Business Case #4 Marketing - A Tool to Create Public Value.docx

Business Case #4
Marketing - A Tool to Create Public Value
This note provides an overview of the elements of marketing
strategy, and explains how they can
be applied in the public and not-for-profit sectors. Elements
necessary for a successful marketing
strategy (segmentation, pricing (including price discrimination),
product design,
place/distribution, and promotion) are examined, and then
applied to public sector examples, such
as: NYC’s Municipal Identification Card program, a
hypothetical needle exchange program, and
mass transit systems. This note concludes with practical advice
for implementing a marketing
strategy.
One sentence summary of the objective of this note: This note
provides a primer, for public sector
and not-for-profit leaders, about how governmental and
nonprofit entities can utilize marketing
concepts to better serve the public interest.

Business Case #4
Introduction
Marketing is often assumed to be useful only to profit-
maximizing institutions. In reality,
marketing is also a high impact set of tools for creating, and
maximizing, public and social value
(collectively, for our purposes, Public Value). Without a robust
marketing strategy, government
will certainly fail to deliver the maximum possible Public
Value, and may fail to deliver any Public
Value at all.

As one example, New York City (NYC) plans to issue a
Municipal ID Card (the Card) to assist
residents lacking government-issued identification. This
proposal immediately raises several
marketing-related questions:
– Which segments or groups of residents will
benefit most from this new
initiative (i.e., who should be targeted)? Some groups
(identified by NYC) that would
benefit from the Card include: undocumented immigrants, the
homeless, and transgender
individuals. However, NYC has purposely decided to design the
Card to also appeal to
other population segments (so the Card isn’t identified
primarily with any particular groups
of individuals). The segments that are selected will drive the
approach to Price, Product
Features, Place, and Promotion (collectively the 4Ps of
marketing, described in greater
detail below).
– Although it is desirable for the Card to be available
without charge that might not
be financially feasible. NYC has budgeted $8.4 million for the
Card initiative in its first

year (and $5.6 million annually thereafter). NYC’s population is
~8.3 million, so the more
popular the Card becomes, the more likely some resident
segments will have to pay for it.
Even if NYC can afford to set the price to $0 for a resident’s
original Card, other pricing
questions arise (e.g., should residents have to pay for a
replacement Card, if their original
Card is lost or stolen)? Or, if NYC decides to charge a fee for
the original Card - should all
segments of the population be charged the same price? After all,
not everyone is equally
affluent, and the Card is not equally valuable to all residents.
For example, should the
indigent receive the Card for free, while more affluent residents
pay?
– The Card could be offered with just the
government identification
feature. However, the more features the Card has, the more
Public Value it will create and
the more likely the Card will come into general use. Additional
features currently being
debated include use as: a library card, museum- entry/discount
card, mass transit access

card, bank debit card, and many others. Some features will be of
interest to multiple
segments; other features may have a more narrow appeal.
Consequently, NYC’s
segmentation analysis (e.g., selecting which communities will
be targeted) will drive the
product design. Additional features, however, usually come at
an increased cost.
– Where and how can residents apply for the Card?
Where will the Card be issued
after an application is approved? While tempting (and relatively
inexpensive) to propose
that residents apply online and the Card will be mailed to them,
many disadvantaged
communities have limited Internet access. Further, homeless
individuals might not have
reliable access to postal delivery. The segments NYC aims to
serve will certainly drive the
distribution system. In general, the more complex the
distribution system, the higher the
costs will be.
Business Case #4

– Unless acquiring/using a government
product/service is mandatory (e.g., all
NYC residents must obtain a Card), that product or service must
be promoted to stimulate
both awareness and adoption. (Even if mandatory, it might be
important to communicate
the consequences of not adopting the government
product/service.) If one targeted
population is the homeless resident segment, promotional
material must be distributed at
locations and in media easily accessed by that population. If
Hispanics are a target market,
the material should be prepared in Spanish, and so on. Again,
the segmentation drives the
promotion strategy. Finally, note that increased promotion will
almost inevitably come at
an increased cost.
Unless NYC properly addresses these issues, the Card program
will fail to deliver maximum Public
Value, or could even be a complete failure. Selecting the correct
segments to serve - and the
marketing mix (AKA, the 4Ps of marketing: Price, Product
Features, Place and Promotion) – will
be key elements of the Card’s marketing strategy.

The need to craft a marketing strategy isn’t merely a feature of
the Card proposal. A coherent
marketing strategy is an essential requirement for many
governmental and not-for-profit activities
that seek to create Public Value in the most effective and
efficient way possible, such as: public
health services (e.g., vaccination programs, needle exchanges),
workforce development activities,
or education.
In the prior paragraphs, we introduced the concept of Public
Value. Before discussing how to
design an effective marketing strategy, we must first consider
what we mean by Public Value, and
the goals of the public sector.
What Does the Public Sector Seek to Maximize?
Let’s first begin our discussion with a simpler problem, the goal
of a profit-maximizing private
sector entity. At its most basic level, the private sector seeks to
maximize profit (π), which is
revenues less costs:

Business Case #4
When considering this profit calculation, keep in mind that the
quantity sold will be a functio n of
the segments targeted and of the 4Ps (Price, Product Features,
Place and Promotion). In general,
the lower the price, the greater the quantity of product
demanded (sold). Further, the more desirable
the product attributes (e.g., the more features it has and the
greater its range of distribution), the
greater demand will be. But generally, these increased product
attributes come at an increased cost.
Now let’s progress to the more complex problem faced by the
public sector in seeking to maximize
Public Value (V). First, we define Public Value as the sum of
the Social Benefit (S) from the sale
of a product or service, plus the π (net profit or loss) that
results from engaging in this activity.
Typically, the public sector is willing to create public goods
and services at a loss, because some
positive S (Social Benefit) is associated with these activities.
But most government activities have

a Budget Constraint (B).
This results in two additional constraints for the public sector
that aren’t applicable to the private
sector. A private sector entity will attempt to maximize profits,
but the public sector’s proposed
activity must not require funds (or lose money) in excess of its
budget. And, above all, the Social
Benefit (S) to the public from undertaking this activity should
exceed the designated budget. So
we have that:
1. Social Benefit (S) must equal or exceed the Budget
Constraint (B) and
2. The net loss (if πB).
S (Social Benefit) increases as Price for the public sector
product or service decreases (intuitively,
the lower the Price, the greater the quantity of governmental
service/product sold at a lower price,
and presumably the greater the benefit). Further, the S (Social
Benefit) increases as we add Product
Features, make the product easier to purchase or use (i.e.,
Place), and/or do a better job promoting
the product or service. Because increasing these attributes
comes at a cost, costs generally increase

as we add desirable attributes. The government can also reduce
demand for governmental goods
and services by imposing non-financial costs (e.g., making the
service less easy to access, creating
a risk of embarrassment and/or loss of dignity in usage).
S can be measured in various ways. For example, the Social
Benefit of a major transportation
infrastructure project can be estimated by calculating the value
of commuting time saved, due to
Business Case #4
the improved infrastructure. S should also reflect any
externalities (positive or negative) created
by the product/service.
Returning to our discussion of the Card program, it has been
budgeted at $5.6 million per year
(after the first year), so this is effectively the ongoing Budget
Constraint (B). The program’s
managers know that their costs (minus revenues) must not
exceed this target. Further, the Mayor
and City Council presumably believe the Card proposal will
create annual Public Value in excess

of $5.6 million (assuming it reaches its targeted segments), or
they wouldn’t have authorized it.
Although NYC’s officials might not explicitly measure the
amount of Public Value created by the
Card, they likely have quantitative targets (e.g., X thousands of
homeless people will use the Card
by year Z) that become proxies for formally measuring the
surplus created.
In reality, it is rarely possible for public sector leaders to
directly solve these types of equations.
But, the power of this approach is its recognition that: most
public and not-for-profit activities seek
to maximize V (Public Value), subject to a Budget Constraint
(B), as well as other targets/goals
around Social Benefit (S); and that the marketing strategy is one
of the most powerful levers
available for creating Public Value.
Finally, as you can see, the public sector maximization problem
is considerably more complicated
than simply maximizing profits. To paraphrase Oscar Wilde- a
businessman can be content to
know the price of everything and the value of nothing; but the
public sector - in order to maximize
Public Value - needs to know the price of everything that has a

price, and be able to estimate t he
value of activities for which no market price exists.
Segmentation, Targeting and Positioning
The model introduced in the prior section assumes a
homogenous product, sold at a single price.
In practice, governments and public sector entities sometimes
must engage in segmentation,
targeting and positioning in order to maximize Public Value.
Segmentation means deciding what
are the relevant population segments (ideally, homogenous
within each segment, and
heterogeneous between segments). A government entity could
hypothetically identify hundreds of
population segments; but based on a calculation of Public
Value, the public sector leader must
prioritize which segments will be targeted in order to create the
maximum Public Value. Finally,
once the government entity has decided which segments will be
targeted, it must decide on product
positioning relative to other offerings available to the
segment(i.e., what does the product offer
that brings Public Value to the targeted segment).
The Card’s core feature (acting as government ID) may make it

attractive to certain population
segments (e.g., undocumented immigrants), but augmented
features may be necessary (e.g.,
museum access, serving as a library card) to draw in additional
segments. As noted above, each
segment should be internally homogenous (e.g., all
undocumented immigrants will find the
government ID feature desirable), but heterogeneous relative to
other segments. NYC might
identify many different segments that would potentially benefit
from the Card. In practice, a
government must target (prioritize) the segments on which it
seeks to expend its resources to obtain
the maximum Public Value, given the various priorities and
constraints.
Business Case #4
In reality, segmentation is never a perfect process, and some
residents might even be members of
multiple segments (e.g., an undocumented immigrant might be a
student, a commuter or a senior
citizen for purposes of the mass transit system’s segmentation).
The key points to remember about

segmentation are: (1) don’t treat the entire population as one
uniform group , and (2) classify the
population into internally homogenous segments (around some
particular characteristic/need) to
ease creation and delivery of products and services positioned
to serve those segments.
Price Discrimination
Private sector pricing discriminates among segments, to
maximize profits. For example, airline
tickets are typically cheaper if purchased in advance and
include a Saturday stay over (presumably,
for a vacation traveler), but more expensive if purchased on
short notice for travel during the
workweek (presumably, for a business traveler willing to pay
more). The basic Product Feature
for airline travel is the point-to-point transportation with a
Saturday stay over. The augmented
Product Features (for the business traveler segment) might be
some combination of: avoiding the
Saturday stay over, upgrading to business class, access to the
frequent flyer lounge, and so on.
For the public sector: segmentation, targeting, positioning, and
price discrimination aren’t about
maximizing revenues, but are about maximizing Public Value.

In our example - the Card is
probably most valuable to undocumented immigrants; so it
might be tempting (from a revenue
standpoint) to charge that population segment the highest price.
However, this would be
counterproductive from a policy standpoint. It is essential, for
policy (and Public Value) reasons
that the Card be obtained by high value users (e.g.,
undocumented immigrants). Charging this
group the highest price could reduce demand to a sub-optimal
level.
To make our discussion of price discrimination more precise,
note the following definitions:
sells to each customer at a
unique price, based on that customer’s particular circumstances.
In practice, this is almost
impossible for the private sector to accomplish, for a variety of
practical, social and legal
reasons. Something approaching this type of price
discrimination is possible, however, in
the public and not-for-profit sectors. For example, as part of the
American college financial
aid process, applicants typically provide detailed personal
financial information that’s used

to create the financial aid package. In general, the more affluent
you are, the smaller your
financial aid package will be (and consequently, the higher the
cost of college will be,
although the process is far from linear). With the Card program,
NYC might decide to
make the Card available, without charge, to residents below a
certain income threshold,
but insist on seeing tax returns as proof. Note that NYC is (by
definition) the monopoly
supplier of the Card.
variations of a product (by
manipulating the 4Ps), to appeal to different segments. Using
the Card example, we can
imagine versions tailored to different population segments, as a
way to create value for
different residents. But that desire for revenue could conflict
with public policy goals. As
noted above, the Card should produce the most value for
undocumented immigrants -
which could support charging this segment the highest price -
but that would undermine

other NYC goals.
Business Case #4
different prices, to different
segments, for essentially the same service. For example, mass
transit systems typically
have significant discounts for the retired and school children.
NYC might decide to issue
only one type of Card, but charge different population
segments, different prices.
Surprisingly, enterprises creating Public Value (or, at least
perceived as creating Public Value)
often have more ability to price discriminate than conventional
for -profit enterprises. Harvard
College, for example, price discriminates based on family
income (although the process is not
strictly linear, generally the lower a student’s family income,
the lower the overall cost of attending
Harvard College). But most of us would find it objectionable if
our private sector landlord asked
to see our latest income tax return before telling us the proposed
apartment rent for the coming

year.
After the public sector leader identifies the appropriate
population segments and the appropriate
Product Features for those segments, their various elasticities of
demand (i.e., whether demand for
the proposed product or service is elastic or inelastic) must be
estimated. The sole toll bridge
spanning a river will likely have very inelastic demand. The
Card could face highly elastic demand
(some residents may have other alternatives) or highly inelastic
demand, depending upon the
population segment.
Let’s assume NYC (after appropriate market research) has
decided on two target segments, and
intends to use second degree price discrimination. The first
targeted segment might consist of
undocumented immigrants, who only need a standard card to
serve as government ID. The second
targeted segment might be college students, who would benefit
from a Card having additional
functions (i.e., serve as government ID, but also provide other
features).
We continue to seek to maximize Public Value (V) - but this
time, two products are created (which

will require different marketing strategies). V is still the sum of
the Social Ben efit (S), plus the
profits (or loss) made by the municipality in creating this Social
Benefit (S). Again, the Social
Benefit (from both of the variants) created must at least exceed
the Budget Constraint (B), and the
loss (if any) on creating the two products cannot exceed B.
Product Features
In the prior section, we discussed segmentation and introduced
the concept of price discrimination
by considering issuance of: versions of the Card with different
features (e.g., two different versions
of the core product), or just one version of the product. In
general, the more value-adding features
attached to a product, the more Social Benefit (S) that is
created, but the increase will vary by
segment. The Card’s core function will be to serve as
government-issued identification. Enabling
it to also serve as a library card, discount card, and/or museum-
entry card will only increase its
Public Value (to segments having an interest in these additional
capabilities).
Increased value generally comes at a cost. The cost may arise

from direct expenses, or indirect
expenses (e.g., retrofitting old computer systems to allow a
single Card to serve as a museum-entry
card, government ID card, library card and so on, might prove
to be very expensive). The public
sector leader must balance these increased costs, against the
potential Social Benefit and revenues
Business Case #4
to be generated from additional features. This is why
understanding the needs and wants of
residents (using market research and/or other tools) will be so
important to the Card’s success.
The basic intuition is that: we want to improve public sector
products and promote them, until we
either reach a binding constraint (e.g., our Budget Constraint B)
or stop creating net incremental
Public Value (because costs start exceeding the Social Benefit
being created by the incremental
improvements). And, this intuition is the same for Product
Features, Place and Promotion.
Place
Price is the direct cost users pay for a government service or

product, but there are often indirect
costs as well. NYC sprawls over five boroughs, which have
different levels of access to public
transportation, and many NYC residents don’t have access to an
automobile. If the Card were
available for free, but required an in-person application at a
remote office on Staten Island (NYC’s
least densely populated borough and the one hardest to reach
via mass transit), this requirement
would impose indirect - but real - costs on applicants. Despite
the Card’s free availability, it would
not be widely used if access to it were highly constrained.
At the other extreme, it would be tempting to make the Card
available at multiple application
locations in each borough - but remember NYC’s Budget
Constraint. Multiple locations are likely
to involve increased costs. Further, not all resident segments
derive equal value from the Card, or
are equal priorities for public policy goals.
The segmentation strategy is a helpful guide when considering
“Place.” If the target market for a
municipal service is undocumented immigrants, focus on
distributing the product in those

immigrants’ neighborhoods. But realize that: what seems
efficient for creating Public Value might
not be socially acceptable (e.g., why distribute a government
service (paid for by all residents) in
only certain neighborhoods; why shouldn’t all areas have equal
access). Further, Place is often an
excellent “jumping off” point for analyzing cost effective
partnership arrangements. With the Card
example, NYC has many nonprofit institutions that serve
particular population segments; they
would likely be very interested in partnering to distribute the
Card.
As an alternate example, consider a hypothetical city’s decision
to offer a 24 hours/day, 7
days/week, full service needle exchange program (e.g.,
counselors, medical assistance), based on
results from a pilot program (only open 1 day per week, with
limited hours). Hopefully, this shift
to more convenient access to full service distribution centers
will increase program usage and
Social Benefit – and the increased Social Benefit (by decreasing
the number of future AIDS and
other infectious disease cases transmitted by contaminated
needles) will likely pay for the

increased costs. However, deciding to put full service 24
hours/day, 7 days/week needle exchanges
on every city block in this hypothetical city would likely result
in a cost increase that dwarfs the
Social Benefit. As we add needle exchange centers, the
marginal benefit declines (e.g., the benefit
of the n-1 needle distribution center exceeds the benefit of the
nth needle distribution center). At
some point, the marginal cost of adding locations (in this
example, more 24/7 distribution centers)
will exceed the marginal benefit.
Business Case #4
The intuition is that a public sector leader should make access
to a public service easier and easier,
until no more incremental value is added (i.e., when the cost of
creating that last increment of
convenience just equals the Social Benefit created).
Promotion
Mathematically, the optimization for Promotion is analogous to
optimizing other attributes (of
Place and Product Features). However, Promotion presents some
unique qualitative issues. Similar

to adding Product Features, a Promotion strategy should be
optimized to the target segments (e.g.,
if a service is targeted at homeless residents, advertising it in a
high income neighborhood with no
homeless residents is likely to be ineffective). In general, the
more you reduce
“thinking/transaction costs” for the public, the more usage the
government product/service will
receive. The goals of a Promotion campaign might be some
combination of the following:
- The benefits of the program are so obvious
for the intended market, that
the Promotion program can be merely administrative. For
example, most undocumented
immigrants are aware of the challenges arising from lack of a
government-issued ID.
Consequently, the Card’s Promotion campaign might be highly
focused on details, such
as: notice that NYC is issuing the Card, who is eligible for the
Card, locations/method for
applying, the Card’s cost (if any), and so on. In other cases, the
information conveyed
might simply be that compliance is mandatory – for example, a
city advertising its garbage

pickup and recycling policies is (essentially) communicating
requirements.
- The value of some public services and products
isn’t obviously apparent
(e.g., public health programs concerning vaccinations, nutrition,
needle exchanges, etc.).
Consequently, greater effort might be necessary to educate the
public about why the
product/service matters, and what the value proposition is for
the individual and/or the
community.
Promotion in the public sector can also create ethical issues that
must be addressed, particularly
when governments move beyond simply providing information.
An advertising campaign that too
aggressively promotes a service or product may, at some point,
begin to look like political,
ideological or religious advertising (or campaign advertising to
promote a particular political
candidate), which is particularly problematic in a democracy.
Conclusion
As highlighted in the above discussion about segmentation and
the 4Ps, creating and maximizing

Public Value using marketing is mathematically a problem in
constrained optimization. For
example, in the case of our hypothetical needle exchange
program, we should continue to add
features from our menu of: Place (e.g., more distribution centers
and/or longer hours), Product
Features (e.g., better and improved counseling) and Promotion
(e.g., increased advertising budget)
until such point as the increased expenditure on these attributes
is no longer offset by the increase
in S (Social Benefit). Embedded in this discussion is an
assumption of diminishing marginal
returns. In practice, it is rarely possible to solve these types of
problems as fully formed
mathematical problems; however, thinking about problems in
this way often helps in finding
practical solutions.
Business Case #4
It is our hope that this brief Note has convinced you of: (1) the
importance of a marketing strategy
for creating and maximizing value in the public sector, and (2)
the necessity of approaching the

problem in a systematic structured manner using segmentation
and the 4Ps. This Note may also
have (unintentionally and unfortunately) persuaded you that the
problem is so complicated it defies
easy solution. If so, here is some helpful advice, from a
practitioner’s perspective, for managing
the problem:
Public Value using marketing
is understanding (using marketing research or other approaches)
the needs, preferences and
wants of the population.
need to solve all your issues
and concerns immediately. For example - in the long run, NYC
might need multiple
versions of the Card with a full distribution system. The initial
year of its program might
best commence, however, with just one version of the Card,
offered at a few easily
accessible locations, with minimum features. Never let
perfection become the enemy of a
very good solution. Be aware that many problems don’t allow as

much freedom for
maneuvering as you may think. The elected officials authorizing
NYC’s Card program
might feel the Card needs to be provided at no cost, or at a low
cost, or with only one
version - even if this artificially constrains the size of the
market being served. This might
not be optimal, but don’t spend time working on a complex
pricing strategy, if the
authorizing environment has already specified the Price.
Similarly, other attributes (Place,
Product Features, and Promotion) could also have specific legal
or practical limitations.
Make sure you focus your time and energy on the actual
decision variable(s) you can
influence or control.
develop the segmentation,
targeting and positioning strategies, you may find that a
proposed combination of attributes
(for creating value in a particular segment) is unworkable, or
too expensive. Expect to
develop multiple iterations as you develop an effective
marketing strategy.

functions, elasticity of demand,
and so on. But where possible - experiment by holding fixed as
many factors/variables as
you can, and note the impact of small changes.
Finally, keep in mind that despite the challenges and complexity
of designing the marketing mix -
it is incredibly important to delivering Public Value. Consider,
as one final example, the U.S.A.’s
significant problem with food insecurity - literally millions of
Americans go hungry daily.
Estimates show as many as 11 million Americans eligible for
Food Stamps (AKA SNAP, an
American government program that subsidizes food purchases)
aren’t enrolled in the program. The
reasons they haven’t enrolled (complexity of application, lack
of awareness, inconvenience of
application process, embarrassment at using certain products or
services) are primarily marketing
issues. Many public sector programs can be improved - by
improved marketing. Better marketing
presents a quick, non-programmatic way of delivering value,
without seeking additional

authorizing legislation, and often at relatively small cost.
Business Case #4
Questionnaire
Q1.
The card is designed for all peoples of the city, however what
benefits would the less fortunate,
for example the homeless, of NYC population gain from such a
card?
Q2.
A budget of $8.4m covers virtually the whole population of the
city, would it not make more
financial sense to roll the card out to those whom are in
employment initially for a minimal cost
which could then be offset to those on lower or none existent
incomes?
Q3.
As the on-going budget is not intended to exceed $5.6m in the
second year begs the question
regarding the length of time budgeted to completing the project,

and why the cost after the first
year is still so high?
Q4.
"The cards core feature will possibly attract undocumented
immigrants", who are by description
more than likely have no residential status, why would these
people head for an ID card?
Q5.
The three pricing scenarios all seem to return to the same point,
on how to avoid discrimination in
the pricing structure, however there will always be a
discernable difference in disposable incomes
and the benefits that come from possessing the card. There must
be a way in which lower earning
members of the population can gain from such an ID card. What
is the way?
Q6.
If different socially segmented sectors of the populous gain
different benefits from the card, does
this follow that the pricing structure would be based on the
beneficial gains the card holder
receives?

Q7.
If the gains from the card by the holder are exponentially
greater based on the card price surely
then we are getting away from the concept ideal of a Municipal
ID Card and into a membership
scheme?
Business Case #4
Q8.
A point made is of vendor location, is it best to issue the card
from a central point or various
locations? Surely, if as was stated the reliance on public
transport would be a hindrance, then
multiple vendors charging a minimal fee would be far more
favorable than crossing whole
boroughs.
Q9.
The promotion of the card must be carried out in a sensitive
manner. How effective would it be if
the information given is not at a level appropriate to its target

audience?
Q10.
Will the use of the card, for the hypothetical needle exchange
program merely be used to increase
the Municipal NYC's information gathering on its citizens?
Reproduced with permission of the copyright owner. Further
reproduction prohibited without permission.
How to diagnose and treat poor performance
Bain, Victoria
The Journal for Quality and Participation; Winter 2000; 23, 5;
ABI/INFORM Collection
pg. 38

Practicing conflict management can reduce organizational
stressors
Antonioni, David
Industrial Management; Sep/Oct 1995; 37, 5; ABI/INFORM
Collection
pg. 7
BBA 2026, Organizational Communication 1
Course Learning Outcomes for Unit III
Upon completion of this unit, students should be able to:
5. Recommend communication techniques that are effective in
managing conflict.

Reading Assignment
In order to access the following resource(s), click the link(s)
below:
Bain, V. (2000). How to diagnose and treat poor performance.
The Journal for Quality and Participation,
23(5), 38-41. Retrieved from
https://libraryresources.columbiasouthern.edu/login?url=http://s
earch.proquest.com.libraryresources.c
olumbiasouthern.edu/docview/219160561?accountid=33337
Antonioni, D. (1995). Practicing conflict management can
reduce organizational stress. Industrial
Management, 37(5), 7-8. Retrieved from
earch.proquest.com.libraryresources.c
olumbiasouthern.edu/docview/211594375?accountid=33337
Click here to view the Unit III Presentation.
Click here to view the Unit III Presentation transcript.
Unit Lesson
Introduction
For many people, conflict can be a word with negative
connotations. Within an organization, employees may

equate conflict to open hostility or harsh, interpersonal clashes.
However, conflict is merely a state of
unresolved differences between entities. Sometimes, the
difference is functionally productive; sometimes, it is
dysfunctional. This unit explores conflict within organizations
and discusses communication techniques that
can help to effectively manage conflict.
Consequences of Conflict
In Managing Conflict in Organizations, M. Afzalur Rahim
(2000) explains that conflict has the potential for both
positive and negative consequences. In order to achieve the
benefits from conflict, an organization must
mitigate the negative or dysfunctional outcomes of conflict and
develop the positive effects to their highest
potential. Rahim (2000) lists seven categories for both
functional outcomes and dysfunctional outcomes that
have been studied extensively by a variety of authors. The
functional outcomes have been provided below
(Rahim, 2000, p. 7):
UNIT III STUDY GUIDE
Managing Conflict in an Organization
Through Communication
earch.proquest.com.libraryresources.columbiasouthern.edu/docv
iew/219160561?accountid=33337

https://online.columbiasouthern.edu/CSU_Content/Courses/Busi
ness/BBA/BBA2026/16I/UnitIII/UnitIII_Presentation.htm
https://online.columbiasouthern.edu/CSU_Content/Courses/Busi
ness/BBA/BBA2026/16I/UnitII_Transcript.pdf
UNIT x STUDY GUIDE
Title
Rahim’s Functional Outcomes
1.Conflict may stimulate innovation, creativity, and growth.
2.Organizational decision-making may be improved.
3.Alternative solutions to a problem may be found.
4.Conflict may lead to synergistic solutions to common
problems.
5.Individual and group performances may be enhanced.
6.Individuals and groups may be forced to search for new
approaches.
7.Individuals and groups may be required to articulate and

clarify
their positions.
In their groundbreaking study, Scientists in Organizations,
Donald Pelz and Frank Andrews (1976) concluded
that a certain amount of creative tension had to exist between
the states of worker security and conflict to
stimulate innovation, creativity, and growth. They noted that
employee productivity increased when the
organizations they studied changed established patterns or when
technical disputes arose. During these
times of conflict, communication between employees and
between management and employees increased.
Pelz and Andrews (1976) also noted that output improved when
management provided positive reinforcement
and encouraged employees to participate in policy-making.
Positive communication between management
and employees helped to promote the functional outcome.
After T. J. Peters and R. H. Waterman reviewed the practices of
companies like IBM, 3M, GE, Boeing, and
Hewlett Packard, they found that the companies used
management practices that were designed to stimulate
competition. Many of the organizations created a contest
atmosphere by assigning the same problem to two
different teams. This manufactured conflict allowed managers to
see who would come up with the best
solution (Denton, 2002).
A degree of serendipity can develop from conflict. The
conversations generated because of the disagreement
can lead to alternative solutions by accident.
When conflict occurs between employees working on a project,

managers should encourage a dialogue to
exchange information regarding the issues. During this
information exchange, employees will need to explain
their differences in perspective. Without the conflict, this
exchange might never happen. Employees will be
forced to reevaluate project goals and problems, which can lead
to better solutions.
When conflict arises, the organization simply cannot follow the
status quo—the established way of doing
things—and the need to resolve the conflict can force
organizations to try new approaches. This encourages
communication, which can trigger creative solutions for
problems and encourage new ways to achieve goals.
Conflict can have a direct impact on communication. It can
force employees to explain their perspectives and
to seek information from coworkers on an issue. Employees will
need to explain their differences in
perspectives, which might not happen otherwise (Rahim, 2000,
p. 7).
Rahim’s (2000) dysfunctional outcomes have been provided
below (p. 7):
Rahim’s Dysfunctional Outcomes
1.Conflicts may cause job stress, burnout, and dissatisfaction.
2.Communication between individuals and groups may be
reduced.
3.A climate of distrust and suspicion can be developed.
4.Relationships may be damaged.

5.Job performance may be reduced.
6.Resistance to change can increase.
7.Organizational commitment and loyalty may be affected.
Too much conflict burdens and overwhelms the minds/emotions
of the employees, shutting off the capacity
for creativity. For example, the University of Wisconsin-
Madison conducted a study that evaluated elements of
job stress, burnout, and dissatisfaction for middle managers in
organizations that were experiencing
organizational changes (Antonioni, 1995). The survey also
assessed how the organizations used conflict
management to resolve the stressors faced by the employees.
Organizations that had regular communication
regarding the conflict management had employees with lower
levels of stress. Organizations that employed
UNIT x STUDY GUIDE
Title
individuals who had concerns about discussing situations with
their superiors had employees with higher
levels of stress. The study demonstrates that knowing how to
manage and resolve conflict is a valuable skill

to combat workplace stressors. As Antonioni (1995) suggests,
successfully managing stressful work
situations to help avoid burnout and job dissatisfaction boils
down to mastering communication skills.
Sometimes, different conversational styles or faulty inferences
create apparent conflicts when no real
disagreement exists. Efficiently managing conflict involves
matching the style of communication with the
situation (Rahim, 2000). Managers need to analyze their
audience before addressing any type of conflict and
to recognize not only the personal feelings of the employees but
also the policies and procedures of the
organization. As Antonioni (1995) relates, communication has
to work both ways: Active listening must be a
part of the communication process. All of the concerned parties
must claim responsibility for their actions and
collaborate to find a solution that is satisfactory to both sides.
Unacknowledged conflicts rarely go away; rather, they fester
and make subsequent exchanges more difficult.
In “How to Diagnose and Treat Poor Performance,” Victoria
Bain (2000) explains that teamwork is
undermined by derogatory attitudes. Employees do not function
at a high level of effort when they are cast
into stereotypes or oppressed by bias (Bain, 2000).
Conflict is difficult to resolve when an employee criticizes
another person instead of focusing on the issue.
This leads to counterattacks and an escalation of the conflict.
The issue becomes more difficult to resolve
because feelings are hurt.
Bain (2000) recommends that managers take an active role in
resolving the conflict rather than letting the

employees work it out amongst themselves. The author
recommends gathering specific information about
complaints rather than general information. This makes it easier
for the employees to address the problem.
Bain discusses an example from a chemical plant where an
employee did not feel valued by his manager and
intentionally reduced the amount of work he did on a daily
basis. The manager did value the employee but
never communicated this to him. The conflict developed due to
this lack of communication and was resolved
only when a dialogue between the two began.
Managers need to review systems and/or procedures for changes
that may have caused the conflict. People
who have already made up their minds about a situation are
highly resistant to change. The structure of a
work group in an organization may have altered, new
technology may have been introduced, or resources
that once were plentiful may now be scarce (Bain, 2000).
In order to overcome the opposition, it is important to send an
unambiguous message: People who are
embroiled in conflict can misread topics that neutral parties may
consider clear. It also can help to start a
message with an area of agreement or common ground.
Often, conflict arises because an employee does not feel
respected or appreciated by the other members of
the organization. Bain (2000) considers it a manager’s
responsibility to determine root causes and develop
solutions.
Antonioni (1995) describes the following situation that shows
how a project manager phrases a request may
make a great deal of difference. If the manager states that he or
she wants the employee to attend meetings

because he or she values the employee’s input, this is a positive
way to phrase the request. If the manager
states that he or she wants the employee to attend meetings
because it is a corporate policy, this is a
negative way to make the request.
In this example, the conflict could arise because the statement
“you need to be at the meeting because that is
our policy” does not reflect the reality of the situation.
Attendance may indeed be a policy of the organization,
but the desired outcome of that policy is the important input of
the employee. If this is not communicated,
conflict can arise.
Communication Techniques
In “Practicing Conflict Management Can Help Reduce
Organizational Stress,” Antonioni (1995) discusses four
communication techniques that can help effectively manage
conflict in organizations. These techniques can
both promote functional conflict and resolve dysfunctional
conflict.
UNIT x STUDY GUIDE
Title

needs to stand up for his or her rights,
needs, and expectations while also being attentive to the same
attributes for the other person
(Antonioni, 1995). It is helpful to determine what is at stake
and who will be affected by the decisions.
The message will be most effective if it considers the entire
organizational context as well as the
larger context of shareholders, customers, and so forth.
ening is critical for developing a
shared understanding of a problem
(Antonioni, 1995). Often, individuals do not listen attentively
when another person speaks. The
listeners may be distracted or, during a conflict, may be trying
to formulate a response to win the
argument. In active listening, listeners (receivers) demonstrate
that they have understood a speaker
through feedback. Receivers can paraphrase the content, mirror
the speaker’s feelings, ask for
clarification, or request additional information.
causes are essential aspects of helping to
manage conflict through communication.
possible before deciding on a solution. In all
but the very simplest problems, there are several possible
solutions. Antonioni (1995) believes that
both parties need to utilize effective negotiation skills. Focus on
seeing the issues from the other
party’s perspective, he recommends, rather than negotiating
solely from a fixed individual position.
Conclusion

As Rahim (2000) notes, it is impossible to eliminate all conflict
from an organization. He believes that a
moderate amount of conflict is beneficial for an organization
and is even necessary for maintaining
effectiveness. What remains central to both the functional and
dysfunctional results of conflict is
communication.
Through communication, the participants establish what the
conflict means and the way that it affects the
organization. In the functional examples, conflict led to greater
communication among the participants. In the
dysfunctional examples, employees and/or managers did not
communicate effectively, and the conflict was
resolved only through increased levels of communication
between the participants.
References
Antonioni, D. (1995). Practicing conflict management can
reduce organizational stress. Industrial
Management, 37(5), 7-8.
Bain, V. (2000). How to diagnose and treat poor performance.
The Journal for Quality and Participation,
23(5).
Denton, J. (2002). Organisational learning and effectiveness.
New York, NY: Routledge.
Pelz, D., & Andrews, F. (1976). Scientists in organizations.

Retrieved from
http://babel.hathitrust.org/cgi/pt?id=mdp.39015071812346;view
=1up;seq=27
Rahim, M. A. (2000). Managing conflict in organizations.
Westport, CT: Greenwood Press.
Suggested Reading
The e-textbooks below highlight some of the issues discussed in
the Unit III Lesson. Use the E-books link
found in the CSU Online Library to access the books below.
Denton, J. (2002). Organisational learning and effectiveness.
New York, NY: Routledge. Retrieved from
http://site.ebrary.com/lib/columbiasu/detail.action?docID=1007
0700&p00=organisational+learning+eff
ectiveness
Rahim, M. A. (2000). Managing conflict in organizations.
Westport, CT: Greenwood Press. Retrieved from
7971&p00=managing+conflict+organiz
ations
0700&p00=organisational+learning+effectiveness
0700&p00=organisational+learning+effectiveness

7971&p00=managing+conflict+organizations
7971&p00=managing+conflict+organizations
UNIT x STUDY GUIDE
Title
Please copy and paste the link below into your web browser to
access the resource. This textbook offers
more examples of how to manage conflict strategically.
Pelz, D. & Andrews, F. (1976). Scientists in organizations:
Productive climates for research and development.
Retrieved from
=1up;seq=27
Learning Activities (Non-Graded)
Apply What You Have Learned
Consider organizations where you have worked in the past or
where you are currently employed. Have you
encountered any situations of functional or dysfunctional
conflict? If so, how did this conflict affect your

working environment and job performance?
Non-graded Learning Activities are provided to aid students in
their course of study. You do not have to
submit them. If you have questions, contact your instructor for
further guidance and information.
=1up;seq=27

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