How business works

48 49HOW COMPANIES WORK

Buying and selling business

BUY-IN MANAGEMENT BUY-OUT (BIMBO) $22.2
billion
In this type of transaction, the existing management of a company stages a
buy-out, but additional external management is brought in by financers to Europe’s biggest
strengthen the company’s leadership and to provide expertise in particular ever leveraged
areas that might be lacking in the original team. buy-out—of
chemist chain
Company Company Alliance Boots
in 2007
+=

Existing management Outside management New management team
members buy company members brought in

Buy-out

A buy-out allows a large company to sell off a part of the business it no
longer wants or helps a small business owner to retire or move on.

Company Company Company

+$+ =

The management team They raise funds via They buy the business. The management
sees an opportunity to bank loans, private team—which now
take ownership when their investors, their own owns the company—
corporate division is put capital, or a loan streamlines the
up for sale. from the seller. business to make it
more profitable.

Who’s who

Determining a company’s hierarchy—including how many layers of power it has,
and how many staff to appoint at each level—is one of the biggest challenges of
modern management. In family-run businesses, positions are usually filled by
family members who answer to the head of the family. The emergence of public
companies has meant that company ownership is separated from management,
so that shareholder interests are prioritized.

Who’s who in an organization

Stakeholders and Board of directors C-suite executives
shareholders
The board of directors makes sure the The top level operates the company
Stakeholders are anyone with a vested company is run profitably to provide day to day and sets strategy. All titles
interest in the company. Shareholders returns to shareholders. The board of top management begin with a “C”
are stakeholders who have bought votes in a chairman, who is sometimes for chief. Senior managers are headed
stock in the company. See pp.60–63. also the chief executive officer (CEO). by the CEO. See pp.56–59.
See pp.52–55.

46% 50 51HOW COMPANIES WORK
Who’s who
of UK employees
believe what senior STRUCTURAL WHYS
managers tell them AND WHEREFORES
about what is happening
in their organization Overtime pay
Managerial staff who are not paid for overtime
hold exempt positions. Non-exempt positions
usually belong to non-managerial staff who are
paid by the hour and qualify for overtime pay.
Who bosses whom
When one manager has formal authority (decision-
making power) over another, it is called vertical
specialization. Horizontal specialization means
several managers have equal authority.

Mid-level management Junior management Non-management
employees
Division and department heads are Supervisors, managers, or team
usually called directors or managers. leaders directly manage groups of The lowest ranks of the organization:
Jobs at this level are often the first to employees carrying out specific tasks. skilled and unskilled workers carry out
go when a company downsizes or Examples include a head nurse or core tasks needed for the company to
restructures. See pp.56–59. foreman. See pp.56–59 and pp.74–75. operate. See pp.56–59 and pp.74–75.

Board of directors

Public companies are required by law Board of directors
to appoint a board of directors to
provide oversight. The board of directors of a publicly listed company
sits between the company and its shareholders.
How it works
REPORTS TO
All companies must have at least one
director. If a company goes public and Secretary
issues shares, it is legally required to have
a board of directors. The board is made Appointed by
up of experienced business advisers who The board
provide independent oversight of the Responsible for
company for shareholders and are mandated ❯ Publicly representing the
by law to govern the company responsibly.
company’s policies and
Board members may come from within leading board meetings
the company or be independent outsiders,
and should cover a range of expertise— Treasurer
such as legal, financial and marketing—
or have specialized industry knowledge. Appointed by
Networkers are also highly prized for their The board
ability to build connections with influential Responsible for
figures in the corporate and governmental ❯ Presenting yearly accounts
spheres. From within their ranks, the board ❯ Leading audit committee
elects a chairman, vice-chairman, secretary,
and treasurer.

EVALUATES

Shareholders

Any person or $ $
institution that has
bought shares in
a publicly listed
company is a
shareholder. The
board works for
the shareholders,
who effectively
own the company.

52 53HOW COMPANIES WORK
Who’s who

Chairman REPORTS TO The average
EVALUATES company board
Appointed by in the US has
The board
Responsible for 9.2
❯ Publicly representing the company’s policies
❯ Leading the board, conducting board meetings directors
❯ Determining the composition of the board
❯ Mentoring and monitoring the CEO or Company

managing director (MD) Responsible for day-to-day
❯ Communicating with shareholders production, sales and marketing
operations, and finance. The
Vice-chairman company reports to the board via
its chief executive officer (CEO),
Appointed by who executes the board’s decisions.
The board
Responsible for CEO
❯ Standing in for chairman
❯ Undertaking special Appointed by
The board
projects for chairman Responsible for
❯ Assisting chairman in ❯ Performance of

balancing experience, the company
personality, and age of ❯ Implementing
directors on board
board strategy
Directors ❯ Leading senior management
❯ Reporting back to chairman
Appointed by
The board and board
Responsible for
❯ Determining strategy REPORTS TO EVALUATES
❯ Monitoring achievement
Management
of implemented policies
❯ Appointing managers Managers pass the CEO’s
❯ Accounting for company’s decisions down to employees.

activities to shareholders
and other stakeholders

BOARD OF DIRECTORS

Balancing the board of company executives, and call NEED TO KNOW
them to account. When potential
The board has three clear areas of conflicts of interest arise between ❯ NEDs Non-executive directors,
responsibility: developing business management and shareholders, also known as independent,
strategy, advising the company, independent directors can weigh external, or outside directors
and overseeing how the firm is run. decision-making in favor of acting
Selecting the right mix of directors in the company’s best interests. ❯ Executive directors Board
to fulfill these functions is crucial. members who also work for the
The ideal balance is a hot topic company—not to be confused with
Board members may come from in corporate governance. In US the term executive director when
inside or outside the company. companies, CEO and chairman roles used as a title for the CEO
Those who work for the company have traditionally been combined,
(executive or internal directors) but following a spate of corporate ❯ Model Business Corporation
have more expertise in running scandals, the roles are now more Act Developed by the American
the business, but independent often vested in two individuals. In Bar Association, this model is used
members (non-executive or external Europe, keeping the roles separate as the basis for corporate
directors) are better placed to offer has long been seen as best practice. governance in the US
perspective, scrutinize the actions

Board structure variations

Independent board of directors CEO as chairman

The board sits between shareholders and company. The A setup in which the company’s CEO serves as the board’s
CEO is the main channel of communication between board chairman. While this offers less independent scrutiny of
and company, while the chairman is the principal conduit finances, strategy, performance, and pay, it avoids duplication
between shareholders and board. This structure gives the of roles. This setup is found in US corporations and in many
board most independence. small- and medium-sized companies in other countries.

Shareholders Shareholders

Board of directors Board of directors

CEO Chairman
and CEO
Management and
employees Management and
employees

Key Shareholders Chairman Treasurer Secretary

54 55HOW COMPANIES WORK
Who’s who

PROS AND CONS OF CEO AS CHAIRMAN 44%

Pros Cons of S&P 500-listed
companies had
❯ Strong, central leadership ❯ Lack of transparency Conflicts of distinct CEO and
Decisions hold fewer conflicts. interest/corruption are more likely. chairman roles in
2012—up from
❯ Efficiency CEO/chairman can ❯ Reduced objectivity Board 21% in 2001
implement board decisions swiftly. headed by CEO is unable to monitor
CEO’s work objectively.
❯ Expertise CEO has company and
industry knowledge (a CEO may ❯ Higher remuneration Combined
become chairman after retirement). role generally commands higher pay
than two separate individuals.
❯ Balance of power Established
hierarchy between CEO/chairman ❯ Mentoring Chairman who is
and other directors reduces risk also CEO cannot offer independent
of conflict on the board. mentoring and support for the role.

Senior management as directors Two-tier board

A structure in which senior managers also sit on the board. An arrangement that is made up of separate supervisory
The chief financial officer (CFO) is appointed board treasurer and executive boards. The supervisory board is composed
and the chief operations officer (COO) is vice-chairman. In of outside directors, led by a chairman. The executive
some countries (Germany, for example), employees must board comprises senior managers, including the CEO.
be included on the board by law. The two boards always meet separately.

Shareholders Shareholders

Supervisory board

Board of directors Executive board

Chairman Treasurer Vice-chairman CEO and board Employee and
member board member
and CEO and CFO and COO

Management and Management and
employees employees

Vice-chairman Other directors CEO Management and employees

Company hierarchy

Almost every organization has a structured arrangement of levels for
members, from the board of directors at the top to junior employees at
the bottom. There is a trend toward reducing the number of levels.

How it works executives—their job titles begin C-suite executives
with a “C” and end with an “O.”
There are five levels in the Below the C-level is management, These are the most senior jobs in
conventional corporate structure in tiers that differ from company to the company, with the CEO at the
with a line of authority from top to company, with employees forming top, the COO and CFO traditionally
bottom. The chief executive officer the bottom level. As well as skilled on the next level down, and other
(CEO) is the highest-ranking person and unskilled employees, there may C-positions below that. In many
in the company, reporting to the be staff on fixed-term contracts, companies, the C-level positions
board of directors and sometimes taken on for the duration of a have equal authority and all report
also sitting on the board. Reporting project or for a set length of time, directly to the CEO.
to the CEO are a number of high- and casual temporary workers.
level executives, known as C-level

C-LEVEL VARIATIONS 51% Mid-level management

The range of C-level positions varies of CIOs and CTOs Responsible for overseeing specific
for each company. In addition to say they are functions in the organization, the
the three top posts, there may be: pioneering new most senior managers at this level
digital approaches head up different departments or
CAO Chief Administrative Officer within their divisions. These managers are often
business called directors (not to be confused
CIO Chief Information Officer with the board of directors) or, in
the US, vice-presidents. The exact
CTO Chief Technology Officer job titles, and the number of mid-
level managers, vary depending
CPO Chief Product/Production on the company.
Officer, responsible for overseeing
product development and Junior management
production and other employees

CMO Chief Marketing Officer, Team leaders, such as supervisors
responsible for marketing strategy and assistant managers, implement
and business development management plans. They also
coordinate teams of skilled and
C-level positions are evolving, unskilled workers in, for example,
adapting to market conditions and production, customer service,
business priorities. New roles are and sales to carry out the core
emerging while some traditional tasks needed for the company to
roles are disappearing. The role of function efficiently and profitably.
COO, for example, is less popular
in modern organizations. Some of
the new roles include:

CPO Chief Privacy Officer

CSO Chief Sustainability Officer

CDO Chief Digital Officer

CKO Chief Knowledge Officer

CCO Chief Customer Officer

56 57HOW COMPANIES WORK
Who’s who

CHIEF OPERATING CHIEF EXECUTIVE 15%
OFFICER (COO) OFFICER (CEO)
Responsible for Decides on corporate the average salary
day-to-day operations; policy and strategy rise for a C-level
reports to CEO and executive reporting
acts as second CHIEF FINANCIAL to the CEO, in the
in command OFFICER (CFO) US between 1986
Manages company’s and 2006
MARKETING financial risk;
MANAGER reports to CEO
Directs marketing
department FINANCE
day to day MANAGER
Puts CFO’s plans or
directions into
action, instructing
junior managers

OPERATIONS R AND D
MANAGER MANAGER
Oversees operations Heads up research
division; may also and development
direct production (R and D) of new
department products

SUPERVISORS AND TEAM LEADERS

NON-MANAGEMENT EMPLOYEES

COMPANY HIERARCHY

Flattening hierarchies 500 have a COO position now. NEED TO KNOW
CEOs have also eliminated layers
The trend in management over of middle management, and in ❯ Span of control Number
the past few decades has been to the US there was a 300 percent of employees reporting to a
eliminate layers from company increase between 1986 and 2003 manager or other senior level;
hierarchies, which means they are in the number of division heads the greater the span of control,
becoming flatter—in other words, reporting directly to the CEO. the more workers reporting to
there are not as many levels to go an individual above
through in order to reach the top. Sometimes companies decide
restructure the other way round ❯ Line position Job role with
One example is the role of chief instead—from flat to tall—by responsibility for achieving the
operating officer (COO), which has eliminating a number of senior goals of the organization
been disappearing in recent years. management posts and replacing
Between 2000 and 2012, there was them with a greater number of ❯ Staff position Job role providing
a 10 percent decline in the number junior supervisory roles. expertise to assist someone in a
of Fortune 500 (an annual list of line position
the top US corporations compiled
by Fortune magazine) companies
with COOs. Only 38 percent of the

Tall vs. flat hierarchies

There are pros and cons for both Tall hierarchy

types of hierarchy, and each The traditional model is suitable for a formal
chain of command as, for example, in the army.
company has to find the ❯ Several layers from top to bottom
❯ Fewer employees reporting to each manager;
number of levels, and
close supervision possible
positions within each ❯ More room for career advancement because

level, that suits the there are many levels to rise through

nature of its CEO
business.

Mid-level CHAIN OF COMMAND
management

Supervisors and
team leaders

Non-management
employees

58 59HOW COMPANIES WORK
Who’s who

CASE STUDY 25%

Restructuring the big three US car manufacturers the decline in the
levels of hierarchy
The economic crisis of 2008 caused at a lower level in the organization between division
the big three American car-making to create a flatter, less top-heavy heads and CEOs
companies—General Motors (GM), company hierarchy. in the US, from
Ford, and Chrysler—to rethink their 1986 to 2003
corporate structures. Market share ❯ Before restructuring Thirty
had fallen and the three companies technicians reported to one
needed to shed employees and find production supervisor.
ways to cut production.
❯ After restructuring Seventy-five
All three took similar action to technicians now reported to one
reorganize the company hierarchy, production supervisor, through 18
removing some managerial roles newly created team leader positions.
from the mid-management level
and installing more team leaders

Flat hierarchy

This looser model is more flexible and suitable for
companies that foster creativity.
❯ Only a few layers so mid- and low-level

management are merged
❯ Large number of employees reporting to each

manager; close supervision not possible
❯ More freedom for employees to make their

own decisions

CEO

Supervisors and CHAIN OF COMMAND
team leaders

Non-management
employees

Stakeholders

A stakeholder is anyone who is affected by the performance of the
company, while shareholders own one or more shares in a company,
which makes each of them a part-owner of the company.

How it works However, stakeholders can also be non-shareholders—
individuals or groups who have an interest in what the
Because shareholders part-own the company, they company does or whose financial situation depends on
have the right to vote on how it is managed and the company. Some stakeholder groups are interested
to receive a share of its profits. All shareholders are in a company mainly for its ethical treatment of workers,
stakeholders, since the performance of the company sustainable approach to the environment, and attitude
has a direct impact on the value of the shares they to society. These are known as environmental, social,
own: when the company does well, the share value and governance (ESG) criteria.
rises, and when it performs badly, the share value falls.

Stakeholders’ areas of interest

A few stakeholder groups are concerned only with environmental, social, and governance
(ESG) factors, while others, such as shareholders and suppliers, may be more interested in
the company’s financial performance. Most stakeholder groups have at least some interest
in both areas, especially since negative publicity for a company can cause share prices to fall.

Stakeholders with ESG concerns Nongovernmental Community
organizations
Stakeholders have no direct involvement, but ❯ Impact on local
believe that companies have a responsibility to ❯ Contribution to inhabitants
the communities they operate in, to respect the enviromental and
environment, human rights, and animal welfare. social causes ❯ Concern for broader
social welfare
$892 ❯ Legal compliance
million
the average drop in market
value triggered by negative
news about a company’s
human rights record

60 61HOW COMPANIES WORK
Who’s who

$ Government Shareholders Customers
❯ Tax payments ❯ Ability to pay dividend ❯ Quality product
Stakeholders ❯ Legal compliance ❯ Increase in share value ❯ Good value
with economic ❯ Customer service
and ESG concerns $
$
Stakeholders use ESG—a
recognized part of policy
and reporting for most
companies—to evaluate
corporate behavior
and to determine future
financial performance.
Concerns range from $
profits to ethics.

$

Trade unions Suppliers Employees Lenders
❯ Ability to pay debt
❯ Treatment of workers ❯ Enough liquidity ❯ Pay and benefits ❯ Ability to repay loans
❯ Fair pay, benefits, and ❯ Longevity of the ❯ Integrity of

working conditions company management
❯ Employment prospects
❯ Financial strengths
of the company

STAKEHOLDERS

Stakeholders in action social responsibility (CSR), social media, stakeholders
whether or not they are socially can generate a storm of public
Compared with other stakeholders, and environmentally conscious disapproval, leading to angry
shareholders have the most interest themselves. Several high-profile consumers and nervous investors.
in the financial performance of a cases have shown how stakeholder
company. They are also forced to reaction has caused a significant $60
take an interest in how seriously decline in share prices. By using
the company takes its corporate

How stakeholders affect share value $30

In April 2010, an offshore oil rig owned by British Petroleum (BP) exploded $0
in the Gulf of Mexico. BP attempted to alleviate stakeholder concerns, but BP shares trading at
stakeholders responded negatively, starting their own social media campaigns
to shame the company. Sixty-six days after the oil spill, BP’s share value on the $60.57
New York Stock Exchange had dropped by 52 percent.
on April 20, 2010

News breaks that spill is Stakeholder social media News media report on the
worse than BP claims. campaign intensifies. stakeholder backlash.

Bill Obama administration $60
advises it could take legal
$69 action to stop BP paying from $30
dividends to shareholders.
BILLION $0
Share price drops 7 percent
US government criticizes in London trading.
BP and sends company a
$69 billion bill for cleanup.

62 63HOW COMPANIES WORK
Who’s who

75% the increase in the number of publicly
traded companies* reporting on ESG
* in the Bloomberg database for the period 2008–2011

BANG! @
#
BANG!

Oil rig explodes, killing News media report on BP starts social media
11 employees and spewing the event. campaign on Twitter—
millions of gallons of oil into initially to minimize the
the Gulf of Mexico. impact of the spill.

Stakeholders of the BP oil spill Stakeholders use social
media to voice anger and
❯ Inhabitants along the ❯ BP shareholders
affected coastline ❯ Gasoline buyers ! concern over perceived
❯ Tourists and tourist lack of responsibility by BP.
❯ Local fishermen Conservationists warn
businesses of wildlife devastation.
❯ Oil spill cleanup ❯ Media Celebrities offer to help in
workers ❯ Government the cleanup. Stakeholders
❯ General public call for more disclosure
❯ Environmental from BP.
activists

❯ BP employees

Five of BP’s top 10 $$ $60
shareholders sell off stock.
By June 25, BP’s share price $30
has dropped by more than
half; over 34 billion shares $0
have been bought and sold. BP shares trading at

$23.91

on June 25, 2010

Business cultures

Every organization has a particular workplace environment,
consciously or unconsciously shaped by the personalities, values,
and behavior of the people leading it and working in it.

How it works atmosphere of the corporate NEED TO KNOW
environment crackle, whereas
The organizational culture of every in a company relying on creativity ❯ Control systems Used by
business is different, reflecting for its products, the mood is likely managers to set standards and
the ethos of the company, its to be more relaxed. The type of measure performance
workplace habits, and the image incentives offered to management
the company projects. It is also tied and employees may also affect the ❯ Leverage Power to influence a
to the type of work that has to be workplace, resulting in either a person or situation
done. In a high-stakes financial competitive or a collaborative
trading company, the pace and culture, or a mix of both. ❯ Paradigm Value system of
pressure of the work makes the goals, mission, and beliefs

Types of corporate cultures

Management experts have tried to explain how organizational cultures work.
Charles Handy, a former professor at the London Business School, describes
them in terms of four major types: power, task, role, and person.

Role culture Power culture

Where a company is based on the structural support of Driven by a powerful individual at the center of the
specialized roles. Each role is crucial and will persist even organization, who is relied on for decision-making and
if the person occupying it leaves. Procedures and systems the company’s successes. Those closest to the center
are strictly followed, as in a government department. have most influence. Typical of a family-owned business.

DECISIONS MADE

JOB POWER
DESCRIPTIONS
PROCEDURES

RULES
SYSTEMS

bureaucratic / controlling

64 65HOW COMPANIES WORK
Who’s who

WHAT SHAPES CORPORATE CULTURE? 86%

Many factors reinforce a culture. To bring about change, the workforce needs of senior
to be inspired by different motivations, values, and types of role models. managers
in global
Organization size Leaders organizations
Big business, or Their personality agree that
small company and behavior organizational
culture is critical
Company structure Symbols to success
Strict hierarchy, Titles, dress codes,
or power shared interior aesthetic
among many people
Control systems
Founding values Rewards, incentives,
Includes origination performance
myths and stories assessment

Task culture Person culture

Project-oriented work where a project’s completion is Company power and influence is shared among individuals
the motivating force. Relies on teamwork and individuals’ who work semi-autonomously. Individuals count for more
expertise, but results are more important than personal than the company, which is made up of people with similar
objectives. Found in technology companies, for example. specialist training, such as in an architects’ practice.

PA RTNERSHIP

TASK

TASK

TASK

entrepreneurial / flexible

Corporate
structure

A company’s structure—the way in which it is organized—can have a major
impact on the way it performs. There are several models of corporate structure
typically used in the business world, and they continue to evolve. The first
consideration is whether power should be centralized at the top, with decision-
making in the hands of a few key senior employees, or decentralized, with more
power in the hands of staff, and with fewer people to go through for approval.

Choosing a structure

Most start-ups have a centralized structure. More complex structures either evolve or are designed
as the company grows, depending on the nature and size of the business, the complexity of the work,
any requirement for instant expertise, and the geographical location of parts of the business.

Centralized Functional Divisional Matrix

Power rests in the hands of a Good for strict Suits companies with Good for large
few people, with a long chain control and formal many global offices corporations with
of command. relationships, as in or product lines. complex projects in
❯ Power at the top the military. See pp.70–71. different locations.
❯ Rigid See pp.68–69. See pp.76–77.
❯ Conventional
❯ Inflexible
❯ Slow response to change

CEO COORDINATES CEO COORDINATES DIVISIONAL AND
AND EACH DIVISION FUNCTIONAL
RESPONSIBLE FOR MANAGERS
GENERATING PROFIT COORDINATE

66 67HOW COMPANIES WORK
Corporate structure

78% 100% WARNING

of groups reach of groups reach When change is needed
solutions to solutions to
simple tasks complex tasks Signs that a structure is not working
faster in faster in include low morale and high staff
centralized decentralized turnover, no new products being
structures structures developed, and profit suddenly
accelerating or decelerating. Tools
to amend poor structure include:

❯ Business process reengineering
(BPR) Analyzing and redesigning
the workflow within a company.

❯ Altering the reporting line
In a traditional solid-line reporting
relationship, one line manager
oversees goals and performance.
It can be beneficial to switch to
the weaker chain of a dotted-line
reporting relationship, in which
a manager sets some but not all
the objectives.

Network Team-based Decentralized

Suits creative For companies that Power is spread through the company,
and technology rely on innovation and staff make their own decisions.
companies in which and are customer ❯ Power shared
everyone is online. focused. See ❯ Organic
See pp.72–73. pp.74–75. ❯ Experimental
❯ Flexible
❯ Fast response to change

CORE COMPANY STAFF SELF-
COLLABORATES COORDINATE
WITH VIRTUAL
COMMUNITY

Functional structure

The classic way to organize a company is by dividing it into
departments that reflect the main functions of the business,
each headed by a director or manager.

How it works Typical departmental hierarchy

The chain of command is straightforward. The The departments operate independently, with the
business typically consists of a chief executive managers reporting to the CEO or president, who has
officer (CEO) or president at the top, with the overall command. The sales and marketing department
various specialist departments or divisions, such usually takes responsibility for managing product lines.
as marketing and finance, aligned below.

Each department operates as an independent
unit, with its own budget, and reports directly to
the CEO, who takes responsibility for the operation
of all the departments. A functional structure is the
most common type of organization.

WARNING $

Dangers of silo mentality
Silo mentality describes a scenario in which each
department has a different, closed view of its role within
the overall scheme and information does not get shared.

2 for 1

1 Sales and marketing 2 Finance is not briefed and Production/ Research and Finance
decides to launch a special processes the order for one manager
online two-for-one offer. item only. operations development

manager manager

3 Operations is not briefed 4 Customer services is not Deciding what to sell
and sends customers one item briefed and is unprepared for
instead of two. calls from angry shoppers. The marketing department is closest to the
market and is best able to analyze which
product lines may do well. The sales and PRODUCT A
marketing manager can suggest what new
products the company could make.

68 69HOW COMPANIES WORK
Corporate structure

41% FUNCTIONAL: PROS
AND CONS
of UK companies
say the structure of Pros
their organization is a
barrier to improving ❯ Allows for the development of
CEO customer experience specialization and expertise

❯ Enables efficient use of resources
and potential economies of scale

❯ Offers obvious career path for
employees in each department

❯ Simple, efficient structure for
manufacturers producing a
limited range of goods for sale

Cons

❯ Formal lines of communication;
stifles innovation and creativity

❯ Departments fail to coordinate
efficiently with one another

❯ Response time on problems
and queries between different
departments slow

❯ Many decisions referred up
to the top, creating a backlog

Sales and Information Human Customer NEED TO KNOW
marketing technology resources services
manager manager manager ❯ Line relationship Chain of
manager command down the structure

❯ Reporting structure Who
reports to whom

❯ Silo Pejorative term for a
department that works in
isolation: a vertical, closed
structure like a grain silo

PRODUCT B PRODUCT C PRODUCT D

Divisional structure

Some companies arrange their staff into divisions devoted to a
specific product or market. Each division is a self-sufficient team
employing the personnel for the various functions within it.

How it works Division by geography

Under the overall control of a CEO For businesses with products that need to
or president, several divisions work be adapted to local markets, an organization
alongside one another to design, can be structured according to each of the
research, produce, and sell a regional markets it serves. These may be
particular product, or to service domestic or international. Print technology
a specific market. Each division and services company Xerox has successfully
runs its own specialized functions, adopted this structure (see case study, right).
such as operations and production,
sales and marketing, and finance. North America
A company may arrange its divisions
according to the types of product The company’s
it makes, the regions in which it main market
operates, or the customers to whom
it sells. Large companies may adopt
hybrid structures—by product and
geography, for example.

DIVISIONAL: PROS Division by product CEO
AND CONS
Businesses selling different
Pros types of products may pick
a structure by which each
❯ If one division fails, there is no division handles one category.
threat to the rest of the business Fast-food chain McDonald’s
has been organized by
❯ Can respond quickly to changes in product division.
the market
FAST-FOOD RESTAURANT BEVERAGES
❯ Focused on customer needs PRODUCTS SUPPLIES
❯ Performance of each division Unbranded
Burgers and fries Tableware drinks mixes
clearly measurable
Cons

❯ Duplicating resources—for
example, each division employing
finance personnel

❯ Lack of expertise-sharing between
divisions

❯ Career path for staff restricted
❯ Heightened sense of competition

among divisions

70 71HOW COMPANIES WORK
Corporate structure

CEO CASE STUDY

Europe Developing Global services Printer technology and services
markets company Xerox has restructured
The second-largest Additional division several times to align the business
region for sales All other markets consulting across regions with the main markets that buy its
products. In 1992, Xerox’s high-
profile change from a functional
to a new divisional structure, with
nine self-contained divisions each
serving a particular customer type,
hit the headlines. This also allowed
the company to focus on its core
business—digital publishing, color
copying, and printing.

Dividing the company by market
location is another strategy Xerox
has used successfully. In 2006, each
division was organized once again,
geographically, to ensure that those
making the decisions were closest
to the customers in each market.

Division by customer type 7%

Businesses with distinct customer the increase in
markets may be organized by Xerox’s share
customer division. For example, value when
the financial institution Bank of it announced
America Merrill Lynch caters to its move from
individuals, small businesses, and a functional
to a divisional
corporate and institutional clients. CEO structure
in 1992
CONSUMER BUSINESS INSTITUTIONAL

Typically the Products adapted or Large-scale provision
original market favorably priced to a single client

Matrix structure

Unlike a conventional company hierarchy organized either by function
or division, a matrix combines the two approaches so that staff work
in both functional and divisional units, and report to two bosses.

How it works Matrix structure

A business that uses a matrix setup often begins In this case study, an oil-exploration and
with the more traditional functional structure. As
the business develops, it may make sense to overlay production company has several oil-
a divisional structure to meet changes in business
conditions—for example, if a company is managing refining projects to manage. The matrix
several large projects for a client or expands globally
and is selling its products in several regions. A matrix guardian oversees the matrix and makes
grid may start out as temporary—perhaps formed to
manage short-term projects—and become permanent. sure it works efficiently. Engineering

The two chains of command in a matrix create the director
grid. Staff report along a vertical line to a functional
manager, such as the marketing director, and along Matrix
a horizontal line to the project manager of a specific guardian
business line, brand, project, or region.

FOUR BIG MATRIX ORGANIZATIONS Project Drilling
manager team
Each of the following companies has been cited as a
model of success for making the matrix structure work: Arctic drilling Oil-extraction
team
❯ Procter & Gamble (P&G) To help it innovate and Project
respond faster to the market, the consumer-product manager Liquefied natural
company is segmented into baby and family care, gas team
global beauty, health and grooming, and global fabric Malaysia oil wells
and home care.
Project
❯ IBM Because it needs to control many global manager
processes, the matrix at the technology and consulting
corporation is structured vertically by divisions such New Zealand
as sales and distribution, finance and marketing, and natural gas fields
software, and horizontally by country and region.

❯ Cisco In 2001, the IT company reorganized to enable
committees to make decisions across several different
functions and divisions. The idea was to stimulate ideas
throughout the organization and quickly implement
solutions to problems.

❯ Starbucks The coffee-shop chain is arranged by
product on one axis of the matrix and business function
on the other to ensure that quality and innovation meet
customers’ expectations and anticipate their desires.

72 73HOW COMPANIES WORK
Corporate structure

CEO 90%

of FTSE 50 companies
had adopted a matrix
structure by 2013

Operations Marketing Financial NEED TO KNOW
director director director
❯ Project management
Undersea Marketing Finance professional (PMP®)
production team team team Qualification for project
managers offered by global
Project Management Institute

❯ Matrix guardian Senior
professional appointed to
oversee the matrix and make
sure it works efficiently

❯ Mature matrix Matrix structure
in which functional and divisional
bosses have equal power

Site-supervision Sales Finance MATRIX: PROS AND
team team team CONS

Line operations Marketing and Finance Pros
team PR team team
❯ Faster decision-making
❯ Potential for improved

productivity
❯ Flexible use of staff
Cons

❯ Expensive to set up and run
❯ Possible confusion as to the

reporting line
❯ More potential for interpersonal

conflict as team goals may conflict

Network structure

Also called a virtual organization or virtual corporation, a network
structure is centered around a streamlined company, with digital
connections linking it to external, independent businesses.

How it works The various parties can be scattered around the globe
and are connected by the internet. Together, they
The company at the center of the structure is stripped provide all the services needed for the network to
back to basic functions that are essential to the type of function as one entity. This type of business structure
business being operated—research and development, is based on the idea of the social media network, and
for example, in the case of a technology company. All so is known as a network enterprise.
other functions are outsourced to external specialists.

NEED TO KNOW Network structure in practice

❯ Agile business Buzzword Network Screen is a small film production company based in Los Angeles,
to describe a networked CA, operating from a studio space with two employees—a producer and
organization; the opposite an assistant. For each project, the producer connects with outsourced
of a traditional bureaucracy talent around the world and everyone collaborates to create the finished
film. The producer contracts and pays these external suppliers.
❯ Decentralized Organization
with a wide span of control and
often an upward flow of ideas

VARIATION: MODULAR STRUCTURE 27%

In a business with a modular structure, parts of a single product are outsourced of networked
(it is functions or processes, not products, that are outsourced in a network organizations
structure). A modular structure is especially suitable for organizations report higher
producing appliances, computers, cars, and mechanical consumer goods. profit margins
Toyota is an example of a company with a modular structure, managing than their
hundreds of external suppliers to produce its finished vehicles. competitors

Pros Cons

❯ Potential for round-the-clock ❯ Extreme reliance on technology—
work because of global locations network errors can stop effective
performance of the business
❯ Can source the best expertise
wherever it is in the world ❯ Potential for misunderstandings
because there is little face-to-face
❯ Low overheads because there are communication
minimal staff in the core company
❯ Difficult to find common time
❯ Flexible and highly creative across time zones for virtual
environment meetings

74 75HOW COMPANIES WORK
Corporate structure

Cinematographer in Post-production
London, UK effects in

Ne Copenhagen,en Film editing
Denmark in Osaka,
10 $ Japan
$ twork Scre
+-
Film
X= production
company, Los
Angeles, CA

Accounting
and finance
in Boston,

MA

Location scout Set design
in Istanbul, Turkey in Sydney,
Australia

Team-based
structure

As its name implies, a team-based organization (TBO) is made up
entirely of teams. Managers and staff from different departments join
to form teams handling specific projects, in the short or long term.

How it works One step beyond the team-based NEED TO KNOW
structure is a holacracy (see box,
In a TBO, teams reach decisions right), an unconventional type of ❯ Cascading Successful passing
through brainstorming and mutual organization in which there are of information or objectives down
agreement among team members, no managers, and even the CEO through the workforce
rather than a senior management relinquishes power, allowing
member issuing orders from the top employees to self-govern through ❯ Lateral structure Decentralized
down the chain of command as in a regular committee meetings, structure in which departments
traditional organizational structure. which they organize themselves. work to a common goal
Communication is less formal in
TBOs, often carried out on social ❯ Flat lattice Structure with no
media such as blogs and forums chains of command, in which
and using software for networking workers choose to follow leaders
such as Groupware.

Team-based hierarchy CEO

While TBOs still have a CEO, little other hierarchy exists. Team leaders are
part of the team rather than in a chain of command. At its best, a team-
based model fosters a culture of trust, so individuals take pride in their work
and responsibility for carrying out tasks well and on time and budget.

Team Team
leader leader

Team A Team B

$

76 77HOW COMPANIES WORK
Corporate structure

HOLACRACY—BREAKING BOUNDARIES 200–
300%
Staff are grouped into teams that set their own roles and goals and choose
their own leaders. The idea is that if power and responsibility are shared, the productivity
employees will give their very best. In 2014, the Las Vegas–based online increase at US
clothing retailer Zappos adopted the model for its 1,500 staff. Holacracy sausage-maker
is a trademarked term used by the company that invented this specific Johnsonville
management system. It follows the same principle as a flat lattice, but takes Foods, from
the idea one step further by presenting a comprehensive management 1982 to 1990, by
structure with clear processes for internal operations and governance. moving to a team-
based structure
TRADITIONAL HOLACRACY—A STRUCTURE OF
HIERARCHY SELF-MANAGED TEAMS

Decisions Decision-
handed making by
down committee
from top

Team TEAM-BASED: PROS
leader AND CONS

Team C Pros

❯ Quick decision-making and
rapid response to problems
and challenges

❯ Reduced overheads because there
is no heavy management structure

❯ Open communication because there
is no fear of management reaction

Cons

❯ If staff lack expertise, decisions
may be flawed

❯ Limited sharing between teams

$ may affect business performance
❯ Decisions by consensus harder
to reach

Human
resources

The human resources (HR) department is responsible for all policies and processes
relating to the people employed by a business. To help the business achieve its
goals, HR has to make sure that it employs the right people with the right skills,
treats them consistently and fairly, and has a supporting framework to drive and
deliver the required level of performance.

HR framework Business goals

The starting point for any Business goals are the
decision in an organization is driver for every business
its business goals. HR supports
the delivery of these goals by decision, and HR
ensuring that there is a staffing polices support them.
strategy to support the business
plan. Typically, an HR framework SELECTION SUCCESSION PERFORMANCE LEARNING
sets out a people strategy AND AND TALENT MANAGEMENT AND
including the competencies PLANNING
of the people who best suit RETENTION See pp.84–85. DEVELOPMENT
the organization. This is then See pp.82–83.
implemented in a range of areas, See pp.82–83. See pp.82–83.
from recruitment and selection
to learning and development.
HR professionals work closely
with business leaders and
line managers to design and
implement HR systems that
back up strategic business goals.

Values and culture HR helps to determine principles, conduct,
and how tasks are done in a business.

Organization design HR formulates the structure and formal reporting
relationships that define a company’s shape.

People and performance HR is responsible for employees’ welfare
and their contribution to business goals.

78 79HOW COMPANIES WORK
Human resources

3.2billion ESSENTIAL PEOPLE
SKILLS
people were in recorded
employment globally in 2014 As well as recruiting effectively and
ensuring that employees deliver, HR
REWARDS AND EMPLOYEE plays a role in nurturing essential
BENEFITS ENGAGEMENT people skills across the organization.

See pp.86–87. See pp.92–93. Relating to others

❯ Some people are natural leaders,
but most leaders can benefit
from objective thinking about
the leadership strategy they wish
to follow. See pp.88–89.

❯ Even in flattened, team-based
hierarchies, team leaders need to
develop leadership skills to guide
and support their teams.
See pp.90–91.

❯ Despite the revolution in technology,
people remain vital to organizations,
as skills and knowledge are central
to success. As a result, HR has an
expanding role. One example is
Google, which calls its HR function
People Operations (POPS) and treats
its staff as a valuable asset, offering
a range of attractive perks to “find
them, grow them, and keep them.”
See pp.92–93.

Managing projects

❯ Project management is an essential
skill for managers at all levels,
whether they are running regular
day-to-day activities or special
projects. See pp.94–95.

Negotiating

❯ The ability to negotiate successfully
is an essential skill. Awareness of
strategies and styles is key to success.
See pp.96–97.

The human
resources cycle

From the moment a company starts the process of recruiting an
employee to the time that person leaves the company, the individual
is in a cycle that is managed by the human resources (HR) department.

How it works business right back again.” The HR department is
there to ensure that the right people are in the right
People are a significant cost to any organization—and roles so that the company can deliver the business
of great value. Many CEOs talk about staff as their strategy and maintain its competitive edge. The
most important asset, and US industrialist Henry Ford complexity of the business influences the stages in
famously said: “You can take my factories, burn up the HR cycle, but the basic elements are the same.
my buildings, but give me my people and I’ll build the

NEED TO KNOW CV A business identifies
the need to fill a role,
National employment laws Recruit and attracts applicants.
CVs are assessed and
Employment practice is regulated interviews held to find
by a raft of laws— for example, in the best candidate.
the US federal Equal Employment
Opportunity laws prohibit any
discrimination on the grounds of
sex, race, disability, age, sexual
orientation, or religion at any
stage of the employment cycle.

Contract Once terms are “Hire people
agreed and a smarter than
Employ contract signed, you and get out
the candidate of their way.”
becomes the
company’s Howard Schultz
employee.

$ 80 81HOW COMPANIES WORK
Human resources
Reward
An induction program
explains the new role and
introduces the team. HR
gives a briefing on pay, tax,
and benefits such as leave,
insurance, and pensions.

The company sets targets Manage
and helps individuals to performance
improve performance
so they contribute to
business results and get
the most out of their job.

Develop The business has processes
to help people improve their
skills, competencies, and
knowledge, through formal
or informal learning, both on
and off the job.

The company Transition …or to leave the
helps its employee Exit company, which
to move into a may be through
new role, which resignation,
may be in another redundancy,
business it owns… or retirement.

Recruitment and
selection

Placing the right person in the right job is vital for the success of
the organization—this is the process of recruitment and selection.
Technology is changing traditional hiring pathways.

How it works fits into the organization’s structure. STAYING PUT
This information forms the basis
The human resources function of a job description and person People tend to stay in a job during
manages the process. Increasingly, specification. The search can then a recession. Nine million workers
line managers are involved as begin. The company’s own website, were hired in the second quarter
well because the tools are often recruitment agencies, commercial of 2009 (mid-recession) in the US,
accessible via company intranet. job boards, and advertisements in down from 12.8 million in the last
the press are traditional ways of quarter of 2007 (pre-recession), a
Recruitment starts with the attracting the attention of people fall of about 30 percent. According
company identifying a vacancy— outside the organization. Internet- to the Bureau of Labor Statistics,
the need for someone to do a job, based routes are now common too. 80 percent of this decline came from
and pulling together information Today, application forms are often a fall in “churn”, when workers in
about the exact nature of the role. directly submitted online, triggering developed economies change jobs,
Aspects to consider include the automatic responses and sorting rather than a dip in job creation.
job’s purpose, tasks required, and of candidate details.
the outputs or deliverables of the
job holder, as well as how the role

94% Job description and Person specification
person specification
of recruiters Summarizes the necessary
in the US used, Clear written statement or desired criteria for
or planned of the role, including job candidate selection,
to use, social title, purpose, duties, including required skills
media for responsibilities, scope, and/or competencies for
recruiting and reporting structure, the role, experience, and
in 2013 as well as competencies educational qualifications.
and qualities required. It
is used in the recruitment
process to provide a clear
guide for both applicants
and interviewers.

82 83HOW COMPANIES WORK
Human resources

Internal search Personal External search
recommendation
Looking at internal Increasingly, companies and
resources first creates Some companies candidates use professional
opportunities for career encourage existing networking sites such as
development and employees to introduce LinkedIn and social media
progression, improving friends as candidates. such as Facebook or Twitter.
employee engagement External candidates diversify
and retention. the workforce but cost more
to attract.

Applications NEED TO KNOW

The curriculum vitae (CV) or résumé is ❯ Psychometric tests Often used
the essential document, often with as an initial screening method,
a cover letter. Companies these aim to assess attributes such
may use an application as intelligence, aptitude, and type
form instead. of personality, using verbal and
non-verbal reasoning tests and
behavior questionnaires.

Selection CONTRACT

After HR has Appointment
drawn up
a shortlist, Companies may ask for
candidates are references and/or request
assessed by a medical examination for
individual face- the chosen candidate. The
to-face interviews, employment offer is a legally
group assesssment, binding contract that sets
and psychometric out the terms and conditions
testing. of the job.

Evaluating staff

For a business to achieve its goals, it needs to
have a process that measures the contribution and
performance of each individual against those goals.

How it works 1 Individual goals

The way in which tasks are done is becoming as ❯ Business goals drive Set personal goals to align
important as what tasks are done, as organizations tasks and activity. with business strategy
recognize the importance of creating the right
culture to enable workers’ performance. For any ❯ Culture enables teams
company, effective evaluation of the performance and individuals to deliver.
of employees should be strategic and is aimed at
ensuring the maximum productivity of individuals, ❯ HR policies give clear
teams, and the organization as a whole. benchmarks.

Traditional performance-
management cycle

Performance management is an ongoing,
continuous process. Some companies are now
moving away from traditional performance
management to “crowdsourcing” as a way
for managers to collect, evaluate, and share
information on employee performance.

A WIN-WIN SITUATION WINNER!

Evaluating performance is good for both 5 Rewards
the business and the individual.
Business Promotions and pay
❯ Aligns individual goals with company goals. raises in line with
❯ Offers consistent approach, with benchmarks. performance
❯ Continuously enables improvement.
❯ Fosters the right behaviors and relationships.
Individual
❯ Understands what is expected of them.
❯ Has the skills to deliver on these expectations.
❯ Is supported to fill any gaps in capability.
❯ Is given feedback and allowed to discuss goals.

84 85HOW COMPANIES WORK
Human resources

2 Discussion NEED TO KNOW

Ongoing communication on ❯ Balanced scorecard
standards of work and behavior Framework to measure
to improve working relationships performance against
strategic goals, devised by
Kaplan and Norton

❯ Competencies Defined
behaviors and attributes
that individuals must have to
perform effectively at work

❯ Performance appraisal
Process via which individual
employee and their manager
can discuss performance and
development

3 Coaching 360-degree feedback

Feedback on performance to help Gives a rounded picture with
individuals work efficiently better information about
working relationships
4 Appraisal
Customer
Formal feedback Direct
from the line reports Manager
manager, with
an opportunity INPUT FROM Colleagues
for individuals COLLEAGUES
to contribute

Motivation
and rewards

People work for money, but they are also motivated by other factors
such as doing a good job and being valued. Non-financial rewards
drive day-to-day motivation more strongly than pay and benefits.

How it works external to the actual work and others control the
amount, distribution, and timing. Employers now
In the past, tangible pay and benefits were the key recognize that while extrinsic incentives are clearly
motivational tools for employees. These financial important, intrinsic (psychological) rewards are crucial.
rewards are termed extrinsic because they are

Understanding motivation in the workplace

Happy staff work well, and job satisfaction comes from subtle feel-good factors as
much as a paycheck. Employees who enjoy their work tend to stay—job satisfaction
and turnover move in opposite directions.

Extrinsic Individual
motivation
Policies implemented
by the company: Employees get
psychological benefits
Financial rewards from doing meaningful
❯ Base pay work and performing it
❯ Bonus well. Only one in eight
❯ Incentives
Benefits workers—about 180
❯ Pension contributions million employees in
❯ Paid holidays/vacation 142 countries studied—
❯ Health care are committed to their

jobs and make a
positive contribution
to their organization.

86 87HOW COMPANIES WORK
Human resources

13% WHY PEOPLE DO TASKS Only this
creates positive
the percentage of MOTIVATION
employees who are motivation
fully committed to
their jobs EXTRINSIC Do this task and I want to do INTRINSIC
You are told to do something. get a bonus. this task to make You choose to do something.
Intrinsic a difference.

Feelings that an individual has: Do this task or I don’t want to
❯ Purpose A sense of get in trouble. do this task – it is
pointless.
being able to accomplish
something of value DEMOTIVATION
❯ Choice Clear ownership
and feeling responsible Fostering intrinsic rewards
for outcome
❯ Progress As an individual, Businesses that are successful engender trust
feeling and seeing evidence and have employees who are passionate about
of moving things forward what they do. All these factors contribute:
❯ Competence Pride and
satisfaction in own work Purpose for organization and individual

❯ Clear vision for organization
❯ Understanding of where individual fits in to

achieve that purpose
❯ Clear goals and expectations for individual
Recognition

❯ Continuous feedback
❯ Ongoing engagement
❯ Non-cash rewards such as praise
Career development

❯ Progression and promotion
❯ Mentoring and coaching
❯ Learning opportunities
Culture

❯ Strong teamwork and consistent behaviors
❯ Open communication
❯ Sharing of knowledge and information

INCREASING MOTIVATION

Leadership strategy
and styles

Top-down leadership, in which managers give orders, is not always
the best way to get results. A number of different leadership styles
have been identified by business experts.

How it works In 2007, for example, business “Outstanding
authors Eric Flamholtz and Yvonne leaders go out
Every leader is an individual with Randle developed a leadership of their way to
his or her own approach. However, matrix based on Lewin’s theories, boost the self-
over the years, management gurus which shows the best style to use esteem of their
have identified key leadership in any given situation, ranging from personnel.”
styles that can be used to achieve autocratic (one all-powerful leader)
different results, depending on the to consensus (decisions reached Sam Walton
environment. Many frameworks are by general agreement. Truly
based on the ideas of psychologist inspirational leaders encourage
Kurt Lewin, who developed his people to believe in themselves so
theories in the 1930s with three that they achieve results beyond
major styles: autocratic, democratic, even their own expectations.
and laissez-faire (non-interference).

TRANSFORMATIONAL LEADERSHIP

While different styles can suit different situations, transformational leadership,

in which leaders and their followers raise one another to higher levels of integrity

and motivation, was identified by guru James McGregor Burns as the most

effective. This has been developed by others, including

industrial psychologist Bernard Bass, who listed

the qualities of a transformational leader. Inspires people

Stirs the to reach for the

emotions of improbable

Encourages people

Sets clear others

goals

Has high Gets people to
expectations look beyond
their self-interest
Is a model of Provides
integrity and support and
fairness recognition

88 89HOW COMPANIES WORK
Human resources

When to use which leadership style

A three-year study of 3,000 managers led psychologist people feel about their work. The most effective leaders
Daniel Goleman to uncover six distinctive styles of master a number of styles and use them appropriately
leadership. Each style has a significant impact on how according to the situation.

Style When to use Drawbacks

Affiliative “People come before task.” Use in times of stress, when Praise and nurturing
Focuses on creating emotional teammates need to recover can foster mediocre
Coaching bonds within a team and a from trauma, or when the performance and lack
sense of belonging within team needs to rebuild trust. of direction.
Commanding/ an organization.
coercive
Democratic “Try this.” Use to help teammates Coaching is ineffective
Helps people find their build lasting personal when teammates are
Pacesetting strengths and weaknesses, strengths that make them defiant and/or unwilling
linking these to career more successful. to change or learn, or if a
Visionary/ aspirations and action. leader lacks ability.
authoritative
“Do what I tell you.” Only use in times of Insistence should only be
Demands immediate crisis or to control a used when essential; it
compliance, without problem employee can alienate people, stifle
discussion or negotiation. when all else fails. inventiveness, and create
a tense atmosphere.

“What do you think?” Use when it is necessary for This is not for use in crisis
Goal is to build consensus the team to buy into or have or when teammates are
through participation. ownership of, a decision, not well enough informed
plan, or goal. to be able to offer suitable
guidance to the leader.

“Do as I do, now.” Only use when the team Style can overwhelm
Expects and models is already motivated and some team members and
excellence, creating competent, and when fast adversely affect employee
challenging and exciting results are necessary. commitment; it may stifle
goals for the team. creativity and innovation.

“Come with me.” Use when the team needs This is not effective
Mobilizes the team toward a new vision because when a leader is working
a common vision and goal, circumstances have with a team of experts or
leaving the means up to the changed, or when explicit better-informed group.
individual. guidance is not required.

Leadership for
team building

Just as generals have to get the best from their troops, so business
leaders must make the most of their teams. The key is ensuring
that individuals work together to achieve a common goal.

How it works They have a passion that sweeps people along with
them; they learn from mistakes and are prepared to
From statesmen such as former British prime minster alter their course to meet changing circumstances.
Winston Churchill to former General Electric CEO Jack Much academic work has been done to study the
Welch, great leaders know that to achieve a long-term traits and strategies of such leaders.
goal, they must not only use their own capabilities but
also maximize the combined strength of other people.

How leaders inspire Focusing on goal
their teams
❯ Defines goal in clear and
Academic Carl Larson and organizational inspirational way
effectiveness expert Frank LaFasto
conducted a three-year study of more ❯ Helps each team member see
than 75 diverse teams. They identified how they contribute to goal
six characteristics of leadership that steer
a team toward optimum results. ❯ Does not play politics

“Leadership is Encouraging
the art of getting collaboration
someone else to
do something you ❯ Allows open discussions
want done because ❯ Demands and rewards
he wants to do it.”
collaboration
Dwight D. Eisenhower ❯ Involves and engages people

Building confidence

❯ Accentuates the positive
❯ Shows trust by assigning

responsibility
❯ Says “thank you”

90 91HOW COMPANIES WORK
Human resources

BUILDING AN EFFECTIVE TEAM “Don’t
find fault
In their book The Wisdom of Teams (1993), ❯ Select members for skill and potential, – find a
Jon Katzenbach and Douglas Smith make not personality. remedy”
a distinction between teams and ordinary
groups of people who work together. ❯ Focus on a few immediate tasks and goals Henry Ford,
They define a team as “a small number at the beginning, to help the team to bond. American industrialist
of people with complementary skills who
are committed to a common purpose, set ❯ Set boundaries and behavioral norms.
of performance goals, and approach for
which they hold themselves mutually ❯ Stimulate the team regularly with
accountable.” They found that leaders who new information, encouraging open
manage to build successful teams tend to: discussions and active problem-solving.

❯ Ensure that the team spends lots of time
together, both in and outside of work.

Providing
know-how

❯ Knows own area

❯ Gets expert help for
other areas

❯ Shares context with team

Setting priorities 1
2
❯ Demonstrates focus; avoids ambiguity 3

❯ Is clear about what must and must
not happen

❯ Is prepared to change course if
priorities switch

Managing performance

❯ Sets clear objectives

❯ Gives constructive feedback; confronts
and resolves performance issues

❯ Aligns incentives with
team goals

Employee relations
and communications

Thriving organizations recognize the importance of harnessing people’s
ideas and energy to provide a competitive edge, while managers are
eager to gain, retain, and build employee commitment and engagement.

How it works leaders no longer send only one-way messages but
harness a variety of interactive media, such as video-
Employee relations and communications are, either and tele-conferencing. Individuals and teams can use
managed by human resources (HR) or as a function in customized business social media, such as Yammer,
their own right, are increasingly sophisticated. Rather to share ideas and knowledge, but may still choose to
than just relying on face-to-face talks and word of meet in formal settings such as councils and forums.
mouth, successful firms use added communication
tools to help people understand the business goals and
the individual’s contribution to results. In particular,

Communication in practice Commitment

In this example, a company is establishing weekly
employee forums to facilitate communication and
build trust throughout the business. To strengthen
employee awarenees, engagement, and commitment
to the idea, various media are used, from email to
webinars and discussion. Managers focus ever more
on collaboration rather than just imparting information.

EMPLOYEE FORUMS Engagement and
involvement

In many countries, employee communications used DEGREE OF COMMITMENT Awareness and @
to focus on structured industrial relations, managed understanding
by HR. Employee relations are now based more on
trust and building strong relationships. Many firms CONTACT
create formal works councils or employee forums. An email is sent to
all employees with a
At their best, employee forums: short video informing
them an employee
❯ Allow representatives from across the forum is to be set up.
business to share and generate ideas
for improving performance.

❯ Encourage discussions on vision, changes,
and plans for business.

❯ Recognize the value of employees.

TIME

92 93HOW COMPANIES WORK
Human resources

CASE STUDY ❯ Partnership council Made up $316
of 80 elected partners from across million
John Lewis the business, the council meets four
times a year. The chairman and the amount paid
The UK-based John Lewis chain of directors report to the council, in staff bonuses by
department stores is famous for its which can remove the chairman. John Lewis in 2013
unique employee-owned structure,
in which every worker is a partner ❯ Branch forums Elected by
in the business. It has a number of employees at each branch, these
employee communication policies: forums work with management to
influence the running of their store
❯ Gazette Employees can send and select local charities to support.
letters directly to management
through the weekly gazette.
Managers publish their responses
in the gazette for all to read.

ESTABLISH PRACTICE REINFORCE AND
A company-wide INTERNALIZE
awayday illustrates Regular face-to-
to employees face updates show
how the forums employees how
have changed forums have
working practices. made a difference.

STIMULATE POSITIVE ADOPT AND SHARE
PERCEPTION Employees attend forums
An inspirational seminar and then share their opinions
illustrates the benefits on Twitter and Yammer so
of the new forums.
they feel involved and
AID UNDERSTANDING collaborate with managers.
Resources placed on
the company intranet
detail how employee
forums will work.

CREATE
AWARENESS
The purpose of
employee forums
is explained at a
company-wide
video conference.

Project management

Besides day-to-day activities, a business may have projects that are
one-time, temporary, specific pieces of work. Projects need to be
managed to deliver on time, within budget, and to specifications.

How it works involves not only overseeing NEED TO KNOW
the people working towards the
The process of project management particular objective, but also Project management tools
takes a complex project from start managing the risks, schedule,
to finish. It requires a different relationships, individual and There are many different project
set of knowledge, experience, and team input, range of stakeholders management tools, particularly
skills from a mainstream operation with vested interests in the project, for software development. One
because the goals set up have to be and financial resources. tool is PRINCE2®, a process-based
achieved within defined limitations. approach to project management
These constraints include scope, Effective project management is within a clear framework. The
time, quality, and budget. A project increasingly viewed as a strategic emphasis is on dividing the project
team might include people from competence (see p.85) for any into manageable and controllable
different organizations, diverse business because it enables the stages with a defined structure for
disciplines, and multiple locations. introduction of new products, new the project management team.
Successful project management methods, and new technology.

Steps in project management

There are many workable project management systems, using various definitions
for the key stages, all of which are encompassed in five main elements.

Initiation Planning Execution

❯ Project charter, including ❯ Detailed plan of work ❯ Coordinating people and
business case, objective, ❯ Critical path analysis resources
scope, budget, deliverables, ❯ Risks
and schedule ❯ Quality assurance

❯ Roles and responsibilities ❯ Communication to team
and stakeholders
❯ Resource allocation

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Human resources

HURDLES AND HOW TO OVERCOME THEM

Every project comes up against challenges. These are some of the common ones,
and the ways that effective management can keep the project on track.

Obstacle Project management Options

Project is not ❯ Map out timeline of work and critical paths ❯ Negotiate scope, budget, and
on schedule, using tools and techniques. resources.
or running
short of time ❯ Review remaining work and identify risks, ❯ Inform other teams and see if
barriers, and mitigating strategies. any changes can be factored in.

Unclear ❯ Review project charter and revisit vision ❯ Seek clarity from sponsors
vision or lack and objective. and/or senior management.
of clarity
❯ Involve team so everyone understands
direction of work and avoids stalling.

Scope creep ❯ Manage requests for change against business ❯ Communicate to identify why
(project case and project objective. change is important and how to
changes once incorporate, or find alternative.
under way)

Monitoring and control Closure 97%

❯ Measuring effort and progress ❯ Finalizing all activities of managers*
❯ Managing and mitigating risk ❯ Communication believe project
❯ People management ❯ Learning—project review management
is critical
to success

*surveyed from 34 different countries

Negotiating strategy

Skillful negotiation is vital in business when two or more sides have
different viewpoints and each party wants to press for their own
advantage. The ideal outcome is a compromise that resolves conflict.

How it works talks can end in stalemate, bad feeling, and loss of
business. Being able to negotiate is vital to build
Like many aspects of business, negotiation is a strong working relationships, deliver a sustainable,
process to find a mutually acceptable solution. Before well-considered solution (rather than a short-term
any discussion, each party must work to understand fix), and avoid future conflicts.
the other’s interests and decide on strategy; otherwise

Reaching agreement

Any strategy, from a wage negotiation between a trade union and employer to a
sales negotiation between a customer and a supplier, depends on the relationship
between the two parties. Good negotiation should leave each party feeling
satisfied with the outcome of the discussion and ready to do business again.

Prepare and plan Define ground Propose, clarify, Bargain to solve
rules and justify problems
❯ Set objectives and ideal
outcome (and assess ❯ Agree on logistics— ❯ Ensure both sides have ❯ Offer alternative
those of other party). location, room setup, equal opportunity to proposals and
agenda, schedule, put forward their case. concessions.
❯ Rank and value issues number of negotiators.
and think of possible ❯ Clarify any points of ❯ Discuss what is
concessions. ❯ Define etiquette, such disagreement. acceptable to each side.
as no cell phones, one
❯ Consider ideal agenda person speaks at a time, ❯ Focus discussion on ❯ Aim to find win-win
and meeting place. formal breaks. understanding rather solutions.
Rehearse. than resolving.
❯ Agree on how
information is to
be presented and
recorded.

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65% BODY LANGUAGE IN
DIFFERENT CULTURES
of face-to-face communication
is through non-verbal signals With international negotiations, it
can be hard to read body language
Agree, close, signals, particularly since the
and implement meaning of gestures can vary.

❯ Conclude with an Eye contact Chinese
agreement that is people avoid direct eye
mutually acceptable. contact to show respect
while American people
❯ Clearly articulate and see lack of eye contact
note agreement and as a sign of shiftiness.
concessions.
Facial expressions
❯ Formalize agreement in When emotions are
writing and follow up. high in the US, it is
acceptable to frown,
even to swear, but not
to cry. Japanese people
might smile or laugh,
but never frown or cry.

Head movements In
much of Europe and the
US, people nod to mean
yes and shake their head
to mean no. But in some
parts of the world, such
as in Bulgaria, it is the
opposite way round.

Gestures Western
cultures use a hand
extended towards a
person to indicate
“Come here”. Chinese
people would see this
gesture as offensive.

Posture In the US,
being casual is valued;
people might slouch
when standing or sitting.
In some European
countries, such as
Germany, a slouching
posture is considered
rude. Formality is
also valued in Japan,
particularly the ability
to sit upright and still.

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