Business Management Theories

Management theories of the present and the past

Business Management

As discussed previously, business management refers to the activities involved in the four main functions: oPlanning

oOrganizing

oLeading

oControlling

Four Key Management Functions

• Planning• The process of setting goals, and determining the appropriate

action to achieve the goals of the company.

• Organizing• The process of allocating and arranging both human and other

resources through a formal structure of tasks and authority so that plans can be carried out successfully.

• Leading• The process of guiding and motivating employees to accomplish

company’s goals.

• Controlling• The process of regulating company’s activities so that actual

performance conforms to the goals and standards set at the planning stage.

2

Planning

Organizing

Leading

Controlling Management

Management Theories

To be an effective manager it helps to be acquainted with the different levels of management.

Some examples of different management levels are listed below:Board of DirectorsManagementExecutivesManagersSupervisorsWork DirectorsIndividual Contributors

LeadersBoard / Governance DevelopmentManagement DevelopmentExecutive DevelopmentManagerial DevelopmentSupervisoral DevelopmentLeadership Development

It is also beneficial to be acquainted with historical management theories.

Early Management theories

• Through history we can trace stories of people working together in formal organizations• Greek and Roman Armies

• Roman Catholic Church

• East India Company

• Hudson Bay Company

• People have long been writing about how to make organizations efficient and effective

• Two prominent examples of writing were left for us by Machiavelli and Sun Tzu.

Machiavelli

• Penned Discourses in 1531 while living in Italy.

• Many of the principles he set forth can be found in management organizations today:• An organization is more stable if members have the right to express their differences and

solve their conflicts within it

• While one person can begin an organization, “it is lasting when it is left in the care of many and when many desire to maintain it”

• A weak manager can follow a strong one, but not another weak one

• Maintain authority

• A manager seeking to change an established organization, “should retain at least a shadow of the ancient customs”

Sun Tzu

• Chinese philosopher that write The Art of War more than 2,000 years ago.• When the enemy advances, we retreat.

• When the enemy halts, we harass.

• When the enemy seeks to avoid battle, we attack.

• When the enemy retreats, we pursue.

• Although written to guide military strategy, they have been used when planning a strategy to engage business competitors as well.

Why study management theory?

• Theories are perspectives with which people make sense of their world experiences.

• Formally a theory is defined as – a coherent group of assumptions put forth to explain the relationship between two or more observable facts.

• Theories provide criteria for determining what is relevant

• Theories allow us to communicate efficiently

• Theories challenge us to keep learning about our world.

Read Henry Ford Article

Evolution of Management Theories

• Management and organizations are products of their historical and social times and places.

• Many historical management theories can be better understood if you look at the status of relationships at particular times in history.

• We can learn from mistakes and achievements of the past to help guide our future.

• As we study the history of management theories we can see that the issues facing Henry Ford will be different than those facing entrepreneurs today.

The Industrial Revolution

• The invention of advanced machines allowed for faster processing and production of goods.

• During the Industrial Revolution, machine power replaced human and animal power in the production process. This led to major business and social changes.

• Rather than individual artisans completing work on each product, businesses could hire workers to operate new machines to mass produce products

• Factories were built to house the machines and provide a workplace for the employees.

• The economic boom that was spawned by the Industrial Revolution required a new approach to business.

Changes in Approach to Management

• As the economy expanded and problems emerged, many business leaders recognized that their operating practices were not food for either the employee or the business.

• They were interested in finding out how businesses could be run more effectively and efficiently. This led to the beginning of management science.

• Management Science is the careful, objective study of management decisions and procedures in order to improve the operations of businesses and organizations.

• This led to many different theories on how businesses should be run to become for efficient and effective.

Management Theories

• Scientific Management

• Classic Organization

• Hawthorne Studies

• Bureaucratic Theory

• Kurt Lewin

• Systems Theory

• Maslow’s Hierarchy of Needs

• Contingency Theory

• Hygiene- Motivational Theory

• Theory X and Y

• Six Sigma

• Theory Z of Ouchi

• Chaos Theory

Scientific Management Theory

• If business could produce more products, they could make more money.

• Businesses desire to increase productivity brought rise to the Scientific Management Theory.

• Skilled labor was in short supply in the USA around the turn of the century (late 1800s- early 1900s)

• Frederick Taylor, Henry Gantt, and Frank and Lillian Gilbreth devised the principles that make up the Scientific Management Theory.

• Emphasis was given to simplifying jobs, and making tasks more efficient.

Classic Organization Theory

• Henry Fayol (1841-1925) is known as the founder of the Classic MangementTheory sometimes known as the Administrative Theory.

• Fayol believed “Managers are born not made”

• Fayol came up with 14 principles that increased the effectiveness and efficiency of the management process. These principles are still considered a powerful tool today.

• Fayol’s principles included: Division of labor, authority, discipline, unity of command, unity of direction, subordination of individual interest to the common good, remuneration, centralization, the hierarchy, order, equity, stability of staff, initiative, espirit de corps.

The Hawthorne Studies

• In the early 1930s a new way of thinking emerged after Elton Mayo started to question the principles behind the Scientific Management Theory.

• Through the Hawthorne Studies (experiments) Mayo concluded that human factors were more critical to motivating employees to greater level of productivity than physical environment.

• Many aspects of Hawthorne’s conclusions may seem irrelevant today, but compare this to what was believed by the scientific management theory and you can see a drastic change in beliefs.

• Hawthorn Studies led to the Human Relations Theory of Management

Bureaucratic Theory

• Developed by a German sociologist, Max Weber, around the early 1930s, the Bureaucratic Theory stated that bureaucracy is the most efficient form or organization.

• Authority is well defined

• Strict rules and regulations

Kurt Lewin

• In the 1940s, Social Scientist Kurt Lewin launched the Research Center for Group Dynamics at MIT.

• His contributions in change theory, action research and action learning have earned him the title of “Father of Organization Development”

• His research led to the belief that learning is best facilitated when there is a conflict between immediate and concrete experience and detached analysis within the individual.

Systems Theory of Management

• The general Systems Theory was proposed by Ludwig von Bertalanffy a biologist in the 1940s.

• Ross Ashby contributed to the theory in the 1960s.

• The Systems Theory offers an approach to understanding, analyzing, and thinking about organizations as an organism made up of numerous parts (subsystems) that must work in harmony for the larger system to work efficiently and effectively.

• Believes that success relies on synergy, interdependence and interconnections.

• Communication is key

Maslow’s Hierarchy of Needs

• American psychologist Abraham Maslow published A Theory of Human Motivation in 1943. Theory became popular for management in the 1950s.

• This article theorized his hierarchy of needs.

• Needs at the bottom of the hierarchy must be met first, before other needs can be met.

• Once a need is satisfied it no longer creates tension and therefore does not motivate the individual.

• Many argue(d) that Maslow’s Hierarchy of Needs is not the best guide for motivating employees due to the variation of need from person to person.

Maslow’s Hierarchy of Needs