Chapter 11

Shady deals-surrounding how the firm conducted buybacks of some franchises owned by
corporate insiders.
Leadership-is proactive, goal oriented, and focused on the creation of a creative vision
-is the process of transforming organizations from what they are to what the
leader would have them become
Bullet train thinking-if you want to increase the speed by ten miles/hour, you look for
incremental advances
Power-reflects to a leaders ability to get things done in a way he or she wants them to be
done. It is the ability to influence others people’s behavior, to persuade them to do things
that they otherwise would not do, and to overcome resistance and opposition to changing
direction.
Organizational bases of power-refer to the power that a person wields because of holding
a formal management position.
Legitimate power-is derived from organizationally conferred decision making authority
and is exercised by virtue of a manager’s position in the organization.
Reward power-depends on the ability of the leader or manager to confer rewards for
positive behaviors or outcomes.
Coercive power-is the power a manager exercises over employees using fear of
punishment for errors of omission or commission.
Information power-arises from a mangers access, control, and distribution of information
that isn’t freely available to everyone in the organization.
Referent power-is a subordinate’s identification with the leader.
Expert power-is the leader’s expertise and knowledge in a particular field.
Emotional intelligence (EI)-as the capacity for recognizing ones own emotions and those
of others.
Threshold capabilities-they are necessary requirements for attaining higher-level
managerial positions.
Self-regulation-having some minimum level of these emotional intelligences will help a
person to be effective as a leader as long as they are channeled properly.
Heroes-and-drones syndrome-wherein the value of those in powerful positions is exalted
and the value of those who fail to achieve top rank is diminished.
Ethical organization-is characterized by a conception of ethical values and integrity as a
driving force for the enterprise.
Ethical values-shape the search for opportunities, the design of organizational systems,
and the decision making process used by individuals.
Organizational integrity-it rests on a concept of purpose, responsibility and ideals for an
organization as a whole.
Integrity based approach-combines a concern for law with an emphasis on managerial
responsibility for ethical behavior. This approach is broader, deeper, and more
demanding than a legal compliance initiative.

Three interdependent activities that must be continually reassessed for organizations t0o
succeed
 Determining a direction
  Designing the organization
 Nurturing a culture dedicated to excellence and ethical behavior

Setting a direction
Leaders need a holistic understanding of an organization’s stakeholders. This requires an
ability to scan the environment to develop a knowledge of all of the company’s
stakeholders(eg customers, suppliers, stakeholders) and other salient environmental
trends and events and integrate this knowledge into a vision of what the organization
could become

Developing a strategic vision provides many benefits:

 a clear future direction
 a framework for the organization’s mission and goals
 enhanced employee communication, participation, and commitment

Designing the organization

Almost all leaders have difficulty implementing their vision and strategies. Such
problems-may stern from a variety of sources, including:
 lack of understanding of responsibility and accountability among managers
 reward systems that do not motivate individuals toward desired organizational
goals
 inadequate or inappropriate budgeting and control systems
 insufficient mechanisms to coordinate and integrate activities across the
organization

Successful leaders-are actively involved in building structures, teams, systems, and

organizational processes that facilitate the implementation of their vision and strategies.

A firm would generally be unable to attain an overall low cost advantage without closely
monitoring its cost through detailed and formalized costs and financial control
procedures.

Achieving differentiation advantage would necessitate encouraging innovation,

creativity, and sensitivity to market condition.
Nurturing a culture dedicated to excellence and ethical behavior
Leaders play a key role in developing and sustaining-as well as changing, when
necessary-an organizations culture.
Leaders actions can, of course, also have a detrimental effect on a firm’s culture and
ethics.

Six fundamental principles that are easy to remember:

 “fill the other guy’s basket to the brim”. Each employee is trained to with the
customer in creative and imaginative ways to help them choose the best products
for organizing.
  “man-in-the-dessert”. A thirsty man reaching an oasis needs more than just water.
Similarly, each employee is expected to “astonish” the customer by exceeding his
expectations.
 “1 average person=3 lousy people. 1 good person=3 average people. 1 great
person=3good people”. The container store seeks only great people. Others may
be happy with 9 lousy people.
 “intuition doesn’t come to the unprepared mind”. The heavy emphasis on training
helps to prepare the employees to create a unique solutions for customers.
 “the best selection of products anywhere + the best service anywhere + the best
pricing in our markets”
 “air of excitement”. Three steps into the door and customers realize that they are
in a different place.

A leaders ethical behavior can make a strong impact on an organization-for good or for
bad.
Several elements must be present and reinforced for a firm to become a highly ethical
organization: role models, corporate credos and codes of conduct, reward and evaluations
systems, and policies and procedures.

Reasons why organizations and managers at all levels are prone to inertia and are slow to
learn, adapt, and change:
• Vested interests in the status quo-there is a broad stream of organizational
literature on the subject of “escalation”, wherein certain individuals
continue to throw “good money at bad decisions” despite negative
performance feedback.
• Systemic barriers-here, the design of the organization’s structure,
information processing, reporting relationships, and so forth impede the
proper flow and evaluation and information.
• Behavioral barriers-are associated with the tendency of managers to look
at issues from a biased or limited perspective. This can be attributed to
their education, training, work experiences and so forth.
• Political barriers-refer to conflicts arising from power relationships. This
can be the outcome of a myriad of symptoms such as vested interests,
refusal to share information, conflicts over resources, conflicts between
departments and divisions, and petty interpersonal differences.
• Personal time constraints-bring to mind the old saying “not having enough
time to drain the swamp when you are up to your neck in alligators”. This
tendency is accentuated in organizations experiencing severe price
competition or retrenchment wherein mangers and employees are spread
rather thin.

The most important traits of a leader include: integrity, maturity, energy, judgment,
motivation, intelligence, expertise, and so on.

However, for simplicity, these traits maybe grouped in to three broad sets of capabilities:
  Purely ethical skills (like accounting, or operations research)
 Cognitive abilities (like analytical reasoning or quantitative analysis)
 Emotional intelligence (such as the ability to work with others and a passion for
work)

EI is essential to leadership success.

Five components of emotional intelligence

Self-awareness
Definition:
• The ability to recognize and understand your moods, emotions, and drives, as well
as their effect on others.
Hallmarks:
• Self-confidence
• Realistic self-assessment
• Self-deprecating sense of humor

Self-regulation
Definition:
• The ability to control or redirect disruptive impulses and moods.
• The propensity to suspend judgment—to think before acting.

Hallmarks:
• Trustworthiness and integrity
• Comfort with ambiguity
• Openness to change

Motivation
Definition:
• A passion to work for reasons that go beyond money or status.
• A propensity to pursue goals with energy and persistence.

Hallmarks:
• Strong drive to achieve
• Optimism, even in the face of failure
• Organizational commitment

Empathy
Definition:
• The ability to understand the emotional makeup of other people.
• Skill in treating people according to their emotional reactions.
Hallmarks:
• Expertise in building and retaining talent
• Cross-cultural sensitivity
• Service to clients and customers
Social skill
Definition:
• Proficiency in managing relationships and building networks.
• An ability to find common ground and build rapport.
Hallmarks:
• Effectiveness in leading change
• Persuasiveness
• Expertise in building and leading teams

If you’re extremely self aware but short on empathy, you might come off as self
obsessed. If you’re excessively empathetic, you risk being too hard to read. If you’re
great at self management but not very transparent, you might seem inauthentic.

Some additional potential drawbacks of EI can be gleaned from the flip side of benefits
from some of its essential components.

Effective leaders have empathy for others

Leaders must be able to appeal to logic and reason and acknowledge others’ feelings so
that people feel the decisions are correct.
Effective leaders are astute judges of people
A danger is that leaders may become judgmental and overly critical about the
shortcomings they perceive in others. They are likely to dismiss other people’s insights,
making them feel disrespected and undervalued.
Effective leaders are passionate about what they do, and they show it
They may express their passion as persistence in pursuing an objective or a relentless
focus on a valued principle.
Effective leaders create personal connections with their people
Most effective leaders take time to engage employees individually and in groups,
listening to their ideas, suggestions, concerns, and responding in ways that make people
feel that their ideas are respected and appreciated.

Learning and change typically involve ongoing questioning of an organization’s status

quo or method of procedure. This means that all individuals throughout the organization-
not just those at the top-must reflect.

Reflection entails awareness of self, of competitors. It means thinking without

preconception. It means questioning without cherished assumptions and replacing them
with new approaches.

Successful learning organizations create a proactive, creative approach to the unknown,

actively solicit the involvement of employees at all levels, and enable all employees to
use their intelligence and apply their imagination. Higher level skills are required of
everyone, not just those at the top. A learning environment involves organizationwide
commitment to change, an action orientation, and applicable tools and methods.
A critical requirement of all learning organizations is that everyone feels and supports a
compelling purpose.

Four other critical ongoing processes of learning organizations:

Empowering employees at all levels
A manager’s role becomes one of creating an environment where employees can achieve
their potential as they help move the organization towards its goals. Instead of viewing
themselves as resource controllers and power brokers, leaders must truly envision
themselves as flexible resources willing to assume numerous roles as coaches,
information providers, teachers, decision makers, facilitators, supporters or listeners
depending on the needs of their employees.
The central key of empowerment is effective leadership.
In the top-down perspective, empowerment is about delegation and accountability-senior
management has developed a clear vision and has communicated specific plans to the rest
of the organization. This strategy for empowerment encompasses the ff:
 Start at the top
 Clarify the organization’s mission, vision and values
 Clear specify the tasks, roles and rewards for employees
 Delegate responsibility
 Hold people accountable for results

The bottom-up view looks at empowerment as concerned with risk taking, growth, and
change. It involves trusting people to “do the right thing” and having a tolerance for
failure. It encourages employees to act with a sense of ownership and typically “ask for
forgiveness rather than permission”. The salient elements of empowerment are:
 Start at the bottom by understanding the needs of employees
 Teach employees self-management skills and model desired behavior
 Build teams to encourage cooperative behavior
 Trust people to perform

Accumulating and sharing knowledge

Effective organizations must also redistribute knowledge, and rewards.
Employees, however, need to have the appropriate training to act as business people. The
company needs to disseminate information by sharing customer feedbacks and
expectations as well as financial information. The employees need to know about the
goals and objectives of the business as well as how key value-creating activities in the
organization are related to each other. Finally organizations should allocate rewards on
the basis of how effectively owners use information, knowledge, and power to improve
customer service quality and the company’s financial performance.
Open book management is an innovative way to gather and disseminate internal
information. Implementing this system involves three core activities which are:
• Numbers on each employee’s work performance and production costs
generated daily
• Information is aggregated once a week from top level to bottom level
• Extensive training in how to use and interpret the numbers—how to
understand balance sheets, cash flows and income statements
Gathering and integrating external information
As organizations and environments become more complex and evolve rapidly, it is far
more critical for employees and managers to become more aware of environmental trends
and events-both general and industryspecific-and more knowledgeable about their firms
customer and competitors. Some ideas on hot to do it:
 The internet has dramatically accelerated the speed of which anyone can track
down useful information or locate people who might have useful information.
 Second, company employees at all levels can use “garden variety” traditional
sources to acquire external information. Other venues for gathering external
information include membership in professional or trade organizations and
attendance at meeting and conventions.
 Third, benchmarking can be a useful means of employing external information.
Here managers try to seek out the best examples of a particular practice as part of
an ongoing effort to improve the corresponding practice in their own organization.
There are two primary types of bench marking: competitive bench marking-
restricts the search for best practices to competitors, functional benchmarking-
endeavors to determine best practices regardless of industry.
 Fourth, focus directly on customers for information.

Challenging the status quo of the company

For a firm to overcome a “learning organization”, it must overcome such barriers in order
to foster creativity and enable it to permeate the firm.
Establishing a “culture of dissent” can be another effective means of questioning the
status quo and serving as a spur toward creativity. Here norms are established whereby
dissenters can openly question a superior’s perspective without fear of retaliation or
retribution.
By filing a “minority report”, an employee can go above his or her immediate
supervisor’s head and officially lodge a different point of view in a business decision.

Creating an ethical organization

Ethics maybe defined as a system of right and wrong. Ethics assist individuals in
deciding when an act is moral or immoral, socially desirable or not. There are many
sources of for an individual’s ethics. These include religious beliefs, national and ethnic
heritage, family practices, community standards and expectations, educational
experiences, and friends and neighbors. Business ethics is the application of ethical
standards to commercial enterprise.

Ethical leaders must take personal, ethical responsibility for their actions and decision
making. Leaders who exhibit high ethical standards become role models for others in the
organization and raise its overall level of ethical behavior. In essence ethical behavior
must start with the leader before the employees are expected to follow.

Without a strong ethical culture, the chance of ethical crises occurring is enhanced.
Ethical crises can be very expensive-both in terms of financial cost and in erosion of
human capital and overall firm reputation.
 Compliance based approach Integrity based approach
Ethics Conformity with externally Self-governance according to
imposed standards chosen standards
Objective Prevent criminal Enable responsible conduct
misconduct
Leadership Lawyer-driven Management-driven with aid of
lawyers, HR, and others
Methods Education, reduced Education, leadership,
discretion, auditing and accountability, organizational
controls, penalties systems and decision
processes, auditing and controls, penalties
Behavioral Autonomous beings Social beings guided by
Assumptions guided by material material self-interest, values,
self-interest ideals, peers

These interrelated elements must be present and constantly reinforced

Role models
Good or bad, leaders are role models of their organizations. That is they must be
consistent in their words and deeds. These values as well as the character of leaders
become transparent to an organization’s employees through their behaviors. Being a
leader, this includes taking responsibility for ethical lapses within the organization-even
though the executives themselves are not directly involved.

Corporate credos and codes of conduct

Such mechanisms provide a statement and guidelines for norms and beliefs as well as
guidelines for decision making. They provide employees with a clear understanding of
the organization’s position regarding employee behavior.

Reward and evaluation systems

It is entirely possible for a highly ethical leader to preside over an organization that
commits several unethical acts. A reward and evaluation system may inadvertently cause
individuals to act in an appropriate manner if rewards are seen distributed on the basis of
outcomes instead of the means by which goals and objectives are achieved.
Two impt. Points from Sears Ex. (1)inappropriate reward systems may cause individuals
at all levels throughout and organization to commit unethical acts that they might
otherwise not account.(2)the penalties in terms of damage to reputations, human capital
erosion and financial loss-in the short run and long run-are typically much higher than
any gains that could be obtained through such unethical behavior.

Policies and procedures

It is important to carefully develop these policies and procedures to guide behavior so
that all employees will be encouraged to behave in an ethical manner. This must be
reinforced with effective communication, enforcement, and monitoring, as well as sound
corporate governance practices.