SEMESTER 1 – ENTERPRISE LEADERSHIP NOTES

Module 1 – Introduction to Enterprise Leadership

Subject Coordinators
Dr Ayda Succarie
Email: [email protected]

Dr Pauline Ross
Email: [email protected]

Enterprise Leadership
 Enterprise leadership is a combination of management and leadership within the
workplace/organisations - thus enterprise leader is generally communicating/engaging in
either management or leadership (two independent characteristics - DISTINCTIONS OF
MANAGEMENT AND LEADERSHIP - WEEK 2)
 Becoming an enterprise leader - how do I become one?
 Enterprise leaders are socially responsible leaders - ethical compass 
 After learning above 3, learn ‘Decision making and change management’ - how to make
appropriate decisions that benefit the business, how to engage and interact in managing
operations

 Assessment 1: Individual essay - based on DIFFERENCES between management and

leadership - isolated from each other yet also connected directly and indirectly

 Distinctions of management and leadership allows us to uncover the dual role of enterprise
leaders
 So rather than being in isolation of leadership, we understand that enterprise leaders have
multiple roles AKA ‘dual roles’

Becoming an Enterprise Leader (below - first 3 topics flow and bounce off one another)
 Understanding individual behaviour - vital for enterprise leaders to understand how they
are as individuals (observing individual behaviour from a MICRO perspective, enterprise
leadership from a MICRO perspective - internally)
 Are you a leader of follower? - concept of ‘authentic leadership’, concept of ‘servant based
leadership’ (connected to assessment 1) - based on ethical leadership and morality - MICRO
perspective
 Managing groups and teams - branches out to the role of leadership - then how enterprise
leaders engage and interact in groups and teams - based on the MISO perspective or the
intermediate perspective
 Managing the external environment and its connection to organisational culture - allows
you to see the MACRO perspective (externally)

Socially Responsible Leaders – in a world of unprecedented events and constant change – CSR – no
longer applicable to the current world we live in due to the rapid pace of change in the global
environment
 Managing the global environment - connection to human geography - ability to identify the
external elements (MACRO environment) that influence the way we think within
organisations - vital to know HOW we manage the global environment so that we can then
know how to make decisions in our enterprises/organisations
 Social responsibility and managerial ethics - how can we as enterprise leaders be more
socially responsible in external environments (environment, society) and within our own
 organisations - how do we engage in managerial ethics? How do we conduct ourselves in an
ethical manner?

Decision Making and Change Management

 Managers as decision makers - how enterprise leaders manage change and innovation
(they work interchangeably) (how will leaders work to keep viable in a rapidly changing
workplace/market)
 Managing change and innovation - ABOVE
 Managing operations - supply chains, how we engage and interact with others to ensure
that we have the resources we need to run our organisations - tangible (stock), or intangible
(goodwill)
 Managerial controls - ABOVE

Reflective and Critical Thinking

 First part of the thinking process is to examine something that might be unknown to you -
this element involves gathering as much information as possible to start analysing (which is
the second picture) 
 Second part implies that you get the information and then you begin to evaluate it
 Third part is after the first two have been done of the thinking process, this is when you can
be creative by firstly seeing the flaws in the information you evaluated and then consider
how to test the information to prove you’re right - this point then requires to identify any
missing information (which info is applicable)

In regards to EL, it involves how the organisation might find that information applicable and how it
may help during the decision-making process to improve the organisation.

Critical Thinking
 “The mode of thinking in which the thinker improves the quality of his or her thinking by
skilfully taking charge of the structures inherent in thinking and imposing intellectual
standards upon them” – Scriven and Paul 2004, p.102
 Involves 4 aspects (these flow on): abstract thinking (thinking past your senses – beyond
the standard reaction that your senses would have towards certain information), creative
thinking (thinking outside the box – innovatively – outside of the norm), systematic thinking
(organising your thoughts into logical steps) and communicative thinking (and then
communicate that thinking by being precise and giving your ideas to others)

Perceptions of Critical Thinking by Academics

Seven definitional strands were identified in the informants’/participants’ commentaries:
1. Judgement - are there good or valid arguments to test a particular claim or not? - why the
argument is valid or not? - REASONING in your argument that allows you to make those
judgements 
2. Scepticism - accepting something without question and being able to provide provisional
knowledge where you are able to examine your own beliefs and assumptions
3. Simple originality - trying to undertake the hatchet job of theory or studies - ability to offer
something that might be new or to make sense (invention)
4. Sensitive readings - need to understand what is being said or written (communicative style
of thinking) - vital to develop a sensitivity to how your write or to the circumstances in which
this text might be written (ability to clearly and concisely give some account of its underlying
motives, intentions and agendas)
5. Rationality - ability to be assertive of a stance, then base that logic by demonstration and
supportive references 
 6. Activist engagement with knowledge - purpose of something
7. Self-reflexivity - thinking about how you think - extends thinking that is put in front of you
and also your own assumptions of it

Critical Thinking? 
“Of the myriad of human abilities, abstract thinking and creativity may be two of the most powerful
and useful ways in which humans overcome ignorance and regain awareness by generating and
institutionalising new mental models for sustainability” (Lozano, 2011: 206). 
 Based on the 4 aspects of critical thinking

The above is most necessary for the modern world of businesses where there are many surprises
and crises (e.g. COVID 19)

 Critical thinking allows enterprise leaders and managers to engage in more efficient and
effective operations within the workplace to ensure the goals of the business are achieved
 Critical thinking ensures enterprises leaders are thoughtful, powerful, innovative and
creative during their decision-making processes

Critical thinking simultaneously requires reflective thinking - in order to process the knowledge that
we have gained so we can evaluate and engage in decision making within the workplace.

What is Reflective Thinking? Ongoing, evolves, ever-changing

“Is a form of mental processing that is applied to gain a better understanding of relatively
complicated or unstructured ideas and is largely based on the reprocessing of knowledge,
evaluation, and decision-making, and as a source for planning and action”. (Moon 2008, p.104)

Reflective Thinking & Practice – reach a stage of praxis (thinking and practice)
 Reflective thinking and practice relate to actions that you have performed, usually tacitly…
requiring little thought on how that action was undertaken. However, sometimes there are
surprises where it may trigger reflection (being more conscious on why and how you
performed that action). The person might then ask him/herself – “What strategies did I use
leading me to perform that action’? As a result, the person might develop a new strategy,
based on reflective thought. It is a method of continual learning and application. 

Reflective Thinking
Reflective thinking is essential for success in unpredictable and complex situations such as working
with customers or clients. Reflective thinking helps you to: 
 Develop a questioning attitude and new perspectives - internal process (focusing on
yourself)
 Identify areas for change and improvement 
 Respond effectively to new challenges 
 Generalise and apply what you have learned from one situation to other situations 

Reflective and Critical thinking for Enterprise Leaders 

 Assist in developing high-order thinking skills 
 To cope with unprecedented changes in the global environment 
 Assisting leaders to analyse, evaluate, plan and act within organisations 
 Identifies an awareness of the ‘self’ through: 
o Self-awareness 
o Self-regulation 
o Self-monitoring
Module 2 – Distinctions of Management and Leadership
“So, you want to be an Enterprising Leader?”
Why enterprise leadership?
 Enterprise leadership has become an emerging theme amongst people within organisations
 Management and leadership do not exist within a vacuum
 Assists in developing well-rounded leaders within organisations
 Is important for dealing with unprecedented events and times of crisis.

The Enterprise Leader…

 Understands the role of management – what do managers do?
o Coordinates and oversees all functions of the business through efficiency and
effectiveness
o Engages in efficient and effective decision making to enhance productivity and
performance
o Manages operations to improve supply chain systems
o Oversee individual business units by managing controls
 Understands the role of leadership – how do leaders lead?
o Individual Behaviour – understanding the self and the behaviours of others
o The role of groups and teams – creating high performance teams
o Scanning internal and external environments to enhance organisational
performance
o Awareness of global environments and their impact on organisational culture
o Discovering ways to create a socially responsible environment through ethical
business
o Change management and innovation

 Work across and on behalf of the organisation to

o Ensure efficiency and effectiveness through management
o Planning and budgeting
o Organising and recruiting
o Controlling and problem solving
o Produce a degree of predictability and order
 Influence the perceptions, beliefs, attitudes, motivation and/or behaviours of individuals
and/or groups by
o Establishing direction
o Aligning people
o Motivating and inspiring
o Produce change and innovation

Leadership vs Management
Activity Management Leadership
Creating an agenda Planning and budgeting. Establishing Establishing direction.
detailed steps and timetables for Developing a vision of the future,
achieving needed results; allocating often the distant future, and
the resources necessary to make strategies for producing the
those needed results happen changes needed to achieve that
vision
Developing a human Organising and staffing. Establishing Aligning people. Communicating
network for some structure for accomplishing the direction by words and deeds
achieving the agenda plan requirements, staffing that to all those whose cooperation
 structure with individuals, delegating may be needed to influence the
responsibility and authority for creation of teams and coalitions
carrying out the plan, providing that understand the vision and
policies and procedures to help guide strategies and accept their
people, and creating methods or validity
systems to monitor implementation
Executing plans Controlling and problem solving. Motivating and inspiring.
Monitoring results versus plan in Energizing people to overcome
some detail, identifying deviations, major political, bureaucratic, and
and then planning and organizing to resource barriers to change by
solve these problems satisfying very basic, but often
unfulfilled, human needs
Outcomes Produces a degree of predictability Produces change, often to a
and order and has the potential to dramatic degree, and has the
consistently produce major results potential to produce extremely
expected by various stakeholders useful change (e.g., new
(e.g., for customers, always being on products that customers want,
time; for stockholders, being on new approaches to make
budget relations that help make a firm
more competitive)

Introduction to Management and the Role of Managers

What do managers do?
 Management involves coordinating and overseeing the work activities of others so that
those activities are completed efficiently and effectively.
 Efficiency is a vital part of management. It refers to getting the most output from the least
amount of inputs or resources (less waste)
 Effectiveness is often described as ‘doing the right things’ – that is, doing those work
activities that will help the organisation reach its goals.
 Whereas efficiency is concerned with the means of getting things done, effectiveness is
concerned with the ends, or the attainment of organisational goals.

Four functions of management (POLC)

Planning = setting/establishing
Organising = determining/employing
Leading = motivating/leading
Controlling = monitoring/evaluation

The Practice of Management

 Determining the business and purpose
  Setting objectives, measuring progress
 Managing managers through objectives
 Building a positive spirit
 Developing managers
 Matching workers and work
 Designing an effective management structure

Challenges to being an exceptional manager

 Competitive advantage
 Diversity
 Globalisation
 Information technology
 Ethical standards
 Sustainability
 Happiness and life goals

Management Styles
 Rational Management
o Traditional scientific management
o Still used in fast paced organisations e.g. production line manufacturing companies,
fast food restaurants – who work on standard operating procedures

 Emotional Management
o Emotional intelligence
o Organisational behaviour
o Trending particularly in service based industries
o Relevant to organisational behaviour
o Focus on motivating, leading, building trust, working with the team and managing
conflict

 Political Management
o The art of making the organisation work with you and for you
o Competition lies with the organisations
o Managers are constantly engaging in competition to ensure efficiency and
effectiveness
o Seeking ways for promotion and dealing with different business units
o All require strategies and thus, needs a political mind-set in order to manoeuvre
between units amongst colleagues to achieve organisational objectives, particularly
when dealing with conflict or to avoid conflict

Management Theories
Contingency theory
 A management theory that says that organisations are different, face different situations
(contingencies) and require different ways of managing.
 IF this is the way my business is, THEN this is the best way for me to manage in this situation
 This approach is intuitively logical because organisations and even units within the same
organisation are diverse in size, goals and work, thus it would be difficult to find
UNIVERSALLY applicable managerial rules that would work in all situations (all are different)

Systems theory
  A basic theory in the physical sciences but had never been applied to organised human
efforts.
 A system is a set of interrelated and interdependent parts arranged in a manner that
produces a unified whole
 2 basic types of systems: closed systems, open systems: Closed systems – not influenced
by/do not interact with their environment. Open systems – dynamically interact with their
environment
 System researchers envisioned an organisation being made up of interdependent factors like
individuals, groups, attitudes, motives, formal structures, interactions, goals, status and
authority.
 This means that as managers coordinate the work activities of the various parts of the
organisation, they ensure that all those parts are working together so that the organisation’s
goals can be achieved.
 For example, the systems theory recognises that no matter how efficient the production
function might be, if the marketing function does not anticipate changes in customer tasks
and work with the product development department in creating products customers want,
the organisation’s overall performance will suffer
 Therefore, this theory means that decisions and actions taken in one function of the
business, will affect others
 This theory recognises that organisations are not self-contained. They rely on their
environments for essential inputs and as outlets to absorb their output. So, no organisation
can survive for long if they ignore things like government regulation, supplier relations or
changes in customer buying preferences

Module 3 – Becoming an Enterprise Leader

Understanding and Managing Individual Behaviour
“Know thyself”: Understanding and Managing Individual Behaviour – Maximising your Potential
 “The unexamined life is not worth living” (Socrates) – based on the need to recognise and
acknowledge one’s own morals and beliefs
 "I've met the enemy, and it is me." (Benjamin Franklin) – individuals can become their own
enemies – create and act out of good/bad habits (usually bad)
 “When leaders do their best work, they don't copy anyone. Instead, they draw on their
own fundamental values and capabilities – operating in a frame of mind that is true to
them yet, paradoxically, not their normal state of being. I call it the fundamental state of
leadership” (Quinn, 2005) – involves fear of rejection; need to understand oneself before
understanding others

Defining the Fundamental State of Leadership (Quinn, 2005: 75-76).

1. Move from comfort-centred to results centred
2. Move from being externally-directed to internally directed
3. Become less self-focused and more focused on others
4. Become more open to outside stimuli

Through these 4 characteristics, we increase the likelihood of attracting others to an elevated level
of community – a high performance state that may continue even when we are not present.

Concept of Habit/Mindlessness
 “Self-acceptance is crucial to mental health. One of the simplest and most natural
methods of reducing self-evaluation and replacing it with acceptance is to assume a mind-
set of mindfulness rather than mindlessness” - Langer, 1989.
Self-Awareness
 Self-Concept – a person’s self-perception as a physical, social, spiritual being.
 Self-Esteem – one’s overall self-evaluation.
 Self-Efficacy – a person’s belief about his chances of successfully accomplishing a specific
task
 Learned Helplessness – debilitating lack of faith in one’s ability to control the situation
 Self-Monitoring – extent to which a person observes their own self-expressive behaviour
and adapts it to the demands of the situation
 Resilience – the ability to ‘bounce back’ after adversity among others
 Cognitions – a person’s knowledge, opinions, or beliefs

Self-Efficacy Beliefs Pave the Way for Success or Failure

Leadership and Self-Efficacy

“People make organisations – it’s not the other way around”
The organisation as an iceberg

Personality
 Personality. We all have one. When we describe people by using terms such as quiet,
passive, loud, aggressive, ambitious, introverted, extroverted, loyal, tense or sociable, we are
categorising them in terms of personality traits.
 An individual’s personality – the unique combination of emotional, thought and behavioural
patterns that affect how a person reacts and interacts with others.
 Over the years, researchers have attempted to focus specifically on which traits could be
used to describe personality.
 Two approaches to classifying personality traits have received the most attention: the
Myers-Briggs Type Indicator (MBTI®) and the Big Five Model.

Myers-Briggs type indicator (MBTI®)

 One of the most popular approaches to classifying personality traits is a general personality
assessment called the Myers-Briggs Type Indicator. It consists of more than 100 questions
that ask people how they usually act or feel in different situations.
 The way you respond to these questions puts you at one end or another of four dimensions:
1. Social interaction – Extrovert or Introvert (E or I)
2. Preference for gathering data – Sensing or Intuitive (S or N).
3. Preference for decision making – Feeling or Thinking (F or T).
4. Style of making decisions – Perceptive or Judgmental (P or J).
 Combining these preferences provides descriptions of 16 personality types.
  As you can see from these descriptions, each personality type would approach work and
relationships differently – neither one better than the other, but just different.

Examples of MBTI® personality types

The three components of attitude – connected to job performance

Perception challenges: what do you see?

Attribution Theory
Emotions and emotional intelligence
 Emotions are intense feelings that are directed at someone or something. They are object
specific; that is, emotions are reactions to an object.
 Emotional intelligence (EI), which is the ability to notice and to manage emotional cues and
information. It is composed of five dimensions:
1. Self-awareness. Being aware of what you are feeling.
2. Self-management. Being able to manage your emotions and impulses.
3. Self-motivation. Being able to persist in the face of setbacks and failures.
4. Empathy. Being aware of how others are feeling.
5. Social skills. Being able to handle the emotions of others.
 EI has been shown to be positively related to job performance at all levels.

Learning in Organisations
Social Learning
 Social Learning is about individuals learning by observing what happens to other people
 Much of what we have learned comes from watching others (models) – parents, teachers,
peers, television and movie actors, managers, and so forth. This view that we can learn
through both observation and direct experience is called social learning theory. The
amount of influence that these models will have on an individual is determined by four
processes:
1. Attentional processes. People learn from a model only when they recognise and pay
attention to its critical features
2. Retention processes. A model’s influence will depend on how well the individual remembers
the model’s action, even after the model is no longer readily available. 3
3. Motor reproduction processes. After a person has seen a new behaviour by observing the
model, the watching must be converted to doing.
4. Reinforcement processes. Individuals will be motivated to exhibit the modelled behaviour if
positive incentives or rewards are provided

Gen Y Workers

Managing Negative Behaviour and Bullying in the Workplace

 Workplace bullying is basically repeated mistreatment, verbal abuse, or conduct that is
threatening, humiliating or intimidating and interferes with work.
 An impact and cost assessment calculated that workplace bullying costs Australian
employers between $6 and $36 billion a year when hidden and lost opportunity costs are
considered.
  Study found that about 50% of workers had personally experienced some form of bullying,
mostly from senior managers and supervisors – relates to idea that managers need to
understand the GENERATIONAL DIFFERENCES within the workplace
 Bullying is also far more common than sexual harassment and verbal abuse.
 The main thing is to recognise that it exists. Pretending that negative behaviour does not
exist, or ignoring such misbehaviours, will only confuse employees about what is expected
and acceptable behaviour.
 As we said earlier, when employees are dissatisfied with their workplace environment, they
will respond somehow.

Module 4 – Becoming an Enterprise Leader

Understanding Enterprise Leaders: Are you a follower or leader?
Understanding Enterprise Leaders – “first steps on the Journey”
 Concept of leaders and followers – no point in taking on a leadership role without
considering the needs and interests of followers (characteristics that attract them)

Leadership

McGregor’s Theory X and Theory Y

Theory X Theory Y
 Most people dislike work and  Work is a natural activity
want to avoid it  People can be self-directed if they are committed
 People require close to the objective
direction  Rewards help commitment
 People want to avoid  Most employees accept and seek responsibility
responsibility and have little  Employees have imagination, ingenuity and
ambition creativity

Organisations like Google, Facebook and Commonwealth

Bank take this approach to improve productivity and
employee satisfaction in the workplace

Model of Theory X and Theory Y

  Theory X – managers use a top-down approach – lots of micromanagement – creates a
tendency to influence a negative and depressed workplace culture – strongly impacts on the
ability of employees to flourish and performance well (meet objectives) in the workplace,
the organisation’s effectiveness and efficiency
 Theory Y – managers use a bottom up approach – focus on management viewing how
employees are engaging and interacting within the organisation – allows employees to
develop a sense of control (initiative), achievement, autonomy, improvement – this
approach empowers staff where managers are truly considering employee input and their
thoughts

Romance of Leadership (ROL)?

 “Based on a series of studies, the ROL suggests that we overwhelmingly tend to favor
leaders and leadership as the causal force behind the activities and outcomes of
organisations. In part, a critical response to a prevailing emphasis on the importance of
leaders in the leadership process (as opposed to an emphasis on followers or the
situation), the ROL theory was developed to call attention to the fact that whatever the
“true” impact of leaders and leadership in organizations and societies, leadership as a
concept has attained an immense and perhaps often unwarranted popularity in our
understanding of the world. Simply stated, despite centuries of study and decades of formal
research, the concept of leadership remains largely elusive and resistant to attempts to
unravel its mystique. Yet we continue to believe in its import and efficacy, even in situations
in which we have no direct evidence to support this belief” (Bligh & Kohles, 2012, p.1).
o There is a strong focus on the actual individual in terms of the role that a leader has
to uphold (over-emphasised) rather than looking at the technicalities and other
implications that need to be considered when looking at leadership
o This approach does not enable a leader to appreciate the ability of others or
individuals to develop skills and attributes, including values and beliefs that foster
what it means to be a leader (guide, mentor, motivate, inspire/encourage)

Management and Leadership

 “Most of us have become so enamoured of "leadership" that "management" has been
pushed into the background. Nobody aspires to being a good manager anymore; everybody
wants to be a great leader. But the separation of management from leadership is dangerous.
Just as management without leadership encourages an uninspired style, which deadens
activities, leadership without management encourages a disconnected style, which
promotes hubris” (Gosling & Mintzberg (2003:54))
o Management and leadership are distinct from each other, based on the roles of
what managers do (plan, organise, control, lead) and what leaders do (motivate,
mentor, guide, inspire)
o Enterprise leadership, however, must acquire both management and leadership
Collinson and Grint (2005)
 “Leadership ‘research’ has frequently been at best fragmented and at worst trivial, too often
informed by the rather superficial ideas of management and academic consultants keen to
peddle the latest prepacked list of essential qualities deemed necessary for individual
leaders and as the prescribed solution to all leadership dilemmas. Within business schools
and management departments, leadership has often remained a ‘Cinderella’ subject,
neglected and/or underestimated by those keen to analyse and theorize the social,
political, organizational, and philosophical dimensions of human affairs. Consequently, the
intellectual integrity of leadership as a legitimate and important field of study has remained
open to question”. (p. 5)
o Emphasising the need to look at leadership through different dimensions so as to
recognise its importance within organisations and how the combination of
management and leadership is crucial for the efficiency and effectiveness of
organisations
o To do this, leadership must be viewed through the eyes of the followers

Followership Term
 “If I had a dollar for every time someone said to me, “You need to come up with a word
other than ‘follower’ because it’s socially unacceptable,” I would be much wealthier today.
“If you had a sexier, easier term,” they say, “then you’d be able to sell this concept much
more easily.” My response is always “I would be glad to do that as soon as we get rid of the
word ‘leader.’ Once you’re ready to do that, then we can talk.” (Kelley, 2008)
o A reluctance to acknowledge the term ‘follower’ is to look for alternative terms e.g.
team member, collaborator, associate partner or peer – but none have been caught
on in either popular or academic discourse
o Thus, the word ‘follower’ persists, albeit with grudging and somewhat embarrassed
acceptance/negligence in our leadership lexicon.
o It focuses on the importance of identifying how we use language when viewing
leadership from a followers’ perspective – this can be aligned with the concept of
‘romance of leadership (ROL)’
o Followers are no longer perceived as a weak and fragile or insignificant group –
society has acknowledged the robust role followers play and the need for leaders
to develop characteristics and behaviours that accommodate the need of followers
(specialised individuals)

What if no followers? Blackshear (2004)

And Entertainment?

Implicit Theories of Leadership (2007)

Taken from http://www.ccl.org/leadership/pdf/assessments/GlobeStudy.pdf

 Data from about 17300 middle managers and from 951 organisations in the food processing,
finance services and telecommunications services industries in 58 different countries
 Aim of research – develop universal leader characteristics that contribute to an individual
being seen as an outstanding leader
 Some of these universal leadership characteristics that are also related to management roles

Leadership ‘Theories’ / Models – Ten Leadership Theories in 5 Minutes

 “There’s nothing so practical as a good theory” (Dr. Kurt Lewin)
1. The Great Man Theory – idea that great leaders are born, not made (inherent)
2. The Trait Theory of Leadership – a line of research that examines which individual
characteristics we should pursue to lead effectively – pros = easy to understand (be like this
and people will follow you) – cons = identified dozens of traits and no single set has emerged
as the ideal for all circumstances
3. The Skills Theory of Leadership – just like trait theory, it tries to identify key attributes, but
in this case, practical skills rather than just general qualities of a leader – cons = if you want
people to follow you, you need technical skills in your field (good at your job to have some
credibility), you need people skills like persuasion, diplomacy and affability, you need
conceptual skills (open minded – ability to see the big picture and to think strategically)
4. The Style Theory of Leadership – styles like “be autocratic and demanding” or “be
democratic and participative” or “be laissez faire and leave people alone” – Managerial Grid
(adopt a leadership style that is both people friendly and uncompromising on performance)
5. The Situational Leadership Theory – argues that there is no ‘one size fits all’ model – certain
trait, skills and styles fit better in one situation than another THUS leaders must adapt
6. The Contingency Theory – assumes that the leader’s default style is also pretty much fixed
– maybe he’s more task-oriented than people oriented – fit leader to the situation –
effective leadership is contingent on matching leader style to the setting
7. Transactional leadership – ‘transactional’ = reciprocity of behaviour between the leader
and the follower, people will follow based on the incentives in place so the leader’s job is to
find the right mix of rewards and punishments and then closely monitor what’s occurring
8. Transformational Leadership – ‘transformational’ = leaders gain buy-in and commitment
not as much from the quid pro quo approach as they do from encouraging their followers.
Instead, they get results by proactively transforming the environment and the relationships
– cultivating followership rather than paying for it or punishing non-compliance like the
transactional leader does
 9. Leader-Member Exchange Theory – similar to transactional theory as it suggests that
leadership is about a fair exchange between the leader and the led – but it goes further to
say that the exchange creates an in-group and out-group with respect to the leader, thus
affecting people’s performance and retention (lower performance = lower retention) –
leaders may want to address their tendency to alienate people
10. Servant Leadership Theory – kind of a blend between transformational and transactional
leadership – if a leader makes a priority of identifying and meeting followers’ needs,
serving rather than being served, that leader creates an environment of trust, cooperation
and reciprocal service, thus higher performance – popularised in recent decades – based on
Christian theology that people follow out of love and gratitude rather than out of
compulsion or fear

Understanding Enterprising Leaders – Ethical Leadership

 Modern leaders seek leadership that facilitates the needs of their employees rather than
dictates their needs
 Ethical leaders are individuals whose behaviours, values and motives influence the ethical
behaviours of others – values like honesty, trust, they are altruistic and fairness
 Transforming – in terms of transformational leadership – how leaders engage with others in
the organisation to ensure the work of people is transformed to deal with change,
innovation and creativity
 Servant orientated – idea of servant based leadership
 Balance risk – ensuring that ethical leaders understand the complexity of different situations
within the organisation, the level of risk involved and make decisions based on the level of
risk they are willing to accept
 Vision building – leaders inspiring people within organisations and directing the organisation
in a way that sets future long term goals that align with the business’ objectives – people the
foster that vision and apply the different objectives to achieve that vision
 Espoused values – values like integrity, honesty, trustworthiness and fairness
 Disclosure and transparency – openness within the organisation and the ability for leaders
to ensure that employees, external people and external environments are well-informed –
critical when dealing with unprecedented events like COVID-19 currently
 Critical and Reflective Thinking – leaders must be critical and reflective thinkers so they
have a high level of self-awareness (their environment)
 Personal Integrity – connection to the personal self, one’s ability to uphold their own high
level of integrity within themselves that will translate into the organisation and amongst
colleagues
Transforming Leadership
 Burns (1978) described transforming leadership as “leaders and followers raise one
another to higher levels of morality and motivation. These leaders seek to raise the
consciousness of followers by appealing to ideals and moral values such as liberty, justice,
equality, peace and humanitarianism, not to baser emotions such as fear, greed, jealousy,
or hatred” (p.335)
o Burns describes leadership as a process where leaders and followers influence each
other as the relationship evolves over time. These types of leaders focus on
understanding how individual behaviour can improve organisational performance
(e.g. job satisfaction = higher levels of productivity, confidence in tasks assigned
from given training = higher levels of efficiency and employee retention)
o Transformational leaders have a strong sense of self-awareness, they are conscious
of the behaviours of their followers
o Thus, transforming leaders work with followers to transform organisational
performance (recognises their worthiness, level of expertise, specialisation and
intellect)

Servant Leadership – focus on followers

 Greenleaf (1977) described servant leadership as the essence of ethical leadership
 Helping others to accomplish shared objectives
 Individual development, empowerment and collective work – that is consistent with the
health and long-term welfare of followers
 Listen and learn
 Nurture and defend
 Standing up for what is Good and Right! (even when it is not in the financial interests of the
organisation)
 Organisational citizenship – involves aligning one’s values with that of the organisation as
long as the organisational values aim to benefit what is good and right
Whilst servant leadership is crucial within organisations (particularly for long term gain), servant
leadership is difficult to achieve (an obstacle) when organisations experience economic uncertainty
and financial crisis (generally because the limited capital and resource available is allocated to
ensuring business viability) – conflict between financial objectives and employee welfare often
create implications for servant leaders, impacting on their ability to engage in ethical leadership.
The challenge is then for enterprise leaders to help organisations view the benefits of servant
leadership even during times of crisis.

Criteria for Evaluating Ethical Leadership

Consequences of Ethical Leadership
 Decisions that benefit employees in the long-term may impact short-term goals and financial
performance.
 Conversely, decisions that benefit short-term goals and financial performance may impact
the long-term benefits for employees.
 The decision then should be centred on what is Good and Right? Regardless of short-term
goals.

Good ethical leadership habits are consistent with higher levels of employee trust and commitment
levels, thus results in improved financial performance

Espoused Values

Understanding Enterprising Leaders – “Are you a leader or follower?”

Carroll, 1991
Authentic Leadership Defined
 Intrapersonal Definition:
o Leadership based on self-concept and how self-concept relates to actions (Shamir &
Eliam, 2005)
o Relies on the life-story of the leader
o Followers need to affirm leader’s legitimacy
 Four Authentic Leadership Characteristics:
o ALs exhibit genuine leadership.
o ALs lead from conviction
o ALs are originals, not copies
o ALs base their actions on their values
 Developmental Definition:
o Leadership can be nurtured, and develops over a lifetime (Avolio & Gardner, 2005)
o Can be triggered by major life events
o Leader behaviour is grounded in positive psychological qualities and strong ethics
 Four authentic leadership components:
o Self-awareness
o Internalised moral perspective
o Balanced processing
o Relational transparency

Basic Model of Authentic Leadership

Leadership as a Process
FOUR COMPONENTS:
 Self-awareness
o Reflecting on one’s core values, identity, emotions, motives
o Being aware of and trusting your own feelings
 Internalised moral perspective
o Self-regulatory process using internal moral standards to guide behaviour
 Balanced processing
o Ability to analyse informational objectively and explore other people’s opinions
before making a decision
  Relational transparency
o Being open and honest in presenting one’s true self to others

Factors that Influence Authentic Leadership

Antecedent Factors
 Positive psychological capacities
o Confidence/efficacy
o Hope
o Optimism
o Resilience
 Moral Reasoning Capacities
o Deciding right and wrong
o Promoting justice, greater good of the organisation or community

Strengths
 Fulfills society’s expressed need for trustworthy leadership. Fills a void in an uncertain world.
 Provides broad guidelines for those who want to become authentic leaders. Both practical
and theoretical approaches provide a map.
 Like transformational and servant leadership, AL has an explicit moral dimension.
 Unlike traits that only some people exhibit, everyone can learn to be more authentic.
 Can be measured using an established instrument (ALQ).

Criticisms
 The theory is still in the formative stages, so some concepts in the practical approaches are
not fully developed or substantiated.
 The moral component of AL is not fully explained. It’s unclear how higher values such as
justice inform authentic leadership.
 The rationale for including positive psychological capacities as a part of AL has not been
clearly explained by researchers.
 The link between authentic leadership and positive organisational outcomes is unclear. It is
also not clear whether AL is sufficient to achieve organizational goals.

The Bright and the Dark Side of Leadership

 Our romance of leadership and the need for security among other things tend to focus
attention on the positive aspects of leadership.
 However, what may be considered positive also has a dark side

Five features of destructive leadership (Padilla, Hogan & Kaiser, 2007)

1. Destructive leadership is seldom absolutely or entirely destructive: there are both good and
bad results in most leadership situations.
2. The process of destructive leadership involves dominance, coercion, and manipulation
rather than influence, persuasion, and commitment.
3. The process of destructive leadership has a selfish orientation; it is focused more on the
leader's needs than the needs of the larger social group.
4. The effects of destructive leadership are outcomes that compromise the quality of life for
constituents and detract from the organization's main purposes.
5. Destructive organizational outcomes are not exclusively the result of destructive leaders, but
are also products of susceptible followers and conducive environments.
Module 5 – Becoming an Enterprise Leader
Managing Groups and Teams – “Groups”
What is a group?
 Group – two or more interacting and interdependent individuals who come together to
achieve specific goals. Groups can be either formal or informal.
 Formal groups are work groups established by the organisation that have designated work
assignments and specific tasks directed at accomplishing organisational goals.
 In contrast, informal groups are of a social nature. These groups occur naturally in the
workplace in response to the need for social contact. For example, five employees from
different departments who regularly eat lunch together are an informal group. Informal
groups tend to form around friendships and common interests.

Examples of formal work groups

 Command groups – these are the basic, traditional work groups determined by formal
authority relationships and depicted on organisational chart. They typically include a
manager and those subordinates who report directly to the manager e.g. IT department
 Cross-functional teams (multiskilled) – these bring together the knowledge and skills of
individuals from various work areas in order to come up with solutions to operational
problems. Cross-functional teams also include groups whose members have been trained to
do each other’s jobs.
 Self-managed teams – these are essentially independent groups that, in addition to doing
their operating jobs, take on traditional management responsibilities such as hiring, planning
and scheduling and performance evaluations
 Task forces – these are temporary groups created to accomplish a specific task. Once the
task is complete, the group is disbanded. E.g. police task force set up for a crime committed

Stages of Group Development

 Group development is a dynamic process. Most groups are in a continual state of change.
  Even though groups probably never reach complete stability, there is a general pattern that
describes how most groups evolve. Research shows that groups pass through a standard
sequence of five stages. As shown in Figure 13.1, these five stages are forming, storming,
norming, performing and adjourning.
 The first stage, forming, has two phases. The first occurs as people join the group. People
join a formal group because of some work assignment. In the case of an informal group,
people join because they believe it will provide them with some other desired benefit (such
as status, self-esteem, affiliation, power or security).
 Once the group’s membership is in place, the second phase begins: the task of defining the
group’s purpose, structure and leadership. This phase is characterised by a great deal of
uncertainty as members ‘test the waters’ to determine what types of behaviour are
acceptable. This stage is complete when members begin to think of themselves as part of a
group.
 The storming stage is appropriately named because it is the stage of intragroup conflict.
Members accept the existence of the group but resist the control that the group imposes on
individuality. Furthermore, there is conflict over who will control the group. When this stage
is complete, there will be a relatively clear hierarchy of leadership within the group and
agreement on the group’s direction.
 The third stage is one in which close relationships develop and the group becomes cohesive.
There is now a strong sense of group identity and camaraderie. This norming stage is
complete when the group structure solidifies and the group has assimilated a common set of
expectations (or norms) regarding member behaviour.
 The fourth stage is performing. The group structure at this point is in place and accepted by
group members. Group members’ energies have moved from getting to know and
understand each other to performing the task at hand.
 For permanent work groups, performing is the last stage in their development. However,
temporary groups – such as project teams, task forces and similar groups that have a limited
task to perform – have a fifth stage, adjourning. In this stage, the group prepares to disband.
High levels of task performance are no longer the group’s top priority. Instead, attention is
directed towards wrapping-up activities. Reactions of group members vary at this stage.

Work Group Performance and Satisfaction

  Why are some groups more successful than others? Why do some groups achieve high levels
of performance and high levels of member satisfaction, and others do not? The answers are
complex, but include variables such as the abilities of the group’s members, the size of the
group, the level of conflict, and the internal pressures on members to conform to the
group’s norms.
 Below presents the main components that determine group performance and satisfaction.

External conditions imposed on the group

 To begin understanding the behaviour of a formal work group, we need to view it as a
subsystem of a larger system. Work groups do not exist in isolation. They are part of a larger
organisation. For instance, a sales team in one of Flight Centre’s many retail travel outlets
around the world is part of Flight Centre Travel Group and must operate according to the
rules and policies handed down from headquarters in Brisbane.
 As a subset of that larger organisational system, the work group is influenced by external
conditions imposed on it from outside. These external conditions include the organisation’s
strategy, authority structures, formal rules and regulations, availability or absence of
organisational resources, employee selection criteria, the organisation’s performance
management system, the organisation’s culture, and the general physical layout of the
group’s workspace. For instance, some groups will have a modern, high-quality work
environment, and appropriate tools and equipment to do their jobs, while other groups are
not as fortunate. Or the organisation might be pursuing a strategy of lowering costs or
improving quality, which will affect what a group does and how it does it.

Group Structure
Work groups are not unorganised crowds. They have an internal structure that shapes members’
behaviour and makes it possible to explain, predict and influence a large portion of individual
behaviour within the group as well as the performance of the group itself. This internal structure
defines member roles, norms, conformity, status systems, group size, group cohesiveness and
formal leadership positions. The following discussion will look at the first six of these.

1. Roles
 You will recall Mintzberg’s managerial roles. Of course, managers are not the only
individuals in an organisation who play various roles. The concept of roles applies to all
employees in organisations, and to their life outside the organisation as well. (Think of the
various roles you play: student, sibling, employee, spouse or partner, and so on).
 A role refers to behaviour patterns expected of someone who occupies a given position in a
social unit. In a group, individuals are expected to do certain things because of their position
(role) in the group. These roles are generally oriented towards either getting work done or
keeping group members happy. Think about groups that you have been in and the roles that
you played. Were you continually trying to keep the group focused on getting its work done;
or providing information, elaborating on issues and topics related to what the group was
working on? If so, you were filling a task-related role (see Table 13.2). Or were you more
concerned that group members had the opportunity to offer ideas (in the role of
 encourager), or were you trying to propose a compromise to settle some conflict within the
group? If so, you were performing a relationship role – or what is sometimes called a
maintenance-related role – to enhance group member satisfaction and smooth the internal
functioning of the group. Both roles are important to the ability of the group to function
effectively and efficiently. The task-related roles are needed to focus on the task at hand
and get the job done. In contrast, the maintenance-related roles are needed to keep the
group healthy and its members happy so that it stays together. In groups that do not
appoint or select a leader, individuals who effectively perform numerous task and
relationship roles are likely to become group leader. Groups that formally appoint or select a
leader typically assign many of the task and relationship roles to that leader.
 Formal and informal leaders are expected both to help the group achieve its goals and to
maintain internal processes. However, there may be instances when some members
perform self-oriented roles or dysfunctional roles that may hinder or even undermine the
team’s progress. For example, some team members may gain a sense of power by
dominating others or blocking others’ attempts to get things done. Some may even
withdraw and make minimal or no contribution at all to the group and what it is trying to do.
 Typically, individuals who perform these roles have little concern for the group or its goals
and are often harmful for the group’s functioning. A general problem that also arises in
understanding role behaviour is that individuals play multiple roles, adjusting their roles to
the group to which they belong at the time. They read their job descriptions, get suggestions
from their boss and watch what their co-workers do.
 When that individual is confronted by different role expectations, he or she experiences
role conflict. Employees often face role conflicts. For instance, a young university lecturer’s
colleagues may want him to give out very few high grades on assignments in order to
maintain the department’s reputation for having tough standards, whereas students want
him to give out lots of high grades to enhance their final marks. To the degree that the
lecturer wants to satisfy the expectations of both his colleagues and his students, he faces
role conflict.

2. Norms
 All groups have norms – standards or expectations that are accepted and shared by the
group’s members. Norms dictate things such as work output levels, absenteeism,
promptness and the amount of socialising allowed on the job.
 An example of how norms influence behaviour is the ‘arrival ritual’ among the following
group of office workers at a law firm. The workday begins at 8 am. Most employees typically
arrive a few minutes before 8 am and put their jackets, bags and other personal items on
their chair or desk so that everyone knows they are ‘at work’. They then go down to the
company cafeteria to have coffee and a chat. Any employee who violates this norm by
starting work sharply at 8 am is teased and pressured, to encourage behaviour that
conforms to the group’s standard. Although each group will have its own unique set of
norms, there are common types of norms in most organisations that focus on effort and
performance, dress and loyalty. Probably the most widespread norms are related to levels of
effort and performance. Work groups typically provide their members with explicit cues on
how hard to work, what level of output to maintain, when to look busy, when it is
acceptable to slow down, and the like.
 Of course, what is acceptable dress in one organisation may be unacceptable in another.
 Finally, loyalty norms influence whether individuals work late, work on weekends, or move
to locations they might prefer not to live in. One negative aspect of norms is that being part
of a group can increase an individual’s antisocial actions. If the norms of the group are such
that it tolerates deviant behaviour, someone who normally would not engage in such
behaviour might be more likely to do so. For instance, one study suggests that those working
 in a group were more likely to lie, cheat and steal than were individuals working alone. Why?
Because groups provide anonymity, thus giving individuals – who might otherwise be afraid
of getting caught – a false sense of security.

3. Conformity
 Because individuals want to be accepted by groups to which they belong, they are
susceptible to conformity pressures. The impact that group pressures for conformity can
have on an individual member’s judgment and attitudes was demonstrated in research by
Solomon Asch.
 As group members, we often want to be considered one of the group and to avoid being
visibly different. We find it more pleasant to be in agreement and harmony – to be a positive
part of the group – than to be disruptive, even if disruption may be necessary to improve the
effectiveness of the group’s decisions. So, we conform. But conformity can go too far,
especially when an individual’s opinion differs significantly from that of others in the group.
 When this happens, the group often exerts intensive pressure on the individual to align his
or her opinion to conform to others’ opinions, a phenomenon known as groupthink.
 The implications of groupthink when it comes to decision making within groups and
organisations are considerable.
 Could similar situations occur in business decision making – say, for example, when making
investment decisions or strategic planning decisions? Undoubtedly, there is the potential for
this to happen, given group pressures to conform. Every day, business leaders and their
boards of directors make decisions without fully considering all the available data and
without always evaluating all the alternatives. The pressure to make a decision that
maintains the group’s cohesiveness can result in groupthink.
 The desire to be liked by and belong to the group and the presence of a strong leader induce
group members to suppress their doubts and go along with poor decisions without speaking
out about their concerns or doubts. Fortunately, groupthink does not appear in all groups.
 It seems to occur most often when there is a strong group identity, where members hold a
positive image of their group that they want to protect, and when the group perceives a
collective threat to this positive image. However, it is important to be aware of the potential
for groupthink to occur and to watch out for the signs of it occurring.
 By developing a group norm or culture that values debate and disagreement from group
members as a positive contribution, a leader can reduce the likelihood of groupthink
occurring. Other options can be to bring in outsiders with differing opinions, or to assign
someone to perform the role of devil’s advocate, which involves being the official skeptic
who takes a position for the sake of argument and looks for weaknesses in the decision.

4. Status systems
 Status systems are an important factor in understanding groups. Status is a prestige grading,
position or rank within a group. As far back as researchers have been able to trace human
groups, they have found status hierarchies: tribal chiefs and their followers, nobles and
peasants, the haves and the have-nots. Status can be a significant motivator with
behavioural consequences especially when individuals see a disparity between what they
perceive their status to be and what others perceive it to be.
 Status in a group may be informally conferred by the individual characteristics of a person,
such as his or her education, age, skill or experience. Anything can have status value if others
in the group evaluate it that way. Of course, just because status is informal does not mean
that it is less important or that it is hard to determine who has it and who does not.
 Group members have no problem placing people into status categories, and they usually
agree about who has high, middle or low status. Status is also formally conferred through
the person’s formal position (for example, job titles such as senior buyer, buyer and assistant
 buyer) in the organisation, and it is important for employees to believe that the
organisation’s formal status system is congruent – that is, there is consistency and equity
between the perceived ranking of an individual and the status symbols he or she is given by
the organisation. For instance, status incongruence would occur when a supervisor earns
less than his or her subordinates, or a desirable office is occupied by a person in a low-
ranking position. Employees expect the ‘things’ an individual receives to be congruent with
his or her status. When they are not, employees are likely to question the authority of their
managers. In addition, the motivational potential of promotion decreases, and the general
pattern of order and consistency in the organisation is disturbed.

5. Group size
 What is an appropriate size for a group? At Amazon, work teams have considerable
autonomy to innovate and to investigate their ideas. And according to Jeff Bezos, founder
and CEO, teams should not consist of more people than it is possible to feed with two pizzas.
 Group size affects performance and satisfaction, but the effect depends on what the group is
supposed to accomplish. Research indicates, for instance, that small groups are faster at
completing tasks than are larger ones. However, if the group is engaged in problem solving,
large groups consistently get better results than smaller ones. Translating these findings into
specific numbers is a bit more troublesome, but we can offer some guidelines. Large groups
– those with a dozen or more members – are good for getting diverse input. Thus, if the goal
of the group is to find facts, a larger group should be more effective.
 On the other hand, smaller groups are better at doing something productive with those
facts. Groups of approximately five to seven members tend to be more effective for taking
action. One of the more important findings related to group size is social loafing, which is
the tendency for individuals to expend less effort when they are working collectively than
when they are working individually. It directly challenges the logic that the group’s
productivity should at least equal the sum of the productivity of each group member.
 What causes this social loafing effect? It may be due to a belief that others in the group are
not carrying their fair share. If you see others as lazy or inept, you can re-establish equity by
reducing your effort. Another explanation is the dispersion of responsibility. Because the
results of the group cannot be attributed to any one person, the relationship between an
individual’s input and the group’s output is unclear. In such situations, individuals may be
tempted to become ‘free riders’ and coast on the group’s efforts. In other words, efficiency
will decline when individuals think that their contribution cannot be measured.
 The implications of social loafing for managers are significant. When managers use groups,
they must have a way to identify individual efforts. If this is not done, group productivity and
individual satisfaction may decline.

6. Group cohesiveness
 Cohesiveness is important because it has been found to be related to a group’s productivity.
 Groups in which there is a lot of internal disagreement and lack of cooperation are less
effective in completing their tasks than groups in which members generally agree, cooperate
and like each other. Research in this area has focused on group cohesiveness, or the degree
to which group members are attracted to a group and share its goals.
 Research has generally shown that highly cohesive groups are more effective than those
with less cohesiveness. However, this relationship between cohesiveness and effectiveness
is a little more complex than that. A key moderating variable is the degree to which the
group’s attitude aligns with its goals or with the goals of the organisation.
 The more cohesive a group is, the more its members will follow its goals. If the goals are
desirable (for example, high output, quality work, cooperation with individuals outside the
group), a cohesive group is more productive than a less cohesive group.
  But if cohesiveness is high and attitudes are unfavourable, productivity decreases. If
cohesiveness is low and goals are supported, productivity increases but not as much as when
both cohesiveness and support are high. When cohesiveness is low and goals are not
supported, there is no significant effect on productivity.

The Relationship between Cohesiveness and Productivity

Group Processes
 The next component in the group performance/satisfaction model concerns the processes
that go on within a work group, such as communication, decision making, conflict
management, and the like. These processes are important to understanding work groups
because they influence group performance and satisfaction positively or negatively.
 An example of a positive process factor is the synergy of four people on a marketing
research team who are able to generate far more ideas as a group than the members could
produce individually. However, the group may also have negative process factors, such as
social loafing, high levels of conflict or poor communication, which may hinder group
effectiveness. Two group processes that are of particular importance to managers are group
decision making and conflict management.

Group decision making

Many organisational decisions are made by groups. It is a rare organisation that does not at some
time use committees, task forces, review panels, study teams or similar groups to make decisions. In
addition, studies show that managers may spend up to 30 hours a week in group meetings.
Undoubtedly, a large portion of that time is spent formulating problems, developing solutions and
determining how to implement the solutions. It is possible, in fact, for groups to be assigned any of
the eight steps in the decision-making process. In this section, we will look at the advantages and
disadvantages of group decision making, discuss when groups would be preferred, and present some
techniques for improving group decision making.

What advantages do group decisions have over individual decisions?

1. Groups provide more complete information and knowledge. A group brings a diversity of
experience and perspectives to the decision process that an individual cannot.
2. Groups generate more diverse alternatives. Because groups have a greater amount and
diversity of information, they can identify more alternatives than an individual can. This
advantage is particularly evident when group members represent different areas of
expertise. For instance, a team made up of individuals from engineering, accounting,
production, marketing and human resources will generate alternatives that reflect their
diverse perspectives.
3. Groups increase acceptance of a solution. Many decisions fail after the final choice has been
made, because people do not accept the solution. Group members are reluctant to fight or
undermine a decision they have helped develop.
4. Groups increase legitimacy. The group decision-making process is consistent with
democratic ideals, and decisions made by groups may be perceived as more legitimate than
decisions made unilaterally by one person.

If groups are so good at making decisions, how did the phrase ‘A camel is a horse put together by a
committee’ become so popular? The answer, is that group decisions also have disadvantages.
1. Groups are time-consuming. Putting a group together takes time, as does any decision
making within the group. The result is that groups almost always take more time to reach a
solution than it would take an individual.
2. Groups risk minority domination. Members of a group are never perfectly equal. They may
differ in organisational rank, experience, knowledge about the problem, influence with other
members, verbal skills, assertiveness, and so forth. This inequality creates the opportunity
for one or more members to dominate others. A dominant and vocal minority frequently can
have an excessive influence on the final decision.
3. There are pressures to conform. As discussed earlier, there are pressures to conform in
groups. This groupthink undermines critical thinking in the group and eventually harms the
quality of the final decision.
4. There is ambiguous responsibility. Group members share responsibility, but who is actually
responsible for the final outcome? In an individual decision, it is clear who is responsible. In
a group decision, the responsibility of any single member is diluted.

Determining whether groups are effective at making decisions depends on the criteria used to assess
effectiveness. However, that the effectiveness of group decision making is also influenced by the size
of the group. Although a larger group provides greater opportunity for diverse representation, it also
requires more coordination and more time for members to contribute their ideas. So, groups
probably should not be too large. What techniques can managers use to help groups make more
creative decisions? Figure 13.5 describes three possible techniques.
Conflict management
 Another important group process is how a group manages conflict. As a group performs its
assigned tasks, disagreements inevitably arise. When we use the term conflict, we are
referring to perceived incompatible differences resulting in some form of interference or
opposition. Whether the differences are real or not, is irrelevant. If people in a group
perceive that differences exist, then there is conflict. Over the years, three different views
have evolved regarding conflict.
 One view argues that conflict must be avoided – that it indicates a problem within the group.
This is called the traditional view of conflict. A second view, the human relations view of
conflict, argues that conflict is a natural and inevitable outcome in any group and need not
be negative; rather, it has the potential to be a positive force in contributing to a group’s
performance. The third and most recent perspective proposes not only that conflict can be a
positive force in a group but also that some conflict is absolutely necessary for a group to
perform effectively. This third approach is called the interactionist view of conflict.
 The interactionist view is not suggesting that all conflicts are good. Some conflicts are seen
as supporting the goals of the work group and improving its performance; these are
functional conflicts of a constructive nature. Other conflicts are destructive and prevent a
group from achieving its goals; these are dysfunctional conflicts.
 Figure 13.6 illustrates the challenge facing managers. What differentiates functional from
dysfunctional conflict? The evidence indicates that you need to look at the type of conflict.
 Three types have been identified: task, relationship and process.
 Task conflict relates to the content and goals of the work. Relationship conflict focuses on
interpersonal relationships. Process conflict refers to how the work gets done.
 For process conflict to be productive, it must be kept to a minimum. Intense arguments
about who should do what become dysfunctional when they create uncertainty about task
assignments, increase the time to complete tasks and lead to members working at cross-
purposes. A low to moderate level of task conflict consistently demonstrates a positive
effect on group performance, because it stimulates discussions of ideas and thus helps
groups to be more innovative. Because a sophisticated measuring instrument has not yet
been devised to assess whether a given task, relationship or process conflict level is optimal,
too high or too low, the manager must make intelligent judgments.
 When group conflict levels are too high, managers can select from five conflict management
options: avoidance, accommodation, forcing, compromise and collaboration. No one
option is ideal for every situation. Which approach to use depends upon the circumstances
and the manager’s desire to be more/less cooperative and more/less assertive.
 To promote the sense of fairness, it is important that group leaders build a strong sense of
community based on fair and just treatment.

Conflict and Group Performance

Conflict Resolution Techniques

“Teams” – Managing Teams

Turning Groups into Effective Teams
• Without a doubt, team-based work is a core feature of today’s organisations. And the
popularity of teams is likely to continue. Research suggests that teams typically outperform
individuals when the tasks being done require multiple skills, judgment and experience.
 • Work groups interact primarily to share information and to make decisions to help each
member do their job more efficiently and effectively. These groups have no need or
opportunity to engage in collective work that requires joint effort. On the other hand, work
teams are groups whose members work intensely on a specific, common goal, using their
positive synergy, individual and mutual accountability, and complementary skills.

 When companies such as Volvo and Kraft Foods introduced teams into their production
processes more than a quarter of a century ago, it made news because no one else was
doing it. Today, it is just the opposite. It is the organisation that does not use teams that has
become newsworthy. Without a doubt, team-based work is a core feature of today’s
organisations. And the popularity of teams is likely to continue. Why?
 Figure 13.8 summarises some reasons. Research suggests that teams typically outperform
individuals when the tasks being done require multiple skills, judgment and experience.
 As organisations have restructured to become more competitive, they are relying on teams
as a way to use employee talents better. Managers have found that teams are more flexible
and responsive to changing events than are traditional departments or other permanent
work groups. Teams have the ability to quickly assemble, deploy, refocus and disband.

What is a work team?

 Most of you are already familiar with teams, especially if, for no other reason, you have
watched or participated in organised sports events. A sports team has many of the same
characteristics as a work team, but work teams are different from work groups and have
their own unique traits. Work groups interact primarily to share information and to make
decisions to help each member do their job more efficiently and effectively. These groups
have no need or opportunity to engage in collective work that requires joint effort.
 On the other hand, work teams are groups whose members work intensely on a specific,
common goal, using their positive synergy, individual and mutual accountability, and
complementary skills. In a work team, the combined individual efforts of team members
result in a level of performance that is greater than the sum of those individual inputs. How?
By generating positive synergy through coordinated effort.

Why are work teams so popular?

Work Groups VS Work Teams

Creating Effective Work Teams
Teams are not automatic productivity enhancers. They can also be a disappointment. How can
managers create effective teams? Research on teams provides insights into the characteristics
typically associated with effective teams. Let us look more closely at these characteristics, which are
summarised in Figure 13.9. One element you might notice is missing but think is important to being
an effective team is that a team be harmonious and friendly. In fact, friendliness is not a necessary
ingredient. Even a grumpy team can be effective if these other team characteristics are present.
When a team is productive, has done something good together, and is recognised for its efforts,
team members can feel good about their effectiveness.
 Clear goals – High-performance teams have a clear understanding of the goals to be
achieved. Members are committed to the team’s goals, know what they are expected to
accomplish, and understand how they will work together to achieve these goals.
 Relevant skills – Effective teams are composed of competent individuals who have the
necessary technical and interpersonal skills to achieve the desired goals while working well
together. This last point is important, since not everyone who is technically competent has
the interpersonal skills to work well as a team member.
 Mutual trust – Effective teams are characterised by high mutual trust among members. That
is, members believe in each other’s ability, character and integrity. But as you probably
know from personal relationships, trust is fragile. It takes a long time to build and can be
easily destroyed. Maintaining trust requires careful attention by managers. The climate for
trust within a group tends to be strongly influenced by the organisation’s culture and the
actions of management. Organisations that value openness, honesty and collaborative
 processes, and encourage employee involvement and autonomy, are more likely to create
trusting cultures.
 Unified commitment – Unified commitment is characterised by dedication to the team’s
goals and a willingness to expend extraordinary amounts of energy to achieve them.
Members of an effective team exhibit intense loyalty and dedication to the team and are
willing to do whatever it takes to help their team succeed.
 Good communication – Not surprisingly, effective teams are characterised by good
communication. Members convey messages, verbally and non-verbally, among each other in
ways that are readily and clearly understood. Good communication is also characterised by a
healthy dose of feedback from team members and managers. Feedback helps to guide team
members and to correct misunderstandings. Like a couple that has been together for many
years, members on high-performing teams are able to quickly and efficiently share ideas and
feelings.
 Negotiating skills – When jobs are designed around individuals, their job description, the
organisation’s rules and procedures, and other types of formalised documentation clarify
employee roles. Effective teams, on the other hand, tend to be flexible and are continually
making adjustments as to who does what. This flexibility requires team members to possess
negotiating skills. Since problems and relationships are regularly changing in teams,
members need to be able to confront and reconcile differences.
 Appropriate leadership – Effective leaders are important. They can motivate a team to
follow them through the most difficult situations. How? By clarifying goals, demonstrating
that change is possible by overcoming inertia, increasing the self-confidence of team
members, and helping members to more fully realise their potential. Increasingly, effective
team leaders act as coaches and facilitators. They help to guide and support the team, but
they do not control it. This condition obviously applies to self-managed teams, but it also
increasingly applies to cross-functional, virtual and problem-solving teams in which the
members themselves are empowered.
 Internal and external support – The final condition necessary for an effective team is a
supportive climate. Internally, the team should have a sound infrastructure, which means
having proper training, a clear and reasonable measurement system that team members can
use to evaluate their overall performance, an incentive program that recognises and rewards
team activities, and a supportive human resource system. The right infrastructure should
support members and reinforce behaviours that lead to high levels of performance.
Externally, managers should provide the team with the resources needed to get the job
done.

Characteristics of Effective Teams

Building Teams Skills
 With the emphasis on teams in today’s organisations, managers need to recognise that
people do not automatically know how to be part of a team or to be an effective team
member. Like any behaviour, sometimes you have to learn the skill and then keep practising
and reinforcing it.
 In building team skills, managers must view their role as being more like a coach and
developing team members in order to create more committed, collaborative and inclusive
teams. And it is important to recognise that not everyone is, or can learn to be, a team
player. If attempts at team building are not working with some people, it may be more
productive to put those people in positions where their work is done individually.

Understanding Social Networks

• We cannot leave this module on managing teams without looking at the patterns of informal
connections among individuals within groups – that is, at the social network structure.
What actually happens within groups? How do group members relate to each other, and
how does work get done?
• Managers need to understand the social networks and social relationships of work groups.
• Why? Because a team’s informal social relationships can help or hinder its effectiveness.
• Organisations are recognising the practical benefits of knowing the social networks within
teams.
• Ken Loughridge, an IT manager with MWH Global, had a ‘map’ of the informal relationships
and connections among the company’s IT employees. Loughridge said, ‘It’s as if you took the
top off an ant hill and could see where there is a hive of activity. It really helped me
understand who the players were.’

Module 6 – Becoming an Enterprise Leader

Managing the External Environment and Organisational Culture
Defining the External Environment
 An organisation interacts with its environment as it takes in inputs and distributes outputs.
 Consider, then, how advancements in digital technology are now increasingly disrupting all
types of industries e.g. retail, financial services, entertainment, automotive industries.
 The external environment refers to factors and forces outside the organisation that
potentially can affect its performance (don’t have direct control over).
 The external environment is made up of two components, the:
o specific environment: those external forces that have a direct impact on managers’
decisions and actions and are directly relevant to the achievement of the
organisation’s goals
o general environment: broad external conditions that may affect the organisation.

Components of External Environment

Specific External Environment (microenvironment)
Customers
 Represent potential uncertainty to an organisation.
 Their needs and wants could change, they could be dissatisfied with the products or services
that the organisation provides. In turn, organisations are constantly looks at new ways (e.g.
innovating) to meet the demands of its customer base/target market.

Suppliers
 Firms that provide materials and equipment (inputs for an organisation to create an output)
= goods-based suppliers e.g. building materials. Suppliers could also include providers of
financial and labour inputs = service-based suppliers e.g. banks, insurance companies,
shareholders, superannuation funds – needed to ensure a continuous supply of capital.
 Thus, suppliers play a crucial role in ensuring an organisation is sufficiently providing
customers with goods and services that they need/demand.

Competitors
 Every organisation has one or more competitors e.g. Australia Post – considered to have a
form of monopoly on basic mail services. They have to compete against other organisations
like TNT, DHL and other parcel and courier delivery as well as telephone and email.
 Managers can’t afford to compete in these type of industries (domestic and international
level), thus businesses like Australia Post must consider the decisions they make surrounding
their ability to provide a well-rounded service to customers (consistency).

Public Pressure Groups

 Managers must recognise the special interest groups that attempt to influence the actions of
organisations e.g. RSPCA and Animals Australia – particularly active in relation to animal
welfare, concerning the live export of sheep and cattle from Australia to other countries.
 Vocal individuals or groups at shareholder meetings put uncomfortable questions to the
board or threatening to disrupt the meeting – inevitable circumstances for organisations like
boycotting and threatening to get managers to change their policies or operations.
 As social and political movements change, so does the power of pressure groups e.g. as a
result of its persistent efforts. Example – Greenpeace has not only managed to make
significant changes in the whaling, tuna fishing and seal fur industries, but has also raised
public awareness about other environmental concerns, such as climate change and the
destruction of ecological habitats and industrial pollution. This calls on managers to be
aware of the power these groups can exert on their decisions (influential).

General External Environment (macro environment)

  They don’t have the influence and direct effect on organisations like the specific external
environment does, managers must consider them as they plan, organise, lead and control
(role of management). Leaders also consider these environments in order to engage in long-
term decision making

Economic
 Example – Nestle is a company facing increased commodity costs – the maker of products
like Krunch chocolate bars, Nescafe coffee and Pareena Pet Foods, spend more than $30
billion a year on raw materials (purchases about 10% of the world’s coffee crop, 12 million
tonnes of milk and more than 300,000 tonnes of cocoa)
 Costs are one of the many volatile economic factors facing organisations
 Interest rates, inflation, changes in disposable income, share market fluctuations and the
stage of the general business cycle are other economic factors in the general external
environment that can affect managerial practices in an organisation

Legal/Political
 Federal, state and local governments in Australia influence what organisations are allowed
to do – increased government involvement over the year through various regulations and
policies. Areas of government involvement include trade practices, environmental
protection laws, anti-discrimination policies and industrial relations legislation.
 Organisations spend a lot of time, money and resources on meeting government regulations
– in addition to these expenses, they also reduce managerial discretion by limiting choices
available to managers
 Historically, employees could quit at any time and for any reason, however, recently,
governments have enforced regulations and court decisions, putting extra limits on what
employees can do. Employees who feel they have been wrongly or unfairly dismissed, can
take their case to the courts and other authorities such as the Anti-Discrimination
Community Commission or the Ombudsman. This trend has made it increasingly difficult for
managers to fire poor performers or dismiss employees for off-duty conduct

Sociocultural (vital in global marketplaces)

 Managers must adapt their practices to the changing expectations of the society they
operate in – as society values customs and tastes change, managers must also change.
 Example – workers seeking a better work-life balance – organisations have responded and
adjusted by offering family leave policies, more flexible work hours (not the generic 9-5 work
days) and even onsite childcare facilities
 Other sociocultural changes include the increasing concerns about global warming and
greenhouse gas emissions, pursuit for healthier lifestyles, increasing fear of crime and
violence and increasing dependence on technology – each of these trends may pose a
potential constraint on a manager’s decisions and actions
 Organisation operating in other countries, must familiar with their values, cultures and
manage in ways that recognise the specific sociocultural aspects

Demographic
 Trends in the physical characteristics of a population – gender, age, level of education,
geographic location, income, family composition etc. – ABS collects such data

Technological
 Most rapid changes in the last 25 years have occurred in technology
 Continuous technological change – the human genetic code has been cracked according to
scientists – information gadgets are becoming smaller and more powerful – automated
 offices, electronic meetings, robotic manufacturing, lasers, laser and more powerful micro
processes, synthetic fuels and entirely new models of doing business
 The technological environment is vital for managers, especially when dealing with
customers, suppliers and creditors e.g. makes processes smoother, increases speed etc.

Global
 Extreme relevance to the current climate
 Advances in communication technology and reductions in constellation trade barriers have
contributed to creating a global market – increase in exporting and importing trade activity
 It has also becoming increasingly irrelevant to label a company’s home country

External Environment: Constraints and Challenges

It is equally important that managers understand how the external environment affects them.
There are three ways in which the environment constrains and challenges managers:
 Through its impact on jobs and employment;
o the power of this constraint became increasingly obviously during the last global
recession, when millions of jobs were eliminated and unemployment rates boomed
to levels not seen in many years around the globe
o changes in external conditions not only affect the types of jobs available, but also
the jobs that are created and managed e.g. use of flexible work arrangements to
meet work output demand OR tasks may be done by freelancers hired to work on an
as-needed basis OR temporary worker who work full time but are not permanent
employees OR individuals who share jobs. Such responses have arisen due to the
constraints of the external environment, thus managers must consider how these
work arrangements will affect planning, organising, leading and controlling methods
 Through the environmental uncertainty that is present;
o can affect organisational outcomes from 2 dimensions – degree of change and
degree of complexity in an organisation
o If an organisation’s environment changes frequently = ‘dynamic environment’
o If an organisation’s environment changes minimally = ‘stable environment’ – may be
one of no new competitors, few technological breakthroughs by current
competitors, little activity by pressure groups to influence the organisation etc.
o Degree of complexity = number of components in an organisation’s environment
and the level of knowledge that the organisation has about those components
o Organisation with many competitors, customers and suppliers = ‘complex
environment’ – has many issues to deal with
o Organisation with fewer competitors, customers and suppliers = ‘simple
environment’ – less complex and uncertain environment
 Through the various stakeholder relationships that exist between the organisation and its
external constituencies.
o Stakeholders – any constituency in an organisation’s external environment that are
effected by the organisation’s decisions and actions. Influenced by what the
organisation does and in turn, these groups can influence the organisation
o Example – Starbucks – coffee bean farmers, employees, speciality coffee
competitors and local communities – some may impact decisions and actions of
Starbuck’s managers
o The idea that organisations have stakeholders is now widely accepted by both
management, academics and practicing managers

Environmental Uncertainty Matrix

Organisational Stakeholders (BELONG TO BOTH MACRO AND MICRO ENVIRONMENTS)

Organisational Culture
What is organisational culture?
Organisational culture
 The shared values, principles, traditions and ways of doing things that influence the way
organisational members act.
 These shared values and practices have evolved over time and determine what employees
perceive about their organisational experiences and how they behave in the organisation.

Our definition of culture implies three things:

1. Culture is a perception. It is not something that can be physically touched or seen; instead,
employees perceive the culture of the organisation on the basis of what they see, hear or
experience.
2. Even though individuals may have different backgrounds or work at different levels, they
tend to describe the organisation’s culture in similar terms. That is the shared aspect of
culture.
3. Organisational culture is a descriptive term. It is concerned with how members perceive the
organisation, not with whether they like it. It describes, rather than evaluates.

Dimensions of Organisational Culture

The Source of Culture
 An organisation’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 endeavours.
 The original source of an organisation’s culture usually reflects the vision or mission of its
founders. Their focus might be on aggressiveness, or it might be on treating employees as
family. The founders establish the early culture by projecting an image of what the
organisation should be. They are not constrained by previous customs or approaches.
 The small size of most new organisations also helps the founders instil their vision in all
organisational members.

For example, an organisation that adopts a vision of aggressiveness will tend to find that the result is
employees become more aggressive in order to achieve a common purpose or goal. Generally,
employees in that type of environment are more extrinsically motivated where they expect tangible
rewards e.g. monetary bonuses.
On the other hand, an organisation that is found on people orientation, will consist of employees
who are more motivated for intrinsic rewards – focus on achieving intangible rewards that make
them feel good about themselves. They develop shared values within the organisation, and
therefore, the culture of that organisation will be people-centred.

Module 9 – Socially Responsible Leaders

Social Responsibility
 Often associated with the obligation and commitment towards ensuring sustainable
practices that consider the needs of society
 In relation to enterprise leadership, social responsibility means organisations are committed
to sustainable practices
 Social responsibility of an organisation greatly depends on the outcomes of the good or
service they are producing e.g. packaging good in biodegradable/recyclable material
  In the business world, social responsibility can be defined in various ways e.g. some
businesses define it as profit making only, others go beyond the perspective of profit
making, others define it as improving social or environmental conditions

Social Obligation
 Organisations engage in social actions to meet economic and legal responsibilities
 Compliance focused
 Responsibility is within the limits of obligation
 Driven by a minimalist approach
 Focused on maximising shareholder wealth
 Limited to the basic needs of society

Social Responsiveness
 Organisations are responsive to popular social needs
 Guided by social norms and values in the current time
 Make practical, market orientated decisions

 But a socially responsible organisation views things a lot differently…

o Organisations intention to go beyond the obligation and responsive action, primarily
influenced by economic or legal implications.

Why is Social Responsibility Important?

 There are different micro, macro and miso layers that need to be considered on both an
individual level (e.g. the employee), a group level (e.g. workforce) and at the institutional
level (e.g. the company overall).

Corporate Social Responsibility (CSR) – The Tripartite Relationship

United Nations Sustainable Development Goals – outline the requirements for businesses to
contribute to sustainable development. The 17 SDG’s include:
1. No poverty
2. Zero hunger
3. Good health and wellbeing
4. Quality education
5. Gender equality
6. Clean water and sanitation
7. Affordable and clean energy
8. Decent work and economic growth
9. Industry, innovation and infrastructure
10. Reduced inequalities
11. Sustainable cities and communities
 12. Responsible consumption and production
13. Climate action
14. Life below water
15. Life on land
16. Peace, justice and strong institutions
17. Partnerships for the goals

 Organisations engaging in practice to achieve these goals, empowers them to go beyond

compliance measures, commonly relevant to social obligation and social responsiveness.
 Therefore, when a business focuses on achieving SDG’s like gender equality and good health
and wellbeing, the tripartite relationship is linking and collaborating between business and
society, creating a strong relationship (benefiting the business through profits, and meeting
societal needs who make business viable through their sales).
 Example – government policies focused on dealing with issues of climate change, emissions
and fossil fuels particularly in Australia, then influence the way businesses generate profit,
thus creating a relationship between governments and society as there is an implication on
society (stronger relationship).
 These rings in the diagram, highlighting the strength of each relationship/connection,
reflects the way the economy will exist overall
 The maximum standard of CSR (within the tripartite relationship) point towards the active
alignment of internal business goals (internal environments with externally set societal
goals) which include internal environments that really support sustainable development
 Social responsibility in terms of CSR, follows a tripartite relationship where the government
generally develops policies that businesses respond to in order to benefit society

Ethical Leadership

 Based on ‘doing the right thing’

 These advanced collection of the elements that make up ethical leadership, is greatly
influenced by the understanding that followers are more and more intelligent and intuitive,
thus they seek leadership that facilitate rather than dictate to their needs.
 Ethical leaders are individuals whose behaviours, values and motives really influence the
ethical behaviour of themselves and others.
 In regards to enterprise leadership, the role of ethical leaders when transforming, balancing,
engaging in disclosure or critical and reflective thinking, can highly determine how ethical an
organisation can be in terms of their responsibility towards society.
 Thus, the policies developed around CSR also influences them.

What is the connection between Ethical Leadership and Social Responsibility?

  The attributes and behaviours of ethical leadership, places them into the category of a
‘corporate citizen’.
 Citizen – relates to the relationship between an individual and a place where they go – a
person who belongs to a particular state/city/suburb, a particular political and/or religious
group etc.
 Wood and Logsdon in 2001 stated that ‘one important debate distinguishes the concept of
citizenship as legal status from the concept of citizenship as desirable activity’.
 The requirements to be called a ‘citizen’, is very different from the requirements to be called
a ‘good citizen’.
 The corporate/good citizen is responsible and has rights within the corporation.
 Leads us to understand the role of ethical responsibility and social justice – this connection
lies within the citizen of the organisation and the roles and responsibilities of the
organisation to engage in ethical conduct.

Ethical Responsibility
 Ethically responsible organisations consider and act on the following:
o CSR – dominated by social policy experts and environmentalists (even activists)
o Corporate Governance – largely dominated by lawyers, accountants and experts on
human behaviour
o Corporate citizens – people who belong to the organisation
o Sustainability – environmentalists (even activists)
o Ethical investment – market analysts (who understand their ethical responsibility
towards the organisation and towards society)
o Employment and human rights – human resource managers (HRM)
o Fair trade – economists (passionate about ethical responsibility)
o Risk management – board of directors and executives
o Reputation management – marketing and public relations specialists.

Social Justice
 A political and philosophical theory underpinned by fairness in the relationship between
individuals
 Social justice revolves around fairness and equality for access to wealth, opportunities and
social privilege
 “My people die young in this country” – Stan Grant.

 Such statistics help businesses engage in ethical responsibility and social justice

Module 10 – Decision Making, Leadership and Change Management

Video 1 – Heuristics and Decision Making
 Much of our everyday problem solving involves heuristics, which are fast and simple
strategies that we have found to work quite often (but not always)
  Especially useful when the problem is not well defined – meaning the goal and method to
reach the goal is not clear

Heuristics are Fallible:

 The Representativeness Heuristic
 Jack is a 45-year-old man. He is married and has four children. He is generally conservative,
careful and ambitious. He shows no interest in political and social issues and spends most of
his free time on his many hobbies, like home carpentry, sailing and mathematical puzzles.
o According to the representativeness heuristic, the more similar/representative
something is to a prototype, the more likely it is to belong to that prototype’s
category.

 The Availability Heuristic

 We tend to judge as more likely, common or frequent that which is more easily brought to
mind – usually true

The Power of Framing Effects

Example: Which of the following options would prompt more people to register by October 1 st?
1. Register for classes before October 1st to earn a 3% discount on tuition
2. Failure to register for classes before October 1 st will result in a 3% penalty fee

Option 2 is far more motivating – people perceive the pain of a loss as being much greater than we
perceive the pleasure of an equivalent gain.

Sunk Cost Fallacy

Often, we make our decisions based, in part, on how much time or money we have already invested.
 Consequently, we may persist with an ineffective strategy or problematic situation simply
because we have already sunk our money, time and energy into it
 Why might we do this?
 What examples exist for this behaviour?

Video 2 – Are we in control of our decisions?

 Feedback, when consumed and adapted, can lead to better decisions/outcomes
 People’s intuition can fool them in a repeatable, predictable, consistent way e.g. in visual
settings
 Illusions as a metaphor – ‘decision illusions’
 Vision is a major aspect of our lives that we’re so good at – if we have these predictable
repeatable mistakes in vision, in which we are so good at, what’s the chances we don’t make
even more mistakes at things we’re not as good at? E.g. financial decision-making
 Example of percentage of drivers donating organs – countries we think are very similar
actually exhibit very different behaviour e.g. Sweden giving a lot compared to Denmark,
which we think are culturally very similar, giving very little. Netherlands got a 28% after
sending every household a letter, begging people to join this organ donation program.
 Because society does not know their preferences well, they become susceptible to various
influences from the external forces
 Individuals generally understand their limitations and work around them, however, when it
comes to the mental world, when we design things like healthcare, retirement and stock
markets, we somehow forget the idea that we are limited. If we understood our cognitive
limitations in the same way we understand our physical limitations (even though they are
not equally as obvious), we could design a better world (better choices, better interactions,
better understanding of boundaries/limitations).
Module 11 – Managing Change and Innovation
External and Internal Forces of Change
External Internal
 Changing consumer needs and wants  New organisational strategy
 New government laws and regulations  Change in composition of workforce
 Changing technology  New equipment
 Economic changes  Changing employee attitude

Two Views of the Change Process

We can use two very different metaphors to describe the change process.
1. One metaphor envisions the organisation as a large ship crossing a calm sea. The ship’s
captain and crew know exactly where they are going because they have made the trip many
times before. Change comes in the form of an occasional storm, a brief distraction in an
otherwise calm and predictable trip. Change is seen as an occasional disruption in the
normal flow of events.
2. In the other metaphor, the organisation is seen as a small raft navigating a raging river with
uninterrupted white-water rapids. Aboard the raft are half a dozen people who have never
worked together before, who are totally unfamiliar with the river, who are unsure of their
eventual destination, and who – as if things were not bad enough – are travelling at night. In
the white-water rapids metaphor, change is an expected and natural state, and managing
change is a continual process.
 These two metaphors present very different approaches to understanding and responding to
change.

Calm Waters Metaphor

 There was a time when the calm waters metaphor was fairly descriptive of the situation that
managers faced.
  According to Lewin (1951), successful change can be planned and requires unfreezing the
status quo, changing to a new state, then refreezing to make the change permanent.
 The status quo can be considered an equilibrium state. To move from this equilibrium,
unfreezing is necessary. It can be achieved in one of three ways:
1. Increase the driving forces that direct behaviour away from the status quo.
2. Decrease the restraining forces that hinder behaviour away from the status quo.
3. Combine the two approaches.

 Once unfreezing has been accomplished, the change itself can be implemented.

The 3-Step Change Process

White-Water Rapids Metaphor (businesses currently situated here – making changes constantly)
 D.J. Patil, an expert on chaos theory, says, ‘There are times when you can predict weather
well for the next 15 days. Other times, you can only really forecast a couple of days.
Sometimes you cannot predict the next two hours.’
o Helps us understand the current business climate – more of the two-hour weather
scenario not calm – constant distractions, impacts, interferences = must be hands on
o The pace for change in our economy and out culture is accelerating and our visibility
about the future is declining
o Vital to understand the uncertainty of the global economy and what organisations
have to do in order to constantly maintain or adapt to changes that occur in
uncertain times.
 Increasingly, managers are coming to accept that their job is much like what a student would
face in a university that stipulates: courses vary in length – a course might run for two
weeks or 30 weeks.
o Students who were overly structured were slow to respond to uncomfortable
change – not be able to adapt and succeed
o Relevant to current climate – transition to online learning that has just occurred
o Shows the unpredictability and the change process that is occurring with students, is
very similar to what managers are experiencing in the workplace
o From the business perspective, particularly the retail sector, businesses are using
pivoting to adjust to the changes that are occurring around them – e.g. dining
restaurants are pivoting their business to adjust towards takeaway methods
(although the restaurant is closed, the kitchens of those restaurants are still open
and they are utilising delivery services and online ordering systems)
 The point of uncertain change helps people to think more innovatively about how to
proceed in the uncertain environment (becomes a need to remain viable and grow).
 The stability and predictability of the calm waters metaphor DO NOT exist.
  Disruptions in the status quo are not occasional and temporary, and they are not followed
by a return to calm waters.
 Many managers never get out of the rapids.

Types of Organisational Change: what is organisational change?

 Most managers, at one point or another, will have to make changes in some aspects of their
workplace. We classify these changes as organisational change – which is any alteration of
people, structure or technology.
 Organisational changes often need someone to act as a catalyst and to assume the
responsibility for managing the change process – that is, a change agent.
 We assume that changes are initiated and coordinated by a manager within the
organisation. However, the change agent could be a non-manager e.g. employee, change
specialist from the HR department, outside consultant whose expertise is in change
implementation.
 For major changes, an organisation often hires outside consultants to provide advice and
assistance – external sourcing = offers an objective perspective that insiders may lack
 In contrast, internal managers who act as change agents may be more thoughtful (but
possibly overcautious), because they must live with the consequences of their decisions.

Three Types of Change

 Structure – structural components and structural design
 Technology – work processes, methods and equipment
 People – attitudes, expectations, perceptions and behaviour (individual and group)

Popular Organisational Development Techniques

More Effective Interpersonal Work Relationships
 Sensitivity training – a method of changing behaviour through unstructured group
interaction
 Team building – activities that help team members learn how each member thinks and
works
 Intergroup development – changing the attitudes, stereotypes and perceptions that work
groups have about each other
 Process consultation – an outside consultant helps the manager understand how
interpersonal processes are affecting the way work is being done
 Survey feedback – a technique for assessing attitudes and perceptions, identifying
discrepancies in these, and resolving the differences by using survey information in feedback
groups

Contemporary Issues in Managing Change

 Today’s change issues – changing organisational cultures, handling employee stress and
making change happen successfully – are critical concerns for managers.
 What can managers do to change an organisation’s culture when that culture no longer
supports the organisation’s mission?
 What can managers do to handle the stress created by today’s dynamic and uncertain
environment?
 How can managers successfully manage the challenges of introducing and implementing
change?

Strategies for Managing Cultural Change

 Set the tone through management behaviour; top managers, particularly, need to be
positive role models
 o If employees do not see the urgency for change, it is unlikely that a strong culture
will respond to change efforts
 Create new stories, symbols and rituals to replace those currently in use
 Select, promote and support employees who adopt the new values
 Redesign unwritten norms with clearly specified expectations
 Shake up current subcultures through job transfers, job rotation and/or terminations
 Work to get consensus through employee participation and creating a climate with a high
level of trust

Characteristics of Change-Capable Organisations

 Link the present and the future – think of work as more than an extension of the past; think
about future opportunities and issues, and factor them in today’s decisions
 Making learning a way of life – change-friendly organisations excel at knowledge sharing
and management
 Actively support and encourage day-to-day improvements and changes – successful
change can come from the small changes as well as the big ones
 Ensure diverse teams – diversity ensures that things will not be done the same way they
have always been done
 Encourage mavericks – since their ideas and approaches are outside the mainstream,
mavericks can help bring about radical change
 Shelter breakthroughs – change-friendly organisations have found ways to protect those
breakthrough ideas
 Integrate technology – use technology to implement changes
 Build and deepen trust – people are more likely to support changes when the organisation’s
culture is trusting and managers have credibility and integrity
 Couple permanence with perpetual change – because change is the only constant,
companies need to figure out how to protect their core strengths during times of change
 Support an entrepreneurial mind-set – many younger employees bring a more
entrepreneurial mind-set to organisations and can serve as catalysts for radical change

Example – Global Study of Organisational Changes in over 2000 companies in Anglo American
jurisdictions
 82% of respondents had implemented major income information system changes
 74% has created horizontal sharing services information
 65% have implemented flexible HR practices

 Each of these major changes entailed various other changes in things like structure,
technology and people
 Managers at all organisations levels are involved in the change process
 Even with the involvement of all levels of managers in change, change processes do not
always work the way they should, thus, it is integral that the role of employees is considered
when thinking about the change process

Stimulating Innovation
 “Innovation is the key to continued success” – Ajay Banga, CEO of MasterCard
 “We innovate today to secure the future” – Sophie Vandebroek, Chief Technology Officer of
Xerox Innovation Group
o Reflect the importance of innovation in businesses
 Success in business today demands innovation. Such is the stark reality facing today’s
managers.
  In the dynamic, chaotic world of global competition, organisations must create new products
and services and adopt state-of-the-art technology if they are to compete successfully.
 In one instance, Google (a continuum – a continuously innovating organisation) asked
selected users how many search results they would like to see on a single screen – response
was the desire for more results to appear – in turn, Google ran an experiment that tripled
the number of search results per screen to 30 rather than 10
 The result of that innovation traffic declines because it took about a third of a second longer
or search results to appear – this seemingly insignificant delay nonetheless upset many of
the users. This shows that google attempted to innovate by trying something new, but
quickly found out that it was not something they wanted to pursue (lack of success)
 Stimulating innovation is based around replying to consumer demands, but at the same
time, finding out through research and development whether the requests from consumers
(innovation created) is going to be effective and efficient for the company as well

Creativity versus Innovation

 The definition of innovation varies widely, depending on who you ask. We are going to
define it by first looking at the concept of creativity.
 Creativity – the ability to combine ideas in a unique way OR to make unusual associations
between ideas.
 A creative organisation develops unique ways to work or novel solutions to problems. But
creativity by itself is not enough.
 The outcomes of the creative process need to be turned into useful products, services or
work methods, which is defined as innovation.
 Thus, the innovative organisation is characterised by its ability to channel creativity into
useful outcomes. When managers talk about changing an organisation to make it more
creative, they usually mean they want to stimulate and nurture innovation.
 Example – Apple and Google are aptly described as innovative because they take novel
ideas and turn them into profitable products and work methods.

System View of Innovation (process of nurturing and stimulating innovation)

Inputs – creative people are not enough – it takes the right environment for the innovation process
to take hold and prosper

Innovation Variables – Stimulate Innovation (external and internal)

  You can’t have structures in place in an organisation without having the right people working
in the organisation. In order to do that, managers need to stimulate human resource –
constantly have employees engaged, consider the attitudes and behaviours so that they can
develop a high commitment to training and development etc.

 Each variable is technical, interpersonal and soft-skill orientated

 While the structural variable requires decision making like managing operations/controls,
the HR variable requires an understanding of individual behaviour, leadership and the
distinctions between management and leadership
 Cultural variables require managers and leaders to think about the internal and external
environments and social responsibility so that they can create an organisational culture that
is compatible with the vision of the organisation

 Important note: the innovation variables combined a multifaceted approach in

organisations when looking at all components of this unit e.g. becoming an enterprise leader
is connected to cultural variables, operating as an enterprise leader is connected to
structural variables and being a socially responsible leader is connected to the human
resource variables.

Module 12 – Managing Operations (Chapter 11 Pearsons Textbook)

Every organisation ‘produces’ something, whether it is a good or a service. This chapter focuses on
HOW organisations do that through a process called ‘operations management’. We also look at the
important role that managers play in managing those operations.

The Role of Operations Management

What is operations management?
 The term refers to the transformation process that converts resources into finished goods
and services.
 Figure 11.1 portrays, in a very simplified fashion, the fact that every organisation has an
operations system that creates value by transforming inputs into outputs.
 The system takes in inputs – people, technology, capital, equipment, materials and
information – and transforms them through various processes, procedures, work activities
and so forth into finished goods and services.
 And just as every organisation produces something, every unit in an organisation also
produces something. Marketing, finance, research and development, human resources and
accounting convert inputs into outputs such as sales, increased market share, high rates of
return on capital, new and innovative products, motivated and committed employees, and
accounting reports.
  Managers need to be familiar with operations management concepts regardless of the area
they manage, in order to achieve their goals efficiently and effectively.

Why is operations management so important to organisations and managers?

1. it encompasses both services and manufacturing;
2. it is important in effectively and efficiently managing productivity; and
3. it plays a strategic role in an organisation’s competitive success.

Example:
 At Intel’s factory in New Mexico, employee Trish Roughgarden is known as a ‘seed’ – an
unofficial title for technicians who transfer manufacturing know-how from one Intel facility
to another. Her job is to make sure that this new factory works just like an identical one that
opened eight months earlier in Oregon. Then, when a third plant opened in Ireland, several
hundred other seeds copied the same techniques.
 The company’s facility in Arizona also benefited from ‘seeding’. What the seeds do is part of
a major Intel strategy known as ‘Copy Exactly’, which the company implemented after
frustrating variations between factories affected productivity and product quality.
 In the intensely competitive chip-making industry, Intel knows that decisions it makes about
operations management issues will determine its likelihood of success.

Services and Manufacturing

 Every organisation produces something. Unfortunately, this fact is often overlooked except
in obvious cases such as in the manufacturing of cars, smartphones or cans of peaches, or in
construction work. After all, manufacturing organisations produce physical goods.
 It is easy to see the operations management (transformation) process at work in these types
of organisations because raw materials are turned into recognisable physical products.
 But that transformation process is not as readily evident in service organisations, because
they produce non-physical outputs in the form of services.
 For instance, hospitals provide medical and health-care services that help people to manage
their personal health, airlines provide transportation services that move people from one
location to another, a cruise line provides a vacation and entertainment service, military
forces provide defence capabilities, and the list goes on and on.
 All of these service organisations transform inputs into outputs, although the
transformation process is not as easily recognisable as that of manufacturing organisations.
 Take a university, for example. University administrators bring together inputs – professors
and lecturers, books, academic journals, technological materials, computers, classrooms and
similar resources – to transform ‘unenlightened’ students into educated and skilled
individuals who are capable of making contributions to society.
 The reason for making this point is that most Western economies, including Australia and
New Zealand, have gone from being dominated by primary production and the creation
 and sale of manufactured goods to the creation and sale of services. In fact, most of the
world’s industrialised nations are predominantly service economies.
 In Australia, more than 75 per cent of all economic activity is services; in the United States,
it is almost 80 per cent; in Japan, it is 71 per cent; in the European Union, it is over 73 per
cent.
 However, in developing countries, the service sector is less important.
 For instance, in Nigeria, services account for only 20 per cent of economic activity; in Laos,
only 21 per cent; in Vietnam, 31 per cent; in China, 36 per cent; and in India, 31 per cent.

Managing Productivity
 One jetliner has some 4 million parts. Efficiently assembling such a finely engineered product
requires intense focus. Boeing and Airbus, the two major global manufacturers, have
copied techniques from Toyota. However, not every technique can be copied, because
airlines demand more customisation than do car buyers and there are significantly more
rigid safety regulations for jetliners than for cars.
 At the Evans Findings Company, which makes the tiny cutting devices on dental floss
containers, one production shift each day is run without people.
 The company’s goal is to do as much as possible without labour. And it is not because they
do not care about their employees. Instead, like many other manufacturers around the
world, Evans needed to raise productivity in order to survive, especially against low-cost
competitors. So, it turned to ‘lights-out’ manufacturing where machines are designed to be
so reliable that they make flawless parts on their own, without people operating them.

 Although most organisations do not make products with 4 million parts and most
organisations cannot operate without people, improving productivity has become a major
goal in virtually every organisation.
 Almost all competitive organisations try to reduce the number of people for a given level of
output, often by introducing a degree of automation into their operations.
 For countries, high productivity can lead to economic growth and development. Employees
can receive higher wages, and company profits can increase, WITHOUT causing inflation.
 For individual organisations, increased productivity gives them a more competitive cost
structure and the ability to offer more competitive prices.

 Increasing productivity is a key to global competitiveness. For instance, a great deal of

Japan’s economic prosperity in the 1980s resulted from improved manufacturing
productivity in businesses. As Japanese businesses became more competitive, US
businesses responded by making dramatic improvements to increase their efficiency.
 Up until the 1950s, Australian industry largely serviced the domestic market, with some
exporting of processed natural resources such as agricultural products.
 From the 1950s until the late 1970s, as Australian industry grew, it was largely protected by
tariffs. When those tariffs disappeared as a result of the opening up of the Australian
market through deregulation and free trade agreements, changes were introduced in many
industries to improve productivity.
 For example, in the Australian car manufacturing industry, productivity per employee for
PMVs (personal motor vehicles) improved from around 11 per employee in 1991 to
something over 17.5 per employee in 2003.
 One way of achieving this was by rationalising the number of local models produced.
 However, these changes have not been enough to remain competitive globally, as can be
seen by the decision of all the remaining car manufacturers in Australia – Ford, Holden and
Toyota – to close down their Australian manufacturing in 2016 and 2017.
  Australia now finds itself with a need to improve productivity in all its industries, not only
to remain competitive in a global market but also to compete with overseas firms in its
domestic markets. For instance, the 2013 Productivity Pulse survey by Ernst & Young
identified that there was an estimated $305 billion in untapped productivity potential across
all industry sectors, with four in five workers (85 per cent) believing they could be more
productive in their role to some degree.
 EY Oceania advisory leader Neil Plumridge says, ‘The world is changing, our competitors are
getting more aggressive and productive, and we’re facing some huge challenges in terms of
our demographics and production costs so there’s an imperative for faster and higher levels
of productivity... Australian companies cannot afford to sit on their hands.’

 Organisations that hope to succeed globally are looking for ways to improve productivity.
 For example, McDonald’s drastically reduced the amount of time it takes to cook its french
fries; it now takes only 65 seconds, compared with the 210 seconds it once took, saving time
and other resources.
 In Australia, Telstra is implementing systems that will enable web-based replenishment. The
cost savings will be specially marked for repetitive purchases of commodities such as office
stationery. And Skoda, the Czech car company owned by Germany’s Volkswagen AG,
improved its productivity through an intensive restructuring of its manufacturing process.
 It now produces 700 cars per day, well over twice the number it used to make. The company
has also expanded the sales of its cars worldwide; in October 2007, Australia became the
fifth continent and the 100th market in which Skoda Auto sells its cars.

 Productivity is a composite of people and operations variables. To improve productivity,

managers must focus on both. The late W. Edwards Deming, a management consultant and
quality expert, believed that managers, not workers, were the primary source of increased
productivity. Some of his suggestions for managers included planning for the long-term
future, never being complacent about product quality, understanding whether problems
were confined to particular parts of the production process or stemmed from the overall
process itself, training workers for the job they are being asked to perform, raising the
quality of line supervisors, requiring workers to do quality work, and so forth.
 As you can see, Deming understood the interplay between people and operations.
 High productivity CANNOT come solely from good ‘people management’.
 The truly effective organisation will maximise productivity by successfully integrating
people into the overall operations system. For instance, field engineers for GE Medical
Systems, a division of General Electric, used to haul around on service calls a trunkful of
service and repair manuals weighing close to 100 kilograms in order to repair the company’s
massive imaging machines that were installed at hospitals and clinics around the world.
 If the technician did not have the right manual on hand while working on the equipment, a
trip to the car was necessary to get the right one. The engineers estimated that they wasted
as much as 15 per cent of their time during a service call going back and forth to their cars.
 The company solved the problem by equipping its field engineers (around 2500 in the
United States alone) with laptop computers that held all the information the technician
might ever need. Although this investment in information technology cost millions of
dollars, the field engineers’ productivity rose by 9 per cent. The company recognised the
important interplay between people and the operations system.

Strategic Role of Operations Management

 The era of modern manufacturing originated over 100 years ago in the United States,
primarily in Detroit’s automobile factories. Then the success that US manufacturers
experienced during the Second World War led manufacturing executives to believe that
 troublesome production problems had been conquered and required little managerial
attention. These executives focused on improving other functional areas such as finance
and marketing. From the late 1940s to the mid-1970s, manufacturing activities in the
United States were taken for granted and, to some extent, were slighted.
 With an occasional exception (such as the aerospace industry), corporate managers gave
manufacturing little attention. To a large extent, the manufacturing systems of the United
States and the United Kingdom were copied in Australia; hence, any problems or
inefficiencies that existed in these systems would largely be replicated in Australia.
 For example, the General Motors – Holden manufacturing plants would have been
modelled on General Motors, the parent firm in the United States.
 Meanwhile, as US executives neglected the production side of their businesses, managers
in Japan, Germany and other countries took the opportunity to develop modern,
computer-based and technologically advanced facilities that fully integrated
manufacturing operations into strategic planning decisions. The competition’s success
realigned world manufacturing leadership. US manufacturers soon discovered that foreign
goods were being made not only less expensively but were also of better quality.
 By late 1970s, US executives recognised that they were facing a true crisis and responded.
 They invested heavily in improving manufacturing technology, increased the corporate
authority and visibility of manufacturing executives, and began incorporating existing and
future production requirements into the organisation’s overall strategic plan.
 Today, successful manufacturers recognise the crucial role that operations management
plays in the overall organisational strategy to establish and maintain global leadership.

Value Chain Management

 It is 11 pm, and you are reading a text message from your parents saying that they want to
buy you a new laptop for your birthday, to help you in your studies this semester. They want
you to order it. You log on to Dell’s website and configure your dream PC that will serve even
your most demanding computing needs for the remainder of your university course. You hit
the order button and within three or four days your dream computer is delivered to your
front door, built to your exact specifications, ready to set up and use immediately to type
that management assignment due tomorrow. Or consider Siemens AG’s Computed
Tomography manufacturing plant in Forcheim, Germany, which has established a
partnership with about 30 suppliers. These suppliers are partners in the truest sense, as they
share responsibility with the plant for overall process performance. This arrangement has
allowed Siemens to eliminate all inventory warehousing and has streamlined the number of
times paper changes hands to order parts from 18 times to one. In Perth, Western Australia,
e-based Batteries Plus Technologies, which provides batteries for laptops, cordless power
tools, video cameras and mobile phones, delivers anywhere in the world and guarantees to
ship your order within 24 hours of receipt. Finally, when Black & Decker wanted to extend its
line of handheld tools to include a glue gun, it chose to outsource the entire design and
production to the leading glue gun manufacturer. Why? Because it understood that glue
guns do not require motors, which was Black & Decker’s strong point.
 These examples show how closely integrated work activities among many different players
are possible. How? The answer lies in value chain management.
 The concept of value chain management is transforming operations management
strategies and turning organisations around the world into finely tuned models of efficiency
and effectiveness strategically positioned to exploit competitive opportunities as they
arise.

What is value chain management?

 Every organisation needs customers if it is going to survive and prosper.
  Even NFP organisations must have ‘customers’ who use its services or purchase its products.
 Customers want some type of value from the goods and services they purchase or use, and
these end users determine what has value.
 Organisations must provide that value to attract and keep customers.
 Value – the performance characteristics, features and attributes, and any other aspects of
goods and services for which customers are willing to give up resources (usually money).
 For example, when you purchase online Taylor Swift’s latest album for your iPod, a new pair
of Australian sheepskin Ugg boots at the company’s website, a takeaway latte from a
campus cafe or a haircut from your local hair salon, you are exchanging (giving up) money in
return for the value you need or desire from these products – providing music during your
evening study time, keeping your feet warm and fashionable during winter’s cold weather,
having a caffeine fix on your way to class, or looking professionally groomed for the job
interview you have arranged for next week.
 How is value provided to customers? It is provided through the transformation of raw
materials and other resources into some product or service that end users need or desire,
where, when and how they want it. However, that seemingly simple act of turning a variety
of resources into something that customers value and are willing to pay for involves a vast
array of interrelated work activities performed by different participants (suppliers,
manufacturers and even customers) – that is, it involves the value chain.

 Value chain – the entire series of organisational work activities that add value at each step,
beginning with the processing of raw materials and ending with the finished product in the
hands of the end users. In its entirety, the value chain can encompass everyone from the
supplier’s suppliers to the customer’s customer.
 Value chain management – the process of managing the entire sequence of integrated
activities and information about product flows along the entire value chain.
 In contrast to supply chain management, which is internally oriented and focuses on the
efficient flow of incoming materials (resources) to the organisation, value chain
management is externally oriented and focuses on both incoming materials and outgoing
products and services.
 Although supply chain management is efficiency oriented (its goal is to reduce costs and
make the organisation more productive), value chain management is effectiveness
oriented and aims to create the highest value for customers.
 The concepts of ‘value chain’ and ‘supply chain’ are often used interchangeably, but there is
really a significant difference between the two processes.
 The supply chain model is considered by some to be part of the value chain model. However,
there is a difference in what drives the two chains. The supply chain is concerned with
activities that get raw materials and subassemblies into a manufacturing operation smoothly
and economically; it is basically concerned with costs and time.

Goal of Value Chain Management

 Who has the power in the value chain? Is it the suppliers providing needed resources and
materials? After all, they have the ability to dictate prices and quality.
 Is it the manufacturer that assembles those resources into a valuable product or service?
Their contribution in creating a product or service is quite obvious.
 Is it the distributor that makes sure the product or service is available where and when the
customer needs it? ACTUALLY, IT IS NONE OF THESE!
 In value chain management, ultimately it is customers who have the power.
 They are the ones who define what value is and how it is created and provided.
  Using value chain management, managers hope to find that unique combination in which
customers are offered solutions that truly meet their needs, in a fast time, and at a price
that cannot be matched by competitors.
 With this in mind, the goal of value chain management is to create a value chain strategy
that meets and exceeds customers’ needs and desires and allows for full and seamless
integration among all members of the chain.
 A good value chain is one in which a sequence of participants works together as a team,
each adding some component of value – such as faster assembly, more accurate
information, better customer response and service, and so forth – to the overall process.
 The better the collaboration among the various chain participants, the better the customer
solutions. When value is created for customers and their needs and desires are satisfied,
everyone along the chain benefits. For example, at automotive interior supplier Johnson
Controls, managing the value chain started first with improved relationships with internal
suppliers, then expanded to external suppliers and customers. As the company’s experience
with value chain management intensified and improved, so did its connection with its
customers, which ultimately will pay off for all its value chain partners.

Benefits of Value Chain Management

 Collaborating with external and internal partners in creating and managing a successful
value chain strategy requires significant investments in time, energy and other resources,
and a serious commitment by all chain partners.
 Given this, why would managers ever choose to implement value chain management?
 A survey of manufacturers noted four primary benefits of value chain management:
o improved procurement
o improved logistics
o improved product development
o enhanced customer order management

Managing Operations by using Value Chain Management

 Even though it is the world’s largest retailer, Walmart still looks for ways to manage its
value chain more effectively and efficiently. Its current efforts involve taking over US
transportation services from suppliers in an effort to reduce the cost of transporting goods.
 The goal: ‘to handle suppliers’ deliveries in instances where Walmart can do the same job
for less, then use those savings to reduce prices in stores.
 Walmart believes it has the size and the scale to allow it to ship most products more
efficiently than the companies that produce the goods.
 Even if you are Walmart, managing an organisation from a value chain perspective is not
easy. Approaches to giving customers what they wanted that may have worked in the past
are no longer likely to be efficient or effective. Today’s dynamic, competitive environment
demands new solutions. Understanding how and why value is determined by the
marketplace has led some organisations to experiment with a new business model.
 For example, IKEA, the home furnishings manufacturer, transformed itself from a small
Swedish mail-order furniture operation into the world’s largest retailer of home furnishings
by reinventing the value chain in the home furnishings industry. How? The company offers
customers well-designed products at substantially lower prices, in return for their
willingness to take on certain key tasks traditionally done by manufacturers and retailers –
assembling furniture and getting it home. The company’s creation of a new business model
and its willingness to abandon old methods and processes have worked well.
 Requirements for value chain management
1. coordination and collaboration
2. technology investment
 3. organisational processes
4. leadership
5. employees
6. organisational culture and attitudes

Coordination and Collaboration

 For the value chain to achieve its goal of meeting and exceeding customers’ needs and
desires, collaborative relationships among all chain participants MUST exist.
 Each partner must identify things they may not value but that customers do.
 Sharing information and being flexible as far as who in the value chain does what, are
important steps in building coordination and collaboration. This sharing of information and
analysis requires more open communication among the various value chain partners.
 For example, Kraft Foods (now Mondelez International) believed better communication
with customers and with suppliers had facilitated timely delivery of goods and services.

Technology Investment
 Successful value chain management is NOT POSSIBLE without a significant investment in
information technology. The payoff from this investment, however, is that information
technology can be used to restructure the value chain to better serve end users.
 For instance, Dell Computer manages its supplier relationships almost exclusively online.
 The company has one website for customers and one for suppliers. The supplier website is
the primary mode of communication between Dell and 33 of its largest suppliers.
 The company’s investment in this type of information technology allows it to meet its
customers’ needs in a way that competitors have not been able to match.

Organisational Processes
 Value chain management radically changes organisational processes – that is, the ways
that organisational work is done. When managers decide to manage operations using value
chain management, old processes are no longer appropriate. Managers must critically
evaluate all organisational processes from beginning to end, by looking at core
competencies – the organisation’s major skills, capabilities and resources – to determine
where value is being added. Non value-adding activities should be eliminated.
 Questions such as ‘Where can internal knowledge be leveraged to improve the flow of
material and information?’, ‘How can we better configure our product to satisfy both
customers and suppliers?’, ‘How can the flow of material and information be improved?’ and
‘How can we improve customer service?’ should be asked for each and every process.
 For example, when managers at Deere and Company implemented value chain
management in its Worldwide Commercial and Consumer Equipment Division, a thorough
process evaluation revealed that work activities needed to be better synchronised and
 interrelationships between multiple links in the value chain better managed. They changed
numerous work processes division-wide in order to do this.
 The New Zealand government designed a website to facilitate the value chain for
international buyers and exporters of New Zealand products. Buyers can register to receive
free assistance with trade enquiries, search or browse an extensive exporter database, and
read about New Zealand’s capability. New Zealand exporters can register to profile their
products and services and access global market intelligence.

Three important conclusions can be made about how organisational processes must change.
 First, better demand forecasting is necessary and possible because of closer ties with
customers and suppliers. For example, in an effort to make sure that Listerine was on the
store shelves when customers wanted it (known in the retail industry as product
replenishment rates), Walmart and Pfizer’s Consumer Healthcare Group in the United
States collaborated on improving product demand forecast information. Through their
mutual efforts, the partners boosted Walmart’s sales of Listerine, an excellent outcome for
supplier and retailer. Customers also benefited (were provided value) because they were
able to purchase the product when and where they wanted it.
 Second, selected functions may need to be done collaboratively with other partners in the
value chain. This collaboration may even extend to sharing employees. For instance, it has
been common practice in the cosmetic and retail industries for cosmetic firms to supply
demonstrators and salespeople on a permanent or promotional basis to retail outlets.
Within the software and information technology industry, it is not unusual for system
developers to exchange staff to work on each other’s premises for long periods of
attachment. In the armed forces, forces from different countries often exchange staff,
especially if they are using the same weapons systems or are likely to operate together in
exercises or military operations.
 Finally, new measures are needed for evaluating the performance of various activities
along the value chain. Because the goal in value chain management is meeting and
exceeding customers’ needs and desires, managers need a better picture of how well this
value is being created and delivered to customers. For example, when the global food
company Nestle implemented a value chain management approach, it redesigned its
metrics system to focus on one consistent set of measurements – including, among other
measures, accuracy of demand forecasts and production plans, on-time delivery and
customer service levels – which allowed it to identify problems more quickly and take
actions to resolve them.

Leadership
 The importance of leadership to value chain management is plain and simple – successful
value chain management is not possible without strong and committed leadership.
 From top organisational levels to lower levels, managers must support, facilitate and
promote the implementation and ongoing practice of value chain management. Managers
must make a serious commitment to identifying what value is, how that value can best be
provided and how successful those efforts have been. An organisational atmosphere or
culture where all efforts are focused on delivering superb customer value is NOT possible
without a serious commitment on the part of the organisation’s leaders.
 It is also important that managers outline expectations for what is involved in the
organisation’s pursuit of value chain management. Ideally, this should start with a vision or
mission statement that expresses the organisation’s commitment to identifying, capturing
and providing the highest possible value to customers.
 For example, the Australian Grape and Wine Authority, a recently formed organisation
jointly funded by grape-growers, winemakers and the Australian government, has as its
 mission to promote Australian wines by investing in research and development along its
entire value chain – from ‘grape-growing to the glass’. Otherwise known as Wine Australia,
the organisation’s aim is to increase the profitability, competitiveness and sustainability of
the Australian wine sector in both the domestic and international markets.
 To do so, it has embarked on a process of educating, engaging and energising operators in
the Australian wine-producing industry using events, educational programs, social media
and partnership building. These initiatives are seen as important in an increasingly
competitive global wine market – need to create better working relationships between the
various operators in the value chain (grape-growers, wine-producers, distributors,
wholesalers and retailers) to better serve the needs of the customer.

Employees / Human Resources

 It is clear that employees are the organisation’s most important resource.
 Without employees, there would be no products produced or services delivered – in fact,
there would be no organised efforts in the pursuit of common goals. So, not surprisingly,
employees play an important role in value chain management.

The three main human resource requirements for value chain management are:
 flexible approaches to job design
 effective hiring process
 ongoing training.

 Flexibility – the key description of job design in a value chain management organisation.
 Traditional functional job roles – such as marketing, sales, accounts payable, customer
service, and so forth – are inadequate in a value chain management environment. Instead,
jobs need to be designed around work processes that link all functions involved in creating
and providing value to customers. But it takes more than flexible jobs; flexible employees
are needed as well.

 In a value chain organisation, employees may be assigned to work teams that tackle a
given process and are often asked to do different things on different days, depending on
the need. In an environment in which customer value is best delivered through focusing on
collaborative relationships, the job requirements may change as the customers’ needs
change; and in an environment in which there are no standardised processes or job
descriptions, an employee’s ability to be flexible is critical. Therefore, the organisation’s
hiring process must be designed to identify those employees who have the ability to learn
and adapt.

 Finally, the need for flexibility also requires that there be a significant investment in
continual and ongoing employee training. Whether training involves learning how to use
information technology software, how to improve the flow of materials throughout the
chain, how to identify activities that add value, how to make better decisions faster, or how
to improve any other number of potential work activities, managers must see to it that
employees have the knowledge and tools they need to do their jobs efficiently and
effectively.

Organisational Culture and Attitudes

 The last requirement for value chain management is the importance of having supportive
organisational culture and attitudes. The types of cultural attitudes that will support the
successful implementation of value chain management include sharing, collaborating,
openness, flexibility, mutual respect and trust. And these attitudes encompass not only the
 internal partners in the value chain, but external partners as well.
 For example, IKEA’s value chain management involves collaboration and coordination with
customers in processes that enable the company to offer good-quality products at low
prices. Rather than offering home delivery and preassembled products, as other furniture
retailers do, IKEA expects customers to perform the transport and assembly processes.
 The retailer facilitates the transportation process by providing customers with tape
measures, pencils and paper while they shop to record product measurements, and by
offering car roof racks to purchase at cost and mini trucks available for rental.
 Many of its products are also designed to be flat-packed, allowing the customer to pick up a
pack in its large storage area before the check-outs. Many of these flat-packs have also been
designed to fit into customers’ cars. These innovations help explain IKEA’s success, because
it provides the value that its customers want.

Obstacles to Value Chain Management

As desirable as the benefits may be, managers must deal with several obstacles in managing the
value chain, including:
 organisational barriers
 cultural attitudes
 required capabilities
 people

Organisational barriers
 Organisational barriers are among the most difficult obstacles to handle. These barriers
include refusal or reluctance to share information, reluctance to shake up the status quo,
and security issues.
 Without shared information, close coordination and collaboration is impossible. The
reluctance or refusal of employees to shake up the status quo can impede efforts towards
value chain management and prevent its successful implementation. Finally, because value
chain management relies heavily on a substantial information technology infrastructure,
system security and internet security breaches are issues that need to be addressed.

Cultural attitudes
 Unsupportive cultural attitudes – especially trust and control – also can be obstacles to
value chain management. The trust issue – both lack of trust and too much trust – is a
critical one. To be effective, partners in a value chain must trust each other. There must be a
mutual respect for, and honesty about, each partner’s activities all along the chain.
 When that trust does not exist, the partners will be reluctant to share information,
capabilities and processes. But too much trust also can be a problem. Just about any
organisation is vulnerable to theft of intellectual property – that is, proprietary company
information that is critical to its efficient and effective functioning and competitiveness.
 Today’s increased risk of hacking and terrorist threats further illustrates the importance of
being able to trust your value chain partners so that you do not compromise your
organisation’s valuable assets. Although value chain partners must trust each other, the
potential for theft can be minimised by better understanding each other’s operations and
by being careful with proprietary intellectual property.
 Another cultural attitude that can be an obstacle is the belief that when an organisation
collaborates with external and internal partners, it no longer controls its own destiny. This
is not the case. Even with the intense collaboration that is so important to value chain
management, organisations still control critical decisions such as what customers value,
how much value they desire, and what distribution channels are important.
Required capabilities
 As discussed earlier, for successful implementation of value chain management there are a
number of capabilities that value chain partners must have.
 Several of these, including intense coordination and collaboration, the ability to configure
products to satisfy customers and suppliers, and the ability to educate internal and
external partners, are NOT easy to develop or to do. But they are essential to capturing
and exploiting the value chain. Many of the companies described in this section endured
critical and often difficult self-evaluations of their capabilities and processes in order to
become more effective and efficient at managing their value chains.

People
 The final obstacles to successful value chain management can be an organisation’s
members. Without their unwavering commitment and willingness to do whatever it takes,
value chain management is not going to be successful. If employees refuse or are reluctant
to be flexible, it will be difficult to make the necessary changes to meet changing
situational demands. After all, it is the employees who do the work.
 If they are not willing to be flexible in terms of what work they do, and how and with whom
they work, collaboration and cooperation throughout the value chain will be hard to
achieve. In addition, value chain management takes a large amount of time and energy by
an organisation’s employees, and so managers must successfully motivate their employees
to put in those high levels of effort. Finally, a major human resource problem faced by
organisations pursuing value chain management is the lack of experienced managers who
are able to lead value chain management initiatives.
 Because it is a relatively new approach to managing operations, few managers have done it
successfully. However, this obstacle has not prevented progressive organisations from
pursuing the benefits to be gained from value chain management.

Current Issues in Operations Management

 Rowe Furniture had an audacious goal: to custom-make a sofa and deliver it to the
customer within ten days of the order coming in. It wanted to ‘become as efficient at
making furniture as Toyota is at making cars’. However, reaching that goal required
revamping its operations management process to exploit technology and maintain quality.
 Rowe’s actions illustrate three of today’s most important operations management issues:
technology, quality and mass customisation. Managers consider such operations
management issues to be essential for making products and services competitive in global
markets.

Technology’s role in operations management

 Global positioning systems (GPS) are changing a number of enterprises from shipping to
shopping, from health care to law enforcement and even to farming. Like many other
 technologies, GPS was invented for military use to track weapons and personnel as they
moved. Now the technology is being used to track shipping fleets, to revitalise consumer
products such as watches or cameras, and to monitor parolees or sex offenders.
 Another relatively new technology, radio frequency identification (RFID), is an automatic
identification method in which information can be stored and remotely retrieved. It is
similar to, but more sophisticated than, the old familiar bar code. The technology is used in
areas that you may be familiar with, such as e-passports, toll-road e-tags, and microchips for
dogs and cats. Information is stored on and retrieved from RFID tags (sometimes called
‘chips’), which are like little radio towers or transponders that send out information to a
reader. RFID tags can be read at a distance, even through crates or other packing materials.
 The use of RFID in operations management makes it possible for manufacturers,
distributors, transportation companies, retailers and marketers to track individual units
across the value chain. RFID is also being adopted in the service industry, with some
hospitals experimenting with RFID in patients’ bracelets that hold medical information, and
in tracking doctors and nurses so that they can be located quickly in an emergency.
 Law firms, libraries and research centres are also using RFID to track the movement of
documents, files and books within their organisations.

 As we know, today’s competitive marketplace has put tremendous pressure on

organisations to deliver products and services that customers value in a timely manner.
Smart companies are looking at ways to harness technology to improve operations
management. Many fast-food companies are competing to see who can deliver faster and
better service in all aspects of their operations.
 For example, McDonald’s in the United States is using confirmation screens for drive-
through customers, a technology that has helped the company boost accuracy by more
than 11 per cent. The technology tells managers how much food they need to prepare by
counting vehicles in the drive-through line and factoring in demand for current
promotional and popular staple items.
 Even Domino’s is using a new point-of-sale system to attract customers and streamline
online orders. In Australia, as part of its e-People strategy, McDonald’s is rolling out an
online recruitment and staff induction platform to 730 retail food outlets across the country.
The program – called ‘me-time’ – not only helps to select and train the best crew online,
but also to reduce the time needed for the recruitment process.
 Although an organisation’s production activities are driven by recognition that the customer
is king, managers still need to be more responsive. For instance, operations managers need
systems that can reveal available capacity, status of orders and product quality while the
products are in the process of being manufactured, not just after the fact.
 To connect more closely with customers, operations across the enterprise, including
manufacturing, must be synchronised. To avoid production and delivery bottlenecks, the
manufacturing function must be a full partner in the entire business system.

What is making this type of extensive involvement and collaboration possible is technology.
 Technology is also allowing manufacturing plants to control costs, particularly in the areas
of predictive maintenance, remote diagnostics and utility cost savings. For instance, let us
look at how manufacturing technology is affecting the equipment maintenance function – an
important operations management activity. New generations of internet-compatible
equipment contain embedded web servers that can communicate proactively – that is, if a
piece of equipment breaks or reaches certain preset parameters, indicating that it is about
to break, it can ask for help. But technology can do more than sound an alarm or light up
an indicator button. For instance, some devices have the ability to initiate email or signal a
pager at a supplier, the maintenance department or a contractor, describing the specific
 problem and requesting parts and service.

How much is such e-enabled maintenance control worth?

 It can be worth quite a lot if it prevents equipment breakdowns and subsequent production
downtime. Managers who understand the power of technology to contribute to more
effective and efficient performance, know that managing operations is more than the
traditional view of manufacturing’s role in producing the product.
 Instead, the emphasis is on working together with all the organisation’s business functions
to find solutions to customers’ business problems.
 Even service providers understand the power of technology to do this. For example, when
Qantas upgraded its cockpit GPS software systems, it enabled its pilots (who had been
extensively trained) to fly precise satellite-based navigation approaches to airports, thus
saving fuel, reducing greenhouse gas emissions and flying hours, and cutting noise.

Quality Initiatives
 Quality problems are expensive. For example, even though Apple has had phenomenal
success with its iPod, the batteries in the first three versions died after four hours instead of
lasting up to 12 hours, as buyers expected. Apple’s settlement with consumers cost close to
US$100 million. Other examples of quality problems are the frequent product recalls for
refitting or service in the global car manufacturing industry. For example, in one year alone,
the global car manufacturing industry paid US$14.5 billion to cover the cost of warranty
and repair work due to compulsory or voluntary product recalls.
 Such quality problems are often due to new products being rushed to market without
sufficient testing, poor supplier quality, design errors or just simply sloppy production.

 Although quality management has been a part of many organisations’ operations

management strategies for several years, it continues to be an important issue for
managers. For instance, Merinomark Pty Ltd has been successfully operating the
MERINOMARKTM Supply Chain and Licence Scheme.
 The company acts as the facilitating agent, and the trademark guarantees the fibre origin
and quality of its licensees’ products in relation to the supply and marketing of Australian
Merino wool to the global wool processing and textile manufacturing industries.
 The supply chain has quality (the application of the MERINOMARK trademark) at the centre
of the whole process, from raw wool to the end product. Facilitated by a customised
infrastructure, technical support, testing, research, specifications and promotions provided
and controlled by Merinomark Pty Ltd, licensees and wool growers alike benefit from the
supply chain interaction that flows both up and down the chain.
 Many experts believe that organisations unable to produce high-quality products will not
be able to compete successfully in the global marketplace. As the Merinomark example
demonstrates, building a value chain where the principal objective is to improve quality at
every step in the supply chain from the farm-gate to the seller of the licensed wool can
make the difference between being successful or failing in the highly competitive global
marketplace.

 What is quality? When you consider a product or service to have quality, what does that
mean to you? Does it mean that the product does not break or quit working – that is, that
it is reliable? Does it mean that the service is delivered in a way that you intended? Does it
mean that the product does what it is supposed to do? Or does quality mean something
else?
 Quality is defined as ‘the ability of a product or service to reliably do what it is supposed to
do and to satisfy customer expectations’.
  How is quality achieved? That is the issue managers must address. A good way to address
quality initiatives is to think in terms of the management functions – planning, organising,
leading and controlling – that need to take place.

Planning for quality

 Managers must have quality-improvement goals and strategies, and plans formulated to
achieve those goals. Goals can help focus everyone’s attention on achieving some objective
quality standard. For example, Zantek is a leading Australian manufacturer of custom-
designed and built electrical control panels, process panels, shutdown systems, automotive
systems and switchboard control assemblies for clients such as Orica, Origin, Siemens and
Honeywell. Included in its corporate objectives is a quality policy that requires it to meet its
customers’ requirements and specifications, and all relevant standards and quality
assurance levels suited to its products’ intended purpose. The company’s quality policy also
states that it will source all equipment and materials from reliable third-party suppliers
who maintain similar quality procedures and can demonstrate that they can control and
maintain this quality. Quality is too important to be left to chance.
 An organisation should therefore follow a planned and systematic approach to quality.
Such an approach starts by setting specific and challenging goals, which managers and
employees can then pursue by working together in developing well-designed strategies.

Organising and leading for quality

 Since quality-improvement initiatives are carried out by organisational employees, it is
important for managers to look at how they can best organise and lead them. The existence
of training is considered to be one of the requirements for quality assurance certification.
 For instance, the NSW Shellfish Quality Assurance Program, as well as being a legal
requirement under the NSW Fisheries Management Act 1994, also provides a very
necessary guideline for any individual firm’s food safety plan. Individual food safety plans
will concentrate on the management practices of the individual business, how the product is
handled, conditions of the premises, and so on.
 Training is also provided to assist employees in achieving the quality goals.
 Ultimately, the two systems will interlock to provide a comprehensive system of quality
assurance at both the estuary level (farming environment) and the individual level (product
handling) when it comes to the supply of shellfish from NSW. Organisations with extensive
and successful quality-improvement programs tend to rely on two important ‘people’
approaches: cross-functional work teams and self-directed or empowered work teams.
 Because achieving product quality is something that involves the participation of all
employees, from the upper levels to the lower levels, it is not surprising that quality-driven
organisations rely on well-trained, flexible and empowered employees.

Controlling for quality

 Quality-improvement initiatives need a way of monitoring and evaluating their progress.
 Whether it involves standards for inventory control, defect rate, raw materials
procurement or any other operations management area, controlling for quality is essential.
 For example, Woolworths, as a major food retailer, is very concerned with the quality of the
products it sells and with maintaining that quality. On its website for vendors (trade
partners), it has outlined information relevant to vendors, such as terms and quality
assurance requirements for supplying products. Every product category of the big retailer
has specific criteria regarding Woolworths’ Quality Assurance (WQA) certification.
 The WQA standard is based on benchmarking against food safety standards and
international retailing best practice. If a company is supplying produce to Woolworths, it will
 need to ensure that all its produce complies with Woolworths’ specifications.
 Quality improvement initiatives have also been taken at many other Australian organisations
such as Alcoa of Australia, Wormald Security and Carlton & United Breweries.

 Quality assurance initiatives are not just limited to Australian operations. For example, at
a Delphi assembly plant in Matamoros, Mexico, employees have worked hard to improve
quality in its products for the global car manufacturing industry and have made significant
strides. The customer reject rate on shipped products is now 10 ppm (parts per million),
down from 3000 ppm – an improvement of almost 300 per cent.
 Other worldwide examples include Valeo Klimasystemme GmbH of Germany, where
assembly teams build different climate-control systems for high-end German cars including
Mercedes and BMW. Quality initiatives by Valeo’s employee teams have led to significant
improvements in various quality standards.

Quality Goals
To demonstrate publicly their commitment to quality, many organisations around the world have
pursued challenging quality goals – the two best-known being ISO 9000 and Six Sigma.

ISO 9000
 ISO 9000 is a series of international quality management standards established by the
International Organization for Standardization (<www.iso.org>), which set uniform
guidelines for processes to ensure that products conform to customer requirements. These
standards cover everything from contract review to product design to product delivery.
 The ISO 9000 standards have become the internationally recognised standard for
evaluating and comparing companies in the global marketplace.
 In fact, this type of certification is becoming a prerequisite for doing business globally.
 Gaining ISO 9000 certification provides proof that a quality operations system is in place.
 The latest survey of ISO 9000 certificates in 2014 shows that more than 1.1 million
certifications had been awarded to organisations in 175 countries around the world.
 For example, almost 20,000 businesses in Australia are ISO 9000 certified and over 300,000
Chinese firms have received certification.

Six Sigma
 Motorola popularised the use of stringent quality standards more than 30 years ago
through a trademarked quality-improvement program called Six Sigma.
 Very simply, Six Sigma is a quality program designed to reduce defects to help lower costs,
save time and improve customer satisfaction. It is based on the statistical standard that
establishes a goal of no more than 3.4 defects per million units or procedures.
  What does the name mean? Sigma is the Greek letter that statisticians use to define a
standard deviation from a bell curve. The higher the sigma, the fewer the deviations from
the norm – that is, the fewer the defects. At One Sigma, two-thirds of whatever is being
measured falls within the curve. Two Sigma covers about 95 per cent.
 At Six Sigma, you are as close to being defect free as you can get. It is an ambitious quality
goal! Although it may be an extremely high standard to achieve, many quality-driven
businesses are using it to judge their suppliers. For instance, Motorola, AlliedSignal and GE
have told suppliers that this is the quality standard they must use if they want their business.
GE company executives estimate that the company has saved billions in costs since 1995.
 Other well-known global companies pursuing Six Sigma include Dow Chemicals, 3M
Company, American Express, Sony Corporation, Credit Suisse and Johnson & Johnson.
Although manufacturers seem to make up the bulk of Six Sigma users, service companies
such as financial institutions, retailers and health-care organisations are starting to apply it.
 For example, the Commonwealth Bank, the Australian property and hotel management
company Toga Group, as well as Sydney Water and the Royal Australian Air Force, have all
introduced some form of Six Sigma programs.
 What impact can Six Sigma have? Let us look at an example.
 It used to take Wellmark Blue Cross & Blue Shield, a managed-care health-care company in
the US, 65 days or more to add a new doctor to its medical plans. Now, thanks to Six Sigma,
the company discovered that half the processes they used were redundant. With those
unnecessary steps gone, the job now gets done in 30 days or less and with reduced staff.
 The company also has been able to reduce its administrative expenses by US$3 million per
year, an amount passed on to consumers through lower health-care premiums.

 Although it is important for managers to recognise that many positive benefits can accrue
from obtaining ISO 9000 certification or Six Sigma, the key benefit comes from the quality-
improvement journey itself. In other words, the goal of quality certification should be
having work processes and an operations system in place that enable organisations to
meet customers’ needs and employees to perform their jobs in a consistently high-quality
way.

Mass Customisation and Lean Organisation

 The term mass customisation seems an oxymoron. However, the design-to-order concept is
becoming an important operations management issue for today’s managers. Mass
customisation provides consumers with a product when, where and how they want it.
 Companies as diverse as BMW, Ford, Levi Strauss, Wells Fargo, Mattel and Dell are
adopting mass customisation to maintain or attain a competitive advantage. Mass
customisation requires flexible manufacturing techniques and continual customer
dialogue. Technology plays an important role in both.
 With flexible manufacturing, companies have the ability to quickly readjust assembly lines
so as to make products to order. Using technology such as computer-controlled factory
equipment, intranets, industrial robots, barcode scanners, digital printers and logistics
software, companies can manufacture, assemble and ship customised products with
customised packaging to customers in incredibly short time frames.
 Dell is a good example of a company that uses flexible manufacturing techniques and
technology to custom-build computers to customers’ specifications.
 Technology also is important in the continual dialogue with customers. Using extensive
databases, companies can keep track of customers’ likes and dislikes. And the internet has
made it possible for companies to have ongoing dialogues with customers in order to learn
about and respond to their exact preferences. For instance, on Amazon’s website,
customers are greeted by name and can get personalised recommendations of books and
 other products. The ability to customise products to a customer’s desires and specifications
starts an important relationship between the organisation and the customer. If the customer
likes the product and it provides value, he or she is more likely to be a repeat customer.
 An intense focus on customers is also important to be a lean organisation, which is an
organisation that understands what customers want, identifies customer value by
analysing all activities required to produce products, and then optimises the entire process
from the customer’s perspective. Lean organisations drive out all activities that do not add
value in customers’ eyes. For instance, companies such as Bosch Australia, Nestle, United
Parcel Service, LVMH Moet Hennessy Louis Vuitton and Harley-Davidson have pursued lean
operations. ‘Lean operations adopt a philosophy of minimising waste by striving for
perfection through continuous learning, creativity, and teamwork’. As more manufacturers
and service organisations adopt lean principles, they must realise that it is a never-ending
journey towards being efficient and effective.

LEARNING OUTCOMES
Explain the role of operations management
 Operations management is the transformation process that converts resources into
finished goods and services.
 Manufacturing organisations produce physical, tangible goods.
 Service organisations produce non-physical outputs in the form of services.
 Productivity is a composite of people and operations variables.
 A manager should look for ways to successfully integrate people into the overall operations
systems.
 Organisations must recognise the crucial role that operations management plays as part of
their overall strategy in achieving successful performance.

Define the nature and purpose of value chain management.

 The value chain is the sequence of organisational work activities that add value at each
step from raw materials to finished product.
 Value chain management is the process of managing the sequence of activities and
information along the entire product chain.
 The goal of value chain management is to create a value chain strategy that meets and
exceeds customers’ needs and desires and allows for full and seamless integration among
all members of the chain.
 There are four benefits from value chain management: (1) improved procurement, (2)
improved logistics, (3) improved product development, and (4) enhanced customer order
management.

Describe how value chain management is done.

 The six main requirements for successful value chain management include: (1) coordination
and collaboration, (2) investment in technology, (3) organisational processes, (4) leadership,
(5) employees or human resources, and (6) organisational culture and attitudes.
 The obstacles to value chain management include organisational barriers (refusal to share
information, reluctance to shake up the status quo, or security issues), unsupportive cultural
attitudes, lack of required capabilities, and employees unwilling or unable to do it.

Discuss contemporary issues in managing operations.

 Companies are looking at ways to harness technology to improve their operations
management by extensive collaboration and cost control.
 ISO 9000 is a series of international quality management standards that set uniform
guidelines for processes to ensure that products conform to customer requirements.
  Six Sigma is a quality standard that establishes a goal of no more than 3.4 defects per
million units or procedures.
 Mass customisation provides customers with a product when, where and how they want it.
It requires flexible manufacturing techniques and continual customer dialogue.
 A lean organisation is one that understands what customers want, identifies customer value
by analysing all activities required to produce products, and then optimises the entire
process from the customer’s perspective.

EXTRA
Role of operations management
 Operations management refers to the transformation process that converts resources into
finished goods and services.
 Role – design (what is needed e.g. equipment, skills, layout), deliver (planning and
controlling the ongoing daily operations e.g. factories are not run by machines), develop
(continuous improvement e.g. six sigma - qualities management standards that set uniform
guidelines for processes to ensure consistent products are given to customers, satisfying
their expectations of it) directing (medium role - actively steering, reviewing performance
data, forecasts, upcoming threats to supply, reallocation of resources, strategy
requirements)

From a systems perspective (systems model), what is the role of operations management
 Branches from the idea that systems work together to produce a certain output e.g. finished
good or service
 Role of the operations manager in transformation process is to plan, control and take on
feedback. This control/measurement should be reflected through a series of benchmarks
e.g. budgets (compare performance against budget to determine whether if you are better
or worse than budget - worse = immediate action needed to correct that).

How do operations managers, manage productivity

Operation managers manage productivity by integrating people into their overall operations
systems, who are the ones who create production. So, people-orientated behaviours like monetary
and non-monetary rewards, can be ways on how managers can manage and increase productivity
conducted by their employees. 

Invest in more technology and machinery – skills can be compatible with or be better than human
labour, which increases efficiency and productivity (output). OR could be used to help employees
conduct their tasks, once again increasing efficiency and productivity (2 key objectives of many
organisations)

What is the role of leadership in VCM

 Leadership is one of the six main requirements for successful value chain management. 
 Successful value chain management is not possible without strong and committed
leadership. 
 This is because if managers do not support, facilitate and promote the implementation and
ongoing practice of VCM throughout the entire organisational hierarchy, then the level of
value produced through each step of the transformation process will be decrease.
 Managers must strongly commit to create an organisational culture, where all efforts are
focused on delivering superb customer value. This could be through outlining clear
expectations for what is involved in the organisation’s pursuit of value chain management
e.g. vision or mission statement.
  If successful leadership is not in place, obstacles to VCM may arise like unsupportive cultural
attitudes and lack of willing from employees to work productively.

The value chain is the sequence of organisational work activities that add value at each step from
raw materials to finished product.
 Value chain management is the process of managing the order of activities and information
along the entire production process.
 The goal of value chain management is to create a value chain strategy that meets and
exceeds customers’ needs and desires and allows for full and seamless integration among
all members of the chain.
 There are four benefits from value chain management: (1) improved procurement, (2)
improved logistics, (3) improved product development, and (4) enhanced customer order
management.

Develop examples
 Organisations that hope to succeed globally are looking for ways to improve productivity. 
 For example, McDonald’s drastically reduced the amount of time it takes to cook its french
fries; it now takes only 65 seconds, compared with the 210 seconds it once took, saving time
and other resources. 
 For example, in the Australian car manufacturing industry, productivity per employee for
PMVs (personal motor vehicles) improved from around 11 per employee in 1991 to
something over 17.5 per employee in 2003. 
 One way of achieving this was by rationalising the number of local models produced. 
 However, these changes have not been enough to remain competitive globally, as can be
seen by the decision of all the remaining car manufacturers in Australia – Ford, Holden and
Toyota – to close down their Australian manufacturing in 2016 and 2017. 

Module 13 – Managerial Controls

The Planning-Controlling Link

 The Royal Commission on the banking sector in Australia raise several concerns about ethical
conduct and the fiduciary roles of director on boards of banks. An issue with the governance
of this sector has contributed to these concerns.
 The Facebook privacy dilemma is another example of misconduct – centred around the
concept of social responsibility and managerial ethics
 As previously discussed, organisations have a social obligation to safeguard the rights of its
stakeholders. The Facebook case study showed an evident breach of privacy that has
occurred on the social media platform and the effects it has on everyday users
 In Australia, it is estimated that retail stores lose more than $2.4 billion due to things like
shoplifting, employee theft or register errors
  In 2013, customers helping themselves to items without paying for them accounted for
around $1.1 billion; theft by staff accounted for around $650 million; supplier fraud
accounted for $170 million; and other mistakes at the register accounted for $500 million
 All linked to the concept of planning and controlling
 Controlling – process of monitoring, comparing and correcting work performance (e.g.
comparing work performance against standards/benchmarks and correcting it to meet or
exceed pre-determined standards)
 Thus, all managers should be involved in the control function, even if their units are
performing as planned, so as to ensure business goals are met and new goals can be set
 Managers are unaware of their unit’s performance (good or not) unless they have evaluated
what activities have been done and have compared the actual performance against the
desired standard
 An effective control system ensures that activities are completed in ways that lead to the
attainment of the organisation’s goals – criterion that determines the effectiveness of the
control system is how well it helps employees and managers achieve their goals
 Planning – an organisational structure can be created to facilitate the efficient achievement
of goals, and employees can be motived through effective leadership. At this stage, there is
no assurance that activities are going as planned and that the goals managers are seeking
are being attained, thus, control is important as it is the final link in the managerial function.
 CONTROL is the ONLY way managers know if organisational goals are being met (if not,
consider reasons why and enforce effective action).
 The value of the control function can be seen in 3 specific areas: planning, empowering
employees and protecting the workplace
 Controlling is also important because of employee empowerment – managers are reluctant
to delegate or empower their employees because they fear that employees will do
something wrong for which managers should be held responsible (fear it will create delays in
the flow of production). Therefore, many managers are tempted to do things themselves
and they avoid delegating or empowering (this is transient – won’t last long).
 This reluctance CAN be reduced if managers develop an efficient control system – system
that provides information and feedback on employee performance and minimise the chance
of potential problems.
 Managers also control to protect the organisation and its assets – due to today’s
environment of heightened threats from natural disasters, financial scandals, workplace
violence, global supply chain disruptions, security breaches, terrorist attacks etc. Managers
however, need to have plans in place (proactive) to protect the organisation’s employees,
the facilities, the data and the infrastructure.
 Businesses have learnt from past occasions like 9/11 and natural disasters, that having
comprehensive controls and backup plans help to reduce disruptions to their ongoing
business operations

The Control Process

  Measuring actual performance, comparing actual performance against standards and taking
managerial action to correct the deviations or to address inadequate standards
 Diagram assumes that performance standards already exist – which they do
 Performance standards – the specific goals created during the planning process
 4 different categories of goals and objectives – organisational, divisional, departmental,
individual
 Measuring actual performance – understanding what the actual performance is – seeking
information – then measuring that performance – measure through things like personal
observation, statistical reports, oral reports, written reports (e.g. financial statements)
 Comparing actual performance against the standards – comparing actual performance
measures obtained against the standard – determines the degree of variation between
actual performance and the standard – although some variation in performance can be
expected in all activities, it is critical for managers to determine the acceptable range of
variation.
 Deviations that exceed this range, become significant and need the manager’s attention
 In the comparison stage, managers are particularly concerned with the size and direction of
the variation
 Taking managerial action – three possible course of action: do nothing, correct the actual
performance, revise the standards (e.g. if they see that employees are working efficiently
and productively but aren’t meeting the goals set, then the goal is obviously too high and
needs to be in line with employee/performance ability)

Types of Control

 Feedforward control (input) – proactive approach

o Taking managerial action BEFORE the problem occurs – problems and their effects
on the organisation can be PREVENTED rather than having to correct them later
after the damage has taken effect (although this type of control can NOT always be
used as not all problems can be anticipated – some unanticipated)
o Require time and accurate information that can be difficult to obtain, thus managers
frequently end up using the other 2 types of controls, especially concurrent
o Example – anticipating floods – implementing structures to protect crops etc.

 Concurrent control (processes) – reactive approach

o Takes place when the activity is in progress – taking control without the work is
being performed, this helps management correct problems before they become too
costly (still some expense)
o Example of concurrent control – Nicholas Fox is a direction of business product
management at Google. He and the team pay close attention to one of Google’s
most profitable businesses – online ads. They watch the number of searches and
clicks, the rate at which users click on ads and the revenue this generates –
everything is tracked hour by hour compared with the data from a week earlier and
charted. If they recognise something is not working as expected or to its full
 potential, they fine-tune that.

 Feedback control (output) – reactive approach

o The most popular control type because it relies on feedback – the control takes
place after the activity is done
o Two advantages over the other two types of control
 Provides managers with meaningful information on how effective planning
efforts were; feedback that indicates the little variance between standard
and actual performance is evidence that the planning was generally on
target. If the deviation is significant, a manager can use that information
when formulating new plans in order to make them more effective
 Feedback can enhance employee motivation; people want regularly
information on how well they have performed and feedback provides that
information – make it more favourable (makes employees feel that they
have achieved something / purpose)

Contemporary Issues in Control

 Control is an important managerial function.
 Four control issues managers face – cross-cultural differences, workplace concerns,
customer interactions and corporate governance.
 Adjusting controls for cross-cultural differences and global turmoil – whether appropriate
for an organisation whose units are not geographically distant or culturally distinct.
 Control techniques can be quite different for different countries.
 The differences are primarily in the measurement and corrective action steps of the control
process.
 In a global cooperation, managers of foreign operations tend to be less controlled by the
home office; if for no other reason than distance, keeps managers from being able to
observe work directly.
 Because distance creates a tendency to formalise controls, such organisations often rely on
existing, extensive formal reports for control – usually communicated electronically.
 Technology’s impact on control is also seen when comparing technologically advanced
nations with those that are less advanced.
 Countries with more advanced technology often use indirect control devices such as
computer generated reports and analysis. In addition to standardised rules and direct
supervision to ensure that work activities are going as planned, we need those rules and
direct supervision to maintain that. In less technological advance, managers tend to use
more direct supervision and highly centralised decision making for control. Managers in
foreign countries also need to be aware of the constraints on corrective actions they take.
Some countries’ laws prohibit closing facilities, laying off employees, take money out of the
country, or bringing in a new management team from outside the country.
 Managers in foreign countries also need to be aware of the constraints on corrective actions
they can take.
 Another challenge for global companies in collecting data is comparability.
 For example, a company’s manufacturing facility in Indonesia might produce the same
products as a facility in Australia. However, the Indonesian facility might be much more
labour intensive than its Australia counterpart. For example, if the top-level executives were
to control costs by calculating labour costs per unit or output per worker, the figures would
not be comparable. Thus, mangers must address this type of global control challenges.
 Finally, global organisations need to have controls in place for protecting their workers and
other assets during times of global turmoil and disasters.
Corporate Governance
 Corporate governance – a broad-ranging term that refers to the system used to govern a
corporation so that the interests of its corporate owners are protected.
 Corporate governance encompasses the rules, relationships, policy systems and processes
whereby authority within organisations is exercised and maintained.
 A company’s directors and officers play an essential role in establishing and maintaining the
standard of a company’s corporate governance.
 Wide media attention recently – news reports on fraud, excesses, failures and incompetence
have heightened the awareness of the importance of good governance.
 Calls for improvements seem to be occurring in many developed countries.
 The problem of corporate governance is a global one
 A full 75% of senior executive at US and Western European corporations now expect their
board of directors to take a more active role
 The role of boards of directors
o The original purpose of a board of directors was to have a group, independent from
management, looking out for the interests of shareholders, who because of the
corporate structure, were not involved in the day to day management of the
organisation (does NOT always work that way in practice)
o Board members often enjoy an easy relationship with managers in which board
members take care of the CEO and the CEO takes care of board members.
o In Australia, the Corporations Act 2001 (Cth) holds directors of companies
responsible for improving the performance of their company though strategic
planning and monitoring of senior management actions
o Boards are also directly responsible for their own conduct
o To strengthen the emphasis on good corporate governance and to restore public
and investor confidence in Australian corporate leadership, the Australian
Securities Exchange (ASX) set up the ASX Corporate Governance Council in 2002 to
bring together a wide range of business, shareholder and industry groups to develop
a range of principle-based recommendations on corporate governance practices to
be adopted by ASX-listed entities

Australian Governance Council: ASX Corporate Governance Principles and Recommendations 2014
Principle 1: Lay solid foundations for management and oversight
 A listed entity should establish and disclose the respective roles and responsibilities of board
and management and how their performance is monitored and evaluated
 Ensures that there are policies and procedures in place that management can follow and
that boards can monitor

Principle 2: Structure the board to add value

 A listed entity should have a board of an appropriate size, composition, skills and
commitment to enable it to discharge its duties effectively
 Board members need to have the skills and attributes to help them be compliant with the
rules and regulations they must uphold

Principle 3: Act ethically and responsibly

 A listed entity should act ethically and responsibly
 Issues of conflict of interest and abuse of power are things that boards have to consider
when they are discharging their governance roles

Principle 4: Safeguard integrity in financial reporting

  A listed entity should have formal and rigorous processes that independently verify and
safeguard the integrity of its corporate reporting

Principle 5: Make timely and balanced disclosure

 A listed entity should make timely and balance disclosure of all matters concerning it that a
reasonable person would expect to have material effect on the price or value of its securities

Principle 6: Respect the rights of shareholders

 A listed entity should respect the rights of its security holders by providing them with
appropriate information and facilities to allow them to exercise those rights effectively
 Extends onto stakeholders as well

Principle 7: Recognise and manage risk

 A listed entity should establish a sound risk management framework and periodically review
the effectiveness of that framework

Principle 8: Remunerate fairly and responsibly

 A listed entity should pay director remuneration sufficient to attract and retain high quality
directors and design its executive remuneration to attract, retain and motivate high quality
senior executives and to align their interests with the creation of value for security holders.

The overall concept of managerial control is about managing as leaders and making sure that as
managers or leaders, you are thinking about the benefit of the organisation in its entirety and not
just profit maximisation (this mind set is not sustainable for the long-term).