Management 23-24 Van Rossem*Wijen PDF

lOMoARcPSD|40186229 Management 23-24 Van Rossem*Wijen Management (Katholieke Universiteit Leuven) Scan to open on Studocu Studocu is not sponsored or endorsed by any college or university Downloaded by Hong Van Do ([email protected]) ...

lOMoARcPSD|40186229 Management 23-24 Van Rossem*Wijen Management (Katholieke Universiteit Leuven) Scan to open on Studocu Studocu is not sponsored or endorsed by any college or university Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 2023-2024 Management Contents CH1: What is management....................................................................................1 CH2: Looking backward, thinking forward.............................................................5 CH3: Mapping external influences.........................................................................8 CH4: Effectuating strategies................................................................................ 10 CH5: Structuring organizations............................................................................14 CH6: Managing sustainably.................................................................................19 CH7: Managing internationally.............................................................................22 CH8: The ethical manager...................................................................................26 CH9: Managing a organisation’s culture..............................................................32 CH10: Decision-making........................................................................................ 41 CH11: Leadership................................................................................................ 49 CH1: What is management Case Study Summary: Sellafield Nuclear Scandal  Blame and Responsibility: o HR Director: Blames process workers for the scandal, resulting in canceled orders and CEO resignation. o BNII: Attributes the issue to a lack of management skills, such as leadership, communication, motivation, and supervision.  Report Findings: o Lack of high-quality safety systems and improper management were core issues. o Inadequate supervision and poor training contributed to procedural failings. o The nature of the job and lack of meaningful incentives led to data falsification. What is management? -Who are the managers? (PLOC)  Planning – select goals and ways to obtain them  Organizing – assign responsibilities for task accomplishment  Leading – use influence to motivate employees  Controlling – monitor activities and make corrections “Management is the art of getting things done through people” Mary Parker Follet 1 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 People are not difÏcult tools but added values (motivation, purpose) -Definitions: Management involves coordinating and overseeing the work activities of others so that their activities are completed efÏciently and effectively (Robbins & Coulter, 2014) Vs. The attainment of organizational goals in an effective and efÏcient manner through planning, organizing, leading, and controlling organizational resources. (Daft, 2013) -Key Objectives:  Get things done: Focus on attaining organizational goals.  Success: Ensure activities are completed efÏciently (doing things right) and effectively (doing the right things). -Managerial concerns:  EfÏciency -> doing things right – most output for the least inputs  Effectiveness -> doing the things right – attaining organizational goals What managers do? -Functions they perform: These functions are not sequential, Continuously taken, depending on their level -Management Levels: Top: CEO, group head or VPA Middle: BU head (products), dept. managers (functional) First-line: Functional head (start managers) Staff vs. Line Functions: Staff functions Managers help out Line functions managers -Management Roles: 2 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229  Informational roles 75% of work time a manager is communicating Monitor, disseminator, spokesperson  Interpersonal roles Dealing with people, relations Figurehead, leader, liaison  Decisional roles Entrepreneur, disturbance handler, resource allocator, negotiator -Skills they need: The higher your managing position, the more human and conceptual skills (les technical)  Conceptual Skills: Understanding complex situations and developing strategic plans  Human Skills: Working effectively with others, including communication and relationship-building  Technical Skills: Specific knowledge and expertise required for tasks or industry-related activities -Emotional Intelligence (EQ):  Self-awareness: Recognizing and understanding one's own emotions, using intuition to make decisions.  Self-management: Controlling impulses and adapting to changing situations.  Social awareness and Empathy: Sensing and understanding others' emotions, and navigating social dynamics.  Relationship management: Inspiring, influencing, and developing others, while effectively managing conflicts. Always fun to be a manager? (Stressors) 1. Increased workload 2. Challenge of supervising former peers 3. The headache of responsibility for other people 4. Caught in the middle 5. Bad work-life balance What is an organization? Definition: A deliberate arrangement of people assembled to accomplish some specific purpose (that individuals independently could not accomplish alone) Common characteristics: Have a distinct purpose, Composed of people, Have a deliberate structure Management of Small businesses and Non–profit organizations 3 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 Small Business:  Less hierarchy  Less specialization  Less resources for things outside the core  “Entrepreneurship” Non-profit:  Less tangible added value  Accountability  Different culture and values Why to study Management? The universality of management means that management principles and skills apply universally across different organizations and contexts. Does Management matter? (McKinsey & LSE study) -Study Scope: Analyzed 700 companies across sectors to assess management practices' impact. -Key Findings:  Higher management scores correlate with: o Improved Return on Capital Employed (ROCE). o Increased Total Factor Productivity (TFP) by 6% per point. o Higher sales per employee and market valuations. -Determinants of Scores:  Industry competitiveness (42%) and company age influence management effectiveness. -Implications:  Effective management significantly boosts financial and operational performance.  Emphasizes the importance of adopting superior management practices for sustained competitiveness and profitability. 4 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 CH2: Looking backward, thinking forward -Why Study Dead Scholars?  Progressive Insight: Scientific knowledge builds upon past discoveries ("Standing on the shoulders of giants").  Relevance of the Past: Historical works, like Machiavelli's "Il Principe," remain relevant and applicable today.  Repetition of Ideas: Events and ideas from history often recur, albeit with variations, highlighting enduring themes in human experience. A Historical Perspective on Management Theories -Purpose of Theories: o Theories in management provide practical frameworks for understanding and solving organizational challenges. o “Nothing as practical as a good theory” Kurt Lewin -Contextual Development: o Management theories are shaped by the era in which they develop. o They address specific contextual problems and draw on existing knowledge and skills. -Evolution and Influence: o Historical management theories often build upon or challenge earlier ideas. o For example, Henri Fayol refined Adam Smith's division of labor concept. o The behavioral approach emerged as a counter to scientific management, reflecting ongoing theoretical evolution and debate in management studies. Schools of thought: 1) Classical Ideas: Adam Smith: Enhancing productivity through specialisation Advocated division of labor during the industrial revolution to enhance productivity through specialization. (Assembly workers, cashiers) Frederick Taylor: Optimising worker productivity through process standardisation 5 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 Introduced scientific management to optimize worker productivity through process standardization. (ofÏce workers, warehouse workers) Henri Fayol: Effectuating managerial functions Emphasized good management practices and organizational functions for efÏcient industrial production. Max Weber: Optimising the ‘human machine’ Developed bureaucracy theory focusing on rules, hierarchies, and efÏciency in organizational structures. (Schools) -Assessment of Classical Ideas: Pros: Effective in structuring complex organizations. Cons: Often viewed workers as mindless and neglected human factors. 2) Behavioural Approaches: Mary Parker Follett: Foregrounding humans Advocated for human-centric management, emphasizing informal processes and conflict resolution. (protests, unions) Elton Mayo: Nurturing social relations Highlighted human attention and interactions to nurture social relations in workplaces. Chester Barnard: Mobilising power and morality for cooperation Emphasized cooperation and the moral aspects of organizational behavior. -Assessment of Behavioural Approaches: Pros: Focus on personal willpower and social interactions. Cons: May overlook rational structures and processes in favor of human factors. 3) Contemporary Approaches: Edwards Deming: Effectuating circles of performance improvement 6 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 Pioneered quality management focusing on continuous improvement and performance circles. Open Systems Perspective: Overseeing global implications of local actions Focuses on interactions within and outside organizations in unpredictable, complex business environments. Contingency Theory: Attuning actions to contingencies Adjusts actions based on factors like technology, size, and environmental complexity. Resource Dependence Theory (Pfeffer and Salancik): Effectuating governance to control resources Emphasizes managing external resource dependencies. Institutional Theory: Building and adhering to institutions Studies how formal and informal institutions shape organizational behavior. Organizational Learning: Learning how to perform better Focuses on adapting and improving through experience and observation. -More salient approaches:  Herbert Simon’s boundedly rational decision-making  Ronald Coase’s transaction cost economics  Georg Simmel’s social network analysis  Edward Freeman’s stakeholder perspective -Assessment of Contemporary Approaches: Pros: Adaptability to changing environments and holistic perspectives. Cons: Complexity and potential oversights in specific organizational contexts. Some take-aways -Historical insights are surprisingly topical -Older and more recent management theories offer cumulative, complementary insights into contemporary management practices -Extant management theories are probably helpful in explaining future practices 7 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 CH3: Mapping external influences Types of external influences 1) General Environment: PESTEL Framework -The political environment Politics: collective decision-making on societally relevant practices Government: developing and implementing policies Nongovernmental groups: advocating and acting upon moral issues -The economic environment Economics: production, distribution, and consumption of products and services Markets: clearing of supply and demand Market structure: Monopoly, Oligopoly, Monopolistic competition, Perfect competition Market evolution: Business cycles (short, medium, long run), Industry evolution (introduction, growth, maturity, decline) Geographic differences: International specialisation (factor market differences), International and intranational wealth accumulation and deprivation -The social environment Sociology: social structure and interaction patterns Social structure: Demography, Social classes, Migration, Educational level and orientation Social interactions: Degree of harmony, Degree of egalitarianism, Degree of formalism -The technological environment Technology: applying knowledge for practical purposes in a reproducible way 8 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 Technology waves: long-term, clustered innovations  First wave (1770s-1830s): early mechanisation  Second wave (1830s-1880s): steam power and railways  Third wave (1880s-1930s): electrical and heavy engineering  Fourth wave (1930s-1970s): industrial mass production  Fifth wave (1970s-present): information and communication Innovation types: Product innovation, Process innovation Innovation degrees: Radical innovation, Incremental innovation -The ecological environment Ecology: natural ecosystems Business enabler: Natural resources as inputs, Natural biosystems as outputs Enabling ecosystems in action Business constraint: Neutralising negative effects on natural ecosystem (externalities), Ecological limits and whims hampering business -The legal environment Law: enforceable government regulations Types of law: Common law: case-based, Civil law: codified Levels of legislation:  Supranational legislation: across nation states  National legislation: in nation state only  Local legislation: in municipality/province/region… Regulatory stringency: Level of ambition and sanctions, Enforcement 2) The task environment -The market environment Market environment: competitive context of an organisation Porter’s 5 forces:  Bargaining power of Suppliers  Bargaining power of Buyers  Competition of Incumbent rivals  Threat of New entrants  Threat of Substitutes and complementors -The nonmarket environment 9 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 Nonmarket environment: direct interactions with noneconomic actors  Governments  Nongovernmental organisations  Neighbours  … Environmental uncertainty Environmental uncertainty: extent to which an organisation’s context is hard to understand and predict -Environmental complexity Environmental complexity: number of components and interrelations constituting an organisational context Many components: difÏcult to chart and oversee all factors Many interrelations: difÏcult to chart and manage, especially indirect and delayed interrelations -Environmental dynamics Environmental dynamics: degree of unpredictable change in an organisation’s context Degree of change: rate of fluctuation Unpredictability: unknown direction and rate of fluctuation -Environmental uncertainty in action: Some take-aways  External environments are multifaceted  Different types of influences concur and interact  Organisations act upon task environments but also need to duly consider general environments CH4: Effectuating strategies The essence of strategy -The origin of strategy: Strategos = the general’s art 10 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 -Strategy defined: “An integrated way of accomplishing one’s long-term goal” -Strategic goal: (Golden circle what, how, why)  Importance of getting acceptance for a shared goal  Framing to create common ground on the why is critical -Strategy Diamond: Framework encompassing: Economic logic: underlying reasoning of how to accomplish the established goal Arenas: target markets of activity  Functional arena: (sub)sector of business  Geographic arena: location of business activities  Customer arena: targeted market segment Vehicles: internal and external resources to operate in arenas  Internal capabilities: distinctive own resources, Barney’s VRIN framework Valuable Rare Inimitable Non-substitutable  External capabilities: accessing resources controlled by others (cf. resource dependence theory): Strategic alliance, Licensing/franchising, Joint venture, Merger, Acquisition Differentiators: sources of distinctive competitive advantage  Porter: cost leadership, differentiation, focus  Treacy & Wiersema: operational excellence, customer intimacy, product leadership Staging: evolution of strategic moves: Sequence of actions, Speed of actions Strategy at different levels -Corporate strategy: Corporate strategy: way in which a (large) firm develops a portfolio of activities to accomplish its goals  Scope and depth of business-unit activities  Added value of parent Ansoff’s corporate strategy directions Boston Consulting Group (BCG) matrix 11 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 Existing New Products Products Existing Market New market penetratio products s n New Market Conglomera Market developme te s nt diversificati on Business unit strategy: way in which an entity in firm with a distinct domain of activities seeks to accomplish its goals  Capability development  Competitive positioning  Competitive strategies Competitive positioning: SWOT analysis -Ecosystem strategy: Ecosystem strategy: way in which a firm governs its relations with external actors to accomplish its goals  Forms of external governance  Ability and willingness to control external actors Ability to control: Market or nonmarket actor (ability to transact), Relative dependence and power Willingness to control: Risk attitude, Desire to grow organically (slow) or externally (fast) 12 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 Strategy process Strategy process: sequence and pacing of actions to accomplish an organisation’s goals  Strategic planning  Strategic incrementalism  Strategic effectuation -Strategic planning: Strategic planning: systematic formulation and implementation of long-term actions  Goal establishment  SWOT analysis  (Longer-term) action formulation  (Longer-term) action implementation  Outcome evaluation -Strategic incrementalism: Strategic incrementalism: shaping courses of action, adjusted to unfolding events  Initiate (longer-term) actions  Observe (unpredicted) events  Experiment with adjusted actions  Learn from past  Remain flexible -Strategic effectuation: Strategic effectuation: establishing the most effective way to achieve an organisation’s goals for a given set of resources  Chart available resources  Determine acceptable risk and affordable loss  Effectuate best possible actions given constraints  Prioritize external collaboration over competition  Adjust actions when new contingencies emerge Wrap-up -Effective strategies encompass and align all five components -Strategies are everywhere, strategize at the right level 13 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 -Strategies need to be tailored to (changing) conditions CH5: Structuring organizations Structural design elements Structure defined: The formal arrangement of tasks in a business organisation -Why structure?  Knowing who is in charge of what  Allocating resources  Creating coherence and consistency among activities -Design elements: 1. Differentiation and integration 2. Centralisation and decentralisation 3. Formalisation and informalisation Differentiation: dividing organisational practices into distinct tasks by smaller units Integration: coordinating distinct tasks of smaller units to accomplish coherent organisational practices -Differentiation: Differentiation: Setting up individual tasks to match individual capabilities and to accomplish learning effects Favours efÏciency, may undermine motivation Creating units to accomplish joint tasks and to cluster related tasks 14 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 Generates complementarity, may engender narrow focus -Types of units: Functional departmentalisation Product departmentalisation Geographic departmentalisation Hybrid departmentalisation Matrix departmentalisation -Integration: 15 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 Integration: Coordinating tasks within a unit and across units Coordination mechanisms  Direct supervision  Mutual adjustment  Standardisation of skill, process, and output Span of control: larger when task homogeneity and standardization -Centralization & Decentralization: Centralisation: concentration of decision-making Pro:  Low coordination costs  Consistency and integration  Speed of overall response Con:  Info overload  Demotivating  Slowness of local response Decentralisation: dispersion of decision-making -Horizontal decentralisation -Vertical decentralisation Pro:  Manageability of info  Match with specific expertise  Speed of local response Con:  High coordination costs  Consistency and integration  Slowness of overall response 16 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 -Formalisation & Informalisation: Types of (in)formalisation: Position (job), Process (work, interactions) Formalisation: prescribed characteristics of expected behaviour Pro:  Reducing uncertainty  Reducing process variability  Reducing product variability  Enhancing procedural fairness  Dissuading undesired behaviour Con:  Ignoring environmental changes  Dissuading process improvement options  Dissuading desirable product adaptations  Ignoring situational diversity  Dissuading employee creativity Informalisation: emerging characteristics of expected behaviour Pro:  Responding to the unforeseen  Improving processes  Tailoring products  Matching situational diversity  Tapping into employee creativity Con:  Provoking uncertainty-related anxiety  Risking loss of process quality  Risking generation of undesired products  Risking arbitrary, unfair decisions  Risking undesirable employee behaviour Contingencies impacting structure 17 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 Internal contingencies: Size and age, Technology External contingencies: Environmental complexity, Environmental turbulence / dynamics Size and age: Larger and older organisations: more formalised structure, more elaborate structure Technology: More regulating technology: higher formalisation Unit production: smaller teams than mass production Environmental complexity: Higher complexity: more decentralisation Environmental turbulence (dynamics): Higher turbulence: more organic structure Viable configurations Configuration: combination of design elements Viable configuration: coherent and consistent combination of design elements matching organisational contingencies Basic configuration Simple structure 18 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 Machine bureaucracy Professional bureaucracy Divisionalised form Adhocracy Wrap-up -Organisations should effectively use all design elements to shape a suitable structure -Contingencies are crucial, yet only partially controllable -The adopted organisational structure should tightly match with relevant contingencies CH6: Managing sustainably Meaning of sustainable business Definition: Professional activities accomplishing economic viability and stakeholder satisfaction within planetary boundaries -Related terms: Sustainable business: Economic viability and stakeholder satisfaction within planetary boundaries. 19 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 Corporate (social) responsibility (CSR): Business practices focused on ethical, social, and environmental impacts. Inclusive business: Integrates underserved communities into value chains. Shared value: Business strategies that create economic value while addressing societal challenges. Corporate citizenship: Companies acting responsibly towards society and the environment. Circular business: Business models that promote reuse, recycling, and reduction of waste. Drivers of sustainable business -What drives sustainable business?  Instrumental motives (‘the business case’)  Relational motives (‘the social case’)  Moral motives (‘the normative case’)  Legal motives (‘the coercive case’) Instrumental motives (‘the business case’)  Sales generation (new markets, price premium)  Cost reduction (eco-efÏciency, lower cost of capital, employee motivation)  Risk reduction (less litigation risk) Relational motives (‘the social case’)  Good relations with internal and external stakeholders  Maintaining legitimacy (‘licence to operate’) Moral motives (‘the normative case’)  Sense of duty (deontology)  Higher-order values Legal motives (‘the coercive case’)  Regulatory compliance  Avoidance of fines or closure Mainstreaming of sustainable business Mainstreaming: integrating sustainable business into core activities Institutionalisation: Accomplishing durable, widely adopted, taken-for-granted (business) practices 20 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 -Institutionalisation process: 1. Trigger -Being sensitised to strong (external) pressure: Accidental opportunity, Media scandal, Moral wake-up, Legislation 2. Innovative practice -Responding to trigger: Local and ad-hoc action (ESH, HR, compliance ofÏcers), Satisfying specific stakeholder demands, Disconnected from core business 3. Theorisation -Demonstrate relevance beyond initial action: Economic opportunities, Corporate legitimacy, Corporate values, Similar regulation 4. Diffusion -Formulate and communicate sustainability targets -Involve all business actors: Line and staff functions, Procurement, production, marketing, R&D, … , From MT to shop floor, Supply chain partners 5. Maintenance -Link projects to core business -Weave socioenvironmental activities into structure and culture -Integrate socioenvironmental targets into KPIs -Make new targets increasingly ambitious Wrap-up -Sustainable business simultaneously considers economic, ecological, and social aspects -Organisations increasingly have a variety of good reasons to pursue sustainability -Sustainable practices will only last when fully incorporated into ‘business as usual 21 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 CH7: Managing internationally The international environment International Convergence: Tthe process by which countries become more alike in economic, political, social, and technological aspects due to globalization and shared challenges. -International PESTEL analysis:  Political: political openness turning into nationalism  Economic: neoliberalism turning into (regionalised) protectionism  Social: increasing (inequity-related) social tensions  Technological: burst of IT-related innovations, selectively spread  Ecological: local and global ecological boundaries crossed  Legal: increasing disrespect of private property rights and multilateral agreements -Ghemawat’s CAGE framework: match firm-environment  Cultural distance: Differences in language, religion, social norms, and values between countries.  Administrative and political distance: Differences in government policies, regulations, and political systems between countries.  Geographic distance: Physical distance and differences in climate, time zones, and infrastructure between countries.  Economic distance: Differences in economic development, income levels, and cost structures between countries. Internationalization strategies ! Reminder: The Strategy Diamond ! Economic logic types: Cost saving, Market access, Competition, Government policies -Economic logic: Cost saving: International factor market differences: Lower labour costs, Lower capital costs, Lower natural-resource costs 22 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 Scale economies: International specialisation Logistics: Lower transport costs -Economic logic: Market access: Serving foreign customers with similar needs: Enhancing sales markets Serving global customers: Selling to customers with operations in multiple countries Leveraging marketing skills: Enhancing the reach of a firm’s competitive advantage -Economic logic: competition: Optimising interdependent markets: Coordinating activities to absorb international market fluctuations Following main competitors: Ensuring oligopolistic suppliers will not pre-empt foreign markets -Economic logic: Government policies: Trade discouragement: Tariff and non-tariff barriers to trade Location-specific practices: National (technological) standards and (financial) controls FDI stimulation: Subsidies, tax benefits, infrastructure -Arenas: Cost savings:  Arbitrage to minimise factor costs  Specialisation to optimise scale economies  Proximity to minimise logistic costs Market access:  Similarity to extend existing sales markets  Following global customers  Similarity to leverage on existing skills Competition:  Regional market optimisation  Following competitors Government policies:  Foreign investments inside protected markets 23 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229  Local activities to align to local practices  Foreign investments to benefit from stimuli -Vehicles: types: Importing / exporting: Procuring from / selling to another country Licensing / franchising: selling a name, technology, or process for production / service abroad Joint venture: equity alliance abroad with a (local) partner Wholly owned subsidiary: afÏliate abroad in full ownership Mobility and capabilities: -Differentiators: Operational excellence:  Low-cost production  Scale economies  Organisational superiority  Logistic superiority Customer intimacy:  Marketing superiority  Global customer orientation  (Local government orientation) Product leadership:  Technological superiority  Design superiority  Product quality superiority 24 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 -Staging: Sequence (typical):  Exporting  Sales subsidiaries  Production subsidiaries  Locally oriented, autonomous subsidiaries  Globally specialised subsidiaries Speed:  Slow: greenfield expansion (organic growth)  Fast: brownfield expansion (acquisition)  One (relatively close) market at a time (cf. Uppsala model)  Many markets simultaneously (cf. born-global firms) Internationalisation structures Domestic structure + export Domestic structure + internat. Division Multidomestic structure Transnational structure Wrap-up -Internationalisation is prevalent in most businesses -Internationalisation both extends and changes the nature of managing 25 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 -International strategy and structure reflect the international environment and the internal capabilities CH8: The ethical manager “There is no such thing as business ethics. There is only one kind – you have to adhere to the highest standards." Marvin Bower, former managing partner of McKinsey & Company "Relativity applies to physics, not ethics." Albert Einstein What is business ethics? -Business ethics:  Applies general ethics (right or wrong) to business, and is culturally dependent.  Not a separate code of conduct, though companies can set up their own codes.  Poses challenges for international companies due to varying cultural norms. Why do ethics matter? -Volkswagen Emissions Scandal:  Year: 2015  Industry: Automotive  Issue: Volkswagen admitted to installing software in diesel vehicles to cheat emissions tests, making cars appear environmentally friendly while emitting pollutants up to 40 times above legal limits.  Impact: o Legal: Over $30 billion in fines, penalties, and buyback costs. o Reputation: Severely damaged public trust and brand value. o Operations: Sales decline, recall of millions of vehicles, and increased regulatory scrutiny. o Executives: Legal actions against top executives, including CEO Martin Winterkorn, who resigned. o Environmental: Highlighted broader issues of environmental compliance and corporate responsibility. -Enron Scandal: "The Story of Greed":  Years: 1980s-2001  Industry: Energy (Houston, Texas)  Peak: o Recognition: Listed as a top Fortune 500 company, frequently cited as "America's Most Innovative Company." o Financials: Revenues of nearly $101 billion in 2000. 26 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229  Issue: o Accounting Fraud: Used complex financial structures to hide debt and inflate profits. o Aggressive Culture: High-pressure environment focused on short- term profits and stock prices. o Insider Trading: Executives sold millions in stock while publicly praising the company's health.  Impact: o Bankruptcy: Declared bankruptcy in December 2001, with 21,000 employees losing their jobs. o Arthur Andersen: The accounting firm involved lost its license and disbanded, resulting in 85,000 job losses. o Legal: CEO Jeff Skilling sentenced to 24 years in prison; other executives faced legal consequences. o Market: Shook investor confidence and led to stricter regulations (e.g., Sarbanes-Oxley Act). -Lehman Brothers Collapse:  Year: 2008  Industry: Investment Banking  Peak: Fourth largest investment bank in the USA.  Issue: o Risky Practices: Heavy investment in subprime mortgages and financial products with high risk. o Manipulation: Used accounting tricks to hide the true extent of their financial exposure. o Profit Culture: Promotion based on aggressive deal-making, with high bonuses for top performers.  Impact: o Bankruptcy: Filed for Chapter 11 on September 15, 2008. o Economic: Contributed to the global financial crisis, leading to massive economic downturns and job losses. o Auditor: Ernst & Young, their auditor, faced scrutiny but continued to operate. o Regulation: Sparked discussions on financial regulations and the need for reform in the banking sector. -Fortis Misleading Shareholders:  Years: 2007-2008  Industry: Financial Services (Belgium)  Issue: o False Information: Misled shareholders about the company's financial health. o Cover-Up: Provided inaccurate financial statements during critical periods.  Impact: o Legal: Former CEO Jean-Paul Votron and other top executives were investigated for misleading practices. o Reputation: The scandal tarnished the reputation of Belgium's largest financial group. 27 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 o Financial: Shareholders could seek significant compensation for the losses incurred. o Regulatory: Prompted tighter scrutiny and regulations in the financial services sector. What do we learn from these examples? -Why do managers involve in unethical behavior? Rational choice theory: weighing chances Of being caught Strain theory: Actors resort to misconduct when they are not able to achieve their goals (reshufÒing some papers) Organizational Culture: The shared values, beliefs, and practices that shape behavior within an organization.  People are blinded and do not see evil  People are convinced they acted ethically, even if they did not Business ethics knows many applications -Business ethics Knows many applications: Accounting: Insider trading, executive compensation, facilitation payments, etc. Human resource management: Discrimination, sexual harassment, privacy issues, slavery, safety, etc. Production: Emission, tobacco, modified food, testing on animals, etc. Sales and marketing: Skimming, price discrimination, sex in commercials, misleading commercials, defectuous/dangerous goods, etc. Ethical dilemma 28 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 Definition: An ethical problem or dilemma arises when a decision benefits one party at the expense of another, creating a conflict of values or interests. Example Scenario: A company considers building an overseas plant without pollution controls, saving 5 million Euros but potentially harming the local fishing industry. Installing controls would protect the environment but make the plant financially unviable. -Utilitarian Approach: o Aim: Greatest good for the greatest number. o Decision: Build the plant to benefit the majority. -Moral Rights Approach: o Aim: Maintain rights of all affected parties (e.g., right to life, safety, and free consent). o Decision: Inform affected parties and ensure their rights are respected. -Fairness/Justice Approach: o Aim: Ensure decisions are based on equity, fairness, and impartiality. o Decision: Treat all stakeholders fairly, avoid discrimination. -Individualism Approach: o Aim: Promote long-term self-interest leading to honesty and integrity. o Decision: Actions should benefit the individual’s long-term interests without harming others. -Common-Good Approach: o Aim: Serve common goals and values for society’s benefit. o Decision: Ensure actions support the community's well-being, including the weakest members. Factors that determine ethical and unethical behavior? Ethical and unethical behavior is influenced by several key factors that shape individual decisions within organizational contexts: 1. Individual: Stage of Moral Development o Definition: The stage of moral reasoning individuals have developed, based on Kohlberg’s theory. o Tests Used: Moral Development Scale for Professionals, Defining Issues Test, Heinz Test. 29 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 2. Individual Characteristics o Values: Basic convictions about right and wrong. o Personality Traits:  Ego Strength: The strength of convictions, self-discipline, and accountability.  Locus of Control: Internal (belief in personal control) vs. external (attributing control to external factors). 3. Organizational/Structural Variables o Goal Attainment: High goals may lead to ethical dilemmas and strain. o Organizational Mechanisms:  Performance Appraisal: Outcome-oriented systems influencing ethical conduct.  Behavioral Examples: Ethical behavior demonstrated by managers. 4. Organizational Culture o Ethical Culture: Determines whether an organization promotes ethical behavior. o Strength of Culture: Strong cultures enforce ethical norms effectively. o Examples: Contrasts between British Coal Corporation (BCC) and Enron illustrate the impact of organizational culture. 5. Intensity of the Ethical Dilemma o Definition: The severity and complexity of ethical dilemmas faced. o Impact: Higher intensity requires deeper consideration and may influence decision-making. 6. Moral Decision Making o Group Dynamics: Groupthink and group shift influence ethical decisions negatively. o Heuristics: Decision-making biases can lead individuals to overlook unethical behavior. Ethics in an international context -The School of Ethical Universalism: 30 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229  Definition: Ethical standards are universally applicable across cultures and countries.  Implementation: Companies can develop uniform codes of ethics for global operations.  Critique: Challenges the existence of truly universal ethical standards; concerns about ethical imperialism. -The School of Ethical Relativism:  Definition: Ethical standards vary across cultures and countries based on differing beliefs and norms.  Implementation: Advocates for adapting to local ethical standards in each country of operation.  Argument for Relativism: Respects local customs and avoids imposing foreign standards.  Argument against Relativism: Risks inconsistency and may tolerate lower ethical standards in certain contexts. -Integrated Social Contracts Theory:  Definition: Combines elements of universal principles with local adaptations based on societal norms.  Implementation: Establishes universal ethical principles (first-order rules) while allowing for stricter local norms (second-order rules).  Advantage: Balances global consistency with respect for local ethical standards.  Critique: Challenges in enforcing more stringent global rules without appearing culturally insensitive. How managers can improve ethical behavior in an organization  Hire individuals with high ethical standards  Establish codes of ethics and decision rules  Lead by example (ethical culture)  Set realistic job goals and include ethics in performance appraisal (systems and structures)  Provide ethics training  Conduct independent social audits  Provide support for individuals facing ethical dilemmas such as whistle blowers 31 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 CH9: Managing a organization’s culture Organizational environment? Organizational Culture -Definitions:  Deal & Kennedy (1982): "The way things get done around here."  Ravasi & Schultz (2006): "Organizational culture is a set of shared assumptions that guide what happens in organizations by defining appropriate behavior for various situations."  Robbins & Coulter (2014): "The shared values, principles, traditions, and ways of doing things that influence the way organizational members act and distinguish the organization from other organizations." -Schein (1992):  "A pattern of shared basic assumptions that the group learned as it solved its problems of external adaptation and internal integration, that has worked well enough to be considered valid and, therefore, to be taught to new members as the correct way to perceive, think, and feel (and act) in relation to those problems."  These assumptions function as the glue that holds the organization together. How to analyze/look at an organizational culture -Seven Dimensions of Organizational Culture: 32 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 1. Attention to detail: Degree to which employees are expected to exhibit precision, analysis and attention to detail 2. Outcome orientation: Degree to which managers focus on results or outcomes rather than on how these outcomes are achieved 3. People orientation: Degree to which management decisions take into account the effect on people in the organization 4. Team orientation: Degree to which work is organized around teams rather than individuals 5. Aggressiveness: Degree to which employees are aggressive and competitive rather than cooperative 6. Stability: Degree to which organizational decisions and actions emphasize maintaining the status quo 7. Innovations and risk taking: Degree to which employees are encouraged to be innovative and take risks -Schein's Model of Organizational Culture: Artifacts:  Definition: Artifacts refer to the visible, Artifacts tangible elements of an organization's culture that can be observed, experienced, and documented.  Examples: This includes physical structures Norms and (like ofÏce layout), rituals (such as regular Values meetings or celebrations), and visible behaviors (such as dress codes or communication styles). Underlying Norms and values: Assumptions  Definition: Espoused (stated or desired cultural elements. This is most often a written or stated tone that the CEO or President hope to instil and Enacted (the actual values that the culture represents)  Examples: These are often expressed in mission statements, vision statements, and ofÏcial corporate policies that outline desired behaviors and principles. Underlying Assumptions:  Definition: Underlying assumptions are the unconscious, deeply ingrained beliefs, perceptions, and expectations that guide behavior and decision-making in an organization.  Examples: Material, buildings, slogans, symbols, stories/myths, clothing, ceremonies… Do organizations have uniform cultures? 33 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 -The dominant culture expresses the core values that are shared by a majority of the organization’s members -Subcultures tend to develop in large organizations to reflect common problems, situations, or experiences of members (departments, management levels) -Subcultures mirror the dominant culture but may add to or modify the core values Importance of an organizational culture -Culture’s Basic Functions: 1. Code of conduct: Acts as a mechanism for coordination and control. 2. Defines boundaries: Establishes limits and parameters for acceptable behavior. 3. Conveys identity: Shapes the organization's unique character and self- image. 4. Generates commitment: Fosters loyalty and dedication among members. 5. Influences management style: Shapes how leaders lead and make decisions. 6. Guides interpersonal interactions: Defines norms for how people interact. 7. Enhances social stability: Acts as social glue, providing stability and unity. -Managerial Decisions Affected by Culture:  Planning: Determines the risk tolerance in plans, and whether they are developed individually or collaboratively.  Organizing: Influences the autonomy given to employees, and whether tasks are performed individually or in teams.  Leading: Shapes managerial concern for employee satisfaction, appropriate leadership styles, and handling of disagreements.  Controlling: Determines whether controls are imposed externally or if employees are trusted to self-regulate, and the criteria for performance evaluations. -Person-Organization Fit:  Refers to the alignment between an individual's values, beliefs, and behaviors with the culture of the organization. Link between culture and performance Adaptive Culture and Organizational Success: A culture that is adaptive enables organizational success by 34 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 o Ensuring managers pay attention to all stakeholders. o Encouraging proactive change management. o Facilitating risk-taking. Dynamic Nature of Culture: Culture is not a one-size-fits-all recipe; what works effectively in the present may not necessarily work in the future. Key Insights from Kotter and Heskett: According to Kotter and Heskett (1992): o Culture plays a pivotal role in determining organizational performance. Fit as a Critical Factor: The concept of "fit" emerges as crucial for culture to contribute to success: o Fit between organizational culture and its external environment. o Fit between organizational culture and its strategic goals. Strong vs. Weak culture -Characteristics of Strong Cultures:  Core values are intensely held and widely shared across the organization.  Influence behavior of members significantly.  Increase cohesiveness among employees.  Act similarly to formalization, guiding behaviors and decisions.  Particularly effective in organizations with less formalized policies. -Impact on Organizational Performance:  Linked to lower employee turnover rates.  Associated with improved organizational performance. -Factors Influencing Cultural Strength:  Size and age of the organization.  Rate of employee turnover.  Initial strength of the culture.  Clarity of cultural values and beliefs.  Fewer subcultures within the organization contribute to stronger cultures. 35 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 -Dysfunctional Aspects of Strong Cultures:  Barrier to Change: o Strong cultures are resistant to change, even in dynamic environments. o Impedes adaptation and innovation.  Barrier to Diversity: o Managers prefer employees who align with existing cultural values. o Strong cultures may discourage diversity of thought and perspectives (groupthink).  Barrier to Acquisitions and Mergers: o Cultural incompatibility often leads to failure in mergers and acquisitions. o Integration challenges arise when cultures clash. Typologies of culture: Quinn & Cameron based on competing values (OCAI test) -Clan/Family Culture - Human Relations Model:  Involvement: Emphasizes participation and collaboration.  Characteristics: Vision, shared goals, loyalty, and a flat structure with unwritten rules.  Leadership: Leaders act as mentors/Good fathers. -Adhocracy Culture - Open Systems Model:  Adaptability: Emphasizes flexibility and innovation.  Characteristics: Speed, adaptability, teamwork, and a focus on experimentation.  Leadership: Leaders are visionary. -Hierarchy Culture - Internal Processes Model:  Consistency: Focuses on stability and control.  Characteristics: Emphasizes formalization, specialization, respect for position, and efÏciency.  Leadership: Leaders are coordinators and organizers. -Market Culture - Rational Goal Model:  Achievement: Focuses on results and goals.  Characteristics: Driven by sales, competition, winning, market share, minimal cost, and delay.  Leadership: Leaders are hard-driving. 36 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 How are cultures created and sustained? -Creating Culture:  Founders: The core source of an organization's culture. o Vision: Founders have a clear vision for the organization. o Influence: Unconstrained by past traditions, they hire and retain employees who align with their vision. o Role Models: Founders act as role models, and their success solidifies their vision into organizational myths.  Other Factors: Industry and national culture also play significant roles.  "Basically, our goal is to organize the world's information and to make it universally accessible and useful." --Larry Page -Keeping Culture Alive:  Selection: Hiring individuals who fit the culture.  Socialization: o Informal: Through stories, rituals, language, symbols, and peer pressure. o Formal: Training and espoused values.  Other Mechanisms: Performance evaluations, rewards, managerial role models, and organizational structure. -Culture Maintenance and Outcomes: 1. Antecedents: Founders’ values, National culture, Sector/industry 2. Org. culture: Artefacts, Values, Basic assumptions 3. Sustained by: Socialization, Formal & informal, Reward systems, Performance eval, Leadership, Structure 4. Processes: Communication, Interaction, Decision making, Risk taking, Autonomy, Power 5. Collective attitudes: Job satisfaction, Work attitudes, Motivation 6. Organizational outcomes: Stress, EfÏciency, Effectiveness, Innovation -Changing Organizational Culture: Not easy! Solution= Star model (Galbraith, J., R. (1995)) Strategy: Focuses on defining the organization's vision, mission, values, and strategic goals. Structure: Involves organizing the company through hierarchies, teams, roles, and reporting relationships. 37 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 Processes: Includes the formal and informal procedures and workflows that guide how work gets done. Rewards: Addresses the systems and criteria used to reward and recognize employee performance. People: Emphasizes HR practices like recruitment, training, development, and performance management -Why Change Culture at Heineken?  Market Challenges: o Declining beer consumption in key markets due to new laws and shifting preferences. o Increased competition from new brands. -Current Culture and Needed Changes:  Historical Influence: o Deeply rooted in tradition with conservative practices.  Need for Change: o Shift from a play-it-safe approach to innovation and adaptability. o Balance attracting younger customers while retaining core middle- aged base. -Steps to Changing Heineken's Culture: 1. Acknowledge Need for Change: o Recognize market challenges and necessity to adapt. 2. Socialization: o Formal: Implement structured programs (e.g., roadshows). o Informal: Use stories, rituals, and peer pressure. 3. Rewards: o Set high performance goals with substantial perks and bonuses. 4. Leadership: o Exemplify new cultural values through actions. 5. Hiring: o Recruit individuals who align with the vision of innovation. 6. Balance: o Introduce changes gradually to retain core customers. -Challenges:  Resistance to Change: o Strong cultures are resistant to change, requiring consistent effort.  Maintaining Core Values: o Retain core values while introducing new practices to avoid eroding brand identity. 38 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 Current trends in Organizational culture (! STAR MODEL !) -Developing an Innovative Culture:  Give people Challenges and Freedom  Install an inspiring vision of innovation  Trust and openness  Idea time (e.g. Googlettes)  Playfulness/humor  Conflict resolution procedures  Allow debates, expression of opinions  Diversity  Allow and reward Risk-taking  Accept failure -Developing a Customer-Responsive Culture:  Hiring the right type of employees: Having good listening skills in relating to customers’ messages, Having conscientious, caring employees willing to take initiative  Having few rigid rules, procedures, and regulations  Providing role clarity to employees to reduce ambiguity and conflict and increase job satisfaction  Using widespread empowerment of employees -Developing an ethical culture:  Formal socialization: Expectations about ethics must be clear: communication of ethical vision and values, Ethical training - ethical codes  Informal socialization, Stories, myths, language, peer pressure…  Top managers must be role models of ethical behavior  Performance appraisals and rewards for ethical conduct  Not too high bonuses and expectations  Encourage whistle blowers  Structure: Proper control systems and good working Corporate governance (board of directors) (esp. in a centralized structure) Intercultural differences National culture: influences how people behave and has an big influence on organizational culture of the local firm Examples: Values, religion, ethics, gender issues, communication, food, habits etc. 39 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 -Cultural differences can be challenging:  Between local employees and ex pat. Management  Between business units  Between the company and its customers and partners  E.g. communication style: o West: straightforward and direct o India and China a less agressive approach  E.g. Eye contact and gestures: o U.S: eye contact is seen as a reflection of honesty o In some African, Asian and Middle Eastern cultures: prolonged eye contact can be seen as rude or aggressive  E.g Meetings o Germany: Very formal, an agenda, no delay!, punctual, communication through an older person o France: An agenda, but starting 15-30 minutes too late poses no problem, interaction between the members through the boss o The Netherlands: Quite informal, but some basic protocols and agenda, straight forward o UK: Very serious, stiff lips, diplomatic, never articulate things in a negative way Ethnocentrism: The belief that one’s native country, culture, language and habits are superior to all others -Geert Hofstede’s cultural dimensions of national culture: Background: Conducted by Geert Hofstede in the 1980s, based on a study involving 116,000 IBM employees across more than 40 countries. Dimensions: Identified several cultural dimensions that influence work-related values and behaviors:  Power Distance Index (PDI): Measures the extent to which less powerful members of organizations accept and expect power to be distributed unequally.  Individualism vs. Collectivism (IDV): Focuses on the degree to which individuals are integrated into groups. Individualistic societies prioritize individual goals over group goals.  Masculinity vs. Femininity (MAS): Refers to the distribution of emotional roles between genders. Masculine cultures emphasize assertiveness, material success, and achievement, while feminine cultures emphasize quality of life, relationships, and care for others.  Uncertainty Avoidance Index (UAI): Measures the tolerance for uncertainty and ambiguity within a society. High uncertainty avoidance cultures prefer structured situations with clear rules, while low uncertainty avoidance cultures are more tolerant of ambiguity and change.  Long-Term Orientation vs. Short-Term Orientation (LTO): Later added by Hofstede to assess values oriented toward the future (long-term rewards) versus the past and present (short-term rewards). 40 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 -The Globe studies (Robert House): Research Scope: Conducted by Robert House and colleagues, involving 173,000 managers across 951 organizations in 62 cultures. Objective: Explored global leadership and organizational behavior, focusing on identifying cultural dimensions and their impact. Key Dimensions Identified:  Power Distance: Measures the extent to which less powerful members of organizations accept and expect power to be distributed unequally.  Uncertainty Avoidance: Examines the degree to which societies tolerate uncertainty and ambiguity.  Institutional Collectivism: Reflects the degree to which individuals are encouraged by societal institutions to prioritize collective over individual interests.  Gender Egalitarianism: Assesses the extent to which a culture minimizes gender discrimination and promotes gender equality.  Assertiveness: Evaluates the degree to which individuals are assertive, confrontational, and aggressive in social relationships.  Performance Orientation: Focuses on the degree to which a society encourages and rewards innovation, high standards, and performance improvement.  Future Orientation: Measures the extent to which a society encourages investment in the future as opposed to focusing on the present or past.  Humane Orientation: Reflects the degree to which a society encourages and rewards individuals for being fair, altruistic, caring, and kind to others.  Collective Orientation: Assesses the degree to which organizational and societal institutional practices encourage and reward collective distribution of resources and collective action. Cultural Intelligence (CQ): The ability to understand and effectively interact with people from different cultures. It involves awareness, knowledge, skills, and adaptability to navigate diverse cultural contexts successfully. CH10: Decision-making Decisions -Decisions: Importance and Definition  Decision making is central to management as it involves choosing courses of action to achieve organizational goals.  Managers play a critical role as decision makers, facing choices such as whether to pursue growth, set pricing, hire personnel, allocate budgets for research and development, and decide on product launch timing. -Importance of Good Decisions in Management: 41 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229  Good decisions are essential for effective management as they drive organizational success and performance.  However, half of organizational decisions fail, impacting outcomes negatively. -Reasons for Decision Failures (based on Nutt, 2002):  Rush-to-judgment: Deciding hastily under stress without sufÏcient analysis or consideration.  Poor problem definition: Lack of clarity in defining the issue leads to incorrect solutions.  Limited alternatives: Managers may only consider familiar or initial ideas (availability bias) rather than exploring all options.  Shortcuts: Decision makers may take shortcuts in the decision-making process, compromising quality.  Failure to learn from mistakes: Ignoring past errors due to biases like hindsight bias (seeing events as more predictable after they have occurred) and confirmation bias (seeking information that confirms preconceptions).  Group pressures: Influence from colleagues, power dynamics, and organizational politics can skew decisions.  Flawed procedures: Ineffective decision-making processes or inadequate structures contribute to failures. -Case Example: The EuroDisney Location Decision (1992)  Projected vs. Actual Outcome: o Cost: Initially projected at $2.5 billion, actual cost was $4.4 billion. o Attendance: Expected 11 million, actual 10 million (after discounts). o Hotel occupancy: Projected 76%, actual 37%.  Financial Impact: By 1994, EuroDisney faced losses of $400 million, achieving profitability only in 2007. What is a decision? -Perception of the Decision Maker:  Definition of Problem: A decision arises from perceiving a gap between the current situation and a desired outcome.  Decisions: Choices made among alternatives based on perceived relevant data. 42 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 -Understanding the Perception of Decision Makers:  Subjectivity: What constitutes a problem can vary significantly between individuals, organizations, and cultural contexts.  Organizational and Cultural Boundaries: Problems are influenced by organizational norms and national cultures, impacting how they are perceived and addressed.  "No-problem" Issues: Issues that one person may not perceive as problematic can still require attention, especially if they affect others or organizational goals.  Importance of Problem Definition: Accurately defining a problem is crucial as it shapes the direction and effectiveness of potential solutions.  Risks of Ambiguous Problem Definitions: A poorly defined problem can lead to ineffective or misguided solutions.  Example: For instance, identifying the need for CRM software might not address the underlying issue of customer dissatisfaction, which requires deeper exploration of root causes. Decision making models -How decisions are made, depends on  Content of decisions: Structured or unstructured problems, Operational or strategical  Context: Urgency,Organizational characteristics (Culture, structure, past decisions), Decision makers’ attributes (Propensity to risk, tolerance for ambiguity, decision style, experience) 1. Rational Decision Making: Definition: The idealized model where decision makers systematically maximize utility by evaluating all possible alternatives. Assumptions:  Complete knowledge of the situation.  Unbiased awareness of all relevant options.  SufÏcient time to make a decision.  Clear goal of maximizing utility. Evaluation Process: Involves weighing alternatives based on predefined criteria to select the optimal solution. 2. Reality: Decision Making in Bounded Rationality: 43 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 Bounded Rationality: Recognizes that decision makers are constrained by cognitive limitations, environmental factors, and emotional influences. Factors Affecting Decision Making:  Content of Decisions: o Structured (well-defined) vs. unstructured (complex) problems. o Operational (routine) vs. strategic (long-term) decisions.  Context: o Urgency of the decision. o Organizational characteristics (culture, structure, past decisions).  Decision Makers' Attributes: o Propensity to risk. o Tolerance for ambiguity. o Decision-making style. o Experience and expertise. Decision Making in Reality:  Limited Search: Often rely on familiar criteria and readily available alternatives.  Satisficing: Choosing the first acceptable alternative rather than the optimal one (due to time constraints or cognitive limits).  Intuition: Using gut feelings or heuristics based on past experiences.  Influence of Emotions and Biases: Emotions, biases (like confirmation bias), stress, and satisfaction can affect decision outcomes. How does our brain work? -Dual Process Theory:  System 1: o Characteristics: Always active, operates unconsciously and quickly. o Functions: Intuitive, impulsive, relies on stereotypes, emotions, and perceptions. o Biases: Often satisfied quickly, relies on heuristics (WYSIATI - "What You See Is All There Is"). o Energy: Uses minimal energy, driven by beliefs, habits, and context. o Association: Forms quick associations, loves narratives.  System 2: o Characteristics: Activated consciously, operates slowly and deliberately. o Functions: Logical, analytical, seeks facts, and applies rules. o Control: Can override System 1 (e.g., self-control), but tends to follow the law of least effort. o Energy: Uses more energy, can become depleted. 44 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 o Conditions: Works less effectively under the influence of alcohol. Interaction Between System 1 and System 2:  System 1: Typically dominant, always active and influencing decisions.  System 2: Acts as a supervisor, exerting control over System 1 but is lazy and prefers minimal effort.  Fatigue: When System 2 is tired, System 1's influence increases.  Conflict: System 1 and System 2 often conflict, with System 1 frequently winning in impulsive or emotional decisions. -Perception:  Biases and Cognitive Shortcuts: o “What You See Is All There Is” (WYSIATI): System 1 tends to rely on immediate information without seeking further details. o Influence: Perception is heavily influenced by System 1’s quick judgments, biases, and heuristics. o Factors: Emotions, habits, beliefs, and environmental context shape how perceptions are formed and decisions are made. Decision making errors and biases Moral Seduction: The influence of ethical considerations or moral values on decision making, where decisions are guided by moral principles rather than purely rational or practical factors. Nudging: A concept from behavioral economics and psychology where indirect suggestions and positive reinforcement are used to influence the behavior and decisions of individuals or groups, without restricting choices.  The Decoy Effect: A phenomenon where consumers change their preference between two options when presented with a third option (decoy) that is asymmetrically dominated. The decoy is designed to influence decisions towards a specific choice. Priming: The subconscious activation of specific associations or concepts by exposure to related stimuli. 1. Overconfidence:  Definition: Overestimating one's own abilities, knowledge, or judgments, often leading to making overly risky decisions or underestimating risks.  Dunning-Kruger Effect: A cognitive bias where individuals with low ability or knowledge tend to overestimate their competence or skills, while individuals with high ability may underestimate their own competence relative to others. 2. Immediate Gratification: 45 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229  Definition: Preferring immediate rewards or benefits over larger, delayed rewards that may require more effort or patience. 3. Anchoring Effect:  Definition: The tendency to rely heavily on the first piece of information encountered (the "anchor") when making decisions, often influencing subsequent judgments. 4. Selective Perception:  Definition: The tendency to interpret information in a way that supports one's preexisting beliefs or expectations, while ignoring or dismissing contradictory information.  Nudging: A concept from behavioral economics and psychology where indirect suggestions and positive reinforcement are used to influence the behavior and decisions of individuals or groups, without restricting choices. o The Decoy Effect: A phenomenon where consumers change their preference between two options when presented with a third option (decoy) that is asymmetrically dominated. The decoy is designed to influence decisions towards a specific choice.  Priming: The subconscious activation of specific associations or concepts by exposure to related stimuli. 5. Confirmation Bias:  Definition: The tendency to seek out or interpret information in a way that confirms one's preconceptions or hypotheses, while disregarding contradictory evidence. 6. Framing Bias:  Definition: Decisions influenced by how information is presented or framed; different presentations of the same information can alter perceptions and choices.  Prospect Theory: A theory in behavioral economics that describes how individuals make decisions under uncertainty. It suggests that people make decisions based on potential losses and gains relative to a reference point, rather than in absolute terms. 7. Availability Bias:  Definition: The tendency to overvalue information that is easily recalled or readily available, often due to recent exposure or vividness in memory. 8. Representation Bias:  Definition: Making judgments or decisions based on stereotypes, prototypes, or generalizations, rather than considering individual differences or specific circumstances. 9. Randomness Bias: 46 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229  Definition: Perceiving patterns or order in random events where none actually exist, often leading to superstitious beliefs or unwarranted assumptions.  Denomination Effect: The preference for spending larger bills over an equivalent amount of smaller bills or coins, despite their identical value. This bias influences spending behavior based on the form of currency used. 10. Sunk Cost Fallacy/Loss Aversion:  Definition: Continuing a course of action because of past investments of time, money, or effort, despite the current costs outweighing the benefits.  Endowment Effect: The tendency for individuals to value items they already own more highly than identical items they do not own, even when there is no rational basis for the disparity in value. 11. Self-Serving Bias:  Definition: Attributing successes to internal factors (e.g., abilities, efforts) while attributing failures to external factors (e.g., luck, others' actions), to maintain self-esteem.  Attribution Theory: Examines how individuals explain the causes of behaviors and events, focusing on whether these are attributed to internal (personal) or external (situational) factors. 12. Hindsight Bias:  Definition: The tendency to perceive past events as more predictable than they actually were at the time, often leading to oversimplified explanations of causes and outcomes. What about intuition? Definition: Intuition in decision-making is based on implicit knowledge available to the decision-maker, often stemming from experience and subconscious processing (Burke & Miller, 1999). Caution: It's advised not to rely blindly on intuition due to potential biases like overconfidence, which can lead to decision-making illusions. -Tips:  Define the problem – go to the essence! Reach unanimity about the problem  Use technical experts, People from the frontline Formulate clear goals 25 % of your time  Be aware of satisficing Don’t stick to the first alternatives, be creative Second opinion Search disconfirmative information 47 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229  Be aware for new criteria, changing goals Be objective  Adapt if needed (change) Know when it is time to quit: Cut your losses  Be not tricked by your success Be aware of blind spots Decision making styles: Rowe and Mason (1987) Analytical: Long term, More alternatives, More flexible. High Ambiguity, Data Oriented. Conceptual: Broad perspective, Many alternatives, Intuition, creative Indecisive. High Ambiguity, People Oriented. Directive: Autocratic, Short term, Analyze. Low Ambiguity, Data Oriented. Behavioral: Love people, Interaction, Avoid conflict, Wishy washy solution. Low Ambiguity, People Oriented. Decision making in groups/teams -Advantages of group decision making  Generates more complete information and knowledge  Increases diversity of views => creativity  Increases acceptance of a solution -Disdvantages of group decision making  Time consuming  Conformity  Groupthink “Dominant coalition”  Groupshift Conformism: Asch experiment (Lines) = The act of adjusting one's beliefs or behaviors to match those of a group or societal norms, often due to social pressure or a desire to fit in. Groupthink: = The deterioration of individual mental efÏciency and moral judgment due to group pressures, resulting in conformity and flawed decisions. Symptoms: Includes pressure for unanimity, rationalizing away dissent, and stereotyping dissenters. Tips for minimizing groupthink 48 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229  Limit group size (≤10)  Encourage group leaders to actively seek input from all members  Leaders avoid expressing their own opinions – they have to play an impartial role  Appoint a “devil’s advocate”  Use outside experts  “Premortem” technique  Be aware of “correlated errors” (anchoring) The Challenger disaster in 1986 was a space shuttle mission that ended tragically when the shuttle exploded shortly after liftoff due to a failed O-ring seal in a solid rocket booster. This incident raised concerns about safety protocols and highlighted the risks of groupthink within NASA, where dissenting opinions were not effectively considered. -Group decision-making techniques:  Brainstorming o Meant to overcome pressures of conformity o Generates a list of creative alternatives o Problem: production blocking, anchoring  Nominal Group Technique (NGT) o Restricts discussion during the decision-making process to encourage independent thinking CH11: Leadership What is leadership? Leadership vs. management? Leadership: The ability to influence a group toward the achievement of goals Management: Use of authority inherent in designated formal rank to obtain compliance from organizational members Leadership:  Establish direction with a vision  Align resources and inspire workers to complete the vision  Leadership is doing the right things Management  Brings about order and consistency  Draws up plans, structures, and monitors results  Management is doing the things right Why is leadership important? 49 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 “I am more afraid of an army of 100 sheep led by a lion, than an army of 100 lions led by a sheep”. Charles Maurice de Talleyrand (1754-1838) -Why is leadership important?  To influence subordinates o “They bring out the best of people”  Leadership plays a critical role in ethical shortcomings  Motivation, increased commitment  Job satisfaction  Link with performance Sir Ernest Shackleton and the Endurance: In 1921, Sir Ernest Shackleton aimed to cross Antarctica, but the ship Endurance became trapped and crushed in ice. Shackleton and his crew survived on ice floes before making a daring journey to Elephant Island. Shackleton then led a small team on an 800-mile voyage to South Georgia Island to get help. Remarkably, all crew members were rescued without loss of life, showcasing extraordinary leadership and resilience. -Characteristics of leadership:  Leaders “make a difference” by who they are  They have IMPACT, Positive impact  It is no role, no function, no position  It is about relationships with people  Leaders influence: Without a leader people behave differently, Leaders make people things do out of free will  Leadership is “attributed” when results are shown  Leadership is often situational  Leaders have followers -Are leaders born?  Old trait theories have the assumption: Leaders are born o Goal: Select leaders  Later (behavioral theories): Mix of “nature and nurture” o If you don’t possess the traits/skills, at least you can try/learn to possess them o => leadership training! -Leadership is culturally bound:  France o More a bureaucratic view on leaders, task oriented, relatively autocratic  Nordic countries o Leaders are interpersonal, enthusiastic, sincere, informal, trustworthy, inspirational  Germany, Austria, Switzerland o Independent, autonomous, unique  Latin countries 50 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 o Visionary, team oriented and status conscious  US o Obsession with leadership, the sky is the limit Leadership theories 1. Trait Theories Trait theories focus on identifying the specific qualities and characteristics that distinguish leaders from non-leaders. Early Trait Theories  "Great man" theories (1940s-1950s) emphasized inherent qualities.  Leaders are believed to possess distinct traits such as intelligence, self- confidence, determination, integrity, and sociability. Revival of Trait Theories  In the 1980s, there was renewed interest in personality traits linked to leadership.  Key traits include those from the Big Five personality model: extraversion, agreeableness, conscientiousness, openness to experience, and emotional stability.  Emotional Intelligence (EQ) became a significant factor, emphasizing self- awareness, self-management, empathy, and relationship management. Critiques  No universal traits predict leadership in all situations.  Traits are often culturally bound and influenced by implicit leadership theories. 2. Behavioral Theories Behavioral theories focus on the actions of leaders rather than their mental or physical characteristics. Style Approach  Emphasizes the behavior of leaders.  Key studies from Ohio State University identified two main behaviors: initiating structure and consideration.  University of Michigan studies differentiated between employee-oriented and production-oriented leaders. Blake & Mouton’s Managerial Grid  A tool to assess leadership style based on concern for people and concern for production. 51 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229  Identifies five leadership styles: country club management, team management, middle-of-the-road management, impoverished management, and authority-compliance. Skills Approach  Focuses on the skills and abilities that can be learned and developed.  Emphasizes technical, human, and conceptual skills. 3. Situational Theories Situational theories propose that the effectiveness of a leadership style is contingent on the context and situation. Hersey and Blanchard’s Situational Leadership Theory  Leadership style should vary according to the followers’ readiness (ability and willingness).  Identifies four leadership styles: directing, coaching, supporting, and delegating. Fiedler’s Contingency Model  Leaders have a fixed style (task-oriented or relationship-oriented).  Effectiveness depends on the situation, defined by leader-member relations, task structure, and leader's position power.  Proposes matching the leader to the situation or modifying the situation to fit the leader's style. Path-Goal Theory  Leaders help followers achieve their goals by providing direction and support.  Leadership styles include directive, supportive, participative, and achievement-oriented, depending on subordinate characteristics and task environment. 4. Leaders-Followers Approach Focuses on the dynamic relationship between leaders and followers. Leader-Member Exchange (LMX) Theory  Emphasizes the quality of the relationship between leader and follower.  Leaders develop different types of relationships (in-group vs. out-group) with different followers, impacting performance and satisfaction. 5. New Leadership Paradigm Shifts focus from traditional transactional leadership to more inspiring and motivating forms of leadership. 52 Downloaded by Hong Van Do ([email protected])  lOMoARcPSD|40186229 Transactional vs. Transformational Leadership  Transactional Leadership: Based on exchanges between leader and followers to meet their immediate needs.  Transformational Leadership: Leaders inspire followers to exceed their own self-interests for the good of the organization, characterized by the "4 I’s": o Inspirational Motivation: Providing vision and sense of mission. o Idealized Influence: Acting as role models. o Intellectual Stimulation: Encouraging innovation and creativity. o Individualized Consideration: Providing personal attention and coaching. Charismatic Leadership  Leaders possess extraordinary qualities and articulate a compelling vision.  They exhibit behaviors that are unconventional and take personal risks. Authentic Leadership  Leaders are self-aware, genuine, and transparent.  They lead with integrity and have a strong sense of purpose. Ethical Leadership  Emphasizes leading with ethical principles and promoting a moral environment. Cautionary Notes  Leadership is an ancient phenomenon, but systematic study started in the 1930s.  Most leadership research reflects Western, particularly American, contexts.  The relationship between leadership and organizational culture, structure, and external constituencies is often overlooked. 53 Downloaded by Hong Van Do ([email protected])