Chapter - II

DECISION MAKING
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 Reliance ADAG plans to open hospital chains
(29.09.06-ET)

The Reliance ADA Group is planning a chain of hospitals and

has begun talking to leading private hospitals in Delhi, Mumbai
and Bangalore for possible takeovers and joint ventures
The group has shortlisted three hospitals in Bangalore for
picking up an equity stake in one of them.

In the Capital, a leading private hospital in south Delhi is on

the company’s acquisition radar, while in Mumbai,

ADAG is believed to have initiated talks with a super-

speciality hospital in Bandra
In July this year, Anil Ambani announced that ADAG will
invest Rs 500 crore to set up a state-of-the-art super-
speciality hospital and medial research centre in Orissa.
 Software akin to a machine
ET-3.10.06

Ramadorai completing 10 years

He took over from the imperious FC Kohil,TCS was a

$150 million,7800 people
2 events were around the cornor-the Y2KArmageddon
and the promised land of the world wide web
Both shaped the industry and provided a boost to
Ramadorai and his team to take TCS to a revenue of
$3billion and 71,000 people.
Why Information Is Incomplete

Figure 7.2
Characteristics
Characteristics Of
Of Managerial
Managerial Decisions
Decisions

Risk Uncertainty

Lack of
Conflict
Structure
Causes of Incomplete Information
• Ambiguous Young Woman
Information or Old Woman
– Information whose
meaning is not clear
allowing it to be
interpreted in multiple
or conflicting ways.

Figure 7.3
Causes of Incomplete Information
• Risk
– The degree of probability that the possible outcomes of
a particular course of action will occur.
• Managers know enough about a given outcome to be able to
assign probabilities for the likelihood of its failure or success
• Uncertainty
– Probabilities cannot be given for outcomes and the
future is unknown.
• Many decision outcomes are not known such as the success of
a new product introduction.
The Nature of Managerial Decision
Making
• Decision Making
– The process by which managers respond to opportunities
and threats by analyzing options, and making decisions
about goals and courses of action.
• Decisions in response to opportunities—occurs when managers
respond to ways to improve organizational performance.
• Decisions in response to threats—occurs when managers are
impacted by adverse events to the organization.
 Decision Making Defined
• The process through which managers identify and
resolve problems and capitalize on opportunities.

Decision making: the

process by which managers
respond to opportunities
and threats by analyzing
options, and making
decisions about goals and
courses of action.
Programmed and Nonprogrammed
Decisions
• Programmed Decision
– Routine, virtually automatic decision making that
follows established rules or guidelines.
• Managers have made the same decision many times before.
• There are rules or guidelines to follow based on experience
with past decisions.
• Example: Disciplinary action to be taken concerning a tardy
employee.

Reorder point for manufacturing inventory

Programmed and Nonprogrammed
Decisions
Non-programmed decision -a decision made in
response to a situation that is unique, is poorly
defined and largely unstructured, and has
important consequences for the organization
Programmed and Nonprogrammed
Decisions
Example: Ronald Zarella,President of GM
General Motors North american operations,shelved plans to
introduce a new design for the company’s best selling
car,the Chevrolet Cavalier.

He delayed building new factories and invested the millions

of dollors saved in getting innovative new models of trucks
and sport-utility vehicles on the market quickly.Zarella and
his top executives had to analyse complex problems,evaluate
alternatives,and make decision about the best way to reverse
GM’s declining market share.
Characteristics
Characteristics Of
Of Managerial
Managerial Decisions
Decisions
• Lack of structure
– programmed decisions - decisions encountered and
made in the past
• have objectively correct answers
• are solvable by using simple rules, policies, or numerical
computations
– nonprogrammed decisions - new, novel, complex
decisions having no proven answers
• a variety of solutions exist, all of which have merits and
drawbacks
• demand creative responses, intuition, and tolerance for
ambiguity
Characteristics
Characteristics Of
Of Managerial
Managerial Decisions
Decisions
• Uncertainty and risk
– certainty - have sufficient information to predict
precisely the consequences of one’s actions
– uncertainty - have insufficient information to know
the consequences of different actions
• cannot estimate the likelihood of various consequences of
their actions
– risk - available information permits estimation of the
likelihood of various consequences
• probability of an action being successful is less than 100
percent
• good managers prefer to avoid or manage risk
Programmed and Nonprogrammed
Decisions
• Non-Programmed Decisions
– Nonroutine decision making that occurs in response to
unusual, unpredictable opportunities and threats.
– The are no rules to follow since the decision is new.
• Decisions are made based on information, and a manager’s
intuition, and judgment.
• Example: Deciding to invest in additional production
equipment to meet forecasted demand.
Decision Making
• Decision: a choice made from two or more
alternatives.
• Part of all four managerial functions
• Decisions are made on the basis of:
– Rationality
– Bounded Rationality
– Intuition
Rationality
• Problem is clear and unambiguous.
• Single goal.
• All alternatives are known.
• Clear and constant preferences.
• Maximum payoff.
• The decision is in the best interest of the
organization—not the manager.
Bounded Rationality
• Behavior that is rational within the parameters of a
simplified model that captures the essential
features of the problem.
• Making a decision that is
“good enough.”
 Satisficing

To choose the first solution alternative that

satisfies minimal decision criteria regardless of
whether better solutions are presumed to exist.
Intuitive Decision Making
• An unconscious process of making decisions on the basis
of experience and accumulated judgment.
– Making decisions on the basis of gut feeling doesn't happen
independently of rational analysis. The two complement each
other.
– Although intuitive decision making will not replace the rational
decision-making process, it does play an important role in
managerial decision making.
How are decisions made
in organizations?
 Steps in systematic decision making.
– Recognize and define the problem or opportunity.

– Identify and analyze alternative courses of action, and estimate

their effects on the problem or opportunity.
– Choose a preferred course of action.

– Implement the preferred course of action.

– Evaluate the results and follow up as necessary.

Steps in the Rational Decision-
Making Model
Define the
problem

Select the Identify the

best alternative criteria

Making a Decision

Evaluate the
Allocate weights
alternatives
to the criteria

Develop
alternatives
The
The Stages
Stages Of
Of Decision
Decision Making
Making
Identifying and
diagnosing
the problem
Generating
alternative
solutions
Evaluating
alternatives

Making the
choice

Implementing
the decision

Evaluating
the decision
1.Recognising and defining the situation
Some stimulus indicates that a decision must be made.
The stimulus may be positive or negative.
recognize that a problem exists and must be solved
problem - discrepancy between current state and past
performance, current performance of other organizations, or
future expected performance
decision maker must want to resolve the problem and have the

resources to do so

A plant sees that employee turnover has increased by 5

percent
2.Identifying alternatives
•Both obvious and creative alternatives are desired. In
general, the more significant the decision, the more
alternatives should be generated.
ready-made solutions - ideas that have been tried before
may follow the advice of others who have faced similar problem
custom-made solutions - combining new ideas into creative
solutions
•The plant manager can increase wages, increase benefits,
or change hiring standards.
•3.Evaluating alternatives
•Each alternative is evaluated to determine its feasibility, its
satisfactoriness, and its consequences.
determining the value or adequacy of the alternatives
there are potentially more alternatives available than managers

may realize
predict the consequences that will occur if the various options are

put into effect

success or failure of the decision will affect the track record of the

decision maker
contingency plans - alternative courses of action that can be

implemented based on how the future unfolds

required to prepare for different scenarios

•Increasing benefits may not be feasible. Increasing wages

and changing hiring standards may satisfy all conditions.
4.Selecting the best alternative
•Consider all situation factors, and choose the alternative
that best fits the manger’s situation.
maximize - a decision realizing the best possible outcome
greatest positive consequences and fewest negative consequences
greatest benefit at the lowest cost and the largest expected total

return
satisfice- choose an option that is acceptable although not
necessarily the best or perfect
compare the choice with the goal, not against other options
search for alternatives ends when an okay solution is found

optimizing - achieving the best possible balance among several

goals
•Changing hiring standards will take an extended period of
time to cut turnover, so increase wages.
5.Implementing the chosen alternative
•The chosen alternative is implemented into the organizational
system.
those who implement the decision must:
understandthe choice and why it was made
be committed to its successful implementation

can’t assume that things will go smoothly during implementation

identify potential problems
identify potential opportunities

•The plant manager may need permission of corporate

headquarters. The human resource department establishes a
new wage structure.
Steps
Steps In
In The
The Implementation
Implementation Plan
Plan
Determine how things will
look when the decision
is fully operational

Assign responsibility for Order the steps necessary

each step to specific to achieve a fully
individuals operational decision
Implementation
Plan

List the resources and

Estimate the time needed
activities required to
for each step
implement each step
•6.Follow-up and evaluation
•At some time in the future, the manger should ascertain
the extent to which the alternative chosen in step 4 and
implemented in step 5 has worked.

•The plant manager notes that, six months later, turnover

has dropped to its previous level.
In the grasslands,
somewhere on the African continent,
success can be defined in terms of life and death,
Survival is a strong motivator.
Here’s a short story …
When the light comes in the Eastern sky and you sense that the sun
will soon steal the comfort and security of the night, the gazelle
starts to stir. He knows that if, during this day, he does not run
faster than the fastest cheetah, he may be caught and then he will
be killed.

Not far away, the cheetah stretches out this powerful muscles and
thinks of the day ahead, He knows that if he does not run faster
than the slowest gazelle, he will surely starve.

The moral of this story …

It doesn’t matter whether you are a gazelle or a
cheetah …
…when the sun is up …
… you had better be running.
 Motivation Concerns

• What prompts people to initiate action

• What influences their choice of action
• Why they persist in doing it over time.
Make people believe what they think and do is
important,and then get out of the way while they do it

Jack Welch

Retired Chairman and CEO,General

Electric
 What is Motivation?
• Motivation
– The processes that
account for an
individual’s intensity,
direction, and
persistence of effort
toward attaining a goal
• Intensity: how hard a
person tries
• Direction: where effort is
channeled
• Persistence: how long
effort is maintained
 Motivation And Individual Needs
• Motivation
– The willingness to exert high levels of
effort to reach organizational goals,
conditioned by the effort’s ability to
satisfy some individual need.
• Effort
– Measure of intensity of energy
expended to achieve a goal.
• Need
– An internal state that makes certain
outcomes appear attractive.
– An unsatisfied need creates tension;
this tension drives (motivates) a
person to expend effort to satisfy the
need.
Motivation
 A Simple Model of Motivation

NEED-Creates desire to fulfill BEHAVIOR- REWARDS-Satisfy

needs (food, friendship, Results in actions needs; intrinsic or
recognition, achievement). to fulfill needs. extrinsic rewards.

FEEDBACK-Reward informs person whether behavior was appropriate and

should be used again.
 Foundations of Motivation
• content theories stress the analysis of underlying
human need
• process theories concern the thought processes
Contemporary that influence behavior
• reinforcement theories focus on employee
learning of desired work behaviors

Human Resources • introduce the concept of the whole person

• employees are complex and motivated by many
factors

• noneconomic rewards, such as congenial work

Human Relations groups
• workers studied as people and the concept of social
man was born

Traditional •systematic analysis of an employee’s job

•economic rewards for high performance
 Theories of Motivation
• Content Theories: Focus on what
arouses, energizes, or starts
behavior

• Process Theories: Focus on the

choice factor in motivation. Why
people choose a particular
behavior to satisfy particular
needs
 Content Theories

A group of theories that emphasize

the needs that motivate people.
 Hierarchy of Needs Theory
 ERG Theory
 Two-Factor Theory
 Acquired Needs Theory
 Major Motivation Theories
Classification of Specific Motivation
Motivation Theory
Theories
1. Content motivation a. Hierarchy of needs
theories theory
b. Two-factor theory
c. Acquired needs
theory

2. Process motivation a. Equity theory

theories b. Expectancy theory
c. Goal-setting theory

Type of Reinforcement
3. Reinforcement theory a. Positive
b. Avoidance
c. Extinction
 Maslow ‘s Hierarchy of Needs
• Maslow assumes that what
motivates people is unmet needs.
• According to Maslow, the needs
that motivate people fall into five
basic categories:
– physiological needs (the most basic
need),
– security needs,
– social needs,
– esteem needs, and
– self-actualization needs (the highest-
level need).
 Abraham Maslow’s Hierarchy

General Organizational
Examples Examples
Self-
Self-fulfillment actualization Challenging Job

Status Esteem Job Title

Friendship Belonging Friends

Stability Safety Retirement Plan

Shelter Physiological Wages

Based on needs satisfaction
 Maslow’s Hierarchy of Needs
Fulfillment off the Job Need Hierarchy Fulfillment on the Job

Education, religion,hobbies Self-Actualization Opportunities for training,

personal growth Needs advancement, growth, and creativity
Approval of family, friends, Recognition, high status,
Esteem Needs
community increased responsibilities
Family, friends, community Work groups, clients,coworkers,
Belongingness Needs
groups supervisors
Freedom from war, pollution,
Safety Needs Safe work,fringe benefits, job security
violence

Food, water, shelter Physiological Needs Heat, air, base salary

 Herzberg’s Motivation‑Hygiene Theory
• According to Herzberg, dissatisfiers are not
motivators. They are also called maintenance,
hygiene, or job context factors
• Satisfiers are motivators – related to job content
 Herzberg’s Two Factor Theory
Hygiene factors - necessary, but not
sufficient, for healthy adjustment
–extrinsic factors; context of work
company policy and administration
unhappy relationship with employee's
supervisor
poor interpersonal relations with one's
peers
poor working conditions

Motivators - the sources of satisfaction

–intrinsic factors; content of work
achievement
recognition
challenging, varied or interesting work
responsibility
advancement
Herzberg’s Motivation-Hygiene Theory
The satisfiers and dissatisfiers
identified by Herzberg are similar to
the factors suggested by Maslow.
 McGregor’s Theory X
• People, by nature
• if given the opportunity would not
apply themselves in working for
someone else
• lack ambition & must be supervised
and directed to work
• prefer to be told what to do
• resist change
• do not own organizational problems
• are gullible & not overly ready to
apply their intelligence and problem-
solve in detailed ways at work
 McGregor’s Theory Y
People
• actively seek work instead of avoid it
• will be self-disciplined if committed
• capable of setting their own goals and
integrating these with the goals of the
organisation
• seek responsibility and challenge
• prefer participative management
• creative potential is under-utilized
at work
Douglas McGregor
Theory X & Y
Theory X Theory Y
• People are lazy • People are energetic
• People lack ambition • People want to make
• Dislike responsibility contributions
• People are self- • People do have
centered ambition
• People don’t like • People will seek
change responsibility
 Need for
Achievement
The Theory
(nAch) of Needs
Need for
Power
(nPow)

Need for David

Affiliation McClelland
(nAff)
 Acquired Needs Theory
(employees are motivated by their need for:)

Affiliation Power Achievement

 The McClelland Studies
David McClelland believed that he could identify factors that predisposed a person to strive for success.
He also proposed that a culture’s growth comes from the level of need achievement inherent in its
population.

What were these needs?

Need For Achievement

Need For Affiliation

Need For Power

Need For Achievement/Affiliation/Power
The Achievement need determines how employees will respond to challenges.

High achievers are driven by the prospect of performance-based satisfaction rather than by monetary
gain.

More likely to set watches ahead ten minutes than to be late.

May have problems getting along with co-workers…….why?

McClelland found that people with high needs for Affiliation tend to be warm and friendly in their
relationships. BUT, unless they are balanced with some Power and Achievement, they can be seen
as ineffective in some settings…….why?

Culture growth is due to the level of need for Achievement inherent in its population. McClelland
suggested that an increase in Achievement themes may precede an increase in economic growth.
McClelland’s Acquired-Needs Theory
• Specific needs are acquired or learned over time and are shaped
by life experiences. The following are the main categories of
acquired needs:
– Achievement (nAch): People with a high need for achievement like
challenging projects with attainable goals and lots of feedback.
– Affiliation (nAff): People with high need for affiliation desire
harmonious relationships and need to feel accepted by others, so
managers should try to create a cooperative work environment for them.
– Power (nPow): People with a need for power desire either personal
power (not good) or institutional power (good for the organization).
Provide institutional power seekers with management opportunities.
 Characteristics of High Need
Achievers
Tend to Set Want Immediate,
Moderately Specific Feedback
Difficult Goals and on Their
Make Moderately Performance
Risky Decisions

Have a Assume Personal

Preoccupation Responsibility for
With Work Getting Things
Done
The Need for Affiliation
• The need for human companionship.
• Individuals with a high need for affiliation tend to
want reassurance and approval from others and
usually are genuinely concerned about others’
feelings.
• People with a high need for affiliation often work
in jobs with a lot of interpersonal contact.
The Need for Power
• The desire to control the resources in one’s
environment.
• People with a high need for power can be
successful managers if three conditions are met:
– They must seek power for the betterment of the
organization rather than for their own interests.
The Need for Power
• Three Conditions (continued)
– They must have a fairly low need for affiliation
(fulfilling a personal need for power may well alienate
others in the workplace).
– They need plenty of self-control to curb their desire for
power when it threatens to interfere with effective
organizational or interpersonal relationships.
Motivational Profiles:
It takes all kinds
Typical Profile
Sales

Ach Aff Pow

Typical Profile
Entrepreneur

Ach Aff Pow

Typical Profile
Corporate Manager

Ach Aff Pow

Typical Profile
Politician

Ach Aff Pow

Typical Profile
Support Staff

Ach Aff Pow

Typical Profile
Teacher

Research

Instruct

Ach Aff Pow

Typical Profile
IT

Ach Aff Pow

Pamela Grof’s Need for Achievement

Pamela Grof’s high need for

achievement is apparent from her
many business initiatives since the
age of 12. “I come from a very
entrepreneurial family,” explains
Grof, who founded web design
company InterVisual in Calgary,
Canada. © K. Morison/Calgary Herald
Creating a Company of Entrepreneurs
Companies support
entrepreneurship by:
1. clarifying the firm’s purpose
and shared values
2. supporting and reinforcing
entrepreneurial behavior
3. creating small businesses within
the larger organization © K. Morison/Calgary Herald
Alderfer’s ERG Theory
• Existence
– Concerned with providing basic material existence
requirements.
• Relatedness
– Desire for maintaining important interpersonal
relationships.
• Growth
– Intrinsic desire for personal development.
 A Graphic Comparison of Four Content
Approaches to Motivation
Maslow Herzberg Alderfer McClelland
Self- The work itself Growth Need for
actualization - Responsibility achievement
Higher - Advancement
Esteem Motivators
order needs - Growth Need for power
Belongingness, Achievement
social, and love Recognition
Relatedness
Quality of inter- Need for
Safety and personal relations affiliation
Basic
security Hygiene among peers, with
needs conditions supervisors
Existence
Physiological Job security
Salary
Content Theories of Motivation
Needs Hierarchy ERG Motivator--Hygiene McClelland’s
Theory Theory Theory Learned Needs

Self- Need for

Actualization Achievement
Growth Motivators
Need for
Esteem
Power

Need for
Belongingness Relatedness
Affiliation

Safety Hygienes
Existence
Physiological
Relationship of Various Needs Theories

Maslow Alderfer Herzberg McClelland

Self-Actualization
Growth Motivators Need for Achievement
Esteem
Need for Power
Affiliation Relatedness
Hygiene
Need for Affiliation
Security Factors
Existence
Physiological
Summary: Hierarchy of Needs
– Maslow: Argues that lower-order needs must be satisfied before one
progresses to higher-order needs.
– Herzberg: Hygiene factors must be met if person is not to be
dissatisfied. They will not lead to satisfaction, however. Motivators
lead to satisfaction.
– Alderfer: More than one need can be important at the same time. If a
higher-order need is not being met, the desire to satisfy a lower-level
need increases.
– McClelland: People vary in the types of needs they have. Their
motivation and how well they perform in a work situation are related
to whether they have a need for achievement, affiliation, or power.
Summary: Impact of Theory
– Maslow: Enjoys wide recognition among practising managers. Most managers
are familiar with it.
– Herzberg: The popularity of giving workers greater responsibility for planning
and controlling their work can be attributed to his findings. Shows that more
than one need may operate at the same time.
– Alderfer: Seen as a more valid version of the need hierarchy. Tells us that
achievers will be motivated by jobs that offer personal responsibility,
feedback, and moderate risks.
– McClelland: Tells us that high need achievers do not necessarily make good
managers, since high achievers are more interested in how they do personally.
Summary: Support and Criticism of Theory
– Maslow: Research does not generally validate the theory. In particular,
there is little support for the hierarchical nature of needs. Criticized for
how data were collected and interpreted.
– Herzberg: Not really a theory of motivation: Assumes a link between
satisfaction and productivity that was not measured or demonstrated.
– Alderfer: Ignores situational variables.
– McClelland: Mixed empirical support, but theory is consistent with
our knowledge of individual differences among people. Good
empirical support, particularly on needs achievement.
 Process Theories

A group of theories that explain how employees select behaviors with which to meet
their needs and determine whether their choices were successful.

• Equity Theory
• Expectancy theory
• Goal setting theory
 Expectancy Theory of Vroom’s

This model assumes that people make decisions based on economic realities……seems simple so far….

Victor Vroom’s model argues: The physiological force on an employee to exert effort is a function of his or her
expectancies about the future and the attractiveness of specific future outcomes.

Get the sale & make the money

Serve your time & attain that

promotion
 Vroom’s Expectancy Theory
(1964)

• The strength of a tendency to act in a certain

way depends on the strength of an
expectation that the act will be followed by a
given outcome and on the attractiveness of
that outcome to the individual.
 Motivation

Expectancy Instrumentality Valence

How likely is it
How much do I
How will my that my
value an
effort affect X performance X
increase in
performance? will be
this reward?
rewarded?
Expectancy Theory of Motivation
E-to-P P-to-O Outcomes
Expectancy Expectancy & Valences

Outcome 1
+ or -

Outcome 2
Effort Performance + or -

Outcome 3
+ or -
 Two Kinds of Expectations with Vroom’s Theory
Effort – Performance Expectancy (E----P)
Here employees will consider whether their effort will translate into a desired accomplishment. If obstacles are too
big, their motivation will be diminished.
What are some examples as to how you fit into this or what you have seen in the workplace?

Performance – Outcome Expectancy (P----O)

The more strongly an employee believes that performance will lead to a positive outcome, the more likely it is that
he or she will be motivated to higher levels of performance.

Valence (V)
These are the outcomes an employee receives in terms of their values or attractiveness.
They vary from person to person, so it’s important to ask a person about the valences that he or she attaches to
anticipated outcomes.
 How Expectancy Theory
Works
My professor offers me $1 million if I memorize the textbook by tomorrow morning.

Expectancy Instrumentality Valence

Effort Performance Link Performance Rewards Link Rewards Personal Goals Link
No matter how much effort My professor does not look There are a lot of wonderful things
I put in, probably not possible like someone who has $1 million I could do with $1 million
to memorize the text in 24 hours
E=0 I=0 V=1

Conclusion: Though I value the reward, I will not be motivated to do this task.
 Valence
• Perception of the desirability of receiving
increased amounts of a reward (e.g., a
bonus).
• This is the measure of whether the
salesperson cares about the reward you
are offering.
 Instrumentality
• Estimate of the probability that an
improvement in performance on some
dimension will lead to a specific increase in
the amount of a particular reward.
• It is the expected relationship between
performance and rewards.
 Expectancy

• Estimate of the probability that expending a given amount

of effort on the task will lead to improved performance on
some specific dimension.
• It is the expected relationship between the amount of effort
put forth and the resulting performance.
– Example: If I increase my calls on potential new
accounts by 10% (effort), then there is a 50% chance
(expectancy) that my volume of new account sales will
increase by 10% during the next six months
(performance).
Expectancy Theory in Practice
• Increasing the E-to-P expectancy
– training, selection, resources, clarify roles, provide
coaching and feedback

• Increasing the P-to-O expectancy

– Measure performance accurately, explain how rewards
are based on past performance

• Increasing outcome valences

– Use valued rewards, individualize rewards, minimize
countervalent outcomes
Increasing E-to-P Expectancy
• Train employees
• Select people with required competencies
• Provide role clarification / agree goals
• Provide sufficient resources
• Provide coaching
• Provide feedback
• Provide sufficient time and resources
Increasing P-to-O Expectancy
• Measure performance accurately
• Describe outcomes of good and poor
performance
• Explain how rewards are linked to past
performance
• Explain how other employees rewards
related to their performance.
Motivating Themes Derived from Vroom
Help employees recognize that effort and performance are closely related.
A manager must include the establishment of conditions that help to translate effort into performance.
Make it happen for them!

Managers must also create a link between rewards and performance.

Make these rewards specific to a person or group and make them achievable at first.

Conflicting expectancies and rewards need to be eliminated.

For example, conflicting demands made by different supervisors.
What does this do to the workforce?
 Equity Theory

Assumes that people will strive to restore equity if they feel an imbalance exists.

The basic belief, therefore, is that employees monitor the degree of equity or inequity that exists in their working conditions by comparing
their own outcomes and inputs with those of another person.

It involves Inputs and Outcomes…

Inputs = Contributions a person makes to the employment relationship.

• Personal effort
• Years/Kinds of education
• Training
• Prior work experience
• Age

Outcomes = Anything an employee views as being provided by their jobs or the organization.
• Pay
• Office with a window
• Company car
• Incentive plans
• Time off
Elements of Equity Theory
• Outcome/input ratio
– inputs -- what employee contributes (e.g. skill)
– outcomes -- what employees receive (e.g. pay)

• Comparison other
– person/people we compare ratio with
– not easily identifiable

• Equity evaluation
– compare outcome/input ratio with
the comparison other
Goal-Setting Theory
• The theory that specific and difficult goals lead to
higher performance.
– Goals tell an employee what needs to be done and how much
effort will need to be expended.
• Specific goals increase performance.
• Difficult goals, when accepted, result in higher performance than do
easy goals.
• Feedback leads to higher performance than does nonfeedback.
– Specific hard goals produce a higher level of output than does
the generalized goal of “do your best.”
• The specificity of the goal itself acts as an internal stimulus.
Locke’s Model of Goal Setting
Directing attention

Goals Regulating effort

Task
motivate
performance
by . . . Increasing persistence

Encouraging the development

of strategies and action plans

Source: Adapted from E. A. Locke and G. P. Latham, A Theory of Goal Setting and Task
Performance (Englewood Cliffs, NJ: Prentice Hall, 1980). Reprinted by permission of Edwin A.
Locke.
Reinforcement theory

Type of Reinforcement
a. Positive
b. Avoidance
c. Extinction
d. Punishment
Motivating Employees Through
Reinforcement
• Skinner suggested that people learn how to behave
to get something they want or to avoid something
they don’t want.
• This idea is known as operant conditioning.
– Behaviour is influenced by the reinforcement or lack of
reinforcement brought about by the consequences of
the behaviour.
Methods of Shaping Behaviour
• Positive reinforcement
– Following a response with something pleasant.
• Negative reinforcement
– Following a response by the termination or withdrawal of
something unpleasant.
• Punishment
– Causing an unpleasant condition in an attempt to eliminate
an undesirable behaviour.
• Extinction
– Eliminating any reinforcement that is maintaining a
behaviour.
Types of Reinforcement

Reinforcement Type Example

Positive reinforcem ent A m anager praises an em ployee for a job well done.
Negative reinforcem ent An instructor asks a question and a student looks throughtes
thetono
avoid being
called on. She has learned that looking through her notestspreven
the instructor
from calling on her.
Punishm ent A m anager gives an em ployee a-day
two suspension from work without pay for show
up drunk.
Extinction An instructor ignores students who raise their hands to ask
tions.
quesHand
-raising
becom es extinct.
 There are Three kind of People
1)People who make things happen
2)People who watch things happen
3)People who wonder what happened
 What is leadership?
Leading people
Influencing people

Commanding people

Guiding people
Meaning
Leadership is defined as the
ability to influence people
toward the attainment of
Organisational Goals
- Richard L.Daft
 Leadership seems to be the
Marshalling of skills possessed by
A majority but used by a minority
Examples

Charismatic: Hitlor and

Kennedy

Inspirational:Churchil
and Martin
Luther
King

www.bbc.co.uk/history/war/wwtwo/
Theories of Leadership

1.Trait Theory
2.Behavioral Theory
3.Contingency Theory
 Perceived Leader characteristics

 Inspiring  Confident
 Visionary  Single minded
 Charismatic  Change champion
 Dynamic  Unconventional
 Communicator  Risk takers
Trait Theory

• Leaders are born not made

Traits are distinguishing personal
characteristics of a leader
 Trait Theory

A leadership perspective that focus on individual

leaders and attempts to determine the personal
characteristics that great leaders share.

Physical Character:Energy, Intelligence&ability

physical stamina
Social characteristics:
Personality:Self- Interpersonal skills,
confidence,honesty& cooperativeness
integrity, enthusiasm,
desire to to lead
Social background:Education,Mobility
 THE TRAIT APPROACH
TO LEADERSHIP
Leaders are born not made

Early study summarized these traits for successful leaders:

1. Intelligence, including judgment and verbal ability
2. Past achievement in scholarship and athletics
3. Emotional maturity and stability
4. Dependability, persistence, and drive for continuing achievement
5. The skill to participate socially and adapt to various groups
6. A desire for status and socioeconomic position

.
 Leadership Trait Theory
Leadership trait theory: assumes that there are distinctive physical
and psychological characteristics accounting for leadership
effectiveness.

Ghiselli’s six significant leadership traits

– Supervisory ability (Getting the job done through others).
– Need for occupational achievement (Seeking responsibility).
– Intelligence (Good judgment, reasoning, thinking capacity).
– Decisiveness (Solve problems and make decision).
– Self-assurance (Copes with problems, self-confidence).
– Initiative (Self-starting).
 Characteristics of Successful Leaders
Trait or Characteristic Description

Drive Desire for achievement; ambition; high energy;

tenacity; initiative

Honesty and integrity Trustworthy; reliable; open

Leadership motivation Desire to exercise influence over others to reach

shared goals

Self-confidence Trust in own abilities

Cognitive ability Intelligence; ability to integrate and interpret large

amounts of information

Knowledge of the business Knowledge of industry, relevant technical matters

Creativity Originality

Flexibility Ability to adapt to needs of followers and

requirements of situation
-1
 Behavioural Theory
Emphasis is that the individual can be taught certain behavioural
characteristics to make them a leader

– Initiating structure: define & structure behaviour pattern in achieving goal

– Consideration: trust, consideration and empathy for sub-ordinates
– Employee-Oriented Leader: with emphasis on interpersonal relationship
– Production-Oriented Leader: with emphasis on task

Research concluded the most effective leaders were those with high degree
of interpersonal relationships who achieved greater success in achieving
goals

We are as strong as the weakest link!

 Leadership – Behavioral Theory
 Behavioral Theory
– Ohio State Study:
- Initiating structure
- Consideration High Consideration High Consideration
Low Initiating StructureHigh Initiating Structure
High
Consideration
Low Consideration Low Consideration
Low Initiating Structure High Initiating Structure
Low
Initiating Structure High
 Ohio State Leadership Studies
Leader’s Initiating Structure

High Low
Leader’s Consideration

• High Performance • Low Performance

High

• Low Grievance Rate • Low Grievance Rate

• Low Turnover • Low Turnover

• High Performance • Low Performance

• High Grievance Rate • High Grievance Rate
Low

• High Turnover • High Turnover

 Four Leadership Styles Derived
from the Ohio State Studies
Low structure, High structure,
high consideration high consideration
Less emphasis is placed on The leader provides a lot of guidance
High structuring employee tasks while the about how tasks can be completed
Consideration

leader concentrates on satisfying while being highly considerate of

employee needs and wants. employee needs and wants.

Low structure, High structure,

low consideration
The leader fails to provide necessary
Low structure and demonstrates little
consideration for employee needs
and wants.
low consideration
Primary emphasis is placed on
structuring employee tasks while
the leader demonstrates little
consideration for employee needs
and wants.

Low High
Initiating Structure
 MICHIGAN STUDIES
 LEADERSHIP TYPES:
– 1. Production Oriented Leaders:
• Focus on the technical or task aspects of the job
• See people as a means to goal accomplishment
– 2. Employee Oriented Leaders:
• Emphasize interpersonal relations
• Take a personal interest in subordinate needs
 CONCLUSION:
– Leadership effectiveness is associated with
employee oriented leadership behaviors.
 Two-Dimensional Leadership Styles
Ohio State University University of Michigan
Studies Studies
 Initiating  Job centered –
structure – the same as initiating
extent to which the structure
leader takes charge – Concern for
as the employee production
performs the task  Employee
 Consideration – centered – same as
the extent to which consideration
the leader – Concern for people
communicates to
 Early Leadership Theories
 Behavioral Theories
– knowing what effective leaders do would provide the
basis for training leaders
– University of Iowa Studies - Kurt Lewin
• explored three leadership styles
– autocratic - leader dictated work methods
– democratic - involved employees in decision making
• used feedback to coach employees
– laissez-faire - gave the group complete freedom
• results were mixed with respect to performance
– satisfaction higher with democratic leader
 What are the trait and behavioral
leadership perspectives?
 Leadership Grid.
– Developed by Robert Blake and Jane Mouton.
– Built on dual emphasis of consideration and
initiating structure.
– A 9 x 9 Grid (matrix) reflecting levels of
concern for people and concern for task.
• 1 reflects minimum concern.
• 9 reflects maximum concern.
 Blake & Mouton Model
 Authoritarian-Obedience: task oriented with little
attention to co-operation & collaboration

 Team Management: promote team working in

achieving common goal

 Country-Club Management: build strong relationship

with people with little attention to task

 Impoverished Management: no commitment to

relationship or task
 What are the trait and behavioral
leadership perspectives?
 Leadership Grid — cont.
– Five key Grid combinations.
• 1/1 — low concern for production, low concern for people.
• 1/9 — low concern for production, high concern for people.
• 5/5 — moderate concern for production, moderate concern
for people.
• 9/1 — high concern for production, low concern for people.
• 9/9 — high concern for production, high concern for people.
 The Management
High

Grid 9
1,9 management
Thoughtful attention to
9,9 management
Work accomplisment is
needs of people for from committed people.
8 satisfying relationships Interdependence through
leads to a comfortable, a "common stake" in
friendly organization organization purpose
7
atmosphere and work

Concern for people

leads to relationships
tempo. of trust and respect.
5,5 management
6
Adequate organization
performance is possible
5 through balancing the
necessity to get out
work with maintaining
4
morale of people at a
1,1 management satisfactory level. 9,1 management
3 Exertion of minimum Efficiency in operations
effort to get work results from arranging
done is appropriate conditions of work in
2
to sustain organization such a way that human
membership. elements interfere to a
1 minimum degree.

Low 1 2 3 4 5 6 7 8 9

Low Concern for production High

 Contingency Approaches
Contingency approaches:
approaches that seek to delineate the
characteristics of situations and
followers and examine the leadership
styles that can be used effectively

Fiedler’s contingency model: a

model designed to diagnose whether a
leader is task-oriented or relationship-
oriented and match leader style to the
situation
 Contingency Theories

Fiedler’s Contingency Model

The theory that effective groups depend on
a proper match between a leader’s style of
interacting with subordinates and the
degree to which the situation gives control
and influence to the leader.
 Fiedler’s Model: Defining the Situation

Leader-Member Relations
The degree of confidence, trust, and
respect subordinates have in their leader.

Task Structure
The degree to which the job assignments
are procedurized.
Position Power
Influence derived from one’s formal
structural position in the organization;
includes power to hire, fire, discipline,
promote, and give salary increases.
 Hersey and Blanchard’s
Situational Theory
(skill level of subordinates)
 Subordinates vary in their readiness level.
– Low task readiness:
• Limited skill
• Lack of training
• Insecurity
– High task readiness:
• Ability
• Skill
• Confidence
• Willingness to work
 Hersey and Blanchard’s
Situational Theory
 Adopt a style appropriate to subordinate
abilities
– Low level of task readiness:
• Tell them what to do
• How to do it
• When to do it
– High level of task readiness:
• Provide general direction
• Delegate sufficient authority to do the task
• Expect followers to complete the task as they see fit
 Hersey and Blanchard’s
Situational Leadership Theory
Situational Leadership Theory (SLT)
A contingency theory that focuses on
followers’ readiness.
Unable and Unable but Able and Able and
Unwilling Willing Unwilling Willing

Follower readiness:
ability and willingness

Leader: decreasing need

for support and supervision

Directive High Task and Relationship Supportive Monitoring

Orientations Participative
Managers are people who do things right, while
leaders are people who do the right thing.
- Warren Bennis, Ph.D. "On Becoming a
Leader"
 MANAGEMENT VS.
LEADERSHIP

• Position • Practices/Behaviors
• Compliance • Commitment
• Do things right • Do the right thing
• Status quo • Change
• Short-term • Long-term
• Means • Ends
• Builders • Architects
• Instruction • Inspiration/motivation
• Control • Empower
 Managers vs. Leaders
Managers Leaders
 Focus on things  Focus on people
 Do things right  Do the right things
 Plan  Inspire
 Organize  Influence
 Direct  Motivate
 Control  Build
 Follows the rules  Shape entities
 Differences between Leaders
and Managers
LEADERS MANAGERS
Innovate Administer
Develop Maintain
Inspire Control
Long-term view Short-term view
Ask what and why Ask how and when
Originate Initiate
Challenge the status quo Accept the status quo
Do the right things Do things right
 The Boss
The Boss drives his men,
The Leader inspires them.
The Boss depends on authority.
The Leader depends on goodwill.
The Boss evokes fear
The Leader radiates love.
The Boss says “I”.
The Leader says “We”.
The Boss shows who is wrong.
The Leader shows what is wrong.
The Boss knows how it is done.
The Leader knows how to do it.
The Boss demands respect.
The Leader commands respect.
So be a leader,
Not a Boss.