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The management of a company that I shall call Stygian Chemical Industries, Ltd., must decide whether to build a small plant or a large one to manufacture a new product with an expected market life of ten years. The decision hinges on what size the market for the product will be.

Possibly demand will be high during the initial two years but, if many initial users find the product unsatisfactory, will fall to a low level thereafter. Or high initial demand might indicate the possibility of a sustained high-volume market. If demand is high and the company does not expand within the first two years, competitive products will surely be introduced.

If the company builds a big plant, it must live with it whatever the size of market demand. If it builds a small plant, management has the option of expanding the plant in two years in the event that demand is high during the introductory period; while in the event that demand is low during the introductory period, the company will maintain operations in the small plant and make a tidy profit on the low volume.

Management is uncertain what to do. The company grew rapidly during the 1950's; it kept pace with the chemical industry generally. The new product, if the market turns out to be large, offers the present management a chance to push the company into a new period of profitable growth. The development department, particularly the development project engineer, is pushing to build the large-scale plant to exploit the first major product development the department has produced in some years.

The chairman, a principal stockholder, is wary of the possibility of large unneeded plant capacity. He favors a smaller plant commitment, but recognizes that later expansion to meet high-volume demand would require more investment and be less efficient to operate. The chairman also recognizes that unless the company moves promptly to fill the demand which develops, competitors will be tempted to move in with equivalent products.

The Stygian Chemical problem, oversimplified as it is, illustrates the uncertainties and issues that business management must resolve in making investment decisions. (I use the term "investment" in a broad sense, referring to outlays not only for new plants and equipment but also for large, risky orders, special marketing facilities, research programs, and other purposes.) These decisions are growing more important at the same time that they are increasing in complexity. Countless executives want to make them better-but how?

In this article I shall present one recently developed concept called the "decision tree," which has tremendous potential as a decision-making tool. The decision tree can clarify for management, as can no other analytical tool that I know of, the choices, risks, objectives, monetary gains, and information needs involved in an investment problem. We shall be hearing a great deal about decision trees in the years ahead. Although a novelty to most businessmen today, they will surely be in common management parlance before many more years have passed.

Later in this article we shall return to the problem facing Stygian Chemical and see how management can proceed to solve it by using decision trees. First, however, a simpler example will illustrate some characteristics of the decision-tree approach.

Displaying Alternatives

Let us suppose it is a rather overcast Saturday morning, and you have 75 people coming for cocktails in the afternoon. You have a pleasant garden and your house is not too large; so if the weather permits, you would like to set up the refreshments in the garden and have the party there. It would be more pleasant, and your guests would be more comfortable. On the other hand, if you set up the party for the garden and after all the guests are assembled it begins to rain, the refreshments will be ruined, your guests will get damp, and you will heartily wish you had decided to have the party in the house. (We could complicate this problem by considering the possibility of a partial commitment to one course or another and opportunities to adjust estimates of the weather as the day goes on, but the simple problem is all we need.)

This particular decision can be represented in the form of a "payoff" table:

Much more complex decision questions can be portrayed in payoff table form. However, particularly for complex investment decisions, a different representation of the information pertinent to the problem-the decision tree-is useful to show the routes by which the various possible outcomes are achieved. Pierre Massé, Commissioner General of the National Agency for Productivity and Equipment Planning in France, notes:

"The decision problem is not posed in terms of an isolated decision (because today's decision depends on the one we shall make tomorrow) nor yet in terms of a sequence of decisions (because under uncertainty, decisions taken in the future will be influenced by what we have learned in the meanwhile). The problem is posed in terms of a tree of decisions." ¹

Exhibit I illustrates a decision tree for the cocktail party problem. This tree is a different way of displaying the same information shown in the payoff table. However, as later examples will show, in complex decisions the decision tree is frequently a much more lucid means of presenting the relevant information than is a payoff table.

The tree is made up of a series of nodes and branches. At the first node on the left, the host has the choice of having the party inside or outside. Each branch represents an alternative course of action or decision. At the end of each branch or alternative course is another node representing a chance event-whether or not it will rain. Each subsequent alternative course to the right represents an alternative outcome of this chance event. Associated with each complete alternative course through the tree is a payoff, shown at the end of the rightmost or terminal branch of the course.

When I am drawing decision trees, I like to indicate the action or decision forks with square nodes and the chance-event forks with round ones. Other symbols may be used instead, such as single-line and double-line branches, special letters, or colors. It does not matter so much which method of distinguishing you use so long as you do employ one or another. A decision tree of any size will always combine (a) action choices with (b) different possible events or results of action which are partially affected by chance or other uncontrollable circumstances.

Decision-event chains

The previous example, though involving only a single stage of decision, illustrates the elementary principles on which larger, more complex decision trees are built. Let us take a slightly more complicated situation:

You are trying to decide whether to approve a development budget for an improved product. You are urged to do so on the grounds that the development, if successful, will give you a competitive edge, but if you do not develop the product, your competitor may-and may seriously damage your market share. You sketch out a decision tree that looks something like the one in Exhibit II.

Your initial decision is shown at the left. Following a decision to proceed with the project, if development is successful, is a second stage of decision at Point A. Assuming no important change in the situation between now and the time of Point A, you decide now what alternatives will be important to you at that time. At the right of the tree are the outcomes of different sequences of decisions and events. These outcomes, too, are based on your present information. In effect you say, "If what I know now is true then, this is what will happen."

Of course, you do not try to identify all the events that can happen or all the decisions you will have to make on a subject under analysis. In the decision tree you lay out only those decisions and events or results that are important to you and have consequences you wish to compare. (For more illustrations, see the Appendix.)

For readers interested in further examples of decision-tree structure, I shall describe in this appendix two representative situations with which I am familiar and show the trees that might be drawn to analyze management's decision-making alternatives. We shall not concern ourselves here with costs, yields, probabilities, or expected values.

New Facility

The choice of alternatives in building a plant depends upon market forecasts. The alternative chosen will, in turn, affect the market outcome. For example, the military products division of a diversified firm, after some period of low profits due to intense competition, has won a contract to produce a new type of military engine suitable for Army transport vehicles. The division has a contract to build productive capacity and to produce at a specified contract level over a period of three years.

Figure A illustrates the situation. The dotted line shows the contract rate. The solid line shows the proposed buildup of production for the military. Some other possibilities are portrayed by dashed lines. The company is not sure whether the contract will be continued at a relatively high rate after the third year, as shown by Line A, or whether the military will turn to another newer development, as indicated by Line B. The company has no guarantee of compensation after the third year. There is also the possibility, indicated by Line C, of a large additional commercial market for the product, this possibility being somewhat dependent on the cost at which the product can be made and sold.

If this commercial market could be tapped, it would represent a major new business for the company and a substantial improvement in the profitability of the division and its importance to the company.

Management wants to explore three ways of producing the product as follows:

1. It might subcontract all fabrication and set up a simple assembly with limited need for investment in plant and equipment; the costs would tend to be relatively high and the company's investment and profit opportunity would be limited, but the company assets which are at risk would also be limited.

2. It might undertake the major part of the fabrication itself but use general-purpose machine tools in a plant of general-purpose construction. The division would have a chance to retain more of the most profitable operations itself, exploiting some technical developments it has made (on the basis of which it got the contract). While the cost of production would still be relatively high, the nature of the investment in plant and equipment would be such that it could probably be turned to other uses or liquidated if the business disappeared.

3. The company could build a highly mechanized plant with specialized fabrication and assembly equipment, entailing the largest investment but yielding a substantially lower unit manufacturing cost if manufacturing volume were adequate. Following this plan would improve the chances for a continuation of the military contract and penetration into the commercial market and would improve the profitability of whatever business might be obtained in these markets. Failure to sustain either the military or the commercial market, however, would cause substantial financial loss.

Either of the first two alternatives would be better adapted to low-volume production than would the third.

Some major uncertainties are: the cost-volume relationships under the alternative manufacturing methods; the size and structure of the future market-this depends in part on cost, but the degree and extent of dependence are unknown; and the possibilities of competitive developments which would render the product competitively or technologically obsolete.

How would this situation be shown in decision-tree form? (Before going further you might want to draw a tree for the problem yourself.) Figure B shows my version of a tree. Note that in this case the chance alternatives are somewhat influenced by the decision made. A decision, for example, to build a more efficient plant will open possibilities for an expanded market.

Plant Modernization

A company management is faced with a decision on a proposal by its engineering staff which, after three years of study, wants to install a computer-based control system in the company's major plant. The expected cost of the control system is some $30 million. The claimed advantages of the system will be a reduction in labor cost and an improved product yield. These benefits depend on the level of product throughput, which is likely to rise over the next decade. It is thought that the installation program will take about two years and will cost a substantial amount over and above the cost of equipment. The engineers calculate that the automation project will yield a 20% return on investment, after taxes; the projection is based on a ten-year forecast of product demand by the market research department, and an assumption of an eight-year life for the process control system.

What would this investment yield? Will actual product sales be higher or lower than forecast? Will the process work? Will it achieve the economies expected? Will competitors follow if the company is successful? Are they going to mechanize anyway? Will new products or processes make the basic plant obsolete before the investment can be recovered? Will the controls last eight years? Will something better come along sooner?

The initial decision alternatives are (a) to install the proposed control system, (b) postpone action until trends in the market and/or competition become clearer, or (c) initiate more investigation or an independent evaluation. Each alternative will be followed by resolution of some uncertain aspect, in part dependent on the action taken. This resolution will lead in turn to a new decision. The dotted lines at the right of Figure C indicate that the decision tree continues indefinitely, though the decision alternatives do tend to become repetitive. In the case of postponement or further study, the decisions are to install, postpone, or restudy; in the case of installation, the decisions are to continue operation or abandon.

An immediate decision is often one of a sequence. It may be one of a number of sequences. The impact of the present decision in narrowing down future alternatives and the effect of future alternatives in affecting the value of the present choice must both be considered.

Adding Financial Data

Now we can return to the problems faced by the Stygian Chemical management. A decision tree characterizing the investment problem as outlined in the introduction is shown in Exhibit III. At Decision #1 the company must decide between a large and a small plant. This is all that must be decided now. But if the company chooses to build a small plant and then finds demand high during the initial period, it can in two years-at Decision #2-choose to expand its plant.

But let us go beyond a bare outline of alternatives. In making decisions, executives must take account of the probabilities, costs, and returns which appear likely. On the basis of the data now available to them, and assuming no important change in the company's situation, they reason as follows:

Marketing estimates indicate a 60% chance of a large market in the long run and a 40% chance of a low demand, developing initially as follows:

Therefore, the chance that demand initially will be high is 70% (60 + 10). If demand is high initially, the company estimates that the chance it will continue at a high level is 86% (60 ÷ 70). Comparing 86% to 60%, it is apparent that a high initial level of sales changes the estimated chance of high sales in the subsequent periods. Similarly, if sales in the initial period are low, the chances are 100% (30 ÷ 30) that sales in the subsequent periods will be low. Thus the level of sales in the initial period is expected to be a rather accurate indicator of the level of sales in the subsequent periods.

Estimates of annual income are made under the assumption of each alternative outcome:

1. A large plant with high volume would yield $1,000,000 annually in cash flow.

2. A large plant with low volume would yield only $100,000 because of high fixed costs and inefficiencies.

3. A small plant with low demand would be economical and would yield annual cash income of $400,000.

4. A small plant, during an initial period of high demand, would yield $450,000 per year, but this would drop to $300,000 yearly in the long run because of competition. (The market would be larger than under Alternative 3, but would be divided up among more competitors.)

5. If the small plant were expanded to meet sustained high demand, it would yield $700,000 cash flow annually, and so would be less efficient than a large plant built initially.

6. If the small plant were expanded but high demand were not sustained, estimated annual cash flow would be $50,000.

It is estimated further that a large plant would cost $3 million to put into operation, a small plant would cost $1.3 million, and the expansion of the small plant would cost an additional $2.2 million.

When the foregoing data are incorporated, we have the decision tree shown in Exhibit IV. Bear in mind that nothing is shown here which Stygian Chemical's executives did not know before; no numbers have been pulled out of hats. However, we are beginning to see dramatic evidence of the value of decision trees in laying out what management knows in a way that enables more systematic analysis and leads to better decisions. To sum up the requirements of making a decision tree, management must:

1. Identify the points of decision and alternatives available at each point.

2. Identify the points of uncertainty and the type or range of alternative outcomes at each point.

3. Estimate the values needed to make the analysis, especially the probabilities of different events or results of action and the costs and gains of various events and actions.

4. Analyze the alternative values to choose a course.

Choosing Course of Action

We are now ready for the next step in the analysis-to compare the consequences of different courses of action. A decision tree does not give management the answer to an investment problem; rather, it helps management determine which alternative at any particular choice point will yield the greatest expected monetary gain, given the information and alternatives pertinent to the decision.

Of course, the gains must be viewed with the risks. At Stygian Chemical, as at many corporations, managers have different points of view toward risk; hence they will draw different conclusions in the circumstances described by the decision tree shown in Exhibit IV. The many people participating in a decision-those supplying capital, ideas, data, or decisions, and having different values at risk-will see the uncertainty surrounding the decision in different ways. Unless these differences are recognized and dealt with, those who must make the decision, pay for it, supply data and analyses to it, and live with it will judge the issue, relevance of data, need for analysis, and criterion of success in different and conflicting ways.

For example, company stockholders may treat a particular investment as one of a series of possibilities, some of which will work out, others of which will fail. A major investment may pose risks to a middle manager-to his job and career-no matter what decision is made. Another participant may have a lot to gain from success, but little to lose from failure of the project. The nature of the risk-as each individual sees it-will affect not only the assumptions he is willing to make but also the strategy he will follow in dealing with the risk.

The existence of multiple, unstated, and conflicting objectives will certainly contribute to the "politics" of Stygian Chemical's decision, and one can be certain that the political element exists whenever the lives and ambitions of people are affected. Here, as in similar cases, it is not a bad exercise to think through who the parties to an investment decision are and to try to make these assessments:

What is at risk? Is it profit or equity value, survival of the business, maintenance of a job, opportunity for a major career?

Who is bearing the risk? The stockholder is usually bearing risk in one form. Management, employees, the community-all may be bearing different risks.

What is the character of the risk that each person bears? Is it, in his terms, unique, once-in-a-lifetime, sequential, insurable? Does it affect the economy, the industry, the company, or a portion of the company?

Considerations such as the foregoing will surely enter into top management's thinking, and the decision tree in Exhibit IV will not eliminate them. But the tree will show management what decision today will contribute most to its long-term goals. The tool for this next step in the analysis is the concept of "rollback."

"Rollback" concept

Here is how rollback works in the situation described. At the time of making Decision #1 (see Exhibit IV), management does not have to make Decision #2 and does not even know if it will have the occasion to do so. But if it were to have the option at Decision #2, the company would expand the plant, in view of its current knowledge. The analysis is shown in Exhibit V. (I shall ignore for the moment the question of discounting future profits; that is introduced later.) We see that the total expected value of the expansion alternative is $160,000 greater than the no-expansion alternative, over the eight-year life remaining. Hence that is the alternative management would choose if faced with Decision #2 with its existing information (and thinking only of monetary gain as a standard of choice).

Readers may wonder why we started with Decision #2 when today's problem is Decision #1. The reason is the following: We need to be able to put a monetary value on Decision #2 in order to "roll back" to Decision #1 and compare the gain from taking the lower branch ("Build Small Plant") with the gain from taking the upper branch ("Build Big Plant"). Let us call that monetary value for Decision #2 its position value. The position value of a decision is the expected value of the preferred branch (in this case, the plant-expansion fork). The expected value is simply a kind of average of the results you would expect if you were to repeat the situation over and over-getting a $5,600 thousand yield 86% of the time and a $400 thousand yield 14% of the time.

Stated in another way, it is worth $2,672 thousand to Stygian Chemical to get to the position where it can make Decision #2. The question is: Given this value and the other data shown in Exhibit IV, what now appears to be the best action at Decision #1?

Turn now to Exhibit VI. At the right of the branches in the top half we see the yields for various events if a big plant is built (these are simply the figures in Exhibit IV multiplied out). In the bottom half we see the small plant figures, including Decision #2 position value plus the yield for the two years prior to Decision #2. If we reduce all these yields by their probabilities, we get the following comparison:

The choice which maximizes expected total cash yield at Decision #1, therefore, is to build the big plant initially.

Accounting for Time

What about taking differences in the time of future earnings into account? The time between successive decision stages on a decision tree may be substantial. At any stage, we may have to weigh differences in immediate cost or revenue against differences in value at the next stage. Whatever standard of choice is applied, we can put the two alternatives on a comparable basis if we discount the value assigned to the next stage by an appropriate percentage. The discount percentage is, in effect, an allowance for the cost of capital and is similar to the use of a discount rate in the present value or discounted cash flow techniques already well known to businessmen.

When decision trees are used, the discounting procedure can be applied one stage at a time. Both cash flows and position values are discounted.

For simplicity, let us assume that a discount rate of 10% per year for all stages is decided on by Stygian Chemical's management. Applying the rollback principle, we again begin with Decision #2. Taking the same figures used in previous exhibits and discounting the cash flows at 10%, we get the data shown in Part A of Exhibit VII. Note particularly that these are the present values as of the time Decision #2 is made.

Exhibit VII. Analysis of Decision #2 with Discounting

Now we want to go through the same procedure used in Exhibit V when we obtained expected values, only this time using the discounted yield figures and obtaining a discounted expected value. The results are shown in Part B of Exhibit VII. Since the discounted expected value of the no-expansion alternative is higher, that figure becomes the position value of Decision #2 this time.

Having done this, we go back to work through Decision #1 again, repeating the same analytical procedure as before only with discounting. The calculations are shown in Exhibit VIII. Note that the Decision #2 position value is treated at the time of Decision #1 as if it were a lump sum received at the end of the two years.

The large-plant alternative is again the preferred one on the basis of discounted expected cash flow. But the margin of difference over the small-plant alternative ($290 thousand) is smaller than it was without discounting.

Uncertainty Alternatives

In illustrating the decision-tree concept, I have treated uncertainty alternatives as if they were discrete, well-defined possibilities. For my examples I have made use of uncertain situations depending basically on a single variable, such as the level of demand or the success or failure of a development project. I have sought to avoid unnecessary complication while putting emphasis on the key interrelationships among the present decision, future choices, and the intervening uncertainties.

In many cases, the uncertain elements do take the form of discrete, single-variable alternatives. In others, however, the possibilities for cash flow during a stage may range through a whole spectrum and may depend on a number of independent or partially related variables subject to chance influences-cost, demand, yield, economic climate, and so forth. In these cases, we have found that the range of variability or the likelihood of the cash flow falling in a given range during a stage can be calculated readily from knowledge of the key variables and the uncertainties surrounding them. Then the range of cash-flow possibilities during the stage can be broken down into two, three, or more "subsets," which can be used as discrete chance alternatives.

Conclusion

Peter F. Drucker has succinctly expressed the relation between present planning and future events: "Long-range planning does not deal with future decisions. It deals with the futurity of present decisions." ² Today's decision should be made in light of the anticipated effect it and the outcome of uncertain events will have on future values and decisions. Since today's decision sets the stage for tomorrow's decision, today's decision must balance economy with flexibility; it must balance the need to capitalize on profit opportunities that may exist with the capacity to react to future circumstances and needs.

The unique feature of the decision tree is that it allows management to combine analytical techniques such as discounted cash flow and present value methods with a clear portrayal of the impact of future decision alternatives and events. Using the decision tree, management can consider various courses of action with greater ease and clarity. The interactions between present decision alternatives, uncertain events, and future choices and their results become more visible.

Of course, there are many practical aspects of decision trees in addition to those that could be covered in the space of just one article. When these other aspects are discussed in subsequent articles, ³ the whole range of possible gains for management will be seen in greater detail.

Surely the decision-tree concept does not offer final answers to managements making investment decisions in the face of uncertainty. We have not reached that stage, and perhaps we never will. Nevertheless, the concept is valuable for illustrating the structure of investment decisions, and it can likewise provide excellent help in the evaluation of capital investment opportunities.

1. Optimal Investment Decisions: Rules for Action and Criteria for Choice (Englewood Cliffs, New Jersey, Prentice-Hall, Inc., 1962), p. 250.

2. "Long-Range Planning," Management Science, April 1959, p. 239.

3. We are expecting another article by Mr. Magee in a forthcoming issue.- The Editors

A version of this article appeared in the July 1964 issue of Harvard Business Review.

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The management of a company that I shall call Stygian Chemical Industries, Ltd., must decide whether to build a small plant or a large one to manufacture a new product with an expected market life of ten years. The decision hinges on what size the market for the product will be.

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Article * 7 min read

Deciding How to Decide

By the Mind Tools Content Team

There are lots of different ways of making a decision, and choosing your approach can be just as difficult as making the decision itself!

Sometimes you have to take charge, and decide what to do on your own, but you don't want to appear autocratic to your team (particularly in situations where you need their input). At other times it's better to make a decision based on the group consensus, but this can use up precious time and resources. So how do you decide which approach is best?

Every manager needs to be able to make good decisions . A systematic approach to decision making, such as the Vroom-Yetton Decision Model, allows you to bring consistency and order to a process that might otherwise feel idiosyncratic and instinctive. It can also help you to determine the most effective means of reaching a decision.

The Vroom-Yetton model is designed to help you to identify the best decision-making approach and leadership style to take, based on your current situation. It was originally developed by Victor Vroom and Philip Yetton in their 1973 book, "Leadership and Decision Making." [1]

No single decision-making process fits every scenario. Instead, Vroom-Yetton offers a number of different processes and directs you toward the best one for your situation. For example, if speed and decisiveness are required then it will likely point you toward an autocratic process. If collaboration is what's needed, then it will nudge you toward a more democratic process.

Researchers have found that managers are more effective, and their teams more productive and satisfied, when they follow the model. [2][3] The simplicity of Vroom-Yetton also means that anyone - from the boardroom to the factory floor - can use it.

Although a little long-winded at times, it can be particularly helpful in new or unusual situations. Practice using it, and you'll quickly get a feel for the right approach to take, whether you're making a decision about a day-to-day issue or dealing with a more complex problem.

Decision quality - Sometimes, making the "right" decision is critical, and you'll need to use a large number of resources (people, time, information, and so on) to ensure that the action you take has been well thought through and is of high quality.

Team commitment - Some of your decisions will have a major impact on your team, while others will go unnoticed. When a decision will likely impact your team, it's best to use a collaborative process. This will improve the quality of the decision, and you'll likely deliver a successful result faster.

Time constraints - When the issue at hand isn't time sensitive, you have more "space" to research your options and to include others, which will help to boost the quality of your decision. If your time is limited, however, it may not be feasible to include others or to undertake thorough research.

Specific Leadership Processes

Figure 1: The Vroom-Yetton Decision Model

Autocratic (A1): You use the information that you already have to make the decision, without requiring any further input from your team.

Autocratic (A2): You consult your team to obtain specific information that you need, and then you make the final decision.

Consultative (C1): You inform your team of the situation and ask for members' opinions individually, but you don't bring the group together for a discussion. You make the final decision.

Consultative (C2): You get your team together for a group discussion about the issue and to seek their suggestions, but you still make the final decision by yourself.

Collaborative (G2): You work with your team to reach a group consensus . Your role is mostly facilitative, and you help team members to reach a decision that they all agree on.

Vroom-Yetton is a useful model, but it's not necessarily appropriate for all eventualities. It misses out several important considerations, and its rigid structure means that it fails to take into account subtleties, such as the emotions and dynamics of your team, and the task's complexity. The seven questions are imprecise, too - "importance" and "quality," for example, are vague terms - and it can be difficult to give straight "yes" or "no" answers to them.

See the Vroom-Yetton Model represented as an infographic .

[2] Margerison, C. and Glube, R. (1979). 'Leadership Decision-Making: An Empirical Test of the Vroom and Yetton Model,' Journal of Management Studies [online]. Available here . [Accessed November 9, 2016.]

[3] Paul, R. and Ebadi, Y. (1989). 'Leadership Decision Making in a Service Organization: A Field Test of the Vroom-Yetton Model,' Journal of Occupational and Organizational Psychology [online]. Available here . [Accessed November 9, 2016.]

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The Vroom-Yetton Decision Model - Deciding How to Decide

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Article * 7 min read By the Mind Tools Content Team There are lots of different ways of making a decision, and choosing your approach can be just as difficult as making the decision itself!

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Kouzes and Posner identify five behaviors of effective leadership, with honesty essential to each.
Honesty is essential to a leader's legitimacy, credibility, and ability to develop trust with followers. Kouzes and Posner identify five behaviors of effective leaders: model the way, inspire vision, enable others, challenge the process, and encourage the heart.

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James Kouzes and Barry Posner offered a notable version of a functional leadership model in their book, The Leadership Challenge (1987). It is more prescriptive than Adair's model and aimed more at high-level leaders like CEOs, but it's a significant contribution to the thinking on effective leadership.

Kouzes and Posner's earlier Trait-Theory leadership model, which led them to develop their Five Leadership Practices model, is explained earlier in the Trait-Theory sub-section of leadership models.

Like some other leadership theorists, they developed a modular theory into a proprietary product, in this case, a program for leadership development.

This model is also known as Kouzes and Posner's Leadership Challenge Model.

Kouzes and Posner summarise their program about what leadership is, and what they believe leadership means to people.

The Five Practices of Exemplary Leadership®

Kouzes and Posner created their Five Leadership Practices model after researching people's personal experiences of excellent leadership. From this, they claimed that "...good leadership is an understandable and universal process..." involving five practices and, within each of those, two key behaviours.

Here is an outline of the Kouzes and Posner model.

Five Leadership Practices - Summary

Inspiring a Shared Vision

Leaders should begin work on their vision before enlisting others to refine it and make it theirs. Emphasis on visualisation and using powerful evocative language to capture the vision to inspire others.

Kouzes and Posner's model is well researched and much work by the pair continues to extend the theory, and also the suggested means of adoption and implementation across large organisations.

Kouzes and Posner's theory is in the 'leader-as-hero' tradition.

It therefore largely ignores more recent ideas about sharing leadership.

It is also fair to say that a more naturally low-profile, a contemplative leader would probably find it harder to adopt these behavioural practices than a gregarious visionary leader, so the model may not work for everyone.

Acknowledgements

James Scouller Biography

We are grateful to James Scouller for his help, patience, and expert contribution in producing this leadership guide.

James Scouller is an expert coach and partner at The Scouller Partnership in the UK, which specialises in coaching leaders. He was chief executive of three international companies for eleven years before becoming a professional coach in 2004. He holds two postgraduate coaching qualifications and training in applied psychology at the Institute of Psychosynthesis in London.

James Scouller's book is called " The Three Levels of Leadership: How to Develop Your Leadership Presence, Know-how and Skill" which was published in May 2011.

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practices of exemplary leadership - kouzes and posner

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Kouzes and Posner: 5 Practices of Exemplary Leadership – BusinessBalls.com

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An overview of Kouzes and Posner’s ‘Five practices of exemplary leadership’ model, showing the behaviours and detail for each practice.

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Image result for styles of leadership in management
Let's take a look at the five most common leadership styles and how they can influence an organization's success.
Authoritarian leadership (autocratic) ...
Participative leadership (democratic) ...
Delegative leadership (laissez-faire) ...
Transactional leadership (managerial) ...
Transformational leadership (visionary)

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Improving your leadership skills starts with understanding how you like to lead

Everyone has a distinct leadership style. Whether you're in charge of 10 people, 10,000 people, or nobody at all, the way you approach management is based on your personality and how you communicate with others.

Those attributes can be improved over time, once you identify your personal style. When some leaders falter, it's because of a lack of understanding of the relationship between themselves and their team. Familiarizing yourself with the advantages of the different leadership styles, and knowing which ones are best suited to you, will make you a better leader.

In this article, we'll look at the five most common leadership styles, then discuss how to find and develop yours.

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Types of leadership styles

Just like personality types, leadership styles don't fit into neat boxes. Instead, they can be broadly categorized based on a set of characteristics, including things like autonomy and flexibility. In the real world, leadership styles will include aspects from each of these different categories and will adapt to suit the business environment.

Let's take a look at the five most common leadership styles and how they can influence an organization's success.

1. Authoritarian leadership (autocratic)

In an autocratic environment, the leader makes decisions without input from the rest of the team. It's a highly authoritarian leadership style that can demoralize employees in the wrong situation. However, autocratic leaders make decisions quickly and confidently, which makes them excellent assets in a crisis. If you're an autocratic leader, focus on finding a balance between making executive decisions and trusting your team to give insights and feedback.

2. Participative leadership (democratic)

Leaders with a democratic style value their colleagues' opinions. They open up most decisions for debate, which help employees feel valued and appreciated. In some cases, democratic leaders can seem indecisive, as though they don't trust their own ability to reach conclusions, and these leaders can improve their effectiveness by learning to make quick decisions in critical circumstances.

3. Delegative leadership (laissez-faire)

Two types of laissez-faire leaders exist. Intentional laissez-faire leaders believe in giving their employees autonomy and creative freedom. They let workers set their own schedules and make decisions. Unintentional laissez-faire leaders, on the other hand, sometimes lack control over their teams.

Leaders who possess the laissez-faire leadership style often work best with employees or team members who can manage and direct themselves, such as those from a satellite office. However, some employees need more direction than others and might struggle to keep up with the team under a laissez-faire leader.

4. Transactional leadership (managerial)

A transactional leader values order and systems. They set targets for employees and outline the rewards and penalties associated with meeting-or not meeting-those targets. This rigid style of leadership encourages high compliance within teams while suppressing creativity and ingenuity, but the strong emphasis on procedure allows for an extreme degree of control over processes and leads to predictable, reliable outputs.

As long as the give-and-take nature of this relationship is fair and well understood by teams, performance and productivity can thrive under a transactional leader. However, transactional leaders are less able to empathize or bend the rules to accommodate individual employee needs.

5. Transformational leadership (visionary)

Transformational leaders exist to energize teams and sell a company's vision. Using a mix of empathy, enthusiasm, and praise, they encourage individual workers to achieve their objectives, explore new ideas, and improve their outcomes. Under a transformational leader, employees feel empowered and loyal, though in larger companies this style of soft leadership can sometimes appear distant or insincere.

Leadership qualities: Developing your own leadership style

To become an effective leader, you need to know which qualities to develop as you lead your team. This leadership qualities list includes several personal and professional traits that can help you communicate more effectively, develop and reach goals, and relate to other team members.

Focus and concentration

Effective leaders need focus and concentration to keep their teams on the path to success. They're able to concentrate on one task for long periods of time, and they don't let themselves get distracted. Of course, leaders who get focused on one project to the exclusion of all else can sometimes get stuck, unable to move forward.

These leadership qualities can prove more effective when balanced with a big-picture viewpoint. Visionary leaders can often refine a thought or idea without losing sight of the end goal.

Communication and feedback

Teams need to hear feedback if they're to learn and grow. Great leaders know how to communicate with staff effectively, whether they're delegating tasks, offering constructive criticism, or explaining an idea or goal. Additionally, they know that positive and negative feedback often sound best when delivered together. Leaders who never or rarely issue praise can foster a competitive and resentful workplace environment. Positive feedback helps employees recognize when they're on the right track.

Confidence and patience

A great leader possesses enough confidence to make decisions and set boundaries, but also has the patience to walk team members through a process or wait for the team to realize a goal. While extreme confidence can easily lead to mistakes, patience helps temper the confidence without neutralizing it. Additionally, a leader who exhibits patience can help struggling workers push through obstacles and learn new skills.

Adaptability and flexibility

In any business, change happens. Revenues rise and drop, brand image improves and falters, and upper management can alter a program's focus or goal. Leaders prove most effective when they can adapt quickly to new situations and consistently respond to employee needs with flexibility. They're willing to work toward the organization's needs instead of just their own.

Honesty and transparency

While full transparency can have a negative impact on an organization, good leaders know when to share their feelings openly and honestly. They also know when to share critical information with their team members, even if it might negatively impact them. Some leaders demonstrate honesty and transparency naturally, while others have to work hard to achieve it.

Passion and drive

A good leader believes in their organization and wants to see it succeed. Without these qualities, leaders can easily grow disconnected from their position as well as from other team members. Passion helps leaders through rough spots, and drive motivates them to complete undesirable tasks. Both passion and drive can prove contagious, spreading to other people in the office and encouraging them to adopt the same enthusiasm.

Ability to recognize others

Praise isn't the only thing employees need to reach their full potential. They also need recognition, which only leaders can provide. When an employee meets a goal or achieves greatness, the best leaders recognize those employees publicly. Managers often take credit for their employees' accomplishments, while effective leaders are quick to share the spotlight with hard workers and devoted team members.

Decisiveness and persistence

While good leaders know how to ask for feedback and ideas from employees, they also know when to make executive decisions. They keep working toward a goal as long as it makes sense to do so, and they give their opinions when asked.

Positivity and intuition

Everyone has a bad day at work now and again. Good leaders recognize and prepare for this. They take a positive attitude to work every day and spread it to as many people as possible. Even during difficult times, they're able to find a positive spin to make the situation more tenable, and they don't tolerate negativity from other team members.

Importance of knowing your leadership style

You might not think you have a particular leadership style, but you do. Understanding it begins with an honest self-assessment of the way you approach management tasks and interact with the people who work with you.

WeWork Ing. Enrique Butty 275 in Buenos Aires.

Once you've identified your leadership style, you can better understand how to motivate and communicate with employees. You can enhance your ability to make good decisions and handle unforeseen challenges. You can mobilize teams more effectively and support those who need it.

You can also change your leadership style by focusing your energy on the precise leadership attributes your organization needs.

Tips for choosing your leadership style

Deciding which leadership style is best for you depends on a bunch of variables, including everything from advancing your career to the goals and vision of your company. Here are a few tips to keep in mind when choosing.

Understand your natural leadership style

You might think you already know yourself inside out, but unless you consciously practice a leadership style every day, you could be leading by pure intuition or with a mix of different personality traits. Speak to people you've worked with or managed in the past for a frank assessment of your strengths and weaknesses to see which style you're most aligned with.

Learn the differences between different leadership styles

Once you understand your existing style, do more research about common leadership styles to gain a greater appreciation of how they differ and in which business environments they're best applied. Think about what you might need to change about yourself or your team to achieve one of these styles, and what skills you'd need to acquire to approach management in a new way.

Take small steps toward change

Leadership styles are deeply rooted in our personalities, so any change to the way you interact and lead your team will feel unnatural at first. Be deliberate in your actions and make small changes, paying attention to what works and what doesn't.

Be flexible

The leadership styles listed above aren't set in stone and don't have well-defined boundaries. Modern leaders must adapt to suit the agile workplace, picking and choosing traits from different leadership styles to manage teams more effectively. Be responsive to your employees' expectations and always be ready and willing to change.

How to train to be true to your leadership style

You can improve your leadership style through practice. There is no magic shortcut-you need to form habits that reinforce the leadership qualities you want to develop and be disciplined in carrying them out each day.

WeWork Paseo de la Castellana, 43 in Madrid.

Not all leadership styles are improved upon in the same way, but here are some general tips when it comes to training yourself to be a true leader.

Be open to new ideas

Appreciate the talent of your employees, and recognize that they have skills and experience you don't. Learn from the people you work with and don't feel threatened or undermined when your thinking is questioned. Being open to new ideas helps to sharpen and refine your own qualities as a leader.

Inspire your team

Be your team's loudest cheerleader. As a leader, it's up to you to sing your team's praises within your organization or industry. The best leaders will recognize and highlight the achievements of an employee in private and in public, inspiring others around them to reach for success.

Show discipline

Leaders are judged by the level of self-discipline they display, so arrive on time, keep appointments, and meet deadlines. By developing this leadership quality, you'll inspire employees to be more disciplined in their own work, which will help you be an effective leader and keep teams on the path to success.

Intuition is not an innate talent-it can be developed over years of experience. An intuitive leader can sense discord in the ranks and predict a decision's impact on the rest of the team. While intuition can sometimes fail, it's a useful skill when confronting major change, making decisions that impact other people's lives, and deciding who to promote. Intuition and positivity often work together to create a comfortable, safe work environment, with leaders who value everyone on the team.

Knowing your leadership style can have a tremendous impact on your ability to manage a team. Review the above list of leadership qualities to determine where you should focus your energy. If you hone your style's positive qualities and make up for any deficiencies, you can lead your organization to greatness.

Steve Hogarty is a writer and journalist based in London. He is the travel editor of City AM newspaper and the deputy editor of City AM Magazine, where his work focuses on technology, travel, and entertainment.

Rethinking your workspace?

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Five common leadership styles, and how to find your own

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Improving your leadership skills starts with understanding how you like to lead Everyone has a distinct leadership style. Whether you're in charge of 10 people, 10,000 people, or nobody at all, the way you approach management is based on your personality and how you communicate with others.

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" Leadership is about establishing a direction and influencing others to follow. Management is about successfully administering the many complex details involved in a business’s operations. Leadership pursues change and challenges the status quo, whereas management seeks to control and provide stability within the existing circumstances" https://cel.fscj.edu/LOR/man/2021/9/#slide1

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" Leadership is about establishing a direction and influencing others to follow. Management is about successfully administering the many complex details involved in a business’s operations. Leadership pursues change and challenges the status quo, whereas management seeks to control and provide stability within the existing circumstances" https://cel.fscj.edu/LOR/man/2021/9/#slide1

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The Basics of Managing as a Leader | MIT Human Resources

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How can a manager manage as a leader? Here are five critical factors to successfully managing as a leader:

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The U.S. Equal Employment Opportunity Commission (EEOC) is responsible for enforcing federal laws that make it illegal to discriminate against a job applicant or an employee because of the person's race, color, religion, sex (including pregnancy and related conditions, gender identity, and sexual orientation), national origin, age (40 or older), disability or genetic information.

Most employers with at least 15 employees are covered by EEOC laws (20 employees in age discrimination cases). Most labor unions and employment agencies are also covered.

The laws apply to all types of work situations, including hiring, firing, promotions, harassment, training, wages, and benefits.

Authority & Role

The EEOC has the authority to investigate charges of discrimination against employers who are covered by the law. Our role in an investigation is to fairly and accurately assess the allegations in the charge and then make a finding. If we find that discrimination has occurred, we will try to settle the charge. If we aren't successful, we have the authority to file a lawsuit to protect the rights of individuals and the interests of the public and litigate a small percentage of these cases. When deciding to file a lawsuit, the EEOC considers several factors such as the strength of the evidence, the issues in the case, and the wider impact the lawsuit could have on the EEOC's efforts to combat workplace discrimination.

We also work to prevent discrimination before it occurs through outreach, education, and technical assistance programs.

The EEOC provides leadership and guidance to federal agencies on all aspects of the federal government's equal employment opportunity program. EEOC assures federal agency and department compliance with EEOC regulations, provides technical assistance to federal agencies concerning EEO complaint adjudication, monitors and evaluates federal agencies' affirmative employment programs, develops and distributes federal sector educational materials and conducts training for stakeholders, provides guidance and assistance to our Administrative Judges who conduct hearings on EEO complaints, and adjudicates appeals from administrative decisions made by federal agencies on EEO complaints.

Location

We carry out our work through our headquarters offices in Washington, D.C. and through 53 field offices serving every part of the nation.

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The U.S. Equal Employment Opportunity Commission (EEOC) is responsible for enforcing federal laws that make it illegal to discriminate against a job applicant or an employee because of the person's race, color, religion, sex (including pregnancy and related conditions, gender identity, and sexual orientation), national origin, age (40 or older), disability or genetic information.

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"HR is a specialty that involves a great many legal details. Mistakes in employee benefits, mismanaging sensitive employee records, or glossing over company ethics policies could land a company in legal trouble. Lawsuits that go to court have incurred a median cost of $200,000. HR professionals are the people who have the knowledge, time, and responsibility to ensure that employees receive the services, resources, and support they need to be successful at work.
Today’s HR managers need to think less about enforcing compliance rules and tracking simple metrics and more about how policies will help achieve strategic goals. They must align the organization’s people with the desired outcomes. Depending on the business’s strategy, this might mean using a very selective hiring process to find the candidate with the right skills for the job or using contractors instead of full-time employees to keep costs low. The goal of HR is to ensure that an organization has the right skills, abilities, and knowledge to implement its strategy."

https://cel.fscj.edu/LOR/man/2021/7/#active-widget

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A High-Performing Team
An effective way to achieve high‑performing culture is to create high‑performing teams. A high‑performing team is best defined as a group of interdependent employees whose skills and personalities complement one another and lead to above‑average operational results. High‑performance teams are a central building block of high‑performance culture, and they thrive in innovative and empowering environments.

Leadership in any team environment is critical to success, but leadership within a high-performance culture is often complex. While leadership is normally static in a hierarchical environment, high‑performance teams benefit from shared leadership by utilizing the different talents and perspectives of each team member in the decision making process. This creates a strong culture of shared leadership which in turn can generate above-average results and highly motivated employees who trust one another.

Culture is defined by creating its own consciousness in an organization, indicating shared norms and values. These shared values are central elements of the organization, as they generate buy‑in and dedication from employees. These shared values create an expectation of success, both professional and personal, that can create high levels of trust and shared accountability. In short, shared values are key to creating strong team dynamics.

There are ten elements in particular that are important to successfully integrating high‑performance teams within an organizational culture:

Participative leadership: Involve the entire team when making decisions, and rely on specialists only when applicable.

Effective decision making: Ensure that decision-making is both strategic and efficient. Group decision-making is often slowed when team dynamics are weak, which requires team-building to fix.

Open and clear communication: As always with group dynamics, communication is key to success. Ensure everyone is speaking and listening.

Valued diversity: Team synergy is lost when groupthink dominates the discussion. Instill open-mindedness and dispel social fears of disagreeing.

Mutual trust: Reliance upon one another, and trust in each other’s skills and capabilities, allows for less duplication of work and more overall synergy.

Managing conflict: Conflict is inevitable and not necessarily a bad thing. Deal with it calmly and without personal biases or emotions. Let the best ideas win.

Clear goals: SMART objectives are essential to high performance, just as understanding where one is going is essential to finding the best route.

Defined roles and responsibilities: Everyone should have a clear understanding of why they are on the team and what they are responsible for.

Coordinated relationships: Building strong team dynamics requires team members to understand each other and build strong relationships. Utilize ice-breaking activities and promote casual discussion to get this started.

Positive atmosphere: Wherever possible, make sure the general perspective is one of constructive commentary. Maintaining a positive outlook empowers communication and improves team spirit.(6)

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Three primary variables interact to explain much of an organization's structure: size, age, and industry. Organizations will typically start the structure process by clarifying what it will take to do the work, meet goals, grow sales, etc. And you will see great consistencies in the structure that develops across organizations in many different industries.

Departmentalization

Based on an organization's application of the common elements-common purpose, coordinated effort, division of labor, hierarchy of authority, as well as centralization/ decentralization and formalization-the resulting structure will typically exhibit one of four broad departmental structures: functional, product, customer, and geographic, or a matrix organizational structure.

Select each box to reveal information.

Functional Structure

As sales increase, organizations generally adopt a functional structure. This structure groups employees into functional areas based on their expertise. These functional areas often correspond to stages in the value chain such as operations, research and development, and marketing and sales. They also include support areas such as accounting, finance, and human resources. The graphic that follows shows a functional structure, with the lines indicating reporting and authority relationships. The department head of each functional area reports to the CEO; the CEO then coordinates and integrates the work of each function.

A functional structure allows for a higher degree of specialization and deeper domain expertise than a simple structure. Higher specialization also allows for a greater division of labor, which is linked to higher productivity. Although work in a functional structure tends to be specialized, it is centrally coordinated by the CEO, as in the earlier graphic. A functional structure allows for an efficient top-down and bottom‑up communication chain between the CEO and the functional departments, and thus relies on a relatively tall structure. The disadvantage inherent to a functional structure is that the emphasis on specialization can cause high levels of job dissatisfaction and fewer process improvements for the business.

Figure 6-2: Functional Structure Organizational Chart by FSCJ is licensed under CC-BY 4.0.

Product Structure

Companies with diversified product lines frequently structure based on the product or service. GE, for example, has structured six product-specific divisions supported by six centralized service divisions: (1) Energy, (2) Capital (3) Home & Business Solutions, (4) Healthcare, (5) Aviation, and (6) Transportation.

Product divisions work well where products are more technical and require more specialized knowledge. These product divisions are supported by centralized services, which include: public relations, business development, legal, global research, human resources, and finance.

This type of structure is ideal for organizations with multiple products and can help shorten product development cycles. One disadvantage is that it can be difficult to scale. Another disadvantage is that the organization may end up with duplicate resources as different divisions strive for autonomy.

Customer-Based Structure

Companies that offer services, such as healthcare, tend to use a customer-based structure. While similar to the product structure, the different business segments at the bottom are each split into a specific customer group-for example, outpatient, urgent care, and emergency care patients. Since the customers differ significantly, it makes sense to customize the service.

Employees can specialize around the type of customer and be more productive with that type of customer. The directors of each customer center would report directly to the chief medical officer and/or the hospital CEO. This is also designed to avoid overlap, confusion, and redundancies. The customer structure is appropriate when the organization's product or service needs to be tailored to specific customers.

Figure 6-3: Customer-Based Structure by FSCJ is licensed under CC-BY 4.0.

The customer‑based structure is ideal for an organization that has products or services unique to specific market segments, especially if that organization has advanced knowledge of those segments. However, there are disadvantages to this structure, too. If there is too much autonomy across the divisions, incompatible systems may develop. Or divisions may end up inadvertently duplicating activities that other divisions are already managing.

Geography Structure

If an organization spans multiple geographic regions, and the product or service needs to be localized, it often requires organization by region. Geographic structuring involves grouping activities based on geography, such as a Latin American division. Geographic structuring is especially important if tastes and brand responses differ across regions, as it allows for flexibility in product offerings and marketing strategies. Also, geographic structuring may be necessary because of cost and availability of resources, distribution strategies, and laws in foreign countries. Coca-Cola structures geographically because of the cost of transporting water. NetJets, a private aviation company, had to create a separate company in Portugal to operate NetJets Europe, because the entity had to be owned by a European Union carrier.

McDonald's is well-known for its geographic structure and localization strategy for food preferences. The McDonald's in Malaysia is certified halal (no pork products) and you can order the McD Chicken Porridge: chicken and onions in porridge. Other examples are Brie Nuggets (fried brie) in Russia; the Ebi Filet-O (shrimp patty) in Japan; and in Canada, you can get poutine (fries and cheese curds smothered in gravy).

This type of structure is best for organizations that need to be near sources of supply and/or customers. The main disadvantage of a geographical organizational structure is that it can be easy for decision making to become decentralized; geographic divisions can sometimes be hundreds, if not thousands, of miles away from corporate headquarters, allowing them to have a high degree of autonomy.

Matrix Organizational Structure

Where two dimensions are critical, companies will use a matrix structure. Employees may be organized according to product and geography, for example, and have two bosses. The idea behind this type of matrix structure is to combine the localization benefits of the geography structure with those of the functional structure (responsiveness and decentralized focus).

Figure 6-4: Matrix Structure with Geographic and Product Structure by FSCJ is licensed under CC-BY 4.0.

The advantage of the matrix structure is that it can provide both flexibility and more balanced decision making (because two chains of command exist instead of just one). Its primary disadvantage is complexity, which can lead to confused employees.

Team‑based Structures, Networks, and Modular Organizations

The reality is that if an organization is successful enough to survive and grow, it will eventually need some form of integration. Poor communication between siloed departments often leads to a crisis that inspires efforts to integrate-efforts such as teams, networks, and modular structures.

Team‑based Structure

Over the last several decades, team-based structures of some variation have become common in almost every industry. Lockheed Martin Aircraft Corporation started its "Skunk Works" project in 1943 in response to the U.S. Army's need for a jet fighter. Based on a handshake, a small team of engineers worked secretly in a tent to design and build the XP‑80 Shooting Star Jet Fighter in 143 days-seven days less than was required. The level of secrecy needed for this type of a project team is extremely rare in most organizations, yet it did spawn the modern‑day project team.

Project teams are focused on a few objectives and usually disbanded at a project's end. Similar to the Skunk Works® model, this team may meet in a designated room or building with the intention to increase communication and collaboration and minimize distractions. Although project teams are less hierarchical, they typically still include a manager.

Teams

In general, a team is made up of people with complementary skills who are working toward a common purpose. Organizations create teams by grouping employees in a way that generates a variety of expertise and addresses a specific operational component of the organization. Teams that include members from different functions are known as cross-functional teams. Because of the success of early project teams, the belief is that a team will be a more creative and productive structure to face new challenges. It is important to remember, however, that every team is a group but not every group is a team. A team structure must be less hierarchical, share the leadership, and be more fluid than traditional structures (such as functional or divisional). True teams do not disband after a project. Rather, they continue to change and adapt to fulfill group and organizational objectives over several years.

Some differences between teams and groups include:

Teams

Groups
Accountability
Mutual accountability, responsibility for the collective work product

Individuals: For their own products
Leader: For group product

Team structures can eliminate layers of management, which allows employees to make decisions without getting multiple approvals. This streamlines processes and lowers administrative costs. However, motivating individuals in a team-based organization can be more challenging as team accomplishments are rewarded rather than individual achievements.

Network Structure

The newest, and most divergent, team structure is commonly known as a network structure. A network structure has little bureaucracy and features decentralized decision making. Managers coordinate and control relations both internal and external to the firm. A social structure of interactions is fostered to build and manage formal and informal relationships. The goal of this structure is to achieve rapid organizational evolution and adaptation to constantly changing external and internal environments.

Zappos has embraced this model and labeled it holacracy. Rather than relying on a traditional top-down hierarchical management structure, holacracy attempts to achieve control and coordination by distributing power and authority to self-organizing groups (so-called circles) of employees. Circles of employees are meant to self-organize and own a specific task, such as confirming online orders or authorizing a customer's credit card. Order is supposed to emerge from the bottom up, rather than rely on top-down command and control as in traditional organizational structures. Rules are explicit in a so-called constitution, which defines the power and authority of each circle. For coordination, the employee circles overlap horizontally and without vertical hierarchy. Once the teams are in place, the CEO effectively relinquishes all executive powers.

A network structure is meant to promote communication and the free flow of information between different parts of the organization as needed. However, the circular structure can be confusing, especially for new employees.

Modular Organizations

A business that has areas or departments that can be easily separated from the company without jeopardizing the company are considered to have a modular organizational structure. The key lies in the ability to identify which modules, or departments, of a business are effective and which can be outsourced to create a tighter organization.

Organizations that want to remain flexible and streamlined must know when it is time to remove a module and allow the job to be done outside the company. For example, a small specialty T-Shirt company may recognize that its design, production, and customer service modules are at peak form and working well together but that its website design and maintenance department is slowing it down. The shop may externalize that module and send the work to an outside business.⁽²⁾

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Three primary variables interact to explain much of an organization's structure: size, age, and industry. Organizations will typically start the structure process by clarifying what it will take to do the work, meet goals, grow sales, etc. And you will see great consistencies in the structure that develops across organizations in many different industries.

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https://cel.fscj.edu/LOR/man/2021/6/#slide6

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Module 5:What is Greiner's Growth Model? Greiner's Growth Model is a framework that shows the different phases a company goes through to achieve growth and the different types of crisis that may occur during those milestones.

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Module 5:What is Greiner's Growth Model? Greiner's Growth Model is a framework that shows the different phases a company goes through to achieve growth and the different types of crisis that may occur during those milestones.

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Although the word "crisis" is often linked to a state of panic, it can also mean "turning point." While companies certainly have to change at each of these points, if they properly plan ahead, there is no need for panic, and so we will call them "transitions."

The Six Phases of Growth

Larry E. Greiner originally proposed the Greiner Curve (also known as the Greiner Growth Model) in 1972 with five phases of growth. In 1998, he added a sixth phase in an updated version of his original article. [1]

The six growth phases are described below:

Phase 1: Growth Through Creativity

Here, the entrepreneurs who founded the firm are busy creating products and opening up markets. There aren't many staff, so informal communication works fine, and rewards for long hours are probably through profit share or stock options.

However, as more staff join, production expands and capital is injected, there's a need for more formal communication.

This phase ends with a Leadership Crisis, where professional management is needed. The founders may change their style and take on this role, but often someone new will be brought in.

Phase 2: Growth Through Direction

Growth continues in an environment of more formal communications, budgets and focus on separate activities like marketing and production. Incentive schemes replace stock as a financial reward.

However, there comes a point when the products and processes become so numerous that there are not enough hours in the day for one person to manage them all, and they can't possibly know as much about all these products or services as those lower down the hierarchy.

This phase ends with an Autonomy Crisis in which new structures based on delegation are needed.

Phase 3: Growth Through Delegation

With mid-level managers freed up to react faster to opportunities for new products or new markets, the organization continues to grow. Meanwhile, top management focuses its efforts on monitoring and dealing with the big issues (perhaps starting to look at merger or acquisition opportunities).

Many businesses flounder at this stage because the manager whose directive approach solved the problems at the end of Phase 1 finds it hard to let go of the control they've assumed. This can mean that the mid-level managers begin to struggle with their roles.

This phase ends with a Control Crisis. A much more sophisticated organizational design is required, so the separate parts of the business can work together more effectively.

Phase 4: Growth Through Coordination and Monitoring

Growth continues with the previously isolated business units re-organized into product groups or service practices. Investment finance is allocated centrally and managed according to Return on Investment (ROI) and not just profits. Incentives are shared through company-wide profit share schemes aligned to corporate goals.

Eventually, though, work becomes submerged under increasing amounts of bureaucracy, and growth is stifled as a result.

This phase ends on a Red-Tape Crisis: a new culture and structure must be introduced.

Phase 5: Growth Through Collaboration

The formal controls of Phases 2-4 are replaced by professional good sense, as staff group and re-group flexibly in teams to deliver projects in a matrix structure which is supported by sophisticated information systems and team-based financial rewards.

This phase ends with a crisis of Internal Growth: further growth can only come by developing partnerships with external, complementary organizations.

Phase 6: Growth Through Extra-Organizational Solutions

Greiner's recently added sixth phase suggests that growth may continue through mergers, outsourcing, networks, and other solutions involving external companies.

Growth rates will vary between and even within phases. The duration of each phase depends almost totally on the rate of growth of the market in which the organization operates. The longer a phase lasts, though, the harder it will be to transition to the next phase of growth.

Applying the Greiner Curve

The Greiner Growth Model helps you to think about your own organization's growth trajectory, and plan ahead so you can overcome each growth crises that affects it.

To apply this model, use the following five steps:

1. Based on the descriptions above, think about where your organization is now.

2. Think about whether your organization is reaching the end of a stable period of growth, and nearing a 'crisis' or transition. Some of the signs that a "crisis" is occurring include:

People feel that managers and company procedures are getting in the way of them doing their jobs.

People feel that they are not fairly rewarded for the effort that they put in.

People seem unhappy, and there is a higher staff turnover than usual.

3. Ask yourself what the transition will mean for you and your team. Will you have to:

Delegate more?

Take on more responsibilities?

Specialize more in a specific product or market?

Change the way you communicate with others?

Incentivize and reward your team differently?

By thinking this through, you can start to plan and prepare yourself for the inevitable changes, and perhaps help others to do the same.

4. Plan and take preparatory actions that will make the transition as smooth as possible for you and your team.

5. Revisit Greiner's model for growth again every 6-12 months, and think about how your organization's current stage of growth is affecting you and others around you.

Infographic

See our Greiner Curve infographic.

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The Greiner Curve - Understanding and Overcoming the Crises of Growth

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Although the word "crisis" is often linked to a state of panic, it can also mean "turning point." While companies certainly have to change at each of these points, if they properly plan ahead, there is no need for panic, and so we will call them "transitions." Larry E.

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Module 5.....Organizational structure types vary depending on the type of business and depending on factors such as common purpose coordinated effort, division of labor, the hierarchy of authority, as well as centralization/ decentralization and formalization—the resulting structure will typically exhibit one of four overall departmental structures: functional, product, customer, and geographic, or a matrix structure.        

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Module 5.....Organizational structure types vary depending on the type of business and depending on factors such as common purpose coordinated effort, division of labor, the hierarchy of authority, as well as centralization/ decentralization and formalization—the resulting structure will typically exhibit one of four overall departmental structures: functional, product, customer, and geographic, or a matrix structure.        

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Matrix structure: individuals work across teams and projects as well as within their own department or function. For example, a project or task team established to develop a new product might include engineers and design specialists as well as those with marketing, financial, personnel and production skills.

A functional organizational structure is a team structure that groups employees into different departments based on areas of expertise. This type of structure is one of the most common types in business, especially in larger companies, where groups of employees are organized according to the function they perform.

Each division within a geographical organizational structure has their own departments. For example, each location has its own marketing department, research department, warehouse and more. This may lead to duplicate activities throughout the company.

Departmental organizational structure refers to how a business delegates specific tasks and responsibilities to its personnel. Creating a clear, formal structure helps employees understand their specific roles within the company so they can focus on completing their tasks with minimal confusion.

A geographical organizational structure organizes people within an organization by geographic location. This structure creates specific divisions for each location. Each division acts as if it is its own company, combining different types of personnel for various business functions.

Product organisational structure is a framework in which a business is organised in separate divisions, each focusing on a different product or service and functioning as an individual unit within the company.

A customer service organizational structure is the hierarchy and roles that a company establishes within its customer service department. Customer service organizational structures help professionals understand the expectations for their roles and which managers and team leads they should contact with concerns.

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Step One: Strategic Objectives and Analysis

You start by reviewing the mission statement to ensure that your strategy is focused appropriately: “We save people money so they can live better.” You will want to make sure that your strategy is consistent with this vision.

Next, you will move to an external analysis of the business environment using the PESTEL methodology.

FactorAnalysis of External EnvironmentPolitical | Minimum wage pressure
Working conditions of international suppliers (child labor)
Economic | GDP growth forecasts are modest
Low interest rates, but Fed signaling increases
Social | Aging population
Large millennial demographic
Technological | Growth of online shopping (greater consumer acceptance)
Environmental | Impact of emissions standards on truck fleet
Legal | Healthcare regulation impact on large part-time workforce

Once you have evaluated the external factors impacting Walmart, it’s time to look inward. An important tool that you learned about in this module was the SWOT analysis. You decide to use this framework next.

Strengths

Low-cost supply chain

Large network of brick and mortar stores

Large fleet of commercial trucks

Exceptional logistics

Database of consumer shopping habits

Weaknesses

E-commerce presence one-fifth the size of Amazon’s

Negative PR—employee wages

Low brand acceptance among millennials

Opportunities

Improvement in HR practices

Increase investment in technology

Online shopping growth

Improve quality standards

Threats

Aggressive competition (Amazon)

Ease of entry to online selling

Intense price competition

Step Two: Strategic Formulation

You have gathered a lot of important information about the organization and the environments in which it operates. Now you need to turn that data into concrete goals consistent with the established vision.

It’s becoming clear to you that your competitive advantage lies in three areas.

First, Walmart has the lowest-cost supply chain of any retailer in the world. Walmart’s buying power gives it considerable leverage in supplier negotiations. However, in the minds of consumers, Amazon is the low-cost place to shop online.

Strategic Goal: Use Walmart's low-cost advantage to put financial pressure on Amazon and other competitors and clearly market this differentiation to consumers.

Another clear competitive advantage you have over Amazon is your massive network of distribution centers and fleet of commercial vehicles. One of the things you noticed when studying Amazon’s financials is that they spend a lot of money on next day and second-day delivery. If you leverage your network, you can establish a clear advantage.

Strategic Goal: Leverage the distribution centers and commercial fleet to provide excellent delivery service at a fraction of the competition’s cost.

Finally, you recognize that although everyone is focused on moving retail online, Walmart’s existing brick and mortar stores are an asset that is being underused. Many consumers want to have the option of interacting with both an online and physical presence when shopping. There is a tactile dimension to shopping that is lost in an online transaction.

Strategic Goal: Better integrate the online and physical aspects of shopping that Walmart can offer (for instance, offer in-store pick-up of online purchases) and communicate that experience to consumers.

With these strategic goals in mind, you are ready to move to the next step in the strategic management process.

Step Three: Strategic Implementation

Now it’s time to move to action. As the head of North American operations, you strategize with your key executives and work on specific goals for each division and functional area. All leaders are aware of their specific responsibilities and deliverables and have been given the necessary authority to execute the plan. Recall, a good plan is not enough—the right action is what will determine success or failure.

Step Four: Strategic Evaluation and Control

As you’ve learned, internal and external conditions are always changing. Although you feel good about the plan you’ve constructed, you know environments are fluid. So you implement processes to measure performance and frequently test the plan’s assumptions. Doing so helps ensure that the ongoing actions will deliver the desired results.

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When you decided to attend college, you had a long-term plan in mind. You would spend the next four or five years preparing to become a teacher, a businessperson, or perhaps an ecologist. Or, you may have committed two or three years to become a nurse, a medical technician, or an electrician. Your long-term goal was necessary to make sure that your daily activities would help you achieve your desired outcome. You could have just enrolled in a school and taken classes that looked interesting, but then where would you be in four years? You most likely would not have taken the courses required to qualify you for the job you want. An organization, especially a business, is not so different. It also needs a long-term plan to make sure that the daily activities of its employees are contributing to the mission and value statements of the organization.

Long-term Plans

A long-term plan is crucial to the ultimate success of the organization. A long-term plan for many businesses, such as construction, hospitality, or manufacturing, generally extends four to five years into the future. For other faster-changing industries, especially technology companies, a long-term plan may only look two or three years into the future. After that, it becomes too difficult to predict the future with any degree of certainty.

Top management is responsible for the development of the long-term plan. It is up to the Chief Executive Officer (CEO) to make sure that changing conditions (both external and internal) are reflected in the organization's long-term plan. The larger and more complex the organization, the larger and more complex the long-term plan will be to include all of the individual departments and functions.

Short-term Plans

Short-term plans generally allocate resources for a year or less. They may also be referred to as operational plans because they are concerned with daily activities and standard business operations. Like long-term plans, short-term plans must be monitored and updated, and this is the role of middle- and first-level management. Different managerial levels have responsibility for implementing different types of short-term plans. For example, a department manager may be comfortable implementing an operational plan for the entire year for her department. A marketing manager may direct a three- to four-month plan that involves the introduction of a new product line. A team leader may only be comfortable planning and implementing very specific activities over the period of a month.

Figure 4-3: Organizational Plan Hierarchy by FSCJ (adapted from Lumen Learning) is licensed under CC-BY 4.0.

An operational plan describes the specific goals and objectives and milestones set by an organization during a specific period. Objectives are specific tasks undertaken to meet broader goals. For example, a goal may be to increase product sales by 3 percent; an objective may be to hire two additional sales agents. It will allocate the tangible resources (labor, equipment, space) and authorize the financing necessary to meet the objectives of the plan.

T here are two types of operational plans: Standing plans and single-use plans.

Standing plans are plans designed to be used again and again. Examples include policies, procedures, and regulations. The advantage of standing plans is that they foster unity and fairness within an organization and help to support stated organizational values. Managers don't have to make unique decisions already addressed by various organizational policies. Standing plans also save time because managers know in advance how to address common situations. Finally, standing plans aid in the delegation of work, because employees are already familiar with the procedures and regulations followed by the organization.

Single-use plans refer to plans that address a one-time project or event. The length of the plans varies, but the most common types are budgets and project schedules. The obvious advantage of a single-use plan is that it can be very specific in how it addresses the needs of a particular situation.

Recall, the most common examples of standing use plans are policies, procedures, and regulations. These plans are usually published and handed out to new hires or posted on the organization's employee website for easy reference.

Policies provide broad guidelines for the smooth operation of the organization. They cover things like hiring and firing, performance appraisals, promotions, and discipline. For example, a company may have a policy to encourage recycling in the workplace or a policy that prohibits personal cell phone use in manufacturing areas.

Procedures are steps to be followed in established and repeated operations. Procedures should reflect the policies of the company and support the organization's long-term goals. Procedures may also detail steps that should be followed to ensure employees are disciplined in a fair and unbiased manner. For example, if employees feel that other employees interacted with them in an inappropriate manner, then they should follow the procedure for bringing this to management's attention. Or, the organization may establish procedures for what to do in cases of emergencies, such as a fire or toxic spill.

Regulations refer to what is allowable and what is strictly prohibited in an organization. In other words, a regulation is a kind of rule that addresses general situations. In many hospitals and laboratories, for example, there are safety regulations against wearing open-toed shoes or shoes with slippery soles. State and federal governments frequently issue regulations for industries that impact public safety.

Refer to the "Organizational Plan Hierarchy" figure earlier and locate the box labeled "Budgets." Notice that budgets are examples of single-use, short-term plans. An organization's budget is a document that details the financial and physical resources allocated to a project or department. They are single-use plans because they are specific to a particular period or event. For example, departments may have a hiring budget that allocates a certain number of positions and a total salary value for a calendar year. Next year, that budget may be the same or it may change, depending upon conditions in the organization. But it cannot be assumed that the budget will stay the same. Zero-based budgets look at each budget as if it were brand new and require managers to justify each of the budgeted items. This process ensures that budgets are closely tied to the latest organizational goals.

Managers deal with a variety of budget types:

Budgets are a critical planning tool, and organizations take their budgeting process very seriously. Some managers spend most of their time making sure that the expenses and projects they control do not exceed authorized spending limits. To routinely "go over budget" is a sign of a poor planning-and planning is one of the basic management functions. In some cases, to routinely come in under budget is also viewed negatively, because with more accurate budgeting those committed resources could have been allocated to other projects. Often, projects compete for limited resources so the best budget is the one that most closely projects actual expenses and revenue.

Forecasting is simply making a prediction about the future. Anyone can make a forecast-the trick is to be right or close enough so that important planning decisions can be based on the forecast. Some "botched" forecasts by business leaders follow:

"This telephone has too many shortcomings to be seriously considered as a means of communication." -President of Western Union, 1876

"There is a world market for maybe five computers." -Chairman of IBM, 1943

"Television won't be able to hold on to any market it captures after the first six months. People will soon get tired of staring at a plywood box every night." -Darryl Zanuck, President of 20th Century Fox, 1946

"There is no chance that the iPhone is going to get any significant market share." -Microsoft CEO Steve Ballmer, 2012

Scientific forecasting is using mathematical models, historical data, and statistical analysis to make predictions about what will happen in the future. Businesses use short-term forecasting all the time when creating budgets and anticipating expenses. Mostly, these forecasts are based on what they sold and what they paid providers in the recent past. Long-range forecasting requires both quantitative numerical data and qualitative data based on expert opinions and insights. Often, organizations will create a number of long-range forecasts based on "best-case" and "worst-case" scenarios. They will then make plans on how they would respond to each situation and, as time goes on, they will update and adapt the long-term plan.

One other important type of planning is the contingency plan. A contingency plan describes what will happen in a possible-but not expected-situation. Usually, contingency plans are designed to handle emergency situations. For example, airports have contingency plans for plane crashes on takeoffs or landings, and popular tourist attractions have begun developing contingency plans in case of terrorist threats.

An example of the critical importance of contingency planning involves the Deepwater Horizon oil spill in the Gulf of Mexico in 2010. Eleven people lost their lives and seventeen were badly injured when an explosion on an oil rig released almost five million barrels of oil into the Gulf of Mexico. It was the worst marine oil spill in history, and its effects were even more devastating because BP Oil did not have contingency plans in place for that kind of disaster. The spill went on for months while BP and its partners tried to figure out how to shut off the oil's source. Even though BP spent &dollar;62 billion on the response and cleanup activities, there was extensive damage to marine and wildlife habitats and fishing and tourism industries. Getting employees involved in planning may help prevent tragedies similar to this one.

Management by objectives, or MBO for short, is a tool that can be used to improve the performance of an organization by creating clearly defined objectives agreed upon by management and by the employees. Peter Drucker, a prolific author and a leader in management theory, coined the phrase "management by objectives" in 1954. The intent of MBO is to improve employee motivation and organizational communication by focusing on aligning individual goals to corporate objectives. In MBO, a manager and an employee:

Jointly set goals and objectives for a period.

Together plan tasks that the employee performs with the support of management.

Agree on the standards for evaluating performance of the task.

Regularly meet to review progress.

MBO must be a top-down management tool, because organizational goals are cascaded down to create the various operational levels. Drucker showed that as long as employee goals support short-term and long-term organizational objectives, MBO will help move the company forward. Critics, however, charge that managers using the approach focus more on creating goals than on helping the employee achieve them.

SMART goals are a technique often paired with MBO. SMART stands for specific, measurable, achievable, realistic, and time-bound. The SMART goal pairs well with MBO theory by:

Providing incentives to employees by rewarding them when they meet key goals.

Empowering employees by allowing them to set their own objectives for achieving their individual goal.

Communicating honestly about what went well and what did not go well, and focusing on developing the missing skills.

Select each term to reveal information.

Example: Critiera for Writing SMART Goals

Worked Example: Personal SMART Goal

The last planning tool we'll discuss in this section is benchmarking. You may think that your organization has an excellent long-term plan and effective short-term plans, but how do you really know? Even if your company is showing growth, is it growing as fast as your competitor?

A benchmark is a standard used for comparison purposes. Benchmarking is looking at performance levels outside of your organization, or sometimes across departments or divisions inside your organization, to evaluate your own performance. You can benchmark using several different criteria:

Internal benchmarking means comparing a department's performance with another department in your company or branch within the same larger organization. The important thing about benchmarking is that it gives you a standard against which to compare your progress.

Planning tools are designed to help you determine goals, guide behaviors within the organization, and help you evaluate your performance against external benchmarks. Plans are essential, but good managers know to be flexible when conditions demand.⁽³⁾

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When you decided to attend college, you had a long-term plan in mind. You would spend the next four or five years preparing to become a teacher, a businessperson, or perhaps an ecologist. Or, you may have committed two or three years to become a nurse, a medical technician, or an electrician.

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Porter's generic strategies are ways of gaining competitive advantage - in other words, developing the "edge" that gets you the sale and takes it away from your competitors. There are two main ways of achieving this within a Cost Leadership strategy:

Increasing profits by reducing costs, while charging industry-average prices.

Increasing market share by charging lower prices, while still making a reasonable profit on each sale because you've reduced costs.

The Cost Leadership strategy is exactly that - it involves being the leader in terms of cost in your industry or market. Simply being amongst the lowest-cost producers is not good enough, as you leave yourself wide open to attack by other low-cost producers who may undercut your prices and therefore block your attempts to increase market share.

You, therefore, need to be confident that you can achieve and maintain the number one position before choosing the Cost Leadership route. Companies that are successful in achieving Cost Leadership usually have:

Access to the capital needed to invest in technology that will bring costs down.

Very efficient logistics.

A low-cost base (labor, materials, facilities), and a way of sustainably cutting costs below those of other competitors.

The greatest risk in pursuing a Cost Leadership strategy is that these sources of cost reduction are not unique to you, and that other competitors copy your cost reduction strategies. This is why it's important to continuously find ways of reducing every cost. One successful way of doing this is by adopting the Japanese Kaizen philosophy of "continuous improvement."

The Differentiation Strategy

Differentiation involves making your products or services different from and more attractive than those of your competitors. How you do this depends on the exact nature of your industry and of the products and services themselves, but will typically involve features, functionality, durability, support, and also brand image that your customers value.

To make a success of a Differentiation strategy, organizations need:

Good research, development and innovation.

The ability to deliver high-quality products or services.

Effective sales and marketing, so that the market understands the benefits offered by the differentiated offerings.

Large organizations pursuing a differentiation strategy need to stay agile with their new product development processes. Otherwise, they risk attack on several fronts by competitors pursuing Focus Differentiation strategies in different market segments.

The Focus Strategy

Companies that use Focus strategies concentrate on particular niche markets and, by understanding the dynamics of that market and the unique needs of customers within it, develop uniquely low-cost or well-specified products for the market. Because they serve customers in their market uniquely well, they tend to build strong brand loyalty amongst their customers. This makes their particular market segment less attractive to competitors.

As with broad market strategies, it is still essential to decide whether you will pursue Cost Leadership or Differentiation once you have selected a Focus strategy as your main approach: Focus is not normally enough on its own.

But whether you use Cost Focus or Differentiation Focus, the key to making a success of a generic Focus strategy is to ensure that you are adding something extra as a result of serving only that market niche. It's simply not enough to focus on only one market segment because your organization is too small to serve a broader market (if you do, you risk competing against better-resourced broad market companies' offerings).

The "something extra" that you add can contribute to reducing costs (perhaps through your knowledge of specialist suppliers) or to increasing differentiation (though your deep understanding of customers' needs).

Choosing the Right Generic Strategy

Your choice of which generic strategy to pursue underpins every other strategic decision you make, so it's worth spending time to get it right.

But you do need to make a decision: Porter specifically warns against trying to "hedge your bets" by following more than one strategy. One of the most important reasons why this is wise advice is that the things you need to do to make each type of strategy work appeal to different types of people. Cost Leadership requires a very detailed internal focus on processes. Differentiation, on the other hand, demands an outward-facing, highly creative approach.

So, when you come to choose which of the three generic strategies is for you, it's vital that you take your organization's competencies and strengths into account.

Use the following steps to help you choose.

Step 1:

For each generic strategy, carry out a SWOT Analysis of your strengths and weaknesses, and the opportunities and threats you would face, if you adopted that strategy.

Having done this, it may be clear that your organization is unlikely to be able to make a success of some of the generic strategies.

Step 2:

Use Five Forces Analysis to understand the nature of the industry you are in.

Step 3:

Compare the SWOT Analyzes of the viable strategic options with the results of your Five Forces analysis. For each strategic option, ask yourself how you could use that strategy to:

Reduce or manage supplier power.

Reduce or manage buyer/customer power.

Come out on top of the competitive rivalry.

Reduce or eliminate the threat of substitution.

Reduce or eliminate the threat of new entry.

Select the generic strategy that gives you the strongest set of options.

Apply This to Your Life

Ask yourself what your organization's generic strategy is. How does this affect the choices your make in your job?

If you're in an organization committed to achieving Cost Leadership, can you reduce costs by hiring less expensive staff and training them up, or by reducing staff turnover? Can you reduce training costs by devising in-house schemes for sharing skills and knowledge amongst team members? Can you reduce expenses by using technology such as video conferencing over the Internet?

If your organization is pursuing a Differentiation strategy, can you improve customer service? Customer Experience Mapping may help here. Can you help to foster a culture of continuous improvement and innovation in your team?

And if you're working for a company that has a chosen a Focus strategy, what knowledge or expertise can you use or develop to add value for your customers that isn't available to broad market competitors?

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Porter's Generic Strategies - Choosing Your Route to Success

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Porter's generic strategies are ways of gaining competitive advantage - in other words, developing the "edge" that gets you the sale and takes it away from your competitors. There are two main ways of achieving this within a Cost Leadership strategy: Increasing profits by reducing costs, while charging industry-average prices.

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https://strategicmanagementinsight.com/tools/vrio/

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What is VRIO Framework?

VRIO framework is the tool used to analyze firm's internal resources and capabilities to find out if they can be a source of sustained competitive advantage. Term VRIO comes from the words value, rarity, imitability and organization.

Understanding the tool

In order to understand the sources of competitive advantage firms are using many tools to analyze their external ( Porter's 5 Forces, PEST analysis) and internal ( Value Chain analysis, BCG Matrix) environments. One of such tools that analyze firm's internal resources is VRIO analysis. The tool was originally developed by Barney, J. B. (1991) in his work 'Firm Resources and Sustained Competitive Advantage', where the author identified four attributes that firm's resources must possess in order to become a source of sustained competitive advantage. According to him, the resources must be valuable, rare, imperfectly imitable and non-substitutable. His original framework was called VRIN. In 1995, in his later work 'Looking Inside for Competitive Advantage' Barney has introduced VRIO framework, which was the improvement of VRIN model. VRIO analysis stands for four questions that ask if a resource is: valuable? rare? costly to imitate? And is a firm organized to capture the value of the resources? A resource or capability that meets all four requirements can bring sustained competitive advantage for the company.

Adopted from Rothaermel's (2013) 'Strategic Management', p.91

Valuable
The first question of the framework asks if a resource adds value by enabling a firm to exploit opportunities or defend against threats. If the answer is yes, then a resource is considered valuable. Resources are also valuable if they help organizations to increase the perceived customer value. This is done by increasing differentiation or/and decreasing the price of the product. The resources that cannot meet this condition, lead to competitive disadvantage. It is important to continually review the value of the resources because constantly changing internal or external conditions can make them less valuable or useless at all.

Rare
Resources that can only be acquired by one or very few companies are considered rare. Rare and valuable resources grant temporary competitive advantage. On the other hand, the situation when more than few companies have the same resource or uses the capability in the similar way, leads to competitive parity. This is because firms can use identical resources to implement the same strategies and no organization can achieve superior performance.

Even though competitive parity is not the desired position, a firm should not neglect the resources that are valuable but common. Losing valuable resources and capabilities would hurt an organization because they are essential for staying in the market.

Costly to Imitate
A resource is costly to imitate if other organizations that doesn't have it can't imitate, buy or substitute it at a reasonable price. Imitation can occur in two ways: by directly imitating (duplicating) the resource or providing the comparable product/service (substituting).

A firm that has valuable, rare and costly to imitate resources can (but not necessarily will) achieve sustained competitive advantage. Barney has identified three reasons why resources can be hard to imitate:

Historical conditions. Resources that were developed due to historical events or over a long period usually are costly to imitate.

Causal ambiguity. Companies can't identify the particular resources that are the cause of competitive advantage.

Social Complexity. The resources and capabilities that are based on company's culture or interpersonal relationships.

Organized to Capture Value
The resources itself do not confer any advantage for a company if it's not organized to capture the value from them. A firm must organize its management systems, processes, policies, organizational structure and culture to be able to fully realize the potential of its valuable, rare and costly to imitate resources and capabilities. Only then the companies can achieve sustained competitive advantage.

Using the tool
Step 1. Identify valuable, rare and costly to imitate resources
There are two types of resources: tangible and intangible. Tangible assets are physical things like land, buildings and machinery. Companies can easily by them in the market so tangible assets are rarely the source of competitive advantage. On the other hand, intangible assets, such as brand reputation, trademarks, intellectual property, unique training system or unique way of performing tasks, can't be acquired so easily and offer the benefits of sustained competitive advantage. Therefore, to find valuable, rare and costly to imitate resources, you should first look at company's intangible assets.
Finding valuable resources:
An easy way to identify such resources is to look at the value chain and SWOT analyses. Value chain analysis identifies the most valuable activities, which are the source of cost or differentiation advantage. By looking into the analysis, you can easily find the valuable resources or capabilities. In addition, SWOT analysis recognizes the strengths of the company that are used to exploit opportunities or defend against threats (which is exactly what a valuable resource does). If you still struggle finding valuable resources, you can identify them by asking the following questions:

Which activities lower the cost of production without decreasing perceived customer value?

Which activities increase product or service differentiation and perceived customer value?

Have your company won an award or been recognized as the best in something? (most innovative, best employer, highest customer retention or best exporter)

Do you have an access to scarce raw materials or hard to get in distribution channels?

Do you have special relationship with your suppliers? Such as tightly integrated order and distribution system powered by unique software?

Do you have employees with unique skills and capabilities?

Do you have brand reputation for quality, innovation, customer service?

Do you do perform any tasks better than your competitors do? (Benchmarking is useful here)

Does your company hold any other strengths compared to rivals?

Finding rare resources:

How many other companies own a resource or can perform capability in the same way in your industry?

Can a resource be easily bought in the market by rivals?

Can competitors obtain the resource or capability in the near future?

Finding costly to imitate resources:

Do other companies can easily duplicate a resource?

Can competitors easily develop a substitute resource?

Do patents protect it?

Is a resource or capability socially complex?

Is it hard to identify the particular processes, tasks, or other factors that form the resource?

Step 2. Find out if your company is organized to exploit these resources
Following questions might be helpful:

Does your company has an effective strategic management process in organization?

Are there effective motivation and reward systems in place?

Does your company's culture reward innovative ideas?

Is an organizational structure designed to use a resource?

Are there excellent management and control systems?

Step 3. Protect the resources
When you identified a resource or capability that has all 4 VRIO attributes, you should protect it using all possible means. After all, it is the source of your sustained competitive advantage. The first thing you should do is to make the top management aware of such resource and suggest how it can be used to lower the costs or to differentiate the products and services. Then you should think of ideas how to make it more costly to imitate. If other companies won't be able to imitate a resource at reasonable prices, it will stay rare for much longer.
Step 4. Constantly review VRIO resources and capabilities
The value of the resources changes over time and they must be reviewed constantly to find out if they are as valuable as they once were. Competitors are also keen to achieve the same competitive advantages so they'll be keen to replicate the resources, which means that they will no longer be rare. Often, new VRIO resources or capabilities are developed inside an organization and by identifying them you can protect you sources of competitive advantage more easily.

VRIO example

Google's capability evaluated using VRIO framework

Google's VRIO capability

Excellent employee management

Result: sustained competitive advantage

Google's ability to manage their people effectively is a source of both differentiation and cost advantages. Unlike other companies, which rely on trust and relationship in people management, Google uses data about its employees to manage them. This capability allows making correct (data based) decisions about which people to hire and the best way to use their skills. As a result, Google is able to hire innovative employees that are also very productive ($1 million in revenue per employee). Besides being valuable, it is also a rare capability because no other company uses data based employee management so extensively. Is it costly to imitate? It is costly to imitate, at least, in the near future. First, companies should build the highly sophisticated software, which is both costly and hard to do. Second, HR managers should be trained to make data based decisions and forget their old management methods. Is Google organized to capture value from this capability? Certainly, it has trained HR managers that know how to use the data and manage people accordingly. It also has the needed IT skills to collect and manage the data about its employees.

There are many more businesses that have VRIO resources or capabilities, including many of the companies we analyzed using swot analysis.

Sources

1. Barney, J. B. (1995). Looking Inside for Competitive Advantage. Academy of Management Executive, Vol. 9, Issue 4, pp. 49-61

2. Rothaermel, F. T. (2012). Strategic Management: Concepts and Cases. McGraw-Hill/Irwin, p. 91

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Explore VRIO framework and learn to build competitive advantage from inside out. Learn how to evaluate your internal resources.

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SWOT (strengths, weaknesses, opportunities, and threats) analysis is a framework used to evaluate a company's competitive position and to develop strategic planning. SWOT analysis assesses internal and external factors, as well as current and future potential.

A SWOT analysis is designed to facilitate a realistic, fact-based, data-driven look at the strengths and weaknesses of an organization, initiatives, or within its industry. The organization needs to keep the analysis accurate by avoiding pre-conceived beliefs or gray areas and instead focusing on real-life contexts. Companies should use it as a guide and not necessarily as a prescription.

KEY TAKEAWAYS

SWOT analysis is a strategic planning technique that provides assessment tools.

Identifying core strengths, weaknesses, opportunities, and threats leads to fact-based analysis, fresh perspectives, and new ideas.

A SWOT analysis pulls information internal sources (strengths of weaknesses of the specific company) as well as external forces that may have uncontrollable impacts to decisions (opportunities and threats).

SWOT analysis works best when diverse groups or voices within an organization are free to provide realistic data points rather than prescribed messaging.

Findings of a SWOT analysis are often synthesized to support a single objective or decision that a company is facing.

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What Is SWOT Analysis?

SWOT (strengths, weaknesses, opportunities, and threats) analysis is a framework used to evaluate a company's competitive position and to develop strategic planning. SWOT analysis assesses internal and external factors, as well as current and future potential.

A SWOT analysis is designed to facilitate a realistic, fact-based, data-driven look at the strengths and weaknesses of an organization, initiatives, or within its industry. The organization needs to keep the analysis accurate by avoiding pre-conceived beliefs or gray areas and instead focusing on real-life contexts. Companies should use it as a guide and not necessarily as a prescription.

Understanding SWOT Analysis

SWOT analysis is a technique for assessing the performance, competition, risk, and potential of a business, as well as part of a business such as a product line or division, an industry, or other entity.

Using internal and external data, the technique can guide businesses toward strategies more likely to be successful, and away from those in which they have been, or are likely to be, less successful. Independent SWOT analysts, investors, or competitors can also guide them on whether a company, product line, or industry might be strong or weak and why.

Components of SWOT Analysis

Every SWOT analysis will include the following four categories. Though the elements and discoveries within these categories will vary from company to company, a SWOT analysis is not complete without each of these elements:

Strengths describe what an organization excels at and what separates it from the competition: a strong brand, loyal customer base, a strong balance sheet, unique technology, and so on. For example, a hedge fund may have developed a proprietary trading strategy that returns market-beating results. It must then decide how to use those results to attract new investors.

Weaknesses

Weaknesses stop an organization from performing at its optimum level. They are areas where the business needs to improve to remain competitive: a weak brand, higher-than-average turnover, high levels of debt, an inadequate supply chain, or lack of capital.

Opportunities

Opportunities refer to favorable external factors that could give an organization a competitive advantage. For example, if a country cuts tariffs, a car manufacturer can export its cars into a new market, increasing sales and market share.

Threatsrefer to factors that have the potential to harm an organization. For example, a drought is a threat to a wheat-producing company, as it may destroy or reduce the crop yield. Other common threats include things like rising costs for materials, increasing competition, tight labor supply. and so on.

Analysts present a SWOT analysis as a square segmented into four quadrants, each dedicated to an element of SWOT. This visual arrangement provides a quick overview of the company's position. Although all the points under a particular heading may not be of equal importance, they all should represent key insights into the balance of opportunities and threats, advantages and disadvantages, and so forth.

The SWOT table is often laid out with the internal factors on the top row and the external factors on the bottom row. In addition, the items on the left side of the table are more positive/favorable aspects, while the items on the right are more concerning/negative elements.

How to Do a SWOT Analysis

A SWOT analysis can be broken into several steps with actionable items before and after analyzing the four components. In general, a SWOT analysis will involve the following steps.

Step 1: Determine Your Objective

A SWOT analysis can be broad, though more value will likely be generated if the analysis is pointed directly at an objective. For example, the objective of a SWOT analysis may focused only on whether or not to perform a new product rollout. With an objective in mind, a company will have guidance on what they hope to achieve at the end of the process. In this example, the SWOT analysis should help determine whether or not the product should be introduced.

Step 2: Gather Resources

Every SWOT analysis will vary, and a company may need different data sets to support pulling together different SWOT analysis tables. A company should begin by understanding what information it has access to, what data limitations it faces, and how reliable its external data sources are.

In addition to data, a company should understand the right combination of personnel to have involved in the analysis. Some staff may be more connected with external forces, while various staff within the manufacturing or sales departments may have a better grasp of what is going on internally. Having a broad set of perspectives is also more likely to yield diverse, value-adding contributions.

Step 3: Compile Ideas

For each of the four components of the SWOT analysis, the group of people assigned to performing the analysis should begin listing ideas within each category. Examples of questions to ask or consider for each group are in the table below.

Internal Factors

What occurs within the company serves as a great source of information for the strengths and weaknesses categories of the SWOT analysis. Examples of internal factors include financial and human resources, tangible and intangible (brand name) assets, and operational efficiencies.

Potential questions to list internal factors are:

(Strength) What are we doing well?

(Strength) What is our strongest asset?

(Weakness) What are our detractors?

(Weakness) What are our lowest-performing product lines?

External Factors

What happens outside of the company is equally as important to the success of a company as internal factors. External influences, such as monetary policies, market changes, and access to suppliers, are categories to pull from to create a list of opportunities and weaknesses.

Potential questions to list external factors are:

(Opportunity) What trends are evident in the marketplace?

(Opportunity) What demographics are we not targeting?

(Threat) How many competitors exist, and what is their market share?

(Threat) Are there new regulations that potentially could harm our operations or products?

Strengths
1. What is our competitive advantage?
2. What resources do we have?
3. What products are performing well?

Weaknesses
1. Where can we improve?
2. What products are underperforming?
3. Where are we lacking resources?

Opportunities
1. What new technology can we use?
2. Can we expand our operations?
3. What new segments can we test?

Threats
1. What regulations are changing?
2. What are competitors doing?
3. How are consumer trends changing?

Companies may consider performing this step as a "white-boarding" or "sticky note" session. The idea is there is no right or wrong answer; all participants should be encouraged to share whatever thoughts they have. These ideas can later be discarded; in the meantime, the goal should be to come up with as many items as possible to invoke creativity and inspiration in others.

Step 4: Refine Findings

With the list of ideas within each category, it is now time to clean-up the ideas. By refining the thoughts that everyone had, a company can focus on only the best ideas or largest risks to the company. This stage may require substantial debate among analysis participants, including bringing in upper management to help rank priorities.

Step 5: Develop the Strategy

Armed with the ranked list of strengths, weaknesses, opportunities, and threats, it is time to convert the SWOT analysis into a strategic plan. Members of the analysis team take the bulleted list of items within each category and create a synthesized plan that provides guidance on the original objective.

For example, the company debating whether to release a new product may have identified that it is the market leader for its existing product and there is the opportunity to expand to new markets. However, increased material costs, strained distribution lines, the need for additional staff, and unpredictable product demand may outweigh the strengths and opportunities. The analysis team develops the strategy to revisit the decision in six months in hopes of costs declining and market demand becoming more transparent.

Use a SWOT analysis to identify challenges affecting your business and opportunities that can enhance it. However, note that it is one of many techniques, not a prescription.

Benefits of SWOT Analysis

A SWOT analysis won't solve every major question a company has. However, there's a number of benefits to a SWOT analysis that make strategic decision-making easier.

A SWOT analysis makes complex problems more manageable. There may be an overwhelming amount of data to analyze and relevant points to consider when making a complex decision. In general, a SWOT analysis that has been prepared by paring down all ideas and ranking bullets by importance will aggregate a large, potentially overwhelming problem into a more digestible report.

A SWOT analysis requires external consider. Too often, a company may be tempted to only consider internal factors when making decisions. However, there are often items out of the company's control that may influence the outcome of a business decision. A SWOT analysis covers both the internal factors a company can manage and the external factors that may be more difficult to control.

A SWOT analysis can be applied to almost every business question. The analysis can relate to an organization, team, or individual. It can also analyze a full product line, changes to brand, geographical expansion, or an acquisition. The SWOT analysis is a versatile tool that has many applications.

A SWOT analysis leverages different data sources. A company will likely use internal information for strengths and weaknesses. The company will also need to gather external information relating to broad markets, competitors, or macroeconomic forces for opportunities and threats. Instead of relying on a single, potentially biased source, a good SWOT analysis compiles various angles.

A SWOT analysis may not be overly costly to prepare. Some SWOT reports do not need to be overly technical; therefore, many different staff members can contribute to its preparation without training or external consulting.

SWOT Analysis Example

In 2015, a Value Line SWOT analysis of The Coca-Cola Company noted strengths such as its globally famous brand name, vast distribution network, and opportunities in emerging markets. However, it also noted weaknesses and threats such as foreign currency fluctuations, growing public interest in "healthy" beverages, and competition from healthy beverage providers.

Its SWOT analysis prompted Value Line to pose some tough questions about Coca-Cola's strategy, but also to note that the company "will probably remain a top-tier beverage provider" that offered conservative investors "a reliable source of income and a bit of capital gains exposure."

Five years later, the Value Line SWOT analysis proved effective as Coca-Cola remains the 6th strongest brand in the world (as it was then). Coca-Cola's shares (traded under ticker symbol KO) have increased in value by over 60% during the five years after the analysis was completed.

To get a better picture of a SWOT analysis, consider the example of a fictitious organic smoothie company. To better understand how it competes within the smoothie market and what it can do better, it conducted a SWOT analysis. Through this analysis, it identified that its strengths were good sourcing of ingredients, personalized customer service, and a strong relationship with suppliers. Peering within its operations, it identified a few areas of weakness: little product diversification, high turnover rates, and outdated equipment.

Examining how the external environment affects its business, it identified opportunities in emerging technology, untapped demographics, and a culture shift towards healthy living. It also found threats, such as a winter freeze damaging crops, a global pandemic, and kinks in the supply chain. In conjunction with other planning techniques, the company used the SWOT analysis to leverage its strengths and external opportunities to eliminate threats and strengthen areas where it is weak.

What Is SWOT Analysis?

SWOT (strengths, weaknesses, opportunities, and threats) analysis is a method for identifying and analyzing internal strengths and weaknesses and external opportunities and threats that shape current and future operations and help develop strategic goals. SWOT analyses are not limited to companies. Individuals can also use SWOT analysis to engage in constructive introspection and form personal improvement goals.

What Is an Example of SWOT Analysis?

Home Depot conducted a SWOT analysis, creating a balanced list of its internal advantages and disadvantages and external factors threatening its market position and growth strategy. High-quality customer service, strong brand recognition, and positive relationships with suppliers were some of its notable strengths; whereas, a constricted supply chain, interdependence on the U.S. market, and a replicable business model were listed as its weaknesses.

Closely related to its weaknesses, Home Depot's threats were the presence of close rivals, available substitutes, and the condition of the U.S. market. It found from this study and other analysis that expanding its supply chain and global footprint would be key to its growth.

What Are the 4 Steps of SWOT Analysis?

The four steps of SWOT analysis comprise the acronym SWOT: strengths, weaknesses, opportunities, and threats. These four aspects can be broken into two analytical steps. First, a company assesses its internal capabilities and determines its strengths and weaknesses. Then, a company looks outward and evaluates external factors that impact its business. These external factors may create opportunities or threaten existing operations.

How Do You Write a Good SWOT Analysis?

Creating a SWOT analysis involves identifying and analyzing the strengths, weaknesses, opportunities, and threats of a company. It is recommended to first create a list of questions to answer for each element. The questions serve as a guide for completing the SWOT analysis and creating a balanced list. The SWOT framework can be constructed in list format, as free text, or, most commonly, as a 4-cell table, with quadrants dedicated to each element. Strengths and weaknesses are listed first, followed by opportunities and threats.

Why Is SWOT Analysis Used?

A SWOT analysis is used to strategically identify areas of improvement or competitive advantages for a company. In addition to analyzing thing that a company does well, SWOT analysis takes a look at more detrimental, negative elements of a business. Using this information, a company can make smarter decisions to preserve what it does well, capitalize on its strengths, mitigate risk regarding weaknesses, and plan for events that may adversely affect the company in the future.

The Bottom Line

A SWOT analysis is a great way to guide business-strategy meetings. It's powerful to have everyone in the room discuss the company's core strengths and weaknesses, define the opportunities and threats, and brainstorm ideas. Oftentimes, the SWOT analysis you envision before the session changes throughout to reflect factors you were unaware of and would never have captured if not for the group's input.

A company can use a SWOT for overall business strategy sessions or for a specific segment such as marketing, production, or sales. This way, you can see how the overall strategy developed from the SWOT analysis will filter down to the segments below before committing to it. You can also work in reverse with a segment-specific SWOT analysis that feeds into an overall SWOT analysis.

Although a useful planning tool, SWOT has limitations. It is one of several business planning techniques to consider and should not be used alone. Also, each point listed within the categories is not prioritized the same. SWOT does not account for the differences in weight. Therefore, a deeper analysis is needed, using another planning technique.

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SWOT Analysis: How To With Table and Example

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SWOT (strengths, weaknesses, opportunities, and threats) analysis is a framework used to evaluate a company's competitive position and to develop strategic planning.

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Porter's model can be applied to any segment of the economy to understand the level of competition within the industry and enhance a company's long-term profitability. The Five Forces model is named after Harvard Business School professor, Michael E. Porter.

Porter's 5 forces are:

1. Competition in the industry

2. Potential of new entrants into the industry

3. Power of suppliers

4. Power of customers

5. Threat of substitute products
1

KEY TAKEAWAYS

Porter's Five Forces is a framework for analyzing a company's competitive environment.

Porter's Five Forces is a frequently used guideline for evaluating the competitive forces that influence a variety of business sectors.

It was created by Harvard Business School professor Michael E. Porter in 1979 and has since become an important tool for managers.

These forces include the number and power of a company's competitive rivals, potential new market entrants, suppliers, customers, and substitute products that influence a company's profitability.

Five Forces analysis can be used to guide business strategy to increase competitive advantage.

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Porter’s 5 Forces Explained and How to Use the Model

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Porter’s 5 Forces is a model that identifies and analyzes the competitive forces that shape every industry and helps determine an industry’s weaknesses and strengths.

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Political
Economical
Social
Technological
Environmental
Legal

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SMART stands for specific, measurable, achievable, realistic, and time-bound. The SMART goal pairs well with MBO theory by:Providing incentives to employees by rewarding them when they meet key goals.Empowering employees by allowing them to set their own objectives for achieving their individual goal.Communicating honestly about what went well and what did not go well, and focusing on developing the missing skills.

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SMART stands for specific, measurable, achievable, realistic, and time-bound. The SMART goal pairs well with MBO theory by:Providing incentives to employees by rewarding them when they meet key goals.Empowering employees by allowing them to set their own objectives for achieving their individual goal.Communicating honestly about what went well and what did not go well, and focusing on developing the missing skills.

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a manager and an employee:

Jointly set goals and objectives for a period.

Together plan tasks that the employee performs with the support of management.

Agree on the standards for evaluating performance of the task.

Regularly meet to review progress.

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Financial budgets include balance sheets, income/expense statements, and statements of cash flow.

Operating budgets project revenue against expenditures.

Nonmonetary budgets allocate resources, such as labor, workspace, and equipment use.

Fixed budgets are budgets that do not change with increased or decreased activities, such as sales revenue. They are also called static budgets.

Flexible budgets will vary with the level of activity (grow or be reduced according to changing conditions).

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four management functions—planning, organizing, leading, and controlling—planning is usually the first step.

Planning is the process of setting goals and defining the actions required to achieve the goals. Planning begins with goals. Goals are derived from vision and mission statements

The organization is affected by conditions in its external environment—competitors, laws, availability of resources, etc.—and its internal conditions—the skills and experience of its workforce, its equipment and resources, and the abilities of its management. These conditions are examined through a process called a SWOT Analysis. Together, the vision and mission statements and the results of the situation analysis determine the goals of the organization.

The mission, vision, and values of a company, along with a situation analysis, serve to help a company set goals.

Once the goals are defined, the remainder of the planning process outlines how the goals are to be met. This includes determining what resources will be needed and how they can be obtained, defining tasks that need to be done, creating a schedule for completing the tasks, and providing milestones

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2015. Scholarly Rigor and Critical Thought award for Strategic Leadership Across Cultures: The GLOBE Study of CEO Leadership Behavior and Effectiveness in 24 Countries" received the 2015 University of San Diego and International Leadership Association (ILA) leadership book award.

2008. American Psychological Association award for "Culture and Leadership Across the World: The GLOBE Book of In-Depth Studies of 25 Societies." Recipient of the 2008 Ursula Gielen Global Psychology Book Award, given annually by the International Psychology Division (52), American Psychological Association, to authors of the book that makes the most significant contribution to psychology as a global discipline.

2007. Bob House received the EminenGive to the SFU Ali Dastmalchian Memorial Fut Scholar award for his long years of contributions to the field of leadership.

2007. Academy of Management Perspectives (formerly Academy of Management Executive). Best journal paper award for "In the Eye of the Beholder: Cross cultural Lessons in Leadership from project GLOBE." Javidan, M., Dorfman, P., Sully de Luque, M., and House, R.J.

2005. Society for Industrial & Organizational Psychology, Inc., annual M. Scott Myers Award for Applied Research in the Workplace. Awarded to the GLOBE Project team for development, conduct and application of outstanding practice of industrial-organizational psychology in the workplace (business, industry, government).

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2015. Scholarly Rigor and Critical Thought award for Strategic Leadership Across Cultures: The GLOBE Study of CEO Leadership Behavior and Effectiveness in 24 Countries" received the 2015 University of San Diego and International Leadership Association (ILA) leadership book award. 2008. American Psychological Association award for "Culture and Leadership Across the World: The GLOBE Book of In-Depth Studies of 25 Societies."

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 Today, competitiveness is based more on the ability to keep up with rapid technological and organizational changes

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 Today, competitiveness is based more on the ability to keep up with rapid technological and organizational changes

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How Singapore is Moving Towards an Innovation-Led Economy - TelecomDrive

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How Singapore is Moving Towards an Innovation-Led Economy

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Idea in Brief

The Problem

Disruptions and shortages during the Covid-19 pandemic exposed weaknesses in global supply chains, which already faced threats from trade wars.

The Cause

Many companies hadn't rigorously identified and addressed hidden vulnerabilities.

The Solution

Thoroughly map your supply chain to uncover risks. To mitigate them, line up alternative supply sources in diverse locations or increase stocks of critical materials. Revisit your product strategies. And explore new manufacturing technologies that could increase flexibility and resilience.

When the Covid-19 pandemic subsides, the world is going to look markedly different. The supply shock that started in China in February and the demand shock that followed as the global economy shut down exposed vulnerabilities in the production strategies and supply chains of firms just about everywhere. Temporary trade restrictions and shortages of pharmaceuticals, critical medical supplies, and other products highlighted their weaknesses. Those developments, combined with the U.S.-China trade war, have triggered a rise in economic nationalism. As a consequence of all this, manufacturers worldwide are going to be under greater political and competitive pressures to increase their domestic production, grow employment in their home countries, reduce or even eliminate their dependence on sources that are perceived as risky, and rethink their use of lean manufacturing strategies that involve minimizing the amount of inventory held in their global supply chains.

A version of this article appeared in the September-October 2020 issue of Harvard Business Review.

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Global Supply Chains in a Post-Pandemic World

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The U.S.-China trade war and the supply and demand shocks brought on by the Covid-19 crisis are forcing manufacturers everywhere to reassess their supply chains. For the foreseeable future, they will face pressure to increase domestic production, grow employment in their home countries, reduce their dependence on risky sources, and rethink strategies of lean inventories and just-in-time replenishment, which can be crippling when material shortages arise.

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The United Nations (U.N.) is a global diplomatic and political organization dedicated to international peace and stability. The U.N. was officially established in 1945 following the horrific events of World War II, when international leaders proposed creating a new global organization to maintain peace and avoid the abuses of war. The U.N. initially had just 51 member states; today, the organization, which is headquartered in New York City, has 193 members. Major U.N. initiatives include preventing conflict by exploring options to ensure peace, providing food and medical assistance in emergencies, and offering humanitarian support to millions of people around the world. While the United Nations is sometimes criticized for its policies, bureaucracy and spending, the organization has accomplished hundreds of successful peacekeeping missions.

Atlantic Charter

After World War I, an international group developed the League of Nations to solve disputes between countries. When World War II started, the initiative failed but highlighted the need for a new, reformed organization that could promote global peace.

In August 1941, Franklin D. Roosevelt and Winston Churchill held a secret meeting where they discussed the possibility of starting an international peace effort. They came up with a declaration called the Atlantic Charter, which outlined ideal goals of war and paved the way for the development of the U.N.

The United States joined the war in December 1941, and the title "United Nations" was first adopted to identify the countries that allied against Germany, Italy and Japan.

Representatives from 26 Allied nations met in Washington, D.C. on January 1, 1942 to sign the Declaration of the United Nations, which essentially described the war objectives of the Allied powers. The United States, United Kingdom and Soviet Union led the charge.

U.N. Charter

Over the next few years, several meetings took place to draft a post-war charter that would decisively describe the roles of the U.N.

The main principles and structure of the United Nations Charter were determined by leaders at the United Nations Conference on International Organization (UNCIO) in San Francisco on April 25, 1945.

After the war ended, the official United Nations Charter was ratified by 51 members on October 24, 1945.

United Nation's Four Main Goals

The organization's purpose and principles are outlined in the U.N. Charter. According to the document, the United Nations' four main purposes are to:

Maintain international peace and security;

Develop friendly relations among nations;

Achieve international cooperation in solving international problems; and

Be a center for harmonizing the actions of nations in the attainment of these common ends.

U.N. Bodies

The U.N. is divided into different bodies, including the following:

General Assembly: The General Assembly is the main policymaking body of the U.N. that votes on decisions the organization makes. All 193 members are represented in this branch.

Security Council: This 15-member council oversees measures that ensure the maintenance of international peace and security. The Security Council determines if a threat exists and encourages the parties involved to settle it peacefully.

Economic and Social Council: The Economic and Social Council makes policies and recommendations regarding economic, social and environmental issues. It consists of 54 members who are elected by the General Assembly for three-year terms.

Trusteeship Council: The Trusteeship Council was originally created to supervise the 11 Trust Territories that were placed under the management of seven member states. By 1994, all the territories had gained self-government or independence, and the body was suspended. But that same year, the Council decided to continue meeting occasionally, instead of annually.

International Court of Justice: This branch is responsible for settling legal disputes submitted by the states and answering questions in accordance with international law.

Secretariat: The Secretariat is made up of the Secretary-General and thousands of U.N. staffers. Its members carry out the daily duties of the U.N. and work on international peacekeeping missions.

U.N. Members

What started as a group of 51 states has grown increasingly over the years. War, independence movements and decolonization have all helped boost membership in the U.N.

Currently, there are 193 members, representing countries from all over the world.

New members must be recommended by the United Nations' Security Council and accepted by a two-thirds vote from the General Assembly.

The U.N. states that membership in the organization is "open to all peace-loving States that accept the obligations contained in the United Nations Charter and, in the judgment of the Organization, are able to carry out these obligations."

U.N. Successes

Since its inception, the United Nations has performed numerous humanitarian, environmental and peace-keeping undertakings, including:

Providing food to 90 million people in over 75 countries

Assisting more than 34 million refugees

Authorizing 71 international peacekeeping missions

Working with 140 nations to minimize climate change

Assisting about 50 countries per year with their elections

Providing vaccinations for 58 percent of children in the world

Helping about 30 million women a year with maternal health efforts

Protecting human rights with 80 treaties and declarations

United Nations Criticisms

Over the years, the role of the U.N. has expanded from an organization that focused on peace and security to one that includes a wide range of global concerns. Today, the U.N. provides solutions for problems related to healthcare, the environment, criminal justice, refugee dilemmas and more.

Though many support including these extended responsibilities, others believe the organization may be overstepping its boundaries.

The U.N. has also faced criticism for promoting globalization, not being effective enough, backing provocative policies, providing controversial health options, being too bureaucratic, giving certain countries more power than others and spending too much money.

U.N. Failures

Some of the more well-known U.N. efforts that ended in failure or a publicized scandal include:

The 1994 Rwanda Mission: During this undertaking, the U.N. tried to stop the Rwandan genocide, but the Hutus slaughtered nearly a million members of the Tutsi minority.

Cholera in Haiti: After the 2010 earthquake, U.N.-led Nepali aid workers were blamed for spreading cholera throughout Haiti. More than 10,000 people died from the outbreak.

Oil for Food Program: This initiative was designed to allow Iraq to sell oil through the U.N. in exchange for food and medicine. But, accusations surfaced that much of the money was funneled to the Iraqi government and to U.N. officials.

Sexual abuse allegations: In early 2005, U.N. peacekeepers were accused of rape or paying for sex in the Republic of Congo. Similar allegations of sexual misconduct were also reported in Cambodia, Haiti and other countries.

Crisis in South Sudan: A U.N. peacekeeping mission, which was established in 2011, was unsuccessful at protecting civilians from death, torture or rape in South Sudan.

While every organization has its flaws and shortcomings, the majority of international leaders and experts agree that the U.N. continues to play a critical role in securing peace, stability and prosperity throughout the world.

Sources

History of the United Nations, United Nations.
Main Organs, United Nations.
The Formation of the United Nations, Department of State United States of America.
What We Do, United Nations.
A Brief History of the United Nations, GOOD.
20 Facts About the United Nations, The Borgen Project.
United Nations Fast Facts, CNN.
UN at 70: Five Biggest Successes and Failures, The Telegraph.
UN admits role in Haiti's deadly cholera outbreak, BBC.
UN failed to protect civilians in South Sudan, report finds, The Guardian.

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The United Nations (U.N.) is a global diplomatic and political organization dedicated to international peace and stability. The U.N. was officially established in 1945 following the horrific events of World War II, when international leaders proposed creating a new global organization to maintain peace and avoid the abuses of war.

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Global trade - The World Trade Organization (WTO) deals with the global rules of trade between nations. Its main function is to ensure that global trade flows smoothly, predictably and freely as possible.

Global trade - The World Trade Organization (WTO) deals with the global rules of trade between nations. Its main function is to ensure that global trade flows smoothly, predictably and freely as possible.

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Global trade - The World Trade Organization (WTO) deals with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.

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A global organization is any organization that competes outside its native country. Globalization is the process by which the exchange of goods, services, capital, technology, and knowledge across international borders becomes increasingly interconnected.
Pros and Cons

Globalization creates new opportunities for businesses to increase profits by expanding markets and by allowing wider access to resources. On the other hand, globalization also opens domestic markets to new competitors, decreasing demand for local products.

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Module 2 The 7 Principles of Ethical decision making 

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Module 2 The 7 Principles of Ethical decision making 

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1. Legal and regulatory requirements set the minimum standard for behavior
2. Long-term self-interest means the pursuit of outcomes that will benefit the self in the long run. For example, a company must make choices to ensure its continued existence.
3. Personal virtue refers to conformity to a standard of righteousness. You should make choices that are honest and truthful individually. The good of the company does not justify lying.
4.  Utilitarianism seeks the greatest benefit for the maximum number of people. This is often difficult to judge over large groups of people.
5. Individual rights are related to the freedom to act and think without punishment through regulatory, legal, or societal means.
6. Distributive justice is the fairness of the outcomes. That is, how are the benefits shared or distributed among the individuals in a group?
7. Religious injunction is the main moral and ethical guide for many people.

In addition to establishing a code of ethics, hiring ethical employees, and protecting whistleblowers, key aspects of senior management’s role in fostering ethical decisions and behavior in any organization include planning, implementing, and communicating the specifics of an ethics program.
The responsibilities of senior management in modeling ethical behavior include the following:

Act ethically and be seen to act ethically.

Be active in the ethics program. For example, introduce the ethics training or be the person to speak.

Encourage employees to raise issues.

Address ethics issues.

Enforce the ethics program, such as by punishing violators.

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Integrating Ethics: From Thought to Action

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Module 2 : Degree of importance of an ethical dilemma in Business:

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Module 2 : Degree of importance of an ethical dilemma in Business:

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Ethical intensity is the degree of importance of an issue for an individual or group. The factors that determine ethical intensity include:

Magnitude or significance of the consequences

Concentration of effect or the number of people affected

Proximity of the decision maker to the victim or beneficiary of the decision

Probability that the decision implemented will lead to the predicted consequence

Social consensus that a proposed decision is negative or positive

Temporal immediacy or the elapsed length of time between when a decision is made and when the resulting consequences occur

The significance of the consequences refers to the total harm or benefit that follows from the decision

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Module 2 : A model of Corporate good citizenship! 

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Module 2 : A model of Corporate good citizenship! 

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https://www.pepsico.com/our-stories/story/pepsico-named-to-100-best-corporate-citizens-list#:~:text=PepsiCo%20ranks%20first%20among%20food,(ESG)%20transparency%20and%20performance.

Establish standards and procedures to prevent and detect criminal conduct, which starts with a code of ethics or statement of values.

Senior management must be knowledgeable about the compliance and ethics program as well as oversee its implementation and make reasonable efforts to ensure its effectiveness.

Make reasonable efforts to exclude any individual who has committed an illegal act or engaged in other activities inconsistent with a compliance and ethics program from substantial authority in the organization.

Periodically communicate the aspects of the compliance and ethics program to its members by conducting training programs and disseminating relevant information.

Ensure that the program is followed by (1) monitoring and auditing activities to detect criminal conduct, (2) periodically evaluating its effectiveness, and (3) employing systems that allow for anonymity or confidentiality if employees want to report criminal conduct without fear of retaliation. A common practice is a whistleblower hotline.

Promote and enforce the program by offering incentives for performance in accordance with the program and instituting disciplinary measures for engaging in or failing to take reasonable steps to prevent/detect criminal conduct.

Respond to criminal conduct and take steps to prevent future and similar offenses when criminal conduct has been detected.

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How PepsiCo moved toward a healthier future

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Module 2 Unethical behavior from corporate employees sentencing guidelines:

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Module 2 Unethical behavior from corporate employees sentencing guidelines:

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Even when an employee’s actions go against company policy, the company can be held legally responsible, despite its best efforts to prevent unethical behavior. For example, if an employee uses the account information of bank customers to steal money from them, the bank would be held responsible. The most common offenses related to companies include fraud, hazardous waste discharge, tax evasion, antitrust offenses, and food and drug violations.

Punishment for corporate offenses is governed by chapter eight of the Federal Sentencing Guidelines for Organizations. These guidelines were designed to enhance two purposes of criminal sentencing: “just punishment” and “deterrence.” The guidelines apply to corporations, partnerships, nonprofit entities, government bodies, trusts, labor unions, and pension funds.

They govern only sentencing for felonies and serious misdemeanors.

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SENTENCING OF ORGANIZATIONS Introductory Commentary The guidelines and policy statements in this chapter apply when the convicted defendant is an organization. Organizations can act only through agents and, under federal criminal law, generally are vicariously liable for offenses com…

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Congress passed the Sarbanes-Oxley Act in 2002 to impose sanctions on executives who commit unethical acts in financial reporting and to protect employees who report fraud. In addition, business schools have increased their focus on informing students of ethical/unethical acts, and more individuals and organizations have filed lawsuits against companies involved in fraud, regardless of whether senior executives are aware of the unethical acts committed.(4)

The bank opened at least 3.5 million fraudulent accounts for unwitting customers, according to researchers at the Harvard Business School. This and other issues have led the government to fine the bank repeatedly.

https://www.cnbc.com/video/2022/10/19/the-rise-and-stall-of-wells-fargo.html

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Why is the study of ethics important? Given all the things that a student of management needs to learn, why include ethics? In this module, you’ll begin to understand just how much of an impact the decisions that businesses make can have on society.

Corporate fraud can create negative consequences that not only harm individuals but also ultimately lead to the economic downfall of a nation. Managers must prevent harm by understanding what is considered ethical behavior, by being committed to making ethical decisions, and by encouraging stakeholders to take ethical actions. Exhibiting good ethics not only protects the external constituents of a company but also members of the organization.⁽³⁾

Ethics is defined as principles of conduct or moral behavior. Business ethics is ethics as it relates to the conduct or behavior of the members of a business organization. The need for ethics in business is twofold. First, it prevents the external constituents of an organization (i.e., the public, other organizations, and the environment) from being harmed. Second, it benefits the organization internally by helping to ensure its success.

Good business ethics involves, but is not limited to, adhering to laws, regulations, and standards related to fair employment, product safety and quality, truthful advertisement, and environmental responsibility.
A positive reputation creates a buffer, a “halo” effect, where customers, suppliers, and regulators are slower to judge a company. Employees’ morale is better in ethical companies, and new employees are easier to hire. An ethics program also gives company stock prices an edge

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a sustainable corporation is one that can sustain its current activities without adding to the world’s environmental problems.

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Module 2 Corporate Social Responsobility:

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Module 2 Corporate Social Responsobility:

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Many organizations promote their CSR efforts as a way of shaping public perceptions, attracting customers, and building goodwill with stakeholders.

Corporate social responsibility (CSR) refers to actions businesses take or refrain from taking based on the impact of those actions on the external environment and community. Areas of CSR include environmental concerns (green business), poverty, human rights, and animal rights.

When we refer to “business ethics” we are referring to the culture, attitudes, or actions governing “right vs. wrong.” Most organizations have a formal code of ethics that guide the decisions and actions of the company.

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technical, conceptual, and human skills are all needed to be an effective manager. As a manager moves up the organizational ladder, he or she may find that success requires fewer or different technical skills and a heavier reliance on interpersonal and human skills.

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Module One. Managment types and thier roles:

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Module One. Managment types and thier roles:

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Fayol was a management theorist in 1949 he identified 5 primary management functions: 1. forecast and plan,
2. organize,
3. command,
4. coordinate,
5. control.
Since then, management theorists have built upon and refined Fayol’s 5 functions. The areas of “command” and “coordinate” were combined to form a new function titled "leading". Today's key functions of management are listed:

Planning

Organizing

Leading

Controlling.

Different types of managers are considered as the following :
a.)Top Level Executives who hold titles like CEO, CFO, and CCO.
b.)Middle Managers who hold titles like:
General Manager, Department Heads, Directors, and Chief Supervisors.
c.)First Line Management has titles like an Assistant manager, Forman, Shift Lead, and Section Chief.
d.)Team Leads are managers with specific tasks.

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In my spare time, I try to keep up with my three shadows, most of my time and money are invested in making them happy complete shadows. I also consider myself thoroughly prepared for this class with many pencils, scratch paper, and most importantly, my eraser.

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In my spare time, I try to keep up with my three shadows, most of my time and money are invested in making them happy complete shadows. I also consider myself thoroughly prepared for this class with many pencils, scratch paper, and most importantly, my eraser.