Decision-Making

Our text suggests that objective reality is often significantly different from perceived reality and is an important variable to consider when making decisions within an organization. In addition, attribution theory describes how people create the explanations for their own and others’ actions, as well as the outcomes of the applied behaviors. Based on these two premises, consider the following and then, formulate an analysis about how attribution theory and bias (according to chapter 8 in our text) can explain human behaviors within organizations and industry.

Use, or closely follow, this template for your paper.
Consider the following information associated with attribution theory to support to your writing about decision-making:

perceptions
bounded reality
cognitive biases
conjunction fallacy
consistency
consensus
distinctiveness
fundamental attribution error
creative decision making
Writing Content

Decision-Making

Based on our content this week, discuss the importance of rationale decision-making in an organization, using necessary citations. Include how bounded reality, cognitive biases, and conjunction fallacy might affect decision-making.
Attribution Theory

Explain attribution theory using necessary citations. Include a discussion about the effects of consistency, consensus, distinctiveness, and fundamental attribution error. Consider inclusion about the effects of perception, primacy and recency effects, selective perceptions, contrast effect, stereotyping to further support your discussion.
Personal Experience: Inaccurate Judgement

Based on our content this week, consider your own experiences with others. Have your actions ever been judged inaccurately by a person such as a boss, a peer, or a family member? How could this experience support your thesis about whether or not attribution theory and bias affect human behaviors with organization?
Can self-serving, or other, bias affect one’s perception of a behavior?
Creative Decision Making

Explain how creative decision-making can improve our ability to make better decisions, considering the numerous obstacles to do so. Include an analysis about how good decision making can potentially affect productivity and job satisfaction.

Writing considerations:

The introduction paragraph should introduce your topic and clearly explain what the paper will address.
Headings can be used to organize your information. See template (Each heading should include at least two paragraphs – minimum.)
Each paragraph should make a point which can be linked back to your introduction paragraph. Design the topic sentence to embody what the paragraph will entail.
The most important consideration in the body paragraphs is the argument that you want to develop (is or is not perceptions, attribution theory and bias applicable?) in response to the topic (applicability of perception, attribution theory and bias). This argument is developed by making and linking points in and between paragraphs.
The conclusion paragraph should restate your thesis (your suggestion that perceptions, attribution theory and bias does or does not apply to human behaviors in organizations.)

Your assignment should be a minimum of five to six double-spaced pages, and should adequately discuss the topic, demonstrate maturating self-awareness, and include at least one peer-reviewed source, in addition to your text. Use the rubric to check for thoroughness. Include frequent citation to resources.

Title Page

[Two paragraphs introducing the topic of decision-making. Include a discussion about the sub-topics you will discuss in the paper.]

Note: Throughout the paper use no more than one one-sentence quote per section. Reminder: with a quote the citation must include the exact page of the information quoted.

Decision-Making

[Based on our content this week, discuss the importance of rationale decision-making in an organization, using necessary citations. Include how bounded reality, cognitive biases, and conjunction fallacy might affect decision-making.]

Bounded Reality

[Summarize potential effects]

Cognitive Biases

[Summarize potential effects]

Conjunction Fallacy

[Summarize potential effects]

Attribution Theory

[Explain attribution theory using necessary citations. Use no more than one one-sentence quote. Reminder that with a quote the citation must include the exact page of the information quoted.]

Effects of Perception

[Discuss how perception affects how we attribute behaviors. Be sure to include citations to support your thoughts. Consider including information about primacy and recency effects, selective perceptions, contrast effect, and stereotyping.]

Consistency

Consensus

Distinctiveness

[Discuss how these “sources” affect how we attribute behaviors. Be sure to include citations to support your thoughts.]

Fundamental Attribution Error

[Discuss how this factor affects how we attribute behaviors. Be sure to include citations to support your thoughts.]

Personal Experience: Inaccurate Judgement

[Explain your personal experience aligned with the instructions in the assignment.]

Consistency

[Explain how consistency is applied to your example. Could this affect the perceptions of self and others?]

Consensus

[Explain how consensus is applied to your example. Could this affect the perceptions of self and others?]

Distinctiveness

[Explain how distinctiveness is applied to your example. Could this affect the perceptions of self and others?]

Creative Decision Making

[Explain how creative decision-making can improve our ability to make better decisions, considering the numerous obstacles to do so. Include an analysis about how good decision making can potentially affect productivity and job satisfaction.]

Conclusion

[Summarize your paper including the implications of the topic.]

References (on separate page)

195

7Leadership and
Communication

Ryouchin/Getty Images

Learning Outcomes
After reading this chapter, you should be able to

• Define leadership and contrast leadership with management.

• Compare and contrast the different leadership theories.

• Identify the most effective ways to select and develop leaders.

• Describe the characteristics of positive leadership.

• Describe the communication process in organizations.

• Identify common barriers to effective communication.

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Section 7.1 The Meaning of Leadership

7.1 The Meaning of Leadership
Researchers and practitioners have studied organizational leadership for more than a cen-
tury. Although research approaches differ, the same basic question guides all leadership
research: What constitutes leadership and how does it emerge? To find answers, researchers
and practitioners break the topic into three main lines of inquiry:

• What is the difference between management and leadership? Are all good leaders
also good managers? Why or why not?

• How does leadership emergence differ from assigned leadership? What are the
advantages and disadvantages of each?

• Are leaders born or made? What specific characteristics of leaders are innate?
What specific abilities are learned?

The following sections address each of these questions in turn.

Consider This: What Is Leadership?
Think about each of the questions above and try to answer them using examples and evidence
from your own personal, social, and/or professional experience.

Management Versus Leadership
John Kotter, a Harvard University professor, explained the difference between managers and
leaders by determining where they focus their time and energy. He argues that managers act
to reduce organizational complexity by creating plans, setting goals, monitoring work, and
allocating resources. Leaders, on the other hand, focus on coping with change by establish-
ing a vision of the future, aligning others to this vision, and inspiring them to achieve great
things (Kotter International, 2014). Similarly, an interesting series of studies in the 1980s dif-
ferentiated between successful and effective managers: Successful managers are those who
get promoted faster. Effective managers are those with high-performing units and satisfied
employees. Although they share similar behaviors, successful managers were found to spend
significantly more time networking, socializing, politicking, and interacting with outsiders
than performing traditional management functions such as planning and decision making
or undertaking HR activities such as developing and motivating their followers. In contrast,
effective managers spent most of their time on communication and HR management activi-
ties and spent the least amount of their time on networking and playing politics. Unfortu-
nately, the activities that contribute the least to effectiveness tend to be the ones rewarded by
success and promotion in the world of leadership (Luthans, 1988). Of course, management
and leadership overlap in that effective managers often exhibit superior leadership skills, and
excellent managerial skills often characterize effective leaders as well. Thus, the two are not
mutually exclusive but may have different emphases.

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Section 7.1 The Meaning of Leadership

In this book, we will define leadership as the process of influencing a group of people to
achieve a specific vision or goal. This definition has three important components. First, lead-
ership is a process, which implies that it is not a single trait or characteristic and may thus be
achieved by all people. Second, leaders must influence followers to achieve a desired outcome,
a task that requires leaders to act socially using a positive personal style. Third, leadership is
effective only to the extent that it is able to promote the achievement of specific goals and out-
comes. Throughout this chapter, we will refer to people who engage in leadership processes
as leaders, and those whom the leaders influence will be called followers.

Emergent Leadership Versus Assigned Leadership
One type of leadership, called assigned leadership, stems from a person’s formal job title or
position within the organization. Plant managers, team leaders, frontline supervisors, and
members of senior management (CEOs, presidents, senior vice presidents, etc.) are examples
of assigned leaders. On the other hand, when a person displays behaviors that the group per-
ceives to be leader-like, that person exhibits emergent leadership, regardless of his or her
job title or position within the company. Unlike assigned leaders, emergent leaders are not
defined as leaders due to any official assignment. Researchers have identified a number of
personality traits that are linked to emergent leadership, including confidence, dominance,
and intelligence (Smith & Foti, 1988).

The most important thing to keep in mind is that people are not effective leaders simply
because they are assigned a leadership role. Effective leadership stems not from a job title
but from actions and behaviors.

Are Leaders Born or Made?
The question of whether leaders are born or made is one of the fundamental issues in lead-
ership research. Until recently, the answer to this question remained elusive. However, with
the help of identical-twin studies, researchers believe they now know the answer. Because
identical twins who are raised away from each other share the same DNA but not the same
environment, genetic influences are believed to account for their similarities.

Scientists looked at whether identical twins reared apart shared leadership (or lack of leader-
ship) qualities. In one study, researchers tallied the number of leadership roles that were held
in professional associations and organizations by 110 identical twin pairs and 94 nonidenti-
cal twin pairs who were reared in different environments (Arvey, Rotundo, Johnson, Zhang,
& McGue, 2006). Interestingly, the researchers determined that 30% of leadership-role occu-
pancy was due to heredity, whereas 70% was due to the environment in which the twin was
raised. Thus, genetics do help to determine a person’s propensity for leadership, but environ-
mental factors exert the stronger influence. Additional research has replicated these results
and refined our understanding of them, finding that 17% of leadership emergence is due to
specific environmental factors or differences in work experiences (Arvey, Zhang, Avolio, &
Krueger, 2007). This body of research is very important to our understanding of leadership
because, for the first time in history, we can say that leaders are both born and made. Thus,
organizations must attempt not only to identify both innate leadership traits and learned
leadership behaviors during selection processes but also to provide effective experiences to
promote leadership development.

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Section 7.2 Traditional, Contingency, and Relational Theories of Leadership

7.2 Traditional, Contingency, and Relational Theories
of Leadership
Although the importance of effective leadership is widely recognized, leadership scholars and
practitioners hold different and sometimes even contradictory views on the characteristics
and behaviors that make a leader. Specifically, leadership theories vary in the emphasis they
place on the leader, the followers, their interaction, and the context or environment within
which they operate.

Traditional Theories
Although current research supports the idea that leadership is based on a combination
of genetic and environmental factors, leadership research at the turn of the 20th century
debated which one was more important. Those who supported trait theories, which assume
leadership has a biological origin, believed that leadership was an innate quality that only
a very few possess. Proponents of behavioral theories of leadership, which suggest that
leadership is attainable by anyone who has the correct training and experiences, focus less
on leaders’ traits and more on their observable behaviors. Even though research from this
period is limited due to both its polarity and datedness, information gleaned from both per-
spectives is still relevant to current conceptualizations of leadership. Let’s take a closer look
at each set of theories in turn.

Trait Theories
In general, trait theories of leadership differentiate leaders from nonleaders by their per-
sonal traits and characteristics. These theories are often referred to as great-men theories
because they tried to identify innate characteristics shared by the great leaders in history,
such as Abraham Lincoln, George Washington, Mohandas Gandhi, Martin Luther King Jr., and
John F. Kennedy. Proponents asserted that only
a few “great” people possessed these traits and
ascended to leadership positions. Those without
these traits were destined to take roles as follow-
ers. According to trait theory, then, leaders are
special people, different from the average human
being (Kirkpatrick & Locke, 1991).

On the surface, trait theories seem to make sense.
However, even researchers of the time were
unable to identify a consistent set of characteris-
tics that differentiated between leaders and non-
leaders. One researcher from the late 1960s, for
example, examined 20 trait-theory studies and
found that of the nearly 80 leadership traits iden-
tified, only 5 were consistent across only 4 of the
studies (Geier, 1967). By the early 1990s researchers were thoroughly confused by the lack
of consistency in the leadership traits identified in various studies. Indeed, the only thing I/O
psychologists could say for sure was that leaders were different from nonleaders—they just
didn’t know exactly how.

Mike Shapiro/Cartoonstock.com

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Section 7.2 Traditional, Contingency, and Relational Theories of Leadership

With the identification of the Big Five personality traits in the 1990s (see Chapter 3),
researchers were able to assign each of the leadership traits identified thus far into one of
the five personality categories (extraversion, agreeableness, openness to experience, con-
scientiousness, and neuroticism). Of the Big Five traits, extraversion is the strongest predic-
tor of leadership emergence (Judge, Bono, Ilies, & Gerhardt, 2002). This makes sense; it is
really no surprise to learn that people who are energetic, dominant, social, and outgoing are
often described as leader-like. However, not all leaders display extraversion. For example,
Bill Gates, founder of Microsoft, is known to be introverted, as was Steve Jobs, founder of
Apple. Other elements of Big Five traits, such as aspects of conscientiousness (“disciplined”
and “keeps commitments”) and openness to experience (“takes risks” and “flexibility”), are
also related to leadership emergence.

Another trait that shows a relationship to leadership effectiveness is emotional intelli-
gence (EI). Leaders with high EI are self-aware, good at detecting others’ emotions, and
able to manage their own emotions (Goleman, 2000). Once again, it is easy to see how man-
agers who can effectively read and manage emotions and skillfully handle social interac-
tions would also have greater influence over their followers. For example, a study of division
heads in a global food and beverage company found that 87% of leaders with EI competen-
cies were also in the top third for performance-based bonuses, and their divisions outper-
formed annual revenue targets by 15% to 20%. Contrarily, a study by the Center for Creative
Leadership found inadequate EI to be a primary cause of executive failure and to be much
more detrimental for leaders than lack of technical skills (Luthans, 2002a). Much has yet to
be determined regarding the scientific dimensions and trainability of EI, which has led to
criticism of the concept (Locke, 2005). However, the notion that social aptitude is critical for
leaders is impossible to ignore.

Find Out for Yourself: Your EI
Are you emotionally intelligent? To help you determine your level of EI, access and com-
plete the assessment provided by the Greater Good Science Center at the University of
California–Berkeley.

Test Your Emotional Intelligence

What Did You Learn?

1. What is your overall level of EI?
2. Which types of emotional expression do you seem to detect the most? Why?
3. Which types of emotional expression do you seem to detect the least? Why?
4. Which of the characters were easier to “read”? Why?
5. Which of the characters were more difficult to “read”? Why?
6. Were there any consistencies in your ability or inability to read characters based on

gender or race?
7. What are some of the lessons you learned from this assessment?
8. Based on this assessment, how can EI help you become a better communicator?
9. Based on this assessment, how can EI help you become a better leader?

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http://greatergood.berkeley.edu/ei_quiz/

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Section 7.2 Traditional, Contingency, and Relational Theories of Leadership

Overall, then, trait theories have both strengths and weaknesses. Their greatest strength lies
in their long history. After more than a century of study, trait theories boast the deepest and
broadest set of published research in the leadership canon. Furthermore, the simplicity of
working with a few broad leadership traits makes trait theories easier for organizations and
workers to understand and apply. However, these theories are oversimplifications of the lead-
ership process, as they do not take into consideration situational factors or followers’ charac-
teristics. Finally, because the main focus of trait theories is to identify established character-
istics, trait theories often face criticism for being useless in terms of helping develop leaders.

Consider This: The Best Leader You Have Ever Had—Part 1
Think about your best leadership experience or the best leader you have ever had.

Question to Consider

1. What were some of the traits that this leader possessed? Based on your knowledge of
individual differences from previous chapters, be sure to list only traits and not atti-
tudes, behaviors, or other characteristics that can be trained or developed.

Behavioral Theories
The inconsistency of early trait theories led some I/O psychologists in a new direction. In
the late 1940s researchers at Ohio State University conducted the most extensive study of
the time on the leadership behaviors important to worker performance. During the study,
researchers asked workers to identify behaviors of effective leaders. From the hundreds
of identified behaviors, they discovered that the vast majority clustered around two broad
dimensions: task-centric leadership and people-centric leadership.

Table 7.1: Task-centric versus people-centric leadership styles

Leadership style Pros Cons

Task-centric • Creates clear, easy-to-follow work
schedules.

• Clearly defines requirements and
deadlines.

• Maintains high standards with
optimal efficiency.

• Is best for employees who need
structure and struggle with time
management.

• Can lead to a lack of employee
autonomy and creativity, which can
result in low morale.

• Generally not a good fit for self-
motivated employees.

People-centric • Acknowledges individual employees
for the work they do.

• Focuses on employee relationships.
• Encourages employees to feel like

they are a part of the company’s
success.

• Employees may feel like they need
more task-oriented direction.

• Focus on the manager–employee
relationship might displace the
focus on other important aspects,
which can result in ineffective
decision making.

Source: Based on “Task-Oriented vs. People-Oriented Management Styles: Which Is Better?” by E. Friedman, 2016
(http://blog.eskill.com/task-people-oriented-management).

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Section 7.2 Traditional, Contingency, and Relational Theories of Leadership

The task-centric leadership style, known as initiating structure, includes behaviors by which
the leader provides clear guidance and structure to help employees achieve specific goals.
Leaders who are high in initiating structure typically do things such as set and maintain high
performance standards, schedule and assign work, and set clear deadlines.

The people-centric leadership style, also called consideration, includes relationship behav-
iors expressed as displays of trust, camaraderie, and regard for workers’ feelings. Subor-
dinates of a highly considerate leader would likely describe him or her as approachable,
respectful, and supportive of others.

Which of these two styles is more effective? At first, researchers hypothesized that leaders
high in both styles would be the most effective, because such leaders would not only guide
employees toward reaching goals but also support them emotionally along the way (Kerr,
Schriesheim, Murphy, & Stogdill, 1974). Research, however, has not always supported this
notion. More recent studies show that initiating structure is more strongly related to employee
performance, whereas consideration is more important for employee attitudes such as orga-
nizational commitment, job satisfaction, and overall morale (Judge, Piccolo, & Ilies, 2004).

As with trait theories, the behavioral theories of leadership have both advantages and disad-
vantages. On the positive side, research into the two behavioral leadership styles is extensive
and strongly supports their link with employees’ performance and attitudes. A major distinc-
tion between behavioral theories and trait theories is that the former suggests the possibility
of leader development—that is, leaders are not born and can be made. As a negative, this set
of theories has failed to identify a universal style of leadership that works with all people in
every situation.

Consider This: The Best Leader You Have Ever Had—Part 2
Reflect on your best leadership experience or the best leader you have ever had.

Questions to Consider

1. What were some of the behaviors this leader exhibited?
2. When, how often, and in what ways did he or she initiate structure?
3. When, how often, and in what ways did this leader show consideration?

Contingency Theories
Although trait and behavioral theories both significantly contributed to our understanding
of leadership, we now know that predicting leadership success involves more than simply
pinpointing a few key traits or identifying desired behaviors. Contingency theories of lead-
ership were developed to address the complex ways in which situational factors interact with
a leader’s style and impact his or her effectiveness. Simply put, these theories maintain the
basic premise that understanding a leader’s performance requires understanding the situa-
tion in which he or she leads. In the next section, we will examine two contingency theories:
Fiedler’s contingency model and path–goal theory.

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Section 7.2 Traditional, Contingency, and Relational Theories of Leadership

Fiedler’s Contingency Model
Fiedler’s contingency model (Fiedler, 1967) is considered the first contingency model of
leadership. The theory categorizes leaders as either task oriented or relationship oriented
(similar to the two leadership styles discussed earlier, initiating structure and consideration),
yet it maintains that the effectiveness of either type depends on the situation and the amount
of control the leader has over it.

Within the theory, Fiedler identifies three conditions that describe the situation: leader–
follower relationship, degree of task structure, and formal authority or power. As each condi-
tion increases in strength (e.g., better leader–follower relationships, greater job structure,
and higher levels of leader power), so too does the amount of control the leader possesses.
For example, a situation that highly favors leader
control might feature an army sergeant who has
developed positive relationships with subordi-
nates, clearly conveys specific expectations, and
has the authority to reward and punish the sol-
diers. On the other hand, a situation that does not
favor leader control might feature the president
of a sporting club who has offended the member-
ship, neglected to set any formal goals, and has
no authority to hold any of the other volunteer
board members accountable for their actions.
Fiedler’s theory concludes that, in extreme situ-
ations (i.e., very favorable or very unfavorable
for leader control), a task-oriented leader will be
more effective. However, in moderately favorable
situations, the relationship-oriented leader will
be more effective.

Although Fiedler was the first to try to incorporate situational factors into the overall under-
standing of leadership effectiveness, his model has a number of limitations. First, it assumes
that leaders have only one leadership style and that organizations must match leaders to
appropriate situations to promote peak leadership effectiveness. Of course, we all know lead-
ers who are able to adapt their style to fit the situation. Second, the model does not explain
what to do should a mismatch arise between the leader and his or her situation. Finally,
although appropriate theoretically speaking, Fiedler’s ideas would be impractical to use,
because organizations would have to try to evaluate every work situation and potential leader
and then somehow match the two.

Hersey and Blanchard’s Situational Leadership Model
Shortly after Fiedler’s model was introduced, Hersey and Blanchard (1977) developed another
contingency model, which they named situational leadership. Unlike Fiedler’s model, which
assumed a leader usually has one preferred style, Hersey and Blanchard’s model proposed
that leaders can adapt their styles to the situations at hand. Specifically, leaders shift among
four leadership styles, based on their followers’ maturity level. In turn, followers’ maturity
is determined by their (a) willingness (motivation) and (b) ability (skills) to perform their
tasks or responsibilities. Immature followers are neither willing nor able to perform. Mature

iStockphoto/Thinkstock

Better leader–follower relationships,
greater job structure, and higher levels
of leader power increase the amount of
control a leader possesses. For example,
the army is an organization that highly
favors leader control.

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Section 7.2 Traditional, Contingency, and Relational Theories of Leadership

followers are both willing and able to perform. Between these two extremes, followers vary
in their levels of maturity, and leaders adapt their styles accordingly.

1. Telling is the leadership style used with followers who are neither willing nor able
to perform. The leader-follower relationship is defined by one-way communication,
with the leader defining the followers’ roles and providing the parameters for
completing tasks.

2. Selling is used with followers who are able but not willing to perform. The leader–
follower relationship relies on two-way communication, allowing the leader to
maintain direction while providing support and encouraging followers to buy into
the process.

3. Participating is used with followers who are willing but not able to perform. The
leader-follower relationship relies on shared decision making, with the leader
focusing on relationship building.

4. Delegating is used with followers who are both willing and able to perform. The
leader–follower relationship is mostly one of support, with followers being in
charge of their assigned tasks and how they are accomplished and the leader
monitoring this process.

Unfortunately, despite the intuitive appeal of this theory, subsequent empirical scientific
research did not support it (Fernandez & Vecchio, 1997; Vecchio, 1987). However, the tenets
of the theory remain viable, especially the importance of adapting leadership style to follow-
ers and situations.

Path–Goal Theory
Path–goal theory focuses on the behaviors leaders use to motivate workers to achieve their
goals. As discussed earlier in this chapter, effective leaders help employees reach their profes-
sional and organizational goals by guiding them along a path to success and supporting them
with resources and rewards.

Path–goal theory proposes four styles leaders can utilize to motivate employees to achieve
their goals (House, 1996):

• Directive leadership provides task structure by instructing employees what work
to do and when to complete it.

• Supportive leadership displays concern for the best interest of the employees.
• Participative leadership involves employees in decisions that affect their work.
• Achievement-oriented leadership sets challenging goals for employees and

emphasizes high performance expectations.

The effectiveness of each style is contingent on the characteristics of both the situation and
the followers. Unlike Fiedler’s model, which suggests that leaders’ behaviors are fixed, path–
goal theory assumes that effective leaders can and in fact should adapt their behaviors to
suit each situation and group of followers. For example, if employees face an ambiguous task,
leaders should adopt a directive leadership style and provide the missing structure and orga-
nization. A team of high-performing professionals, on the other hand, would be more moti-
vated by a leader who adopted an achievement-oriented style of leadership.

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Section 7.2 Traditional, Contingency, and Relational Theories of Leadership

Path–goal theory has a number of positive attributes. Most importantly, it suggests that lead-
ers are able not only to change their leadership styles but also adapt them to fit the situation.
Furthermore, it highlights the ways in which leaders can motivate employees’ performance,
which is essential if leadership is to be effective. Despite these strengths, path–goal theory
has faced criticism for its complexity and the lack of research to support it.

Relational and Followership Theories
So far in this chapter, we have examined leadership theories that deal with the ways in which
innate traits, observable behaviors, and situational factors can influence leadership effec-
tiveness. However, none of these theories address the influence of the critical relationship
between leader and follower. Two theories that do so are called leader–member exchange
theory and implicit leadership theory. Furthermore, leadership does not occur in a vacuum.
Followers can play an important role in allowing leaders to emerge and become effective. In
other words, where there is no followership, there is no leadership. Although followership
theories and leadership theories that emphasize the role of followers are not as abundant as
those that focus on leaders, we will discuss followership toward the end of this section.

Leader–Member Exchange Theory
Take a moment to think about a manager for whom you have worked. Did he or she treat you
and your fellow employees exactly the same? If not, how did the treatment differ? Did some
employees receive better work assignments, greater communication, or more interpersonal
attention? These are some of the main topics of leader–member exchange theory (LMX),
which deals with the way in which the leader–follower relationship affects the leadership
process (Dansereau, Graen, & Haga, 1975). LMX proposes that leaders develop special rela-
tionships with a small segment of followers, called the in-group, and place the remaining
followers in the out-group. The leader makes placements based on early interactions, and
these placements remain relatively stable over time. The leader views the in-group followers
as competent, trustworthy, and highly motivated and views the out-group as lacking these
qualities. Although there are questions about how leaders establish in-group and out-group
membership, it is clear that leaders treat members of the two groups differently. Specifically,
in-group followers receive more information, rewards, and support and gain more confidence
than out-group members (Dansereau et al., 1975). Conversely, out-group members receive
more punishments, less communication, and fewer personal interactions.

The manner in which a leader interacts with members of each group has important impli-
cations for workers’ job performance and attitudes. High-quality leader–member exchange
relationships lead to less employee turnover and counterproductive behaviors, higher job
performance, higher quality promotions, and greater job satisfaction, organizational commit-
ment, and citizenship behaviors (Chen, Kirkman, Kanfer, Allen, & Rosen, 2007; Graen & Uhl-
Bien, 1995; Martin, Guillaume, Thomas, Lee, & Epitropaki, 2016). These findings have also
been supported across cultures, although they are stronger in Western cultures (Rockstuhl,

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Section 7.2 Traditional, Contingency, and Relational Theories of Leadership

Dulebohn, Ang, & Shore, 2012). One interesting study found that in-group members were
more likely to engage in creative work due to increased levels of positivity garnered from hav-
ing a closer relationship with the leader (Atwater & Carmeli, 2009).

One of the most frequently cited criticisms of LMX is that it seems unfair. The notion of in-
groups and out-groups is offensive to most people, as is the experience of being treated dif-
ferently by one’s boss. Workplaces in which LMX seems to hold true can be filled with ani-
mosity, conflict, and isolationism between members of the two groups. Furthermore, if the
leader makes in- and out-group placements based on age, gender, race, cultural background,
or physical abilities, charges of discrimination may be warranted. Leaders must be aware of
personal biases and strive to allocate resources based on employees’ needs and competence
instead of first impressions, personal relationships, or physical characteristics.

Consider This: Being in the In-Group Versus Being
in the Out-Group

Think about a situation in which you believe you were in a leader’s in-group.

Questions to Consider

1. How did the leader treat you differently?
2. Were you the only one favored by the leader, or were there others, too?
3. What common traits, values, beliefs, or KSAOs (e.g., gender, age, religion, race, color,

cultural background, physical appearance, hobbies, interests) did you share with the
leader?

4. What common traits, values, beliefs, or KSAOs did you share with other members of the
in-group?

5. On what traits, values, beliefs, or KSAOs did you, the leader, or others in the in-group
vary from members of the out-group?

6. How did being in the in-group make you feel—for example, competent, appreciated,
accepted, fulfilled, proud, guilty, ashamed?

Implicit Leadership Theory
Implicit leadership theory (ILT) defines leadership from the follower’s point of view (see
Figure 7.1). According to ILT, followers use observations and experiences to create a model of
their ideal leader and then compare all leaders against this standard (Lord & Maher, 1993).
Leaders who fit the standard will be viewed as good; those who do not will be viewed as poor.
Followers whose leaders match their ideal standard are more likely to develop more positive
attitudes, greater well-being, and a higher quality relationship with their leader (Epitropaki
& Martin, 2004).

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1. Sensitivity
2. Intelligence
3. Dedication

4. Dynamism

Effective leader prototype

Prototype
matching
process

(A)

1. Sensitivity
2. Intelligence
3. Dedication

Helen’s behaviors/traits

(B)

Question: Is Helen dedicated?
Reasoning: “Well, she’s an effective

leader. Therefore, she is
dedicated.”

Rating behaviors
or using global impressions

(D)

Helen is an
effective leader

Leader
evaluation

(C)

Section 7.2 Traditional, Contingency, and Relational Theories of Leadership

Figure 7.1: ILT and leadership ratings

This sample rating shows that Helen, a potential leader, meets three of the four specified criteria of
an effective leader. This makes her a strong candidate for being an effective leader to this particular
group of followers.

From Industrial/Organizational Psychology: Understanding the Workplace (5th ed., Fig. 13.1), by P. E. Levy, 2016, New York, NY:
Worth Publishers. Copyright 2017 by Worth Publishers. All rights reserved. Reprinted by permission of Worth Publishers.

1. Sensitivity
2. Intelligence
3. Dedication
4. Dynamism

Effective leader prototype
Prototype
matching
process
(A)
1. Sensitivity
2. Intelligence
3. Dedication
Helen’s behaviors/traits
(B)
Question: Is Helen dedicated?
Reasoning: “Well, she’s an effective
leader. Therefore, she is
dedicated.”
Rating behaviors
or using global impressions
(D)
Helen is an
effective leader
Leader
evaluation
(C)

Although you might assume that each person would develop his or her own unique standard
of leadership, this is surprisingly not the case. Typically, employees identify six characteristics
on which they evaluate their leaders’ effectiveness. The first four—sensitivity, intelligence,
dedication, and dynamism—are indicative of positive leadership; the last two, tyranny and
masculinity, are associated with negative leadership (Epitropaki & Martin, 2004). Although
ILT has important implications for understanding how followers evaluate leadership effec-
tiveness, there is little consensus on how organizations should apply the theory to help select
and develop leaders.

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Section 7.2 Traditional, Contingency, and Relational Theories of Leadership

What About Followers and Followership?
It is hard to imagine a leader with no followers. While a leader may be assigned to a position
and given authority over others, the leader may not be able to exercise effective leadership
unless the followers choose to allow him or her to do so. Keep in mind that followership is
not the same as obedience or submission. Some leaders may exercise their authority through
dominance, fear, or control over rewards and punishment. These leaders may force their fol-
lowers to do what they want them to do. However, obeying orders is vastly different from
willingness to buy into a leader’s vision and committing to shared goals and strategies. The
notion of leadership as the ability to influence and achieve goals through others necessitates
the latter.

The limited research on followership shows that followers play an active role in effective lead-
ership. Almost all of the leadership qualities discussed in this chapter are only important to
the extent that they are perceived by followers. Moreover, followers are willing to follow lead-
ers with whom they share mutual identification and trust (Hollander, 1992). Research shows
that leaders’ trustworthiness is determined through their followers’ perceptions of their abil-
ity (e.g., knowledge and skills), benevolence (e.g., having the followers’ best interest at heart),
and integrity (e.g., honesty, fairness, and consistency in words and actions) (Colquitt, Scott, &
LePine, 2007).

Furthermore, in the same way that trust and respect are earned over time, perceived leader-
ship and desired followership also change and evolve. Leaders gain legitimacy based on how
they are perceived to have been selected, how they behave, and the extent to which they meet

Consider This: Your ILT
Using your own observations and experiences, write a one-page description of your ideal
leader. In your description, be sure to include the traits, values, beliefs, and behaviors you
would expect him or her to exhibit in particular situations, as well as characteristics of your
relationship with the leader. Now make a brief list of three to five leaders who have influenced
you personally, socially, academically, or professionally. Rank order these leaders, starting
with the one who influenced you the most. Compare each of the leaders on your list against
your ideal leader description.

Questions to Consider

1. To what extent do the three to five leaders you listed fit your original description of
an ideal leader? To what extent do they deviate? To what extent are they similar to or
different from each other? To you?

2. Based on your answers, what is your ILT that influenced your perceptions of your
leaders’ potential or effectiveness?

3. Optional: Repeat the above exercise with a list of the worst leaders you have ever
had. To what extent did your ILT, rather than these leaders’ actual characteristics or
behaviors, influence your perceptions of them?

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Section 7.3 Contemporary and Emerging Theories of Leadership

their followers’ expectations. For example, emergent or elected leaders tend to earn more
legitimacy than assigned leaders, but they are also subject to more scrutiny and criticism.

Moreover, followers tend to respond positively to leaders who demonstrate, through positive
past encounters and conformity to norms, that they can consistently meet followers’ expecta-
tions. These types of leaders tend to earn what is called idiosyncrasy credit, or the freedom
and discretion to deviate from group expectations. For example, a leader who has established
perceptions of competence and has earned the trust, respect, and loyalty of his or her fol-
lowers can afford to “rock the boat” and bring about unusual changes that may otherwise be
unacceptable (Hollander, 1992). This leader has already earned enough “credit” in the idio-
syncrasy credit “bank” to draw from when such situations arise, which makes the followers
more accepting of such deviations from expectations.

Finally, many organizations are now moving away from the traditional leadership framework
and are using various forms of shared leadership, where no one person is assigned all the
authority associated with leadership. For example, team members can be assigned various
leadership responsibilities based on experience, or leadership roles can be rotated periodi-
cally among team members over time or across projects. Shared leadership, also sometimes
referred to as distributed leadership or collective leadership, blurs the line between leader-
ship and followership and has been shown to contribute significantly to team effectiveness
(Wang, Waldman, & Zhang, 2014).

Consider This: Shared Leadership—an Orchestra
Without a Conductor?

Watch the following video in which members of the Orpheus Chamber Orchestra discuss how
they practice shared leadership by operating without a conductor!

A Case of Shared Leadership: The Orpheus Chamber Orchestra

Questions to Consider

Think about the following questions the next time you work on a leaderless team project for a
class, at work, or as a volunteer.

1. What are some aspects of the project that require leadership?
2. Who emerged as the leader of each of those aspects? Who emerged as the leader of the

project in general?
3. What were the contributing factors to the emergence of each leader?
4. When and why do some of these leaders cease to be perceived as leaders?

7.3 Contemporary and Emerging Theories of Leadership
Although the identification of leadership components and styles has long been of interest
to researchers, more recent topics of study have focused on leaders’ ultimate motives and
how these influence their behaviors. We will examine some of these special topics in the
next section.

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Section 7.3 Contemporary and Emerging Theories of Leadership

Charismatic Leadership
When you hear the phrase “charismatic leadership,” specific leaders undoubtedly spring to
mind, such as Barack Obama, John F. Kennedy, Martin Luther King Jr., Mohandas Gandhi,
and Indira Gandhi. Each of these individuals is considered charismatic, but why? According
to the research, charismatic leaders challenge the status quo, rally followers around an
inspirational vision, empower followers, support followers’ needs, and take personal risks to
achieve success. Based on the expression of these behaviors, followers make heroic attribu-
tions about their leader, which enhances the leader’s credibility and effectiveness (Conger &
Kanungo, 1998).

Of course, charismatic leaders are not always moral or ethical. Individuals such as Adolf Hit-
ler, Benito Mussolini, and Charles Manson displayed all of the above-mentioned charismatic
leadership behaviors, yet they used their power in deplorable ways. Thus, it is important to
distinguish between positive and negative charismatic leaders. First, creating and maintain-
ing personal power is the main goal for the negative charismatic leader. These individuals
care more about creating personal devotion than generating commitment to the originally
espoused ideals. Second, the negative charismatic leader attempts to keep followers weak
and subservient in order to maintain power. On the other hand, a positive charismatic leader
supports, empowers, and challenges followers to achieve more. Finally, the negative charis-
matic leader uses his or her attributed heroic appeal for self-interest instead of the interest
of the followers.

Within the workplace, charismatic leaders can use their power to inspire innovation, collabo-
ration, creativity, and industry leadership—or they can misuse their power to inspire anxi-
ety, mistrust, and inequality (e.g., a CEO who brokers a multimillion-dollar salary, replete with
vacation homes and private jets, at the expense of employees’ benefits and jobs). On the nega-
tive side, one study showed that charismatic CEOs were able to negotiate higher salaries even
when the organization’s performance was mediocre (Tosi, Misangyi, Fanelli, Waldman, & Yam-
marino, 2004). Although negative charismatics are often successful at convincing others to
follow what might once have been a worthy goal, their misuse of power and focus on personal
instead of public good can result in disaster both for followers and the organization as a whole.

Transactional Leadership Framework
Most of the theories presented so far have dealt with leaders who work within a transac-
tional leadership framework, in which they guide and motivate followers along a path
toward established goals. Transactional leadership contains three distinct sets of behaviors:
laissez-faire leadership, management by exception, and contingent rewards.

Laissez-faire leadership is actually neither management nor leadership. Laissez-faire leaders
make no decisions, deny responsibility, provide no support to employees, and refuse to take
action. This is the most ineffective form of transactional leadership.

Management by exception provides followers with constructive criticism and punishes them
for poor performance; this type of leadership can be active or passive. In the active form, lead-
ers monitor workers closely and search for performance deviations, which they then imme-
diately address. In the passive form, leaders wait for a performance deviation to occur and
then react to it. In either case the goal for such leaders is to fix problems quickly and return

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Section 7.3 Contemporary and Emerging Theories of Leadership

the situation to the status quo as soon as possible. Both forms are inherently negative, and
management by exception is considered to be an ineffective form of management.

In contrast to laissez-faire leadership and management by exception, transactional leaders
who practice contingent rewards exhibit good management. Here, leaders provide agreed-
upon rewards to followers who work hard and meet goals. A meta-analysis by Judge and
Piccolo (2004) found a strong relationship between contingent reward leadership and
employee job satisfaction, employee motivation, leader effectiveness, and group/organiza-
tional performance.

The power of positive feedback, and positivity in general, was discussed in detail in Chapters
3 and 4. However, it is important to note here that positive feedback and recognition, when
administered contingently by leaders to their employees based on their performance, repre-
sent powerful rewards that can realize strong motivational results. The magnitude of those

positive results on employee performance has
been found to be comparable to that of financial
rewards (Stajkovic & Luthans, 1997, 2001, 2003).

In fact, employees can become saturated with
financial rewards, in the sense that more money,
although good to have, will not necessarily moti-
vate them to work harder. Actually, it may moti-
vate them to work less and reallocate their time to
other personally meaningful goals such as spend-
ing time with family and friends, retiring early, or
investing their additional financial resources on
other hobbies and interests. On the other hand,
nobody ever complains of having too much posi-
tive feedback or recognition! These two things
have the advantage of being inexhaustible.

Thus, leaders should realize that they have at
their disposal powerful tools to reward their
employees that cost them and their organiza-

tions absolutely nothing: positive feedback and recognition. They can leverage those tools by
learning to intentionally observe their followers’ behaviors and contingently rewarding the
appropriate behaviors through positive feedback and recognition, instead of, or at least less
frequently than, focusing on punishing negative behaviors. Contingent rewards and behav-
ioral management were discussed in more detail in Chapter 6.

Transformational Leadership Framework
Leaders who work within a transformational leadership framework differ from transac-
tional leaders in that they are more concerned with improving followers’ performance and
developing them to their fullest potential (Avolio, 1999). Ultimately, transformational leaders
attempt to motivate followers beyond their own self-interest in order to accomplish some-
thing for the greater good. Research on transformational leadership has dramatically spiked
in the past few decades (Judge & Bono, 2000) and has led to the identification of four specific

michaeljung/iStock/Thinkstock

Positive feedback represents a
powerful reward that can significantly
motivate employees. The performance
improvements realized as a result of
these intrinsic rewards are equivalent to
those of financial incentives.

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Section 7.3 Contemporary and Emerging Theories of Leadership

sets of behaviors: inspirational motivation, idealized influence, intellectual stimulation, and
individualized consideration.

• With inspirational motivation, leaders attempt to inspire followers to achieve more
than they thought was possible by setting high standards of excellence, using stories
and symbols to enhance followers’ understanding, and motivating followers to over-
come barriers and setbacks.

• Idealized influence provides a vision of the future that transcends followers’ self-
interest and creates a collective sense of mission. Transformational leaders who
exhibit idealized influence also possess very high standards of moral and ethical
conduct, which in turn increases followers’ respect of and trust in them.

• As you can probably guess, intellectual stimulation focuses on stimulating followers’
creativity and challenges them to think outside the box. Followers are encouraged to
question the status quo, come up with new ideas, and experiment with new ways to
solve big problems.

• Finally, individualized consideration provides followers with a supportive environ-
ment and attends to their relationship needs. Typically, transformational leaders
who practice these behaviors act as coaches or mentors for their followers. This
support and guidance helps followers develop new skills, which then enhance their
work performance and potential.

In general, research has shown transformational leadership to be more effective than transac-
tional leadership in producing favorable performance and attitudinal outcomes (Bass, Avolio,
Jung, & Berson, 2003; Dumdum, Lowe, & Avolio, 2013; Howell & Avolio, 1993). Keep in mind,
however, that transactional and transformational frameworks of leadership are not mutually
exclusive. Indeed, the best leaders actually use both: transactional to build the initial frame-
work, then transformational to inspire even greater motivation and levels of performance.

Emerging Theories of Positive Leadership
Over the past several years, there has been a
reorientation toward positive leadership theo-
ries, including ethical leadership theory, spiri-
tual leadership theory, and authentic leadership
theory.

Ethical Leadership Theory
Ethical leadership theory has four dimensions:
integrity and altruism of the leader and collec-
tive motivation and encouragement for the fol-
lowers (Martin, Resick, Keating, & Dickson, 2009;
Resick, Hanges, Dickson, & Mitchelson, 2006;
Toor & Ofori, 2009). Ethical leadership is clearly
needed in today’s business environment, which
is dominated by greed and unethical behavior,
as portrayed by the extensive media coverage of
recent corporate scandals. Ethical leadership is Mike Baldwin/Cartoonstock.com

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Section 7.3 Contemporary and Emerging Theories of Leadership

also critical for corporate social responsibility, reputation, and environmental sustainability,
which are currently hot topics in the business landscape.

Spiritual Leadership Theory
Spiritual leadership theory (Fry, 2003) includes intrinsic motivation of followers through a
sense of membership or community and a sense of calling. Membership and calling are pro-
moted by the spiritual leader through vision, hope and faith, and altruistic love. Altruistic love
incorporates a wide range of positively oriented dimensions such as kindness, forgiveness,
integrity, courage, empathy and compassion, honesty, patience, trust and loyalty, and humil-
ity. Spiritual leadership also follows nine spiritual anchors: perfection, compassion, passion,
inspiration, investigation, dedication, appreciation, determination, and cooperation (Karakas,
2010). Most importantly, spiritual leadership is different and more inclusive than religious
leadership, because it is based on a value system that lends itself to most religious and cul-
tural backgrounds. Thus, it is more suitable for global leaders who are leading across cultures,
because it is not as specific to the United States or to the West as are most other leadership
theories.

Authentic Leadership Theory
The third emerging positive leadership theory introduced here is authentic leadership
theory. Harter (2002) defines authenticity as “owning one’s own personal experiences, be
they thoughts, emotions, needs, wants, preferences, or beliefs[,] . . . [acting] in accord with
the true self, expressing oneself in ways that are consistent with inner thoughts and feel-
ings” (p. 382). Thus, authentic leaders are expected to remain true to themselves, admit their
strengths and weaknesses, and openly express their true thoughts and feelings. Authentic
leadership comprises self-awareness, relational transparency, internalized moral perspec-
tive, and balanced processing. Balanced processing is the leader’s ability to objectively con-
sider different viewpoints when making decisions (Avolio, Gardner, Walumbwa, Luthans,
& May, 2004). Authentic leaders are also capable of exploring and striving toward multiple
“possible selves” for the future if their present, “actual self ” is less than desirable, without
compromising their true self.

Avolio and Luthans (2006) explain that authentic leadership is a long-term developmental
process. This process draws from the following factors:

• The leader’s life experiences
• The leader’s psychological capital (hope, efficacy, resilience, and optimism)
• The leader’s moral perspective
• A highly supportive organizational climate

These factors are expected to result in higher self-awareness in leaders, which in turn helps
leaders better self-regulate their behaviors toward continuous self-development.

Most notable about authentic leadership development are how it systematically unfolds and
the role that a positive organizational context can play. Imagine the hypothetical situation in
which an individual is endowed with an ideal combination of talents, resources, and oppor-
tunities and has parents, teachers, and role models cheering her on every step of the way. Of
course, that person’s emergence as a leader may be easy to predict and explain. She is set up

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Section 7.4 Leadership and Power

for success. Now imagine the opposite: an individual who is considered below-average and
has limited resources and opportunities but emerges as a leader against all odds. Both of
those situations are rare. It is unlikely that a potential leader will find himself in a situation
in which his development is perfectly planned. It is also unlikely that an effective leader will
result from a haphazard combination of uncontrollable situational factors. Authentic leader-
ship development is a more realistic process in which planned and unplanned trigger events
are purposefully orchestrated within a supportive organizational climate in order to enhance
self-awareness, self-regulation, and self-development. In turn, authentic leaders are charac-
terized by being keen to develop their followers into authentic leaders as well. Of course, the
ultimate goal of authentic leadership development is veritable, sustainable performance from
the leader and the followers.

Find Out for Yourself: Warren Buffett and Bill Gates
as Authentic Leaders

Warren Buffett and Bill Gates are two of the richest and most successful businessmen in the
world. They are known for investing time and energy in imparting their wisdom, knowledge,
and experience to the next generation of leaders, both in their respective companies and in
their numerous interactions with college students. Watch the following video for a great exam-
ple of one of those many occasions.

Buffett and Gates Go Back to School: Good Business Habits

What Did You Learn?

1. In what ways could Buffett and Gates be considered authentic leaders?
2. In what ways do Buffett’s and Gates’s leadership styles influence the authenticity of

their followers and, in turn, their development into authentic leaders?

7.4 Leadership and Power
Power is the capacity of one person to influence the behaviors of another. In many ways this
definition is similar to that of leadership. So, are leadership and power the same thing? The
answer is no, but the two concepts are intertwined. Power is a tool; leadership is use of that
tool. Like any tool, power may be used effectively or poorly, positively or negatively. Finally, not
all leaders have the same kind or amount of power, many can lose it, and some have none at all.

Where do leaders get their power? Why do some leaders have power and others do not? Raven
(1993) has identified five types of power—legitimate, coercive, reward, expert, and referent—
that address these and other power-related questions.

Leaders begin their tenure with a certain amount of legitimate power, which stems from their
job title or position within the organization. Workers will follow their boss because he or she is,
quite simply, the boss. Typically, leaders who have a higher position of authority will also have
greater legitimate power than lower level managers. Keep in mind that leaders, should they
prove to be ineffective or incompetent, can quickly lose some or all of their legitimate power.

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Section 7.5 Identifying and Developing Effective Leaders

Coercive power is based on fear. Followers do what the leader says because they are afraid
of negative consequences if they do not. Within an organization, negative consequences can
include reprimands, micromanagement, limitations in movement or chances for promotion,
revocation of assignments, or job termination. Leaders who use coercive power reinforce
compliance, which tends to limit the amount of effort employees put into excelling at their
jobs.

Reward power is the opposite of coercive power. Followers comply with the leader in order to
obtain positive rewards. In order to have reward power, leaders must be able to give rewards.
Examples include pay, benefits, promotions, job assignments, and other recognition.

Expert power stems from a leader’s special skills, knowledge, and expertise. This is one of
the strongest forms of power because it is based on the leader’s actual competence rather
than his or her job title. Note that leaders who lack expert power can always gain it by increas-
ing their knowledge or competence.

Finally, if you have ever liked and admired another person, chances are that person had great
influence over your thoughts and behaviors. Referent power is power that develops out
of admiration for and the desire to be like the leader. Followers can grant referent power
to anyone, regardless of the person’s formal level of leadership or relationship to them. For
example, many people attribute referent power to famous actors, singers, athletes, political
leaders, and even historical figures whom they have never met or directly interacted with.
Charismatic, transformational, and authentic leaders are also likely to exert referent power
over their followers.

Leaders may hold any of the five sources of power or combinations thereof, but the ques-
tion remains, which sources are the most effective? Research has shown that formal power
sources (legitimate, coercive, and reward) are less effective in influencing followers than
informal sources (expert and referent). Expert and referent power are positively related to
employee satisfaction, commitment, and performance (Carson, Carson, & Roe, 1993; Podsa-
koff & Schriesheim, 1985). This is because employees often follow leaders with expert and
referent power willingly and voluntarily. On the other hand, legitimate, coercive, and reward
power may not always be seen as “earned.” As soon as a leader loses his or her position, that
leader will likely lose these formal sources of power. However, expert and referent power may
last regardless of formal position.

7.5 Identifying and Developing Effective Leaders
Although it is important to understand the hows and whys of effective leadership, organiza-
tions need to know how to apply this information to help them identify and develop leaders.
I/O psychologists have researched a variety of approaches organizations can use to accom-
plish this important task.

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Section 7.5 Identifying and Developing Effective Leaders

Leadership Selection
As discussed earlier in this chapter, as well as in
other chapters of this book, not all human char-
acteristics are open to development. For example,
we know that a good portion of leadership emer-
gence and effectiveness is based on stable per-
sonality traits, which tend to be hardwired and
almost impossible to change in adults. This is the
“born” part of leadership. Thus, it is important to
select leaders who possess these traits, because
they cannot be developed. Identifying and select-
ing effective leaders is one of the most important
yet most difficult tasks for organizations. Nadler
and Nadler (1998) clearly summarized this chal-
lenge, writing that

in their most introspective moments, most executives readily acknowledge
that selecting the right people for the right jobs constitutes one of the most
important responsibilities. Few decisions that they make will have as direct
an impact on every facet of the organization. Yet, few other decisions are made
in such an illogical, slipshod manner. (p. 229)

To improve their leadership selection process, organizations should always include the fol-
lowing two steps: First, perform a rigorous job analysis of the leadership position in question,
and second, introduce structured interviews and assessments into the selection process.

In Chapter 2 we discussed the value of the job analysis in defining the characteristics a worker
needs to perform a job successfully. When applied to positions of leadership, a job analysis
also provides the data needed to select a successful job candidate, including the critical KSAOs
necessary for success, the essential tasks the leader will perform, and the situational factors
the leader will experience. Situational factors are especially important when an organization
wants to establish fit between a candidate and the work environment. After the organization
thoroughly defines the leadership position through a job analysis, it will be able to design an
effective evaluation process.

As already mentioned, structured interviews and assessment tools are key to identifying lead-
ers. Structured interviews give the organization the opportunity to learn about and evaluate
the candidate’s experiences and how they relate to the position, and they are especially effec-
tive at evaluating the candidate’s communication, persuasion, influence, and negotiation abili-
ties. Assessment tools, in the form of personality tests, measure critical leadership traits, such
as extraversion, conscientiousness, and openness to experience. Although not as commonly
used as interviews and personality tests, assessment centers also help organizations evaluate
leader candidates. Because they require candidates to demonstrate essential leadership skills
(such as coaching, delegating, persuading, influencing, making decisions, communicating,
and formulating strategy) within a simulated work environment, assessment centers provide
clearer insights than any other selection method into an individual’s leadership skills.

Ryan McVay/Thinkstock

Structured interviews and assessment
tools are key to identifying potential
leaders.

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Section 7.5 Identifying and Developing Effective Leaders

Leadership Development
According to the ATD, organizations spend billions of dollars each year on leadership train-
ing and development (American Society for Training and Development, 2010; Dvorak, 2007a).
Much of that investment is made in formal education. Some organizations send leaders to lead-
ership programs offered by elite business schools, including Harvard, MIT, Stanford, and Whar-
ton. Despite their cost—some have a price tag of $100,000 per person—these programs have
the advantages of a prestigious faculty, an elite reputation, and a socially powerful student
body. Other companies also make a considerable investment in internal-development pro-
grams. General Electric, for example, has created a world-renowned leadership-development
facility called Crotonville, where the company develops executive leaders.

Some researchers and practitioners have proposed that organizations use job experiences
instead of formal education to develop their leaders. One study found that leaders who were
asked to recall specific factors that were most valuable to their development as leaders most
frequently cited experiences, not education (McCall, Lombardo, & Morrison, 1988). Clearly,
people do learn to be effective leaders on the job, so organizations must provide leaders with
specific hands-on development opportunities that stretch and challenge their KSAOs. This is
also consistent with the authentic leadership development process, discussed earlier, which
relies on planned and unplanned trigger events and experiences rather than just formal edu-
cation or training.

Executive Leadership Derailment
The reason organizations spend so much time, money, and effort trying to identify, select, and
develop leaders is simple: They do not wish to hire ineffective, incompetent, or harmful lead-
ers. Leadership derailment, or the process by which a leader displays increasingly ineffec-
tive behavior, is very expensive. Costs associated with leadership derailment have been esti-
mated to range from $750,000 to $1.5 million per executive leader (DeVries & Kaiser, 2003).
One study even estimated that the cost per derailed executive leader exceeds $2.7 million
(Smart, 1999). How can this be? By the time a leader derails, the organization has already
spent a large amount of money both to recruit the executive (including executive search firm

Find Out for Yourself: Criteria for Selecting Leaders
Browse the Internet for leadership position openings. Use free search engines, or if you sub-
scribe to more specialized or higher end recruitment sites, you can use those as well.

What Did You Learn?

1. What are some of the most common selection criteria that organizations use for leader-
ship position candidates?

2. To what extent do each of those selection criteria relate to personality, individual differ-
ences, past experience, or KSAOs?

3. How would you recommend assessing potential candidates on each of those criteria?
What specific methods, tools, or tests would you use? You may use additional research
to find the most effective approaches for assessing each criterion.

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Section 7.6 The Importance of Communication

fees, interview travel expenses, signing bonuses, and relocation costs) and to help him or her
improve performance. At the time of termination, the organization loses still more money to
the former executive in the form of exiting costs, including retirement plan and severance
package payments. Finally, most estimates of leadership derailment expenses do not include
the hidden costs associated with an incompetent leader, such as losses in business opportu-
nity, customers, employees, and intellectual property.

Studies on the prevalence of incompetent leaders have shown astonishingly high numbers.
Participants in one study indicated that only 38% of their bosses, both current and former,
were worthy of working for again (Curphy, 2008). After examining a dozen published studies
on the investigation of the base rate of leadership failure, Hogan, Hogan, and Kaiser (2010)
found that results ranged from 30% to 67% and placed the average at 50%. In other words,
on the basis of the data, the authors concluded that “two-thirds of existing managers are
insufferable, and at least half will eventually be fired” (p. 556).

The question is, why do leaders derail? Although there are of course many reasons why a
person can fail as a leader, research has been able to find some consistent signs of derailment
(Hogan & Warrenfeltz, 2003):

• Displaying a lack of self-awareness
• Having a narrow focus and lack of strategic perspective
• Being arrogant or overly cocky
• Exhibiting overly controlling behaviors, such as micromanagement
• Showing insensitivity and abrasiveness toward others
• Allowing stress to become overwhelming
• Favoring self-interest over the company’s interest

As you can see, many of these factors are directly related to the leader’s EI. Indeed, as explained
earlier, when it comes to leader derailment, lack of EI is much more detrimental and directly
connected to failure than technical abilities and skills (Goleman, 2000; Luthans, 2002a).

7.6 The Importance of Communication
Communication, the transfer of meaning from one person to another, is an essential quality
of the effective leader. Because leaders spend the majority of their time communicating, they
must focus not only on being heard but also on being understood. With all the choices for
methods of communication—including traditional (memos, letters, meetings, presentations,
face-to-face interactions) and emerging (instant messaging, e-mail, texting, social networks)
forms—leaders often struggle to find the best way to communicate each message.

The Process of Organizational Communication
The purpose of communication is to convey a message from a sender to a receiver. Interest-
ingly, even with the advent of instant messaging, e-mail, and the like, the process of commu-
nication has remained relatively consistent over time. In 1949 Shannon and Weaver defined
seven elements that are still regarded as essential for the process of communication (a model
of this process is shown in Figure 7.2): source, message encoding, channel, noise, receiver,

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Channel

Feedback

Sender

Noise
source

Message
Encoding
message

Receiver

Message
received

Message
decoded

Section 7.6 The Importance of Communication

message decoding, and feedback loop. To communicate, a source (for our purposes, the
leader) encodes a message and transmits it through a channel (method of communication)
to a receiver (the follower), who then decodes the message to make sense of the information.
Sometimes, a channel may contain noise that blocks or distorts the message. Examples of
noise are language barriers, information overload, emotion, or perceptual problems. The final
element of communication is the feedback loop. By obtaining feedback, the sender confirms
that he or she has in fact transferred the desired message and that the receiver has properly
decoded the message.

Figure 7.2: The communication process

The seven essential elements of the communication process.

Channel
Feedback
Sender
Noise
source
Message
Encoding
message
Receiver
Message
received
Message
decoded

Barriers to Effective Communication
Effective communication is inherently difficult. As mentioned above, many factors can inter-
fere with a person’s ability to send, receive, or interpret a message. One such factor, informa-
tion overload, deals with the amount of information a person is able to meaningfully process.
People have a finite capacity for processing information, and the continual onslaught of infor-
mation sent through methods such as e-mail, instant messages, social media, meetings, and
phone calls places people at a higher risk of information overload. Another factor, called selec-
tive perception, occurs when receivers process only the portions of the message that relate to
their own needs, motivations, personal characteristics, and/or experiences. In this situation,
the receiver skews the message to meet his or her reality. Emotions can also affect the way in
which a person sends or receives messages. A person who comes to work angry, for example,
may interpret a manager’s e-mail differently than a coworker who is having a good morn-
ing. Finally, language barriers impede how we communicate. Even when communicating in
the same language, people can attribute different meanings to the same words. Newly hired
employees can also struggle to understand the slang and jargon used by veterans in the orga-
nization. With so many different barriers to communication, it’s truly a miracle we are able to
understand as much as we do!

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Section 7.6 The Importance of Communication

Key Functions of Organizational Communication
From globalization to advances in technology to the troubled economic climate, the enor-
mous changes and challenges faced by businesses today have made effective communication
increasingly important to overall organizational performance. Although the primary function
of communication is to affect receiver understanding, research suggests it does much more
than this (Poole, 2010). For example, Neher (1997) emphasized the effect of communication
on organizational and social aspects within the workplace over and above the basic exchange
of information. Specifically, Neher drew attention to the role of communication in establish-
ing order and control as well as its influence on functions such as problem solving, conflict
management, negotiation, and bargaining. Similarly, Myers and Myers (1982) identified three
primary functions of communication over and above that of message conveyance: coordina-
tion and regulation of production activities, socialization of workers, and innovation.

Structure of Communication
The structure of organizational communication can be very complicated. In large companies
communication can involve hundreds or even thousands of workers using many different
channels across a number of hierarchical levels. In the past, large bureaucratic organiza-
tions relied almost exclusively on formal (e.g., downward or hierarchical), one-way methods
of communication. They believed that workers who lacked a structured, controlled commu-
nication process would be unable to obtain the information they needed to perform their
jobs properly. Furthermore, these organizations feared that informal (e.g., lateral) methods of
communication would create uncontrolled chaos and block the flow of information. However,
it is important to note that no formal communication system can account for all of the pos-
sible paths and directions of communication within an organization. Therefore, such systems
are inherently limited. Indeed, some researchers have proposed that informal communica-
tion is critical for managing and maintaining an organization’s culture (D’Aprix, 1996).

In addition to supporting an organization’s culture, informal processes can also make com-
munication speedier and more effective than formal processes can through the establish-
ment of communication networks. A communication network, also known as the grapevine,
arises when workers establish lines of communication among themselves, including peers,
members of both higher and lower hierarchical levels, and workers in different areas of the
company. Figure 7.3 shows an example of a simple communication network.

A number of properties influence the way in which networks and the people within them
work. First, network density compares the number of existing connections between network
members with the total number that could possibly form. The sample network in Figure 7.3 is
a dense network because almost all possible connections have been made. Second, networks
can be described according to the strength of the relationships between members. Those who
communicate more often will have stronger relationship ties, whereas those who seldom com-
municate with others will have weak ties. Networks with many strongly tied workers will be
more cohesive than those with weakly tied workers (Poole, 2010). Network centralization,
the third property, is the number of people in charge of controlling the flow of communica-
tion. In highly centralized networks, only a few members control the flow of communication.
In decentralized networks (of which Figure 7.3 is an example), the opposite is true. Finally,
network connectivity is the extent to which all members of a network are connected to each
other, either directly or indirectly. In Figure 7.3 the sample network is highly connected.

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Employee

Manager

Executive

Coworker

Section 7.7 Direction of Communication

Interestingly, contrary to the notion that they are breeding grounds for rumor and gossip,
informal networks have been found to channel communication as accurately as more formal
methods (Monge & Contractor, 2003). Furthermore, employees who are actively involved in
informal networks are more knowledgeable about their organization, better at improvising to
solve problems, and better able to innovate (Albrecht & Hall, 1991; Bach, 1991; Bastien, 1992).
Informal networks may demonstrate their effectiveness most clearly during times of turbu-
lence and change, because they allow for the speedy development of solutions to problems
and require no command and control structure to accomplish work (McPhee & Poole, 2000).

7.7 Direction of Communication
Communication within an organization can flow vertically (from the leader to the follower
and vice versa), laterally (from one peer to another), or diagonally (from a leader to a follower
in another area of the organization and vice versa). Traditionally, organizations have placed
greater emphasis on vertical communication, but that is no longer the case. As organizations
have become more complex, so has their communication, making lateral and diagonal forms
increasingly important.

Figure 7.3: Networking example

Effective communication depends on communication networks that establish open lines of discourse
between all parties.

Employee
Manager
Executive
Coworker

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Section 7.7 Direction of Communication

Downward Vertical Communication
Downward vertical communication, sometimes referred to as hierarchical communication,
flows from a higher to a lower level of the organizational hierarchy. When we think of leader-
ship communication, this is the type we typically think of. Leaders at all levels of the organi-
zation use downward communication to share information, set goals, provide feedback, and
reward or punish behavior. Surprisingly, although organizations engage in downward com-
munication frequently, they generally do not do it well. Based on a survey of 30,000 employ-
ees, Morgan and Schieman (1983) found that a majority of the workers felt their organization
was ineffective at communicating down to them. The lowest level employees—those who
probably received the least amount of communication—felt the most negative about the com-
munication they did receive.

Organizations can improve downward communication in a number of ways. One relatively
simple way is to provide employees with explanations as to why leaders made the decisions
they did. In one study, employees were twice as likely to commit to a decision if they under-
stood the reason behind it (Dvorak, 2007b). Another way to improve downward communi-
cation is to try to counteract its one-way nature by encouraging followers to provide input
and opinions. The best downward communication, then, occurs when a leader explains the
reasons for decisions and gathers input from his or her employees.

Upward Vertical Communication
Upward vertical communication flows from a lower to a higher level of a work group.
Employees use this method to inform management of the status of projects, to express feed-
back, and to alert management of goal attainment. Organizations have established a number
of formal ways for employees to engage in upward communication, including employee sur-
veys, grievance programs, suggestion boxes, and employee participation programs such as
quality circles and team meetings.

As with downward communication, employee satisfaction with upward communication is
quite low (Gibson & Hodgetts, 1991). There are a number of reasons for poor upward com-
munication: Employees may fear reprisal for speaking their mind, managers may not pay ade-
quate attention due to time constraints, and managers may steal employees’ ideas (McClel-
land, 1988). Leaders need information and feedback from their followers in order to make
more informed decisions; they must therefore create an environment in which followers feel
safe engaging in upward communication.

Lateral Communication
Lateral communication flows between peers at the same level of a work group. The trend to
flatten the hierarchical structure of organizations has reduced the emphasis on strictly down-
ward communication, resulting in increased importance of communication between peers.
The rise of the work team and the emergence of virtual workers and geographically separated
work groups has also mandated the use of lateral communication to promote the sharing of
ideas, expertise, best practices, and lessons learned.

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Section 7.8 Special Issues and Challenges in Organizational Communication

Diagonal Communication
Diagonal communication flows between managers and workers located in different parts
of the business (Wilson, 1992). As communication has changed within the modern organiza-
tion, diagonal communication has emerged as an important method of communication. The
concept was originally introduced to address the communication challenges associated with
new organizational formats, such as matrix and project-based organizations.

7.8 Special Issues and Challenges in Organizational
Communication
Think about how communication within organizations has changed over the past three
decades. Several decades ago, it was relatively slow and involved a lot of physical effort, as
managers made requests (and left a lot of messages), and employees searched for informa-
tion (making false starts, traveling circuitous routes, hitting dead ends, and also leaving many
messages). Managers’ main concern was sharing information through a formal top-down
communication system. Today communication is not only much more interconnected and
varied, but faster as well. Modern workers have a world of information at their fingertips;
they can access libraries, newspapers, research publications, encyclopedias, and more from
their computers instead of having to physically visit the library or wait for information to
arrive by courier or in the mail.

Technological Changes
Advanced information technology allows organizations
unprecedented opportunities to openly and quickly com-
municate and exchange ideas, which can enhance cre-
ativity, innovation, customer satisfaction, and employee
engagement. However, there are also problems with the
excessive use of electronic media for communication.
First, despite the ease of modern forms of communica-
tion, being connected to one’s job 24 hours a day—as
many of today’s employees are—can result in an overload
of communication. Second, ongoing electronic communi-
cation can upset work–life balance, because an employee
with a company-issued cell phone is never really off the
clock. Third, electronic communication threatens to vio-
late employee privacy, because many devices today are
equipped with a Global Positioning System (GPS) track-
ing device, making employees’ whereabouts traceable at
all times. Fourth, the risks of industrial espionage and
intellectual property pirating are exacerbated by tech-
nology and electronic communication. Finally, when
electronic communication replaces richer media such as
face-to-face interaction, leaders and employees can feel
distant and estranged, making it harder to relate to each
other and build trust.

Photos.com/Thinkstock

Communication is faster and
more interconnected than ever
before, thanks to advances in
information technology. As a
result, it has never been easier
to exchange ideas that can lead
to enhanced creativity and
innovation.

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Section 7.8 Special Issues and Challenges in Organizational Communication

Similarly, social networking is a powerful tool for career development and organizational suc-
cess. Research shows that the ties created through even the brief interactions typical of social
networking can contribute valuable resources for employment, career advancement, and new
knowledge transfer (Inkpen & Tsang, 2005; Montgomery, 1992, 1994). However, social net-
working, especially when mediated by technology, presents the same challenges of electronic
communication, including communication overload, work–life imbalance, estrangement, and
violation of employee privacy and organizational intellectual property. For example, as part
of their selection processes, many employers now routinely visit social networking websites
and take into consideration the information that candidates choose to reveal on their pages
and the friends they choose to associate with.

Cross-Cultural and Gender Differences
Increasing diversity in the workplace poses its own set of unique communication challenges.
Indeed, cross-cultural differences can shape our perceptions and interpretations of commu-
nicated messages. On the other hand, contrary to common beliefs, gender differences in com-
munication are not as prevalent (Aries, 1996). The very large within-group variations in men
and women’s communication styles most likely account for the inconsistent and inconclusive
research findings in this area (Reeder, 1996).

While some of the most recognized cross-cultural differences are covered in this section, this
is by no means an exhaustive list of issues to consider.

Hofstede’s National Cultural Dimensions
The national culture model (Hofstede, Hofstede, & Minkov, 2010) was established after Profes-
sor Geert Hofstede and his research team analyzed value scores reported by IBM employees
in 40 countries. Hofstede found that employees’ preferences in relation to six specific cultural
dimensions could be used to distinguish countries and their values from one another. These
six dimensions are power distance, individualism, masculinity, uncertainty avoidance, long-
term orientation, and indulgence. Table 7.2 further defines and compares these dimensions.

As you can see from Table 7.2, the way societies relate to specific cultural dimensions can
affect how that society communicates internally as well as externally. Consider, for example,
how a businessperson from a culture with a low degree of uncertainty avoidance might dis-
cuss a risky but potentially profitable endeavor with a partner from a culture that has a high
degree of that same dimension. Or similarly, how a leader from a low power distance culture
may not receive genuine input and feedback from his or her followers in a high power dis-
tance culture.

Trompenaars’s Cultural Factors
In a similar attempt at understanding cultural differences, Dutch organizational theorist Fons
Trompenaars identified seven cultural factors that can act as a guideline for cross-cultural
communication. Table 7.3 provides a breakdown of each of these seven factors.

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Section 7.8 Special Issues and Challenges in Organizational Communication

You may notice some similarities between Trompenaars’s and Hofstede’s cultural dimen-
sions. However, an important distinction is that Trompenaars’s work was based on more
diverse samples, while Hofstede’s work was based primarily on employees of one company.

Trompenaars’s Four Diversity Cultures
Trompenaars also developed another model for understanding cultural differences, known
as the four diversity cultures. Rather than comparing cultures over a range of seven differ-
ences, however, the four diversity cultures model establishes two major dimensions: person/

Table 7.2: National cultural dimensions

Dimension Description
Cultures with high
degree of dimension

Cultures with low
degree of dimension

Power distance The degree to which
members of a society
accept and expect that
power is distributed
unequally

Accept a hierarchical
order in which every-
body has a place and
which needs no further
justification

Strive to equalize the
distribution of power
and demand justifica-
tion for inequalities of
power

Individualism The degree to which
members of a society
depend on one another
to provide care; can be
detected in whether
people define their self-
image as “I” or as “we”

Prefer a loosely knit
social framework in
which individuals are
expected to take care
of only themselves
and their immediate
families

Prefer a tightly knit
societal framework in
which individuals can
expect their relatives or
members of a par-
ticular in-group to look
after them in exchange
for unquestioning
loyalty

Masculinity The degree to which
a society is more
competitive or
consensus-oriented

Prefer achievement,
heroism, assertiveness,
and material rewards
for success

Prefer cooperation,
modesty, caring for the
weak, and quality of life

Uncertainty avoidance The degree to which
members of a soci-
ety feel comfortable
with uncertainty and
ambiguity

Maintain rigid codes
of belief and behavior
and are intolerant of
unorthodox behavior
and ideas

Maintain a more
relaxed attitude in
which practice counts
more than principles

Long-term orientation The degree to which a
society maintains links
with its own past while
dealing with the chal-
lenges of the present
and the future

Encourage careful
use of resources and
modern education as a
way to prepare for the
future

Prefer to maintain
established traditions
and norms while view-
ing societal change with
a level of distrust

Indulgence The degree to which a
society allows for the
gratification of needs
and drives

Allow relatively free
gratification of basic
and natural human
drives related to enjoy-
ing life and having fun

Suppress gratification
of needs and regulate it
by means of strict social
norms

Source: From “Geert Hofstede: National Culture,” by Hofstede Centre, n.d. (http://geert-hofstede.com/national-culture.html).

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Section 7.8 Special Issues and Challenges in Organizational Communication

Table 7.3: National culture differences

Differences Description
Cultures with a high
degree of Trait A

Cultures with a high
degree of Trait B

Trait A: universalism
vs.
Trait B: particularism

The degree to which a
culture applies ideas
and practices

Focus on broad,
general rules that
can be applied to all
situations; tend to be
more rational and task
focused

Focus on applying
rules on a case-by-
case basis; tend to
place greater empha-
sis on relationships

Trait A: individualism
vs.
Trait B: communitarianism

The degree to which
members of a culture
regard themselves
as part of their
community

People regard
themselves primar-
ily as individuals;
focus on individual
contributions and
achievements

People regard them-
selves primarily as
part of a group; focus
on community first

Trait A: neutral
vs.
Trait B: affective

The degree to which
our interactions
should include
emotion

Typically prefer objec-
tive and/or detached
interactions

Expect emotion to be
part of all interactions,
including in business

Trait A: specific
vs.
Trait B: diffuse

The degree to which
the whole person
is involved in an
interaction

Tend to adhere to a
specific relationship,
such as one pre-
scribed by a contract

Emphasize the
importance of build-
ing a relationship that
encompasses more
than the immediate
goal

Trait A: achievement
vs.
Trait B: ascription

The way in which a
society acknowledges
status

Acknowledge status
based on recent
accomplishments and
record

Acknowledge status
based on birth, kin-
ship, gender, age,
connections, and
educational record

Trait A: sequential
vs.
Trait B: synchronic

The way in which
society views time

View time as moving
along a straight line;
focus on the pres-
ent and plans for the
future

View time as moving
in a circle; past and
present are consid-
ered alongside future
possibilities

Trait A: internal
vs.
Trait B: external

The way in which
society views its
relationship to the
environment

See motivation, val-
ues, and other major
aspects affecting
individuals as coming
from within

See the environment
as affecting individual
behaviors; nature
is something to be
feared or emulated

Source: From Riding the Wave of Culture: Understanding Diversity in Global Business (3rd ed.), by F. Trompenaars and C.
Hampden-Turner, 2012, New York, NY: McGraw-Hill.

informal style vs. task/formal style, and egalitarian/decentralized vs. hierarchical/central-
ized. Depending on how a culture aligns with each of these dimensions, it can fall into one
of four culture types: incubator, guided missile, family, or Eiffel Tower. Figure 7.4 provides
a visual representation of how these dimensions and culture types are divided, as well as a
closer look at the characteristics of each of the four types.

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226

– Person oriented
– Power of the individual
– Self-realization
– Commitment to oneself
– Professional recognition

Incubator

– Task orientation
– Power of knowledge/expertise
– Commitment to (tasks)
– Management by objectives
– Pay for performance

Guided missile

Egalitarian/decentralized

Person/
informal style

Task/
formal style

– Power of orientation
– Personal relationships
– Entrepreneurial
– Affinity/trust
– Power of person

Family

– Role orientation
– Power of position/role
– Job description/evaluation
– Rules and procedures
– Order and predictability

Eiffel Tower

Section 7.8 Special Issues and Challenges in Organizational Communication

These culture types have notable organizational implications. For example, leaders need to
be aware of the type of culture in which they operate and must adapt their leadership style
accordingly. A leadership style that relies on formal power, authority, and structure may be
effective in Eiffel Tower cultures but may be overbearing and counterproductive in an incuba-
tor culture. Similarly, many North American multinationals attempt to introduce guided mis-
sile principles in countries that are predominantly hierarchical and reliant on personal rela-
tionships (family cultures). This misfit tends to create conflict and promote an “us-and-them”
mentality between leaders from the parent company and locals who may perceive them, at
best, as culturally naive or incompetent and, at worst, as condescending and imposing on
their cultural heritage.

Figure 7.4: Trompenaars’ four diversity cultures

– Person oriented
– Power of the individual
– Self-realization
– Commitment to oneself
– Professional recognition
Incubator
– Task orientation
– Power of knowledge/expertise
– Commitment to (tasks)
– Management by objectives
– Pay for performance
Guided missile
Egalitarian/decentralized
Egalitarian/decentralized
Person/
informal style
Task/
formal style
– Power of orientation
– Personal relationships
– Entrepreneurial
– Affinity/trust
– Power of person
Family
– Role orientation
– Power of position/role
– Job description/evaluation
– Rules and procedures
– Order and predictability
Eiffel Tower

Find Out for Yourself: Culture and Leader Effectiveness:
The GLOBE Study

The Global Leadership and Organizational Behavior Effectiveness (GLOBE) Research Program
studies the intersection between leader characteristics and many of the cultural dimensions
discussed in this section. Visit the following website to read a summary of the GLOBE study.

Culture and Leader Effectiveness: The GLOBE Study

What Did You Learn?

1. In which “country cluster” does the country in which you live fall?
2. To which leadership style(s) does your country relate most? Least? Were you surprised

by these results?

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227

Summary and Conclusion

Although leadership and communication are critical for organizational success, they are
two of the most difficult organizational processes to understand, develop, and effectively
manage. Organizational decision makers are strongly advised to give these two dimensions
of organizational success special attention and to leverage them as a sustainable source
of competitive advantage. This is because—unlike many other tangible resources such as
buildings, machinery, equipment, or even state-of-the-art technology, which are becoming
easier for competitors to copy and imitate—effective leadership and communication are
unique for each organization. One size does not fit all. Every organization has to incremen-
tally develop its own leadership and communication processes, which should fit its mission,
vision, values, and strategic orientation. The approaches in this chapter offer a starting point
for thinking more strategically about leadership and communication. Whether you are a
leader or a follower in a large or midsize organization or are considering starting your own
business or working for a small business, leadership and communication should be in the
forefront as you make decisions for your organization.

Consider This: Adapting Your Communication Style
to Cross-Cultural Differences

Based on what you have learned in this section, how would you vary your verbal and nonver-
bal communication approaches in order to communicate each of the following messages to
one of your employees if you were leading a team in Canada, France, India, Switzerland, Brazil,
and Saudi Arabia?

• “You are a superior performer. Well done!”
• “Your performance does not meet expectations.”
• “You need to express your opinions more assertively.”
• “You need to stop asking for advice every step of the way and start thinking more

independently.”
• “We have to let you go.”
• “I am very interested in your ideas and opinions.”

achievement-oriented leadership A
leadership style that sets challenging goals
for employees and emphasizes high perfor-
mance expectations.

authentic leadership theory A long-term
developmental process that draws from the
leader’s life experiences, psychological capi-
tal (hope, efficacy, resilience, and optimism),
moral perspective, and a highly supportive
organizational climate. The result of this

process is higher self-awareness, relational
transparency, internalized moral perspective,
and balanced processing, which in turn helps
the leader better regulate his or her behav-
iors toward continuous self-development.

behavioral theories of leadership Theo-
ries that focus more on leaders’ observable
behaviors than on their traits, suggesting
that leadership is attainable by anyone with
the correct training and experiences.

Key Terms

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Summary and Conclusion

charismatic leader A leader who chal-
lenges the status quo, rallies followers
around an inspirational vision, empowers
followers, supports followers’ needs, and
takes personal risks to achieve success.

coercive power Power that is based on fear
of punishment.

communication The transfer of meaning
from one person to another.

communication network Also known as
the grapevine, a network that arises when
workers establish lines of communication
among themselves, including peers, mem-
bers of both higher and lower hierarchical
levels, and workers in different areas of the
company.

consideration A people-centric leadership
style that includes relationship behaviors
expressed as displays of trust, camaraderie,
and regard for workers’ feelings.

contingency theories of leadership Theo-
ries that address the complex ways in which
situational factors interact with a leader’s
style and impact his or her effectiveness.

diagonal communication Communication
that flows between managers and workers
located in different parts of the business.

directive leadership A leadership style
that provides task structure by instructing
employees what work to do and when to
complete it.

downward vertical communica-
tion Sometimes referred to as hierarchical
communication, messages that flow from a
higher to a lower level of the organizational
hierarchy.

emotional intelligence (EI) Self-awareness
and the ability to detect others’ emotions and
to manage one’s own emotions.

ethical leadership theory An emerging
theory that emphasizes integrity and altru-
ism of the leader, and collective motivation
and encouragement for the followers.

expert power Power that stems from
a leader’s special skills, knowledge, and
expertise.

Fiedler’s contingency model A contin-
gency model of leadership that categorizes
leaders as either task oriented or relation-
ship oriented and maintains that the effec-
tiveness of either type depends on the situ-
ation and the amount of control the leader
has over it.

idiosyncrasy credit The latitude and dis-
cretion to deviate from expectations based
on positive past encounters and conformity
to norms.

implicit leadership theory (ILT) A lead-
ership theory that defines leadership from
the follower’s point of view; leaders who fit
their followers’ model of their ideal leader
are likely to be more effective.

initiating structure A task-centric leader-
ship style in which the leader provides clear
guidance and structure to help employees
achieve specific goals.

lateral communication Communication
that flows between peers at the same level of
a work group.

leader–member exchange theory
(LMX) A leadership theory that emphasizes
the way in which the leader–follower rela-
tionship affects the leadership process.

leadership derailment The process by
which a leader displays increasingly ineffec-
tive behavior.

legitimate power Power that stems
from one’s job title or position within the
organization.

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Summary and Conclusion

network centralization The number of
people in charge of controlling the flow of
communication.

network connectivity The extent to which
members of a network are connected to each
other, either directly or indirectly.

network density The number of connec-
tions that exist between network members
in relation to the total number that could
possibly form.

participative leadership A leadership
style that involves employees in decisions
that affect their work.

path–goal theory A theory that proposes
four leadership styles leaders can utilize to
motivate employees to achieve their goals:
directive, supportive, participative, and
achievement oriented.

power The capacity for one person to influ-
ence the behaviors of another.

referent power Power that develops out of
admiration for and the desire to be like the
leader, regardless of formal level of leader-
ship or actual relationship to follower.

reward power Influence through positive
rewards.

spiritual leadership theory An emerging
theory that emphasizes intrinsic motivation
of the followers through a sense of member-
ship or community and a sense of calling.

supportive leadership A leadership style
that displays concern for the best interest of
the employees.

trait theories Theories that assume leader-
ship has a biological origin and that leader-
ship is an innate quality that only a very few
possess.

transactional leadership A framework in
which leaders use rewards and punishment
to guide and motivate followers along a path
toward established goals.

transformational leadership A framework
in which leaders are concerned with improv-
ing followers’ performance and motivation
and developing them to their fullest poten-
tial through inspirational motivation, ideal-
ized influence, intellectual stimulation, and
individualized consideration.

upward vertical communication Commu-
nication that flows from a lower to a higher
level of a work group.

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8Decision Making, Problem
Solving, and Creativity

Rawpixel Ltd/iStock/Thinkstock

Learning Outcomes
After reading this chapter, you should be able to

• Describe how perceptions affect your judgment of others.

• Compare and contrast rational decision making with bounded rationality.

• List and discuss the common decision-making biases.

• Discuss techniques for improving individual decision making and problem solving.

• Consider how emotions affect decision making and problem solving.

• Explain how positivity impacts creativity and decision making.

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Section 8.1 The Importance of Perception

8.1 The Importance of Perception
Perception is the process people use to bring meaning to their world; it involves organizing
and interpreting the stimuli around us. Objective reality is often much different from per-
ceived reality, however, and one person’s reality may be significantly different from another’s.

Consider this situation: A manufacturing company is merging with another company, giving
it the greatest market share and profitability in the industry. The CEO decides to share this
exciting news with the rest of the company. After a series of presentations in which he makes
a convincing case for the merger and states the positive impact it will have on the company
and its employees, the CEO asks a group of employees for their opinion. The CEO is shocked
to hear the employees make comments such as “I don’t understand why we made this move”
and “In the long-term, this won’t help the company.” The CEO cannot understand why the
employees are not viewing this opportunity as positively as the board of directors and senior
management. What’s going on?

Unfortunately, the CEO failed to realize that the employees’ perceptions of the current merger
were influenced by bad experiences from 2 years earlier, when the CEO decided to roll out a
defective product, the company lost money, and the employees did not receive any pay raises.

It is important that organizations understand perceptions, because perceptions impact work-
ers’ behavior. In the previous example, whether workers accepted or verbally sabotaged the
merger were based on their individual perceptions—not on the CEO’s opinion or the objec-
tive reality of the merger’s impact. The world as it is perceived, then, is what matters most.

Components of Perception
Humans receive stimuli through the recognized senses of hearing, sight, touch, smell, and
taste. How, then, can two people who hear or see the same information interpret it so differ-
ently? The reason is precisely because they do not really hear and see the same information;
this is due to the difference between sensation and perception. Sensation is the experience
of stimuli’s physical characteristics. On the other hand, perception has three separate com-
ponents: the characteristics of the perceiver, the target that is being perceived, and the situ-
ational context in which the perception is occurring. In order for reality to be perceived, it
must move through a personal filter. As a result, no two people will ever interpret the same
event in exactly the same way. Let’s look at how each component affects perception.

The perceiver is the person who is attending to a target. A person’s interpretation of reality
is based on his or her personal characteristics, including experiences, emotions, motives, val-
ues, culture, and physical abilities. Our personal experiences are some of the most significant
influences on perception because they lead us to develop expectations. If, for example, you
worked for a manager who treated you with consideration, mentored you, and helped you
get a promotion, your experience might lead you to trust all organizational leaders and give
them the benefit of the doubt. The reverse might be true if, on the other hand, you worked for
an overbearing, capricious manager who treated you poorly. The perceiver’s emotional and
physical states also affect perception. Generally, people see what they want to see; when in
positive moods, people view targets more positively, and vice versa. Finally, people who are
ill or otherwise physically impaired (forgetting to wear their glasses, for example) will likely
perceive a target differently than they normally would.

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Section 8.1 The Importance of Perception

The target is one of the stimuli to which the perceiver is attending. People are bombarded
with countless stimuli throughout the day, but they consciously perceive only those to which
they actually pay attention. Depending on the stimuli, a target may receive more or less atten-
tion from the perceiver. Attractive people (targets), for example, get noticed more than unat-
tractive people, as do high-status targets or targets that share characteristics with or hold
personal interest for the perceiver. Ultimately, the more a person attends to a target, the more
information she will be able to learn about it. However, even close attention is unlikely to
uncover all of a target’s details; the causes of an event or the emotions behind a coworker’s
behavior, for example, often remain hidden. Ambiguity or lack of information about a target
can therefore prompt the perceiver to make additional subjective interpretations about it.

The situation is the context (social, physical, etc.) in which the target is being perceived. Situ-
ations can affect whether a target receives any attention and thus whether it is perceived at
all. For example, if you went to a party at the beach and a guest arrived wearing a three-piece
suit instead of a bathing suit, you might think it unusual and observe him closely, wondering
who he is and why he is there. If, on the other hand, you were at a wedding reception and the
same man, dressed in the same suit, walked into the room, you might not even notice he was
sitting at the table next to you. In the first situation, the man’s dress is unusual for the social
context, but in the second, it fits. Thus, even though the target and perceiver in this example
are the same, different perceptions are created by different situations.

Attribution Theory: Perceiving Causes and Motives
Some of the most common perceptions we make are about other people. As mentioned earlier,
we rarely have access to all the information about a target, and this is especially true when the
target is a person. Without complete information, our interpretations of others can never be
perfect. How, then, are we able to make judgments of people? Attribution theory provides a
framework for understanding this process.

Developed by Harold Kelley in 1967, attribution
theory describes how people establish explana-
tions for their own and others’ actions and the
outcomes that arise from them. When we think a
person’s behavior is caused by his or her innate
personal characteristics, we are attributing it
to dispositional, or internal, factors. Conversely,
when we think behavior is caused by factors
outside a person’s control, we are attributing it
to situational, or external, factors. As you might
expect, continued experience with the behav-
ior of a target person will increase the amount
of information we receive to help us determine
whether behavior is dispositional or situational
(Kelley, 1973). For example, if a new employee
turns in a very important project late, a manager might attribute this behavior to the person’s
being lazy or disorganized, both internal, or dispositional, characteristics. On the other hand,
if the manager was aware from previous interactions that the employee had been having com-
puter difficulties or that he had trouble getting key information from another department, the
late assignment might instead be attributed to external, or situational, factors.

monkeybusinessimages/iStock/Thinkstock

The woman giving this presentation is
the target for all of the perceivers in her
audience. The amount of attention paid to
her presentation will vary from person to
person.

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Section 8.1 The Importance of Perception

Let’s look now at the different types of information people gather as they make behavior attri-
butions. According to attribution theory, there are three main sources:

• Consistency. Does the same thing happen every time? Perceptions of a behavior are
based partly on how consistently it is displayed. Think of a rude retail-store clerk.
The more consistent the behavior (customers complain about the clerk every few
weeks), the more likely the observer will attribute the behavior to internal charac-
teristics (the clerk has poor customer service skills). On the other hand, inconsis-
tent behavior (a complaint has never been received about this clerk) is more easily
attributable to external factors (the customer was being difficult and unreasonable).

• Consensus. Would other people act similarly in the same situation? If most people
facing the same or a similar situation respond with the same or similar behavior,
that behavior is said to show consensus. If a sales representative failed to meet her
monthly sales quota, her behavior would show consensus if all of the other repre-
sentatives also failed to meet their quotas. The high consensus would likely clue the
manager to look for external causes (e.g., slow economy, defective product, ineffec-
tive marketing strategy) for the poor sales numbers. Conversely, if the representative
was the only one on the team not to make quota, the manager would likely attribute
the poor performance to the rep’s internal characteristics (e.g., laziness, ineffective
communication skills).

• Distinctiveness. Do other situations and stimuli elicit the same behavior? Behav-
iors that are uncharacteristic of a specific person are more likely to be attributed
to external causes and vice versa. An employee who often comes to work late but
never has trouble completing projects on time might lead a manager to wonder if
child care arrangements, transportation challenges, or other external factors are
interfering with the employee’s morning commute. If another employee is always
late—arriving at work late, turning in projects late, returning phone calls late, and
so forth—the manager might attribute the behavior as being due to the employee’s
inherent tendency to procrastinate.

In summary, then, low consistency, high consensus, and high distinctiveness tend to lead to
external behavior attributions, whereas high consistency, low consensus, and low distinc-
tiveness tend to lead to internal behavior attributions. Keep in mind that external and inter-
nal attributions are, by themselves, neither good nor bad. Depending on the circumstance,
however, the target may think one is more desirable than the other. For example, Olympic
swimmer Michael Phelps achieved his success by demonstrating high consistency (consistent
practice and high performance), low distinctiveness (winning 14 gold and 2 bronze med-
als over the course of two Olympic games), and low consensus (extraordinary natural talent
and relentless drive to succeed). Most of us would unquestionably attribute Phelps’s success
more to these internal sources and not just to luck, good coaching, or a high-tech swimsuit. In
this case, then, an internal attribution is quite positive; after all, we all want others to believe
we achieve success based on our own merits and not because someone handed it to us. In
other situations, we may hope for the reverse. Being late to work, breaking a valuable piece of
equipment, making a mistake on a huge project: These are the times when we want others to
attribute the outcome to something—anything!—but ourselves.

Despite their best efforts, however, people make mistakes when they try to figure out why
others act the way they do. Research has shown that we are very aware of others’ behavior,
and that this high level of attention leads us to overattribute behavior to dispositional factors

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Section 8.2 Shortcuts in Person Perception

such as abilities, traits, and motives, and to underattribute behavior to situational factors
outside of the target’s control (Ross, 1977). This tendency is so common that it is known as
the fundamental attribution error. The fundamental attribution error helps explain how
managers can attribute an employee’s tardiness one morning to laziness and poor judgment
instead of the 10-car pileup he heard about on his drive in to work. In contrast, the self-
serving bias describes the common tendency to attribute our successful behaviors and out-
comes to dispositional characteristics but to blame external factors for poor behaviors and
failures (Jones & Nesbitt, 1971).

Consider This: Your Own Attributions
Think about two to three positive events that recently happened in your life. They can be
personal (perhaps you finished a difficult home improvement project), social (met a special
person), or professional (got a promotion).

Now think about two to three recent negative events in your life. Again, these can be personal,
social, or professional. Choose events that are important to you.

Finally, consider positive and negative events that happened to people close to you. They can
be friends, family members, coworkers, or classmates.

Questions to Consider

1. To what extent do you believe each of these events should be attributed to internal
causes? What about external causes?

2. Think about the causes that led to these events. To what extent are those causes charac-
terized by consistency, consensus, and distinctiveness?

3. Are your findings consistent with Kelley’s attribution theory?
4. Do you have predominant attribution biases for events in your own life? In others’ lives?

8.2 Shortcuts in Person Perception
Humans have a limited capacity to attend to and interpret the myriad of stimuli to which
they are exposed every day. In order to function in our complex world, we use a number of
shortcuts to streamline and simplify the process of perception. Although these shortcuts are
valuable for making quick, accurate evaluations, they are certainly not perfect. Trouble occurs
when they are overused or used to make overgeneralizations, which can cause us to signifi-
cantly distort a target’s actual characteristics. One of the best ways to mitigate distortion is to
learn about different perception shortcuts and recognize how each can mar our judgments.

Primacy and Recency Effects
When people attempt to evaluate and make sense of their world, they tend to rely on infor-
mation gathered from their earliest as well as most recent experiences with a target or series
of targets. The primacy effect is the tendency to rely on information gathered from our ear-
liest experiences with a target or series of targets. The recency effect, on the other hand,
is the tendency to rely on information gathered from our most recent experiences. In the

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Section 8.2 Shortcuts in Person Perception

workplace, the primacy effect often influences the way interviewers evaluate potential job
candidates. First impressions, such as clothing, timeliness, or even a firm handshake, can have
a big impact on the interviewer’s judgment of a candidate’s suitability for a job. After seeing a
series of job candidates, interviewers also tend to more clearly remember their interactions
with the earliest (primacy effect) and most recent (recency effect) candidates.

Selective Perceptions
For safety and other reasons, people need to be able to make quick judgments about their
environment. Therefore, we tend to pay attention to people, objects, and events that stand
out. This tendency to make selective perceptions extends to the social realm as well. For
example, we are likely to notice the loud and colorful woman at a party or the jocular, well-
dressed man at a conference, but not their more subdued counterparts. In general, we attend
more closely to stimuli that are loud, attractive, or have something in common with us. By
selectively attending to certain characteristics, we are able to speed up our evaluations of
people and more quickly make sense of the world. As you might recall from Chapter 4, people
also tend to pay more attention to negative or threatening events or stimuli for the same rea-
sons: They stand out more and signal a need for more immediate action.

Contrast Effect
According to the contrast effect, our reactions to others are influenced by previous interac-
tions with other people. When two things appear close together in time, we tend to evaluate
them against one another rather than against a fixed standard. For example, an extrovert
appears more sociable when in a crowd of introverts. In an interview situation, a stellar can-
didate may make the next candidate lose some of her luster. Similarly, if a longtime coworker
retires, his replacement may never seem to be able to measure up, regardless of the new
coworker’s actual performance.

Stereotyping
Stereotyping occurs when we categorize in-
formation and assume that objects, people,
or experiences that fall into the same group
share more characteristics than they actu-
ally do. Stereotypes are quick and easy and
help keep us from having to relearn the same
information over and over again. Think how
difficult life would be if we faced a flight of
stairs as a completely new invention every
time we happened upon a flight we had never
climbed or if we had to start from scratch
every time Microsoft Office was updated!

Of course, stereotypes quickly get muddled
when we use them with people, and they
can be counterproductive in today’s diverse
workplaces. Anytime stereotypes are based

Rawpixel Ltd/iStock/Thinkstock

Stereotyping allows us to quickly categorize
these people into their different professions,
but it can also be harmful.

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Section 8.2 Shortcuts in Person Perception

on group status—such as age, gender, religion, ethnicity, or race—discrimination can occur.
“Women are weak and emotional,” “senior citizens are slow,” “overweight people have no dis-
cipline”—each of these stereotypes assumes that people in specific groups are all the same,
even though the range of human experience and identity is so extraordinarily diverse that such
assumptions are, if we stop to think about it, illogical. Even though stereotypes can result in
erroneous perceptions of an individual’s actions, beliefs, and abilities, they are, unfortunately,
one of the first tools we use when encountering any new situation. Therefore, it is critical that
we gather additional information about others and revise our initial impressions to ensure
that we do not unfairly apply stereotypes and fall into the trap of discrimination.

Consider This: Common Stereotypes
The following videos present stereotypes in a humorous yet eye-opening way.

What Kind of Asian Are You?

What Are the American Stereotypes?

Childhood Gender Roles in Adult Life

Questions to Consider

1. Recall situations when you treated others stereotypically. What were your stereotypes?
Were they accurate or justified?

2. Recall situations when others treated you stereotypically. Were their stereotypes accu-
rate or justified?

3. What were some of the lessons you learned from these situations?
4. How do you think these stereotypes can affect how you treat others or how others treat

you in the workplace?
5. How should organizational leaders take these stereotypes into consideration when

dealing with a diverse workforce?

Consider This: Perceptual Biases
Recall a time that you were wrong in judging somebody’s character, motives, or actions.

Questions to Consider

1. What are some of the attributes or behaviors of that person that led to your wrong
judgment?

2. To what extent did some of the perceptual biases discussed earlier contribute to your
wrong judgment?

3. What did you learn from that experience? Did it make you more aware of your biases?
How will you handle similar people or situations differently in the future to mitigate
those perceptual biases?

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Section 8.3 The Role of Perception in Decision Making

8.3 The Role of Perception in Decision Making
One of the most important things both managers and employees do is make decisions. Manag-
ers make decisions about whom to hire and what products to sell, which processes to imple-
ment, and what resources to allocate, to name a few. Employees make decisions about how

to structure their work, deal with customer challenges,
improve product quality, and many other things. How we
make decisions—as well the quality of our decisions—is
based largely on our perceptions.

The first step in the decision-making process is to deter-
mine that a problem exists. Because problem identifica-
tion is discretionary, perceptions play an important role
in this step. For example, an inexperienced manager may
interpret a 5% drop in customer satisfaction scores as
a major problem that requires immediate attention; an
experienced manager, on the other hand, may perceive
the drop to be acceptable because she knows that such
scores always go down temporarily after a new product is
launched. What one person perceives to be a problem may
not be viewed as problematic by another person.

Perceptions also affect the way we interpret and evalu-
ate information, which is an essential part of making a
decision after a problem has been identified. Once again,
people have choices about the data and information they
will gather to help them understand or solve problems.
Individual perceptions guide beliefs about what informa-
tion may be relevant to the decision. For example, a col-

lege student might consider price the most important factor when purchasing a car, whereas
a farmer might put greater importance on a vehicle’s towing capacity. Finally, like stereotyp-
ing, perceptional distortions can bias both analyses and conclusions.

As you can see, perceptions play a critical role in the decision-making process. In the next
section, we will examine the process of making decisions, biases that affect this process, and
ways to improve it.

Decision Making in Organizations
Effective decision making is critical to an organization’s success. Consider the following
situations:

• You are a product officer for a high-tech company. You have two new products to
take to market but have funding for only one. How will you determine which product
to introduce?

• A large advertising agency is working with a client who wants to gain market share
from its competitors by marketing to young professionals. The agency needs to
decide whether to spend all of the marketing funds on a single medium (Internet,
television, or radio) or spread it across all three.

Hemera/Thinkstock

Managers base their decisions—
such as whom to hire and
what to sell—largely on their
perceptions.

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Section 8.3 The Role of Perception in Decision Making

• You are the corporate acquisitions officer for a large oil company that has an interest
in acquiring a small- to medium-sized renewable energy company (e.g., solar, wind)
in order to diversify its capabilities. What type of company should your organization
acquire?

Though each of these decision-making situations is unique, all three share some characteris-
tics. First, a gap—called the problem—exists between the current situation and the desired
outcome. Second, each problem has more than one solution. How do organizations decide to
solve problems? How do they solve the problem of deciding which solution to pursue? Let’s
look at some models organizations can use when solving problems and making decisions.

The Rational Decision-Making Model
The basic tenet of the rational decision-making model is to identify and select the outcome
that is of maximum value to the organization. In this model, the decision-making process has
six steps:

1. Define the problem. Often, identifying the problem is fairly straightforward, as it is
in the previous sample scenarios. This is not always the case, however, and manag-
ers must be careful not to act too quickly, lest they make the mistake of solving the
wrong problem. For example, instead of quickly identifying assemblers as the prob-
lem after a series of line shutdowns, an assembly-line manager might investigate fur-
ther and discover that the real problem is an ineffective protocol or a faulty machine.

2. Identify the criteria. After defining the problem, the organization should determine
its objectives for the decision and the process needed to accomplish it. Looking back
at the scenario about the high-tech company with two new products, the company
may have the ultimate objective of increasing sales, but it may also desire greater
brand awareness, improved customer loyalty, and greater market share. The com-
pany also needs to consider how it plans to mass-produce, distribute, and sell each
of the two possible new products. The rational decision-making process requires the
decision maker to identify all relevant criteria.

3. Weigh the criteria. Different criteria will have different levels of importance to the
decision maker. The rational decision maker will determine relative values for the
various criteria by examining the pros and cons of each. Our high-tech company, for
example, would weigh the relative importance of brand awareness versus customer
loyalty or the high cost of producing a more innovative product versus the lower cost
of producing a new version of an already popular product.

4. Generate alternatives. The fourth step is to generate all possible solutions to the
problem. Instead of limiting the scope of the decision to choosing either product A
or product B, the high-tech company might also consider the feasibility of releas-
ing both products on a smaller scale or even waiting on both products in favor of
developing a third. The company might also revisit the various development and
marketing criteria for each of the original products to see if more effective or lower
cost alternatives exist. In the rational decision-making approach, this investigation
continues until the cost of the search for alternatives exceeds the value of any addi-
tional information (Bazerman, 2002).

5. Rate each alternative on each of the criteria. With this step, organizations assign
numeric ratings to each of the alternatives generated in step 4 in relation to each of
the criteria identified in step 2, in an effort to determine how well each alternative is

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Section 8.3 The Role of Perception in Decision Making

able to satisfy the criteria. This step can be especially difficult because it requires the
decision maker to forecast future events. For our high-tech company, trying to pre-
dict which product—the innovative, expensive item or the less expensive revamp—
will ultimately be most profitable will be tricky, indeed. This is because the first
alternative may have a less favorable rating on price and risk but a more favorable
rating on quality or consumer appeal; however, the second alternative may be at the
opposite end of the rating scale on each of these criteria.

6. Compute the optimal decision. In a perfect situation, the optimal decision is calcu-
lated simply by multiplying the rating of an alternative by the value of weighted
importance given to each criterion and then adding the totals for an aggregate score.
This is done for each alternative, the scores are compared, and the one with the
highest score is chosen.

The rational model of decision making assumes that the decision maker fulfills each step in a
completely rational manner by fully defining the problem, identifying all criteria, accurately
weighing the criteria, identifying all possible alternatives, accurately assessing the alternatives,
and choosing the alternative that yields the maximum value. Following the model will always
produce a solution that is completely informed, perfectly logical, and economically oriented.

As you can probably guess, however, this model is really more useful for theoretical purposes;
it describes how decisions should be made, not how they really are made. Real decision mak-
ers will always be influenced by subjective factors such as emotions and perceptual biases.
They are limited by their ability to acquire and process information and their ability to cre-
atively generate alternatives. Time constraints, budgets, and political considerations also
interfere with perfect rationality. These limitations inspired a decision-making model based
on the more realistic assumption of bounded rationality.

Bounded Rationality
Herbert A. Simon was an American sociologist, psychologist, economist, and political scien-
tist whose research engendered an amazing number of important scientific topics, including
artificial intelligence, information processing, and decision making, to name a few. In 1957 he
proposed that a number of bounds, or limitations, interfere with people’s ability to make deci-
sions. His theory of bounded rationality states that humans’ limited mental abilities com-
bined with external factors over which they have little or no control (such as time or money)
prevent them from making perfectly rational decisions. The decision maker may not identify
all possible alternative solutions or be able to determine accurate probabilities of success for
the alternatives he does know about. Rational decision making is overwhelmingly complex.
On the other hand, according to the model of bounded rationality, decision makers often “sat-
isfice” their decisions instead of maximizing them. Satisficing means that the decision maker
establishes an adequate level of acceptability for the outcome to a problem and then screens
alternative solutions until one is deemed to be satisfactory or sufficient (Simon, 1957).

People make satisficing decisions every day. Think about the last time you purchased a car.
Did you consider every possible criterion or review the characteristics of every single car on
the market in order to truly make the optimal decision? Probably not. Just think of how much
time and effort would be involved in a truly exhaustive search for a new car. Instead, you
probably identified a few very important criteria, such as gas mileage, color, “coolness,” and

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Section 8.4 Cognitive Biases

affordability, while ignoring other criteria which, to you, were less important. Using your lim-
ited list of criteria, you probably then began to evaluate a few alternatives until you found one
that best fit your criteria. Instead of maximizing, you satisficed. With all of the choices people
make every day, making decisions using bounded rationality enables us to find acceptable
solutions while maintaining efficiency.

Variations of the bounded rationality model include intuitive decision making, naturalis-
tic decision making, and affective decision making. Most decisions are not purely rational.
Although they are not irrational, they can be based on subjective processes rather than con-
scious systematic logic. Intuitive decision making depends on instincts or feelings. Similar to
bounded rationality, it may be based on limited or flawed information or emotional biases.
However, intuition is also an important foundation of creativity and innovation (Matzler, Bai-
lom, & Mooradlan, 2007). Naturalistic decision making occurs in challenging jobs that involve
high risks and undefined goals, such as firefighters, military commanders, and nurses, where
relevant information may be limited or nonexistent and the situation continuously chang-
ing. Thus, much of the decision making is based on the experience of the decision maker
and adapted as the situation unfolds (Klein, 2016). Affective decision making places an equal
weight on cognitive rational processes and affective or emotional processes in making deci-
sions. Resultant subjective biases include the optimistic bias, in which the decision maker
may anticipate the outcome of the decision to be more favorable than logically warranted.
Optimistic bias can lead to risky decisions and behaviors due to underestimation of risks
(Bracha & Brown, 2012).

Consider This: Rational Decision Making
and Bounded Rationality

The following clip from the television show The Big Bang Theory offers a humorous depic-
tion of a rational decision-making process for building a friendship. The decision maker gets
“stuck” due to an implied display of bounded rationality and is helped by another perspective
so that he can reach an acceptable satisficing solution.

The Friendship Algorithm

8.4 Cognitive Biases
Although the vast majority of people apply bounded rationality to their decision-making pro-
cesses, research suggests that people do have the tendency to acquire and process informa-
tion in an error-prone way. Seminal research by Amos Tversky and Daniel Kahneman (1974)
discovered that people make a variety of systematic and predictable mistakes in their judg-
ments. People form general rules of thumb, called heuristics, which help them reduce the
complexities of information processing. Even though using heuristics, like other mental short-
cuts, often results in accurate decisions, cognitive biases can distort information processing
if they are generalized too frequently or applied inappropriately. The following are the most
common biases in the decision-making process.

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Section 8.4 Cognitive Biases

Anchoring Bias
The anchoring bias is the tendency for people to make judgments based on initial infor-
mation without utilizing new information to adequately adjust the original assessment. This
bias occurs because the mind gives disproportionate attention to the information it initially
receives. Consider the anchoring bias the next time you negotiate the starting salary for a
new job. When the hiring manager asks you how much you made at your previous job, your
answer will stick with the manager and will anchor his salary offer for the new job. To achieve
the highest starting salary possible, it is important to propose a salary that is as high as rea-
sonable—without being outside the competitive range—so that the manager anchors his
offer on the high end of the range.

Availability Bias
Availability bias is the tendency for people to assess the frequency or probability of an event
based on information that is readily available to them (Tversky & Kahneman, 1973). For
example, people are often more afraid of flying than they are of riding in a car. Of course, most
of us know that this fear is irrational, because significantly more people die every year in car
accidents than in plane crashes. Yet plane crashes are spectacular events that typically make
the national news, and vivid, emotional, easily imagined, and specific events are more readily
available for recall than unemotional, uninteresting, or vague events (Bazerman, 2002).

Confirmation Bias
Confirmation bias suggests that people look for information that confirms or supports what
they believe to be true and discount information that disproves or does not support it. People
tend to accept confirmatory information at face value but meet contradictory information
with criticism and skepticism. Confirmation bias also suggests that individuals will be more
likely to collect information from people who they know will support their beliefs, such as
friends, family members, or coworkers. Finally, this bias leads people to assign greater impor-
tance to confirmatory information and less importance to contradictory information. Asking
a friend to act as devil’s advocate by challenging or suggesting contradictory information can
help reduce the influence of confirmation bias.

Escalation of Commitment Bias
Escalation of commitment bias was first described in Barry Staw’s (1976) paper “Knee-
Deep in the Big Muddy: A Study of Escalating Commitment to a Chosen Course of Action.”
Staw’s image—that of a person stuck in the mud, unwilling to backtrack but certain to sink
even deeper if she continues in the current direction—vividly describes this bias, which
occurs everywhere from the workplace to warfare to romantic relationships. When people
make a decision, they tend to stick with it. The more invested they become in their choice, the
less likely they are to abandon it—because they want to be “right,” because they don’t want to
be seen as weak or stupid, because they’ve spent a lot of money and don’t want it to have been
for nothing—even when the costs of the solution outweigh the benefits.

Imagine the following scenario: Recently, you hired Joe, a person with a great education
and significant work experience. Despite your high expectations, Joe seems to be struggling.

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Section 8.4 Cognitive Biases

Should you just fire him and try to find someone new? Because it took such a long time to find
a quality candidate, you decide to give Joe a few more months to settle in. Two months pass,
and you start receiving customer complaints about your new employee. Unwilling to give
up just yet, you decide to provide Joe with additional training opportunities. Three months
later, Joe is still not meeting performance expectations. Should you cut your losses now, even
though you have made a significant investment in this employee? When is the right time to
give up on an investment?

In this scenario, you, as the manager, made a series of unfortunate choices based on your initial
decision to hire Joe. The justification for continuing to make poor choices is best illustrated by
the irrational treatment of sunk costs. Sunk costs are permanent losses of resources incurred
as the result of a decision. The key word here is permanent. Even though they are gone for
good, sunk costs can lead people to throw good money after bad (that is, make poor choices)
in a fruitless attempt to recoup their losses. Research shows this to be especially true if the
decision maker is believed to be at fault (Brockner & Rubin, 1985), perhaps because changing
one’s mind, or flip-flopping, is often perceived as a weakness.

Consider This: Escalation of Commitment
The following video shows irrational decisions made by participants in an auction of a $5 bill
due to escalation of commitment.

Irrational Escalation of Commitment

Questions to Consider

1. Why do you think participants continued to bid higher, even when they were incurring
a loss?

2. How would you have acted if you were part of this scenario? When would you have
stopped bidding? Why?

Hindsight Bias
Suppose you are watching your favorite football
team attempt to win the championship. The team
is behind 27–21 with just seconds left in the
game. With the ball on the 1-yard line, the coach
calls a pass play that the quarterback overthrows
into the back of the end zone just as the clock runs
out. Devastated, you fall to your knees and shout,
“Why did we choose that stupid play? I knew a
pass play would never work!” This tendency for
people to believe that they could have predicted
the correct outcome, after they know the actual
outcome, is called hindsight bias (Fischhoff,
1975). Unfortunately, hindsight bias frequently Lindsay Foyle/CartoonStock

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Section 8.4 Cognitive Biases

makes people overconfident in their decision-making abilities, even in situations in which
they do not have all the required information. Our armchair quarterback, for example, was
satisfied simply to believe he “knew a pass play would never work” and felt no need to learn
why the coach called the play or why the play failed. Hindsight bias also reduces a person’s
ability to learn from past experiences.

Overconfidence Bias
One of the most prominent and potentially disastrous biases in decision making is that of
overconfidence (Plous, 1993). One series of studies showed that people were 65% to 70%
confident of being correct in their decisions when in reality they were correct only about half
the time (Lichtenstein & Fischhoff, 1977). Overconfidence is especially dangerous because it
occurs more often when people lack the intellectual ability or expertise necessary to evalu-
ate a situation adequately before making a decision. In fact, research shows that overcon-
fidence subsides in situations in which a person possesses expertise about the problem or
issue under consideration (Kruger & Dunning, 1999).

Consider This: Rational Decision Making
Versus Bounded Rationality

Think about an important decision you have recently made. It can be choosing a college to
attend or a person to marry, accepting a job offer, purchasing a home, or ending a difficult
relationship. Try to remember as many details as possible about the decision, including your
thoughts and emotions while making the decision, information that was available or unavail-
able, advice you received from others, the decision itself, and the consequences of the decision.

Questions to Consider

1. To what extent did your decision-making process resemble the rational decision-making
model described in this chapter?

2. To what extent did you satisfice? How would your decision have changed if you had the
time, resources, and information to make a more rational decision?

3. Which of the cognitive biases discussed in this chapter had an impact on your decision?
4. Would the consequences have been different if those cognitive biases were not present?

Conjunction Fallacy
Consider the following scenario: Linda is 31 years old, single, outspoken, and very bright. She
majored in philosophy. As a student, she was deeply concerned with issues of discrimina-
tion and social justice and also participated in antinuclear demonstrations. Which is more
probable?

a) Linda is a bank teller.
b) Linda is a bank teller and is active in the feminist movement.

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Section 8.5 Improving Individual Decision Making

Interestingly, most people are likely to select the second choice, even though its probability
is much lower because it involves two occurrences in conjunction. The probability of two
events occurring in conjunction is always lower than the probability of one of them occurring
alone. This cognitive bias, known as conjunction fallacy, is common because the more specific
choice seems more representative of the scenario than the more general one. Researchers
have found this type of bias to be prevalent in many areas, including politics and business. It
is important for decision makers to avoid this type of bias by following sound logic and regu-
larly examining their assumptions (Kahneman, 2013).

8.5 Improving Individual Decision Making
Generally speaking, humans are not bad decision makers; however, we do often fall short of
making fully rational decisions. As you have seen, our ability to make good choices is eas-
ily influenced by emotions, intellectual limitations, external forces such as time and money,
and a myriad of perceptive and cognitive biases. How can decision makers overcome these
deficiencies?

Acquiring Expertise and Experience
Gaining experience and expertise in the domain area of the decision is one way to improve
decision-making skills. In the workplace, workers can gain expertise by enhancing their edu-
cation or obtaining feedback on their past decisions. Feedback provides a learning mecha-
nism that not only helps decision makers create a conceptualization of what actions make
effective decisions but also enables them to identify the best strategies for overcoming com-
mon negative biases (Neale & Northcraft, 1989). To gain experience, decision makers must
have the opportunity to make decisions in a broad array of contexts. When people have only
a narrow set of experiences upon which to base their decisions, they tend to focus too much
on surface criteria, which limits their ability to identify novel solutions (Thompson, 2001).

There are a number of practical steps decision makers can take to more effectively apply their
newfound expertise and experience to decision-making situations. First, the most effective
decision makers are those who effectively combine experience with expertise. For example,
just because a manager learned about transformational leadership does not make that man-
ager a transformational leader; nor does it make transformational leadership an effective
leadership style in every situation. Thus, what researchers suggest and what practitioners
know is that to improve decision making, people must learn as much as possible about the
specific domain of the decision and then find opportunities to make decisions in the same or
a similar domain. For example, the manager may need to practice transformational leader-
ship on a small scale with a few trusted associates to master the style, build confidence and
experience, and assess its success before gradually expanding use of that style with other
associates who appear to be ready for it. Additionally, after making a decision, decision mak-
ers must reflect on the effectiveness of their choice. If a decision turns out to be poor, decision
makers should try to learn why it was poor, perhaps by asking an expert for feedback. When
they make successful decisions, decision makers can look for other situations in which the
same strategy could be applied.

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Section 8.5 Improving Individual Decision Making

Debiasing Judgments
Debiasing judgment is a process of eliminating cognitive biases from the decision-making
process. Because cognitive biases exist outside the decision maker’s perceptual awareness,
the process of debiasing our judgments involves consciously employing strategies to make
ourselves aware of biases and how they impact our decision-making accuracy. There are
three things individuals must receive in the debiasing process: (a) descriptions of the com-
mon biases, (b) an explanation for the causes of the biases, and (c) assurance that biased
decision making is common and can be overcome (Bazerman, 2002). Although eliminating
bias from everyday decision making is a constant challenge, one important way to do so is to
increase the decision maker’s awareness of biases and their impact on decisions.

Daniel Kahneman, winner of a Nobel Prize in Economics, found that humans are predictably
irrational. In other words, while humans do not make rational decisions, their irrationality
is systematic and follows logical patterns. These patterns are the foundation of behavioral
economics, a method of economic analysis which has challenged many of the established eco-
nomic theories that are based on rational decision making. The key to many of these theories
is to become aware of and work with one’s biases, rather than deny that they exist or com-
pletely give in to them (Kahneman, 2013).

Consider This: Why Do We Make Predictably
Irrational Decisions?

In this entertaining video, Duke University professor Dan Ariely illustrates why people tend to
make predictably irrational decisions.

We’re All Predictably Irrational

Questions to Consider

1. Did you find the illusions Ariely used to illustrate predictable irrationality surprising?
Why or why not?

2. Can you think of a specific time when you made an irrational decision? What do you
think influenced you to do so?

Taking an Outsider’s View
When making a choice, a decision maker can take one of two perspectives: that of the insider
or the outsider. Typically, the insider views her situation as unique and believes that a solution
will result in a different outcome if employed in other, similar circumstances. In contrast, the
outsider is not influenced by the unique emotions of a particular circumstance, which allows
her to generalize across and identify similarities between the current and other situations.

As an example, imagine a project team that is beginning the design process for a new product.
The company has hired a consultant who has worked with other companies in the industry
on similar projects to help prepare an estimated budget and timeline (outsider view). The

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Section 8.6 Creative Decision Making

team leaders, however, feel confident they can
complete the project 6 months ahead of sched-
ule and 50% under the estimated budget; they
believe their team is uniquely talented and has
access to better resources than their competitors
(insider view).

Research suggests that outsiders make more
accurate estimates and decisions than insiders
because outsiders are better able to apply more
relevant data from past decisions (Kahneman &
Lovallo, 1993). However, people are much more
likely to take the insider’s view. Why? Optimism
and overconfidence often lead insiders to believe

that the specific situation is different from situations mentioned by the outsider. Unfortu-
nately, by focusing on the specific situation, insiders miss the opportunity to incorporate his-
torical information into their judgments. Thus, another way to reduce bias and improve the
accuracy of decision making is to include insights and information from outsiders during the
decision-making process.

The next time you have to make an important decision, be sure to invite an outsider or two to
share their perspective on the situation. If a trusted outside source is not available, try to take
the outsider’s perspective yourself by pretending the decision is someone else’s to make, and
then think about what advice you would offer that person. Although not perfect, playing the
role of the outsider can help decision makers view the problem and potential solutions from
a different perspective.

8.6 Creative Decision Making
Organizations are constantly striving to discover, create, or produce the next big thing. This
insatiable need for innovation has led many researchers and practitioners to think critically
about creativity: What is it? How does it work? How do we get more of it into our company?
In this section, we identify people’s potential for creativity, review a model of creativity, and
discuss ways to improve it.

What Is Creativity?
Simonton (2009) defines creativity as the generation of ideas that are both original and
adaptive. Creativity occurs when a product, service, or procedure is proposed that is novel
and useful (Zhou & Shalley, 2010). For example, if an engineer who was working on a new
supersonic jet for commercial flights were to propose an innovative way to adapt the space
shuttle design to commercial aircraft, this would be considered both novel and useful, and
thus creative. If, on the other hand, he were to submit plans for a gigantic hot-air balloon, this
would not be considered useful, although it might be novel. Keep in mind, then, that coming
up with a wild, unique, or bizarre idea does not make a person creative unless the idea helps
solve a problem.

shironosov/iStock/Thinkstock

Being able to take an outsider’s view can
be crucial to the decision-making process.

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Section 8.6 Creative Decision Making

Creativity is an important part of effectively solving problems and making decisions. Cre-
ative thought expands the decision maker’s perspective and increases the number and type
of alternatives available to solve a problem. Creativity drives the great ideas and innovations
made by people across the world every day. Although creativity is often associated with revo-
lutionary ideas, it also includes the ability to find novel approaches for incremental day-to-
day problem solving (Simonton, 2004).

Creative Potential
Are you creative? Many of us look at the
spectacular creations of people like Albert
Einstein, Steve Jobs, Pablo Picasso, Ama-
deus Mozart, and William Shakespeare and
immediately shake our heads, sigh, and say,
“I am so not creative!” Don’t be discouraged!
Research suggests that each of us, regard-
less of our role, function, or level in an orga-
nization, has potential for creativity—albeit
some of us more than others (Oldham &
Cummings, 1996).

Several personal traits have been discov-
ered to increase a person’s potential for
creativity. One study examined trait differ-
ences between artists and nonartists and
between scientists and nonscientists. It
found that artists and scientists were sig-
nificantly more likely to score high on the Big Five personality trait “openness to experience”
(Feist, 1998). Because both jobs are highly creative, this finding suggests that people who
are open to new ideas and experiences are more likely to be creative. Individuals with higher
intelligence have also been found to be more creative (Feist & Barron, 2003). Other personal
traits that have been shown to have a relationship with creativity include self-confidence,
high energy, attraction to complexity, propensity for risk taking, and tolerance for ambiguity
(Barron & Harrington, 1981; Woodman, Sawyer, & Griffin, 1993).

The Three-Component Model of Creativity
If everyone has at least some potential to think creatively, what can people do to maximize
their creative potential? Teresa Amabile’s (1996) three-component model of creativity
proposes that creativity is the result of a person’s expertise, creative-thinking skills, and moti-
vation. The research indicates that all three of these components are needed to make creative
decisions, and that the higher the level of each component, the greater the person’s capacity
for creativity.

• Expertise. The potential for creativity increases when a person has knowledge, skills,
and experience in the domain of a problem. Sometimes people need to link ideas
from multiple sources and recognize the relevance of information to new problems.
Experts have the knowledge necessary to put the facts together.

Сергей Хакимуллин/iStock/Thinkstock

Creativity is important for solving problems
and making decisions. It helps expand a
decision maker’s perspective and increases
the number of potential solutions he or she
can generate.

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Section 8.6 Creative Decision Making

• Creative-thinking skills. Creative-thinking skills are demonstrated by how flexibly
and imaginatively people approach problems. One creative-thinking skill involves
using analogies. Creativity requires finding connections between diverse sources of
information, and analogies encourage people to look at different situations in new
ways so as to discover how they are related. Another creative thinking skill is con-
ceptual expansion, which involves combining two disparate domains (of knowledge,
experience, etc.) to make a novel idea or product (Shalley & Perry-Smith, 2008).
Often, people’s ideas are limited by their current knowledge; they keep using the
same tools to fix the same problems. However, when people are able to identify and
apply information from a source that is completely new, unrelated, or unexpected,
they experience conceptual expansion. An example is the evolution of commercial
spaghetti sauce. While working with PepsiCo in the early 1970s, Howard Moskowitz
had the notion that the company should stop looking for the single perfect Pepsi that
everyone would like and instead make different varieties of its product that would
appeal to different people’s different tastes. At the time, PepsiCo chose not to listen,
but years later Moskowitz took his idea for soda—to make a variety of products
that appealed to many different tastes—and used it to revolutionize the spaghetti
sauce industry, making millions for Prego and resulting in a huge expansion of
Americans’ concept of what spaghetti sauce should be. So the next time you need
a good idea, instead of looking to see what everyone else in your industry is doing,
look to see what organizations in unrelated fields are doing—and see if you can find
a connection!

• Motivation. The most important component of creativity is intrinsic task motiva-
tion. As you recall from Chapter 6, motivation is intrinsic if it results from the
individual’s interest and involvement in and curiosity about the positive challenge
of the task itself, regardless of external recognition or reward. Intrinsic motiva-
tion is essential for creativity because, without it, people would not be motivated
to engage in or persist with a task, regardless of their expertise or skill in creative
thinking (Amabile, 1996). Zhou and Ren (2012) refer to intrinsic factors that can
enhance creativity in the workplace as the “task context.” These factors include job
complexity, feedback, goals, creativity expectations, autonomy and discretion, time,
and stress. Some extrinsic factors can also enhance creativity. These factors, which
Zhou and Ren refer to as the “social context,” include leadership and supervision,
coworker influences, social networks, cultural influences, adequate resources, and
rewards and incentives. Amabile and Fisher (2009) recommend that organizations
and leaders synergistically utilize intrinsic and extrinsic factors to promote and
reward creative behaviors.

Stimulating Creativity at Work
People can improve their creativity by increasing their expertise, expanding their creative-
thinking skills, and searching for the intrinsically motivating element in every task. However,
certain managerial and organizational practices can also motivate employees to display greater
creativity. First, the organization must have an atmosphere that encourages creative expres-
sion. One way is to offer financial rewards for creative suggestions. Another is to avoid reacting
to honest mistakes with punishments or overly critical feedback (Osland, Kolb, & Rubin, 1991).
Second, organizations should include creativity goals for their employees. In comparison to
production goals, creativity goals help workers focus on producing novel solutions, which

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Section 8.7 Special Issues in Decision Making

increases creativity (Shalley, 1991). For example, for many years 3M encouraged creativity by
allowing its employees to spend 15% of their time on creative projects of their choice. Finally,
supervisors can encourage their subordinates’ creativity by giving them the autonomy to solve
their own work problems. Specifically, research has found that employees who work for trans-
formational leaders are more creative (Shin & Zhou, 2003). As you can see, there are many
practical steps organizations can take to unleash the creative potential of their workforce.

The physical work environment can also influence creativity. For example, office space with
lower complexity, more plants, bright lighting, windows, attractive colors, and access to tech-
nology has been rated higher on creative potential (Ceylan, Dul, & Aytac, 2008). However,
when compared to other factors, a creative personality and a social environment that sup-
ports creativity have been found to be more important than the physical environment in stim-
ulating creativity (Dul, Ceylan, & Jaspers, 2011).

8.7 Special Issues in Decision Making
The topics of ethics and emotions have garnered considerable attention among I/O psycholo-
gists and behavioral scientists. Stories of corporate greed and scandal have fueled efforts to
improve the ethics of decision making, while studies question the role of emotions in and
their influence on effective decision making.

Ethical Decision Making
Ethics are an important component of any decision-
making process. Ethics are defined as “standards of
behavior that tell us how human beings ought to act in
the many situations in which they find themselves—
as friends, parents, children, citizens, businesspeople,
teachers, professionals, and so on” (Markkula Center
for Applied Ethics, 2009). Although the ethicality of a
decision is often hard to judge, five basic ethical stan-
dards can help people guide their decisions (Cavanagh,
Moberg, & Valasquez, 1981).

1. The utilitarian approach states that the ethical decision is the one that provides
the most amount of good while doing the least amount of harm. In simple terms, the
utilitarian approach deals with consequences. It attempts to maximize the positive
outcomes while minimizing the negative. The CEO of a company would be using the
utilitarian approach if he decided to eliminate 10% of the company’s workforce in
an attempt to save the company during an economic recession. Even though many
workers would lose their jobs, the CEO is able to justify his decision by keeping
negative outcomes as low as possible while saving the company and keeping 90% of
the workers employed during hard times. The utilitarian approach is very common
in business because it supports logical business principles such as efficiency, profits,
and productivity.

John Morris/CartoonStock

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Section 8.7 Special Issues in Decision Making

2. The rights approach suggests that the ethical decision is the one that best protects
and respects people’s moral rights. This approach stems from the belief that all
people are entitled to basic human rights, such as freedom to choose how they live
their lives, the right to have a certain degree of privacy, and the right to be treated
with dignity. A whistle-blower (a person who reports unethical behavior or practices
in his or her organization) would be utilizing the rights approach if, for example, she
reported systemic sexual harassment of subordinates by her company’s executives.
Economically speaking, the employee’s decision might not be the best, because it
would likely result in expensive lawsuits, executive upheaval and turnover, and bad
publicity; however, the rights approach maintains that human rights should always
take precedence over any other consideration.

3. The justice approach states that in order to be ethical, decisions must treat people
equally, or at least equitably, and be based on a defensible standard. This approach
requires organizations to impose and enforce rules so that workers will receive both
benefits and costs equitably. Many organizations pay their top-producing workers
more because of their larger contribution, and this is generally considered a fair
practice. The equity of other practices is not as clear. For example, married hetero-
sexual couples receive a number of valuable benefits from organizations that are not
afforded to homosexual partners, and many ask whether this disparity is based on a
defensible standard or whether it is unfair.

4. The common-good approach suggests that ethics should consider the welfare of
everyone. This approach proposes that the interlocking relationships of society form
the basis of ethical reasoning and that respect and compassion for others—espe-
cially those who are vulnerable or defenseless—are requirements for ethical behav-
ior. One argument for the national health care law, for example, is that many children
and much of our nation’s poor do not have access to basic health care, which they
desperately need.

5. The virtue approach suggests that people’s actions ought to be consistent with
certain ideal virtues that provide for the full development of humanity. These vir-
tues are dispositions and habits that develop through experience and help mold
character; they include honesty, courage, compassion, generosity, tolerance, loyalty,
fairness, and self-control. The virtue approach to ethical decision making requires
people to consider how decisions align with their virtues by asking themselves
whether a decision will help them become a better person and whether an action is
consistent with their character.

There are a number of advantages and disadvantages to each ethical standard. Although the
utilitarian approach results in the greatest benefit for the most people, it can also impinge
on the welfare of many people, often the most disadvantaged members of society. The rights
approach ensures that people maintain their basic rights, which reduces prejudice and dis-
crimination, but it can also create a work environment that focuses on minute laws and
policies that get in the way of productivity and efficiency. The justice approach promotes
equality, but it can also create feelings of entitlement that reduce worker motivation. The
common-good approach aims not to leave anyone out of the equation, but it is often imprac-
tical because it fails to take into consideration the fact that budgets and resources are lim-
ited. Finally, even though all decision makers can employ the virtue approach, not all have
high standards of virtue.

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Section 8.8 Applying Positive Psychology to Creativity and Decision Making

The Role of Emotions in Decision Making
Conventional wisdom has long held that the best way to make rational decisions is to remove
emotions from the process (Sayegh, Anthony, & Perrewé, 2004). The assumption has been that
emotions wreak havoc on the decision-making process by distorting peoples’ ability to objec-
tively evaluate and interpret problems and alternatives. More recently, however, researchers
have determined that instead of being irrational, emotions are critical for rational decision
making. The work of Antonio Damasio, a leading neurobiologist, is one of the major reasons
for this change in thinking.

Damasio (1994) studied patients with lesions in their prefrontal cortex, an area of the brain
responsible for emotion. He found that these patients became emotionally neutral and, even
though they maintained all of their other cognitive functions—and therefore theoretically
had the ability to make purely rational choices—they ended up making irrational decisions
or no decisions at all. Damasio concluded that the patients’ inability to make rational choices
was due to their lack of emotions. He argued that emotions allow people, when facing difficult
choices or uncertain outcomes, to have a hunch or a gut instinct that some alternatives are
flawed, which results in fewer irrational decisions. Decision making, then, is a process that
requires both cognition and emotion. Although cognition is responsible for generating ideas,
emotion plays a regulating role. Emotion helps the decision maker decide what is important
to attend to as well as what is relevant and irrelevant about a target.

Keep in mind that not all emotions affect decision making in the same way. In general, emo-
tions can be categorized as either positive or negative. Each has a different impact on deci-
sion making. Positive emotions, such as joy and serenity, have a positive impact on decision
making. People with positive emotions tend to integrate information efficiently, adapt their
problem-solving strategies, and make more creative decisions. A meta-analysis of creativity
studies found that positive emotion increased individuals’ ability to generate ideas (Davis,
2009). In contrast, people who experience negative emotions, such as anger, have been found
to be less effective at making decisions because they do not process information accurately
and often overestimate their ability to make decisions (Sinclair & Mark, 1992). Additionally,
strong emotions such as guilt, shame, fear, and anxiety tend to distort the way people process
information and make choices.

As you can see, emotions are central to our attempt to make sense of the world. As such, they
play a very important role in rational decision making. The key to making quality decisions is
to employ creative thinking and to maintain positive emotions.

8.8 Applying Positive Psychology to Creativity and
Decision Making
You might be wondering why positive emotions lead to better and more creative decisions
than negative emotions do. The answer was unclear until recently. Barbara Fredrickson
(2001, 2003, 2009; Fredrickson & Joiner, 2002) developed what she calls the broaden-and-
build model of positive emotions. According to this model, when we experience positive

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Section 8.8 Applying Positive Psychology to Creativity and Decision Making

emotions, they change our thinking and our
actions in two ways. First, positive emotions
broaden our thought–action repertoires. To use
the terminology of the rational decision-making
model, positive emotions help us consider more
options, more alternatives, and more criteria.
They also motivate us to act on and pursue those
alternatives without excessive fear, inhibition, or
hesitation. This broadening effect is critical for
more rational and more creative decisions and
solutions. In fact, recent studies show that posi-
tivity—or more specifically, psychological capi-
tal, which constitutes one’s hope, optimism, self-
confidence, and resilience—is positively related
to creative performance (Sweetman, Luthans,
Avey, & Luthans, 2011).

Second, positive emotions help us build our mental, physical, social, and psychological
resources. When we experience positive emotions, we are more relaxed, nicer, more attrac-
tive to be around, have more energy, and feel on top of the world. Although these resources
may not be immediately needed during good times (which is typically when we experience
positive emotions), they gradually accumulate during those times. When we experience dif-
ficulties, challenges, and problems at a later time, those inventories of resources come in
handy. They can be drawn on when we experience negative emotions, and they act as a cush-
ion against setbacks and adversities. If we do not experience positive emotions and accumu-
late those resource inventories at good times, we will feel drained, helpless, and ready to give
up during bad times.

Let’s compare the broadening and building effects of positive emotions to the effects of nega-
tive emotions. Negative emotions trigger a fight-or-flight mode, narrowing our thought–action
repertoires to familiar, tried-and-true solutions to problems. This is when we see the dark
side of bounded rationality, satisficing, and perceptual biases. Second, as mentioned earlier,
negative emotions drain our mental, physical, social, and psychological resources, leaving us
too exhausted, depressed, and lonely to function optimally, let alone excel, take control, solve
problems, make decisions, and be creative.

What, then, can managers do to help their employees experience more positive emotions
and fewer negative ones? There is a wide range of possibilities; offering intrinsically motivat-
ing jobs, learning and growth opportunities, supportive supervision, and work–life balance
are some examples. As discussed in Chapter 4, a particularly relevant approach would be to
give employees more positive feedback and recognition when they perform well, rather than
just negative feedback and criticism when they perform poorly. A recent study supports the
notion that when positive psychological capital (hope, optimism, confidence, and resilience)
is coupled with positive feedback, the quantity and creativity of the solutions generated by
employees can be enhanced (Luthans, Youssef, & Rawski, 2011).

iStockphoto/Thinkstock

People with positive emotions tend to
make better decisions, since they are able
to integrate information efficiently, adapt
their problem-solving strategies, and
generate more innovative ideas.

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Summary and Conclusion

In organizations, making decisions, finding solutions to impending problems, and doing
so creatively, efficiently, and effectively are critical for success. In order for managers and
employees to make quality decisions, they need to leverage their knowledge, skills, abili-
ties, experience, creativity, and expertise. They must also become aware of their perceptual
biases and the limitations of human rationality. Most importantly, although we may not be
perfectly rational in our decisions, our perceptions and emotions are unique to each of us
and make us each approach situations differently, which has tremendous value to our per-
sonal, social, and professional lives.

anchoring bias The tendency to make judg-
ments based on initial information without
utilizing new information to revise the origi-
nal assessment.

attribution theory A theory about how
people establish explanations for their own
and others’ actions and the outcomes that
arise from them.

availability bias The tendency to assess
the frequency or probability of an event
based on the most readily remembered
information.

bounded rationality The notion that
humans’ limited mental abilities combined
with external factors over which they have
little or no control prevent them from mak-
ing perfectly rational decisions.

broaden-and-build model of positive
emotions The notion that positive emo-
tions broaden our thought–action reper-
toires and help build mental, physical, social,
and psychological resources.

common-good approach The notion
that ethics should consider the welfare of
everyone.

confirmation bias The tendency to look for
information that confirms or supports what
we believe to be true and to discount infor-
mation that disproves or does not support it.

consensus The extent to which behavior is
common across individuals.

consistency The extent to which a behavior
is repeated over time.

contrast effect The tendency to evaluate
two things that occur close together in time
against one another rather than against a
fixed standard.

creativity The generation of ideas that are
both original and adaptive.

debiasing judgment A process of becom-
ing aware of cognitive biases in order to
eliminate them from the decision-making
process.

distinctiveness The extent to which a
behavior is unique to a particular situation.

escalation of commitment bias The
notion that when people make a decision
they tend to stick with it, and the more
invested they become in their choice the less
likely they are to abandon it, even when the
costs of the decision outweigh the benefits.

ethics Standards of behavior that provide
guidelines for how human beings ought to
act in various situations.

Key Terms

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Summary and Conclusion

fundamental attribution error The ten-
dency to overattribute others’ behavior to
dispositional factors such as abilities, traits,
and motives and to underattribute their
behavior to situational factors outside their
control.

heuristics General rules of thumb that help
reduce the complexities of information pro-
cessing involved in making decisions.

hindsight bias The tendency for people to
believe that they could have predicted the
correct outcome after they know the actual
outcome.

justice approach The notion that in order
to be ethical, decisions must treat people
equally, or at least equitably, and be based
on a defensible standard.

perception The process by which people
bring meaning to their world by organizing
and interpreting the stimuli around them.

primacy effect The tendency to rely on
information gathered from earliest experi-
ences with a target or series of targets.

rational decision-making model The
process of identifying and selecting the
outcome of maximum value to the organiza-
tion through six steps: defining the problem,
identifying the criteria for the solution,
weighing the criteria, generating alterna-
tives, rating alternatives according to the
criteria, and computing the optimal decision.

recency effect The tendency to rely on
information gathered from a person’s most
recent experiences with a target or series of
targets.

rights approach The notion that an ethi-
cal decision is one that best protects and
respects people’s moral rights.

satisficing The notion that the decision
maker establishes an adequate level of
acceptability for the outcome to a problem
and then screens alternative solutions until
one is deemed satisfactory or sufficient.

selective perception The tendency to pay
attention to people, objects, or events that
stand out.

self-serving bias The tendency for people
to attribute their own successful behaviors
and outcomes to dispositional characteris-
tics and to blame external factors for poor
behaviors and failures.

stereotyping The tendency to assume that
objects, people, or experiences that fall into
the same group share more characteristics
than they actually do.

sunk costs Permanent losses of resources
incurred as the result of a decision.

three-component model of creativity
A model that proposes that creativity is
the result of a person’s expertise, creative-
thinking skills, and motivation.

utilitarian approach The notion that an
ethical decision is one that provides the
most amount of good while doing the least
amount of harm.

virtue approach The notion that people’s
actions ought to be consistent with certain
ideal virtues that provide for the full devel-
opment of humanity.

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