Describing the Components of Equity Theory and the Role of Justice

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1.0 Describe the components of equity theory and the role of justice

Equity theory is a theoretical motivational model managers use to keep employees motivated. According to equity theory, defined by Stacy Adams in the 1960s, employees are motivated when they perceive that they are being fairly treated in comparison to whom they compare themselves to (Hitt, Black & Porter 2012; Samson & Daft 2012). Equity theory consists of three components (McWilliams & Williams 2014). Firstly, inputs are what the employee perceives he or she contributes to the organisation (Pritchard 1969). Inputs can include professional qualifications, experience, and commitment to the organisation (McWilliams & Williams 2014). Secondly, outcomes are the returns and rewards based on input that the employee perceives as worthwhile (Pritchard 1969). Outcomes are tangible and visible rewards such as workplace benefits, status or salary (McWilliams & Williams 2014). Lastly, referents are those whom the employee subconsciously or consciously compares their outcomes to inputs (O/I) ratio with to determine whether there is a state of equity or inequity (McWilliams & Williams 2014; Pritchard 1969). Equity occurs when the employee’s O/I ratio is perceived to be the same as their referent’s O/I ratio (Pritchard 1969). Many organisations such as Transfield Services commit to creating equal opportunities for all of their employees to promote employee motivation, self-development and morale. Conversely, inequity occurs when the employee perceives that their O/I ratio is either higher or lower than their referent’s O/I ratio (Pritchard 1969). To treat employees fairly managers need to make sure decision-making processes and outcomes are transparent and unbiased.

Distributive and procedural justice play distinct and important roles in equity theory. Distributive justice is the process of fairly awarding and disciplining employees based on their positive or negative contributions to the organisation (Hitt, Black & Porter 2012). Distributive justice is when the distribution of rewards or punishments are un-discriminatory, fair and consistent with former decisions made in similar situations (Hitt, Black, Porter 2012; Samson & Daft 2012). In contrast, procedural justice occurs when managers make unbiased and transparent decisions about where and how to distribute rewards or consequences based on employee contributions (Hitt, Black & Porter 2012). Moreover, outcomes are not always perceived to be fair, so by being unbiased and keeping managerial processes and decisions transparent managers can reduce the like-hood that employees will be displeased with the outcome (McWilliams & Williams 2014). In summary, to create a positive organisational environment managers should ensure that decisions that will effect employees are fair and transparent.

2.0 Compare and contrast transactional leadership and transformational leadership

Transactional leadership and transformational leadership are two distinct leadership styles that are used in different business contexts to produce different results. Transactional leaders manage employee performance by rewarding or taking disciplinary action when employees rise or fall short of performance standards set by management (McWilliams & Williams 2014; Bass 1990). Furthermore, transactional leaders attempt to motivate employees to adhere or exceed organisational performance standards by promising rewards or recognition of employee achievement (Bass 1990). Transactional leadership has found to be beneficial in organisations where: intelligence and creativity is not a critical employee trait; employees need to be encouraged to surpass their co-workers (Bryant 2003; Hamstra et al. 2014). However, due to the reactive and uninspiring nature of transactional leadership, management effectiveness may decline over time. Transactional leadership promotes an organisational culture where employees will only do minimal work required to meet performance standards (Bryant 2003). Furthermore, creative individuals who feel that their potential is being underused may leave the company to work competitors or start up their own company (Bryant 2003). However, the shortcomings of transactional leadership can be overcome by adopting a transformational leadership style.

In comparison, transformational leaders encourage employees to transcend self-interests and work for the good of the organisation. Successful transformational leaders have four key characteristics (McWilliams & Williams 2014). Firstly, successful transformational leaders are charismatic and can act as an influential role model whom employees can trust and relate to (Bass & Avolio, cited in Pillai, Schrisheim & Williams 1999). Secondly, transformational leaders generate enthusiasm and motivate employees to go above and beyond organisational performance standards by delegating purposeful and challenging tasks (McWilliams & Williams 2014). Thirdly, transformational leaders provide employees with intellectual challenges to promote creative thinking and employee innovation (McWilliams & Williams 2014). By including employees in organisational decision and strategy making (Arnold & Loughlin 2013) and giving employees freedom to pursue personal projects Google is able to stimulate employee creativity and problem solving skills by creating an intellectually stimulating organisational environment. Lastly, transformational leaders provide care, learning opportunities and individual mentoring to promote confidence and self-development among employees (McWilliams & Williams 2014). As a result, transactional leadership is the preferred style for promoting creativity and development (Hamstra et al. 2014). Therefore, managers should choose a leadership style based on the organisational core model and on the results they desire for their organisation.

3.0 Discuss the elements and benefits of the balanced scorecard model

The balanced scorecard is a managerial control framework that that goes beyond the traditional method of only using the financial state of the organisation to measure organisational success. The balanced scorecard simplifies strategy and decision making by consisting of four different perspectives that provide a comprehensive picture of organisational performance (McWilliams & Williams 2014; Kaplan & Norton 2007). Firstly, in the customer perspective managers focus on determining how customers perceive the organisation’s products and services (Kaplan & Norton 1992). Customer perceptions can be measured by surveys, the rate of customer detractions and new customers (Kaplan & Norton 1996). Secondly, managers looking from an internal perspective focus on identifying existing and new critical organisational processes and measuring the effectiveness and efficiency of those processes (Kaplan & Norton 1996). The most efficient way to measure the quality of critical organisational processes is to compare them to customer expectations or standards (McWilliams & Williams 2014). Thirdly, managers looking from an innovation and learning perspective strive to identify where and how improvements can be made within the organisational infrastructure for long-term success (McWilliams & Williams 2014; Kaplan & Norton 1996). Lastly, looking at things from a financial perspective, managers traditionally use financial analysis tools to determine whether changes that were made based on the innovation and learning, customer and internal perspectives have positively contributed to an improvement in organisational performance (McWilliams & Williams 2014; Kaplan & Norton 1992). Moreover, there are also many benefits of using the balanced scorecard.

The scorecard model (McWilliams & Williams 2014) can benefit the automobile industry by improving internal manufacturing processes and increasing the quality of the vehicles by forcing industry managers to consider and measure organisational performance all four perspectives. Firstly, the balanced scorecard helps managers set clearly defined strategic goals by helping them clearly define the organisational vision (Kaplan & Norton 2007; Kaplan & Norton 1992). Secondly, the balanced scorecard enables managers to determine how improvement in one perspective will affect other perspectives in the organisation increasing the probability of long-term organisational success (Bateman & Snell 2013). Lastly, the balanced scorecard brings a limited number of elements together in a report, reducing information overload and increasing decision and strategy making efficiency (Kaplan & Norton 1992). In summary, by evaluating all four perspectives managers can help ensure the long-term survival of the organisation.

4.0 Explain the difference between ISO 9000 and the Australian Business Excellence Framework

ISO 9000 and the Australian Business Excellence Framework (ABEF) are similar in some respects, but both have a different scope and certification/awarding process. ISO 9000 is a collection of international quality assurance standards (ISO 9000 to 9004) defined by the International Organization for Standardization which is an association of 132 international members (McWilliams & Williams 2014; Kantner 2000; Johnson 2000). ISO 9000 is a generic quality standard model that can apply to any organisation (Briscoe, Fawcett & Todd 2005). Moreover, ISO 9000 standards focus on the quality of organisational processes that are used to manufacture or provide products and services with the goal of increasing customer satisfaction (Johnson 2000; Kantner 2000). Acquiring an ISO certification (Kantner 2000) is increasingly becoming a requirement for medical organisations that manufacture or develop medical products if they want to retain or attract customers such as hospitals and pharmacies. To successfully obtain an ISO 9000 certificate organisations must demonstrate to a licensed third party registrar that they are continuously seeking to improve the quality of their internal processes through planning, controlling and documentation (McWilliams & Williams 2014; Johnson 2000). Additionally, there are also standards that focus on the quality of management and organisational processes.

The ABEF is a business quality framework created to measure management efficiency and increase the competitiveness of Australian organisations. The ABEF criteria is based on twelve core concepts and seven categories that are focused on all aspects of management processes from the efficiency of organisational leadership to the operational effectiveness of the organisation (Hsien Hui & Kay Chuan 2002). In contrast to the ISO 9000 third party auditing process, the ABEF provides applicants with the tools needed to perform a self-assessment of their own organisation (Hsien Hui & Kay Chuan 2002). The self-assessment is conducted by comparing organisational and managerial processes against the ABEF criteria (McWilliams & Williams 2014). Organisational and management effectiveness are then reviewed and the collected data is used to deploy solutions to improve future performance (McWilliams & Williams 2014). An Australian company responsible for manufacturing aluminium was able to increase profitability while still reducing their impact on the environment by comparing their management and operation effectiveness to the ABEF criteria (Hsien Hui & Kay Chuan 2002). In addition, the ABEF distributes yearly awards based on organisational compliance to the ABEF criteria which can bolster positive recognition for excellent business practices (McWilliams & Williams 2014). Therefore, maintaining quality managerial and organisational processes is critical for organisational reputation, profitability and growth.

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