because it involves a number of individuals and consumes much time.
3. A group decision, particularly if it is to be made on controversial issues, is often a
compromise. There is often a tendency to accept the decision favored by most
group members.
4. Some groups experience indecisiveness and bypassing problem
5. A group is occasionally dominated by one or more individuals. This is
particularly common when individuals who rank higher in status in the
organization are present.
6. Group think: a tendency for group members to suppress critical comments in the
interest of maintaining group solidarity and feeling of togetherness.
7. Divided responsibility: the responsibility of everyone is the responsibility of no
one in group behavior. Individuals generally do not take a personal interest in the
group. In the absence of any clear cut division of responsibility, no one takes the
work seriously.
8. Polarization: some members of the group form concrete groups. They develop
their own likings and disliking. Caste, creed, education and sex are used to form a
polarized group.

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� Quick Test Questions

1) Mention any four ways by which decision making effectiveness can be improved
2) State the rules of brainstorming
3) List down the strengths of group decision making

Summary of the Chapter

Management is sometimes said to be synonymous with decision making to reflect the fact
that most of manager’s time is spent by making decisions of various natures. Decision
making implies two or more alternatives are under consideration with the decision maker
to make choice. Therefore, to say there is decision making, there must be two or more
alternatives from which the best one can be picked. The two most common types of
decisions are programmed and non programmed. The decision making situation can be
certainty, risk or complete uncertainty.

The steps that should be followed while making a given decision are: identifying
problems, developing decision criteria, developing alternative solutions, evaluating
alternatives, selecting the best alternative, implementing the decision and finally
controlling and evaluating the outcome of the decision. Managerial decision making is
characterized by ‘bounded rationality’, that is, decision makers are bounded up or
restricted by variety of constraints when making decisions like lack of clear objectives,
failure to know all options, and others. Four group decision making techniques are
discussed, viz. interacting group decisions, brainstorming, the Delphi method and
nominal group technique. Group decision making has got both strengths and weaknesses.

Self Test Exercise 8

i. Multiple Choice Questions
1) Identify the incorrect statement
A. decision making is choice making
B. if there are no two or more alternatives, then there is no decision
C. non programmed decisions can be handled through rules, standards, and
procedures

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D. programmed decision does not allow the a manger to be flexible

E. None
2) All the following are true with respect to decision making under uncertainty except__
A. the decision maker has some information regarding the outcomes of the decision
B. the likelihood of success or failure associated with the alternatives is not clear
C. the decision maker has no information or the problem is novel
D. the decision maker does not know the alternatives and the risk associated thereof
E. None
3) A decision making step whereby managers make real decision is
A. identifying problems D. evaluating alternative solutions
B. developing alternative solutions E. implementing the decision

C. selecting the best alternative

4) Decision making effectiveness can be improved by employing all the following
except_____
A. have self confidence D. encourage others to make decisions
B. be ready to ask help E. None
C. consider the different decision making situations
5) In brainstorming
A. no idea can be criticized
B. only one member is allowed to speak at time
C. every member is given the chance to suggest new ideas
D. each idea presented belongs to the group; not to the person stating it
E. all of the above
6) one of the following cannot be a strength of group decision making
A. it is time consuming
B. it helps develop people through participation
C. allows to get additional information that may improve the quality of the decision
D. makes individuals suppress critical comments as they want to maintain group
solidarity
E. A&D

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ii. Short Answer Questions

1) Mention some of the situations that alert managers to identify possible problems
2) What are the internal factors that influence the rationality of decision making?
3) Describe the steps of Delphi technique

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CHAPTER 9
ORGANIZATIONAL CULTURE
Introduction
Dear student, welcome to the ninth chapter of the module! Here you will be learning
about one of the fundamental issues in organizations, culture. You have about seven
sub sections to be covered. First, meaning and nature of organizational culture will be
introduced. Then, manifestations and role of culture will follow. Barriers to culture,
creating and sustaining organizational culture and dominant, sub cultures and strong
culture are discussed in the remaining sections of the chapter. Finally, you will see
how culture is learnt. Try the quick check questions that are provided at the end of
two or three sub section to ensure whether you have internalized the points
emphasized therein. Have good study time!

Learning Objectives
When you finalize studying this chapter, you should be able to
 Grasp the nature and meaning of organizational culture
 Know how culture is disclosed
 Be familiar with the roles of organizational culture
 Understand the barriers to culture
 Know how culture is created and sustained
 Distinguish among dominant, sub and strong culture

9.1 Meaning and Nature of Organizational Culture

Robbins asserts that organizational culture is a dynamic system of shared meaning
held by members that distinguishes the organization from other organizations. This
system of shared meaning is a set of key characteristics that the organization values
such as beliefs, philosophies, experiences, habits, expectations, norms and behaviors
that give an organization its distinctive characters.

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Edgar Schein defines organizational culture as a pattern of basic assumptions-

invented, discovered, or developed by a given group as it learns to cope with its
problems of external adaptation and internal integration-that has worked well enough
to be considered valuable and, therefore, to be taught to new members as the correct
way to perceive, think, and feel in relation to those problems.

J. Martin emphasizes the different perspective of culture as: when individuals come
into contact with the organization, they come into contact with dress norms, stories
people tell about what goes on, the organization’s formal rules and procedures, its
formal codes of behavior, rituals, tasks, pay systems, jargon, and jokes only
understood by insiders, and so on. These elements are some of the discernible
features of organizational culture. When cultural members interpret the meanings of
these manifestations, their perceptions, memories, beliefs, experiences and values will
vary, so interpretations will differ-even of the same phenomenon. The patterns or
configurations of these interpretations and the ways they are enacted constitute
organizational culture.

Organizational culture is quite complex. Although there are a number of problems

and disagreements associated with the conceptualization of organizational culture,
most definitions recognize the importance of shared norms and values that guide
organizational members’ behavior.

The following seven primary characteristics, in aggregate, capture the essence of

organization’s culture.
1. Innovation and risk taking: the degree to which employees are encouraged to
be innovative and take risk.
2. Attention to detail: the degree to which employees are expected to exhibit
precision analysis, and attention to detail.
3. Outcome orientation: the degree to which management focuses on results or
out comes rather than on the techniques and processes used to achieve these
outcomes.

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4. People orientation: the degree to which management decisions take into

consideration the effect of outcomes on people within the organization.
5. Team orientation: the degree to which work activities are organized around
teams rather than individuals.
6. Aggressiveness: the degree to which people are aggressive and competitive,
rather than easygoing
7. Stability: the degree to which the organization’s activities emphasize
maintaining the status in contrast to growth.

Appraising the organization on these seven characteristics, then, gives a composite

picture of the organization’s culture. This picture becomes the basis for feelings of shared
understanding that members have about the organization, how things are done in it, and
the way members are supposed to behave. Note that none of the above characteristics by
themselves represent the culture of an organization. However, collectively they can
reflect the organizational culture and organizational culture is concerned with how
employees perceive the above characteristics, not whether they like them or not.

In nut shell, organizational culture defines what is important to the organization, the way
decisions are made, the methods of communication, the degree of structure, the freedom
to function independently and how people should behave and the like.

These shared beliefs, values and norms help employees develop a sense of group identity.
Culture facilitates the generation of commitment to something larger than one’s
individual self interest. It enhances social system stability. Culture is the social glue that
helps hold the organization together by providing appropriate standards for what
employees should say and do.

Culture by definition is elusive, intangible implicit, and taken for granted. But every
organization develops a core set of assumptions, understandings and implicit rules that
govern day to day behavior in the work place. Until new comers learn the rules, they are
not accepted as full fledged members of the organization. Transgressions of the rules on
the part of high level executives or front line employees result in universal disapproval

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and powerful penalties. Conformity to the rules becomes the primary basis for reward and
upward mobility.

9.2 Manifestations of Culture

Culture is disclosed through the following manifestations:
1. Statements of principle: written expressions of basic principles help control the
organization’s conduct
2. Slogans: a phrase or saying clearly expressing a key organization value. Example,
Customer is a king!
3. Ceremonies: presentation of awards to high performers as an example of
reinforcing company values.
4. Organizational climate: the quality of the work environment experienced by
employees

� Quick Test Questions

1) Define organizational culture
2) State some of the ways through which culture is manifested

9.3 The Role of Organizational culture

 Culture shapes behavior: so management should try to build a nice culture
that allows to shape the required behavior
 Culture also helps to gain competitive advantage: what employees believe
and how they behave influences the organization’s success. If the strategy
is consistent with the organization’s culture, employees can believe that
the strategy is right. Their shared values and norms keep them pulling
together to carryout the strategy.
 Culture has a boundary defining role: creates distinctions between one
organization and another
 Conveys a sense of identity for organization members
 Enhances social system stability: it is social glue that holds the
organization together by providing appropriate standards for what

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employees should say and do. Hence, people prefer to continue with the
organization. Employees, customers, financers and other related persons
prefer to remain with the organizations due to its culture among other
things.

9.4 Barriers to Culture

The organizational culture has increased the barriers to change, diversity and merger.
These barriers are detrimental to development. The barriers to change reduce the chances
of development. Environment is dynamic and changes are inevitable. If culture is not
changed according to the changes in the environment, the organizational effectiveness is
adversely affected. It is essential to understand that if the culture is static, the
effectiveness is affected. But a dynamic culture improves the effectiveness. Culture in a
real sense is adaptable to the changing situations. It is not dogmatic and adheres to the
existing tradition.

The barrier to diversity refers to the organization’s core culture. The core culture inhibits
acceptance of new changes. If any organization is based on religion, caste, and creed, its
core value does not permit new changes. A strong culture prohibits new culture. Many
times, technological and social changes bring improvements. Cultural paradoxes are
always hindrances to progress. Organizational culture should not be taken at par with the
cultural paradox. If any organization has cultural dogmas, it is not a real organizational
culture in its true sense. Organizational culture is related to structure, functions,
performance, innovations, standard, and control. Dynamic culture has the scope of
adaptability. New changes are incorporated in the organization.

Cultural compatibility is of great importance to mergers and acquisitions. Mergers are

essential for financial strength but it is opposed by the employees because they would not
like to enter a new culture after acquisition. Organizational culture should not be based
on religion, caste and creed. An organization is a universal phenomenon. Culture of all
types should be included in the organization. Work culture, sympathy, humanity, love,
devotion, dedication, and development are related to all cultures. So these components of
culture must be inculcated in an organization.

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� Quick Test Questions

1) What are the roles played by organizational culture?
2) How can culture be a barrier to change, diversity and merger?

9.5 Creating and Sustaining Organizational Culture

An organization’s culture does not pop out of thin air. Once established, it rarely fades
away. What factors influence the creation of culture? What reinforces and sustains these
forces once they are in place?

An organization’s current customs, traditions and general way of doing things are largely
due to what it has done before and the degree of success it has had with those endeavors.
The founders of an organization traditionally have a major impact on that organization’s
early culture. They have a vision of what the organization should be. They are
unconstrained by previous customs or ideologies. The small size that typically
characterizes new organization further facilitates the founders’ imposition of their vision
on all organizational members.

Once a culture is in place, practices within the organization act to maintain it by giving
employees a set of similar experiences. Generally, managers and employees play a great
role in creating organizational culture. Manages help develop culture by:
1. Identifying values
2. Defining the company’s mission
3. Determining the amount of individual autonomy and the degree to which people
work separately or in groups.
4. Structuring the work in accordance with the values
5. Developing reward systems that reinforce values and
6. Creating methods of socialization that will bring new workers inside the culture
and reinforce the culture for existing workers.

Employees contribute to develop culture by:

 The extent to which they accept and adapt to it

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 By shaping the organization’s norms and values

 By forming sub cultures

Three forces which play particularly important role in sustaining culture are selection
practices, the actions of top management, and socialization processes.

1. Selection: the explicit goal of the selection process is to identify and hire
individuals who have the knowledge, skills and abilities to perform their jobs
successfully. The final decision as to who- from among selected candidates-is
hired will be significantly influenced by the decision makers’ judgment of how
well the candidate will fit into the organization. This attempt to ensure a proper
match, results in the hiring of people who have values essentially consistent with
those of the organization. Additionally, the selection process provides information
to applicants about the organization. If candidates perceive a mismatch between
their values and that of the organization, they can self select themselves out from
the applicant pool. In this way, the selection process sustains the organization’s
culture by selecting out those individuals who might attack or undermine its core
values.

2. Top management: the actions of top management also have a major impact
on the organization’s culture. Through what they say and how they behave, senior
executives establish norms that filter down through the organization. For instance,
whether risk taking is desirable; how much freedom managers should give their
subordinates; what is appropriate dress; and what actions are rewarding.

3. Socialization: refers to the process that adapts employees to the organization’s

culture. No matter how good a job the organization does in selection, new
employees are not fully aware or informed on the organization’s culture. Because
they are unfamiliar with the organization’s culture, new employees are potentially
likely to disturb the customs that are in place. The organization, therefore, needs
to help new employees adapt to its culture. This adaptation process is called
socialization.

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9.6 Dominant Culture, Sub-Cultures and Strong Cultures

Organizational culture represents a common perception held by the members. From this
common perception it is expected that individuals with different background or at
different levels in the organization will tend to express or describe the organization’s
culture in similar terms.

A dominant culture expresses the core values that are shared by a majority of the
organization’s members. It is this macro view of culture that gives the organization its
distinct personality.

Subcultures: these tend to develop in large organizations to reflect common problems,

situations or experiences that members face. They are formed to help the members of a
particular group deal with the specific day to day problems with which they confront.
These subcultures are likely to be defined by department designations and geographical
separation. The purchasing department, for example, can have a subculture that is
uniquely shared by members of the department. It will include the core values of the
dominant culture plus additional values unique to the department. Similarly, an office or
unit of the organization that is physically separated from the organization’s main
operation may take on a different personality. Here again, the core values are essentially
retained but modified to reflect the separated unit’s distinct situation. Subcultures can
weaken and undermine an organization if they are in conflict with the dominant culture
and/ or the overall objectives.

Core values are the primary or dominant values that are accepted throughout the
organization.

Strong cultures are cultures where the organization’s core values are both intensely held
and widely shared. The more the members who accept the core values and the greater
their commitment to those values, the stronger the culture is. A strong culture will have a
great influence on the behavior of its members because the high degree of sharedness and
intensity creates an internal climate of high behavioral control. Strong cultures are

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intensely held values which are widely shared. Strong cultures have a great impact on the
employee’s behavior. It transforms employees into higher performers who are loyal and
highly committed.

One specific result of a strong culture should be lower employee turnover. A strong
culture demonstrates high agreement among members about what the organization stands
for. Such unanimity of purpose builds cohesiveness, loyalty and organizational
commitment. These qualities, in turn, lessen employees’ propensity to leave the
organization.

9.7 Learning Culture

Mishra emphasizes that culture is learnt in the form of instructions, stores, rituals,
language and normal symbols. The learning process starts from childhood and continues
through the rest of one’s life.
1) Instructions: parents are the basic elements of culture. Children are given
certain instructions which are followed by them. The new appointed employees
are like newly born children of an organization. They are given certain
instructions that are followed by them.
2) Stories: parents and peers tell stories of outstanding personalities. Children try
to transfer them into practice. An organization also tells stories of successful
businessmen who have come up from the lowest rung of their life to the highest
place in society. Such stories influence newcomers to adapt what they are told.
3) Rituals: are important factors for inculcating culture. Birth celebration, naming
ceremonies, and marriage functions are living examples of the formation of
culture. Similarly, the formation of an organization performs several rituals or
familiarities. The top management with a high vision and mission makes high
predictable rituals in an organization.
4) Language: the organizational culture has a language basis. Language carries
culture as its literature is full of cultural facts and fictions. Culture and sub
culture are developed with an organization.
5) Material symbols: an organization learns culture through the behavioral pattern
of its employees. Openness and equality help cultural development. Employee’s

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behavior in private life also influences the culture of an organization. Their

jogging, swimming, dances and drama have important bearings of culture in an
organization.

Quick Test Questions

1) The founders of an organization traditionally have a major impact on an
organization’s early culture. Why?
2) How do employees contribute to develop culture?
3) What is meant by a dominant culture?

Chapter Summary
Organizational culture is a dynamic system of shared meaning held by members that
distinguishes the organization from other organizations. This system of shared meaning is
a set of key characteristics that the organization values such as beliefs, philosophies,
experiences, habits, expectations, norms and behaviors that give an organization its
distinctive characters. Culture is the social glue that helps hold the organization together
by providing appropriate standards for what employees should say and do. Culture shapes
behavior, helps gain competitive advantage, has a boundary defining role, conveys a
sense of identity for members of the organization and it enhances social system stability.

Barriers to culture include change, diversity and merger. As changes may entail new
cultures, they can be taken as a barrier/ threat to the current culture. The same holds true
for diversity and merger. Three forces which play particularly important role in
sustaining culture are selection practices, the actions of top management, and
socialization processes. A dominant culture expresses the core values that are shared by
majority of the organization’s members. Subcultures tend to develop in large
organizations to reflect common problems, situations or experiences that members face.
Strong cultures are cultures where the organization’s core values are both intensely held
and widely shared. Culture is learnt in the form of instructions, stores, rituals, language
and normal symbols.

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Self Check Exercise 9

Choose the best answer among the alternatives given
1) Which one of the following does not correctly describe organizational culture?
A. it is a dynamic system of shared meaning held by members of an organization
B. it is a set of beliefs, philosophies, experiences, habits expectations, norms and
behaviors
C. it defines what is important to the organization, the way decisions are made,
method of communication, degree of structure, degree of freedom and others
D. it is the social glue that helps hold the organization together
E. None of the above
2) Culture does all the following but__
A. shapes behavior
B. helps gain competitive advantage
C. has a boundary defining role
D. hinders the organization’s prosperity
E. conveys sense of identity for organizational members
3) Managers help develop culture by all the following except___
A. identifying values
B. forming subcultures
C. developing reward systems that reinforce values
D. defining the comnpny’s mission
E. structuring the work according in accordance with the values
4) _____ is the process that adapts employees to the organization’s culture.
A. Socialization C. selection
B. Communication D. adaptation E. None
5) A culture that expresses the core values that are shared by a majority of the
organization’s members is referred to as
A. Subculture C. strong culture
B. Dominant culture D. A&C E. None
6) Culture is learnt through
A. Instructions C. rituals

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B. Stories D. language E. all

CHAPTER 10
MANAGING ORGANIZATIONAL CHANGE
Introduction
Congratulations for coming to the last chapter of the module! How to manage
organizational change is the subject matter of this last, but not the least, chapter. Five sub
topics will be discussed in this chapter in light of organizational change management.
General overview of change will be made in the first sub section. Then, forces for
organizational changes will be addressed. Resistance to change and how to overcome it
follows the second section. Strategies for planned organizational change and stages of
change are assessed in the remaining sections. I hope you have been enjoying studying
and upgrading your knowledge of management. Please, keep it up! Add to your
knowledge by comprehending the substance of this chapter as well.

Learning objectives
Upon completion of studying this chapter, you are expected to:
 Understand the need to change
 Identify those forces that bring about the need to change
 Recognize the reasons why resistance to change occurs
 Know how to carryout planed organizational change
 Be familiar with the stages of change

10.1 Overview
Change is the continual phenomenon of organizational life. The survival, growth and
profitability of an organization depends to a larger extent on its ability to change its
structure and process in response to dynamic forces operating within its own boundaries
as well as in its external environment. Organization is an open system. Any change in its
environment, such as changes in consumer tastes, preferences, state of competition,
economic polices of the government, legal frame work, etc. make it imperative for an
organization to make changes in its internal system.

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Further, an organization system is composed of a number of subsystems which are also in

a dynamic relationship of interaction and interdependence with one another. Any change
in the part of the system, such as technologies, products, communication patterns, role
relationships, etc creates a chain of changes throughout the entire system. Changes within
and between the subsystems of every organization are common occurrences because of
continual redefinition of job requirements, and responsibilities, hiring of new personnel,
particularly at management level, transfers, promotions, changing alignments and power
relationships, etc. Thus, organizations are subject to change because of the dynamism in
the internal and external environment.

E. Kast stresses that an organization must maintain enough stability to function

satisfactorily and allow enough flexibility to adapt to changing conditions. A realistic
view of organizational change recognizes that bath stability and adaptation are essential
to survival and growth. Management is responsible for maintaining dynamic equilibrium
by diagnosing situations and designing adjustments that are most appropriate for coping
with current conditions. A dynamic equilibrium for an organization would include the
following dimensions.
1. Enough stability to facilitate achievement of current goals
2. Enough continuity to ensure orderly change in either ends or means
3. Enough adaptability to react appropriately to external opportunities and demands
as well as changing internal conditions
4. Enough innovativeness to allow the organization to be proactive (initiate change
when conditions warrant).

This process is obviously a delicate balancing act which gets more difficult with the
accelerated nature of forces for change, both internally and externally. The turbulence
which exists in all sectors will continue requiring individuals and organizations to learn
how to manage under such conditions.

10.2 Forces for Organizational Change

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As stated by Robbins, more and more organizations today face a dynamic and changing
environment that in return require these organizations to adapt. In other words, if there is
a difference between what an organization wants to be and where it actually is presently,
there is a need for change. The forces for organizational change can be broadly
categorized as external and internal.

I. External Forces: include

1. Change in economic or market conditions such as decline in demand for a
company’s product necessitate change. Further, factors like fluctuating interest
rates, foreign currency fluctuations, and others are also impetus of changes.
2. Changes in product manufacturing technology such as the discovery of a less
expensive manufacturing process by a competitor.
3. Change in the legal or political situations such as new consumer protection laws
that affect current products or services
4. Changes in resource availability such as the increase in cost or sudden
unavailability of major inputs like oil.
5. Changes in the social environment of customers competitors and suppliers
6. demographic changes results in work force diversity

II. Internal Forces

A. Employees’ perceptions about how they are treated at work and the match
between individual and organizational needs and desires. This may result in
dissatisfaction and high level of absenteeism and process for change.
B. Changes in the composition or personal goals of employees
C. Changes in job technology such as the replacement of craft type jobs by
automated equipment
D. Changes in the organization structure such as new divisions necessitated by
company growth
E. Changes in organizational climate such as the creation of climates of distrust,
hostility and insecurity as result of mass layout.
F. Changes in organizational goals

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G. Consultants: a strong input for organizational change comes from consultants

H. Executive: interpersonal conflict between managers and subordinates

� Quick Test questions

1) Change is the continual phenomenon of organizational life. Why?
2) What are the external forces for organizational change?
3) Why a given organization is supposed to change whenever there is change in one
or more of either internal or external environmental forces?

10.3 Resistance to Change

Given the multiple goals of stability and continuity as well as adaptation and innovation
while maintaining a dynamic equilibrium in organizations, some resistance to change is
not only natural but desirable. However, the wide evidence of change, people apparently
accept adaptation and innovation. Change has now become a permanent and accelerating
factor. Resistance to change has sometimes been interpreted as simple inertia in human
nature. It involves employees’ behavior designed to discredit, delay or prevent the
changes introduced for the development of an organization.

Resistance to change creates conflicts in the organization. The performance tends to take
a downward curve. Resistance can be covert or overt. When resistance is covert,
management is unable to face internal resistance. The overt resistance is avoided through
persuasion and education. Immediate or deferred resistance has short and long time
effects. Employees respond to the resistance complaints, engaging in slow work,
threatening of strike and so on. Implicit resistance creates a loss of loyalty, loss of
motivation and increased errors. Resistance to change can be manifested by resignation,
lateness, loss of motivation to work, increased absenteeism, and request for transfer.

Resistance occurs due to the following reasons among others:

1. Perceived general fright or fear from the unknown and uncertainty: Employees
may not have enough knowledge about the purpose, mechanics, or potential
outcomes of a change. Employees resist change because they are afraid of their

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job security, working conditions, status, regression and other factors. The
perceived threat may be real or imaginary.
2. Lack of control over what is happening
3. Fear of loss of competency: relevant skills, status, power and influence, security
incomes, privileges friends, etc.
4. Disruption of the social system: relationship is changed/disrupted as a result of
change
5. Climate of mistrust: managers may keep the change process secret if they have
mistrust on the employees. Managers who trust their employees make the
changing process an open, honest and participative affair.

Resistance to change can be minimized by employing one or more of the suggestions

given below.
1. Providing education and encouraging communication: resistance can be reduced
by communicating with employees to help them see the logic of a change. If
employees receive full acts and get any misunderstanding cleared up, resistance
will subside.
2. Encouraging participation and involvement: participation results in commitment
in implementing changes. Prior to changes those opposed can be brought into the
decision process. Assuming that the participants have the expertise to make a
meaningful contribution, their involvement can reduce resistance, obtain
commitment and increase quality of the change decision.
3. Reduction of direct negative impacts where possible by providing facilitation and
supports such as training to help individuals. When employees fear and anxiety
are high, employee counseling and therapy, new skills training, or a short paid
leave of absence may facilitate adjustment.
4. Utilizing the minimum amount of force possible: as much as possible penalizing
or threatening those who resist change due to one or the other reason should be
avoided. Hence, the change ought to be introduced with the minimum amount of
force possible.

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5. Being responsive to developments as change is implemented (the need to be

flexible and open to feedback)
6. Negotiation: this is commonly used where someone or some group will clearly
loose out in a change and where that individual or group has considerable power
to resist change
7. Manipulation and cooperation: manipulation refers to covert influence attempts
twisting and distorting facts to make them appear more attractive withholding
undesirable information and creating false rumors to get employees to accept a
change. Cooperation on the other hand, is a form of both manipulation and
participation. It seeks to buy off the leader of the resistance group by given them a
key role in the change decision. The leaders’ advice is sought not to seek better
but to get their advancement.
8. Implicit or explicit coerce/force: this is the application of direct threats or force on
the resisters. The manger can pose the thereat of transfer, loss of promotion,
negative performance evaluations, and a poor letter of recommendation. But this
should be applied as a last resort after exhaustively utilizing the other alternatives.

� Quick Test question

1. List down the major reasons why change is resisted?

10.4 Strategies for Planned Organizational Change

Luthans opines that sometimes an organization may encounter situations which mandate
change of their organization’s culture. For example, the current environmental context
has undergone drastic change and either the organization must adapt to these new
conditions or it may not survive. In fact, organizations must have a culture that learns and
anticipates change. New product development and information technology is changing so
rapidly that an organization should be prepared to change its culture as early as possible
when the need arises.

Change can be unplanned or planned. Unplanned change occurs spontaneously or

randomly and without a change agent’s intention. This change may be disruptive such as
strike that results in a plant closure, or beneficiary such as interpersonal conflict that

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gives rise to the abolishment of new procedure to ensure smooth flow of work between
departments. The appropriate aim in managing unplanned change is to act immediately
once the change is recognized to minimize any negative consequences and maximize any
positive benefits. On the other hand, planned changes occur as the result of specific
efforts of the change agent. It is a direct response to some one’s discrepancy between the
desired and actual state of affairs.

Despite the significant barriers and resistance to change, the organizational culture can be
managed and changed overtime. This attempt to change culture can take many forms.
Simple guidelines such as the following can be helpful in undertaking it.
1) Assess the current culture
2) Set realistic goals that impact on the bottom line
3) Recruit outside personnel with industry experience so that they are able to interact
well with the organizational personnel
4) Make changes from the top down so that a consistent message is derived from all
management team members.
5) Include employees in the culture change process, especially when making
changes in rules and processes
6) Take out all trappings that remind the personnel of the previous culture
7) Expect to have some problems and find some people who would rather move than
change with the culture and, if possible, take these losses early.
8) Stay the course by being persistent

10.5 Stages of Change

Lewin has given three stages of changes- unfreezing, changing and refreezing.
a) Unfreezing: means that old ideas and attitudes are set aside to give place to new
ideas. The employees are stimulated so that they insist on new ideas and
attitudes. The management creates an atmosphere wherein the employees have
self-motivation for innovative discourses and practices in the organization.
b) Changing: new ideas and practices are learnt gradually replacing older ones.
Unlike unfreezing, it is not uprooting of the old ideas. New and old systems
coexist in the organization. An employee thinks, considers, finds and reorients

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the ideas of new practices. The new attitudes are developed with hope, discovery,
and the old ideas develop into new ideas.
c) Refreezing: new ideas are embraced with emotion. It is on the job practice. The
old ideas are totally discarded and new ideas are fully accepted. It is reinforced
attitudes, skills and knowledge.

� Quick Test question

1. Distinguish between planned and unplanned change
2. State what unfreezing is all about

Summary of the Chapter

Largely because of increasing competition, the management of change has become
increasingly important to survival and prosperity of organizations. Organizational change
is pervasive aspect. The survival, growth and profitability of an organization depends to a
larger extent on its ability to change its structure and process in response to dynamic
forces operating within its own boundaries as well as in its external environment. Hence,
change refers to any alteration in the status quo, which usually involves making alteration
in one or more of key components on the organization- structure, technology, human
resource and culture.

Resistance to change occurs due to perceived general fright or fear of the unknown, lack
of control over what is happening, fear of loss of competency, disruption of the social
system and climate of mistrust. Change can be planned or unplanned. The stages of
change include unfreezing, changing and refreezing.

Self Test Exercise 10

Multiple Choice Questions
1. Which one of the statements below is false?
A. change is the continual phenomenon of organizational life
B. organizations are subject to change due to the dynamism of internal and
external environment
C. both flexibility and adaptability are essential to survival and growth

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D. change refers to any alteration in the status quo, involving making alteration
in one or more of key components on the organization
E. None
2. Which one of the following is not an external source of change?
A. change in the product manufacturing technology
B. change in economic/market conditions
C. change in organizational goals
D. demographic changes resulting in workforce diversity
E. B&D
3. Resistance to change can be overcome by employing all the following except_____
A. providing education and encouraging communication
B. encouraging participation and involvement
C. using power/threatening those who resist
D. negotiation
E. being responsive to developments as change is implemented
4. All the following are among the guidelines to undertake change but__
A. assess the current culture
B. take out all trappings that remind the personnel of the previous culture
C. set realistic goals that impact on the bottom line
D. include employees in the culture change process
E. none
5. A stage of change whereby new ideas and practices are learnt gradually replacing
older ones is
A. freezing C. refreezing
B. changing D. unfreezing E. None

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