The Makings of a Good Boss

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Dedicated to:

Scott A. Millington (of Australia)
– A good leader and a good boss

Best wishes in all your future endeavours!
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“If you command wisely, you’ll be obeyed cheerfully.” ¹
-- Thomas Fuller

How does a person in an organisational structure with people manager responsibilities become a good boss? What does that person do that makes him ² being judged a good boss by subordinates? The questions are simple to ask, but the answers may not immediately come to mind.

To be able to effectively manage people, people managers require leadership skills. So, do good leaders make good bosses? Let us first consider leaders and leadership.

I. What do Leaders do?

In any organisation, meetings, discussions and decision making are common daily activities. However, after plans are discussed and agreed, “…nothing is going to happen unless the leader’s teammates and subordinates want to move in the direction that’s been set. Making sure that happens is a big part of what leaders do.” says Gary Dessler [2001, p. 291]

Thus, leaders exhibit leadership, and leadership can be defined as, “influencing others to work willingly toward achieving objectives.” [Dessler, 2001, p. 291]

An enhanced definition of leadership is, “…the ability of leaders in organisations to lead people to achieve organisation goals and at the same time, create happy customers and employees.” [Tan, 2007, p. 62]

II. Leaders and Employee Motivation

Leaders fill many roles, and one of the many key challenges faced by leaders is employee motivation.

Motivation can be defined as “the forces acting upon or within a person that cause that person to expend effort to behave in a specific, goal-directed manner.” [Lewis et al, 2004, p. 460]

The process of motivation is complicated. However, leaders are particularly concerned about the relationship between motivation and performance i.e. what motivational approaches to take that would maximize performance? There is no singular approach or solution.

An understanding of the different approaches to motivation helps leaders to better understand and improve their interaction with their subordinates in order to strive for higher performance as a team.

1.0 The Needs-based Approach

Needs-based approach deals with “the factors within a person that energize, direct or stop behaviour.” [Lewis et al, 2004, p. 461]

1.1 Maslow’s Hierarchy of Needs

In 1943, Abraham Maslow, in his psychology paper A Theory of Human Motivation identified that a person has five fundamental needs – physiological, security, affiliation, esteem, and self-actualisation.

Physiological and security needs are categorised as lower-order needs and are typically satisfied externally, while affiliation, esteem and self-actualisation are categorised as higher-order needs which are typically satisfied internally.

Physiological needs
Physiological needs represent people’s basic needs such as food, water, and shelter. In the work environment, people with physiological needs are simply motivated by being able to own a job to meet basic necessities irrespective of the type of job they do, preserving their comfort level and avoidance of job pressure.

Security needs
People with security needs value a safe physical and emotional environment. Such people can be motivated by job security, grievance procedures, health insurance, fringe benefits and retirement plans.

Affiliation needs
Affiliation needs become important to people once their physiological and security needs are satisfied. People can be motivated by affiliation needs when they see their work as a means for developing interpersonal relationships and social networking.

Esteem needs
People with esteem needs are driven by personal feelings of achievement, recognition, respect and prestige. Such people can be motivated by developing their pride in their work and by rewards and recognition of their contribution to the organisation.

Self-actualisation needs
People with self-actualisation needs seek self-fulfillment and opportunities to achieve their full potential. Leaders can motivate such people by providing opportunities for them to lead special projects or assignments that capitalize on their strong self-drive and unique skills.

1.2 Herzberg’s Two-factor Model

In the early 1960’s, Frederick Herzberg developed the two-factor model, also known as the motivation-hygiene theory, after discovering that job satisfaction and job dissatisfaction are independent of each other.

Motivator factors
According to Lewis et al, motivator factors relates to what a person actually do in their job and are associated with the person’s positive feelings about the job. Examples of motivator factors are the work itself, recognition, advancement, sense of achievement and responsibilities.

Hygiene factors
In contrast, hygiene factors such as company policies, administration, salary, and working conditions, relates to the work environment and are associated with the person’s negative feelings about the job. [2004, p. 464]

However, while motivator factors are typically considered and rated more important than hygiene factors by most people, it is yet to be proven beyond any doubts that motivator factors will increase work motivation for all people. Nevertheless, the initial step in motivating employees begins with addressing employee dissatisfaction.

Also, there are two contemporary issues with Herzberg’s two-factor model i.e. the on-going debate about the relationships between job satisfaction and performance, and the model’s classification of salary or pay as a hygiene factor – which means that salary is not a motivating factor.

On the relationships between job satisfaction and performance, researchers have shown:

• Job satisfaction causes job performance
• Job performance causes job satisfaction
• No relationship between job satisfaction and job performance

Thus, leaders or people managers should not adopt a simple cause-and-effect approach to the relationships between job satisfaction and performance.

Researchers have also shown that as society develops, societal and economic values changes, and money can become a very strong motivating factor.

1.3 Acquired-needs Model

The acquired-needs model is based on the cultural background and the life experiences people gain and learn from. The model identifies three important needs in the work environment – need for achievement, power, and affiliation. People with a strong need will respond to motivation to satisfy that need.

Need for achievement
People with a need for achievement are typically high achievers who are driven to excel, take on challenging tasks, and strive for excellence. Such people are motivated by challenging tasks with high but achievable goals which can be broken down to provide them relatively immediate progress feedback.

Need for power
Need for power involves either personal power or institutional power. People have a need for power in order to influence and control their work environment. People needing personal power seek to dominate others in order to determine and control other people’s work outcomes. People with a need for institutional power seek to solve problems and advance organisational goals.

Need for affiliation
People with a need for affiliation are attracted to establish friendly and close interpersonal relationships, and enjoy working with other people.

Leaders should realize that people with a high need for achievement do not necessarily make good team players as they prefer to set their own goals and seek immediate performance feedback within a timeline that may be overly stressful for co-workers. However, in management succession planning and employee development, employees with a relatively balanced mix of a high need for achievement, institutional power, and affiliation may be potential future leaders in an organisation.

2.0 The Process Approach

The Process approach deals with the understanding of the cognitive processes within a person that influences his behaviour.

2.1 Expectancy Model

The expectancy model of motivation is based on three basic individual perceptions:

• Effort will lead to performance
• Rewards are attached to performance
• The rewards are valuable to the individual

Expectancy
This relates to a person’s belief that if a certain level of effort is expended, a certain level of performance will be achieved i.e. the relationship between effort and performance

Instrumentality
This is the next stage of perception or belief that when a specific level of performance is achieved, it will lead to a desired outcome.

Valence
Valence represents the value attached by a person to the outcome or rewards obtained.

Leaders should understand that the model seeks to explain that when people are given choices, they will select the choice that has the potential to give them the greatest reward i.e. the reward that they value most.

Thus, when applying motivation, it should be aligned to the person’s perceptions of what rewards are most important to them so that they willingly expend effort to achieve the performance desired by both subordinates and management.

2.2 Equity (or Fairness) Model

Researchers have found that feelings of equity or inequity in the workplace are a major factor of job satisfaction or dissatisfaction among employees.

According to Lewis et al, “the equity model focuses on an individual’s feelings about how fairly he or she is treated in comparison with others.” [2004, p. 468]

The model says that people will compare the ratio of their contributions to their rewards against that of co-workers. If they perceive inequality then one of the following actions may be taken:

• Increase or decrease their work inputs to their perceived equity level, for e.g. if a person feels that he is underpaid, he may reduce his efforts by working shorter hours, decline more responsibility or work
• Psychologically distort comparison, for e.g. a person may distort how hard he has been working or how much he has been contributing to the organisation or increase the perception of importance of his job
• Change the person he is comparing to, for e.g. comparing one’s contribution to that of a lesser performing co-worker
• Change outcomes or rewards to gain equity, for e.g. by joining the company union that typically champions for increased welfare, pay, and better working conditions without the increase in employee inputs
• Leave the situation, for e.g. request for a transfer, or quit the job. This is usually the last resort when the employee feels that no other solution exists

Leaders need to be aware that their subordinates’ perception is an important factor in the equity theory of motivation. Perception of inequity is determined solely by a person’s interpretation and feelings of a given situation. For e.g. management may think that every employee will be happy with the annual pay increase or bonuses paid, but researchers have found that this is not the case. Some employees may feel that the rewards received do not equate to their past contributions and sacrifices.

Thus, leaders need to be aware of the existence of feelings of inequity among his subordinates, and to act to ensure that they feel equitably treated. One of several solutions is to establish regular one-to-one performance reviews to provide feedback, guidance and corrective measures. No employee appreciates being told only at the end of the year in the annual review that he has not been performing up to management expectations.

2.3 Goal Setting

“Goal setting as a motivation model is a process of increasing efficiency and effectiveness by specifying the desired outcomes toward which individuals, groups, departments, and organisation should work,” says Lewis et al.

“The major purposes of goal setting are:

• To guide and direct behaviour toward overall organisational goals and strategies
• To provide challenges and standards against which the individual can be assessed
• To define what is important and provide a framework for planning” [2004, p. 469]

In order for goal setting to be successful, leaders should follow the SMART rule – the goal must be:

• Specific or clear
• Measurable and not ambiguous
• Achievable
• Results-orientated
• Time-related i.e. have a reasonable time-frame for attainment

2.4 Reinforcement Theory or Behaviour Modification

The reinforcement theory is based on the concept that people will repeat behaviours that are rewarded and not behaviours that are punished.

Hence, leaders can motivate subordinates to strive for higher performance by reinforcing behaviours that support organisational goals

Positive reinforcement
Positive reinforcement is the application of a positive or rewarding action resulting from a desired behaviour, for e.g. accolades for a task well done, marketing excellence award for securing several difficult accounts, merit bonus for reducing significant costs for the company by successfully implementing new process improvements.

Negative reinforcement
Negative reinforcement promotes a desired behaviour by allowing escape from an undesirable consequence, for e.g. a 2 months suspension of driving license for driving through a red or stop light, getting penalised for clocking in late by more than 30 minutes.

Extinction
Extinction is the withdrawal of positive rewards or benefits for undesirable behaviour, for e.g. a slacking employee fails to receive his year-end bonus.

Punishment
Punishment is the application of a negative action for undesirable behaviour, for e.g. a reduction in the monthly entertainment allowance of a sales representative who is not achieving his sales quotas, a 2 weeks suspension without pay for being rude to a customer.

Leaders should take note that the formal application of reinforcement theory is also known as behaviour modification. Of late, critics have charged that behaviour modification is manipulative, tampers with human rights and freedom, and is unethical as the importance of corporate governance and corporate social responsibilities increases.

Furthermore, the use of punishment may cause unwanted consequences such as emotional harm, negative stress, and negative side effects, for e.g. fear, revenge.

3.0 Other Contemporary Motivational Approaches

3.1 Participative Management

Participative management involves all the activities where subordinates share a significant degree of responsibilities and decision-making with their supervisors, immediate managers or team leaders.

Participative management can increase job satisfaction and job performance by promoting a sense of appreciation and respect, acceptance and trust, and supports several key areas of Maslow’s hierarchy of needs, Herzberg’s two-factor theory, acquired-needs, expectancy, and equity models.

3.2 Rewarding Team Performance

Today, all if not, most organisations stress on team work or team contributions. Thus, it is also important to reward for team performance by rewarding the team members not as individuals but for each of their contribution to the collective performance of the team.

3.3 Money as a Motivating Factor

Research on money as a motivating factor is of particular interest to many organisations.

Money can be a motivator when:

• It is desired by the employee
• It is perceived as a means to acquire other things that is wanted or needed
• It is symbolic e.g. a measure of achievement or recognition
• A significant amount of money is clearly awarded for the desired behaviour or outcome

Money is not a motivator when:

• The desired productive behaviour is not defined
• The productive behaviour is poorly measured or there is no measurement
• The amount of money is too small to be appreciated
• It is perceived as an entitlement, for e.g. an overdue raise

III. Leaders and the Twelve ‘I’s of Leadership

In Practicing the ‘I’s of Leadership and Makings of a Good Leader, Dr. Victor Tan writes that it is important for leaders to master and practice the twelve ‘I’s of leadership in order to increase their leadership ability to motivate subordinates to achieve organisation goals, and at the same time, make them happy. With happy employees interacting with customers, in turn, customers can become happy with the higher level of attention and service quality they receive. [2007a, p. 62] [2007b, p. 64]

The twelve ‘I’s of leadership are:

1. Inspire
   It is important for a leader to be able to inspire his subordinates to strive for greater heights. Unmotivated employees will under-perform. Thus, leaders need to be able to inspire unmotivated employees to become passionate about their work and contribution.



2. Illuminate
   Tackling issues and solving problems are part of everyday activities in the work environment. However, some issues and problems can be more difficult than others. A capable leader will be able to provide illumination to his subordinates to overcome the difficulties.



3. Illustrate
   A good leader is able to communicate clearly with his subordinates. To be able to also provide illustrations in his communications will greatly improve his subordinates’ understanding of what is required to be achieved.



4. Involve
   The motivational approach of participative management is based on the foundation of involvement. Good leaders recognize the need to involve their subordinates in tasks and projects, and to solicit their opinions and ideas in order to gain their commitment and support.



5. Innovate
   Organisations today face greater competition and global challenges. In order for organisations to survive and achieve continuous profitable growth, effective leaders need to be able to motivate subordinates to introduce new ideas and processes i.e. develop an innovation culture.



6. Impart
   Good leaders realize the importance and effectiveness of empowerment and coaching versus the outdated command and control approach to management. Thus, good leaders develop their subordinates by imparting their knowledge and experience to the extent that their subordinates can work independently of them. When their subordinates become as good as them, those subordinates become ready to take on bigger and more important roles in the organisation.



7. Influence
   The power of leadership is not derived from great authority but from the degree of influence a leader has over others to get things done. The importance to focus on the circle of influence is well expounded by Stephen R. Covey in The 7 Habits of Highly Effective People. “The wider the circle of influence a leader has, the more effective he is in leading people towards achieving organisational goals.” [Tan, 2007, p. 64]



8. Initiate
   “The only thing that is constant is change.” Does this statement sound familiar? Great leaders are not pro status quo but are effective change catalysts. The history of mankind is filled with great leaders who changed things. Capable leaders in an organisation recognizes the importance of initiating change instead of waiting for things to happen, and also knows how to involve their subordinates in initiating change.



9. Inquire
   “Great leaders are inquisitive by nature”, says Dr. Victor Tan. [2007, p. 64] Capable leaders will always inquire about things in an organisation, for e.g. what is the basis of the sales forecast? What is the cause of the delta between actual results and planned? Why are employees exhibiting low morale lately? How do we motivate employees of different background and levels of experience? By asking, leaders seek to improve the organisation, and thus the long-term welfare and productivity of employees.



10. Improve
    Complacency exists in every organisation and it becomes a great challenge for successful organisations to consistently achieve high performance. Good leaders need to be aware of and take action to reduce the complacency of subordinates. Good leaders must know how to motivate subordinates to continuously improve. Recognition of subordinates’ critical contributions or achievements and rewards needs to be given to reinforce the behaviour of continuous improvement.



11. Implement
    In Makings of a Good Leader, Dr. Victor Tan says, “The value of leadership lies in getting people to implement ideas, suggestions or plans. No amount of analysis, strategizing or planning will make a company great if leaders do not get people to implement things.” [2007, p. 64]



12. Inculcate ³
    Good leaders are able to encourage subordinates to think for themselves, self-motivate and strive for improvements and innovation. This can be achieved by inculcating a sense of continuous learning, probing problems, and process improvement among employees. [Wee, 2008, p. 1]

IV. Conclusion

A good leader knows why employee motivation is important, and will be able to motivate his subordinates in a positive and productive way. In turn, highly motivated subordinates become happy in meeting their work challenges and committed to strive to achieve the extraordinary.

According to Dr. Victor Tan, “The art of leadership lies not in firing people, but in firing up the enthusiasm of people to rise over the occasion and outperform their normal selves to achieve the extraordinary.” [2007, p. 62]

In the eyes of subordinates, a good leader makes a good boss.

¹ Goodman, Ted. (1997). The Forbes Book of Business Quotations: 14,173 Thoughts on the Business of Life. Black Dog & Leventhal Publishers

² All references to the masculine him / he / his, applies equally to the feminine her / she / hers

³ “Inculcate” was added to the ‘I’s of leadership by this author/blogger Chen Ming-fa

References:

Abell, Derek F. (1997). “Business is changing fast and so is the art of leading it” in Bickerstaffe, George. (Editor), Financial Times Mastering Management, p. 516 – 519. London, England: Pitman Publishing

Dessler, Gary. (2001). Management: Leading People and Organizations in the 21st Century. (2nd Edition). Upper Saddle River, NJ: Prentice Hall

Lewis, Pamela S., Goodman, Stephen H. & Fandt, Patricia M. (2004). Management: Challenges for Tomorrow’s Leaders. (4th Edition). Mason, OH: Thomson South Western

Robbins, Stephen P. & Coulter, Mary. (2003). Management. (7th Edition). Upper Saddle River, NJ: Prentice Hall

Tan, Victor S.L. (2007, December 1). “Practising the ‘I’s of leadership.” New Straits Times; p. 62

Tan, Victor S.L. (2007, December 8). “Makings of a good leader.” New Straits Times; p. 64

Useem, Michael. (1997). “Do leaders make a difference?” in Bickerstaffe, George. (Editor), Financial Times Mastering Management, p. 520 – 523. London, England: Pitman Publishing

Wee, David. (2008, July 26). “Don’t Tell Your Staff What to Do.” The Star; Metro Classifieds Central, p. 1

Wood, Jack D. (1997). “What makes a leader?” in Bickerstaffe, George. (Editor), Financial Times Mastering Management, p. 506 – 511. London, England: Pitman Publishing

Wood, Jack D. (1997). “The two sides of leadership” in Bickerstaffe, George. (Editor), Financial Times Mastering Management, p. 511 – 515. London, England: Pitman Publishing

Revisiting Globalisation

I. Introduction

“US has lost 400,000 IT jobs”, “India wants WTO protection from ban on outsourcing”, “WTO plays down fear of IT offshoring” and “Outsourcing to affect 4.1m jobs by 2008” are some of the headlines we have been reading in the local newspapers and foreign news since 2004.

If these are the results of globalisation, surely it must be bad. Thus, should we resist globalisation at all costs? Before we attempt to answer this question, we need to have a better understanding of what is globalisation.

Globalisation means different things to different people around the world. It also affects different people, communities or nations of the world in different ways.

II. What is Globalisation?

Globalisation is a term that has been receiving some bad publicity. It has created fear, uncertainty and doubts in both developed and developing countries. Globalisation has resulted in individuals, in certain industries, in certain countries to lose their jobs.

The supporters of globalisation see it as the integration of economic, political and cultural systems across the world. Opponents of globalisation see it as the Americanization of world culture and U.S. dominance of world affairs via economics.

The supporters consider it to be a force for economic growth, prosperity and democratic freedom. The opponents consider it to be a force for environmental devastation, exploitation of developing countries, and the suppression of human rights.

However, the sure thing is that globalisation involves trade liberalisation. To the multi-national corporations (MNCs), globalisation is about how they continue to grow by reaching new markets and leveraging resources around the world to provide customers everywhere with great value, and shareholders with increasing returns on investments.

Hence, globalisation is about creating value on a macro scale. Since the values can be economic, political, societal and cultural in nature, different countries or nations view globalisation differently in relation to their respective values.

In the 19th century, the Chinese considered the arrival and influence of the Westerners e.g. the British, Portuguese, Spaniards and French for trade as bad for China, which later lead to the Opium Wars (1839 – 1842 and 1856 – 1860), and saw Hong Kong ceded to Britain until 1997.

Today, China’s values towards international trade and economics have changed. Together with India, they represent the top two emerging markets in the world.

Thus, globalisation is not totally new, as international trade has been in existence since man traveled the globe for e.g. Marco Polo and the Silk Road.

Thus, I can define globalisation as the acceleration and intensification of interaction and integration amongst the people, companies, and government of different nations via international trade and management.

III. Key Characteristics and Drivers of Globalisation

1.0 The key characteristics of globalisation are:

• Liberalisation of international trade


• Growth of foreign direct investments (FDI)


• Large cross-border financial flows


• Introduction of new technology

The above characteristics coupled with changes in economic and political decisions have contributed to increased competition in global markets, thus creating the enabling conditions for globalisation.

1.1 Liberalisation of international trade

International trade has expanded rapidly in the last two decades. Since the 1970's, it has grown significantly faster than the world gross domestic product (GDP) as shown in Figure 1.

Furthermore, in the 1980's the extent of trade liberalisation, especially in developing countries began to accelerate (Figure 2).

However, the trade expansion was not uniform across all countries, as the industrialised countries and a group of twelve developing countries gained the most (Figure 3).

1.2 Growth of FDI

Since the 1980's, FDI also grew rapidly, both absolutely and as a percentage of GDP as shown in the previous Figure 1 and in the following Figure 4.

The number of countries adopting liberalisation measures towards attracting FDI also increased (Figure 5).

However, despite the rapid growth of FDI flows to developing countries, the investments remain concentrated in about ten countries (Figure 6).

1.3 Large cross-border financial flows

The past two decades also witnessed the rapid integration of financial markets. Although the Bretton Woods system of closed capital accounts and fixed exchange rates collapsed in the early 1970's, it was not until the early 1980's that saw increased capital flows among industrialised countries.

Financial liberalisation took place in the late 1980's with increased investments in the equity markets of developed countries by investment funds, increased bank lending to the corporate sector and short-term speculative flows especially into the currency markets, and increased lending through the international bond market.

1.4 Introduction of new technology

Industrialised countries are the source of technological revolution that facilitated globalisation. The introduction of new technology changed the international competitive landscape by making knowledge an important factor of production.

Thus, the knowledge intensive and high-tech industries are the fastest growing sectors of the global economy today, and successful economic development requires countries to be able to enter and compete in these sectors. The countries must invest in education, training and the diffusion of knowledge.

2.0 The key drivers of globalisation are:

• Increasing competitive landscape: Cost and resource maximisation


• Increased adoption of information and communication technology (ICT)


• International customers


• Governments striving for greater economic growth

2.1 Increasing competitive landscape: Cost and resource maximisation

As discussed above, the liberalisation of trade, the increased FDI and cross-border financial flows, and the introduction of new technology had created the enabling conditions for globalisation.

The conditions in turn caused increased global competition among companies involved in international trade, especially the MNCs, and created the need for global business strategies, and cost and resource maximisation remains the critical factors of economic value creation.

Thus, the MNCs look towards the following to maintain their global competitiveness:

• The different locations or countries and costs of raw materials and skilled labour


• Building and maintaining economies of scale


• A developed telecommunications infrastructure


• Transportation i.e. logistics efficiency


• Outsourcing capabilities


• Tax benefits

2.2 Increased adoption of ICT

Rapid developments in ICT contributed to the acceleration of globalisation. The introduction of Internet technology and proliferation of the World Wide Web spearheaded the adoption of electronic commerce technology.

Third generation enterprise resource planning (ERP) solutions utilizing Internet and electronic commerce technology further made information, resource management and decision making easier, faster and more accurate and efficient across international boundaries.

2.3 International customers

Customers in the global market having common needs favour globalisation, and through globalisation, firms or producers/suppliers reach customers in the global market.

2.4 Governments striving for greater economic growth

Governments are also the catalysts for globalisation. Changes in or the regulation and de-regulation of trade and economic policies favouring international trade, and attracting FDI will support globalisation.

The need to ensure that the home country’s products meet international technical standards, for e.g. ISO and other regulatory compliance standards promotes globalisation.

The promotion of the home country’s products at international trade fairs and the creation of grants and funding for business expansion, ICT adoption and skills development to meet global competition encourages globalisation.

IV. Competitive Advantage of MNCs

Globalisation is constantly being driven by MNCs, initially with local competition when they began corporate life, then growing regional, and finally global in their quest to create, sustain and maximise economic value from scarce resources.

In order to be successful, a company needs to develop and sustain competitive advantage. A company needs to conduct regular environmental scanning or audits using proven methodologies such as Porter's Five Forces to evaluate and sustain their competitive advantage for continuous profitable growth.

Competitive advantage can be developed from proper and careful strategic planning, execution and continued development of a company's resources and processes. The efficient and effective acquisition and utilisation of resources coupled with the company's unique capabilities can create distinctive or core competencies that are difficult for competitors to emulate.

Further adoption of one of two industry-wide strategies or focus segment strategy (Porter’s Three Generic Strategies), can enable a company to create and maintain value creation. As the company grows and expand, the strategies take on a global perspective i.e. the company evolves into a company with globalisation intentions i.e. an MNC.

V. Competitive Advantage of Nations

Globalisation does not only depend on companies adopting global strategies. In the preceding two sections, I discussed that governments also act as a driver or catalyst of globalisation.

Since governments are the custodians and managers of nations, how can I expand on the government factor in relation to their countries in the subject of globalisation?

Michael Porter argues that every country can develop and possess competitive advantage. [Porter, 1990]

Porter used a diamond-shaped diagram as the basis of a framework to illustrate the determinants of a nation’s competitive advantage. The diamond shape represents the national playing field that each country establishes for their industries.

The four points of the diamond affect four aspects of national competitive advantage:

• The availability of resources and skilled labour


• Information that companies uses to decide which opportunities to pursue with the available resources and skills


• The goals of the companies


• The pressure on companies to innovate and invest

1.0 Demand Conditions

When the market for a particular product is larger locally than in foreign markets, the local companies devote more attention to that product than do the foreign companies, leading to competitive advantage when the local firms begin exporting the product. Thus, a more demanding local market leads to a national advantage that enables local companies to anticipate global trends.

1.2 Firms’ Strategy, Structure and Rivalry

Local conditions affect a company's strategy, for e.g. German companies tend to be hierarchical. Italian companies tend to be smaller and are run more like extended families. Such strategies and structures help to determine in which types of industries a nation’s companies will excel.

In Porter’s Five Forces model, low rivalry made an industry attractive. While a company prefers less rivalry, in the long term, more local rivalry is better as it puts pressure on companies to innovate and improve. More local rivalry results in less global rivalry.

1.3 Factor Endowments

A country creates its own important factors such as skilled resources and technological base. Local disadvantages in factors of production force innovation. Adverse conditions such as skilled labour shortages or scarce raw materials forces companies to develop other methods i.e. to innovate, and this leads to a national advantage.

1.4 Related and Supporting Industries

When local supporting industries are competitive, companies enjoy more cost effective and innovative inputs. This effect is further strengthened when the suppliers are also strong global competitors.

Thus, countries that are more competitive are more conducive to globalisation and can better attract FDI.

VI. The Effects of Globalisation on World Regions

The effects of globalisation on world regions are as follows:

VII. The Benefits and Costs of Globalisation to Different Sectors of Society

The benefits and costs of globalisation to different sectors of society are as follows:

VIII. Conclusion

I can draw the following conclusions:

1. Globalisation has increased the flow of money, goods, services, people and jobs across national boundaries


2. The trend of globalisation continues to accelerate


3. Globalisation requires an environment of geopolitical stability and a macroeconomic system to enable growth


4. The full impact of globalisation goes beyond national trade surpluses and deficits


5. Globalisation has tremendously impacted demand and supply with trade liberalisation


6. Globalisation has also resulted in the displacement of jobs, and certain communities have had significant environmental impact


7. The debate on globalisation and its impact is still ongoing

References:

Chang, Ha-Joon. (2003). Globalisation, Economic Development and the Role of the State. London, England: Zed Books

David, Fred R. (2005). Strategic Management: Concepts and Cases. (10th Edition). Upper Saddle River, NJ: Pearson Prentice-Hall

Gupta, Anil K. & Westney, D. Eleanor. (Editors). (2003). Smart Globalization: Designing Global Strategies, Creating Global Networks. San Francisco, CA: Jossey-Bass / John Wiley & Sons, Inc

Hodgetts, Richard M., Luthans, Fred & Doh, Jonathan P. (2006). International Management: Culture, Strategy, and Behavior. (6th Edition). New York, NY: McGraw-Hill / Irwin

India wants WTO protection from ban on outsourcing. (2005, June 7). Star InTech, p. 27

Outsourcing to affect 4.1m jobs by 2008. (2005, July 19). Star InTech, p. 29

Porter, Michael E. (1990). The Competitive Advantage of Nations. New York, NY: The Free Press

Rothenberg, Laurence E. (2003). "The Three Tensions of Globalization." [Electronic Version]. Globalization 101, No. 176, 2002 – 2003

Stiglitz, Jospeh E. (2003). Globalisation and its Discontents. New York, NY: WW Norton & Company

US has lost 400,000 IT jobs. (2004, September 21). Star InTech, p. 36

WTO plays down fear of IT offshoring. (2005, July 5). Star InTech, p. 27

Performance Measurement

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ACKNOWLEDGEMENT

This article was published in the New Straits Times on August 30, 2003
as a CIMA Business Talk article.

Reproduced here with permission from
The Chartered Institute of Management Accountants (CIMA Malaysia).
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The future of performance measurement is all about planning not reviews, answers not data, and “managing through measurement”.

Management’s obsession with measurement grows unbounded. The latest data from Gartner, the US-based research organisation, suggests that over 70 per cent of large US firms had adopted the balanced scorecard by the end of 2001. The recent Enron scandal has provoked a flurry of debate about corporate reporting, disclosure and the use of creative accounting practices to smooth income and earnings statements.

The software industry is also playing a significant role in driving the measurement agenda forward. There are now over 40 vendors worldwide that offer performance reporting solutions. Some of these performance reporting solutions are little more than glorified spreadsheets, while others enable executives to access immense amounts of data. The problem with many of the software reporting packages on the market today is that all they offer is data – not information or insight.

The problem is that too much is being measured. Executives are obsessed with quantification. They want everything described in numerical terms – customer satisfaction, customer loyalty, customer profitability, brand value, employee satisfaction, supplier performance, health and safety, efficiency, productivity, innovation, new product development, etc. This is becoming such a significant issue that some executives are now questioning what value they get from their organisation’s measurement systems. These questions become even more frantic when they think about how much their organisation's measurement systems cost them to run.

Recent research completed by members of the Centre for Business Performance at Cranfield School of Management, UK, found that Ford spent 0.7 per cent of sales, or USD1.2 billion annually on budgeting. Surprisingly the vast majority of executives have no real idea how much they are spending on measurement.

Everyone knows they are spending a lot, but no one knows how much. Just because you spend a lot on something does not mean that it is not worthwhile. However, organisations should think carefully about how they can best use their measurement systems to ensure that they deliver maximum value.

Broaden the agenda

Significant effort has been devoted to improving measurement methodologies. People have developed new methods of measuring financial performance and new frameworks to balance financial and non-financial measures. Research has focused on how to design and apply such methodologies and frameworks. These topics are important, but as we enhance our understanding of them, we need to broaden the agenda and ask: how do we make measurement pay?

More specifically we should do the following:

• Think in terms of performance planning not performance reviews
  
• In most organisations, measurement forms the basis of performance reviews, which are historic or backward looking in nature and – either implicitly or explicitly – designed to put people on the defensive

Why, in performance reviews, do people spend most of their time justifying why performance is as it is? They come to the review armed to the teeth with excuses about why they are where they are. For example: “We are only at 70 per cent of our target because our suppliers let us down, or our competitors have introduced a new product."

Such discussions are irrelevant, or at least relatively unimportant in comparison with focusing on how we are going to get to where we want to be.

Discussions about how we are going to get to where we want to be are not performance reviews. They are performance planning sessions. They require executive teams to understand the reasons why performance is as it is, and then focus on how they are going to make progress.

Ask for answers not for data

Why do people get sucked into performance reviews rather than performance planning sessions? A significant reason is that far too often the meetings themselves are structured as performance reviews. Far too often we simply present raw performance data to executives and expect them to analyse it there and then.

You would never conduct a scientific experiment that way. You never make a presentation to an audience without first analysing the data and understanding the messages it contains. Yet far too often that is what we do in performance reviews. We give people figures on profitability by customer segment, on absenteeism levels, on productivity. But nobody has been through the data and extracted the insights from it in advance.

David Coles, managing director of DHL UK used an excellent phrase to describe this in a recent presentation “numerical crosswords”.

He explained how his board used to spend all of their time at performance reviews trying to join up the pieces of the numerical jigsaw that they were presented with. Directors would look at a performance report and try to draw spurious correlations between different events to offer explanations for unusual observations.

When they realised this was what they were doing, DHL UK changed the structure of their board meetings, and defined specific questions that they wanted to be answered.

They now ask their performance analysts to come to the board meeting, armed not with raw data or excuses, but presentations that address questions of concern to the board.

The board’s role is to probe the quality of the analysis and, once they are comfortable with it, decide what they are going to do to move performance in the desired direction.

In changing the structure of their board meetings, DHL UK has eliminated the defensive behaviours associated with performance reviews and encouraged the creative dialogue associated with planning.

Build the capability of performance analysts

In adopting this new structure and format, DHL recognised that they had to upgrade the skills of their performance analysts. These performance analysts need to be able to manipulate performance data, interpret it, and present it in a way that engages and provides insight to others.

Research at the Centre for Business Performance has resulted in a concept called the Performance Planning Value Chain, which encapsulates a systematic process for extracting insights from performance data.

The analogy underpinning the Performance Planning Value Chain is of a journalist. When writing a story, a journalist is very careful to identify the “hook” that will capture the reader's attention. Rarely do we do this with performance reports.

This issue becomes even more important when the focus of measurement is shifted to systems not functions. Organisations consist of complex interdependencies. Marketing relies on operations. Operations rely on human resources, etc. Yet when it comes to measurement, we often ignore these interdependencies. Marketing looks at the marketing and customer satisfaction data. Human resources look at the people data, etc. It is as if we have functionalised measurement, just as we have functionalised everything else in organisations.

Yet the functionalisation of measurement is a mistake. Each part of an organisation affects others, so we have to recognise this interaction if we are to get the most from our measurement data. It should give us the big picture. This requires us to equip performance analysts with the skills to cope with this complexity.

Written by Andy Neely. The writer is director of Centre for Business Performance, Cranfield School of Management, United Kingdom. This article first appeared in Insight, an online newsletter for management accountants published by The Chartered Institute of Management Accountants (CIMA). Insight is accessible at www.cimaglobal.com/newsletters.