2. Review trait theory research, and discuss the idea of one best style of leadership using the Ohio State studies and the Leadership Grid as points of reference. Explain, according to Fiedler’s contingency model, how leadership style interacts with situational control. Discuss House’s revised path-goal theory and Hersey and Blanchard’s situational leadership theory. Describe the difference between transactional and transformational leadership and discuss how transformational leadership transforms followers and work groups. Explain the leader-member exchange (LMX) model of leadership and the concept of shared leadership. Review the principles of servant leadership and discuss Level 5 leadership Leadership Learning Objectives Chapter Fourteen

3. Leaders Versus Managers Leaders Innovate Develop Inspire Long-term view Ask what and why Originate Challenge the Status Quo Do the right thing Managers Administer Maintain Control Short-term view Ask how and when Initiate Accept the status quo Do things right

4. Leader trait: personal characteristics that differentiate leaders from followers.trait Leadership prototype: mental representations of the traits and behaviors possessed by leaders. 14-1 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Trait Theory McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

5. Historic Vs. Contemporary Trait Theories of Leadership Stogdill’s and Mann’s findings Intelligence Dominance Self-confidence Level of energy and activity Task-relevant knowledge Contemporary Trait Research People tend to perceive that someone is a leader when he or she exhibits traits associated with intelligence, masculinity, and dominance People want their leaders to be credible Credible leaders are honest, forward-looking, inspiring and competent

6. Men and women were seen as displaying more task and social leadership, respectively Women used a more democratic or participative style than men and men used a more autocratic and directive style than women Men and women were equally assertive Women executives, when rated by their peers, managers, and direct reports, scored higher than their male counterparts on a variety of effectiveness criteria Men displayed more laissez-faire leadership 14-2 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. GenderGender and Leadership McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

7. The Ohio State Studies: identified two critical dimensions of leader behavior. Consideration: creating mutual respect and trust with followers. Initiating structure: organizing and defining what group members should be doing. 14-3 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Behavioral Styles Theory McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8. University of Michigan Studies identified two leadership styles that were similar to the Ohio State studies--one style was employee centered and the other was job centered The Leadership Grid © represents five leadership styles found by crossing concern for production and concern for people Impoverished management Country club management Authority-compliance Middle-of-the-road management Team management 14-4 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Behavioral Styles Theory (Cont.) McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

10. 1. Determine what needs to be done. 2. Determine the right thing to do for the welfare of the entire enterprise or organization. 3. Develop action plans that specify desired results, probably restraints, future revisions, check-in points, and implications for how one should spend his or her time. 4. Take responsibility for decisions. 5. Take responsibility for communicating action plans and give people the information they need to get the job done. 14-5 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Skills & Best Practices: Peter Drucker’s Tips for Improving Leadership Effectiveness McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

11. 6. Focus on opportunities rather than problems. Do not sweep problems under the rug, and treat changes as an opportunity rather than a threat. 7. Run productive meetings. Different types of meetings require different forms of preparation and different results. Prepare accordingly. 8. Think and say “we” rather than “I”. Consider the needs and opportunities of the organization before thinking of your own opportunities and needs. 9. Listen first, speak last. 14-6 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Skills & Best Practices: Peter Drucker’s Tips for Improving Leadership Effectiveness (Cont.) McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

12. Situational theories: propose that leader styles should match the situation at hand. Fiedler’s Contingency Model The performance of a leader depends on two interrelated factors: The degree to which the situation gives the leader control and influence The leader’s basic motivation 14-7 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Situational Theories McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

13. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 14-8 Figure 14-1 Representation of Fiedler’s Contingency Model McGraw-Hill Situational Control High Control Situations Moderate Control Situations Low Control Situations Leader-member relations Task Structure Position Power Good Good Good High High High Strong Weak Strong Good Poor Poor Low High High Weak Strong Strong Poor Low Strong Weak SituationI II IIIIV V VIVII VIII Optimal Leadership Style Task Motivated Leadership Relationship Motivated Leadership Task Motivated Leadership

14. 14-11 Figure 14-3 Situational Leadership Model McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Selling S2 Explain decisions and provide opportunity for clarification Participating S3 Share ideas and facilitate in decision making Follower-Directed Leader-Directed Follower-Directed Leader-Directed Low Low High High Leader Behavior Task Behavior Follower Readiness High Moderate Low R4 R3 R2R1 Follower Readiness High Moderate Low R4 R3 R2R1 Relationship Behavior (supportive behavior) Delegating S4 Turn over responsibility for decisions and implementation Telling S1 Provide specific instructions and closely supervise performance McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

15. Transactional leadership: focuses on the clarifying employees’ roles and providing rewards contingent on performance. 14-12 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Transactional Leadership McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

16. Transformational leaders: transforms employees to pursue organizational goals over self-interests. 14-13 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Transformational (Charismatic) Leadership McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

17. 14-14 Figure 14-4 A Transformational Model of Leadership McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Individual and Organizational Characteristics Leader behavior Effects on followers and work groups Outcomes McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

18. CharismaticCharismatic leadership is most likely to be effective when The situation offers opportunities for “moral” involvement Performance goals cannot be easily established or measured Extrinsic rewards cannot be clearly linked to individual performance There are few situational cues or constraints to guide behavior Exceptional effort, behavior, sacrifices, and performance are required of both leader and follower

19. 1. Leadership development is a key business strategy 2. Leadership excellence is a definable set of standards 3. People are responsible for their own development 4. Johnson & Johnson executives are accountable for developing leaders 5. Leaders are developed primarily on the job 6. People are an asset of the corporation 7. Human resources is vital to the success of leadership development 14-15 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Skills & Best Practices: Johnson & Johnson’s Seven Guiding Principles McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

20. This model is based on the idea that one of two distinct types of leader-member exchange relationships evolve, and these exchanges are related to important work outcomes. in-group exchange: a partnership characterized by mutual trust, respect and liking out-group exchange: a partnership characterized by a lack of mutual trust, respect and liking Research supports this model 14-16 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. The Leader-Member Exchange (LMX) Model of Leadership McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

21. 1. Stay focused on your department’s goals and remain positive about your ability to accomplish your goals. 2. Do not fall prey to feeling powerless and empower yourself to get things done. 3. Exercise the power you have by focusing on circumstances you can control and avoid dwelling on circumstances you cannot control. 4. Work on improving your relationship with your manager. 5. Use an authentic, respectful, and assertive approach to resolve differences with your manager. 14-17 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Tips for Improving the Quality of LMX McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

22. Shared leadership: simultaneous, ongoing, mutual influence process in which people share responsibility for leading. 14-18 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Shared Leadership McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

23. 14-19 Table 14-3 Key Questions to Consider When Developing Shared Leadership What task characteristics call for shared leadership? What is the role of the leader in developing shared leadership? How can organizational systems facilitate the development of shared leadership? What vertical and shared leadership behaviors are important to team outcomes? What are the ongoing responsibilities of the vertical leader? McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

25. Describe the four characteristics common to all organizations. Explain the difference between closed and open systems, and contrast the military/mechanical, biological, and cognitive systems metaphors for organizations. Describe the four generic organizational effectiveness criteria. Explain what the contingency approach to organizational design involves. Discuss Burns and Stalker’s findings regarding mechanistic and organic organizations. Describe new-style and old-style organizations, and list the keys to managing geographically-dispersed employees in virtual organizations. Designing Effective Organizations Learning Objectives Chapter Fifteen

26. Organization: system of consciously coordinated activities of two or more people. Coordination of effort Common goal Division of labor Hierarchy of authority Unity of command principle: each employee should report to a single manager. Organization chart: boxes-and-lines illustration showing chain of formal authority and division of labor. 15-1 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. What is an Organization? McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

27. 15-2 Figure 15-1 Sample Organization Chart McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

28. 15-2 Figure 15-1 Sample Organization Chart for a Hospital McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Board of Directors Chief Executive Officer Strategic Planning Advisor Legal Counsel President Cost- Containment Staff Executive Administrative Director Executive Medical Director McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

29. 15-3 Figure 15-1 Sample Organization Chart for a Hospital (Cont.) McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Executive Administrative Staff Executive Medical Director Dir. Of Human Resources Dir. Of Admissions Dir. Of Accounting Dir. Of Nutrition & Food Services Dir. Of Patient & Public Relations Dir. X-Ray & Lab Services Dir. Of Surgery Dir. Of Pharmacy Chief Physician Dir. Of Out- Patient Services McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

30. Span of control: the number of people reporting directly to a given manager. Staff personnel: provide research, advice, and recommendations to line managers. Line Managers: have authority to make organizational decisions. 15-4 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Span of Control McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

31. 15-5 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Needed: Open-System Thinking Open system: “Depends on constant interaction with the surrounding environment for survival.” (For example, the human body.) Closed System: “A self-sufficient entity, closed to the surrounding environment.” (For example, a battery-powered clock.) McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

32. Bureaucracy: Max Weber’s idea of the most rationally efficient form of organization. Weber’s Bureaucracy: four factors should make bureaucracies the epitome of efficiency Division of labor A hierarchy of authority A framework of rules Administrative personality 15-6 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Organizations as Military/Mechanical Bureaucracies McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

33. 15-7 Figure 15-2 The Organization as an Open System: The Biological Metaphor McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Goals and Values Subsystem Technical Subsystems Psychological Subsystem Structural Subsystem Managerial Subsystem Feedback InputsOutputs McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

34. “No single approach to the evaluation of effectiveness is appropriate to all circumstances or for all organization types.” Goal accomplishment Resource acquisition Internal processes Strategic constituencies satisfaction Strategic constituency: any group of people with a stake in the organization’s operation or success. 15-8 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Generic Effectiveness Criteria McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

35. 15-9 Figure 15-3 Four Dimensions of Organizational Effectiveness McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Goal Accomplishment Resource Acquisition Strategic Constituencies Satisfaction Internal Processes McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

36. Contingency approach to organization design: creating an effective organization- environment fit. 15-10 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. The Contingency Approach to Designing Organizations McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

37. 15-11 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Mechanistic versus Organic Organizations Mechanistic organizations: “Rigid bureaucracies with strict rules, narrowly defined tasks, and top-down communication.” (Tend toward centralized decision-making.) Organic organizations: “Flexible networks of multitalented individuals who perform a variety of tasks.” (Tend toward decentralized decision making.) McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

38. 15-12 Table 15-1 New-Style versus Old-Style Organizations Job requirements oriented Hierarchical Command/control oriented Individual oriented Job oriented Functional Large Local Information is scarce Stable Old Customer oriented Lateral/networked Involvement oriented Team oriented Skills oriented Product/customer oriented Small and large Global Information rich Dynamics learning New McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

40. Discuss the external and internal forces that can create the need for organizational change. Describe Lewin’s change model and the systems model of change. Explain Kotter’s eight steps for leading organizational change. Review the 10 reasons employees resist change. Identify alternative strategies for overcoming resistance to change. Discuss the process organizations use to build their learning capabilities. Managing Change and Organizational Learning Learning Objectives Chapter Sixteen

41. External forces for change: originate outside the organization. 16-1 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. External Forces of Change McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

42. Demographic characteristics: The workforce is more diverse there is a business imperative to effectively manage diversity Technological advancements: organizations are increasingly using technology as a means to improve productivity and market competitiveness Market changes: the emergence of a global economy is forcing companies to be more competitive and to do business differently organizations are forging new partnerships and alliances aimed at creating new products and services Social and political pressures: Social society and its legislative bodies can put pressure on organizations to change the way they do business--the tobacco industry is a good example 16-2 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. External Forces of Change (Cont.) McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

43. Internal forces for change: originate inside the organization. 16-3 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Internal Forces of Change McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

44. 16-4 Lewin’s Change Model McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Unfreezing Creates the motivation to change Encourages the replacement of old behaviors and attitudes with those desired by management Entails devising ways to reduce barriers to change Creates psychological safety Changing Provides new information, new behavioral models, or new ways of looking at things Helps employees learn new concepts or points of view Role models, mentors, experts, benchmarking results, and training are useful mechanisms to facilitate change Refreezing Helps employees integrate the changed behavior or attitude into their normal way of doing things Positive reinforcement is used to reinforce the desired change Coaching and modeling help reinforce the stability of change McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

45. 16-5 Figure 16-1 A Systems Model of Change McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Target Elements of Change Organizing Arrangements Goals Social Factors Methods People Internal * Strengths * Weaknesses External * Opportunities * Threats * Organizational Level * Department/ group level * Individual level Inputs Outputs Strategy McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

46. 16-6 Table 16-1 Steps to Leading Organizational Change Create and implement a communication strategy that consistently communicates the new vision and strategic plan. Communicate the change vision Create a vision and strategic plan to guide the change process. Develop a vision and strategy Create a cross-functional cross- level group of people with enough power to lead the change. Create the guiding coalition Unfreeze the organization by creating a compelling reason for why change is needed. Establish a sense of urgency DescriptionStep McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

47. 16-7 Table 16-1 Steps to Leading Organizational Change (Cont.) Plan for and create short-term “wins” or improvements. Recognize and reward people who contribute to the wins. Generate short-term wins Eliminate barriers to change and use target elements of change to transform the organization. Encourage risk taking and creative problem solving. Empower broad based action DescriptionStep McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

48. 16-8 Table 16-1 Steps to Leading Organizational Change (Cont.) The guiding coalition uses credibility from short-term wins to create more change. Additional people are brought into the change process as change cascades throughout the organization. Attempts are made to reinvigorate the change process. Consolidate gains and produce more change Reinforce the changes by highlighting connections between new behaviors and processes and organizational success. Develop methods to ensure leadership development and succession. Anchor new approaches in the culture DescriptionStep McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

49. Organization Development: a set of techniques or tools that are used to implement organizational change. OD Involves Profound Change Not just a Band-Aid OD is Value Loaded i.e. cooperation over conflict Customer centered OD is a Diagnosis/Prescription Cycle OD is Process-Oriented Form and not content 16-9 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Characteristics of Organization Development McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

50. Survey feedback Process consultation Team building Intergroup development Technostructural activities 16-10 Table 16-2 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Some OD Interventions for Implementing Change McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

51.  A meta-analysis of 18 studies indicated that employee satisfaction with change was higher when top management was highly committed to the change effort.  A meta-analysis of 52 studies provided support for the systems model of organizational change.  A meta-analysis of 126 studies demonstrated that multifaceted interventions using more than one OD technique were more effective in changing job attitudes and work attitudes than interventions that relied on only one human-process or technostructural approach.  A survey of 1,700 firms from China, Japan, the United States, and Europe revealed that 1) US and European firms used OD interventions more frequently than firms from China and Japan and 2) some OD interventions are culture free and some are not.

52. 1. An individual’s predisposition toward change 2. Surprise and fear of the unknown 3. Climate of mistrust 4. Fear of failure 5. Loss of status and/or job security 16-11 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Why People Resist Change in the Workplace McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

53. 6. Peer pressure 7. Disruption of cultural traditions and/or group relationships 8. Personality conflicts 9. Lack of tact and/or poor timing 10. Nonreinforcing reward systems 16-12 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Why People Resist Change in the Workplace (Cont.) McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

54. 16-13 Table 16-3 Six Strategies for Overcoming Resistance to Change Can be very time consuming if lots of people are involved Once persuaded people will often help with the implementation of change Where there is a lack of information or inaccurate information and analysis Education Drawbacks Advantages Commonly used in situations Can be very time consuming if participators design an inappropriate change People who participate will be committed to implementing change, and any relevant information they have will be integrated into the change plan Where the initiators do not have all the information they need and where others have considerable power to resist Participation & Involvement Approach McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

55. 16-14 Table 16-3 Six Strategies for Overcoming Resistance to Change (Cont.) Can be time consuming, expensive, and still fail No other approach works as well with adjustment problems Where people are resisting because of adjustment problems Facilitation & Support Drawbacks Advantages Commonly used in situations Can be too expensive in many cases if alerts others to negotiate for compliance Sometimes it is a relatively easy way to avoid major resistance No other approach works as well with adjustment problems Negotiation & AgreementApproach McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

56. 16-15 Table 16-3 Six Strategies for Overcoming Resistance to Change (Cont.) Can lead to future problems if people feel manipulated It can be a relatively quick and inexpensive solution to resistance problems Where other tactics will not work or are too expensive Manipulation & Cooperation Drawbacks Advantages Commonly used in situations Can be risky if it leaves people mad at the initiators It is speedy and can overcome any kind of resistance Where speed is essential and where the change initiators possess considerable power Explicit & Implicit Coercion Approach McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

57. 16-16 Figure 16-2 Building an Organization’s Learning Capability McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Facilitating factors Learning mode Culture and experience Internal structure and processes An organization’s learning capability Customer satisfaction Organizational performance Sales growth Profitability McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

58. 16-17 Table 16-4 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Factors that Facilitate Organizational Learning 1. Scanning imperative 2. Performance gap 3. Concern for measurement 4. Experimental mindset 5. Climate of openness 6. Continuous education 7. Operational variety 8. Multiple advocates 9. Involved leadership 10. Systems perspective McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

59. 16-18 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Six Dominant Modes of Learning 1. Analytical learning 2. Synthetic learning 3. Experimental learning 4. Interactive learning 5. Structural learning 6. Institutional learning McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

60. 16-19 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Skills & Best Practices: Characteristics of Teacher-Learners 1. Become actively involved in teaching and learning. 2. Demonstrate that you care about your coworkers’ well- being. 3. Develop relationships with as many people from different backgrounds, experience, and organizational positions as possible. 4. Reflect on what you have learned from a given situation. 5. Listen to others and try to learn something from social interactions with others. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

61. Implement continuous improvement programs Increase employee competence through training, or buy talent from outside the organization Experiment with new ideas, processes, and structural arrangements Go outside the organization to identify world- class ideas and processes Instill systems thinking throughout the organization 16-20 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Working to Generate Ideas with Impact McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

62. Measuring and rewarding learning Increasing open and honest dialog among organizational members Reducing conflict Increasing horizontal and vertical communications Promoting teamwork Rewarding risk taking and innovation Reducing the fear of failure Increasing the sharing of successes, failures, and best practices across organizational members Reducing stressors and frustration Reducing internal competition Increasing cooperation and collaboration Creating a psychologically safe and comforting environment 16-21 McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. Working to Generalize Ideas with Impact McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

63. Part Eight Pricing Decisions 21. Pricing Concepts 22. Setting Prices

64. Chapter 21 Pricing Decisions

65. 1.1. THE NATURE OF PRICE The value exchanged for products in a marketing exchange Barter www.barter.net

66. Terms Used To Describe Price Tuition Premium Fine Fee Fare Toll Rent Commission Dues Deposit Tips Interest Taxes

67. Pricing at New Balance

68. 2.2. PRICE AND NONPRICE COMPETITION Price Competition Emphasizes price as an issue and matches or beats competitors’ price To compete effectively- firm should be the low- cost seller Standardized products Frequent price changes Provides flexibility

69. Competitor Pricing

70. Nonprice Competition Emphasizes distinctive product: Features Quality Promotion Packaging Other Distinction must be effective

71. Demand Curve Section Home Section Home A graph of the quantity expected to be sold at various prices if other factors remain constant

72. Demand Curve, Price-Quantity Relationship and Increase in Demand Figure 21.1

73. Demand Curve, Relationship Between Price and Quantity for Prestige Products Figure 21.2

74. Demand Fluctuations Section Home Section Home Changes in buyers’ needs Variations in effectiveness of other marketing mix variables Presence of substitutes Environment factors

75. Spending Habits Women Find Hardest To Break USA Today Snapshots, “Spending Habits Women Find Hardest to Break,” Feb. 6. 2006, p. B1

76. Assessing Price Elasticity of Demand Section Home Section Home A measure of the sensitivity of demand to changes in price Price Elasticity Price Elasticity of Demand = (% Change In Quantity Demanded) % Change in Price

77. Elasticity Of Demand Figure 21.3

78. Price/Demand Elasticity Elastic- change in price causes opposite change in total revenue Price  = Total Revenue  Price  = Total Revenue  Inelastic- change in price causes same change in total revenue Price  = Total Revenue  Price  = Total Revenue 

79. Factors Affecting Elasticity Of Demand 1) Availability of substitutes- for example, can consumers replace coffee with tea for caffeine? 2) Amount of income available to spend on good- with an increase in price but on a fixed consumer income will the consumer be forced to buy less? 3) Time- over time will a consumer cutback/quit smoking if price of cigarettes goes up? Investopedia, “Economics Basics: Elasticity”, 2006, http://www.investopedia.com/university/economics/economics4.asp http://www.investopedia.com/university/economics/economics4.asp

80. 4.4. DEMAND, COST, AND PROFIT RELATIONSHIPS Marginal Analysis Fixed costs Average fixed cost Variable costs Average variable cost Total cost Average total cost Marginal cost (MC) Marginal revenue (MR)

81. Airlines, hotels, rental cars are dominated by which type of costs? A) Fixed Costs B) Variable Costs

83. Demand, Cost, and Profit Relationships Break-Even Analysis Break-even point – point at which the costs of producing a product equal the revenue made from selling the product Breakeven Point = Fixed Costs Per-Unit Contribution to Fixed Costs (Price – Variable Costs)

84. Determining The Break-Even Point Figure 21.7

85. 5.5. FACTORS THAT AFFECT PRICING DECISIONS Figure 21.8

86. Organizational And Marketing Objectives Set prices consistent with organization’s goals and mission Pricing decisions should be compatible with firm’s marketing objectives

87. Costs Why price below cost? Match competition Generate cash flow Increase market share Focus on cost reduction Costs shared with others in product line

88. Pricing Decisions Influence Other Mix Variables Demand Distribution Intensive Selective Exclusive Promotion Premium = little advertising, personal selling Complex = potential buyer confusion

89. Customers Interpretation - what price means or communicates Response - closer to purchase and enhances satisfaction Assessment of value

90. Reference Prices Internal- developed in buyer’s mind through experience with product External- comparison price provided by others Duracell compare its quality to its direct competitors and justifies its price. (Page 590)

91. Factors Affecting Consumer Acceptance Of Price Changes 1) Level of knowledge 2) Frequency of purchase 3) Brand loyalty 4) Perceptions of quality Abstracts for the 1999 Leisure Research Symposium: Research Pathways in Leisure, Recreation and Tourism, “Generalizations Regarding Participant Reaction To Reaction”, C. Bee, 1999, http://www.ahs.uwaterloo.ca/~garls/99abstracts/colleen.htm http://www.ahs.uwaterloo.ca/~garls/99abstracts/colleen.htm

92. Context Of Price- Buyers Characterized Value-conscious - concerned about price and quality Price-conscious - want to pay low prices Prestige-sensitive - purchase products that signify prominence and status Prestige Products (Page 592)

93. Advertisements that emphasize both quality and price are aimed at value-conscious customers Reprinted with permission of Xerox Corporation

94. 6. 6. PRICING FOR BUSINESS MARKETS

95. Trade (Functional) Discount A reduction off the list price by a producer to an intermediary for performing certain functions

96. Quantity Discount Deduction from list price that reflect(s) the economies of purchasing in large quantities Cumulative Non-Cumulative

97. Other Discounts Cash Discounts Seasonal Discounts Allowance

98. Seasonal discounts allow sellers to maintain steadier results during the year Reprinted with permission of Endless Fun Resorts

99. Geographic Pricing F.O.B. Factory Destination Uniform geographic (Postage-Stamp) Zone Base-point Freight Absorption

100. Stages For Establishing Prices Figure 22.1

101. Pricing Objectives And Typical Actions To Achieve Them

102. High-quality products are usually priced to reflect the quality level © 2005 BMW of North America, LLC, used with permission. The BMW name and logo are registered trademarks.

103. 2.2. ASSESSMENT OF THE TARGET MARKET’S EVALUATION OF PRICE Price depends on: Type of product Type of target market Purchase situation (e.g: price of concessions at movies)

104. Examples Of Perceptions Of Product Value

105. 3.3. EVALUATION OF COMPETITORS’ PRICES Regular function of marketing research Importance of customer view of pricing and marketing mix variables Pricing above competition – creates an exclusive image Pricing below competition – gains market share

106. Some prices are set higher than the competition to create an exclusive image FIJI ® and all other trademarks, copyrights and intellectual property used herein are the property of FIJI Water Company LLC or its affiliates." Used by permission

107. 4.4. Selection of a Basis of Pricing Cost Demand Competition Other

108. Cost Based Pricing Cost-based pricing – a dollar amount to the cost of the product Cost-plus pricing – adding a specified dollar amount to the seller’s costs Markup – Adding to the cost of the product a predetermined percentage of that cost

109. Markup as % of Cost = Markup Cost = 15 45 = 33.3 % Markup as % of Selling Price = Markup Selling Price = 15 60 = 25.0 %

110. Demand-Based Pricing Customers pay a higher price when demand for the product is strong and a lower price when demand is weak

111. Non-Price Factors Affecting Demand Product Quality Range Nature- essential/luxury Substitutes Support Service at point of sale & after Advertising/promotion Distribution Methods Market Degree of competition Competitor action/reaction General economic conditions “Demand based pricing”, N. Coulthurst, 4/3/02, http://www.accaglobal.com/publications/studentaccountant/404831 http://www.accaglobal.com/publications/studentaccountant/404831

112. Point-of-sale service affects demand Reprinted with permission of Lowe's Companies

113. 5.5. SELECTION OF A PRICING STRATEGY

114. A few years ago Coca Cola was experimenting with a vending machine in Australia that had a mechanism for charging different prices for soda depending on demand and temperature. As it got hotter and as more people purchased soda, the price went up. Do you think this is a good idea for Coca Cola?

115. Differential Pricing Techniques Negotiated – final price established through buyer/seller bargaining Secondary-market – one price for primary target market and different price for another Periodic discounting – systematic temporary price reduction Random discounting – unsystematic temporary price reduction Poll and comments on differential pricing at Amazon.com.

116. New-Product Pricing Price skimming – charging the highest possible price that buyers who most desire the product will pay Penetration pricing – prices set below competing brands to penetrate market and gain market share quickly

117. Product-Line Pricing Strategies Captive – basic product in a product line low while related items higher Premium – pricing highest-quality product higher than other models Bait – low pricing on one item in line with intention of selling higher-priced item in the line Price Lining – limited number of prices for selected lines of merchandise

118. For Premium Pricing, Engage The Emotions 1) Taking Care of Me - overstressed people want to pamper selves 2) Connect with Friends & Family - serious money to nurture family, romantic getaways, cosmetic surgery, etc. 3) Questing - consumers appreciate adventure 4) Individual Style - personal taste, differentiate self from others iBizResources, “For Premium Pricing, engage the Emotions”, 2006, http://www.familybusinessstrategies.com/articles4/041404f.html http://www.familybusinessstrategies.com/articles4/041404f.html

119. Psychological Pricing Techniques (1) Reference pricing – moderate pricing positioned next to a more expensive brand Bundles pricing – packaging multiple products to be sold at a single price Multiple-unit pricing – packaging together two or more identical products to be sold at a single price Everyday low prices (EDLP) – pricing products low on a consistent basis

120. Psychological Pricing Techniques (2) Odd-even pricing – ending the price with a certain number to influences buyers’ perceptions Customary pricing – on the basis of tradition Prestige pricing – setting prices at a high level to convey prestige

121. Consumers associate higher prices with higher quality Reprinted with permission of Mannington Mills, Inc.

122. Sample Prestige Product Prices

123. Concept of Professional Pricing Professional pricing carries the idea that professional have an ethical responsibility not to overcharge customers Aetna Physician Pricing Transparency

124. Types Of Promotional Pricing Price Leader- firm prices a few products below the usual markup, near cost, or below cost Special-Event- advertised sales or price-cutting linked to a holiday, a season, or an event Comparison Discounting- price is set at a specific level and simultaneously compares it with a high price

125. Special events are often seasonal and employ special- event pricing Reprinted with permission of Montage, Inc.

126. 6.6. DETERMINATION OF PRICE: PRICING STRATEGY Yields a certain price- may need refining Helps in setting final price In absence of government price controls, remains flexible and convenient to adjust the marketing mix