Chapter 4LEADERSHIP AND THEMANAGERObjectives (1 of 2.docx

Chapter 4
LEADERSHIP AND THE
MANAGER
Objectives (1 of 2)
Address the role of the manager as a principal change agent.
Differentiate among the terms power, influence, and authority.
Recognize the importance of authority for organizational
stability.
Identify the sources of power, influence, and authority.
Relate the sources of power, influence, and authority to the
organizational position of the line manager.
Objectives (2 of 2)
Recognize the limits placed on the use of power and authority in
organizational settings.
Recognize the importance of delegation of authority.
Explore the nature of leadership and the reasons why
individuals seek leadership positions.
Identify the styles of leadership, their characteristics, and the
circumstances under which they are applied.
Power
The ability to obtain compliance by means of coercion
The ability to have one’s own will carried out despite resistance
Force; naked strength
Does not seek consensus or agreement

Influence
Similar to power: seeks compliance
Differs from power: does not use force
Voluntary acceptance and compliance
Seeks consensus and agreement
Relies on persuasion
Formal Authority
Legitimate power
The right to issue orders and to direct action
The right to employ resources, make commitments, exercise
control
Sources of Power, Influence, and Authority
Acceptance or consent
Patterns of formal organization
Cultural expectations
Technical competence and expertise
Characteristics of authority holders
Related Terms
Consent
Zone of indifference
Zone of acceptance
The psychological contract

Professional Practitioner-Manager’s Authority
Hired for professional training and specialized skills
Placed into a position having formal authority
Enhanced by personality traits: manager as leader
Enhanced by participative style, leading to wide zone of
acceptance
Restrictions on Use of Authority
Organizational position
Legal and contractual mandates
Social limitations
Physical limits
Technological constraints
Economic constraints
Zone of acceptance
Importance of Delegation
The manager cannot do everything!
Delegating leads to increased zone of acceptance and
cooperation.
Workers who are in contact with clients can take effective
action without delay.
Manager is free to attend to other management duties.
Do’s and Don'ts of Delegation
Know when to delegate (e.g., routine tasks).
Know when NOT to delegate (e.g., hiring and firing).

Avoid countermanding supervisors.
Set up a balanced system of availability and support.
Supporting the Unit Supervisor
Formal, periodic meetings focusing on work flow
Formal meetings focusing on supervisory skills
Mentoring and career path development
Informal daily interaction as needed
Combination of formal and informal interaction (“The Huddle”)
Aspects of Leadership
The ability to get things done through people
The ability to organize tasks and make things happen
The ability to make the critical decisions
The ability to achieve objectives by coordinating, motivating,
and directing the work group
Functions of a Leader
Take calculated risks
Be the catalytic agent for change
Represent the group
Absorb the group’s frustration and hostility
Embody the values of the organization
Leadership Styles
Autocratic

Bureaucratic
Participative
Laissez-faire
Paternalistic
Influences on Leadership Style
Work assignment
Employee’s personality and ability
Employee’s attitude toward manager
Manager’s personality and ability
Authentic Personal Leadership
“Why should anyone be led by you?”
Value-added characteristics
- Engaged, conscious living
- Gracious interpersonal relationships
- Embodiment of values
Running head: nordstorm inc 1
nordstorm inc 16Final Project: Investment Funding Proposal
Finance, Economics, and Decisions
Final Project: Investment Funding Proposal
When it comes to running a business the company have to be
aware of uncertainties that may arise in the company. The
managers just have to be ready when they arise so they can
resolve them as quick as possible. Managers also manage the

financial aspect and outcomes for the company. They project the
decision of the financial impact of the company and make
recommendations on how to cover the cost of the decisions that
are made. Some of these decisions are short term or long term.
Other decisions are from a globally viewpoint or international.
The purpose of this assignment is to create an external capital
funding proposal that provides sufficient detail about the
expansion, its costs, and its time frame to give a loan committee
a firm sense of the proposed investment. The company I chose
to do research on is Nordstrom Inc. The investment proposal for
Nordstrom Inc. is the expansion of the company to China and
discussing why it is the right time to invest from a global
standpoint.
Investment Project: Description
As stated previously, Nordstrom, Inc. is a fashion retailer of
shoes, apparel, and accessories for men, women, and, children.
The company operates through several retail channels,
catalogue, boutique, stores, and the internet. Nordstrom is
among the best retail companies in the United States. The entity
focuses on providing a high-quality line-up of cosmetics,
accessories, shoes, and apparel to its customers. Besides that,
Nordstrom has expanded to other countries such as Canada and
it should now consider expanding into China.
The company should open an online store in China market to
allow Chinese customers to shop online. Apart from opening an
online business, the company should also consider opening a
Nordstrom Local in China. Nordstrom Local will allow Chinese
customers to acquire styling guidance, do pickups and returns
after purchasing online, and get help ordering online. The
online store will be devoted to constantly providing a variety of
quality products and exceptional services that will make the
company stand out among the competitors. The store will
contain all products from accessories to shoes, to cosmetics, and
apparel.

The company will enter the Chinese market through a joint
venture. This entry strategy will allow the company to generate
enormous profits, increase productivity, and grow faster. A joint
venture will also reduce expansion risks. As is well known.
International expansions involve multiple risks. These risks can
prevent an entity from aggressively pursuing different business
opportunities in an overseas market. A joint venture will also
allow the company to acquire clients and customers as soon as
possible.
China offers a substantial opportunity for many retailers as
local consumers demand quality products and they are getting
richer each day. However, there are a good number of retailers
that have failed in the Chinese market. Many of these retailers
failed to cater to consumer needs and taste. Some of these
retailers provide products with a lower value. As we all know,
anything that is not of great value, it does not give Chinese
consumers prestige, it does not give them aspiration, it does not
give them status- it is something that the local consumers do not
want not unless it is cheap (Rapp, 2018). Nordstrom will,
therefore, fill this market need as it will provide quality
products with great value.
Just like any other company, Nordstrom needs to measure its
success and performances in the Chinese market. The company
will, therefore, use financial metrics to measure its performance
and success and to prove the financial health and profitability of
the entity. Nordstrom will use the current ratio to evaluate its
ability to meets its financial obligations in one year. The
company will also use the quick ratio to determine if it can meet
its short-term obligations. Nordstrom will also use the debt to
equity ratio to ascertain how well the entity is utilizing
shareholders’ funds and how effective the company is funding
its growth.

Resources
In order for the proposed investment to be a success, it requires
funding. The entire project will require a total of $200,000. The
organization will use the capital for the payment of salaries,
product purchases, rental fees for the Nordstrom Local, and
legal fees. Nordstrom will, therefore, look for a loan amounting
to $150,000. The entity’s assets will be used as the security for
the loan.
Apart from the financial resources, the company will also need
human resources. Human resource plays a fundamental role in
the success of any entity. No company can succeed without
employees. Nordstrom will, therefore, hire local employees to
assist with the operation of the business. Hiring employees
locally will give the company a local network.
The company will also rent a space for Nordstrom Local. A
stated above, Nordstrom Local will allow Chinese customers to
acquire styling guidance, do pickups and returns after
purchasing online, and get help ordering online.
Nordstrom also needs to get government approval to totally take
advantages of all the opportunities in the Chinese market. The
company will, therefore, gather all documents that the Chinese
government requires, prepare to negotiate terms and wait for the
approval.
Nordstrom will also consider intellectual property. Nordstrom
Company’s website and social media platforms will be a great
tool for marketing and promoting the business online. However,
as e-commerce business widens, so does the danger that other
business may copy the look, features, or the content of the
company’s website or the social media platform. In order to,
therefore, protect the website from misuse, the company will
need to protect its IP rights. This involves applying for a patent.
According to Patent Law in China, once the company is granted

the patent, no individual or unit can abuse the patent without
the company’s permission (Wong, 2019). The company will also
need to register its trademark.
Nordstrom will also consider natural resources. As stated earlier
Nordstrom is a retail business and, therefore, it does not
manufacture its products. However, the products that the
company will sell in China will be manufactured from natural
resources. For instances, apparel will be made from natural
resources such as linen, silk, and cotton.
Time Frame
Due to the current pandemic (COVID-19), the project will begin
early next year. The projected economic life of the proposed
investment is 30 years. Nordstrom will decide if, when, or how
to exit the business when/if it makes constant losses even after
trying different strategies to stabilize the venture. The company
will use the return on investment (ROI) to determine if /when it
is the right time to exit. This financial metric will be utilized to
ascertain the efficiency of the project investment. It will
measure the loss or gain generated from the investment
compared to the initial investment cost. The organization will
also use return on equity (ROE) to determine if it is the right
time to exit. ROE will help to determine how much the company
makes for every cash the investors put into the project.
Justification
Why Now
Now is a good time for the project. Currently, more and more
businesses and people are going online. The total number of
internet users in China is also increasing. The number of
internet users in the country reached approximately 804.5
million in 2018 (Blazyte, 2019). This has driven the volatile
growth and development of the e-commerce market in China.
Currently, the Chinese e-commerce market is a global leader
with a volume of approximately $194 trillion in 2019 (Tenba

Group, 2019). Despite the pandemic, these numbers are
projected to rise in 2020. This displays a massive opportunity
for Nordstrom to succeed in China.
Strategic Fit: Priorities
In the 1st quarter of 2019, net sales (full-price) decreased by
5.1 per cent as compared to the same period in 2018. Net sales
(off-price) decreased by 0.6 per cent (Nordstrom, 2019). Net
earnings were thirty-seven million dollars as compared to
eighty-seven million dollars during the same fiscal period. In
2019, Nordstrom closed two stores, moved one store, and
opened three stores. The company is focused on making more
investment in off-price, full-price, new, and digital markets. It
is also focused on improving investors’ returns and
profitability. Nordstrom is assured in its ability to improve
profitability and execute its major strategies to serve its
customers better. The entity’s investment plan entails the
expansion into new international and domestic markets.
Nordstrom has already been moving into new markets such as
Canada and has been successful in fulfilling the consumer
goods. The company is now ready to enter the Chinese market.
This investment project in China will enable the company to
improve its profitability and investors returns.
Microeconomic
The expansion into China will fill a new niche. Over the past
few years, there has been a shift among Chinese rich consumers.
Huge logos and symbols are no longer consumer priority, and
instead, luxurious labels and quality products have been
reforming the retail market and have now become a new
signifier of extravagant consumption (Cerina, 2019). This shift
has been pushed by variation in the market. While only a few
years ago it was all about differentiating between Prada and
Gucci, today’s new generation of rich consumers is propelled by
the pursuit for craftsmanship, distinctiveness, and quality.
Chinese consumers are very active.
They are travelling all over the world and are very connected to

the various social media platform, therefore, they are aware of
what is trending internationally. Initially, Chinese consumers
would be attracted to huge brands, but now they are attracted to
brands that are relevant, unique, and new. Nordstrom will,
therefore, fill this new niche.
Comparative Advantage
The Chinese’s retail industry is dominated by different brands
from different countries. However, Nordstrom has several
strategic advantages that will allow it to compete favorably and
succeed in the Chinese market. The company’s customer service
provides a strategic advantage to the company. Throughout the
years, Nordstrom has constantly offered some of the best
services in the retail industry.
This has contributed a lot to the company’s long term success.
This shows an opportunity for the entity to succeed in the
Chinese market. Besides that, Nordstrom is currently offering
one of the best online experience in the retail industry. The
company also has a huge online presence compared to its
competitors (Sinclair, 2017). This displays a huge opportunity
for the company to attract Chinese customers.
Risks
With Nordstrom planning a business expansion into China, they
need to have a good and clear understanding of the Chinese
market. China is an attractive market to expand to. As stated
earlier, China is a worldwide leader in the e-commerce market.
The country has more e-commerce activities and most online
users in the universe. Although these sound like a huge
opportunity for the company, Nordstrom has to look at some
factors before beginning their expansion. Nordstrom has to look
at the internal and external risks relating to the proposed
investment. The company also need to look at the internal
opportunities relating to the project. They also need to analyse
the microeconomic factors that can impact the project
investment. The company also need to analyse the sensitivity of
its financial projections using different scenarios.

Internal
We can define internal risks as the risks faced by an entity from
within its organization. They normally emerge during the usual
business operation of the entity. Internal risks can be predicted
and, hence, easy to be minimized. The major internal risks that
relate to the investment are human-factor risks, physical risks,
and technological risks.
Let’s start with human-factor risk. Human-factor risk includes
union strike, dishonesty by workers, ineffective leadership or
management, and failure by external suppliers or producers, just
to name a few. These factors can generate operational
challenges for the company.
For instance, strikes may force the company to close for a short-
term, resulting in a loss in sales and revenue. This might even
inhibit the company from meeting its financial estimates. To
avoid this issue, the company will ensure it maintain effective
personal management through empowerment and effective
compensation.
Physical risks, on the other hand, involve any risk to assets,
buildings, or employees. Major physical risks that Nordstrom
may face include theft, fires, or water damage. Physical risks
may result in replacement or repair costs and may also result in
legal costs if the company is found accountable in some way.
Physical risks can also impact the company’s financial estimate.
The company has purchased insurance to protect itself from
anything that can potentially jeopardize its operation.
Technological risks include unexpected changes in the
distribution, delivery, or manufacturing of an entity’s product
or services. Since Nordstrom wants to introduce an online store
in China, the major technological risks that might face the
company is cyber-attack, security breaches, password thefts,

just to name a few. Many companies have been affected by
technological risk - a good example is Target. In 2013, Target
Company experienced a huge breach of its payment system
where the company lost around forty million debit and credit
card numbers (Finkle & Dhanya, 2013). The company also
stated that seventy million clients had their addresses, names,
telephone numbers, and emails stolen. The breach resulted in
huge losses which even resulted in the resignation of the
company’s CEO. If for instance, Nordstrom is affected by
cyber-attack, the company can lose income. It can incur
extortion losses and even incur extra expenses. This may
prevent the company from meeting the financial estimates.
To reduce this kind of risk, Nordstrom will invest more in the
current technology. The company will also work with experts
and federal law enforcement in China to prevent such a
problem.
Nordstrom’s most vital internal opportunity relating to
expanding into China is extensive expansion experience.
Nordstrom has adequate experience expanding into Canada.
This will enable them to concentrate on the weaknesses and
strengths of that expansion and to apply them to this investment
project. The company’s original plan and strategy to enter into
Canada market surely was not ideal, and if the company have a
chance to do it over again they would certainly change a number
of things. Expanding into China market will be the correct time
for the company to make fewer mistakes and use a shorter time
to launch the store. The distant and big goal is to increase sales
and revenue while the more focused and narrow goal is to enter
into the Chinese market in a shorter period and with fewer
mistakes.
Nordstrom has also built skills at entering new markets and has
learned extensive skills at making them a success. These skills
will enable the company to expand successfully into the Chinese
market and achieve its long-term and short-term goals.

External
External risks are the type of risks that arise from outside the
entity. The outside events that causes external risks cannot be
controlled by an entity and cannot be predicted. Therefore, it is
somehow difficult to minimize the accompanying risks. China
seems to be among the vast markets with a strong and sound
government.
However, China is made up of dissimilar markets which differ
in their levels of social and economic development. The central
government of China has been taking major steps to enhance the
general business conditions by establishing a more
contemporary financial system, instituting a firmer rule of law,
and developing a clearer business environment. Because of
these improvements in the business environment and China’s
fast economic growth, the country offers foreign entities huge
business opportunities. However, while the advantages of
conducting business in China can be enormous, the risks
associated with doing business in the country is huge. The
major external risks that relate to the investment are political
risk and cultural risk.
Let’s first look at political risk. Political risk relates to the
changes in government policy or political environment. This
includes changes in export and import laws, changes in taxes,
changes in tariffs, and many others. There are several political
risks connected with conducting business in China. One major
political risk is nationalization. In 1949, China government
nationalized several privately-owned and foreign companies.
The central government centralized the control of resources
through nationalization and collectivization. Besides
nationalization, there is also a risk of contract repudiation and
confiscation (lucasdipasquale.com). These political risks can
affect Nordstrom to a large extent as it can negatively impact
the financial success of the project investment. Nordstrom has,

therefore, hired an expert to provide a clear analysis of the
issues. The company has also purchased political risk insurance.
This cover can protect the company against the loss of income,
property, or commercial assets due to political risk.
Cultural risk, on the contrary, entails cultural differences.
While there is a long history of Chinese-business relationships,
it is still possible for Nordstrom’ workers to offend someone or
make a mistake due to ignorance/cultural difference. Chinese
culture and the United States culture are different in terms of
ethics and values. In China, hierarchy plays a significant part in
business culture with managers and leaders being more notable
than in most western countries. Chinese managers and leaders
also expect obedience and respect from their subordinates
(Martinez, 2019). Confrontation and direct conflict are highly
discouraged in China. It does not matter that the truth has to be
spoken, honour and respect to every individual supersede that.
Unlike Chinese, Americans are always sensitive when it comes
to meeting deadlines.
These cultural contrasts can, thus, make penetration through the
Chinese market more challenging. The sharp cultural
differences can even affect the financial success of the
investment project in China. Therefore, Nordstrom has taken
time to inquire and research on Chinese culture and history. The
company is also planning to establish a relationship with local
companies. Having a strategic presence on the ground can help
the company better manage its transactions and help increase its
image with the local.
Microeconomic
Microeconomic entails factors of resources usage and
availability that impact businesses and individuals.
Microeconomic factors include employees, customers, suppliers
and product distribution, shareholders, and competitors. Some

of the economic factors that might impact the proposed
investment include consumers, competitors, and product
distribution.
Customers/consumers have the most adverse and direct
microeconomic effect on a company (Kokemuller, 2019). The
truth is that a company cannot successfully operate without
attracting potential and targeted customers. Let’s have a look at
Macy’s in China. Macy’s, the American retail giant, was once
among the most famous online shops in China providing
Chinese customers with imported goods through an exclusive
partnership with Alibaba. However, in 2018 the company closed
its online store on Tmall marketplace. This closure marked a
complete departure of the retailer in China. Liu Dingding, an
analyst based in Beijing, attributed Macy’s failure in the
country to not keeping up with changing consumer demand.
According to Liu, the Chinese market is changing much quicker
than European and U.S markets and companies need to be on
par with the changes (warc.com). To avoid this kind of mistake
and to ensure the proposed project become a success, Nordstrom
needs to take time and conduct a thorough market analysis.
The level of competition in the market is also another
microeconomic factor that Nordstrom need to consider. Most
companies out here worry every day if they can survive in a
market and if they can earn a profit. Competition for these
companies is one of the most harmful knockouts to profits.
Companies have to fight against every competitor to prove to
customers why their businesses should be preferred over other
businesses. They also have to fight to every money when the
economy slows down and when times get tough.
One of the major reasons for international failure is
competition. Let’s take a look at the case of Best Buy. Best Buy
Company entered the Chinese market in 2006, opening nine
retail stores in China.
However, in 2011, the company closed all of its retail stores in

the market (O’Brien, 2015). One of the major reason for its
failure is competition. Even though Best Buy has widespread
success and achievement in America and other nations, the
company faced intense competition in the Chinese market from
Chinese electronic entities such as GOME Electronics. The
competition led to the exit of the company from China. This is a
clear indication that competition can be good and sometimes
bad for a company. In our case, the level of competition in the
apparel industry in China is manageable. This is an indication
that Nordstrom can survive in the Chinese market. Besides that,
Nordstrom has been successful for the past one hundred years,
therefore, market saturation would not be a microeconomic
problem to the company, so long as it prepares itself properly.
Product distribution is also a microeconomic factor that needs
to be considered as it can present a huge risk to Nordstrom if
the company cannot figure out how they are going to get their
products to China from Canada and the U.S. This is a vital
factor that requires the company to research and comprehend
before making any decision. The company should decide if they
should ship products to China from Canada and U.S or purchase
from local manufacturers.
Sales Fall
If sales fall twenty per cent short the projected financial
estimate, then Nordstrom needs to take action to determine why
and how the projected estimates were not met. As stated earlier,
one of the major reason for international failure is competition.
If there are shopping stores that are more competitive than
Nordstrom’s, then perhaps this could be the reason for the
twenty per cent fall. The 20% fall can also indicate that
inventory is not moving as quickly as expected. On the
contrary, decisions will be easier and faster to make if the sales
are twenty per cent higher. Investment in China might
significantly increase the company’s profit so long as the sales

numbers have been understood by the company’s financial team.
Time Value of Money
There were two parts that needed more information, the Time
value of money and Sales fall/increase.
The net present value of the investment needs to be determined.
The project’s initial investment is $200,000. Let’s assume the
discount rate is 10%, time is 3 years, and cash flow per year is
100,000. In that case, the NPV will be $25,394.44. The NPV is
positive, this means that the project investment is favourable
and will give the company a return for its investment.
The internal rate of return also needs to be determined. The IRR
will measure how well the project proposal performs over time.
When the project has a higher IRR, the project would be
favourable. However, when the project has a lower IRR then
that’s mean that the investment is not viable.
It is also important to determine the payback period. The
project’s initial investment is $200,000. Let’s again assume that
the cash flow per year is $100,000. The payback period will,
therefore, be 2. Anything more than 2 will indicate that the
investment is less worthy.
The time value of money affects NPV and IRR calculations and
my overall analysis. The concept indicates that the money the
company have currently is worth more than the money it
receives in the future. The payback period ignores the time
value of money.
Financial impact: Expansion
Is has been proposed that the Company need to expand its
operation in the outside market such as China as this would give
the company an opportunity of growing more in this market as
for instance China would offer a wider market for the various
company products. The company would in that case make some

investment in China which would serve as a capital outlay for
the investment. The growth in China would help the company to
increase its cash flow, be able to maintain a revenue stream that
would help support the loans for the expansion (Nordstrom,
n.d.).
Nordstrom would have to make some plans that would help in
maintaining the marginal cash flows which would also help in
measuring the success growth of the company as the expansion
is expected to grow through 7 to 10 years. This expansion would
depend on the expansion strategy depending on the incremental,
annual and cumulative cash benefits and outflows (Levine-
Weinberg, 2017, March 24).
The cash inflows are mostly expected to be extracted from the
company sales as the company would not be licensing in China
and the incremental costs would also be in form of labor. The
China report shows that the company has an average revenue for
the retailers of $10.5 million as at the same time the expected
retail sales is also being expected to decrease from 8.2% to
7.7% in 2018. However, the e-retail is also expected to grow
from 8.6% to 12.4% from 2016 through 2018 (Levine-Weinberg,
2017, March 24).
Financial Information: Consolidated
Taking into account the current and the past history of
Nordstrom financial position, this would help the in the
projection of the company financial position for the coming
years in China based on the recent success of the company
expansion in the outside market. Hence this would necessitate
analyzing of the current performance and the projected potential

of the company in the next 7 to 10 years. In that matter the
initial projection would be estimating when there are no chances
of expansion, then when there is expansion, then the worst
scenario of what may happen and lastly the best scenario. All
this expansion would affect the revenue of the company cash
flows, pre-tax, expenses and the other accounting information
(Gomes-Casseres, 2015, August 6).
No Expansion
The assumption is that is Nordstrom Inc. would not get any
funding, then it means that the company would not expand
hence their growth would be a consistent growth through the
next 7 to 10 years at an average rate of 3% as this is an average
for the entire current financials.
It is assumed that the company would grow at a constant rate of
3% each year ((Nordstrom, n.d.).
Likely Outcome
It is assumed that the company would have a constant growth
rate of 5% annually. There would be a possible growth rate,
however the growth rate may not be more aggressive as
compared to the start, it would therefore have the increase in
growth for the expected time durations.
Worst Case Scenario
The assumption in this case is that the company would have a

gradual 15% decline within the speculated years. In such a
scenario, the company would be regarded to have failed in the
speculated time duration of 7-10 years as this would result to
the company losing sales in the China market. At this point the
best decision is for the company to pull out of this market.
Best Case Scenario
An assumption in this case would be that the company would be
making a 15% increase in the speculated time duration.
In this situation, Nordstrom would be doing great in the new
market China. After the speculated time duration, the
management may decide as to whether they would be expanding
more to the external market or not. Financing
Global Capital Markets
Project financing for an international expansion can be
completed through both internal financing and global capital
market. Global capital markets provide a wider source of
funding from the investors in the international market through
Eurobond and Eurostock giving an opportunity for the company
using global capital market credibility of using their funds.
However, the problem of using global capital market is that
there are various regulations associated with it as there is also a
complex financial discloser associated with it (Bragg, 2018,
February 11).
External funding would help the company in sponsoring some of
the other things and investments that it may like to do without
necessarily using its own funds.
The company in that way would be able to have cash for the
payment purposes which would improve its credit ratings while

it invests using external source of funding. The company would
have a higher probability of growing if it’s given external
funding aiding to its success ((Robertson, 2019, February 6).
Getting external sources may also provide the company with the
needed information and advice regarding the external market
which may help in the event when the company would want to
expand further internationally as investors may provide
information for the best investments.
However external source of funding may pose some challenges
to the company in the event when the company may wish to
expand as the stakeholders and the …
Chapter 5
PLANNING AND DECISION MAKING
Objectives (1 of 2)
Define the management functions of planning and decision
making.
Identify the characteristics of plans and specifically address
those characteristics and features that make plans effective.
Identify participants and their responsibilities in the planning
process.
Delineate the constraints placed upon planning and identify the
boundaries to be observed in the planning process.

2
Objectives (2 of 2)
Define and differentiate among the terms philosophy, goal,
objective, functional objective, policy, procedure, method, and
rule.
Delineate aspects of project management and 500-day plans.
Determine how to evaluate a decision’s importance.
Describe some of the tools and techniques available to aid
decision making.
Planning Overview
Determine appropriate goals in light of organization’s mission
Develop assumptions and premises
Review alternative courses of action
Definition of Planning
Planning is the process of deciding in the present what to do to
bring about an outcome in the future.
It is the process of tentatively deciding what to do because we
have no assurance of exactly what the future will bring.
Characteristics of Planning

Most fundamental of management processes
Involves present considerations of future actions
“Future” may be years or only moments away
Based on the ideal state, which is then refined and modified
A cyclic process in which some or many goals are recycled
Participants in Planning
Top managers: Set the basic tone and give direction
Department heads: Carry out planning for their jurisdictions,
taking into account the unique considerations
Rank and file workers: Offer feedback about procedural and
methods improvements
Clients and members: Invited to offer feedback about proposed
plans
Premises or Assumptions (1 of 2)
Analysis of planning constraints and statements of anticipated
environment within which the plans will unfold. Common
premises:
Level of care
Specific setting (e.g., inpatient unit; outpatient clinics)
Specific number of beds per service
Anticipated number and kinds of specialty services or clinics
Premises or Assumptions (2 of 2)
Morbidity and mortality data
Projected length of stay
Readmission rates
Interrelationship of the workflow
Planning Constraints or Boundaries

General setting
Legal and accrediting agency mandates
Characteristics of the clients
Practitioners and employees
Characteristics of Effective Plans
Flexibility
Balance between idealism and realism
Types of Plans and Usual Sequence
(1 of 2)
Underlying purpose/overall mission, etc.
Objectives
Functional objectives
Policies
Procedures, methods, rules
Types of Plans and Usual Sequence
(2 of 2)
Work standards
Performance standards
Training objectives
Management by objectives
Operational goals
Typical Philosophical Premises
The basic orientation of the sponsoring group (religious,
fraternal, business)
External guidelines on patient rights, continuity of care, and

similar issues
Values of society in general (e.g., privacy, equal access)
Contemporary trends (e.g., community-based outreach,
independent practitioners)
Overall Goals
Originate in the common vision and sense of mission
Reflect the general purpose of the organization
Provide basis for subsequent management action
Never completely achieved but rather continue as statements of
the ideal to be attained
Rarely change
Objectives
Progressively more explicit
Move from ideal and intangible to relatively tangible and
concrete
Usually stated in results to be achieved
Include such dimensions as quality, time frame, accuracy, and
priorities
Relatively unchanging
Refining Functional Objectives
Specific service to be provided
Type of output
Quantity and/or specificity of output
Frequency and/or specificity of output
Accuracy
Priority

Policies
Guides to thought and action
Spell out what is required, prohibited, or suggested as the
course of action
Pre-decide issues and limit actions so that actions are consistent
Relatively permanent plans
Sources of Departmental Policy
Policies promulgated by top management
Implied policies which have become standardized and accepted
Guidelines from accrediting and professional association
agencies (e.g., Best Practices, Practice Briefs)
Excerpts from laws and regulations applicable to the
organization
Procedures
Guides to action through series of related tasks
Tasks laid out in chronological order
The most detailed of the plans
Apply to repetitive work to foster uniformity of practice
Facilitate job training
Provide a basis for measuring productivity
The 500-Day Plan
Select goals that have potential for the most results
Gain momentum by demonstrating major achievements
500-day timeframe with rolling 200-day periods

Fine tune the plan based on results of the previous 200-day
period
Definition of Decision Making
The choice among alternatives to determine the course of action
Closely associated with planning: this is the commitment phase
Evaluating the Importance of a Decision
Affects all of the organization vs. only one part
Irrevocable, creating a new situation
Allows for limited flexibility
Involves major expense
Made under conditions of risk
Approaches to Decision Making
Root and branch (incremental) decisions
“Satisficing” and maximizing
Paretian optimality
Root Decisions
Challenge the basic nature of the organization
Far reaching in their effects
Usually result in massive innovation
Result in changes in space and resource allocation
Branch Decisions
Are incremental and limited
Do not involve reevaluation of mission and goals
Objectives and goals are recycled
Underlying philosophy remains unchanged

Limited innovation
Satisficing and Maximizing
Satisficing involves minimal criteria.
This permits many possible alternatives.
A “good enough” solution is permitted.
Maximizing involves stringent criteria.
Very few alternatives are possible.
The one best solution is sought.
Paretian Optimality
Seeks to avoid diminishing or penalizing any one group or
department
Seeks to meet the needs of all
Certain alternatives rejected because they decrease the benefit
to one or several groups
Involves compromise and consensus
The OODA Loop
Observe
Orient
Decide
Act
Intended as a tool to make rapid decisions in “real time”
Decision-Making Tools and Techniques
Considered opinion and devil’s advocate
Factor analysis matrix
The decision tree

Considered Opinion
Use experts who give professional opinions of pros and cons
Strict, internal consideration before decision is made
Seek to ensure that all aspects are noted
Factor Analysis Matrix
Use to overcome personal preference
Foster impartial decision making
Set up categories of ESSENTIAL elements vs. DESIRED
elements
Assign relative weight, as in a point system
Often used in connection with budget justification
The Decision Tree
Used to depict possible directions that actions might take
Forces the manager to ask: “what then…”
Basic decision points are stated
Probable events are noted as branches
Helps decision maker assess both positive and negative
potential outcomes
Helps decision maker overcome emotional barriers to objective
choice
Healthcare Administration Capstone – Week #4 Lecture 1
Developing Your Plan
By this time, you have completed Chapters 1 and 2. This week
and next, you will move into and complete Chapter 3 – the

Strategic Plan. In Chapter 1 you identified and defined the
problem. In Chapter 2 you reviewed the current literature as it
relates to your project. Chapter 3 is the “so what” chapter. In
other words, Chapter 1 - here is our problem, Chapter 2 - here is
what has been written about it thus far, and now Chapter 3 - this
is what we should do about it.
As has been the case with the previous weeks, there are some
caveats to completing this plan. First and foremost, do not
implement your plan in an actual organization. This goes back
to the notion that we do not have an Institutional Review Board
here at Grantham University. Anytime that you are wearing the
hat of a researcher, you are bound by the principles set forth by
the Nuremberg Code. You can read more about this
here: http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3121268/
Simply put, you cannot intervene with human subjects as a
result of working on this Capstone Project. Once the course is
completed and you have received a final grade, you are then
more than welcome to approach your employer with your plan.
The next pointer is to approach your plan from a multitude of
angles. What does this plan look like from a management
perspective? From an employee’s point of view? What about the
organization as a whole? Lastly, what about the perspective of
the patient? Keep in mind that some of these questions may or
may not be applicable to your current problem.
As you develop your strategic plan, remember that resources are
finite. In other words, the plan must be feasible from a cost
perspective. In this context, cost is much more than just money.
Cost involves time, labor, material resources, and space if
needed to implement your plan.
The final thing to consider as you develop your plan is the
implementation component. How will you be sure that all
stakeholders are adequately informed? For this chapter,
remember that the barriers for implementation and the
limitations of your plan will be addressed in the subsequent
chapter – Chapter 4 Recommendations for Future
Study/Limitations.

The following resource is available to assist you as you work on
Chapter 3. Just remember, to stay on track, Chapter 3 is due at
the end of week 5. Should you have any questions, please be
sure to utilize the discussion forum “Project Questions.”
http://ctb.ku.edu/en/table-of-contents/structure/strategic-
planning/develop-action-plans/main
CHAPTER 4
Leadership and the Manager
CHAPTER OBJECTIVES
• Address the role of the manager as a principal agent of
change.
• Differentiate among the terms power, influence, and authority.
• Recognize the importance of authority for organizational
stability.
• Identify the sources of power, influence, and authority.
• Relate the sources of power, influence, and authority to the
organizational position of the line manager.
• Recognize the limits placed on the use of power and authority
in organizational settings.
• Recognize the importance of delegation of authority.
• Explore the nature of leadership and the reasons why
individuals seek leadership positions.
• Identify the styles of leadership, their characteristics, and the
circumstances under which they are applied.
CHANGE AND THE MANAGER
The healthcare setting of today is a highly dynamic environment
in which the individual manager must embrace the reality of
constant change and accept and fulfill the role of change agent
within the organization. It is only through addressing essential
change and truly leading employees in its acceptance and
implementation that the manager can be successful in the long
term. Denying or resisting change does not merely mean
standing still but losing ground and actually going backward

relative to technology and society as they race ahead.
The department manager must be able to deal with employee
resistance to change, including the most frequently encountered
causes of resistance and how best to approach resistance to
change with employees. However, this implies that the manager
is already completely on board with the necessity for a
particular change. It is now appropriate to acknowledge that the
manager may well be fully as susceptible to resistance as the
employees. Who is the manger but simply another employee?
He or she can be just as affected by misgivings and uncertainty
about impending change as the rank-and-file staff. A discussion
of how managers may deal with change appears in Chapter 2.
Thus, the manager may have a difficult task up front in the
implementation of change, especially change mandated “from
on high” or forced by external circumstances, because the
manager has nearly the same potential for resistance as the
employees. Even the knowledge that a certain change is
inevitable regardless of what it entails does not necessarily
guarantee that the manager will be a willing advocate for the
change.
Of course the manager, and just about everyone else for that
matter, is likely to champion a change that was his or her own
idea. But when ideas or directives or other requirements come
from elsewhere, the manager, who may experience some feeling
of resistance, must deliberately strive to overcome that feeling
and become champion of the change. It is often extremely
difficult for the manager who feels some personal misgivings to
go forward as the driver of change.
We are told repeatedly that the manager can address change
with the employees in three ways: tell them what to do,
convince them of what must be done, or involve them in
determining what must be done. This third approach, involving
them, is all well and good—but often it cannot be used. The
first approach, the tell-them-what-to-do route, is avoided if
possible because it does little to temper resistance. This leaves
the second approach, the need for the manager to convince the

employees of what must be done. Clearly, many employees are
more likely to get on board with a particular change if they
know why it must be done. And an honest why is not simply
telling the employees that it is “orders from administration” or
blaming it on the ever-present yet never identifiable “they” as
in “they are making me do it.”
The central point of this brief discussion is that if the manager
is to be a true agent of change and an honest and effective
catalyst for change, the first person to be accepting and
supportive of change is the manager. So if you, the manager,
experience doubts or misgivings about some change that lies
ahead, work these out within yourself and with your superiors
as necessary. Your employees should be able to see you as a
true agent of change who is there to support their efforts in
implementing change and helping them through it such that
everyone, yourself included, achieves a new comfort zone as
essential change becomes part of the norm.
WHY FOLLOW THE MANAGER?
The manager issues an order or directive, and the result is
compliance. But why do employees obey? Is it even appropriate
to use the term obey to describe this compliance? Which bases
of authority are operative in superior–subordinate transactions?
What are the limits of a manager’s authority? What if a
particular supervisor is seen as a weak manager? Are there
remedies available for addressing problems related to weak or
ineffective management leadership? Of what value to the
organization is the authority structure? What are the
consequences for life within the organization if there is not
general, unchallenged compliance most of the time? When
actions of compliance are described, which term provides the
proper point of reference—power, authority, or influence? Are
these terms mutually exclusive or are they synonymous when
used in the context of organizational relationships? These
questions arise when discussion of authority in organizations is
undertaken.
Organizational behavior is controlled behavior, behavior that is

directed toward goal attainment. The authority structure is
created to ensure adherence to organizational norms, to suppress
spontaneous or random behavior, and to induce purposeful
behavior consistent with the aims of the organization. No matter
how the work within the organization is divided, no matter the
extent to which specialization, departmentation, centralization,
or decentralization is formalized, there must be some measure
of legitimate authority if the organization is to be effective. The
concept of formal authority is supported by the two related
concepts of power and influence. These concepts may be
separated for analytical purposes; in actual practice, however,
the concepts of authority, power, and influence are intertwined.
THE CONCEPT OF POWER
Power is the ability to obtain compliance by means of some
form of coercion, whether blatant or subtle; one’s own will
prevail even in the face of resistance. Power is force or naked
strength; it is a mental hold over another. Like authority and
influence, power is aimed at encouraging compliance, but it
does not seek consensus or agreement as a condition of that
compliance.
Power is always relational. An individual who has power over
another person can narrow that person’s range of choices and
obtain compliance. The power holder does not necessarily force
compliance by physical acts but rather may operate in more
subtle ways, such as an implied threat to apply sanctions. Latent
power is frequently as effective as an overt show of power.
Power attaches to people, not to official positions. The formal
authority holder (i.e., the person who has the official title,
organizational position, and grant of authority) may or may not
have power in addition to this formal grant of authority.
An imbalance in superior–subordinate relationships can occur
when a nonofficeholder has more power than the official
officeholder. This can even be seen in family life. For example,
when a 2-year-old boy shows signs of an incipient temper
tantrum in the middle of the annual family gathering, the power
balance clearly is in favor of the child if the tantrum pattern has

developed. The child does not have to carry out the explosive
behavior; the mere threat of the possibility brings about some
desired behavior from the parent caught in the situation.
Workers often have some degree of power over line supervisors
and managers. A worker with specific technical knowledge can
withhold key information from a manager or can develop a
relationship that is personally favorable. Information may not
actually be withheld; the mere possibility that the manager
cannot rely on an individual is enough to shift the balance, at
least temporarily, in favor of the worker. Groups of workers can
control a manager when it is known that the manager is
responsible for meeting a deadline or filling a quota; the
manager’s ability to do so is dependent on the cooperation of
the workers. Normal, steady output may be produced routinely,
but the ability to make that extra push needed to surpass the
quota or reach a special level of output rests more with the
workers than with the manager. Strikes by workers are classic
examples of mobilized power, but the power shifts back in favor
of management if striking workers are terminated during a
strike.
When an individual can supply something that a person values
and cannot obtain elsewhere in an accepted manner, or when the
individual can deprive one of something valued, then there is a
power relationship. This implicit or explicit power relationship
may or may not be perceived by one or both parties.
THE CONCEPT OF INFLUENCE
Like power, influence is the capacity to produce effects on
others or obtain compliance from others, but it differs from
power in the manner in which compliance is evoked. Power is
coercive, but influence is accepted voluntarily. Influence is the
capacity to obtain compliance without relying on formal
actions, rules, or force. In relationships governed by influence,
not only compliance but also consensus and agreement are
sought; persuasion rather than latent or overt force is the major
factor in influence. Influence supplements power, and it is
sometimes difficult to distinguish latent power from influence

in a given situation. Does the individual comply because of a
relationship of influence or because of the latent power factor?
Together, power and influence supplement formal authority.
THE CONCEPT OF FORMAL AUTHORITY
Authority may be described as legitimate power. It is the right
to issue orders, to direct action, and to command or exact
compliance. It is the right given to a manager to employ
resources, make commitments, and exercise control. By a grant
of formal authority, the manager is entitled, empowered, and
authorized to act; thus, the manager incurs a responsibility to
act. Authority may be expressed by direct command or
instruction or, more commonly, by request or suggestion.
Through the delegation of authority, coordination is established
in the organization.
The authority mandate is delineated, communicated, and
reinforced in several ways, including organizational charts, job
descriptions, procedure manuals, and work rules. Although the
exercise of authority in many situations tends to be similar to
transactions of influence, authority differs from influence in
that authority is clearly vested in the formal chain of command.
Individuals are given specific grants of authority as a result of
organizational position. Power and influence may be exercised
by an individual authority holder, but they may also be
exercised by individuals who do not have specific grants of
authority.
Authority is both complemented and supplemented by power on
the one hand and influence on the other hand. It is within the
realm of formal authority to exact compliance by the threat of
firing a person for failure to comply; however, this may be such
a rare occurrence in an organization that such a threat is really
an application of power more than an exercise of authority.
However, formal aspects of authority may be so well developed
that the major transactions remain at the level of influence, with
the influence based largely on the holding of formal office. The
infrequent use of formal authoritative directives to evoke
compliance may indicate organizational health; that is, people

know what to do and perform willingly.
THE IMPORTANCE OF AUTHORITY
When a subordinate refuses to accept the orders of a superior,
the superior has several choices, each of which carries
potentially negative consequences for the attainment of
organizational goals. The superior can accept the
insubordination, withdraw the order, and call on others to carry
out the directive. This action would probably further weaken
authority, however, because the superior would most likely be
perceived as lacking the subtle blend of power and authority
needed to exact compliance on a predictable basis. A chain
reaction of insubordination could occur. If other workers are
asked to carry out a directive that had been refused by one
worker, resentment could build up and produce negative
consequences. If the order is withdrawn completely, of course,
the work will not be accomplished.
The manager who decides to enforce compliance may suspend
or fire the insubordinate worker, but the superior still must find
a worker to carry out the directive. If there is a chain reaction
of insubordination, it may become impractical to suspend or fire
the entire work force. In such circumstances, the situation
moves from one of authority to one of power. Therefore,
managers must identify and widen their bases of authority to
help ensure a stable work climate.
SOURCES OF POWER, INFLUENCE, AND AUTHORITY
The manager’s organizational relationships flow along the
continuum of power, influence, and authority, varying in
emphasis at different times and in different situations. To more
fully understand the dynamics of the power–influence–authority
triad, it is useful to examine the sources or bases of authority in
formal organizations. The wider the base of authority, the
stronger the manager’s position; with a broad base of authority,
the manager can work in the realm of influence and need not
rely only on the formal grant of authority that attaches to
organizational position.
The sources of formal authority have been studied by several

theorists in the disciplines of social psychology, management,
and political science. A review of the literature suggests several
sources or bases of authority: (1) acceptance or consent, (2)
patterns of formal organization, (3) cultural expectations, (4)
technical competence and expertise, and (5) characteristics of
authority holders. The limits or weaknesses of each theory are
offset by the approach taken in another.
The Consent Theory of Authority
The belief that authority involves a subordinate’s acceptance of
a superior’s decision is the basis for the acceptance or consent
theory of formal authority. A superior has authority only insofar
as the subordinate accepts it. This theory implies that members
of the organization have a choice concerning compliance, even
when often they do not. It remains important to recognize the
concepts of acceptance and consent to identify the centers of
more subtle and diffuse resistance to authority, even when there
is no overt and massive insubordination.
The zone of indifference and the zone of acceptance are two
similar concepts in the acceptance or consent theory of
authority. Chester Barnard used the term zone of indifference to
describe that area in which an individual accepts an order
without conscious questioning.1 Barnard noted that the manager
establishes an overall setting by means of preliminary
education, prior persuasive efforts, and known inducements for
compliance. The order then lies within the range that is more or
less anticipated by the subordinate, who accepts it without
conscious questioning or resistance because it is consistent with
the overall organizational framework. Herbert Simon used the
term zone of acceptance to reflect the same authority
relationship. The zone of acceptance, according to Simon, is an
area established by subordinates within which they are willing
to accept the decisions made for them by their superior.2 Simon
noted that this zone is modified by positive and negative
sanctions in the authority relationship, as well as by such
factors as community of purpose, habit, and leadership.
Coupled with the foregoing factors is the concept of the rule of

anticipated reactions, which Simon included in his discussion of
the zone of acceptance.3 According to this rule, subordinates
seek to act in a manner that is acceptable to their superior, even
when there has been no explicit command. The authority
system, including anticipated review of actions, is so well
developed that the superior needs only to review actions rather
than issue commands. The past organizational history in which
positive and negative sanctions were enforced is recalled; the
expectation of the review of actions is fostered so that the
subordinates’ zone of acceptance is expanded.
Another approach to the concept of authority as a relationship
between organizational leaders and their followers is described
by Robert Presthus, who posited a transactional view of
authority in which there is reciprocity among individuals at
different levels in the hierarchy.4 Compliance with authority is
in some way rewarding to the individual, and the individual,
therefore, plays an active role in defining and accepting
authority. Everyone has formal authority, in that each person
has a formal role in the organization. There is, Presthus stated,
an implicit bargaining and exchange of authority, with each
individual deferring to the other.
The notion of reciprocal expectations in authority relationships
is further supported in Edgar Schein’s discussion of the
psychological contract.5 As in Barnard’s concept of the zone of
indifference and in Simon’s rule of anticipated reactions, the
premise of member acceptance of organizational authority and
its attendant control system is basic to the psychological
contract. The workers’ acceptance of authority constitutes a
realm of upward influence; in turn, the workers expect the
authority holders to honor the implicit restrictions on their grant
of authority. The workers expect the authority holders to refrain
from ordering actions that are inconsistent with the general
climate of the given organization and from taking advantage of
the workers’ acceptance of authority. The workers also expect
as part of this psychological contract the rewards of compliance
(i.e., positive sanctions readily given and negative sanctions

kept at a minimum).
The Theory of Formal Organizational Authority
In his classic study of bureaucracies, Max Weber discussed
three forms of authority: charismatic, traditional, and rational–
legal. Charisma, as defined by Weber, is a “certain quality of an
individual personality by virtue of which he is set apart from
ordinary men and treated as endowed with supernatural,
superhuman, or at least specifically exceptional qualities.”6 The
social, religious, and political groups that form around
charismatic leaders tend to lack formal role structure. The
routines of bureaucratic structure are not developed and may
even be disdained by the group. Charismatic authority figures
function as revolutionary forces against established systems of
leadership and authority. Such authority is not bound by explicit
rules but rather remains invested in the key charismatic
individual. Personal devotion to the leader or what might be
termed an almost irrational faith in the leader bind the members
of the group to one another and to the leader.
Because charismatic authority is linked to the individual leader,
the organization’s survival is similarly linked. If the
organization is to endure, it must take on some of the
characteristics of formal organizations, including a formalized
authority pattern. In this area, two developments are possible.
Charismatic leadership may evolve into a traditional system of
authority, or it may develop into the rational–legal system of
formal authority. In traditionalism, a pattern of succession is
developed. A successor may be designated by the leader or
hereditary/kinship succession may be established; then a system
of transferring the leadership to the legitimately designated
individual or heir must be developed. This, in turn, leads to a
system of roles and formal authority. Weber uses the
term routinization of charisma to describe this transformation of
charismatic authority into, first, traditional authority, and then
rational–legal authority.
Rational–legal authority is the authority predicated in formal
organizations. It is generally assumed that formal organizations

come into being and derive legitimacy from an overall social
and legal system. Individuals accept authority within the formal
organizational structure because the rights and duties of
members of the organization are consistent with the more
abstract rules that individuals in the larger society accept as
legitimate and rational.
Within the formal organization, a system of roles and authority
relationships is carefully constructed to enable the organization
to survive and move toward its formal goal on a continuing,
stable basis. Authority has its basis in the organizational
position, not in any individual. Weber described in detail the
major characteristics of bureaucratic structures; the following
characteristics relate to the rational-legal authority structure:7
1. The principle of fixed and official jurisdictional areas means
that areas are generally ordered by rules—that is, by laws or
administrative regulations.
a. The regular activities required for the purposes of the
bureaucratically governed structure are distributed in a fixed
way as official duties.
b. The authority to give the commands required for the
discharge of these duties is distributed in a stable way and is
strictly delimited in a fixed way as official duties.
c. Methodical provision is made for the regular and continuous
fulfillment of these duties and for the execution of the
corresponding rights; only persons who have generally
regulated qualifications to serve are employed.
2. The principles of office hierarchy and of levels of graded
authority mean that there is a firmly ordered system of
superiority and subordination in which supervision of the lower
offices is carried out by the higher ones.
The theory of formal organizational authority rests on this
rational–legal system of formal office, impersonality of the
officeholder, and a system of rules and regulations to constrain
the grant of authority. Delegation of formal authority from top
management to each successive level of management is the
basis of formal organizational authority. Authority is derived

from official position and is circumscribed by the limits
imposed by the hierarchical order.
Cultural Expectations
Both the consent theory of authority and the theory of formal
organizational authority include an implicit assumption that
individuals in a society are culturally induced to accept
authority. Furthermore, the acceptable use of authority in
organizations is defined in part by the larger societal mores as
well as by union contract, corporate law, and state and federal
law and regulation.
Acceptance of the status system in a society is learned as part of
the general socialization process. General deference to authority
is ingrained early in psychosocial development, and social roles
with their sanctions are accepted and reinforced throughout life.
The role of employee carries with it both formal and informal
sanctions; insubordination is not generally condoned. Even as a
group cheers the occasional rebel, there is attendant discomfort
because something is out of order in the relationship. When the
insubordination of an individual begins to threaten the
economic security of the group, there is counterpressure on that
individual to bring about reacceptance of authority. Fear of
authority may bring about a similar response of renewed
acceptance of authority and counterpressure on any dissidents.
The expected zone of acceptance or zone of indifference varies
with different social roles. These variables are rarely spelled
out in great detail; they are learned as much through the
pervasive cultural formation process as through the formal
orientation process in any one organization. There is a kind of
“group mind” that includes the general realization that a
particular behavior pattern is part of a given role, and the entire
role set reinforces this general acceptance of authority.
Technical Competence and Expertise
Three terms reflect the organizational authority that is derived
from or based on the technical competence and expertise of the
individual, regardless of which office or position the individual
holds in the organization. These terms are functional authority,

law of the situation, and authority of facts.
Functional authority is the limited right that line or staff
members (or departments) may exercise over specified activities
for which they are responsible. Functional authority is given to
the line or staff member as an exception to the principle of
unity of command. For purposes of this discussion on the
sources of authority, it is useful to emphasize the special
character of functional authority, which is given to a line or
staff member primarily because that individual has specialized
knowledge and technical competence. For example, the human
resources manager normally assists all other department heads
in matters of employee relations, although this manager has no
authority to intervene directly in manager–employee relations.
The situation changes when there is a legally binding collective
bargaining agreement: the human resources manager, with
special training in labor relations, may be given functional
authority over all matters stemming from the union contract
because of specialized knowledge. Another example is that of
information technology support staff who, because of technical
competence, are given authority to make final decisions over
certain aspects of data collection. The authority is granted
because of the technical competence of the staff members.
Mary Parker Follett, a pioneer in management thought,
introduced the terms law of the situation and authority of
facts.8 Follett described the ideal authority relationship as that
stemming from the situation as a whole. Each participant in the
organization who is assumed to have the necessary
qualifications for the position held has authority associated with
that position. Orders become depersonalized in that each
participant in the process studies and accepts the factors in the
situation as a whole. Follett stated that one person should not
give orders to another person but rather both should agree to
take their orders from the situation.9 She developed this
concept further: both the employer and the employee should
study the situation and should apply their specialized
knowledge and technical competence through the principles of

scientific management. The emphasis shifts, in Follett’s
approach, from authority derived from one’s official position or
office to authority derived from the situation. The individual
who has the most knowledge and competence to make the
decision and issue the order in a particular situation has the
authority to do so. The staff assistant or a key employee
potentially has as much authority in a particular situation as
does the holder of a hierarchical office. The incident command
system used in hospital disaster management is an example of
law of the situation, with command passing from unit manager,
clinical specialist, or safety officer as the circumstance
requires.
Closely tied to the concept of law of the situation is that of
authority of facts. Follett stressed that, in modern organizations,
individuals exercise authority and leadership because of their
expert knowledge.10 Again, leadership and authority shift from
the hierarchical position to the situation. The person with the
knowledge demanded by the situation tends to exercise effective
authority.
Both of these concepts place emphasis on the depersonalization
of orders. At the same time, the source of the authority is highly
personal, in that knowledge and competence for the exercise of
authority belong to an individual. Underlying the concepts of
functional authority, law of the situation, and authority of facts
is the theme that authority is derived from the technical
competence and knowledge of individuals in the organization
who do not necessarily hold formal office in the line hierarchy.
Characteristics of Authority Holders
Authority rests in individuals. The talents and traits of the
individual may become the source of authority, as in the case of
the charismatic leader. A person holding power may use this as
a base for gaining legitimate authority, or a group may invest
the person of power with legitimate authority as a protective
measure and seek to impose the limits and customs of authority.
They may also accept the power holder as formal officeholder
as a means of accepting the situation without further conflict.

Technical competence and knowledge are also personal
characteristics that become the basis of authority in certain
situations.
Authority by Default
A weak form of authority stems from situations in which the
group members, either by conscious decision or by lack of
attention to authority–leadership succession, do not develop
strong, clear, authority patterns. A professional organization,
for example, might decide to rotate authority–leadership roles
through a nomination process that limits the choice of
candidates from specific geographic regions. In another
organization, the committee chair role might …

Chapter 4LEADERSHIP AND THEMANAGERObjectives (1 of 2.docx

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