Chapter 1—Management, Nortel...

What Would You Do Cases

Chapter 1—Management, Nortel NetworksNortel Headquarters, Toronto, Ontario, Canada. When people use the Internet or make calls on their cell phones, the companies providing the Internet and cell phone service are probably using products made by Nortel Networks. With its products used everywhere in the world, Nortel should be performing well. At least that’s what Mike Zafirovski thought before he became Nortel’s new CEO and began working to turn around the financially struggling company. He had hoped that his 25 years at GE, where he ran five of its key busi-nesses, and his five years as the president and chief operating officer at Motorola would have prepared him to be Nortel’s new CEO. But he underestimated the pressures and expectations, as well as the magnitude of problems that were now his responsibility.

The most serious problem occurred six months after he became CEO. After the previous manage-ment team overreported earnings to trigger corporate bonuses, Nortel had supposedly solved the company’s financial-reporting problems. But now, for the third year in a row, Nortel had incorrectly overestimated its profits and had to report, yet again, that it had earned substantially less than first reported. This time the problem wasn’t fraud, but poor accounting controls. To no one’s surprise, Wall Street hammered Nortel’s stock price. Soon after, shareholders who had seen the value of Nortel stock lose $30 billion brought two class-action lawsuits against the company, seeking $9 billion in damages. The lawsuits, if successful, would put Nortel out of business. The mounting problems had demoralizing effects within the company; the per-centage of employees highly satisfied with their jobs dropped from 51% before to 40% after.

With Nortel needing to get better fast, Zafirovski started by dealing with the large problems that demanded immediate action. First, the company publicly admitted the accounting errors and released new financial statements. It severed its relationship with the accounting firm that had audited its books for more than a decade. Then Mike invited the attorneys from the lawsuits to work directly with him and a small team of Nortel managers by using a court-appointed mediator to work toward a settlement. Zafirovski apol-ogized for Nortel’s errors, saying, “We let you down.” He asked them to “not kill the company,” because in doing so, “you would receive absolutely nothing.” His apology worked. By the next morning, Nortel had agreed to partially compensate shareholders for their losses by paying $2.4 billion in cash and stock. The

shareholders involved in the lawsuit accepted the set-tlement, which allowed Nortel to stay in business.

But, to pay the settlement, Zafirovski had to address his second large problem. Nortel, the only unprofitable company in its industry, was running out of cash. Mike’s job as CEO was to persuade skeptical financial companies to lend Nortel $2 billion to keep the company afloat. So he traveled to seven cities in one week to try to convince them that Nortel was worth the risk, even though Nortel hadn’t had positive cash flows for more than six years. Said Zafirovski, “I could see the skepticism on their faces. It was pretty tough.” He obtained the $2 billion in loans, but only after agreeing to pay a high interest rate of 10.75%.

With billions in losses, improving efficiency was one of Zafirovski’s most important goals. To decrease costs by $1.5 billion, he slashed bureaucracy, reducing the number of management layers from ten to seven; cut administrative expenses; reduced spending on research and development; slashed the overall number of parts used in its products; and, although it was dif-ficult to do, cut retirement pensions and health care costs, saving Nortel $100 million a year.

At the time this was written, things had begun to improve for Nortel. Customers, for example, reported a dramatic 20% increase in satisfaction over a six-month period. That coincided with a 17% increase in sales and Nortel’s first quarterly profit in years. But, Zafirovski knows that a complete turnaround will take time, most likely three to five years. After a year in the job, what did Zafirovski have to say about his transition as a new CEO? “I have been stretched beyond what I thought I was capable of. It’s difficult to have an appreciation for all these pressures and expectations unless you’ve experienced them before.”

Chapter 1 Multiple Choice Questions

1. When Mike Zafirovski slashed bureaucracy and reduced the number of Nortel’s management layers from ten to seven, he was practicing which managerial responsibility?

a. planning b. organizing c. efficiency d. controlling e. resource allocation

1MGMT Enrichment Module: What Would You Do Cases

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2. Which management skills did Mike Zafirovski think prepared him to position his company for success in the competitive and complex telecommunications industry?

a. technical skills b. human skills c. conceptual skills d. motivation to manage e. interpersonal skills

3. Which management role did Zafirovski engage in when he immediately began dealing with the largest problems at Nortel?

a. negotiator b. resource allocator c. spokesperson d. monitor e. disturbance handler

4. Which of the following can you infer from the fact that Nortel’s customer satisfaction increased?

a. Nortel’s economic growth was ensured. b. Nortel’s employee satisfaction increased. c. Nortel had a better product line than its

competitors’. d. Nortel’s return on investment was positive. e. Nortel’s team leadership had been replaced.

5. When Zafirovski asked for meeting with a mediator and the lawsuit’s lawyers to try to work out a settlement, he tapped into which of his managerial roles?

a. liaison and negotiator b. liaison and entrepreneur c. figurehead and spokesperson d. resource allocator and negotiator e. disturbance handler and monitor

6. When customer satisfaction rose by 20% over a 6-month period, Nortel had achieved one of its primary management objectives. Meeting that objective was evidence that Nortel had increased its:

a. production. b. effectiveness. c. controlling. d. leading. e. competitive advantage.

7. Zafirovski’s anticipation of a three- to five-year turnaround for Nortel is an example of which operating plan?

a. a first-line manager’s detailed schedule b. a middle management’s intermediate-range

plans c. a top manager’s long-term plans d. a top manager’s intermediate plans e. a first-line manager’s long-term plans

8. Which improvement was most important to Zafirovski’s plan for a successful turnaround?

a. efficiency b. effectiveness c. controlling d. leading e. competitive advantage

9. When Mike fired Nortel’s accounting firm, which management function was he performing?

a. planning b. organizing c. leading d. negotiating e. derailing

10. As Nortel’s CEO, Zafirovski is responsible for which of the following?

a. planning and implementing strategies to meet top management objectives

b. creating a positive organizational culture through language and action

c. setting objectives consistent with top management goals

d. encouraging, monitoring, and rewarding employee performance

e. managing external relationships and acting as a liaison within the company




Chapter 1 Short Answer Questions

1. Could you, in the end, fix the problems and return Nortel to profitability? With 35% of CEOs ultimately fired from their jobs, could you save yours? To do so, Nortel would have to get better, and fast. With billions in losses, and the need for an immediate $2 billion cash infusion, what steps must you take right now to ensure Nortel’s short-term survival?

2. Then, how should you deal with the $9 billion class-action suit that could put you out of business?

3. Finally, if you solve those crises, what does Nortel need to do in the long run to become a more efficient company?

4. If you were the new CEO of Nortel Networks, what would you do?




A day-shift supervisor at an International Steel Group plant in Steelton, Pennsylvania is informed that the company’s collection of scrap-metal has just been sold. The metal is stored in a football-field-sized area, divided by parallel sets of railroad track, such that stacks of metal are no more than 15 feet from a track. Each stack contains 390 pieces of metal. Each piece of metal is about 3 feet long, 4 inches high, 4 inches wide, and weighs 92 pounds. The metal must be moved into railroad cars for shipping.

A few challenges present themselves here. First, the metal must be moved manually. There are no fork-lifts, and even if there were, there aren’t any people properly trained to operate them. Further, the piles of steel would be too heavy for wooden forklift pallets in the first place. The supervisor has six college stu-dents on staff for the summer, and because of a hiring freeze, no more can be acquired. Their work so far has been relatively light. Based on an old report from a similar project, workers could typically load about 30 pieces per hour during an 8-hour shift. At that rate, the current project would take six weeks to finish. The purchasing manager who sold the scrap needs it packed and shipped in two.

The supervisor must deal with two major difficul-ties. First, if the work crew is going to pick up the pace to get the job done, they will need some serious motivation. Even with sufficient motivation, however, physical fatigue is inevitable. Therefore, something must be done to make the labor more manageable.

This case is based on the pig iron experiments run by Frederick Taylor, the father of scientific manage-ment, in 1899. In a similar setup, through observing the loading process, Taylor determined that each laborer should actually be able to move about 115 bars of pig iron an hour in a 10-hour work day—nearly four times as much! At the same time, he was able to do this in an age of labor unrest leaving his men happier and more content while working at this higher produc-tion rate.

Taylor strongly believed in offering his workers fair pay. He wrote, “the manager must give some special incentive to his men,” if he is to gain their initiative. Thus, Taylor began by offering his workers a 60% pay increase, if they could meet the 115 bar loading quo-tas. Given these incentives, some men could move even more and were paid accordingly.

Not all men could do this, however; physical limita-tions did not always allow it. In Taylor’s day, workers paid for 10 hours were expected to work 10 hours straight. Taylor realized that especially with physical labor, fatigue would be an issue, thus, Taylor intro-duced work breaks. When the cumulative fatigue of heavier days added up, the men were given “off” days, working for base pay at the lower rate. Through Taylor’s system, handling costs for pig iron dropped by almost half, while workers earned 30-60% more.

Chapter 2 Multiple Choice Quiz Questions

1. Frederick Taylor’s pig iron experiment is a case study in:

a. bureaucratic management. b. constructive conflict. c. scientific management. d. administrative management. e. the Hawthorne Studies.

2. In Taylor’s day, workers hired for a 10-hour day were expected to work 10 hours straight. Through systematic study of the work process, Taylor discovered that giving workers periodic work breaks would:

a. reduce the number of bars each laborer moved.

b. allow workers to periodically recuperate from their work, enabling them to work at greater capacity and meet the projected quotas.

c. indulge their lazy impulses by working less. d. reduce the weight of the bars the men were

carrying. e. do nothing at all.

3. Taylor’s rest breaks are an example of which scientific management principle?

a. develop a science to determine the one best way of doing the work.

b. scientifically select, train, teach, and develop workers to their full potential.

c. cooperate with workers to ensure implementation of the scientific principles.

d. divide the work equally between the management and the workers.

Chapter 2—The History of Management, Case Assignment: International Steel Group




4. Taylor believed that incentives were an excellent means of motivating workers. One of his most effective methods, ______, offered workers pay bonuses corresponding to increased production.

a. piece rate incentives b. a fair day’s work c. motion study d. The Theory of Economic and Social

Organization e. integrative conflict resolution

5. Taylor’s scientific management method increased worker production by offering pay incentives and giving workers rest breaks. Which of the following methods might Taylor also have used to increase individual worker production in the pig iron experiments?

a. time study b. motion study c. Gantt charts d. descriptive geometry e. integrative conflict resolution

6. Taylor’s work-based pay incentives and work breaks are examples of the products of the leadership function. Leadership is one of the managerial functions of:

a. bureaucratic management. b. constructive conflict. c. motion studies. d. systems management. e. administrative management.

7. Increased pay rates for workers achieved along with increased production rates and lower expenses confirmed Taylor’s assertion that:

a. a fair day’s work deserved a fair day’s pay. b. rest breaks were necessary to getting the

work done. c. the interests of management coincide with

those of the workers. d. workers were inherently lazy. e. with very small incentives, workers could be

used to dramatically decrease a company’s scrap.

8. In a case study of one of his workers, Taylor wrote, “He worked when he was told to work, and rested when he was told to rest, and at half-past five in the afternoon had his 47.5 tons loaded on the car.” Which of the four steps of scientific management is this an example of?

a. develop a science to determine the one best way of doing the work

b. scientifically select, train, teach, and develop workers to their full potential

c. cooperate with worker to ensure implementation of the scientific principles

d. divide the work equally between the management and the workers

9. Frederick Taylor sought to find the “one best way” of performing a task. Name one method that might be used to determine the one best way of doing a particular task.

a. motion study b. synergy c. the contingency approach d. the Hawthorne Effect e. bureaucracy

10. Taylor developed a method of loading the bars and would give that plan to an overseer. Based on that plan, the overseer would then instruct the worker on when to work and when to rest. This is an example of _________, one of the main elements in a bureaucracy as described by Max Weber.

a. qualification-based hiring b. merit-based promotion c. chain of command d. division of labor e. impartial application of rules and procedures





1. So, without more workers (there’s a hiring freeze) and without forklifts, all of the metal has to be loaded by hand by these six workers in two weeks. But how do you do that?

2. What would motivate the students to work much, much harder than they have all summer?

3. Motivation might help, but motivation will only get so much done. After all, short of illegal steroids, nothing is going to work once muscle fatigue kicks in from carrying those 92-pound pieces of metal up a ramp all day long. So, what can you change about the way the work is done to deal with the unavoidable physical fatigue?




In the late 1980s, the American Mobile Radio Corporation was founded. In March 1997, it became one of two companies to receive an exclusive Satellite digital audio radio license. The company changed its name to XM Satellite Radio and contracted with Hughes Space (now Boeing Space Systems) to build and launch two satellites. XM then gave a public offering of its stock and began signing contracts with media providers and celebrities and making exclusive broadcast arrangements with major sports.

As competition with its fellow satellite radio compa-ny, Sirius Satellite radio, began heating up, the general environment for radio, which had been relatively static for the last 50 years, experienced a dramatic change. In addition to the traditional ground-based stations, XM and Sirius found themselves competing with new personal music devices, such as the iPod, HD radio, Internet radio, and in-car DVD players.

In efforts to attract new customers, XM began offering various free trials and discounts on its ser-vices, along with reduced-rate radio installations. Low yields from subscriptions and high subscriber turnover made these methods costly, however. So, to further separate itself from the competition, XM introduced NavTraffic, a system that compiles ground-traffic information, and new XM2go devices, which could be removed from vehicles. Again, the result was not what XM had hoped for. In spite of positive feedback reviews, the devices provoked a lawsuit from record labels and also came under investigation from the Federal Communications Commission (FCC) for inter-fering with other nearby radio signals.

Despite years of hopeful forecasts, XM and Sirius recently reported combined annual losses of $1.5 bil-lion. Though XM’s number of subscribers has grown continuously to 7.5 million, the company has yet to turn a profit. With rising competition and large contrac-tual obligations, XM needed to find ways to adapt to the new environment. First, XM stopped trying to buy new radio content and began to focus more on cus-tomer acquisitions.

With obtaining new customers proving difficult, however, XM also began new cost-cutting strate-gies. With subscription costs already being low, XM stopped giving away new radio receivers and began requiring purchasers of the radio receivers to sign sub-scriber contracts. Further, XM contracted with GM and Honda, both originals XM shareholders, to install radios

in their new cars. These measures resulted in substan-tial reductions in acquisitions costs, from over $89 per subscriber to less than $70.

Another potential solution that XM has pursued is a merger with Sirius. When the satellite license was ini-tially granted in 1997, specific provisions prevented a merger; however, in light of the recent major changes in the market, both companies hope that those provi-sions might be invalidated. The FCC would have to approve the merger, and it is possible the certain con-cessions might be required, such as price restraints, restrictions on carrying local radio content, and allow-ing other companies to lease usage of the satellites. Still, such a merger would remove competition and potentially allow for reduced costs and increased prices.


1. The radio industry would have been a part of XM’s:

a. complex environment. b. specific environment. c. advocacy group. d. external environment. e. internal environment.

2. When XM was first approved for a satellite license, the radio industry was a dynamic environment.TrueFalse

3. The introduction of satellite usage to the radio industry was a change in:

a. resource scarcity. b. technology. c. socio-cultural trends. d. supplier dependence. e. industry regulation.

Chapter 3—Organizational Environments and Cultures, Case Assignment: XM Satellite Radio Holdings, Inc.




4. When Sirius announced exclusive broadcast deals with the National Basketball Association and the National Football League, XM countered by announcing deals with Major League Baseball and the National Hockey League. Which of the following techniques do mangers use to identify their competitors and anticipate their moves?

a. industry regulation b. business confidence indices c. competitive analysis d. punctuated equilibrium theory e. cognitive maps

5. By contracting with XM to build and launch two satellites, Hughes Space was acting as a:

a. supplier. b. competitor. c. advocacy group. d. resource. e. visible artifact.

6. When XM and Sirius received their satellite radio licenses, _____ prevented them from forming a merger.

a. industry regulations b. competitors c. technology d. uncertainty e. resource scarcity

7. Which of the following would likely not be interpreted as an environmental threat to XM?

a. the introduction of the iPod b. Sirius receiving a similar license to broadcast

via satellite c. lawsuits from the record industry. d. FCC investigations into alleged radio

interference from the XM2go devices e. an agreement for a potential merger with

Sirius Satellite Radio

8. Sirius Satellite Radio, signing exclusive content contracts, and a satellite radio license would all be variables XM could use to build a(n):

a. internal environment. b. cognitive map. c. personnel scan. d. opportunistic behavior strategy. e. supplier dependence initiative.

9. Which of the following would not be a part of XM’s specific environment?

a. Sirius Satellite Radio b. record labels c. Hughes Space (now Boeing Space Systems) d. specific provisions barring a merger between

XM and Sirius e. HD technology

10. With the introduction of new technologies such as the iPod, the radio industry’s environment changed from _____ to _____.

a. dynamic/stable b. internal/external c. simple/complex d. stable/simple e. opportunistic/relational

11. According to _____, the radio industry is now experiencing a period of dynamic change should soon return to a state of stability.

a. resource scarcity b. business confidence indices c. supplier dependence d. punctuated equilibrium theory e. environmental scanning

12. When it received the satellite radio license in 1997, XM could not have predicted the technological changes, such as the iPod, that would affect the radio industry. How well managers can understand or predict the external changes and trends affecting their businesses is known as:

a. environmental uncertainty. b. punctuated equilibrium theory. c. resource scarcity. d. competitor analysis. e. supplier dependence.


1. How can XM compete in its current environment? What can XM do to be successful?

2. No business would exist without customers. But how can XM find customers willing to pay for radio when there are so many alternatives, including free radio?




People for the Ethical Treatment of Animals, the animal-rights group more commonly known as PETA, is extremely adept at organizing campaigns and mobi-lizing the public to boycott companies. It’s public rela-tions tactics include celebrity endorsements, traveling displays of animal cruelty, and on-site demonstrations. So, when PETA began its “Died” campaign, targeting Procter & Gamble for animal testing practices, P&G management became legitimately concerned.

PETA has been known to use pretty crude tactics to get its point across. For instance, PETA success-fully launched a six-year campaign of intimidation against a farm that bread guinea pigs for scientific research, with strategies including hate mail, malicious phone calls, death threats, arson, car vandalism, and a pedophile smear campaign. Clearly PETA will do anything to achieve its goals. Even large international companies such as McDonald’s, Burger King, and KFC have responded to pressure from PETA by issu-ing and enforcing strict animal handling guidelines to their meat suppliers. The “Died” campaign against P&G, based on P&G’s Tide laundry detergent, shows a woman holding a box of “Died” detergent with the words “Thousands of Animals Died for Your Laundry.” PETA has encouraged consumers to boycott all P&G products until the company ends all forms of animal testing.

Companies such as P&G have both an ethical and legal obligation to ensure the safety of their prod-ucts for consumer use and consumption. Many such companies, including P&G, have invested heavily in exploring alternatives to using animals for product safety testing; however, these technologies are not sophisticated enough to completely replace animal testing. Consequently, entirely eliminating animal test-ing would be imprudent and negligent. P&G continues to use animal testing but only when absolutely neces-sary.

Though groups such as PETA have an influence over P&G’s practices, their interactions with the company are limited and irregular. P&G’s primary responsibilities lie with groups such as shareholders, customers, and employees. The potential threats and damages to the company such as lawsuits and unsafe products that might result from the elimination of ani-mal testing would have a much greater effect on cus-tomer confidence, shareholder stakes, and employee job security.

With regard to PETA, legally all P&G would have to do is make sure that no animal abuse occurs in its product testing. It is already doing this, and in fact is going further, by exploring ways to further eliminate the need for animal testing. In addition to its own programs, P&G also funds independent agencies and institutions that are experimenting with alternative approaches.


1. As an organization that can influence P&G, but is not critical to its long-term survival, PETA would be considered a:

a. shareholder. b. primary stakeholder. c. secondary stakeholder. d. supplier. e. whistleblower.

2. P&G has direct ethical and legal responsibilities to _____ and _____ to make sure that its products are safe.

a. stakeholders/shareholders b. customers/the government c. PETA/customers d. animals/the media e. employees/stakeholders

3. According to the shareholder model, P&G has no obligation to comply with PETA’s demands.TrueFalse

4. By finding ways to eliminate the need for animal testing, P&G is taking a(n) _____ strategy.

a. reactive b. defensive c. offensive d. accommodative e. proactive

Chapter 4—Ethics and Social Responsibility Procter and Gamble




5. Product safety can help improve customer satisfaction, which in turn leads to customer retention, which helps improve demand and sales. In this way, by attending to product safety, P&G is not looking out for the interests of customers, but also those of _____.

a. PETA b. shareholders c. the government d. animals e. employees

6. Whether using animals for experiments is good or bad is judged by:

a. social consensus. b. ethical intensity. c. shareholders. d. temporal immediacy. e. proximity of effect.

7. The decision to use animal testing when it is necessary to ensure product safety reflects which stage of moral development?

a. Punishment and Obedience b. Instrumental Exchange c. Good Boy, Nice Girl d. Law and Order e. Social Contract

8. If P&G uses animal testing so that its products will meet the legal requirements for product safety, it is acting according to the principle of:

a. distributive justice. b. utilitarian benefits. c. religious injunctions. d. government requirements. e. personal virtue.

9. Which of the following would be an important primary stakeholder issue for P&G’s employees?

a. animal rights b. making products that adhere to government

product safety regulations c. layoffs that might occur if product boycotts

resulted in significantly diminished revenues d. maximizing profits by whatever means

necessary e. public opinion

10. According to PETA, the decision to use animals for product safety testing is a matter of:

a. economic responsibility. b. legal responsibility. c. ethical responsibility. d. discretionary responsibility. e. social consensus.

11. Which of the following would be an example of discretionary responsibility?

a. P&G funding independent agencies’ efforts to find alternative testing methods

b. McDonalds issuing strict animal handling guidelines to meet suppliers

c. P&G efforts to comply with government product safety regulations

d. PETA’s intimidation campaign against guinea pig farmers

e. P&G’s elimination of all animal use in product safety testing


1. As the CEO of P&G, should you, as PETA demands, eliminate all animal testing? Or, by minimizing but not eliminating animal testing, has P&G achieved a reasonable balance that still allows it to make sure its products are safe? The last thing you need are product liability lawsuits against P&G.

2. If you were the CEO of P&G, what would you do to balance the concerns of your stakeholders? What is the most socially responsible thing to do?




An icon of U.S. manufacturing, Ford Motor Company has been one of the most prominent automobile pro-ducers in the world for almost 100 years. Founded by Henry Ford in 1903, his vision was the production of cars that were affordable to the masses. Today, Ford has been losing money, particularly in its North American operations. Ford produces more vehicles than it can sell and does so under very difficult per-sonnel conditions. The history of the company and its relations with the United Auto Workers labor union has left it with extraordinary long-term expenses in an environment of increasing competition from younger, more focused car companies.

Furthermore, Ford’s Premium Automotive Group (PAG), which manufactures their luxury Jaguar, Aston Martin, Land Rover, and Volvo brands, has been consistently losing billions of dollars year after year. Although the company has substantial cash reserves—over $20 billion—operating losses were steadily dimin-ishing the company’s financial safety net. Chris Bolen, Ford’s manufacturing director said, “We took our eye off the ball and got intoxicated with just making trucks . . . internally we ignored a lot of waste . . . we let manufacturing get in trouble.”

This was the situation Alan Mulally found himself in when he took over as the new Ford CEO in 2006. As Mulally stated, “Our number one priority is to restructure ourselves in the near term.” In the interest of curbing losses and increasing their manufacturing efficiency, Ford needed effective strategic planning to save their company.

At this juncture, four particular options presented themselves. First, Ford could close older plants to cut production costs and excess manufacturing, but it would also raise issues regarding employee layoffs. The second option would involve cutting back on SUV and truck manufacturing to focus on smaller, more fuel-efficient cars. Third, Ford could reduce its North American presence to focus on their more successful markets in Europe, South America, and China. In doing so, however, Ford would essentially be abandoning its home market. Finally, Ford could sell the PAG group, returning their focus to the cars that have traditionally been their area of expertise.

Mulally began by reducing dependence on large trucks and SUVs and aggressively closing plants. Seven plants will close by 2010, and more than 30,000 jobs were eliminated in the past year. In March 2007,

Ford sold the majority stake in Aston-Martin to an investment consortium. Reducing personnel costs has been a priority as well; Ford’s profit gap is over $2,400 per vehicle with roughly $1,000 to 1,300 coming from labor. Actively working with the United Auto Workers labor union, Ford has renegotiated agreements with 33 of its 41 U.S. factories to achieve more flexible rules and timing and reduce embedded expenses.

Mulally has moved to improve communication levels and commitment throughout the organization. Many of these policies are new to Ford, but Mulally hopes to match the practices used by Toyota and oth-ers in a continuous improvement system that should help the company move towards increased sales, reduced costs, and improved quality.


1. In Ford’s profit gap, the distance between their operations and that of their most efficient competitors, their greatest factor was:

a. losses from the PAG group. b. fuel efficiency. c. costs for closing down plants. d. labor expenses.

2. “Producing cars that are affordable to the masses” is an example of:

a. vision. b. tactical plans. c. single-use plans. d. policy.

3. Which of the following was not one of the courses of action that Alan Mulally took to address Ford’s situation?

a. Close down older plants. b. Reduce manufacture of SUVs and large

trucks. c. Reduce North American presence to focus on

more successful European, South American, and Chinese markets.

d. Sell the product lines of the Premium Automotive Group.

4. Negotiations with the United Auto Workers labor union helped Ford achieve greater time and scheduling flexibility and reduce labor expenses.TrueFalse

Chapter 5—Planning and Decision Making, Management, Case Assignment: Ford Motor Company




5. By reducing their dependence on more expensive SUVs and trucks, Ford Motor Company was:

a. establishing action plans to support their company’s mission and vision.

b. choosing to focus on increasing production of cars in the PAG group.

c. creating a strategic plan. d. setting proximal goals.

6. What part of rational decision making would Christ Bolen’s statement, “we ignored a lot of waste” fall under?

a. Computing the Optimal Decision b. Defining the Problem c. Identifying Decision Criteria d. Evaluating Each Alternative

7. By analyzing their profit gap, Ford was making: a. an absolute comparison. b. tactical plans. c. a costly mistake. d. a decision criteria. e. a mission statement.

8. A strategy of using slack based resources would have been effective in Ford’s situation.TrueFalse

9. Which of the following would not be a potential factor in Ford’s action plan?

a. $20 billion in cash reserves. b. Selling the majority stake in Aston Martin. c. Competition from younger, more focused car

companies. d. The United Auto Workers labor union. e. Closing seven plants by 2010.

10. Closing seven plants by 2010 would be a ______ and reducing the profit gap 15% by the end of the year would be a _____.

a. action plan/distal goal. b. distal goal/proximal goal. c. strategic plan/vision. d. proximal goal/distal goal. e. tactical plan/action plan.

11. Having identified the four possible courses of action, which of the following would not be a useful technique for Ford to use in determining the best decision?

a. The Delphi technique. b. Brainstorming. c. Devil’s Advocate approach.


1. What would be the best way to evaluate these options and make good decisions? What criteria might you use to decide which of these four options would be the best for the company?

2. How might you build in some flexibility in case the market conditions change quickly?

3. Finally, what is the best way to put together an effective action plan and then track your progress?




StubHub, the internet ticket exchange website, was created in 2000 by Jeff Fluhr and Eric Baker out of their Stanford dorm rooms as an alternative to ticket scalping at venue sites. The founders’ original premise—that a full stadium or arena is better than one that is sold out but poorly attended—helped StubHub quickly sign contracts with the four major U.S. professional sports organizations. By offering a venue location (albeit electronic) where season-ticket holders could safely sell their tickets, StubHub quickly attracted customers.

StubHub then moved into direct consumer market-ing by facilitating ticket sales between any two willing parties including guaranteed delivery through FedEx. StubHub quickly became the second largest ticket resale auction site, with 2.1 million unique visitors per month and over $100 million in annual revenue. StubHub’s success naturally attracted competition, and their unique position within the market began to erode. At the same time, industry powerhouse Ticketmaster began lobbying to have states outlaw the reselling of tickets for more than their face value.

With rising competition, a business model that was growing obsolete, and the probability of weakening revenues, StubHub needed a new strategy for growth and profit. Several options present themselves. First, StubHub could offer advertising space on its site for sporting and theatrical events. Internet advertising has been the number one revenue generating system for profitable internet ventures. Google, for example, projects advertising revenues in excess of $26 bil-lion by 2009, and worldwide ad revenue is expected to increase by over 20% per year in the foreseeable future. StubHub has avoided this avenue in the past, but with more companies looking to market to its cli-entele, it has gradually expanded in this direction.

Although StubHub could contract with event sites to sell tickets for them, attempting to undercut Ticketmaster would be difficult. Most venues would not be eager to pay the same percentage commission that individuals selling tickets would, and StubHub has no resource-based advantages over Ticketmaster. This strategy is not a part of StubHub’s current model and would be difficult to implement. Attacking an entrenched provider is usually a recipe for high expense and low returns.

StubHub’s unique buy/sell/guaranteed delivery method makes expansion of the auction a distinct pos-

sibility. Apparently eBay thought so too, because they bought StubHub in January 2007 for $310 million to replace its own failing ticket resale site (marketplace). Being acquired by eBay gave StubHub a large cash infusion that boosts many of StubHub’s weaker areas, such as access to talent and experience, an estab-lished platform, and well, cash.

The infusion of capital from the eBay deal presents a fourth option: StubHub could begin buying tickets in bulk and then auctioning them off itself. The new system would function similar to the stock exchange, which might substantially increase site traffic. The necessary information would be readily accessible, and though StubHub does not currently have the exper-tise to manage the risks and returns, that could be acquired. This market is currently unfilled, making it a plausible avenue for expansion.


1. The unique system of ticket exchange, event information, and guaranteed delivery that StubHub brought to the market provided it with:

a. resources. b. competitive inertia. c. competitive advantage. d. strategic dissonance. e. core capabilities.

2. When competitors began entering the market and offering similar services to StubHub’s, StubHub’s resources proved not to be:

a. competitive. b. distinctive. c. strategic reference points. d. imperfectly inimitable. e. diverse.

3. As its position in the market began to erode as a result of competition, StubHub began to experience competitive inertia.TrueFalse

4. A SWOT analysis would be useful for helping StubHub develop a new strategy for growth and profit.TrueFalse

Chapter 6—Organizational Strategy Management, Nortel Networks, Case Assignment: StubHub




5. TicketsNow.com, RazorGator, eBay, and Ticketmaster were all part of StubHub’s:

a. cash cows. b. retrenchment strategy. c. market commonality. d. strategic reference points. e. strategic group.

6. According to a SWOT analysis, which of the following would not be one of StubHub’s strengths?

a. name recognition b. internet advertising revenue c. contracts with MLB, NFL, NHL, and NBA d. unique model for ticket exchange e. guaranteed ticket delivery and unique

arrangement with FedEx

7. Whether StubHub should go into competition with Ticketmaster or not would be determined by its:

a. corporate-level strategy. b. acquisitions. c. firm-level strategy. d. core capabilities. e. industry-level strategy.

8. Which of the following competitive moves would be considered an attack?

a. eBay buys StubHub for $310 million. b. StubHub begins offering ticket auctioning

opportunities to anyone, not just season-ticket holders.

c. StubHub contracts with venues to sell tickets directly in an effort to undercut Ticketmaster.

d. Google projects advertising revenues of $26 billion by 2009.

e. StubHub expands its auctions to include items beyond tickets.

9. According to SWOT, the prospect of state laws being passed prohibiting the resale of tickets above face value would be a(n):

a. strength. b. weakness. c. opportunity. d. threat. e. core capability.

10. StubHub’s potential decision to buy tickets and auction them off itself in the interest of increased revenues would be an example of a(n):

a. growth strategy. b. stability strategy. c. diversification. d. corporate-level strategy. e. acquisition.

11. One disadvantage in StubHub’s strategy was that it did not have a patent on its processes. Such a patent would provide StubHub with a(n):

a. distinctive competence. b. core capability. c. strategic reference point. d. acquisition. e. rare resource.

12. When eBay bought StubHub, StubHub became one of eBay’s:

a. retrenchment strategies. b. acquisitions. c. core capabilities. d. direct competitors. e. rare resources.

13. If StubHub had expanded into auctioning things beyond just tickets, they would have come into ______ with eBay.

a. strategic dissonance b. unrelated diversification c. direct competition d. strategic reference e. resource similarity





1. Complete a SWOT Analysis for StubHub.

2. Could StubHub become an advertising medium for sporting and theatrical events? Huge revenues are possible, but advertisers are now regularly entering contracts with Google, YouTube, and Facebook.

3. Should StubHub directly attack Ticketmaster’s business of selling original tickets to concerts and sporting events?

4. Finally, should you completely change the business model and actually buy tickets to resell on the open auction market? Buying the tickets would be costly and carry some risk, but if done well, you might end up with greater market power and the ability to maximize revenue. If you had just bought StubHub and needed to spark additional growth, what would you do?




During its 95 year history, Whirlpool has become an expert in manufacturing excellence with its classic white appliances engineered for efficiency, long-lasting life, and low price. Periodically the products have received a facelift or a small improvement in function and performance, but this usually amounted to little more than a new wash cycle option.

At Whirlpool, where efficiency was king, the idea of innovation as a key to success met considerable resistance. Corporate director Nancy Snyder said, “Over the years people have used many nice adjec-tives to describe Whirlpool. But ‘innovative’ has rarely been among them.” Initial efforts at innovation pro-duced some new products. Expenses, however, far exceeded any positive results from those innovations, and when the former CEO tried to push all 61,000 employees to exercise their creativity, most employ-ees saw the effort as a waste of time and employee moral dropped.

Nonetheless, without significant innovation, Whirlpool will find itself in a never-ending price-cutting battle. In its second attempt at an innovation cam-paign, Whirlpool worked to establish innovation as a cornerstone of company strategy, creating three “I-Boards” of senior managers to evaluate effort and fund new ideas. Six hundred mid-level managers were trained as “I-Mentors” in innovation tools and techniques to encourage and evaluate new ideas. The training of 22,000 employees to look for product and marketing innovations brought about new ideas that helped increase annual sales from $350 million to over $3 billion.

Looking for new innovative ideas is not just a mat-ter of finding one big hit, either. It’s often a matter of finding small but continual processes or improve-ments. Teams comprised of employees from different areas of the company developed more colorful and appealing refrigerators, stacking washer/dryer com-binations, and dishwashers with “turbo zones” for cleaning particularly crusty dishes.

To manage resistance, Whirlpool management cre-ated what it calls the Innovation Embedment S-Curve, a five-stage model that demonstrates the importance of innovation and how it becomes established in an organization. Ultimately, this will help the organiza-tion see the value of innovation as a key to success and mobilize them to create new opportunities for the company.


1. Whirlpools used ______ to help develop several product innovations, such as more colorful refrigerators and stacking washer/dryer combos.

a. milestones b. multifunctional teams c. testing d. product prototypes e. design iteration

2. In an effort to encourage a creative work environment, which of the following would Whirlpool not have used?

a. organizational encouragement b. supervisory encouragement c. freedom d. work group encouragement e. incremental change

3. Whirlpool’s senior management “I-Boards” would be an example of:

a. organizational encouragement b. collegial encouragement c. work group encouragement d. freedom e. flow

4. Whirlpool experienced _____ when employees thought that the new drive for creativity was a waste of time.

a. change forces b. resistance forces c. change intervention d. refreezing e. coercion

5. As the individual in charge of implementing techniques for encouraging innovation, Whirlpool’s CEO would be an example of a(n):

a. resistance force. b. intervention force. c. change agent. d. milestone. e. reinforcement agent.

Chapter 7—Innovation and Change, Case Assignment: Whirlpool




6. Though Whirlpool is financially stable right now, the loss in market share that might occur if it doesn’t figure out how to distinguish itself from the competition may result in:

a. change forces. b. resistance to change. c. milestones. d. incremental change. e. organizational decline.

7. After years of producing the same plain white appliances, which had rarely experienced any fundamental design changes, Whirlpool found it was lacking in creativity.TrueFalse

8. Which of the following did the use of multifunctional teams play a role in?

a. discouraging all 61,000 employees to exercise their creativity

b. making efficiency the primary objective c. increasing annual profits from $350 million to

$3 billion d. creating new designs, like a stacking washer/

dryer combination e. the Innovation Embedment S-Curve

9. Whirlpool’s highly efficient, low-priced, classic white appliances are a good example of the _____ for appliances.

a. resistance forces b. milestones c. dominant design d. design iterations e. S-curve pattern for technology

10. Whirlpool needed to innovate as a result of discontinuous change in the technology cycle.TrueFalse

11. With an organizational culture resistant to change, Whirlpool’s workers needed to undergo:

a. coercion. b. unfreezing. c. discontinuous change. d. refreezing. e. milestone.


1. How do you develop a culture of innovation?

2. How can a company that produces a commodity item change to producing a premium-priced product?

3. With manufacturing as the company’s core strength, how will you develop a customer focus?




Less than a decade ago, Tommy Hilfiger (the com-pany) was selling billions of dollars a year in affordable fashions, cosmetics, and accessories, and Tommy Hilfiger, the designer, was successful enough to be recognized on a first name basis. Nonetheless, oper-ating exclusively in U.S. markets, left the company vulnerable to a turbulent retail industry and limited the company’s growth potential. With annual revenues of $1.9 billion domestically, Tommy Hilfiger began inves-tigating growth opportunities in Europe and Asia. At the height of its U.S. popularity, Hilfiger opened a large store full of traditional Hilfiger apparel on Bond Street in London.

Then very quickly, the company’s success dried up. Sales dropped to $1.1 billion only a few years after they had peaked, and then plummeted to a compara-tively paltry $260 million. As a result of this astounding 86% drop in revenue, the company closed 30 Tommy Hilfiger stores in the United States and shut down its children’s wear and Tommy Jeans divisions. Overseas, Tommy was sputtering. The Bond Street store closed the same year it opened, largely because of differing European fashion tastes.

Slow growth rates were not the only reason for the dramatic change in the company’s performance. More damaging was the rapid consolidation of U.S. retail stores. Many of the major department and discount stores where Hilfiger items are sold have either closed or been purchased by large department store chains. Today a few retailers, such as Macy’s and Kohl’s, account for more than a third of U.S. clothing sales, and those same retailers often sell their own private brands, too.

To avoid stalling out completely, Tommy Hilfiger needed to figure out how to expand globally. The failure overseas of Tommy’s traditional U.S. look prompted the designer to adapt to cultural differ-ences in Europe and Asia. The biggest change was the decision to start creating designs uniquely for the European consumer. Hilfiger opened a design center in Amsterdam, dedicated to designing clothes and acces-sories for consumers from different European cultures. For example, because Germans and Italians have dif-ferent preferences for sweaters, Hilfiger has created a line of sweaters for Germans clients, which is different from what it designs for Italian clients.

Those differences made it difficult to balance global consistency with local adaptation. In addition, as man-

agers soon discovered, the European market differed greatly from the U.S. market. CEO Fred Gehring said, “The fragmentation of dealing with all these little mom-and-pop stores is so alien to American busi-nesses,” yet, “these stores are the backbone of every major brand” that sells in Europe. Further, because there are so few locations for new stores available (unlike in the United States), it makes more sense to work with existing retailers. To handle the fragmented market, Hilfiger opened 21 regional showrooms, fea-turing 25 clothing lines, each with several tailored to particular markets. Even though that led to higher operating costs, operating in that manner enabled the company to achieve much higher profit levels and to place its products in 4,500 boutique stores in 15 European countries.

In addition to selling branded apparel in boutiques, Hilfiger opened 34 company-owned Hilfiger Denim stores throughout Europe. Designs and layouts of the stores and their merchandise are tailored to the cul-tural tastes of the countries where they are located. Hilfiger has a higher margin on products sold at its company-owned stores, as well as complete control over the facilities. The new strategy of a mixed distri-bution channel and locally adapted designs has been a success. Today, European sales now account for 37% of Hilfiger’s $1.78 billion in sales.


1. Tommy Hilfiger opened a store on Bond Street in London, stocked with traditional U.S. Tommy products. This is called:

a. exporting. b. licensing. c. local adaptation. d. local new venture.

2. What did Tommy Hilfiger do to successfully expand its business globally?

a. adapted its products to specific cultural tastes b. sold its products through large European

department stores c. exported Tommy products directly to

European retail stores d. entered a joint venture with a successful

European designer e. licensed its jeans division to Calvin Klein

Chapter 8—Global Management, Case Assignment: Tommy Hilfiger




3. The Hilfiger Denim stores are examples of: a. franchises. b. wholly owned affiliates. c. joint ventures. d. strategic alliances.

4. In India, the Murjani Group pays royalty fees to sell Tommy Hilfiger products. This is an example of:

a. licensing. b. expatriation. c. franchising. d. subsidizing. e. rights management.

5. When selling its brands in Europe, Hilfiger reduced their label size and built showrooms with wood floors and gray walls, rather than bright lighting and the company trademark reds and blues. These measures are examples of:

a. franchising. b. direct foreign investment. c. local adaptation. d. cooperative contracts. e. global consistency.

6. In Europe, Hilfiger found highly fragmented consumer tastes from country to country. This made Hilfiger’s traditional strategies of selling through large department stores less effective. How might Hilfiger attempt to account for these differences?

a. high political uncertainty in Europe b. different regional trade agreements c. discrepancies in purchasing power d. variations in cultural dimensions e. problems with cross-cultural communication

7. When Tommy Hilfiger became vulnerable from its tremendous loss of revenue in the U.S. market, the company decided to expand into European markets because of their growth potential.TrueFalse

8. Like other wholly owned affiliates, the Hilfiger Denim stores face the possible disadvantage of:

a. assuming all the losses if the enterprise fails. b. difficulties regulating production quality. c. risking brand dilution d. loss of control d. particular vulnerability to policy changes. e. regular unemployment

9. One of Hilfiger’s most popular U.S. products is its cotton knit sweater, about which a European manager said, “You can’t give those away in Europe.” In pushing its U.S. products overseas, Hilfiger was focusing on:

a. global new ventures. b. expatriates. c. global market standardization. d. political uncertainty. e. global consistency.

10. CEO Fred Gehring, who used to manage Hilfiger’s European offices, said, “You have to have a collection range broad enough for local tastes in different countries, but it still needs to be cohesive.” Which best reflects Hilfiger’s efforts to balance global consistency with local adaptation?

a. opening a store in London, stocked with products from its U.S. line of apparel

b. making agreements to sell its items through Europe’s mass merchandisers

c. establishing regional showrooms, with 25 clothing lines, some of which are tailored to particular markets

c. exiting the European market d. none of the choices

11. Which of the following was not a major factor in Tommy Hilfiger’s declining sales in the U.S. market?

a. During that period, U.S. clothing sales grew less than 5%.

b. Many department stores, where Tommy brands were sold, either closed or were bought up by larger chains.

c. Many of the remaining retailers that carried Tommy brands had their own competing brands.

d. Hilfiger opened a store on Bond Street in London, which closed a year later.




12. If Hilfiger decided to expand into the Middle East, which of the following countries would present the lowest long-term political risk (See Exhibit 8.4)?

a. Iran b. Israel c. Kuwait d. United Arab Emirates e. Syria


1. How much should Tommy Hilfiger, which unsuccessfully pushed its U.S. products overseas, adapt its products to different cultures in Europe and Asia? Can it have a standard set of products or should they be different in each market and culture?

2. Who should make key decisions for the company? Should managers at headquarters make these decisions, or should managers in different countries make them? Should Tommy Hilfiger run its business around the world the same way it runs its business in the United States?

3. Finally, because of previous failures, how should Hilfiger expand internationally? Should it license its brands to local businesses, form strategic alliances with key foreign business partners, or bear the risk itself and wholly own and control each Tommy Hilfiger operation throughout the world?




After a $100-million loss, plummeting advertising sales and stock prices, and layoffs that cost 800 employees, including the previous CEO, their jobs, one would have to ask how such a phenomenally successful company like Yahoo could have ended up in this position. One key problem was the organizational structure; with just 3,200 employees, Yahoo had 44 different business units. By comparison, General Electric, with 300,000 employees, had only 13. This left the organization unmanageable and unfocused. Department managers would focus their efforts on advancing their depart-ments without regard for the company as a whole.

Furthermore, Yahoo didn’t even have a direct sales unit. Why was this? During the peak of Yahoo’s suc-cess, they didn’t need it. Customers were throwing themselves and their advertising dollars at the compa-ny, and in an effort to optimize market share, if a com-pany didn’t buy into Yahoo’s services, Yahoo would quickly move on.

Yahoo’s corporate culture didn’t help the lack of direction. Everyone, including the previous CEO, worked in cubicles, which had promoted an overly informal culture with no controls. Employees played soccer in an open space outside the company board-room, even while board meetings were going on. Any ideas were welcomed and pursued without need-ing feedback or approval, even though nobody knew which ideas would actually work. Because people didn’t want to stifle creativity, Yahoo began experienc-ing resistance when efforts were put into focusing on producing profits.

The largest and most immediate concern would be Yahoo’s organizational structure. Yahoo began assess-ing its current structure and systematically analyzing each of the 44 departments to determine what the unit did, how it benefited the company, and why it should continue to exist. Ultimately, Yahoo adopted an organizational structure based on product departmen-talization, reducing the number of units from 44 to 4.

Yahoo also needed to address the issue of central-ization. Although decentralization can have advantages, Yahoo’s decentralization had degenerated into chaos, loosing all focus on the direction of the company as a whole. Yahoo’s executive management introduced “network optimization.” This meant all parts of Yahoo should strive for profits, but they should also feed business opportunities to other parts of the organiza-tion. One example would be Yahoo’s consolidation of

its search capabilities with purchases of Inktomi and Overture search firms. Yahoo also established a prod-uct council to evaluate business plans and significant proposals. Because projects now required approval from the product council before going forward, manag-ers had to plan and prepare extensively or else their ideas would get rejected.

Finally, Yahoo’s organizational culture underwent significant changes as well. Executive management moved out of the cubicles into separate offices. Such measures helped provide order and structure to a cul-ture, which in turn imposed constraints on the chaotic development and production processes. Executive management also allowed for a considerable amount of time in the restructuring process, which helped wean Yahoo away from its tendencies for instanta-neous decision making.

Chapter 9 Multiple Choice Quiz QuestionsNote: Questions 8 and 9 are on Behavioral Informality.

1. Yahoo used reengineering to address its organizational problems. Which of the following would be an example of an act of reengineering that Yahoo instituted?

a. using cubicles to promote behavior informality b. playing soccer in large open office spaces c. systematically analyzing existing departments

and reorganizing the departmental structure d. having a decentralized organization that

promotes innovation and creativity e. not having a direct sales unit

2. Yahoo consolidated its 44 departments into 4: consumer services, marketing services, business and enterprise services, and premium services. This kind of organizational structure is described as ________ departmentalization.

a. functional b. product c. customer d. geographic e. matrix

Chapter 9—Designing Adaptive Organizations, Case Assignment: Yahoo




3. One of Yahoo’s vice presidents said of Yahoo’s employees, “If you had an idea, you pursued it without having to get anyone’s feedback or approval.” When a company has decision-making authority spread out across the lower levels of the organization, like Yahoo was, it is called:

a. centralized. b. standardized. c. mechanistic. d. motivated. e. decentralized.

4. Yahoo’s executive management instituted “network optimization,” which encouraged different departments to feed business opportunities to each other to help solve the problems that had been caused by excessive decentralization.TrueFalse

5. Yahoo’s product council was instituted to evaluate and approve business plans and significant proposals. Instituting the product council is an example of:

a. centralization. b. standardization. c. delegation of authority. d. unity of command. e. departmentalization.

6. Yahoo decided to adopt a product departmentalization scheme. There are four other departmentalization schemes discussed in the chapter. Which of the following is not one of them?

a. functional b. organic c. matrix d. geographic e. customer

7. Yahoo’s COO said, “Yahoo’s original mission was to grow as fast as you can and put things out there and see what works, but nobody knew what would work.” Projects were pushed forward without any attempts to measure progress or determine if they would work. Yahoo’s job processes lacked:

a. authority. b. significance. c. identity. d. feedback. e. variety.

8. Yahoo’s cubicles and spontaneous company culture encouraged __________ in its employees.

a. behavioral informality b. empowerment c. behavioral formality d. flexibility e. interdependence

9. Cubicles are an example of private spaces.TrueFalse


1. Would it make sense to organize the entire company geographically to focus on the needs of local markets?

2. Would a product structure that was geared toward new product development and marketing be more appropriate?

3. The company could also organize exclusively around its customers and become experts in customer solutions.

4. Another option is a functional structure such that all of manufacturing is under one arm and all sales under another.

5. The fifth option: a matrix structure in which employees report both functionally and geographically.




With 8.5 million health plan members, 148,884 employees, and $31.1 billion in operating revenue, Kaiser Permanente is the largest not-for-profit man-aged care organization in the United States. Overall, Kaiser has a solid reputation. Consumer Reports ranks Kaiser as an average to better hospital system, and U.S. News and World Report ranks Kaiser Permanente Northern and Southern California 58th and 88th, respectively, out of 257 health plans.

Lately, Kaiser has come under intense scrutiny for a series of management and patient care issues. After Northern California Kaiser Permanente began an in-house kidney transplant program for its kidney transplant candidates, 56 people received kidney trans-plants, but twice that many died waiting for a kidney. In contrast, more than twice as many people received kidneys than died during the same period at other California transplant centers.

Another serious problem came to light when the California Office of Statewide Health Planning and Development determined that Kaiser had 5 of the 28 hospitals with the highest pneumonia death rates in the state. Though pneumonia is the sixth-leading cause of death in the United States, timely diagnosis and treatment can greatly reduce patient mortality rates. A well-run hospital should not have these kinds of problems treating pneumonia, which indicate that the hospital’s infection-control processes are breaking down.

Implementing work teams could help Kaiser identify and respond to its managerial and patient care prob-lems. Kaiser’s problems are complex and require the involvement of many different employee groups, such as doctors, nurses, office personnel, and laboratory technicians. Other hospitals have had success with work teams, and Kaiser might benefit from similar programs. Baptist Memphis Hospital in Memphis, Tennessee empowered Rapid Response Teams to decide to call in the Medical Emergency Team if a patient’s condition worsened. As a result, the number of cardiac arrests dropped by 26%, and the survival rate doubled from 13 to 26%.

Stanford University Hospital created Patient-Centered Care Teams to manage everything from admission to discharge and Process-Centered Care Teams to identify hospital processes and make them more efficient and effective. Kaiser could benefit from teams such as these. Team members should also be involved in setting team goals, and rewards should be

based on both individual and team performance. Team members should also receive training in interpersonal skills.

If teams are not assigned a leader, one might naturally emerge, but once the team reaches perform-ing stage, it is best if leadership responsibilities are shared among team members. If teams are to truly be self-managing, management must also give them a relatively high level of bureaucratic immunity. The structure of the team, its size, and its level of auton-omy should generally depend on the task at hand. Cohesiveness is important too, and Kaiser can build team cohesiveness by making employees feel that they are part of an organization that cares about its patients and by making employees believe that what they do on their jobs makes a difference in the lives of others. The Kaiser story is an ongoing saga, and more information about the successes of Kaiser (or lack thereof) might come to light as you are reading this case and analysis.


1. If Kaiser were to implement teams, they would want to base team size on the requirements of the task at hand. Which of the following is one of the dangers of teams being too large?

a. cross training b. minority domination c. social loafing d. low job satisfaction e. groupthink

2. If management at Kaiser wants to make sure that teams are operating in the way they ought to, it should give teams very little bureaucratic immunity so that it can more closely direct team activities.TrueFalse

Chapter 10—Teams, Case Assignment: Kaiser Permanente




3. The problems at Kaiser include aspects that involve many different areas of the company, from nurses who care for patients to office personnel who keep track of each patient’s records and status. Teams that are composed of individuals, such as these, from different areas of the company are called _____.

a. self-sustaining b. integrated c. self-managing d. cross-functional e. self-designing

4. ________, like the Patient-Centered Care Teams at Stanford University hospital, manage and control all of the tasks that they are assigned to.

a. Self-managing teams b. Cross-functional teams c. Employee involvement teams d. Semi-autonomous work groups e. Traditional work teams

5. Which of the following would not be a reason that Kaiser might consider implementing work teams?

a. Kaiser’s problems involve people in many different departments, including doctors, lab techs, and office staff.

b. Kaiser’s problems are far reaching and would need more than a few individuals to properly address.

c. Other hospitals, such as Baptist Memphis Hospital and Stanford University Hospital, have used work teams, resulting in improvements in efficiency and better patient care.

d. Team performance could easily be measured based on how much the current situation improves.

e. All of the choices are sound reasons to choose work teams.

6. Size would be an important consideration for Kaiser if it chooses to build work teams. All teams, ideally, should have 10 to 12 people.TrueFalse

7. Considering the cross-departmental cooperation and the number of people that would need to be involved, if Kaiser were to use work teams, it would want to make sure all of its team members were well trained in:

a. leadership skills. b. decision-making skills. c. interpersonal skills. d. technical skills. e. gainsharing.

8. Which of the following would be an example of a team goal that one of Kaiser’s teams might have?

a. Ranking 58th out of 257 health plans, according to U.S News and World Report.

b. Having 5 of the top 28 hospitals with the highest pneumonia rate.

c. Develop a cure for pneumonia so that your patients don’t catch it.

d. Reduce the number of cardiac arrests by 26%.

e. Perform twice as many kidney transplants.


1. You realize that if you are going to use teams, you have to do your homework by answering these questions: First, does it make sense for Kaiser to use teams, and, if so, what kind of teams should it use?

2. Second, how should people who work on teams be trained and paid? You have to find a way to encourage individual initiative, while at the same time encouraging people to work together on teams.

3. Third, who leads the teams—physicians, managers, or employees? And what roles should those leaders play?

4. Fourth, how large or small should the teams be? And finally, how do you build cohesion and make sure the team norms are functional and productive?




When Radio Shack needed to lay off 400 employ-ees, it sent them the following e-mail: The work force reduction notification is currently in progress. Unfortunately your position is one that has been elimi-nated. Recipients had 30 minutes to take care of their affairs before they had to meet with senior leaders. In a Washington Post article, psychologist Ken Siegel said, “[this] represents a stupefying new low in the annals of management practice.”

This was not the first beating that Radio Shack’s reputation had taken either. CEO David Edmondson was fired after a newspaper investigation discovered that he had not received degrees in theology and psy-chology from Heartland Baptist Bible College as he had claimed in his application. Racially discriminatory hiring practices had also put Radio Shack in the news. Radio Shack’s “Fix 1,500 Initiative,” a performance appraisal system, compare store managers to each other. After ranking mangers, the company gave the bottom 1,500 managers 90 days to improve. In the end, 1,734 managers were demoted to sales associ-ates or terminated. Radio Shack also eliminated its stock purchasing plan for employees while keeping the one for managers, creating a lot of ill feelings among employees. In the meantime, total sales have fallen by 12%, 530 stores have closed, and same-store sales have fallen 6.8%.


1. _____ would have alerted Radio Shack to David Edmondson’s false claims in his application.

a. Validation b. Background checks c. Aptitude tests d. Biographical data e. Work sample tests

2. When companies like Radio Shack downsize, they experience employee separation.TrueFalse

3. What is the best way for Radio Shack to help employees deal with layoffs?

a. Explain why layoffs are happening only to the employees being laid off.

b. Break the news to employees in the quickest and most indirect way possible.

c. Choose employee layoffs by drawing lots so that everyone has a fair chance of keeping their job.

d. Help terminated employees find new jobs. e. Offer employees stock option purchasing

plans.

4. _____ would provide Radio Shack with a much better performance appraisal system.

a. Early retirement incentive programs b. 360-degree feedback c. Work sample tests d. Cognitive abilities tests e. Behavior Observation Scales

5. The decision to eliminate employee stock purchasing plans while maintaining the stock purchasing plans for management would fit with a(n):

a. hierarchical pay structure. b. compressed pay structure. c. early retirement incentive program. d. above-market wage plan. e. profit sharing wage plan.

6. Radio Shack’s racially based hiring practices were based on bona fide occupational qualifications.TrueFalse

7. Which of the following would be a possible effect of Radio Shack’s racially based hiring practices?

a. sexual harassment b. disparate treatment c. hostile work environment d. validation e. improved morale

Chapter 11—Managing Human Resource Systems, Case Assignment: Radio Shack




8. As part of a background check, which of the following steps might Radio Shack have taken with former CEO David Edmondson?

a. Ask Edmonson if he had ever been fired for lying on job applications in the past.

b. Create a scenario to directly measure Edmondson’s capabilities to perform as a CEO.

c. Contact Heartland Baptist Bible College to verify that Edmonson had received the degrees he claimed.

d. Wire-tap Edmondson’s phone to monitor any suspicious activity.

e. Use a Behavioral Observation System to determine if Edmondson behaved like a CEO.

9. Unlike the case of David Edmondson, when an employee is terminated for non-job-related reasons, this is called:

a. validation. b. wrongful discharge. c. outplacement. d. employee turnover. e. functional turnover.

10. Radio Shack’s “workforce reduction notification” was part of its plan for:

a. outplacement services. b. employee compensation. c. job evaluation. d. downsizing. e. training.


1. What should you do to build trust and enhance employee morale?

2. What about recruiting and hiring processes? You wonder if RadioShack is hiring the right people. Background checks would be a good start, you think.

3. Even if you hire good people, how are you going to tell if they’re doing a good job? The performance-appraisal system of relative grading has got to go, but what should replace it?

4. And there’s surely going to be more restructuring, so you’ll need to establish procedures to communicate layoffs, and guidelines for dealing with laid-off employees and survivors. How do you handle the separation issue?

5. Finally, what can you do about RadioShack’s poor reputation? You know it will affect your ability to recruit high-quality applicants for management jobs.




Walgreens is the nation’s largest drugstore chain with annual sales of $47.4 billion. It operates 5,584 stores in 47 states and Puerto Rico and plans to have 7,000 stores by 2010. The plan was going very smoothly until March 2007, when the Equal Employment Opportunity Commission (EEOC) filed an employment discrimination class-action lawsuit against Walgreens, alleging widespread racial bias against thousands of African American workers. Robert Johnson, EEOC regional attorney in St. Louis, said, “Black managers are assigned to stores in black neighborhoods more often than one would expect, and black employees are not being promoted to management and within man-agement as often as similar white employees.”

Walgreens issued a statement saying, “As a com-pany with a history of commitment to fairness, diversi-ty, and opportunity, we are saddened and disappointed by the EEOC’s decision. Our commitment is to provid-ing opportunity to all employees—not only because it is the right thing to do but because our business was built on this principle.” Data compiled for the filing of the class-action lawsuit, however, suggest otherwise.

Certainly, pressure is building for Walgreens to address these issues. Both Walgreen’s minority employees and the public perceive the promotion dif-ferences as real and problematic, and even stockhold-ers are not happy. Regardless of the outcome of the class-action suit, something must be done.

The company’s current method for placing manag-ers and professionals to particular stores is simple—the demographics of store employees should closely mirror demographics of customers served by the store. Walgreens must redefine that policy because the company cannot claim bona fide occupational qualification (BFOQ) defense. According to case law, customer preferences are not grounds for a BFOQ defense. Thus Walgreens should stop considering race when making placement decisions.

Walgreens also needs to consider how to handle promotions, which is not easy. Even the use of objec-tive criteria such as store sales and profits, however, results in lower levels of promotion among minority managers. When store sales and profits are consid-ered as criteria for promotion, managers and profes-sionals in stores located in low-income neighborhoods will be disadvantaged. Because low-income neighbor-hoods have higher minority populations, and the man-agers are matched with stores according to neighbor-

hood demographics, managers at stores in low-income neighborhood locations will have fewer opportunities for advancement.

One alternative would be establishing a minority promotion quota, but unless ordered by a court, estab-lishing a minority promotion quota would not be legally sound. So, Walgreens should completely disregard race when making promotion decisions and instead pursue a good-faith strategy of identifying and eliminat-ing potential obstacles to promotion.

At the time of the filing of the lawsuit, Walgreens did not have a senior vice president of diversity, which many companies of comparable size and revenue have. Surveys indicate that, at a minimum, diversity-related efforts help avoid lawsuits and litigation costs. Creating a senior executive position solely responsible for diversity and related issues would help Walgreens manage diversity in a consistent—and beneficial—way throughout the company.


1. What was the major cause of Walgreens’ minority employees not getting promotions comparable to those of similarly qualified white employees?

a. Walgreens executives were racist and bigoted.

b. The managers denied promotions were lazy. c. Walgreens’ placement strategy put these

employees in stores located in poorer demographic areas.

d. Walgreens did not have a high enough minority promotion quota.

e. Walgreens did not have a chief diversity officer.

2. Race would be considered a: a. surface-level trait. b. deep-level trait. c. disability. d. social integration. e. diversity paradigm.

Chapter 12—Managing Individuals and a Diverse Workforce, Case Assignment: Walgreen’s




3. Walgreens said in its statement that “providing opportunity to all employees…is the right thing to do.” Such diversification practices are also:

a. very costly. b. legally unsound. c. strictly surface-level. d. good business sense. e. unable to be implemented.

4. Which of the following is not a surface-level diversity trait?

a. values/beliefs b. age c. gender d. race e. disability

5. Matching the demographics of store employees to the demographics of store customers is a bona fide occupational qualification.TrueFalse

6. Which of the following would not have been a useful course of action for Walgreens to pursue?

a. Eliminate race as a factor in placement considerations.

b. Pursue a good-faith strategy to identify and eliminate promotion obstacles.

c. Institute a minority promotional quota. d. Create an executive managerial position

dedicated to organization diversification. e. Shift the culture to the learning and

effectiveness paradigm.

7. Which of the following Diversity Principles would Walgreens’ placement policy violate?

a. Find the common ground. b. Reexamine, but maintain, high standards. c. Solicit negative as well as positive feedback. d. Set high but realistic goals. e. Tailor opportunities to individuals, not groups.

8. What are three possible practices a new vice president of diversity for Walgreens might implement?

a. skills-based diversity training, diversity audits, diversity pairing

b. diversity audits, diversity pairing, minority promotional quotas

c. minority promotional quotas, demographic based placement, surface-level diversity

d. agreeableness, emotional stability, conscientiousness

9. The EEOC, which was created under Title VII of the Civil Rights Act, oversees organizational diversity.TrueFalse

10. Minority promotional quotas would be an example of ____, while pursuing a strategy to identify and remove promotional obstacles would improve ____.

a. diversity audit; organizational plurality b. awareness training; emotional stability c. racial discrimination; social integration d. affirmative action; diversity e. organizational plurality; coaching

11. As Walgreens discovered, actively pursuing organizational diversity can:

a. cost a lot in additional organizational departments and positions.

b. help avoid lawsuits and save money in potential litigation settlements.

c. improve sales through demographic analysis. d. increase employee emotional stability. e. increase employee retention.

12. To get beyond the issues of surface-level diversity, Walgreens might adopt a:

a. Learning and Effectiveness paradigm. b. Discrimination and Fairness paradigm. c. Access and Legitimacy paradigm.





1. What should Walgreens do to address these issues as it waits for the case to wind its way through the court system? Should the company continue to consider store location when making placement decisions? Or should it make a conscious attempt to completely disregard race and other demographics when assigning people to stores?

2. What about promotion decisions? Should the company reserve a percentage of promotions for minorities? Or should it completely ignore race in making promotion decisions?

3. Finally, what changes does Walgreens need to make in its organizational structure and company leadership so that these issues aren’t problems in the future?



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