Write a Python 3 program called “parse.py” using the template for a Python program that we covered in this module. Note: Use this mod7.txt input file.

Name your output file “output.txt”.

Build your program using a main function and at least one other function.

Give your input and output file names as command line arguments.

Your program will read the input file, and will output the following information to the output file as well as printing it to the screen:

1. Output the full text of the file
2. Output the number of words in the file
3. Output the number of sentences in the file
4. Output the first sentence in the file
5. Output the last sentence in the file
6. Output the length of the first sentence
7. Output the length of the last sentence

This is mod7.txt

I do not come here as an advocate, because whatever position the suffrage movement may occupy in the United States of America, in England it has passed beyond the realm of advocacy and it has entered into the sphere of practical politics. It has become the subject of revolution and civil war, and so tonight I am not here to advocate woman suffrage. American suffragists can do that very well for themselves. I am here as a soldier who has temporarily left the field of battle in order to explain - it seems strange it should have to be explained, what civil war is like when civil war is waged by women. I am not only here as a soldier temporarily absent from the field at battle; I am here, and that, I think, is the strangest part of my coming, I am here as a person who, according to the law courts of my country, it has been decided, is of no value to the community at all; and I am adjudged because of my life to be a dangerous person, under sentence of penal servitude in a convict prison. It is not at all difficult if revolutionaries come to you from Russia, if they come to you from China, or from any other part of the world, if they are men. But since I am a woman it is necessary to explain why women have adopted revolutionary methods in order to win the rights of citizenship. We women, in trying to make our case clear, always have to make as part of our argument, and urge upon men in our audience the fact, a very simple fact, that women are human beings. Suppose the men of Hartford had a grievance, and they laid that grievance before their legislature, and the legislature obstinately refused to listen to them, or to remove their grievance, what would be the proper and the constitutional and the practical way of getting their grievance removed? Well, it is perfectly obvious at the next general election the men of Hartford would turn out that legislature and elect a new one. But let the men of Hartford imagine that they were not in the position of being voters at all, that they were governed without their consent being obtained, that the legislature turned an absolutely deaf ear to their demands, what would the men of Hartford do then? They couldn't vote the legislature out. They would have to choose; they would have to make a choice of two evils: they would either have to submit indefinitely to an unjust state of affairs, or they would have to rise up and adopt some of the antiquated means by which men in the past got their grievances remedied. Your forefathers decided that they must have representation for taxation, many, many years ago. When they felt they couldn't wait any longer, when they laid all the arguments before an obstinate British government that they could think of, and when their arguments were absolutely disregarded, when every other means had failed, they began by the tea party at Boston, and they went on until they had won the independence of the United States of America. It is about eight years since the word militant was first used to describe what we were doing. It was not militant at all, except that it provoked militancy on the part of those who were opposed to it. When women asked questions in political meetings and failed to get answers, they were not doing anything militant. In Great Britain it is a custom, a time-honoured one, to ask questions of candidates for parliament and ask questions of members of the government. No man was ever put out of a public meeting for asking a question. The first people who were put out of a political meeting for asking questions, were women; they were brutally ill-used; they found themselves in jail before 24 hours had expired. We were called militant, and we were quite willing to accept the name. We were determined to press this question of the enfranchisement of women to the point where we were no longer to be ignored by the politicians. You have two babies very hungry and wanting to be fed. One baby is a patient baby, and waits indefinitely until its mother is ready to feed it. The other baby is an impatient baby and cries lustily, screams and kicks and makes everybody unpleasant until it is fed. Well, we know perfectly well which baby is attended to first. That is the whole history of politics. You have to make more noise than anybody else, you have to make yourself more obtrusive than anybody else, you have to fill all the papers more than anybody else, in fact you have to be there all the time and see that they do not snow you under. When you have warfare things happen; people suffer; the noncombatants suffer as well as the combatants. And so it happens in civil war. When your forefathers threw the tea into Boston Harbour, a good many women had to go without their tea. It has always seemed to me an extraordinary thing that you did not follow it up by throwing the whiskey overboard; you sacrificed the women; and there is a good deal of warfare for which men take a great deal of glorification which has involved more practical sacrifice on women than it has on any man. It always has been so. The grievances of those who have got power, the influence of those who have got power commands a great deal of attention; but the wrongs and the grievances of those people who have no power at all are apt to be absolutely ignored. That is the history of humanity right from the beginning. Well, in our civil war people have suffered, but you cannot make omelettes without breaking eggs; you cannot have civil war without damage to something. The great thing is to see that no more damage is done than is absolutely necessary, that you do just as much as will arouse enough feeling to bring about peace, to bring about an honourable peace for the combatants; and that is what we have been doing. We entirely prevented stockbrokers in London from telegraphing to stockbrokers in Glasgow and vice versa: for one whole day telegraphic communication was entirely stopped. I am not going to tell you how it was done. I am not going to tell you how the women got to the mains and cut the wires; but it was done. It was done, and it was proved to the authorities that weak women, suffrage women, as we are supposed to be, had enough ingenuity to create a situation of that kind. Now, I ask you, if women can do that, is there any limit to what we can do except the limit we put upon ourselves? If you are dealing with an industrial revolution, if you get the men and women of one class rising up against the men and women of another class, you can locate the difficulty; if there is a great industrial strike, you know exactly where the violence is and how the warfare is going to be waged; but in our war against the government you can't locate it. We wear no mark; we belong to every class; we permeate every class of the community from the highest to the lowest; and so you see in the woman's civil war the dear men of my country are discovering it is absolutely impossible to deal with it: you cannot locate it, and you cannot stop it. "Put them in prison," they said, "that will stop it." But it didn't stop it at all: instead of the women giving it up, more women did it, and more and more and more women did it until there were 300 women at a time, who had not broken a single law, only "made a nuisance of themselves" as the politicians say. Then they began to legislate. The British government has passed more stringent laws to deal with this agitation than it ever found necessary during all the history of political agitation in my country. They were able to deal with the revolutionaries of the Chartists' time; they were able to deal with the trades union agitation; they were able to deal with the revolutionaries later on when the Reform Acts were passed: but the ordinary law has not sufficed to curb insurgent women. They had to dip back into the middle ages to find a means of repressing the women in revolt. They have said to us, government rests upon force, the women haven't force, so they must submit. Well, we are showing them that government does not rest upon force at all: it rests upon consent. As long as women consent to be unjustly governed, they can be, but directly women say: "We withhold our consent, we will not be governed any longer so long as that government is unjust." Not by the forces of civil war can you govern the very weakest woman. You can kill that woman, but she escapes you then; you cannot govern her. No power on earth can govern a human being, however feeble, who withholds his or her consent. When they put us in prison at first, simply for taking petitions, we submitted; we allowed them to dress us in prison clothes; we allowed them to put us in solitary confinement; we allowed them to put us amongst the most degraded of criminals; we learned of some of the appalling evils of our so-called civilisation that we could not have learned in any other way. It was valuable experience, and we were glad to get it. I have seen men smile when they heard the words "hunger strike", and yet I think there are very few men today who would be prepared to adopt a "hunger strike" for any cause. It is only people who feel an intolerable sense of oppression who would adopt a means of that kind. It means you refuse food until you are at death's door, and then the authorities have to choose between letting you die, and letting you go; and then they let the women go. Now, that went on so long that the government felt that they were unable to cope. It was [then] that, to the shame of the British government, they set the example to authorities all over the world of feeding sane, resisting human beings by force. There may be doctors in this meeting: if so, they know it is one thing to feed by force an insane person; but it is quite another thing to feed a sane, resisting human being who resists with every nerve and with every fibre of her body the indignity and the outrage of forcible feeding. Now, that was done in England, and the government thought they had crushed us. But they found that it did not quell the agitation, that more and more women came in and even passed that terrible ordeal, and they were obliged to let them go. Then came the legislation - the "Cat and Mouse Act". The home secretary said: "Give me the power to let these women go when they are at death's door, and leave them at liberty under license until they have recovered their health again and then bring them back." It was passed to repress the agitation, to make the women yield - because that is what it has really come to, ladies and gentlemen. It has come to a battle between the women and the government as to who shall yield first, whether they will yield and give us the vote, or whether we will give up our agitation. Well, they little know what women are. Women are very slow to rouse, but once they are aroused, once they are determined, nothing on earth and nothing in heaven will make women give way; it is impossible. And so this "Cat and Mouse Act" which is being used against women today has failed. There are women lying at death's door, recovering enough strength to undergo operations who have not given in and won't give in, and who will be prepared, as soon as they get up from their sick beds, to go on as before. There are women who are being carried from their sick beds on stretchers into meetings. They are too weak to speak, but they go amongst their fellow workers just to show that their spirits are unquenched, and that their spirit is alive, and they mean to go on as long as life lasts. Now, I want to say to you who think women cannot succeed, we have brought the government of England to this position, that it has to face this alternative: either women are to be killed or women are to have the vote. I ask American men in this meeting, what would you say if in your state you were faced with that alternative, that you must either kill them or give them their citizenship? Well, there is only one answer to that alternative, there is only one way out - you must give those women the vote. You won your freedom in America when you had the revolution, by bloodshed, by sacrificing human life. You won the civil war by the sacrifice of human life when you decided to emancipate the negro. You have left it to women in your land, the men of all civilised countries have left it to women, to work out their own salvation. That is the way in which we women of England are doing. Human life for us is sacred, but we say if any life is to be sacrificed it shall be ours; we won't do it ourselves, but we will put the enemy in the position where they will have to choose between giving us freedom or giving us death. So here am I. I come in the intervals of prison appearance. I come after having been four times imprisoned under the "Cat and Mouse Act", probably going back to be rearrested as soon as I set my foot on British soil. I come to ask you to help to win this fight. If we win it, this hardest of all fights, then, to be sure, in the future it is going to be made easier for women all over the world to win their fight when their time comes.

1. What does Puma need to do to maintain the leadership position in the Indian sportswear market?

2. How should Puma prepare to ‘fight’ the response from foreign brands in the Indian market?

3. What concepts and theories of international business are found in the Puma case? Briefly discuss each one and relate them to the case.

In September 2014, Puma retained star athlete Usain Bolt, the world’s fastest man, as brand ambassador and launched a new campaign — Forever Faster — to send the message that Puma was and would continue to be “the fastest sports brand in the world.”2 In August 2015, Puma launched its second round of Forever Faster campaigns with a new marketing line: “What are you training for?” The campaign promoted the idea of driving athletes to train harder in order to perform better. The multi-million euro campaign promoted the brand’s latest shoe with ads showing Bolt and the Arsenal football club undergoing limit-pushing training schedules over a course of four weeks to extract more from their performance.3 Puma wanted to make it clear to the world “that it needed to be seen as a major player — that life isn’t all about Adidas and Nike,” suggested Nigel Currie, managing director of the British company brand Rapport, a sports sponsorship agency.4 Puma’s global aspirations also extended to advancing its market position in India. Despite Puma’s presence in the Indian market since 2006, the sportswear brand had not realized its goal of capturing the lead position. Puma’s marketing push finally paid dividends when in June 2015, the brand recorded, for the first time, sportswear sales in India ahead of Adidas, Reebok, and Nike (see Exhibit 1).5 Puma’s success in India could be primarily attributed to the company’s marketing techniques, judicious expansion, and customer-acquisition strategy.6 Indian consumers were already changing their lifestyle in response to increased health concerns, and fitness programs were growing in popularity. The retail sportswear segment experienced unprecedented growth as a result, and companies rode the fitness wave to maximize returns on their investments. Puma had moved ahead of Adidas and Nike to become the leading brand in India, but how long would Puma be able to hold its position in the face of sustained expansion by domestic footwear brands such as Liberty Shoes Ltd (Liberty), Relaxo Footwear Ltd (Relaxo), and Paragon Footwear (Paragon)? These local brands had increased their retail footprint and were expanding their distribution networks beyond their regional presence in order to gain a substantial market share.7 Puma needed a plan to strengthen its branding and pricing strategies to stave off competition from these domestic companies. Could Puma sustain its leadership position in the years to come? PUMA WORLDWIDE Puma SE (Puma), headquartered in Germany, was considered one of the world’s leading sportswear brands. It had been designing, developing, marketing, and selling footwear, accessories, and apparels since 1948. The company categorized its product portfolio by sport (such as football, fitness and training, running, motorsports, and golf) and owned other popular brands, such as Puma, Dobotex, Cobra Golf, and Brandon (see Exhibit 2). Puma employed approximately 10,000 people and distributed its products in more than 120 countries worldwide.8 To capture a leadership position globally, Puma revised its mission statement in 2013 to “be the fastest sports brand in the world,” meaning fast reaction to new trends, reduced time to market with innovations, and speed in problem solving. The company’s repositioning initiative, such as its Forever Faster campaign, was a reflection of its new revised mission statement.9 PUMA INDIA Puma first entered the Indian market in the early 1990s with a licensing agreement with Carona. The agreement was revoked in 1998, and in 2002, Puma re-entered the Indian market by sharing its license and distribution partnership with Planet Sports. Under this model, Puma was responsible for quality and brand consistency while Planet Sports was in charge of sourcing, distribution, and retail of Puma products in India.10 India’s monthly per capita income was expected to grow by over 10 per cent in FY2015/16 in comparison to FY2014/15.11 The Indian consumer lifestyle had undergone a massive shift: disposable income levels had increased and people were adopting international brands.12 By 2006, there had been a fourfold increase in the availability of international accessories and shoe brands in India.13 To leverage this growing trend and strengthen its brand position in India, Puma established its first executive outlet in the country in 2006, manufacturing and distributing apparel, footwear, and accessories across multiple cities in the country.14 After three and a half years of operations, Puma reported a profit in 2009.15 Despite entering the Indian market after its peers (Nike, Reebok, and Adidas), Puma had consistently maintained its growth above the industry average rate and, ultimately, in 2015, surpassed its competition to gain a leading position.16 In 2015, Puma recorded its highest number of sales in India, for the first time ahead of its competitors Adidas, Nike, and Reebok.17 SUCCESS MANTRA Puma’s marketing strategy, judicious expansion plans, and resistance to using discount campaigns led to Puma’s lead in India.18 Retail Strategy Puma’s position as leading sportswear brand in India was primarily due to Puma’s prudent expansion strategy and clever vendor engagement. Puma focused on long-term sustainability, never opening multiple stores in the same location. This safeguarded the brand from over-distribution and helped Puma maintain the quality of distribution across its stores.19 With this strategy, Puma steadily built its network of 340 stores across 115 cities in India. Of the 340 stores, 320 stores were operated under the franchise model.20 Puma reported 13 per cent same-store sale growth in 2014 as compared to 2013. In addition to maintaining tight control over its distribution network, Puma adopted a clever vendor engagement. When Reebok closed 300 of its 900 stores, retailers were handicapped. Puma leveraged this opportunity to gradually grow its partnership with Rishabh Sports Station — Reebok’s biggest vendor — and with other vendors in order to fill the market gap left by Reebok’s absence.21 Product Portfolio With the rise in disposable incomes, change in consumer preferences, and escalating health awareness, sports apparel and equipment companies were launching new products and models to satisfy growing Indian consumer demand. To take advantage of this opportunity, Puma introduced two of its leading shoe brands — Mobium and Faas — to Indian consumers in fiscal year FY2014/15. Mobium Ride, the average price for a traditional, men’s athletic jogging shoe, was priced at US$138.04; the model Faas 600S was priced at US$122.7022 — comparable to pricing by Nike and Adidas. Puma also launched the Nightcat Powered edition under its Mobium brand, and introduced its Ignite brand of running shoes and Alexander McQueen’s stylish global collection to Indian consumers.23 Puma planned to add other brands from its global portfolio to India’s product portfolio in the coming years.24 To build strong brand loyalty, Puma focused on developing products that fit well, were light, and moved with the person wearing the product. The style quotient was always a crucial parameter in Puma’s product mix. Consumers were central to Puma’s strategy; hence, after assessing a demand for flip-flops and sandals, Puma introduced a collection of stylish wear exclusively for the Indian market. Puma sold over 5 million pairs of flip-flops and sandals in FY2014/15.25 Promotional Strategy Puma built its brand on the pillars of a desirable product mix and engaging marketing.26 In addition to being known for sports apparel, Puma gradually built its image as a fashion inspirational brand with dynamic designs and stylish products. Consumers associated the fashion items with unchallenged passion, determination, and sentiment for sport.27 As part of its initiative to increase brand awareness, the company launched a Forever Faster campaign in partnership with the Indian Super League football franchise.28 This tie-up fit well with Puma’s plan to focus on a football wear collection and concentrate its marketing efforts around football.29Puma had Usain Bolt, a world-record holding sprinter and Puma’s brand ambassador, launch the Forever Faster campaign in India in September 201430 to signal the brand’s seriousness about making Puma the fastest sports brand in India. To raise the consumer engagement level, Puma invested in a food, drinks, and entertainment venue — the Puma Social Club. The club was located in the poshest area of Bengaluru and was a hit among the local millennials.31 In addition, Puma put together a compilation of music and a concert series under Puma Loves Vinyl — a campaign to connect with consumers at a personal level.32 Price With growing competition, Puma had two options to push its sales further: the company could use a discounting model, like its competition, or continue on the path of sustained and slow growth.33 The company decided to persist with the gradual growth strategy, which brought Puma the success it sought. To make the brand accessible to more customers, Puma lowered the entry barrier with low-priced entry products. Puma’s products ranged from an affordable $25 to $230.34 Customer Focus Puma focused on continuous monitoring and improvement of the customers’ store experience. The brand had a huge fan following, particularly among the youth. Being consumer-centric, Puma developed its products after identifying these consumers’ needs. The consequent launch and success of flip-flops and sandals exclusively for the Indian market validated Puma’s effort and commitment.35 In line with its focus on India, Puma launched an exclusive fitness shoe for women, Pulse XT, in the summer of 2015. Abhishek Ganguly, managing director of Puma India, declared, “We have planned a very aggressive autumn and winter and will continue to launch global innovative technology-oriented products suitable for India. You will see a lot more of us.”36 E-Commerce Model Worldwide use of smartphones and tablets to access the Internet drove the e-commerce model on an unprecedented growth trajectory. With all companies trying to gain a share of the online market, Puma, too, built its presence through popular marketplaces such as Amazon, Jabong, Snapdeal, and Flipkart. In late 2013, former managing director of Puma India, Rajiv Mehta, indicated that selling Puma’s products online was a marketing advantage the company wanted to exploit: Between 16 [and] 25 years of age, a lot of people are shopping online. Because we are a lifestyle brand, consumers end up shopping multiple times for a lifestyle product than a performance product which lasts for some time. . . . 37 Online is a lot more dynamic. If I want to launch a new shoe, all I have to do is make sure it’s in my warehouse and take the graphic, which can happen in two hours. Our online business is as good as a Brigade Road store in Bangalore and is one of the largest store equivalents in terms of sales. Also, it's a marketing advantage, if not anything else.38 To curb heavy online discounts, Puma excluded online franchise operations.39 Puma earned a 15 per cent revenue share from its online segment in 2014. To extend its online reach, Puma planned to boost its online presence and strengthen the content and offerings of its online portal, Puma.com.40 INDIAN SPORTSWEAR MARKET The sportswear industry was defined as an aggregation of performance, outdoor, and sports-inspired clothing and footwear.41 All kinds of dresses, shorts, trousers, tops, coats, jackets, track suits, athletic sets, swimwear, underwear, hosiery, clothing, and accessories (including gloves, headwear, and scarves) were included under the clothing segment. Children’s, men’s, and women’s footwear — sports shoes, sandals, pumps, and more — were included under the footwear category.42 The sportswear industry in India was valued at $3 billion in 2013 and was predicted to reach $4.9 billion by 2018.43 The industry grew 25 per cent in 2013 and was expected to increase at a compounded annual rate of 10 per cent from 2013 to 2018. Within the sports apparel segment, current sales value of performance apparel grew by 20 per cent; outdoor apparel, by 28 per cent; and sports-inspired apparel, by 18 per cent, in 2013 (see Exhibits 2 and 3).44 MAJOR COMPETITORS Adidas Adidas had ruled the Indian sportswear industry for more than a decade. The increasing presence of the brand across major Indian cities and its tie-up with the Indian cricketer icon, Sachin Tendulkar, for advertisements helped the firm become a sportswear leader.45 To further increase its market presence across the world, Adidas acquired Reebok in 2005 for $3.8 billion.46 However, since 2012, Reebok’s Indian arm was tangled in various commercial irregularities.47 Owing to the irregularities in the Indian unit, Adidas reported a loss of €125 million (roughly equivalent to ?8.7 billion or US$135 million in 2005) from its global profits. Further losses of €70 million (?4.88 billion or US$76 million in 2005) were estimated if the case was not handled soon.48 The failure to leverage the Reebok brand added to Adidas’ financial losses; in 2015, Adidas lost its position as market leader. Adidas indicated it might sell Rockport, Reebok’s shoe brand, to regain its position in India.49 To start a fresh chapter, in September 2015, Adidas identified Ranveer Singh as brand ambassador for its streetwear label Adidas Originals,50 leveraging the actor’s stardom and his connection with youth. Reebok Although a relatively small player, Reebok had an established market in key regions such as North America and India. In order to grow its market presence, Reebok was purchased by Adidas in 2005 for US$3.8 billion. In India, Reebok targeted the 15 to 50 age group and promoted its brand with advertisements targeted at cricket.51 However, in 2012, Adidas announced that it had uncovered several incidents of commercial irregularities at Reebok’s India unit. As a consequence, Adidas closed a substantial number of Reebok outlets.52 Reebok’s struggles resulted in poor financials in 2013.53 In a bid to regain its leadership position in sportswear in India, Reebok planned to launch more than 100 of its FitHub54 stores, targeted towards urban consumers.55 Nike Nike had an established base in India. The company had a strong year in 2013 with respect to returns and investments. The company increased its investment in brand promotions with targeted advertisements and official sponsorship of the Indian cricket team. In addition to brand promotions, Nike strengthened its distribution network across smaller cities with a larger presence in multi-brand outlets.56 To drive its sales further, Nike offered various seasonal discounts and offers to lure customers. Instead of investing in an online retailing site of its own, Nike established an online presence through tie-ups with several marketplaces, such as Snapdeal, Flipkart, Jabong, and Myntra.57 Although Nike did not market its own products online, it did use its website to keep fans abreast of the latest product launches and store releases.58 Domestic Companies In addition to global sportswear brands, India had an established presence of popular regional brands such as Liberty, Lancer, and Relaxo. Affordable sportswear products from regional brands were gaining popularity among Indian consumers. These brands slowly bridged the gap between the domestic and international brand sales by introducing new designs and colors as part of their product portfolios. Leading footwear manufacturers, such as Relaxo and Liberty, launched women’s footwear designs to target a growing market need. Domestic companies invested in increasing their penetration across India and launching desired brand variants within different price platforms in order to tap into the burgeoning opportunity59. THE CHANGING INDIAN CONSUMER India's economic growth and rising household incomes were expected to take consumer spending to a level of $3.6 trillion by 2020. Food, housing, consumer durables, transport, and communication were expected to reap the most of consumer spending. The Indian consumer market was dominated by the younger generation and was becoming increasingly sophisticated and brand conscious. Young upper-middle-class consumers were looking beyond the utility aspect of a product to seek brand and lifestyle statements connected with the product.60 India’s consumer confidence continued to be the highest globally and had improved more in the second quarter of the 2015 calendar year due to a positive economic environment and low inflation.61 There was a visible change in consumer attitude towards sports and fitness as a result of an increase in health awareness.62 With the inclusion of physical exercise in an Indian’s daily regime, many state governments were building parks in urban locations to cater to the demand for morning and evening walks.63 Gyms and health clubs in India were taking advantage of the opportunity and offering a variety of fitness programs, such as yoga, dancing, spinning, aerobics, and more.64 With the growing presence of fitness and health clubs and gyms in metropolitan areas and top-tier cities in India,65 the sportswear industry was set for unprecedented growth.66 Additionally, an increasing number of sporting events, such as the Indian Premier League and marathon events, fostered sports growth in India.67 PUMA’S DILEMMA The evolving consumer landscape, rising e-commerce opportunities, and increasing health awareness had fueled massive growth in the sportswear industry. After continuous efforts over eight years, Puma was at last in the number one brand position in India, taking the lead from Adidas.68 However, although Puma led Adidas and Nike in total sale volumes, there was only a narrow differential margin among the three. This implied that the 1–2–3 positions could undergo reshuffling anytime in the future.69

U.S. Foodservice: A Case Study in Fraud and Forensic Accounting

Maria H. Sanchez

Christopher P. Agoglia^[1]

Ahold’s audit committee ordered investigations at the parent company and at 17 Ahold operating and real estate companies to look for accounting errors, irregularities, and other issues as well as assess internal controls and management integrity (Ahold, 2003a).   After a forensic audit, Ahold eventually reported that the overstatement of U.S. Foodservice’s earnings was more than $850 million (Ball, 2003). A large component of the overstatement resulted from improper recognition of promotional allowances. Several U.S. Foodservice employees and vendors either admitted to or were convicted of playing a role in the fraud. In this case, students will gain insights into the proper accounting for and disclosure of promotional allowances and also the risk of over-reliance on third party confirmation as an audit procedure. Students will also distinguish between a financial statement audit and a forensic audit.

Accounting for cash consideration from vendor rebates, also known as “promotional allowances,” was at the center of the U.S. Foodservice’s earnings restatement. Rebates of this type are common in the grocery and foodservice industries and are frequently material in amount, sometimes exceeding 5% of sales. Vendors can offer rebates to customers in exchange for favorable display space in stores, or they may give volume rebates to provide an incentive to a retailer to increase sales of the vendor’s products, with the rebate percentage increasing as the retailer’s sales volume increases. However, these rebates are problematic in several respects. At the time of U.S. Foodservice’s accounting irregularities, there was no standardized accounting treatment of these rebates. Companies have accounted for them differently, and there have been differing levels of disclosure regarding their amounts. The investigation at U.S. Foodservice revealed that determination of rebates receivable can be problematic.

WHAT HAPPENED AT U.S. FOODSERVICE

            U.S. Foodservice was acquired by Ahold in 2000. Prior to this, U.S. Foodservice used KPMG as their auditor. After the acquisition, U.S. Foodservice was audited by Deloitte &

Touche, Ahold’s auditor. During their 2002 audit of Ahold’s financial statements, as part of their confirmation process at U.S. Foodservice, Deloitte discovered that certain accrued vendor allowance receivable balances were overstated. Deloitte uncovered a series of accounting irregularities at U.S. Foodservice and other Ahold subsidiaries and also improper accounting for certain of Ahold’s joint ventures (Parker, 2003). Deloitte immediately withdrew their audit opinions for 2000 and 2001 and suspended work on the 2002 audit.  

            There appeared to be a confluence of economic conditions, managerial “inventiveness,” and failures of internal controls that led to the accounting irregularities at U.S. Foodservice.

Company sales for the year 2002 had been decreasing. In last quarter of 2002, upper management held a conference call with its divisional managers advising them that their annual bonuses were at risk if sales were not boosted. According to testimony provided by those inside the company, in that conference call, the company’s chief operating officer described an

“initiative” that would increase the likelihood of managers receiving their bonuses and help the company achieve its sales target for the year. Quite simply, the strategy was to order large amounts of inventory and immediately recognize the vendor rebates that accompanied them. The rebates were in many cases substantial and, according to some sources, ranged from 8.5% to 46% of the purchase price. Divisional managers stated that they were told by upper management that if they did not place orders for additional inventory, then it would be done for them. These managers reported that it was made clear that if they did not go along with the “initiative,” not only were their bonuses in jeopardy, but perhaps their jobs were as well (Stecklow, Raghavan, & Ball, 2003).

Soon the warehouses at U.S. Foodservice were overflowing with inventory of foodrelated items and paper products. The amount of inventory the company purchased was so large that it had to rent additional space and refrigerator trucks to store it. As purchases increased, the vendor rebates to which U.S. Foodservice were entitled also increased. Supplier rebates increased from approximately $125 million in 2000 to about $700 million in 2003 (Bray, 2006). These rebates were recognized immediately as products were purchased in an attempt to boost earnings. The excess inventory was so immense, however, that even after the announcement of the earnings restatement, it was questionable whether the company would be able to sell it. In an effort to unload the massive amount of product in its warehouses, the company had to reduce its selling price below its original cost in some cases (Stecklow, Raghavan, & Ball, 2003).

During the audit of U.S. Foodservice, third party confirmations of rebates receivable had been provided by the vendors’ salespeople, not their accounting departments. According to complaints filed by the SEC, employees at U.S. Foodservice urged their vendors to complete and return to the auditors false confirmation letters with dollar amounts intentionally overstated, sometimes by as much as millions of dollars. Some vendors were pressured, some were provided with secret “side letters” assuring the vendors that they did not owe the amounts listed on the confirmations (Securities and Exchange Commission, 2006b).

In a span of several months, the “initiative” proposed by the company’s COO unraveled. Rather than helping the company out of its economic doldrums, the scheme instead resulted in earnings restatements, plunging stock price, several high-level managers losing their jobs, regulatory investigation of the company’s accounting practices, and allegations that officials in both the U.S. and Dutch offices had criminal intent to deceive and defraud the investing public

(Stecklow, Raghavan, & Ball, 2003). In July 2003, Dutch officials raided Ahold’s headquarters and began a criminal probe (Sterling, 2003). One year later, in July 2004, U.S. officials announced that two former U.S. Foodservice executives were being formally charged with conspiracy, securities fraud, and making false filings. Prosecutors also announced at the same time that two other U.S. Foodservice managers had admitted to their roles in the same alleged scheme of overstating earnings (McClam, 2004).

THE FORENSIC AUDIT

After the irregularities were uncovered by the external auditors, a criminal investigation was launched by the U.S. Department of Justice. In addition, Ahold appointed a team of forensic accountants from PricewaterhouseCoopers to work alongside the SEC. The forensic accountants had to sort through tens of thousands of documents (Datson, 2003). A U.S. federal grand jury issued subpoenas for Ahold documents for as far back as January 1, 1999 (Buckley and Chaffin, 2003).  

The forensic audit revealed fraud at U.S. Foodservice totaling over $850 million, with over $100 relating to 2000, over $200 million relating to 2001 and the rest relating to 2002. The fraud related to fictitious and/or overstated vendor allowance receivables and improper or premature recognition of vendor allowances and an understatement of cost of goods sold (Ahold, 2003a). Numerous U.S. Foodservice employees were involved in the fraud, and it was discovered that the fraud went back as far as 2000. U.S. Foodservice employees were found to have been using inflated recognition rates for vendor allowances and intentionally misapplying both Dutch and U.S. GAAP. Deloitte’s audit testing using third party confirmations failed to detect management’s misrepresentation of the reduction in cost of sales resulting from these manufacturer rebates (Bryan-Low, 2003).

The probe of U.S. Foodservice expanded to investigate several of the company’s suppliers, including Sara Lee and ConAgra Foods, to determine if they might have been complicit in U.S. Foodservice’s intent to misrepresent certain financial statement assertions. The investigation revealed that U.S. Foodservice employees asked salespeople at their vendors to sign false documentation for Deloitte and that some vendors cooperated with this fraudulent scheme. Three salespeople at Sara Lee admitted that they had signed off on, and forwarded to

U.S. Foodservice’s external auditors, erroneous documents that reflected inflated amounts owed to the company by Sara Lee (Callahan, 2003b). Similarly, at ConAgra Foods two salespeople also admitted to signing off on inflated amounts for manufacturer rebates due to U.S. Foodservice. ConAgra Foods claimed, however, that the erroneous confirmation amounts were discovered and that U.S. Foodservice’s external auditor was notified before news of the accounting scandal broke (Callahan, 2003a). The forensic examination at U.S. Foodservice also revealed numerous weaknesses in internal controls, including failure to properly record and track vendor allowances, inadequate accounting and financial reporting systems for vendor allowances, and failure to follow GAAP (Ahold, 2003a).

The investigation revealed fraud at not only U.S. Foodservice, but also at several other Ahold subsidiaries and the parent company. It was discovered at one subsidiary that fictitious invoices were used to conceal payments, and in some cases, payments were improperly capitalized rather than expensed. It was also discovered that the consolidation of certain joint ventures into Ahold’s financial statements was in error and that secret side letters had been concealed from Ahold’s audit committee and external auditors. Further, accounting irregularities and earnings management were uncovered at other subsidiaries and at the parent company.

Overall, more than 750 separate items related to internal control weaknesses and accounting issues were identified at Ahold and its subsidiaries (Ahold, 2003a). This extensive forensic examination led to a lengthy delay in the announcement of 2002 audited earnings numbers. Ahold’s 2002 annual report was released October of 2003, which included restatements for the years 2000 and 2001.

The total fraud at Ahold was revealed to be over $1 billion. Of this, approximately $856 million related to U.S. Foodservice. Upon conclusion of the forensic investigation, Ahold announced the creation of a task force reporting to the audit committee to address the internal control weaknesses and improper accounting practices uncovered during the investigation. (Ahold, 2003b). Ahold announced in their 2002 annual report that the internal audit department would now report directly to the CEO and the audit committee, rather than solely to the CEO, as was the case previously (Ahold, 2002a).

According to press releases from Ahold, after the accounting scandal, U.S. Foodservice made “substantial improvements in the company’s financial systems and controls, as well as its financial organization, to strengthen financial monitoring and reporting” (Ahold, 2004). They also established a new office of governance, ethics and compliance.

LESSONS LEARNED: AUDIT CONFIRMATIONS

            In designing the tests to be performed during an audit, an auditor must obtain adequate assurance to address audit risk. The greater the risk of a particular financial statement assertion (e.g., the existence and amount of vendor rebates), the more evidence an auditor should gather to support the assertion. Statement on Auditing Standards (SAS) No. 67 states that, “confirmation is the process of obtaining and evaluating a direct communication from a third party in response to a request for information about a particular item affecting financial statement assertions” (AICPA, 1992, SAS 67.06, AU 330). According to SAS No. 67, confirmation from an independent source is generally viewed as having greater reliability than evidence obtained solely from client personnel. Confirmation with a third party helps the auditor assess the financial statement assertions with respect to all five of management’s assertions: existence or occurrence, completeness, rights and obligations, valuation or allocation, and presentation and disclosure. The auditor may design a third party confirmation to address any one or more of these assertions (AICPA, 1992). However, existence is usually the primary assertion addressed by confirmation of receivables.

Even though evidence obtained by a third party confirmation is generally viewed as being more reliable than evidence provided by the entity being audited, SAS No. 67 cautions that an auditor should maintain a healthy level of professional skepticism. The auditor should consider information from prior years’ audits and audits of similar entities. Further, an auditor has an obligation to understand the arrangements and transactions between the audit client and the third party so that the appropriate confirmation request can be designed. SAS No. 67 states that “[i]f information about the respondent’s competence, knowledge, motivation, ability, or willingness to respond, or about the respondent’s objectivity and freedom from bias with respect to the audited entity comes to the auditor’s attention, the auditor should consider the effects of such

information on designing the confirmation request and evaluating the results, including determining whether other procedures are necessary” (AICPA, 2002, SAS 67.27). The statement allows for the possibility that the party responding to the confirmation may not be completely objective or free from bias and requires the auditor to use other evidence to confirm financial statement assertions in such cases (AICPA, 1992).

Confirming accounts receivable is a generally accepted auditing procedure and is required unless the amount involved is immaterial, a confirmation would be ineffective, or if the auditor can substantially reduce the level of audit risk of the financial statement assertion through the use of other substantive and analytical tests. Accounts receivable, for the purpose of SAS No. 67 (AU 330), represent claims against customers that have arisen in the normal course of business and loans held by financial institutions (AICPA, 1992). The Statement does not specifically address confirming a receivable that arises when a vendor owes a rebate to a reseller, a situation that differs substantially from the typical trade accounts receivable from a customer. Confirming vendor rebate receivables give rise to different risks that likely were not envisioned when the Statement was adopted in 1992.

In adopting SAS No. 67, two (of the seventeen) Board members, while assenting to the Statement, expressed a reservation that the language used in the Statement usurped the freedom of the auditor in exercising professional judgment in how best to confirm accounts receivable and that the language might also lead auditors to place undue reliance on third party confirmation when circumstances might suggest that the auditor choose a more effective test (AICPA, 1992). With the benefit of hindsight it is clear that the auditors of U.S. Foodservice could have, and should have, designed a more “effective test,” one that would have helped overcome the inherent weakness that existed in this situation where parties providing the confirmation may have either been uninformed about the existence and/or amount owed to the retailer or may have had a vested interest to overstate the amount that was owed to U.S. Foodservice. While some practitioner literature has made reference to biases of confirmation respondents (e.g., Simunic 1996), scant attention has been given to this particular concern regarding responses to auditor confirmations by vendors’ sales personnel.

THE AFTERMATH

In 2004, Timothy J. Lee and William F. Carter, both former purchasing executives for U.S. Foodservice, pleaded guilty to participating in the scheme and to conspiring with suppliers to mislead the company’s auditors. They later agreed to pay approximately $300,000 in civil penalties (Reuters, 2005).

More than a dozen U.S. Foodservice vendors pleaded guilty from 2003 to 2006 to criminal charges related to the fraud, admitting that they submitted false confirmations to the auditors (Bloomberg, 2006). Many other U.S. Foodservice employees and vendors have faced civil charges from the SEC, and most have agreed to pay fines without admitting guilt (Sterling, 2007).

In 2009, the SEC dropped the charges against the two former KPMG auditors charged with having engaged in improper conduct during the 1999 audit of U.S. Foodservice (SEC, 2009).

The auditors had been charged by the SEC in 2006 (SEC, 2006b).

PLEASE WRITE A CONCLUTION FOR THIS CASE STUDY RELATED TO THE AUDIT FAILURE.

U.S. Foodservice: A Case Study in Fraud and Forensic Accounting

Maria H. Sanchez

Christopher P. Agoglia^[1]

Ahold’s audit committee ordered investigations at the parent company and at 17 Ahold operating and real estate companies to look for accounting errors, irregularities, and other issues as well as assess internal controls and management integrity (Ahold, 2003a).   After a forensic audit, Ahold eventually reported that the overstatement of U.S. Foodservice’s earnings was more than $850 million (Ball, 2003). A large component of the overstatement resulted from improper recognition of promotional allowances. Several U.S. Foodservice employees and vendors either admitted to or were convicted of playing a role in the fraud. In this case, students will gain insights into the proper accounting for and disclosure of promotional allowances and also the risk of over-reliance on third party confirmation as an audit procedure. Students will also distinguish between a financial statement audit and a forensic audit.

Accounting for cash consideration from vendor rebates, also known as “promotional allowances,” was at the center of the U.S. Foodservice’s earnings restatement. Rebates of this type are common in the grocery and foodservice industries and are frequently material in amount, sometimes exceeding 5% of sales. Vendors can offer rebates to customers in exchange for favorable display space in stores, or they may give volume rebates to provide an incentive to a retailer to increase sales of the vendor’s products, with the rebate percentage increasing as the retailer’s sales volume increases. However, these rebates are problematic in several respects. At the time of U.S. Foodservice’s accounting irregularities, there was no standardized accounting treatment of these rebates. Companies have accounted for them differently, and there have been differing levels of disclosure regarding their amounts. The investigation at U.S. Foodservice revealed that determination of rebates receivable can be problematic.

WHAT HAPPENED AT U.S. FOODSERVICE

            U.S. Foodservice was acquired by Ahold in 2000. Prior to this, U.S. Foodservice used KPMG as their auditor. After the acquisition, U.S. Foodservice was audited by Deloitte &

Touche, Ahold’s auditor. During their 2002 audit of Ahold’s financial statements, as part of their confirmation process at U.S. Foodservice, Deloitte discovered that certain accrued vendor allowance receivable balances were overstated. Deloitte uncovered a series of accounting irregularities at U.S. Foodservice and other Ahold subsidiaries and also improper accounting for certain of Ahold’s joint ventures (Parker, 2003). Deloitte immediately withdrew their audit opinions for 2000 and 2001 and suspended work on the 2002 audit.  

            There appeared to be a confluence of economic conditions, managerial “inventiveness,” and failures of internal controls that led to the accounting irregularities at U.S. Foodservice.

Company sales for the year 2002 had been decreasing. In last quarter of 2002, upper management held a conference call with its divisional managers advising them that their annual bonuses were at risk if sales were not boosted. According to testimony provided by those inside the company, in that conference call, the company’s chief operating officer described an

“initiative” that would increase the likelihood of managers receiving their bonuses and help the company achieve its sales target for the year. Quite simply, the strategy was to order large amounts of inventory and immediately recognize the vendor rebates that accompanied them. The rebates were in many cases substantial and, according to some sources, ranged from 8.5% to 46% of the purchase price. Divisional managers stated that they were told by upper management that if they did not place orders for additional inventory, then it would be done for them. These managers reported that it was made clear that if they did not go along with the “initiative,” not only were their bonuses in jeopardy, but perhaps their jobs were as well (Stecklow, Raghavan, & Ball, 2003).

Soon the warehouses at U.S. Foodservice were overflowing with inventory of foodrelated items and paper products. The amount of inventory the company purchased was so large that it had to rent additional space and refrigerator trucks to store it. As purchases increased, the vendor rebates to which U.S. Foodservice were entitled also increased. Supplier rebates increased from approximately $125 million in 2000 to about $700 million in 2003 (Bray, 2006). These rebates were recognized immediately as products were purchased in an attempt to boost earnings. The excess inventory was so immense, however, that even after the announcement of the earnings restatement, it was questionable whether the company would be able to sell it. In an effort to unload the massive amount of product in its warehouses, the company had to reduce its selling price below its original cost in some cases (Stecklow, Raghavan, & Ball, 2003).

During the audit of U.S. Foodservice, third party confirmations of rebates receivable had been provided by the vendors’ salespeople, not their accounting departments. According to complaints filed by the SEC, employees at U.S. Foodservice urged their vendors to complete and return to the auditors false confirmation letters with dollar amounts intentionally overstated, sometimes by as much as millions of dollars. Some vendors were pressured, some were provided with secret “side letters” assuring the vendors that they did not owe the amounts listed on the confirmations (Securities and Exchange Commission, 2006b).

In a span of several months, the “initiative” proposed by the company’s COO unraveled. Rather than helping the company out of its economic doldrums, the scheme instead resulted in earnings restatements, plunging stock price, several high-level managers losing their jobs, regulatory investigation of the company’s accounting practices, and allegations that officials in both the U.S. and Dutch offices had criminal intent to deceive and defraud the investing public

(Stecklow, Raghavan, & Ball, 2003). In July 2003, Dutch officials raided Ahold’s headquarters and began a criminal probe (Sterling, 2003). One year later, in July 2004, U.S. officials announced that two former U.S. Foodservice executives were being formally charged with conspiracy, securities fraud, and making false filings. Prosecutors also announced at the same time that two other U.S. Foodservice managers had admitted to their roles in the same alleged scheme of overstating earnings (McClam, 2004).

THE FORENSIC AUDIT

After the irregularities were uncovered by the external auditors, a criminal investigation was launched by the U.S. Department of Justice. In addition, Ahold appointed a team of forensic accountants from PricewaterhouseCoopers to work alongside the SEC. The forensic accountants had to sort through tens of thousands of documents (Datson, 2003). A U.S. federal grand jury issued subpoenas for Ahold documents for as far back as January 1, 1999 (Buckley and Chaffin, 2003).  

The forensic audit revealed fraud at U.S. Foodservice totaling over $850 million, with over $100 relating to 2000, over $200 million relating to 2001 and the rest relating to 2002. The fraud related to fictitious and/or overstated vendor allowance receivables and improper or premature recognition of vendor allowances and an understatement of cost of goods sold (Ahold, 2003a). Numerous U.S. Foodservice employees were involved in the fraud, and it was discovered that the fraud went back as far as 2000. U.S. Foodservice employees were found to have been using inflated recognition rates for vendor allowances and intentionally misapplying both Dutch and U.S. GAAP. Deloitte’s audit testing using third party confirmations failed to detect management’s misrepresentation of the reduction in cost of sales resulting from these manufacturer rebates (Bryan-Low, 2003).

The probe of U.S. Foodservice expanded to investigate several of the company’s suppliers, including Sara Lee and ConAgra Foods, to determine if they might have been complicit in U.S. Foodservice’s intent to misrepresent certain financial statement assertions. The investigation revealed that U.S. Foodservice employees asked salespeople at their vendors to sign false documentation for Deloitte and that some vendors cooperated with this fraudulent scheme. Three salespeople at Sara Lee admitted that they had signed off on, and forwarded to

U.S. Foodservice’s external auditors, erroneous documents that reflected inflated amounts owed to the company by Sara Lee (Callahan, 2003b). Similarly, at ConAgra Foods two salespeople also admitted to signing off on inflated amounts for manufacturer rebates due to U.S. Foodservice. ConAgra Foods claimed, however, that the erroneous confirmation amounts were discovered and that U.S. Foodservice’s external auditor was notified before news of the accounting scandal broke (Callahan, 2003a). The forensic examination at U.S. Foodservice also revealed numerous weaknesses in internal controls, including failure to properly record and track vendor allowances, inadequate accounting and financial reporting systems for vendor allowances, and failure to follow GAAP (Ahold, 2003a).

The investigation revealed fraud at not only U.S. Foodservice, but also at several other Ahold subsidiaries and the parent company. It was discovered at one subsidiary that fictitious invoices were used to conceal payments, and in some cases, payments were improperly capitalized rather than expensed. It was also discovered that the consolidation of certain joint ventures into Ahold’s financial statements was in error and that secret side letters had been concealed from Ahold’s audit committee and external auditors. Further, accounting irregularities and earnings management were uncovered at other subsidiaries and at the parent company.

Overall, more than 750 separate items related to internal control weaknesses and accounting issues were identified at Ahold and its subsidiaries (Ahold, 2003a). This extensive forensic examination led to a lengthy delay in the announcement of 2002 audited earnings numbers. Ahold’s 2002 annual report was released October of 2003, which included restatements for the years 2000 and 2001.

The total fraud at Ahold was revealed to be over $1 billion. Of this, approximately $856 million related to U.S. Foodservice. Upon conclusion of the forensic investigation, Ahold announced the creation of a task force reporting to the audit committee to address the internal control weaknesses and improper accounting practices uncovered during the investigation. (Ahold, 2003b). Ahold announced in their 2002 annual report that the internal audit department would now report directly to the CEO and the audit committee, rather than solely to the CEO, as was the case previously (Ahold, 2002a).

According to press releases from Ahold, after the accounting scandal, U.S. Foodservice made “substantial improvements in the company’s financial systems and controls, as well as its financial organization, to strengthen financial monitoring and reporting” (Ahold, 2004). They also established a new office of governance, ethics and compliance.

LESSONS LEARNED: AUDIT CONFIRMATIONS

            In designing the tests to be performed during an audit, an auditor must obtain adequate assurance to address audit risk. The greater the risk of a particular financial statement assertion (e.g., the existence and amount of vendor rebates), the more evidence an auditor should gather to support the assertion. Statement on Auditing Standards (SAS) No. 67 states that, “confirmation is the process of obtaining and evaluating a direct communication from a third party in response to a request for information about a particular item affecting financial statement assertions” (AICPA, 1992, SAS 67.06, AU 330). According to SAS No. 67, confirmation from an independent source is generally viewed as having greater reliability than evidence obtained solely from client personnel. Confirmation with a third party helps the auditor assess the financial statement assertions with respect to all five of management’s assertions: existence or occurrence, completeness, rights and obligations, valuation or allocation, and presentation and disclosure. The auditor may design a third party confirmation to address any one or more of these assertions (AICPA, 1992). However, existence is usually the primary assertion addressed by confirmation of receivables.

Even though evidence obtained by a third party confirmation is generally viewed as being more reliable than evidence provided by the entity being audited, SAS No. 67 cautions that an auditor should maintain a healthy level of professional skepticism. The auditor should consider information from prior years’ audits and audits of similar entities. Further, an auditor has an obligation to understand the arrangements and transactions between the audit client and the third party so that the appropriate confirmation request can be designed. SAS No. 67 states that “[i]f information about the respondent’s competence, knowledge, motivation, ability, or willingness to respond, or about the respondent’s objectivity and freedom from bias with respect to the audited entity comes to the auditor’s attention, the auditor should consider the effects of such

information on designing the confirmation request and evaluating the results, including determining whether other procedures are necessary” (AICPA, 2002, SAS 67.27). The statement allows for the possibility that the party responding to the confirmation may not be completely objective or free from bias and requires the auditor to use other evidence to confirm financial statement assertions in such cases (AICPA, 1992).

Confirming accounts receivable is a generally accepted auditing procedure and is required unless the amount involved is immaterial, a confirmation would be ineffective, or if the auditor can substantially reduce the level of audit risk of the financial statement assertion through the use of other substantive and analytical tests. Accounts receivable, for the purpose of SAS No. 67 (AU 330), represent claims against customers that have arisen in the normal course of business and loans held by financial institutions (AICPA, 1992). The Statement does not specifically address confirming a receivable that arises when a vendor owes a rebate to a reseller, a situation that differs substantially from the typical trade accounts receivable from a customer. Confirming vendor rebate receivables give rise to different risks that likely were not envisioned when the Statement was adopted in 1992.

In adopting SAS No. 67, two (of the seventeen) Board members, while assenting to the Statement, expressed a reservation that the language used in the Statement usurped the freedom of the auditor in exercising professional judgment in how best to confirm accounts receivable and that the language might also lead auditors to place undue reliance on third party confirmation when circumstances might suggest that the auditor choose a more effective test (AICPA, 1992). With the benefit of hindsight it is clear that the auditors of U.S. Foodservice could have, and should have, designed a more “effective test,” one that would have helped overcome the inherent weakness that existed in this situation where parties providing the confirmation may have either been uninformed about the existence and/or amount owed to the retailer or may have had a vested interest to overstate the amount that was owed to U.S. Foodservice. While some practitioner literature has made reference to biases of confirmation respondents (e.g., Simunic 1996), scant attention has been given to this particular concern regarding responses to auditor confirmations by vendors’ sales personnel.

THE AFTERMATH

In 2004, Timothy J. Lee and William F. Carter, both former purchasing executives for U.S. Foodservice, pleaded guilty to participating in the scheme and to conspiring with suppliers to mislead the company’s auditors. They later agreed to pay approximately $300,000 in civil penalties (Reuters, 2005).

More than a dozen U.S. Foodservice vendors pleaded guilty from 2003 to 2006 to criminal charges related to the fraud, admitting that they submitted false confirmations to the auditors (Bloomberg, 2006). Many other U.S. Foodservice employees and vendors have faced civil charges from the SEC, and most have agreed to pay fines without admitting guilt (Sterling, 2007).

In 2009, the SEC dropped the charges against the two former KPMG auditors charged with having engaged in improper conduct during the 1999 audit of U.S. Foodservice (SEC, 2009).

The auditors had been charged by the SEC in 2006 (SEC, 2006b).

read the above REAL WORLD AUDITING case study and provide an overview of the facts of the case (in your own words);  discuss the theoretical principles applicable to the case.

David’s Story

“Life is difficult.” I once read these three trivial words in a book, but never knew how true to life and impactful they would be until one fateful fall evening. Before I begin, let me back up and tell you more about who I am and how I got here. I am a Caucasian male raised in a small conservative town in Maine by hard-working middle-class parents. My compassionate mother juggled raising three rambunctious children, me being the eldest, and has worked the same secretarial job since high school. As a young child, I observed my mother selflessly dedicating her free time and energy to those in need. My mother would often bring food to the elderly, volunteer at church, and have children from the children’s home stay with us during holidays. I absorbed my mother’s compassionate nature toward the disadvantaged. My uncompromising father has devoted over half his life laboring for the shipping industry. Even after working all day, he would come home to work in the yard or repair the house. Growing up I spent many of my weekends toiling over a project my dad refused to pay someone else to do. I still remember the words of my dad pushing me to better myself as I helped with his undertakings, “Son, if you’re going to do it half way, then don’t do it at all!” As a child with too much energy for my size, I incorporated my father’s hard work ethic to my life and found my outlet in sports. All of my dreams and aspirations were encapsulated in being the best athlete possible. Nothing else mattered except for excelling in sports; my drug was sports. I got a rush from the dirt, sweat and blood produced by two rival opponents clashing. I found my niche in hockey because it combined my love of contact sports with a prosperous future I aimed to achieve. My dream was to be a professional player. Of course, life does not always follow along with dreams. Here is where my story takes a turn of unforeseeable events leading me to never forget that life is difficult. The most significant event impacting my life and cultural identity happened on September 21, 1982. At that time, I was the strong, confident, fearless captain of my freshman high school hockey team. I did not have a care other than playing hockey. I had an adolescent belief I was invincible and that nothing could hurt me. As a 15-year-old that thought he knew everything, my world was turned upside down when I was tragically injured in a hockey accident that left me paralyzed from the neck down. The accident took place when I was flipped head first after trying to steal the puck. In that split second, my life was changed forever! I had broken my neck shattering my fourth and fifth vertebrae while severing my spinal cord. I fell limp like a sack of potatoes face first on the ice unable to move a muscle with my body feeling as if it were on fire. I was awake for every excruciating moment and terrified for my life. I had no idea what was wrong with me. It took 45 minutes, which seemed like an eternity, for the ambulance to arrive and paramedics to reach me on the ice. As I lie listless on the ice, the paramedics cut off my dirty sweat stained hockey pads. They put an oversized neck brace on me and strapped my body to a loading board to get in the ambulance. I remember crying while telling my mother I loved her not knowing if I would ever get the chance again. When I arrived at the hospital, I was immediately rushed into the emergency room and put into traction which consisted of metal rods being screwed in my skull. While I struggled in and out of consciousness, the doctor was informing my traumatized parents that if I made it through the night I would never walk or be able to do ANYTHING again. After making it through the first and next few nights in the hospital, I was in total shock. Unfamiliar words like “spinal cord injury,” “paralyzed,” “quadriplegic” and “handicap” kept being used in my presence but never connected with me. It was as if I was watching from afar and emotionally detached. After the shock began to dissipate, the gravity of my situation set in. I had a disability! Even though I had an unbelievable amount of love and support in the beginning from family, friends, and well wishers, I still felt alone. I thought that no one knew what I was going through. During that solitary time, I had many dark days and restless nights to reflect on who I was and who I would become. I started questioning my worth. I wondered what, if any, contribution I could ever have to society as an individual in a wheelchair unable to walk. I had no real knowledge of individuals with disabilities. I used to feel sorry for and pity people that were different and had disabilities. Now I was one of those people. During those daunting days of coming to terms with my disability, my faith was my bedrock. For a child raised Baptist and taught that God is an angry God looking for an opportunity to punish sinners, I never questioned why I got hurt or got angry with God. I guess I never believed that I was being condemned or punished for some heinous sin that required God to paralyze me. I also had so many people from different Christian denominations and religions coming to visit and pray for me that the angry God image dissolved. The love and support I felt from these multireligious beings assisted in my initial strengthening of a secure positive outlook as a future disabled person, even though I have had significant life events that challenged my faith and relationship with people that I thought empathized with my situation. I once had a close respected neighbor that I looked up to tell me that if my faith in God was strong enough I would not need to use a wheelchair. After he told me that, I thought that maybe there was more I should or could be doing spiritually to help regain my ability to walk. At that time, I had no idea how to respond or rebut my neighbor’s judgment on my faith. I was still young and believed my elders were always wiser. It took a long time to mentally grasp that there was nothing I was doing wrong that kept me paralyzed Having a disability, I have come to realize that I am perceived as different and not always in a good way. I came to this epiphany one day while attending a social work class in pursuit of my bachelor’s degree. My professor wrote five labels on the board and asked everyone to stand beside the label they believed would have best chance of getting a job. I was taken aback when the students parted and I could see everyone standing by all the labels except one. The label read “Quadriplegic with Master’s degree.” I was shocked to discover that everyone in the class viewed people with disabilities as a lesser group. Until that time, I did not see my disability separating me from other people. After leaving class, I felt as if I were not equal to others because I had to use a wheelchair to get around. A harsh reality opened my eyes to the fact that I was no longer looked at as a Caucasian male or majority of the population. I was seen strictly for my disability. Therefore, after spending over half my life with a spinal cord injury and using a wheelchair, I have come to identify most with my disability not my race or gender. I identify with my disability because, unfortunately, it is most noticeable to other people. It is difficult to hide a three-hundred-pound power wheelchair. I am not ashamed of who I am because of my spinal cord injury, but I do realize that because I use a wheelchair to get around and do not quite fit the status quo I draw peculiar, sometimes pitiful and many inquisitive looks from others. I have had many occasions when people I do not know come up to me and inquire about my disability. Before even asking, “How are you?” or “What’s your name?” I’ve been asked, “What’s wrong with you?” “Why can’t you walk?” or “Car wreck, huh?” I am often amazed at other people’s reaction to my disability. Though, children’s uninhibited curiosity humors me the most. I remember one young boy asking his mother, “Why is he riding in a big baby stroller?” as we passed by each other in the doctor’s waiting room. Another child once yelled to his mom in amazement in the middle of a restaurant, “Mom, look! It moves!” when he saw my wheelchair rolling. I do not have a problem with curiosity about my disability, but I do have a problem with people judging me and telling me they know exactly how I feel and what I am going through. Another reason I identify most with my disability is because of how much it consumes my life. From the time I wake in the morning having someone dress me, put me in my wheelchair and prepare my breakfast, until the time I am transferred back into bed at night, I am constantly aware of my disability. It was a surreal and shocking feeling to lose total independence and the ability to walk at 15. I had many psychological battles to overcome in order to rise above my physical losses. Twenty-seven years later and many battles won I still occasionally fight to not let my physical disability turn into a mental disability/crutch. At times, my disability has been a challenge and made life difficult. Due to my spinal cord injury, I require many unbelievably priced adaptations for daily living. My $16,000 wheelchair has taken the place of my legs because I am unable to walk. I look at my wheelchair with ambivalence. As much as I hate having to use a wheelchair, I have no other means of moving. My wheelchair has turned into my best friend because of how much I depend on and trust it to work for me. Besides a wheelchair, I need accessible transportation to get around. I cannot go and jump in any vehicle because my wheelchair will only fit in a modified van. It cost near $20,000, not including the cost of the vehicle, just to adapt a van for me. I also necessitate a bathroom specially equipped with wide doorways and roll-in-shower. Since I need so much and am dependent on others, it has been a financial, emotional and psychological hurdle to not feel like a burden. When I first got hurt, I was unable to move anything but my neck. I had to depend on others for the simplest things like scratching my nose or feeding me. Having my independence snatched away from me so quickly was surreal and by far the most difficult part of adapting to my disability. It was the little things I lost that were taken for granted and so devastating to my ego and recovery. Before I got hurt, if I wanted to shave or brush my teeth I just got up on my own free will and went in the bathroom and did it. It was so humiliating and humbling to ask someone to brush my teeth and watch them do it as I stared in the mirror and remembered the young independent man I once was. The loss of my physical independence left me with two options, give up on life or keep on fighting. Fortunately, I strive for a challenge and chose to keep fighting. I vividly remember when I decided to not let my disability get the best of me. After 4 weeks in the hospital, I was immediately taken to inpatient physical rehab in another state. I had no expectations of what was in store for me or how soon I would have to make a life altering decision. Upon reaching the three-story monolithic rehab that specialized in spinal cord injuries, I was wheeled in on a gurney and taken directly to the room I would call home for the next four months. Before I even reached my room, I was startled by a low painful moan that came from a gentleman I was to know as my roommate. As the nurse’s aides wheeled me into the room, I was shocked to hear that my older rugged looking roommate was repeatedly moaning to his family, “Just let me die, just let me die!” I soon found out that my roommate had a recent spinal cord injury and was coming for rehab just like me. As my roommate continued to moan to his family, my mom had to leave the room to fight back tears. I remained stoic for the sake of my family, but inside of me I was an emotional volcano ready to erupt. I felt so unbelievably hopeless, sad, and confused. I began to wonder, “Is this what I had to look forward to as an individual with a disability? Was I going to eventually follow the path of my roommate and wish for nothing more, but to lie there and die?” After my family and his had all left for the night and all was quiet, I lay in bed and forced myself to make a decision. It was at that moment that I chose to get busy living and make the most of my life no matter the circumstances. When I initially got hurt, I viewed societal barriers to the disabled as just the way things were. I accepted that I would be limited as to where I could go and what I could do. After a few years, I began to get frustrated and fed up with the injustices I saw and experienced. Such as the time my sister and I tried to get in a popular barbecue restaurant in my hometown. Excited and hungry for the mouth-watering burgers the restaurant was known for I quickly lost my appetite after 5 minutes of being there due to their inaccessibility. After struggling to get up a wheelchair ramp that was too narrow and steep for my wheelchair, I had to have my sister pick up on my three-hundred-pound chair and turn it just to get me in the narrow double doors of the restaurant. I should have known what to expect next from the hassle it was to get in the restaurant. As I got my first glance into the restaurant, I saw nothing but a sea of people and counter tops that rose way above my head denying me access to order my meal. While my sister ordered my meal, an older Caucasian female with a food-stained apron came to seat us. From this incident and many similar experiences, I felt compelled to fight for the rights of the disabled. I have contacted restaurant proprietors, written letters to newspapers and been on local television news addressing the injustices endured by the disabled. I try to let everyone know that our “Separate, but Equal” society is not as equal as it seems if you look hard enough. Though great strides for the disabled have been accomplished with the inception of the Americans with Disabilities Act, there is more work to be done. I realized long ago that change does not take place without breaking the status quo. Even though I miss walking and the independence I once had, I would not take back the journey that led to my spinal cord injury or time thereafter. I never imagined the way my disability would shape my life and others’. I have been able to touch and inspire other people in a way that I could not have able-bodied. Though it is a physical and psychological climb over the struggles of living with a disability, I have become stronger because of it. In the end, I want to look back at my life and be able to say, “I may have broken my neck, but I did not let it break me.”

QUESTIONS 1. What was it like for you to read this case study? What feelings emerged for you?

2. Imagine that David was a Black football player dreaming of getting a college scholarship when he was paralyzed. What additional themes might have you seen in this narrative?

3. Imagine that David's accident took place when he was 45 years old, not 15. What could be some differences in terms of his identity issues and development?

4. What do you see as the role of a social worker in this scenario? What interventions may be helpful?

There had been several rough quarters at the Engstrom Auto Mirror plant in Richmond, Indiana, a privately owned business that manufactured mirrors for trucks and automobiles and employed 209 people. For more than a year, plant manager Ron Bent and his assistant, Joe Haley, had focused their Friday meetings on the troubling numbers, but the tenor of their May 14, 2007, meeting was different. Both men sensed that they now faced a crisis at the plant. Bent was talking animatedly to Haley: “This is the third productivity problem in, what, two weeks? We can’t climb out of this downturn with performance like that.” He scowled as he signed the authorization to air-freight a large order to the Toyota plant where Sam Martinez managed the assembly line. The difference in cost was astronomical, and it had been necessitated by the slow pace of productivity at Engstrom, which meant in this case that a job due for completion on Monday wasn’t completed until Thursday. But Bent couldn’t afford to make a late delivery to Martinez; he was a prized but demanding customer who had designated Engstrom as a certified supplier one year earlier. Only one other supplier for Martinez’s plant had achieved certified supplier status—a recognition of both extraordinary reliability and quality. The worry lines on Bent’s face deepened. Certified status meant that Martinez had personally authorized Engstrom products to be used on the auto lines without a quality inspection. Along with productivity problems, product-quality issues had also been creeping into the work done at Engstrom. Bent hoped that he was not paying to air-expedite defective mirrors to Martinez. Haley said, “Ron, we both know the employees have been complaining for months, but yesterday and today the talk has been pretty hostile. I’m not saying there’s a definite connection between nearly late delivery and the grumbling I heard, but you’ve got to wonder.” Bent knew that Haley, in just four months at the plant, had developed good relationships with several workers and could pick up useful information about the mood. Haley said, “They’ve had it with the Scanlon Plan. You hear the griping everywhere: ‘What’s the point of having a bonus plan if no bonus is paid for months?’ And it’s not just the people who’ve always been active in UAW. [United Auto Workers], although the union could start taking a more belligerent position at their next meeting.” Bent held up the expedite authorization. “It’s a vicious cycle. We’re paying a stiff price for slips in productivity—and that’s money I would far rather be paying to workers as a reward for high performance.” After Haley left, Bent sat for a moment staring out the window in his office. Back in 1998 he had faced a similar crisis, marked by low employee morale. At the time, he had rated the average worker productivity at a dismal 40% of expectation. After studying the turnaround of two other plants in Indiana, Bent had painstakingly built the support needed from both employees and the Engstrom family to institute a Scanlon Plan at the plant. The choice proved propitious: the Scanlon Plan, which paid bonuses to workers for increased productivity, had been the primary catalyst of Engstrom’s own turnaround. Business had been good; over a seven-year period: sales had quadrupled. In 2005, however, a downturn hit the industry. In June 2006, Bent had been forced to lay off 46 of his 255 employees. Those who remained had not received a Scanlon bonus in seven months. Bent wondered: Had the plan outlived its usefulness? Was it a victim of its own success? The workers had become accustomed to the plan’s substantial bonuses, perceiving the additional hundreds of dollars as part of their regular compensation. Therefore, when the bonuses stopped, the workers responded with anger and suspicion, as if something that rightfully belonged to them had been taken away. Now, Bent had to determine whether to scrap Scanlon, change it, or look elsewhere for solutions to sustaining productivity and ensuring quality until the downturn ended. Understanding Scanlon Plans The Scanlon Plan is the oldest organization-wide incentive plan still in use in the United States. Many employee incentive plans (for example, the typical bonus paid to sales representatives) are keyed to an individual’s performance. Other plans base incentives on the performance of the functional work group to which an employee belongs. Organization-wide plans such as Scanlon reinforce teamwork and cooperation across work groups while they focus attention on cost savings and motivating employees to “work smarter, not harder.” The first Scanlon Plan was developed in the 1930s by Joseph Scanlon, a cost accountant by training and a steelworkers’ union official at a steel mill facing bankruptcy. Scanlon worked with the mill owner to enlist the plant workers in identifying ideas for increasing productivity. Ultimately, the plant was saved. Although Scanlon was oriented to helping small, distressed companies, variants of his “gainsharing” plan have been adopted by a diversity of organizations. The heart of these plans is the concept of participative management. Scanlon believed that individuals will work hard to help achieve their organization’s goals so long as they have an opportunity to take responsibility for their actions and apply their skills. A key tactic is to communicate financial and other business data through all levels of the organization. While this is a symbolic motivator for many workers, the tactic also has a practical basis: everyone is encouraged to suggest ways to improve the plant’s productivity. The three plan components—the submission of suggestions for improvement by employees at all levels, the structure of the company committees that evaluate the suggestions, and then the sharing of the fruits of increased productivity through monthly bonuses—ideally work together to drive big changes in behavior and attitudes. When things are working properly, teamwork and knowledge- sharing typically improve in Scanlon organizations: collaboration fosters innovation and creativity, (Human Behavior in Organizations 537) which in turn drive improvements in productivity, thereby ensuring the payment of bonuses. The culture in a Scanlon plant also typically becomes more change-friendly, as workers have the opportunity to make more money by changing the status quo for the better. While all Scanlon plans share these characteristics, the plans can be tailored to support an organization’s specific strategy. Plants like Engstrom were focused on cost savings, which means producing more per hour of labor spent. The bonus for everyone at Engstrom was therefore based on that ratio—production per labor hour. Organizations with different strategies base their Scanlon bonuses on different factors, but at Engstrom, pursuing higher productivity that drove labor savings was the linchpin. Exhibit 1 shows the basic financial and structural components of the plan at Engstrom. The Path to Plan Adoption at Engstrom Engstrom Auto Mirror, which had operated since 1948 and enjoyed considerable success for much of its lifetime, had become mired in unprofitability by the late 1990s. The plant at that time was redesigning its production lines to incorporate new technology. The transition was not smooth, and increasingly long production delays irritated and eventually alienated customers. The plant manager lacked the sophistication with technology necessary to find solutions quickly and was inept at working with an increasingly militant union (he claimed that the union was “laying in wait” for him to make mistakes and “wanted to hurt management financially on grievances”). Embittered and tired of conflict, the manager resigned in 1998. Ron Bent, a successful manager in his mid-40s, was hired away from a camshaft production plant to attempt a turnaround. Bent believed strongly in the power of worker incentive programs and wanted to establish one at Engstrom. Owing to his experience with different types of programs and further study he subsequently undertook, he held strong opinions about which type of plan might work best at Engstrom. At the camshaft plant, he had experienced an incentive plan that rewarded individuals— not groups or the employees as a whole—for performance. He didn’t care for the results: “Individual incentive plans require a lot of manpower. You’re often arguing with the union. In my experience, any time you set a rate on an operator, he will figure out a way to beat that rate.” The cumulative effect of numerous small changes in tools and methods could result in incentive standards that had little relationship to workers’ tasks. In support of his position, Bent claimed that the plan at the camshaft plant had “gotten so out of line” that the average worker earned 150% of the day rate. Bent has similarly strong feelings about group incentive plans: “If you are going to change your operations or institute a new technology, product, or manufacturing line, the process to get that installed and operational is much longer under an individual or a group incentive plan.” A Scanlon Plan, Bent thought, was the best for Engstrom, given the challenges that the plant faced: “With Scanlon, workers are receptive to new methods and new machinery because they feel they are a part of the company-wide program. When you’ve established a Scanlon plan properly, you’ve also built a good communications network throughout your organization.” Though Bent had worked at and visited plants with multiple incentive plans in place, he felt that Engstrom was too small to accommodate the complexity of multiple plans. By early 1999, he and his management team began talking about the Scanlon concept around the plant, focusing on the potential benefits for workers. They also posted information about Scanlon on bulletin boards, and Bent spent many hours jawboning workers whom he had heard were opinion leaders. In addition, Bent organized a trip for a group of workers to visit another plant that had implemented Scanlon. As Bent explained:Our bargaining committee mingled casually with the other plant’s bargaining committee, and some of our people attended the Scanlon meeting there. My management team kept in the background and let the workers develop their own sense of the situation. The workers came back enthused, and they set the stage for acceptance of Scanlon by their fellows at Engstrom. Throughout these months of campaigning, Bent included a single consistent message in every communication he had with any employee at Engstrom: the Scanlon Plan would be adopted at the plant only if a substantial majority of workers wanted it. In December 1999, a formal statement of the plan was prepared to be presented to all plant employees for discussion and, ultimately, a vote. The bar was high: management had insisted that, because strong employee buy-in was critical, a 75% “yea” vote was necessary. On December 10, 81% of the workers voted for the plan. Every employee then signed a Scanlon Bonus Plan Agreement. Following are its key provisions: • The labor savings would be split 75% to employees and 25% to the company. • A reserve would be established to cover months when productivity fell below the base ratio. Before the monthly payment of 75% to employees and 25% to the company, 25% of all bonus (both the employees’ and the company’s share) would be set aside as a reserve in case of a deficit month – that is, a month when total payroll costs exceeded allowed payroll. • The structure of the Scanlon Production and Screening Committees—set up to stimulate and then evaluate employees’ suggestions—was presented in detail, and methods for appointing or electing members were established. • Conditions under which management could adjust the base ratio were made explicit. Changes in wages, sales volume, pricing, product mix, subcontracting, or technology were identified as potentially leading to increases or decreases in selling prices or standard costs and therefore as factors that might cause the base ratio to be changed. The trickiest part of the plan adoption was the calculation of the plant’s base Scanlon ratio. A benchmark was needed. Plant management selected a ratio of payroll cost to sales volume of production. Their strategy was to start with the total sales revenues generated during a specified period and then establish a percentage of that total as a standard or normative cost of labor, including managerial support. A ratio of 0.50 to 1, for example, would mean that the normative payroll cost was 50% of total sales revenue—and that employees would be paid a bonus for any month in which the payroll cost was less than 50% of total sales revenue (with the size of the bonus based on the percentage of savings achieved). Bent remembered two of the reasons why establishing the ratio raised protracted arguments among the management team, a Scanlon consultant hired by Bent, and worker representatives: The idea was to examine the historical ratio over a representative period of the plant’s business cycle, including all ups and downs that are likely to occur. But we found it hard to identify a recent period we felt was representative, given the troubles at the plant. And we needed to consider that employees had been performing at unacceptable levels. We wanted to motivate them to excel, not just to perform less poorly. The best reconstruction of actual performance showed that the ratio had varied between 30.5% and 68.2% over the previous fiscal year. The average for the 12 months was 43.7%. Though the Scanlon consultant suggested a target of 44%, the ratio was eventually set at 38.0%. The institution of the plan led quickly to an increase in productivity, as measured by the bonus ratio (payroll cost to sales value of production). While few of the early suggestions that employees made increased productivity in any meaningful way; the committees accepted as many as possible (276 out of 305 in the first year). Bent said, “We really wanted to support the submission of these suggestions.” Bent also immediately instituted monthly communication meetings open to all employees. We covered the results of the prior month in detail, praising the workers for improvements they suggested. We also shared our perception of business conditions, identified new customers we were working with, described new equipment that was coming into the plant— anything that we felt would be of interest to workers. They had never been exposed to this kind of communication before. Then we opened the floor for questions, and it was no-holds- barred. I set only two restrictions: no talking about anyone else’s personality and no discussion of any individual’s pay rate. If I couldn’t answer a question, I‘d ask one of my staff to answer it. I wanted the workers to see we weren’t trying to conceal anything. Tension and conflict in the plant eased, as most plant employees seemed to accept the serious intent of the plan. At the same time as the plant was achieving growth, higher profits, and consistent quality standards, the employees were also receiving good financial rewards. Scanlon bonuses were paid every month of every year following plan adoption, in addition to normal wage increases. (Exhibit 1 includes an example of a worker’s paycheck showing the bonus). “It’s not just the money—though don’t get me wrong, the money is great,” said Jim Lutz, a worker on one of the plant’s lines. “I’m getting rewarded for thinking, not just for performing the same tasks every day. To me, that means the plant values the knowledge I have about how my line runs.” Some of the most important cultural changes, according to Bent, were not apparent in the quantitative measures: If, say, a polisher’s machine went down, he called the maintenance man, who came over to examine the machine and then went back to his area to get a tool – one tool. If that was the wrong tool, he’d go back for a different one. Sometimes he’d go back and forth three or four times. Why? Because it didn’t affect his pay, or matter in any other aspect of his work, whether the machine was running or not. Now the maintenance man brings his whole tool cart over. And the machine operator helps out, almost like a surgical nurse, instead of standing around with his hands in his pockets. At Scanlon meetings, workers regularly expressed satisfaction with these changes in their working conditions. Dori Andrews, a veteran of 10 years at the plant, said, “People see themselves as a more cooperative workforce—Engstrom is now a better place to work than it was before we brought in Scanlon. And this is the first place I’ve ever worked where management does not automatically say ‘no’ to workers. They listen.” Over time, however, enthusiasm waned and dissatisfaction grew with certain aspects of Scanlon. Suggestion rates dropped precipitously, down from hundreds to 50 a year. And two consistent themes were heard in worker complaints: • Distrust of bonus calculations: Although all employees received a detailed explanation of the process and could easily access the bonus calculations, some employees thought that the company might be “playing with” the numbers. The complex nature of the calculation itself, which some felt was “full of bean-counter jargon,” also caused distrust. Before the plan was adopted, production achievement was measured by total units produced. However, the Scanlon bonus was influenced by many other factors, including the length of the month, sales mix, overtime, and product returns. Conceivably, a low Scanlon bonus could be paid following a month in which a record number of units were produced. Another point of distrust shared by some employees was suspicion whenever the management team changed the ratio, which occurred four times between 2000 and 2005 (the final reduction was to 32.6%). Some workers accused management of creating a “moving carrot,” despite their explanations for the reductions. • Question of fairness: Some employees felt that supervisors should have received a reduced bonus because they were ”not working as hard as we are.” These reactions did not surprise Bent: “A Scanlon program won’t perpetuate itself. You have to give it a shot in the arm every so often—whenever the work force needs it.” Before Bent could decide how to provide that “shot in the arm,” the industry downturn that began in 2005 gradually dragged down the workforce’s morale along with the sales figures. The atmosphere in Bent’s monthly meetings with employees grew increasingly charged, as he talked about possible layoffs and the causes for declines in productivity. It was clear that every month without a bonus further chilled labor-management relations (see Exhibit 2 for a description of how the plan handled so-called deficit months). Bent’s exhortations—about preserving the culture of the plant and the danger the Engstrom family might close that plant unless profitability trends were reversed— increasingly fell on deaf ears. The layoffs, when they finally occurred in mid-2006, shook the confidence of even the most fervent Scanlon proponents among the workforce. The event served as an emotional lightning rod in the plant and as a temporal dividing line between good and bad times in the plant. By the time Joe Haley joined the management team in January 2007, there was increasing evidence of worker disaffectation. For example, Haley’s review of inventory reports led him to suspect pilfering, and his conversations with workers only deepened his suspicions. Now, in May 2007, Bent felt he urgently needed to make changes before conditions deteriorated further. But he wondered what kind of change might work. In all the reading and listening he’d done he hadn’t heard of any alternative incentive plan that motivated superior employee performance in both good times and bad – so he saw no reason to replace Scanlon with another plan. Could he revise Scanlon in some way that worked better during a downturn? Could he try to identify and change organizational factors that might be undermining Scanlon at the plant? As Bent’s uncertainty about these issues deepened, personal doubts arose about his own performance. He felt a heightened recognition of Scanlon as more a process of organizational development than a plan prescribing specific steps to follow. Had he and his top managers done everything they could to make Scanlon a sustainable success? Had they thought of it too narrowly as a bonus plan instead of a broader opportunity to build a different workplace culture? Or was there something else he was missed.

Milestone Four of your final project is now based on a workplace analysis. You should use your previous milestone submissions regarding the case study to inform your workplace analysis. This milestone considers actual work experience and asks you to conduct a detailed and in-depth version of a root cause analysis applied to your own workplace experience.

This milestone will cover Section IV, Parts A, B, and C of the final project and should include the following critical elements:

1. Explain actual workplace organizational issues drawing from your own experience.

2. Analyze root causes from a human behavior perspective and validate the analysis with supportive research evidence.

3. Examine the impact of poorly aligned and administrated human behavior theories and concepts

This case deals with one of the pioneers in the electric scooter industry: Bird. Please read the articles provided and answer the following questions:

1) Where is the demand for electric scooters coming from? How fast it is expected to grow? Why are investors buying into this industry? Elaborate. [It might be helpful to provide the target segment and its size to justify your answer].

2) What are the possible concerns impacting the demand of electric scooters? How attractive is this industry? [Use Porter’s five forces model to analyze the industry attractiveness]

3) The industry is at a nascent stage and there are already several competitors such as Lime and Skip (Uber and Lyft have also entered this arena). How should Bird position itself to differentiate from the competitors?

Article:

Bird’s electric scooters are getting more rugged to handle heavy use

A year ago, dockless electric scooters first appeared on the streets San Francisco and Santa Monica. The initial reaction was bewilderment, eventually giving over to annoyance and dismissal. The companies that were scattering these scooters everywhere, like Bird and Lime, seemed to epitomize tech-bro arrogance. Surely the fad would fade and the scooters would be shipped back overseas from whence they came, destined for some landfill in China.

Twelve months later, the scooters are in over 100 cities across the globe, and by most accounts, immensely popular. Bird and Lime have each reported over 10 million rides since their launch. Lime is valued at $1 billion; Bird at $2 billion. Ride-hailing giants Uber and Lyft are now getting in on the action, acquiring bike-share companies and applying for permits to operate their own e-scooters. Early complaints about vandalism, blocked sidewalks, and scofflaw riders — while still valid — have since given way to a realization that, hey, these things are kind of fun! And more than that, they could be a crucial link in helping cities solve crucial transportation challenges.

Against that backdrop, Bird CEO Travis VanderZanden spoke with The Verge about phase two in his plan to conquer the micro-mobility sector. Before founding Bird, VanderZanden was a ride-hail executive. He served as Lyft’s chief operating office until August 2014, when he left to join Uber. The move landed in him in hot water with his former employers, who filed a lawsuit claiming VanderZanden stole confidential material. The parties later settled for an undisclosed amount.

Now VanderZanden is out to steal Uber and Lyft’s customers, or at least the ones who use ride-sharing to take short trips across town. He spoke about Bird’s growth in ridership, building a more rugged scooter, and competition with his former employers in the ride-hailing sector.

The Verge: Congratulations on your one year anniversary.

Travis VanderZanden: Yeah. We’re super excited to announce the one year anniversary and take a minute to reflect on the last year. We’re now seeing that we’re doing 10 million rides, 100 cities with two million riders. The reason we get excited to get the numbers out is for us the first year was really... when we started the company it was suggested, can we use electric scooters to really get people out of cars? And we think the data from the first year it’s been kind of a big data point that people are willing to get out of cars and use electric scooters, so, excited to have the announcement.

What is the next stage, would you say, of the business?

Year two is all about, for us, doubling down on our efforts to work with cities and build out government technologies, call it our “GovTech” platform, where we’re spending a lot of our engineering resources building tools that the cities can use to have the insight into Bird’s data and also control Bird in their cities. So an example is that we just rolled out a geo-speed limiting feature where the Bird is already capped at 15 miles per hour, but when you enter a zone like the beach bike path in Santa Monica, the Bird will slow down to 8 miles per hour automatically. So we’re doing a bunch of cool things like that that help the cities. Year two is gonna be about doubling down on those efforts.

That also includes some geo-fencing, too, I understand, right?

Yeah, because there’s geo-fencing, the geo-speed limit’s going to work with geo-fencing on slowing you down. There’s also ‘no ride’ zones, there’s ‘no park’ zones... a bunch of cool things like that that we’re doing, and so we’re going to be continuing that in the second year.

I mean, it’s not that cool, right? For the first year it was ‘anything goes,’ ‘no rules,’ and now it’s like ‘okay, lots of rules that we have to contend with.’

Well, when we first launched the business, you know, we didn’t know if electric scooters were gonna work, we didn’t know if people would ride them. You know, companies have been trying to get Americans off cars for a long time and so it actually started as a small bet and what we found is people really enjoy riding the electric scooters, which we’re excited about. And we’ve been working with cities in year one as well, but we think year two is about doubling down on those efforts.

How are you adapting to cities introducing these pilot programs and wanting to have more control over the deployment and usage of the scooters?

Yeah, so you know, Ridesharing 1.0... we’re calling Bird Ridesharing 2.0 and two of the biggest changes from 1.0 are that we’re using environmentally friendly vehicles to help reduce carbon emissions and traffic. But the second big difference is really collaborating with cities and sharing data with them through the real-time API access, through the dashboards. And then building technology to control and manage Bird in their market.

What about the scooter itself? Are you guys sticking with the one you’ve got? Are you hoping to make any hardware upgrades?

Yeah, so we’ve been investing heavily over the last year. We built out a really big vehicle engineering team. We have the biggest vehicle engineering team in the industry. We’re working on future vehicles now. We’ve already started testing a new vehicle recently, which is a lot more ruggedized than our original vehicles and built specifically for the speedier sharing model

Can you give me any more details in terms of what that means?

The battery is 55 percent bigger. The shaft is built so it’s very durable. The brake cables aren’t exposed. The tires are solid core tires. We spent a lot of time trying to test tires that didn’t have air in them but still had a good rider experience, which was very important to us. We finally found we think the best tires in the world. So, big things like that, so we’re super excited to be testing these new vehicles.

How are you guys approaching the issue of safety? There have been recent reportsabout a rise in scooter related injuries. How are you hoping to deal with that problem, and how are you talking to the cities about that?“

Early on, Bird has prioritized safety over everything else, including growth. It’s easy to say that, but if you look at our actions, there’s a bunch of ways we’ve prioritized... So, three examples of us prioritizing safety over growth are we capped the vehicle speed at 15 miles per hour, even if the city doesn’t require us to do that. We require a driver’s license and the rider to be 18, even if the city doesn’t require us to do that. And we pick the Birds up at 9PM every night, even if the city doesn’t require it. And we also ship free helmets, even if the city doesn’t require it. It helps us sleep better at night, to really prioritize safety over growth.

Do you have any concern about personal injury attorneys filing class-action claims?

We think cars are dangerous. Our society is kind of built around cars, and cars can be dangerous. I’m sure you know the stat that 40,000 Americans died in car accidents last year. A stat you might not know is that another 6,000 people, pedestrians, died by getting run over by cars. It turns out any time you’re operating... or walking, or biking, or Birding around cars, it can be dangerous, and that’s why we try to educate the riders to wear a helmet. We’re working with cities and encouraging them to build more protected bike lanes. And really aligning with some of the bike advocates who’ve been wanting protected bike lanes for a long time.

In year two, obviously you’re gonna start to see competition from some of your former employers: Uber and Lyft are getting into the game. Are you concerned at all, sort of going up against them, considering obviously the amount of capital that they’re going to be bringing to the market?

No. I welcome Uber and Lyft into Ridesharing 2.0. We think Ridesharing 2.0 will make the world a better place, and we welcome them into that world. I think they’re kind of operating where we were a year ago, and so we think we’re much further ahead on vehicle engineering, on the government technology stuff. We share data with cities, which is something maybe they’re not used to in Ridesharing 1.0. We definitely welcome them.

So why do you think a user would choose a Bird over, say, a Lyft scooter at this point?

One, Bird’s in a hundred cities, and we have a lot more vehicles deployed, a lot more vehicles being manufactured and sent to us. There’s that. So the vehicles will be closer to users because we have more of them. In addition, we have built more ruggedized vehicles, while they’re still working on the vehicles we had a year ago, and haven’t figured out how to ruggedize them yet.

So you’re not worried that they might buy your supply chain out from underneath you?

No, we’re not concerned about it. We have great relationships that we’ve been building over the last year. In fact, we just signed an exclusive deal with the original manufacturer of the ruggedized scooter sharing company. It was the manufacturer that built the original Lime scooters. We have an exclusive deal with them. We continue to work with Ninebot and others. We think we’re far ahead on that, and I think we have access to the most supply right now. I understand a lot of others are having a hard time finding supply.

What’s the latest on bringing the scooters to New York? Obviously that would be a huge market for you guys.

I get excited about any market when there’s massive traffic and car problems, and certainly New York City’s high on that list. For us, we always wanna make sure that we’re legal before we go in. There are folks working with city and state officials to try to figure out how do we best fit in to the existing legal framework. I’m certainly excited about figuring it out. I think New York City would be way easier to get around on Bird than in a car, obviously.

Bird got shut out of San Francisco’s pilot program. Do you think there’s still a chance that you’ll be able to bring the scooters back to San Francisco at some point?

I haven’t spent much time digging into it. I think San Francisco’s just one city. We’re in a hundred cities now. It’s the only city we haven’t been able to stay operating in so far and get a permit. It doesn’t mean we don’t wanna be in San Francisco. We just haven’t spent a lot of time thinking about it right now, because there’s so many other cities that have been embracing the electric scooters. At some point, obviously, we would love to be in San Francisco. We’re just not spending a lot of time... we’re not protesting it or anything like that in the short term.

Yeah, but you did protest in Santa Monica before getting permits there.

Yeah. In Santa Monica, it’s our home state. We felt that’s where scooter sharing, where we originally invented and created scooter sharing. We felt maybe a little more sentimental about Santa Monica. Overall, we’re finding cities are really embracing these scooters. I think that the press tends to over focus on San Francisco. But we’re in a hundred cities now. When we talk to cities about our mission of reducing car trips and traffic and carbon emissions, it 100 percent aligns with the cities’ goals. They have the same goals. So it’s just a matter of figuring out how do we best fit in. Being in a hundred cities and doing 10 million rides in the first year is exciting and we have a lot of cities that are excited about electric scooters.

Bird has promised to provide funding for bike lanes. Are you doing that in every city that you’re operating in, or only just the cities that ask for that kind of thing?

We offer it in all cities and try to figure out who to pay, what initiative makes the most sense. For us, what’s important is investing in improving the bike infrastructure and scooter infrastructure in a city. The cities that have... a lot of cities have permits with their own permitting fees and then they use the permitting fees to go towards the bike infrastructure. An example is, you wanna use the money, you’re happy to help pay for dedicated bike lanes, to get dedicated parking spaces. There are dozens of parking spaces on the street per block, instead of taking that one space away from a car, you could probably fit 10-15 Birds in that same space... And we just think it’s a much more efficient use of space, but that said, we’re not asking for the city to pay us, and we’re not asking [for] a handout. We’re asking them to pay for that space. It’s just a matter of figuring out how do we make that happen. So we’ve certainly been trying.

Bird is in Paris and in Tel Aviv. Are you eyeing any other international cities?

Yeah. We just launched Brussels. We’re gonna be expanding throughout Europe and then next week we’ll have some more exciting announcements about some other international markets.

Did you ever expect this year to be as busy as it has been in terms of this business? Did you expect this to be as popular and as polarizing as it’s turned out to be?

I certainly didn’t expect it to be as polarizing. I think when I first thought about doing the business, I really felt like we could get people out of cars and using electric scooters. I didn’t think we would be able to do 10 million rides. By comparison, if you go back and look at... I think Lyft released an infographic and blog post about on their 15-month anniversary, and they did a million rides in that first 15 months. And to do 10 million rides in 100 cities has been very exciting to see. It doesn’t mean we don’t have a lot of work ahead, and we wanna continue to work with cities to see how do we make it less polarizing, how do we fit in, how do we get dedicated parking so that people don’t complain about the Birds being parked where they shouldn’t be. I think we’re... we’d like the team to work on that so we’ve gotten less polarizing... I know when the car was first introduced and everybody got around on horses, the car had a similar reaction as commuters now to scooters. I think if we can break this car addiction we have, I think it’s ultimately that we will make a road there.

C++ Bank Account Error Fix, full code. I am using Dev-C++ to Compile and Execute.

The project is below, I have supplied the code and I'm getting an error in SavingsAccount.h file.

17   5   C:\Users\adam.brunell\Documents\Classes\C++\Week4\SavingsAccount.h   [Error] 'SavingsAccount::SavingsAccount(std::string, double, double)' is protected

A.Assume

i.SavingsAccount: Assume an Interest Rate of 0.03

ii.HighInterestSavings: Assume an Interest Rate of 0.05, Minimum Balance = $2500

iii.NoServiceChargeChecking: Assume an Interest Rate = 0.02, Minimum of Balance = $1000

iv.ServiceChargeChecking – Assume account service charge = $10, Maximum number of checks = 5, Service Charge if customer exceeds the maximum number of checks = $5.

v.NoServicechargeChecking: Assume an interest rate = 0.02, Minimum Balance = $1000

vi.HighInterestChecking: Assume an interest rate = 0.05, Minimum Balance = $5000

vii.CertificateOfDepsit: Assume an interest rate = 0.05, Initial Number of Maturity Months = 6

B.Capitalize the first letter of the derived class names.

C.Use the following driver to validate your program:

#include

#include

#include

#include "bankAccount.h"

#include "SavingsAccount.h"

#include "HighInterestSavings.h"

#include "NoServiceChargeChecking.h"

#include "ServiceChargeChecking.h"

#include "HighInterestChecking.h"

#include "CertificateOfDeposit.h"

#include "checkingAccount.h"

using namespace std;

int main()

{

    vector accountsList;

       //SavingsAccount( Name, Account number, Balance ) - Assume an interest rate = 0.03

    accountsList.push_back(new SavingsAccount("Bill", 10200, 2500));

       //HighInterestSavings(Name, Account Number, Balance) -- Assume an interest rate = 0.05, Minimum balance = $2500

    accountsList.push_back(new HighInterestSavings("Susan", 10210, 2000));

       //NoServiceChargeChecking(Name, Account Number, Balance) -- Assume an interest rate = 0.02, Minimum balance = $1000

    accountsList.push_back(new NoServiceChargeChecking("John", 20100,

                                                    3500));

       //ServiceChargeChecking(Name, Account Number, Balance) -- Assume account service charge = $10, Maximum number of checks = 5, Service Charee Excess Number of Checks = $5

    accountsList.push_back(new ServiceChargeChecking("Ravi", 30100, 1800));

       //HighIntererestChecking(Name, Account Number, Balance) - Assume an inerest rate = 0.05, Minimum balance = $5000

    accountsList.push_back(new HighInterestChecking("Sheila", 20200, 6000));

       //Certificate(name, Account Number, Balance, Interest Rate, Number of Months) - Assume an initial interest rate = 0.05, Initial Number of Maturity Months = 6

    accountsList.push_back(new CertificateOfDeposit("Hamid", 51001, 18000,

                                                0.075, 18));

    cout << "January:\n-------------" << endl;

    for (int i = 0; i < accountsList.size(); i++)

    {

        accountsList[i]->createMonthlyStatement();

        accountsList[i]->print();

        cout << endl;

    }

    cout << "\nFebruary:\n-------------" << endl;

    for (int i = 0; i < accountsList.size(); i++)

    {

        accountsList[i]->createMonthlyStatement();

        accountsList[i]->print();

        cout << endl;

    }

    for (int i = 0; i < accountsList.size(); i++)

    {

         accountsList[i]->withdraw(500);

    }

    cout << "\nMarch:\n-------------" << endl;

    for (int i = 0; i < accountsList.size(); i++)

    {

        accountsList[i]->createMonthlyStatement();

        accountsList[i]->print();

        cout << endl;

    }

    System(“pause”);

    return 0;

}

The Expected Output is:

January:

-------------

Savings account: Bill    ACCT# 10200    Balance: $2575.00

High Interest Savings: Susan     ACCT# 10210    Balance: $2100.00

No Service Charge Check. John    ACCT# 20100    Balance: $3500.00

Service Charge Checking: Ravi    ACCT# 30100    Balance: $1790.00

Higher Interest Checking: Sheila         ACCT# 20200    Balance: $6300.00

Certificate of Deposit: Hamid    ACCT# 51001    Balance: $19350.00

February:

-------------

Savings account: Bill    ACCT# 10200    Balance: $2652.25

High Interest Savings: Susan     ACCT# 10210    Balance: $2205.00

No Service Charge Check. John    ACCT# 20100    Balance: $3500.00

Service Charge Checking: Ravi    ACCT# 30100    Balance: $1780.00

Higher Interest Checking: Sheila         ACCT# 20200    Balance: $6615.00

Certificate of Deposit: Hamid    ACCT# 51001    Balance: $20801.25

March:

-------------

Savings account: Bill    ACCT# 10200    Balance: $2216.82

High Interest Savings: Susan     ACCT# 10210    Balance: $2315.25

No Service Charge Check. John    ACCT# 20100    Balance: $3000.00

Service Charge Checking: Ravi    ACCT# 30100    Balance: $1270.00

Higher Interest Checking: Sheila         ACCT# 20200    Balance: $6420.75

Certificate of Deposit: Hamid    ACCT# 51001    Balance: $22361.34

Press any key to continue . . .

//testdriver.cpp

#include
#include
#include

#include "bankAccount.h"
#include "SavingsAccount.h"
#include "HighInterestSavings.h"
#include "NoServiceChargeChecking.h"
#include "ServiceChargeChecking.h"
#include "HighInterestChecking.h"
#include "CertificateOfDeposit.h"
#include "checkingAccount.h"

using namespace std;
  
int main()
{
vector accountsList;

   //SavingsAccount( Name, Account number, Balance ) - Assume an interest rate = 0.03
accountsList.push_back(new SavingsAccount("Bill", 10200, 2500));

   //HighInterestSavings(Name, Account Number, Balance) -- Assume an interest rate = 0.05, Minimum balance = $2500
accountsList.push_back(new HighInterestSavings("Susan", 10210, 2000));

   //NoServiceChargeChecking(Name, Account Number, Balance) -- Assume an interest rate = 0.02, Minimum balance = $1000
accountsList.push_back(new NoServiceChargeChecking("John", 20100,
3500));

   //ServiceChargeChecking(Name, Account Number, Balance) -- Assume account service charge = $10, Maximum number of checks = 5, Service Charee Excess Number of Checks = $5
accountsList.push_back(new ServiceChargeChecking("Ravi", 30100, 1800));

   //HighIntererestChecking(Name, Account Number, Balance) - Assume an inerest rate = 0.05, Minimum balance = $5000
accountsList.push_back(new HighInterestChecking("Sheila", 20200, 6000));

   //Certificate(name, Account Number, Balance, Interest Rate, Number of Months) - Assume an initial interest rate = 0.05, Initial Number of Maturity Months = 6
accountsList.push_back(new CertificateOfDeposit("Hamid", 51001, 18000,
0.075, 18));

cout << "January:\n-------------" << endl;
for (int i = 0; i < accountsList.size(); i++)
{
accountsList[i]->createMonthlyStatement();
accountsList[i]->print();
cout << endl;
}

cout << "\nFebruary:\n-------------" << endl;
for (int i = 0; i < accountsList.size(); i++)
{
accountsList[i]->createMonthlyStatement();
accountsList[i]->print();
cout << endl;
}

for (int i = 0; i < accountsList.size(); i++)
{
accountsList[i]->withdraw(500);
}

cout << "\nMarch:\n-------------" << endl;
for (int i = 0; i < accountsList.size(); i++)
{
accountsList[i]->createMonthlyStatement();
accountsList[i]->print();
cout << endl;
}
System("pause");
return 0;
}

bankAccount.h

#ifndef BANKACCOUNT_H
#define BANKACCOUNT_H

#include

using namespace std;

class bankAccount {
public:
bankAccount(string name, double initialBalance);
string getName();
unsigned int getAccountNumber();
double getBalance();
double getInterestRate();
string getStatementString();
void deposit(double amount);
void deposit(double amount, string statement);
void withdraw(double amount);
void withdraw(double amount, string statement);
virtual void printStatement() = 0;
protected:
void addStatementLine(string statement, double amount);
private:
string name;
unsigned int accountNumber;
double balance;
static unsigned int nextAccountNumber;
string statementString;
};

#endif /* BANKACCOUNT_H */

//bankAccount.cpp

#include "bankAccount.h"
#include
#include
#include

using namespace std;

unsigned int BankAccount::nextAccountNumber = 1;

BankAccount::BankAccount(string name, double initialBalance)
{
stringstream output;

this->name = name;
balance = initialBalance;
accountNumber = nextAccountNumber++;
output << setw(60) << left << "Transaction" << setw(10) << "Amount" << " " << "Balance" << endl;
statementString = output.str();
addStatementLine("Initial Deposit", initialBalance);
}

string BankAccount::getName()
{
return name;
}

unsigned int BankAccount::getAccountNumber()
{
return accountNumber;
}

double BankAccount::getBalance()
{
return balance;
}

void BankAccount::addStatementLine(string statement, double amount)
{
stringstream output;
  
output << setw(60) << left << statement << setw(10) << amount << " " << getBalance() << endl;
//.append(statement);
statementString.append(output.str());
}

void BankAccount::deposit(double amount)
{
deposit(amount, "Deposit");
}

void BankAccount::deposit(double amount, string statement)
{
balance += amount;
addStatementLine(statement, amount);
}

void BankAccount::withdraw(double amount)
{
withdraw(amount, "Withdrawal");
}

void BankAccount::withdraw(double amount, string statement)
{
if (balance >= amount)
{
balance -= amount;
addStatementLine(statement, amount);
}
else
{
addStatementLine(statement.append(" Overdraft"), amount);
}
}

string BankAccount::getStatementString()
{
return statementString;
}

//CertificateOfDeposit.h

#ifndef CERTIFICATEOFDEPOSIT_H
#define CERTIFICATEOFDEPOSIT_H

#include "bankAccount.h"
#include

using namespace std;

class CertificateOfDeposit : public bankAccount{
public:
CertificateOfDeposit(string name, double initialBalance, int maturityMonths);
CertificateOfDeposit(string name, double initialBalance);
int getMaturityMonths();
double getInterestRate();
int getCurrentCDMonth();
int getWithdrawalPenaltyMonths();
void withdraw();
void incrementMonth();
void printStatement();
private:
int maturityMonths;
double interestRate;
int currentCDMonth;
int withdrawalPenaltyMonths;
void withdraw(double amount);
void withdraw(double amount, string statement);
void deposit(double amount);
};

#endif /* CERTIFICATEOFDEPOSIT_H */

//CertificateOfDeposit.cpp

#include "CertificateOfDeposit.h"

CertificateOfDeposit::CertificateOfDeposit(string name, double initialBalance, int maturityMonths) : bankAccount(name, initialBalance)
{
this->maturityMonths = maturityMonths;
interestRate = 0.05;
currentCDMonth = 0;
withdrawalPenaltyMonths = 3;
}

CertificateOfDeposit::CertificateOfDeposit(string name, double initialBalance) : bankAccount(name, initialBalance)
{
maturityMonths = 6;
interestRate = 0.05;
currentCDMonth = 0;
withdrawalPenaltyMonths = 3;
}

int CertificateOfDeposit::getCurrentCDMonth()
{
return currentCDMonth;
}

double CertificateOfDeposit::getInterestRate()
{
return interestRate;
}

int CertificateOfDeposit::getWithdrawalPenaltyMonths()
{
return withdrawalPenaltyMonths;
}

int CertificateOfDeposit::getMaturityMonths()
{
return maturityMonths;
}

void CertificateOfDeposit::withdraw()
{
if (getCurrentCDMonth() < getMaturityMonths())
bankAccount::withdraw(getBalance()*getInterestRate()*getWithdrawalPenaltyMonths(), "Early Withdrawal Penalty");
bankAccount::withdraw(getBalance(), "Close Account");
}

void CertificateOfDeposit::incrementMonth()
{
bankAccount::deposit(getBalance()*getInterestRate(), "Monthly Interest");
if (getCurrentCDMonth() < getMaturityMonths())
{
currentCDMonth++;
}
else
withdraw();
}

void CertificateOfDeposit::printStatement()
{
cout << "Certificate of Deposit Statement" << endl;
cout << "Name: " << getName() << endl;
cout << "Account Number: " << getAccountNumber() << endl;
cout << "Interest Rate: " << getInterestRate() * 100 << "%" << endl;
cout << "Maturity Month: " << getMaturityMonths() << ", Current Month: " << getCurrentCDMonth() << endl;
cout << "Early Withdrawal Penalty: " << getWithdrawalPenaltyMonths() << " (months)" << endl << endl;
cout << getStatementString() << endl;
cout << "Final Balance: " << getBalance() << endl << endl;
}

//HighInterestChecking.h

#ifndef HIGHINTERESTCHECKING_H
#define HIGHINTERESTCHECKING_H

#include "NoServiceChargeChecking.h"

#include

using namespace std;

class HighInterestChecking : public NoServiceChargeChecking {
public:
HighInterestChecking(string name, double initialBalance);
void printStatement();
private:
};

#endif /* HIGHINTERESTCHECKING_H */

//HighInterestChecking.cpp

#include "HighInterestChecking.h"

HighInterestChecking::HighInterestChecking(string name, double initialBalance) : NoServiceChargeChecking(name, initialBalance, 5000, 0.05)
{

}

void HighInterestChecking::printStatement()
{
bankAccount::deposit(getBalance() * getInterestRate(), "Interest");
cout << "High Interest Checking Statement" << endl;
cout << "Name: " << getName() << endl;
cout << "Account Number: " << getAccountNumber() << endl;
cout << "Interest Rate: " << getInterestRate() * 100 << "%" << endl;
cout << "Minimum Balance: " << getMinimumBalance() << endl << endl;
cout << getStatementString() << endl;
cout << "Final Balance: " << getBalance() << endl << endl;
}

//HighInterestSavings.h

#ifndef HIGHINTERESTSAVINGS_H
#define HIGHINTERESTSAVINGS_H

#include "SavingsAccount.h"
#include

using namespace std;

class HighInterestSavings : public SavingsAccount{
public:
HighInterestSavings(string name, double initialBalance);
int getMinimumBalance();
void printStatement();
void withdraw(double amount, string statement);
void withdraw(double amount);
private:
int minimumBalance;
};

#endif /* HIGHINTERESTSAVINGS_H */

//HighInterestSavings.cpp

#include "HighInterestSavings.h"

HighInterestSavings::HighInterestSavings(string name, double initialBalance) : SavingsAccount(name, initialBalance, 0.05)
{
minimumBalance = 2500;
}

int HighInterestSavings::getMinimumBalance()
{
return minimumBalance;
}

void HighInterestSavings::withdraw(double amount, string statement)
{
if (amount + getMinimumBalance() <= getBalance())
{
bankAccount::withdraw(amount, statement);
}
else
{
addStatementLine(statement.append(" Overdraft. Below Minimum Balance."), amount);
}
}

void HighInterestSavings::withdraw(double amount)
{
withdraw(amount, "Withdrawal");
}

void HighInterestSavings::printStatement()
{
bankAccount::deposit(getBalance() * getInterestRate(), "Interest");
cout << "High Interest Savings Account Statement" << endl;
cout << "Name: " << getName() << endl;
cout << "Account Number: " << getAccountNumber() << endl;
cout << "Minimum Balance: " << getMinimumBalance() << endl;
cout << "Interest Rate: " << getInterestRate() * 100 << "%" << endl << endl;
cout << getStatementString() << endl;
cout << "Final Balance: " << getBalance() << endl << endl;
}

//NoServiceChargeChecking.h

#ifndef NOSERVICECHARGECHECKING_H
#define NOSERVICECHARGECHECKING_H

#include "checkingAccount.h"

#include

using namespace std;

class NoServiceChargeChecking : public CheckingAccount {
public:
NoServiceChargeChecking(string name, double initialBalance);
void writeCheck(double amount, int checkNumber);
void printStatement();
void withdraw(double amount, string statement);
void withdraw(double amount);
double getInterestRate();
int getMinimumBalance();
protected:
NoServiceChargeChecking(string name, double initialBalance, int minBalance, double interestRate);
private:
double interestRate;
int minimumBalance;
};

#endif /* NOSERVICECHARGECHECKING_H */

//NoServiceChargeChecking.cpp

#include "NoServiceChargeChecking.h"
#include
#include

NoServiceChargeChecking::NoServiceChargeChecking(string name, double initialBalance) : checkingAccount(name, initialBalance)
{
minimumBalance = 1000;
this->interestRate = 0.02;
}

NoServiceChargeChecking::NoServiceChargeChecking(string name, double initialBalance, int minBalance, double interestRate) : checkingAccount(name, initialBalance)
{
minimumBalance = minBalance;
this->interestRate = interestRate;
}

void NoServiceChargeChecking::writeCheck(double amount, int checkNumber)
{
stringstream output;
output << "Check #" << checkNumber;
withdraw(amount, output.str());
}

void NoServiceChargeChecking::withdraw(double amount, string statement)
{
if (amount + getMinimumBalance() <= getBalance())
{
bankAccount::withdraw(amount, statement);
}
else
{
addStatementLine(statement.append(" Overdraft. Below Minimum Balance."), amount);
}
}

void NoServiceChargeChecking::withdraw(double amount)
{
withdraw(amount, "Withdrawal");
}

void NoServiceChargeChecking::printStatement()
{
bankAccount::deposit(getBalance() * getInterestRate(), "Interest");
cout << "No Service Charge Checking Statement" << endl;
cout << "Name: " << getName() << endl;
cout << "Account Number: " << getAccountNumber() << endl;
cout << "Interest Rate: " << getInterestRate() * 100 << "%" << endl;
cout << "Minimum Balance: " << getMinimumBalance() << endl << endl;
cout << getStatementString() << endl;
cout << "Final Balance: " << getBalance() << endl << endl;
}

int NoServiceChargeChecking::getMinimumBalance()
{
return minimumBalance;
}

double NoServiceChargeChecking::getInterestRate()
{
return interestRate;
}

//checkingAccount.h

#ifndef CHECKINGACCOUNT_H
#define CHECKINGACCOUNT_H

#include "bankAccount.h"

class CheckingAccount : public bankAccount {
public:
CheckingAccount(string name, double initialBalance);
virtual void writeCheck(double amount, int checkNumber) = 0;
private:

};

#endif /* CHECKINGACCOUNT_H */

//checkingAccount.cpp

#include "checkingAccount.h"

CheckingAccount::CheckingAccount(string name, double initialBalance) : bankAccount(name, initialBalance)
{

}

//SavingsAccount.h

#ifndef SAVINGSACCOUNT_H
#define SAVINGSACCOUNT_H

#include "bankAccount.h"
#include
#include

using namespace std;

class SavingsAccount : public bankAccount
{
public:
SavingsAccount(string name, double initialBalance);
double getInterestRate();
void printStatement();
protected:
SavingsAccount(string name, double initialBalance, double interestRate);
private:
double interestRate;
};

#endif /* SAVINGSACCOUNT_H */

//SavingsAccount.cpp

#include "SavingsAccount.h"

SavingsAccount::SavingsAccount(string name, double initialBalance) : bankAccount(name, initialBalance)
{
interestRate = 0.03;
}

SavingsAccount::SavingsAccount(string name, double initialBalance, double interestRate) : bankAccount(name, initialBalance)
{
this->interestRate = interestRate;
}

double SavingsAccount::getInterestRate()
{
return interestRate;
}

void SavingsAccount::printStatement()
{
bankAccount::deposit(getBalance() * getInterestRate(), "Interest");
cout << "Savings Account Statement" << endl;
cout << "Name: " << getName() << endl;
cout << "Account Number: " << getAccountNumber() << endl;
cout << "Interest Rate: " << getInterestRate() * 100 << "%" << endl << endl;
cout << getStatementString() << endl;
cout << "Final Balance: " << getBalance() << endl << endl;
}

//ServiceChargeChecking.h

#ifndef SERVICECHARGECHECKING_H
#define SERVICECHARGECHECKING_H

#include "checkingAccount.h"
#include

using namespace std;

class ServiceChargeChecking : public CheckingAccount {
public:
ServiceChargeChecking(string name, double initialBalance);
void writeCheck(double amount, int checkNumber);
void printStatement();
private:
int checksWritten;
static const int CHECK_LIMIT = 5;
static const int SERVICE_CHARGE = 10;
};

#endif /* SERVICECHARGECHECKING_H */

//ServiceChargeChecking.cpp

#include "ServiceChargeChecking.h"
#include
#include

using namespace std;

ServiceChargeChecking::ServiceChargeChecking(string name, double initialBalance) : CheckingAccount(name, initialBalance)
{
bankAccount::withdraw(SERVICE_CHARGE, "Service Charge");
checksWritten = 0;
}

void ServiceChargeChecking::writeCheck(double amount, int checkNumber)
{
stringstream output;
if (++checksWritten <= CHECK_LIMIT)
{
output << "Check #" << checkNumber;
bankAccount::withdraw(amount, output.str());

}
else
{
output << "Maximum Limit of Checks Reached. Check # " << checkNumber << " bounced";
addStatementLine(output.str(), amount);
}
}

void ServiceChargeChecking::printStatement()
{
cout << "Service Charge Checking Statement" << endl;
cout << "Name: " << getName() << endl;
cout << "Account Number: " << getAccountNumber() << endl << endl;
cout << getStatementString() << endl;
cout << "Final Balance: " << getBalance() << endl << endl;
}

Receiving Error in SavingsAccount.h

17   5   C:\Users\adam.brunell\Documents\Classes\C++\Week4\SavingsAccount.h   [Error] 'SavingsAccount::SavingsAccount(std::string, double, double)' is protected

A Positive Revolution in Change: Appreciative Inquiry
David L. Cooperrider Case Western Reserve University and Diana Whitney The Taos Institute

After reading the journal article assigned for the week, write and post a 1-pg review (350 words) include a link that was of interest

Appreciative Inquiry (AI) begins an adventure. The urge and call to adventure has been sounded by many people and many organizations, and it will take many more to fully explore the vast vistas that are now appearing on the horizon. But even in the first steps, what is being sensed is an exciting direction in our language and theories of change—an invitation, as some have declared, to “a positive revolution”.
The words just quoted are strong and, unfortunately, they are not ours. But the more we replay, for example, the high-wire moments of our several years of work at GTE, the more we find ourselves asking the very same kinds of questions the people of GTE asked their senior executives: “Are you really ready for the momentum that is being generated? This is igniting a grassroots movement…it is creating an organization in full voice, a center stage for the positive revolutionaries!”
Tom White, President of what was then called GTE Telops (making up 80% of GTE’s 67,000 employees) replies back, with no hesitation: “Yes, and what I see in this meeting are zealots, people with a mission and passion for creating the new GTE. Count me in, I’m your number one recruit, number one zealot”. People cheer.
Enthusiasms continue, and they echo over subsequent months as lots of hard work pays off. Fourteen months later --based on significant and measurable changes in stock prices, morale survey measures, quality/customer relations, union-management relations, etc.-- GTE’s whole system change initiative is given professional recognition by the American Society for Training and Development. It wins the 1997 ASTD award for best organization change program in the country. Appreciative inquiry is cited as the “backbone”.
How Did They Do It?
This paper provides a broad update and overview of AI. The GTE story mentioned at the outset is, in many ways, just beginning but it is scarcely alone. In the ten years since the
1with its emphasis on metaphor and narrative, relational ways of knowing, on language, and on its potential as a source of generative theory (Gergen, 1994); as the most important advance in action research in the past decade (Bushe, 1995); as offspring and “heir” to Maslow’s vision of a positive social science (Chin, 1998; Curran, 1991); as a powerful second generation OD practice (French and Bell, 1995; Porras, 1991; Mirvis, 1988/89); as model of a much needed participatory science, a “new yoga of inquiry” (Harman, 1990); as a radically affirmative approach to change which completely lets go of problem-based management and in so doing vitally transforms strategic planning, survey methods, culture change, merger integration methods, approaches to TQM, measurement systems, sociotechnical systems, etc. (White, 1996); and lastly, as OD’s philosopher’s stone (Head & Sorenson, et. al 1996). Indeed it is difficult to sum up the whole of AI—as a philosophy of knowing, a normative stance, a methodology for managing change, and as an approach to leadership and human development. However, for purposes here, it might be most useful to begin with a practice-oriented definition of AI, one that is more descriptive than theoretical and one that provides a compass for the examples to follow:
Appreciative Inquiry is about the co-evolutionary search for the best in people, their organizations, and the relevant world around them. In its broadest focus, it involves systematic discovery of what gives “life” to a living system when it is most alive, most effective, and most constructively capable in economic, ecological, and human terms. AI involves, in a central way, the art and practice of asking questions that strengthen a system’s capacity to apprehend, anticipate, and heighten positive potential. It centrally involves the mobilization of inquiry through the crafting of the “unconditional positive question” often-involving hundreds or sometimes thousands of people. In AI, the arduous task of intervention gives way to the speed of imagination and innovation; instead of negation, criticism, and spiraling diagnosis, there is discovery, dream, and design. AI seeks, fundamentally, to build a constructive union between a whole people and the massive entirety of what people talk about as past and present capacities: achievements, assets, unexplored potentials, innovations, strengths, elevated thoughts, opportunities, benchmarks, high point moments, lived values, traditions, strategic competencies, stories, expressions of wisdom, insights into the deeper corporate spirit or soul, and visions of valued and possible futures. Taking all of these together as a gestalt, AI deliberately, in everything it does, seeks to work from accounts of this “positive change core”—and it assumes that every living system has many untapped and rich and inspiring accounts of the positive. Link the energy of this core directly to any change agenda and changes never thought possible are suddenly and democratically mobilized.
The positive core of organizational life, we submit, is one of the greatest and largely unrecognized resources in the field of change management today. As said earlier, we are clearly in our infancy when it comes to tools for working with it, talking about it, and designing our systems in synergistic alignment with it. But one thing is evident and clear as we reflect on the most important things we have learned with AI: human systems grow in the direction of what they persistently ask questions about and this propensity is strongest and most sustainable when the means and ends of inquiry are positively
3correlated. The single most prolific thing a group can do if its aims are to liberate the human spirit and consciously construct a better future is to make the positive change core the common and explicit property of all.
Let’s Illustrate:
The Appreciative Inquiry “4-D” Cycle
(insert 4-D cycle here—see page 28)
You have just received the following unsettling phone call:
My name is Rita Simmel; I am President of a New York consulting partnership. Our firm specializes in dealing with difficult conflict in organizations: labor-management issues, gender conflict, issues of diversity. We have been retained by a fortune 500 corporation for the past several years. The contract is around sexual harassment, an issue that is deeper and more severe than virtually any corporation realizes. The issues are about power, the glass ceiling, and many things. As you know, millions of dollars are being expended on the issues. Our firm has specialized in this area for some years and now I’m beginning to ask myself the Hippocratic oath. Are we really helping? Here is the bottom line with our client. We have been working on the issues for two years, and by every measure-- numbers of complaints, lawsuits, evaluations from sexual harassment training programs, word of mouth—the problem continues in its growth. Furthermore people are now voting with their feet. They are not coming to the workshops. Those that do seem to leave with doubts: our post-workshop interviews show people feel less able to communicate with those of the opposite gender, they report feeling more distance and less trust, and the glass ceiling remains. So here is my question. How would you take an appreciative inquiry approach to sexual harassment?
This was a tough one. We requested time to think about it, asking if we could talk again in a day or two. We can do the same for you right now (give you a bit of time) as we invite you to think about things you might seriously propose in the callback.
So before going further with the story lets pause and look at a typical flow for AI, a cycle that can be as rapid and informal as in a conversation with a friend or colleague, or as formal as an organization-wide analysis involving every stakeholder, including customers, suppliers, partners, and the like.
4Figure one shows (page 28), on the outside, four key stages in AI: Discovery—mobilizing a whole system inquiry into the positive change core; Dream—creating a clear results-oriented vision in relation to discovered potential and in relation to questions of higher purpose, i.e., “What is the world calling us to become?” Design—creating possibility propositions of the ideal organization, an organization design which people feel is capable of magnifying or eclipsing the positive core and realizing the articulated new dream; and Destiny—strengthening the affirmative capability of the whole system enabling it to build hope and momentum around a deep purpose and creating processes for learning, adjustment, and improvisation, like a jazz group over time (see the excellent article by Barrett, 1998).
At the core of the cycle, is Affirmative Topic Choice. It is the most important part of any AI. If, in fact, knowledge and organizational destiny are as intricately interwoven as we think, then isn’t it possible that the seeds of change are implicit in the very first questions we ask? AI theory says yes and takes the idea quite seriously: it says that the way we know people, groups, and organizations is fateful. It further asserts the time is overdue to recognize that symbols and conversations, emerging from all our analytic modes, are among the world’s paramount resources.
Topic Choice
So back to our phone call. If inquiry and change are a simultaneous moment; if the questions we ask set the stage for what we “find”; and if what we “discover” (the data) creates the material out of which the future is conceived, conversed about, and constructed—then how shall we proceed with an appreciative approach to sexual harassment? Here is an excerpt from the response:
D.C.: Hello Rita. Before we get into our proposal we have an important question. What is it that you want to learn about and achieve with this whole intervention, and by when?
Rita: We want to dramatically cut the incidence of sexual harassment. We want to solve this huge problem, or at least make a significant dent in it.
D.C.: O.K. Rita… But is that all?
Rita: You mean what do I really want to see? (Long pauses…then she blurts out). What we really want to see is the development of the new century organization—a model of high quality cross-gender relationships in the workplace!
DC: Great topic. What would happen if we put an invitation out in the company newsletter, asking people in pairs to step forward to nominate themselves as candidates to study and share their stories of what it means to create and sustain high quality cross-gender relationships in the workplace? It might be interesting to do a large conference, and really put a magnifying lens to the stages of development, contextual factors, toughquestions of adult attraction, breakthroughs in terms of power relations, and so on. What do you think?
To move fastforward, a relatively small pilot project was created which surpassed everyone’s expectations. Hundreds, not dozens, of pairs nominated themselves. That was surprise number one. Then other organizations got word of the pilot and a truly major effort, moving through the 4-D framework, was conceptualized by another consulting firm, Marge Schiller and Associates. The pioneering organization she worked with, which now can happily be named, was the Avon Corporation in Mexico. Again there were similar issues—including the glass ceiling at senior management levels—but again there was interest in framing the whole thing in terms of an inquiry.
To begin, a hundred people were trained in the basics of AI interviewing. They in turn went out into every part of the organization and over the next several weeks completed many more interviews, about 300 in all. At the end of each interview, the interviewers asked the person interviewed if they too could help do some interviewing. A waterfall was experienced. Stories poured in—stories of achievement, trust building, authentic joint leadership, practices of effective conflict management, ways of dealing with sex stereotypes, stages of development and methods of career advancement.
The second two “Ds”-- articulating the new century dream and creating designs for an organization that maximally supported the development of high quality cross-gender relationships-- came next. These were combined in a large group format much like a future search. Using stories from the interviews as a basis for imagining the future, expansive and practical propositions were created, for example, “Every task force or committee at Avon, whenever possible, is co-chaired by a cross-gender pairing”. The significance of even this simple proposal proved to be big. Likewise, propositions in other areas of organization design were also carefully crafted. Soon, literally everything in the organization was opened to discussion: corporate structures, systems, work processes, communications, career opportunities, governance, compensation practices, leadership patterns, learning opportunities, customer connections, and more.
In the end, some 30 visionary propositions were created. Subsequent changes in system structures and behaviors were reported to be dramatic (Schiller, 1998). As it turns out, the story, like GTE’s, gets even better. Avon Mexico was just recently singled out, several years later, by the Catalyst organization. They were given the 1997 Catalyst Award for best place in the country for women to work.
It is a classic example of the power of topic choice. Affirmative topics, always homegrown, can be on anything the people of an organization feel gives life to the system. As a rule of thumb most projects have between 3-5 topics. Words like empowerment, innovation, sense of ownership, commitment, integrity, ecological consciousness, and pride are often articulated as worthy of study. Topics can be on anything an organization feels to be strategically and humanly important. AI topics can be on technical processes, financial efficiencies, human issues, market opportunities, social responsibilities, or anything else. In each case of topic choice, the same premise isfirmly posited: human systems grow in the direction of their deepest and most frequent inquiries.
The Phase of Discovery
The inquiry we are talking about is anything but wishful. If we were to underline one of the two words-- appreciative or inquiry—our pen would immediately move to the latter. In Vital Speeches of the Day (1996), Tom White, President of what was then called GTE Telephone Operations, puts his interpretation of AI in executive language, months before GTE’s change effort was recognized by ASTD:
Appreciative Inquiry can get you much better results than seeking out and solving problems. That’s an interesting concept for me—and I imagine most of you—because telephone companies are among the best problem solvers in the world. We troubleshoot everything. We concentrate enormous resources on correcting problems that have relatively minor impact on our overall service and performance (and which)…when used continually and over a long period of time, this approach can lead to a negative culture. If you combine a negative culture with all the challenges we face today, it could be easy to convince ourselves that we have too many problem to overcome—to slip into a paralyzing sense of hopelessness….Don’t get me wrong. I’m not advocating mindless happy talk. Appreciative Inquiry is a complex science designed to make things better. We can’t ignore problems—we just need to approach them from the other side”.
What Tom White calls “the other side”, we are describing as the positive change core. AI, most simply, is a tool for connecting to the transformational power of this core. Willis Harman (1990) talks about AI as a participatory science, a yoga of inquiry, where the term yoga comes from the Sanskrit root yug which means link or bond. In that sense if we remember something or someone, it can be said that there is a form of yoga happening. AI helps make the memory link by concentrating systematic inquiry into all aspects of the appreciable world, into an organization’s infinite and surplus capacity—past, present and future. By concentrating on the atom, human beings have unleashed its power. AI says we can do the same in every living system once we open this ever emergent positive core—every strength, innovation, achievement, resource, living value, imaginative story, benchmark, hope, positive tradition, passion, high point experience, internal genius, dream-- to systematic inquiry.
The core task of the discovery phase is to discover and disclose positive capacity, at least until an organization’s understanding of this “surplus” is exhausted (which has never happened once in our experience). AI provides a practical way to ignite this “spirit of inquiry” on an organization-wide basis. Consider this example:
At Leadshare in Canada, AI was used to help this big eight accounting firm make the tough transition in the executive succession of a “legendary” managing partner. The managing partner seized the moment as an incredible leadership development opportunity for all 400 partners. Everyone was interviewed with AI. An extensive interview protocol was designed (it ended up taking about 2 hours per interview)focusing on affirmative topics like innovation, equality, partnership, speed to market, and valuing diversity (in Canada between francophone and anglophone). And not one outside consultant did the interviews. All were done internally, by 30 junior partners as part of a leadership development program. A powerful and instant intergenerational connection was made, and organizational history came alive in face-to-face stories. Instead of amnesia, or a problem-to-be-solved, people began to relate to their history in a whole new way. Like a good piece of poetry filled with endless interpretive meaning, people at Leadshare ascended into their history as a reservoir of positive possibility. At the next annual partners meeting, with over 400 people in the conference hall, the material was showcased and coupled to the future, as the strategic planning became one of the “best” the partners could ever remember (Rainey, 1996)
Perhaps it is obvious, but the process of doing the interviews is as important as the data collected. When managers ask us how many people should be interviewed or, who should do the interviews, we increasingly find ourselves saying “everyone”. It is not uncommon in AI work to talk about doing thousands of interviews. A hospital in Seattle recently did three thousand interviews in preparation for an organization-wide Appreciative Inquiry Summit (Whitney and Cooperrider, 1998). People themselves, not consultants, generate the system-wide organization analysis using questions like this: “ Obviously you have had ups and downs in your career here at XYZ. But for the moment I would like you to focus on a high point, a time in your work experience here where you felt most alive, most engaged, or most successful. Can you tell me the story? How did it unfold? What was it organizationally that made it stand out? What was it about you that made it a high point? What key insights do you have for all of us at XYZ?”
In Chicago, in one of the most exciting AI’s we have seen, there is talk of over a million interviews. And guess whose interviews have produced the best data—the most inspiring, vision-generating stories? It is the children. It is happening through inter-generational inquiry where the elders are valued and share hopes in settings with the young. One of our favorite papers is about the Imagine Chicago story and the leadership of Bliss Browne. It is titled “The Child as the Agent of Inquiry” (Cooperrider, 1996). It argues that the spirit of inquiry is something all of us in change work need to reclaim and aspire to: openness, availability, epistemological humility, the ability to admire, to be surprised, to be inspired, to inquire into our valued and possible worlds.
What distinguishes AI, especially in this phase of work, is that every carefully crafted question is positive. Knowing and changing are a simultaneous moment. The thrill of discovery becomes the thrill of creating. As people throughout a system connect in serious study into qualities, examples, and analysis of the positive core --each appreciating and everyone being appreciated-- hope grows and community expands.
From Discovery to Dream
When an artist sits in front of a landscape the imagination is kindled not by searching for “what is wrong with this landscape”, but by a special ability to be inspired by those things of value worth valuing. Appreciation, it appears, draws our eye toward life, but stirs our feelings, sets in motion our curiosity, and provides inspiration to the envisioning
8mind. In his analysis of esthetics and the origins of creative images, Nietzsche once asked of the power of appreciation: “ Does it not praise? Does it not glorify? Does it not select? Does it not bring {that which is appreciated} to prominence?” (In Rader, 1973, p. 12). Then in the same passage he takes a next step, linking valuing (discovery) and imagination (dream). He elaborates: “ valuing is creating: hear it, ye creating ones! Valuation is itself the treasure and jewel of valued things”.
During the dream phase, the interview stories and insights get put to constructive use. As people are brought together to listen carefully to the innovations and moments of organizational “life”, sometimes in storytelling modes, sometimes in interpretive and analytic modes, a convergence zone is created where the future begins to be discerned in the form of visible patterns interwoven into the texture of the actual. The amplified interaction among innovators and innovations makes something important happen: very rapidly we start seeing outlines of the New World. Some organizations turn the data into a special commemorative report celebrating the successes and exceptional moment in the life of the organization (Liebler, 1997). Others have created a thematic analysis—careful to document rich stories and not succumb to “narrative thin” one line quotes (Ludema, 1996). In all cases the data onto the positive change core serves as an essential resource for the visioning stages of the appreciative inquiry 4-D model.
Before their strategic planning session in 1997, Nutrimental Foods of Brazil closed down the plant for a full day to bring all 700 employees together for a day of Discovery into the factors and forces that have given life to the system when it had been most effective, most alive, and most successful as a producer of high quality health foods. With cheers and good wishes a “smaller” group of 150 stakeholders—employees from all levels, suppliers, distributors, community leaders, financiers, and customers—then went into a four day strategy session to articulate a new and bold corporate dream. The stories from the day before were used just as an artist uses a palette of colors—before painting a picture the artist assembles the red paints, blue, green, yellow and so on. With these “materials” in hand people were asked to dream: “What is the world calling us to become? What are those things about us that no matter how much we change, we want to continue into our new and different future? Lets assume that tonight while we were all asleep a miracle occurred where Nutrimental became exactly as we would like it to be—all of its best qualities are magnified, extended, multiplied the way we would like to see…in fact we wake up and it is now 2005…as you come into Nutrimental today what do you see that is different, and how do you know?”After four days of appreciative analysis, planning, and articulation of three new strategic business directions, the organization launches into the future with focus, solidarity, and confidence. Six months later, record bottom line figures of millions of dollars are recorded—profits are up 300%. The co-CEOs Rodrigo Loures and Arthur Lemme Netto attribute the dramatic results to two things: bringing the whole system into the planning process, and realizing that organizations are in fact “centers of human relatedness”(Loures and Lemme Netto, 1998) which thrive when there is an appreciative eye—when people see the best in one another, when they can dialogue their dreams and ultimate concerns in affirming ways, and when they are connected in full voice to create not just new worlds but better worlds.
9Design
Once the strategic focus or dream is articulated (usually consisting of three things in our model-- a vision of a better world, a powerful purpose, and a compelling statement of strategic intent) attention turns to the creation of the ideal organization, the social architecture or actual design of the system in relation to the world of which it is part. What we have found is that the sequencing is crucial, moving first through in-depth work on Dream before Design, followed with back and forth iterations. In Zimbabwe we recently worked with a partner organization of Save the Children. It was fascinating to observe how easy it was to re-design the organization in terms of structures and systems once broad agreement was reached on a powerful Dream. The articulation of the image of the future was simple: “Every person in Zimbabwe shall have access to clean water within five years”. The critical design shift, demanded by the large dream, was to a new form of organization based on a network of alliances or partnerships, not bureaucracy’s self-sufficient hierarchy.
One aspect that differentiates Appreciative Inquiry from other visioning or planning methodologies is that images of the future emerge out of grounded examples from an organization’s positive past. Sometimes this “data” is complimented with benchmark studies of other organizations creating a “generative metaphor” for circumventing common resistances to change (Barrett and Cooperrider, 1990). In both cases, the good news stories are used to craft possibility propositions that bridge the best of “what is” with collective speculation or aspiration of “what might be”. In the working of the material people are invited to challenge the status quo as well as common assumptions underlying the design of the organization. People are encouraged to “wander beyond” the data with the essential question being: “What would our organization look like if it were designed in every way possible to maximize the qualities of the positive core and enable the accelerated realization of our dreams?”
When inspired by a great dream we have yet to find an organization that did not feel compelled to design something very new and very necessary. Here is an example of a possibility proposition, one of about twenty organization design visions that were created at DIA Corporation, a rapidly growing distributor of consumer products. Today this proposition is modus operandi at the corporation:
DIA has become a learning organization that fosters the cross fertilization of ideas, minimizes the building of empires, harnesses the synergy of group cooperation, and cultivates the pride of being a valued member of one outstanding corporation. DIA accelerates its learning through an annual strategic planning conference that involves all five hundred people in the firm as well as key partners and stakeholders. As a setting for “strategic learning”, teams present their benchmarking studies of the best five other organizations, deemed leaders in their class. Other teams present an annual appreciative analysis of DIA, and together these data-bases of success stories (internal and external) help set the stage for DIA’s strategic, future search planning.
Recently we have had the opportunity to team up with Dee Hock, one of the greatest visionary CEOs we have ever worked with. Dee was the founder of VISA, abreakthrough organization that has over 20,000 offices, and since 1970 has grown something like 10,000%; this year annual sales expected to pass $1 trillion. The whole Visa system, from Calcutta to Chicago, in over 200 countries is completely unmanageable from the perspective of using centralized, command-and-control design principles.
If General Motors once defined the shape of the old model, perhaps Dee’s “chaordic organization” –combining chaos and order in ways which interweave (like nature’s designs) infinite variety and self-organizing order—is a foreshadowing of an emerging prototype. What we have learned by working with Dee is how to move pragmatically and substantively from appreciative Discovery and Dream to truly post-bureaucratic Design that distributes power and liberates human energy in a way we have never seen. Most recently we have collaborated on a re-constitution of the United Way of America as well as an initiative to design something akin to a United Nations among the world’s great religions and spiritual traditions (it is called United Religions). In each case helping people agree on a set of design principles is crucial. That is “principles” as in “We hold these truths to be self evident: that all people are created equal…” Again, this is not a set of platitudes but a manifesto, what people believe in and care about in their gut.
Destiny
Of all the creatures of earth, said William James in 1902, only human beings can change their pattern. “Man alone is the architect of his destiny”.
In our early years of AI work we called the 4th “D” Delivery. We emphasized planning for continuous learning, adjustment, and improvisation in the service of shared ideals. It was a time for action planning, developing implementation strategies, and dealing with conventional challenges of sustainability. But the word delivery simply did not go far enough. It did not convey the sense of liberation we were seeing, like the well documented hotel case, where the system tranformed itself from a one-star to four-star hotel by using AI and literally putting a moratorium on all the traditional problem solving efforts that it had going (Barret and Cooperrider, 1990).
Executives like Jane Watkins (former Chair of the Board at NTL) and Jane Pratt (executive at the World Bank and now CEO of the Mountain Institute) argued that AI engenders a repatterning of our relationships not only with each other but also our relationship to reality itself. Reminiscent of Paulo Friere’s concept of pedagogy of the oppressed—where people move in their relationship to reality from “submergence” to “reflexive awareness” to “co-participation”—these leaders insisted that AI’s gift is at the paradigmatic level. AI is not so much about new knowledge but new knowing. Indeed people frequently talk, as they move through the pedagogy of life-giving Discovery, Dream, and Design, that something suddenly hits home: that interpretation matters—that the manner in which they/we read the world filters to the level of our imaginations, our relationships, and ultimately to the direction and meaning of our action. We create the organizational worlds in which we live.

What we discovered quite honestly was that momentum for change and long-term sustainability increased the more we abandoned “delivery” ideas of action planning, monitoring progress, and building implementation strategies. What was done instead, in several of the most exciting cases, was to focus only on giving AI away, to everyone, and then stepping back. The GTE story, still unfolding but already attracting national recognition, is suggestive. It is a story that says organizational change needs to look a lot more like an inspired movement than a neatly packaged or engineered product. Dan Young, the head of OD at GTE, and his colleagues Maureen Garrison and Jean Moore, call it “organizing for change from the grassroots to the frontline”. Call it the path of positive protest, or a strategy for positive subversion—whatever it is called it is virtually unstoppable once “it” is up and running. Its structure is called the Positive Change Network (PCN). One especially dramatic moment gives the sense:
The headline article in GTE Together described what was spreading as a grassroots movement to build the new GTE. Initiated as a pilot training to see what would happen if the tools and theories of appreciative inquiry were made available to frontline employees, things started taking off. All of a sudden, without any permission, frontline employees are launching interview studies into positive topics like innovation, inspired leadership, revolutionary customer responsiveness, labor-management partnerships, and “fun”. Fresh out of a training session on AI, one employee, for example, did 200 interviews into the positive core of a major call center. Who is going say “no” to a complementary request like—“would you help me out…I’m really trying to find out more about the best innovations developing in your area and I see you as someone who could really give me new insight into creating settings where innovation can happen… It is part of my leadership development. Do you have time for an interview…I would be glad to share my learning’s with you later!” Soon the topics are finding their way into meetings, corridor conversations, and senior planning sessions—in other words the questions, enthusiastically received, are changing corporate attention, language, agendas, and learnings. Many start brainstorming applications for AI. Lists are endless. Have we ever done focus groups with the 100% satisfied customer? How about changing call center measures? What would happen if we replaced the entire deficit measures with equally powerful measures of the positive? How can we revitalize the TQM groups, demoralized by one fishbone analysis after another? What would happen if we augmented variance analysis with depth studies that help people to dream and define the very visions of quality standards? How about a star stories program to generate a narrative rich environment—where customers are asked to share stories of encounters with exceptional employees? How about a gathering with senior executives so we can celebrate our learning’s with them, share with them how seeing the positive has changed our work and family lives, and even recruit them to join the PCN?
The pilot now had a momentum all its own. The immediate response—an avalanche of requests for participation—confirmed that there were large numbers at GTE ready to be called to the task of positive change. To grow the network by the 100s, even thousands, it was decided to do a ten region training session, all linked and downloaded by satellite conferencing. A successful pilot of three sites—Seattle, Indianapolis, and Dallas—confirmed the same kind of energy and response could happen through distancetechnologies. Quite suddenly the power of a 1000 person network caught people’s attention. Just imagine the 1000 “students” of organization life coming together in a year at an AI Summit to share learning from 10,000 innovations discovered at GTE. Very rapidly, by connecting and consistently noticing breakthroughs, new patterns of organizing would become commonplace knowledge. Changes would happen not by organized confrontation, diagnosis, burning platforms, or piecemeal reform but through irresistibly vibrant and real visions. And when everyone’s awareness grows at the same time—that basic change is taking place in this area and that area, it is easier to coalesce a new consensus that fundamental change is possible. PCN was becoming a lightning rod for energy and enthusiasm we all greatly underestimated. Then the unions raised questions. There were serious concerns, including the fact that they were not consulted in the early stages. We were told the initiative was over. There was to be a meeting of the unions and GTE at the Federal Mediation Offices in Washington D.C. to put the whole thing to rest.
But at the meeting with the IBEW and the CWA, leaders from both groups said they saw something fresh and unique about AI. They agreed to bring 200 union leaders together for a 2-day introduction. Their purpose: “to evaluate AI…to see if it should have any place in the future at GTE”. A month later, the session takes place. It looks like it is going pretty well and then the moment of decision. Tables of eight were instructed to evaluate the ideas and cast a vote as a group: “yes, we endorse moving forward with AI” or “No, we withhold endorsement”. For thirty minutes the 30 groups deliberated. Dan Young calls the vote. Tensions are felt. “Table one, how do you vote?” The response was ready: “we vote 100% for moving forward with AI and feel this is an historic opportunity for the whole system”. Then the next table: “We vote 100% with a caveat—that every person at GTE have the opportunity to get the AI training, and that all projects going forward be done in partnership, the unions and the company”. On and on the vote goes. 30 tables speak. 30 tables vote. Every single one votes to move forward. It was stunning. Eight months later AI is combined with the “conflictive partnership” model of John Calhoun Wells of the Federal Mediation Services at the kickoff session and announcement of a new era of partnership. The historic statement of Partnership states: “The company and the Unions realize that traditional adversarial labor-management relations must change in order to adapt to the new global telecommunications marketplace. It is difficult to move to cooperation in one quantum leap. However the company and the Unions have agreed to move in a new direction. This new direction emphasizes partnership…”
AI accelerates the nonlinear interaction of organization breakthroughs, putting them together with historic, positive traditions and strengths to create a “convergence zone” facilitating the collective repatterning of human systems. At some point, apparently minor positive discoveries connect in accelerating manner and quantum change, a jump from one state to the next that cannot be achieved through incremental change alone, becomes possible. What is needed, as the Destiny Phase of AI suggests, are the network-like structures that liberate not only the daily search into qualities and elements of an organization’s positive core but the establishment of a convergence zone for people to empower one another—to connect, cooperate, and co-create. Changes never thoughtpossible are suddenly and democratically mobilized when people constructively appropriate the power of the positive core and simply… let go of accounts of the negative.
But then the question is always voiced: “What do we do with the real problems?”
Basic Principles of Appreciative Inquiry
To address this question in anything other than Pollyannaish terms we need to at least comment on the generative-theoretical work that has inspired and given strength too much of AI in practice. Here are five principles and scholarly streams we consider as central to AI’s theory-base of change.
The Constructionist Principle: Simply stated— human knowledge and organizational destiny are interwoven. To be effective as executives, leaders, change agents, etc., we must be adept in the art of understanding, reading, and analyzing organizations as living, human constructions. Knowing (organizations) stands at the center of any and virtually every attempt at change. Thus, the way we know is fateful.
At first blush this statement appears simple and obvious enough. We are, as leaders and change agents, constantly involved in knowing/inquiring/reading the people and world around us—doing strategic planning analysis, environmental scans, needs analysis, assessments and audits, surveys, focus groups, performance appraisals, and so on. Certainly success hinges on such modes of knowing. And this is precisely where things get more interesting because throughout the academy a revolution is afoot, alive with tremendous ferment and implication, in regards to modernist views of knowledge. In particular, what is confronted is the Western conception of objective, individualistic, historic knowledge—“a conception that has insinuated itself into virtually all aspects of modern institutional life” (Gergen, 1985, P. 272). At stake are questions that pertain to the deepest dimensions of our being and humanity: how we know what we know, whose voices and interpretations matter, whether the world is governed by external laws independent of human choices and consciousness, and where is knowledge to be located (in the individual “mind”, or out there “externally” in nature or impersonal structures)? At stake are issues that are profoundly fundamental, not just for the future of social science but for the trajectory of all our lives.
In our view, the finest work in this area, indeed a huge extension of the most radical ideas in Lewinian thought, can be found in Ken Gergen’s Toward Transformation in Social Knowledge (1982) and Realities and Relationships: Soundings In Social Construction (1994). What Gergen does, in both of these, is synthesize the essential whole of the post modern ferment and crucially takes it beyond disenchantment with the old and offers alternative conceptions of knowledge, fresh discourses on human functioning, new vistas for human science, and exciting directions for approaching change. Constuctionism is an approach to human science and practice which replaces the individual with the relationship as the locus of knowledge, and thus is built around a keen appreciation of thepower of language and discourse of all types (from words to metaphors to narrative forms, etc.) to create our sense of reality—our sense of the true, the good, the possible.
Philosophically it involves a decisive shift in western intellectual tradition from cogito ergo sum, to communicamus ergo sum and in practice constructionism replaces absolutist claims or the final word with the never ending collaborative quest to understand and construct options for better living. The purpose of inquiry, which is talked about as totally inseparable and intertwined with action, is the creation of “generative theory”, not so much mappings or explanations of yesterday’s world but anticipatory articulations of tomorrow’s possibilities. Constructionism, because of its emphasis on the communal basis of knowledge and its radical questioning of everything that is taken-for-granted as “objective” or seemingly immutable, invites us to find ways to increase the generative capacity of knowledge. However there are warnings: “Few are prepared”, says Gergen (1985, p. 271) “for such a wrenching, conceptual dislocation. However, for the innovative, adventurous and resilient, the horizons are exciting indeed.” This is precisely the call AI has responded to. Principle number two takes it deeper.
The Principle of Simultaneity: Here it is recognized that inquiry and change are not truly separate moments, but are simultaneous. Inquiry is intervention. The seeds of change—that is, the things people think and talk about, the things people discover and learn, and the things that inform dialogue and inspire images of the future—are implicit in the very first questions we ask. The questions we ask set the stage for what we “find”, and what we “discover” (the data) becomes the linguistic material, the stories, out of which the future is conceived, conversed about, and constructed.
One of the most impactful things a change agent or practitioner does is to articulate questions. Instinctively, intuitively and tacitly we all know that research of any kind can, in a flash, profoundly alters the way we see ourselves, view reality, and conduct our lives. Consider the economic poll, or the questions that led to the discovery of the atom bomb, or the surveys that, once leaked, created a riot at a unionized automobile plant in London (see Cooperrider and Srivastva, 1987). If we accept the proposition that patterns of social-organizational action are not fixed by nature in any direct biological or physical way, that human systems are made and imagined in relational settings by human beings (socially constructed), then attention turns to the source of our ideas, our discourses, our researches—that is our questions. Alterations in linguistic practices—including the linguistic practice of crafting questions—hold profound implications for changes in social practice.
One great myth that continues to dampen the potential here is the understanding that first we do an analysis, and then we decide on change. Not so says the constructionist view. Even the most innocent question evokes change—even if reactions are simply changes in awareness, dialogue, feelings of boredom, or even laughter. When we consider the possibilities in these terms, that inquiry and change are a simultaneous moment, we begin reflecting anew. It is not so much “Is my question leading to right or wrong answers?” but rather “What impact is my question having on our lives together…is it helping togenerate conversations about the good, the better, the possible… is it strengthening our relationships?”
The Poetic Principle: A metaphor here is that human organizations are a lot more like an open book than, say, a machine. An organization’s story is constantly being co-authored. Moreover, pasts, presents, or futures are endless sources of learning, inspiration, or interpretation—precisely like, for example, the endless interpretive possibilities in a good piece of poetry or a biblical text. The important implication is that we can study virtually any topic related to human experience in any human system or organization. We can inquire into the nature of alienation or joy, enthusiasm or low morale, efficiency or excess, in any human organization. There is not a single topic related to organizational life that we could not study in any organization.
What constuctionism does is remind us that it is not the “world out there” dictating or driving our topics of inquiry but again the topics are themselves social artifacts, products of social processes (cultural habits, typifying discourses, rhetoric, professional ways, power relations). It is in this vein that AI says let us make sure we are not just reproducing the same worlds over and over again because of the simple and boring repetition of our questions (not “one more” morale survey which everybody can predict the results ahead of time). AI also says, with a sense of excitement and potential, that there can be great gains made in a better linking of the means and ends of inquiry. Options now begin to multiply. For example, informally, in many talks with great leaders in the NGO world (Save the Children, World Vision), we have begun to appreciate the profound joy that CEO’s feel as “servant leaders”-- and the role this positive affect potentially plays in creating healthy organizations. But then one questions: is there a book on the Harvard Business book-list, or anywhere for that matter, on Executive Joy ? And even if there isn’t… does this mean that joy has nothing to do with good leadership, or healthy human systems? Why aren’t we including this topic in our change efforts? What might happen if we did?
What the poetic principle invites is re-consideration of aims and focus of any inquiry in the domain of change management. For it is becoming clearer that our topics, like windsocks, continue to blow steadily onward in the direction of our conventional gaze. As we shall soon explore, seeing the world as a problem has become “very much a way of organizational life”.
The Anticipatory Principle: The infinite human resource we have for generating constructive organizational change is our collective imagination and discourse about the future. One of the basic theorems of the anticipatory view of organizational life is that it is the image of the future, which in fact guides what might be called the current behavior of any organism or organization. Much like a movie projector on a screen, human systems are forever projecting ahead of themselves a horizon of expectation (in their talk in the hallways, in the metaphors and language they use) that brings the future powerfully into the present as a mobilizing agent. To inquire in ways that serves to refashion anticipatory reality—especially the artful creation of positive imagery on acollective basis--may be the most prolific thing any inquiry can do.Our positive images of the future lead our positive actions—this is the increasingly energizing basis and presupposition of Appreciative Inquiry.
Whether we are talking about placebo studies in medicine (Ornstein and Sobel, 1987); reviews of a myriad of studies of the Pygmalion dynamic in the classroom (Jussim, 1986); studies of the rise and fall of cultures (Boulding,1966; Polak, 1973); research into the relationships between optimism and health (Seligman, 1990 ); studies of positive self-monitoring and ways for accelerating learning (Kirschenbaum, 1984 ); analysis of the importance of imbalanced, positive inner dialogue to personal and relational well-being (Schwartz, 1986 ); research on positive mood states and effective decision making (Isen, 1983); studies from the domain of “conscious evolution" (Hubbard, 1998 ); or theories on how positive noticing of even “small wins” can reverberate throughout a system and change the world (Weick, 1984 )—the conclusions are converging on something Aristotle said many years ago. “A vivid imagination”, he said “ compels the whole body to obey it”. In the context of more popular writing, Dan Goleman (1987), in a well-written New York Times headline-article declares “Research Affirms the Power of Positive Thinking”.
The Positive Principle. This last principle is not so abstract. It grows out of years of experience with appreciative inquiry. Put most simply, it has been our experience that building and sustaining momentum for change requires large amounts of positive affect and social bonding—things like hope, excitement, inspiration, caring, camaraderie, sense of urgent purpose, and sheer joy in creating something meaningful together. What we have found is that the more positive the question we ask in our work the more long lasting and successful the change effort. It does not help, we have found, to begin our inquiries from the standpoint of the world as a problem to be solved. We are more effective the longer we can retain the spirit of inquiry of the everlasting beginner. The major thing we do that makes the difference is to craft and seed, in better and more catalytic ways, the unconditional positive question.
Although the positive has not been paraded as a central concept in most approaches to organization analysis and change, it is clear we need no longer be shy about bringing this language more carefully and prominently into our work. And personally speaking, it is so much healthier. We love letting go of “fixing” the world. We love doing interviews, hundreds of them, into moments of organizational “life”. And we are, quite frankly, more effective the more we are able to learn, to admire, to be surprised, to be inspired alongside the people with whom we are working. Perhaps it is not just organizations—we too become what we study. So suggested, over and over again, is the life-promoting impact of inquiry into the good, the better, and the possible. A theory of affirmative basis of human action and organizing is emerging from many quarters—social contructionism, image theory, conscious evolution and the like. And the whole thing is beginning, we believe, to make a number of our change-management traditions look obsolete.

Appreciative Inquiry and Power in Organizations
We could have easily called this section “Eulogy for Problem Solving”. In our view, the problem solving paradigm, while once perhaps quite effective, is simply out of sync with the realities of today’s virtual worlds (Cooperrider, 1996). Problem solving approaches to change are painfully slow (always asking people to look backward to yesterday’s causes); they rarely result in new vision (by definition we can describe something as a problem because we already, perhaps implicitly, assume an ideal, so we are not searching to expansive new knowledge of better ideals but searching how to close “gaps”); and in human terms problem approaches are notorious for generating defensiveness (it is not my problem but yours). But our real concern, from a social constructionist perspective, has to do with relations of power and control. It is the most speculative part of this chapter; and hopefully, it better illuminates the potentials advocated by AI. In particular is the more conscious linking of language, including the language of our own profession, to change. Words do create worlds—even in unintended ways.
It was an unforgettable moment in a conference on AI for inner city change agents, mostly community mobilizers from the Saul Alinsky school of thought (Rules for Radicals), in Chicago. After two days a participant challenges: “This is naïve…have you ever worked in the depths of the inner city, like the Cabrini Green public housing projects? You’re asking me to go in and ‘appreciate’ it…just yesterday I’m there and the impoverished children are playing soccer, not with a ball, no money for that, but with a dead rat. Tell me about appreciative inquiry in the housing projects!”
It was a powerful question. It was one that made us go deeper theoretically. At one level we were arguing typical approaches to problem diagnosis, including the Alinsky confrontation methods, would work, but at about half the speed of AI. But then as we explored the subject of the cultural consequences of deficit discourse we began seeing a disconcerting relationship between the society-wide escalation of deficit-based change methods and the erosion of people power. The analysis, from here, could proceed from virtually any “professional” discipline—the diagnostic vocabularies of social work, medicine, organization development, management, law, accounting, community development, editing—but lets begin with psychology and the social sciences (ample linkage will be made to our own field). Ken Gergen’s (1994) work, again, is at the forefront for anyone wanting something more than a suggestive summary.
Consider the following characterizations of the self: impulsive personality, narcissism, anti-social personality, reactive depressive, codependent, self-alienated, type-A, paranoid, stressed, repressed, authoritarian, midlife crisis. These are all terms commonly used by the mental-health professions and are now common among people in the culture itself. But importantly, these terms, and several thousand others (Gergen 1994), have come into conventional usage only within the present century, many in only the last decade. But something else is noteworthy: the terminology’s discredit, draw attention to problems, shortcomings, and incapacity’s. Interestingly, the trajectory of the “professional” development of vocabularies of human deficit is rising at geometric rates, correlated as might be expected with the sheer growth in numbers of the profession. In1892 when the American Psychological association was founded there were 31 members. By 1906 there were 181. The next thirty-one years witnessed an expansion of almost a hundredfold, to over 3000. In the next twenty-two years the figure grew again by twenty times, over 63,000. Add to this similar growth figures in social work, psychiatry, community development, and organization development and one realizes that the spiraling production of languages of deficit have become quite a growth industry. By 1980 mental illness was the third most expensive category of health disorder in the United States at more than $20 billion annually. By 1983, the costs for mental illness, exclusive of alcoholism and drug abuse, were estimated to be almost $73 billion. We have no figures for the consulting industry, but we can guess. While intentions are good, argues Gergen, some of the unintended consequences may not be.
From a constructionist perspective one realizes that words do not so much innocently “mirror” a world out there as they become vehicles for coordinating our actions with one another. Words in any profession function a bit like tools of the trade. When I used to give my son Matt a hammer, inevitably everything in the house soon became a nail. What happens when the “scientifically” legitimated vocabularies of human deficit become the common and explicit tool kit of all? Gergen suggests not everything about it is healthy. Such deficit discourse, when chronically used, “generates a network of increasing entanglements for the culture at large. Such entanglements are not only self serving for the professions, they also add exponentially to the sense of human misery” (1994 p. 142).
In particular, deficit based change approaches have an unfortunate propensity to reinforce hierarchy, wherein “less than ideal” individuals, who learn to accept what sometimes becomes a lifelong label, are encouraged to enter “treatment programs” under expert supervision; to erode community, wherein the mental health professions appropriate the process of interpersonal realignment that might otherwise (in other eras) have happened in a nonprofessional contexts like the family or community; to instill a sense of self-enfeeblement,wherein deficit terms essentialize the person and like a birthmark or fingerprint, the deficit is expected to inevitably manifest itself into many aspects of their lives (it is a “thing”); to stimulate endless vocabulary expansion wherein people increasingly construct their problems in the professional languages (diagnosing each other) and seek more help which in turn increased the numbers in the profession who are rewarded when they expand the vocabulary—“to explore a new disorder within the mental health sciences is not unlike discovering a new star in astronomy (Gergen p.159)”. Gergen sums up: “As I am proposing, when the culture is furnished with a professionally rationalized language of mental deficit and people are increasingly understood according to this language, the population of “patients” expands. This population, in turn, forces the profession to extend its vocabulary, and thus the array of mental deficit terms available for cultural use (Gergen p.161). Is there no exit from such progressive infirmity?
After talking this over with the people in the inner city Chicago conference—and tracing the vocabularies of human deficit not only to the rise of the professions but also to the rise of bureaucracy, skeptical science, original sin theological accounts, the cynical media—the Alinsky trained activist sat down in a gasp. He said: “in the name of entertainment my people are being fed negative views of human violence—and they aresurrounded by endless description of their negative “needs” their “problem lives”. Even in my methods, the same. And what do I see? I see people asleep in front of their TVs. Unable to move, like sleeping dogs. Yes they have voice in the housing project assessments. But it is a certain kind of voice…it is visionless voice. They get to confirm the deficit analysis; all the reports are the same. “Yes” they say, “The reports are true”. What is hitting me right now is how radical the AI message might be. Marx could have said it better: perhaps the vocabularies of human deficit are the opiates of the masses. People have voice in the analyses—this involvement is what we fought for. But people are not mobilized by it anymore. No, they are asleep. Visionless voice is probably worse than no voice.
Elsewhere we have cautioned, in our own discipline, that it is not so much the problem solving methodologies per se that are of central concern, but the growing sense that we all, throughout the culture, have taken the tools a step further. It is not so much that organizations have problems, they are problems (see figure two on page 28). Somewhere a shift of this kind has taken place. Once accepted as fundamental truth about organizations, virtually everything in change-management becomes infused with a deficit consciousness. For example, as French and Bell (1995) define it, “Action-research is both an approach to problem solving—a model or paradigm, and a problem solving process—a series of activities and events” (p. 88). Levinson, in the classic on Organizational Diagnosis (1972) likens it to therapy—“like a therapeutic or teaching relationship it should be an alliance of both parties to discover and resolve these problems…looking for experiences which appear stressful to people. What kinds of occurrences disrupt or disorganize people? (p. 37). Chris Argyris, again in another classic, asserts: One condition that seems so basic as to be defined as axiomatic is the generation of valid information…Valid information is that which describes the factors, plus their interrelationships, that create the problem (1970, pp.16-17).
Tough questions remain about power and deficit discourse. And of course there are an array of new innovations in the field, many in this volume, that are signaling significant departures. So at this point all we want to do is make a call for reflection and caution, taking a lesson from the wisdom of anthropology—beware of the solid truths of one’s own culture.
Conclusion
To be sure, Appreciative Inquiry (AI) begins an adventure. The urge and call to adventure has been sounded by many people and many organizations, and it will take many more to fully explore the vast vistas that are now appearing on the horizon.
As said at the outset, we believe we are infants when it comes to our understanding of appreciative processes of knowing and social construction. Yet we are increasingly clear the world is ready to leap beyond methodologies of deficit based changes and enter a domain that is life-centric. Organizations, says AI theory, are centers of human relatedness, first and foremost, and relationships thrive where there is an appreciative eye—when people see the best in one another, when they share their dreams and ultimateconcerns in affirming ways, and when they are connected in full voice to create not just new worlds but better worlds. The velocity and largely informal spread of the appreciative learnings suggests, we believe, a growing sense of disenchantment with exhausted theories of change, especially those wedded to vocabularies of human deficit, and a corresponding urge to work with people, groups, and organizations in more constructive, positive, life-affirming, even spiritual ways. AI, we hope it is being said, is more than a simple 4-D cycle of discovery, dream, design, and destiny; what is being introduced is something deeper at the core.Perhaps our inquiry must become the positive revolution we want to see in the world. Albert Einstein’s words clearly compel: “There are only two ways to live your life. One is as though nothing is a miracle. The other is as though everything is a miracle”.
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