ENGG 406 Engineering Management PDF

ENGG 406 - Engineering Management
Chapter 1 – Introduction to Engineering

Management
Today’s technological society is constantly changing, and with the change comes
a need for the engineer to be able to address society’s technological challenges as
well as the opportunities for the future. Engineers play a key role that in maintaining
technological leadership and a sound economy as the world becomes flatter in today’s
global economy. To do this, the engineer needs to remain alert to changing products,
processes, technologies, and opportunities, and be prepared for a creative and
productive life and position of leadership.
To assist the engineer for a productive life and position of leadership, this chapter
includes the discussion of the functions of engineer, historical development of
engineering management, concepts and the principles of engineering management,
the process of management and the nature of managerial work.
Learning Objectives:
When you have finished studying this chapter, you should be able to:
1. Describe the origins of engineering management.
2. Explain the concept and principles of engineering management.
3. Illustrate the role of engineers in engineering management activities.
Engineers are expected to perform variety of tasks depending on their

specialization and job level. It is important to the engineer that he knows what is
expected of him so that he may be able to perform his job effectively and efficiently.
His next concern will be able to identify the skills required but which he does not have.
As engineers are not trained to directly deal with people, it is expected that their
weakness will most often be on people-based skills. This difficulty will be more
apparent once they are assigned to occupy management positions. It follows that if
the engineer manager would want to do the job well, some exposure to engineering
management activities become necessary.
The Functions of Engineer

Even as engineers are currently producing solutions to many of the difficulties
faced by mankind, much is still expected of them. Their outputs, new or
improvements of old ones are very much needed in the following specific problem
concerns.
1. The production of more food for a fast growing world population;
2. The elimination of air and water pollution;
3. Solid waste disposal and materials recycling;
4. The reduction of noise in various forms;
5. Supplying the increasing demand for energy;
6. Supplying the increasing demand for mobility;
7. Preventing and solving crimes; and
8. Meeting the increasing demand for communication facilities
Specifically, the functions of engineering encompass the following areas:

1. Research – where the engineer is engaged in the process of learning about
nature and codifying this knowledge into usable theories.
2. Design and Development – where the engineer undertakes the activity of
turning a product concept to a finished physical item. Design for
manufacturability and value engineering teams (a feature of some companies)
are charged with improvement of designs and specifications at the research,
development, design and production stages of product development.
3. Testing – where the engineers works in a unit where new products or parts
are tested for workability.
4. Manufacturing – where the engineer is directly in charge of production
personnel or assumes responsibility for the product.
5. Construction – this is where the construction engineer (a civil engineer) is

either directly in charge of the construction personnel or may have
responsibility for the quality of the construction process.
6. Sales – where the engineer assists the company’s customers to meet their
needs, especially those that require technical expertise.
7. Consulting – where the engineer works as consultant of any individual or
organization requiring his services.
8. Government – where the engineer may find employment in the government,
performing any of the various tasks in regulating, monitoring and controlling
the activities of various institutions, public or private.
9. Teaching – where the engineer gets employment in a school and is assigned
as a teacher of engineering courses. Some of them later become deans, vice
presidents and presidents.
10. Management – where the engineer is assigned to manage groups of
people performing specific tasks.
Historical Development of Engineering Management
The story of the development of management thought and of the ability of human
to organize and control complex activities has already been documented.
The great construction projects of ancient civilizations and the medieval production
facility of the Arsenal of Venice discussed the people and situations of the most
significance and interest of the engineer in management. The Industrial Revolution
changed not only manufacturing, but society as well, first in England, and then in
America. As the nineteenth century ended and the twentieth century began, the
United States led the world in finding better, more efficient ways to do things, in a
movement that became known as scientific management, while Europeans such as
Max Weber and Henri Fayol were developing philosophies of management at the top
level. Around 1930, a series of experiments at the Hawthorne Works near Chicago led
to studies on the impact of individual and group behavior on the effectiveness of

managing.
Engineering management continues to evolve, with the development in the second
half of the twentieth century of methods for managing large projects such as the
Apollo program, the customer-centered organizations, globalization, and the
revolution in the lives of people that computer technology is creating.
Origins
Ancient Civilizations
Even the earliest civilizations required management skills wherever groups of
people shared a common purpose: tribal activities, estates of the rich, military
ventures, governments, or organized religion. Indeed, the prototypes of civil
engineering and construction management became necessary as soon as “plants and
animals were domesticated and people began living in communities. By 6000 b.c.
these communities sometimes contained over 1,000 people, and Jericho is known to
have had a wall and defensive towers.” according to Davey By 4500 b.c. the first
canals diverted water from a river in eastern Iraq for crop irrigation. As canals
proliferated, it became possible to store crops for commerce, and written records as
well as management organization became necessary:
In ancient Mesopotamia, lying just north and west of Babylon, according to Wren the temples
developed an early concept of a “corporation,” or a group of temples under a common body
of management. Flourishing as early as 3000 b.c., temple management operated under a dual
control system: one high priest was responsible for ceremonial and religious activities, while
an administrative high priest coordinated the secular activities of the organization. Records
were kept on clay tablets, plans made, labor divided, and work supervised by a hierarchy of
officials.
Many ancient civilizations left behind great stone structures that leave the people
wondering how they could have been created with the few tools then available.
Examples include the Great Wall of China, the monoliths on Easter Island, Mayan
temples in South America, and Stonehenge in England. Especially impressive are the
pyramids of Egypt. The great pyramid of Cheops, built about 4,500 years ago, covers
13 acres and contains 2,300,000 stone blocks weighing an average of 5,000 pounds
per piece. Estimates are that it took 100,000 men and 20 to 30 years to complete the
pyramid—about the same effort in worker-years as it later took the United States to
put a man on the moon. The only construction tools available were levers, rollers, and
immense earthen ramps. Yet the difference in height of opposite corners of the base
is only 1 2 inch!
Hammurabi (2123–2081 b.c.) of Babylon “issued a unique code of 282 laws which
governed business dealings.... and a host of other societal matters.” One law that
should interest the civil engineer is the following:
If a builder builds a house for a man and does not make its construction firm, and the house
which he has built collapses, and causes the death of the owner of the house, that builder shall
be put to death.
Today’s engineer should be thankful that, while penalties for faulty design can be
expensive and damaging to one’s career, they are not terminal!
Problems of controlling military operations and dispersed empires have made
necessary the development of new management methods since ancient times.
Alexander the Great (356–323 b.c.) is generally credited with the first documented
(European) use of the staff system. He developed an informal council whose members
were each entrusted with a specific function (supply, provost marshal, and engineer).
The great Roman roads that made it possible to move messages and Roman
legions quickly from place to place were an impressive engineering achievement that
helped the empire survives. It should not be inferred that early management skills
were confined to Western civilization as it developed around the Mediterranean Sea.
The consistent use of advisory staff by Chinese emperors as early as 2350 b.c., and
“ancient records of Mencius and Chow (1100 to about 500 b.c.) indicate that the
Chinese were aware of certain principles bearing on organizing, planning, directing,

and controlling.” In India, one Brahman Kautilya described in Arthashastra in 321 b.c.
a wide range of topics on government, commerce, and customs. Because he analyzed
objectively rather than morally the political practices that brought success in the past,
his name has become synonymous with sinister and unscrupulous management in
India.
The Arsenal of Venice

George abstracts from Lane a fascinating story of “what was perhaps the largest
industrial plant of the [medieval] world.” As Venice’s maritime power grew, the city
needed an armed fleet to protect her trade, and by 1436 it was operating its own
government shipyard, the Arsenal. The Arsenal “had a threefold task: (1) the
manufacture of galleys, arms, and equipment; (2) the storage of the equipment until
needed; and (3) the assembly and refitting of the ships on reserve.”
Several other industrial management practices of the Arsenal
1. Systematic warehousing and inventory control of the hundreds of masts,
spars, and rudders, and thousands of benches, footbraces, and oars needed to
make the assembly line work
2. Well-developed personnel policies, including piecework pay for some work
(making oars) and day wages for both menial labor and artisans (the latter with
semiannual merit reviews and raises)
3. Standardization, so that any rudder would meet any sternpost, and all ships
were handled the same way
4. Meticulous accounting in two journals and one ledger, with annual auditing
5. Cost control. As an example, one accountant discovered that lumber was
stored casually in piles, and the process of searching through the piles to find
a suitable log was costing three times as much as it did to buy the log in the
first place; as a result of this early industrial engineering study an orderly
lumberyard was established, which not only saved time and money but also
permitted accurate inventory of lumber on hand.
An important innovation developed in Venice during this period was double-entry
bookkeeping. Luca Pacioli published an instructional manual ( Summa de arithmetica,
geometria, proportioni et proportionalia) in 1494 describing the system then in use
and recommending it. His discussion of the use of memorandum, journal, and ledger,
supporting documents, and internal checks through periodic audits were so modern
that many excerpts from Pacioli’s writing could be inserted into the current accounting
textbooks with virtually no change in wording. Pacioli’s work was translated into
English about 50 years later and was in widespread use by the early eighteenth
century.
Concept and the Principles of Engineering Management

The different management philosophies have been numerous. All have had, as
their goal, to obtain optimal organizational performance, with the overall business
environment guiding the selection of a particular style of management. Some theories
have been fads that have not influenced a company’s performance in the long term,
while others have enhanced quality and productivity. Each theory has its merits and
drawbacks. These philosophies may be grouped into general categories of scientific,
administrative, and behavioral.
Engineering. Before a description of engineers can be made, the term engineering

must be defined. Webster’s Ninth New Collegiate Dictionary, 1989, defines
engineering as follows:
En-gi-neer-ing n 1: the art of managing engines 2: the application of science and mathematics
by which the properties of matter and the sources of energy in nature are made useful to man
in structures, machines, products, systems, and processes.
In other words, engineering is the means by which people make possible the
realization of human dreams by extending their reach in the real world. Engineers are
the practitioners of the art of managing the application of science and mathematics.
By this description, engineering has a limitless variety of possible disciplines.
Engineers. Engineering has been differentiated from other academic paths by the
need for people to logically apply quantifiable principles. Academic knowledge,
practical training, experience, and work-study are all avenues to become an engineer.
The key attribute for engineers is the direct application of that knowledge and
experience. The most up-to-date information on opportunities available for engineers
can be found at various websites on the Internet, industry publications, professional
associations, and personal contacts within the industry. Like other fields of endeavor,
engineering no longer represents a staid career choice. The basic idea is to be adept,
adaptable, and aware.
Since the engineer manager is presumed to be technically competent in his
specialization, one may now proceed to describe more thoroughly the remaining
portion of his job, which is management.
Management is a “creative problem-solving process of planning, organizing, leading

and controlling an organization’s resources to achieve its mission and objectives”.
The Australian Edmund Young wrote that
“[m]anagement” has been one of the most ubiquitous and misused words in the 20th century
English language. It has been a “fad” word as well. Civil engineers discuss river basin
management and coastal management, doctors discuss disease management and AIDS
management, and garbage collectors are now waste management experts.
McFarland traces the meaning of the words manage and management as follows:
The word manage seems to have come into English usage directly from the Italian maneggiare,
meaning “to handle,” especially to handle or train horses. It traces back to the Latin word
manus, “hand.” In the early sixteenth century manage was gradually extended to the
operations of war and used in the general sense of taking control, taking charge, or directing.
...Management was originally a noun used to indicate the process for managing, training, or
directing. It was first applied to sports, then to housekeeping, and only later to government
and business.
McFarland continues by identifying “four important uses of the word management,

as (1) an organizational or administrative process; (2) a science, discipline, or art; (3)
the group of people running an organization; and (4) an occupational career.”
Sentences illustrating each of these in turn might be (1) “He practices good
management”; (2) “She is a management student”; (3) “Management doesn’t really
believe in quality”; and (4) (heard from innumerable college freshmen) “I want to get
into management.” Of these four, most authors of management textbooks are
referring to the first meaning (the process) when they define “management.”
According to some of these authors, management is defined in the following ways:
• The work of creating and maintaining environments in which people can

accomplish goals efficiently and effectively (Albanese)
• The process of achieving desired results through efficient utilization of human
and material resources (Bedeian)
• The process of reaching organizational goals by working with and through
people and other organizational resources (Certo)
• A set of activities (including planning and decision making, organizing, leading,
and controlling) directed at an organization’s resources (human, financial,
physical, and information) with the aim of achieving organizational goals in an
efficient and effective manner (Griffin)
• The process by which managers create, direct, maintain, and operate purposive
organizations through coordinated, cooperative human effort (McFarland)
• The process of acquiring and combining human, financial, informational, and
physical resources to attain the organization’s primary goal of producing a
product or service desired by some segment of society (Pringle, Jennings, and
Longnecker)
Albanese provides a set of definitions of the word management suggested by a

sample of business executives:
• Being a respected and responsible representative of the company to his

subordinates
• The ability to achieve willing and effective accomplishments from others toward
a common business objective
• Organizing and coordinating a profitable effort through good decision making
and people motivation
• Getting things done through people
• The means by which an organization grows or dies

• The overall planning, evaluating, and enforcement that go into bringing about
“the name of the game”—profit
• Keeping the customers happy by delivering a quality product at a reasonable
cost
• Directing the actions of a group to accomplish a desired goal or objective in
the most efficient manner
Management Levels
Ensign or admiral, college president or department chair, maintenance foreman,
plant manager, or company president—all are managers. What skills must they have,
what roles do they play, what functions do they carry out, and how are these affected
by the level at which they operate?
Management is normally classified into three levels: first-line, middle, and top.
Managers at these three levels need many of the same skills, but they use them in
different proportions. The higher the management level is, the further into the future
a manager’s decisions reach and more resources placed at risk.
First-line managers directly supervise non-managers. They hold titles such as
foreman, supervisor, or section chief. Generally, they are responsible for carrying out
the plans and objectives of higher management, using the personnel and other
resources assigned to them. They make short-range operating plans governing what
will be done tomorrow or next week, assign tasks to their workers, supervise the work
that is done, and evaluate the performance of individual workers. First-line managers
may only recently have been appointed from among the ranks of people they are now
supervising. They may feel caught in the middle between their former co-workers and
upper management, each of which feels the supervisor should be representing them.
Indeed, they must provide the linking pin between upper management and the
working level, representing the needs and goals of each to the other.
Many engineers who go into a production or construction environment quickly find
themselves assigned as a foreman or supervisor. The engineer may find such an
assignment a satisfying chance to make things happen through his or her own actions
and decisions. Doing so effectively, while according the workers the courtesy and
respect merited by their years of experience, requires tact and judgment. If the
engineer can achieve this balance, he or she may be surprised to find that the team
members are respectful in return and are helpful to the engineer in learning his or her
job.
Middle managers carry titles such as plant manager, division head, chief
engineer, or operations manager. Although there are more first-line managers than
any other in most organizations, most of the levels in any large organization are those
of middle management. Even the lowest middle manager (the second-line manager,
who directly supervises first-line managers) is an indirect manager and has the
fundamentally different job of managing through other managers. Middle managers
make plans of intermediate range to achieve the long-range goals set by top
management, establish departmental policies, and evaluate the performance of
subordinate work units and their managers. Middle managers also integrate and
coordinate the short-range decisions and activities of first-line supervisory groups to
achieve the long-range goals of the enterprise. A major management movement of
the 1990s, driven by the need to become more competitive, has been the drastic
reduction in the number of middle managers—often leading to the elimination of half
the management levels between supervisor and top manager. This has become
possible in part because modern computer-based management information systems
bring decision-making information directly to higher levels of management that
previously had to be summarized in turn by each level of middle management, and in
part because non-managers are now better educated and are often organized into
teams empowered to make some of the decisions previously reserved for lower
management.
Top managers bear titles such as chairman of the board, president, or executive
vice president; the top one of these will normally be designated chief executive officer
(CEO). In government, the top manager may be the administrator (of NASA),
secretary (of state or commerce), governor, or mayor. While they may report to some
policymaking group (the board of directors, legislature, or council), they have no full-
time manager above them.
Top managers are responsible for defining the character, mission, and objectives
of the enterprise. They must establish criteria for and review long-range plans. They
evaluate the performance of major departments, and evaluate leading management
personnel to gauge their readiness for promotion to key executive positions. Bedeian
paints a picture of the typical top manager: a college graduate (85 percent), probably
with some postgraduate work (58 percent) and often a graduate degree (40 percent);
usually from a middle-class background, often born to fathers in business or a
profession; age 50 to 65, with work experience concentrated in one, two, or three
companies; and with a work week of 55 to 65 hours. Most CEOs have previously
specialized in finance, banking, administration, or marketing (13 to 15 percent each);
about 11 percent each come from technical, production/operations, or legal careers.
One often finds a household products company led by a marketer, an electric utility
led by a lawyer, or an electronics firm led by an engineer (who has mastered the art
of management). Often, an organization will look for a top manager with particular
strength in the functional area in which the enterprise is currently facing a challenge.
Figure 1-1. Skills Required versus Management
Managerial Skills
Katz suggests that managers need three types of skills: technical, interpersonal,
and conceptual. Technical skills are skills (such as engineering, accounting, machining,
or word processing) practiced by the group supervised. Figure 1-1. shows that the
lowest level managers have the greatest need for technical skills, since they are
directly supervising the people who are doing the technical work, but even top
managers must understand the underlying technology on which their industry is
based. Interpersonal skills, on the other hand, are important at every management
level, since every manager achieves results through the efforts of other people.
Conceptual skills represent the ability to “see the forest in spite of the trees”—to
discern the critical factors that will determine an organization’s success or failure. This
ability is essential to the top manager’s responsibility for setting long-term objectives
for the enterprise, although it is necessary at every level.
What is Engineering Management?
Some writers would use a narrow definition of “engineering management,”
confining it to the direct supervision of engineers or of engineering functions. This
would include, for example, supervision of engineering research or design activities.
Others would add an activity that might consider the engineering of management—
the application of quantitative methods and techniques to the practice of management
(often called management science). However, these narrow definitions fail to include
many of the management activities engineers actually perform in modern enterprises.
If engineering management is broadly defined to include the general management
responsibilities engineers can grow into, one might well ask how it differs from
ordinary management.
The engineering manager is distinguished from other managers because he [or she] possesses
both an ability to apply engineering principles and a skill in organizing and directing people and
projects. He is uniquely qualified for two types of jobs: the management of technical functions
(such as design or production) in almost any enterprise, or the management of broader
functions (such as marketing or top management) in a high-technology enterprise.
Engineering management refers to the activity combining “technical knowledge

with the ability to organize and coordinate worker power, materials, machinery and
money.”
When the engineer is assigned to supervise the work of even a few people, he is
already engaged in the first phase of engineering management. His main
responsibility is to lead his group into producing a certain output consistent with the
required specifications.
The top position an engineer manager may hope to occupy is the general
managership or presidency of any firm, large or small. As he scales the management
ladder, he finds that the higher he goes up, the less technical activities he performs
and the more management tasks he accepts. In this case, it is but proper that the
management functions taught in pure management courses be well understood by
the engineer manager.
Need for Engineers in Management

Herbert Hoover, a very successful mining engineer and manager, recognized the
importance of the American engineering manager in an address to engineers the year
he was elected president of the United States:
Three great forces contributed to the development of the engineering profession. The first was
the era of intense development of minerals, metallurgy, and transportation in our great West.
.. .Moreover, the skill of our engineers of that period owes a great debt to American educators.
The leaders of our universities were the first of all the educators of the world to recognize that
upon them rested the responsibility to provide fundamental training in the application of
science to engineering under the broadening influence and cultivation of university life. They
were the first to realize that engineering must be transformed into a practice in the highest
sense, not only in the training and character but that the essential quality of a profession is
the installation of ethics.. ..A third distinction that grew in American engineering was the
transformation from solely a technical profession to a profession of administrators—the
business manager with technical training.
There are several reasons engineers can be especially effective in the general
management of technically oriented organizations. High-technology enterprises make
a business of doing things that have never been done before. Therefore, extensive
planning is needed to make sure that everything is done right the first time—there
may not be a second chance. Planning must emphasize recognizing and resolving the
uncertainties that determine whether the desired product or outcome is feasible. Since
these critical factors are often technical, the engineer is best capable of recognizing
them and managing their resolution. In staffing a technically based enterprise,
engineering managers can best evaluate the capability of technical personnel when
they apply for positions and rate their later performance. Further, they will better
understand the nature and motivation of the technical specialist and can more easily
gain their respect, confidence, and loyalty. George H. Heilmeier, president and CEO
of Bellcore (and an electrical engineer), makes clear the advantages of an
understanding of technology in top management:
Competition is global, and the ability to compete successfully on this scale is
fostered by corporate leaders who can do the following:
• Really understand the business.

• Understand both the technology that is driving the business today and the
technology that will change the business in the future.
• Treat research and development as an investment to be nurtured, rather than
an expense to be minimized.
• Spend more time on strategic thinking about the future as they rise higher in
the corporation
• Are dedicated to solving a customer’s problem or satisfying a need, which is
how I would define true marketing as opposed to sales.
• Place a premium on innovation.
Figure 1-2. The engineering management education program. (From

Daniel L. Babcock, “B.S. and M.S. Programs in Engineering Management,”
Engineering Education, November 1973, P. 102).
The Process of Management
Management is a process consisting of planning, organizing, directing (or

leading), and controlling.
Management must seek to find out the objectives of the organization, think of
ways on how to achieve them, decide on the ways to be adapted and the material
resources to be used, determine the human requirements of the total job, assign
specific tasks to specific persons, motivate them and make sure that the activities are
in the right direction.
The five elements of the management process are planning, organizing,
coordination, motivation and control. Management is then exercised by planning,
finalizing the strategies, making policies, taking managerial decisions for different
situations and options, so as to achieve the objectives of the organization.
A process management sometimes referred to as the process performance
measurement and management system.
An organization’s senior management is responsible for carrying out its
management process. However, this is not always the case for all management
processes; for example, sometimes it is the responsibility of the project manager to
carry out a project management process.
Nature of Managerial Work
Managers are responsible for the processes of getting activities completed

efficiently with and through other people and setting and achieving the firm’s goals
through the execution of four basic management functions: planning, organizing,
leading, and controlling. Both sets of processes utilize human, financial, and material
resources.
Some managers are better than others at accomplishing this! There have been a
number of studies on what managers actually do. The most famous of those was
conducted by Professor Henry Mintzberg in the early 1970s. One explanation for
Mintzberg’s enduring influence is perhaps that the nature of managerial work has
changed very little since that time, aside from the shift to an empowered relationship
between top managers and other managers and employees, and obvious changes in
technology, and the exponential increase in information overload.
After following managers around for several weeks, Mintzberg concluded that, to
meet the many demands of performing their functions, managers assume multiple
roles. A role is an organized set of behaviors, and Mintzberg identified ten roles
common to the work of all managers. As summarized in the following figure, the ten
roles are divided into three groups: interpersonal, informational, and decisional. The
informational roles link all managerial work together. The interpersonal roles ensure
that information is provided. The decisional roles make significant use of the
information. The performance of managerial roles and the requirements of these roles
can be played at different times by the same manager and to different degrees,
depending on the level and function of management. The ten roles are described
individually, but they form an integrated whole.
The three interpersonal roles are primarily concerned with interpersonal
relationships. In the figurehead role, the manager represents the organization in all
matters of formality. The top-level manager represents the company legally and
socially to those outside of the organization. The supervisor represents the work group
to higher management and higher management to the work group. In the liaison role,
the manager interacts with peers and people outside the organization. The top-level
manager uses the liaison role to gain favors and information, while the supervisor
uses it to maintain the routine flow of work. The leader role defines the relationships
between the manager and employees.
Figure 1-3. Ten Managerial Roles

The direct relationships with people in the interpersonal roles place the manager
in a unique position to get information. Thus, the three informational roles are
primarily concerned with the information aspects of managerial work. In the monitor
role, the manager receives and collects information. In the role of disseminator, the
manager transmits special information into the organization. The top-level manager
receives and transmits more information from people outside the organization than
the supervisor. In the role of spokesperson, the manager disseminates the
organization’s information into its environment. Thus, the top-level manager is seen
as an industry expert, while the supervisor is seen as a unit or departmental expert.
The unique access to information places the manager at the center of
organizational decision making. There are four decisional roles managers play. In the
entrepreneur role, the manager initiates change. In the disturbance handler role, the
manager deals with threats to the organization. In the resource allocator role, the
manager chooses where the organization will expend its efforts. In the negotiator
role, the manager negotiates on behalf of the organization. The top-level manager
makes the decisions about the organization as a whole, while the supervisor makes
decisions about his or her particular work unit.
The supervisor performs these managerial roles but with different emphasis than
higher managers. Supervisory management is more focused and short-term in
outlook. Thus, the figurehead role becomes less significant and the disturbance
handler and negotiator roles increase in importance for the supervisor. Since
leadership permeates all activities, the leader role is among the most important of all
roles at all levels of management.
So what do Mintzberg’s conclusions about the nature of managerial work mean?
On the one hand, managerial work is the lifeblood of most organizations because it
serves to choreograph and motivate individuals to do amazing things. Managerial work
is exciting, and it is hard to imagine that there will ever be a shortage of demand for
capable, energetic managers. On the other hand, managerial work is necessarily fast-
paced and fragmented, where managers at all levels express the opinion that they
must process much more information and make more decisions than they could have
ever possibly imagined. So, just as the most successful organizations seem to have
well-formed and well-executed strategies, there is also a strong need for managers to
have good strategies about the way they will approach their work.
Chapter Test
Discussion Questions
1-1. How would faulty designs produced or approved by engineers today affect their
career? Provide examples from news reports or case studies you have come
across. Was the situation any different for engineers in ancient times?
1-2. Why is it so important for an engineer today to have knowledge of multiple
disciplines in addition to his field of expertise?
1-3. What are the different roles that an engineer needs to play in a firm in addition
to the traditional roles of design, development, and testing?
1-4. What are some different types of managers and how do they differ?
REFERENCES:
Medina, Roberto G., Engineering Management, 1st Edition, Rex Book Store Philippines
Babcock, Daniel L. and Lucy C. Morse. Managing Engineering and Technology. 6th Edition, Pearson,
2014
https://bcgram.net/business-organization-and-management-topics
Chapter 2 – Decision Making

Decision-making is one of the most important aspects in an organization. Decisions
are made in the best interest of the organization and to support organizational growth,
however the process of arriving at a decision continues to become more complex. For
that matter, decision making and problem solving is taken and used in all engineering
management functions, although usually they are considered a part of the planning
phase. Making good decisions is something that every engineer manager strives to do
since the overall quality of managerial decisions has a major influence on
organizational success or failure. In this chapter, students will learn the nature of
decision making, how decisions are made every day within organizations and how
managers make decisions.
When you have finished studying this chapter, you should be able to do the
following:
1. Understand different types of decisions.

2. Explain the process of decision making.
3. Demonstrate problem-solving abilities and rational effective decision
making to address organization challenges.
Nature of Decision Making

Decision making may be defined as “the process of identifying and choosing
alternative courses of action in a manner appropriate to the demands of the situation”.
Decision-making, according to Nickels and others, “is the heart of all the management
functions”. According to the Oxford Advanced Learner’s Dictionary the term decision
making means - the process of deciding about something important, especially in a
group of people or in an organization.
Managerial decision making is the process of making a conscious choice between

two or more rational alternatives in order to select the one that will produce the most
desirable consequences (benefits) relative to unwanted consequences (costs). If there
is only one alternative, there is nothing to decide. Thereby, it is a continuous and
dynamic activity that pervades all other activities pertaining to the organization. Since
it is an ongoing activity, the decision making process plays vital importance in the
functioning of an organization. Since intellectual minds are involved in the process of
decision making, it requires solid scientific knowledge coupled with skills and
experience in addition to mental maturity.
Further, decision making can be regarded as a check and balance system that
keeps the organization growing both in vertical and linear directions. It means that
the decision making process seeks a goal. The goals are pre-set business objectives,
company missions and its vision. To achieve these goals, companies may face a lot of
obstacles in administrative, operational, marketing wings and operational domains.
Such problems are sorted out through a comprehensive decision making process. No
decision comes as an end in itself, since it may evolve new problems to solve. When
one problem is solved another arises and so on, such that the decision making
process, as said earlier, is continuous and dynamic.
Types of Problems and Decisions

Engineer Managers will encounter different types of problems and decisions as
they do their jobs. Depending on the nature of the problem, the engineer manager
can use different types of decisions.
1. Well-Structured Problems and Programmed Decisions. Some problems are

straightforward. The goal of the decision maker is clear, the problem is familiar,
and information about the problem is easily defined and complete.
Decisions are programmed to the extent that they are repetitive and routine
and to the extent that a definite approach has been worked out for handling
them. Because the problem is well structured, the manager doesn't have to go
to the trouble and expense of going through an involved decision process. Once
the structured problem is defined, its solution is usually self-evident or at least
reduced to very few alternatives that are familiar and that have proved
successful in the past. Programmed decisions also known as routine decisions
involve standard decision procedures, and entail a minimum of uncertainty.
In many cases, programmed decision making becomes decision making by
guide. In the given example, the spilled drink on the customer's coat doesn't
require the restaurant manager to identify and weight decision criteria or to
develop a long list of possible solutions. Rather, the manager falls back on a
systematic procedure, rule, or policy.
Examples of these types of problems might include a customer's wanting to return a

purchase to a retail store, a supplier's being late with an important delivery, a news team's
responding to an unexpected and fast-breaking event, or a college's handling of a student
wanting to drop a class. Such situations are called well-structured problems since they are
straightforward, familiar, and easily defined problems.
For instance, a server in a restaurant spills a drink on a customer's coat. The manager has
an upset customer and he or she needs to do something. Because drinks are frequently spilled,
there's probably some standardized routine for handling the problem. For example, the
manager offers to have the coat cleaned at the restaurant's expense. In handling this problem
situation, the manager uses a programmed decision.
Various types of programmed decisions are:
a. Organizational decisions. Decisions taken in interest of the

organization.
b. Operational decisions. Decisions are taken as a matter of routine. It
relates to daily operations and aims to achieve short-term objectives
of the firm. Operational decisions are taken by middle and lower-
level managers within the framework of policies and procedures and
allow limited use of discretion by managers.
c. Research decisions. Decisions which involve regular survey of the

market are research decisions and decisions made under situations
of crisis or emergency are crisis — intuitive decisions.
d. Opportunity decisions. These decisions reflect foresightedness.
Managers forecast opportunities to promote organizational growth.
The decision to grow and diversify (i.e. market penetration and
market development) is an opportunity decision.
2. Poorly Structured Problems and Nonprogrammed Decisions. Various

organizational situations involve poorly structured problems, which are
problems that are new or unusual and for which information is ambiguous or
incomplete. Decisions are taken in unstructured situations which reflect novel,
ill-defined and complex problems. The problems are non-recurring or
exceptional in nature. Since they have not occurred before, they require
extensive brainstorming. Managers use skills and subjective judgment to solve
the problems through scientific analysis and logical reasoning.
For example, increase in advertising expenditure, effective salesmanship, upgraded technology,

quality controls, brand image and reasonable prices are expected to increase sales and profits.
If, despite all this, profits are declining, it requires immediate decision-making and such
decisions are non-programmed decisions
When problems are poorly structured, managers must rely on

nonprogrammed decision making in order to develop unique solutions.
Nonprogrammed decisions also called as nonroutine decisions are unique and
nonrecurring, often involving incomplete knowledge, high uncertainty, and the
use of subjective judgment or even intuition, where no alternative can be
proved to be the best possible solution to the particular problem. Such
decisions become more and more common the higher one goes in management
and the longer the future period influenced by the decision is. When a manager
confronts a poorly structured problem, or one that is unique, there is no cut

and-dried solution, thus, it requires a custom-made response through
nonprogrammed decision making.
Decision Making Process

Rational decision-making describes a series of steps that decision makers should
consider if their goal is to maximize the quality of their outcomes. In other words, if
an engineer manager wants to make sure to make the best choice, going through the
formal steps of rational decision-making may make sense. Rational decision-making
involves the following steps as illustrated in Figure 2-1:
Figure 2-1. Decision Making Process

1. Identify the problem or Diagnose the Problem. Decisions are made to solve
problems. As a first step to decision--making, therefore, managers identify the
problem. Problem is any deviation from a set of expectations. Managers find
causes of the problem by collecting facts and information that have resulted in
the problem. For example, if the sales target is 10,000 units per month but
actual sales are 6,000 units, managers sense some problem in the company.
The problem is identified with the marketing department of the company.
Managers use their judgment, imagination and experience to identify the
problem as wrong identification will lead to wrong decisions.
2. Analyze the environment. The objective of environmental analysis is the

identification of constraints which may be spelled out as either internal or
external limitations. Managers scan the internal and external environment to
see whether or not organizational operations conform to environmental
standards. The internal environment refers to organizational activities within
the company that surrounds decision making. While the external environment
refers to variables that are outside the organization and not typically within the
short-run control of top management.
3. Articulate problem or opportunity. Information provides input for generating

solutions. Information may be quantitative or qualitative. It should be reliable,
adequate and timely so that right action can be taken at the right time.
4. Develop viable alternatives. In this step, the engineer manager prepares a list
of alternative solutions, then determines the viability of each solution.
Alternatives means developing two or more ways of solving the problem.
Managers develop many solutions to choose the best, creative and most
applicable alternative to solve the problem.
5. Evaluate Alternatives. This is important since the next step is about making a
choice. Proper evaluation makes choosing the right solution less difficult. All
the alternatives are weighed for their strengths and weaknesses. Further, the
alternatives will be evaluated depending on the nature of the problem,
objectives of the company and the nature of alternatives presented.
6. Make a choice. After the alternatives have been evaluated, the decision maker
must now be ready to make a choice. Choice-making refers to the process of
selecting among alternatives representing potential solutions to a problem. To
make the selection process easier, the alternatives can be ranked from best to
worst on the basis of some factors like benefit, cost, or risk.
7. Implement Decision. Implementation refers to carrying out the decision so that
the objectives sought will be achieved. At this stage, the resources must be
made available so that decision may be properly implemented.
8. Evaluate and adapt decision results. In implementing the decision, the results
expected may or may not happen. It is therefore important for the engineer
manager to use control and feedback mechanisms to ensure results and to
provide information for future decisions.
Decision Making Conditions

Decisions may also be classified as being made under conditions of certainty, risk,
or uncertainty, depending on the degree with which the future environment
determining the outcome of these decisions is known. These three categories are
compared:
Certainty
The ideal situation for making decisions is one of certainty, that is, a situation in
which a manager can make accurate decisions because the outcome of every
alternative is known. Decision making under certainty implies that we are certain of
the future state of nature. For example, when a state treasurer is deciding on which
bank to deposit excess state funds, he knows exactly how much interest is being
offered by each bank and will be earned on the funds. He is certain about the
outcomes of each alternative. As you might expect this condition isn't characteristic
of most managerial decision situations. It's more idealistic than realistic.
One common technique for decision making under certainty is called linear
programming. In this method, a desired benefit (such as profit) can be expressed
as a mathematical function (the value model or objective function) of several
variables. The solution is the set of values for the independent variables (decision
variables) that serves to maximize the benefit (or, in many problems, to minimize the
cost), subject to certain limits (constraints). Steps include: 1.) State the problem, 2.)
decision variables, 3.) Objective function and 4.) Constraints.
Risk
A far more common situation is one of risk, those conditions in which the decision
maker is able to estimate the likelihood of certain alternatives or outcomes. The ability
to assign probabilities to outcomes may be the result of personal experiences or
secondary information. Under the conditions of risk, managers have historical data
that allow them to assign probabilities to different alternatives.
Uncertainty
Sometimes a decision maker cannot assess the probability of occurrence for the
various states of nature. In such condition of uncertainty, the decision maker can
choose among several possible approaches for making the decision. The choice of
alternative is influenced by the limited amount of information available to the decision
maker. Another factor that influences choices under conditions of uncertainty is the
psychological orientation of the decision maker. Different approaches to decision

making under uncertainty include the following:
● The optimistic manager will follow a maximax choice, an alternative that offers
the highest possible outcome (maximizing the maximum possible payoff),
● The pessimist will follow a maximin choice, the alternative whose worst
outcome is “least bad” (maximizing the minimum possible payoff), and
● The decision maker may simply assume that all states of nature are equally
likely (the so-called “principle of insufficient reason”). This method finds the
alternative with the highest average outcome. It calculates the average
outcome for every alternative, which is the sum of all outcomes divided by the
number of outcomes, then pick the alternative with the maximum number. The
equally likely approach assumes that each state of nature is equally likely to
occur.
● The manager who desires to minimize his maximum "regret" will opt for a
minimax choice, the alternative that has the smallest difference between the
best and worst outcomes, (the “minimax regret” solution). Regret here is
understood as proportional to the difference between what we actually get,
and the better position that we could have received if a different course of
action had been chosen. Regret is sometimes also called “opportunity loss.”
The minimax regret rule captures the behavior of individuals who spend their
post-decision time regretting their choices.
Different decision makers will have different approaches to decision making under
uncertainty. None of the approaches can be described as the “best” approach, for
there is no one best approach. Obtaining a solution is not always the end of the
decision making process. The decision maker might still look for other arrangements
to achieve even better results. Different people have different ways of looking at a
problem.
Tools and Techniques for Making Better Decisions

Decision making is a very important and complex process. In order to aid decision
makers, make the right choice, different tools and techniques are used to improve the
overall quality of decision making. In some instances, it may be a combination of a
couple of different strategies that help managers achieve the best results. Following
are some of the commonly used techniques:
Decision Trees. Decision Trees are tools that help choose between several courses
of action or alternatives. They are represented as tree-shaped diagram used to
determine a course of action or show a statistical probability. Each branch of the
decision tree represents a possible decision or occurrence. The tree structure shows
how one choice leads to the next, and the use of branches indicates that each option
is mutually exclusive.
A decision tree can be used by a manager to graphically represent which actions

could be taken and how these actions relate to future events.
Figure 2-4. Decision Tree Diagram
Delphi Technique. Delphi Technique is a method used to estimate the likelihood

and outcome of future events. It is a group process using written responses to a series
of questionnaires instead of physically bringing individuals together to make a
decision. Individuals are required to respond to a set of multiple questionnaires, with
each subsequent questionnaire built from the information gathered in the previous
one. The process ends when the group reaches a consensus. The responses can be
kept anonymous if required.
Nominal Group Technique (NGT). It was developed to help with group decision
making by ensuring that all members participate fully. NGT is not a technique to be
used at all meetings routinely. Rather, it is used to structure group meetings when
members are grappling with problem solving or idea generation. It follows four steps.
First, each member of the group engages in a period of independently and silently
writing down ideas. Second, the group goes in order around the room to gather all
the ideas that were generated. This goes on until all the ideas are shared. Third, a
discussion takes place around each idea and members ask for and give clarification
and make evaluative statements. Finally, individuals vote for their favorite ideas by
using either ranking or rating techniques. Following the four-step NGT helps to ensure
that all members participate fully and avoids group decision-making problems such as
groupthink.
Payback Analysis. Payback analysis is a technique generally used in financial

management. It refers to the period of time required to recoup the funds expended
in an investment, or to reach the break-even point. It is generally used to evaluate
capital-purchasing alternatives. Alternatives are ranked according to the time each
takes to pay back its initial cost. The strategy is to choose the alternative that has the
quickest payback of the initial cost.
Marginal Analysis. Marginal analysis weighs the benefits of an input or activity

against the costs. This type of analysis helps managers determine whether an activity
or input is providing the maximum return-on-investment (ROI). To conduct a marginal
analysis, you need to change a variable, such as the quantity of an input you use, or
the volume of output you produce. Once you’ve identified that variable, determine
what the increase in total benefits would be if one more unit of the control variable
were added. This is considered the marginal benefit of the added unit. Likewise, the
marginal cost of the added good should also be calculated. The marginal cost is the
increase in total cost if one more unit of the control variable were added. If the
marginal benefit outweighs the marginal cost, then there is a “net benefit” and the
marginal unit of the variable should be added.
SWOT Diagram. When organization is planning to make a significant change in

their business. A SWOT Analysis can help manager identify the forces that influence
a strategy, action, or initiative. This information can then be used to guide decision
maker in the right direction and support the business decisions SWOT diagrams can
break down the situation into four distinct quadrants:
a. Strengths: What does your company do better than its competitors? Think
of both internal and external strengths that you possess.
b. Weaknesses: Where can your company improve? Try to take a neutral
approach and consider what factors may be hurting your business.
c. Opportunities: Look at your strengths and think of how you can leverage
them to create new openings for your business. Also consider how
eliminating a specific weakness could open you up to a new opportunity.
d. Threats: Determine what challenges stand in the way of achieving your
goals. Identify the primary threats to your organization.
Figure 2-5. SWOT Diagram
Decision Matrix. When dealing with multiple choices and variables, a decision
matrix can bring clarity to the disarray. A decision matrix is similar to a pros/cons list,
but it allows decision maker to place a level of importance on each factor. That way,
decision maker can more accurately weigh the different options against each other.
The following are the steps to create decision matrix:
1. List decision alternatives as rows

2. List relevant factors as columns
3. Establish a consistent scale to assess the value of each combination of
alternatives and factors
4. Determine how important each factor is towards making your final decision
and assign weights accordingly
5. Multiply your original ratings by the weighted rankings
6. Add up the factors under each decision alternative

7. The option that scores the highest wins
Pareto Analysis. It is a statistical technique in decision making that is used for the
selection of a limited number of tasks that produce significant overall effect. It uses
the Pareto Principle (also known as the 80/20 rule) the idea that by doing 20% of the
work you can generate 80% of the benefit of doing the whole job. Or in terms of
quality improvement, a large majority of problems (80%) are produced by a few key
causes (20%). This is also known as the vital few and the trivial many. Example Pareto
diagram is illustrated in Figure 2-6.
Figure 2-6. Pareto Diagram

Summing Up
A decision maker who was perfectly rational would be fully objective and logical.
The problem would be clear and unambiguous and the decision maker would have a
clear and specific goal and know all possible alternatives and consequences. Rational
managerial decision making assumes that decisions are made in the best interest of
the organization using different strategies and techniques, thus, maximizing the
organization’s interests and not the manager’s own interest.
Chapter Test
2-1. Give an example of a time when you had to keep from speaking or making a
decision because you did not have enough information.
2-2. List a few examples of routine decisions apart from the examples mentioned in
this chapter. How do you think engineers can learn to handle nonroutine or
unstructured situations?
2-3. What steps do you follow to study a problem before making a decision?
2-4. Give an example of a time when you had to be relatively quick in coming to a
decision.
2-5. What was your most difficult decision in the last 6 months? What made it
difficult?
Problems
2-1. You operate a small wooden toy company making two products: alphabet blocks
and wooden trucks. Your profit is $30.00 per box of blocks and $40.00 per box of
trucks. Producing a box of blocks requires one hour of woodworking and two hours
of painting; producing a box of trucks takes three hours of woodworking, but only one
hour of painting. You employ three woodworkers and two painters, each working 40
hours a week. How many boxes of blocks (B) and trucks (T) should you make each
week to maximize profit? Solve graphically as a linear program and confirm
analytically.
2-2. Read through the case study. Write down all of the strengths, weaknesses,
opportunities and threats you can think of in relation to the New Valley Inn.
The New Valley Inn is a 50-unit, no-frills operation in the less scenic part of a major
Bakersfield resort town. The owner, Mr. Shaw, firmly believes that there is a need for
his style of low-cost family accommodation amid the luxury and beauty of the area.
His rooms are large, family-style rooms (there is no television, for example). Although
there is plenty of room for future expansion, the grounds are fairly plain with a bit of
landscaping, but mostly grass.
Mr. Shaw can serve breakfast to the rooms and provides tea-making facilities. There
are now a lot of good restaurants and take-away in the area. Mr. Shaw’s prices are
less than half of what similar hotels charge and only a fraction of what the big five-
star properties are charging. And, really, he isn’t all that far away from the beach,
shops and other attractions.
The problem is occupancy. He has some regulars who come every holiday period and
have been doing so for the four years he has owned the property. Overall, occupancy
is about 50% year round and he knows from the local tourist office that the other
properties average around 68% occupancy year round. New developments could
mean trouble. This lack of occupancy can be quite frustrating for Mr. Shaw. Cars pull
in, drive around the parking areas, and then drive away.
Currently Mr. Shaw does very little advertising in local district guides and the holiday
papers, mainly because he really thinks word-of-mouth is the best form of advertising.
He is a member of the local tourist committee, but too busy to go to meetings.
However, he does receive the local statistics and knows the average stay in the area
is 3 nights, and that local families and couples and increasingly overseas visitors are
his potential customers.
He’s not desperate yet, but he’s getting worried and disillusioned. He thought he
would be overrun with guests, but that hasn’t happened. What actions should Mr.
Shaw need to do?
2-3. Use the following questions as your guide to solve the following problem:
● What is the problem?

● What are the choices you have?
● What do you think the consequences of these choices will be for
yourself and others who are involved?
● What is your decision?
● Do you think you made the right decision? Why?
a. An engineer notices a fine white powder covers everything in a room that has
a laminating press. She asks the operator how long he has been working in
this room. He replies that he has been working there for over ten years. The
engineer is concerned that the health of this operator may be at risk from
inhaling this powder for so long. What should she do?
b. An engineer notices a fine white powder covers everything in a room that has
a laminating press. He asks the operator how long he has been working in this
room. He replies that he has been working there for over ten years. The
engineer is concerned that the health of this operator may be at risk from
inhaling this powder for so long. What should he do?
c. Your company has recently entered into a cooperative venture with a Japanese
firm. A team of Japanese engineers has come to your plant to teach your
engineers a new manufacturing process. However, the senior member of this
team, a Japanese engineer with very traditional cultural views, refuses to work
with a female member of your team despite the fact that she is a highly
qualified engineer. What should you do?
REFERENCE:
2014
http://www.saylor.org/site/textbooks/Principles%20of%20Management.pdf
https://www.managementstudyguide.com/what-is-decision-making.htm
https://www.kau.edu.sa/Files/0052361/Subjects/IE256_Topic04_Fall2009.pdf
https://www.businessmanagementideas.com/decision-making/types-of-decisions-programmed-and-
non-programmed/4831
Chapter 3 – Planning/Coordinating Technical

Activities
Planning, a major function of engineering management, is the work done by an

engineering manager to predetermine a course of action. Planning defines who will
do what, how, where, when, with which resources, and for what objectives. The
purpose of planning is to enhance the effectiveness and efficiency of the company by
providing focus and direction (Daft 2015; Institute of Leadership & Management 2007;
Zucker 2007; Axson 2010).
Planning is made necessary by rapid changes in technology (such as Internet-

based management tools, enterprise resource planning software, big data analytics,
broadband communications options, and mobile access), the environment (customers,
global resources, competition, and marketplace), and organizations (such as mergers,
acquisitions, supply chain networks, alliances, and joint ventures). Louis Pasteur said,
“Chance favors the prepared mind.”
In this chapter, we will discuss the differences between strategic and operational
planning, the planning roles of engineering managers, and the four specific planning
activities (i.e., forecasting, action planning, issuing policy, and establishing procedure)
that every engineering manager needs to master.
When you have finished studying this chapter, you should be able to do the following:
1. Define the meaning of planning

2. Determine the planning roles of Engineering Managers
3. Assess the planning activities
4. Write an effective operational plan for technical activities in business
organization.
Planning Defined
Planning may be defined as selecting the best course of action in anticipation
of future trends so that the desired result may be achieved. It must be stressed that
the desired result takes first priority and the course of action chosen is the means to
realize the goal.
Planning, according to Nickels and others, refers to “the management function that
involves anticipating future trends and determining the best strategies and tactics to
achieve organizational objectives.” This definition is useful because it relates the
future to what could be decided now.
Aldag and Stearns, on the other define planning as “the selection and sequential
ordering of tasks required to achieve an organizational goal.” This definition centers
on the activity required to accomplish the goals.
The definition of Cole and Hamilton provides a better guide on how to effectively
perform this vital activity. Planning, according to them is “deciding what will be done,
who will do it, where, when, and how it will be done,” and the standards to which it
will be done.”
For our purpose, it will suffice to define planning as selecting the best course of
action so that the desired result may be achieved. It must be stressed that the desired
result takes priority and the course of action chosen is the means to realize the goal.
Nature of Planning
There are many instances when managers are overwhelmed by various activities,
which at times cloud his judgement. This must be expected since anybody who is
confronted by several situations happening simultaneously will lose sight of the more
important concerns of managing. To minimize mistakes in decision making, planning
is undertaken.
A plan, which is the output of planning, provides a methodical way of achieving

desired results. In the implementation of activities, the plan serves as a useful guide.
Without the plan, some minor tasks may be afforded major attention, which may,
later on, hinder accomplishment of objectives.
The management of a firm was able to identify the need to hire three additional
employees the manager proceeded to invite applicants, screen them, and finally hired
three of them. When the hiring expense report was analyzed, it was found the hiring
expense was more than double the amount spent by other firms in hiring the same
number of people. When an inquiry was made, it was determined that the manager
committed some errors of judgement. For instance, he used an expensive advertising
layout in a newspaper when a simple message will do. It was also revealed that the
absence of hiring plan contributed to the high cost of hiring.
The Foundation for Planning

Types of Planning
Managers at various levels in a company engage in two types of planning: strategic

planning and operational planning. Both types of planning add value to the company.
Strategic Planning
Strategic planning sets the goals, purpose, and direction of a company. The top-
level engineering managers (i.e., chief executive officer [CEO], chief technology
officer, and vice president of engineering) are usually involved in strategic planning
for the company (Johnson 2015; Fogg 2010).
Strategic planning focuses on identifying worthwhile future activities. Specifically,

strategic planning ensures that the company applies its resources—core
competencies, corporate know-how, proprietary technologies, skilled manpower
resources, business relationships, and so on—effectively to achieve the short- and
long-term goals of the company (Akdeniz 2015). The company’s future is painted on
a wide canvas. The plan must have much foresight. It deals with questions such as
What are the company’s mission, vision, and value system? The mission statement
of a company defines why the company exists in the first place, which market
segments it serves, and what it will do to serve them. The vision statement spells out
the aspirations of the company with respect to its asset size, market position, business
standing, ranking in industrial sectors, and other such metrics. The value system is
the externalization of five or six specific corporate values emphasized by the company.
Some typical values favored by U.S. industrial companies include quality, innovation,
social responsibility, stability, honesty, quality of life, and empowerment.
 What business should the company be in?

 Does the company need to change its product portfolio, market coverage,
production system, or service capabilities? If so, why? Strategies of constant
change develop a chameleon culture in which the organization seeks to
reinvent itself to become leaner, flatter, more flexible, and more profitable.
 What specific goals (such as profitability, market share, sales revenue,
technology leadership position, global penetration, etc.) should the company
accomplish, by when, with what investment, and by which core competencies?
 What business networks should the company establish via supplier alliances,
co-marketing partnerships, production joint ventures, and other forms of
collaboration?
 Which new products should the company offer?
 What core technologies should the company maintain, develop, acquire, or
utilize?
 Which performance metrics are to be used for monitoring the company’s
progress?
 How should the company tackle the daunting challenge of making innovation
central to the company’s products, processes, or relationships?
Science, technology, engineering, and math (STEM) professionals who participate

in such planning activities know that they need to set aside their parochial technology
mindset and look at the broader picture. They also know that they need to keep lots
of iron in the fire and it is whichever ones are coming to fruition that they go with.
The horizon of strategic planning is usually spread over 5–10 years, although it may
be reviewed at more frequent intervals to adjust to potential changes in the
marketplace.
Operational Planning
Managers at both middle level (managers and directors) and lower level
(supervisors and group leaders) perform operational planning to define the specific
tactics and action steps needed to accomplish the goals specified by top management
(Duggan 2011). Managers and directors break down the company goals into short-
term objectives. Supervisors and group leaders specify events and tasks that can be
implemented with the least amount of resources within the shortest period of time.
Operational planning ensures that the company applies its resources efficiently to
achieve its stated goals. Questions considered in operational planning include the
following:
 What is the most efficient way of accomplishing a project with known

objectives?
 What is the best way to link up with three top suppliers in the marketplace for
needed parts?
 What are the operational guidelines for performing specific work?
Operational planning involves a process of analysis by which a corporate goal or a

set of corporate intentions is to be accomplished by performing a group of action
steps. These steps are then formalized for easy implementation. Furthermore, the
consequences for the business are articulated at each step. Operational planning
focuses on the preservation and rearrangement of established categories (e.g., major
strategies defined by upper management, existing products, and organizational
structures). Operational planning is essentially a programming task that is aimed at
making the attainment of various strategic goals possible. Operational planning is also
called platform-based planning because it extrapolates future results from a well-
understood, predictable platform of past experience. The results of such planning are
predictable because they are based on solid knowledge rather than assumptions.
Planning Roles of Engineering Managers
Engineering managers at the middle and low levels will predominantly devise
operational plans to achieve the short-term goals of the unit or department. As
engineering managers’ move up the corporate ladder, they are expected to participate
increasingly in strategic planning, with emphasis placed on technology, product, and
production planning. They may find it useful to follow the planning guidelines listed
next, in order to add value to the company.
It is important that engineering managers spend time and effort to actively assist
their direct superiors in planning. These tasks may include (1) analyzing hard data
(industry, competition, and marketing); (2) offering alternative interpretations of the
data available; (3) raising insightful questions to challenge conventional assumptions;
and (4) communicating the resulting outputs of planning—programs, schedules, and
budgets—to help effectuate buy-in from others.
To optimally benefit from the knowledge, expertise, and insights of staff,

engineering managers are encouraged to engage their staff and other employees in
the planning activities.
It is quite self-evident that engineering managers need to perform a number of

planning tasks:
Time Management
All managers need to plan and prioritize their personal daily tasks (such as problem
solving, staff meetings, task specification, progress monitoring, and performance
evaluation), according to the value each task may add, so that high-value tasks are
completed before others. This is to maximize the value contributed by their daily
activities (Feddox 2014). Also to be included in the daily to-do list are tasks such as
networking, continuing education, and scanning emerging technologies, which are

deemed important for advancing one’s own career.
Projects and Programs
Engineering managers need to plan projects and programs assigned to them by

upper management. In doing so, they need to fully understand the applicable project
objectives, the relevant performance metrics used to measure outcome, and the
significance of this outcome to the company. They should carefully select staff
members with the relevant skills, expertise, and personality to participate in the
project and seek their inputs regarding tasks, resource requirements, preferred
methodologies, and task duration. They should then integrate all inputs to draft a
project plan and distribute the plan among all participants to iteratively finalize the
relevant details. These details include budgets, deliverables, and dates of completion.
Managers must also secure authorization from upper management before initiating
work related to the projects and programs.
Corporate Know-How
The preservation of corporate know-how is of critical importance to the company

for maintaining and enhancing its competitiveness in the marketplace. Corporate
knowhow comes in many types and forms. Certain documentable knowledge, such as
patents, published memoranda, operational manuals, and troubleshooting guides, is
easy to save. Others, such as insights related to procedures or perfected ways of
designing the specific products and services of the company, may require extra efforts
to preserve. Managers should plan to systematically capture, retain, and widely
disseminate such know-how to maximize its use within the company. Certain other
cognitive knowledge is typically retained mentally by the experts. Managers need to
find effective ways to induce such experts to willingly externalize this tacit knowledge
for use by others in the company.
Problem-solving expertise is yet another type of corporate know-how worth

preserving. Typically, engineering managers are busy resolving conflicts that may
arise from disagreements in task priorities, personality conflicts, customer complaints,
interpretation of data, and other conflicts. Managers need to solve these problems
promptly. They should be mentally prepared to jump from one task to another to
handle such time-sensitive issues. What should be planned under these circumstances
is the preservation of the learning experience garnered from each incident so that the
company will become more efficient in solving similar problems in the future.
Proactive Tasks
Engineering managers should plan to devote their efforts to proactively pursue

certain other tasks. These tasks include
 Utilizing new technologies to simplify and enhance the products and services
of the company.
 Creating business networks and searching for partners to form mutually
beneficial alliances.
 Offering new or enhanced services to customers (e.g., self-service, an
information on-demand system, and an Internet-based inquiry center).
 Initiating new programs to promote healthy customer relationships.
 Developing novel products/services with distinguishable attributes (e.g.,
product customization to serve customers better, cheaper, and faster).
 Reengineering and simplifying specific operational processes to increase
efficiency.
 Outsourcing specific tasks to augment cost-effectiveness and to reduce time to
market.
Planning Concepts
Tools for Planning
Engineering managers utilize a number of tools to prepare strategic plans. Some

of these tools produce hard data, whereas others offer qualitative insights into specific
subject areas (ASQ Quality Press 2011). The following are examples of some useful
planning tools:
Market Research
Market research applies a number of tools to discover the preference of customers

with respect to the company’s products, services, marketing strategy, product prices,
competitive strengths, and brand reputation in the marketplace. Examples of such
tools include polling by questionnaires, product concept testing, focus groups, and
pilot testing. The outputs of market research help assess the company’s current
marketing position and future growth opportunities in the marketplace (Burns and
Bush 2013; Malhotra 2014).
SWOT Analysis
SWOT is the abbreviation for strength, weakness, opportunities, and threats. Each
company has strengths and weaknesses in comparison to its competitors (Mcguire
2014). Because of the company’s strengths or core competencies, there may be
opportunities offered in the marketplace that the company ought to exploit
aggressively. On the other hand, because of the strengths of its competitors and the
conditions in the marketplace, the company may be subjected to certain future
threats. Such potential threats could be the result of technology advancement,
business alliances, marketing partnerships, and other such step changes accomplished
by the competition. New governmental regulations and policies may also affect the
company’s business in the future.
A systematic monitoring of publications—patents, technical articles, news releases,

and financial reports—represents an initial step in conducting a competitive analysis.
A well performed SWOT analysis will bring to the fore an assessment of the company’s
current position. As such, the SWOT analysis procreates a road map by which a
company can make informed decisions about improving its core competencies to meet
its current and future business and operational needs. The analysis answers questions
such as (a) What does the company have in place today? (b) In which direction is the
company headed in the next three to five years, and (c) What is the company’s
process of managing changes?
Financial What-If Analysis and Modeling
Spreadsheets are useful in modeling the financial performance of an operation.

Financial statements (such as an income statement, balance sheet, and funds flow
statement—see Section 7.3) are usually modeled in a spreadsheet program. What-if
analyses are readily performed to discover the sensitivity of the company’s financial
performance relative to the changes of specific input variables. In addition, such
analyses permit the verification of various assumptions incorporated into the financial
models (Ragsdale 2014).
Most businesses have inherent risks due to the unpredictable nature of the
business climate, the liquidity of financial markets, certain governmental regulations
and international trade policies, currency stability, customer preferences, competition
in the marketplace, disruptions induced by new technologies, and other factors. What-
if analyses and Monte Carlo simulations (see Section 6.4) may be applied to assess
the impact of some of these risk factors on a company’s business.
Scenario Planning
Scenario planning defines the major forces that may move a company in different
directions, maps out a small number of alternatives futures (scenarios), defines
narratives to describe these scenarios, and develops options for managing within
these future worlds (Garvin and Levesque 2006). Figure A shows the scenario planning
process involving a number of components.
The key focal issue represents a significant upcoming decision or a strategic

uncertainty. The driving forces are themes and trends that are most likely to influence
the key focal issue in fundamental ways. Examples include social dynamics,
economics, political affairs, and technology. Some of these driving forces are more
important than others. The top two and most influential of these driving forces
represent critical uncertainties. Using critical uncertainties as axes, a 2 × 2 map, the
scenario framework, is created. This 2 × 2 map defines four quadrants, the four
futures, which will influence a company’s future directions. Each of these four
scenarios is then written up as a story. Planning participants then deliberate on the
implications of these four stories with respect to the key focal issue at hand. This
group’s deliberations will likely result in the identification of the company’s strengths
and weaknesses, as well as define strategic options for future directions. Early warning
signals are leading indicators that highlight the likely emergence of one scenario or
another. These signals must be constantly monitored in order to initiate a strategic
reevaluation.
Key focal issue
Driving forces Early warning

signs
Implications
Critical uncertainties and options
Scenario framework Scenarios
Narratives
FIGURE A Scenarios planning process.
Why do we limit ourselves to only two critical uncertainties in the scenario planning
process? This is possibly because business people will typically use two-dimensional
diagrams (2 × 2 maps), which are easily transposed onto paper to describe product
positioning, product classification, and business-related issues. Engineers are capable

of envisioning three-dimensional diagrams. Thus, the aforementioned concept could
be easily extended to three key uncertainties, providing a total of 8 (=2^3) scenarios
for possible consideration when each future is affected by three uncertain driving
forces. Three uncertainties are more realistic than two in evaluating the future of
businesses. Molecular physicists are trained to define the “state” of molecules by
seven variables, namely, three spatial coordinates, three velocity components, and
one-time variable. They typically think in seven dimensional space and use a seven-
dimensional distribution function to define the state of a molecule. Thus, one can
easily envision a scenario defined by seven (not two) uncertainties, offering many
more scenarios for consideration. Engineering managers should try to use at least
three key uncertainties for scenario planning. Table 1 shows eight futures influenced
by three uncertainties.
TABLE 1Eight Scenarios Based on Three Critical Uncertainties
# Uncertai Uncertai Uncert

nty 1 nty 2 ainty 3
1 High Low Low
2 High High Low
3 Low Low Low
4 Low High Low
5 High Low High
6 High High High
7 Low Low High
8 Low High High

As pointed out by Schoemaker (1995), scenario planning can capture a whole

range of possibilities in rich detail. It is a disciplined method for imagining possible
futures. Scenario planning reduces a lot of data into a limited number of possible
states. Each scenario tells a story about how various factors interact. Scenario
planning is different from the following:
Contingency planning examines only one uncertainty: What if we don’t get the patent?
Contingency planning starts with a base case and considers an exception to it (what-
if analysis). Scenario planning, on the other hand, explores the joint impact of various
uncertainties that take place concurrently. It tries to determine the new state, as a
result of the concurrent changing of several independent variables.
Sensitivity analysis examines the effect of a change of one variable: While keeping all
other variables constant. This approach is effective for monitoring small magnitude
changes in order to determine new states.
Not the same as complex computer simulations: Scenarios can include elements that
cannot be modeled, such as subjective judgments.
Whenever the future needs to be assessed, scenario planning is applicable. It applies

generally to decision-making under uncertainty. The methods of developing scenario
planning include the following:
1. Define the scope

2. Identify the major stakeholders
3. Identify basic trends
4. Identify key uncertainties
5. Construct initial scenario themes
6. Check for consistency and plausibility
7. Develop learning scenarios
8. Identify research needs
9. Develop qualitative models
10. Evolve toward decision scenarios
Scenarios should describe generically different futures rather than variations on

one theme. Schoemaker’s (1995) article contains an example of scenario planning for
an advertising agency.
Garvin and Schoemaker (2006) pointed out that “there is no right or wrong
scenario.” Scenario planning has a number of advantages and disadvantages. The
advantages are
 Prepares managers for multiple, alternative futures.

 Creates a common vocabulary.
 Encourages strategic conversations.
 Forces managers to articulate critical uncertainties.
 Considers the interactions between these uncertainties and the likely
implications.
 Legitimizes divergent ways of thinking that are essential for success.
What are some of the disadvantages of scenario planning? These could include:
Is scenario planning no more than “pipe dreams and happy talk?”
Does it encourage wishful thinking and lead to a desire for one particular future and
outcome?
Is the absence of a tight link between scenario planning and formal goal setting and
action planning a cause for concern?
Performance Benchmarks
Performance benchmarks are those that have been successfully applied by

successful firms in the same or a related industry. When undertaking planning
activities, it is important to define these benchmarks for the purpose of measuring
corporate progress. Hubbard (2014) offers an excellent set of broad-based
benchmarks, which include:
Customer-related measures: Product defects, just-in-time delivery, life-cycle product

cost, customer satisfaction score, order processing efficiency, percentage sales from
new customers, service quality, time taken between orders and product delivery, and
so on
Process-related measures: Time to market (i.e., the lapse of time from the initiation
of product design and development to product delivery to the marketplace), quality
standards, unit product cost, core competence development, labor hours per product,
and so on
Financial measures: Gross margin, net income-to-sales ratio, current ratio, sales per
employees, return on equity, sales growth rate, market share percentage, inventory
turn ratio, and so on
Employee-related measures: Turnover ratio, employee satisfaction score, skill building

and development expenses per employee, and so on
Competition-related measures: Market share, cost of innovation, acquisition cost per

new customer, number of new products commercialized per year, and so on
A large number of these quantitative metrics are available either from the financial
statements of the companies in the same industry or from public sources such as (1)
banks that offer loans to companies in a specific industry, (2) financial institutions that
analyze and compare companies’ performance on behalf of investors, and (3) service
organizations that offer the credit ratings of firms seeking debt financing.
These metrics serve well as industrial benchmarks against which to assess the current
status of a specific company and to define its new strategic direction.
Example
Quality is usually defined differently by different people in a company. Explain why.

Which quality definition is the correct one for the company to adopt?
Answer
Different people in a company may have different interests and perspectives in

defining quality. Examples are shown here:
Production: Quality is the reject rate and deviation from specifications (view of a
production engineer).
Value based: Quality is defined in terms of price and costs (view of a marketing
person).
User based: Quality is the degree to which a product satisfies the customer’s needs.
Customers do not appreciate less or more quality than they need (view of a customer).
Product based: Quality is related to the number of attributes offered by a product

(view of a product designer).
For the company to succeed in the marketplace, quality is in the eyes of the beholder.
The user-based definition is preferred.
Technology Forecasting
Technology forecasting is of critical importance to those companies whose
products are composed of high-technology components. Companies must constantly
examine, monitor, and apply emerging technologies to enhance business
performance. (Porter et al. 2011). Engineering managers need to understand the
value that any of these emerging technologies (e.g., big data, cloud computing, the
Internet of Things, mobile communications, and social media practices), may have on
the products and services offered by their employers and plan accordingly.
Another technological example is the speed of computing. It is almost a certainty

that the computing speed will continue to increase over time. The question for
engineering managers is as follows: How can business benefit from such
advancements? Computing speed may be used advantageously in computationally
intensive problems, whose solutions of finer granularity provide value to the business.
Here are several examples that illustrate how a refined granularity can help:
Data mining applications related to customer relations management may be of

direct benefit to business. Assuming that customer data (e.g., prices paid, items
bought, purchasing habits, and payment methods) are collected and available, a
detailed analysis could lead to an in-depth understanding of customer behavior, not
available heretofore, thus allowing companies to structure customized selling and
marketing programs to achieve better customer satisfaction, enhanced brand loyalty,
and improved company profitability.
Refined modeling of key components in turbomachinery (e.g., compressors,

blowers, and pumps) by using computational fluids dynamics programs could raise
aerodynamic performance and reduce energy consumption.
Plant operations groups typically have accumulated a significant amount of data,

observations, and experience in maintaining and troubleshooting equipment and
facilities. Such information is dispersed widely, difficult to redeploy, and remains
useless. A data mining application could help in getting the information organized and
ferreting out valuable knowledge from the wasteful piles of raw data. The application
of such knowledge could lead to productivity enhancement in plant operations.
Sophisticated computer models could be devised to impact-test automobiles,

instead of crash-testing expensive vehicles at speeds of up to only 40 miles/hour, in
order to design better, safer, faster, and cheaper cars.
It is quite certain that engineering managers will be able to envisage many other
computationally intensive problems that can be processed to reap business benefits.
Product Life-Cycle Analysis

Every product has a life cycle that moves typically through the stages of initiation,
growth, market saturation, and decline (Kloepffer and Grahl 2014). Engineering
managers need to examine the life cycles of all products marketed by their
enterprises. Doing so will guide them in introducing new products or product
enhancements in a timely manner in order to sustain company profitability.
Tools for operational planning include the following: Microsoft Project 2013,
Enterprise Project Management Timeline, critical path method (CPM), program
evaluation review technique (PERT), and others.
Planning Activities
The activities of planning involve strategic and operational planning. Strategic
planning requires forecasting, action planning, and issuing policies. Operational
planning necessitates action planning, issuing policies, and establishing procedures.
Some planning activities are proactive, others are reactive in nature.
Forecasting
The objective of forecasting is to estimate and predict future conditions and events.
All forecasting activities center on assessing future conditions in technology, products,
marketplace, and other factors affecting the business success of the company (Ray
2015; Hyndman and Athanasopoulos 2013). The marketplace revolves around
customers, competition, economy, global supply chains, human resources, capital,
and facilities.
Forecasting helps to define potential obstacles and opportunities. It sets boundaries

for possibilities to help focus on specific future conditions, define worthwhile
objectives, promote intergroup coordination, provide the basis for resources allocation
(manpower, budget, facilities, and business relations), and induce innovation through
forecasted needs (Zhu and Fung 2010).
Forecasting may be implemented by using the following steps:
1. Identify: Critical factors that have the most profound effects on the company’s
profitability.
2. Determine: The forecasting horizon as short term (1 year), intermediate term
(2–5 years), or long term (5–10 years).
3. Select: Forecasting methods such as
Mechanical projection. The future is projected assuming essentially the same

characteristics as in the past.
Analytical projection. The future is estimated based on an extrapolation of the past

(trend analysis). Statistical tools such as linear or nonlinear regression, moving
averages, exponential smoothing, time series, and others may be applied.
Forecast: Future eventualities and their likelihood of occurrence.
Prepare: The forecast, as well as the pertinent database.
Adjust: Forecasts regularly to incorporate pertinent changes related to assumptions

and desirable results.
Ensure: Understanding and acceptance by all parties affected by the forecast.
Several observations are worth noting. Major economic events such as prices, wages,
raw materials, and so on tend to change gradually. The farther an event is projected
into the future, the greater the probability of significant deviations between the
forecast and reality. Certain future events tend to result from current and past
occurrences, as long as there are no disruptive changes in technology or society, such
as wars, natural disasters, or major incidents. The future may be planned with
detailed, factual knowledge of the present and the past under those conditions. It is
important to screen ideas by using proper criteria that are consistent with the
company’s objectives, technical capabilities, financial viability, and marketplace
compatibility. Useful inputs may be offered by customers, salespeople, production
employees, service clerks, and others who possess intimate knowledge of specific
subjects.
Engineering managers are likely to get involved primarily in technology forecasting.

As discussed before, forecasting the impact of new technologies on future businesses
is particularly difficult. For example, in the past, few companies understood the
significance of the Internet to company operations and the marketplace. Questions

like those enumerated next did not have clear answers:
What will be the impact of broadband technology (cables, optical networks) to

communications?
How will nanotechnology affect engineering activities such as product design and
equipment operation in the future?
Will the next wave of new products be smart appliances and intelligent devices?
What happens if processors get more powerful and intelligent devices get smaller and
more mobile?
What about the molecular switching devices that Hewlett-Packard is said to be

working on that could lead to computational devices about one million times smaller
than those we have today?
What will be the impact of “pervasive computing,” “big data analytics,” “cloud
computing,” “mobile computing,” and “open innovations” on consumer markets?
How quickly will personal computers (PCs) lose their market value, once alternative
devices that allow customers to access the Internet, get and send messages, purchase
goods and services, activate entertainment programs online, and control home
appliances remotely become widely available?
How will the new technologies related to intrinsic and extrinsic smart materials, which
exhibit sensing and other capabilities, impact on the industrial product design in the
future?
To forecast the impact of new technologies, engineering managers must be properly

prepared. Some business researchers portend that people with broad perspectives
and variable professional experience and exposure may have a better chance of
accurately forecasting the impact of emerging technologies, market trends, and other
future conditions that require “foresight.” Teams whose members have diversified
backgrounds in engineering, product design, manufacturing, marketing, service, and

sales are said to be better equipped in handling technology forecasting that could
benefit from the divergent experience and insights of composite teams.
Engineering managers whose backgrounds are broad-based are likely to be more

successful in technology forecasting if they are supported by teams that also have
diverse experience.
Example
The U.S. economy is shaped by a number of factors. The ongoing conflicts in the
Middle East and associated global anxiety rankle the business environment and
influence employment and consumer spending. Correctly reading trends in the
economy can make or break a business. Where can an engineering manager find data
that could help predict the direction of the economy?
Answer
There are leading and trailing indicators for the economy. The 2008–2009 U.S.
recession differed from others in its cause, severity, and scope. According to a recent
assessment published in the literature, many of the commonly used indicators did not
forecast well. These indicators include stock prices, unemployment claims, housing
starts, orders for new capital equipment, and consumer sentiment.
Gene Sperling, who served as director of President Clinton’s Council of Economic

Advisors, offers some advice for business leaders to get ahead of the competition by
becoming their own economists (Sperling 2003). Specifically, he suggests that the
following set of indicators be used: (1) CEO opinions, (2) temporary jobs, (3)
consumer spending, (4) bank loans, (5) semiconductors, (6) commercial structures,
and (7) housing markets.
Action Planning
Another important activity related to planning is action planning, which is the process
of establishing specific objectives, action steps, and a schedule and budget related to
a predetermined program, task, or project (Kerzner 2013). Action planning helps to
focus on critical projects that need attention and action. The identification of critical
projects enables the company management to pay attention primarily to planning for
deviations that may arise—the principle of management by exception. Furthermore,
action planning states specific results to be accomplished. Defining results to be
accomplished requires the planner to make judicial selection and exercise judgment.
In addition, action planning provides standards as milestones that facilitate control
and clarify accountability for results. It also permits an effective delegation of
responsibilities (who is responsible for what results), encourages teamwork, and
ensures an evaluation of the overall performance of the program, task, or project on
a continuous basis.
Action planning mandates engineering managers to take the following specific steps:
1. Analyze critical needs: Critical needs are those associated with staff
development, staff maintenance, and staff deficiency, as well as those related
to special assignments. Managers define these needs by reviewing standards
related to position charters, duties, management expectations, and company
goals. Short-term needs must be in balance with long-term needs.
2. Define specific objectives: Specific objectives need to be defined to satisfy the
critical needs. The results statement (who will attain what desirable results by
when) must be specific. Establishing objectives predetermines the results to be
accomplished.
3. Define standards: Standards measure the attainment of the objectives. The
standards should preferably be quantitative in terms of performance ratios,
percentages, cost figures, resource parameters, and other factors in order to
be measurable (Kaplan and Norton 1996).
4. Define key action steps: The definition of key action steps establishes the
sequence and priority of steps required to attain objectives. Specifically, major
steps are lined up in the order in which they are to be performed; this list
includes the evaluation of risks for the steps planned, the definition of
contingency steps to ensure the expected results, and the specification of who
is responsible for each step and who is accountable for achieving the target
value associated with each step.
Action steps must be reasonably implementable. After the expected results
are defined, engineering managers should plan these steps with the active
participation of the workers involved to benefit from their creativity and
expertise in the subject matter.
5. Create a schedule: Scheduling establishes both a time sequence for action
steps and the interrelationship among the steps, as some might be
prerequisites for others. It is advisable to estimate the optimistic (earliest), the
pessimistic (latest), and the most likely (most probable) dates of possible
completion of each step. Doing so will permit a more realistic modeling of the
project schedule.
Sufficient scheduling flexibility should be included to account for
contingency—more for projects related to new development and less for
routine design and analysis work. Contingency refers to the slag and cost
buffers introduced to account for undefinable, yet generally anticipated,
deviations from the plan.
The most important outcome of the scheduling effort is the definition of the
project or program completion date. The engineering manager, as the leader,
is accountable for completing the project or program on time.
6. Develop a budget: Budgeting allocates resources necessary to accomplish
project objectives. The planner determines the basic units (man-hours, man-
weeks) to accomplish each task, estimates the total resources needed for the
project, and adds a contingency to the total amount for potential deviation
(e.g., 7%–10% of the total budget, dependent on the customary percentages

used in each industry) to arrive at a total budget.
The budget estimate is typically the basis for seeking management approval
for the project or program. The project leader is accountable for completing
the project or program within the approved budget.
For complex projects that involve many participants (e.g., peer departments, external
suppliers, and outsourcing service organizations), project management tools such as
PERT or CPM may be applied. These tools produce time lines, graphically diagram the
tasks network to facilitate monitoring and control, and determine the tasks linked
along the critical path. Consequently, the shortest time in which the project can be
completed can be determined. Managers are then reminded to monitor these critical
path tasks carefully in order to avoid project delays.
A well-developed project plan serves the purpose of promoting communication,

monitoring progress, evaluating performance, and managing knowledge.
Issuing Policies
For companies to operate smoothly and consistently, corporate rules and regulations
are used to prescribe acceptable practices. Company policies address important issues
such as employee hiring and termination, equal employment opportunity (EEO)
policies, annual performance appraisals, savings plans, benefits, medical insurance,
pension plans, sick leave, safety, contact with representatives of competitors, and
other issues. At the departmental level, specific rules may be defined to regulate tasks
that are repetitive in nature, such as filing reports after each completed business trip,
submitting monthly or quarterly progress reports to summarize achievements and
preserve new lessons learned, and outlining future work (i.e., attending scheduled
staff meetings, publishing engineering or scientific articles, participating in
professional and technical conferences), and other tasks.
Managers may write policies to offer uniform answers to questions of common

concern. In general, policies are continuing directives promulgated to address
repetitive issues, tasks, and problems in an organization. Policies are useful for
predeciding answers to basic repetitive questions, capturing the distilled experience
of the organization, saving management time, and facilitating delegation. Issuing
policies is a part of the manager’s planning responsibilities.
To be effective, a policy must have certain common characteristics, such as: (1)
applies uniformly to the organization (or specific engineering unit) at large; (2)
remains relatively permanent, unless and until repealed; (3) fosters the objectives of
the company; (4) frees managers and employees to focus on important matters; (5)
encourages effective teamwork by reducing disagreements, conflicts, and differences
in interpretation; and (6) is issued by top management or authorized managers with
perspective, balance, and objectivity.
Establishing Procedures
Companies perform many important tasks such as product design, plant operation,
project management, equipment installation, facility maintenance, manufacturing,
system engineering, parts procurement, product delivery, customer service, and
others. The specific methods by which these tasks are performed represent the
valuable corporate knowhow employees have learned to perfect. Over time,
companies want to preserve these “tried-and-true” procedures in manuals.
Developing procedures is of critical importance to a company, not only because doing

so will preserve the best way to perform repetitive work (to achieve high productivity),
but also because doing so will accomplish the following: (1) provide the basis for
method improvements; (2) ensure standardized action (such as quality control,
resource saving, and work reproducibility); (3) simplify training; and (4) retain
corporate memory, such as know-how, insights, knowledge, heuristics, proven safety
practices, problem-solving techniques, and so on.
Establishing and preserving procedures is part of the planning responsibility of

managers. If generated in suitable formats, such procedures could be widely applied
within the company and among its business partners to garner competitive
advantages in the marketplace. Techniques for developing procedures include
Concentrating on procedures for critical work that is in high demand, repetitive, and
time-consuming.
Charting graphically the work required—inputs, workflow, outputs, skills, and

resources.
Reviewing work characteristics carefully in order to decipher (a) why (is the work
really necessary?), (b) what (results are to be obtained?), (c) when (is the best time
to do it?), (d) where (is the best place—group, station, facility, or equipment—to do
it?), (e) who (is the person with the relevant training to do it?), and (f) how (significant
might be the impact of its outcome?).
Proposing procedures in the context of existing objectives, policies, and programs by

keeping the procedures to a minimum; this will avoid restricting employee imagination
and incentive, as well as ensure consistent applications to minimize deviations.
Defining improvements to procedures and updating them regularly.
Formulating the procedures in writing.
Communicating with all affected parties to ensure understanding and acceptance.
Strategies for Managing Technology

Who Should Do the Planning?
Planning is best accomplished by those who have direct knowledge of the specific
subject matter involved. In the past, strategic planning was accorded emphasis and
attention by the top management of an enterprise. Company after company set up
high-level corporate planning departments made up of full-time planners to devise
business strategies. This approach failed to generate the expected business results.
As documented in the literature, one of the key weaknesses of this approach was that
the strategic planners, while being superior analysts of hard business data, were
outsiders insofar as the various specific business functions (marketing, production,
engineering, and procurements) were concerned. What was not apparent at the time
was the fact that planning new strategies for the future required both hard data and
intuitive assumptions. The success of the decision to introduce assumptions, and the
extent to which these assumptions could be validated, depended very much on the
planner’s hands-on management experience, intuitive know-how, and in-depth insight
of the specific business activities involved. As such, many plans devised by these
strategists were poor. Furthermore, business managers in operating departments did
not wholeheartedly embrace the plans envisaged by these outsiders. Since then, many
companies have abolished their corporate strategic planning departments altogether
and have reassigned this important planning function to the leaders of the business
units themselves.
The moral of the story is that the most effective way of creating strategic plans for
specific businesses or activities is to entrust such planning to those who are intimately
involved with the particular businesses and activities. This paradigm is consistent with
the empowerment doctrine, being the current industrial best practice, whereby
decisions are delegated downward to lower-level persons who have direct knowledge
and in-depth understanding of the subject matter at hand.
Some Specific Advice on Planning
Good up-front planning is essential for any company to achieve its desired corporate
objectives. Managers need to pay sufficient attention to planning activities in order to
make sure that certain pivotal factors are sufficiently addressed in the strategic or
operational plans they formulate.
Assumptions
Plans are typically built on both hard data and assumptions. Assumptions are usually
based on extrapolations of past experience and intuitive projections into the future. It
is important for managers to constantly seek and interpret additional resources and
insights to verify their assumptions. This is to ascertain that the plans they introduce
are built on an increasingly solid foundation.
Resistance to Change
Any plan is worthless unless its objectives are achieved through successful
implementation. Implementation requires dedicated people who are supportive of and
ardent about the subject matter involved. Managers need to take into account the
suitability of people, including their background, personality, training, mental
flexibility, interpersonal skills, collaborative attitudes, adaptability, and emotional
attachments to specific ways things are done.
Most plans contain activities related to a change of the current status. Unfortunately,
most people resist change, particularly sudden changes. Change may induce business
instability, technology obsolescence, organizational restructuring, and other unwanted
disruptions. People may be more amenable to gradual changes if such changes occur
at a rate that they can understand and accept.
Managing change is a challenging task for managers. Managers need to recognize

early that change is coming. They may want to delineate the change in detail and
analyze the implications of the change as a way of preparing the staff and allowing
them to become gradually accustomed to such a change.
By paying close attention to how changes are being communicated to the staff,
managers may be able to minimize the resistance to change and gain support for the
implementation of new plans. It is helpful for the managers to isolate and identify
areas of threats and opportunity. If needed, they should apply contingency plans for
handling threats, but focus on opportunities that will advance the company business.
Benefit versus Cost

When planning, managers need to be guided by the expected value that a given
project or program may produce. Low-value projects justify the commitment of low-
level efforts, whereas high-value projects justify the allocation of high-level efforts.
Efforts applied should be commensurate with the value added by the expected results.
Otherwise, corporate resources may be wasted. The saying “things worth doing are
worth doing well” is valid only to the extent justifiable by the expected value.
Small but Sure Steps
To be effective in planning, managers should (1) identify clearly the desired end
results and the series of small steps required to reach them; (2) allow a timely control
and midcourse correction, if needed; and (3) aim at attaining a series of small
progressions (or continuous improvements) that are more acceptable in many old-
style companies than one large achievement (or a step change) after a long period of
time. On the other hand, some start-up companies with an entrepreneurial spirit may
be able to exercise patience, take risks, and go for “blow-the-roof-off” breakthrough
technologies and step-change products or services. Managers need to adjust
accordingly.
Contingency Planning
Contingency planning represents the definition of predetermined back-up steps to

take, if and when a specific action step, as originally planned, fails to deliver its
anticipated outcome.
As discussed before, strategic planning for the future entails considerable risks and
uncertainties. Some of the changes in future conditions are unpredictable. Yet,
strategic planning for the future must be done today. Besides striving for acquiring
hard data and soft information to continuously validate the assumptions introduced in
the planning, managers should take an additional risk-modulating step: study
exhaustively the sensitivity of various assumptions to the company business and
incorporate contingency steps, including fallback positions, in order to minimize the

adverse impact of questionable assumptions (Nokes 2014).
Commitment
Managers need to secure company commitment before any plan can be implemented
successfully. Company management must declare their intentions and their readiness
to allocate resources needed to achieve the planned objectives. Without a firm
company commitment, nothing of value will emerge from the planning efforts.
Example
Joe Engineer took a graduate school course at SUNY-Buffalo where he learned the
importance of planning. Joe knows that luck plays a big role in one’s life. But he is
convinced that proper planning will help him to have an orderly progression in his
career. He thinks that it would be cool to become a CEO of a publicly owned,
multinational company at the age of 60 and retire at 65 with a net worth of $5 million.
He wants some guidance with career planning. How can you help him?
Answer
It is advisable for Joe Engineer to follow a number of planning steps, enumerated

here:
1. Set objectives and specify subgoals: Before starting the planning process, we need
to introduce an important assumption. In order for Joe Engineer to be entrusted with
a given management position in a publicly held major company, he needs to have
acquired and successfully demonstrated certain business management capabilities
beforehand. Obviously, this assumption may not be valid for small and medium-sized
companies that are privately held.
The CEO of a major company must be familiar with many functional areas, such as
(1) strategic management, (2) business management, (3) operational management,
(4) project or program management, (5) engineering management, (6) production
and manufacturing, (7) marketing management, (8) financial control, and (9)
globalization. The future CEO must be able to demonstrate sufficiency in various skills,
such as
 Public speaking and writing

 Business analysis and planning
 Public relations
 Problem solving and conflict resolution
 Interpersonal skills
 Negotiations
 Business relations development
 Other skills
Therefore, for Joe Engineer to qualify for the CEO job, he must have garnered useful
management experience, possibly as a company president a few years back. Future
capabilities are, by and large, based on past experience.
Applying such a logic in a backward-chaining manner, Joe Engineer could readily

establish a set of milestones in his plans:
 Corporate president at 55
 Division president at 50
 Vice president at 45
 Director at 40
 Manager at 35
 Supervisor at 30
 Group leader at 25
Develop action plans: A forward chaining plan, which moves from the present to the
future, should be considered by Joe Engineer. As examples, the following plan
illustrates the qualifications that should be built up when advancing from one stage
to another:
Preparation (by a certain date)
Take steps to collect pertinent career development references and acquire

perspectives.
Talk with experienced engineers to obtain insights related to the costs and benefits of
the targeted objectives. The advantages and disadvantages of being a manager are
well known: power, prestige, and money versus travel, 50–60 hour workweeks, job
pressure, office politics, balance between work and home, and related factors.
Understand one’s own career objectives and the requirements to succeed. What are
the “success factors” involved?
Be aware of one’s own strengths and weaknesses, personality type, value system,
personal requirements for happiness.
Confirm desirable objectives of moving into the managerial career path.
Group leader
Get a master of engineering degree to demonstrate technical competence (by a

certain date).
Become well versed in engineering management concepts and practices (e.g., take
courses or training).
Practice good interpersonal skills by doing volunteer work.
Network inside and outside the company (join technical societies, attend technical
conferences, publish technical papers, etc.) and know some professional people well.
Supervisor
Seek training on supervision and practice teamwork with dedication.
Take advanced technical courses, if needed, to help become established as a technical

leader.
Broaden into marketing, production, and sales through business interactions.
Function as a gatekeeper for technology. v. Demonstrate innovative

capabilities.
Continue networking and become known to many others inside and outside the
company.
Attain recognizable technical achievements.
Demonstrate managerial potential.
Become known as a good problem solver.
Manager
Demonstrate prowess in strategic planning, operation, and all other engineering

management skills.
Demonstrate capabilities in interacting with sales, marketing, production, service, and

customers.
Show success in initiating and implementing new technology projects that affect the
business success of the company.
Achieve organization-wide recognition.
Form networks with decision-makers at various levels.
Director
Become widely known in one’s own industry.
Participate actively in industrial trade and technical conferences.
Demonstrate leadership in strategic planning affecting the company.
Be recognized for operational efficiency.

Make major contributions to direct the company’s businesses.
Master the technology–marketing interface.
Lead the company in applying emerging technology to constantly strengthen

competitiveness.
Represent the company well to the press.
Have real friends in high places.
Vice president
Joe Engineer is encouraged to fill in the remainder of this plan as an exercise.
Budget and commitment
Invest the proper amount of resources (time, money, and effort) to ready oneself for
the next stages.
Make a firm commitment to carry out the action steps specified in the plan.
Review and update: Review the plan and make adjustments regularly to exercise
proper control of this career path. Knowing what it takes to move to the next stage,
and preparing oneself in time for that big opportunity ahead, represent a good mantra
for Joe Engineer to follow. Benjamin Disraeli said, “One secret of success in life is for
a man to be ready for his opportunity when it comes.”
Example
Describe the top-five key lessons/insights you have learned/gained from this chapter,
including justifications.
Answer
The most important capability for future leaders to nurture and cultivate is strategic
planning, which requires the creation of a vision for defining future directions.
Forecasting technologies, business conditions, marketplace developments, and

customers’ needs is critical but difficult to determine, as choices may have to be made
based on intuition, judgment, and hunches, rather than hard data. Future leaders
need to nurture strategic planning skills through keen observations, deep reflections,
and trial and error. Operational planning is more or less straightforward; it is essential
for implementation, which includes 85% of efforts required in order to achieve success
in any endeavor. Planning activities are essential to both corporate and personal life.
Policies and procedures are mostly administrative in nature; however, they need to
be taken care of even though they are not particularly exciting or rewarding.
Conclusion
Both strategic and operational planning are important, because the success of a
company depends on creating new paths to the future as well as on implementing
short-term operational plans to secure profitability at the present time.
Engineering managers are expected to involve themselves in both strategic planning

and operational planning. Both types of planning require forecasting and action
planning. To regulate work, managers may also participate in issuing policies and
establishing procedures. Among these planning activities, forecasting and strategic
planning are difficult, as they involve making estimations of the future. The remaining
planning activities related to policies and procedures are administrative or operational
in nature. These activities are rather straightforward and should appear to be
relatively easy to understand and implement. Doing extremely well in these
administrative tasks will not necessarily make a manager outstanding, but not doing
well in them will project a negative image of the engineering manager.
To demonstrate managerial leadership, engineering managers need also to be

proficient in technology forecasting. Technology forecasting involves the critical
evaluation and adaptation of emerging technologies so that the company’s products
and services offered to the marketplace become better, cheaper, and faster to deliver.
A primary opportunity for engineering managers to add value is to participate actively

in creating technology projects affecting the company’s future in major ways.
QUESTIONS
On the eve of leaving her alma mater, Stacy Engineer remembers the encouraging
words of the commencement speaker: “Graduation is the happy beginning of an
exciting life ahead.” She is, of course, excited about her new master of engineering
degree that she received with honor. But she is also a bit concerned about what to
do now to make her new life exciting and filled with happiness. Apparently, what she
needs is a road map into the future. How can you help her?
The company has always been focused on the high-quality and high-price end of the
market. Now, market intelligence indicates that some competitors are planning to
enter the low-price and low-quality end of the market. What should the company do?
Mission and value statements are indicative of the direction in which a company is
headed. What are typically included in the statements of mission and values of well-
known companies in the United States? Please comment.
What are included in the typical operational guidelines some industrial companies
have developed? Please comment.
There are always risks (risks of failure) associated with the experimentation of a new
manufacturing process or with entry into a new global market. How should one decide
to proceed or not to proceed with a risky venture? What is the proper level of risk for
a company to take?
The marketing director needs to submit a strategic plan for entering a new market.
She knows she needs long periods of uninterrupted time. She considers two options:
(1) staying at home to do the plan or (2) delegating some parts of the plan to her
subordinates. What are the factors the director needs to consider when she chooses
the best way to come up with this plan?
XYZ Company has been a one-product company focused on developing and marketing
a package of innovative enterprise resource planning (ERP) software specialized for
law firms and operated in computers running on a proprietary operating system
software developed by the company. Customers must purchase both the hardware
and software as a bundled package from XYZ Company.
The company also provides around-the-clock services to ensure that the combined
hardware and software system performs reliably, as lawyers are known to be typically
disinterested in troubleshooting computer systems. This product-bundling strategy
works out well for the company, and the sales revenue of XYZ increases dramatically
during its first three years in business.
However, market intelligence shows that new ERP software products are now
being introduced by competitors. These new ERP software products are quite capable
of performing all of the data processing functions typically required by law firms.
Furthermore, these new ERP software products can run on any computer using its
existing operating system, thus eliminating the need for customers to purchase
dedicated computers.
The president of XYZ Company recognizes the potential threat imposed by these new
ERP software products. He wants to know the best counterstrategy he should plan
and implement. Design and explain this counterstrategy.
Sandy Smith is about to graduate from the University at Buffalo with a master’s degree
in engineering and a GPA of about 3.8. She wants to find a good job that allows her
to best utilize her strengths and capabilities. Her short-term goal is to become an
operations manager in a manufacturing enterprise in 10 years. Modeled after Example
2.4, how should she plan to achieve this specific goal?
Comment on this
Prove or disapprove the statement: “Planning is everyone’s job in the organization

including those in the non-management level.”
Suggested item for Research
Interview the general manager of a manufacturing or service firm. Inquire about the
planning activities undertaken by the firm. Prepare a report about the result of the
interview.
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Chapter 4 – Organizing
After the management functions of decision making and planning, the next to be
presented is organizing.
This chapter begins by distinguishing between the legal forms of organization:
proprietorship, partnership, and corporation. Next discussed are the organizing
process and the various logics of subdivision, or departmentation. The effective spans
of control are discussed as well as the nature of line, staff, and service relationships.
The effect of technology on organization structure is described, and finally, the more
modern organizational forms, teams, types of authority and the purpose of
committees are introduced. Teams are an important part of the workforce today, and
they are created either within the planning function or the organizing function, or with
other management functions discussed in later chapters. Often, there are impromptu
teams that are formed by employees spontaneously. Today many teams are virtual,
or e-teams and they work across space, time, and organizational boundaries with links
strengthened by webs of communication technologies.
The engineer manager needs to acquire various skills in management, including
those for organizing technical activities. In this highly competitive environment, the
unskilled manager will not be able to bring his unit or his company, as the case may
be, to success.
The value of a superior organizational set-up has been proven dramatically during
the Second World War when a smaller American naval force confronted the formidable
Japanese navy at Midway. Military historians indicated that the Americans emerged
victorious because of the superior organizational skills of their leaders.
Even today, skills in organizing contribute largely to the accomplishment of the
objectives of many organizations, whether they are private businesses or otherwise.
The positive effects of business success become more pronounced when they come
as a result of international operations. International businesses, however, cannot
hope to make huge profits unless they are properly organized to implement their
plans.
The opportunities offered by skillful organizing are too important for the engineer
manager to ignore. This chapter is intended to provide him with some background
and insights in organizing.
1. Explain different organizational structures
2. Select appropriate type of organizational structure for managing business
successfully in a global context.
3. Describe the differences in line and staff relationships
4. Describe the use and value of teams
Nature of Organizing
Legal Forms of Organization

An organization is a group of individuals who work together toward a common
goal. Here, the types of legal entities into which businesses can be organized will be
compared. These include the sole proprietorship, the partnership, the corporation,
and the cooperative. Other aspects of organizations will then be examined.
The sole proprietorship is a business owned and operated by one person. It is

simple to organize and to shut down, has few legal restrictions, and the owner is free
to make all decisions. Profit from it is taxed only once—on the Schedule C (Profit or
Loss from Business or Profession) attachment to the owner’s individual income tax
form. However, the owner faces unlimited liability for the debts of the business, he or
she may find it difficult to raise capital to fund growth of the business, and the duration
of the business is limited to the life of the proprietor.
The partnership is an “association of two or more partners to carry on as co-
owners of a business for profit” (Uniform Partnership Act). The partnership is almost
as easy to organize as a proprietorship and has relatively few legal restrictions.
Partnerships permit pooling the managerial skills and judgments and the financial
strengths of several people who have a direct financial interest in the enterprise, but
suffer the disadvantages of divided decision-making authority and potential damage
to the business when partners disagree. Although a partnership files a tax return to
allocate partnership profit (or loss), it does not pay taxes—the partners do so on their
individual tax forms, whether they actually receive the profit or leave it in the
enterprise to grow further. Normally, partners have unlimited liability for partnership
debts. In a limited partnership, there must be at least one general partner with
unlimited liability, but the rest may be limited partners, who are financially liable only
to the extent of their investment in the venture.
A limited liability company (LLC) is a relatively new business structure allowed
by state statute. Owners, called members, have limited personal liability for the debts
and actions of the LLC. There is no maximum number of members and most states
permit single member LLCs. LLCs are similar to a partnership, providing management
flexibility and the benefit of pass-through taxation. Income is only taxed once.
Corporations are legal entities owned by shareholders, who in general have no
liability beyond loss of the value of their stock. Corporations have perpetual life (as
long as they submit an annual report to the state in which they are chartered), and
they find it easier to raise money, transfer ownership, and change management. It is
more difficult and expensive to organize a corporation, but the main disadvantage is
that corporate income is taxed twice: once as corporation income tax the year the
profit is made, and again as personal income tax when the after-tax profit is
distributed as dividends. Also, corporations are subject to many state and federal
controls not affecting other forms of business.
Cooperatives are special type of organization owned by users or customers, to
whom earnings are usually distributed tax-free in proportion to patronage. For
example, about 1,000 rural electric cooperatives distribute electricity over much of
America’s nonmetropolitan land area; each customer of this service buys a share
initially for a few dollars, and he or she can cast one vote to elect the board members
who manage the cooperative.
While sole proprietorships are the most common form of business organization in
sheer numbers, most large organizations are corporations.
Organizing Defined
Weihrich and Koontz believe that people “will work together most effectively if
they know the parts they are to play in any team operation and how their roles relate
to one another....Designing and maintaining these systems of roles is basically the
managerial function of organizing.” They continue:
For an organizational role to exist and be meaningful to people, it must incorporate (1)
verifiable objectives, which... are a major part of planning; (2) a clear idea of the major duties
or activities involved; and (3) an understood area of discretion or authority, so that the person
filling the role knows what he or she can do to accomplish goals. In addition, to make a role
work out effectively, provision should be made for supplying needed information and other
tools necessary for performance in that role.
It is in this sense that we think of organizing as (1) the identification and classification of
required activities, (2) the grouping of activities necessary to attain objectives, (3) the
assignment of each grouping to a manager with the authority (delegation) necessary to
supervise it, and (4) the provision for coordination horizontally (on the same or similar
organizational level) and vertically (for example, corporate headquarters, division, and
department) in the organization structure.
Traditional Organization Theory

Patterns of Departmentation
Organizations are divided into smaller units by using a number of different
approaches. A hierarchical organization is an organizational structure where every
entity in the organization, except one, is subordinate to a single other entity. This
arrangement is a form of a hierarchy. This is the dominant mode of organization
among large organizations; most corporations, governments, and organized religions
are hierarchical organizations. This arrangement of individuals within a corporation
may be according to power, status, and job function. Figure 4-1 illustrates two of the
more common methods and will be used to help us “grow” a company in the container
business. Let us assume that you have a large collection of compact disks (CDs) and
that you also enjoy woodworking. You begin to make some attractive wooden cabinets
for your CDs in your basement or garage. They are admired by your friends and
neighbors, who buy some, and then you find several local stores who want to carry
them. You now are an entrepreneur and have a business. As demand increases, you
need some help in the shop, and you hire several local people (Tom, Dick, and Mary)
who will, naturally, take direction from you (Figure 4-1a).
Figure 4-1. Methods of departmentation: (a) Basic organization, (b)

Functional departmentation
As you grow, you find yourself away from the plant (now moved to a local
industrial park) for extended periods, selling your product and arranging financing.
You appoint the most experienced worker as foreman, and later as production
manager. You hire sales people to help sell your product and, as they increase in
number, appoint one as sales manager. A local certified public accountant agrees to
work half-time as your finance manager, and an engineering student moonlights as
your designer. You have now established a pattern of functional departmentation,
which is the first logic of subdivision for most new organizations, and which is present
at some level in almost any organization. Functional subdivision need not be confined
to a single level (as in Figure 4-1b). Marketing is often divided into sales, advertising,
and market research. Production may be broken into component production,
assembly, and finishing.
As your business grows, you may also become interested in producing clear plastic
storage boxes for computer diskettes. You soon discover that production methods for
plastic boxes are very different from those for wooden cabinets, and you organize
separate production shops under separate supervisors to produce the two products.
Next, you discover that your diskette boxes appeal to a different market, and you
need a different group of salespeople. Then you find that the sales force dealing with
diskette boxes needs much closer contact with your plastic box production foreman
than they do with salespeople selling CD cabinets to the consumer, but that the chain
of command through the general sales manager, then you, and finally the overall
production manager makes decision making slow and difficult. You may now be ready
to reorganize by product as in Figure 4-2a.
The separate CD cabinet and diskette box divisions will begin with their own
manufacturing and marketing functions, and later you may add accounting and
personnel functions to each division. Because obtaining bank loans, selling stock, and
other financial activities are best handled centrally, you will need consistent personnel
policies in both divisions, and you need some top-level advice on new markets and
new technical advances; thus, you will need to organize a staff at the corporate level
in addition to your product divisions.
In the days of the pony express, long-distance communication was slow and
unreliable. If an enterprise on the American east coast wished to set up a west coast
division, they would have to give the regional manager broad authority, perhaps even
creating geographic or territorial divisions, as in Figure 4-2b. Today, however,
managers communicate by telephone, e-mail and fax machine across the world almost
as easily as with the next building, and they can jet anywhere in the continent in a
day for more protracted personal meetings. As a result, communication per se is no
longer the most important logic for top-level organization. However, you may find that
accommodating regional differences is the key to effective management, and you may
then create regional (geographic) divisions. A company that builds housing
developments may find, for example, that regional differences in housing styles,
construction codes, marketing media, and methods of mortgage financing are very
important, and you may set up separate geographic divisions, each responsible for
construction and marketing in its own region. Geographic subdivision is more common
at lower levels; sales forces are commonly divided by region, for example, for more
efficient and more personal customer contact.
Figure 4-2. Methods of Departmentation: (a) Product

Departmentation. (b) Geographic Departmentation
Sometimes the type of customer is a more important consideration than

location, and departmentation by customer is indicated. For example, creating
weapons systems for the U.S. Department of Defense often requires state-of-the-art
technology and a special understanding of military procurement and product use. On
the other hand, products that will be used by other industries in producing their own
goods need to be cost-effective and rugged; consumer goods need to be attractive in
appearance and price. Many firms successful in producing military goods have tried
marketing to the consumer with poor success, because it requires a different mental
outlook and frequently a separate organization devoted to that market. Even when
the product is the same or similar (washing machines, for example), separate sales
forces may be desirable for regional sales to consumers through local distributors and
for large-volume national sales to major store chains or to the federal government for
military housing use.
Another structural approach is by process or equipment (especially where
equipment is so expensive, immobile, or critical that it must be operated centrally).
Computing used to be
Figure 4-3. Example of Mixed Departmentation

done centrally when it was confined to a single (very expensive) mainframe computer
in each company; today, the economics of personal computers has spread usage to
many departments (and often every desk), with a staff computer group providing
support and service. Where manufacturing or service is carried on around the clock,
operating personnel may be grouped by shift or time. Subdivision by sheer numbers,
as in the biblical example that follows, is indicated only when a large number of people
must perform very similar and routine tasks, and this is becoming increasingly less
common. As one might expect, enterprises may combine several or all of these
methods in designing their organization. In Figure 4-3, functional subdivision is at the
top level with product and process subdivision in manufacturing and geographic and
customer departmentation in marketing.
Span of Control
As soon as a new organization grows to a significant size, subordinate managers
must be appointed to help the top manager manage. This need was recognized as
soon as large groups of people began working toward a common purpose, and it was
clearly expressed in early biblical writings:
And it came to pass on the morrow that Moses sat to judge the people: and the people stood
by Moses from the morning unto the evening....And Moses’ father-in-law said unto him “The
thing thou doest is not good. Thou wilt surely wilt away, both thou and this people that is with
thee: for this thing is too heavy for thee; thou art not able to perform it thyself alone.”...So
Moses hearkened to the voice of his father-in-law, and did all that he have said. And Moses
chose able men out of all Israel, and made them heads over the people, rulers of thousands,
rulers of hundreds, rulers of fifties, and rulers of tens. And they judged the people at all
seasons: the hard causes they brought unto Moses, but every small matter they judged
themselves.
The question is not whether intermediate managers are needed, but how many.
This depends on the number of people reporting directly to each manager, referred
to as the span of management or span of control. For example, if a simple
hierarchical organization with only 64 workers (non-managers) and a chief executive

officer has a span of only two subordinates per manager at every level, it will need 62
managers at five intermediate (middle) levels of management between worker and
CEO; with a span of four (Figure 4-4a), it will have 20 managers at two levels; with a
span of eight (Figure 4-4b), it will have only a single level of eight managers.
Figure 4-4. Control Span of (a) four and (b) eight compared, M,
Manager, w, Worker
Many armies are organized on a span of control of about four: four squads per
platoon, four platoons per company, four companies per battalion, and so on. Wren
reports that the span of 10 (rulers of thousands, hundreds, and tens) was adopted
independently by the Egyptians, by the Roman legions (with their centurions
commanding 100 soldiers), by the Tatars (Tartars) of Mongolia, and by the Incas of
what is now Peru and Chile—people who had nothing in common other than 10 fingers
to “count off.”
Narrow spans of control (tall organizations) are not only expensive because of the
cost of having so many managers, but the multiple levels can increase communication
and decision time and stifle initiative because of the temptation of a manager with
few subordinates to micromanage (interfering in decisions that should be made at
lower levels). Excessively wide spans, on the other hand, can leave managers with
inadequate time to supervise the activities for which they are responsible and leave
subordinates with inadequate access to their busy supervisor.
Factors Determining Effective Spans. What, then, does determine a desirable

span? Graicunas, a Lithuanian engineer and a Paris-based management consultant,
stated that this depended on the number of relationships that existed between
manager and subordinates, individually and in various combinations, and among the
subordinates themselves. He calculated the number of relationships for a manager
with n subordinates as
n[2(n-1) + n-1]
so that every subordinate added more than doubled the number of relationships the
manager had to be concerned with and, Graicunas assumed, the difficulty of the job.
However, many of Graicunas’s relationships are not significant in a particular
application, and effective span of control depends on many factors other than the
simple number of subordinates. Studies of effective spans have identified the following
conditions as affecting the number of people a manager can effectively supervise:
• Subordinate training. The more completely subordinates are trained for their
jobs, the fewer demands they place on supervisors.
• Nature of jobs supervised. The simpler the tasks supervised are, the greater
is the similarity between the jobs supervised; and the less subordinates work
at dispersed locations, the easier it is to supervise more people. On the other
hand, when subordinates need frequent contact with people in other parts of
the organization to do their job effectively (as may planners and coordinators),
supporting these relationships can increase the supervisor’s burden.
• Rate of change of activities and personnel. Events move more rapidly in some
types of organization than in others. An army must be staffed for the rate of
decision making required in a combat situation (and for the rapid turnover of
commanders). On the other hand, changes of policy and procedure in the

Roman Catholic Church take place only after many years (or even centuries),
and priests are well educated and have relatively few different assignments in
a lifetime of service; thus, there are very few levels—typically parish pastor,
bishop, and sometimes an archbishop—between the individual believer and the
papal office.
• Clarity of instruction and delegation. The more clearly the work to be done
can be described, and the more completely the supervisor delegates to the
subordinate the resources needed to accomplish this well-defined job, the less
subsequent supervision should be required (and the more people the
supervisor should be able to handle).
• Staff assistance. Usually, administrative activity is not confined to the
manager, but involves some (or all) of the time of one or more other people.
While most managers have “access to” clerical and secretarial support, higher-
level managers usually have “administrative assistants” or “assistants to” the
manager of considerable capability who relieve the manager of much office
routine, expanding the time they have available for work that only they can do.
Even the first-line supervisor often delegates some of the short-term
leadership: the engineering design supervisor may have 20 engineers, but
some will be more experienced “lead engineers” who are responsible for the
day-to-day activities of younger engineers and technicians in completing a
common task. In the military, senior managers commonly have deputies who
are fully qualified to act in their absence, almost doubling the effective
leadership potential of the office.
Effective management spans do vary by level within organizations. First-line

supervisors, who are concerned with their direct subordinates, but not with lower
levels, usually have larger spans than do middle managers. Spans of CEOs may vary
substantially, depending on the managerial style of the incumbent. Finally, the skill
and experience of the manager does, of course, have an effect on the number of
people that he or she can supervise.
Current Trends in Spans. The current trend in spans of control is definitely to

increase the spans of control, which ultimately decreases the number of organizational
levels within a given company or organization. This shift to large spans of controls is
due in part to the information revolution. With more automated systems,
databases, and ever-increasing methods of communication, decisions can be made
efficiently. Line workers and technicians no longer have a small role in a particular
process, but have the ability to manage, in large part, the particular process that they
are partly responsible for with the latest in technology. This trend to large spans will
generally be around 20 to 30 subordinates per span, and the organization should
consist of no more than five organizational levels. Key points that will result from
larger spans of control are as follows:
1. Significant reduction of administrative costs
2. More effective and efficient organization communication
3. Faster decisions and closer interaction between organizational levels
4. Requirement that all levels of personnel become better trained, informed,
and educated
5. Better leadership at all levels
The information technology available today touches every aspect of the human
lives, especially how business is conducted. The ability to gather information rapidly,
process it, make precise and accurate decisions, and disseminate information, as well
as increased organizational communications, has paved the way for large span of
control. This can only benefit the organization as a whole, requiring better educated,
involved, and trained workers, and forcing better leadership, decision making, and
involvement from managers.
Span of control is another consideration in designing the organizational
structure.
 It refers to the number of subordinates reporting to a single

supervisor.
 The span of control may either be narrow or wide.
 It is narrow when there are few subordinates reporting to a supervisor.
The narrow span of control is characterized by the following:
1. There is closer relationship between manager and subordinates;
2. Here is less delegation of authority;
3. Controlling activities are more tight; and
4. There is more time for rewarding behavior.
Span of control is wide when there are many subordinates reporting to a
supervisor. The following characteristics are inherent to an organization with
wide span of control:
1. Employees work with little supervision;
2. There is a high level of delegation of authority
3. Controlling lighter; and
4. There is less time for rewarding behavior.
The Appropriateness Span of Control
 Neither the narrow nor the wide span of control is applicable to all
types of situations.
 There are also situations appropriate for the wide span of control.
Line and Staff Functions and Relationships

Traditionally, the “line functions” in an organization were those that accomplished
the main mission or objectives of the organization, and these were thought to include
production, sales, and finance in the typical manufacturing organization. “Staff
functions,” on the other hand, were those that helped the line accomplish these
objectives by providing some sort of advice or service. A useful distinction may be
made between personal staff, such as the “assistant” who does troubleshooting or
special assignments for a single manager, and specialized staff, who serves the entire
organization in an area of special competence. Examples of specialized staff
organizations include personnel, procurement, legal counsel, and market research. In

today’s more complex knowledge-based organizations, the activities of “staff
specialists” may be as essential to the ultimate success of the organization as “line
workers,” and these distinctions have become blurred.
Much more fruitful is examining the type of relationship involved in a particular
transaction. Line relationships are superior–subordinate relationships and can be
traced in a “chain of command” from the organization president through a succession
of levels of managers to the lowest worker.
Staff relationships are advisory in nature. Four types of staff relationships,
arranged in order of increasing levels of influence, are (1) providing advice only on
request, (2) recommending where the staff office deems appropriate, (3) “consulting
authority,” in which line managers must consult (but need not obey) staff in their
area, and (4) “concurring authority,” in which the staff specialist has a veto authority
over the line manager.
Functional (specialized) authority is a special type of staff authority over
others who are not their line subordinates. It is as binding as line authority, but does
not carry the right to discipline for violation. Usually, it controls “how to” accomplish
some action falling in the area of responsibility of the staff office, and it is delegated
to staff because of the need for uniformity or special expertise. Examples include
specification of budget formats by the financial officer and of criteria for documenting
research findings or for reducing product liability by the legal counsel.
Service relationships are “facilitative activities” that are centralized for economy
of scale, uniformity, or special capability, but are only supportive of the main mission.
Examples include custodial, security, and medical services.
A manager may, at different times, exhibit all of these relationships. For example,
a human resource manager will exert line authority over direct subordinates in his or
her office, provide staff advice to the chief executive on the need for instituting an
affirmative action program, exercise functional authority by defining how job
descriptions must be filled out, and provide a service to the entire organization by
maintaining employee records.
Friction between line and staff personnel occurs for many reasons. Staff specialists
may have little understanding of the problems and realities of the line organization.
Line managers, on the other hand, have little understanding of the expertise of the
staff specialist and the need the organization has for it. Each side needs to listen to
the other with courtesy and mutual respect for the good of the whole organization.
Military officers tend to have assignments alternating between command (line) and
staff responsibilities, and they are often sent to “Command and Staff School” or some
equivalent in midcareer; as a result, they have a better chance at understanding both
sides of this relationship.
Corporate restructuring in the last decade has reduced the size of specialist staff
organizations at the corporate and divisional levels. Instead, individual specialists
become members of working teams (discussed later in this chapter) that, as a group,
are empowered to get the work of the organization accomplished with much less need
for approvals up the chain of command. As a result, specialists can integrate their
knowledge into work as it is being done, avoiding much of the friction,
misunderstanding, and wasted or repeated effort of the past.
Types of Organizational Structures

Before the commencement of activities, the decision-makers in an organization
will have to decide on what structure to adapt. Depending on the size and type of
operations, a certain structural type may best fit the requirements.
Organizations may be classified into three types. They are the following:
1. Functional organization – this is a form of departmentalization in which
everyone engaged in one functional activity, such as engineering or marketing,
is grouped into one unit.
2. Product or market organization – this refers to the organization of a
company by divisions that bring together all those involved with a certain type
of product or customer.
3. Matrix organization – an organizational structure in which each employee

reports to both a functional or division manager and to a project or group
manager.
Functional Organization
Functional organization structures are very effective in smaller firms, especially
“single-business firms where key activities revolve around well-defined skills and areas
of specialization”.
Functional organizations have certain advantages. They are the following:
1. The groupings of employees who perform a common task permit economies
of scale and efficient resource use.
2. Since the chain of command converges at the top of the organization,
decision making is centralized, providing a unified direction from the top.
3. Communication and coordination among employees within each
department are excellent.
4. The structure promotes high-quality technical problem-solving.
5. The organization is provided with in depth skill specialization and
development.
6. Employees are provided with career progress within functional
departments.
The disadvantages of the functional organization are the following:

1. Communication and coordination between the departments are often poor.
2. Decisions involving more than one department pile up at the top
management level and are often delayed.
3. Work specialization and division of labor, which are stressed in a functional
organization, produce routine, non-motivating employee tasks.
4. It is difficult to identify which section or group is responsible for certain
problems.
5. There is limited view of organizational goals by employees.
6. There is limited general management training for employees.
Figure 4-5. Organization with Functional Design

Product or Market Organization
The product or market organization, with its feature of operating by divisions, is
“appropriate for a large corporation with many product lines in several related
industries.”
The advantages of a product or market organization are as follows:
1. The organization is flexible and responsive to change.
2. The organization provides a high concern for customer’s needs.
3. The organization provides excellent coordination across functional
departments.
4. There is easy pinpointing of responsibility for product problems.
5. There is emphasis on overall product and division goals.
6. The opportunity for the development of general management skills is
provided.
The disadvantages of the product or market organization are as follows.

1. There is a high possibility of duplication of resources across divisions.
2. There is less technical depth and specialization in divisions.
3. There is poor coordination across divisions.
4. There is less top management control.
5. There is competition for corporate resources.
Figure 4-6. Product/Market Organization for a Construction Company

Matrix Organization
A matrix organization, according to Thompson and Strickland, “is a structure with
two (or more) channels of command, two lines of budget authority, and two sources
of performance and reward”. Higgins declared that “the matrix structure was
designed to keep employees in a central pool and to allocate them to various projects
in the firm according to the length of time they were needed.”
The matrix organization is afforded with the following advantages:
1. There is more efficient use of resources than the divisional structure.
2. There is flexibility and adaptability to changing environment.
3. The development of both general and functional management skills are
present.
4. There is interdisciplinary cooperation and any expertise is available to all
divisions.
5. There are enlarged tasks for employees which motivate them better.
The matrix organization has some disadvantages, however. They are the
following:
1. There is frustration and confusion from dual chain of command.
2. There is high conflict between divisional and functional interests.
3. There are many meetings and more discussion than action.

4. There is a need for human relations training for key employees and
managers.
5. There is a tendency for power dominance by one side of the matrix.
Figure 4-7. Matrix-Designed Organization
Organizational Culture
Organizational culture is defined as the underlying beliefs, assumptions, values

and ways of interacting that contribute to the unique social and psychological
environment of an organization.
Organizational Culture Definition and Characteristics

Organizational culture includes an organization’s expectations, experiences,
philosophy, as well as the values that guide member behavior, and is expressed in
member self-image, inner workings, interactions with the outside world, and future
expectations. Culture is based on shared attitudes, beliefs, customs, and written and
unwritten rules that have been developed over time and are considered valid (The
Business Dictionary).
Culture also includes the organization’s vision, values, norms, systems, symbols,
language, assumptions, beliefs, and habits (Needle, 2004). Simply stated,
organizational culture is “the way things are done around here” (Deal & Kennedy,
2000).
While the above definitions of culture express how the construct plays out in the
workplace, other definitions stress employee behavioral components, and how
organizational culture directly influences the behaviors of employees within an
organization. Under this set of definitions, organizational culture is a set of shared
assumptions that guide what happens in organizations by defining appropriate
behavior for various situations (Ravasi & Schultz, 2006). Organizational culture affects
the way people and groups interact with each other, with clients, and with
stakeholders. Also, organizational culture may influence how much employees identify
with their organization (Schrodt, 2002).
In business terms, other phrases are often used interchangeably, including
“corporate culture,” “workplace culture,” and “business culture.”
How is Organizational Culture Created and Communicated?

Business leaders are vital to the creation and communication of their workplace
culture. However, the relationship between leadership and culture is not one-sided.
While leaders are the principal architects of culture, an established culture influences
what kind of leadership is possible (Schein, 2010).
Leaders must appreciate their role in maintaining or evolving an organization’s
culture. A deeply embedded and established culture illustrates how people should
behave, which can help employees achieve their goals. This behavioral framework, in
turn, ensures higher job satisfaction when an employee feels a leader is helping him
or her complete a goal (Tsai, 2011). From this perspective, organizational culture,
leadership, and job satisfaction are all inextricably linked.
Workplace Culture Differences
Person Culture and Market Culture

How members of an organization conduct business, treat employees, customers,
and the wider community are strong aspects of person culture and market culture.
Person culture is a culture in which horizontal structures are most applicable. Each
individual is seen as more valuable than the organization itself. This can be difficult to
sustain, as the organization may suffer due to competing people and priorities
(Boundless, 2015). Market cultures are results-oriented, with a focus on competition,
achievement, and “getting the job done” (ArtsFWD, 2013).
Adaptive Culture and Adhocracy Culture

The extent to which freedom is allowed in decision making, developing new
ideas and personal expression are vital parts of adaptive cultures and adhocracy
cultures. Adaptive cultures value change and are action-oriented, increasing the
likelihood of survival through time (Costanza et al., 2015). Adhocracy cultures are
dynamic and entrepreneurial, with a focus on risk-taking, innovation, and doing things
first (ArtsFWD, 2013).
Power Culture, Role Culture, and Hierarchy Culture

How power and information flow through the organizational hierarchy and system
are aspects of power cultures, role cultures, and hierarchy cultures. Power cultures
have one leader who makes rapid decisions and controls the strategy. This type of
culture requires a strong deference to the leader in charge (Boundless, 2015). Role
cultures are where functional structures are created, where individuals know their
jobs, report to their superiors, and value efficiency and accuracy above all else
(Boundless, 2015). Hierarchy cultures are similar to role cultures, in that they are
highly structured. They focus on efficiency, stability, and doing things right (ArtsFWD,
2013).
Task Culture and Clan Culture

How committed employees are towards collective objectives are parts of task
cultures and clan cultures. In a task culture, teams are formed with expert members
to solve particular problems. A matrix structure is common in this type of culture, due
to task importance and the number of small teams in play (Boundless, 2015). Clan
cultures are family-like, with a focus on mentoring, nurturing, and doing things
together (ArtsFWD, 2013).
How and Why Does Organization Culture Change?

Organizational culture is not stagnant. Members of an organization develop a
shared belief around “what right looks like” as they interact over time and learn what
yields success and what doesn’t. When those beliefs and assumptions lead to less
than successful results, the culture must evolve for the organization to stay relevant in
a changing environment.
Changing organizational culture is not an easy undertaking. Employees often resist
change and can rally against a new culture. Thus, it is the duty of leaders to convince
their employees of the benefits of change and show through collective experience
with new behaviors that the new culture is the best way to operate to yield success.
Cummings & Worley (2004) proposed six guidelines for culture change:
“gothamCulture continues to play an instrumental role in helping our company create an

environment that inspires crewmembers to deliver our brand promise to our customers.”
Vice President, Customer Support, jetBlue

Cummings & Worley Six Guidelines for Culture Change

1. Formulate a clear strategic vision.
This vision gives the intention and direction for the future culture change.
2. Display top-management commitment.
The top of the organization must favor the culture change in order to
actually implement the change in the rest of the organization.
3. Model culture change at the highest level.
The behavior of the management needs to symbolize the kinds of values
and behaviors that should be realized in the rest of the company. Change
agents are keys to the success of this cultural change process and important
communicators of new values.
4. Modify the organization to support organizational change.
This includes identifying what current systems, policies, procedures and
rules need to be changed so alignment with the new values and desired
culture can be achieved.
5. Select and socialize newcomers and terminate deviants.
Encouraging employee motivation and loyalty to the company will create a
healthy culture. Training should be provided to all employees to help them
understand the new processes, expectations, and systems.
6. Develop ethical and legal sensitivity.
This step can identify obstacles of change and resistant employees, and
acknowledge and reward employee improvement, encouraging continued
change and involvement.
Teams
For the last two decades teams have become an integral part of the workforce,
and teamwork is essential within modern industry. One of the principles for
management of the modern enterprise is teaming. A team is defined as follows: a
small number of people who are committed to a common goal, objectives, and
approach to this goal that they are mutually accountable to reaching. Teams quite
often have complementary skills that are used in problem solving. Workers today must
be able to work together in interdisciplinary teams to carry out and coordinate the
operations of the enterprise. As more and more companies require employees to
function in teams, engineering schools have begun to use teams as part of the training
for careers in industry. The formation of teams can easily utilize the talents from
different functions, locations, and organizations.
According to Katzenbach and Smith, there are several common approaches to
building team performance:
• Establish urgency and direction. All team members need to believe the team
has clear objectives.
• Select members based on skill and skill potential, not personalities.
• Pay particular attention to first meetings and actions.
• Set some clear rules of behavior.
• Set and seize upon a few immediate performance-oriented tasks and goals.
• Challenge the group regularly with fresh facts and information.
• Spend time together.
• Use positive feedback, recognition, and reward.
Now the functioning of industry in a global environment has led to the formation
of virtual teams. These virtual teams, unlike traditional teams, must accomplish their
objectives by working across distance by using technology to facilitate collaboration.
There are two primary categories of variables that make virtual teams more
complex. These are (1) the crossing of boundaries related to time, distance, and
organization, and (2) the communication and collaboration, using technology. For the
reasons stated, virtual teams are far more dependent on having a clear purpose than
face-to-face teams are. Purpose defines why a particular group works together. As
important as positive relationships and high trust are in all teams, they are even more
important in virtual teams. The lack of daily face-to-face time, which normally offers
opportunities to quickly clear things up, can heighten misunderstandings. Research
indicates that even virtual teams must have an initial face-to-face meeting.
Virtual teams in industry work across space, time, and organizational boundaries
with links strengthened by webs of communication technologies. What is new is the
array of interactive technologies at their disposal. The structure and process may be
different for industry and education. The basic elements of the virtual team process
are communication, planning, and managing or implementing.
The proposal teams gathered together by aerospace companies to respond to a
major military request for proposal (RFP) provide an excellent example of the
“disposable organization”; as many as 1,000 people, often from several cooperating
companies, may come together for one to three months for this specific purpose and
then disband back to their original organizations or other teams. Project management
organizations and their operations are of special importance to engineers, and two
chapters in this book (14 and 15) are dedicated to project management.
There are other modern examples of temporary or “team” organizational
structures; Cleland and Kerzner provide descriptions of production teams, worker-
management teams, product design teams, quality teams, project management
teams, crisis-management teams, and task forces.
Types of Authority
The delegation of authority is a requisite for effective organizing. It consists of

three types. They are as follows:
1. Line authority – a manager’s right to tell subordinates what to do and
then see that they do it.
2. Staff authority – a staff specialist’s right to give advice to a superior.
3. Functional Authority – a specialist’s right to oversee lower level
personnel involved in that specialty, regardless of where the personnel are
in the organization.
Line departments perform tasks that reflect the organization’s primary goal and
mission. In a construction firm, the department that negotiates and secures contracts
for the firm is a line department. The construction division is also a line function.
Staff departments include all those that provide specialized skills in support of line
departments. Examples of staff departments include those which perform strategic
planning, labor relations, research, accounting and personnel.
Staff officers may be classified into the following:
1. Personal staff – those individuals assigned to a specific manager to provide
needed staff services.
2. Specialized staff – those individuals providing needed staff services for the
whole organization.
Functional authority is one given to a person or a work group to make decisions
related to their expertise even if these decisions concern other departments. This
authority is given to most budget officers of organizations, as well as other officers.
The Purpose of Committees

When certain formal groups are deemed inappropriate to meet expectations,
committees are oftentimes harnessed to achieve organizational goals. Many
organizations, large or small, make use of committees.
A committee is a formal group of persons formed for a specific purpose. For
instance, the product planning committee, as described by Millevo, is “often staffed
by top executives from marketing, production, research, engineering, and finance,
who work part-time to evaluate and approve product ideas.”
Committees are very useful most especially to engineering and manufacturing
firms. When a certain concern, like product development, is under consideration, a
committee is usually formed to provide the necessary line-up of expertise needed to
achieve certain objectives.
Committees may be classified as follows:
1. Ad hoc committee – one created for a short-term purpose and have a
limited life. An example is the committee created to manage the
anniversary festivities of a certain firm.
2. Standing committee – it is a relatively permanent committee that deals

with issues on an ongoing basis. An example is the grievance committee
set up to handle initially complaints from employees of the organization.
Committees may not work properly, however, if they are not correctly managed.
Delaney suggests that “it might be useful to set up some procedures to make the
committee a more effective tool to accomplish our goals.”
Chapter Test
4-1. You have begun a small, but growing business. What advantages and
disadvantages should you consider before changing it from a sole
proprietorship to a corporation?
4-2. Chart an organization with which you are familiar that has at least three
organizational levels, and identify the number of people reporting to each
manager at each level. How do the spans of control at the lowest level compare
with those at higher level(s)?
4-3. Choose an enterprise with which you are familiar that has undergone significant
recent reorganization. Compare the new and old organizations with regard to
(a) size and influence of specialized staff, (b) management levels, (c) typical
spans of control, and (d) responsibility delegated to nonmanagerial
professionals. What other changes occurred in the reorganization?
4-4. Discuss the strategy you propose to use in your personal career to assure you
will remain in demand in a changing, competitive world.
REFERENCES:
2014
https://masterofproject.com/blog/7551/organizational-structure-types-in-corporate-companies
https://gothamculture.com/what-is-organizational-culture-definition/
Chapter 5 – Staffing: Human Aspects of

Organizing
Staffing is a significant function of the management which involves manning the

organization structure through proper and effective selection, appraisal and
development of the personnel to fill the roles assigned in the workforce in order to
make positive impacts on the effectiveness of the organization. In the simplest terms,
staffing in management is ‘putting people to jobs’.
In an organization, it is the people which perform the various jobs are needed for
its functioning. They are the most important resource of the organization. In fact, the
performance of the organization largely depends on the quality of its people. Hence
the staffing function of the management is an essential function and it involves in the
building of the organizational workforce. In staffing, the management is faced with
the challenge of not only finding the right person for each job but also to match the
personnel with the jobs identified and to provide for their future growth and welfare
as members of the organization.
In this chapter the students will explore the role an engineer manager plays in
human resource management, which includes hiring and staffing. Students will also
look at the situations how managers need to think more broadly and deeply about
some employment decisions such as promotion, turnover, job redesign and
termination.
When you have finished studying this chapter, you should be able to do the following:
1. Describe the steps in staffing technical organizations.

2. Examine how the applicants are selected and hired in an organization.
Staffing Technical Organizations

The engineer manager must be concerned with putting the right person in various
positions within his area of concern. While, most of the important aspects of staffing
function is delegated to the HR department, the engineer manager should undertake
the responsibility in assuring the right people are assigned to positions that fit their
qualifications
Staffing can be defined as one of the most important functions of management. It

is the process that determines human resource needs, recruits, selects, trains and
develops human resources for jobs created by an organization. It involves estimating
the number and type of personnel required, recruiting and developing them,
maintaining and improving employee’s competence and performance. Staffing is
carried out to match people with job roles accordingly to help meet organization’s
objectives. Thus, it can be said that staffing is an essential function of every business
organization.
Every organization uses some form of a staffing procedure, and staffing is the
primary approach an organization influences its diversity and human capital. Effective
staffing requires first identifying the nature and number of people needed, planning
how to get them, selecting the best applicants, orienting and training them, evaluating
their performance, and providing adequate compensation.
Staffing Procedure
The staffing process consists of the following steps:
Figure 5-1. Staffing Process in Engineering Organization
Human Resource Planning
Human Resource Planning which is also called as Manpower Planning is the process
of forecasting the future human resource requirements of the organization and
determining as to how the existing human resource capacity of the organization can
be utilized to fulfill these requirements. Though, HR Planning may sound quite simple
process of managing the numbers in terms of human resource requirement of the
organization, yet, the engineer manager should involve himself in conjunction with
the efforts of the HR officer to face many barriers due to the effect of the current
workforce in the organization, pressure to meet the business objectives and prevailing
workforce market condition. Human Resource Planning has to be a systems approach
and is carried out in a set procedure. Human resource planning may involve the
following procedures:
1. Analyzing the current manpower inventory. Before an engineer manager makes

a forecast of future manpower, the current manpower status has to be
analyzed. For this the following things should have to be considered: type of
organization, number of departments, number and quantity of such
departments and employees in these work units. When these factors are listed
by an engineer manager, he goes for the future forecasting.
2. Creating future manpower forecasts. Once the factors affecting the future
manpower forecasts are known, planning can be done for the future manpower
requirements in several work units. The Manpower forecasting techniques
commonly employed by the organizations are as follows:
a. Expert Forecasts: This includes informal decisions, formal expert surveys
and Delphi technique. Delphi Technique calls for a facilitator to solicit and
collate written, expert opinions on labor forecasts. After answers are
received, a summary of the information is developed and distributed to the
experts, who are then requested to submitted revised forecasts. The
experts never meet face-to-face, but rather communicate through the
facilitator.
b. Trend Analysis: Manpower needs can be projected through extrapolation
(projecting past trends), indexation (using base year as basis), and
statistical analysis (central tendency measure).
c. Work-study Method: This method uses time and motion study to analyze
and measure work. Such studies help the managers to decide the standard
time for per unit work. When it is possible to measure work and set
standards, the work-study method is more suitable for repetitive and
manual jobs. Job methods should not change frequently. The following
method shows this method:
Example:
Planned Output for next years 20,000 units
Standard hours per unit 2
Planned hours required 20,000 x 2
Productive hours per workers in the year 2,000
Number of workers required 40,000/2,000 = 20
d. Other methods: Several quantitative methods or mathematical models, with

the aid of computers are used to forecast manpower needs, like regression,
time series, economic model, and linear programming model.
3. Developing Employment Programmes. Once the current inventory is compared

with future forecasts, the employment programmes can be framed and
developed accordingly, which will include recruitment, selection procedures
and placement plans.
4. Design training programmes. These will be based upon extent of diversification,

expansion plans, development programmes, etc. Training programmes depend
upon the extent of improvement in technology and advancement to take place.
It is also done to improve upon the skills, capabilities, knowledge of the

workers.
5. Evaluation and Control. It refers to monitoring the human resource action plans
and evaluating its success.
Recruitment
When the different positions have been identified to be necessary and the decision
to fill them up has been made, the next logical step is recruitment. According to Mc
Fariand, “The term recruitment applies to the process of attracting potential
employees of the company”, while to Flippo, “Recruitment is the process of searching
prospective employees and stimulating them to apply for the jobs in the organization.”
Thus recruitment may be considered as a positive action as it involves attracting the
people towards organization.
The need of recruitment may arise in line for vacancies due to transfer, promotion,
retirement, permanent disability or death of a worker or creation of vacancies due to
expansion, diversification or growth.
Sources of Recruitment
When management wants to fill up certain vacancies, the following sources of

recruitment may be selected:
1. Internal sources or from within the organization. Some of the organization’s

current employees may be qualified to occupy positions higher than the one
they are occupying, thus, they should be considered.
At present, many organizations give preference to people within the
company because the best employees can be found from within the
organization itself. Under this policy, if there is any vacancy the persons
already working in the organization are appointed to fill it. This method is
followed mostly in government organizations.
2. External sources of recruitment from outside. Internal sources may not

always fulfill the needs of an organization. Naturally, most of the concerns
have to look for the external sources for recruitment of the required number
of employees with the requisite qualifications. The external sources of
recruitment include:
a. newspaper advertising. This is the most common method for
recruiting skilled workers, clerical staff, managerial personnel,
technical personnel. The vacancies are advertised in the popular
daily newspapers and applications are invited from the persons
having required qualifications.
b. Recruitment firms or agencies. Some companies are specifically
formed to keep a vital link between workers and employers. They
are always willing to supply the required number of workers.
c. Referrals from employees. The existing employees recommend the
suitable names for the employment.
d. Recruitment from colleges or universities or educational institutions.
These are good sources of applicants. Representatives of companies
may interview applicants inside campuses
e. Direct Recruitment. Many organizations have one separate
department called the human resource department to select the right
employees. For that organization may receive direct applications
from the candidate. Most technical and clerical staff are appointed in
this way.
f. Competitors. These are useful sources of qualified but underutilized
personnel.
Generally, for entry-level personnel or staff, the engineer

manager will likely rely on newspaper advertising, schools, referrals,
agencies and direct recruitment. When recruiting managers, the
reliable sources are current employees, direct recruitment and

competitors.
Selection
Selection refers to the process of choosing the most suitable person for the current
position or for future position from within the organization or from outside the
organization. When the position under consideration involves special skills or when
recruiting for a manager, a more elaborate selection process is undertaken.
Selecting those applicants who will be offered jobs from among the many
contacted in the search previously described is essentially a filtering process. Résumés
and/or applications are reviewed, potential candidates are screened in site or
telephone interviews, references are checked, and applicants who pass through these
screens are invited to the company for interviews (and sometimes testing) before job
offers are made.
Selection Procedure:
Selection of workers is regarded as a policy matter. Every enterprise has its own policy
for recruitment. The following procedure is adopted.
1. Receiving and screening the application. After receiving the applications have
to be screened. In this process the applications of candidates without the
requisite qualification are rejected.
2. Sending the Blank application form. After preparing the list of candidates
suitable for the job, blank application forms will be sent to the candidates. In
this application form information should be given about the name and address
of the candidate, educational qualification, experience, salary expected etc.
3. Preliminary Interview. The interviewer has to decide whether the applicant is
fit for the job or not. By this interview the appearance, attitudes, behavior of
the candidate can be known easily.
4. Administering Tests. Different types of tests may be undertaken. Tests are
conducted for the knowledge of personal behavior, efficiency of work and
interest. Generally, following types of tests are conducted.
a. Psychological Tests – which is “an objective standard measure of
sample behavior”. It is classified into:
i. aptitude test – one used to measure a person’s capacity
or potential ability to learn.
ii. Performance test – one used to measure a person’s
current knowledge of a subject.
iii. Personality test – one used to measure personality traits.

iv. interest test – one used to measure a person's interest in
the various fields of work.
b. Physical Examination – a type of test given to applicants to assess
his physical health. It is given to “assure the health condition of
the applicant is adequate to meet the job requirements”.
5. Checking References on Investigation of Previous History. Applicants are

generally asked to give names of at least two persons to whom the firm may
make a reference.
6. Interviewing. Interview is the most important step in the selection procedure.
In the interview, the intimation given in the application form is checked.
Interview helps in finding out the physical appearance and mental alertness of
the candidate and whether he possesses the required qualities.
Interviews may be of various kinds these are
a. Direct Interview
b. Indirect Interview
c. Patterned Interview
d. Systematic in – depth interview
e. Board of panel interview
f. Group interview
7. Final Selection. On the basis of the results of the previous interview, the
candidate is informed whether he/she is selected for the said post or not.
Induction and Orientation
When a new employee reports to work, the employing organization needs to help
the newcomer become part of the organization by introducing him or her to the
policies and values of the organization as a whole and the specific requirements of
the person’s new department and job. The human resources department normally has
the responsibility to tell the newcomer about fringe benefits such as medical
insurance, vacations, tuition reimbursement, pensions, and the like. This can be
accomplished with a short one-on-one discussion on the first day as the new employee
processes through personnel or a more formal presentation periodically for all new
employees; in either case, most organizations of any size will provide every employee
a current edition of an employees’ handbook describing benefit programs.
Inculcating the values of the organization, such as attitudes toward ethics, quality,
safety, and customers, is a more difficult task involving establishing attitudes. While
these values can be emphasized in presentations made to new employees by
management, to be given credence they must be evident in their practice by members
of the organization. Some large organizations will spend from three months to a year
rotating the new employee through a variety of departments and jobs to orient the
individual to the organization before placing him or her in the first permanent
assignment. Occasionally, a fast-growing organization will have a formal orientation
program set up in which functional managers will briefly describe the nature and
function of their departments. More often, the new employee will be assigned directly
to a department and supervisor. In any event, the immediate supervisor of the new
employee bears the major responsibility for introducing him or her to the new group
and the specific job assignment.
Training and Development
Training is an instrument of developing the employees by increasing their skills

and improving their behavior. Technical, managerial skills are needed by the
employees for performing the jobs assigned to the. Training is required to be given
to new employees as well as existing employees. The methods to be used for training
and the duration for which training should be given is decided by the management
according to the objectives of the training, the number of persons to be trained and
the amount of training needed by the employees.
Training refers to the “learning that is provided in order to improve performance

on the present job”. Training leads to overall personal development. The major
outcome of training is learning. Trainees learn new habits, new skills, useful
information that helps to improve their performance. Training programs consist of two
general types namely: training programs for non-managers and training and
educational programs for executives.
Figure 5-2. Methods of Training
Performance Appraisal
There are several reasons for requiring formal appraisal of an employee’s

performance. At this step, the capability of the employee is judged and for that, his
actual work performance is compared with the work assigned to him. Performance
appraisal refers to all the formal procedures used in working organizations to evaluate
the personalities, contributions and potentials of group members. It is used as a guide
by formulating a suitable training and development program to improve the quality of
performance in his present work.
Performance appraisal is the judgment of an employee’s performance in a job. It

is also called a merit rating. All managers are constantly forming judgment of their
subordinates and are continuously making appraisals with respect to his performance
on the job and his potential for development. The immediate superior is in-charge of
such appraisal. The managerial appraisal should measure both performances in
achieving goals and plans as well as all managerial functions such as planning,
organizing, leading and controlling.
Objectives of performance appraisal:
1. To help a manager to decide the increase in pay on ground of merits.
2. To determine the future use of an employee
3. To indicate training needs.
4. To motivate the employees to do better in his or her present job.
5. To contribute the growth and development of an employee.
6. To identify employees for deputation to other organizations
7. To help in creating a desirable culture and tradition in the organization.
8. To nominate employees for training programs.
A written record of performance in some consistent form is especially important in

large organizations where personnel are frequently transferred, such as the military
service, and in bureaucratic organizations such as civil service, to justify terminating
(firing) poor performers and rewarding exceptional ones. Perhaps the oldest and most
common technique for performance appraisal is the conventional rating scale, in which
an employee is given a rating by checking one of five or more level-of performance
boxes for each of a series of attributes.
Figure 5-3. Sample Performance Appraisal Form
Each method of performance appraisal has its strengths and weaknesses may be
suitable for one organization and non-suitable for another one. As such, there is no
single appraisal method accepted and used by all organizations to measure their
employees’ performance.
A more widely used classification of appraisal methods into two categories,

traditional methods and modern methods, is given by Strauss and Sayles. While
traditional methods lay emphasis on the rating of the individual’s personality traits,
such as initiative, dependability, drive creativity, integrity, intelligence, leadership
potential, etc.; the modern methods, on the other hand, place more emphasis on the
evaluation of work results, i.e., job achievements than the personal traits. Modern
methods tend to be more objective and worthwhile. The various methods included in
each of the two categories are listed in Table 5-1.
An employee’s performance may be measured using any of the following method:
1. Ranking Method. It is the oldest and simplest formal systematic method of

performance appraisal in which an employee is compared with all others for
the purpose of placing order of worth. The employees are ranked from the
highest to the lowest or from the best to the worst. In doing this the employee
who is the highest on the characteristic being measured and also the one who
is L lowest, are indicated. Then, the next highest and the next lowest between
next highest and lowest until all the employees to be rated have been ranked.
Thus, if there are ten employees to be appraised, there will be ten ranks from
1 to 10.
2. Grading Method. In this method, certain categories of worth are established in
advance and carefully defined. There can be three categories established for
employees: outstanding, satisfactory and unsatisfactory. There can be more
than three grades. Employee performance is compared with grade definitions.
The employee is, then, allocated to the grade that best describes his or her
performance. One of the major drawbacks of this method is that the rater may
rate most of the employees on the higher side of their performance.
3. Essay Method. Essay method is the simplest one among various appraisal
methods available. In this method, the rater writes a narrative description on
an employee’s strengths, weaknesses, past performance, potential and
suggestions for improvement. Its positive point is that it is simple in use. It
does not require complex formats and extensive/specific training to complete
it.
4. Management by Objectives (MBO). The concept of MBO as was conceived by
Drucker, can be described as a “process whereby the superior and subordinate
managers of an organization jointly identify its common goals, define each
individual’s major areas of responsibility in terms of results expected of him
and use these measures as guides for operating the unit and assessing the
contribution of each its members”. In other words, stripped to its essentials,
MBO requires the manager to have goals with each employee and then
periodically discuss his or her progress toward these goals.
5. Assessment Centers. In the business field, assessment centers are mainly used
for evaluating executive or supervisory potential. By definition, an assessment
center is a central location where managers come together to participate in
well-designed simulated exercises. They are assessed by senior managers
supplemented by the psychologists and the HR specialists for 2-3 days.
6. 360 – Degree Appraisal. This method was first developed and formally used by
General Electric Company of USA in 1992. This feedback based method is
generally used for ascertaining training and development requirements, rather
than for pay increases. Under 360 – degree appraisal, performance information
such as employee’s skills, abilities and behaviors, is collected “all around '' an
employee, i.e., from his/her supervisors, subordinates, peers and even
customers and clients.
Employment Decisions
After evaluating the performance of the employees, the management will now be
ready for employment decisions. These decisions may be consisting of the following:
1. Monetary Reward – this is given to employees whose performance is at par or

above standard requirements.
2. Promotion – this refers to a movement by a person into a position of higher
pay and greater responsibilities and which is given to a reward for competence
and ambition.
3. Transfer – this is the movement of the person to a different job at the same or
similar level of responsibility in the organization.
4. Demotion – this is a movement from one position to another which has less
pay or responsibility attached to it. This is also a form of punishment.
Employee Separation
It is the last step in the process of staffing. It means separating the employees
from their job. Employee separation is a sensitive issue for any organization. Usually,
an employee leaves the organization after several years of service. An employee may
be separated as consequence of resignation, removal, death, permanent incapacity,
discharge or retirement. The employee may also be separated due to the expiration
of an employment contract or as part of downsizing of the workforce.
Separation is either a voluntary or involuntary termination of an employee. In

voluntary, it is the will of the employee to resign and he must notify the company or
organization weeks before he resigns. While, involuntary or termination is the last
option that the manager exercises when employee’s performance is poor or when an
employee violates the rules and regulation of the company. Employee separation is
illustrated in Figure 5-4.
Figure 5-4. Employee Separation

Summing Up
Staffing is the management function devoted to acquiring, training, appraising,
and compensating employees. In effect, all managers are human resource managers,
although HR departments perform these activities in large organizations. Further,
people are the organization's most important resource, therefore, staffing is crucial to
the success of all organizations.
Chapter Test
5-1. Why staffing an important activity?
5-2. What are the activities undertaken in staffing?
5-3. List and discuss different appraisal methods for employees commonly used in
companies.
5-4. Determine how the applicants are selected and hired in a company.
Problems
5-1. Luminous is a firm manufacturing jute lampshades. It uses leftover jute pieces
from various jute factories to manufacture economical lampshades which are supplied
to various hotels in nearby towns. It employs men and women from nearby villages
as workers for creating good lampshade designs.
Luminous, is not able to meet its targets. Emma, the supervisor of the company, was
told to analyze the reasons for the poor performance. Emma found the following
problems and suggested certain solutions in the working of the business. The number
of workers employed was less than what was required for the work. As a result, the
existing workers were overburdened. The firm decided to search for new workers and
it asked the present employees to introduce candidates or recommend their friends
and relatives to the firm. This enabled the firm to ‘put people to jobs’ and assured the
attainment of objectives according to plans. (CBSE, Sample Paper 2016)
a. Discuss the problem of Luminous.

b. What can you suggest to the company to meet their targets and solve their
existing problem about the workforce?
5-2. Aakansha, Nikita and Parishma are the owners of a handicraft unit in the urban
area of Dibrugarh in Assam, which is involved in the manufacturing and marketing of
Sital Pati, traditional mats and Jappi (the traditional headgear). They decided to shift
this manufacturing unit to a rural area with an objective of reducing the cost and
providing job opportunities to the locals. They followed the functional structure in this
organization with a view to increasing managerial and operational efficiency. They
assessed and analyzed the type and number of employees required, keeping in mind
that they had to encourage the women and the people with special needs belonging
to the rural area. (CBSE, Sample Paper 2016)
State the next three steps that they will have to undertake for obtaining a satisfied
workforce for their handicraft unit.
REFERENCE:
2014
Prasad, L. M., Principles and Practice of Management. Sultan chand & Sons, 2007
https://www.managementstudyguide.com/manpower-planning.htm
https://www.yourarticlelibrary.com/performance-appraisal/performance-appraisal-methods-
traditional-and-modern-methods-with-example/35492
https://www.cbsesamplepapers.info/
Chapter 8 – Communication in Organization

Organizations are networks of people. These people need to communicate with
each other in order to perform the tasks necessary for the realization of the
organizational goals. One of the problems that students are faced with when preparing
for a managerial task in an organization is the fact that ‘organization’ and
‘communication’ are abstract concepts. Concepts like these need to be made concrete.
What are the subjects in the communication? Who is involved? What is the purpose
of the communication?
This chapter will be useful for students who are being educated for managerial
positions. It will help them to develop a theoretical framework for various types of
conversations and will give them a guide to learning the skills necessary to hold these
conversations in a professional manner. In many respects this is important in order to
realize the goals of the organization (Baron & Markman, 2000; Margie, Dickson, &
Tourish, 2004).
Learning Objectives
following:
1. Evaluate the basic communication skills

2. Identify the barriers to communication
3. Recognize the importance of management information system
4. Demonstrate general communication skills to manage complex engineering
problems in a team project environment.
Understanding Communication
Communication Defined
Communication is the process of sharing information through verbal and nonverbal
means, including words, messages, and body movements.
Good management dictates that communication must be made for a purpose and
because it has cost attached to it, it must be used effectively.
Basic communication skills

In every organization where people work together, communication is essential.
Discussions are held about the tasks that must be performed, about their relation to
one another and about the situations which demand change. There is meeting and
organizing to be done. There are appointments to be made. There are contacts to be
made with the outside world.
Do you learn this within the framework of the organization? For sure, but you are one
step ahead if you have immersed yourself in it in advance and have developed skills
that can become sharpened and refined in the practical running of the organization.
For example, when the employees of Dinner Ltd wish to hold the various types of
discussions with which they are concerned, and to conduct them in an appropriate
manner, a number of building blocks are necessary. We call these building blocks
basic communication skills.
In this first part we will discuss the basic communication skills, which are always of
interest for communication. In communication a general distinction can be made
between the sender, the person who sends out a message, and the receiver, the
person who receives the message (Figure 1).
Figure 1 Communication between sender and receiver
The same distinction can be made between sender and receiver (or listener) skills.
With regard to sender skills we can make a distinction between regulating skills and
assertive skills. Regulating skills are those with which one influences the structure and
direction of the conversation; these are necessary to monitor the meaningful progress
of the conversation. Assertive skills are those whose purpose is to reveal as clearly as
possible what one thinks and wants. (For a more extended skill model of interpersonal
communication we refer to Hargie & Dickson, 2004, p. 23.)
Practical example
On Monday morning Food and Beverage Manager Harry Haddock is leafing through
his diary to see how the week’s schedule looks: this afternoon the first of two weekly
staff meetings with both directors; tomorrow morning a consultation with the
headwaiters about the party next week for a computer company; then two days at a
conference in Liverpool about sickness absence. So this week it will be impossible to
spend a morning calmly sitting down and preparing a conversation with Alex
Armstrong and Charlotte
Cohen about the terrible history of the new temporary waiters.
Chef Bert Berman asks where Dan Diamond is hanging out. ‘Sick’ is the answer. Good
heavens, is that man sick on Monday morning again? How should he approach this?
That bloke has got to go if it continues like this, which is a shame as he’s a good
assistant. But you must be able to depend on a bloke. Should he go and talk to him?
Grace Green faces Ronald Rosenthal with it: ‘Ronald we must have a talk about the
personnel day. When can we talk about it? It’s not going so well.’
Freddy Fortune to Gerald Glass: ‘Gerald, are you having that meeting with the guy
from the kitchen factory this afternoon? Can you come by this morning as I want to
have a word about the payment conditions. Maybe we can make them a little more
flexible.’
In the secretary’s office disaster has struck. Jenny Jacobson says to her colleagues:
‘How is it possible that first thing on Monday morning it’s such chaos? Are there people
sick, are we overworked, or are we just too slow? Mr Fortune wants to see the minutes
of the yearly meeting this afternoon. I can’t tell him they’re not ready yet. We have
to talk.’
All these examples make it clear that conversations are essential in a lot of processes,
and finally for the success of the organization.
Regulating skills
Overview of the regulating skills
• Opening the conversation, setting goals

• Goal evaluation
• Closing the conversation
Opening the conversation, setting goals
When you take the initiative in a conversation, for efficient continuation it is usually
important to supply your conversational partner with your intentions fairly soon after
beginning. How exactly you open the conversation is naturally dependent upon the
situation. When you want to discuss the progress of a project with a colleague who
drops in now and then, you would start this conversation differently from when you
meet a new client for the first time, or in a selection interview when you meet an
applicant. In the first case, you would start fairly informally, whilst in the last case you
would usually begin formally. In order to create a relaxed atmosphere, one often
begins a conversation by discussing generalities. This can work well, but we must
realize that there are many people who do not feel at ease when discussing
generalities. These feelings of unease are on the one hand brought about because
one has the idea that time is not being efficiently used, and on the other because one
does not know exactly how to end the generalities. Such people only begin to feel at
ease when you get to the point, namely when the conversation about the important
subjects begins.
Whether you start formally or informally, in both cases clarity of your intentions
promotes the smooth progression of the conversation. When you have the opportunity
to prepare yourself for a conversation, you can try to devise a global structure for it.
You should try not to stick to this structure too rigidly in case other turns in the
conversation turn out to be more useful, bearing in mind its purpose. In general we
can state that a clear conversational structure, upon which the conversational partners
have agreed at the beginning, promotes efficiency. In practice, conversational
partners will often have a number of subjects they wish to discuss. By making an
inventory of these subjects in advance and establishing the order of the subjects to
be discussed, you can specify a sort of agenda for the conversation.
Goal evaluation
In this book we assume that conversations are based on a goal. Often the goal is the
solving of problems. In order to check that you are still busy with the goals which
were originally set, it is useful to ask ‘goal evaluating questions’ from time to time.
These are questions such as: ‘What was it exactly we wanted to achieve?’ ‘Are the
goals attainable?’ ‘Are the methods employed adequate in relation to the goal?’ Take
an example from the last part of the conversation between Bert Berman and Harry
Haddock at the beginning of the week:
HARRY: We were going to discuss the planning for this week. In the meantime we
have decided that I will reorder the crates of wine and that you will chase up the
butcher. Are there any other things that we need to discuss now?
In this example we see that Haddock refers to the goals set at the beginning of the
conversation and then gives Berman a chance to speak. When one or both of them is
of the opinion that the planning for the following week has not yet been adequately
discussed, they can decide to continue the conversation. If both agree that the goal
has been reached, then the conversation can be rounded off. At the end of the
conversation it is often useful to summarize the arrangements.
Closing the conversation
In order to keep a check on the time it is generally wiser to make known the time
available at the beginning of the conversation. Then a clear agreement has been made
about the length of the conversation; for example, half an hour or three-quarters of
an hour. If such an agreement is made, it is important to keep an eye on this time
too: that is to say, you must decide whether the goals set can be reached within the
limited time available. If the time has almost expired, you can refer to the agreement.
For example: ‘I see that we have about five minutes left.’ Then a summary can be
introduced with a sentence such as: ‘Maybe it is a good idea if we take a look at what
we have discussed so far.’ After this summary you can discuss with your
conversational partner how you will continue.
Listening skills
Introduction
Not only is it important to have a good structure in a conversation, but it is also
important to let your conversational partner know that he is being listened to
(Bostrom, 1990; Steil, 1991). First of all it is stimulating for the partner, and second
one can avoid the problems that occur when one does not listen well. Burley-Allen
(1995) has described listening as ‘the forgotten skill’, indicating that a lot of people
tend to speak too quickly without having paid careful attention to one another.
Overview of the listening skills
‘Non’-selective listening skills; attentive behavior Selective listening

skills
• Nonverbal behavior • Asking questions

• Minimal encouragers • Paraphrasing
• Reflection of emotions
• Concreteness
• Summarizing
In the folllowing section on ‘non’-selective listening skills it is explained that the

listener has only little influence on the conversation. He gives other people all the time
to explain their story and only responds by giving attention. These skills are necessary
to stimulate the conversation partner into talking. Selective listening skills are used by
the listener to find out and select certain aspects of the conversation that he finds
important. ‘Non’- selective skills are hardly ever used alone. Even when one is only
paying attention to somebody’s story, one often unconsciously selects what one finds
important and gives more attention to that part. That is why we have put ‘non’ in
inverted commas.
‘Non’-selective listening skills, minimal encouragers

According to Argyle (1981, 1988) approximately half of our communication is
composed of nonverbal behavior.
Nonverbal behaviour
A) Facial expression
From your facial expression it can often be seen whether you are interested in what
the other person is saying or whether you are elsewhere with your thoughts (Argyle
& Cook, 1976). Facial expression is often directly related to your feelings (Russell &
Fernandez-Dols, 1997), sometimes even more often than you actually imagine.
According to Hackney and Cormier (1979) the most remarkable facial expression is
the smile. By smiling you can show interest, kindness, and sympathy, which have
stimulating effects on the speaker. However, providing the correct dose of smiling is
essential: too much can lead to speakers feeling they are not being taken seriously,
or it can show your own insecurity. On the other hand too much frowning can be
interpreted as disapproval. Sometimes frowning means that you are trying to
understand what the speaker is saying. In that case frowning is an expression of
involvement, which stimulates speakers to be more clear and explicit in what they are
saying.
B) Eye contact
The second aspect of nonverbal behaviour is eye contact. Stimulating eye contact
means that your eyes should meet the speaker’s eyes once in a while. You should
neither have a fixed stare, nor should you avoid the speaker’s eyes altogether. Staring
can make the other person feel uncomfortable. They may get the feeling that they
are being studied. Avoiding eye contact often stems from personal insecurity. It is
obvious that you are not making a confident impression.
C) Body posture
A third aspect is body posture. The interest you have in the other person can also be
shown by a relaxed and friendly body posture. By assuming a comfortable body
position you can make it easy for you to listen. A relaxed conversation partner often
evokes more trust than a restless and constantly gesturing one. Making exaggerated
gestures is also associated with nervousness (Axtell, 1991). Although not showing any
nervousness is not very natural, it is usually more pleasant to talk to someone who
emits a certain stability and calmness.
D) Encouraging gestures
The last aspect of nonverbal behaviour is called encouraging gestures. By nodding

and making supportive gestures with the hands and by avoiding nervous and
distracting movements, you can show your attention, which will stimulate the speaker
to continue talking.
Verbal following
The second ‘non’-selective way of showing interest is verbal following. This means
that the comments you make should be in line with what the speaker is saying and
that you do not start any new subjects. If you follow closely what the speaker is
saying, the speaker will be able to finish his train of thought. To understand the
speaker fully, it is necessary to put aside your own opinions and thoughts about the
subject. In order to do so, you should confine yourself to ‘minimal encouragers’.
Minimal encouragers
Minimal encouragers are short verbal reactions intended to stimulate the speaker to
talk by showing him that he is being listened to. Examples are: hemming (uh-huh),
yes…yes, and then?, go on, or even the repetition of one of the words in a questioning
tone of voice. These small utterances may not seem of great influence, but their
stimulating effect is of importance to the speaker (Greenspoon, 1955).
The skill of ‘attentive behaviour, listening’ is often considered easy. When the basic
attitude is to be attentive and interested in what people are saying, then this ‘attentive
behaviour’ won’t cause many problems. However, research has shown that even
people who consider themselves good listeners do not listen as well as they think they
do. They tend to start questioning too fast or they start reciting their own experiences
before the speaker has finished talking. Even more striking were the results that these
‘beginners’ mistakes’ proved to be more the rule than the exception to the rule. As it
turned out, it was not only necessary to teach the students appropriate listening
behaviour, but also to break certain bad listening habits which had been learnt in
everyday life.
Besides the ‘non’-selective skills, you will also need to use selective listening skills in
most conversations.
Selective listening skills
What is selectivity in a conversation? Selectivity here is related to the fact that in your
reactions you give certain aspects of the speaker’s conversation more attention than
others. You can do that on purpose in order to find out more about the contents of
the subject or to get more involved in the feelings expressed. Another way is to give
a certain subject in the conversation more attention. We refer here to the example of
Dinner Ltd. When one is having a conversation with a client, one can pay attention
either to the different choices on the menu for a certain lunch or to the financial
aspects. Selectivity determines your immediate reactions to the conversation and the
choice of subthemes being discussed. In the second case the concept is broader. The
different selective listening skills will be discussed in the following paragraphs.
Asking questions
During many conversations it is often necessary to clarify what speakers are saying
exactly and what they really want. We have to deal here with ‘problem clarification’.
In this phase asking questions will help the speaker to put his thoughts in clear, actual
and understandable words. A clear distinction needs to be made between open-ended
and closed questions.
Open-ended questions
These questions leave speakers much freedom in formulating answers to them. They
can respond in their own words in accordance with their wishes or opinions. An easy
way to start these questions is by using words such as ‘How?’ ‘What?’ or ‘Can you tell
me something about?’ These questions give the speaker much space to answer freely.
Compare the following sentences:
• ‘How may I help you?’

• ‘What would you like to talk about?’
to:
• ‘How is that project doing?’
• ‘Can you tell me how you approached that client?’
With the first two questions both the content and form of the reaction are free. The
last two questions give less freedom because they are about a selected subject (the
project, the approach of the client). But even with this restriction the speaker can
answer in any way he wants.
Furthermore we can make a distinction between questions related to the subject that
the speaker is talking about and questions not related to the subject. These questions
should only be asked when the previous subject has been thoroughly explored.
‘Why’ questions
The ‘why’ question is often a suitable open-ended question: in particular because
people always have reasons for acting in a certain manner.
Moreover, they have created their own ideas about why they did something and why
problems have arisen. However, these types of questions can be regarded as
threatening when placed at the beginning of a conversation. When speakers feel they
have to justify their actions to the listener right at the beginning, they will feel obliged
to give explanations about things they are not ready to answer yet. The chance exists
that they will get defensive and confused.
Special attention needs to be paid to the tone of the ‘why’ question. It can sound like
a reprimand—‘Why are you so far behind on the schedule?’—or like an invitation—‘Do
you have any idea what the reason is for the delay?’ While both questions have the
same content, the latter is much more inviting and friendlier in tone and therefore
more likely to be answered than the first one.
Closed (directing) questions

These types of question can be answered with a single word, either a yes or a no will
usually do. Examples of such questions are:
• ‘Do you like that project?’

• ‘Have you contacted the bank about the financing yet?’
•‘Do you get along with your colleagues?’
• ‘Were you disappointed when you failed the exam?’
You can see that the answers to these questions can be minimized to a simple yes or
no. The questions have several negative aspects. First, the speaker is restricted to
answer the question. Second, they are often suggestive because these questions stem
from preconceived ideas, for example: Chef Berman to headwaiter Green arriving too
late for their appointment: ‘Did you have a nice party again last night?’ From this
example we can see that Berman already has an idea of what might be the reason for
Green’s lateness. The leading question stems from that insinuation. The degree of
suggestiveness depends heavily on the tone in which he asks the question. The
disadvantageous effect that this kind of question has on the conversation is that the
speaker will start to give short and maybe defensive answers. However, it is useful to
ask closed questions when you want to find out factual and specific information, or
when open-ended questions do not result in much information.
When to ask open-ended or closed questions

When asking questions you have the option of choosing between different kinds. The
one you choose depends on the goal you have in mind for the conversation
(Dohrenwend, 1965). When you want to give the speaker space to express his views
in his own way, you had better ask open-ended questions. When you want to find out
something specific in order to see if you understood it correctly, you should ask closed
questions. The use of closed questions is also helpful when you want more in-depth
information about the subject, for example: ‘At what time exactly is the train arriving?’
There are no general rules for when to use these type of questions and when not.
What is important is that you are able to use any type of question at the correct
moment.
Paraphrasing of content
The second selective listening skill is ‘paraphrasing of content’. This means briefly
stating in your own words what the speaker has said. The chief characteristic of
paraphrasing is that it is based on factual information. This skill serves several
functions:
1. Listeners can check that they have understood everything correctly. This is
particularly important when the speaker has given a lot of complex and
confusing information.
2. The speaker experiences understanding and it might be stimulating to hear
their thoughts expressed in other words. Listeners should be very flexible in
the way they express themselves.
When applying this skill it is important for listeners not to confuse their own opinions
with what the speaker is actually saying. It is therefore important that the paraphrase
is expressed in a questioning way. This gives the speaker the chance for correction.
The use of this skill is important when you have to get a clear picture of, for example,
a guest’s complaint or when you are given an assignment that you do not completely
understand. Here is an example from Dinner Ltd:
GERALD GLASS: From next Tuesday I have to go to Paris for three days. I don’t know
yet if I’m taking the plane or whether I should go by train. Can you arrange the trip
and hotel, Jenny?
JENNY JACOBSON: That’s fine, but if I understand it correctly you don’t know yet
which means of transport you will take, [paraphrase]
GERALD: Well, uh, I prefer to fly, I think…
JENNY: OK. So, you will be departing on the coming Tuesday and you will be returning
on Thursday. Is that correct? [paraphrase]
Reflection of feelings
The term ‘reflection of feelings’ literally means mirroring of feelings. According to
Hargie and Dickson (2004), reflections ‘can be regarded as statements in the
interviewer’s own words that encapsulate and re-present the essence of the
interviewee’s previous message’ (p. 148; see also Dickson, 1997). The goal of this
skill is to show that you are trying to understand how the speaker feels here and now
in the conversation.
The first function of reflecting is that speakers notice that their feelings, regardless of
their nature, are being understood, accepted and getting attention. Often the intensity
of the feelings (e.g. anger) then diminishes. The reflection of them has a soothing
effect. The second function of reflection of feelings is a controlling one. You are
checking whether you have estimated the feelings of the speaker correctly.
Recognition of feelings and sensitivity to moods is a prerequisite if you want to reflect

someone else’s feelings correctly. People can show how they feel or how they felt in
different ways. They might use ‘emotion’ words such as ‘I am scared’, ‘I am excited’
or ‘I feel exhausted’. But usually feelings are shown in nonverbal ways: for example,
by the speed of talking, tone of voice, body posture, or by blushing and turning away.
All these can be regarded as expressions of how the person is feeling. By being alert
to these behavioural manifestations of emotion it can become easier to reflect the
other person’s feelings
Feelings can be divided into single or complex feelings. Single feelings can either be
positive (‘I am happy’) or negative (‘I am sad’). Complex feelings, in particular, are
often confusing and especially arise in emotional situations. Feelings of stress and
tension can be both positive and negative. When these kinds of feelings occur it is
important that you show consideration for them.
When applying this skill it is important to be on the same wavelength as the speaker.
This means that you reflect the other person’s feelings with the same intensity as they
express them. When someone say ‘I feel so listless’, then the reaction ‘You don’t want
to live anymore’ would be too strong a reflection, and the reaction ‘You’re a little
bored’ too weak a reflection. The reflection should be connected to the expression of
the feeling(s). This sounds easy, but in practice it is difficult but very important to
apply this skill correctly.
The application of this skill is especially important in situations that are highly
emotional. An example of a situation in which negative emotions play a part is one in
which bad news needs to be conveyed. An example in which positive feelings are
involved is a situation in which an employee is enthusiastic about a promotion. The
next example illustrates how reflection is used in a conversation between Freddy
Fortune and secretary Jenny Jacobson:
Jenny Jacobson is somewhat upset because the typing has been piling up over the
last few days and because the managers keep on forgetting to mention where they
have gone.
JENNY: I can’t go on any more. A client called yesterday and I couldn’t tell him where
you were or when you would be back in the office again.
FREDDY: I understand this is upsetting you. [reflection of feeling]
JENNY: Yes indeed, and that’s not all. Since I have had to handle all those calls, I
don’t get around to doing all the other work. Look at the stack here that I still have
to do!
FREDDY: I can imagine you get irritated [reflection of feeling]. I’ll make sure it doesn’t
happen again, [promise to change]
Concreteness
The meaning of concreteness in conversations is that you let speakers tell their story
as concretely and precisely as possible. This is a task that consists of several skills.
The skills already mentioned, such as listening, minimal encouragers, asking open and
closed questions, paraphrasing and reflecting, all contribute to the concreteness of
the conversation. By listening and encouraging you can stimulate speakers to give a
detailed expression of the case they want to discuss. When that is not enough, more
specific information can be gained by asking open-ended and closed questions.
Finally, paraphrasing and detailed descriptions also help to get a clearer picture.
To make sure that the speaker is as concrete as possible, you the listener should make
sure your own use of language is as concrete as possible. Many people are inclined
to understand stories too fast, based on similar experiences of their own. Doing so
can lead to the wrong advice being given. Words such as ‘always’, ‘everything’ and
‘never’ should act as warning bells. In general, undefined statements and
generalizations such as the following should be noticed: ‘That whole project was a
disaster.’ Trying to make statements like this concrete usually gives a more finely
tuned picture.
How far should you go with concreteness? In general it depends on the goal you have
in mind. If, for example, you want to find out why an employee is performing his tasks
in a certain manner, you will have to go deeply into the subject and get a very concrete
answer. In a first orientating meeting with a client you will have to tolerate more
vagueness and lack of clarity.
Summarizing
The goal of summarizing is to give structure to the conversation by ordering the main
points. A distinction is made between the summarizing of contents and the
summarizing of emotions. With the first the accent lies on the contents (cognitive)
aspects of the story, whereas with the second it is more with the aspects of feeling.
Usually summaries contain both and the relationship between them is made. The basic
difference between summarizing contents and paraphrasing/reflection of feelings is
that the summarizing covers a longer time span in the conversation.
Your selectivity and your own ability to select play a larger part in this skill compared
to the previous skills described. Because of the large quantity of information that has
to be used for this, it is likely that you may forget certain aspects or not express them
correctly. That is why it is vital that the summary is made in a questioning tone. Your
voice should go up at the end, to indicate this correctly. In a statement your voice
goes down at the end. The questioning tone gives speakers the chance to say whether
they agree with the summary. To conclude, summarizing has the following functions:
• You can check whether you have understood the speaker correctly.
• You can order the different subthemes and vocalize them.
Sender skills
Introduction
In the previous two chapters we have discussed two groups of skills: regulating skills,
whose purpose is to guard the useful progress of the conversation, and listening skills,
whose purpose is to let the other person know as clearly as possible that you are
listening. In many situations you will not only want to listen, but you will also have to
say what you think. In this chapter we focus our attention on a number of so-called
‘sender skills’. We make a distinction between skills where you take the initiative and
skills with which you react to someone. An example of the first is giving information;
an example of the second is reacting to criticism.
Overview of the sender skills
Sender skills—initiative Sender skills—reactive
• Giving information
• Making requests and giving instructions • Refusing
• Giving criticism • Reacting to criticism
• Situation clarification
Sender skills—initiative
Giving information
As an employee in an organization you often have to give information to other people.
During a meeting you may have to present a plan, you may have to explain something
to an employee about the progress of a project, you may have to give a client
information about a product, or you may have to inform an applicant about a function.
The question in this section is how to present information. We discuss four factors
that are of importance to answer this question: structure, simplicity of style,
conciseness and attractiveness.
Structure
By structure we mean: the clarity and orderliness of an amount of information.
Whenever you are going to give an explanation, it is of importance during preparation
to divide it into a number of points. At the beginning of the explanation you can best
start with short indications of these points. Then the conversational partners will know
what is to follow. After that you discuss the various points, specifying the transitions
between them: That is what I wanted to say about the first point. Let us now turn to
the second.’ At the end it is sometimes useful to recapitulate the contents.
Simplicity of style
The conversational partner is most likely to understand the information being
presented if you use short sentences, known words and clear wording, and speak in
a calm tempo. Someone who wishes to demonstrate their expertise through
impressive use of language often achieves the opposite effect in the listener. Notions
such as clarity and comprehensibility are, after all, relative. The correct choice of
wording is dependent, for example, on the level of education of the conversational
partner and the level of his familiarity with the subject. Therefore there are no precise
directives to be given. It is very important to be alert to the reaction of the person or
persons to whom you speak. Information delivered too simply or too slowly arouses
boredom or annoyance, as does complex information given too quickly. The feedback
that you receive, either verbally or nonverbally, forms an important source of
information for the speaker. When the feedback is negative, for example when the
conversational partners begin to yawn or to ask all sorts of questions, then you should
try to adjust your use of language. When the feedback is positive, you can naturally
continue in the same manner.
Conciseness
Here we wish to emphasize thoroughness, conclusiveness and succinctness. What is
essential for the conversation should be set apart, shortly and clearly. Conciseness
means, therefore, a certain restriction in the amount of information given.
Attractiveness
It is important to mention a number of methods that you as a speaker can use to hold
the attention of the conversational partners and to stimulate them to think and to
participate actively. We can classify these methods into two groups: ways to enliven
the content of the conversation, and ways to strengthen the relationship between the
speaker and conversational partner (s).
The content of the conversation becomes captivating when it is paired with concrete
examples and unforced wording in the spoken language. The relationship between
the speaker and conversational partner(s) is strengthened by the maintenance of
contact. If you wish to give clear information, you are forced to concentrate on the
task. Sometimes this means that you are so busy with the content that you have no
time to keep an eye on the listeners. A possible way to avoid this is to prepare yourself
thoroughly for what you wish to say, but this is not always feasible. The second way
is to keep noticing the reactions of the listeners during the conversation, and to pause
now and then, look around and ask if people can still follow the argument. By using
these kinds of questions and by picking up vague, sometimes nonverbal reactions,
you make it clear that you are paying attention to the listeners.
Making requests and giving instructions

Every employee in an organization regularly has to ask somebody about something.
Sometimes you have to gather information; sometimes you want to get something
done. When you are in a leadership position, you often have to give instructions.
Although the majority of people do not have many problems with carrying out
instructions or setting tasks, everyone does know of situations where they find it
difficult. Here are a few examples:
In Dinner Ltd Jenny Jacobson, who is very conscientious, has difficulty in asking for
a day off for a family party. Harry Haddock finds it hard to ask Charlotte Cohen
about the progress of last year’s financial report. Ronald Rosenthal sometimes finds
it difficult to give the temporary waiters the order to get back to work after the
lunch break.
Why is it that some people have difficulties in making requests or setting tasks? In
general we can name three different reasons for this.
In the first place some people may lack courage: they are afraid to stand up for
themselves. We saw something like this with Jenny Jacobson.
In the second place such a lack of courage often has a lot to do with the negative
expectations that one has about the reactions that the request will cause. For
example, one is afraid of receiving a negative reaction. The expectations are often
based on previous experiences. Harry Haddock knows only too well that last year
there was the same problem with regard to the financial report, and that he had a
serious argument with Charlotte Cohen. Actually he would rather not recreate such a
situation.
The third possible cause is that one does not know how to make the request or give
the order. In this case it is a question of lack of skill.
Often there is a combination of these three causes. Ronald Rosenthal is not sure how
he should get his team back to work. He does not really dare to pull rank because he
is afraid that they will see him as authoritarian.
We shall now discuss a number of points that are of importance in making a request
or giving of an order. First, you should consider in advance exactly which request you
wish to make, or which order you want to give. Vague questions give vague answers
and vague orders lead to employees not knowing exactly what is expected of them.
In the second place you should choose a good moment for making a request or giving
an order. If Charlotte Cohen is talking with a number of colleagues, then it is not a
good moment for Harry Haddock to ask about the progress of the financial report. He
would do better to wait until the colleagues have left and Charlotte is alone in her
room. It is usually constructive to make it known that you want to ask something or
say something quickly. Then it is good to express your request.
In general three different methods can be classified here: first, the sub-assertive way;
second, the assertive way; third, the aggressive way (Alberti & Emmons, 2001; Hargie
& Dickson, 2004). Before giving a concrete example of each way, here is a short
explanation of each of these concepts:
• Subassertive means: not assertive enough. Other words which mean more or less
the same are: timid, shy and self-conscious. When you are subassertive, you let others
walk all over you, you are often dependent on others, you don’t dare to say what you
want and you are afraid of entering into conflict with others (Van der Molen, 1984).
• Aggressive means: standing up for yourself, but in an irritating way. You silence
others, or you make them ridiculous. Another term which approximates this behaviour
is authoritative.
• Assertive means: being outspoken, standing up for yourself, being independent,
daring to express your feelings. The main principle here is that you are responsible
for yourself, that you decide if what you do is ‘good’ or ‘bad’. You do not allow yourself
to be influenced by what others think of you, or by what you think that others think
of you (Paterson, 2000).
Example of the sub assertive style

Jenny Jacobson knocks at the door of Freddy Fortune, who is buried in papers.
JENNY: Sorry to bother you, but could I have a word with you about something?
FREDDY: [looks up disturbed] Yes, you can, but you can see that I’m busy.
JENNY: Well, you see, it’s like this…my parents will have been married for 55 years
in two weeks time and now I would…uh…if it is not too busy, that is…actually I’d
like to take that day off…I hope you don’t mind.
In this example the subassertive style is mainly characterized by the hesitant,

submissive tone. Also the use of the word ‘actually’ often indicates subassertive
behaviour. By presenting herself so submissively, she has made it easier for the other
party to react negatively to the request. This does not mean that this always happens.
The subassertive way does sometimes hold its charms. So Freddy Fortune, who after
all has known Jenny for a while, could react quite positively to the request. The
question however remains whether or not it is comfortable for people who present
themselves sub-assertively to act in this way. Most of the time they don’t like it
themselves.
Example of the aggressive style

Harry Haddock has already been waiting two weeks for the draft financial report from
Charlotte Cohen. Now it is the middle of March and he has still not seen anything.
Charlotte keeps saying how busy she is with it, but according to Harry she spends
much too much time gossiping with her colleagues. Now he will just go and ask her
how it has progressed. He goes to her room.
HARRY: Say Charlotte, I wanted to talk to you for a minute!

CHARLOTTE: Yes, take a seat.
HARRY: I’ve come here to ask you again if that financial report is finally getting
somewhere. Are you actually busy with it? I get more of the impression that you are
trying to make a social report instead of a financial one…
CHARLOTTE: Yes Harry, but I…
HARRY: Let me finish. I’m sick of it. If the report is not ready by the end of this
week, then…
CHARLOTTE: [fairly angry by this time] Hey, listen to me for a second. If you speak
to me in that tone, then sort it out yourself. Don’t think you can speak to me in this
way!
The conversation continues like this for a while, but the atmosphere is so
acrimonious that both parties part feeling furious, without a concrete decision
having been made.
Example of the assertive style

Ronald Rosenthal has been eating with the temporary waiters. The waiters are
accustomed to playing a game of cards before their work period actually starts.
Then they do not pay much attention to the time. Whilst Ronald finds it annoying to
act as a kind of overseer, it is still part of his job to get them back to work. That is
why he seizes the moment at which work should start.
RONALD ROSENTHAL: OK boys, it’s 12.30, let’s get on with it.

LEO LADLE: [whilst laying a card on the table] Come on Ronald, don’t be so precise.
We’re in the middle of a game.
RONALD ROSENTHAL: All right, finish this round, but after that I would like you to
start.
LEO LADLE: OK, that’s a deal
The assertiveness lies primarily in Ronald’s calm and resolute tone. At the same time,
the assertiveness contains an appeal to the reasonableness of others. In the example
we also see that Leo Ladle wants to put Ronald’s patience to the test, but because he
remains calm and reasonable (‘All right finish this round, but after that I would like
you to start’), his request is then initiated. The phrase ‘I would like you to…’ is also
important to the wording. By saying this Ronald makes clear what he wants, without
doing so in an authoritative way.
Within this context it is relevant to point out that in western culture over the past
decades a change has taken place whereby the authority derived from titles, expertise
and hierarchical relations is not automatically accepted in many sectors of society.
The authority establishment has developed into a negotiation establishment. This
means that nowadays leaders can make their wishes known to employees in the form
of orders far less than they could previously.
Giving criticism
Giving criticism is often experienced as difficult. There are several reasons for this. In
the first place you may be afraid that the relationship with the person you are
criticizing will be altered. They may react indignantly or aggressively, for example.
Sometimes one’s own insecurity or fear of not being taken seriously enough may play
a part. All this can lead to a decision not to give any criticism. Such a decision is often
unsatisfactory in the long term, especially when the reasons for criticism continue to
exist.
We now make a distinction between criticism of opinion and criticism of behaviour,

that is to say, it can be criticism of the opinion or behaviour of one person, of a group
of people or even of an organization. Here we shall limit ourselves to giving criticism
to people.
Giving criticism of an opinion

The giving of criticism of an opinion aims to change the other party’s mind. How can
you best make such criticism? In general it is important that your own behaviour is
clear. This means that you express your criticism openly and fairly. It is not only the
tone of voice in which you say something that indicates you disagree with the other
person, but also that you state it clearly: ‘I disagree with that view, because…’ If the
criticism is only implicitly apparent from your tone, it can often be taken as an
accusation, with the risk that the conversation ends in argument.
In order to dare to express criticism, you must feel self-confident enough. We have
already said that many people are afraid of the other’s reaction when giving criticism.
General points to take into consideration when giving criticism of an opinion are as
follows:
• Make sure that you indicate clearly which aspects you are criticizing.
• Speak in ‘I terms’: ‘I find’, ‘I think’—‘You are’, ‘You think’. By speaking in ‘I terms’
you keep the criticism to yourself and you are less accusing.
• Find out if the other really understands what you mean.
• Give the other a chance to reply: for example, by asking ‘What do you think about
it?’
• If possible try to find a solution together.
Giving criticism of someone’s behaviour

An important mistake that is often made when criticizing someone’s behaviour is to
generalize: for example, when someone has done something wrong, we may have a
tendency to think and/or say that they will always do it wrong. This tendency can find
expression in our criticism: for example, ‘You are always late.’ It is really better to
keep criticism to specific behaviour rather than to make generalizations. Comparable
to criticizing someone’s opinion, it is important when criticizing someone’s behaviour
that your own behaviour is open and clear: for example, ‘I find it annoying that you
came in late twice this week.’ By limiting yourself to concrete behaviour, you make it
easier for the other to react.
This also means that you must feel confident enough to dare to give the criticism. You
can be afraid that the other will become angry. If you are really convinced that your
criticism is justified, then this fear is ungrounded. Second, if the other person does
become angry, annoying as this might be, this anger is entirely his own responsibility.
Above all, you know how you can react to this anger (see pp. 17–18). An example
follows:
Bert Berman has plucked up the courage and one day he asks his assistant Dan
Diamond if he can come to his office at the end of the afternoon. At the arranged
time Diamond steps in.
BERT: Take a seat, Danny. I just want to speak with you about something. Frankly, I
find it troublesome that for the last three weeks you have called in sick on Monday
mornings. What is actually wrong at that time?
Situation clarification
By situation clarification we mean: the skill of perceiving emerging problems or
misunderstandings in time, realizing their importance and discussing them. This skill
is important in many situations, namely at moments when mutual expectations are
no longer in tune with each other. The goal of the skill is to bring about or restore the
clarity of the conversation. This skill is somewhat more complex than those previously
discussed. When applying it, there is a conversation about the conversation. This is
also called meta-communication or meta-conversation. With meta-communication you
take some distance from the conversation that you are holding at that moment
(Kouwer, 1973). Figure 2 shows the two conversation levels.
To clarify further we give a few concrete situations where the application of this skill
is useful. First, a situation where someone is addressed about responsibilities that he
does not have:
Grace Green and Ronald Rosenthal are having a conversation about the staff’s day
out.
GRACE: So we agree that we need to hold a survey amongst all staff members.
Depending on the outcome, we must then make sure we get a better programme for
the day. After all we must ensure that the atmosphere at work improves.
RONALD: Wait a second, let me just clear up a few things. I will be glad to help think
about the staff’s day out, and also to join in helping with the organization, but I most
decidedly do not feel responsible for the atmosphere. We need to create the
conditions where it is possible for others to make the atmosphere, I think.
Figure 2 Meta-communication
Now we discuss a situation where the conversational partner jumps from one
subject to another. It is then useful to signal this, and to agree to pay more
attention to each subject:
Harry Haddock drops in on Bert Berman.
HARRY: I’ve just come to see how the menu for Compudate is going. Carl and I would
like to make an appointment with the head of their staff club. By the way, did you
ever hear anything about the problem that Charlotte had with the estimate for Simon?
Was it miscalculated or not?
BERT: To start with that last point: no, it was not miscalculated, but…
HARRY: Talking about calculations, I must tell you such a strange story that I heard
at Quack’s. They started a new project and now…
BERT: Sorry Harry, can I just interrupt. I’ve got the impression that we are
discussing different things at the same time. I suggest we work through them one
by one. What do you think?
Sender skills—reactive
Refusing
In organizations it is not only common to ask other people something, but frequently
you also receive requests. If you wish to fulfil the request there is usually no problem.
It becomes more difficult when you do not find the request reasonable, or you do not
have the time. In general, there are three possible ways of reacting.
• Subassertive: even though you do not see the reasonableness of the request, you
fulfil it. If you do what the other person wants, the result is that this person is content.
However, most of the times you are left with a feeling of dissatisfaction, because you
did something that you did not actually want to do.
• Aggressive: you indicate in an unfriendly tone what you think of the request and
you refuse to do it. Often the result is that the other feels insulted and the atmosphere
is detrimentally influenced.
• Assertive: in a friendly but resolute way you say that you do not wish to fulfil the
request and why. In this way you stand up for yourself and you are clear to the other
person. If the other insists, you repeat calmly that you don’t want to do it.
When refusing or saying no, you can make use of the following points:
1 Listen carefully to the other person’s request.

2 Ask for further explanation if you still do not understand something.
3 Say no, calmly and clearly.
4 Explain why you say no.
Here is an example:
Jenny Jacobson is critical of the manner in which Gerald Glass delegates tasks and
she refuses to carry them out.
GERALD: I am a bit late with this text for the report, but it has to be ready to go this
week or I will end up with problems. You will manage to do it, won’t you Jenny?
JENNY: Gerald, I am so terribly fed up with this. Always too late with the reports,
never an announcement in advance that work is coming up ... And then your
cajoling way.
Jenny will manage to do it. No, Jenny will not manage to do it anymore. Not now,
not ever. [She flings the report on the table]
According to us, Jenny could have remained on a better footing with Gerald for longer
if she had started by avoiding those little words ‘always’ and ‘never’ and had not
blamed him. She could have rejected him like this:
JENNY: Gerald, you are asking me if I can type out the whole report this week, in
between doing everything else. Why would you get into trouble if it were not ready
this week?
GERALD: I’m already so late with it, and I find that annoying.
JENNY: Well, I’m sorry, but I can’t do it this week. I need to plan my activities really
well for the whole week. This week is already completely full with tasks equally
important as yours.
GERALD: Jenny, I have already promised that they will get the report at the end of
this week.
JENNY: It’s annoying for you, I understand that, but this week I cannot manage it. I
will start on it first thing next week. Then perhaps it will be ready two days later.
Reacting to criticism
We have already discussed how to give criticism. It is of course also possible that you
will receive criticism, whether about your opinion or your behaviour. How should you
best react?
Reacting to criticism of your opinion

In general it is important to listen calmly to what the other says, and not to start
apologizing immediately. Then there are various possibilities. In the first place, you
can agree with the other person’s criticism. In this case you can revise your opinion
and agree with them. In the second place it is possible that you do not agree with the
criticism. In that case you begin with a paraphrase of what the other person has said:‘I
understand that you think like this about it, but my opinion is that…, because …’. You
may convince the other person, but people can also remain true to their opinions. In
situations such as this it is a question of difference of opinion. Often it is better to
establish that there is indeed a difference of opinion rather than endlessly bickering
about who is right. In fact, you are then holding a meta-conversation. Sometimes the
conclusion may be that you want to hear the opinion of a third party in order to reach
a definite point of view or conclusion.
Reacting to criticism about your behaviour

Whenever you receive criticism about your behaviour, you can follow roughly the
same scenario. This entails first listening calmly, and seeing if you understand the
other person’s criticism. If you do not understand the criticism, you can ask them to
clarify it. If you listen calmly, then you can also better decide whether the criticism is
meant accusingly or constructively. If the criticism is accusing, then you can react to
it: ‘I get the impression that you are blaming me for…’ If you take the criticism as
constructive, the reaction will take this into account. In both cases you will have to
delve into it further: which part of the criticism do you agree with, which part you
don’t agree with. If you agree with it, you can say: ‘I know what you mean. Let me
try to explain how it came about.’ After the explanation you can also indicate that you
will try to behave differently in future. When you do not agree with the criticism, you
can react with: ‘I know what you mean, but I do not agree with it because…’ In
summary, the following points are of importance when reacting to criticism.
1 Listen carefully and try to remain as calm as possible.
2 Ask for clarification or explanation if you still do not understand something.
3 State what you agree with.
4 State what you don’t agree with.
5 Explain how it came about.
6 Say what you are going to do about it.
Communication Process
The communication process consists of eight steps, which are the following:
A) Develop an idea
The most important step in effective communication is developing an idea. It is
important that the idea to be conveyed must be useful or of some value. Examples
of useful ideas are the prevention of accidents in the workplace and how to increase
sales volume.
B) Encode
The next step is to encode the idea into words, illustrations, figures or other symbols
suitable for transmission. The method of transmission should be determined in
advance so that the idea may be encoded to conform to the specific requirements of
the identified method. An example of an encoded message using telefax as means
of transmission is shown in figure 3
Transmit Message
Encode
Sender Channel
(source)
Receive Message
NOISE
Message
Encode Decode
Transmit
Receiver
Receive
Message
Figure 3 A Model of the Communication Process

C) Transmit
After encoding, the message is now ready for transmission through the use of an
appropriate communication channel. Among the various channels available for
transmission are the spoken word, body movements, the written word, television,
telephone, cellular phone, computer, radio, artist’s painting, the movies, sound
recording and some others.
D) Receive
The next step in communication process is the actual receiving of the message by the
intended receiver. The requirement is for the receiver to tune in to receive the
message, which may be done through listening or by other means.
The message may be initially received by a machine or by a person. In any case, the
attempt to communicate is blocked when the machine is not turned on or tuned in to
receive the message, or the person assigned to receive the message does not listen
or pay attention properly.
E) Decode
Decoding means translating the message from the sender into a form that will have
meaning to the president to the recipient. If the receiver knows the language and
terminology used in the message, successful decoding may be achieved.
F) Accept
The next step is for the receiver to accept or reject the message. Sometimes,
acceptance or rejection is partial. An example is provided as follows:
a. The accuracy of the message

b. Whether or not the sender has the authority to send the message and/or
require action
c. The behavioral implication for the receiver
G) Use
The following step is for the receiver to use the information. If the message provides
something of importance to a relevant activity, then the receiver could store it and
retrieve it when required. If the message requires a certain action to be made, then
he may do so, otherwise, he discards it as soon as it is received. All of the above-
mentioned options will depend on how the message is perceived by the receiver.
H) Provide Feedback
The last step in the communication process is for the receiver to provide feedback to
the sender. Depending on the perception of the receiver, however, this is important
step may not be made.
Even if feedback is relayed, it may not reach the original sender of the message. This
may be attributed to the effects of any of the communication barriers.
The Barriers to Communication

Various factors may impede the efficient flow of communication. Any or all of these
factors may, at any stage, derail the process. Even if the message is transmitted by
the channel, the timing and the meaning of the message may be affected by some
factors. The barriers to communication may be classified generally as:
1. Personal Barriers. These are hindrances to effective communication arising

from the communicator’s characteristics as a person, including emotions,
values, poor listening habits, sex, age, race, socioeconomic status, religion,
education, and so on.
Emotion cloud the communicator’s ability to correctly judge the real meaning
of messages received, assuming that this could even be received at all. People
with different values will find it hard to communicate with each other. Poor
listening habits of a receiver frustrate the communication efforts of the sender.
The sex, age, race, socioeconomic status, religion and education of both the
sender and the receiver provide formidable barriers to effective

communication.
2. Physical Barriers. These are interferences to effective communication occurring

in the environment where the communication is undertaken. The very loud
sound produced by a passing jet temporarily drowns out the voice of a guest
delivering a speech. Such distraction does not allow full understanding of the
meaning of the entire message and is an example of a physical barrier.
Physical barriers include distances between people, walls, a noisy sound system
near a telephone, etc. An office that is too classy may sometimes inhibit a
person from meeting the occupant of the office face to face. A menacing pet
dog (or secretary) posted near the door may also prevent a person from directly
communicating with the object person behind the door.
A communication channel that is overloaded may also prevent important

information to reach the intended user. Another physical barrier to
communication is poor timing. For instance, how may one expect a person who
has just lost a loved one to immediately accede to a personal request from a
fellow employee?
3. Sematic Barriers. Semantics is the study of meaning as expressed in symbols.

Words, pictures, or actions are symbols that suggest certain meanings. When
the wrong meaning has been chosen by the receiver, misunderstanding occurs.
Such error constitutes a barrier to communication.
A semantic barrier may be defined as an interference with the reception of a

message that occurs when the message is misunderstood even though it is
received exactly as transmitted.
For example the words “wise” and “salvage” will be interpreted differently by
an English speaking foreigner from the way the Filipinos, interpret them.
Overcoming barriers to Communication
When communication barriers threaten effective performance, certain measures must

be instituted to eliminate them. To reduce or totally eliminate problem due to noise,
selective perception and distraction, the following are recommended:
1. Use feedback to facilitate understanding and increase the potential for

appropriate action.
2. Repeat messages in order to provide assurance that they are properly received.
3. Use multiple channels so that the accuracy of information may be enhanced.
4. Use simplified language that is easily understandable and which eliminates the
possibility of people getting mixed-up with meanings.
Types of Communication
There are three types of communication, including: verbal communication involving
listening to a person to understand the meaning of a message, written communication
in which a message is read, and nonverbal communication involving observing a
person and inferring meaning.
A) Verbal Communication
Verbal communications in business take place over the phone or in person. The
medium of the message is oral.
Storytelling has been shown to be an effective form of verbal communication that

serves an important organizational function by helping to construct common meanings
for individuals within the organization. Stories can help clarify key values and also help
demonstrate how certain tasks are performed within an organization. Story frequency,
strength, and tone are related to higher organizational commitment. McCarthy, J. F.
(2008). Short stories at work: Storytelling as an indicator of organizational
commitment. Group & Organization Management, 33, 163–193. The quality of the
stories is related to the ability of entrepreneurs to secure capital for their firms.
Martens, M. L., Jennings, J. E., & Devereaux, J. P. (2007). Do the stories they tell get
them the money they need? The role of entrepreneurial narratives in resource
acquisition. Academy of Management Journal, 50, 1107–1132.
B) Written Communication
In contrast to verbal communications, which are oral, written business

communications are printed messages. Examples of written communications include
memos, proposals, e-mails, letters, training manuals, and operating policies. They
may be printed on paper or appear on the screen. Written communication is often
asynchronous. That is, the sender can write a message that the receiver can read at
any time, unlike a conversation that is carried on in real time. A written communication
can also be read by many people (such as all employees in a department or all
customers). It’s a “one-to-many” communication, as opposed to a one-to-one
conversation. There are exceptions, of course: A voice mail is an oral message that is
asynchronous. Conference calls and speeches are oral one-to-many communications,
and e-mails can have only one recipient or many.
Normally, a verbal communication takes place in real time. Written communication,

by contrast, can be constructed over a longer period of time. It also can be
collaborative. Multiple people can contribute to the content on one document before
that document is sent to the intended audience.
Verbal and written communications have different strengths and weaknesses. In

business, the decision to communicate verbally or in written form can be a powerful
one. As we’ll see below, each style of communication has particular strengths and
pitfalls. When determining whether to communicate verbally or in writing, ask
yourself: Do I want to convey facts or feelings? Verbal communications are a better
way to convey feelings. Written communications do a better job of conveying facts.
C) Nonverbal Communication
What you say is a vital part of any communication. Surprisingly, what you don’t
say can be even more important. Research shows that nonverbal cues can also affect
whether or not you get a job offer. Judges examining videotapes of actual applicants
were able to assess the social skills of job candidates with the sound turned off. They
watched the rate of gesturing, time spent talking, and formality of dress to determine
which candidates would be the most socially successful on the job.Gifford, R., Ng, C.
F., & Wilkinson, M. (1985). Nonverbal cues in the employment interview: Links
between applicant qualities and interviewer judgments. Journal of Applied
Psychology, 70, 729–736. Research also shows that 55% of in-person communication
comes from nonverbal cues such as facial expressions, body stance, and tone of voice.
According to one study, only 7% of a receiver’s comprehension of a message is based
on the sender’s actual words, 38% is based on paralanguage (the tone, pace, and
volume of speech), and 55% is based on nonverbal cues (body language).Mehrabian,
A. (1981). Silent messages. New York: Wadsworth. To be effective communicators,
our body language, appearance, and tone must align with the words we’re trying to
convey. Research shows that when individuals are lying, they are more likely to blink
more frequently, shift their weight, and shrug.Siegman, A. W. (1985). Multichannel
integrations of nonverbal behavior. Hillsdale, NJ: L. Erlbaum Associates.
Following are a few examples of nonverbal cues that can support or detract from a
sender’s message.
1. Body Language
A simple rule of thumb is that simplicity, directness, and warmth conveys sincerity.
Sincerity is vital for effective communication. In some cultures, a firm handshake,
given with a warm, dry hand, is a great way to establish trust. A weak, clammy
handshake might convey a lack of trustworthiness. A direct smile conveys confidence.
2. Eye Contact
In business, the style and duration of eye contact varies greatly across cultures. In
the United States, looking someone in the eye (for about a second) is considered a
sign of trustworthiness.
3. Facial Expressions
The human face can produce thousands of different expressions. These expressions
have been decoded by experts as corresponding to hundreds of different emotional
states. Ekman, P., Friesen, W. V., & Hager, J. C. The facial action coding system
(FACS). Retrieved July 2, 2008, from http://face-and-
emotion.com/dataface/facs/manual. Our faces convey basic information to the
outside world. Happiness is associated with an upturned mouth and slightly closed
eyes; fear with an open mouth and wide-eyed stare. Shifty eyes and pursed lips
convey a lack of trustworthiness. The impact of facial expressions in conversation is
instantaneous. Our brains may register them as “a feeling” about someone’s
character. For this reason, it is important to consider how we appear in business as
well as what we say. The muscles of our faces convey our emotions. We can send a
silent message without saying a word. A change in facial expression can change our
emotional state. Before an interview, for example, if we focus on feeling confident,
our face will convey that confidence to an interviewer. Adopting a smile (even if we’re
feeling stressed) can reduce the body’s stress levels.
4. Posture
The position of our body relative to a chair or other person is another powerful silent
messenger that conveys interest, aloofness, professionalism, or lack thereof. Head up,
back straight (but not rigid) implies an upright character. In interview situations,
experts advise mirroring an interviewer’s tendency to lean in and settle back in a seat.
The subtle repetition of the other person’s posture conveys that we are listening and
responding.
5. Touch
The meaning of a simple touch differs between individuals, genders, and cultures. In
Mexico, when doing business, men may find themselves being grasped on the arm by
another man. To pull away is seen as rude. In Indonesia, to touch anyone on the
head or to touch anything with one’s foot is considered highly offensive. In the Far
East and some parts of Asia, according to business etiquette writer Nazir Daud, “It is
considered impolite for a woman to shake a man’s hand.”Daud, N. (n.d.). Business
etiquette. Retrieved July 2, 2008, from http://ezinearticles.com/?Business-Etiquette--
-Shaking-Hands-around- the-World&id=746227. Americans, as we have noted above,
place great value in a firm handshake. But handshaking as a competitive sport (“the
bone-crusher”) can come off as needlessly aggressive both at home and abroad.
Communication Channels
The channel, or medium, used to communicate a message affects how accurately the
message will be received. Channels vary in their “information-richness.” Information-
rich channels convey more nonverbal information. Research shows that effective
managers tend to use more information-rich communication channels than less
effective managers. Allen, D. G., & Griffeth, R. W. (1997). Vertical and lateral
information processing; Fulk, J., & Boyd, B. (1991). Emerging theories of
communication in organizations. Journal of Management, 17, 407–446; Yates, J., &
Orlikowski, W. J. (1992). Genres of organizational communication: A structurational
approach to studying communication and media. Academy of Management
Review, 17, 299–326.
The key to effective communication is to match the communication channel with the
goal of the message.Barry, B., & Fulmer, I. S. (2004). The medium and the message:
The adaptive use of communication media in dyadic influence . Academy of

Management Review, 29, 272–292. For example, written media may be a better
choice when the sender wants a record of the content, has less urgency for a
response, is physically separated from the receiver, and doesn’t require a lot of
feedback from the receiver, or when the message is complicated and may take some
time to understand.
Oral communication, on the other hand, makes more sense when the sender is
conveying a sensitive or emotional message, needs feedback immediately, and does
not need a permanent record of the conversation.
Like face-to-face and telephone conversations, videoconferencing has high

information richness, because receivers and senders can see or hear beyond just the
words that are used—they can see the sender’s body language or hear the tone of
their voice. Handheld devices, blogs, and written letters and memos offer medium-
rich channels, because they convey words and pictures or photos. Formal written
documents, such as legal documents and budget spreadsheets, convey the least
richness, because the format is often rigid and standardized. As a result, the tone of
the message is often lost.
The growth of e-mail has been spectacular, but it has also created challenges in
managing information and increasing the speed of doing businesses. Over 100 million
adults in the United States use e-mail at least once a day.Taylor, C. (2002, June 10).
12 steps for email addicts. Time.com. Retrieved July 2, 2008,
from http://www.time.com/time/magazine/article/0,9171,1002621,00.html. Internet
users around the world send an estimated 60 billion e-mails each day, and a large
portion of these are spam or scam attempts.60 Billion emails sent daily worldwide.
(2006, April 26). Retrieved July 2, 2008, from
CNET.UK: http://www.cnet.co.uk/misc/print/0,39030763,49265163,00.htm. That
makes e-mail the second most popular medium of communication worldwide, second
only to voice. Less than 1% of all written human communications even reaches paper
these days.Isom, D. K. (updated October 19, 2005). Electronic discovery: New power,
new risks. Retrieved July 2, 2008, from the Utah State Bar Web
site: http://utahbar.org/barjournal2000/html/november_2003_2.html. To combat the
overuse of e-mail, companies such as Intel have even instituted “no e-mail Fridays.”
During these times, all communication is done via other communication channels.
Learning to be more effective in your e-mail communications is an important skill.
Management Information System

Management information system (MIS) may be defined as an organized means of
providing past present, and projected information on the company’s internal
operations and external intelligence for use in decision making. (Figure 4)
Manufacturing Marketing
Management
Finance Information Personnel
System
Research and
Engineering Development
Figure 4 The MIS and the various Departments of the Organization
The MIS used currently by corporate firms consists of written and electronically based
systems for sending reports, memos, bulletins and the like. The system allows
mangers of the different departments within the firm to communicate with each other.
The purpose of MIS
Thee MIS is established for various reasons. They are the following:
1. To provide a basis for the analysis of early warning signals that can originate
both externally and internally
2. To automate routine clerical operations like payroll and inventory reports
3. To assist mangers in making routine decisions like scheduling orders,
assigning orders to machine, and reordering supplies
4. To provide the information necessary for management to make strategic or
nonprogrammed decisions.
Summary
Communicating is vital function of the manager. Organizations cannot function
properly without effective communication. If the required outputs must be realized,
communication must be managed.
Communication is used to serve the information function, motivation function, control

function and emotive function of an organization.
The communication process consists of various steps namely, develop an idea,

encode, transmit, receive, decode, accept, use and provide feedback.
The forms of communication are verbal and non-verbal.
The barriers to communication may be classified as personal, physical or semantic.

These may be eliminated or minimized by using feedback, repeating messages, using
multiple channels and using simplified language.
Management information systems are useful means of communication.

Exercises
Regulating skills
1 Divide the total group into subgroups of three persons.

2 Within the subgroups divide the three people into three roles: the interviewer, the
interviewee and the observer.
3 Hold the conversation.
4 Discuss the conversation afterwards according to the guidelines in Appendix B on
role play.
5 Change roles and repeat the exercise. Make use of the learning points that have
arisen during the previous exercise.
Exercise 1.1 Conversation about Part I of this book

Role of interviewer
You are going to have a conversation about Part I of this book. In this conversation
first use the regulating skills mentioned in Chapter 1. These skills are now the focal
point.
First, state in a short introduction what the purpose of this conversation is. Second,
inform your partner about the duration of it. Third, inform your partner how you want
to stage this conversation (structure and points of conversation should be indicated).
Prepare yourself for this conversation and try to keep to the structure that you have
proposed.
Terminate the conversation when the time that you have indicated has passed.
For this exercise 5 minutes is sufficient.
Role of interviewee
You are going to have a conversation about Part I of this book. React just as you
usually do.
Role of observer
See Appendix B on role play.
Listening skills
1 Divide the total group into subgroups of three people.
2 Within the subgroups divide the three people into three roles: interviewer,
interviewee and observer.
3 Hold the conversation (about 5 minutes).
4 Discuss the conversation afterwards, according to the guidelines in Appendix B on
role play.
5 Change roles and repeat the exercise. Try to make use of the learning points that
have arisen in the previous exercise.
Exercise 2.1 Attentive behaviour and asking questions
Role of interviewer
Try to find out what your partner’s activities are apart from their studies. Make a
choice to discuss one of these activities more extensively.
Role of interviewee
Imagine you are not very talkative. So, don’t tell everything immediately. Answer with
a yes or no if the interviewer asks closed questions. Only give more information when
the interviewer is inviting and attentive.
Role of observer
Exercise 2.2 Paraphrasing content and reflection of feelings

Role of interviewer
Try to get a clear picture of how your interviewee’s previous semester has been going.
Especially try to find out what the different activities were all about and in what kind
of emotional situation your partner was during that period.
Role of interviewee
Try to answer the interviewer’s questions frankly. Give special attention to
paraphrases of content and reflections of feeling, and make corrections when these
are wrong or not specific enough.
Role of observer
Exercise 2.3 Concreteness and summarizing
Role of interviewer
Interview your partner about the jobs they have done apart from studying: for
example, holiday work, part-time jobs, or occasional work in a student intermediary
agency. Try to get a clear picture about the contents of these jobs, the experiences,
the dealings with colleagues and superiors. At the end of the conversation summarize
the work and ask your partner whether the summary was accurate.
Role of interviewee
Answer the interviewer’s questions. Do not offer all the details about yourself, but
give the interviewee a chance to get a good picture of all your working activities either
before or after your studies.
Role of observer
Sender skills
1 Divide the group into subgroups of three people.
2 Within these subgroups divide the three people into three roles: interviewer,
interviewee and observer.
3 Hold the conversation (5 minutes).
4 Evaluate the conversation, according to the guidelines in Appendix B on role play.
Exercise 3.1 Making requests and refusing

Let each person in the trio note down a request that can be made to one of the other
persons. Then there are three rounds.
1 A makes the request to B in an assertive manner. B reacts in a subassertive manner.
The observer (C) gives feedback on the behaviour of both A and B.
2 B makes the request in a sub-assertive manner. C reacts in an aggressive manner.
The observer (A) gives feedback on the behaviour of both B and C.
3 C makes the request in an aggressive manner. A reacts in an assertive manner. The
observer (B) gives feedback on the behaviour of both A and C.
Exercise 3.2 Giving criticism and reacting to criticism
Description of the situation

John and Peter are good friends. They live in the same house, both work, sometimes
they go out together and sometimes they are by themselves. Lately the times they go
out together have not been as much fun as they used to be. Peter drinks too much
and keeps hanging on later and it occurs more and more often that John then goes
home by himself. They have a silent agreement that what happened the night before
is never discussed the next day.
Role of John
The relationship between you and Peter is not what it used to be lately. You believe
he is drinking more and more. He eventually gets annoying and then starts to tell
boring stories and plays practical jokes that are immensely stupid and sometimes very
hurtful to others. He also has to be dragged away from these situations. If you say
anything about this, he gets very angry and can be very unpleasant. You then decide
to leave and go home. On the one hand you are annoyed because the evening was
not much fun and on the other you are worried about Peter’s condition. On top of
everything else you feel embarrassed about his behaviour on nights like that. Although
you are not used to discussing your nights out, you decide to do so now.
Role of Peter
Things have not been going well lately for you. The relationship between you and
John has cooled off, although you two can still get along with each other. You go out
together once in a while, but John seems unable to handle anything any more. He
also often goes home early, saying that lots of things need to be done the next day,
and then looks at you disapprovingly. You know that he thinks that you drink too
much, but when John gets to act like a teacher, you just feel like staying on and going
on for a while. Besides you really don’t drink that much. You really know your
boundaries.
Conduct this role play in three different ways:

1 John criticizes in the wrong way. Peter reacts in the way he usually reacts in
situations like this.
2 John criticizes in the right way.
Peter reacts in the wrong way.
3 John criticizes in the right way. Peter reacts in the right way.
Role of observer
Evaluate each way separately. Pay especial attention to the effect that each of the
different exercises has on the behaviour of both interviewees.
Exercise 3.3 Giving criticism and reacting to criticism

The goal of this exercise is to learn to distinguish assertive, sub-assertive and
aggressive styles when using the skills of giving and receiving criticism.
Time: about 30 minutes.
Method: work in groups of 6 (A-F) and a trainer.
Step 1. Each student writes down two points of criticism (for example, coming late,
not keeping appointments).
Step 2. The participants all get an action card and a reaction card. These cards have
on them the following: sub-assertive, assertive and aggressive.
Step 3. A gives B his points of criticism in the described manner (see card). B reacts
in the described way (see card). C, D, E and F get the observation assignment: How
does A give criticism and how does B react?
Step 4. The trainer asks C, D, E and F what they thought of the criticism and makes
their observations concrete by asking for specific behaviours they observed.
Step 5. The trainer notes down the behaviour that characterizes sub-assertive,
assertive and aggressive behaviour on the whiteboard. Mistakes can be made in
encoding (for example, someone who acts aggressively while he means to act
assertively) and in decoding (for example, someone who interprets sub-assertive
behaviour as assertive).
Step 6. Continue B→C. Round 1:6×criticism+6×reaction. Duration: approximately
6×2 minutes=12 minutes.
Step 7. Round 2: same. Assemble cards+hand them out again. Duration:
approximately 12 minutes.
Step 8. The trainer gives a summary according to notes on the whiteboard.
Appendix B
Role play
Because role play is frequently used on training programmes aimed at the acquisition
of the skills described in this book, it is important to dedicate detailed attention to this
kind of exercise. Practising role play has the great advantage that it offers an
opportunity to work in an atmosphere of freedom, meaning that mistakes and
blunders are unimportant. You can freely experiment with new behaviour without
having to be scared of hurting ‘real’ conversation partners. In a training session
prepared roles are often used: first, because the majority of students do not have
much experience with situations in a company setting; second, because the roles of
conversation leader/interviewer and partner have to correspond. The duration of the
conversations varies between 5 and 30 minutes. By using role play we can discern
between:
• the preparation
• the preliminary talk
• acting and observing
• giving feedback.
The preparation
Good preparation is a minimum condition for the success of a role play. If you take
the role of conversation leader/interviewer you must have a clear idea of the goal and
structure of the conversation. You should also know which skills or conversation model
you want to use and which of your weak points you wish to pay attention to.
If you take the role of interviewee, applicant, client or employee (conversation

partner), you have to imagine yourself in that particular role before the actual
conversation.
For both parties it is equally valid that: when preparing a role, try to get a good
understanding of the environment and atmosphere of the conversation. Try also to
adapt your attitude and use of language as far as possible to the role. Students who
are role playing a shop assistant will present themselves from a head of department
in a conversation about the department’s performance. Besides prepared roles, self-

conceived roles are sometimes used. Here also the following applies: play your role
seriously. For example, choose a problem of somebody in your environment or
something you yourself can well imagine. If you have to think about how old you are
or whether you are married or not during the conversation both players can become
somewhat confused. Last but not least, you should take into account the skills or
conversation model practised by the conversation leader. Try to prepare the role in
such a way that the conversation leader gets the opportunity to apply the skills or
conversation model.
The observer should have a clear picture of the goal of the conversation, the structure
and the relevant attitude and skills of the conversation leader.
The preliminary talk
The observer is the ‘director’ of a role play that is usually conducted in a trio. Before
the role play starts, the observer goes over a number of points with the conversation
leader. The conversation partner is not present here. The observer arranges with the
conversation leader about how long the conversation will continue and who will keep
an eye on the time (the observer or the conversation leader). As the observer you
also discuss the conversation leader’s learning objectives, so that you know what you
should pay particular attention to. Also make agreements about what should happen
if the conversation does not proceed smoothly. Does the conversation leader want to
make it known that they want ‘time out’, or would they prefer that the observer
intervene if necessary? In the eventuality of a ‘time out’ the conversation leader can
discuss with the observer how the conversation could better be continued.
Acting and observing
It is important for the conversation leader to try and maintain their role. Of course, at
any time when they are not able to continue they are allowed to have a break.
However, before choosing this option we recommend that you try to find a solution
yourself about difficult points in the conversation. This enlarges the learning effect.
If you play the role of the conversation partner, try to act your role realistically. Try
to imagine how it would actually be if you really wanted a job and had to ‘sell’ yourself
at a job application interview, or what it would be like to talk to your manager about
a personal problem, or to receive criticism from your boss on your performance. It is
very important to give the conversation leader the chance to practise their role. So,
neither try to make it extremely easy nor extra difficult for the conversation leader.
The observers should not disturb the role play. Their task is to register the
communication between conversation leader and conversation partner and to note
down which skills the conversation leader has actually practised. By means of their
observations and feedback, the observer helps the conversation leader to sharpen
their communication skills. The conversation leaders thus receive a good picture of
how they performed during a conversation and how this performance influenced the
process of the conversation. On the basis of these observations, they can try to change
their behaviour in subsequent conversations. To reach this goal—behavioural
change—the observations must be given in concrete terms. Vague observations about
how the role play went in general give the conversation leader little clarity. In such a
case they don’t learn how to change their attitude and behaviour. To observe
everything which happens during a conversation is really an impossible task. So you
have to make choices. In order to give useful feedback as observer you should always
have the following points at the back of your mind:
• What is the goal of the conversation?

• What skills does it concern?

• What is the function of the skills in question? It is on this point that you must be
able to give a comment after the conversation.
The information you wish to have after the conversation is:
• What did the conversation leader do and say during the conversation? Which skills
did they use? What is your comment on the application of the skills?
• Were the skills used in a functional manner? What was their effect?
• How did the conversation partner react?
Giving feedback
Immediately after the role play the conversation leader first gets the opportunity to
‘let off steam’. What is their opinion bearing in mind the goal they had set
themselves? How did they feel? What were the difficult moments of the
conversation?
Second, the conversation partner can give their impressions: What did they think of
the attitude and behaviour of the conversation leader? How did they feel about it?
What would they have liked to be different?
Third, the observer gives their impression of the conversation briefly and with concrete
headlines. Has the goal of the conversation been achieved? Was the structure adhered
to? What is their opinion on the attitude of the conversation leader?
Finally, the observer should offer systematic feedback with the use of notes made
during the conversation. This feedback focuses on the (basic) communication skills or
conversation model to be practised and the possible learning points of the
conversation leader.
It is important for both parties to realize that this feedback is based mainly on the
behaviour of the conversation leader during this conversation in interaction with the
behaviour of the conversation partner, and not on their (total) personalities.
It often happens that a conversation does not proceed as planned. Certainly it is

difficult for a novice conversation leader to keep an eye on everything. So, a lot can
go wrong! This is not a problem at all and is often very instructive. However, in
practice it appears that many trainees find it difficult to pass criticism to their fellow
trainees. ‘Did I see it right?’ ‘Isn’t that unkind?’ ‘Later it will be my turn and maybe it’s
not so important.’ Although these questions are understandable, constructive
feedback is necessary to a good learning process. The following considerations may
facilitate the observer:
• It concerns giving feedback on certain communication skills, conversation models,

or learning points. Businesslike criticism is restricted to this and does not involve any
negative comments on the character of the conversation leader.
• By accompanying your criticism with, for example, a question—‘What did you hope
to achieve with your (re)action?’—and by contributing your own alternative or a better
(re)action, the discussion becomes more concrete.
If the observer has finished giving their feedback according to the guidelines
mentioned above, and if one of the trainers is present as an extra observer to the role
play, then they get the last word: first, to give any additions to the observer’s
comments; second, to give feedback to the observer on the way in which they
registered the role play and their observations and feedback.
It may be clear that not only a lot is expected from the conversation leader and
conversation partner, but also from the observer. At the beginning of a training
programme it will definitely not be simple to fulfil all the requirements of an observer.
Sometimes you are not able to determine which skill the conversation leader applied
or what the effect was of a certain intervention. It is helpful to develop an observation
system for yourself, in which you can quickly note your observations and recount them
during the evaluation. An example of such a system is shown below. To help you
record a role play we have created a short guide. Box B.1 illustrates an example of a
method of observing.
Short guide for the observer

Besides observing, it is the task of the observer to watch the time and to allow the
preliminary talk and evaluation of the role play to proceed as efficiently as possible.
This overview is very useful during training sessions.
Preliminary talk
1 Discuss with the conversation leader:
• the specific skills or the conversation model
• learning points.
2 Make agreement on:

• duration of the role play and evaluation

• time out and intervention of the observer.
Feedback
1 Give the conversation leader the opportunity to ‘let off steam’.

2 Ask the conversation partner to give their first impressions.
3 Give short feedback yourself on:
• achieving the goal
• adhering to the structure
• attitude of the conversation leader.
4 Give both the opportunity briefly to react on this.
5 The observer gets the opportunity to structure their observations.
6 For each phase:
• indicate which skills were used functionally
• which skills were not use functionally
• give suggestions for improvement
• give the conversation leader (and possibility conversation partner) the opportunity
to react.
7 Offer a summary in terms of ‘old’ and ‘new’ learning points.
8 Offer the trainer (if available) the opportunity to give extra feedback on the
conversation leader’s skills and on the observations.
Suggested item for Research

Prepare a short report on the current communication techniques currently used by
an existing organization.
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Chapter 8 – Motivating and Leading People and

Organizations
Leading in engineering management refers to the function of an engineering
manager that causes people to take effective action. After deciding what is worth
doing, the engineering manager relies on communication and motivation to get
employees to act. By selecting workers who are inclined to collaborate, the
engineering manager motivates them to steadily add value to the company. In
addition, skills training and attitude development may also enable employees to take
action. In this chapter, five specific leading activities will be discussed, namely,
deciding, communicating, motivating, selecting, and developing.
The true measure of the quality of an engineering manager’s leadership is his
or her demonstrated ability to guide and direct the efforts of employees to attain
organizational objectives (Northouse 2015). A leader has vision, sets a good personal
example, is able to attract and retain productive employers, motivates employees to
use their abilities, and induces them to willingly do their best. Managers derive their
authority from occupying higher positions within the organization. Leaders, on the
other hand, have the power of influence over people. Their power is attained by
earning employees’ respect and admiration (Maxwell 2015). However, some
leadership skills can be learned. Engineering managers with good leadership qualities
are particularly valuable to their employers.
In this chapter, specific methods for making decisions are also illustrated.
These include the rational method, decision-making by gut instinct, and decision-
making in teams. Furthermore, a few special topics on leadership are to be addressed,
including (a) leading changes, (b) advice for new leaders, and (c) guidelines for
superior leadership.
following:
1. Examine styles of leadership

2. Explain the leading activities
3. Assess special topics on leading
4. Criticize leadership styles to anticipate the consequences in managing groups
and teams.
Leadership
Leading Defined
Leading is a management function, which involves influencing others to engage in the
work behaviors necessary to reach organizational goals. The definition indicates that
a person or group of persons tasked with managing a group must assume the role
performed by leaders.
While leafing refers to the function, leadership refers to the process.
The following are the some common definition of Leadership
 Leadership is an influence process that enable managers to get their people to

do willingly what must be done, do well what ought to be done.(Cribbin, J.J.
‘Leadership: strategies for organizational effectiveness’)
 Leadership is defined as the process of influencing the activities of an organized
group toward goal achievement. (Rauch & Behling.)
 Leadership is discovering the company's destiny and having the courage to
follow it.
(JoeJaworski - Organizational Learning Center at MIT.).
 Leadership is interpersonal influence, exercised in a situation, and directed,
through the communication process, toward the attainment of a specified goal
or goals. (Tannenbaum,Weschler & Massarik)
 Leadership is the accomplishment of a goal through the direction of human

assistants.
 A leader is one who successfully marshals his human collaborators to achieve
particular ends (Prentice, W.C.H. ‘Understanding Leadership’ Harvard Business
Review September/October 1961 vol. 39 no. 5 p.143.).
 Leadership is the art of influencing others to their maximum performance to
accomplish any task, objective or project. (Cohen, W.A. ‘The Art of a Leader’
Englewood Cliffs, NJ: Prentice Hall (1990, p. 9)
 Leadership is the art of mobilizing others to want to struggle for shared
aspirations.
(Kouzes, J.M. & Posner, B.Z. ‘The Leadership Challenge’ San Francisco: Jossey’s
Bass) (1995, p.30)
 Leadership is the behavior of an individual when he is directing the activities of
a group toward a shared goal.(Hemphill )
 Leadership is the capacity to translate vision into reality. Warren G. Bennis
 Leadership is the incremental influence that a person has beyond his or her
formal authority. (Vecchio, 1988)
 Leadership is the influential increment over and above mechanical compliance
with the routine directives of the organization.( Katz & Kahn 1978, p. 528)
 Leadership is the initiation and maintenance of structure in expectation and
interaction. (Stogdill 1974, p.411)
 Leadership may be considered as the process (act) of influencing the activities
of an organized group in its efforts toward goal setting and goal achievement.
(Stogdill, 1950, p.3)
 Leadership is a social process in which one individual influences the behaviour
of others without the use of threat or violence. (Buchannan and Huczynski).
 Leadership is about articulating visions, embodying values, and creating the
environment within which things can be accomplished.Richards and Engle).
 Leadership is the ability to step outside the culture to start evolutionary change
processes that are more adaptive. (Schein)
 Leadership is the lifting of a man’s vision to higher sights, the raising of a man’s
performance to a higher standard, the building of a man’s personality beyond
its normal limitations (Drucker, P. F).
 Leadership is the process of influencing the activities of an individual or a group
in efforts toward goal achievement in a given situation. (Hersey, P. &
Blanchard, K.
 ‘Management of Organizational Behavior’. Englewood Cliffs, NJ: Prentice Hall
1988 p. 86)
 Leadership is the process of making sense of what people are doing together
so that people will understand and be committed.( Drath & Palus) (1994)
 Leadership: The capacity and will to rally people to a common purpose together
with the character that inspires confidence and trust (Field Marshal
Montgomery)
 Leadership is a purposeful relationship, which occurs episodically among
participants, who use their individual skills in influence, to advocate
transforming change.( Michael S. Kearns, 2005)
 Leadership is a relationship between those who aspire to lead and those who
choose to follow (Kouzes & Posner, 2002)
 Leadership is a process whereby an individual influences a group of individuals
to achieve a common goal (Northouse, 2004)
 Leadership is the influencing process of leaders and followers to achieve
organizational objectives through changes. (Lussier & Achua, 2004)
 Leadership is the behavior of an individual… directing the activities of a group
toward a shared goal. (Hemphill & Coons, 1957)
 Leadership is the influential increment over and above mechanical compliance
with the routine directives of the organization (D.Katz & Kahn, 1978)
 Leadership is the process of influencing the activities of an organized group
toward goal achievement (Rauch & Behling, 1984)
 Leadership is a process of giving purpose (meaningful direction) to collective

effort, and causing willing effort to be expended to achieve purpose (Jacobs &
Jacques, 1990)
 Leadership is the ability to step outside the culture to start evolutionary change
processes that are more adaptive (E.H. Schein, 1992)
 Leadership is the process of making sense of what people are doing together
so that people will understand and be committed (Drath & Palus, 1994)
 Leadership is about articulating visions, embodying values, and creating the
environment within which things can be accomplished (Richards & Engle, 1986)
 Leadership is the ability of an individual to influence, motivate, and enable
others to contribute toward the effectiveness and success of the
organization.(House et al., 1999)
 Leadership is the ability of developing and communicating a vision to a group
of people that will make that vision true (Kenneth Valenzuela, 2007)
 Leadership is ineffable and independent of ambition. There are those who seem
to radiate a field of influence to which others will respond in the same way that
metal filings line up in a magnetic field. A leader is invariably self-motivated -
not to achieve any particular ambition, either motivated to pursue personal
excellence. Invariably, human beings respond to and follow individuals who are
themselves motivated. The best leaders are motivated by a need to excel; that
pursuit is a passion and a source of deep personal satisfaction. (Iain Dale)
 Leadership is defined as a process of influencing others to accomplish the
mission, inspiring their commitment, and improving the organisation. (Tom
Peters)
 Leadership is a communication process of influencing and directing people to
commit to and achieve a shared goal voluntarily, in a given situation (Aykut,
Apinya, Billy, Crystal, Gilbert, and Ritina 2008).
 Leadership is a communication process of maximizing people potential and
influencing people to achieve a shared goal, in a given situation (Lo, 2008).
 Leadership is a capacity in the human community to shape its future.( Peter

Senge)
 Leadership is the behavior of an individual. Directing the activities of a group
toward a shared goal (Hemphill & Coons, 1957)
 Leadership is the process of influencing the activities of an organized group
toward goal achievement (Rauch & Behling, 1984)
 Leadership is a process of giving purpose (meaningful direction) to collective
effort, and causing willing effort to be expended to achieve purpose. (Jacobs
& Jaques, 1990)
 Leadership may be broadly defined as the relation between an individual and
a group built around some common interest and behaving in a manner directed
or determined by him. (Schmidt, 1933)
 Leadership is "the behavior of an individual directing the activities of a group
toward a shared goal. (Hemphill & Coons, 1957)
 Leadership is the accomplishment of a goal through the direction of human
assistants.
A leader is one who successfully marshals his human collaborators to achieve
particular ends. (Prentice, W.C.H. 1961)
 Leadership is that process in which one person sets the purpose or direction
for one or more other persons and gets them to move along together with him
or her and with each other in that direction with competence and full
commitment. (Jaques E. & Clement, 1994)
Behavioral Approaches to Leadership
Leader Behaviors
When trait researchers became disillusioned in the 1940s, their attention turned to
studying leader behaviors. What did effective leaders actually do? Which behaviors
made them perceived as leaders? Which behaviors increased their success? To answer
these questions, researchers at Ohio State University and the University of Michigan
used many different techniques, such as observing leaders in laboratory settings as
well as surveying them. This research stream led to the discovery of two broad
categories of behaviors: task-oriented behaviors (sometimes called initiating
structure) and people-oriented behaviors (also called consideration).
Task-oriented leader behaviors involve structuring the roles of subordinates,
providing them with instructions, and behaving in ways that will increase the
performance of the group. Task-oriented behaviors are directives given to employees
to get things done and to ensure that organizational goals are met.
People-oriented leader behaviors include showing concern for employee feelings
and treating employees with respect. People-oriented leaders genuinely care about
the well-being of their employees, and they demonstrate their concern in their actions
and decisions. At the time, researchers thought that these two categories of behaviors
were the keys to the puzzle of leadership. See House, R. J., & Aditya, R. N. (1997).
The social scientific study of leadership: Quo Vadis? Journal of Management, 23, 409–
473. However, research did not support the argument that demonstrating both of
these behaviors would necessarily make leader’s effective. Nystrom, P. C. (1978).
Managers and the hi-hi leader myth. Academy of Management Journal, 21, 325–331.
When we look at the overall findings regarding these leader behaviors, it seems that
both types of behaviors, in the aggregate, are beneficial to organizations, but for
different purposes. For example, when leaders demonstrate people-oriented
behaviors, employees tend to be more satisfied and react more positively. However,
when leaders are task oriented, productivity tends to be a bit higher. Judge, T. A.,
Piccolo, R. F., & Ilies, R. (2004). The forgotten ones? The validity of consideration and
initiating structure in leadership research. Journal of Applied Psychology, 89, 36–51.
Moreover, the situation in which these behaviors are demonstrated seems to matter.
In small companies, task-oriented behaviors were found to be more effective than in
large companies. Miles, R. H., & Petty, M. M. (1977). Leader effectiveness in small
bureaucracies. Academy of Management Journal, 20, 238–250. There is also some
evidence that very high levels of leader task-oriented behaviors may cause burnout
with employees. Seltzer, J., & Numerof, R. E. (1988). Supervisory leadership and
subordinate burnout. Academy of Management Journal, 31, 439–446.
Leader Decision Making

Another question behavioral researchers focused on involved how leaders actually
make decisions and the influence of decision-making styles on leader effectiveness
and employee reactions. Three types of decision-making styles were studied. In
authoritarian decision making, leaders make the decision alone without
necessarily involving employees in the decision-making process. When leaders use
democratic decision making, employees participate in the making of the decision.
Finally, leaders using laissez-faire decision making leave employees alone to make
the decision. The leader provides minimum guidance and involvement in the decision.
As with other lines of research on leadership, research did not identify one decision-
making style as the best. It seems that the effectiveness of the style the leader is
using depends on the circumstances. A review of the literature shows that when
leaders use more democratic or participative decision-making styles, employees tend
to be more satisfied; however, the effects on decision quality or employee productivity
are weaker. Moreover, instead of expecting to be involved in every single decision,
employees seem to care more about the overall participativeness of the organizational
climate.Miller, K. I., & Monge, P. R. (1986). Participation, satisfaction, and
productivity: A meta-analytic review. Academy of Management Journal, 29, 727–753.
Different types of employees may also expect different levels of involvement. In a
research organization, scientists viewed democratic leadership most favorably and
authoritarian leadership least favorably, Baumgartel, H. (1957). Leadership style as a
variable in research administration. Administrative Science Quarterly, 2, 344–360. but
employees working in large groups where opportunities for member interaction was
limited preferred authoritarian leader decision making. Vroom, V. H., & Mann, F. C.
(1960). Leader authoritarianism and employee attitudes. Personnel Psychology, 13,
125–140. Finally, the effectiveness of each style seems to depend on who is using it.
There are examples of effective leaders using both authoritarian and democratic
styles. At Hyundai Motor America, high-level managers use authoritarian decision-
making styles, and the company is performing very well.Deutschman, A. (2004,
September). Googling for courage. Fast Company, 86, 58–59; Welch, D., Kiley, D.,
Ihlwan, M. (2008, March 17). My way or the highway at Hyundai. Business Week,
4075, 48–51.
The track record of the laissez-faire decision-making style is more problematic.

Research shows that this style is negatively related to employee satisfaction with
leaders and leader effectiveness. Judge, T. A., & Piccolo, R. F. (2004).
Transformational and transactional leadership: A meta-analytic test of their relative
validity. Journal of Applied Psychology, 89, 755–768. Laissez-faire leaders create high
levels of ambiguity about job expectations on the part of employees, and employees
also engage in higher levels of conflict when leaders are using the laissez-faire
style.Skogstad, A., Einarsen, S., Torsheim, T., Aasland, M. S., & Hetland, H. (2007).
The destructiveness of laissez-faire leadership behavior. Journal of Occupational
Health Psychology, 12, 80–92.
Styles of Leadership
There are five major styles of leadership that are classified according to the
attributes of either a concern for people or an emphasis on tasks. These are defined
as follows:
1. The nice guy: Places too much value on social acceptance while neglecting technical
tasks.
2. The loser: Neither obtains acceptance from others nor gets the job done.
3. The compromiser: Balances both the needs of people and task factors.
4. The task master: Is interested in getting the job done right without concern for
human feelings.
5. The ideal manager: Gets the job done and at the same time makes everyone happy.
1. The nice guy

4 5
2. The loser
The compromiser
3
3.
2 1 4. The task master

5. The ideal manager
FIGURE 1 Leadership styles.

Figure 1 illustrates these styles. The principal style of leadership exhibited by a leader
is largely determined by his or her personal characteristics derived from traits such as
childhood experiences, parental impact, work habits, value systems, and others (Olson
2014).
Leadership style can also be identified as effective or ineffective, flexible or inflexible.
Most leaders practice more than one leadership style in their daily work. Different
styles are applicable to different people at different times (Lukiv 2015). Engineering
managers are advised to vary their leadership styles in accordance with the needs of
their employees (depending on whether the employees are experienced or novices)
and the work situation at hand.
Limitations of Behavioral Approaches

Behavioral approaches, similar to trait approaches, fell out of favor because they
neglected the environment in which behaviors are demonstrated. The hope of the
researchers was that the identified behaviors would predict leadership under all
circumstances, but it may be unrealistic to expect that a given set of behaviors would
work under all circumstances. What makes a high school principal effective on the job
may be very different from what makes a military leader effective, which would be
different from behaviors creating success in small or large business enterprises. It
turns out that specifying the conditions under which these behaviors are more
effective may be a better approach.
Contingency Approaches to Leadership

What is the best leadership style? By now, you must have realized that this may not
be the right question to ask. Instead, a better question might be: Under which
conditions are certain leadership styles more effective? After the disappointing results
of trait and behavioral approaches, several scholars developed leadership theories
that specifically incorporated the role of the environment. Specifically, researchers
started following a contingency approach to leadership—rather than trying to identify
traits or behaviors that would be effective under all conditions, the attention moved
toward specifying the situations under which different styles would be effective.
Fiedler’s Contingency Theory

The earliest and one of the most influential contingency theories was developed by
Frederick Fiedler.Fiedler, F. (1967). A theory of leadership effectiveness . New York:
McGraw-Hill; Fiedler, F. E. (1964). A contingency model of leader effectiveness. In L.
Berkowitz (Ed.), Advances in experimental social psychology, vol. 1 (pp. 149–190).
New York: Academic Press. According to the theory, a leader’s style is measured by a
scale called Least Preferred Coworker scale (LPC). People who are filling out this
survey are asked to think of a person who is their least preferred coworker. Then,
they rate this person in terms of how friendly, nice, and cooperative this person is.
Imagine someone you did not enjoy working with. Can you describe this person in
positive terms? In other words, if you can say that the person you hated working with
was still a nice person, you would have a high LPC score. This means that you have
a people-oriented personality, and you can separate your liking of a person from your
ability to work with that person. On the other hand, if you think that the person you
hated working with was also someone you did not like on a personal level, you would
have a low LPC score. To you, being unable to work with someone would mean that
you also dislike that person. In other words, you are a task-oriented person.
According to Fiedler’s theory, different people can be effective in different situations.

The LPC score is akin to a personality trait and is not likely to change. Instead, placing
the right people in the right situation or changing the situation to suit an individual is
important to increase a leader’s effectiveness. The theory predicts that in “favorable”
and “unfavorable” situations, a low LPC leader—one who has feelings of dislike for
coworkers who are difficult to work with—would be successful. When situational
favorableness is medium, a high LPC leader—one who is able to personally like
coworkers who are difficult to work with—is more likely to succeed.
How does Fiedler determine whether a situation is “favorable,” “medium,” or
“unfavorable”? There are three conditions creating situational favorableness: leader-
subordinate relations, position power, and task structure. If the leader has a good
relationship with most people and has high position power, and the task at hand is
structured, the situation is very favorable. When the leader has low-quality relations
with employees and has low position power, and the task at hand it relatively
unstructured, the situation is very unfavorable.
Research partially supports the predictions of Fiedler’s contingency theory.Peters, L.

H., Hartke, D. D., & Pohlmann, J. T. (1985). Fiedler’s contingency theory of leadership:
An application of the meta-analysis procedures of Schmidt and Hunter. Psychological
Bulletin, 97, 274–285; Strube, M. J., & Garcia, J. E. (1981). A meta-analytic
investigation of Fiedler’s contingency model of leadership effectiveness. Psychological
Bulletin, 90, 307–321; Vecchio, R. P. (1983). Assessing the validity of Fiedler’s
contingency model of leadership effectiveness: A closer look at Strube and Garcia.
Psychological Bulletin, 93, 404–408. Specifically, there is more support for the theory’s
predictions about when low LPC leadership should be used, but the part about when
high LPC leadership would be more effective received less support. Even though the
theory was not supported in its entirety, it is a useful framework to think about when
task- versus people-oriented leadership may be more effective. Moreover, the theory
is important because of its explicit recognition of the importance of the context of

leadership.
Situational Leadership
Another contingency approach to leadership is Kenneth Blanchard and Paul Hersey’s
Situational Leadership Theory (SLT) which argues that leaders must use different
leadership styles depending on their followers’ development level.Hersey, P.H.,
Blanchard, K.H., ' Johnson, D.E. (2007). Management of Organizational Behavior:
Leadership human resources. Upper Saddle River, NJ: Prentice Hall. According to this
model, employee readiness (defined as a combination of their competence and
commitment levels) is the key factor determining the proper leadership style. This
approach has been highly popular with 14 million managers across 42 countries
undergoing SLT training and 70% of Fortune 500 companies employing its
use.http://www.situational.com/Views/SituationalLeadership/
RightHereRightNow.aspx
The model summarizes the level of directive and supportive behaviors that leaders
may exhibit. The model argues that to be effective, leaders must use the right style
of behaviors at the right time in each employee’s development. It is recognized that
followers are key to a leader’s success. Employees who are at the earliest stages of
developing are seen as being highly committed but with low competence for the tasks.
Thus, leaders should be highly directive and less supportive. As the employee
becomes more competent, the leader should engage in more coaching behaviors.
Supportive behaviors are recommended once the employee is at moderate to high
levels of competence. And finally, delegating is the recommended approach for
leaders dealing with employees who are both highly committed and highly competent.
While the SLT is popular with managers, relatively easy to understand and use, and
has endured for decades, research has been mixed in its support of the basic
assumptions of the model.Blank, W., Green, S.G., ' Weitzel, J.R. (1990). A test of the
situational leadership theory. Personnel Psychology, 43, 579–597; Graeff, C. L.

(1983). The situational leadership theory: A critical review. Academy of Management
Review, 8, 285–291; Fernandez, C.F., ' Vecchio, R.P. (2002). Situational leadership
theory revisited: A test of an across-jobs perspective. Leadership Quarterly, 8, 67–84.
Therefore, while it can be a useful way to think about matching behaviors to
situations, overreliance on this model, at the exclusion of other models, is premature.
Path-Goal Theory of Leadership

Robert House’s path-goal theory of leadership is based on the expectancy theory of
motivation. House, R. J. (1971). A path goal theory of leader effectiveness.
Administrative Science Quarterly, 16(3), 321–338. The expectancy theory of
motivation suggests that employees are motivated when they believe—or expect—
that (a) their effort will lead to high performance, (b) their high performance will be
rewarded, and (c) the rewards they will receive are valuable to them. According to
the path-goal theory of leadership, the leader’s main job is to make sure that all three
of these conditions exist. Thus, leaders will create satisfied and high-performing
employees by making sure that employee effort leads to performance, and their
performance is rewarded by desired rewards. The leader removes roadblocks along
the way and creates an environment that subordinates find motivational.
The theory also makes specific predictions about what type of leader behavior will be
effective under which circumstances. House, R. J. (1996). Path-goal theory of
leadership: Lessons, legacy, and a reformulated theory. Leadership Quarterly, 7, 323–
352; House, R. J., & Mitchell, T. R. (1974). Path-goal theory of leadership. Journal of
Contemporary Business, 3, 81–97. The theory identifies four leadership styles. Each
of these styles can be effective, depending on the characteristics of employees (such
as their ability level, preferences, locus of control, and achievement motivation) and
characteristics of the work environment (such as the level of role ambiguity, the
degree of stress present in the environment, and the degree to which the tasks are
unpleasant).
Vroom and Yetton’s Normative Decision Model

Yale School of Management Professor Victor Vroom and his colleagues Philip Yetton
and Arthur Jago developed a decision-making tool to help leaders determine how
much involvement they should seek when making decisions.Vroom, V. H. (2000).
Leadership and the decision making process . Organizational Dynamics, 68, 82–94;
Vroom, V. H., & Yetton, P. W. (1973). Leadership and decision-making. Pittsburg:
University of Pittsburg Press; Jago, A., & Vroom, V. H. (1980). An evaluation of two
alternatives to the Vroom/Yetton Normative Model. Academy of Management Journal,
23, 347–355; Vroom, V. H., & Jago, A. G. 1988. The new leadership: managing
participation in organizations. Englewood Cliffs, NJ: Prentice Hall. The model starts by
having leaders answer several key questions and working their way through a decision
tree based on their responses. Let’s try it. Imagine that you want to help your
employees lower their stress so that you can minimize employee absenteeism. There
are a number of approaches you could take to reduce employee stress, such as
offering gym memberships, providing employee assistance programs, a nap room,
and so forth.
Let’s refer to the model and start with the first question. As you answer each question
as high (H) or low (L), follow the corresponding path down the funnel.
1. Decision Significance. The decision has high significance, because the approach
chosen needs to be effective at reducing employee stress for the insurance premiums
to be lowered. In other words, there is a quality requirement to the decision. Follow
the path through H.
2. Importance of Commitment. Does the leader need employee cooperation to
implement the decision? In our example, the answer is high, because employees may
simply ignore the resources if they do not like them. Follow the path through H.
3. Leader expertise. Does the leader have all the information needed to make a high
quality decision? In our example, leader expertise is low. You do not have information
regarding what your employees need or what kinds of stress reduction resources they
would prefer. Follow the path through L.
4. Likelihood of commitment. If the leader makes the decision alone, what is the
likelihood that the employees would accept it? Let’s assume that the answer is low.
Based on the leader’s experience with this group, they would likely ignore the decision
if the leader makes it alone.
Follow the path from L.
5. Goal alignment. Are the employee goals aligned with organizational goals? In this
instance, employee and organizational goals may be aligned because you both want
to ensure that employees are healthier. So let’s say the alignment is high, and follow
H.
6. Group expertise. Does the group have expertise in this decision-making area? The
group in question has little information about which alternatives are costlier, or more
user friendly. We’ll say group expertise is low. Follow the path from L.
7. Team competence. What is the ability of this particular team to solve the problem?
Let’s imagine that this is a new team that just got together and they have little
demonstrated expertise to work together effectively. We will answer this as low or L.
Based on the answers to the questions we gave, the normative approach recommends
consulting employees as a group. In other words, the leader may make the decision
alone after gathering information from employees and is not advised to delegate the
decision to the team or to make the decision alone.
Developing Leadership Skills

Leaders need to have various skills to be effective:
Technical skills – these are skills a leader must possess to enable him to understand
and make decisions about work processes, activities, and technology. Technical skills
is specialized knowledge needed to perform a job.
Human skills – these skills refer to the ability of a leader to deal with people, both
inside and outside the organization. Good leaders must know how to get along with
people, motivate them and inspire them.
Conceptual skills – this skills refer to the “ability to think in abstract terms, to see
how parts fit together to form the whole.” A leader without sufficient conceptual skills
will fail to achieve this.
Leading Activities
The managerial function of leading includes performing specific tasks related to
leading the engineering unit or department to achieve organizational objectives. The
activities involved are outlined as follows (Kotter 1990):
1. Deciding: Arriving at conclusions and judgments with respect to priority, personnel,

resources, policies, organizational structures, and strategic directions. Decision-
making with incomplete data is the norm, not the exception.
2. Communicating: Creating understanding and resolving conflicts by talking, meeting,

or writing to others.
3. Motivating: Inspiring, encouraging, or impelling others to take required action and

creating workplace conditions to ensure work satisfaction. As leaders, science,
technology, engineering, and math (STEM) professionals’ dedication toward the
project inculcates a sense of responsibility and urgency among the rest of the team.
4. Selecting people: Choosing the right employees for positions in the organization or
for specific team activities.
5. Developing people: Helping employees improve their knowledge, attitudes, and

skills.
Some of these tasks are relatively easy, and others are more difficult. Engineering
managers need to practice them in order to become proficient over time in carrying
out these activities. They also need to demonstrate the ability to conceptualize the
future, identify unstoppable trends, and develop new ways to grow. Each of these
activities will be reviewed in detail in the following sections.
Deciding
Making decisions is a key responsibility of engineering managers. Making high-quality
decisions is the hallmark of excellent managers. The purpose of making decisions is
to align the choices of project priorities, people, financial resources, technology, and
relationships for the attainment of corporate objectives. As the engineering manager
gains experience, the overall quality of his or her decisions is expected to increase
(Health 2013; Krogerus and Taschaeppeler 2012).
Oftentimes, there is insufficient information available for guidance, or the future
business or market conditions are very fluid and fuzzy. Under these circumstances,
managers need to make spontaneous decisions based on intuition, gut instinct, and
hunch. Obviously, if data are available, they make reasonable decisions based on
systematic studies and logical analyses of them. Engineering managers are typically
quite proficient in handling this latter type of decision-making, which follows the
typical steps enumerated as follows:
1. Assessment of facts and evaluation of alternatives
2. Use of full mental resources
3. Emphasis on creative aspects of problem solving
4. Consistency in thinking
5. Minimize the probability of errors
Management decisions are usually difficult to make for a number of reasons. They
involve problems and issues that are ill-defined, as they are wider in scope and affect
more people than typical technical problems and issues. The required data and
information may be insufficient or excessive, and there may be no time available to
collect or interpret the data. The available information may be of poor quality, because
it is based on guesswork, rumors, opinions, hunches, or hearsay. Decision-making
involves human behavior, which is not always predictable. The nature of problems
and issues changes continuously. The consequences of management decisions
depend on opinions available, and as such, the consequences are also changing.
Rarely does a perfect solution exist for management problems, since all options
involve compromise, whose validity changes over time. Decision-making must also
consider implementation, which in turn depends on the consensus and commitment
of the affected people. Oftentimes, political considerations come into play as well. A
critical decision may involve multiple layers of management or peer departments, and
thus it requires coordination.
The following is a list of several decision-making guidelines useful to engineering
managers:
1. Acquire decision-making experience, for example, by recognizing patterns and

rules and by studying management cases.
2. Prioritize problems for which decisions must be made. Do nothing with problems
that are perceived to have minor significance and impact on the organization.
Avoid making decisions about issues that are not pertinent at the time. Delay
decisions that cannot be practically implemented. Also, do not make decisions
that ought to be made by others.
3. Follow a rational process to resolve a given problem and establish options to

remove its root causes. Asking good questions is also the hallmark of excellent
leadership.
4. Involve those who will be affected by the pending decisions in the decision making
process. Group decisions are superior to those made by individuals from the
standpoint of implementation. Such decisions, however, may take longer time to
reach, and they usually represent compromises for all involved.
5. Make decisions based on available information and those assumptions that have
been introduced. Check the validity of all assumptions and adjust the decisions
accordingly. Take necessary risks and avoid becoming paralyzed by stress or
uncertainty.
6. Delay making decisions until the last allowable moment, as the problems and
available options may continue to change. Above all, meeting all deadlines with a
decision is better than having no decision.
How can we judge the quality of a given decision? A simple way to find out is to
raise the following three questions:
1. Has the decision achieved the stated purpose; has it corrected or changed the
situation that caused the problem to exist in the first place?
2. Is it feasible to implement the decision; is it meaningful with respect to the required

resources and the created value?
3. Does the decision generate noticeable adverse consequences or risks to the group
or the company?
The decision at hand is regarded as good if the first two questions are answered with
a “yes” and the last one with a “no.”
As a rule, managers are expected to make decisions. However, there are
circumstances in which managers should delegate the decision-making authority to
the staff or work alongside them to come to a decision.
The following are problems or issues that should be handled by the managers only:
(1) prioritizing tasks and projects, assigning office spaces, and defining group
composition; (2) handling personnel assignments, evaluating performance, and taking
job action; (3) dispensing budget allocation; (4) applying administrative policies,
procedures, and regulations; and (5) dealing with highly confidential business matters
that are specifically designated by the top management (e.g., compensation,
promotion, corporate strategies, and new marketing initiatives).
Managers should include their employees when making decisions on the following
problems or issues: (1) considering staff needs for development (e.g., attending
professional meetings, technical conferences, seminars, and training courses, as well
as committing to study programs at universities); (2) discussing policies and
procedures, involving staff interactions with other departments; and (3) determining
team membership (e.g., considering personality fit, skills compatibility, working

relationships, and balancing workload). Decision-making authority should be
delegated to staff members for the following matters: (1) techniques to accomplish
assigned tasks or projects; (2) options to continuously improve current operations and
work processes; and (3) social events involving staff participation, such as group
picnics, golf outings, and Christmas parties.
As the saying goes, “practice makes perfect.” Engineering managers should seek
opportunities to constantly acquire experience regarding when, where, and what
decisions are to be made. How decisions can be made is deliberated in the next
section.
A) Rational Decision-Making Processes

A rational decision-making process is generally useful in facilitating decision-making
for numerous problems or issues in engineering when an adequate amount of
information is available (Eisenfuehr et al. 2010). It consists of the following set of
logical steps:
1. Assess the apparent problem based on observed symptoms.
2. Collect the relevant facts. Usually, not all facts are available due to resource, cost,
or time constraints. Facts must be related to five decision-making factors:
a. Situation (what, how). The sequence of events leading to the problem and
its conditions.
b. People (who). Personalities, preferences, personal needs, and egos.
c. Place (where). Significance of location.
d. Time (when). Pressure to bring forth an immediate solution.
e. Cause (why). Why the problem originally occurred, and why it occurred in
one situation, but not in another.
Past experience indicates that there are several good sources for identifying the
relevant facts related to the problems at hand (see Table 1).
TABLE 1 Sources for Facts Related to Problems
Problem Sources of Useful Facts

Categories
Equipment Plant operations personnel
Technical Engineers with direct
working knowledge
Customer inquiry Sales people
Customer Service and sales personnel
complaints
Materials and parts Delivery and inspection
personnel
Product quality Production staff
Customer Marketing personnel
preference
Market Marketing personnel
competitiveness
3. Define the real problem at hand and its inherent root causes by raising the
following three questions:
a. What is the deviation between actual performance and the expected norm?
b. What are the desired measurable results in a problem-solving situation?
c. What represents success based on well-defined metrics and the proper

method of measurements?
4. Develop alternatives to address the root causes of the stated problems. Decision
makers ought to freely invite creative suggestions from people who have direct
knowledge of the problem at hand, brainstorm in group settings (without
criticisms or comments so as not to deter imaginative suggestions), and take into
account both short-term and long-term impacts.
5. Select the optimal alternative. Decision-makers need to choose among the

options to address the root causes, such as by applying the rational method. It is
important for decision-makers to ensure that the chosen alternative will produce
minimum adverse consequences to the company or unit. They also need to plan
for contingencies and make midcourse corrections, if required, to secure the
greatest probability of achieving the desired outcome. They should also avoid
committing to a final choice prematurely before its implementation becomes
feasible.
A decision is nothing but the choice among several available options to solve a
problem or address an issue. If there is only one option available, then no
decision is needed.
6. Set a course of action to implement the decision. Once a decision is made,

engineering managers should devise an applicable action plan to implement the
decision. The manager must consider such details as policies that limit possible
action, programs (the sequence of action steps), schedules (dates and
milestones), procedures (the action steps carried out in an orderly manner), and
budgets and expenses for equipment and manpower. Decisions that are not
effectively implemented are useless.
B) Specific Rational Decision Analysis Tool

The Rational Decision Method is a renowned analysis tool available to support
decision-making. It prescribes the following steps (see Table 2) to arrive at a rational
decision:
1. Define a set of decision criteria needed for making the decision. The necessary
criteria are those that must be met. For example, all entry-level engineering
applicants must have undergraduate degrees in engineering to be considered for
employment.
TABLE 2 Rational Decision Analysis Method
Criteria Weight Option Option Option

Factor A B C
Criteria 1 R Go Go Go
Criteria 2 10 4 8 10
Criteria 3 5 6 10 7
Criteria 4 8 10 6 8
Total weighted — 150 178 199
score
Some hiring companies may define a grade point average (GPA; e.g., 3.5 out
of 4.0 maximum) as the cutoff academic performance level below which an
applicant would not be considered. The sufficiency criteria are those that are
not necessary, but are good to have. For hiring entry-level engineers,
companies may specify these to be summer work experience, internship
activities, project work, leadership positions held in student organizations, and
others.
2. Rank order the sufficiency criteria by assigning weight factors ranging from 10 (as
the most preferable) to 1 (as the least preferable).
3. Evaluate all options against each of the options identified as necessary decision
criteria. For example, the options that meet the necessary criteria may be
designated with the word “go.”
4. Remove from further consideration those options that fail the necessary criteria.
5. Rank all remaining options relatively, with respect to specific sufficiency criteria.
Assign a relative score of 10 to the most satisfactory and 1 to the least satisfactory
option.
6. Repeat this scoring process for each of the remaining sufficiency criteria.
7. Compute a weighted score for each option by multiplying its relative score for a
specific sufficiency criterion with its corresponding weight factor. Add up the
weighted scores for all sufficiency criteria to obtain the overall weighted score for
this option. Repeat the computation for each of the remaining options.
8. Compare the overall weighted scores and choose the option with the highest overall
weighted score.
This method forces decision-makers to externalize all necessary and sufficiency

criteria and to assign weight factors to all sufficiency criteria before making decisions.
The chosen criteria must represent a mutually exclusive and collectively exhaustive
set of criteria for the decision at hand. By ranking options against each of the defined
criteria, all available options are properly evaluated in a rational, equitable, and
comprehensive manner.
This method is particularly useful in a team environment where members may
needlessly argue for specific options without externalizing their decision criteria and
the relative ranking they have assigned to the criteria. Oftentimes, the advocates for
a specific option make implicit assumptions that remain hidden and unknown to others
on the team. In addition, personal biases may influence the relative scores assigned
to the options when these options are evaluated against a given decision criteria.
Experience has shown that the personal biases tend to become minimized when the
relative scores are polled from all teammates during a meeting.
This method is also effective for decision-making on an individual basis. Some
engineering managers tend to emotionally overemphasize certain decision criteria and
downplay the importance of others. Again, having all decision criteria and their
respective weight factors explicitly delineated will facilitate a rational decision.
Example
Bill Pickens, manager of the test division, called John Riley, the group head
of mechanical testing, into his office and told him that there was a new
opening for a manager of product development in the company. For John, it
would be a promotion to a higher managerial rank with an appropriate
increase in salary. However, the new position is temporary, in that it may be
eliminated in a year. Although Bill hates to lose a very valuable worker like
John, he wants to let John himself make the decision. The product
development division has specifically requested that this opening be
recommended to John. After having given it some thought, John decided to
take the new position.
The next day, Bill Pickens and John Riley sit down together again to name a
group head successor. Among the three section heads in the group, Dodd is
the most experienced. However, Dodd is quiet and does not communicate
well. He may have difficulty in selling testing services to others. Yeager is
competent, but has made hasty decisions that have been very costly to the
group. Bennett is ambitious and aggressive, but has poor interpersonal skills.
They concluded that none could be immediately promoted to take over.
Finally, they agreed to rotate the acting head job among the three, to test
out each of them, since there is an outside chance that John may come back
to his old position after one year.
Shortly thereafter, Bill Pickens was promoted out. John decided not to return
to take Bill’s position. Terry Smith was brought in to take over Bill Pickens’s
job as test division manager. However, before Bill Pickens left, he indicated
to Yeager that Yeager would likely get the job, based on the results of the
trial periods.
Terry found significant rivalry and ill-feeling between the three section heads.
The group had low morale and poor productivity. Under such circumstances,
Terry decided to appoint a new employee, Dennis Brown, to the mechanical
testing head position instead of one of the three.
Did Terry make the right decision? Apparently, the job rotation idea failed. What
would have been the right way for Bill Pickens to handle this problem?
Answer
The decision made by Terry was not the right one. The reasons are as follows:
1. The personnel situation was created by both Bill Pickens and John Riley’s
inability to make a staffing decision by choosing the best one among the
three candidates and minimizing the impact of the new head’s
shortcomings. Rotating the acting head job created chaos due to
infighting. Potential infighting should have been anticipated by
experienced managers.
2. Terry’s decision negated an implied management promise that one of
the three would be promoted after a one-year trial period. This broken
promise could be the basis of a future lawsuit.
3. The appointment of a new employee, without consultation with and
concurrence of the three section chiefs, reflects a lack of sophistication
on the part of Terry. It raises the issue of fairness and creates an
employee loyalty problem. The three section chiefs are not likely to be
motivated to work with the new person.
4. It is not known if Dennis Brown has the necessary technical and
managerial skills to be more successful than any one of the three tried
candidates.
5. The likely results are as follows:
a. Lost management credibility due to broken promises and a lack of
personnel staffing capabilities. (Riley neglected to groom a successor
by correcting the perceived shortcomings of his chosen successor
during the last five years.)
b. Management is perceived to be lacking fairness in decision-making.
(This will result in lower group morale and decreased employee loyalty.
Employee turnover may increase as a consequence.)
The job rotation idea is a poor one. It was selected only because Pickens and
Riley were not able to make good staffing decisions. They were looking for a
perfect person, and overlooked the possibility that most of the identified
shortcomings could be easily compensated for or corrected.
What Pickens and Riley should have done was to make a hard choice in the
beginning, either bringing someone in from the outside or promoting one of
the three employees. Assuming that no suitable outside candidates were
available, then rational decision analysis should have been used to come up
with a choice, as shown in Table 3.
TABLE 3 Making a Personnel Choice
Criteria Weight Dodd Yeager Bennett

Factor
Minimum technical R Go Go Go
experience
Experience 10 10 8 6
Communications skills 8 5 10 10
Decision-making 6 10 5 10
abilities
Human relations skills 6 10 10 5
Total weighted score 260 250 230
At first glance, Dodd appears to be the winner. However, as the candidates’

weighted scores are rather close, the refinement step shown in Table 4 may be
taken.
TABLE 4 Making a Refined Choice
Adjustments are made based on the expected values of improving the

relative score of the identified weakness from 5 to 10. The adjusted total
score represents the final ranking of these three individuals, after each is
allowed to minimize his weaknesses. Dodd remains the winner in this case.
Example
Due to global competition, the company faces a tough time in the

marketplace, and so it must scale down its workforce. The board has offered
the following options for the employees:
1. Quit voluntarily. This could be attractive to several bright young engineers

whom the company does not want to lose.
2. Last in and first out. This could result in the loss of young and more versatile
operators.
3. Early retirement of those within 10 years of their normal retirement age . This
could cause a loss of engineers with valuable product knowledge.
4. Reverse ranking in performance records. This could lead to unfair selection,
as the uniform performance appraisal system has been operating in the
company only for the last few years.
What methods, or combination of methods, should the company use to reduce

employment?
TABLE 5 Choosing the Method of Downsizing
Weight Option Option Option Option Option Option

Factor 1 2 3 4 5 6
Criteria (1&4) (4&1)
Not to lose 10 5 10 3 8 6 7
knowledge
and
experience
Easy for 8 10 10 5 8 9.5 8.5
affected
employees
to find jobs
Easy for 8 5 10 3 8 6 7
company to
find
replacements
Easy for 10 10 9 8 5 8 6
company
to avoid
legal
problems
Total 270 350 174 258 264 254
weighted
score
Answer
The company should use the rational decision-making method and assign
weight factors to all the criteria. The relative score as displayed in Table 4.5
should be assigned to evaluate all options.
Based on the results obtained from Table 5, the method of last in and first out
(Option 2) should be chosen to reduce employment.
C) Additional Support Tools for Decision-Making

A number of spreadsheet-based tools are commercially available to engineering
managers to support their decision-making process. Examples of such tools include
• Forecasting (exponential smoothing, time series, and neural network computing)

(Hyndman and Athanasopoulos 2013)
• Regression analysis (single variable and multivariable) (Chatterjee (2012)
• Risk analysis and project management (Fenton and Neil 2012; Yoe 2011)
• What-if solver (Slager 2014)
• Simulation modeling (Brandimarte 2014; Ross 2012)
• Decision trees (Rokach and Maimon 2014; DeVille and Neville 013), see the
TreeAge 2015 software by httpe://www.treeage.com
• Optimization (linear programming and integer and dynamic programming)

(Belegundu 2011)
• Artificial intelligence and pattern recognition tools (Marwala 2014; Frankish 2014)
• Expert or knowledge-based systems (Giarratano and Riley 2004; Tweedale et al.

2015)
Engineering managers should familiarize themselves with all of these decision support
tools so that they can employ the right tools under the right circumstances (Ragsdale
2014).
Example
A certain company makes two products: P1 and P2. Each P1 requires 5 kg of

material M and 3 kg of material N. Each P2 requires 3 kg of M and 3 kg of N.
In the warehouse, there are 350 kg of M and 270 kg of N available. The
profit is $50 for each P1 and $40 for each P2. What mix of P1 and P2 products
should the company make and sell in order to maximize its total profit?
Answer
This is an optimization problem to be solved by linear programming:
Graphically, the solution method can be displayed as shown in Figure 2. Because of

the four constraints, the solution space is bound by the area OABCO: O (0,0), A (90,0),
B (40,50), and C (70,0).
As the profit line (50 × x1 + 40 × x2 = profit) moves to the right, the profit
is maximized when it passes through the point B (40,50), the rightmost
location it can take, while still satisfying the stated constraints. Thus, the
maximum profit is $4000(=50 × 40 + 40 × 50), and numbers of products P1
and P2 to make and sell are 40 and 50, respectively.
The simplex method is programmed to handle linear optimization programs with
n independent variables.
Suppose we want to know more about the impact of material constraints on
the company’s profit. Let us assume that material N can be increased by 30
units, subject to the new constraint
3x1 + 3x2 <= 300.
This new constraint, represented as a straight line 3x1 + 3x2 = 300, intersects
the straight line 5x1 + 3x2 = 350 at the point D (25,75), which is not shown
in Figure 4.2. The new optimum solution is then D, producing a new total
profit of $4250(=50 × 25 + 40 × 75). This new profit is $250 over the
previous total, because of added material N, which has a shadow price of
$8.33(=$250/30).
5× ×
3× ×
FIGURE 2 Linear programming problem.

D) Decision-Making by Gut Instinct

Since, up to middle-managerial levels, decision-making is mostly quantitative, the
tools indicated in the preceding section are useful. However, at upper- and senior-
managerial levels, problems and issues get much more complex and ambiguous.
When such circumstances defy systematic analyses, decision-making is typically based
on intuition and gut instinct (Cholle 2011).
Bob Lutz, president of the Chrysler Corporation, was reported to have made the
decision in 1988, by pure instinct while driving alone along a country road, to develop
and market a new sports car, the Dodge Viper. This car later turned out to be a great
success. Using interviews with several other managers as source material, Hayashi
(2001) studied the general intuitive decision-making processes.
What is gut instinct? According to Hayashi (2001), our minds process information all
the time. Our left brain processes conscious, rational, and logical thoughts, whereas
our right brain takes care of subconscious, intuitive, and emotional thoughts. Some
people claim that they can tap into right-brain thinking by jogging, daydreaming,
listening to music, or using other meditative techniques. Others have reported that
they get innovative ideas while taking long showers or placing themselves in
unfamiliar situations.
The theory of intuitive thinking claims that accumulated past experience enables some
people to bundle information so that they can easily store and retrieve it. Experts
further claim that such information is retrieved from memory by the observation of
patterns. Professional judgment can often be reduced to patterns and rules.
Accordingly, all other things being equal, people with varied and diverse backgrounds
tend to be more capable of thinking intuitively and learning faster because they
recognize more patterns. When using gut instinct, people essentially draw on rules
and patterns that reside in their memories. Diverse backgrounds facilitate cross-
indexing, allowing one to see similar patterns in disparate fields.
However, instincts can at times be wrong. People who make decisions intuitively are
advised to secure constant feedback in order to minimize the impact of incorrect
decisions and to learn from these decisions. Over time, the process of learning on the
basis of feedback has the potential of improving the patterns and rules stored in the
peoples’ memory, thus enabling them to make better intuitive decisions in the future
(Root-Bernstein and Root-Bernstein 2001).
Engineering managers at low- or middle-managerial levels should keenly observe how
top-level leaders make important decisions and reflect on such decision-making
processes, in order to update and modify their own decision-making patterns and
rules.
E) Decision-Making in Teams
Typically, individual engineering managers make decisions by using one or more of
the methods just described (analytical, rational, or intuitive). However, engineering
managers may also elect to make decisions by using the inputs generated by teams.
Under such circumstances, additional factors come into play, such as personality
clashes, conflicts of interest, and coalitions or alliances among the team members,
which affect the resulting decisions. Team leaders need to pay special attention to a
set of additional guidelines that foster better decision-making in group settings.
Silver (2013) advanced the idea that the group decision-making process must be
managed properly to consider social and organizational aspects. Doing so will secure
the needed support for implementation, which ultimately determines the final impact
of any decision. Three factors are important for the team leader to take into account
when managing a group decision-making process, namely, conflict, consideration, and
closure.
Group decision-making requires a set of leadership talents that are somewhat different
from those demanded in other situations. These include (a) active solicitation of
divergent viewpoints, (b) acceptance of ambiguity, (c) the wisdom to end a debate,
(d) the ability to convince people of the merits of the decision made, and (e) the ability
to maintain balance to embrace divergence and unity—divergence in opinion during
the debate and the required unity of participants needed to implement the decision.
Engineering managers are encouraged to follow the preceding guidelines when
managing team decision-making processes.
Communicating
The purpose of communicating is to create understanding and acceptance of the facts,
impressions, and feelings being communicated. When communicating, engineering
managers must have a clear purpose in mind and ensure that the message is
understood and retained. A proper form of communication needs to be selected, such
as a one-on-one meeting, phone conversation, written memo, staff meeting, e-mail,
videoconference, web posting, or net meeting. It is advisable for the engineering
managers to keep the communications channels open. They should be straightforward
and honest, respect confidential information, welcome suggestions, anticipate
resistance to changes, and dispel fears by disclosing full information (Adler et al.
2012).
There are five key actions to take to achieve efficacious communication: asking,
telling, listening, writing, and understanding. These actions will be discussed next.
A) Asking
Engineering managers should proactively request information and not wait to be told.
A lack of information can prevent understanding. Open-ended questions—those that
cannot be answered with “yes” or “no”—should be raised to gain new knowledge.
Voltaire said, “Judge a man by his questions rather than his answers.” Good insights
come from asking good questions. Great creative thinkers ask more questions. One
needs to dig deeper and deeper until magic insights reveal themselves. Asking
questions is to unpeel the layers of packaging to get to the real heart of the matter
by repeating why, how, where, when, who, what, what if, and what else. The quality
of the questions represents a gauge of the questioner’s background, education, and
depth of understanding of the issues involved (Palmer 2014; Sobel and Panas 2012;
Marquardt 2014).
B) Telling
Telling means transmitting information (verbally or in written form, or both) for
managers to keep employees informed about matters of concern to them, for
employees to inform managers about problems and pertinent development (e.g., to

avoid surprises that would trigger spontaneous and low-quality decisions), and for
workers to pass information to their peers.
Engineering managers need to exercise judgment as to what to tell and what not to
tell, as too much information could lead to overload and confusion and too little
information could cause employee mistrust and poor productivity. A typical rule of
thumb used in industry is that information is dispersed based on the need to know.
Managers will share information freely if it is needed for performing specific work or
has an impact on the individual’s work environment (Walsh 2014).
C) Listening
Engineering managers need to work on their listening skills to enhance their
understanding of both the words (spoken and written) and any possible subtext.
Woodrow Wilson said, “The ears of the leader ring with the voices of the people.”
They should maintain their concentration by exercising self-discipline and rigorous
control of their own urge to talk and interrupt (Alstine 2014; Ferrari 2012; Hartley
2014).
D) Writing
Written communications need to be concise (using the least number of words to
express the maximum number of concepts), logical (allowing easy comprehension),
and pertinent (focusing on the impact on the business purpose at hand). Check the
writing advice offered by Felden (1964) with respect to readability, correctness,
appropriateness, and thought. HBS Press (2003) offers seven principles of good
writing: (1) having a clear purpose, (2) being audience-focused, (3) stating key
message clearly, (4) staying on topic, (5) observing economy of words, (6) using
simple sentences, and (7) considering the right delivery strategy. Consult the books
by Strunk (2015) and Hacker and Sommers (2014) with respect to style.
E) Understanding
The ultimate goal of communication is to promote understanding—to hear with the
head and to feel with the heart. Engineering managers need to recognize shared
meaning (emotional and logical) and to assess the degree of sincerity by observing
body language, intonation, and facial expression (Adler et al. 2013).
Several communication barriers exist and these barriers should be taken into account
by engineering managers:
1. Interpretations of words and terms: Words are symbols or semantic labels applied
to things or concepts. The same words may have different meanings to different
people.
2. Selective seeing: Some people have the tendency to see only what they want to
see and remain blind to other information unfavorable to the position they take.
3. Selective listening: Some people hear only what they want to hear by screening
out information that may seem threatening to them, thus limiting their ability to
appreciate different perspectives and points of view. Others in conflicts may want
to understand only that which allows them to pursue their own self-interest.
4. Emotional barriers: All people have emotions. Engineering managers need to

appreciate the fact that people’s feelings are as important as their intellectual
knowledge. Sometimes, people’s attitudes and feelings may be so strong that
they impair their understanding of what is being conveyed. Generally, personal
biases will distort the understanding of what is being communicated.
The barriers just cited may cause the communications process to fail in creating the
desired degree of understanding. Experience has shown that appeals to emotion tend
to be understood and accepted much more readily than appeals to reason, analysis,
or cold logic.
To communicate efficaciously, engineering managers are advised to pay attention to
the following guidelines:
1. Know what to say and say what is meant: Engineering managers should focus on
key messages when communicating. Avoid noise or meaningless sounds,
pointless statements, and inconclusive remarks often used by people to impress
others, but not to express themselves. Examples of such noise include “The
answer is definitely a maybe” and “It is not probable, but still possible.”
2. Understand the audience: Engineering managers should tailor their

communication to the receiver’s frame of reference—their beliefs, concerns from
the job, background and training, attitudes, experience, and vocabulary.
3. Secure attention: Engineering managers should try to appeal to the receiver’s

interests; anticipate and overcome emotional objections (fear, distrust, and
suspicion); talk in the receiver’s terms; and lead from the present to the future,
the familiar to the unknown, and the agreeable to the disagreeable.
4. Obtain understanding: An effective communication technique is to start with

agreements and the statement of facts (not conclusions), use simple words (not
ponderous, confusing, or abstract terms), and communicate in bursts (avoiding
information overflow and knowledge digestion problems).
5. Ensure retention: The rule of four states the following: (1) Before trying to get
an idea across, tell your receivers what you are going to say. (2) Say what you
have to say. (3) Tell them what you said. (4) Get them to tell you what they have
understood.
Obviously, engineering managers must practice such a rule tactfully when the
receiver happens to be a senior manager of the company, instead of a young
intern engineer who may have just recently started to work.
6. Receive feedback: Engineering managers need to proactively pose questions and

learn to listen in order to get feedback from what was communicated.
7. Get action to enhance communications: Engineering managers should have the

receivers take action on the just-completed communication as a way of securing
its impact. This could be in the form of a commitment by the receivers to take
specific steps by agreed-on dates.
Creating understanding is what communication is all about. Engineering

managers need to practice asking insightful questions, conveying messages
clearly, and listening attentively so that understanding is created at each and
every communication endeavor.
Example
The company decided to move its engineering center to another location,

since it was running out of space. The new location was to be modern and
had been planned as a showpiece for the company. Management felt certain
that the employees would welcome the move. Negotiations were started with
several local governmental authorities for suitable accommodation.
To keep the workforce fully informed, it was agreed that the employees would
be told that a move was to be made, but that as yet no site had been chosen.
This communication led to wide speculation among the engineering
professionals as to the location of the new site, and various rumors
circulated. Some engineers with families decided to look for alternative
employment elsewhere, fearing that the new location would not be within
commuting distance. Morale fell and productivity suffered.
Negotiations took longer than anticipated, and no suitable location had been
found after six months. By then, morale was so low that the company
decided to abandon its relocation plan altogether. To overcome the space
problem, the company split the engineering group by putting a smaller team
into another factory site nearby.
What went wrong? How would you have handled this case differently?
Answer
To communicate or not to communicate—that was the question. A well-
intended, but premature relocation announcement induced anxiety in the
minds of affected engineers. A lack of progress in site negotiations
compounded these anxieties, causing low morale and decreased

productivity, leading to an eventual abandonment of the plan.
It would have been better for the company management to keep the plan
secret initially, negotiate for and decide on a specific site, and then have the
company president announce the relocation plan in a town meeting. The
announcement should have included:
1. The location of the new site, with emphasis on the advantages in

transportation, health care, weather, and historical, cultural, and
recreational attractions.
2. A request for the support of all engineers in making the relocation as smooth
as possible. The purpose of the relocation is to provide a better facility for
everyone. The company is investing x million dollars to support this move,
which will allow for possible expansion in the near future.
3. The date by which relocation is to be completed.
4. A delineation of the company’s plans to fund all relocation costs and offer
assistance in selling and buying homes, if the relocation is more than 100
miles away. The company will also assist the affected spouses to find jobs
at the new site.
5. The description of a human resources desk that will be set up to answer
specific questions.
Example
Your department is going to institute a major change. Some members have

indicated that they believe the change may be needed. However, in the past,
members of the department have tended to resist changes that they did not
initiate. The department as a whole has a good performance record. Discuss
the advantages of the following alternatives:
1. Permit the members of the department to determine if the change is needed.

2. Let the group make recommendations, but see that your objectives are adhered
to.
3. After the group discussion, adjust the goals, if possible, and monitor
performance to see that the change is followed.
Which do you think is most appropriate? Are there other strategies that are
more appropriate?
Answer
People resist changes unless they are convinced that the contemplated
changes are necessary. They tolerate changes better if the changes are
introduced gradually and they have had some say in making the changes.
Out of the three alternatives given, (2) is the most appropriate. Management
must state clearly the objectives of the planned changes and how the
attainment of objectives is to be measured. The members of the department
should be allowed to participate in deciding how to achieve the stated
objectives.
Company management must set the goals, which are not negotiable.
Members of the department are not to be empowered to decide if changes
are needed or not. Although the department has a good performance record,
change may still be needed for achieving significantly better performance in
view of the competition in the marketplace. Thus, alternative (1) is not
appropriate.
The goals of the department should not be adjusted on the basis of what
members of the department would like to do. Performance monitoring is a
valid approach to ensure that the stated objectives are met. Thus, alternative
(3) is also not appropriate.
In general, staff participation is useful to ensure active implementation of the
decision made. Thus, a combination of alternatives (2) and (3) may be
proper. Management specifies the objectives of the changes and the ways
the attainment of these objectives are to be measured. Members of the

department are encouraged to make recommendations regarding the best
ways to implement the changes. The actions taken by the department are to
be monitored constantly to make sure that the stated objectives are met,
even if only gradually.
Motivation, Motivating and Leading Technical Professionals
Motivating
The engineering manager secures results by motivating people. Examples of

motivators include opportunities to do challenging, interesting, and important work;
exercising leadership and position power; and gaining prestige and recognition. To
motivate is to apply a force that excites and drives an individual to act in preferred
ways. In general, emphasis is given to motivational forces that cause the individuals
to willingly apply their best efforts (Bruce 2011: Stratheford 2012). As Ralph Waldo
Emerson said, “Nothing great was ever accomplished without enthusiasm.”
It is advisable for engineering managers to accept differences in personal preferences,
values, and standards, and not try to change people. According to one theory,
personality traits are usually firmed up at the early ages of four or five by
environmental conditions. Managers should also recognize that every employee has
inherent drives to fulfill their own needs, such as self-actualization, recognition, ego,
self-esteem, group association, and financial goals (Tracy 2013).
A) Methods of Motivation
In general, engineering managers have several methods of motivation at their
disposal (Mauer 2015):
1. Inspire: Infuse a spirit of willingness into people to perform most effectually by

way of their own personality and leadership qualities, personal examples, and
work completed.
2. Encourage: Stimulate people to do what has to be done through praise, approval,

and help.
3. Impel: Force and incite action by any necessary means, including compulsion,
coercion, fear, and, if required, punishments (such as demotion, job suspension,
or termination).
The first two methods are well suited to motivate professionals, and the last one is
not.
Being assigned challenging work is a useful motivator for professionals.
B) Specific Techniques to Enhance Motivation

Engineering managers may implement the techniques outlined here to inspire and
encourage professionals to act (Newman 2015).
1. Participation: Invite employees to take part in setting objectives and making

decisions. Doing so will ensure emotional ownership and the utilization of specialized
knowledge. Participative management is known to have a positive motivational
impact on employees.
2. Communication: Set clear standards, relate the importance of the work, keep
expectations reasonable, and respond to suggestions offered by employees.
3. Recognition: Give credit where it is due, as sincere praise tends to promote further
commitment. Fair appraisals induce employee loyalty and trust.
4. Delegate authority: Trust the employees and do not over control them. Achievers
will seek additional responsibilities, and security seekers will not. Delegate what to
do and leave how to do it to the individuals. Delegate technically doable work only
to those who want it.
5. Reciprocate interest: Show interest in the desired results to motivate employees to

achieve these results.
C) Innovative Strategies of Worker Motivation

Confucius says, “Reciprocity is the foundation of human relations.” One very forceful
method of employee motivation is indeed to offer help needed by the employees,
who will surely be inclined to reciprocate. The key is to define such needs.
The innovative strategies advanced by Green (2013) are built on the known
assumptions that a person’s needs may be grouped into hierarchical levels, as follows:
1. Physiological needs: Hunger, thirst, and the need for clothing and shelter.
2. Safety: Protection from threats and danger.
3. Social: Giving and receiving affection, group membership, and acceptance by peers.
4. Esteem: Ego and self-confidence to achieve recognition.
5. Self-actualization: Continued self-development and realization of one’s own
potential.
A satisfied need no longer dominates the individual’s behavior, and the next higher
level need takes over. But a higher-level need only arises when lower ones are already
satisfied. The central premise of the model is that an unsatisfied need acts as a
motivator. Accordingly, a need-based motivation strategy suggests that engineering
managers should learn to understand the specific needs of their professionals at any
given time and find ways to help satisfy these needs.
Experience has shown that the motivation strategies presented here can be helpful in
motivating professionals who typically have high-level needs related to self-
actualization and esteem.
1. Present a variety of work assignments perceived to be desirable and that offer the
opportunity for personal growth.
2. Offer work that has a scope broad enough for the employee to develop self-
expression and individual creativity.
3. Manage with minimum supervision and control, as professionals favor independence

and individuality. Professionals tend to prefer having the freedom to make their own
decisions and choose their own work methods for achieving the stated objectives.
4. Provide work that fully utilizes the individual’s professional experience, skills, and
knowledge.
5. Assign work that enables the employee to receive credit and peers’ recognition.
Examples include teamwork, publication of technical articles, patents, company
awards, and activities in professional and technical societies.
On the other hand, pay and benefits have only a minor impact, as physiological needs
do not represent a motivator for most professionals. Because the higher-level needs
are never completely satisfied, engineering managers have ample opportunities to
motivate professionals to act with their best abilities in achieving the corporate
objectives.
Example
Company X recently installed an incentive system in the production

department. Each person receives incentive payments (in addition to hourly
wages) for any work done beyond the work standards established for each
job. After one month, the production manager noted that there was only a
meager increase of 4.5% in production. In your opinion, what might be the
reasons for such a poor outcome?
Answer
The incentive program appears to have failed in realizing the projected benefit.
This could be due to several reasons:
1. The incentive offered may be too small relative to the base hourly wage
that these workers have been earning all along.
2. Management may have made the mistake of not having consulted with
workers to understand their specific hierarchy of needs. Additional pay
may not be a strong motivator to them in comparison with other
nonmonetary factors, such as peer recognition, self-expression, social
acceptance among peers, and others. It is known that team participation
(such as a quality circle) has been a strong motivating factor for many
production workers in the automobile and other industries.
3. If the production workers are unionized, the union leadership may have
played a role in discouraging workers to compete against each other for
pennies.
It would be worthwhile for the production manager to set the target for
desirable productivity improvement at, for example, 10%, over the next 12–
18 months. Then, the production managers should form a team that is
empowered to develop recommendations regarding the specific ways to
achieve the stated improvement goals in productivity. The team should be
made up of workers on the plant floor, union leaders, production engineers,
and others who have direct knowledge of the production process involved.
By having participated in such teamwork, workers on the plant floor become
part-owners of the resulting action plan. The resulting plan is more likely to
be successfully implemented.
Selecting Engineering Employees

The long-term success of an engineering enterprise depends on the availability and
effective utilization of employees’ abilities, skills, and talents. It is equally important
to note that job satisfaction is known to have a profound impact on employees’
willingness to apply their skills to the best of their abilities (Arthur 2012; Farr and
Tippins 2010).
Through employee selection, company managers have some control over employees’
abilities, their willingness to apply their best efforts, and the extent of their job
satisfaction. All companies would favor hiring employees who are productive and
happy workers in corporate settings, firmly dedicated to their tasks, have excellent
interpersonal skills, possess the team player mentality, receive sound basic training,
and exhibit the capability to learn new things quickly.
A) Selection Process
Typically, the employee selection process includes the following steps:
1. Define needs: Specify the needs of the new positions by taking into account the
immediate requirements and long-term growth demands of the organization.
2. Specify jobs: Compose a job description for each of the open positions to define
the roles and responsibilities of the position holders, the position grade levels,
and the minimum qualifications of the ideal candidates (i.e., levels of basic
training and work experience).
3. Acquire applicants: Publicize job openings in newspapers, professional

publications, company websites, employment agencies, social media, and
Internet job sites to solicit candidates.
4. Review and prescreen: Select applicants by matching personal objectives with

company goals and check documents and references carefully.
For entry-level candidates who are recent college graduates with no professional
experience, many industrial employers place a significant amount of weight on
their GPA. Some companies have even specified a minimum GPA level as a
prescreen criterion. This overemphasis on the GPA is probably due partially to
an ignorance of better, more objective criteria than the GPA in assessing the
mastery of basic course subjects. This overemphasis is also due to the notion
that the GPA is a composite reflection of the level of personal responsibility and
dedication, as demonstrated by an individual in doing his or her principal job
of learning during college years.
5. Conduct interviews: Each applicant may be interviewed by several hiring

managers. The basis of assessment is typically studying the past to predict the
future. The quality of past work is a very good predictor for the future, as people
are known not to change significantly for the better overnight. A few useful
guidelines are enumerated here.
a. Ask about the candidate’s capabilities pertaining to the new position.

b. Listen carefully to what the candidate says during the interview. Avoid
spending too much time selling the job opportunity to the candidate.
c. Prompt the candidate to describe his or her last job. Be cautious of

candidates who speak negatively about their past employers.
For example, a recent college graduate may complain loudly about his or her
research-centered alma mater’s negligence in undergraduate teaching and use
it as a reason for the individual’s poor GPA records. This individual may be likely
to behave as a blame-shifting, finger-pointing, and irresponsible individual in a
professional environment.
d. Suggest that candidates tell you something negative that you should know
about them. Look for honesty. Determine if the candidate is aware of his or
her personal flaws, and what active steps have been taken to correct them.
e. Urge the candidates to explain what they would do if they got in over their
heads at work. An employee who turns to a colleague is a team player. An
employee who turns to a supervisor behaves like a child. An employee who
isolates himself or herself when in trouble can be extremely damaging to
the business.
f. Ask for specific examples that demonstrate the candidate’s capabilities in

creativity, innovation, and general leadership.
g. Encourage candidates to describe their aspirations. Ask, “Where do you see

yourself in five years?” or “What are your future goals?” Companies need
employees who can grow and evolve over time. A candidate who does not
have goals or ambitions may resist learning new skills or taking on additional
responsibilities.
6. Decide on job candidates: Match the candidate’s personality, technical

capabilities, work ethics, values, and other qualities with those of the company.
Generally speaking, the selection process just described, which is widely

practiced in industry, has not always yielded desirable results for employers
(Murphy 2011). Typically, four to five hiring managers may interview an

engineering applicant during a one-day site visit. For employers, the easy
part is to assess the candidate’s technical capabilities, as such capabilities
are readily supportedby documents (e.g., academic records, internship
reports, thesis, publications, and reference letters from professors and
company executives). The more difficult part is the assessment of the
individual’s soft skills, as discussed in the next subsection.
B) Soft Skills
Any employee’s future success in an industrial enterprise is known to be strongly
affected by their soft skills in teamwork, interpersonal relationships, leadership
quality, collaborative attitude, mental flexibility, and adaptability. These soft skills are
linked to the engineers’ personality traits, psychological profiles, value systems, and
deep-rooted beliefs. However, companies generally do not require candidates to
undergo specific psychological tests, and most interviewers are not trained to assess
candidates for soft skills (Gillins 2015; Wentz 2012).
Part of the difficulty in assessing the soft skills of engineers is brought about by the
engineers themselves. Nowadays, most engineers, armed with the knowledge of
interviewing guides, know quite well how to “talk the talk and walk the walk” in
interviews. They have polished responses to almost any type of questions in interviews
and are thus proficient in displaying the characteristics they believe many employers
are looking for.
Results in the literature have indicated over and over again that most professionals
who failed in industry—those who have been laid off or voluntarily quit due to personal
dissatisfaction—were deficient in soft skills, not in technical capabilities. Future hiring
managers need to learn more about how to assess the soft skills of candidates.
Some companies have devoted significant efforts to address this issue. Shown here
are industrial practices that describe what two progressive companies (Mazda Motor
Manufacturing Corporation (USA), Flat Rock, Michigan, and Diamond Star Motors
Corporation, Normal, Illinois) have done to assess the soft skills of their candidates
and the selection criteria they used when selecting these blue-collar workers
(Hampton 1988).
1. Interpersonal skills: Ability to get along with people.

2. Aptitude for teamwork: Team dedication and participation, focus on the impact on
the team and company instead of individual performance.
3. Flexibility: Learn several jobs, change shifts, and work overtime.

4. Drive to improve continuously: Make and take constructive criticism.
The basic strategy followed by these companies is to pick the best employees and
train them well. It is noteworthy that “best” is defined by the soft skills of the
candidates, not by their hard (technical) skills. These companies are known to have
selected 1,300 candidates out of 10,000 applicants at a cost of $13,000 per person,
using a multiphase process involving tests, exercises, and role-playing in group
activities.
C) Character
In the last few years, the general public has found a renewed interest in business
ethics, mainly sparked by reported questionable practices by companies such as
Enron, Global Crossing, Adelphia Cable, Arthur Andersen, and others. Chapter 11
provides detailed discussions of various ethical issues. However, it is proper to note
here that it serves companies better in the long run to hire employees with character
and then train them to acquire the requisite technical skills to become productive
(London 2013; Brooks 2015).
Developing People
Developing employees is another important activity of the managerial leader (Noe
2012). The objective of developing employees is to shape their knowledge, attitudes,
and skills in order to enhance their contributions to the company and to foster their
personal growth. Knowledge is the cognizance of facts, truths, and other information.
Attitudes are habitual personal dispositions toward people, things, situations, and
information. Skills are the abilities to perform specialized work with recognized
competence.
In well-organized companies, managers are evaluated on the basis of several
performance metrics, including how they have taken care of the development needs
of their employees. To be successful, employees must demonstrate initiative in
seeking to continuously improve their own knowledge, attitudes, and skills.
A) Employees
There are several ways in which managers may help develop employees. Employees
may be prompted to follow the managers’ personal examples of continuous
improvement in knowledge, attitude, and skills. Managers may coach inexperienced
employees on the job by demonstrating preferred ways of performing specific tasks.
In addition, managers could enrich employees’ work experience by institutionalizing a
job rotation. If the company’s budget and policy so allow, the specific employees may
be sent to attend professional meetings, technical conferences, training seminars, and
study programs at universities. Furthermore, team assignments may be used to
permit a better utilization of the employees’ talents and expertise to other critical
projects, while offering them an opportunity to become known to a larger circle of
peers within the company (Yukl 2012).
In training employees, managers need to emphasize employee participation, as the
goal is to satisfy the employee’s needs while simultaneously attaining the company’s
objectives. Employees should be appraised with respect to their present performance
in determining what steps might be needed to qualify them to make greater
contributions in the future. If the employee’s current performance is deemed to be
inadequate, managers need to be positive and forward looking in helping the
individual recognize the need for self-improvement. By setting a personal example of
continuous improvement, the manager is likely to positively motivate the individual to
seek further development.
B) Successors
Besides training employees, managers are also expected, as a part of their managerial
duties, to find suitable candidates within their organizations to succeed themselves
sometime in the future (Ward and Aronoff 2010). This is consistent with career
planning programs that some industrial companies are actively implementing to
promote leaders from within, discourage turnover, and maintain corporate continuity.
Special Topics on Leading

Corporate change needs strong leadership. Leaders promoted into new positions will
need to apply special strategies to succeed. Successful leaders share certain common
attributes. The next subsection discusses the special topics related to the managerial
function of leading.
A) Leading Changes
In twenty-first-century global economies, company-internal changes occur frequently
and often in reaction to changes in the external environment. Changes are typically
forced on companies by the market entry of new competitors, the declining market
share position of the company, the emergence of new technologies threatening the
company’s products or services, declining company performance in different regional
markets, (e.g., sales, gross margin, earnings, and net profits), shifting in customers’
preferences, and other factors (Laurence 2014; Anderson 2013; Shea 2013).
Changes will usually require the company to modify its ways of conducting business.
In general, changes are difficult to introduce because people like to stay in their
comfort zones. After changes are introduced, they need to be sustained beyond a
transformational period. Corporate changes demand strong leadership. According to
Kotter (2012), there are two reasons why many transformation efforts fail:
1. Large-scale corporate transformation takes time. In one specific example, the

maximum number of changes in a corporation was reached in the fifth year of
transformation (Shannon 1980). Leaders must be patient in marshaling corporate
resources to push forward (Figure 3).
2. Corporate transformation must follow a process of eight consecutive steps to

succeed. Every one of these eight steps is critical, as failure in any one will affect
the overall transformation performance.
9
8
7
6
5
4
3
2
1
0
1 2 3 4 5 6 7
Year
FIGURE 3 Corporate transformational changes. (Condensed and adapted from

Robert E. Shannon, Engineering Management, New York: John Wiley, 1980, p. 203.)
The process of eight consecutive steps delineates essentially the success factors for
transformational change. These eight steps are
1. Establish a sense of urgency: Leaders must examine the market and competitive
realities and identify and talk about crises, potential crises, or major opportunities
available in the global market. The goal is to convince at least 75% of the
management that remaining in the status quo is more dangerous to the health of
the corporation than launching in a new corporate direction.
2. Form a powerful guiding coalition: Major renewal programs often start with one
or two people. But a leadership coalition must grow over time. In addition to the
top leaders, there should be another 5 to 50 people committed to renewal. The
group must be powerful in terms of titles, reputations, and relationships. Only
when there are enough leaders in the senior ranks will the renewal process move
forward. Leaders should inspire the group to work together as a team. The
specific goal is to secure shared commitment to change by the top management

and by the most influential people. A line position holder must lead the coalition.
3. Create a vision: A coherent and sensible vision is needed to help direct the effort
to change. Leaders need to develop strategies to achieve that vision. The vision
should be easy to communicate to stockholders, employees, and customers.
Ideally, it should be explainable to an audience within five minutes and achieve
their understanding and acceptance.
4. Communicate the vision: Transformation needs a lot of people to make it happen.

Employees need to be persuaded and motivated to help make the changes. The
vision needs to be repeated whenever there are opportunities—through
newsletters, review meetings, training seminars, company picnics, and other
means. Leaders should use every channel possible to communicate the new
visions and strategies, teach new behavior by the example of the guiding
coalition, and “walk the talk,” as communication occurs in both words and deeds.
5. Empower others to act on the vision: Leaders need to do away with obstacles to
change, modify systems or structures that seriously undermine the vision, and
promote risk-taking and nontraditional ideas, activities, and actions. Examples of
obstacles to remove include structure (narrow job categories), compensation and
appraisal systems, and managers who refuse to change.
6. Plan for producing short-term wins: Leaders need to plan for visible performance
improvements, create these improvements, recognize and reward employees
involved in the improvements, and achieve at least some success within the first
one to two years. Otherwise, the renewal effort may lose momentum.
7. Consolidate improvements and procreate still more change : Leaders need to use
increased credibility to change systems, structures, and policies that do not fit the
vision; hire, promote, or develop employees who can implement the vision; and
reinvigorate the process with new projects, themes, and change agents.
Leaders should resist declaring victory too early to avoid killing the momentum.
8. Institutionalize new approaches: Leaders should articulate the connections

between new behaviors and corporate success, establish the means to ensure
leadership development and succession, and anchor the changes in company
culture (values, behaviors, and social norms) so that the changes continue into
the next generation of top management.
The eight-step process just described is recommended for top-level engineering

leaders who are planning to initiate and implement major corporate transformational
changes. With minor modifications, this process applies also to midlevel engineering
managers who may be called on to change the performance of a division or a
department.
B) Advice for Newly Promoted Leaders

If a new engineering manager is hired from outside to take over a department or
division, he or she might need to follow a special strategy during the transition period
(e.g., the first six months on the job) in order to be productive. This is because going
into an unfamiliar situation is akin to sailing in dense fog and only having forward
visibility for a short distance (Bradt and Davis 2014).
New leaders often make a number of common mistakes. These mistakes include being
isolated, having “the answer,” not strengthening the team, attempting too much,
trusting the wrong people, and setting unrealistic expectations (Belker et al. 2012).
In order for an engineering manager to become effective in a new organization,
Watkins (2003) offers specific advice consisting of seven rules, namely, leverage time
before entry, organize to learn, secure early wins, lay a foundation for major
improvements, create a personal vision, build winning coalitions, and manage oneself.
For newly promoted engineering managers, the leadership strategy just outlined
serves as a useful guiding light during the initial six-month period of sailing through
dense fog. Although the aforementioned recommended steps cover all important
aspects of a new leadership job—technical, cultural, political, and personal—individual
engineering managers may need to further customize these steps to fit their personal
style, organizational needs, and the people involved in a given situation.
C) Guidelines for Superior Leadership

To become superior leaders, engineering managers are advised to focus on the
following eight attributes, according to Cohen (2002):
1. Maintain absolute integrity: Any doubt about the leader’s integrity will be reflected
in the trust that others place in the leader.
2. Be knowledgeable: The leader should be technically excellent at what it takes to

get the job done.
3. Declare expectations: The leader should let people know which work to perform
and what results are expected.
4. Display unwavering commitment: The leader must demonstrate his or her clear
commitment.
5. Get out in front: The leader needs to build, establish, and maintain a strong positive
image. The leader should get out of the office to see what is going on (e.g., at the
plant floor, marketplace, customer service center, and technology laboratories). The
leader should also get out in front of the group to be seen, so that others know
their manager is committed.
General MacArthur gave this advice to a young battalion commander during World
War II: “Major, when the signal comes to go over the top, if you go first, before
your men, your battalion will follow you. Moreover, they will never doubt your
leadership or courage in the future.”
6. Expect positive results: Show self-confidence and work to get favorable results.
7. Take care of people: This is the basic reciprocity doctrine of Confucius: “If you take
care of people, people will take care of you.” Starbucks is said to practice this
doctrine by taking care of their employees first (e.g., financially supporting their
college education), then customers, and finally shareholders.
8. Put duty before self-interests: The mission and the employees must be more
important than one’s own self-interests.
The preceding list of attributes neglects to include the all-important quality of

strategic thinking and the leader’s capability to create vision. Without vision, a
person with the aforementioned attributes is merely a hardworking taskmaster who
is responsible, goal oriented, and socially assertive.
Conclusion
Leading is another key function of engineering management. It encompasses the
specific managerial activities of making decisions and selecting, developing,
motivating, and communicating with people. Carrying out these specific activities well
will make an engineer into a strong engineering manager.
Decision-making plays an important role in the career of an engineering manager. In
the engineering community, the rational decision-making method is regarded as a
standard. Engineering managers need to become familiar with a number of other
decision support tools so that the right tool can be fittingly applied to specific
circumstances.
This chapter offered guidelines for engineering managers to become better prepared
for the special cases of (1) introducing major corporate changes, (2) working as a
new leader in an engineering management environment, and (3) achieving superior
leadership.
Engineering managers are encouraged to practice various guidelines associated with
leadership whenever they find opportunities to do so.
QUESTIONS
1. Preparation of the company product that was promised to a major customer is

running late, and there is intense pressure on the production team to deliver the
product. The director of production is eventually told by the company president
to deliver, “or else.” The director therefore decides to ship the product, even
though it had not gone through all of its testing procedures. Members of the
production team become upset due to their uncertainty about the functionality
and reliability of the shipped product. The director, however, insists that “We will
just have to take that chance.”
As the director of production, how would you have acted differently?
2. As advised by the company president, the sales department received a set of

specific recommendations provided by an outside management firm to reorganize
for maximum effectiveness. The sales manager believes that a few of the sales
staff may disagree with the recommended changes. The sales manager herself is
also not fully convinced of the merits of all of the recommendations, but she
wants to implement them, at least in part. How should she proceed?
3. The engineering director of the company is called on to send one engineer abroad
to assist in the installation of equipment. There are three qualified candidates,
each working for a different manager under the director. The director knows that
all three engineers will want to go, but their superiors will oppose any of them
going for fear of losing time in completing their own critical projects. How should
the director make the choice?
4. The marketing department needed to submit a proposal to a global customer,

and it called a review meeting the next morning. By the time Bill Taylor, the
design manager, was informed in the late afternoon, all of his design staff had
left for the day and there was no one available. Bill Taylor decided to work on the
proposal himself through the night so that he could talk with his design staff the
next morning, one hour before the marketing review meeting.
All of the staff agreed with the proposed design except Henry King, a senior
staff member who is recognized as the most experienced and best designer in
the group. His objections were that the current design was too complex and
that it would take another week to modify the design to ensure its functional
performance.
In order to pacify him, Bill Taylor invited Henry King to come along to the
marketing review meeting so that Henry King would feel the pressure that
marketing was exerting on design. Unexpectedly, Henry King stood up at the
marketing review meeting and reiterated all of his design objections, causing
tremendous embarrassment to Bill Taylor and his superior, Stanley Clark, the
design director. Bill Taylor became furious.
What should Bill Taylor and Stanley Clark do?
5. Jerry Lucas is the division director. As branch chief, Bob Sanford reports to Jerry
Lucas. Bob Sanford has four section chiefs reporting to him.
Bob Sanford is technically competent, with extensive experience in solid rocket

propulsion; he is also regarded as the best expert in this field. He is highly
dedicated to his work, but inexperienced in managing technical people, as he
has been on the job for only two years. Bob Sanford handles his subordinates
quite roughly. He reverses his section chiefs’ decisions without prior
consultation with them. He demands that no information or data be transmitted
to persons outside the group without his knowledge and concurrence. He also
bypasses his section chiefs to go to people and encourages them to come to
him directly with problems. Rumors have it that he places spies or informants
within the group. As expected, he delegates no decision-making authority to
his section chiefs and regards all of his section chiefs as technically
incompetent. He creates an atmosphere of fear and suspicion, with low group
morale.
Bob Sanford does not report to Jerry Lucas candidly on project progress and on
difficulties he encounters. He does not understand his own responsibility of
building teamwork, enhancing group morale, and creating employee
satisfaction while achieving the goals of his group. He is lacking the skills and
willingness to resolve conflicts within the group.
Finally, the section chiefs as a group go in to see Jerry Lucas and complain about
the lack of authority and the oppressive atmosphere in the section.
What should Jerry Lucas do? I should note that this problem was condensed and
adopted from Shannon (1980).
6. The board of directors receives a proposal from a business partner to jointly set
up an assembly plant in a Third World country. This new plant will assemble final
products with key components made by the company. Financial terms are
attractive and the future marketing outlook is bright. There is just one problem.
The Third World country is not a democracy, has a poor human rights record,
neglects to protect its own environment, and does not safeguard workers’ rights.
An investment placed by the company would boost this country’s economy and
thus the political position of its current dictator. Should the company accept the
proposal? Explain why.
7. What are some important characteristics of effective leaders? Which of these

characteristics are more difficult for engineers to acquire?
8. The plant manager noticed a need to lessen the amount of waste materials,
which occur in the production process. A task force was set up, composed of the
plant manager and two of her supervisors, to examine the problem. They met
for three months and regularly published the task force objectives and findings
on the plant bulletin board.
The plant manager found, to her surprise, that the workers on the shop floor
exhibited limited interest in the task force and ignored the bulletin board
entirely. At the end of the three-month period, the task force came up with
several excellent recommendations, which required changes in work practices.
Most of the workers implemented the recommended changes very reluctantly,
and some even secretly worked to sabotage the new practices. Eventually, all
recommendations were withdrawn.
What went wrong? How should the plant manager have handled this case?
9. The project was running late and the section manager thought that it was time
for a pep talk with his staff. He realized that he was considered to be somewhat
autocratic by his staff, but this time he thought that he would impress on them
that he was really one of the members of the team and that they would work
together as one in order to succeed.
The section manager thought he made quite a good speech. He pointed out
that the project was running late and that, if they failed, the customer could
cancel the contract. He explained further that, as manager, he was responsible
for the success of the project, and so everyone would be equally to blame for
the failure of the project.
Unexpectedly, a group of staff came in to see him a few days later to clarify
whether they were all under threat of unemployment, should it turn out in the
future that they were indeed late and the contract was canceled by the customer.
What went wrong? What would you have done differently?
10. A regional sales manager suspected that one of her customers was having
financial troubles. However, she was reluctant to mention it to her superior
because she felt that she could be wrong. She kept quiet for several months,
continuing to take large orders from this customer and hoping that the customer
could recover from their troubles. Eventually, the customer went bankrupt and
defaulted on the payment of several large bills. What went wrong? What would
you have done differently?
11. Company X selects someone who is weak technically, but very strong in group
process skills, to lead a team in developing a new engineering product. Would
such a person be successful as a team leader? What can be done to ensure that
the engineering product developed by the team will be satisfactory from the
technical standpoint?
12. Conflicts between technologists and managers may arise when the technical
professionals with the skills to make a decision have to deal with a manager,
who has the right to decide. Why do such conflicts often exist in organizations
wherein everyone works toward the same common goal?
13. Company X makes the decision to substitute aluminum for steel in a component
of its product. What factors probably have contributed to this decision? At what
managerial level would this decision most likely have been made?
14. As the department head, you urgently need to find an experienced person to fill
a vacancy. The work involves close cooperation and coordination with others
inside and outside of the department. Candidate A has exactly the experience
required, but appears to be very unsociable. Candidate B has experience in a
related job and seems to have a pleasant personality, though is not an extrovert.
Candidate C has business experience in a different industry and is extremely
sociable. All three candidates have scored sufficiently high on intelligence tests
to qualify for the job in terms of general ability. Which candidate would you
choose, and why?
15. Joe Engineer has just graduated from the University at Buffalo. He earned a 3.8
GPA for his master of engineering degree. Before he finished all academic work,
he sent out numerous job applications and received three specific job offers, A,
B, and C. All of them require him to make a decision for acceptance or rejection
within one week.
Company A has an annual sales revenue of $5 billion dollars and is located in

New York City. The job of “engineer” pays $95,000 a year, plus full benefits
(e.g., 401(k), health insurance, four weeks vacations per year, education
assistance, and relocation assistance). The city living is, of course, exciting and
fun, but very expensive. The company has a structured training program for
new employees to become familiar with its operations. His future boss is
friendly and acts professionally. Joe believes that he can get along well with
him. The work is in line with his basic technical training. As it is typically the
case with big companies, other employees in the department are all quite smart
and the internal competition among coworkers is relatively strong. He envisions
that he may be able to get a promotion to the next level in five years’ time.
New York City is huge and there are at least five competitors to Company A
offering similar products/services in the city. Another potential benefit of
working in New York City is that Joe may be able to meet a lot of interesting
young people and find a future spouse.
Company B is a $500 million midsize company located in Rochester, New York.

The job of “engineer” pays $80,000 a year plus full benefits, which are similar
to that of Company A. Rochester is a midsize city with some cultural and
entertainment activities. Its cost of living is reasonable. Rochester is close to
the Finger Lakes region, a well-known recreational area. The next large city is
Toronto, which is about two hours away by car. The future boss is quite
enthusiastic about Joe’s employment at the company and is eager to welcome
him. The work is of a technical nature, but offers some managerial
development opportunities that Joe likes. Joe believes that he could be
promoted in the next three years and allowed to assume a higher level of
responsibilities thereafter. The city has only a few large companies, such as
Xerox and Kodak, but no company that competes directly against Company B.
Joe thinks that it may be a bit more difficult, if not absolutely impossible, to
meet a lot of interesting young people in Rochester.
Company C is a $50 million small company located in Buffalo, New York, where
Joe did some summer work during his school years. The job of “engineer” pays
$70,000 a year and offers some benefits. The benefits are not as good as in
either Company A or B. Buffalo is slightly larger than Rochester, but is still way
behind New York City in terms of culture and entertainment activities. Like
Rochester, Buffalo suffers from a declining industrial base. There have been no
new companies relocating into the Buffalo or the Rochester areas in recent
years. Company C has no competitors operating in Buffalo or nearby regions.
Joe knows his future boss because of his earlier summer work at the site. The
work is quite exciting, as the future boss views Joe as one of the bright new
stars and shows a significant willingness to personally train Joe for higher-level
roles and responsibilities. Being in a small company, Joe understands that he
needs to face up to the challenges of getting involved quickly in many
disciplines beyond the principal one that forms the basis of his master’s degree.
Because Buffalo is also a regional city, Joe believes that it could be hard for
him to meet a lot of interesting young people and subsequently find a mate.
Which job would you elect to accept? Explain the detailed decision-making
methodologies and reasons that you used to arrive at your decision.
16. Preparation of the company product that was promised to a major customer is
running late, and there is intense pressure on the production team to deliver
the product. The director of production is eventually told by the company
president to deliver, “or else.” The director therefore decides to ship the
product, even though it had not gone through all of its testing procedures.
Members on the production team become upset due to their uncertainty about
the functionality and reliability of the shipped product. The director, however,
insists that “We will just have to take that chance.” As the director of
production, how would you have acted differently?
suggested item for research

Identify a manager of your choice. Describe his leadership style. Are there important
changes that have to be made to improve his style? What are those? List down the
proposed character changes applicable.
Appendices
Appendix A: Factors Affecting One’s Influence on Others
This section discusses the various factors known to affect a person’s influence on
people. It is advisable that the engineering manager pay attention to them (Cialdini
2006).
1. Credibility
A person’s credibility is based on the following six attributes:
a. Composure (ways to handle oneself)
A degree of poise, stability, and patience; skills to handle a crisis situation

effectively; humor under stress; self-confidence; and ability for public
speaking are important attributes. Composure is the most important factor
affecting credibility in the short term.
b. Character
Integrity and honesty (not lying, not cheating, attempting to do things above
board, and maintaining high-moral standards); cooperative spirit, and
professional behavior—return all phones calls and respond to all mail; keep
promises, have an open and forthright attitude, and be fair in all situations.
Character is the most important factor affecting credibility in the long run
(integrity and honesty in professional versus private matters).
c. Competence
Technical (job-specific skills, experience, and training), managerial (planning,
organizing, leading, and controlling), and visionary (capability to envision
the future with strategic thinking). Table A1 displays the competence factors
that exert an influence on superiors.
TABLE A1 Competence Factors on Influence Exerted Upwards
First-Line Mid- Executive

Supervisor (%) Manager (%)
(%)
Technical 70 30 5
Managerial 25 40 25
Visionary 5 30 70
d. Courage
Commitment to principles; the willingness to stand up for beliefs, challenge
others, and admit mistakes; and the ability to make tough decisions under
uncertain conditions and accept responsibility for the consequences.
e. Conviction (beliefs)
Commit to the vision, demonstrate passion, and show confidence in the direction
being pursued.
f. Care for people

Know people (family, aspirations, current and future needs, favored learning
modes, upward mobility, etc.), treat people with respect and dignity
(listening to understand), comment only on issues and situations and not
on the person, and be a team player.
2. Personal power (independent of position power)

Personal power is affected by the following three factors:
a. Personal attributes
Physical appearance and size, drive, dedication, and personal values.
b. Knowledge
Common sense, historical perspective, political knowledge needed by others
(how to get things done through which doors, by what means, and with
whom—otherwise known as tricks of the trade).
c. Relationships
Business connections and power by association.
3. Variable leadership style

Leadership style needs to be varied in accordance with the circumstances
involved. In general, there are four situations that each requires a different
style of leadership.
The influence exerted on people by an engineering manager is affected by his

or her credibility, personal power and leadership style. Engineering managers
need to do the right thing at the right time and place, to the right people, for
the right people, or with the right people.
Appendix B: Motivation of Mission-Critical People

In the competitive world today, all companies struggle to attract and retain innovative
knowledge workers who are critical to the mission of their operations. To be
successful, companies in general, and engineering managers in particular, need to
tailor specific motivation strategies to the needs of individuals. In general, most
knowledge workers have the following types of needs:
1. Need for power (40%): Setting goals and offering positive recognition to allow one
to stand out and be unique
2. Need for affiliation (40%): Focusing on mission, vision, and the difference the
individual can make in teams
3. Need for self-achievement (20%): Offering task variety, learning, development, and
growth opportunities
Nortel Networks and Cisco Systems Inc. experienced high turnover (about 40%) in
their information technology sector. Surveys indicate that people with mission-critical
jobs left because of three specific deficiencies:
1. The work itself: Meaningfulness, relevancy, learning opportunity, enjoyability,

variability, etc.
2. Appreciation: Thanks, recognition; they were never told that their jobs were mission
critical.
3. Money: Many left for more money.
The preceding list of needs and the types of deficiencies causing knowledge workers
to want to leave are consistent with the Maslow need hierarchy model discussed in
Section 4.6.3. It is obvious that unsatisfied needs will strip employees of motivation if
they stay unsatisfied for long. Under such circumstances, knowledge workers are likely
to migrate to places where they can satisfy these unmet needs.
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Chapter 8 – The Essentials of Control
Controlling is a critical function because it ensures that all the management

functions of leading, planning and organizing as well as the mechanical processes of
an organization, perform as planned. Controlling includes establishing performance
standards, which are aligned to the company’s objectives and also involves evaluation
and reporting of actual job performance. A pivotal role of the manager is to control
the progress made towards achieving the plans set by senior management.
Monitoring the progress made entails identifying and correcting variances from the
planned progress.
This chapter begins by introducing the organizational control, the process of
control and the types and levels of control as well as the strategic control system.
1. Explain the steps in the control process.
2. Describe the different levels and types of control.
3. Explain balance sheets, income statements and ratios.
4. Evaluate organizational control in handling management issues in business

situation.
Organizational Control
Controlling refers to the “process of ascertaining whether organizational objectives

have been achieved; if not, why not; and determining what activities should then be
taken to achieve objectives better in the future.” Controlling completes the cycle of
management functions. Objectives and goals that are set at the planning stage are
verified as to achievement or completion at any given point in the organizing and
implementing stages. When expectations are not met at scheduled dates, corrective
measures are usually undertaken.
When controlling is properly implemented, it will help the organization achieve its
goals the most efficient and effective manner possible.
Deviations, mistakes, and shortcomings happen inevitably. When they occur in
the daily operations, they contribute to unnecessary expenditures which increase the
cost of producing goods and services. Proper control measures minimize the ill effects
of such negative occurrences. An effective inventory control system, for instance,
minimizes, if not totally eliminates losses in inventory.
The importance of controlling may be illustrated as it is applied in a typical factory.
If the required standard daily output for individual workers is 500 pieces, all workers
who do not produce the requirement are given sufficient time to improve; if no
improvements are forthcoming, they are asked to resign. This action will help the
company keep its overheard and other costs at expected levels. If no such control is
made, the company will be faced with escalating production costs, which will place
the viability of the firm in jeopardy.
Process of Control
Steps in the Control Process
Perhaps the simplest definition of controlling, attributed to B. E. Goetz, is
“compelling events to conform to plans.” Shannon in his management book states
that “control techniques and actions are intended to insure, as far as possible, that
the organization does what management wants it to do.” Control is a process that
pervades not only management, but technology and the daily lives of human. Effective
control must begin in planning; as shown in Figure 8-1, planning and control
are inseparable.
The steps in the control process are simple.
• The first step, establishing standards of performance, is an essential part of
effective planning. Standards should be measurable, verifiable, and tangible to
the extent possible.
Examples are:
• standard rate of production established by work measurement;
• budgeted cost of computer usage;
• targeted value for product reliability; or
• desired room temperature.
• The second step (and the start of the actual control process) is measurement
of the actual level of performance achieved.
• The third step is comparison of the two, measurement of the variance
(deviation between them), and communicating this deviation promptly to the
entity responsible for control of this performance, so that they might identify
what changed to cause the deviation to occur and identify potential corrective
actions.
• The final step is taking corrective action as required to “compel events to
conform to plans.”
Figure 8-1. The Control Process
Types and Levels of Control

In management, there are varying levels of control: strategic (highest level),
operational (mid-level), and tactical (low level). Imagine the president of a company
decides to build a new company headquarters. He enlists the help of the company’s
officers to decide on the location, style of architecture, size, etc. (strategic control).
The project manager helps develop the project schedule and budget (operational
control). The general contractor directs workers, orders materials and equipment for
delivery, and establishes rules to ensure site safety (tactical control).
Control can be objective or normative. Objective control involves elements of the
company that can be objectively measured, such as call volume, profitability, and
inventory efficiency. Normative control means employees learn the values and beliefs
of a company and know what’s right from observing other employees.
Strategic Control
Managers want to know if the company is headed in the right direction and if
current company trends and changes are keeping them on that right path. To answer
this question requires the implementation of strategic control. Strategic control
involves monitoring a strategy as it is being implemented, evaluating deviations, and
making necessary adjustments.
Strategic control may involve
the reassessment of a strategy due
to an immediate, unforeseen
event. For example, if a company’s
main product is becoming
obsolete, the company must
immediately reassess its strategy.
Implementing a strategy often
involves a series of activities that
occur over a period. Managers can effectively monitor the progress of a strategy at
various milestones, or intervals, during the period. During this time, managers may
be provided information that helps them determine whether the overall strategy is
unfolding as planned.
Strategic control also involves monitoring internal and external events. Multiple
sources of information are needed to monitor events. These sources include
conversations with customers, articles in trade magazines and journals, activity at
trade conferences, and own observations or another company’s operations. For
example, Toyota gives tours of its plants and shares the “Toyota Way” even with
competitors.
The errors associated with strategic control are usually major, such as failing to
anticipate customers’ reaction to a competitor’s new product. BlackBerry had a strong
position in the business cell phone market and did not quickly see that its business
customers were switching to the iPhone. BlackBerry could not recover
Operational Control
Operational control involves control over intermediate-term operations and

processes but not business strategies.
Operational control systems ensure that
activities are consistent with established
plans. Mid-level management uses
operational controls for intermediate-term
decisions, typically over one to two years.
When performance does not meet
standards, managers enforce corrective
actions, which may include training,
discipline, motivation, or termination.
Unlike strategic control, operational control focuses more on internal sources of
information and affects smaller units or aspects of the organization, such as
production levels or the choice of equipment. Errors in operational control might mean
failing to complete projects on time. For example, if salespeople are not trained on
time, sales revenue may fall.
Tactical Control
A tactic is a method that meets a specific objective of an overall plan. Tactical
control emphasizes the current operations of an organization. Managers determine
what the various parts of the organization must do for the organization to be
successful in the near future (one year or less).
For example, a marketing strategy for a wholesale bakery might be an e-commerce
solution for targeted customers, such as restaurants. Tactical control may involve
regularly meeting with the marketing team to review results and would involve
creating the steps needed to complete agreed-upon processes. Tactics for the bakery
strategy may include the following:
 building a list of local restaurants, hotels, and grocery stores
 outlining how the bakery website can be used to receive orders

 personally visiting local executive chefs for follow-up
 monitoring the response to determine whether the sales target is met
Strategic control always comes first, followed by operations, and then tactics. For
example, a strategy to be environmentally responsible could lead to an operations
decision to seek Leadership in Energy and Environmental Design (LEED) certification.
This is a program that awards points toward certification for initiatives in energy
efficiency, such as installing timed thermostats, using occupant sensors to control
lighting use, and using green cleaning products. The tactical decision is deciding which
energy-efficient equipment to purchase. At each level, controls ask if the decisions
serve the purpose: actual energy savings, the LEED certification, and acting
responsibly for the environment.
Top-Down Controls
Top-down controls are also known as
bureaucratic controls. Top-down control means
the use of rules, regulations, and formal authority
to guide performance. It includes things such as
budgets, statistical reports, and performance
appraisals to regulate behavior and results. Top-
down control is the most common process, where
senior executives make decisions and establish policies and procedures that
implement the decisions. Lower-level managers may make recommendations for their
departments, but they follow the lead of senior managers.
Advantages
With top-down control, employees can spend their time performing their job duties
instead of discussing the direction of the company and offering input into the
development of new policies. Senior executives save time by not explaining why some
ideas are used and not others. Heavily regulated businesses may find this approach
to be most beneficial.
Disadvantages
The top-down approach has its drawbacks. The lower levels of a company are in
touch with customers and recognize new trends or new competition earlier than senior
management. A heavy-handed top-down approach may discourage employees from
sharing information or ideas up the chain of command.
Objective and Normative Control

Objective control is based on facts that can be measured and tested. Rather than
create a rule that may be ambiguous, objective controls measure observable behavior
or output. As an example of a behavioral control, a store wants employees to be
friendly to customers. It could make that a rule as stated, but it may not be clear what
that means and is not measurable. To make that goal into an objective control, it
might specify, “Smile and greet anyone within 10 feet. Answer customer questions.”
Output control is another form of objective control. Some companies, such as
Yahoo, have relaxed rules about work hours and focus on output. Because
programmers’ output can be measured, this has worked well, whether an employee
works the traditional 9 a.m. to 5 p.m. or starts at noon and works until 8 p.m.
Normative controls govern behavior through accepted patterns of action rather
than written policies and procedures. Normative control uses values and beliefs called
norms, which are established standards. For example, within a team, informal rules
make team members aware of their responsibilities. The ways in which team members
interact are developed over time. Team members come to an informal agreement as
to how responsibilities will be divided, often based on the perceived strengths of each
team member. These unwritten rules are normative controls and can powerfully
influence behavior.
Normative control reflects the organization’s culture, the shared values among the
members of the organization. Every organization has norms of behavior that workers
need to learn. One company may expect employees to take the initiative to solve
problems. Another may require a manager’s approval before employees discuss
changes outside the department. Some topics may be off-base, while others are freely
discussed. Companies will have a mix of controls—top-down, objective, and
normative.
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2014
https://courses.lumenlearning.com/wmopen-principlesofmanagement/chapter/levels-and-types-of-
control/
Chapter 9 – Managing Technology

Now that the basic management functions have been defined in the previous
chapters, this time the chapter will discuss how technology is managed in the business
organization. It includes the topic about managing the research and development,
engineering design, globalization and management of challenges of innovation and
dynamic competition in the future. In order for a firm to develop a successful
management of technology, it is vital that the organization be readied for the changing
technology advancement. Thus, in this chapter the students will learn a number of
ways how organizations can develop and manage technology as well as innovation in
product development. Students will explore the research strategies and engineering
design process involved in managing technology and challenges in competitive
positions.
following:
1. Understand the role of research and development; and engineering design

process in the product development.
2. Identify technology and innovation management issues
3. Describe the significance of research and engineering design factors in
managing global challenges.
Nature of Research and Development

Research and development are commonly taken together under the general term
“R&D.” To distinguish between them, the National Science Foundation defined the
following terminologies:
Research, both basic and applied, is systematic, intensive study directed

toward fuller scientific knowledge of the subject studied.
Basic research is a research devoted to achieving a fuller knowledge or

understanding, rather than a practical application, of the subject under
study, although when funded by commercial firms, it may be in fields of
present or potential interest to the company.
Applied research is directed toward the practical application of

knowledge, which for industry means the discovery of new scientific
knowledge that has specific commercial objectives with respect to either
products or processes.
Development is the systematic use of scientific knowledge directed
toward the production of useful materials, devices, systems, or methods,
including design and development of prototypes and processes.
Research Strategy and Organization

Organizations have several objectives, including competitiveness, high profit and
long-term survival. Hence, there are four things the organization should do to balance
the conflicting demands of being responsive 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.
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 is 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.
For example, 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.
New Product Strategies

Within a specific industry, deciding the relative investment a company should make
in R&D is a part of strategic planning and should be based on the organization’s
concept of its fundamental mission and objectives. Ansoff and Stewart suggest four
alternative new product strategies:
First-to-market. This demands major expenditures for research before there

is any guarantee of a successful product. It also demands heavy
development expenditures and perhaps a large marketing effort to

introduce an innovative product. The possibilities of reward from the R&D,
however, are tremendous.
Follow-the-leader. This strategy does not require a massive research effort,

but it demands strong development engineering. As soon as a competitor
is found to have had research success that could lead to a product, the firm
playing follow-the-leader joins the race and tries to introduce a product to
the market almost as soon as the innovator.
Me-too. A me-too strategy differs from follow-the-leader in that there is no

research or development. In its purest form this strategy means copying
designs from others, buying or leasing the necessary technology, and then
concentrating on being the absolute minimum-cost producer. The firm
following this strategy will try to maintain the lowest possible overhead
expenses.
Application engineering. This role involves taking an established product

and producing it in forms particularly well suited to customers’ needs. It
requires no research and little development, but a good deal of
understanding of customers’ needs and flexibility in production.
Engineering Design
Design is the activity that best describes the engineer. To design is to create
something that has
never existed before, either as a solution to a new problem or as a better solution to

a problem solved previously. According to J. B. Reswick, “design is the central purpose
of engineering”. It begins with the recognition of a need and the conception of an
idea to meet that need. It proceeds with the definition of the problem, continues with
a program of directed research and development, and leads to the construction and
evaluation of a prototype.
Essentially, design is the process of creating a model, usually described in terms

of drawings and specifications (whether on paper or in computer memory), of a
system that will meet an identified need of the customer. The model can then be
reproduced by some suitable manufacturing process and distributed for use.
Engineering design is a process of transforming information, as illustrated in

Figure 9-1. Information provides the input to the process: a statement of the problem
to be solved, design standards, design methods, and the methods of engineering
science. Through the activity represented by the box labeled “Engineering design
process,” the engineer performs some logical sequence of activities, decisions, and
analyses to develop a solution to the problem. However, this solution is of little use
until the engineer communicates the solution in the form of drawings, specifications,
financial estimates, written reports, and oral presentations to explain and promote the
solution. Unfortunately, many engineers do not realize the importance of this vital last
step of communication, without which the rest of the work done is fruitless.
Figure 9-1. The Engineering Design Process
Systems Engineering/New Product Development
The design of a complex engineered system, from the realization of a need (for a
new system or improvement of an existing system) through production to engineering
support in use is known as systems engineering or as new product development (with
commercial systems). Systems engineering is a robust approach to the design,
creation, and operation of systems. In simple terms, the approach consists of
identification and quantification of system goals, creation of alternative system design
concepts, performance of design trades, selection and implementation of the best

design, verification that the design is actually built and properly integrated, and post-
implementation assessment of how well the system meets the goals. Whether called
systems engineering or new product development, the engineering of complex
systems is carried out in a series of sequential phases or stages as illustrated in Figure
9-2.
researchgate.net
Figure 9-2. The Systems Engineering Process
This process usually comprises the following seven tasks: State the problem,
Investigate alternatives, Model the system, Integrate, Launch the system, Assess
performance, and Re-evaluate. It is important to note that the systems engineering
process is not sequential. The functions may be performed in a parallel and iterative
manner.
Concurrent Engineering
A new approach is now applied to the engineering design philosophy to create

products that are better, less expensive, and more quickly brought to market. This
trend reunites technical and nontechnical disciplines such as engineering, marketing,
and accounting. Always focusing on satisfying the customer, these representatives
work together in defining the product to be manufactured. This approach to reduce
time-to-market has become widely adopted under the name concurrent (or
simultaneous) engineering for development of industrial systems.
Benefits of concurrent engineering (CE) include 30 to 70 percent less development time,

65 to 90 percent fewer engineering changes, 20 to 90 percent less time-to-market, 200 to
600 percent higher quality, and 20 to 110 percent higher white-collar productivity. [As
reported by the National Institute of Standards and Technology, Thomas Group Inc., and
Institute for Defense Analyses in Business Week, April 30, 1990.]
In concurrent engineering, the following are used for faster product development and
fewer changes:
• Collocate key functional disciplines.
• Organize cross-functional teams.
• Use computer-aided design (CAD) software.
• Conduct thorough design reviews at design concept and definition stages.
• Involve key disciplines, especially manufacturing, early in development.
• Prepare properly for CE implementation.
• Allow for a CE learning curve.
• Implement CE in small, manageable bites.
Figure 9-3 illustrates the interplay of technical specialties and changes in team
leadership that take place as a Concurrent Engineering (CE) team carries a system
from its conception through to post-production product support.
Figure 9-3. Formulation of a multi-specialty project team designed to accomplish

concurrent engineering in the stages of new product development. (From National Society
of Professional Engineers, Engineering Stages of New Product Development, NSPE
Publication #3018, Figure 22, p. 10.)
Control Systems in Design
In creating a complex system, hundreds or thousands of engineers, technicians,

and other workers may be involved in creating designs, reviewing them,
manufacturing or constructing in accordance with them, or inspecting to assure that
what has been made agrees with what was specified. However, no complex system
is specified perfectly to begin with, and the needs of the user may change during the
design phase; so design changes are inevitable. Control systems for drawing/design
release and configuration management are essential to assure that everyone knows
what the official design (configuration) is at any instant, while change can be managed
effectively. Design review is also an essential control system in design.
Globalization and Challenges for the Future

Designing a new system or product is a very complex undertaking. With global
corporations and organizations all racing to bring new ideas and products quickly to
market, the ability to control and organize diverse teams working on a joint design
project is critical. Further, the effects of technological change on the global economic
structure are creating immense transformations in the way companies and nations
organize production, trade goods, invest capital, and develop new products and
processes. Sophisticated information technologies permit instantaneous
communication among the extensive operations of global enterprises. New materials
are revolutionizing sectors as diverse as construction and communications. Advanced
manufacturing technologies have altered long-standing patterns of productivity and
employment. Goods and services produced in one part of the world are increasingly
available in all parts of the world. International travel is more frequent. International
communication is commonplace. While some people think of globalization as primarily
a synonym for global business, it is much more than that.
Globalization as defined is a process of interaction and integration among the

people, companies, and governments of different nations, a process driven by
international trade and investment and aided by information technology. This process
has effects on the environment, on culture, on political systems, on economic
development and prosperity, and on human physical well-being in societies around
the world. Globalization broadly refers to the expansion of global linkages, the
organization of social life on a global scale, and the growth of a global consciousness.
As early as 1988, numbers of Japanese firms had begun exporting parts to the United States,
assembling them, then re-exporting the product to Europe in an attempt to avoid European
tariffs and quotas on Japanese-made goods! Partly as a result, by the beginning of 1987
Japanese companies in the United States already employed 250,000 Americans. Human
societies across the globe have established progressively closer contacts over many centuries,
but recently the pace has dramatically increased. Jet airplanes, cheap telephone service, the
Internet, instant capital flows—all these have made the world more interdependent than ever.
Multinational corporations manufacture products in many countries and sell to

consumers around the world. Money, technology, and raw materials move ever more
swiftly across national borders. Along with products and finances, ideas and cultures
circulate more freely. As a result, laws, economies, and social movements are forming
at the international level. Many politicians, academics, and journalists treat these
trends as both inevitable and applauded. But for billions of the world’s people,
business driven globalization means uprooting old ways of life and threatening
livelihoods and cultures. The global social justice movement, itself a product of
globalization, proposes an alternative path, more responsive to public needs. Intense
political disputes will continue over globalization’s meaning and its future direction.
However, the age of globalization has brought significant changes to the

relationship between rich and poor states. Offshoring and outsourcing are becoming
more commonplace. As knowledge-based globalization expands, there are many
reasons for these trends including the growing number of nations with increased
technical skills, and a willingness of global corporations to locate facilities where profit
opportunities exist. These offshore opportunities include lower cost of labor, relaxed
environmental standards, and non-existent corporate tax structures.
Future Considerations in Engineering and Management
Future directions in engineering and management are connected from future trends
of society as a whole. Some of the driving forces affecting the beginning of the twenty-
first century include the following:
● Continuing computer-based information revolution

● Increasing technological sophistication of society
● International and political considerations in a shrinking, interdependent world
● Demographic considerations
● Interactions of food, energy, materials, and the environment
Challenges of Industry 4.0
Industry 4.0 has been defined as a term for the modern trend of automation and
data exchange in manufacturing technologies, together with cyber-physical systems,
the Internet of things, cloud computing and cognitive computing and forming the
smart factory as depicted in Figure 9-4. Industry 4.0 is used interchangeably with the
fourth industrial revolution and characterizes a new stage in the organization and
control of the business value chain, hence, makes it easier for different industries to
automate routine tasks and disrupt the balance between job tasks completed by
humans and those completed by machines and algorithms. However, with these
emerging technology, the engineer manager needs to remain alert to changing
products, processes, technologies, and opportunities and to manage the progress of
the organization.
i-scoop.eu/industry-4-0
Figure 9-4. Industry 4.0 – Digital Transformation
As Industry 4.0 continues to change the way of interaction in the global market,
there are new challenges for industries and management organization to face in the
not so distant future:
● New business models — the definition of a new strategy

● Rethinking your organization and processes to maximize new outcomes
● Understanding your business case
● Conducting successful pilots
● Helping your organization to understand where action is needed
● Change management, something that is too often overlooked
● Examination of company culture
● The genuine interconnection of all departments
● Recruiting and developing new talent
Accordingly, embracing new technology and facing these challenges, management

organizations need to consider the impact it will have in the society and workforce. It
is important to recognize that Industry 4.0 requires businesses and organizations to
adopt a fresh thinking mindset and understanding the power of the inter-connectivity
gained by new technologies. By being able to adopt a new mindset, the company
needs to change culture, adapt a new business model, create new roles, nurture the
talent to fulfil those roles and manage closely throughout the process.
Summing Up
There are several ways organizations can advance and manage technology and
innovation. Strong dynamic capabilities of research and development and engineering
are needed if the organization is going to address the challenges of technology
advancement and global competition. Therefore, it requires all levels of the
organization to take in and the management principles and processes to produce
dramatic shifts.
Chapter Test
9-1. Differentiate basic research and applied research. List down a few organizations
that deal with applied research.
9-2. Discuss how the management functions of planning, organizing, leading, and
controlling relate to the engineering design process.
9-3. Identify a company and product, and tell how good or poor its product
development.
9-4. What are the advantages of globalization for countries? Discuss.
9-5. In your view, what kind of challenges may an engineer face in the future to cater
to the needs of a globalized market? Discuss.
REFERENCE:
2014
Chang, C. M. Engineering Management Meeting the Global Challenges, 2nd Edition, CRC Press, 2016
https://iiot-world.com/industrial-iot/connected-industry/nine-challenges-of-industry-4-0/
Chapter 10 – Managing Production

A production operation is a set of interrelated activities that are involved in
manufacturing products. Operations management focuses on carefully managing the
production operations to produce and distribute products and services.
Production/operations management is about the transformation of various resources
into value added product/services. Production is the creation of goods and services.
Operations management is the set of activities that manage the creation of goods and
services. Today production/operations management terms are quite often used
interchangeably depending on the product. A major focus of production operations is
on efficiency and effectiveness of processes. The use of quality concepts with
production operations includes substantial measurement and analysis of internal
processes.
The operations manager’s objective is to build a production system that identifies
and satisfies the customers’ needs. This chapter begins by defining operations and
operations management and introducing the manufacturing process. The statistics of
the measurements of variables and attributes are introduced and applied to control
charts and inspection sampling. This is followed by a discussion of the contributions
of total quality management, Taguchi, Deming, and the production process.
1. Define operations and operations management
2. Illustrate an example of manufacturing process of a business organization
3. Understand some of the quality tools
Operations
Operations refer to “any process that accepts inputs and uses resources to change
inputs in useful ways.” It is also an activity that needs to be managed by competent
persons.
Operations Management
Aldag and Stearns accurately defined operations management as “the process of
planning, organizing and controlling operations to reach objectives efficiently and
effectively”. As the terms “planning”, “organizing” and “controlling” have already been
discussed in the previous chapters “efficiency” and “effectiveness” will be made.
Efficiency is related to “the cost of doing something, or the resource utilization
involved.” When a person performs a job at lesser cost than when another person
performs the same job, he is more efficient than the other person.
Effectiveness refers to goal accomplishment. When one is able to reach his
objectives, say produce 20, 000 units in one month, he is said to be effective.
Operations management must be performed in coordination with other functions
like those for marketing and finance. Although the specific activities of the operations
divisions of firms lightly differ from one another, the basic function remains the same.
Operations and the Manager

The manager is expected to produce some output at whatever management level
he is working. The operations manager must find ways to produce the required quality
of goods and services and the reduction of costs in his department. The typical
operations manager is one with several years of experience in the operations division
and possesses an academic background in business or industrial engineering.
Manufacturing Process
Manufacturing processes are those that refer to the making of products by hand
or with machinery.
Job Shop. A job shop is one whose production is “based on sales orders for a
variety of small lots”. Job shops are very useful components of the entire production
effort, since they manufacture products in small lots that are needed by, but cannot
be produced economically by many companies. Depending upon the customer’s
needs, a job shop may produce a lot consisting of 20 to 200 or more similar parts.
Job shops produce custom products, in general. Products may be manufactured

within a short notice. The equipment used is of general purpose type.
The type of layout used by jobs is the process layout, where similar machines are
grouped together. The typical size of operation is generally small. Job shops are
labor intensive and machines are frequently idle.
Figure 10-1. Process Flow Diagram of a Job Shop
Batch Flow. The batch flow process is where lots of generally own designed
products are manufactured. It is further characterized by the following:
1. There is flexibility to produce either low or high volumes.
2. Not all procedures are performed on all products.
3. The type of equipment used is mostly for general purpose.
4. The process layout is used.
5. The operation is labor intensive, although there is less machine idleness.
6. The size of operation is generally medium-sized.
Examples of companies using the large batch flow are wineries, scrap-metal
reduction plants and road-repair contractors.
Figure 10-2. Batch Flow Process of a Large Manufacturer of Suits
Worker-Paced Assembly Line. An assembly line refers to a production layout

arranged in a sequence to accommodate processing of large volumes of standardized
products or services.
The quality and quantity of output in a worker-paced assembly line depends to a
great extent to the skill of the labor utilized. Examples of worker-paced assembly
lines are food marts like McDonalds and Shakeys.
The worker-paced assembly line is characterized by the following:
1. The products manufactured are mostly standardized.
2. There is a clear process pattern.
3. Specialized equipment is used.
4. The size of operation is variable.
5. The process is worker-paced.

6. The type of layout used is the line flow.
7. Labor is still a big cost item.
Figure 10-3. Assembly Line for Production of Goods or Services
Machine-Paced Assembly Line. This type of production process produces mostly

standard products with machines playing a significant role. Among its other features
are as follows:
1. The process is of clear, rigid pattern.
2. Specialized type of equipment is used.
3. The line flow layout is used.
4. Capital equipment is a bigger cost item than labor.
5. Operation is large.
6. The process is machine-paced.
Example of machine-paced assembly line is automobile manufacturers like General

Motors.
Figure 10-4. Machine-paced Assembly Lline process: Automobile

Manufacturing
Continuous Flow. The continuous flow processing is characterized by “the rapid

rate at which items move through the system.” This processing method is very
appropriate for producing highly standardized products like calculators, automobiles,
televisions, cellular phones, etc.
Its characteristics are as follows:

1. There is economy of scale in production, resulting to low per unit cost of
production.
2. The process is clear and very rigid.
3. Specialized equipment is used.
4. The line flow layout is used.
5. Operations are highly capital intensive.
6. The size of operation is very large.
7. Processing is fast.
Figure 10-5. Diagram of the Continuous Flow Process of a Paper-

making Company
Batch/Continuous Flow Hybrid. This method of processing is a combination of the

batch and the continuous flow. Two distinct layouts are used, one for batch and one
for continuous flow. The typical size of operation is also very large giving opportunities
for economies of scale.
Examples of companies using the batch/continuous flow hybrid are breweries and
tobacco manufacturers.
Figure 10-6. Simplified Production Process of a Gelatin

Manufacturing Company using Batch/Continuous Flow Hybrid
Assuring Product Quality

Quality has been described as fitness for use or customer satisfaction. It may be
divided into two categories. Quality of design measures the extent to which
customer satisfaction is incorporated into the product design through the specification
of proper materials, tolerances, and other precautions. Quality of design will vary to
some extent with the intended customer: One would not expect the same features in
a stripped-down Ford Focus and a fully equipped Lincoln Navigator. Quality of
conformance (or quality of production) measures how well the quality specified in
the design is realized in manufacture and delivered to the customer. The customer
may be an internal customer, as the next process on the production line, or an external
customer. One author adds a third aspect of quality, measuring how the product is
applied or employed, and what that does to its properties.
Quality Costs
An important step in getting management support for improving quality is
documenting the total cost of poor quality and of quality control efforts. The American
Society for Quality (ASQ) has established four categories of costs to help in this
analysis:
1. Prevention costs are those incurred in advance of manufacture to prevent
failures, such as quality planning, training, data analysis and reporting, process
control, and motivation programs.
2. Appraisal costs include the costs of inspection of incoming parts and materials
(whether by the supplier or when receive the parts), inspection and test of the
product in process and as a finished product, and maintenance of test
equipment.
3. Internal failure costs are those that would not appear if there were no defects
in the product before shipment to the customer. They include scrap (labor and
material spent on unrepairable items), rework (the cost of making defective
items fit for use, including necessary retesting), downtime and yield losses
caused by defects, and the cost of material review and disposition of defectives.
4. External failure costs are those caused by defects found after the customer
receives the product. These include the costs of investigating and adjusting
complaints, the costs of replacing defective product returned by the customer,
price reductions (“allowances”) offered to compensate for substandard
products, and warranty charges. The total costs to the customer in downtime
and other damages may be much higher, and these may drive the customer to
seek a more trustworthy supplier.
When these total quality costs are added up, they total far more than management
realized— often of the same magnitude as total company profit. Typically, the
prevention costs are found to be a very small percentage of the total. When a
concerted effort is instituted to develop a comprehensive quality program, to find the
primary reason for failures, and to modify design, processes, and employee training
and motivation to minimize failures, savings in failure costs are commonly many times
the cost invested in prevention. Even appraisal costs are reduced, since top-quality
product does not require the same intensive level of inspection. Figure 10-7 shows
the relationship of these components of quality cost with quality level. This classic
figure suggests that there is some optimum economic quality short of 100 percent
conformance that should be striven for. Merino points out that this may be a valid
conclusion where quality is “inspected in” through intensive inspection and test, but
that the modern approach of continuous improvement of product design and of the
processes used in manufacture makes it possible to approach very close to 100
percent conformance without excessive prevention and appraisal costs.
Figure 10-7. Effect of Quality Improvement on Quality Costs

Statistics of Quality
Statistics consists of gathering, organizing, analysis, and use of data. The methods
of statistical quality control were developed in the United States in the 1930s and
1940s (largely at Bell Laboratories). However, they received their most intensive
application in Japan after World War II, as a result of visits of the American statistical
quality control experts Deming and Juran at the invitation of General Douglas
MacArthur’s occupation forces. Only when the Japanese brought their quality and
reliability to a level that threatened the American economy did American industry
begin to pay attention. Unfortunately, American engineers and American business
leaders are poorly prepared to respond to this problem. Gordon Geiger, in his
presidential address to the Accrediting Board for Engineering and Technology (ABET),
which accredits U.S. engineering curricula, highlights this as follows:
We can learn from the Japanese, who have applied the fundamentals of quality management
to their processes and brought themselves from a state of complete ruin 40 years ago to
[being], without question, the world’s most powerful economic nation—a nation that today
provides the financing for America’s debt. Interestingly enough, the basis for much of their
quality control is statistics and yet less than one percent of all engineering curricula in the
United States require (and less than one percent of all engineering students take) a basic
course in statistics prior to graduation with a degree in engineering.
Lester Thurow, former dean of MIT’s Sloan School of Business, highlighted this
weakness in discussing the problem faced by a Japanese firm when they built a plant
in North Carolina. Although they were accustomed to using high school graduates for
statistical quality control in Japan, they could not find a high school or college graduate
able to do the job and thus had to hire someone with a graduate degree. Thurow
concludes by asking, “How can you win in a technical era with mathematical
illiterates?” [In the same 60 Minutes television program, Thurow stated that 70
percent of chief executive officers in Europe and Japan had a technological
background, whereas only 30 percent did in the United States and (perhaps as a
result) that production jobs are the “dumping ground” of U.S. industry, with lower pay
and less promotion.] Fortunately, in some American companies, managers from the
top down are now being taught statistics as the basis for understanding and improving
quality problems, and there is strong pressure within ABET to require training in
statistics in all engineering curricula.
Statistical methods are used to evaluate some quality characteristic, such as the
diameter of a hole, the weight of a package, or the tensile strength of a metal strip.
Two types of statistical methods are used in quality control (Table 10-1). Variables
methods involve measuring the quality characteristic (such as the hole diameter) on
a sample of the item being controlled, then using a continuous probability distribution
such as the normal distribution for analysis. Attributes methods involve counting as
defective those items that do not fall within a stated specification, then using the
fraction defective in a sample in discrete probability distributions such as the binomial
or Poisson for analysis. Each probability distribution is described by a measure of
central tendency (average) and a measure of dispersion (spread).
Table 10-1 Some Statistical Methods Used in Quality Control
Process Control Charts

In production operations it is important to ensure that a process is “in control,”
which means that it continues to produce items with unchanged quality
characteristics. Process control charts (Figure 10-8) are used to point to potential
problems that need attention. Control charts consist of three parallel lines: a central
line representing the mean value of a quality characteristic; an upper control limit
(UCL), normally three standard deviations (3σ) above this mean value; and a lower
control limit (LCL), normally three standard deviations below the mean. If the process
stays in control, 99.73 percent of all future observations should fall between the UCL
and the LCL, symmetrically dispersed about the mean. A great deal can be learned
about such things as raw material or operator changes, tool wear, or changes in
machine settings by observing measurements that fall out of the control limits, bunch
on one side of the central line, or follow some other nonrandom pattern random
samples of five items. To do this, take samples of five items at regular periods until
about 25 samples; use this information to calculate values for the central line (mean
of these mean values, or x) and control limits, and construct an ẋ chart similar to
Figure 10-8. As one continue making the product, he/she should continue to take
samples of five items and enter their mean value on the control chart to assure that
nothing has changed in the process or materials.
Figure 10.8 X-bar Control Chart
To control the variation (dispersion) about this mean value, maintain one of two
types of charts: an “R-chart,” measuring the difference between the highest and
lowest value within each sample of five, or a “sigma-chart” (σ-chart) measuring the
standard (root mean square) deviation of measurements from the mean value.
If one is using the attributes approach (counting, but not measuring defects),
he/she can control the level of these defects by using either a p-chart (which measures
sample fraction defective and is based on the binomial probability distribution) or a c-
chart (which measures defects per sample and is based on the Poisson probability
distribution). (A defective item is one that contains one or more defects.) In the
attributes approach, separate charts to monitor variation (dispersion) are not needed.
Total Quality Management

The quality revolution has been sweeping industry for the last 25 years and has
also made inroads in government, health, and higher education. The emphasis on
quality is key to managing production operations and to achieving excellence in
today’s global economy. The focus is on customer-driven standards. As the twenty-
first century begins, the quality movement has matured. The new quality systems
have evolved beyond the foundations of the early users and now incorporate the ideas
of Deming, Taguchi, J. M. Juran, Philip Crosby, Armand Feigenbaum, and many
others, blending these techniques and tools with other tools. Some of these include
the following:
• Affinity diagrams
• Brainstorming
• Pareto charts
• Check sheets
• Flowcharts
• Theory of Constraints
• Quality function deployment
• Statistical methods (as explained earlier)
• Run charts
The exact implementation of quality varies with each industry and, indeed, with
each organization pursuing it, but it always is customer-driven.
In the early and mid-1980s, many industry and government leaders saw that a
renewed emphasis on quality was no longer an option for American companies, but a
necessity for doing business in a more competitive global market. The Malcolm
Baldrige National Quality Award was established in 1987 by Congress to
recognize U.S. organizations for their achievements in quality and business
performance and to raise awareness about the importance of quality and performance
excellence as a competitive edge. The criteria for the Baldrige Award have played a
major role in achieving the goals established by Congress. They are now widely
accepted around the world as the standard for performance excellence. The criteria
are designed to help organizations use an integrated approach to organizational
performance management. They are a set of questions that focus on critical aspects
of management:
• Leadership
• Strategic planning
• Customer focus
• Measurement, analysis, and knowledge management
• Workforce focus
• Operations focus
• Results
Each year Baldrige awards are given to at most three organizations in five different
categories—manufacturing, service, small business, education, and health care. Some
of the past winners have included Milliken & Company, Ritz Carlton, Eastman
Chemical, Concordia Publishing House, Henry Ford Health System, Xerox Corporation-
Business Products & Systems, IBM Rochester, Solar Turbines Incorporated, and Pal’s
Sudden Service. The criteria provide a framework that assists in planning and
measuring performance for all organizations. The criteria also assist with other
continuous improvement processes, such as ISO, Lean, and Six Sigma.
The Baldrige, ISO, Lean and Six Sigma are all performance improvement tools and
all share the concept of continuous improvement. The Baldrige Criteria help identify
areas within the organization that are most ripe for improvement, and continuous
improvement is an integral part of the cyclical steps of Lean and Six Sigma. For
example, in a Lean environment, one works continuously to identify and eliminate
waste-generating processes. In the control stage of a Six Sigma project, he/she
generates and monitors data continuously to identify needs for further improvement.
One difference is that the Baldrige Criteria serve as a comprehensive framework

for performance excellence. They focus on business results as well as
organizational improvement and innovation systems. Lean and Six Sigma
methodologies drive waste and inefficiencies out of processes, and ISO 9000 is a
series of standards for an efficient quality conformance system. Overall, ISO 9000
registration covers less than 10 percent of the Baldrige Criteria.
In Europe there is a similar organization, EFQM (formerly the European
Foundation for Quality Management), which gives the EFQM Excellence Award. In
Japan the Deming Prize, established in December 1950 in honor of W. Edwards
Deming of the United States, and was originally designed to reward Japanese
companies for major advances in quality improvement. Over the years it has grown
to where it is now also available to non-Japanese companies, albeit usually operating
in Japan, and also to individuals recognized as having made major contributions to
the advancement of quality.
Taguchi Methods
Specifications have traditionally been treated on an all-or-nothing basis—a
measurement is either “in specification” and completely acceptable or “out of spec”
and completely unacceptable. The first three (normal) distributions of a quality
measurement shown in Figure 10-9—(a) narrow spread, centered on the specification
midpoint m; (b) narrow, but off center; and (c) wider spread but centered—would
therefore be almost equally acceptable. Even the “uniform distribution” in Figure 10-
9d would be equivalent.
Genichi Taguchi believes instead that there is some “loss to society” whenever a
quality characteristic deviates from its ideal value. In one common model used by
Taguchi, that loss is assumed to be proportional to the square of the deviation from
some target value T. In Figure 10-10, T is taken as the specification midpoint and the
dollar loss L varies with the actual value y as
L = k ( y – T ) 2,
where k is a cost coefficient.
Figure 10-9. Four Distributions of a Quality Characteristic in Terms of the Upper

and Lower Specification Limits (USL and LSL) and Specification Midpoint m.
Taguchi emphasizes the need for a continuous quality improvement program to

reduce the variation of product performance characteristics about their target values.
His methods include extensive experimentation in which product and process
parameters are varied in a statistical matrix of tests. Results are then evaluated using
ANOVA (analysis of variance) methods to identify the values that lead to least
variation. These tests also show the parameters that cause most of the variation,
leading to the most cost-effective design modifications and process improvements.
Taguchi methods began to be employed in the U.S. automobile industry in late 1982,
and they have since been widely adopted in that industry and are spreading to other
U.S. industries.
Deming’s 14 Points
W. Edwards Deming, a statistician with the Bell System, was invited to Japan in
1950 to help their industrialists improve their reputation for poor-quality goods. He
convinced them that they could make their goods the highest quality in the world, and
they proceeded to do so by using his methods; they award the coveted Deming Prizes
each year for greatest improvement of quality. Returning to the United States, he
found American industry to be slower to respond, but Japanese competition became

a real threat to corporate survival his ideas gained increasing acceptance.
Figure 10-10. Illustration of the Taguchi Loss Ffactor
Deming’s name had become synonymous with quality by the time of his death in
1993.
He is best known for the 14 points developed in his 1982 book Out of the Crisis,
which are summarized here:
1. Create “constancy of purpose” that encourages everyone to cooperate in
continually improving quality and meeting customer needs.
2. “Adopt the new philosophy” of defect prevention instead of the concept of
“acceptable quality level” monitored by defect detection.
3. End dependence on mass inspection by building in quality from the start.
4. End the practice of purchasing solely on price; develop long-term
relationships with single suppliers based on product quality and trust.
5. Improve constantly and forever the system of production and service, to

improve quality and productivity, and thus constantly decrease costs.
6. Institute modern methods of training in the organization’s philosophy and
goals as well as job performance.
7. Institute leadership, so that supervisors become coaches to help workers
do a better job.
8. Eliminate fear, which impedes employee performance.
9. Break down barriers between departments.
10. Eliminate numerical goals and slogans—they don’t work.
11. Eliminate work standards and numerical quotas, which emphasize
quantity rather than quality.
12. Remove barriers that rob employees of their pride of workmanship.
13. Institute a vigorous program of education and training.
14. Structure the organization for quality.
Deming adopted the PDCA (Plan, Do, Check, Act) Cycle, which was originally
conceived by Walter Shewhart in the 1930s. This model provides a framework for
continuous improvement of a process or system. The PDCA Cycle is similar to the
steps of the engineering problem-solving technique.
Quality Teams
Production workers are the final determinants of quality, and their willing and
informed involvement in the quality effort is essential. One approach to achieving this
is through the institution of quality improvement teams. In this technique, workers
are gathered into small groups, which meet together, perhaps one hour a week, over
an extended period. These quality teams (other names are sometimes used) are
taught some basic methods of statistics and problem-solving tools, as mentioned
previously, and then they proceed to identify problems within their work area, develop
alternatives, and formally propose a solution to management.
The Japanese call these teams quality circles or kaizen teams, and they had more
than five million such circles in operation at any one time, involving an average 10
people each. These have produced tens of millions of suggestions for improving
products and production methods. Much of the success of kaizen came about because
the system encouraged many small-scale suggestions. Many American firms adopted
the Japanese model of quality circles in the 1970s and 1980s, but this model has
almost died out in the United States being replaced by the quality teams or just teams.
Productivity
Productivity Defined
Productivity can be defined as output produced per unit of resources applied.
Productivity is a measure of the efficiency with which an organization performs its
activities. Efficiency is achieved by using the fewest inputs to generate a given
output. The effectiveness of these operations is achieved when the organization
pursues the appropriate goals. A simple measure in productivity might be units of
production per labor hour, or per-labor dollar:
Productivity = Output/Input
For example, a primitive farmer in Africa may barely be able to feed his family by
the sweat of his brow, while the large American family farm can feed many families;
the American farmer is therefore considered much more productive. Among the
reasons for this farm productivity is the application of resources other than human
labor—much more land, much more equipment and fuel for it, the finest seed and
ample water and fertilizer. The American farm is therefore capital intensive, whereas
the African farm is labor intensive.
Manufacturing Productivity—International Comparisons

For a quarter of a century after World War II, the United States was the industrial
giant of the world; it enjoyed the highest productivity among the major industrial
nations. As a result, American workers enjoyed a standard of living that was the envy
of the world. As of 1960, the major international competitors had lower manufacturing
productivity than the United States, but they achieved annual rates of productivity
growth in the 1960 to 1973 period much higher than that of the United States, and
significantly higher for several countries through the 1980s.
According to The Competitiveness and Innovative Capacity of the United States
report sent to Congress in January 2012, after decades of losing manufacturing jobs,
the manufacturing sector has been adding jobs for over two years. In the past 25
months manufacturing has added nearly a half million new jobs and 120,000 of those
came in the first three months of 2011. Importantly, these tend to be high-paying
jobs with good benefits. Even with these improvements in the manufacturing sector,
there is much more work to do to ensure America remains competitive.
Globalization and technology are just two of the many factors that have changed
the face of manufacturing. Energy, sustainability, resources, and talent are also
becoming priorities for manufacturers as these companies look to future growth.
Governments around the world are recognizing the need to develop and support an
over-arching strategy in support of manufacturing for growth, economic stability, and
global competitiveness. Policy changes, public-private collaboration, and talent
development must be viewed as critical success factors for manufacturing. Today’s
engineering student will be playing a major role in determining whether America can
continue to meet this challenge as the twenty-first century continues.
Maintenance and Facilities (Plant) Engineering

A wide variety of functions and activities required for the effective functioning of a
manufacturing plant, but not concerned directly with production of the product, fall
under an organization headed by the plant or facilities engineer or the maintenance
manager or superintendent. In the first two subsections following, several types of
maintenance and some aspects of maintenance management were being discussed;
in the third subsection, some of the other activities that fall under the umbrella of
facilities or plant engineering were being outlined briefly.
Scope of Maintenance
The Maintenance Engineering Handbook identifies the following primary functions
of the maintenance (engineering) activity:
1. Maintenance of existing plant equipment
2. Maintenance of existing plant buildings and grounds
3. Equipment inspection and lubrication
4. Utilities generation and distribution
5. Alterations to existing equipment and buildings
6. New installations of equipment and buildings
Some of these functions, such as major alterations or additions to buildings and
equipment, occur so irregularly that it is not economical to staff for such activity, and
these are contracted out; even so, a plant engineer is normally appointed as project
engineer to monitor progress of contractor activity to assure that changes will meet
the needs of the plant. Maintenance of some items (elevators, computers, office
equipment, rewinding of burned-out motors) is so specialized that it is normally
contracted out. Some custodial activities, such as washing windows, care of grounds,
and office janitorial service, may be contracted out if it is found to be more cost-
effective. Contract services of these types may provide better methods and
supervision of these ancillary activities than the plant affords, and they often have
lower labor costs than those in the plant.
To give an idea of the variety of maintenance concerns in a plant of any size, the
following topics are listed, each of which is the subject of a separate chapter in the
Facilities and Plant Engineering Handbook.
• Roofing
• Flooring
• Refrigeration
• Air conditioning, heating, and ventilation
• Special-purpose rooms and their environment

• Electric-circuit protection
• Utilities
• Transportation equipment
• Materials handling systems
• Elevators
• Painting
• Corrosion protection
• Applied biology (insect, animal, and other pest control)
• Lubrication of machine tools
Types of Maintenance
The mainstream activities of maintaining plant equipment can be divided into
corrective, preventive, and predictive maintenance; each is considered next.
Corrective maintenance is simply repair work, made necessary when something
breaks down or is found to be out of order. This is the activity that most people think
of when maintenance is mentioned. When equipment breaks down, especially
machinery on which an integrated production line depends, the costs of lost
production mount and the pressure is on the maintenance team to get the equipment
fixed and back into operation. Effective maintenance engineering requires thinking
through the most likely types of breakdowns, assuring an adequate inventory of the
most commonly needed or critical replacement parts, and providing spare capacity
where breakdowns cannot reasonably be avoided.
Many mechanical systems wear out. Their failure rates increase with time and the
quality of performance falls off because bearings become loose, gears wear, O-rings
and belts deteriorate, and grease hardens. These types of problems are reduced by
periodic inspection, lubrication, and identification and replacement of worn parts.
Efficient preventive maintenance requires documentation of all equipment to be
included in the program and establishment of the most cost-effective schedule for
inspection. Inspection checklists need to be established for each type of equipment,
and inspectors must be trained to make simple repairs when problems are observed.
Computers are useful to print out lists of inspection tasks that are due and maintain
data on the time and material costs of inspection to support periodic analysis and
revision of the preventive maintenance plan. To some extent, preventive maintenance
can be deferred or “scheduled around” more urgent corrective maintenance, but
deferring it too long invites breakdowns and higher costs.
Predictive maintenance is a preventive type of maintenance that involves the
use of sensitive instruments (e.g., vibration analyzers, amplitude meters, audio gages,
optical tooling, and pressure, temperature, and resistance gages) to predict trouble.
Critical equipment conditions can be measured periodically or on a continuous basis.
This approach enables maintenance personnel to establish the imminence of need for
overhaul. Where diagnostic systems are built into equipment, production workers can
observe warning signs during operation, catching incipient failures long before
maintenance workers would see them.
Some Maintenance Management Considerations
Size of Maintenance Staff. Production supervisors naturally would like

maintenance specialists of all types available immediately when a breakdown occurs,
since the cost of idle maintenance time does not come out of their budget. When a
plant is in full production and profits are high, it is easy to build the maintenance staff
to a comfortable level, but when demand slows and costs are being trimmed,
shortsighted managers will find maintenance an easy target for drastic cuts. Good
management balances the cost of additional maintenance personnel against the
probable costs of production loss and equipment damage if adequate maintenance is
not provided.
Work Orders. To keep control over maintenance costs, work is not ordinarily
performed without a supporting work order signed by a foreman or supervisor. The
work order states the problem, estimates the cost of repair, and provides space for
workers to document the time they spent on the problem and any materials or parts
they used in solving it. Completed work orders provide data to analyze maintenance
costs of each type of equipment, so that cost-saving decisions such as redesign or
replacement can be made.
Work Scheduling. In larger plants, maintenance scheduling is the responsibility of

a separate unit of the maintenance organization; in smaller plants, this is done directly
by the foreman. Schedules are only estimates and may have to be changed if a
breakdown emergency takes place.
Repair Parts Inventory. As industry becomes more automated, it has more

complex operating equipment with more parts that can fail and require replacement.
Like any other inventory, this can tie up large sums of money that might be put to
more productive use, and good judgment and periodic review are required. Where
equipment vendors will provide prompt repair service at an acceptable price, this
eliminates the need for parts inventories as well as for specialized training, so that
after-sale service is a real consideration in purchasing equipment.
Total Productive Maintenance (TPM)
Total productive maintenance (TPM), a concept originated by the Japanese, is

an integrated, top-down, system-oriented, life cycle approach to maintenance, with
the objective of maximizing productivity. Directed primarily to the commercial
manufacturing environment, TPM does the following:
1. Promotes the overall effectiveness and efficiency of equipment in the factory
2. Establishes a complete preventive maintenance program for factory
equipment based on life cycle criteria
3. Is implemented on a “team” basis involving various departments to include
engineering, production operations, and maintenance
4. Involves every employee in the company, from the top management to the
workers on the shop floor. Even equipment operators are responsible for
maintenance of the equipment they operate.
5. Is based on the promotion of preventive maintenance through “motivational
management” (the establishment of autonomous small-group activities for the
maintenance and support of equipment)
The objective of TPM is to eliminate equipment breakdowns, speed losses, minor
stoppages, and so on. It promotes defect-free production, just-in-time (JIT)
production, and automation. TPM includes continuous improvement in maintenance.
Other Facilities and Plant Engineering Functions

Some of the other activities that are often included in the responsibilities of the
plant engineer, facilities engineer, or maintenance superintendent (often for lack of a
better place to locate them) are as follows:
1. Plant security (guards, fences, locks, theft control, emergency planning)
2. Fire protection (fuel and chemical storage, fire detection and extinguishment,
loss prevention, and risk management)
3. Insurance administration
4. Salvage and waste disposal
5. Pollution and noise abatement
6. Property accounting
Other Manufacturing Functions
Human Resources (Personnel) Management

The many concerns for and about employees are centered in the personnel or
industrial relations or (more recently) human resources department. A typical
personnel department in a single-plant company employing several thousand persons
might include the following sections:
1. Recruiting and employment (human resource planning, recruiting,

interviewing, testing, transfers, and layoffs)
2. Equal employment opportunity (affirmative action, minority records and
reports, complaint investigation)
3. Industrial relations (contract negotiations, contract administration,
grievances, and arbitration)
4. Compensation (job analysis and evaluation, wage surveys, incentives and
performance standards, managerial and professional compensation)
5. Education and training (orientation, skills training, management training,
career planning, tuition assistance, organizational development)
6. Health and safety (industrial hygiene, safety engineering, first aid and
medical, workers’ compensation)
7. Employee benefits (insurance, pensions, profit sharing, food service,
dependent day care, social programs)
Of special interest to the engineer is the safety engineering activity (under the
health and safety section). As an example of the hazards of concern to the safety
engineer and industrial hygienist, consider the following chapter titles from Hammer’s
Occupational Safety Management and Engineering:
Acceleration, falls, falling objects, and other impacts
Mechanical injuries
Heat and temperature
Pressure vessels
Electrical hazards
Fires and fire suppression
Explosions and explosives
Hazards of toxic materials
Radiation
Vibration and noise
Safety personnel are involved in (1) identifying and analyzing hazards, (2)
recommending protective devices and warnings, (3) providing safety training, (4)
interpreting the Occupational Safety and Health Act (OSHA) and other codes and
standards to management and other personnel, and (5) workers’ compensation
insurance activity. In some of these areas, safety personnel share functions with fire
prevention and other security personnel. They are also closely involved with plant
insurance activities, since future plant fire, workers’ compensation, medical, and
liability insurance premiums will depend on the success of occupational safety and
health programs.
Purchasing and Materials Management
Importance of Purchasing. Purchasing is a vital contributor to producing a quality

product at a profit. Half the value of the typical industrial product consists of materials
and components purchased from other organizations. If a firm is making a 10 percent
profit on its product, a dollar saved in more efficient purchasing has the same effect
on profit as $10.00 in added sales. Moreover, a quality defect in a supplier’s
component incorporated into the product has the same impact on the reputation as a
mistake made internally. Zenz lists the following steps as being performed by
purchasing in the large majority of organizations:
1. Recognition of need
2. Description of requirement
3. Selection of possible sources of supply
4. Determination of price and availability
5. Placement of the order
6. Follow-up and expediting of the order
7. Verification of the invoice
8. Processing of discrepancies and rejections
9. Closing of completed orders
10. Maintenance of records and files
The Engineer in Purchasing. A survey of 12 purchasing manager associations

showed about half of the respondents was college graduates; of these, 58 percent
majored in business administration, and 17 percent in engineering. Certainly, an
engineering education is of great value in the purchasing of highly technical
components. Interestingly, one of the early articles written on purchasing is entitled
“The Engineer as a Purchasing Agent” and appeared in a 1908 engineering
publication, Materials Management. This is a more comprehensive organizational
viewpoint in which all activities involved in bringing materials into and through the
plant are combined under materials manager. These activities commonly would
include purchasing, inventory control, traffic and transportation, and receiving; they
may include warehousing/stores and even production control. Purchasing is often
responsible for make-or-buy analysis, value engineering/analysis, incoming
inspection, and reclamation and salvage.
Even where these activities do not fall under a single manager, they must be
performed in concert with each other. Engineering and purchasing personnel in
particular must work closely together. Design engineers must be careful not to make
specifications for purchased materials and components so restrictive that suppliers
with less expensive, but satisfactory products are ruled out; purchasing, on the other
hand, must not make its decisions solely on price when a slightly more expensive
choice may bring quality, reliability, delivery, or customer acceptance worth much
more than the price differential.
Project Report
10-1 Research and report on a Filipino company or industry that (a) has had declining
sales as a result of noncompetitive product quality, and/or (b) has grown stronger
through a deliberate effort to improve quality. Be ready to present your output in
class.
REFERENCES:
2014
Chapter 12–Engineers in Marketing and Service

Activities
Companies have essentially two major activities: marketing and innovation.
Marketing is the whole business of the enterprise seen from the perspectives of
customers. The purpose of marketing is to provide products and services that meet
the needs and wants of customers. Marketing impacts the top line (i.e., sales revenue)
of any enterprise. Innovation strengthens the enterprise’s competitive marketing
ability to sustain profitability by way of timely application of unique technologies and
other core competencies (Kotler 2015; Burrow and Fowler 2015).
In general, science, technology, engineering, and math (STEM) professionals
are known to be technologically innovative. If they can also master marketing, the
resulting combined capabilities will likely enable them to contribute significantly
toward creating business success for their employers and thus propel them to higher
leadership positions.
The objective of this chapter is to prepare managers for effective interaction
with marketing and sales personnel in companies offering technology-based products
and services. Emphasis is given to the introduction and application of marketing
concepts for engineering and technology products and services (Tracy 2014; Kerin et
al. 2014). The topics that will be discussed include marketing management processes
in profit-seeking organizations, identification of opportunities and threats facing an
organization, and key strategies in the marketing of products and services.
STEM professionals are encouraged to continue studying additional current
references on specific issues in marketing management.
following:
1. Determine the function of Marketing

2. Assess the market forecast: four-step process
3. Examine the other factors affecting marketing success
4. Write a marketing plan
Marketing Concept
Marketing can be defined as follows:
‘Marketing is the management process responsible for identifying, anticipating and

satisfying customer requirements profitably.’ (UK Chartered Institute of Marketing)
Marketing is the process of planning and executing the conception, pricing, promotion
and distribution of ideas, goods and services to create exchanges that satisfy
individual and organizational objectives.’ (American Marketing Association)
Function of Marketing
Marketing and sales personnel are critically important to profit-seeking companies
because they strive to ensure satisfaction in the exchange of values between the
producers and consumers of products and services, as exhibited in Figure 1.
Purchase
(response, vote, and attitude)
Information
(market research, wants/needs, and preferences)
FIGURE 1 Exchange of
values.
A) Sales versus Marketing

Sales is a process by which producers attempt to motivate target customers to buy
the available products. The mentality behind sales, as illustrated in Figure 2, is that
“someone out there will need the products.” At the time when Ford Motor Company
was the dominant carmaker in Detroit, the well-known saying attributed to Henry Ford
was, “You can have any color you want for our car, as long as it is black.” Sales does
not take the customers’ concerns into account.
Aim at
Production Manufacturing Aggressive
Capacities productssales sales effort customer
as a target
FIGURE 2 Sales mentality.
In contrast, companies with a marketing orientation offer something that customers

want by seeking feedback from the marketplace, adjusting the product offerings, and
increasing the product’s value to consumers (see Figure 3).
In the pursuit of marketing strategies, companies solicit intelligence, financial data,

and customers’ responses to constantly reassess the market. They evaluate such
factors as product reliability, safety, competition, cost-effectiveness, product
substitution, and maturity of products. A long-term orientation ensures that benefits
for both producers and customers will be sustained. Sales strategies are only a part
of marketing (O’Keefe 2013; Dannenberg and Zupancic 2014).
FIGURE 3 Marketing mentality.
B) Marketing Process
The marketing efforts of companies are typically centered on four specific dimensions
(McDonald and Wilson 2011):
1. Customer focus: The purpose of a profit-seeking business is to understand

customers’ needs, deliver value to customers, and offer services to ensure that
customers are satisfied. In other words, the customer comes first. All product
designers must pay more heed to customers.
2. Competitor orientation: Companies seek advantages relative to their competitors,

monitor their behaviors, and respond to their strategic moves.
3. Interfunctional coordination: Companies integrate all functions, share information,

and organize themselves to provide added value to the customers.
4. Profit orientation: Companies attempt to make profits in both the short term and
the long term.
To achieve business success, companies must search constantly for future markets,
in addition to actively serving today’s markets. The primary responsibility of the
marketing department is to scan the relevant business environment for future
opportunities (such as what bundle of products and services to offer to whom, at what
price, at what time, and in which market segments) and to provide insight into the
needs of current customers and the intentions of competitors.
Presented in Figure 4 is the marketing process, which is iterative in nature. This
process defines opportunities (unsatisfied needs) in the marketplace; the features of
products or services to satisfy these needs; and the pricing, promotion, distribution,
physical evidence, process design, and people strategies to reach the target market
segments under consideration. Market segments refer to specific groups of customers
who share similar purchasing preferences, as identified by the company to sell
products/services to.
Analyze
FIGURE 4
For companies to succeed in the marketplace, marketing must be a core activity

central to the company’s strategy formulation and execution. Through marketing,
companies identify and satisfy the needs of customers and achieve long-term
profitability by attracting and retaining customers. Specific tasks undertaken to attain
these objectives include (1) interacting with and understanding the market and its
customers, (2) planning longterm marketing strategies, and (3) implementing short-
term tactical marketing programs.
The effectiveness of a marketing program is often measured by two metrics: (1) how
attractive the company’s products and services are to the target customers and (2)
how successfully the company can satisfy and retain these target customers. Figure
5 illustrates the marketing effectiveness diagram.
FIGURE 5 Marketing effectiveness diagram.

The marketing program of a company is regarded as a total success if both customer
retention and product attractiveness to customers are high. This is when high
profitability can be achieved at a maximum growth rate. The marketing program
scores a partial success if the product attractiveness to the customer is high, but the
customer retention is low. While lost customers are typically replaced by new
customers, the total customer base will show little growth. Partial failure is assigned
to a marketing program when product attractiveness to the customer is low, but the
customer retention is high. Under this scenario, business remains stagnant because it
relies on loyal customers to repeatedly buy mature, noncompetitive products. The

company’s sales may slow down or fall as few new customers are added. The
marketing program is a total failure if both product attractiveness to the customer and
the customer retention level are low. Customers are leaving, and the company’s sales
are falling.
Marketing strategies are implemented at the corporate, business, and operational

levels. Top management provides inputs toward identifying future opportunities, and
addresses questions such as what business the company is in and what business the
company should be in. The business managers then devise the proper marketing plan
to bring out products or services, and strive to create and maintain a sustainable
competitive advantage in the marketplace. At the operational level, managers and
support personnel conduct planning for specific marketing programs, and implement
and control marketing efforts related to segmentation, product design, pricing,
distribution channels, and communications.
C) Key Elements in Marketing

Those who plan and implement marketing programs are called marketers. Marketers
consider various influence factors and make diverse decisions to penetrate a specific
marketplace (Taderera 2010). Marketers pay attention to several key elements of
marketing, such as the market itself, the environment, the customer, the product,
pricing, promotion, and distribution.
The market is made up of buyers who are expected to purchase certain products and
services, and also buy substitutes that offer similar values. Of great importance to the
marketers is the size of the expected market, measured in millions of dollars per year,
its growth rate, its geographical characteristics, and its requirements. The market
must be large, stable enough with a reasonable growth rate, and relatively easy to
reach and serve in order for it to be a worthwhile target for the marketers.
The environment refers to competitors, barriers to entry, rules and regulations,
resources, and other such factors affecting the marketers’ success in a given market
segment. Marketers must also understand the opportunities and threats present in
the environment.
The customers consist of all potential buyers of a given product or service. Companies
need to understand why they buy, how they buy, who makes the decision to buy,
who will use the product, in what specific way the use of the product will contribute
value to the user, what might be the buyer’s preference related to service and
warranty, what other product features the customer may want, and other factors. The
more a company knows about its customers, the better the company can serve the
customers in order to build and maintain competitive advantages in the marketplace.
To become customer-oriented, companies need to (1) define the generic needs of
customers through research (such as the buyer’s perception of an automobile’s status,
safety, or cost), (2) identify the target customers by segmentation (including which
selected groups of customers have shared needs), (3) differentiate products and
communications (e.g., offering special reasons for customers to buy due to unique
product attributes or special communications), and (4) bring about differentiated
values for customers.
The product or service symbolizes the actual “bundle of benefits” that is offered to
customers by the marketers. Factors considered include functional attributes,
appropriateness to customer needs, differentiable features over competition, product
line strategy (e.g., synergy between products/services offered; e.g., Apple Watch
products are intentionally tied into iPhones to form a unique ecosystem), and product-
to-market fit (e.g., Apple products are generally favored by music-loving young
adults).
Promotion and communication consider the advertising strategies of product and

brand promotion, options to use a push–pull strategy, selection of advertising media,
and the choice of promotional intensity. These ensure that the selected means of
communication are compatible with the target market segments.
The pricing strategy concerns itself with the choice of either a skimming or a
penetrating strategy to set the price, the use of value-added pricing, and the fit of a
chosen pricing strategy to the target segment.
The placement (distribution) strategy defines options such as the product delivery
options of either an intensive, exclusive, or selective distribution system; the
company’s relationship with dealers; and the changes in distribution systems.
The physical evidence refers to the physical setting (e.g., a store’s appearance, layout
and color; the dress of service staff; service equipment; and service brochures) that
affect customer experience.
The process design specifies the applicable operations policies and procedures to
effectively serve the customers as related to order processing, logistics, inventory
planning, franchising policies, sales training, and flow of activities in delivering
services.
The people refers to customer-facing service staff, whose training, attitude, and
behavior directly affect the customer experience.
The first four marketing elements are emphasized when marketing products. For
marketing services, the last three elements are added. These elements characterize
the multidimensional nature of marketing and are centered on customers, who are
the focus of any successful marketing program.
D) Marketing Mix
There are a total of seven key elements of marketing that form the marketing mix
(Francese 1996) (see Figure 6). Specifically, the marketing mix consists of price,
promotion, product, placement (distribution), physical evidence, process designs, and
people—the seven P’s of marketing.
FIGURE 6 Marketing mix.

Example
A company has divided the market for its existing products into three segments:
mass market applications; applications requiring a quality product, even though
consumers continue buying on price; and critical applications, in which both
quality and reliability are important. Advise the company on the marketing mix
that should be applied to these three segments.
TABLE 1 Marketing Strategies for Specific Segments
Segment 1 Segment 2 Segment 3
Price Low Low High

Product/service Standard Quality Quality and
reliability
Promotion Broad Limited Focused
Place Multiple Multiple Direct
distributions distributions
Physical Not important Low emphasis High
evidence emphasis
Process Highly efficient Efficient Standard
People Standard Standard Dedicated
Answer
For the company to be successful, a different set of marketing strategies needs to be
applied to each of these segments, as suggested in Table 1
Multiple distributions are recommended, including mass-merchandise department
stores for wide distribution. Direct distribution should include catalogs, specialty
stores, and upscale department stores.
Market Forecast: Four-Step Process

The purpose of conducting a market forecast is to define the characteristics of the
target market regarding its potential size, stability, growth rate, and serviceability.
The market size and growth rate must be large enough to warrant further
consideration by marketers (Hyndman and Athanasopoulos 2013; Chase 2013).
Any future market is always uncertain due to potential changes in end user behavior,
global economics, new technologies, competition, and economic and political
conditions.
Barnett (1988) emphasizes that the key to successfully forecasting market size is to
understand the underlying forces behind the demand. Barnett proposes the following
four-step process: (1) define the market, (2) segment the market, (3) determine the
segment drivers and model its changes, and (4) conduct a sensitivity analysis. These
steps are explained next.
On the basis of customer interviews, the market should be defined broadly to include
the principal product to be marketed, its “bundle of benefits” to customers, and the
competitive products that customers could buy as substitutes instead.
In segmentation, the potential customers for the principal product/service are divided
into homogeneous subgroups (segments) whose members have similar product
preferences and buying behavior.
Segment drivers are the key factors that drive the growth of a specific segment.
Segment drivers may be composed of macroeconomic factors (e.g., the increase in
white-collar workers and in population), as well as industry-specific factors (e.g., the
industrial growth rate and business climate). Possible sources of information related
to segment drivers are industrial associations, governments, industrial experts,
marketing data and service providers, and specialized market studies.
Sensitivity analyses are conducted to test assumptions. Monte Carlo simulations may
be performed to generate the maximum—most likely—and minimum total market
demand sizes, as well as an assessment of the risks involved (see Section 6.4).
The following are two illustrative examples in which the total market demand for a
product is estimated by (1) defining the industrial segments that purchased the
product in the past, (2) determining the future growth rates of these industrial
segments, and (3) calculating the total market demand for the product with these
industrial segment growth rates as the segment drivers. The assumption here is that
the product demand of a given industrial segment is in direct proportion to its segment
growth rate.
For example, to predict the demand of electricity in future years, a utility company
has subdivided its consumers into three segments: industrial, commercial, and
residential. The need for electricity by the industrial segment depends on its future
production level and business climate. The electricity demand by the commercial
segment is related to retail sales that in turn are negatively affected by retail stores
consolidating, and by growing online sales. The residential electricity demand is

affected positively by new home sales and home sizes, and negatively by the increased
energy efficiency of home appliances.
A second example is a paper-producing company that needs to determine the total
market demand for uncoated white paper. The company divides the market into end-
use segments such as business forms, commercial printing, reprographics, envelopes,
stationery, tablets, and books. The drivers in each segment are then modeled in terms
of macroeconomic and industrial factors, using regression analysis and statistics.
Examples of applicable drivers include growth in the use of electronic technology,
white-collar workers, the present level of economic activity, the growing use of
personal printers, population growth, demand growth induced by price reduction, and
the practice of paying bills online.
Market forecast is a difficult, but critical first step to take when developing a marketing
program. Companies routinely engage both internal and external resources to assess
the principal characteristics of the target markets for their products.
Market Segmentation
Once it is determined that the target market is worth pursuing (i.e., the market is
large and stable enough with a high growth rate), then it is useful to understand the
target customers so that they can be served well. Market segmentation is a process
whereby companies recognize the differences between various customer groups and
identify the representative group behaviors. Generally speaking, members in each of
these customer groups do respond to product or service offerings in similar ways and
have comparable preferences with respect to the price–quality ratio, reliability, and
service requirements (Bodea 2014).
By dividing consumers into groups that have similar preferences and behaviors with
respect to the products being marketed, companies achieve four specific objectives:
(1) matching products and services to appropriate customer groups, (2) creating
suitable channels of advertisement and distribution to reach these customer groups,
(3) uncovering new customer groups that may not have been served sufficiently, and
(4) focusing on niches that have been neglected by competitors.
In addition, segmentation allows companies to realize the following benefits:

developing applicable marketing strategies and objectives, formulating and
implementing marketing programs that address the needs of the different customer
groups, tracking changes in buying behavior over time, understanding the enterprise’s
competitive position in the marketplace, recognizing opportunities and threats, and
utilizing marketing resources effectively. Figure 7 shows a segmentation flow diagram
that illustrates the key steps in segmenting a market.
Companies classify consumers into segments by understanding their individual,
institutional, and product-related characteristics. Individual characteristics include
culture, demographics, location, socioeconomic factors, lifestyles, family life cycle, and
personalities. Institutional characteristics include the type of business, its size, and
the extent of its global reach. Product-related characteristics include type of use (e.g.,
original equipment manufacturer [OEM] versus end user), usage level, product
knowledge, brand preference, and brand loyalty. The benefits sought by consumers—
such as psychological and emotional benefits, functional performance, and price—
should also be analyzed.
FIGURE 7 Segmentation flow diagram.
Millions of consumers purchase cars every year. To some, cars are a status symbol;
to others, cars are simply a means of transportation. A large number of car buyers
emphasize safety and reliability, while others focus on styling or fuel economy.
Socioeconomic factors, demographics, personalities, and family life are all known to
influence the behavior of car buyers. These consumers are extensively segmented by
all major carmakers.
To be effective, the segmentation of a market needs to satisfy several requirements.
The segmentation should be measurable. It should result in readily identifiable
customer groups. The identified customer groups should also be homogeneous. Each
group’s members should possess more or less unified value perceptions and display
compatible behavioral patterns. These customer groups are reachable by means of
promotion and distribution. Above all, the segments should be large enough in size to
justify marketing efforts, and they should have a high growth rate to allow the
company to achieve long term profitability.
There are pitfalls to market segmentation. Certain “old economy” companies adopt
the asset-rich business strategy of pursuing the scale of economy advantages. For
these companies, a potential pitfall is over-segmentation, because the selected
segments may be too small or fragmented to serve effectually. Such an over-

segmentation is not a pitfall for other “knowledge economy” companies that form
partnerships to establish supply chains for “build-to-order” products. To foster
differentiation, knowledge economy companies pursue product customization as the
basis for their business strategies (Struhl 2013). Examples of these products and
services are mini brewers, computers, and custom cosmetics. For other companies,
overconcentration (lack of balance between segments) could have a negative impact
on their overall marketing effectiveness (Hartley and Claycomb 2013).
Market segmentation is a prerequisite to developing a workable marketing program.
Knowledge derived from customer groups serves as valuable inputs to product design,
pricing, advertising, and customer services, all of which need to be carefully defined
by the company.
4P’s of Marketing
*Product/Service Strategy
The product/service strategy takes center stage in any marketing program (Haines
2014). If marketed properly, products/services that offer unique and valuable
functional features to consumers are expected to enjoy a strong marketplace
acceptance.
Products/services may be generally classified as either industrial or consumer
oriented. Their characteristics are different, as shown in Table 2. Marketing programs
for consumer products are quite different from those for industrial products, even
though the same basic marketing approach applies to both (Ulrich and Eppinger
2011).
TABLE 2 Industrial and Consumer Products
Industrial Consumer
Products/Services Products/Services
1. Number of buyers Few Many
2. Target end users Employers Individual
3. Nature of Tailor-made, technical Commodity, nontechnical
products/services
4. Buyer sophistication High Low
5. Buying factors Technical, quality, price, Price, convenience,
delivery, service packaging, brand
6. Consumption OEM parts for reselling, Direct consumption
own consumption
7. Producer end-user Low High
contact
8. Time lag between Large Small
demand and supply
9. Segmentation SIC (standard industrial Demographics, lifestyle,
techniques classification), size, geography, ethnic,
geography, end user, religious, neighborhood,
decision level behavior
10. Classification of goods Raw materials, fabricated Convenience (household
parts, capital goods, supplies, foods), shopping
accessory equipment, MRO (cameras,
supplies refrigerators), specialty
(foods, brand-name
clothing)
A good marketing program must take into account the consumer’s perception
regarding products/services. Indeed, consumers perceive products/services in
different ways than the producers and marketers do. When buying products/services,
consumers look for “bundles of benefits” that satisfy their immediate wants.
Products/services that producers regard to be different because of physical
embodiment (e.g., input materials), production process, or functional characteristics
may in fact be equivalent from the customers’ perspectives, if offering the same or
similar benefits. Table 3 contains illustrative examples of these different perceptions.
Companies must define competition based on the way customers perceive their
products. Note that products that appear to be physically different to marketers may
appear to be the same to users.
A product/service strategy must also be established with respect to competition. A
company may decide to market premium products, characterized by having features
that are outstanding or superior to those offered by the competition. Such outstanding
product/ service features may be possible because of the company’s innovative
capabilities, technological superiority, and other core competencies. Companies with
such “high-road” brands tend to enjoy and sustain high profitability. Other companies
may elect to make commodity-type (value) products with commonly available features
so that they compete head-on against their competitors on the basis of price, service,
distribution, and customer relations management. They pursue the option of “low-
road” products. Product positioning is the step that addresses such competitive issues.
TABLE 3 Examples of Customer’s Perspectives

Services Vendor’s Perceptions Consumers Perceptions
Major surgeries Sequences of diagnostic Hope of recovering while
tests enduring pain
Surgical procedure and suffering
Medications, emergency
steps
Financial advisement Models, diversification Chances of preserving capital and
strategy making
Economic projections money
Projected risks in global
economy
A) Product/Service Positioning
An important question that companies should ask is, which product/service attributes
should be included? A perceptual map is a useful tool to position the company’s
products/ services in relation to existing competitive offerings in the marketplace. It

enables companies to select the correct set of product/service attributes to maximize
its marketing advantages. It also articulates customer preferences and identifies gaps;
these are useful steps in positioning new entries or repositioning existing products
(Czerniawski and Maloney 2010).
Figure 8 is an example of a perceptual map for automobiles regarding the product
attributes of price and styling. Only the relative magnitudes of the attributes are
emphasized in such a map. However, the map helps to identify which car models are
in direct competition with one another and which ones are not. It is also possible to
link customer segments to these pairs of product attributes, thus enabling companies
to refine their advertising strategies for these customer segments.
Group 1: Prime schools

1
(Princeton, MIT, Stanford)
2
3 Group 2: Big 10 schools
(Illinois, Ohio, Michigan, Purdue)
4
Group 3: State universities
Group 4: Private less known schools
5 Group 5: Online schools
FIGURE 8 Example perceptual map for automobiles.
Products/services with more than two important attributes are readily mapped into an
n-dimensional perceptual map. A product (e.g., P1) is designated by a single point
having the coordinates F1, F2, F3, through Fn, with each representing an independent
product attribute. This representation is complete if the elements of the attributes set
(F1, F2,…, Fn) are mutually exclusive and collectively exhaustive. For example, for
automobiles, these attributes may include price, styling, fuel economy, driving
comfort, safety, brand prestige, power, and longer-term dependability (e.g., number
of problems per 100 three-year-old vehicles). The spacing between two neighboring
points (each identifying a product) as depicted in this n-dimensional map is equal to

the square root of the sum of the individual attribute differences, squared. Figure 9
presents an example of the description of products with six distinguishable attributes.
Product/Service/Features F1 F2 F3 F4 F5 F6
S1
S2
S3
S4
Your product/service
S5
S6
S7
FIGURE 9 Competitive positioning for products with six distinguishable attributes.
B) Product/Service Life Cycles

Every product/service goes through a number of important stages throughout its
useful life (Stark 2011; Acevedo 2014). These stages include:
1. The initiation stage—product testing, market development, and advertising
2. The growth stage—product promotion, market acceptance, and profit growth
3. The stagnation stage—price competition, substitution, and new technologies

4. The decline stage—cash-cow strategy with no more investment.
50
40
30
20
10
0
0 10 20 30 40 50 60 70 80 90 100
FIGURE 10 Life cycle.

Companies need to understand which phase a given product is in (see Figure 10).
From the standpoint of the product life cycle, an important product strategy is to
sequence the introduction of new products so that a high average level of profitability
can be maintained for the company over time.
Engineering managers are particularly qualified to constantly come up with innovative
products so that their employers may introduce these products at the right intervals.
C) Product Portfolio
Another product strategy issue is related to the types of products concurrently being
marketed. With the exception of a few, most companies market a group of products
at the same time, referred to as a product portfolio (Thakor 2012).
Products in a portfolio are usually not “created equal.” From the company’s
standpoints of profitability and market share position, some are more valuable than
others. Boston Consulting Group (BCG) of Boston, Massachusetts, developed a
portfolio matrix based on two measures, namely, growth rate and market share (see
Figure 8.11). According to this classification scheme, products are regarded as stars
if they enjoy high growth rate and high market share and question marks if they have
high growth rate, but low market share. Cash cows are those products with low
growth rate and high market share. Products are designated as dogs if both growth
rate and market share are low.
FIGURE 11 Classification of products/services.

Figure 11 indicates that companies need to differentiate the products/services they
market by strategically emphasizing some and de-emphasizing others, according to
the responses from the marketplace. For example, a useful strategy to manage a
product portfolio is to milk the cash cows for capital to build question marks into stars
that will eventually become cash cows. Divest the dogs.
D) Company Brands
Numerous HT companies operate in a “product-centric” business model, in that they
market products on price and performance. Recent market studies show that the
success of technology-based products/services in the marketplace is not purely
dependent on the price–performance ratio, but also on the trust, reliability, and
promised values the customers perceive in a given brand.
According to Yohn (2014), brand is “a distinct identity that differentiates a relevant,
enduring and credible promise of value associated with a product, service, or
organization that indicates the source of that promise.” The brand of a company is
more than a name. It stands for all the images and experience (e.g., products, service,
interactions, and relations) that customers associate with the organization. It is a link
forged between the company and the customers. It is a bridge for the company to
strengthen relationships with customers, according to Wheeler (2012).
A promise of value is an expectation of the customer that the company is committed

to deliver. Examples of such promises of value from several companies are listed in
Table 4. They must be relevant to the enduring needs of the targeted customers and
made credible by the persistent commitments of the company. To be competitive, the
promise of value must be distinguishable from those offered by other brands.
TABLE 4 Examples of Promise of Value
Corporate Promises of
Brands Value
IBM Superior service
and support
Apple Simple and easy to
use
Lucent Newest
technologies
Gateway Friendly service
Research indicates that customers consider questions at five levels when purchasing
both HT and consumer types of products. These questions may be grouped into a
brand pyramid, as illustrated in Figure 12.
• Level 5: What is the personality of the brand

(aggressiveness, conservatism, etc.)?
5 • Level 4: Does the value offered by the service reflect

that favored by the customers (family values,
4
achievement)?
3 • Level 3: What are the psychological or emotional benefits of using

the service in questions? How will the customers feel when they
2
experience its technical benefits?
1 • Level 2: What are the technical benefits to customers

(solutions to problems, cost saving benefits,
and speed of production)?
• Level 1: How does the service work (service

characteristics, technological features and
functional performance)?
FIGURE 12 Brand pyramid.
Technology-oriented buyers are typically focused on questions at Levels 1 and 2.

However, higher-level business managers who make purchase decisions are also
known to address questions at Levels 3–5. These decision-makers are interested in
what the product or service will do for them, not just how it works. Consequently, to
project a trustworthy and reliable image, to build strong relationships with customers,
and to enhance brand loyalty and customer retention, companies are well advised to
pay attention to questions at all five levels. This is the emphasis of brand
management.
Brand is evaluated on how well it is doing with respect to a number of metrics:
delivering according to the customer’s desire, relevance to the customers, value to
the customers, positioning, product portfolio management, and integration of
marketing efforts, management, support, and monitoring. Brand is a major asset that
must be properly managed and constantly strengthened. Useful inputs for brand
management are typically secured from customer feedback. Once the market is
properly segmented, the promise of values is specifically designed to address the
needs of the target segments involved. Actions are then taken to deliver the stated
promise of values, and results are constantly measured to monitor progress.
In the past, brand management has been focused primarily on points of difference,
such as how a given brand differs from the other competing brands within the same
category. Maytag is known to emphasize “dependability.” Tide focuses on “whitening
power.” Recently, Keller et al. (2002) suggested that attention should be paid to points
of parity and the applicable frame of reference, in addition to the points of difference,
when marketing a given brand. Emphasizing the frame of reference is intended to
help customers recognize the brand category comprising all of the competing brands.
Focusing on the points of parity will ensure that customers recognize a given brand
as a member of the identified brand category.
Brand may be classified with respect to the two dimensions, namely, category and
relative market share. The brand category is defined as premium if the category is
dominated by premium brands—those with high values to customers. Examples of
premium car brands include BMW, Mercedes-Benz, Jaguar, and other luxury and
specialty cars that each have unique high-value attributes. The brand category is
defined as value if it is dominated by value brands—those with basic, minimum, low-
end attributes. Examples of value car brands include Chevy, Saturn, and other
compact and four-door family cars. Gillette markets its Mach-3 Turbo shaving system
as a premium brand, whereas the cheap disposable razors from its own company as
well as its competitors, are marketed as the value brands. The relative market share
refers to the percentage of market share a given brand is able to attain.
In Figure 13, brands are grouped into four classes: high-road, low-road, hitchhiker,
and dead-end brands (Vishwanath and Mark 1997). Return on sales (ROS) is defined
as net income divided by the sales revenue.
Brand category
Premium
Hitchhiker High road

(ROS = 15%– (ROS >
20%) 20%)
Dead end Low road

(ROS < (ROS= 5%–
5%) 10%
Value
Low High
Relative market share
FIGURE 13 Brand classes.
TABLE 5 Strategies for Four Different Brands
Brands Strategic Options
High road Apply R&D to constantly innovate to make services premium—adding new service features
and changing forms and functions
Expand service lines (service proliferation)
Initiate media campaign
Capital investment
Decrease time to market
Flexible manufacturing
Direct store delivery to preoccupy shelf space

Low road Pursue cost reduction aggressively
Lessen service proliferation (SKUs) by simplifying service types and designs
Consolidate production facilities to improve efficiency and cut wastes
Use realized cost savings to slash price
Consider ways to add premium services (advancing to high road)

Hitchhiker Apply R&D to constantly innovate to make services premium—adding new service features
and changing forms and functions
Cost reduction
Reduce time to market
Flexible manufacturing
Initiate media campaign
Consider capital investment

Dead end Cut price (advancing to low road)
Outsource in areas with economies of scale
Apply the “string-of-pearls” strategy to enhance scale
“Trump” the category by introducing a superior, premium service that resets consumer’s
expectation (advancing to hitchhiker)
Do not spend on marketing
Make no capital investment

Source: Vishwanath, V. and Mark, J. Harvard Business Review, May–June 1997.
High-road brands are those with products that offer premium features, options,
qualities, and functions to command high selling prices while attaining a leadership
position in the market share. Examples of such high-road brands are Coca-Cola, Frito-
Lay, and Nabisco. These brands enjoy excellent profitability that may be sustained for
long periods. The key success factors for high-road brands are technological
innovation (constantly adding new product/service features and values), time to
market, flexible manufacturing, and advertising.
Low-road brands are those that offer value brands while enjoying a high market share
position. Because of marketplace competition and a lack of distinguishable product
features, these brands can be successfully managed by emphasizing cost reduction,
production efficiency, product simplification, and distribution effectiveness.
Hitchhiker brands are those with premium product values and low market share. For
these brands to become high-road brands, management must emphasize cost
reduction, flexible manufacturing, and product innovation.
Dead-end brands are value brands with low market share. These brands attain only
marginal profitability. There are several strategies to grow the profitability of these
dead-end brands: (1) reduce the price to penetrate the market and thus move these
brands to the low-road category; (2) increase the scale of economies by applying the
“string-of-pearls” strategy: producing and marketing several products together to cut
costs; (3) introduce a superior, premium product to “trump” this brand into the
hitchhiker category. Failing all of these attempts, dead-end brands should be
discontinued. Table 5 summarizes the strategies that deal with these four classes of
brands.
The preceding discussion on product brands should assist engineering managers in
understanding the significant value added by brands to the success of the company’s
marketing program (Keller 2012). Such an understanding would make it easier for
them to channel their support efforts to actively enhance the company’s brand
strategy.
E) Engineering Contributions to Product and Brand Strategy

The product/service is a key element in the marketing mix. STEM professionals have
major opportunities to add value by (1) understanding the customers’ perceptions of
products; (2) designing products/services with features that are wanted by
customers; (3) helping to position the company’s products/services strategically to
derive marketing advantage; (4) practicing innovations in the design, development,
production, reliability, serviceability, and maintenance of product/services to
differentiate them from others; (5) sustaining the company’s long-term profitability
by creating a constant flow of new products/services for introduction on a timely
basis; (6) assisting in managing companies’ product/service portfolios by adding
premium features to some and reducing costs to others; and (7) ensuring commercial
success of the high-road and hitchhiker brands in the marketplace.
In the “knowledge economy” of the twenty-first century, time to market is an

increasingly important competitive factor. Once the desirable set of product/service
attributes is known from market research, those companies that bring the suitable
products to the market first will enjoy preemptive selling advantages and will recover
their product development costs faster than others. Engineering managers should also
be well prepared to contribute in shortening the products’ time to market by utilizing
advanced technologies to create modular design, eliminate prototyping, whittle away
design changes, foster parts interchangeability, ensure quality control, and other
innovations.
*Pricing Strategy
Price is a very important product/service attribute (Jensen 2013; Nagle et al. 2010).
Companies pay a great deal of attention to the setting of product prices. Setting the
price too high will discourage consumers from buying, whereas setting it too low will
not ensure profitability for the company.
Generally speaking, the two major strategies for setting the product prices are the
skimming strategy and the penetrating strategy.
A) Skimming and Penetration Strategies

Companies applying the skimming strategy set the product price at the premium levels
initially and then cut the product price in time to reach additional customers. In other
words, they “skim the cream” first. An example is the marketing of a new book with
hardcover copies selling at a high price (e.g., $29.95) followed by the paperback
version at a low price ($4.95). New technology products are also typically sold at high
prices initially in the absence of competition. As competitors enter the market with
products of similar features, product prices are lowered accordingly.
In contrast, companies pursuing the penetration strategy set product prices low to
penetrate a new market and rapidly acquire a large market share. A high market share
position sets forth a barrier of entry for other potential competitors. In general,
companies use a penetration pricing strategy to enter an existing, but highly
competitive market. An example is the marketing of Japanese motorcycles in the
United States.
B) Factors Affecting Price

In setting product prices, besides using the skimming and penetration strategies,
companies broadly consider a number of other factors: financial aspects, product
characteristics, marketplace characteristics, distribution and production capabilities,
price–quality relationship, and the relative position of power (Hamilton 2014). These
factors will be discussed next.
Financial aspects: The more solid the company’s financial position, the more capable
it is at initially setting the product price low. Companies strong in finance stay afloat
for a long period of time even with low profitability. Companies that desire high, short-
term profitability tend to set the product prices high.
Product characteristics: The product/service price may be set in direct proportion to
the value and importance of the product to users, as well as the income levels of its
target customers. Usually, a new product in its early life cycle sells at a high price,
allowing the company to benefit from the product’s novelty.
Marketplace characteristics: Companies set product prices in reverse proportion to the
level of competition in the marketplace. The level of competition refers to the number
of direct competitors, the number of indirect competitors marketing substitution
products that offer similar value to customers, and the competitive counterstrategies
(speed and intensity) that these competitors may exercise. Companies tend to set the
product price high if the barriers to market entry are high. The barriers to market
entry depend on lead time and resources—technical and financial, patents, cost
structure, supply chain strategies and production experience. In addition, products
with inelastic price-demand characteristics tend to carry a high price. A product has
inelastic price-demand characteristics if a large price increase induces a small change
in the quantity of the product demanded in the marketplace.
Distribution and production capabilities: Product availability to consumers depends on
the company’s product distribution capabilities. With strong distribution channels in
place, companies may set the product price high, as quickly making products available
to consumers represents a competitive strength.
Sales volume impacts the company’s production experience. Companies with
extensive production experience are known to generate products at a low unit cost.
A lower product unit cost enables these companies to set a lower product price to
gain market share.
The Boston Consultant Group studied manufacturing operations and discovered that
there is a correlation between production volume and product unit cost. For every
doubling of the production volume, the unit cost is whittled down by about 15%—or
the 85% experience curve (Stern and Deimler 2006). (See Figure 14. Note that the
horizontal axis in the figure is nonlinear.)
120
100
80
60
40
20
0
10 20 40 80 160 320 640 1280
FIGURE 14 The 85% experience curve.
Companies with a faster time-to-market strategy are able to accumulate production

experience more quickly, attain a lower product unit cost sooner, and sustain company
profitability for longer periods of time.
Price–quality relationship: One important consideration in setting the product price is
the cost–quality relationship perceived by customers. There is substantial evidence in
business literature to indicate that customers tend to believe that “low-priced items
cannot be good.” Price is perceived to be an indicator of quality. Thus, product prices
should not be set too low. There is a price threshold below which customers may raise
questions regarding the quality, as indicated in Figure 15. The demand curve
“Quantity T” illustrates a normal price–demand relationship in the absence of a price
threshold, whereas the demand curve “Quantity A” contains a price threshold at about
$30 per unit, below which the demand for the products starts to drop off as the
perception of poor quality related to low price kicks in.
300
250
200
150
100
50
0
5 10 20 30 40 50
FIGURE 15 Price–quality relationship

Relative position of power: Consumer products are typically marketed by a few major
companies to a very large number of customers. For innumerable industrial products
with high technological contents, the number of both producers and customers may
be limited. The greater the number of sellers there are available for a given product,
the weaker each seller’s position in the marketplace will be. Similarly, the more buyers
there are for a specific product, the weaker the buyers’ relative market position will
be.
Less competition makes either sellers or buyers more powerful. The relative position
power between buyers (customers) and sellers (producers) has an impact on product
pricing, as illustrated in Figure 16. The final price offered by the sellers and accepted
by the buyers is usually arrived at by a suitable negotiation or auction process.
Retailing
FIGURE 16 Relative power positions of buyers and seller.

If both buyers and sellers are strong—for example, when the U.S. government
(customer) procures fighter airplanes from the defense industry (producer)—a final
price is typically reached by a negotiation made up of a series of offers and
counteroffers. A typical pricing arrangement may be cost plus a fixed percentage of
gross margins.
When the sellers are strong (e.g., selling an original master painting, a porcelain vase
from the Ming dynasty, or some other type of unique physical asset) and the buyers
are weak, sellers tend to take advantage of their dominant supplier position by
employing an auction. An auction is a bidding process by which buyers are forced to
compete against each other by committing themselves to consecutively higher prices,
with the final price being set by the highest winning bid.
If buyers are in a strong position (e.g., due to large transaction volumes), they force
weak sellers to compete against each other in a reverse auction. A reverse auction
requires the pre-qualified sellers to submit increasingly lower bid prices within a fixed
period of time (Preston 2014). The lowest bid defines the final price and the ultimate
winner of the sales contract. Some large companies employ such pricing tactics to
purchase high-volume supply items such as computers; paper and pencils; tires;
batteries; and maintenance, repair, and operations (MRO) goods.
Finally, when both sellers and buyers are weak, products are usually not differentiable,
and the product prices are highly depressed and fixed. Examples include various
commodity products sold in retail stores. Some sellers (e.g., Land’s End) may activate
a Dutch auction to compete. In a Dutch auction, sellers slash the product prices by a
certain percentage at a regular time interval (e.g., every week) until the products are
sold or taken off the market. In this case, buyers compete against other “sight-
unseen” buyers to seize the lowest possible selling prices (Stafford 2014).
The Internet has made many of these pricing processes much more practical and
efficient to implement (Roberts and Zahay 2012). Because of its ability to allow sellers
and buyers to rapidly reach other buyers and sellers, respectively, the Internet tends
to weaken the relative power positions of both the sellers and the buyers, causing
products to become increasingly commoditized, thus depressing product prices and
intensifying competition.
Table 6 enumerates a number of other factors that have an impact on setting the
product price.
TABLE 6 Other Factors Impacting Product/Service Prices
Factor Skimming Penetration
Demand Inelastic Elastic
Users know little about service Familiar service
Market segments with different Absence of high-price

price elasticity segment
Competition Few competitors Keep out competition
Attracts competition Market entry easy
Market entry difficult
Objective Risk aversion Risk taking
Go for profits Go for market share
Service Establish high-volume image Image less important

Service needs to be tested Few technical service
problems
Short service life cycle Long service life cycle
Price Easy to go down later Tough to increase later

More room to maneuver Little room to maneuver
Distribution and promotion No previous experience Existing distribution system

and promotion program
Need gross margin to finance
its development
Financing Low investment High investment
Faster profits Slower profits
Production Little economy of scale High economy of scale

Little knowledge of costs Good knowledge of costs
C) Pricing Methods
In setting product/service prices, companies broadly consider a number of the
aforementioned factors. Several of these pricing methods are briefly discussed next
(Vohra and Krishnamurthi 2012).
Cost oriented: Some companies set prices by adding a well-defined markup
percentage to the product cost. This is to ensure that all products sold generate an
equal amount of contribution margin to the company’s profitability:
Price = Cost + Markup e g. (., 35% of cost) (eqn.1)
Cost-plus contracts are often used for industrial products related to research and
development (R&D), military procurements, unique machine tools, and other uses.
Small sellers use cost-plus pricing to ensure a fair return while minimizing cost factor
risks. Larger buyers favor this type of pricing so that they can push for vendor cost
reduction via experience. Larger buyers may optionally offer to help absorb the cost
risks related to inflation.
Often, sellers and buyers enter a target-incentive contract, which prescribes that, if
actual costs are lower than the target costs, sellers and buyers split the savings at a
specific ratio. On the other hand, if the target costs are exceeded, then both parties
pay a fixed percentage of the excess; the buyers pay no more than a predetermined
ceiling price.
Profit oriented: Other companies prefer to require that all products contribute a fixed
amount of profit. This pricing method ensures that sellers realize a predetermined
return on investment (ROI) goal.
Price = Cost + Profits (e.g. ., in terms of ROI) (eqn.2)
Market oriented: Some companies set prices of certain industrial products, such as
those requiring customization, to what the buyers are willing to pay. For example,
companies strive to negotiate for the highest price possible and take advantage of the
fact that product and pricing information may not be easily accessible. The continued
advancement of Internet-based communication tools tends to make information just
one click away, rendering this type of pricing method no longer practical in today’s
marketplace.
Companies may also price the products slightly below the next-best alternative
products available to the customer. The companies that have exhaustively studied the
next-best alternative products available to their customers would gain advantages in
price negotiations.
Competitive bidding is often used by governments and large buyers. Usually three
bids are needed for procurements exceeding a specific dollar value. Sealed bids are
opened at a predetermined date, and the lowest bidder is typically the winner. Some
industrial companies may engage in negotiated bidding, wherein they continue
negotiating with the lowest one or two bidders for additional price concessions after
the bidding process (e.g., a reverse auction) has been completed.
Valued-added pricing: Companies with extensive application know-how related to
their industrial products may set product prices in proportion to the products’ expected
value to the customer. The product’s value to the customer depends on the realizable
improvement in quality, productivity enhancement, cost reduction, profitability
increase, and other benefits attributable to the use of the product. Producers set the
product prices high if there is a large value added by these products to the customer
(Macdivitt and Wilkinson 2011).
Competition oriented: A common pricing method is to set prices at the same level as
those of the competition. Doing so induces a head-on competition in the marketplace.
In oligopolistic markets (typically dominated by one or two major producers or sellers
and participated in by several other smaller followers), the market leader sets the
price.
One well-known example of a competition-oriented pricing practice is target pricing.
Target pricing was initiated and applied by many Japanese companies. Some
American companies have now started to successfully apply this method (Nizam
2014). Target pricing is briefly addressed as one of several external benchmarking

strategies. The process of target pricing (see Figure 17) is as follows:
(a) Determine the market prices of products that are similar or equivalent to the
new product planned by the company. Find all product attributes customers may
desire. This is usually accomplished by a multifunctional team composed of
representatives of such disciplines as design, engineering, production, service,
reliability, and marketing. Select a product price (e.g., 80% of the market price)
that makes the company’s new product competitive in the marketplace. This is
then the target product price.
(b) Define a gross margin that the company must have in order to remain in
business.
(c) Calculate the maximum cost of goods sold (CGS) by subtracting the gross margin
from the target product price. This is the target product cost, which must not
be exceeded.
(d) Conduct a detailed cost analysis to determine the costs of all materials, parts,
subassemblies, engineering, and other activities required to make the new
product. Usually, the sum of these individual costs will exceed the target product
cost previously defined. Apply innovations in product design, manufacturing,
procurement, outsourcing, and other cost reduction techniques to bring the CGS
down to or below the target product cost level.
(e) Initiate the development process for the new product only if the target product
cost goal can be met.
Facilities
FIGURE 17
The target pricing method ensures that the company’s new product can be readily
sold in the marketplace at the predetermined competitive price, with features desired
by consumers, to generate a well-defined profitability for the company. This method
systematically evaluates low-risk, high-return investment opportunities because it
forces the company to invest only when the commercial success of the product is
more or less assured. Furthermore, it also focuses the company’s product innovations
on finding ways to meet specific and well-defined target product cost goals. It avoids
the potential of wasting its precious intellectual talents in chasing ideas with no or
little practical value.
Numerous companies use the aforementioned pricing methods. Product/service prices
are usually set by the marketing department in consultation with business managers.
Engineering managers are advised to become aware of these methods, but to defer
pricing decisions and related discussions to the marketing department.
D) Pricing and Psychology of Consumption

Recent studies indicate that buyers are more likely to consume a product when they
are aware of its cost. The more they consume, the more they will buy again and thus
become repeat customers. One useful way to induce them to repeatedly consume the
products is to remind them of the costs committed through the choice of payment
methods. This is based on the assumption that the more often the customers are
reminded of the payments, the more they feel guilty if they do not fully utilize the
products they have paid for.
Gourville and Soman (2002) point out that a time payment plan better induces regular
consumption of a product than a lump-sum prepayment (e.g., prepaid season tickets)
at the same total value. This is because the time payments remind the buyers of the
costs periodically and thus invoke the sunk-cost effect on a regular basis. The
psychology of the sunk-cost effect is that consumers feel compelled to use products
they have paid for to avoid the embarrassing feeling that they have wasted their
money.
Credit card payments are less effective in inducing consumption than cash payments
because cash payments require the buyers to take out currency notes and count them
one by one; thus, they experience the “pain” of making payments.
In price-bundling situations, the more clearly the individual prices of products are
itemized, the better the perceived sunk-cost effect will be. Breaking down large
payments into a number of smaller ones, thus clearly highlighting the costs of
individual products sold in the bundle, can enhance this effect.
Studies of membership rates at commercial wellness and fitness centers support this
logic. It has been well documented that those members who pay the membership
fees once a year use the facilities only occasionally. These members are the least
likely to renew, in comparison with those who pay on a monthly basis. Similar
observations are made in sports events in which holders of season tickets show up
less frequently than those who buy tickets for specific sets of events.
These examples point out that companies can induce customers to become repeat
customers by focusing on ways to encourage consumption. Only consumption lets
customers experience the benefits of the product/service they have purchased.
Without such favorable experience, they may not feel that they have good reasons to
buy the products again in the future. Hence, besides providing a good bundle of value
made up of price, product features, convenient and efficient order processing and
delivery, and quick-response after-sales services, companies should devise ways to
stimulate consumption as a strategy to cultivate and retain repeat customers.
Example
The company has been selling a number of products to customers. It is about
to launch a new product with features far superior to any products currently
on the market. One option is to price this new product at a large premium
above the current price range so that the heavy development expenses can
be readily recouped by the company. The other option is to set the price
comparable with the existing range in order to retain customer loyalty. What
is your pricing advice to the company?
Answer
Hold a focus group to find out the potential response of customers to the
new product’s features. Are these features of real value to them? How much
more are they willing to pay for these new features? Exciting new features
from the manufacturer’s viewpoints may not be as exciting to customers.
Should customers appreciate the new features, then it is advisable to apply
the skimming strategy and set a high price for the new product. This is also
the principle of value pricing. Furthermore, doing so will avoid “cannibalizing”
the existing products of the company.
An efficacious promotional campaign is essential to heighten product
awareness. Keep monitoring the response of the market. If the market
response is poor, cut down the product price slowly to induce more demand.
*Marketing Communication (Promotion)

Marketing communication is intended to inform the target customers of the features
and benefits of the company’s offerings (Clow 2013; Belch and Belch 2011). Product
promotion follows a well- planned process (see Figure 18) for who says what to whom,
in what way, through which channel, and with what anticipated outcome.
FIGURE 18 Promotion process.
A) Communication Process
Companies select communicators who are publicly recognized and who have
trustworthy images, as these speakers tend to induce public acceptance of their
messages. Examples include Bob Dole for Viagra, and Yao Ming for basketball-related
items.
Messages may be in various forms, including slogans. A slogan is a brief phrase used
to get the consumer’s attention and acts as a mnemonic aid. Successful slogans
typically represent a symbolization of product features in terms of the customer’s
wants and needs (such as information, persuasion, and education). Examples include
“Ring around the Collar,” “Where’s the Beef?,” “You are what you know,” “One
investor at a time,” “Our Insights are Your Guide,” “Predictive Analytics: Drive Better
Decisions with Data,” “See a New Way to Discover Insights – Smarter Decisions are
Made with IBM,” and “Vanguard Lets You Keep More. That’s Our Low-Cost
Advantages.”
Channels of communication are a specific means to foster market advertisement. In
general, there are two types of communications channels: the marketer controlled
and the consumer controlled. The marketer-controlled channels include
advertisements placed by the producers in trade journals, national television

programs, distribution brochures, advertisements by technical salespeople, industrial
exhibitions, and direct-mail marketing. The consumer-controlled channels include
private communications by word of mouth, news reports, and others sources of
information perceived to contain no conflicts of interest.
The customers are the target for marketing communications. When selecting
communications channels to reach specific consumers, the consumers’ characteristics,
media habits, and product knowledge must be taken into account. Consumers’
characteristics include socioeconomic status, demographics, lifestyle, and psychology.
For industrial customers, characteristics include market capitalization, market share,
and stability of financial position. Media habits point to sources of information
preferred by the customers (e.g., types of magazines and TV programs). Product
knowledge is the consumers’ understanding and appreciation of the values offered by
the producers.
Some companies invest a considerable amount of effort in educating their consumers.
A case in point is the known practice of some drug companies that sponsor large-
scale clinical studies conducted by universities and other independent organizations.
The purpose of these funded studies is to produce results for publication in technical
journals from which consumers gain product knowledge in ways preferred by the
sponsoring drug companies.
The impact of marketing communications on products/services may be short term or
long term. The short-term impact is related to recall, recognition, awareness, and
purchase intention with respect to the offerings in question. The long-term impact is
reflected in the purchases by customers and brand loyalty with repeat purchases.
Several factors influence the effectiveness of marketing communication, namely,
timing, price, product availability, responses by competition, product warranty
conditions, and customer support service.
Marketing communication brings about heightened product/service awareness, as an

improved familiarity with the offerings induces more people to purchase them at the
current price levels.
B) Promotion Strategy
Product/service promotion may be pursued by either causing the consumers to want
to pull the products/services from the supply chains or allowing the producers to push
the products/services to the consumers through the supply chains. Many companies
practice both strategies.
In a pull strategy, the consumers go to retail stores to ask about the product/service
because they have been informed of its values by advertisements and other
promotional efforts of the sellers. In this case, the product or service is presold to the
consumers, who practically pull the products through its distribution channels (see
Figure 19).
FIGURE 19 Pull strategy.

In exercising a push strategy, sellers introduce incentive programs (e.g., factory
rebate, sales bonus, telemarketing, rebate selling, door-to-door sales, or discount
coupons) to push products/services onto the consumers. Figure 20 illustrates the
push strategy. Table 7 compares these two promotional strategies.
service
Rebates,
FIGURE 20 Push strategy.

TABLE 7 Comparison of Two Promotion Strategies
Push Pull
Communication Personal Mass

selling advertising
Price High Low
Service’s need of High Low
special support
Distribution Selective Broad
Consumer and HT products are promoted differently. To bring the most convincing
marketing messages to the intended users, marketers for HT and consumer products
use different channels. For examples, trade shows, users groups, trade journals, and
the Internet are typically used for HT products, whereas print media, radio, TV, and
the Internet are used for consumer products. Advertising is less important for HT
product and more important for consumer products. The consumer segments are
more numerous for HT products than for consumer products. Companies spend less
marketing resources and place more extensive focus on promoting HT products than
on consumer types. Brand is critically important for promoting consumer products
than for HT types.
C) Internet-Enabled Communications Options

Communications among sellers, intermediaries (e.g., distribution partners), and
buyers have been significantly enhanced by the Internet (Lewis 2009). Figure 21
presents four specific modes of communication.
B-to-B
FIGURE 21 Modes of communications. (From Griffith, D.A. and Palmer, J.W. Bus.
Horizons., 42, 1, 1999. With permission.)
Manufacturers and suppliers usually set up the intranet to communicate with

intermediaries (business to business, or B-to-B). Intermediaries may create their own
websites and other tools to communicate with customers in a business-to-customers
(B-to-C) mode. A direct communication between manufacturers, suppliers, and
customers can be readily fostered by the company’s websites, call centers, and other
means for order processing, inquiry coordination, problem solving, and additional
mission-oriented activities such as customer surveys, focus groups, and product
testing.
The virtual market is a segment of the Internet domain where third-party portals (e.g.,
Google, Yahoo, and other search engines), auction sites (e.g., eBay), and e-commerce
marketplaces (e.g., ChemConnect) actively provide channels to access information
useful to all parties involved (manufacturers, suppliers, intermediaries, and

customers).
In the B-to-B markets, businesses buy essentially two kinds of goods from other
businesses, namely, manufacturing inputs (raw materials, equipment, and
components) and operational inputs (MRO goods, office supplies, spare parts, travel
services, computer systems, cleaning, and other services). They buy these goods by
systematic sourcing or spot sourcing. Electronic hubs provide the useful functions of
aggregation and matching.
Companies invest efforts into creating websites that offer product information and
facilitate sales transactions. However, studies show that these efforts have not yet
returned the high profitability generally anticipated from such a marketing approach.
The basic reason is that it remains unpredictable how frequently new and repeat
customers visit these websites and then actually place orders.
A new way of thinking is offered by Hackley (2013), who suggests that the focus of
e-commerce should be shifted from contents to context. He believes that contextual
marketing (bringing the marketing message directly to the customer at the point of
need) is the key. A number of contextual marketing examples are described next.
Johnson and Johnson’s banner ads for Tylenol (an over-the-counter painkiller drug)
show up on e-brokers’ websites whenever the Dow Jones Industrial Average falls by
more than 100 points on a given business day. They anticipate that investors will have
headaches and thus will need Tylenol when they see their stocks lose money. The
marketing message is brought out in the correct context as a way to reinforce its
relevance and to offer transactional convenience at the right time.
CNET and ZDNET websites attract diverse visitors interested in computers. Instead of
placing banner ads in these CNET and ZDNET sites to redirect visitors to its own
website, Dell offers product information directly within the CNET and ZDNET websites.
Dell piggybacks on CNET’s and ZDNET’s relationship with its computer-savvy
customers in order to promote Dell’s own customer-acquisition economics. Doing so
holds the customer’s attention on computer design and offers competitive design
choices and speedy order processing at the optimal moment. Here, the tactic used by
Dell is to insert itself into a preexisting customer relationship at the right time and
place.
Several search engines (e.g., Google, Yahoo, AOL, MSN, Lycos, AltaVista, and HotBot)
practice contextual marketing. When a user conducts a keyword search, the output is
typically placed in a left-aligned column under the heading “Matching Sites” and rank
ordered according to hit frequency. Quite frequently, several items under the heading
“Sponsored Links” are placed on top of the “Matching Sites” column. These are paid
advertisements related to the keywords entered by the user. They are there to offer
contextual marketing messages relevant to the expressed interest of the user.
As web-based technologies continue to advance, the Internet will become more
accessible by many more users from almost anywhere and at any time, causing them
to become overwhelmed by information and choices. Bringing the right marketing
information to the customer at the point of need is likely to become a critical success
factor for various companies in marketing communications.
*Distribution (Placement) Strategy

Numerous organizations are involved in moving products and services from the points
of production to the points of consumption. As indicated in Figure 22, some companies
may engage intermediaries (e.g., wholesalers and retailers) to distribute their
products, while others may elect to interact directly with their customers (Dent 2011).
Distribution channels serve very useful functions, which include:
Transportation: Overcoming the spatial gap between the producer and the user
Inventory: Bridging the time gap between production and usage
Allocation: Assigning quantity and lot size
Assortment: Grouping compatible products for the convenience of users, as qualified
technical representatives could sell several product lines
Financing: Facilitating timely possession of products
Communication: Providing product information and feedback to and from
consumers
FIGURE 22
In recent years, distribution channels for some products/services have experienced

significant changes due to upgraded logistics, transportation technologies, and
advancements in communications technologies. For example, the Internet has
enabled many producers to deliver digitized products—books, newspapers,
magazines, music products, video products, and travel services—directly to
consumers, thus bypassing the traditional store-front intermediaries. Because of the
use of sophisticated websites from which extensive product/service catalogs may be
accessed, retail stores have also lost some of their traditional importance for selling
physical goods—clothing, cars, appliances, and so forth.
Furthermore, logistics companies such as the United Parcel Service (UPS) are
constantly improving their transportation capabilities and satellite-based
communications system technologies in order to deliver physical goods anywhere in
the world while allowing a constant tracking of the status of consumer orders.
Warehouse design is expected to increasingly involve gantry robots and complex
process optimization for constantly improving the efficiency of automated high-volume
operations.
A) Types of Distribution
Traditionally, distribution is classified as either intensive, exclusive, or selective. In
intensive distribution, products are stocked in diverse outlets, such as hardware
stores, department stores, and catalog rooms, for wide distribution. This type of
distribution is particularly suitable for consumer products of low technology and
differentiation features. Examples include films, calculators, electric fans, books, and
CDs. With exclusive distribution, certain products are distributed only through
exclusively designated outlets. This allows producers to retain more control over price
policy, promotion, credit, and service, as well as to enhance the image of the products.
Examples include dealerships for specific cars and qualified product centers for brand-
name PCs. The selective distribution is suitable for certain other products, the sales
and service of which require special technical know-how and training. Examples
include electronic instruments, HT equipment, and custom software.
Services, such as health care, business consulting, financial advisement, and
education, are usually offered, selectively, at specifically designated retail stores.
B) Organizational Structures
In order to enhance distribution effectiveness, some companies elect to exercise more
control over the supply chain by integrating forward. Others have elected to integrate
backward.
A forwardly integrated organization strives to control the distribution channels leading
to the customers. For the purpose of securing a larger market share and exercising
more direct control, a producer may attempt to build its own retail outlets. Doing so
allows the producer to gain direct access to customers and thus to benefit from their
feedback. This type of organization is also favored by providers of services.
On the other hand, a backwardly integrated organization seeks to control the value
chain leading backward to production. For example, some retailers or wholesalers may
attempt to own specific production facilities or to outsource production for creating
private-label products in order to market products with their own brand names, reduce
costs, ensure supply, and control quality.
C) Impact of E-Commerce on Distribution

The Internet has significantly modified the traditional classifications of distribution.
Many consumer products, as well as certain HT products, are now marketed directly
through a company’s websites, including order processing and after-sales services. As
a consequence, many intermediate companies currently involved in distributions—
wholesalers, discounters, and some retail stores—are gradually being forced out by
Internet-enabled e-commerce companies and by the increased involvement of
efficient and fast-responding logistics providers.
One immediate impact of e-commerce is the reduction of the final product price and
product delivery schedule, both of which are beneficial to end users.
Example
Customers’ wants and needs are regionally different for products intended
for global markets. How can a centralized, concurrent engineering team
develop a product that will serve as the common “platform” for global
markets?
Answer
One option is to segregate the mechanical aspects (functionality) of the
products from their aesthetic aspects (look and feel). General Motors is
accomplishing this challenging objective by
1. Building identical assembly plants for Buick cars at four global locations
2. Outsourcing major subassemblies to local industries to minimize import
duties and to satisfy local content laws
3. Standardizing the technical specifications so that parts supplied by one
region can be readily rerouted for use by another, in order to balance
loads due to market demand fluctuation, labor disputes, governmental
regulations, and other unpredictable events
4. Modifying design to account for local market conditions relative to

cultural preference (e.g., car names in local languages, styling
preferences, purchase habits, and colors)
5. Retaining centralized concurrent engineering approaches to facilitate
global business strategy and scale of economy, while being flexible
enough to adjust to local needs
Example
The company plans to enter a new global market. It has three products
currently selling well in its home country. The company’s brand name is
strong and internationally well recognized.
Current market research indicates that the segments for these three products
in the targeted global market are of different sizes, growth rates, and
profitability for the foreseeable future. Other product characteristics are
included in Table 8.
Which one product should be selected to penetrate the targeted global
market? Why? If the company has the required resources to market all three
products in the targeted global market, in what priority order should the
company proceed?
TABLE 8 Product Characteristics
Product A Product B Product

C
Segment size ($) Small Medium High

Segment growth rate Medium Medium Low
Profitability High High Medium
Service value to High Medium Medium
customers
Brand strength High High High
Delivery/distribution Low High Medium
efficiency
After-sales support activities Medium Medium High
Answer
To enter a global market, the company must examine two key questions: (1)
How attractive is the target market segment to the company, and (2) how
acceptable is the product offered to the customers in the target segment?
The attractiveness of a market segment to a company is generally defined
by three factors, namely, segment size, segment growth rate, and
profitability. By using the information presented in Table 8.8, it becomes clear
that the ranking based on “attractiveness” should be Product B first, with
Products A and C sharing the second spot.
How acceptable the company’s product is to the customers depends on the
product value as perceived by the customers, the brand strength of the
product, the delivery or distribution efficiency that affects the product’s
availability to the customers, and the ease with which customers could obtain
an after-sales service. Based on the “acceptability” criterion, the ranking of
these products should be Products B, C, and A.
Since both the “attractiveness” and “acceptability” criteria are equally
important, we need to come up with a combination ranking, which says that
the company should select Product B as its first choice to enter the global
market, followed by Product C, and then Product A.
Addition to 4P’S of Marketing
*Physical Evidence
Physical evidence refers to the physical setting in which a service is to be offered,
delivered, or consumed. Customers form a brand image of the service vendor by
observing the physical layout, decor and color, design details, equipment capabilities,
the status of facilities that support the service delivery and enhance the
communication of messages (e.g., service availability, customer satisfaction) to other
potential customers, and by judging the extent to which the physical setting meets or
exceeds their expectations.
Singapore Airlines has maintained the same uniform for its stewardesses for 25 years.
McDonald’s and Citibank design its retail branches to look and operate the same way
in any location.
*Process Design
By process, we refer to the chosen work procedure, inter-unit collaboration, and the
flow of activities by which services are delivered, service consumption is facilitated,
and customers’ problems are solved, as measured by such metrics as speed,
convenience, efficiency, and the extent of empowerment enjoyed by the customer-
facing staff. Customers gain an overall impression regarding the equality of the
customer-focused process being practiced.
*People
Many people are directly or indirectly involved in the production and consumption of
services (knowledge workers, employees, management, and other customers), who
may add to the value of the service offering. Following the Value Profit Chain model
(Heskett et al. 2002), recruiting the right customer-facing staff; preparing them with
proper training in interpersonal skills, aptitude, and service knowledge; empowering
them to take care of customers; and compensating them well are all essential models
toward achieving customer satisfaction and corporate profitability.
Example
In this chapter, we talked about the marketing elements, which include: (1)
product/ service, (2) price, (3) promotion (advertising), (4) placement
(distribution), (5) physical evidence, (6) process design, and (7) people.
When marketing products, it is usually sufficient to focus on the first four of
these marketing elements. On the other hand, all seven marketing elements
are deemed important when marketing services. What are the underlying
reasons for the last three (e.g., #5, #6 and #7) marketing elements to be
particularly important for marketing services?
Answer
Companies address all seven marketing elements (7Ps) when marketing
services. The principal reason for this is that services (e.g., health care,
business consultation, financial services, leisure and travel, insurance, and
others) require a much higher degree of customization in the process of
specifying, producing, delivering, and offering aftersales support than
products (e.g., automobiles, computers, and appliances). Because of these
service-specific characteristics, customers are exposed to the vendor’s
performance in (a) physical evidence, (b) process, and (c) people to a much
greater extent, making these elements more important in affecting the
customer’s satisfaction than in marketing products.
Thus, to be customer focused, service companies pay more attention to (a)
physical evidence related to facility design, office layout, and employee
uniforms; (b) processes in problem solving and conflict resolutions affecting
customers; and (c) people—by choosing, training, and monitoring customer-
facing staff to ensure friendliness and customer-centered attention.
Customers
Customers are important to any product/service company. A company’s marketing
program needs to focus on the targeted customers, understand them, practice the
right strategies to win them over, create emotional bond with them, improve
interactions and enhance their loyalty, and continue to expand the number of satisfied
customers by asking the right customer survey questions.
A) Customer Focus
Customer focus is aimed at knowing the real needs of target customers, past, present
and future. It requires the collaboration of many employees as well a functioning
support organization to make it happen. Based on a study of the Royal Bank of
Canada, Gulati and Oldroyd (2005) suggest a four- stage coordination process for
service companies to become customer focused, namely, (1) communal, (2) serial,
(3) symbiotic, and (4) integral coordination. For example, the primary organizational
objective is to (1) collect information, (2) gain insight into customers from past
behavior, (3) develop an understanding of likely future behavior, and (4) conceive a
real-time response to customer’s needs.
Getting closer to customers is a journey the entire company must take, not just the
marketers and customer-facing staff. A firm cannot be oblivious to the changes in
customer perspectives of its product/service in the marketplace. It requires corporate
leadership and company commitment to get useful results.
B) Customer Acquisition in Business Markets

The benefits derived by acquired customers in business markets belong to four
categories.
1. Tangible financial benefits
2. Nontangible financial benefits: Conducting pilot projects, money-back guarantees

for nonperformance, pay for performance contracts
3. Tangible nonfinancial benefits: Corporate reputations, global scale, innovation

capabilities
4. Nontangible, nonfinancial benefits: Something the vendor does extra for consumers
to enhance convenience, customer relationship, or services offered, above and
beyond contracts
According to Narayandas (2005), to acquire customers, companies must be on par

with rivals with respect to tangible financial benefits. They need to use tangible
nonfinancial benefits to differentiate and shift customer’s focus from tangible benefits
to nontangible, nonfinancial ones (e.g., free services that reduce customers operating
expenses); and suggest ways to make customer’s process more efficient, thus earning
the trust of the customers.
Consumer markets and business markets are quite different. Table 9 shows the
difference.
When marketing to business customers, companies need to know that business

decisions are typically made by a team of people. Each team member could have one
or more specific needs. Knowing who these people are and what each of them is
looking for is of critical importance to the seller. The vendor must become sensitive
to these needs and be prepared to address all of them adequately.
TABLE 9 Differences Between Consumer and Business Markets

# Characteristics Consumer Markets Business Markets
1. Segmentation of market Critical Not important—“segment of

one”
Branding Important Not important
Focus of communication Novelty of features Solving customer’s specific

problems
2. Number of buyers Large Small
3. Transaction value Small Large
4. Production Mass-production Customized to individual
needs
5. Value Customer’s perception Defined by customer’s usage
6. Sales process Brief Elaborate (long and
complex)
7. Retailing strategy Important Not important
8. Focus of sales efforts End users Group of decision-makers
Source: Narayandas (2005).
C) Moments of Truth in Customer Service

The “moments of truth” are times when a customer invests a significant amount of
emotional energy in the outcome of a service transaction with producers. Examples
of such moments include (1) a customer has a problem encountering an unexpected
difficulty in applications, receiving a hold on a check, and so on; (2) a customer has
a need to get a quick answer; (3) a customer receives financial advice (good or bad);
and other suggestions. If these moments are handled positively, customers are likely
to create an emotional bond with the producers and subsequently increase their future
commitment to the producer’s services. The study of Beaujean et al. (2006) shows
that the customer experience, related to other humdrum service interactions that
involve unelevated emotional energy, is of little consequence.
Management must therefore support and develop frontline staff to enable them to
handle such “moments of truth” by way of empowerment, nurturing the right service
mind-sets, and acquiring the necessary service knowledge, while de-emphasizing the
efficiency improvement of other manual transactions. Developing deeper and long-
lasting relationships with customers is key to sustaining long-term profitability
(Beaujean et al. 2006).
D) Customer Interactions and Loyalty

The interactions between customers and companies play a very important role in
securing marketing success. Creating a pleasant experience for customers (e.g., in
order processing, service information dissemination, inquiry coordination, problem
solving, after-sales support service, and market surveys) is crucial for customer
retention. Winning customer cooperation in offering much-needed feedback is vital to
the company’s service development. Management of customer relations is thus an
important corporate responsibility.
Some lessons from the past are noteworthy. Customer interactions are not limited to
marketing. Many other functions of the company are involved, including support
service, accounts receivable, legal, engineering, manufacturing, and shipping.
Empowered employees can act on behalf of the company to satisfy customer
requirements. Adequate support infrastructure must be established to enable
employees to perform the tasks in an innovative and customer-responsive manner.
The major payoff for a successful customer interaction program is customer loyalty.
Customer loyalty contributes to company profitability. Studies indicate that increasing
the customer retention rate by 5% raises profits by 25%–95% (Reichhold and Shefter
2000). Loyal customers are valuable because they buy more, refer their pleasant
experience to new customers, and offer consultations to these new customers at no
cost to companies.
To build customer loyalty, the customer interaction strategy must be focused on

creating trust. Amazon.com is viewed by many as one of the most reliable and
trustworthy websites on the Internet. It registers user preference, becomes smarter
over time at offering services tailored to each user, provides one-click convenience
for purchasing items, and delivers the ordered services free of errors. It is reported
that 59% of Amazon.com sales are derived from repeat customers, roughly twice the
rate of typical “brick-and-mortar” bookstores.
Vanguard Group, a company that markets index-based as well as specifically managed
investment funds, offers timely and high-quality financial advice on its website and
does not attempt to hard sell any specific service. Its customer interaction strategy is
focused on building trust. “You cannot buy trust with advertising or salesmanship; you
have to earn it by always acting in the best interest of customers,” says Jack Brennan,
Vanguard CEO.
eBay is actively practicing the referral-based business, having about 50% of its new
customers referred by loyal customers, who are also its helpers. One major concern
in the business of auctioning used merchandise is reliability and fraud prevention.
eBay asks each buyer and seller to rate each other after every transaction. The ratings
are posted on the website. Every member’s reputation becomes public record.
Furthermore, eBay insures the first $200 for each transaction and holds the money in
escrow until the buyer is satisfied with the received merchandize.
How is trust related to profitability? Studies show that, in some businesses, customers
must typically stay on board for at least two to three years just for the companies to
recoup their initial customer-acquisition investment. In other words, for companies to
achieve profitability, customers must be loyal enough to stay beyond the break-even
period. A large percentage of customers defect before many new companies reach
this break-even point. Reichhold and Shelfter (2000) showed that companies with
consumer electronics and appliances products spend on average $56 to acquire a new
customer, their break-even point is four years, and 60% of their customers defect
before reaching the break-even point. For groceries and apparel companies, their
customer-acquisition costs are $84 and $53, their break-even years are 1.7 and 1.1,
and their percentages of customer defection before reaching the break-even point are
40% and 14%, respectively.
A large number of companies are successful in planning and implementing strategies
to interact effectively with customers. According to Dorf et al. (2002), these
companies identify and prioritize customers, define their needs, and customize
support services to fit these needs. They reap the benefits of increased cross-selling,
reduced customer attrition, enhanced customer satisfaction, minimized transaction
costs, and sped-up cycle times.
Companies known for their success in relationship marketing include Pitney Bowes,
Wells Fargo, 3M, Owens Corning, British Airways, Hewlett-Packard, and American
Express.
Customer loyalty is won, not by technology, but through the delivery of a consistently
superior customer experience. It requires a well-designed customer interaction
strategy that is supported by companies with a firm corporate commitment.
E) Customer Feedback
A great number of customer satisfaction surveys contain too many questions.
According to Reichheld and Markey (2011), the ultimate question to ask is: “How likely
are you to recommend this company to a friend or colleague?” Score the results on a
0–10 scale and classify the responses as follows:
1. Loyal promoters (9s and 10s)

2. Passive customers who do business with the company (7s and 8s)
3. Detractors (6s and below)
The net promoter score (NPS) is defined as the percentage of promoters minus the
percentage of detractors. For example, if the promoters are 35%, passive customers
are 50%, and detractors are 15%, then the NPS is 20%. Based on a survey conducted
by Bain & Company, companies with an NPS in the range of 50%–80%, are superior
in achieving good profits. Examples of these high-NPS companies include: USSA
(82%), HomeBanc (81%), HarleyDavison (81%), Costco (79%), and Amazon.com

(73%).
Obviously, the key to growing a business is to have more promoters and less
detractors. Since the company already has a relationship with these “promoter”
customers, it should solicit information from them in order to understand exactly
where the company is succeeding and how to apply this information toward ensuring
the company’s ongoing success. They should contact detractors as well, to find out
what the company can do to improve their service offerings. Reichheld and Markey
(2011) believe that business growth can only be sustained over a long period based
on the loyalty of satisfied customers and customer-focused promotions. To achieve
success, companies must always practice the Golden Rule: to treat others as you
would want to be treated in return.
This concept appears to be consistent with the “Value Profit Chain” model in that
satisfied customers will not only increase spending for themselves, but also
recommend that their friends follow suit. The way to ensure customer satisfaction is
to adopt company policies that make for happy and loyal employees, who will in turn
promote company’s brands leading to long-term corporate profitability.
Example
Over the years, New Health Company spent a considerable amount of effort
in developing and testing a new drug intended for reducing the LDL (bad
cholesterol) and raising the HDL (good cholesterol) of patients with
cardiovascular disease. After having passed the Phases 1, 2, and 3 trials, the
drug received Food and Drug Administration (FDA) approval for marketing
to the public. There are some known drugs already in the marketplace for
this type of disorder, which affects millions of people in the United States
alone. The size of the overall market for cardiovascular drugs is estimated to
be about $25 billion annually. Devise a marketing plan to bring this new drug
into the U.S. marketplace.
Answer
The marketing plan should consist of four parts, corresponding to the 4Ps of
marketing products, namely, product, price, placement (distribution), and
promotion.
As a new product, the drug in question offers the useful features of lowering
LDL and raising HDL, a very powerful combination to combat heart disease,
based on the current state of clinical knowledge. A direct competitor is
Lipitor, which has the same beneficial effects as the new drug. Furthermore,
Crestor, together with Niacin, are also known to produce this combination
effect. It is important for the company to delineate any differences this new
drug might have regarding (1) side effects, (2) potential long term health
hazards, (3) lower frequency of taking the drug, and (4) longer effectiveness.
These differences must be clinically verifiable by way of large-scale clinical
studies.
Pricing is an important issue to some patients. The new drug should be retail-
priced at a level slightly lower than its current competitors. Aggressive
contracts should be entered into with major insurance carriers, mail order
drug companies, AARP prescription drugs program, and others to allow
volume-based discounts.
Promotion is rather critical for a new drug entering an existing market. Key
targets are patients, physicians, and insurance carriers. Patients need to
become aware of the unique benefits of this new drug via TV, magazine
articles, and web-based advertisement, so that they could “pull” this drug
from the supply chains. The message should emphasize its distinguishing
features in view of the existing competition. Physicians must be convinced
via trade shows, clinical studies, and journal articles of its relative merits, so
that they would be willing to suggest/prescribe this new drug and allow
brochures to be distributed through their offices. Frequent publication of
supporting articles in highly reputable journals such as New England Journal
of Medicine, Journal of American Medical Association, Journal of Cardiology,
Circulation, and others will attract the attention of physicians. Insurance

carriers need to be convinced of the benefits of this new drug in order for
them to be willing to place it in their formularies.
The distribution of this new drug would follow the usual wholesale channels,
as it is a prescription drug authorized by physicians and available only from
pharmacies.
New Health Company should monitor the market constantly and adjust its
marketing program accordingly.
Other Factors Affecting Marketing Success

There are several other factors that may affect the marketing success of any
company.
A) Alliances and Partnerships

Nowadays, companies increasingly realize that they do not always possess or cannot
cultivate internally all competencies needed to compete in the world markets, under
the current constraints of resource and time. Examples of these constraints may
include (1) the market access is unattainable, (2) the technology is unaffordable, and
(3) the time to market is too long. Forming business partnerships and alliances may
have become increasingly necessary for many companies to compete effectually and
to constantly deliver value to their customers. For companies to succeed in the
marketplace under these circumstances, the marketing concepts must penetrate to
all members of the partnerships and alliances (Humphries and Gibbs 2009). The
following examples illustrate the working of such supply chain partnerships and
alliances:
1. Calyx and Corolla formed a network of partnerships to provide the seamless

delivery of fresh flowers from grower to final customer in one-fourth of the time
required by the traditional channels.
2. Dell teamed up with parts manufacturers and assembled computer systems in

their own plants. Then Dell linked with logistics partners to deliver custom
designed personal computers (PCs) within three days to customers anywhere in
the world. The Dell model was highly successful when implemented, allowing Dell
to attain a high worldwide market share of PCs.
Partners must appreciate that synergistically, benefits may be realized when all
members of the alliance embrace the marketing concept and come to recognize the
importance of creating superior customer value by joining hands.
B) Organizational Effectiveness
Marketing success is also influenced by how effectively the company operates. In
general, organizations with a less rigid structure have a higher likelihood of becoming
more customer focused, technologically innovative, and market responsive. Certainly,
any conflicts between internal functions—manufacturing, design, engineering, and
marketing—must be minimized. Technology for mass customization requires an
integration of R&D, procurement, customer relations management, and supply chain
management to achieve a high degree of customer satisfaction (Levenson 2015; Biron
2014).
Above all, company management must apply discretionary resources (e.g., R&D,
production capacity, human resources, organizational expertise, and information
services) to the right combination of strategies (e.g., marketing, product, distribution,
promotion, and price) so that maximum strategic marketing leverage can be achieved
to capture opportunities offered in the marketplace. Figure 23 illustrates this core
concept of organizational effectiveness
FIGURE 23 Organizational Effectiveness
C) Chasm for Marketing HT Industrial Products

For marketing HT industrial products, there are five general customer segments to
consider (Figure 24):
1. Innovators (Techies): Excited with new innovative technologies
2. Early Adopters (Visionaries): Look for strategic value, compelling applications
3. Early Majority (Pragmatists): Willing to use new technologies, look for value and
take some risks
4. Late Majority (Conservatives): Focus on easy to use, take no risks
5. Laggard (Skeptics): Suspicious to anything of being technologically new
HT product marketing relies heavily on word-of-mouth references. Customers in the

Innovators and Early Adopters segments are likely to be technical specialists who
are by nature excited about things technologically new. Moore (2014) believes that
customers in the Early Majority group are more conservative in viewing new
technologies and thus may not be readily influenced by the views of Innovators and
Early Adopters This could represent a major chasm for HT product vendors to
overcome, when marketing HT products to the mainstream customers in Early
Majority and Late Majority groups.
To overcome the noted chasm, companies marketing HT products are advised to
follow these strategies:
1. Create whole products (core products plus extensions)
2. Focus on compelling reasons to buy
3. Emphasize product differentiation in the marketplace
Example
Engineering refined the design specifications of a product as originally
recommended by marketing. Manufacturing made additional changes to the
product design in order to fabricate the product automatically. Unfortunately,
the product did not sell in sufficient quantities to make it a success. Explain
the possible reasons.
1 2 3 4 5
FIGURE 24 Chasm for marketing disruptive products.

Answer
The product features defined initially by the marketing department may not
be exactly what the majority of customers want. Product testing is a critical
step to fine tune product design. The selected method of production does
not readily accommodate an adjustment of product features, even if they are
identified by feedback from the marketplace. The manufacturing of the

product should be based on demand to ensure market acceptance, not based
on production technology, which is aimed at cost reduction.
Skipping the product testing step with customer feedback and applying the
automatic production method too soon are two likely reasons for the noted
failure.
Marketing and the Engineer
THE IMPORTANCE OF MARKETING TO ENGINEERS

The role and importance of the engineer in a modern world can hardly be
overemphasized. The engineer is a designer, a builder, a creator, a developer. In fact,
he is the pivot around which civilization revolves. A close look at some of the various
structures and products/processes made available by engineers - bridges, motorways,
railways, buildings, aircrafts, television sets, computers and motor cars, to name a
few only serve to lend credence to the importance of civil, mechanical, aerospace,
electrical/electronic, biomedical and other engineering professions in today's world. It
is impossible to imagine a world without these or their creators - engineers. The
creation of these goods and services is the initial stage of the supply or business
system while their purchase and consumption constitutes the demand. The interplay
of this supply and demand is referred to as the market.
(https://ieeexplore.ieee.org/stamp/stamp.jsp?arnumber=598487)
Business systems depend on the development of both consumer and industrial

products to meet the demands of the market. This requires a lot of effort and large
amounts of money in some cases. Some large projects like the development of a
nuclear power plant may cost billions of pounds in money terms, require a lot of time
and effort and generate a lot of frustration. Yet a substantial proportion of attempts
to develop new products and processes fail. Millions of pounds and much effort have
gone into products which failed either because the target customers were not mentally
prepared to receive the product or that there was no assessment of the likelihood of
their custom in advance.
The responsibility for this opportunity cost falls on managers and is due in a large
measure to the lack of marketing or the recognition of its proper place in the provision
of goods and services. An important attribute, therefore, in successful innovations is
the ability of the innovating firm to achieve acceptability of the product in the
marketplace and it is in this that MARKETING has pride of place. A scientist/engjneer
may have a brilliant scientific idea which may be quite technically feasible and yet may
prove unsuccessful to market. The four channel stereo and the 8-track car stereo are
examples in point. Also, the use of a superior technology per se may not conjure
market success, as the case of the Betamax video recording system vis-a-vis the VHS
system shows. To the engineer, and indeed his firm, this is wasted money and effort
and frustration. To the society at large, this represents a missed opportunity to use
resources better. (https://ieeexplore.ieee.org/stamp/stamp.jsp?arnumber=598487)
The fact that "customer focus" is the most important determinant of business success
is supported by several leading authors, among whom Peter Drucker has pride of
place. Drucker states that "there is only one valid definition of business purpose: to
create a customer. It is the customer who determines what business is. What the
business thinks it produces is not of first importance, especially not to the future of
the business and to its success. In fact, what the customer thinks he/she is buying,
what he/she considers ''value" is decisive. The customer determines what a business
is, what it produces and whether it will prosper. The first test of any business is not
the maximization of profit but the achievement of sufficient profit to cover the risks
of economic activity and thus avoid loss. Customers are the foundation of a business
and their purpose of existence" (Drucker 1991). The importance of Marketing in
business is due to the fact that it is the segment of the management practice that
deals with company-customer relationships.

(https://ieeexplore.ieee.org/stamp/stamp.jsp?arnumber=598487)
Engineers in Service Organizations

Providing assurance for clients (users) of Service Organizations is the basis of all SOC
Reports. Service Organizations are just outsourcing providers of functions that have
traditionally been performed and audited within the client (user) organization.
(https://rogerscarlisle.com/soc-2/whats-service-organization/)
Example Service Organizations
ORGANIZATION TYPE TYPICAL OUTSOURCED SERVICE PROVIDED
Cloud Computing Providing Infrastructure, Platform or Software As A

Service
Managed Security Also known as Security as a Service (SecAAS),

providing outsourced access and security control.
Finance Transaction Providing back office functions for banks, fund

Services managers, brokers and similar.
Customer Support Providing online or phone help for IT or physical

products post-sales
Sales Force Providing automation and data management for all

Automation & CRM processing associated with a sales force or
customer database.
ORGANIZATION TYPE TYPICAL OUTSOURCED SERVICE PROVIDED
Enterprise IT Operating and maintaining outsourced data centres,

Outsourcing infrastructure, apps and supporting functions.
Health Care Claims Providing outsourced medical record and health

Management insurance processing systems
Sources: AICPA Information for Management of a Service Organization
Characteristics of Service Sector
The services have unique characteristics which make them different from that of
goods. The most common characteristics of services are:
Intangibility.
Inseparability.
Perishability.
Variability
Intangibility
Services are activities performed by the provider, unlike physical products they cannot
be seen, tasted, felt, heard or smelt before they are consumed. Since, services are
not tangibles, they do not have features that appeal to the customers senses, their
evaluation, unlike goods, is not possible before actual purchase and consumption. The
marketer of service cannot rely on product-based clues that the buyer generally
employs in alternative evaluation prior to purchase. So, as a result of this, the services
are not known to the customer before they take them. The service provider has to
follow certain things to improve the confidence of the client:
The provider can try to increase the tangibility of services. For example, by displaying
a plastic or a clay model showing patients an expected state after a plastic surgery.
The provider can emphasize on the benefits of the service rather than just describing
the features.
Not all the service product has similar intangibility. Some services are highly
intangible, while the others are low i.e. the goods (or the tangible component) in the
service product may vary from low to high. For example: Teaching, Consulting, Legal
advices are services which have almost nil tangible components; While restaurants,
fast food centers, hotels and hospitals offer services in which their services are
combined with product (tangible objective) , such as food in restaurants, or medicines
in hospitals etc. (https://www.citeman.com/274-characteristics-of-services.html)
Inseparability
Services are typically produced and consumed simultaneously. In case of physical

goods, they are manufactured into products, distributed through multiple resellers,
and consumed later. But, in case of services, it cannot be separated from the service
provider. Thus, the service provider would become a part of a service.
For example: Taxi operator drives taxi, and the passenger uses it. The presence of
taxi driver is essential to provide the service. The services cannot be produced now
for consumption at a later stage / time. This produces a new dimension to service
marketing. The physical presence of customer is essential in services. For example:
to use the services of an airline, hotel, doctor, etc a customer must be physically
present.
Inseparability of production and consumption increases the importance of the quality

in services. Therefore, service marketers not only need to develop task-related,
technical competence of service personnel , but also , require a great input of skilled
personnel to improve their marketing and inter personal skills.(

https://www.citeman.com/274-characteristics-of-services.html)
Perishability
Services are deeds, performance or act whose consumption take place

simultaneously; they tend to perish me the absence of consumption. Hence, services
cannot be stored. The services go waste if they are not consumed simultaneously i.e.
value of service exists at the point when it is required.
The perishable character of services adds to the service marketers problems. The
inability of service sector to regulate supply with the changes in demand; poses many
quality management problems. Hence, service quality level deteriorates during peak
hours in restaurants, banks, transportation etc. This is a challenge for a service
marketer. Therefore, a marketer should effectively utilize the capacity without
deteriorating the quality to meet the demand. (https://www.citeman.com/274-
characteristics-of-services.html)
Variability
Services are highly variable, as they depend on the service provider, and where and
when they are provided. Service marketers face a problem in standardizing their
service, as it varies with experienced hand, customer, time and firm. Service buyers
are aware of this variability. So, the service firms should make an effort to deliver high
and consistent quality in their service; and this is attained by selecting good and
qualified personnel for rendering the service.( https://www.citeman.com/274-
characteristics-of-services.html)
Characteristics of Progressive Companies
Progressive companies are those knowledge economy companies which make it a

strategic priority to utilize Internet-based technologies, invent innovative business
models, create supply chain networks, empower a diversified workforce, and pursue
customer satisfaction in order to achieve business success in the marketplace.
The major trends discussed below tend to shape the progressive companies of the
new millennium. These companies look for real-time customer feedback (e.g., via
online chat rooms) to get customers to talk about performance and problems. They
focus on a market segment of one, delivering mass-customized products and services.
They induce loyalty by managing the customer relationship well. They view the
enduring relationship with employees as an enormous asset, because these
employees connect the company to its partners. Their total workforce consists of
permanent staff, temporary service people, contract workers, free agents, and
consultants. The companies are further linked to the employees of their networked
partners. Like actors and athletes, talented business people will have agents to
represent them.
A case in point is Nokia, a cell phone giant in Europe. The company entered the U.S.
market successfully with only five permanent employees by outsourcing sales,
marketing, logistics, and technical support. Nokia employees work with a mix of
contract teammates from around the globe, many of whom they never meet face to
face. Every project calls for a new team composed of people with special talents and
skills. In such a dynamic setting, information that is more than one hour old will be
viewed with skepticism. Everyone’s performance is carefully and constantly evaluated.
If there is no contribution, there will be no continued membership.
Progressive companies streamline most staff jobs by employing certain types of

enterprise-planning systems. They devote special attention to supply chain
management, enterprise integration, customer relations, knowledge management,
web-enabled transactions, and globalization.
Companies in the new millennium must manage all stakeholders well in order to
succeed in the marketplace. They take care of all five categories of stakeholders: (1)
Investors are needed for capital to grow. (2) Customers provide the sources of sales
revenue growth and earning stability. (3) Employees provide productivity and client
satisfaction. (4) Suppliers provide competitive advantages in technology, innovation,
and supply chain management. (5) Communities influence the company’s reputation,
as well as local regulations, and legislation that the company must manage. Some of
the unique characteristics of these companies are described next.
A) Complex Organizational Design

The organizational form of progressive companies may be large and complex. They
have less mass, as various in-house functions are performed by alliances, joint
ventures, and partners in networks, and they tend to constantly shift portfolios of
businesses and assets. The new trends discussed in this chapter reflect the
competitive needs for operational efficiency and customer focus. The drive for
efficiency and a customer-centered corporate strategy is enabled by available
technologies. A traditional value chain is typically driven by core competencies,
starting from what the companies can do best and then defining products and services
that the customers may want. A reverse-value chain begins with customer needs
(defined by extensive customer study and market research) and works backward
along the fulfillment chain into company capabilities and functions.
Enterprises organized according to the reverse-value chain tend to be more capable
of satisfying the needs of customers, a key requirement for business success in the
twenty-first century (Hines 2000). Another guideline useful for organizational design
is to choose a narrow focus. Few organizations can do many things well; none shine
in every dimension of business, such as cost, quality, price, convenience, and ease of
use. Examples of a narrow focus in business include service, operation, and innovation
. Service excellence focuses on strong CRM that anticipates customers’ needs, enables
self-service, and offers value. Operational excellence stresses the optimal leverage of
assets, efficient transactions, customized solutions (sales intelligence, management
of customers’ expectations), the use of measurement systems, outsourcing noncore
processes, end-to-end process effectiveness, and others. Continuous innovation
excellence exhibits product leadership to delight customers, grows by merger and

acquisitions, proactively educates customers about how to use and benefit from new
products, and encourages innovation.
A progressive enterprise must link three major groups of stakeholders together: (a)
customers, (b) back-office workers, and (c) supply chain partners. After these groups
of stakeholders are properly linked together, the design of a progressive enterprise
organization may contain major units.
B) Global Reach
Progressive companies serve global markets by increasing product specifications and
otherwise offering products that differ from those in the domestic markets. They also
derive more revenues from overseas markets than domestic markets and have future
growth opportunities weighted toward emerging markets.
C) Partnerships
Progressive companies are dynamic. They constantly create external networks to
access product innovation, process technologies, manage working capital, maintain
market access, and cultivate knowledge. These critical linkages are based on mutual
benefit, trust, empathy, and good communication—and they are vigorously protected
(Siegel et al. 2003).
D) New Composition of Employees
The full-time regular employees in progressive companies are technically literate; they
embody the core competencies of these companies. Some of these employees may
reside abroad, have modern attitudes toward the employer–employee relationship,
and change jobs frequently, preferring opportunities for interesting and challenging
work that stretches their abilities.
Supporting these core employees are various part-timers, independent contractors,
agency temporaries, and employees of vendors and consultants who will also be
engaged. Therefore, the company may have a smaller share of support staff provided
by outside agencies.
Example
What are some new characteristics of workers in the twenty-first century?
Answer
Workers in the new century may have these characteristics:
1. Free agents can now sell their skills around the world via the Internet; this was
impossible to do not too long ago.
2. Professional groups are likely to offer the senses of identity and community, health
insurance, and other benefits needed by free agents who move from one company to
another.
3. Each employee may have as many as 20 different jobs throughout a career of 45
years (an average of 2.5 years per job). They tend to constantly bargain for better
deals within their organizations (e.g., stock options, a sign-up bonus, new projects,
Thursdays off, an August sabbatical).
4. Workers seek to acquire a broad set of marketable skills, as companies will continue
to outsource white-collar jobs and spread centers of excellence around the world to
seek advantages in cost, speed, and expertise.
5. STEM professionals and leaders need to be flexible and adaptable to organizational
changes and become cosmopolitan, equally at ease both at home and abroad.
E) Management Reporting Layers
Progressive companies will have fewer reporting layers between business units,
divisions, and executive management. Business units will increasingly operate
autonomously and be measured by specific performance metrics (e.g., a balanced
scorecard).
F) Customer Sophistication and Demand

In the new millennium, customers will be better informed, more sophisticated, and
increasingly demanding. They will use the Internet to access information, demand
product customization, require price transparency, and conduct comparison shopping.
Customer satisfaction will hinge on product/service features and quality, and after-
sales support and services. More data on customer satisfaction will be published on
the web, exposing the market leaders and followers in every industry. Progressive
companies focus on serving their customers well.
G) Brand Image
Because a good public image is regarded as a competitive advantage, progressive
companies nurture a positive reputation of being reliable and ethical. Brand image is
expected to become increasingly important to the stakeholders of all companies.
Progressive companies strive to protect public interests from ill-conceived mergers
and acquisitions, dangerous operating practices, antisocial business decisions, and
oligopolistic behaviors. Governments are known to have taken decisive actions against
some violators in the past, for example: (1) Alaska opposed BP Amoco’s acquisition
of ARCO to take a 70% share of Alaska’s oil and gas reserves; (2) Italy accused Coke
of distorting competition rules; (3) the U.S. Department of Justice (DOJ) raised issues
with Microsoft’s monopoly of the Windows operating system market; and (4) the U.S.
DOJ approved the merger of AOL and Time Warner only after having studied it for
more than one year.
H) Stock Market Valuation
The stock valuation of progressive companies will be based on returns on their
intangible assets instead of their tangible ones. The intangible assets of a company
include (a) brand capital (customers and the community) and (b) knowledge capital
(strategic suppliers and employees). Progressive companies are capable of optimizing
the return on these intangible assets that form the primary basis for the companies’
competitiveness in the marketplace.
Some Specific Service Industry Examples

A service industry is any industry that produces value is that primarily intangible
such as customer service, management, advice, knowledge, design, data and
experiences. Advanced economies are experiencing a long term shift whereby service
industries are becoming a larger component of economic output relative to other
industries such as manufacturing and agriculture. The following are common
examples of service industries. (https://simplicable.com/new/service-industry)
Information Technology
Information technology is shifting away from products such as packaged software

towards services such as software as a service.
Hospitality
Any service that hosts guests such as a hotel, restaurant or pub.
Travel
Travel services such as a flight or tour.
Transportation
Daily transportation services such as a train.
Media
Media such as a newspaper, blog or video.
Entertainment
Entertainment such as a video game, theme park or movie.
Sports
Sports including facilities such as gyms and spectator sports such as professional
football.
Healthcare
Healthcare services such as a hospital, clinic or doctor's office.
Wellness
Wellness related services such as a spa.
Finance
Financial services such as a bank that offers bank accounts, loans and investments.
Insurance
Services that cover risks for a fee.
Professional Services
The services of a recognized professional such as a lawyer or accountant.
Consulting & Staffing
Offering knowledge and labor as a service.
Design
Creating designs as a service such as a graphic design or product design.
Marketing & Sales
Marketing services such as event promotion and sales services such as a real estate
agent.
Energy
Energy services such as metered power from a grid or managed solar panel systems.
Management
Management services such as asset management or facility management.
Information
Information services such as a market data service.
Markets
Services that provide a two-sided market for buyers and sellers. For example, an
auction service for products or assets.
Retail
Retailing such as a fashion shop.
Ecommerce
Any service that conducts business electronically such as a streaming media service
or ecommerce retailer.
Culture
Culture industries such as art, music and cultural events.
Education
Educational institutions and companies such as a university or professional training
company.
Asset Rentals
Providing access to assets such as construction equipment for a rental fee.
Product as a Service
Wrapping a product in services such as support, maintenance and self-service tools.
This may allow a firm to charge a monthly recurring fee for a product.
Conclusion
This chapter covers many important issues related to the marketing of a company’s
products and services. Engineering managers should understand the overall
objectives of the firm’s marketing efforts and become sensitive to various marketing
issues affecting engineering. They should become well versed with marketing
terminology and elements of the marketing mix (7Ps), namely, product, price,
promotion, placement (distribution), physical evidence, process design, and people.
It is important for engineering managers to accept the fact that marketing involves a
lot of uncertainties associated with consumers’ perceptions, competitive analyses, and
market forecasting. They need to wholeheartedly adopt customer orientation in
planning and implementing all engineering efforts in support of marketing. They must
strive to work closely with marketing personnel and remain supportive of the overall
marketing efforts by providing high-quality engineering inputs to the firm’s marketing
program. As Cyrus Eaton said, “What counts in any system is the intelligence, self-
control, conscience and energy of the individual.”
Obviously, the engineering inputs most useful to marketing are related to products/
services and associated production and customer support activities. These include
specifying and designing novel product/service features to be of value to customers;
utilizing technologies to confer competitive advantages in time to market, quality,
reliability, and serviceability; and delivering after-sales technical services needed to
ensure customer satisfaction.
Engineers are also expected to contribute diligently by improving and managing the
production process, utilizing resources (labor and materials), controlling quality, and
estimating product cost accurately with the activity-based costing (ABC) method.
Engineers may also get involved in training salespeople, making technology-centered
presentations before customers, conducting industrial exhibits, and evaluating
customer feedback related to new product features.
Having learned the marketing concepts and been exposed to the complex marketing
issues reviewed in this chapter, engineering managers will be able to appreciate the
difficult but critically important functions of marketing and can become more effective
in interacting with marketing management.
Marketing and innovations are two principal activities of any product-based and profit
seeking organization. STEM professional already know how to innovate. If they also
learn how to market, the combination of these capabilities will surely enable them to
become major contributors in any technology-centered organization.
QUESTIONS
1. What are the bases for trade-offs between conflicting wants and needs of
different customers with respect to the same product? How important is it to
emphasize product quality when a new and unique product is launched?
2. Is it better to market a new product quickly and then upgrade the design later or
to incorporate all design modifications or improvements before launching the
product?
3. How can product development costs be minimized by entering the market late?
4. Customers’ wants and needs are regionally different for products intended for
global markets. How can a centralized, concurrent engineering team develop a
product that will serve as the common “platform” for global markets?
5. ABC Company wishes to enter a new market arena on the basis of its strength in
core technologies and financial staying power. However, the market arena in
question is currently dominated by a major competitor with 80% of the market
share, and a number of smaller competitors are each focused on small niche
segments. How should ABC Company enter this market?
6. A company makes a range of products and sells to several large, loyal customers
to achieve a healthy market share. A new competitor has emerged to offer
equivalent products at much lower prices. What should the company do?
7. The company wants to develop a new product for a high-end consumer market.
It is known that customers in this market are difficult to identify and are
geographically dispersed. How should the company plan for product distribution
and promotion?
8. The company wishes to sell its current product in a new market segment. At the
same time, it wants to launch a new product in the existing market segment. How
should the company handle the product promotion?
Appendices
Appendix A: Product Concept Testing Program (Air Cleaners)
In 1976, Dr. C. M. Chang, developed a nonelectric particle-filtration method while
working at Praxair, a Fortune 200 industrial company. This technology was effective
in eliminating airborne submicron particles in airstreams without producing the ozone
gas that is harmful to people’s health. Product concepts were subsequently refined
for air-cleaning products for residential markets. The impetus for pursuing these
product concepts is the notion that harmful respirable dust particles are expected to
increase in concentration over time in the ambient air due to combustion-related
emissions from cars, trucks, power plants, and factories. Respirable dust particles
trapped in human lungs are known to lead to asthma, cancer, and other diseases and
discomfort. Elimination of such particulate pollution in residential environments
without the presence of ozone as a harmful gaseous agent should be attractive to
consumers.
Before embarking on the major investment required for creating this proposed product
line, the company decided to conduct a product-testing program to assess the
consumers’ acceptance of the conceived product concepts and define additional
product features that would satisfy consumers’ needs to the maximum extent possible.
1. Focus group meetings: A commercial product concept-testing company was

engaged to conduct a series of focus group meetings for the purpose of
gauging customers’ responses to the proposed product concepts.
In preparation for the focus group meetings, 18 versions of the products were
proposed. These product concepts covered the particles’ and gaseous
pollutants’ removal at high-, medium-, and low-performance levels. Tentative
product names were assigned. Fabrication costs and features of competitive
products were defined. Product brochures were prepared.
Three teams of customers were selected to form the focus groups. A product
presentation was made to each focus group, including product price, pollutant
removal performance, and availability. Questions asked by participating

customers were answered.
Each focus group was asked to freely deliberate among its members their likes
and dislikes and the advantages and disadvantages of the products. The groups
were told that the products were currently in beta-testing stages in another
part of the country and would soon be available in their region. The key
question then was whether the customers would buy such products for their
own use if they became available within a few months. If not at the proposed
price, at what price would they be willing to buy the product?
All deliberations were video-recorded for subsequent analyses.
2. Findings: The key findings are as follows: Among high-efficiency filter products,
consumers buy air cleaners primarily for medical reasons. Therefore, products
that are equally efficient, but at a lower price are not necessarily attractive for
two reasons: (1) a high price ensures the perception of superior product
features, (2) there may be an insensitivity to price because of medical insurance
coverage. An air-cleaner device at equal price, but with much higher particle-
removal performance (e.g., one with 95% filtration versus another with
99.95% filtration) does not appear to be attractive because consumers cannot
notice the performance difference without employing measurement devices.
High-priced products with intermediate particle-removal efficiency are not

readily accepted by consumers with medical problems. These products are
priced too high for other consumers interested only in reducing the residential
environmental dust.
Products with low filtration efficiency and low price may appeal to the general
public interested in having an adequate furnace filter at a price “worth the risk”
for them. A throwaway filter of this type appears to be worth further
consideration, provided that it would cost only $5 or less and could fit into most
existing furnaces. Figure A1 summarizes the four categories of air cleaners

defined by the two product features of price and particle-removal efficiency.
The capability to remove gaseous pollutants in residential air does not seem to
appeal to consumers. Window add-ons and self-standing units do not seem to be
attractive to them either. In other words, consumers do not understand the
beneficial value of the product features of ozone-free generation and efficient
control of submicron particles. It would take a major advertising effort to
communicate the message and educate the masses.
High
Why would anyone Customers with need

this? medical problems
Price
Throwaway Price inelastic; furnace-

type no performance filters
difference
Low
Low Filtration High
performance
FIGURE A1 Air cleaner categories.
However, countless consumers do purchase air-cleaning equipment without

really knowing the difference in brands, because most electronic air cleaners
have been purchased as part of a bigger package. Retailers’ reputations for
price and quality (e.g., WalMart stores, Sears) have exerted a noticeable
influence on consumers.
Each focus group was asked to freely deliberate among its members their likes and
dislikes and the advantages and disadvantages of the products. The groups were told
that the products were currently in beta-testing stages in another part of the country
and would soon
3. Learning: The key lesson learned from this product-testing program was that, if
customers do not appreciate the value offered by a product, they will not buy
it. In this case, the product developer did not fully appreciate the fact that,
although it was scientifically evident at the time that inhaling submicron
particles is detrimental to personal health, the majority of consumers do not
appreciate the importance of such scientific facts and thus do not assign the
proper importance to the product features offered. As indicated by Mello
(2002), customer inputs are indeed useful.
Another lesson learned was that the timing of the products was also off. The
air-cleaning products described were ahead of their time. In March 2002,
studies published in The Journal of American Medical Association indicated that,
for every 10 mg/m3 increase in particle concentration in ambient air, there is
an 8% increase in risk for lung cancer death and a 6% increase in death due
to other lung- and heart related diseases. Several major U.S. cities are known
to have particle-pollution levels in excess of the U.S. Environment Protection
Agency (EPA) standard of 15 mg/m3. In the absence of similar studies and
authentic sources of information, consumers will not understand the long-term
benefits of such products as air cleaners.
In March 2003, Sharperimage.com advertised an Ionic Breeze air purifier at

$349.95. This product was built on the basis of the principle of electrostatic
precipitation. Flat-plate collectors, which are easily cleaned, are used to capture
most submicron particles found in residential buildings.
In summary, the product concept-testing program that Dr. Chang’s company

used supported the notion that product concepts developed from technology
may not be as commercially marketable as those derived from the perceived
needs and wants of customers. The results of the program add evidence to the
known reality that marketing is as important as technology innovation for a
company to achieve commercial success.
Appendix B: Consumer Survey and Market Research

To market consumer products, companies need to have a very detailed understanding
of their customers, just as companies marketing industrial products also need to
understand their customers, although to a much lesser extent.
When dealing with customers, the key questions typically concern what, how, where,
when, why, and who.
For example, what functions does the product serve? What are the criteria to buy the
produc t (price, color, size)? What is the value to the customer? What do they really
want from the product (psychological, functional, and other benefits)?
How do customers compare products? How do customers decide to buy? How is the
product used? How much are customers willing to pay for it? How much do they buy?
How would the distribution mode and service center location affect the customers’
buying decision?
Where is the purchase decision made (e.g., what is the customer’s position in the
company or household)? Where do they receive information? Where do they buy their
products (retail store, mail order, department store, Internet, etc.)?
When do they buy it (weekly, monthly, special occasions)?
Why do they prefer one brand over the other (performance, price, convenience,
packaging, colors, service, etc.)?
Who are the customers (age, background, sex, geographic location, members of social
groups, etc.)? Who buys the competitor’s products? Who does the buying (wife,
husband, children, purchasing agent, engineers, others)? Who makes what decision
for whom (decision-making units)?
To understand the behavior of consumers in making purchase decisions, companies
focus on customers’ habit in purchasing, consuming, and information gathering. Who
buys, how often, where, how much, when, and at what price? Who consumes, on
what occasions, how do they consume, in what quantities, where, when, and with
what other products? What media do they use (industrial exhibits, trade journals, TV,
newspaper, radio, Internet, etc.), and when?
It is also useful for companies to understand the process by which consumers make
their purchase decisions. This process typically encompasses the steps of need arousal
(problems to solve; discovery from neutral sources; Jones the bragging next-door
neighbor; etc.), information search (online resources are now one click away), and
evaluation and decision-making (comparative shopping, making trade-offs, brand
versus product, and price versus quality and features).
Appendix C: New Product Development

New product development has been extensively studied in the literature. Typically,
companies follow a number of steps to develop new products: idea generation, idea
screening, profitability analysis, product development, and commercialization.
To bring about new product ideas, companies use multiple sources. The internal
sources include R&D and salespeople. The external sources include users initiated,
competitors, industrial organizations, and product consulting firms. Innovation is the
principal technique to identify valuable ideas by applying known principles to different
processes or in unique configuration, thus producing unexpected benefits such as
lower cost, smaller size, lighter weight, enhanced user convenience, better
functionality, and so on.
Two examples of innovative products are noteworthy. The new Segway Human
Transporter is a clever combination of known technology (battery, gyroscope, wheels,
stick-enabled weight-based control) and constructed in a unique way to create
unexpected benefits. Another example is Bandag, a major tire retreading company
that provides specialty composite materials in its retreads in response to different road
conditions and travel patterns. It developed an innovation by embedding a computer
chip in the tire. This chip monitors tire performance, calculates wear and tear, and
determines balance. It becomes a value-added service to truck-fleet managers who
are then able to track the total cost of tire purchases better than before. Its value in
use is derived through information and a tracking system that provides important
savings due to added life to tires and minimized fuel costs.
Now Bandag’s Tire Management Solution business unit offers quality service in the
acquisition, maintenance, and recycling of tires to customers, allowing customers to
focus on their own core business interests.
Product ideas must be screened with respect to criteria such as marketability, market
size and growth rate, production capabilities, and profitability. Marketability refers to
the extent to which the proposed product ideas are acceptable to the customers in
the target segments. Factors affecting marketability include price, product quality,
substitution products from competition, available distribution channels, and customer
preferences. Market size and market growth rate must be at reasonable levels for the
product ideas to be worth pursuing. Suitable production capabilities, such as raw
materials, know-how, skilled labor, and equipment must be readily available. Finally,
product ideas must have the potential for generating sufficient margins to justify the
required investment expenditures.
In conducting profitability analysis for product ideas, several factors should be
considered. The demand factors include users’ needs, substitution products, price,
advertising, segment size and growth rate, distribution, competition, and interaction
with existing products. The cost factors are related to product cost, plant size,
technology level, utilization of the plant, possible technological changes, and cost
interdependency between existing and new products. The profit factors consist of
product pricing, timing of profits (e.g., in three to five years), constraints on profits
(due to plant capacity, financing limits, distribution requirements, management
limits), governmental constraints (OSHA, trade, and environmental laws and
regulations), and labor restrictions (availability of trained labor and seniority). The
decision factors assess the profit levels, risks, uncertainty (as in estimating the risks
in the market), and capital budgeting (investment, cost of capital, timing, and cash-
flow pattern).
Once product ideas are deemed worth pursuing, some companies invoke the target-
pricing approach (see Section 8.6.3) to determine the maximum CGS (target CGS)
that would ensure commercialization and profitability of these product ideas.
A very detailed cost analysis follows for the requisite functions of product design
(product attributes by a perceptual map, modular concepts, interchangeable
components, subsystem compatibility, advanced materials, emerging technologies)
and fabrication and prototyping (flexible production, fabrication technology,
automated processes, quality control, supply chains, maintenance requirements). The
full-scale product development work is to be authorized only if the target CGS will not
be exceeded.
It is generally advisable for product development to be entrusted to a multifunctional
team in which all major disciplines (such as marketing, sales, design, value
engineering, production, distribution, procurement, customer service, and finance)
are represented. Doing so will cut down the needs of subsequent design changes,
improve the all-important time-tomarket performance, and ensure a high probability
of product acceptance in the marketplace.
One important area in which engineers should make significant contributions is cost
reduction in the design and manufacturing of products. For example, developing
innovative techniques to combine production steps, simplifying design, using lower-
cost materials, and creating interchangeable parts for groups of products can all lower
costs. Another area in which engineers can add value is the improvement of product
reliability, serviceability, and maintainability.
For certain products, companies may elect to conduct a test marketing program. The
purpose is to seek feedback from users regarding such variables as service quality,
likes, dislikes, desired new product attributes, relative ranking of existing product
features, and price levels that users are willing to pay. Also useful to collect are data
related to sales results from the targeted segment, adequacy of selected distribution
channels, effectiveness of the promotional message, and service quality. Such
information will allow the company to augment its product attributes before launching
a major product.
Product commercialization involves final preparations before launching the product.
These preparations include specifying a product name that is easy to pronounce and
distinguish; a value package with price, features, value, and product functionality;
product styling (e.g., industrial design is important to car buyers); production

(financing, labor and materials resources, technologies, and supply chains); sales and
marketing (advertising, distribution, sales force training, and product brochures); and
service (customer call centers, websites, maintenance and repair, and problem
solving).
According to published survey results, the introduction of new products in different
industries has resulted in quite different product failure rates (see Table A1).
TABLE A1 Product Failure Rate
Product Types Failure

Rate (%)
New industrial goods 20–40
New technology 90
products
New packaged 40–80
consumer goods
New food and drug 50–80
items
Figure A2 presents the “1 in 60” product-development curve, in which 60 product
ideas pursued initially whittle down to only one product that will become commercially
successful, if the company follows the traditional, sequential product development
process. However, if a concurrent product development process is employed, the
success rate will increase to 1 in 7.
There are a large number of reasons why products fail in the marketplace. The
following list summarizes the principal reasons:
1. Lack of meaningful uniqueness in product features (“me-too” products)

2. Poor planning (no distribution, service, spare parts, inadequate advertising)
3. Wrong timing (economy, season)
4. Excessive optimism
5. Poor product performance (functional deficiency)
6. Product champion failure

7. Company politics
8. Unexpectedly high product cost
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10
FIGURE A2 Product development curve.
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Chapter 12 – Managing the Finance Function

Businesses need finance to meet their requirements in the economic world.
Whether the business organizations are big or small, they need finance to fulfil their
business activities. To be assured of continuous supply of resources, there is a need
to manage properly the finance function. Hence, it is called the lifeblood of business
organization. When capital is made available in right amounts at the right time, the
business organization may be expected to function properly. However, when funds
are not enough to finance planned activities, the risk of failure to achieve objectives
becomes apparent, thus engineer managers must understand that the finance
function is a very important management concern. The chapter focuses on the critical
elements of finance function in the organization including determination of fund
requirements, sources of funds, financial control and risk management.
following:
1. Understand the financial environment in which firms and managers must

operate.
2. Identify various providers of finance.
3. Write and evaluate a financial report.
4. Demonstrate knowledge of the range of financial and financial related risks
facing organizations.
Finance Function
The finance function is an important management responsibility that deals with
the “procurement and administration of funds with the view of achieving the
objectives of business”, hence, it is the most important of all business functions. It is
not possible to eliminate this function since the business will close down in the absence
of finance. The need for money is continuous and once received it will have to be
returned also. The management should have an idea of using the money profitably,
therefore, the engineer manager must be concerned in determining the amount of

funds when they are needed, how to acquire them, and how to effectively and
efficiently use the money in business activities. In the performance of his duties, the
engineer manager, at whatever management level he is, must do his share in the
achievement of the financial objectives of the company.
Objectives of Finance Function
For optimum financial decisions, the objectives of finance function shall be clearly
defined into two types, namely; Profit Maximization and Wealth Maximization. It
should be laid down that they contribute directly towards the achievement of overall
business objectives. Objectives provide a normative framework within which a firm is
to take decisions. The functional area of objective of the business and contribute
directly towards it. The main objectives of a business are survival and growth. In order
to survive ups and downs in the business, the business must earn sufficient profits
and it should also maintain proper relations with shareholders, customers, suppliers
and other social groups.
The finance function of an organization must seek to achieve the following

objectives:
1. Ensuring adequate and regular supply of funds.

2. To provide a fair rate of return to the shareholders.
3. To ensure effective utilization of funds by maintaining proper balance
between profitability, liquidity and safety.
4. To generate and build up sufficient surplus for expansion and growth
through ploughing back of profits.
5. Minimizing cost of capital by developing a sound capital between various
securities issued by the company.
6. Coordinating the activities of the finance department with the activities of
other departments in the organization.
Determination of Fund Requirements

Any organization, including the engineering firm, will need funds for the following
specific requirements: 1) to finance daily operations, 2) to finance the firm’s credit
services, 3) to finance the purchase of inventory and 4) to finance the purchase of
major assets. So, one of the roles of engineer manager includes effective utilization
of funds. He has to select an investment pattern related to the use of funds.
1. Financing Daily Operations. The day-to-day operations of the business will

require funds to take care of expresses as they come. Money must be made
available for the payment of the following: wages and salaries, rent, taxes,
power and light, marketing expenses like those for advertising,
entertainment, travel expenses, telephone and telegraph, stationery and
printing, postage, and administrative expenses like those for auditing, legal,
services.
2. Financing the Firm’s Credit Services. It is oftentimes unavoidable for a

company to extend credit to customers. If the company manufactures
products, sales terms vary from cash to 90-day credit extensions to
customers. For example, Constructions firms will have to finance the
construction government projects that will be paid many months later.
3. Financing the Purchase of Inventory. The maintenance of adequate

inventory is crucial to many businesses. Raw materials, supplies, and parts
are needed to be kept in storage so they will be available when needed.
Many companies cannot cope with delays in the availability of the required
material inputs in the production process, so these must be kept ready
whenever required. The purchase of adequate inventory, however, will
require sufficient funding and this must be secured. At times, inventories
unnecessarily tie up large amounts of funds.
4. Financing the Purchase of Major Assets. Companies, at times, need to

purchase major assets. When top management decides on expansion, there
will be a need to make investments in capital assets like land, plant and
equipment. It is obvious that the financing of the purchase of major assets
must come from long-term sources.
The funds should be spent on fixed assets and then an appropriate portion will be
retained for working capital. While investing the amount on fixed assets engineer
managers should apply decision making techniques like capital budgeting and
opportunity cost analysis.
Sources of Funds
Choosing the right source and the right mix of finance is a key challenge for every
manager in the organization. The process of selecting the right source of finance
involves in-depth analysis of each and every source of fund. Sources of funds are
classified based on time period, ownership and control, and their source of generation.
It is ideal to evaluate each source of capital before opting for it.
On the basis of a time period, sources are classified as long-term, medium term,
and short term. Ownership and control classify sources of finance into owned and
borrowed capital. Internal sources and external sources are the two sources of
generation of capital. Figure 12-1 exhibits the sources of funds of business
organizations.
Figure 12-1. Sources of Funds
According to Time Period
Sources of financing a business are classified based on the time period for which
the money is required. The time period is commonly classified into the following three
as illustrated in Table 12-1.
Table 12-1. Sources of Funds According to Time Period
Long-term financing means capital requirements for a period of more than 5 years
to 10, 15, 20 years or maybe more depending on other factors. Capital expenditures
in fixed assets like plant and machinery, land and building, etc. of business are funded
using long-term sources of finance. Part of working capital which permanently stays
with the business is also financed with long-term sources of funds.
Medium term financing means financing for a period of 3 to 5 years and is used
generally for two reasons. One, when long-term capital is not available for the time
being and second when deferred revenue expenditures like advertisements are made
which are to be written off over a period of 3 to 5 years.
Short term financing means financing for a period of less than 1 year. The need
for short-term finance arises to finance the current assets of a business like an
inventory of raw material and finished goods, debtors, minimum cash and bank
balance etc. Short-term financing is also named as working capital financing.
According to Ownership and Control

Sources of finances are classified based on ownership and control over the
business as depicted in Table 12-2. These two parameters are an important
consideration while selecting a source of funds for the business. Whenever we bring
in capital, there are two types of costs – one is the interest and another is sharing
ownership and control.
Owned capital also refers to equity. It is sourced from owners of the company or
from the general public by issuing new equity shares. Owners start the business by
bringing in the required money for a startup. Certain advantages of equity capital are
as follows: it is a long-term capital which means it stays permanently with the
business, there is no burden of paying interest like borrowed capital. So, the risk of
bankruptcy also reduces. Businesses in beginning stages prefer equity for this reason.
Borrowed or debt capital is the finance arranged from outside sources. n this type
of capital, the borrower has a charge on the assets of the business which means the
company will pay the borrower by selling the assets in case of liquidation. Another
feature of the borrowed fund is a regular payment of fixed interest and repayment of
capital.
Table 12-2. Source of Funds According to Ownership and Control
According to Source Generation
Based on the source of generation, Table 12-3 shows the following internal and
external sources of finance.
Table 12-3. Funds According to Source Generation

The internal source of capital is the one which is generated internally by the
business. The internal source of funds has the same characteristics of owned capital.
The best part of the internal sourcing of capital is that the business grows by itself
and does not depend on outside parties. Disadvantages of both equity and debt are
not present in this form of financing. Neither ownership dilutes nor fixed
obligation/bankruptcy risk arises. Meanwhile, an external source of finance is the
capital generated from outside the business. Apart from the internal sources of funds,
all the sources are external sources.
Deciding the right source of funds is a crucial business decision taken by top-level
managers. The usage of the wrong source increases the cost of funds which in turn
would have a direct impact on the feasibility of the project under concern. Improper
match of the type of capital with business requirements may go against the smooth
functioning of the business.
Financial Control
Financial controls are a key element of organizational success and survival. So all
workforce including engineers need to know about financial controls because their
continued employment may be dependent upon how they support and contribute to
their company’s “bottom line.” Many business owners do not realize that financial
statements have a value that goes far beyond their use to prepare tax returns or loan
applications. There are three basic financial reports that all managers need to
understand and interpret to manage their businesses successfully: (1) the balance
sheet, (2) the income/profit and loss (P&L) statement, and (3) the cash flow
statement. These three reports are often referred to collectively as “the financials.”
Generally, banks often require a projection of these statements to obtain financing as

a basis for sound management and allow managers to establish guidelines and policies
that enable the business to succeed and grow.
Budgets
Budgets are perhaps the most common and universally used control techniques.
This would be the first step in the financial control process. Budgets are plans for the
future allocation and use of resources (usually, but not always financial ones) over a
fixed period of time. The budgeting process forces managers to think through future
operations in quantitative terms and obtain approval of the planned scope of
operations, and it provides a standard of comparison for judging actual performance
in the control process. Financial budgets describe where the firm intends to get its
cash for the coming period and how it intends to use it. There are three common
types.
Cash budgets. It estimates future revenues and expenditures and their timing
during the budgeting period, telling the manager when cash must be borrowed and
when excess cash will be available for temporary investment.
Capital expenditure budgets. Describe future investments in plant and equipment.

Because expenditures for fixed assets require their use for an extended period to
recover the investment, capital expenditures usually are scrutinized more carefully by
upper management than are operating expenditures.
Balance sheet budget. It uses the previous two estimates to predict what the
balance sheet will look like at the end of the budgeting period.
Budgets should be tools, and management should be flexible in adapting them as

conditions change. The financial budgets are plans for the future in quantitative terms.
Before effective decisions for the future plans can be made, the costs of alternative
decisions must be understood.
Financial Statements
The next step in the control process is to measure actual performance and this is
what financial statements do. The balance sheet or statement of financial
position is a summary of the financial balances of a sole proprietorship, a business
partnership, a corporation or other business organization. The balance sheet shows
the firm’s financial position at a particular instant in time—a financial “snapshot,” as
it were. This snapshot is usually the financial status at the end of a calendar year or
a financial year. The interval can be shorter, for example, at the end of a quarter. The
balance sheet includes assets, liabilities, and equity. Assets are what the company
owns, liabilities are what the firm owes and net worth is what is left over after liabilities
have been subtracted from the assets of the business. In a sole proprietorship, it is
also known as owner’s equity. This equity is the investment by the owner plus any
profits or minus any losses that have accumulated in the business.
An income statement (see Table 12-5), also called a profit and loss or
revenue and expense statement, shows the financial performance of the firm over
a period of time (usually a year or a month). It is composed of the sales or revenue,
expenses or cost of goods sold, profit and net income.
The cash flow, or sources and uses of funds statement is the detail of cash
received and cash expended for each month of the year. A projected cash flow
statement helps managers determine whether the company has positive cash flow.
Cash flow is probably the most immediate indicator of an impending problem, since
negative cash flow will bankrupt the company if it continues for a long enough period.
If company’s projections show a negative cash flow, managers might need to revisit
the business plan and solve this problem. An example of a cash flow statement is
illustrated in Table 12-6.
Ratio Analysis
Financial ratios are ratios of two financial numbers taken from the balance sheet
and/or the income statement. These ratios provide a framework for historical
comparisons within the firm and for external benchmarking relative to industry
performance. They can also be used to set financial targets or goals for the firm. The
desirable levels of financial ratios vary with the industry, economy, culture, and recent
company history. Used with care, however, they are invaluable tools for benchmarking
within your industry.
Four types of ratios are ordinarily calculated: (1) liquidity, (2) leverage, (3) activity,
and (4) profitability ratios. Liquidity ratios measure the ability to meet short-term
obligations. The most commonly used ratio is the current ratio, which measures a
firm’s current assets to current liabilities. Leverage ratios identify the relative
importance of stockholders and outside creditors as a source of the enterprise’s
capital. A simple measure is the ratio of total debt to total assets (debt as a fraction
of the sum of debt and stockholders’ equity). Activity ratios (also known as operating
ratios) show how effectively the firm is using its resources. Profitability ratios describe
the organization’s profit. The profit margin measures the net income as a percentage
of sales. The following financial ratios are summarized in Table 12-7.
Risk Management
The engineer manager, especially those at the top level, is entrusted with the
function of marking profits for the company. This will happen if losses brought by
improper management of risks are avoided. Risk is a very important concept that the
engineer manager must be familiar with. Risk is designed to deal with pure risks, while
the application of sound risk management practices is directed towards speculative
risk that are inherent and cannot be avoided. Risk management is “an organized
strategy for protecting and conserving assets and people”. The purpose of risk
management is “to choose intelligently from among all the available methods of
dealing with risk in order to secure the economic survival of the firm”.
Risk Defined
Risk refers to the uncertainty concerning loss or injury. Generally, companies are
faced with a long list of exposure to risk, some of which are as follows; fire, theft,
floods, accidents, non-payment of bills by customers (bad debts), disability and death
and damage claim from other parties. Risk may be classified as either pure or
speculative.
Pure risk is one in each “there is only a chance of loss”, this means that there is
no way of making gains with pure risk. An example of pure risk is the exposure to loss
of the company’s motor car due to theft. Pure risk is insurable and may be covered
by insurance.
Speculative risk is one in which there is a chance of either loss or gain. This type
of risk is not insurable. An example of a speculative risk in investment in common
stocks
Methods of Dealing Risk
There are various methods of dealing with risk, they are as follows:
1. The risk may be avoided. A person who wants to avoid the risk of losing a
property like a house can do by simply avoiding the ownership of one. There
are instances, however, when ownership cannot be avoided like those for
equipment, appliances, and materials used in the production process, In
the case other methods of handling risk must be considered.
2. The risk may be retained. Risk retention is a method of handling risk

wherein the management assumes the risk. A planned risk retention, also
called self-insurance, is a conscious and deliberate assumption of a
recognized risk. In this case management decides to pay losses out of

currently available funds.
3. The hazard may be reduced. Hazards may be reduced by simply instituting

appropriate measures in a variety of business activities. An example is
prohibiting unauthorized persons to enter the cashier’s office. This will
reduce the hazard of theft. Another example is prohibiting company drivers
from taking alcohol or drugs while on duty.
4. the losses may be reduced When losses occur in spite of preventive

measures, the severity of loss may be limited by way of reducing the
concentration of exposures. Examples of efforts on loss reduction are as
follows;
a. physically separating buildings to minimize losses in case of fire,
b. using fireproof materials on interior building construction;
c. storing inventory in several locations to minimize losses in cases of
fire and theft;
d. maintaining duplicate records to reduce accounts receivable losses;
e. transporting goods in separate vehicles instead of concentrating high
values in single shipments;
f. prohibiting key employees from travelling together; and
g. limiting legal liability by forming several separate corporations.
5. The risk may be shifted. When a business owner is confronted with a

contract bigger than his company’s capabilities, he may invite sub-
contractors in so that some of the risk may be shifted to them. In a
corporation, a stockholder is able to make profits out of his investments but
without individual responsibility for whatever errors in decisions are made
by the management. The liability of the stockholder is limited to his capital
contribution.
To shift risk to another party, a company buys insurance. When a loss

occurs, the company is reimbursed by the insurer for the loss incurred
subject to the term of the insurance policy.
Summing Up
Finance function is one of the basic functions of engineer managers aside from the
marketing and operating function. Sound management of finance reduces the
problem and ensures financial growth of the business organization. We know that
finance is the lifeblood of every business; and its management requires special
attention. O Organization’s future will depend upon the effective utilization of funds
like growth, expanding the company, long run of the company. If funds are used
effectively then the business organization has strong development in all the ways
Chapter Test
12-1. What are financial controls?
12-2. What is the difference between the balance sheet and an income statement?
How are the balance sheet and income statement related?
12-3. Why is it important to monitor an organization’s financial resources?
12-4. Discuss how you would go about building a budget for an organization.
12-5. Describe briefly the methods of dealing the risk.
Problems
12-1. Hytek Corporation ended 2019 with cash of $50,000, accounts receivable of
$100,000, and inventory of $300,000. Property, plant, and equipment were valued at
their original cost of $470,000, less accumulated depreciation of $170,000. Current

liabilities other than income taxes owed (see details that follow) were $120,000, and
long-term debt was $250,000. Stockholders’ equity consisted of (a) $90,000 capital
stock investment and (b) accumulated retained earnings, which had totaled $130,000
at the end of 2018. Net sales for 2019 were $900,000. Expenses included $500,000
as cost of goods sold, $50,000 as allowance for depreciation, $85,000 as selling
expense, and $65,000 as G&A expense. Interest income and expenses were $5,000
and $25,000, respectively, and income taxes for the year (unpaid at year’s end) were
$80,000. Dividends of $20,000 were paid. Prepare a balance sheet and an income
statement reflecting these figures.
12-2. Use the output of Question 12-1 to calculate the current ratio, acid test ratio,
leverage ratio, and profit margin. Comment on the values you obtain.
12-3. Excelsior Corporation reported the following status (in thousands of dollars) as
of December 31, 2019: accounts payable of $150; accounts receivable of $250; cash
of $150; inventory of $200; long-term debt of $260; net plant and equipment of $500;
notes payable during 2020 of $250; and stockholders’ equity of $440. (a) Prepare a
balance sheet as of 12/31/19, and (b) calculate financial ratios related with the
information provided.
12-4. Identify a company of your choice. Determine the methods used by the company
in handling risk. Do you consider these methods adequate? Write your own
suggestions appropriate to handle the risk.
REFERENCE:
2014
http://www.saylor.org/site/textbooks/Principles%20of%20Management.pdf
Chang, C. M. Engineering Management Meeting the Global Challenges, 2nd Edition, CRC Press, 2016
https://www.businessmanagementideas.com/financial-management/finance-function-meaning-and-
approaches/3746
https://efinancemanagement.com/sources-of-finance

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ENGG 406 - Engineering Management

Chapter 1 – Introduction to Engineering

Engineers are expected to perform variety of tasks depending on their

The Functions of Engineer

Specifically, the functions of engineering encompass the following areas:

5. Construction – this is where the construction engineer (a civil engineer) is

Historical Development of Engineering Management

to studies on the impact of individual and group behavior on the effectiveness of

Chinese were aware of certain principles bearing on organizing, planning, directing,

The Arsenal of Venice

Concept and the Principles of Engineering Management

Engineering. Before a description of engineers can be made, the term engineering

Management is a “creative problem-solving process of planning, organizing, leading

McFarland continues by identifying “four important uses of the word management,

• The work of creating and maintaining environments in which people can

Albanese provides a set of definitions of the word management suggested by a

• Being a respected and responsible representative of the company to his

• The means by which an organization grows or dies

Figure 1-1. Skills Required versus Management

Engineering management refers to the activity combining “technical knowledge

Need for Engineers in Management

• Really understand the business.

Figure 1-2. The engineering management education program. (From

Management is a process consisting of planning, organizing, directing (or

Nature of Managerial Work

Managers are responsible for the processes of getting activities completed

Figure 1-3. Ten Managerial Roles

Chapter 2 – Decision Making

1. Understand different types of decisions.

Nature of Decision Making

Managerial decision making is the process of making a conscious choice between

Types of Problems and Decisions

1. Well-Structured Problems and Programmed Decisions. Some problems are

Examples of these types of problems might include a customer's wanting to return a

Various types of programmed decisions are:

a. Organizational decisions. Decisions taken in interest of the

c. Research decisions. Decisions which involve regular survey of the

2. Poorly Structured Problems and Nonprogrammed Decisions. Various

For example, increase in advertising expenditure, effective salesmanship, upgraded technology,

When problems are poorly structured, managers must rely on

confronts a poorly structured problem, or one that is unique, there is no cut

Decision Making Process

Figure 2-1. Decision Making Process

2. Analyze the environment. The objective of environmental analysis is the

3. Articulate problem or opportunity. Information provides input for generating

Decision Making Conditions

psychological orientation of the decision maker. Different approaches to decision

Tools and Techniques for Making Better Decisions

A decision tree can be used by a manager to graphically represent which actions

Figure 2-4. Decision Tree Diagram

Delphi Technique. Delphi Technique is a method used to estimate the likelihood

Payback Analysis. Payback analysis is a technique generally used in financial

Marginal Analysis. Marginal analysis weighs the benefits of an input or activity

SWOT Diagram. When organization is planning to make a significant change in

Figure 2-5. SWOT Diagram

1. List decision alternatives as rows

6. Add up the factors under each decision alternative

Figure 2-6. Pareto Diagram

● What is the problem?