# Stress and Well Being

## Organizational Influences on Stress

1. What are the underlying causes of stress in a particular situation?
We will now consider several factors that have been found to influence both frustration and anxiety; we will present a general model of stress, including its major causes and its outcomes. Following this, we will explore several mechanisms by which employees and their managers cope with or reduce experienced stress in organizations. The model presented here draws heavily on the work of several social psychologists at the Institute for Social Research of the University of Michigan, including John French, Robert Caplan, Robert Kahn, and Daniel Katz. In essence, the proposed model identifies two major sources of stress: organizational sources and individual sources. In addition, the moderating effects of social support and hardiness are considered. These influences are shown in .
We begin with organizational influences on stress. Although many factors in the work environment have been found to influence the extent to which people experience stress on the job, four factors have been shown to be particularly strong. These are (1) occupational differences, (2) role ambiguity, (3) role conflict, and (4) role overload and underutilization. We will consider each of these factors in turn.

### Occupational Differences

Tension and job stress are prevalent in our contemporary society and can be found in a wide variety of jobs. Consider, for example, the following quotes from interviews with working people. The first is from a bus driver:
“You have your tension. Sometimes you come close to having an accident, that upsets you. You just escape maybe by a hair or so. Sometimes maybe you get a disgruntled passenger on there who starts a big argument. Traffic. You have someone who cuts you off or stops in front of the bus. There’s a lot of tension behind that. . . . Most of the time you have to drive for the other drivers, to avoid hitting them. So, you take the tension home with you. Most of the drivers, they’ll suffer from hemorrhoids, kidney trouble, and such as that. I had a case of ulcers behind it.”
Or consider the plight of a bank teller:
“Some days, when you’re aggravated about something, you carry it after you leave the job. Certain people are bad days. (Laughs.) The type of person who will walk in and say, ‘My car’s double-parked outside. Would you hurry up, lady?’ . . . you want to say, ‘Hey, why did you double-park your car? So now you’re going to blame me if you get a ticket, ’cause you were dumb enough to leave it there?’ But you can’t. That’s the one hassle. You can’t say anything back. The customer’s always right.”
Stress is experienced by workers in many jobs: administrative assistants, assembly-line workers, foremen, waitresses, and managers. In fact, it is difficult to find jobs that are without some degree of stress. We seldom talk about jobs without stress; instead, we talk about the degree or magnitude of the stress.
The work roles that people fill have a substantial influence on the degree to which they experience stress. These differences do not follow the traditional blue-collar/white-collar dichotomy, however. In general, available evidence suggests that high-stress occupations are those in which incumbents have little control over their jobs, work under relentless time pressures or threatening physical conditions, or have major responsibilities for either human or financial resources.
A recent study attempted to identify those occupations that were most (and least) stressful. The study results are presented in . As shown, high-stress occupations (firefighter, race car driver, and astronaut) are typified by the stress-producing characteristics noted above, whereas low-stress occupations (musical instrument repairperson, medical records technician, and librarian) are not. It can therefore be concluded that a major source of general stress emerges from the occupation at which one is working.
A second survey, by the American Psychological Association, examined the specific causes of stress. The results of the study showed that the most frequently cited reasons for stress among administrative professionals are unspecified job requirements (38 percent), work interfering with personal time (36 percent), job insecurity (33 percent), and lack of participation in decision-making (33 percent).
Finally, a study among managers found that they, too, are subject to considerable stress arising out of the nature of managerial work. The more common work stressors for managers are shown in .
These stressors range from task ambiguity and role conflict to overwork and the possibility of failure. Indeed, responsibility for others may be the greatest stressor of all for managers. Studies in the United States and abroad indicate that managers and supervisors consistently have more ulcers and experience more hypertension than the people they supervise. Responsibility for people was found to be a greater influence on stress than responsibility for nonpersonal factors such as budgets, projects, equipment, and other property. As noted by French and Caplan:
“If there is any truth to the adage that ‘man’s greatest enemy is himself,’ it can be found in these data—it is the responsibility which organizational members have for other organizational members, rather than the responsibility for impersonal aspects of the organization, which constitutes the more significant organizational stress.”
Thus, a person’s occupation or profession represents a major cause of stress-related problems at work. In addition to occupation, however, and indeed closely related to it, is the problem of one’s role expectations in the organization. Three interrelated role processes will be examined as they relate to experienced stress: role ambiguity, role conflict, and role overload or underutilization.

### Role Ambiguity

The first role process variable to be discussed here is role ambiguity. When individuals have inadequate information concerning their roles, they experience role ambiguity. Uncertainty over job definition takes many forms, including not knowing expectations for performance, not knowing how to meet those expectations, and not knowing the consequences of job behavior. Role ambiguity is particularly strong among managerial jobs, where role definitions and task specification lack clarity (refer to ). For example, the manager of accounts payable may not be sure of the quantity and quality standards for her department. The uncertainty of the absolute level of these two performance standards or their relative importance to each other makes predicting outcomes such as performance evaluation, salary increases, or promotion opportunities equally difficult. All of this contributes to increased stress for the manager. Role ambiguity can also occur among nonmanagerial employees—for example, those whose supervisors fail to make sufficient time to clarify role expectations, thus leaving them unsure of how best to contribute to departmental and organizational goals.
How prevalent is role ambiguity at work? In two independent surveys of employees, it was found that 35 percent of one sample (a national random sample of male employees) and 60 percent of the other sample (primarily scientists and engineers) reported some form of role ambiguity. Hence, ambiguity of job role is not an isolated event.
Role ambiguity has been found to lead to several negative stress-related outcomes. French and Caplan summarized their study findings as follows:
“In summary, role ambiguity, which appears to be widespread, (1) produces psychological strain and dissatisfaction; (2) leads to underutilization of human resources; and (3) leads to feelings of futility on how to cope with the organizational environment.”
In other words, role ambiguity has far-reaching consequences beyond experienced stress, including employee turnover and absenteeism, poor coordination and utilization of human resources, and increased operating costs because of inefficiency.
It should be noted, however, that not everyone responds in the same way to role ambiguity. Studies have shown that some people have a higher tolerance for ambiguity and are less affected by role ambiguity (in terms of stress, reduced performance, or propensity to leave) than those with a low tolerance for ambiguity. Thus, again we can see the role of individual differences in moderating the effects of environmental stimuli on individual behavior and performance.

### Role Conflict

The second role-related factor in stress is role conflict. This may be defined as the simultaneous occurrence of two (or more) sets of pressures or expectations; compliance with one would make it difficult to comply with the other. In other words, role conflict occurs when an employee is placed in a situation where contradictory demands are placed upon her. For instance, a factory worker may find himself in a situation where the supervisor is demanding greater output, yet the work group is demanding a restriction of output. Similarly, a secretary who reports to several supervisors may face a conflict over whose work to do first.
One of the best-known studies of role conflict and stress was carried out by Robert Kahn and his colleagues at the University of Michigan. Kahn studied 53 managers and their subordinates (a total of 381 people), examining the nature of each person’s role and how it affected subsequent behavior. As a result of the investigation, the following conclusions emerged:
Contradictory role expectations give rise to opposing role pressures (role conflict), which generally have the following effects on the emotional experience of the focal person: intensified internal conflicts, increased tension associated with various aspects of the job, reduced satisfaction with the job and its various components, and decreased confidence in superiors and in the organization as a whole. The strain experienced by those in conflict situations leads to various coping responses, social and psychological withdrawal (reduction in communication and attributed influence) among them.
Finally, the presence of conflict in one’s role tends to undermine her reactions with her role senders and to produce weaker bonds of trust, respect, and attraction. It is quite clear that role conflicts are costly for the person in emotional and interpersonal terms. They may be costly to the organization, which depends on effective coordination and collaboration within and among its parts.
Other studies have found similar results concerning the serious side effects of role conflict both for individuals and organizations. It should again be recognized, however, that personality differences may serve to moderate the impact of role conflict on stress. In particular, it has been found that introverts and people who lack flexibility respond more negatively to role conflict than do others. In any event, managers must be aware of the problem of role conflict and look for ways to avert negative consequences. One way this can be accomplished is by ensuring that their subordinates are not placed in contradictory positions within the organization; that is, subordinates should have a clear idea of what the manager’s job expectations are and should not be placed in “win-lose” situations.

### Role Overload and Underutilization

Finally, in addition to role ambiguity and conflict, a third aspect of role processes has also been found to represent an important influence on experienced stress—namely, the extent to which employees feel either overloaded or underutilized in their job responsibilities. Role overload is a condition in which individuals feel they are being asked to do more than time or ability permits. Individuals often experience role overload as a conflict between quantity and quality of performance. Quantitative overload consists of having more work than can be done in a given time period, such as a clerk expected to process 1,000 applications per day when only 850 are possible. Overload can be visualized as a continuum ranging from too little to do to too much to do. Qualitative role overload, on the other hand, consists of being taxed beyond one’s skills, abilities, and knowledge. It can be seen as a continuum ranging from too-easy work to too-difficult work. For example, a manager who is expected to increase sales but has little idea of why sales are down or what to do to get sales up can experience qualitative role overload. It is important to note that either extreme represents a bad fit between the abilities of the employee and the demands of the work environment. A good fit occurs at that point on both scales of workload where the abilities of the individual are relatively consistent with the demands of the job.
There is evidence that both quantitative and qualitative role overload are prevalent in our society. A review of findings suggests that between 44 and 73 percent of white-collar workers experience a form of role overload. What induces this overload? As a result of a series of studies, French and Caplan concluded that a major factor influencing overload is the high achievement needs of many managers. Need for achievement correlated very highly both with the number of hours worked per week and with a questionnaire measure of role overload. In other words, much role overload is apparently self-induced.
Similarly, the concept of role underutilization should also be acknowledged as a source of experienced stress. Role underutilization occurs when employees are allowed to use only a few of their skills and abilities, even though they are required to make heavy use of them. The most prevalent characteristic of role underutilization is monotony, where the worker performs the same routine task (or set of tasks) over and over. Other situations that make for underutilization include total dependence on machines for determining work pace and sustained positional or postural constraint. Several studies have found that underutilization often leads to low self-esteem, low life satisfaction, and increased frequency of nervous complaints and symptoms.
Both role overload and role underutilization have been shown to influence psychological and physiological reactions to the job. The inverted U-shaped relationship between the extent of role utilization and stress is shown in . As shown, the least stress is experienced at that point where an employee’s abilities and skills are in balance with the requirements of the job. This is where performance should be highest. Employees should be highly motivated and should have high energy levels, sharp perception, and calmness. (Recall that many of the current efforts to redesign jobs and improve the quality of work are aimed at minimizing overload or underutilization in the workplace and achieving a more suitable balance between abilities possessed and skills used on the job.) When employees experience underutilization, boredom, decreased motivation, apathy, and absenteeism will be more likely. Role overload can lead to such symptoms as insomnia, irritability, increased errors, and indecisiveness.
Taken together, occupation and role processes represent a sizable influence on whether or not an employee experiences high stress levels. One job where the profession and its required roles almost guarantee significant stress is air traffic control. Consider for a moment whether you would want to have this job.

### Personal Influences on Stress

The second major influence on job-related stress can be found in the employees themselves. As such, we will examine three individual-difference factors as they influence stress at work: (1) personal control, (2) Type A personality, and (3) rate of life change.

### Personal Control

To begin with, we should acknowledge the importance of personal control as a factor in stress. Personal control represents the extent to which an employee actually has control over factors affecting effective job performance. If an employee is assigned a responsibility for something (landing an airplane, completing a report, meeting a deadline) but is not given an adequate opportunity to perform (because of too many planes, insufficient information, insufficient time), the employee loses personal control over the job and can experience increased stress. Personal control seems to work through the process of employee participation. That is, the more employees are allowed to participate in job-related matters, the more control they feel for project completion. On the other hand, if employees’ opinions, knowledge, and wishes are excluded from organizational operations, the resulting lack of participation can lead not only to increased stress and strain, but also to reduced productivity.
The importance of employee participation in enhancing personal control and reducing stress is reflected in the French and Caplan study discussed earlier. After a major effort to uncover the antecedents of job-related stress, these investigators concluded:
“Since participation is also significantly correlated with low role ambiguity, good relations with others, and low overload, it is conceivable that its effects are widespread, and that all the relationships between these other stresses and psychological strain can be accounted for in terms of how much the person participates. This, in fact, appears to be the case. When we control or hold constant, through statistical analysis techniques, the amount of participation a person reports, then the correlations between all the above stresses and job satisfaction and job-related threat drop quite noticeably. This suggests that low participation generates these related stresses, and that increasing participation is an efficient way of reducing many other stresses which also lead to psychological strain.”
On the bases of this and related studies, we can conclude that increased participation and personal control over one’s job is often associated with several positive outcomes, including lower psychological strain, increased skill utilization, improved working relations, and more-positive attitudes. These factors, in turn, contribute toward higher productivity. These results are shown in .
Related to the issue of personal control—indeed, moderating its impact—is the concept of locus of control. It will be remembered that some people have an internal locus of control, feeling that much of what happens in their life is under their own control. Others have an external locus of control, feeling that many of life’s events are beyond their control. This concept has implications for how people respond to the amount of personal control in the work environment. That is, internals are more likely to be upset by threats to the personal control of surrounding events than are externals. Recent evidence indicates that internals react to situations over which they have little or no control with aggression—presumably in an attempt to reassert control over ongoing events. On the other hand, externals tend to be more resigned to external control, are much less involved in or upset by a constrained work environment, and do not react as emotionally to organizational stress factors. Hence, locus of control must be recognized as a potential moderator of the effects of personal control as it relates to experienced stress.

### Type A Personality

Research has focused on what is perhaps the single most dangerous personal influence on experienced stress and subsequent physical harm. This characteristic was first introduced by Friedman and Rosenman and is called Type A personality. Type A and Type B personalities are felt to be relatively stable personal characteristics exhibited by individuals. Type A personality is characterized by impatience, restlessness, aggressiveness, competitiveness, polyphasic activities (having many “irons in the fire” at one time), and being under considerable time pressure. Work activities are particularly important to Type A individuals, and they tend to freely invest long hours on the job to meet pressing (and recurring) deadlines. Type B people, on the other hand, experience fewer pressing deadlines or conflicts, are relatively free of any sense of time urgency or hostility, and are generally less competitive on the job. These differences are summarized in .
Type A personality is frequently found in managers. Indeed, one study found that 60 percent of managers were clearly identified as Type A, whereas only 12 percent were clearly identified as Type B. It has been suggested that Type A personality is most useful in helping someone rise through the ranks of an organization.
The role of Type A personality in producing stress is exemplified by the relationship between this behavior and heart disease. Rosenman and Friedman studied 3,500 men over an 8 1/2-year period and found Type A individuals to be twice as prone to heart disease, five times as prone to a second heart attack, and twice as prone to fatal heart attacks when compared to Type B individuals. Similarly, Jenkins studied over 3,000 men and found that of 133 coronary heart disease sufferers, 94 were clearly identified as Type A in early test scores. The rapid rise of women in managerial positions suggests that they, too, may be subject to this same problem. Hence, Type A behavior very clearly leads to one of the most severe outcomes of experienced stress.
One irony of Type A is that although this behavior is helpful in securing rapid promotion to the top of an organization, it may be detrimental once the individual has arrived. That is, although Type A employees make successful managers (and salespeople), the most successful top executives tend to be Type B. They exhibit patience and a broad concern for the ramifications of decisions. As Dr. Elmer Green, a Menninger Foundation psychologist who works with executives, notes, “This fellow—the driving A—can’t relax enough to do a really first-rate job, at the office or at home. He gets to a level that dogged work can achieve, but not often to the pinnacle of his business or profession, which requires sober, quiet, balanced reasoning.” The key is to know how to shift from Type A behavior to Type B.
How does a manager accomplish this? The obvious answer is to slow down and relax. However, many Type A managers refuse to acknowledge either the problem or the need for change, because they feel it may be viewed as a sign of weakness. In these cases, several small steps can be taken, including scheduling specified times every day to exercise, delegating more significant work to subordinates, and eliminating optional activities from the daily calendar. Some companies have begun experimenting with retreats, where managers are removed from the work environment and engage in group psychotherapy over the problems associated with Type A personality. Initial results from these programs appear promising. Even so, more needs to be done if we are to reduce job-related stress and its serious health implications.

### Rate of Life Change

A third personal influence on experienced stress is the degree to which lives are stable or turbulent. A long-term research project by Holmes and Rahe has attempted to document the extent to which rate of life change generates stress in individuals and leads to the onset of disease or illness. As a result of their research, a variety of life events were identified and assigned points based upon the extent to which each event is related to stress and illness.
The death of a spouse was seen as the most stressful change and was assigned 100 points. Other events were scaled proportionately in terms of their impact on stress and illness. It was found that the higher the point total of recent events, the more likely it is that the individual will become ill. Apparently, the influence of life changes on stress and illness is brought about by the endocrine system. This system provides the energy needed to cope with new or unusual situations. When the rate of change surpasses a given level, the system experiences overload and malfunctions. The result is a lowered defense against viruses and disease.
1. What are the underlying causes of stress in a particular situation?
Four organization influences on stress can be identified: (1) occupational differences, (2) role ambiguity, (3) role conflict, and (4) role overload or underutilization. Three personal influences on stress are (1) personal control, or the desire to have some degree of control over one’s environment; (2) rate of life change; and (3) Type A personality. Type A personality refers to individuals characterized by impatience, restlessness, aggressiveness, competitiveness, and polyphasic activities (that is, attempting to do several activities at the same time).


# Stress and Well Being

## Buffering Effects of Work related Stress

1. How do managers and organizations minimize the dysfunctional consequences of stressful behavior?
We have seen in the previous discussion how a variety of organizational and personal factors influence the extent to which individuals experience stress on the job. Although many factors, or stressors, have been identified, their effect on psychological and behavioral outcomes is not always as strong as we might expect. This lack of a direct stressor-outcome relationship suggests the existence of potential moderator variables that buffer the effects of potential stressors on individuals. Recent research has identified two such buffers: the degree of social support the individual receives and the individual’s general degree of what is called hardiness. Both are noted in .

### Social Support

First, let us consider social support. Social support is simply the extent to which organization members feel their peers can be trusted, are interested in one another’s welfare, respect one another, and have a genuine positive regard for one another. When social support is present, individuals feel that they are not alone as they face the more prevalent stressors. The feeling that those around you really care about what happens to you and are willing to help blunts the severity of potential stressors and leads to less-painful side effects. For example, family support can serve as a buffer for executives on assignment in a foreign country and can reduce the stress associated with cross-cultural adjustment.
Much of the more rigorous research on the buffering effects of social support on stress comes from the field of medicine, but it has relevance for organizational behavior. In a series of medical studies, it was consistently found that high peer support reduced negative outcomes of potentially stressful events (surgery, job loss, hospitalization) and increased positive outcomes. These results clearly point to the importance of social support to individual well-being. These results also indicate that managers should be aware of the importance of building cohesive, supportive work groups—particularly among individuals who are most subject to stress.

### Hardiness

The second moderator of stress is hardiness. Hardiness represents a collection of personality characteristics that involve one’s ability to perceptually or behaviorally transform negative stressors into positive challenges. These characteristics include a sense of commitment to the importance of what one is doing, an internal locus of control (as noted above), and a sense of life challenge. In other words, people characterized by hardiness have a clear sense of where they are going and are not easily deterred by hurdles. The pressure of goal frustration does not deter them, because they invest themselves in the situation and push ahead. Simply put, these are people who refuse to give up.
Several studies of hardiness support the importance of this variable as a stress moderator. One study among managers found that those characterized by hardiness were far less susceptible to illness following prolonged stress. And a study among undergraduates found hardiness to be positively related to perceptions that potential stressors were actually challenges to be met. Thus, factors such as individual hardiness and the degree of social support must be considered in any model of the stress process.

### Consequenses of Work Related Stress

In exploring major influences on stress, it was pointed out that the intensity with which a person experiences stress is a function of organizational factors and personal factors, moderated by the degree of social support in the work environment and by hardiness. We come now to an examination of major consequences of work-related stress. Here we will attempt to answer the “so what?” question. Why should managers be interested in stress and resulting strain?
As a guide for examining the topic, we recognize three intensity levels of stress—no stress, low stress, and high stress—and will study the outcomes of each level. These outcomes are shown schematically in . Four major categories of outcome will be considered: (1) stress and health, (2) stress and counterproductive behavior, (3) stress and job performance, and (4) stress and burnout.

### Stress and Health

High degrees of stress are typically accompanied by severe anxiety and/or frustration, high blood pressure, and high cholesterol levels. These psychological and physiological changes contribute to the impairment of health in several different ways. Most important, high stress contributes to heart disease. The relationship between high job stress and heart disease is well established. In view of the fact that well over a half-million people die of heart disease every year, the impact of stress is important.
High job stress also contributes to a variety of other ailments, including peptic ulcers, arthritis, and several forms of mental illness. In a study by Cobb and Kasl, for example, it was found that individuals with high educational achievement but low job status exhibited abnormally high levels of anger, irritation, anxiety, tiredness, depression, and low self-esteem. In another study, Slote examined the effects of a plant closing in Detroit on stress and stress outcomes. Although factory closings are fairly common, the effects of these closings on individuals have seldom been examined. Slote found that the plant closing led to “an alarming rise in anxiety and illness,” with at least half the employees suffering from ulcers, arthritis, serious hypertension, alcoholism, clinical depression, and even hair loss. Clearly, this life change event took its toll on the mental and physical well-being of the workforce.
Finally, in a classic study of mental health of industrial workers, Kornhauser studied a sample of automobile assembly-line workers. Of the employees studied, he found that 40 percent had symptoms of mental health problems. His main findings may be summarized as follows:
1. Job satisfaction varied consistently with employee skill levels. Blue-collar workers holding high-level jobs exhibited better mental health than those holding low-level jobs.
2. Job dissatisfaction, stress, and absenteeism were all related directly to the characteristics of the job. Dull, repetitious, unchallenging jobs were associated with the poorest mental health.
3. Feelings of helplessness, withdrawal, alienation, and pessimism were widespread throughout the plant. As an example, Kornhauser noted that 50 percent of the assembly-line workers felt they had little influence over the future course of their lives; this compares to only 17 percent for nonfactory workers.
4. Employees with the lowest mental health also tended to be more passive in their nonwork activities; typically, they did not vote or take part in community activities.
In conclusion, Kornhauser noted:
“Poor mental health occurs whenever conditions of work and life lead to continuing frustration by failing to offer means for perceived progress toward attainment of strongly desired goals which have become indispensable elements of the individual’s self-esteem and dissatisfaction with life, often accompanied by anxieties, social alienation and withdrawal, a narrowing of goals and curtailing of aspirations—in short . . . poor mental health.”
Managers need to be concerned about the problems of physical and mental health because of their severe consequences both for the individual and for the organization. Health is often related to performance, and to the extent that health suffers, so too do a variety of performance-related factors. Given the importance of performance for organizational effectiveness, we will now examine how it is affected by stress.

### Stress and Counterproductive Behavior

It is useful from a managerial standpoint to consider several forms of counterproductive behavior that are known to result from prolonged stress. These counterproductive behaviors include turnover and absenteeism, alcoholism and drug abuse, and aggression and sabotage.
Turnover and Absenteeism. Turnover and absenteeism represent convenient forms of withdrawal from a highly stressful job. Results of several studies have indicated a fairly consistent, if modest, relationship between stress and subsequent turnover and absenteeism. In many ways, withdrawal represents one of the easiest ways employees have of handling a stressful work environment, at least in the short run. Indeed, turnover and absenteeism may represent two of the less undesirable consequences of stress, particularly when compared to alternative choices such as alcoholism, drug abuse, or aggression. Although high turnover and absenteeism may inhibit productivity, at least they do little physical harm to the individual or coworkers. Even so, there are many occasions when employees are not able to leave because of family or financial obligations, a lack of alternative employment, and so forth. In these situations, it is not unusual to see more dysfunctional behavior.
Alcoholism and Drug Abuse. It has long been known that stress is linked to alcoholism and drug abuse among employees at all levels in the organizational hierarchy. These two forms of withdrawal offer a temporary respite from severe anxiety and severe frustration. One study by the Department of Health, Education, and Welfare reported, “Our interviews with blue-collar workers in heavy industry revealed a number who found it necessary to drink large quantities of alcohol during lunch to enable them to withstand the pressure or overwhelming boredom of their tasks.” A study in New York revealed a surprising amount of drug abuse by young employees on blue-collar jobs—especially among assembly-line employees and long-haul truck drivers. A third study of a UAW local involving 3,400 workers found 15 percent of the workforce addicted to heroin. And, finally, there is an alarming increase of drug and substance abuse among managers.
Both alcohol and drugs are used by a significant proportion of employees to escape from the rigors of a routine or stressful job. Although many companies have begun in-house programs aimed at rehabilitating chronic cases, these forms of withdrawal seem to continue to be on the increase, presenting another serious problem for modern managers. One answer to this dilemma involves reducing stress on the job that is creating the need for withdrawal from organizational activities.
Aggression and Sabotage. Severe frustration can also lead to overt hostility in the form of aggression toward other people and toward inanimate objects. Aggression occurs when individuals feel frustrated and can find no acceptable, legitimate remedies for the frustration. For instance, a busy secretary may be asked to type a stack of letters, only to be told later that the boss changed his mind and no longer needs the letters typed. The frustrated secretary may react by covert verbal abuse or an intentional slowdown on subsequent work. A more extreme example of aggression can be seen in the periodic reports in newspapers about a worker who “goes berserk” (usually after a reprimand or punishment) and attacks fellow employees.
One common form of aggressive behavior on the job is sabotage. As one study found:
“The roots of sabotage, a frequent aspect of industrial violence, are illustrated by this comment of a steelworker. ‘Sometimes, out of pure meanness, when I make something, I put a little dent in it. I like to do something to make it really unique. Hit it with a hammer deliberately to see if it’ll get by, just so I can say I did it.’ In a product world where everything is alike, sabotage may be a distortion of the guild craftsman’s signature, a way of asserting individuality in a homogeneous world—the only way for a worker to say, ‘That’s mine.’ It may also be a way of striking back against the hostile, inanimate objects that control the worker’s time, muscles, and brain. Breaking a machine in order to get some rest may be a sane thing to do.”
The extent to which frustration leads to aggressive behavior is influenced by several factors, often under the control of managers. Aggression tends to be subdued when employees anticipate that it will be punished, the peer group disapproves, or it has not been reinforced in the past (that is, when aggressive behavior failed to lead to positive outcomes). Thus, it is incumbent upon managers to avoid reinforcing undesired behavior and, at the same time, to provide constructive outlets for frustration. In this regard, some companies have provided official channels for the discharge of aggressive tendencies. For example, many companies have experimented with ombudsmen, whose task it is to be impartial mediators of employee disputes. Results have proved positive. These procedures or outlets are particularly important for nonunion personnel, who do not have contractual grievance procedures.

### Stress and Job Performance

A major concern of management is the effects of stress on job performance. The relationship is not as simple as might be supposed. The stress-performance relationship resembles an inverted J-curve, as shown in . At very low or no-stress levels, individuals maintain their current levels of performance. Under these conditions, individuals are not activated, do not experience any stress-related physical strain, and probably see no reason to change their performance levels. Note that this performance level may be high or low. In any event, an absence of stress probably would not cause any change.
On the other hand, studies indicate that under conditions of low stress, people are activated sufficiently to motivate them to increase performance. For instance, salespeople and many managers perform best when they are experiencing mild anxiety or frustration. Stress in modest amounts, as when a manager has a tough problem to solve, acts as a stimulus for the individual. The toughness of a problem often pushes managers to their performance limits. Similarly, mild stress can also be responsible for creative activities in individuals as they try to solve difficult (stressful) problems.
Finally, under conditions of high stress, individual performance drops markedly. Here, the severity of the stress consumes attention and energies, and individuals focus considerable effort on attempting to reduce the stress (often employing a variety of counterproductive behaviors as noted below). Little energy is left to devote to job performance, with obvious results.

### Stress and Burnout

When job-related stress is prolonged, poor job performance such as that described above often moves into a more critical phase, known as burnout. Burnout is a general feeling of exhaustion that can develop when a person simultaneously experiences too much pressure to perform and too few sources of satisfaction.
Candidates for job burnout seem to exhibit similar characteristics. That is, many such individuals are idealistic and self-motivated achievers, often seek unattainable goals, and have few buffers against stress. As a result, these people demand a great deal from themselves, and, because their goals are so high, they often fail to reach them. Because they do not have adequate buffers, stressors affect them rather directly. This is shown in . As a result of experienced stress, burnout victims develop a variety of negative and often hostile attitudes toward the organization and themselves, including fatalism, boredom, discontent, cynicism, and feelings of personal inadequacy. As a result, the person decreases his or her aspiration levels, loses confidence, and attempts to withdraw from the situation.
Research indicates that burnout is widespread among employees, including managers, researchers, and engineers, that are often hardest to replace by organizations. As a result, it is estimated that 70 percent of the largest U. S. companies have some form of antiburnout/stress reduction training.
1. How do managers and organizations minimize the dysfunctional consequences of stressful behavior?
The effects of potential stress can be buffered by two factors: (1) social support from one’s coworkers or friends and (2) hardiness, or the ability to perceptually and behaviorally transform negative stressors into positive challenges. Sustained stress can lead to (1) health problems; (2) counterproductive behavior, such as turnover, absenteeism, drug abuse, and sabotage; (3) poor job performance; and (4) burnout.


# Stress and Well Being

## Coping with Work related Stress

1. What are the remedies for job-related stress, and how can managers motivate employees to participate actively in health promotion efforts for the benefit of all concerned?
We come now to the most important question from a managerial standpoint: What can be done to reduce job-related stress? Many suggestions for coping with stress are implicit in the previous discussions. However, it is possible to summarize several important actions employees and managers can take in order to provide a more desirable work environment and improve employee adjustment to work.

### Individual Strategies

There are many things people can do to help eliminate the level of experienced stress or, at the very least, to help cope with continuing high stress. Consider the following:
Developing Self-Awareness. Individuals can increase awareness of how they behave on the job. They can learn to know their own limits and recognize signs of potential trouble. Employees should know when to withdraw from a situation (known to some as a “mental health day” instead of absenteeism) and when to seek help from others on the job in an attempt to relieve the situation.
Developing Outside Interests. In addition, individuals can develop outside interests to take their minds off work. This solution is particularly important for Type A people, whose physical health depends on toning down their drive for success. Employees can ensure that they get regular physical exercise to relieve pent-up stress. Many companies sponsor athletic activities, and some have built athletic facilities on company premises to encourage employee activity.
Leaving the Organization. Sometimes an employee may be unable to improve her situation and, as a result, may find it necessary (i.e., healthful) simply to leave the organization and find alternative employment. Although this is clearly a difficult decision to make, there are times when turnover is the only answer.
Finding a Personal or Unique Solution. Another means individuals can use to cope with stress is through a variety of personal or unique solutions. For instance, here is how one manager described his reaction to a stressful situation: “If someone finally bugs me, I politely hang up the phone and then pound the hell out of my typewriter, saying all the things on paper I wanted to say to that person on the phone. It works every time. Then, I rip up the paper and throw it into the trash can.” If an employee cannot leave a stressful situation, this may be a good temporary way out of it.
Physical Exercise. Because part of the cause of the fatigue resulting from stress is the body’s physical reaction, exercise can be an effective means of enabling the body to more effective deal with the physical components of stress. Regular exercise can be an important and effective individual strategy.
Cognitive Perspective. Finally, because stress is in part a function of how events are perceived and interpreted, controlling one’s cognitive perspective of events can also be an effective strategy. Although one would not want to go so far as framing a truck speeding toward you as an opportunity rather than a threat, positively framing situations as well as distinguishing factors that are within as well as outside your control and influence can be effective means of reducing stress.

### Organizational Strategies

Because managers usually have more control over the working environment than do subordinates, it seems only natural that they have more opportunity to contribute to a reduction of work-related stress. Among their activities, managers may include the following eight strategies.
Personnel Selection and Placement. First, managers can pay more attention in the selection and placement process to the fit between job applicants, the job, and the work environment. Current selection and placement procedures are devoted almost exclusively to preventing qualitative role overload by ensuring that people have the required education, ability, experience, and training for the job. Managers could extend these selection criteria to include a consideration of the extent to which job applicants have a tolerance for ambiguity and can handle role conflict. In other words, managers could be alert in the job interview and subsequent placement process to potential stress-related problems and the ability of the applicant to deal successfully with them.
Skills Training. Second, stress can be reduced in some cases through better job-related skills training procedures, where employees are taught how to do their jobs more effectively with less stress and strain. For instance, an employee might be taught how to reduce overload by taking shortcuts or by using new or expanded skills. These techniques would only be successful, however, if management did not follow this increased effectiveness by raising work quotas. Along with this could go greater effort by managers to specify and clarify job duties to reduce ambiguity and conflict. Employees could also be trained in human relations skills in order to improve their interpersonal abilities so that they might encounter less interpersonal and intergroup conflict.
Job Redesign. Third, managers can change certain aspects of jobs or the ways people perform these jobs. Much has been written about the benefits of job redesign. Enriching a job may lead to improved task significance, autonomy, responsibility, and feedback. For many people, these jobs will present a welcome challenge, which will improve the job-person fit and reduce experienced stress. It should be noted, however, that all people do not necessarily want an enriched job. Enriching the job of a person with a very low need for achievement or external locus of control may only increase anxiety and fear of failure. Care must be taken in job enrichment to match these efforts to employee needs and desires.
In addition to job enrichment, a related technique aimed at reducing stress is job rotation. Job rotation is basically a way of spreading stress among employees and providing a respite—albeit temporary—from particularly stressful jobs. Job rotation is particularly popular in Japan as a means of allocating the more tedious or boring tasks among a large set of employees so prolonged stress is reduced. Japan is also finally working toward a reduced workweek as a means of reducing job-related stress.
Company-Sponsored Counseling Programs. Several companies have begun experimenting with counseling programs, the fourth strategy suggested here. For instance, Stanford University’s executive program includes a module on coping with stress, and the Menninger Foundation conducts a one-week anti-stress seminar in Topeka. In one experiment among police officers, the value of a stress management program was examined. In the program, which consisted of six two-hour sessions, officers were told about the nature and causes of stress, were shown useful relaxation exercises, and were put through several simulated stressful situations—such as role playing the handling of an arrest. Throughout, emphasis was placed on reinforcing the officers’ confidence that they could, in fact, successfully cope with on-the-job stress. The results of the program showed that those officers who went through the program performed better, exhibited greater self-control, and experienced less stress than officers in comparable positions who did not go through the program. Similar findings have emerged in a variety of business organizations. Once again, much work-related stress can be reduced simply by encouraging managers to be more supportive and to provide the necessary tools for people to cope with stress.
Increased Participation and Personal Control. Fifth, managers can allow employees greater participation and personal control in decisions affecting their work. As noted above, participation increases job involvement and simultaneously reduces stress by relieving ambiguity and conflict. However, although the benefits of increased participation are many, it should be noted that being more participative is no easy task for some supervisors. One study, for example, found significant differences in the extent to which different supervisors would allow their subordinates to participation in decision-making. Females were found to allow more participation than males. Supervisors with high achievement needs, high levels of confidence in the abilities of their subordinates, and low feelings of being threatened by others allowed more subordinate participation. The issue of participation does not appear to be whether subordinates desire it; instead, it appears to be whether superiors will allow it.
Work Group Cohesiveness. Sixth, managers can attempt to build work group cohesiveness. Team-building efforts are common in industry today. These efforts focus on developing groups that will be both more productive and mutually supportive. A critical ingredient in the extent to which stress is experienced is the amount of social support employees receive. Team building represents one way to achieve this support.
Improved Communication. Managers can open communication channels so employees are more informed about what is happening in the organization. With greater knowledge, role ambiguity and conflict are reduced. Managers must be aware, however, that communication is a two-way street; they should allow and be receptive to communication from subordinates. To the extent that subordinates feel their problems and complaints are being heard, they experience less stress and are less inclined to engage in counterproductive behavior.
Health Promotion Programs. Finally, many companies have recently embarked on a more systematic and comprehensive approach to stress reduction and wellness in the workplace. These programs are usually referred to as health promotion programs, and they represent a combination of diagnostic, educational, and behavior modification activities that are aimed at attaining and preserving good health. A typical program includes risk assessment, educational and instructional classes, and counseling and referrals. Health promotion programs tackle a wide array of health-related concerns, including physical fitness, weight control, dietary and nutritional counseling, smoking cessation, blood pressure monitoring, alcohol and substance abuse problems, and general lifestyle modification.
Companies involved in such programs usually feel that the costs invested to run them are more than returned through higher levels of productivity and reduced absenteeism and stress-related illness. Moreover, many companies have found that providing such services serves as an attractive incentive when recruiting employees in a tight job market.
Stress is a function of the objective environment but also of individuals’ subjective interpretation of events and their consequences. Both body and mind are involved the process. It is important for both firms and individuals to take preventive measures before the cumulative effects of stress manifest themselves in ways that cost both the individual and the company.
Eustress is a term that signifies beneficial stress, either psychological, physical. The term was coined by using the Greek prefix “eu”, meaning "good", and stress, literally meaning "good stress". Eustress was originally explored in a stress model by Richard Lazarus. It is the positive cognitive response to stress that is healthy, or gives one a feeling of fulfilment or other positive feelings.
1. What are the remedies for job-related stress, and how can managers motivate employees to participate actively in health promotion efforts for the benefit of all concerned?
Burnout is defined as a general feeling of exhaustion that can develop when a person simultaneously experiences too much pressure to perform and too few sources of satisfaction. Individual strategies to reduce stress include (1) developing one’s self-awareness about how to behave on the job, (2) developing outside interests, (3) leaving the organization, and (4) finding a unique solution. Organizational strategies to reduce stress include (1) improved personnel selection and job placement, (2) skills training, (3) job redesign, (4) company-sponsored counseling programs, (5) increased employee participation and personal control, (6) enhanced work group cohesiveness, (7) improved communication, and (8) health promotion programs.

### Chapter Review Questions

1. Discuss the five types of problems related to employee work adjustment.
2. Define stress. How does it differ from strain?
3. Describe the general adaptation syndrome.
4. Contrast frustration with anxiety.
5. Identify the major categories of variables that have been found to influence stress. What role does social support play in the process? What role does hardiness play?
6. In the chapter, the plight of assembly-line workers was discussed. What realistic suggestions would you make to relieve the tension and stress of this job?
7. Compare and contrast role conflict and role ambiguity.
8. How does a manager achieve a useful balance in a person-job fit so neither role overload nor role underutilization occurs?
9. How should a manager deal with a subordinate who is clearly a Type A personality? How should a manager who is a Type A personality handle her own stress?
10. Of what utility is the rate-of-life-change concept?
11. In organizations with which you are familiar, which of the many suggestions for coping with stress would be most applicable? Are the strategies you selected individual or organizational strategies?

### Managerial Skills Application Exercises

1. You may wish to see if you have experienced stress in your present (or previous) part- or full-time job. To do so, simply complete this self-assessment. When you have finished, refer to the scoring procedures in .

### How Stressful Is Your Job?

Instructions: This instrument focuses on the stress level of your current (or previous) job. Think of your job, and answer the following items as frankly and honestly as possible.
1. Are you interested in determining whether you are a Type A or Type B? If so, simply complete this self-assessment. When you have finished, score your results as shown in .

### Are You a Type A?

Instructions: Choose from the following responses to answer the questions below:
1. Almost always true
2. Usually trued.
3. Seldom true
4. Never true
Answer each question according to what is generally true for you:
1. The Holmes and Rahe “Schedule of Recent Experiences” is shown here in this self-assessment. You are encouraged to complete this scale by checking all those events that have occurred to you within the past year. Next, follow the scoring procedures described in .

### How Stable Is Your Life?

Instructions: Place a check mark next to each event you experienced within the past year. Then add the scores associated with the various events to derive your total life stress score.
1. If you are interested in your own potential for burnout, you may wish to complete this self-assessment. Simply answer the ten questions as honestly as you can. When you have finished, follow the scoring instructions shown in Appendix B.

### Are You Suffering from Burnout?

Instructions: Check whether each item is “mostly true” or “mostly untrue” for you. Answer as honestly as you can. When you have finished, add up the number of checks for “mostly true.”

### Critical Thinking Case

### Managerial Leadership, Sustainability, and Responsible Management: Mindfulness at Google Inc.

Even though the outside appearance of Google headquarters may be filled with stereotypical visions of nap pods and scenes from “The Internship,” there is still a lot of work that is accomplished by those working there. With work, there can come stress, and job-related stress is a huge issue, with studies by the Behavioral Science and Policy Association stating that working long hours has been shown to increase mortality by 20 percent. No matter how many cushy perks you can get, they won’t make everyone happy, and Google is combating this with creativity. They attempt to counteract the stress-related issues by offering specific classes—for example Meditation 101 and Mindfulness-Based Stress Reduction. They also encourage their employees to join their online and in-person community called gPause. This specific group helps support and encourage meditation practice. The key to this stress-reducing revolution at Google is that they have a company culture that supports the behavior. The company also promotes day meditation retreats at a handful of their locations. This type of creativity is sure to take hold at other companies across the globe.
2. Google is one of the leading tech companies in the world. What do you think of their approach to handling stress within the workplace? Do you think that this approach will be effective? Why or why not?
3. A company culture that supports stress reduction is key to the success of any program within the company. What are some obstacles that can arise when handling stress within a workplace? What are some methods that you would employ as manager to counteract these obstacles and implement stress-reduction programs within your workplace?
Sources: J. Goh, J. Pfeffer, S. A. Zenios, “Workplace stressors & health outcomes: Health policy for the workplace,” Behavioral Science and Policy Association, February 15, 2017, https://behavioralpolicy.org/articles/workplace-stressors-health-outcomes-health-policy-for-the-workplace/; J. Porter, “How Google And Others Help Employees Burn Off Stress In Unique Ways,” Fast Company, November 16, 2015, https://www.fastcompany.com/3053048/how-google-and-other-companies-help-employees-burn-off-stress-in-unique-ways.


# Entrepreneurship

## Introduction

### Learning Outcomes

After reading this chapter, you should be able to answer these questions:
1. What are some different types of entrepreneurship?
2. What characteristics lead individuals to become entrepreneurs?
3. How can the business model canvas help us to describe and assess a business model?
4. How do entrepreneurs finance their new business ideas?
5. How can entrepreneurs leverage design thinking to solve complex problems and navigate uncertain environments?
6. How can government support entrepreneurship?
Maria Rose Belding is one of millions of the world’s entrepreneurs—that is, individuals who recognize and pursue opportunities, take on risk, and convert these opportunities into value-added ventures that can survive in a competitive marketplace. Entrepreneurs hail from many backgrounds and age groups—with Belding representing young middle school, high school, and college entrepreneurs. Entrepreneurs have in common a drive to achieve and grow and a willingness to take initiative and personal responsibility. Entrepreneurs frequently require other resources such as cofounders and teams, and then must build a large network of customers, suppliers, and other stakeholders. While MEANS Database is a registered nonprofit, MEANS has many for-profit competitors and partners.


# Entrepreneurship

## Overview of Entrepreneurship

1. What are some different types of entrepreneurship?
Entrepreneurship is a global phenomenon, with individuals all over the world at various stages of the process. While there are many definitions of entrepreneurs and entrepreneurship, we consider the scholarly field as defined by Shane and Venkataraman that seeks to understand how opportunities are discovered, created, and exploited; by whom; and with what consequences. When most people think of entrepreneurship, they may think of individuals such as Maria Rose Belding, as well as Jeff Bezos (Amazon) and Elon Musk (Tesla and SpaceX). However, there are many other types of entrepreneurship that we will explore in this chapter. MEANS Database is an example of social entrepreneurship—that is, creating innovative solutions to immediate social and/or environment problems and mobilizing resources to achieve social transformation. MEANS Database illustrates how social entrepreneurs often solve problems more effectively than the government. Entrepreneurs can also operate inside existing organizations: corporate entrepreneurship involves the creation of new products, processes, and ventures within large organizations. Another prevalent type is family entrepreneurship—that is, when a business is owned and managed by multiple family members, usually for more than one generation. Serial or habitual entrepreneurship refers to individuals who start several businesses, simultaneously or one after another. Entrepreneurship can also be classified according to the desired goals—for example, individuals who pursue lifestyle entrepreneurship typically create a venture to suit a personal lifestyle and not for the sole purpose of making profits. High-technology entrepreneurship involves ventures in the information, communication, and technology space, which typically have high expectations for revenue growth. Entrepreneurs can also be classified according to the stage of their venture development, as outlined in the Global Entrepreneurship Monitor (GEM) research program in the next section.

### Global Entrepreneurship Prevalence

Each year, the Global Entrepreneurship Monitor (GEM) study gathers data from 60+ countries to determine how many individuals are engaged in various phases of entrepreneurship. The first phase captures potential entrepreneurs who believe that they have the capacity and knowledge to start a venture and don’t fear failure. If you are reading this book and believe that you are developing the skills necessary to someday start your own company, and you believe that the risk-reward payoff is promising, then you fit this definition of a potential entrepreneur. The next GEM category is nascent entrepreneurs who have set up or are in the process of setting up a venture that they will own/co-own that is less than three months old and has not yet generated wages/salaries. New business owners operate a business for over three months but less than three years. And finally, established business owners actively run a business that is over three and a half years old. GEM researchers calculate a Total Entrepreneurial Activity (TEA) rate, which is the percentage of the adult population (ages 18–64) who are either nascent entrepreneurs or owner-managers of a new business.  provides an overview of the GEM model to measure entrepreneurial activity in a given economy. As shown, GEM data captures attributes of the individual entrepreneur, industry sector, and expected impact in terms of potential business growth, use of innovation, and share of international customers.  shows the most recently available rates of entrepreneurial activities across geographic regions. These regions are classified by their development status, with factor-driven countries the least developed; these countries subsist primarily on agriculture and extraction businesses, and rely heavily on unskilled labor and natural resources. Efficiency-driven economies are more competitive and utilize more advanced and efficient production processes to provide better-quality products and services. Innovation-driven economies are the most developed, typically relying on knowledge-intensive industries and an expanded service sector. As shown, entrepreneurial activity rates range from nearly 20 percent of the adult population in Ecuador to lows of less than 5 percent in several countries such as Bulgaria, Bosnia & Herzegovina, Italy, and Japan. Entrepreneurship rates can be extremely high in factor-driven countries as there are fewer traditional businesses and entrepreneurship may be the only good opportunity in the labor market. Among innovation-driven economies, the U.S. has one of the highest TEA levels, perhaps due to the American culture of individualism and the many organizations that support entrepreneurship. Another key factor is societal value, which we review in the next section.

### Societal Value for Global Entrepreneurship

The GEM research project also examines societal values for entrepreneurship, which can help drive an abundance or lack of entrepreneurs. In the 2017/2018 report, across 52 economies, there was strong support for entrepreneurship as a good career choice. The lowest levels were reported in innovation-driven economies, perhaps because there are many good corporate career options. GEM researchers identified that almost 70 percent of the adult population believes that entrepreneurs enjoy high status within their societies. There are slight differences, with factor-driven countries reporting higher status levels as compared to innovation- and efficiency-driven countries. Moreover, across 52 economies, about 61 percent of adults believe that entrepreneurs garner substantial media attention, with the higher levels in increasingly developed economies. This data suggests that when entrepreneurs are portrayed favorably in the media, individuals will be more likely to consider entrepreneurship as a career.
1. What are some different types of entrepreneurship?
Entrepreneurship is the creation of something valuable. Social entrepreneurship involves creating innovative solutions to immediate social and/or environmental problems and mobilizing resources to achieve social transformation. Corporate entrepreneurship involves the creation of new products, processes, and ventures within existing large organizations. Family entrepreneurship involves a business that is owned and managed by multiple family members, usually for more than one generation. Serial or habitual entrepreneurship refers to individuals who start several businesses, simultaneously or one after another. Lifestyle entrepreneurship involves a venture to suit a personal lifestyle and not for the sole purpose of making profit. High-technology entrepreneurship involves ventures in the information, communication, and technology space.


# Entrepreneurship

## Characteristics of Successful Entrepreneurs

1. What characteristics lead individuals to become entrepreneurs?
Will you join the millions of entrepreneurs operating around the world? Wanting to be an entrepreneur is not enough—an individual must be able to develop and refine a new business opportunity, and it also requires a special personality as well as key skills.

### Entrepreneurial Personality

Studies of the entrepreneurial personality find that entrepreneurs share certain key traits. Most entrepreneurs are:
1. Ambitious—competitive, with a high need for achievement
2. Independent—individualists and self-starters who prefer to lead rather than follow
3. Self-confident—understand the challenges of starting and operating a business and are decisive and confident in their ability to solve problems
4. Risk takers—willing to accept a moderate (and sometimes large) degree of risk relative to potential returns
5. Visionary—spot trends and act on them
6. Creative—offer innovative solutions and approach functions such as creative product designs and bold marketing strategies
7. Energetic—offer high energy levels and perseverance, often working a full-time job while starting a venture
8. Passionate—love their ideas and are delighted to bring them to the market, sometimes turning a hobby into a venture
9. Committed—willing to make personal sacrifices to achieve their goals
Most entrepreneurs combine many of the above characteristics. Sarah Levy, 23, loved her job as a restaurant pastry chef but not the low pay, high stress, and long hours of a commercial kitchen. So, she found a new one—in her parents’ home—and launched Sarah’s Pastries and Candies. Part-time staffers help her fill pastry and candy orders to the soothing sounds of music videos playing in the background. Cornell University graduate Conor McDonough started his own web design firm, OffThePathMedia.com, after becoming disillusioned with the rigid structure of his job. “There wasn’t enough room for my own expression,” he says. “Freelancing keeps me on my toes,” says busy graphic artist Ana Sanchez. “It forces me to do my best work because I know my next job depends on my performance.”

### Managerial Ability and Technical Knowledge

A person with all the characteristics of an entrepreneur might still lack the necessary business skills to run a successful company. Entrepreneurs need the technical knowledge to carry out their ideas and the managerial ability to organize a company, develop operating strategies, obtain financing, and supervise day-to-day activities. Jim Crane, who built Eagle Global Logistics from a start-up into a $250 million company, addressed a group at a meeting, saying, “I have never run a $250 million company before, so you guys are going to have to start running this business.”
Good interpersonal and communication skills are important in dealing with employees, customers, and other business associates such as bankers, accountants, and attorneys. As we will discuss later in the chapter, entrepreneurs believe they can learn these much-needed skills. When Jim Steiner started his toner cartridge remanufacturing business, Quality Imaging Products, his initial investment was $400. He spent $200 on a consultant to teach him the business and $200 on materials to rebuild his first printer cartridges. He made sales calls from 8.00 a.m. to noon and made deliveries to customers from noon until 5:00 p.m. After a quick dinner, he moved to the garage, where he filled copier cartridges until midnight, when he collapsed into bed, sometimes covered with carbon soot. And this was not something he did for a couple of months until he got the business off the ground—this was his life for 18 months. But entrepreneurs usually soon learn that they can’t do it all themselves. Often they choose to focus on what they do best and hire others to do the rest.
1. What characteristics lead individuals to become entrepreneurs?
Most entrepreneurs are ambitious, independent, self-confident, risk-taking, visionary, creative, energetic, passionate, and committed. Entrepreneurial individuals are often competitive, with a need to achieve, and are self-starters who prefer to lead. Compared to the average population, entrepreneurs are more decisive and confident in their abilities, and they choose moderate risk where they can affect outcomes. Entrepreneurs spot and act on trends, often producing innovative product designs, marketing strategies, and managerial solutions. Entrepreneurs are able and willing to work hard, and are attached to the work and the outcomes, so much that they are willing to make personal sacrifices to achieve their goals.


# Entrepreneurship

## Business Model Canvas

1. How can the business model canvas help us to describe and assess a business model?
A business model describes the rationale of how an organization creates, delivers, and captures value. Entrepreneurs need to develop and refine a business model for themselves as they seek clarity about what they are doing, and also for discussing with colleagues, partners, and other stakeholders. Moreover, this business model will help them to identify opportunities in their internal and external environment. Originally developed by Alex Osterwalder and colleagues, the business model canvas covers the four main areas of any venture: customers, offering, infrastructure, and financial viability. There are nine building blocks that describe and assess a business model: customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partnerships, and cost structure.  depicts the business model canvas.

### Nine Building Blocks of the Business Model Canvas

Customer segments: Without customers, businesses cannot survive. Businesses must identify and understand their customers, and they can group these customers into segments with common characteristics.
Value propositions: A company creates value, or benefits, for customers by solving a problem or satisfying a need. The value proposition is the reason that customers choose one option over another when deciding what to buy. Although certainly not an exhaustive list, customers may value: newness, performance, customization, design, brand, price, cost reduction, risk reduction, accessibility, and convenience.
Channels: Channels bring the value proposition to the customers through communication, distribution, and sales. Companies can reach their customer segments through a mix of channels, both direct (e.g., through sales force and web sales) and indirect (e.g., through own stores, partner stores, and wholesalers), to raise awareness, allow for purchase and delivery, provide customer support, and support other important functions of the business.
Customer relationships: Companies need to maintain relationships with their customers to acquire and retain customers and boost sales. Strong customer relationships can significantly impact overall customer experience. There are many categories of customer relationships including personal assistance, self-service, automated service, user communities, and cocreation.
Revenue streams: There are two types of revenue stream: revenues from one-time customers and revenues from ongoing payments. Revenue pricing mechanisms vary from fixed (e.g., predefined prices based on static variables) to dynamic (e.g., price changes based on market conditions). Revenue streams can be generated through asset sales (e.g., selling a physical product), usage fees, subscription fees, licensing, brokerage fees, advertising, and temporarily selling the use of a particular asset (e.g., lending, renting, or leasing).
Key resources: Any business needs resources—physical, financial, intellectual, and/or human—to function. These resources enable the company to provide their products or services to their customers.
Key activities: Key activities are the critical tasks that a company does to succeed and operate successfully. Different companies focus on different activities in categories such as production, problem-solving, and platform/network.
Key partnerships: Companies build partnerships to optimize their business, reduce risk, or gain resources. There are four main types of partnerships: strategic alliances between noncompetitors, coopetition—strategic alliances between competitors, joint ventures, and buyer-supplier relationships.
Cost structure: All businesses incur costs through operation, whether fixed or variable. They may also face economies of scale and scope. Companies consider their cost structures in two strategies—cost-driven, where all costs are reduced wherever possible, and value-driven, where the focus is on greater value creation. Cost structures will often consider fixed costs, variable costs, economies of scale, and economies of scope.

### Business Model Canvas Application: Apple

To best illustrate the business model canvas, we can take a look at Apple illustrated in .
Customer segments: Apple’s main consumer segment is the mass market, and Apple sells globally to customers all over the world. These customers tend to have similar needs and problems that can be addressed through globally standardized offerings such as the iPhone and iPad (hardware) as well as iTunes (software).
Value proposition: In a competitive marketplace, Apple must offer a bundle of products and services that cater to the customer segment. As one illustration, Apple iTunes offers a seamless music experience where customers can easily find, purchase, and download music all in one place.
Channels: Customers are able to interact with Apple in person through retail stores and Apple stores as well as online through the iTunes store and Apple’s company website.
Customer relationships: Apple’s customers are dedicated to the brand and often have many Apple products, such as iPhones, iPads, and MacBooks. The Apple lovemark has become a status symbol.
Revenue streams: Apple earns most of its revenues from selling products such as iPods, and the iTunes store protects them from competition with similar features.
Key resources: Apple’s key resources include its name brand, hardware and software, and content.
Key activities: Apple products have outstanding marketing and hardware design.
Key partnerships: Through negotiations and contracts, Apple’s iTunes store is one of the world’s largest online music libraries.
Cost structure: Most of Apple’s costs come through manufacturing and marketing, including employee salaries.
The business model canvas can be used to determine how to compete, as either an initial entrant or a fast follower. An entrepreneurial organization is often a first mover by introducing a new product or service category that can potentially define an innovation’s characteristics in the minds of buyers, gaining valuable name recognition and brand loyalty. First movers can also lock in key resources (such as certain distribution channels) and set a technology standard. Second movers have the potential advantage of learning from and improving on the first mover’s efforts. For example, second movers can take advantage of existing customers and optimize the first mover’s product to add new features, especially when customers are willing to switch. Research on the battle between first and second movers indicates that they are equally likely to win the market. One illustration of first and second movers is in China’s competitive mobile payment industry.
1. How can the business model canvas help us to describe and assess a business model?
A business model provides an explanation of how an organization creates, delivers, and captures value. The business model canvas achieves this goal by describing four main areas of any venture—customers, offering, infrastructure, and financial viability—through nine building blocks that describe and assess a business model. Customer segments are categories of customers that have common characteristics. The value proposition is the reason that customers choose one option over another when deciding what to buy. Channels bring the value proposition to the customers through communication, distribution, and sales. Companies need to maintain relationships with their customers to acquire and retain customers and boost sales. There are two general types of revenue stream: revenues from one-time customers and revenues from ongoing payments. Any business needs resources—physical, financial, intellectual, and/or human—to function and provide their products or services to their customers. Key activities are the critical tasks that a company does to succeed and operate successfully. Companies build partnerships to optimize their business, reduce risk, or gain resources. All businesses incur costs through operation, whether fixed or variable.


# Entrepreneurship

## New Venture Financing

1. How do entrepreneurs finance their new business ideas?
Many entrepreneurs don’t start a business because they believe that starting a venture will require substantial sums of funding, and they personally do not possess these reserves. The most common means of starting new ventures is by bootstrapping—that is, attempting to found and build a company from personal finances or from the operating revenues of the new company. This term comes from the expression “pull yourself up by your bootstraps” (the fingerholds on boots). Bootstrapping can complement traditional finance sources, helping entrepreneurs to reduce their reliance on them or eliminate these sources entirely.  depicts seven bootstrapping strategies.

### Types of Capital

There are two main types of capital for entrepreneurs. Entrepreneurs can access debt capital, which is borrowed money that must be repaid at some agreed-upon future date (e.g., from banks, credit cards, or finance companies), and equity capital, which is the owner’s investment in the company and does not have a specific date for repayment (e.g., angel investors, venture capital).
Debt financing is available to most entrepreneurs and can involve loans of various lengths. Short-term loans typically require repayment in less than 1 year and are often credit-created or bank loans. Immediate-term loans must be repaid in between 1 and 10 years, usually in periods. They are useful for small and moderate-sized companies. Long-term loans last over 10 years. Businesses must be operating for a long period of time to be approved for these loans to show stability and reliability to repay their debt. Equity capital does not require a business to promise to repay any debt. Equity capital is an investment in the business, frequently from selling common stock.

### Sources of Capital

Entrepreneurs can utilize capital from several sources. The most common type of capital is personal savings. By using personal savings, the venture eliminates the expectation of repayment on a loan, and the entrepreneur does not face as much financial backlash when profits do not meet expectations. Friends and relatives can often be a fast way to gain capital. However, financial issues may create tension in these relationships. Angel investors are individual investors or groups of experienced investors who provide venture financing from their own funds. Venture capital is financing obtained from venture capitalists, investment firms that specialize in financing small, high-growth companies and receive an ownership interest and a voice in management in return for their investment. Internal funds are retained earnings within a firm that can be reinvested into the business.
Banks offer many types of loan services, including lines of credit, straight commercial loans, term loans, accounts-receivable loans, warehouse-receipt loans, and collateral loans. A line of credit is an informal agreement between the bank and the borrower (the business). Straight commercial loans are based on the borrower’s financial statements and are typically made for 30–90 days. Term loans mature in 1 to 10 years. Accounts-receivable loans are made against a borrower’s receivables, and once collected, the bank is repaid. Warehouse-receipt loans use inventory as collateral for a loan, and as the inventory is sold, the loan is paid off. Collateral loans use real estate mortgages, life insurance policies, stocks, and bonds as security to ensure loan repayment.
Crowdfunding is the process of raising new venture funds from a large “crowd” audience, typically virtually from the Internet. Crowdfunding is rapidly becoming a popular way to fund new ventures, with over $1.04 billion in 2018 for U.S. businesses alone. Crowdfunding comes in three main forms: (1) reward-based, in which backers receive an early version of the product or another reward, (2) equity, through which individual investors receive a company share, and (3) debt, which allows the backer to earn interest. The world’s largest crowdfunding platform is Kickstarter, which has received over $4 billion in pledges from 15.5 million backers for 25,700 projects. The average crowdfunding campaign raises $818; however, some companies raise millions of dollars. Typically, each crowdfunding project sets a goal for a specific time period, and entrepreneurs publish web pages to depict their product services.
1. How do entrepreneurs finance their new business ideas?
Bootstrapping is attempting to found and build a company from personal finances or from the operating revenues of the new company. Entrepreneurs can access debt capital, which is borrowed money that must be repaid by a future date, and equity capital, which is the owner’s investment in the company and does not have a specific date for repayment. Crowdfunding is the process of raising new venture funds from a large “crowd” audience, typically virtually from the Internet.


# Entrepreneurship

## Design Thinking

1. How can entrepreneurs leverage design thinking to solve complex problems and navigate uncertain environments?
Design thinking is a process commonly used by designers to find the solution to complex issues, navigate new or uncertain environments, and create a new product for the world. Design thinking uses core elements and skills of play, empathy, reflection, creation, and experimentation to collaborate, create, and build upon findings. In design thinking, failure is not a threat, but an avenue to further learning. Through observation, synthesis, alternatives, critical thinking, feedback, visual representation, creativity, problem-solving, and value creation, entrepreneurs can use design thinking to identify unique venture opportunities.
Design thinkers welcome difficulties and constraints, as these pave the way to innovative ideas and solutions. It is important, however, that these ideas are feasible, viable, and desired by people.
There are three main phases of design thinking: inspiration, ideation, and implementation. The problem, or design challenge, is the inspiration. Ideation is a creative process of solving the design challenge based on observations. Ideas are turned into actions in the implementation phase. Possible solutions are tested through experiments to create the best version of the product. In all of these phases, there are two main types of thinking: convergent and divergent. Convergent thinking moves from broad thoughts to concrete understanding, where the thoughts from divergent thinking can be narrowed down to the most promising ideas and solutions. Divergent thinking uses the imagination to open the mind to new possibilities and solutions, and ultimately become more innovative.

### Stanford Design Thinking

2. Always say yes to an offer. Whether the other person offers you a glass of water, snacks, or even a tour of their home, you should always accept. This small gesture allows you to transition from a researcher to a guest in their home. It’s always important to spend time building rapport, even if your initial conversation feels completely off topic. Later, when you actually dive into your research questions, the conversation will flow more freely.
3. Wear generic clothing. Oftentimes, clothing can communicate social status or reflect personal taste that others may disagree with. It’s better to make yourself as neutral as possible so that you can fit in with people of all backgrounds. Try to avoid wearing logos or looking too fancy.
4. Treat people like partners in research. The people you interview aren’t just research subjects or data points. Instead, you should be transparent with them and show that you value their input. Their stories and feedback play a huge role in what we end up designing, so it’s great to let them know why they are a fundamental part of our project.
5. Leave comfortable silences. When it seems like the other person is finished speaking, most people feel the need to immediately move on to the next question. Instead, you should create some space by just nodding and writing things down—it gives the other person room to continue speaking beyond the parameters of the previous question and to perhaps reveal information about themselves that you wouldn’t learn otherwise.
6. Take the spotlight off the other person. As part of our design process, we like to bring provocations into research sessions. This means that we sketch out rough concepts to show the other person, and we ask them for feedback. By shifting our attention from the person to another object, we can remove any pressure they're feeling. These outside objects also allow participants to communicate in a nonverbal way—the way they interact with them can reveal tacit attitudes or behaviors. As a side bonus, you get to bring home some tangible artifacts that you can refer back to during the design process.
7. Try very intentionally to fall in love with each person (even if it’s just a little bit). Even if you don’t naturally click with someone, you can always find something you truly appreciate about them, whether it’s their voice or their passion for the topic at hand. When you want to fall in love with someone, everything changes—your curiosity about their life story, your body language, and your empathy toward their situation. These small shifts will show your interviewee that they don’t have to perform or show the “best” parts of themselves, because they can tell that you're deeply on their side. Even after the interview, you'll find yourself coming up with better ideas because it’s much easier to design for someone that you love.
Source: Maggie Zhao. 6 Tips from IDEO designers on how to unlock insightful conversation. https://www.ideou.com/blogs/inspiration/6-tips-from-ideo-designers-on-how-to-unlock-insightful-conversation; https://dschool.stanford.edu/resources.
1. How can entrepreneurs leverage design thinking to solve complex problems and navigate uncertain environments?
Design thinking uses core elements and skills of play, empathy, reflection, creation, and experimentation to collaborate, create, and build upon findings. Through observation, synthesis, alternatives, critical thinking, feedback, visual representation, creativity, problem-solving, and value creation, entrepreneurs can use design thinking to identify unique venture opportunities. There are three main phases of design thinking: inspiration, ideation, and implementation. The problem, or design challenge, is the inspiration. Ideation is a creative process of solving the design challenge based on observations. Ideas are turned into actions in the implementation phase. Possible solutions are tested through experiments to create the best version of the product. In all of these phases, there are two main types of thinking: convergent and divergent. Convergent thinking moves from broad thoughts to concrete understanding, while the thoughts from divergent thinking can be narrowed down to the most promising ideas and solutions. Divergent thinking uses the imagination to open the mind to new possibilities and solutions, and ultimately to become more innovative.