Tuesday, August 30, 2011

The role of leadership and how it can impact organizational performance, based on Alan Mulally, CEO, Ford Motor Company.

According to  Hellriegel et al., (2011 p. 290) leadership is the process of developing ideas and vision, living by values that support those ideas and that vision, influencing other to embrace then in their own behavior, and making hard decisions about human and other resources. Therefore, to influence by one person over others power became the currency of leadership where in the context of organizational leadership, leaders need and use power in order to help an organization accomplish its goals (Kets de Vries, 1999; Tanoff & Barlow, 2002). The power can be Legitimate that is because of the person’s formal position, reward power that provide value, coercive power that is punishments, referent power that is associate with charisma and expert power that is a person with recognized talent and knowledge (Hellriegel et al., 2011). However an effective leader probably would use a variety of sources of power to influence other and be successful. Some people also use different behaviors to achieve their goals, as a political behavior and organizational politics that involves attempts by individuals to influence other in order to obtain their own advantages.
            However the Ohio State University leadership studies program identified two main dimensions behaviors that really make difference to attaining team and organizational goals: consideration and initiating structure. In the consideration the relationship between leader and the subordinate is based by mutual trust, respect and empathy for their feelings, in the initiating structure trough planning, schedule and giving orders the leader the leader prescribes the roles of subordinates in order to achieve goals (Hellriegel et al., 2011). Also some individuals’ characteristics might ensure the success of the leader in organization some as intelligence, maturity, achievement drive and integrity. Although to discuss how it can impact organizational performance we can’t focused only on the leader as a person and on his/her particular style, without consider the follower, where leadership became an interpersonal devotee relationship between two agents (leader and follower) (Gini, 1997). Indeed, based on the idea that leadership is defined as a phenomenon that gets: the voluntary adhesion of followers (Guillen and Gonzalez, 2001), the necessary effort of followers to achieve the group and organizational objectives (Koontz and Weichrich, 1994), and an increase in the followers’ performance (Drucker,1986), a suitable consequential indicator of leadership may be the extent to which followers feel motivated and ‘‘comfortable to bring the best of their knowledge and abilities’’ to the organization (Offerman, 2004, p.832).          
            Finally leader’s decisions will drive the followers to impact organizational performance. In these context decisions makers, play an important role where sometime can be necessary some change to improve the functioning of the organization; however most times resistance or aversion to change can result in organizational decline. For instance, Kets de Vries and Miller (1984) contended that decline in organizations is frequently related to the CEO’s rigidity, while CEO’s characterized as adaptors that viewing change more proactively  can make decisions faster than the market, also encourages efforts from the followers to explore thinking or alternative strategies. In the case Alan Mulally’s leadership took an important decision that resulted in Ford strategic moves (Hellriegel et al., 2011). His skills and style helped Ford to move ahead in the industry during an economic recession.

            According to (Hellriegel et al., 2011) in the situational Leadership Model leaders can choose for among of four styles that matched to the level of readiness of the followers. With telling style, leaders provide clear instructions and gives specific directions and supervise the work closely. In the selling style the leader provides directions, encourages two-way communication and helps to build motivation and confidence on the followers. Using the participation style the leaders facilitate the work by encouraging the followers to share ideas. The last style is delegating, where the leader turns over responsibility for making and implementing decisions to followers.
            I believe that in the case Alan Mulally’s leadership style is the selling style because when he arrived in the company in 2006 Ford was on the verge of financial collapse, then the follower task specific readiness increase with Mulally’s strategic decisions to integrate the company globally. As a leader Alan Mulally has provided some guidance behavior, very characteristic of selling style, for example when he create the plastic cards with four goals on one side and revised definition of the company (one Ford) on the other. With the information in the plastic card he showed exactly what he had in mind about the way the employee has to act, the importance of work in groups and the role model Ford values in order to deliver results. Also with the “One Ford” he gives the specific direction to prepare the employee to get ready to assume total responsibility to perform the task.
            In addition, when Mulally said that “they don’t bring their big books anymore because I’m not going to grind them with as many questions as I can to humiliate them” (Hellriegel et al., 2011) he begin using supportive behaviors in order to build the employee confidence to maintain enthusiasm, that is also very characteristic of selling leadership style.
            Finally using selling style Mulally encourages two-way communication demonstrated this by communicating to all the employees and not just upper level executives as to what, when and how the company was going to move forward.

            According to Locke and Latham 1990, goal-setting theory predicts that specific and challenging goals lead to better performance as opposed to vague and nonquantitative goals (such as “do your best” goals) or no goals at all. Goals are future outcomes (results), goal setting is the process of specifying desired outcomes. In the case Mulally first determine the goal when he promised that “Ford’s core North American operations, as well as the entire company, will be profitable by 2011”. However the goal setting process was not so easy, as we saw in the case Mulally first studied up on Ford like a student, interviewed employees and making notes to develop the goal setting process.
            Trough the plastic card Mulally showed the expected behaviors then focus an employees’ attention in one plan and one goal in order to show what was relevant and important for the company. The whole process was not easy demanded strategic changes trough the people as demonstrate technical excellence, believe, listen and then have initiative to deliver results. With his strategy Mulally encourages people to look for a different point of view and realize that the company has problems but they can solve this problems based on the goals setting.
            Make the goal setting clear and difficult was essential to improve Ford’s performance, because motivate employees to concentrate their efforts in the expected behavior. Finally when Mulally was asked if Ford will be able to remain in business he answer that he doesn’t know, but he says that “the plan” will ensure the company to make it (Hellriegel et al., 2011). One more time he proved that the goal setting leads to high performance not only in certain period of time but for a long time because put the company in the right path.

            The kind of Mulally’s message transmission is very open, candid and supportive because his messages are interpreted trough high trust, for instance his experience a nearly 40 years in the commercial airplane business in one of the most international of all industries makes Mulally looks loyalty for Ford and even his appearance gives to him a considerable trust from the employees. Then the way he shares his agendas and promotes the meeting with his direct reports every Thursday morning also form the base of his open message. Finally the way he conduct to make the goal clear and revealed to the whole company like when he create the plastic card with the expected behavior and the Ford goal makes his communication very open and ensure that everyone in the company independent of the level will understand his message.
            However the communication openness is a degree that according to (Hellriegel et al., 2011) the degree of openness must consider in relation to tree important factors, first the history of the relationship, second if the communication is likely to be partly adversarial, third the communication is with someone who has some control over their future. Historically Mulally has been work for several years for Boeing and had a good performance on there, this factor gave to him such comfort that make him able to focus on direct communication very open. In the second setting Mulally shows again a very open communication because is likely to be friendly especially because he wants the company’s success the same as everyone who is working there. The third setting we find Mulally in a high degree of open communication because he project a favorable image of him for the employee making very clear and objective messages.

The effectiveness of Mulally’s leadership style 
            Mulally’s leadership style was very effective as we can notice from the news “Alan Mulally has been named the 2011 Chief Executive of the Year by Chief Executive magazine” (Rana, 2011). The honor is given to a corporate leader by a group of his or her peers, the success he showed in the face of incredible difficulty was just extraordinary his management effectiveness to change the company from the near collapse in 2006 to $20.5 billion of Automotive gross cash, in the end of 2010. Also Ford Credit made pre-tax operating profit of $3.1 billion, an improvement of more than $1 billion over 2009 (Mulally, 2010). According to (Hellriegel et al., 2011) there are some initiatives that contributing to effective change management and most of them it is possible to identify in Mulally’s management as follow:
-          Motivating Change, example he creates a readiness for the change among the leaders and employees;
-          Create a vision, putting in the card for everyone a very objective and clear goal;
-          Developing political support, arranged the wall by area of responsibility with a photo of the executive in charge he make it possible to access the change-agent power;
-          Managing the transition by planning and managing the structures in the Thursday’s meeting;
-          Sustaining the Momentum, for example when he reinforce the idea to come back with Taurus.
            Therefore, trough one plan and one goal he motivate positive job attitudes and behavior from the employees that result in one very effective practiced leadership able to rebuilt the Ford in extremely challenging economic conditions. Although at the end of this year he would complete the one goal and then at this point will be important to develop a new goal and might remodel the plan. However he should continue with the same leadership style because in a globalization will always be necessary to implement some changes to be ahead of the competitors.

Ciulla, J. B.: 2004, ‘Ethics and Leadership Effectiveness’, in J. Antonakis, A. T. Cianciolo         and R. J. Sternberg (eds.), The Nature of Leadership (Sage Publications, Thousand     Oaks, CA).

Drucker, P.: 1986, The Practice of Management (Harper Collins Publishers, New York).

Guillen, M. and T. Gonzalez: 2001, ‘The Ethical Dimension of Managerial Leadership Two       Illustrative Case Studies in TQM’, Journal of Business Ethics 34, 175–189.

Gini, A.: 1997, ‘Moral Leadership and Business Ethics’, The Journal of Leadership &     Organizational Studies 4(4), 64–81.

Koontz, H. and H. Weichrich: 1994, Administracio´n: Una Perspectiva Global, 10th Edition      (McGraw Hill, Me´xico).

Kets de Vries, M. F. R. (1999). Leaders who make a difference. European Management            Journal, 14(5): 486-493.

Kets de Vries, M. and D. Miller: 1984, The Neurotic Organization (Jossey-Bass, San      Francisco).

Hellriegel, D., & Slocum, J. W., Jr. (2011). Organizational behavior: 2011 custom edition           (13th ed.). Mason, OH: South-Western Cengage Learning.

Offerman, L. R.: 2004, ‘Leader Categorization Theory’, in G. R. Goethal, J. S. Sorensen and     J. M. Burns (eds.), Encyclopedia of Leadership, Vol. 3 (Sage Publications, Thousand Oaks, CA), pp. 823–832.

Rana, Omar. (2011). Ford’s Alan Mulally named 2011 Chief Executive of the Year. EGM          CarTech, Posted: Jun 29, 2011. Access at 08/04/2011 at:         http://www.egmcartech.com/2011/06/29/fords-alan-mulally-named-2011-chief-     executive-of-the-year/
Mulally, Alan. (2010). A Message from Alan Mulally, President and CEO. Ford Motor   Company. Excerpt from the 2010 Ford Motor Company Annual Report. Access at        08/04/2011 at:  http://corporate.ford.com/news-center/news/press-releases/press-r      eleases-detail/message_from_alan_mulally

Sunday, August 28, 2011

Marginal Product and Average Product

Table 1:
Amount of Labor (units)
Amount of Capital (No. of Machines)
Output of Parts (Q, hundreds of parts)
Average Product (Q/L)
Marginal Product (Variation Q/ Variation L)


Based on the table 1, draw the Short-run average product (AP) curve and the Short-run marginal product (MP) curve:

To identify the three stages I am going to use the figure 2 and 3 that illustrate the relationship between Average Product, Marginal Product and Total Production from table 1 to the figures AP, MP. Labor input is measured on the horizontal axis of both figures AP, MP, identifying the three stages of production with different quantities shown as L1, L2 and L3. The total production is measured on the vertical axis of figure 2, while the average production and marginal production are measured on the vertical axis of figure 3.
As in the table 1, figure OUTPUT shows the total product (or level of output) first increasing very rapidly up to labor input at the level 6.6 the first stage is L1 and then increasing at slower rate as more labor input added. The first stage refers to the Law of increasing marginal returns, because in this point the marginal product curve is positive and increasing, so that total product increases at an increasing rate, Farnham, (2010). The total product curve becomes flatter and flatterer until it reaches a maximum output level between labor level 14 and 15 shows the third stage L3. According to Farnham, (2010) the third stage L3 refers to the Law of negative marginal returns, because the marginal product curve is negative and decreasing, so if more labor is added beyond level L3 the total amount of output, or the total product, decreases. This total product curve implies that the marginal product of labor first increases rapidly, then decreases in size, and eventually becomes negative to minus twenty one according to the table 1(-21).
We can also see at figure 3 the typical relationship between the marginal product and the average product curves. Between zero and 10 units of labor at the second stage of production L2, where the marginal product curve lies above the average product curve, which causes the average product curve to increase. Beyond L2 units of input, the marginal product curve lies below the average product curve, which causes the average product curve to decrease. Therefore, the marginal product curve must intersect the average product curve at the maximum point of the average product curve that is 130 at this point according to the table 1. The phenomenon illustrated by the second stage according to Farnham, (2010) is the Law of diminishing marginal returns or Law of diminishing marginal product, because the marginal product curve is positive, but decreasing, so that the total product is increasing at a decreasing rate.

Production, or output, use of various production inputs through something they call a production function. Output is assumed to be “a function of” – a consequence of – the use of inputs. Inputs can be either classified as variable inputs or fixed inputs. Fixed inputs are those things that contribute to production, but are assumed to be fixed in quantity during a given time period. The amount of output within a given time period then will be determined by the amount of variable inputs applied. The reason of the firm`s short-run has only one “rational” stage of production is exactly because a short-run production function involves the use of at least one fixed input at any given time, in the other hand the long-run production function can have more rational stages because all inputs are variable Farnham (2010).
            All economically relevant production functions are characterized by three stages of production, although according to Kahn (1989), stage two is the only one economically rational range of production, because the total production increase but at decreasing rate, then if there is profit to made, it will be made somewhere within stage two. Conversely, at the point marking the beginning of stage two, total output per unit of variable input is at its maximum. Beyond that point, each increase of input results in smaller increments of output, however at the beginning of stage two, the cost of “variable input” per unit of output is at its minimum.
            A simple example of one firm`s short-run with only one “rational” stage could be retail shop setting might be a widget shop that features a certain number of square feet of work space and certain number of products to be sold. Neither the space available nor the number of products can be added to without a long delay for construction or production, but it is possible to adjust the amount of labor on short notice by working more shifts and/or taking on some extra workers per shift. Adding extra man-hours of labor will increase the number of sales, but only within limits (stage two). After a certain point, such things as worker fatigue, increasing difficulties in supervising the large work force, scarcity of products to sale or just plain inefficiency due to overcrowding of the work space begin to take their toll. The marginal returns to each successive increment of labor input get smaller and smaller and ultimately turn negative for the business. If they could variable the size of the shop and the number of products available they might be able to achieve another”rational” stage.

Farnham, P. G. (2010) Economics for managers (2nd ed). Upper Saddle River, NJ:           Pearson Education Inc., Published as Prentice Hall.

Kahn, R. 1989. The economics of the short period. New York: St. Martin's. (This is Kahn's         dissertation at Cambridge, submitted Dec. 7, 1929; Dennis Robertson was one of the     referees.)

Larson. B. 1991. A dilemma in ihe theory of short-run production and cost. Southern     Economic Journal 58 (2): 465-74.