Wednesday, 31 October 2012

Finance terms


financial markets
financial markets are - any type of financial transaction that you can think of that helps businesses grow and investors make money. Here is an overview of the financial markets, from the simple to the complex
Broad term describing any marketplace where buyers and sellers participate in the trade of assets such as equities, bonds, currencies and derivatives. Financial markets are typically defined by having transparent pricing, basic regulations on trading, costs and fees and market forces determining the prices of securities that trade.

Some financial markets only allow participants that meet certain criteria, which can be based on factors like the amount of money held, the investor’s geographical location, knowledge of the markets or the profession of the participant.  

Financial markets can be found in nearly every nation in the world. Some are very small, with only a few participants, while others – like the New York Stock Exchange (NYSE) and the forex markets – trade trillions of dollars daily. 

Most financial markets have periods of heavy trading and demand for securities; in these periods, prices may rise above historical norms. The converse is also true – downturns may cause prices to fall past levels of intrinsic value, based on low levels of demand or other macroeconomic forces like tax rates, national production or employment levels.

Information transparency is important to increase the confidence of participants and therefore foster an efficient financial marketplace.


Capital Markets'
A market in which individuals and institutions trade financial securities. Organizations/institutions in the public and private sectors also often sell securities on the capital markets in order to raise funds. Thus, this type of market is composed of both the primary and secondary markets.  
Both the stock and bond markets are parts of the capital markets. For example, when a company conducts an IPO, it is tapping the investing public for capital and is therefore using the capital markets. This is also true when a country's government issues Treasury bonds in the bond market to fund its spending initiatives. 

Definition of 'Money Market'
A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. The money market is used by participants as a means for borrowing and lending in the short term, from several days to just under a year. Money market securities consist of negotiable certificates of deposit (CDs), bankers acceptances, U.S. Treasury bills, commercial paper, municipal notes, federal funds and repurchase agreements (repos).
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The money market is used by a wide array of participants, from a company raising money by selling commercial paper into the market to an investor purchasing CDs as a safe place to park money in the short term. The money market is typically seen as a safe place to put money due the highly liquid nature of the securities and short maturities, but there are risks in the market that any investor needs to be aware of including the risk of default on securities such as commercial paper.
Capital Markets'
        A market in which individuals and institutions trade financial securities. Organizations/institutions in the public and private sectors also often sell securities on the capital markets in order to raise funds. Thus, this type of market is composed of both the primary and secondary markets.
         Both the stock and bond markets are parts of the capital markets. For example, when a company conducts an IPO, it is tapping the investing public for capital and is therefore using the capital markets. This is also true when a country's government issues Treasury bonds in the bond market to fund its spending initiatives.
Major participants and players in financial markets
 Major participants and players in financial markets
In the financial markets, there is a flow of funds from one group of parties (funds-surplus units) known as investors to another group (funds-deficit units) which require funds. However, often these groups do not have direct link. The link is provided by market intermediaries such as brokers, mutual funds, leasing and finance companies, etc. In all, there is a very large number of players and participants in the financial market. These can be grouped as follows :
The individuals: These are net savers and purchase the securities issued by corporates. Individuals provide funds by subscribing to these security or by making other investments.
The Firms or corporates: The corporates are net borrowers. They require funds for different projects from time to time. They offer different types of securities to suit the risk preferences of investors’ Sometimes, the corporates invest excess funds, as individuals do. The funds raised by issue of securities are invested in real assets like plant and machinery. The income generated by these real assets is distributed as interest or dividends to the investors who own the securities.
Government: Government may borrow funds to take care of the budget deficit or as a measure of controlling the liquidity, etc. Government may require funds for long terms (which are raised by issue of Government loans) or for short-terms (for maintaining liquidity) in the money market. Government makes initial investments in public sector enterprises by subscribing to the shares, however, these investments (shares) may be sold to public through the process of disinvestments.
Regulators: Financial system is regulated by different government agencies. The relationships among other participants, the trading mechanism and the overall flow of funds are managed, supervised and controlled by these statutory agencies. In India, two basic agencies regulating the financial market are the  Reserve Bank of India  (RBI ) and Securities and Exchange Board of India (SEBI). Reserve Bank of India, being the Central Bank, has the primary responsibility of maintaining liquidity in the money market’ It undertakes the sale and purchase of T-Bills on behalf of the Government of India. SEBI has a primary responsibility of regulating and supervising the capital market. It has issued a number of Guidelines and Rules for the control and supervision of capital market and investors’ protection. Besides, there is an array of legislations and government departments also to regulate the operations in the financial system.
Market Intermediaries: There are a number of market intermediaries known as financial intermediaries or merchant bankers, operating in financial system. These are also known as investment managers or investment bankers. The objective of these intermediaries is to smoothen the process of investment and to establish a link between the investors and the users of funds. Corporations and Governments do not market their securities directly to the investors. Instead, they hire the services of the market intermediaries to represent them to the investors. Investors, particularly small investors, find it difficult to make direct investment. A small investor desiring to invest may not find a willing and desirable borrower. He may not be able to diversify across borrowers to reduce risk. He may not be equipped to assess and monitor the credit risk of borrowers. Market intermediaries help investors to select investments by providing investment consultancy, market analysis and credit rating of investment instruments. In order to operate in secondary market, the investors have to transact through share brokers. Mutual funds and investment companies pool the funds(savings) of investors and invest the corpus in different investment alternatives. Some of the market intermediaries are:
  • Lead Managers
  • Bankers to the Issue
  • Registrar and Share Transfer Agents
  • Depositories
  • Clearing Corporations
  • Share brokers
  • Credit Rating Agencies
  • Underwriters
  • Custodians
  • Portfolio Managers
  • Mutual Funds
  • Investment Companies
These market intermediaries provide different types of financial services to the investors. They provide expertise to the securities issuers. They are constantly operating in the financial market. Small investors in particular and other investors too, rely on them. It is in their (market intermediaries) own interest to behave rationally, maintain integrity and to protect and maintain reputation, otherwise the investors would not be trusting them next time. In principle, these intermediaries bring efficiency to corporate fund raising by developing expertise in pricing new issues and marketing them to the investors.

Primary Market'
A market that issues new securities on an exchange. Companies, governments and other groups obtain financing through debt or equity based securities. Primary markets are facilitated by underwriting groups, which consist of investment banks that will set a beginning price range for a given security and then oversee its sale directly to investors.  
Also known as "new issue market" (NIM).
The primary markets are where investors can get first crack at a new security issuance. The issuing company or group receives cash proceeds from the sale, which is then used to fund operations or expand the business. Exchanges have varying levels of requirements which must be met before a security can be sold.  

Once the initial sale is complete, further trading is said to conduct on the secondary market, which is where the bulk of exchange trading occurs each day. Primary markets can see increased volatility over secondary markets because it is difficult to accurately gauge investor demand for a new security until several days of trading have occurred
Secondary Market'
A market where investors purchase securities or assets from other investors, rather than from issuing companies themselves. The national exchanges - such as the New York Stock Exchange and the NASDAQ are secondary markets.
Secondary markets exist for other securities as well, such as when funds, investment banks, or entities such as Fannie Mae purchase mortgages from issuing lenders. In any secondary market trade, the cash proceeds go to an investor rather than to the underlying company/entity directly.
A newly issued IPO will be considered a primary market trade when the shares are first purchased by investors directly from the underwriting investment bank; after that any shares traded will be on the secondary market, between investors themselves. In the primary market prices are often set beforehand, whereas in the secondary market only basic forces like supply and demand determine the price of the security.

In the case of assets like mortgages, several secondary markets may exist, as bundles of mortgages are often re-packaged into securities like GNMA Pools and re-sold to investors.
 Intercompany market
The intercompany involves direct lending between companies. The supply of funds in the intercompany market comes from companies that have cash flows surplus to their current requirements. The demand for funds comes from companies who do not have cash flows sufficient to meet their current obligations. Given the nature of trading within the market, it is regarded as an example of a money market.
Financial Intermediaries
Most people do not enter financial markets directly but use intermediaries or middlemen. Commercial banks are the financial intermediary we meet most often in macroeconomics, but mutual funds, pension funds, credit unions, savings and loan associations, and to some extent insurance companies are also important financial intermediaries.1 When people deposit money in a bank, the bank uses the funds to make loans to home buyers for mortgages, to students so they can pay for their education, to business to finance inventories, and to anyone else who needs to borrow. A person who has extra money could, of course, seek out borrowers himself and bypass the intermediary. By eliminating the middleman, the saver could get a higher return. Why, then, do so many people use financial intermediaries?
Financial intermediaries provide two important advantages to savers. First, lending through an intermediary is usually less risky than lending directly. The major reason for reduced risk is that a financial intermediary can diversify. It makes a great many loans, and even though some of those loans will be mistakes, the losses will be largely offset by loans that are sound. In contrast, an average saver could directly make only a few loans, and any bad loans would substantially affect his wealth. Because an intermediary can put its "eggs" in many "baskets," it insures its depositors from substantial losses.
Another reason financial intermediaries reduce risk is that by making many loans, they learn how to better predict which of the people who want to borrow money will be able to repay. Someone who does not specialize in this lending may be a poor judge of which loans are worth making and which are not, though even a specialist will make some mistakes.
A second advantage financial intermediaries give savers is liquidity. Liquidity is the ability to convert assets into a spendable form--money--quickly. A house is an illiquid asset; selling one can take a great deal of time. If an individual saver has lent money directly to another person, the loan can also be an illiquid asset. If the lender suddenly needs cash, he must either persuade the borrower to repay quickly, which may not be possible, or he must find someone else who will buy the loan from him, which may be very difficult. Although the intermediary may use its funds to make illiquid loans, its size allows it to hold some funds idle as cash to provide liquidity to individual depositors. Only when a great many depositors want to withdraw deposits at the same time, which happens when there is a "run" on the institution, will the financial intermediary be unable to provide liquidity. Unless it can obtain help from the government or other institutions, it will be forced to suspend payments to depositors.
In addition to lending money to individuals and groups, there are other ways in which banks are part of financial markets. Banks borrow and lend funds among themselves in the federal-funds market. They buy and sell foreign exchange. They buy and sell government and commercial debt. And finally, one form of bank debt serves as money in modern economies, and banks create this debt as a result of their financial transactions.
Economists are concerned that financial intermediaries can be a source of shocks to the economy, bumps that can disrupt the normal flow of economic life. This concern arises for at least two reasons. First, bank debt serves as money, so disruptions to banks can affect the amount of money in circulation. We explore this idea in later chapters. Second, financial intermediaries are tied together through chains of debts and assets. Because of these linkages, the failure of one financial intermediary can weaken others, increasing their chances of failure. As a result, there is the possibility that if a key financial intermediary fails, that failure can create a domino effect that could cause other financial institutions to fail, ultimately causing the financial sector to "seize up" and stop functioning. Serious disruption of the financial markets will disrupt the rest of the economy. We will develop this idea a bit further in later sections of this chapter.

Financial intermediation consists of “channeling funds between surplus and deficit agents”. A financial intermediary is a financial institution that connects surplus and deficit agents. The classic example of a financial intermediary is a bank that transforms bank deposits into bank loans.
Through the process of financial intermediation, certain assets or liabilities are transformed into different assets or liabilities. As such, financial intermediaries channel funds from people who have extra money (savers) to those who do not have enough money to carry out a desired activity (borrowers).
In the U.S., a financial intermediary is typically an institution that facilitates the channeling of funds between lenders and borrowers indirectly. That is, savers (lenders) give funds to an intermediary institution (such as a bank), and that institution gives those funds to spenders (borrowers). This may be in the form of loans or mortgages.[3] Alternatively, they may lend the money directly via the financial markets, which is known as financial disintermediation.
Functions performed by financial intermediaries
Financial intermediaries provide 3 major functions:
  1. Maturity transformation
    Converting short-term liabilities to long term assets (banks deal with large number of lenders and borrowers, and reconcile their conflicting needs)
  2. Risk transformation
    Converting risky investments into relatively risk-free ones. (lending to multiple borrowers to spread the risk)
  3. Convenience denomination
    Matching small deposits with large loans and large deposits with small loans
Advantages of financial intermediaries
There are 2 essential advantages from using financial intermediaries:
  1. Cost advantage over direct lending/borrowingMarket failure protection the conflicting needs of lenders and borrowers are reconciled, preventingmarket failure
The cost advantages of using financial intermediaries include:
  1. Reconciling conflicting preferences of lenders and borrowers
  2. Risk aversion intermediaries help spread out and decrease the risks
  3. Economies of scale using financial intermediaries reduces the costs of lending and borrowing
  4. Economies of scope intermediaries concentrate on the demands of the lenders and borrowers and are able to enhance their products and services (use same inputs to produce different outputs)
The Eurobond market
The Eurobond market is made up of investors, banks, borrowers, and trading agents that buy, sell, and transfer Eurobonds. Eurobonds are a special kind of bond issued by European governments and companies, but often denominated in non-European currencies such as dollars and yen. They are also issued by international bodies such as the World Bank. The creation of the unified European currency, the euro, has stimulated strong interest in euro-denominated bonds as well; however, some observers warn that new European Union tax harmonization policies may lessen the bonds' appeal.
Eurobonds are unique and complex instruments of relatively recent origin. They debuted in 1963, but didn't gain international significance until the early 1980s. Since then, they have become a large and active component of international finance. Similar to foreign bonds, but with important differences, Eurobonds became popular with issuers and investors because they could offer certain tax shelters and anonymity to their buyers. They could also offer borrowers favorable interest rates and international exchange rates.
The Eurobond market consists of several layers of participants. First there is the issuer, or borrower, that needs to raise funds by selling bonds. The borrower, which could be a bank, a business, an international organization, or a government, approaches a bank and asks for help in issuing its bonds. This bank is known as the lead manager and may ask other banks to join it to form a managing group that will negotiate the terms of the bonds and manage issuing the bonds. The managing group will then sell the bonds to an underwriter or directly to a selling group. The three levels—managers, underwriters, and sellers—are known collectively as the syndicate. The underwriter will actually purchase the bonds at a minimum price and assume the risk that it may not be possible to sell them on the market at a higher price. The underwriter (or the managing group if there is no underwriter) sells the bonds to a selling group that then places bonds with investors. The syndicate companies and their investor clients are considered the primary market for Eurobonds; once they are resold to general investors, the bonds enter the secondary market. Participants in the market are organized under the International Primary Market Association (IPMA) of London and the Zurich-based International Security Market Association (ISMA)
Eurocurrency Market'
The market where financial banking institutions provide banking services denominated in foreign currencies. They may accept deposits and provide loans. Unlike Eurocredit markets, however, loans in this market are made short-term.
The money market in which Eurocurrency, currency held in banks outside of the country where it is legal tender, is borrowed and lent by banks in Europe. The Eurocurrency market is utilized by large firms and extremely wealthy individuals who wish to circumvent regulatory requirements, tax laws and interest rate caps that are often present in domestic banking, particularly in the United States.
 'Eurocurrency Market'
Rates on deposits in the Eurocurrency market are typically higher than in the domestic market, because the depositor is not protected by domestic banking laws and does not have governmental deposit insurance. Rates on loans in the Eurocurrency market are typically lower than those in the domestic market, because banks are not subject to reserve requirements on Eurocurrency and do not have to pay deposit insurance premiums.


'Inverted Yield Curve'

An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality. This type of yield curve is the rarest of the three main curve types and is considered to be a predictor of economic recession.
A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates. The curve is also used to predict changes in economic output and growth.

 Partial inversion occurs when only some of the short-term Treasuries (five or 10 years) have higher yields than the 30-year Treasuries do. An inverted yield curve is sometimes referred to as a "negative yield curve 

Historically, inversions of the yield curve have preceded many of the U.S. recessions. Due to this historical correlation, the yield curve is often seen as an accurate forecast of the turning points of the business cycle. A recent example is when the U.S. Treasury yield curve inverted in 2000 just before the U.S. equity markets collapsed. An inverse yield curve predicts lower interest rates in the future as longer-term bonds are being demanded, sending the yields down.

inverse yield curve

Yield CInverted Yield Curveurve'

 

 

 

Yield Curve

Yield Curve'

The shape of the yield curve is closely scrutinized because it helps to give an idea of future interest rate change and economic activity. There are three main types of yield curve shapes: normal, inverted and flat (or humped). A normal yield curve (pictured here) is one in which longer maturity bonds have a higher yield compared to shorter-term bonds due to the risks associated with time. An inverted yield curve is one in which the shorter-term yields are higher than the longer-term yields, which can be a sign of upcoming recession. A flat (or humped) yield curve is one in which the shorter- and longer-term yields are very close to each other, which is also a predictor of an economic transition. The slope of the yield curve is also seen as important: the greater the slope, the greater the gap between short- and long-term rates.

Certificate Of Deposit - CD'

A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate and can be issued in any denomination. CDs are generally issued by commercial banks and are insured by the FDIC. The term of a CD generally ranges from one month to five years. A certificate of deposit is a promissory note issued by a bank. It is a time deposit that restricts holders from withdrawing funds on demand. Although it is still possible to withdraw the money, this action will often incur a penalty.

For example, let's say that you purchase a $10,000 CD with an interest rate of 5% compounded annually and a term of one year. At year's end,  the CD will have grown to $10,500 ($10,000 * 1.05).

CDs of less than $100,000 are called "small CDs"; CDs for more than $100,000 are called "large CDs" or "jumbo CDs". Almost all large CDs, as well as some small CDs, are negotiable.

 This chapter begins a two-chapter approach examining individual differences.  Much of this chapter is related to interactional psychology, and the advances made regarding personality and behavior in specific situations.  Personality characteristics discussed are locus of control, self-efficacy, self-esteem, self-monitoring, and positive/negative affect.  Personality theories explained are trait theory, psychodynamic theory, humanistic theory, and the integrative approach.  The chapter also examines how social perceptions influence the way we view the world, and how attributions influence how we assign causality for behaviors.

 

After reading this chapter, you should be able to do the following:

1.   Describe individual differences and their importance in understanding behavior.         
2.   Define personality.
3.   Explain four theories of personality.
4.   Identify several personality characteristics and their influences on behavior in
      organizations.
5.   Explain how personality is measured.
6.   Discuss Carl Jung’s contribution to our understanding of individual differences, and explain how his theory is used in the Myers-Briggs Type Indicator.
7.   Define social perception and explain how characteristics of the perceiver, the target, and the situation affect it.
8.   Identify five common barriers to social perception.
9.   Explain the attribution process and how attributions affect managerial behavior.

KEY TERMS


Chapter 3 introduces the following key terms: 

individual differences                                     interactional psychology
personality                                                       trait theory
psychodynamic theory                                                humanistic theory
integrative approach                                        locus of control
generalized self-efficacy                                 self-esteem                                         
self-monitoring                                                positive affect            
negative affect                                                            strong situation                                  
projective test                                                  behavioral measures                           
self-report questionnaire                                 Myers-Briggs Type Indicator (MBTI) extraversion                                                    introversion                                        
sensing                                                            intuiting                                              
thinking                                                           feeling                                                
judging                                                            perceiving                                           
social perception                                             discounting principle                          
selective perception                                         stereotype                                           
first-impression error                                       projection
self-fulfilling prophecy                                   impression management                     
attribution theory                                            fundamental attribution error             
self-serving bias



I.          THINKING AHEAD:  How Norman Brinker Made His Mark (and His Fortune)

II.        INDIVIDUAL DIFFERENCES AND ORGANIZATIONAL BEHAVIOR

This chapter explores differences in individuals’ skills, abilities, personalities, perceptions, attitudes, values, and ethics.

Interactional psychology offers a useful approach to understanding individuals in organizations.  This approach emphasizes understanding the person and the situations in order to understand human behavior.

III.       PERSONALITY

Personality is an individual difference that lends consistency to a person’s behavior.  Both heredity and environmental forces shape personality. 
           


A.        Personality Theories

The four major theories of personality are listed in order of their time frame of study, with trait theory research rare in today's literature. 

                        1.         Trait Theory

Trait theory states that in order to understand individuals, we must break down behavior patterns into a series of observable traits.

                        2.         Psychodynamic Theory

The second important theory is based on the work of Sigmund Freud.  Psychodynamic theory emphasizes the unconscious determinants of behavior.

                        3.         Humanistic Theory

Humanistic theory emphasizes individual growth and improvement, as popularized by Carl Rogers. 

                        4.         Integrative Approach

The integrative approach describes personality as a composite of an individual's psychological processes.


            B.        Personality Characteristics in Organizations

Hundreds of personality characteristics have been identified that are relevant to personality.  Some characteristics with interesting implications in organizations are locus of control, self-esteem, self-efficacy, self-monitoring, and positive/negative affect.
 
                        1.         Locus of Control

The degree to which individuals perceive control over a situation being internal or external is called locus of control.  Locus of control refers to the range of beliefs that individuals hold in terms of being controlled by self (internal locus) or controlled by others or the situation (external locus).

                        2.         Self-Efficacy

Generalized self-efficacy refers to a belief about one’s own ability to deal with events and challenges.  High self-efficacy results in greater confidence in one’s job-related abilities to function effectively on the job.  Success in previous situations leads to increased self-efficacy for present and future challenges.

                        3.         Self-Esteem

An individual's self-worth is referred to as self-esteem.  Individuals with high self-esteem have positive feelings about themselves.  Low self-esteem individuals are strongly affected by what others think of them, and view themselves negatively.

4.         Self-Monitoring

The extent to which people base their behavior on cues from other people and situations is self-monitoring.  Individuals high in self-monitoring pay attention to what behavior is appropriate in certain situations by watching others and behaving accordingly.  Low self-monitoring individuals prefer that their behavior reflects their attitudes, and are not as flexible in adapting their behavior to situational cues.

                        5.         Positive/Negative Affect

Individuals exhibit attitudes about situations in a positive or negative fashion.  An individual's tendency to accentuate the positive aspects of situations is referred to as positive affect, while those accentuating less optimistic views are referred to as having negative affect.  Employees with positive affect are absent from work less often. Negative affect individuals report higher levels of job stress.

            C.        Measuring Personality

There are a host of methods that can be used to measure and assess personality.  The most popular are projective tests, behavioral measures, and self-report questionnaires.  In projective tests, individuals describe what they see in images they are shown.  Behavioral measures involve observation of behavior in controlled situations.  Individuals respond to a series of questions in self-report questionnaires.

IV.       A POPULAR APPLICATION OF PERSONALITY THEORY IN ORGANIZATIONS:  THE MYERS-BRIGGS TYPE INDICATOR

Carl Jung developed the Jungian theory of individual differences.  The MBTI is an instrument to measure this theory.  Jung suggested that human similarities and differences could be understood by combining performance.  People are not exclusively one way or another; there is a preference for extraversion or introversion, just as there is for right- or left-handedness.

            A.        The Preferences
           
            The combination of the four basic preferences indicates a person’s psychological type.



                        1.         Extraversion/Introversion

                      Extroverts are energized by interactions with others while introverts prefer time

                        alone.

                        2.         Sensing/Intuiting

                        Sensors gather information through the five senses.  Intuitors gather
                        information through a “sixth sense.”

                        3.         Thinking/Feeling
                       
                        Thinkers make logical, objective decisions.  Feelers make decisions in a more                        personal way.

                        4.         Judging/Perceiving

                        Judgers have a preference for closure and organization in their life while                                         perceivers are more spontaneous and try to keep their options open.

            B.        The Sixteen Types

            The four preferences can be combined to form sixteen psychological types.  Types are not

            inherently good or bad.  Each has its own strengths and weaknesses.

V.        SOCIAL PERCEPTION

Social perception affects the way we view the world around us.  It is the process of interpreting information about other people, a process heavily used by management.

            A.        Characteristics of the Perceiver

Several characteristics of a perceiver define one's perception of another person.  Familiarity with the person being perceived leads the perceiver to believe that he or she understands the intentions of the individual.  Attitudes and moods also affect one’s impressions of others.  The perceiver's self-concept leads to a more negative or positive view of the attributes of others.  Finally, a person’s cognitive structure, or pattern of thinking, affects his or her perception of others.

            B.        Characteristics of the Target
           
The person being perceived influences the social perception process through a combination of physical appearance, verbal and nonverbal communication, and apparent intentions. 

C.        Characteristics of the Situation

The social context in which you meet an individual has a great deal to do with perceiving the individual positively or negatively. The strength of the situational cues also affects person perception.  Strong situational cues lead to the assumption that the situation prompts a person's behavior rather than his/her own personality.

            D.        Barriers to Social Perception

There are five distinct barriers to social perception, which are: selective perception, stereotyping, first-impression error, projection, and self-fulfilling prophecies.

Selective perception is the process of selecting information that supports our individual viewpoints while discounting information that threatens our viewpoints.  This approach leads to verbal rationalizations.  When we stereotype an individual, we generalize and do not allow his or her individual strengths to be relevant to our perception of him or her.  First impression error is the tendency to form lasting opinions about an individual based on the initial meeting or perception.  This is a major difficulty with hiring from interviews, where the first impression lasts into the socialization process.  Projection involves the tendency to assume that other people are similar to us and that our own values and beliefs are appropriate.  In some cases, our expectations affect the way we interact with others to produce a certain outcome.  This is referred to as a self-fulfilling prophecy. 

            E.         Impression Management

The conscious monitoring and manipulation of others' opinions is referred to as impression management.

VI.       ATTRIBUTION IN ORGANIZATIONS

As humans, we are naturally curious about the causes of our behavior and the behavior of others.  The process of assigning causality to behavior is referred to as attribution.

            A.        Internal and External Attributions

 

The process of connecting behavior and performance to specific internal or external sources of control is known as attribution.


            B.        Attributional Biases

There are two common errors that affect the attribution process: self-serving bias, and the fundamental attribution error.  Fundamental attribution error is the tendency to make attributions to internal causes when focusing on someone else's behavior.  Self-serving bias is the tendency to attribute one's own successes to internal causes and one's failures to external causes.

VII.     MANAGERIAL IMPLICATIONS:  USING PERSONALITY, PERCEPTION, AND ATTRIBUTION AT WORK

VIII.    LOOKING BACK:  Brinker International

CHAPTER SUMMARy


     Individual differences are factors that make individuals unique.  They include personalities, perceptions, skills and abilities, attitudes, values, and ethics.
     The trait theory, psychodynamic theory, humanistic theory, and integrative approach are all personality theories.
     Managers should understand personality because of its effect on behavior.  Several characteristics affect behavior in organizations, including locus of control, self-esteem, self-efficacy, self-monitoring, and positive/negative affect.
     Personality has a stronger influence in weak situations, where there are few cues to guide behavior.
     One useful framework for understanding individual differences is type theory, developed by Carl Jung and measured by the Myers-Briggs Type Indicator (MBTI).
     Social perception is the process of interpreting information about another person.  It is influenced by characteristics of the perceiver, the target, and the situation.
     Barriers to social perception include selective perception, stereotyping, first impression error, projection, and self-fulfilling prophecies.
     Impression management techniques such as name-dropping, managing one's appearance, self-descriptions, flattery, favors, and agreement are used by individuals to control others' impressions of them.
     Attribution is the process of determining the cause of behavior.  It is used extensively by managers, especially in evaluating performance.

 

REVIEW QUESTIONS: Suggested Answers


1. What are the individual differences, and why should managers understand them?

In order to understand human behavior, we must know something about the person and about the situation.  Because no two individuals are alike, managers face the challenge of working with people who possess a multitude of individual characteristics.  Important individual differences include personality characteristics, social perceptions and attributions of causality.  The more a manager understands these differences, the better he or she can work with others.





2. Define personality, and describe its origins.

Personality is a relatively stable set of characteristics that influences an individual's behavior.  Family influences, cultural influences, educational influences, and environmental forces all shape personality.

3. Describe four theories of personality and what each contributes to our knowledge of personality.

The four theories of personality are trait theory, psychodynamic theory, humanistic theory, and the integrative approach.  Trait theory was the earliest approach toward studying personality, and in part because of criticism of its approach, it provided the basis for other types of theories.  Psychodynamic theory, based on the work of Freud, emphasizes the unconscious determinants of behavior.  Humanistic theory emphasizes individual growth.  The integrative approach is the most comprehensive because it includes a variety of psychological processes.

4. Describe the eight preferences of the Myers-Briggs Type Indicator.  How does this instrument measure Carl Jung's ideas?

Jung's theory of individual differences is put into application through the Myers-Briggs instrument.  The initial division he proposed was between extroverted and introverted individuals.  He added the measurements of sensing and intuiting, which depict how individuals gather information.  The third set includes thinking and feeling, styles of decision-making, and the fourth set reflects one's orientation to the outer world. 

5. What factors influence social perception?  What are the barriers to social perception?

Perception is influenced by all things with which we come into contact, and helps us understand our surroundings and ourselves.  Selective perception is the tendency to choose information that supports our viewpoints.  Stereotyping is a generalization made about a group of people, and is often inaccurate.  First impression error is the tendency to form lasting opinions about an individual based on initial perceptions.  Projection involves the tendency to assume that other people are similar to us and that our own values and beliefs are appropriate.  Self-fulfilling prophecies are expectations that become reality.

6.  Describe the errors that affect the attribution process.

Fundamental attribution error is the tendency to make attributions to internal causes when focusing on someone else's behavior.  Self-serving bias is the tendency to attribute one's own successes to internal causes and one's failure to external causes.

 

 

 

 

DISCUSSION and communication QUESTIONS: suggested answers


1. What contributions can high self-monitors make in organizations?  Low self-monitors?

High self-monitors would do well in sales jobs or in any position that requires meeting the public because of their attentiveness to cues from other people and from situations.  Low self-monitors would do well in jobs that are consistent with their fundamental beliefs.  Because they prefer that their behavior is consistent with their attitudes, they would be uncomfortable in certain sales situations, such as having to sell a product they didn't believe in. 

2. How can managers improve their perceptual skills?

Managers need to be aware of characteristics in themselves, in situations, and in other people that affect social perception.  They need to understand the barriers to accurate perception and guard against these barriers. 

3. Which has the stronger impact on personality: heredity or environment?

This is a good discussion question in class, particularly if there are psychology and sociology students taking the organizational behavior course.  There are good arguments for either position.  Both have an impact.

4. How can managers make more accurate attributions?

Managers can make more accurate attributions by gathering information carefully and possessing an awareness of self-serving bias and fundamental attribution error. 

5. How can managers encourage self-efficacy in employees?

Managers can provide job challenges, coaching and counseling for improved performance, and reward employees' achievements to enhance self-efficacy.

6. How can self-serving bias and the fundamental attribution error be avoided?

 

Awareness is the first step.  Careful information gathering and conscious attention to one's own attributional tendencies are essential.  Owning up to one's failures is important.

7. You have been asked to develop a training program for interviewers.  An integral part of this training program focuses on helping interviewers develop better social perception skills.  Write an outline for this section of the training program.  Be sure to address barriers to social perception and ways to avoid these barriers.

During class discussion, encourage students to share interview experiences they have had in which misperceptions played a role.  This would also be a good assignment to refer back to during the discussion of learning in Chapter 6.
8. Form groups of four to six, and then split each group in half.  Debate the origins of personality, with one half taking the position that personality is inherited, and the other half taking the position that personality is formed by the environment.  Each half should also discuss the implications of its position for managers.

To enhance the debate, this assignment could be made prior to the class in which the debate will occur so that students have the opportunity to conduct outside research on the different perspectives.

ETHICS QUESTIONS: suggested answers


1. What are the ethical uses of personality tests?  What are the unethical uses?

Hiring, firing, or promoting someone on the basis of a personality test is not only unethical, it is illegal.  Students may have interesting examples of tests that they have heard have been administered.  Personality tests should be used to enhance one's understanding of self and others.

2. Suppose a manager makes an incorrect attribution for an employee's poor performance (for instance, the manager cites equipment failure), and peers know the employee is at fault.  Should they blow the whistle on their colleague?

The preferable way to approach the situation is through problem reporting, either with the supervisor or an established outlet in the organization.  (Whistle-blowing typically refers to going outside the organization.)  Perhaps the co-workers should try to assist the employee before reporting him or her.

3. Suppose one of your colleagues wants to eliminate all biases and stereotypes from the hiring process.  He suggests that only rĂ©sumĂ©s be used, with no names or other identifying data – only experience and education.  What are the ethical consequences of this approach?  Would any group be unfairly disadvantaged by this approach?

It might be admirable and a decent gesture to approach equality in this fashion, but it is also naĂ¯ve.  Although the interviewing technique is flawed with first impression biases and selection biases, it is also a way to ascertain the fit between the position and the individual.  This approach may disadvantage those who may have developed appropriate knowledge and skills in ways that cannot be easily described in a rĂ©sumĂ©. 

4. Suppose a manager makes a misattribution of an employee's poor performance.  What are the ethical consequences of this?

These misattributions could be a result of sexist, racist, homophobic, or elitist attitudes, or other biases. When managers make misattributions based on biases, employees are treated unfairly and, in addition to ethical consequences, those managers may even expose themselves and their companies to legal consequences.

CHALLENGES

3.1 ARE YOU A HIGH OR LOW SELF-MONITOR?

Students should complete this challenge prior to class discussion on self-monitoring so that their responses will not be biased.  During class discussion, students can be asked how their self-monitoring tendency might influence their performance on the job.

3.2 SEX ROLE STEREOTYPES  

Completing this challenge will help students understand their own beliefs about sex roles.  High scores indicate a strong belief in traditional sex roles and a tendency to stereotype those roles.

EXPERIENTIAL EXERCISES


3.1 MBTI Types and Management Styles


This exercise illustrates David Keirsey's temperaments and their related management styles.  Students should complete the MBTI prior to the exercise.  Most university counseling centers can administer the MBTI and provide individual results for students. 

To do the exercise, students should be assigned to groups according to their temperament: NF, NT, SJ, or SP.  The rather vague task students are assigned is intended to bring out the different management styles of the various temperaments.  The exercise works best when students are not aware of their MBTI types.

Instructors who are unfamiliar with the MBTI may wish to have someone who has completed the MBTI certification training help debrief the students at the end of the exercise. 

To complete the exercise, do the following:
1. Have students complete the MBTI.  Score the questionnaires if the short version is used.
2. Assign students to groups based on their temperaments.
3. Have students complete the group task.
4. Ask each group to report to the class.
5. As each group reports, reveal its temperament and management style, using the information that follows.
6. Hand out individual MBTI profiles and discuss them.

MBTI Temperaments and Leadership Styles


NF -- NFs are catalysts.  Their focus is on individuals within the organization and on individual growth.  They use a very participative style and are often referred to as charismatic.  NFs are verbally fluent and are superb at giving feedback.  They are good listeners and talented at managing interpersonal transactions.  They see the possibilities in people and can often turn liabilities into assets.  NFs are likely to become worn out and overextended by their focus on relationships.  They have a high need for approval and may seem to others to be too anxious to please.  They need positive feedback and despise impersonal treatment.  They value harmony and cooperation.

NT -- NTs are visionaries.  Their focus is on designing systems and the organization's mission.  They believe the organization must grow and develop, and they place a strong emphasis on competence and intelligence.  They expect a lot of themselves and of others.  NTs welcome change, and focus on possibilities.  They can easily see the long-range implications for the organization.  They tend to be on the cutting edge of things and may be nonconformists.  They are the portrait painters of ideas and encourage ideas in their employees.  They also enjoy solving problems.  NTs love the creative process, but once it is finished they prefer to let someone else take over to run the system.  They value competence and achievement, and they may ignore the feelings of others unknowingly.

SJ -- SJs are traditionalists.  Their focus is on the organization and its hierarchy, and they are masters at defining policies, rules, and procedures.  As managers, they are patient, thorough, steady, and reliable.  They value caution and accuracy in work.  SJs preserve the traditions in life and have a keen sense of social responsibility.  They are loyal and industrious but may be irritated when others do not play by their rules.  They are decisive and are happiest when they can plan their work and work their plan.  SJs run efficient meetings and want colleagues to get to the point and stick to it.  They can become impatient when projects are delayed and prefer sensible, stable, reliable colleagues.

SP -- SPs are troubleshooters.  They are good at putting out fires and solving problems.  They are very realistic, and to them everything is negotiable.  They display an open, flexible style and focus on the present time.  SPs like change and are very adaptable.  They dislike being told how to do things and may become impatient with bureaucracy.  If there are no fires to put out, SPs may make mischief.  They do not enjoy maintaining the status quo but want to be where the action is.  SPs listen to their superiors but may not do what they are told.  They are flexible and open-minded in relations with others, and they are easy to get along with.  They may appear hard to predict because of their flexibility.

To learn more about management styles, we suggest the following:
D. Keirsey and M. Bates, Please Understand Me (Prometheus Nemesis, Del Mar, CA: 1978).
R. Benfara and J. Knox, Understanding Your Management Style (Lexington, Mass.: Lexington Books, 1991).
O. Kroeger and J. Thuesen, Type Talk at Work (New York: Delacorte Press, 1992).

3.2 Stereotypes in Employment Interviews

 

Instructor's Notes:

The following exercise illustrates the influence of stereotypes on employment interviews.  Students are given a transcript of an interview in which the candidate is applying for a job as a laborer.  The transcript reflects a number of characteristics of the interviewee that are consistent with the negative stereotype of African-Americans (the applicant is poor, has a criminal record, and is behind on child support payments).  The transcript also presents several items of information inconsistent with the stereotype (the applicant is Catholic, drives a pickup truck, and likes hockey games).  Further, information is presented that is not stereotypical (the applicant watches television comedies, is from a small town, and is applying for a blue-collar job).

 

One-half of the students should be handed a version of the transcript that states that the job candidate is white.  The other half of the students should be handed the version of the transcript that states that the job candidate is African-American.  The transcript should be collected after five minutes.  One week (or at least several days) later, ask students to write down all they remember about the job candidates.  Students who read about an African-American will be more likely to recall the stereotypical African-American characteristics.

Students are asked to review the transcript that records an applicant's interview for a job as a laborer.  They are asked to memorize as much of the interview as possible.  They are then asked to write down everything they can remember about the job candidate.  As you photocopy the following interview transcript, include version 1 of the introduction with half the copies and version 2 with the other half.

Discussion Questions:

1. In what ways does the exercise show that stereotypes can influence interviewers, even without their awareness?

2. Many people believe stereotypes are motivated by hate or insecurity.  How do these exercise results fit this idea?

3. What can be done to reduce the effects of stereotypes in interviews?

4. If stereotypes help you remember information that is consistent with the stereotype and help you ignore information that is inconsistent with the stereotype, how can stereotypes be changed?

 


Introduction:

 

Mr. Harris is a twenty-seven year old African-American male.  He is applying for a job working on a loading dock.  Mr. Harris is interviewing as part of a social services program.

 

Interview Transcript

            (I = interviewer; A = applicant)

 

I:  Please tell me a little bit about your last job.
A:  Well, the job was basically a blue-collar job.  I worked in a factory doing janitor work mostly.  Second shift for most of the time.  I didn't mind the job too much.  I've been out of work for quite a while now.  I guess you could say I was at the poverty level for the last year.
I:  Do you have a criminal record?
A:  Well, yeah, but the crime wasn't too serious.  I spent a few weeks in jail for breaking and entering when I was a kid.  Me and some friends broke into a department store.  Pretty stupid.
I:  Tell me a little bit about your education, Mr. Harris.
A:  I finished high school in 1980.  I was brought up in a Catholic family in a small southern country town.  So I went to a Catholic school.  Kind of unusual I guess.  I used to really give the nuns a hard time (laughs).  I was thinkin' about going to college but never made it.
I:  Have you and your family adjusted well to moving into the area?
A:  Yeah, I like New Jersey.  I don't live with my wife no....er, a ...any more.  I hope to see my three kids pretty soon.  Maybe bring them up here.  Haven't seen 'em for years.  I really need the job because I'm behind on my child support.
I:  What have you been doing in your spare time?
A:  Well, I been looking around the area quite a bit.  I've been drivin' my truck, you know just checkin' things out.  I went to a hockey game the other night.  Had a good time.  Otherwise I watch a little TV.  Watch a lot of comedies.
I:  Please tell me about your accomplishments.
A:  Well, I was a sort of a star athlete in school.  Our team went to the state tournament.  I suppose I could have been a college player.  Besides that, I won a writing contest when I was in high school.  It was for the region.  Oh yeah, I got a commendation from my last job.  They wanted me to train the new guys.
I:  What are your greatest weaknesses?
A:  I could probably take orders better.  But I don't get too upset.  Maybe I should read a little more.  'Been a long time since school.


Introduction:

 

Mr. Harris is a twenty-seven year old white male.  He is applying for a job working on a loading dock.  Mr. Harris is interviewing as part of a social services program.

 

Interview Transcript

            (I = interviewer; A = applicant)

 

I:  Please tell me a little bit about your last job.
A:  Well, the job was basically a blue-collar job.  I worked in a factory doing janitor work mostly.  Second shift for most of the time.  I didn't mind the job too much.  I've been out of work for quite a while now.  I guess you could say I was at the poverty level for the last year.
I:  Do you have a criminal record?
A:  Well, yeah, but the crime wasn't too serious.  I spent a few weeks in jail for breaking and entering when I was a kid.  Me and some friends broke into a department store.  Pretty stupid.
I:  Tell me a little bit about your education, Mr. Harris.
A:  I finished high school in 1980.  I was brought up in a Catholic family in a small southern country town.  So I went to a Catholic school.  Kind of unusual I guess.  I used to really give the nuns a hard time (laughs).  I was thinkin' about going to college but never made it.
I:  Have you and your family adjusted well to moving into the area?
A:  Yeah, I like New Jersey.  I don't live with my wife no....er, a ...any more.  I hope to see my three kids pretty soon.  Maybe bring them up here.  Haven't seen 'em for years.  I really need the job because I'm behind on my child support.
I:  What have you been doing in your spare time?
A:  Well, I been looking around the area quite a bit.  I've been drivin' my truck, you know just checkin' things out.  I went to a hockey game the other night.  Had a good time.  Otherwise I watch a little TV.  Watch a lot of comedies.
I:  Please tell me about your accomplishments.
A:  Well, I was a sort of a star athlete in school.  Our team went to the state tournament.  I suppose I could have been a college player.  Besides that, I won a writing contest when I was in high school.  It was for the region.  Oh yeah, I got a commendation from my last job.  They wanted me to train the new guys.
I:  What are your greatest weaknesses?
A:  I could probably take orders better.  But I don't get too upset.  Maybe I should read a little more.  'Been a long time since school.

The MBTI - What it is!

The Myers-Briggs Type Indicator (MBTI) is a self-reporting, nonjudgmental (does not assign a "good" or "bad" connotation) psychological instrument.  It is designed to sort people according to their preferences in four areas: where people get their energy (internally or externally), how people perceive their surroundings (detailed or intuitive), the basis of their decision making (logic or value driven), and the lifestyle used to deal with their environment (judging or perceiving).

The MBTI is based on Carl Jung's research.  Dr. Jung believed that an individual's behavior reflects a pattern that indicates a person's preference for their energy source, data collection, and decision making.  Isabel Briggs Myers and Katherine Briggs developed the MBTI instrument based on Jung's work, personal observation, and extensive research.  The developers added a dimension to Jung's theory that deals with a person's lifestyle choices.

Using an analogy is the best way to define the concept of preference.  We sort people into left- and right-handedess.  Most of us clearly show a preference for the use of one hand over the other.  In the process we develop the skills, strengths, and abilities of one hand and underdevelop the other.  We still use both hands, hence one becomes dominant and the other becomes auxiliary.  People develop their personalities in the same manner.  You are born with certain traits, and if your environment supports that development, you will have a well-developed dominant trait, and most likely, a less-well-developed auxiliary trait.  In addition you will have other parts of your personality that receive very little attention.  These traits surface occasionally – usually when a situation exists that puts our dominant and auxiliary traits at a disadvantage.  For example, when something happens that really upsets us, our initial response is usually much different than our "normal" way of doing things.

The self-reporting and self-validating done via the MBTI sorts people on the four areas.  The first area is extraversion or introversion.  The person who indicates a preference for extraversion is one whose energy is directed outward and prefers to interact with people and things.  A person who indicates a preference for introversion is one whose energy is directed inward and prefers concepts and ideas.  In the former case, a person "speaks before he/she thinks" and in the latter case, a person "thinks before he/she speaks."

The second area that the MBTI addresses is that of perceiving or data collection (sensing or intuition).  Those people who indicate a preference for sensing rely on actual data and pay attention to details.  Those folks who indicate a preference for intuition rely on inspiration and look at the "big picture."

The third area addresses the decision-making process that people use.  Those people who prefer thinking base their decision on logic and principles.  On the other hand, those who prefer feeling base their decisions on human values and harmonious relationships. 


The final area that the MBTI addresses is that of lifestyle.  Here people indicate their preferred and most often used mental preference (perceiving or judging).  Those who prefer judgment indicate that decisiveness and task or project completion are important.  Those who prefer perception indicate that curiosity and starting a task or project is of value.

What benefits do the students get from using the MBTI?  The MBTI results are individually affirming, eye opening, barrier breaking, and communication enhancing.  The emphasis is always on the strength of the preference and the fact that differences in people are strengths not weaknesses.  Arguably the biggest single benefit is that the results of the MBTI affirm that we are all unique and that each of us has a gift to offer.  It helps people understand themselves and those with whom they come in contact. Additionally, because the MBTI does not put people in a "box," people have a better understanding of the basis for certain behaviors and a healthy appreciation for the uniqueness that each person offers.

To administer the MBTI you need to be a "qualified user."  Two methods exist: taking the correct tests and measurements graduate course, or participating in a qualifying workshop.  Most universities have certified personnel in the testing department who can assist you with testing.  If you wish to become a qualified user, two of the companies that offer training are:

Type Resources, Inc
101 Chesnut Street #135
Gaithersburg, MD 20877
(301) 963-1283

Dr. Hartzler, owner and senior instructor for Type Resources, wrote her dissertation concerning the MBTI.  She has extensive publications addressing the practical aspects and applications of the MBTI.

Otto Kroeger Associates
3605 Chain Bridge Road #C
Fairfax, VA 22030
(703) 591-6284

Mr Kroeger is the co-author of Type Talk and Type Talk at Work.  He is currently working on an additional book dealing with type and relationships.

We highly recommend that the instructor and all assistants take the MBTI and receive qualified feedback.  We've placed a series of MBTI-related exercises in strategic points throughout the instructor's manual to show the versatility and depth of the information gained through the use of the MBTI.  We've developed the experiential exercises to significantly enhance the material in the following chapters: Communication, Leadership, Motivation, Decision Making, Conflict Resolution, Power, Stress and Time Management, and Managing Change.

Although each exercise can stand alone, we suggest that the MBTI exercises be used in conjunction with at least one challenge from the text. The MBTI gives students insightful clues on the behaviors of others--it helps to answer the question "why did they act that way?"  We believe that it is highly beneficial to explore the conceptual material through reading, lecturing, and practicing and then to offer a possible explanation of the behavioral parameters that influenced those results.  We suggest therefore that the MBTI exercises be used after you've conducted an exercise that reinforces and highlights the concept you are teaching.

Exercise Format

The MBTI exercises are constructed using a format and descriptors that may be unfamiliar to some management or organizational behavior faculty.  Here's a brief explanation of the format and unfamiliar descriptors:

Exercise Learning Objectives:

Traditional meaning applies.  These objectives form the basis for the exercise and provide the central point for any modifications you feel are necessary.

Exercise Overview:

A "quick review" of the exercise.  This section should give you a flavor of what will happen and how it will happen.  Additionally, it gives the instructor an idea of the core competency required to use the exercise.

Exercise Description:

Here we have the step-by-step instructions.  We recommend that the instructor read all of them before proceeding.  In some cases, these instructions may be too detailed and in others, not detailed enough.  We've tried to hit the "happy medium" so that the instructor has sufficient knowledge to conduct the exercise but does not feel constrained to "follow the yellow brick road."

What the instructor should expect:

We've provided a capsule version of the expected outcomes.  Please use this as a frame of reference. Although no two groups will have exactly the same outcome, the instructor should see a definite similarity between the on-going exercise and these brief descriptions.  The instructor wrap-up is based somewhat on the expected outcomes and how close or how far off the mark this particular class was.  Over time, each instructor will most likely see slightly different outcomes.  We encourage you to record that data for future reference.

Instructor's Summary:

Based on the expected outcomes, this section provides a mini-summary of the lesson.  We're giving you, the instructor, a guide on which to base your final remarks.  We do not expect you to read this, but rather to use it to help you focus your thoughts and ideas.  We believe that even if the exercise goes "bust" you can accomplish your learning objectives with a solid wrap-up.

Report Out:

Reporting out is a process used to have the students verbally state the results of their exercise. Generally, these mini-summaries demonstrate the learning that has occurred.  During the reporting out process and after the students are finished, we recommend that the instructor highlight key areas and show the similarities and differences between groups.  We've found that the instructor actively summarizing in this fashion helps the students retain the information as well as providing fuel for the final summary.

Observers:

The role of the observer (student or instructor) is to watch the interaction that occurs in the group.  The observer should be looking for such things as non-verbal actions, tone, pitch, rate, word choice, stress points, and the like.  In those instances where a student observer is used, we recommend that the student observer give feedback to the group first, and to the class second.  Generally, it takes about 5 minutes for the group feedback as well as 3 minutes for each observer to give feedback to the entire class.  Time permitting, we encourage the instructor to have all observers report to the class.  However, in those instances where the time remaining is insufficient, the instructor should call on one or two observers to report out and then wrap-up the exercise.

References

For personal study, we suggest that you read the following books:
Gifts Differing, I.B. Myers with P. B. Myers, Consulting Psychologists Press
Portraits of Temperament and Please Understand Me, D. Keirsey, Prometheus Nemesis Books
Type Talk and Type Talk at Work, O. Kroeger, Delacorte Press
Psychological Types, C.G. Jung, Princeton University Press
Applications of Myers-Briggs Type Indicator in Higher Education, J. A. Provost, Consulting Psychologists Press

Main source: 

 

Identifying Cognitive Styles

 

Instructor's Notes:

This exercise adapts the cognitive styles to situations that require students to identify and define.  This exercise is probably better as homework to be discussed in class after completion.  Each method of handling the crisis is perfectly valid.  Point out to students there is no "best" cognitive style.  Each is valuable in organizations.  The cognitive styles in the exercise are as follows: Mona is NF; Denise is NT; Bill is ST, and Blake is SF.


Identifying Cognitive Styles

            Adapted from O. Kroeger and J. M. Thuesen, Type Talk at Work, New York:        Delacorte Press, 1992, 165-166.

Assume that it is Friday at 3:00 p.m.  A customer calls to say that a major shipment of computers you sent a week ago has not arrived, and that they must have the computer by noon Monday.  Failing to deliver the computers will result in losing the client.  The manager must either find the shipment, or reship the computers and make sure they arrive on time.

Below are descriptions of how four different managers would react to this crisis.  Read their reactions, and answer the questions that follow.

BILL accepts the reality that the shipment of computers is lost and that he shouldn't waste time tracking it down.  He sees no alternative but to put together a new shipment and send it out immediately.  He expects all his workers to pitch in and stay late to get the new shipment out.

MONA considers the possibility that the original shipment might be recovered, as this would save everyone the trouble of having to prepare a new shipment.  She attempts to motivate a team of workers to work together to track down the shipment.  At the same time, she puts together another team to work out a backup plan.  She works back and forth between the two teams, trying to inconvenience everyone as little as possible.

DENISE tries to track down the original shipment because no matter what happens it will have to be located.  She sees putting together another shipment as the only reliable solution.  At the same time, she is going to develop a strategy for evaluating shipping operations to ensure that this problem doesn't come up again.

BLAKE writes off the original shipment and feels in reality there's no time to waste looking for it.  He polls his workers to see who can work late to put together a new shipment, and if no one volunteers, he will do it himself.

ANSWER THE FOLLOWING:

1. Bill's cognitive style is _____________________.
            What clues were evident in his handling of the crisis?
2. Mona's cognitive style is ____________________.
            What clues were evident in her handling of the crisis?
3. Denise's cognitive style is _____________________.
            What clues were evident in her handling of the crisis?
4. Blake's cognitive style is _____________________.
            What clues were evident in his handling of the crisis?



EXTRA EXPERIENTIAL EXERCISES

The following alternative exercises to supplement the material in the textbook can be obtained from:

Marcic, Dorothy, Seltzer, Joseph, & Vaill, Peter. Organizational Behavior: Experiences and Cases, 6th Ed. South Western College Publishing Company, 2001.

Incongruent Perceptions: The Case of the “Other Systems Group”.  p. 29-30. 
Time:  30 minutes.
            Purpose:  To recognize differences in perception and to understand the impact of
                                    those differences on communications and decision making.

The Case of the Predictable Bikers.  p. 31-32.  Time:  25-35 minutes.
            Purpose:  To illustrate how initial perceptions influence subsequent attempts at
                                    problem solution or in communications with others.

Fandt, Patricia M. Management Skills:  Practice and Experience.  West Publishing Company, 1994.

In-Basket Exercise 2:  Listening to Others. p. 15-16.

In-Basket Exercise 4:  Eliciting Ideas, Feelings, and Perceptions from Others. p. 19-20.

CASE QUESTIONS:  SUGGESTED ANSWERS

Trilogy Software, Inc.
1.      Using the various personality characteristics discussed in this chapter, how would you describe Joe Liemandt’s personality?

Liemandt could be described as having an internal locus of control, high self-efficacy, and high self-esteem. His willingness to work long hours, take considerable risks, and passionately pursue an idea are all indicators of an internal locus of control—Liemandt’s belief that he controls what happens to him. High self-efficacy and high self-esteem are reflected in Liemandt’s ambitious pursuit of a dream and the success that resulted from fulfilling that dream.

Based on the case description of Liemandt’s attitudes and behavior, one might surmise that he is either an ENTP or an ENTJ according to the Myers-Briggs Type Indicator. As Table 3.3 indicates, ENTPs are characterized as follows:

·         “One exciting challenge after another.”
·         Argues both sides of a point to learn.
·         Brinksmanship.
·         Tests the limits.
·         Enthusiastic.
·         New ideas.
·         Most inventive.
·          
Liemandt’s dropping out of Stanford to develop an innovative software product relates to being inventive and pursuing new ideas.  His risk-taking propensity relates to brinksmanship and testing the limits. His approach to training recruits reflects testing the limits as well as being inventive and enthusiastic.

ENTJs are described as:
·         “Life’s natural leaders.”
·         Visionary.
·         Gregarious.
·         Argumentative.
·         Systems planners.
·         Takes charge.
·         Low tolerance for incompetence.
·         Most commanding.

Liemandt’s track record of developing a highly successful software business in less than a decade speaks to visionary and leadership qualities. The software development itself as well as the process of developing newly hired employees reflects the systems planning. The Trilogy University experiences with new hires also attest to Liemandt’s commanding presence and take charge attitude.

Liemandt’s personality also can be characterized by considering the meanings of the dimensions underlying the ENTP and ENTJ types. Table 3.2 provides characteristics that the students can use in describing Liemandt’s personality.

2.      What perceptions have you formed of Joe Liemandt? How do you think your perceptions are affected by characteristics of you as the perceiver and Liemandt as the perceptual target? To what extent have the barriers to social perception influenced your view of Liemandt?

In addressing this question students, could identify the two or three most positive perceptions they have of Liemandt, and the two or three most negative perceptions. Then using the framework provided by Figure 3.2, they can analyze the perceptual impact of characteristics of the perceiver, characteristics of the target, and barriers.

3.      Which barriers to social perception seem to influence Joe Liemandt’s attitudes and behavior? Explain your answer.

Implicit personality theory and the self-fulfilling prophecy can be used to explain Liemandt’s attitudes and behavior.

Implicit personality theory refers to the perception that we form about other people based on our own mini-theories of how people behave. Liemandt’s high-risk preference influences his judgments about those who are risk takers as well as those who are risk avoiders. Powerful evidence in support of this is found in his statement that “You’ve got to be willing to jump off a cliff for your idea.”

The self-fulfilling prophecy involves the situation in which our expectations about people influence our interactions with them in such a way that our expectations are fulfilled. Liemandt’s expectations about risk takers influence how Trilogy University operates, and in turn the extent to which successful new recruits strengthen their risk-taking propensities. The self-fulfilling prophecy is captured in his beliefs about giving new recruits a lot of responsibility. Liemandt says, “What matters is the ability to learn, adapt and figure out what the answer is. You’ve got to be willing to get in over your head and struggle to make things happen.”  So Liemandt deliberately creates situations like this so people can learn to deal with all the responsibility that is thrown at them.

4.      Suppose that you were offered a job at Trilogy. Given the information contained in the case, would you be inclined to accept the job offer? Explain your answer.

“Only risk takers need apply!” perhaps best describes the key ingredient to fitting in at Trilogy. This question provides the opportunity for students to examine their own risk-taking propensities, and to consider the implications of working for a company that embraces risk taking versus one that is risk averse.

Trilogy employees must also be willing to assume responsibility—lots of it, early in their tenure with the company. Again, students should be asked to examine their own desires and capabilities in relation to the issue of shouldering significant responsibilities early in their careers.

Role Plays

Additional role plays relevant to the material in this chapter are located in Appendix A of this instructor's manual.