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lecture
enhancers
“It is not the strongest of the species that survive, nor the most intelligent, but the
one most responsive to change.”
Charles Darwin
“Never tell people how to do things. Tell them what to do and they will surprise you
with their ingenuity.”
General George S. Patton
“When Alexander the Great visited Diogenes and asked whether he could do any-
thing for the famed teacher, Diogenes replied: ‘Only stand out of my light.’ Perhaps
some day we shall know how to heighten creativity. Until then, one of the best things
we can do for creative men and women is to stand out of their light.”
John W. Gardner
“The ability to learn faster than your competitors may be the only sustainable com-
petitive advantage.”
Arie De Geus, Head of Planning, Royal Dutch Shell
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SMITH’S FOLLY
Kenneth H. Olsen, founder and CEO of Digital Equipment Corporation, was known for his auto-
cratic style. However, at the same time he strongly believed in delegating responsibility, something other
computer entrepreneurs have found it difficult to do.
In delegating responsibility, Olsen was always willing to forgive worker mistakes. John F. Smith,
Digital’s 12th employee and vice president for 20 years, recalls buying a $7,000 soldering machine, a
huge investment at the time, that proved unreliable. He says he came in nights and weekends to adjust it
so Olsen wouldn’t realize his error.
Ultimately, Smith bought a replacement machine, moved the lemon to a vacant storeroom, cov-
ered it with a canvas, and thought he had gotten away with it. He served as chief operating officer at Digi-
tal Equipment from 1986 through 1994. Much later he came across the machine and idly lifted the cover-
ing. He found a hand-lettered sign that read “Smith’s folly. [signed] Ken Olsen.”
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STREAMLINING STARBUCKS
When Howard Schultz first joined Starbucks as marketing director in 1982, the small Seattle
company made most of its money selling coffee-making equipment. Once Schultz landed the CEO posi-
tion, however, matters changed drastically. Looking to bring the European café experience to American
shores, Schultz transformed the regional chain into an international behemoth within two decades.
Starbucks changed again when Schultz stepped down as CEO in 2000. After a rapid expansion
saw the company grow to more than 15,000 stores by 2007, executives began concentrating more on cut-
ting costs rather than creating atmosphere. Much to Schultz’s dismay, the brand became a symbol of
bland corporate ubiquity and convenience, the caffeinated equivalent to McDonald’s. In order to combat
these image issues, Schultz used his influence as chairman of the board in 2008 to reinstate himself as
CEO. With the company’s stock price plummeting 50 percent over the previous year, he responded harsh-
ly by laying off most of his top executives and closing 800 U.S. stores.
Some commentators at the time saw these extraordinary measures as the last actions of a dying
company. But Schultz was just getting started with Starbucks’ transformation. Along with cutting costs,
he also concentrated on building his staff’s skills by shutting down all stores for half a day so that baristas
could re-learn how to make espresso. Schultz also plunked down $30 million to bring more than 10,000
store managers to New Orleans for a morale-building vacation. Soon enough consumer interest began to
increase as products like the Pumpkin Spice latte brought in a whole new clientele. Now that the company
is stable once more, Schultz is preparing Starbucks for its next metamorphosis. This includes expansions
into lucrative global markets like China, as well as a push towards integrating mobile payments and other
technological advancements. What’s more, the company’s $620 million purchase of the beverage retailer
Teavana shows that Starbucks intends to do for tea what it did for coffee in the 1990s. And with no one
less than Oprah leading the marketing charge for the company’s new tea line, there’s a good chance that
the shape of Starbucks’ success will change yet again.i
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INCREASING COLLABORATION WITH BOSSLESS OFFICES
The hierarchical structure of modern corporate offices can be traced back to 19th century railroad
companies. With vast networks of track stretched across the country, transportation magnates needed to desig-
nate clear lines of communication among their far-flung operations. A system of middle managers and regional
executives eventually rose to prominence and ensured that things ran smoothly. Over the course of the 20th
century, businesses of all stripes adopted this top-down structure as their own, eventually leading to the sea of
cubicles of today.
Some social scientists claim this ubiquitous method of hierarchy is an example of humanity’s natural
inclination to select a pecking order. But a growing number of entrepreneurs are fighting against this instinct
by experimenting with boss-less offices. For instance, the staff at the Michigan-based software developer
Menlo Innovations decides who gets hired and who gets fired. Employees work in rotating teams and are en-
couraged to guide the progress of their own projects, eliminating the need for middle managers. Co-founder
Rich Sheridan’s eight-year-old daughter provided the inspiration for this unusual office plan when she pointed
out during a visit that people constantly asked her dad to make decisions for them. “I realized that the organi-
zation couldn’t move any faster than me,” says Sheridan.
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While he and business partner James Goebel develop Menlo’s overall strategy, day–to-day execution
of that work is completely determined by the staff. Employees speak openly in order to generate feedback and
are not required to grant the company’s founders any special treatment. They must also be capable of working
so closely with other people that they receive almost no personal kudos: every success is the result of the team,
not any individual in it. To this end, Menlo is not really the place for “corporate–ladder climbers,” as one staff-
er described them. The company’s attitude focuses on “kindergarten skills” like geniality, curiosity and gener-
osity. All this fits in with the profit sharing, all-for-one ethos of Menlo. The office environment is so transpar-
ent that there’s even a big board that lists the names of all the company’s employees along with their salaries.
Although at least one “Menlonian” described this practice as “liberating,” the motivational efficacy of this
chart is still under consideration by the company. Should CEO Sheridan ever want to get rid of it, though, he’d
have to ask his employees first.ii
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CHOOSING THE RIGHT SPAN OF CONTROL
No formula exists for determining the ideal span of control. Several factors affect the number of
people a manager can effectively supervise. Variables in span of control include the following:
• Capabilities of the manager. The more experienced and capable a manager is, the broader
the span of control can be. (A large number of workers can report to that manager.)
• Capabilities of the subordinates. The more the subordinates need supervision, the narrower
the span of control should be. Employee turnover at fast-food restaurants, for example, is of-
ten so high that managers must constantly be training new people and thus need a narrow
span of control.
• Geographic closeness. The more concentrated the work area is, the broader the span of con-
trol can be.
• Functional similarity. The more similar the functions are, the broader the span of control
can be.
• Need for coordination. The greater the need for coordination, the narrower the span of con-
trol might be.
• Planning demands. The more involved the plan, the narrower the span of control might be.
• Functional complexity. The more complex the functions are, the narrower the span of con-
trol might be.
Other factors to consider include the professionalism of superiors and subordinates and the num-
ber of new problems that occur in a day. In business, the span of control varies widely. The number of
people reporting to a company president may range from 1 to 80 or more. The trend is to expand the span
of control as organizations reduce the number of middle managers and hire more educated and talented
lower-level employees. That is all included in the idea of empowerment. It’s possible to increase the span
of control as employees become more professional, as information technology makes it possible for man-
agers to handle more information, and as employees take on more responsibility for self-management.
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THE MANHATTAN PROJECT
As early as 1939 Albert Einstein warned President Franklin Roosevelt that the new field of phys-
ics had opened up the possibility of extraordinarily powerful bombs. In the summer of 1942, the govern-
ment created the Manhattan Engineer District to meet the goal of producing an atomic weapon under the
pressure of ongoing global war. The project became known as the Manhattan Project. The story of the
bomb’s creation involved the extraordinary efforts of scientists, engineers, and military officials. But it is
also the story of a massive organizational endeavor.
The project was put under the direction of Brigadier General Leslie Groves of the Army Corps of
Engineers. Groves had impressed his superiors with this administrative ability, organizational skill, and
decisiveness. Previously Groves had successfully supervised the construction of the Pentagon. (Ironically,
construction on the Pentagon began on September 11, 1941.) When he was assigned to head the top secret
weapons project, Groves tried to get reassigned, preferring a posting overseas, but was unsuccessful.
Under Groves’s direction, secret atomic energy communities were created almost overnight in
Oak Ridge, Tennessee, at Los Alamos, New Mexico, and in Hanford, Washington, to house the workers
and gigantic new machinery needed to produce the bombs. The weapon itself would be built at the Los
Alamos laboratory, under the direction of physicist J. Robert Oppenheimer.
Groves made all the important decisions governing the Manhattan Project himself. He personally
recruited Oppenheimer and the other key organization members. Groves drew up the plans for the organi-
zation, construction, operation, and security of the project and took all necessary steps to put it into effect.
Reporting directly to Secretary of War Henry Stimson and General George Marshall, Groves routinely
bypassed traditional lines of authority to ensure the success of the project.
Groves’s aggressive management style and determination were key factors to the success of the
Manhattan Project. His detractors called him egotistical, brusque, manipulative, and overly authoritative.
However, he was decisive and able to cut through the red tape to accomplish his goals.
By the time the bombs were perfected, Germany had surrendered, and some scientists on the pro-
ject questioned whether to continue bomb development. The project ultimately built four atomic bombs:
“Gadget,” the test bomb exploded in the New Mexico desert, “Little Boy,” dropped on Hiroshima, “Fat
Man,” dropped on Nagasaki, and bomb no. 4, which was unused.
Based on figures from the Atomic Energy Commission archives, the costs of the project exceeded
$1.8 billion. The Oak Ridge gaseous diffusion plant (which obtained the needed uranium isotope) alone
cost $512,000,000. The Brookings Institute has translated these figures into current dollars. The four
bombs would today cost $20 billion, or $5 billion per bomb. The total value of all bombs, mines, and gre-
nades used in the entirety of World War II, in comparison, was $31.5 billion.iii
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GREATER EFFICIENCY, FEWER JOBS
After slashing more than 8.2 million jobs during the recession, U.S. companies strived to do more
with less by becoming more efficient. Although many businesses’ performance still pales in comparison
to their pre-recession heydays, expansions abounded in early 2011 with 142 nonfinancial companies on
the S&P 500 raising their operating margins. Additionally, annual growth in productivity averaged 3.4%
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as companies like UPS and Campbell made the most out of every work hour. As a result, employees of
these companies seem safe from layoffs for the foreseeable future.
Unfortunately, such efficiency improvements have all but closed the door on future hiring. A tep-
id economic recovery has forced many companies to operate in recession-mode for the long term, stress-
ing slimming costs instead of investment and expansion. Campbell, for instance, must find $80 million in
savings in order to stay profitable and offset inflation. So every day at its factories, floor employees meet
with managers to devise ways Campbell can implement its sweeping new efficiency measures. Though
these practices will keep jobs safe and the company afloat, they detract focus from innovative measures
that could allow Campbell to expand into the new decade. No less than former Fed chair Alan Greenspan
fears that this culture of cost cutting will run its course eventually and margins will shrink in its wake.
The story is similar for small businesses. Once the driving force of economic recovery, low de-
mand and tough competition has forced many small businesses to retain a core group of part-timers rather
than hiring workers for full salaries. One small Internet retailer said she would need to see a 50% im-
provement in sales before she could hire anyone full-time. Meanwhile, data gathered from various stock
indexes shows small companies that have significantly cut costs or labor are rewarded with greater inter-
est from investors. But like their bigger brethren, small businesses aren’t using their capital to innovate.
Instead, they’re cutting down on health care and payroll taxes by converting workers to contractors or
part-time employees rather than bringing in new blood.iv
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A NEW KIND OF OUTSOURCING
With unemployment soaring in the double digits, local governments across the country are scrambling
for new ways to create jobs. Ironically, some communities are finding relief from the very companies that were
responsible for outsourcing their region’s jobs in the first place. For example, like many American cities, Cin-
cinnati lost scores of manufacturing jobs to cheap labor overseas. But Ohio Governor Ted Strickland didn’t let
bad blood get in the way while he was wooing the Indian tech company Tata Consultancy Services (TCS) to
set up offices just outside of Cincinnati. Encouraged by a promise of $19 million in tax credits, TCS agreed.
The branch has already hired 300 American employees and plans to employ as many as 1,000 Americans in
the future.
While TCS processes data for many American companies, laws prevent it from sending data about the
U.S. government or health care projects overseas. As a result, Indian companies like TCS and Wipro Technol-
ogies are adding American branches in order to tap into this market. Officials in cities like Dallas, Atlanta, and
Minneapolis have been all too happy to court these companies in the hopes of creating jobs for American
workers. The cost for setting up shop in the United States is high for Indian companies, with an employee in
Ohio making $50,000 a year versus $7,000 for a staffer in Bangalore. Nevertheless, American employees show
their value through their knowledge of cultural nuances and their abilities to help their Indian bosses compete
against rival American companies.
Still, this brand of domestic outsourcing has its downsides. Though TCS employs 1,300 American
workers, it also has 13,000 Indian staffers on work visas employed in the United States. This practice could
soon be outlawed, though, as proposed legislation could limit companies with more than 50 U.S.-based em-
ployees from using temporary visas for half their American workforce. Furthermore, TCS and Wipro both
have admitted that they most likely will not create large amounts of American jobs as the recession has stifled
much of their U.S. growth. Even so, as long as jobs are in short supply, expect local governments across the
country to continue soliciting Indian companies to set up shop in their regions.v
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PIVOTING FROM ONE BUSINESS PLAN TO ANOTHER
When Michael Garrity founded CommunityLend in 2010, he thought his company was in a per-
fect position to capture an untapped market. After all, the 2008 financial crisis made many banks wary of
lending too much cash, presenting a golden opportunity to non-traditional operations like Commu-
nityLend. Plus, the company’s peer-to–peer model was the first of its kind in Garrity’s home country of
Canada, marking a major advantage for the startup.
Despite these benefits, though, CommunityLend had trouble finding qualified borrowers for their
service. With no one to lend money to, Garrity quickly realized his company would need to switch busi-
ness plans fast if it was going to stay afloat. Luckily, in its first months of operation CommunityLend
heard from many other potential clients besides those with bad credit. Garrity received calls from dozens
of small businesses checking to see if his company offered point-of-sale customer lending services like
installment plans. The recession had eliminated many of these lenders, leaving retailers desperate for ad-
ditional consumer financing options. Although Garrity initially brushed off these inquirers, he soon saw
their worth and began to call them back.
Next, he needed to convince investors that pivoting to a new concept was necessary for the com-
pany to thrive. Shareholders didn’t want to abandon CommunityLend entirely, though, so Garrity
launched his retail lending firm FinanceIt as a sister operation. Within months he signed up hundreds of
new clients for FinanceIt, leading him to the conclusion that the two firms could not feasibly coexist. Un-
fortunately, axing CommunityLend meant that many employees got shown the door. “We lost 80 percent
of our team as we moved from peer-to-peer lending to a point-of-sale financing company,” said Garrity.
“We did a big management change-out, because some hires made sense for CommunityLend but not for
FinanceIt.” Nevertheless, the difficult switch seems to have been worth it in the long run: FinanceIt has
processed more than $650 million in loan applications from more than 3,500 clients in Canada. With so
much domestic success, the company is now looking to expand its retail lending strategy to the U.S.vi
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SETTING UP SHOP ON FACEBOOK
Nearly two decades ago the desktop computer reigned supreme as the must-have technological
tool. In time, though, the laptop overtook its stationary sister and thus the mobile age was born. Now con-
sumers have access to an array of smartphones and digital tablets that can send them into cyberspace no
matter where they stand. For social networks and retailers alike, the mobile market has already grown to a
gargantuan size with no signs that it’ll stop anytime soon.
Of its over 500 million users worldwide, Facebook says that more than 200 million people access
the site through mobile devices. Mobile stores as well have enjoyed tremendous growth. The online auc-
tion house eBay predicts that its mobile sales will double in 2011 to $4 billion. With Facebook’s formida-
ble user base and retailers’ growing mobile incomes, it was only a matter of time until the two camps
joined forces. In January 2011, the London-based retailer ASOS became the first company to set up shop
inside Facebook itself. ASOS (which stands for “As Seen on Screen”) owns no physical locations, operat-
ing solely online. With its new Facebook location, ASOS hopes to capture the interest of mobile Face-
bookers who may only use the Web on their phone to access the site.
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Although many companies use social media to create awareness, this new trend of direct outlets
on social platforms could be the future of retail, not just mobile shopping. JCPenney and Delta Airlines
have been in talks for months about obtaining a direct presence on Facebook. In three to five years, econ-
omists estimate that as much as 15% of total consumer spending may go through social networking sites.
Though it’s too soon to deem ASOS’ Facebook experiment a success, with more than 465,000 “likes” to
its name the company seems poised for a fortune if all those friends turn into customers.vii
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EMPLOYER ICEBREAKING RITUALS
For many fresh hires, a new office environment can seem alien and uninviting. Habits that were
commonplace at the employee’s previous job may be unacceptable in their new one. Initial interactions
with colleagues can be awkward or even hostile, sometimes leading to fissures in working relationships
that are difficult to mend. A clear understanding of a company’s culture is vital to every employee’s suc-
cess, and sometimes a simple orientation just isn’t enough. To help new hires effectively assimilate into
the workplace, some companies use initiation rituals to break in their new members. Besides working as
an icebreaker, such rituals create an instant bond by establishing the character of the company to the em-
ployee through various activities.
For example, at Foot Levelers, a manufacturer of chiropractic products, employees will occasion-
ally notice a sign on the conference room door reading “Rudy in Progress.” Inside the room, a group of
new hires eat snacks and watch the 1993 football drama Rudy, a movie about a tenacious student who
strives to play on the Notre Dame gridiron. After the movie ends, Foot Levelers CEO Kent Greenwault
collects everyone’s impressions on the film and together they compose a list of the traits Rudy utilized to
finally gain success. Employees are meant to emulate Rudy’s determination and ceaseless work ethic that
drove him on even in the bleakest moments. The ritual also clues staffers in on Greenwault’s favorite
management catchphrase. Whenever an employee comes to a manager with a work problem, the manager
will first ask them, “Did you Rudy that?”
Some companies use rituals to test the physical mettle of new staffers. At the Massachusetts–
based moving company Gentle Giant, CEO Larry O’Toole requires new hires to join him for a run up and
down the steps of Harvard Stadium. First of all, the ritual acts as an effective indicator of the employee’s
physical capabilities. O’Toole often won’t allow new hires onto a moving truck until he has observed
them on the steps. Symbolically, though, O’Toole hopes the run shows staffers how he expects them to
push themselves even in the most uncomfortable situations.viii
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critical
thinking exercises
Name: ___________________________
Date: ___________________________
critical thinking exercise 8-1
BUILDING AN ORGANIZATION CHART
Dr. Rea Searge is president of Peabody Researchers, Inc., a pharmaceutical company. Peabody uses
a line-and-staff structure to organize its employees. In addition to Dr. Searge, Peabody has the following
employees:
A quality control officer
A vice president of production
150 research and development employees
A sales force of 100 people
A vice president of finance
Marketing managers for three regions
A vice president of marketing
A director of personnel
A vice president of research and development
Production managers for three product lines
An administrative assistant to the president
A production force of 600 people
On a separate sheet of paper, draw an organization chart for Peabody Researchers, Inc. Use solid
lines for line authority–responsibility relationships and dotted lines for staff authority–responsibility rela-
tionships. Use the diagram in your text as an example.
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notes on critical thinking exercise 8-1
The following people are staff:
Director of personnel
Vice president of research and development
Administrative assistant to the president
Research and development department
Quality control officer
The rest have line positions.
Let the students draw the chart on the board with as little assistance as possible so they can think it
through. A possible solution is given on the following page.