Due to multiple expected development benefits, through tax reformation and policy planning to foreign investors will attracting foreign direct investment (FDI) which has been a key objective on sustainable industrial development and economy growth general although this is not the only factors, find out more on details below.
Therefore, in order to attract FDI which is very important on brings foreign currencies governments have to offer various incentives, including fiscal incentives such as reduced corporate tax rates, financial incentives such as grants and preferential loans, and monopoly rights with the possibility of neighboring countries engaging in harmful competition the so called race to the bottom.
Understanding economic growth, And why is it so important?
This article presents the data and research to make progress against the world’s largest problems.
This post draws on data and research discussed in our entries on Income Inequality, Global Extreme Poverty and Economic Growth.
Good health, a place to live, access to education, nutrition, social connections, respect, peace, human rights, a healthy environment, happiness. These are just some of the many aspects we care about in our lives.
At the heart of many of these aspects that we care about are needs for which we require particular goods and services: think of those that are needed for the goals on that list above – the health services from nurses and doctors, the home you live in, or the teachers that provide education.
Poverty, prosperity, and growth are often measured in monetary terms, most commonly as people’s income. But while monetary measures have some important advantages, they have the big disadvantage that they are abstract. In the worst case monetary measures – like GDP per capita – are so abstract that we forget what they are actually about: people’s access to goods and services.
The point of this text is to show why economic growth is important and how the abstract monetary measures tell us about the reality of people’s material living conditions around the world and throughout history:
• In the first part I want to explain what economic growth is and why it is so difficult to measure.
• In the second part I will discuss the advantages and disadvantages of several measures of growth and you will find the latest data on several of these measures so that we can see what they tell us about how people’s material living conditions have changed.
What are these goods and services that I’m talking about?
Have a look around yourself right now. Many of the things you see are products that were produced by someone so that you can use them: the trousers you are wearing, the device you are reading this on, the electricity that powers it, the furniture around you, the toilet that is nearby, the sewage system it is connected to, the bus or car or bicycle you took to get where you are, the food you had this morning, the medications you will receive when you get sick, every window in your home, every shirt in your wardrobe, and every book on your shelf.
At some point in the past many of these products were not available. The majority did not have access to the most basic goods and services they needed. A recent study on the history of global poverty estimates that just two centuries ago roughly three-quarters of the world “could not afford a tiny space to live, food that would not induce malnutrition, and some minimum heating capacity.”
A few centuries ago the only way to produce a book was for a scribe to copy it word-for-word, by hand. Book production was a slow process; it took a scribe about eight months of daily work to produce a single copy of the Bible.It was so laborious that only very few books were produced. The chart shows the estimates of historians.
But then in the 15th century the goldsmith Johannes Gutenberg combined the idea of movable letters with the mechanism that he knew from the wine presses in his hometown. He developed the printing press. Gutenberg developed a new production technology and it changed things dramatically. Instead of spending months to produce one book, a worker was now able to produce several books a day.
As the printing press spread across Europe, book production soared. Books, which were previously only available to a tiny elite, became available to more and more people.
This is one example of how growth is possible and what economic growth is: an increase in the production of goods and services that people produce for each other.
Before we get to a more detailed definition of economic growth, it’s helpful to remind ourselves of the astonishingly wide range of goods and services that people produce. I think this is helpful because measures of economic output can easily become abstract. This abstraction means we easily lose the mental connection to the goods and services such measures actually talk about.
This list of goods and services isn’t meant as a definitive list, but it helped me to think about the relevance of poverty and growth:
At home: Light in your home at night; the sewage system; a shower; vacuum cleaner; fridge; heating; air conditioning; electricity; windows; a toilet – even a flush toilet; soap; a balcony or a garden; running water; warm water; cutlery and dishes; a hut – or even a warm apartment or house; an oven; sewing machine; a stove (that doesn’t poison you); carpet; toilet paper; trash bags; music recordings or even online streaming of the world’s music and film; garbage collection; radio; television; a washing machine; furniture; telephone; a comfortable bed and a room for one’s own.
Food: The most fundamental need is to have enough food. For much of human history a large share of people suffered from hunger and millions still do.
But we also need to have a richer and varied diet to get all of the nutrients we need, unfortunately billions still suffer from micronutrient deficiency.
Also, think of clean drinking water; reliable markets and stores with a wide range of available goods; food that rarely poisons you (pasteurized milk, for example); spices; tea and coffee; kitchen utensils and practical ingredients (from a bag of flour to canned soups or a yogurt); chocolate and sweets; fresh fruit and vegetables; bread; take-away food or the possibility to go to a restaurant; ways to protect your food from spoiling (from the cold chain that delivers the goods to the cellophane to wrap it with); wine or beer; fertilizer (very important); and tractors to work the fields.
Knowledge: Education from primary up to university level; books; data that allows us to understand the world around us; newspapers; vocational training; kindergartens; and scientific knowledge to understand ourselves and the world around us.
Infrastructure: Public transportation with buses, subways, and trains; roads; paved roads; airplanes; bridges; financial services (including bank accounts, ATMs, and credit cards); cities; a network of competent workers that can help you to fix problems; postal services (that delivers fast); national parks; street cleaning; public swimming pools (even private pools); firefighters; parks; online shopping; weather forecasts; and a waste management system.
Tools and technologies: Pencils, ballpoint pens, and paper; lawnmowers; cars; car mechanics; bicycles; power tools like drills (even battery-powered ones); a watch; computers and laptops; smartphones (with GPS and a good camera); being able to stay in touch with distant friends or family members (or even visiting them); GPS; batteries; telephones and mobiles; video calls; WiFi; and the internet right here.
Social services: Caretakers for those who are disabled, sick, or elderly; protection from crime; non-profit organizations financed by the public, by donations or by philanthropies; insurances (against many different risks); and a legal system with judges and lawyers that implement the rule of law.
There are also a wide range of transfer payments, which in themselves are not services (they are transfers), but which become more affordable as a society becomes more prosperous: sick leave and disability benefits; unemployment benefits; and being able to help others with a regular donation of some of your income to an effective charity.
Life and free time: tents; travel and holidays; surfboards; skis; board games; hotels; playgrounds; children’s toys; courses to learn hobbies (from painting to musical instruments or courses on the environment around us); a football; pets; the cinema, theater or a music concert; clothes (even comfortable and good-looking ones that keep you warm and protect you from the rain); shoes (even shoes for different purposes); shoe repair; the contraceptive pill and the ability to choose if and when to have children; sports classes from rock climbing to pilates and yoga; cigarettes (not all goods that people produce for each other are good for them); a musical instrument; a camera; and parties to celebrate life.
Health and staying well: Dentists; antibiotics; surgeries; anesthesia; mental health care from psychologists and psychiatrists; vaccines; public sewage; a haircut; a massage; midwives; ambulances; modern medicine; band-aids; pharmaceutical drugs; sanitary pads; toothbrushes; dental floss (some do floss); disinfectants; glasses; sunglasses; contact lenses; hearing aids; and hospitals – including very well-equipped, modern hospitals that offer
CT scans, which include intensive care units and allow heart or brain surgery or organ transplants.
Specific needs and wishes: Most of the products listed above are generally helpful to people. But often the goods and services that are most important to one individual are very specific.
As I’m writing this I have a big cast on my left leg after I broke it. These days I depend on products that I had no use for just three weeks ago. To move around I need two long crutches and to prevent thrombosis I need to inject a blood thinner every day. After I broke my leg I needed the service of nurses and doctors. They had to rely on a range of medical equipment such as X-ray machines. To get back on my feet I might need the service of physiotherapists.
We all have very specific needs or wishes for particular goods and services. Some needs arise from bad luck, like an injury. Others are due to a new phase in life – think of the specific goods and services you need when you have a baby or when you take care of an elderly person. And yet others are due to specific interests – think of the needs of a fisherman, or a pianist, or a painter.
All of these goods and services do not just magically appear. They need to be produced. At some point in the past, the production of most of them was zero, and even the most essential ones were extremely scarce. So if you want to know economic growth means for your life look at that list above.
What is economic growth?
So, how can we define what economic growth is?
A definition that can be found in so many publications that I don’t know which one to quote is that economic growth is “an increase in the amount of goods and services produced per head of the population over a period of time.”
The definition in the Oxford Dictionary is almost identical: “Economic growth is the increase in the production of goods and services per head of population over a stated period of time”. And the definition in the Cambridge Dictionary is similar. It defines growth as “an increase in the economy of a country or an area, especially of the value of goods and services the country or area produces.”
In the following footnote you find more definitions. Bringing these definitions together, and taking into account the economic literature more broadly, I suggest the following definition:
Economic growth describes an increase in the quantity and quality of the economic goods and services that a society produces.
I prefer a definition that is slightly longer than most others. If you want a shorter definition you can speak of ‘products’ rather than ‘goods and services’ and you can speak of ‘value’ rather than mentioning both the quantity and quality aspects separately.
What are economic goods and services?
Many definitions of economic growth simply speak of the production of ‘goods and services’ collectively. This bypasses a key difficulty in its definition and measurement. Economic growth is not concerned with all goods and services, but with a subset of them: economic goods and services.
In everything we do – even in our most mundane activities – we continuously ‘produce’ goods and services in some form. Early in the morning, once we’ve brushed our teeth and made ourselves toast, we have already produced one service and one good. Should we count the tooth-brushing and the toast-making towards the economic production of the country we live in? The question of where to draw the line isn’t easy to answer. But we have to draw the line somewhere. If we don’t, we end up with a concept of production that is so broad that it becomes meaningless; we’d produce a service with every breath we take and every time we scratch our nose.
The line that we have to draw to define the economic goods and services is called the ‘production boundary’. The sketch illustrates the idea. The production boundary defines those goods and services that we consider when we speak about economic growth.
For a huge number of goods or services there is no question that they are of the ‘economic’ type. But for some of them it can be complicated to decide on which side of the production boundary they fall. One example is the question of whether the production of illegal goods should be included. Another is whether production within a household should be included – should we consider it as economic production if we grow tomatoes in our backyard and make soup from them? Different authors and different measurement frameworks have given different answers to these questions.
There are some characteristics that are helpful in deciding on which side of the boundary a particular product falls. Economic goods and services are those that can be produced and that are scarce in relation to the demand for them. They stand in contrast to free goods, like sunlight, which are abundant, or those many important aspects in our lives that cannot be produced, like friendships. Our everyday language has this right: we don’t refer to the sun or our friendships as a good or service that we ‘produce’.
An economic good or service is provided by people to each other as a solution to a problem they are faced with and this means that they are considered useful by the person who demands it.
And a last characteristic that is helpful in deciding whether you are looking at an economic product is ‘delegability’. An activity is considered to be production in an economic sense if it can be delegated to someone else. This would include many of the goods and services on that long list we considered earlier, but would exclude your breathing, for example.
Because economic goods are scarce in relation to the demand for them, human effort is required to produce them. A shorter way of defining growth is therefore to say that it is an increase in the production of those products that people produce for each other.
The majority of goods and services on that long list above are uncontroversially of the economic type – everything from the light bulbs and furniture in your home to the roads and bridges that connect it with the rest of the world. They are scarce in relation to the demand for them and have to be produced by someone, their production is delegable, and they are considered useful by those who want them.
It’s worth recognizing that many of the difficulties in defining the production boundary arise from the effort to make measures of economic production as comparable as possible.
To give just one concrete example of the type of considerations that make the discussion about specific definitions so difficult, let’s look at how the production boundary is drawn in the housing sector.
Imagine two countries that are identical except for one aspect, home ownership. In Country A everyone rents their homes and the total sum of annual rents amounts to Tsh 2 billion per year. In Country B everyone owns their own home and no one pays rent. To provide housing is certainly an economic service, but if we only counted monetary transactions then we would get the false impression that the value of goods and services in Country A is Tsh 2 billion higher than in Country B. To avoid such misjudgment, the production boundary includes the housing services that are provided without any monetary transactions. In National Accounts, statisticians take into account the “imputed rental value of owner-occupied housing” – those households who own their home get assigned an imputed rental value. In the imagined scenario, these imputed rents would amount to Tsh 2 billion in Country B so that the prosperity of people in these two countries would be judged to be identical.
It is the case more broadly that National Account figures (like GDP) do include important non-market goods and services that are not included in household survey measures of people’s income. GDP does not only include the housing services by owner-occupied housing, but also the provision of most goods and services that are provided by the government or nonprofit institutions.
How can we measure economic growth?
Many discussions about economic growth are extraordinarily confused. People often talk past one another. I believe the reason for this is that the discussion of what economic growth is, gets muddled up with how it is measured.
While it is straightforward enough to define what growth is, measuring growth is very, very difficult.
In the worst cases measures of growth are mixed up with a definition of growth. Growth is often measured as an increase in income or inflation-adjusted GDP per capita. But these measures are not the definition of it – just like life expectancy is a measure of population health, but is certainly not the definition of population health.
To see how difficult it is to measure growth, take a moment to think about how you would measure it. How would you determine whether the quantity and quality of all economic goods and services produced by a society increased or decreased over time?
Finding a measure means that you have to find a way to express a huge amount of relevant information in a single metric. As the sketch shows, you have to first measure the quantity and quality of all the many, many goods and services that get produced and then find a way to aggregate all of these measurements into one summarizing metric. No matter what measure you propose for such a difficult task, there will always be problems and shortcomings of any proposal you might make.
In the following section I will show four possible ways of measuring growth and present some data for each of them to see how they can inform us about the history of material living conditions.
Measuring economic growth by tracking access to particular goods and services
One possible way to measure growth is to make a list of some specific products that people want and to see what share of the population has access to them.
We do this very often at Our World in Data. All of these statistics measure some particular aspect of economic growth.
The advantage of measuring growth in this way is that it is concrete. It makes clear what exactly is growing, and it’s clear which particular goods and services people gain access to.
The downside is that it only captures a small part of economic growth. There are many other goods and services that people want in addition to water, electricity, sanitation and cooking technology.
You could of course expand this approach of measuring growth to many more goods and services, but this is usually not done for both practical and ethical considerations.
One practical reason is that a list of all the products that people value would be extremely long. Keeping lists that track people’s access to all products would be a daunting task: hundreds of different toothbrushes, thousands of different dentists, hundreds of thousands of different dishes in different restaurants, and many millions of different books. If you wanted to measure growth across all goods and services in this way you’d soon employ half the country in the statistical office.
In practice any attempt to measure growth as access to particular products therefore means that you look only at a relatively small number of very particular goods and services that statisticians or economists are interested in. This is problematic for ethical reasons. It should not be up to the statisticians or economists to determine which few products should be considered valuable.
You might have realized this problem already when you read my list at the beginning of this text. You might have disagreed with the things that I put on that list and thought that some other goods and services are missing. This is why it is important to track incomes and not just the access to particular goods: measuring people’s income is a way of measuring the options that they have, rather than the choices that they make. It respects people’s judgment to decide for themselves what they find most important for their lives.
Measuring economic growth by tracking the ratio between people’s income and the prices of particular goods and services
To measure the options that a person’s income represents we have to compare their income with the prices of the goods and services that they want. We have to look at the ratio between income and prices.
Before the invention of the printing press in the 15th century the price was often as high as several months of work. The fact that books were unaffordable for almost everyone should not be surprising. It corresponds to what we’ve seen earlier, that it took a scribe several months to produce a single book.
This shows us how an innovation in technology raises productivity and how an increase in production makes it more affordable. How it increases the options that people have.
Global inequality: How do incomes compare in countries around the world?
In the previous section we measured growth as the ratio between income and the price for one particular good. But of course we could do the same for all the many goods and services that people want. This ratio – the ratio between the nominal income that people receive and the prices that people have to pay for the goods and services – is called ‘real income’.
Real income = Nominal income / price of goods and services
Real income grows when people’s nominal income increases or when the prices of goods and services decrease.
In contrast to many of the other metrics on Our World in Data, a person’s real income does not matter for its own sake, but because it is a means to an end. A means to many ends in fact.
Economic growth – measured as an increase of people’s real income – means that the ratio between people’s income and the prices of what they can buy is increasing: goods and services become more affordable, people become less poor. It is because a person has more choices as their income grows that economists care so much about these monetary measures of prosperity.
The two most prominent measures of real income are GDP per capita and people’s incomes as determined through household surveys.
Before we get back to the question of economic growth, let’s see what these measures of real income tell us about the economic inequality in the world today.
Both measures show that global inequality is very large. In a rich country like Denmark an average person can purchase goods and services for $47.80 in a day, while the average Ethiopian can only afford goods and services that cost $2.80 per day.
Both measures of real incomes in this chart are measured in ‘international-dollars’, which means that they take into account the level of prices in each country (using purchasing power parity conversion factors). This price adjustment is done in such a way that one international-$ is equivalent to the purchasing power of one US-$ in the US. An income of int.-$2.80 in Ethiopia, for example, means that it allows you to purchase goods and services in Ethiopia that would cost US-$2.80 in the US. All dollar values in this text are given in international dollars, even though I often shorten it to just the $-sign.
If you are living in a rich country and you want to have a sense for what it means to live in a poor country – where incomes are 20-times lower – you can imagine that the prices for everything around you suddenly increase 20-fold. If all the things you buy suddenly get 20-times more expensive your real income is 20-times lower. A loaf of bread doesn’t cost $2 but $40, a pair of jeans costs $400, and an old car costs $40,000. If you ask yourself how these price increases would change your daily consumption and your day-to-day life, you can get a sense for what it means to live in a poor country.
The two shown measures of real income differ:
Income as a measure of economic prosperity is much more abstract than the metrics we looked at previously. The comparison of incomes of people around the world in this scatterplot measures options not choices. It shows us that the economic options for billions of people are very low. The majority of the world lives on very low incomes of less than $20, $10, or even $5 per day. In the next section we’ll see how poverty has changed over time.
How does the income of the poorest compare with GDP per capita?
GDP per capita vs Daily income of the poorest 10%
GDP per capita vs Daily average income
Global poverty and growth: How have incomes changed around the world?
Economic growth, as we said before, describes an increase in the production of the quantity and quality of the economic goods and services that a society produces. The total income in a society corresponds to the total sum of goods and services the society produces – everyone’s spending is someone else’s income. This means that the average income corresponds to the level of average production so that the average income in a society increases when the production of goods and services increases.
Average production = average income
In this final section let’s see how incomes have changed over time, first as documented in survey incomes and then via GDP per capita.
Measuring economic growth by tracking incomes as reported in household surveys
The data shows that global poverty has declined, no matter what poverty line you choose. It also shows that the majority of the world still lives on very low incomes. As we’ve seen we can describe the same reality from the production side: the global production of the goods and services that people want has increased, but there is still not enough production of even very basic products. Most people in the world do not have access to them.
GDP per capita is a broader measure of real income and in contrast to survey income, it also takes government expenditures into account. A lot of thinking has gone into the construction of this very prominent metric so that it is comparable not only over time, but also across countries. This makes it especially useful as a measure to understand the economic inequality in the world as we’ve seen above.
Another advantage of this measure is that historians have reconstructed estimates of GDP per capita that go back many centuries. This historical research is an extremely laborious task and researchers have dedicated many years of work to these reconstructions. The ‘Maddison Project’ brings together these long-run reconstructions from various researchers and thanks to these efforts we have a good understanding of how incomes have changed over time.
It is no accident that the shape of this chart is very similar to the chart on book production at the beginning of this text – very low and almost flat for many generations and then quickly rising. Both of these developments are driven by changes in production.
Average income corresponds to average production and societies around the world were able to produce very few goods and services in the past. There were no major exceptions to this reality. As we see in this chart, global inequality was much lower than today: the majority of people around the world were very poor.
To get a sense for what this means you can again take the approach we’ve used to understand the inequality in the world today. When incomes in today’s rich countries were 20-times lower it was as if all the prices around you today would suddenly increase 20-fold. But in addition to this you have to consider that all the goods and services that were developed since then disappear – no bicycle, no internet, no antibiotics. All that’s left for you are the goods and services of the 17th century, but all of them are 20-times more expensive than today. The majority of people around the world, including in today’s richest countries, lived in deep poverty.
Just as we’ve seen in the history of book production this changed once new production technologies were introduced. The printing press was an exceptionally early innovation in production technology; most innovations happened in the last 250 years. The starting point of this rise out of poverty is called the Industrial Revolution.
The printing press made it possible to produce more books. The many innovations that make up the Industrial Revolution made it possible to increase the production of many goods and services. Compare the effort that it takes for a farmer to reap corn with a scythe to the possibilities of a farmer with a tractor or a combined harvester; or think of the technologies that made overland travel faster – from walking on foot to traveling in a horse buggy to taking the train or car; or think of the effort it took to build those roads that the buggies once traveled on with the modern machinery that allows us to produce the corresponding public infrastructure today.
The production of a myriad of different goods and services followed trajectories very similar to the production of books – flat and low in the past and then steeply increasing. The rise of average income that we see in this chart is the result of the aggregation of all these many production increases.
In the past, before societies achieved economic growth, the only way for anyone to become richer was for someone else to become poorer; the economy was a zero-sum game. In a society that achieves economic growth this is no longer the case. When average incomes increase it becomes possible that people become richer without someone else becoming poorer.
This transition from a zero-sum to a positive-sum economy is the most important change in economic history (I wrote about it here), and made it possible for entire societies to leave the extreme poverty of the past behind.
In the top left panel you can see how global poverty has declined as incomes increased; in the other eight panels you see the same all world regions separately. The starting point of each trajectory shows the data for 1820 and tells us that two centuries ago the majority of people lived in extreme poverty, no matter where in the world they were at home.
Back then it was widely believed that widespread poverty was inevitable. But this turned out to be wrong. The trajectories show how incomes and poverty have changed in each world region. All regions achieved growth – the production and quality of goods and services that people need increased – and the share living in extreme poverty declined.
This historical research was done by Michail Moatsos and is based on the ‘cost of basic needs’-approach as suggested by Robert Allen (2017) and recommended by the late Tony Atkinson.21 The name ‘extreme poverty’ is appropriate as this measure is based on an extremely low poverty threshold. It takes us back to what I mentioned at the very beginning; this historical research tells us – as the author puts it – that three-quarters of the world “could not afford a tiny space to live, food that would not induce malnutrition, and some minimum heating capacity.”
Since then all world regions have made progress against extreme poverty – some much earlier than others –, but in particular in Sub-Saharan Africa the share living in deep poverty is still very high.
The last two centuries were the first time in human history that societies have achieved sustained economic growth and the decline of global poverty is one of the most important achievements in history. But it is still a very long way to go.
That the world has made substantial progress but nevertheless still has a long way to go is the case for many of the world’s very large problems. I’ve written before that all three statements are true at the same time: The world is much better, the world is awful, and the world can be much better. This is very much the case for global poverty. The world is much less poor than in the past, but it is still very poor and it remains one of the largest problems we face.
Some writers suggest we can end poverty by simply reducing global inequality. This is not the case. I’m very much in favour of reducing global inequality and I hope I do what I can to contribute to this. But it is important to be clear that a reduction of inequality alone would still mean that billions around the world would live in very poor material conditions. Those who don’t see the importance of growth are not aware of the extent of global poverty. The production of many crucial goods and services has to increase if we want to end it. How much economic growth is needed to achieve this? This is the question I answered in this recent text.
To solve the problems we face, it is not enough to increase overall production. We also need to make good decisions about which goods and services we want to produce more of and which ones we want less of. Growth doesn’t just have a rate, it also has a direction and the direction we choose matters – for our own happiness and for achieving a sustainable future.
I hope this text was helpful in making clear what economic growth is. That it is necessary to remind ourselves of that is a consequence of the fact that we mostly talk about poverty and growth in monetary terms. The monetary measures have the disadvantage that they are abstract, perhaps so abstract that we even forget what growth is actually about and why it is so important. The goods and services that we all need are not just there – they need to be produced – and economic growth means that the quality and quantity of these goods and services increases, from the food that we eat to the public infrastructure we rely on.
The history of economic growth is the history of how societies leave widespread poverty behind by finding ways to produce more of the goods and services that people need – all the very many goods and services that people produce for each other: look around you right now.
Assessment on Social-Economic impacts of COVID-19 to Tanzania Economy 2020
In this article we will examine
We will also discuss the need for focusing less on “appraisal” (evaluation, judgment) and more on employee contribution to the company. Accepted wisdom would suggest that for a business company to function efficiently and effectively, the employees must work well toward meeting company goals and objectives. From a manager’s point of view, it would seem prudent to reward those employees whose performance contributes to company success.
Logically, performance appraisal systems need to be designed to motivate employees to improve performance and thus contribute to company productivity, effectiveness, and excellence. In practice, there are many problems. Few management activities have challenged and intrigued executives as much as performance appraisal has. To some, appraisal suggests supervisors sitting in judgment as “Roman emperors.” To others, performance appraisal is thought of as a method of manipulating employees and intruding into their lives.
SOME NEGATIVE CONNOTATIONS OF PERFORMANCE APPRAISAL
The problem may lie in the negative connotations of the words “performance appraisal.” Appraisal implies evaluation and making judgments as to the quality and quantity of an individual’s productivity. To make such an evaluation or a judgment, a certain yardstick has to be available to ascertain whether the individual has measured up to the performance level envisioned by the evaluator. How is one to compare the performance of one individual who has clearly exceeded the low standards he set for himself versus another individual who failed to meet the rather difficult standards she set for herself? Dimensions associated with the yardstick are variable, and procedures available to evaluate many of these dimensions are subjective and often not well understood by the employee or the supervisor.
DIFFICULTIES WITH EMPLOYEE APPRAISAL
When a supervisor appraises a subordinate, the process of appraisal can be analyzed as follows. First, the supervisor must have observed some performances. However, such observations in the case of R&D personnel are unlikely to be sufficiently coherent to be valid. If the supervisor were to observe a simple operation, he might be able to judge it. But R&D work is complex, and doing any one thing well is unlikely to provide a clue to the total performance. Thus, rather than observe an individual’s specific performance, the supervisor is much more likely to observe large chunks of performance, such as the presentation of a research plan or the completion of a project. Usually these are products of groups rather than individuals. It then becomes difficult to know how much the particular scientist has contributed to the group product.
Second, the observations must be integrated into some sort of “schema.” Unfortunately, there are several biases in the formation of such schemata. For example, research has shown that first impressions are extremely important. If the scientist has a good reputation, many acts that are ambiguous will be evaluated positively. Also, recent events tend to be given more weight in the formation of such schemata than events that occurred during the middle of the period of observation.
The fact that negative events are given more weight in such judgments than positive events creates a further bias. If the supervisor has observed ten events, and eight are positive and two are negative, the negative ones will be given more weight because they “stand out” as “figures” against the “background” of the eight positive events. This is because in our own lives we generally encounter few negative events, but when we do they are major negatives (e.g., loss of loved ones). On the other hand, although we encounter mostly positive events, they are seldom major positive events (e.g., getting married, winning a million dollars), and so we become especially vigilant about the negatives.
PERFORMANCE APPRAISAL AND THE MANAGEMENT SYSTEM
Performance appraisal needs to be linked to the managerial activities and the management system. It has categorized the management system into two distinct areas: The process of management includes activities such as planning, organizing, controlling, budgeting, and staffing, and the key orientation of these processes focuses on integrating (work activities), making decisions, recording information, motivating, and negotiating. The function of management includes procurement, production, adaptation, and so on. The orientations of these functions are adaptability, productivity, efficiency, and bargaining.
The managerial processes are concerned with the administration of inputs, while the managerial function deals with the way inputs produce outputs (production) that are important and relevant to the organization. Managerial processes respond to day-to-day problems, and primarily involve problem solving. The managerial functions, on the other hand, are concerned with prescribing specific operations, procedures, and standards for achieving a certain level of production or output.
PERFORMANCE APPRAISAL AND ORGANIZATIONAL STAGES
Some of the purposes of performance appraisal relate to management control and to achieving the congruence of organizational and individual goals and objectives. Management control and strategies for goal congruence also depend on
It has defined four stages of corporate development in terms of “the structure of operating units” (dependent variable) and “product-market relationships” (independent variable).
In a general sense,
At Stage 1, the organization has a single operating unit, producing a single line of products on a small scale.
At Stage 2, operating units increase and production becomes large scale, but the focus is still on a single line of product.
At Stage 3, operating units may be at different locations and decentralized, each producing different or related products using multiple channels of distribution.
At Stage 4, the number of autonomous units producing different products increases. Basically, as organizations move from Stage 1 to Stage 4, the number of autonomous operating units increases,
These units become geographically decentralized, and the operating units produce technologically different product lines or research outputs for diverse markets using multiple channels of distribution. As this development progresses the number of variables related to organizational products, operational centers, and market relationships increases. This would also point to the organization increasing in size (number of employees and volume of sales or the size of the research budget); it may, in some cases, lead to an increase in assets and profits. Management control at each of these four development stages is different. At the earlier stages, the organization is small, and one owner or director can oversee most of the activities. At later stages the organization grows in size and in number of products and may also be geographically dispersed.
As authority becomes decentralized, performance elements need to be designed differently, depending on the development stage of the organization. For example, performance elements could be less formal during the early stages of development and more structured and quantitative later. This approach was successfully used by Salter for four high-tech electronic firms. It should be used also by managers whenever they are setting up an appraisal system. Start by analyzing your situation. In what stage is your laboratory? Then design a system that fits your stage.
PERFORMANCE APPRAISAL AND COMPANY PRODUCTIVITY
Company productivity can be defined as the ratio of outputs to inputs. Inputs can be determined by the level of resources invested. Outputs can be conceived as income minus costs. For a profit-making organization, profitability can provide a good measure of the organization’s productivity. We must keep in mind that behavior is shaped by its consequences. If we want specific behaviors to occur, we need to use an appraisal system that rewards them when they occur. Output measures for a research organization can be subjective or objective, quantitative or non quantitative, and discrete or scalar and can include some measure of quality. While the measurement of quality requires extra effort and, at times, human judgment, this dimension of output should not be ignored. Since R&D organizations have multiple objectives and their outputs are often incommensurate, the output measures are usually non quantitative and subjective. Quantitative measures for the output elements are usually in different units, thus defying precise comparison between different quantitative outputs. It suggests that it might be feasible to combine a multidimensional array of indicators into aggregate units, which could then provide trends, indicators, and patterns of the individual (and organizational) output measures. One suggested categorization of output measures includes the following:
PERFORMANCE APPRAISAL AND MONETARY REWARDS
Giving monetary rewards to those who perform well seems logical enough. In an acquisitive and consumption-oriented modern society, higher pay satisfies basic human needs and more. For an individual, receiving monetary remuneration above what is required for basic human needs can also provide security, autonomy, recognition, and esteem. The motivation model, generally referred to as the expectancy model, suggests that high performance is likely to occur if the individual feels capable of achieving it, if pay is closely tied to performance level, and if the individual finds pay to be important (this would of course vary across individuals). In a research and development organization, indeed in most complex professional organizations, a number of reasons make tying pay inexorably to performance appraisal an imprudent approach:
IMPLEMENTATION STRATEGY WITH EMPHASIS ON EMPLOYEE CONTRIBUTION
The preceding discussion identified some of the underlying issues associated with the performance appraisal system. Commenting on performance appraisal, states that “few things have been more baffling to managers than the results of their attempts to develop workable performance measures and controls, thus channeling the energies of their employees towards the firm’s objectives.” Recognizing that many complex issues are involved in implementing a meaningful performance appraisal system, it is nevertheless useful to focus on three items:
Which styles of leadership bring out the best performance in a company, department, team, or project? Finding the perfect way to manage knowledge workers remains elusive. The study of leadership, however, has proposed a variety of approaches. Some researchers have spent a good deal of time observing the behavior of groups and the emergence of leaders. As a result, they have seen that the activities of leaders fall into two general categories. The first involves maintaining (M) the group by paying attention to the needs of the members and making sure that conflicts do not become serious.
The second involves the actual task that the group must perform (P), the definition of the task, how and when it is to be done, and so on. We can label these two types of activities consideration and structure. “Consideration” involves paying attention to people, being considerate of their needs and goals, being employee-oriented, and paying attention to the human factor. “Structure” refers to what is to be done and to where the group is going. What is to be accomplished? How is it to be accomplished? How can the activities of the members be controlled?
For each job setting, the identified behaviors that are P or M for that particular job. What fits one laboratory does not necessarily fit another. The talks to people in the job setting and asks each subordinate to describe the behavior of the leader and rate him or her on their M or P behaviors. The uses the symbols M and P for those who use many behaviors, and he uses m and p to indicate that the leader does few maintenance or production behaviors. This way, in each setting, The identified four kinds of leaders:
mp = little maintenance, little production
mP = little maintenance, a lot of production
Mp = a lot of maintenance, little production
MP = a combination of high maintenance and high production
An interesting finding is that a leader who is high in production behaviors and also does many maintenance behaviors is seen as providing “planning” or “expertise;” but the leader who does a lot of production behaviors and few maintenance behaviors is perceived as “pressuring for production.” Pressure for production is resisted. In short, the same behavior (production) is perceived differently depending on the context within which it appears.
In different cultures the behaviors that express M can be quite different. Research has shown, for instance, that “to criticize a subordinate directly, privately in your office” is seen as high M in the West and low M in Japan. In Japan one is supposed to criticize indirectly—for instance, by asking a colleague of the subordinate to convey the manager’s criticism to him or her—so that the subordinate will not lose face. People who observe groups note that leaders may specialize in one of these activities or may sometimes engage in both; or in the case of “great leaders,” they will perform both activities with great frequency. First providing general theory and then focusing on a company , this article covers:
IDENTIFYING YOUR LEADERSHIP STYLE
In characterizing the behavior of their supervisors, subordinates used similar ideas—for example, bossy or structured versus people-oriented or considerate. Similarly, when leaders are questioned, some claim that they pay attention to people and others say they focus on the task. As it turns out, however, the distinctions are not so clearly drawn. Extensive research by Fiedler (1967, 1986a) found that some people are task-motivated
when they are relaxed but person-motivated when they are under stress, while others show the opposite pattern—that is, they are person-motivated when relaxed and task-motivated when under stress. It might be useful to find out for yourself what kind of leader you are. To do that, look at Fiedler’s instructions in “Identifying Your Leadership Style” (Fiedler et al., 1977).
THEORIES OF LEADERSHIP AND LEADERSHIP STYLES
No leader can afford to ignore M and P behaviors. Ideally, leaders should do a lot of both. Supervisory behavior style impacts employee performance.
However, there are other leadership theories that suggest that in some situations the leader should emphasize one or another even more than is usual. Another way of looking at leadership is to say that the leader is supposed to supply what is necessary for the followers to reach their goals. This is called the path–goal theory of leadership. Basically, this theory argues that the way a leader acts should be determined by what the followers need. For example, if the followers do not know how to do the job, then it is necessary for the leader to be very structuring. If the followers have several needs that are not being met, then it is important for the leader to be especially considerate.
Consider the following different kinds of leadership styles:
LEADERSHIP IN R&D ORGANIZATIONS
While P behaviors of the leader are needed, most leaders do P, but many do not do enough M. M behaviors are especially important in R&D labs. However, subordinates still require a certain amount of guidance from the manager; otherwise their activities will become unrelated to the needs of the company have shown that when there is either excessive or insufficient autonomy, the contributions of the professional to the research organization are minimal. An intermediate amount of autonomy provides optimal conditions for the professional. Only then can the contributions of the scientist to the company be maximized.
Leadership in an business company is essentially a process of mutual influence between the supervisor and the employees. Knowledgeable workers don’t work toward a goal because someone else has set it. They work toward it because they believe that it is right. To bring a knowledge worker on board requires using multiple leadership styles. Based on mutual influence, Farris suggests four styles of leadership or supervision:
Leadership Style
The leadership style is a combination of abdication and delegation. All technical responsibility is delegated to the department heads, integration at the division level is minimal, and responsibility for decisions normally made at the division level is abdicated and passed on to a higher level—the laboratory director, Dr. Cole. His views are sought and essentially all decisions normally made by the division director are in fact made by the laboratory director. The behavior pattern of the division director is characterized by his readily admitting lack of technical competence, building strong alliances with selected research divisions, degrading division directors who may have distinguished scientific records, doing what the laboratory director, Dr. Cole, wants him to do, getting marching orders on all division operations from Dr. Cole, and taking zero risk.
Organization Performance
The company performance is fair. Increasingly, emphasis is on technical assistance instead of research. Innovative research programs never reach fruition; they are downgraded to technical assistance activities.
Leadership Problems
Clues to the existence of the problem manifest themselves via the leadership style and the behavior pattern in the division director and via lack of substantial innovation by the division over the years.
Organization Response
A company can cope with such problems in a number of ways. Before discussing that, it might be useful to see how such a situation arose.
LEADERSHIP IN A CREATIVE RESEARCH ENVIRONMENT
In a business company, a person holding an important leadership position would normally have a significant business program. In many U.S. government departments and in industry, some individuals have oversight responsibility for the business Company, although they are not involved in business program execution. It is therefore useful to focus on those leadership and managerial aspects that are directly involved in managing and executing an important business program involving a significant number (say 50 or more).
Managerial economics applies economic theory and methods to business and administrative decision making. Managerial economics prescribes rules for improving managerial decisions. Managerial economics also helps managers recognize how economic forces affect organizations and describes the economic consequences of managerial behavior. It links economic concepts with quantitative methods to develop vital tools for managerial decision making.
Managerial economics identifies ways to efficiently achieve goals. For example, suppose a small business seeks rapid growth to reach a size that permits efficient use of national media advertising. Managerial economics can be used to identify pricing and production strategies to help meet this short-run objective quickly and effectively. Similarly, managerial economics provides production and marketing rules that permit the company to maximize net profits once it has achieved growth or market share objectives.
Managerial economics has applications in both profit and not-for-profit sectors. For example, an administrator of a nonprofit hospital strives to provide the best medical care possible given limited medical staff, equipment, and related resources. Using the tools and concepts of managerial economics, the administrator can determine the optimal allocation of these limited resources.
In short, managerial economics helps managers arrive at a set of operating rules that aid in the efficient use of scarce human and capital resources. By following these rules, businesses, nonprofit organizations, and government agencies are able to meet objectives efficiently.
Making the Best Decision
To establish appropriate decision rules, managers must understand the economic environment in which they operate. For example, a grocery retailer may offer consumers a highly price-sensitive product, such as milk, at an extremely low markup over cost—say, 1 percent to 2 percent—while offering less price-sensitive products, such as nonprescription drugs, at markups of as high as 40 percent over cost. Managerial economics describes the logic of this pricing practice with respect to the goal of profit maximization. Similarly, managerial economics reveals that auto import quotas reduce the availability of substitutes for domestically produced cars, raise auto prices, and create the possibility of monopoly profits for domestic manufacturers. It does not explain whether imposing quotas is good public policy; that is a decision involving broader political considerations. Managerial economics only describes the predictable economic consequences of such actions.
Managerial economics offers a comprehensive application of economic theory and methodology to management decision making. It is as relevant to the management of government agencies, cooperatives, schools, hospitals, museums, and similar not-for-profit institutions as it is to the management of profit-oriented businesses. Although this text focuses primarily on business applications, it also includes examples and problems from the government and nonprofit sectors to illustrate the broad relevance of managerial economics.
Organizing is the development of the company resources to achieve strategic goals. The deployment of resources is reflected in the company division of labor into specific departments and jobs, formal lines of authority, and mechanisms for coordinating diverse company tasks.
Organization structure
The organizing process leads to the creation of organization structure, which defines how tasks are divided and resources deployed. Organization structure is defined as:
A. Organization chart
The set of formal tasks and formal reporting relationships provides a framework for vertical control of the organization. The characteristics of vertical structure are portrayed in the organization chart, which is the visual representation of an organization’s structure.
The plant has four major departments—accounting, human resources, production, and marketing. The organization chart delineates the chain of command, indicates departmental tasks and how they fit together, and provides order and logic for the organization. Every employee has an appointed task, line of authority, and decision responsibility.
B. Work Specialization
Organizations perform a wide variety of tasks. A fundamental principle is that work can be performed more efficiently if employees are allowed to specialize. Work specialization, sometimes called division of labor, is the degree to which organizational tasks are subdivided into separate jobs. Employees within each department perform only the tasks relevant to their specialized function. When work specialization is extensive, employees specialize in a single task. Jobs tend to be small, but they can be performed efficiently. Work specialization is readily visible on an automobile assembly line where each employee performs the same task over and over again. It would not be efficient to have a single employee build the entire automobile, or even perform a large number of unrelated jobs.
Despite the apparent advantages of specialization, many organizations are moving away from this principle. With too much specialization, employees are isolated and do only a single, boring job. In addition, too much specialization creates separation and hinders the coordination that is essential for organizations to be effective. Many companies are implementing teams and other mechanisms that enhance coordination and provide greater challenge for employees.
C. Chain of Command
The chain of command is an unbroken line of authority that links all persons in an organization and shows who reports to whom. It is associated with two underlying principles. Unity of command means that each employee is held accountable to only one supervisor. The scalar principle refers to a clearly defined line of authority in the organization that includes all employees. Authority and responsibility for different tasks should be distinct. All persons in the organization should know to whom they report as well as the successive management levels all the way to the top. The payroll clerk reports to the chief accountant, who in turn reports to the vice president, who in turn reports to the company president.
D. Authority, Responsibility, and Delegation
The chain of command illustrates the authority structure of the organization. Authority is the formal and legitimate right of a manager to make decisions, issue orders, and allocate resources to achieve organizationally desired outcomes. Authority is distinguished by three characteristics:
authority because of the positions they hold, and other people in the same positions would have the same authority.
and luck. When managers have authority exceeding responsibility, they may become tyrants, using authority toward frivolous outcomes.
E. Accountability
Accountability is the mechanism through which authority and responsibility are brought into alignment. Accountability means that the people with authority and responsibility are subject to reporting and justifying task outcomes to those above them in the chain of command. For organizations to function well, everyone needs to know what they are accountable for and accept the responsibility and authority for performing it. Accountability can be built into the organization structure. For example, at Whirlpool, incentive programs tailored to different hierarchical levels provide strict accountability. Performance of all managers is monitored, and bonus payments are tied to successful outcomes. Another example comes from Caterpillar Inc., which got hammered by new competition in the mid-1980s and reorganized to build in accountability.
F. Span of Management
The span of management is the number of employees reporting to a supervisor. Sometimes called the span of control, this characteristic of structure determines how closely a supervisor can monitor subordinates. Traditional views of organization design recommended a span of management of about seven subordinates per manager. However, many lean organizations today have spans of management as high as 30, 40, and even higher. For example, at Consolidated Diesel’s team-based engine assembly plant, the span of management is 100.11 Research over the past 40 or so years shows that span of management varies widely and that several factors influence the span.12 Generally, when supervisors must be closely involved with subordinates, the span should be small, and when supervisors need little involvement with subordinates, it can be large. The following section describes the factors that are associated with less supervisor involvement and thus larger spans of control.
G. Delegation
Some top managers at Caterpillar had trouble letting go of authority in the new structure because they were used to calling all the shots, but the new structure was an important part of returning the company to profitability. Another important concept related to authority is delegation. Delegation is the process managers use to transfer authority and responsibility to positions below them in the hierarchy. Most organizations today encourage managers to delegate authority to the lowest possible level to provide maximum flexibility to meet customer needs and adapt to the environment. However, as at Caterpillar, many managers find delegation difficult. When managers can’t delegate, they undermine the role of their subordinates and prevent people from doing their jobs effectively.
H. Line and Staff Authority
An important distinction in many organizations is between line authority and staff authority, reflecting whether managers work in line or staff departments in the organization’s structure. Line departments perform tasks that reflect the organization’s primary goal and mission. In a software company, line departments make and sell the product. In an Internet-based company, line departments would be those that develop and manage online offerings and sales. Staff departments include all those that provide specialized skills in support of line departments. Staff departments have an advisory relationship with line departments and typically include marketing, labor relations, research, accounting, and human resources.
I. Line authority
Line authority means that people in management positions have formal authority to direct and control immediate subordinates. Staff authority is narrower and includes the right to advise, recommend, and counsel in the staff specialists’ area of expertise. Staff authority is a communication relationship; staff specialists advise managers in technical areas. For example, the finance department of a manufacturing firm would have staff authority to coordinate with line departments about which accounting forms to use to facilitate equipment purchases and standardize payroll services.
J. Centralization and Decentralization
Centralization and decentralization pertain to the hierarchical level at which decisions are made. Centralization means that decision authority is located near the top of the organization. With decentralization, decision authority is pushed downward to lower organization levels. Organizations may have to experiment to find the correct hierarchical level at which to make decisions. For example, most large school systems are highly centralized. However, a study by William Ouchi found that three large urban school systems that shifted to a decentralized structure giving school principals and teachers more control over staffing, scheduling, and teaching methods and materials performed better and more efficiently than centralized systems of similar size.
In the United States and Canada, the trend over the past 30 years has been toward greater decentralization of organizations. Decentralization is believed to relieve the burden on top managers, make greater use of employees’ skills and abilities, ensure that
decisions are made close to the action by well-informed people, and permit more rapid response to external changes. However, this trend does not mean that every organization should decentralize all decisions. Managers should diagnose the organizational situation and select the decision-making level that will best meet the organization’s needs.
A good example of how decentralization can help cope with rapid change and uncertainty occurred following Hurricane Katrina. Mississippi Power restored power in just 12 days thanks largely to a decentralized management system that empowered people at the electrical substations to make rapid on-the-spot decisions.
Top executives at New York City Transit are decentralizing the subway system to let managers of individual subway lines make almost every decision about what happens on the tracks, in the trains, and in the stations. Decentralization fits the strategy of responding faster and more directly to customer complaints or other problems. Previously, a request to fix a leak causing slippery conditions in a station could languish for years because the centralized system slowed decision making to a crawl. Taking the opposite approach, Procter & Gamble recentralized some of its operations to take a more focused approach and leverage the giant company’s capabilities across business units.
When Honda could not get agreement among divisions about new car models, President Nobuhiko Kawamoto made the decision himself.
Goals determine a substantial amount of human behavior. Motivation to achieve these goals is a major factor in a business company and in any organizational effectiveness. For these reasons we devote a full post to this topic to show the relationship between individual goal and company goal and how does motivations take place through it. Individuals have goals and organizations have goals.
For maximal business company effectiveness it is important to make these two sets of goals compatible. In fact, that is the major role of management. The business company manager must have a clear understanding of both sets of goals and find ways to make them similar, overlapping, and at least non contradictory. Business company effectiveness depends on
One must have adequate skills and abilities and proper training, and there must be a good match between the individual and the business company goals. Coordination depends on adequate communication, and it can be improved when there is participation by employees in decisions that affect them and when company goals overlap with personal ones.
In order to understand performance better, it is useful to focus on a model that links the probability of an act to particular determinants.
For our purposes here an act is a short sequence of behaviors that eventually results in some outcome, such as the publication of a paper or the development of a good research design. In other words, we are using the word “act” in a very specific way. Hundreds of these acts are necessary to produce a publication or to develop a product. What we are trying to understand is what makes these small acts more or less probable. Actions have results that are evaluated, and considered as the outcomes of action that may satisfy individual needs.
Two variables are important in this case: previous habits and self-instruction. For example, when a person says, “I should look up these references,” that is a self-instruction or behavioral intention. Research has shown that behavioral intentions predict behaviors quite well. The model thus states that the probability of an act is dependent on two kinds of variables: habits and behavioral intentions.
However, even when people have the proper habits and intentions to carry out a particular act, they may fail to do so because external conditions may not be favorable. We utilize the concept of facilitating conditions in order to explain the phenomenon that even though the individual may have all that is required, the act may not occur. Reasons beyond the intentions of the individual may not allow it. For example, there may be a lack of proper equipment or there may be distractions in the environment. Facilitating conditions can be measured both with data obtained “outside the individual” (e.g., by asking objective observers, who know the conditions of work well, to judge if the act can occur) and with data obtained from “inside the individual,” by measuring the individual’s sense of “self-efficacy.” This can be measured by asking the individual, “Can you do that?” A scale can be constructed that measures the individual’s beliefs that the behavior can take place under different kinds of circumstances. The circumstances described in the scale can be more and more difficult. Those who think that they can do the behavior under the most difficult circumstances are highest in self-efficacy.
Thus, a high sense of self-efficacy is an especially important facilitating condition. For instance, we can ask, “Can you solve this equation?” A person who says no is very low in self-efficacy. Those who answer yes are higher in self efficacy. A person who says yes when the question is “Can you solve this equation when you are waiting to board a plane in a noisy airport?” is very high in self efficacy. Consider a more specific example. If a person said, “I will look up this reference,” but the book that contains the particular reference is not around, the probability that the act will occur decreases. Facilitating conditions modify the probability that habit and intention in them will result in the act. They reflect the situation within which behavior may occur.
Determinants of Habits
What are some of the variables that determine a habit? Habits build up as a result of previous rewards. We call such rewards “reinforcements” because they reinforce the link between stimulus conditions and behavior. Behavior is a function of its consequences. As people engage in a particular behavior in the presence of a certain configuration of stimuli, and when desirable events follow the behavior, the probability increases that the configuration of stimuli will in the future produce the same behavior. The behavior eventually becomes automatic, without thinking. When this happens, we say that the act has become “overlearned” and occurs under the control of habits. In that case, behavioral intentions are not relevant as explanations of the behavior.
Determinants of Intentions
Let us now examine what determines behavioral intentions. Three classes of variables are relevant for the determination of behavioral intentions: social factors, act satisfaction, and perceived consequences.
Social Factors. Social factors include norms, roles, self-concept of the person, and interpersonal agreements.
Act Satisfaction. The second class of variables that determines behavioral intentions is satisfaction associated with the act itself. Many acts are enjoyable in themselves, such as eating certain types of foods, playing the piano, or working on computer problems. Often such acts associated with pleasure have been formed through classical conditioning. In other words, the activity itself was associated with pleasant events in the past and is pleasant to think about, so this factor involves affect (emotion) toward the behavior itself. This affect motivates the person to self-instruct to do the act, and this in turn becomes the behavioral intention that causes the behavior. Working on a challenging research project or working with a noted scientist could fall in this category.
Facilitating Conditions
There are a number of factors that facilitate the performance of a behavior. Most of them are situational, such as helpful conditions, the right setting, or access to the resources needed to carry out the behavior. However, there are also internal conditions over which the individual does not have much control, such as the person’s physiological state (e.g., hormonal balance), beliefs that the behavior is possible and likely to lead to the successful reaching of goals (sense of self efficacy), and the level of difficulty of the task relative to the person’s ability. For instance, no matter how intensive a researcher’s intention to invent a new product, and how brilliant the past record of inventions (habits), there are situations in which no invention will be possible because the person is feeling depressed, or he or she believes that they are not able to have a new idea, or the task is much too difficult relative to the available talent. Some of these conditions can be measured objectively, and others may be estimated by objective observers of the total situation. The point about the F component of Equation 1 is that when it is zero, it can bring the probability of the act to zero, no matter how high the levels of habits or intentions.
People are more motivated if they have clear goals and know how their job fits the goals of the business company than if they do not have this information. Thus, structuring the company for optimal communication can help individual motivation. There has been a good deal of literature on the question of how to expose members of research and development department to the information they need to have to do their jobs well. One concern has been the accessibility of technical literature to the members of the department.
A variety of factors can be used to motivate an individual. Nonetheless, individuals will be just that when it comes to personal motivations, motivations for performance were based around pay and benefits, recognition, and opportunities for achievement. They concluded that motivations are dependent upon the employees and are likely to change within differing industries. Therefore the individual, company, and industry must be taken into account when motivators are applied.
The reason business company lack creativity or success is usually found in the nature and frequency of the rewards that are being distributed. Rewards can be given every month, such as salary, but this is not nearly as motivating as rewards that occur with a variable schedule. There is evidence that a variable schedule of rewards is much more motivating than one that occurs on a regular basis. Receiving recognition after each publication is less effective than getting a major recognition following a series of publications. While motivation is an important aspect of individual performance, we must not neglect to mention that the availability of proper skills and adequate training is also crucial to good performance. Furthermore, the rewards that the person receives from the business company should be tied to company performance.
Otherwise, the person may function extremely effectively, but his or her performance may have no impact on the company. Consider, for example, the case of an employee who is inspired on the job to invent something that could make a million dollars. However, the organization has neither the need for such a product nor the resources to take advantage of the invention. Such a person is performing well at the individual level, but not at the organizational level. The most important principles of compensation are
Equity is achieved by making sure that employees are rewarded according to their education and merit. Competitiveness requires salary surveys. Links to performance are difficult to establish but are important. Specifically, if salary is the major means of compensation, it does not correlate sufficiently to performance. Bonuses do so much more. Systems of compensation that review the employee’s achievements every few months and that provide a raise according to the outcomes of these reviews link compensation and performance even more effectively.
Business company effectiveness does depend on individual motivation and individual effectiveness. It obviously depends on individual performance, but it also depends on communication and coordination among individuals as well as between the individual and the company. Techniques such as gain sharing and profit sharing bring the goals of the individual and the company into line with each other and are also methods for motivating the individual. One of the most successful plans to motivate employees has been developed by Lincoln (1951) and involves profit sharing.
In addition, openness of information is necessary so that the individual knows what the company expects and hopes to get from him. Job rotation can help the individual get a better feel for what the business company is trying to achieve, and intrinsic rewards (getting a kick out of doing the job) that are tied to individual performance can help the individual line up his or her own rewards and goals with the goals of the business company.
Finally, designing jobs in such a way that individuals have a sense of control over their activities is very important. Individuals must feel that a lot of what they do is consistent with their goals. Thus, the individual should have a certain amount of choice. Individuals who see themselves as having some alternatives are much more satisfied and have a greater sense of control than individuals who are told “this is it.” Having only one alternative is demotivating.
The basic elements required for a business company to develop are
These three basic ingredients have to be coordinated with skill by the management of research and development in a business company in order to achieve high productivity and excellence. In this lesson we will cover some of the introductory topics concerning these basic elements. In the next lesson we will focus more specifically on the task of coordinating and managing.
It is obvious that the most important element is creative people. Such people have the bright ideas and skills to do develop ideas and then translate ideas results into useful products. However, these people must be organized into structures that permit effective cooperation. In doing so it is important to keep in mind that certain mixes of people work better than others. To ensure a smoothly functioning organization, one need unstated assumptions, beliefs, norms, and values—in other words, an organizational culture that will favor creativity and innovation. Last, but not least, one needs funds.
People in Business Company normally would have graduate training and relatively high aptitude. They are socialized during their graduate training to work autonomously and show considerable initiative. An anecdote will help convey more clearly what is special about personnel. There are identified four different personality traits relevant to business in order to develop:
Ideas in a business company are generated through research and development process, research and development brings knowledge and innovation. The personnel in a business company need to be technically competent in one or more fields and have the ability to conceptualize. They must be comfortable with abstract thinking and have a real interest in Business Company.
An invention is an idea, a concept, a sketch, or a model for a new or improved product, device, process, or system. Inventing is the creation of new knowledge or new ideas. The innovation process is the integration of existing technology and inventions to create a new or improved product, process, or system. Innovation in the economic sense is accomplished through the first utilization and commercialization of a new or improved product, process, or system. Various business companies look at the overall innovation process differently.
In a general sense, the innovation process includes
The innovation process integrates project need, invention and development, and technology transfer. Ideas and concepts are generated in each of these three major stages; the innovation process is accomplished when these three stages culminate in the utilization and commercialization of a new or improved product, process, or system.
The culture of an organization relates to both objective and subjective elements. For a business company , objective elements such as research department facilities and equipment and office buildings are different from those of other business company. Subjective elements such as rules, laws, standard operating procedures and unstated assumptions, values, and norms for an R&D organization are also different. For example, scientific discoveries, whatever their source, are subjected to impersonal judgments, and scientists often participate in organized skepticism and critically evaluate scientific ideas and discoveries.
This permeates all aspects of a business function. Management decisions affecting individuals are thus critically evaluated and questioned by the researchers. After attending a senior management conference, a newly assigned deputy administrator of a federal research organization stated that he had never worked in a business company where people were so vocal and where management decisions were reviewed and discussed as openly and fully.