Organisational behaviour part 1

CHAPTER 2

Organizational Behavior

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C HAPTER 1

Management Thought and Organizational Behavior
Awareness about and understanding of the evolution of
management thought enable managers to create and
nurture organizations more effectively. The basis for
developing various theories and principles on
management was Industrial revolution (1700 – 1850s).
The introduction of factory system for the first time has
given an impetus to the evolution of various
management theories.
One of the most important activities in business is the
management of the 4M’s – men, machines, material and
money. The term ‘management’ can be interpreted
differently in different contexts. Hence it is difficult to
define the concept of Management. In one context, it
may comprise the activities of executives and
administrative personnel in an organization, while in
another, it may refer to a system of getting things done.
In a broader perspective, management can be
considered as the proper utilization of people and other
resources in an organization to accomplish desired
objectives. With increasing global competition, changes
in the world of technology, changing business practices

and increasing social responsibility of organizations, the
role of managers has become all the more significant.
After studying this chapter, you will be able to
understand:
The meaning of management
The evolution of management thought
Definition of Organizational Behavior (OB)
Contributions to OB
The challenges of OB in the context of globalization
and work force diversity
Managerial Skills, roles and functions

Section 1

Definitions of Management
Let us look at some of the definitions of management:

Getting Things Done
Through People

Definitions of
Management

H a r o l d K o o n t z a n d H e i n z We i h r i c h d e f i n e
management as “the process of designing and
maintaining an environment in which individuals,
working together in groups, efficiently accomplish
selected aims.”
Louis E. Boone and David L. Kurtz define
management as “the use of people and other
resources to accomplish objectives.”

Source:www.1.bp.blogspot.com

Managing Money

Dalton E. McFarland defines management as “a
process, by which managers create, direct, maintain,
and operate purposive organizations through
systematic, coordinated, cooperative human effort.”
Mary Parker Follet termed management as “the act of
getting things done through people.”

3

Section 2

Approaches to Management
According to one school of thought, history has no
relevance to the problems faced by managers today.
Some are also of the opinion that management theory is
too abstract to be of any practical use. However, both
theory and history are indispensable tools for managing
contemporary organizations. Refer to the following
keynote (1.2.1) for various approaches to management.
Keynote 1.2.1: Approaches to Management

Like most modern disciplines, contemporary management
thought has its foundations in the history of management
and many significant contributions of theorists and
practitioners. A theory is a conceptual framework for
organizing knowledge that provides a blueprint for various
courses of action. Hence an awareness and
understanding of important historical developments and
theories propounded by early thinkers is important for
today’s managers.
Elton Mayo: Focusing on Human Relations

Source: Adapted from various sources

Elton Mayo (1880-1949), the “Father of the Human
Relations Approach,” led the team which conducted a
study at Western Electric’s Hawthorne Plant between
1927 and 1933 to evaluate the attitudes and psychological
reactions of workers in on-the-job situations. The
researchers and scholars associated with the Hawthorne
experiments were Elton Mayo, Fritz Roethlisberger, T.N.
Whitehead and William Dickson. The National Research
Council sponsored this research in cooperation with the
Western Electric Company. The study was started in 1924
by Western Electric’s industrial engineers to examine the

4

impact of illumination levels on worker productivity.
Eventually the study was extended through the early
1930s.
Contributions of Hawthorne experiments
The Hawthorne experiments, which laid the foundation for
the Human Relations Movement, made significant
contributions to the evolution of management theory.

Critics felt that the conclusions were supported by little
evidence.
The relationship made between the satisfaction or
happiness of workers and their productivity was too
simplistic.
These studies failed to focus attention on the attitudes of
employees at the workplace.

Hawthorne Workers

Video 1.2.1: Modern
Times: The Factory Scene

Source:www.deepimpactonline.com

Criticism of Hawthorne Studies
The Hawthorne studies have received considerable
criticism. They have been criticized on the following
grounds:

Source:www.youtube.com/watc
h?v=CYbsBcPDVQM

The procedures, analysis of findings and the
conclusions reached were found to be questionable.

5

Video 1.2.2: Modern Times
- Charlie Chaplin Eating
Machine

Source:www.youtube.com/watch
?v=pZlJ0vtUu4w&feature=relate
d

Video 1.2.3: Ford and Taylor Scientific
Management

Source:www.youtube.com/watch?
v=8PdmNbqtDdI&feature=related

6

Section 3

Managers’ Roles, Skills and Functions
Managers perform five key functions – planning,
organizing, staffing, leading and controlling. These
functions are essential for effective management. In order
to understand the role of management, Henry Mintzberg,
during the late 1960s, devised a new approach – the
managerial roles approach – by observing what managers
actually do. He did a careful study of five chief executives
at work and found that they were involved in a number of
varied, unpatterned activities of short duration. Using a
method called structured observation, Mintzberg isolated
ten roles which he believed were common to all
managers.
As shown in Table 1.3.1, these ten roles were grouped
into three categories – interpersonal roles, informational
roles and decisional roles.

Conceptual skills involve the formulation of ideas, identify
problems or complex situations, analyze and develop
alternative solutions.
Interactive Image 1.3.1: Functions of Management

Planning

Organizing
Staffing

Controlling
Leading

Robert Katz proposed three managerial skills that are
essential for every manager. They are technical, human
and conceptual. Technical skills emphasize the ability to
apply specialized knowledge or expertise.
Human skills involve the ability to understand, influence
and interact effectively with people.

1

2

3

4

5

7

Table 1.3.1: Mintzberg’s 10 Managerial Roles
Figurehead

Direct and motivate subordinates, training, counseling and
communicating with subordinates
Maintain information links both inside and outside organization; use mail,
phone calls, meetings

Recipient

Seek and receive information links both inside and outside organization;
use mail, phone calls and meetings

Disseminator

Forward information to other organization members; send memos and
reports and make phone calls

Spokesperson

Transmit information to outsiders through speeches, reports and memos

Entrepreneur

Initiate improvement projects, identify new ideas, delegate idea
responsibility to others

Disturbance Handler

Take corrective action during disputes or crises; resolve conflicts among
subordinates; adapt to environmental crises

Resource Allocator

Decide who gets resources, scheduling, budgeting, setting priorities

Negotiator

I NFORMATIONAL

Leader
Liaison

I NTERPERSONAL

Performs ceremonial and symbolic duties such as greeting visitors,
signing legal documents

Represent department during negotiation of union contracts, sales,
purchases, budgets; represent department interests

D ECISIONAL

Source: “ Mintzberg’s 10 managerial roles”<http://oak.cts.ohiou.edu/~chappell//Roles.html>

8

Section 4

Introduction to Organizational Behavior
In the previous section, we studied the roles and functions
of a Manager. To perform these functions, managers
require ‘People-skills’. In order to acquire people-skills, it is
necessary for every manager to understand, predict and
manage behavior of individuals in an organization. Thus
the importance of studying Organizational Behavior (OB)
as a discipline emerged.
Organization Behavior


"Organizational behavior is a field of study that
investigates the impact that individuals, groups and
structure have on behavior within organization for the
purpose of applying such knowledge toward improving an
organization's effectiveness." - Stephen P. Robbins.

Source:www.referenceforbusiness.com

Organizational Behavior is built on contributions from a
number of behavioral disciplines. Psychology, socialpsychology, sociology and anthropology contribute
significantly to OB. The interdependency of the above
mentioned disciplines is shown in the following figure
1.4.1.

9

Figure 1.4.1: Contributing Fields to Organizational Behavior

Source: Organizational Behavior, 13th Edition, Stephen Robbins

10

Section 5

OB in the Context of Globalization and Workforce Diversity
In contemporary business scenario, it is imperative for
every manager to understand different behavioral patterns
of individuals in an organization. One of the important
reasons, being globalization. This has influenced the
dynamics of workplace across the world significantly.
Globalization refers to the increasing global relationship of
economic activity, people and culture. In the given
context, understanding OB has become an integral part of
any manager’s responsibility. Thus in order to respond to
the needs of globalization managers have to understand
the dynamics involved in the divergent global business
assignments that requires appreciation of the nuances of
working with people and their behavior.
Diversity and ethics are another major factors that has
had a significant impact on organizations and
management. Women are becoming major part of
workforce and people are no longer reluctant to take
overseas assignments that match their skills. About 25%
of the technical manpower in NASA and 40% of the
software professionals in developed countries are Indians.
The immigrants from various countries of Asia and Africa
form a large portion of the workforce in the US and if the
trend continues, by 2050, the non-native Americans will

no longer be the minority population in the US. It has
been observed that there are many Americans who earn
less than Indians and who report to Indian bosses in the
Silicon Valley.
Developing an OB Model
An organization is a complex system of individuals who
are different from each other. Two people often behave
differently in the same situation and the same individual’s
behavior changes in different situations. This conveys that
people are complex and complicated and so are the
theories that try to explain human behavior.
Understanding human behavior is made simple through
Refer to the figure 1.5.1 for the illustration of OB model
that enables managers to look at OB at three levels, i.e.
Individual, Group and Organizational.

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Figure 1.5.1: Basic OB Model

Workforce Diversity
A diverse workforce poses many challenges to the
management. The workforce may contain people who had
been traditionally subject to discrimination, such as AfricanAmericans in the US. The management has to do away with
all forms of discrimination (age, sex, race, ethnic origin,
religion, disability, etc.) and provide equal opportunity in
terms of employment, compensation and career
advancement to all the people. They also need to address
other ethical issues at the workplace such as sexual
harassment, the glass ceiling effect (preventing eligible
women intentionally from reaching top-level management
positions) and work-family relationships.
In addition to the focus on the traditional aspects such as
attitudes, group dynamics and leadership, special attention
should also be given to aspects such as information
technology, total quality and diversity, and ethics for the
effective application of OB in organizations.

Source: Organizational Behavior, 13th Edition, Stephen Robbins
Source:www.operations.blogs.ie.edu
12

Review 1.1

Question 1 of 8
------ is the process of assigning tasks and allocating resources to individuals to enable them
to accomplish organizational goals.

A. Planning
B. Organizing
C. Controlling
D. Leading

Check Answer

13

Section 6

Case Study: Global Data Research Centre: The Knowledge (Mis) Manager
This case study was written by Deepti Srikanth and
Vara Vasanthi under the direction of Dr. Nagendra V.
Chowdary, IBSCDC. It is intended to be used as the
basis for class discussion rather than to illustrate either
effective or ineffective handling of a management
situation. The case was written from generalized
experiences.

The Knowledge Manager

Organizational Hierarchy: Manager Leading the Team
Source:www.referenceforbusiness.com

© 2 0 0 9 , I B S C D C . 
No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever without the
permission of the copyright owner.

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Incorporated in 2000 and headed by Sunil Verma (Verma),
Global Data Research Centre (GDRC) had emerged as one of
the largest repositories of management case studies in Asia.
Since its inception, GDRC had been concentrating on
developing case studies pertaining to the functional areas of
management including Organizational Behavior (OB) and
Managerial Psychology (MS). However, in order to emerge as
the one-stop-destination for all management related case
studies, the top management at GDRC felt it was essential for
the organisation to offer case studies in all functional areas. In
December 2008, decision was taken to add new teams,
offering case studies in the field of Financial Management
(FM), Managerial Accounting (MA) and Quantitative
Techniques (QT).
A B. Tech with MBA (Marketing and Human Resources) and a
Ph. D in OB from a tier A institute, Verma was driven by his
ambition of contributing to the field of academics. At 38, Verma
had, to his credit 13 years of teaching experience in reputed
business schools countrywide. Despite a proven track record
in academics, Verma was keen on developing a practical
approach to imparting theoretical education. Giving a shape to
his aspirations, he set up GDRC.
Since its inception, GDRC had consistently strived towards
endorsing high-quality research in the field of business
management. Its case studies were available for purchase on
the company’s website.
As the director of GDRC, Verma believed in building an
organisation with minimum levels of hierarchy, requiring

minimum supervision. To achieve the same, he formulated five
case writing teams, each comprising of three Research
Associates (RA) (team members on the case writing team),
headed by a team leader (Exhibit I). In addition to the five case
writing teams, the organisation had one editorial team and a
technical support team, both reporting directly to Verma.

Additionally, as the director of GDRC, Verma enjoyed the
authority to set rules for his teams and design the
organisational processes. He had single-handedly developed a
rigorous and efficient case development process, which was
religiously followed across the organisation (Exhibit II). Articles
or business stories published in international business journals
or magazines served as case topics for these RAs, using
which a case study was developed. Work relied on extensive
secondary research, coupled with interviews from eminent
business leaders. Being a time bound process; it demanded
the RAs and their respective team leaders to adhere to the
deadlines. Working under the guidance of their team leader,
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the RAs were expected to deliver a high-quality case along with
a Teaching Note (TN), a detailed analysis of the case study,
within 12–15 days. At this stage, the completed case pack
(case and TN) was sent to the editing team, where it underwent
a rigorous check in terms of language, style guidelines and
copyright violation.
Working in sync with each other, these teams contributed in
evolving GDRC as a renowned name in business research,
with more than 1,500 cases and 300 TNs to its credit. The case
writing teams at GDRC were known to deliver quality work
even under compelling deadlines.

Case Development Process at GDRC
Step 1. Topic selection
and Framework
development

Step 7. Quality
Review 2

Exhibit II Case Development Process at GDRC
Process
Topic Selection
and Framework
Development
stage

Writing Stage

Content Editing

Step 2. Writing Stage
Editing

Quality Review 1
Step 3. Content
Editing

Step 6. Comprehensive Reading

The RA in consultation with the team leader and
director selects a topic, which serves as the base
to develop the case study. The RA and the team
leader conduct an extensive research and
formulate a detailed framework that serves as the
guiding parameter during the case development
process.
In this stage, the RA and the team leader work
towards building the case study based on
exhaustive data from secondary research and
interviews from eminent business leaders.
At this stage, the team leader edits the case to
improve the content quality by providing
additional case related information, creating
relevant exhibits, etc.
At this stage, the complete case pack (case and
TN) is sent for language editing, followed by style
editing, where it is checked for language,
grammatical and style errors.
At this stage of editing, the case pack undergoes
an exhaustive check on language, copyright
violation and sub-editing mistakes.

C o m p r e h e n s i v e At the end of all the editing stage, the respective
Reading
RA and the team leader read the case pack for
one final time to ensure an error-free work.
Quality Review 2

Step 4. Editing

Details

After this, the final pack once again undergoes
the quality review process.

Compiled by the author

Step 5. Quality Review
1

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Heading the five teams from the start, Verma had earned the
reputation of a tough taskmaster. However, his positive outlook,
combined with the zeal to succeed, served as a constant
source of inspiration for his team members.
In 2004, when the company faced a competitive threat, Verma,
along with his team leaders and RAs, undertook the
insurmountable task of delivering 100 case studies in less than
1 month. Working nearly 14 hours a day, Verma pitched in
shoulder-to-shoulder with each of his team members, delivering
cases in the various management areas ranging from Strategy
to OB.
Despite being a tough taskmaster, Verma was immensely
popular among his team leaders. Verma’s case handling skills,
combined with his ability to comprehend information, made the
team leaders seek his constant guidance. Additionally, his
patient and rational demeanour ensured an easy and open
communication with his team members. Over the years, Verma
had successfully built five high- performing teams, known for
the quality of their work. Highlighting the same, Ashok Kumar, a
team leader, said, “Our organisation has faced many ups and
downs since its inception. It is Verma Sir’s determination and
his positive attitude that has bound all of us together even in
times of crisis and propelled us to give our best to the
organisation.”
In 2008, the top management (head of the department along
with the board of directors) decided to constitute three new
teams focusing on FM, MA and QT. However, this decision by

the top management was turning out to be a bane rather than a
boon for the institute in general and Verma in particular.
Being a novel initiative, it was decided to hire RAs adept in
handling these subjects. At the end of the 2-week recruitment
drive held in December 2008, they hired five fresh MBA
graduates and four experienced professionals.
Further, expecting these teams to measure up to the high
standards of the organisation, the top management was keen
on choosing the right leaders to guide these newly formed
teams. To ensure that only the best leaders were hired, the
short-listed candidates were taken through a rigorous interview
process (conducted by the board of directors). Only those
clearing this interview process were eligible for the final
interview with the head of the department. From the six final
candidates, Sharath Kumar (Kumar), Sireesha V. (Sireesha)
and Sumitabh Banerjee (Sumitabh) were hired to head the FM,
MA and QT teams, respectively (Exhibit III). Confident of this
collective decision, the top management expected to witness
yet another success story.
To familiarise the new recruits about the organisation and the
case writing process, Verma along with his team leaders
conducted a 5-day long training session. As a part of the
training, they also conducted a mock case session where the
new hires were asked to write a one page write up on a
common topic using secondary research. On the last day of the
training, there was an interactive session, where fellow RAs

17

and editorial team members shared their experiences. The
session ended with an open house where the new recruits
were provided a platform to voice their feedback and share
their concerns. Verma expected this 5-day workshop to serve
as an icebreaker and help the new team members to settle
into their new roles. Verma said, “These 5 days have been
extremely productive. I realise that it is not feasible to train
and hone the art of case writing over a couple of days.
However, I do hope that these sessions have helped the team
members to get an overview of what the organisation is all
about.”
After the training session, Verma called for a meeting, with
the aim of briefing his new team leaders about their roles and
expected targets. Being their first formal meeting with the
director, the new team leaders spent more time listening and
comprehending the information being shared with them. At
the end of the meeting, each of them was given a target
sheet for the first quarter, January– March 2009 (Exhibit IV).
Exhibit IV
Target Sheet January-March 2009
Teams
FM
MA

Case study Targets for each Research
Associate
Month Wise

Total

January -1
February -2

OT

March -2

5

Verma had made his expectations clear, tolerating no letups
on either the quality or performance.However, contrary to
expectations, these new teams and their team leaders found
themselves grappling with endless troubles. With most of the
new hires freshly out of college, they sought constant
handholding and guidance. Further, they were apprehensive
about writing case studies within a stipulated time frame.
Sanjay Reddy (Sanjay), a new recruit in the MA team, said,
“This is my first job experience. Being a management student
I have solved and discussed case studies. However, I am not
sure whether I will be able to develop them and deliver under
these strict deadlines.”
Even those with work experience were facing difficulties in
adjusting to their new roles as RAs. In his previous role as a
financial analyst, Suresh Mahajan (Mahajan), a new recruit in
the FM team, spent most of his time in evaluating financial
reports, checking for discrepancies and making financial
ommendation reports. However, in his role as a RA, Mahajan
was expected to develop a flair for writing while spending a
considerable amount of time in researching on the relevant
subject matter. Mahajan observed, “This is totally different
from my job experience so far. I have never been actively
involved in writing. I feel like a total fresher on this job.”
Further, the team leaders found Verma’s knowledge
inadequate in handling their subject related queries. When
Sireesha wanted to have a detailed discussion on how to
handle the concept of cash flow analysis, Verma was not able
to offer valuable insights for the same. Despite being familiar
with the concept, Verma was not well-versed on the subject.
19

Acknowledging the same, Verma said, “I am not a master of
all trades. I admit that to handle such diverse subjects, it is
essential to have strong domain knowledge. No wonder we
spent considerable time and energy in hiring our new team
leaders.” He added, “However, domain knowledge alone does
not create a successful team. It has taken me a lot of effort to
build my five successful teams and I am confident that under
my leadership the three new teams shall create new success
stories.”
Additionally, they were not convinced with his approach
towards developing and analysing these number-driven case
studies. At the beginning of the first quarter, Sumitabh and
Verma spent nearly 4 days, debating on the manner in which
case studies should be developed for the QT course. While
Sumitabh suggested that a QT case study should directly deal
with the numeric problem at hand and should be followed up
with a step-by-step solution in the teaching note, Verma had a
different view. He was resolute that the case study should be
based on a real time business scenario and the case should
be a blend of theoretical and numerical facts. As he had no
other option but to finally agree to Verma’s approach,
Sumitabh was highly dissatisfied. Expressing his
dissatisfaction Sumitabh said, “Verma does not understand
the demands of a number-driven case study. I think he should
take a different approach when dealing with different
management related subjects.”
The following was a conversation between the
team leaders during lunch.
Sumitabh: I do not think Mr. Verma has taken any

effort to understand the demands of these three newly added
subjects. I was sceptical about his approach right from the
time of our training sessions.
RAs familiar with case studies in subjects that
dealing with.

we shall be

Kumar: On top of it, I do not think Mr. Verma is very
comfortable with Financial Management. Just
yesterday, we had an argument about the case
framework for Sunita’s case.
Sumitabh: Oh, even I have been facing
the same problem. I find it very difficult to
discuss QT related topics with Mr. Verma. I think
it is unfair on his part to be unaware of the
subject intricacies, while expecting us to deliver
under such stipulated time frames.
Sireesha: Absolutely, I have only heard nice
things about Mr. Verma from all the other team
leaders. But now I’m finding it extremely difficult to
adjust to his working style.
Additionally, the team leaders also felt burdened
under the dual responsibility of adjusting to their new roles as
well as training their team members to deliver results within
deadlines. It was becoming cumbersome to understand and
master the case writing process while simultaneously
coaching the RAs. When Sanjay sought guidance from
Sireesha regarding the style guidelines to be followed while
case writing, she had to make an excuse to get out of that
situation. It was only after she had read and understood most
20

of the guidelines that she could respond confidently to
Sanjay’s query. Sireesha said, “Despite my teaching
background, I am finding it tough to adjust to the demands of
case writing. How can I guide my team members efficiently
under such circumstances?” These apprehensions paved the
way for frequent conflicts between Verma and the team
leaders.
Despite these clashes, Verma refused to change his style of
managing. Relying on the success of his existent five teams,
Verma was confident of winning the trust of his new teams as
well. Commenting on the situation, Verma said, “I can
understand their apprehensions. But if I start demonstrating
flexibility from the start, it will eventually translate into a
practice. I am positive that by the end of the first quarter, my
new team leaders and research associates shall be able to
adjust to their role.”
Contrary to this belief, problems continued to intensify in
these newly formed teams. Sunil Kumar (Sunil) and Vandana
K. (Vandana), both team members on Sumitabh’s team,
resigned from their jobs after working on just two case
studies. Having worked as a mathematics lecturer, Sunil was
unhappy with the topics given to him. Highlighting the same,
he said, “I feel a case topic should be able to stimulate a
deep-rooted discussion. However, the topics that are being
given to me present no such scope of in-depth analysis.
Personally, I feel there is lack of subject understanding.”
Vandana, on the other hand, was not convinced by the
manner in which the QT cases were being developed.
Realising that the format had been developed byMr. Verma
and Sumitabh was not in a position to alter it, she decided to

part ways with the organisation. Vandana observed, “I have
always had an affinity for QT and that is what had excited me
about joining GDRC. However, I am not happy about the way
QT cases are being developed. Though Sumitabh
feels the same, he does not have the freedom to
change the format. It shall not be possible for me to
work under such rigid conditions.” Sireesha was also
having a tough time in ensuring quality work within
the stipulated time from her team members.
The following is a conversation between Sireesha and her
team member K. Raghu (Raghu).
Sireesha: Raghu, we are at the end of February
and you are still struggling with your first case. Do
you realise that we shall not be able to meet our
targets if you continue to work at this pace.
Raghu: Sireesha, I expect to have more
time on my
hand when I am developing my first
case study. I believe quality results cannot be
delivered in haste.
Sireesha: I know that too. But I think
you are conveniently forgetting that we have
deadlines to adhere to. I am answerable to Mr.
Verma for our lagging performance.
Raghu: I do understand your position,
Sireesha. But I really do not think I can deliver at a
faster pace than this. You will have to be
understanding towards me as I am just about 2
21

months old in the organisation.
Sireesha: Such excuses cannot serve as cover ups.
Mr. Verma expects a lot from this team. Raghu: In
that case, all I can say is that I do not think I fit this
role, Sireesha. Maybe I should look out for some
other job. With the first quarter drawing to an end,
the three team leaders were unable to suppress their growing
resentment. They decided to have a meeting with Verma in
the first week of March 2009, to vocalise their disagreements,
and make Verma aware of their day-to-day mounting troubles.
Following was the conversation between Verma and the three
team leaders in the meeting.
Verma: Well am glad you people scheduled this
meeting. Now that we are almost drawing to the end
of the first quarter, how are my new teams
doing?
Kumar: Mr. Verma, all of us would like to discuss a
couple of important issues with you.
Verma: Fine with me. So what is bothering
all of you?
Sireesha: Mr. Verma, I feel that you are not
showing much interest towards providing intriguing
topics in accounting. The last three articles provided by you
did not present any scope for analysis from the perspective of
Management Accounting.
Kumar: I agree with her, Mr. Verma. I am facing the
same level of discomfort with you in discussing topics

related to Financial Management. In fact, I have been
following up with you for 2 weeks for a topic for Shreya’s
second case study.
Verma: Well, maybe I am not thorough with all
the concepts in Accounting, Finance and even
Quantitative Techniques, for that matter.
However, I have an understanding of each of
these domains and I feel that these
apprehensions have cropped up because I have
not been able to spend adequate time with each
one of you in discussing your respective subjects.
Sumitabh: Mr. Verma, last week we had spent
nearly 3 hours brainstorming on how to approach
the case study on sampling. However, it did not
yield any productive results.
Kumar: I feel that this lack of in-depth understanding
of the subjects is also creating a bottleneck in setting
deadline for our teams. Mr. Verma, handling a FM,
MA or QT case study is not the same as developing
a Marketing or Organisational Behaviour case study.
Verma: Well, I and the top management do
understand the difference, Kumar. That is
precisely why experienced people like you have
been recruited to lead these teams. I believe that
I have given all of you ample freedom to handle
your teams as well. Haven’t I?
Sumitabh: No Mr. Verma. I have not felt so. In my
previous organisation, I was single-handedly
22

managing a team of six people. Nevertheless, as a
team leader I enjoyed the flexibility of deciding how
to achieve the targets and delegate the tasks
accordingly. There was much more independence
in decision-making and new recruits were not put
under pressure from their first day. Mr. Verma, we are all
finding it difficult to adjust to this new style of working.

been with me for nearly 5 years and each of them is heading
a high- performing team. They are all working under my
leadership and doing very well. I feel that experienced
professionals like you should not be presenting such lame
reasons for underperformance.

Kumar: I don’t agree with you, Mr. Verma. In my
previous organisation my manager held a meeting
with me before deciding on what targets the team
shall achieve. The final number was always agreed
upon by mutual consent. Moreover, my teams have
always been known for achieving their targets. But
unfortunately, for the first time in my career, I doubt I
may not be able to keep up to my record.

This meeting only deepened the rift between Verma and his
new team leaders, especially with Kumar. Sharing a similar
educational background with Verma, Kumar was confident
that he had all the necessary qualifications for Verma’s
position. He felt that Verma lacked the ability to head the
diverse, management case writing teams at GDRC and was
certain that he could make a lot of difference to the
organisation if he were in Verma’s shoes. Verma had also
sensed Kumar’s ambitions. He was concerned that Kumar
was trying to influence Sireesha and Sumitabh against him
and his ideas. Kumar’s reactions during their last meeting
only confirmed Verma’s doubts. This realisation, coupled
with the fact that Kumar had all the required qualifications for
the director’s position, added to Verma’s apprehensions,
increasing his dislike towards Kumar.

Sireesha: Yes, Mr. Verma. This rigidity is costing
us our team members.

The following was a conversation between Sireesha and
Kumar, a week after their meeting with Verma.

Verma: Sumitabh, I don’t think I interfere in the dayto-day activities of your team or for that matter in
any of the teams. I think I have given all my team
leaders enough liberty.

Sumitabh: It takes considerable time and
effort to hone such skills into one’s team members
and it is a setback when they leave owing to the
inability to cope up with pressure and meet
unrealistic targets.
Verma: I don’t understand why you people are facing so
many issues? Look at my other team leaders. They have

Sireesha: Kumar, I do not think much has come out of the
meeting with Mr. Verma. I am still struggling with him
for new topics in accounting.
Kumar: It’s almost the same case with me. If I were in
Verma’s place, it would not have taken me more than
a day to get relevant topics. Moreover, I also have a
23

deep understanding of QT and MA.
Sireesha: Actually, you have a point. It would have been nice
to have someone more competent in handling these subjects
as the director of the organisation. And I guess you have the
necessary qualifications for the post as well.
Kumar: Well, I do not intend to boast, but I am
confident of being able to solve these subject related
queries in a convincing and efficient manner. If I were
the director, my team leaders for sure would not be
dealing with problems of this nature.
Despite these claims, Kumar did not make any efforts to help
either Sireesha or Sumitabh with the issues they were
struggling with, in their teams. Instead, he was hoping forthe
problems to aggravate and use them as a ground for
challenging Verma’s competency as the director of GDRC.
Additionally, the new team leaders regarded themselves
superior to the existing five team leaders at GDRC. Kumar,
Sireesha and Sumitabh were unhappy at being given the
same designation as the existing five team leaders, who had
no prior work experience to their credit (Exhibit V).
Highlighting the same, Sumitabh said, “I have completed my
education from well-known institutions and boast of a brilliant
academic record. Having worked with reputed organisations, I
have been appreciated for my outstanding performance and
team-handling skills. It is demotivating to share the same
platform with less experienced colleagues.”At the end of the
first quarter in 2009, Verma was evaluating a dismal
performance report. In the wake of the persisting problems,

Exhibit V 
Educational and Professional Qualifications of the Exiting
Five Team Leaders
Name

Educational
Qualification

Work
Experience

Designation at
GDRC

Ajay
Sharma

M. A (English)
from a tier B
institute

No prior work Team Leader
experience
(Human
Resource)

K. Sonali

M. Tech from a
lesser known
college in
Hyderabad

experience
(Marketing)

Sunita Rao M. A
(Economics)
from a tier B
institute

experience
(OB)

Sandeep
Kashyap

M. Sc from a tier No prior work Team Leader
C institute
experience
(MS)

Janaki

M. Com from a
lesser known
college in Pune

experience
(Business
Strategy)

he was expecting each team to deliver at least three case
studies. However, with Kumar’s team delivering only two case
studies, Sireesha and Sumitabh’s team still struggling to finish
their second cases, Verma was in for a shock.
24

Problems further intensified for Verma, with the performance
of the five existing teams also showing a dip. The
performance of other teams fell by almost 40%. Failing to
understand the sudden decline in performance by his
consistently high-performing teams, Verma called for a
meeting with the five team leaders. The following was the
conversation between Verma and the existing five team
leaders:
Verma: Let me be direct with all of you. I am really
disappointed to see my high-performing teams
presenting such a dismal quarterly performance.
What is worrying me is that all the five teams have
fallen short on their committed targets.
Ajay: Mr. Verma, we do understand your concern.
But we are not the only teams whose performance
has been below the target line.
Sunita: Moreover, we have just fallen
short by two or three case studies per
team. The newly formed teams have
shown a much dismal performance. We are still doing
much better in comparison.
Verma: Sunita, isn’t it unfair to compare the
performance of such experienced teams as yours
with teams which are just 3 months old? I don’t
expect such behaviour from my senior team
leaders.

uniform across the organisation.
Sunita: Especially when they are headed by people
who already have a prior work experience. I think it
is unfair to only highlight the performance of our
teams while excluding the performance of teams
where members have relevant domain knowledge
and work experience.
Ajay: Moreover, ever since these new teams have
been formed our teams have been pushed to the
background. All the efforts seem to be directed only
towards these three teams. Our teams have been
taken for granted!
This conversation with his experienced team leaders
added to Verma’s woes. With even his experienced team
leaders turning hostile, Verma found himself standing at
crossroads.
Should Verma be replaced or transferred to another
department? Should the top management replace Verma with
one of the other team leaders? Could replacing a few team
leaders have done the needed damage control? Would
Verma’s resignation serve as an answer to the problems at
GDRC?

Sandeep: Mr. Verma, why are all the
expectations only set for us? The rules should be
25

C HAPTER 2

Individual Learning and Behavior
Organizations and businesses keep changing due to
the dynamic nature of the business environment. In
order to survive, organizations, like individuals, must
learn new skills and acquire knowledge about
emerging theories and techniques. In order to explain
and predict the behavior of people in organizations, we
must have an understanding of the way in which
people learn.
understand:
The meaning and definition of learning
Theories of learning
Application of learning theories
OB Modification process


Section1

Meaning and Definition of Learning
Learning is defined as the acquisition of knowledge or
skills through study, practice, or experience. Learning
usually causes a relatively permanent change in the
behavior of a person. Since most of the behaviors
exhibited by people in organizations are learned,
learning has become an important constituent in the
study of organizational behavior.

mould the behavior of employees to enhance their
performance.

Significance of Learning
We must understand the concept of learning if we are to
understand, develop and manage the human resources
in an organization. Although the concept of learning has
not received as much attention as motivation or attitudes,
both behavioral science scholars and practitioners agree
that it can help in the effective management of human
resources. This is so because all behaviors of people in
an organization are learnt, either directly or indirectly.
The skills of a worker, the attitude of a manager, an
accountant’s style of dressing – these are all learned
behaviors. Learning impacts practically all aspects of
organizational behavior. By applying the processes and
principles associated with learning, organizations can

Source:www.kbarnstable.files.wor
dpress.com

27

Section 2

S ECTION 2

The Theories of Learning

Many efforts have been made to develop a perfect theory
of learning. The most widely recognized theoretical
approaches to learning are the behavioristic, cognitive
and social learning theories. These theories, which help
us understand the behavior of people in the workplace,
are very important in the study of organizational behavior.

based their theories on the response and stimulus (R-S)
connection.
Classical Conditioning

Figure 2.2.1: Classical Conditioning

Behavioristic Theories
The oldest and most extensively researched theory of
learning originated from the behaviorist school of thought
in psychology. Learning principles like ‘reward systems’
and ‘behavioral management approach’ are derived from
these behavioristic theories. Well-known classical
behaviorists like Ivan Pavlov and John B. Watson
considered learning as the association of stimulus and
response (S-R connection). But B. F. Skinner, an operant
behaviorist, believed that learning occurs as a
consequence of behavior, i.e., learning is due to the
consequence that follows the response, which influences
the repetition of the response. Operant behaviorists thus

Source:www.blog.lib.umn.edu

28

The theory of classical conditioning (see figure 2.2.1)grew out
of the famous experiments conducted on dogs by the Russian
psychologist, Ivan Pavlov. Watch the video for the details of
the experiment.
From the video 2.2.1, we could
see that when an unconditioned
and a neutral stimulus are paired,
the neutral stimulus becomes a
conditioned stimulus and elicits
the response of the unconditioned
stimulus. Classical conditioning
essentially involves learning a
conditioned response by
associating a conditioned stimulus
with an unconditioned one.

placed in the Skinner box. Soon, it started exploring and

Video 2.2.1: Classical
Conditioning Ivan Pavlov

Source:www.projects.coe.uga.edu

Source:www.youtube.com/w
atch?v=hhqumfpxuzI

Most modern theorists feel that classical conditioning
represents only a very small fraction of human learning
abilities. Skinner argued that the more commonly displayed,
but complex human behaviors cannot be explained by
classical conditioning alone and that such behaviors are
learnt by operant conditioning.
Operant Conditioning
Operant conditioning or reinforcement theory has been
associated with the work of B. F. Skinner. Skinner designed
an apparatus called the “Operant Chamber” or the “Skinner
Box” to understand learned behavior in animals (he used rats
and pigeons in his experiments). The Skinner box has a lever,
which on pressing, drops a pellet of food. A hungry rat was

sniffing around, looking for food. It eventually pressed the
lever by accident and received a pellet of food. The rat soon
learned to associate pressing of the lever with the reward of
food. This reward acted as a reinforcing factor. This form of
learning, which is based on trial and error, is called operant
conditioning.
According to the
operant conditioning
theory (see figure
2.2.2), consequences
determine the behavior
that results in learning.
People learn to behave
in a particular manner
in order to obtain
something they want or
to avoid something
they do not want.
Skinner argued that the

Figure 2.2.2: Operant Conditioning

Source:www.malinut.com
29

frequency of specific forms of behavior could be increased if
they were followed by pleasant consequences. That is,
positive reinforcement would establish a particular pattern of
behavior. He also argued that the effectiveness of rewards is
at its highest when they are given immediately after the
desired behavior is exhibited. Similarly, when behavior is not
rewarded or is punished, the chances of such behavior being
repeated are less.
Operant conditioning finds greater application in human
learning than classical conditioning. Many aspects of
organizational behavior can be explained by operant
conditioning. For example, it can be said that employees work
in order to provide the basic amenities for themselves and
their families. Many managers base their behavioral
strategies on the operant theory to motivate their employees
and teach them desirable behaviors.
Cognitive Theories
Edward Tolman, a pioneering theorist in the field of cognitive
psychology, stated that cognitive learning consists of a
relationship between cognitive environmental cues and
expectation.

depends heavily on the concepts of classical and operant
conditioning. This theory assumes that learning can also take
place through vicarious or modeling processes and selfcontrol processes.
Modeling Processes - learning could occur through imitation
of others.
He hypothesized that people could learn from others and that
such learning takes place in two steps:
1. Through observation
2. Enacting the acquired image.
If the consequences turn out to be positive, the behavior is
repeated; otherwise, it is discontinued.
Self-Efficacy
Self-efficacy has become integral to the study of
organizational behavior. People with high self-efficacy, that is,
people who think they can perform a task well, usually do
better than people with low self-efficacy, that is, the ones who
think they will fail.

Tolman considered learning as developing a pattern of
behavior from bits of knowledge about and cognition of the
environment. This learning of the association between the cue
and expectation is termed S-S (Stimulus-Stimulus) learning.
Social Learning Theory
Though the social learning theory blends both behaviorist and
cognitive concepts, it is more of a behavioral theory since it
30

Section 3

Application of the Learning Theories for Behavior Modification
Behavioral management is the application of the
reinforcement theory or operant conditioning to exert a
positive influence on the performance of employees.
Robert Kreitner and Fred Luthans coined the term
‘Organizational Behavior Modification’ or ‘O. B. Mod’ for
behavioral management. The O. B. Mod process focuses
on the following aspects: the influence of the environment
on employee behavior; the antecedent cues or conditions
that precede a behavior; the consequence of a particular
behavior; and the impact of the behavior on performance
effectiveness. The O.B. Mod process can help increase
the frequency of desirable behaviors in employees.
However, only those behaviors which are tangible,
observable, measurable and repeatable can be improved
by means of the O.B. Mod process. This process has been
shown to reduce absenteeism, improve productivity,
decrease costs, reduce defective output and improve
safety.

following the steps given below, managers identify those
behaviors which are important for improving the
performance of the organization. These behaviors are then
linked to specific rewards, which will encourage employees
to exhibit the desired behaviors. The following keynote
(2.3.1) explains the steps involved in OB Modification
Process.
Keynote 2.3.1:
Steps in the O.B. Mod Process

Steps in the O.B. Mod Process
The O. B. Mod process uses the reinforcement theory to
make employees behave in the desired manner. By

Source: Internal

31

Review 2.1
Question 1 of 9
What role did the bell play in Pavlov’s experiment
with dogs?

A. Unconditioned stimulus
B. Unconditioned response
C. Conditioned response
D. Conditioned stimulus

Check Answer

32

C HAPTER 3

Attitudes, Values and Job satisfaction
An employee’s personality together with his attitude
determines his behavior and job performance in an
organization. Thus the study of personality assumes
significance in organizations. In this chapter, we will
discuss the concepts of personality and attitude and
their influence on organizational behavior.
understand:
The concept of attitudes
The components of attitudes
The functions of attitudes
Cognitive dissonance theory
Types of job attitudes
EVLN model of attitudes
Definition of values
Importance of values
Terminal and instrumental values

Organization fit.

Section1

Attitudes
Concept of Attitudes
Attitude is a state of mind of an individual towards
something. It may be defined as a tendency to feel and
behave in a particular way towards objects, people or
events. The characteristics of attitudes are described
below:

(3.1.1 and 3.1.2) illustrates different components of
attitudes.
Keynote3.1.1: The Components of
Attitudes

The attitudes of an individual generally remain
unchanged for a prolonged period of time unless he is
influenced by external forces.
Attitudes are evaluative statements that can be either
favorable or unfavorable.
Attitudes refer to feelings and beliefs held by an
individual towards an object (or event or person).
Components of Attitudes


Keynote 3.1.2: The Components of
Attitudes With Examples

Attitudes consist of three components – cognitive, affective
and behavioral. The cognitive component indicates the
opinions, values or beliefs of an individual about
something. The affective component represents the
feelings of a person toward something. The behavioral
component of a person indicates the intention of a person
to behave in a particular way. The following keynotes

34

Sources of Attitudes

Functions of Attitudes

Attitudes are acquired from parents, teachers and
members of the peer group. The genetic make-up of a
child initially determines his personality and attitudes.
However, as the child begins his schooling and interacts
with people, his attitudes are influenced by the people
whom he admires, respects or fears. Individuals are more
willing to modify their behavior and shape their attitude to
align with the behavior of people whom they look up to.
This is the reason why companies have their products
endorsed by popular personalities such as leading cricket
players and film stars. Such endorsement helps develop a
positive attitude toward their products among the public.

The study of OB involves a proper understanding of the
functions of attitudes. Attitudes reflect an individual’s work
behavior and performance. According to D. Katz, attitudes
serve four important functions. These are discussed in the
keynote 3.1.3:

People are generally not as steadfast about their attitudes
as they are about their values. Thus the attitudes of people
can be easily influenced and altered. Attitudes can be
changed by various means, i.e., by providing new
information, coercion or threat, resolving differences, and
involving people (dissatisfied with a situation in the
organization) in problem solving. For example, in an
organizational context, employees may have a hostile
attitude towards a change initiative. However, if the
management helps employees understand the competitive
threat the organization is facing and enable them to realize
the need to change that lead to organization’s
development, the employees will most likely overcome
their hostile attitude and agree to bring about change in
the organization.

Keynote 3.1.3: The Functions of
Attitudes

Source:Internal, www.aect.org.

Cognitive Dissonance Theory
Cognitive dissonance refers to the incompatibility that an
individual may perceive between two or more of his
attitudes, or between his behavior and attitudes. Another
type of dissonance, called emotional dissonance, is also
seen in organizations.
Festinger suggested that individuals are uncomfortable
with any form of inconsistency and try to reduce the
35

dissonance and discomfort that results from such
inconsistencies. They seek to obtain a stable state where
there is least dissonance.
An individual can deal with dissonance in different ways. The
desire of individuals to reduce dissonance also depends on
the extent of control they have over the elements causing
dissonance. If an individual believes that the elements
causing dissonance are not in his control, he will try to justify
his behavior. For instance, if an individual’s superior directs
him to act in a manner that opposes his personal values and
beliefs, the individual would perform the task. He would try
to justify his action by arguing that he would lose his job if he
did not obey the orders of his superior. However, if his job
requires him to continuously act against his personal values,
he will attempt to change his attitude. This would enable him
to achieve consistency between his attitude and behavior.
Thus, the effort made by an individual to reduce dissonance
depends on the significance of the elements that lead to
dissonance, their controllability, and the rewards associated
with the dissonance. The greater the dissonance, the higher
the pressure on the individual to overcome the dissonance.

Keynote 3.1.4: Types of Job
Attitudes


Job Dissatisfaction: EVLN Model of Attitude
EVLN model is used to understand the consequences of job
dissatisfaction. Exit, Voice, Loyalty and Neglect (EVLN) are
the four ways employees respond to dissatisfaction. Refer to
the keynote 3.1.5 for the description of the EVLN model.
Keynote 3.1.5: Job Dissatisfaction:
EVLN Model of Attitude

Types of Job Attitudes
An individual may have a number of attitudes regarding
different aspects of life, but the field of OB focuses only on
the study of job-related attitudes. OB specifically focuses on
three attitudes: job satisfaction, job involvement and
organizational commitment. They are further discussed in
the keynote 3.1.4.
Source: Internal

36

Section 2

Values
Value system is determined by the relative importance
assigned to values such as integrity, freedom, pleasure,
self-respect, honesty, etc.
Importance of Values:

Source:www.thefinancialbrand.com

Values are the basic convictions that a specific mode of
conduct or end-state of existence is personally or
socially preferable to an opposite or converse mode of
conduct or end-state of existence. They include a
judgmental element that carries the individuals’s ideas
as to what is good, right and desirable. Values have
content and intensity attributes. The content attribute
states that the mode of conduct or an end-state of
existence is important. Whereas, the intensity attribute
determines how important it is.
Value system is a hierarchy based on the ranking of an
individual's values in terms of their intensity. Everyone
has a hierarchy of values that form the value system.

Values have a significant role as they enable in laying
the foundation for understanding people’s attitudes and
motivation, which in turn influence the perception. This
understanding is important to appreciate individual’s
behavior in organizations. Individuals enter an
organization with pre-conceived notions of what ought
and ought not to be. These notions include
interpretations about right and wrong. They imply that
certain behaviors or outcomes are preferred over
others. Values usually influence attitudes and behavior.
Terminal vs Instrumental Values
Classification of Values: There are different
approaches to classify values, such as, Rockeach Value
Survey, Generational Values, etc.
Rockeach Value Survey: Milton Rokeach developed
the Rokeach Value Survey (RVS). It consists of two sets
of values, each containing 18 individual value items.
37

One set is called terminal values, referring to desirable endstates. These are the goals a person would like to achieve
during his or her lifetime. The other set is called
instrumental values, referring to the modes of behavior, or
means of achieving the terminal values.
Refer to the figure 3.2.1 for the instrumental vs terminal
values

Review 3.1
Question 1 of 8
The belief that “violence is wrong” is an evaluative
statement. Such an opinion constitutes the _____
component of an attitude.

Figure 3.2.1: Instrumental vs Terminal Values

A. Cognitive
B. Affective
C. Reflective
D. Behavioral

Source:www.hotelmule.com
Check Answer

Person-Organization Fit
The alignment between an individual’s values and an
organization’s values would lead to Person-Organization fit.
For example: An employee whose values are innovation
and independence would work effectively in organizations
like Harley-Davidson and Wl-Gore which are structured
around Self-managed teams.

38

Section 3

Case Study: The Julie Roehm Saga at Wal-Mart, Inc.

This case was written by Syeda Ikrama, under the
direction of Debapratim Purkayastha, IBS Center for
Management Research. It was compiled from published
sources, and is intended to be used as a basis for class
discussion rather than to illustrate either effective or
ineffective handling of a management situation.

Wal-mart Retail Stores

First Wal-mart Stores In U.S.
Source:www.bypassfanpages.com

39

I think part of my persona is that I am an envelope pusher.
The idea of change in general can be uncomfortable for
many people, and my persona as an agent of change can
prompt that feeling.”1

on. I am not receiving any money or other compensation to
settle my case,”4 said Roehm. This put to an end one of the
most talked about episodes in corporate America during 2006
and 2007.

- Julie Roeh “ m, Former Senior Vice President
Marketing, Wal-Mart Stores, Inc., in 2006.

Wal-Mart had hired Roehm, who was considered a highflier
in the automotive industry, in early 2006 to shake up its
marketing communication. At Wal-Mart, Roehm led an
advertising agency review process for the company’s US$
580 million account, among other things. But ten months after
she joined Wal-Mart, and barely a month after Draft FCB5
(Draft) had been selected as the company’s ad agency,
Roehm was fired from the company amidst rumors of her
violating Wal-Mart’s ethics and gratuity policy. Sean Womack
(Womack), the vice president of communication architecture
at Wal-Mart, who reported to Roehm, was also fired and the
contract with Draft was cancelled.

“When we fired Ms. Roehm, we had no intention of sharing
the details of her flagrant personal and professional
misconduct, even as she made disparaging the company a
centerpiece of her self-promotional campaign. Now, we must
respond to her lawsuit and are in a position where we have
no choice but to share the real story of what happened.”2
- Wal-Mart Stores, Inc. in 2007.
“It isn’t often that the dismissal of a mid-level executive
makes national news. But Julie Roehm is no ordinary
executive… Given her colorful career, Roehm’s hiring by one
of America’s most colorless companies always struck friends
and industry insiders as odd.”3
-BusinessWeek, in 2007.
BURYING THE HATCHET
In November 2007, Julie Roehm (Roehm), former senior vice
president of Marketing Communication of the world’s largest
retail store chain Wal-Mart Stores, Inc. (Wal-Mart),
announcedher decision to drop her lawsuit of wrongful
termination against the company. “I have decided to accept
Wal-Mart’s decision to terminate my employment and move

Shortly afterward, on December 15, 2006 - Roehm filed a
civil suit in Oakland County, Michigan District, against WalMart for unlawfully terminating her employment, infringing
compensation agreements, and also for slandering her in the
press. She also claimed that she was a victim of a culture
clash at Wal-Mart and that her image as a change agent had
led toher ouster. In its counterclaim filed on January 18,
2007, Wal-Mart refuted Roehm’s claims and also accused
her of violating its employment policies.6 In the counter-suit,
Wal-Mart claimed: “Corporate executives are held to an
especially high standard compared with other employees —
and for good reason. They make business decisions that
affect the lives and well-being of employees and
40

shareholders. Their actions shape the future of the company,
its image, and its dealings with the public, customers, and
contractors.”7
Roehm denied the accusations and responded by accusing
Wal-Mart’s executives, including the CEO, of breaching the
company’s ethics policies. As the incident turned uglier by the
day, it became regular fodder for the media. It finally ended
with Roehm’s decision to drop her suit against the company.
The company too decided not to pursue the case against her.
“We are satisfied with the resolution and are ready to put this
behind us and move on,”8 it said. However, analysts felt that
this incident at the largest private employer in the US, had
given industry experts and HR professionals food for thought
regarding various issues such as organization culture,
organizational change, office politics and organizational
communication, managerial ethics, employee misconduct,
employee surveillance, etc.
Video - Wal-Mart
History

Video - Wal-Mart
History

Part-
I

Part -II

Source:www.youtube.com/
watch?v=D5xKm8tf9Ks

BACKGROUND NOTE
Spurred by the thought of saving money for his customers and
of earning margins through volume, Sam Walton (Walton)
founded Wal-Mart in 1962. It later became the archetype for
leadership, success, and technology in the retail world.
Walton established Wal-Mart’s first discount city store in
Arkansas, US, and within a span of five years, Wal-Mart was
operating 24 retail stores reporting sales revenues of US$12.6
million. After its incorporation, in 1970, the company was
traded over the counter for the first time as a publicly-held
company. Growing phenomenally, by 1980, Wal-Mart
revenues touched US $1.248 billion with 276 stores, 21,000
associates, and a presence in eleven states of US.9
During the year 1987, the retail behemoth celebrated its 25th
anniversary. The same year, the company’s Satellite Network
was completed.10 Wal-Mart was the first company to introduce
computers to link its store and warehouses in order to keep
track of items and reduce stock misappropriations. Walton’s
philosophy of cost-cutting enabled the company to develop
into a retail giant in the US with 1,198 stores and sales figuring
around US $15.9 billion with 200,000 associates. In 1988,
Walton stepped down from the post of the CEO and David
Glass (Glass) took over his position. By the end of the 1980s,
Wal-Mart had its retail stores, distribution centers, and super
centers in almost 26 states of USA.

watch?v=fJgdZk0xyyo&feat
ure=related
41

When Walton died in the year 1992, Wal-Mart witnessed a
leadership turmoil. However, during the same decade, its
international operations started flourishing as it entered the
South American and European markets. It was constantly
leveraging on the super store concepts like ‘neighborhood’
and Sam’s Club. The sales revenue reported by the global
retail giant by the end of 1999 was US$137 billion. In the year
2000, H. Lee Scott Jr. (Scott) was named CEO, replacing
Glass.
In the early 21st century, the company was getting worldwide
recognition such as being continuously present in the top
order of the Fortune magazine’s list of “Most Admired
Companies” (Refer to Exhibit I for Wal-Mart’s key financials
and to Exhibit II for its Fortune 500 ranking in 2007). In the
philanthropy and corporate citizenship circuit too, Wal-Mart
made a mark for itself, winning many accolades and honors.
In the year 2005, its sales revenue figured at US$312.4
billion. There was no doubt that Wal-Mart had brought in
innovation and efficiency into the global retail scenario,
compelling rivals to imitate it; however, it also drew a lot of
criticism for allegedly taking away business from local
retailers. Its low-pricing strategy started faltering with
customers complaining about low quality products and
making allegations of predatory pricing, conflicts with the
labor union, etc. These forced the retailer to create a
marketing and PR campaign to revamp its image (Refer to
Exhibit III for criticisms against Wal-Mart).

CHANGES AT WAL-MART?
During the year 2005, while Wal-Mart was struggling to
increase its revenues, its earnings fell steeply, and stock
prices were lower than at any other time since 1999 (Refer to
Exhibit VI for Wal-Mart Stock’s prices).
It was no longer the growth
engine it had once been.
Therefore, for the first time in its
history, Wal-Mart decided to
move away from the low-price
edict to explore other options as
well. Scott and his top
management team studied with
interest the approach of young
marketers to brand building and
edgy advertising.

Video - “Every Day Lo
Prices,” Strategy of WalMart

Source:www.youtube.com/wat
ch?v=h4moJP8s-DM

In 2006, the management decided to freshen up the brand as
its “everyday low prices” strategy apparently wasn’t providing
the same results in the twenty-first century as it had in the
earlier years.
It was searching for a new marketing strategy as part of a
turnaround. They thought that the new strategy would move
away from the “everyday low prices”, that primarily appealed
to the less affluent, and attract a wider audience among the
middle class. To execute the strategy, Wal-Mart even came
out with its own designer labels like “George.” As part of the
new emphasis on marketing, Wal-Mart hired a 36-year-old
executive, Roehm, from DaimlerChrysler AG (Chrysler)11 to
42

churn up its marketing department. Though the company’s ad
spending was huge – US $580 million in measured media in
200412 and US $563 million on advertising during 200513 –
analysts felt that Wal-Mart did not provide a lot of emphasis on
advertising. The ads were used just to remind people about
the low prices with smiley faces.
Therefore, through Spencer Stuart,14 Roehm was contacted in
September 2005 to fill up a newly created position of senior
vice president, marketing communication. The company also
brought five marketing executives from one of the leading
consumer goods company PepsiCo Inc. into the company in
2006.
ROEHM & HER WORK
Roehm was hired in January 2006 to fill the newly created
position, and she joined the company officially on February 8,
2006. She was asked to report to the chief marketing officer
(CMO) John Fleming (Fleming). Roehm was primarily brought
into the company to review an advertisement agency selection
process and sketch a contract of US$580 million with the
agency selected. This new ad agency would replace GSD&M
Advertising15 and Bernstein-Rein Advertising, Inc.16, WalMart’s previous agencies. When Roehm joined Wal-Mart, the
company spokesperson Kevin Thornton said, “Julie is really
going to be showcasing our marketing message that we are
relevant to a broad range of customers.”17 Roehm had 11
years of experience in the automobile industry, with Chrysler
and Ford Motor Company (Ford),18 where she had made a
name for herself for her edgy advertising.

Roehm was born in Wisconsin State of USA. She obtained a
graduation degree in civil engineering from Purdue University
in 1993. She went to University of Chicago’s business school
and got a management degree in marketing. Her professional
career began with her joining Ford as the product planner in
1995. After four years, she created a successful buzz and
word-of-mouth marketing campaign for Ford’s new product
Ford Focus Compact cars which brought her a promotion in
the year 2000. Later, when her boss moved to Chrysler, she
followed him and was put in the marketing team to handle the
Dodge brand. There, she promoted Dodge with racy
advertisements and also introduced the return-on-investment
(ROI) technique for agencies to develop hard measures for an
advertisement campaign to succeed.
She experimented with videogames and the Internet to
promote Chrysler’s Jeep brand.19 At Chrysler, she handled the
sixth largest advertising budget in the US. Later in 2005, she
shook up the advertisement business with her proverbial
attack on the television networks’ ad time purchases, which
she believed should be sold like stocks on the Nasdaq Stock
Market. In this connection, Joe Tripodi, CEO of Allstate
Corp.’s,20 said, “She woke everyone up. We weren’t going to
see substantial change in the upfront until the big-spending car
companies and Procter & Gamble stood up. She was the first
to stand up.”21 She was famous for her peppy, attentionseeking tactics. Analysts said that she was about speedy cars,
rock-and-roll, and sex and was a perfect fit for the automobile
industry. They felt that some of her ideas were radical and it
was this in part that was responsible for her gaining a lot of
attention in the industry (Refer to Exhibit V for Julie Roehm’s
43

accomplishments). Chrysler’s chief spokesperson Jason
Vines, recalled, “We’re probably the edgiest automaker in
terms of the things we try. And the times Julie went over the
edge have been well documented. But we realized you don’t
know where the edge is unless you are willing to go over it
once in a while.”22
(To
understand the impact of julie Roehm on the
AdWord Click here)
(To know more about Julie Roehm click here )
LIFE AT WAL-MART
The new position with Wal-Mart meant that Roehm had to
relocate to Bentonville, Arkansas, from the suburban Detroit
with her husband and two kids. In her compensation
package, Wal-Mart promised to pay a base salary of US$
325,000, a signing bonus of US$ 250,000, plus restricted
stock of about US$300,000, stock options valued at
approximately US$ 500,000, and an annual performance
bonus of up to US$ 400,000. It also promised to paythe
mortgage amount for her Detroit home until the house was
sold. While she reported to Fleming, her two direct reports at
the company were Terry Nannie and Sean Womack.
Womack, working at the company on a contract basis, was
made a regular employee at Wal-Mart in early 2006 with the
designation ‘vice president of communications architecture’.
Roehm was a key decision maker in the team where she
tried to de-emphasize the low prices with her edgy
advertising tactics. With Wal-Mart interested in getting its
customers to “cross shop” in new segments, Roehm focused

on fitness and home décor, and, to attract customers, rolled
out ads in magazines such as Vogue23 and Glamour24. WalMart also started stocking upscale items such as iPods, flatpanel TVs, sushi, and wine in its stores. Roehm was also
behind the Metro 7 brand of fashionable apparel for urban
women. She described herself as a ‘change agent’ in the
company. On her first day at Wal-Mart’s office, she brought in
paints and brushes, and transformed the gloomy windowless
offices and walls with a stylish, perky look using chartreuse
and brown trim colors in her office décor. One of Roehm’s
first assignments was to arrange a shareholders’ meeting
which she transformed into a Broadway extravaganza,
signing up a troupe of New York actors who sang songs such
as “The Day That I Met Sam”, revering the company’s late
founder. Some analysts saw this as an indication of the longawaited cultural change at the company. But some of the
longtime executives of Wal-Mart did not particularly welcome
the changes. She was also involved in the production of a TV
ad for Wal-Mart which featured a couple discussing an
undergarment before their extended family. The ad was soon
withdrawn after some viewers complained against it. In the
meantime she produced new ads that took a dig at WalMart’s rivals, and also sponsored football on ESPN25. In
addition to this, Roehm said that she had also introduced
advertising ROI techniques in the company and that this had
led to significant cost savings.However, her biggest
assignment was leading an advertising agency review
process for Wal-Mart’s US $580 million account. During
summer, after just three months on the job, Roehm,
Womack, and three other colleagues jetted around the
country visiting almost 30 advertising agencies who bidding
44

to take Wal-Mart’s account. In October 2006, the team selected
Draft.
WAL-MART FIRES ROEHM
In November 2006, news came out that Roehm and Womack
had left the company. Roehm said, “I was hired by Wal-Mart as
a change agent a little less than a year ago. One of my first
Screenshots of Roehm Mails.....

Mails of Roehm found by Wal-mart which are used as
evidence to fire Roehm. these mails are posted in
CNBC news channel.
Source:www.bing.com/videos/watch/video/wal-mart-suit-getsmore-nasty-personal/6bzdn4k?cpkey=127daf50-1672-4c77-a4c2- 3531a844383e%7C%7C%7C%7C

agency review. Now that I have established the marketing
communications organization and completed the agency
review, it’s time to tackle my next challenge. I have enjoyed my
time at Wal-Mart and I wish my many friends and colleagues
there much future success.”26 However, it soon came out into
the open that the company had fired the two executives.
Rumors that the duo had been fired forviolating Wal-Mart’s
ethics and gratuity policy started doing the rounds.
Meanwhile, Wal-Mart cancelled the agency review process
which had been led by Roehm and started a new process
which Draft was barred from entering. This time around, the
account was awarded to The Martin Agency 27 and
MediaVest28.28 The cancellation of Draft’s contract just days
after Roehm was fired led to a lot of speculation. One source
said that during the agency review process, a lot of “gratuitous
gifts” had been exchanged between the parties and that as
Wal-Mart had a stringent gratuity policy, Roehm had to face the
consequences. Some felt that an unrelated ad of Draft in
Creativity magazine almost immediately after the Wal-Mart
contract had led to an uproar at Wal-Mart and called into
question Roehm’s judgment in selecting the ad agency. In the
ad, the agency touted its achievements in winning the Cannes
Lions Awards with the visual of two lions mating and the
caption: “It’s good to be on top.”30 Adam Hanft, CEO of Hanft
Unlimited Inc.,31 said, “I think Roehm’s firing is a window into
the internal strife at Wal-Mart. It could be that Wal-Mart wasn’t
particularly impressed with Draft in the first place. But Roehm
was a leading advocate for Draft. So with her departure, it
became easier for Wal-Mart to lose Draft.”32

orders of business was to help spearhead a comprehensive
45

There were also speculations that Roehm had been fired
because she had allegedly had an inappropriate relationship
with her subordinate Womack, violating the company’s strict
ethics policy of fraternizing with subordinates. However, some
refused to read too much into the incident and said that
Roehm was ousted as the company wasn’t experiencing any
increase in revenues. They pointed out that the retailer’s sales
were nearly flat and negative (-0.5%) in the months of October
and November.33,34
Roehm filed a civil suit on December 15, 2006, in Oakland
County, Michigan District, against Wal-Mart for unlawful
termination of her employment, infringement of compensation
agreements, and also for slandering her in the press.
(To view the law suit filed by Julie Roehm, click here).
According to the court documents, Roehm was seeking a
compensation of US$ 1.5 million in actual damages, which
covered severance pay, stock options, restricted stock, and
bonus. She also alleged that the company did not return
personal belongings that were in her old office.35 These
included her Media Exchange files; materials from
presentations that she had worked on before joining Wal-Mart,
and copies of her Outlook files, including personal folders and
her Contacts list. In the lawsuit, Roehm alleged that Wal-Mart
had cited that she was not “fulfilling the expectations of an
officer of the company,” as the reason for firing her but claimed
that the company had failed to produce any relevant instances.
36 In her interviews in the media, Roehm claimed that she was
a victim of the culture clash at Wal-Mart and that her image as
a change agent had ultimately led to her ouster from the
company. Later, she also asserted that though corporations

knew that change was essential, they usually refused to
accept the desired change in much the same way as the
human body sometimes rejected an organ after an organ
transplant.37
Roehm contended that the allegations against her were
sparked by office politics.38 She hinted at a lack of teamwork in
the marketing department and said that there was a general
sense of animosity toward her. For instance, Stephen Quinn,
who was in charge of the consumer research and marketing
strategy department and reported directly to Fleming, allegedly
did not invite Roehm to strategy meetings or return her phone
calls. “Perhaps some did not like following or taking the advice
of a woman,”39 she said. Roehm also described Wal-Mart’s
culture as passive and aggressive and hostile to the outside
world.
WAL-MART’S COUNTERCLAIM
In Wal-Mart’s counterclaim filed on January 18, 2007, the
company refuted Roehm’s claims saying that the allegations
“set forth vague and broad legal propositions that require no
response.”40 Regarding her alleged misconduct, the lawsuit
read, “Instead of working solely in WalMart’s interest, (Roehm)
frequently put her own first. She did not merely fail to avoid
conflicts of interest, she invited them.”41
It was mentioned in the documents that Roehm was not
eligible for the executive-incentive stock options as she had
not been with the company all through the fiscal year that
ended January 31, 2007. According to the company rules, the
stock options were to be vested over three to five years,
provided Roehm stayed with Wal-Mart. Roehm was also
46

denied recovery of her electronic records from her Bentonville
office, but the company said that she could pick up the “step
ladder and paint supplies” she had left behind.42 In line with
the statements referred to in the documents, the following
were the major allegations based on which Roehm was ousted
from Wal-Mart:
During her stay at Wal-Mart, Roehm wasted Wal-Mart’s
time and resources by getting involved in an inappropriate
romantic relationship with her subordinate Womack.
Roehm was involved in inappropriate transactions and
relationships with an advertising agency which was to do
business with Wal-Mart.
Roehm used her stature and authority to accept gifts and
gratuities and secure individual benefits from impending
suppliers and to seek employment prospects from a
supplier.
When Roehm was asked about these incidents, she had
lied and denied their occurrence.
Wal-Mart charged that at Roehm’s behest, Womack’s
employment relationship with Wal-Mart had been extended
and he had become a permanent employee directly reporting
to her during his limited term at the company. Further, the
company alleged that the relationship between Roehm and
Womack had grown more intimate and become undeniably
inappropriate. The suit claimed that Womack’s wife Shelley
Womack (Shelley) had learnt about Roehm’s and Womack’s
relationship, and as a result, the couple had separated. Also
the lawsuit alleged that Roehm displayed increasing and

inappropriate favoritism toward Draft, one of the participants in
the advertising agency review process, particularly with Tony
Weisman (Weisman) the then global growth officer of Draft.
Roehm and Womack, atthe behest of Weisman, had extended
their stay at various places during the review process,
resulting in additional costs to Wal-Mart, it charged. In the suit,
it was mentioned that the two executives in question had
infringed the well-known strict corporate policies of Wal-Mart
by accepting costly dinners and gifts and gratuities from WalMart’s prospective clients.
The company also alleged that the two officers had been
interested in advancing their own careers in Wal-Mart’s
prospective client agency Draft, and in return, they had
provided advice and assistance to Draft regarding Wal-Mart’s
agency review process. Following the conduct and behavior of
the two officers, Wal-Mart alleged that they had given
conflicting accounts to the investigating officers of the
company about their relationship, about the agency review
process, and also about their relationship with Draft.
Finally, the company accused Roehm of breaching two of her
fiduciary duties - the duty of care and the duty of loyalty. The
company provided emails exchanged between Roehm and
Womack as evidence of an alleged affair between them, and
the emails exchanged between the duo and the executives of
Draft as evidence of Roehm’s allegedly unethical conduct. For
instance, one email from Roehm to Womack read: “I think
about us together all the time. Little moments like watching
your face when you kiss me.”43 In another email, Roehm
apparently thanked a Draft employee for a case of Effen
vodka, valued at nearly US$400.
47

The company prayed for the damages, costs, and expenses it
had incurred on the court proceedings. Speaking about the
counterclaim, Wal-Mart’s spokesperson said that the
company had no intention of bringing these gory details out
into the open, but the combative stance adopted by Roehm
and her attack against the company had forced them to
retaliate.
ROEHM’S RESPONSE
According to an excerpt from a statement by Roehm’s
lawyers, “It is not a coincidence that in Wal-Mart’s proposed
counterclaim, Wal-Mart -- which apparently reads its
employees’ e-mails -- has chosen only to excerpt small
portions of some of those e-mails in its filings. Wal-Mart
deliberately chose to take the e-mails out of context,
eliminating from its filing some of the substance of those emails, and then editorializing about the few actually quoted
words that it left behind, putting its own spin on them to create
sensationalism.”44
Roehm replied to Wal-Mart’s counterclaim on May 24, 2007.
Following were her replies to the allegations leveled against
her in the lawsuit:

Chrysler, but Wal-Mart did not fulfill its obligations under
that agreement, so she had not been fairly compensated.
Roehm denied that she had violated any of her fiduciary
duties or responsibilities to Wal-Mart.
She denied that she had engaged in any inappropriate
dealings or relationships with any advertising agencies
seeking to do business with Wal-Mart.
She refuted the charge that she had used her position and
authority to secure personal benefits from potential
suppliers and also said that she had not accepted and
retained items for which she did not pay, nor had she
solicited employment opportunities from a supplier.
Roehm also denied that she had expended Wal-Mart’s
time and resources in the course of an inappropriate
romantic relationship.
Lastly, she denied Wal-Mart’s allegation that she had lied
about the charges against her.

Throughout the course of her employment, her conduct
and actions had far exceeded the standard of conduct and
actions set by other executive employees of Wal-Mart.

She also rebuffed the allegations of her relationship with
Womack and about her favoritism toward Draft. She claimed
that Wal-Mart had drafted a plan to fire her “so that it can
avoid difficult questions about its fundamental unwillingness to
change its corporate culture and modernize its marketing
strategies.”45

Under the agreement between her and Wal-Mart, she was
supposed to be fairly compensated for executing her
responsibilities and foregoing continued employment with

In addition to this, Roehm alleged that the Wal-Mart
executives accepted gifts, gratuities, and considerations,
which was against the company’s gratuity policy. Despite Wal48

Mart’s assertion that it had strict policies prohibiting conflicts
of interests, and misuse of Wal-Mart’s resources, she insisted
that its executives used them for personal advantage. She
alleged that the CEO Scott too was guilty of it. Roehm alleged
that Scott had bought yachts and a “large pink diamond” at a
“preferential price” from companies run by Irwin Jacobs
(Jacobs) who ran Jacobs Trading Co.46,47

she was up against one of the most powerful companies in
corporate America.

Reacting to Roehm’s allegations, one of the company’s
representatives said, “This lawsuit is about Julie Roehm and
her misconduct. Her document shows how weak her case is.
We will address these issues in court. Certainly, we dispute
the allegations involving our CEO and Irwin Jacobs.”48 In June
2007, Jacobs filed a defamation suit against Roehm.49

In November 2007, Roehm, who had since been working as
an independent consultant with Womack, announced that she
had dropped her lawsuit against Wal-Mart, and admitted that
certain statements which she had made earlier about Scott’s
relationship with Jacobs had some inaccuracy.52 She said that
the litigation had drained her financially and hence, she had
decided not to pursue the case. Following this announcement,
Jacobs too withdrew the defamation suit against her. WalMart also decided not to pursue the case against Roehm.
Roehm, however, said that she had not received any money
to drop the case.

ROEHM BLINKS FIRST

DISCUSSION

In August 2007, Roehm’s lawsuit was dismissed from the
Michigan court as the judge ruled that it should have been
filed in Arkansas, where Wal-Mart was headquartered.50
Roehm had earlier submitted in court that she was a resident
of Michigan and was only temporarily staying at Arkansas and
as such had filed the suit there. However, the court ruled that
the lawsuit should have been filed in Arkansas as Roehm had
signed an agreement to the effect that any legal action
relating to her employment would be brought in state or
federal courts in Benton County, Arkansas. Some analysts felt
that Roehm had filed the lawsuit in her former state Michigan
believing that the employment laws were more favorable
there.51Analysts also noted that Roehm would find it
extremely difficult to carry the fight forward considering that

This incident at Wal-Mart turned out to be the most talked
about episode in corporate America during 2006 and 2007.
With the country’s largest private employer at the center of
this controversy, analysts felt that the incident had provided
ample food for thought to industry experts. Analysts felt that
the incident had set out issues which ought to be critically
analyzed such as organizational culture, organizational
change, office politics, and organizational communication,
managerial ethics, employee misconduct, and employee
surveillance.
ORGANIZATION CULTURE AND CHANGE
Analysts felt that Wal-Mart used the violation of its
employment policies to get rid of Roehm, who they described
as a cultural misfit at the company.53 Analysts felt that
49

organizational culture was an important factor and both the
company and Roehm had underestimated this aspect. In this
connection, Steven Gundersen, CEO of executive-search firm
Gundersen Partners, said, “Wal-Mart is unique in its heritage
and DNA. They do have a very distinctive culture; it’s strong
and deliberate”54 and probably the fit might not have been
right. Some analysts felt that Wal-Mart should not have hired
Roehm if they did not want to make any changes for it was
very evident from her past accomplishments what she stood
for. Some sympathized with Roehm and said that it was not
that uncommon for companies to bring in change agents from
outside, but to find a pretext to get rid of them when the going
got tough.55 Some viewed this incident as evidence that there
would not be any fundamental change in the company culture
in the near future. However, some analysts also blamed
Roehm equally for the fiasco. They felt that Roehm should
have foreseen the challenges that lay ahead when she
decided to join the company. Being a highflier who was on the
growth curve of her career, one would have expected her to at
least research the company properly for cultural fit before she
joined, they said.
OFFICE POLITICS AND COMMUNICATION
Some analysts felt that office politics might have played a part
in the fiasco. For instance, the rumors that surfaced regarding
the alleged affair between Roehm and Womack were largely
a result of office politics, they said. Some felt that Roehm’s
personality might have led to animosity. Her high profile image
might have been resented by other people at Wal-Mart.
Analysts felt that Roehm should not have created such a high
profile for herself, as she was a part of a team, and that too in

a company such as Wal-Mart which had a conservative
culture. She might have rubbed some executives the wrong
way by being too outspoken and by challenging the status
quo. Her decision to skip the Friday meetings conducted in
the presence of Scott too was a big mistake, according to
analysts. But while she continued making such mistakes,
there was no one who told her what she should or shouldn’t
do. This showed a gap in the organizational communication
between Roehm and her immediate superiors. In addition to
this, there also seemed to be problems of delegation and
authority in the company, they said. Some felt that she had
been guilty of other “political missteps” such as not keeping
the senior management closely informed about the agency
review process.56 In fact, some analysts felt that some of the
executives, including Fleming, were looking for reasons to
oust her.57
Managerial ethics, employee misconduct, and employee
surveillance
Some analysts had criticized Roehm for conducting herself in
a way that led to her being accused of unethical conduct. (For
Wal-Mart’s statement of ethics, Click here).She should not
have accepted gifts and costly dinners from Draft (even if she
had paid back the agency) when Wal-Mart’s employment
policy was clearly against this, they said. They felt that she
should not have gone to the agency’s Ad Forum newbusiness presentation during the middle of a review.
Regarding the allegations about office romance, they said that
even if they were false, she shouldn’t have acted in a way in
public that would set off such rumors.58
50

Industry experts believed that Wal-Mart followed a strict ethics
policy concerning its executives and ruthlessly dealt with
employee misconduct. However, the incident also brought into
the open Wal-Mart’s employee surveillance. Analysts felt that
though employee surveillance appeared to be legal, it was
unethical. The company supervised phone conversations and
personal mails of employees and also employed a special
team of 400 people in the security department to police the
employees. Analysts felt that while official emails were
considered company property, personal emails did not belong
to that category.59 In this particular case, the company was
alleged to have obtained the personal emails from Womack’s
estranged wife Shelly by using pressure tactics. The company
also forced Draft to hand over emails between its executives
and Roehm and Womack.
As such, industry experts observed that Wal-Mart, which used
cutting-edge monitoring systems, had fired several employees
which it had found guilty of minor offences. But during the
process of monitoring employees, it went beyond most
companies in sleuthing them. With regard to this, a former
employee of Wal-Mart said that it used the sophisticated
surveillance operation to spy not only on employees but also
on stockholders, critics, and the consulting firm McKinsey &
Company.60However, the company contended that this
incident showed that Wal-Mart was determined to enforce its
employment policies. Kenneth H.
Senser, who headed Wal-Mart’s security department, said,
“It’s been very clear from these investigations that the
company has taken a definitive stand… The chips are going
to fall where they may. If it’s a senior vice president or cashier

in the store, we are going to look at the allegations the same
way — and not give somebody a pass.”61 He also added that
the company or its security staff were not after the employees
but only wanted to ensure that the company was being run
properly and ethically and the shareholders were benefited.
By and large, analysts felt that such incidents did not do
anyone any good. For both Roehm and Wal-Mart, it had led to
a lot of negative publicity. This could hamper Roehm’s
chances of getting a good job anywhere, some felt. Her brand
value as a quality marketer might have been dented by her
early departure from Wal-Mart. But with the ugly allegations
that followed, there might be no takers for her. Roehm would
have been better served if she had put the disappointment
behind her like other high profile executives who had been
forced out for one reason or the other (the list was long with
big names such as Lee Iacocca, Sandy Weill, Jamie Dimon,
and John Mack), and concentrated on being successful in
their next career.62
On the other hand, Wal-Mart, which had for long faced
allegations of unethical business practices (also employeerelated), could surely have done without this controversy.
They felt that Wal-Mart did not have a very good image and
its public battle with Roehm could only strengthen that
negative perception. They argued that if a company fostered
an atmosphere of mistrust, not only would the employees
mistrust it but also the consumers.63 As James Cox, a law
professor at Duke University, said: “Some of these things are
better off being put quietly to bed — if you’ll excuse the pun.
This kind of publicity does nobody any good — even if you
are right.”64
51

Exhibit I
Wal-Mart’s key financial : 2003-2007

Year

Net sales (in
US $millions)

Percentage
increase in net
sales

Cost of sales
(in US
$millions)

Income from continuing
operations (in US $millions)

2007

3,44,992

11.66

2,64,152

12,178

2006

3,08,945

9.75

2,37,649

11,408

2005

2,81,488

11.35

2,16,832

10,482

2004

2,52,792

11.61

1,95,922

9,096

2003

2,26,479

-

1,75,769

7,940

52

Exhibit II
The 2008 Fortune 500: America’s Top Ten Corporations by Revenue

Rank

Company

Revenues

Profits

(US $ billion) 

(US $ billion)

Retail

378.80

12.73

Industry

1

Wal-Mart
Stores*

2

Exxon Mobil

Oil & Natural Gas

372.82

40.61

3

Chevron

Oil & Natural Gas

210.78

18.69

4

General Motors

Automotive

182.35

-38.73

5

Conoco Phillips

Oil & Natural Gas

178.56

11.89

6

General Electric

Diversified

176.66

22.21

7

Ford Motor

Automotive

172.49

-2.72

8

Citigroup

Financial Services

9

Bank of America Corp.

Financial Services

119.19

14.98

10

AT&T

Telecom

118.93

11.95

159.23

3.62

* Wal-Mart Stores was also ranked #1 in the years 2007, 2005, 2004, 2003,2002.
* In 2006, it was in the the second position behind Exxon Mobil.
Adapted from http://money.cnn.com/magazines/fortune/fortune500/2008/full_list/.

53

Exhibit III
Criticisms against Wal-Mart
Issues

Descriptions

Anti-unionist

Since the 1970s, Wal-Mart had been anti-unionist, taking the stand that it was
adhering to an open-door employee policy.

Employee discrimination

The company was charged with discrimination against women employees in
2003.

Employee surveillance

A former employee of Wal-Mart contended that the retailer carried out a large
surveillance operation, sneaking on employees, shareholders, critics, etc.

Poor working conditions

Wal-Mart was accused of forcing its workers to work off-the-clock, denying over-time
payments, child-labor laws infringements, and of employing illegal immigrant workers.

Low wages

The retail giant was charged with discouraging labor costs and of paying lower wages
to its workforce

Health insurance

Critics alleged that employees were paid so little that they could not afford health
insurance, and if they could afford it, they preferred the state’s health insurance
program to Wal-Mart’s.

Overseas labor concerns

Critics accused Wal-Mart for its supervision of overseas operations, where issues like
poor working conditions, employing prison labor, low wages, etc., were allegedly
prevalent.

Predatory pricing and
supplier issues

The company was also accused of intentionally selling the merchandize at low costs,
driving competitors away from the market. It was also alleged that it used its scale to
squeeze the margins of its suppliers.

Adapted from various sources.

54

EXHIBIT V
Julie Roehm’s Achievements
Year

List of Awards and Recognitions
Marketing All-Star for 2004’ by Automotive News
‘Automotive Marketer of the Year’ by BrandWeek

2004

Among ‘Working Mother’s Top 25 Women of 2004’
Initiated in the ‘AAF Advertising Hall of Achievement’ for outstanding performance in the field of
marketing and advertising to executives under 40 years old.

2005

Inducted into the ‘Automotive Hall of Fame’ and was noted as one of the ‘Top 100 Most Influential
Women in the Automotive Industry.’
Under Julie Roehm’s leadership, Chrysler was named ‘Interactive Marketer of the Year’ by Ad Age.

2006

Named as runner-up ‘Corporate Media Executive of the Year’ by the Delaney Report.
Awarded “Distinguished Alumni” award by University of Chicago’s Graduate School of Business.

Source: “Julie Roehm’s Bio,” www.imediaconnection.com, June 25, 2007.

56

Footnotes
1. Michael Barbaro and Stuart Elliott, ―Wal-Mart Fires
Marketing Star and Ad Agency,ǁ‖ www.nytimes.com,
December 8, 2006.
2. Rachel Sklar, ―Roehm & Womack: Wal-Mart Drama, but
the Conference Must Go on,ǁ‖ www.huffingtonpost.com,
March 20, 2007.
3. ―My Year at Wal-Mart,ǁ‖ www.businessweek.com,
February 12, 2007
4. Chuck Bartels, ―Wal-Mart Ad Executive Drops Lawsuit,ǁ‖
www.businessweek.com, November 5, 2007.
5. Draft FCB is a global advertising agency network owned
by one of the leading marketing communication and
marketing services firm, Interpublic Group.
6. Betsy Spethmann, ―Julie Roehm Sues Wal-Mart,ǁ‖
www.promomagazine.com, January 26, 2007.
7. Dominic Rushe, ―Sex Dispute Exposes Wal-Mart‘s
Snoopers,ǁ‖ www.business.timesonline.co.uk, April 1,
2007.
8. Steve Painter, ―Ex-executive Gives up Wal-Mart
Lawsuit,ǁ‖ www.nwanews.com, November 6, 2007.
9. Wal-Mart refers to its employees as associates.
10. Satellite Network is the largest private satellite
communication system in the US which linked all

operating units of company and General Office with 2-way
voice, data and one-way video communication.
11. DaimlerChrysler AG (now known as Daimler AG),
headquartered in Stuttgart, Germany, is a German car
corporation and one of the world‘s largest car
manufacturers. In 2007, Daimler sold an 80 percent stake
in Chrysler Holding to a private equity investment firm,
Cerberus Capital Management. The US automotive unit
now operated as Chrysler LLC.
12. Wal-Mart Appoints Julie Roehm, 95, as Senior Vice
President,ǁ‖ www.chicagogsb.edu/news, February 28,
2006.
13. Sandra O‘Loughlin, ―Roehm, Womack Exit Wal-Mart,ǁ‖
www.mediaweek.com, December 5, 2006.
14. Spencer Stuart, based in USA, is one of the world‘s
leading executive search consulting firms with clients
ranging across industries, large scale companies, startups, and countries.
15. GSD&M Advertising, presently called as GSD&M Idea
City, is an advertising agency located in Austin, Texas,
USA.
16. Bernstein-Rein Advertising, Inc. is an advertising agency
located in Kansas City, Missouri, USA.
17. Enid Burns, ―Wal-Mart Taps Online Advocate Roehm,ǁ‖
www.clickz.com, January 19, 2006.

57

18. Ford Motor Company, headquartered in Dearborn,
Michigan, USA, is the world‘s third largest automobile
company by worldwide vehicle sales.
19. Wal-Mart Appoints Julie Roehm, 95, as Senior Vice
President,ǁ‖ www.chicagogsb.edu/news, February 28,
2006.
20. All state Corp. is the largest publicly held personal lines
insurer in the US which sells auto insurance, home
insurance (in certain localities), life insurance, umbrella
insurance, and commercial insurance to name a few.

27. The Martin Agency is an American advertising agency
based in Richmond, Virginia, USA.
28. MediaVest is a division of Starcom MediaVest Group
(SMG), which offers brand-building and business solutions
to its clients.
29. Holly M. Sanders ―After Scandal, Wal-Mart Hires Two Ad
Firms,ǁ‖ www.nypost.com, January 13, 2007.
30. Nicole Maestri, ―Roehm Says Wal-Mart was Not Ready
for Change,ǁ‖ www.reuters.com, January 24, 2007.

21. Gary McWilliams, Suzanne Vranica, Neal E. Boudette and
Russ Fagaly, ―How a Highflier in Marketing Fell at WalMart,ǁ‖ www.walmartwatch.com, December 11, 2006.

31. Marcus Baram, ―The Fired Wal-Mart Exec and the
̳ Friendly‘ E-mail,ǁ‖ www.abcnews.go.com, February 6,
2007.

22. R o b e r t B e r n e r , ― M y Y e a r a t W a l - M a r t , ǁ‖
www.businessweek.com, February 12, 2007.

2007.

23. Vogue is a fashion and lifestyle magazine published and
circulated in several countries by Condé Nast
Publications.


24. Glamour is a women‘s magazine published monthly by
Condé Nast Publications in the US. It was originally called
Glamour of Hollywood.

34. Kristina Cowan, ―Julie Roehm: Did the Walmart Scandal
Shatter Her Career?ǁ‖ www.blogs.payscale.com, March 26,
2007.

25. Entertainment and Sports Programming Network (ESPN),
is an American cable television network dedicated to
broadcasting and producing sports-related programming.

35. Aaron Baar, ―Roehm Suit Keeps Wal-Mart Saga Alive,ǁ‖
www.allbusiness.com, January 29, 2007.

26. Sandra O‘Loughlin, ―Roehm Exits Wal-Mart,ǁ‖
www.adweek.com, December 5, 2006.

36. Tom Siebert and Sarah Mahoney, ―No Smiley Face for
R o e h m : W a l - M a r t M a r k e t i n g E x e c A x e d , ǁ‖
www.publications.mediapost.com, December 6, 2006.
58

37. Hanft Unlimited Inc., headquartered in New York City,
USA, is a branding and advertising company.
38. Parija B. Kavilanz, ―Ad-agency Flap Won‘t Hurt WalMart‘s Holidays,ǁ‖ www.money.cnn.com, December 8
2006.

47. Lauren Coleman-Locher and Margaret Cronin Fisk, ―ExWal-Mart Chief Accuses Executives of Taking Gifts,ǁ‖
www.bloomberg.com, May 27, 2007.
48. Aaron Baar, ―Roehm: Wal-Mart Execs Took Gifts,ǁ‖
www.adweek.com, May 25, 2007.

39. Exec Who Led Plan to Retool Wal-Mart out,ǁ‖
www.msnbc.msn.com, December 5, 2006.

49. W a l - M a r t S u p p l i e r F i l e s D e f a m a t i o n C a s e , ǁ‖
www.reuters.com, June 4, 2007.

40. Sandra O‘Loughlin, ―Roehm Exits Wal-Mart,ǁ‖

50. Gina Keating, ―Michigan Judge Dismisses Roehm‘s WalMart Suit,ǁ‖ www.reuters.com, Aug 22, 2007.

2007.

51. Noreen O‘Leary, ―Roehm, Wal-Mart End Legal War,ǁ‖
www.adweek.com, November 5, 2007.

www.promomagazine.com, January 26, 2007. 6
43. Kevin Brass, ―Behind the Curtain: Wal-Mart‘s Change
Agent,ǁ‖ www.metrostew.com, October 2007.
44. Rachel Sklar, ―Roehm & Womack: Wal-Mart Drama, but
the Conference Must Go on,ǁ‖ www.huffingtonpost.com,
March 20, 2007.
45. Aaron Baar, ―Roehm: Wal-Mart Execs Took Gifts,ǁ‖
www.commercialalert.org, May 25, 2007.
46. Jacobs Trading Co., based in Plymouth, Minnesota, USA,
is a firm that buys and sells returned and leftover
merchandise from Wal-Mart.

www.nytimes.com, November 5, 2007.
www.nytimes.com, November 5, 2007.David Kiley, ―An
Open Letter to Walmart, Julie Roehm, and Draft/FCB,ǁ‖
www.businessweek.com, December 14, 2006.
55. Liz Handlin, ―What Can We Learn from the Julie Roehm/
Wal Mart Split?ǁ‖ www.ultimate- resumes.blogspot.com,
December 11, 2006.

59

57. J i m B u r t , ― Wa l - M a r t D i s c o n t i n u e s R o e h m , ǁ‖
www.thecarconnection.com, December 6, 2006.
58. David Kiley, ―An Open Letter to Walmart, Julie Roehm
and Draft/FCB,ǁ‖ www.businessweek.com, December 14,
2006.
2007.
60. Inside Wal-Mart‘s ̳ Threat Research‘ Operation,ǁ‖
www.msn.com, The Wall Street Journal, April 5, 2007.
61. Michael Barbaro, ―Bare-Knuckle Enforcement for WalMart‘s Rules,ǁ‖ www.nytimes.com, March 29, 2007.
62. Beauty and the Beast,ǁ‖ www.starkmanassociates.com,
July 10, 2007.
63. David Vinjamuri, ―Wal-Mart Turns Small Headache into a
Big Problem,ǁ‖ www.thirdwayblog.com, March 29, 2007.
2007.

Suggested Readings and References
1. Burns, “Wal-Mart Taps Online Advocate JuliRoehm,”
www.clickz.com, 
January 19, 2006
2. “Wal-Mart Appoints Julie Roehm, 95, as Senior Vice
President,” www.chicagogsb.edu, February 28, 2006.
3. David Kiley, “Walmart’s Roehm Up to Her Old Publicity
Mar keting Ways,” www.businessweek.com, November
17, 2006.
4. “Exec Who Led Plan to Retool Wal-Mart Out,”
www.msnbc.msn.com, December 5, 2006.
5. S a n d r a O ’ L o u g h l i n , “ R o e h m E x i t s Wa l - M a r t , ”
6. Sandra O’Loughlin, “Roehm, Womack Exit Wal-Mart,”
www.mediaweek.com, December 5, 2006.
7. J i m B u r t , “ W a l - M a r t D i s c o n t i n u e s R o e h m , ”
www.thecarconnection.com, December 6, 2006.
8. Tom Siebert and Sarah Mahoney, “No Smiley Face for
Roehm: Wal-Mart Marketing Exec Axed,”
9. Michael Barbaro and Stuart Elliott, “Wal-Mart Fires
Marketing Star and Ad Agency,” www.nytimes.com,
December 8, 2006.

60

10. Parija B. Kavilanz, “Ad-agency Flap Won’t Hurt Wal-Mart’s
Holidays,”www.money. cnn.com, December 8, 2006.

20. Nicole Maestri, “Roehm Says Wal-Mart was Not Ready for
Change,” www.reuters.com, January 24, 2007.

11. Sarah Gilbert, “Julie Roehm Too ‘Sexy’ for Wal-Mart;
Proves Bentonville Still Honors Sam’s Values,”
www.bloggingstocks.com, December 8, 2006.

21. Betsy Spethmann, “Julie Roehm Sues Wal-Mart,”

12. McCain, “Walmart Babe Canned by Good Old Boys?”
www.rightpundits.com, December 10, 2006.
13. Gary McWilliams, Suzanne Vranica, Neal E. Boudette and
Russ Fagaly, “How a Highflier in Marketing Fell at WalMart,” Wall Street Journal, www.walmartwatch.com,  
December 11, 2006.
14. Liz Handlin, “What Can We Learn from the Julie Roehm/
Wal Mart Split?” www.ultimate-resumes.blogspot.com,
December 11, 2006.
15. Marc Brownstein, “Echoes of the Wal-Mart/Roehm
Account Review Debacle,” www.adage.com, December
11, 2006.
16. “A Yucky Way To Go - Julie Roehm, Wal-Mart,”
www.jibberjobber.com/blog, December 13, 2006
17. David Kiley, “An Open Letter to Walmart, Julie Roehm and
Draft/FCB,” www.businessweek.com, December 14, 2006.
18. Holly M. Sanders, “After Scandal, Wal-Mart Hires Two Ad
Firms,” www.nypost.com, January 13, 2007.
19. “Fired Exec Says Wal-Mart Couldn’t Take Change,”
www.wakeupwalmart.com, January 24, 2007.

22. Sandra O’Loughlin, “Wal-Mart Denies Roehm Allegations,”
www.allbusiness.com, January 26, 2007.
23. Aaron Baar, “Roehm Suit Keeps Wal-Mart Saga Alive,”
www.allbusiness.com,  
January 29, 2007.
24. Marcus Baram, “The Fired Wal-Mart Exec and the
‘Friendly’ E-mail,” www.abcnews.go.com, February 6,
2007.
25. R o b e r t B e r n e r , “ M y Y e a r a t W a l - M a r t , ”
26. Rachel Sklar, “Roehm & Womack: Wal-Mart Drama, But
the Conference Must Go on,” www.huffingtonpost.com,
March 20, 2007.
27. “Wal-Mart vs. Julie Roehm: Battle Grows More Sordid,”
www.autoobserver.com, March 20, 2007.
28. Kim Mickelsen, “The Wal-Mart/Roehm Beat goes on…and
on…and on,” www.marketinginsideout.com, March 21,
2007.
29. Kristina Cowan, “Julie Roehm: Did the Walmart Scandal
Shatter Her Career?” www.blogs.payscale.com, March 26,
2007.
61

30. “Ex-exec Slams Wal-Mart for Smear Campaign,”
www.money.cnn.com, March 28, 2007.
31. David Vinjamuri, “Wal-Mart Turns Small Headache into a
Big Problem,” www.thirdwayblog.com, March 29, 2007.
32. Michael Barbaro, “Bare-Knuckle Enforcement for WalMart’s Rules,” www.nytimes. com, March 29, 2007.
33. Dominic Rushe, “Sex Dispute Exposes Wal-Mart’s
Snoopers,” www.business. timesonline.co.uk, April 1,
2007.
34. “Inside Wal-Mart’s ‘Threat Research’ Operation,”
www.msn.com, April 5, 2007.
35. “ W a l - M a r t ’ s P a r a n o i d S p y i n g
Operation,”www.soxfirst.com, April 13, 2007.
36. Devin Leonard, “How Wal-Mart Got the Love e-mail,”
www.money.cnn.com, April 17, 2007.
37. “Accusations Fly in Wal-Mart Case,” www.bbc.co.uk, May
22, 2007.
38. Aaron Baar, “Roehm: Wal-Mart Execs Took Gifts,”
www.adweek.com, May 25, 2007.
39. Lauren Coleman-Locher and Margaret Cronin Fisk, “ExWal-Mart Chief Accuses Executives of Taking Gifts,”
www.bloomberg.com, May 27, 2007.
40. Zac Bissonnette, “Wal-Mart Should Bring Julie Roehm
Back,” www.bloggingstocks. com, May 27, 2007.

41. “Hotlines: Roehm Responds to Wal-Mart Claims in New
Court Filing,” www.entertainment_industry.fresh-hotnews.net, May 30, 2007.
42. “ Wa l - M a r t S u p p l i e r F i l e s D e f a m a t i o n C a s e , ”
www.reuters.com, June 4, 2007.
43. “Beauty and the Beast,” www.starkmanassociates.com,
July 10, 2007.
44. Anita French, “Roehm Hires Big Gun in Fighting WalMart,” www.nwaonline.net,  
June 15, 2007
45. “Julie Roehm’s Bio,” www.imediaconnection.com, June
25, 2007.
46. Gina Keating, “Michigan Judge Dismisses Roehm’s WalMart Suit,” August 22, 2007, www.reuters.com.
47. Jeffrey V. Mehalic, “Wrongful Termination Lawsuit Reveals
Wal-Mart’s Surveillance Practices,”
www.wvbusinesslitigationblog.com, September 9, 2007.
48. Chuck Bartels, “Wal-Mart Ad Executive Drops Lawsuit,”
www.nytimes.com, 
November 5, 2007.
49. Peter Lattman, “The Decline and Fall of Roehm’s
Litigation against Wal-Mart,” www.blogs.wsj.com/law,
November 5, 2007.
50. Noreen O’Leary, “Roehm, Wal-Mart End Legal War,”
www.adweek.com, November 5, 2007.
62

51. “Statements of Roehm, Jacobs in Wal-Mart Employment
Case,” www.online.wsj.com, November 5, 2007.
52. Steve Painter, “Ex-executive gives up Wal-Mart Lawsuit,”
www.nwanews.com, November 6, 2007.
53. Ann Zimmerman and Gary McWilliams, “Inside Wal-Mart’s
‘Threat Research’ Operation,” www.wakeupwalmart.com.
54. Kevin Brass, “Behind the Curtain: Wal-Mart’s Change
Agent,” www.metrostew.com, October 2007.
55. “ T h e Wa l - M a r t S p y S a g a a n d L e s s e r Ta l e s , ”
www.someoneinusa.blogspot.com.
56. “ Yo u ’ r e F i r e d ! W a l - M a r t v s . J u l i e R o e h m , ”
www.fusionbrands.blogs.com.
57. www.bigcharts.com
58. www.en.wikipedia.org.
59. www.thewritingonthewal.net
60. www.walmart.com
61. www.walmartfacts.com
62. h t t p : / / m o n e y . c n n . c o m / m a g a z i n e s / f o r t u n e /
fortune500/2008/full_list/

63

C HAPTER 4

Perception
People respond to situations on the basis of their
perception about reality rather than the reality itself.
Hence it is important to recognize the differences in the
perceptions of individuals to understand their behavior at
the workplace. For example, most managers assume
that all employees want to be empowered to make
decisions, but in reality, some subordinates do not want
to have decision-making power, because it will impose
on them additional responsibilities and they will be
accountable for wrong decisions. Here, the perceptions
of the managers differ from that of the subordinates.
Perceptual differences can sometimes lead to conflicts in
the organization. Differences can be resolved and work
environment can be improved by understanding the
processes and subprocesses of perception and the
factors that influence perception.

understand:
Definition of perception
Meaning and significance of perception
Perceptual selectivity
Frequently used shortcuts in judging others
Linkage between perception and individual decisionmaking

Section 1

Meaning and Significance of Perception
Perception may be defined
as the process by which an
individual selects, organizes
and interprets stimuli into a
meaningful and coherent
picture of the environment in
which he lives. It is a
complex cognitive process
and differs from one
i n d i v i d u a l t o a n o t h e r,
depending on the needs,
Source:www.t2.gstatic.com
values and expectations of
the individual. The
perception of two individuals may differ even if they are
exposed to the same stimuli, under the same conditions. If
a manager, in an organization, comes to each employee’s
desk and interacts with him, one employee may perceive
the manager’s visits as friendly in nature while another may
perceive the visits as an attempt by the manager to keep
an eye on them.

Perceptions may also differ from organization to
organization. Some organizations perceive that aggressive
and dominating culture and the maintenance of conformity
(of all employees to certain beliefs and values) is essential
for their success. But some organizations perceive that
cooperation, team culture and preservation of individual
identities is crucial for their success.


65

Section 2

Perceptual Selectivity
People constantly encounter various stimuli. The noise of
people talking, the sound of the air conditioner, or the noise
of vehicles are some of the stimuli that are sensed.
Sometimes the stimuli may be so subtle that an individual
may not even be conscious that he is exposed to some
stimulus. This is called subliminal perception.
Though people are exposed to several stimuli, they tend to
select only a few at a given point of time. The study of the
principles of perceptual selectivity helps us understand the
process of selection and the reasons for such selection.
Perceptual selectivity depends on external attention factors
and internal set factors. These are described below:

Size
A larger object is more likely to be noticed than a smaller
object.
Contrast
According to the principle of contrast, the stimuli that
contradict most with the background or the expectations of
people receive maximum attention represents the contrast
principle.
Figure 4.2.1: The Contrast Principle of
Perception: Which White Square is Smaller

External Attention Factors
Factors such as intensity, size, contrast, repetition, motion,
novelty and familiarity of objects and situations comprise
external attention factors and influence the perceptual
selectivity of individuals.
Intensity
According to the intensity principle of attention, the intensity
of an external stimulus determines its probability of being
perceived.

Source: Internal

66

The white square on the left in the figure 4.2.1 appears to
be much bigger than the white square on the right
although both the squares are of the same size. This is
because of the contrast between the white square on the
left with the background squares in terms of size. The
white square on the left draws more attention because the
size of the square is much more than the squares
surrounding it. In the case of the figure on the right, the
size of the white square is much smaller than that of the
background squares. Similarly, an employee in an airport
gets so used to hearing all kinds of sounds that he is not
likely to notice the roaring sound made by airplanes while
landing and takeoff. But if on any day, due to some
reason, if there is a reduction in the air traffic levels, then
the employee will immediately notice the reduction in the
noise level.
Repetition
The principle of repetition states that the more number of
times a stimulus is repeated, the more it is likely to be
noticed.

Internal Set Factors
Internal set factors too play an important role in the
process of perceptual selectivity. Set is an important
cognitive process based on the psychology of an
individual. People select those stimuli from the
environment that appeal to them and suit them based on
their learning, motivation and personality. These aspects
are discussed in detail below.
Learning and Perception
Learning by itself plays a major role in developing the
perceptual set. For example, read the sentence in Figure
4.2.2
Figure 4.2.2: Learning and Perception

Hilly
Terrrain
Ahead
Source: Internal

Motion

According to the principle of motion, people give more
attention to moving objects than to stationary objects.
Novelty and Familiarity

New objects in a familiar situation or familiar objects in a
new situation draw the perceiver’s attention.

Even though the letter ‘R’ has been repeated thrice in the
word ‘Terrain’, it would take a little time for a person to
realize that something is wrong with the word. The earlier
learning of the person results in his familiarity with the
word and hence makes him read the sentence as “Hilly
terrain ahead.” This shows that learning has an impact on
an individuals’ process of perception.

67

Perceptual Set in the Workplace

Factors Influencing Perception

After working in an organization for a certain period of
time, employees learn to interpret some (but not all)
statements and situations in a similar way. They may use
common names, phrases and remarks (that are unique to
their organization) to denote some things. For example,
priority projects may commonly be referred to as PP and
influential people by IP and so on.

The factors which influence perception include the
perceiver himself, the object or target being perceived and
the situation in which the perception occurs. Refer to the
keynote 4.2.1 that explains the factors influencing
perception.
Keynote 4.2.1: Factors
Influencing Perception

For example, employers and employees may differ in their
perceptions. Another common example is the difference in
the perceptions of the union members and the
management. The work environment provided in an
organization is perceived as the best by the management
while the trade unions perceive the opposite. The trade
unions may continuously demand for improvement in the
work environment while the management may decline
these demands. This often leads to industrial disputes.
Motivation and Perception
Motivation also plays an important role in determining
perceptual selectivity. The primary motives such as hunger
and thirst influence the perception of an individual.
Perceptual set is also influenced by secondary motives,
such as the need for power, affiliation or achievement.
Personality and Perception
An individual’s personality may also affect his perception of
a particular situation.

Source: Organizational Behavior, 13th
Edition, Stephen Robbins

Subprocess of
Perception:
The complexity and
interactive nature of
perception is due to
the existence of
several sub processes.
Refer to the keynote
4.2.2 that shows how
these sub processes

Keynote 4.2.2:
Subprocess of Perception

Source: IBS Hyderabad

68

relate to one another.

as a general strike), it is called external causation
(Situational Attributes) of the behavior.

Attribution Theory
We tend to explain our behavior and the behavior of others
by assigning causes or attributes to these behaviors.This
theory assumes that our judgment of people will depend on
the attribute we assign to a particular behavior. To further
understand this theory, let us look at a small example.

However, to further understand how do individuals attribute
behaviors to internal and external causation, we need to
understand three factors - distinctiveness, consensus and
consistency and they are illustrated in the keynote 4.2.3.
Keynote 4.2.3: Attribution Theory

Take the instance of a tardy employee who comes late to the
office. There are two possibilities why the employee has
come late to the office.
(i) Because the employee overslept and could not wake up
to be ready for the office on time. (or)
(ii) Because there was a general strike, and since there was
no public transport, the employee could not reach the
office on time.
In the first instance, if you
attribute the employee’s
behavior to factors that are
within the employee’s control
(such as waking up early to
work), it is called Internal
causation (Dispositional
Attributes) of the behavior.
On the other hand, if you
attribute the employee’s
behavior to factors which are
beyond one’s control (such

Video 4.2.1: Attribution
Theory

Source: Adapted from Organizational Behavior, 13th Edition, Stephen Robbins

Let us go back to the previous example of the tardy
employee.
As a manager, if you want to understand why this employee
has turned up late to work, you will want to know if this
employee is also tardy with the work assignments, such as
missing the project deadlines, not turning up to work
(absenteeism) and not turning up to meetings, etc.

?v=KB7kt_9td7c&feature=relmfu

If this employee who turns up late to work, also misses the
deadlines, is also frequently on leave and does not turn up
69

to the meetings, you as a manager can say that the employee
is behaving in a similar way across all situations. In other
words, distinctiveness in his behavior is low. In this case, you
may assume that the employee may be having a problem,
and therefore in this case, the behavior is explained by
internal causation. On the other hand, let us say that the
employee has only turned up late to work. Otherwise, he/she
is good with managing the deadlines, reports to office
regularly and actively contributes to the meeting, you can infer
that the employee only has a problem reaching to the office
on time. In other words, his/her behavior to different situations
(meeting deadlines, attending meetings etc) is different or
very distinct. In this case, you may attribute the behavior to
external causation.
The next factor to focus on is Consensus. For example, let us
say that on the given day when the employee turned up late
to work, some or most of the other employees have also
reported late to work. This is a
Video 4.2.2:
case, where everyone is
Attribution Theory
responding to a situation (such as
a general strike) in a similar way.
Hence we can say that the
consensus is high. Therefore, in
this case, the behavior is
explained by external causation.
On the other hand, if it is only one Source:www.youtube.com/
employee who has turned up late watch?v=HcSldMZI_co&fe
ature=relmfu
to work on this day, it is a case
where not everyone is reacting in
the same way to a situation (general strike). Therefore, the

consensus is low. In this case, the individual’s behavior is
explained by internal causation.
Finally, we need to understand consistency. Let us say that
this employee has only reported late to work on this particular
day. Otherwise he/she is usually on time to work. Thus it is a
case where the employee is not consistently behaving in the
same way over a period of time. Therefore, in this case, when
the consistency is low, the behavior is explained by external
causation (the employee is late because of the general
strike). On the other hand, if this employee is consistently
reporting late to work, it may be attributed to internal
causation
Interestingly, research has shown that individuals are more
likely to attribute their success to internal factors (internal
causation) and shortcomings to external factors (external
causation). So, if an employee is able to meet all the project
deadlines, he/ she would attribute that to one’s competence
(internal), rather than a supportive project team and a
manager (external).
Attribution Errors
There are two important errors we make when we assign
causes or attributes.
Fundamental Attribution Error: This is the tendency to
overestimate the internal factors and underestimate the
external factors when we are explaining behaviors of
others. This could happen when one gives more
emphasis on the individual rather than the situation. In the
previous example, the manager attributes the employees
70

laid back attitude to his late coming, while ignoring other
situational causes like traffic jam, break down of vehicle,
etc.

understanding of these shortcuts will help in avoiding such
issues. Given below in the keynote 4.2.4 are some of the
shortcuts.

Self-Serving Bias: This is the tendency to attribute
successes to internal factors and failures to external
factors when we are explaining our own behavior. For
example, if a student does well in his exams, he/she
attributes it to hard work, intelligence, etc. But if he/she
does badly then it is attributed to bad teacher, questions
out of the syllabus, etc.
Frequently Used Shortcuts in Judging Others
We often use a number of shortcuts when we judge other
individuals. In an organizational context, these shortcuts allow
managers to make perceptions rapidly. Though these are
beneficial, they are not free from errors. They can cause
distortions which may lead to organizational issues. Better
Keynote 4.2.4: Frequently Used
Shortcuts in Judging Others

Source: Internal
71

Section 3

Linkage Between Perception and Individual Decision-Making
Individuals in organizations make decisions. They can
make choices from amongst two or more alternatives. Top
managers, for example, decide their organizational goals,
products or services that are to be offered, how can be
operations financed, or decide the location of a new
manufacturing plant. Middle and lower-level managers
determine production schedules, select new employees
and decide how pay raises are to be allocated. Of course,
decision- making is not the only province of managers.
Non-managerial employees
Video 4.3.1: Brain
can make decisions that
Research at
affect their jobs and the
Stanford: Decision
organizations for which they
Making
work. The most apparent of
these decisions might
include whether or not to
come to work on any given
day, how much effort to put
forth once at work and
whether or not to comply
with a request made by the Source:www.youtube.com/watch?
v=WRKfl4owWKc

boss. In addition, an increasing number of organizations in
recent years have been empowering their non-managerial
employees with job-related decision- making authority that
historically was reserved for managers. Thus individual
decision-making is an important part of organizational
behavior. But how individuals in organizations make
decisions and the quality of their final choices are largely
influenced by their perceptions.
Decision-making occurs as a reaction to a problem. That
is, there is an inconsistency between some current state of
affairs and some desired state, requiring the consideration
of alternative courses of action. Suppose if a person’s car
breaks down and he relies on it to go to work, he has a
problem that requires a decision on his part. Unfortunately
problems don’t come neatly packaged with a label as a
problem clearly displayed on them. One individual’s
problem is another individual’s satisfactory state of affairs.
One manager may view his division’s two percent decline
in quarterly sales to be a serious problem requiring
immediate action on his part. In contrast, his counterpart in

72

another division of the same company, who also had a two
percent sales decrease, may consider that percentage quite
acceptable. So, the awareness that a problem exists and
that a decision needs to be made is a perceptual issue.

importance of human behavior in the process of decisionmaking, by proposing that decision makers operate with
‘bounded’ rationality. The following are the assumptions of
Simon’s bounded rationality model:

Moreover, every decision needs the interpretation and
evaluation of information. Data are typically obtained from
various sources and they need to be screened, processed,
and interpreted. Which data are relevant to the decision and
which are not? The perceptions
of decision maker will answer Video 4.3.2: Decisionthat question. Alternatives will be
Making
developed and the strengths and
weaknesses of each will need to
be evaluated. Again, because
alternatives do not come with a
flag identifying them as such or
with their strengths and
weaknesses clearly marked, the
individual decision maker ’s watch?v=DyvXu3lSSG0
perceptual process will have a
large bearing on the final outcome. Lastly, throughout the
entire decision process, perceptual distortions often surface
that have the potential to bias analysis and conclusions.

While choosing from the available alternatives, decision
makers may end up accepting a solution that meets only
the minimal requirements of the existing problem. Thus
decision makers attempt to ‘satisfice’ with a ‘less-thanideal’ alternative. Once a minimally accepted alternative
is arrived at, the search for an optimal alternative ends.
In other words, the decision makers do not continue to
explore the situation for better alternatives.

Source:www.citeman.com/294-the-link-between-perception-andindividual-decision-making.html

Simon’s Bounded Rationality Model
Simon’s bounded rationality model is a relatively realistic
approach towards decision-making, when compared to the
economic rationality model. This model recognizes the

They are contented with a simplified understanding and
perception of the problem, without actually realizing the
real implications of the existing situation.
According to this behavioral model of decision making,
the decision makers end up satisficing rather than
maximizing, as they make their choices even before
attempting to discover all possible alternatives to the
problem.
The decision makers choose from among the alternatives
based on simple rules of thumb, tricks of trade or past
experiences. These techniques do not trigger the creative
abilities of the people involved in the decision making
process.
This model, however, does not discuss the tendency of bias
creeping into the decisions made, i.e. the model does not
73

identify the influence of personal biases of the decision
maker on the decisions made.
Errors and Bias in Judgment
Reasoning, judging and deciding are important aspects of
everyday life and are particularly critical in the context of
decision-making in organizations. For example, managers
routinely make decisions amid uncertainty and too little
time. Researchers in the Behavioral Sciences proved that
despite an individual’s best intentions, decision-making
involve bias.
Common Errors in Decision-Making
Anchoring Bias: The anchoring is the tendency to
fixate on initial information. Once set, individuals fail to
adjust for subsequent information. The anchoring bias
occurs because human mind appears to give a
disproportionate amount of emphasis to the first
information it receives. So, initial impressions, ideas,
etc., carry weight relative to information received later.
Overconfidence Bias: Employees whose intellectual
and interpersonal abilities are weakest tend to
overestimate their performance and ability. It is
experienced by any organizational member when he
or she confront issues that are outside their area of
expertise.

information which is not true because information is
gathered selectively. The confirmation bias reflects
selective perception as individuals seek out
information that reaffirms their past choices and
discount information that contradicts past judgments.
Also, they tend to accept information at face value that
confirms preconceived views, while being critical and
skeptical of information that challenges these views.
Hindsight Bias: It occurs when individuals tend to
believe falsely, after the result is known, that they
would have rightly forecasted the result. Hindsight bias
is known as the “I-knew-it-all-along effect”. People
tend to conclude that the result was relatively obvious
if they have precise feedback on something that has
happened. It minimizes an individual’s ability to learn
from the past as it makes a person think that he or she
is better at making a forecast and arriving at accurate
future decisions.
Randomness Error: When an individual tend to
believe that he or she can estimate the outcome of
random events it results in randomness error. People
tend to take weak decisions when they try to create
meaning out of random events.

Confirmation Bias: The rational decision-making
process assumes that individuals objectively gather
74

Section 4

Ethics in Decision-Making
Ethics are a set of standards such as honesty, respect,and
fairness that lead behavior. Ethics in decision-making in
business, organizations or groups requires assurance that
key focusing decisions have been made and are in place.
The criteria that can help ensure appropriate ethical
considerations that are part of the decisions being made in
the organization are as follows:

Promotes Trust - Does the solution reflect honest and
open communication? Is it expressing the truth? Are full
disclosures being done?

Compliance – Are they in conformance to the company's
values and code of ethics? Do they meet (should exceed)
legal requirements?

Thus changing the basis for the organization's ethics in
decision-making requires a new agreement with each
individual to reconcile with his/her personal moral choices.

Builds Reputation - Would a headline of your decision
generate pride or shame? Does your solution add to or
detract with the identity you want for the organization?

Promote Good and Reduce Harm – Which solution will
be good to the most people while reducing any possible
harm?
Responsibility – Which alternatives provides the most
responsible response? Does the solution ensure meeting
our duties as a good corporate citizen?
Respects and Preserves Rights - Does the option
negatively impact an individual's or organization's rights?

Source:http://www.decision-making-solutions.com/ethics_in_deci
sion_making.html

75

Review 4.1
Question 1 of 11
Which of the following provides meaning and value to
stimuli, objects, events, situation and other people in
the environment?

A. Stereotyping
B. Attribution
C. Halo effect
D. Perceptual closure

Check Answer

76

Section 5

Case Study: Dilemma: Promote from Within or Look Elsewhere?

JC Penny Retail Stores
This caselet was written by Debapratim
Purkayastha, IBS Center for Management
Research. Caselets are intended to be used as a
basis for class discussion rather than to illustrate
either effective or ineffective handling of a
management situation.

First JC Penny Store
Source:www.upload.wikimedia.org

77

After running successfully for close to 90 years, JC Penney
Corporation, Inc. (JCP), a chain of department stores in the
US, got into trouble. By the late 1990s, the retail scenario in
the US had changed considerably. JCP had to contend with
the onslaught of giant retail chain Wal-Mart on the one side,
and mall-based competitors like Dillards on the other. The
youth started avoiding JCP as they considered its
merchandise to be outdated and lacking in style.
Between 1999 and 2004, a turnaround was orchestrated at
JCP by chairman and CEO Allen Questrom (Questrom) and
COO, Vanessa Castagna (Castagna). Castagna joined JCP
in 1999 as the COO and Questrom joined as the Chairman
and CEO in 2000. Both of them were brought in from
outside and were the first outsiders to join JCP in their
respective positions. While Castagna hadmerchandising
experiences at Target, TJX Cos. (The secret behind the
success of TJX Cos. in the words of employees. Click
here.) and Wal-Mart, Questrom was known for bringing
about a turnaround at Barney’s, Federated, and NeimanMarcus. By the end of 2004, the turnaround had been
achieved successfully at JCP.1 For the year ending January
31, 2005, JCP had net retail sales of US$ 18,086 million
and gross margin of US$6,792. The prices of its shares also
rose significantly.
On October 27, 2004, JCP announced that Myron E Ullman
III (Ullman) would succeed Questrom as chairman and CEO
of JCP on December 1, 2004. The Board Search
Committee led by Vernon Jordan Jr., and assisted by
Heidrick & Struggles2 zeroed in on Ullman due to his rich

domestic and international experience in the retail industry
Congratulating the board on Ullman’s selection, Questrom
said, “He has a superior record of success in retailing, and
has demonstrated his effectiveness as a leader during his
time at Macy’s, LVMH Moet Hennessy Louis Vuitton, and
the DFS Group (Duty Free Shoppers). I am delighted that
he will work with our strong management team and
associates to continue JCPenney’s growth and success.
Mike will be a great asset to our associates, customers, and
shareholders.”3
But Ullman’s appointment surprised many analysts as they
felt that Castagna had been the favorite to succeed
Questrom. Castagna, who was then holding the position of
CEO of JCP’s stores, catalogs, and Internet business, was
widely credited with being instrumental in turning JCP
around. She contributed significantly to reducing costs and
improving inventory management. Her efforts at improving
JCP’s merchandising and strategy of recruiting exclusive
designer brand were also widely appreciated by industry
experts. Many believed that Questrom was grooming her as
his successor. JCP’s decision to look outside for a new
CEO, therefore, came as a surprise to many experts. Kirk
Palmer (Palmer) of Kirk Palmer & Associates,4 said, “I can
only guess that the board felt they wanted the depth and
breadth of Mike Ullman’s experience, and I would certainly
think it would be their fervent hope that Vanessa would want
to serve as a strong partner with him.”5
But some experts felt that was unlikely. They feared that
after being passed over for the top position, Castagna might
78

leave JCP. They felt that if Castagna quit, it would be a major
loss for JCP. The inevitable happened in March 2005, when
Castagna joined Mervyns as chairwoman in a bid to turn
around the ailing US-based department store chain.
Nevertheless, the growth story of JCP continued under the
new leader, Ullman. In 2005, the net retail sales and gross
margin of JCP increased to US$ 18,781 million and US$
7,191 respectively. In 2006, the net retail sales and gross
margin of the retail chain increased further to US$ 19,903
million and US$ 7,825 respectively.6 Its share prices too kept
moving northwards, and Ullman received praise for his
leadership skills and business acumen from many industry
experts (Refer to Exhibit I for four year financial summary of
JCP, and Exhibit II for the ten-year chart of JCP).
Click here to watch the interview of Mike Ullman.)

Exhibit I
Four Year Financial Summary of JCP 2003-2006
2006

2005

19,903

18,781

3.7

2.9

GROSS MARGIN (US $
MILLIONS)

7,825

7,191

6,792 6,276

OPERATING INCOME (US $
MILLIONS)

1,922

1,631

1,275 786

INCOME FROM CONTINUING
OPERATIONS (US $
MILLIONS)

1,134

977

657

360

DILUTED EPS FROM
CONTINUING OPERATIONS
(US $ MILLIONS)

4.88

3.83

2.2.

1.2

NUMBER OF JCP STORES

1,300

1,1019

1,017 1,020

GROSS SELLING SPACE
(SQUARE FEET IN MILLIONS)

103.1

101.4

101

RETAIL SALES, NET (US $
MILLIONS)
COMPARABLE DEPARTMENT
STORE SALES(%)

2004 2003
18,08617,513
4.9

0.8

101

*JCP year ends January 31
source:www.jcpenny.net

79

Footnotes
1. For a detailed case study on the successful
turnaround of JCP refer to Sanjib Dutta and Ajith
S a n k a r R N , “ Tu r n a r o u n d o f J C P e n n e y, ”
www.icmr.icfai.org, 2005.
2. Heidrick & Struggles is a leading player in the
executive search industry.
3. “Myron (Mike) Ullman Named Chairman and CEO of
JCPenney, Questrom to Step Down after Smooth
Transition,” www.jcpenney.net, October 27, 2004.
4. Kirk Palmer & Associates is a leading executive
search firm specializing in the retail sector.
5. George Anderson, “JC Penney’s New Chief a Surprise
to Some,” www.retailwire.com, October 28, 2004.

5. George Anderson, “Penney CEO Fixed What Might Have
Broken,” www.retailwire.com, February 12, 2007.
6.

www.bigcharts.com.

7.

www.jcpenney.net.

Cases on related topics:
1. The Chappell Way (A): A Case Study in Team Building
and Group Dynamics
2. The Chappell Way (B): A Case Study in Team Building
and Group Dynamics
3. Sourav Ganguly (A): A Case Study in Leadership
4. Sourav Ganguly (B): The Second Coming

6. www.jcpenney.net.
Additional Readings & References:
1. “Myron (Mike) Ullman Named Chairman and CEO of
JCPenney, Questrom to Step Down after Smooth
Transition,” www.jcpenney.net, October 27, 2004.
2. George Anderson, “JC Penney’s New Chief a Surprise to
Some,” www.retailwire.com, October 28, 2004.
3. “Turnaround of JC Penney,” www.icmr.icfai.org, 2005.
4.

Joann Lublin, “Just Cause: Some Firms Cut Golden
Parachute,” www.careerjournal.com, March 16, 2006.
81

C HAPTER 5

Personality
Some people are silent and submissive while others are
sociable and aggressive; some are punctual and
hardworking whereas some lack punctuality and are
lazy; some are assertive and optimistic while some are
shy and pessimistic. The personalities and attitudes of
people are complex and difficult to interpret. To
complicate matters further, there is no agreement
among theorists regarding the definition of personality.
They define personality from a number of different
perspectives.

The determinants of personality
Personality traits
Big-five personality model
Myers-Briggs Type indicator personality framework
Other personality traits relevant to OB.

An employee’s personality together with his attitude
determines his behavior and job performance in an
organization. Thus the study of personality assumes
significance in organizations. In this chapter, we will
discuss the concepts of personality and attitude and
their influence on organizational behavior.
understand:
The definition and meaning of personality

Section 1

Meaning of Personality
The physical characteristics of a person are purely
hereditary, but the psychological characteristics of a
person are partly hereditary and partly conditioned by the
environment. In an organization, the psychological
characteristics of a person are of more concern than his
physical characteristics. The way a person behaves and
influences the behavior of others and the way in which he
reacts to a particular situation determine how well he fits
into an organization. According to psychologists,
personality is a dynamic concept that describes the growth
and development of a person’s psyche. They argue that
the personality of a person cannot be summed up in
simple words such as polite, honest, friendly or intelligent.
Personality should describe a person from a holistic point
of view and not just look at individual aspects of his
character.

influences an individual’s personality, that is, the situation.
Let’s discuss each of these factors in more detail in the
following keynote (5.1.1).
Keynote 5.1.1: Personality
Determinants

Source: Internal

Personality Determinants
Studies in personality research have come to the
conclusion that personality is influenced by both heredity
and environment. There is also a third factor that

83

Section 2

Personality Traits and the Big Five Model
Personality Traits
Personality can be defined as the sum total of ways in
which an individual interacts with people and reacts to
situations. Personality can also be defined as the traits
exhibited by a person during these interactions. These

personality traits are significant to the study of
organizational behavior.
Big Five Personality Model
The "big five" are broad categories of personality traits.
Personality researchers have proposed that there are five
basic dimensions of personality that form the basis of an
individual’s total personality and affect his performance at
work. These five categories are discussed in the keynotes
(5.2.1 and 5.2.2).
Keynote 5.2.1: Traits in the Big
Five Factor Model of Personality

Source:www.signalpatterns.com

84

Keynote 5.2.2: The Big Five
Factor Personality Model

Keynote 5.2.3: Myers Briggs
Type Indicator

Source:www.myersbriggs.org

MBTI: Myers Briggs Type Indicator
This is the most widely used personality testing instrument
in the world. It consists of more than 100 questions that
ask people how they usually feel or act in a particular
situation. Based on their responses, individuals are
categorized as:
Extravert or Introvert (E or I)

MBTI is used extensively by Apple Computers, AT&T, City
Group, GE and Tata Motors.
Other Personality Traits
There are a few more personality traits that are relevant to
organizational behavior that are described below in the
keynote 5.2.4.
Keynote 5.2.4: Personality Traits

Sensing or Intuitive (S or N)
Thinking or Feeling (T or F)
Judging or Perceiving (J or P)
Refer to keynote 5.2.3 to know more about these
individuals.

85

Holland’s Theory of Vocational Choice
Holland claims that
Keynote 5.2.5: Holland’s Theory
individuals will
of Vocational Choice
perform better at
occupations that
match their traits
and personalities.
His theory
emphasizes that
individuals are most
satisfied with
occupations that
match their
personalities. He
classified individuals into six distinct personality types, each
of which is associated with a particular work environment
that best suits them. Refer to the keynote 5.2.5 to know
more about the relationship between each of the six
personality and work environment types.

emotions, to discriminate among them and to use this
information to guide one's thinking and actions."
The model introduced by Daniel Goleman focuses on EI as
a wide array of competencies and skills that drive leadership
performance. Goleman's model outlines four main EI
constructs (refer to figure 5.2.1):
Figure 5.2.1: Goleman’s Four Main
Emotional Intelligence Constructs

Emotional Intelligence
Emotional intelligence (EI) refers to the ability to perceive,
control and evaluate emotions. Some researchers suggest
that emotional intelligence can be learned and strengthened,
while others claim it as an inborn characteristic. Since 1990,
Peter Salovey and John D. Mayer have been the leading
researchers on emotional intelligence. In their influential
article "Emotional Intelligence," they defined emotional
intelligence as "the subset of social intelligence that involves
the ability to monitor one's own and others' feelings and

Source:www.psychometric-success.com

1. Self Awareness – the ability to read one's emotions and
recognize their impact while using gut feelings to guide
decisions.
86

2. Self-Management – involves controlling one's emotions
and impulses and adapting to changing circumstances.
3. Social Awareness – the ability to sense, understand and
react to others' emotions while comprehending social
networks.

Review 5.1
Question 1 of 9
Which of the following refers to the extent to
which a person is comfortable with other people?

4. Relationship Management – the ability to inspire,
influence and develop others while managing conflict.
Goleman includes a set of emotional competencies within
each construct of EI. Emotional competencies are not
innate talents, but rather learned capabilities that must be
worked on and can be developed to achieve outstanding
performance. Goleman posits that individuals are born with a
general emotional intelligence that determines their potential
for learning emotional competencies. Goleman's model of EI
has been criticized in the research literature as mere "pop
psychology".

A. Extraversion
B. Agreeableness
C. Conscientiousness
D. Emotional stability

Check Answer

87

Section 3

Case Study: Henry Ford: A Great Innovator

This case was written by P. Mohan Chandran, under the
direction of Vivek Gupta, IBS Center for Management
Research. It was compiled from published sources, and is
intended to be used as a basis for class discussion rather
than to illustrate either effective or ineffective handling of a

© 2004, IBS Center for Management Research. All rights reserved.
To order copies, call +91-8417-236667/68 or write to IBS Center for Management Research (ICMR), IFHE Campus, Donthanapally,
Sankarapally Road, Hyderabad 501 504, Andhra Pradesh, India or email: info@icmrindia.org

88

“I will build a motor car for the multitude. It shall be large
enough for the family, but small enough for the unskilled
individual to operate easily and care for, and it shall be light in
weight and it may be economical in maintenance. It will be built
of honest materials, by the best workmen that money can hire,
after the simplest designs that modern engineering can devise.
But it shall be so low in price that the man of moderate means
may own one and enjoy with his family the blessings of happy
hours spent in God’s great open spaces.”1
- Vision of Henry Ford (1903).
“Ford’s action transformed American industrial society.”2
- Peter Drucker, economist and management guru.
“There was no way to escape the fact that Henry Ford was the
great business impresario of his era – or any era for that
matter.”3
- Douglas Brinkley, author, Wheels for the World.
INTRODUCTION
In November 1999, Fortune magazine named Henry Ford
(Ford), founder of the Ford Motor Company (Ford Co.) as the
“Businessman of the 20th Century.‟ Ford was accorded this
honor for transforming the lives of billions of people and
revolutionizing the automobile world by creating a car which
was affordable to the common working middle class. Ford was
chosen ahead of three other finalists
– Alfred Sloan Jr.
(General Motors), Thomas Watson (IBM), and Bill Gates
(Microsoft) – as the 20th century business leader. Sheryl

James (James), Detroit Free Press reporter, feature writer, and
winner of the 1991 Pulitzer Prize for feature writing (journalism),
said, “Ford Motor Co.‟s founder was a charismatic risk-taker
who relentlessly pursued his vision.”5
In December 1999,
Ford was named the „Automotive
Entrepreneur of the Century‟ by the Car of the Century (COTC)
International panel of journalists and historians for his
invaluable contributions to the world and in particular to the field
of automobile manufacturing. Dick Holzhaus, founder, COTC
International (Netherlands), commented, “The twentieth century
can, in retrospect, be regarded as the „century of the car‟ – a
revolution of technology and lifestyle. In this revolution, Ford
Motor Company paved the way both as a manufacturer and as
an industry leader. It was Henry Ford‟s vision to give people
unprecedented mobility that changed the lives of millions
throughout the world.”6
These awards and recognitions were in recognition of Ford‟s
invaluable contributions to the automobile industry. Ford was
credited with enhancing the standards of living of people with
his inventions like the quadricycle and the Ford Model T, and
his use of the assembly-line production approach in the early
1900s. Ford had formulated a philosophy of three Ps – People,
Products and Profit
– for his company. Explaining the
relationship between the three Ps, he said in 1916, “I don‟t
believe we should make such an awful profit on our cars. A
reasonable profit is right, but not too much. I hold that it is
better to sell a large number of cars at a reasonably small
profit......I hold this because it enables a larger number of
people to buy and enjoy the use of a car and because it gives a
89

larger number of men employment at good wages. Those
are the two aims I have in life.”7

He loved to “tinker‟ with things and was nicknamed the
“Grand Tinkerer.‟

BACKGROUND NOTE

Ford dropped out of school at the age of 15. He had a
strong aptitude for mechanics and engineering. He was
keenly interested in learning how different things worked.
Elucidating Ford‟s unique personality, James said, “Ford
was a gregarious, well-liked youth, but not overly studious.
He was a hands-on learner, always tinkering.”9 In 1879,
when Ford was 16, he ran away from home. He went to
Detroit where he worked as a trainee in a machine shop
called James Flower & Brothers (JF&B) to learn how
machines were made. Here, Ford acquired new skills such
as to read blueprints and also studied the working of the
internal combustion engine.10

Ford was born on July 30, 1863 during the US Civil War in a
farmland at Dearborn, near
Video - Henry Ford
Detroit, Michigan. His mother
Biography
passed away in March 1876.
Later the same year, Ford
got a job at the Michigan Car
Company, but was sacked
six days later for indicating a
flaw in his foreman‟s work
(Refer Exhibit I for important
events in Ford‟s life). As a
boy, Ford developed his h?v=HaR3M70DYBw
interest in mechanics by
taking watches apart to look at how they worked. He would
take the watch apart and then make it work again by joining
the components together. Describing Ford‟s nature, Brinkley
said, “Like the automobile itself, Ford's mind was never
stationary. He was antsy to the point of near insanity and
always willing to roll the dice, taking calculated risks and
dreaming of a better tomorrow.”8While still a school boy,
Ford developed a steam turbine engine with a high number
of revolutions per minute, which unfortunately burst and
destroyed the school walls. Ford had a tool kit at home,
which included a screwdriver, designed from a knitting
needle and a pair of pincers, shaped from a watch spring.

Ford worked six days a week at JF&B and was paid $2.50 a
week for ten hours work per day. He stayed on this job for
three years. In 1881, he began working at Dry Dock Engine
Works (DDEW), a steamship company in Detroit. This gave
him a chance to work with motors. Dissatisfied with his work
at DDEW, Ford went back to Dearborn in 1882. He spent a
few years in Dearborn in various activities like managing
and repairing steam engines, working temporarily in
Westinghouse Engine Company (Detroit), and repairing his
father‟s farm equipment.
THE ‘MECHANICAL’ JOURNEY OF FORD
In September 1891, Ford joined the Edison Illuminating
Company (EIC) in Detroit as a night operating engineer at its
90

Video - Henry Ford
sub-station at Woodward and
Biography
Willis (Detroit) at a monthly salary
of $45. In just a couple of years,
he became the Chief Engineer,
earning $100 per month. His
responsibilities included ensuring
uninterrupted electric supply in
the city for all 24 hours in a day.
The work schedule and timings h?v=5uZheVEDvBw&feature=r
were highly irregular, but this elated
provided him the much-needed
opportunity, time and finances to carry out his own experiments
on internal combustion engines. Ford experimented with petroldriven engines and horseless carriages for many years. In the
early 1890s, he labored to develop a cost-effective small farm
tractor. He was successful in building a steam tractor with a
single cylinder engine, but failed to make a suitable boiler light,
which would make the tractor operational. In 1892, he put
together a “gasoline buggy” with two cylinder engines which
generated 4HP (horsepower). His experiments finally yielded
results in June 1896, when he came out with his new invention a self-driven vehicle called „Quadricycle.‟
The quadricycle was a 4 HP vehicle, consisting of four wire
wheels similar to heavy bicycle wheels, powered with a handle
like a boat, and had only two forward speeds, with no
backpedal. The chassis of the quadricycle was placed on the
four bicycle wheels. Richard S. Tedlow (Tedlow), Harvard
Business School professor, said, “Henry Ford had done what not
one top automobile executive in the world could do today. He

had built a complete car with his bare hands.”11 Commending
the great invention of the quadricycle, another writer Sidney
Olson12 said, “To non-mechanical people, which mean most
people, the natural question about his first car may be: What
took him so long? Well, there was no such thing as a spark plug;
it hadn‟t been invented. There was no such thing as a
carburetor. There were no automobile wheels – only wagon
wheels and buggy wheels. The front steering on wagons and
buggies had to be adapted. Camshafts, crankshafts, push rods,
bearings, piston rings, gears – everything had to be made from
the ground up. Each tiny part was not one problem but a host of
problems."13 Ford later sold the quadricycle for $200 and
invested the amount in his future experiments to build another
car.
On August 5, 1899, the Detroit Automobile Company (DAC) was
established by Detroit Mayor and few of his friends with an initial
investment of $150,000. Ford was appointed as the mechanical
superintendent of DAC. Meanwhile, at EIC, Ford was offered the
post of General Superintendent on certain conditions. Ford was
in a dilemma as to whether to choose the job or pursue his
dream. He later said, “The Edison Company offered me the
general superintendency of the company but only on the
condition that I would give up my gas engine and devote myself
to something really useful. I had to choose between my job and
my automobile. I chose the automobile, or rather I gave up the
job – there was really nothing in the way of a choice. For
already I knew the car was bound to be a success.”14 Ford quit
EIC in August 1899.

91

DAC was not a successful venture,
Charles E.
and in January 1901 it was closed
Sorenson.
down. Some of the investors in
DAC were, however, impressed
with Ford and provided him the
necessary financial support to start
another company. The Henry Ford
Company (HFC) was formed on
November 30, 1901, with Ford as
the engineer, holding a stock of
Source:www.cache2.allp
$ 1 0 , 0 0 0 i n t h e c o m p a n y . ostersimages.com
Unfortunately, HFC‟s performance
too was not satisfactory and Ford
quit the company in March 1902, asking that its name be
changed. In August 1902, the HFC renamed itself as the
Cadillac Automobile Company. Ford thus faced failure twice
as a businessman. However, failures never daunted him; as
he once said, “We learn more from our failures than from our
successes.”15
Ford always dreamed of producing “a car for the common
man.” Describing this dream, Charles E. Sorenson, Ford‟s
production chief, said, “Ford merely had the idea; he had no
picture in his mind as to what the car would be like, or look
like.”16
During the next few years, Ford focused on making further
improvements to his passenger vehicles.17 He even started
designing racing cars. Among the racing cars he designed
were the „Arrow‟ and the „999 Racer,‟ which later
established several new speed records. Both these cars had
four cylinders and capacity of 80-100 HP. The „999 Racer‟

comprised four 7-by-7 inch cylinders with a capacity of 100
HP. The „999 Racer‟ was victorious in every race it
competed in. The positive publicity gave Ford the standing to
form his own company.
In December 1902, Ford entered into
Alexander
a partnership with Alexander
Malcomson
Malcomson (Malcomson), a wealthy
coal dealer in Detroit. Malcomson, and
a few others including Harold Wills
(Wills), extended Ford some financial
assistance to enable him to build a
passenger car in a shop at 81, Park
Place in Detroit. The new car was
christened „Model A.‟ Wills suggested Source:www.upload.wi
making the cylinders „vertical‟ instead kimedia.org
of „horizontal.‟ Analysts believed that
this was a “milestone in automotive technology.” Malcomson
helped Ford to start the Ford Motor Company (Ford Co.) by
himself paying about $7,000 and gathering support from his
associates and friends. The Ford Company finally started
operations in June 1903, with an investment of $100,000. Of
this, $28,000 was subscribed in stock by twelve investors,
who also pledged a further $21,000. Ford was also extended
a credit of $25,500 for machinery, patents, and contract.
Ford and Malcomson held 255 shares of the company each,
holding a combined stake of 51% in the company
FORD – THE MASTER CRAFTSMAN OF AUTOMOBILE
By the end of 1903, the Ford Co. had 125 employees and
had sold 1,708 cars in three different models. These
automobiles were fitted with two cylinders and had a
92

capacity of 8 HP. Ford and his team of engineers developed
19 models during the period 1903-1908 and named them
each after a letter of the alphabet from „Model A‟ to „Model
S.‟ During the same period, Ford himself introduced five
models – Models A, B, C, F and K. Occasionally, the
company developed multiple models at the same time. For
example, between 1904-05, Ford manufactured the „Model C
Runabout‟ (priced at $800), the „Model F Touring Car‟ (priced
at $1,000), and the „Model B‟ (priced at $2,000). However,
some of these models were experimental and were not
released to the public. In 1906, Ford introduced „Model N,‟ a
new, economical model with a low profit margin. The „Model
N‟ – a small four-cylinder driven car, priced at $500 – went on
to become popular.
In the winter of 1906, with the assistance of some of his
colleagues, Ford began work on Model T. He worked for two
years in developing the design and plan of Model T. He
conducted thorough research on materials required to build
the car, sometimes in an unorthodox fashion. After a car race
in Florida, Ford scrutinized the wreck of a crashed French car
and observed that many of its parts weighed much less than
the usual steel. Ford‟s team at Piquette Avenue concluded
that the French were using a type of vanadium18 alloy. This
was something the Americans did not know to manufacture.
Ford found that while the finest of steel alloys utilized by US
auto-manufacturers offered a tenacity of only 60,000 ductile
pounds, vanadium steel (though much lighter than US steel)
offered a tenacity of 170,000 ductile pounds. Ford hired a
metallurgist and got a steady supply of vanadium from a steel
mill in the US, which made it possible for the Ford Co. to

switch to using vanadium steel for its new Model T. This made
Ford Co. the only manufacturer to use vanadium in the world
apart from French racing cars during that time.
ASSEMBLY-LINE – A ‘PARADIGM SHIFT’ IN AUTOMOBILE
MANUFACTURING
Video - Ford Assembly
The Ford Co. started its car
Line and Model -T.
manufacturing operations using
the craft production system in
1903. Under this system, all
cars were made up of the basic
chassis and engine, but the
body was designed to suit
individual tastes. In this system,
the manufacturing costs were ch?v=S4KrIMZpwCY&feature
high and did not decline with =related
increase in volumes. When the
Ford Co. began operations, assembly stands on which a
whole car was assembled usually by one fitter (assembler)
were used. Before 1908, a Ford worker assembled a large
part of a car before proceeding to the next car. The fitters
performed the same set of activities repetitively at their fixed
assembly stands. Workers procured the necessary parts, filed
them, so that they would fit and then bolted them in at the
appropriate place. Later, to increase the efficiency of the
process, each workstation was supplied with the required
parts; this allowed the assemblers to remain at a given place
throughout the day. Ford introduced the mass-production
system in 1908 for the production of Model T. Through his
continuous innovations, he also revolutionized this idea,
which he had introduced so successfully. The novelty in this
93

system was that the parts were standardized and fixing them
on became much easier. To enable the parts to be used
interchangeably, Ford standardized the gauging system19
throughout the production process. He began working on prehardened20 metal that minimized distortion problems like
twisting of the metal sheet during the imprinting of a die.21
Soon, Ford was able to develop unique designs that limited
the number of parts required and made them easy to fix. For
instance, Ford Co‟s four-cylinder engine block comprised of a
single, complete casting; in contrast, Ford‟s competitors had
to mold each cylinder separately and then bolt them together.
When perfect part interchangeability was accomplished, Ford
made the assembler perform only the single task of moving
from one vehicle to the other around the assembly hall.
Ford was always determined to find a solution to any problem.
He used to say, “Everything can always be done better than it
is being done.”22 The idea of a „moving assembly line‟ struck
Ford when he was on a tour of Chicago. Describing the
brainwave, Ford said, “The idea came in a general way from
the overhead trolley (a device from which the meat was hung)
that the Chicago packers use in dressing beef.”24
At the warehouse, butchers made a few cuts as each piece of
meat moved along, till no usable meat was left. Ford
completely reversed the process, building up a completed
automobile on a moving assembly line. The use of a moving
assembly line process in the automobile industry was complex
because the parts manufactured on sub-assembly lines, had
to be entered smoothly into the process. Timing was of utmost
importance since any obstruction along the assembly line

would stop the work. There were other problems associated
with the assembly stand system as well. One was that workers
had to move from one assembly stand to another, wasting a
lot of their energy and time. Ford calculated that ten steps
saved by each of his workers, would enable the company to
save 50
miles of wasted energy every day. In addition to this, there
was a regular human jam as faster workers tried to overtake
the slower ones. In October 1913, Ford introduced the
„moving assembly line‟ concept in the Highland Park factory,
bringing the car assembly line to the stationary worker. This
innovation reduced the cycle time of the task from 2.3 minutes
to 1.19 minutes. The assembly time for Model T chassis fell
drastically from 12 hours 30 minutes to 5 hours 50 minutes.
The assembly line included two strips of metal plates – under
the wheels of each side of the car – that extended through the
length of the factory. Ford was able to reduce inventory to a
great extent, resulting in significant savings for the company.
The number of workmen required for assembling an
automobile also fell.
In January 1914, Ford designed an „endless chain-driven‟
conveyor to move the chassis more quickly from one
workstation to another. In April 1914, a „man-high‟ line – with
all the parts and belts at waist level – was introduced. This
made the job of assembling much easier. In 1914, 13,000 Ford
employees manufactured 260,720 cars, as against the
industry as a whole, which employed 66,350 workers to
produce 286,770 cars. By 1915, most of the manufacturing
activities were conducted in-house. Ford moved towards
vertical integration because he had mastered mass-production
94

techniques long before the company‟s vendors had. Vertical
integration enabled Ford to cut costs considerably. By using the
assembly line approach, the production of vehicles at Ford
doubled every year during the years –1913 to 1923.
MODEL T – AN ASTOUNDING SUCCESS
The first Model T finally rolled out in October 1908. It was
affectionately called „Tin Lizzie,‟ slang for an obedient and
reliable servant. The Model T was priced at $850 and was
simple, light, flexible, powerful, and easy to drive. The car was
targeted primarily at farmers and had higher than normal ground
clearance. In the very first year, Ford set new industry records by
manufacturing nearly 10,660 Model Ts. In
the second year, 18,257 more Model Ts were produced. With a
significant increase in the demand for Model Ts, Ford decided to
set up a new factory. The facility at Highland Park was
inaugurated in 1910. It had four-storeys, encompassing a radius
of 62 acres. Production in the factory was structured to move
from top to bottom. Body panels were rolled out in the fourth
floor and sent to the third floor, where tires were fitted on to the
wheels and the bodies of cars were painted. Assembling took
place on the second floor and was then lowered on to the ground
floor, where the car was finally made ready for use. In the first
three years, production of cars went up from 19,000 in 1910 to
34,500 in 1911 and to 78,440 in 1912. Ford believed in building a
lot of cars and making them affordable. He sacrificed profit
margins to boost sales. Profit per car dropped from $220 in 1909
to $99 in 1914 while sales catapulted to 248,000 cars per year in
1913. The increased sales due to slashed prices pushed Ford‟s
profits up from $3 million in 1909 to $25 million in 1914. The

Table I
Falling Prices of Model T (1910-27)
Years

Price ($)

1908

850

1910-11

780

1911-12

690

1912-13

600

1913-14

550

1914-15

360

1924-27

290

Source: www.willamette.edu & www.abilene2000.com.

price of Model T, fixed at $850 in 1908, was gradually reduced
over the years (Refer Table I). From a market share of just 9.4%
in 1908, Model T grabbed a market share of 48% in the US by
1914. By 1921, Model T had a global market share of 56.6%.
Of all Ford‟s cars, the Model T became the greatest and most
widely recognized car in the global automobile industry. It was
considered one of the greatest inventions in the automobile
industry. Describing Ford‟s contribution in producing the Model
T, writer Tedlow said, “More than any other individual, it was he
who put America on wheels. By making it possible for so many
people in the world to move, he moved the world. He was the
Copernicus of cars.”23Describing the impact of the Model T in the
US, John Steinbeck, Nobel Prize winner for literature (1962),
95

wrote in his book Cannery Row, “One should write an essay
brimming with erudition. An essay on the moral, physical and
aesthetic impact of the Model T Ford on the American
people. Two generations of Americans knew more things
about the Ford batteries, than about the human embryo.
More things about the planetary system of the gears than
about the sun system of planets. Most children of the period
were conceived in a Model T and quite a number of them
were born in a Model T.”More than 16 million Model Ts were
sold during 1908-1927. In 1925, the Ford Co. was rolling out
two million Model Ts per annum. Analysts attributed the
secret of production in such high volumes to Ford‟s massproduction and assembly line manufacturing methods.
Thomas A. Stewart, Associate Editor, Fortune, said, “As Ford
adapted the emerging principles of mass production to the
automobile and hired tens of thousands of workers to put
those principles into practice, he gave rise to an entirely new
phenomenon: the blue-collar middle class.”24
FORD’S EMPLOYEE-FRIENDLY PRACTICES
Ford had generous labor policies and believed in the
importance of harmonious relations with workers. In order to
retain the workers, Ford gave them bonuses and other
benefits including free medical treatment, and invested
heavily in training programs. A sociology department was
established in mid-1910 to carry out research studies on
employees‟ social attitudes, their loyalty and obedience. The
studies helped improve the plant layout and the job
description of workers. Sports facilities like fields and
playgrounds for the company‟s employees and their families

were set up. Ford said, “I want the whole organization
dominated by a just, generous and humane policy.”25
In spite of the benefits offered to employees, the employee
turnover rate at the Ford Co. in late-1913 was around 50%.
The high turnover was due to the repetitive nature of
assembly-line work and continuous increases in workers‟
production targets. Moreover, the workers were getting a
wage of just $2.38 for a nine-hour workday. Ford soon
realized that employee morale was low. In January 1914, he
announced a significant increase in employee wages and a
decrease in labor hours. One of the Detroit newspaper
published Ford‟s announcement, “The Ford Motor Company,
the greatest and most successful automobile manufacturing
company in the world, will, on January 12, inaugurate the
greatest revolution in the matter of rewards for its workers
ever known to the industrial world. At one stroke it will reduce
the hours of labor from nine to eight, and add to every man‟s
pay a share of the profits of the house. The smallest amount
to be received by a man 22 years old and upwards will be $5
per day.”26
While the industry paid a standard wage rate of $2.50, Ford
paid $5 to attract more employees and prevent those already
on the payroll from leaving the company. This produced the
desired high stability in the workforce and a decline in
operating costs. Ford said of his move, “The payment of five
dollars a day for an eight-hour day was one of the finest costcutting moves we ever made.”27
Ford also introduced a „five-day work week,‟ giving
employees a break on Saturdays. All these measures raised
96

worker productivity. The company‟s profits soared from $30
million in 1914 to $60 million in 1916. Of Ford‟s innovative
thinking, it was said, “A genius machinist, Ford, in essence,
was different for the simple reason that he never tried to be
the same as anyone else. He willed success; hence the
company prospered under his charismatic spell.”28Ford was a
person of great humility and had strong bonds with his
employees. In fiscal 1929, Ford lost $68 million due to the
depression.29 But Ford did not reduce employee wages till the
autumn of 1932, when he finally rolled back the minimum
wage to $4 per day. As recovery began in 1935, Ford raised
wages again to $6 per day.
THE CRITICISM
Ford was held in high esteem for his invaluable contributions
to the automobile and aviation (Refer Exhibit II) industry
worldwide, but he also faced criticism on a few grounds. Some
said that the segregation of the assembly process into
„thoughtless recurring tasks‟ made Ford workers into robots.
The critics felt that the assembly line made workers‟
mechanical skill redundant. The workers no longer needed
specialized technical skills and were only required to do
standardized unskilled work. Ford rebutted these allegations
and said, “I have heard it said, in fact, I believe it‟s quite a
current thought, that we have taken skill out of work. We have
not. We have put a higher skill into planning, management,
and tool building, and the results of that skill are enjoyed by
the man who is not skilled.”30
When Ford raised the wages of workers to $5 a day, some
analysts, businessmen and company shareholders criticized

him saying that he was a crazy man who was determined to
ruin the company. They considered Ford‟s way of reducing the
high labor turnover rate to be very foolish. To this, Ford said,
“Well, you know when you pay men well you can talk to
them.”31
Some critics thought that Ford was resistant to new ideas. He
was described as a stubborn man with a „complex
personality.‟ He behaved like a caricature of the wealthy,
influential and barbaric class. He refused to give customers a
choice in the color of their cars, remarking jokingly, “Any
customer can have a car painted any color he wants, so long
as it is black.”32 He is said to have acted on the basis of his
prejudices and emotions quite often. He outrightly refused to
even contemplate any changes to his favorite Model T. On one
instance, Ford employees put together an upgraded version of
Model T to surprise Ford. But Ford, far from being impressed,
he openly showed his resentment by kicking the wind-pane
and trampling on the roof of the car. A Ford employee at the
time said, “We got the message. As far as he was concerned,
the Model T was God and we were to put away false
images.”33
Ford sometimes displayed „startling ignorance‟ in relation to
world events. His quote “History is more or less bunk” was
widely publicized, and gave people the feeling that he was
ignorant of everything outside his own narrow field. In 1919,
The Chicago Tribune published an editorial titled “Ford Is an
Anarchist.” This prompted Ford to file a suit for $1,000,000 in
damages. The editorial said he was an “an ignorant idealist”
and an “anarchist enemy of the nation,” who was “so
incapable of thought that he cannot see the ignominy of his
97

own performance.” This was largely because of his
antagonism to America‟s involvement in World War I.
Ford was not in favor of labour unions in his company. He
rejected the formation of unions outright. Ford made this
very clear to his employees, saying, “We‟ll never recognize
the United Automobile Workers Union or any other union.”34
During the 1930s, Ford unleashed a „reign of terror‟ against
employees who sympathized with unions. His henchmen
assaulted the United Auto Workers (UAW) in 1937, in what
came to be known as the „Battle of the Overpass,‟ for
distributing pamphlets in support of unions. In an interview to
The Associated Press in February 1937, Ford insisted that
all his workers should “stay out of unions.” He also rejected
the signing of automobile code of the National Recovery
Administration (NRA)35 which laid down that employees
enjoyed the right to organize and strike. In May 1937, the
National Labor Relations Board charged Ford with practicing
unfair labor practices. An ex-UAW President, said, “Old Man
Ford was a fascist. Those were the terrible old days. He
fought us every step of the way, but in the end, his
opposition generated a tremendous amount of sympathy for
the union.”36Some analysts considered Ford‟s industrial
relations policies paternalistic.37 Wayne State University‟s,
Christopher Johnson said Ford practiced “racist
paternalism.” When he recruited black workers, he
recommended discrimination in education, marriage and
housing facilities for them, and used racial innuendos in his
literatures. In the late 1930s, when unions fought against the
company, Ford hit back by resorting to the use of black
workers to break the strike. Ex-Detroit Mayor, Coleman

Young, wrote in his autobiography, Hard Stuff, “Ford knew
damn well that the black workers were his strike insurance.
The white workers had to think twice about forming a union
and walking out on their jobs when the old man had
thousands of hungry blacks at his beck and call.”38
In spite of the above criticisms, analysts felt that Ford‟s
place as a pioneer in automobile engineering was
indisputable. His contributions in this and related fields will
be remembered forever. As Sheryl James puts it, “Henry
Ford is famous for his enormous accomplishments. He was
the man who put America on wheels, the creator of the first
automobile assembly line, one of the world‟s first
billionaires. His name is synonymous with success.”39Even
after Ford‟s death in April 1947, the company he founded
made significant progress, The Ford company has
introduced many successful cars after „Model T‟ (Refer
Table II)) and had emerged as the second largest
automobile manufacturer in the world.Table IIFord’s Car
Models

98

Table II
FORD’S CAR MODELS
Year of Launch

Ford Model

1908

Model T

1932

V8 and Roadster

1940

Lincoln Continental

1948

F1 Pickup

1949

Ford

1955

Thunderbird

1965

Mustang

1966

GT40 Race car

1981

Escort

1986

Taurus

1991

Explorer

Source: www.freep.com

99

Exhibit I
A Brief Profile of Henry Ford (Continued...)
Year

Important Events

July 1863

Henry Ford is born in Greenfield Township, Wayne County, Michigan.

1879

Henry quits school and leaves home to find work in machine shops in Detroit.

1882

Henry returns to the family farm in Dearborn, Michigan.

April 1888

Henry marries Clara Jane Bryant of Greenfield Township and moves to Dearborn.

1891

Henry begins working as an engineer for Edison Illuminating Company in Detroit.

1893

Edsel Bryant Ford, only child of Henry and Clara Ford, born

June 1896

Henry completes and test-drives his first automobile, the quadricycle.

August 1899

The Detroit Automobile Company is incorporated with $15,000 investment. Henry serves as its
Chief Engineer.

Jan. 1901

The Detroit Automobile Company suspends operations

Nov. 1901

The Henry Ford Company is incorporated, with Henry Ford serving as the engineer.

Mar. 1902

Henry leaves the Henry Ford Company over dispute with bankers in 1902 and the company
becomes the Cadillac Motor Car Co.

100

Exhibit I
A Brief Profile of Henry Ford (Continued...)
YEAR

IMPORTANT EVENTS

June 1903

The modern Ford Motor Company is founded in Detroit by Henry and Alexander Malcolmson with ten workers
earning $1.50 per day. Ford starts manufacturing of Model A. Ford's first Model A appears on the market in
Detroit

Oct. 1908

Henry introduces the first Model T.

Jan. 1910

The Highland Park Ford plant opens on a sixty-acre property north of Detroit. 19,000 Model T‟s manufactured
at Highland Park.

1912

Production of Model T touches 78, 440.

1913

The Ford Motor Company introduces moving assembly-line production.

1914

Henry Ford announces his plan to share the Ford Motor Company's profits with workers, paying them $5.00 for
an eight hour day.

1915

The Oscar II, Henry‟s “Peace Ship,” sets sail for Norway to end World War I.

1917

Begins construction of industrial facility in Dearborn, Michigan.

1918

Henry nominated by the Democratic Party to contest for the post of US Senator from Michigan. Henry loses
campaign by a slender margin.
Henry becomes publisher of the newspaper Dearborn Independent.

1919

Henry founds the Henry Ford hospital in Detroit at a cost of $7.5 million.
Edsel Ford becomes President of the Ford Motor Company.

1921

Ford dominates auto production with 55 percent of industry's total output.

101

Exhibit I
A Brief Profile of Henry Ford
YEARHenry
Ford

IMPORTANT EVENTS

1926

Focuses on air transportation and develops the Tri-Motor airplane.

1927

By this year, Henry had produced and sold more than 15 million cars.

Late 1927

Transfers final assembly line from Highland Park plant to the Rouge. Production of the Model T ends,
and the Model A is introduced.

1932

Builds first V-8 Ford car

1933

Successfully resists first efforts to unionize workers at Ford plants

1937

“Battle of the Overpass” occurs between Ford security staff and United Auto Workers union
organizers. As a result, the court orders Ford not to interfere with union activity.

1941

Ford Motor Company signs a contract with UAW.

Sept. 1944

Henry awarded the „Distinguished Service Medal‟ by the American Legion for his rehabilitation efforts
of disabled war veterans.

April
1947

Henry Ford dies of a brain hemorrhage at the age of 83 in Fairlane in Dearborn, Michigan.

Source: Giants of Enterprise, by Richard S. Tedlow, HarperBusiness, 2001, page 178, www.time.com, www.geocities.com &
www.hfmgv.org

102

Exhibit II
Ford’s Contribution to the Aviation Industry
Apart from the automobile industry, Ford also contributed a great deal to the aviation industry. His debut in aviation started in
1909 when he assisted his son, Edsel Ford (Edsel), and his team of friends in developing an ancient monoplane driven by an
engine of Ford Model T. In 1923,Edsel invested in the Stout Metal Airplane Company, which developed „Air Pullman,‟ the
world‟s first wing monoplane, completely built of metal and with a high rafter mono-engine. Ford helped Edsel develop the
Stout 2-AT „Air Transport‟ plane, fully made of metal. In 1925, Ford also introduced the „Ford Air Transport Service,‟ which was
the first regularly scheduled commercial airline that looked after the business needs of an independent company. In January
1925, Ford inaugurated the Ford Airport in Detroit, Michigan. This airport wast outed as the first airport with sophisticated
facilities like a concrete runway, hangars, airship defense mast, weather center, radio compartment for communicating with
pilots, and exhaustive station facilities for passengers. The airport also offered restaurant and hotel facilities and conveyance
services to Detroit. In 1925, the Ford Co. funded a series of „Reliability Tours‟ to boost public confidence in commercial flights.
The tours commenced at Ford Airport and involved several aircrafts flying thousands of miles with destination halts at various
cities. Millions of people were drawn by these tours, which aroused public curiosity in private and commercial aircraft. In the
same year, Ford formed the „Stout Metal Airplane Division‟ in the Ford Co. This resulted in the sale of mono-engine, fully
metal-built aeroplanes which competed with the nascent airmail, express and passenger airlines. The Ford Tri-Motor was
developed on a trial basis in 1925. In 1926, Ford 4-AT Tri-Motor, fitted with first Wright “Whirlwind” engine, was introduced.
This was considered to be a great technological step forward from the technology used in existing aircrafts. The Ford 4-AT TriMotor enabled Ford‟s new „Airplane Manufacturing Division‟ to attain the status of the largest global manufacturer of
commercial aircraft. Airline companies discarded their ancient aircraft which carried airmail and only one or two passengers,
and bought Ford Tri-Motor. Thus, the first transcontinental air service was set up with Ford Tri-Motors. Even during the wars,
Ford‟s contribution and involvement in aviation was significant. During World War I, Ford manufactured the US-designed
“Liberty” aircraft engine in mass quantities and developed engines for the kettering “Bug,” the first guided missile of the US.
After the war was over, Ford was still fascinated by airplanes and formed the „Airplane Development Division‟ (ADD). ADD
was a pioneer in the construction of world‟s first metal-decked airplane. During World War II, Ford focused on developing
thousands of Pratt & Whitney “Double Wasp” aircraft engines and B-24 “Liberator” Bombers.
Compiled from various sources.

103

QUESTIONS FOR DISCUSSION:

Foot Notes

1. According to Drucker, Henry Ford‟s actions
„transformed American industrial society.‟ In the light of
this statement, discuss Ford‟s vision and how he
brought about a transformation in American industrial
society.

1. As quoted in the article, “Henry Had the Dream,” by
Sheryl James, Detroit Free Press, March 27, 2003.

2. Henry Ford was named the „Automotive Entrepreneur
of the 20th Century‟ by COTC International. Explain in
detail Ford‟s entrepreneurial qualities and how he
enabled the Ford Co. to emerge as the most successful
global automobile company in his time.
3. Ford was credited with bringing about a revolution in
automobile engineering with the invention of the
„moving assembly line,‟ and the production of „Model
T,‟ the most successful car during the 1909-27 period.
Examine the significance of Ford‟s innovations during
those times. Why, in your opinion, has he been termed
the greatest innovator?
4. Ford formulated the three Ps philosophies – People,
Products and Profit – during the early days of his
company. Explain how this philosophy contributed to
the success of the company.
5. Ford has been subjected to harsh criticism by many
analysts and by the media for several reasons. Critically
examine these criticisms and give your opinion on the
issues involved. What type of leader was Ford and what
lessons can we learn from him?

2. As quoted in the article, “Ford At 100: 5 Ideas Shaped
Industrial America,” by Mark Phelan, Detroit Free Press,
May 29, 2003.
3. As quoted in the article, “Ford at 100: A Century of
Audacious Tinkering,” by Douglas Brinkley, Detroit Free
Press, June 12, 2003.
4. Ford Co. is the second largest automobile company in
the world and ranked fourth in 2003 Fortune 500list with
revenues of $163.63 billion for fiscal 2003. It has
approximately 13,000 dealers globally and operates in
137 countries.
6. As quoted in the article, “Model T, Mini Win Centennial
Awards,” by Jack Nerad, posted on
www.netscape.drivingtoday.com, December 31, 1999.
7. As quoted in the book, Built To Last, by James Collins
and Jerry Porras, HarperBusiness, 1994, page 53.
8. As quoted in the article, “Ford At 100: A Century of

104


17. Horseless carriages, gasoline powered vehicles, steam
engines, turbines and the quadricycle.

10. Gasoline engines are also known as internal combustion
engines and are divided into two general classes,
namely two-cycle and four-cycle engines. An internalcombustion engine is any engine that operates by
burning its fuel inside the engine. Generally, the term
'internal combustion engine' is used only to refer to
engines in which fuel is burned intermittently, thus
excluding jet engines and gas engines which burn fuel
continuously.

18. A bright white, soft, ductile metallic element found in
several minerals (notably vanadinite and carnotite),
having good structural strength and used in rustresistant high-speed tools, as a carbon stabilizer in some
steels, as a titanium-steel bonding agent, and as a
catalyst.

11. As quoted in the book, Giants of Enterprise, by Richard
S. Tedlow, HarperBusiness, 2001, page 149.

20. Pre-hardening meant hardening a metal without loss of
shape by heating and then cooling it immediately.

12. Former Advisory Board Chairman of Quentin Burdick
Center for Cooperatives (QBCC), which was set up in
North Dakota (US) in 1992 to promote cooperative
development.

21. A device used for cutting out, forming, or stamping
material, especially an engraved metal piece used for
impressing a design onto a softer metal.

14. As quoted in the book Giants of Enterprise, by Richard
15. As quoted in the article, “Henry Ford is dead at 83 in
Dearborn,” posted on www.nytimes.com, April 8, 1947.
16. As quoted in the book Giants of Enterprise, by Richard

19. A measuring system in which the unit of measurement
was made common for all parts and components.

22. As quoted in the article, “Henry Ford and the Model T,”
posted on www.wiley.com
23. From the book Giants of Enterprise, by Richard S.
Tedlow, HarperBusiness, 2001, page 141.
24. As quoted in the article, “Henry Ford Claims Business
Honor,” The Associated Press, November 2, 1999.
25. As quoted in the article, “Driving Force: Henry Ford,” by
Lee Iacocca, TIME.

105

26. As quoted in the article, “What Titans Can Teach Us,” by
Richard Tedlow, Harvard Business Review, December
2001.

36. As quoted in the article, “A Century of Vision: Fords Built
City, Changed the World,” by Bill McGraw, Detroit Free
Press, March 12, 2003.

posted on www.wiley.com

37. A policy or practice of treating or governing people in a
fatherly manner, especially by providing for their needs
without giving them rights or responsibilities.

28. As quoted in the article, “Ford at 100: A Century of
29. During 1929-1940, US witnessed great depression which
began with the greatest stock market panic in history on
October. 24, 1929. The business conditions were very poor
throughout the late 1920s and mid 1930s.

38. As quoted in the article, “A Century of Vision: Fords Built
City, Changed the World,” by Bill McGraw, Detroit Free
Press, March 12, 2003.
39. As quoted in the article, “Henry Had the Dream,” by Sheryl
James, Detroit Free Press, March 27, 2003.

posted on www.wiley.com.
32. As quoted in the article, “Henry Ford is Dead at 83 in
Dearborn,” The Associated Press, April 8, 1947.
34. As quoted in the article, “Henry Ford,” posted on
www.rotten.com.
35. NRA is an administrative bureau, established under the
National Industrial Recovery Act of 1933. It is engaged
primarily in formulating industrial codes.
106

1. H e n r y F o r d i s D e a d a t 8 3 i n D e a r b o r n ,
www.nytimes.com, April 8, 1947.

11. Can You See What I am Saying? www.talklisten.com,
August 2000.
12.

2. Henry Ford (1863-1947): The Assembly Line, www.
web.mit.edu, June 1996.

Tedlow, Richard, What Titans Can Teach Us, Harvard
Business Review, December 2001.

13.

3. Logsdon, Jonathan, Power, Ignorance, and Antisemitism: Henry Ford and His War on Jews,
www.history.hanover.edu, 1999.

Henry Ford, Ford Motor Company Founder and
Aviation Pioneer, www.countdowntokittyhawk.com,
December 17, 2002.

14.

McGraw, Bill, A Century of Vision: Fords Built City,
Changed the World, www.freep.com, March 12,
2003.

15.

A Brief Ford Family History, www.freep.com, March
12, 2003.

16.

James, Sheryl, Henry Had the Dream,
www.freep.com, March 27, 2003.

17.

Barlow, Jim, A Scenic Ride Through History,
www.chron.com, May 16, 2003.

18.

8. Three Superlatives For Henry Ford and His Creation,
www.ford.bg, December 19, 1999.

Phelan, Mark,
Ford At 100: 5 Ideas Shaped
Industrial America, www.freep.com, May 29, 2003.

19.

9. Nerad, Jack, Model T, Mini Win Centennial Awards,
www.netscape.drivingtoday.com, December 31, 1999.

James, Sheryl, Ford Turns 100: Bennett Chapter a
Bizzare One, www.freep.com, June 2, 2003.

20.

10. ‘T’ is Tops, www.metro.heritage.com, February 3-16,
2000.

Porretto, John, Henry and Bill,
www.hollandsentinel.com, June 8, 2003.

21.

The Folks from Ford, www.freep.com, June 9, 2003.

4. F o r d ’ s B e t t e r I d e a C h a n g e d t h e W o r l d ,
www.abilene2000.com, October 21, 1999.
5. H e n r y F o r d C l a i m s B u s i n e s s H o n o r ,
www.hollandsentinel.com, November 2, 1999.
6. Fortune Names Henry Ford Businessman of the Century,
www.hfmgv.org, November 8, 1999.
7. Ford Model T Voted Car Of The Century - Recognized
For Its Impact & Contributions Worldwide, www.autointellnews.com, December 1999.

107

22.

10 Most Significant Cars, www.freep.com, June 9, 2003.

37.

Henry Ford and the Model T, www.wiley.com.

23.

Brinkley, Douglas, Ford At 100: A Century of Audacious
Tinkering, www.freep.com,

38.

Hall of Fame – Inventor Profile: Henry Ford,
www.invent.org.

24.

June 12, 2003.

39.

Henry Ford, www.spartacus.schoolnet.co.uk.

25.

Warikoo, Niraj,
Start the Party: Ford is a Master of
Wheels and Image Spin, www.freep.com, June 13, 2003.

40.

The Life of Henry Ford, www.hfmgv.org.

41.

Henry Ford, www.incwell.com.

42.

Henry Ford Biography, www.geocities.com.

43.

Chris, Henry Ford (1863-1947),
www.northstar.k12.ak.us.

44.

T h i s M o n t h i n A u t o m o t i v e H i s t o r y,
www.clubs.hemmings.com.

45.

Tedlow, Richard, Giants of Enterprise: Seven Business
Innovators and the Empires They Built,
www.growingresults.com.

26.

E n t r e p r e n e u r s o f t h e C e n t u r y,
www.smallbusinessnotes.com.

27.

Stewart, Thomas A., and Taylor, Alex III, and Petre, Peter,
and Schlender, Brent, The Businessman of the Century,
cbpa.louisville.edu.

28.

Iacocca, Lee, Driving Force: Henry Ford, www.time.com.

29.

Henry Ford & Family, www.ford.com.Henry Ford: A Great
Innovator

30.

Ford America, www. xroads.virginia.edu.

31.

The Dream Becomes a Business, www.ford.com.

32.

Henry Ford – The Man, www.biblebelievers.org.au.

33.

Henry Ford, www.rotten.com.

34.

The International Jew, www.abbc.com.

35.

Henry Ford (1863-1947), www.pbs.org.

36.

Henry Ford, www.ideafinder.com.

Books Referred:
1.

Tedlow, Richard S, Giants of Enterprise: Seven Business
Innovators and the Empires They Built, HarperBusiness,
2001.

2.

Collins, James, and Porras, Jerry, Built To Last,
HarperBusiness, 1994.

3.

Peters, Thomas, and Waterman, Robert Jr, In Search of
Excellence, Warner Books.
108

Related Case Studies:
1.

The Saga of Lee Iacocca – From Ford to Chrysler,
Reference No. 803-021-1

2.

Leadership – The Bill Gates Way, Reference No.
803-043-1

3.

Steve Jobs – The Silicon Valley Pioneer, Reference
No. 803-020-1.

4.

Larry Ellison – The Source of Oracle‟s “Wisdom,”
Refernce No. 803-017-1.

5.

Michael Dell – The Man Behind Dell, Reference No.
402-015-1.

6.

Steve Case – The Story of AOL‟s Architect,
Reference No. 803-034-1

7.

Louis Gerstner Jr. – The Man Who Turned IBM
Around, Reference No. 803-018-1.

8.

John Chambers: Cisco‟s Driving Force, Reference
No. 803-031-1.

9.

Sam Walton – Entrepreneur of the 20th Century,
Reference No. 803-047-1.

109

C HAPTER 6

Motivation
What motivate employees is the topic of interest to
both academicians and practitioners of organizational
behavior. This is because motivation not only leads to
important behavioral outcomes such as job satisfaction
and organizational commitment, but also to
performance related outcomes such as individual
productivity.
In an organizational context, managers need to
remember that the level of motivation differ from
individual to individual and within an individual, in
different situations. Understanding motivation can help
in understanding individual behavior.
Psychological processes such as perception,
personality, attitudes and learning characterize an
individual’s behavior. Similarly, motivation also
influence human behavior in an organization. Hence, it
is important to understand why, how and what
motivates employees in an organization.

understand:
Definition of motivation
Classification of motives
Linkage between motivation and productivity
Various theories of motivation

Section1

Introduction to Motivation
There are many definitions of motivation. The term
motivation is derived from the Latin word movere, which
means to move.

not learned, but they differ from primary motives in that
they are not physiologically based.

Stephen P. Robbins defines motivation as “The
willingness to exert high levels of effort towards
organizational goals, conditioned by the effort’s ability to
satisfy some individual need.”
Motivation is a psychological state. It consists of three
interacting and interdependent elements – needs, drives
and incentives. Needs form the basis for drives, which in
turn seek the attainment of certain incentives.
Classification of Motives
Most psychologists agree that some motives are learned
while others are not learned, but instead have a
physiological basis. Those motives which are
physiologically based are called primary motives.
Secondary motives are the motives which are learned
over time. The motives which cannot be classified as
purely primary, or purely secondary are called general
motives. Like primary motives, general motives too, are

Source: Internal

The different types of motives are discussed below:
Primary Motives: A motive is termed as a primary
motive when it satisfies both the criteria – it is not
learned and it is physiologically based. The most
common primary motives are hunger, thirst, sleep,

111

sex, avoidance of pain and maternal concern. Since all
human beings have the same basic physiological
makeup, they all have the same primary needs. This is
not true of the secondary needs or motives, which are
learned.
General Motives: General motives include those
motives which are neither purely primary nor purely
secondary, but rather something in between. A motive is
considered to be a general motive if it is not learned, but
is also not based on physiological needs. General
motives are, therefore, also called “stimulus motives.”
The motives of curiosity, manipulation, motive to remain
active and to display affection are examples of general
motives.
Secondary Motives: A secondary motive is a motive
that has been learned or acquired over time. Some
important secondary motives are power, achievement
and affiliation.
Motivation and Productivity
Employee motivation is the key to successful productivity and
fosters a growing
relationship for a strong
foundation. Management
denotes
employee
motivation as the key
strength and driving
force of the
organization. Every
manager needs to
understand the
reality that it is not
simple to motivate
a person in a
particular direction. To
motivate an employee
intrinsically, the manager

has to create an ideal work environment, that encourages him
or her to exert more effort and display creativity and
innovation in performing the job. To achieve this, a manager
has to understand how to motivate an employee.
Generally, employees perceive money, competition,
recognition and disciplinary action as motivators.
Managers can create an environment where intrinsic
motivation is high in the following ways:
Ensure that the employees have the relevant expertise
and tools required for the job
Ask for feedback
Allow employees a certain degree of freedom
Help employees discover their true potential
These steps can help create an environment where
employees are intrinsically motivated. Rather than working
for the sake of rewards or recognition, they work because
they find the job satisfying and rewarding. Thus the
employees become self-directed and begin to perform well in
the job. This would go a long way in improving the
productivity of the organization.

Source:www.realityloop.net
112

Section 2

Motivation Theories
Content Theories of Motivation

Motivation Theories

Content

Process

The content theories of motivation attempt to identify and
prioritize the needs and drives that motivate people at work.
They deal with the goals and incentives that people strive
for in their work environment. Although these theories have
some limitations and do not always explain motivation and
behavior at work successfully, they have proved useful in
providing insights into motivating people.
Maslow’s Hierarchy of Needs

Assume people
have a set of needs
which they pursue

What motivates?

Assumes individuals select their
goals and choose
how to get them by
a process of calculation

In his paper, “A Theory of Motivation,” Abraham Maslow
proposed a theory which sought to explain the concept of
motivation. Based on his clinical experience, he concluded
that people had a hierarchy of motivational needs.
According to his theory, once the needs at a particular level
in the hierarchy of needs are satisfied, they are no longer a
motivating factor. Instead, the needs at the next level in the
hierarchy become the motivators for the individual. The five
levels in the hierarchy of needs proposed by Maslow is
represented in the following keynote 6.2.1.

How does it
motivate?

113

Keynote 6.2.1: Maslow’s
Hierarchy of Needs

They have to be either coerced by punishment or
goaded by means of financial reward to make them
work effectively
The average employee prefers to be given direction
about his work and shies away from taking greater
responsibilities.
Theory Y assumptions:
People can put in physical and mental effort in work as
naturally as they do while playing


Theory X and Y
Douglas Mc Gregor opined that human beings can be
viewed in two distinct ways, i.e., negative, called Theory X
and the other positive, known as Theory Y. He observed the
way the managers mould their behavior towards the
employees based on certain grouping of assumptions about
their employees.
Theory X Assumptions
They are lazy by nature
The average person dislikes work and tries to avoid it if
he can

He puts in best if he is committed to the goals of the
reorganization
The person accepts responsibility
If they feel job satisfying, they would be happier and
would stay committed to the goals of the organization
They are very creative
Herzberg’s Two-Factor Theory of Motivation
The two-factor theory of motivation was developed by
Frederick Herzberg as an extension of Maslow’s work.
Herzberg carried out a study in which he tried to assess the
job satisfaction or dissatisfaction of the respondents (refer
to figure 6.2.1.
Herzberg came to a conclusion that job satisfiers were
associated with job content, and job dissatisfiers were
related to the job context. The satisfiers were termed as
motivators, while dissatisfiers were termed as hygiene
114

Figure 6.2.1: Contrasting Views of Satisfaction and
Dissatisfaction

While hygiene factors were responsible for preventing
dissatisfaction, motivators were essential to keep the
employees satisfied. Thus motivators and hygiene factors
were the two factors in Herzberg’s two-factor theory.
Contribution of Herzberg’s Theory to Work Motivation

Adapted from Organizational Behavior, 13th Edition, Stephen
Robbins

factors.
Refer to keynote 6.2.2 for the comparison between
satsifiers and dissatisfiers.
Keynote 6.2.2: Comparison of
Satisfiers and Dissatisfiers

The two-factor theory propounded by Herzberg helped
understand the content of work motivation. The theory
proposed that managers would not be able to motivate
employees if they were to focus only on the hygiene
factors.
To sum up, Herzberg considered
Video 6.2.1:
hygiene factors to be very
Hertzberg's
important for an organization to
Theory of Motivation
maintain its human resources.
However, these were not factors
which would motivate
employees. Employees are
motivated only if they have a
challenging job which not only
gives them an opportunity to
a c h i e v e s o m e t h i n g , g e t Source:www.youtube.com/
recognition, advance in their watch?v=3Ub8R5c6tkE
careers and grow in the
organization, but also allows them to handle greater
responsibilities.

Adapted from Organizational Behavior, 13th Edition, Stephen Robbins
115

Alderfer’s ERG Theory
Clayton Alderfer proposed another theory called ERG
theory of work motivation as an extension of Herzberg’s
theory and of Maslow’s needs hierarchy. Alderfer
developed a model of the hierarchy of needs based on
some empirical evidence. Alderfer recognized the
importance of categorizing needs and saw that there was
a definite distinction between lower-level and higher-level
needs.
According to Alderfer, there are three basic groups of core
needs:
Existence Needs – These are associated with the
survival and physiological well-being of an individual.

Need for Achievement (nAch): The achievement
motive is a person’s desire to perform excellently or to
handle complex or competitive situations successfully.
Need for Power (nPow): This is the need to make
others behave in a way in which they would not have
behaved otherwise.
Need for Affiliation (nAff): Employees especially
those at the lower levels of the organizational
hierarchy, have a strong desire to belong to and be
accepted by other employees or the whole group.

Figure 6.2.1: Comparison Between the Content
Theories of Motivation

Relatedness Needs – These needs emphasize the
significance of social and interpersonal relationships.
Growth Needs – These needs are related to a
person’s inner desire for personal growth and
development.
These needs formed the basis on which Alderfer
developed his theory, which he called the ERG theory.
McClelland’s Theory of Needs
This was developed by the Harvard psychologist David
McClelland. The theory focuses on three needs given
below:


116

Process Theories of Motivation
While content theories of motivation determine “what”
motivates people at work, the process theories deal with the
“how” of motivation. The process theories of motivation deal
with the cognitive antecedents that go into motivation or
effort, and more specifically, with the way the cognitive
antecedents of an individual relate to one another.
Equity Theory:
J.Stacy Adams propounded
the equity theory of work
motivation. This theory states
that the degree of equity or
inequity perceived by an
employee with reference to his
work situation plays a major
role in work performance and
satisfaction.

Video 6.2.2: Employee
Motivation: Equity Theory

?v=2p_4C0Mzne4

Person’s inputs

Other’s outcomes
=

Other’s inputs

Inequity is represented as follows:
Person’s outcomes
Person’s inputs

<

Person’s inputs

>

Other’s outcomes
Other’s inputs

The various referent comparisons used by an employee are:
Self-Inside: The employee compares his experience in
the present position with the experiences of those holding
a similar position in the same organization.
Self-Outside : The employee compares his experience in
the present position with the experiences of those holding
a similar position in another organization.
Other-Inside: The employee compares his experiences
in the present position with the experiences of another
individual or group of individuals holding a different
position but belonging to the same organization.

Equity is represented schematically as :
Person’s outcomes

Person’s outcomes

Other’s outcomes
Other’s inputs

Other-outside: The employee compares his experiences
in the present position with that of another individual or
group of individuals holding a different position and
belonging to a different organization.
Vroom’s Expectancy Theory of Motivation
Vi c t o r Vr o o m w a s t h e f i r s t
Expectancy Theory
behavioral scientist to propose an
of Motivation
expectancy theory to explain work
motivation. The following keynote
gives a diagrammatic representation
of Vroom’s expectancy theory. The
theory, based on three variables – valence (V - the strength of
117

an individual’s preference for Video 6.2.3: Employee Motia p a r t i c u l a r o u t c o m e ) , vation: Expectancy Theory
instrumentality (I - refers to
the degree to which a firstlevel outcome would help in
attaining the desired secondlevel outcome) and
expectancy (E - is the
probability (ranging from 0 to Source:www.youtube.com/watch?
v=0zd5m8V9No0&feature=relmfu
1) - suggests that performing
specific actions would produce
a particular first-level outcome or effort and is therefore
commonly termed VIE theory.
Vroom’s expectancy theory focuses on the relationship
between an employee’s efforts, performance, rewards and
personal goals.
An understanding of the
relationship amongst the
above discussed
variables identified by the
expectancy theory helps
managers understand
why many employees are
not really motivated and
put in only minimal efforts.
Refer to the keynote 6.2.3
for further details on the
expectancy theory of
motivation.

Keynote 6.2.3: Expectancy
Theory

The Porter-Lawler Model
The Porter-Lawler model was developed by Lyman W. Porter
and Edward E. Lawler III as an extension of Vroom’s
expectancy theory. Porter and Lawler tried to explore the
complex relationship between motivation, satisfaction and
performance, and pointed out that efforts put in by an
employee did not directly result in performance. The PorterLawler model is a comprehensive explanation of work
motivation. The model holds that performance in an
organization is dependent on three factors:
An employee should have the desire to perform, i.e., he
must feel motivated to accomplish the task.
Motivation alone cannot ensure successful performance of
a task. The employee should also have the abilities and
skills required to successfully perform the task.
The employee should have a clear perception of his role in
the organization and an accurate knowledge of the job
requirements. This will enable him to focus his efforts on
accomplishing the assigned tasks.
Important Variables in the Model
The Porter-Lawler model tries to establish a relationship
between the efforts, performance and satisfaction of an
individual which is represented in the figure 6.2.3.


118

Figure 6.2.3:

Keynote 6.2.4: Job Characteristics
Model

Adapted from Organizational Behavior, 13th
Edition, Stephen Robbins

Task Identity – related to the fact that a piece of work can
be identified as a whole, a task having a beginning and an
end or not.
Source:www.neiu.edu

Job Characteristics Model
Job Characteristics Model (JCM) was designed by J Richard
Hackman and Greg Oldham. This is a refinement on the
Herzberg’s idea of job itself being a hygiene factor. The model
looks at the characteristics of a job that enhance motivation.
They proposed that if the five job characteristics (Task
Identity, Skill Variety, Task Significance, autonomy and
Feedback) are present in a job, three critical psychological
states (experienced meaningfulness of work, responsibility
and knowledge of work outcome) are produced and this
results in positive job outcomes (job satisfaction, low
absenteeism, work motivation).

Autonomy – refers to the level of freedom the employee
has over deciding his schedule and work procedures
Skills Variety – the number of different skills required to
perform different activities performed by an employee
Task Significance – This is the perceived impact of work
on the final product, other employees or the organization
as a whole.
Feedback – This refers to the information provided to the
employee regarding his performance.
In the keynote 6.2.4, skill variety, task identity and task
significance lead to meaningful work. These three factors will
119

enable the job incumbent to view the job as being important
and beneficial. Jobs with high autonomy give a feeling of
responsibility towards the outcomes. And jobs that provide
feedback let the employee know how well he/she is
performing.
According to the Job Characteristic model,
individuals are intrinsically rewarded when they are aware
that they personally have performed well on a task that they
care about. This elicits the three critical psychological states,
viz., experienced meaningfulness of work, experienced
responsibility for outcomes and knowledge of the actual
results. The more the employee experiences these three
psychological states, the greater will be his/her motivation and
lower absenteeism and turnover.
Measuring Task Scope: Task scope refers to a dimension for
describing jobs at various levels of the organization.
Hackman and Oldham have developed a qualitative method
for measuring task scope. They administer a questionnaire
called the Job Diagnostic Survey (JDS) to employees. Once
the questionnaire is administered and scored, the Motivating
Potential Score (MPS) is calculated using the formula given
below:
MPS = (Skill variety + task identify + task significance) x
autonomy x feedback/3
The JCM can be used to redesign jobs and make them more
motivating. Some techniques of job redesign are explained in
the keynote 6.2.5.

Keynote 6.2.5: Approaches to
Job Design

Source: Internal

Beyond redesigning, there are other alternative arrangements
to make the jobs more motivating such as:
Flexi-time, as the name suggests, allows the employees
to choose their working hours, but within some specified
limits. For example, if a firm requires an employee to put
in 40 hours of work during a week, he is allowed to do it
by varying the number of hours he puts in everyday.
Telecommuting is the practice of working at home or
while traveling, keeping in contact with the office. New
developments in the field of information technology have
made this a feasible concept. Employees have the
advantages of operating from home, avoiding rush hours
and saving the traveling time.
Job Sharing takes place when two or more part-time
employees share the work of a full-time employee. It is
advantageous both for the organization as well as the
employees. The employees can reschedule their work
120

hours to suit their personal needs and can concentrate
better on their job, without any distractions. The
organization can enjoy the benefits of some cost savings
and also have a better performance from its employees.

Video 6.2.4: Employee
Motivation: Need
Theory

Condensed Workweek involves compressing the
workweek by increasing the number of working hours per
day. Normally, a 40 hour, five day workweek is condensed
into four days, by increasing the number of working hours
from eight to ten hours per day. This would reduce
absenteeism and tardiness at the workplace and give the
employees more time for their personal needs.

atch?v=CfEKT6E8V7c

Working From Home is another concept which has
become quite popular in the recent times. Employees
work from home on a normal basis and visit the office only
once or twice in a week. This results in great savings for
the employers too in terms of office space and other
facilities. The employees of course save time and
resources as they need not spend time and money
traveling to and from the office. The biggest advantage to
employees is that they can cater to the needs of their
families which helps them balance their personal and
professional lives.

Video 6.2.5: Social Exchange and Organizational Support Theory of
Motivation

h?v=bHDDeLuFlj4

Video 6.2.6: AT&T Archives: The Year They
Discovered People

Source:www.youtube.com/wa
tch?v=D3pDWt7GntI

121

Interactive 6.2.1:
Crossword - 1

Review 6.1
Question 1 of 17
The job satisfiers are referred to as

A. Motivators

B. Hygiene factors
C. Reinforcers
D. Internal set factors

Check Answer

122

Section 3

Case Study: Employee Motivation

Employee Motivation...
Challenge to a HR Manager

Various factors in organizations motivating employees.
Source:www.image.shutterstock.com/

123

Rohit Narang joined Apex Computers (Apex) in November
after a successful stint at Zen Computers (Zen), where he had
worked as an
assistant
programmer. Rohit
felt that Apex
offered better
career prospects,
as it was growing
much faster than
Zen, which was a
relatively small
company. Although
Rohit had enjoyed Source:www.eiraconsulting.com
working there, he
realized that to grow further in his field, he would have to join
a bigger company, and preferably one that handled
international projects. He was sure he would excel in his new
position at Apex, just as he had done in his old job at Zen.
Rohit joined as a Senior Programmer at Apex, with a
handsome pay hike. Apex had international operations and
there was more than a slim chance that he would be sent to
USA or the UK on a project. Knowing that this would give him
a lot of exposure, besides looking good on his resume, Rohit
was quite excited about his new job.
Rohit joined Aparna Mehta’s five-member team at Apex. He
had met Aparna during the orientation sessions, and was
looking forward to working under her. His team members
seemed warm and friendly, and comfortable with their work.

He introduced himself to the team members and got to know
more about each of them.
Wanting to know more about his boss, he casually asked
Dipti, one of the team members, about Aparna. Dipti said,
“Aparna does not interfere with our work. In fact, you could
even say that she tries to ignore us as much as she can.”
Rohit was surprised by the
Video - Importance of
comment but decided that
Employee Recognition
Aparna was probably leaving
in the Organizations
them alone to do their work
without any guidance, in order to
allow them to realize their full
potential. At Zen, Rohit had
worked under Suresh Reddy and
had looked up to him as a guide
and mentor - always guiding, but
never interfering. Suresh had let atch?v=ynWzQGeDgzY
Rohit make his own mistakes and
learn from them. He had always encouraged individual ideas,
and let the team discover the flaws, if any, through discussion
and experience. He rarely held an individual member of his
team responsible if the team as a whole failed to deliver – for
him the responsibility for any failure was collective. Rohit
remembered telling his colleagues at Zen that the ideal boss
would be someone who did not interfere with his/her
subordinate’s work. Rohit wanted to believe that Aparna too
was the non-interfering type. If that was the case, surely her
non-interference would only help him to grow.

124

In his first week at work, Rohit found the atmosphere at the
office a bit dull. However, he was quite excited. His team had
been assigned a new project and was facing a few glitches
with the new software. He had thought about the problem till
late in the night and had come up with several possible
solutions. He could not wait to discuss them with his team and
Aparna. He smiled to himself when he thought of how Aparna
would react when he told her that he had come up with several
possible solutions to the problem. He was sure she would be
happy with his having put in so much effort into the project,
right from day one. He was daydreaming about all the praise
that he was going to get when Aparna walked into the office.
Rohit waited for her to go into her cabin, and after five
minutes, called her up, asking to see her. She asked him to
come in after ten minutes. When he went in, she looked at him
blankly and asked, “Yes?”
Not sure whether she had
recognized him, Rohit introduced himself. She said, “Ok, but
why did you want to meet me?”
Rohit started to tell her about the problems they were having
with the software. But before he could even finish, she told him
that she was busy with other things, and that she would send
an email with the solution to all the members of the team by
the end of the day, and that they could then implement it
immediately. Rohit was somewhat taken aback. However, ever
the optimist, he thought that she had perhaps already
discussed the matter with the team.
Rohit came out of Aparna’s cabin and went straight to where
his team members sat. He thought it would still be nice to
bounce ideas off them and also to see what solutions others

might come up with. He told them Video - Employees
of all the solutions he had in mind.
Behavior when
He waited for the others to come
Demotivated
up with their suggestions but not
one of them spoke up. He was
surprised, and asked them pointblank why they were so
disinterested. Sanjay, one of the
team members, said, “What is the
point in our discussing these Source:www.youtube.co
m/watch?v=PvVYZQbG
things? Aparna is not going to Mpo
have time to listen to us or discuss
anything. She will just give us the solution she thinks is best,
and we will just do what she tells us to do; why waste
everyone’s time?
”Rohit felt his heart sink. Was this the way things worked over
here? However, he refused to lose heart and thought that
maybe, he could change things a little.
But as the days went by, Rohit realized that Aparna was the
complete opposite of his old
Video - Tips to Improve
boss. While she was efficient at
Team Communication.
what she did and extremely
intelligent, she had neither the
time nor the inclination to
groom her subordinates. Her
solutions to problems were
always correct, but she was not
willing to discuss or debate the
merits of any other ideas that Source:www.youtube.com/wat
ch?v=gP070xz1GJ8
her team might have. She did
125

not hold the team down to their deadlines nor did she ever
interfere. In fact, she rarely said anything at all! If work did not
get finished on time, she would just blame her team, and
totally disassociate herself from them.

The impact of employee motivation on the organizational
effectiveness can be understood from the diagram.

Time and again, Rohit found himself thinking of Suresh, his
old boss, and of how he had been such a positive influence.
Aparna, on the other hand, even without actively doing
anything, had managed to significantly lower his motivation
levels.
Rohit gradually began to lose interest in his work – it had
become too mechanical for his taste. He didn’t really need to
think; his boss had all the answers. He was learning nothing
new, and he felt his career was going nowhere. As he became
more and more discouraged, his performance suffered. From
being someone with immense promise and potential, Rohit
was now in danger of becoming just another mediocre techie.
Video - Tips for the Managers to Improve the Motivation in the Employees

Source:www.competitiveness.in

Questions for Discussion:
1. What, according to you, were the reasons for Rohit’s
disillusionment? Answer the question using Maslow’s
Hierarchy of Needs.
2. What should Rohit do to resolve his situation? What can a
team leader do to ensure high levels of motivation among
his/her team members?

v=cwy0sJOScFo&feature=related
126

Section 4

Caselet 1: Needs Drive Performance

This case was written by M. Aarthy and B. Madhubala,
under the direction of C. Sridevi, IBS Center for Management Research. It was compiled from published
sources, and is intended to be used as a basis for class
discussion rather than to illustrate either effective or ineffective handling of a management situation.

Employees Don’t Leave the Organizations....
They Leave Their Boss

Employees are ready to work any extent if the organizations satisfy them.

127

Milan Khanna (Khanna), HR manager of the GK Group of
Industries, found himself in a pensive mood after studying
the annual HR report. The report had serious implications
not only for his job but for the company as well. The annual
attrition rate had grown by 18% during the preceding year,
taking the present employee turnover to a glaring 33%.
Most of the talented workforce was leaving the organization
for better offers in the industry.
Video - Reasons for the
Some of them were leaving
Employees to Leave the
even when the new pay was
Organizations
not as good as that in this
company. This was the trend
despite the GK Group being
considered one of the best
pay-masters in the industry.
Moreover, during the previous
financial year, the company
had given liberal incentives in Source:www.youtube.com/watc
the form of bonuses to its h?v=5-2u22cpYic
exceptional performers.
The GK Group began as a software firm and later
diversified its operations into biotechnology and
bioinformatics. Its employees were highly talented
knowledge workers and were motivated by their jobs and
the various opportunities that their job promised to offer.
However a review of the exit interviews conducted during
the past three years revealed a striking fact about employee
motivation – “Merely increasing the pay and doling out
incentives have only a marginal value as there are many
other companies to match your offer.”

The exit interviews also revealed that efficient employees
left the organization seeking greater responsibilities,
accountability and empowerment.
Lack of personal and professional growth opportunities in
the organization prompted people to quit and search for
greener pastures. The lack of opportunities for learning and
growth in the organization, along with little or no attempts
towards employee empowerment proved to be some of the
prime reasons for the high attrition rate at the GK Group.
In the light of these facts, Khanna came up with a new
strategy to contain the rate of attrition in the company. His
strategy was aimed at understanding the complexity of
employee needs and evaluating them. The management
charted out a career growth plan for each of its employees
for an average period of three years, with the objective of
developing the overall personality of every organizational
member. The plan also included defining performance
benchmarks so as to establish a correlation between
expected and actual employee performance. The
employees were to be
appraised of their performance
Video - Tips to Reduce
at the end of every six months
Employee Turn Over
in relation to these
benchmarks so that they could
correct any deviation from the
established standards. The
strategy proposed by Khanna
aimed at creating a win-win
situation for both the individual Source:www.youtube.com/wat
members as well as the ch?v=vHbaKFZ8AtE
128

organization. Therefore, attempts were made to correlate
individual goals and organizational objectives. Recognizing
the importance of skill upgradation and employee
empowerment, the
Video - How to Retain
management decided to
the Best Employees
promote personality
development and learning of
employees through well
established training facilities.
These measures aimed to
empower and retain within the
organization, the human capital Source:www.youtube.com/w
atch?v=YXRBUhcQua8
and talent, which form the most
crucial factors in the success of
any knowledge enterprise.

can initiate to cater to the ever-changing needs of
employees.

When the GK Group implemented this strategy in the years
that followed, it received wide acceptance and also brought
in the desired results of motivating, empowering and
retaining the workforce in the organization.
1. “Merely increasing the pay and doling out incentives
have only a marginal value as there are many other
companies to match your offer.”
Substantiate this
statement by describing the various other means of
motivating and retaining the workforce in an
organization.
2. Discuss the various challenges faced by HR managers
in modern organizations and outline the measures they
129

Section 5

Caselet 2: Needs Drive Performance

Tools Used by the Organizations to Motivate Employees.

Types of Motivation.
Source:www.comdma.com

130

Neha Kapoor (Kapoor) and Tina Menon (Menon) were
excited about their first job offer from a leading multinational
company, Meridian Business Solutions (Meridian). Meridian,
a UK-based consultancy, offered
business development and
Video - Impact of Inimprovement solutions to
centives on the Emorganizations in a wide range of
ployee Motivation
industries. Kapoor and Menon
had just passed out from a
prestigious business school with a
masters degree in business
administration. Both were bright
students and Menon had been a
Source:www.youtube.com
topper all through in college. As /watch?v=bXpC69StkoY
students, Kapoor and Menon had
always dreamt of working for a multinational company like
Meridian. Their dream finally came true when they received
a call from Meridian. Having topped the written test and the
personal interview, both were offered the position of
business development executives in the company. Their job
responsibility was to tap potential clients from the corporate
world. This seemed to be an ideal break for them as they
were keen on getting a job that offered wide exposure to the
business environment. The job was a challenging one that
provided adequate opportunities for valuable corporate
experience. Besides, the compensation offered was also at
par with the best in the industry.The first few months at
Meridian were a learning experience for both of them.
Kapoor and Menon were extremely enthusiastic about their
jobs. The company had given them adequate training and

reasonable autonomy to perform their job. They soon began
handling clients independently.
They were involved in getting new clients and were also
responsible for maintaining smooth relationships with
them.Both of them reported to the regional sales manager,
Nitish Bajaj (Bajaj). Of the two, Bajaj was more impressed
with Menon’s performance. Within a couple of months of
joining the company, Menon had obtained and closed a deal
with a very high profile client. Business with this client was
expected to rake in huge profits
for the company. In a party Video - Need for Proper
Employee Recognition
organized in the company to
celebrate the occasion, Bajaj
announced a cash award for
Menon in appreciation of her
commitment and dedication to
the job. This served to reinforce
Menon’s motivation and made Source:www.youtube.com/wa
her strive even harder to better tch?v=KFplP0ZNzjQ&feature
her performance.
After both of them had completed a year of working in the
company, the time for their performance review came up.
The company had a yearly performance appraisal system
which rated employees on the basis of their performance
throughout the year. Based on these ratings, the employees
were paid hefty performance bonuses that served as
effective motivators for its employees. However, the yearly

131

performance appraisal brought with it a rather unpleasant
surprise for Menon.
Menon had hoped to receive a handsome bonus as an outcome
of her performance review. She was aware that she would be
appraised by Bajaj who had expressed appreciation for her
good performance and announced a cash award for her within a
few months of her joining the company. Meridian, however, did
not have a transparent policy regarding appraisals and
remuneration paid to employees. So, the outcome of the
appraisal was not immediately known to anyone but the
employees themselves. It was only in course of time that details
about the rewards could be gathered informally. In Menon’s
case too, it took a while for her to know the outcome of her
colleague, Kapoor’s appraisal. And what she heard shocked
her. Kapoor had been given a bonus much higher than what
she had been given. It came as a surprise not only to Menon,
but to the rest of the employees as well that Kapoor had been
rated higher than Menon, since everyone in the company
knew that Menon was better at the job than Kapoor. The
performance bonus thus, served as a demotivating factor for
Menon as she began to feel that she deserved much more than
what she had got and that her performance certainly did not call
for receiving a lower bonus than Kapoor.

the reward she had received, with the efforts put in by Kapoor
and the reward given to her, Menon began to perceive an
inequity in the way employees were rewarded at Meridian.
Since she was being paid less than her expectations, she
decided to put in less effort so as to bring about a perceived
equity of pay between Kapoor and herself.
Consequently, Menon’s productivity level deteriorated and, in
turn, it affected the performance and profitability of the
organization. Thus, Menon’s negative attitude resulted in
negative implications for the organization. Also, this frustration
at the job made Menon look around for new jobs.
1. The annual performance review had a demotivating effect
on Tina Menon. Briefly discuss the motivational theory that
best describes Menon’s response to the appraisal.
2. Based on the equity theory, explain in what other ways
Menon could have reacted to the outcome of the
performance appraisal?

Menon’s demotivation was evident from her subsequent
performance on the job. She stopped working as
enthusiastically as she did earlier and was content with doing
just the bare minimum required for her job. This change in
attitude took place as she obviously felt that there was no point
working so hard when she wasn’t being recognized for doing a
good job. On comparing the efforts she had put into the job and
132

C HAPTER 7

Groups and Teams
A group can be defined as two or more persons who
interact and work with each other to achieve a common
purpose. Working in a group, however, is not an easy
task.
Groups are the basic fundamental units of an
organization. Groups accomplish more work in less time
than a number of people working individually. The
interactions that take place among the members of a
group are referred to as group dynamics.
understand:
Nature of groups
Types of groups
Various stages of group development
The punctuated equilibrium model
Various issues concerned with group decision-making
Group decision-making techniques

Various types of teams
The properties of group
The difference between groups and teams.

Section 1

Nature of Groups
Corporate giants like Toyota, Motorola, General Mills and
General Electric were the first to use groups. Today, most
organizations form different types of groups to achieve
specific results.
In an organization, the members of a group:
are motivated to participate in the activities of the
group;
view the group as a unified entity of interacting
people;
contribute differing amounts of their time and energy
to group activities and
reach an agreement about a problem by interacting
with the other members of the group through different
forms of interaction.

There are three views regarding the nature of group
dynamics. The normative view describes how a group is
to be organized and how its activities are to be carried
out. This view emphasizes democratic leadership,
participation of the members and cooperation among
them. According to the second view, group dynamics
consists of a set of techniques. These techniques include
role plays, brainstorming, sensitivity training, team
building, transactional analysis, Johari window and selfmanaged teams. Finally, the third view approaches group
dynamics from the perspective of the internal nature of
groups. This view discusses how groups are formed, their
structure and processes, and their functioning. It also
discusses how groups affect individual members, other
groups and the organization as a whole.

The various interactions that take place among the
members of a group comprise group dynamics. The
term ‘group dynamics’ was popularized by the
management thinker Kurt Lewin in the 1930s.

134

Section 2

Types of Groups
Various types of groups can be identified within an
organization. Depending on the degree of
formalization, groups can be classified as formal and
informal groups. Formal groups are formed by the
organization to carry out certain activities. Informal
groups are formed by the employees themselves.
Common interests and the need for companionship,
recreation, growth and support lead to the formation
of informal groups.

Source:www.ckbooks.com

The categorization of formal and informal groups can
be seen in the accompanying diagram.

135

Section 3

Stages of Group Development
Earlier, it was believed that groups followed a specific
sequence in their formation. However, it was later
revealed that groups do not follow a standard pattern of
development. In this section, two of the widely accepted
models of group development – the five-stage model and
the punctuated equilibrium model – are described.
The Five-stage Model
Gallery 7.3.1: Five stages of
Group Development

The five-stage model became
popular in the mid-60s.
According to this model, all
groups pass through five
stages – forming, storming,
norming, performing and
adjourning. The duration of
time that each group spends
at each stage varies. Some
groups may even get stalled
at a particular stage.

Video 7.3.1: Remember
The Titans - Stages of
Group Development

atch?v=hEJaz3sinEs

The Punctuated Equilibrium Model

Source:www.alchemyformanagers.co.uk

According to the punctuated equilibrium model (shown in
7.3.1), the first meeting of the group sets the direction for
the group. This direction is unlikely to change during the
first half of the duration of the project. In addition, during
the first meeting of the group, a framework of behavioral
patterns and assumptions emerges. This framework
determines how the group will approach its goal. The first
half of the project is characterized by a period of inertia.
During this period, no new insights or behavioral patterns

136

develop that can challenge the initial patterns of behavior
and assumptions made by the group. Halfway through
the project duration, the members of the group suddenly
experience a heightened sense of awareness of the
lapse of time and the lack of progress in the project. The
sudden awareness of the limited time left to complete the
project acts as an alarm and leads to a flurry of activity.
This stage marks the transition into the second phase of
the project, wherein a new equilibrium is established
among the members and a revised direction is set for the
group. The last meeting of the group just before the
completion of the project is marked by a period of intense
activity. During this period, the group works toward
completing the project on time by finishing all the tasks
that remain to be done and resolving all the details
pertaining to the project.
Keynote 7.3.1: Punctuated
Equilibrium Model

Adapted from Organizational Behavior,
13th Edition, Stephen Robbins

137

Section 4

Group Properties and Group Decision-Making
Group Properties

solving, are discussed in this section.

Keynote 7.4.1:
The pattern of
Group Properties
interrelationships
between the
individuals
constituting a
group; the
guidelines of group
behavior that
make group
functioning orderly
and predictable.
Refer to the keynote 7.4.1 for the group properties
Group DecisionMaking
The various issues
concerned with group
decision-making, viz.,
groupthink, group shift
and group problem
Source:www.buzzle.com

Groupthink
When decisions are
made by a cohesive
group of individuals,
their motivation to
appraise and
appreciate alternative
courses of action are
overpowered by their
desire for unanimity of
decision. This
phenomenon which is
commonly observed in
group decision making
processes is referred to
as groupthink. When
members resort to
groupthink, they are
actually making
decisions that may not

Group Think

Source:www.rebarcamp.com

Video 7.4.1: 12 Angry Men Original Live TV Version
1954 (Group Think)

v=7DkI2I0W5i8&feature=related

138

be the optimal ones. Instead, they tend to decide upon a
course of action that is accepted by a majority of members.
In both the cases, the decision arrived at tends to be an
incorrect decision. Groupthink causes the members of the
group to make sub-optimal decisions, without actually
evolving and analyzing the full range of available
alternatives.
Group Shift: A change in decision risk between a group’s
decision and an individual’s decision that a member within a
group would make. The shift can be towards either
conservatism or greater risk.
Group Decision-Making Techniques: In order to eliminate
the dysfunctionality of groups due to group polarization
and groupthink, managers tend to employ other innovative
techniques of decision-making like brainstorming, nominal
group technique and the Delphi technique. In the keynote
7.4.2, the group decision-making techniques are explained
in detail.
Keynote 7.4.2: Group
Decision-Making Techniques

Video 7.4.2: How You Make
Decisions in a Group
(Version 2)

v=XjbnKTEIb3E&feature=related

Video 7.4.3: Role Conflict

?v=2WGNAwdkoGo

139

Section 5

The Dynamics of Formal and Informal Groups
The Dynamics of Informal Groups

Norms make the behavior of members more predictable.

Informal groups gained prominence as a result of the
Hawthorne Studies carried out at Western Electric. Every
formal organization has some informal groups and every
informal group, over time, gradually begins to evolve into a
formal group.

Norms help the group avoid embarrassing situations.

Norms and Roles in Informal Groups

Norms represent a group’s most important values.
A role is a position that is held by a person in an
organization. The content of any role is determined by the
norms prevailing in the group. Therefore, a role consists of a
specific set of norms.

All groups have some established norms, that is, acceptable
standards of behavior agreed upon by the members of the
group. Norms define how the members should behave in a
particular situation. They ensure that people behave in a
manner which is acceptable to the group. The behaviors
that norms give rise to have a significant influence on the
survival of the group, the unique identity of the group and
the prevention of problems among the members of the
group.

Roles change according to the situation. The same person
may have to play different roles according to the situation he
is in. As a team member, he will have to play the role of a
team worker, while as an informal leader of a group of
dissident members working on a project, he will have to play
the role of a coordinator, a shaper and an implementer.
Group roles that are functional in nature help a group
achieve its goals.

Norms serve these basic purposes:

Nature of Informal Groups

They aid in the survival of the group and help it
accomplish its objectives.

Informal groups are inevitable in an organization and cannot
be abolished. These groups are generally small in size so
that personal relationships can be maintained. Many

140

informal groups exist both within the premises of the
organization as well as outside it. The small size and lack of
stability in informal groups make it difficult for them to
replace formal organizations. They can only supplement the
formal organization.
The nature of the informal group depends on the various
drawbacks present in the organizational structure and the
lack of opportunities to satisfy human needs. Informal
groups tend to exist within the framework of the formal
organizational structure because of the inherent need of
individuals to have stable and predictable interpersonal
relationships. Informal relationships formed through
interactions at the workplace make individuals feel secure
and generate a feeling of belongingness.
Significance and Management of Informal Groups
Depending upon the management’s approach to the social
system, informal groups can either contribute positively or
negatively towards the achievement of organizational goals.
If the management underplays the importance of the
informal groups, these groups are likely to generate a lot of
internal conflicts and cause problems for the organization.
This can hinder the progress of the organization. But if the
management understands the power of the informal group,
adopts a positive attitude towards it and tries to obtain the
direct or indirect cooperation of the informal group, the
effectiveness of the organization can be significantly
improved. In order to obtain the best possible performance,
the management should try to blend together both the formal
and informal groups. The management should acknowledge

the importance of informal groups and try to use them to
achieve the objectives of the organization.
Dynamics of Formal Work Groups
Some examples of formal work groups are committees,
commissions, boards, teams and task forces. Although this
chapter examines only the dynamics of committees, the
same approach can be used to understand the group
dynamics of commissions, boards and task forces.
In all types of organizations, one can find committees, be it a
government, educational, religious or a business
organization. Committees may perform various functions – a
service, advisory, or administrative functions. In some cases,
committees may also be involved in making the final
decision on a specific matter. When performing this function,
a committee is said to be acting in a line capacity.
Nowadays, many companies use a committee-based
approach for decision-making. In organizations, top-level
committees consist of the president of the organization and
the executive vice-presidents.
Many management theorists and experts agree that teams
play an important role in improving the productivity and
effectiveness of organizations.
Definition of Work Teams
According to Stephen P. Robbins, a work team is a
collection of people whose individual efforts result in a level
of performance which is greater than the sum of their
individual contributions. Teams, therefore, generate synergy
141

by coordinating the efforts of the individual members. The
differences between groups and work teams is given below in
the following figure 7.5.1.

Keynote 7.5.1: Types of Teams

Figure 7.5.1: Work Groups and Work Teams

Source: Internal

Source: Adapted from Organizational Behavior, 13th Edition, Stephen
Robbins

Types of Teams: On the basis of their objectives, teams can
be classified into different types (see keynote 7.5.1). The
three kinds of teams most commonly found in organizations
are:
a)
Problem-Solving Teams
b)
Self-Managed Work Teams
c)
Cross-Functional Teams

142

Review 7.1
Question 1 of 8
What is a group?

A. It refers to the interactions that take place
among members of a group
B. It can be defined as two or more persons
who interact and work with each other to
achieve a common purpose.
C. It is a collection of individuals formed by the
organization to carry out specific tasks.
D. It is a collection of employees with common
interests who come together for companionship, recreation, growth, and support.

Check Answer

143

Section 6

Case Study: Management Lessons from Spain’s Euro 2008 Football
Championship Triumph
This case was written by Debapratim Purkayastha, IBS
Center for Management Research. It was compiled from
published sources, and is intended to be used as a basis
for class discussion rather than to illustrate either effective
or ineffective handling of a management situation.


144

Other Spanish teams were better than the 1964 side but never
achieved anything. But, then, we were a team, not a collection
of talented individuals.” 1
Luis Suarez, Spanish football player who was a part of the
1964 Euro Cup winning team, regarding the Spanish
national team’s failure to win any major championship
since 1964.
“Aragonés [the coach] fostered a team spirit rarely seen with
Spanish teams. In the process, he added a whole new
dimension to Spanish soccer culture by demanding his team
play as a unit.” 2
Beaker, Inter Sports Wire,3 after Spain’s 2008 Euro Cup
Triumph.
“Luis Aragonés, the manager since 2004, set himself one
overriding task – to create “teamness”. If talented individuals
didn’t fit into the team pattern, then they wouldn’t be included…
To be a successful agent of change, a manager doesn’t just
need the intellectual capacity to understand what needs to be
done. He requires the mental strength and, at times, sheer
bloody-mindedness, to ignore the gathering clamor for an
abandonment of a strategy that is bound to attack powerful
vested interests.” 4
- David Bolchover, co-author of The 90-Minute Manager:
Lessons from the Sharp End of Management.

BREAKING THROUGH THE (S)PAIN BARRIER!
On June 29, 2008, Spain defeated Germany 1-0 in the finals of
the 2008 UEFA5 European Football Championship6 (2008 Euro
Cup) at Vienna to win the coveted cup. This was Spain’s first
major championship win in 44
Video - Euro Cup 2008
years. The last time they won
this championship (or any
other major championship)
was way back in 1964. Since
then, Spain had not managed
to win any major international
football (soccer) tournament
despite having some of the
best individual players in its v=6Mg221uboog&feature=related
ranks.
In Spain, football is the most popular sport and has been
played since the early 19th century. The nation has a glorious
history in football. However, its domestic leagues earned more
international acclaim than the national football team, which
despite having a rich talent pool remained an underachiever on
most occasions. Over the years, the Spanish national team
gave many famous football legends to the football fraternity
such as Alfredo Di Stefano, Luis Suarez, Zamora, Santillana,
Michel, and Butragueño, but when it came to performance as a
national team, it found going past the initial rounds or the
quarter finals in major tournaments such as the World Cup and
the Euro Cup a hard task.
The Spanish national team’s lack of success in major
tournaments was primarily attributed to a lack of team spirit
145

Legends of Spain Football Team

failed to perform well in the 2006 World Cup, its overall
performance record under Aragonés’ leadership was very
good, culminating in the success in the 2008 Euro Cup.
However, the feat did not come easily.
Aragonés had some very tough decisions to take along the
way which didn’t go down too well with either the public or the
media and he attracted a lot of criticism.

Alfredo Di Stefano
Souce:www.soccertopplayer.com

and of the killer instinct. Experts reasoned that the lack of
team spirit was mainly due to the fact that there was intense
rivalry between the different regions of Spain. They pointed
out that the various regions were divided as far as culture and
political outlook were concerned. In such a situation, it was
very difficult for the members of the team to play as a unit,
they said.
Some analysts considered the appointment of José Luis
Aragonés Suárez (Aragonés) as coach of the Spanish
national team a seminal moment in turning around the
fortunes of the Spanish football team. Aragonés’ appointment
came shortly after Spain’s debacle in the 2004 Euro Cup. The
new coach put in a lot of effort into team building and into
instilling a sense of team spirit in the side that was not only
fractured but was also short on self belief. Though the team

Experts attributed the successes of the team to the newfound
team spirit and Aragonés’ team building initiatives, strategy
and tactics, management skills, and leadership came in for
special praise. The way in which he turned the team around
provided vital learning in management to managers not only
in the sports field but also in businesses, they said.
BACKGROUND OF SPAIN’S NATIONAL FOOTBALL
TEAM
The national football team of Spain is popularly known a ‘La
Furia Roja’, which means ‘the red fury’ in English. It is
governed by the Royal
Spanish Federation (known
as ‘Real Federación
Española de Fútbol’ or
RFEF in Spanish).7 RFEF
was started in 1908 on the
lines of the English
Federation and became a Source:www.euro2012twitter.co
m/wp-content/uploads/2012/01/
part of FIFA in 1909.
Spain.png

146

Spain began its participation in international tournaments as
early as in 1920 in the Summer Olympic Games where it
immediately tasted success. As a result, the popularity of
football started to grow in Spain. Slowly, more and more
teams became part of RFEF. In the mid-1920s, the idea of
national league teams was put forward by Jose Maria Acha,
director of the Arenas Club de Roldan. In 1928, Spain
organized its first league tournament called the La Liga which
went on to become very popular. The 1950s saw Real Madrid
and FC Barcelona emerge as the most successful clubs.
Another notable club was Valencia.
The National Team’s International Performances
In the initial years, Spain’s national team went through a lot of
turmoil. It made its first appearance in the 1920 Antwerp
Summer Olympic Games and won the silver medal in the
competition. The following year, it got a chance to play at
home for the first time and defeated Belgium 2-0. In 1929, it
became the first foreign team to beat England in a match in
Madrid.
In 1930, Spain refused to play the first FIFA World Cup held in
Uruguay in South America as it felt the journey to another
continent across the Atlantic Ocean would be too risky and
time consuming. However, it participated in the 1934 World
Cup in Italy, where it reached the quarter finals but could not
go past that stage. Thereafter, Spain could not participate in
international matches for some years due to World War II.8 It
re-entered the international football arena to participate in the
1950 World Cup at Brazil. It won all three group matches
initially but faltered in the final group stage, ending up in the

fourth position. It failed to qualify in the next two World Cups
in 1954 and 1958.
Spain participated in the 1960 Euro Cup and even defeated
Poland in the round of 16 (7-2 on aggregate), but the team
refused to travel to the Soviet Union to play the quarter finals
due to political reasons and had to leave the tournament.
Despite being led by coach Jose Villalonga (Villalonga), who
came to be regarded as the national team’s most successful
coach, Spain did not manage to make a mark in the 1962
World Cup as it was placed in a very competitive group with
star teams such as Brazil, Czechoslovakia, and Mexico. It
was eliminated in the group stage itself. But in the 1964 Euro
Cup, Spain came back with a spirited performance to reach
the finals against URSS (USSR).9 It won the match
convincingly to lift the Euro Cup for the first time. It also
qualified to play the 1966 World Cup in England but its
challenge fizzled out in the initial phase.
In the following years, Spain failed to show any impressive
results under different coaches. In 1982, it got the opportunity
to host the World Cup, which for the first time saw a
participation of as many as 24 teams. The team put up a
mediocre performance despite being in a less competitive
group with teams from Honduras, Yugoslavia, and North
Ireland. It managed to just scrape through to the next round
but could go no further. After this defeat, Spain decided to
change its coach and coach Jose Santamaria made way for
Miguel Munoz (Munoz). In the 1984 Euro Cup, Spain
performed brilliantly and reached the finals but ended up as
147

runners up to France. However, the 1986 World Cup and 1988
Euro Cup witnessed its early exit.
In the 1990 World Cup, like in the previous years, the team
performed well initially in the group stage but lost its pace in
the knockout stage. In the 1992 Euro Cup, Spain failed to even
qualify for the tournament. However this disappointment was
quickly wiped out as the national football team won the gold
medal in the Summer Olympic Games in 1992 at Barcelona.
The coach for this team was Javier Clemente (Clemente).
Subsequently, Spain failed to get past the quarter final rounds
in the 1994 World Cup and the 1996 Euro Cup. Its persistent
poor performance made the management think of bringing
about some changes in the squad for the 1998 World Cup. The
management came up with new talents and tried to maintain a
balance between the experienced players and the new
entrants. Players such as Fernando Morientes, Kiko, and Raúl
Gonzalez Blanco (Raúl), who were the rising stars at that time,
found a place in the new team. However, despite these
changes, the team continued to fare poorly, prompting RFER
to sack Clemente.
In Euro Cup 2000, the Spanish team under the stewardship of
a new coach, and with younger players on board, was once
again eliminated in the quarter finals. Analysts wondered if
Spain was jinxed -- it often raised expectations by winning its
initial matches but eventually faltered at the quarter final stage.
Similar results followed in the 2002 World Cup where the team
crashed out in the quarter finals.

In 2002, José Ignacio Sáez Ruiz (also called Iñaki Sáez) was
appointed as the new coach to prepare the team for the 2004
Euro Cup. In the initial phase of the tournament, the popularity
of new players such as Fernando Torres (Torres) and Xabi
Alonso (Xavi) led analysts to name Spain as one of the top five
contenders for the Cup. However, the team failed to get past
the first round. Analysts commented that this was the team’s
worst performance since the 1998 World Cup and that major
changes were in the offing.
THE PROBLEM
By the 2000s, the underachievement of the Spanish national
team had become somewhat legendary. Cesar Menotti,
famous Argentine coach and football player, once famously
said that Spain would never win anything in the international
arena until the team decided if it wanted to be “the bull or the
bullfighter”.10 The team played aggressively, even scored a few
goals but still lost in crucial matches. By 2008, Spain had
qualified for 12 World Cups but managed to reach the finals on
only one occasion, and barring the 1964 and the 1984 edition,
it had never managed to get past the quarter final stages of
any Euro Cup. The statistics were all the more puzzling seen
against the backdrop of the success of its domestic clubs. For
instance, Real Madrid had won the UEFA Champions
League11/European Champions Clubs’ Cup on nine occasions.
12

Some analysts attributed Spain’s consistent failure on the
international platform to the internal rivalry within the team — a
fallout of the conflict among the different regions of the country
148

due to political and historical reasons. Political and cultural
tensions were particularly significant between the Castilian and
the Catalan regions. These tensions were reflected in the
traditional rivalry between Real Madrid and FC Barcelona,
which were considered symbols of Castilla and Catalonia
respectively.
With different provinces striving for independence from the
country, it became all the more difficult to forge the players into
one national team. Analysts felt that due to the rivalry between
the different provincial clubs that the players represented,
there was a lack of team spirit in the national football team and
there was more loyalty being shown to the different clubs.
Experts have for long contended that team spirit plays a
significant role in any team situation, particularly a team sport.
One often hears sayings such as “Individuals play the game,
but teams win championships”.13 Experts contend that a team
can win a few matches through the individual brilliance of a few
players, but it needs team effort to win a tournament or win
consistently. In the absence of a
feeling of nationality or any other Video - Changes Occured
in the Team
binding force, the Spanish
football team failed to work as a
cohesive force, experts said,
adding, this was the reason for
its underachievement in the
i n t e r n a t i o n a l a r e n a . 14T h e
attitude of the players in the Source:www.youtube.com/watc
team and their lack of self belief h?v=0mVkedZm_ls
were also cited as reasons.

ENTER ARAGONÉS
Shortly after Spain’s debacle in the 2004 Euro Cup, coach
Iñaki Sáez was replaced by Aragonés. The veteran Spanish
player and coach who was in his mid-60s, was entrusted with
the responsibility of rebuilding the team for the 2006 World
Cup (Refer to Exhibit I for a note on Aragonés).
Aragonés soon realized that the major problem with the team
was not lack of talent — in fact, it had some of the best players
of the country — it was its lack of unity and positive attitude
which were the big stumbling blocks. Moreover, this was a
team that was bitter from the loss in the World Cup and the
media criticism that followed. He immediately started to work
on the weaknesses in the team. “In his four years (2004-08) as
Spain’s coach, Aragonés tried to create a side with its own
distinctive style tailored to the individual strengths of the
players, while at the same time building team spirit and
instilling self belief,”15 according to Today’s Zaman 16.
In addition, Aragonés went on to take a few tough decisions for
which he was extensively criticized by the media as well as the
public. The sub-par performance in the 2006 World Cup -where the Spanish team won all three group matches against
Ukraine (4-0), Tunisia (3-1), and Saudi Arabia (1-0) but went
down to France (1-3) in the quarter finals -- and the
subsequent sacking of the captain of the team, Raúl who was
a popular figure in Spain, further dented Aragonés’ popularity.
Vision, Strategy & Tactics
But Aragonés had a vision for the team and he stuck to it
paying little heed to the criticism or pressure from the media
149

and the public. The strategies and the tactics that he adopted,
whether in building the team or in actual match situations, were
sometimes controversial but often well executed and suceeded
in fetching a positive result for the team. He banked on his
years of experience and seldom let himself be pressured into
doing what he did not want to do. For instance, his training
regime and the methods that he used were often criticized.
Some experts felt that the training regime was too light and that
the methods applied were old-fashioned. Aragonés effectively
silenced his critics by getting results.17
Some analysts felt that Aragonés was not the stereotypical
football coach – he was quite old and a tad overweight. Yet he
managed to get the respect of the team. Experts felt that he had
earned a lot of respect from the players due to the way he went
ahead with whatever he wanted to do despite strong opposition
from certain quarters, particularly the media.
Motivating the Team
Analysts felt that if there was anything that Aragonés put more
emphasis on than strategy and tactics, it was working with the
team members on the psychological level. He put in a lot of
effort on motivating the team and developing a winning
mentality. “We need to work as hard […] and have the strength
and conviction that we can be champions. In [soccer], you have
to step onto the pitch convinced that you are going to win even
though anything can happen. Today, there is nothing to …
[differentiate] the big national sides… That’s why having a
winning mentality is so important,”18 he said. This was
particularly important as Spain had faced failure so often that

the team had lost almost all hopes of getting past the initial
rounds and the quarter finals. They started to expect failure
whenever things looked out of control. They lost their cool and
began to mentally accept their failure. Therefore, Aragonés’
prime focus was on this weakness of the team.
He regularly had motivational sessions with the team before key
matches. Some of his team members and support staff said
Aragonés used his experience to charge up a member of the
team in innovative (and sometimes questionable) ways. “He
has his tricks. He knows more from experience than mischief.
The way he gets around you is amazing. You haven’t even left
yet and he’s already returned,”19 said Spanish midfielder Xavi.
And ironically, it was this type of ‘motivational’ tactic that landed
him in trouble quite early into his stint as coach with the national
team. In one of his coaching sessions with a young member of
the team Jose Antonio Reyes (Reyes), Aragonés was caught on
camera referring to Reyes’s black team-mate in Arsenal FC20
(Arsenal), Thierry Henry, with a racial epitaph. “You have to
believe in yourself, you’re better than that […],”21 he was heard
saying. The media branded Aragonés a racist and there as a
clamor for his head. He got away with just a fine but the incident
left a permanent blot on his personality.22 What riled the critics
more was the way he tried to justify the comment saying that he
was just trying to motivate Reyes by suggesting that Reyes
(who was a gypsy) was better than a black.
Later in 2006, when Aragonés brought Brazilian-born black
midfielder Marcos Senna (Senna) into the national side, some
commentators suggested that it was a ploy by the coach to put
150

an end to allegations of racism against him. However, Senna
later came out in defense of his coach. “He is not racist.
Aragonés is a spectacular person. [Former Spain defender]
Donato, who is black, is one of his best friends. Maybe
something escaped, a word, and he was misinterpreted. He
helped a lot bringing me to the Spain team, and the fact people
thought he was racist was minimized by the fact he called me.
I see the way he treats me and how he likes me,”23 he said.
Team Building & Instilling Team Spirit
After taking charge in 2004, Aragonés worked to build a strong
Spanish national team. By the time they went to the 2006
World Cup, some of the older members of the team had made
way for exciting new players such as Senna. Aragonés tried to
instill a team spirit and insisted on team ethics and his ‘concept
of team, before everything’.24 The coach once said, “In football,
if there isn’t harmony in the dressing room and a good spirit in
the squad you will be condemned to failure.”25 He strove to
create a team where no one thought that he was superior to
any other member of the team. “We’ve got a close-knit squad,
which is the most important thing, and it doesn’t matter who
comes in or who goes out, it’s the team ethic that counts,”26
said Carles Puyol (Puyol), one of the senior players in the
Spanish team.
However, after Spain crashed out of the 2006 World Cup,
Aragonés realized that in order to improve the harmony in the
dressing room and strengthen the feeling of ‘team’ness, some
tough decisions had to be taken. He felt that the presence of
captain Raúl was coming in the way of harmony in the
dressing room. But leaving him out was a tough task as not

only was Raúl the most successful player, but he was also
immensely popular.
After making his debut for the national team in the mid-1990s,
Raúl went on to become the captain of the team in 2002.
Between 1996 and 2006, he scored 44 goals in 102 matches,
the highest number by any player for Spain. In addition, he
also held a formidable record in European football, with 3
UEFA Champions League medals and 6 La Liga crowns. He
was very committed and also considered a leader. He was so
popular that he was able to fly the Spanish national flag in all
parts of country – no mean feat in a nation as fractured as
Spain. However, there were apprehensions in certain circles
that the presence of Raúl was what was dividing the team. He
was reportedly symbolic of Castille, and his love for Spain and
Madrid coupled with his flag-waving antics did not go down too
well with some players from other parts of Spain such as
Catalonia and Basque.
Aragonés went ahead and left Raúl out of the team. He
replaced him as captain with goalkeeper Iker Casillas
(Casillas).27 While this decision attracted a lot of criticism from
the media and the public, some experts felt that the decision
allowed other members of the team to take on more
responsibility and paved the way for better team spirit.
In addition to Raúl, players such as Santiago Canizares and
David Albelda too made way for younger players such as
Sergio Ramos (Ramos) and Joan Capdevila.
While building a team for the 2008 Euro Cup, Aragonés took
care that there was no ‘hero’ culture. For instance, he did not
151

want any player to be symbolic of the national team. Other
national sides had some talismanic players. For instance,
England had David Beckham and Germany had Michael
Ballack.28 The Spanish team was selected on the basis of an
objective evaluation of the player’s form and a lot of faith was
placed on the young players.29 Aragonés was also credited with
breaking the dominance of rival factions of Real Madrid and FC
Barcelona in the Spanish national side. Experts said that unlike
on some previous occasions, the team was not selected to
appease any particular group or province.30

Management Style

The controversial decision once again was the non-inclusion of
Raúl despite his being in sublime form playing for his club.
Reacting to pointed criticism regarding the non-inclusion of
Raúl in the team, Aragonés lashed out, “What have we won
with Raúl? Nothing… He’s a great player, but it’s time for a
change.”31 He pointed out that despite Raúl representing the
Spanish national team in all the major tournaments since 1996,
the country had won nothing.

He earned the love and respect of the team and even when
some members did not agree with some of his decisions they
accepted it. “He is a surprising guy, because he is really
serious, but then he comes with jokes. The guys adore
Aragonés,”33 said Senna.

According to analysts, the team that went for the 2008 Euro
Cup had good balance. It had a good captain in Casillas who
had a rather calming influence on the team. The other
members of the team reportedly had a lot of respect for him
and he was an ideal foil for the outspoken Aragonés. He was
often required to broker peace between the coach and some of
the more headstrong members of the team such as Ramos.
32(Refer to Exhibit II for the Spanish squad for 2008 Euro Cup)

Aragonés’ management skills came in for a lot of praise from
experts. His approach to the team was very affectionate though
he did not think twice before giving any key member of a team
a public dressing down when the situation warranted it. Some
experts felt that his approach toward some of the younger
members of the team such as Torres and Ramos was almost
paternal. He trained with the team and, according to some team
members, tried to be very objective.

Some experts felt that the Spanish
team had developed into a formidable
opponent leading up to the 2008 Euro
Cup largely due to Aragonés’
leadership. “Tournament-winning
teams need this skill [ability to close
out a match]. But I believe my friend
has brought so many other vital
qualities, some of which he had as a
player, to management. He has
always gone his own way as a man –
he just does what he believes.”34 said
Kurt Jara, former Austrian player and
coach.

Kurt Jara

Source:
www.lh6.ggpht.com

152

SPAIN’S 2008 EURO CUP CAMPAIGN
Before embarking on their 2008 Euro Cup campaign, the
squad went to meet the 1964 winning team to draw inspiration
from them. “We must go with a winning mentality. After that:
what will be, will be. But psychologically, it must be nothing but
positive to achieve the championship,”36said Aragonés.
Analysts commented that the tournament saw a new Spanish
team, made up of not just a
Video - 2008 EURO Cup
bunch of talented players
Campaign
but a group of players who
had learnt to put the team’s
need ahead of individual
aspirations. The team
stormed past the group
rounds with handsome
wins over Russia, Sweden,
and Greece (Refer to Source:www.youtube.com/watch?v
=7qmwLZGHEBA&feature=related
Exhibit III for Spain’s march
to 2008 Euro Cup glory).
Analysts said that the members of the Spanish team also
acted very professionally. Even when players such as Torres
and Fábregas were called back by the coach under
controversial circumstances, they were disciplined and hardly
put up any show of defiance.37 Aragonés noted that the team
was high on team spirit. After winning the match against
Sweden, Aragonés, said, “My celebration isn’t very usual for
me, but I looked at the bench and it’s important for a coach to
see how people react to a goal there… The beautiful thing was

the way the players in the team went to those on the bench to
celebrate together.”38
Experts felt that the depth of the team could be gauged from
the fact that it was able to leave out a key player from a match
or make substitutions but still come out a winner. “This
Spain team doesn’t believe in galacticos — stars who are
bigger than the team itself. This wasn’t Ballack’s Germany,
Beckham’s England, or Ronaldo’s Portugal. This was Spain’s
Spain. When asked why [David] Villa was left out for the game
against Greece, when the Valencia striker might have made all
but certain of finishing as top scorer, Aragonés said he wasn’t
after individual awards, it was a collective trophy that he
sought,”39,40 wrote journalist Elena Moya.
No Fear
Knowing the importance of the quarter final match against Italy
-- a stage of the tournament where the Spanish team had
faltered with alarming regularity and an opponent against
whom the team did not have a very good record – Aragonés
worked on the psychological aspects of the members of the
team. He knew that on current form, Spain was the favorite to
enter the semi-finals but their past history could come in the
way. So he spent a considerable time in building up the
confidence of the team and keeping it focused as the media
raked up the Spanish side’s miserable past history. He had ten
minutes’ motivational sessions before every training session
and ‘No fear’ became the catch word. “To beat Italy we have to
believe it. We must not have a single pessimistic thought,”41
said Aragonés.
153

In the tight match that followed, Spain defeated Italy in the tiebreaker, a stage of the match where the team was prone to
succumbing to pressure.
Before the semi-final match against Russia, which was led by
one of the most effective managers in the game Guus Hiddink
(Hiddick), Aragonés’ sessions focused on how the Spanish
team could take advantage of the weaknesses of the strong
Russian team. “He always respects the opponent, but tries to
make us believe we are better. He showed us videos of Russia,
a little of each player, showed the dangers and weaknesses. “If
you match them physically, you are going to win, because you
have more quality. Believe me and do what I ask”,”42 Senna
quoted him as saying.
On June 26, Spain entered the finals by defeating Russia. The
media back home went into a frenzy of excitement and
Aragonés was hard-pressed to keep the team focused.
Moreover, there were also media reports that the coach, who
had already made up his mind to quit after the Euro Cup, was
joining Fenerbahçe Sport Club43 (Fenerbahçe) in Turkey.
Aragonés refrained from confirming the reports but remained
adamant that he would leave the Spanish team anyway. He
also thanked the people who had criticized him throughout his
career with the national side. “I’d like to put on record my thanks
to those people who have supported me — sometimes when it
was difficult to do so. But even those who have criticized me
have been good for me. So my thanks must go also to the
people who have given me no support. Their attitudes made me
reflect and think even more carefully about my choices and my
decisions,”44 he said.

In the days leading up to the final, Aragonés who was trying to
keep the team focused before the crucial tie was not too
impressed with the off-field behavior and general discipline of
Ramos and was seen giving the young defender a thorough
dressing down in public. “Don’t think he [Aragonés] does things
just for the sake of it. He has Ramos fired up, you [media and
public] lot entertained, and the squad aware that all of them are
equal,”45 said one of the team’s support staff.
In his sessions before the crucial final match, Aragonés also
emphasized the importance of the win and reminded the team
that “no one remembers the runners-up”. He also expressed
confidence that the team would win the tournament as it had a
very good team spirit. “My players look good, with the desire to
play a good game and lift the trophy… You can have the best
players in the world but if there is not a good atmosphere in the
team, it’s impossible to win…I feel happy to have a group that
has believed in me and that has followed my tactics and
style,”46 he said.
Playing in their first major finals in
24 years, Spain came out with a
spirited performance to beat the
highly ranked Germany. Aragonés’
management skills again to the
fore again as his substitutions
(though controversial) were
instrumental in the team winning
the game and lifting the trophy
after 44 years. 47

Video - Team Effort will
lead to Success.

ch?v=3goGMWHDIzA&feature
=related

154

Team Effort
Interestingly, all the members of the team contributed to the
success. Different players made vital contributions in different
games. For instance, Villa made invaluable contributions
against Russia and Sweden; Xabi against Greece; Casillas
against Italy, Fábregas, Xavi, and David Silva against Russia
in the semi-finals; and Torres against Germany.48 Then there
were the other mid-fielders and defenders who toiled it out in
their respective positions to put up a strong defense and also
provide the strikers with goal-scoring opportunities. Particularly
in the match against Italy, the defenders played a crucial role.
The contribution of Senna too came in for a lot of praise
throughout the tournament.49
Aragonés executed bold substitutions of players like
Torres, Xavi, Iniesta, and Fábregas when the team needed it.
Experts noted that there was harmony within the team and
each player performed the roles assigned to them to the hilt.
Moreover, every body respected and abided by the decisions
made by Aragonés. So there were fewer chances of internal
conflict, which could have hampered team work. In fact, every
member of the team except the third-choice goalkeeper Andres
Palop, got a chance to play in the tournament. Even off the
field, the team showed good camaraderie, and often played
cards together in the nights in captain Casillas’ room.51
Aragonés said, and the analysts agreed, that the way in which
the team played throughout the tournament was laudable and
described it as ‘a model of how football should be played’.52
“We’ve won this tournament brilliantly, it’s a happy day for the
players, the background staff, me, all Spaniards… Now we can

start saying that we can win titles. I hope Spain will go on in
this way and bring lots of triumphs,”53 he said.
After the win in the finals, players such as Torres said that the
Aragonés had instilled a team spirit by achieving a unity
between Spain’s deeply divided factions. The FC Barcelona
players in the team such as Fábregas too subscribed to this
view. FC Barcelona players such as Fábregas, Xavi, Andres
Iniesta, and Puyol made major contributions to the team’s
success. Xavi was, in fact, recognized as the ‘Player of the
Tournament’, while the ‘Golden Boot’ (award to the top scorer)
went to Villa. As many as nine members of the Spanish team
were included in the ‘Squad of the Tournament‘54.55 (Refer to
Exhibit IV for the 2008 Euro Cup Squad of the Tournament)
Casillas too attributed the win to team effort and the leadership
of Aragonés. “Aragonés has done a great job… He made us
believe that it could be done from day one,”56 he said.
TEAM SPIRIT & ARAGONÉS’ LEADERSHIP HAILED
Experts said that it was the team spirit of the Spanish team
that had made the difference. The team had always had great
players but this time, they played as a team rather than a
group of individuals and placed the team’s interests above
individual aspirations. They pointed out various instances
when this spirit was clearly visible. For instance, the way
individual members of the team such as Fábregas and Torres
looked beyond their dissapointment at being substitued under
controversial circumstances to back the team and its leader;
the way the players celebrated with their team mates who were
on the bench; Fábregas speaking up for Villa’s inclusion in his
155

English Premier League club side Arsenal despite Villa being
one of the players who kept him out of Aragonés’ starting XI;
and, the overall aura of each team member totally committed
to the team’s cause. In fact, many keen followers of the game
were taken by surprise by the team spirit shown by the
Spanish team considering their past outings.
The experts attributed this newfound team spirit and success
to the management skills and leadership of Aragonés. They
felt that his huge experience had come in handy in turning
around the Spanish national team. In particular, his ability to
take tough decisions on the field and off it, came in for special
praise. “Spain’s eventual triumph in the competition can […]
be attributed, in large measure, to Aragonés’ street-fighting
personality and seniority. He had the guts to impose his
philosophy, the experience to know that he was right, and the
age (70) when a person is often past caring what others
think… The spoilt tantrums that had characterized the Spanish
in the past were replaced by a collective respect and
admiration for the manager’s strategic course, whatever the
individual implications,”57 wrote David Bolchover, writer,
speaker, and independent consultant on management and
leadership issues in business and football.
James Lawton, the Chief Sports Writer of The Independent58,
wrote, “He has a strong idea of what he believes to be right
and the nerve to enforce it…. [Spain] has rarely lacked
virtuoso players, and still less a high quota of skill. So what is
the difference between now and all the barren years since the
1964 European title? It is the discipline and vision imposed by
a man who knows the game and, with equal certainty, what he
stands for.”59

In retrospect, many felt that Aragonés’ decision not to include
Raúl in the team had indeed helped fostered team spirit and
he was praised for sticking to his decision despite strong
criticism. Moreover, the team had reportedly hardly missed
him. “As for Raúl, the players never talk about his absence.
Where are all the journalists who so fervently defended his
presence in the national team and now no longer speak?”60
Senna had said in the days leading up to the Euro Cup finals.
Spain’s Prime Minister Jose Luis Rodriguez Zapatero too
hailed the national side’s team spirit and Aragonés’
leadership. “At times reality is better than dreams, and for
many Spaniards winning this title seemed almost impossible,
but with confidence, a will to win, team spirit, modesty, and a
great coach it was possible,”61 he said.
The Other View
However, there were some analysts who felt that though
Aragonés was a successful coach he had a flawed
personality. In addition to the alleged racist remark, they cited
the instance of the coach’s frequent outbrusts such as, when
angry over RFEF’s move to find his successor, Aragonés
dared it to sack him just before the 2008 Euro Cup.62 And then
there was his autocratic management style and ill-tempered
disposition. Some even felt that Aragonés might have had a
dysfunctional effect on the team. According to The Scotman’s
Tom Lappin, Villa’s hat-trick celebration (against Russia in the
group stages) with his team mates on the bench was an act of
defiance against Aragonés who had controversially benched
Torres. “The team spirit has developed in spite of Aragones,
perhaps as a reaction to him,”63 he quipped.
156

‘THE WISE MAN FROM HORTALEZA’ LEAVES ‘BIG
BOOTS’ TO FILL
Aragonés departed from the Spanish national side as their
most successful manager and coach since Villalonga, under
whose guidance Spain had won the 1964 Euro Cup. Out of
the 54 matches that Spain played under his guidance, it went
on to win 39. Analysts commented that by guiding Spain to
this victory, Aragonés not only helped the Spanish team shed
its underachiever tag, but also brought the fragmented
country together as the people in the different regions of
Spain reveled together. Madrid-based political analyst, David
Mathieson, commented: “It seems that football has united
Spain.”64

year contract that ran up to the 2010 World Cup to be held in
South Africa. Experts felt the new coach had a formidable
task on hand as the 2008 Euro Cup triumph had raised the
expectations of the nation and everyone was looking forward
to another stellar performance from the team in the
quadrennial football extravaganza.67

Just a few days before he left the office, Aragonés
commented, “I am proud of the results of my team and the
fact that I am leaving behind a group of players who give their
all on the pitch and within the group there is a good
atmosphere. That will be a good mark on my CV.”65 He went
on to join Turkish club Fenerbahçe in July 2008. Regarding
his willingness to take newer responsibility at the ripe old age
of 70, ace Russian coach Hiddink, said, “You have to respect
him for that. I tell you this — I won’t be doing it when I’m 70…
People say I have more experience around the world and that
might be true. But when you know how to work and how to
survive at the top level in Spain you must be a big man.”66
As for the Spanish national side, Vicente del Bosque, one of
the most successful coaches of Real Madrid, joined as the
new coach of the Spanish team. He was signed under a two157

Exhibit I
A Note on José Luis Aragones Suárez
José Luis Aragonés Suárez (Aragonés) is a veteran Spanish football player and coach of many Spanish football clubs. He
was born on July 23, 1938, in Hortaleza, Madrid, Spain. He started his career in football in 1957 as part of CD Getafe, a
Spanish club based in the city of Gefate, South Madrid. In 1958, he became a part of Real Madrid. However, he could not
make it to the senior team and spent most of his time on loan, playing for clubs like Recreativo de Huelva, Hércules CF
and AD Plus Ultra, which was Real Madrid’s reserve68 team. In 1960, he joined Real Oviedo69 and debuted in the Prima
Division (La Liga). From 1961 to 1964, he was associated with another Spanish football club Real Betis, where he
appeared 86 times in the leagues and scored 33 goals.
Aragonés was also a member of the 1964 Spanish team that won the Euro Cup, but was kept in reserve in the quarter
final match against Ireland. Between 1965 and 1972, he was a member of Spain’s national team and played for the
national team 11 times, scoring three goals. He mainly played as a striker throughout his career.
Aragonés spent a major portion of his career as a player, as well as a coach, at Atlético, where he was popularly known as
‘Zapatones’ or ‘big boots’, as he was a specialist in free kicks. He regularly scored goals for the team. In 1970, he received
the ‘Pichichi’ trophy70 that he shared with his teammates José Eulogio Gárate and Amancio. He had scored a total of 160
league goals in his career.
In 1974, he gave his career a new shape when he joined as the coach of Atlético where he was coach on four separate
occasions 1974-1980, 1982-1987, 1991-1993, and 2001-2003). In addition to Atlético, Aragonés had managed teams
such as Real Betis (1981-1982, 1997-1998), FC Barcelona (1987-1988), RCD Espanyol (1990-1991), Sevilla FC
(1993-1995), Valencia CF (1995-1997), Real Oviedo (1999-2000), and RCD Mallorca (2000-2001, 2003-2004).
As a coach, he earned the nickname ‘El Sabio de Hortalez’, which meant ‘the wise man from Hortaleza’ in Spanish.

158

Exhibit II
The Spainish National Team for the 2008 Euro Cup
GOALKEEPERS

MIDFIELDERS

Iker Casillas (Captain)

Andres Iniesta

Ande Palop

Xavi Hernandeez

Jose Manuel Reina

Cesc Fabregas

DEFENDERS

Santi Cazorla

Raul Albiol

Xabi Alonso

Fernando Navarro

Sergio Garcia

Carlos Marchena

Marcus Senna

Carles Puyol

David Silva

Jaon Capdevila

Ruben de la Red

Sergio Ramos

STRIKERS

Alvaro Arbeloa

David Villa

Juanito Gutierrez

Fernando Torres
Dani Guiza

Source: http://euro2008.uefa.com

159

Exhibit III
Spain’s March to 2008 Euro Cup Glory
Group stage

Quarter-finals

Semi-finals

Final

June 19 - Basel
June 10
Spain

4

Portugal

2
June 25 - Basel

Russia

1

Germany

3
Germany

3

Turkey

2

June 20 - Vienna
June 14

Spain

1 (1)
June 29 - Vienna

2

Sweden

Croatia

1

Turkey (p)

1 (3)
Germany

0

Spain

1

June 21- Basel

Netherlands

1

Jun 18
Spain

2

Greece

1

June 26 - Vienna
Russia (aet)

3
Russia

0

Spain

3

June 22 - Vienna

Spain (p)

0 (4)

Italy

0 (2)


160

Exhibit IV
UEFA’s Squad of the Tournament
GOALKEEPERS

MIDFIELDERS

Gianluigi Buffon (Italy)

Hamit Altintop (Turkey)

Iker Casillas (Spain)

Luka Modric (Croatia)

Edwin van der Sar (Netherlands)

Marcos Senna (Spain)
Xavi Hernandez (Spain)

DEFENDERS

Konstantin Zyryanov (Russia)

Jose Bosingwa (Portugal)

Michael Ballack (Germany)

Philipp Lahm (Germany)

Cesc Fabregas (Spain)

Carlos Marchena (Spain)

Andres Iniesta (Spain)

Pepe (Portugal)

Lukas Podolski (Germany)

Carles Puyol (Spain)

Wesley Sneijder
(Netherlands)

Yury Zhirkov (Russia)

STRIKERS
Andrei Arshavin (Russia)
Roman Pavlyuchenko
(Russia)
Fernando Torres (Spain)
David Villa (Spain)
Source: Colin Stewart, “Spain United in Joy as Euro 2008 Victory Proves
Aragones Has Healed Old Divisions,” www.scotsman.com, July 1, 2008.

161

Foot Notes
1. Tim Rich, “Euro 2008: Luis Aragonés’ Spain Men Learn
the Value of Comradery,” www.telegraph.co.uk, June
27, 2008.
2. Beaker, “Luis Aragonés Sets Tone for Stellar
Spaniards,” www.intersportswire.com, June 30, 2008.
3. Inter Sports Wire is a website dedicated to sports.
4. David Bolchover, “Office Life: Management Lessons
from Euro 2008,” www.viewswire.com, June 30, 2008.
5. The Union of European Football Associations (UEFA) is
the governing body of football in Europe. It was founded
on June 15, 1954, at Switzerland. Its stated motto is to
promote, protect, and develop European Football.
6. The UEFA European Football Championship
(commonly referred to as the Euro Cup) is a
quadrennial football tournament for European nations.
The 2008 version was the 13th Euro Cup and was cohosted by Austria and Switzerland.
7. The Royal Spanish Federation also manages major
events in football in Spain like the Copa Del Ray,
Supercopa de España, and Copa Federación. It is
located in Laz Rozas, Madrid (Source:http://
www.oleole.com/spain/history/fhij.html).
8. World War II took place in the period 1939-1945.

9. URRS is the alternate acronym for USSR, i.e the Union
of Soviet Socialist Republics, which was a
constitutionally socialist state that existed in Eurasia
from 1922 to 1991.
10. Simon Baskett, “Spain Cast Aside Millstone,”
www.mirror.co.uk, June 30, 2008.
11. The UEFA Champions League is a seasonal club
football competition played between the most
successful football clubs in Europe. It has been
organised by UEFA since 1992 and dates back to 1955
as the European Champion Clubs’ Cup.
12. John F Molinaro, “Is This Finally Spain’s Year?”
www.cbc.ca, June 3, 2008.
13. www.cybernation.com/victory/quotations/subjects/
quotes_teamsandteamwork.html
14. Fiona Govan “Euro 2008: Can football glory finally get
Spain to sing with one voice?” http://
www.telegraph.co.uk, July 2, 2008.
15. “New Fener Coach Aragones Favors Skill and Mental
Attitude,” www.todayszaman.com, July 5, 2008.
16. Today’s Zaman is the leading English newspaper in
Turkey.
17. Simon Baskett, “Aragones Fashions a More Resilient
Spain,” http://uk.reuters.com, June 24, 2008.

162

19. Miguel Delaney, “Time for Spain to Face Fears,”
www.tribune.ie, June 29, 2008.
20. Arsenal FC is an English professional football club
based in Holloway, North London.
21. Sid Lowe, “Spain Coach in Mire over Henry Jibe,”
www.guardian.co.uk, October 7, 2004.
22. Keith Jackson, “Luis Aragonés Ready to Lead Spain to
Euro 2008 Glory,” www.dailyrecord .co.uk, June 26,
2008.
23. Duncan Castles, “Senna Steals Show,” The Observer,
June 29 2008.
24. James Lawton, “Aragonés the Unlikely Star Takes
His Place among Spain’s Leading,” The
Independent, June 30, 2008.

28. Elena Moya, “Spain’s Non-Galacticos Deliver
Deserved Triumph,” www.reuters.com, June 30,
2008.
30. “ S p a i n : T h e G r e a t U n d e r a c h i e v e r s , ”
www.aboutaball.co.uk, May 24, 2008.
32. “Coach Luis Aragones Looks to 1964 Euro Winners
to Build Spain’s Fragile Confidence,” www.iht.com,
May 27, 2008.
33. Duncan Castles, “Senna Steals Show,” The
Observer, June 29 2008.
34. Graham Hunter, “Old Pal Praises the Aragonés
Approach,” www.euro2008.uefa.com, June 6, 2008.

25. Simon Baskett, “Aragonés Championed for Sticking
to His Guns,” www.irishtimes.com July 1, 2008.


26. “Puyol: Teamwork is the Key,” www.fifa.com, June
26, 2006.

36. “Coach Luis Aragonés Looks to 1964 Euro Winners to
Build Spain’s Fragile Confidence,” www.iht.com, May
27, 2008.

27. “Coach Luis Aragones Looks to 1964 Euro Winners
to Build Spain’s Fragile Confidence,” www.iht.com,
May 27, 2008.

37. John Giles, “Attitude of Torres is a Lesson for
Ronaldo,” www.herald.ie, June 30, 2008.

163

38. “Aragonés Hails Spain Spirit,” www.football.co.uk, June
15, 2008.

48. “Aragonés Championed for Sticking to His Guns,”
www.irishtimes.com, July 1, 2008.

39. Galáctico (or superstar) is generally a term used to
describe a world-famous football player. The term is used
for such a player who has been signed by Real Madrid.

49.
John F Molinaro, “Is This Finally Spain’s Year?”

40. Elena Moya, “Spain’s Non-Galacticos Deliver Deserved
Triumph,” www.reuters.com, June 30, 2008.
42. Duncan Castles, “Senna Steals Show,” The Observer,
June 29 2008.
43. Fenerbahçe Sport Club was founded in 1907 and is
based in Istanbul, Turkey. In addition to football, the club
also participates in basketball, volleyball, rowing, boxing,
sailing, athletics, swimming, and table tennis.

50.
Ben Raynak, “Campeones, iOle!: Spain’s Winning
Ways,” http://bleacherreport.com, June 30, 2008.
51. Elena Moya, “Spain’s Non-Galacticos Deliver Deserved
Triumph,” www.reuters.com, June 30, 2008.
53. Colin Stewart, “Spain United in Joy as Euro 2008 Victory
Proves Aragones Has Healed Old Divisions,”
www.scotsman.com, July 1, 2008.
54.

The team of the tournament is selected by UEFA’s
technical team. The technical team studied the
techniques of the different players whose style was
appreciated during the tournament and the inputs
were used to prepare a technical report which was
used by the coaches for providing coaching to other
teams.

46. “Second Place Will Be Forgotten,” www.espnstar.com,
June 29, 2008.

55.

“Spain Dominate Team of the Tournament,”
www.euro2008.uefa.com. June 30, 2008.

47. Henry Winter, “Fernando Torres’ Strike Wins Euro 2008
for Spain as Germany Say Goodnight Vienna,”
www.telegraph.co.uk, June 30, 2008.

56.

Colin Stewart, “Spain United in Joy as Euro 2008
Victory Proves Aragones Has Healed Old Divisions,”
www.scotsman.com, July 1, 2008.

Euro 2008 Glory,” www.dailyrecord .co.uk, June 26, 2008.

164

57.

David Bolchover, “Office Life: Management Lessons
from Euro 2008,” www.viewswire.com, June 30, 2008.

67. Gregory Sica, “Spain PM Hails ‘Great’ Aragonés,”
www.goal.com, July 2, 2008.

58.

The Independent is one of the leading newspapers in
the UK.

59.

“James Lawton: Aragonés Won Over Lovers of the
Game with Sweet Blend of Style and Discipline,”
www.independent.co.uk, July 1, 2008.

68. A reserve team is the second team that a club keeps, in
addition to the first or major team that represents the club
in all major events. It consists of a combination of
emerging youth players and senior players belonging to
the first team squad.

60.

Duncan Castles, “Senna Steals Show,” The Observer,
June 29 2008.

61.

Gregory Sica, “Spain PM Hails ‘Great’ Aragones,”
www.goal.com, July 2, 2008.

62.

69. Real Oviedo is a football team from Oviedo in Spain.
70. In Spanish football, The ‘Pichichi’ is a coveted trophy in
Spanish football that is awarded to the top goalscorer for
each league season. It is awarded by Spanish sports
newspaper Marca.

Kevin McCarra, “Aragonés’ Hard-bitten Cunning Can
End Spain’s 44 Years of Stylish Failure,” The
Guardian, June 28, 2008.

63. Tom Lappin, “Cavalier Spain Embrace Spirit of Adventure
in Spite of Aragonés,” www.scotsman.com, July 2, 2008.
64. Graham Keeley and Jason Burke, “Spain revels in new
spirit of unity as football team heals
divisions,”www.guardian.co.in, June 29, 2008.
65. “Big Boots One Step Away from History,” http://
www.citizen.co.za, June 27, 2008.
Euro 2008 Glory,” www.dailyrecord .co.uk, June 26, 2008.

165

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12.

Simon Basket, “Aragones Fashions a More Resilent
Spain,” http:// football.uk.reuters.com, June 25 June,
2008.

13.

Keith Jackson, “Luis Aragones Ready to Lead Spain
to Euro 2008 Glory,” www.dailyrecord .co.uk, June
26, 2008.

14.

Tim Rich, “Euro 2008: Luis Aragones’ Spain Men
Learn the Value of Comradery,” www.telegraph.co.uk,
June 27, 2008.

Sid Lowe, “Spain Coach in Mire over Henry Jibe,”
http://www.guardian.co.uk, October 7, 2004.

2.

“Puyol: Teamwork is the Key,” www.fifa.com, June 26,
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3.

“ S p a i n v D e n m a r k : P r e v i e w, ” h t t p : / /
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4.

“Spain: The Great Underachievers,”
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“Coach Luis Aragones Looks to 1964 Euro Winners to
Build Spain’s Fragile Confidence,” www.iht.com, May
27, 2008.

Kevin McCarra, “Aragonés’ Hard-bitten Cunning Can
End Spain’s 44 Years of Stylish Failure,” The
Guardian, June 28, 2008.

16.

John F Molinaro, “Is This Finally Spain’s Year?”

Subhankar Mondal, “Euro 2008: Spain Better off
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17.

Graham Hunter, “Old Pal Praises the Aragonés
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“Big Boots One Step Away from History,”
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18.

“Spain Determined to Learn Lessons from Last World
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Duncan Castles, “Senna Steals the Show,”
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Graham Keeley and Jason Burke, “Spain Revels in
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Team Heals Divisions,” www.guardian.co.in, June 29,
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166

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Beaker, “Luis Aragones Sets Tone for Stellar
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“Spain’s Most Hated is Vindicated?” www.goal.com,
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25.

David Bolchover, “Office Life: Management Lessons
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http://sport.scotsman.com, July 1, 2008.

36.

“James Lawton: Aragones Won Over Lovers of the
Game with Sweet Blend of Style and Discipline,”
www.independent.co.uk, July 1, 2008

37.

Gregory Sica, “Spain PM Hails ‘Great’ Aragones,”
www.goal.com, July 2, 2008

38.

Tom Lappin, “Cavalier Spain Embrace Spirit of
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39.

“ S p a i n W i n s E u r o E n d i n g 4 4 - Ye a r Wa i t , ”
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40.

Simon Baskett, “Aragones Championed for Sticking to
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41.

Fiona Govan, “Euro 2008: Can Football Glory Finally
G e t S p a i n t o S i n g w i t h O n e Vo i c e ? ”
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42.

Graham Hunter “Aragonés Gets it Right for Overdue
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Elena Moya, “Spain’s Non-Galacticos Deliver Deserved
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27.

Ewan Macdonald, “Spain’s Most Hated is Vindicated?”
www.goal.com, June

28.

Henry Winter, “Fernando Torres’ Strike Wins Euro 2008
for Spain asGermany Say Goodnight Vienna,”
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29.

Henry Winter, “Spain Ends 44-year Wait for Trophy,”
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30.

James Lawton, “Aragones the Unlikely Star Takes His
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31.

John Giles, “Attitude of Torres is a Lesson for Ronaldo,”
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167

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www.just-football.com, July 5, 2008.

44.

“New Fener Coach Aragones Favors Skill and
Mental Attitude,” www.todayszaman.com, July 5,
2008.

45.

Mark Elkington, “Soccer-Euro-Stylish Win Has
Spain Looking to a Bright Future,”
www.reuters.com, July 18, 2008.

46.

http://en.wikipedia.org

47.

http://euro2008.uefa.com

48.

www.oleole.com/spain/history/fhij.html.

168

C HAPTER 8

Communication
In all organizations, individuals and groups attempt
to exchange ideas, feelings and emotions. This
communication is essential for sharing information
and coordinating action and helps in achieving
goals.
Good communication helps employees become
more involved in their work and helps them
develop a better understanding of their jobs. Clear,
precise and timely communication of information
also prevents the occurrence of organizational
problems.
understand:
The definition of communication
Importance of communication
The process of communication

Various types of communication - nonverbal
communication, downward communication,
lateral communication and interactive
communication
The barriers to effective communication

Section 1

Role of Communication
Definition

Figure 8.1.1: Continuum of Communication in
Organizational Behavior

Communication may be defined as the process by
which information is exchanged between individuals.
The process includes the use of written messages,
spoken words and gestures. The field of organizational
behavior seeks to examine the impact of communication
on the behavior of employees within organizations.
The given figure 8.1.1 depicts a continuum showing the
increase in sophistication of communication. Simple
nonverbal communication falls at one end of the
continuum while sophisticated communication
technology falls at the other end of the continuum.
Interpersonal communication occupies the middle
ground. This increasing degree of sophistication in the
communication process makes it possible to study
communication under three categories: nonverbal
communication, interpersonal communication and
communication technology.

Source: Internal

Importance of Communication
Communication is vital for the functioning of
organizations. In the absence of channels of
communication, supervisors will not be able to give
instructions to employees and employees will not be
able to understand what the management expects of
them. Employees can perform well and be involved in
their work only when they understand their job duties

170

and responsibilities. The absence of communication can
threaten the very survival of organizations. When software
companies reduced the salaries of their employees to cope
with the slowdown in the IT industry, their managements
had to communicate to employees that the reduction was
temporary and that salary cuts had been made to avoid
layoffs. If this had not been communicated to the
employees, they would have become hostile towards
management. In the absence of such communication,
management would not have been able to carry out its
basic functions of planning, organizing, directing and
controlling.

Video 8.1.1: The
communication Process

v=zM073CjcNFI&feature=related

The Communication Process
The communication process involves the transmission of a
message from a sender to a receiver and back.
Communication may take place through speech, hand
signals or other form. Communication involves eight steps
as shown in the keynote 8.1.1.

Video 8.1.2: The Grapevine

Keynote 8.1.1: The Communication
Process
?v=jIz7nrKjvF4&feature=related

Source: Internal

171

Section 2

Types of Communication
Communication can be of many types. Here, nonverbal
communication, downward communication, upward
communication, lateral and interactive communication
were discussed.

communicating without the use of words. Nonverbal
Gallery 8.2.1: Nonverbal communication

Non-verbal Communication

Surprised
Source: www.bodysigns.files.wordpress.com

Source:www.lisamarierobinson.files.wordpress.com

A message need not always be conveyed in the verbal
forms; it can be sometimes expressed without the help of
words. Nonverbal Communication is the process of

communication is also known as ‘silent language’. It
involves the use of cues, gestures, vocal characteristics,
facial expressions and spatial relationship between the
sender and the receiver to convey a message. For

172

instance, a smile, glance, stare or a frown convey different
meanings.
Body Language and Paralanguage
Nonverbal communication takes many forms. The most
common form of nonverbal communication is the use of body
language. The study of body movement is known as kinesics.
Body movements include gestures, facial expressions and
other physical movements. Every body movement conveys a
certain meaning. For example, raising an eyebrow conveys
disbelief, rubbing the nose indicates puzzlement and
shrugging shoulders shows indifference. When a person is
eager to hear something, he sits with his feet under the chair,
toes pressed to the ground and leans forward on the desk;
when a person is listening carefully, he maintains eye contact
and frequently nods his head and so on. Body language
coupled with verbal communication gives more meaning to a
message.
Paralanguage refers to the voice quality, volume, pitch, speed
and non fluencies (like ‘ah’, ‘um’, or ‘uh) used to convey a
message. It helps to convey information about the attitude of
the speaker. Sometimes there may be a contradiction between
what a person says and what his actions indicate. In such
cases, the person’s actions can be regarded as a truer picture
of his feelings and ideas.
Downward Communication
Downward communication is one of the important processes
of organizational communication. The downward

communication process establishes linkages between people
(interpersonal linkage) by facilitating the flow of information
between them.

Source:www.image.shutterstock.com

Purposes of Downward Communication
There are five purposes of downward or top-to-bottom
communication in an organization. They are as follows:
To give instructions to employees regarding their jobs and
specific tasks.
To provide information about the procedures and practices
followed in an organization (to new employees).
To explain the rationale for a job to a new employee.

173

To provide feedback to subordinates about their
performance on the job and other related issues.
Upward Communication is also an interpersonal process
like downward communication. The classical organization
structure provides
for both upward and
downward flow of
information. The
u p w a r d
communication
process is nondirective in nature,
unlike the downward
process which is
directive. Effective
u p w a r d
communication is
Source:www.corexcel.com
possible only when
organizations
empower their employees and allow them to participate freely
in decision-making.

Methods of Making Upward Communication More
Effective
The techniques described below are used to promote upward
communication in organizations.

The Grievance Procedure
The grievance procedure enables employees to appeal to
management and seek redressal of their grievances.
Open-Door Policy
This is an organizational policy that allows employees to

Source:www.buzzle.com

approach managers at any time and discuss their
problems with them. Most of the times, this policy is not
actually implemented in organizations.

174

Counseling, Attitude Questionnaires and Exit
Interviews
The personnel department can conduct non-directive
counseling programs to help employees deal with their
work-related problems as well as work and family
conflicts. Attitude questionnaires may be administered
periodically to find out employees’ attitudes towards the
workplace and the work-load. Exit interviews may be held
for the employees quitting the organization to find out their
reasons for leaving and their suggestions for improving
the workplace.
Participative Techniques

Lateral Communication
Lateral communication is also known as crosscommunication. In lateral communication, managers
communicate with people in other departments outside their
own chain of command (across the chain of command). This
form of communication is often practiced by managers in
organizations, perhaps because they prefer the informality of
lateral communication to the formality of the vertical
communication process. They also perhaps prefer to use
lateral communication because it facilitates coordination of
work among departments.
Lateral Communication

Participative decision-making techniques enable
employers to obtain inputs from employees.
The Ombudsperson
The position of an ombudsperson is created to receive
and respond to inquiries, complaints, requests for policy
clarifications, or allegations of injustice by employees.
Managers can improve upward communication by
developing good listening habits. Some of the ways in
which they can improve their listening skills are
maintaining attention, using restatement, empathizing,
probing, encouraging and understanding.

Source:www.zadco.com

175

Interactive Communication
In interactive communication, there is no restriction on the
flow of information unless it is against organizational interests.
In most organizations, where only vertical or horizontal
communication exists, the flow of information is confined to a
specified path. But in organizations where interactive
communication is allowed, the flow of information takes place
spontaneously among people, irrespective of their levels, and
does not follow a specified path. The horizontal and vertical
flow of information constitutes formal channels of
communication, which form only a small part of the
communication process in an organization. In contrast,
interactive communication constitutes an informal channel of
communication and has a central role to play in organizations.
The interactive process has many behavioral implications.
Communicating with peers provides social support for an
employee. An employee feels more comfortable discussing
his problems with a peer than with a
superior or a
subordinate.
The main aims of interactive communication in an
organization are:
Task Coordination – The heads of various departments
can meet at regular intervals to discuss how each
department can contribute to organizational goals.
Problem Solving – The members of a department may
get together to brainstorm and solve a common problem.

Information Sharing – Employees from different
departments may interact with each other to share
information.
Conflict Resolution – Members of a department may
meet to resolve differences within the department or with
other departments.
Computer technology has had a major impact on interactive
communication. Companies like Hewlett-Packard, Mahindra
Satyam and Dr. Reddy’s Labs use computers to communicate
with employees working at different geographical locations.
Videoconferencing technology is used to conduct meetings
with participants from different locations. Technology thus not
only facilitates interactive communication, it also saves
organizations time and money (required to bringing together
all participants at one place).
The two main forms of interactive communication are
networks and grapevine communication.
Networks: A network is a group of people who develop
and maintain contact with each other to exchange
information of common interest in an informal manner.
Grapevine Communication: Grapevine communication
supplements the formal channels of communication and
provides information which is not communicated through
the latter. It provides information on the unwritten rules of
the organization and important management decisions
(well before they are implemented).

176

How to Choose a Communication Channel
One of the reasons for the communication problems is the
wrong choice of communication channel. It is very important
to choose the right kind of channel for the right message. This
can be understood better with the media richness theory.
Refer to the keynote 8.2.1 for the communication channel
richness.
Media Richness
Theory

Keynote 8.2.1: Communication
Channel Richness

Adapted from Organizational Behavior,
13th Edition, Stephen Robbins

177

Section 3

S ECTION 3

Barriers to Effective Communication
A number of obstacles may restrict the receiver’s
understanding of a message. These interruptions act
as barriers to communication, which may totally
prevent communication, delete a part of the message,
or convey the wrong meaning.
Individual differences in terms of personality,
perception, family and cultural background, education,
etc., would enable or disable the way he or she
communicates in an organization. Most importantly the
context or situation in which one communicates may
be communicated or miscommunicated depending on
various factors or barriers which are shown in the
keynote 8.3.1.

Keynote 8.3.1: Barriers to Effective
Communication

Source: Internal

178

Review 8.1
Question 1 of 8
What is the group, which informally exchanges
the information pertaining to a shared interest,
known as?

A. Grapevine
B. Network
C. Ombudsperson
D. Quality Circle

Check Answer

179

Section 4

Case Study: Organizational Communication Blunders
This case study was written by Dr. G. Prageetha Raju
and Diganta Chakraborti, (Professors in
Organisational Behaviour), IBS Hyderabad. It is
intended to be used as the basis for class discussion
rather than to illustrate either effective or ineffective
handling of a management situation. The case was
written from generalised experiences.

180

Headquartered in Nagpur, Maharashtra, Alpha India Products
(Alpha India) is organised into three self-sufficient divisions,
namely, home appliances, personal care and food products.
The organisation’s board comprised of the chairman, two fulltime directors and three independent non-executive directors.
The CEO heads the organisation appointed by the board and
there are three Vice Presidents (VPs) reporting to him,
namely, VP – home appliances, VP – personal care and VP –
food products. Under each VP, there are three functions,
n a m e l y, s a l e s , p r o d u c t / b r a n d m a n a g e m e n t , a n d
manufacturing. Product management function in personal
care division is headed by General Manager (GM) supported
by three product managers handling hair care, skin care, and
oral care respectively.
In personal care division, there is another position called
senior product manager and this position is between the
product manager and GM. The position of senior product
manager was created some years back in order to ease the
job of the GM as there was a surge in demand for skin and
hair care products in the market. Under the assistant product
managers there are executives and under the executives,
there are assistants.
For managing sales operations, Alpha India divides the
country into four regions, with regional branches in New
Delhi, Kolkata, Chennai and Mumbai. Each region is headed
by a regional manager. Regional sales managers and area
sales managers, report to the GMs and are assisted by
dedicated field forces, comprising sales officers and territory
sales in-charges.

Sagar Varma (Sagar) is an area regional manager in the
home appliances division for Alpha India in Chennai. Ten
days back he received an e-mail from the Head Office (HO)
with a subject line, “Please Read-message from HO”. He
began reading the message, “Dear Sagar, you have been
promoted as an assistant product manager in the personal
care division. You are to report to Nagpur as soon as
possible.” The mail had come from product manager –
personal care division. He was confused, not sure, whether it
was a genuine mail or just a fun mail. He called up the HO
and enquired whether it was true.
He shifted to HO within 4-days as assistant product manager
– Personal Care division. He was disappointed with the
promotion as he was not familiar with the personal care
division. Once he reported to Nagpur, he was welcomed by
his colleagues, who also helped him in finding a decent
house. In a casual conversation with his colleagues he heard
that the VP – personal care, Dayanand Awasthi (Dayanand) is
very pushy and blunt when it comes to talking to his
subordinates. He lacks basic courtesies but being a veteran
in the field, he was very efficient. He also heard that his boss
Sandip, the senior product manager and the VP do not share
a harmonious relation and therefore, Sandip skips every
meeting convened by Dayanand. The GM, Tushar Kumar
(Tushar) is a reasonable person and is logical in his decisions
and conversations. To be successful in personal care division,
Sagar was told, that one has to be aggressive, and highly
skilled. Promotions are very competitive in this division and it
calls for tremendous skill and efficiency. Sagar was lamenting
that this division is too new for him but the colleagues
181

convinced him that there is more growth in personal care
than in other divisions.
Sagar earlier worked in sales and he performed quite well
there. But this promotion proved to be a bane rather than a
boon as he was not aware of personal care products. He
asked his colleagues whether there would be any induction
programme for him to familiarise himself with the working
process in the Personal Care division and he received a
negative reply from them.
Sagar’s new boss Sandip welcomed him to the HO but told
him nothing about the role he was expected to play. He just
wished him good luck and this added to Sagar’s misery.
Sagar said, “Sir, I received this letter of promotion and it did
not have the signature of the VP and more so, I received it by
e-mail. Also, sir (he said meekly) can I get some induction
programme as I am too new to Personal Care division?”
Sandip seemed to have turned a deaf ear to all supplications
made by Sagar.
One day the VP, Dayanand convened a meeting for all
product managers and this news was conveyed to him by his
colleague. Sandip asked Sagar to attend it as he had some
family emergency. Sagar immediately recalled his
colleague’s cautions that Sandip evades every meeting that
Dayanand convenes. He chuckled and nodded. Later, the
GM, Tushar called up and asked Sagar to attend the meeting
as this would give him an exposure to his new role. This call
sounded a little encouraging to Sagar.

At the very beginning of the meeting, Tushar introduced
Sagar very briefly to the VP. The meeting took off with an
opening address from the VP and soon it got into a series of
questions from him to every product manager. Dayanand, of
course, was thorough with every single product of the
company. Most of the product managers were very clear of
Dayanand’s way of working and had thoroughly prepared for
the meeting and provided answers to the point. Sagar
observed that Dayanand was using lot of abbreviations,
acronyms, jargon and slang, which Sagar could not decipher.
Also, Dayanand was continuously being interrupted by his
phone and he was attending to the calls simultaneously
which disturbed the pace of the meeting. Dayanand was
repeatedly calling the product managers as ‘dummies’ as
they were not planning aptly. Also, he kept propagating that
everyone should be polite and humble while handling
customer queries and complaints. Dayanand yawned while
listening to some product managers much to their
annoyance. He frowned and banged the table when
discussions were going on. Some of the product managers
sought some guidance from Dayanand but he rebuked them.
Sagar noticed that everyone in the meeting was quite normal
in spite of his arrogance and aggression. Dayanand then
turned to Sagar and started questioning him. Sagar, being
new to the division was quite confused and fared miserably.
Tushar immediately understood that Dayanand had possibly
failed to remember that Sagar was new to the job. He
thought of interrupting Dayanand’s questioning and giving a
discrete reminder that Sagar was new. Tushar was in two
183

minds – should he interrupt Dayanand and tell him that
Sagar is new in that position or should he wait till the end of
the meeting and tell Dayanand privately. Tushar chose the
second option. But by that time, Dayanand who was pretty
upset with lack of homework by Sagar made a statement,
“Gentlemen, you are witnessing here an example of
careless work and this can’t be excused.” Sagar was too
embarrassed and visibly furious at the treatment meted out
by Dayanand but he chose to keep mum. Now, he
understood why Sandip evades the meetings called by the
VP. He hated Dayanand and decided to keep his distance
from him.
Dayanand adjourned the meeting saying that he found lack
of planning in general in the department and he
reprimanded everyone attacking them verbally. Most of the
participants in the meeting were trying to give some
justification in their favour but his criticisms were so
vehement that they had to bear with it silently. Later, the VP
asked Tushar to stay back in the room for further
discussions.
Before Tushar could give any explanation about Sagar,
Dayanand asked him, “Tell me openly, Tushar, was I too
rough with that boy?” Tushar said, “Yes, you were. In fact I
was about to remind you that Sagar is new to the job.”
Dayanand explained that the fact that Sagar was new to the
job did not quite register with him during the meeting.
Dayanand admitted that he had made a mistake and asked
his secretary to get Sagar, report to the room immediately.

A perplexed and uneasy Sagar reported to Dayanand’s
room after a few minutes. Dayanand looked Sagar straight
into his eyes and said, “I want to apologise to you. It is my
mistake that I did not recollect that you were new to the job
when I was questioning you.” Sagar was left speechless.
Dayanand continued, “I would
Video - Need for effeclike to state few things clearly to
tive Work place Comyou. Your job is to make sure
munication.
that people like me and your
bosses do not make wrong
decisions. We have confidence
in your abilities and that is why
we have brought you to HO.
Everybody needs time to learn. I
will expect you to know all the
nuances of your product in 3 atch?v=bppRqTj8a7o&featu
months’ time. Until then you re=related
have my complete confidence.”
Dayanand closed the conversation with a big reassuring
handshake with Sagar.
Questions for Discussions
1. Was it at all necessary for Dayanand to apologise to
such a junior employee like Sagar? As an HR man, how
would you define the character of Dayanand – bullying
but later regretting? Does his attitude need to be
corrected?

184

2. Did Tushar make a mistake by not intervening during
the meeting and correcting Dayanand’s misconception
about Sagar?
3. Explain the process of communication in the case.
4. Examine the barriers of communication and potential
problems thereof.
5. Discuss the forms of communication cited in the case.

185

C HAPTER 9

Leadership
Leadership is the ability to influence a group
toward the achievement of a vision or set of goals.
Effective leadership is about coping with change.
Leader is one who leads or guides. In
organizations, leaders establish direction by
developing a vision of the future, then align people
by communicating the vision and inspiring them to
overcome hurdles.
understand:
Definition of leadership
Various theories of leadership
Styles of leadership
The difference between a leader and a
manager.

Section 1

Leadership Theories
There are three important theories that attempt to explain
leadership – Traits theories, Behavior theories and
Contingency theories.
Trait theories of Leadership focus on certain personal
qualities and characteristics that distinguish leaders from
non leaders.
The behavioral theories propose that specific behaviors
differentiate leaders from non leaders.
Contingency theories of leadership establish the fact that
the optimal course of action is dependent upon the
situation.
The three important theories of leadership are described
below:
Trait Theories
Initial research into leadership concentrated on the traits
of leaders. It was believed that there was something
unique about an individual that enabled him to emerge as
a leader. Early researchers studied the personality

characteristics that make a person a leader and
concluded that leaders are born, not made.
One trait theory is the “great person” theory of leadership.
According to this theory, leadership traits can be acquired
with training and experience. They may not be inborn.
Unlike the earlier view that leaders are born, the “great
person theory” led to a more pragmatic approach to
leadership because it stated that leaders might not be
born with the desired traits.
Research to identify universal traits applicable to all
leaders has not yielded significant results. The only trait
that was found to be common among all leaders was
intelligent.
Therefore, modern researchers have now begun to
emphasize on multiple intelligences of leaders rather than
trying to isolate a single most important characteristic
leading to their success. For instance, some researchers
who studied the emotional intelligence of leaders have
suggested that empathy, graciousness, optimism and
ability to read non-verbal cues in a social situation are

187

important characteristics of successful leaders. Some
general characteristics found in leaders are ambition, high
levels of energy, desire to lead, honesty, integrity, selfconfidence, intelligence and job-relevant knowledge.

on the appropriate style of leadership to be adopted. Five
contingency models are:
Fiedler’s contingency model

Behavioral Theories

Hersey and Blanchard’s situational theory

Since the trait theories failed to establish the relationship
between traits and effective leadership, researchers turned
their attention to the behavioral aspects of successful
leaders. They attempted to identify the behaviors that were
unique to leaders and which distinguished them from nonleaders.

Leader-Member Exchange theory

There are four important behavioral theories – the Ohio
State Studies, the University of Michigan Studies, the
Managerial Grid and the Scandinavian Studies – that have
sought to identify the behaviors of leaders. All the four
studies sought to identify the specific behaviors exhibited
by effective leaders.
Contingency Approaches to Leadership
Although the behavioral approaches state that a positive,
participative and considerate style of leadership is the most
effective, there is evidence that such a style may not be
successful in some situations. This implies that there is not
one style of leadership that is appropriate for all situations.
Contingency theories of leadership postulate that leaders
have to change their style depending on the situation they
face. The theories also suggest that a leader should
carefully analyze the nature of the situation before deciding

Path-goal theory
Decision theory: Vroom and Yetton’s Leadership Model

Fiedler’s contingency
model
Leader-Member Exchange theory

Hersey and Blanchard’s
situational theory

Decision theory: Vroom
and Yetton’s Leadership
Path-goal theory

188

Click on the following link for Video on Transformational
Leadership
www.youtube.com/watch?v=TrZHqZwXr-U&feature=related

Video 9.1.1: Charlie Rose
- Exclusive Interview with
Facebook Leadership

h?v=-4wKlIa2O3Q

Video 9.1.2: IBH: Anand
Mahindra Interview

?v=kPPP_X5Ju5Q&feature=relat
ed

189

Section 2

Leadership Styles
Figure 9.2.1:
The way in which leaders influence their followers is
referred to as leadership style. The leadership style of an
individual is determined by the extent of control he or she
exercises over the followers and the way he/she
behaves towards them. It also depends on the types of
duties the leader performs and the types of duties and
responsibilities given to the followers. Few significant
styles of leadership are given in the following keynote
9.2.2. Also, refer to the figure 9.2.1 for the different forms
of leadership
Keynote 9.2.2: Leadership Styles

Source:www.hotelmule.com


190

Section 3

Difference Between a Leader and a Manager
According to Harvard Business School professor,
John Kotter, the difference between a leader and a
manager is that a leader strives to promote change in
an organization, whereas a manager works to ensure
stability. However, in a business world that is
constantly changing, one quality cannot be effective
without the other. In such an environment,
organizations need both leaders and managers, if
they are to survive and grow. The differences
between a leader and a manager are explained in the
given figure 9.3.1.

Figure 9.3.1: Differences Between a Leader and a
Manager


191

Review 9.1
Question 1 of 12
Personality traits theories and contingency theories are theories of

A. Leadership
B. Learning
C. Quality management
D. Empowerment

Check Answer

192

Section 4

Case study: Carly Fiorina: The Change Leader

Major constituents of the case

This case was written by Vivek Gupta, IBS Center for
Management Research. It was compiled from
published sources, and is intended to be used as a

The Company which had good market share before its merger with Compaq.
Source:www.1700digital.com

!

193

“She’s playing CEO, visionary, and COO, and that’s too hard
to do.”
- BusinessWeek, February 29, 2001.
INTRODUCTION
In 2002, Carleton S. Fiorina (Fiorina), the
Chairman and Chief Executive Officer
(CEO) of HP was the only woman CEO to
head a Fortune 50 company. Fortune
magazine also ranked her as the most
powerful woman in business for the sixth
consecutive year.
There were several other prominent
women CEOs in the US including Anne Mulcahy of Xerox,
Patricia Russo of Lucent, and Meg Whitman of eBay, but it
was Fiorina who earned the coveted rank. Commenting on
Fiorina’s leadership, John Chambers, CEO of Cisco
Systems, said, “She’s potentially one of the top CEOs of all
America.”1
Fiorina ‘reinvented’ HP and made it more customer-focused.
HP’s website said, “Under her leadership, HP has returned
to its roots of innovation and inventiveness and is focused
on delivering best total customer experience.”2
However, many of Fiorina’s initiatives at HP had been
controversial. When she altered HP’s long-cherished culture
– ‘The HP Way’ of management – proposed by the
company’s founders, she came in for strong criticism from
the company’s employees and the media. When Fiorina

undertook a total reorganization of HP’s structure, the costs
ran out of control, which led to utter confusion in the
company. Another controversial move was to acquire HP’s
competitor – Compaq Computer Corporation (Compaq) – at
a cost of $ 19 billion, which resulted in one of the biggest
proxy fights in corporate history. These moves led a few
analysts to doubt Fiorina’s managerial capabilities and to
wonder aloud if she had the right vision for HP.
When it was put up for approval in March 2002, Fiorina
managed to get the merger approved by winning the support
of institutional shareholders. The bigger challenge for Fiorina
however was to make the merger work. HP had performed
dismally in fiscal 2002 (Refer Exhibit I) and was just showing
signs of revival in 2003. It remained to be seen how she
would lead HP back to its glorious era – when it reported
double digit revenue and earnings growth year after year.
BACKGROUND NOTE
Born in 1954, Fiorina was brought up in Austin, Texas
(USA). Her father was a lawyer who
also taught law at Stanford and other
Video - Carly
Fiorina
universities while her mother was a
Biography
painter. Fiorina attended school in
different parts of the world including
Ghana, England, North Carolina and
California. She graduated in arts (BA
in medieval history and philosophy)
from Stanford University in 1976.
Fiorina displayed her analytical Source:www.youtube.c
om/watch?v=_CiWffrTf
capabilities at Stanford, where she Q4&feature=related
194

was able to summarize hundreds of pages of religious
writings into crisp, two-page abstracts in quick time.
After graduation, she attended the law school at UCLA
(University of California at Los Angeles). However, she opted
out of the course after completing one semester. In an
interview to Investor’s Business Daily, she said that ‘lack of
interest’ had prompted her to drop out since law ‘was all about
discovering precedent someone else has set.’ She then
completed a master’s degree in science (MS) from MIT’s
Sloan School.
In the early days of her career, Fiorina taught English in
Bologna, Italy, and also worked as a receptionist in a
commercial brokerage firm in New York. It was in this firm,
when writing deals for brokers that she became attracted
towards business management. While continuing to work,
Fiorina did a course in marketing management from the
Robert H. Smith School of Business, University of Maryland.
After she acquired her MBA degree, she joined the sales
department of AT&T Long Lines as an account executive, in
1980.3
Excellent selling skills enabled Fiorina to move up the
corporate ladder fast. By 1989, she was handling the North
American operations of AT&T’s equipment business. In 1992,
Fiorina became the first female officer to head the network
systems business of AT&T. According to analysts, Fiorina’s
success at AT&T revealed her determined, goal-oriented and
‘ruthless when necessary’ personality.

In 1995, Fiorina started working for Lucent Technologies
(Lucent), an equipment subsidiary of AT&T. Within an year,
she became the first woman executive vice-president of
corporate operations at Lucent. Fiorina successfully
spearheaded the planning and execution of the company’s
initial public offering (IPO) in late 1996. Investors were highly
impressed by her marketing savvy, which made Lucent the
most successful IPO of the year. She also played a major role
in Lucent’s spin-off from AT&T.
In 1997, Fiorina became the president of Lucent’s Global
Services Provider Business, a division that generated
revenues of about $20 billion annually. Under her leadership
for the next couple of years, the division grew rapidly; global
revenues increased significantly, and it gained market share in
every region, across every product line.
In July 1999, Fiorina became the President and the Chief
Executive Officer of HP, succeeding Lewis E. Platt (Platt). She
had the distinction of being the first woman, the first nonengineer, and the first outsider to be hired as CEO at HP. Prior
to joining HP, Fiorina had spent nearly two decades at AT&T
and Lucent. HP’s board hired Fiorina in a desperate bid to pull
out the company from a poor state of affairs.
THE STINT AT HP
To understand how Hewllet-Packard lost the HP Way Click
here.
During the late 1990s, HP faced major challenges in an
increasingly competitive market. In fiscal 1998, while HP’s
195

revenues grew by just 3%, competitor Dell’s rose by 38%.
The company failed to capitalize on the PC and Internet
boom and missed its target earnings forecasts in eight
continuous quarters.
HP’s culture, which emphasized teamwork and respect for
co-workers, had over the years transformed into a culture of
consensus. This was proving to be a major disadvantage in
an era of fast-growing business. The company had 83
different product divisions and a bloated bureaucracy to
match. Jeffrey L. Cooke, Vice President, Packard Bell NEC
Inc., and a former executive at HP, said, “I left HP because I
did not want to spend 80% of my time managing internal
bureaucracy anymore.”4 He revealed that he once had to
get an operational change cleared by 37 different internal
committees.
The bureaucracy at HP had begun affecting its innovation
too.5 Managers were often reluctant to invest in new ideas
for fear of missing their quarterly goals – HP had not had a
mega-breakthrough product since the inkjet printer in 1984.
Despite the absence of new products, Fiorina’s predecessor
at HP did nothing to motivate the product development
teams. Instead, he focused on promoting diversity in the
workplace and on ensuring a more humane balance of work
and personal life for HP employees. While these efforts
were praiseworthy on their own, they did little to help HP
face the tough business environment in which it was
operating. HP badly needed a complete change and a new
leader to cope with the rapidly changing trends in the
industry.

In her attempts to revive HP, Fiorina devised a threepronged strategy. The key components of this strategy
included revamping the organizational culture, changing the
organizational structure and acquiring a large PC
manufacturer.
REVAMPING THE CULTURE
Soon after taking the charge at HP, Fiorina decided to
change HP’s consensus-driven culture to a performanceoriented culture. The challenge for her was to retain the
competitive edge in engineering and innovation while
making the employees more adaptable and responsive.
Fiorina immediately introduced several changes at HP. She
demanded regular updates on key units. She also injected
the much-needed discipline into HP’s computer sales force,
which had reportedly developed a habit of lowering sales
targets at the end of each quarter. Sales compensation was
tied to performance and the bonus period was changed
from once a year to every six months.
Fiorina linked compensation to the improvements in
customer-approval ratings. She instituted the concept of
360-degree feedback at HP which meant that the pay of
managers would be based on the results of employee
surveys.
HP Labs, the company’s R&D center, had for long been
making only improvements to the existing products. The
engineers’ bonuses were linked to the number, rather than
the impact, of their inventions. To encourage innovation and
product development, Fiorina increased the focus on
196

‘breakthrough’ projects. She started an incentive program
that paid researchers for each patent filing. The measures
resulted in doubling the patent filings from HP to 3,000 in
2001, placing the company among the top three patent filers
in the world.
Fiorina also changed ‘the HP Way’ of management that
promised lifelong employment, employee satisfaction and
work-life balance (Refer Exhibit II). She said: “The HP Way
had come to mean a set of bad habits – for example, being
slow. In the 1990s, it came to mean, ‘We can’t do anything
unless we all agree.’ ”6 In December 1999, Fiorina replaced
the HP Way by ‘the Rules of the Garage’ (Refer Exhibit III)
In 2000, Fiorina changed the compensation structure.
Previously, a percentage of the company’s profit was divided
among the employees based on their salary. Bonus was
paid when the company beat its own numbers for revenue,
profit and return on assets. Fiorina came up with a new
system, where the bonus was based on HP’s performance
vis-à-vis its competitors. Thus, in spite of HP reporting a
profit in the first half of the financial year 2001 (November
2000 to April 2001), employees did not get their bonus for
the first time in 39 years.
Fiorina implemented several cost-cutting measures to
streamline the company’s operations. Some of the
measures included a forced five-day vacation for the
workers every year and the postponement of wage hikes for
three months, in December 2000. In January and April 2001,
HP laid off 1,700 marketing employees and 3,000
management employees. Fiorina said that this was to make

HP’s ratio of managers to employees less top-heavy and
more in line with the industry standards.
In June 2001, HP asked its employees either to take pay
cuts or to use accumulated vacation days as a cost-saving
measure. The employees were given the option of taking a
10 percent pay cut for the next four months or taking a 5
percent cut plus four additional paid vacation days in the
same period. A third option was to take eight additional paid
vacation days. More than 80,000 employees were forced to
choose any of these three options, saving the company
$130 million. In July 2001, HP laid off another 6,000
employees – the biggest ever layoff in the company’s
history. Fiorina also sent out memos, saying that layoffs
would continue and that volunteering for pay-cuts would not
guarantee continued employment. By the end of October
2002, more than 17,900 employees had lost their jobs at HP.
CHANGING THE ORGANIZATIONAL STRUCTURE
Before Fiorina came in, HP was a flat, decentralized
organization where the individual departments were given a
great deal of autonomy. Decisions were made either by
consensus or never made. When Fiorina took charge, she
developed a plan to transform HP from a ‘strictly hardware
company’ to a ‘Web services powerhouse.’ As a part of the
strategy, Fiorina dismantled the decentralized organization
structure. In early 2000, HP had 83 independent product
divisions, each focused on a product such as scanners or
security software. The company had 83 product chiefs
having their own R&D budgets, sales staff, and profit-andloss responsibility. To make HP an effective selling
197

organization, Fiorina reorganized these units into six
centralized divisions. Three of these were product
development groups – printers, computers, and tech
services & consulting, (the ‘back-end’ units); and the other
three were sales and marketing groups – for consumers,
corporate markets and consulting services (the ‘front-end’
units).
The back-end units developed and built computers, and
handed over the products to the front-end groups that
marketed these products to individual consumers and
corporations. Fiorina expected the new structure to
strengthen collaboration, between the sales and marketing
executives and the product development engineers, thus
enabling faster solution to customers. Industry experts said
that this was the first time a company with thousands of
product lines and scores of business units had attempted a
front-back approach, a strategy that required sharp focus
and proper coordination.
In the earlier set-up, most of the strategic decisions were left
to the heads of product divisions. To ensure that most of the
important decisions came from the top, Fiorina created an
executive council comprising of eight senior vice presidents
(including the heads of six front-end and back-end groups),
who reported directly to her. A nine-member strategy council
was formed to advise the executive council on the
investment of resources in the best available opportunities.
These measures transformed HP into a ‘tightly coordinated
corporate machine’ where decisions were made quickly and
more confidently.

The new arrangement solved a number of long-standing
problems of HP, making it easier for suppliers/clients to do
business with it. Instead of having to deal with an array of
salespeople from different product divisions, customers now
dealt with only one sales person. The new arrangement also
helped HP’s product designers focus on the design aspect.
It gave the front-end marketers the authority to finalize deals
which were most profitable for the company. For instance,
now they could sell a server at a lower margin to those
customers, who opted for long-term consulting services.
THE HP-COMPAQ MERGER
One of Fiorina’s most significant
Video - Outcomes of
moves was the decision to buy
“Hp-Compaq” Merger
out one of HP’s major
competitors – Compaq, in
September 2001. The deal
involved HP buying Compaq for
$25 billion in stock (the final cost
for HP was $19 billion). This was
the biggest ever buy-out in the Source:www.g4tv.com/video
history of the computer industry. s/21827/hp-compaq-merger
The merged entity was to have
operations in more than 160 countries with over 145,000
employees, offering the industry’s most comprehensive set
of products and services.
The new company was to retain the HP name and its
combined revenues amounted to $87.4 billion – almost
equal to that of the industry leader IBM ($88.396 billion in
2000). Under the terms of the deal (Refer Exhibit IV), Fiorina
198

was to continue as the Chairman and CEO of the new
company.
Fiorina claimed that the new HP would become the global
leader in terms of revenues for servers, access devices (PCs
and hand-held devices), and imaging and printing. It would
also have a leading revenue position globally, for information
technology services, storage and management software
(Refer Exhibit V). The merger was projected to yield savings
reaching $2.5 billion annually by 2004. These savings were
expected to come from
Product rationalization;
Efficiencies in administration, procurement,
manufacturing and marketing; and
Improved direct distribution of PCs and servers.
Fiorina justified the merger saying that the size of new HP
would enable it to take advantage of volume sales. She
revealed that the two companies bought $65 billion worth of
materials a year, which when combined, could result in a cost
savings of 3% or 4%. Compaq was a leading player in areas
like data storage and direct selling, where HP was not. She
added that post-merger; HP would become more efficient by
doing away with the middlemen. Moreover, Compaq was
known for its speed, agility and customer focus, which HP
clearly lacked. Former Compaq Chairman, Ben Rosen, said,
“The deal will jump-start both companies in their race for
efficiency.”7

Once the merger was implemented, Fiorina planned to lay off
another 15,000 employees as a part of a major cost saving
drive. Analysts in fact felt that the merger would yield huge
cost savings mainly because of the layoffs.
THE CRITICISM
Fiorina’s measures to revive HP led to a lot of criticism from
HP employees as well as independent analysts. A majority of
employees felt that though change was necessary, their
morale suffered badly. According to a senior employee,
“Morale is as low as it has been in a long time. The President/
CEO tried to change too much too fast. In such a case, the
organization doesn’t know what to do and flounders.”8
Some analysts felt that the steps Fiorina took were destroying
much of HP’s cherished culture. The employees were not
prepared for the change. Fiorina’s market-savvy and her
customer-oriented focus were in complete contrast to HP’s
relaxed engineering culture. Geoffrey Moore, a high-tech
management expert, remarked, “HP was built as a
collaborative culture – not a star system. She drives a
competence culture, which puts performance ahead of
teams, values and intuition. That’s a wrenching problem.”9
According to Grinstein, former CEO of Burlington Northern
and Western Airlines, “Carly is articulate, with a wonderful
style and flair. But in breaking from culture, you cannot
elevate yourself too high above it.”10
Fiorina’s large-scale layoff plans were also met with stiff
resistance from HP’s employees. By late 2002, more than
199

16,000 employees had lost their jobs, a majority of them after
the merger with Compaq. Employees felt that Fiorina should
have looked for better measures other than layoffs, to revive
HP. Larry Mitchell11 complained, “Layoffs had always been
kind of non-traditional for HP. HP’s culture is definitely
changed these days. With the prior culture we probably would
have figured out something other than laying off 6,000 people.
There are other ways to get rid of performance problems other
than just layoffs.”12
Moreover, the layoffs increased the workload of the existing
employees. A manager of one of HP’s product groups, who
routinely put in a 60-hour workweek said, “The idea of work/
life balance is a joke.”13 Another employee who had been with
HP for 20 years said, “Employees are now viewed as assets
or tools, no different than machines or buildings.”14
Fiorina’s move to change the organizational structure at HP
also ran into trouble. With HP’s 88,000 employees adjusting to
the biggest reorganization in the company’s history, expenses
rose beyond the limits. Free from the decades-old lines of
command, employees began spending heavily, with dinner
and postage expenses running higher than ever. Such lavish
spending was rare under the old structure, where product
chiefs kept a tight control on expenditure.
Earlier, HP’s product chiefs ran their own operations from
designing the product to providing customer support. In the
new set-up, they had a very limited role. Though they were
still responsible for achieving cost goals and getting products
to market on time, they had to pass on those products to the
front-end units responsible for marketing and selling them.

With no authority to set sales forecasts, back-end managers
were unable to allocate the R&D funds accordingly. At the
same time, front-end sales representatives had trouble
meeting their forecasts if their back-end colleagues came up
with the wrong products.
Analysts also claimed that in the new structure, the back-end
product designers would not be close enough to the
customers to design products as per their requirements.
Neither would the executives responsible for selling
thousands of HP products be able to give sufficient attention
to each customer/product. Moreover, while productivity-linked
commissions to the sales force were intended to boost
revenues and profitability, they only helped in increased sales
of low-margin products that did little for corporate profits.
The new structure did not assign clear-cut responsibility for
profits and losses. With responsibility for growth and profits
being shared between the front-end and the back-end
managers, there was little financial control. With employees
spread across 120 countries, redrawing the lines of
communication and getting personnel from different divisions
to work together, was proving to be very cumbersome and
troublesome.
HP’s customers were not happy either. The front-back
reorganization had created confusion internally, and many
customers said that they had noticed little improvement.
According to one computer reseller who had struggled for two
months to get HP to work out a customized configuration for
one of its new servers, “It’s beyond my ability to communicate
200

our frustration. It’s painful to watch them mess up milliondollar deals.”15
Doubts were also raised about Fiorina’s ability to execute
the HP-Compaq merger successfully. In November 2001,
the proposed merger faced a major hurdle in the form of
Walter B. Hewlett (Walter), the eldest son of HP’s cofounder William R. Hewlett. He decided to use his 5.2%
stake to oppose the merger. Soon, another relative of HP’s
founders, David Woodley Packard (David) of The David
and Lucile Packard Foundation, HP’s largest shareholder,
with a 10.4% stake, also decided to oppose the merger.
The possibility of massive layoffs after the merger led
David to offer stiff resistance. He was against the merger
because of the change it would bring in HP’s egalitarian
culture. Opposing the merger, David said, “I am perfectly
aware that HP has never guaranteed absolute tenure
status to its employees. But I also know that Bill and Dave
never developed a premeditated business strategy that
treated HP employees as expendable.”16
Critics ridiculed Fiorina by saying that one bad PC
business merged with another bad PC business does not
make a good PC company. Moreover, HP’s competitors felt
that the proposed merger would not work for the company
and the combined entity would lose market share. Dell
Computers CEO Michael Dell added that the merger would
only confuse customers and benefit HP’s competitors.
However, in spite of the stiff opposition, Fiorina managed
to get the deal approved by gaining the support of
institutional investors.

Analysts felt that Fiorina had extended her reach too far in
attempting such a massive restructuring of a company of
HP’s size and complexity. She was accused of being overambitious in trying to tackle all HP’s problems together.
They said that putting in place such sweeping changes
was tough anywhere – more so in the case of traditionbound HP, which was already suffering from the slowdown
in the IT industry.
To add to these criticisms, Video - Fiorina’s views on
HP’s business performance Change and “Risk Taking”
did not improve substantially
during Fiorina’s tenure as
CEO. The market share
gains made in Fiorina’s first
year as CEO began to
recede in late 2000. While
HP continued to dominate
the inkjet and laser printer Source:www.youtube.com/watch
business with a 41% market ?v=kJr1HQ43Jnk
share, its PC share fell from
7.8% to 6.9% for the 12 months ending January 31, 2001.
For the fiscal year ending October 2002, HP posted net
losses of $903 million, the company’s worst performance
under Fiorina. HP’s shares came down from $70 in
mid-2000 to as low as $10 in mid-2003. HP stock
significantly underperformed the Dow Jones industrial
average during this period (Refer Exhibit VI).

201

FIORINA’S LEADERSHIP STYLE
Fiorina was a straightforward, articulate and marketfocused manager. She was appreciated for her willingness
and ability to take on challenges. She was quite successful
in spinning off Lucent Technologies. Her capacity for hard
work, gut instinct and her ability to build and motivate a
team were her major assets as a corporate leader.
However, the media was not unanimous in its praise of
Fiorina’s leadership traits. While some analysts saw her as
being smart, brilliant and a visionary, others described her
as arrogant, complex and self-serving. Of her stint at HP,
some analysts said that Fiorina had succeeded in instilling
a spirit of hard work, customer-focus and good
performance into HP employees.
Fiorina routinely put in 16 hours of work a day, and
expected the same from her employees. Recalling her
experiences with Fiorina, Shane Robison, executive vice
president and chief strategy and technology officer of HP,
said ‘She’s not in our offices every day beating on us, but
she expects us to be on top of what we’re doing. She
believes our culture should be based on performance, selfmotivation and high achievement.”17
Fiorina always believed in providing the best customer
experience. Reflecting her own ‘demanding’ management
style, she always asked HP’s customers to demand more
from the company. She promised that HP would put in the
extra efforts to meet all their demands. Earlier, the research
teams at HP focused on developing innovative products.

Under Fiorina’s leadership, research teams were asked to
develop products that focused on customer needs.
Chandrakant Patel, a principal scientist at HP, said, “Carly
is all about the customer, the customer, the customer. In
today’s market we can no longer do pure research. We
have to get out and learn what the customer needs so we
know what to make next.”
Fiorina introduced a policy
Video - Fiorina’s view on
of laying-off the bottom five
Leadership
percent of underperformers,
in order to push
performance standards up
at HP. This policy was in
sharp contrast to the earlier
HP culture, where poor
performers were given a
chance to improve over a
one-year period. The new h?v=kJr1HQ43Jnk
approach was so similar to
the ‘ABC system’ (categorizes high performing and
underperforming employees) followed by GE that critics
said ‘Fiorina looked like she would be the next Jack Welch.’
Fiorina encouraged employees to take more risks for faster
decision-making. Sharing her experience, Renee St. Denis,
general manager of product recycling solutions at HP, said,
“Before, people were reluctant to make decisions until they
had all the facts. Carly has changed that. She’s made it
okay for people to take risks and go with just 80 percent of
the data. For example, I work in product recycling, and our
work is leading edge. Instead of making us churn out a
202

business case for everything we do, Carly says just go
ahead because recycling inherently makes sense.”
Some of Fiorina’s leadership characteristics, however, met
with a less positive response from the employees. Lay-offs,
they said, had become so frequent and widespread in HP
that a ‘culture of fear’ prevailed among HP employees.
Employees no longer felt secure in their jobs. Barton
Coddington, a former employee of HP, found Fiorina’s
attitude arrogant and self-serving. He said, “Previous CEOs
talked about the company as we. Carly may have used the
word I too much.” A manager at Fort Collins, Colorado
plant, confirmed this, saying, “In the old days, when HP
execs would visit, they would rent a car from Hertz. But
Carly traveled in a stretch limo; she wanted to be treated
like a movie star.”18
Some academics like Nancy Rothbard, a professor of
management at the University of Pennsylvania’s Wharton
School appreciated her style. She said, “Fiorina
demonstrates that there are a lot of styles out there. That’s
great for women. It makes a nice contrast to some of our
stereotypical notions of women in leadership roles.”19
THE CHALLENGES AHEAD
After a lackluster performance in 2002, the first quarter of
the fiscal 2003 brought good news for Fiorina and HP
(Refer Exhibit VII). In spite of the continued slowdown in
the IT industry, Fiorina managed to keep four out of HP’s
five business segments profitable (Refer Exhibit VIII).
Moreover, in the second quarter ending April 2003, HP
exceeded the revenue and profitability estimates. In April

2003, Fiorina announced that HP had signed its largest
services contract worth $3 billion deal with Procter &
Gamble. Commentators said that the seeds Fiorina had
sown earlier were now beginning to bear fruit. Expenditure
in the merged company came down by as much as $3.5
billion annually. It was earlier estimated that cost savings of
$2.5 billion would be possible.
The real challenge for Fiorina still lay ahead. HP needed to
increase its revenues that had been stagnant for several
years. Though Fiorina had succeeded in bringing HP’s PC
business back into profit, the company’s server business
was still making heavy losses. The trend of HP’s printing
and imaging division accounting for most of the company’s
profits was continuing.
As the industry recovered, HP would face cut-throat
competition from Dell Computers and IBM. Len Rosenthal,
a professor of finance at US based Bentley College said,
“Dell in particular has its sights set on HP’s crown jewel:
printers. Fiorina has to keep a competitive lead on the
printer business. Otherwise, she’s in trouble.”20
HP had a dismal financial performance in the third quarter
ending July 2003, reporting lower-than-expected earnings.
Soon after this, Fiorina announced the lay-off of another
1,300 employees.
1. Analysts believe Fiorina could be the next Jack Welch.
Critically comment on the various aspects of Fiorina’s
leadership and management style.
203

2. Fiorina’s stint with HP has been full of controversies. Comment on Fiorina’s approach to altering the HP culture. In your
opinion, what is the best approach Fiorina can take in view of HP’s long-standing culture, in order to improve the company’s
performance as well as regain employee confidence?
3. Though Fiorina had implemented several measures to revive HP, her efforts did little to improve HP’s financial performance.
What measures should Fiorina take in the near future to improve HP’s revenues and profitability significantly?
Exhibit I
HP’s Consolidated Statements of Operations (1998-2002)

(in $ million)

2002

2001

2000

1999

1998

56,588

45,226

48,870

42,370

39,419

35,046

34,135

27,790

Year ended October 31,
Net Revenue
Costs and expenses:
Costs of products sold and services

41,390

33,474

2,634

2,440

2,380

Research and Development

3,312

2,670

7,063

6,522

5,850

Selling, general and administrative

9,033

7,259

102

-

-

Restructuring Charges

1,780

384

-

-

-

Financing Interest

189

-

-

-

-

In-process research & development charges

793

-

-

-

-

Acquisition-related charges

701

-

-

-

-

Amortization of purchased intangible assets &
goodwill

402

-

-

-

-

Total Costs & Expenses

57,600

43,787

38,682

38,682

36,020

(Loss)/Earnings from operations

1,012

1439

3,688

3,688

3,399

Interest income and other, net

52

171

708

708

530

Litigation Settlement

14

400

-

-

204

Exhibit I (Continued.......)
Losses (gains) on divestitures

-

-53

244

-

-

Net investment (losses) gains

-106

-455

-

-

-

-

-

-

202

235

-1,052

702

4,625

4,194

3,694

(Benefit from)/Provision for taxes

-129

78

1,064

1,090

1,016

Net earnings from continuing operations

-923

624

3,561

3,104

2,678

-

-

136

387

267

Extraordinary item – gain on early extinguishment of
debt, net of taxes

20

56

-

-

-

Cumulative effect of change in accounting principle,
net of taxes

-

272

-

-

-

-903

408

-

-

-

Interest expense
Earning from continuing operations before taxes

Net earnings from discontinued operations

Net (loss) earnings
Source: HP Annual Report 1998-2002.

205

Exhibit II
The HP Way – HP’s Organizational Values
HP’s organizational values shaped its strategies and practices, including Management by Wandering Around (MBWA), Management by Objectives
(MBO), the Open Door Policy and Open Communication. The HP Way became the center of HP’s management style.
HP’s mission statement listed the following values:
To have trust and respect for individuals.
To focus on a high level of achievement and contribution.
To conduct business with uncompromising integrity.
To achieve common objectives through teamwork.
To encourage flexibility and innovation.
HP used some unique management techniques to follow the “HP Way.”
MANAGEMENT BY OBJECTIVES (MBO)
Individuals at each level contributed to company goals by developing objectives, which were integrated with those of their superiors, as well as
other departments. Flexibility and innovation in recognizing alternative approaches to meeting objectives provided an effective means of meeting
customer needs. Written plans ensured that accountability existed throughout the
OPEN DOOR POLICY
This policy gave employees the freedom to express their dissent with the management without having to worry about adverse consequences. The
policy was based on trust and integrity. It encouraged the employees to speak out openly on issues relating not only to the business or the job but
also the progress of their own career.
OPEN COMMUNICATION
HP believed that people performed well, given the right tools, training and information. Open
MANAGEMENT BY WANDERING AROUND (MBWA)
This informal communication practice helped managers to get updated on activities in their departments. A manager always reserved some time to
walk through the department or be available for impromptu discussions. aimed at promoting teamwork among employees, customers and other
stakeholders.
Adapted from www.hp.com, Source: HP Press Release, September 5, 2001.

206

Exhibit III
Rules of the Garage (The Revised HP Way)
The Rules of the Garage are:
Believe you can change the world.
Work quickly, keep the tools unlocked, work whenever.
Know when to work alone and when to work together.
Share - tools, ideas. Trust your colleagues.
No politics. No bureaucracy. (These are ridiculous in a garage.)
The customer defines a job well done.
Radical ideas are not bad ideas.
Invent different ways of working.
Make a contribution everyday. If it doesn’t contribute, it doesn’t leave the garage.
Believe that together we can do anything.
Invent.
“I believe that if you carry these rules with you on your journey, if you create an environment where people’s hearts and
minds are fully engaged, where strategy is ennobling, where great aspirations are powered by the desires of people to
do something worthwhile, then you will have touched others you encounter on your journey.” Carly Fiorina, President
and CEO of HP, 2000
Adapted from The Silicon Valley Management Style: Lessons to learn, www.siliconvalley.com, December 2001.

207

Exhibit IV
HP-Compaq Merger Transaction Summary
PRIVATE Structure

Stock-for-stock merger

Exchange Ratio

0.6325 of an HP share per Compaq share

Current Value

Approximately $25 billion

Ownership

HP shareholders 64%; Compaq shareholders 36%

Accounting

Purchase

Expected Closing

First half of 2002

PRIVATE Key Figures (previous
4 quarters – in $ billion)

HP

Compaq

Combined

Total Revenues

47.0

40.4

87.4

Assets

32.4

23.9

56.4

Operating Earnings

2.1

1.9

4.0

Number of employees

88,500

70,100

1,58,600

Market Capitalization (as on
31/08/01)

45,109

20,995

66,104

Source: BusinessWeek Analysis, September 17, 2001.

208

Exhibit V
How the HP-Compaq Measured Up Against their Rivals in Different Product Segments, at the Time of the Merger
Products

Analysis

PCs

With 19% market share, the combo was the world's largest PC maker. But with PC sales and margins at
record lows, the companies had lost a total of nearly $500 million in 2001, while Dell was gaining.

PRINTERS

HP's dominant 50% market share was likely to grow, as were sales of its hugely profitable printer ink. The
negative aspects were weak margins and sales, and mounting pricing pressure from Lexmark, Canon and
other rivals.

LOW-END
SERVERS

Compaq dominated, and the combined companies had a huge 37% market share in Windows-based
machines. But cutthroat competition from Dell and IBM was likely to eat away at sales.

HIGH-END
SERVERS

In this key high-margin market, HP and Compaq were laggards. Compaq would be phasing out its Alpha
servers, while HP's high-end UNIX machines were stagnating against Sun and IBM.

SERVICES

HP and Compaq coveted IBM's services business. But 62% of their 65,000 service specialists were doing
basic computer repair, not the lucrative high-end consulting Big Blue specialized in.

STORAGE

Compaq's $5.2 billion storage business would most likely get a big boost as HP sold Compaq gear to its
customers. Still the merger wouldn't help HP take customers from storage giant EMC and others.

SOFTWARE

Providing complete solutions for big corporations requires specialized software called middleware. But HP
badly lagged rivals, and Compaq was a no-show.

Exhibit VI
HP’s Stock Price Chart (1999-2003)
"http://chart.bigcharts.com/bc3/print/chart.asp?symb=HPQ&compidx=aaaaa
%3A0&ma=0&maval=9&uf=0&lf=1&lf2=0&lf3=0&type=2&size=2&state=8&sid=2385&style=311&time=12&freq=2&mocktick=1
SoSource: www.bigcharts.com.
209

Exhibit VII
HP’s Segment Information (November 2002 – July 2003)
(in $ million)

July 31, 2003

April 30, 2003

January 31, 2003

17,348

17,983

17,877

12,809

13,103

13,141

896

941

908

2,785

2,795

2,725

Restructuring Charges

376

234

-

Amortization of purchased intangible assets & goodwill

141

141

138

Acquisition-related charges

40

126

86

-

-

-

17,047

17,340

16,998

Earnings from operations

301

643

879

Interest income and other, net

10

-20

51

Net investment(losses) gains and other, net

-24

-12

-5

Earnings before taxes

287

611

925

(Benefit from) provision for taxes

-10

-48

204

Net earnings

297

659

721

Net Revenue
Costs and expenses:
Costs of sales
Research and Development
Selling, general and administrative

In-process research & development charges
Total Costs & Expenses

Source: www.hp.com, Quarterly Reports 2003.
Note: (a) Certain reclassifications were made to prior year amounts in order to conform to the current year presentation
(b) The results for the three months ended January 31, 2003 include the results of Compaq for the entire period.
210

Exhibit VIII
HP’s Segment Information (November 2002 – July 2003) (in $ million)
July 31, 2003

April 30, 2003

January 31, 2003

Imaging & Printing Group

5,240

5,526

5,610

Personal Systems Group

4,965

5,124

5,143

Enterprise Systems Group

3,708

3,862

3,736

HP Services

3,083

3,031

2,960

Financing

442

501

517

Corporate Investments

88

84

77

17,526

18,128

18,043

-178

-145

-166

17,348

17,983

17,877

Net Revenue

Total segments
Elimination of intersegment net revenues & other
Total HP Consolidated
Earnings (loss) from operations:

-

Imaging & Printing Group

739

918

907

Personal Systems Group

-56

21

33

Enterprise Systems Group

-70

-7

-83

HP Services

337

301

341

Financing

18

21

14

Corporate Investments

-37

-44

-47

Total segments

931

1,210

1,165

211

Footnotes
1. As quoted in the article titled “Carly Fiorina,” by Adam
Lashinsky, Brenda Cherry, and Muoi Tran, Fortune,
August 11, 2003.
2. As quoted in the article titled “Smith School Alumna Carly
Fiorina Named Most Powerful Woman in Business,”
posted on www.rhsmith.umd.edu, 2002.
3. AT&T Long Lines, later known as AT&T Communications,
was the group of the Bell System that took telephone and
data communications from one Bell operating company
site to another.
4. As quoted in the article titled “HP‟s Carly Fiorina: The
Boss,” by Peter Burrows, BusinessWeek, August 2, 1999.
5. In 1993, a researcher showed Platt a prototype Web
browser – two years before Netscape Communications
became the first Internet Company to release its
Navigator browser. Platt reportedly told the researcher to
show it to the company‟s computer division. Eventually, it
was not accepted.

8. As quoted in the article titled “H-P‟s Employee-Friendly
Culture in a Flux,” by Mark Larson, posted on  
www.sacramento.bizjournals.com, August 6, 2001.
9. As quoted in the article titled “Many H-P Employees
Oppose Deal with Compaq,” by John Swartz, USA  
Today, December 4, 2001.
Oppose Deal with Compaq,” by John Swartz, USA Today,
December 4, 2001.
11. He spent 29 years at HP and was site manager at
Roseville office when he retired in 1997.
12. As quoted in the article titled “Packard Says He‟s
Displeased with the Direction of HP,” by Tracy Seipel,
posted on www.siliconvalley.com, November 6, 2001.
13. As quoted in the article titled “Don‟t Mess with Carly,” by
Shari Caudron, posted on www.workforce.com, July 2003.

6. As quoted in the article titled “HP Way Has Had a Lasting
Impact on Management Style,” by Margaret Steen, posted
on www.siliconvalley.com, January 21, 2001.

15. As quoted in the article, “HP‟s Woes Are Deeper Than the
Downturn,” by Peter Burrows, BusinessWeek, May 7,
2001.

7. As quoted in the article “Carly‟s Last Stand?” by Peter
Burrows, BusinessWeek, December 24, 2001.

16. As quoted in the article titled “Packard Says He‟s

212

17. 17 As quoted in the article titled “Don‟t Mess with Carly,”
by Shari Caudron, posted on www.workforce.com, July
2003.

5. Larson, Mark, HP’s Employee-Friendly Culture in a
Flux, www.sacramento.bizjournals. com, August 6,
2001.


6. Seipel, Tracy, Packard Says he’s Displeased with the
Direction of HP, www.siliconvalley.com, November 6,
2001.

19. As quoted in the article titled “Fiorina‟s StereotypeSmashing Performance,” by Amy Tsao, BusinessWeek
Online, April 3, 2002.
20. As quoted in the article titled “Where Will Carly Fiorina
Take HP?” by Amy Tsao and Jane Black, BusinessWeek,
May 29, 2003.
1. Burrows, Peter, HP’s Carly Fiorina: The Boss,
BusinessWeek, August 2, 1999.
2. Fulmer, Robert; Gibbs, Philip, and Goldsmith,
Marshall, How do General Electric, Hewlett-Packard
and Johnson & Johnson keep a steady stream of
leaders moving up? By focusing on the five essentials
of leadership development, Sloan Management
Review, 2000.
3. Steen, Margaret, HP Way has had a lasting impact on
management style, www.siliconvalley.com, January 21,
2001.
4. Burrows, Peter, HP’s Woes Are Deeper than the
Downturn, BusinessWeek, May 7, 2001.

7. Swartz, John, Many HP Employees Oppose Deal with
C o m p a q , U S A To d a y,  
December 4, 2001.
8. Burrows, Peter, Carly’s Last Stand? BusinessWeek,
December 24, 2001.
9. Burrows, Peter, and Roman, Monica, Catching the Big
Mo, BusinessWeek, February 18, 2002.
10. Burrows, Peter, and Prasso, Sheridan, Suddenly,
Fiorina’s Odds Look Better, BusinessWeek, February
25, 2002.
11. Burrows Peter, and Park, Andrew, Compaq and HP:
What’s an Investor to do? BusinessWeek, March 18,
2002.
12. Ts a o , A m y, F i o r i n a ’ s S t e r e o t y p e - S m a s h i n g
Performance, BusinessWeek Online, April 3, 2002.
13. Burrows, Peter, Walter Hewlett’s Last Stand?
BusinessWeek Online, April 29, 2002.
14. Gutner, Toddi, The Rose Colored Glass Ceiling,
BusinessWeek, September 2, 2002.
213

15. Edwards, Cliff, and Roman, Monica, Carly’s Caveat,
BusinessWeek, September 9, 2002.

28. www.hp.com.
29. www.bigcharts.com

16. Burrows, Peter, Two Close-Ups of HP’s Carly Fiorina,
BusinessWeek, February 17, 2003.

30. HP’s Annual Reports 1998-2002.

17. Showdown, BusinessWeek, February 17, 2003.

31. Related Case Studies:

18. A Good Deal after All? Economist, April 19, 2003.

32. Leadership – The Bill Gates Way, Reference No.
803-043-1.

19. Black, Jane, The Women of Tech, BusinessWeek, May
29, 2003.
20. Tsao, Amy, and Black, Jane, Where Will Carly Fiorina
Take HP? BusinessWeek, May 29, 2003.
21. C a u d r o n , S h a r i , D o n ’ t M e s s W i t h C a r l y,
www.workforce.com, July 2003.
22. Lashinsky, Adam; Cherry, Brenda, and Tran, Muoi,
Carly Fiorina, Fortune, August 11, 2003.

33. Steve Jobs – The Silicon Valley Pioneer, Reference
No. 803-020-1.
34. Larry Ellison – The Source of Oracle’s “Wisdom,”
35. Michael Dell – The Man Behind Dell, Reference No.
402-015-1.
36. Steve Case – The Story of AOL’s Architect, Reference
No. 803-034-1

23. Tsao, Amy, and Black, Jane, Carly Fiorina’s Next Big
Challenge, BusinessWeek, 
August 22, 2003.

37. Louis Gerstner Jr. – The Man Who Turned IBM
Around, Reference No. 803-018-1.

24. Challenges of Leadership, www.pbs.org.

38. John Chambers: Cisco’s Driving Force, Reference No.
803-031-1.

25. Smith School Alumna Carly Fiorina Named Most
Powerful Woman in Business, www.rhsmith.umd.edu.
26. Cara Carleton “Carly” Fiorina, www.infoplease.com.
27. Carleton S. Fiorina (Carly), www.web.mit.edu.

39. Sam Walton – Entrepreneur of the 20th Century,
40. As quoted in the article titled “Carly Fiorina,” by Adam
Lashinsky, Brenda Cherry, and Muoi Tran, Fortune,
August 11, 2003.
214

41. As quoted in the article titled “Smith School Alumna
Carly Fiorina Named Most Powerful Woman in
Business,” posted on www.rhsmith.umd.edu, 2002.

Oppose Deal with Compaq,” by John Swartz, USA

42. AT & T L o n g L i n e s , l a t e r k n o w n a s AT & T
Communications, was the group of the Bell System
that took telephone and data communications from
one Bell operating company site to another.

Oppose Deal with Compaq,” by John Swartz, USA

43. As quoted in the article titled “HP’s Carly Fiorina: The
Boss,” by Peter Burrows, BusinessWeek,  
August 2, 1999.
44. In 1993, a researcher showed Platt a prototype Web
browser – two years before Netscape Communications
became the first Internet Company to release its
Navigator browser. Platt reportedly told the researcher
to show it to the company’s computer division.
Eventually, it was not accepted.
45. As quoted in the article titled “HP Way Has Had a
Lasting Impact on Management Style,” by Margaret
Steen, posted on www.siliconvalley.com, January 21,
2001.
46. As quoted in the article “Carly’s Last Stand?” by Peter
Burrows, BusinessWeek, December 24, 2001.
47. As quoted in the article titled “H-P’s Employee-Friendly
Culture in a Flux,” by Mark Larson, posted on

50. He spent 29 years at HP and was site manager at
Roseville office when he retired in 1997.
51. As quoted in the article titled “H-P’s Employee-Friendly
Culture in a Flux,” by Mark Larson, posted on
52. As quoted in the article titled “Don’t Mess with Carly,”
2003.
2003.
54. As quoted in the article, “HP’s Woes Are Deeper Than
the Downturn,” by Peter Burrows, BusinessWeek, May
7, 2001.
55. As quoted in the article titled “Packard Says He’s
2003.
215

2003.
58. As quoted in the article titled “Fiorina’s StereotypeSmashing Performance,” by Amy Tsao, BusinessWeek
Online, April 3, 2002.
59. As quoted in the article titled “Where Will Carly Fiorina
Ta k e H P ? ” b y A m y Ts a o a n d J a n e B l a c k ,
BusinessWeek, May 29, 2003.

216

Section 5

Case Study: Dr. V of Aravind Eye Hospital: A ‘Level 5’ Leader

Aravind Eye Hospital

This case was written by Anil Kumar Kartam, under
the direction of Sanjib Dutta, IBS Center for
Management Research. It was compiled from
published sources, and is intended to be used as a

Logo of Aravind Eye Hospital
Source:www.volans.com

217

“In America, there are powerful marketing devices to sell
products like Coca-Cola and hamburgers. All I want to sell is
good eyesight, and there are millions of people who need it.”
-Dr. Govindappa Venkataswamy (Dr. V), Founder of
Aravind Eye Hospital.1
“Leadership is a personal quest you undertake, one based on
a mission that troubles your heart.”
-Harriet Rubin, a senior writer at Fast Company,
referring to Dr V.2
INTRODUCTION
Imagine an organization giving eyesight to 13 million people,
an organization performing nearly 1.8 million surgeries in a
span of 26 years. The organization in question is the Madurai
(a town in Southern India)-based
Aravind Eye Hospital (Aravind). Video - Inspiration behind the Aravind Eye
(Refer Exhibit I for locations of
Hospital
Aravind hospitals). This
organization was the single
largest cataract3 surgery provider
in the world in 2003. While a
cataract surgery costs US$ 1650
in a US hospital, Aravind
performed the same quality
surgery in India, at US$ 10.4 The
manufacturing division of the
hospital, Aurolab, was one of the

leading manufacturers of intraocular lenses5 (IOLs) in the
world. In 2003, the division held a 10 percent share of the
global market in IOLs. While other manufacturers such as
American Ophthalmic Laboratories, US IOL Inc sold these
lens at $100-$150 a piece, Aurolab sold the same quality of
lens at US$4 - $6 per lens.
Though Aravind offered free service to nearly 70 percent6 of its
patients, it was still able to maintain profit margins of 40%.7 At
Aravind, the third (1/3) of the patients who could afford to pay
for the services they received subsidized the rest (2/3) of the
patients who could not. This was a revolutionary concept in
the field of health care. Aravind did not intend to limit its model
to India alone. It had plans to establish hospitals in southeast
Asia and Africa. Aravind’s avowed fight seemed to be with
blindness - wherever it was, and whatever it took.
The man behind the success of this hospital was its founder Dr. Govindappa Venkataswamy, reverentially called Dr. V
(Refer Exhibits II & III for a list of his major research, clinical
and management contributions, and awards and honors
offered in recognition of his services).
CRUCIBLES OF LEADERSHIP’8

Source:www.video.google.c
om/videoplay?docid=-4309
43131005128104

Dr. V was born into a farmer’s family on October 1, 1918 in
Vadamalpuram (a village 80 km from Madurai). The village
had no school and as a boy, Dr. V had to undertake household
chores before walking to a school that was 3 miles away from
his village. Later, a school was opened in his village but it did
not have pencils, pens, or even slates to write on. The children
had to bring sand from the river bed and spread it smoothly on
218

the mud floor and then learn to write on the sand with their
fingers.
Dr V’s father was a Gandhian9. Naturally, as a child he imbibed
the Gandhian values of nonviolence and truthfulness. In his
school days, Dr. V was inspired by Swami Vivekananda 10 and
later when he was pursuing his higher studies he was
influenced by Gandhi.
Dr. V decided to study obstetrics,11 when three of his cousins
died of eclampsia (an attack of convulsions) in last months of
their pregnancy. In 1944, he completed his medical education
from Stanley Medical College, Chennai.12 Soon after finishing
his degree, he joined the Indian Army Medical Corps. The next
year until the end of the Second World War, was an eventful
one for Dr. V. But soon after the war, he suffered from
rheumatoid arthritis, which permanently twisted his fingers,
and made him bedridden. The next two years Dr. V went
through excruciating physical pain. He said of these two years:
“I would scream in pain if someone as much as touched the
bed. It was torture.”13
Dr. V had to endure not just physical pain, but also a feeling of
hopelessness. He could no longer be an obstetrician with his
disfigured fingers. He was brought up in an environment that
valued achievement (though not materialistic). But he could
barely move, leave alone be an achiever. One fine day,
overcoming the pain with sheer grit of will, he was able to
stand. This was an exhilarating moment for him. “When I finally
could stand, I felt as if I was on top of the Himalayas,” he said.
14

In 1950 Dr. V met Sri Aurobindo - a poet, philosopher, and
sage. He was influenced deeply by him.15 From him Dr. V
learnt that “Evolution is the emancipation of a self-revealing
Soul secret in Form and Force, the slow becoming of a
Godhead, the growth of a Spirit. In this evolution mental man is
not the goal and end, the completing value, the highest last
significance; he is too small and imperfect to be the crown of
all this travail of Nature. Man is not final, but a middle term
only, a transitional being, an instrumental intermediate
creature.”16 Since then Dr. V came to believe that a new
creature will result only when the body is healthy and perfect.
With this idea as his guiding force, Dr V turned to
ophthalmology. Then started his epic fight against blindness,
which culminated in his work to restore eyesight to millions.
Dr. V went to a medical school once again, and completed a
Masters in Ophthalmology17 in 1955. The standard instruments
used in eye surgeries did not fit well in his disfigured fingers.
As a result, he had to design his own instruments. In 1956 he
joined the Government Erskine Hospital, Madurai as an eye
surgeon (Refer Exhibit IV for his pioneering contributions at
this hospital). Doing 100 cataract surgeries a day, he quickly
became an efficient eye surgeon. He also worked as a faculty
member at Madurai Medical College. He joined the college as
the head of the department of ophthalmology in 1956 and later
served as the vice dean. When he retired in 1976 after serving
for 20 years, he was the most admired eye surgeon in India.18
At the age of 55, Dr. V first saw the golden arches of
McDonald’s. That was the beginning of his dream to give
eyesight to millions. He reasoned when McDonald’s could sell
219

billions of low-cost burgers, he could also sell millions of
low-cost sight-restoring operations.
In 1978, Dr. V started Aravind after mortgaging his house
(Refer Exhibit V for Aravind’s mission). It had 12 beds then.
By the end of 2003, this hospital was offering ultra-modern
facilities and 3000 beds (Refer Exhibits VI and VII for the
services offered by the hospital and statistics).
INSPIRING STANDARDS WITH INTENSE WILL
An incident at Aravind makes clear the intense will of Dr. V.
One day, Usha, a surgeon who held a record at Aravind for
the number of surgeries in a day (155), returned from a
village camp19 running a fever of 102 degree Fahrenheit
and checked herself into the hospital. Dr. V arrived at the
hospital, as a part of his duty, and noticed her in the
hospital. “What are you doing here?” he asked. “I am sick”,
she replied. Dr V said, “My fever is 104. How high is
yours?”20 She had no option but to get out of bed and go to
work. The same will made him one of the most respected
eye surgeons in the world in spite of his physical limitations.
It was this intense will that led him to mortgage his house to
set up Aravind hospital, in pursuit of his dream.
C K Prahalad, a leading management thinker, has studied
Aravind’s operations over the years. He observed that
Aravind generated a 200 percent return on capital
employed. “We have a good medicine school at the
University of Michigan, and they are amazed by what they
saw at Aravind. It is better than the best,” he said, in
appreciation of the functioning of Aravind.21 According to
him, Aravind was a market-driving entity. It was a market-

driving entity22 because it served the most unserved market
- the poor. The poor in India could rarely afford good eye
health care, leave alone eye surgeries. For them a cataract
meant blindness, and often, great
suffering in their lives. They did
Video - Recognition
not know that they could regain
for Aravind Hospital
their eyesight with a 15-minute
surgery (at Aravind a cataract
surgery on an average took 10 to
20 minutes). Dr. V explained his
marketing philosophy “Give
people a new experience, one
that deeply changes their lives, Source:www.youtube.com/
make it affordable, and eventually watch?v=EsUAX_dMiLk&fe
you change the whole world. And ature=related
your customers become your
marketers.”23
Dr. V had to first educate his potential customers. He
encouraged doctors and technicians to undertake
community work regularly. As a part of this work, a
representative from Aravind visited the village where the
doctors intended to organize a weekend camp, and met the
village heads. With their help, the representative designed
a plan for conducting the camp. Once the details were
finalized, doctors and technicians visited the village
(sometimes they travelled days together to reach remote
villages). Once they were in the camp they worked round
the clock, testing people and identifying patients who need
to be taken to Aravind at Madurai for surgery.

220

Under the Dr. V’s leadership, Aravind managed to provide
inexpensive eye care services by pruning its costs diligently.
Even operating theatres and surgery procedures were
designed to enhance the productivity levels of surgeons. Dr. V
kept costs low by building an efficient, high-volume,
assembly-line process to perform surgeries. Every step
ranging from patient screening, registration, to surgery itself,
was standardized.
Two or more patients were in the operation theatre at the
same time. A doctor performed the cataract operation in 10 to
20 minutes and then moved on to another patient who was
ready to be operated by the time he completed operating on
the first patient.24 Nearly 70% of the work in the operation
theatre was done by paramedical staff. Each surgeon at
Aravind teamed up with 4 nurses in the operation theatre: two
running nurses25 and two assisting nurses. More than the
surgeon’s skill, it was Aravind’s system of 4 nurses for each
surgeon (the same nurses to the same surgeon each time)
that gave the most advantage.26 This process maximized the
time a surgeon spent on surgery. As a result, doctors could
concentrate only on surgery and perform a larger number of
surgeries. Observed Dr Krishan Das, a surgeon at Aravind,
“The fixed team makes things easy for the surgeon and the
nurses. There is better understanding. Also, in a difficult
situation, they know how to bail me out.”27
Keeping two patients in the same operation theatre is
prohibited in most US hospitals. This is done as a
precautionary measure to avoid infection. However, at
Aravind, doctors have never come across any problem that
could be traced to infection in the operation theatre.

Four nurses helping every surgeon might appear a costly
model. But the system worked. To minimize salary expenses,
Dr. V recruited village girls who had completed only high
school, instead of nursing diploma holders, as nurses. Before
getting inducted into the hospital as nurses, the girls went
through rigorous process of selection, training, and
classification.28 Aravind’s nurses were in high demand as
trainers. They often visited different countries such as Egypt,
Indonesia, Cambodia, Maldives and Malawi to train nursing
personnel.
Doctors used bamboo sticks (from bamboos grown in Dr. V’s
garden) in stretchers instead of steel rods to minimize costs.
To further reduce costs, Dr. V set up Aurolab for the
manufacture of intra-ocular lenses. In the 1980s, using IOLs
was a popular practice in the US. Lens manufacturers were
able to enjoy high margins by selling IOLs at $300 to $400 a
piece. As they recorded healthy margins, they were willing to
donate lenses that did not sell well in the market. But when
the US health care financing administration (now the Center
for Medicare & Medicaid services) put an administered pricing
mechanism into place in the late 1980s, the margins of lens
manufacturers went down significantly. Hence they were no
longer willing to donate lenses. The new scenario forced Dr. V
to think of manufacturing lenses in India.
Dr. V found a trusted ally in David Green29 (Green) who
shared his dream of creating Aurolab. Green studied IOL
manufacturing operations to understand how companies
made the lenses. He also visited suppliers of the
manufacturing equipment and technology. As the IOL industry
was maturing, companies were ready to share their know221

how, and sell manufacturing equipment. But it was
financially not viable for a non-profit organization to
manufacture IOLs as it involved a high quality
manufacturing process, expensive machinery, and welltrained workforce. Green said, “So there was a lot of
internal opposition, which was overcome when the money
for it finally became available from donors, and we just said
OK, here’s the money, let’s do it.”30 A global consortium of
voluntary organizations backed Dr. V’s venture to massproduce IOLs with the condition that Aurolab would supply
IOLs to the members of the consortium at subsidized
prices. Dr. V and Green readily agreed and their efforts
finally bore fruit.
Aurolab started its manufacturing operations in 1992. Since
then production levels have been growing by 37% per year.
By the end of 2003, Aurolab was an ISO 9002 certified
institution and exported IOLs to nearly 90 countries in the
world. It manufactured 0.6-0.7 million IOLs every year and
enjoyed a 10% market share in the world. With its own
manufacturing lab, Aravind was able to manufacture IOLs
at one-eighth the price of imported lenses.
Aurolab also manufactured ophthalmic suture products.
David Green observed that only 10 percent of wound
closure products were used in developing countries
because they were expensive. Even Aravind used to
purchase ophthalmic sutures from an organization that had
a near-monopoly in India. Dr. V realized that there was a
need for low-cost ophthalmic suture products. Aurolab was
the first nonprofit organization to manufacture ophthalmic
suture products. It started manufacturing suture products in

1998. These affordable products had FDA approval31 in the
US and CE Mark Certification32 in Europe. By 2003,
Aurolab was selling more than a million ophthalmic suture
needles every year.
COMPELLING HUMILITY33
Dr. V was humble and modest - distinguishing
characteristics of Level 5 leaders
Video - Level 5
(the characteristics and operating
Leadership
style of Level 5 leader are given
in Exhibit VIII). Commenting on
the success of Aravind, Dr. V
once said, “Now, people call
Aravind a market-driving entity,
as opposed to the one being
driven by market. We had not
known those management
strategies. We are transparent, Source:www.youtube.com
/watch?v=q-KyQ90XByY
do not exaggerate anything to our
patients and are truthful and
sympathetic to them. We have nothing more than a helping
attitude.”34
Like a true Level 5 leader when he could not ascribe his
success to someone other than himself, he attributed it to
divine or some higher consciousness. “We feel that the
higher consciousness is trying gradually to give us a
system. We are all aware of the parts of the human body as
they work. We take in food; we like the taste of it. Part of it
is absorbed here, part of it there. But we are not aware of it.
The higher consciousness works in the same way. Slowly,
222

your system is built around it, but not according to human
nature. At the hospital, we are slowly building an organization
that seems to be linked with the higher consciousness,” said Dr.
V.35 He further added, “Part of the realization of the bigger
purpose comes from the belief that: when we grow in spiritual
consciousness, we identify ourselves with all that is in the work
and there is no exploitation. It is ourselves we are helping. It is
ourselves we are healing.”36
THE HEDGEHOG CONCEPT37
Level 5 leaders identify the area where their companies can be
the best in the world. They also identify the areas where they
cannot be the best. According to Jim Collins38 an organization
that masters “The Hedgehog Concept”39 understands what it is
best at in the world, how its economics work best, and what
inspires its people continuously. Dr V was very clear as to
where Aravind has to operate, and where it could be the best. In
a meeting with social entrepreneurs in California, Dr. V once
said that he would not employ his business model to distribute
hearing aids.40 He explained that restoring sight was his only
priority. Over a period of 26 years he understood how Aravind’s
economics work the best. He was also sure what motivated his
people.
Young nurses who hailed from villages were deeply committed
to Dr V’s ideals and vision. Once an industrialist from Delhi
visited Aravind and requested Dr V, “I need to build a hospital,
and I'm very much impressed with this one. Could you come to
Delhi and start a hospital for me?” Dr V replied, “You have all
the money you need. It shouldn’t be hard for you to put up a

hospital in Delhi.” “No,” the industrialist said, “I want a hospital
with the Aravind culture. People are cordial here… There is a
certain amount of inner communion or compassion that flows
from them. How do you do it?”41
Dr. Natchiar42 answered his question: “The workers are all farm
girls... They come to work at Aravind because they want some
human element in their work. They want to work under a
different philosophy.”43 Similarly highly skilled surgeons worked
at Aravind for meagre salaries (compared to what they could
demand in corporate hospitals). Doctors were motivated by the
professional satisfaction that they got by doing what they were
supposed to do in the best possible way. They relished working
in a community that epitomized perfection and compassion. Dr.
V also knew that skilled professionals like surgeons seek to
stay at the leading edge of the field. Hence, he entered into
research and training collaborations with premier teaching
hospitals in the United States.44 Residency students of
ophthalmology from Harvard Medical School, John Hopkins,
Massachusetts Eye and Ear Infirmary spent some time at
Aravind as a part of their education.45 Working with students
and their professors, surgeons at Aravind updated themselves
on the latest developments in the field of ophthalmology.
TECHNOLOGY ACCELERATORS46
The success of Aravind’s business model depended on
numbers. To serve more patients Dr. V educated his customerpatients. In doing so, he took the help of technology. He
deployed technology to serve people who were not able come
to hospital. In 2003, Aravind was utilizing 30 Internet kiosks

223

started by n-logue47 in remote villages of Tamilnadu. These
kiosks were started in thatched huts. Young local women
were trained to run these kiosks. In each case, the person
operating the kiosks took pictures of patient’s eyes using a
webcam (Refer to Exhibit IX) and sent them to the doctor
along with a filled-in online questionnaire (symptoms of
patient were recorded in this questionnaire). The doctor from
Aravind hospital received it through e-mail instantaneously
and interacted with the patient through an online chat (the
person running kiosk acts as a facilitator) and gave him an
appointment at hospital the following week, if he felt that
physical examination was necessary. Otherwise, he gave his
suggestions through e-mail immediately. Without the new
technology, the same procedure would take a minimum of
ten days, even when facilities such as a photo studio and a
postal mail system were available. The new technology
reduced both the time and the expenses incurred.
Thus a poor villager could talk to a top class eye surgeon
online. Most of the villagers in these villages had never
spoken to a doctor in their life. Aravind’s telemedicine48 was
thus a boon to its customers.
The eye surgeons at Aravind too benefited by enhancing
their skills through the Internet technologies. Now they could
interact and share information with experts in other parts of
the world through the Internet. They could even watch live
surgeries being conducted in Boston, London or other parts
of the world using internet technologies and employ what
they learnt in treating their patients.

CONCLUSION
Dr. V was a blend of intense professional will and compelling
modesty. In setting up the hospital and driving for economies
of scale, he demonstrated strong will. In attributing his
success as a founder of Aravind eye care system to some
higher consciousness, he epitomized humility.
Like a true Level 5 leader, he attempted to leverage
technology to serve his customers better. By sticking to his
strength - offering high quality eye care at affordable price,
he reminds us of other Level 5 leaders Jim Collins talked
about in “Good to Great.”
Dr V inspired his people with high standards. His people
were driven by an innate drive to seek perfection in
whatever they did. Not everybody might fit into a system like
this. Aravind’s system had a cult-like culture that one
sometimes sees in great organizations. By creating a
dedicated system, culture and standards, Dr V laid a strong
foundation for the future greatness of his organization.
1. Do you think Dr V has the characteristics of a level 5
leader? Discuss whether a level 5 leader can be
effective in organizations of the future.
2. Do you think Aravind’s emphasis on quality, efficiency,
cost minimization, customer education, concern for
customers, continuous updation of skills of its people,
and spiritual orientation to work, make it an organization
of the future?
224

3. Aravind provides eye care, and manufactures IOLs. In both
fields it has demonstrated that efficiencies of scale are
obtainable. Can Aravind serve as an example to
organizations in service and manufacturing industries?
Discuss also new circumstances Aravind might face as it
starts expanding to other parts of the world.

Exhibit I
Location of Aravind Hospitals

Exhibit II
Dr V’s Major Research, Clinical and Management
Accomplishments
Demonstrated the link between vitamin A deficiency and childhood
blindness.
Developed and pioneered the concept of eye camps and safe
assembly-line techniques, which have become models for blindness
prevention and treatment programs worldwide.
Personally performed over 100,000 successful eye surgeries.

Exhibit III
Awards and Honors Won by Dr V
Lifetime Service Award from the International Agency for the
Prevention of Blindness based in UK, 1982
Honorary Doctorate from University of Illinois, 1985
Lions Clubs’ Melvin Jones Fellow Award, 1987
Harold Wit Lectureship, Harvard Divinity School, 1991
Pisart-Lighthouse for the Blind Award, 1992
International Blindness Prevention Award, American Academy of
Ophthalmology, 1993
Susrata Award, Asia Pacific Academy of Ophthalmology, 1997
Source: www.aravind.org

225

Exhibit IV
Dr V’s Contributions at Government Erskine Hospital
Introduced the following for the blind:
Eye Camp Programme (1960)
Rehabilitation Center for the Blind (1966)
Low Vision Aid Clinic (1968)
Glaucoma Demonstration Center (1968)
Ophthalmic Assistant Training Program (1973)
Rural Rehabilitation for the Blind Project (1973)

Exhibit V
Aravind’s Mission
To eradicate needless blindness by providing appropriate, compassionate and
quality eye care for all.
Source: http://www.aravind.org/about/index.htm

226

Exhibit VI
Aravind Eye Care System: Specialty Centres
Retina & Vitreous: After cataract, retinal disorders caused by diabetes is the second most common cause of blindness in developing countries.
The Retina and Vitreous Service Centre was the first speciality clinic started at Aravind Eye Hospital. This centre treats patients with disorders
such as retinal detachments, infection and vascular disorders of the retina, trauma, congenital diseases of the retina and macula.
Intraocular lens & Cataract: In 81% of cases of blindness, cataract is the main culprit. At the Centre for Intraocular Lens & Cataract, patients
suffering from subluxated cataract, traumatic cataract, complicated cataract, high myopia, coloboma and cataract with corneal pathology are
treated.
Neuro-ophthalmology: Infection, trauma, or other diseases can damage the optic nerve that transmits visual impulses to brain. This damage
can cause blindness. The Neuro-opthalmology Centre at Aravind treats patients with neurological diseases such as optic neuritis, diplopia, optic
atrophy, temporal pallor, papilledema and ocular motor nerve palsies.
Cornea: Corneal eye disease can lead to complete blindness. The Centre for Cornea treats cases of infectious keratitis every year. The Centre
also conducts research on application of new antibiotics to treat bacterial keratitis and genetics of molecular corneal dystrophy. Aravind hospital is
conducting research programs in collaboration with the Proctor Foundation of the US. Companies such as Allergan, Alcon, Santen
Pharmaceuticals and Vistakon are conducting drug trials for Aravind.
Refractive Surgery Centre: This Centre was started to treat patients with myopia, astigmatism, and hypermetropia. Using LASIK (Laser Insitu
Keratomileusis), Aravind’s doctors correct the shape of the cornea by correcting refractive errors. LASIK is a high-tech surgical technique. The
computer controlled excimer laser ensures accuracy and precision in surgery.
Paediatric Ophthalmology and Strabismus: This Centre is dedicated to the development of special techniques to examine and treat children’s
eye diseases. Common childhood eye diseases treated at the center are refractive errors, strabismus, amblyopia, congenital cataract, genetic
eye diseases and congenital glaucoma.
Contact Lens Centre: This Centre at Aravind fits contact lens for patients suffering from myopia, hypermetropia and astigmatism. Lenses are
also therapeutically used in keratoconous (irregular curvature of the cornea) and aphakia.
Glaucoma: According to a survey conducted by Aravind Eye Hospital, 2.5-3.0% of the Indian population above 30 years of age suffers from this
disorder. The Centre treats primary glaucomas (which are inherited), and secondary glaucomas which are caused by trauma, inflammation,
diabetes, retinal vascular disease and hyper mature cataracts.
Uvea: The eye is ball-shaped and is made of three different layers: Sclera - the outer layer, Retina -the innermost layer, and Uvea - the middle
layer. Uvetis is a disease caused by inflammation of the uvea. The Centre examines 30-40 patients every day. Researchers at this center have
two landmark achievements. First, they identified for the first time the etiological agent of an epidemic outbreak of an infectious Uvetis named
Leptospiral Uvetis. Second, in collaboration with researchers at Dohney Eye Institute based at Los Angeles, they identified paediatric trematode
granulomatous uveitis.
Orbit and Oculoplasty: Oculoplasty is a separate sub-speciality center. This Centre studies anomalies and abnormalities of lids, lacrimal system,
extra ocular structures, bony orbit and other structures around the eye. The department focuses on evaluation, diagnosis and management of the
orbital diseases.
Source: "http://www.aravind.org/hospital/index.htm"
227

Exhibit VII (A)
Each Day at Aravind Eye Hospitals
Across all five Aravind Eye Hospitals:
About 4,055 out-patient visits are handled
About 542 surgeries take place
About 3 camps are conducted, where a thousand patients are seen, of
which about 300 undergo surgery

Exhibit VII (B)
Each Day at Aravind Eye Hospitals
Year: 2003
Outpatient Visits: 1,480,012
Surgeries: 197,877
Free Eye Camps: 1,158
Years: 1978-2003
Outpatient Visits: 16,149,106
Surgeries: 1,799,625

228

Exhibit VIII
Characteristics of Level 5 Leaders
Level 5 leaders are a paradoxical blend of fierce will and personal humility. They are stubborn and ruthless, yet they are humble. They are highly
ambitious for their company, and rarely allow their ego to come in the way of the organization’s success. Though they accomplish great things for
their organizations they never take the credit. They attribute their remarkable accomplishments to their people, external factors, and sheer luck.
They are inspired only by the greatness of their organizations. They expect their organizations to be even better after they leave. To ensure this
they choose superb successors. What makes them uncomfortable is unrealized potential and complacency. Level 5 leaders regard leaving
potential unrealized as a sin. They are highly intolerant of complacency. For them good is never good enough.
Fierce will Level 5 leaders demonstrate their fierce will in ensuring superb results for their companies. They play the most important role in
transforming their companies that were merely good, to great companies. Once they are decided about what to do to ensure the best long-term
results, they will go through the process with unwavering resolve. Level 5 leaders inspire standards, and build enduring and great companies
against the odds. For a further understanding of their determination, refer Exhibit 9.1.
Compelling humility Level 5 leaders are characterized by compelling humility. They shun public attention. They are never boastful. They are
always happy to discuss at length about their company and the contribution of their people. But they are generally averse to discussing their role in
the success of company. Level 5 leaders are quiet, and show calm determination when a task is to be accomplished. In case of poor results, they
do not blame the external environment.
Operating style of level 5 leaders
Level 5 leaders lead with the help of disciplined people, disciplined thought, and disciplined action. They first identify disciplined people. They don’t
manage them because they don’t need to. Through these disciplined or ‘right’ people, they manage the system. Then they attempt disciplined
thought. Discipline is necessary to face hard facts. Also, disciplined people bring in the discipline necessary in the organization for executing ideas.
Finally, disciplined action is necessary. This ensures the desired and expected results. An organization is not always best at its core business,
which it may have been engaged in for years, maybe even decades. And if an organization is not the best in the world in its core business then it
cannot be a great company. For this reason, Level 5 leaders identify the area where their company can be the best in the world. They also identify
the areas where they cannot be the best.
Level 5 leaders also identify suitable economic indicators to measure their performance. They are masters at ensuring continuous and healthy
cash flows, and profitability.
Level 5 leaders never give new technology the highest priority in their quest for transforming their companies. They believe that in order to use the
technology appropriately, they should first understand how relevant the technology is. They apply the technology only once they understand its
relevance, and ensure that it conforms with the organization’s Hedgehog concept.

229

Footnotes
Exhibit IX
A 70-year-old Man in Pathinettangudi, Mailing a
Photograph of his Eyes to the Aravind Eye Hospital,
Madurai, through Webcam for Consultation.
Source: http://www.hinduonnet.com/thehindu/2002/04/22/stories/
2002042201340500.htm

1. William McDonough, How much can we give for all we
get? MBDC Monthly feature, May 2003.
2. Harriet Rubin, The perfect vision of Dr. V, Fast Company,
Issue 43, February 2001.
3. Cataract is a condition where the lens of the eye becomes
cloudy and opaque due to old age or diabetes, thus failing
to transmit light to the retina. The clouded lens leads to
blindness. In a cataract surgery cataract is removed and
an intra-ocular lens (IOL) is implanted in its place to
restore vision.
4. Aravind eye hospitals, Social Entrepreneurship,
Greenblue.org.
5. The IOL is a tiny, transparent, convex lens made of
polymethyl methacrylate, a harmless plastic  
substance. IOL is extremely beneficial for a cataract
patient as it eliminates the use of heavy spectacles with
thick lenses after the operation. An IOL assures clearer
vision without any distortion. It also facilitates speedy
recovery of the patient after an operation.
6. Pravir Malik, Emergence of the fractal savant, Business
Line, December 30, 2003.
7. William McDonough, How much can we give for all we
get? MBDC Monthly feature, May 2003.
8. Crucibles are vessels used by medieval alchemists to
convert ordinary metals into gold. A crucible in the above
230

context refers to a transformative experience through
which an individual comes to a new or an altered sense of
identity. Warren Bennis used the term „crucible‟ for the
first time in the context of leadership.
9. A follower of Mahatma Gandhi‟s (the „father of India‟s
freedom struggle‟) values.
10. Swami Vivekananda was the most forceful spiritual
personality in India in the 19th century.
11. The branch of medicine that deals with the care of women
during pregnancy and childbirth.
12. Capital of the Tamil Nadu state, earlier known as Madras.
15. G Sankaranarayanan, The man and vision behind Aravind
Eye Hospital, Express Health care 
management, 1-15 Sept 2003.

19. Aravind runs village camps for the benefit of patients who
cannot come to hospital.
21. B Surender, The world’s most efficient doctor,
Mansworldindia.com.
22. A market-driving entity creates a need that did not exist
before. Market-driving organizations are guided  
by a vision or radical idea rather than market research.
23. sulekha.com.
24. Joan Magretta, What management is, The free press,
2002, p 113.
25. A running nurse‟s duty is to bring fresh surgical tools from
a sterilization area.
Mansworldindia.com.
27. www.mansworldindia.com.

16. Sri Aurobindo, The evolution of consciousness, The
Bulletin of Sri Aurobindo International Centre of  
Education, November 1976.

28. The process of organizing positions into categories of
work (classes) based on the similarity of duties,  
authority, and responsibility.

17. The branch of medicine that deals with the structure,
functions and diseases of the human eye.

29. David Green is an international consultant for developing
sustainable eye care facilities.

18. GreenBlue.com

30. www.indiatogether.org.
231

31. FDA stands for “US Food & Drug Administration.” FDA
approval is necessary for companies (selling food and
medicine) to market their goods officially in the US.
32. CE Mark signifies compliance with applicable European
Community directive (e.g., MDD, IVDD, or AIMDD).
33. Collins, Jim, Level 5 Leadership, Harvard Business
Review, Jan 2001, Vol.79, Issue 1.
34. G Sankaranarayanan, The man and vision behind Aravind
Eye Hospital, Express Health care management, 1-15
Sept 2003.
36. Dr Venkataswamy, Spirituality@work, Management next,
December 2003, Issue-8.

hearing aid companies produce only 6 million hearing aids
per year. And just 12 percent of these are sold in
developing countries where 70 percent of the world's
population lives. This offers a potential opportunity for
organizations that want to use Aravind‟s model.
42. Natchiar heads the training and skills-enhancement
programme of the girls.
2002 (p114).
45. www.mansworldindia.com.


46. Vijay Kumar S, A village where IT is a way of life, The
Hindu, Apr 22, 2002.

38. Jim Collins is a leading management thinker and author of
books “Built to Last”, and “Good to Great.”

47. n-logue is a commercial offshoot of the (TeNet group is a
research group started by the professors of IIT. Professors
at this group developed CorDECT telecom technology, an
innovative access network technology, who also floated
the company, Midas Communications. The professors‟
main aim was to develop a telecom technology that would
provide the rural Indians access to telephones. Midas is a
technology company which manufactures and markets
this technology all over the world and n-Logue is the
company which provides telephone and internet services

39. Jim Collins, Good to Great, Harper Business, 2001
(p118).
40. Hearing impairment is a common birth defect. There are
250 million people in developing countries with this
physical impairment. The World Health Organization says
that nearly half of these people would be able to hear
better with a hearing aid. According to an estimate,

232

in rural India) Indian Institute of Technology, Madras. The
company aspires to start similar facilities in all rural India
in the next 10 years.
48. The use of interactive audio, video, or other electronic
media (excluding telephones or fax machines) to deliver
health care. The term includes the use of electronic media
for diagnosis, consultation, treatment, transfer of medical
data, and medical education.

2002, p 113.
10. Dr Venkataswamy, Spirituality@work, Management
next, December 2003, Issue-8.
11. Jim Collins, Good to Great, Harper Business, 2001
(p118).

1. William McDonough, How much can we give for all
we get? , MBDC Monthly feature, May 2003.

12. Vijay Kumar S, A village where IT is a way of life, The
Hindu, Apr 22, 2002.

2. Harriet Rubin, The perfect vision of Dr. V, Fast
Company, Issue 43, February 2001.

13. Aravind eye hospitals, Social Entrepreneurship,
Greenblue.org.

3. Pravir Malik, Emergence of the fractal savant,
Business Line, December 30, 2003.

14. www.sulekha.com

4. G Sankaranarayanan, The man and vision behind
Aravind Eye Hospital, Express Health care
management, 1-15 Sept 2003.

16. www.aravind.org

15. www.indiatogether.org

5. Sri Aurobindo, The evolution of consciousness, The
Bulletin of Sri Aurobindo International
6. Centre of Education, November 1976.
Mansworldindia.com.

233

C HAPTER 10

Power, Authority and Politics
Power is one of the most controversial topics in the
study of organizations and of people therein. So much
so that it has been termed the “last dirty word.” People
are often not comfortable discussing power. People
who have power deny it; people who seek power try to
conceal their objectives from others; and those who
secure power, are secretive about how they secured it.
Extensive research has been done in OB on how
people gain and use power in organizations. It has
been observed that most formal organizations are
highly political and power plays an important role in the
way they work. Power and politics are an important
part of the dynamics of OB.
Power relationships are a natural part of any group or
organization. It is important for students of OB to know
how power is acquired and exercised. Though there is
a popular saying that “power corrupts, and absolute
power corrupts absolutely,” power is not always a
negative concept. Power is a reality of organizational
life and it is difficult to do away with it. Moreover, an
understanding of how power works in organizations
can help one become a more effective manager.

understand:
The definition and meaning of power
The distinction between power, authority and
influence
Various bases of power
Definition and nature of politics
Individual and organizational factors relating to
political behavior.

Section 1

Definition and Bases of Power
Power has been defined in different ways by a number of
scholars. Stephen P. Robbins defined power as “the ability
to influence and control anything that is of value to others.”
According to Max Weber, a pioneering sociologist, power is
“the probability that one actor within a social relationship will
be in a position to carry out his own will despite resistance.”
The most important element in the study of power is
dependency. The greater the level of A’s dependence on B,
the greater is B’s power over A in that relationship. Further,
dependence is the function of the alternatives perceived by
A and the importance given by A to these alternatives that B
controls. A person can have power over another only if he
has control over something that the other person desires.
For example, if you need to acquire certain skills in which
your coach is the only expert available, then the coach has
power over you. Since the alternatives are limited and it is
important for you to acquire those skills, you are dependent
on the coach. But once you have acquired those skills, your
dependency on the coach decreases and thus his power
over you also decreases.

Bases of Power:
Power is of different types, depending on where it is
sourced from and how it is used. Social psychologists John
French and Bertram Raven have identified five sources of
power: coercive, reward, legitimate, expert and referent and
are described in the keynote 10.1.1
Keynote 10.1.1: Various Bases of
Power


235

Section 2

Distinctions Between Power, Authority and Influence
Power itself refers to the ability of an individual or
group to bring about a change in some other
individual or group in some way. Power may or may
not be legitimate, whereas authority is the source of
power, and hence, is legitimate. Authority has the
willing acceptance of the person over whom it is
exercised, whereas power is (generally) unidirectional. It may or may not be liked by the person
over whom it is exercised.
Influence refers to the ability to modify or change
people in general ways, like changing their
performance and satisfaction. It is a broader concept
than both power and authority. Although both power
and influence are an essential part of leadership,
influence is more closely associated with the function
of leading than power. Another difference between
power and influence is that power has more ‘force’
than influence. Power gives a person a right to
change certain relationships within an organization. It
has the ability to alter reality. Influence, however, can

only alter a person’s perceptions about reality and the
relationships in the organization.
Therefore, the difference between power and authority
is that authority has legitimacy and acceptance,
whereas power may or may not. And influence differs
from power in terms of scope: it has a broader scope
than power. Though influence and power are different,
the two are related and sometimes the terms are used
interchangeably. There is a subtle difference between
authority and influence. While authority generally flows
from a higher level to a lower level in a hierarchy,
influence jumps levels and in many cases may flow
from a lower level to a much higher level.

236

Section 3

Political Behavior in Organizations
Organizational politics is a reality in most organizations
of reasonable size. Researchers and practitioners of
OB have also acknowledged the role played by politics
in organizational dynamics. It has been recognized that
a certain amount of political behavior is necessary on
the part of managers to succeed in their work and that
politics is sometimes vital to the achievement of
organizational goals. Politics has been defined by a
number of scholars of OB.
Definition and Nature of Politics
Organizational politics has often been called ‘power in
action.’ Stephen Robbins has defined politics in
organizations as “those activities that are not required
as part of one’s formal role in the organization, but that
influence, or attempt to influence, the distribution of
advantages and disadvantages within the organization.”
Robbins has also differentiated between legitimate and
illegitimate political behavior. Legitimate political
behavior is that which forms a part of the day-to-day
work in an organization. This includes forming

organizational coalitions, networking and developing
contacts within and outside the organization,
complaining to superiors on routine matters, ignoring
rules and procedures, adhering to rules strictly, etc.
Illegitimate political behavior, however, is extreme in
nature and does not keep to the accepted level of
politicking. Protesting violently against rules,
deliberately breaking rules, not conforming to the
accepted procedures, absconding from work,
sabotaging organizational activities, whistle blowing,
etc., are examples of illegitimate political behavior.
Experts in OB feel that politicking can have beneficial
effects on an organization. For instance, when an
employee develops a new tool to improve productivity,
he may do politicking to enlist the support of his
superiors. If the new tool gets adopted by the
organization, the benefits accruing to the organization
may be more than those to the employee.

237

Factors Relating to Political Behavior
Political behavior is subjective, i.e., it differs from person to person and organization to organization. Studies have
shown that individuals differ in their orientation towards politicking. Some tend to be more interested and capable of
politicking than others. Similarly, organizations differ in their political orientation. Individual differences in political
behavior are based on environmental differences and personality, whereas organizational differences are based on the
culture and the environment of the organization. Refer to the figure 10.3.1 for the factors relating to political behavior.
Figure 10.3.1: Factors Relating to Political Behavior
Individual Factors

•
•
•
•
•
•

High Self-Monitors
Internal Locus of Control
High Mach Personality
Organizational Investment
Perceived Job Alternatives
Expectations of Success
Political Behavior
Low

High

Favorable Outcomes
• Rewards
• Averted Punishments

Organizational Factors

•
•
•
•
•
•
•
•

Scarce Resources
Ambiguity of Goals
Role ambiguity
Performance Appraisal and Rewards
Culture of the organization
Lack of trust
Pressure to Perform
Involvement of Top Management


238

Individual factors
Individual politicking is a function of a person’s personality
traits, his background and experiences, and the
environment in which he operates. The individual factors
that influence political behavior are further discussed in the
keynote 10.3.1.

Keynote 10.3.2: Organizational
Factors that Influence Political Behavior

Keynote 10.3.1: Individual Factors
that Influence Political Behavior

Source: Internal

Impression Management

Source: Internal

Organizational factors
Research has proved that organizational factors have a
greater influence on politicking in organizations than
individual factors.

Impression management is sometimes referred to as “selfpresentation”. It is the process by which people try to
manage or control the perceptions formed by other people
about themselves. Often people like to present themselves
in a socially desirable way and impress others. However,
such attempts by subordinates to impress superiors can
affect the validity of performance appraisal in organizations.
Refer to the Keynote 10.3.3 for the detailed explanation of
impression management strategies used by employees.

It has been proved that political behavior thrives when
organizations exhibit certain characteristics. Some of these
characteristics are described in the keynote 10.3.2.

239

Keynote 10.3.3: Impression
Management
Strategies Used by Employees

Review 10.1
Question 1 of 8
Power can be defined as _____.

A. The ability to influence the behavior of others
B. The actualization of the dependency of others
Source: Internal

C. Congruence between the
goals of the leader and those
being led
D. Downward influence on one’s
followers

Check Answer

240

Section 4

Case Study: That’s the Way the Cookie Crumbles...
This case study was written by Dr. Ravikiran
Dwivedula (Professor in Organisational Behaviour),
IBS, Hyderabad. It is intended to be used as the
basis for classroom discussion rather than to
illustrate either effective or ineffective handling of a
management situation. The case was prepared from
generalised experiences.

241

Sam Nolton (Sam) is a divisional head in ABCCOMM, a
semiconductor company based out of Sunnyvale. He
oversees the manufacturing and operations at Lucatel
facilities in Newark and Shenzhen in China. ABCCOMM
started making modems and later on diversified into
manufacturing network routers and integrated circuits. They
have just embarked on wireless technology business and are
planning to enter the Asian markets. It is at this point that they
started negotiations with XYZCOMM, a New York-based
semiconductor company, on a merger possibility.
The combined entity proposed to be called AZCOMM, is
expected to command a market share of 25% of
semiconductor industry worldwide. The plan is to spin off the
Engineering operations of ABCCOMM in the US, once the
merger has been completed and the IPO announced.
Three Days before the Meeting with XYZCOMM

Bob was referring to the case of racial discrimination that
happened at their manufacturing plant at Budapest, where a
woman manager alleged that she was passed over for
promotion by her male colleague. Sam then had been
heading the investigation. The company had to pay a
compensation of ¤2 million and had to deal with all the
negative publicity that resulted with this issue; thanks to the
straight talker Sam.
Bob said, “We are in the middle of an important merger Mark.
We want to enter the Asian market and the merger with
XYZCOMM is the perfect platform. They have the brand
equity in the semiconductor industry and we have the
technical resources. Now, I don’t want one of your boys to
mess up the deal.”
“Have you checked his record?” asked Bob.
“Nothing to nail the fellow”, said Mark.

Bob Larson (Bob), CEO of ABCCOMM, was on his way to the
airport to catch the 12 pm flight to Newark. He was travelling
along with the vice president, Engineering & Operations, Mark
Sullivan (Mark), in his Porsche. Mark had an inkling about
what this quick meeting would be about, but was not sure of
raising the subject himself with his boss. After a while, Bob set
his coffee cup in the holder by the seat and said, “He’s got to
go Mark!”

“No Bob, he is clean”, replied Mark.

Mark neither offered any opinion nor chose to steer the
conversation. Bob again said, “Your man Sam is a straight
talker and a whistleblower. He almost got us down with the
Budapest incident two years ago.”

Mark looked into the car’s mirror. He had been expecting this
conversation. He was sure of what he wanted to do.

Bob pressed on. “Any instances of indiscipline, office
romance, referrals from previous employers.”

“Then find a way to get him out Mark!” At this point, the car
stopped at the departure area in the airport. Bob stepped out
and gave a cursory ‘just do it’ look to Mark and then walked
away.

242

The Day before the Meeting...
Sam was looking at himself in the mirror. He casually
examined his 3-day old stubble...jeez...what a week it
has been he thought! While he allowed the basin to be
filled with warm water, he began to think of his meeting
with the CEO last night.
Nothing can go wrong now people...we’ve got to pull this
deal off...We will have to make a few changes to the
organisation...redraw the organisation lines and
change...you can expect a few promotions while a few of
us here may have to be relocated to other verticals or
step down! I’m sure as the division heads, you will do
everything in your capacity to make this transition a
success!...and by the way...expect a few culture shocks!
Sam was surprised about two things in the meeting. One
was that for some reason, Mark was lost in thought
during the meeting. He gave a compassionate look at
Sam, when he entered the meeting room. At that point,
Sam thought, Was he hiding something? Does he know
anything more about this meeting that most of us
present here are not aware of?
Irrespective of his thoughts, Sam looked forward to the
meeting. A successful merger would mean big time
payoffs for his division. And so, after a super quick
breakfast, and an animated argument with his 4-year old
daughter over the breakfast table, Sam hit the
expressway to Sunnyvale. Even as he drove, he

hummed his favorite number of Bing Crosby –
We’re in the money!
During the day, Mark ran into Sam in the
elevator of the office.
Mark: “Hello Sam, I need to discuss the
Shenzhen issue with you. Do you think we can meet up
at about 7 pm in the evening today in my office.”
ABCCOMM has a manufacturing facility to
make microchips in Shenzhen, China. There
has been an accident in the facility.
Mark was referring to this incident.
Sam: “Sure Mark.”
Mark: “Great...thanks!”
As agreed in the morning, Sam completed his work by 7
pm and went up to Mark’s office with the reports on the
router assembly line problems. It was June and the sun
was still bright even at 7 pm in the evening. Mark had
the corner office on the eleventh floor. He found that
Mark’s secretary Mandy was about to leave for the day.
Hello Mandy...I’m Sam Nolton, I’m here to meet Mark
Sullivan.
“Let me see if he wants to see you now,” said Mandy.
Sam was surprised. He thought the appointment was
fixed for 7 pm in the evening and that Mark would have
told Mandy about it.
243

“He is taking a phone call right now. May be you can meet
him in about five minutes.” Saying that Mandy left her
office.

from our Shenzhen unit?”

After 5 minutes, Sam adjusted his tie and gave a gentle
knock on the door before entering Mark’s office. Mark
waved his hand from behind his desk while speaking to
someone over the phone. “Yes honey...I think we should be
able to make it to Josh’s game on Saturday...yes of course,
...alright...I’ve got a meeting coming up...catch you at
dinner!”

Sam: “We have been having some problems with
the labour market in China. Inflation has seen an
upward trend, hovering close to 8.7%, which is a
12-year high. You have seen reports on the
increase in the producer price index, which was up
by 8.1%. The Chinese firms operate on razor-thin
margins and this situation has forced most of them
to close the shop. Added to this, is the increase in the
labour prices. It is expected that the projected average pay
in China will go up by as much as 7.5% as compared to the
US, where it is about 3.7%. Clearly, the cost advantages
are diminishing. The economic factors are not the only
problems that we are confronted with right now Mark. We
have run into what I think is a serious problem
in the plant.”

Mark: “You haven’t got a kid who thinks he can
be the next Alex Rodriguez of the New York
Yankees...have you Sam?”
Sam: “Not really...I’ve a daughter
Tracy, who is four. It’s a super bowl everyday at
the breakfast table!”
Mark: “I know how it feels Sam...I’ve
been there and done that! Anyway,
can I fix you a drink?”
Sam: “A vodka would be fine.”
Mark walked up to his little private bar in the
corner of his office to stir up the Vodka
for both of them.
Mark: “So Sam, what is this problem
with the Very Large Scale Integrated
Circuit (VLIC) assembly line manufacturing

Mark walked up to Sam and handed over his drink.

Mark: “What else are you talking about apart
from the accident?”
Sam: “As you are aware, we had a
major accident one week ago. It
happened during the wet chemical cleaning
process. Our usual suspect was the heater failure.
But our equipment research team tells us that the
heater should stop under conditions of
overheating. We are now investigating the role of
incompatible chemical reactions.”
Mark: “GoonSam...I am listening.”
244

Sam: “We are looking at Hydrogen peroxide,
concentrated sulphuric acid and hydrochloric acid.
We are right now testing the chemical
reactions in lab conditions.”
M a r k : “ W h e n w i l l w e k n o w ? ” 
Sam: “We should have the preliminary results in
about 10 days.” Mark: “Is there anything else I
need to know?”
Sam: “About four workers were exposed to hazardous
chemicals in the accident. Thankfully, we do not have any
casualties, only cases of first degree burns. The labour
union leader Kunlun Wu is pressing for compensation.
Our legal team is talking to them.”
Mark: “So Sam, what is your assessment of this
situation. Do you think it is serious?”
Sam: “Of course I do, as I have already told you.”
Mark: “Sam,you do know that ABCCOMM is in the
process of a merger with XYZCOMM. One of
the reasons why this deal is going through is
because of our presence in the Chinese
market. XYZCOMM wants to expand into
wireless communication market in the AsiaPacific region. Obviously, having our plant in
China provides a major technological advantage to the
new company. XYZCOMM as you know is a very
conservative company. The last thing it wants is a
negative publicity because of a lawsuit.

We are in the middle of the due diligence process with
XYZCOMM. Once the deal is done, we will be spinning
off your division here and taking it public. Executives like
you will start with 30,000 shares vested, and an initial
option of 40,000 shares at $4 per share, with the right to
purchase another 40,000 shares each year for the next 6
years. Now Sam, tell me...how do you want me to handle
the meeting with the XYZCOMM people
tomorrow?”
Sam: “I’m not sure Mark. I don’t know what to
say. Are you sure about the spin off?”
Mark: “Trust me Sam. The spin off
will go forward in about 2 years from
now. We are working out the finer details right
now...”
Mark: (Placing his hand over Sam’s shoulder in
a very fatherly way)“Sam,I have always admired your
frankness. I respect your expertise and the way you
approach the problem. That is the reason why I think this
problem will be solved in the near future. We have been
in this business for 8 years Sam and personally, I have
complete confidence in your ability to make it work. I
have no problem whatsoever stating this in the meeting
tomorrow. How about you Sam?”
Mark intently looked into Sam’s eyes. He was trying to
r e a d h i s m i n d . 
Sam stepped away and looked outside the window. The
setting sun failed to give an answer. Sam: “Alright Mark,
245

I ’ l l g o w i t h y o u . ” 
Mark: “Good. That’s settled then...do you want to
r e f i l l t h e g l a s s e s . ” 
S a m : “ S u r e . ” 
As Sam walked to the bar, Mark’s eyes followed
him. A wry smile appeared on Mark’s face.
The Day of the Meeting
Sam walked into his office only to find that none of the other
executives are there on the floor. It was a wonderful sunny
morning and he was looking forward for the day. Folding the
newspaper, he walked past Claire, his secretary.
Sam: “How is it going Claire? Any news from Shenzen?”
Claire: “Sam, I thought you had a meeting with the
XYZCOMM team at 8:30 am this morning?”
Sam: “The meeting was supposed to be at
9:30 am!”
Claire: “I am not sure Sam...Mark was
looking for you. You better rush because the
meeting is already underway in the
conference room.”
Dropping everything on his desk, Sam rushed to
the conference room on level four of the building.
On his way, he saw that Mark was actually showing the
facility to the XYZCOMM. He could hear laughter ...And this
is where our design team work...the whole place might

appear spooky but it sparks a lot of innovation...more
laughter followed.
Sam quietly joined the group. Mark seemed to have noticed
but did not really acknowledge Sam’s presence. A few
minutes later, the group proceeded towards the conference
room. There were two lawyers on the XYZCOMM team,
along with three consulting managers from the Hoffman &
Smiths, the consulting firm that was handling the merger
process. He could also see Abigail Smith. She was the
programming head. Ivan Wachowski, the very effusive and
the very maverick head of the product design
group, was having a serious conversation with
Mark.
Mark quickly walked up to Sam.
Mark: “Where were you Sam? I have been trying
to reach you since this morning. The meeting had
to be rescheduled for 8:30 am as the XYZCOMM
team needs to fly to Boston at about 11 am I left a
message on the answering machine.”
Sam: “I guess I was in a rush this morning...little
trouble in getting Tracy to eat her breakfast...”
Even before Sam completed his sentence, Mark
gave him a dismissive look.
Mark: “The XYZCOMM people got a wind of our little
problems in China. The wanted to know if the accident was
real...I gave them my assessment of the situation. I had to
246

make a few changes to whatever we had discussed. You
better take it from here Sam...”

basis...as and when they arise. It is still ‘early
days’ with this unit.”

And then, Mark quickly made his way back to his seat.
What did he tell them? Sam thought!

Kahn: “Mr. Nolton, correct me if I am wrong. You
have been in the production for three months.
Right?”

Once everyone was settled, the chief technology officer of
XYZCOMM Roger Kahn took over. Without warning, he
addressed Sam.
Kahn: “Mr. Nolton, we believe you are the
incharge of Shenzen unit. We have been
hearing stories of accident in the unit. We
have spoken to Mark Sullivan about the
situation. We would like to know your
assessment.”

Sam: “That’s correct.”Kahn: “Three months does
not sound to me as‘early days’,considering that
some of the product cycles are only for 9 months
to 1 year...”
Sam: “Yes, that is correct to an extent. We can
have cycle times ranging from 9 months to
18 months.”

Sam looked at the faces around the table. All of
them were staring expectantly at him.

Kahn: “Then,in3months you should b e in full
production.How would you describe the situation in
Shenzen as someone who is in charge?”

Sam: “Well, we had recently started our
production at the unit and will be going full
capacity in the next few weeks...”

Sam: “Well, we are experiencing the typical problems that
are normal at this stage of the production...nothing
serious.”

Kahn: “Mr. Nolton, now that you are in
production, we would like to know your objective
understanding of the problems that have arised
in the facility.”
Sam’s mind was revolving around the
question ...What did Mark tell them?...
Sam: “We have been closely examining the lines
and dealing with the problems on a case-by-case

Kahn: “That is very interesting Mr.Nolton.
Because, earlier this day, when we were
chatting with Mr.Sullivan, he said there were
serious issues of safety compliances in
the unit. They will perhaps need to go
back to the drawing board to fix the
problem...”
Sam’s head was spinning at this point. How could
247

he do this to me? How could Mark do this to me ever...were
the only thoughts that came to his mind!
Kahn: “Mr.Nolton, will I be correct in saying that this
will pull back the production for a few weeks?”
Sam: “Probably, but I have full confidence that we
should be able to get back on track pretty soon!”
Kahn: “That’s encouraging Mr. Nolton.
But we are talking about serious competition from
PQR Digitronics and 123 systems, major players
in the semiconductor industry, who would be
releasing the next generation processors.”
How should I handle this situation...thought Sam. He has
already given an impression that the problems
are not serious, and worst of all, routine.
He cannot back down now.
Then, without warning, Kahn raised the
big issue...
Kahn: “How much time do you think you will need to
resolve the labour problems?”
Sam: “I don’t know...I do not have the complete
information yet...”
Kahn: “Do we have ANY information at all,
Mr. Nolton?”
There was a clear tone of sarcasm in his voice.

Sam: “Yes, we do in fact have the information...”
Kahn: “Then why don’t you have it with you right
now when you know that this was on the
agenda for today’s meeting?”
Sam had no answer to that question. The
same thought came to his mind time and
again...How could Mark do this to me?
Kahn: “My understanding from the
discussion with Mr.Sullivan was that the
unit was going at 35% capacity of its production.
With figures like that, on what do you base your
confidence for a speedy recovery?”
Sam: “We have seen such problems before. They
looked insurmountable but were ironed out as quickly as
they appeared...”
Kahn: “So, you are basing your judgment on previous
experience alone!”
There is a serious look of dissatisfaction on Kahn’s face.
Kahn: “If in your assessment Mr.Nolton, you have
to go back to the drawing board and change the
unit’s layout, we are talking of a delay of ...(a
deliberate pause)...7 weeks. Now, Mr.Nolton, if you
are incharge, then you are the one who got us into
this situation right now. Now, do you think you
would be the best person to fix the problem?”

248

Sam: “Yes, that is because I know the people here...I
have given 5 years of my life to this company, and we
have handled such problems before...”
Kahn: “I am sorry Mr. Nolton, but the
market reacts very fast to these situations.
By the time, we are back in production, the
competitors would have moved in...not to
mention all the negative publicity that the
merged entity would get from the problems
in the production line and the law suits...I
am sorry Mr. Nolton. I wish I could sound more
optimistic, but I can only hope we can be more
confident about this issue...”

Video - Office Politics
and Conflicts

watch?v=dR6JadVEkog

Question for Discussion
1. Discuss the measures that Sam Nolton could have
taken to avoid the situation.

At this point, Mark stepped in... “Gentlemen, I think we
can take this up in our meeting next Wednesday. By
that time, we will have more updates on Shenzen. You
do not want to miss your Boston flight...Ivan, why don’t
you go with them to the car park...Mr. Kahn, I think I will
call you tonight and discuss some of your
concerns...Ivan, I want you to be around when I’m
making the call. Does it sound ok Mr.Kahn?”
Kahn: “Yeah, sounds good to me.”
Saying this, Mark gave another of his dismissive looks
to Sam and adjourned the meeting for the next week.
As the group made its way out, Sam was still dazed at
the fall of events. Mark had only one thought in his
mind...That’s the way the cookie crumbles!
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C HAPTER 11

Conflict and Collaboration
Conflict, which can occur at individual, group or
organizational levels, discourages people from
cooperating with each other. While some degree of
conflict is desirable in organizations so as to promote
the spirit of competition among employees, it could
jeopardize the effective functioning of the organization if
it is allowed to persist for a long time. Therefore, it
becomes essential to resolve conflicts quickly. Though
there are several methods available to resolve conflicts,
the ideal way is through negotiation. Thus in order to be
effective, it is important that managers possess
adequate negotiation skills.
understand:
Definition of conflict
Various perspectives of conflict
Sources of conflict
Classification of conflicts
Process of conflict
Approaches to conflict management

The definition and meaning of negotiation
Various steps involved in the process of negotiation
Distributive and integrative approaches to
negotiation
Definition of collaboration
The factors contributing to the development of
collaboration
Interventions for collaborations.

Section1

Evolution of Conflict Thought
Definition of Conflict:
Conflict may be defined as the disagreement between two
or more individuals or groups over an issue of mutual
interest. Conflicts can range from small disagreements to
violent acts.
Perspectives on Conflict
Traditionalist’s View: All conflicts are bad as they are
dysfunctional in their outcome. Hence this view holds
that conflicts need to be avoided.
Human Relations View: Conflicts are inevitable and
natural in all groups and organizations.
Interactionists View: It encourages conflict on the
ground that a harmonious, peaceful, tranquil and
cooperative groups is prone to becoming static and
non-responsive to change and innovation.

251

Section 2

Sources and Classsification of Conflict
Sources of Conflict:

Classification of Conflict

A variety of factors can lead to conflicts. Some of these
are explained in the keynote 11.2.1:

When two or more organizations differ or disagree on
different issues such as people, technology, strategy,
etc, it results in an Organizational conflict. Classification
of Organizational conflicts is explained in the keynote
11.2.2.

Keynote 11.2.1: Sources of Conflict

Keynote 11.2.2: Classification of
Organizational Conflicts

Source: Internal, ww.dalecarnegiewayindy.com

Source: Internal

252

Section 3

The Conflict Process
The Conflict Process

Figure 11.3.1

The process of conflict consists of the following five stages
(see Figure 11.3.1):
Potential Opposition or Incompatibility
For a conflict to arise, the conditions that lead to the
conflict should be present. The conditions (or causes) that
lead to conflict may be broadly classified into
communication, structure and personal variables. If any
one of these conditions is present, it can give rise to a
conflict.
Cognition and Personalization
During this stage, the affected individual (or group)
develops a sense of opposition towards the other party
responsible for the conflicting conditions. Though the
conflict is perceived, it need not be ‘personalized’ at this
point. If the perceived conflict is prolonged, the cognition of
the individuals regarding the conflict may reach the felt
level where personalization may begin. The individuals
may then become emotionally involved and both the

Source: Stephen P. Robbins, Organizational Behavior – Concepts, Controversies, Applications, 8th edition (New Delhi: Prentice Hall of India Private Limited, 1998) 437

conflicting parties will experience tension, anxiety,
frustration and develop hostility towards each other.
Intentions
In this stage of the conflict process, individual attempts to
discover the intentions of the other person so as to choose
an appropriate action in response to that person’s
behavior. One has to be careful in inferring others’

253

intentions because wrong inferences can intensify conflicts
rather than resolve them. Primarily, there are two
dimensions that should be considered while attempting to
resolve conflicts – assertiveness (satisfaction of one’s own
interests) and cooperativeness (satisfaction of other’s
interests). Five types of conflict-handling intentions can be
applied using these two dimensions as shown in the figure
11.3.2.
Figure 11.3.2: Five Types of
Conflict Handling Intentions

form of statements, actions and reactions. Because of this
explicit behavior, the conflict becomes obvious to outsiders
as well. This behavior also acts as a stimulus to the other
party.
Outcomes
Outcomes are the consequences that result from
interaction among conflicting parties. An outcome may have
a positive or negative impact on the organization.
Accordingly, outcomes are classified as functional and
dysfunctional.
Functional Outcomes

Functional outcomes are the constructive consequences of
a conflict which may improve the performance of a group or
an organization.
Dysfunctional Outcomes
Dysfunctional outcomes are the destructive consequences
of a conflict on the performance of a group or an
organization.

Source: John M. Ivancevich and Michael T. Matteson, Organizational Behavior and Management, 4th Edition (Irwin:
USA, 1996) p 334.

Behavior
In the initial stages of conflict, the existence of a conflict
may not be visible to outsiders. However, as the conflict
continues between the parties, they tend to express it in the
254

Section 4

Approaches to Conflict Management

Table 11.4.1: Conflict Management Techniques
Conflict Resolution Techniques
Problem solving

Face-to-face meeting of the conflicting parties for the purpose of identifying the problem and resolving it through open
discussion.

Superordinate goals

Creating a shared goal that cannot be attained without the cooperation of each of the conflicting parties.

Expansion of resources

When a conflict is caused by the scarcity of a resource – say, money, promotion opportunities, office space –
expansion of the resource can create a win-win solution.

Avoidance

Withdrawal from, or suppression of, the conflict

Smoothing

Playing down differences while emphasizing common interests between the conflicting parties.

Compromise

Each party to the conflict gives up something of value.

Authoritative command

Management uses its formal authority to resolve the conflict and then communicates its desires to the parties involved.

Altering the human variable

Using behavioral change techniques such as human relations training to alter attitudes and behaviors that cause
conflict.

Altering the structural variables

Changing the formal organization structure and the interaction patterns of conflicting parties through job redesign,
transfers, creation of coordinating positions, and the like.
Conflict Stimulation Techniques

Communication

Using ambiguous or threatening messages to increase conflict levels.

Bringing in outsiders

Adding employees to a group whose backgrounds, values, attitudes, or managerial styles differ from those of present
members.

Restructuring the organization

Realigning work groups, altering rules and regulations, increasing interdependence and making similar structural
changes to disrupt the status quo.

Appointing a devil’s advocate

Designating a critic to purposely argue against the majority positions held by the group.

Source: S. P. Robbins, Managing Organizational Conflict: A Nontraditional Approach (Upper Saddle River, NJ: Prentice Hall, 1974) pp 59-89

255

Section 5

Negotiation
Negotiation is a process in which one party agrees to
exchange a product or service with another party in
return for something. In an organizational context, the
most common example of negotiations is that of
collective bargaining between labor unions and
management. Management may agree to increase the
wages of the workers by a certain amount on the
condition that workers improve their productivity.
Two widely used approaches to negotiation are
distributive bargaining and integrative bargaining.

Integrative Bargaining: A negotiation that seeks
one or more settlements that can create win-win
situation. Sales-credit negotiation is one such
example where both the parties try to gain.
The Negotiation Process
The negotiation process consists of five stages. Refer to
the keynote 11.5.1 for the process.
Keynote 11.5.1: The Negotiation Process

Bargaining Strategies: Two general approaches to
negotiation are distributive bargaining and Integrative
bargaining.
Distributive Bargaining: Negotiation that seeks to
divide up a fixed amount of resources between two
parties. It is negotiation over who gets what share of
a fixed pie as the bargaining parties believe that any
gain that is made is at the expense of the other.
Most widely cited example of such instance is
negotiation over wages.

Source: Internal, www.3.bp.blogspot.com

256

Individual Differences in Negotiation Effectiveness
The following factors influence the effectiveness of
negotiation:
Personality Traits: Personality has significantly direct
effect on negotiation process. It is assumed that high
risk takers would be more aggressive, make fewer
concessions in negotiations thus are more effective.
Extroverts who are friendly may be less successful.
Moods or Emotions: Those who show anger induce
concessions from opponents. Those with positive
moods and emotions appear to lead to more
integrative agreements.
Gender Differences:
Women seem to be more
pleasant and cooperative in negotiations than men.
However, it need not be true.

257

Section 6

Collaboration
Collaboration refers to social behavior in which two or
more individuals or groups come together for the
achievement of common goals. Collaboration is a win-win
condition for all the parties involved and they are all
benefited.

motivation is to be sustained, other individuals too must
reciprocate in the same manner.
Norms of the Group

The factors contributing to the development of
collaboration are:

Group norms are standards of behavior that all group
members are expected to follow. These norms therefore
shape the behavior of the group. They can either facilitate
or hinder effective collaborative and cooperative efforts.
For example, if high collaboration is a group norm, group
members will try to increase collaborative motivation in
members whose motivation levels are low. The reverse is
also possible. Group norms therefore form a basis of
collaboration within the organization.

Collaborative Motivation

Rewards for Collaboration

Human beings have the basic tendency to be of help and
support to the people around them. This common human
urge forms the basis for collaborative motivation.
Individuals in a team or in society, help others whenever
required. This tendency is also known as “extension
motivation,” and forms the basis for collaboration among
individuals and teams. However, if collaboration

Attractive rewards and high pay-offs encourage
collaboration within the team and between different teams
in an organization. Rewards for active participation in a
team have the power to motivate and stimulate effective
collaborative efforts. Rewards may range from simple
gestures of appreciation to promotions. Other rewards
could be monetary benefits, more challenging and

Bases of Collaboration
Collaboration not only leads to mutual trust, concern and
respect, but also enhances self-worth amongst the
individuals of the organization as well.

258

satisfying work, or better opportunities for growth and
development. The importance of rewards in creating and
sustaining a collaborative environment cannot be ignored.
Imposition of Superordinate Goals
Goals that are perceived as achievable only through the
collective participation of two or more parties are called
superordinate goals. These goals cannot be achieved by a
single individual or a single team. These goals should be
attractive and appealing to all the members of the team. The
development of superordinate goals reinforces collaborative
efforts.
Perception of Power
Perception of the power held by organizational members
also plays an important role in creating a collaborative
environment. The power of each member of a team should
be clear and explicit to all group members. Such mutual
awareness of individual power domains will allow even
highly competitive and non-cooperative individuals to work
together.
Mutual Trust
Since groups and individuals differ from one another,
effective collaboration can be sustained only if they trust
each other. They must also believe that the group or team
members will not use their powers against each other. In
addition, they must also believe that the final goal or reward
can be shared by all the collaborators.

Effective Communication
With open channels of communication between individuals
or groups, chances of collaborative efforts increase. This is
because free communication among the members builds
trust and allows them to share opinions and ideas.
Communication is therefore an important prerequisite for
successful collaboration.
Fait Accompli
This term refers to the process by which individuals or
groups working together develop a better understanding and
appreciation of each other’s strengths. This leads to further
evolution of desirable group norms and better working
relationships between members.
Risk-Taking
Individuals working a group are often forced to forgo one or
more of their personal values or beliefs, in order to conform
to the group norms and beliefs. When an individual
collaborates with others, he risks losing his power. Such
risk-taking requires mutual trust among the members and an
understanding of mutual powers. By exhibiting such risktaking behavior, the individual helps initiate a process of
change within the organization towards collaboration. Such
initiatives towards increasing the flexibility of the
organization form a basis for effective collaboration.

259

Interventions for Collaboration
An understanding of the bases for collaboration gives an
insight into the various interventions that can promote
collaboration in organizations. Such interventions would
aim at improving and enhancing the effectiveness of
collaborative efforts in organizations.
Interventions or approaches to promote collaboration can
be broadly classified into two categories – process
interventions and structural interventions. While process
interventions demonstrate the effect of collaboration
through experiments or demonstrations in simulated work
environments, structural interventions actually reinforce
and sustain collaborative efforts in the workplace.

Interactive 11.6.1:
Crossword - 2


The basic purpose of process interventions is to make
people appreciate the effect of collaboration in real work
situations by experimenting with collaboration in simulated
conditions. Once they are able to understand the benefits
of cooperative work, it is believed that they would be
motivated to implement them in real work environments. In
other words, the employees are educated about the
advantages of collective team work in comparison to
individual effort. On the other hand, structural interventions
bring about a positive change in the behavior of an
individual by reinforcing his collaborative efforts in the
actual workplace.

260

Review 11.1
Question 1 of 15
Which of the following factors can lead to conflicts?
(i). Organizational changes (ii). Personality
clashes (iii). Threat to status (iv). Perceptual differences

A. Only i, ii, and iv
B. Only i, iii, and iv
C. Only ii, iii, and iv
D. i, ii, iii, and iv

Check Answer

261

Section 7

Case Study: Philips India – Labor Problems at Salt Lake
This case was written by G. Triparna, under the direction
of A. Mukund, IBS Center for Management Research. It
was compiled from published sources, and is intended to
be used as a basis for class discussion rather than to


262

“They (unions) should realize that they are just one of the
stakeholders in the company and have to accept the tyranny
of the market place.”

Philips sources on the other hand refused to accept defeat.
The company immediately revealed its plans to take further
legal action and complete the sale at any cost.

– Manohar David, Director, PIL in 1996.

SOURING TIES

SELLING BLUES

PIL‟s operations dates back to 1930, when Philips
Electricals Co. (India) Ltd., a subsidiary of Holland based
Philips NV was established. The company‟s name was
changed to Philips India Pvt. Ltd. in September 1956 and it
was converted into a public limited company in October
1957. After being initially involved only in trading, PIL set up
manufacturing facilities in several product lines. PIL
commenced lamp manufacturing in 1938 in Kolkata and
followed it up by establishing a radio manufacturing factory
in 1948. An electronics components unit was set up in Loni,
near Pune, in 1959. In 1963, the Kalwa factory in
Maharashtra began to produce electronics measuring
equipment. The company subsequently started
manufacturing telecommunication equipment in Kolkata.

Video - Philips History
The 16th day of March 1999
brought with it a shock for the
management of Philips India
Limited (PIL). A judgement of
the Kolkata 1 High Court
restrained the company from
giving effect to the resolution
i t h a d p a s s e d i n t h e Source:www.youtube.com/watc
extraordinary general meeting h?v=R3Z2aR_BZew
(EGM) held in December
1998. The resolution was to seek the shareholders‟
permission to sell the color television (CTV) factory to
Kitchen Appliances Limited, a subsidiary of Videocon.
The judgement came after a long drawn, bitter battle
between the company and its two unions Philips Employees
Union (PEU) and the Pieco Workers‟ Union (PWU) over the
factory‟s sale. PEU president Kiron Mehta said, “The
company‟s top management should now see reason. Ours is
a good factory and the sale price agreed upon should be
reasonable. Further how come some other company is
willing to take over and hopes to run the company profitably
when our own management has thrown its hands up after
investing Rs 700 million on the plant.”

In the wake of the booming consumer goods market in 1992,
PIL decided to modernize its Salt Lake factory located in
Kolkata. Following this, the plant‟s output was to increase
from a mere 40000 to 0.278 million CTVs in three years. The
company even expected to win the Philips Worldwide Award
for quality and become the source of Philips Exports in Asia.
PIL wanted to concentrate its audio and video manufacturing
bases of products to different geographic regions. In line with
this decision, the company relocated its audio product line to
Pune. In spite of the move that resulted in the displacement
263

of 600 workers, there were no signs of discord largely due to
the unions‟ involvement in the overall process.
By 1996, PIL‟s capacity expansion plans had fallen way
behind the targeted level. The unions realized that the
management might not be able to complete the task and that
their jobs might be in danger. PIL on the other hand claimed
that it had been forced to go slow because of the slowdown in
the CTV market. However, the unconvinced workers raised
voices against the management and asked for a hike in wage
as well. PIL claimed that the workers were already overpaid
and under productive. The employees retaliated by saying that
said that they continued to work in spite of the irregular hike in
wages. These differences resulted in a 20-month long battle
over the wage hike issue; the go-slow tactics of the workers
and the declining production resulted in huge losses for the
company.
In May 1998, PIL announced its decision to stop operations at
Salt Lake and production was halted in June 1998. At that
point, PWU members agreed to the Rs 1178 wage hike offered
by the management. This was a climbdown from its earlier
stance when the union, along with the PEU demanded a hike
of Rs 2000 per worker and other fringe benefits. PEU,
however, refused to budge from its position and rejected the
offer. After a series of negotiations, the unions and the
management came to a reasonable agreement on the issue of
the wage structure.
SELLING TROUBLES
In the mid-1990s, Philips decided to follow Philips NV‟s
worldwide strategy of having a common manufacturing and

integrated technology to reduce costs. The company planned
to set up an integrated consumer electronics facility having
common manufacturing technology as well as suppliers base.
Director Ramachandran stated that the company had plans to
depend on outsourcing rather than having its own
manufacturing base in the future. The company selected Pune
as its manufacturing base and decided to get the Salt Lake
factory off its hands.
In tune with this decision, the employees were appraised and
severance packages were declared. Out of 750 workers in the
Salt Lake division, 391 workers opted for VRS. PIL then
appointed Hong Kong and Shanghai Banking Corporation
(HSBC) to scout for buyers for the factory. Videocon was one
of the companies approached. Though initially Videocon
seemed to be interested, it expressed reservations about
buying an over staffed and under utilized plant. To make it an
attractive buy, PIL reduced the workforce and modernised the
unit, spending Rs 71 million in the process. In September
1998, Videocon agreed to buy the factory through its nominee,
Kitchen Appliances India Ltd. The total value of the plant was
ascertained to be Rs 280 million and Videocon agreed to pay
Rs 90 million in addition to taking up the liability of Rs 210
million. Videocon agreed to take over the plant along with the
employees as a going concern along with the liabilities of VRS,
provident fund etc. The factory was to continue as a
manufacturing center securing a fair value to its shareholders
and employees.
In December 1998, a resolution was passed at PIL‟s annual
general meeting (AGM) with a 51% vote in favor of the sale.
Most of the favorable votes came from Philips NV who held a
264

major stake in the company. The group of FI shareholders
comprising LIC, GIC and UTI initially opposed the offer of
sale stating that the terms of the deal were not clearly stated
to them. They asked for certain amendments to the
resolutions, which were rejected by PIL. Commenting on the
FIs opposing the resolution, company sources said, “it is
only that the institutions did not have enough time on their
hands to study our proposal in detail, and hence they have
not been able to make an informed decision.” Defending the
company‟s decision not to carry out the amendments as
demanded by the financial institutions, Ramachandran said
that this was not logical as the meeting was convened to
take the approval of the shareholders, and the financial
institutions were among the shareholders of the company.
Following this, the FIs demanded a vote on the sale
resolution at an EGM. After negotiations and clarifications,
they eventually voted in favor of the resolution.
The workers were surprised and angry at the decision. Kiron
Mehta said, “The management‟s decision to sell the factory
is a major volte face considering its efforts at promoting it
and then adding capacity every year.” S.N.Roychoudhary of
the Independent Employees Federation in Calcutta said,
“The sale will not profit the company in any way. As a
manufacturing unit, the CTV factory is absolutely state-ofthe-art with enough capacity. It is close to Kolkata port,
making shipping of components from Far Eastern countries
easier. It consistently gets ISO 9000 certification and has
skilled labor. Also, PIL‟s major market is in the eastern
region.”
The unions challenged PIL‟s plan of selling the CTV unit at
“such a low price of Rs 90 million‟ as against a valuation of

Rs 300 million made by Dalal Consultants independent
valuers. PIL officials said that the sale price was arrived at
after considering the liabilities that Videocon would have
along with the 360 workers of the plant. This included the
gratuity and leave encashment liabilities of workers who
would be absorbed under the same service agreements.
The management contended that a VRS offer at the CTV
unit would have cost the company Rs 210 million. Refuting
this, senior members of the union said, “There is no way that
a VRS at the CTV unit can set Philips by more than Rs 92
million.” They explained that PIL officials, by their own
admission, have said that around 200 of the 360 workers at
the CTV unit are less than 40 years of age and a similar
number have less than 10 years work experience. The
unions also claimed that they wrote to the FIs' about their
objection.
The workers then approached the Dhoots of Videocon
requesting them to withdraw from the deal as they were
unwilling to have Videocon as their employer. Videocon
refused to change its decision. The workers then filed a
petition in the Kolkata High Court challenging PIL‟s decision
to sell the factory to Videocon. The unions approached the
company with an offer of Rs 100 million in an attempt to
outbid Videocon.
They claimed that they could pay the amount from their
provident funds, cooperative savings and personal savings.
But PIL rejected this offer claiming that it was legally bound
to sell to Videocon and if the offer fell through, then the
union‟s offer would be considered along with other
interested parties. PIL said that it would not let the workers
use the Philips brand and that the workers could not sell the
265

CTVs without it. Moreover the workers were taking a great risk
by using their savings to buy out the plant. Countering this, the
workers said that they did not trust Videocon to be a good
employer and that it might not be able to pay their wages.
They followed it up with proofs of Videocon's failure to make
payments in time during the course of its transactions with
Philips.
In view of the rejection of its offer by the management, the
union stated in its letter that one of its objection to the sale
was that the objects clause in the memorandum of association
of Kitchen Appliances did not contain any reference to
production of CTVs. This makes it incompetent to enter into
the deal. The union also pointed out that the deal which was
signed by Ramachandran should have been signed by at least
two responsible officials of the company. As regards their
financial capability to buy out the firm, the union firmly
maintained that it had contacts with reputed and capable
businessmen who were willing to help them. In the last week
of December 1998, employees of PIL spoke to several
domestic and multinational CTV makers for a joint venture to
run the Salt Lake unit. Kiron Mehta said, “We can always enter
into an agreement with a third party. It can be a partnership
firm or a joint venture. All options are open. We have already
started dialogues with a number of domestic and multinational
TV producers.” It was added that the union had also talked to
several former PIL directors and employees who they felt
could run the plant and were willing to lend a helping hand.
Clarifying the point that the employees did not intend to
takeover the plant, Mehta said, “If Philips India wants to run

the unit again, then we will certainly withdraw the proposal. Do
not think that we are intending to take over the plant.”
In March 1999, the Kolkata High Court passed an order
restraining any further deals on the sale of the factory. Justice
S.K.Sinha held that the transfer price was too low and PIL had
to view it from a more practical perspective. The unrelenting
PIL filed a petition in the Division bench challenging the trial
court‟s decision. The company further said that the matter was
beyond the trial court‟s jurisdiction and its interference was
unwarranted, as the price had been a negotiated one. The
Division bench however did not pass any interim order and PIL
moved to the Supreme Court. PIL and Videocon decided to
extend their agreement by six months to accommodate the
court orders and the worker‟s agitation.
JUDGEMENT DAY
In December 2000, the Supreme Court finally passed
judgement on the controversial Philips case. It was in favour of
the PIL. The judgement dismissed the review petition filed by
the workers as a last ditch effort. The judge said that though
the workers can demand for their rights, they had no say in
any of the policy decisions of the company, if their interests
were not adversely affected. Following the transfer of
ownership, the employment of all workmen of the factory was
taken over by Kitchen Appliances with immediate effect.
Accordingly, the services of the workmen were to be treated
as continuous and not interrupted by the transfer of ownership.
The terms and conditions of employment too were not
changed.
266

Kitchen Appliances started functioning from March 2001.
This factory had been designated by Videocon as a major
centre to meet the requirements of the eastern region
market and export to East Asia countries.

ADDITIONAL READINGS & REFERENCES:
1.

Dutta Sudipt, The other face of market economies as
the management threatens to close down plant,
Business Line, December 2, 1996.

2.

Salt Lake unit no longer priority, Business Line,
January 11, 1998.

3.

Philips Salt Lake CTV unit on block, Business Line,
May14, 1998.

4.

Roy Sudipto and Das Sarma Suman, Philips plan to
sell off units hits HC block, Business Standard,
December 1, 1998.


5.

1. Changes taking place in PIL made workers feel insecure
about their jobs.‟ Do you agree with this statement?
Give reasons to support your answer.

Roy Sudipto, Philips (I) sell-offs may see stronger
workers union, Business Standard, December 5,
1998.

6.

Mandal Kohinoor, EGM poll clears sale of Philips
Salt Lake unit, Financial Express, December 6,
1998.

7.

Das Sarma Suman, Philips plan to sell units hits FI
block, Business Standard, December 3, 1998.

3. Comment on the reasons behind the Salt Lake workers
resisting the factory‟s sale. Could the company have
avoided this?

8.

De Arijit and Das Abhinaba, Philips unions to urge
Dhoots to forsake Salt Lake unit bid, Financial
express, December 12, 1998.

Footnotes

9.

Surendar.T, A double whammy, Business World,
December 22, 1998.

The Supreme Court decision seemed to be a typical case of
„all‟s well that ends well.‟ Ashok Nambissan, General
Counsel, PIL, said, “The decision taken by the Supreme
Court reiterates the position which Philips has maintained
all along that the transaction will be to the benefit of Philips‟
shareholders.”
How far the Salt Lake workers agreed with this would
perhaps remain unanswered.

2. Highlight the reasons behind PIL‟s decision to sell the
Salt Lake factory. Critically comment on PIL‟s
arguments regarding not accepting the union‟s offer to
buy the factory.

1. Kolkata is the name of erstwhile Calcutta.

267

10.

Philips staff in talks with firms to run Salt Lake unit,
Financial Express, December 23, 1998.

11.

Bose Madhumita, Pause or stop? Business India,
December 28, 1998.

12.

Calcutta court strikes down Philips deal with Videocon,
Financial Express, March 17, 1999.

13.

Roy Ambar Singh, A shot in the arm for Philips union,
Business line, March 17, 1999.

14.

Philips, Videocon concur on agreement extension,
Business Standard, March 17, 1999.

15.

Srinivasan Raghuvir, Philips Salt Lake stalemate – lose
lose situation, Business line, March 21, 1999.

16.

HC no to interim order in Philips case, Business line,
March 27, 1999.

17.

Majumdar Saurav, Videocon to extend Philips deal by six
months, April 4, 1999.

18.

Mandal Kohinoor, Philips spends Rs 71 million to recast
salt Lake television factory,Financial Express, May 11,
1999.

19.

Philips India AGM passes all resolutions with majority,
Economic Times, May 29, 1999.

20.

Philips‟ Salt Lake facility in Videocon‟s fold, Business
line, December 24, 1999.

268

C HAPTER 12

Organizational Structure
An organization is defined as a group of people
working together to achieve common goals.
Organizational structure specifies the jobs to be
done within an organization and how those jobs
relate to one another.
In every organization, the top management
establishes organization’s goals which are
redefined to obtain measurable performance
targets. Such measurable parameters help the
management monitor employees and ensure that
they are aligned with organizational goals. The
management also develops strategies that will
enable the organization meet its goals. The
implementation of these strategies requires a formal
structure of authority and responsibilities.
In this chapter, the elements that form the basis of
organizational structure, widely used organizational
structures and the impact of organizational structure
on employee behavior are explained.

understand:
Definition of organizational structure
Key elements in designing organizational
structure
A simple and matrix organizational structure
Characteristics of a bureaucratic organizational
structure
Implications of different organizational designs
on the employee behavior

Section 1

Understanding Organizational Structure
Organizational structure may be defined as the
framework of tasks, reporting and authority
relationships within which an organization functions.
According to Stephen P Robbins, “An organizational

of individuals in an organization. He argues that
organization structure represents the holistic
framework for Organizational Behavior.
The building blocks for designing an organization’s
structure consist of six elements. They are discussed
in the following keynote 12.1.1.
Keynote 12.1.1: Building Blocks for
Designing an Organizational
Structure

Source:www.edrawsoft.com

structure defines how job tasks are formally divided,
grouped and coordinated.” Fred Luthans, however,
defines organization structure in terms of the behavior

270

Section 2

Types of Organizational Designs
The three most commonly used organizational designs are
simple structure, bureaucratic structure and matrix
structure.

In a firm with a simple organization structure, the decisionmaking power for the entire organization is vested in one
person.

Simple Structure

This structure is generally used in small organizations like
retail stores and small consultancies. In this form of
organization structure, employees have clear reporting
relationships, decision-making is fast, maintenance costs
are low and rules are flexible. But this type of structure is
not suitable for large organizations. In small organizations,
it is possible for a single individual to run the business,
oversee all the functions and take all the decisions
pertaining to the business. But in large organizations,
where a lot of information has to be processed and many
functions require to be managed, a single individual cannot
handle all the work and take all the decisions. A single
individual, handling so much work, will take a long time to
arrive at a decision. This delay in decision-making will
affect the organization’s ability to compete in the market.

A firm with a simple organization structure has a wide span
of control, few departments, centralized authority and a low
degree of formalization. Simple structure (refer to refers to
a “flat”organization with two or three levels of hierarchy).
Refer to figure 12.2.1 for an example of simple structure.
Figure 12.2.1: Simple Structure

Source:www.businessmate.org

271

Moreover, as the entire power and authority is concentrated
in a single person at the top, death or disability of the person
is likely to have a negative impact on the business.
The Bureaucracy
Max Weber, one of the pioneers of modern sociology,
formulated the bureaucratic model of organizations in the
early 1900s. Weber held the model to be rational and
regarded it as consistent with the values of Western culture
which emphasized rationality. He believed bureaucracy as an
ideal structure for organizations.
Many organizations across the world, including leading
global companies like IBM had adopted the bureaucratic
model. Unfortunately, when organizations attempt to
restructure, bureaucracy becomes a major barrier to change.
The characteristics of the bureaucratic organization structure
suggested by Weber are discussed in the following keynote
12.1.2.
Keynote 12.1.2: The Characteristics
of the Bureaucratic
Organization Structure

Source: Internal

The Matrix Organization
Matrix structure is another modern organizational design. It is
a structure which combines the features of a project design
with those of a functional one. It is popularly used in sectors
characterized by a high degree of specialization along with
emphasis on projects and other specific goals such as R&D
organizations, consultancies, advertising agencies, hospitals,
universities, etc. Functional departmentalization helps the
organization gather specialized resources from each function
(finance, production, marketing, etc) and makes them
available for all the projects. Project design, on the other
hand, facilitates coordination among various specialists by
identifying employees with the requisite skills and bring them
to work together to achieve on-time completion of tasks. The
matrix structure combines the strengths of the two designs
while eliminating their weaknesses. Refer to the figure 12.1.1
for the matrix structure.
Figure 12.1.1: Matrix Structure

272

The main advantage of the matrix structure is that it facilitates
coordination between the various complex functions of the
organization. It also enables the organization to allocate
functional specialists among different departments in an
effective manner.
However, the matrix structure is not devoid of weaknesses.
The structure violates the principle of unity of command, due to
which the employees report to two (or more) bosses. This
could give rise to conflicts between the
managers. For
example, product managers have to fight to get the best
specialists allotted to their products. This may eventually end
up in a power struggle between two or more product
managers. Sometimes such struggles may also develop
between the functional and product managers. The conflicts, if
allowed to continue without resolution, can demotivate
employees, reduce their loyalty and preclude them from
identifying themselves with the organization. Matrix design is
also criticized for the confusion it creates and the amount of
stress it places on individuals. Reporting to more than one
superior leads to role conflict and ambiguity among employees,
which can increase their work-stress. As the superior changes
from one project to another, superior-subordinate relationships
also gets weakened. As the matrix structure embodies two
structures, it often leads to duplication of activities resulting in
increase in costs.

knowledge is available to employees in all the departments
and projects, facilitate quick response to changes in customer
demands and project requirements, and help organizations
reduce costs and improve performance. The success of the
structure depends on how effectively managers overcome its
deficiencies and leverage its positive aspects.

Despite its drawbacks, many large organizations which use
complex technology are increasingly adopting matrix structure.
It could be mainly because of the multiple benefits offered by
matrix structures. Matrix structures enable organizations to
make optimum utilization of employee skills, ensure that
273

Section 3

Organizational Designs and Employee Behavior
It is difficult to generalize the type of organizational
structure that would lead to better employee performance
and increased job satisfaction. Job satisfaction varies from
individual to individual, depending on his/her personal
preferences. Some individuals prefer to be guided in their
work by standard rules and procedures. They are
comfortable with tasks that require a low level of skills and
can be performed mechanically. Such employees are most
productive in mechanistic structures where there is a high
degree of work specialization. But now-a-days, a significant
portion of the workforce is educated and desires jobs that
facilitate personal growth and provide individuals an
opportunity to utilize their skills.
A relationship between employee performance and
elements like span of control and degree of centralization
has not yet been established. Some employees are able to
work to their full potential only when they are under
minimum supervision. They are most productive in
organization structures where there is a wide span of
control (supervisors who have several subordinates under
them, who are not able to closely supervise each

subordinate’s work). Low level of supervision in these
structures gives these employees the freedom to plan their
work. This freedom motivates them and results in job
satisfaction. But some employees like to be guided
constantly in their work by their superior. Such employees
are more productive in structures where there is a narrow
span of control.
Though it is generally agreed that decentralization
positively influences employee performance and job
satisfaction, there is no evidence to prove that it always
improves employee performance. It has been observed
that some employees who have low self esteem are not
capable of taking independent decisions and prefer
participative decision-making because in such form of
decision-making they are not held responsible for any
wrong decision. But employees who have high self-esteem
and confidence in their decision-making abilities prefer to
take their own decisions.

274

Review 12.1

Question 1 of 11
Building blocks for designing an organizational structure
consist of six elements. Which of the following alternatives is not one of these elements?

A. Departmentalization
B. Formalization
C. Span of control
D. Bureaucracy

Check Answer

275

Section 4

Case Study: Cisco’s Organizational Structure and its Collaborative Approach
to Decision Making
This case was written by Debapratim Purkayastha, IBS
Center for Management Research. It was prepared from
primary sources, and is intended to be used as a basis for
class discussion rather than to illustrate either effective or
ineffective handling of a management situation.

To order copies, call +91-08417-236667/68 or write to IBS Center for Management Research (ICMR), IFHE Campus,
Donthanapally, Sankarapally Road, Hyderabad 501 504, Andhra Pradesh, India or email: info@icmrindia.org
www.icmrindia.org

276

“This is business as usual at Cisco, given our collaborative
structure of councils, boards and working groups to be able
to effectively execute on multiple fronts. Time will tell if we
are right but the tangible results indicate that the business
models based on collaboration may be the most effective
way to drive a successful global business today.”1
John T. Chambers, Chairman and CEO, Cisco Systems
Inc., on the company’s business performance, in
November 2009.
“It [2009] was a pretty enlightening year… When you do four
acquisitions in a quarter -- two of them multibillion dollar -you really do have to have your teams moving in a couple of
directions. And you have to coordinate them. That’s a perfect
example of how they’ve been utilizing cross-functional
teams.”2
Catharine Trebnick, Avian Securities, LLC3, on Cisco’s
performance and organizational structure, in December
2009.

COMPLEX ORGANIZATIONAL WEB FOR EFFECTIVE
DECISION MAKING?
As a leader in switches, routers and other Internet
technology, the US-based Cisco System, Inc. (Cisco) likened
its business to that of a plumber, i.e., a plumber of the
Internet. However, in the first decade of the new millennium,
the industry Cisco operated in had changed drastically with
the fast pace of technological change and consolidation in
the industry. The challenge before Cisco was how to change
its business processes so as to cater to the changing market.
According to John T. Chambers (Chambers), the Chairman
and CEO of Cisco, “The future’s about, how do you add
intelligence to that plumbing? And how do you do it
architecturally from a technology point of view, going from
any device to any content over any combination of networks
Cisco Product Range.

“What happens when decisions get made by committees?
They don’t get made […] There are probably government
agencies that have more streamlined bureaucracies.”4
Henry Blodget, CEO & Editor-in-Chief, The Business
Insider5, on Cisco’s organizational structure, in August
2009.

Cisco Routers
Source:www.graffletopia.com

277

and data, voice, video? Sounds simple; really complex with
security and predictability. But how do you change the business
process?”6
The company wanted to make Video - Cisco Company
Profile
the transition from being just a
seller of routers, switches, and
other technology to being a
company that was the most
trusted business and technology
adviser to its clients. For this, the
company realized it would have
to make a radical change in its Source:www.youtube.com/wat
ch?v=cApvTG5M8j0
organizational structure such
that the company would be wellpositioned to anticipate and capture market transitions. The
company reorganized its organizational structure in 2001,
forming cross-functional teams to break free of the “silo culture”
earlier prevalent in the company. Subsequently, it refined the
model and came up with an organizational structure comprising
of councils, boards and working groups. These committees
(around 60 as of 2009) working at different levels were crossfunctional in nature, and according to the company, lent Cisco
the speed, scale, flexibility, and rapid replication that was
required for a large company to remain innovative in a rapidly
changing industry.
Cisco believed the traditional command-and-control model was
losing its relevance, and the future lay in adopting a more
collaborating model of decision making. The aim was to involve
as many people in decision making as possible.7 The company
had entered around 30 new market adjacencies between 2008

and the end of 2009, as part of its Video - Cisco Internet usage in Day to Day Life
new growth strategy. For this, it
had to move very fast and also
acquire a number of companies.
Chambers credited the successful
implementation of its strategy to
its innovative organizational
structure that enabled effective Source:www.youtube.com/w
and speedy decision making. He atch?v=8_gLbzPuuqU
also claimed that this
organizational structure played a key part in managing the
company through the economic downturn8.9
The management experiment at Cisco initiated a huge debate
on the topic. While some industry observers felt that such a
model would be effective, other felt that rather than promoting
innovation, the structure would impede it. They wondered how
a complex multilayered organizational model based on
committees could speed up decision making.10 While some
analysts felt that it was too early to judge Cisco’s organizational
model, others felt that this model could well become a gamechanging management innovation provided Cisco was able to
identify and address some of the critical dimensions associated
with the model.
BACKGROUND NOTE
Timeline of Cisco
Cisco was founded by a group of computer scientists, who had
together designed a software system named IOS (Internet
Operating System), which could send streams of data from one
278

computer to another. This software was loaded into a box
containing microprocessors specially designed for routing, and
sold as a package to businesses. The company was
incorporated on December 10, 1984 and headquartered at
San Jose, California, US. Cisco was a pioneer in developing
innovative forms of customer support using new technology. In
1985, the company started a customer support site from
where customers could download software over FTP11 and
also upgrade the downloaded software. On its site, Cisco also
provided a database that contained information about potential
software problems to help customers and developers. By
1991, Cisco’s support centre was receiving around 3,000 calls
a month, which increased to 12,000 by 1992. To deal with the
large volume of transactions, it built an online customer
support system on its site.
In 1993, Cisco installed an Internet-based system for large
multinational corporate customers. The system allowed
customers to post queries related to their problems. Cisco also
installed a trigger function called the ‘Bug Alert’ on its website.
The ‘Bug Alert’ sent e-mails on software problems within 24
hours of their discovery. Encouraged by the success of its
customer support site, in 1994, Cisco launched Cisco
Information Online, a public website that offered not only
company and product information but also technical and
customer support to customers. In 1995, it introduced
applications for selling products or services on its website.
This was done mainly to transfer paper, fax, and e-mails to the
web to save time for employees, customers, and trading
partners, besides broadening Cisco’s market reach. In 1996,
the company introduced a new Internet initiative, ‘Networked

Strategy’ to leverage on its enterprise network to foster
interactive relationships with prospective customers, partners,
suppliers, and employees. In all these initiatives, Cisco
pioneered platforms that later became commonplace in all
companies.
In the 1990s, Cisco was known as one of the “4 Horsemen of
IT”.12 In 1997, Cisco was organized around three specific lines
of business to address two major new market opportunities:
the service provider migration to Internet Protocol (IP) services
and the adoption of IP products by small and medium-sized
businesses through channel distribution. These three specific
lines of business were enterprise, service provider and
commercial. However, in August 2001, the Cisco restructured
the company to one core business with centralized
engineering and marketing organizations in response to some
major changes in the networking industry.13 The new
engineering organization focused on 11 new technology
groups, while marketing focus on communicating Cisco’s
technology differentiation (Refer to Exhibit I for Cisco’s 11
technology groups). “At the heart of this change are our
customer requirements and our clear market transition
opportunity. Our line of business structure has served us very
well in the past, when customer segments and product
requirements were very distinct. Today, the differences have
blurred between these customer segments and Cisco is in a
unique position to provide the industry’s broadest family of
products united under a consistent architecture designed to
help our customers improve productivity and profitability,”14
said Chambers, who had taken over as CEO in January 1995.

279

With the Internet becoming the driver of all information
globally in the 1990s and the first decade of 2000s, trends
evolved around it in the form of cloud computing,
mobilization, social networking, virtualization, etc. Cisco
was the leading company that offered networking gear that
ran the Internet. It was the market leader in ethernet
switches and overall router markets with market shares of
nearly 70 percent and 50 percent respectively.15 It was the
market share leader in all the segments in which it
operated (Refer to Exhibit II for Cisco’s market share in
different segments). Cisco’s market capitalization of US
$109 billion in July 2009 was, in multiples of the combined
market capitalization of its top 11 competitors (US$19
billion).16 Cisco grew at a rapid pace in terms of both sales
and profits, which the company attributed to its ability to
capture market transitions (Refer to Exhibit III for net sales
and net income of Cisco from 2000 to 2009, and Exhibit IV
for Cisco’s market transition). However, some analysts felt
that to sustain its growth, the company would have to enter
new markets that were outside of its core business.

Figure I
Networked Virtual Organization: Cisco’s Circular Model

Source: Andrew Bossone, “Eye of Tiger,” www.ict-business.com, February 6,
2008.

280

In addition to its business performance, Cisco had also made
a name for itself for its HR practices, flat organizational
structure and customer-focused culture. In 2009, it was
ranked 6th on Fortune magazine’s list of ‘100 Best
Companies to Work For’ (Refer to Exhibit V for the top 10
companies in 2009 Fortune 100 Best Companies to Work).
According to Brian Schipper (Schipper), senior vice
president, HR at Cisco since October 2006, the company’s
organizational culture had a direct relationship to Cisco’s
long-term success. Its flat and virtual organization helped
Cisco expand into new market adjacencies both in terms of
commercial and geographic markets.17
CISCO’S ORGANIZATIONAL STRUCTURE
Right from its initial years, Cisco had a flat organizational
structure. Over the years, the company had brought about
certain changes in its organizational structure focusing on
cross functional teams. Internally the company called it a
Networked Virtual Organization. Unlike a traditional
hierarchical structure which looked like a tree, the
organizational structure at Cisco could be best described as
a circle (Refer to Figure I for Networked Virtual Organization:
Cisco’s Circular Model).

random, self-generating group of cells that come together
and dismantle after they need to. It’s not a hierarchy straight
down; it’s a circle. It’s a sphere, where all components of this
sphere are constantly communicating and collaborating,”18
explained Mohsen Moazami, vice president of Internet
Business Solutions Group, Cisco.
As of 2009, Cisco made its key decisions through a number
of committees (Refer to Figure II for the organizational
structure of Cisco). Cisco used committees in place of the
standard top-down structure. The employees at Cisco were
grouped into small temporary groups (two to ten) that worked
on individual projects. These working groups looked for
opportunities in their respective areas and brought these to
the boards.

In Cisco, when a project was initiated, the company defined
its short-term goals, formed a cross-functional team, and this
team worked together until the task was complete. In this
way, the company was not directed by the commands of the
top management flowing down the hierarchy, but by the goals
of the organization that centered around and were driven by
the customer. “[The structure is like] the internet… It’s a
281

Figure II Structure at Cisco

*As of August 2009.

Source: Cisco Systems

282

Each board had around 14 people on average and included a
senior vice president or a vice president. While 43 boards
reported to the councils, four boards reported to the operating
committee. Each council comprising of around 14 people on
average, two of which were senior vice presidents or vice
presidents, reported to the operating committee. The operating
committee comprised of 15 top executives of the company
including Chambers.
The various initiatives of the company were managed by a
number of committees that were cross-functional,
interdepartmental, or even international teams of executive.
These executive “volunteers” worked on boards and councils
organizing themselves around major initiatives or specific
product lines.19 Commenting on how this new approach
worked, Chambers said, “Cross-functional leadership is about
doing a replicable process with a business model that can be
enabled by technology, and each of the functional groups
being able to implement that. So whoever serves on each of
these councils and boards and working groups, from each
functional group, has to be able to speak for the whole group.
Not go back and ask permission, but has to be able to speak
for the group. Secondly, they’ve got to understand the
implications of their decisions across all the functions… And
third, you select who goes on these councils and boards by the
leaders of the group, which originally were my executive VPs
and senior VPs.”20 Each of the top executives of Cisco,
including Chambers, was involved in multiple councils and
boards.

RATIONALE OF THE REORGANIZATION
Speaking about the organizations structure, Chambers, said,
“Our organization structure leverages the power of
communities of interest which we call councils which we
believe are $10 billion opportunities, boards that we see as $1
billion opportunities and working groups. These organization
structures allow us to more effectively prioritize resource
across over two dozen cross functional opportunities as well as
within each of our corporate functions.”21 According to
Chambers, such structures were required for a large company
to continue innovating and delivering growth. According to
Cisco’s vice president Ron Ricci (Ricci), who worked with
Chambers to put into practice this new approach, he and
Chambers were inspired in part by Gary Hamel’s22 ideas about
the need to democratize strategy and distribute leadership in
order to stimulate innovation. “One of the traditional ways you
define power in a big corporation is by the resources you
control… It’s one of the evil characteristics of corporations. If
you control resources for your unilateral use, you can move
away from the greater whole, even if you make good
decisions. Now we believe it’s about learning to bring
resources together to the table with groups,”23 he explained.
Chambers contended that in these tougher times marked by
economic downturn, an organization such as this could be very
effective as this was ‘a distributed idea engine where
leadership emerges organically, unfettered by a central
command’.24 Faced with an economic downturn, Cisco had
prioritized its top five opportunities and, according to
Chambers, the new organizational structure ensured that these
were properly resourced (Refer to Exhibit VI for Cisco’s top five
283

opportunities). The company had drawn up an aggressive
strategy of entering many new market adjacencies, and had
entered 30 new businesses by the end of 2009. The company
persisted with the strategy despite posting a 46 percent drop in
quarterly profit for the quarter ending July 25, 2009. Chambers
wanted to expand Cisco’s new businesses to 50 in the near
term.25 “We believe this is a time to differentiate ourselves from
our peers and be aggressive in ways that will position Cisco for
the future profitable growth and stronger market share
leadership. This is the area that I believe we can uniquely
position Cisco with our process driven vision, differentiated
strategy and execution combined with our organizational
structure around councils and boards that will allow us to move
with speed, skill, flexibility and with a replicable process as this
upturn inevitably occurs,26 said Chambers.

teams. By placing executives in fields as disparate as
engineering and marketing, he tried to break down traditional
“silos” and promote speed in making decisions.

According to analysts, the justification given by Cisco for this
unique organization structure primarily revolved round
decentralizing decision making and making the company more
agile, especially related to the need to spur growth through
acquisitions.27

Unlike its early days, executives at Cisco began to be
compensated on the basis of collective businesses
performance, not on the individual performance of their units.
How well they worked in teams also became an integral part of
their performance reviews. Many of the executives were upset
with the new compensation structure that was linked to
teamwork. According to Chambers, around 20 percent of Cisco
executives left their jobs. He said that it was very difficult to
explain to the employees why Cisco needed to change its
approach, and the executives that left probably needed a
“command-and-control environment.”29 “[I]t’s often the best
leaders that are most resistant to change. And about 20
percent of my leaders didn’t make the transition. They were
command-and-control, wonderful leaders but wanted to stay
command and control and couldn’t transition over,”30 said
Chambers. He likened these executives to basketball player
who could score 30 points a game but were not ready to adapt

HOW IT STARTED
The idea for the new structure
occurred during the economic
down turn in 2001, when Cisco
wrote off US$2.2 billion in
losses.28 Realizing the Cisco’s
hierarchical structure was
preventing it from moving fast,
Chambers started grouping
executives into cross-functional

Video - Team Collaboration @ Cisco

h?v=9WX7BNnYTf8

Chambers contended that before 2001, Cisco had a “cowboy
culture,” where strong personalities were rewarded for
competing with each other to get the CEO’s approval. The
decision to move to the new structure was not well-received by
all the executives and the company had to encounter
resistance. Chambers confessed that his move of reorganizing
into boards and councils had at times made everyone including
himself uncomfortable. This was because Cisco used to
develop its people in silos and the new approach required each
member of a committee to understand the implications of their
decisions across all the functions.

284

themselves to suit a team strategy. In such a scenario,
Chambers felt that it was better that this player was traded to
a different team.
The new management approach adopted by Cisco was
modified and refined in subsequent years. The company
brought in more discipline to the process in 2003. “It took
seven years, and the first three years were bumpy,”31 said
Manny Rivelo, a senior vice president at Cisco. The emphasis
on decision making through councils and boards got a greater
emphasis in 2007. While participating in a group exercise at
the 2007 World Economic Forum,32 Chambers was very
impressed with the quality of the answers the group came out
with for their presentation on a vision for life in 2015. This
result led him to conclude that the future of organizational
structure was around councils and boards. In April 2007, he
repeated the exercise with Cisco’s operating committee at a
meeting and found that three different groups of employees
came up with the same answer to a question about the
company’s mobile strategy. According to Chambers, this
showed that “you can take your top 40 or 50 [people] and
then your top 300 and then your top 3,000” and still arrive at
the same decisions.33
Chambers contended that the top-down approach to decision
making probably suited the company until 2001 as during that
period, Cisco had one or two primary products; but in the new
scenario, a network of councils and boards were needed who
were empowered to launch new businesses. These
executives spent around 30 percent of their time on various
meetings – physically as well as virtually. Executives had
access to an evolving set of Web 2.0 gadgets so that they

could participate in a number of board and council meetings.34
Chambers himself communicated with employees through
blogs and encouraged employees to blog. According to
Chambers, Cisco’s utilization of discussion forums was 16
times higher in 2009 compared to 2008. With executives tied
up in a number of boards and councils, they also realized that
they were unable to keep up and had to rely on their teams.
“So they had to delegate, they had to empower, they had to
train. And it took us a while to change compensation, reward
systems, but now it’s a machine,”35 said Chambers.
By the end of 2008, the company was taking 70 percent of its
decisions collaboratively, compared to just 10 percent in 2007.
With the onset of the economic downturn, the company
decided to enter aggressively into new market adjacencies,
and according to the company, the new organizational
structure and management approach supported the strategy.
“[H]aving learned from 2001, we go into this one [economic
downturn] with $34 billion in cash. We go into this structure
with an innovative management structure that is more around
empowering groups — with a very disciplined process behind
it — and empowering groups in a way that allows them to
move across into market adjacencies with a speed and
efficiency and, hopefully, a much higher hit rate than we’ve
ever been able to do,”36 explained Chambers.
According to Chambers, growth at large companies tended to
slow down as these companies did not move out of their
primary markets fast enough. Therefore, he focused on
increasing the number of markets Cisco operated in. From
just two in 2007, the number of new markets the company
operated in increased to 26 by August 2009. It further
285

increased to 30 by the end of 2009, and Cisco made thousands
of products, including high-end teleconferencing systems and
cable boxes. Eventually, Cisco expected each new business to
reach US$1 billion and contribute to a significant part of Cisco’s
revenue.
RESULTS

replication. The executives who earlier jostled for resources and
power were now working together with shared responsibility.
They were now more focused on how to move more products
into the market at a faster pace. “The boards and councils have
been able to innovate with tremendous speed. Fifteen minutes
and one week to get a [business] plan that used to take six
months!”38 said Chambers.

In late 2008, while Cisco’s stock was witnessing a decline,
analysts said that the company was still in a strong financial
position with US$26 billion in cash. “Not only do we have the
$26 billion, we now have 26 new market adjacencies that are
not relevant to our revenue today, but they will be three to four
years from now,”37 said Chambers. Ricci claimed that in the
fiscal year 2008, there was “a tenfold increase in new projects”
and the company was also able to reduce operating expenses
from about 38 percent at the height of the tech boom to
between 35-36 percent. According to Chambers, this vindicated
his decision to opt for the new organizational structure. While
many companies were trying to survive the economic downturn,
Cisco was preparing to grow aggressively and gain market
share.

In January 2009, Chambers said that the company’s
reorganization into councils and boards had helped Cisco
realign over US$500 million of resources to new business
opportunities and the company was readying to realign another
US$500 million by October 2009. Cisco’s unique approach had
helped it identify opportunities, the resources required and the
timeline. The company expected these new opportunities to
position it for long term growth.39 Between February 2009 and
May 2009, three more market adjacencies were added to bring
up the number to 29. “Of perhaps equal importance, our largest
customers understand how this highly innovative management
structure and these business models we have been talking
about can launch these many major products into market
adjacencies with quality,”40 said Chambers.

Chambers said that, contrary to popular perception, Cisco had
made a number of mistakes over the years and was at times
unable to move fast enough to take advantage of opportunities.
He cited the instances of Cisco having to acquire other
companies in order to keep up as it was too slow to respond to
the opportunities on its own. However, he also cautioned that
moving fast in itself was not enough – the company should have
a process behind it that could scale. The organizational
structure at Cisco allowed speed, scale, flexibility, and rapid

By the end of July 2009, the company had increased the
number of market adjacencies to 30, and according to
Chambers, these new market opportunities were also driving
innovation in its core products. The companies also claimed that
Cisco’s organization structure played a key part in managing
through the economic downturn to help it effectively tap the
market transitions. “We see all of these market transitions going
on at the same time; so, instead of doing 1 or 2 a year, like we
did during each of the economic slowdowns—the four that we’d
286

seen before—we’re going to do 30. And it sounds impossible.
But without the structure that we started on in 2001, and
without the discipline we added to that structure in 2003, it
would be impossible,”41 said Chambers. He said although the
company’s vision in differentiated strategy for each of these
market adjacencies had been formulated in mid 2008, the
company was able to implement the strategy successfully due
to its new and unique organizational structure. He attributed
this success to the collaborative processes embedded in
Cisco’s councils, boards, and working groups enabled by Web
2.0. technologies.42 (Refer to Exhibit VII for some instances of
what the organizational structure helped enable Cisco to do).
To give an instance of how the company organizational
structure led to speedy decision making, Chambers said, “Just
to give you an idea of how our organizational structure
translates into speed, scale, flexibility and replication, let me
use the last month as an example. We announced intentions to
acquire four companies, two of which were $3 billion
transactions. A strategic partnership to drive the market
transition around virtualization, launched a new product, the
IGISRG2 that provides five times more performance, video
ready capability, and the richest set of virtual services with the
lowest cost of ownership in the industry, all while executing on
a strong quarter.”43 He claimed that during this time the
executive leadership team and Chambers himself performed all
their regular duties. For instance, he claimed that in the month
of September 2009, he personally met with over 100
customers.
Other executives at Cisco too said that while working in this
new environment was challenging, it was also very

effective."Keith Goodwin (Goodwin), a senior vice president at
Cisco said, “Without sharing my age, I can say that I am
definitely from the command-and-control school of
management. That’s what I learned in Business School and
that’s how I’ve operated throughout most of my career, but I
can still wholeheartedly say that Cisco’s collaborative
leadership model is working, and working successfully.”44 While
the success of the new approach as difficult to quantify, the
company gave numerous examples of how this had led to
effective and speedy decision making. For instance, it said that
the decision to acquire Web-conferencing company, WebEx
Communications, Inc., in 2007 was made in just eight days.
Cisco entered into a partnership with another company in a
single council meeting. According to Cisco’s new chief
technology officer Padmasree Warrior, this could have taken
many meetings at other companies, but it “took the four of us
on a phone call.”45
According to another senior vice president Tony Bates, the new
approach taken by the company helped make effective
decisions regarding the various acquisitions Cisco made and
later effectively integrate these businesses (Refer to Exhibit VIII
for Cisco’s Acquisitions: 2007-2009). According to him, without
the reorganization “we’d still be thinking in a straight line, pure
cowboy. It was an important shock to the system.”46 Executives
also said that the company’s new approach helped them cut
down on travel and cut costs in the process. For instance, in
August 2009, Goodwin said that since taking over as co-leader
in one of the councils in August 2008, his time spent on travel
was cut by 50 percent.47 This was done not at the expense of
partner engagement, rather he spent more time with the
partners through various Web 2.0 tools. (Refer to Exhibit IX for
287

some specific instances where Cisco’s organizational
structure enabled effective and speedy decision making)
Chambers, who was slated to retire in 2011 or 2013, was able
to reduce his own personal impact on the business and that of
any successor as CEO, analysts said. They felt that Cisco’s
unique organizational structure could limit speculation over
who would be the next CEO and any fallout such as that
associated with the retirement of legendary leader of General
Electric Company48 (GE), Jack Welch49.50 According to
Chambers, “We now have a whole pool of talent who can lead
these working groups, like mini CEOs and COOs. We’re
growing ideas, but we’re growing people as well… where I
might have had two potential successors, I now have 500.”51
The company claimed that its innovative model had also
attracted the attention of its partners, peers and rivals. Cisco’s
HR chief Schipper, who was credited with having played a key
role in the company’s transformation, said, “I’m finding that
colleagues in chief HR officer roles in other companies are
intrigued by how deeply Cisco has embedded our
collaborative leadership model into our formal promotion and
hiring assessments.”52
ACCOLADES
Some industry observers and analysts felt that Cisco’s
organizational structure and its collaborative approach to
decision making was an effective one – potentially the
organization of the future. “Now instead of a small group of
executives telling everybody else what to do, people have
authority to figure out for themselves what to do… People are

motivated to coordinate and cooperate with each other by a
financial incentive system that rewards them for their common
successes instead of rewarding each manager for their
individual successes,”53 noted Michael Hugos, CIO Magazine.
54 Industry observers felt that such an organizational structure
made sense for a company of Cisco’s size. With around
67,000 employees, decentralizing authority and improving
communication had become a necessity as it was practically
impossible for the CEO to oversee every decision of the
company. Having a structure such as this helped Cisco to be
flexible and put the best employee available on a given
project. Since the teams were cross-functional in nature, these
employees collaborated without being bound to their
department. Some felt that this could also strengthen
employee engagement as the employees were constantly
challenged by their work.55
According to Jay R. Galbraith, Galbraith Management
Consultants,56 organization structures such as these worked
in companies such as Cisco as collaborators were rewarded
and the traditional command-and-controllers tended to leave.
“These departures were positive changes, representing a
victory of collaborators over the command and controllers.
Management defines roles and responsibilities and holds
people accountable. Managers rotate between units and
prevent silos. Most important, the successful companies have
strong leadership teams that resolve disputes and create a
one-company culture,”57 he said.
According to Scott Anthony (Anthony), Managing Director of
Innosight Ventures58, the new organizational structure would
288

help foster innovation as Cisco as it would also be capable of
nurturing ideas that broke from the norm or required
coordination across disparate parts of an organization.
“Traditional organizational forms are good at creating
businesses that adhere to the rules and norms of the core
business. But creating new growth often requires breaking
those rules and norms in smart ways,”59 he said.
Some analysts noted that apart from its strong cash position,
Cisco’s organizational structure had also helped Cisco
execute some key acquisitions during the economic
slowdown.60 They marveled at how Cisco was able to enter
so many new market adjacencies by coming out with new
products and also through strategic acquisitions. Some
analysts were particularly impressed with its agility as
demonstrated by its acquisition of four companies in one
quarter (between October 2009 and end of November 2009).
They saw this as proof that Cisco’s committees were working.
61

Some observers said that Cisco’s approach would also work
in other companies. They argued that the days of
micromanagement were over as a global marketplace and the
rapid proliferation of Web 2.0 tools required a workforce
empowered to generate ideas, solve problems, and contribute
to business performance. However, they also felt that, though
it was a great way to run the company, it would require top
management commitment for successful implementation.62

CRITICISM
However, some analysts and ex-employees of Cisco were not
happy with the new organizational structure at Cisco. The
structure led to chaos and slowed down decision making at
times, they said. “Right now it’s chaos because there’s so
much on everybody’s plate,”63 said Geoffrey Moore, a
management consultant who has worked with Cisco. Some
sources close to the company also claimed that Cisco’s new
management structure had at times slowed its response to
competitors’ moves. They pointed out that, in late 2007, Cisco
was slow to react to Hewlett-Packard Company’s64 (HP) move
of starting a warranty for its switches that provided free
upgrades and support. Critics argued that since Cisco’s
response was delayed because decision making was slowed
down as it worked through multiple committees. By the time
Cisco finally matched HP’s promotion in April 2008, the
company’s market share had fallen. Some organizational
experts also felt that the departure of 20 percent of Cisco’s
executives who could not reconcile themselves with the new
organizational model was abnormally high.
The main criticism of Cisco’s organizational structure was the
number of committees. Some critics argued that committees
were not ideal for decision making. Commenting on some
downsides of Cisco’s organizational structure, Anthony said,
“One concern about Cisco’s approach is the plethora of
committees could decelerate decision making as it isn’t clear
who really has the “final call.” … The larger the organization,
the more managers spend time “working the hierarchy”
instead of interacting with customers, suppliers, and key
partners. This can cause companies to invest in the wrong
289

ideas. When one of Cisco’s executives describes how internal
management challenges have led him to cut travel in half and
replace customer meetings with phone calls, it will be a big
warning sign.”65
Critics felt that the new structure added layers of bureaucracy
and stripped away accountability. Experts felt that this was an
easy way of slowing down an organization. They argued that for
leadership to be effective there needed to be clarity – in terms
of short decision paths, a smaller number of committees, and
clearly laid down responsibilities.66 They felt that Cisco’s
approach was exactly the opposite of this. The Business
Insider’s Henry Blodget was scathing in his criticism of Cisco’s
organizational structure. He contended that conventional logic
said that with committees, decision making takes a backseat.
He criticized Chambers for creating a bureaucracy, making its
senior executives waste around 30 percent of their time on
committees. According to him, it was difficult for a company of
Cisco’s size to grow in double digits, and the company could
explore some other alternative to grow the business. “Instead of
moving Cisco into crazy new consumer business lines and
forcing all of its senior managers to waste a third of their time
sitting on committees, just break the company up,”67 he said.
Some analysts were also not prepared to accept that Cisco’s
organizational structure was a success unless the company
came out with a productivity metric. “Nothing will show success
more than proof,”68 said Yankee Group analyst Zeus Kerravala.
Some analysts believe that Chambers was vying for a place in
the history books by promoting this management approach and

his ego also played a role in the company’s strategy. Some
people also saw an ulterior motive in Chamber’s push for this
kind of organizational structure. Two former executives of the
company claimed that this committee-based approach was wellsuited for Chambers to further consolidate power and delaying
the emergence of a successor. Some of them pointed out that
executives considered as Chamber’s successor seldom lasted
for long in the company. BusinessWeek70 quoted a former midlevel executive saying, “Being No. 2 at Cisco has not been a
long-term assignment.” 71
CISCO’S RESPONSE
Chambers acknowledged that his critics could be right in their
criticism of Cisco’s organizational structure69 and its approach to
decision making. However, he said that the company had
arrived at its organizational structure after giving a lot of thought
to it, continuously refining it since it was introduced in 2001. For
instance, in May 2009, he told executives that he did not want
them to work on more than four or five committees after some
executive complained that they were being overstretched.72
Chambers said that the new organization had served the
company well and Cisco was in a position where it was able to
make decisions with speed and efficiency. Moreover, Cisco had
reached a position where instead of being led by 10 people
heavily leaning on the CEO, it was being run by the top 500
people in the company.73
However, Cisco rebuffed the critics charge that slow decision
making by its committees had cost it market share. Reacting to
criticism of its losing market share to HP, a spokesman of the
290

company explained that changing the warranty was a
complicated issue and that the new management structure
allowed the company to get support from all parts of the
company.74 Rebuffing criticism that Cisco’s management
through a number of committees would lead to slower decision
making, Goodwin said, “[T]he near-term decision-making
benefits of the new structure are clear too. In my most recent
Council meeting, we formulated our country strategy for the
new year. The cross-functional nature of the Council enabled
us to immediately determine the impact of engaging more
deeply in certain countries on functions such as sales,
marketing and manufacturing, and we walked away from the
table with a decision and a global strategy within a couple of
hours. That doesn’t sound like slower decision making to me.”75
Reacting to criticism of its executives spending around 30
percent of their time in meeting, Chambers said that the
definition of meetings today had changed with the advent of
Web 2.0 technologies.76 According to Chambers, Cisco’s
management approach was the only way in which a company
of its size could move fast. He also said that this structure
based on boards and councils helped identify talent from
across the company. A Cisco spokesperson also rubbished the
suggestion that ego played a role in Cisco’s strategy.77
LOOKING AHEAD
In November 2009, speaking about Cisco’s future strategy,
Chambers said, “The improving economic outlook combined
with what appears to be a very solid execution on our growth
strategy due to our organization structure and innovative
business model enabled Cisco to move into 30 plus market

adjacencies while reducing non-GAAP operating expenses by
10% year over year and also reducing headcount.”78 He said
that Cisco would continue its strategy of entering new market
adjacencies to spur growth. He said that the company was
planning to increase its number of new businesses to 50. He
was also planning to increase the number of people
participating in the companies various committees from 750 (in
August 2009) to around 3000.79 Chambers said, “I realize that
many of you think we’ve stretched too far, and you may very
well be right… In many people’s opinion, [30 markets] is too
many. In my opinion, it’s probably too few.”80
Analysts viewed Chamber’s growth strategy of entering around
30 different new businesses as very ambitious. Some analysts
noted that Cisco would not probably be successful in all these
businesses but the process it had adopted increased the
likelihood of success.81 They pointed out that while none of
Cisco’s new markets had reached US$1 billion in revenue (till
mid-2009), some of them were growing fast.82 However, they
also noted that the strategy was risky as Cisco was making
powerful enemies. While earlier its competitors used to be
companies such as Juniper Networks, Inc.83 and AlcatelLucent,84 now it had to contend with competitors as diverse as
3Com85, Microsoft Corporation86, HP, Dell, Inc.87, and IBM88
had become its competitors now89.90
Coming back to its organizational structure and collaboration
model, Chambers said that the ratio of distributed innovation to
traditional decision making at Cisco was 70:30.91 However, the
company cautioned that this was not a fixed ratio as the
management valued flexibility. Having implemented this model
at the company, Cisco looked forward to helping other
291

companies adopt such a model. Chambers felt that this
collaborative model was more replicable than the traditional
command-and-control, top-down model and would be ideal for
large organizations operating in a continuously evolving industry.
He said, “This is an organization structure that I think is built for
the future and is much more built upon, “How do you gain the
power of the human network to really move on decisions and
directions?” Sounds like nice marketing, but most of our nice
marketing usually has happened even though we might have
been a little bit early or a little bit late. So I think, when we talk
five years from now, this will be the future of business models.”92

people and profits to the company – he would probably be
considered as one of the most prominent management thinkers
of the modern era.97 However, for that to happen, the company
had to address some lacunae associated with its model.
According to Anthony, “If the company learns how its approach
is wrong and adjusts accordingly, it could turn the committee
approach into a game-changing management innovation. If
Cisco doesn’t learn and adjust, history will judge Blodget’s
ridicule as prescient.”98

However, analysts were still divided on the effectiveness of
Cisco’s organizational structure and its approach to decision
making. Analysts noted that Cisco’s approach was very different
from the approach usually adopted by companies of its size.
These companies usually tried to rationalize operations and
focus more narrowly on priorities. “Cisco is trying to rewrite the
management books. We don’t know yet whether it will be
successful or not,”93 said Tal Liani of Merrill Lynch94. Rosabeth
Kanter, a Harvard Business School professor, added, “Cisco is
in the middle of something that isn’t yet completed. Everything
can look like a failure in the middle.”95
Some analysts pointed out that the Cisco’s stock prices were
showing an upward trend in 2009 and if this continued, many
more companies might try to imitate its model.96 (Refer to
Exhibit X for Cisco’s three-year stock chart) Overall, analysts felt
that if Chambers was able to prove the effectiveness of its new
organization structure – both in terms of empowerment to the
292

Exhibit I
Cisco’s 11 Technology Groups
Access
Aggregation
Cisco IOS. Technologies Division (ITD)
Internet Switching and Services
Ethernet Access
Network Management Services
Core Routing
Optical
Storage
Voice
Wireless
Source: Cisco Systems Announces New Organizational

Exhibit II
Cisco’s Market Share in Different Segments
Segments

Market share (%)

Storage: Area Networks

20

Web Conferencing

45

Routing: Edge/Core/Access

57

Digital Video: IPTV

65

Wireless: LAN

60

Networked Home

44

Switching: Modular/Fixed

73

Security

38

Voice

28

*As of 2009.
Source: www.cisco.com

Structure,” www.cisco.com, August 23, 2001.

293

Exhibit III
Net Sales and Net Income of Cisco: 2000-2009
In US$
Million

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

Net Sales

36,117

39,540

34,922

28,484

24,801

22,045

18,878

18,915

22,293

18,928

Net
Income
(Loss)

6,134

8,052

7,333

5,580

5,741

4,401

3,578

1,893

-1,014

2,668

*Cisco’s financial ends on July.

Exhibit IV
Cisco’s Market Transition
1997

All in One: Data/Voice/Video

2000

Network of Networks

2006

Network as Platform

2008

Collaboration/ Web 2.0


294

Exhibit V
Top 10 in 2009: Fortune 100 Best Companies to Work
Rank

Company

Job Growth

US
Employees

Exhibit VI
Cisco’s Top Five Opportunities
Cisco 3.0: Next generation company and
next generation customer relationships

1

NetApp

12%

5,014

Collaboration/Web 2.0

2

Edward Jones

9%

34,496

Video and visual networking

3

Boston Consulting
Group

10%

1,680

4

Google

40%

12,580

5

Wegmans Food
Markets

6%

37,195

6

Cisco Systems

7%

37,123

7

Genentech

5%

10,969

8

Methodist Hospital
System

1%

10,535

9

Goldman Sachs

2%

14,088

10

Nugget Market

22%

1,536

Data center and virtualization
Globalization
Adapted from “Cisco Systems, Inc. F2Q09 (Qtr End
01/24/09) Earnings Call Transcript,” http://
seekingalpha.com, February 4, 2009.

Adapted from http://money.cnn.com

295

Exhibit VII
Some Instances of What the Organizational Structure Helped Enable Cisco To Do
27Virtualization: According to Chambers, virtualization – first in the data center and then going all the way to our homes – has
become a reality. Cisco saw a significant market transition in the data center as networking, computing, storage and software
technologies began to converge and then compete with each other in new ways. This had led to emergence of new business
models enabled by technology architectures, such as cloud computing, and the opportunity to finally address customers’ greatest
needs in terms of reducing costs and complexity, while increasing their business agility. According to Cisco, many of its customers
felt a future data center would best be enabled by networking, placing Cisco in an ideal position to lead through this next market
transition.
Second phase of the Internet revolution: Chambers believed that the second phase of the Internet revolution was becoming viral.
After moving fast to tap the opportunities presented by the first phase (e.g. orders being entered on-line, customer support
provided over the Internet, etc.), Cisco was gearing up to tap the opportunities presented by the second phase of the Internet
revolution.
New Business models for travel. Chambers said that Cisco employees and its partner’s travel costs could be drastically reduced
through the use of new technology. Citing himself as an example, he said that in the first 90 days of 2009, he made 262 customer
visits. Of these, 200 were virtual using TelePresence, and he had to physically travel around the world only twice. He also said that
many of these meetings were first time meetings, and some of them also involved entire senior management team of a leading
company or heads of state. As of May 2006, Cisco averaged 4,700 TelePresence sessions per week and had permanently cut its
travel budget from US$750 million run rate per year to US$350 million run rate per year. According to Chambers, during the
economic downturn TelePresence helped Cisco reduce its travel budget to US$240 million, with average expenditure per
employee around 65 percent lower than what it was at the start of the economic downturn.
Video Architecture: Chambers said over the years, Cisco expanded first in the networked home with Linksys. Then it moved into
home video entertainment with Scientific Atlanta, and followed this up with its announcement in 2009 of moving into areas such as
Media hub systems (for unifying music from any device to any device). Cisco was aggressively expanding its networked video
strategy to the consumer throughout the home with its acquisition of Pure Digital (maker of the Flip handheld video recorder). The
company aimed to have an end-to-end architecture in the home for video just like it was developing an end-to-end video
architecture for enterprise business.
(Continued........)

296

Exhibit VII
Some Instances of What the Organizational Structure Helped Enable Cisco To Do (Continued...)
Smart Grid: Cisco also saw a huge future business potential in Smart Grid and the entire green initiative. In less than six
months, the company had brought important solutions to marketing in terms of category and architectural thought
leadership in the world. This was highlighted by GE, Florida Power Light and Cisco’s ‘Energy Smart Miami’ announcement
in April 2009.
Smart, connected communities. Through a combination of public/private partnerships on a global basis, Cisco had
developed solutions that cities of the future would use – networked architectures for enabling everything from smart grids,
green initiatives, safety and security, transportation, intelligent buildings, e-government, healthcare and education. To give
one example, Chambers highlighted the company’s April 2009 announcement of a connected architecture with top leaders
in South Korea including Mayor Ahn in Incheon, and Gale International, the key developer of the new Incheon economic
city outside of Seoul.
Sports and Entertainment. The company also viewed sports and entertainment as a long term opportunity in terms of
video entertainment for the home and Cisco’s service provider strategy, with its focus on changing the fan experience.
Cisco intended to enter sports stadiums first and then gradually enter the home. Chambers said that in one of Cisco’s
meetings in 2009, there were 42 professional sports teams with key representatives, many at the commissioner level from
major league baseball, basketball, football and hockey.
Adapted from “Chairman and CEO John Chambers and CFO Frank Calderoni Discuss Cisco Q3 Fiscal Year 2009 Performance,” http://
newsroom.cisco.com, May 6, 2009.

297

Exhibit VIII
Cisco’s Acquisitions: 2007-2009
Month/Year
November 2009
October 2009

Company

Market
Opportunity

Set-Top Box Business of
Cable
DVN (Holdings) Ltd.
ScanSafe, Inc.

Security

Starent Networks, Corp. Mobility
Tandberg

Month/Year

Company

Market
Opportunity

November
2007

Securent, Inc.

Voice, Security, Web
Services, Software

October 23,
2007

Navini Networks, Inc.

Broadband Access
& Apps

September
2007

Latigent, LLC.

Voice

Cognio, Inc.

Wireless

May 2007

BroadWare
Technologies, Inc.

Physical Security

March 2007

SpansLogic, Inc.

Silicon

WebEx
Communications, Inc.

Unified
Communications

NeoPath Networks

Storage

Collaboration

April 2009

Tidal Software, Inc.

Data Center

March 2009

Pure Digital
Technologies Inc.

Consumer

January 2009

Richards-Zeta Building
Intelligence, Inc.

Physical Security

September 2008

Jabber, Inc.

Web Services

August 2008

PostPath, Inc.

Web Services

July 2008

Pure Networks, Inc.

Software

June 2008

DiviTech A/S

Cable

January 2007

April 2008

Nuova Systems, Inc.

Data Center


February 2007 Reactivity, Inc.

Application
Networking Services

Five Across, Inc.

Consumer

IronPort Systems, Inc.

Security

298

Exhibit IX
Some Specific Instances Where Cisco’s Organizational Structure Enabled Effective and Speedy Decision Making
In 2008, Ricci, convened a board of self-identified sports enthusiasts to brainstorm how Cisco might tap into the sports business.
This was done without even asking for Chamber’s permission. He brought in 15 people from different departments. The team
came up with a product called StadiumVision, which allowed venue owners to push video and digital content, including targeted
advertising, to fans in the stadium. The board then collaborated with sales and marketing to win contracts with professional
American football teams such as Arizona Cardinals and the Dallas Cowboys, and the New York Yankees (a professional
baseball team). In less than 120 days, a multimillion-dollar business was created.
Goodwin claimed that Cisco recognized organizations with fewer than 100 employees as a US$10 billion opportunity in the
spring of 2008. Within six months, a council was formed with US$100 million budget, and around 500 engineering, marketing,
sales and service employees. In another six months Cisco’s small business networking portfolio was expanded to more than 100
products focusing on the new segment. This could not have been possible in Cisco’s earlier siloed culture, according to
Goodwin.
In 2008, Cisco introduced a network platform designed to carry secure, high-quality video and other rich media on TVs, PCs,
and mobile devices, in an analysts conference. This platform, named Medianet, was developed, in a very short time. Ninety days
after the council’s first meeting in December 2007, it had a strategy and US$25 million in initial investment. In another four
months, the company built the prototype and more money was allocated. Medianet finally hit the market in December 2008.
According to Ricci, decisions on projects such as this were being taken at the vice-president and director level.
Adapted from Ellen McGirt, “How Cisco’s CEO John Chambers is Turning the Tech Giant Socialist,” www.fastcompany.com, November 25, 2008; and,
Keith Goodwin, “Change is Challenging - A Perspective on Cisco’s New Management Structure,” http://blogs.cisco.com, August 14, 2009.

299

Exhibit X
Cisco’s Three year Stock Chart

300

Foot Notes
1. “Cisco Systems F1Q10 (Qtr End 10/24/09) Earnings Call
Transcript,” http://seekingalpha.com, November 5, 2009.
2. Jim Duffy, “Cisco Will be Hard Pressed to Match 2009,”
www.itworldcanada.com, December 17, 2009.
3. Avian Securities, LLC is a brokerage service and
information technology research firm with offices in
Boston and New York.
4. Henry Blodget, “Has Cisco’s John Chambers Lost His
Mind?” www.businessinsider.com, August 6, 2009.

result of the collapse of several US-based investment
companies, mortgage companies, and insurance
companies due to the sub-prime crisis in the country. The
sub-prime crisis resulted from mortgage delinquencies
and foreclosures, which had an impact on banks and
markets around the world.
12. “Cisco Systems, Inc. F2Q09 (Qtr End 01/24/09) Earnings
Call Transcript,” http://seekingalpha.com, February 4,
2009.

5. The Business Insider is a business news site owned by
Silicon Alley Insider, Inc.

13. Acronym for File Transfer Protocol. One of the oldest and
most popular methods of sending files across the
Internet.

6. “McKinsey Conversations With Global Leaders: John
Chambers of Cisco,” www.mckinseyquarterly.com,1 July
2009.

14. The other three were: Microsoft Corporation, Intel
Corporation, and Dell Computer.

7. Ellen McGirt, “How Cisco’s CEO John Chambers is
Turning the Tech Giant Socialist,”
8. www.fastcompany.com, November 25, 2008.
9. In an economic cycle, a downturn can be considered a
consequence of an expansion reaching an
10. unsustainable state, and is corrected by a brief decline. In
recent the economic downturn was triggered by the
global financial crisis – the credit, banking, trade, and
currency crisis that emerged in 2007-2008. This was the

15. C h r i s Ta l b o t , “ C i s c o R e j i g s i t s S t r u c t u r e , ”
www.itworldcanada.com, September 20, 2001.
16. “Cisco Systems Announces New Organizational
17. Jake Kimble, “Is Cisco Spreading Itself Too Thin?” http://
seekingalpha.com, June 29, 2009.
18. “Cisco Corporate Overview,” http://newsroom.cisco.com/
dlls/2009/ekits/
PublicCorporateOverview_BlackBackground_Eng_2009Q
4.pdf
301

19. “Cisco Corporate Overview,” http://newsroom.cisco.com/dlls/
2009/ekits/
PublicCorporateOverview_BlackBackground_Eng_2009Q4.p
df
20. Andrew Bossone, “Eye of Tiger,” www.ict-business.com,
February 6, 2008.
21. Ellen McGirt, “How Cisco’s CEO John Chambers is Turning
the Tech Giant Socialist,” www.fastcompany.com, November
25, 2008.
Chambers of Cisco,” www.mckinseyquarterly.com, July 2009.
Call Transcript,” http://seekingalpha.com, February 4, 2009.
24. Gary Hamel, the CEO of Strategos, was also the visiting
Professor of Strategic Management at London Business
School. He is the originator (with C. K. Prahalad) of the
concept of core competencies.
25, 2008.
25, 2008.
27. Ben Worthen, “Seeking Growth, Cisco Reroutes Decisions,”
http://online.wsj.com, August 6, 2009.

Call Transcript,” http://seekingalpha.com, February 4, 2009.
29. Kris Dunn, “Are Committees in Your Company Ever a Good
Idea?” www.hrcapitalist.com, December 9, 2009.
30. Mina Kimes, “Cisco Systems Layers it on: Can Adding More
Management Teams Actually Make the Tech Giant More
Efficient?” http://money.cnn.com, December 3, 2009.
25, 2008.
34. The World Economic Forum is a Geneva-based non-profit
foundation. Every year it conducts a meeting in Davos,
Switzerland which brings together top business leaders,
international political leaders, selected intellectuals and
journalists to discuss the most pressing issues facing the
world including health and the environment.
35. Ben Worthen, “Cisco CEO John Chambers’s Big
Management Experiment,” http://blogs.wsj.com, August 5,
2009.

302

36. Ellen McGirt, “How Cisco’s CEO John Chambers is Turning the
Tech Giant Socialist,” www.fastcompany.com, November 25,
2008.

46.

Keith Goodwin, “Change is Challenging - A Perspective on
Cisco’s New Management Structure,” http://
blogs.cisco.com, August 14, 2009.


47.


Mina Kimes, “Cisco Systems Layers it on: Can Adding More

48.

2008.

Ellen McGirt, “How Cisco’s CEO John Chambers is Turning
the Tech Giant Socialist,” www.fastcompany.com,
November 25, 2008.

49.

2008.

Keith Goodwin, “Change is Challenging - A Perspective on
blogs.cisco.com, August 14, 2009.

50.

General Electric Company, headquartered in New York,
USA, is a multinational technology and services
conglomerate.

41. “Cisco Systems, Inc. F2Q09 (Qtr End 01/24/09) Earnings Call
Transcript,” http://seekingalpha.com, February 4, 2009.
42. “Cisco Systems, Inc. F3Q09 (Qtr End 03/31/09) Earnings Call
Transcript,” http://seekingalpha.com, May 7, 2009.
44.

“Cisco Systems, Inc. F4Q09 (Qtr End 7/25/09) Earnings
Call Transcript,” http://seekingalpha.com, August 6, 2009.

45.

“Cisco Systems F1Q10 (Qtr End 10/24/09) Earnings Call

51. Jack Welch (Welch) is a management expert and author. He
was Chairman and CEO of GE between 1981 and 2001. He
was given credit for GE’s phenomenal success. Prior to his
retirement, there was a lengthy and well-publicized succession
planning saga between James McNerney (McNerney), Robert
Nardelli (Nardelli), and Jeffrey Immelt (Immelt). While Immelt
was eventually selected to succeed Welch as Chairman and
CEO, McNerney and Nardelli left GE to become CEOs of 3M
and Home Depot respectively.
52. McGirt, “How Cisco’s CEO John Chambers is Turning the Tech
Giant Socialist,” www.fastcompany.com, November 25, 2008.

303

53. McGirt, “How Cisco’s CEO John Chambers is Turning the
2008.


54. “Up Close with Brian Schipper: Cisco Connects Culture of
Innovation, Collaboration to Business
Results,”www.ilr.cornell.edu/cahrs/hrSpectrum/Up-CloseBrian-Schipper-of-Cisco.html


55. R y a n M a r t e n s , “ C I S C O G e t s B u s i n e s s A g i l i t y, ”
www.rallydev.com, January 16, 2009.
56. CIO Magazine is produced by CXO Media, an award-winning
business unit of International Data Group. It caters to chief
information officers and other IT leaders.
February 6, 2008.
58. Galbraith Management Consultants is a management
consultancy firm that is considered to be a leading expert on
global organization design.
59. “Matrix is the Ladder to Success,” www.businessweek.com,
August 2009.
60. Innosight Ventures is a venture capital firm.
61. Scott Anthony, “Are Cisco’s Committees a Better Way to
Innovate?” http://blogs.harvardbusiness.org, August 12,
2009.

25, 2008.
65. Ben Worthen, “Seeking Growth, Cisco Reroutes Decisions,”
http://online.wsj.com, August 6, 2009.
66. Hewlett-Packard Company, headquartered in Palo Alto,
California, USA, is one of the leading manufacturers of PCs,
printers, network management software, servers, etc. For the
year 2009, it had revenues of US$144.55 billion and net
income of US$10.14 billion.
Innovate?” http://blogs.harvardbusiness.org,
68. August 12, 2009.
69. “Matrix is the Ladder to Success,” www.businessweek.com,
August 2009.
70. Henry Blodget, “Has Cisco’s John Chambers Lost His Mind?”
www.businessinsider.com, August 6, 2009.
304

72. Kris Dunn, “Are Committees in Your Company Ever a
Good Idea?” www.hrcapitalist.com, December 9, 2009.

83.Ben Worthen, “Seeking Growth, Cisco Reroutes
Decisions,” http://online.wsj.com, August 6, 2009.

73. BusinessWeek is a leading business magazine published
by McGraw-Hill.

84.Peter Burrows, “Cisco’s Extreme Ambitions,”

74. P e t e r B u r r o w s , “ C i s c o ’ s E x t r e m e A m b i t i o n s , ”

85.“Chambers Defends Cisco’s Management Structure,
Strategy,” www.networkworld.com, August 7, 2009.

75. Ben Worthen, “Seeking Growth, Cisco Reroutes

86.Ben Worthen, “Seeking Growth, Cisco Reroutes

Chambers of Cisco,” www.mckinseyquarterly.com, July
2009.

87.Juniper Networks, Inc., headquartered in Sunnyvale,
California, USA, is an IT and computer networking
products company. Its revenue and net income for the
year 2008 were US$3.57 billion and US$650.8 million
respectively.

78. Keith Goodwin, “Change is Challenging - A Perspective on
79. blogs.cisco.com, August 14, 2009.
80.

“McKinsey Conversations With Global Leaders: John
2009.

81.

Peter Burrows, “Cisco’s Extreme Ambitions,”

82.

“Cisco Systems F1Q10 (Qtr End 10/24/09) Earnings
Call Transcript,” http://seekingalpha.com, November 5,
2009.

88.Alcatel-Lucent, headquartered in Paris, France, is a
global telecommunications corporation. Its revenue
and profit for the year 2008 were €16.98 billion and
€5.215 billion respectively.
89.3Com, headquartered in Marlborough, Massachusetts,
USA, is a manufacturer best known for its computer
network infrastructure products. Its revenue and net
income for the year 2008 were US$1.3 billion and US
$94.6 million respectively.
90.Microsoft Corporation, headquartered in Redmond,
Washington, USA, is a multinational computer technology
corporation that develops, manufactures, licenses, and
supports a wide range of software products for computing
305

devices. Its revenue and net income for the year 2009
were US$58.44 billion and US$14.57 billion respectively.

98. Merrill Lynch is a one of the world’s leading financial
management and advisory companies.

91. Dell Inc., headquartered in Round Rock, Texas, USA, is a
multinational IT corporation that develops, sells and
supports personal computers and other computer-related
products. Its revenue and net income for the year 2009
were US$61.1 billion and US$2.48 billion respectively.


92. International Business Machines (IBM), headquartered in
New York, USA,is a multinational computer, technology
and IT consulting corporation. Its revenue and net income
for the year 2009 were US$95.76 billion and US$13.43
billion respectively.
Turning the Tech Giant Socialist,” www.fastcompany.com,
November 25, 2008.
94. P e t e r B u r r o w s , “ C i s c o ’ s E x t r e m e A m b i t i o n s , ”
95.

Ellen McGirt, “How Cisco’s CEO John Chambers is
T u r n i n g t h e Te c h G i a n t S o c i a l i s t , ”
www.fastcompany.com, November 25, 2008.

96.

101.Ellen McGirt, “How Cisco’s CEO John Chambers is
102.Scott Anthony, “Are Cisco’s Committees a Better Way
to Innovate?” http://blogs.harvardbusiness.org,
August 12, 2009.
to Innovate?” http://blogs.harvardbusiness.org,
104.August 12, 2009.

“McKinsey Conversations With Global Leaders: John
Chambers of Cisco,” www.mckinseyquarterly.com,
July 2009.

97.

100.Mike Cook, ““Culture Eats Strategy for Breakfast”, is
Cisco Getting it Right?”
www.heartofengagement.com, January 12, 2010.

Peter Burrows, “Cisco’s Extreme Ambitions,”

to Innovate?” http://blogs.harvardbusiness.org, August
12, 2009.

306

References and Suggested Readings:
1. Mike Cook, ““Culture Eats Strategy for Breakfast”, is
Cisco Getting it Right?” www.heartofengagement.com,
January 12, 2010.
3. Kris Dunn, “Are Committees in Your Company Ever a
Good Idea?” www.hrcapitalist.com, December 9, 2009.
4. "mailto:mkimes@fortunemail.com;fortunemail_letters@for
tunemail.com"Mina Kimes, “Cisco Systems Layers it on:
Can Adding More Management Teams Actually Make the
Tech Giant More Efficient?” http://money.cnn.com,
December 3, 2009.
5. P e t e r B u r r o w s , “ C i s c o ’s E x t r e m e A m b i t i o n s , ”
7. HYPERLINK "http://blogs.cisco.com/authors/bio/
350"Keith Goodwin, “Change is Challenging - A
Perspective on Cisco’s New Management Structure,”
http://blogs.cisco.com, August 14, 2009.
8. Brad Reese, “Exactly How New is Cisco’s Organizational
Structure?” www.networkworld.com, August 12, 2009.

Innovate?” http://blogs.harvardbusiness.org, August 12,
2009.
10. Brad Reese, “Management Vision of Cisco CEO John
Chambers Under Fire,” www.networkworld.com, August
7, 2009.
11. “Chambers Defends Cisco’s Management Structure,
Strategy,” www.networkworld.com, August 7, 2009.
Call Transcript,” http://seekingalpha.com, August 6, 2009.
14. Henry Blodget, “Has Cisco’s John Chambers Lost His
Mind?” www.businessinsider.com, August 6, 2009.
15. Ben Worthen, “Cisco CEO John Chambers’s Big
Management Experiment,” http://blogs.wsj.com, August
5, 2009.
16. “ M a t r i x i s t h e L a d d e r t o S u c c e s s , ”
www.businessweek.com, August 2009.
2009.
18. Jake Kimble, “Is Cisco Spreading Itself Too Thin?” http://
seekingalpha.com, June 29, 2009.

307

Call Transcript,” http://seekingalpha.com, May 7, 2009.


20. “Chairman and CEO John Chambers and CFO Frank
Calderoni Discuss Cisco Q3 Fiscal Year 2009
Performance,” http://newsroom.cisco.com, May 6, 2009.

30. “Up Close with Brian Schipper: Cisco Connects Culture of
Innovation, Collaboration to Business Results,”
www.ilr.cornell.edu/cahrs/hrSpectrum/Up-Close-BrianSchipper-of-Cisco.html

Call Transcript,” http://seekingalpha.com, February 4,
2009.

31. www.cisco.com

22. Ryan Martens, “CISCO Gets Business Agility,”
www.rallydev.com, January 16, 2009.
23. Cisco Systems, Inc. 2009 Annual Report
February 6, 2008.
26. Jennifer Hagendorf Follett, “Cisco Reorgs Product
Development to Focus on Software, Virtualization,”
www.crn.com, December 6, 2007.
27. C h r i s Ta l b o t , “ C i s c o R e j i g s i t s S t r u c t u r e , ”
www.itworldcanada.com, September 20, 2001.
Structure; Eleven Technology Groups Formed to
Replace...,” www.allbusiness.com, August 23, 2001.

308

C HAPTER 13

Organizational Culture
Individuals belonging to one culture behave
differently from those belonging to another. These
differences arise from a variety of reasons, like the
values they uphold, the traditions they follow and the
rituals they observe. Similarly, each organization is
distinct and the organizational culture plays an
important role in predicting the behavior of
employees.

The factors that help in sustaining and
maintaining the dominant organizational culture
prevailing
The different ways in which the culture of an
organization is learnt
The difference of cultures across various
countries.

understand:
Definition of organizational culture
Characteristics of organizational culture
The functional and dysfunctional aspects of
organizational culture
The factors that determine the strength of the
organizational culture


Section 1

Introduction to Organizational Culture
Definition of Organizational Culture
Culture refers to a pattern of learned behaviors that is
shared and passed on among the members of an
organization. It comprises of the various assumptions,
values, beliefs, norms, rituals, language, etc., that people in
an organization share.

Organizational culture can therefore be thought of as an
evolutionary process that has been
established, accepted and internalized
Unover a period of time, by a majority of
derstanding
organizational
culture

Edgar Schein, in his in-depth
study of the concept, defines
organizational culture as “a
pattern of shared basic
assumptions that the group
learned as it solved its
problems of external
adaptation and internal
integration, that has worked
well enough to be considered
valid and, therefore, to be Source:www.1.bp.blogspot.com
taught to new members as
the correct way to perceive, think, and feel in relation to
those problems.”
Source:www.nhorizons.ca

310

members of the organization.

Sense of Identity

Characteristics of Organizational Culture

Organizational culture provides a sense of identity to the
members of the organization. This sense of identity
enhances employee commitment towards organizational
goals.

Organizational culture has a broad range of characteristics,
which are discussed in the following keynote (13.1.1).
Keynote 13.1.1: Characteristics of
Organizational Culture

Collective Commitment
Organizational culture represents the common values,
assumptions and ideologies upheld by the members of
the organization. These common beliefs of the members
generate a collective commitment towards the
organizational goals.
Stability of Social System

Source: www.finntrack.co.uk

The functions of organizational culture are as follows:
Boundary Defining Role
In any industry, it is the organization’s culture that
differentiates it from other organizations. The values,
traditions, rituals, etc., that members of a particular
organization uphold are different in different organizations;
this creates a distinct identity for each of them.

A strong organizational culture acts as a social bond
among the members of the organization. The values and
the accepted standards laid down by the organizational
culture help ensure uniformity in the behavior of
employees and minimize individual differences. This helps
the organization to maintain the stability of the social
system within it.
Culture as a liability - dysfunctional aspect
Though there are many advantages which culture brings into
the organization, it shouldn’t be forgotten that it does have
some dysfunctional aspects which may affect the
organization’s effectiveness. Culture becomes a liability when
there are:

311

Video 13.1.4: Walmart Culture, Employee Interviews

Barriers to Change – When the shared values are not in
agreement with the changing dynamic environment, it will
have an impact on the organizational effectiveness.
Diversity Barriers – People belonging to diverse
cultures, different backgrounds are hired for their diverse
strengths. Management expects all these employees to
accept the cultural values of the organization. Therefore,
an employee who fails to adapt himself well to the
organizational culture is considered unfit or unaccepted in
the organization.
Mergers & Acquisitions Barriers – Cultural compatibility
is of major concern during an M&A (merger & acquisition)
transaction.

h?v=5VsSqeLBNls

Video 13.1.3: Morning
Meeting Cheer at Work

Video 13.1.1: Southwest
Airlines Culture

?v=O24ZD9WluW8

Video 13.1.2: Walt Disney
World - Quick Service
Locations

h?v=X6nQ4-_rPj0&feature=rela
ted

Video 13.1.5: Service Culture - Doubletree Guest
Suites, in the WALT DISNEY WORLD Resort

h?v=ou3XZacOSe4&feature=rel
ated
Source:www.youtube.com/watch?v
=KHTEekE6Hik&feature=related

312

Section 2

Strong vs Weak Cultures
Organizational cultures may be termed as strong or
weak depending upon how widely and intensely the
core values of the organization are upheld and
accepted by its members. The strength of an
organizational culture may be determined by the degree
to which organizational members share the same core
values and the extent to which they are committed to
these core values. In other words, the strength of an
organization is dependent on two factors, namely
sharedness and intensity.
Sharedness
Sharedness refers to the degree to which the core
organizational values are accepted and shared by its
members. The greater the degree of sharedness of the
core values of the organization, the stronger will be the
organizational culture.
Intensity
Intensity describes the degree to which the members of
an organization are committed towards its core values.
When employees are committed to the core values and
the ideologies of the organization, they adhere to them
strictly. This intensity with which the employees uphold

the organizational values helps strengthen the
organizational culture.
Refer to the table 13.2.1 for strong vs weak cultures.
Table 13.2.1: Strong Culture -> Weak Culture
Stable networks

Breakdown of networks

Implicit norms

Formal rules

Stable structure

Liable structure

Lower turnover in personnel

High turnover in personnel

High commitment

Low commitment

Sense of “being special”

Sense of being ordinary

Pride in uniqueness

Shame due to past” sins”

Pride in rapid growth

Ceased growth

Heroism

No signs of new heroism

Sense of rebellion

Sense of conformity

Organized secrets

Few organizational secrets

High-quality products

No new products

Shared feeling of success

Shared feeling of loss

Source:www.emeraldinsight.com

313

Section 3

Creating and Sustaining Culture in an Organization
The culture of an organization is greatly influenced by its
founders. The values, assumptions and personal traits of
the founders influence the culture of the organization they
establish. It is their vision of the organization that gradually
develops its norms and culture. As the founders are
starting a new concern, they do not have to take account
of previous procedures or ideologies, and it is they who
are instrumental in laying the foundations of the culture of
their organization. Besides, since typically an organization
starts out quite small, the founders’ vision and values can
permeate throughout the organization.
Keynote 13.3.1: Creating and Sustaining Culture in an Organization

Once an organizational culture is established by the
founders and upheld by the organizational members, it is
relatively difficult to modify the trends and practices within
the organization. Various factors within the organization
help sustain and maintain the dominant culture prevailing.
In this section, we discuss these factors in detail. Refer to
the keynote 13.3.1 for the detailed discussion regarding
the factors that help to create and sustain culture in an
organization.
Socialization
The process of socialization is divided into 3 stages as
discussed in the following section.
Pre-Arrival Stage: In the pre-arrival stage in the
socialization process, each employee is treated as an
individual with a distinct set of values and principles. In
this stage, a gradual attempt is made to introduce the
values, norms and expectations of the organization to
the new employee. The success of this stage depends
on how accurately new employees are able to
anticipate the expectations of the organization.

Source: Internal

Encounter Stage: This is the most critical stage in the
process of socialization. In this stage, the employee
314

becomes aware of the reality of the workplace as
compared to his/her expectations of the job and the
organization. If the actual work environment deviates
from the individual’s expectations to a minimal extent,
the process of socialization is generally effective. If not,
the employee tends to be unhappy with the job and the
organization.
Metamorphosis Stage: This stage refers to the actual
process of change that new employees undergo when
they try to mold their behavior to conform to
organizational expectations. The metamorphosis stage
is said to be complete once the new member
Socialization

Source:www.netdna.webdesignerdepot.com

internalizes the values and practices of the organization
and accepts the organizational norms.

315

Section 4

Employee Acculturation Process
Culture in an organization is learnt in several ways, such as
through stories, rituals, rites, material symbols and
language.
Stories
Stories and narratives describe events that have occurred
in the past in an organization. For instance, they tell how
the founders developed the organization, how the
organization evolved to its present stage, the organization’s
successes, etc. Stories serve as powerful guidelines to
social behavior and determine the way things should be
done in the organization. They not only substantiate
existing practices and trends by providing explanations for
past behavior, but also reinforce favored behavior in
employees.
Rituals and Ceremonies
Rituals are activities that are repeated on particular
occasions to help reinforce the core values and key
objectives of the organization. Rituals of a company help to
communicate the culture of the organization to its members
by indicating clearly the most important goals for the
company, the most important people in the company, etc. A

ceremony may take the form of a social gathering of all the
members of the organization in which exceptional
performers are rewarded. These are planned activities and
they may be held to launch a new product, publicly reward
exceptional performances, or for other reasons. Many
organizations use ceremonies as occasions to reinforce the
core organizational values.

Company
Heroes
Organizational Policies
and DecisionMaking

Cultural Symbols

Company
Rituals and Ceremonies

Stories

Culture

Language

Leadership


316

Material Symbols
Material symbols communicate a lot about the culture of an
organization as they indicate the special importance the
organization gives to particular members; or, if this is not the
case, it indicates that the organization treats all its members
in an egalitarian manner. Some organizations treat
employees at different levels differentially while others treat
everyone in a uniform manner. Material symbols or rewards
that are given in an organization also indicate what kind of
behavior is considered appropriate or is in accordance with
the organizational culture. Examples of material symbols
include the privilege of having a chauffeur-driven car, a cabin
of one’s own in the office, the size of one’s office, its layout
and the lavishness of its furnishings, and other official perks.
Language
A knowledge of the language used makes an employee feel
an integral part of the organization. By learning the
language, employees preserve the organizational culture.
The language used may include simple technical jargons or
acronyms that are identified by a majority of members in the
organization or a particular department of the organization.
Even new organizational members tend to accept and adopt
these acronyms and jargon over a period of time. Further,
having such a common terminology in the organization helps
to strengthen the bonds between members of the
organizational culture or subculture.

317

Section 5

Countries and Cultures
Organizational culture often reflects the culture of a
country. The rituals, customs, traditions of a country
influence the organizational culture. The cultural
differences need to be taken into consideration while
setting up a new business unit in another country. Cultures
differ in regard to concepts, attitudes and behavior, social
institutions, public policy and legal framework, and social
values. Let us discuss each of them.
Concepts
The concept of time utilization at workplace differs from
culture to culture. Apart from the organization’s punctuality
policy, utilization of time at workplace is another major
point of discussion among employees. People who belong
to the ‘monochronic’ work cultures (i.e., from countries of
West, such as the US, Germany, etc) believe in completing
one task at one time. In contrast, people from many Asian
countries, are accustomed to deal with more than one
work/assignment at a time. These people, also alled
‘polychronic’, feel that the monochronic people are too
mechanical and rigid in their work. Monochronic people, on
the other hand, believe that polychronic work cultures lack
focus.

Attitudes and Behavior
In countries such as US, UK, which believe in
individualism, it is common to speak openly and express
disagreements. However, for a person who belongs to
collectivistic culture (such as Indonesia, Japan, and
China), such kinds of expressions are considered
aggressive and ill-mannered; for them, disagreements can
be expressed in a more soft manner. Such perceptions
are, however, considered dishonest.
Social Institutions
The pattern of working of social institutions vary in different
cultures in different countries. The education system,
governance structures and the financial institutions impact
the business atmosphere of a country. Social institutions
are considered as the heritage of a country’s culture. For
instance, the educational system in Germany emphasizes
more on technical training whereas in France, more
emphasis is given on training for
future jobs in
government and industrial sector.

318

Public Policy and Legal Framework

Societal Cultural Values

The policies of the government and the legal systems too
reflect the culture of the country. The business practices of
the country are influenced by the culture in the following
ways.

The business culture and practices are also influenced by
the cultural values of a country in various ways and at
various levels. Few cultures provide an atmosphere to
flourish only certain businesses and does not allow others
which may prove a threat to the cultural values of that
particular country. The meaning and reasoning of a business
are also defined by the cultural values. Culture also
influences the people the way they relate with one another
and what they expect from their jobs. In many cultures, the
meaning and value of a job lie in the designation and status
and not on the pay. In such cultures, seniority is the most
recognized factor in the job.

The cultural values determine a framework for
conducting business in the country.
The values also influence the management practices of
the country.
For instance, Islam does not allow transactions based on
interests as many Islamic countries do not encourage or take
insurance policies as they earn money through premiums
through interests.
The laws and their implementation are also influenced by the
cultural values. In Japan, though contracts (business
contracts) writing do exist still it is practiced in a different
way. The written contract is short and contains few wordings.
The transactions are based mainly on interpersonal
relations, trust and good faith. Such legal contracts do exists
in all the countries, but are practiced very differently in each
country depending on their culture. The management
practices of a country are influenced by the culture. For
example, in the US, it is illegal to ask any candidate’s
personal information such as marital status, spouse’s
occupation, etc., in a job interview.

319

Review 13.1
Question 1 of 13
Which of the following factors does not influence
the strength of organizational culture?

A. Sharedness
B. Intensity
C. Departmentalization
D. Values

Check Answer

320

Section 6

Case Study: Sony Corporation – Future Tense?
This case was written by P. Indu, under the direction of
Vivek Gupta, IBS Center for Management Research. It
was compiled from published sources, and is intended to
be used as a basis for class discussion rather than to

This case was the first prize winner in the 2009 John
Molson MBA Case Writing Competition.

© 2010, IBS Center for Management Research. All rights reserved. 

321

Sony may be remembered as the largest consumer electronics
company failure in history. No other company had the Sony
brand at that critical period in the late 1990s and early this
decade when most of the products that dominate the market
today were born.”1
- Douglas A. McIntyre, Editor 24/7 Wall Street, in July 2009.
SONY REPORTS LOSS
In May 2009, Japan-based multinational conglomerate, Sony
Corporation (Sony) announced that it had posted its first full
year operating loss since 1995 and only its second since 1958,
for the fiscal year ending March 31, 20092. Sony announced
an annual loss of ¥ 98.94
billion3; with annual sales
Financial Status Of Sony
going down by 12.9% to ¥
7.73 trillion (Refer to Exhibit I
for Sony’s consolidated
statements of income and
Exhibit II for Sony’s balance
sheets for the financial years
2005 to 2009). The company, Source:www.ebrunews.com/en
which had reported a net profit /11445
of ¥ 369 billion for 2008, also
warned that with consumers worldwide cutting back on
discretionary spending in light of the recession, the losses
could touch ¥ 120 billion for the year ending March 2010.
Sony had been a dominant player in the global consumer
electronics industry since its inception in Japan in 1946. Over
the years, it had introduced some path-breaking products

including the Walkman and the PlayStation. However, by the
early 2000s, it had lost its leadership position in some of its key
products like televisions and media players. In fiscal 2009,
almost all its product lines were reporting losses (Refer to
Exhibit III for operating income/loss by business segments of
Sony Corporation). Analysts attributed the losses to its ‘silo
culture’4, which came in the way of cooperation between the
different divisions in the company. This resulted in Sony failing
to bring out innovative products on time to suit the changing
needs and preferences of consumers, though it had all the
required competencies. Other reasons attributed for the losses
included economic recession in Sony’s key markets and the
appreciating Yen against major currencies.
Howard Stringer (Stringer), who became the first foreigner to
head Sony (in 2005), tried to address the silo culture issue and
bring the different divisions together. But just when his efforts
were beginning to show results, Sony was confronted with
problems caused by recession that began in the US in late
2007 and had gripped most of the developed countries by late
2008. According to a BusinessWeek article in August 2009,
“Over the past few months, the financial crisis and economic
downturn have dealt a setback to Chairman and CEO Howard
Stringer’s efforts at restoring the company to profitability.”5
However, according to industry experts, Sony faced far more
challenges than just those posed by the recession. According
to Jonathan Nelson, Head of private equity firm Providence
Equity, “The challenge of changing the culture of an iconic
Japanese company is even more difficult than dealing with the
current challenges of the consumer electronics industry.”6
322

BACKGROUND NOTE
Sony was founded in 1946 as
Video - Sony History
Tokyo Tsuchin Kyogo by Masaru
Ibuka and Akio Morita (Morita)7.
The company began with 20
employees and a capital of ¥
190,000. Sony started off
manufacturing
telecommunications and
measuring equipment and then Source:www.youtube.com/wa
began making transistor radios tch?v=27J1E700qe8
and tape recorders. Its focus,
right from inception, was on product innovation and on offering
high quality products. The company’s name was changed to
Sony Corporation in January 1958 to fit in with its global
expansion plans. It set up a subsidiary in the US in 1960. In
1972, it set up manufacturing facilities in the US — the first
Japanese company to do so.
Sony believed that there was a huge demand for innovative
products and hence it did not pay much importance to market
research. However, it suffered a major setback in 1975 on
account of its Betamax video cassette to be used in its home
video cassette recorder. Before the Betamax technology could
establish itself in the market, it lost out to VHS, which was
backed by top studios in Hollywood (Refer to Exhibit IV for the
details of Sony’s format failures over the years). Sony then
realized that the technology used in such products was largely
determined by the owners of content. It entered the content
development business and in 1988, acquired CBS Records
and renamed it Sony Music Entertainment. In 1989, it acquired

Columbia Pictures (which included Tristar) and renamed it
Sony Pictures.
Over the decades, Sony released several cutting-edge
products. In 1968, Sony introduced the Trinitron Color TV,
which was highly successful. Another product that did well was
the Walkman, launched in 1979. Other path-breaking products
from the company were the world’s first Compact Disc player,
the Camcorder, the Discman portable CD player, the
PlayStation, and the Digital Handycam.
In the early 1990s, while Sony’s sales and operating revenues

Sony Products Since Its Inception

Sony Trinitron Color TV
Source: www.retrothing.typepad.com

had shown a moderate increase, its operating income and net
income began witnessing a decline. For instance, in fiscal
1991, Sony reported sales and operating revenues at ¥
323

3695.51 billion and an operating income at ¥ 302.18 billion. In
1993, though sales and operating revenues increased to ¥
4001.27 billion, operating income went down to ¥ 130.64
billion. In 1995, operating loss was ¥ 166.64 billion on sales
and operating revenues of ¥ 3990.58 billion.
Though Sony went through a restructuring exercise, it did not
yield the desired results. In 1999, net income dropped by
19.4% to ¥ 179 billion. Between the financial years 1995 and
1999, the electronics business registered a compounded
annual growth rate (CAGR) of 8.55% and the music business
a CAGR of 10.5% (Refer to Exhibit V for details on Sony’s
business segments as of 2008). Sony banked heavily on its
gaming product – the PlayStation — whose sales registered a
CAGR of 215% between 1995 and 1999. In 2000, Sony’s net
income fell to ¥121.83 billion.
In the early 2000s, Sony continued to reel under problems. In
what was termed as ‘Sony Shock’ by the media, the company
announced a loss of ¥ 111.14 billion for the quarter ending
March 2003. For the quarter ending June 2003, it reported a
net profit of ¥ 9.3 million, 98% lower than the profit reported in
the corresponding quarter in 2002. In 2004, Sony’s net profit
was at ¥ 88.51 billion on sales and operating revenue of ¥
7496.39 billion as against a net profit of ¥ 115.52 billion on
sales and operating revenue of ¥ 7473.63 billion in 2003. The
five years between 2001 and 2005 saw a 75% erosion in
Sony’s stock price (Refer to Exhibit VI for Sony’s stock price
chart for October 1999 and September 2009 period).

The year 2005 saw Stringer becoming the first non-Japanese
CEO in Sony’s six-decade history. Under Stringer’s leadership
a major reorganization exercise was undertaken in 2005 and
Sony started showing encouraging results. For the fiscal
2007, sales and operating revenue increased by 10.5% to ¥
8.29 trillion as compared to 2006. The trend continued over
the next year and for the fiscal 2008, sales and operating
revenue grew by 7% to ¥ 8.87 trillion over the previous year
(Refer to Exhibit VII for Sony’s sales and operating revenue
by geographic and business segments). Sony recorded net
income of ¥ 369.43 billion in the fiscal 2008 as compared to ¥
126.33 billion in fiscal 2007. However, the company’s
improved financial performance did not last long. In
December 2008, Sony revised its earnings forecast stating
that it would make losses for the fiscal 2009. The company
reported a net loss of ¥ 98.94 billion for the fiscal 2009.
THE PROBLEMS
According to industry experts, one of the main reasons for
Sony’s problems was its slowness in assessing product
trends. The problems that it faced with most of its products
were due to its silo culture, which prevented coordination
among different product divisions. The appreciating value of
the Yen vis-à-vis the US dollar and the recession in Sony’s
major markets only compounded its problems.
SILO CULTURE
Over the decades, Sony had become an organization of
fiefdoms and silos. It had become highly decentralized, with
324

the different divisions competing against each other. This
strategy worked well during the first few decades of Sony’s
inception, when not much interdependence was needed to
bring out new products. The fact that such silos had
successfully brought out products like the Walkman and the
PlayStation only reaffirmed Sony’s faith in them. However, as
technology and products grew more complex, it became
necessary for coordination among different divisions such as
hardware, software, design, development, marketing,
business development, and PR to manufacture and market
any product successfully. But this was absent in Sony.
An offshoot of the silo culture was the proprietary formats,
which every division tried to protect. According to Tim Bajarin
(Bajarin), President of Creative Strategies, a consulting firm
based in California, “The content guys were adamant about
how their movies and music were to be protected on Sony
devices. That clash created a difficult situation since Sony is
an amalgam of the consumer electronics value chain.” 8
According to insiders at Sony, in several instances, different
divisions did not communicate with each other. There were
endless arguments among them on trivial issues. Reportedly,
the divisions often had no idea about products being
developed by other divisions.
The silo culture was held largely responsible for Sony’s
failure to launch an online music store, in spite of having all
the resources for it. Prior to the launch of iPod in 2003, Sony

had been the top player in the portable music market, having
sold more than 200 million units of the Walkman. When the
iPod was launched, Sony executives in the US planned to
launch a digital portable music player and an online music
store. They said with its formidable presence in hardware,
software, design, and content, Sony could bring out the new
player and the online music store in less than a year.
However, the music store Video - Sony Walkman imcalled ‘Connect’, required
proved versions.
cooperation from different
units like the personal
computer group, portable
audio group, Sony Music,
and the division that made
flash memory players. Of
these, three divisions had
their own ideas about
running music download h?v=EvTzdwWTFsY
services and portals. The
differences persisted, with one group wanting to use the
widely used MP3 format and others supporting the
proprietary ATRAC9 format. From the beginning, there were
differences among the different divisions about the features
that should form part of Connect. While some divisions were
of the view that Connect should have features like those
offered by iTunes, BuyMusic, Musicmatch, Realnetwork’s
Rhapsody, etc., others called for more innovation, which
according to them, was Sony’s strength. Ultimately, Sony
325

Online Music Stores

iTunes Snapshot
Source:www.blogcdn.com/www.tuaw.com/media/2006/09/itunes4.
jpg

decided to sell the music in its proprietary format, with copyrestriction tools. According to people involved in the project,
Sony was even against using playlists, as it was a feature
popularized by Apple.
When Connect was under
development, Peter S Fader (Fader), Professor of Marketing,
University of Pennsylvania, met Sony’s executives and asked
them what made Sony’s product better than Apple’s.
According to Fader, the executives said, “Because we’re
Sony.” He opined, “It’s like they didn't realize the train had left
the station. In digital music, it would take something heroic to
get them back on track.”10 Sony’s software called Connect
Player was to be used to transfer music to Sony’s devices.

Rightafter its launch, Sony began receiving several
complaints about the performance of Connect Player. To
address this issue, it outsourced software development to a
startup. But Sony’s employees did not collaborate with the
software developer. Then in 2006, Sony advised users to shift
to another software, Sonicstage. But even with this software,
Connect failed to take off. Sony’s proprietary software and its
inability to play the popular MP3 formats were cited as the
main reasons for the failure. Though it was among the world’s
largest online music download sites and had more than 2.5
million tracks, Connect stopped selling music in March 2008.
Another incident occurred in 2005 which brought to the fore
how deep rooted the silo culture in Sony was. Ken Kutaragi
(Kutaragi), then CEO of the video game division, hosted a
major event in Las Vegas to launch PlayStation Portable.
Executives from divisions like Electronics, which had supplied
key components for it were not invited for the launch. In
another incident, when PlayStation 3 was being developed,
the project overshot both budget and time. But Kutaragi did
not inform Stringer about this. When an adequate number of
PlayStation 3 consoles were not released on time, Kutaragi
blamed the Electronics division for the delay. According to an
executive from Sony Music, “Kutaragi likes to decide
everything himself. That worked in the early days of the video
game business. But in the next phase, Sony needs someone
who is a better listener.”11
Stringer on his part, tried to address the silo culture in the
organization by introducing a slogan ‘Sony United’ in 2005
and outlining several measures that could be implemented to
326

unite the company and enhance collaboration among different
divisions. Initially, analysts were of the view that Stringer had
succeeded in addressing the culture related issues. However,
the more than a year delay in the launch of PlayStation 3
proved them wrong. On Stringer’s efforts to address the silo
culture in the organization, The Times wrote, “Repeated
efforts by Sir Howard to impose a stronger culture of cooperation between divisions have met with obstruction by
Sony’s well- entrenched old guard and frustration for those
that have sought to shake the company out of its stupor.”12
PRODUCTS
Click here to follow the Timeline of Sony Product Launch.
Though Sony was credited with several product innovations, it
made some mistakes that proved costly for it. It believed that
there was always a market for cutting edge products and did
not take changing consumer preferences into account. It had
always been a proponent of content protection and was
against the sharing of its proprietary content. The products
that it manufactured over the years did not, therefore, allow
free sharing of its audio and video content.
In the early 1990s, Sony stuck to its proprietary format
MiniDisc and protected its
music using ATRAC. The
company wanted to control
the technology and
distribution of music. But at
that time, the popular format
was MP3 and consumers who Source:www.unrealizing.files.wo
could not listen to music in the rdpress.com

MP3 format on their Sony gadgets shifted to players made by
other companies.
Till the early 1990s, Sony was able to charge a premium for
its products as their quality surpassed that of its competitors.
However, in the mid-1990s, competitors started launching
products that were of comparable quality but priced lower. By
the early 2000s, in various product categories, consumers’
preferences were changing. For instance, in televisions,
cathode ray tube (CRT) televisions became less popular,
giving way to wide screen televisions and flat displays.
Televisions
In the case of televisions, Sony was caught off guard. Till the
mid-1990s, Sony had been the market leader in the CRT
televisions business with its Trinitron brand. Samsung, which
launched its first LCD display screen in 1995, became the
largest manufacturer of LCD displays in the next one decade.
Samsung also expanded into DRAM chips, flash memory, and
optical storage and became the world’s most popular
consumer electronics brand in 2005, overtaking Sony.
In the mid-1990s, Samsung and LG were not popular, being
seen as low-end producers of televisions. But they were quick
to perceive the shifting preference toward flat panel
televisions, while Sony continued to focus on improving its
Trinitron, CRT television line. Samsung, with its expertise in
manufacturing flat panel computer displays and
semiconductors, jumped ahead by launching LCD televisions.
According to Daniel Levinthal, Management Professor at
Wharton, “Sony was a leader in TV, looking to extend its
327

platform and protect its current business. Samsung saw
Sony Television Models

its inability to cut manufacturing costs. While other television
manufacturers had shifted their production to low cost
countries, Sony continued to make televisions in Japan — an
expensive proposition. Sony also invested heavily in the LCD
technology, but by the time the product was out, the price of
LCD televisions had begun falling rapidly.
Music Players

Sony WEGA flat screen televisions lunched in 1997
Source: www.ecx.images-amazon.com

digital television as a new opportunity.”13
Sony launched the WEGA flat screen televisions (1997), the
WEGA LCD TV (2002), and the BRAVIA (2005) range of LCD
televisions. The BRAVIA range became very popular.
However, as it was priced high, it could not withstand the
competition from cheaper Korean rivals. As of second quarter
of 2008, Samsung’s share in the global television market was
22.8% as against 12.5% of Sony, which was in second
position. By the second quarter of 2009, Sony had slipped to
third spot with a share of 11.8%. Samsung continued to be
top player with a share of 23%, followed by LG with 13.7%.
Analysts attributed the trouble with Sony’s televisions to the
company’s failure to keep up with the latest technology and

According to industry experts, Sony’s inability to come out
with a digital music player like the iPod illustrated the
company’s weaknesses. And other companies were quick to
take advantage of it. Acknowledging this, Stringer said, “In
t h e 2 0 t h c e n t u r y, t h i s c o m p a n y ( S o n y ) c r e a t e d
greatchampion products ... In the 21st century, other
companies took our hardware like the Walkman and added
network capability and turned it into the iPod.”14
Sony was known for making cutting-edge gadgets that were
small in size, had a formidable presence in music players
through the Walkman and the Discman, and also had a
significant presence in content. However, it could not bring all
these together to create a digital music player. In 1999, two
years before Apple came out with the iPod, Sony launched
two digital players, manufactured by its VAIO division and
personal audio division. These devices with 64 mb memory,
could store up to 20 songs. They could be considered
pioneers in the digital music player product category.
However, they were priced high and used ATRAC to convert
MP3 files into a format compatible with Sony’s products. This
conversion was tedious and slow.
328

According to experts, if the three silos had got together, they
could have brought out a product that could have thwarted the
iPod at the initial stages itself. By
Apple iPod
October 2008, the iPod had
become the best selling digital
audio player. Analysts were of
the view that the iPod had got
ahead of the Walkman as Apple,
u n l i k e S o n y, w a s a b l e t o
integrate hardware and software. Source:www.techdigest.tv
According to Eric Clemons,
P r o f e s s o r, O p e r a t i o n s a n d
Information Management at Wharton, “Indeed, Apple
Computer’s hit iPod could just as easily have been the sPod,
with the "s" standing for Sony. There is no reason that Sony, or
anyone else, could not have [done this]. I’m still surprised that
Apple did.”15
Gaming Consoles
The absence of coordination among the product divisions also
led to the delayed launch of Sony’s PlayStation 3. This
resulted in Microsoft’s Xbox 360 and Nintendo’s Wii gaining
over Sony in the gaming console market. Though both
Microsoft and Sony deployed the same Cell technology in their
gaming consoles, Sony wanted to enhance the gadget with
Blu-ray discs16. As the production of Blu-ray discs was
hampered by the slow production of an essential component,
the Blu-ray diode, Sony released PlayStation 3 almost a year
after the release of Xbox 360, only to realize that consumers
were looking for gaming experience, novelty, storytelling, and
the fun factor and not superior technology or gaming

Microsoft’s Xbox 360

Nintendo’s Wii

Source:www.2.bp.blogspot
.com

Source:www.slaydesigns.c
om

excellence. To compound the problems of PlayStation 3, game
publishers began opting for multi-platform17 strategies to
cover their costs. This meant that the games were not
exclusive to PlayStation 3 — they could be played on other
consoles as well.
By the time PlayStation 3 was released, Sony and Toshiba
were indulged in a format war between Blu-ray and HD-DVD,
which continued over the subsequent years. Given Sony’s
previous experience with Betamax, consumers were worried
about the future of their consoles which came with a Blu-ray
player. To promote the Blu-ray format, all the PlayStation 3
consoles were loaded with Blu-ray discs, which made them
expensive. To make them competitive, Sony reduced the price
of the PlayStation 3 consoles. Due to this, PlayStation 3 sales
increased by 26.3%. However, the Games division reported an
operating loss of ¥ 124.5 billion for the fiscal 2008.
Electronic Reader
In September 2006, Sony launched an electronic reading
device called ‘Reader.’ It weighed nine ounces18, was of the
329

Sony Reader

size of a paperback book (5”X7”),
and could store content of up to 80
books. Another prominent feature
of the book was e-ink19, which
gave the user an experience
similar to reading a book.

However, the number of titles Sony
released was limited and the
Source:www.blog.jr.co
books were difficult to download,
m
as the online bookstore was
difficult to navigate through. At this
juncture, Amazon came out with its ereader Kindle, which was similar to Amazon e-kindel
Reader in display technology, external Reader
storage, and microprocessor. While,
for Reader, content had to be
transferred using a PC, Kindle was a
wireless reading device. Kindle came
with a 3G connection that allowed
users to download books from
Amazon’s online store without Source:www.static.myc
connecting to the Internet. This e.com
additional feature resulted in Kindle
becoming more popular. By November 2007, Kindle had sold
around 90,000 titles while Sony’s Reader had sold only
25,000. In this case too, Sony stuck to its proprietary e-Book
format, with anti-copying software.
In the 2003-08 period, Sony had lost its leadership position to
strong competitors in some major product categories. For

instance, it lost market share to Apple in portable music
players and to Nintendo and Microsoft in gaming consoles.
Sony’s other products like mobile phones, camcorders, and
digital cameras also did not perform up to expectations.
Though Sony resorted to price cuts, they were of no use.
According to The Wall Street Journal, “As demand cooled in
2008, Sony slashed prices of its TVs, video players, and
cameras to keep inventory from stacking up. But Sony
struggled to cut its costs fast enough to keep up with falling
prices.”20
RECESSION IN KEY MARKETS
Sony’s problems were compounded by the recession in the
US and its impact on the world markets. After the holiday
season that ended in December 2007, Sony posted quarterly
revenues of ¥ 2,859 billion — an all-time high. In February
2008, Toshiba stopped promoting its HD DVD format,21,
which left the way clear for the Blu-ray to be adopted as the
standard high definition format. However, just when it
appeared that Sony was emerging out of its problems, the
recession made its impact felt on consumers, who postponed
the purchase of luxury products. The demand for consumer
electronics fell drastically. By the time Sony had won the
format war in February 2008, most of the developed
economies in the world were in the grip of recession. In the
next few months, the sales of Blu-ray players were not up to
Sony’s expectations and till March 2009, Sony had sold only
2.2 million Blu-ray players as against an estimated 5 million
units. The recession also affected the sales of premium
products – high-end televisions, premium digital cameras,
330

and Sony’s new OLED televisions. Sony also announced that
the economic downturn had hindered Stringer’s plans to
restore the company’s profitability.
Sony was severely affected by
Sony Blu-ray Players
the Yen appreciating against the
US dollar and the euro. Around
half of Sony’s manufacturing
took place in Japan in-house
through a vertically integrated
operation but only 15% of its
electronics sales were
domestic. When the value of the Source:www.techshout.com
Yen was depreciating against
major currencies in the world
between early 2006 and mid-2007, it was a profitable
proposition for Sony. The company also took advantage of
growing overseas demand, where its products were
competitive due to the weaker Yen. But when the Yen surged,
Sony was caught off guard.
In October 2008, the Yen appreciated and hit a 13-year high
against the US dollar at ¥ 94.62 per US dollar. The
appreciating Yen severely impacted Sony’s exports as its
products became less competitive and cost more to buyers in
non-Japanese markets. This significantly eroded the value of
revenues that the company earned in the non-Japanese
markets. According to Atul Goyal, Analyst from CLSA, in the
case of the Japanese currency strengthening by one Yen
against the US dollar, the negative impact on Sony’s operating

profit would be to the tune of ¥ 4 billion. Similarly, in the case
of the euro, the impact on operating profit was ¥ 7.5 billion.
At the same time, South Korean competitors like Samsung
and LG benefited as the Korean Won depreciated vis-à-vis the
Yen. In January 2008, one Japanese Yen was equivalent to
8.7 Won. By December 2008, the Yen had appreciated to
14.87 Won, which gave the South Korean companies an edge
over Sony. According to Stringer, “What this recession has
done is expose the weaknesses in our system that we didn’t
want really to admit.”22
THE SOLUTION?
In his efforts to solve Sony’s problems, Stringer decided to
reorganize the company in February 200923. He said, “There
is still a lot of the old Sony, and not enough of the new, which
constrains our competitiveness. We simply have no alternative
but to dramatically change the way we do things. Without
those changes, it will be very difficult to return to
profitability.”24
Sony was reorganized into two groups – The Networked
Products & Services Group and The New Consumer Products
Group (Refer to Exhibit VIII for Sony’s Organization Structure
in April 2007 and in April 2009). Under the first group would be
Sony Computer Entertainment, personal computers, mobile
products including the Walkman, and Sony Media Software
and Services. The main aim of the group was to bring in new
products using Sony’s technologies and also to increase the
pace of innovation, which would lead to higher revenues and
profitability. Forming a part of these processes was the
331

expansion of the PlayStation network platform. The New
Consumer Products Group included television, digital
imaging, home audio, and the video business of the company.
Its focus was on achieving profitability and growth through
product innovation, and improving efficiency and speed of
operations. Another area of interest was development and
growth in the emerging markets.
As part of the reorganization efforts, two cross company units
were created. One was the Common Software and
Technology Team which was to develop and implement
integrated technology and software solutions. The group was
also required to provide coordinated software development
services. The other unit was the Manufacturing/Logistics/
Procurement team responsible for ensuring efficient supply
chain solutions for the business groups.
The reorganization also witnessed a reshuffle of some of the
top executives in the company.
Stringer assumed responsibility
Video - Sony’s
as President of Sony, in
Competitors Toshiba
addition to his existing
positions of CEO and
Chairman. After the reshuffle,
the Electronics division came
under his purview. This brought
in a new control structure at
Sony, which was expected to Source:www.youtube.com/wat
be operationally convenient ch?v=vtcB9xZpLUQ
and to unite the different silos.

While restructuring Sony, a lot of young blood had been
infused into the top management. This was also viewed as a
move to break the Japanese tradition of seniority in favor of
performance. According to company sources, the
reorganization was expected to speed up the production of
networked products and services. They were of the view that
it would help the different divisions like the PCs, mobiles, and
entertainment divisions, and also other divisions like
television, digital imaging, home audio, and video to work in
close collaboration. The reorganization also involved the
closure of eight of its 57 manufacturing sites and a reduction
of the workforce by 16,000. This was expected to reduce
costs by ¥ 300 billion.
Sony’s fortunes continued to plunge even in the first quarter
ending June 2009, as it posted an operating loss of ¥ 25.7
billion. The sales and operating revenue decreased by 19.2%
from the ¥ 1979 billion reported in the quarter ending June
2008 to ¥ 1599.9 billion. The average value of the Yen was
7.5% higher against the US dollar and 23.5% higher than the
euro between April and June 2009 as compared to the period
between April and June 2008. Sony announced that it
expected a loss to the tune of ¥ 120 billion for the financial
year ending March 2010.
While announcing the results for the quarter ending June
2009, Sony noted that the losses were less than expected
because of the cost reductions achieved by its restructuring
efforts. Analysts were of the view that with the restructuring,
Stringer might find it easier to follow his plans and revive
Sony. He was expected to face less opposition as most old
332

timers had been eased out of the company and the top
management had been infused with young blood.
Industry experts remained skeptical about the success of
Stringer’s latest reorganization program and its ability to bring
Sony back to profitability. They pointed out that there had
been several such programs at Sony since 1994, most of
which had failed to achieve the desired results. Commenting
on the reasons for the failure of earlier efforts, Fortune, wrote
in June 2009, “The culprit in nearly every case has been
Sony’s tradition-bound mentality, one that remained too
focused on building excellent analog machines in an
increasingly digital world.”25
Analysts believed that the global recession and the resultant
problems at Sony provided a good opportunity for Stringer to
take radical measures to bring the company back on to the
growth path and to help it regain its competitiveness. Pointing
to a possible solution to one of the Sony’s problems, Larry
Dignan, Editor and Chief of ZDNet26, said, “Sony is simply
too large to navigate and is hampered by a bunch of
businesses that are struggling. To make thing worse, these
businesses don’t go together. These businesses just don’t
add up to be a lean, mean Sony machine. The solution:
Breakup of the company. Does Sony need to be in content?
Does it really need to manufacture TVs? Is it in businesses
that just aren’t worth saving? Would a bunch of baby Sonys
do better? Those questions are probably being asked, but
there’s no intention to do anything about it. It’s a shame given
that the Sony brand is stellar, but the company is the opposite
of too big to fail – it’s too big to fix.”27
333

Exhibit I 
Sony Corporation – Consolidated Statements of Income (2005-09)
FINANCIAL YEAR ENDING
MARCH 31

In million Yen
2005

2006

2007

2008

2009

Net Sales

6,565,010

6,692,776

7,567,359

8,201,839

7,110,053

Financial service revenue

537,715

720,566

624,282

553,216

523,307

Other operating revenue

88,600

97,255

104,054

116,359

96,633

Total sales

71,91,325

75,10,597

82,95,695

88,71,414

77,29,993

Cost of sales

5,000,112

5,151,397

5,889,601

6,290,022

5,660,504

Selling, general and
administrative

1,535,015

1,527,036

1,788,427

1,714,445

1,686,030

Financial service expenses

482,576

531,809

540,097

530,306

547,825

(Gain) loss on sale, disposal,
impairment of assets

27,994

73,939

5,820

(37,841)

38,308

70,45,697

72,84,181

82,23,945

84,96,932

79,32,667

Equity in net income (loss) of
affiliated companies

29,039

13,176

78,654

1,00,817

(25,109)

Operating income (loss)

1,74,667

2,39,592

1,50,404

4,75,299

(2,27,783)

Sales and Operating
Revenue:

Costs and Expenses:

334

Exhibit I 
Sony Corporation – Consolidated Statements of Income (2005-09) (Continued...)
FINANCIAL YEAR ENDING
MARCH 31

In million Yen
2005

2006

2007

2008

2009

14,708

24,937

28,240

34,272

22,317

0

0

0

5,571

48,568

Gain on sale of securities,
investments, net

5,437

9,645

14,695

5,504

1,281

Gain on change in interest in
subsidiaries and equity investee

16,322

60,834

31,509

82,055

1,882

Other

29,447

23,039

20,738

22,045

24,777

Other income

65,914

1,18,455

95,182

1,49,447

98,825

Interest

24,578

28,996

28,996

22931

22931

Loss on devaluation of
securities, investments

3,715

3,878

3,878

13,087

13,087

524

3,065

3,065

0

0

Other

25,518

22,603

22,603

21,594

21,594

Other Expenses:

54,335

58,542

64,895

57,612

45,997

Other Income:
Interest and dividends
Foreign exchange gain, net

Other Expenses:

Foreign exchange loss, net

335

Exhibit I 
Sony Corporation – Consolidated Statements of Income (2005-09)
FINANCIAL YEAR ENDING MARCH
31

In million Yen
2005

2006

2007

2008

2009

16,044

1,76,515

53,888

2,03,478

(72,741)

1,70,202

1,22,990

1,26,803

3,63,656

(1,02,214)

Minority interest in income (loss) of
consolidated subsidiaries

1,651

(626)

475

(5,779)

(3,276)

Cumulative effect of an accounting 
change

(4,713)

--

--

--

--

Net Income (Loss) attributable to
Sony’s stockholders

1,63,838

1,23,616

1,26,328

3,69,435

(98,938)

175.9

122.58

126.15

368.33

98.59

158.07

116.88

120.29

351.10

98.59

Depreciation and amortization

3,72,865

3,81,843

4,00,009

4,28,010

4,05,443

Capital expenditures

3,56,818

3,84,347

4,14,138

3,35,726

3,32,068

R&D expenses

5,02,008

5,31,795

5,43,937

5,20,568

4,97,297

Average exchange rate (Yen/US $)

106.5

112.3

116.0

113.3

99.5

Average exchange rate (Yen/Euro)

133.7

136.3

148.6

160

142

Income taxes
Income (loss) before minority
interest

Earnings per Share (Common Stock)
Basic
Diluted

Source: Sony Annual Reports, 2005-09

336

Exhibit II 
Sony Corporation – Balance Sheets (2005-09)
(In million Yen)
Assets
As of March 31

2009

2008

2007

2006

2005

Cash and time
deposits

6,60,789

10,86,431

7,99,899

7,03,098

7,79,103

Marketable
securities

4,66,912

4,27,709

4,93,315

5,36,968

4,60,202

Notes and
accounts
receivable, less
allowances

8,53,454

10,90,285

13,69,777

9,85,508

10,25,362

Inventories

8,13,068

10,21,595

9,40,875

8,04,724

6,31,349

Deferred income
taxes

1,89,703

2,37,073

2,43,782

2,21,311

1,41,154

Other

6,36,709

11,46,570

6,99,075

5,17,915

5,19,001

Total current
assets

36,20,635

50,09,663

45,46,723

37,69,524

35,56,171

Film costs

3,06,877

3,04,243

3,08,694

3,60,372

2,78,961

Investments and
advances

47,98,430

43,35,648

38,88,736

35,19,907

27,45,689

Property, plant
and equipment,
less depreciation

11,75,863

12,43,349

14,21,531

13,88,547

13,72,399

Intangibles, net

3,96,348

2,63,490

2,33,255

2,07,034

1,87,024

Goodwill

4,43,958

3,04,423

3,04,669

2,99,024

2,83,923
337

Deferred insurance
acquisition costs

4,00,412

3,96,819

3,94,117

3,83,156

3,74,805

Deferred income
taxes

3,59,050

1,98,666

2,16,997

1,78,751

2,40,396

Other

5,11,938

4,96,438

4,01,640

5,01,438

4,59,732

Total other assets

21,11,706

16,59,836

15,50,678

15,69,403

15,45,880

1,20,13,511

1,25,52,739

1,17,16,362

1,06,07,753

94,99,100

3,03,615

63,224

52,291

1,42,766

63,396

Current portion of
long-term debt

1,47,540

2,91,879

43,170

1,93,555

1,66,870

Notes and
accounts payable,
trade

5,60,795

9,20,920

11,79,694

8,13,332

8,06,044

Accounts Payable,
other and accrued
expenses

10,36,830

8,96,598

986757

854886

7,46,466

Accrued income
and other taxes

46,683

2,00,803

70286

87295

55,651

Deposits from
customers in
banking business

13,26,360

11,44,399

752367

599952

5,46,718

Other

3,89,077

5,05,544

4,85,287

5,08,442

4,24,223

Total Assets

Liabilities and Stockholders’ Equity
Short-term
borrowings

338

Total current liabilities

38,10,900

40,23,367

35,51,852

32,00,228

28,09,368

6,60,147

7,29,059

10,01,005

7,64,898

6,78,992

Accrued pension and
severance costs

3,65,706

2,31,237

1,73,474

1,82,247

3,52,402

Deferred income taxes

1,88,359

2,68,600

2,61,102

2,16,497

72,227

Future insurance policy
benefits and other

35,21,060

32,98,506

30,37,666

27,44,321

24,64,295

Other

2,50,737

2,60,032

2,81,589

2,58,609

2,27,631

Total long-term liabilities

49,86,009

47,87,434

47,54,836

41,66,572

37,95,547

Minority interest in
consolidated subsidiaries

2,51,949

2,76,849

38,970

37,101

23,847

Capital stock

6,30,765

6,30,576

6,26,907

6,24,124

6,21,709

Additional paid-in capital

11,55,034

11,51,447

11,43,423

11,36,638

11,34,222

Retained earnings

19,16,951

20,59,361

17,19,506

16,02,654

15,06,082

Accumulated other
comprehensive income

(7,33,443)

(3,71,527)

(1,15,493)

(156437)

(385675)

Treasury stock, at cost

(4,654)

(4,768)

(3,639)

(3,127)

(6,000)

29,64,653

34,65,089

33,70,704

32,03,852

28,70,338

1,20,13,511

1,25,52,739

1,17,16,362

1,06,07,753

94,99,100

Long-term debt

Total stockholders' equity
Total Liabilities

Source: Sony Annual Reports, 2005-09.
339

Exhibit III
Sony Corporation – Operating Income/Loss by Business Segment (2007-09)
(In million Yen)
For the Year Ended March
31

2007

2008

2009

251256

441787

(168084)

Games

(232325)

(124526)

(58476)

Pictures

26705

58524

29916

Financial Services

84142

22633

(31157)

All other

32808

60800

30367

Total

162586

459218

(197434)

Corporate and Elimination

(12182)

16081

(30349)

Consolidation Total

150404

475299

(227783)

Electronics

Source: Sony Annual Report, 2009.

340

Exhibit IV 
Sony Corporation – Format Failures
1975 – Betamax: Sony developed Betamax against the VHS format. Though the quality of the video was better and the size
of the tape was smaller, Betamax failed to become the standard format, with analysts attributing it to higher costs.
1987 – Digital Audio Tape: This was introduced as a successor to the analog cassette tape. Digital audio tape combined
spinning-head technology and digital encoding. The players were expensive and were not received well by the consumers.
Sony discontinued the product in 2005.
1992 – Minidisc: The Minidisc was a small recordable digital music standard. But the music came with strict digital copy
protection, and was based on ATRAC audio data compression. The product was priced high, and did not gain popularity.
1992 – ATRAC Audio Compression: this was developed to fit high quality audio files in a small disc like Minidisc. ATRAC
was also used in Sony’s Walkman, and the Walkman only played ATRAC 3 initially. It was only in 2004 that it started
supporting the MP3 format.
1998 – MemoryStick: This technology was developed by Sony for use in digital cameras and portable music players. A
removable flash memory card, it was also used in PlayStation Portable, PDAs and mobile phones. Later variations of
MemoryStick Duo and Micro were also launched. But the format failed to take off, especially with other manufacturers.
2005 – Universal Media Disc: This was an optical disc medium developed for use in PlayStation Portable. Games and
movies were distributed in this format. Its proprietary nature and lack of writers and blank discs made its adoption difficult. The
format also did not receive support from movie studios. PlayStation Portable Go did not use this format.
Compiled from www.fastcompany.com and other sources.

341

Exhibit V 
Sony Corporation’s Business Segments (2008)
Business Segment
Electronics

Games
Music
Pictures
Financial Services

Others

Segment Details
Audio, video, televisions, information and communications equipment, semiconductor
components, and other products.
Games console and software businesses conducted by Sony Computer Entertainment Inc.
Businesses of Sony Music Entertainment (Japan) Inc.
Motion Pictures and television programming distributed by Sony Pictures Entertainment
Inc.
Sony Financial Holdings Inc., and its subsidiaries Sony Life Insurance Company Limited.,
Sony Assurance Inc., Sony Bank Inc., and Sony Finance International Inc.
The music recording business of Sony Music Entertainment, and Sony Music
Entertainment (Japan) Inc., and network services related business of So-net Entertainment
Corporation.

342

Exhibit VII
Sony Corporation – Sales and Operating Revenue by Geographic and Business Segments
(In million Yen)
2009

2008

2007

2006

2005

Overseas

58,56,774

68,15,040

61,67,854

53,06,785

50,58,863

USA

1,827,812

2,221,862

2,232,453

1,957,644

1,977,310

Europe

1,987,692

2,328,233

2,037,658

1,715,775

1,612,576

Other Areas

2,041,270

2,264,945

1,897,743

1,633,366

1,468,977

Japan

18,73,219

20,56,374

21,27,841

22,03,812

21,32,462

Electronics

50,32,920

59,31,708

54,43,336

47,82,173

48,27,663

Audio

453,976

5,58,624

522,879

536,187

571,864

Video

1,042,014

1,279,225

1,143,120

1,021,325

1,036,328

Televisions

1,275,810

1,367,078

1,226,971

927,769

921,195

Information and
Communications

942,517

1,103,212

950461

842,537

816,150

Semiconductors

205,062

237,870

205,757

172,249

184,235

Components

662,453

833,334

852,981

800,716

751,097

Others

451,088

552,365

541,167

481,390

546,794

Game

9,84,855

12,19,004

9,74,218

918252

7,02,524

Pictures

7,17,513

8,55,482

9,66,260

7,45,859

7,33,677

Financial Services

5,23,307

5,53,216

6,24,282

7,20,566

5,37,715

All Others

4,71,398

3,12,004

2,87,599

3,43,747

3,89,746

Sales and Operating
Revenue

77,29,993

88,71,414

82,95,695

75,10,597

71,91,325

Source: Sony Annual Reports, 2005-09.
344

Exhibit VIII
Sony Corporation’s Organizational Chart (As of April 01, 2007)

345

Sony Corporation’s Organizational Chart (As of April 01, 2009)

Source: www.sony.net.
346

Foot Notes
1.

Douglas A. McIntyre, “24/7 Wall St. TV: Sony – No Hit
Products Since the Stone Age,” http://247wallst.com, July
31, 2009.

2.

Sony’s financial year accounting period is between April
01 and March 31. The fiscal year 2009 refers to the
period between April 01, 2008 and March 31, 2009.

3.

As of September 15, 2009, 1 US$ ≈ ¥ 91.205 and 1 € ≈ ¥
133.26.

4.

Organizations operating in a silo culture operate as
separate divisions without any collaboration with one
another. Due to silos, there were pronounced differences
among different business units, which led to lack of
cooperation and prevented the smooth running of the
company.

5.

Kenji Hall, “Sony is Still Feeling the Recession Bite,”
www.businessweek.com, August 03, 2009.

6.

Richard Siklos, “Sony: Lost in Transformation,”
www.fortune.com, June 26, 2009.

7.

Akio Morita was a graduate in physics, while Masaru
Ibuka had a degree in electronic engineering. When
Morita joined the Japanese navy as a Lieutenant, he met
Ibuka at the navy’s Wartime Research Committee. They
became friends and planned to float a company.

8.

“Sony’s Next Act: Will it Play?” Knowledge@Wharton,
September 21, 2005.

9.

ATRAC or Adaptive Transform Acoustic Coding is a
proprietary audio compression algorithms developed by
Sony.

10. “Sony’s Next Act: Will it Play?” Knowledge@Wharton,
September 21, 2005.
11. Kenji Hall, “Game on for Sony PlayStation’s New Chief,”
www.businessweek.com, April 30, 3007.
12. Leo Lewis, “Sony Predicts First Annual Loss in 14 Years,”
http://business.timesonline.co.uk, January 22, 2009.
13. “Sony’s Next Act: Will it Pay?” Knowledge@wharton,
September 21, 2005.
14. Kiyoshi Takenaka, “Sony CEO says Restructuring Steps
on Track,” http:/reuters.com, June 19, 2009.
15. “Sony’s Next Act: Will it Pay?” Knowledge@wharton,
September 21, 2005.
16. Blu-ray is an optical disc storage medium that has
superseded the DVD format. This format offers five times
the storage capacity of traditional DVDs.
17. Multi-platform or cross platform refers to video games
released on different game consoles. Some of the
popular multi-platform games are Lara Croft Tomb Rider:
Legend and FIFA.
347

18. 1 ounce ≈ 28.349 grams.


19. E-Ink is an electronic paper that is manufactured by the
US-based E-ink Corporation.

1. Brian Bremner, For Sony, Is “Redefinition” Enough?
www.businessweek.com, March 08, 2005.

20. “Sony Losses Raise Pressure on Stringer,” http://
online.wsj.com, May 15, 2009.

2. Sony’s Sudden Samurai, Business Week, March 21,
2005.

21. Toshiba (HD DVD Optical Disc) and Sony (Blu-ray disc)
were entangled in a high definition optical disc format
war, promoting their format as the standard for storing
high definition video and audio content.

3. Sony’s Next Act: Will it Play? Knowledge@Wharton,
September 21, 2005.

22. “Game On,” www.economist.com, March 07, 2009.
23. The new organization structure was effective from April
2009.
24. Justin McCurry, “Sony Chief Forecasts Record Losses,”
www.guardian.co.uk, January 22, 2009.
25. Richard Siklos, “Sony: Lost in Transformation,” Fortune,
June 26, 2009.
26. ZDNet is a website webzine published by Ziff Davis
Publishing Company.
27. “Is Sony Too Big to be Fixed,” http://seekingalpha.com,
May 14, 2009.

4. Avery Simon, Sony Gets a Lesson in Humility,
www.theglobeandmail.com, September 23, 2005.
5. Daniel Schorn, Sir Howard Stringer: Sony’s Savior?
www.cbsnews.com, January 08, 2006.
6. K e n j i H a l l , H o w T u r n e d A r o u n d I s S o n y ? ,
www.businessweek.com, January 26, 2006
7. Tatiana Serafin, Humbled Colossus, Forbes, December
11, 2006.
8. Ken Belson, Martin Fackler, In Sony’s Stumble, the Ghost
of Betamax, www.nytimes.com, February 26, 2006.
9. John Borland, Can Sony Survive its Own Culture?, CNET
News.com, March 06, 2006.
10. Richard Siklos Martin Fackler, Howard Stringer, Sony’s
Road Warrior, www.nytimes.com, May 28, 2006.
11. Martin Fackler, Cutting Sony, a Corporate Octopus, Back
to a Rational Size, www.nytimes.com, May 29, 2006.
348

12. Daren Fonda, Toko Sekiguchi, Bryan Walsh, Has Sony
Got Game?, www.time.com, November 27, 2006.

23. Leo Lewis, Sony issues Shock Profits Warning, http://
business.timesonline.co.uk, October 23, 2008.

13. Richard Siklos, One Crisis after Another, but Sony Shares
Keep Surging, www.nytimes.com, April 29, 2007.

24. Cliff Edwards, Kenji Hall, Ronald Grover, Sony Chases
Apple’s Magic, www.businessweek.com, November 11,
2008.

14. Yukari Iwatani Kane, Phred Dvorak, Howard Stringer,
Japanese CEO, Wall Street Journal, March 03, 2007.
15. Brent Schlender, The Trouble With Sony, Fortune, March
05, 2007.
16. Kenji Hall, Game on for Sony PlayStation’s New Chief,
www.businessweek.com, April 30, 2007.
17. Kevin Ohannessian, How Blu-Ray Lost, then Won, and
may Lose Again, www.fastcompany.com, May 09, 2008.
18. Kenji Hall, Sony’s Looking Up and Slimming Down,
www.businessweek.com, May 16, 2007.

25. Tina Wang, Sony Slimming Down, www.forbes.com,
December 09, 2008.
26. Tim Kelly, Sony Cuts Spell a Shakeup in Japan,
www.forbes.com, December 10, 2008.
27. Kenji Hall, Sony Layoffs Fail to Sway Critics,
www.businessweek.com, December 10, 2008.
28. Leo Lewis, Behind Sony’s Ferocious Cost-Cutting Lies a
Clash of Cultures, http://business.timesonline.co.uk,
December 10, 2008.

19. Kenji Hall, Sony’s PS3 Problems Cast a Long Shadow,
www.businessweek.com, May 16, 2007.

29. Leo Lewis, Sony on Brink of Upheaval as Analysts Back
British Chief, http://business.timesonline.co.uk, January
05, 2009.

20. Robyn Meredith, It Takes a Crisis, www.forbes.com, July
17, 2008.

30. Tina Wang, Earnings Collapse Looming for Sony,
www.forbes.com, January 13, 2009.

21. Brian Garrity, Stringer’s Sony Plan Stammers, http://
www.nypost.com, July 30, 2008.

31. Tom Magrino, Sony Announces Restructuring, $ 2.9
Billion Loss, www.gamespot.com, January 22, 2009.

22. Vivian Yeo, Stringer: Sony Has Recovered its Innovation
Edge, www.businessweek.com, September 10, 2008.

32. Kiyoshi Takenaka, Sachi Izumi, Sony Warns of $2.9
Billion Loss, Steps up Restructuring, http://reuters.com,
January 22, 2009.
349

33. Tim Kelly, Stringer Tries to Turn Sony’s Distress to
Advantage, www.forbes.com, January 22, 2009.
34. Justin McCurry, Sony Chief Forecasts Record Losses,
guardian.co.uk, January 22, 2009.
35. Kenji Hall, Sony Ramps Up Its Reform Efforts,
www.businessweek.com, January 22, 2009.
36. Leo Lewis, Sony Predicts First Annual Loss in 14
Years, http://business.timesonline.co.uk, January 22,
2009.
37. David Wighton, The Enemy Within at Sir Howard
Stringer’s Sony, http://business.timesonline.co.uk,
January 23, 2009.
38. Dan Slater, CEO Stringer Blames ‘Old Sony’ for Profit
Loss, www.businessweek.com, January 26, 2009.
39. Tina Wang, Sony’s Own Bermuda Triangle,
www.forbes.com, January 29, 2009.
40. K e n j i H a l l , C a n O u t s o u r c i n g S a v e S o n y ? ,
www.businessweek.com, January 30, 2009.
41. Unplugged, www.economist.com, February 05, 2009.
42. David Aaker, Why Sony Missed The IPod - The Curse
Of Silos, www.mediapost.com, February 06, 2009.
43. Howard Stringer Gets President Title, Aims to Save
$ 3 . 1 B i l l i o n O v e r t h e C o m i n g F i s c a l Ye a r,
www.sony.net, February 27, 2009.

44. Chris Oliver, Howard Stringer to Assume Expanded
Role
at Sony, www.marketwatch.com, February 27,
2009.
45.Kiyoshi Takenaka, Nathan Layne, Sony’s Stringer Takes
Helm at Ailing Electronics Arm, www.forbes.com,
February 27, 2009.
46.Robyn Meredith, Sony Shake-up, www.forbes.com,
February 27, 2009.
47.Sony says CEO Stringer to Double as President, http://
reuters.com, February 27, 2009.
48.Hiroshi Suzuki, Masaki Kondo, Sony’s CEO Stringer
Ousts Chubachi in Overhaul of Management,
www.bloomberg.com, February 27, 2009.
49.Kenji Hall, Sony CEO Stringer Picks a New Team,
50.Hiroko Tabuchi, Sony’s Chief Gains Power as
Executives are Shuffled, www.nytimes.com, February
28, 2009.
51.Leo Lewis, Sony’s President Sir Howard Stringer Killed
o f f i n n e w - l o o k H o w a r d ’ s Wa y,
business.timesonline.co.uk, February 28, 2009.
52.Daisuke Wakabayashi, Stringer Steps Up as Sony
Faces Slump, http://online.wsj.com, February 28, 2009.
53.Sony Shares up after Stringer Takes Control,
www.execdigital.co.uk, March 02, 2009.
350

54.Game on, www.economist.com, March 07, 2009.
55.E Jan Vardaman, Why didn’t Sony Invent the iPod?,
www.circuitassembly.com, March 2009.
56.Lionel Laurent, Sony, Ericsson: Better Off Alone?,
www.forbes.com, March 20, 2009.
57.Moon Ihlwan, Samsung Widens the Gap with Sony in
TV, www.businessweek.com, April 06, 2009.
58.Leo Lewis, Sony Manager Sir Howard Stringer not Afraid
of Playing Hard but can Weave Subtle Magic in the
Pitch, http://business.timesonline.co.uk, April 18, 2009.
59.Tim Kelly, Stringer Sticks Knife Deeper Into Sony,
www.forbes.com, May 14, 2009.
60.Paul Rubillo, Tom Reese, Sony in the Red,
www.forbes.com, May 14, 2009.
61.Leo Lewis, Sony Reports Record Loss amid Consumer
Slump, business.timesonline.co.uk, May 14, 2009.
62.Is Sony Too Big to be Fixed, http://seekingalpha.com,
May 14, 2009.
63.Sony Losses Raise Pressure on Stringer, http://
online.wsj.com, May 15, 2009.

66.Richard Siklos, Sony: Lost in Transformation, Fortune,
June 26, 2009.
67.Douglas A. McIntyre, 24/7 Wall St. TV: Sony – No Hit
Products Since the Stone Age, http://247wallst.com, July
31, 2009.
68.Kenji Hall, Sony is Still Feeling the Recession Bite,
www.businessweek.com, August 03, 2009.
69.Cliff Edwards, Sony Turns the Page with Its New
Reader, www.businessweek.com, August 06, 2009.
70.Shane Richmond, Has Sony Learned its Lesson on
Proprietary Formats Yet?, http://blogs.telegraph.co.uk,
August 13, 2009.
71.Kit Eaton, Why Did Sony Take So Long to Revamp the
PS3?, www.fastcompany.com, August 20, 2009.
72.Sony Annual Reports, 2005-09.
73.www.sony.net.
74.www.japancorp.net.
Books
Jim Collins, How The Mighty Fall and Why Some
Companies Never Give In, 2009.

64.Kenji Hall, Yen’s Renewed Strength Weighs on Japan’s
Exporters, www.businessweek.com, June 17, 2009.
65.Kiyoshi Takenaka, Sony CEO says Restructuring Steps
on Track, www.reuters.com, June 19, 2009.
351

C HAPTER 14

Organizational Change and Organizational
Development
“Work change is any alteration that occurs in the work
environment.”
Some examples of organizational change could be:
introduction of new technology or change in processes,
leadership, etc.
The change may sometimes increase the workload of
employees drastically and put undue pressure on them,
leading to stress. Under severe stress, the performances
of employees decline and this, in turn, affects
performance of the organization.
understand:
The meaning of change
Various factors that propel change in organizations
Definition of planned change
Various types of planned change
Various sources of resistance to change

Measures to overcome the resistance to change
Approaches to manage the organizational change
The concept of organizational development.

Section 1

Forces of Change
In the context of business, Curtis W. Cook, Phillip L.
Hunsaker and Robert E. Coffey define change as “the
coping process of moving from the present state to the
desired state that individuals, groups and
organizations undertake in response to dynamic
internal and external factors.” There are many factors
that propel change in organizations. These factors
may be broadly categorized as people, technology,
information processing, communication and

competition. These are explained in the following
keynote (14.1.1).
Keynote 14.1.1: Forces of Change

Forces of Change

Source: Internal, www.netherreal.de

Source:www.5forcesofchange.com

353

Section 2

Managing Planned Change
Change is concerned with
Managing Planned
changing status quo or
Change
making things different.
The changes that occur in
organizations suddenly
without any significant
effort or involvement on the
part of the employees or
management are called
unplanned changes. On
the other hand, when
organizations initiate
Source:www.strategies-for-man
change activities
aging-change.com
deliberately and
consciously in order to
accomplish certain organizational goals, it is known as
planned change or managed change.
There are two basic goals of planned change:
To enhance the ability of organizations to adapt
themselves to the changes in the external environment

To change the behavior of employees
Planned change can be described in terms of magnitude.
The magnitude of change can be either large or small, fast
(abrupt, revolutionary) or slow (evolutionary). Based on
magnitude, planned change can be divided into two types
– First-order change and Second-order change.

First-Order Change
When the new state of things have the same basic nature
as the old state of things, except for some moderate
adjustments to the existing structure of the organization,
the change is known as incremental or First-Order change.
In this type of change, only minor adjustments are made to
a few processes in the organization; major changes are not
made.
Second-Order Change
When the new state of things have a completely different
nature from the old state of things, it is known as
fundamental, quantum or Second-Order change. This
change is initiated when the organization needs to be

354

restructured and the fundamental nature of the organization
is being changed. Thus the restructured organization differs
completely from the old fundamental structure of the
organization.

Video 14.2.1: What is
"CHANGE MANAGMENT"?

v=__IlYNMdV9E&feature=related

Video 14.2.2: Using the Force
Field Analysis

Source:www.youtube.com/watch?v=b
Bdq7cL5nO8&feature=related
355

Section 3

Resistance to Change
Resistance to change goes hand-in-hand with change
activities.
Extensive research in the field of individual and
organization behavior has proved that change efforts are
often met with resistance. Resistance may come from
individuals or from the culture and structural elements of
the organization. Although resistance to change has often
been viewed as dysfunctional, researchers are now
beginning to realize
that resistance has
positive effects as
well. For example,
employees’
resistance to certain
change effort will call
for a discussion on
the reasons for
resistance. The
discussion can then
lead to a thorough
Source:www.lifecarefoundation.fi
analysis of the issue
les.wordpress.com
and throw light on important points that were overlooked
earlier. This will give the management another chance to
consider the issue from a different angle before a decision

is taken. Similarly, if employees are convinced that
managers are right in introducing change, they will cooperate with the management. Therefore, resistance can
sometimes lead to better decisions and favorable
outcomes. However, unjustified resistance leads to
dysfunctional consequences and hampers the progress of
the organization.
Organizations can face resistance from various sources.
The sources of resistance can be classified into individual
and organizational sources. Refer to the keynote 14.3.1
for the detailed explanation on the sources of resistance
to change.
Keynote 14.3.1: Sources of

Source: Internal
356

Section 4

Overcoming Resistance to Change
The following measures can be used by change agents to
deal with employees’ resistance to change:

Keynote 14.4.1: Overcoming

Educating employees and improving communication
with them
Encouraging employee participation
Facilitation and support
Negotiation
Manipulation and co-optation
Coercion

Source: Internal

357

Section 5

Approaches to Managing Organizational Change
Several approaches are in practice in order to manage
organizational change. Important among them are:

Keynote 14.5.1: Lewin’s Three-Step
Model of Change

Lewin’s three-step model (refer to keynote 14.5.1)
Kotter’s eight step plan for implementing change
Action Research
Organizational Development
Source: Internal

Video 14.5.1: Continental Airlines and Lewin's Change
Model

Video 14.5.2: Lewin's
Change Model Example

Source:www.youtube.com/watch?v
=7wxKv6K1-V0&feature=related

ch?v=uHR8gw6derg

358

Kotter’s Eight-Step Plan for Implementing Change
John Kotter of the Harvard Business created a more detailed
approach on bringing about change. According to Kotter, while
trying to initiate change the common mistakes which
managers commit are:

Failure to anchor the new changes into the culture of the
organization
In order to overcome these mistakes/problems, Kotter has
suggested eight steps which are mentioned in the
accompanying table (14.5.1).

Unable to create a sense of urgency for change
Failure in forming coalition to manage the process of
change
Not having a vision for bringing about a change or could
not project the vision to others
Inability to eliminate the obstacles for accomplishing the
vision
Unable to specify short term goals
Announcing the victory too early

Table 14.5.1: Kotter’s Eight-Step Plan For Implementing
Change
1. Establish a sense of urgency by creating a compelling reason
for why change is needed.
2. Form a coalition with enough power to lead the change.
3. Create a new vision to direct the change and strategies for
achieving the vision.
4. Communicate the vision throughout the organization.
5. Empower others to act on the vision by removing barriers to
change and encouraging risk taking and creative problem
solving.
6. Plan for, create and reward short-term “wins” that move the
organization toward the new vision.
7. Consolidate improvements, reassess changes and make
necessary adjustments in the new programs.
8. Reinforce the changes by demonstrating the relationship
between new behaviors and organizational success.
Source: Organizational Behavior, Stephen P.Robbins, Timothy
A.Judge, Seema Sanghi, 13th edition, Page No.690.

359

Action Research
Action research is one of the popular models to manage
change. According to Stephen Robbins, Action research is “a
change process based on the systematic collection of data
and then selection of a change action based on what the
analyzed data indicate”. Wendell French and Cecil Bell define
action research as “research on action with the goals of
making that action more effective while simultaneously
building a body of scientific knowledge.” Action research
follows a scientific methodology for managing change. It
includes the following five steps:
Diagnosis: In this step the change agent attempts to
determine the underlying causes of an organization’s
problems. In other words, attempt is made to diagnose the
problems of an organization. To diagnose the nature and
magnitude of the problems, critical information about the
organization is collected by interviewing the employees,
browsing through organizational records and listening to
employee concerns.
Analysis: In the second stage, the change agent analyzes
the information collected in the diagnostic stage. Through
analysis of the collected information, the change agent is able
to sort out the different and similar kinds of problems being
faced by various employees. He observes the kinds of
problems being faced by various employees and the
similarities and differences between them. He then classifies
the information into three categories – the primary concerns,
the problem areas and the possible actions to resolve them.

Feedback: An essential feature of action research is the
constant involvement of the people who are going to be
affected by the change program, in determining the problems
and finding a solution(s). Therefore, feedback results form an
important part in the process. In this step, the change agent
shares his observations and conclusions from diagnosis and
analysis of information. He then seeks their active
participation in developing action plans for bringing the
desired change in the organization.
Action: In this stage, the employees and the change agent
work together to implement the measures that they consider
appropriate for solving the organization’s problems. The
actions are problem-oriented and are aimed at correcting
specific problems.
Evaluation: Finally, the change agent evaluates the efficacy
of the actions taken by measuring the outcomes of those
actions. If the outcome is found to be unsatisfactory, the
above mentioned steps are repeated. The outcome is
measured in terms of the initial data collected. The process is
continued until a satisfactory outcome is obtained.

360

Section 6

Concept of Organizational Development
Organization Development (OD) is a unique organizational
improvement strategy that emerged in the late 1950s. OD
has its base in the theories related to planned change and
their application in the context of organizations. The
objective of OD is to improve the performance of
individuals and groups in organizations. OD is a
multidisciplinary field that draws its subject base from
behavioral sciences such as psychology, social
psychology, sociology, anthropology, systems theory,
organizational behavior, organization theory and the
management practice. Kurt Lewin played a crucial role in
the development of OD.
OD deals with a range of “people problems” in
organizations such as poor morale, low productivity, poor
quality, interpersonal conflict, intergroup conflict, poor team
performance, poor customer relations, poorly designed
tasks, etc. Apart from this, OD helps individuals, teams and
organizations to realize their full potential.
W. Warner Burke and Harvey A. Hornstein in their book,
t i t l e d , T h e S o c i a l Te c h n o l o g y o f O r g a n i z a t i o n
Development, define OD as “A process of planned change
– change of an organization’s culture from one that avoids

an examination of social processes (especially decision
making, planning and communication) to one which
institutionalizes and legitimizes this examination.”
The characteristics of OD may be summarized as follows:
OD is a system of planned change
OD takes a holistic or system-wide approach to
change
OD targets organizational processes, rather than
content
OD is problem-oriented
OD focuses on relationships, human, social as well as
structural.
OD Interventions
OD techniques, also known as OD interventions are
defined by French and Bell as “The planned activities
clients and consultants participate during the course of an
organization development program.” They are essentially a
set of planned activities, which are introduced to bring the

361

desired change in the organization. In this context, OD
interventions are said to be the action component of
organizational development.
Types of OD Interventions
Some of the OD interventions used by change agents are
discussed here:
Sensitivity Training

Sensitivity training is also called T-group training. A T-group
consists of ten to twelve members and a professional trainer
called facilitator. The facilitator is generally a professional
behavioral scientist. The group usually meets over a period of
two weeks, but not regularly. They may meet once a day,
once every few days, or for some days in each week. The
purpose of sensitivity training is to sensitize people to
perceptions and the behavior related aspects of themselves
and others. The sessions are generally unstructured, without
any agenda. As the members interact with each other, the
facilitator moderates the discussions and provides an
opportunity for each participant to express his/her opinions,
beliefs and ideas. He also takes a note of the expressions
and reactions of the participants during the interactions and at
the end of the sessions, provides them feedback on their
behavior. The feedback helps members of the group to know
more about themselves as well as of others and learn about
group dynamics (such as how a group comes into existence,
forms its norms and grows). This kind of training helps them
to improve their listening skills, learn to talk openly and accept
individual differences. T-group training is basically used in

organizations to reduce interpersonal conflicts, enhance
group cohesiveness and improve organizational productivity
and efficiency. It can also improve the interpersonal and
leadership skills of employees, because employees
understand the behavior and perception of others, and are
able to empathize with others.
Survey Feedback

In survey feedback technique, data is collected systematically
from a large sample of employees at all levels of the
organization or an organizational unit. Collection of data is
usually in the form of attitude or (organizational) climate
surveys, which reveal critical information about the
organization and the problems faced by it. The collected data
is then fed back into the system ensuring that all the
participants of the information collection process receive the
data. Data feedback is usually done in feedback workshops
which are attended by all the participants. All the participants
are then asked to analyze and interpret the data and present
their views on it. A meeting is conducted by the head of the
organization or the head of the unit with immediate
subordinates to discuss the details of data. Both the head of
the organization (or unit) and the immediate subordinates
interpret the data, exchange their views and try to identify the
areas that need change. They also chalk out plans about the
manner in which the change should be introduced. This is
followed by the introduction of the data to the next level of
employees for further discussion. Generally, these meetings
are conducted with the help of professional change agent.
What is important in survey feedback is that it transfers the
ownership of the data from the change agent to the
362

participants. The participants also play a key role in
developing solutions to the problems.
Process Consultation Interventions

Process consultation is similar to sensitivity training in the
sense that both are trying to improve effectiveness of the
organization by dealing with the interpersonal issues. But
while Sensitivity training was unstructured, process
consultation is a set of structured activities guided by OD
consultant to improve specific aspects, e.g., norms,
communication, decision making, cohesiveness in a group.
In process consultation, greater emphasis is laid on
understanding organizational processes. The processes
include flow of work, flow of communication, roles and
responsibilities of employees, group problem solving and
decision-making, co-operation and competition among
groups, etc. In this technique, the external consultant helps
individual employees or work groups understand process
events, human and social processes and the consequences
of these processes. According to Edgar Schein (one of the
founders of organizational psychology who made significant
contributions to the field of organization development), a
process consultant should help the client organization set an
agenda for meetings, present feedback on observations to
members of the client organization and offer coaching and
counseling to organizational members (about the change
process, performance improvement and so on). He should
educate teams on the mechanism by which processes can be
changed. Though he does not actively participate in the
discussions, he should make suggestions if the teams fail to

find any solution. This is because the process consultant is
expected to play the role of a resource person and not an
expert. He does not lead work teams but only facilitates their
attempts to analyze the processes in their units, diagnose the
problems and determine the processes that need
improvement.
Team Interventions

Team interventions are the techniques used by OD
practitioners to improve the performance of work teams. In
general, groups and teams are considered synonymous, but
technically there are some differences between them. A group
is a number of people gathered, placed or working together,
whereas a team is a form of group which is characterized by a
higher degree of cohesiveness, interdependency and
interaction between members, and a commitment to common
goals. Team building interventions cover four substantive
areas in the working of organizational teams, namely problem
diagnosis, task accomplishment, maintaining team
relationships, and improving team and organization
processes.
Intergroup Team-Building Interventions
This group of OD interventions focuses on improving
intergroup relations, i.e., between work teams. These
activities are aimed at increasing the easy flow of
communication and interaction between work teams and
reducing dysfunctional competition. They also emphasize the
importance of the interdependence of organizational activities.
Intergroup problems are usually a result of organizational
363

reward structures which place emphasis on unit goal
attainment rather than total organization goal attainment.

lists. They can clarify certain unclear items mentioned in
the lists but are not allowed to discuss them in detail.

In an organization, different work groups compete with each
other for resources and strive to outperform each other.
Though competition among groups is desirable to a certain
extent, cut-throat competition strains relationships and harms
overall organizational interests. A technique developed by
Blake, Shepard and Mouton is used to facilitate
communication and interaction between work groups,
promote co-operation and co-ordination between them and
reduce dysfunctional competition in the organization. The
technique involves the following steps.

The groups return to their respective meeting places to
perform two tasks. Task I: The group members discuss
the information on the list prepared by the other group.
From the information, they get the idea that often it is the
lack of communication that is the underlying cause for
conflict between the two groups. They also realize that
most of the differences between the two groups did not
actually exist and some of them were resolved because of
the information shared through the lists. Task II: Setting
aside the problems that were resolved in Task I, the
members of each group prepare a list of the priority issues
that are left unresolved between the two groups. This list
is usually found to be smaller than the original list.

In the first step, the consultant or OD practitioner meets
with the leaders of the two groups to find out whether they
are genuinely interested in improving mutual relations.
Sometimes, consent is taken from all the members of both
the teams before proceeding. If they respond positively,
they go to the next step.
The consultant asks the two groups (say A and B) to meet
in separate rooms and prepare two lists each. In the first
list (list I), the group members are expected to write about
their attitudes and perceptions towards the other group.
They also have to write the behavior of the other group
that hinders their working. In the second list (list II), the
group tries to anticipate what the other group would write
in its first list.
In this step, the two groups are permitted only to
exchange information written in the first and the second

The two groups form a single list of unresolved problems
and issues and work jointly to determine the order of
priority to be given to the listed items. An action plan, to
resolve problems is also chalked out. The activities and
responsibilities to be taken by various members of the two
groups to improve inter-group relations are also
determined in the meeting.
A follow-up meeting, attended by all members of two
groups or their leaders, is usually conducted to discuss
the progress made in the implementation of the action
plan and to evaluate the efforts of the two groups. They
may also discuss the measures to be taken to further
promote intergroup co-operation.
364

Review 14.1
Question 1 of 10
Which of the following is not involved in the Lewin’s
three step model?

A. Unfreezing
B. Manipulation
C. Refreezing
D. Movement to change

Check Answer

365

Section 7

Case Study: Project Parivartan: State Bank of India’s Internal Communication
Initiative

This case was written by Debapratim
Purkayastha, IBS Center for Management
Research. It was compiled from published
sources, and is intended to be used as a
basis for class discussion rather than to
illustrate either effective or ineffective
handling of a management situation.

To order copies, call +91-08417-236667/68 or write to IBS Center for Management Research (ICMR), IFHE Campus,
Donthanapally, Sankarapally Road, Hyderabad 501 504, Andhra Pradesh, India or email: info@icmrindia.org

366

“The success of the Bank’s transformation depends crucially on
its people.” 1
OP Bhatt, Chairman, State Bank of India, in 2007.

“The transformation process initiated by [State Bank of India]
encompasses a wide canvass including change in mindset.
Accordingly, the first mass Internal Communications Program
named Parivartan was rolled out across the Bank […]”2
OP Bhatt, in 2008.
INTRODUCTION
The end of 2008 saw banks across the world, including private
sector banks in India, struggling due to recession and stalling
their expansion plans. India’s leading
bank State Bank of India (SBI), on
Video - SBI Change
the other hand, was drawing up
Strategy
plans to further strengthen its
position besides coming out with
the announcement that it would
recruit 20,000 clerical staff. The
bank attributed its good
performance despite a turbulent
phase in the industry, to the various Source:www.youtube.com/wa
initiatives that it had taken since tch?v=wnvvLM7gVc4
2006, including ‘Project Parivartan’.

Parivartan (which means
O.P. Bhatt.
transformation/change) was a huge
Chairman of SBI.
internal communication initiative
aimed at sensitizing the grassroots
level employees regarding the
changes being undertaken in SBI
and the need for such change.
According to SBI, the initiative that
was launched in July 2007 was a Source:www.economicti
huge success and was instrumental mes.indiatimes.com
in bringing about the attitudinal
change in the workforce that was required to compete in a very
competitive environment. SBI was experiencing an erosion in
market share in the early 2000s and a slowdown in growth due
to its outdated processes and stiff competition from private
sector banks. The situation was particularly grim in 2006 when
OP Bhatt (Bhatt) ) was appointed chairman of SBI. Bhatt and the
top management team soon put a transformation agenda in
place. For the various transformational initiatives to succeed,
Bhatt realized that it would have to have the support of
employees at all levels of the organization and thus the
Parivartan project was launched.
Industry observers appreciated the initiative and said that Bhatt
had succeeded in changing the employees’ approach to work,
and this in turn, had led to the bank performing well and
maintaining its market leadership position in the Indian banking
sector.

3

367

BACKGROUND NOTE
THE INDIAN BANKING SECTOR
As part of the economic reforms it started in the early 1990s,
the Government of India (GoI) embarked upon reforming the
financial sector of the country. A sound financial sector is the
key to the growth of the economy and banking is considered
the lynchpin of the financial sector in any economy. The
country was then dominated by the public sector banks which
had nearly 83 percent of the banking business in their hands.4
The reforms in the financial sector were based upon the
recommendations of the Narasimham Committee.5
Many important reforms were undertaken in the banking
sector which included better disclosure norms for the banks,
deregulation of interest rates, more functional autonomy to the
boards of public sector
banks, avoiding of pre- http://www.icicibank.com
emption in the form of high /aboutus/about-us.html
reserves, availability of credit
to targeted sectors, and http://www.hdfcbank.co
setting up of debt recovery
tribunals. As part of the
reforms in the banking sector,
several new private sector
banks were set up in the
country to introduce more
competition and improve efficiency in the sector.

http://www.axisb
ank.com/about-us

Some of the important private sector banks set up in the wake
of the banking reforms were ICICI Bank6, HDFC Bank7 and
UTI Bank (now Axis Bank)8 They started operations in 1994.

All these new banks were given relatively easy approval to
enter the sector. Another significant feature as the reverse
mergers of the private banks with their promoters, mostly
Development Financial Institutions (DFIs). The motive behind
these reverse mergers was to achieve benefits of scale and to
move toward Universal Banking where the banks would
become financial super markets providing all the financial
services like insurance services, investment advice, etc.
Another important aim of the reforms in the banking sector
was to increase the penetration of the banking services and
make them available to a larger percentage of people.
The results of the reforms in the banking sector were
impressive. The new generation private banks revolutionized
the sector. Several technological advancements like the
Automated Teller Machine (ATMs) ) were introduced; there
was also an improvement in the financials of the banking
sector. The capital adequacy of the Indian banks came on a
par with international standards. The share of the Non
Performing Assets (NPAs) as a share of gross advancements
went down significantly, increasing the profitability of the
banking sector. The other significant outcomes were the
increasing recognition of the employees as strategic assets
and the increase in the operational efficiency of the banks.
After the successful implementation of the first phase of the
financial reforms, the GoI constituted the second Narasimham
Committee in 1997 to recommend further reforms in the
banking sector. The Narasimham committee, which submitted
its draft report in April 1998, recommended further
improvements in the sector. Some of the recommendations
were: reducing the government’s stake in the Public Sector
368

Banks to less than 51 percent to further improve their
efficiency, improving credit facilities to rural areas, reducing
NPAs to 3 percent, increasing the capital adequacy norms
to 10 percent, reducing the higher rates of interest, and
giving more importance to priority sector lending. The
second phase of the banking reforms was in the
implementation stage as of 2008.
In addition to the various public and private sector banks,
there were also a number of cooperative and rural banks in
India. Foreign multinational banks also brought in service
aspects that forced the other Indian banks to tighten up.
The foreign banks were, however, handicapped by the fact
that there was a limit on their expansion as the sector had
not been opened up fully. However, the Reserve Bank of
India’s (RBI) new rules in 2005 gave the foreign banks a
glimmer of hope as it pledged to open the banking market
further after 2009.10
According to RBI’s regulation, the entry of the foreign
banks into India was to be in two phases. During the first
phase, foreign banks which till then, had been only allowed
to operate through branches, would be allowed to establish
wholly-owned subsidiaries with a minimum capital
requirement of Rs.3 billion from March 2005 and March
2009. The market would be further opened for the foreign
banks after April 2009 after considering the experiences
gained. As more foreign banks entered the Indian banking
sector and the existing ones expanded their operations,
this would bring about tremendous changes in the Indian
banking sector.

STATE BANK OF INDIA
The origin of SBI dates back to the early 19th century,
when the Bank of Calcutta was established in Calcutta
(present day Kolkata in the state of West Bengal) in June
1806 under the aegis of the Government of Bengal. Three
years after its inception, the bank was renamed Bank of
Inception of State Bank Of India

Bank Of Bengal
Source: www.farm3.staticflickr.com

Bengal ) on receiving its charter. It was a unique banking
institution as it was the first joint-stock bank in British India.
Next came the Bank of Bombay in April 1840 followed by
the Bank of Madras in July 1843. By 1876, the three
presidency banks, together with their branches, agencies,
and sub-agencies, covered major inland trade centers in
India. Bank of Bengal had 18 branches while the other two
had 15 branches each.
Initially, the business of these banks was restricted to
discounting bills of exchange or other negotiable private
369

securities, keeping cash accounts and receiving deposits, and
issuing and circulating cash notes. The last quarter of the 19th
century witnessed rapid commercialization in India owing to the
expansion of the railway network to cover all major geographic
regions of the country. The three presidency banks were both
beneficiaries and promoters of this commercialization process
as they became involved in the financing of practically every
trading, manufacturing, and mining activity in the Indian subcontinent.
The three presidency banks were
Imperial Bank was
formed after the
amalgamated in January 1921 to form
amalgamation of 3
the Imperial Bank of India. The new
presidency banks
bank performed the triple role of a
commercial bank, a banker's bank,
and a banker to the government.
However, the quasi-central bank role
performed by the Imperial Bank
ended with the formation of the
Reserve Bank of India (RBI) as the Source:www.management
central bank of India in 1935. RBI’s funda.com
establishment was a catalyst in the
conversion of the Imperial Bank into a purely commercial bank.
At the time of Independence in 1947, the Imperial Bank had
acquired a paramount position in the country’s banking industry.
It had a capital base of Rs.118.5 million, deposits of Rs. 2.7514
billion, and advances of Rs. 729.4 million. It had a network of
172 branches and over 200 sub-offices spread all over India.
When the first Five-Year Plan was launched in 1951, the rural
sector was given top priority. The Imperial Bank and other
commercial banks too operated mainly in urban areas and had

not yet penetrated the rural sector. To overcome this lacuna, it
was recommended that a state-partnered and state-sponsored
bank be created to take over the Imperial Bank and integrate
the former state-owned or state-associated banks with it.
This led to the creation of the SBI on July 1, 1955 by an Act of
Parliament. The preamble of the Act stated that the objective
behind nationalizing the Imperial Bank was, “The extension of
banking facilities on a large scale, more particularly in the rural
and semi-urban areas, and for diverse other public purposes.”11
Once SBI was formed, the Indian banking industry was divided
into two sectors – public and private. The creation of SBI
brought over a quarter of banking resources under the GoI’s
direct control. The SBI Group was formed, consisting of SBI and
seven associate banks with a network of 480 offices comprising
branches, sub-offices, and three local head offices inherited
from the erstwhile Imperial Bank.
Over the next four decades, SBI maintained its leadership
position as the largest commercial bank in India in terms of
revenues, assets, deposits, number of branches, and
employees. However, with liberalization and de-regulation of the
Indian banking industry in the early nineties, the face of the
industry changed radically in the late 1990s and early 2000s.
SBI, along with the rest of the public sector banks (PSBs), had
to face tough challenges with the entry of the new age private
sector banks.
As of 2009, SBI was the market leader in the Indian banking
sector. It operated in four business segments: Treasury,
Corporate/ Wholesale Banking, Retail Banking, and Other
Banking Business. It was the largest bank in India, in terms of
370

balance sheet size, number of branches, market capitalization,
and profits. It was followed by ICICI Bank and Punjab National
Bank12.13 (Refer to Exhibit I for the profit and loss account of
SBI) Since 2006, Bhatt had been chairman of SBI. He had
initiated various strategic initiatives at the bank since his
appointment, including the merger of all seven associate
banks14 with the parent bank. According to the bank, once the
merger was completed, the combined entity would have a
balance sheet of over Rs. 8000 billion, and a nationwide
network of 14,000 branches. This, the company believed,
would put it in a strong position post-2009 when foreign banks
were expected to enter the market.15
NEED FOR A CHANGE
Though SBI was the market leader in the Indian banking sector,
it had been facing tough competition from private players such
as ICICI Bank, HDFC Bank and UTI Bank ever since their entry
Associate Bank Of SBI

State Bank Of Hyderabad

into the market. The private sector banks brought a new
emphasis on customer service and technological innovations
that, experts felt, were areas neglected by public sector banks
such as SBI. To cope with the intensified competition,
SBI initiated various changes such as computerization of its
http://www.livemint.c
huge branch network. In the early 2000s, the company pumped
in a lot of money on inter-connecting all om/2008/07/142323
its branches. It also
49/SBI-to-delayer-zo
initiated a voluntary retirement scheme to downsize its
nal-operatio.html
employee strength and bolstered its marketing and operations.
16 A business process re-engineering (BPR) team was
constituted in June 2003 with McKinsey & Company17 as
consultants. The BPR’s basic goal was to create an operating
architecture that would facilitate service delivery of international
standards. The project objectives were defined as “increasing
customer satisfaction and convenience, freeing up time for
branch manager and branch staff to focus on sales and
marketing, simplifying process for employees, enhancing SBI’s
competitiveness in the market, increasing the profitability
through higher market share and improved process
efficiency.”18
However, in 2006, SBI still found itself confronted with a
number of problems. “September 2006 was an inflection point
for the bank which had been steadily losing market share to
private and foreign counterparts,” said Bhatt. SBI was facing a
steady erosion in market share (in both deposits and advances)
and growth that was slower than that of competitors. SBI found
that it was slipping in the list of Top 1000 banks published by
The Banker. In 2004-05, its rank was #93 (compared to #82 a
year ago) and in 2005-2006, it slipped further to #107. Its

Source: www.ahelectricals.com
371

outdated processes and intensifying competition were taking
their toll as competitors were closing in on its pre-eminent
position in the market. According to Bhatt, SBI was no longer
the first choice of the young and the affluent customer. In fact,
it was perceived as old and staid.
TRANSFORMATION AGENDA
The top management led by Bhatt felt that SBI needed to
undergo a total transformation. They met over a weekend to
brainstorm the issues and find solutions to the problem, and
they came up with the idea of a transformation exercise. Many
more brain storming conclaves followed as the top
management identified and discussed various transformational
initiatives and how these should be implemented. A new
transformation agenda was put in place with a top-down
approach targeting all the levels of the organization (Refer to
Exhibit II for a list of the transformational initiatives identified).
The top management realized that the success of the
transformation exercise would depend on the commitment and
participation of the workforce. However, this was another
problem area as the top management felt that the organization
lacked a performance driven culture and the workforce was
demotivated and had lost their sense of pride in the
organization.
The new transformation agenda was communicated to all the
people in the organization. The Deputy Managing Directors as
chairman’s emissaries took the transformation message to all
14,000 branch managers; Managing Directors to all 300
Deputy General Managers, and the Chairman to all 2,000
Assistant General Managers. “In order to transform the Bank

into a modern, customer-friendly, financial powerhouse, a
massive internal communication exercise is underway. I and
my top management have personally addressed all the senior
management functionaries as also the 9500 branch managers
throughout the country,” said Bhatt in the Annual General
Meeting of SBI in June 2007.
http://www.money
The company realized that to bring about the transformation it
control.com/video
sought, getting the grassroots level /business/grit-guts was
employees on board
extremely important. They felt that a transformation at the
gumption-how-sbiHuman Resources (HR) front was also required to make SBI a
more customer-friendly bank. Thus, the Parivartan project was
launched in July 2007.27 (Refer to Exhibit III for a schematic
diagram of roadmap to change at SBI)
Click here to watch the video related to the transformation of
SBI.
PROJECT PARIVARTAN
The Parivartan initiative was reportedly the brainchild of Bhatt.
28 The program was aimed at obtaining the support and
acceptance of employees for the change initiatives undertaken
by the bank, and at explaining to them why change was
necessary.29 The program was intended to bring about a
change in the attitudes and approaches of the workforce so as
to bring them in line with the rapid changes taking place at the
bank and the external environment.30 The company had
identified customer service as the most important factor in
maintaining and improving upon its leadership position in
Indian banking sector. However, the customer experience in
the bank hadn’t always been great with many employees
372

reportedly treating customers rudely.31 Parivartan was also
aimed at changing this attitude of the employees and helping
them develop a more customer-centric approach. After the
Parivartan program was implemented, SBI expected that its
customers would have a positive experience when they
visited its branches. “The program impresses upon
employees the need to serve graciously, politely, and
diligently. The goal is to lead the banking sector in providing
best services globally,"32 said Gautam Kanjilal, Chief General
Manager (CGM), Delhi.
As part of what was being considered as the first ever multilevel communication program of its kind in the company,33
two-day workshops were planned at over 100 venues across
the country.34 The company mapped the country city-wise,
town-wise, pre-identified venues, and so on. Parivartan was
rolled out in two phases with the first phase covering 130,000
officers and clerks and the second phase covering 45,000
members of the subordinate staff.35 According to the
company, more than 3300 two-day workshops were
conducted by over 360 specially trained trainers within a span
of 100 days covering 130,000 employees.36
The program comprised a structured multimedia-based
interactive session.37 Attending the training program was
mandatory for all employees.38 Under the project, the
employees were trained by personnel from the bank’s staff
training college and other local resource persons. In the
sessions, examples of transformations in other organizations
were discussed. 39There were sessions on how to be
customer centric and customer-friendly in their approach.
Employees were called upon to make a shift from transaction

banking to relationship banking and they were encouraged to
cross sell products.40
In addition to this, town hall meetings were conducted by the
top management at various circles in collaboration with the
leaders of the union/associations. “A culture of inclusiveness
is being created […], where staff union and officers’
association leaders exhorted their members to embrace the
transformation effort,”41 said Bhatt.
The company also set up special blogs for top management,
and other key officials in a bid to open up informal channels of
communication with the rank and file. SBI’s Internet portal
was revamped and made more employee-friendly and
informative; various newsletters (Colleague, NBG Bulletin,
Customer Care, Wholesale Banking bulletin, etc.) were
started to disseminate information, and each employee was
provided with an SBI email ID.42
Bhatt took an active interest in the implementation of the
project and encouraged the CGMs to SMS him on the
immediate reactions of the employees to the two-program
being held at multiple locations. Bhatt also encouraged the
officers to bypass bureaucratic paperwork by SMS-ing urgent
messages to him.43
RESULTS
According to SBI, the Parivartan project was a roaring
success and caught the imagination of the employees. SBI
felt that the employees were invigorated and the program had
contributed to breaking down the hierarchical set-up in the
organization.44 The fact that so many employees were trained
373

over a short time itself was an achievement, according to it.
After the completion of the training program, SBI
commissioned a leading Indian business school Xavier
Institute of Management, Bhubaneswar, (XIMB) to analyze
the impact of the program. The XIMB team’s study revealed
that the Parivartan program had brought about a perceptible
positive change in each of the 25 identified Customer Service
parameters.45 There was a perceptible improvement (20%) in
customer service and a reorientation of employee attitudes.
The number of customer service elements where 85% branch
compliance was achieved increased from 3 to 14. In addition
to this, there was a 20% increase in customer satisfaction.46

its ranking improve to #380 on the list in July 2008 compared
to #495 in 2006.52

Industry observers hailed the Parivartan project as the largest
initiative of its kind.47 They also felt that the program was
effective. Bhatt was credited with transforming SBI through an
exercise that began with the top management and percolated
right down to the grassroots level.48 According to IDBI Capital
Market Services Ltd.49 by “adopting holistic initiatives like
‘Parivartan’ to change the employees’ approach to work, the
new Chairman is certainly making his workforce perform
better.” 50The various transformation initiatives adopted by the
management quickly started showing results. The
performance of the bank started improving from 2007 and a
number of awards and recognition were conferred on SBI
(Refer to Exhibit II for awards and recognition for SBI). The
bank also improved its global ranking. In The Banker’s list of
Top 1000 banks, its position improved from #107 in 2006 to
#70 in 2007. In 2008, it improved further to #57. SBI, the only
Indian bank in the Fortune Global 50051 companies list, saw

374

Exhibit I 
SBI’s Profit and Loss Account
(For the year ending
March 31)

2008

2007

2006

2005

2004

4,89,503.10

3,94,910.30

3,57,949.30

3,24,280.00

3,04,604.90

Other Income

93,984.30

74,467.60

73,886.90

71,199.00

76,126.70

Total Income

5,83,487.40

4,69,377.90

4,31,836.20

3,95,479.00

3,80,731.60

3,19,290.80

2,34,368.20

2,01,592.90

1,84,833.80

1,92,741.80

Employee Cost

77,858.70

79,325.80

81,230.40

69,073.50

64,476.90

Selling and Admin
Expenses

21,650.00

32,511.40

18,533.20

26,346.40

49,105.20

6799.8

6023.9

7291.3

7522.1

6983.5

90,596.90

71,735.50

79,121.50

64,658.20

23,637.10

0

0

0

0

0

1,26,086.10

1,32,517.80

1,18,728.90

1,12,781.80

1,29,388.60

Provisions &
Contingencies

70,819.30

57,078.80

67,447.50

54,818.40

14,814.10

Total Expenses

5,16,196.20

4,23,964.80

3,87,769.30

3,52,434.00

3,36,944.50

Income
Interest Earned

Expenditure
Interest expended

Depreciation
Miscellaneous
Expenses
Preoperative Exp
Capitalized
Operating Expenses

375

Exhibit I 
SBI’s Profit and Loss Account (Continued...)
(For the year
ending March 31)

2008

2007

2006

2005

2004

67,291.20

45,413.10

44,066.70

43,045.20

43,787.20

0

0

0

0

-6977.2

3.4

3.4

3.4

3.4

3.4

67,294.60

45,416.50

44,070.10

43,048.60

36,813.40

0

0

0

0

0

13,576.60

7368.2

7368.2

6578.7

5789.3

1658.7

1252.2

1033.4

937.5

741.8

Earning Per Share
(Rs)

106.56

86.29

83.73

81.79

83.2

Equity Dividend (%)

215

140

140

125

110

776.48

594.69

525.25

457.39

384.41

Net Profit for the
Year
Extraordinary Items
Profit brought
forward
Total
Preference
Dividend
Equity Dividend
Corporate Dividend
Tax
Per share data
(annualised)

Book V alue (Rs)
Appropriations

376

Exhibit I 
SBI’s Profit and Loss Account (Continued...)

(For the year
ending March 31)

2008

2007

2006

2005

2004

52,056.90

36,821.50

35,665.10

35,528.90

30,278.90

Transfer to Other
Reserves

-1.0

-28.8

0

0.10

0

Proposed
Dividend/Transfer 
to Govt

15,235.30

8,620.40

8,401.60

7,516.20

6,531.10

3.4

3.4

3.4

3.4

3.4

67,294.60

45,416.50

44,070.10

43,048.60

36,813.40

Transfer to
Statutory Reserves

Balance c/f to
Balance Sheet

Total

*Data courtesy Religare Technova
Source: www.moneycontrol.com/india/stockpricequote/bankspublicsector/statebankindia/12/12/profitloss/ marketprice/SBI

377

Exhibit II 
A List of the Transformational Initiatives Identified by SBI

1.

Winning back the middle class consumer

2.

Own rural India

3.

Rebuild profitable wholesale bank

4.

Build global treasury

5.

Dominate SMEs (Small and Medium Enterprises)

6.

‘Smart’ global expansion

7.

Leadership in emerging new businesses

8.

Winning IT platform

9.

Efficient operating process and branch network BPR

10.
Develop consistent customer service

11.
Integrated risk systems

12.
Implement redesigned business performance/ systems

13.
Reshape market through consolidation

14.
Monetize assets (training infra, real estate) and strengthen capital management

Adapted from Conference on ‘Igniting the Genius Within’, “SBI – The Transformation Story.” www.isb.edu/Clic/GeniusConference/
Presentations/BhattKeynote.pdf.

378

Exhibit IV 
Awards and Recognition for SBI
Most Preferred Bank by CNBC Awards 2008
Most Preferred Home Loan by CNBC Awards 2008
Retail Core Banking Award by ‘The Banker’ in 2008
Award for overall Retail Technology Project of the year by ‘The Banker’ in 2008
Best bank by Outlook Money and NDTV Profit Awards in 2008
Most Preferred Home Loan by Outlook Money and NDTV Profit Awards in 2008
First National Award for excellence in lending to Micro Enterprises
Second National Award for excellence in MSE Lending
Golden Award for being among the two most trusted banks in India – Readers Digest May 2007
SBI ranked 3rd among Top 50 most trusted service brands – Economic Times
OP Bhatt was named the ‘Banker of the Year’ by Business Standard in 2007
OP Bhatt was named the CNN-IBN ‘Indian of the Year’ for Business in 2007
OP Bhatt received the 2007 ‘Transformational Leader Award’ from Asian Centre for Corporate Governance &
Sustainability
*The list is not exhaustive.

380

Foot Notes
1.

“State Bank of India: AGM Speech,”
www.indiainfoline.com, June 25, 2007.

2.

Nischal Arora, “SBI Shrugs off Bear Hug; Lucknow Circle
Records 50% Jump in Profit,” http://
timesofindia.indiatimes.com, December 12, 2008.

The Reserve Bank of India (RBI) is the central bank of
India and regulates the Indian banking sector.

10.

As of the mid-2000s, the foreign banks were not allowed
to buy more than a 5 percent stake in any domestic bank.
These banks also had restrictions on opening multiple
branches.

11.

State Bank of India Act, 1955.

12.

Punjab National Bank, headquartered in New Delhi,
India, is a leading public sector bank in India.

“State Bank of India: Chairman’s Speech,”
www.moneycontrol.com, 2008.

3.

9.

4.

Abhijit V. Banerjee, Shawn Cole, and Esther Duflo,
“Banking Reform in India”, www.mit.edu, June 2004.

13.

5.

The Narasimham committee on banking reforms set up
by the GoI, was chaired by M. Narasimham.

www.financialexpress.com/news/sbi-icici-bank-haveroom-for-rate-cuts-pnb-chief/443101/

14.

6.

ICICI Bank, headquartered in Mumbai, India, is India’s
largest private sector bank in market capitalization and
the second largest overall in terms of assets. It had total
assets worth Rs. 3,997.95 billion as of March 31, 2008.

7.

HDFC Bank, headquartered in Mumbai, India, is one of
the leading private sector banks in India.
As of
September 30, 2008 the bank had total assets of Rs.
1006.82 billion.

The passing of the State Bank of India (subsidiary banks)
Act, 1959, made The Bank of Bikaner, The Bank of
Jaipur, The Bank of Indore, The Bank of Mysore, The
Bank of Patiala, The Bank of Hyderabad, The Bank of
Saurashtra and The Bank of Travancore subsidiaries of
SBI, further enlarging public sector banking. In 1963, The
State Bank of Bikaner and The State Bank of Jaipur were
amalgamated into The State Bank of Bikaner and Jaipur.

15.

www.sbi.co.in/viewsection.jsp?lang=0&id=0,11,666,671

16.

“State Bank of India,” www.vault.co.in/companies/
company_main.jsp?
product_id=52527&ch_id=306&co_page=2&v=1

17.

McKinsey is a renowned management consulting firm
which advises corporations, non-profit, and government

8.

Axis Bank, headquartered in Mumbai, India, is one of the
leading private sector banks in India. It has assets worth
more than Rs. 1 trillion and its net profit for the year
ended March 31, 2008, was more than Rs. 10 billion.

381

organization clients on strategy initiatives, major
redesigning programs, IT-enabled business solutions,
mergers and acquisitions, and performance and
productivity improvements.

26.

“ S B I V i e s t o b e M o r e C u s t o m e r - f r i e n d l y, ”
www.hinduonnet.com, August 8, 2007.

27.


18.

“Business Process Reengineering – A New SBI,”
www.freelists.org, May 5, 2004.

28.

“Brief Profile of Shri O.P. Bhatt - Chairman, State Bank of
India,” www.lse.ac.uk.

19.

Shyamal Majumdar and Rajendra Palande, “Lunch with
BS: O P Bhatt,” www.business-standard.com, August 14,
2007.

29.

company_main.jsp?

20.

The Banker is an English-language monthly international
financial affairs publication owned by The Financial Times
Ltd.

30.

“ ‘ P a r i v a r t a n ’ P r o g r a m m e U n d e r Wa y a t S B I , ”
www.thehindubusinessline.com, August 3, 2007.

21.

Conference on ‘Igniting the Genius Within’, “SBI – The
T r a n s f o r m a t i o n S t o r y, ” w w w. i s b . e d u / C l i c /
GeniusConference/Presentations/BhattKeynote.pdf.

31.

“State Bank Of India - Presentation Transcript,”
www.slideshare.net/prabhat1111/state-bank-of-indiapresentation

22.

“State Bank Of India — Presentation Transcript,”

32.

“SBI Launches Project Parivartan,”
www.tribuneindia.com, August 11, 2007.

33.

“SBI Starts ‘Energising’ Programme,” www.hindu.com,
August 8, 2007.

34.


35.


23.
24.

25.

“State Bank of India Directors Report,”

382

36.


37.
38.
39.

40.
41.
42.

46.

“ ‘ P a r i v a r t a n ’ P r o g r a m m e U n d e r Wa y a t S B I , ”

Transformation Story,” www.isb.edu/Clic/GeniusConference/

47.

August 8, 2007.


48.


49.

August 8, 2007.

IDBI Capital Market Services Ltd. is a provider of securities
brokerage services to individual, institutional, and corporate
clients.

50.

“State Bank of India: AGM Speech,” www.indiainfoline.com,
June 25, 2007.

“Company Report – State Bank of India,” www.scribd.com,
November 19, 2007.

51.


The Fortune Global 500 is an annual ranking of the top 500
corporations worldwide by revenue. The list is compiled and
published by Fortune magazine.

52.


“State Bank Of India - Presentation Transcript,”

43.

Shyamal Majumdar and Rajendra Palande, “Lunch with BS:
O P Bhatt,” www.business-standard.com, August 14, 2007.

44.


45.


383

1.

2.
3.

Nischal Arora, “SBI Shrugs off Bear Hug; Lucknow
Circle Records 50% Jump in Profit,” http://
timesofindia.indiatimes.com, December 12, 2008.
“State Bank of India: Chairman’s Speech,”
“State Bank of India: Directors Report,”

4.

“Company Report – State Bank of India,”
www.scribd.com, November 19, 2007.


13.

State Bank of India, Annual Report, 2006-2007.

14.

Abhijit V. Banerjee, Shawn Cole, and Esther Duflo,
“Banking Reform in India,” www.mit.edu, June 2004.

15.

“Business Process Reengineering – A New SBI,”
www.freelists.org, May 5, 2004.

16.

Vivek Gupta and K Yamini Aparna, “State Bank of
India: Competitive Strategy of a Market Leader,”
www.icmrindia.org, 2004.

17.

“Brief Profile of Shri O.P. Bhatt - Chairman, State
Bank of India,” www.lse.ac.uk.

18.


19.

company_main.jsp?

20.

“State Bank Of India – Presentation Transcript,”

21.

www.financialexpress.com/news/sbi-icici-bank-haveroom-for-rate-cuts-pnb-chief/443101/

State Bank of India, Annual Report, 2007-2008.

5.

12.

6.

7.
8.

Shyamal Majumdar and Rajendra Palande, “Lunch
with BS: O P Bhatt,” www.business-standard.com,
August 14, 2007.
“ S B I L a u n c h e s P a r i v a r t a n a t S r i n a g a r, ”
www.greaterkashmir.com, August 22, 2007.
“SBI Launches Project Parivartan,”
www.tribuneindia.com, August 11, 2007.

9.

August 8, 2007.

10.

“ S B I Vi e s t o b e M o r e C u s t o m e r - f r i e n d l y, ”

11.

“‘Parivartan’ Programme Under Way at SBI,”
384

22.

www.moneycontrol.com/india/stockpricequote/
bankspublicsector/statebankindia/12/12/profitloss/
marketprice/SBI

23.

www.sbi.co.in

24.

www.statebankofindia.com

385

C HAPTER 15

Stress Management
Factors such as increasing competition, corporate
restructuring, and downsizing have compelled
employees to work longer hours to meet their deadlines.
Organizations also try to generate more output from
fewer people in a shorter span of time. This trend
pressurizes employees leading to negative
consequences such as burnout, high turnover,
aggression and stress. Work stress has become the
latest corporate catchword and is a reason for genuine
concern. Forbes magazine estimates that the American
industry will lose $300 billion per annum due to
absenteeism, health costs and stress management
programs. Some of the symptoms of stress are
headaches, obesity, insomnia and depression. These
symptoms have an effect on employee performance.
The implications of work-related stress becomes
obvious by understanding the meaning of stress and
various causes that induces work-related stress. After
studying this chapter, you will be able to understand:
Definition of stress
The General Adaptation syndrome

Causes and types of stress
The effects of occupational stress
Various strategies to cope with stress

Section1

Stress
Definition of Stress
Completing a project on time, preparing a complicated
report, taking a final exam, and giving a formal speech are
some situations where an individual may find himself
under stress. Many behavioral experts agree that stress is
an individual’s response to a physical, psychological, or
emotional stimulus.
Gregory Moorhead and Ricky W.Griffin define stress as “a
person’s adaptive
response to a
stimulus that places
excessive
psychological and
physical demands on
him or her.” According
to this definition,
stress is induced by a
stimulus known as a
stressor. Stressors
may be physical or
Source: www.cursoer.com
psychological in nature

and place excessive demands on the individual. People
adjust or adapt to them in a variety of ways.
Stephen P Robbins defines stress as “a dynamic condition
in which an individual is confronted with an opportunity,
constraint, or demand related to what he or she desires
and for which the outcome is perceived to be both
uncertain and important.” T.A. Beehr and J. E. Newman
define job stress as “a condition arising from the
interaction of people and their jobs and characterized by
changes within people that force them to deviate from
their normal functioning.”
General Adaptation Syndrome (GAS)
According to Dr. Hans Selye, an endocrinologist and a
pioneer in stress research, stress is a constant feature of
our daily lives. His most important contributions to the field
of organizational behavior are the concepts of ‘eustress’
and ‘distress’ and the phenomenon of the ‘general
adaptation syndrome’. Although stress is generally viewed
as a negative emotion, Seyle believes that it can be both
positive and negative. He coined the term eustress to
describe the positive side of stress. The word eustress is
derived from the Greek word ‘eu’, which means ‘good.’
387

Positive stress is a pleasant form of stress caused by
desirable stimuli. Some examples of positive stress are
excelling in an examination, or being offered a job
promotion, etc. Positive stress enhances a person’s
performance. On the other hand, negative stress or distress
can cause mental agitation. For example, financial troubles
and heavy workload tend to make a person agitated.
Prolonged exposure to negative stress can have many
harmful effects on the individual.

increased heartbeat, blood pressure, and rate of respiration.
These changes are triggered in the body to meet the
challenges posed by the stressor. On prolonged exposure to
a stressor, the GAS moves to the second stage, i.e. the
resistance stage. In this stage, the person tries to cope with
the stressor or flee the stressor. If the person opts to cope
with the stressor, he will devise a plan to complete the task
assigned to him. If he opts to flee from the stressor, he will
delegate the task to someone else. However, if the person is
exposed to the stressor for a longer period, he feels drained
and reaches the final stage of exhaustion. In this stage, the
individual is depleted of all energy and may be on the verge
of a breakdown.
When a person does not want to perform a particular activity
or is unable to do it well, he may feel exhausted and
frustrated. Prolonged exposure to such a situation may
result in either depression, nervous breakdown, or burnout.


The GAS refers to the defensive reactions designed to help
a person cope with any environmental demand perceived as
threatening. A person may feel stressed out due to an
illness, excessive work pressure, tight deadlines or bad
working conditions. The GAS outlines three stages in coping
with such stress situations. They are the alarm stage, the
resistance stage and the exhaustion stage. In the alarm
stage, the external stressor causes biochemical and
physiological changes in the body, such as an increase in
the secretions of the adrenal and the pituitary glands,
388

Section 2

Causes and Types of Stress
The various causes of stress are discussed in the following
keynote (15.2.1):
Keynote 15.2.1: Categories of Stress

Source: Internal
Source:www.evolvedcoaching.co.za

There are many causes of stress. Stressors could be
present either within the organization or outside it. In
addition to this, individuals could also feel stressed out due
to the influence of various groups that they come in contact
with and also due to certain factors present within
themselves.

Extra-organizational Stressors
Since organizations are open systems, an employee is
affected not only by the things happening within the
organization but also by those which occur outside it. The
various extra-organizational stressors include social and
technological changes, family problems, relocation to a

389

new place, economic and financial conditions, race, class,
residential and community conditions.
Organizational Stressors
Certain macro-level aspects of the organizations also act as
potential stressors. These aspects are distinct and differ from
organization to organization. Fred Luthans, who has written
on organizational behavior, has described various macro-level
organizational stressors which can have an effect on the
individuals. Some of these stressors such as administrative
policies and strategies, organizational structure and design,
organizational processes and working conditions have been
shown in the following keynote.

Individual Stressors
Since each individual is unique, the same stressor will not
produce similar reactions in all individuals. Fred Luthans
suggests that a person’s disposition as well as the demands
of the situation are responsible for the way a person
perceives stress. Individual stressors also include role conflict
and ambiguity, and various aspects of the individual’s
disposition such as Type A personality patterns, personal
control, learned helplessness, self-efficacy and psychological
hardiness.

People also feel disgruntled when they do not have enough
tasks to keep them busy, or if their skills and talents are
underutilized. Under-utilization of a person’s skills causes
various symptoms of stress, such as fatigue, frequent
absence, susceptibility to physical injury, apathy, and
aloofness. Employees experience role ambiguity when they
are unclear about their roles in a given job.
Group Stressors
Groups tend to have a great impact on the behavior of their
members and others who come in contact with them. Groups
can also cause stress. The various group factors that can act
as potential stressors are shown in the keynote.

390

Section 3

The Effects of Occupational Stress
minimal resistance to change and perform well in their
jobs. In certain occupations, such as in sales or creative
fields, low levels of stress are beneficial and provide the
necessary impetus for enhanced performance. However,
stress may not always prove to be beneficial. High levels
of stress may have an adverse effect on the performance
of an individual. The dysfunctional effects of high stress
levels can manifest themselves in various forms, i.e., the
individual may have either physical, psychological, or
behavioral problems due to high stress levels. These
problems have been discussed in the following keynote
(15.3.1).
Keynote 15.3.1: Effects of
Occupational Stress
Source:www.signs-of-stress.com

Various research studies have revealed that mild stress,
such as a transfer or working under a different supervisor
can improve the performance of individuals. Thus low
levels of stress have a positive influence on employees,
enabling them to think creatively and look for innovative
ways to do things. Mild stress also energizes
employees. Consequently, they are more active, offer

Source: Internal
391

Stress and Performance
Various researchers have tried to understand the relationship
between stress and performance. They feel that a moderate
amount of stress is necessary to improve a person’s
performance. If the person has a stress-free job, he may
become bored and apathetic. If a person faces an optimal
level of stress at work, he tends to be more active and focused
in his tasks. After reaching the optimal level, if a person is
exposed to continuous stress over a long period, he may not
be able to perform effectively. Constant exposure to high levels
of stress drains a person of energy. A person’s performance
can be seriously impaired by high exposure to stress. For
example, a student may not be able to remember certain
topics even though he has learnt them extremely well. This
relationship between stress and performance is depicted in the
form of an inverted U-curve as shown in following figure.

Figure 15.3.1: Stress and Performance

Source: Curtis W. Cook, Phillip L. Hunsaker and Robert E. Coffey, Management and Organizational Behavior, 2nd edition
(USA: Irwin, 1997) 515.

392

Section 4

Strategies to Cope with Stress
It is not possible to eliminate stress altogether from
everyday life. However, every individual can learn to
manage stress in a productive and satisfactory manner.
Various methods can be used to combat stress at both the
individual and the organizational level. At either of these
levels, stress management follows three basic steps. The
first step in stress management is understanding that
stress can have a negative effect on both a person’s
behavior and his performance at work. Therefore, the
management as well as individual employees should
realize that poor performance, irritability, aggression,
absenteeism, etc., are all symptoms of a person
undergoing stress. The second step in stress management
involves identifying those stressors which affect the
individual’s behavior and performance at work. The final
step, which is the most important, involves taking some
constructive measures to help the individual cope with
stress effectively. There are two methods that people as
well as organizations can use to manage stress effectively.
In the first method, they should identify the stressors

responsible for their negative symptoms and either
eliminate or modify these stressors so that the resultant
stress is manageable. Such strategies, which try to
eliminate or modify the stressor, are called problemfocused strategies. The other way to cope with stress is by
teaching people how to control their emotions so that they
are not negatively affected by stress. Such strategies are
termed as emotion-focused strategies.
Video - Workplace Stress

v=70CchnxJb9A&feature=related

393

Individual Strategies to Cope With Stress

Promoting open communication within the organization

Problem-focused strategies

Employee assistance programs

Time management

Mentoring

Requesting others for help

Wellness programs and personal time off

Shifting to another job
Emotion-focused strategies
Relaxation

Exercise
Psychological strategies
Recreation
Companionship
Organizational Strategies to Cope With Stress
Problem-focused strategies
Redesigning the job
Proper selection and placement
Training
Team building
Providing various day care facilities
Emotion-focused strategies
394

Review 15.1
Question 1 of 8
A condition arising from the interaction of people and their jobs and characterized by changes
within people that force them to deviate from
their normal functioning is defined as

Interactive 15.4.1:
Crossword - 3

A. Stress
B. Conflict


C. Rumor
D. Grievance

Check Answer

395

CHAPTER 2

Diversity
Workplace diversity is a people issue, focused on the differences and similarities that
people bring to an organization. It is usually defined broadly to include dimensions beyond those specified legally in equal opportunity and affirmative action nondiscrimination statutes. Diversity is often interpreted to include dimensions which influence the identities and perspectives that people bring, such as profession, education,
parental status and geographic location.

Related Glossary Terms
Drag related terms here

Index

Find Term

Chapter 1 - OB in the Context of Globalization and Workforce Diversity

Emotional competencies
Emotional competence refers to one's ability to express or release one's inner feelings
(emotions). It implies an ease around others and determines one's ability to effectively
and successfully lead and express. It is described as the essential social skills to recognize, interpret, and respond constructively to emotions in yourself and others


Index

Find Term

Chapter 5 - Personality Traits and the Big Five Model

Force field analysis
Force field analysis provides a framework for looking at the factors (forces) that influence a situation, originally social situations. It looks at forces that are either driving
movement toward a goal (helping forces) or blocking movement toward a goal (hindering forces). The principle, developed by Kurt Lewin, is a significant contribution to the
fields of social science, psychology, social psychology, organizational development,
process management, and change management.[


Index

Find Term

Formalization
Degree of formalization is the extent that roles are independent of specific personal attributes of individuals occupying the roles. Formalization tries to standardize and regulate behavior.


Index

Find Term

Chapter 7 - Types of Groups

Group dynamics
Group dynamics refers to a system of behaviors and psychological processes occurring within a social group (intragroup dynamics), or between social groups (intergroup
dynamics). The study of group dynamics can be useful in understanding decisionmaking behavior, tracking the spread of diseases in society, creating effective therapy
techniques, and following the emergence and popularity of new ideas and technologies.


Index

Find Term

Chapter 7 - Nature of Groups

Group polarization
In social psychology, group polarization refers to the tendency for groups to make decisions that are more extreme than the initial inclination of its members.


Index

Find Term

Chapter 7 - Group Properties and Group Decision-Making

Intrinsically motivated
Intrinsic motivation refers to motivation that is driven by an interest or enjoyment in the
task itself, and exists within the individual rather than relying on any external pressure.


Index

Find Term

Chapter 6 - Introduction to Motivation

Negotiation
Negotiation is a dialogue between two or more people or parties, intended to reach an
understanding, resolve point of difference, or gain advantage in outcome of dialogue,
to produce an agreement upon courses of action, to bargain for individual or collective
advantage, to craft outcomes to satisfy various interests of two people/parties involved
in negotiation process.


Index

Find Term

Chapter 11 - Negotiation

Personality
Personality is the particular combination of emotional, attitudinal, and behavioral response patterns of an individual. Different personality theorists present their own definitions of the word based on their theoretical positions.


Index

Find Term

Chapter 5 - Personality

Pop psychology
Pop psychology (short for popular psychology) is a term used to describe various
types of mental strategies that may or may not be scientifically proven, but are purportedly designed to improve one’s psychological well-being and promote a healthier life.
Pop psychology includes a wide and ever-changing set of theoretical practices popularized by general public acceptance.


Index

Find Term

Chapter 5 - Personality Traits and the Big Five Model

Role plays
Role-playing refers to the changing of one's behaviour to assume a role, either unconsciously to fill a social role, or consciously to act out an adopted role.


Index

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Chapter 7 - Nature of Groups

Organisational behaviour part 1

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Organisational behaviour part 1