Global competition has forced businesses to change how they manage at home and abroad. The increasing rate of change, technological advances, shorter product life cycles, and high-speed communications are all factors that contribute to these changes. The new management approach focuses on establishing a new communication system that features a high level of employee involvement. Organizational structures must also be flexible enough to change with changing market conditions. Ongoing staff development programs and design-control procedures, which are understandable and acceptable, are outcomes from this new approach. Management values are changing, and managers must now have a vision and be able to communicate the vision to everyone in the firm
Although the international manager performs the same basic functions as the domestic manager, he must adjust to more variables and environments. Therefore, each of the five basic management functions must change when operating in a foreign market.
Planning
The first stage of international planning is to decide how to do business globally: whether to export, to enter into licensing agreements or joint ventures, or to operate as a multinational corporation with facilities in a foreign country.
To develop forecasts, goals, and plans for international activities, the manager must monitor environments very closely. Key factors include political instability, currency instability, competition from governments, pressures from governments, patent and trademark protection, and intense competition.
International firms should be sure that their plans fit the culture of the host country. Typically, U.S. firms feel that long-term plans should be three to five years in length; but in some cultures, this time period is too short. Many countries must plan with the assistance of governmental agencies. And working through bureaucratic structures, policies, and procedures is often time-consuming.
Organizing
International businesses must be organized so that they can adapt to cultural and environmental differences. No longer can organizations just put “carbon copies” or clones of themselves in foreign countries. An international firm must be organized so that it can be responsive to foreign customers, employees, and suppliers. An entire firm may even be organized as one giant worldwide company that has several divisions. Above all, the new organization must establish a very open communication system where problems, ideas, and grievances can quickly be heard and addressed at all levels of management. Without this, employees will not get involved, and their insights and ideas are crucial to the success of the business.
As an organization extends its operations internationally, it needs to adapt its structure. When the organization increases its international focus, it goes through the following three phases of structural change:
1. Pre-international stage. Companies with a product or service that incorporates the latest technology, is unique, or is superior may consider themselves ready for the international arena. The first strategy used to introduce a product to a foreign market is to find a way to export the product. At this phase, the firm adds an export manager as part of the marketing department and finds foreign partners.
2. International division stage. Pressure may mount through the enforcement of host country laws, trade restrictions, and competition, placing a company at a cost disadvantage. When a company decides to defend and expand its foreign market position by establishing marketing or production operations in one or more host countries, it establishes a separate international division. In turn, foreign operations begin, and a vice president, reporting directly to the president or CEO, oversees the operations.
3. Global structure stage. A company is ready to move away from an international division phase when it meets the following criteria:
• The international market is as important to the company as the domestic market.
• Senior officials in the company possess both foreign and domestic experience.
• International sales represent 25 to 35 percent of total sales.
• The technology used in the domestic division has far outstripped that of the international division.
As foreign operations become more important to the bottom line, decision making becomes more centralized at corporate headquarters. A functional product group, geographic approach, or a combination of these approaches should be adopted. The firm unifies international activities with worldwide decisions at world headquarters.
Staffing
Because obtaining a good staff is so critical to the success of any business, the hiring and development of employees must be done very carefully. Management must be familiar with the country's national labor laws. Next, it must decide how many managers and personnel to hire from the local labor force and whether to transfer home-based personnel.
For example, U.S. firms are better off hiring local talent and using only a few key expatriates in most cases, because the costs of assigning U.S.–based employees to positions overseas can be quite expensive. Simply, expatriates (people who live and work in another country) are expensive propositions even when things go well. Adding up all the extras—higher pay, airfare for family members, moving expenses, housing allowances, education benefits for the kids, company car, taxes, and home leave—means that the first year abroad often costs the multinational company many times the expatriate's base salary. The total bill for an average overseas stay of four years can easily top $1 million per expatriate. In any case, managers need to closely examine how to select and prepare expatriates.
Directing
Cultural differences make the directing function more difficult for the international manager. Employee attitudes toward work and problem solving differ by country. Language barriers also create communication difficulties. To minimize problems arising from cultural differences, organizations are training managers in cross-cultural management. Cross-cultural management trains managers to interact with several cultures and to value diversity.
In addition, the style of leadership that is acceptable to employees varies from nation to nation. In countries like France and Germany, informal relations with employees are discouraged. In Sweden and Japan, however, informal relations with employees are strongly encouraged, and a very participative leadership style is used. Incentive systems also vary tremendously. The type of incentives used in the U.S. may not work in Europe or Japan, where stable employment and benefits are more important than bonuses.
Controlling
Geographic dispersion and distance, language barriers, and legal restrictions complicate the controlling function. Meetings, reporting, and inspections are typically part of the international control system.
Controlling poses special challenges if a company engages in multinational business because of the far-flung scope of operations and the differing influences of diverse environments. Controlling operations is nonetheless a crucial function for multinational managers. In many countries, bonuses, pensions, holidays, and vacation days are legally mandated and considered by many employees as rights. Particularly powerful unions exist in many parts of the world, and their demands restrict managers' freedom to operate.
Tuesday, April 20, 2010
International Environment
International managers face intense and constant challenges that require training and understanding of the foreign environment. Managing a business in a foreign country requires managers to deal with a large variety of cultural and environmental differences. As a result, international managers must continually monitor the political, legal, sociocultural, economic, and technological environments
The political environment
The political environment can foster or hinder economic developments and direct investments. This environment is ever-changing. As examples, the political and economic philosophies of a nation's leader may change overnight. The stability of a nation's government, which frequently rests on the support of the people, can be very volatile. Various citizen groups with vested interests can undermine investment operations and opportunities. And local governments may view foreign firms suspiciously.
Political considerations are seldom written down and often change rapidly. For example, to protest Iraq's invasion of Kuwait in 1990, many world governments levied economic sanctions against the import of Iraqi oil. Political considerations affect international business daily as governments enact tariffs (taxes), quotas (annual limits), embargoes (blockages), and other types of restriction in response to political events.
Businesses engaged in international trade must consider the relative instability of countries such as Iraq, South Africa, and Honduras. Political unrest in countries such as Peru, Haiti, Somalia, and the countries of the former Soviet Union may create hostile or even dangerous environments for foreign businesses. In Russia, for example, foreign managers often need to hire bodyguards; sixteen foreign businesspeople were murdered there in 1993. Civil war, as in Chechnya and Bosnia, may disrupt business activities and place lives in danger. And a sudden change in power can result in a regime that is hostile to foreign investment; some businesses may be forced out of a country altogether. Whether they like it or not, companies are often involved directly or indirectly in international politics.
The legal enviroment
The American federal government has put forth a number of laws that regulate the activities of U.S. firms engaged in international trade. However, once outside U.S. borders, American organizations are likely to find that the laws of the other nations differ from those of the U.S. Many legal rights that Americans take for granted do not exist in other countries; a U.S. firm doing business abroad must understand and obey the laws of the host country.
In the U.S., the acceptance of bribes or payoffs is illegal; in other countries, the acceptance of bribes or payoffs may not be illegal—they may be considered a common business practice. In addition, some countries have copyright and patent laws that are less strict than those in the U.S., and some countries fail to honor these laws. China, for example, has recently been threatened with severe trade sanctions because of a history of allowing American goods to be copied or counterfeited there. As a result, businesses engaging in international trade may need to take extra steps to protect their products because local laws may be insufficient to protect them.
The economic environment
Managers must monitor currency, infrastructure, inflation, interest rates, wages, and taxation. In assessing the economic environment in foreign countries, a business must pay particular attention to the following four areas:
• Average income levels of the population. If the average income for the population is very low, no matter how desperately this population needs a product or service, there simply is not a market for it.
• Tax structures. In some countries, foreign firms pay much higher tax rates than domestic competitors. These tax differences may be very obvious or subtle, as in hidden registration fees.
• Inflation rates. In the U.S., for example, inflation rates have been quite low and relatively stable for several years. In some countries, however, inflation rates of 30, 40, or even 100 percent per year are not uncommon. Inflation results in a general rise in the level of prices, and impacts business in many ways. For example, in the mid-1970s, a shortage of crude oil led to numerous problems because petroleum products supply most of the energy required to produce goods and services and to transport goods around the world. As the cost of petroleum products increased, a corresponding increase took place in the cost of goods and services. As a result, interest rates increased dramatically, causing both businesses and consumers to reduce their borrowing. Business profits fell as consumers' purchasing power was eroded by inflation. High interest rates and unemployment reached alarmingly high levels.
• Fluctuating exchange rates. The exchange rate, or the value of one country's currency in terms of another country's currency, is determined primarily by supply and demand for each country's goods and services. The government of a country can, however, cause this exchange rate to change dramatically by causing high inflation—by printing too much currency or by changing the value of the currency through devaluation. A foreign investor may sustain large losses if the value of the currency drops substantially.
When doing business abroad, businesspeople need to recognize that they cannot take for granted that other countries offer the same things as are found in industrialized nations. A country's level of development is often determined in part by its infrastructure. The infrastructure is the physical facilities that support a country's economic activities, such as railroads, highways, ports, utilities and power plants, schools, hospitals, communication systems, and commercial distribution systems. When doing business in less developed countries, a business may need to compensate for rudimentary distribution and communication systems.
The sociocultural environment
Cultural differences, which can be very subtle, are extremely important. An organization that enters the international marketplace on virtually any level must make learning the foreign country's cultural taboos and proper cultural practices a high priority. If a business fails to understand the cultural methods of doing business, grave misunderstandings and a complete lack of trust may occur.
Management differences also exist. In China, a harmonious environment is more important than day-to-day productivity. In Morocco, women can assume leadership roles, but they are usually more self-conscious than American women. In Pakistan, women are not often found in management positions, if they're in the workplace at all.
In addition, the importance of work in employees' lives varies from country to country. For example, the Japanese feel that work is an important part of their lives. This belief in work, coupled with a strong group orientation, may explain the Japanese willingness to put up with things that workers in other countries would find intolerable.
Likewise, culture may impact what employees find motivating, as well as how they respond to rewards and punishments. For example, Americans tend to emphasize personal growth, accomplishment, and “getting what you deserve” for performance as the most important motivators. However, in Asian cultures, maintaining group solidarity and promoting group needs may be more important than rewarding individual achievements.
Finally, language differences are particularly important, and international managers must remember that not all words translate clearly into other languages. Many global companies have had difficulty crossing the language barrier, with results ranging from mild embarrassment to outright failure. For example, in regards to marketing, seemingly innocuous brand names and advertising phrases can take on unintended or hidden meanings when translated into other languages. Advertising themes often lose or gain something in translations. The English Coors beer slogan “get loose with Coors” came out as “get the runs with Coors” in Spanish. Coca-Cola's English “Coke adds life” theme translated into “Coke brings your ancestors back from the dead” in Japanese. In Chinese, the English Kentucky Fried Chicken slogan “finger-lickin' good” came out as “eat your fingers off.”
Such classic boo-boos are soon discovered and corrected; they may result in little more than embarrassments for companies. Managers should keep in mind that countless other, more subtle blunders may go undetected and damage product performance in less obvious ways.
The technological environment
The technological environment contains the innovations, from robotics to cellular phones, that are rapidly occurring in all types of technology. Before a company can expect to sell its product in another country, the technology of the two countries must be compatible.
Companies that join forces with others will be able to quicken the pace of research and development while cutting the costs connected with utilizing the latest technology. Regardless of the kind of business a company is in, it must choose partners and locations that possess an available work force to deal with the applicable technology. Many companies have chosen Mexico and Mexican partners because they provide a willing and capable work force. GM's plant in Arizpe, Mexico, rivals its North American plants in quality.
Consumer safety in a global marketplace
The United States leads the world in spending on research and development. As products and technology become more complex, the public needs to know that they are safe. Thus, government agencies investigate and ban potentially unsafe products. In the United States, the Federal Food and Drug Administration has set up complex regulations for testing new drugs. The Consumer Product Safety Commission sets safety standards for consumer products and penalizes companies that fail to meet them. Such regulations have resulted in much higher research costs and in longer times between new product ideas and their introduction. This is not always true in other countries.
The political environment
The political environment can foster or hinder economic developments and direct investments. This environment is ever-changing. As examples, the political and economic philosophies of a nation's leader may change overnight. The stability of a nation's government, which frequently rests on the support of the people, can be very volatile. Various citizen groups with vested interests can undermine investment operations and opportunities. And local governments may view foreign firms suspiciously.
Political considerations are seldom written down and often change rapidly. For example, to protest Iraq's invasion of Kuwait in 1990, many world governments levied economic sanctions against the import of Iraqi oil. Political considerations affect international business daily as governments enact tariffs (taxes), quotas (annual limits), embargoes (blockages), and other types of restriction in response to political events.
Businesses engaged in international trade must consider the relative instability of countries such as Iraq, South Africa, and Honduras. Political unrest in countries such as Peru, Haiti, Somalia, and the countries of the former Soviet Union may create hostile or even dangerous environments for foreign businesses. In Russia, for example, foreign managers often need to hire bodyguards; sixteen foreign businesspeople were murdered there in 1993. Civil war, as in Chechnya and Bosnia, may disrupt business activities and place lives in danger. And a sudden change in power can result in a regime that is hostile to foreign investment; some businesses may be forced out of a country altogether. Whether they like it or not, companies are often involved directly or indirectly in international politics.
The legal enviroment
The American federal government has put forth a number of laws that regulate the activities of U.S. firms engaged in international trade. However, once outside U.S. borders, American organizations are likely to find that the laws of the other nations differ from those of the U.S. Many legal rights that Americans take for granted do not exist in other countries; a U.S. firm doing business abroad must understand and obey the laws of the host country.
In the U.S., the acceptance of bribes or payoffs is illegal; in other countries, the acceptance of bribes or payoffs may not be illegal—they may be considered a common business practice. In addition, some countries have copyright and patent laws that are less strict than those in the U.S., and some countries fail to honor these laws. China, for example, has recently been threatened with severe trade sanctions because of a history of allowing American goods to be copied or counterfeited there. As a result, businesses engaging in international trade may need to take extra steps to protect their products because local laws may be insufficient to protect them.
The economic environment
Managers must monitor currency, infrastructure, inflation, interest rates, wages, and taxation. In assessing the economic environment in foreign countries, a business must pay particular attention to the following four areas:
• Average income levels of the population. If the average income for the population is very low, no matter how desperately this population needs a product or service, there simply is not a market for it.
• Tax structures. In some countries, foreign firms pay much higher tax rates than domestic competitors. These tax differences may be very obvious or subtle, as in hidden registration fees.
• Inflation rates. In the U.S., for example, inflation rates have been quite low and relatively stable for several years. In some countries, however, inflation rates of 30, 40, or even 100 percent per year are not uncommon. Inflation results in a general rise in the level of prices, and impacts business in many ways. For example, in the mid-1970s, a shortage of crude oil led to numerous problems because petroleum products supply most of the energy required to produce goods and services and to transport goods around the world. As the cost of petroleum products increased, a corresponding increase took place in the cost of goods and services. As a result, interest rates increased dramatically, causing both businesses and consumers to reduce their borrowing. Business profits fell as consumers' purchasing power was eroded by inflation. High interest rates and unemployment reached alarmingly high levels.
• Fluctuating exchange rates. The exchange rate, or the value of one country's currency in terms of another country's currency, is determined primarily by supply and demand for each country's goods and services. The government of a country can, however, cause this exchange rate to change dramatically by causing high inflation—by printing too much currency or by changing the value of the currency through devaluation. A foreign investor may sustain large losses if the value of the currency drops substantially.
When doing business abroad, businesspeople need to recognize that they cannot take for granted that other countries offer the same things as are found in industrialized nations. A country's level of development is often determined in part by its infrastructure. The infrastructure is the physical facilities that support a country's economic activities, such as railroads, highways, ports, utilities and power plants, schools, hospitals, communication systems, and commercial distribution systems. When doing business in less developed countries, a business may need to compensate for rudimentary distribution and communication systems.
The sociocultural environment
Cultural differences, which can be very subtle, are extremely important. An organization that enters the international marketplace on virtually any level must make learning the foreign country's cultural taboos and proper cultural practices a high priority. If a business fails to understand the cultural methods of doing business, grave misunderstandings and a complete lack of trust may occur.
Management differences also exist. In China, a harmonious environment is more important than day-to-day productivity. In Morocco, women can assume leadership roles, but they are usually more self-conscious than American women. In Pakistan, women are not often found in management positions, if they're in the workplace at all.
In addition, the importance of work in employees' lives varies from country to country. For example, the Japanese feel that work is an important part of their lives. This belief in work, coupled with a strong group orientation, may explain the Japanese willingness to put up with things that workers in other countries would find intolerable.
Likewise, culture may impact what employees find motivating, as well as how they respond to rewards and punishments. For example, Americans tend to emphasize personal growth, accomplishment, and “getting what you deserve” for performance as the most important motivators. However, in Asian cultures, maintaining group solidarity and promoting group needs may be more important than rewarding individual achievements.
Finally, language differences are particularly important, and international managers must remember that not all words translate clearly into other languages. Many global companies have had difficulty crossing the language barrier, with results ranging from mild embarrassment to outright failure. For example, in regards to marketing, seemingly innocuous brand names and advertising phrases can take on unintended or hidden meanings when translated into other languages. Advertising themes often lose or gain something in translations. The English Coors beer slogan “get loose with Coors” came out as “get the runs with Coors” in Spanish. Coca-Cola's English “Coke adds life” theme translated into “Coke brings your ancestors back from the dead” in Japanese. In Chinese, the English Kentucky Fried Chicken slogan “finger-lickin' good” came out as “eat your fingers off.”
Such classic boo-boos are soon discovered and corrected; they may result in little more than embarrassments for companies. Managers should keep in mind that countless other, more subtle blunders may go undetected and damage product performance in less obvious ways.
The technological environment
The technological environment contains the innovations, from robotics to cellular phones, that are rapidly occurring in all types of technology. Before a company can expect to sell its product in another country, the technology of the two countries must be compatible.
Companies that join forces with others will be able to quicken the pace of research and development while cutting the costs connected with utilizing the latest technology. Regardless of the kind of business a company is in, it must choose partners and locations that possess an available work force to deal with the applicable technology. Many companies have chosen Mexico and Mexican partners because they provide a willing and capable work force. GM's plant in Arizpe, Mexico, rivals its North American plants in quality.
Consumer safety in a global marketplace
The United States leads the world in spending on research and development. As products and technology become more complex, the public needs to know that they are safe. Thus, government agencies investigate and ban potentially unsafe products. In the United States, the Federal Food and Drug Administration has set up complex regulations for testing new drugs. The Consumer Product Safety Commission sets safety standards for consumer products and penalizes companies that fail to meet them. Such regulations have resulted in much higher research costs and in longer times between new product ideas and their introduction. This is not always true in other countries.
MNC
In the period after World War One, America fell under the sway of “America First” thinking. In 1929, a great financial disaster occurred, and America suffered its worst depression. At first, laissez faire economic methods were adopted, but with the election of Franklin Roosevelt, a British economist's theories were tried. John Maynard Keynes came up with the idea that government should “prime the pump” of the national economy with spending programs. It seemed to work. After World War II, America took the opposite approach and helped its world neighbors rebuild their economies
The die was cast for more international involvement. Before many years had passed, American companies had invested money in many foreign lands. Revlon, Coca-Cola, GM, most of the oil companies, and even major banks all had large international operations.
If a company wants to venture into the international marketplace, it can use several different methods. In each case, the levels of risk and control move together. The four most common approaches include the following:
• Exporting. The selling of an organization's products to a foreign broker or agent is known as exporting. The organization has virtually no control over how products are marketed after the foreign broker or agent purchases them. Because the investment is relatively small, exporting is a low-risk method of entering foreign markets. The only real danger here is what the foreign agent might do with the products to hurt the organization's or product's image.
• Licensure agreement. This approach allows a foreign firm to either manufacture or sell products, or the right to place a brand name or symbols on products. Disney World, for example, has licensure agreements with many foreign firms. This approach provides more control than an export sale, as a firm can require that certain specifications be met, yet it is still not the manufacturer in the foreign market.
• Multinational approach. With this approach, a firm is willing to make substantial commitment to a foreign market. Normally, products or services are modified to meet the foreign market demands, and in many cases, substantial fixed investments are made in plants and equipment. The most common ways to become a multinational firm are to form joint ventures or global strategic partnerships, or to establish wholly-owned subsidiaries.
• Joint ventures occur when a company forms a partnership with a foreign firm to develop new products or to give each other access to local markets. Normally, the roles and responsibilities of each organization are clearly spelled out in the joint-venture agreement. This approach increases both control and risk.
• Global strategic partnerships are much larger than a simple joint venture. Two firms join together and make a long-term commitment, in the form of time and investments, to develop products or services that will dominate world markets. This approach does not modify products for a particular market but develops a single product market strategy that can be utilized in all markets in hopes of dominating the worldwide market for that product.
• Wholly-owned subsidiaries occur when a firm purchases either controlling interest or all of a foreign firm. Often, the subsidiary firm is given considerable freedom in terms of how to operate in the foreign market, and heavy use of foreign managers and employees is very common. The owning firm does have the most control, but it also has substantial investment risk.
• Vertically integrated wholly-owned subsidiaries exist where a firm owns not only the foreign manufacturer but the foreign distributors and retailers as well. Again, the main emphasis is on dominating a worldwide product or service area with a single product market strategy. True global products are very difficult to develop, and it is even more difficult to dominate all global markets.
Of these approaches, multinational corporations, defined as organizations operating facilities in one or more countries, are major forces in the movement toward the globalization of businesses. Common characteristics of successful multinational corporations include the following:
• Creation of foreign affiliates
• Global visions and strategies
• Engagement in manufacturing or in a restricted number of industries
• Location in developed countries
• Adoption of high-skills staffing strategies, cheap labor strategies, or a mixture of both
The die was cast for more international involvement. Before many years had passed, American companies had invested money in many foreign lands. Revlon, Coca-Cola, GM, most of the oil companies, and even major banks all had large international operations.
If a company wants to venture into the international marketplace, it can use several different methods. In each case, the levels of risk and control move together. The four most common approaches include the following:
• Exporting. The selling of an organization's products to a foreign broker or agent is known as exporting. The organization has virtually no control over how products are marketed after the foreign broker or agent purchases them. Because the investment is relatively small, exporting is a low-risk method of entering foreign markets. The only real danger here is what the foreign agent might do with the products to hurt the organization's or product's image.
• Licensure agreement. This approach allows a foreign firm to either manufacture or sell products, or the right to place a brand name or symbols on products. Disney World, for example, has licensure agreements with many foreign firms. This approach provides more control than an export sale, as a firm can require that certain specifications be met, yet it is still not the manufacturer in the foreign market.
• Multinational approach. With this approach, a firm is willing to make substantial commitment to a foreign market. Normally, products or services are modified to meet the foreign market demands, and in many cases, substantial fixed investments are made in plants and equipment. The most common ways to become a multinational firm are to form joint ventures or global strategic partnerships, or to establish wholly-owned subsidiaries.
• Joint ventures occur when a company forms a partnership with a foreign firm to develop new products or to give each other access to local markets. Normally, the roles and responsibilities of each organization are clearly spelled out in the joint-venture agreement. This approach increases both control and risk.
• Global strategic partnerships are much larger than a simple joint venture. Two firms join together and make a long-term commitment, in the form of time and investments, to develop products or services that will dominate world markets. This approach does not modify products for a particular market but develops a single product market strategy that can be utilized in all markets in hopes of dominating the worldwide market for that product.
• Wholly-owned subsidiaries occur when a firm purchases either controlling interest or all of a foreign firm. Often, the subsidiary firm is given considerable freedom in terms of how to operate in the foreign market, and heavy use of foreign managers and employees is very common. The owning firm does have the most control, but it also has substantial investment risk.
• Vertically integrated wholly-owned subsidiaries exist where a firm owns not only the foreign manufacturer but the foreign distributors and retailers as well. Again, the main emphasis is on dominating a worldwide product or service area with a single product market strategy. True global products are very difficult to develop, and it is even more difficult to dominate all global markets.
Of these approaches, multinational corporations, defined as organizations operating facilities in one or more countries, are major forces in the movement toward the globalization of businesses. Common characteristics of successful multinational corporations include the following:
• Creation of foreign affiliates
• Global visions and strategies
• Engagement in manufacturing or in a restricted number of industries
• Location in developed countries
• Adoption of high-skills staffing strategies, cheap labor strategies, or a mixture of both
Organisational control techniques
Financial controls
After the organization has strategies in place to reach its goals, funds are set aside for the necessary resources and labor. As money is spent, statements are updated to reflect how much was spent, how it was spent, and what it obtained. Managers use these financial statements, such as an income statement or balance sheet, to monitor the progress of programs and plans. Financial statements provide management with information to monitor financial resources and activities. The income statement shows the results of the organization's operations over a period of time, such as revenues, expenses, and profit or loss. The balance sheet shows what the organization is worth (assets) at a single point in time, and the extent to which those assets were financed through debt (liabilities) or owner's investment (equity).
Financial audits, or formal investigations, are regularly conducted to ensure that financial management practices follow generally accepted procedures, policies, laws, and ethical guidelines. Audits may be conducted internally or externally. Financial ratio analysis examines the relationship between specific figures on the financial statements and helps explain the significance of those figures:
• Liquidity ratios measure an organization's ability to generate cash.
• Profitability ratios measure an organization's ability to generate profits.
• Debt ratios measure an organization's ability to pay its debts.
• Activity ratios measure an organization's efficiency in operations and use of assets.
In addition, financial responsibility centers require managers to account for a unit's progress toward financial goals within the scope of their influences. A manager's goals and responsibilities may focus on unit profits, costs, revenues, or investments.
Budget controls
A budget depicts how much an organization expects to spend (expenses) and earn (revenues) over a time period. Amounts are categorized according to the type of business activity or account, such as telephone costs or sales of catalogs. Budgets not only help managers plan their finances, but also help them keep track of their overall spending.
A budget, in reality, is both a planning tool and a control mechanism. Budget development processes vary among organizations according to who does the budgeting and how the financial resources are allocated. Some budget development methods are as follows:
• Top-down budgeting. Managers prepare the budget and send it to subordinates.
• Bottom-up budgeting. Figures come from the lower levels and are adjusted and coordinated as they move up the hierarchy.
• Zero-based budgeting. Managers develop each new budget by justifying the projected allocation against its contribution to departmental or organizational goals.
• Flexible budgeting. Any budget exercise can incorporate flexible budgets, which set “meet or beat” standards that can be compared to expenditures.
Marketing controls
Marketing controls help monitor progress toward goals for customer satisfaction with products and services, prices, and delivery. The following are examples of controls used to evaluate an organization's marketing functions:
• Market research gathers data to assess customer needs—information critical to an organization's success. Ongoing market research reflects how well an organization is meeting customers' expectations and helps anticipate customer needs. It also helps identify competitors.
• Test marketing is small-scale product marketing to assess customer acceptance. Using surveys and focus groups, test marketing goes beyond identifying general requirements and looks at what (or who) actually influences buying decisions.
• Marketing statistics measure performance by compiling data and analyzing results. In most cases, competency with a computer spreadsheet program is all a manager needs. Managers look at marketing ratios, which measure profitability, activity, and market shares, as well as sales quotas, which measure progress toward sales goals and assist with inventory controls.
Unfortunately, scheduling a regular evaluation of an organization's marketing program is easier to recommend than to execute. Usually, only a crisis, such as increased competition or a sales drop, forces a company to take a closer look at its marketing program. However, more regular evaluations help minimize the number of marketing problems.
Human resource controls
Human resource controls help managers regulate the quality of newly hired personnel, as well as monitor current employees' developments and daily performances.
On a daily basis, managers can go a long way in helping to control workers' behaviors in organizations. They can help direct workers' performances toward goals by making sure that goals are clearly set and understood. Managers can also institute policies and procedures to help guide workers' actions. Finally, they can consider past experiences when developing future strategies, objectives, policies, and procedures.
Common control types include performance appraisals, disciplinary programs, observations, and training and development assessments. Because the quality of a firm's personnel, to a large degree, determines the firm's overall effectiveness, controlling this area is very crucial.
Computers and information controls
Almost all organizations have confidential and sensitive information that they don't want to become general knowledge. Controlling access to computer databases is the key to this area.
Increasingly, computers are being used to collect and store information for control purposes. Many organizations privately monitor each employee's computer usage to measure employee performance, among other things. Some people question the appropriateness of computer monitoring. Managers must carefully weigh the benefits against the costs—both human and financial—before investing in and implementing computerized control techniques.
Although computers and information systems provide enormous benefits, such as improved productivity and information management, organizations should remember the following limitations of the use of information technology:
• Performance limitations. Although management information systems have the potential to increase overall performance, replacing long-time organizational employees with information systems technology may result in the loss of expert knowledge that these individuals hold. Additionally, computerized information systems are expensive and difficult to develop. After the system has been purchased, coordinating it—possibly with existing equipment—may be more difficult than expected. Consequently, a company may cut corners or install the system carelessly to the detriment of the system's performance and utility. And like other sophisticated electronic equipment, information systems do not work all the time, resulting in costly downtime.
• Behavioral limitations. Information technology allows managers to access more information than ever before. But too much information can overwhelm employees, cause stress, and even slow decision making. Thus, managing the quality and amount of information available to avoid information overload is important.
• Health risks. Potentially serious health-related issues associated with the use of computers and other information technology have been raised in recent years. An example is carpal tunnel syndrome, a painful disorder in the hands and wrists caused by repetitive movements (such as those made on a keyboard).
Regardless of the control processes used, an effective system determines whether employees and various parts of an organization are on target in achieving organizational objectives
Productivity and Quality
After companies determine customer needs, they must concentrate on meeting those needs by yielding high quality products at an efficient rate. Companies can improve quality and productivity by securing the commitments of all three levels of management and employees as follows
• Top-level management: Implement sound management practices, use research and development effectively, adopt modern manufacturing techniques, and improve time management.
• Middle management: Plan and coordinate quality and productivity efforts.
• Low-level management: Work with employees to improve productivity through acceptance of change, commitment to quality, and continually improving all facets of their work.
Productivity is the relationship between a given amount of output and the amount of input needed to produce it. Profitability results when money is left over from sales after costs are paid. The expenditures made to ensure that the product or service meets quality specifications affect the final or overall cost of the products and/or services involved. Efficiency of costs will be an important consideration in all stages of the market system from manufacturing to consumption. Quality affects productivity. Both affect profitability. The drive for any one of the three must not interfere with the drive for the others. Efforts at improvement need to be coordinated and integrated. The real cost of quality is the cost of avoiding nonconformance and failure. Another cost is the cost of not having quality—of losing customers and wasting resources.
As long as companies continually interact with their customers and various partners, and develop learning relationships between all levels of management and employees, the levels of productivity and quality should remain high.
Total Quality Management (TQM)
Total Quality Management (TQM) is a philosophy that says that uniform commitment to quality in all areas of an organization promotes an organizational culture that meets consumers' perceptions of quality
The concept of TQM rests largely on five principles:
1. Produce quality work the first time.
2. Focus on the customer.
3. Have a strategic approach to improvement.
4. Improve continuously.
5. Encourage mutual respect and teamwork.
To be effective in improving quality, TQM must be supported at all levels of a firm, from the highest executive to the lowest-level hourly employee. TQM extends the definition of quality to all functional areas of the organization, including production, marketing, finance, and information systems. The process begins by listening to customers' wants and needs and then delivering goods and services that fulfill these desires. TQM even expands the definition of customer to include any person inside or outside the company to whom an employee passes his or her work. In a restaurant, for example, the cooks' customers are the waiters and waitresses. This notion encourages each member of the organization to stay focused on quality and remain fully aware of his or her contribution to it and responsibility for it.
The TQM philosophy focuses on teamwork, increasing customer satisfaction, and lowering costs. Organizations implement TQM by encouraging managers and employees to collaborate across functions and departments, as well as with customers and suppliers, to identify areas for improvement, no matter how small. Teams of workers are trained and empowered to make decisions that help their organization achieve high standards of quality. Organizations shift responsibility for quality control from specialized departments to all employees. Thus, total quality management means a shift from a bureaucratic to a decentralized approach to control.
An effective TQM program has numerous benefits. Financial benefits include lower costs, higher returns on sales and investment, and the ability to charge higher rather than competitive prices. Other benefits include improved access to global markets, higher customer retention levels, less time required to develop new innovations, and a reputation as a quality firm. Only a small number of companies use TQM because implementing an effective program involves much time, effort, money, and patience. However, firms with the necessary resources may gain major competitive advantages in their industries by implementing TQM.
Major Contributors to TQM
Total quality management is a much broader concept than just controlling the quality of the product itself. Total quality management is the coordination of efforts directed at improving customer satisfaction, increasing employee participation, strengthening supplier partnerships, and facilitating an organizational atmosphere of continuous quality improvement. TQM is a way of thinking about organizations and how people should relate and work in them. TQM is not merely a technique, but a philosophy anchored in the belief that long-term success depends on a uniform commitment to quality in all sectors of an organization
W. Edwards Deming
The concept of quality started in Japan when the country began to rebuild after World War II. Amidst the bomb rubble, Japan embraced the ideas of W. Edwards Deming, an American whose methods and theories are credited for Japan's postwar recovery. Ironically enough, Deming's ideas were initially scoffed at in the U.S. As a result, TQM took root in Japan 30 years earlier than in the United States. American companies took interest in Deming's ideas only when they began having trouble competing with the Japanese in the 1980s.
Deming's management system was philosophical, based on continuous improvement toward the perfect ideal. He believed that a commitment to quality requires transforming the entire organization. His philosophy is based on a system known as the Fourteen Points. These points express the actions an organization must take in order to achieve TQM:
1. Create constancy of purpose for improvement of product and service. Dr. Deming suggests a radical new definition of a company's role: A better way to make money is to stay in business and provide jobs through innovation, research, constant improvement, and maintenance.
2. Adopt a new philosophy. For the new economic age, companies need to change into “learning organizations.” Furthermore, we need a new belief in which mistakes and negativism are unacceptable.
3. Cease dependence on mass inspection. Eliminate the need for mass inspection by building quality into the product.
4. End awarding business on price. Instead, aim at minimum total cost, and move towards single suppliers.
5. Improve the system of production and service constantly. Improvement is not a one-time effort. Management is obligated to continually look for ways to reduce waste and improve quality.
6. Institute training. Too often, workers learn their jobs from other workers who have never been trained properly.
7. Institute leadership. Leading consists of helping people to do a better job and to learn by objective methods.
8. Drive out fear. Many employees are afraid to ask questions or to take a position—even when they do not understand what their job is or what is right or wrong. The economic losses from fear are appalling. To assure better quality and productivity, it is necessary that people feel secure.
9. Break down barriers between departments. Often, company departments or units compete with each other or have goals that conflict. They do not work as a team; therefore they cannot solve or foresee problems. Even worse, one department's goal may cause trouble for another.
10. Eliminate slogans, exhortations, and numerical targets for the workforce. These never help anybody do a good job. Let workers formulate their own slogans; then they will be committed to the contents.
11. Eliminate numerical quotas or work standards. Quotas take into account only numbers, not quality or methods. They are usually a guarantee of inefficiency and high cost.
12. Remove barriers that prevent workers from taking pride in their workmanship. Too often, misguided supervisors, faulty equipment, and defective materials stand in the way of good performance. These barriers must be removed.
13. Institute a vigorous program of education. Both management and the work force will have to be informed of new knowledge and techniques.
14. Take action to accomplish the transformation. It will require a special top management team with a plan of action to carry out the quality mission. Workers cannot do it on their own, nor can managers. A critical mass of people in the company must understand the Fourteen Points.
Deming emphasized surveying customers, consulting production-line workers to help solve quality problems, and teamwork. His system was readily accepted in Japan, where workers and management were used to uniformity and allegiance to institutions. Japanese companies learned to collect data for the statistical monitoring and measuring of customer satisfaction. The goals of these companies were to produce many of the same consumer goods—better and cheaper—that were produced in the U.S. These Japanese companies succeeded, much to the chagrin of companies in the U.S.
Deming saw businesses as bedrock institutions in a society—much like churches and schools. Companies attain long-term success only if business leaders make their employees' contributions matter. If organizations use their employees' ideas, they will improve efficiency and productivity.
Most of the applications of Deming's ideas occurred in the 1950s and 1960s in Japan. In the United States, the desperation needed for executives to finally try a “radical” plan such as Deming's came from economic rather than wartime defeats. Most notably, in the 1980s, Japanese car manufacturers pushed their market share toward 25 percent, sending fear throughout Detroit. The Ford Motor Co. called on Deming after NBC featured his successes in a documentary, “If Japan Can, Why Can't We?” Deming took Ford's invitation as notice that his home country was finally ready for his program. He continued teaching seminars until his death, at age 93, in 1993.
Deming's system made such an impression that he is known at the Father of TQM.
Following are some other significant quality experts and their works:
• Joseph M. Juran wrote The Quality Control Handbook. Recognized in Japan with the Order of Sacred Treasure. Followers: DuPont, Monsanto, Mobil.
• Armand V. Feigenbaum wrote Total Quality Control. Argued that quality should be company-wide, not confined to the quality control departments.
• Philip B. Crosby wrote Quality Is Free.
• Michael Hammer and James Champy wrote Reengineering the Corporation.
• James Champy wrote Reengineering Management.
• Peter Drucker wrote Post-Capitalist Society.
Although several individuals (mentioned above) contributed to the concept of TQM, the three mostly widely cited “masters” of quality are W. Edwards Deming (1900–1993), Joseph M. Juran, and Philip Crosby. Even though each has promoted the importance of quality emphasis, their ideas and backgrounds are not always consistent.
Joseph Juran
Joseph Juran started out professionally as an engineer in 1924. In 1951, his first Quality Control Handbook was published and led him to international prominence.
The Union of Japanese Scientists and Engineers (JUSE) invited Juran to Japan in the early 1950s. He arrived in 1954 and conducted seminars for top- and middle-level executives. His lectures had a strong managerial flavor and focused on planning, organizational issues, management's responsibility for quality, and the need to set goals and targets for improvement. He emphasized that quality control should be conducted as an integral part of management control.
Intrinsic to Juran's message is the belief that quality does not happen by accident; it must be planned. Juran sees quality planning as part of the quality trilogy of quality planning, quality control, and quality improvement. The key elements in implementing company-wide strategic quality planning are in turn seen as: identifying customers and their needs; establishing optimal quality goals; creating measurements of quality; planning processes capable of meeting quality goals under operating conditions; and producing continuing results in improved market share, premium prices, and a reduction of error rates in the office and factory.
Juran's formula for results is to establish specific goals to be reached, and then to establish plans for reaching those goals; assign clear responsibility for meeting the goals; and base the rewards on results achieved.
Juran believes that the majority of quality problems are the fault of poor management, not poor workmanship, and that long-term training to improve quality should start at the top with senior management.
Philip Crosby
Philip Crosby is another major contributor to the quality movement. In 1979, he left ITT (International Telephone and Telegraph) and wrote his book, Quality is Free, in which he argues that dollars spent on quality and the attention paid to it always return greater benefits than the costs expended on them. Whereas Deming and Juran emphasized the sacrifice required for a quality commitment, Crosby takes a less philosophical and more practical approach, asserting instead that high quality is relatively easy and inexpensive in the long run.
Crosby is the only American quality expert without a doctorate. He is responsible for the zero defects program, which emphasizes “doing it right the first time,” (DIRFT) with 100 percent acceptable output. Unlike Deming and Juran, Crosby argues that quality is always cost effective. Like Deming and Juran, Crosby does not place the blame on workers, but on management.
Crosby also developed a 14-point program, which is again more practical than philosophical. It provides managers with actual concepts that can help them manage productivity and quality. His program is built around four Absolutes of Quality Management:
1. Quality must be viewed as conformance to specifications. If a product meets design specifications, then it is a high-quality product.
2. Quality should be achieved through the prevention of defects rather than inspection after the production process is complete.
According to Crosby, the traditional quality control approach taken by American firms is not cost effective. Instead, production workers should be granted the authority and responsibility to ensure that quality goods or services are produced at every step of the process.
3. Managers need to demonstrate that a higher standard of performance can lead to perfection—to zero defects. Crosby believed that the company goal should be zero defects.
4. Quality should be measured by the price of nonconformity. Crosby contends that the costs associated with achieving quality should be part of a company's financial system.
The Implementation of TQM
The implementation of total quality management is similar to that of other decentralized control methods. In developing TQM, companies need to understand how consumers define quality in both the goods and services offered. If a company pays more attention to quality in its production process, fewer problems will occur later when the product is in the consumer's hands. One way to measure product performance and quality is through customer surveys, which can help managers identify design or manufacturing problems
According to quality consultant Armand V. Feigenbaum, the end user best defines quality, which means that quality is open to subjective interpretations. Consumer perceptions have to be changed if a company wants to change a product's quality image. Extended service programs and improved warranties can help accomplish this feat. As examples, Whirlpool Corporation promises that parts for all models will be available for 15 years, and Mercedes-Benz provides technical roadside assistance after service hours.
Another means of ensuring a commitment to quality “after the sale” is via a product or service guarantee. Wal-Mart is known for its no-hassles return policy for any product—with or without a receipt. Mail-order house L. L. Bean will replace a pair of hunting boots purchased ten years earlier with new boots. Saturn automobile retailers provide total refunds for vehicles within 30 days if the customer is not fully satisfied. However, many companies are not willing to incur the short-run costs associated with such guarantees.
Commitment throughout the organization
To be effective, the TQM philosophy must begin at the top. From the board of directors to the hourly line employees, TQM must be supported at all levels if the firm is to realize any real improvements in quality. In addition to commitment from the top, the organization must meet these requirements if TQM is to succeed:
• A change in corporate culture about the importance of quality
• Forging of internal team partnerships to achieve quality, process, and project improvements, and the creation of external partnerships with customers and suppliers
• Audits to assure quality techniques
• Removal of obstacles to successful implementation, such as lack of time or money in the short run
Typically, two to ten years are needed to reap the benefits of a successful TQM program.
World‐Class Quality: ISO 9000 Certification
With the highly competitive nature of the current business world, customers can dictate who, what, when, where, why, and how much regarding market commodities and services. In other words, quality has never counted more. As a result, management and organizations must heed these calls and specifically cater to the ever-changing expectations of their international clientele
Globally, customers expect quality whether they are buying a consumer product or receiving a service. As a result, many countries have adopted the quality standards set by the International Standards Organization (ISO) in Geneva, Switzerland.
Businesses that want to compete as world-class companies are increasingly expected to have ISO 9000 Certification at various levels. To gain certification in this family of quality standards, businesses must undergo a rigorous assessment by outside auditors to determine whether they meet ISO requirements. Increasingly, the ISO stamp of approval is viewed as a necessity in international business; the ISO certification provides customers with an assurance that a set of solid quality standards and processes are in place.
The commitment to total quality operations is now a way of life in world-class firms. In the United States, the Malcolm Baldridge National Quality Awards were established to benchmark excellence in quality achievements. The following list of award criteria indicates the full extent of the day-to-day commitment that is essential to gaining competitive advantage through a commitment to total quality:
• Top executives incorporate quality values into day-to-day management.
• The organization works with suppliers to improve the quality of their goods and/or services.
• The organization trains workers in quality techniques and implements systems that ensure high-quality products.
• The organization's products are as good as or better than those of its competitors.
• The organization meets customers' needs and wants and gets customer satisfaction ratings equal to or better than those of competitors.
• The organization's quality system yields concrete results such as increased market share and lower product cycle times.
After the organization has strategies in place to reach its goals, funds are set aside for the necessary resources and labor. As money is spent, statements are updated to reflect how much was spent, how it was spent, and what it obtained. Managers use these financial statements, such as an income statement or balance sheet, to monitor the progress of programs and plans. Financial statements provide management with information to monitor financial resources and activities. The income statement shows the results of the organization's operations over a period of time, such as revenues, expenses, and profit or loss. The balance sheet shows what the organization is worth (assets) at a single point in time, and the extent to which those assets were financed through debt (liabilities) or owner's investment (equity).
Financial audits, or formal investigations, are regularly conducted to ensure that financial management practices follow generally accepted procedures, policies, laws, and ethical guidelines. Audits may be conducted internally or externally. Financial ratio analysis examines the relationship between specific figures on the financial statements and helps explain the significance of those figures:
• Liquidity ratios measure an organization's ability to generate cash.
• Profitability ratios measure an organization's ability to generate profits.
• Debt ratios measure an organization's ability to pay its debts.
• Activity ratios measure an organization's efficiency in operations and use of assets.
In addition, financial responsibility centers require managers to account for a unit's progress toward financial goals within the scope of their influences. A manager's goals and responsibilities may focus on unit profits, costs, revenues, or investments.
Budget controls
A budget depicts how much an organization expects to spend (expenses) and earn (revenues) over a time period. Amounts are categorized according to the type of business activity or account, such as telephone costs or sales of catalogs. Budgets not only help managers plan their finances, but also help them keep track of their overall spending.
A budget, in reality, is both a planning tool and a control mechanism. Budget development processes vary among organizations according to who does the budgeting and how the financial resources are allocated. Some budget development methods are as follows:
• Top-down budgeting. Managers prepare the budget and send it to subordinates.
• Bottom-up budgeting. Figures come from the lower levels and are adjusted and coordinated as they move up the hierarchy.
• Zero-based budgeting. Managers develop each new budget by justifying the projected allocation against its contribution to departmental or organizational goals.
• Flexible budgeting. Any budget exercise can incorporate flexible budgets, which set “meet or beat” standards that can be compared to expenditures.
Marketing controls
Marketing controls help monitor progress toward goals for customer satisfaction with products and services, prices, and delivery. The following are examples of controls used to evaluate an organization's marketing functions:
• Market research gathers data to assess customer needs—information critical to an organization's success. Ongoing market research reflects how well an organization is meeting customers' expectations and helps anticipate customer needs. It also helps identify competitors.
• Test marketing is small-scale product marketing to assess customer acceptance. Using surveys and focus groups, test marketing goes beyond identifying general requirements and looks at what (or who) actually influences buying decisions.
• Marketing statistics measure performance by compiling data and analyzing results. In most cases, competency with a computer spreadsheet program is all a manager needs. Managers look at marketing ratios, which measure profitability, activity, and market shares, as well as sales quotas, which measure progress toward sales goals and assist with inventory controls.
Unfortunately, scheduling a regular evaluation of an organization's marketing program is easier to recommend than to execute. Usually, only a crisis, such as increased competition or a sales drop, forces a company to take a closer look at its marketing program. However, more regular evaluations help minimize the number of marketing problems.
Human resource controls
Human resource controls help managers regulate the quality of newly hired personnel, as well as monitor current employees' developments and daily performances.
On a daily basis, managers can go a long way in helping to control workers' behaviors in organizations. They can help direct workers' performances toward goals by making sure that goals are clearly set and understood. Managers can also institute policies and procedures to help guide workers' actions. Finally, they can consider past experiences when developing future strategies, objectives, policies, and procedures.
Common control types include performance appraisals, disciplinary programs, observations, and training and development assessments. Because the quality of a firm's personnel, to a large degree, determines the firm's overall effectiveness, controlling this area is very crucial.
Computers and information controls
Almost all organizations have confidential and sensitive information that they don't want to become general knowledge. Controlling access to computer databases is the key to this area.
Increasingly, computers are being used to collect and store information for control purposes. Many organizations privately monitor each employee's computer usage to measure employee performance, among other things. Some people question the appropriateness of computer monitoring. Managers must carefully weigh the benefits against the costs—both human and financial—before investing in and implementing computerized control techniques.
Although computers and information systems provide enormous benefits, such as improved productivity and information management, organizations should remember the following limitations of the use of information technology:
• Performance limitations. Although management information systems have the potential to increase overall performance, replacing long-time organizational employees with information systems technology may result in the loss of expert knowledge that these individuals hold. Additionally, computerized information systems are expensive and difficult to develop. After the system has been purchased, coordinating it—possibly with existing equipment—may be more difficult than expected. Consequently, a company may cut corners or install the system carelessly to the detriment of the system's performance and utility. And like other sophisticated electronic equipment, information systems do not work all the time, resulting in costly downtime.
• Behavioral limitations. Information technology allows managers to access more information than ever before. But too much information can overwhelm employees, cause stress, and even slow decision making. Thus, managing the quality and amount of information available to avoid information overload is important.
• Health risks. Potentially serious health-related issues associated with the use of computers and other information technology have been raised in recent years. An example is carpal tunnel syndrome, a painful disorder in the hands and wrists caused by repetitive movements (such as those made on a keyboard).
Regardless of the control processes used, an effective system determines whether employees and various parts of an organization are on target in achieving organizational objectives
Productivity and Quality
After companies determine customer needs, they must concentrate on meeting those needs by yielding high quality products at an efficient rate. Companies can improve quality and productivity by securing the commitments of all three levels of management and employees as follows
• Top-level management: Implement sound management practices, use research and development effectively, adopt modern manufacturing techniques, and improve time management.
• Middle management: Plan and coordinate quality and productivity efforts.
• Low-level management: Work with employees to improve productivity through acceptance of change, commitment to quality, and continually improving all facets of their work.
Productivity is the relationship between a given amount of output and the amount of input needed to produce it. Profitability results when money is left over from sales after costs are paid. The expenditures made to ensure that the product or service meets quality specifications affect the final or overall cost of the products and/or services involved. Efficiency of costs will be an important consideration in all stages of the market system from manufacturing to consumption. Quality affects productivity. Both affect profitability. The drive for any one of the three must not interfere with the drive for the others. Efforts at improvement need to be coordinated and integrated. The real cost of quality is the cost of avoiding nonconformance and failure. Another cost is the cost of not having quality—of losing customers and wasting resources.
As long as companies continually interact with their customers and various partners, and develop learning relationships between all levels of management and employees, the levels of productivity and quality should remain high.
Total Quality Management (TQM)
Total Quality Management (TQM) is a philosophy that says that uniform commitment to quality in all areas of an organization promotes an organizational culture that meets consumers' perceptions of quality
The concept of TQM rests largely on five principles:
1. Produce quality work the first time.
2. Focus on the customer.
3. Have a strategic approach to improvement.
4. Improve continuously.
5. Encourage mutual respect and teamwork.
To be effective in improving quality, TQM must be supported at all levels of a firm, from the highest executive to the lowest-level hourly employee. TQM extends the definition of quality to all functional areas of the organization, including production, marketing, finance, and information systems. The process begins by listening to customers' wants and needs and then delivering goods and services that fulfill these desires. TQM even expands the definition of customer to include any person inside or outside the company to whom an employee passes his or her work. In a restaurant, for example, the cooks' customers are the waiters and waitresses. This notion encourages each member of the organization to stay focused on quality and remain fully aware of his or her contribution to it and responsibility for it.
The TQM philosophy focuses on teamwork, increasing customer satisfaction, and lowering costs. Organizations implement TQM by encouraging managers and employees to collaborate across functions and departments, as well as with customers and suppliers, to identify areas for improvement, no matter how small. Teams of workers are trained and empowered to make decisions that help their organization achieve high standards of quality. Organizations shift responsibility for quality control from specialized departments to all employees. Thus, total quality management means a shift from a bureaucratic to a decentralized approach to control.
An effective TQM program has numerous benefits. Financial benefits include lower costs, higher returns on sales and investment, and the ability to charge higher rather than competitive prices. Other benefits include improved access to global markets, higher customer retention levels, less time required to develop new innovations, and a reputation as a quality firm. Only a small number of companies use TQM because implementing an effective program involves much time, effort, money, and patience. However, firms with the necessary resources may gain major competitive advantages in their industries by implementing TQM.
Major Contributors to TQM
Total quality management is a much broader concept than just controlling the quality of the product itself. Total quality management is the coordination of efforts directed at improving customer satisfaction, increasing employee participation, strengthening supplier partnerships, and facilitating an organizational atmosphere of continuous quality improvement. TQM is a way of thinking about organizations and how people should relate and work in them. TQM is not merely a technique, but a philosophy anchored in the belief that long-term success depends on a uniform commitment to quality in all sectors of an organization
W. Edwards Deming
The concept of quality started in Japan when the country began to rebuild after World War II. Amidst the bomb rubble, Japan embraced the ideas of W. Edwards Deming, an American whose methods and theories are credited for Japan's postwar recovery. Ironically enough, Deming's ideas were initially scoffed at in the U.S. As a result, TQM took root in Japan 30 years earlier than in the United States. American companies took interest in Deming's ideas only when they began having trouble competing with the Japanese in the 1980s.
Deming's management system was philosophical, based on continuous improvement toward the perfect ideal. He believed that a commitment to quality requires transforming the entire organization. His philosophy is based on a system known as the Fourteen Points. These points express the actions an organization must take in order to achieve TQM:
1. Create constancy of purpose for improvement of product and service. Dr. Deming suggests a radical new definition of a company's role: A better way to make money is to stay in business and provide jobs through innovation, research, constant improvement, and maintenance.
2. Adopt a new philosophy. For the new economic age, companies need to change into “learning organizations.” Furthermore, we need a new belief in which mistakes and negativism are unacceptable.
3. Cease dependence on mass inspection. Eliminate the need for mass inspection by building quality into the product.
4. End awarding business on price. Instead, aim at minimum total cost, and move towards single suppliers.
5. Improve the system of production and service constantly. Improvement is not a one-time effort. Management is obligated to continually look for ways to reduce waste and improve quality.
6. Institute training. Too often, workers learn their jobs from other workers who have never been trained properly.
7. Institute leadership. Leading consists of helping people to do a better job and to learn by objective methods.
8. Drive out fear. Many employees are afraid to ask questions or to take a position—even when they do not understand what their job is or what is right or wrong. The economic losses from fear are appalling. To assure better quality and productivity, it is necessary that people feel secure.
9. Break down barriers between departments. Often, company departments or units compete with each other or have goals that conflict. They do not work as a team; therefore they cannot solve or foresee problems. Even worse, one department's goal may cause trouble for another.
10. Eliminate slogans, exhortations, and numerical targets for the workforce. These never help anybody do a good job. Let workers formulate their own slogans; then they will be committed to the contents.
11. Eliminate numerical quotas or work standards. Quotas take into account only numbers, not quality or methods. They are usually a guarantee of inefficiency and high cost.
12. Remove barriers that prevent workers from taking pride in their workmanship. Too often, misguided supervisors, faulty equipment, and defective materials stand in the way of good performance. These barriers must be removed.
13. Institute a vigorous program of education. Both management and the work force will have to be informed of new knowledge and techniques.
14. Take action to accomplish the transformation. It will require a special top management team with a plan of action to carry out the quality mission. Workers cannot do it on their own, nor can managers. A critical mass of people in the company must understand the Fourteen Points.
Deming emphasized surveying customers, consulting production-line workers to help solve quality problems, and teamwork. His system was readily accepted in Japan, where workers and management were used to uniformity and allegiance to institutions. Japanese companies learned to collect data for the statistical monitoring and measuring of customer satisfaction. The goals of these companies were to produce many of the same consumer goods—better and cheaper—that were produced in the U.S. These Japanese companies succeeded, much to the chagrin of companies in the U.S.
Deming saw businesses as bedrock institutions in a society—much like churches and schools. Companies attain long-term success only if business leaders make their employees' contributions matter. If organizations use their employees' ideas, they will improve efficiency and productivity.
Most of the applications of Deming's ideas occurred in the 1950s and 1960s in Japan. In the United States, the desperation needed for executives to finally try a “radical” plan such as Deming's came from economic rather than wartime defeats. Most notably, in the 1980s, Japanese car manufacturers pushed their market share toward 25 percent, sending fear throughout Detroit. The Ford Motor Co. called on Deming after NBC featured his successes in a documentary, “If Japan Can, Why Can't We?” Deming took Ford's invitation as notice that his home country was finally ready for his program. He continued teaching seminars until his death, at age 93, in 1993.
Deming's system made such an impression that he is known at the Father of TQM.
Following are some other significant quality experts and their works:
• Joseph M. Juran wrote The Quality Control Handbook. Recognized in Japan with the Order of Sacred Treasure. Followers: DuPont, Monsanto, Mobil.
• Armand V. Feigenbaum wrote Total Quality Control. Argued that quality should be company-wide, not confined to the quality control departments.
• Philip B. Crosby wrote Quality Is Free.
• Michael Hammer and James Champy wrote Reengineering the Corporation.
• James Champy wrote Reengineering Management.
• Peter Drucker wrote Post-Capitalist Society.
Although several individuals (mentioned above) contributed to the concept of TQM, the three mostly widely cited “masters” of quality are W. Edwards Deming (1900–1993), Joseph M. Juran, and Philip Crosby. Even though each has promoted the importance of quality emphasis, their ideas and backgrounds are not always consistent.
Joseph Juran
Joseph Juran started out professionally as an engineer in 1924. In 1951, his first Quality Control Handbook was published and led him to international prominence.
The Union of Japanese Scientists and Engineers (JUSE) invited Juran to Japan in the early 1950s. He arrived in 1954 and conducted seminars for top- and middle-level executives. His lectures had a strong managerial flavor and focused on planning, organizational issues, management's responsibility for quality, and the need to set goals and targets for improvement. He emphasized that quality control should be conducted as an integral part of management control.
Intrinsic to Juran's message is the belief that quality does not happen by accident; it must be planned. Juran sees quality planning as part of the quality trilogy of quality planning, quality control, and quality improvement. The key elements in implementing company-wide strategic quality planning are in turn seen as: identifying customers and their needs; establishing optimal quality goals; creating measurements of quality; planning processes capable of meeting quality goals under operating conditions; and producing continuing results in improved market share, premium prices, and a reduction of error rates in the office and factory.
Juran's formula for results is to establish specific goals to be reached, and then to establish plans for reaching those goals; assign clear responsibility for meeting the goals; and base the rewards on results achieved.
Juran believes that the majority of quality problems are the fault of poor management, not poor workmanship, and that long-term training to improve quality should start at the top with senior management.
Philip Crosby
Philip Crosby is another major contributor to the quality movement. In 1979, he left ITT (International Telephone and Telegraph) and wrote his book, Quality is Free, in which he argues that dollars spent on quality and the attention paid to it always return greater benefits than the costs expended on them. Whereas Deming and Juran emphasized the sacrifice required for a quality commitment, Crosby takes a less philosophical and more practical approach, asserting instead that high quality is relatively easy and inexpensive in the long run.
Crosby is the only American quality expert without a doctorate. He is responsible for the zero defects program, which emphasizes “doing it right the first time,” (DIRFT) with 100 percent acceptable output. Unlike Deming and Juran, Crosby argues that quality is always cost effective. Like Deming and Juran, Crosby does not place the blame on workers, but on management.
Crosby also developed a 14-point program, which is again more practical than philosophical. It provides managers with actual concepts that can help them manage productivity and quality. His program is built around four Absolutes of Quality Management:
1. Quality must be viewed as conformance to specifications. If a product meets design specifications, then it is a high-quality product.
2. Quality should be achieved through the prevention of defects rather than inspection after the production process is complete.
According to Crosby, the traditional quality control approach taken by American firms is not cost effective. Instead, production workers should be granted the authority and responsibility to ensure that quality goods or services are produced at every step of the process.
3. Managers need to demonstrate that a higher standard of performance can lead to perfection—to zero defects. Crosby believed that the company goal should be zero defects.
4. Quality should be measured by the price of nonconformity. Crosby contends that the costs associated with achieving quality should be part of a company's financial system.
The Implementation of TQM
The implementation of total quality management is similar to that of other decentralized control methods. In developing TQM, companies need to understand how consumers define quality in both the goods and services offered. If a company pays more attention to quality in its production process, fewer problems will occur later when the product is in the consumer's hands. One way to measure product performance and quality is through customer surveys, which can help managers identify design or manufacturing problems
According to quality consultant Armand V. Feigenbaum, the end user best defines quality, which means that quality is open to subjective interpretations. Consumer perceptions have to be changed if a company wants to change a product's quality image. Extended service programs and improved warranties can help accomplish this feat. As examples, Whirlpool Corporation promises that parts for all models will be available for 15 years, and Mercedes-Benz provides technical roadside assistance after service hours.
Another means of ensuring a commitment to quality “after the sale” is via a product or service guarantee. Wal-Mart is known for its no-hassles return policy for any product—with or without a receipt. Mail-order house L. L. Bean will replace a pair of hunting boots purchased ten years earlier with new boots. Saturn automobile retailers provide total refunds for vehicles within 30 days if the customer is not fully satisfied. However, many companies are not willing to incur the short-run costs associated with such guarantees.
Commitment throughout the organization
To be effective, the TQM philosophy must begin at the top. From the board of directors to the hourly line employees, TQM must be supported at all levels if the firm is to realize any real improvements in quality. In addition to commitment from the top, the organization must meet these requirements if TQM is to succeed:
• A change in corporate culture about the importance of quality
• Forging of internal team partnerships to achieve quality, process, and project improvements, and the creation of external partnerships with customers and suppliers
• Audits to assure quality techniques
• Removal of obstacles to successful implementation, such as lack of time or money in the short run
Typically, two to ten years are needed to reap the benefits of a successful TQM program.
World‐Class Quality: ISO 9000 Certification
With the highly competitive nature of the current business world, customers can dictate who, what, when, where, why, and how much regarding market commodities and services. In other words, quality has never counted more. As a result, management and organizations must heed these calls and specifically cater to the ever-changing expectations of their international clientele
Globally, customers expect quality whether they are buying a consumer product or receiving a service. As a result, many countries have adopted the quality standards set by the International Standards Organization (ISO) in Geneva, Switzerland.
Businesses that want to compete as world-class companies are increasingly expected to have ISO 9000 Certification at various levels. To gain certification in this family of quality standards, businesses must undergo a rigorous assessment by outside auditors to determine whether they meet ISO requirements. Increasingly, the ISO stamp of approval is viewed as a necessity in international business; the ISO certification provides customers with an assurance that a set of solid quality standards and processes are in place.
The commitment to total quality operations is now a way of life in world-class firms. In the United States, the Malcolm Baldridge National Quality Awards were established to benchmark excellence in quality achievements. The following list of award criteria indicates the full extent of the day-to-day commitment that is essential to gaining competitive advantage through a commitment to total quality:
• Top executives incorporate quality values into day-to-day management.
• The organization works with suppliers to improve the quality of their goods and/or services.
• The organization trains workers in quality techniques and implements systems that ensure high-quality products.
• The organization's products are as good as or better than those of its competitors.
• The organization meets customers' needs and wants and gets customer satisfaction ratings equal to or better than those of competitors.
• The organization's quality system yields concrete results such as increased market share and lower product cycle times.
Types of Organisation Control
Control can focus on events before, during, or after a process. For example, a local automobile dealer can focus on activities before, during, or after sales of new cars. Careful inspection of new cars and cautious selection of sales employees are ways to ensure high quality or profitable sales even before those sales take place. Monitoring how salespeople act with customers is a control during the sales task. Counting the number of new cars sold during the month and telephoning buyers about their satisfaction with sales transactions are controls after sales have occurred. These types of controls are formally called feedforward, concurrent, and feedback, respectively
• Feedforward controls, sometimes called preliminary or preventive controls, attempt to identify and prevent deviations in the standards before they occur. Feedforward controls focus on human, material, and financial resources within the organization. These controls are evident in the selection and hiring of new employees. For example, organizations attempt to improve the likelihood that employees will perform up to standards by identifying the necessary job skills and by using tests and other screening devices to hire people with those skills.
• Concurrent controls monitor ongoing employee activity to ensure consistency with quality standards. These controls rely on performance standards, rules, and regulations for guiding employee tasks and behaviors. Their purpose is to ensure that work activities produce the desired results. As an example, many manufacturing operations include devices that measure whether the items being produced meet quality standards. Employees monitor the measurements; if they see that standards are not being met in some area, they make a correction themselves or let a manager know that a problem is occurring.
• Feedback controls involve reviewing information to determine whether performance meets established standards. For example, suppose that an organization establishes a goal of increasing its profit by 12 percent next year. To ensure that this goal is reached, the organization must monitor its profit on a monthly basis. After three months, if profit has increased by 3 percent, management might assume that plans are going according to schedule.
Effective Organizational Control Systems
The management of any organization must develop a control system tailored to its organization's goals and resources. Effective control systems share several common characteristics. These characteristics are as follows:
• A focus on critical points. For example, controls are applied where failure cannot be tolerated or where costs cannot exceed a certain amount. The critical points include all the areas of an organization's operations that directly affect the success of its key operations.
• Integration into established processes. Controls must function harmoniously within these processes and should not bottleneck operations.
• Acceptance by employees. Employee involvement in the design of controls can increase acceptance.
• Availability of information when needed. Deadlines, time needed to complete the project, costs associated with the project, and priority needs are apparent in these criteria. Costs are frequently attributed to time shortcomings or failures.
• Economic feasibility. Effective control systems answer questions such as, “How much does it cost?” “What will it save?” or “What are the returns on the investment?” In short, comparison of the costs to the benefits ensures that the benefits of controls outweigh the costs.
• Accuracy. Effective control systems provide factual information that's useful, reliable, valid, and consistent.
• Comprehensibility. Controls must be simple and easy to understand
• Feedforward controls, sometimes called preliminary or preventive controls, attempt to identify and prevent deviations in the standards before they occur. Feedforward controls focus on human, material, and financial resources within the organization. These controls are evident in the selection and hiring of new employees. For example, organizations attempt to improve the likelihood that employees will perform up to standards by identifying the necessary job skills and by using tests and other screening devices to hire people with those skills.
• Concurrent controls monitor ongoing employee activity to ensure consistency with quality standards. These controls rely on performance standards, rules, and regulations for guiding employee tasks and behaviors. Their purpose is to ensure that work activities produce the desired results. As an example, many manufacturing operations include devices that measure whether the items being produced meet quality standards. Employees monitor the measurements; if they see that standards are not being met in some area, they make a correction themselves or let a manager know that a problem is occurring.
• Feedback controls involve reviewing information to determine whether performance meets established standards. For example, suppose that an organization establishes a goal of increasing its profit by 12 percent next year. To ensure that this goal is reached, the organization must monitor its profit on a monthly basis. After three months, if profit has increased by 3 percent, management might assume that plans are going according to schedule.
Effective Organizational Control Systems
The management of any organization must develop a control system tailored to its organization's goals and resources. Effective control systems share several common characteristics. These characteristics are as follows:
• A focus on critical points. For example, controls are applied where failure cannot be tolerated or where costs cannot exceed a certain amount. The critical points include all the areas of an organization's operations that directly affect the success of its key operations.
• Integration into established processes. Controls must function harmoniously within these processes and should not bottleneck operations.
• Acceptance by employees. Employee involvement in the design of controls can increase acceptance.
• Availability of information when needed. Deadlines, time needed to complete the project, costs associated with the project, and priority needs are apparent in these criteria. Costs are frequently attributed to time shortcomings or failures.
• Economic feasibility. Effective control systems answer questions such as, “How much does it cost?” “What will it save?” or “What are the returns on the investment?” In short, comparison of the costs to the benefits ensures that the benefits of controls outweigh the costs.
• Accuracy. Effective control systems provide factual information that's useful, reliable, valid, and consistent.
• Comprehensibility. Controls must be simple and easy to understand
Controlling
organizational control is the process of assigning, evaluating, and regulating resources on an ongoing basis to accomplish an organization's goals. To successfully control an organization, managers need to not only know what the performance standards are, but also figure out how to share that information with employees
Control can be defined narrowly as the process a manager takes to assure that actual performance conforms to the organization's plan, or more broadly as anything that regulates the process or activity of an organization. The following content follows the general interpretation by defining managerial control as monitoring performance against a plan and then making adjustments either in the plan or in operations as necessary.
The six major purposes of controls are as follows:
• Controls make plans effective. Managers need to measure progress, offer feedback, and direct their teams if they want to succeed.
• Controls make sure that organizational activities are consistent. Policies and procedures help ensure that efforts are integrated.
• Controls make organizations effective. Organizations need controls in place if they want to achieve and accomplish their objectives.
• Controls make organizations efficient. Efficiency probably depends more on controls than any other management function.
• Controls provide feedback on project status. Not only do they measure progress, but controls also provide feedback to participants as well. Feedback influences behavior and is an essential ingredient in the control process.
• Controls aid in decision making. The ultimate purpose of controls is to help managers make better decisions. Controls make managers aware of problems and give them information that is necessary for decision making.
Many people assert that as the nature of organizations has changed, so must the nature of management controls. New forms of organizations, such as self-organizing organizations, self-managed teams, and network organizations, allow organizations to be more responsive and adaptable in today's rapidly changing world. These forms also cultivate empowerment among employees, much more so than the hierarchical organizations of the past.
Some people even claim that management shouldn't exercise any form of control whatsoever, and should only support employee efforts to be fully productive members of organizations and communities. Along those same lines, some experts even use the word “coordinating” in place of “controlling” to avoid sounding coercive. However, some forms of controls must exist for an organization to exist. For an organization to exist, it needs some goal or purpose, or it isn't an organization at all. Individual behaviors, group behaviors, and all organizational performance must be in line with the strategic focus of the organization.
The Organizational Control Process
The control process involves carefully collecting information about a system, process, person, or group of people in order to make necessary decisions about each. Managers set up control systems that consist of four key steps:
1. Establish standards to measure performance. Within an organization's overall strategic plan, managers define goals for organizational departments in specific, operational terms that include standards of performance to compare with organizational activities.
2. Measure actual performance. Most organizations prepare formal reports of performance measurements that managers review regularly. These measurements should be related to the standards set in the first step of the control process. For example, if sales growth is a target, the organization should have a means of gathering and reporting sales data.
3. Compare performance with the standards. This step compares actual activities to performance standards. When managers read computer reports or walk through their plants, they identify whether actual performance meets, exceeds, or falls short of standards. Typically, performance reports simplify such comparison by placing the performance standards for the reporting period alongside the actual performance for the same period and by computing the variance—that is, the difference between each actual amount and the associated standard.
4. Take corrective actions. When performance deviates from standards, managers must determine what changes, if any, are necessary and how to apply them. In the productivity and quality-centered environment, workers and managers are often empowered to evaluate their own work. After the evaluator determines the cause or causes of deviation, he or she can take the fourth step—corrective action. The most effective course may be prescribed by policies or may be best left up to employees' judgment and initiative.
Control can be defined narrowly as the process a manager takes to assure that actual performance conforms to the organization's plan, or more broadly as anything that regulates the process or activity of an organization. The following content follows the general interpretation by defining managerial control as monitoring performance against a plan and then making adjustments either in the plan or in operations as necessary.
The six major purposes of controls are as follows:
• Controls make plans effective. Managers need to measure progress, offer feedback, and direct their teams if they want to succeed.
• Controls make sure that organizational activities are consistent. Policies and procedures help ensure that efforts are integrated.
• Controls make organizations effective. Organizations need controls in place if they want to achieve and accomplish their objectives.
• Controls make organizations efficient. Efficiency probably depends more on controls than any other management function.
• Controls provide feedback on project status. Not only do they measure progress, but controls also provide feedback to participants as well. Feedback influences behavior and is an essential ingredient in the control process.
• Controls aid in decision making. The ultimate purpose of controls is to help managers make better decisions. Controls make managers aware of problems and give them information that is necessary for decision making.
Many people assert that as the nature of organizations has changed, so must the nature of management controls. New forms of organizations, such as self-organizing organizations, self-managed teams, and network organizations, allow organizations to be more responsive and adaptable in today's rapidly changing world. These forms also cultivate empowerment among employees, much more so than the hierarchical organizations of the past.
Some people even claim that management shouldn't exercise any form of control whatsoever, and should only support employee efforts to be fully productive members of organizations and communities. Along those same lines, some experts even use the word “coordinating” in place of “controlling” to avoid sounding coercive. However, some forms of controls must exist for an organization to exist. For an organization to exist, it needs some goal or purpose, or it isn't an organization at all. Individual behaviors, group behaviors, and all organizational performance must be in line with the strategic focus of the organization.
The Organizational Control Process
The control process involves carefully collecting information about a system, process, person, or group of people in order to make necessary decisions about each. Managers set up control systems that consist of four key steps:
1. Establish standards to measure performance. Within an organization's overall strategic plan, managers define goals for organizational departments in specific, operational terms that include standards of performance to compare with organizational activities.
2. Measure actual performance. Most organizations prepare formal reports of performance measurements that managers review regularly. These measurements should be related to the standards set in the first step of the control process. For example, if sales growth is a target, the organization should have a means of gathering and reporting sales data.
3. Compare performance with the standards. This step compares actual activities to performance standards. When managers read computer reports or walk through their plants, they identify whether actual performance meets, exceeds, or falls short of standards. Typically, performance reports simplify such comparison by placing the performance standards for the reporting period alongside the actual performance for the same period and by computing the variance—that is, the difference between each actual amount and the associated standard.
4. Take corrective actions. When performance deviates from standards, managers must determine what changes, if any, are necessary and how to apply them. In the productivity and quality-centered environment, workers and managers are often empowered to evaluate their own work. After the evaluator determines the cause or causes of deviation, he or she can take the fourth step—corrective action. The most effective course may be prescribed by policies or may be best left up to employees' judgment and initiative.
Organisational Communication
The formal flow of information in an organization may move via upward, downward, or horizontal channels. Most downward communications address plans, performance feedback, delegation, and training. Most upward communications concern performance, complaints, or requests for help. Horizontal communications focus on coordination of tasks or resources.
Organizational structure creates, perpetuates, and encourages formal means of communication. The chain of command typifies vertical communication. Teamwork and interactions exemplify lateral or horizontal efforts to communicate. Coordinating efforts between colleagues or employees of equal rank and authority represent this channel of communication. Feedback from subordinate to superior is indicative of upward communication. For example, status reports to inform upper levels of management are originated in the lower or mid-range of most organizations.
The marriage of people to electronic communication equipment and databases that store information is a formal network. Formal communication networks provide the electronic links for transferring and storing information through formal organizational channels.
Informal channels, known as the grapevine, carry casual, social, and personal messages through the organization. The grapevine is an informal, person-to-person communication network of employees that is not officially sanctioned by the organization. The grapevine is spontaneous, quick, and hard to stop; it can both help and hinder the understanding of information. For these reasons, managers need to stay in touch with the grapevine and counteract rumors.
Like interpersonal communication, organizational communication can be blocked by barriers, such as the following:
• Information overload
• Embellished messages
• Delays in formal communications
• Lack of employee trust and openness
• Different styles of change
• Intimidation and unavailability of those of rank or status
• Manager's interpretations
• Electronic noises
Improving Communications
Communication touches everything that takes place in an organization and is so intermingled with all other functions and processes that separating it for study and analysis is difficult. Because communication is the most time-consuming activity that a manager engages in, improving management strongly depends on improving communication. One way researchers are trying to improve communication skills for organizations is through instruments that assess managers' writing and speaking effectiveness The responsibility to strengthen and improve communication is both individual and organizational. Senders should define the purpose behind their message, construct each message with the reader in mind, select the best medium, time each transmission thoughtfully, and seek feedback. Receivers must listen actively, be sensitive to the sender, recommend an appropriate medium for messages, and initiate feedback efforts.
Organizational structure creates, perpetuates, and encourages formal means of communication. The chain of command typifies vertical communication. Teamwork and interactions exemplify lateral or horizontal efforts to communicate. Coordinating efforts between colleagues or employees of equal rank and authority represent this channel of communication. Feedback from subordinate to superior is indicative of upward communication. For example, status reports to inform upper levels of management are originated in the lower or mid-range of most organizations.
The marriage of people to electronic communication equipment and databases that store information is a formal network. Formal communication networks provide the electronic links for transferring and storing information through formal organizational channels.
Informal channels, known as the grapevine, carry casual, social, and personal messages through the organization. The grapevine is an informal, person-to-person communication network of employees that is not officially sanctioned by the organization. The grapevine is spontaneous, quick, and hard to stop; it can both help and hinder the understanding of information. For these reasons, managers need to stay in touch with the grapevine and counteract rumors.
Like interpersonal communication, organizational communication can be blocked by barriers, such as the following:
• Information overload
• Embellished messages
• Delays in formal communications
• Lack of employee trust and openness
• Different styles of change
• Intimidation and unavailability of those of rank or status
• Manager's interpretations
• Electronic noises
Improving Communications
Communication touches everything that takes place in an organization and is so intermingled with all other functions and processes that separating it for study and analysis is difficult. Because communication is the most time-consuming activity that a manager engages in, improving management strongly depends on improving communication. One way researchers are trying to improve communication skills for organizations is through instruments that assess managers' writing and speaking effectiveness The responsibility to strengthen and improve communication is both individual and organizational. Senders should define the purpose behind their message, construct each message with the reader in mind, select the best medium, time each transmission thoughtfully, and seek feedback. Receivers must listen actively, be sensitive to the sender, recommend an appropriate medium for messages, and initiate feedback efforts.
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