Read week 4 assignment attachment

Baack, D., Reilly, M., & Minnick, C. (2014). The five functions of effective management (2nd ed.). Retrieved from https://content.ashford.edu/

Team Management Activity and Reflection

This assignment focuses on how the management practices of planning, leading, organizing, staffing, and controlling are implemented in your workplace. Using the Ashford University Library and other credible online resources, find three 

Scholarly, Peer Reviewed, and Other Credible Sources (Links to an external site.)

 that provide information on Amazon.com’s business structure.

Here is the scenario and situation:

Assume you are an employee working in the Amazon warehouse, and you pack orders and categorize them into small, medium, and large batches. You are considered a packer. You have experience packing all sizes and have been with the organization for two years. You are considered one of their best employees, you have a solid reputation for being a hard worker, and all of your orders are packed correctly. You have also been busy; you recently completed Amazon’s management training program, and you have completed your BABA degree at the Forbes School of Business and Technology at Ashford University.

Congratulations: You have just been promoted to manager. You will be relocated to a new plant that is two hours away that employs 100 employees. You will oversee a team of 10 supervisors and 90 packers and will now oversee the entire warehouse operation. How will you work to use and apply the five functions of management?

Now let’s apply the five functions. In your paper, include the following sections:

· Planning: Examine the specific areas you will choose to manage that fall under the planning function.

· For example, what might be some of the things you will plan to do and implement to build an effective team and culture? People are the most important resource in any business, what do you plan to do to build a positive team culture? What processes and systems do you plan to use?

· Organizing: Assess if the present structure that Amazon has set up is working.

· Do you need to make or suggest any changes to make it more efficient and effective? What structure will you use and implement? Explain how you will use departmentalization in your organizational structure.

· Staffing: Analyze your staffing needs.

· How do you intend to staff your organization and replace members that leave or are promoted? How does the HR process apply? What things (if any) will you suggest?

· Leading: Justify the leadership theory and style you will follow to ensure efficiency.

· Will you use transformational or transactional leadership? Why or why not?

· Controls: Identify what controls and measures you will implement.

· How will you apply the four steps of control (these are in Chapter 7; i.e., establishing standards, measuring performance, comparing performance, and making decisions)?

Be sure to integrate vocabulary learned throughout this course and citations from the text to support your analysis. The paper should be five to six double-spaced pages in length, must include at least three scholarly sources, in addition to the textbook, and be formatted according to APA style guidelines as outlined in the Ashford Writing Center.

The Team Management Activity and Reflection paper

· Must be five to six double-spaced pages in length (not including title and references pages) and formatted according to APA style as outlined in the 

Ashford Writing Center (Links to an external site.)

.

· Must include a separate title page with the following:

· Title of paper

· Student’s name

· Course name and number

· Instructor’s name

· Date submitted

· Must use at least three scholarly, peer reviewed, and/or credible sources in addition to the course text.

· The 
Scholarly, Peer Reviewed, and Other Credible Sources (Links to an external site.) table offers additional guidance on appropriate source types. If you have questions about whether a specific source is appropriate for this assignment, please contact your instructor. Your instructor has the final say about the appropriateness of a specific source for a particular assignment.

· Must document all sources in APA style as outlined in the Ashford Writing Center.

· Must include a separate references page that is formatted according to APA style as outlined in the Ashford Writing Center.

Carefully review the 

Grading Rubric (Links to an external site.)

 for the criteria that will be used to evaluate your assignment.

The Controlling Function

Learning Objectives

After completing this chapter, you should be able to:

• Complete the steps involved in the organization’s constant and periodic control systems.
• Prescribe specific corrections for problems identified at the functional/departmental level.
• Use accounting and financial controls to improve company-wide performance.
• Finalize all other aspects of the control process.

7

Moodboard/Thinkstock

Introduction Chapter 7

7.1 Introduction
The modern organization operates in a complex, ever-changing environment. In fact, the exter-
nal environment continues to be highly competitive thanks to the ever-increasing expectancies
of customers, clients, and key stakeholders. Competitors also constantly vie for market share.
Control systems and methods assist managers by providing information about the state of the
organization’s production expectancies, financial condition, employee demands, operating sys-
tems, marketing activities, governmental influences, and other factors as they arise. Such infor-
mation is essential to drive manager course correction decisions (Etzioni, 1964; Merchant, 1982).

Successful organizations use effective and appropriate control systems to obtain organizational
goals and objectives. In this chapter, we explore control systems and their importance to overall
organizational success. The first section describes the natures of constant and periodic controls.
Next, we consider specific departmental and functional area control systems. In the following
section, we examine the role played by financial and accounting standards in an organization’s
control process. Finally, we look at other forms of control .

M A N A G E M E N T I N P R A C T I C E

At McDonald’s, Organizational Controls Move Fast Food
into the New Millennium

McDonald’s has long been known as the industry leader in fast food, specifically in the area of
hamburgers, fries, and a soft drink. Numerous business textbooks describe how the company’s stra-
tegic model has led to growth domestically and internationally. Everything from the company’s take
on where to place stores (location, location, location) to its mantra of quality, service, cleanliness,
and value (McDonalds.com, 2013) to the company’s famous Hamburger University management
training program suggests that numerous organizational activities and practices have set the stan-
dards for success in a crowded marketplace.

The McDonald’s organization has shown the ability to adapt to international circumstances. In
India, for example, where consuming beef would violate religious norms, the company created
a beefless menu complete with veg-
etarian burgers and even vegetarian
“cheese.” While critics point out that
the children’s menu burger is not
exactly a healthy choice (Petrun, 2007),
it does appeal to a wide audience
within that country.

About a decade ago, however, the tide
of public opinion began to turn against
the company in some ways. Movies
such as Supersize Me began a period
in which McDonald’s and many other
food companies experienced criticism
regarding the health properties present
in their menus. McDonald’s first corpo-
rate reaction was to change from using

(continued)

Larry French/AP Images for McDonald’s

▲▲ McDonald’s has shown the capacity to adapt to
changing circumstances, especially in the area of
health-conscious menus.

http://www.mcdonalds.com/us/en/home.html

Introduction Chapter 7

Controlling is the process of evaluating performance against established goals and creating
methods appropriate to take corrective action to maintain or improve performance in any area
of the organization. Control systems allow managers to analyze the state of the organization
and its various constituent parts to determine if the plan and structural system are achieving
expected results.

The first distinction to be made involves the differences between what may be described as con-
stant controls and periodic controls. Constant controls regulate organizational activities on
a continual basis. Any time a standard is not met, the management team should immediately
react with corrective action. Periodic controls assess organizational activities on a regularly
scheduled basis. Then managers are able to undertake corrective action as needed. This section
examines these two control processes.

Constant Controls

A great deal of organizational activity is guided by ongoing, continual standards. Such standards
regulate the behaviors of individual employees, groups and departments, and the overall organi-
zation. Without this form of guidance, companies can quickly drift away from the actions, activi-
ties, and behaviors that allow them to succeed.

Individual Constant Controls
Each employee in any type of organization will be expected to follow certain standards and
behavioral guidelines. The principles constitute the basic necessity of maintaining membership
in the company. Two primary forms of individual constant controls include work procedures and
the organization’s rule/discipline system.

cooking oil based on beef tallow to a vegetable version. Over time it became clear that, if the com-
pany were to succeed in a new era and environment, things would need to change.

The corporate control system led the way. The company’s evolving sense of mission and vision cre-
ated new standards for members of the entire organization to follow, from the CEO to individual
employees (Git, 2013). Many stores now post the caloric content of each food offering. In 2013
McDonald’s announced plans to sell a greater variety of healthy foods in addition to its traditional
menu. In response to concerns about increasing obesity rates among U.S. children, many of these
foods were directed at younger consumers.

In this instance, a corporation’s control system began to address two major goals. The first was to
continue the organization’s success by maintaining customer patronage. The second, and perhaps
loftier outcome, would be to sell more products that enable individuals to enjoy a quick meal out
that may help them live longer with fewer health issues. In the future, you can expect McDonald’s
and other corporations to continue using control systems as a tool for adapting to a changing
world.

Discussion Questions

1. Do you expect fast food to be healthy food?
2. Should McDonald’s continue to alter its mission to address public health concerns, or should it

just give people what they want?
3. How would the most recent changes at McDonald’s affect the marketing department activities,

food production, and individual employees waiting on customers in various stores?

Introduction Chapter 7

Work procedures, or specific task instructions, guide the day-to-day operations of the firm.
Often, such procedures are carefully spelled out in an organizational manual or handbook. At
other times, they are part of the employee training process. Work procedures include directions
regarding methods of operation for various tasks. Table 7.1 indicates work procedures for various
vocations within an organization.

Table 7.1 Examples of work procedures

Food preparation Methods of cooking

Methods of cleaning cooking equipment

Methods for disposing of food waste

Methods for maintaining a sanitary work area

Accounting procedures Daily entries into accounting documents

Methods for paying accounts due

Methods for invoicing accounts receivable payments

Manufacturing Methods of operating equipment

Methods for maintaining/repairing equipment

Sales Type of sales pitch to be used

Methods for making suggestive sales

Office management Methods for maintaining employee privacy

Methods for filing information

Store management Methods for handling payments, such as checks

Methods for closing the store properly

Environmental services Methods for disposing of waste

Cleaning methods

A second set of work procedures covers employee safety. Employees are taught how to complete
tasks in the safest manner possible. Examples include wearing protective clothing and eyewear,
wearing a hard hat, lifting heavy objects properly, using warning signals when appropriate, han-
dling dangerous materials properly, and so forth.

The company’s discipline system ties work procedures, safety procedures, and other elements of
employee behavior together. As noted in Chapter 4, the human resources department is largely
responsible for creating the system and then assessing penalties when employees violate various
rules. All of these ingredients serve to ensure that employees take appropriate actions. Whenever
a procedure or rule has been violated, the employee’s immediate supervisor is expected to take
immediate corrective action. Infractions are normally reported to the human resources office, so
that the incident can be recorded and corrective steps taken to make sure the employee does not
break the rule or ignore the procedure in the future.

In many organizations, human resources departments prepare policy manuals that spell out com-
pany rules, work procedures, and protocols for handling violations of these directives. In addi-
tion, various employee manuals spell out procedures across a variety of tasks. These documents,

Introduction Chapter 7

when combined with direct supervision, provide the basis for constant control over the activities
of employees across the organization.

Departmental Constant Controls
Individual departments have two forms of control that guide the entire unit. Group norms and
functional area policies both help ensure the department stays aligned with the overall organiza-
tion’s purposes and directives.

Group norms form in both formal and informal settings. Norms, or rules of behavior, dictate how
departmental members interact with one another and with managers at higher ranks. Norms
tend to operate in the areas of productivity, work behaviors, and social behaviors.

Norms often quickly evolve in the area of
productivity. Management’s responsibility
will be to ensure that such norms empha-
size giving full effort to the greatest extent
possible. Those who fail to meet the group
standards may be “sanctioned” by cowork-
ers to try harder or keep up with the pace
set by the group. Sanctions take the forms
of praise for positive actions and criticism
for negative results.

Work behaviors include the manner of dress
the organization and department deem to be
acceptable. In some companies, only a suit
and tie are appropriate attire for men, and
only conservative outfits are acceptable for
women. In others, varying degrees of cloth-
ing options may be considered admissible, from work casual to blue jeans and T-shirts. Work behav-
iors also cover the use of language in daily operations. For some, use of profanity is the norm and
takes place constantly. In other departments, such language would quickly meet with disapproval
by coworkers and managers. The same holds true for the manner of addressing supervisors and
others. In the legal system, a judge is referred to as “Your Honor” in any formal setting, for example.

Social behaviors include views of office romances and relationships between employees and
supervisors. Many organizations strongly discourage dating within a specific office, unit, or
department. Relationships between employees and their supervisors are also often affected by
norms. In some companies, it would be considered very bad form to socialize with someone of a
higher rank. In others, such activities would be commonplace.

As is the case with individual constant controls, violations of group norms often meet with quick
and consistent corrections. Someone who acts inappropriately will encounter criticism and worse
from peers and supervisors.

Functional area policies are the dictates that guide activities of an organizational department or
unit. Each department creates specific directives that should be aligned with overall company
policies. When a policy is violated, management will step in and make certain the situation is
corrected. Examples of functional area policies are provided in Table 7.2.

Brian McEntire/iStock/Thinkstock

▲▲ Wearing the type of dress that an organization considers
acceptable is an example of a work behavior.

Introduction Chapter 7

Table 7.2 Examples of functional area policies

Accounting Methods of depreciation of assets

Methods of inventory valuation

Marketing Pricing systems

Preferred promotional activities

Protocols for hiring advertising agencies and public
relations agencies

Human resources Methods for recruiting and hiring employees that best
match the company

Pay systems

Benefit programs

Production Methods used for quality control

Once again, departmental managers are expected to abide by functional area policies. Any that
are not followed should meet with quick and consistent correction protocols.

Company-Wide Constant Controls
As noted in Chapter 2, mission statements define the organization’s overall purpose and reason
for being. A corporation’s board of directors oversees the application of the company’s mission
statement and is largely responsible for any alterations or revisions to that statement. Then, the
CEO and other top managers will be expected to carry out the mission and prevent the organiza-
tion from drifting off course. Vision statements then outline the direction for the organization as
it moves into the future.

At the most basic level, mission and vision statements serve as the ultimate constant controls
because they regulate and guide the entire organization. Top-level managers, even in companies
without boards of directors, should constantly examine the path the organization takes, making
sure the actions remain consist with these statements. Thus any activity that pulls the organi-
zation away from its mission should be corrected as quickly as possible. A few years ago, when
Toyota experienced problems in the area of product quality, the CEO quickly apologized and
promised to get the organization back on course. Over the years, many similar statements have
been made by company executives when they recognized the need to remain true to the organi-
zation’s mission. In 2013, Chris Franz, CEO of Peak Venture Group, stated the company needed
to return to its core mission of reaching out to the community and providing resources to local
entrepreneurs (Gillentine, 2013).

In summary, a series of individual, departmental, and company-wide standards and practices
create one level of organizational control. Any time one of these guidelines is violated, manag-
ers are advised to step in and make immediate corrections. Organizations with high-quality,
constant control systems are much more likely to survive and succeed over time. When constant
controls are complemented by periodic controls, the company’s odds of success rise to an even
higher level.

Periodic Controls

Planning and controlling are inseparable parts of the management system. Standards are set in
planning, and the controlling system uses those standards to identify and correct problems. The

Introduction Chapter 7

standard control process consists of four steps (Anthony & Govindarajan, 2007; Steers, Ungston,
& Mowday, 1985):

1. Review the standards set in the planning process.
2. Measure performance at the strategic, tactical, and operational levels.
3. Compare performance outcomes with the standards that were set.
4. Make a decision:

• Successful performance should be rewarded.
• Unsuccessful performance should be corrected.

Reviewing Performance Standards
Control processes are carried out on three levels: company-wide, departmental or functional area,
and individual. These are the same three levels at which plans were written. At the company-wide
level, the executive team is responsible for evaluation of activities. Departmental managers assess
success in their functional areas. Supervisors working in concert with the human resources
department conduct individual performance appraisals.

Planning forms the basis for an effective control system. Managers who fail to prepare quality
standards have no basis for evaluating performance. The goal-setting literature (Locke, Shaw,
Saari, & Latham, 1981) has taught us that quality goals reflect the following characteristics:

• difficult but attainable
• measurable
• clearly stated
• flexible

At all three levels, members of the organization should be challenged to achieve at the highest levels.
Difficult but attainable goals establish an environment in which employees are not tempted to slack
off when goals are too easy and are readily met, or to give up when goals are too hard. Measurable
goals are a necessity. Without tangible performance targets, control systems cannot work. Clearly
stated goals eliminate hedging and fudging. Managers and workers at all levels are accountable
for results. Accomplishing the objectives that have been set forms the basis for promotion deci-
sions and other rewards. Goal setting should remain flexible. When organizational circumstances
change, the planning and goal-setting systems should be adjusted to the new circumstances.

Measuring Actual Performance
Many individuals and departments gather data to conduct performance analysis. This data can
be quantitative, qualitative, or both. Staff members in various positions make reports that mea-
sure actual performance across the company.

Top management examines the documents in reports that contain information regarding stra-
tegic goals, such as market share, profitability, and well-being of various strategic business units.
Judgments are made about the numbers as well as more subjective concepts, such as the strength
of the company’s brand name and image.

Departmental leaders report on statistics from each area. Examples include the items shown in
Table 7.3. In the performance analysis process, individual measures are developed for the perfor-
mance appraisal process: Production workers are assessed with measures of individual output.
Salespeople face sales quotas. Each area has goals that have been set for individual employees.

Introduction Chapter 7

Table 7.3 Tactical/functional analyses

Function Examples of factors to analyze

Production Costs, on-time delivery rates, consumer views of quality

Quality control Rates of defects/returns

Marketing Market share, brand loyalty or power

Sales By total volume, product lines, individual products

Accounting Errors noted by auditors

Finance Cost of capital, liquidity, leverage (debt ratio)

Information technology Quality of website, online ordering systems, support of internal operations

Research and development Number of innovations adopted

Human resources Rates of absenteeism, tardiness, turnover

Comparing Performance to Standards
Performance data that has been gathered can be compared with the established standards. For
example, the budget is compared to the actual department income statement. The variance
between the actual performance and the budget allows the manager to assess how he or she per-
formed during the period in question. When making comparisons, five outcomes are possible:

1. The person or unit greatly exceeded the standard.
2. The standard was met.
3. The standard was missed slightly.
4. The standard was missed.
5. The standard was badly missed.

As an example, suppose a product has been on the market for six months. A sales goal was
established for 100,000 units to be produced and sold in the coming year. If the total sales turn
out to be 150,000 units, the standard was greatly exceeded and management must establish a
more realistic standard for the following year. If the standard is met—for example, sales total
103,450 units—then those responsible receive awards. If the standard is slightly missed—sales
total 99,100 units—managers may consider other factors, such as unreported units in December
or other variables that contributed to a variance of less than 1%. When the standard has been
missed (91,000 units sold), corrections will be made. When the standard is badly missed (63,000
units sold), then management may consider whether the new product is viable in the marketplace.

Making Decisions
Based on the information provided by comparing performance to standards, managers are ready
to make decisions. Of the five possible outcomes of this analysis, some lead to relatively straight-
forward responses or decisions. A standard that is too low will be raised. A standard that is
met should lead to rewards for those involved. A standard that has been slightly missed invites
some scrutiny.

Standards that have been missed—or grossly missed—require the greatest amount of investiga-
tion and concern. When the standard has been missed, more substantial corrections need to be
made. When the standard has been grossly missed, managers will meet to consider whether to
stop the activity or create some kind of major overhaul (Maciariello & Kirby, 1994; Weiner, 1948).

Functional Area Controls Chapter 7

The controlling process may be considered as a feedback device for company leaders. Decisions
reached in the controlling process lead to new plans for the future. Standards allow for effective
management of the organizational system at each level: company-wide, departmental/functional
area, and individual. We consider functional area controls next.

7.2 Functional Area Controls
Each department sets goals for its own operations. At times these goals apply not only to the
department but also to the overall company. For example, if a manufacturing company has only
one production department, then the departmental goal becomes the company’s goal. Using the
process noted in Figure 7.1, control systems help managers in each functional area (production,
marketing, finance, etc.) collect information about operations in their departments. This enables
them to make better decisions about how to fix or improve activities in each part of the company.
In each department, the fundamentals of the systems approach can be used to make corrections
to any problems that have been identified. Figure 7.1 portrays the flow of items in a general con-
trol system.

In a departmental system, inputs include whatever items come into the area. For production,
this means raw materials; for human resources, it is people. The transformation process is the
department’s key function, including the assembly of physical products and the development of
intangible services. Outputs are the finished items sent on to the next department or to the out-
side environment. An output for the accounting department would be the annual income sum-
mary. The feedback mechanism provides correction and adjustment, keeping the department in
tune with other departments and the larger environment. Systems concepts help departmental
managers identify problems and find solutions.

Production and Quality Control

Production and quality control are closely linked. Production represents a line function, and
quality control is more of a staff function. In the area of production, four standard types of goals
are set:

1. Quantity
2. Quality

f07.01_MGT330.ai

Inputs Transformation
Process

Outputs

Feedback
Mechanism

Figure 7.1 A control system

Functional Area Controls Chapter 7

3. Cost
4. Time

Performance figures in these areas are then met with various responses and corrections.

Quantity Goals
Quantity goals may be established by unit or by volume. DVD players are counted in units. Beer
breweries count liters or gallons. At times, quantity goals are more complex. For instance, man-
agers in a construction company that is building a major structure that will take more than one
year to complete will still want to know if output levels are sufficient. To access this information,
they use benchmarks to note the completion of various tasks. A standard is set for completion of
the framing. A second standard applies to finishing the wiring system. In this way, the manager
knows more about the level of productivity.

Quality Goals
Quality goals are applied in various ways. For some operations, quality will be represented by
exceeding a threshold. For example, a building must pass all inspections to be considered of high
enough quality to be sold and inhabited. A customized insurance plan sold to a company must
be complete before being put into place.

Other standards are set and examined by variation and
defect levels. An example of this would be an automated
injection molding machine tool that produces golf balls.
This particular golf ball specification requires a dimpled
cover of thermoplastic with a thickness of 0.30 in. and an
overall ball diameter of not less than 1.680 in., as defined
by the U.S. Golf Association, but less than 1.685 in., as
defined by the manufacturer. Each ball is carefully and
automatically measured as it moves through the produc-
tion line just before the finishing process to make sure
it meets design specifications. Balls outside of the speci-
fications are rejected and recycled. If more than 0.5%
of the balls are rejected, management intercedes, stops
production, and requires process recalibrations. In this
way, scrap is limited, costs are managed appropriately,
and a high-quality golf ball is produced for the golfer.
Quality control tests like these are found in many forms
of manufacturing.

A third set of quality goals examines intangible, qualitative
issues. Examples include customer satisfaction and loyalty.
Consider a restaurant setting, where production of food is
only part of the story. For the production system to work,
people must enjoy the food they eat. No hard standard can
be set, yet managers still want to know whether customers
are pleased with their purchasing experiences. Surveys and
questionnaires can make available numbers that provide
helpful information, such as where the company ranks in
the industry in terms of customer satisfaction.

© Ernest Primi/iStock/Thinkstock

▲▲ A building must pass all inspections to be
considered of high enough quality to be sold
and inhabited; in this case, quality is repre-
sented by exceeding a threshold.

Functional Area Controls Chapter 7

Cost Goals
The production manager needs information about the efficiencies, or lack thereof, of the depart-
ment’s operations. For instance, what costs are incurred by using raw materials, paying labor,
storing merchandise, and shipping products to buyers? Quality control adds information by mea-
suring the number of defective units that were discarded or required additional funds to repair.

Time Goals
Time goals reflect whether items have been produced on schedule. These goals are set in various
ways, such as the number of units per day, week, and month, or other means. A large project will
have a goal established as a deadline. For example, the publication of a book has a defined produc-
tion date and release date. Time goals measure the efficiency of the department.

Measures of Performance: Production and Quality Control
Production managers and quality control officers prepare reports for purposes of control. In
many cases, these reports are written every day. For example, a newspaper production manager
prepares a report for a daily edition. Each day, the newspaper has a different number of pages. In
a smaller community, a Monday paper may be as small as 16 pages. Sunday papers normally have
four or five times more pages. The production manager notes the page count of the edition, the
amount of newsprint and ink used, and the starting and stopping time for the production run.
The report also mentions the number of unusable, discarded papers. In this way the manager has
reported on quantity, quality, and time.

Quality control managers also report on defects. They may be asked to provide information about
the causes of defects or problems. This information can be used to make the needed corrections.
The accounting department will generate the final set of statistics and information. Cost infor-
mation will be assessed and stored for future use.

These measures can be combined into quarterly, semiannual, and annual reports about the pro-
duction department’s level of efficiency (low cost) and effectiveness (high quality).

Making Corrections: Production and Quality Control
The systems approach (see Figure 7.1) applies most directly to the production department. Inputs
are the materials and labor needed to manufacture products. Inputs can be changed through
improved sourcing or by acquiring high-quality raw materials.

The transformation process is the production process. Production transformation processes can
be redesigned or streamlined to reduce defects or improve quantity levels.

Outputs are finished goods and services. Outputs reflect changes in the actual products to be
sold. Items such as mobile phones continue to evolve as new technologies make it possible to
increase their number of uses.

The feedback mechanism measures performance. Feedback mechanisms can be fine-tuned to
identify problems more quickly and correctly. Currently, methods to ensure food safety have
been restructured due to outbreaks of E. coli and other bacterial foodborne illnesses.

Marketing and Sales

The marketing department manager considers various goals when creating plans. The manager
works in conjunction with other departments, most notably production, to make sure that items

Functional Area Controls Chapter 7

are tailored to customer needs. When services are marketed, they must also be of sufficient qual-
ity to attract customers and sales. The marketing and sales departments have four common goals
(Clow & Baack, 2010):

1. Market share
2. Sales quotas
3. Share of mind (consumer awareness and loyalty)
4. Marketing and sales costs

If there is only one sales department, these standards become company objectives as well.

Market Share
Market share measures the company’s percentage of total sales in an industry or a subset of an
industry. The executive team and marketing manager examine statistics about the state of the
industry, whether the overall marketing is increasing, stable, or declining. Then market share can
be assessed in several ways, including total company share, division share, brand or product line
share, or individual product share.

Total company share measures how well a company fares in a market. For example, PepsiCo
would examine its total in the food and drink industries. Division share would be statistics about
sales and market shares of the various major components including snacks (Frito-Lay), breakfast
drinks (Tropicana), soft drinks, energy drinks (Gatorade), and breakfast foods (Quaker). Brand or
product line would divide Pepsi’s soft drinks into products with the Pepsi name and Mountain
Dew products. Market share would be assessed at the product level, such as share of Caffeine Free
Diet Pepsi.

Sales Quotas
Sales quotas are examined at all three levels: company-wide, departmental, and individual.
Additional sales quotas can be assigned to divisions, product lines, and individual products.
Marketing and sales managers take both an overall view of sales and a more specific view of sales
activities.

Share of Mind
People will not buy a product or use a service unless they know about it. Share of mind (also
known as consumer awareness of the company) indicates that consumers consider a company
when they want to buy a product. Share of mind reflects the degree of consumers’ awareness of a
company’s existence and thus how inclined they are to visit that company or store. Loyalty means
they will go to a company or one of its specific products first when making a purchase decision
(Baack, Till, Magnusson, Zdradkovich, & Baack, 2007).

Marketing and Sales Costs
Marketing and sales managers spend money to generate money. Marketers create advertise-
ments, promotions and sponsorships, contests and sweepstakes, and other activities designed
to entice people to come to a store and buy a product. The same is true for sales, where the sales
manager pays travel expenses for salespeople, defines commissions, and sets up other rewards
for increasing a company’s customer base. These managers want to know if the money has been
spent wisely.

Functional Area Controls Chapter 7

Measures of Performance: Marketing and Sales
Marketing and sales managers use several devices to measure performance. Market share infor-
mation is found in industry and trade publications. Market share statistics also are prepared
by local agencies, including governments and educational institutions, for small businesses in a
town or city. Sales quotas can be examined using sales reports by individual employees as well as
sales summaries prepared by various departments for accounting purposes.

Share of mind and customer loyalty figures are collected in various ways. Share of mind can
be measured through ratings of advertisements in various forms. Other measures come from
redeemed coupons, entries into contests, and website hits. Customer loyalty normally requires
more in-depth market research. The accounting department reports the costs of marketing and
sales programs.

Making Corrections: Marketing and Sales
Using the systems model, corrections in the area of inputs include attracting and hiring quality
marketing experts and salespeople. Most corrections are made in the transformation process,
where the marketing manager considers changes in pricing and discounting programs, prod-
uct positioning, distribution methods, and methods of promotion including advertising, per-
sonal selling, promotions (coupons, contests, rebates, bonus packs), and public relations activities
such as sponsoring charities or various events. Marketers may have some control over outputs,
although it is limited.

At times, marketers consider changing feedback mechanisms, or how performance is measured.
A salesperson may be generating high sales figures but is doing so by spending a great deal of
money on travel and offering huge discounts to entice purchases. The marketing and sales man-
ager might wish to fine-tune how sales success is measured.

Human Resources

The human resources department often
serves the entire company. Departmental
goals represent company-wide goals as a
result. The standard measures of perfor-
mance in human resources, in addition to
the cost of running the department, include
the rates of absenteeism, tardiness, turn-
over, accidents, grievances, and vandalism.
Statistics like these reflect the degree of
employee satisfaction within the company.
Happy, satisfied workers tend to arrive at
work on time. They pay attention and are
less likely to be accident victims. They see
no reason to file grievances or damage
company property. They wish to keep their
jobs. Conversely, if you have ever held a
job you did not like, these factors probably
came into play. Human resource managers

© Adam Gregor/iStock/Thinkstock

▲▲ Human resources managers’ performance can be measured
based on the degree of employee satisfaction.

Functional Area Controls Chapter 7

are held accountable for these goals, because their primary responsibility is attracting the right
people to the company. Matching people with jobs constitutes a key ingredient in success.

The cost of the department reflects the concept that human resource managers spend money on
recruiting and selection processes. They should spend the money carefully and efficiently. Human
resource managers often are asked to balance the costs of benefit programs. The accounting
department provides cost information for the purposes of control.

Measures of Performance: Human Resources
Typically, the human resources department is actively involved in evaluation operations. These
managers are asked to prepare statistics regarding accidents (lost work time), absenteeism, tardi-
ness, turnover, disciplinary actions, grievances, and instances of vandalism.

Making Corrections: Human Resources
Human resource managers use the systems model (see Figure 7.1) to create various corrections.
Inputs are associated with recruiting and selection methods. The company needs to identify and
use the best possible employee sources. The transformation process includes orientation, train-
ing, discipline and rules, and workplace safety programs. Each of these areas can be improved to
increase worker satisfaction. Outputs are normally not a consideration for human resources. The
feedback mechanisms include all methods of assessing performance for individuals and for the
department. This includes performance appraisal programs and statistics used to evaluate the
effectiveness of employee placements.

Information Technology and Research and Development

Performance in the areas of information technology and research and development is more dif-
ficult to assess. The problem is due largely to the inability to create measurable, tangible stan-
dards. Company leaders clearly need an effective information technology system; however, what
numbers can be assigned to that concept? The same holds true for research and development.
Establishing concrete goals is problematic.

A management by objectives system, which is a participative annual goal-setting program, has
value in these areas. Individual employees and their managers can establish work-specific goals,
such as completing a website update or completing a product’s physical form. At the least, these
goals give company leaders an idea of how well the departments are functioning.

Further, a company’s statement of vision and mission can direct the activities of the information
technology (IT) and research and development (R&D) departments. These departments should
focus on activities that support the overall direction of the organization. When the work moves
the company away from its intended direction, corrections can and should be made.

In summary, the four parts of a system can be used to make corrections on a departmental or
company-wide basis. Various parts of a systems model are emphasized, depending on the func-
tional area corrections required. Production, quality control, marketing, sales, human resource,
information technology, and research and development goals all deserve careful attention as part
of the controlling system.

Accounting and Financial Controls Chapter 7

7.3 Accounting and Financial Controls
Accounting and financial officers are responsible for planning and control in unique ways. Each
department manager sets departmental goals. At the same time, planning processes in these
areas affect numerous parts of the company. Three common goals are established for these
departments: profitability, cost of capital, and increasing efficiencies in company operations. The
first two goals pertain to departmental activities; the third applies to the entire organization.

Profitability Goals

Profitability goals are assessed using a variety of instruments. The income summary or P&L
(profit and loss) statement is the most common. Figure 7.2 provides an example of an income
summary. Other profitability standards are calculated, such as the company’s return on invest-
ment (ROI), earnings per share of common stock (EPS), and dividends per share (DPS) paid to
shareholders. Profits are required to stay in business, making profitability goals key elements.

M A N A G E M E N T I N P R A C T I C E

Management by Objectives

Beyond the use of the systems approach to understanding the activities of a department and cor-
rections to be implemented when performance is lower than expected, other devices are available
to link planning and control in meaningful, useful ways.

Over the past half century, a variety of organizations have used management by objectives, due to
its ability to link planning and control. In a quality management by objectives program, the follow-
ing steps are carried out at every level, from entry-level employee to CEO:

1. Job analysis (states the primary emphasis of the job)
2. Employee preparation of an annual goal list
3. Manager preparation of personal and employee goal lists
4. Supervisor and employee meeting to negotiate a goal list
5. Follow-up

In this type of system, employees begin by outlining their intended goals for the coming year, based
on the primary emphasis of the job. By the end of step 3, an employee has a personal goal list as
well as the one prepared for him or her by an immediate supervisor. The meeting in step 4 merges
the two lists into one. Then, performance evaluation follows after the year has gone by.

The value of using management by objectives as a control system is that individual performance at
the lowest level is aligned with goals and performance measures at each level of the organizational
hierarchy. Consequently, the control system becomes based on quality standards set by individuals
and supervisors. This benefit explains the popularity of the management by objectives system.

Remember, however, that an effective management by objectives program must be sponsored by
top management. Companies should be in a position to reward the performances of those who
achieve their goals. Effective goals are clearly stated, measurable, and attainable. The system must
be designed as part of the annual calendar, so that employees are comfortable with it. When these
conditions can be met, the program can contribute to employee morale and organizational perfor-
mance through an effective planning/control system program that can be tailored and adapted to
each function and department.

Accounting and Financial Controls Chapter 7

Cost of Capital

The minimum return that investors expect to see from a company they invest in is described
as the cost of capital. A balance sheet reports on investing and other business financing activi-
ties of the organization (Table 7.4). It lists amounts for assets, liabilities, and equity at a specific
time and does so by using the accounting balance sheet equation (Assets = Liabilities + Equity).
Accounting for these amounts gives both the organization’s management and other organiza-
tional stakeholders a realistic view of the organization’s financial condition.

Table 7.4 Balance sheet information

Assets

=

Liabilities

+

Equity

Cash

Short-term securities

Accounts receivable

Inventory

(short term)

Trade credit

Bank loans

Commercial paper

Common stock

Paid in surplus

Retained earnings(long term)

Bonds payable

Notes payable

Increasing Efficiencies of Company Operations

Accounting and financial managers oversee the operations of the entire company. They are respon-
sible for conducting the types of financial analyses and annual financial planning that will lead to
the efficient use of company operating funds. The three primary methods for conducting this
research and making reports to the executive management team are ratios, budgets, and audits.

f07.02_MGT330.ai

Total Sales

Cost of Goods

Gross Profit

Operating Expenses

Gross Operating Income

Depreciation

Net Operating Income

Other Expenses

Unusual Income

Net Income Before

Taxes

Taxes

Net Income After Taxes

100,000.00

(30,000)

70,000.00

(15,000)

45,000.00

(5,000)

40,000.00

(10,000)

5,000

45,000.00

(25,000)

20,000.00

$

$
$
$
$
$

Amount

Income Summary

Figure 7.2 An income summary

Accounting and Financial Controls Chapter 7

Ratio Analysis

Ratio analysis takes the financial information made available to the accounting and finance
departments and helps company leaders understand how well various operations are running.
When problems are identified, managers can make the appropriate adjustments and corrections.
Four types of ratios are presented in Table 7.5.

Table 7.5 Types of ratios

Liquidity ratios Measure the company’s ability to meet its short-term obligations by paying its
debts on time

Activity ratios Measure efficiencies in company operations

Leverage ratios Measure company debt and risk

Profitability ratios Assess company profits

Liquidity Ratios
To remain solvent, the company must pay bills on time. Liquidity ratios are designed to make
sure the company has enough money on hand. Two liquidity ratios are the current ratio and the
quick or acid test ratio. A current ratio is calculated as follows:

Current ratio =
current assets

= 2:1

current liabilities

Current assets are all items that convert to cash in the coming year, including cash on hand,
accounts receivable, inventory, and any other payments due to the company. Current liabilities
are all items that must be paid in the next year. These are normally accounts payable, bond/loan
payments, and any other credit accounts. The 2:1 figure suggests that the company has twice as
many current assets on hand as current liabilities—a fairly typical ratio in industry.

The quick or acid test ratio is calculated as follows:

Quick ratio =
current assets – inventory

= 1:1

current liabilities

The reason for eliminating inventory is that normally it could not be quickly sold at full value.
Therefore, the acid test indicates whether a company could make payments without liquidating
inventory. A 1:1 ratio suggests that the answer is yes.

Activity Ratios
Activity ratios assist managers in understanding how well certain company activities are being
carried out. Two common activity ratios are inventory turnover and average collection period. To
calculate inventory turnover, the following formula is used:

Inventory ratio =
total annual sales

= 7 times
average inventory

The manager will see from this outcome that the store or unit sold its entire amount of inventory
seven times during the course of the year. It will depend on the industry whether this is a good

Accounting and Financial Controls Chapter 7

or a bad number. If it were a grocery store, the company would be in trouble. If it were a tractor
manufacturer, the retailer would be having a great year.

Average collection period measures the time it takes to collect on debts. It is calculated as follows:

Average collection period =
sales per day

= 23 days
average accounts receivable

Sales per day results from dividing total annual sales into 360. The resulting figure tells the man-
ager that, from the time an item was sold until it was paid for, 23 days passed. Some accountants
prefer to use the total credit sales per day rather than total sales per day, thereby eliminating the
effects of cash sales from the outcome.

Leverage Ratios
Leverage ratios measure company debt and company risk. As noted previously, the greater the
amount of borrowed money, the greater the risk. Many formulas are available to assess leverage.
One simple version, a ratio of debt to equity, is calculated as follows:

Debt-to-equity ratio =
total debt

= 45%
total assets

In this instance, debt represents 45% of the value of all company assets. The manager would know
the company owes 45% and owns 55% of its assets. Top management preferences normally dictate
the amount of debt to be assumed by the company. Using more debt will likely increase profit-
ability per share of common stock, but at the same time it will increase the risk level.

Profitability Ratios
Besides the income summary, company leaders may wish to examine profitability in other ways.
Profitability ratios measure company financial success. One common ratio used for that pur-
pose is profit margin.

Profit margin =
net income after taxes

= 12%
total annual sales

This figure tells the manager that after every bill has been paid, including the tax bill, the com-
pany earned 12 cents on every dollar of sales.

Analyzing Ratios
When analyzing ratios, it helps to remember that they can be either used or misused. Two
common ways ratios are misused include manipulating the numbers and overemphasizing a
single ratio.

Managers can manipulate numbers through tactics such as miscounting inventory and overstat-
ing or understating sales. Doing so may keep a manager from having poor performance exposed
in the short term; however, over time the truth will come out. When top managers overempha-
size a single ratio, they are not looking at the full picture. One number might be unusual or off,
but without seeing how all other figures fit in, the manager fails to see the big picture.

Accounting and Financial Controls Chapter 7

Effective use of ratios begins with having a frame of reference. Two of the best are industry aver-
ages and past year’s ratios. The manager can see how a company’s operations compare to what
happens in the industry. For example, if the company’s average collection period is 23 days, but
the industry average is 32 days, it may be that other companies are offering more generous repay-
ment terms. The company may lose sales to these competitors as a result. Past year’s ratios pro-
vide guideposts to current operations. When numbers begin to trend or drift in a certain way, the
manager can respond with corrective action when needed (Bedeian, 1986, pp. 561–563; Belverd
& Powers, 2010).

The Budgeting Process

As noted in Chapter 1, a budget is an
annual financial plan. In most organiza-
tions, the budgeting process is complex. In
government organizations it can be espe-
cially complex as public policy and politics
come into play. In a business organization,
the distribution of precious resources can
enhance interdepartmental conflicts and
rivalry, further complicating the budgeting
process. Nonetheless, managers are called
upon to construct a budget that will allow
the organization’s goals to be met by fol-
lowing a staged process across the organi-
zation. The typical steps in the budgeting
process are as follows (Steers et al., 1985):

1. Executive management initiates the bud-
get process. The CEO or CFO informs
department managers of the periodic organizational goals and advises on estimated resource
availability. Normally, this is an annual process.

2. Each operating unit or department prepares a preliminary budget. With the goals and objec-
tives as well as the financial resources, each department manager prepares a preliminary bud-
get, which defines how those resources will be used to attain their unit’s productive activities.

3. Executive management—the CEO/CFO (or budget committee reporting to the CEO and
CFO)—reviews, modifies, and approves the preliminary budget. At this step in the process,
critical coordination of organizational activities is achieved.

4. Budget performance is evaluated during the budget period to assess compliance. Variances
from the approved budget are reported to the CEO or CFO by each manager (typically on a
monthly or quarterly basis), and correction plans and initiatives are designed to bring operat-
ing realities into conformance with the approved budget.

The first three steps in this process are planning steps. The final step represents the controlling
function.

Forms of Budgets
Various types of budgets are part of the planning and control system. A pro forma income sum-
mary spells out expected revenues and expenses during the course of the year. Departmental

iStock/Pogonici/Thinkstock

▲▲ The process of budgeting allows managers to plan ahead,
allocate resources, and establish priorities.

Accounting and Financial Controls Chapter 7

budgets are generated at that point. Each department manager knows the amount of funds he or
she will be assigned to operate over the next 12 months.

As noted in Chapter 2, three types of budgets are common in business: incremental budgets, zero-
based budgets, and rolling budgets. These budgets are used to allocate funds to individual depart-
ments. Incremental budgets are easier to prepare; however, they exhibit the greatest tendency
to allow managers to build “slack” into the system, where they have excess funds. Zero-based
and rolling budgets facilitate coordination of activities and tend to reveal process redundancies,
excessive spending, and planning problems. Budgets tend to improve resource allocations by
helping managers make decisions about what is important in the organization.

Benefits of Budgeting
Budgeting programs offer various benefits to company leaders. First, by putting together an
annual financial plan, the manager engages in the planning process. In some organizations, that
alone is a major accomplishment. Far too often, managers want to run things by the seat of their
pants rather than planning ahead. Budgeting forces managers to plan.

Budgeting allocates resources. The budgeting process designates amounts of money to be spent
by various departments. Some of the funds are set aside for pay programs, bonuses and pay raises,
and other incentives. Budgeting can become part of the motivational system.

Budgeting establishes priorities. Funded items are clearly more important. Budgets can be used
for special projects and assignments as well as for the yearlong normal funding program. A man-
ager has a sense that management values his or her project when it receives money. Budgeting
is an excellent controlling device. Budgets can be established for departments along with other
standards and objectives. In that way, a manager has a clear idea of what needs to be accom-
plished in the timeframe involved.

Budgeting Problems
As was the case with ratios, budgets can be used or misused. Problems emerge when managers
abuse the budgeting process. Issues can arise on both the planning and controlling side of the
budgeting program (see Table 7.6).

Table 7.6 Budgeting problems

Planning Control

Poor forecasts

Politics

over-asking

horse trading

Overemphasis on the short term

Manipulating outcomes

Using as a policing device

On the planning side, two major problems that occur are poor forecasts and company politics.
Poor forecasts of future sales distort the entire budgeting program. When revenues are badly
overestimated or underestimated, departmental allocations no longer work. Managers who do
not take the time to obtain quality forecasts hurt the budgeting process.

Company politics take two forms. The first, over-asking, means departmental managers put in
budget requests with amounts that far exceed their needs. The goal is to build a “war chest” or
“slush fund” to hold for use in emergencies. Funds are not allocated efficiently when this occurs,
and the budgeting program becomes essentially a guessing game.

Accounting and Financial Controls Chapter 7

The second problem, horse trading, involves trading favors in exchange for larger budget alloca-
tions. A manager essentially plays politics rather than seeking to achieve organizational goals.
The net result will be companies in which distrust of the budgeting process is commonplace.

On the controlling side, budgets create problems when managers overemphasize the short term.
For example, suppose a department manager faces a budget in which 100,000 units were to be
produced during the year. It is December, and only 88,000 units have been finished. Due to wor-
rying about what will happen if the target is not met, the manager authorizes overtime, ignores
routine maintenance of equipment, and angrily chastises workers to hit the target. Even if the
goal is reached, workers are upset, tired, and the equipment becomes more likely to break down
in January (Argyris, 1952).

Some managers simply cut corners in order to manipulate outcomes. They create sales that will
be made into returns at the beginning of the next budgeting period. Others count defective items
as finished goods in order to reach quotas.

When a budget becomes a policing device, it is used to justify personnel decisions: A manager is
informed that she will not receive a pay raise due to failures to meet standards. Another manager
is being passed over for promotion because she did not manage her budget adequately. At the
extreme, a manager who failed to meet budget requirements is terminated. These tactics turn
budgeting into the enemy of workers. Budgets that are used to place blame serve little other pur-
pose (Nobles, Mattison, & Matsumura, 2014; Tosi, 1974).

Creating Effective Budgeting Programs
To overcome potential problems with budgets, managers must take proactive steps to make sure
the process works properly. Doing so involves activities in three areas: planning, control, and
both planning and control (see Table 7.7).

Table 7.7 Effective budgeting programs

Planning Control Both

Effective forecasting Correct problems Participation

Reduced politics Long-term view Future oriented

Systematic approach

On the planning side of budgeting, accurate forecasts of sales and revenues are crucial. Only then
do the budget allocations work properly. You can never eliminate politics, but you can become
aware of them. Employees who try to play games with the system should be admonished.

On the control side, budgets should be viewed as methods for solving problems rather than plac-
ing blame. When employees see the budget as a tool rather than a whip, the system works better
for both short-term and long-term tasks.

On both sides, employee participation should be encouraged when setting standards and creating
budgets as well as when measuring results. Doing so creates a sense of empowerment in the work
force. Individual employees are more likely to “buy in” and try to set and achieve quality stan-
dards. Budgets that focus attention on the future rather than dwelling on the past are of greater
value. And finally, budgets should be built into the calendar. Every employee should know when

Accounting and Financial Controls Chapter 7

it is time to set standards and when performance will be measured. The budgeting process should
feel like a natural part of the yearlong work cycle (Welsch, 1976).

In summary, the budget process offers the potential to establish reliable links between a com-
pany’s planning and controlling systems. The standards set for individuals and departments can
be used to increase performance and keep the organization on track. Effective managers take the
time to make sure a budgeting system works the way it should.

Auditing

Auditing is a crucial component of any control system, but it is especially critical in financial
reporting and control activities. Auditing takes many forms, including internal auditing, external
auditing, tax auditing, software auditing, risk-based auditing, and fraud auditing. In this section,
we discuss auditing as a control function, not as a practice experienced in an accounting course
of study. Auditing is an assessment of a person, organization, system, process, operation, project,
or product. Auditing is most commonly used to make sure that all financial and accounting state-
ments are accurate. However, auditing processes also exist for cost management, project man-
agement, quality management, hotel front desk operations, energy conservation, and, of course,
tax return auditing conducted by the Internal Revenue Service (IRS), state tax agency, or local
government office.

In most organizations, auditing systems (either internal or external) exist to assure that financial
statements are reasonably free from material error, accounts reasonably reflect their actual bal-
ances, and systems procedures are sufficient to provide accurate and reliable data. External finan-
cial audits for publicly traded companies are often conducted by applying standards defined by
American Institute of Certified Public Accountants and potentially the International Standards
on Auditing.

Quality auditing is conducted to assure conformance with standards defined by the organiza-
tion or potentially an externally defined process such as ISO 9001. Quality audits, somewhat
like financial audits, require review of objective evidence associated with the defined process,
except the quality auditor is an internal agent of the organization with the authority to pass such
judgments. Quality audit processes often judge the conformance or nonconformance as well as
operational practices that lead to the result evaluated.

Auditing at any level of the organization or individual level is an assurance and conformance
process intended to ensure that defined policy, procedure, practice, and compliance are carried
out. Auditing benefits the organization and its management as a critical control function, without
which both internal and external stakeholders would be unable to make firm judgments and deci-
sions on behalf of the organization.

In summary, the accounting and finance departments have major responsibilities that include
managing money and assisting in the planning and controlling processes. Ratio analysis, bud-
geting programs, and audits make the job of managing the entire company run more smoothly.
These processes enable management to make the kinds of corrections that will put the organiza-
tion back on course when problems have been discovered.

Other Forms of Control Chapter 7

7.4 Other Forms of Control
Controlling systems also allow managers to identify variation from expectations and suggest
actions appropriate to return the process to standards. When controlling systems (and meth-
ods) are not managed properly, some workers are bound to view them as unpleasant nuisances.
Ensuring employee acceptance of controls is essential to effective organizational management. If
organizations fail to be efficient and effective, they are unlikely to survive long in a competitive
environment. Managers must be able to measure the use of organizational resources (capital,
labor, raw materials, etc.) in producing a particular form of organizational output and to con-
trol variables continuously with the intent of improving the quality and quantity of that output.
Managers must also take the initiative to continuously improve the organization’s output meth-
ods with the intent of improving the efficiency or quality of that output. Without doing so, orga-
nizations likely will find competitors taking market share. Control is essential to the very success
of the organization. Other forms of control include feedforward controls, concurrent controls,
feedback controls, and Total Quality Management systems.

Feedforward Control

Feedforward controls are used to anticipate problems (Koonz & Bradspies, 1972). In this sys-
tem, managers establish methods to identify potential problems and incorporate solutions into
the process in advance. An example of this type of control is a well-conceived employee handbook
that defines work rules, clear shift hours (including starting hours, break times, and shift end),
and other important policies. The handbook anticipates most employment problems and defines
correction systems before the employee is hired. The use of proficient employment applicant
screening such as interviewing techniques and background checks allow managers to increase
the potential of a satisfied and productive work force.

As another example of feedforward control, consider a university leader who receives a report that
the population of potential college-aged students will decline significantly in the next decade. The
university could begin to implement actions that would entice students from greater distances to
apply or design programs for other groups to help continue to fully use the university’s facilities
and staff in the future.

Concurrent Control

Concurrent controls manage problems as they are encountered. This type of control alerts
managers when machine parts fail to meet specifications and enables managers to address
the problem immediately at the point of defect. Concurrent controls are central to continuous
improvement initiatives designed to increase quality and reduce defects in production operations.
Concurrent controls are used when a salesperson adjusts the sales pitch in response to customer
questions. Concurrent controls appear when a building project must be modified midcourse due
to an unexpected change. Any time an individual employee or manager can respond in real time
to a problem or concern, concurrent controls are present.

Feedback Control

Feedback controls involve managing problems after the fact. Many of the control systems dis-
cussed in this chapter have feedback elements, which solve problems after they have been discov-
ered. These systems assist managers in making decisions about product quality, product features,
pricing, and so forth. In this way, managers can make appropriate changes to meet market

Other Forms of Control Chapter 7

demands and expectations. Managers may
discover that a particular design feature can
be easily damaged in service and, as such,
may require some redesign or complete
abandonment to improve product life or
customer usage. Managers may have esti-
mated sales to be higher than realized, and
production output must be reduced.

One form of feedback control is an occa-
sional control, which is undertaken only for
specific incidents or problems. For example,
at the customer or user stage of the prod-
uct or service cycle, managers use various
feedback or occasional control systems to
gather detailed information through satis-
faction surveys, customer product returns,
service complaints reports, sales reports,

and so forth. Then a report or memo may be written to help the manager in charge address a
specific problem. The same would be true in the case of an accident. Management investigates
the incident, looking for causes that could have been prevented as well as methods for coping in
the event of an accident. Reports and proposed changes will follow and are implemented.

Total Quality Management

One form of concurrent control is a total quality management (TQM) program. A key principle
of both TQM and a similar program, called Six Sigma, is the philosophy that it is best to iden-
tify and correct defects in any process to produce a more reliable and higher-quality product. In
doing so, managers often delegate significant responsibility to workers to stop production lines
as soon as they detect a problem.

Quality is one of the significant functions in the value proposition customers consider in select-
ing products and services in the broader marketplace. In the modern organization, quality is
everyone’s business. In this section, we explore quality as a value that can be controlled by apply-
ing practices and controls.

Quality control emphasizes testing of products and services, typically by applying sampling and
statistical analytic techniques (Deming, 1960). The purposes are to uncover defects in manufac-
turing or delivering services by using predefined quality matrices as well as to improve, stabilize,
and increase production. Quality assurance through quality auditing, as previously discussed,
is intended to identify the issues leading to the creation of product service defects and to advise
management on measures to correct and improve the processes.

W. Edwards Deming is often rightly credited with initiating the quality movement, first in post-
war Japan and later in the United States. His philosophies of quality have become part of virtu-
ally every business organization and likely are the foundation of the modern quality orientation.
Deming emphasized constant quality improvement for the purposes of increasing the productiv-
ity and profitability of the entire business or TQM (Deming, 2000). While Deming emphasized
testing and statistical analysis, he recognized the focus of quality-infused pride of workmanship,
job security, and organizational stability.

John Cooke/Thinkstock

▲▲ Occasional control is a form of feedback control that is
undertaken only for specific incidents, such as an accident.

Other Forms of Control Chapter 7

Modern quality control systems are largely automated and address both corrective and preven-
tive components. Systems now streamline audit management, provide integrated customer com-
plaint modules, and allow all information to be delivered via networked computer systems. Even
though automation has emerged, easing the backend workload and conducting many statistical
processes, attention to quality remains the responsibility of the work force.

TQM and Organizational Change
While control is a central management function intended originally to keep organizations and
organizational processes on track, a by-product of control is the ability of managers to use control
systems to help guide organizations through change. A notable example of this approach is the
Ford Motor Company, which in 1973 produced an all-time high of 2.35 million vehicles in one
year. Company leaders discovered during the late 1970s that Japanese automobile competitors
were overtaking them in critical areas of consumer satisfaction, quality control, delivery to sales
units, cost control, and even sales. These influences were beginning to eat away at Ford’s sales and
profitability. The company management at the time was determined to overcome these obstacles
by studying Japanese manufacturing systems (influenced by the philosophies of Deming) at Toyo
Kogyo, the manufacturer of Mazda automobiles.

Ford officials implemented two new approaches to managing the business: just-in-time (JIT)
manufacturing and TQM. While the implementation of JIT and TQM took nearly three years
of difficult change in the organization’s culture, not just in its process, Ford emerged with a
profit in 1984. These invaluable control systems created the foundation for advancing a new
corporate strategy. The company soon sported new models, including the then heralded Ford
Taurus and Mercury Sable line and a new company vision statement: “Quality is job one!” Those
lessons from 30-plus years ago again helped Ford in its most recent crisis, experienced during
the recession of 2008 through 2011, when the company found itself the last domestic automo-
bile brand not in bankruptcy. Company management’s experience in developing appropriately
designed control systems likely provided the foundation for maintaining solvency during diffi-
cult times as well as moving the business forward into the emerging and competitive realities of
the market. Ford’s business rebounded again, and customer satisfaction, sales, and profitability
increased.

Control System Challenges

While most control systems serve the intended purpose, no control system is perfect. They often
do not work as intended. The reasons behind this phenomenon are many, but often can be cat-
egorized in one of the general systems problem areas attributable largely to humans involved in
the process. Some of the challenges that affect control systems include

• rigid bureaucratic behavior
• invalid data reporting
• employee resistance

To create an effective control program, each of these challenges must be overcome.

Rigid Bureaucratic Behavior
The modern, highly productive organization typically demands extremely precise work in large
quantities to meet market expectations and pricing demands. Job requirements are specific, and
employees must follow processes carefully to produce what is expected. In these mechanistic

Other Forms of Control Chapter 7

organizations, employees need to be highly skilled. They also must learn and apply organizational
rules and regulations (Fayol, 1949). In such organizations, the system reinforces process decision
making with little or no flexibility. Workers, therefore, continue to execute their duties as defined,
and managers respond only to address the exceptional occurrences.

These processes, with their emphasis on reliability and repeatability, seem designed to ensure
complete organizational bliss. But such conditions can and often do lead to unintended and dys-
functional consequences. Workers (like all humans) tend to exhibit forms of behavioral momen-
tum that can lead them to dogmatically follow organizationally sanctioned behavior even when
conditions change. Such behavior can and does lead to inflexibility and problems with organiza-
tional customers, clients, other employees, vendors, and others.

A restaurant waiter may be disinclined to allow a modification to a menu, a university employee
may resist a student’s request for an unusual course schedule change, or a salesperson may not
accept an order with specifications different from standard on the product or the billing sched-
ule. A worker may reject making even simple changes that do not follow the rigid, bureaucratic
organization standard.

Invalid Data Reporting
The most deceitful of the control system challenges occurs when workers purposely report inac-
curate, incomplete, or distorted information. Examples include manipulating budgets to receive
unneeded resources, changing numbers to reach better ratio figures, and altering findings in the
control process. It is not that workers are particularly dishonest, but that they work under a con-
trol system that may make them feel compelled to provide inaccurate, incomplete, or distorted
information in order to survive and maintain a job in the system.

An infamous example of the problems
caused by invalid data reporting comes
from Enron. This business scandal of enor-
mous proportions has numerous threads:
many, many people were implicated, and
dozens were tried and convicted. But the
real lesson from a control systems perspec-
tive is that the seemingly honest, hardwork-
ing people in this company and “Big Six”
accounting firm Arthur Andersen were
lured into reporting false data.

Until the Enron scandal, Arthur Andersen
had a long history of business success,
much of it from providing auditing ser-
vices to publicly traded firms like Enron.
Each of the auditors associated with the
scandal had spent years preparing to enter

the field. They earned accounting degrees, certifications, and worked up the chain of com-
mand in the firm. All of them had excellent reputations. Arthur Andersen’s lead auditor, David
Duncan, arguably shredded documents to prevent the scandal from leaking and to minimize
the impact of the scandal on his employer while also shielding himself from liability in the
case. His act was likely one of self-survival. Although the U.S. Department of Justice eventu-
ally dropped Mr. Duncan’s case, accounting giant Arthur Andersen was convicted of crimes
and no longer exists.

Courtesy Everett Collection.

▲▲ The Enron scandal is a well-known example of the problems
that result from invalid data reporting.

Other Forms of Control Chapter 7

Employee Resistance
Workers often resist change in the work environment—even a positive change (Baack & Cullen,
1994). Control systems can lead to resistance. The resistance can take various forms, includ-
ing individual resistance (defiance, reduced productivity, etc.), organized resistance (unionizing,
strikes, slowdowns, “blue flu,” etc.), or even complete employee disregard for the control system.
When resistance occurs, the response by the worker’s supervisor is critical. Generally, workers
do not seek to be controlled and do not appreciate receiving orders from their supervisors. Yet
control systems, orders, and corrections are a part of every organization. Everyone is subject to
these forms of control in one way or another. To overcome resistance, the positive elements must
be emphasized (see feature box).

Characteristics of Effective Control Systems

Efficient and effective systems of control share several common characteristics. Many of these ideas
are associated with the overall control system and with individual programs such as performance
appraisals and budgets. Seven key characteristics of control systems are the most important.

1. Controls must focus on the critical points or process path in the organization. Specific controls
are most effective when they are directed to points in the organizational system that are most
susceptible to failure or where manufacturing or operating costs variances are unacceptable.
Critical points include the areas of an organization’s operations that directly affect its success
over time.

2. Controls must easily integrate into established processes. The control system has to be compat-
ible with existing organizational culture and operational realities, and all formal standards for
performance must be realistic and achievable.

3. Controls should achieve acceptance by employees. For a control system to be accepted by orga-
nization members, the controls must be related to meaningful and generally accepted goals. If
goals are not widely accepted, control systems will be dysfunctional.

4. Control systems should provide information as needed. Information must be collected, routed,
and evaluated quickly if action is to be taken in time to produce improvements. Data delivered

Overcoming Resistance to Control Systems

1. Emphasize the value of control systems to workers.
How: Explain how feedback can be used to improve performance, leading to rewards such as

positive performance appraisals and pay raises.
2. Incorporate fair and reasonable standards.
How: Encourage participation in setting standards. Do not use them to punish.
3. Use specific, concrete objectives workers can understand and relate to their jobs.
How: Use the tools provided by control systems, including management by objectives, budgets,

and the performance appraisal system.
4. Aim for improvement.
How: In all cases, focus on the improvement of worker skills, abilities, knowledge, and organiza-

tional performance.
5. Be consistent.
How: Build the control system into the calendar. Remain impartial and fair when making judg-

ments about individual and departmental performance.

Summary Chapter 7

out of production sequence is of less value and may not appropriately support decision pro-
cesses. Information on performance must be accurate.

5. Controls must be economically feasible. The cost of implementing a control system should
be less than, or at most equal to, the benefits derived from the control system. Data delivery
systems designed in ways that exceed utility are soon abandoned by managers and line staff.

6. Information must be accurate. Evaluating the accuracy of the information they receive is one of
the most important control tasks that managers face. If the control system provides inaccurate
and invalid data, it is of no use or value to the managers and the organization.

7. Controls must be comprehensible. The information generated via control systems should
be understandable and be seen as generally objective by those using it to make decisions.
(Deming, 2000)

Summary
Controlling is the process of evaluating performance against established goals and creating
methods appropriate to take corrective action to maintain or improve performance in any area of
the organization. Constant controls apply to every level of the organization on a continuous basis.
Periodic controls are regularly scheduled control systems designed to identify problems and then
solve them as needed.

Effective control systems apply to company-wide, departmental/functional area, and individual
levels. The standard control process consists of four steps: Establish and review standards set
in the planning process; measure performance at the strategic, tactical, and operational levels;
compare performance outcomes with the standards that were set; and make a decision to reward
or correct.

Many times, control standards at the functional area level also serve as company-wide goals.
Typically, goals are set in the areas of production, quality control, marketing, sales, human
resource management, information technology, research and development, and accounting and
finance. Accounting and finance officers are charged with reaching goals within their depart-
ments as well as assisting in assessing overall company operations. Ratios, budgets, and audits
assist in this process.

Control can take the form of feedforward, concurrent, feedback, and systems such as Total
Quality Management. Numerous challenges to successful control systems exist. The challenges
include rigid bureaucratic behavior, invalid data reporting, and employee resistance. Effective
managers overcome these challenges to help ensure organizational success over time. Tactics
include focusing on the critical points or process path in the organization, integrating into the
established processes, achieving employee acceptance, providing needed information in an effi-
cient manner, and remaining accurate.

Summary Chapter 7

C A S E S T U D Y

Tony’s Pizza Business

Tony Valencia returned to the United States after a six-month visit to Italy. He discovered major
problems in what had been his lifelong labor of love—his own pizza parlor.

Tony came to the United States in the mid-1990s as an immigrant. His main desire was to take care
of his parents, who had arrived five years earlier. Tony opened a pizza parlor, Valencia Pizza, on
the north side of Sioux City. His business was located near the agriculture campus of South Dakota
University and in a part of the city that had a large Italian community. Tony’s sales grew quickly. He
was making far more income than he ever could have imagined. Valencia Pizza had so much busi-
ness that a one-hour wait to be seated was normal. He opened a takeout window to accompany
his delivery service.

The secrets to Tony’s success included high-quality food products combined with a pleasant dining
experience. Tony personally screened every server before the individual was hired. His wife, Louisa,
who was a terrific cook with experience in restaurant meal preparation, personally selected the
kitchen staff.

Valencia Pizza operations continued smoothly until Louisa’s sister died, leaving behind two small
children. Louisa took them into the Valencia home and stopped working at the restaurant. Tony had
to manage the kitchen staff and the dining area by himself. He worked long, exhausting hours.

Tony contacted a business school professor from the university. He wanted to know how to manage
his time effectively and keep earning a good income. The professor suggested hiring a store man-
ager for his current location plus opening a second location on the south side of town. Tony hired a
nephew, who was 24 years old and eager to please. Tony quickly trained him and believed his unit
was in good hands. He then opened the second outlet with the idea that he would repeat the pro-
cess and hire a store manager for that unit as well. Unfortunately, it took several months to launch
the new location. As it began to succeed, Tony realized he was working as many hours as before.

A return visit to his professor friend led to the concept of franchising. His friend taught him how
to sell units to other locations in the Upper Midwest, and Tony quickly made enough money to be
comfortable. He maintained ownership of his two original stores and hired a manager who was
able to run the second location.

Many of the new franchise outlets did not fare well. Tony had given up almost total control of the
other units to a management firm that was accomplished at franchising small businesses. The new
owners quickly cut back kitchen staff pay to slightly above minimum wage. Servers were not cho-
sen as carefully. Food costs were reduced by cutting back on the generous portions of sauces and
toppings that had made the store famous in Sioux City. Store managers were instructed to copy any
promotion used by other pizza chains. The company was not able to remain competitive with other
businesses, and within two years, six of the new franchise locations had closed.

Upon returning from his visit to Italy, Tony felt revitalized. But when he had dinner at one of the
Valencia franchise locations, he did not recognize his own business. He found servers were imper-
sonal and more concerned with a television program playing in the dining room than with taking
care of customers. The quality of the food he received frustrated him. The restaurant had plenty of
open tables, and it was early Friday night, a prime time in the pizza business.

Tony contacted the franchising company. He told them the other units were diminishing the reputa-
tions of his two stores. The management group was more than willing to sell the remaining units to
Tony. He found himself, in his mid-50s, with 12 restaurants in eight cities that needed attention. He

(continued)

Key Terms Chapter 7

Key Terms
activity ratios Ratios that assist managers in understanding how well certain company activi-
ties are being carried out.

auditing An assessment of a person, organization, system, process, operation, project, or
product.

balance sheet A report on investing and business financing activities of the organization.

concurrent controls Control systems that manage problems as they are encountered.

controlling The process of evaluating performance against established goals and creating
methods appropriate to take corrective action to maintain or improve performance in any area
of the organization.

constant controls Controls that regulate organizational activities on a continual basis, which
means that any time any of these standards are not met, the management team immediately
reacts with corrective action.

feedback controls Controls that manage problems after the fact.

feedforward controls Controls used to anticipate problems in advance.

leverage ratios The ratios used to measure company debt and company risk.

liquidity ratios The ratios designed to make sure the company has enough money on hand.

management by objectives A participative annual goal-setting program used in both plan-
ning and control systems.

market share A measure of the company’s percentage of total sales in an industry or a subset
of an industry.

periodic controls Control systems that assess organizational activities on a regularly sched-
uled basis.

profitability ratios The ratios used to measure company financial success.

share of mind (or consumer awareness) The degree to which consumers are aware of the exis-
tence of a company, which inclines them to visit that company or store.

sourcing The methods used to acquire raw materials.

wanted to get back to basics: high-quality food and friendly service. The challenge would be finding
a way to make it happen without sacrificing all of his free time.

Discussion Questions

1. What kinds of strategic changes will Tony need to implement in the franchise units?
2. What kinds of functional area corrections will be required in each of the departments of the

franchise units?
3. What type of audit should Tony use in the franchise units?
4. When a restaurant has gained a bad reputation in a community, it is hard to change. Can Tony

overcome this problem in his chain of stores? Why or why not?

Critical Thinking Chapter 7

Critical Thinking
Review Questions

1. Define controlling, constant controls, and periodic controls.
2. Name the types of constant controls that apply to individuals, departments, and the overall

organization.
3. What four characteristics should standards have that will aid in the periodic controlling

process?
4. When comparing performance to standards, what five outcomes are possible?
5. What are the four parts of a system?
6. What standards are set and evaluated in the areas of production and quality control?
7. What standards are set and evaluated in the areas of marketing and sales?
8. What standards are set and evaluated in the area of human resources?
9. What standards are set and evaluated in the accounting and finance departments?

10. Name and define the four main types of ratios used by accountants and managers.
11. What steps are involved in the budgeting process?
12. What problems are associated with budgeting in the areas of planning and controlling?
13. Name the things managers can do to create effective budgeting programs.
14. Describe auditing in the context of this chapter.
15. Define feedforward control, concurrent control, and feedback control.
16. What challenges are associated with control programs?
17. What are the characteristics of effective control systems?

Analytical Exercises

1. Using the four elements of quality standards and goals, provide an example of a well-stated
goal and a poorly stated goal in the following areas:

• production
• marketing and sales
• human resources
• finance and accounting

2. Using four elements of a system, explain how they could be used in the area of performance
appraisal for an individual worker.

3. Apply the four production standards of quantity, quality, cost, and time to these two services:

• an insurance company
• a nonprofit hospital

4. Explain how the four main standards in marketing and sales would be applied to control sys-
tems in the following companies:

• a local tavern
• a local dry cleaning operation

Critical Thinking Chapter 7

• a local radio station
• Walmart

5. Explain how the following profitability goals are related and how they are different:

• total income on income summary
• earnings per share of common stock
• dividends per share of common stock
• profit margin

6. How are the four types of ratios related to each other? Explain why it is important to look at all
four together rather than at a single ratio figure.

7. Make a list of the benefits of budgets and the problems associated with budgets. Explain how
these might apply to your own personal finances.

8. Choose the appropriate form or forms of control from feedback (or occasional), concurrent,
and feedforward, for the following situations:

• creating a hurricane safety program
• managing a major league baseball team
• creating and airing a television game show
• operating a major airline
• explaining an accident that injured an employee

The Leading Function: Groups,
Teams, and Communication

Learning Objectives

After completing this chapter, you should be able to:

• Identify the differences and similarities between groups and teams.
• Establish and successfully direct groups and teams.
• Communicate effectively with others.
• Manage organizational communication systems effectively.

6

Digital Vision/Photodisc/Thinkstock

Introduction Chapter 6

6.1 Introduction
Chapter 5 described three major components of the leading function: power, leadership, and
motivation. This chapter examines two additional factors that play major roles in the degree
of success a manager achieves. The first, leading groups and teams, requires specific types of
skills for coordinating the activities of others. The second, communication, is the glue that holds
together groups and teams, as well as the entire organization.

In the first section of this chapter, we look at the differences and similarities between groups and
teams. Next, we consider techniques for building effective teams. In the following section, we
examine the nature of individual communication. Finally, we examine methods for effectively
managing communication systems within organizations.

M A N A G E M E N T I N P R A C T I C E

The Changing Communication Landscape

The past three decades have witnessed an explosion of new technologies designed to connect
people in various ways. Face-to-face interactions with people around the world are now possible by
simply pressing a key. In a variety of ways, these new patterns of communication influence many of
the topics described in this chapter.

First, the immediacy of available information and interaction has increased the pace of business.
Online connections, by allowing access to all forms of data, offer the potential to speed up busi-
ness activities ranging from research to the
coordination of complex tasks. Many proj-
ects can be examined in real time, thereby
shortening the time from idea develop-
ment to final implementation. Second,
workers interact in new ways via various
personal communication devices. A decade
ago, many companies began to integrate
email systems into management programs.
Intranets and other forms of communi-
cation replaced letters, memos, faxes,
and other more outdated technologies.
Currently, companies communicate with
both internal and external publics in innova-
tive new ways.

From the bakery that sends out tweets
notifying customers that a new batch of
goodies is just leaving the oven to the
Twelpforce social media team that interacts
with consumers at Best Buy, technology
has shifted the customer–salesperson interaction. Further, dissatisfied customers can more quickly
reach out to a wide audience to register complaints about a company. Many organizations, such
as Southwest Airlines, have social media monitors who respond to problems as quickly as possible.
Further, many managers have discovered that younger employees are far more comfortable send-
ing instant messages to notify the company that they are sick or will be late to work. Several major

(continued)

Anatoliy Babiy/iStock/Thinkstock

▲▲ Advances in technology have made interactions
with people around the world faster and easier
than ever.

Groups and Teams Chapter 6

6.2 Groups and

Teams

A common misconception about groups and teams is that they are the same thing. That is not
the case. A group consists of a collection of people, and a team is a unit of collective performance.
Let’s look more closely at the differences and similarities between the two.

Groups

A group consists of two or more people interacting who share collective norms and goals as
well as a common identity. For example, a group could be a collection of 12 employees meeting
to exchange information about how various company polices or procedures will affect them. In
business organizations, employees routinely encounter group activities. Two types of groups are
found in various companies: formal and informal.

Formal Groups
A formal group is established by the organization and seeks to achieve company goals and objec-
tives. You can find evidence of the existence of a formal group in company documents, including
an organization chart, a management directive to form a group, or group meeting minutes. Three
common types of formal groups are work groups, committees, and project groups.

A work group consists of individuals who routinely perform organizational tasks. Work groups
are identified by an organizational chart. In a newspaper company, work groups likely would
be formed for the sports department, the local news, and the national/international news desk.
Accountants and production employees also are included in work groups around their assigned
responsibilities. A work group is sometimes known as a command group.

organizations, including IBM, now use social media venues as key methods to make contact with
individual workers.

Team and group interactions have been equally changed by innovative technologies. Workers
can complete tasks from remote locations (such as through virtual teams, described in this chap-
ter). Instant contacts have moved many team meetings away from conference rooms and into
new spaces.

Informal groups communicate via these same tools. Friendships are formed and people follow
one another through Facebook and other pages. Gossip travels in new ways. Managers are faced
with the challenge of responding to these new methods of interaction, making sure negative
rumors do not spread widely and quickly to ruin an innocent employee’s reputation or standing in
the company.

The future of leading teamwork and communication appears to hold a wide array of new opportu-
nities to improve business functioning. At the same time, company leaders will need to be vigilant
to ensure such technologies are not abused or used in malicious ways.

Discussion Questions

1. How can fast-moving communication negatively affect an employee via a rumor? What about a
company?

2. In what ways can social media be used to improve the workplace environment?
3. How can social media be used to improve relationships between top-level managers and first-

line employees?

Groups and Teams Chapter 6

Committees are groups assigned to various company operations and processes. Normally, com-
mittees are ongoing groups, such as the set of individuals assigned to the workplace safety com-
mittee or the employee benefits committee. Members of committees often have temporary
assignments, such as a one- or two-year term, after which someone else takes the position within
the group.

Project groups, or task forces, oversee a project or assignment until it is completed. A task force
may be assigned to write a report about a disaster such as a fire or accident in a plant. A project
group may be designated to redesign the interior of a retail store. Another project group may be
asked to develop and bring a new product or service to the marketplace. In each instance, the
group disbands after completing the assignment.

Informal Groups
An informal group emerges without the endorsement of organizational leaders and does not
have a designated structure or work toward organizational goals other than socialization and
friendship (Shirky, 2004). These associations are sometimes referred to as friendship groups.
Three forces tend to bring informal groups together: activities, shared sentiments, and interac-
tions (Homans, 1950).

Activities drive the formation of many informal groups. They range from small groups that rou-
tinely play cards together during breaks to more elaborate company volleyball, softball, or bowl-

ing teams. A “lunch bunch” that meets every day for
meals has formed around an activity.

Shared sentiments suggest that people make friends
with and socialize with others who have the same
value sets. Some groups form due to political simi-
larities. Others revolve around religion. In some
instances, groups of single mothers or company bach-
elors may form.

Interactions result from close physical associations.
People who work on the same floor of an office build-
ing are more likely to socialize and form friendships.
Those who labor at a remote location of a company
may also band together into an informal group.

Group Members
Formal and informal groups consist of four types of
members: the leader, opinion leaders, members in
good standing, and the gatekeeper. The leader directs
group activities. Formal leaders are assigned by the
organization, as opposed to informal leaders, which
emerge based on the group’s wishes. Opinion leaders
are those group members who are most closely aligned
with the leader. The name comes from their willing-
ness to express group values. Members in good stand-

ing are individuals who are included in the group but do not share in any leadership function.
The last member, the gatekeeper, is one of the first three types: leader, opinion leader, or member
in good standing. The gatekeeper determines who will and will not be included in the group. At

Jupiterimages/Stockbyte/© Getty Images/Thinkstock

▲▲ Informal groups can form around an activity,
such as eating lunch together.

Groups and Teams Chapter 6

times, the entire group rather than a single individual may carry out the gatekeeping function
(Cartwright & Zander, 1953).

Teams

A team consists of a small group of people, with complementary skills, who work together to
achieve a common purpose and hold themselves mutually accountable for accomplishing certain
goals. The essence of a team is a common commitment. One similarity of teams and groups is
that both normally consist of from 2 to 10 employees. Both have leaders, opinion leaders, mem-
bers in good standing, and provide a gatekeeping function. Both also seek various types of social
and organizational goals.

The differences between teams and groups occur in the area of unit performance. Groups
evolve into teams under the proper circumstances. A leader can tell the difference by observing
instances of shared sacrifice and commitment to the group’s success by individual members. A
group becomes a team when the following criteria are met (Katzenbach & Smith, 1999):

• Leadership becomes a shared activity.
• Accountability shifts from strictly individual to both individual and collective.
• The group develops its own purpose or mission.
• Problem solving becomes a way of life, not a part-time activity.
• Effectiveness is measured by considering the group’s collective outcomes and products.

Effective teams begin with the right number of members. Too few members create problems in
terms of assigning tasks that members will be required to undertake. Too many members lead
to breakdowns in communication and the inclusion of additional personal agendas, which can
lead to conflict. The most common types of teams employed in today’s workplace include cross-
functional teams, virtual teams, and self-managed teams.

Cross-Functional Teams
Organizations today emphasize horizontal integration, problem solving, and information sharing.
They also attempt to eliminate the tendency of workers to work in silos, or groups of individuals
who are from the same department or perform the same type of work, because a silo prohib-
its communication across departments within the organization. Members of cross-functional
teams come together from different functional areas of the organization to work on a particular
problem or task and work together to reach company goals. They share information, explore new
ideas, work toward creative solutions, and do not limit their ideas to their own functional areas.

Virtual Teams
The use of the Internet and specially designed software can support meetings between geograph-
ically dispersed employees. Virtual teams employ Internet and digital technologies (such as an
intranet, web conferencing, teleconferencing, and videoconferencing) to achieve common goals,
such as collaboration, sharing information, solving problems, and scheduling activities. Virtual
teams are formed for short-term projects as well as long-range, ongoing issues.

Organizations create virtual teams to reduce travel costs and allow people from remote locations
to collaborate. They are flexible in the sense that meetings can be arranged fairly quickly, espe-
cially when compared to the time spent traveling to a distant place. Both Volvo and Lockheed
Martin have discovered the advantages of these types of teams (Ante, 2003; Naughton, 2003).

Groups and Teams Chapter 6

Virtual teams have three limitations, two of which reduce their ability to take on team-like char-
acteristics. First, in virtual face-to-face meetings (conducted using webcams and microphones),
paraverbal cues (voice tone and inflection) and nonverbal cues (eye contact, distance, gestures,
and facial expression) cannot as easily be transmitted. This limits the richness of communica-
tions between members. Second, socialization is reduced. As meetings conclude and members go
on to other work, they sign off the meeting website. They cannot remain “in the room” to discuss
issues and fraternize. The third problem associated with virtual teams is that members must
meet at differing times, depending on location. A meeting that begins at 4:00 p.m. in San Diego
is taking place at 7:00 p.m. in New York, a time when most people have left the office. Scheduling
becomes even more problematic for international virtual meetings.

Perhaps a better name for this type of operation would be a virtual group, because virtual col-
laborations do not generate the same trust level and member interdependence that are found in
actual teams. At the same time, virtual teams with members from widely dispersed locations can
deal effectively and efficiently with issues in a timely fashion. Consequently, their use has grown
in popularity in many larger companies. The increasing internationalization of business has also
led to increased usage of virtual teams.

Self-Managed Teams
Self-managed work teams are groups of employees who perform highly related or interdependent
jobs and take on many of the responsibilities of their former supervisors. These responsibilities can
include planning and scheduling work, assigning tasks to team members, controlling the pace of
the work, making operating decisions, and taking action with problems. Things to consider when
introducing self-managing teams are strength and makeup of team norms, the types of tasks the
team undertakes, and the reward structure, which can affect how well the team performs.

Stages of Team Development

Both groups and teams go through stages of development. One theory proposes five stages of
development: forming, storming, norming, performing, and adjourning (Tuckman, 1965). Let’s
look at each of the stages, keeping in mind that the different stages do not necessarily take the
same amounts of time. Figure 6.1 depicts the relationships between the stages of group perfor-
mance with the level of dependence and interdependence among members.

Forming
Forming is the process that takes place when members get oriented to the group and start get-
ting to know each other. This stage is characterized by a high degree of uncertainty as members
try to break the ice, figure out who is in charge, and determine what the group’s goals will be. At
this point trust is low, and people tend to hold back to see who takes charge and how that person
will lead. The formal leader may assert some level of authority to establish the team’s operation
and build trust among members.

Storming

Storming takes place as the presence of individual personalities, roles, and conflicts emerge
within the group. The storming stage may be short or very long and painful, depending on
the clarity of goals and the commitment and maturity of the members. It is a time of testing.
Individuals test the leader’s policies and try to figure out where they fit in the group. Subgroups
may take shape. Groups may stall here if power and political struggles go unconstrained and turn
into open rebellion. Groups that overcome this stage do so because a respected member, usually
not the leader, challenges the group to resolve its differences.

Groups and Teams Chapter 6

Norming

In the norming stage, conflicts have been resolved. Close relationships begin to develop and
unity starts to evolve. Teams set guidelines related to what they will do together and how they
will accomplish tasks. Questions about team authority have been resolved through frank discus-
sions. A feeling of team spirit exists because members have found their role within the group.
Positive group cohesiveness can become a major outcome of the norming stage.

Norms are rules governing behaviors in the group. As shown in Table 6.1, norms apply to three
main areas in both formal and informal groups. In fact, norms often overlap between the two.
Norms can be formally or informally sanctioned, based on approval or disapproval by group
members.

Table 6.1 Types of norms

Category Examples

Effort Time on the job

Units of production

Sales calls, sales totals, follow-ups with customers

Work behaviors Clothes worn

Use of language, cursing, formality

Following or ignoring work rules or procedures

Social behaviors Fraternization between management and labor

Office romances

Norms tend to develop slowly but then become difficult to change. They apply to the work-
place more than to off-work activities. They also apply to behaviors rather than private feelings
and thoughts; members may go along with some norms they think are foolish. Norms may not

f06.01_MGT330.ai

Low

High

Degree of
independence

Degree of
dependence and
interdependence

High
Forming

Storming
Norming

Performing

Adjourning

Low

Figure 6.1 Degree of independence, dependence, and interdependence

As a group evolves, individuals gradually give up a sense of independence in favor of
greater interdependence.

Leading and Effective Teamwork Chapter 6

apply to high-status group members who choose to ignore them. In general, norms summa-
rize group influence processes, including the rules for joining and maintaining membership
(Hackman, 2003).

Norms provide vital organizational functions. They clarify the group or organization’s key values
and convey a sense of identity. Enforcing norms, such as those listed in Table 6.1, can assist an
individual in either meeting behavioral expectations or avoiding making behavioral mistakes (for
example, refraining from cursing on the job or wearing clothing that the group deems accept-
able). Some authors argue that norms help the group or the organization survive (Feldman, 1984).

Performing
In the performing stage, members focus on solving problems and completing their assigned
tasks. The main concern for the team becomes doing the job right. Members assist each other,
and conflicts are resolved constructively. Members become committed to the group’s success.
When the group reaches the point where its primary activities revolve around solving task prob-
lems, the performing stage has begun. Communication between members takes place openly;
members support one another with cooperation, and disputes are handled quickly and construc-
tively (Mason & Griffin, 2005). At this point, interdependence reaches its peak, and independence
has been surrendered as much as it will be. Ongoing work groups and committees that reach the
performing stage remain there unless drastic events interfere. Project teams and informal groups
that have an end point (the bowling season ends) move to the final stage.

Adjourning
In the fifth and final stage, adjourning, members prepare to disband the group. Having worked
hard to collaborate and accomplish their assigned task, members often feel a sense of loss, even
though a party or celebration may be taking place.

As a leader, a major thing to remember is that building a high-performing team requires time and
hard work. But the end result is a stronger, better-performing work unit. Strong leaders focus on
task roles and maintenance roles. Task roles keep the group on track and focused on the work to
be performed. Maintenance roles keep the group together in supportive and constructive ways.
Leaders coordinate both types of roles to achieve success.

In summary, teams and groups have a great deal in common. At the same time, successful man-
agers recognize the differences between the two. They then seek to find ways to direct groups
into higher-performing teams. The next section considers methods for helping teams achieve at
higher levels.

6.3 Leading and Effective Teamwork
It takes a talented leader to turn a group into a team. Team building consists of all activities
designed to improve the internal functioning of work groups. Team builders can use techniques
such as trust exercises, role-playing, and competitive games. Standard goals of team building
include increasing trust between members, reducing conflicts between members, building better
channels of communication among members, and increasing levels of support among team mem-
bers. Of these four goals, trust is key. Trust requires communication, respect, fairness, consis-
tency, and leader–member competence. When teammates do not trust each other, the quality of
the team quickly deteriorates. Distrust can become a destructive force in both teams and groups.

Leading and Effective Teamwork Chapter 6

Characteristics of Effective Teams

Effective teams have certain requisite characteristics. Cohesiveness results from an appropriate
match between the team members and the work they will do. Contextual factors and process
variables also influence a team’s effectiveness.

Team Composition
Managers can play important roles in designing teams with the best chances for success. Doing
so involves making sure the right personalities and skill sets are assigned to projects. Also,
those chosen should have indicated an interest in being included in the group. Clear instruc-
tions allow members to fit in and move past storming and norming issues. As with groups, the
team should consist of an appropriate number of members. One factor that can work against
a team’s well-being is heterogeneity or diversity in the team’s membership, especially when a
single member of a minority has been placed on a team. In general, member selection can make
or break a team (Milliken & Martins, 1996). To build effective teams, managers often consult
with the human resources department to determine sets of skills that individuals possess. They
also consider personalities and various backgrounds as part of the process of creating compat-
ible sets of individuals. Further, when recruiting, selection criteria make it possible to encour-
age applications by individuals interested in collaboration. During interviews, managers can
discover those who have participated in team efforts as part of their education. Applicants with
connections to sports teams, fraternities or sororities, and interest clubs such as Enactus (for-
merly called Students in Free Enterprise) have already demonstrated the willingness to engage
in a larger group.

Work Design
The logical connection between a team and a project is complexity. Simple tasks are better han-
dled by single individuals. Consequently, work design in a team setting involves a more compli-
cated assignment. Team members should believe they have sufficient authority and autonomy to
do their work in the best manner possible. When a project or task has an end point, it possesses
task identity, which was noted as a motivational factor in Chapter 5 of this book. Further, the
interactions between members, when coupled with an outcome that helps others in the organiza-
tion, generate feelings of task significance, another motivational force. In essence, the work design
should be focused on interesting, challenging, and important organizational chores (Kirkman &
Rosen, 2000).

Contextual Variables
Effective teams operate in inviting contexts. Trust represents both a cause and an effect in team
success. A trusting environment encourages cooperation and shared effort. Cooperation and
shared effort build trust for the future. Other contextual variables that contribute to success
include adequate resources, strong leadership, and the organizational reward system. Resources
become necessary to assist team activities. Members who believe they have access to needed
funds and technological support are more likely to buy in and support the team (Bishop, Scott,
& Burroughs, 2000).

Good leadership occurs in two ways. The first, and most apparent, is found in the efforts of a
leader dedicated to making sure the group functions smoothly. Effective leaders in this vein set
challenging expectations and operate in a positive fashion (George & Bettenhausen, 1990). The
second takes place when the group leads itself by setting schedules, resolving conflicts, making
decisions, and coordinating activities, in much the same way as self-managed teams.

Leading and Effective Teamwork Chapter 6

Also, several consulting companies offer teamwork-building programs designed to help
employees become better team members. Part of this effort involves reorienting goals from
individual to collective goals and encouraging team members to make a common effort to
reach those goals.

The organizational reward system consists of the performance evaluation program and the
delivery of rewards. Group-based incentives contribute to more effective teams. When perfor-
mance rewards do not exist, the potential for team dissent and demise rises. Reward systems
can be altered or modified to incorporate performance objectives related to cooperation and
collaboration that will then reward individuals who improve or exhibit these characteristics.
The system then can be changed to add group rewards and bonuses for team performance.
Hallmark Cards, Inc. as well as one subsidiary of Blue Cross (Trigon), have successfully adapted
reward systems to include team incentives in a manner that provides a model for other com-
panies (Geber, 1995).

Process Variables
The final component in a successful team effort involves how the team operates. Four elements
combine to ensure a more efficient operational process. Teams with a common purpose among
members, confidence, specific goals, and managed conflict are more likely to experience posi-
tive outcomes. A common purpose evolves from factors such as group cohesiveness and well-
developed norms. Team confidence, or team efficacy, results from successful endeavors. A team
can build on previous victories, in much the same way that a sports team builds momentum

during a game and during a season. Specific
goals clarify member roles. Difficult goals
are associated with higher levels of effort
and performance.

Managing conflict, the fourth element in
team processes, necessitates careful mana-
gerial action. On the one hand, conflict is
for the most part inevitable and can reduce
problems such as overly cohesive groups
and groupthink. On the other, too much
conflict becomes a major distraction.

In the study of differences between cultures
in various countries and nations, one trait
that receives attention is the degree of indi-
vidualism versus collectivism present. An
individualistic culture exists when most
people in a region are more self-oriented

than oriented toward any group, team, or organization. Collective cultures represent the oppo-
site situation. The United States and other Western cultures tend to exhibit individualistic ten-
dencies. In such a society, building and facilitating teamwork becomes more challenging than in
other societies.

In summary, remember that effective teams are most likely to be present when all four fea-
tures combine to create the best environment. A problem in any one of the four can disrupt
group functioning. Managers who are seeking to generate team effectiveness need to see the
big picture.

Nick Free/iStock/Thinkstock

▲▲ Teams with a common purpose are more likely to experi-
ence success.

Leading and Effective Teamwork Chapter 6

Group Size
One variable a manager can carefully construct when seeking to optimize performance will be
the group size. The group’s goal should be the primary determinant of its size. The following are
three basic objectives associated with a group:

1. Produce an item or complete a project.
2. Solve problems.
3. Collect information or input.

When the primary goal is producing an item or completing a project, something interesting
occurs. As groups increase in size, productivity rises as well, but at a diminishing rate. In other
words, adding a seventh member to a group will increase the team’s productivity, but the increase
will not be one-seventh more; it will be something less than that amount. To explain this out-
come, researchers suggest that as team size increases, the amount of effort contributed per mem-
ber declines (Shepperd, 1993). In some instances, extreme declines in individual effort result from
the addition of new group members. Social loafing occurs when team members give less effort to
a group than they would if working individually. At the extreme, social loafing involves a member
taking a free ride and contributing nearly nothing. Social norms offer a method to induce a social
loafer to at least provide some effort (Liden & Erdogan, 2003).

Managers often compose task teams at the level of five to seven members. Fewer than five reduces
productivity due to the small group size. Seven is close to the point where diminishing returns
per new member become more noticeable. Also, some research suggests that teams with odd
numbers (five or seven) have better chances of success (Yetton & Bottger, 1983) because in any
decision or course of action, a majority emerges (3–2, 4–3, etc.). Groups with even numbers can
experience ties in votes and other decisions (2–2, 3–3). Problem-solving teams tend to require
greater numbers of members. The best rationale for this observation may be that each member
contributes unique ideas and skills when a group is managed effectively. Consequently, a team
with seven or more members yields better results until the group becomes so large that members
disengage and do not contribute.

Collecting information and input may not necessitate maximum effort, but rather insights and
analysis. Teams with large numbers of members, again when successfully managed, generate
better ideas and discussion. Diversity may lead to creative input. The paradox presented by larger
problem-solving and information-collecting teams is that, while these groups induce high- quality
ideas and combine unique skill sets, the team’s size begins to work against actual implementation
of the proposed solutions. In essence, larger teams produce better ideas; but, if kept at the same
size, they experience greater difficulty implementing those ideas (Karau & Williams, 1993). It
may be wise to pare down the group when moving toward action.

Group Cohesivene

ss

The degree of goal commitment, conformity, cooperation, and group control over members sum-
marizes the level of group cohesiveness. The term tight-knit applies to groups exhibiting higher
levels of cohesion, which helps turn a group into a team. The degree of cohesion in a group affects
productivity and performance (Figure 6.2).

As shown, a group with too little cohesion often suffers from lack of productivity. The problems
associated with low cohesion follow the concepts found in its definition. There will be goal dis-
agreement rather than agreement. Members do not conform to any potential group norms. They
fail to cooperate, and group sanctions do not affect them.

Leading and Effective Teamwork Chapter 6

At the center of Figure 6.2, the curve ascends, showing that groups with desirable levels of cohe-
sion tend to enjoy the highest levels of success. Cohesive groups offer these benefits:

• Group productivity increases.
• Members help out those experiencing problems.
• Extra effort is given during a crisis.
• Members work without supervision.
• A positive social atmosphere emerges.

Clearly, managers have vested interests in developing and maintaining cohesive groups (Litterer,
1973; Seashore, 1954). Figure 6.2 also suggests a zone in which the level of cohesion has grown to
the point that problems begin to emerge. Overly cohesive groups are more likely to set norms to
reduce output or lower levels of effort. They may be inclined to view other groups as rivals and
create unnecessary conflicts. At times, the formal leader in the group becomes unable to func-
tion due to the influence of the informal leader. The most substantial problem with overly cohe-
sive groups is known as groupthink. Groupthink results when group pressures for conformity
become so intense that the group avoids unusual, minority, or unpopular views. At the extreme,
groupthink becomes a process by which the group develops a sense of invulnerability, believing
it can function without outside influence or sanction. The group self-censors information and
fails to perform effectively within organizational confines (Janis, 1991). Team leaders and manag-
ers are advised to adjust the cohesiveness factors before groupthink emerges; once it begins, it
becomes extremely difficult to manage or control.

Group cohesiveness and productivity or performance are affected by a series of internal factors.
Table 6.2 summarizes circumstances in which these factors influence the level of cohesion. Group
size, as noted, influences both cohesion and productivity. Opportunities to interact come from
proximity as well as scheduled formal and informal gatherings. Heterogeneity is less common in

f06.02_MGT330.ai

Too little

High
Low
Low

Amount of cohesion

G
ro

u
p

p
e

rf
o

rm
a

n
ce

s
u

cc
e

ss
High

About right Too much

Figure 6.2 Degree of cohesion

The right balance of cohesion within a group can lead to success. Too little cohesion may
result in a lack of cooperation, but too much cohesion may lead to setting norms that
reduce output or decrease effort.

Leading and Effective Teamwork Chapter 6

a diverse workplace. One method used to build a sense of heterogeneity is to create overarching
superordinate goals to bond members together. Group status can make group membership more
or less desirable. An outside threat can be real or suggested by management as a potential prob-
lem. Interdependence and independence result from norming processes. Membership stability
is linked to opportunities to interact and bond. Effective leaders understand individual member
needs; ineffective ones drive wedges between members (Homans, 1950).

Table 6.2 Factors influencing levels of cohesion

Increase cohesiveness Decrease cohesiveness

Proper size (5–7 members) Too many members

Opportunities to interact Isolation

Similarities (homogeneity) between members Dissimilar members

High status within organization Low public image of group

Presence of outside threat Placid environment

Interdependence among members Opportunity to join other groups

Attractive (to members) group goals Unsatisfactory goals or goal disagreements

Stable membership High turnover

Effective leader Ineffective leader

Becoming a Team Player

What will be your role in the workplace? Will you be among the staunch individualists who go
their own way? Or, will coworkers and top management compliment your ability to get things
done in teams and groups? A case can be made that a more enriching and successful career
awaits good team players. Even so, opinions vary regarding the exact nature of an effective team
player. Lists of effective member characteristics typically include from 10 to 17 items. One popu-
lar list was developed by Maxwell (2002). Team member skills include being adaptable, collab-
orative, committed, communicative, competent, dependable, enlarging, enthusiastic, intentional,
mission conscious, prepared, relational, self-improving, selfless, solution oriented, and tenacious.

Rose (2007) suggests that team players exhibit good listening skills, are cooperative not com-
petitive, remain optimistic and happy, are adaptable to change, and should be good negotiators.
An effective team player demonstrates reliability, communicates constructively, listens actively,
functions as an active participant, shares openly and willingly, cooperates and pitches in to help,
exhibits flexibility, shows commitment, works as a problem solver, and treats others with respect.

Mariam (2003) lists a successful team member as someone who has excellent technical and pro-
fessional competence; good interpersonal skills; a sharing, giving tendency; respect for authority;
and concern for the customer. Such individuals are generally self-reliant, happy people who wel-
come feedback. They also have a finger on the pulse of the team, are dependable, and demonstrate
integrity, honesty, and trust. As you can see, there are many ideas about the nature of an effective
team player, thus giving each person several ways to engage in a group and become an effective
member.

In summary, a team leader must be willing to take the time and make the effort to resolve the
issues that arise during the stages of team development. As the complexity of work continues

Leading and Individual Communication Chapter 6

to increase, and as business becomes more global, the use of cross-functional, virtual, and self-
managed teams will also rise. Leaders determined to build the best team possible should conduct
team-building programs designed to build trust, support, and communication while reducing
conflicts.

In the last two sections of this chapter, we discuss the use of communication in the workplace.

6.4 Leading and Individual Communication
In this chapter the topic of communication may be presented last, but it certainly is not the least
important. In fact, a case can be made that communication represents one of the most important
aspects of managing and leading organizations.

Communication is the process of transmitting, receiving, and processing information. It occurs
when one person transmits an idea to another person or to a group of people. It is also the flow of
information that moves within an organization as well as across organizational boundaries. No
group or organization can exist without communication. Communication involves much more
than simply delivering a message and hoping that people understand; it also includes the transfer-
ence and the understanding of meaning.

Communication and leading intersect on many levels. A leader or manager communicates with
other individuals throughout the day. The same manager is part of an overall communication
system within the organization. This section examines individual communication processes.
Section 6.5 explores organizational communication systems. At the same time, communications
at both levels (individual and company-wide systems) have some common characteristics.

Communication Basics

Communication is a process that includes several basic principles. These principles, which hold
true throughout all types of organizations, tell us that communication is

• dynamic
• continuous
• unrepeatable
• irreversible
• complex

Communication is dynamic because it constantly undergoes change. One message feeds another
message, and one type of experience feeds other experiences. The communication process is con-
tinuous because it never stops. Even by saying nothing, leaders are communicating something
about what they value. Silence can be one of the most powerful communication tools.

Communication is unrepeatable. The very same message delivered to two different people is
essentially two different messages. That principle holds true even when we deliver the same mes-
sage twice to the same listener. The leader must frame the message for the intended audience.
Leaders deliver financial information to finance people in different ways than they communicate
such information to nonfinance people. Nonfinance people do not have the technical knowledge
that finance-savvy people possess. For example, a finance person will know that the terms yield
and internal rate of return have basically the same meaning. Someone not acquainted with finance
might not. An effective communicator frames the message to match the intended audience.

Leading and Individual Communication Chapter 6

Some processes can be reversed, but communication remains irreversible. We may wish we could
take something back that we said, but we cannot. All we can do is try to clear up any confusion,
perhaps apologize, and restate our position. Communication is also highly complex, not only
because of its many parts but also because it involves human beings. People are all different, and
they bring different experiences, insights, and biases to a conversation. There is nothing totally
straightforward about the ways people communicate or interact with each other.

Barriers to Interpersonal Communication

As people at work interact with each other, a series of barriers can interfere with effective inter-
personal communication. Table 6.3 presents some of the common barriers.

Table 6.3 Barriers to interpersonal communication

Individual differences Situational factors Transmission problems

Age Emotions, such as mood and tone Language

Gender Distractions Slang

Exclusive language Settings Technical terminology

Educational level Disability—sender

Organizational rank Disability—receiver

Personalities Nonverbal contradictions

Individual Differences
Managers and supervisors are normally of different ages, which can create a generation gap in
conversations. Substantial evidence suggests that women and men communicate in different
ways on the job, especially when one gender supervises the other. Exclusive language involves
using words and concepts known only to a select group (think of sports metaphors), thereby
excluding others (people who do not follow sports). Entry-level workers and workers with low
levels of education may have trouble follow-
ing some specialized conversations related
to high-level duties.

People at higher organizational rank are
often intimidating to subordinates. At
other times, the leader suffers from a lack
of credibility. Without trust between the
leader and the follower, communication
tends to be flawed. Most of us tend to
believe the messenger before we believe the
message, and the resulting trust and cred-
ibility problems are destructive to clear
communication.

And finally, some people just do not get
along, which means their personalities can
get in the way. Big egos can cause politi-
cal battles, turf wars, and the overzealous

© monkeybusinessimages/iStock/Thinkstock

▲▲ Differences in gender can create barriers to communication
in the workplace, particularly when one gender supervises the
other.

Leading and Individual Communication Chapter 6

pursuit of power and resources. Egos influence how we treat each other and how receptive we are
to being influenced by others.

Situational Factors
Numerous situational factors can derail an interaction with a colleague at work. It is important
to be aware of your mood and tone when you speak to others, because things said in the heat of
the moment often come back to haunt you. It is also important to be aware of distractions, such
as construction noise near an office meeting, which may prevent people from giving their full
attention to the conversation. Moreover, it is important to be aware of the timing and setting of
sensitive communications or announcements, especially when they involve layoffs and termina-
tions, closing a location, or the death of an employee. In each of these scenarios, transmitting and
receiving significant information becomes much more difficult.

Transmission Problems
Language and slang can create confusing messages in domestic and international settings.
Someone who is not versed in popular culture may not understand current terminology, such
as twerking, introduced in the early part of the 2000s. Conversations become far more complex
when two people who have different first languages attempt to communicate.

Technical terminology includes the usage of terms specific to a person’s vocation or occupation.
Technical terms are used in many areas, including information technology, accounting, research
and development, and others.

Sender disabilities are mostly related to speech and speech impairments. Receiver disabilities
include hearing and sight problems. Nonverbal contradictions occur when a person’s body lan-
guage does not match the verbal message. Someone who says, “Yeah, that’s great work,” while
looking disinterested and bored is not exactly sending a ringing endorsement. Employees will
pick up on the disparate messages when a leader delivers information in this way.

Overcoming Interpersonal Communication Barriers

When carrying on a conversation, the sender and receiver both have important duties. Fulfilling
your end of the conversation can help you avoid problems associated with miscommunication,
especially those that lead to unnecessary conflicts. The requirements for the two persons engaged
in a conversation are outlined in Table 6.4.

Table 6.4 Creating high-quality individual communication

Sender duties Receiver duties

Awareness of barriers Active listening

Empathy Seek clarification of the message

Careful attention to nonverbal cues Provide constructive feedback

Confirmation of the message

Senders should be aware of all types of barriers. Effective leaders are especially gifted at under-
standing what might prevent a message from arriving as it was intended. They exhibit empathy
and understanding of the audience by “walking a mile in their shoes.” Good communicators

Leading and Individual Communication Chapter 6

make sure what they say verbally matches with their body language, including posture, eye con-
tact, physical distance from the other person, and other nonverbal messages. Effective leaders
make sure messages arrive as they are intended. They confirm by asking simple questions, such
as, “Do you understand?”

Remember that a sender or speaker makes up only half of the formula. All members of an orga-
nization appreciate effective receivers who are well versed in the following active listening skills:

• Listen for content: Try to hear exactly the content of the message.
• Listen for feelings: Find out how the source feels about the message.
• Respond to feelings: Let speakers know their feelings are recognized.
• Note cues: Be sensitive to verbal and nonverbal messages.

Receivers who work well with others seek clarification when a message is unclear. It is better to
say, “I don’t understand” than simply guess at a sender’s meaning. This step is especially impor-
tant when carrying out orders or following a supervisor’s directions. Good receivers also offer
constructive feedback. This includes telling others how you honestly feel about something they
said or did. Be sure to provide feedback with real feeling based on trust. Make the feedback
specific. Give the feedback when the receiver is ready to receive it. Finally, offer the feedback in
smaller doses; never give more than the receiver can handle.

Successful interpersonal communication involves a shared commitment by two people. It is easy
to multitask while on the phone, avoid eye contact with and remain disinterested in someone of
lower rank, or send messages in other ways that communicate to the person that his or her mes-
sage is not that important. Good leaders avoid making those kinds of mistakes. If you’ve ever seen
someone who makes everyone around him or her “feel” important, you have been watching an
effective communicator.

The Role of Nonverbal Communication

In interpersonal communication, the tone, the actual words, and the nonverbal cues complement
and complete every message, which means nonverbal cues deserve careful attention. Nonverbal
communication plays a major role in one-on-one interactions. Table 6.5 presents some important
things to remember about nonverbal communication.

Table 6.5 The nature of nonverbal communication

Principle (nonverbal communication . . . ) Implications
Takes place in a context The same nonverbal message has different meanings,

depending on where it is transmitted.

Consists of packages or clusters Several cues are transmitted simultaneously.

Is governed by rules Social norms and traditions shape the use of
nonverbal cues.

Provides clues to the real message Nonverbal cues are difficult to fake.

Connects with verbal to form the full message Behaviors connect with nonverbal actions.

Always communicates Even when you are trying to avoid sending a message, your
nonverbal cues continue to communicate.

Source: Adapted from DeVito, J. (2009). The interpersonal communication book, 12th edition. Boston: Allyn & Bacon.

Leading and Individual Communication Chapter 6

Table 6.5 offers several sweeping inferences. The concept that nonverbal communication takes
place in a context suggests that folding your arms and leaning back in one context may mean
you’re relaxed and are taking everything in; but in another context, the same body language sug-
gests frustration or boredom. Packages or clusters of nonverbal cues are normally transmitted,
which means words are not all that matters. Eye contact, hand gestures, posture, pacing, facial
expression, leg movements, and breathing will be considered simultaneously with the words.
Social norms strongly influence the interpretation of nonverbal cues. The “V” signal made with
two fingers meant “Victory” during World War II in England, symbolized “Peace” during the
Vietnam War in the United States, and is an obscene gesture in some cultures. A wink signals
flirtation in one context and implies that “you’re an insider” in another.

Most of the time, nonverbal communication cannot be used to fool someone. Someone who dis-
agrees with you may verbally signal concurrence but will send other signals, such as looking away
or looking down, that contradict the message. The combination of verbal and nonverbal cues
can send a strong message. A person expressing adamant support for an idea may pound a fist or
shake one in the air. Nonverbal cues communicate even when you are trying to avoid sending a
message. When you are sad or frustrated, body language sends that message even when the words
being spoken are “I’m okay,” or “I’m fine.”

Forms of Nonverbal Communication

Many forms of nonverbal communication take place. People make judgments about the words
you speak, but many other factors come into play as they interpret the message. Among the more
notable forms of nonverbal communication are the following:

• kinesic cues
• appearance
• dress
• artifacts
• touch
• space
• paralanguage
• time
• manners

Kinesic Cues
Kinesic cues are messages communicated
by nonlinguistic body language or move-
ments. These include messages conveyed
by various parts of the body. Examples
of kinesic cues are provided in Table 6.6
(Birdwhistell, 1970).

▶▲A handshake is a form of touch that con-
veys an important message.

Allan Danahar/Digital Vision/Thinkstock

Leading and Individual Communication Chapter 6

Table 6.6 Selected kinesic cues and interpretations

Body element Movement Interpretation

Head nodding

tilting

downward movement

agreement, listening

interest

defensiveness

Eyes gazing

shifting, darting

attentive, honesty

uncertain, lying

Mouth smile enjoyment, pleasure

Shoulders leaning forward

leaning away

slouching

interest, rapport

lack of interest, skepticism

low self-esteem

Hands touching others

touching self

hand over mouth

hands on hips

powerful

nervous, anxious

wishing to escape

challenging

Arms crossed closed to ideas, bored

Sources: Adapted from Pentland, A. (2008). Honest signals: How they shape our world. Boston: M.I.T. Press, 10–40, 105, and Malandro, L. A., & Barker, L.
(1983). Nonverbal communication. Reading, MA: Addison-Wesley Publishing, 226–230.

Appearance
Appearance consists of elements you can control and some that are less controllable. A less con-
trollable element is physical appearance as determined by what others consider to be attractive.
Several studies indicate that people who are physically attractive enjoy a kind of halo effect, in
which others tend to assume they are more intelligent, witty, charming—and even more honest
—than others (Harper, 1993; Schoenberger, 1997).

The other component of appearance can be controlled. Hair styles, dress, and the use of makeup
also convey nonverbal images and messages. Think, for example, of how you react to someone
wearing sunglasses indoors in a dark room or at night. Gaudy makeup or ostentatious hair styles
attract a certain type of attention, which may convey the image of being unprofessional or some-
one who need not be taken seriously. Tattoos also send messages, especially visible, extreme
versions. Women wearing low-cut, provocative, and revealing clothing send different nonverbal
messages than those with conservative outfits. Men who insist on unbuttoning one more button
to reveal more chest also send messages.

Artifacts
Artifacts include additional items, such as jewelry, eyeglasses, and even the car you drive.
Piercings, while more common, still connote an element of rebellion to many people. Both men
and women notice expensive rings, necklaces, and other forms of jewelry. And, some may judge
a person who drives an old, beat-up car as less successful and talented than an individual in the
same profession who is driving an upscale vehicle.

Touch
Physical touch has undergone a metamorphosis, in terms of what may be considered acceptable
or unacceptable. Hugging, backslapping, and other forms of touch have largely been removed
from the workplace, unless express permission has been granted.

Leading and Individual Communication Chapter 6

One element of touch, the handshake, continues to convey important messages. A firm hand-
shake accompanied by eye contact expresses confidence. A weak handshake with eyes averted
signals shyness and other less desirable traits (Brown, 2000). For both men and women, a
firm handshake can create a favorable first impression. At the same time, always be aware of
the possibility that the other person has arthritis or some other condition that makes a firm
grip painful.

Space
Space, or physical distance, sends powerful signals. Substantial evidence suggests the concepts of
personal space vary widely by culture. In the United States, maintaining physical distance creates
a certain level of comfort. Someone who feels his or her personal space has been invaded quickly
becomes defensive. Table 6.7 indicates the five levels of personal space.

Table 6.7 Levels of personal space

Level Distance Communication

Public 12–15 ft To feel protected; eye contact may or may not take place; able to move
freely past the person

Social 4–12 ft Making eye contact, shaking hands, casual conversations

Formal business 7–12 ft Greater distance implies social power (distance from visitor chair to
CEO chair in an office)

Personal 18 in.–4 ft People are able to touch each other; expresses closeness “at an arm’s
length”; for friends and family members; not appropriate for business

Intimate 18 in. or less Expresses closeness and affection; uncomfortable when forced upon a
person (elevators, subway cars, airline seats)

Source: Adapted from Hall, E. T. (1982). The Hidden Dimension. New York: Doubleday.

Violating personal space, or “getting in someone’s face,” indicates aggression and often accompa-
nies an argument or more violent interaction. Effective communicators are always aware of the
proper distance.

Paralanguage
Paralanguage refers to how something is said rather than what is said in a message. Key ele-
ments include tone, phrasing, pacing, pitch, and intensity (Knapp & Hall, 1992). Paralanguage
changes messages from surprised to sarcastic—for example, consider the ways you can say, “Oh,
really?” Pacing indicates when someone wishes to speak or stop speaking. Paralanguage conveys
urgency, especially through pitch. As a speaker in a conversation, awareness of how you are
delivering a message plays an important role. The wrong paralanguage conflicts with the words
that you say.

Time
Time contains two elements: punctuality and promptness, and the pace of life, including business
transactions. Regarding punctuality, in North America, a strong emphasis on being early or on
time exists. Failure to arrive on time signals either irresponsibility or disrespect of the person you
have inconvenienced by being late. In many other cultures, being late may be fashionable or is at
least to be expected. Knowing the arrival habits of business partners constitutes an adjustment
for many persons engaged in international commerce.

Leading and Individual Communication Chapter 6

The pace of life determines the use of time. In cultures where time takes on the characteristics of
a commodity, as in the saying, “Time is money,” it is not to be wasted. Saving time constitutes a
virtue. Other cultures view time differently, seeing it as more fluid (Hall, 1989).

To be on the safe side, your best bet in the United States is to develop a reputation for being punc-
tual. If you have an accident or unavoidable delay, promptly contact the person you were to meet
and explain why you will be late. Failure to do so may harm the business relationship. Chronic
tardiness is likely to inhibit your career. Being known as someone who makes deadlines is a major
career asset.

Manners
Manners are an underappreciated aspect of both verbal and nonverbal communication. Cultural
norms have shifted, and what once was considered common courtesy has changed. At the same
time, you can gain a career advantage by demonstrating good manners. Here are some examples:

• Open the door for others, regardless of gender, with a pleasant greeting.
• Avoid the use of profanity in formal business relationships, even when those around you

curse.
• Keep your mouth closed while chewing food; do not talk with food in your mouth.
• Let others finish their sentences without interrupting.
• Generously use the words please and thank you.
• Compliment others for work, effort, and cooperation rather than for their appearance.

In summary, a great deal of what we communicate and how we communicate will be dictated by
nonverbal cues. Taking the time to understand the effective use of nonverbal communication,
including appearance, dress, artifacts, touch, space, paralanguage, time, and manners will help
you become a more effective businessperson, manager, and leader in any context.

M A N A G E M E N T I N P R A C T I C E

Communication and Conflict

A strong relationship exists between communication and conflict in organizations. Poor communi-
cation can lead to conflict, while high-quality communication can prevent or help resolve conflicts.
As a manager or leader, your role often is to settle various kinds of disputes among members of
your company or organization. Effective communication skills can assist in every step of the process.
Following are the classic steps involved in resolving a conflict:

1. Identify the nature of the conflict.
2. Identify all parties involved in the conflict.
3. Discover the positions of all parties involved.
4. Look for a bargaining zone.
5. Reach a resolution.

Communication skills are vital when seeking to understand the nature of a conflict. Effective man-
agers know the right kinds of questions to ask in order to fully comprehend what has happened.

(continued)

Leading and Organizational Communication Chapter 6

6.5 Leading and Organizational Communication
Although it is clear that individual communication and organizational communication are not,
and cannot be, completely separate topics, here we will look at them independently. In general,
two communication systems pass messages through the organization. The formal communi-
cation system is composed of every organizationally approved channel. These include letters,
memos, meetings, direct conversations, bulletin boards, the company’s website, company maga-
zines and newspapers, satellite transmissions, cell phones, and interconnected laptop systems,
including those with GPS locators. The second network—the grapevine, or informal communi-
cation—emerges through social interactions among employees.

Oftentimes, an outburst such as a shouting match or a deliberate violation of a rule is the end prod-
uct of the conflict, not the cause. Part of the process, at the point, begins with establishing a sense
of calm and order by using both verbal and nonverbal cues.

Next, although only two persons may seem to be involved in a dispute, others close by often have a
vested interested in the outcome. Your communication skills can help you find out who is involved
and why. Listening becomes an important ingredient in the process.

The third step, discovering the positions of all parties involved, requires restraint, listening, and pos-
ing the right kinds of questions. An effective conflict manager knows that it is important to follow
up in order to gain the greatest level of clarity in a person’s response. The conflict cannot be effec-
tively resolved if you don’t know exactly what each party wants.

When seeking to find the bargaining zone, the concept of best alternative to a negotiated agree-
ment (BATNA) can be helpful. It identifies the lowest acceptable value to a person engaged in the
conflict or in a negotiation. BATNA allows the manager to know what will cause an impasse in try-
ing to reach an agreement (Bazerman & Neale, 1992, pp. 67–68). Effective communication skills
help to identify a person’s “go to the wall” breaking point.

Finally, the conflict will be ended with a win-win, win-lose, or lose-lose settlement. In a win-win,
both sides gain something and believe they are better off. At times, the right question or comment
can reveal such an outcome. In a win-lose, one side gets its way and the other does not. The man-
ager’s job is to carefully explain the rationale for such a decision, thereby reducing the potential for
another conflict in the future. A lose-lose, or compromise, also involves careful explanations to all
parties involved, including the manager’s reasoning for choosing such a course of action.

An effective problem solver remains constantly aware of the barriers to individual communication
while seeking to settle an argument or clash. The individual also employs all possible methods to
improve communication, in his or her role as both sender and receiver when dealing with each
party. Is this an art or a science? The answer is probably both. You can become a more effective
leader by understanding how to help people in your organization get past conflict and move into a
more constructive course of action.

Discussion Questions

1. When trying to identify the nature and parties involved in a conflict, what kinds of questions
might make the situation worse rather than better?

2. If the two sides are at a complete impasse, which type of resolution becomes most and least
likely—win-win, win-lose, lose-lose, or compromise?

3. How do listening skills affect a manager’s ability to resolve conflicts?

Leading and Organizational Communication Chapter 6

Formal Communication Patterns

Each organization is unique. Company leaders design organizational structures suited to the
organization’s unique needs. The same is true for communication systems. In both organizational
structure and communication systems, certain identifiable patterns emerge. Figure 6.3 depicts
four common communication patterns found in business settings: chain, wheel, circle, and all-
channel (Guetzkow & Simon, 1955).

Chain

The chain approach to management communication parallels the concepts of “chain of com-
mand” or “hierarchy of authority.” Messages flow primarily in two directions, upward and down-
ward. Top managers issue orders and relay decisions to middle managers. Middle managers
transfer the information to front-line supervisors. Front-line supervisors inform entry-level work-
ers. Questions, inquiries, and requests for clarification are relayed in the reverse order.

f06.03_MGT330.ai

Wheel

Employee

Employee Manager

Employee
Employee

CEO

Division Manager

Region Manager

Area Manager

Chain

Team
Member

Team
Member
Team
Member
Team
Member

Circle

Supervisor

Middle
Manager

Entry-Level
Employee

Entry-Level
Employee
Entry-Level
Employee

All-Channel

Figure 6.3 Formal communication patterns: Chain, wheel, circle, all-channel

Source: From GRIFFIN/MOORHEAD. ORGANIZATIONAL BEHAVIOUR, 7E. © 2004 South-Western, a part of Cengage Learning, Inc. Reproduced by
permission. www.cengage.com/permissions

www.cengage.com/permissions

Leading and Organizational Communication Chapter 6

Directives sent through the chain approach to management communication indicate centraliza-
tion: a form of organizational structure in which a low degree of delegation of decision making,
authority, and power takes place. Lower-level employees become so-called order takers and order
followers in such a system. Managers and employees who violate the chain of command by com-
municating directly with other departments are said to “walk the gangplank” and disrupt the
communication system. The chain design can be characterized as a mechanistic approach to
organizational communication, largely driven by rules, procedures, titles that indicate organiza-
tional status, and formal relationships between employees.

The chain design offers benefits to certain types of organizations. The model fits situations in
which precision in carrying out tasks or assignments holds high priority. Military and police
organizations serve as prime examples; although the chain works well only within the organiza-
tion rather than when one unit (police) must coordinate with other units (fire, storm cleanup
departments, etc.). The chain model can also be found in companies that produce standardized
products and have few needs for innovation or change.

Wheel
In a wheel arrangement, a manager or supervisor is the center of the wheel. Individual spokes,
or communication channels, connect the manager to subordinates. In such a system, the man-
ager retains information and dispenses it to employees as needed, serving as a control center.
Individual employees communicate only with the manager and not with one another.

The wheel approach may be used in task forces or project teams, especially when members are
disbursed geographically. For example, should a team be formed to identify and purchase a new
manufacturing site, members of the group may be sent to a variety of locations where they col-
lect information about the costs of land, the availability of contractors and laborers, access to
transportation systems, the nature of the local government, prevailing wages, and other factors.
Each reports to the head of the task force, who then can relay the information to decision makers.
A similar situation arises when teams are disbursed to various countries to identify those that
would be targets for international expansion.

Normally, a wheel approach is not appropriate to a continuing managerial situation. Over time,
employees do not usually remain isolated from each other. Exceptions are possible, such as when
a series of park rangers reports to a central office regarding fire threats and other activities in the
park system.

Circle
A circle resembles the wheel approach, only without the central hub. In a circle system, members
communicate freely with other members, even when one member of the circle is the formally
designated leader. The flow of communication, however, goes around the wheel, either clockwise
or counterclockwise. This method matches work that takes place sequentially. One member’s
end product becomes the beginning point for the next member, for example, when one member
involved in a project completes his part of a project report about the work and passes it along to
the next team member who then adds her section.

The circle approach may be found in task force operations as well as in laboratory settings where
experiments take place in a carefully constructed format. It might also fit with certain creative
endeavors, such as preparing advertisements or market research projects.

Leading and Organizational Communication Chapter 6

All-Channel
In an all-channel communication arrangement, messages move freely across organizational
ranks and members of a team, group, or department. Members determine which people should
receive messages, regardless of title or status. The all-channel approach to communication design
matches an increasing number of departments and companies. Many Internet firms, such as
Google, maintain open work spaces that have no doors and walls. Employees move about freely
and are encouraged to develop and propose new and innovative ideas. Managers work side by side
with other organizational members. The all-channel method empowers employees and encour-
ages innovation. Consequently, it has often become the method of choice for research and devel-
opment departments as well as other units that emphasize creativity.

A person is not likely to go into a company and quickly identify the communication pattern.
Some clues may be obtained from the information provided in Table 6.8. Many organizations
incorporate elements of least two of the systems. Some projects are directed by using a wheel
pattern, others by a circle (Lin & Benbasat, 1991). Other companies may maintain an all-channel
approach organization-wide, but use a wheel or circle in certain circumstances. The least flexible
chain approach, while less common, may be the most visible to an outsider.

Table 6.8 Managerial messages and communication systems

Pattern Common messages

Chain Memo/directive, bulk email, formal presentation by manager; little or no feedback expected

Wheel Interpersonal conversations, email exchanges, calls, meetings directed by a supervisor;
feedback needed

Circle Checklist with notation when task is completed, interpersonal conversations between
members, emails, calls; less structured meetings with feedback expected

All-Channel Interpersonal conversations, unstructured meetings, emails, calls; constant feedback in all
directions

Types of Messages and Communication Goals

Company leaders guide organizations through dull periods and dramatic challenges. Messages
vary from straightforward concepts to complex presentations designed to change attitudes, opin-
ions, or values. Table 6.9 indicates a series of messages and their goals and the corresponding
degree of complexity associated with each goal.

Table 6.9 Messages and goals

Type of message or goal Degree of message complexity

Remind

Schedule/coordinate

Lowest

Inform

Solicit input

Report findings

Moderate

Persuade Highest

Leading and Organizational Communication Chapter 6

A message designed to remind can target individuals, groups, or the entire organization.
Reminders of meetings, deadlines, and other time-related issues are commonplace in compa-
nies. Messages that schedule or coordinate activities are sent to sets of individuals working on
a common project or task. Planning processes dictate schedules. Informational messages vary
more widely. At times the information can be relatively mundane; at others, key organizational
events, outcomes, or decisions are transmitted. Soliciting input ranges from collecting opinions
to gathering full sets of data to make the most informed decision possible. Reporting findings
requires complete descriptions of an analysis and may invite further discussion and evaluation.
The greatest message complexity occurs in attempts to persuade because either a logical or emo-
tional presentation designed to change an attitude must be constructed. Faulty reasoning or lack
of a compelling argument will cause the persuasion attempt to fail (Burnes, 2004).

Types of Formal Messages

Formal communication systems move information throughout the organization. The informa-
tion can travel upward, downward, laterally, or in all directions at once. The most common types
of messages transmitted via formal channels include

• job instructions
• job rationale
• standardized information
• team and group coordination
• questions and answers
• decisions and plans
• ideological indoctrination

Job instructions take many forms. A direct address by a supervisor instructs an employee how
to carry out a task or set of tasks. Employee training programs provide information to new hires.
Performance appraisal systems correct ineffective performance. Mentoring programs render
additional insights and information about how to successfully perform a task or job.

A job rationale answers the “why” questions. In other words, managers explain why a job should
be completed in a certain way and what makes the job important. A manager who tells the
employee, “We do the job this way, because it saves time,” or “We ask you to compile sales sta-
tistics by store so that we know which products do well in each unit, and which do not,” has
provided the rationale for the job.

Standardized information consists of items that apply equally to everyone in the firm, or to every
person in a given department. Examples include the company’s list of rules, protocols for evacu-
ation in case of an emergency, and any procedures that apply to specific units in the company.
Standardized information in a retail store consists of how inventory is managed (move the oldest
merchandise to the front of the shelf), how cash is handled (leave $100.00 in bills and coins in
the register each day), and protocols for accepting two-party checks and other forms of payment.
Standardized information in the production department includes safety procedures and rules as
well as methods for completing each task. Standardized information in accounting contains mes-
sages about which procedures are used, such as methods of depreciation and methods of valuing
inventory.

Team and group coordination messages set meeting times, dates, and deadlines, and they help
establish relationships between members. Members of the workplace safety committee know

Leading and Organizational Communication Chapter 6

that the group meets the third Monday of each month, that a deadline for completing a report
about a recent series of accidents looms, and that the committee always consists of six mem-
bers—two from production, one from human resources, one from quality control, and two other
individuals. Systems for electing a committee chair may also be part of the coordination effort.

Questions and answers move upward, downward, and laterally in business organizations.
Questions may be posed by employees to managers, by managers to employees, or by members at
the same rank, such as from one supervisor to another.

Decisions and plans shape the direction of the company. Managers convey them verbally and
in writing. Effective organizations chart planned courses that every employee can understand
and follow.

Ideological indoctrination statements tell employees, “This is a great place to work.” At times,
the message begins with a company’s statement of mission. Support for ethical behaviors, social
responsibility, and the conservation of resources accompanies ideas about the company’s internal
environment as being welcoming and helpful.

Information Richness

One method used to describe business and
management communication employs the
concept of information richness, or the
potential information-carrying capacity of
a communication channel. At one extreme,
rich communication means the channel
provides opportunities for feedback, has a
full range of visual and audio communica-
tion, and presents the opportunity to per-
sonalize a message. At the other extreme, a
lean channel offers no venue for feedback,
is impersonal, and can transmit only a lim-
ited amount of information (Lengel & Daft,
1988). Table 6.10 summarizes the contin-
uum from the leanest channel to the rich-
est channel.

Table 6.10 Channel richness

Leanest channel Moderate richness Richest channel

Impersonal static
channel

Personal static channel Interactive channel Face-to-face

Routine, clear, general;
simple messages

Personal message,
prompt response
needed; slightly complex
messages

Some interaction is
valuable; moderately
difficult messages

Nonroutine, ambiguous;
difficult messages

Source: Adapted from Lengel, R. H. & Daft, R. L. (1988). The selection of communication media as an executive skill, Academy of Management Executive,
(2) August, 225–232.

Creatas/Thinkstock

▲▲ Interactive channels such as videoconferencing maintain
many of the benefits of face-to-face interactions.

Leading and Organizational Communication Chapter 6

The richest channels suit the most complex messages and circumstances that require discus-
sion and interaction. Interactions take place in person or face to face. As a result, the channel
provides for both verbal and nonverbal transmissions. Intonation and other cues accompany the
person’s words. These interactions resemble a dance featuring an exchange of information, ideas,
and opinions. In presentations and other more formal settings, other cues can be added by using
visual aids, such as a PowerPoint presentation or printed handout materials.

Interactive channels offer many of the benefits of face-to-face meetings. Videoconferencing and
conference calls retain the ability to move beyond words to inflection and other cues. In the case of
videoconferencing, visual cues are available. While not at the same level as the immediate feedback
of an actual face-to-face meeting, interactive channels allow participants to visit concurrently.

Personal static channels such as telephone calls, text messages, and instant messages provide
leaner communication, because visual elements and nonverbal cues are absent. Quick response
systems such as instant messaging create what are nearly conversations, in which users can pose
questions and answers along with proposals and counterproposals. Personal static channels facil-
itate a great deal of today’s business operations, because employees and customers can commu-
nicate via these channels.

The leanest communication channels are impersonal static channels. Verbal intonation and non-
verbal cues cannot be transmitted through these channels. Lean formats include most printed
documents, such as letters, reports, and proposals. Standardized information with less complex-
ity can be sent through leaner channels. In-depth explanations of complicated issues are possible;
however, they are transmitted without the benefits of other channels. In summary, channel rich-
ness is an effective tool for use in selecting the best way to send a message. By analyzing channel
richness, a manager can select the best channel for any communication effort.

Barriers to Formal Organizational Communication

Communication systems in organizations require careful construction and constant mainte-
nance. As new technologies have emerged, the potential barriers to high-quality communica-
tion have risen. Effective leaders recognize the importance of efficient communication systems.
Barriers that can inhibit formal communication include

• information overload
• physical barriers
• interpersonal barriers
• informal contradiction of the formal message

Information overload problems have grown in the past two decades, primarily due to the influ-
ence of additional new technologies. Any manager who takes time away from the job is likely to
return to a filled email inbox. People can be reached in various ways, and monitoring each com-
munication takes time. The possibility of lost messages or misunderstood messages results from
information overload.

Some physical barriers include time zone differences, telephone line static, and computers that
crash. Office walls also can be physical barriers to effective communication, which is one reason
that many organizations are adapting open floor plans with cubicles instead of traditional walls.

All the interpersonal barriers that interrupt communication between individuals can also create
formal communication problems. Issues such as organizational rank and personalities are pri-
mary examples of these problems.

Leading and Organizational Communication Chapter 6

Informal communication, which can sometimes take the form of gossip, is fun. Consequently,
rumors often continue even after management has disputed them through the formal communi-
cation system. The persistent rumor problem can affect morale when the stories are about layoffs,
lack of pay raises, and terminations of popular managers.

Overcoming Barriers to Formal Communication

To make sure messages and information travel efficiently and effectively through an organization,
the company should establish and maintain a good management information system (MIS). A
well-designed management information system consists of the people and technologies used
to collect and process organizational information. An effective MIS begins with effective people
who know how to collect important organizational information. These individuals are found in
many areas including accounting, forecasting, production, quality control, and human resources,
as well as at executive levels in the organization.

An effective MIS maintains the best technologies. Company phone systems should be easy to
use, the website should be easy to negotiate, and systems should be in place to make sure that key
decisions and announcements reach every person who needs to hear them.

An effective MIS carries quality information. Key company information will be timely, accu-
rate, important, and summarized. A manager needs to quickly access important statistics and
information for decision-making processes. Individual employees need to find the types of data
that help them perform their jobs most effectively. For example, to best serve the client’s needs,
a customer service representative should be able to access information about previous contacts a
person or business has made with the company.

Managing the Grapevine
The grapevine has three main characteristics. First, an organization’s leadership does not control
it. Second, employees frequently perceive the information as accurate and believable, even more
than a formal communication issued by top management. Third, the grapevine is used largely to
serve the self-interests of the people within the grapevine stream. One important consideration
is how information gets moving through the grapevine.

Many employees assume that rumors start because they make interesting gossip. Actually, the
grapevine is fed by situations that are important to people, ambiguity in the workplace, and
conditions that arouse anxiety in employees. The grapevine flourishes in organizations because
work situations frequently contain these three elements. The secrecy and competition typically
present in organizations around issues such as a new boss coming on board, downsizing, and
organizational realignment create the conditions that both encourage and sustain the grapevine.

While managers cannot eliminate the grapevine, they can manage it by infusing as much correct
information into the front end of the communication pipeline as is possible. They can also deal
quickly with false rumors, both through formal denials and by exerting pressure on the informal
channel. Effective leaders also recognize the potential of the grapevine to pass along compli-
ments to a worker through the employee’s social network on the job.

The terms complement and supplement have been applied to the grapevine. It adds additional
richness to formal communication channels. When managed correctly, its damaging effects can
be limited, and positive aspects can be accentuated.

Communication systems are the lifelines of organizations. Effective communicators often enjoy
successful careers and personal lives. They understand the factors that can disrupt quality

Summary Chapter 6

communication and take steps to overcome those problems. They are good listeners. They also
monitor messages in the formal and informal communication channels to make certain the
proper information arrives where and when it is needed. Anyone who can work a room or make
an impressive speech has a major advantage in the area of leadership and communication.

Summary
A group consists of two or more people interacting who share collective norms and goals and
have a common identity. Members of the organization establish formal groups to achieve com-
pany goals and objectives. Three of the most common types of formal groups are work groups,
committees, and project groups. An informal group emerges without the endorsement of orga-
nizational leaders; it does not have a designated structure or work toward organizational goals
other than socialization and friendship. Three forces tend to bring informal groups together:
activities, shared sentiments, and interactions. Formal and informal groups consist of four types
of members: the leader, opinion leaders, members in good standing, and the gatekeeper.

The essence of a team is a shared commitment. The most common types of teams include cross-
functional teams, virtual teams, and self-managed teams. Both groups and teams go through
stages of development that include forming, storming, norming, performing, and adjourning.
Good teams result from a match between the composition of the team, the design of the work,
contextual factors, and process variables. Three managerial activities that can help managers lead
employees to greater degrees of team participation are found in recruiting and selection, coach-
ing, and reward systems.

Social loafing occurs when team members give less effort to a group than they would if working
individually. Group size can affect the degree of employee effort in the group, as can the level of
group cohesiveness. Overly cohesive groups, however, may be prone to problems such as group-
think, when group pressures for conformity become so intense that the group avoids unusual,
minority, or unpopular views. Individual employees can take steps to become better team players,
regardless of other circumstances.

Communication is the process of transmitting, receiving, and processing information. It takes
place on an individual, interpersonal level and travels through organizational systems. Barriers
to individual communication include individual differences, situational factors, and transmission
problems. Both senders and receivers can seek to resolve these problems. Nonverbal communica-
tion includes kinesic cues, appearance, dress, artifacts, touch, space, paralanguage, time, and man-
ners. Effective communicators are aware of the messages they send via these nonverbal signals.

An organization’s formal communication system is composed of every channel that has been
approved by management. Four common communication patterns found in organizations
include the chain, wheel, circle, and all-channel forms. The most common types of messages
transmitted via formal channels include job instructions, a job rationale, standardized informa-
tion, team and group coordination information, questions and answers, decisions and plans, and
ideological indoctrination. Information richness is the potential information-carrying capacity of
a communication channel, ranging from lean to rich. The barriers that can inhibit formal com-
munication include information overload, physical barriers, interpersonal barriers, and informal
contradiction of a formal message. A management information system consists of the people and
technologies used to collect and process organizational information that can help overcome the
barriers to formal communication.

The grapevine, or informal organizational communication, exhibits three characteristics. First,
an organization’s leadership does not control it. Second, the information often is perceived as

Summary Chapter 6

accurate and believable, even more than a formal communication issued by top management.
Third, it is largely used to serve the self-interests of the people within the grapevine stream. One
important consideration is how information gets moving through the grapevine. Managers can
work to make sure that informal information complements and supplements what has been sent
through formal channels.

C A S E S T U D Y

The Slacker

Margaret Kontras is at her wit’s end. Two months ago, she was placed in charge of a task force
created to oversee the opening of a second location for a high-end fashion retailer. The original
store, Chic Central, had achieved a great deal of success in a freestanding location in a downtown
trading district. Now, the store’s manager and owner has decided to find a property for a second
store, on the opposite side of the city. She places Margaret in charge of three activities. Her first
task is to identify the best physical property. Second, she will be involved in hiring an architect and
interior designer to create a retail experience that feels similar to that at the first location, yet is dif-
ferent enough so that it does not appear to be simply another store in a chain of stores. And third,
Margaret will direct the purchases of inventory for the new location, whose grand opening is tar-
geted to take place between Halloween and the first week in November.

The task force consists of three other individuals from different parts of the company. An accoun-
tant, a successful salesperson, and a human resource assistant manager make up the rest of the
team. Each member has been chosen for a specific reason. The accountant will focus on financial
aspects of the property purchase. The salesperson will be involved in helping to design the interior
of the store and selecting inventory, and the human resource manager will contribute to each activ-
ity as needed.

One problem facing Margaret is that the salesperson, Kendrick, is less than thrilled to be assigned
his task. Kendrick believes that he is losing money by not staying full-time on his sales station,
because he will miss serving some of his favorite customers when they visit the original store.
Consequently, Kendrick has been making a series of excuses to stay out of site visits when the team
examines various properties. As the process of purchasing inventory moves forward, Kendrick sits
lifeless in meetings without contributing ideas or commentary.

Unfortunately, Kendrick’s attitude is beginning to rub off on the other team members. They
grumble that finding the best location is “taking too long” and “wasting time.” No one seems to
want to engage in creating the store’s look. It doesn’t help that the three team members have not
seemed to bond with each other in any way; instead, each of them goes his or her separate way.

Soon Margaret feels like she is doing all of the work and not getting any help. She worries that
store management will blame her for the slow pace of the task assignment, which might result in
the store not being ready in time for the lucrative shopping season from Thanksgiving to Christmas.
She knows that unless she inspires some effort in the team, especially from Kendrick, the success of
the second store might be in jeopardy before it even opens.

Discussion Questions

1. What stage of team development is taking place in this scenario?
2. How can Margaret manage these individuals to get them to cooperate and give greater effort to

the task?
3. What type of communication should Margaret use to deal with Kendrick?
4. Should Margaret communicate with the store owner-manager at the primary location about the

problems she is encountering? Why or why not?

Key Terms Chapter 6

Key Terms
adjourning The process that occurs when members prepare to disband the group.

communication The sequence of transmitting, receiving, and processing information.

formal communication system Messages that travel through organizationally approved
channels.

formal group A group that an organization establishes to seek company goals and objectives.

forming The process that occurs when members get oriented to the group and start getting to
know each other.

group A collection of two or more people interacting who share collective norms and goals
and have a common identity.

group cohesiveness The degree of goal commitment, conformity, cooperation, and group
control over members that exists.

groupthink A phenomenon that results when group pressures for conformity become so
intense that the group avoids any unusual, minority, or unpopular views.

informal communication Messages that travel through social interactions among employees.

informal group A group that emerges without the endorsement of organizational leaders.

information richness The potential information-carrying capacity of a communication
channel.

kinesic cues Messages communicated by nonlinguistic body language or movements.

management information system A group consisting of the people and technologies used to
collect and process organizational information.

norming The stage that takes place after conflicts have been resolved.

norms Rules that govern behaviors in a group.

performing The stage that occurs when members focus on solving problems and completing
their assigned tasks.

social loafing The behavior that occurs when team members give less effort to a group than
they would if working individually.

storming The stage that takes place as individual personalities, roles, and conflicts emerge
within the group.

team A small group of people, with complementary skills, who work together to achieve a
common purpose and hold themselves mutually accountable for accomplishing group goals.

team building An effort that consists of all activities designed to improve the internal func-
tioning of work groups.

Critical Thinking Chapter 6

Critical Thinking
Review Questions

1. Define the term group.
2. What two types of groups form in organizations?
3. Describe three types of formal groups that are present in business organizations.
4. What types of teams are present in today’s organizations?
5. What are the stages of team development?
6. What is a norm, and what three types of norms are present in business organizations?
7. What four characteristics are parts of forming effective teams?
8. What is social loafing?
9. Define group cohesiveness.

10. Define communication, and name the two primary forms in business organizations.
11. What are the three categories of barriers to individual interpersonal communication?
12. What can the sender and receiver do to improve individual interpersonal communication?
13. What four patterns of formal communication are present in business organizations?
14. What types of information are passed via formal communication channels?
15. Define information richness.
16. What are the barriers to formal communication?
17. Describe a management information system.
18. Define grapevine, and explain how leaders can use such a channel effectively.

Analytical Exercises

1. Explain the role of a leader, opinion leaders, members in good standing, and a gatekeeper in
these situations:

• Group of employees forming a bowling team
• Team of advertising agency employees assigned to create a television commercial
• Work safety committee in a manufacturing company
• City council subcommittee assigned to investigate a mayor’s potential misconduct

2. Explain how the stages of team development would be different in a virtual team as opposed
to an on-site, cross-functional team.

3. Explain how the four characteristics of effective teams would be related to the factors that
increase or decrease group cohesiveness.

4. How would the three types of norms noted in Table 6.1 appear in the following situations?

• Loading dock team at a large trucking firm
• Team of scientists working on a new vaccination
• Professional basketball team

Critical Thinking Chapter 6

5. A semantics problem occurs when a word or comment could be interpreted in different ways.
When a leader tells a subordinate, “I need this project completed as soon as possible,” what
does the leader mean? Is the meaning potentially different from what the employee hears? List
five additional examples of semantics and language problems that could occur at work. Share
your answers with the class.

6. Explain the relationships between group norms, social loafing, and informal communication.
7. Explain how nonverbal cues might complicate the following situations:

• Employee who believes she is being sexually harassed by a coworker
• Employee who believes his performance appraisal results are unfair
• Supervisor who must terminate a popular employee due to the individual’s unethical

actions

8. Explain whether a leader should design a chain, wheel, circle, or all-channel form of commu-
nication in each of these situations:

• Virtual team looking for a new geographic location for a store in a foreign country
• Project team bringing a new product to market in a pharmaceutical company
• Work group in a manufacturing plant