chapter - Pearson

chapter - Pearson

chapter - Pearson


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Euan Baird, CEO of Schlumberger,

is determined to keep his company

at the forefront of using advances

in information technology to find

new ways to enhance his company’s

performance and his

employees ability and motivation

to do their jobs.

Opening Case




Schlumberger is a global technology company that sells products and services

to improve the productivity of its customers. For example, its Oilfield

Services Division is the leading supplier of services and technology to the

international petroleum industry. 1 In the last decade, its chief executive officer

(CEO), Euan Baird, has revolutionized the way the company and the people

inside it operate by introducing new information and communications technology at

all levels and in all areas of the company. In his view, these new technologies have

transformed the way in which the company manages the behavior of its people and


Information technology (IT) refers to the computer systems and software that

organizations use to speed the flow of information around an organization and to

better link people and subunits within it. Information technology includes a company’s

internal communications and messaging e-mail system whereby employees

are linked through their desktop and laptop computers to each other, to the company’s

information databases, and often, to its suppliers and customers as well. At

Schlumberger, Baird has utilized IT to improve organizational behavior and performance

in many ways.

First, Baird designed Schlumberger’s IT to increase employee motivation, job

satisfaction, and performance. Information systems were designed to give employees

access to more and better information, and to put employees into closer communication

with each other. Before the new information systems, managers and supervisors

had controlled the flow of information between employees, and the organizational

hierarchy was the main means of communications and control. Now,

everything the information employees need to perform their work is available electronically,

and employees can access this information and use it creatively to better

satisfy customer needs. Moreover, to enhance the level of cooperation between

employees, employees can “sign” their work electronically so that they can be given

credit for their inputs. This builds employee motivation because it allows managers

to better reward superior employee performance. Moreover, Baird and his managers

discovered that the IT network was very effective in promoting trust between

employees and in creating a sense of belongingness in the company. Electronic communication

allows employees to maintain an active everyday working relationship



Chapter 1 Organizational Behavior and Management

Today, developing the information technology that allows employees to handle

information and knowledge more effectively and to better communicate with each

other, and with an organization’s customers and suppliers, is an important challenge

in managing organizational behavior. At Schlumberger, Euan Baird actively seeks

ways to use information technology to obtain input and advice from employees, to

communicate with employees, and to let them know he supports their activities and

is listening to their concerns. Baird strives to find new ways to improve the perforwith

each other even though people are at very different levels in the company or

even very far apart.

New IT systems have also helped Schlumberger to better train its employees

in new technical advances and increase their productivity and responsiveness to customers.

For example, each of the operating subunits, such as oilfield services, established

an online support system that provides employees with up-to-date documentation,

training material, and advice over the network. Called In Touch, employees

can access training information at their convenience and fit it into their busy work


Another important aspect of the way in which Baird designed Schlumberger’s

IT systems was to take full advantage of the possibilities offered by virtual teams.

Virtual teams are groups of employees, electronically linked to each other through

e-mail and often video messenging systems, who may seldom or ever meet, but who

work on projects together intensively in real time. For example, consider the way

Baird used IT to overcome the problems of managing the far-flung global operations

of its oilfield services group. Baird split oilfield services into 25 separate regional

groups to service the needs of clients in each of their regional areas, for example,

China, the U.S. Gulf Coast, and Alaska. While employees inside each regional group

use electronic means to communicate with one another, they are also in continual

online communication with the other 24 groups so that they are easily able to

exchange market information, personal experiences, and best practices. The company’s

virtual team structure has greatly improved cooperation and teamwork

throughout the oil services division and the company’s other subunits, speeding customer

service and reducing the time it takes to get new products to the market—

important sources of competitive advantage. 2

Indeed, according to Baird, one of the main functions of IT is to “create companies

that learn and do not forget what they have learned.” Information technology

helps employees to assimilate and manage large amounts of complex information,

and it gives them access to new and changing information so they can be constantly

learning how to do things better; thus, it helps employees to make intelligent choices

and improve the decisions they make. Indeed, at Schlumberger, Baird has almost

eliminated the need for paper. Almost everything employees need to perform their

tasks is now handled electronically and all the reports that he and his managers read

are read onscreen. They are from online databases that employees continually

update to keep communication and feedback quick and effective—something that

pleases Schlumberger’s customers and leads to increased company performance.


Chapter 1

Organizational Behavior and Management

mance of his employees and thus the performance of Schlumberger itself. To these

ends, Baird has taken the following steps:

He strives to increase their skills and knowledge and works hard to involve

employees in the running of the business and encourages them to find new

ways to speed product development, raise quality, and increase revenues.

He rewards employees for superior performance and makes sure that each

employee’s contribution to the organization is recognized.

■ He tries to create a work setting in which employees can work hard both

alone and in virtual teams to further their organization’s goals and interests.

As Baird’s actions suggest, a solid understanding and appreciation of how people

behave in organizations, and what causes them to behave the way they do, is the first

step in managing organizational behavior effectively. Once managers appreciate the

forces that shape organizational behavior, they can use new tools and techniques, such

as information technology, to enhance individual and organizational performance.

In this chapter, we define organizational behavior and its relationship to management,

and we demonstrate how a working knowledge of organizational behavior

is essential for managers and employees alike in helping an organization to meet its

goals. We discuss the functions, roles, and skills of management and describe how

understanding organizational behavior is necessary for a manager to be effective. We

also discuss five contemporary challenges to the management of organizational

behavior, focusing on two that are perhaps the most important facing managers

today: (1) the need to utilize effectively the fast-developing information technology

that is affecting all aspects of the way a company operates, and (2) the need to create

an organizational context that allows employees to be creative and innovative as they

go about their jobs. By the end of this chapter, you will understand the central role

that organizational behavior plays in determining how effectively an organization

and all the men and women who are part of it are in achieving their goals.


■ ■ ■



A collection of people who work

together to achieve individual and

organizational goals.

To begin our study of organizational behavior, we could just say that it is the study of

behavior in organizations and the study of the behavior of organizations, but such a

definition reveals nothing about what this study involves or examines. To reach a

more useful and meaningful definition, let’s first look at what an organization is. An

organization is a collection of people who work together to achieve a wide variety of

goals. The goals are what individuals are trying to accomplish by being members of

an organization (earning a lot of money, helping promote a worthy cause, achieving

certain levels of power and prestige, enjoying a satisfying work experience). The

goals are also what the organization as a whole is trying to accomplish (providing

innovative goods and services that customers want; getting candidates elected; raising

money for medical research; making a profit to reward stockholders, managers,

and workers). Police forces, for example, are formed to achieve the goals of providing

security for law-abiding citizens and providing police officers with a secure,

rewarding career while they perform their valuable service. Paramount Pictures was

formed to achieve the goal of providing people with entertainment while making a

profit, and in the process, actors, directors, writers, and musicians receive well-paid

and interesting work. Euan Baird works hard at Schlumberger finding new ways of

using IT to increase performance, not only to provide customers with high-quality

innovative products but also to provide himself with power, wealth, and a satisfying

work experience.


Chapter 1 Organizational Behavior and Management

Organizational behavior

The study of factors that affect

how individuals and groups act in

organizations and how organizations

manage their environments.

Organizations exist to provide goods and services that people want, and the

amount and quality of these goods and services are products of the behaviors and

performance of an organization’s workers—of top managers, of highly skilled workers

in sales or research and development, and of the workers who actually produce or

provide the goods and services.

Organizational behavior is the study of the many factors that have an impact

on how individuals and groups respond to and act in organizations and how organizations

manage their environments. Understanding how people behave in an organization

is important because most people, at some time in their life, work for an organization

and are directly affected by their experiences in it. People may be the paid

employees of small mom-and-pop operations or large Fortune 500 firms, the unpaid

volunteers of a charitable organization, the members of a school board, or e-entrepreneurs

who start new online businesses as thousands of people are doing today. No

matter what the organizational setting, however, people who work in organizations

are affected significantly by their experiences at work.

Most of us think we have a basic, intuitive, common sense understanding of

human behavior in organizations because we all are human and have been exposed to

different work experiences. Often, however, our intuition and common sense are

wrong, and we do not really understand why people act and react the way they do.

For example, many people assume that happy workers are productive workers—that

is, that high job satisfaction causes high job performance—or that punishing someone

who performs consistently at a low level is a good way to increase performance

or that it is best to keep pay levels secret. As we will see in later chapters, all these

beliefs are either false or are correct only under a narrow set of circumstances, and

applying these principles can have negative consequences for workers, managers,

and organizations.

The study of organizational behavior provides guidelines that both managers

and workers can use to understand and appreciate the many forces that affect behavior

in organizations and to make correct decisions about how to motivate and coordinate

people and other resources to achieve organizational goals. Organizational

behavior replaces intuition and gut feeling with a well-researched body of theories

and systematic guidelines for managing behavior in organizations.

The study of organizational behavior provides a set of tools—concepts and

theories—that help people to understand, analyze, and describe what goes on in

organizations and why. Organizational behavior helps people understand, for example,

why they and others are motivated to join an organization, why they feel good or

bad about their jobs or about being part of the organization, why some people do a

good job and others don’t, and why some people stay with the same organization for

30 years and others seem to be constantly dissatisfied and change jobs every two

years. In essence, organizational behavior concepts and theories allow people to correctly

understand, describe, and analyze how the characteristics of individuals,

groups, work situations, and the organization itself affect how members feel about

and act within their organization (see Figure 1.1).

The ability to use the tools of organizational behavior to understand behavior

in organizations is one reason for studying this topic. A second reason is to learn how

to use and apply these concepts, theories, and techniques to improve, enhance, or

change behavior so that individuals, groups, and the whole organization can better

achieve their goals. For example, a salesperson working in Neiman Marcus in

Houston has the individual goal, set by his sales manager, of selling $5,000 worth of

men’s clothing per week. In addition, he and the other members of the men’s clothing

department have the group goal of keeping the department looking neat and

attractive and of never keeping customers waiting. The store as a whole (along with

Chapter 1

Organizational Behavior and Management



What Is Organizational


Organizational behavior

Provides a set of tools

that allow:

People to understand,

analyze, and describe

behavior in organizations

Managers to improve, enhance,

or change work behaviors so

that individuals, groups, and

the whole organization can

achieve their goals

all the other stores in the nationwide Neiman Marcus chain) has the goals of being

profitable by selling customers unique, high-quality clothes and accessories and providing

excellent service. As you can see, these goals are interrelated. By being helpful

to customers, the salesperson’s behavior contributes to attaining (1) his personal sales

goal, (2) the department’s goal of never keeping customers waiting, and (3) the organization’s

goals of being profitable and providing excellent service.

Recall from the chapter-opening case that Schlumberger’s goal is to attract

customers by providing them with innovative, high-quality technical products. To

achieve this goal, Euan Baird has had to find ways to use new information technology

to speed the development of new products while keeping quality high.

Schlumberger has been improving its ability to achieve these goals because of the

way Baird encourages his employees to work hard and well and because of his concern

for finding the right way to motivate and reward them. A key challenge for all

managers, and one that we address throughout this book, is how to encourage organizational

members to work effectively for their own benefit, the benefit of their

work groups, and the benefit of their organization. How does Baird try to meet this

challenge? He requires workers to work hard individually and in virtual teams to

meet their goals, and he ensures that workers benefit directly from their hard work

by recognizing their individual and group achievements. Now that change is becoming

a way of life for many organizations, it is extremely important for managers to be

constantly on the alert to find new ways to motivate and coordinate employees to

ensure that their goals are aligned with organizational goals.

Levels of Analysis

Our examples of how managers can use organizational behavior tools to understand

and alter behavior signal the three levels at which organizational behavior can be

examined: the individual, the group, and the organization as a whole. A full understanding

of organizational behavior is impossible without a thorough examination of

the factors that affect behavior at each level.

Much of the research in organizational behavior has focused on the way in

which the characteristics of individuals (such as personality and motivation) affect

how well people do their jobs, whether they like what they do, whether they get

along with the people they work with, and so on. In Chapters 2 through 9 we examine

individual characteristics that are critical for understanding and managing behavior

in organizations: personality and ability, attitudes and values, perception and

attribution, learning, motivation, and stress and work-life linkages (see Figure 1.2).


Chapter 1 Organizational Behavior and Management

Understanding and managing

organizational behavior

requires studying

Individuals in organizations

Chapter 2 Individual differences:

Personality and ability

Chapter 3 The experience of work: Values,

attitudes, and moods

Chapter 4 Perception, attribution, and the

management of diversity

Chapter 5 Learning in organizations

Chapter 6 The nature of work motivation

Chapter 7 Motivation tools I: Job design

and goal setting

Chapter 8 Motivation tools II: Performance

appraisal, pay, and careers

Chapter 9 Stress and work-life linkages

Groups and organizational processes

Chapter 10 The nature of work groups

and teams

Chapter 11 Effective work groups

and teams

Chapter 12 Leadership

Chapter 13 Communication

Chapter 14 Decision making

Intergroup relations and the

organizational context

Chapter 15 Organizational structure

and culture

Chapter 16 Determinants of organizational

structure and culture

Chapter 17 Managing global organizations

Chapter 18 Power, politics, and conflict

Chapter 19 Organizational change

and development

FIGURE 1.2 Components of Organizational Behavior


Two or more people who interact

to achieve their goals.


A group in which members work

together intensively to achieve a

common group goal.

The effects of group characteristics and processes (such as communication and

decision making) on organizational behavior also need to be understood. A group is

two or more people who interact to achieve their goals. A team is a group in which

members work together intensively to achieve a common group goal. A virtual team

is a group whose members work together intensively via electronic means and who

may never actually meet. The number of members in a group, the type and diversity

of team members, the tasks they perform, and the attractiveness of a group to its

members all influence not just the behavior of the group as a whole but also the

behaviors of individuals within the group. For example, a team can influence its

members’ decisions on how diligently they should do their jobs or how often they

are absent from work. Chapters 10 through 14 examine the ways in which groups

affect their individual members and the processes involved in group interactions

such as leadership, communication, and decision making.

Many studies have found that characteristics of the organization as a whole

(such as the design of an organization’s structure and its culture) have important

effects on the behavior of individuals and groups. An organization’s structure controls

how people and groups cooperate and interact to achieve organizational

goals. The principal task of organizational structure is to encourage people to

work hard and coordinate their efforts to ensure high levels of organizational performance.

An organization’s culture controls how the individuals and groups interact

with each other and with people (such as customers or suppliers) outside the

organization. Organizational culture also shapes and controls the attitudes and

behavior of people and groups within an organization and influences their desire

to work toward achieving organizational goals. Chapters 15 through 19 examine

the way organizational structure and culture affect performance and also examine

Chapter 1

Organizational Behavior and Management

how factors such as the changing global environment, technology, and ethics affect

work attitudes and behavior.

Organizational Behavior in Action an Example

The way in which individual, group, and organizational characteristics work

together is illustrated in the way General Motors (GM) and Toyota cooperated to

reopen a car assembly plant in Fremont, California—a plant that GM had previously

closed because of its poor performance. (See Insight 1.1.)





At Nummi, supervisors and workers

cooperate on an ongoing basis

to find new and improved ways to

assemble cars. Workers also

receive training when any

changes are made to the car

model or method of assembly to

ensure the high quality the car

plant is known for.

In 1963, GM opened a car plant in Fremont, California, 35

miles southeast of San Francisco. 3 The plant was a typical

assembly-line operation where workers performed simple,

repetitive tasks on cars that moved steadily past them on

assembly lines. From the beginning, the plant experienced many problems that

reduced its performance. Worker productivity was low, and the quality of the assembled

cars was poor. Worker morale was also low, drug and alcohol abuse were widespread,

and absenteeism was so high that hundreds of extra workers had to be

employed just to make sure that enough

workers were on hand to operate the plant.

To try to improve the plant’s performance,

GM managers tried many things, such as

changing the workers’ jobs, increasing the

speed of the production line, and instituting

penalties for absenteeism. None of these

actions seemed to work, and, seeing no

chance of improving performance, GM

closed the plant in 1981.

In 1983, GM and Toyota announced

that they would cooperate to reopen the

Fremont plant. GM wanted to learn how

Toyota operated its efficient production system,

and Toyota wanted to know whether it

could achieve a high level of productivity by

using Japanese management techniques on

American workers. In 1984, the new organization, New United Motor

Manufacturing Inc. (NUMMI), reopened in Fremont under the control of Japanese

management. By 1986, productivity at NUMMI was higher than productivity at any

other GM factory, and the plant was operating at twice the level it had operated at

under GM management. Alcohol and drug abuse had virtually disappeared, and

absenteeism had dropped to near zero. A new approach to managing organizational

behavior had brought about this miracle.

At the NUMMI factory, Toyota divided the workforce into 200 self-managed

work groups consisting of three to five teams (today it has over 700 groups4) led by

a group leader, and made the group rather than the individual workers responsible

for the performance of the group’s assigned task. Each worker was trained to do the


Chapter 1 Organizational Behavior and Management

jobs of the other group members, and workers regularly rotated jobs, so their work

experiences were less repetitive and boring. In addition, each worker was taught procedures

for analyzing the jobs within the group and was encouraged to find ways to

improve the way tasks were done. Work group members timed each other using

stopwatches and continually attempted to find better ways to perform their jobs. In

the old plant, GM had employed 80 managers to perform this analysis. Now, in the

new plant, self-managed work groups not only perform job analysis but also take

responsibility for monitoring product quality.

With all workers divided into self-managed work groups, what role do managers

play in the new factory? At NUMMI, a manager’s job is defined explicitly in

terms of providing workers with support. In the new work system, the manager’s role

is not to directly monitor or supervise group activities but to find new ways to facilitate

these activities and give a group advice on how to improve work procedures. In

setting up NUMMI’s organization, the plant’s upper management gave each group

the authority to make its own decisions; however, group members and management

are jointly responsible for coordinating and controlling work activities to maintain

and improve organizational performance. Why did employees buy into this new

work system? A number of factors came into play: NUMMI’s no-layoff policy, extensive

worker training, and the use of flexible work groups, which give workers, not

managers, control over how things are done on the production line.5

In May 1997, the NUMMI plant produced its 3-millionth vehicle, and it

received J. D. Powers & Associates’ Bronze Plant Award for quality. In 1999,

General Motors and Toyota signed a new five-year cooperative agreement to work

on advanced technology vehicles, one result of which was the innovative new Toyota

Echo model introduced in 2000.6 At NUMMI, a new approach to managing behavior

has increased performance and well-being for workers and the organization, and

both managers and workers are committed to working together to continually

improve performance. ■

At the reopened Fremont plant, action to improve performance was possible

only when managers realized the need to rethink the way they managed organizational

behavior at all three levels of analysis. First, upper management changed organizational-level

characteristics by moving from a system in which managers analyzed

and controlled jobs and work processes to one in which self-managed teams controlled

all aspects of a given task. At the group level, each team was given the authority

and responsibility for designing group members’ tasks and for monitoring and

controlling members’ behavior. At the individual level, work-group members

became responsible for learning a wider range of tasks and for monitoring their own

performance level so that performance could be increased at all levels in the plant. As

the NUMMI story shows, the effective management of organizational behavior

requires managers and workers alike to consider the impacts and effects of individual,

group, and whole-organization characteristics as they try to achieve organizational

goals. It requires them to continuously evaluate and find new and improved

ways of managing organizational behavior to improve performance.

■ ■ ■


A working knowledge of organizational behavior is important to individuals at all

levels in the organization because it helps them to appreciate the work situation and

how they should behave to achieve their own goals (such as promotion or higher

income). But knowledge of organizational behavior is particularly important to managers.

A significant part of a manager’s job is to use the findings of organizational

Organizational effectiveness

The ability of an organization to

achieve its goals.


The process of planning, organizing,

leading, and controlling an

organization’s human, financial,

material, and other resources to

increase its effectiveness.


Any person who supervises one or

more subordinates.

Top-management team

High-ranking executives who plan

a company’s strategy so that the

company can achieve its goals.

Chapter 1

Organizational Behavior and Management


behavior researchers, and the tools and techniques they have developed, to increase

organizational effectiveness, the ability of an organization to achieve its goals.

Management is the process of planning, organizing, leading, and controlling

an organization’s human, financial, material, and other resources to increase its

effectiveness. A manager is anybody who supervises one or more subordinates. Lou

Gerstner, CEO of International Business Machines Corporation (IBM), for example,

is IBM’s top manager; he has ultimate responsibility for all 150,000 of IBM’s

employees. The sales manager of IBM’s southern region, who controls 300 salespeople,

is also a manager, as is the manager (or supervisor) in charge of an IBM computer

service center who supervises five service technicians.

Managers at all levels confront the problem of understanding and managing

the behavior of their subordinates. Gerstner has to manage IBM’s top-management

team, high-ranking executives who plan the company’s strategy so that it can achieve

its goals. The sales manager has to manage the sales force so that it sells the mix of

mainframe, mini, and personal computers that best meet customers’ informationprocessing

needs. The service manager has to manage technicians so that they

respond promptly and courteously to customers’ appeals for help and quickly solve

their problems. (Traditionally, IBM has been well known for its high-quality customer

service and responsiveness.)

Each of these managers faces the common challenge of finding ways to help

the organization achieve its goals. A manager who understands how individual,

group, and organizational characteristics affect work attitudes and behavior can begin

to experiment to see whether changing one or more of these characteristics might

increase the effectiveness of the organization and the individuals and groups that

comprise it. The study of organizational behavior helps managers meet the challenge

of improving organizational effectiveness by providing them with a set of tools:

A manager can work to raise a worker’s self esteem or beliefs about his or

her ability to accomplish a certain task in order to increase the worker’s

productivity or job satisfaction.

A manager can change the reward system to change workers’ beliefs about

the extent to which their rewards depend on their performance.

A manager can change the design of a person’s job or the rules and procedures

for doing the job to reduce costs, make the task more enjoyable, or

make the task easier to perform.

Managerial Functions and Roles

As we mentioned earlier, the four principal functions or duties of management are

planning, organizing, leading, and controlling human, financial, material, and other

resources to allow an organization to achieve its goals. 7 And, as our examples

showed, managers knowledgeable about organizational behavior are in a good position

to improve their ability to perform these functions (see Figure 1.3).


Deciding how best to allocate and

use resources to achieve organizational


Planning. In planning, managers establish their organization’s strategy—that is,

they decide how best to allocate and use resources to achieve organizational goals. At

Southwest Airlines, for example, CEO Herb Kelleher’s strategy is based on the goal

of providing customers with low-priced air travel. 8 To accomplish this goal,

Southwest uses its resources efficiently. For example, Southwest uses only one kind

of plane, the Boeing 737, to keep down operating, training, and maintenance costs;

employees cooperate and share jobs when necessary to keep down costs; and its use

of the Internet is state of the art and one of the easiest to use in the industry.


Chapter 1 Organizational Behavior and Management


Four Functions

of Management

Planning is a complex and difficult task because a lot of uncertainty normally

surrounds the decisions managers need to make. Because of this uncertainty, managers

face risks when deciding what actions to take. A knowledge of organizational

behavior can help improve the quality of decision making, increase the chances of

success, and lessen the risks inherent in planning and decision making. First, the

study of organizational behavior reveals how decisions get made in organizations and

how politics and conflict affect the planning process. Second, the way in which

group decision making affects planning and the biases that can influence decisions

are revealed. Third, the theories and concepts of organizational behavior show how

the composition of an organization’s top-management team can affect the planning

process. The study of organizational behavior, then, can improve a manager’s planning

abilities and increase organizational performance.


Establishing a structure of relationships

that dictate how members of

an organization work together to

achieve organizational goals.


Encouraging and coordinating

individuals and groups so that all

organizational members are working

to achieve organizational goals.

Organizing. In organizing, managers establish a structure of relationships that dictate

how members of an organization work together to achieve organizational goals.

Organizing involves grouping workers into groups, teams, or departments according

to the kinds of tasks they perform. At IBM, for example, service technicians are

grouped into a service operation department, and salespeople are grouped into the

sales department. In the NUMMI example, we saw how workers were grouped into

self-managed work groups, and in Schlumberger how virtual teams are used.

Organizational behavior offers many guidelines on how to organize employees

(the organization’s human resources) to make the best use of their skills and capabilities.

In later chapters, we discuss various methods of grouping workers to enhance

communication and coordination while avoiding conflict or politics. At Southwest

Airlines, for example, although employees are members of particular departments

(pilots, flight attendants, baggage handlers), they are expected to perform one

another’s nontechnical jobs when needed.

Leading. In leading, managers encourage workers to do a good job (work hard,

produce high-quality products) and coordinate individuals and groups so that all

organizational members are working to achieve organizational goals. The study of

different leadership methods and of how to match leadership styles to the characteristics

of the organization and all its components is a major concern of organizational

behavior. At Southwest Airlines, for example, Herb Kelleher and his managers join

Chapter 1

Organizational Behavior and Management


with employees once a year to perform basic organizational tasks like passenger

check-in and baggage handling to demonstrate Southwest’s team approach to leading



Monitoring and evaluating individual,

group, and organizational performance

to see whether organizational

goals are being achieved.

Controlling. In controlling, managers monitor and evaluate individual, group, and

organizational performance to see whether organizational goals are being achieved.

If goals are being met, managers can take action to maintain and improve performance;

if goals are not being met, managers must take corrective action. The controlling

function also allows managers to evaluate how well they are performing their

planning, organizing, and leading functions.

Once again, the theories and concepts of organizational behavior allow managers

to understand and accurately diagnose work situations in order to pinpoint

where corrective action may be needed. Suppose the members of a group are not

working effectively together. The problem might be due to personality conflicts

between individual members of the group, to the faulty leadership approach of a

supervisor, or to poor job design. Organizational behavior provides tools managers

can use to diagnose which of these possible explanations is the source of the problem,

and it enables managers to make an informed decision about how to correct the

problem. Control at all levels of the organization is impossible if managers do not

possess the necessary organizational behavior tools.

The way in which Marjorie Scardino transformed her company after several

years of declining performance vividly demonstrates not only the importance of the

management control function but also the way successful planning, organizing, and

leading depend on a manager’s ability to take quick corrective action. (See Insight 1.2.)



In 1995, Britain’s Pearson PLC owned companies as different

as the London-based Financial Times and The Economist magazine,

Madame Tussaud’s Wax Museum, Royal Doulton

China, Lazard Freres investment bank, and U.S. textbook

publisher Addison-Wesley. Perhaps not surprisingly, Pearson’s managers were having

a difficult time planning and controlling the activities of these diverse businesses,

and the company’s performance was declining as a result. Searching for a way to turn

the company around, Pearson’s chairman decided to appoint Marjorie Scardino, the

chief executive of Pearson’s Economist Group, as the CEO of the whole Pearson


Scardino, a native Texan, who includes among her earlier activities operating a

Gulf Coast shrimp boat and managing a Savannah law firm, took a radical new

approach to managing Pearson. She began with a whole new approach to planning

Pearson’s operations. She decided that henceforth Pearson would solely be a media

and publishing group with cutting-edge Internet-based applications in all its businesses.

9 She moved quickly to sell Pearson’s nonmedia assets such as Madame

Tussaud’s (which was sold to Walt Disney) and Royal Doulton (which was sold to the

Wedgwood-Waterford Group). She then used the proceeds of these sales to make

over $5 billion in media and publishing acquisitions including Putnam books and

Prentice Hall (the publisher of this book). Then, she combined these new businesses


Chapter 1 Organizational Behavior and Management

Marjorie Scardino (pictured here

with Dennis Stevenson, Chairman

Pearson PLC) has been responsible

for turning around the performance

of media giant, Pearson

Education. Prentice Hall, the publisher

of this book, is one of

Pearson’s divisions and Scardino

has made the development of new

multimedia products one of the

division’s major goals.

with Pearson’s other publishing businesses to

create industry-leading media companies or

divisions. To date, this new strategy has had

great success and sales and revenues have


Scardino’s approach to organizing also

changed the way Pearson operated. In order

to quickly take advantage of the opportunities

offered by the Internet and new information

technology, Scardino created a new

organizing plan for the divisions that forced

them to cooperate to jointly develop new

products, such as electronic books that can

be downloaded from the Internet, to offer

online customers. She also created clear lines

of communication both within each division

and between divisions to speed the pace of

product development and to create new

products for customers. This new approach to organizing has paid off as many new

traditional and internet-based products and services have been introduced and sales

have increased dramatically.

Finally, Scardino adopted a very up-front and visible approach to managing the

company. She takes advantage of new information technology to continually update

all the company’s managers on her plans for the company and to ensure they understand

how their activities mesh with those of the other divisions. Most recently,

Scardino announced a new alliance with America Online to develop the Education

Network, an Internet-based community that will link Pearson’s educational divisions

directly with schools, teachers, parents, and school boards across the United States;

and America Online announced that it would provide its online services for free to

schools across the country. 10 Scardino’s flair and drive for making the most of

Pearson’s resources is communicated clearly to managers and her leadership style is

best summed up in her own words when she says, “Running a successful media group

is all about accepting a process of continual change.” Finally, Scardino wants everyone

in Pearson to be a shareholder because she believes it to be better to be an owner

than an employee. She also believes that “People want to work for a company that

cares for what they care about, doing something they think is important and having

a good time.” 11 In today’s fast-moving electronic world, managing organizational

behavior has never been more of a challenge for leaders and managers. ■

Managerial Roles


A set of behaviors or tasks a person

is expected to perform because of

the position he or she holds in a

group or organization.


An ability to act in a way that

allows a person to perform well in

his or her role.

Managers perform their four functions by assuming specific roles in organizations. A

role is a set of behaviors or tasks a person is expected to perform because of the position

he or she holds in a group or organization. One researcher, Henry Mintzberg,

has identified 10 roles that managers play as they manage the behavior of people

inside and outside the organization (such as customers or suppliers). 12 (See Table 1.1.)

Managerial Skills

Just as the study of organizational behavior provides tools that managers can use to

increase their ability to perform their functions and roles, it can also help managers

improve their skills in managing organizational behavior. A skill is an ability to act in

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Organizational Behavior and Management


TABLE 1.1 Managerial Roles Identified by Mintzberg









Disturbance handler

Resource allocator



Give speech to work force about future organizational goals

and objectives; open a new corporate headquarters building;

state the organization’s ethical guidelines and principles of

behavior that employees are to follow in their dealings with

customers and suppliers.

Give direct commands and orders to subordinates; make

decisions concerning the use of human and financial organizational

resources; mobilize employee commitment to organizational


Coordinate the work of managers in different departments

or even in different parts of the world; establish alliances

between different organizations to share resources to produce

new products.

Evaluate the performance of different managers and departments

and take corrective action to improve their performance;

watch for changes occurring in the industry or in

society that may affect the organization.

Inform organizational members about changes taking place

both inside and outside the organization that will affect

them and the organization; communicate to employees the

organization’s cultural and ethical values.

Launch a new organizational advertising campaign to promote

a new product; give a speech to inform the general

public about the organization’s future goals.

Commit organizational resources to a new project to

develop new products; decide to expand the organization

globally in order to obtain new customers.

Move quickly to mobilize organizational resources to deal

with external problems facing the organization, such as

environmental crisis, or internal problems facing the organization,

such as strikes.

Allocate organizational resources between different departments

and divisions of the organization; set budgets and

salaries of managers and employees.

Work with suppliers, distributors, labor unions, or employees

in conflict to solve disputes or to reach a long-term contract

or agreement; work with other organizations to establish

an agreement to share resources.

Conceptual skills

The ability to analyze and diagnose

a situation and to distinguish

between cause and effect.

a way that allows a person to perform well in his or her role. Managers need three

principal kinds of skill in order to perform their organizational functions and roles

effectively: conceptual, human, and technical skills. 13

Conceptual skills allow a manager to analyze and diagnose a situation and to

distinguish between cause and effect. Planning and organizing require a high level of


Chapter 1 Organizational Behavior and Management

Human skills

The ability to understand, work

with, lead, and control the behavior

of other people and groups.

Technical skills

Job-specific knowledge and techniques.

conceptual skill, as do the decisional roles discussed above. The study of organizational

behavior provides managers with many of the conceptual tools they need to

analyze organizational settings and to identify and diagnose the dynamics of individual

and group behavior in these settings.

Human skills enable a manager to understand, work with, lead, and control

the behavior of other people and groups. The study of how managers can influence

behavior is a principal focus of organizational behavior, and the ability to learn and

acquire the skills that are needed to coordinate and motivate people is a principal difference

between effective and ineffective managers.

Technical skills are the job-specific knowledge and techniques that a manager

requires to perform an organizational role (e.g., manufacturing, accounting, or marketing).

The specific technical skills a manager needs depend on the organization the

manager is in and on his or her position in the organization. The manager of a

restaurant, for example, needs cooking skills to fill in for an absent cook, accounting

and bookkeeping skills to keep track of receipts and costs and to administer the payroll,

and artistic skills to keep the restaurant looking attractive for customers.

Effective managers need all three kinds of skills—conceptual, human, and

technical. The lack of one or more of these skills can lead to a manager’s downfall.

One of the biggest problems that entrepreneurs who found their own businesses

confront—a problem that is often responsible for their failure—is lack of appropriate

conceptual and human skills. Similarly, one of the biggest problems that scientists,

engineers, and others who switch careers and go from research into management

confront is their lack of effective human skills. Management functions, roles, and

skills are intimately related, and in the long run the ability to understand and manage

behavior in organizations is indispensable to any actual or prospective manager.

■ ■ ■


In the last 10 years, the challenges facing managers in effectively utilizing human

resources and managing organizational behavior have been increasing. Among

these challenges, those stemming from changing forces in the technological, global,

and social or cultural environments stand out. As mentioned previously, the impact

of new information technologies such as the internet and intranet has dramatically

changed the way organizations manage and utilize their human resources. With

information more accurate, plentiful, and freely available and as the use of computers

increasingly takes over routine tasks, employees have more time to engage in

constructive, innovative activities. Indeed, the use of modern information technologies

has increased the degree to which employees can engage in creative, workexpanding

kinds of activities such as finding ways to give customers better service or

to find better way of performing a task. Indeed, managing organizational behavior

to allow employees to act creatively is a major challenge facing organizations that

wish to survive and prosper in today’s highly competitive world, as we discuss

below. 14

Challenges from technology are ones that derive from changing social conditions.

For example, in the last 10 years the number of women and minorities assuming

managerial positions in the workforce has increased by over 25 percent.

Similarly, in the last decade, companies have come under increasing scrutiny because

of ethical concerns about the safety of the products they produce and their employment

policies toward the people who make those products both in the United States

and abroad. Organizations have also been facing increased global competition from

low-cost countries like Malaysia and China, and technological change has significantly

reduced the employment opportunities for U.S. manufacturing workers.

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Organizational Behavior and Management


These technological, social, and cultural changes taking place in the world today

pose many challenges for the men and women whose jobs require them to manage

organizational behavior:

How to use new information technologies to increase employee creativity

and organizational learning.

How to manage human resources to give an organization a competitive


How to develop an ethical organizational culture

How to manage workforce diversity

■ How to manage organizational behavior when an organization expands

internationally and operates at a global level

We introduce these five challenges here in Chapter 1 and examine them

throughout the rest of the book.

■ ■ ■



Creativity is the decision-making process that produces novel and useful ideas, ideas

that lead to new or improved goods and services or to improvements in the way that

they are produced. Today, using new information technologies to help people and

groups to be creative and enhance organizational performance is a major management

task. By 1991, U.S. companies spent more on IT than any other form of investment;

by 2000, this spending doubled again from $80 billion to $160 billion a year

and is forecast to double again in the next five years. 15 Information technology

encompasses a broad array of communication media including voice mail, e-mail,

voice conferencing, videoconferencing, the Internet, groupware and corporate

intranets, car phones, fax machines, personal digital assistants, intelligent agents, and

so on. By providing employees with easy and flexible access to stored and current

information, IT promotes learning, allows for the easy exchange of know-how, and

facilitates problem solving. 16 Insight 1.3 offers some examples of how IT can help

organizations speed communication and decision making and promote creativity and

organizational learning.





In an effort to reduce costs, the textile fibers division of Du

Pont, the giant chemical company, adopted early retirement

incentives to reduce its workforce. Unexpectedly, about half

of the division’s middle managers decided to take the early retirement package. At

first, the division’s top managers panicked, wondering how work could get one if

everyone left at the same time. But the division had recently installed an e-mail system

and a corporate intranet that supplied employees with most of the information

they needed to perform their tasks. Employees began to use it heavily and learned to


Chapter 1 Organizational Behavior and Management

Here, a marketing manager in New

York is using video teleconferencing

to communicate to a research

and development team in Silicon

Valley their marketing vision for a

new product launch. Such interactive

sessions greatly speed decision

making and enhance performance.

make their own decisions, and over time the

IT came to replace the division’s traditional

reporting structure as a main means of control

and actually speeded communication

and decision making. 17

The advertising company, Chiat/Day,

provides a vivid example of the use of IT to

facilitate the development of new organizational

skills. Undoubtedly, an advertising

agency’s core competence involves heavy

reliance on employees’ creativity, and

Chiat/Day developed a sophisticated computer

network to promote collaboration

between employees and departments. No

longer is information moved physically from

person to person, but it is posted in the system

and the computer notifies the right person

that a file or advertising copy has been

delivered to them. As a result, their old giant manila sacks and huge mechanical files

have been replaced by “electronic job jackets” containing all needed information and

digitized photographs.18 Legal reviews and proofreading comments are added electronically

and relayed automatically to the central file. This procedure has completely

eliminated the traditional role of managers and greatly increased operational


Hewlett-Packard (HP) uses laser printer engines developed and manufactured

by Canon as a core component of its laser printers. Recently, HP introduced a revolutionary

new printer, the VidJet Pro, which has required that specialists from each

firm become more integrated with each other so that they can learn more about each

other’s activities and problems.19 To achieve this, HP and Canon routinely use

e-mail and voice mail to integrate their activities, yet as HP became more involved in

the design of laser engines, and Canon in the design of better printers, richer modes

of communication were required. Not wanting to sacrifice the time requirements of

constant face-to-face meetings, both firms now rely on groupware, the Internet, and

videoconferencing. Only with such technologies can designers and engineers meet

in real time, or close to it, in order to exchange and discuss product specifications,

prototype models, and so on. ■

As these examples suggest, there are many ways in which managers can use IT

at all levels in the organization, between departments and divisions of the organization

and between organizations to enhance learning, speed decision making, and

promote creativity and innovation. Throughout this book, you will find many more

examples of how this takes place as well as in-depth discussion of the importance of

facilitating learning and creativity in managing organizational behavior today.

■ ■ ■



The ability of an organization to produce goods and services that its customers want

is a product of the behaviors of all its members—the behaviors of its top-management

team, which plans the organization’s strategy; the behaviors that middle managers

use to manage and coordinate human and other resources; and the behaviors of

Competitive advantage

The ability to outperform competitors

or other organizations that

provide similar goods and services.

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Organizational Behavior and Management


first-line managers or supervisors and production workers. An organization seeking

to obtain a competitive advantage—that is, the ability to outperform competitors

or other organizations that provide similar goods and services—can do so by pursuing

any or all of the following goals: (1) increasing efficiency, (2) increasing quality,

(3) increasing innovation and creativity, (4) increasing responsiveness to customers. 20

The study of organizational behavior can help managers achieve these goals, each of

which is a part of managing human resources to gain a competitive advantage (see

Figure 1.4).

Increasing Efficiency

Organizations increase their efficiency when they reduce the amount of resources

such as people and raw materials they need to produce a quantity of goods or services.

For example, McDonald’s Corporation developed a fat fryer that not only

speeds up the cooking time of french fries but also reduces by 30 percent the amount

of oil used in the cooking process. In today’s increasingly competitive environment,

organizations are trying to increase efficiency by finding ways to better utilize and

increase the skills and abilities of their workforce. Many organizations train their

workforce in new skills and techniques such as those needed to operate increasingly

computerized assembly plants. Similarly, cross-training workers so that they learn

the skills necessary to perform many different tasks (as they do at Southwest Airlines)

and finding new ways of organizing workers so that they can use their skills more

efficiently are major parts of the effort to improve efficiency. Many organizations,

like NUMMI, are creating self-managed work groups that are collectively responsible

for finding cost-reducing ways to perform their jobs.

The global competitive challenge facing U.S. organizations is increasing the

need to invest in the skills of the workforce, because better-trained workers can make

better use of new technology. Organizations in Japan, Germany, and some other countries

make a long-term investment in the form of a guarantee of lifetime employment.

During their employment, employees develop skills specific to that organization and

help provide it with a competitive advantage. By contrast, U.S. organizations have traditionally

invested less money in training their workers. But now, with advances in

technology requiring a more skilled workforce, many U.S. organizations are increasing

their investment in their human capital by training new and existing employees.


How to Manage Human

Resources to Gain a

Competitive Advantage


Chapter 1 Organizational Behavior and Management

Many organizations also need to increase their efficiency to survive against

low-cost competition from factories in countries like Mexico or Malaysia, where

workers are paid only $5 a day. Many jobs have already been lost to low-cost nations,

and if further job losses are to be prevented, new ways must be found to encourage

workers to increase efficiency. In this as in many other areas, pressures from the

global environment have increased the pressure on organizations in the United

States to find new ways to increase efficiency.

Cross-functional teams

Teams consisting of workers from

different functions who pool their

skills and knowledge to produce

high-quality goods and services.

Increasing Quality

The challenge from global organizations such as Japanese car manufacturers and

garment factories in Malaysia and Mexico has also increased pressure on U.S. companies

to improve the skills of their workforces so that they can increase the quality

of the goods and services they provide. One major trend in the attempt to increase

quality has been the introduction and expansion in the United States of the total

quality management (TQM) techniques developed in Japan. In an organization dedicated

to TQM, for example, workers are often organized into teams or quality control

circles that are given the responsibility to continually find new and better ways

to perform their jobs and to monitor and evaluate the quality of the goods they produce

(just as in the NUMMI plant). 21 Many organizations pursuing TQM have also

sought to improve product quality by forming cross-functional teams in which

workers from different functions such as manufacturing, sales, and purchasing pool

their skills and knowledge to find better ways to produce high-quality goods and services.

22 Total quality management involves a whole new philosophy of managing

behavior in organizations, and we discuss this approach in detail in Chapter 19 when

we discuss organizational change and development.

Increasing Innovation

U.S. companies are among the most innovative companies in the world, and innovation

is the direct result or outcome of the level of creativity and organizational learning,

as discussed above. Innovation has been

defined as “the process of bringing any new

problem-solving ideas into use. Ideas for

reorganizing, cutting costs, putting in new

budgeting systems, improving communications,

or assembling products in teams are

also innovations.” 23 Typically, innovation

takes place in small groups or teams—real or

virtual—and to encourage it, an organization

and its managers give control over work

activities to team members and create an

organizational setting and culture that

reward risk taking. Understanding how to

manage innovation and creativity is one of

the most difficult challenges that managers

face. It especially taxes managers’ human

skills, because creative people tend to be

Teamwork led to innovation at Davidson Interiors, a division of Textron. One

team innovated a new product called Flexible Bright, a coating that makes plastic

look exactly like chrome, but does not rust or scratch. Here, the members of

the team are shown holding grills coated with the new product, which Ford uses

in many of its cars.

among the most difficult to manage. One

reason that Euan Baird leads Schlumberger

is that he has a strong track record in using

IT to speed the innovation process.

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Organizational Behavior and Management

Increasing Responsiveness to Customers


Because organizations compete for customers, training workers to be responsive to

customer needs is important for all organizations but particularly for service organizations.

Organizations such as retail stores, banks, and hospitals depend entirely on

their employees’ performing behaviors that result in high-quality service at reasonable

cost. As the United States has moved to a service-based economy (in part

because of the loss of manufacturing jobs abroad), managing behavior in service

organizations has become an increasingly important area of study. 24


A complete rethinking and

redesign of business processes to

increase efficiency, quality, innovation,

or responsiveness to customers.


Altering an organization’s structure

by such actions as eliminating a



Acquiring goods or services from

sources outside the organization.


Independent individuals who contract

with an organization to perform

specific services.

New Ways to Increase Performance

Investing in employee skills and abilities to increase organizational performance is

not the only way U.S corporations have responded to an increasingly competitive

global environment. To reduce costs and increase efficiency, some companies have

responded by reengineering and restructuring their organizations. Reengineering

involves a complete rethinking and redesign of business processes to increase efficiency,

quality, innovation, or responsiveness to customers. A company that engages

in reengineering examines the business processes it uses to produce goods and services

(such as the way it organizes its manufacturing, sales, or inventory), and the way

its business processes interact and overlap, to see whether a better way of performing

a task can be found. 25 Today, the use of new information technology plays a major

part in most reengineering efforts. 26

A company that engages in restructuring makes a major change in an organization’s

structure, such as eliminating a department or reducing the number of layers

of management, to streamline the organization’s operations and reduce costs.

Restructuring and reengineering often result in many workers’ being laid off. The

smaller workforces that remain are retrained to increase efficiency; once again using

new information technology, they learn how to perform at a higher level, and they

learn new skills. Organizational behavior researchers have been interested in the

effects of layoffs not only on workers who lose their jobs but also on employees who

remain in the organization. General Motors and IBM are among the organizations

that have laid off hundreds of thousands of employees in their efforts to increase

organizational performance.

To reduce costs, many organizations do not rehire laid-off workers as full-time

employees even when demand for their products picks up; instead, they employ parttime

workers, who can be given lower wages and fewer benefits. It has been estimated

that 20 percent of the U.S workforce today consists of part-time employees

who work by the day, week, month, or even year for their former employers. Parttime

workers pose a new challenge for managers’ human skills because part-time

workers cannot be motivated by the prospect of rewards such as job security, promotion,

or a career within an organization.

Organizations are also engaging in an increasing amount of outsourcing.

Many organizational tasks are performed not within the organization but on the outside,

by freelancers. Freelancers are independent individuals who contract with an

organization to perform specific services; they often work from their homes and are

connected to an organization by computer, phone, fax, and express package delivery.

Because freelancing is expected to increase as organizations outsource more and

more of their tasks to reduce costs, managers will face new kinds of problems in their

efforts to manage organizational behavior.

Reengineering, restructuring, downsizing, hiring part-time workers, and outsourcing

are just a few of the many new ways in which organizations are utilizing human

resources to reduce costs and compete effectively against domestic and global competi-


Chapter 1 Organizational Behavior and Management

tors. Several organizational behavior researchers believe that organizations in the future

will increasingly become composed of a “core” of organizational workers who are

highly trained and rewarded by an organization and a “periphery” of part-time or freelance

workers who are employed when needed but will never become true “organizational

employees.” In the years ahead, managing an organization’s human resources to

increase performance will be a continuing challenge. The way in which John Deere has

been meeting this challenge over the last decade is instructive. (See Insight 1.4.)





Pictured is a John Deere production

worker who is taking on the

role of a salesperson and talking

to farmers about the innovations

in a new John Deere tractor model

at one of the many trade shows

that Deere attends to display its


In the early 1990s, John Deere was losing millions of dollars;

by 1994, its profits exceeded $400 million and have been

increasing since. 27 How has Deere’s startling turnaround

been achieved? According to CEO Hans W. Becherer, Deere has taken advantage of

the skills and capabilities of its workers to increase efficiency and

raise quality. Many of Deere’s problems stemmed from a competitive

environment. Caterpillar and Komatsu were ruthlessly cutting

prices to battle with Deere for a share of the dwindling agricultural

machinery market. To survive, Deere was forced to downsize.

After laying off managers and employees, Deere realized it had to

find a way to make better use of the skills of the employees who


Deere undertook to teach its manufacturing workers new

skills. It installed sophisticated, computerized production-line

technology and trained workers to operate it. Deere also sought to

improve its manufacturing by grouping workers into teams whose

goal included finding new ways to reduce costs and increase quality.

28 Deere was not content merely with improving workers’ skills

in manufacturing; it also began to teach them new skills that would

help them to find ways to increase efficiency and improve performance.

For example, Deere realized that manufacturing workers,

with their detailed knowledge about how Deere products work,

could become persuasive salespeople. Groups of production workers

were given training in sales techniques and were sent to visit

Deere customers to explain to them how to operate and service the

organization’s new products. While speaking with customers,

these new “salespeople” were able to collect information that will

help Deere further reduce costs and develop new products that

will appeal to customers. The new sales jobs are temporary.

Workers go on assignment but then return to the production line, where they use

their new knowledge to find ways to improve efficiency and quality.

These moves to empower employees have been so successful that Deere negotiated

a new agreement with its workers, which specifies that pay increases will be

based on workers’ learning new skills and completing college courses in areas such as

computer programming that will help the company increase efficiency and quality.

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Organizational Behavior and Management


No longer will seniority be the main determinant of pay, as it is in some unionized

workplaces. 29 Deere’s new policy of empowering its workforce has benefits for workers

and for the organization as a whole. Workers recognize the connection between

these changes and their job security. The increases in efficiency and quality enable

Deere to regain control of its share of the agricultural machinery market. And the

satisfaction that workers feel when they have the opportunity to utilize new skills and

develop new capabilities increases their commitment to the company and to helping

it succeed. ■

■ ■ ■




Rules, beliefs, and values that outline

the ways in which managers

and workers should behave.


The condition of being happy,

healthy, and prosperous.

An organization’s ethics are rules, beliefs, and values that outline the ways managers

and workers should behave when confronted with a situation in which their actions

may help or harm other people inside or outside an organization. 30 Ethical behavior

enhances the well-being (the happiness, health, and prosperity) of individuals,

groups, and the organization, and sometimes the environment in which they operate.

31 Ethical behavior can enhance well-being in several ways.

Ethics establish the goals that organizations should pursue and the way in

which people inside organizations should behave to achieve them. 32 For example,

one goal of an organization is to make a profit so that it can pay the managers, workers,

suppliers, shareholders, and others who have contributed their skills and

resources to the company. Ethics specify what actions an organization should engage

in to make a profit. Should an organization be allowed to harm its competitors by

stealing away their skilled employees or by preventing them from obtaining access to

vital inputs? Should an organization be allowed to produce inferior goods that may

endanger the safety of customers? Should an organization be allowed to take away

the jobs of U.S. workers and transfer them overseas to workers in countries where

wages are $5 per day? What limits should be put on organizations’ and their managers’

attempt to make a profit? And who should determine those limits?

The devastating effects of a lack of ethics is illustrated by the way an airline

crash occurred when managers and workers acted unethically and put profit before

safety. The Ethics Insights in this and other chapters show how managers respond to

the ethical challenge. (See Insight 1.5.)



In On May 11, 1996, a cargo fire broke out on a ValuJet flight

from Miami to Atlanta and the plane crashed into the Florida

Everglades, killing all 105 passengers and five crew members.

This crash was not an accident, however; it occurred as the

direct result of unethical behavior of a company’s employees’ putting profit over

public safety.


Chapter 1 Organizational Behavior and Management

Gregory Feith, senior air safety

investigator, looks at wreckage

from the crash of ValuJet Flight

592 being collected in a hanger at

Miami Airport.

Investigators discovered that the cause of

the crash was that oxygen canisters had not been

fitted with the required safety caps that would

have prevented the canisters from opening. The

oxygen canisters ignited, causing the fire that

brought down the plane. Why were the safety

caps not fitted? Because managers of the

Sabretech aircraft company had pressured two

mechanics to save money by not installing the

caps and then falsely labeling them as empty.

The cost of the caps? $9.16.33 The cost of this

unethical behavior? The deaths of 110 people.

In 1999, Sabretech’s managers and workers

were indicted on criminal charges for their

part in the disaster. Sabretech is no longer in

business, and ValuJet also was grounded because

investigators believed its lax safety procedures

were partly responsible for the incident. No

party gains when organizations or their managers

act unethically or illegally. Managers are directly responsible for developing

and maintaining ethical work practices that ensure the well-being and safety of people

both inside and outside the organization. ■

Social responsibility

An organization’s moral responsibility

toward individuals or groups

outside the organization that are

affected by its actions.

In addition to defining right and wrong behavior for employees, ethics also

define an organization’s social responsibility, or moral responsibility toward individuals

or groups outside the organization that are directly affected by its actions. 34

Organizations and their managers must establish an ethical code that describes

acceptable behaviors and must create a system of rewards and punishments to

enforce ethical codes.

Different organizations have different views about social responsibility. To some

organizations, being socially responsible means performing any action as long as it is

legal. Other organizations do more than the law requires and work to advance the

well-being of their employees, customers, and society in general. 35 Ben & Jerry’s

Homemade, Inc., for example, contributes a significant percentage of its profits to

support charities and community needs and expects its employees to be socially active

and responsible. Green Mountain Coffee Roasters seeks out coffee-growing farmers

and cooperatives that do not use herbicides and pesticides on their crops, that control

soil erosion, and that treat their workers fairly and with respect in terms of safety and

benefits. Green Mountain also contributes a share of its profits for health and education

in Costa Rica and other countries from which it buys coffee beans. Many Subway

sandwich shops have specified hours when they give free sandwiches to customers

who bring in canned goods to be given to food banks. Levi Strauss discovered that

two of its suppliers in Bangladesh were employing children under the age of 14 in violation

of International Labor Organization standards. Rather than requiring the contractors

to fire the children, many of whom were the sole breadwinners in their families,

Levi Strauss chose to pay for their education. They persuaded the suppliers to

continue to pay the children’s wages while they were in school and to guarantee that

their jobs would be waiting for them when they became of age.

Not all organizations are willing or able to undertake such programs, but all

organizations need codes of conduct that spell out fair and equitable behavior, if they

Chapter 1

Organizational Behavior and Management


want to avoid doing harm to people and other organizations. Developing a code of

ethics helps organizations protect their reputation and maintain the goodwill of their

customers and employees.

The challenge confronting managers is to create an organization in which

members resist the temptation to engage in illegal or unethical acts that promote

their own interests at the expense of the organization or promote the organization’s

interests at the expense of people and groups outside the organization. Workers and

managers have to recognize that their behavior has important effects not only on

other people and groups inside and outside the organization but also on the organization

itself. The well-being of organizations and the well-being of the society of which

they are a part are closely linked and are the responsibility of everyone. 36 (How to

create an ethical organization is an issue that we take up throughout the text.)

■ ■ ■



Differences resulting from age,

gender, race, ethnicity, religion,

sexual orientation, and socioeconomic


The fourth principal challenge is to understand how the diversity of a workforce

affects behavior, performance, and well-being. Diversity is differences resulting from

age, gender, race, ethnicity, religion, sexual orientation, and socioeconomic background.

If an organization or group is composed of people who are all of the same

gender, ethnicity, age, religion, and so on, the attitudes and behavior of its members

are likely to be very similar. Members are likely to share the same sets of assumptions

or values and will tend to respond to work situations (projects, conflicts, new tasks) in

similar ways. By contrast, if the members of a group differ in age, ethnicity, and other

characteristics, their attitudes, behavior, and responses are likely to differ.

In the last 20 years, the demographic makeup of employees entering the workforce

and advancing to higher-level positions in organizations has been changing

rapidly. Partly as a result of affirmative action and equal employment opportunity

legislation, the number of minority employees entering and being promoted to

higher-level positions has increased. 37 By the year 2005, African American and

Hispanic employees are expected to make up over 25 percent of the workforce, and

the percentage of white males is expected to decrease from 51 percent to 44 percent.

38 At the same time, the number of women entering the workforce has also been

increasing dramatically, and they are ascending to higher and higher positions in

management. 39 Finally, because of increased internationalization, diversity is evident

not just among Americans but also among people born in other nations who come to

the United States to live and work. They are expected to contribute significantly to

these totals by 2005. 40

The increasing diversity of the workforce presents three challenges for organizations

and their managers: a fairness and justice challenge, a decision-making and

performance challenge, and a flexibility challenge (see Figure 1.5).

Fairness and Justice Challenge

Jobs in organizations are a scarce resource, and obtaining jobs and being promoted

to a higher-level job is a competitive process. Managers are challenged to allocate

jobs, promotions, and rewards in a fair and equitable manner. As diversity increases,

achieving fairness can be difficult, at least in the short run, because many organizations

have traditionally appointed white male employees to higher organizational

positions. Also, seniority plays a role, and many minorities are recent hires. 41

Rectifying this imbalance by actively recruiting and promoting increasing numbers

of women and minorities can lead to difficult equity issues because this attempt to fix

the traditional imbalance reduces the prospects for white male employees. An


Chapter 1 Organizational Behavior and Management


The Challenge Posed

by a Diverse Workplace


and justice challenge







Flexibility challenge







Decision-making and


increase in diversity can thus strain an organization’s ability to satisfy the aspirations

of its workforce, creating a problem that, in turn, directly affects the workforce’s

well-being and performance. Organizations must learn to manage diversity in a way

that increases the well-being of all employees, but deciding how to achieve this goal

can pose difficult ethical problems for managers. 42

Decision-Making and Performance Challenge

Another important challenge posed by a diverse workforce is how to take advantage

of differences in the attitudes and perspectives of people of different ages, genders,

or races, in order to improve decision making and organizational performance. 43

Many organizations have found that tapping into diversity reveals new ways of viewing

traditional problems and provides a means for an organization to assess its goals

and ways of doing business. Coca-Cola, for example, in an attempt to increase its top

managers’ abilities to manage a global environment, has deliberately sought to

recruit top managers of different ethnic backgrounds. Its CEO came from Cuba

originally, and other top managers are from Brazil, France, and Mexico. To increase

performance, organizations have to unleash and take advantage of the potential of

diverse employees. Union Bank of California has been a leader in exploiting the

advantages of a diverse workforce for the last decade. The Diversity Insights in this

and other chapters, particularly in Chapter 4, describe the management of diversity

in organizations. (See Insight 1.6.)

Chapter 1


Organizational Behavior and Management




Bank of California employees

strive to provide great customer

service to meet the needs of their

diverse groups of customers.

Customer loyalty follows as customers

spread the good news

about the bank to their friends and


With assets of $33.9 billion on June 30, 2000, Union Bank of

California, based in San Francisco, is the third largest commercial

bank in California and among the 30 largest banks in

the United States. 44 It has enjoyed huge success and growth

throughout the last 10 years, in large part because of the way it has

developed an approach to diversity that reflects the needs of its

employees, customers, and its environment.

Union Bank is based in one of the most diverse states in the

nation, California, where half the population is Asian, Black,

Hispanic, or gay. Recognizing this fact, the bank always had a policy

of seeking to hire and recruit diverse employees. However, it was

not until 1996 that the bank realized that it could use the diversity

of its employees to create a competitive advantage. In 1996, George

Ramirez, a vice president at Union Bank, suggested to the bank that

it should create a marketing group to develop a plan to attract customers

who were Hispanic like himself. So successful was this venture

that a group of African American employees decided that they

should create a marketing group to develop a marketing campaign

to attract new African American customers. After they enjoyed considerable

success in recruiting new customers, it was clear to Union

Bank’s managers that they should use the diversity of the bank’s

employees as a way of improving customer service so that, for

example, when customers walk into a bank branch in a predominantly

Latino neighborhood they will be greeted by a substantial

number of Latino empolyees. 45 Similarly, marketing campaigns

could be tailored to the needs of each different ethnic group.

The bank, like many other organizations, also discovered

that diversity can lead to competitive advantage because diverse

employees approach the same issue (e.g., how to attract customers) with very different

approaches and creating diverse teams of employees can help improve the quality

of decision making inside the organization. Furthermore, the bank found that as

its reputation as a good place for minorities to work increased, it began to attract

highly skilled and motivated minority job candidates so that it helped itself. As its

CEO Takahiro Moriguchi said in accepting a diversity award for the company, “By

searching for talent from among the disabled, both genders, veterans, all ethnic

groups and all nationalities, we gain access to a pool of ideas, energy, and creativity as

wide and varied as the human race itself. I expect diversity will become even more

important as the world gradually becomes a truly global marketplace.” 46 The bank

also shows its approach to diversity in the way it grooms women and minority

employees for promotion. More than four times as many women and minority

employees for promotion. More than four times as many women and twice as many

minorities are being targeted for promotion today than five years ago. 47

Will this approach to diversity hurt the pool of white employees? The answer

is no because Union Bank expects its approach to diversity to result in so much

growth and expansion that many new jobs will be created and in the end everyone

will benefit. ■


Chapter 1 Organizational Behavior and Management

Two other significant performance issues confront organizations with a diverse

workforce. First, research has found that many supervisors do not know how to manage

diverse work groups and find it difficult to lead diverse groups of employees.

Second, supervisors are often uncertain about how to handle the challenge of communicating

with employees whose cultural backgrounds result in assumptions, values, and

even language skills that differ from the supervisors’. 48 Various racial or ethnic groups

may respond differently to the demands of their job responsibilities or to the

approaches that leaders use to manage relationships in work groups. Age and gender

differences can also cause problems for managers, such as when younger employees

find themselves in a position of authority over older and perhaps more experienced

employees. Similarly, some men find it difficult to report to or be evaluated by women.

The mixing of generations, such as the baby-boom (1946–1964) and the baby-bust

generations (1965–1976), can also cause problems (as we discuss in Chapter 4).

If diversity produces conflict and distrust among organizational members,

individual, group, and organizational performance suffers and organizations must

take active steps to solve diversity-related problems. 49 For example, if the skills and

talents of women and minorities are not being fully utilized because older white

males cannot (or refuse to) recognize them, an organization will suffer a significant

loss of potential productivity. To reduce such losses, many organizations have instituted

cultural diversity programs to improve personal and group relationships, to

promote cultural sensitivity and acceptance of differences between people, and to

promote skills for working in multicultural environments. 50

Flexibility Challenge

A third diversity challenge is to be sensitive to the needs of different kinds of

employees and to try to develop flexible employment approaches that increase

employee well-being. Examples of some of these approaches include the following:

New benefits packages customized to the needs of different groups of

workers, such as single workers with no children and families, homosexuals

in long-term committed relationships, and workers caring for aged parents

Flexible employment conditions (such as flextime) that give workers input

into the length and scheduling of their workweek

Arrangements that allow for job sharing so that two or more employees can

share the same job (e.g., to take care of children or aged parents)

Designing jobs and the buildings that house organizations to be sensitive to

the special needs of handicapped workers (and customers)

Creating management programs designed to provide constructive feedback

to employees about their personal styles of dealing with minority employees

Establishing mentoring relationships to support minority employees

Establishing informal networks among minority employees to provide

social support

The Xerox Corporation, for example, has undertaken major initiatives to

increase diversity by increasing the proportion of women and minorities it recruits

and promotes. Xerox has also established a sophisticated support network for minor-

Chapter 1

Organizational Behavior and Management


ity employees. Managing diversity is an ongoing activity that has important implications

for organizations, particularly as diversity is forecast to increase as more and

more women and minority employees enter the workforce.

■ ■ ■


The challenge of managing a diverse workforce increases as organizations continue

to expand their operations internationally. Thus, managing in the global environment

is the fifth challenge that we focus on. Global companies like GM, Toyota,

PepsiCo, and Sony all face similar problems of effectively managing diversity across

countries and national boundaries. 51 In Chapter 17, we discuss the global organization

and take an in-depth look at problems of managing behavior in global organizations.

Here, we summarize some of the main issues involved in this increasingly

important task—issues that we also discuss in most other chapters.

First, there are the considerable problems of understanding organizational

behavior in global settings. 52 Evidence shows that people in different countries may

have different values and views not only of their work settings but also of the world

in general. It has been argued, for example, that Americans have an individualistic

orientation toward work and the Japanese people have a collectivist orientation.

These individual orientations reflect cultural differences that affect people’s behavior

in groups, their commitment and loyalty to the organization, and their motivation to

perform. 53 Understanding the differences between national cultures is important in

any attempt to manage behavior in global organizations to increase performance.

Second, the management functions of planning, organizing, leading, and controlling

become much more complex as an organization’s activities expand across the

globe. On the planning dimension, decision making must be coordinated between

managers at home and managers in foreign countries who are likely to have different

views about what goals an organization should pursue. The way managers organize

the company and decide how to allocate decision-making authority and responsibility

between managers at home and abroad is one of the most significant functions of

global managers. 54

On the leadership dimension, managers must develop their management skills

so that they can learn to understand the forces at work in foreign work settings.

They must also tailor their leadership styles to suit differences in the attitudes and

values of workforces in different countries. There is considerable evidence that the

problems managers have in managing diversity inside their home countries are compounded

when they attempt to manage in different national cultures. 55 Finally, controlling

involves establishing the evaluation, reward, and promotion policies of the

organization and training and developing a globally diverse workforce.

All management activities are especially complex at a global level because the

attitudes, aspirations, and values of the workforce differ by country. For example,

most U.S. workers are astonished to learn that in Europe the average shop-floor

worker receives four to six weeks of paid vacation a year. In the United States, a comparable

worker receives only one or two weeks. Similarly, in some countries promotion

by seniority is the norm, but in others level of performance is the main determinant

of promotion and reward. The way in which global organizations attempt to

understand and manage these and other problems can be seen in the way managers

use different methods, including information technology, to manage organizational

behavior. The Global View Insights in this and other chapters, particularly in

Chapter 17, examine the topic of managing global organizations. (See Insight 1.7.)


Chapter 1 Organizational Behavior and Management



NEC a Japanese electronics giant,

like Hitachi, makes global teleconferencing

an everyday part of its

managers’ activities. Global managers

in all parts of the world join

together routinely to plan strategies

in the quickly changing

telecommunications industry.

Integrating and connecting a company’s employees and subunits

through electronic means such as video teleconferencing,

e-mail, and global

intranets is becoming

increasingly important in global organizations.

Because the success of a global company

depends on communication between

employees and business units that are likely

to be in separate countries, the value of teleconferencing

is obvious. It reduces communication

problems and allows decisions to be

made quickly. Teleconfer-encing allows managers

in different countries to meet face-toface

through television hookups to coordinate

decision making. It facilitates learning

when managers in foreign and domestic divisions

meet to confront important issues and

to solve mutual problems. For example,

Hitachi uses an online teleconferencing system

to coordinate its 28 research and development

(R&D) laboratories worldwide. 56

E-mail and high-speed data-transfer systems are also becoming extremely important

ways of quickly sharing information across the globe. U.S. companies, such as

Hewlett-Packard and IBM, make extensive use of e-mail and their corporate intranet

so that foreign and domestic divisions share information and knowledge. ■

Beyond electronic means to help managers develop a global orientation, more

and more organizations are rotating their managers to foreign divisions so that they

begin to understand the problems and opportunities present in foreign countries. 57

These “foreign” managers constitute a management network—a set of managers

who have developed an array of personal contacts with other managers throughout

the world—that helps individual managers to learn from one another and helps to

overcome a major obstacle to effective integration: subunit orientations that stymie

communication and coordination. Donald Fites, CEO of Caterpillar, rose to his present

position because of the knowledge of lean manufacturing techniques that he

gained from his experiences as a Caterpillar manager in Japan. 58 Jack Smith, CEO of

General Motors, rose to his position because of his successful introduction of lean

manufacturing to GM’s European division. Motorola established a new Asian presence

by building a factory in Tianjin, a port city near Beijing. Tam Chung Ding, who

directs Motorola’s Asian operations, commented that personal connections between

managers in the same organization and between organizations are more important in

Asia than anywhere else in the world. In Asia, integration inside an organization and

the formation of strategic alliances between organizations often depend on the personal

connections established through a management network. 59


Chapter 1

Organizational Behavior and Management


Organizational behavior is a developing field of study, and researchers and managers

face new challenges to their understanding of and ability to manage work behavior.

In this chapter, we made the following major points:

1. Organizational behavior is the study of factors that affect how individuals

and groups respond to and act in organizations and how organizations

manage their environments. Organizational behavior provides a set of

tools—theories and concepts—to understand, analyze, describe, and manage

attitudes and behavior in organizations.

2. The study of organizational behavior can improve and change individual,

group, and organizational behavior to attain individual, group, and organizational


3. Organizational behavior can be analyzed at three levels: the individual,

the group, and the organization as a whole. A full understanding is

impossible without an examination of the factors that affect behavior at

each level.

4. A significant part of a manager’s job is to use the tools of organizational

behavior to increase organizational effectiveness—that is, an organization’s

ability to achieve its goals. Management is the process of planning,

organizing, leading, and controlling an organization’s human, financial,

material, and other resources to increase its effectiveness. Managers perform

their functions by assuming 10 types of roles. Managers need conceptual,

human, and technical skills to perform their organizational functions

and roles effectively.

5. Five challenges face those seeking to manage organizational behavior:

how to use information technology to enhance creativity and organizational

learning, how to use human resources to gain a competitive advantage,

how to develop an ethical organization, how to manage a diverse

workforce, and how to manage organizational behavior as an organization

expands internationally.


For further information on other relevant topics, visit the George/Jones Web site: www.prenhall.





1. Why is a working knowledge of organizational

behavior important to managers? How can such

information increase a manager’s effectiveness?

2. Why is it important to analyze the behavior of

individuals, groups, and the organization as a

whole to understand organizational behavior in

work settings?

3. Recall a manager you have known, and evaluate

how well that person performed the four functions

of management: planning, organizing, leading,

and controlling.

4. Think of a manager you have known or read

about, and describe instances in which that manager

seemed to play some of the 10 managerial

roles identified by Mintzberg.

5. Select a restaurant, supermarket, church, or some

other familiar organization, and think about how

the organization tries to increase efficiency, quality,

innovation, and responsiveness to customers.

6. How can information about organizational behavior

help organizations manage their human

resources to obtain a competitive advantage?

7. What are organizational ethics, and why is ethics

such an important issue facing organizations


8. Why is diversity an important challenge facing

organizations today?

9. What special challenges does managing behavior

on a global scale pose for managers?

10. What new challenges may confront managers in

the future?


Behavior in Organizations

Think of an organization—a place of employment, a

club, a sports team, a musical group, an academic society—that

provided you with a significant work experience,

and answer the following questions:

1. What are your attitudes and feelings toward the

organization? Why do you think you have these

attitudes and feelings?

2. Indicate, on a scale of 1 to 10, how hard you

worked for this organization or how intensively

you participated in the organization’s activities.

Explain the reasons for your level of participation.

3. How did the organization communicate its performance

expectations to you, and how did the

organization monitor your performance to evaluate

whether you met those expectations? Did you

receive more rewards when you performed at a

higher level? What happened when your performance

was not as high as it should have been?

4. How concerned was your organization with your

well-being? How was this concern reflected? Do

you think this level of concern was appropriate?

Why or why not?

5. Think of your direct supervisor or leader. How

would you characterize this person’s approach to


management? How did this management style

affect your attitudes and behaviors?

6. Think of your co-workers or fellow members.

How did their attitudes and behavior affect yours,

particularly your level of performance?

7. Given your answers to these questions, how

would you improve this organization’s approach

to managing its members?


Specific Task

General Task

Enter Wal-Mart’s Web site, click on “About Wal-

Mart” and then click on “Culture Stories”(www.


1. What do the stories about Wal-Mart’s culture

suggest about the company’s approach to management

and organizational behavior?

2. What do the stories say about Wal-Mart’s

approach to managing its human resources to gain

a competitive advantage?

Search for the Web site of a company that describes its

managers’ approach to utilizing human resources or

the way they address one of the four management challenges

identified in the chapter. What is their

approach, or what is the main challenge they are facing?


Now that you understand the nature of organizational

behavior and management and the kinds of issues they

address, debate the following topics:

Debate One

Team A. Organizations should do all they can to promote

the well-being of people and groups inside and

outside the organization.

Team B. The best way to increase organizational performance

is to give workers the flexibility to define and

negotiate their own positions.

Debate Two

Team A. The best way to increase organizational performance

is to clearly specify each worker’s position

and the relationships among positions.

Team B. Organizations exist to make a profit. As they

earn money for their shareholders, all they should do

to promote social well-being is to follow government

laws and regulations.


A Question of Ethics


Your objective is to uncover and understand the factors

that allow you to determine whether behavior in organizations

is ethical.


1. The class divides into groups of three to five people,

and each group appoints one member as

spokesperson to present the group’s findings to

the whole class.

2. Each member of the group is to think of some

unethical behaviors or incidents that he or she has

observed in organizations. The incidents could be

something you experienced as an employee, a customer,

or a client, or something you observed


3. The group identifies three important criteria to

use to determine whether a particular action or

behavior is ethical. These criteria need to differentiate

between ethical and unethical organizational

behavior. The spokesperson writes them



4. When asked by the instructor, the spokespersons

for each group should be ready to describe the

incidents of unethical behavior witnessed by group

members and the criteria developed in step 3.


At the end of most chapters is a “Making the Connection”

exercise that requires you to search newspapers or magazines

in the library for an example of a real company

that is dealing with some of the issues, concepts, challenges,

questions, and problems dealt with in the chapter.

The purpose of the exercise for this chapter is to

familiarize you with the way in which managers make

use of organizational behavior to increase organizational


Find an example of an organization in which managers

made use of organizational behavior concepts or

theories to deal with one of the four challenges discussed

in Chapter 1: gaining a competitive advantage,

organizational ethics, diversity in the workforce, or


Closing Case

How Jeff Bezos Manages at Amazon.com

In 1994, Jeffrey Bezos, a computer science and electrical engineering graduate from

Princeton University, was growing weary of working for a Wall Street investment

bank. With his computer science background prompting him, he saw an entrepreneurial

opportunity in the fact that Internet usage was growing at over 2,300 percent

a year. Searching for an opportunity to take advantage of his technical skills in the

new electronic, virtual marketplace he decided that the book-selling market offered

an opportunity. Deciding to make a break, he packed up his belongings and drove to

the West Coast, deciding en route that Seattle, Washington—a new mecca for hightech

software developers and the hometown of Starbucks coffee shops—would be an

ideal place to begin his venture.

Bezos’s plan was to develop an online bookstore that would be customerfriendly

and easy to navigate, and would offer the broadest possible selection of

books. He had decided to create an e-commerce business that, operating through

the Internet, never saw its customers but whose mission was to provide customers

great selection and great service at low prices. 60 Bezos realized that compared to a

real “bricks and mortar” bookstore, an online bookstore would be able to offer a

much larger and diverse selection of books. His goal was that online customers

would find it easy to search for any book in print on a computerized, online catalog,

browse different subject areas, read reviews of books, and even ask other shoppers

for online recommendations—something most people would hesitate to do in a regular


With a handful of employees and operating from his garage in Seattle, Bezos

launched his venture online in July 1995 with $7 million in borrowed captial. Within


Chapter 1 Organizational Behavior and Management

weeks, Bezos was forced to relocate to new larger premises and to hire new employees

as book sales soared. The problem facing him now was how to organize his people

and resources to best meet his new company’s goals. His solution was to organize

his workers into groups based on the tasks they needed to perform to satisfy his customers.

First, Bezos created a research and development department to continue to

develop and improve the in-house software that he had initially developed for

Internet-based retailing. Then, he established an information systems department to

handle the day-to-day implementation of these systems and to manage the interface

between the customer and the organization. Third, he created a materials management/logistics

department to devise the most cost-efficient ways to obtain books

from book publishers and book distributors and then to ship them quickly to customers.

Currently, the department is implementing new information systems to

ensure one-day shipping to customers. As Amazon.com grew, these departments

helped Amazon to expand into providing many other kinds of products for its customers

such as music CDs, electronics, and gifts as a visit to the company’s Web sit

(www.amazon.com) will show.

To ensure that Amazon.com strived to meet its goals of providing books

quickly with excellent customer service, Bezos paid attention to the way he controlled

his employees. Realizing that customer support was the most vital link

between customer and organization, to ensure good customer service he decentralized

control and empowered his employees to find a way of meeting customers’

needs quickly. Second because Amazon.com employs a relatively small number of

people, about 2,100 people worldwide, Bezos was able to make great use of socialization

to motivate his employees. All Amazon.com employees are carefully selected

and socialized by the other memebers of their work group so that they quickly learn

their organizational roles and, most importantly, of Amazon’s important norm of

providing excellent customer service. Finally, to ensure that Amazon.com’s employees

are motivated to provide the best possible customer service, Bezos gives all

employees stock in the company, and employees currently own 10 percent of their


Finally, on the leadership dimensions, Bezos is a hands-on manager who works

closely with employees to find cost-saving solutions to problems. Moreover, as

CEO, Bezos acts as a figurehead to his employees, personifying Amazon’s dedication

to the well-being of its employees and customers. Indeed, he spends a great deal of

his time flying around the world to publicize his company and its activities, and he

has succeeded because Amazon.com has the most well-recognized name of any dotcom

company. At Amazon.com, all of Jeff Bezos’s actions are designed to improve

employees’ work attitudes and behaviors and to increase the performance and wellbeing

of employees and customers alike.


1. What management functions and roles is Jeff Bezos performing that make

him such a successful manager?

2. How easy would it be for other CEOs to manage like Bezos?



A Short History of Organizational

Behavior Research

The systematic study of organizational behavior began in the

closing decades of the nineteenth century, after the Industrial

Revolution had swept through Europe and America. In the

new economic climate, managers of all types of organizations—political,

educational, and economic—were increasingly

turning their focus toward finding better ways to satisfy

customers’ needs. Many major economic, technical, and cultural

changes were taking place at this time. With the introduction

of steam power and the development of sophisticated

machinery and equipment, the industrial revolution changed

the way goods were produced, particularly in the weaving and

clothing industries. Small workshops run by skilled workers

who produced hand-manufactured products (a system called

crafts production) were being replaced by large factories in

which sophisticated machines controlled by hundreds or even

thousands of unskilled or semiskilled workers made products.

For example, raw cotton and wool, which in the past families

or whole villages working together had spun into yarn, were

now shipped to factories where workers operated machines

that spun and wove large quantities of yarn into cloth.

Owners and managers of the new factories found themselves

unprepared for the challenges accompanying the

change from small-scale crafts production to large-scale

mechanized manufacturing. Moreover, many of the managers

and supervisors in these workshops and factories were engineers

who had only a technical orientation. They were unprepared

for the social problems that occur when people work

together in large groups (as in a factory or shop system).

Managers began to search for new techniques to manage their

organizations’ resources, and soon they began to focus on

ways to increase the efficiency of the worker–task mix. They

found help from Frederick W. Taylor.



Frederick W. Taylor (1856–1915) is best known for defining

the techniques of scientific management, the systematic study

of relationships between people and tasks for the purpose of

redesigning the work process to increase efficiency. Taylor

was a manufacturing manager who eventually became a consultant

and taught other managers how to apply his scientific

management techniques. Taylor believed that if the amount of

time and effort that each worker expends to produce a unit of

output (a finished good or service) can be reduced by increasing

specialization and the division of labor, the production

process will become more efficient. Taylor believed the way to

create the most efficient division of labor could be best determined

using scientific management techniques, rather than

intuitive or informal rule-of-thumb knowledge. Based on his

experiments and observations as a manufacturing manager in

a variety of settings, he developed four principles to increase

efficiency in the workplace: 1

Principle 1: Study the way workers perform their tasks, gather

all the informal job knowledge that workers possess, and experiment

with ways of improving the way tasks are performed.

To discover the most efficient method of performing

specific tasks, Taylor studied in great detail and measured

the ways different workers went about performing their

tasks. One of the main tools he used was a time and

motion study, which involves the careful timing and

recording of the actions taken to perform a particular task.

Once Taylor understood the existing method of performing

a task, he then experimented to increase specialization;

he tried different methods of dividing up and coordinating

the various tasks necessary to produce a finished product.

Usually, this meant simplifying jobs and having each

worker perform fewer, more routine tasks, as at the pin

factory or on Ford’s car assembly line. Taylor also sought

to find ways to improve each worker’s ability to perform a

particular task—for example, by reducing the number of

motions workers made to complete the task, by changing

the layout of the work area or the type of tool workers

used, or by experimenting with tools of different sizes.

Principle 2: Codify the new methods of performing tasks into

written rules and standard operating procedures.

Once the best method of performing a particular task

was determined, Taylor specified that it should be

recorded so that the procedures could be taught to all

workers performing the same task. These rules could be

used to further standardize and simplify jobs—essentially,

to make jobs even more routine. In this way, efficiency

could be increased throughout an organization.

Principle 3: Carefully select workers so that they possess skills

and abilities that match the needs of the task, and train them to

perform the task according to the established rules and procedures.

To increase specialization, Taylor believed workers had

to understand the tasks that were required and be thoroughly

trained in order to perform the task at the required


Chapter 1

Organizational Behavior and Management


level. Workers who could not be trained to this level were

to be transferred to a job in which they were able to reach

the minimum required level of proficiency. 2

Principle 4: Establish a fair or acceptable level of performance

for a task, and then develop a pay system that provides a reward

for performance above the acceptable level.

To encourage workers to perform at a high level of efficiency,

and to provide them with an incentive to reveal the

most efficient techniques for performing a task, Taylor

advocated that workers benefit from any gains in performance.

They should be paid a bonus and receive some

percentage of the performance gains achieved through the

more efficient work process.

By 1910, Taylor’s system of scientific management had

become nationally known and in many instances faithfully and

fully practiced. 3 However, managers in many organizations

chose to implement the new principles of scientific management

selectively. This decision ultimately resulted in problems.

For example, some managers using scientific management

obtained increases in performance, but rather than

sharing performance gains with workers through bonuses as

Taylor had advocated, they simply increased the amount of

work that each worker was expected to do. Many workers

experiencing the reorganized work system found that as their

performance increased, managers required them to do more

work for the same pay. Workers also learned that increases in

performance often meant fewer jobs and a greater threat of

layoffs, because fewer workers were needed. In addition, the

specialized, simplified jobs were often very monotonous and

repetitive, and many workers became dissatisfied with their


From a performance perspective, the combination of

the two management practices—achieving the right mix of

worker–task specializations and linking people and tasks by

the speed of the production line—resulted in the huge savings

in cost and huge increases in output that occur in large, organized

work settings. For example, in 1908, managers at the

Franklin Motor Company using scientific management principles

redesigned the work process, and the output of cars

increased from 100 cars a month to 45 cars a day; workers’

wages, however, increased by only 90 percent. 4

Taylor’s work has had an enduring effect on the management

of production systems. Managers in every organization,

whether it produces goods or services, now carefully

analyze the basic tasks that workers must perform and try to

create a work environment that will allow their organizations

to operate most efficiently. We discuss this important issue in

Chapters 6 and 7.


If F. W. Taylor is considered the father of management

thought, Mary Parker Follett (1868–1933) serves as its

mother. 5 Much of her writing about management and the way

managers should behave toward workers was a response to her

concern that Taylor was ignoring the human side of the organiztion.

She pointed out that management often overlooks the

multitude of ways in which employees can contribute to the

organization when managers allow them to participate and

exercise initiative in their everyday work lives. 6 Taylor, for

example, never proposed that managers should involve workers

in analyzing their jobs to identify better ways to perform

tasks, or even ask workers how they felt about their jobs.

Instead, he used time and motion experts to analyze workers’

jobs for them. Follett, in contrast, argued that because workers

know the most about their jobs, they should be involved in

job analysis and managers should allow them to participate in

the work development process.

Follett proposed that “Authority should go with knowledge

. . . whether it is up the line or down.” In other words, if

workers have the relevant knowledge, then workers, rather

than managers, should be in control of the work process itself,

and managers should behave as coaches and facilitators—not

as monitors and supervisors. In making this statement, Follett

anticipated the current interest in self-managed teams and

empowerment. She also recognized the importance of having

managers in different departments communicate directly with

each other to speed decision making. She advocated what she

called “cross-functioning”: members of different departments

working together in cross-departmental teams to accomplish

projects—an approach that is increasingly utilized today. 7 She

proposed that knowledge and expertise, and not managers’

formal authority deriving from their position in the hierarchy,

should decide who would lead at any particular moment. She

believed, as do many management theorists today, that power

is fluid and should flow to the person who can best help the

organization achieve its goals. Follett took a horizontal view

of power and authority, rather than viewing the vertical chain

of command as being most essential to effective management.

Thus, Follett’s approach was very radical for its time.



Probably because of its radical nature, Follett’s work went

unappreciated by managers and researchers until quite

recently. Most continued to follow in the footsteps of Taylor,

and to increase efficiency, they studied ways to improve various

characteristics of the work setting, such as job specialization

or the kinds of tools workers used. One series of studies

was conducted from 1924 to 1932 at the Hawthorne Works of

the Western Electric Company. 8 This research, now known as

the Hawthorne studies, was initiated as an attempt to investigate

how characteristics of the work setting—specifically the

level of lighting or illumination—affect worker fatigue and

performance. The researchers conducted an experiment in

which they systematically measured worker productivity at

various levels of illumination.

The experiment produced some unexpected results.

The researchers found that regardless of whether they raised

or lowered the level of illumination, productivity increased. In


Chapter 1 Organizational Behavior and Management

fact, productivity began to fall only when the level of illumination

dropped to the level of moonlight, a level at which presumably

workers could no longer see well enough to do their

work efficiently.

As you can imagine, the researchers found these results

very puzzling. They invited a noted Harvard psychologist,

Elton Mayo, to help them. Mayo proposed another series of

experiments to solve the mystery. These experiments, known

as the relay assembly test experiments, were designed to investigate

the effects of other aspects of the work context on job

performance, such as the effect of the number and length of

rest periods and hours of work on fatigue and monotony. 9

The goal was to raise productivity.

During a two-year study of a small group of female

workers, the researchers again observed that productivity

increased over time, but the increases could not be solely

attributed to the effects of changes in the work setting.

Gradually, the researchers discovered that, to some degree,

the results they were obtaining were influenced by the fact

that the researchers themselves had become part of the experiment.

In other words, the presence of the researchers was

affecting the results because the workers enjoyed receiving

attention and being the subject of study and were willing to

cooperate with the researchers to produce the results they

believed the researchers desired.

Subsequently, it was found that many other factors also

influence worker behavior, and it was not clear what was actually

influencing Hawthorne workers’ behavior. However, this

particular effect—which became known as the Hawthorne

effect—seemed to suggest that the attitudes of workers toward

their managers affects the level of workers’ performance. In

particular, the significant finding was that a manager’s behavior

or leadership approach can affect performance. This finding

led many researchers to turn their attention to managerial

behavior and leadership. If supervisors could be trained to

behave in ways that would elicit cooperative behavior from

their subordinates, then productivity could be increased.

From this view emerged the human relations movement,

which advocates that supervisors be behaviorally trained to

manage subordinates in ways that elicit their cooperation and

increase their productivity.

The importance of behavioral or human relations training

became even clearer to its supporters after another series

of experiments—the bank wiring room experiments. In a

study of workers making telephone switching equipment,

researchers Elton Mayo and F. J. Roethlisberger discovered

that the workers, as a group, had deliberately adopted a norm

of output restriction to protect their jobs. Workers who violated

this informal production norm were subjected to sanctions

by other group members. Those who violated group

performance norms and performed above the norm were

called “ratebusters”; those who performed below the norm

were called “chisellers.”

The experimenters concluded that both types of workers

threatened the group as a whole. Ratebusters threaten

group members because they reveal to managers how fast the

work can be done. Chisellers are looked down on because they

are not doing their share of the work. Work-group members

discipline both ratebusters and chisellers in order to create a

pace of work that the workers (not the managers) think is fair.

Thus, the work group’s influence over output can be as great

as the supervisors’ influence. Because the work group can

influence the behavior of its members, some management

theorists argue that supervisors should be trained to behave in

ways that gain the goodwill and cooperation of workers so

that supervisors, not workers, control the level of work-group


One of the main implications of the Hawthorne studies

was that the behavior of managers and workers in the work

setting is as important in explaining the level of performance

as the technical aspects of the task. Managers must understand

the workings of the informal organization, the system of

behavioral rules and norms that emerge in a group, when they

try to manage or change behavior in organizations. Many

studies have found that, as time passes, groups often develop

elaborate procedures and norms that bond members together,

allowing unified action either to cooperate with management

in order to raise performance or to restrict output and thwart

the attainment of organizational goals. 10 The Hawthorne

studies demonstrated the importance of understanding how

the feelings, thoughts, and behavior of work-group members

and managers affect performance. It was becoming increasingly

clear to researchers that understanding behavior in

organizations is a complex process that is critical to increasing

performance. 11 Indeed, the increasing interest in the area of

management known as organizational behavior, the study of

the factors that have an impact on how individuals and groups

respond to and act in organizations, dates from these early



Several studies after World War II revealed how assumptions

about workers’ attitudes and behavior affect managers’ behavior.

Perhaps the most influential approach was developed by

Douglas McGregor. He proposed that two different sets of

assumptions about work attitudes and behaviors dominate the

way managers think and affect how they behave in organizations.

McGregor named these two contrasting sets of assumptions

Theory X and Theory Y. 12

Theory X

According to the assumptions of Theory X, the average

worker is lazy, dislikes work, and will try to do as little as possible.

Moreover, workers have little ambition and wish to

avoid responsibility. Thus, the manager’s task is to counteract

workers’ natural tendencies to avoid work. To keep workers’

performance at a high level, the manager must supervise them

closely and control their behavior by means of “the carrot and

stick”—rewards and punishments.

Managers who accept the assumptions of Theory X

design and shape the work setting to maximize their control

Chapter 1

over workers’ behaviors and minimize the workers’ control

over the pace of work. These managers believe that workers

must be made to do what is necessary for the success of the

organization, and they focus on developing rules, standard

operating procedures, and a well-defined system of rewards

and punishments to control behavior. They see little point in

giving workers autonomy to solve their own problems

because they think that the workforce neither expects nor

desires cooperation. Theory X managers see their role as to

closely monitor workers to ensure that they contribute to

the production process and do not threaten product quality.

Henry Ford, who closely supervised and managed his workforce,

fits McGregor’s description of a manager who holds

Theory X assumptions.

Theory Y

In contrast, Theory Y assumes that workers are not inherently

lazy, do not naturally dislike work, and, if given the opportunity,

will do what is good for the organization. According to

Theory Y, the characteristics of the work setting determine

whether workers consider work to be a source of satisfaction

or punishment; and managers do not need to closely control

workers’ behavior in order to make them perform at a high

level, because workers will exercise self-control when they are

committed to organiztional goals. The implication of Theory

Y, according to McGregor, is that “the limits of collaboration

in the organizational setting are not limits of human nature

but of management’s ingenuity in discovering how to realize

the potential represented by its human resources.” 13 It is the

manager’s task to create a work setting that encourages commitment

to organizational goals and provides opportunities

for workers to be imaginative and to exercise inititative and


When managers design the organizational setting to

reflect the assumptions about attitudes and behavior suggested

by Theory Y, the characteristics of the organization are

quite different from those of an organizational setting based

on Theory X. Managers who believe that workers are motivated

to help the organization reach its goals can decentralize

authority and give more control over the job to workers, both

as individuals and in groups. In this setting, individuals and

groups are still accountable for their activities, but the manager’s

role is not to control employees but to provide support

and advice, to make sure they have the resources they need to

perform their jobs, and to evaluate them on their ability to

help the organization meet its goals.


In the 1980s, William Ouchi, a professor interested in differences

between work settings in Japan and the United States,

took the management approach inherent in Theory Y one

Organizational Behavior and Management


step further. 14 In the United States, national culture emphasizes

the importance of the individual, and workers view their

jobs from an individualist perspective and thus behave in ways

that will benefit them personally. Perhaps because of this,

Ouchi noted, many U.S. managers adopt Theory X rather

than Theory Y assumptions. They expect workers to behave

purely in their own self-interest and believe workers will leave

an organization at a moment’s notice if they see a better

opportunity elsewhere. To counter this expectation, Ouchi

speculated, managers simplify jobs and increase supervision to

make it easy to replace workers and to minimize any problems

that might result from high rates of turnover. In U.S. companies,

control is frequently explicit and formalized: Job

requirements are clearly specified, and most workers are evaluated

on and rewarded for their individual level of performance.

In contrast, Japanese managers expect workers to be

committed to their organizations and therefore treat them

differently. Some large Japanese companies guarantee workers

lifetime employment and view the training and development

of workers as a lifelong investment. Moreover, Japanese workers

tend to have a collective or group orientation to their

work, a result of the characteristics of Japan’s national culture,

which emphasizes the importance of groups and organizations

rather than individuals. Consistent with the Japanese culture,

Japanese managers create work settings that encourage a

group-oriented approach to decision making, they give work

groups responsibility for job performance, and they allow

work groups to control their own behavior.

Ouchi suggested that U.S. companies could capture

many of the advantages that Japanese companies enjoy by

combining various characteristics of the Japanese and U.S.

management systems and following the approach to management

that he called Theory Z. In what Ouchi calls a “Type Z

organization,” workers are guaranteed long-term (but not

lifetime) employment, so that their fears of layoffs or unemployment

are reduced. Type Z managers attempt to combine

the Japanese emphasis on the work group with a recognition

of individual contributions by setting objectives for individual

workers so that individual performance achievements can be

recognized within a group context. Thus, individuals are recognized

and rewarded not only for individual performance

but also for interpersonal skills that improve decision making

or communication. As we discuss in later chapters, the implementation

of Theory Z requires an organizational structure

that allows the organization to be flexible and responsive to

changes inside the organization and in the external environment.



Chapter 1

Chapter 1 Organizational Behavior and Management

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Chapter 1 Appendix

1. F. W. Taylor, Shop Management (New York: Harper, 1903); F. W. Taylor, The Principles of Scientific

Management (New York: Harper, 1911).


Chapter 1 Organizational Behavior and Management

2. L. W. Fry, “The Maligned F. W. Taylor: A Reply to His Many Critics,” Academy of Management Review

(1976): 124–29.

3. J. A. Litterer, The Emergence of Systematic Management as Shown by the Literature from 1870–1900 (New

York: Garland, 1986).

4. D. Wren, The Evolution of Management Thought (New York: Wiley, 1994), 134.

5. L. D. Parker, “Control in Organizational Life: The Contribution of Mary Parker Follett,” Academy of

Management Review 9 (1984): 736–45.

6. P. Graham, M. P. Follett—Prophet of Management: A Celebration of Writings from the 1920s (Boston:

Harvard Business School Press, 1995).

7. M. P. Follett, Creative Experience (London: Longmans, 1924).

8. E. Mayo, The Human Problems of Industrial Civilization (New York: Macmillan, 1933); F. J.

Roethlisberger and W. J. Dickson, Management and the Worker (Cambridge, MA: Harvard University

Press, 1947).

9. D. W. Organ, “Review of Management and the Worker,” by F. J. Roethlisberger and W. J. Dickson,

Academy of Management Review 13 (1986): 460–64.

10. D. Roy, “Banana Time: Job Satisfaction and Informal Interaction,” Human Organization 18 (1960):


11. For an analysis of the problems in determining cause from effect in Hathorne studies and in social settings

in general, see A. Carey, “The Hawthorne Studies: A Radical Criticism,” American Sociological

Review 33 (1967): 403–16.

12. D. McGregor, The Human Side of Enterprise (New York: McGraw-Hill, 1960).

13. Ibid., 48.

14. W. G. Ouchi, Theory Z: How American Business Can Meet the Japanese Challenge (Reading, MA: Addison-

Wesley, 1981).

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