# Organizational Planning and Controlling

## Goals or Outcome Statements

1. Explain the individual and organizational effects associated with goal setting and planning.
Creating goals is an inherent part of effective managerial planning. There are two types of organizational goals that are interrelated—official and operational goals. Official goals are an organization’s general aims as expressed in public statements, in its annual report, and in its charter. One official goal of a university, for example, might be to be “the school of first choice.” Official goals are usually ambiguous and oriented toward achieving acceptance by an organization’s constituencies. Operational goals reflect management’s specific intentions. These are the concrete goals that organization members are to pursue. For example, an operational goal for a hospital might be to increase the number of patients treated by 5 percent or to reduce readmission.
The importance of goals is apparent from the purposes they serve. Successful goals (1) guide and direct the efforts of individuals and groups; (2) motivate individuals and groups, thereby affecting their efficiency and effectiveness; (3) influence the nature and content of the planning process; and (4) provide a standard by which to judge and control organizational activity. In short, goals define organizational purpose, motivate accomplishment, and provide a yardstick against which progress can be measured.

### Goal Formulation—Where Do Organizational Goals Come From?

There are two different views about how organizational goals are formulated. The first view focuses on an organization and its external environment. You will recall that there are many stakeholders (e.g., owners, employees, managers) who have a vested interest in the organization. Organizational goals emerge as managers try to maintain the delicate balance between their organization’s needs and those of its external environment. The second view concentrates on the set of dynamics in the organization’s internal environment. Internally, an organization is made up of many individuals, coalitions, and groups who continually interact to meet their own interests and needs. They bargain, trade, and negotiate, and through these political processes, organizational goals eventually emerge.
Neither approach to goal formulation can alone provide for long-term organizational success. Goals must fit an organization into its external environment while satisfying the needs of external constituencies. In addition, goals must enable an organization’s internal components to work in harmony. For example, the goals of its marketing department need to mesh with those of its production and finance departments. The challenge for managers is to balance these forces and preserve the organization.

### Multiple Goals and the Goal Hierarchy

Consistent with the two views of goal emergence, Peter Drucker offers the perspective that organizations must simultaneously pursue multiple goals. A well-known management scholar, consultant, and writer, Drucker believes that to achieve organizational success, managers must try to achieve multiple goals simultaneously—namely, market standing, innovation, productivity, profitability; physical and financial resources, manager performance and development, employee performance and attitude, and public responsibility. Reflecting his concerns, the Hewlett-Packard Corporation has established the seven corporate goals listed in . Sometimes units within organizations may pursue goals that actually conflict with the goals of other internal units. The innovation goal of a research and development department, for example, might conflict with the production department’s goal of efficiency. Managers must strive to integrate the network of goals and resolve internal conflicts when they arise.
Broad organizational goals, such as productivity, innovation, and profitability, are likely to be broken into subgoals at various organizational levels. The complexities posed by many interrelated systems of goals and major plans can be illustrated by a goal hierarchy. Thus, an organization sets organizational-level, divisional-level, departmental-level, and job-related goals. In the process, managers must make sure that lower-level goals combine to achieve higher-level goals.
1. Explain the individual and organizational effects associated with goal setting and planning.
Goal development is an important part of the planning process. Goals developed for employees, for departments, and for entire organizations greatly enhance organizational effectiveness. Evidence reveals that performance is higher when organizations, as well as individuals, operate under difficult (but attainable), specific goals.


# Organizational Planning and Controlling

## Formal Organizational Planning in Practice

1. Understand how planning occurs in today’s organizations.
Studies indicate that, in the 1950s, approximately 8.3 percent of all major U.S. firms (1 out of every 12) employed a full-time long-range planner. By the late 1960s, 83 percent of major U.S. firms used long-range planning. Today it is estimated that nearly all U.S. corporations with sales over $100 million prepare formal long-range plans. Most formal plans extend five years into the future, and about 20 percent extend at least ten years.

### Encouraging Planning

In spite of the advantages to be gained by planning, many managers resist it. Some feel that there is not enough time to plan or that it is too complicated and costs too much. Others worry about the possible consequences of failing to reach the goals they set. Instead of preplanning, sometimes referred to as blueprint planning (that is, formulating outcome and action statements before moving forward), many managers simply fail to plan or at best engage in in-process planning (they read events and think about the next step just before acting). In-process planning works extremely well when individuals have a sense of what it is that they want to achieve and can improvise as they move forward in a sea of uncertainty and turbulence. This is much like skilled hockey players relying on their instincts, reading the defense, and improvising as they move up the ice and toward the opponent’s net. This process often works better than attempting to implement a detailed preplan, as often characterizes plays in football.
In situations where we want to encourage preplanning, certain techniques facilitate the process:
1. Develop an organizational climate that encourages planning.
2. Top managers support lower-level managers’ planning activities—for example, by providing such resources as personnel, computers, and funds—and serve as role models through their own planning activities.
3. Train people in planning.
4. Create a reward system that encourages and supports planning activity and carefully avoids punishment for failure to achieve newly set goals.
5. Use plans once they are created.
In order for managers to invest the time and energy needed to overcome resistance to planning, they must be convinced that planning does in fact pay off.

### Does Planning Really Pay Off?

Managers of organizations in complex and unstable environments may find it difficult to develop meaningful plans, yet it is precisely conditions of environmental complexity and instability that produce the greatest need for a good set of organizational plans. Yet the question remains, does planning really pay off?
We know from our earlier discussion that setting goals is an important part of the planning process. Today, much is known about what characterizes effective individual goals. (We discuss this issue in greater detail later in this chapter.) Although group and organizational goals have been studied less, it is probably safe to assume that most of our knowledge about individual goals also applies to group and organizational goals. The research suggests that effective organizational goals should (1) be difficult but reachable with effort, (2) be specific and clearly identify what is desired, (3) be accepted by and have the commitment of those who will help achieve them, (4) be developed by employees if such participation will improve the quality of the goals and their acceptance, and (5) be monitored for progress regularly.
While the evidence is not abundant, studies suggest that firms that engage in planning are more financially successful than those that do not. For example, one study reports that the median return on investment for a five-year period is 17.1 percent for organizations engaged in strategic planning, versus 5.9 percent for those that do not. Similarly, of 70 large commercial banks, those that had strategic planning systems outperformed those that did not.
Although planning clearly has observable benefits, it can be expensive. The financial commitment can be large for organizations with a formal planning staff. Even so, research suggests that planning is warranted.

### The Location of the Planning Activity

Classical management thinking advocates a separation of “planning” and “doing.” According to this school of thought, managers plan for technical core employees and formulate most of the plans for the upper levels of the organization, with little participation from lower-level managers and workers. In contrast, behavioral management theorists suggest involving organization members in drawing up plans that affect them. Implementation of a management-by-objectives program (to be discussed later in this chapter), for example, is one means by which this participative planning can be realized. Researchers at the Tavistock Institute in England promote the idea of self-managed work groups as a means of expanding the level of employee involvement. According to their socio-technical model, work groups assume a major role in planning (as well as in organizing, directing, and controlling) the work assigned to them. Many organizations—for example, the John Lewis Partnership, Volvo, and Motorola—have had successful experiences with employee involvement in planning and controlling activities.

### Planning Specialists

To keep pace with organizational complexity, technological sophistication, and environmental uncertainty, many organizations use planning specialists. Professional planners develop organizational plans and help managers plan. Boeing and Ford are among the many organizations with professional planning staffs. Planning specialists at United Airlines developed United’s crisis management plan.
Organizations have planning specialists and planning departments in place for a variety of reasons. These specialized roles have emerged because planning is time-consuming and complex and requires more attention than line managers can provide. In rapidly changing environments, planning becomes even more complex and often necessitates the development of contingency plans, once again demanding time for research and special planning skills. At times, effective planning requires an objectivity that managers and employees with vested interests in a particular set of organizational activities cannot provide.
A planning staff’s goals are varied. Their primary responsibility is to serve as planning advisors to top management and to assist lower-level line managers in developing plans for achieving their many and varied organizational objectives. Frequently, they coordinate the complex array of plans created for the various levels within an organization. Finally, a planning staff provides encouragement, support, and skill for developing formal organizational plans.
1. Understand how planning occurs in today’s organizations.
Plans reduce uncertainty and risk, focus attention on goals, and enhance understanding of the external environment. Although most major organizations engage in formal planning, many managers fail to plan appropriately. Lack of time, uncertainty about the future, and fear of failure are among the reasons given by managers for their failure to plan.


# Organizational Planning and Controlling

## Employees' Responses to Planning

1. Discuss the impact that control has on organizational members.
Managers, of course, want their employees to work hard. However, effort alone is not enough; it must be directed toward the appropriate target and executed in a proper manner. The question we explore here is, do planning, goal setting, and the development of action statements have a favorable impact on employee motivation, performance, and job satisfaction?
We turn to goal theory for our answer. Research provides us with a clear and unequivocal picture of the effects of setting goals for organizational members. Goal theory specifies that certain types of goals motivate employee behavior and thereby contribute to the level of employee performance. Goal theory, while somewhat narrow in scope, is the most completely supported theory of motivation. You have learned or will learn about the implications of goal setting as a fundamental part of the planning process and as a standard for the exercise of control when studying motivation. For goals to be effective, they must be difficult, specific, and accepted by the employee, and they must be met with feedback from management. Manufacturers often use production goals to motivate employees.

### Characteristics of Goals That Motivate Performance

Goal theory (and the research related to it) highlights several important goal attributes—goal difficulty, goal specificity, goal acceptance and commitment, and goal feedback. As  shows, workers who have a goal, even if it is quite general, usually perform better than those with no goals. Yet certain types of goals are more effective than others. Two primary characteristics of goals that enhance their motivating potential are goal specificity and goal difficulty. With regard to goal specificity, a goal that states “improve your performance” or “do your best” is generally not very effective because it is too general. Weyerhaeuser, for example, observed that its truck drivers hauling logs significantly increased their performance level when they were instructed to load their trucks to 94 percent of legal weight capacity, as opposed to simply “doing their best.” The drivers found the specific goal to be motivating, and they often competed with one another to achieve the prescribed goal. In the first nine months following the introduction of the 94 percent target, Weyerhaeuser estimated its savings to be approximately $250,000.
The second component of an effective goal is goal difficulty. People with difficult goals perform better than those with easy goals (note the third and fourth bars in ). If goals are perceived as too difficult or impossible, however, they lose their motivating effectiveness. Ideally, goals will be both specific and difficult. Thus, setting specific and challenging goals contributes more to planning effectiveness and organizational performance than does working under “no-goal” or “do your best” goal conditions.
Even a goal that is both difficult and specific, however, is not going to be effective unless it is accepted by the person who is expected to achieve it. Goal acceptance is the degree to which people accept a goal as their own (“I agree that this report must be finished by 5 p.m.”). Goal commitment is more inclusive, referring to our level of attachment to or determination to reach a goal (“I want to get that report done on time”). Goals sometimes fail to motivate people when managers assign them without making sure that workers have accepted or committed to the goals.  summarizes the conditions necessary to maximize goal-directed effort (motivation 5 direction 1 intensity), a major contributor to subsequent performance, while  summarizes the three sets of factors that facilitate goal commitment.
Goal feedback is the last important goal attribute. Goal feedback provides us with knowledge about the results of our efforts. This information can come from a variety of sources, such as supervisors, peers, subordinates, customers, inanimate performance monitoring systems, and self-assessment. Regardless of the source, the right kind of feedback serves two important functions: directional and effort. Directionally, good feedback tells employees whether they are on the right path and on target or suggests the need for redirection. In addition, it should provide information that suggests the adequacy or inadequacy of the employee’s level of effort. Thus, feedback is of critical importance!

### The Negative Side of Goals

There is, however, a negative side to goal setting. Total quality management (TQM) pioneer W. Edwards Deming fears that goals tend to narrow the performer’s vision and invite people to slack off once the goal is achieved. TQM is also oriented more toward process (means) than toward success (goals, outcomes). Organizational learning and continuous improvement, a central component of TQM, is oriented toward continually finding problems in the production process that when eliminated will result in performance increases. Performance goals, on the other hand, generally focus the performer’s attention on successfully achieving a specified level of accomplishment at some future point.
Evidence also reveals a negative side to an employee’s commitment to difficult goals. When organizational members are strongly committed to achieving difficult goals, their involvement in acts of good organizational citizenship is likely to decline. This negative relationship is unfortunate because organizations operating in highly turbulent, competitive, and uncertain environments are extremely fragile social systems. They need the commitment and the sense of ownership that propel organizational members to spontaneously engage in behaviors that are not specified in their job descriptions but that are important to the organization’s success and well-being.
There are several other negative effects associated with goals: The methods and means created to accomplish organizational goals may themselves become the goal (means-ends inversion). Organizational goals may be in conflict with personal or societal goals. Goals that are too specific may inhibit creativity and innovation. Ambiguous goals may fail to provide adequate direction, and goals and reward systems are often incompatible. For example, universities commonly encourage faculty members to be better teachers, but their reward systems primarily encourage good research.

### Goal Setting and Employee Job Satisfaction

The statement “goal setting enhances job satisfaction” is not exactly accurate. The relationship between goal setting and planning and job satisfaction is somewhat more complex. Goal setting, and therefore planning, impacts job satisfaction by working through the employee’s level of performance and level of aspiration. Job satisfaction (or dissatisfaction) is most likely determined by the level of performance and not by the goals that have been set.
An employee’s affective reaction to performance is determined not by the performance level itself but by the level of performance in relation to his aspiration level. Job satisfaction, therefore, stems from the employee’s evaluation of his actual performance in comparison to his aspiration level (or performance goal). In cases (see ) where performance reaches or passes the level aspired to, a positive emotion (job satisfaction) is likely to be produced. Performance that fails to reach aspirations causes a negative emotion (job dissatisfaction). In addition, if performance is valued by the employee because of the extrinsic rewards tied to it, high performance will create job satisfaction only if achieving the performance goal leads to the receipt of these valued extrinsic rewards. Thus, goal setting is indirectly and contingently related to job satisfaction. If goal setting contributes to employees reaching their performance aspirations and/or the outcomes that are associated with that performance, job satisfaction is a likely by-product.

### Managing through Goal Setting

What can managers do to motivate employees through goal setting? First, it is important to encourage goal acceptance and commitment. This can be accomplished by working with organizational members to set difficult, specific, and reasonable goals and to make certain that members perceive them as reasonable. If necessary, provide training and other support needed to make the goals attainable. Offer feedback that lets people know when they are approaching the goal. Avoid using threats. Feedback that criticizes without providing insight into ways to contribute to performance improvements is both frustrating and unlikely to be effective. One of Deming’s concerns about goal setting is that it creates fear in employees—fear of the failure to reach the goal. He sees fear as a serious disease that contributes to poor organizational performance. Instead, a positive, success-oriented approach is almost always more effective. If and when negative feedback is needed to correct errors, a manager’s criticisms of an employee should be credible, constructive, and objective. In addition, it is important to recall that feedback that simply criticizes, without providing insight into how to make the needed corrections, will produce few if any positive results. Finally, keep in mind that, whereas goal acceptance occurs before people work on a task and can be encouraged through promises of reward, goal commitment can be nurtured throughout the performance period as workers receive rewards for progress.
Encourage the development of work-group norms that contribute to goal commitment. Use legitimate authority to encourage the setting of specific and difficult goals. Stimulate workers to develop a sense of ownership in goals, thus producing goal acceptance and commitment. There are those who believe goal acceptance and commitment can be nurtured when workers come together as members of a family working toward the common goal of proving their worth.

### Controlling as an Organizational Activity

A few years ago, the Duluth Police Department found itself struggling with employee morale. The summer had passed, and the department discovered that it had allowed too much vacation time given the volume of summer activity facing the department. As it developed its staffing plans for the upcoming summer, it would have to grant fewer requests for summer vacations. Management soon learned that there would actually be more requests for summer vacation than the previous summer. A conflict between management and the police union appeared inevitable.
The department turned to creative problem solving. In the process, it came up with the idea of moving from a seven-day week to an eight-day week. Under the old schedule, a police officer worked a traditional five days a week, eight hours a day, 40 hours, with two days off each week. Under the new schedule, officers would work 12 hours a day and 48 hours a week. In addition, officers would work four days and then have four days off. This would in effect give officers half the upcoming summer off without taking a single day of vacation. The plan was endorsed by both the police union and the city council. Following the endorsement of the new staffing plan, the department developed a plan for monitoring the effectiveness of this new schedule and collected baseline data so that subsequent assessment of the schedule could be compared to previous work schedules.
In January, the new compressed work schedule was implemented. This was accompanied by a control system that would monitor the effectiveness of the new schedule. The department was particularly concerned about the impact of the schedule on stress levels, job satisfaction, and the overall effectiveness of its policing function. That is, would the 12-hour workday negatively affect performance? Periodically during the next couple of years, the department monitored the consequences of its new work schedule. There were several positive results. The level of stress appeared to decline along with the increases in hours worked and leisure time satisfaction, without any negative performance effects. Now, several years later, there is virtually no desire to return to the old, more traditional work schedule.
In effective organizations, the activities of planning and controlling are intricately interwoven. For each plan deemed important to the functioning of the organization, a system to monitor the plan’s effectiveness must be designed and implemented. In the remainder of this chapter, we explore the nature of control, the control process, and its effects on the organization and its members.

### Controlling and the Control Process

Controlling is a managing activity. Controlling is defined as the process of monitoring and evaluating organizational effectiveness and initiating the actions needed to maintain or improve effectiveness. Thus, managers who engage in the controlling activity watch, evaluate, and when needed, suggest corrective action.
Like the managerial functions of planning, organizing, and directing, controlling is a complex activity that is performed at many organizational levels. Upper-level managers, for example, monitor their organization’s overall strategic plans, which can be implemented only if middle-level managers control the organization’s divisional and departmental plans, which, in turn, rely on lower-level managers’ control of groups and individual employees (see our earlier discussion of the goal hierarchy).

### The Need for Control

Although there is a continual and universal need for control in organizations, the importance, amount, and type of control vary across organizational situations. Probably the most important influence on the nature of an organization’s control systems is the amount of environmental change and complexity it faces.
Organizations that operate with relatively stable external environments usually need to change very little, so managers eventually are able to control their organizations by using a set of routine procedures. With greater levels of environmental change and the accompanying uncertainty, however, controlling requires continual attention from managers. Routines and rigid control systems are simply not adequate for such conditions.
Environmental complexity also affects the nature of control systems. Simple environments contain a limited number of highly similar components that are relatively easy to control through common sets of rules and procedures. The same bureaucratic control system, for example, can be used at most branch offices of a large bank. As complexity increases through organizational growth, product diversification, and so on, managers’ needs for up-to-date information and coordination among organizational activities intensify. The complexity that calls for increased control, however, also requires open, organic systems that can respond quickly and effectively to complex environments. In such complicated situations, organizations often specify the development of flexible systems as a means goal: “To allow us to manage the complexities of our organization, we must remain flexible and open.” Other control activities shift to ends goals, such as “We want to increase market share 10 percent in each of our divisions.” Flexibility allows substantial choice as to how ends goals will be met: “Each division may decide how to achieve its 10 percent increase in market share.”  shows the level of control organizations need under different environmental conditions.

### A Control Model

In essence, control affects every part of an organization. Among some of the major targets of the organization’s control efforts are the resources it receives, the output it generates, its environmental relationships, its organizational processes, and all managerial activities. Especially important targets of control include the functional areas of operations, accounting, marketing, finance, and human resources.
Traditional control models (see ) suggest that controlling is a four-step process.
1. Establish standards. Standards are the ends and means goals established during the planning process; thus, planning and controlling are intricately interwoven. Planning provides the basis for the control process by providing the standards of performance against which managers compare organizational activities. Subsequently, the information generated as a part of the control process (see the subsequent steps in the control model) provides important input into the next planning cycle.
2. Monitor ongoing organizational behavior and results. After determining what should be measured, by whom, when, and how, an assessment of what has actually taken place is made.
3. Compare actual behavior and results against standards. Ongoing behavior is compared to standards. This assessment involves comparing actual organizational accomplishments relative to planned ends (what an organization is trying to accomplish) and means (how an organization intended for actions to unfold). The outcome of this comparison provides managers with the information they will evaluate in the final step.
4. Evaluate and take action. Using their comparative information, managers form conclusions about the relationships found between expectations and reality and then decide whether to maintain the status quo, change the standard, or take corrective action.

### Variations in Control Systems

Although all good control systems follow the process described above, this doesn’t mean that all control systems are identical. Control systems differ in terms of the degree to which they are self-managing, as opposed to externally managed, and by the point in the process at which control is exercised.

### Cybernetic and Noncybernetic Systems

Control systems differ in the amount of outside attention required for them to operate effectively. Systems using cybernetic control are based on self-regulating procedures that automatically detect and correct deviations from planned activities and effectiveness levels. Few organizational control systems are totally cybernetic, but some come close. The control system for a coal-fired electrical generating station at Detroit Edison, for example, uses computers to monitor the flow of pulverized coal into the burning chamber. The computers speed up or reduce the flow as necessary to maintain adequate fuel supplies.
Merely automating a work system does not necessarily mean that the control system is cybernetic. The drone submarine sent to explore and photograph the sunken Titanic was fully automated, but humans on the surface monitored the effectiveness of the sub’s operations and its adherence to the planned mission. To be classified as a cybernetic system, a work system must have built-in automatic control capabilities, although the built-in control need not be machine-based. A group of workers who control their own activities without outside assistance constitute a cybernetic system.
Control systems that are operated completely independently from the work system itself involve noncybernetic control. They rely on external monitoring systems in much the same way that a manufacturing company uses a separate quality assurance department to monitor and enforce quality standards rather than allowing production crews to perform this activity. Cybernetic control systems automatically detect and correct deviations, but automating a control system does not mean it is cybernetic. This technician is adjusting the mixture in the vat, so this system is not self-regulating and thus is not cybernetic.

### Time Perspectives

Organizations can introduce the control activity at three stages in the work process: prior to, during, or after the performance of a work activity. In practice, most managers use a hybrid control system that incorporates control at each of these intervals so that managers can prepare for a job, guide its progress, and assess its results.
Managers use precontrols (or preaction controls) to prevent deviation from a desired plan of action before work actually begins. For example, Butch Ledworowski, owner of Lil’ America Building Contractors, inspects all construction materials to see that they meet industry standards. Managers can use two types of concurrent controls (steering and screening control) to prevent deviation from the planned course of action while work is in progress. Steering controls are reactive concurrent controls; they occur after work has begun but before it is completed. At Lil’ America, for instance, Butch visits each construction site and watches his carpenters, offering advice and instruction as they work. Screening controls (also referred to as yes/no, go/no-go controls) are preventive concurrent controls. As activity at a critical stage is completed, managers use screening controls to assess work performed to that point and to judge whether progress is adequate. If it is, a yes decision is made to proceed to the next stage. At Lil’ America, for example, Butch always inspects carpentry work after walls have been framed. Unless he approves the work, electricians cannot begin wiring the structure.
Managers use postaction controls after the product or service is complete to examine the output. After each remodeling job, Butch assesses the work to determine whether it meets specifications, was completed on time, and came in at or under budget. Postaction controls play an important role in future planning, but their primary function is to provide feedback by describing the degree to which previous activities have succeeded.

### Characteristics of Effective Control Systems

Successful control systems have certain common characteristics. First, a good control system follows the prescriptions in the control model (see ) and adequately addresses each organizational target. Next, to the extent possible, an effective control system takes a hybrid approach so that precontrol, concurrent, and postaction control systems can be used to monitor and correct activities at all points in an organization’s operations. Other characteristics of a good control system include its treatment of information, its appropriateness, and its practicality.
The control process itself and, certainly, all effective control systems are based on information. Without good information, managers cannot assess whether ends and means goals are met. They cannot determine the relationship between them or provide feedback to planners. To be effective, information must be accurate, objective, timely, and distributed to organization members who need it. High-involvement organizations work to make sure that virtually all organizational information is accessible by any employee who needs it in order to make quality decisions. Oticon, a Danish manufacturer of hearing aids, for example, scans all company communications and places them in its information system that all employees can access.
Another characteristic of a good control system is its focus on issues of importance to the organization. Managers who develop control procedures for virtually all work activities and outcomes waste resources and, as will be discussed later in this chapter, risk creating a control system that produces negative feelings and reactions.
A final characteristic of a good control system is its practicality. Something that works well for another organization or looks wonderful in print still has to fit your organization to work well there. Some practical considerations to look for in a control system include feasibility, flexibility, the likelihood that organization members will accept it, and the ease with which the system can be integrated with planning activities.

### The Impact of Control on Organizational Members

Thus far, you have been learning about the importance of the controlling function. Consider now what the controlling function does for—or to—the organization’s members. If designed well, control systems have many positive effects both for organizations and for the people who work in them (see ). Unfortunately, sometimes control systems can produce a number of negative effects.

### Positive Effects

Organizational control systems can provide many positive effects for organization members in terms of motivation, performance, and satisfaction. This occurs by providing adequate structure, appropriate feedback, and effective goal-setting programs.
When workers want clarification of what they are expected to do, a leader can improve both their performance and satisfaction by providing structure. The guidance provided by both precontrol and concurrent control systems can likewise be received favorably. Another potential and related benefit for employees with an uncertainty avoidance or low tolerance for ambiguity personality is that the structure of a good control system reduces the uncertainty of a work situation.
A good control system also provides constructive feedback. Most employees react quite favorably to the timely provision of accurate feedback about their effectiveness. Feedback helps workers correct ineffective behaviors. Perhaps more importantly, feedback can be very rewarding. People who have a need to succeed (individuals with a high need for achievement) are gratified when feedback tells them that they are, in fact, succeeding. Feedback can improve job performance if workers use it to adjust their goals, approach, or effort levels appropriately. Both concurrent and postaction controls provide employees with feedback about the appropriateness of their behavior and the degree to which their work is producing successful results.
You have already seen that goal setting can be an important contributor to effective management. A good control system is very useful for identifying appropriate goals. Consider the control system used by the sales company where Maria Castro works. It specifies an expected sales approach (means goal) that helps her work toward a specific, difficult sales goal (ends goal). Precontrols help her understand how to achieve the desired sales level by providing such means goals as specific sales calls to make and promotional specials to offer. Concurrent controls and postcontrols provide feedback that helps Maria monitor her progress. The combined effects of goal setting and feedback about goal progress are particularly powerful.

### Negative Effects

Unfortunately, control systems don’t always function well. Excessive controls are a waste of money and energy. Donald Pemble, for example, needs a larger travel budget because he must personally inspect bridges under his new control system. His inspectors spend the time they could have used to inspect bridges in logging entries, painting numbers, and griping about the unfairness of the situation. Not only do excessive controls waste money because they fail to enhance effectiveness, but they can also create additional problems. For example, Shannon and her coworkers have changed from good corporate citizens who kept accurate records and conducted comprehensive inspections into harried workers who falsify log entries. Worse, unsuspecting motorists travel over what might be unsafe bridges.
The vast amount of paperwork and documentation called for by an excessive control system can also cause frustration and helplessness. The red tape created by many universities’ control systems, for example, wastes students’ time. Standing in lines for hours, they wait to pay dorm fees, purchase meal tickets, rent parking spaces, pay tuition, and register for classes. Their frustration and dissatisfaction are mirrored by many university employees who question the competence, the reasonableness, and perhaps even the intelligence of supervisors who insist on maintaining excessive control.
Another dysfunctional result of poor control systems can be seen in their effect on goal-setting programs. Whereas a good control system can help design and monitor valuable goal-setting programs, a poor control system can accomplish quite the opposite. A control system focused on unreasonable ends and means goals can motivate workers to establish inappropriate individual goals. For instance, the ends goal Donald Pemble established of having all bridges inspected within two years was unreachable, and his monthly inspection quotas (means goals) were unobtainable. Donald’s insistence on maintaining these inappropriate goals was evident in his reactions when the inspectors failed to meet them. Consequently, Shannon and her coworkers focused on preserving their jobs as a primary goal, rather than on conducting quality inspections.
In addition to encouraging the formation of inappropriate goals, poor control systems emphasize and reward behaviors that, although not necessarily inappropriate, may hinder more productive behavior. Managers who concentrate on workers’ attendance, for example, may not promote such desirable behaviors as creativity, cooperation, and team building. Although there is nothing wrong with encouraging attendance, a control system that fosters attendance (by punishing tardiness) because it is easier to measure than creativity encourages rigid, uncreative behavior (on the part of employees who are almost always at work). An advertising agency that controls attendance but not creativity, for example, would soon be in serious trouble.
Even when control systems help identify appropriate goals and encourage appropriate behavior, rigid adherence to narrow goals can create problems. A large number of specific, concrete goals, for example, can inhibit creativity. The vast amount of time organization members must spend tending to concrete goals leaves them little time or energy to create. It is not only creativity that suffers, however. Every minute used taking attendance in a classroom is one less minute available for teaching. Every hour a police officer spends completing paperwork is one less hour available for public service. Managers should use only the goals they need, no more.

### The Need for Personal Control

Organizations clearly have a need to control their members and operations, but individuals also have a need for personal control, a need to believe that they have the “ability to effect a change, in a desired direction, on the environment.” Sometimes organizations, through their structures and management processes, make people feel they have too little control. For example, managers can execute the control function by designing and demanding strict adherence to organizational rules and standard operating procedures. Colleges and universities, for example, tell students which classes they are allowed to take and when, what grades they have to maintain, how to behave outside the classroom, and so on. Companies tell employees when to come to work, how many hours to work, what to wear, when to take breaks, how to perform their jobs, and many other things. The challenge facing managers is to strike a balance between the amount of control their organization needs and the amount of personal control needed by its members. Studies suggests that, when this balance is reached, both the satisfaction and performance of organization members can be enhanced. In addition, evidence reveals that a number of other organizationally undesirable consequences can result from low or less than desired levels of personal control, such as withdrawal and health-related effects (stress, frustration, and depression).
Finding the optimal balance between organizational and personal control is not an easy task, however, because most employees desire more personal control than their organizations allow. People will strive to gain greater control “in spite of (and frequently because of) the barriers and constraints the organization places on the attainment of personal control.” Repeated failures to gain personal control may cause workers to develop what has been called learned helplessness. People who learn that they are helpless to influence their work environment are likely to be the source of low productivity, low quality, high absenteeism, dissatisfaction, and turnover. They tend to react with depression, anxiety, stress, frustration, hostility, anger, and alienation. Furthermore, once helplessness has been learned, people often continue to behave helplessly, even if the environment changes to permit them greater control. Managers must thus prevent employees from developing learned helplessness because reversing it is very difficult. They should allow workers to control the aspects of their work lives that they can adequately control and use only the necessary amount of organizational control.

### In Search of Balance

At this point, it might seem that managers should just accede to workers’ persistent demands for greater control. Research shows, however, that indiscriminately giving employees larger amounts of control actually causes performance to suffer if such control exceeds their capacity to use it.
If a control system that is too excessive does not work, and if giving workers all of the personal control they desire is not effective, what do managers do to achieve the proper balance? First, people need to possess personal control; therefore, give them the amount of control they are able to handle. Second, make certain that workers given control believe they can use it effectively. Help them translate their effort into successful performance. Third, recognize that organizational control systems influence the personal control perceptions of organizational members. These, in turn, change behavior and attitudes.
By interviewing and/or surveying employees, managers can learn more about employees’ needs for control. Through organizational scans, managers can determine the amount and location of control already existing in the organization, as well as the areas needing control. The objective then becomes one of achieving the best possible match between employees and their work environment.
1. Discuss the impact that control has on organizational members.
The primary purposes of the controlling function are to monitor the extent to which an organization’s plans are being followed and their effectiveness and to identify when and where it is necessary to take corrective action. To accomplish these ambitious tasks, managers construct control systems that touch most aspects of an organization’s functional areas, its relationship with the external and internal environments, and its relationships across different hierarchical levels.
The control process consists of four steps. In Steps 1 and 2, managers create standards and monitor ongoing organizational behavior. In Step 3, they examine the degree to which ongoing activity is consistent with their goals and means objectives and the relationship between the two. In Step 4, managers develop prescriptions to correct problems, to maintain strengths, and to provide feedback to an organization’s planners.
Whereas all control systems have the same general purposes, they differ in their specifics. Some are self-managing cybernetic systems; noncybernetic systems require regular external supervision to be effective. Other variations in control systems include the point at which control activities are applied: before the work has begun (precontrols), while work is in progress (concurrent controls), and after work has been completed (postaction controls). A hybrid control system engages a variety of control activities at many points in time.
Although there are variations in control systems, all good systems have characteristics that enable them to work well in a given organization. Managers evaluating a control system might thus gauge its adequacy in providing accurate, timely, objective information to appropriate people in the organization. They also should examine whether the system focuses on the most critical aspects of their organization’s conditions in a feasible, flexible manner that will be accepted by organizational members. Because of the importance of the information it provides, a good control system should also be integrated with planning activities.
Any control system can produce both positive and negative effects. If it is well designed, a control system provides needed structure and feedback and facilitates the development and execution of effective goal-setting programs. The result can be a satisfied, motivated, and productive workforce. Inappropriate control systems, however, can cause frustration, dissatisfaction, and poor performance. Being aware of a control system’s potential effects on organization members helps managers capitalize on its positive aspects, reduce the impact of negative effects, and promote workers’ acceptance of the system.
The effort to maintain control is not restricted to managers. All employees have a need for personal control, a need that sometimes conflicts with their organization’s need to maintain control. To achieve effectiveness, managers must balance the control needs of both the organization and its members.


# Organizational Planning and Controlling

## Management by Objectives: A Planning and Control Technique

1. Describe management by objectives as a philosophy and as a management tool/technique; describe its effects.
When people are personally committed to their organization’s plans, those plans are more likely to be accomplished. This truism is the philosophy underlying management by objectives.
Management by objectives (MBO) is a philosophy of management, a planning and controlling technique, and an employee-involvement program. As a management philosophy, MBO stems from the human resource model and Theory Y’s assumption that employees are capable of self-direction and self- control. MBO also is anchored in Maslow’s need theory. The reasoning is that employee involvement in the planning and control processes provides opportunities for the employee to immerse the self in work-related activities, to experience work as more meaningful, and to satisfy higher-order needs (such as self-esteem), which leads to increased motivation and job performance (see ). It is hypothesized that, through involvement, employee commitment to a planned course of action will be enhanced and job satisfaction will be increased.
Although there are many variations in the practice of MBO, it is basically a process by which an organization’s goals, plans, and control systems are defined through collaboration between managers and their employees. Together they identify common goals, define the results expected from each individual, and use these measurements to guide the operation of their unit and to assess individual contributions. In this process, the knowledge and skills of many organizational members are used. Rather than managers telling workers “These are your goals”—the approach of classical management philosophy—managers ask workers to join them in deciding what their goals should be.
After an acceptable set of goals has been established for each employee through a give-and-take, collaborative process, employees play a major role in developing an action plan for achieving these goals. In the final stage in the MBO process, employees develop control processes, monitor their own performance, and recommend corrections if unplanned deviations occur. At this stage, the entire process begins again.  depicts the major stages of the MBO process.

### The Theory of MBO

MBO has the potential to enhance organizational effectiveness. The following four major components of the MBO process are believed to contribute to its effectiveness: (1) setting specific goals; (2) setting realistic and acceptable goals; (3) joint participation in goal setting, planning, and controlling; and (4) feedback. First, as we saw earlier, employees working with goals outperform employees working without goals. Second, it is assumed that participation contributes to the setting of realistic goals for which there is likely to be goal acceptance and commitment. Setting realistic and acceptable goals is an important precondition for successful outcomes, especially if the goals are difficult and challenging in nature. Finally, feedback plays an important role. It is only through feedback that employees learn whether they should sustain or redirect their efforts in order to reach their goal, and it is only through feedback that they learn whether or not they are investing sufficient effort.
Thus, from a theoretical perspective, there are several reasons why MBO should produce a positive impact on employee performance, motivation, commitment, and job satisfaction. In the next section, we briefly look at what the research tells us about the effectiveness of MBO programs.

### The Evidence

In both the public and private sectors, MBO is a widely employed management tool. A recent review of the research on MBO provides us with a clear and consistent view of the effects of these programs. In the 70 cases studied by Robert Rodgers and John Hunter, 68 showed increased productivity gains, and only 2 showed losses. In addition, the increases in performance were significant. Rodgers and Hunter report that the mean increase exceeded 40 percent.
While the results are generally positive in nature, differences in performance effects appear to be associated with the level of top management commitment. In those cases where top management is emotionally, intellectually (that is, top management espouses the value and importance of MBO), and behaviorally (top management actually uses MBO themselves) committed, the performance effects tend to be the strongest. The weakest MBO effects appear when top management does very little to “talk the value/importance of MBO” and they don’t use the system themselves, even as they implement it for others. This evidence tells us that “the processes” used to implement MBO may render a potentially effective program ineffective. Thus, not only should managers pay attention to the strategies used to facilitate planning and controlling (like MBO), they should also be concerned with how they go about implementing the plans. MBO requires top management commitment, and it should be initiated from the top down.
Research shows that an MBO program can play a meaningful role in achieving commitment to a course of action and improving performance. In fact, research clearly documents instances where MBO programs have increased organizational effectiveness. Still, there have been failures. After reviewing 185 studies of MBO programs, one researcher concluded that they are effective under some circumstances but not all. For example, MBO tends to be more effective in the short term (less than two years), in the private sector, and in organizations removed from direct contact with customers. These factors also affect the success of an MBO program:
1. The intensity of upper-level managers’ commitment: Half-hearted commitment to an MBO system is associated with a higher failure rate.
2. The time element: Is there enough time for employees to learn how to participate in an MBO process, that is, to learn how to set meaningful goals, develop good action statements, and develop effective monitoring systems? Is there enough time for employees to learn how to assume responsibility in a new context? Is there enough time for employees and managers to collaborate in a joint planning and controlling process?
3. The legitimacy of the system: Is it integrated into an overall philosophy of management? Or does it seem like a gimmick to seduce employees into being more productive?
4. The integration of employees’ goals: Are goals for each employee integrated well enough into the goals of their larger work unit?
To be truly effective over the long haul, MBO programs probably need to be coupled with some type of gainsharing program (that is, programs whereby organizations share some of the financial gains accrued from the ideas, productivity improvements, and cost savings that stem from employee participation). Based on his extensive observation of involvement-oriented organizations, Edward E. Lawler III notes that information, knowledge, power, and rewards are four key components of an effective and sustained high involvement. Typically, MBO systems don’t provide mechanisms through which employees share in the economic gains that may accrue to the organization as a result of their expanded role and responsibility. In light of the conditions that influence the effectiveness of MBO programs, management is challenged to provide an appropriate context for the design and maintenance of an effective MBO system.
1. Describe management by objectives as a philosophy and as a management tool/technique; describe its effects.
Management by objectives (MBO), with its emphasis on goal setting, participation, and feedback, frequently contributes to increased employee goal commitment, motivation, and performance. If performance matches the employee’s aspirations, job satisfaction is likely to be an important by-product of the organization’s planning and controlling activities.


# Organizational Planning and Controlling

## The Control- and Involvement-Oriented Approaches to Planning and Controlling

1. Differentiate between the execution of the planning and controlling activities under control- and involvement-oriented management practices.
Planning and controlling are approached with distinctive differences under control-oriented and involvement-oriented approaches to management. In the mechanistic organization, both activities tend to be lodged with management in the organizational hierarchy, often above the point in the organization where the plans are being carried out. The hierarchy plays an active role in both the planning and controlling process, and the employee is often a passive player carrying out the planning directives and the target of the control activity.
The organic organization, with its involvement-oriented management practices, places the employee as an active player in both the planning and controlling activity. Management’s role becomes one of a consultant, facilitator, enabler, philosopher, teacher, coach, and resource provider as employees take on active roles in planning and controlling and in assuming responsibility for the execution of both activities.
Upper-level managers assume responsibility for planning and controlling their units while employees assume the right and responsibility for planning and controlling at their job level. As upper-level managers carry out their planning and controlling activities, they do so by soliciting input from those below them in the organizational hierarchy.
Systems such as MBO are much more likely to characterize the planning and controlling process in involvement-oriented organizations than in control-oriented organizations. Control in high-involvement organizations is diffused through many groups and is commonly focused on task accomplishment and overcoming obstacles, with a de-emphasis on fixing blame with a particular individual for performance failures. In many control-oriented management systems, the reins of control are firmly held by the hierarchy, and the activities of individuals are carefully controlled. Performance failures, therefore, tend to become focused on the individual who fails to perform.
Finally, mechanistic organizations are more likely to create large planning departments and to centralize the planning function with specialists. As organizations confront increasing environmental or technology-induced uncertainty, rapid environmental change, and turbulence, planning and controlling move closer to the point in the organization where the plans are implemented and carried out on a day-to-day basis. In place of hierarchy-based control, organizations rely more on professional employees and groups of employees to control their own actions as they execute organizational plans.
1. Differentiate between the execution of the planning and controlling activities under control- and involvement-oriented management practices.
Planning and controlling are approached with distinctive differences under control-oriented and involvement-oriented approaches to management. In the mechanistic organization, both activities tend to be lodged with management in the organizational hierarchy, often above the point in the organization where the plans are being carried out. The hierarchy plays an active role in both the planning and controlling process, and the employee is often a passive player carrying out the planning directives and the target of the control activity.

### Chapter Review Questions

1. Define managerial planning and controlling.
2. Discuss the relationship between the two managerial functions of planning and controlling.
3. Identify and briefly describe each stage in the planning and controlling processes.
4. There are five types of plans discussed in this chapter, compare and contrast three of these.
5. What are multiple goals? What is a goal hierarchy? How are these concepts related?
6. Briefly describe the two views of the goal formulation process, and explain how they differ.
7. Describe the MBO process, the philosophy behind it, and its relationship with performance.
8. Distinguish between cybernetic and noncybernetic control and between pre, concurrent, and postaction control systems.
9. Identify and discuss three positive and three negative effects often associated with control systems.
10. How does the desire for personal control affect managers, and how can they balance it with organizational control systems?

### Management Skills Application Exercises

1. Use the tools described in this chapter to write a plan that will help you set goals, plans on how to achieve them (e.g., achieve an A average in all of my core concentration courses and A– in all courses I am taking). Also account for personal time and other activities you are involved in and goals that you have for these, such as keeping physically fit, etc.
2. You are managing a small manufacturing operation that involved the final assembly of Children sippy cups. There are two components to the sippy cup: the cup, a lid, and a straw as well as the box that will hold the product. You have 2 direct reports who you can assign to assemble the product. You also have a dotted-line report with the purchasing agent for the company that procures the components of the product (a dotted-line report is where one employee must work for and report to more than one manager) as well as the boxes and material needed (e.g., plastic that is used on the shrink-wrapping machine) to complete the product for sale. You have been given the following metrics.

Write up a plan that has achievable goals for your two direct reports and your dotted-line report. Also prepare a memo to your supervisor about how you plan on achieving your goal.
3. You and another student will engage in a role-play exercise. One will be the manager, and one will be an employee who is not happy with the aggressive goals that he has been given. After a 10-minute discussion, you both report on what was resolved, what was not, and how this would affect job satisfaction and performance for the employee.

### Managerial Decision Exercises

1. You are a manager, and your direct report is complaining about not being involved in the planning process. How do you respond?
2. You are a sales manager and have reviewed the monthly sales goals and conclude that the targets can’t be achieved without additional hires or paying employees overtime to secure additional orders. Also, you think that the product could have an 8% price increase without hindering sales units. You review the operational plans and want to provide an alteration of the plans to your boss. What should you do to plan that discussion?

### Critical Thinking Case

### How Do Amazon, UPS, and FedEx Manage Peak Seasons?

Typically, the day after Thanksgiving (Black Friday) marks the beginning of the holiday shopping season in the United States. Holiday sales, typically defined as sales occurring in November and December, account for roughly 30 percent of annual sales for U.S. retailers (Holiday Forecasts and Historical Sales 2015). For 2016, total online sales from November 10 to December 31 amounted to 91.7 billion dollars. And the top retailers for this period were eBay, Amazon, Walmart, and Target (Tasker 2016). The growth in online sales appears inevitable, but how do the top shippers, UPS and FedEx, manage the sudden upsurge?
Not always so well. In 2013, both FedEx and UPS underestimated holiday demand, and with bad weather conditions as well, struggled to deliver packages as promised. Since then, both carriers have worked hard to keep adequate resources available to handle the end-of-year upsurge. But in 2014, UPS overcompensated and had too much capacity, once again damaging profitability (Livengood 2017).
Matching retailer expectations to reality is a challenge, and not just for the shipping companies. Although retailers would prefer to know how much to expect in sales, forecasts will be inaccurate, sometimes wildly so. In preparing its forecast for the 2017 peak season, Logistics Management examined economic factors, such as GDP, job growth, retail sales, and inventory levels. It also looked at imports. An informal survey of logistical professionals found that 93.5 percent expect the 2017 season to be the same as 2016 (35.5 percent) or more active (58 percent) (Berman 2017).
In June 2017, UPS announced that it would be adding a surcharge to some peak season rates. According to the UPS website, “During the 2016 holiday season, the company’s average daily volume exceeded 30 million packages on more than half of the available shipping days. In contrast, on an average nonpeak day, the company ships more than 19 million packages” (UPS Establishes New Peak Shipping Charge 2017). The rate for the 2017 peak season would apply to select services and to oversize shipments, primarily (UPS Establishes New Peak Shipping Charge 2017). Analysts see the surcharge as a signal that UPS is the rate setter in parcel delivery. Such an assessment is not surprising given that the increase in parcel delivery as an outcome of increased e-commerce is seen as a core driver of earnings for UPS (Franck 2017).
Second-ranked FedEx, in contrast, announced that it would not follow suit but instead would “forgo most holiday surcharges on home deliveries this year” (Schlangenstein 2017). The surcharges levied by UPS are aimed primarily at small shippers, not the larger contract shippers. By not adding a seasonal surcharge, FedEx might hope to capture sales from individuals and small businesses that are deterred by the UPS surcharge (Schlangenstein 2017).
Kevin Sterling, a Seaport Global Holdings analyst, believes that FedEx has the existing capacity to absorb additional ground shipments. “[FedEx is] going to let UPS be Scrooge at Christmas” (Schlangenstein 2017). UPS already has a contract with Amazon, the de facto behemoth of online shopping, for normal shipping, leaving room for FedEx to pick up the slack during the holiday rush (Schlangenstein 2017).
In contrast, UPS reports that the additional charge is needed to offset the costs of additional resources necessary to achieve expected upsurges in capacity. UPS spokesperson Glenn Zaccara commented, “UPS’s peak season pricing positions the company to be appropriately compensated for the high value we provide at a time when the company must double daily delivery volume for six to seven consecutive weeks to meet customer demands” (Schlangenstein 2017).
With or without surcharges, price structures at both companies strive to discourage shipment of heavy, odd-sized, or oversized packages because such packages won’t flow through either company’s sorting systems and require special handling. All the same, FedEx has seen a 240 percent increase in such shipments over the last 10 years, which make up roughly 10 percent of all packages shipped using its ground services. And although FedEx is not adding a holiday surcharge, per se, it has added charges for packages that require extra handling, particularly shipments between November 20 through December 24 (Schlangenstein 2017).
2. What do you think are some of the difficulties of adding 25 percent more employees for the holiday season? What kind of planning do you think would be needed?
3. China effectively shuts down for two weeks each year and celebrates the lunar new year. How does that resemble (or not) peak season in Western countries?
4. The case focuses on U.S. markets. How are European markets affected by holiday shopping?
5. Have your own shopping habits changed with the ease of online shopping? If so, how? Do you expect them to change when you graduate and have more disposable income?
Sources:
Berman, Jeff. 2017. “Prospects for Peak Season appear to be cautiously optimistic.” Logistics Management. http://www.logisticsmgmt.com/article/prospects_for_peak_season_appear_to_be_cautiously_optimistic
Franck, Thomas. 2017. “UPS set to make a boatload on its new surcharges during holiday season, Citi predicts.” CNBC. https://www.cnbc.com/2017/08/08/ups-set-to-make-a-boatload-on-its-new-surcharges-during-holiday-season-citi-predicts.html
Holiday Forecasts and Historical Sales. 2015. National Retail Federation. https://nrf.com/resources/holiday-headquarters/holiday-forecasts-and-historical-sales
Livengood, Anna. 2017. “UPS’ Peak Season Surprise.” Veriship Resource Center. https://veriship.com/resources/ups-peak-season-surprise/
Schlangenstein, Mary. 2017. “FedEx Will Shun Most Home Holiday Fees, Unlike UPS.” Transport Topics. http://www.ttnews.com/articles/fedex-will-shun-most-home-holiday-fees-unlike-ups
Tasker, Becky. 2016. “2016 Holiday Shopping: Up-To-The-Minute Data From ADI.” CMO.com. http://www.cmo.com/adobe-digital-insights/articles/2016/11/8/2016-holiday-shopping-up-to-the-minute-data-from-adi.html
UPS Establishes New Peak Shipping Charge.” 2017. UPS Pressroom. https://www.pressroom.ups.com/pressroom/ContentDetailsViewer.page?ConceptType=PressReleases&id=1497873904827-900


# Management of Technology and Innovation

## Introduction

### Learning Outcome

After reading this chapter, you should be able to answer these questions:
1. What do we mean by management of technology and innovation (MTI), and why is it crucial?
2. How do organizations develop technology and innovation?
3. What are external sources of technology and innovation development, and when are they best used?
4. What are internal sources of technology and innovation development, and when are they best used?
5. How and why do entrepreneurs develop MTI skills?
6. No matter what method is used, what skills do you need to successfully manage technology and innovation?
7. How do you look into the future to keep pace?


# Management of Technology and Innovation

## MTI—Its Importance Now and In the Future

1. What do we mean by management of technology and innovation (MTI), and why is it crucial?
Management of technology and innovation is critical to the organization. Because of innovations and new technologies, we have historically seen the emergence of innovative organizational structures and new ways of performing work. For example, the Industrial Revolution ushered in the functional structure for organizations. As business moved from small craft businesses like Black peoplemiths to railroads, there was a need to introduce a more complex business structure. Today, we see the innovations in information technology changing structures to more network based with people being able to work remotely. The changes in structure are innovations in the technology of how work is accomplished; the innovations brought on by the invention of new products influence the technology we use and how we use it.
Technology can be defined in a number of ways. The basic purpose of a system (such as an organization) is to convert inputs into outputs. Therefore, we will define organizational technology as the processes within the organization that help to convert inputs into outputs as well as the supporting evaluation and control mechanisms. The management of technology involves the planning, implementation, evaluation, and control of the organization’s resources and capabilities in order to create value and competitive advantage. This involves managing:
1. Technology strategy—the logic of how technology will be used and what role technology will have in the organization. For example, will innovation (first-to-market strategies dominate) be the focus, or will the firm want to do things better to obtain market share and value (let others take the initial risks)?
2. Technology forecasting—the use of tools to study the environment for potential technological changes that can both positively and negatively affect the firm’s value proposition. Digitization of a variety of products such as watches and cameras provided great opportunities for some firms and caused others to go bankrupt. Forecasting (or at least keeping an eye on the changes in technology) is very important in management of technology.
3. Technology roadmapping—the process of taking an innovation or technology and trying to build more value by looking for ways to use the technology in different markets and places.
4. Technology project portfolio—the use of portfolio techniques in development and use of technology enhances the potential value of technologies being developed and the technologies that are currently part of a firm’s portfolio. Disney was a leading producer of animated films. However, Disney did not stop there—the portfolio of characters in the films are now marketed as products and displayed in Disney theme parks, and Disney very carefully manages the availability of the animated films.
Innovation activities are an important subset of technology activities. Innovation includes “newness” in the development and use of products and/or processes within a firm and within an industry. Invention, new product development, and process-improvement methods are all examples of innovation. Management of innovation includes both change management and managing organizational processes that encourage innovation. The management of innovation is more than just planning new products, services, brand extensions, or technology inventions—it is about imagining, mobilizing, and competing in new ways. For the organization, innovation management involves setting up systems and processes that allow newness that adds value to emerge. Some firms, like Google and 3M, give some employees time during the workweek to work on their own ideas with the hope of sparking new ideas that will add value. Google News and 3M Post-it Notes are products that emerged from this practice. In order to manage innovation processes successfully, the firm must undertake several activities (these can involve the study of technologies currently in use).
1. Casting a wide net while trying to keep up with potential changes in the firm, the market, the competition, etc. is crucial. Eastman Kodak was the dominant U.S. camera manufacturer. On several occasions in their history they missed opportunities to take advantage of innovations in their product line—they did not cast their net out. Land, the founder of Polaroid, went to Kodak with his invention of instant photographs—Kodak said no. Kodak did not see the telephone as a potential competitor until it was too late. Kodak was especially vulnerable because the firm was a late entrant into the digital camera market. As a result of failure to cast a wide net in keeping up with trends and innovations, Kodak went bankrupt.
2. Creating newness with existing products can expand the portfolio of value of a product. 3M has done this with all kinds of tape and with different formats and forms of Post-it Notes. Asking “how else can the product be altered or used?” is critical to developing platforms of products.
3. Creating a culture open to newness is critical to cultivating ideas. If the leadership of the firm is open to ideas from all over the organization, then the firm will be more innovative. Some large firms such as Texas Instruments encourage employees to start new businesses if TI does not want to keep a product in house. Often, TI is the first investor and customer of these small firms.
4. Communicating knowledge throughout the firm is important. This knowledge can be positive and negative at first glance. For Post-it Notes, the glue used emerged from the laboratory efforts to create a stronger glue to compete with Elmer’s Super Glue. Obviously, the outcome did not meet the original goal, but the communication of the new formula’s characteristics—tacky and leaves no residue—triggered other usage.
5. Changing with courage is necessary if a firm is going to manage innovation and stay competitive. Too often firms get comfortable with where they are, narrow their focus in studying the environment, and focus on building strength in their current market. This leads to strategic inertia—not innovating and losing customers and market share to more innovative companies. Just as Kodak failed to change, so did IBM—famously, the CEO of IBM was quoted as saying “who wants a computer on their desk?” as IBM continued manufacturing mainframes while desktops and then laptops were emerging.
There are six critical areas that affect society and business and thus require firms to practice good management of technology and innovation. Each of these must be managed for value to be created and captured:
1. Management of Human Resources. Work environment (tools and structures) are much different today than they were at the turn of the millennium. For example, the iPhone was first introduced in 2007. Cell phone technology in the year 2000 was not for everyone—most people still had landline telephones. The introduction of cell phone technology and its use in business has made many employees feel like they are on 24-hour call. Because workers tend to carry their phones everywhere, they are available to be called, texted, or e-mailed.
Providing learning opportunities (whether online or traditional training and development) has become a more important part of human resources management—employees need to be given time to adjust to the introduction of new ways of working, new software, etc. For example, it is the rare 45-year-old manager today that owned or used a laptop computer before graduating college.
2. Cooperative Model Expansion. The more rapidly innovation occurs, the more rapidly technology occurs within firms, within industries, and within economies. These changes require that cooperatives be developed. These cooperatives can take a variety of forms, both internal and external to the firm. We will discuss internal and external MTI as well entrepreneurial MTI.
3. Internationalization. There is much more internationalization of products and markets. Sometimes, the innovations spread in ways that were not predicted. For example, GE wanted to develop a portable MRI machine to be used in less-developed countries. The machine would be portable and would use a laptop interface to send images for diagnoses. It was successful developed and a plant was built overseas, and then GE discovered there were markets in more-developed economies that they had not considered. For example, large-animal veterinarians wanted to use the machines on farms and ranches. Finding the best markets and the best production options has become an important part of MTI.
4. Issues around Environmental Concerns. Environmental concerns can be important throughout the whole life cycle of a product. From development to manufacturing to usage to disposal, are all concerns for MTI. For example, energy production is a cause of great concern. The use of fossil fuels such as coal, oil, and natural gas have impacted carbon levels in the atmosphere. Nuclear power does not have that impact, but accidents at such facilities can be catastrophic. Use of wind, water, waves, and sunlight to produce energy does not lead to carbon emissions, but there are other environmental concerns. Building large dams such as Hoover Dam in the United States is much more difficult now because society is much more aware of the changes in the ecosystem such large projects cause.
5. Growth of Service Industries. As economies become more knowledge and information based, service industries will continue to grow. The services provided by Internet suppliers, specialists in network security, etc. will influence how business will grow for the foreseeable future—especially in developing economies. The emergence of a more knowledge- and information-based global economy means that services will become more critical and service industries will continue to grow at a faster pace than product-based industries.
6. Use of Intellectual Property Rights (IPR) as a Strategic Resource. Because many new products and processes are based on intellectual property rights (patents, copyrights, and trademarks), it is crucial that organizations manage their IPR as a valuable asset. This requires value articulation through value transference, translation, and transportation.
Organizations have to be flexible in the management of technology and innovation. Acer, in the opening case, has used a variety of methods to acquire new technology and to innovate and expand its platforms. When Acer started out, the management realized that being a domestic company in Taiwan was very limiting, so they cast their net widely. They originally used internal R&D to grow. Then they expanded their markets and their product lines through mergers and acquisitions. They have increased their product offerings as the laptop market has matured. They are now using services platforms to continue their expansion and growth.
1. What do we mean by management of technology and innovation (MTI), and why is it crucial?
Management of technology and innovation is critical to the organization. Because of innovations and new technologies, we have historically seen the emergence of innovative organizational structures and new ways of performing work. The management of technology involves the planning, implementation, evaluation, and control of the organization’s resources and capabilities in order to create value and competitive advantage. Management of innovation includes both change management and managing organizational processes that encourage innovation.


# Management of Technology and Innovation

## Developing Technology and Innovation

1. How do organizations develop technology and innovation?
There are a number of ways that organizations can develop and manage technology and innovation. We will focus on organization-level activities and the three strategic processes in this section of the chapter.
In order for a firm to develop a successful management of technology and innovation strategy, it is imperative that the organization be readied for the effort. This requires agility because changes and adjustments to products and processes are filled with risk and uncertainty. However, agility is inherently less efficiency if it is to be effective. Therefore, the management of technology and innovation must balance short-term efficiency with long-term effectiveness in the market if the firm is to add value and thrive in a changing environment. Strong dynamic capabilities are needed if the organization is going to be able to address the challenges of innovation and dynamic competition. There are four things the firm should do to balance the conflicting demands of being agile in a dynamic environment. These are:
1. Design systems and processes that can identify, assess, and develop technology based opportunities (or protect from new technology threats). The systems and processes should be able to sense what is coming.
2. Identify communication needs and efficiently turn data into information so that the right information can be available to make the best decision in a timely fashion. The current interest in big data and what it can tell firms is tied to the notion that we have a lot of bytes of data available because of computer technology that are not being used effectively or efficiently.
3. Develop employees through training and learning opportunities. This becomes more critical as the competitive environment for the organization becomes more dynamic. The management of technology and innovation requires that all levels of the organization are involved and that efforts are made to ensure that employees are allowed to enhance their skills for themselves and the organization. The more dynamic the environment, the more important skill enhancement is for the firm and the individual.
4. Use good change management processes to help the firm succeed in introducing newness into the organization. Many firms learned expensive lessons when desktop computers were introduced into the workplace. First, most managers did not type, so they did not adopt the new technology. Second, younger staff members were more likely to be comfortable with the new computers (even elated because the computer was better than they could afford at home), so knowledge power was turned upside down from the hierarchy and seniority. Third, many firms installed desktops with little or no training (because they were “upgraded typewriters”) while leaving the typewriters easily accessible. The result was that some companies deemed desktops a failure and sold the equipment at a loss. Obviously, desktop computers are now a vital tool in the workplace, but this just illustrates what happens when a good change management process that includes proper support systems, communication, and training is not implemented.
There are three basic organizational processes—buying and partnering, developing newness within the firm, and entrepreneurially exploiting a space in the environment.  delineates the three types. Buying and partnering includes mergers and acquisitions, joint ventures, contractual agreements, and other forms of acquiring technology/innovation from external sources. Internal sources of new technology/innovation for the organization include research and development of new products as well as reconfiguring or developing new processes—ways of doing things. This can be organization structure or redesigning an assembly line. Adding robotics to a manufacturing process may be an internally driven process, or a firm may buy a robotics manufacturer to acquire the capability to add robotics to the assembly process.
The third type of creating new technologies/innovations involves exploiting a space in the environment through entrepreneurial or new-business development activities. Michael Dell started Dell in his dormitory room at University of Texas. He wanted a better computer than he could buy, so he bought parts and assembled his own. Friends asked him to build one for them. He realized there was an innovative process of customizing computers and delivering directly from the manufacturer to the customer. Michael Dell’s exploitation of the custom-built, direct manufacturer-to-customer delivery led to a multibillion dollar business.  lists the advantages and disadvantages of each of the technology/innovation creation methods.
1. How do organizations develop technology and innovation?
There are four things the firm should do to balance the conflicting demands of being agile in a dynamic environment. These are: design systems and processes, identify communication needs and efficiently turn data into information, develop employees through training and learning, and use good change management processes. There are three basic organizational processes—buying and partnering, developing newness within the firm, and entrepreneurially exploiting a space in the environment.


# Management of Technology and Innovation

## External Sources of Technology and Innovation

1. What are external sources of technology and innovation development, and when are they best used?
The external processes for developing and acquiring technology and innovation include a variety of options. They are most successfully used under the following circumstances:
1. The product line or the processes of the firm have fallen behind those of its competitors.
2. A new entrant into the market of the industry has changed the competitive dynamics.
3. A firm believes that its product mix or way of doing things is not going to be successful in the long run.
The major advantage of using an external process is speed—for the focal firm, the time needed to blend an acquired technology or innovation is usually much shorter than the time required to try to make a discovery and bring it to market or implement it within the firm. Often, the external processes are less costly. The disadvantages are tied to the need to blend different firms or bring “others” into the activities of the firm. For example, there may be cultural conflicts in an acquisition or there may be resistance to acceptance of the newness that is brought into the firm.
The most common types of external processes used to enhance technology and innovation in a firm include:
1. Mergers/acquisitions (M&A), which involve ownership changes within the firms. For an acquisition, one firm buys another; for a merger, the two firms come together and form a new firm. The essence of both of these approaches is that a new, larger organizational entity is formed. The new firm should have more market power (be larger) and should gain knowledge about a technology or domain of activity. The blending of two cultures, two sets of processes, and two structures are all potential disadvantages of M&A activity.
2. Joint ventures are long-term alliances that involve the creation of a new entity to specifically carry out a product/process innovation. The entity is usually governed by a contractual relationship that specifies the contributions and obligations of the partners in the joint venture. There are potential culture clashes as well as the potential for strategic drift—losing strategic focus on the reasons for the joint venture.
3. Franchise agreements are usually long-term agreements that involve long payoffs for the sharing of known technology. Fast food restaurants, such as McDonald’s, use franchise agreements with store owners. McDonald’s provides R&D for new processes and new products. The store owners (franchisees) pay a fee for the use of the name and the marketing of the product. The contract and monitoring costs associated with franchise agreements are the big disadvantage of this type of alliance.
4. Licensing agreements involve technology acquisition without R&D. For example, Dolby contracts with producers of various type of sound equipment to allow them to use their technology to have better sound quality. Licensing agreements are quite common in high-tech industries. The contract costs and constraints are the disadvantages of licensing agreements.
5. Formal and informal contracts are used to allow firms to share technology between them. For formal contracts, the length of time the contract is enforceable is a defining characteristic. The more formal a contract, usually the longer it is, and it usually includes more details about the usage and limitations of the technology. For the informal contract, the advantage is that if the activity is no longer beneficial, it is much easier to disband.
All of the methods are of use to firms large and small. In the opening case, Acer used a number of methods to externally acquire technology.
1. What are external sources of technology and innovation development, and when are they best used?
The external processes for developing and acquiring technology and innovation include a variety of options. They are most successfully used under the following circumstances:
1. The product line or the processes of the firm have fallen behind those of its competitors.
2. A new entrant into the market of the industry has changed the competitive dynamics.
3. A firm believes that its product mix or way of doing things is not going to be successful in the long run.
The most common types of external processes used to enhance technology and innovation in a firm include: mergers/acquisitions (M&A), joint ventures, franchise agreements, licensing agreements, and formal and informal contracts.


# Management of Technology and Innovation

## Internal Sources of Technology and Innovation

1. What are internal sources of technology and innovation development, and when are they best used?
The most common type of internal process for technology and innovation in the organization is research and development (R&D). R&D involves the seeking and developing of new technologies, products, and/or processes through creative efforts within the firm. The benefits of internal processes include ownership of the technology/innovation that provide legal protections (i.e., patents and trademarks). In addition, the understanding and the knowledge gained from the process of R&D can give the firm a head start on the next generation of technology. Apple’s place as a first mover in the technology of laptops and telephones allowed it to maintain a creative advantage for a number of years. The disadvantages of R&D are that it is usually slower and more costly and can be disrupted by the departure of key personnel. The death of Steve Jobs has slowed the innovation of Apple in the eyes of many consumers.
1. What are internal sources of technology and innovation development, and when are they best used?
The most common type of internal process for technology and innovation in the organization is research and development (R&D). R&D involves the seeking and developing of new technologies, products, and/or processes through creative efforts within the firm. The disadvantages of R&D are that it is usually slower and more costly and can be disrupted by the departure of key personnel.


# Management of Technology and Innovation

## Management Entrepreneurship Skills for Technology and Innovation

1. How and why do entrepreneurs need to develop MTI skills?
Entrepreneurial activities in the marketplace often signal newness in a product or process. For an entrepreneurial firm, the value proposition is a key factor. The value proposition answers the follow two questions:
1. How will the firm make money on the product and/or services offered?
2. How will the firm be positioned in the marketplace?
New business entities (a type of entrepreneurial activity) are usually more flexible and agile in the marketplace. The entrepreneur is very dedicated to the success of the firm because the new business is the “baby” of the entrepreneur. The starting of a new business is the riskiest approach for introducing new products and processes. The failure rate for entrepreneurs is high. Because the firm is new, there is usually very little slack in resources available—money is tight, labor is limited, and time is fleeting. Therefore, entrepreneurial activities are most successful when the lean start-up process can be used. It is applicable where development costs are low and revisions are not very costly. One reason there are many startups in the development of applications for mobile phones is that the costs are low and improvement of the product (once successful) is relatively easy. Entrepreneurs have the ability to adapt their plans incrementally, especially when using lean start-up methods. For entrepreneurs, the capabilities to sense, seize, and transform can be an advantage if they stay agile and avoid overcommitting to a course of action. Entrepreneurs, by definition, are more agile than the more-established organizations.
This agility is true within large firms that want to continue to be entrepreneurial in their activities. Firms such as Google and 3M allow their employees to work on innovative projects during their working hours. Google modeled their policy of allowing employees time to explore other potential products and processes after 3M’s longtime policy. Both of these firms are known as innovative firms because they encourage employees to look for and test innovative and valuable propositions. The flexibility allowed employees gives both Google and 3M the agility to find new ways of doing things.
1. How and why do entrepreneurs develop MTI skills?
For an entrepreneurial firm, the value proposition is a key factor. New business entities (a type of entrepreneurial activity) are usually more flexible and agile in the marketplace; however, the failure rate for new entrepreneurial firms is high. Entrepreneurs, by definition, are more agile than the more-established organizations. Agility is crucial within large firms that want to continue to be entrepreneurial in their activities.