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Analyzing an Income Statement

Published December 6, 2013 by Mayrbear's Lair

money

The goal of analyzing an income statement is to determine whether a company is operating effectively and making a profit.  Alvarez and Fridson (2011) suggest that to achieve this objective, the analyst must draw their conclusions by comparing the information from an earlier period as well as from examining statements of other companies in the industry. This helps give a better picture as to how well an organization is performing and how well they measure in terms of their competition (Alvarez & Fridson, 2011). To help us understand the concepts more effectively, we can examine the data provided from the Elf Corporation’s Income statement (see Exhibit A) to ascertain whether the figures reveal overall if they had better sales in 2010 than in 2008. For example, the statement shows that their sales figures increased 18% in 2009 from the 2008 figures and jumped another 8% in 2010. This means the company showed a total sales increase of 27% during that three year period. In the meantime, the cost of goods sold reflects the same percentage increases during that period. This indicates that the sales increase resulted from the amount of units sold, not due to a higher cost of goods. In addition, the statement shows that they decreased their advertising expenses. In 2008 for instance, the company invested 14% of their revenue to advertising costs that decreased to 11% in 2009 and dropped down to 7% in 2010. This may suggest that their brand may have become more recognizable and management decided to reduce advertising costs to maximize profit margins. The statement also exhibits that there was no change in the amount of expenses that were allocated for administrative costs which remained the same rate during that three year period. However, administrative costs expose a 4% decrease over that time because of the rising sales levels.

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Fraser and Ormiston (2010) explain that a company’s operating profit margin measures the overall performance of the company’s operations and provides the basis for determining the success of a firm (Fraser & Ormiston, 2010). The Elf Corporation’s income statement for instance, indicates a steady increase during that three year period with respect to their operating profits. This signals an increase from 18% of the company’s sales revenue in 2008 to 29% in 2010. This ratio suggests that the company experienced a steady strengthening in their returns. Other expenses incurred where interest amounts paid on the firm’s debts. For example, in 2008, the company paid 5% in interest expenses which rose to 8% in 2009 and 10% in 2010. This means that as profits rose, more funds were available for debt commitments. In addition, the statement also shows that the revenue the company collected before income taxes also reflected a steady increase during that three year period. For instance, in 2010 Elf’s earnings revealed an increase of 24% from that of 2008. Finally, the last item on the income statement shows the company’s bottom line, their earnings or the net income they profited after all revenue and expenses were deducted. These figures indicate a steady increase that began at 6% in 2008 and rose to 9% by 2010. My brief analysis of the Elf Corporation’s income statement concluded that the company continued to show a steady increase in profit from the 2008 to 2010 accounting period.

Exhibit A

Elf Corporation Income Statements for the Years Ending December 31

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References:

Alvarez, F., & Fridson, M. (2011). Financial statement analysis: A practioner’s guide. Hoboken, NJ: John Wiley & Sons, Inc.

Fraser, L., & Ormiston, A. (2010). Understanding financial statements. Pearson Education

 

Artifacts, Norms and Assumptions

Published April 24, 2013 by Mayrbear's Lair

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Baack (2012) discloses in his book, Organizational Behavior, that artifacts are the overtly stated values and norms that identify individuals and organizations (Baack, 2012). Individual artifacts include the car a person drives, the clothing and jewelry they wear, piercings and other forms of items of value. These artifacts transmit nonverbal messages or kinesic cues that are communicated in a nonlinguistic way. An organization’s culture on the other hand, is determined by the observable artifacts. They represent the physical signs of an organization’s dominant culture, like the golden arches of McDonalds.  The most significant observable artifact at Capitol-EMI Industries, my former place of employment is the historic Capital Records Tower building in Hollywood. Like McDonald’s golden arches, the Capitol Records Tower is instantly recognized by the unique design which represents a stack of record discs. As a newly hired employee, I was fascinated with the design of a round building. It’s one thing to marvel at it from the outside, but another experience entirely from within the tower walls. The offices I worked at were located on the eleventh floor, so the views from that height were magnificent. When the Paramount Studios lot caught fire from the set of one of the Star Trek movies, we were able to view it from the office bay windows.  It wasn’t until I was promoted and transferred to the EMI offices down the road that I really began to appreciate the tower building. Although I was content to find employment in a smaller one story structure, where our executive offices were located, I look back now at the tower with fond memories.

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The Capitol Records culture was transmitted in a variety of ways through the espoused values which include emphasis on sustainability and a commitment to high quality entertainment. The combination of observable artifacts which includes the company brand and logo, the tower building, and the catalog of famous artists, along with the espoused and enacted values helped create role clarity for the employees. For example, the lobby of the building displays many gold records from artists including: The Andrew Sisters, Frank Sinatra, The Beatles, The Beach Boys, Nat King Cole, Neil Diamond, Bob Seger, and Tina Turner. The personnel who work at the tower encounter these observable artifacts every day that gives staffer a sense of pride. Many of us grew up listening to these artists and were proud to be a part of such a prestigious family.

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Schein (2010) contends the connection between leadership and culture is clear in organizational cultures and micro-cultures. Managers influence the behavior of the subordinates. Those who are resistant to change do not last very long. (Schein, 2010). For example, when I was initially hired, I had just relocated from Arizona where I grew up. I had not resided in California long enough to adapt and blend in with the Southern California culture which was entirely different from that of a desert state like Arizona. My sense of style reflected that of a conservative small town. In fact, I recall one individual compare my fashion style to that of an airline flight attendant, which translated as professional, but not very hip. The dress code varied from floor to floor and department to department. For example, the executive offices where the CEO and high ranking officers worked (all male) and each dressed in suit and tie, while their administrative staff were dressed in professional accouterments that reflected their executive office. The floor where the A&R (Artist and Repertoire) and R&B (Rhythm and Blues) departments were located (where our Business Affairs division was also situated) the executives attire resembled that of the artists they represented. For instance, the executives who signed the rock bands dressed like the rock stars; the executives who signed the rap artists looked like rappers. I was employed with the attorneys that negotiated the artist contracts and eventually adapted a style that blended with the norm of the support staff on that floor, which consisted of a combination of those from the A&R department and the executive offices upstairs. It was a professional style but appropriate for the LA music scene.

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The espoused values and assumptions both helped and hindered moving the company into a learning organization. Executive leaders learned to work together cohesively and in tandem to achieve company goals, but at times engaged in conflicts from policies and actions that were not always supportive. For example, when an artist’s profits and popularity soars after their initial debut album, the artist’s manager and attorney immediately look to renegotiate the contract. The department head of A&R must decide to either go up against manager and artist and refuse their requests, or face the other executive branches to keep in alignment with the artist. It is here the negotiation process begins pitting company leader against company leader as the artist’s camp engages into debates with the policy holders. Each incident becomes a learning experience as each situation is unique and no two artists are the same. Our department became involved when contractual questions or disputes arose so that we could either arm the A&R executive or some case, deflect the A&R department from operating outside the parameters of the contractual commitments. As a rule however, the members of the Capitol Records family enjoyed a positive culture of stability. The recognizable observable artifacts, perceptions of espoused and functioning enacted values, helped generate a greater sense of clarity for the personnel.

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References:

Baack, D. (2012). Organizational behavior. San Diego, CA: Bridgepoint Education, Inc.

Schein, E. (2010). Organizational culture and leadership. San Francisco, CA: John Wiley & Sons, Inc.

Technological Innovations

Published March 27, 2013 by Mayrbear's Lair

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Burgelman, et. al, define technology as the theoretical and practical knowledge, skills, and artifacts that can be used to develop products and services as well as their production and delivery systems. It can be embodied in people, materials, cognitive and physical processes, plant, equipment and tools (Burgelman, Christensen, & Sheelwright, 2004). Advances in technology have presented opportunities for organizations to evolve in productive and innovative ways.  For example, when the mortgage crisis hit the nation in 2008, the mortgage and loan company I was employed at for nearly a decade, suffered bankruptcy and shut down. However, because of high speed internet and the ability to share documents, my former colleagues, with whom I have established trustful working relationships, have found a way to continue to work together in a virtual environment.

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According to Tidd and Bessant, innovation is driven by the ability to see connections, to spot opportunities and to take advantage of them offering new ways of serving established and mature markets (Tidd & Bessant, 2009).  In addition, because of advances in technology, more entrepreneurs are hosting webinars as a means to connect with potential clients. Advances in electronics and internet access have opened opportunities for people with electronic devices to attend informative and training classes online (some free of charge) for various reasons that include: career advancement, self-help and healing purposes; and educational training. The advantage to webinar hosts is an opportunity to reach out to consumers, build their clientele list, and open an opportunity to sell their products or encourage people to sign up for future classes and training courses.

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Other innovations and advances in technology now allow entrepreneurs to produce their own products at a fraction of the price. For instance, with the rise in popularity of tablets and notebooks, EBooks have become a more popular format in book sales because it offers consumers their favorite literature at more affordable prices. Individuals who own desktop publishing software for example, can now write and produce their own EBook merely by opening a file, laying out the design, pouring in the text and formatting, then doing a “save as” in an electronic device format. It has never been easier to produce a book! Innovations in technology have given entrepreneurs more tools to help grow their businesses.

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References:

Burgelman , R., Christensen, C., & Sheelwright, S. (2004). Strategic management of technology and innovation. New York, NY: McGraw-Hill Irwin Publishing.

Tidd, J., & Bessant, J. (2009). Managing innovation: Integrating technological, market and organizational change. West Sussex, UK: John Wiley and Sons, Ltd.

Leveraging Resources

Published March 18, 2013 by Mayrbear's Lair

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Entrepreneurs are the headmasters of their organizations and the taskmasters that seek funding for their businesses, whether for initial start-up, to continue operations or to expand. While changes in banking have altered the financial landscape and closed a few doors to funding opportunities, innovative ideas have opened the doors to others. USA Today’s Small Business Columnist, Steven Strauss (2011) explains two kinds of financing: (a) debt financing; and (b) equity financing. Debt financing requires the entrepreneur take on debt to finance the business, whereas equity financing entails bartering or selling a portion of the venture in exchange for cash that does not have to be paid back (Strauss S. , 2011).

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In the meantime, contemporary business leaders use a combination of resources to fund their ventures. Some of these include more unorthodox methods of financing like: personal savings, retirement funds, credit cards, online grants, business plan competitions, peer-to-peer lending, a variety of loans including friends and family plans, as well as crowd funding and microloans. There also the more conventional methods available from traditional financial banking institutions and business oriented organizations like SBA.

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Some entrepreneurial organizations engage in a variety of strategies as leverage for resources. For instance, entrepreneurs that are in the storming and norming stages of their organizational venture, can invest personal capital in small increments from billable service profits. The pros of personal investment are: (a) interest free resources, (b) no approval is required from others for expenditures, and (c) there is no liability to others. On the other hand, some of the cons for using personal resources include: (a) the depletion of funds which may be required for a rainy day, and (b) it is not always enough. Strauss’s book, The Business Bible recommends a few other inexpensive ways to attract more business revenue with mobile marketing strategies and other social media outlets like Facebook, Twitter, YouTube and LinkedIn. These are some of the innovative resources available that are great for free advertising as a cost effective way that can assist to further expose a company’s brand and services (Strauss S. , 2012). When an organization has cash flow challenges and are unable to secure more financing for budget expenses, capital and headcount, other services some entrepreneurs consider, is raising capital from short video ads on social media outlets like YouTube with the intent of making it go viral. A smart entrepreneur understands that in today’s marketplace, a viral video can become a capital resource game changer.

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References:

Strauss, S. (2011). Get your business funded: Creative methods for getting the money you need. Hoboken, NJ: John Wiley and Sons, Inc. Publishing.

Strauss, S. (2012). The small business bible (3rd ed.). Hoboken NJ: John Wiley and Sons, Inc.

The Entrepreneurial Culture

Published February 27, 2013 by Mayrbear's Lair

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Research reveals that more and more companies are embracing an entrepreneurial culture in the innovation process within their organizations. Firms have begun to comprehend that the nature of innovation is transforming the workplace and have developed policies to accommodate this paradigm shift.  The field of innovation now expands beyond the traditional arenas of science and technology.  Organizations have done this by instigating innovation in ways that also address new components to include: 1) co-creation, 2) user involvement, and 3) environmental and social challenges (Prahalad, 2010). The Lego Corporation, for example has emerged as a company that incorporates a visible entrepreneurial culture.

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In 2006, innovators at Lego decided to involve users in the early stages of the development process for the next generation of a popular product called Mindstorms.  They picked four advanced users from an online community to help develop new features. This strategic union between users and non-users from the in-house production staff turned out to be quite successful and a contribution to Lego’s culture toward a better organizational experience. The experience and insight users offered were a valuable asset for the engineers who could now develop a new product directly with the feedback of the operators. It was so successful, they eventually became a part of the Lego Innovation team and the new version of Mindstorms NXT went on to garner two achievement awards within the first few months of its release. MacDonald (2008) purports that working for a huge corporation can hinder productivity due to the bureaucratic nature.  In other words there is less freedom to engage in creativity that can help individuals fully realize their potential (MacDonald, 2008, pp. 4-6). The Lego corporation has found a way to break some of these bureaucratic barriers by incorporating innovative entrepreneurial techniques.

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Economic crisis and high unemployment rates forced some out of the world of bureaumania and into the world of entrepreneurship. It forced some individuals to find solutions outside the box for employment. For example, one person began offering marketing and social media production services to a select corporate executives as an independent contractor.  The venture is still in the infancy stages as they continue to learn from their experiences and work out the bugs from the structures that hinder the process which include the expansion of a client base and the resources to support it. Badal (2013) suggests that creating the right environment which includes: (a) being open to risk, (b) developing trusting relationships, (c) building skills and knowledge, (d) offering support, (e) obtaining access to resources, (f) maintaining a supportive organizational structure, and (g) setting realistic goals, is pivotal for the innovation process that is emerging in the entrepreneurial sector (Badal, 2013).

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References:

Badal, S. (2013). Building corporate entrepreneurship is hard work. Retrieved February 13, 2013, from Gallup Business Journal: http://businessjournal.gallup.com/content/157604/building-corporate-entrepreneurship-hard-work.aspx

MacDonald, R. (2008). Beat the system: 11 secrets to building an entrepreneurial culture in a bureaucratic world. Hoboken, NJ: John Wiley & Sons, Inc.

Prahalad, C. K. (2010). The new nature of innovation. Ann Arbor, MI: OECD.

Social Change in the Workplace

Published January 18, 2013 by Mayrbear's Lair

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Precipitous change, both peaceful and vehement, is a fact of life that practically everyone on planet earth has come to envisage, if not unconditionally accept.  According to sociology professor and author Jay Weinstein (2010) from Eastern Michigan University, “a great social cultural revolution is sweeping the world” (p. 3).  A historical juncture has been attained at which the former ways of conducting human affairs from the interpersonal to the international levels are becoming less effective.  This year for example, because of the technological sophistication of electronic communication, for the first time in television history, a prime time television show drama on the CBS network’s hit series, Hawaii Five-O allowed viewers to choose the ending of an episode in real time with the aid of electronic devices like smartphones, tablets and computers.

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Just as the modern era deposed feudalism, globalization is reformatting contemporary society.  This research is focused on my personal experience of social change in the workplace and the impact it produced from the functionalist, conflict, and interpretative perspectives when the board members at Capitol Records (a former place of employment) restructured the organization.  This significant event involved substantial personnel cuts and the shutting down of an organizational branch.  These changes created conflict and confusion for both contractual and non-contractual employees as the functional requisites were shifting in the way of personnel and economic resources.  In addition, panic ensued within the organization as workers attempted to interpret the action and parameters of the social change.

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The music industry is constantly in a state of flux.  A musician can enjoy great success or can meet artistic doom through the efforts of their record company.  Executives are always searching for the next megastar.  There is no one way to success and no one can predict what the public will embrace as a hit, or scoff at as a flop.  As a result, the board of directors is, at times, forced to make changes when the executives miss the mark on what constitutes a successful music star and what is considered wasted energy.  When a company does not reflect significant profits, while the books reveal extreme expenditures for artists that are not attracting substantial returns, or worse, lose their popularity, adjustments are calculated to navigate the organization towards profit and success.

Revenue at Capitol Records was in decline and the organization was exhibiting signs of struggle.  The functional requisites were shifting with respect to the minimum number of personnel required to keep the company operational within the frame of the economic resources available.  As a solution, the organization faced a restructuring situation.  In their concerted effort to downsize, an outside agency was employed to provide the hatchet man duties.  The institution in this instance did not require the main body of personnel to conform or participate in the decision to remodel the organization.  Staff members were unsure of job security until they were summoned by the hatchet man for verification.

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The organizational change that was implemented created panic within the structure as workers were attempting to comprehend the action and parameters of this new paradigm shift.  The organizational edifice affected was comprised of two floors.  The main body of personnel was located on the ground level, while the upper floor housed two divisions – the offices of the President and the offices of the Vice President of Business Affairs (the author’s supervisor).  Our department was advised of the organizational changes and I was asked to participate as the assistant to the hatchet man in the downsizing process.

On the one hand I was relieved that, for me, a firm position within the organization still existed.  On the other hand, it was an emotionally difficult task to call each individual employee to their final exit meeting.  That call was something people I had worked with for years were dreading.  A situation-insensitive brother made remarks how proud he was that I was chosen to assist in the organization’s blood bath.  On the contrary, in my view, it was equated to the position of a modern day accomplice to the staff executioner.  Although the hatchet man was a very kind individual with a soft spoken demeanor, his task was not an easy one and it affected me deeply because of my empathy for the people that had been my colleagues and friends – some for many years.  The power of the event and my involuntary participation of this social change presented personal conflict because of my espoused values within the organization and my sympathy towards the people that were being asked to leave.

The new social setting created a reality that redefined the organizational structure implemented by the stranger cast as the terminator.  The idea of job stability was modified as each individual struggled with the change imposed on them.  When individuals heard the phone ring, a disposition of low self-esteem emerged as the withdrawal papers were delegated one by one.  The facility shut down shortly after the event concluded.  Employees that were not dismissed were assimilated in other areas of the organization.

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The world faces a long list of threats that include: (a) hunger, (b) disease, (c) poverty, (d) despair, (e) pandemics, (f) global climate change, and (g) aging economies.  Breakthroughs in society occur when the demand for an end to deprivation, marginalization, and equality ultimately overwhelms the resistance (Light & Reynolds, 2011). Breakthroughs in companies incur change with episodes of restructuring that often include considerable downsizing of personnel as part of the process.  These are the tools of agitation that disrupt and replace the status quo.  The changes that transpired at Capitol Records were instigated by a variety of circumstances which included (a) the completion of the President’s contract; (b) the sale and shutting down of the building; and (c) the financial climate of the corporation.  Individuals who initially challenged the reforms eventually learned to create a new normal.

In conclusion, social change continues to evolve with globalization having a significant impact on contemporary society.  Two fundamental principles drive change: (1) power, and (2) love.  Love is defined as the drive towards unity and power towards separation (Kahane, 2010).  To create lasting change, individuals should learn to work fluidly towards unity and must uncover a means to balance these two forces.  When we learn to shift between power and love, we can begin a new order that will assist to move society forward.

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References

Kahane, A. (2010). Power and love: A theory and practice of social change. San Francisco, CA: Berrett-Koehler Publishers, Inc.

Light, P., & Reynolds, C. (2011). Driving social change: How to solve the world’s toughest problems. Hoboken, NJ: John Wiley & Sons, Inc.

Weinstein, J. (2010). Social change. (p. 3). Pymouth, UK: Rowman & Littlefield Publishers.

Virtual Organizations

Published December 28, 2012 by Mayrbear's Lair

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Technology and globalization play an increasingly important role in the evolution of today’s business environment. Although office face-time played a critical role in corporate settings in the past, the once-rigid boundaries of geography, time and even organizations are now quickly vanishing as members of almost any workplace team are communicating and collaborating regardless of physical location (Duarte & Snyder, 2006). For example, teams that are geographically dispersed rely on technology-mediated communication to accomplish tasks and the degree of virtuality can vary from slight to extreme. Teams that conduct their work through the following three technological devices: (a) email, (b) text messages, and (c) teleconferences never meeting face-to-face, are considered more virtual than a team that meets monthly in person. Teams that span multiple time zones and continents are more virtual than one whose members are located within the same city (Gibson, et al., 2003). These new components in the virtual work environment add complexities that require the development of new managerial skills.

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Virtual teams (VT) work across time, space and organizational boundaries with links strengthened by webs of communication technologies. VT are useful because they can be rapidly brought together to realize a business objective within limited time and resources. VT services are becoming more important today as a result of variety in their underlying business process models (Fong, 2005). Virtual enterprises (VE) share data, information as files, directories, internet bookmarks, databases and more sophisticated tools of knowledge management or a combination of all.

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Organizations that do not utilize virtual team technology may effectively be fighting an uphill battle in global competition in a swiftly changing environment. Institutions will find success in today’s business environment by finding new ways of working across boundaries through systems, processes, technology, and people. VE make technology a valued partner by developing and distributing competitive solutions (Duarte & Snyder, 2006). People working on virtual teams need special skills which include: (a) comprehending human dynamic and performance without the benefit of normal social cues, (b) knowledge of how to manage across functional areas and national cultures, (c) skill in managing their careers and others without the advantage of face-to-face interaction, and (d) the ability to use leverage and electronic communication technology as their primary means of collaboration and communication.

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The technology to enable VE is here. The acceptance of it depends on the willingness of the individuals and organizations to understand the concept and transition in this new approach to organizational management. Coordinating systems that address work practices, management oversight, organizational and cultural influences, are key components in building strategic alliances that will contribute to a company’s growth and success within the virtual organization environment.

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References:

Duarte, D., & Snyder, N. T. (2006). Mastering virtual teams (3rd ed.). San Francisco, CA: John Wiley & Sons, Inc.

Fong, M. (2005). E-Collaborations and virtual organizations. Hershey PA: IRM Press.

Gibson, C., Cohen, S., Alcordo, T., Athanassiou, N., Baba, M., Blackburn, R., . . . Tyran, C. (2003). Teams that work (1st ed.). (C. Gibson, & S. Cohen, Eds.) San Francisco, CA: Jossey-Bass.