If a nation decides that it is receiving too many imports, at the expense of its domestic industries, it might consider adding tariffs (taxes) to the import goods.
This philosophy is called protectionism.  
What is YOUR opinion on protectionism?  Would you be in favor of adding tariffs to imports, in an effort to protect domestic production?
Why or why not?  What would be the benefit of protectionism?  What would be the cost, to the consumer, of protectionism?
FUNDAMENTALS
OFBUSI
NESS
Thi
rd Edi
t
i
on
adapt
edby
St
ephenJ
.Sk
r
i
pak
wi
t
hRonPof
f
Pampl
i
nCol
l
egeofBus
i
nes
si
nas
s
oc
i
at
i
onwi
t
hVi
r
gi
ni
aT
ec
hPubl
i
s
hi
ng
Fundamentals of Business
Fundamentals of Business
Third Edition
ADAPTED BY STEPHEN SKRIPAK WITH RON POFF
PAMPLIN COLLEGE OF BUSINESS IN ASSOCIATION WITH VIRGINIA TECH PUBLISHING
BLACKSBURG, VIRGINIA
Free online at: http://hdl.handle.net/10919/99283
Fundamentals of Business by Stephen J. Skripak and Ron Poff is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike
4.0 International License, except where otherwise noted.
Content in Chapters 1-15 and 17-18 was reproduced and substantively modified from the Saylor
Foundation’s http://www.saylor.org/site/textbooks/Exploring%20Business.docx under a Creative Commons
Attribution-NonCommercial-ShareAlike 3.0 License. The Saylor Foundation previously adapted this work under a Creative
Commons Attribution-NonCommercial-ShareAlike 3.0 License without attribution as requested by the work’s original
creator or licensee.
Chapter 16 was adapted in part from Introduction to Tourism and Hospitality in BC by Morgan Westcott, Editor, © Capilano
University and is used under a CC-BY 4.0 International license. Download the original source of this chapter for free at:

Credits for cover images:
“Paris vue d’ensemble tour Eiffel” https://commons.wikimedia.org/wiki/File:Paris_vue_d%27ensemble_tour_Eiffel.jpg by
Taxiarchos228 https://commons.wikimedia.org/wiki/User:Taxiarchos228, cropped and modified by Poke2001 and Trevor
Finney CC BY 3.0 https://creativecommons.org/licenses/by/3.0/deed.en.
“New York” https://pixabay.com/photos/empire-state-building-1350511/ by Mscamilaalmeida https://pixabay.com/users/
mscamilaalmeida-2452021/, cropped and modified by Trevor Finney, Public Domain.
“Data” https://www.pexels.com/photo/person-holding-blue-and-clear-ballpoint-pen-590022/ by Lukas
https://www.pexels.com/@goumbik cropped and modified by Lauren Holt, Pexels license https://www.pexels.com/license.
“Man wearing brown suit jacket” https://www.pexels.com/photo/man-wearing-brown-suit-jacket-3184339 by fauxels
https://www.pexels.com/@fauxels cropped and modified by Lauren Holt, Pexels license https://www.pexels.com/license.
This book is dedicated to reducing the cost of education in business.
– S. Skripak
Contents
An Open Letter to Students
ix
Introduction
x
Instructor Resources
xiii
Copyright and License Information
xv
Acknowledgments
Chapter 1 Teamwork in Business
xviii
1
Chapter 2 The Foundations of Business
20
Chapter 3 Economics and Business
31
Chapter 4 Ethics and Social Responsibility
51
Chapter 5 Business in a Global Environment
75
Chapter 6 Forms of Business Ownership
105
Chapter 7 Entrepreneurship: Starting a Business
119
Chapter 8 Management and Leadership
143
Chapter 9 Structuring Organizations
164
Chapter 10 Operations Management
178
Chapter 11 Motivating Employees
203
Chapter 12 Managing Human Resources
211
Chapter 13 Union/Management Issues
240
Chapter 14 Marketing: Providing Value to Customers
248
Chapter 15 Pricing Strategy
274
Chapter 16 Hospitality and Tourism
286
Chapter 17 Accounting and Financial Information
311
Chapter 18 Personal Finances
332
About the Author
347
Version Notes
350
An Open Letter to Students
Dear Student,
Welcome to the third edition of the Fundamentals of Business textbook!
We imagine that if you are reading this that you are beginning a new path to learn more about business. We are
very excited to be a part of that learning development with you.
This textbook, an Open Education Resource (OER), was developed in response to the increased prices of
textbooks for college students. We recognized that the financial burden for students and families continues to
increase and we wanted to change that with a free textbook. However, just because the textbook has no price
does not diminish the value of the content inside.
Fundamentals of Business provides a foundation of business terms, concepts, and an understanding of the
global business environment so as to inspire you in your business journey. It covers the following topics in
business: teamwork; economics; ethics; entrepreneurship; business ownership, management, and leadership;
organizational structures and operations management; human resources and motivating employees; managing
in labor union contexts; marketing and pricing strategy; hospitality and tourism, accounting and finance, and
personal finances.
Kindest regards,
Ron Poff
An Open Letter to Students | ix
Introduction
If you are an instructor reviewing, adopting, or adapting this textbook, please inform us at http://bit.ly/
business-interest.
Purpose of This Book
Fundamentals of Business, 3rd edition is intended to serve as a no-cost, instructor-customizable primary text
for one-semester undergraduate introductory business courses. It serves as the primary text for Virginia
Tech’s MGT 1104 Foundations of Business, a required, introductory level course which builds the foundational
structure for all business majors at Virginia Tech. MGT 1104 is part of Virginia Tech’s First-Year Experience
program and serves as an elective for students exploring majors in business.
Target Audience
This book has also been adopted at over 100 colleges and universities! Fundamentals of Business, 3rd edition is
intended for a wide range of undergraduate business students including those majoring or considering majors
in marketing, management, business administration, accounting, finance, real estate, business information
technology, and hospitality and tourism.
Scope
This text enables undergraduate students’ exploration of their chosen or prospective major in business, and
introduces them to new ideas and concepts, career possibilities, and real-world examples. The text covers most
if not all functions of business including: Teamwork; economics; ethics; entrepreneurship; business ownership,
management, and leadership; organizational structures and operations management; human resources and
motivating employees; managing in labor union contexts; marketing and pricing strategy; hospitality and
tourism, accounting and finance, and personal finances.
Features
• Example-rich narrative
• Updated graphic elements which illustrate and reinforce concepts
x | Introduction
• Interactive self-test quizzes with feedback
• Section-level videos and key takeaways
• Linked end of section references for additional reading
• Embedded navigation and image alt-text for screen readers
• Free online, PDF, ePub, Mobi, ODF, XML, and in print at vendor cost of production
• Open license, Creative Commons BY NC-SA 3.0 https://creativecommons.org/licenses/by-nc-sa/3.0
permits customization and sharing
Instructor Resources
• Instructor community portal for sharing of ancillary resources
• Interest form allows instructors to opt in to receive book updates
• Errata and report-an-error/share-a-suggestion forms promote currency
• Test bank available to instructors upon request
See the Instructor Resource section for further information.
Attribution and Scope of Revision
This textbook is an update of the 2nd edition of Fundamentals of Business (2018) http://hdl.handle.net/10919/
84848, an openly licensed text published by the Pamplin College of Business in association with Virginia Tech
Publishing. The 3rd edition uses the same structure as the 2nd (2018) edition with the following overall changes:
• Updated content reflects changes in technology, law, and economics;
• Examples include companies more familiar to today’s students;
• Data is updated to reflect the most recently available;
• Refreshed color palette, graphic elements, and modernization of photos
• Emphasis on diversity
A detailed list of changes by chapter is available in the Version Notes at the back of the book. Attribution details
are available in the Acknowledgments section later in the front of the book.
Impact
Our hope for this textbook is that it will engage students who are learning about business. Also, it is hoped that
instructors in other colleges and universities will appreciate this text, adopt it for their students, and adapt and
Introduction | xi
share it, thus providing a student textbook solution at no cost. If you are an instructor reviewing, adopting, or
adapting this textbook, please inform us at http://bit.ly/business-interest.
xii | Introduction
Instructor Resources
Open Access Availability
This book is available to anyone with internet access and at no charge at: https://pressbooks.lib.vt.edu/
fundamentalsof business3e.
Links to PDF, ePub, XML, ODF, and print on demand versions are available at: http://hdl.handle.net/10919/
99283.
How to Adopt This Book
Instructors reviewing, adopting, or adapting this textbook are encouraged to register at http://bit.ly/businessinterest. This assists Virginia Tech’s Open Education Initiative in assessing the impact of the book and allows us
to more easily alert instructors of new editions, supplements, and other additional resources.
This is an open textbook. Open textbooks are full, complete textbooks that have been funded, published, and
licensed to be freely used, adapted, and distributed. As a particular type of Open Educational Resource (OER),
this open textbook is intended to provide authoritative, accurate, and comprehensive subject content at no
cost, to anyone including those who utilize technology to read and those who cannot afford or choose not to
acquire traditional fee-based textbooks. Unless otherwise noted, this book is licensed with a Creative Commons
Non-Commercial Share-Alike 4.0 license (https://creativecommons.org/licenses/by-nc-sa/4.0), which
permits customization and sharing under the same license with attribution.
Instructors and other readers may be interested in localizing, rearranging, or adapting content, or in
transforming the content into other formats with the goal of better addressing student learning needs, and/or
making use of various teaching methods. Open textbooks in a variety of disciplines are available via the Open
Textbook Library: https://open.umn.edu/opentextbooks.
Locating Additional Resources for Your Course
The following additional resources are available:
• Instructor-only test bank http://hdl.handle.net/10919/93404
• Instructor resource sharing portal https://www.oercommons.org/groups/fundamentals-of-businessuser-group/1379
• Links to 3rd edition PDF, ePub, and print on demand versions http://hdl.handle.net/10919/99283
• 1st edition (2016) http://hdl.handle.net/10919/70961
Instructor Resources | xiii
• 2nd edition (2018) http://hdl.handle.net/10919/84848
• Errata http://bit.ly/FunBus3Errata
• Instructor listserv https://groups.google.com/a/vt.edu/forum/#!forum/fundamentalsof business-g
• Links to additional resources will be added here http://hdl.handle.net/10919/99283
Sharing Resources You’ve Created
Have you created any supplementary materials for use with Fundamentals of Business such as presentation
slides, activities, test items, or question banks? If so, please consider sharing your materials related to this open
textbook. Please tell us about resources you wish to share by using this form: http://bit.ly/business-interest
or by directly sharing non-assessment resources under an open license to the public-facing instructor sharing
portal https://www.oercommons.org/groups/fundamentals-of-business-user-group/1379.
Request for Feedback
The editor and author of this book are actively soliciting feedback from individuals, classes, and faculty using
this book. You may also submit private or anonymous suggestions, errors to correct, or feedback to the editor
and author of Fundamentals of Business by using this form: http://bit.ly/business-feedback.
Additional suggestions or feedback may be submitted via email at: [email protected]
xiv | Instructor Resources
Copyright and License Information
Fundamentals of Business © 2020. Stephen Skripak and Ron Poff.
This book is licensed with a Creative Commons NonCommercial ShareAlike 4.0 license.
https://creativecommons.org/licenses/by-nc-sa/4.0/legalcode
You are free:
To Share—to copy, distribute and transmit the work
To Remix—to adapt the work
Under the following conditions:
Attribution—you must attribute the work in the manner specified by the author or licensor (but not in any way
that suggests that they endorse you or your use of the work).
Noncommercial—you may not use this work for primary commercial purposes.
Share Alike—if you alter, transform, or build upon this work, you may distribute the resulting work only under
the same or similar license to this one.
Adaptation Attribution:
This
adapted
edition
is
produced
through
the
University
Libraries’
Open
Education
Initiative
(https://guides.lib.vt.edu/oer/grantees). This book updates the first and second editions of Fundamentals of
Business. Selected text and figures used in chapters 1-15 and 17-18 were rearranged, deeply adapted, and
updated from the Saylor Foundation. The Saylor Foundation has given permission to adapt and redistribute
http://www.saylor.org/site/textbooks/Exploring%20Business.docx via a Creative Commons NonCommercial
ShareAlike 3.0 license https://creativecommons.org/licenses/by-nc-sa/3.0. The Saylor Foundation previously
adapted this work under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 license and without
attribution as requested by the work’s original creator or licensee. Version notes located in the back of the book
describe changes and updates implemented in this version.
Third-party works:
All third-party works within the book (images, illustrations, etc.) retain their original licenses. We have
undertaken diligent effort to clearly identify and attribute works reproduced under an open license, works used
under fair use, and those in the Public Domain. Links to external content such but not limited to videos are not
covered by the overall license on this book.
All product names, trademarks and registered trademarks are property of their respective owners. Company,
Copyright and License Information | xv
product and service names used in this book are for identification purposes only. Use of these names,
trademarks, and brands does not imply endorsement.
Suggested citation:
Skripak, Stephen & Poff, Ron. (2020) Fundamentals of Business, 3rd edition. Blacksburg, VA: Pamplin College
of Business in association with Virginia Tech Publishing. CC BY NC SA 4.0. https://doi.org/10.21061/
fundamentalsof business3e
Publisher:
This work is published by Pamplin College of Business in association with Virginia Tech Publishing
Pamplin College of Business, Virginia Tech
Pamplin Hall, RM 1030
880 West Campus Drive
Blackburg, VA 24061, USA
Virginia Tech Publishing
University Libraries at Virginia Tech
560 Drillfield Drive
Blacksburg, VA 24061, USA
https://publishing.vt.edu
[email protected]
Peer Review:
This work benefited from peer review and contributions of faculty reviewers, two current undergraduate
students, and one recent Pamplin College of Business graduate.
Accessibility Statement:
Virginia Tech Publishing is committed to making its publications accessible in accordance with the Americans
with Disabilities Act of 1990. The HTML version of this book utilizes header structures and includes alternative
text which allow for machine-readability.
Publication Cataloging Information
Skripak, Stephen, J., adapted by
Fundamentals of Business, 3rd edition / Stephen J. Skripak ; with Ron Poff
p. cm.
ISBN 978-1-949373-34-9 (print black & white)
ISBN 978-1-949373-35-6 (print color)
ISBN 978-1-949373-88-2 (ebook-PDF)
ISBN 978-1-949373-87-5 (ebook-Pressbooks)
ISBN 978-1-949373-36-3 (epub)
xvi | Copyright and License Information
DOI: https://doi.org/10.21061/fundamentals-of-business3e-vtechworks
DOI: https://doi.org/10.21061/fundamentalsof business3e
1. Business. 2. Business – textbook
I. Title
HF1008 .S57 2020
658
Cover Design: Lauren Holt, adapted from Trevor Finney
Copyright and License Information | xvii
Acknowledgments
This work was made possible in part by the University Libraries at Virginia Tech which funded Pamplin
College faculty, and University Libraries’ faculty and staff labor. This included a grant from the University
Libraries’ Open Education Initiative https://guides.lib.vt.edu/oer/grants. Support for Ron Poff’s contributions
was provided by the Pamplin College of Business at Virginia Tech.
The Saylor Foundation has given permission to adapt and redistribute http://www.saylor.org/site/
textbooks/Exploring%20Business.docx via a Creative Commons NonCommercial ShareAlike 3.0 license:
https://creativecommons.org/licenses/by-nc-sa/3.0. The Saylor Foundation previously adapted this work
under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 license and without attribution as
requested by the work’s original creator or licensee. Much of the content in Chapters 1-16 and 18-19 was based
on this openly licensed text.
The following copyright holders have generously given permission to reproduce images and text:
• The Saylor Foundation has given permission to adapt and redistribute http://www.saylor.org/site/
textbooks/Exploring%20Business.docx via a Creative Commons NonCommercial ShareAlike 3.0 license:
https://creativecommons.org/licenses/by-nc-sa/3.0. The Saylor Foundation previously adapted this
work under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 license and without
attribution as requested by the work’s original creator or licensee.
• (c) “The PowerSki Jetboard.” Figure 10.1 Permission granted for this and future versions of this text by
copyright owner Bob Montgomery;
• (c) “Two Friends Who Disagree on Which Mountain Dew Flavor to Vote For.” Figure 14.14 Permission
granted by copyright owner @AlahnaRad;
• (c) “8 Reasons Why Chick-fil-A Has the Best Business Model in America.” Chapter 10, Reference 15 from
The Sales Lion Blog. Permission granted by copyright owner Marcus Sheridan.
• Selected text and figures were used in Chapter 16 from Introduction to Tourism and Hospitality in BC:
https://opentextbc.ca/introtourism. Morgan Westcott, Editor and © Capilano University. The copyright
holder has given permission to adopt and redistribute via a CC BY 4.0 license:
https://creativecommons.org/licenses/by/4.0.
• Cover images: Cropped and modified by Trevor Finney: Estial. “Paris vue d’ensemble tour Eiffel.” By
Taxiarchos228. Cropped and modified by Poke2001. CC BY 3.0. https://commons.wikimedia.org/wiki/
File:Paris_vue_d%27ensemble_tour_Eiffel.jpg; Skitterphoto. Mscamilaalmeida. “New York.” Public
Domain. https://pixabay.com/photo-1350511. Cropped and modified by Lauren Holt: Data
https://www.pexels.com/photo/chart-close-up-data-desk-590022 by Lukas, Pexels license
https://www.pexels.com/license; “Man wearing brown suit jacket” https://www.pexels.com/photo/
man-wearing-brown-suit-jacket-3184339 by fauxels. Pexels license https://www.pexels.com/license.
• Additional sources are referenced at the end of each chapter.
xviii | Acknowledgments
Chapter 1 Teamwork in Business
Learning Objectives
• Define a team and describe its key characteristics.
• Explain why organizations use teams and describe different types of teams.
• Explain why teams may be effective or ineffective.
• Identify factors that contribute to team cohesiveness.
• Understand the importance of learning to participate in team-based activities.
• Identify the skills needed by team members and the roles that members of a team might play.
• Learn how to survive team projects in college (and actually enjoy yourself).
• Explain the skills and behaviors that foster effective team leadership.
The Team with the RAZR’s Edge
The publicly traded company Motorola Mobility
was created when Motorola spun off its Mobile
Devices division, creating a new entity. The newlyformed company’s executive team was under intense
pressure to come out with a smartphone that could
grab substantial market share from Apple’s iPhone 4S
and Samsung’s Galaxy Nexus. To do this, the team
oversaw the design of an Android version of the
Motorola RAZR, which was once the best-selling
phone in the world. The hope of the executive team
was that past customers who loved the RAZR would
love the new ultra-thin smartphone—the Droid RAZR.
The Droid RAZR was designed by a team, as are other
Figure 1.1: Woman Using the iPhone X
Motorola products. To understand the team approach at Motorola, let’s review the process used to design the
RAZR.
By winter 2003, the company that for years had run in circles around their competition had been bumped
1
from the top spot in worldwide sales. Motorola found itself stuck in the number-three slot. Their sales had
declined because consumers were less than enthusiastic about the uninspired style of Motorola phones, and
Chapter 1 Teamwork in Business | 1
for many people, style is just as important in picking a cell phone as features. As a reviewer for one industry
publication put it, “We just want to see the look on people’s faces when we slide [our phones] out of our pockets
to take a call.”
Yet there was a glimmer of hope at Motorola. Despite its recent lapse in cell phone fashion sense, Motorola
still maintained a concept-phone unit—a group responsible for designing futuristic new product features such
as speech-recognition capability, flexible touchscreens, and touch-sensitive body covers. In every conceptphone unit, developers engage in an ongoing struggle to balance the two often-opposing demands of cell phone
design: building the smallest possible phone with the largest possible screen. The previous year, Motorola had
unveiled the rough model of an ultra-trim phone—at 10 millimeters, about half the width of the average flip-top
or “clamshell” design. It was on this concept that Motorola decided to stake the revival of its reputation as a cell
phone maker who knew how to package functionality with a wow factor.
The next step in developing a concept phone is actually building it. Teamwork becomes critical at this point.
The process requires some diversity in expertise. An electronics engineer, for example, knows how to apply
energy to transmit information through a system but not how to apply physics to the design and manufacture of
the system; that’s the specialty of a mechanical engineer. Engineers aren’t designers—the specialists who know
how to enhance the marketability of a product through its aesthetic value. Designers bring their own unique
value to the team.
In addition, when you set out to build any kind of
innovative high-tech product, you need to become a
master of trade-offs—in Motorola’s case, compromises
resulted
from
the
demands
of
state-of-the-art
functionality on one hand and fashionable design on the
other. Negotiating trade-offs is a team process: it takes at
least two people to resolve design disputes.
The responsibility for assembling and managing the
Motorola “thin-clam” team fell to veteran electronic
engineer Roger Jellicoe. His mission: create the world’s
thinnest phone, do it in one year, and try to keep it a
secret. Before the project was completed, the team had
grown to more than twenty members, and with increased
creative input and enthusiasm came increased confidence
and clout. Jellicoe had been warned by company
specialists in such matters that no phone wider than 49
millimeters could be held comfortably in the human hand.
When the team had finally arrived at a satisfactory design
that couldn’t work at less than 53 millimeters, they ignored
the “49 millimeters warning,” built a model, passed it
around, and came to a consensus: as one team member
put it, “People could hold it in their hands and say, ‘Yeah, it
doesn’t feel like a brick.’” Four millimeters, they decided,
was an acceptable trade-off, and the new phone went to
market at 53 millimeters. While small by today’s standards,
at the time, 53 millimeters was a gamble.
2 | Chapter 1 Teamwork in Business
Figure 1.2: iPhone X
Team members liked to call the design process the “dance.” Sometimes it flowed smoothly and sometimes
people stepped on one another’s toes, but for the most part, the team moved in lockstep toward its goal.
After a series of trade-offs about what to call the final product (suggestions ranged from Razor Clam to V3),
Motorola’s new RAZR was introduced in July 2004. Recall that the product was originally conceived as a hightech toy—something to restore the luster to Motorola’s tarnished image. It wasn’t supposed to set sales records,
and sales in the fourth quarter of 2004, though promising, were in fact fairly modest. Back in September,
however, a new executive named Ron Garriques had taken over Motorola’s cell phone division; one of his first
decisions was to raise the bar for RAZR. Disregarding a 2005 budget that called for sales of two million units,
Garriques pushed expected sales for the RAZR up to twenty million. The RAZR topped that target, shipped ten
million in the first quarter of 2006, and hit the fifty-million mark at midyear. Talking on a RAZR, declared hiphop star Sean “P. Diddy” Combs, “is like driving a Mercedes versus a regular ol’ ride.”
2
Jellicoe and his team were invited to attend an event hosted by top executives, receiving a standing ovation,
along with a load of stock options. One of the reasons for the RAZR’s success, said Jellicoe, was that “it took the
world by surprise. Very few Motorola products do that.” For a while, the new RAZR was the best-selling phone
in the world.
The Team and the Organization
What Is a Team? How Does Teamwork Work?
A team (or a work team) is a group of people with complementary skills who work together to achieve a
3
specific goal. In the case of Motorola’s RAZR team, the specific goal was to develop (and ultimately bring to
market) an ultra-thin cell phone that would help restore the company’s reputation. The team achieved its goal
by integrating specialized but complementary skills in engineering and design and by making the most of its
authority to make its own decisions and manage its own operations.
Teams versus Groups
As Bonnie Edelstein, a consultant in organizational development suggests, “A group is a bunch of people in an
4
elevator. A team is also a bunch of people in an elevator, but the elevator is broken.” This distinction may be a
little oversimplified, but as our tale of teamwork at Motorola reminds us, a team is clearly something more than
a mere group of individuals. In particular, members of a group—or, more accurately, a working group—go about
their jobs independently and meet primarily to work towards a shared objective. A group of department-store
managers, for example, might meet monthly to discuss their progress in cutting plant costs. However, each
manager is focused on the goals of his or her department because each is held accountable for meeting those
goals.
Chapter 1 Teamwork in Business | 3
Some Key Characteristics of Teams
To put teams in perspective, let’s identify five key characteristics. Teams:
5
• share accountability for achieving specific common goals.
• function interdependently.
• require stability.
• hold authority and decision-making power.
• operate in a social context.
Why Organizations Build Teams
Why do major organizations now rely so much on teams to improve operations? Executives at Xerox have
reported that team-based operations are 30 percent more productive than conventional operations. General
Mills says that factories organized around team activities are 40 percent more productive than traditionally
organized factories. FedEx says that teams reduced service errors (lost packages, incorrect bills) by 13 percent
in the first year.
6
Today it seems obvious that teams can address a variety of challenges in the world of corporate activity.
Before we go any further, however, we should remind ourselves that the data we’ve just cited aren’t necessarily
definitive. For one thing, they may not be objective—companies are more likely to report successes than failures.
As a matter of fact, teams don’t always work. According to one study, team-based projects fail 50–70 percent of
the time.
7
The Effect of Teams on Performance
Research shows that companies build and support teams because of their effect on overall workplace
performance, both organizational and individual. If we examine the impact of team-based operations according
to a wide range of relevant criteria, we find that overall organizational performance generally improves.
Figure 1.3 lists several areas in which we can analyze workplace performance and indicates the percentage of
companies that have reported improvements in each area.
4 | Chapter 1 Teamwork in Business
Figure 1.3: Performance Improvements Due to Team-Based
Operations
Area of Performance
Firms Reporting
Improvement
Product and service quality
70%
Customer service
67%
Worker satisfaction
66%
Quality of work life
63%
Productivity
61%
Competitiveness
50%
Profitability
45%
Absenteeism/turnover
23%
Types of Teams
Teams can improve company and individual performance in a
number of areas. Not all teams, however, are formed to achieve
the same goals or charged with the same responsibilities. Nor
are they organized in the same way. Some, for instance, are more
autonomous than others—less accountable to those higher up in
the organization. Some depend on a team leader who’s
responsible for defining the team’s goals and making sure that
its activities are performed effectively. Others are more or less
self-governing: though a leader lays out overall goals and
strategies, the team itself chooses and manages the methods by
8
which it pursues its goals and implements its strategies. Teams
also vary according to their membership. Let’s look at several
categories of teams.
Manager-Led Teams
Figure 1.4: Virginia Tech Head Football Coach,
Justin Fuente
As its name implies, in the manager-led team the manager is the
team leader and is in charge of setting team goals, assigning tasks, and monitoring the team’s performance. The
individual team members have relatively little autonomy. For example, the key employees of a professional
football team (a manager-led team) are highly trained (and highly paid) athletes, but their activities on the field
are tightly controlled by a head coach. As team manager, the coach is responsible both for developing the
strategies by which the team pursues its goal of winning games and for the outcome of each game and season.
Chapter 1 Teamwork in Business | 5
He’s also solely responsible for interacting with managers above him in the organization. The players are
responsible mainly for executing plays.9
Figure 1.5: Duties of Self-Managed Teams
Self-Managed Teams
Self-managed teams (also known as self-directed teams) have considerable autonomy. They are usually small
and often absorb activities that were once performed by traditional supervisors. A manager or team leader may
determine overall goals, but the members of the self-managed team control the activities needed to achieve
those goals.
Self-managed teams are the organizational hallmark of Whole Foods Market, the largest natural-foods grocer
in the United States. Each store is run by 10 departmental teams, and virtually every store employee is a
member of a team. Each team has a designated leader and its own performance targets. (Team leaders also
belong to a store team, and store-team leaders belong to a regional team.) To do its job, every team has access
6 | Chapter 1 Teamwork in Business
to the kind of information—including sales and even salary figures—that most companies reserve for traditional
managers.
10
Not every self-managed team enjoys the same degree of autonomy. Companies vary widely in choosing which
tasks teams are allowed to manage and which ones are best left to upper-level management only. As you can see
in Figure 1.5 for example, self-managed teams are often allowed to schedule assignments, but they are rarely
allowed to fire coworkers.
Cross-Functional Teams
Many companies use cross-functional teams—teams that, as the name suggests, cut across an organization’s
functional areas (operations, marketing, finance, and so on). A cross-functional team is designed to take
advantage of the special expertise