Fundamentals Of Management

600 Part 5 Leading Perceived Ratio Comparison Employee’s Assessment

Exhibit 17-7 Inequity (underrewarded)
Equity
Equity Theory Inequity (overrewarded)

Outcomes A Outcomes B

Inputs A Inputs B

Outcomes A Outcomes B
Inputs A Inputs B

Outcomes A Outcomes B
Inputs A Inputs B

equity theory graduate, your age, with comparable grades from a comparable school, and with compa-
The theory that an employee compares rable work experience—was getting $65,000 a year? You’d probably be upset! Even though
his or her job’s input-outcomes ratio with in absolute terms, $60,000 is a lot of money for a new graduate to make (and you know
that of relevant others and then corrects it!), that suddenly isn’t the issue. Now you see the issue as what you believe is fair—what
any inequity is equitable. The term equity is related to the concept of fairness and equitable treatment
compared with others who behave in similar ways. Evidence indicates that employees com-
referents pare themselves to others and that inequities influence how much effort employees exert.53
The persons, systems, or selves against
which individuals compare themselves to Equity theory, developed by J. Stacey Adams, proposes that employees compare
assess equity what they get from a job (outcomes) in relation to what they put into it (inputs), and then
distributive justice they compare their inputs-outcomes ratio with the inputs-outcomes ratios of relevant
Perceived fairness of the amount and others (Exhibit 17-7). If an employee perceives her ratio to be equitable in comparison
allocation of rewards among individuals to those of relevant others, there’s no problem. However, if the ratio is inequitable, she
procedural justice views herself as underrewarded or overrewarded. When inequities occur, employees
Perceived fairness of the process used attempt to do something about it.54 The result might be lower or higher productivity,
to determine the distribution of rewards improved or reduced quality of output, increased absenteeism, or voluntary resigna-
tion. In some cases, employees reveal pay inequities to the public rather than lowering
FYI their inputs. For instance, actor Robin Wright who stars in the Netflix series House
of Cards did just this. After realizing that her pay was significantly less than her male
• A woman will earn $430,480 costar’s for an equally influential role, Wright demanded higher pay: “You better pay
less than her male counterpart me or I’m going to go public.”55 Her efforts paid off (no pun intended!).
over the course of a 40-year
career.58 The referent—the other persons, systems, or selves individuals compare themselves
against in order to assess equity—is an important variable in equity theory.56 Each of the
three referent categories is important. The “persons” category includes other individuals
with similar jobs in the same organization but also includes friends, neighbors, or pro-
fessional associates. Based on what they hear at work or read about in newspapers or
trade journals, employees compare their pay with that of others. The “system” category
includes organizational pay policies, procedures, and allocation. The “self” category refers
to inputs-outcomes ratios that are unique to the individual. It reflects past personal experi-
ences and contacts and is influenced by criteria such as past jobs or family commitments.

Originally, equity theory focused on distributive justice, the perceived fairness
of the amount and allocation of rewards among individuals. More recent research
has focused on looking at issues of procedural justice, the perceived fairness of
the process used to determine the distribution of rewards. This research shows that
distributive justice has a greater influence on employee satisfaction than procedural
justice, while procedural justice tends to affect an employee’s organizational commit-
ment, trust in his or her boss, and intention to quit.57 What are the implications for
managers? They should consider openly sharing information on how allocation deci-
sions are made, follow consistent and unbiased procedures, and engage in similar prac-
tices to increase the perception of procedural justice. By increasing the perception of
procedural justice, employees are likely to view their bosses and the organization as
positive even if they’re dissatisfied with pay, promotions, and other personal outcomes.

Chapter 17  Motivation 601

WORKPLACE CONFIDENTIAL Feelings of Unfair Pay

For many employees, nothing is likely to act as a demotivator hard do you want to push? In some organizations, the culture
as much as learning that someone in their organization is get- discourages people from comparing salaries or challenging
ting paid more than they are for the same or similar job. De- the pay structure. And be prepared to find that your concern
pending on your equity sensitivity, someday you might find falls on deaf ears. Many managers fear that increasing one
yourself angry and frustrated because you believe you’re not individual’s pay because he or she complained will open up a
being fairly compensated. flood of requests for pay reevaluations.

Let’s start with the fact that we’re not all equally equity If you decide to pursue the issue, you’ll need a strate-
sensitive. Equity sensitivity (ES) is a term that developed out gy. Start by deciding to whom you are going to make your
of equity theory. ES acknowledges that not all individuals are case. Don’t assume your boss has solo discretion to adjust
equivalently sensitive to equity. ES, therefore, is a personal- your pay. Pay structures, especially in large organizations,
ity trait based on an individual’s preferred input-to-outcome are carefully designed and monitored. While your boss may
ratios. For our purposes, we will focus on individuals who have some say in recommending pay increases, the final de-
believe that they are being underrewarded relative to others. cision usually lies with the human resources department. So
If you’re not equity sensitive and you think you’re underpaid, you should consider whether you want to present your case
you might just want to let it go. As we’ll point out, there are to your immediate boss, the human resources manager, or
risks when you try to correct what you perceive as unfair pay. both.
Sometimes the best strategy is to do nothing. Be sure that
you really want to pursue the issue before you act. Timing counts! That is, there are times that are better
for making your case. The natural time is with your perfor-
If you do feel that you’re being paid unfairly, you need to mance evaluation. A strong evaluation strengthens your hand
start by asking yourself: What’s my evidence? A few organiza- in asking for an adjustment, especially if it is backed up with
tions make employee salaries public. But that’s not the norm. evidence suggesting that you’re underpaid. And what kind
Especially for white-collar jobs, organizations typically don’t of evidence makes your case and helps your boss to get ap-
want employees to know what others are making. In fact, in provals from his or her superiors? If you have objective data
some organizations, it’s a stated policy that employees are that indicates that others in your organization or community
not to share salary information with each other. Why do orga- are getting paid more than you are for the same or similar
nizations do this? The obvious answer is that they don’t want job, present the facts. Additionally, elaborate on your contri-
employees making comparisons and expecting management butions. Specifically reference your past accomplishments
to justify every perceived unfairness. and what you expect to contribute in the future. Ideally, you’ll
have concrete evidence to make your case, such as how
The above suggests that you need to do research be- much you brought the organization in sales or how much
fore you want to proclaim that you’re underpaid. While his- you saved through increased productivity. If your job doesn’t
torically it was difficult to get accurate data for comparing lend itself to such facts, support your case with positive com-
salaries, the Internet has changed that. Salary websites such ments on your accomplishments from customers, suppliers,
as Glassdoor and PayScale.com provide comparative data for or work colleagues.
many jobs and in different markets.
We conclude with some things you should not do.
Two questions to consider: What’s your basis for con- (1) Don’t go over your boss’s head—for instance, talking with
cluding you’re underpaid, and is there a logical explanation your human resources manager—without first getting your
why you might be paid less than someone else in the same boss’s approval. No manager wants to feel that you are under-
or similar job? Keep in mind that there are a lot of reasons mining his or her authority. (2) Don’t discuss your compensa-
to justify salary differences—education, skills, length of time tion with coworkers. Pay is a sensitive subject. It’s best not to
with the organization, relevant experience, different perfor- share salary information. Use other sources, besides cowork-
mance ratings, location, and cost of living. There’s a reason, ers, to get comparative data. (3) Don’t make comparisons to
for instance, that two insurance adjusters working for Liberty a specific person in your department or organization. This is
Mutual might be paid differently if one works out of New York not likely to win you support from your boss or colleagues.
City and the other out of Birmingham, Alabama. In the United (4) Don’t go negative. Complaining or making threats rarely
States, gender is not a justification for paying a woman less results in positive outcomes. And saying that you haven’t had
than a man for doing the same job. The Equal Pay Act specifi- a raise in years or that you’re doing twice as much work as
cally prohibits wage disparities based on sex. Also, remem- everyone else is also likely to prove unproductive.
ber that most organizations have salary ranges for specific
jobs and people have different skills in negotiating. Some dif- Sources: Based on E. W. Miles, J. D. Hatfield, and R. C. Husman, “The
ferences in pay may be attributable to initial starting salaries Equity Sensitive Construct: Potential Implications for Worker Performance,”
that were negotiated at different times and under different Journal of Management, December 1989, pp. 581–588; R. Rueff, “Tips
conditions. on How to Approach Suspected Pay Inequity,” Glassdoor blog, March 11,
2009; A. Doyle, “What Can You Do When Your Co-Workers Are Paid More
If you’re convinced your pay is unfair and have the evi- Money?,” Career Tool Belt, June 15, 2015; and “How to Ask for a Raise,”
dence to support your claim, ask yourself how much risk Forbes.com, November 5, 2015.
you’re willing to take. Is it worth pursuing this, and if so, how

602 Part 5 Leading Individual A Individual B Organizational C Individual
E ort Performance Rewards Goals
Exhibit 17-8

Expectancy Model

A = E ort–performance linkage
B = Performance–reward linkage
C = Attractiveness of reward

Just Born candy company—makers of Peeps Expectancy Theory
and Mike and Ike brands—uses expectancy
theory in motivating employees to achieve The most comprehensive explanation of how employees
annual sales goals. Sales team members are motivated is Victor Vroom’s expectancy theory.59
shown here expected their efforts would result Although the theory has its critics,60 most research evidence
in winning an all-expenses-paid trip to Hawaii. supports it.61
But they failed to meet their goal and instead
earned jackets and bomber hats and a trip to Expectancy theory states that an individual tends to act
Fargo, North Dakota. in a certain way based on the expectation that the act will
Source: AP Photo/Ann Arbor Miller be followed by a given outcome and on the attractiveness of
that outcome to the individual. It includes three variables or
relationships (see Exhibit 17-8):

1.  Expectancy or effort-performance linkage is the
probability perceived by the individual that exerting
a given amount of effort will lead to a certain level of
performance.

2.  Instrumentality or performance-reward linkage is the
degree to which the individual believes that performing at a particular level is
instrumental in attaining the desired outcome.
3. Valence or attractiveness of reward is the importance an individual places on the
potential outcome or reward that can be achieved on the job. Valence considers
both the goals and needs of the individual.

This explanation of motivation might sound complicated, but it really isn’t.
It can be summed up in the questions: How hard do I have to work to achieve a
certain level of performance, and can I actually achieve that level? What reward
will performing at that level of performance get me? How attractive is the reward
to me, and does it help me achieve my own personal goals? Whether you are moti-
vated to put forth effort (that is, to work hard) at any given time depends on your
goals and your perception of whether a certain level of performance is necessary
to attain those goals. Let’s look at an example. Your second author had a stu-
dent many years ago who went to work for IBM as a sales rep. Her favorite work
“reward” was having an IBM corporate jet fly into Springfield, Missouri, to pick
up her best customers and her and take them for a weekend of golfing at some
fun location. But to get that particular “reward,” she had to achieve at a certain
level of performance, which involved exceeding her sales goals by a specified per-
centage. How hard she was willing to work (that is, how motivated she was to put
forth effort) was dependent on the level of performance that had to be met and the
likelihood that if she achieved at that level of performance she would receive that
reward. Because she valued that reward, she always worked hard to exceed her sales
goals. And the performance-reward linkage was clear because her hard work and
performance achievements were always rewarded by the company with the reward
she valued (access to the corporate jet).

Chapter 17  Motivation 603

The key to expectancy theory is understanding an individual’s goal and the link- expectancy theory
age between effort and performance, between performance and rewards, and finally, The theory that an individual tends
between rewards and individual goal satisfaction. It emphasizes payoffs, or rewards. to act in a certain way based on the
As a result, we have to believe that the rewards an organization is offering align with expectation that the act will be followed
what the individual wants. Expectancy theory recognizes that no universal principle by a given outcome and on the
explains what motivates individuals and thus stresses that managers understand why attractiveness of that outcome to the
employees view certain outcomes as attractive or unattractive. After all, we want to individual
reward individuals with those things they value positively. Also, expectancy theory
emphasizes expected behaviors. Do employees know what is expected of them and
how they’ll be evaluated? Finally, the theory is concerned with perceptions. Reality
is irrelevant. An individual’s own perceptions of performance, reward, and goal out-
comes—not the outcomes themselves—will determine his or her motivation (level of
effort).

Integrating Contemporary Theories of Motivation

Many of the ideas underlying the contemporary motivation theories are complemen-
tary, and you’ll understand better how to motivate people if you see how the theories
fit together.62 Exhibit 17-9 presents a model that integrates much of what we know
about motivation. Its basic foundation is the expectancy model. Let’s work through
the model, starting on the left.

The individual effort box has an arrow leading into it. This arrow flows from the
individual’s goals. Consistent with goal-setting theory, this goals-effort link is meant

Exhibit 17-9

High Integrating Contemporary Theories
nAch of Motivation

Performance Equity
Evaluation Comparison
Criteria OA OB
IA : IB

Ability Job Job
Design Design

Individual Individual Organizational Individual
E ort Performance Rewards Goals

Objective Dominant
Performance Needs

Evaluation
System

Reinforcement

Goals
Direct
Behavior

604 Part 5 Leading

to illustrate that goals direct behavior. Expectancy theory predicts that an employee
will exert a high level of effort if he or she perceives a strong relationship between
effort and performance, performance and rewards, and rewards and satisfaction of
personal goals. Each of these relationships is in turn influenced by certain factors.
You can see from the model that the level of individual performance is determined not
only by the level of individual effort but also by the individual’s ability to perform and
by whether the organization has a fair and objective performance evaluation system.
The performance-reward relationship will be strong if the individual perceives that
performance (rather than seniority, personal favorites, or some other criterion) is what
is rewarded. The final link in expectancy theory is the rewards-goal relationship. The
traditional need theories come into play at this point. Motivation would be high to the
degree that the rewards an individual received for his or her high performance satisfied
the dominant needs consistent with his or her individual goals.

A closer look at the model also shows that it considers the achievement-need,
reinforcement, equity, and JCM theories. The high achiever isn’t motivated by the
organization’s assessment of his or her performance or organizational rewards; hence
the jump from effort to individual goals for those with a high nAch. Remember that
high achievers are internally driven as long as the jobs they’re doing provide them with
personal responsibility, feedback, and moderate risks. They’re not concerned with the
effort-performance, performance-reward, or rewards-goals linkages.

Reinforcement theory is seen in the model by recognizing that the organization’s
rewards reinforce the individual’s performance. If managers have designed a reward
system that is seen by employees as “paying off ” for good performance, the rewards
will reinforce and encourage continued good performance. Rewards also play a key
part in equity theory. Individuals will compare the rewards (outcomes) they have
received from the inputs or efforts they made with the inputs-outcomes ratio of rel-
evant others. If inequities exist, the effort expended may be influenced.

Finally, the JCM is seen in this integrative model. Task characteristics (job design)
influence job motivation at two places. First, jobs designed around the five job dimen-
sions are likely to lead to higher actual job performance because the individual’s moti-
vation will be stimulated by the job itself; that is, they will increase the linkage between
effort and performance. Second, jobs designed around the five job dimensions also
increase an employee’s control over key elements in his or her work. Therefore, jobs
that offer autonomy, feedback, and similar task characteristics help to satisfy the indi-
vidual goals of employees who desire greater control over their work.

REALlegte’st
The Scenario:

Sam Grisham is the plant manager at a Source: Oscar Valencia
bathroom vanity manufacturer. When
business is brisk, employees have to work
overtime to meet customers’ demands.
Aside from a few people, he has a horrible
time getting employees to work overtime. “I
practically have to beg for volunteers.”

What suggestions do you have for Sam?

As plant manager, I would rotate the Oscar Valencia
overtime for all employees. During busy
times, everyone must chip in. I would also Manufacturing Manager

suggest implementing mandatory overtime for employees according to
seniority in order to keep it fair.

Chapter 17  Motivation 605

If your professor has assigned this, go to www.mymanagementlab.com to complete the Try It!
Simulation: Motivation and get a better understanding of the challenges of knowing
how to motivate employees.

CURRENT issues in motivation

LO17.4 For its 150th anniversary, the German chemical giant BASF created a
year-long employee motivational program called “Connected to Care,”
combining social responsibility with teamwork and a bit of friendly competition. Each
employee had the opportunity to form a volunteer team with coworkers and jointly
propose a social responsibility project focusing on one of BASF’s key areas of focus:
food, urban living, or smart energy. More than 35,000 employees participated in teams,
submitting hundreds of ideas for projects to improve BASF communities worldwide.
After an organization-wide vote, BASF donated money to implement the 150 projects
that received the most votes—adding to the motivation of the winning teams.63
Understanding and predicting employee motivation is one of the most popular areas
in management research. We’ve introduced you to several motivation theories. However,
even the contemporary theories of employee motivation are influenced by some signifi-
cant workplace issues—managing cross-cultural challenges, motivating unique groups
of workers, and designing appropriate rewards programs.

Managing Cross-Cultural Motivational The motivation of these employees working
Challenges at the research and development facility
at the Daihatsu Motor plant near Jakarta,
Scores of employees at Denmark’s largest brewer, Carlsberg Indonesia, is influenced by their national
A/S, walked off their jobs in protest after the company tight- culture. Indonesia has a strong collectivist
ened rules on workplace drinking and removed beer coolers culture, where employees are motivated less
from work sites.64 Now that’s a motivational challenge you don’t by receiving individual praise because their
often see in U.S. workplaces! culture places a greater emphasis on harmony,
belonging, and consensus.
In today’s global business environment, managers can’t Source: Kyodo/Newscom
automatically assume motivational programs that work in one
geographic location are going to work in others. Most cur-
rent motivation theories were developed in the United States
by Americans and about Americans.65 Maybe the most blatant
pro-American characteristic in these theories is the strong emphasis on individualism
and achievement. For instance, both goal-setting and expectancy theories emphasize
goal accomplishment as well as rational and individual thought. Let’s look at the moti-
vation theories to see their level of cross-cultural transferability.

Maslow’s needs hierarchy argues that people start at the physiological level and then
move progressively up the hierarchy in order. This hierarchy, if it has any application at
all, aligns with American culture. In countries like Japan, Greece, and Mexico, where
uncertainty avoidance characteristics are strong, security needs would be the founda-
tional layer of the needs hierarchy. Countries that score high on nurturing character-
istics—Denmark, Sweden, Norway, the Netherlands, and Finland—would have social
needs as their foundational level.66 We would predict, for instance, that group work will
be more motivating when the country’s culture scores high on the nurturing criterion.

Another motivation concept that clearly has an American bias is the achievement
need. The view that a high achievement need acts as an internal motivator presupposes
two cultural characteristics—a willingness to accept a moderate degree of risk (which
excludes countries with strong uncertainty avoidance characteristics) and a concern
with performance (which applies almost singularly to countries with strong achieve-
ment characteristics). This combination is found in countries such as the United
States, Canada, and Great Britain.67 On the other hand, these characteristics are rela-
tively absent in countries such as Chile and Portugal.

606 Part 5 Leading

Equity theory has a relatively strong following in the United States, which is not
surprising given that U.S.-style reward systems are based on the assumption that
workers are highly sensitive to equity in reward allocations. In the United States,
equity is meant to closely link pay to performance. However, recent evidence suggests
that in collectivist cultures, especially in the former socialist countries of Central and
Eastern Europe, employees expect rewards to reflect their individual needs as well as
their performance.68 Moreover, consistent with a legacy of communism and centrally
planned economies, employees exhibited a greater “entitlement” attitude—that is, they
expected outcomes to be greater than their inputs.69 These findings suggest that U.S.-
style pay practices may need to be modified in some countries in order to be perceived
as fair by employees.

Another research study of more than 50,000 employees around the world exam-
ined two cultural characteristics from the GLOBE framework—individualism and
masculinity—(see Chapter 3 for a discussion of these characteristics) in relation to
motivation.70 The researchers found that in individualistic cultures such as the United
States and Canada, individual initiative, individual freedom, and individual achieve-
ment are highly valued. In more collective cultures such as Iran, Peru, and China,
however, employees may be less interested in receiving individual praise but place a
greater emphasis on harmony, belonging, and consensus. They also found that in mas-
culine (achievement/assertive) cultures such as Japan and Slovakia, the focus is on
material success. Those work environments are designed to push employees hard and
then reward top performers with high earnings. However, in more feminine (nurturing)
cultures such as Sweden and the Netherlands, smaller wage gaps among employees are
common, and employees are likely to have extensive quality-of-life benefits.

Despite these cross-cultural differences in motivation, some cross-cultural consis-
tencies are evident. In a recent study of employees in 13 countries, the top motivators
included (ranked from number one on down) being treated with respect, work-life
balance, the type of work done, the quality of people worked with and the quality
of the organization’s leadership (tied), base pay, working in an environment where
good service can be provided to others, long-term career potential, flexible working
arrangements, learning and development opportunities and benefits (tied), promotion
opportunities, and incentive pay or bonus.71 And other studies have shown that the
desire for interesting work seems important to almost all workers, regardless of their
national culture. For instance, employees in Belgium, Britain, Israel, and the United
States ranked “interesting work” number one among 11 work goals. It was ranked
either second or third in Japan, the Netherlands, and Germany.72 Similarly, in a study
comparing job-preference outcomes among graduate students in the United States,
Canada, Australia, and Singapore, growth, achievement, and responsibility were rated
the top three and had identical rankings.73 Both studies suggest some universality to
the importance of intrinsic factors identified by Herzberg in his two-factor theory.
Another recent study examining workplace motivation trends in Japan also seems to
indicate that Herzberg’s model is applicable to Japanese employees.74

Motivating Unique Groups of Workers

At Deloitte, employees are allowed to “dial up” or “dial down” their job responsibili-
ties to fit their personal and professional goals.75 The company’s program called Mass
Career Customization has been a huge hit with its employees! In the first 12 months
after it was rolled out, employee satisfaction with “overall career/life fit” rose by 25 per-
cent. Also, the number of high-performing employees staying with Deloitte increased.

Motivating employees has never been easy! Employees come into organizations with
different needs, personalities, skills, abilities, interests, and aptitudes. They have different
expectations of their employers and different views of what they think their employer has
a right to expect of them. And they vary widely in what they want from their jobs. For
instance, some employees get more satisfaction out of their personal interests and pur-
suits and only want a weekly paycheck—nothing more. They’re not interested in making
their work more challenging or interesting or in “winning” performance contests. Others

Chapter 17  Motivation 607

derive a great deal of satisfaction in their jobs and are motivated to exert high levels of It’s Your Career
effort. Given these differences, how can managers do an effective job of motivating the
unique groups of employees found in today’s workforce? One thing is to understand the
motivational requirements of these groups, including diverse employees, professionals,
contingent workers, and low-skilled minimum-wage employees.
MOTIVATING A DIVERSE WORKFORCE  To maximize motivation among today’s
workforce, managers need to think in terms of flexibility. For instance, studies tell us that
men place more importance on having autonomy in their jobs than women. In contrast,
the opportunity to learn, convenient and flexible work hours, and good interpersonal
relations are more important to women.76 Having the opportunity to be independent
and to be exposed to different experiences is important to Gen Y employees, whereas
older workers may be more interested in highly structured work opportunities.77 Manag-
ers need to recognize that what motivates a single mother with two dependent children
who’s working full time to support her family may be very different from the needs of
a single part-time employee or an older employee who is working only to supplement
his or her retirement income. A diverse array of rewards is needed to motivate employ-
ees with such diverse needs. For instance, many organizations have developed flexible
work arrangements—such as compressed workweeks, flextime, and job sharing, which
we discussed in Chapter 11—that recognize different needs. Another job alternative we
also discussed earlier is telecommuting. However, keep in mind that not all employees
embrace the idea of telecommuting. Some workers relish the informal interactions at
work that satisfy their social needs and are a source of new ideas.

Do flexible work arrangements motivate employees? Although such arrangements
might seem highly motivational, both positive and negative relationships have been
found. For instance, a recent study that looked at the impact of telecommuting on job
satisfaction found that job satisfaction initially increased as the extent of telecommut-
ing increased, but as the number of hours spent telecommuting increased, job satisfac-
tion started to level off, decreased slightly, and then stabilized.78
Self-Motivation—If your instructor is using Pearson MyLab Management, log onto
mymanagementlab.com and test your self-motivation knowledge. Be sure to refer back
to the chapter opener!

F U T U R E V I S I O N Individualized Rewards

Organizations have historically assumed that “one size club memberships, and work-from-home options. In
the future, most organizations will structure individual
fits all” when it comes to allocating rewards. Managers reward packages in ways that will maximize employee
typically assumed that everyone wants more money motivation.
and more vacation time. But as organizations become
less bureaucratic and more capable of differentiating If your professor has chosen to assign this, go to
rewards, managers will be encouraged to differentiate www.mymanagementlab.com to discuss the follow-
rewards among employees as well as for individual em- ing questions.
ployees over time.
TALK ABOUT IT 1:  What are the positive aspects
Organizations control a vast number of potential of having individualized rewards? (Think in terms of em-
rewards that employees might find appealing. A par- ployees and managers.)
tial list would include increased base pay, bonuses,
shortened workweeks, extended vacations, paid sab- TALK ABOUT IT 2:   What are the negative aspects
baticals, flexible work hours, part-time employment, of having individualized rewards? (Again, think in terms
guaranteed job security, increased pension contribu- of employees and managers.)
tions, college tuition reimbursement, personal days off,
help in purchasing a home, recognition awards, paid

608 Part 5 Leading

Managers of home rental website Airbnb MOTIVATING PROFESSIONALS  In contrast to a gen-
motivate the firm’s young employees at its eration ago, the typical employee today is more likely to be a
San Francisco headquarters with an open and professional with a college degree than a blue-collar factory
collaborative work environment that promotes worker. What special concerns should managers be aware of
teamwork and a sense of community and when trying to motivate a team of engineers at Intel’s India De-
stimulates innovation. Employees have the velopment Center, software designers at SAS Institute in North
freedom to work where they want and enjoy Carolina, or a group of consultants at Accenture in Singapore?
amenities such as a cafeteria, nap room,
library, yoga classes, organic lunches, and Professionals are different from nonprofessionals.79 They
$2,000 each year for personal travel. have a strong and long-term commitment to their field of
Source: Airbnb, San Francisco. USA. Inte/ expertise. To keep current in their field, they need to regularly
ZUMA Press/Newscom update their knowledge, and because of their commitment to
their profession, they rarely define their workweek as 8 a.m.
to 5 p.m., five days a week.

What motivates professionals? Money and promotions
typically are low on their priority list. Why? They tend to be
well paid and enjoy what they do. In contrast, job challenge tends to be ranked high.
They like to tackle problems and find solutions. Their chief reward is the work itself.
Professionals also value support. They want others to think that what they are work-
ing on is important. That may be true for all employees, but professionals tend to be
focused on their work as their central life interest, whereas nonprofessionals typically
have other interests outside of work that can compensate for needs not met on the job.
MOTIVATING CONTINGENT WORKERS  We discussed in Chapter 11 the increased
number of contingent workers employed by organizations. There’s no simple solution
for motivating these employees. For that small set of individuals who prefer the freedom
of their temporary status, the lack of stability may not be an issue. In addition, tempo-
rariness might be preferred by highly compensated physicians, engineers, accountants, or
financial planners who don’t want the demands of a full-time job. But these individuals
are the exceptions. For the most part, temporary employees are not temporary by choice.
What will motivate involuntarily temporary employees? An obvious answer is the
opportunity to become a permanent employee. In cases in which permanent employees
are selected from a pool of temps, the temps will often work hard in hopes of becom-
ing permanent. A less obvious answer is the opportunity for training. The ability of a
temporary employee to find a new job is largely dependent on his or her skills. If an
employee sees that the job he or she is doing can help develop marketable skills, then
motivation is increased. From an equity standpoint, when temps work alongside per-
manent employees who earn more and get benefits too for doing the same job, the per-
formance of temps is likely to suffer. Separating such employees or perhaps minimizing
interdependence between them might help managers counteract potential problems.80
How do these issues influence contingent workers’ job satisfaction? Research shows
that differences in job satisfaction between contingent and permanent workers is not
significant until we consider the particular contingent work arrangements—temporary
employee versus independent contractor.81 Temporary workers are less satisfied than
permanent workers. This difference may be explained by the fact that most temporary
employees do not receive benefits such as paid vacation and are paid lower wages than
earned by comparably skilled permanent workers. In contrast, independent contrac-
tors are about as equally satisfied as permanent workers. This may be the case because
organizations are more likely to recognize the importance of independent contractors’
contributions because they’re mostly highly skilled individuals. For instance, manage-
ment consultants are well educated and have a proven track record of success.
MOTIVATING LOW-SKILLED, MINIMUM-WAGE EMPLOYEES  Suppose in
your first managerial position after graduating, you’re responsible for managing a
work group of low-skilled, minimum-wage employees. Offering more pay to these
employees for high levels of performance is out of the question: Your company just
can’t afford it. In addition, these employees have limited education and skills. What are
your motivational options at this point?

Chapter 17  Motivation 609

One trap we often fall into is thinking that people are motivated only by money.
Although money is important as a motivator, it’s not the only reward that people seek
and that managers can use. In motivating minimum-wage employees, managers might
look at employee recognition programs. Many managers also recognize the power of
praise, although these “pats on the back” must be sincere and given for the right rea-
sons. Inventive managers can come up with creative awards that match employees’
interests. For instance, one trucking company awarded cases of beer to truck loaders
who demonstrated good performance.82

Designing Appropriate Rewards Programs

As the Group Company approached its tenth anniversary of success in the travel
business, founder Helen Bilton wanted to reward her workforce for outstanding per-
formance. Rather than plan a huge party, she arranged for all 32 employees to visit
Barbados on a luxurious, all-expenses-paid three-day holiday. Rewards like this play a
powerful role in motivating employee behavior.83

OPEN-BOOK MANAGEMENT  Within 24 hours after managers of the Heavy Duty open-book management
Division of Springfield Remanufacturing Company (SRC) gather to discuss a multi- A motivational approach in which an
page financial document, every plant employee will have seen the same information. organization’s financial statements (the
If the employees can meet shipment goals, they’ll all share in a large year-end bonus.84 “books”) are shared with all employees
Many organizations of various sizes involve their employees in workplace decisions
by opening up the financial statements (the “books”). They share that information
so employees will be motivated to make better decisions about their work and better
able to understand the implications of what they do, how they do it, and the ultimate
impact on the bottom line. In many cases, employees begin to think like owners rather
than hired hands.85 This approach is called open-book management, and a number
of organizations are using it.86 For instance, at A Yard & a Half Landscaping, founder
Eileen Michaels holds monthly meetings to share the firm’s profit and loss statement
line by line with her employees. Employees then use this information to assess how to
cut expenses and get work done more efficiently.87

The goal of open-book management is to get employees to think like an owner
by seeing the impact their decisions have on financial results. Since many employees
don’t have the knowledge or background to understand the financials, they have to
be taught how to read and understand the organization’s financial statements. Once
employees have this knowledge, however, managers need to regularly share the num-
bers with them. By sharing this information, employees begin to see the link between
their efforts, level of performance, and operational results.

EMPLOYEE RECOGNITION PROGRAMS  Employee recognition programs employee recognition programs
consist of personal attention and expressing interest, approval, and appreciation for a Personal attention and expressing
job well done.88 They can take numerous forms. For instance, Kelly Services introduced interest, approval, and appreciation for a
a new version of its points-based incentive system to better promote productivity and job well done
retention among its employees. The program, called Kelly Kudos, gives employees more
choices of awards and allows them to accumulate points over a longer time period. It’s
working. Participants generate three times more revenue and hours than employees not
receiving points.89 Nichols Foods, a British manufacturer, has a comprehensive recogni-
tion program. The main hallway in the production department is hung with “bragging
boards” on which the accomplishments of employee teams are noted. Monthly awards
are presented to people who have been nominated by peers for extraordinary effort on
the job. And monthly award winners are eligible for further recognition at an off-site
meeting for all employees.90 At Wayfair.com, a seller of home furnishings, a recognition
wall provides space where anyone in the company can write about anyone else in the
company and give that person rewards dollars. It’s used to recognize people for some-
thing they did for a customer or some other accomplishment.91 Most managers, however,
use a far more informal approach. For example, Marks & Spencer encourages spontane-
ous posts recognizing the extra efforts of employees and peers on the U.K. department

610 Part 5 Leading

FYI store’s internal social network. Every month, the store posts an award for employee of
the month, chosen from peer nominations. In Singapore, managers at the e-commerce
Companies that have at least one firm ShopBack sometimes open a bottle of Champagne during informal celebrations of
recognition program do the follow- employee accomplishments such as clearing all outstanding customer service inquiries.
ing: At other times, managers surprise high-performing employee teams with free zoo tick-
ets. ShopBack’s human resources manager explains the reasoning behind this approach:
• 87 percent of companies “Cash rewards connote a transactional relationship, while non-cash rewards are power-
recognize length of service. ful in building team relationships.” The restaurant chain PizzaExpress Singapore has a
“golden ticket” reward system, with tickets representing travel or shopping vouchers.
• 76 percent of companies When senior managers make unscheduled visits to the restaurants, they give away golden
recognize above-and-beyond tickets to employees who have performed exceptionally well. “Our employees are what
performance. make the brand so successful, and we want to give back in more personal ways,” says the
general manager. Employee recognition is very important, but so is a tangible follow-up
• 51 percent of companies reward, he states: “More often than not, an actual gift means more than words.”92
recognize specific behavior.
A recent survey of organizations found that 89 percent had some type of program
• 48 percent of companies use to recognize worker achievements.93 Another survey found that 12 percent of employees
peer-to-peer recognition. say they receive frequent appreciation for a job well done; 7 percent of employees say
their company is excellent at showing appreciation for great work.94 And do employees
• 34 percent of companies think these programs are important? You bet! In a survey conducted a few years ago, a
recognize retirement.96 wide range of employees was asked what they considered the most powerful workplace
motivator. Their response? Recognition, recognition, and more recognition!95

Consistent with reinforcement theory, rewarding a behavior with recognition imme-
diately following that behavior is likely to encourage its repetition. And recognition can
take many forms. You can personally congratulate an employee in private for a good job.
You can send a handwritten note or e-mail message acknowledging something positive
that the employee has done. For employees with a strong need for social acceptance, you
can publicly recognize accomplishments. To enhance group cohesiveness and motiva-
tion, you can celebrate team successes. For instance, you can do something as simple
as throw a pizza party to celebrate a team’s accomplishments. During the economic
recession, managers got quite creative in how they showed employees they were appreci-
ated.97 For instance, employees at one company got to take home fresh vegetables from
the company vegetable garden. In others, managers treated employees who really put
forth efforts on a project to a special meal or movie tickets. Also, managers can show
employees that no matter their role, their contributions matter. Some of these things
may seem simple, but they can go a long way in showing employees they’re valued.

Watch It 2! If your professor has assigned this, go to www.mymanagementlab.com to watch a video
titled: Joie de Vivre Hospitality: Employee Motivation and to respond to questions.

pay-for-performance programs PAY-FOR-PERFORMANCE  Here’s a survey statistic that may surprise you: 40 per-
Variable compensation plans that cent of employees see no clear link between performance and pay.98 So what are the
pay employees on the basis of some companies where these employees work paying for? They’re obviously not clearly com-
performance measure municating performance expectations.99 Pay-for-performance programs are variable
compensation plans that pay employees on the basis of some performance measure.100
Piece-rate pay plans, wage incentive plans, profit-sharing, and lump-sum bonuses are
examples. What differentiates these forms of pay from more traditional compensation
plans is that instead of paying a person for time on the job, pay is adjusted to reflect
some performance measure. These performance measures might include such things
as individual productivity, team or work group productivity, departmental productiv-
ity, or the overall organization’s profit performance.

Pay-for-performance is probably most compatible with expectancy theory. Individ-
uals should perceive a strong relationship between their performance and the rewards
they receive for motivation to be maximized. If rewards are allocated only on nonperfor-
mance factors—such as seniority, job title, or across-the-board pay raises—then employ-
ees are likely to reduce their efforts. From a motivation perspective, making some or

Chapter 17  Motivation 611

REALlegte’st
The Scenario:

The associates at Footwear Unlimited are
paid minimum wage, but can increase
their pay with commissions on sales that
they ring up. As a result, the associates
work hard to greet customers and help Source: Matt O’Rourke
them find the right shoe sizes. However,
Christy Jefferson, the store manager, is
concerned that the current commission
plan discourages employees from working
as a team. She has noticed that some
associates won’t help others since only
Matt O’Rourke
one associate will receive the commission Supply Chain Engineer
for a sale. Further, associates seem to be
ignoring some duties around the store such as straightening displays.

Should Christy consider a different approach to pay-for-performance?

Don’t accept an environment that discourages teamwork; strong
teams are a key factor in achieving business results. Rather than
reward individual sales, Christy should consider modifying the pay-for-
performance plan to incorporate team goals. A bonus could be paid to
the team for achieving critical results such as total number of sales for a
period of time or a non-monetary reward for straightening up the store.
A strong team and company culture is worth the change in approach.

all of an employee’s pay conditional on some performance measure focuses his or her
attention and effort toward that measure, then reinforces the continuation of the effort
with a reward. If the employee’s team’s or organization’s performance declines, so does
the reward. Thus, there’s an incentive to keep efforts and motivation strong.

Pay-for-performance programs are popular. Some 94 percent of employers have
some form of variable pay plan.101 Common pay-for-performance plans reward employ-
ees for project completion or company profits. These types of pay plans have also been
tried in other countries, such as Canada and Japan. About 30 percent of Canadian
companies and 22 percent of Japanese companies have company-wide pay-for-perfor-
mance plans.102 In Japan, most companies reward employees based on age, but many
companies are rethinking this practice. For instance, Toyota is considering replacing
its seniority-based wage system with a performance-based system. The traditional
approach has resulted in pay gaps between younger and older employees, making it
difficult to attract younger talent.103 Performance-based pay also fits with Toyota’s mis-
sion of efficiency and constant improvement of the quality of its automobiles. Other
Japanese companies including Hitachi, Panasonic, and Sony are following suit.104

Do pay-for-performance programs work? The jury is still out. For the most part,
studies seem to indicate that they do. For instance, one study found companies that
used pay-for-performance programs performed better financially than those that did
not.105 Another study showed pay-for-performance programs with outcome-based
incentives had a positive impact on sales, customer satisfaction, and profits.106 In orga-
nizations that use work teams, managers should consider group-based performance
incentives that will reinforce team effort and commitment. However, others say that
linking pay to performance doesn’t work.107 So if a business decides it wants to use
pay-for-performance programs, managers need to ensure they’re specific about the
relationship between an individual’s pay and his or her expected level of appropriate
performance. Employees must clearly understand exactly how performance—theirs
and the organization’s—translates into dollars on their paychecks.108

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Chapter 17

CHAPTER SUMMARY by Learning Objectives

LO17.1 DEFINE motivation.
LO17.2
Motivation is the process by which a person’s efforts are energized, directed, and sus-
LO17.3 tained toward attaining a goal.

The energy element is a measure of intensity, drive, or vigor. The high level of
effort needs to be directed in ways that help the organization achieve its goals. Employ-
ees must persist in putting forth effort to achieve those goals.

COMPARE and contrast early theories of motivation.

In Maslow’s hierarchy, individuals move up the hierarchy of five needs (physiologi-
cal, safety, social, esteem, and self-actualization) as needs are substantially satisfied. A
need that’s substantially satisfied no longer motivates.

A Theory X manager believes people don’t like to work or won’t seek out respon-
sibility so they have to be threatened and coerced to work. A Theory Y manager
assumes people like to work and seek out responsibility, so they will exercise self-
motivation and self-direction.

Herzberg’s theory proposed that intrinsic factors associated with job satisfaction
were what motivated people. Extrinsic factors associated with job dissatisfaction sim-
ply kept people from being dissatisfied.

Three-needs theory proposed three acquired needs that are major motives in
work: need for achievement, need for affiliation, and need for power.

COMPARE and contrast contemporary theories of motivation.

Goal-setting theory says that specific goals increase performance, and difficult goals,
when accepted, result in higher performance than easy goals. Important points in
goal-setting theory include intention to work toward a goal as a major source of job
motivation; specific hard goals that produce higher levels of output than generalized
goals; participation in setting goals as preferable to assigning goals, but not always;
feedback that guides and motivates behavior, especially self-generated feedback; and
contingencies that affect goal setting—goal commitment, self-efficacy, and national
culture. Reinforcement theory says that behavior is a function of its consequences. To
motivate, use positive reinforcers to reinforce desirable behaviors. Ignore undesirable
behavior rather than punishing it.

Job enlargement involves horizontally expanding job scope by adding more tasks
or increasing how many times the tasks are done. Job enrichment vertically expands
job depth by giving employees more control over their work. The job characteris-
tics model says five core job dimensions (skill variety, task identity, task significance,
autonomy, and feedback) are used to design motivating jobs. Another job design
approach proposed looking at relational aspects and proactive aspects of jobs.

Equity theory focuses on how employees compare their inputs-outcomes ratios to
relevant others’ ratios. A perception of inequity will cause an employee to do some-
thing about it. Procedural justice has a greater influence on employee satisfaction than
distributive justice.

Expectancy theory says an individual tends to act in a certain way based on the
expectation that the act will be followed by a desired outcome. Expectancy is the
effort-performance linkage (how much effort do I need to exert to achieve a certain
level of performance?); instrumentality is the performance-reward linkage (achieving
at a certain level of performance will get me a specific reward); and valence is the
attractiveness of the reward (is it the reward that I want?).

Chapter 17  Motivation 613

LO17.4 DISCUSS current issues in motivation.

Managers must cope with three current motivation issues: managing cross-cultural
challenges, motivating unique groups of workers, and designing appropriate rewards
programs.

Most motivational theories were developed in the United States and have a North
American bias. Some theories (Maslow’s needs hierarchy, achievement need, and
equity theory) don’t work well for other cultures. However, the desire for interesting
work seems important to all workers, and Herzberg’s motivator (intrinsic) factors may
be universal.

Managers face challenges in motivating unique groups of workers. A diverse
workforce is looking for flexibility. Professionals want job challenge and support and
are motivated by the work itself. Contingent workers want the opportunity to become
permanent or to receive skills training. Recognition programs and sincere appreciation
for work done can be used to motivate low-skilled, minimum-wage workers.

Open-book management is when financial statements (the books) are shared with
employees who have been taught what they mean. Employee recognition programs
consist of personal attention, approval, and appreciation for a job well done. Pay-for-
performance programs are variable compensation plans that pay employees on the
basis of some performance measure.

Pearson MyLab Management

Go to mymanagementlab.com to complete the problems marked with
this icon .

REVIEW AND DISCUSSION QUESTIONS

17-1. What is motivation? Explain the three key elements 17-5. Briefly explain equity theory and what happens if
of motivation. there are iniquities at work.

17-2. Describe each of the four early theories of 17-6. What do you understand by the term open-book
motivation. management? Is it effective?

17-3. How do goal-setting, reinforcement, and equity 17-7. Identify examples of pay-for-performance programs
theories explain employee motivation? used by some organizations.

17-4. What are the different job design approaches to 17-8. Can an individual be too motivated? Discuss.
motivation?

Pearson MyLab Management

If your professor has assigned these, go to mymanagementlab.com for the
following Assisted-graded writing questions:

1 7-9.  W hat economic and cross-cultural challenges do managers face when moti-
vating employees?

1 7-10.  E xplain, in the context of a diverse and flexible workforce, why managers
need to use a range of different motivational approaches. Identify some
distinct groups and how they can be motivated.

614 Part 5 Leading

PREPARING FOR: My Career

PERSONAL INVENTORY ASSESSMENTS P I A PERSONAL
INVENTORY
ASSESSMENT

Work Motivation Indicator

How motivated are you? Use this PIA to assess your own level of work motivation.

ETHICS DILEMMA

Advocates of open-book management point to the have access to company financial details but also to staff
advantages of getting employees to think like owners and performance reviews and individual pay information.109
to be motivated to make better decisions about how they 17-11. What do you think? What are the pros and cons of
do their work once they see how their decisions impact
financial results. However, is there such a thing as “too such an approach?
much openness?” At some companies, employees not only 17-12. What potential ethical issues do you see here? How

might managers address these ethical issues?

SKILLS EXERCISE  Developing Your Motivating Employees Skill

About the Skill and the opportunity to participate in goal setting and
Because a simple, all-encompassing set of motivational decision making.
guidelines is not available, the following suggestions draw • Link rewards to performance. You need to make rewards
on the essence of what we know about motivating employees.
contingent on performance. Rewarding factors other
Steps in Practicing the Skill than performance will only reinforce the importance of
• Recognize individual differences. Almost every those other factors. Key rewards such as pay increases
and promotions should be given for the attainment of
contemporary motivation theory recognizes that employees’ specific goals.
employees are not homogeneous. They have different
needs. They also differ in terms of attitudes, personality, • Check the system for equity. Employees should perceive
and other important individual variables. that rewards or outcomes are equal to the inputs given.
• Match people to jobs. A great deal of evidence shows On a simplistic level, experience, ability, effort, and
other obvious inputs should explain differences in pay,
the motivational benefits of carefully matching people responsibility, and other obvious outcomes.
to jobs. People who lack the necessary skills to perform
successfully will be at a disadvantage. • Don’t ignore money. It’s easy to get so caught up in
• Use goals. You should ensure that employees have hard, setting goals, creating interesting jobs, and providing
opportunities for participation that you forget that money
specific goals and feedback on how well they’re doing in is a major reason why most people work. Thus, the
pursuit of those goals. In many cases, these goals should allocation of performance-based wage increases, piece-
be participatively set. work bonuses, employee stock ownership plans, and other
pay incentives are important in determining employee
• Ensure goals are perceived as attainable. Regardless of motivation.
Practicing the Skill
whether goals are actually attainable, employees who see Create a motivational plan for each of the groups of
goals as unattainable will reduce their effort. Be sure, employees listed below. Include ideas on what kinds of
therefore, that employees feel confident that increased rewards or incentives would be appropriate for each group.
efforts can lead to achieving performance goals. a.  Fast-food workers
b.  Software development engineers
• Individualize rewards. Because employees have different c.  High school teachers
d.  Construction site workers
needs, what acts as a reinforcer for one may not do
so for another. Use your knowledge of employee
differences to individualize the rewards over which you
have control. Some of the more obvious rewards that
you can allocate include pay, promotions, autonomy,

Chapter 17  Motivation 615

WORKING TOGETHER  Team Exercise

How can you motivate low income workers? In groups motivators and create a list. Be prepared to share your
of three or four, consider how you might motivate ideas with the class. Have you all come up with the same
professionals. Identify some common themes of effective suggestions?

MY TURN TO BE A MANAGER

• A good habit to get into if you don’t already do it is goal- associate, utility company meter reader, and checkout
setting. Set goals for yourself using the suggestions from cashier at a discount store. In a written report, describe
goal-setting theory. Write these down and keep them in for each job at least two specific actions you would take
a notebook. Track your progress toward achieving these for each of the five core job dimensions.
goals. • Do some serious thinking about what you want from your

• Describe a task you’ve done recently for which you job after graduation. Using the chapter-opening It’s Your
exerted a high level of effort. Explain your behavior, using Career, make a list of what’s important to you. Think
any three of the motivation approaches described in this about how you will discover whether a particular job will
chapter. help you get those things.
• Pay attention to times when you’re highly motivated • Find three different examples of employee recognition
and times when you’re not as motivated. Write down a programs from organizations with which you’re familiar
description of these. What accounts for the difference in or from articles that you find. Write a report describing
your level of motivation? your examples and evaluating what you think about the
• Interview three managers about how they motivate their various approaches.

employees. What have they found that works the best? • Have you ever participated in a pay-for-performance
Write up your findings in a report and be prepared to program? If not, ask your friends and find someone who
present it in class. has participated in such a program. Consider your or your
• Using the job characteristics model, redesign the friend’s program. Was it effective in motivating employees?
Why or why not? How could the program be improved?
following jobs to be more motivating: retail store sales

616 Part 5 Leading

1CASE APPLICATION Hong Kong Disneyland: HR
Programs to Motivate
Employees

Providing a magical experience for every guest (customer), Disney, with all its hotels
and parks, is a global leader in the theme-park and service industry. The company’s
performance depends on a motivated workforce. The HR Training plays a pivotal role
in keeping cast (staff) members motivated.

In 2005, Hong Kong Disneyland (HKDL) opened its doors to the public. Since
then, the theme park has served 46 million guests from around the world. In 2013,
it saw a 10 percent increase in visitors, with a record-high attendance of 7.4 million
visitors. Representing about 30 different nationalities, the resort employs workforce
of more than 8,000 full-time and part-time employees at the theme park and its two
hotels during the most popular summer period. Most of the resort’s staff are under
25 years old. The magic begins with the recruitment of employees who are friendly,
innovative, responsible, and are passionate about Disney stories. Disney manage-
ment understands what is important to cast members or what excites them in HKDL.
Therefore, HKDL address the value proposition of young talents through comprehen-
sive training programs, transparent career paths and opportunities, recognition and
engagement, and by providing a fun environment.

Cast members learn Disney culture in a number of ways such as training and
socialization. HKDL provides 380,000 hours of professional and technical training
to the entire workforce during the year. They help employees to become knowledge-
able cast members, fostering open communication and having fun with their guests.
This involves organizing a number of internal and external programs to encourage its
cast members to support initiatives for education, health, social, and other outreach
services.

The resort also conducts employee surveys to better understand its staff. The re-
sults show that cast members in HKDL take pride in their roles and they are motivated
and empowered to excel in their roles. As a result, HKDL has received outstanding
guest-satisfaction ratings and a range of awards from the hospitality and entertain-
ment sectors including the recipient of the 2014 Randstad Award for Best Workplace
Culture.

While the appeal of Disney’s characters is enduring, the decade-old HKDL is in
the red again. The theme park cited a drop in mainland visitors as the main reason in
explaining its disappointing performance. Additional competition with the “one coun-
try, two theme parks” situation is imminent as the Shanghai Disney Resort opened in
June this year. With regional demand being adequate enough to be shared between the
parks, the management at HKDL remain hopeful about the future. In the meantime,
they are also working to provide each park with a fresh feel and competitive business
environment by providing new investments on theme attractions and promotional of-
fers. Furthermore, the management at HKDL must continue to use HR programs to
motivate cast members.110

DISCUSSION QUESTIONS
17-13. What would it be like to work at Hong Kong Disneyland (HKDL)?
17-14. Using what you’ve learned from studying the various motivation theories,

what does HKDL’s situation tell you about employee motivation?
17-15. What is HKDL’s biggest challenge in keeping employees motivated?
17-16. As a manager at HKDL, how would you keep the theme-park employees

motivated?

Chapter 17  Motivation 617

2CASE APPLICATION Balancing Success and
Happiness

The John Lewis Partnership (JLP) is different; any number of news items or academic
journal articles will confirm this. JLP operates 48 John Lewis stores across the United
Kingdom, 34 of which are department stores selling everything from lingerie to elec-
trical goods. The partnership also includes 351 Waitrose supermarkets (a company
purchased by JLP in 1937). However, it isn’t the number of stores, nor the retail offer-
ing that make this organization different, it is the 88,900 permanent staff who are the
partners of JLP. With profits flowing to the partners and not the external sharehold-
ers, JLP is very different to most capitalist enterprises.

In 1864, John Spedan Lewis started trading on Oxford Street in London; however,
it was not until 1929 that the John Lewis Partnership was established. John believed
that business success should be balanced with the happiness of employees and that by
making them partners he was allowing employees to share the responsibility of owner-
ship as well as the rewards in the form of a share of the profits. These rewards have not
been insubstantial, averaging 17 percent of average pay, since 1970, when cash bonuses
started being paid.

The role of the partners is not limited to simply receiving a share of the part-
nership profits. The Partnership Council, a democratically elected body, looks after
the partners’ interests. The Council has a say in how profits are spent, can influence
matters such as pay and pensions, and directly elects five members of the Partner-
ship Board. There are mechanisms in place to ensure that this structure allows all
partners across the business to have a voice. At a local level, elected partners work
alongside managers to influence the running of the individual store. JLP also dis-
tributes a weekly in-house newspaper called the Gazette, which actively encourages
partners to ask questions, with each question receiving a personal response from
management.

So what is it like to work at JLP? In 2010, an article for The Guardian newspaper
interviewed a number of JLP employees, both present and past. There was a real sense
of connection and belonging, even amongst those who had retired. When asked why
people stayed with the company twice as long as the industry average, one partner
simply replied that if people weren’t happy, they had the responsibility and support to
do something about it. Other partners referred to a willingness to make extra effort,
specifically noting that motivation felt different. Perhaps the greatest praise for this
system came from a partner who confirmed she would only begrudgingly move to
another company if it offered her twice the salary!

While employee ownership is rare, JLP is not alone. They are members of the
Employee Ownership Association (EOA), which represents U.K. organizations that
are currently employee-owned or currently moving to this new form of ownership.
According to EOA figures, the number of employee owned businesses in the United
Kingdom is increasing by 10 percent per annum. In 2009, an independent report by the
Demos think tank estimated that the employee-owned sector was worth £25 billion to
the U.K. economy and further development should be supported. In 2012, this grow-
ing belief in employee-ownership was further supported when the U.K. Deputy Prime
Minister called for more companies to follow the JLP model, arguing that firms where
staff had more of a stake were more innovative and had higher levels of productivity.

It is unlikely that the JLP model will totally replace the typical capitalist enterprise
any time soon. However, the continued success of JLP and the general feeling that a
business should be measured against more than share price could see employee-owned
organizations becoming far more common in the future.111

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DISCUSSION QUESTIONS

17-17. Is there a link between the approach at the John Lewis partnership and the
earlier theories of motivation?

17-18. Considering the Goal-setting theory, how do you think this partnership
structure will affect the setting and achievement of challenging individual goals?

17-19. “Money is not a motivator.” Discuss this statement in light of the JLP case.
17-20. Do you think that this partnership approach will solve any of the problems

associated with the Equity theory? Why or why not?
17-21. What could be the potential drawbacks of this type of organizational

ownership?

ENDNOTES

1. Kelvin Ong, “Elevated by Enjoyment,” HRM Asia, November Nongaim, “An Examination of Maslow’s Need Hierarchy
4, 2016, www.hrmasia.com/content/elevated-enjoyment in an Organizational Setting,” Organizational Behavior
(accessed December 27, 2016). and Human Performance, February 1968, pp. 12–35; E. E.
2. A. Carmeli, B. Ben-Hador, D. A. Waldman, and D. E. Lawler III and J. L. Suttle, “A Causal Correlational Test of
Rupp, “How Leaders Cultivate Social Capital and Nurture the Need Hierarchy Concept,” Organizational Behavior and
Employee Vigor: Implications for Job Performance,” Journal Human Performance, April 1972, pp. 265–287; R. M. Creech,
of Applied Psychology, November 2009, pp. 1533–1561. “Employee Motivation,” Management Quarterly, Summer
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624 Part 5 Leading

PART 5 Management Practice

A Manager’s Dilemma a cubicle and is annoyed at Glen for not standing up for
him when offices were assigned. But John didn’t complain
How would you feel as a new employee if your boss asked because he didn’t want to get an office only because of his
you to do something and you had to admit that you didn’t friendship with Glen. Another problem brewing is that the
know how to do it? Most of us would probably feel pretty roommates compete to outlast one another at working late.
inadequate and incompetent. Now imagine how strange and Kurt’s boss is afraid that he’s going to burn out. Other awk-
uncomfortable it would be if, after experiencing such an inci- ward moments arise whenever the company’s performance
dent, you went home with the boss because you were room- is discussed. When Glen wants to get something off his
mates and have been friends since fourth grade. That’s the chest about work matters, he has to stop himself. And then
situation faced by John, Glen, and Kurt. John and Kurt are there’s the “elephant in the room.” If the software company
employees at a software company that their friend Glen and is ever bought out by a larger company, Glen (and his three
four others started. The business now has 39 employees, and partners) stand to profit dramatically, thereby creating some
the “friends” are finding out that mixing work and friend- interesting emotional issues for the roommates. Although it
ships can be tricky! At home, they’re equals. They share a might seem easy to say the solution is to move, real estate is
three-bedroom condo and divide up housework and other too expensive and, besides that, these guys are good friends.
chores. However, at work, equality is out the door. Glen
is John’s boss and Kurt’s boss is another company man- Put yourself in Glen’s shoes. Using what you’ve learned
ager. Recently, the company moved into a new workspace. in Part 5 about individual behavior, communication, em-
As part of the four-person management team, Glen has a ployee motivation, and leadership, how would you han-
corner office with windows. However, John was assigned dle this situation?

Part 5  Management Practice 625

Global Sense Discuss the following questions in light of what you
learned in Part 5.
As you discovered in this part of the text, employee engage-
ment is an important focus for managers. Managers want • What role do you think external factors such as the
their employees to be connected to, satisfied with, and global economic downturn or a country’s culture play
enthusiastic about their jobs; that is, to be engaged. Why is in levels of employee engagement? Discuss.
employee engagement so important? The level of employee
engagement serves as an indicator of organizational health • What role does an organization’s motivational pro-
and ultimately business results—success or failure. The lat- grams play in whether an employee is engaged or
est available data (2013) on global employee engagement not? Discuss.
levels showed that only 13 percent of employees (surveyed
from 142 countries) were engaged in their jobs; 63 per- • How might a manager’s leadership style affect an em-
cent were not engaged, and 24 percent were actively dis- ployee’s level of engagement? Discuss.
engaged. That is, only 13 percent of employees worldwide
say they’re passionate about and deeply connected to their • Look at what we discussed about managerial commu-
work. The region of East Asia showed the lowest propor- nication in this part. What could a manager do in the
tion of engaged employees at 6 percent. The global regions way he or she communicates to affect an employee’s
of Australia and New Zealand and the United States and level of engagement?
Canada showed the highest levels of employee engagement
at around 24 percent. And the highest level of active disen- • You’re a manager of a workplace that has different
gagement of employees is in the MENA region—Middle “generations.” How will you approach engaging your
East and North Africa. employees? Do you think Gen Y employees are going
to be more difficult to “engage”? Discuss.
So what can managers do to get and keep employees
engaged? Some important efforts include providing oppor- Sources: The State of the Global Workplace: Employee Engagement Insights for
tunities for career advancement, offering recognition, and Business Leaders Worldwide, Gallup Organization, http://www.gallup.com/strategic-
having a good organization reputation. consulting/164735/state-global-workplace.aspx, accessed August 15, 2014; M. Wil-
son, “Study: Employee Engagement Ticking Up, But It’s Not All Good News,” www.
hrcommunication.com, June 18, 2012; “2012 Trends in Global Employee Engagement,”
www.aon.com, June 17, 2012; K. Gurchiek, “Engagement Erosion Plagues Employers
Worldwide,” HR Magazine, June 2012, p. 17; and T. Maylett and J. Nielsen, “There Is
No Cookie-Cutter Approach to Engagement,” T&D, April 2012, pp. 54–59.

626 Part 5 Leading

Continuing Case to employee attitudes. For instance, in a survey from 2005,
well over half (64 percent) of partners responded to the sur-
Starbucks—Leading vey—much higher than the number of respondents to the
Once people are hired or brought into organizations, man- previous survey in 2003, in which the partner response rate
agers must oversee and coordinate their work so that orga- was only 46 percent. Responses to questions about partner
nizational goals can be pursued and achieved. This is the satisfaction and partner engagement were extremely posi-
leading function of management. And it’s an important tive: 87 percent of partners said they were satisfied or very
one! However, it also can be quite challenging. Managing satisfied, and 73 percent said they were engaged with the
people successfully means understanding their attitudes, company. (The numbers in 2003 were 82 percent satisfied
behaviors, personalities, individual and team work efforts, and 73 percent engaged.) In addition, partners specifically
motivation, conflicts, and so forth. That’s not an easy thing said they “Know what is expected of them at work; believe
to do. In fact, understanding how people behave and why someone at work cares about them; and work for managers
they do the things they do is downright difficult at times. who promote work/life balance.” In a 2015 survey, partners
Starbucks has worked hard to create a workplace environ- ranked themselves as most happy compared to workers in
ment in which employees (partners) are encouraged to and other U.S. retail firms. It shouldn’t be a surprise that part-
want to put forth their best efforts. Howard Schultz says he ners tend to stay with the company. Some reports estimate
believes that people everywhere have the same desire—to be that Starbucks’ turnover rate is 120 percent less than the
respected, valued, and appreciated. industry average. But partners also identified some areas
where they felt improvements were needed. These included
Starbucks—Focus on Individuals “Celebrate successes more; provide more effective coaching
and feedback; and improve communication with partners.”
Even with some 235,000 full- and part-time partners And Starbucks’ managers try to address any concerns
around the world, one thing that’s been important to How- raised in these surveys or concerns expressed in other ways.
ard Schultz from day one is the relationship he has with In another review published by Glassdoor.com, Starbucks
employees. Schultz is an ardent proponent of a people-first employees gave the company 3.8 stars out of 5 and 91
approach and recognizes that the success of Starbucks is percent approved of CEO Howard Schultz.
due to its partners (employees). And one way Starbucks
demonstrates the concern it has for the relationship with its Every organization needs employees who will be able to
partners is through an attitude survey that gives partners an do their jobs efficiently and effectively. Starbucks states that
opportunity to voice their opinions about their experiences. it wants employees who are “adaptable, self-motivated, pas-
It also measures overall satisfaction and engagement—the sionate, creative team players.” As you can see, this “ideal”
degree to which partners are connected to the company. It’s Starbucks partner should have individual strengths and
been an effective way for Starbucks to show that it cares should be able to work as part of a team. In the retail store
about what its employees think. setting, especially, individuals must work together as a team
to provide the experience that customers expect when they
For example, a partner view survey was conducted in
early 2010 with partners in the United States and Canada Knowing that its people are the heart and soul of its success, Starbucks values
and in the international regional support centers in Europe/ its employees and has created an environment that motivates them to work
Middle East/Africa, Asia Pacific and Latin America, at efficiently and effectively, rewards their accomplishments, and gives them training
Starbucks Coffee Trading Company in Switzerland, at opportunities and generous benefits. The baristas shown here handing out gift bags
Starbucks Coffee Agronomy Company in Costa Rica, and to shareholders at an annual meeting represent Starbucks’ “ideal” employee who
at the coffee roasting facility in Amsterdam. At the end of is adaptable, self-motivated, passionate, and a creative team player.
the survey, Howard Schultz thanked partners for taking Source: Elaine Thompson/Associated Press
the survey. He also acknowledged that the previous year
and a half had been difficult (it was the time of Schultz
transitioning back into the CEO position) and that part-
ners had been asked to do a lot during that time. The tough
and emotional decisions to be made and the company’s fi-
nancial crisis weren’t easy for any of them—from the top
to the bottom of the organization. But Schultz also reit-
erated that his number-one commitment was to the com-
pany’s partners and reinventing the partner experience at
Starbucks. Although results aren’t publicly available, it’s
likely that managers heard the good and the bad stuff that
partners experienced and were feeling. It was a good ba-
rometer for gauging employee attitudes after a difficult time
of transition and transformation for the company. Earlier
partner surveys have provided relevant and important clues

Part 5  Management Practice 627

walk into a Starbucks. If that doesn’t happen, the compa- difference, I wouldn’t leave people behind.” And those per-
ny’s ability to pursue its mission and goals is likely to be sonal experiences have shaped the way that Starbucks cares
affected. for its partners—the relationships and commitments the
company has with each and every employee. In fact, dur-
Communication at Starbucks ing the recent economic recession, Schultz was contacted
by an institutional shareholder about trimming the health
Keeping organizational communication flowing in all direc- insurance for part-time employees. Schultz’s reply? There’s
tions is important to Starbucks. And that commitment no way that benefit at Starbucks is being cut.
starts at the top. Howard Schultz tries to visit at least 30
to 40 stores a week. Not only does this give him an upfront One of the best reflections of how Starbucks treats its
view of what’s happening out in the field, it gives partners a eligible part- and full-time partners is its Total Pay pack-
chance to talk with the top guy in the company. The CEO age, which includes competitive base pay, bonuses, a com-
also likes to “get out in the field” by visiting the stores and prehensive health plan, paid time-off plans, stock grants,
roasting facilities. For instance, Starbucks China established a generous retirement savings program, and partner perks
the Partner Family Forum to recognize the special role fami- (which includes a pound of coffee each week). In 2015,
lies play and highlighted Starbucks’ commitment to its part- Starbucks launched the College Achievement Program that
ners. During one meeting Schultz stated, “I am so incredibly will pay for most employees to earn an online bachelor’s de-
proud of what you (company partners) have accomplished. gree from Arizona State University. Although specific ben-
And I promise you (the parents of Starbucks partners) we efits differ between regions and countries, all Starbucks in-
will grow this company the right way. I am a true believer in ternational partners share the “Total Pay” philosophy. For
the future of China because of the humanity and the heart instance, in Malaysia and Thailand, partners are provided
and the conscience of the Chinese people.” Despite these extensive training opportunities to further their careers
efforts by the top executives, partners have indicated on past in addition to health insurance, paid vacation, sick leave,
employee surveys that communication needed improvement. and other benefits. In Turkey, the “Total Pay” package for
Managers listened and made some changes. Starbucks’ partners includes transportation subsidies and
access to a company doctor who provides free treatment.
An initial endeavor was the creation of an internal video And, in China, partners receive a monthly housing allow-
newsletter that conveyed information to partners about ance to help them overcome the financial challenges of
company news and announcements. Another change was starting their careers.
the implementation of an internal communication audit
that asks randomly selected partners for feedback on how Partner (employee) recognition is important to Star-
to make company communication more effective. In ad- bucks. The company has several formal recognition pro-
dition, partners can voice concerns about actions or deci- grams in place that partners can use as tools to encourage,
sions where they believe the company is not operating in a reward, and inspire one another. These programs range
manner consistent with the guiding principles to the Mis- from formal company awards to informal special acknowl-
sion Review team, a group formed in 1991 and consisting edgments given by coworkers. One tool—developed in
of company managers and partners. The concept worked response to suggestions on the partner survey—is an on-
so well in North America that many of Starbucks’ interna- the-spot recognition card that celebrates partner and team
tional units have provided similar communication forums successes.
to their partners.
To assist partners who are facing particularly difficult
Starbucks—Motivating Employees circumstances (such as natural disaster, fire, illness), the
company has a CUP (Caring Unites Partners) fund that
A story from Howard Schultz’s childhood provides some provides financial support. After Hurricanes Katrina and
clues into what has shaped his philosophy about how to treat Rita in 2005, more than 300 partners from the Gulf Coast
people. Schultz’s father worked hard at various blue-collar region received more than $225,000 in assistance from the
jobs. However, when he didn’t work, he didn’t get paid. CUP fund. In China, Starbucks has set aside RMB1 mil-
When his father broke his ankle when Howard was seven lion (about $152,000 in today’s currency exchange) for the
years old, the family “had no income, no health insurance, Starbucks China CUP fund to be used to provide financial
no worker’s compensation, nothing to fall back on.” The assistance to partners in times of significant or immediate
image of his father with his leg in a cast unable to work left needs. This is the type of caring and compassion that How-
a lasting impression on the young Schultz. Many years later, ard Schultz vowed to provide after seeing his father not able
when his father died of lung cancer, “he had no savings, no to work and have an income because of a broken ankle.
pension, and more important, he had never attained ful-
fillment and dignity from work he found meaningful.” The In 2015, Starbucks was named one of the top 10 “Best
sad realities of the types of work environments his father Workplaces in Canada” for the fifth consecutive year. In
endured had a powerful effect on Howard, and he vowed 2013, Starbucks again was named one of Fortune maga-
that if he were “ever in a position where I could make a zine’s 100 Best Companies to Work For (in the United
States)—the fifteenth time since 1998 that Starbucks has
received this recognition. Although being recognized as

628 Part 5 Leading

a great company to work for is commendable, Starbucks down from the CEO position, and Howard Schultz once
has seen its ranking drop. In 2008, it was ranked number 7; again assumed the position. At that time, Schultz realized
in 2009, number 24; in 2010, number 93; and in 2011, num- his job was to step up as a leader to transform and revitalize
ber 98. However, in 2012 its ranking rose to number 73, Starbucks.
but it fell to number 94 in 2013 and did not make the list
in 2014, 2015, or 2016. Like many companies, Starbucks Starbucks also recognizes the importance of having in-
had to make some tough strategic decisions during one of dividuals with excellent leadership skills throughout the
the toughest economic periods faced recently. Despite the company. In addition to the leadership development train-
challenges, it’s a testament to Starbucks’ treatment of its ing for upper-level managers, Starbucks offers a program
partners that it made the top 100 list for 15 years straight. called Learning to Lead for hourly employees (baristas) to
However, there may be some underlying employee issues to develop leadership skills. This training program also covers
address after failing to be cited as one of the 100 Best Com- store operations and effective management practices. In ad-
panies to Work For in the most recent survey. dition, Starbucks offers to managers at all organizational
levels additional training courses on coaching and provid-
Starbucks—Fostering Leadership ing feedback to help managers improve their people skills.

Not surprisingly, Howard Schultz has some definite views Discussion Questions
about leading and leadership. He says being a great leader
involves finding a balance between celebrating what’s made P5-1. Do the overwhelmingly positive results from the
a company successful in the past and knowing when to not 2005 partner survey surprise you? Why or why not?
continue following the status quo. He also said being a great Do you think giving employees an opportunity to
leader means identifying a path your organization needs to express their opinions in something like an attitude
follow and then creating enough confidence in your people survey is beneficial? Why or why not?
so they follow that path and don’t “veer off course because
it’s an easier route to go.” He also said leaders, particularly P5-2. How might the results of the partner survey
of growing companies, need to stay true to those values affect the way a local store manager does his or
and principles that have guided how their business is done her job? How about a district manager? How
and not let those values be compromised by ambitions of about the president of global development? Do
growth. you think there are differences in the impact of
employee surveys on how managers at different
Since 1982, Howard Schultz has led Starbucks in a way organizational levels lead? Why or why not?
that has allowed the company to successfully grow and meet
and exceed its goals and to do so ethically and responsibly. P5-3. As Starbucks continues to expand globally,
From the creation of the company’s Guiding Principles to what factors might affect partner responses on a
the various innovative strategic initiatives, Schultz has never partner view survey? What are the implications for
veered from his belief about what Starbucks, the company, managers?
could be and should be. In 2011, Fortune named Howard
Schultz the Businessperson of the Year. P5-4. Look at the description of the types of people
Starbucks seeks. What individual behavior issues
Unlike many companies, Starbucks and Howard Schultz might arise in managing these types of people?
have taken their leadership succession responsibilities seri- (Think in terms of attitudes, personality, etc.) What
ously. In 2000 when Schultz was still CEO, he decided to work team issues might arise? (Think in terms of
move into the chairman’s position. His replacement, Orin what makes teams successful. Hint: Can a person
Smith (president and chief operating officer of Starbucks be self-motivated and passionate and be a good
Coffee U.S.), had been “groomed” to take over the CEO team player?)
position. Smith made it a top priority to plan his own suc-
cession. First, he established an exit date—in 2005 at age P5-5. Discuss the “ideal” Starbucks employee in terms of
62. Then he monitored the leadership skills development of the various personality trait theories.
his top executives. Two years into the job, Smith recognized
that the internal candidates most likely to replace him would P5-6. Describe in your own words the workplace
still be too “unseasoned” to assume the CEO position by environment Starbucks has tried to create. What
his stated exit date. At that point, the decision was made impact might such an environment have on
to look externally for a promising successor. That’s when motivating employees?
Jim Donald was hired from Pathmark, a regional grocery
chain, where he was chairman, president, and CEO. For P5-7. Using the Job Characteristics Model in Exhibit
three years, Donald was immersed in Starbucks’ business as 16–6, redesign a part-time hourly worker’s job
president of the largest division, the North American unit, to be more motivating. Do the same with a store
before assuming the CEO position in 2005, as planned. As manager’s job.
described in earlier parts, in early 2008, Jim Donald stepped
P5-8. Does Starbucks “care” too much for its partners?
Can a company ever treat its employees too well?
Why or why not?

P5-9. Howard Schultz says, “We all want the same thing
as people—to be respected and valued as employees

Part 5  Management Practice 629

and appreciated as customers.” Does the company S. Stebbins, and A. Kent, “America’s 25 Best Companies
respect and value its partners (employees)? Explain. to Work For,” 24/7 Wall Street online, www.247wallst.
What do you think this implies for its employee com, August 10, 2015; K. Dill, “The 10 Happiest Retail-
relationships? ers to Work for This Year,” Forbes online, www.forbes.
P5-10. Former CEO Jim Donald once said, “Spending com, November 17, 2015; J. Mooney, “Is Starbucks Really
money to put people first is smart money.” Do you a Great Place to Work?” Society for Human Resource
agree or disagree? Why? Management online, www.shrm.org, August 25, 2015; B.
P 5-11. If you were an executive, would you be concerned Rooney, “Starbucks to Give Workers a Full Ride for Col-
about the drastic drop in ranking on the list of best lege,” CNN Money online, www.money.cnn.com, April 6,
companies to work for and not being ranked in the 2015; News release, “Starbucks Named One of the Top
most current list? Why or why not? What actions 10 Places to Work in Canada,” news.starbucks.com, April
might you take? 10, 2015; “Happy Work & Work Happy,” 5hue online,
P5-12. Give some examples of the types of communication www.5hue.com/reflections/happywork-work-happy, Feb-
taking place at Starbucks. ruary 6, 2014; company website, www.starbucks.com;
P 5-13. Suppose you’re a Starbucks store manager in Glassdoor Company Review, “Starbucks,” https://www.
Birmingham, Alabama. How do you find out glassdoor.com/Reviews/Starbucks-Reviews-E2202.htm,
what’s going on in the company? How might you June 6, 2016; Corporate Social Responsibility, Starbucks
communicate your concerns or issues? Fiscal 2005 Annual Report, “Beyond the Cup,” p. 65;
P5-14. Describe Howard Schultz’s leadership style. Would News release, “Starbucks Strengthens Commitment to
his approach be appropriate in other types of Being the Employer of Choice in China,” news.starbucks.
organizations? Why or why not? com, April 18, 2012; J. Certner, “Starbucks: For Infusing a
P 5-15. Do you agree that leadership succession planning is Steady Stream of New Ideas to Revive Its Business,” Fast
important? Why or why not? Company, March 2012, pp. 112+; D. A. Kaplan, “Strong
P 5-16. What is Starbucks doing “right” with respect to Coffee,” Fortune, December 12, 2011, pp. 100+; “Howard
the leading function? Are they doing anything Schultz, On Getting a Second Shot,” Inc., April 2011, pp.
“wrong?” Explain. 52–54; C. Cain Miller, “A Changed Starbucks. A Changed
P5-17. Which of the company’s principles (see website) CEO,” New York Times online, www.nytimes.com, March
influence the leading function of management? 12, 2011; “Howard Schultz Promises Partners a Better Star-
Explain how the one(s) you chose would affect bucks Experience in the Future,” StarbucksMelody.com,
how Starbucks’ managers deal with (a) individual www.starbucksmelody.com/2010/03/06/howard-schultz-
behavior issues, (b) communication issues, promises-partners-a-better-starbucks-experience-in-the-
(c) motivational techniques, and (d) leadership future/, March 6, 2010; M. Moskowitz, R. Levering, and
styles or approaches. C. Tkaczyk, “The List: 100 Best Companies to Work For,”
Fortune, February 8, 2010, pp. 75+; Starbucks Ad, USA
Notes for the Part 5 Continuing Case Today, May 19, 2009, p. 9A; Interview with Jim Donald,
Smart Money, May 2006, pp. 31–32; A. Serwer, “Interview
Information from Starbucks Corporation 2015 Annual with Howard Schultz,” Fortune (Europe), March 20, 2006,
Report, www.investor.starbucks.com, June 2016; news pp. 35–36; W. Meyers, “Conscience in a Cup of Coffee,”
release, “Starbucks Strengthens Commitment in China, US News & World Report, October 31, 2005, pp. 48–50; J.
www.news.starbucks.com, January 12, 2016; H. Schultz M. Cohn, R. Khurana, and L. Reeves, “Growing Talent
and J. Gordon, Onward: How Starbucks Fought For Its Life as If Your Business Depended on It,” Harvard Business
Without Losing Its Soul, © Howard Schultz (New York: Review, October 2005, pp. 62–70; and interview with Jim
Rodale Publishing, 2011). T. C. Frohlick, M. B. Sauter, Donald, Fortune, April 4, 2005, p. 30.

Part 6   Controlling

Chapter 18 Controlling Activities
and Operations

It’s Your Career

Source: iQoncept/Shutterstock How to Be a Pro at Giving
Feedback
A key to success in
management and in your Everyone needs feedback! If you want people to
career is knowing how do their best, they need to know what they’re
to be effective at giving doing well and what they can do better. That’s
feedback. why providing feedback is such an important skill
to have. But being effective at giving feedback is
tricky! That’s why we often see managers either
(a) not wanting to give feedback or (b) giving
feedback in such a way that it doesn’t result in
anything positive.

You can feel more comfortable with and be
more effective at providing feedback if you use
the following specific suggestions:1

1. Be straightforward by focusing on specific
behaviors. Feedback should be specific rather than
general. Avoid such statements as “You have a bad attitude” or “I’m really
impressed with the good job you did.” They’re vague and although they
provide information, they don’t tell the recipient enough to correct the
“bad attitude” or on what basis you concluded that a “good job” had been
done so the person knows what behaviors to repeat or to avoid.
2. Be realistic. Focus your feedback on what can be changed. When
people get comments on things over which they have no control, it can be
frustrating.
3. Keep feedback impersonal. Feedback, particularly the negative kind,
should be descriptive rather than judgmental or evaluative. No matter how
upset you are, keep the feedback focused on job-related behaviors and
never criticize someone personally because of an inappropriate action.
Keep feedback goal oriented. Feedback should not be given primarily to
“blow off steam” or “unload” on another person. If you have to say some-
thing negative, make sure it’s directed toward the recipient’s goals. Ask
yourself whom the feedback is supposed to help. If the answer is you, bite

Pearson MyLab Management®

Improve Your Grade!

When you see this icon, visit
www.mymanagementlab.com for activities that are
applied, personalized, and offer immediate feedback.

Learning Objectives

18.1 Explain the nature and importance of control.
18.2 Describe the three steps in the control process.
18.3 Explain how organizational and employee performance are measured.

●●Know how to be effective at giving feedback.
18.4 Describe tools used to measure organizational performance.
18.5 Discuss contemporary issues in control.

●●Develop your skill at dealing with difficult people.

your tongue and hold the comment. Such feedback or if you’re otherwise emotionally upset. In such
undermines your credibility and lessens the mean- instances, “well timed” could mean “somewhat
ing and influence of future feedback. delayed.”

4. Know when to give feedback—make 5. Ensure understanding. Make sure your
it well timed. Feedback is most meaningful to feedback is concise and complete so that the
a recipient when there’s a very short interval recipient clearly and fully understands the
between his or her behavior and the receipt of communication. It may help to have the recipient
feedback about that behavior. Moreover, if you’re rephrase the content of your feedback to find
particularly concerned with changing behavior, out whether it fully captured the meaning you
delays in providing feedback on the undesirable intended.
actions lessen the likelihood that the feedback
will be effective in bringing about the desired 6. Watch your body language, tone of voice,
change. Of course, making feedback prompt and facial expressions. Your body language and
merely for the sake of promptness can backfire if tone of voice can speak louder than words.Think
you have insufficient information, if you’re angry, about what you want to communicate and make
sure your body language supports that message.

Things don’t always go as planned. That’s why controlling is so important! Controlling
is the final step in the management process. Managers must monitor whether goals
that were established as part of the planning process are being accomplished efficiently
and effectively as planned. That’s what they do when they control. Appropriate con-
trols can help managers look for specific performance gaps and areas for improve-
ment. And that’s what we’re going to look at in this chapter—the control process, the
types of controls that managers can use, and contemporary issues in control.

631

632 Part 6 Controlling WHAT is controlling and why is it important?

controlling LO18.1 • Only weeks after the South Korean multinational firm Samsung
Management function that involves introduced the Galaxy Note 7 phone with high-profile promotions
monitoring, comparing, and correcting and publicity, it received reports that some units were overheating and even
work performance bursting into flames. Samsung recalled more than two million Note 7 mobiles,
but as the recall progressed, some customers reported that replacements were
also smoking or catching fire. Samsung then decided to stop production and
discontinue the Note 7 while it continued investigating the cause of the problem.
Weeks later, when the company reported significantly lower quarterly profits, it
blamed the Note 7 for its poor financial results.2
• Hundreds of customers were found to have overpaid or underpaid for gas for years
because of a mixup when U.K. energy firms replaced old metering equipment
but didn’t adjust usage measurements to current standards. The old equipment
measured gas consumption based on the previous standard of cubic feet, whereas
the new equipment measured gas consumption based on the current standard of
cubic meters.3
• Royal Diamonds Pty Ltd, an Australian jewelry business, tried to back out of
selling a two-carat diamond ring after it was mistakenly priced online at A$1,100,
rather than the actual price of A$34,000. But after the buyer insisted on making
the purchase, a government agency ordered the jeweler to complete the transaction.
“We are going to make the ring and close the company,” the owner said after the
government ruling.4
• A developer in Singapore deposited a large check into his account at DBS Bank,
only to be informed 82 days later that the entire amount was being removed from
his account. Why? Because the bank later learned that the person who wrote the
check had insufficient funds to cover it. “The isolated incident was due to an
inadvertent human error,” explained a DBS spokesperson, adding that the bank
was tightening its processes.5

Yikes! Can you see why controlling is such an important managerial function?
What is controlling? It’s the process of monitoring, comparing, and correcting

work performance. All managers should control even if their units are performing
as planned because they can’t really know that unless they’ve evaluated what activi-
ties have been done and compared actual performance against the desired standard.6
Effective controls ensure that activities are completed in ways that lead to the attain-
ment of goals. Whether controls are effective, then, is determined by how well they
help employees and managers achieve their goals.7

In David Lee Roth’s autobiography (yes, that David Lee Roth, the former front man
for Van Halen), he tells the story of how he had a clause (article 126) in his touring con-
tract asking for a bowl of M&Ms backstage, but no brown ones.8 Now, you might think
that is just typical demanding rock star behavior, but instead it was a well-planned effort
by Roth to see whether the venue management had paid attention. With the technical
complexity of his show, he figured if they couldn’t get the M&Ms right, he needed to
demand a line check of the entire production to ensure that no technical errors would
occur during a performance. Now that’s how managers should use control!

Why is control so important? Planning can be done, an organizational structure
created to facilitate efficient achievement of goals, and employees motivated through
effective leadership. But there’s no assurance that activities are going as planned and
that the goals employees and managers are working toward are, in fact, being attained.
Control is important, therefore, because it’s the only way that managers know whether
organizational goals are being met and, if not, the reasons why. The value of the con-
trol function can be seen in three specific areas: planning, empowering employees, and
protecting the workplace.

In Chapter 8, we described goals, which provide specific direction to employees
and managers, as the foundation of planning. However, just stating goals or having

Chapter 18  Controlling Activities and Operations 633

Planning Exhibit 18-1
Goals
Objectives Planning-Controlling Link
Strategies
Controlling Plans Organizing

Standards Leading Structure
Measurements Motivation Human Resource
Comparison Leadership
Actions Communication Management
Individual and

Group Behavior

employees accept goals doesn’t guarantee that the necessary actions to accomplish
those goals have been taken. As the old saying goes, “The best-laid plans often go
awry.” The effective manager follows up to ensure that what employees are supposed
to do is, in fact, being done and goals are being achieved. Controlling provides a criti-
cal link back to planning. (See Exhibit 18-1.) If managers didn’t control, they’d have
no way of knowing whether their goals and plans were being achieved and what future
actions to take.

The second reason controlling is important is because of employee empowerment.
Many managers are reluctant to empower their employees because they fear some-
thing will go wrong for which they would be held responsible. But an effective control
system can provide information and feedback on employee performance and minimize
the chance of potential problems.

The final reason why managers control is to protect the organization and its
assets.9 Today’s environment brings heightened threats from natural disasters, finan-
cial scandals, workplace violence, global supply chain disruptions, security breaches,
and even possible terrorist attacks. Managers must protect organizational assets in the
event that any of these things should happen. Comprehensive controls and back-up
plans will help assure minimal work disruptions.

THE control process

LO18.2 Ensuring that expensive products don’t go astray during their journey
from factory to store shelf is only one reason why Milan-based Mon-
cler embeds a tiny tracking device in each piece of clothing. Thanks to the devices,
Moncler is able to track items as they leave the factory, are loaded into trucks, arrive
at stores, are put on display, and get purchased. If an item isn’t where it should be,
Moncler can take immediate action to find it. Customers also benefit, because they
can use a special mobile app to check whether a Moncler-branded item they’re buy-
ing is actually genuine.10 What a great use of the control process to improve internal
efficiency and protect the brand from illegal counterfeiting.
The control process is a three-step process of measuring actual performance,
comparing actual performance against a standard, and taking managerial action to control process
correct deviations or to address inadequate standards. (See Exhibit 18-2.) The control A three-step process of measuring
process assumes that performance standards already exist, and they do. They’re the actual performance, comparing actual
specific goals created during the planning process. performance against a standard, and
taking managerial action to correct
deviations or inadequate standards

634 Part 6 Controlling Step 1 Measuring
Exhibit 18-2 Actual Performance
The Control Process
GOALS AND Comparing Actual Step 2
Exhibit 18-3 OBJECTIVES Performance
Organizational
Sources of Information for Against Standard
Measuring Performance  Divisional
Departmental

Individual

Step 3 Taking
Managerial Action

Step 1: Measuring Actual Performance

To determine what actual performance is, a manager must first get information about
it. Thus, the first step in control is measuring.

HOW WE MEASURE  Four approaches used by managers to measure and report
actual performance are personal observations, statistical reports, oral reports, and
written reports. Exhibit 18-3 summarizes the advantages and drawbacks of each
approach. Most managers use a combination of these approaches.

WHAT WE MEASURE  At GEICO, customer service representatives’ job perfor-
mance is measured by metrics—such as selling more expensive insurance policies to
customers. Measuring the number of new policies and added revenue makes sense to
boost company profits. However, selling more expensive policies isn’t always in the best
interests of the company. For instance, a customer called a GEICO representative to
request a tow truck after becoming stranded. The representative dispatched the tow
truck and proceeded to convince the customer that he needed a more expensive insur-
ance policy.11 Shouldn’t the GEICO representative have focused on the customer’s
well-being during a stressful time? And shouldn’t GEICO include customer care as a
relevant job performance metric? Yes, what is measured is probably more critical to the
control process than how it’s measured. Why? Because selecting the wrong criteria can
create serious problems. Besides, what is measured often determines what employees
will do.12 What control criteria might managers use?

Some control criteria can be used for any management situation. For instance, all
managers deal with people, so criteria such as employee satisfaction or turnover and

Personal Benefits Drawbacks
Observations •  Subject to personal biases
•  Get firsthand knowledge •  Time-consuming
Statistical Reports •  Information isn’t filtered •  Obtrusive
•  Intensive coverage of work
Oral Reports •  Provide limited information
activities •  Ignore subjective factors
Written Reports
•  Easy to visualize •  Information is filtered
•  Effective for showing •  Information can’t be

relationships documented
•  Take more time to prepare
•  Fast way to get information
•  Allow for verbal and

nonverbal feedback

•  Comprehensive
•  Formal
•  Easy to file and retrieve

Measurement of Performance Chapter 18  Controlling Activities and Operations 635
Exhibit 18-4
Acceptable Acceptable Range of Variation
Upper Limit
Acceptable
Standard Range of
Acceptable Variation
Lower Limit

t t+1 t+2 t+3 t+4 t+5

Time Period (t )

absenteeism rates can be measured. Keeping costs within budget is also a fairly com-
mon control measure. Other control criteria should recognize the different activities
that managers supervise. For instance, a manager at a pizza delivery location might
use measures such as number of pizzas delivered per day, average delivery time for
phone orders versus online orders, or number of coupons redeemed. A manager in a
governmental agency might use applications typed per day, client requests completed
per hour, or average time to process paperwork.

Most work activities can be expressed in quantifiable terms. However, managers
should use subjective measures when necessary. Although such measures may have
limitations, they’re better than having no standards at all and doing no controlling.

Step 2: Comparing Actual Performance Against range of variation
the Standard The acceptable parameters of variance
between actual performance and the
The comparing step determines the variation between actual performance and the standard
standard. Although some variation in performance can be expected in all activities, it’s
critical to determine an acceptable range of variation (see Exhibit 18-4). Deviations
outside this range need attention. Let’s work through an example.

Chris Tanner is a sales manager for Green Earth Gardening Supply, a distributor
of specialty plants and seeds in the Pacific Northwest. Chris prepares a report dur-
ing the first week of each month that describes sales for the previous month, classi-
fied by product line. Exhibit 18-5 displays both the sales goals (standard) and actual
sales figures for the month of June. After looking at the numbers, should Chris be
concerned? Sales were a bit higher than originally targeted, but does that mean there
were no significant deviations? That depends on what Chris thinks is significant; that

Product Standard Actual Over (Under) Exhibit 18-5

Vegetable plants 1,075 913 (162) Green Earth Gardening Supply—
Perennial flowers 630 634 4 June Sales 
Annual flowers 800 912
Herbs 160 140 112
Flowering bulbs 170 286 (20)
Flowering bushes 225 220 116
Heirloom seeds 540 672
Total 3,777 (5)
3,600 132
177

636 Part 6 Controlling

is, outside the acceptable range of variation. Even though overall performance was
generally quite favorable, some product lines need closer scrutiny. For instance, if sales
of heirloom seeds, flowering bulbs, and annual flowers continue to be over what was
expected, Chris might need to order more product from nurseries to meet customer
demand. Because sales of vegetable plants were 15 percent below goal, Chris may need
to run a special on them. As this example shows, both overvariance and undervariance
may require managerial attention, which is the third step in the control process.

Step 3: Taking Managerial Action

Managers can choose among three possible courses of action: do nothing, correct the
actual performance, or revise the standards. Because “do nothing” is self-explanatory,
let’s look at the other two.

immediate corrective action CORRECT ACTUAL PERFORMANCE  Sports coaches understand the importance
Corrective action that corrects problems of correcting actual performance. During a game, they’ll often correct a player’s
at once to get performance back on actions. But if the problem is recurring or encompasses more than one player, they’ll
track devote time during practice before the next game to correcting the actions.13 That’s
what managers need to do as well.
basic corrective action
Corrective action that looks at how Depending on what the problem is, a manager could take different corrective
and why performance deviated before actions. For instance, if unsatisfactory work is the reason for performance variations,
correcting the source of deviation the manager could correct it by things such as training programs, disciplinary action,
changes in compensation practices, and so forth. One decision a manager must make
is whether to take immediate corrective action, which corrects problems at once
to get performance back on track, or to use basic corrective action, which looks
at how and why performance deviated before correcting the source of deviation. It’s
not unusual for managers to rationalize that they don’t have time to find the source
of a problem (basic corrective action) and continue to perpetually “put out fires” with
immediate corrective action. Effective managers analyze deviations and, if the benefits
justify it, take the time to pinpoint and correct the causes of variance.

REVISE THE STANDARD  It’s possible that the variance was a result of an unrealistic
standard—too low or too high a goal. In that situation, the standard needs the correc-
tive action, not the performance. If performance consistently exceeds the goal, then a
manager should look at whether the goal is too easy and needs to be raised. On the other
hand, managers must be cautious about revising a standard downward. It’s natural to
blame the goal when an employee or a team falls short. For instance, students who get
a low score on a test often attack the grade cut-off standards as too high. Rather than
accept the fact that their performance was inadequate, they will argue that the standards
are unreasonable. Likewise, salespeople who don’t meet their monthly quota often want
to blame what they think is an unrealistic quota. The point is that when performance
isn’t up to par, don’t immediately blame the goal or standard. If you believe the standard
is realistic, fair, and achievable, tell employees that you expect future work to improve,
and then take the necessary corrective action to help make that happen.

Managerial Decisions in Controlling

Exhibit 18-6 summarizes the decisions a manager makes in controlling. The standards
are goals developed during the planning process. These goals provide the basis for
the control process, which involves measuring actual performance and comparing it
against the standard. Depending on the results, a manager’s decision is to do nothing,
correct the performance, or revise the standard.

Watch It 1! If your professor has assigned this, go to www.mymanagementlab.com to watch a video
titled: CH2MHill: Foundations of Control and to respond to questions.

Chapter 18  Controlling Activities and Operations 637

Exhibit 18-6 Is Yes
standard
Managerial Decisions in the Control Process Do nothing
being Do nothing
Compare attained?
actual Identify
cause of
performance variation
with standard Correct
performance
No Yes
Is
Measure
actual variance
acceptable?
performance
Objectives Standard No
Is
Yes
standard
acceptable?

No

Revise
standard

CONTROLLING for organizational and

employee performance

LO18.3 Cost efficiency. The length of time customers are kept on hold. Cus-
tomer satisfaction with service provided. These are just a few of the
important performance indicators that executives in the intensely competitive call-
center service industry measure. To make good decisions, managers in this indus-
try want and need this type of information so they can manage organizational and
employee performance. Managers in all types of businesses are responsible for manag-
ing organizational and employee performance.

What Is Organizational Performance? performance
The end result of an activity
When you hear the word performance, what do you think of ? A summer evening con-
cert by a local community orchestra? An Olympic athlete striving for the finish line in a organizational performance
close race? A Southwest Airlines ramp agent in Ft. Myers, Florida, loading passengers The accumulated results of all the
as efficiently as possible in order to meet the company’s 20-minute gate turnaround organization’s work activities
goal? Performance is all of these things. It’s the end result of an activity. And whether
that activity is hours of intense practice before a concert or race or whether it’s car-
rying out job responsibilities as efficiently and effectively as possible, performance is
what results from that activity.

Managers are concerned with organizational performance—the accumulated
results of all the organization’s work activities. It’s a multifaceted concept, but man-
agers need to understand the factors that contribute to organizational performance.
After all, it’s unlikely that they want (or intend) to manage their way to mediocre per-
formance. They want their organizations, work units, or work groups to achieve high
levels of performance.

638 Part 6 Controlling

Peter Hong, merchandise manager for Adidas, Measures of Organizational Performance
display’s the firm’s Battle Pack soccer boots
and Brazuca soccer ball. According to a global How does a professional sports team measure organization-
survey of 200,000 business students, Adidas al performance? The team manager of Manchester United
ranks in the top 50 list of the world’s most measures performance differently than the corporate owners.
attractive employers. This ranking of Adidas Manager Jose Mourinho evaluates the football team and its
as an ideal employer is one way that the firm’s players on the basis of goals scored, wins and losses, league
managers can measure their organization’s standings, and other sports-related measures. Over the years,
performance. Manchester United has earned trophies at league champion-
Source: Anne Peterson/AP Images ships, European championships, and FIFA Club games. But
now that the team has gone public, corporate management
productivity must think about measures of business success. Executive
The amount of goods or services vice-chairman Ed Woodward evaluates Manchester United
produced divided by the inputs needed on the basis of stadium attendance and revenue, television
to generate that output broadcasting deals, commercial sponsorship deals, sales of
branded merchandise, size of team payroll, and size of the
team’s global audience for team games.14 Both the team man-
ager and corporate executives must know which measures will give them the informa-
tion they need to understand organizational performance.

ORGANIZATIONAL PRODUCTIVITY  Productivity is the amount of goods or
services produced divided by the inputs needed to generate that output. Organiza-
tions and individual work units want to be productive. They want to produce the
most goods and services using the least amount of inputs. Output is measured by the
sales revenue an organization receives when goods are sold (selling price × number
sold). Input is measured by the costs of acquiring and transforming resources into
outputs.

It’s management’s job to increase this ratio. Of course, the easiest way to do this is
to raise prices of the outputs. But in today’s competitive environment, that may not be
an option. For instance, it is difficult for Walmart to meet its objective of “Everyday
Low Prices” because it has increased pay for 1.2 million workers and is facing intense
competition from retailers such as Costco.15 The only other option, then, is to decrease
the inputs side. How? By being more efficient in performing work and thus decreasing
the organization’s expenses. Walmart has been pressuring product suppliers to lower
their prices in an effort to reduce expenses and maintain competitive store pricing.16

organizational effectiveness ORGANIZATIONAL EFFECTIVENESS  Organizational effectiveness is a mea-
A measure of how appropriate sure of how appropriate organizational goals are and how well those goals are met.
organizational goals are and how well That’s the bottom line for managers, and it’s what guides managerial decisions in
those goals are being met designing strategies and work activities and in coordinating the work of employees.

INDUSTRY AND COMPANY RANKINGS  Industry and company rankings are a
popular way for managers to measure their organization’s performance. And there’s
not a shortage of these rankings, as Exhibit 18-7 shows. Rankings are determined by
specific performance measures, which are different for each list. For instance, Fortune’s
Best Companies to Work For are chosen by answers given by thousands of randomly
selected employees on a questionnaire called “The Great Place to Work® Trust Index®”
and on materials filled out by thousands of company managers, including a corporate
culture audit created by the Great Place to Work Institute. These rankings give man-
agers (and others) an indicator of how well their company performs in comparison to
others. Wegmans Food Markets is an example of a great place to work. It has been on
the Fortune list every year since 1998. One employee shared the following sentiment:
“Management cares about its employees and always asks how we are doing when we
come into work or are just shopping.”17 It is not surprising that 97 percent of Weg-
mans’ employees said that they have great bosses and great rewards, and 98 percent
indicated that the work atmosphere is great.

Chapter 18  Controlling Activities and Operations 639

Fortune (www.fortune.com) IndustryWeek (www.industryweek.com) Exhibit 18-7

Fortune 500 IndustryWeek 1000 Popular Industry and Company
Global 500 IndustryWeek U.S. 500 Rankings 
World’s Most Admired Companies 50 Best Manufacturers
100 Best Companies to Work For IndustryWeek Best Plants
100 Fastest-Growing Companies
Forbes (www.forbes.com) Customer Satisfaction Indexes
World’s Biggest Public Companies American Customer Satisfaction Index—
University of Michigan Business School
Customer Satisfaction Measurement
Association

Controlling for Employee Performance  disciplinary actions
Actions taken by a manager to enforce
Since managers manage employees, they also have to be concerned about controlling for the organization’s work standards and
employee performance; that is, making sure employees’ work efforts are of the quantity regulations
and quality needed to accomplish organizational goals. How do managers do that? By
following the control process: measure actual performance; compare that performance FYI
to standard (or expectations); and take action, if needed. It’s particularly important for
managers to deliver effective performance feedback and to be prepared, if needed, to use • 73 percent of managers say they
disciplinary actions—actions taken by a manager to enforce the organization’s work deliver difficult feedback well
standards and regulations.18 Let’s look first at effective performance feedback. although they struggle with it
sometimes and it doesn’t always
DELIVERING EFFECTIVE PERFORMANCE FEEDBACK  Throughout the semes- go perfectly.19
ter, do you keep track of all your scores on homework, exams, and papers? If you do,
why do you like to know that information? For most of us, it’s because we like to know
where we stand in terms of where we’d like to be and what we’d like to accomplish in
our work. We like to know how we’re doing. Managers need to provide their employ-
ees with feedback so that the employees know where they stand in terms of their work.
When giving performance feedback, both parties need to feel heard, understood, and
respected. And if done that way, positive outcomes can result. “In a productive per-
formance discussion, organizations have the opportunity to reinforce company values,
strengthen workplace culture, and achieve strategic goals.”20 Sometimes, however, per-
formance feedback doesn’t work. An employee’s performance may continue to be an
issue. Under those circumstances, disciplinary actions may be necessary to address the
problems.

Providing Good Feedback—If your instructor is using Pearson MyLab Management, It’s Your Career
log onto mymanagementlab.com and test your providing good feedback knowledge.
Be sure to refer back to the chapter opener!

USING DISCIPLINARY ACTIONS  Fortunately, most employees do their jobs well progressive disciplinary action
and never need formal correction. Yet, sometimes it is needed. Exhibit 18-8 lists An approach to ensure that the minimum
some common types of work discipline problems and examples of each. In those penalty appropriate to the offense is
circumstances, it’s important for a manager to know what the organization’s policies imposed
are on discipline. Is there a process for dealing with unsatisfactory job performance?
Do warnings need to be given when performance is inadequate? What happens
if, after the warnings, performance or the troublesome behavior doesn’t improve?
Progressive disciplinary action policies help managers to answer these questions.
Progressive disciplinary action is intended to ensure that the minimum penalty
appropriate to the offense is imposed.21 The typical progression begins with a verbal

640 Part 6 Controlling PROBLEM TYPE EXAMPLES OF EACH
Attendance
Exhibit 18-8 On-the-Job Absenteeism, tardiness, abuse of sick leave
Behaviors
Types of Discipline Problems and Dishonesty Insubordination, failure to use safety devices,
Examples of Each alcohol or drug abuse
Outside Activities Theft, lying to supervisors, falsifying information
on employment application or on other
organizational forms
Criminal activities, unauthorized strike activities,
working for a competing organization (if no-compete
clause is part of employment)

warning and proceeds through a written warning, suspension, and, only in the most
serious cases, dismissal. Still, disciplinary actions are never easy or pleasant; how-
ever, discipline can be used to both control and correct employee performance, and
managers must know how to discipline. Don Crosby, vice president of international
and corporate HR at McDonald’s, said, “It’s the hardest thing a manager has to do.
It’s also rocky terrain for many executives, who simply do not know when or how
to hold the stick, swinging it haphazardly and inconsistently, striking too hard, too
soft, or not at all.”22

REALlegte’st
The Scenario:

Malik Green knows today is going to Source: Kevin Krossber
be challenging. As the manager of the
pool at the local community center,
safety is his top priority. Today he must
give a disciplinary action to a part-time
lifeguard who failed to follow safety
procedures during a shift change at the
pool. While he knows he needs to give Kevin Krossber
the employee a warning, he is nervous Director of Operations

about the disciplinary meeting. He wants to make sure he provides a
clear warning and also encourages the lifeguard to use proper safety
procedures moving forward.

What advice can you give Malik about giving the disciplinary action?

Prepare yourself for the conversation by having your talking points
clearly defined to explain the logic behind your coaching of the policy.
It is important to explain the reasoning behind the safety procedures
being enforced. By doing so the manager earns credibility that the
culture he or she desires to create is built from commitment rather
than compliance. Give the employee an opportunity to ask questions,
define your expectations and be sure the policy being enforced is
clearly understood.

Chapter 18  Controlling Activities and Operations 641

WORKPLACE CONFIDENTIAL Responding to an Unfair Performance Review

A recent survey of 1000 full-time employees, all born after The goal should be to eliminate surprises in your annual re-
1980, found a great deal of frustration with their performance view. You want to know if you’re underperforming as soon
reviews. Sixty-two percent, for instance, felt “blindsided” by as your boss is concerned so you can correct the problem
their reviews; 74 percent frequently felt unsure as to what quickly. The idea is to discourage your boss from accumulat-
their managers thought of their performance; 22 percent ing performance problems, then unloading them in the an-
called in sick because they were anxious about their reviews; nual review.
and 28 percent reacted to their reviews by looking for an-
other job. Our conclusion: It’s very possible that sometime Do you want to push back? What if you take issue with
in your career you’ll experience frustration as a result of your your boss’s assessment? If you’re convinced your boss’s
performance review. evaluation if unfair, you have a serious decision to make. Do
you let the evaluation go or do you challenge it? Both have
It might surprise you to learn that most bosses actually risks. Ignoring a negative review may begin your boss’s effort
dislike performance reviews. Why? First, managers are often to terminate your employment. On the other hand, challeng-
uncomfortable discussing performance weaknesses directly ing your boss’s assessment could escalate a conflict that has
with employees because they fear a confrontation when long-term career implications.
presenting negative feedback. Second, many employees
become defensive when their weaknesses are pointed out. If you truly feel your review is unfair, there is always a
It’s not uncommon for employees to challenge the evaluation possibility to change the decision in your favor. However, be-
by criticizing the manager or redirecting blame to someone fore you protest your boss’s decision, consider your organiza-
else. Finally, employees tend to have an inflated assessment tion’s culture and talk to your colleagues to assess how those
of their own performance. Statistically speaking, half of all who have challenged a bad performance review in the past
employees must be below-average performers. But the evi- were treated.
dence indicates that the average employee’s estimate of his
or her performance level generally falls around the 75th per- Challenging your performance appraisal. If you decide to
centile. So even when managers are providing good news, challenge your performance appraisal, here are a few sug-
employees are likely to perceive it as not good enough! gestions: (1) Request a copy of your appraisal so you can bet-
ter process the information. (2) Determine what exact as-
The above offers some clues on how best to handle a pects of the appraisal that you disagree with. (3) Schedule a
performance evaluation that you feel isn’t fair: meeting with your boss to provide your evidence in support
of your position. (4) If the meeting with your boss fails to
Listen closely to what your boss is saying. The place achieve the ends you desire, present your case to your Hu-
to begin is to listen carefully to the specifics in your review. man Resources department—but let your boss know ahead
What exactly is your boss saying? Don’t interrupt your boss of time of your intention.
as she goes over your review. You specifically want to have
clarity on the negative comments. Let your boss complete Writing a rebuttal. If you decide to challenge your review,
her review and make sure you understand her concerns be- you will want to write up a formal rebuttal. It should be short
fore you initiate a response. and to the point. Don’t attack your boss or the organization.
Stay positive and respectful, and control your anger or other
Be prepared to accept that there might be truth in some negative emotions. Finally, address only the specific issues
or all of the negative comments. As we noted above, we within the review that you feel were unfair.
have a tendency to overestimate our own performance level.
Your boss’s assessment may be more accurate than your The worst-case scenario. If you see that your perfor-
self-evaluation. mance review is really just a precursor to being let go, don’t
despair. This may be an opportunity in disguise. It might just
Stay calm and cool, and avoid being defensive. Control be the impetus you need to find your true calling. As we
your emotions and your tongue. Don’t get angry and say noted in Chapter 10, there is no shortage of people who
something you’ll regret. Don’t react by diverting blame, giv- turned being “fired” into a success story. Thomas Edison
ing excuses, or getting into a debate with your boss. As you was dismissed from his night-shift telegraph operator job at
seek clarity, pay attention to your tone so it doesn’t appear Western Union. Robert Redford was sacked from a manual
that you’re challenging the truthfulness of her feedback. At labor job at Standard Oil. Madonna was let go after only one
this point, just treat her negative comments as constructive day as a counter clerk at Dunkin’ Donuts. And early in his
criticism. career, billionaire Mark Cuban was fired from his job as a
computer-store salesman.
Ask what you can do to improve. Asking for suggestions
on what you might do to improve can work for you in two Sources: Based on S.P. Robbins, The Truth About Managing People, 3rd
ways. First, it shows your acceptance of the criticism. Sec- ed. (Upper Saddle River, NJ: Pearson Education, 2013), pp. 199–201; “How
ond, it indicates your willingness to change. to Handle an Unfair or Negative Performance Review at Work,” hubpages.
com, November 5, 2014; “Survey: Performance Reviews Drive One in Four
Request more feedback between reviews. Once you un- Millennials to Search for a New Job or Call in Sick,” newstex finance & ac-
derstand the content of your performance review and what counting blogs, October 28, 2015; and “How to Write a Rebuttal to Unfair
you need to improve, you should talk to your boss about the Performance Review,” arkadylaw.com, November 16, 2015.
possibility of getting more feedback between formal reviews.

642 Part 6 Controlling TOOLS for measuring organizational performance

feedforward control LO18.4 • Missoni-loving fashionistas scrambling to buy the high-end Italian
Control that takes place before a work designer’s clothes at Target crashed the company’s website. Target
activity is done executives admitted being unprepared for online shoppers’ demand for the items.
• When someone typed the word “bailout” into a Domino’s promo code window
and found it was good for a free medium pizza, the news spread like wildfire across
the Web. Domino’s ended up having to give away thousands of free pizzas.
• A simple mistyped Web address by a Google employee caused all search results
worldwide during a 55-minute period to warn, “This site may be harmful to your
computer,” even though it wasn’t.23

What kinds of tools could managers at these companies have used for monitoring and
measuring performance?

All managers need appropriate tools for monitoring and measuring organiza-
tional performance. Before describing some specific types of control tools, let’s look at
the concept of feedforward, concurrent, and feedback control.

Feedforward/Concurrent/Feedback Controls

Managers can implement controls before an activity begins, during the time the activity is
going on, and after the activity has been completed. The first type is called feedforward
control; the second, concurrent control; and the last, feedback control (see Exhibit 18-9).

FEEDFORWARD CONTROL  The most desirable type of control—feedforward
control—prevents problems because it takes place before the actual activity.24 For
instance, hospital emergency rooms are looking to prevent mistakes such as an 18-year-
old with fever and chills being sent home from the emergency room with Tylenol and
later dying of sepsis, a blood infection; or a 42-year-old woman with chest pains being
discharged, only to suffer a heart attack two hours later. Medical experts know that a
serious ailment can look a lot like something else in the hubbub and chaos of the ER.
So that’s why many are setting protocols and oversights in place to prevent these kinds
of mistakes.25 When McDonald’s opened its first restaurant in Moscow, it sent com-
pany quality control experts to help Russian farmers learn techniques for growing high-
quality potatoes and to help bakers learn processes for baking high-quality breads. Why?
McDonald’s demands consistent product quality no matter the geographical location.
They want a cheeseburger in Moscow to taste like one in Omaha. Still another example
of feedforward control is the scheduled preventive maintenance programs on nuclear
power plants done by energy companies. These programs are designed to detect and
hopefully to prevent malfunctions that might lead to an accident.

The key to feedforward controls is taking managerial action before a problem
occurs. That way, problems can be prevented rather than having to correct them after
any damage (poor-quality products, lost customers, lost revenue, etc.) has already been
done. However, these controls require timely and accurate information that isn’t always
easy to get. Thus, managers frequently end up using the other two types of control.

Exhibit 18-9 Input Processes Output

Types of Control Feedforward Concurrent Feedback
Control Control Control
Corrects Corrects
Anticipates
problems problems as problems after
they happen they occur

Chapter 18  Controlling Activities and Operations 643

CONCURRENT CONTROL  Concurrent control, as its name implies, takes place concurrent control
while a work activity is in progress. For instance, Nicholas Fox is director of busi- Control that takes place while a work
ness product management at Google. He and his team keep a watchful eye on one of activity is in progress
Google’s most profitable businesses—online ads. They watch “the number of searches
and clicks, the rate at which users click on ads, the revenue this generates—everything management by walking around
is tracked hour by hour, compared with the data from a week earlier and charted.”26 A term used to describe when a
If they see something that’s not working particularly well, they fine-tune it. There manager is out in the work area
are many examples of concurrent control taking place in manufacturing settings. For interacting directly with employees
example, upholsterers for Rolls-Royce vehicles remove blemishes on leather hides
before fitting them to the seat frames. The ongoing monitoring of material quality and
proper assembly at every stage virtually eliminates producing a substandard product.

The best-known form of concurrent control is direct supervision. Another term
for it is management by walking around, which is when a manager is in the work
area interacting directly with employees. For example, Michael Bowman, former CEO
of Valley Forge Casino Resort, worked alongside housekeepers to clean guest rooms.27
He observed that it was taking too long to travel from one room to the next. By observ-
ing and listening to the housekeepers, Bowman learned that lengthy wait times for
elevators were slowing them down. One housekeeper offered a solution: “Just block
this elevator off from 7:00 in the morning until 9:00, so we just have it for the top
floors.”28 Implementing this suggestion led to more rooms being cleaned on a timely
basis.  Bowman could have easily assumed that the housekeepers were just slacking off
had he not been on the scene. Even GE’s CEO, Jeff Immelt, spends a large portion of
his workweek on the road talking to employees and visiting the company’s numerous
locations.29 All managers can benefit from using concurrent control, but especially
first-line managers, because they can correct problems before they become too costly.

FEEDBACK CONTROL  The most popular type of control relies on feedback. In feedback control
feedback control, the control takes place after the activity is done. For instance, the Control that takes place after a work
Denver Mint discovered the flawed Wisconsin quarters using feedback control. The activity is done
damage had already occurred, even though the organization corrected the problem
once it was discovered. And that’s the major problem with this type of control. By the
time a manager has the information, the problems have already occurred, leading to
waste or damage. However, in many work areas (for example, financial), feedback is
the only viable type of control.

Feedback controls have two advantages.30 First, feedback gives managers mean-
ingful information on how effective their planning efforts were. Feedback that shows
little variance between standard and actual performance indicates that the planning
was generally on target. If the deviation is significant, a manager can use that informa-
tion to formulate new plans. Second, feedback can enhance motivation. People want
to know how well they’re doing and feedback provides that information. Now, let’s
look at some specific control tools that managers can use.

Financial Controls

Every business wants to earn a profit. To achieve this goal, managers need financial
controls. For instance, they might analyze quarterly income statements for excessive
expenses. They might also calculate financial ratios to ensure that sufficient cash is
available to pay ongoing expenses, that debt levels haven’t become too high, or that
assets are used productively.

Managers might use traditional financial measures such as ratio analysis and
budget analysis. Exhibit 18-10 summarizes some of the most popular financial ratios.
Liquidity ratios measure an organization’s ability to meet its current debt obligations.
Leverage ratios examine the organization’s use of debt to finance its assets and whether
it’s able to meet the interest payments on the debt. Activity ratios assess how efficiently
a company uses its assets. Finally, profitability ratios measure how efficiently and effec-
tively the company uses its assets to generate profits. These ratios are calculated using
selected information from the organization’s two primary financial statements (the

644 Part 6 Controlling

Exhibit 18-10 Objective Ratio Calculation Meaning
Liquidity Current ratio
Popular Financial Ratios  Current assets Tests the organization’s
Leverage Acid test Current liabilities ability to meet short-term
Activity obligations
Debt to assets Current assets less inventories
Profitability Current liabilities Tests liquidity more
Times interest accurately when
earned Total debt inventories turn over
Inventory Total assets slowly or are difficult
turnover to sell
Total asset
turnover The higher the ratio, the
more leveraged the
Profit margin organization
on sales
Return on Profits before interest and taxes Measures how many times
investment
Total interest charges the organization is able to

meet its interest expenses

Sales The higher the ratio, the
Inventory more efficiently inventory
assets are used

Sales The fewer assets used to
Total assets achieve a given level of
sales, the more efficiently
management uses the
organization’s total assets

Net profit after taxes Identifies the profits that
Total sales are generated

Net profit after taxes Measures the efficiency of
Total assets assets to generate profits

balance sheet and the income statement), which are then expressed as a percentage
or ratio. Because you’ve probably studied these ratios in other accounting or finance
courses, or will in the near future, we aren’t going to elaborate on how they’re calcu-
lated. We mention them here to remind you that managers use such ratios as internal
control tools.

REALlegte’st
The Scenario:

Lily Wong manages a product testing lab. Source: Alfonso Marrese
Although her team works normal hours (8 to 5),
there are times when the product testers need
to work after hours or even on the weekend.
She doesn’t have a supervisor there when
these associates are working but is wondering
whether she needs to.

What would you suggest to Lily? Alfonso Marrese
Retail Executive
Lily needs to start training a few of her key
associates to become lead associates. When the supervisor or manager
is not around, the lead associate can oversee the project. By doing this,
she can have a group of associates work on the weekend with the lead
to get more of the projects done. You always need a supervisor around.
While the associates are working, the lead will keep them focused and
will keep the project going.

Chapter 18  Controlling Activities and Operations 645

Budgets are planning and control tools. (See the Planning and Control Techniques management information system
module for more information on budgeting.) When a budget is formulated, it’s a planning (MIS)
tool because it indicates which work activities are important and what and how much A system used to provide management
resources should be allocated to those activities. But budgets are also used for control- with needed information on a regular
ling, because they provide managers with quantitative standards against which to mea- basis
sure and compare resource consumption. If deviations are significant enough to require
action, the manager examines what has happened and tries to uncover why. With this Software engineers at General Electric
information, necessary action can be taken. For example, if you use a personal budget for Company’s Diagnostic and Monitoring iCenter
monitoring and controlling your monthly expenses, you might find that one month your in Kuala Lumpur, Malaysia, remotely monitor
miscellaneous expenses were higher than you had budgeted for. At that point, you might the performance of customers’ oil and gas
cut back spending in another area or work extra hours to get more income. equipment to acquire and analyze data such
as temperature and pressure. The purpose
Information Controls of monitoring the equipment is to provide
customers with valuable information that helps
During the most critical—and worst possible—time period for retailers, Target Cor- them operate it at the highest levels of safety,
poration found that cybercriminals caused an enormous data breach in late 2013. Six efficiency, and reliability.
months after the attack, Target executives were still trying to fix the mess. Cyberat- Source: Goh Seng Chong/Bloomberg/Getty
tackers from China targeted Google and 34 other companies in an attempt to steal in- Images
formation. A large criminal theft of credit card data—account information belonging
to millions of people—happened to Heartland Payment Systems, a payments proces-
sor. American Express found its Web site under attack, one of several powerful at-
tacks on American financial institutions. An ex-worker at Goldman Sachs stole “black
box” computer programs that Goldman uses to make lucrative, rapid-fire trades in
the financial markets. Even the U.S. government is getting serious about controlling
information. For instance, former Secretary of State Hillary Clinton was under inves-
tigation for using a personal e-mail server to send official communications. Financial
market sensitive data (think Consumer Price Index, housing starts, inflation numbers,
gas prices, corn yields, etc.) will be guarded as a precaution against anyone who might
want to take advantage of an accidental or covert leak to get an insider’s edge in the
financial markets.31 Talk about the need for information controls! Managers deal with
information controls in two ways: (1) as a tool to help them control other organiza-
tional activities and (2) as an organizational area they need to control.

HOW IS INFORMATION USED IN CONTROLLING? 
Managers need the right information at the right time and
in the right amount to monitor and measure organizational
activities and performance.

In measuring actual performance, managers need
information about what is happening within their area of
responsibility and about the standards in order to be able to
compare actual performance with the standards. They also
rely on information to help them determine if deviations are
acceptable. Finally, they rely on information to help them
develop appropriate courses of action. Information is impor-
tant! Most of the information tools managers use come from
the organization’s management information system.

A management information system (MIS) is a sys-
tem used to provide managers with needed information on a
regular basis. In theory, this system can be manual or com-
puter based, although most organizations have moved to computer-supported appli-
cations. The term system in MIS implies order, arrangement, and purpose. Further,
an MIS focuses specifically on providing managers with information (processed and
analyzed data), not merely data (raw, unanalyzed facts). A library provides a good
analogy. Although it can contain millions of volumes, a library doesn’t do you any
good if you can’t find what you want quickly. That’s why librarians spend a great deal
of time cataloging a library’s collections and ensuring that materials are returned to
their proper locations. Organizations today are like well-stocked libraries. The issue
is not a lack of data; instead, the issue is whether an organization has the ability to

646 Part 6 Controlling process that data so that the right information is available to the right person when
he or she needs it. An MIS collects data and turns them into relevant information for
balanced scorecard managers to use.
A performance measurement tool that
looks at more than just the financial CONTROLLING INFORMATION  Using pictures of a cute kitty attached to e-mails
perspective or as a link, companies are using “ethical hackers” to demonstrate how easily employ-
ees can put company data at risk by clicking on them.32 Although these cute kitties are
simulated attacks, it seems that every week, there’s another news story about actual
information security breaches. A survey shows that 60 percent of companies had a
network security breach in the past year.33 Because information is critically impor-
tant to everything an organization does, managers must have comprehensive and
secure controls in place to protect that information. Such controls can range from
data encryption to system firewalls to data back-ups, and other techniques as well.34
Problems can lurk in places that an organization might not have considered, like blogs,
search engines, and Twitter accounts. Sensitive, defamatory, confidential, or embar-
rassing organizational information has found its way into search engine results. For
instance, after Sony Pictures Entertainment’s e-mail servers were hacked, unflatter-
ing comments about numerous actors, directors, and producers showed up in Web
searches.35 Equipment such as tablet and laptop computers, smartphones, and even
RFID tags are vulnerable to viruses and hacking. Needless to say, information con-
trols should be monitored regularly to ensure that all possible precautions are in place
to protect important information.

Balanced Scorecard

The balanced scorecard approach is a way to evaluate organizational performance
from more than just the financial perspective.36 A balanced scorecard typically looks
at four areas that contribute to a company’s performance: financial, customer, internal
processes, and people/innovation/growth assets. According to this approach, manag-
ers should develop goals in each of the four areas and then measure whether the goals
are being met.

Although a balanced scorecard makes sense, managers will tend to focus on areas
that drive their organization’s success and use scorecards that reflect those strategies.37
For example, if strategies are customer-centered, then the customer area is likely to
get more attention than the other three areas. Yet, you can’t focus on measuring only
one performance area because others are affected as well. For instance, the United
Kingdom treasury recommends that financial firms link executive teams to gender
balance.38 This recommendation is based on several studies that showed more diverse
leadership leads to better financial returns. At IBM Global Services in Houston, man-
agers developed a scorecard around an overriding strategy of customer satisfaction.
However, the other areas (financial, internal processes, and people/innovation/growth)
support that central strategy. The division manager described it as follows, “The inter-
nal processes part of our business is directly related to responding to our customers
in a timely manner, and the learning and innovation aspect is critical for us since what
we’re selling our customers above all is our expertise. Of course, how successful we are
with those things will affect our financial component.”39

Benchmarking of Best Practices

The Cleveland Clinic is world renowned for delivering high-quality health care, with
a top-ranked heart program that attracts patients from around the world. But what
you may not realize is that it’s also a model of cost-effective health care.40 It could
serve as a model for other health care organizations looking to be more effective and
efficient.

Managers in such diverse industries as health care, education, and financial
services are discovering what manufacturers have long recognized—the benefits

Chapter 18  Controlling Activities and Operations 647

of benchmarking, which is the search for

LEADER making athe best practices among competitors or non-
DIFFERENCEcompetitors that lead to their superior perfor-
mance. Benchmarking should identify various
benchmarks, the standards of excellence
against which to measure and compare. For Walt Disney Company is one of the world’s largest
instance, chef Claude Bosi sees a Michelin
Guide star rating as a key performance Source: Stewart Cook/Rex Features/AP Images entertainment and media companies and has had
benchmark for the high quality of his French a long record of success.46 When Bob Iger was
restaurant in London.41 Australian dairy farm- named CEO in 2005, analysts believed that the Dis-
ers benchmark performance on sustainability ney brand had become outdated. The perception
targets using the nationwide industry bench- was that there were too many Disney products in
the marketplace lacking the quality people ex-

mark of reducing greenhouse gas emissions pected. Iger decided to address that perception with what he called

by 30 percent by 2020.42 Following its motto, the Disney Difference. What is the Disney Difference? It’s taking
“the best or nothing,” the German automaker
Mercedes-Benz benchmarks improvements the content created company-wide and spreading it out over many

against the best of what competing luxury different markets and in many different forms. The company’s new,
carmakers offer.43 Many airlines benchmark
against the service quality of Hong Kong’s obsessive focus on product quality led it to a number-seven ranking
Cathay Pacific Airlines, which has been named in Fortune’s Most Admired list for 2014. What can you learn from this
leader making a difference?

the world’s best carrier four times.44 Irish
supermarkets, pharmacies, and other retail
businesses strive to meet the benchmarks for benchmarking
service and customer engagement achieved by winners of the annual Retail Excellence The search for the best practices among
competitors or noncompetitors that lead
Awards.45 At its most basic, benchmarking means learning from others. As a tool for to their superior performance
monitoring and measuring organizational performance, benchmarking can be used to
identify specific performance gaps and potential areas of improvement. But best prac-
tices aren’t just found externally.
benchmark

Sometimes those best practices can be found inside the organization and just need The standard of excellence against
to be shared. One fertile area for finding good performance improvement ideas is an which to measure and compare
employee suggestion box, which was discussed in Chapter 14. Research shows that best
practices frequently already exist within an organization but usually go unidentified
and unnoticed.47 In today’s environment, organizations seeking high performance lev-
els can’t afford to ignore such potentially valuable information. For example, Ameren
Corporation’s power plant managers used internal benchmarking to help identify per-
formance gaps and opportunities.48 Beer producer SABMiller initiated an ambitious
cost-cutting plan that is based on centralizing manufacturing, finance, and strategy.
These efforts are expected to double annual cost savings to at least $1.05 billion by
2020.49 Exhibit 18-11 provides some suggestions for internal benchmarking.

If your professor has assigned this, go to www.mymanagementlab.com to complete the Try It!
Simulation: Controlling and get a better understanding of the challenges of monitor-
ing and controlling in organizations.

CONTEMPORARY issues in control

LO18.5 The employees of Integrated Information Systems, Inc. didn’t think twice
about exchanging digital music over a dedicated office server they had set
up. Like office betting on college and pro sports, it was technically illegal, but harmless,
or so they thought. But after the company had to pay a $1 million settlement to the
Recording Industry Association of America, managers wished they had controlled the
situation better.50 Control is an important managerial function. We’re going to look at
six control issues that managers face today: cross-cultural differences, workplace privacy,
employee theft, workplace violence, customer interactions, and corporate governance.

648 Part 6 Controlling 1. C onnect best practices to strategies and goals.The organization’s strategies
and goals should dictate what types of best practices might be most valuable
Exhibit 18-11 to others in the organization.

Suggestions for Internal 2.  Identify best practices throughout the organization. Organizations must have
Benchmarking  a way to find out what practices have been successful in different work areas
and units.

3.  Develop best practices reward and recognition systems. Individuals must be
given an incentive to share their knowledge.The reward system should be
built into the organization’s culture.

4.  Communicate best practices throughout the organization. Once best practices
have been identified, that information needs to be shared with others in the
organization.

5.  Create a best practices knowledge-sharing system.There needs to be a formal
mechanism for organizational members to continue sharing their ideas and
best practices.

6.  Nurture best practices on an ongoing basis. Create an organizational culture
that reinforces a “we can learn from everyone” attitude and emphasizes
sharing information.

Source: Based on “Extracting Diamonds in the Rough,” byTad Leahy, from Business Finance, August 2000.

Adjusting Controls for Cross-Cultural Differences and
Global Turmoil

The concepts of control that we’ve been discussing are appropriate for an organization
whose work units are not geographically separated or culturally distinct. But control
techniques can be quite different for different countries. The differences are primar-
ily in the measurement and corrective action steps of the control process. In a global
corporation, managers of foreign operations tend to be less controlled by the home
office, if for no other reason than the distance keeping managers from being able to
observe work directly. Because distance creates a tendency to formalize controls, such
organizations often rely on extensive formal reports for control, most of which are
communicated electronically.

Technology’s impact on control is also seen when comparing technologically
advanced nations with less technologically advanced countries. Managers in coun-
tries where technology is more advanced often use indirect control devices such as
computer-generated reports and analyses in addition to standardized rules and direct
supervision to ensure that work activities are going as planned. In less technologically
advanced countries, however, managers tend to use more direct supervision and highly
centralized decision making for control.

Managers in foreign countries also need to be aware of constraints on investigat-
ing complaints and corrective actions they can take. Some countries’ laws prohibit
closing facilities, laying off employees, taking money out of the country, or bringing in
a new management team from outside the country.

Another challenge for global managers in collecting data for measurement and
comparison is comparability. For instance, a company that manufactures apparel in
Cambodia might produce the same products at a facility in Scotland. However, the
Cambodian facility might be more labor intensive than its Scottish counterpart to
take advantage of lower labor costs in Cambodia. This difference makes it hard to
compare, for instance, labor costs per unit.

Finally, global organizations need to have controls in place for protecting their
workers and other assets during times of global turmoil and disasters. For instance,
when the earthquake/tsunami hit Japan in March 2011, companies scrambled to acti-
vate their disaster management plans. In the volatile Middle East, many companies
have had to evacuate workers during times of crisis. The best time to be prepared

Chapter 18  Controlling Activities and Operations 649

is before an emergency occurs, and many organizations are doing just that, so that
if a crisis occurs, employees and other organizational assets are protected as best as
possible.

Workplace Privacy

If you work, do you think you have a right to privacy at your job? What can your
employer find out about you and your work? You might be surprised at the answers!
Employers can (and do), among other things, read your e-mail (even those marked
“personal” or “confidential”), tap your telephone, monitor your work by computer,
store and review computer files, monitor you in an employee bathroom or dressing
room, and track your whereabouts in a company vehicle. And these actions aren’t that
uncommon.

One survey indicates that 66 percent of U.S. companies monitor Internet use,
45 percent log keystrokes, and 43 percent track e-mails.51 There are consequences for
employees who inappropriately surf the Web or use e-mail. And some companies do
not limit monitoring computer use to just the office. For instance, UPS tracks the loca-
tion of delivery drivers, driving speed, and the number of daily deliveries. Their efforts
have paid off. Tracking has allowed the company to deliver 1.4 million more packages
per day with 1,000 fewer drivers.52

Some 26 percent of companies have fired an employee for e-mail misuse; 26 per-
cent have fired workers for misusing the Internet; 6 percent have fired employees for
inappropriate cell phone use; 4 percent have fired someone for instant messaging mis-
use; and 3 percent have fired someone for inappropriate text messaging.53

Why do managers feel they need to monitor what employees are doing? A big
reason is that employees are hired to work, not to surf the Web checking stock
prices, watching online videos, playing fantasy baseball, or shopping for presents
for family or friends. Recreational on-the-job Web surfing is thought to cost bil-
lions of dollars in lost work productivity annually. In fact, a survey of U.S. employ-
ers said that 87 percent of employees look at non-work-related Web sites while at
work and more than half engage in personal Web site surfing every day.54 Watch-
ing online videos has become an increasingly serious problem not only because
of the time being wasted by employees but also because it clogs already-strained
corporate computer networks.55 All this nonwork adds up to significant costs to
businesses.

Another reason why managers monitor employee e-mail and computer usage
is that they don’t want to risk being sued for creating a hostile workplace envi-
ronment because of offensive messages or an inappropriate image displayed on a
coworker’s computer screen. Concerns about racial or sexual harassment are one
reason companies might want to monitor or keep back-up copies of all e-mail.
Electronic records can help establish what actually happened so managers can
react quickly.56

Finally, managers want to ensure that company secrets aren’t being leaked.57 In
addition to typical e-mail and computer usage, companies are monitoring instant mes-
saging and banning camera phones in the office. Managers need to be certain that
employees are not, even inadvertently, passing information on to others who could use
that information to harm the company.

Because of the potentially serious costs and given the fact that many jobs now
entail computers, many companies have workplace monitoring policies. Such policies
should control employee behavior in a nondemeaning way, and employees should be
informed about those policies.58

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Writing Assignment MGMT 3: Technology.