course: business management - golspie high school...

Course: Business Management The Internal Business Environment Level: Advanced Higher

March 2015

2 ADVANCED HIGHER BUSINESS MANAGEMENT

© Education Scotland 2015

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ADVANCED HIGHER BUSINESS MANAGEMENT 3


Contents Management theory 4 Leadership 38 Equal opportunities 67 Teams 80 Time and task management 102 Managing change 110 Suggested solutions 133

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Management theory Management is a very important group within the business context, determining the success or failure of that organisation. Without managers, quite simply, it’s unlikely that things would get done. It is generally accepted that they: • act on behalf of their owners, eg directors are responsible to their

shareholders • set organisational objectives, eg to move into a different market • manage others to ensure organisational objectives are achieved • ensure that the values of the organisation are maintained when dealing with

customers, employees and others. Management theory attempts to explain how management works in organisations. Contributions to its development have come from a range of disciplines, such as: • sociology (behaviour) • social psychology (motivation and leadership) • behavioural psychology (motivation) • statistics (management of production). These theories are useful in explaining management style. They include the classical school and theories which followed later, such as human relations, neo-human relations, systems theory and more recently contingency theory.

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The role of management Before exploring management theories it is important to understand the crucial part management plays in every organisation. Several writers have suggested ways in which the role of managers can be explained. This section looks at the contributions from Henri Fayol and Henry Mintzberg.

Henri Fayol The Frenchman Henri Fayol (1841–1925) was one of the first people to write about management. He defined five functions of management which examine the relationship between managers, the task and the workers. He proposed that there are 14 principles of management. Fayol’s theoretical framework is still seen as relevant to modern-day organisations.

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Fayol’s five functions of management

Planning

This is the starting point. It creates a framework for future decisions. It involves setting clear objectives and devising strategies, policies, programmes and procedures to achieve those objectives. For a senior manager this might be writing a company strategy document covering the next five years; for a supervisory manager this might be planning detailed work for the next working week.

Organising

Organising involves getting the right resources together and creating an appropriate organisational structure to divide up the tasks. Managers must train and recruit the right people for the job to secure an efficient and effective workforce. It also involves establishing communication networks to achieve organisational goals.

Commanding Giving instructions in order that the necessary tasks are carried out. Tasks could be carried out either individually or by delegation to others.

Co-ordinating

This involves finding and training staff for the task to be carried out and ensuring the staff are motivated to perform the tasks and that all are working to the same goals.

Controlling

This is essential to ensure that organisational goals have been achieved. It involves maintaining performance levels by monitoring and evaluating, ie collecting and analysing key management information, comparing actual vs planned performance and critically reviewing plans. A senior manager might look at long-term planned vs actual performance, whereas a supervisory manager might be more concerned that work is of the correct quality and that the work is done on schedule.

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Fayol’s 14 principles of management

Division of labour Employees should be trained in one area and build expertise in that task. Specialisation results in increases in efficiency and output levels.

Authority Authority is correlated to responsibility. Managers must be able to give instructions and exercise authority to ensure these orders are carried out.

Discipline

Employees must comply with the rules and regulations of the firm. Company policy must be adhered to and consequences must be in place for those who would disobey.

Unity of command Each employee should have only one direct supervisor from whom they receive their orders.

Unity of direction To minimise confusion and conflict, teams with the same task should be working for the same manager and towards the same goals.

Subordination

The interests and intentions of one employee (or a group) must not take control over the direction of the entire team. Company objectives provide navigation for steering the firm, not the personal agenda of an employee or group.

Remuneration

Rewarding employees for their work through financial and non-financial incentives. A fair salary should be awarded as well as perks and bonuses if targets are met.

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Centralisation The involvement of employees in core decision making. Involving employees through the use of quality circles etc will minimise their resistance to change.

Scalar chain

The line of authority from top management to the lowest ranks represents the scalar chain. Communications should follow this chain. Employees should be aware of their position in the chain of command.

Order

The systematic arrangement of resources: people, machinery and finances. The workplace must be clean, tidy, organised and efficient to achieve maximum effectiveness.

Equity Managers must be objective and fair at all times. Kindness should be shown as well as discipline if necessary.

Stability of personnel

Retaining a core, trained and effective workforce is a primary concern. High employee turnover should be avoided. Workforce planning should be key to ensuring flexibility and success.

Initiative Permitting workers freedom to complete tasks and execute plans in their way will result in increased effort.

Esprit de corps Promotion of team spirit and unity amongst workers to minimise conflict and increase productivity.

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Henry Mintzberg Canadian management expert Professor Henry Mintzberg has argued that a manager’s work can be described using ten generic roles. Mintzberg argues these roles fall into three categories: • interpersonal (managing through people) • informational (managing by information) • decisional (managing through action).

In the 1970s Henry Mintzberg observed five chief executives at work in five different American companies: a major consulting firm, a hospital, a school system, a high-technology firm and a manufacturer of consumer goods. He used a stop-watch to observe, in the course of one intensive week, the activities of all the chief executives. He claims that if you ask a manager what he does he describes it in Fayol’s terms, ie planning, organising, commanding, co-ordinating and controlling. However, if you watch him in practice it is quite different. For example, how would you categorise presenting a retiring employee with a gold watch? From his observations, Mintzberg identified ten roles that managers fulfil. He argued that everything a manager does fits into one or more of these ten roles.

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Mintzberg’s ten roles of management Example In

terp

erso

nal

Figurehead The figurehead’s role is to represent the organisation to the outside world. This can help others recognise the importance attached by the firm to various activities and assist the firm in gaining co-operation in pursuit of its objectives.

• Greeting visitors • Speaking at

ceremonies • Hosting receptions

Leader The leader’s role is to inspire and motivate employees. Workers will want to work hard to please their leader, thus meeting company objectives more effectively. The leadership role may require the manager to perform staff training and set up teams.

• Selecting the appropriate training and leading the event

• Core decision-making

• Chairing events

Liaison The liaison role involves developing relationships both within and outwith the organisation. Managers can foster relationships with those who could later provide favours and important information to assist the running and success of the firm.

• Regular meetings • Lunching with

major clients • Frequent

correspondence

Info

rmat

iona

l

Monitor Monitoring checks progress at each stage. If problems are identified, managers can take corrective action to keep the organisation on track to meet objectives.

• Supervision • Budget control • Use of Gantt

charts • Reading reports • Progress updates

at meetings

Disseminator Disseminating involves informing staff and others of objectives so that everyone is clear what is expected and less likely to go off course in meeting objectives.

• Send emails and memos

• Hold meetings • Train staff • Demonstrations • Set policy

Spokesman The spokesman’s role is to let members of the wider community know what the company is doing. If a manager has displayed effective presentation skills this may win support for the firm’s objectives.

• Set the mission statement

• Hold press and media conferences

• Attend interviews with journalists and reporters

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D

ecis

iona

l

Entrepreneur The entrepreneur’s role is to come up with ideas and decisions. Good-quality decisions are essential to meeting company objectives. An entrepreneur should have the ability to take necessary risks in return for associated rewards.

• Brainstorming and innovation implantation

• Planning strategies

• Design and idea development

Disturbance handler The disturbance handler deals with any problems that arise; failure to do so may lead to delays in achieving objectives. This may involve dealing with disciplinary, industrial action, grievance and conflict management issues. The disturbance handler role aims to minimise inefficiency to ensure tasks are on track and deadlines are being met.

• Takes disciplinary action

• Follows policy for grievance

• Settles disputes within teams

Resource allocator The resource allocator’s role is to decide how the company’s resources should be used; if a company does not have the right resources in the right place at the right time it cannot meet its objectives. Providing budgets and financial control is central to this role along with allocation of staffing and machinery.

• Oversee work/shift rota

• Set up teams of staff

• Purchase resources and machinery

• Assign budgets

Negotiator The negotiator acts as an intermediary; he/she may act as a go-between when different stakeholders are setting objectives. The relationship between staff, trades unions and other stakeholders must be maintained. Both compromise and persuasion are necessary tools in this role.

• Communicates with trades unions

• Set up works councils

• Appoint a worker director

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The classical school This is called the classical approach because it was taken by the first people to write on management in the early years of the 20th century. They emphasised the formal hierarchical organisation with clearly defined tasks and a common purpose. Their view was that it was possible to find the one best way of doing things. The classical school was concerned with increasing productivity. The most important work in this area was by Frederick Taylor, the founder of the movement known as scientific management. He suggested that there was a best way to perform tasks and that all workers wanted was a fair day’s pay for a fair day’s work. ‘The principal objective of management should be to secure the maximum prosperity for the employer, coupled with the maximum prosperity for the employee.’

F. W. Taylor Taylor’s scientific management aimed to achieve:

To do this, he proposed the following:

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Classical school theorists

Frederick W. Taylor • American mechanical engineer who sought to

improve industrial efficiency. • The ‘father’ of scientific management. • A fair day’s pay for a fair day’s work. • Introduced a piece rate system. • Introduced specialisation and division of labour. • Examined the way the workers did the job in order

to maximise efficiency through motion studies.

Max Weber • German sociologist, politician and economist who

studied the processes and features of bureaucracy.

• ‘Weberian’ bureaucracy theory emphasised an impersonal approach to running a firm, where rules, authority and power were central to effective management.

• Characterised organisations by hierarchical structures, where workers needed expert training and their career advancement was judged on technical qualifications.

Henri Fayol • French mining engineer who studied and theorised

the process and role of management. • Suggested that structure is needed to ensure tasks

are achieved and that employees require clear definition.

• He believed a manager’s role was to: 1. forecast and plan 2. organise 3. command and direct 4. coordinate 5. control.

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Frank B. Gilbreth • An early advocate of scientific management and a

pioneer of motion study. • Reorganised the way of working for maximum

efficiency. • Eliminated unnecessary steps in any process and

unessential movements, eg less lifting or travelling. • Quality improvements should be continuously

made. • Used photography to capture the best way of

working. • Invested in training workers in the ‘one best way’.

Lillian Gilbreth • American psychologist and industrial engineer. • She and her husband, Frank Gilbreth (above),

were efficiency experts who contributed to the study of industrial engineering in fields such as motion study and human factors.

• Both Lillian and Frank Gilbreth believed that scientific management, as formulated by Taylor, fell short when it came to managing the human element on the shop floor.

Mary Parker Follett • An American social worker, management

consultant and pioneer in the fields of organisation theory and behaviour.

• Stressed the importance of common objectives for workers within a firm.

• She examined not just the study of productivity but also how power is constructed and how disputes are resolved.

• She considered people greater than processes and introduced the concept of ethics into business administration.

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Summary ‘Hardly a competent workman can be found who does not devote a considerable amount of time to studying just how slowly he can work and still convince his employer that he is going at a good pace.’

F. W. Taylor • Based on scientific management which emphasises efficiency above all

else. • Extensive use of division of labour: splitting workers into groups so they can

specialise on one job (division by product) or by a task within a job (division by process) to maximise resources, improve quality and increase the speed of production.

• Training and development of workers was given to ensure they could

complete their task proficiently and with little error and therefore reduced wastage.

• Research was done on jobs to discover the most efficient way of doing

tasks before setting standard rates of pay. • Mechanistic view of workers where they were treated like functional

machines and given little trust. • Belief that workers are only motivated by earning money. • Paying workers on results/output is known as piece rate payment. • The ideal organisation is a tall structure hierarchy (bureaucracy) with many

layers of management and clearly defined rules and procedures. • Initiative and upward communication from workers was discouraged. • Managers are responsible for thinking whereas workers should follow

instructions. • High level of supervision to ensure instructions were being followed and

procedures obeyed.

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Advantages Disadvantages

• Money will always have some positive effect on workers’ motivation, eg underpaid workers will not work hard enough.

• Piecemeal incentive rewards

workers who produce quickly and accurately.

• Hierarchical structures often

provide many promotion routes for employees within them.

• High level of supervision reduces

the chance of slacking within the firm.

• Decision-making tends to be

quick as the leadership style is often autocratic in nature.

• A clear organisation structure can

improve the flow of communication.

• Clearly defined remits of

responsibility within the firm reduce internal conflict.

• Divisions of labour produce a

high output and specialisation can increase the quality of work.

• Demotivating for workers as it treats them like machines who often never see an end product.

• Division of labour can result in

boring and repetitive work. • Workers become inflexible as they

do not have an opportunity to multi-skill as job rotation is discouraged.

• Workers can feel alienated and

undervalued as they are seen as labour and not part of a team.

• Assumes workers are only

interested in financial rewards and that is the only source of their motivation.

• Authoritarian work environment

and management style can be intimidating and stressful for workers.

• Upward communication, initiative

and worker input is discouraged and therefore valuable ideas and opportunities may be missed.

• Lack of flexibility may result in high

turnover and absenteeism in modern-day work.

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Limitations of the classical school approach

Relevance today Classical school ideas are still very much in effect today in some organisations, such as manufacturing industries, which have routine processes and require a standardised output. Manufacturing techniques such as lean production, which originated in Japan, aim to eliminate any resource that is not directly associated with creating value for the end customer. As waste is eliminated quality improves while production time and cost are reduced. Lean production, as with re-engineering processes, is based on the principles of scientific management as it attempts to measure the time it takes to get an order to a customer and to reduce the time spent on each of the steps in the process involved. Scientific management can also be seen in tertiary (service) sector industries, such as food outlets, so that a uniform service is provided throughout all branches. For example, McDonald’s aimed during their international expansion to create a standardised set of food items, a core menu, which tastes the same whether in Singapore, Spain or South Africa. McDonalds also set specific timings on how to carry out cooking tasks or assemble burgers to maximise efficiency and output. In Taylor’s day people had little money therefore they were very motivated to increase their pay and money worked as a motivator. Today, with the increasingly difficult economic conditions, money may work well for motivating staff. When Taylor’s ideas are fully implemented, tasks become monotonous and repetitive, and in the long run staff become bored and demotivated so money loses its place as the strongest motivator.

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The human relations school The classical school, particularly scientific management, was criticised for treating people like machines and ignoring the influence that social factors can have at work. This led to a new way of looking at management, known as the human relations school. Elton Mayo, an Australian industrial psychologist, is one founder of the human relations movement. Mayo and his team, in conjunction with the management and employees, conducted research at the Western Electric Company in Hawthorne, Chicago from 1927 to 1932. They were asked to investigate the reason for low productivity at the factory. One place in which Mayo and his colleagues conducted experiments was the relay test assembly room. The work consisted of assembling telephone relay units, which involved putting together a small number of components on a jig and fastening them with four screws. It was essentially a routine, repetitive task that took about a minute to complete. All the workers were women and were paid on a piece basis (their pay was determined by the amount that each individual produced). During the study five assemblers and a layout operator, all women, were segregated away from the main production area. All the materials needed for work were brought to them. An observer supervised the workers and maintained a friendly atmosphere, consulted with the workers and listened to

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their complaints. The observer was, in fact, a social scientist and member of the research team. During the experiments the following changes in working conditions were introduced: 1. all six workers were treated as a single group for the purposes of

calculating piecework 2. standardised rest periods of 15 minutes in the morning and 10 minutes

in the afternoon were introduced and a snack was provided by the company

3. working hours were reduced, either by stopping earlier in the afternoon

or by not coming in on a Saturday morning. The researchers compared the output of the workers before and after becoming part of the group. Output was higher when they were part of the group and did not seem to be influenced by the physical conditions at work. Mayo and his team found the same thing when they altered other aspects of working conditions, such as the lighting. Productivity rose but this was not apparently due to changes in physical working conditions. The factors that did affect productivity were: • the social interaction and group norms established by the female

workers in the group • the friendly atmosphere where the views of the female workers were

listened to • the group felt important as the observer and others were paying attention. Mayo and his colleagues concluded that work satisfaction depended to a large extent on the informal social pattern of the work group where norms of co-operation and high output were established because of a feeling of importance. Physical conditions, or financial incentives to motivate workers, had little impact. People will form workgroups and this can be used by management to benefit the organisation. Workers, Mayo argued, were activated by a logic of sentiment, and management by a logic of cost and efficiency. Conflict was inevitable unless the difference was understood and allowed for. This enabled the researchers to make certain deductions about how managers should behave.

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‘Management succeeds or fails in proportion as it is accepted by the group as authority and leader.’

Elton Mayo The basis of the human relations movement is the use of social sciences to secure the commitment of individuals to the aims and activities of the organisation. While this is seen as too simplistic today, it did establish the importance of social factors in the organisational context. Limitations of the Hawthorn experiments • All the workers were female – in the social context of the 1930s, this may

have made them more willing to participate in the experiment and to try to make it work.

• The experiment concentrated on a small segregated area and thus had a

very narrow approach (several other experiments were conducted in other areas of the factory but each was done in isolation).

• Factory-based experiments are limited in their transferability to other

sectors of work. Summary • A reaction to the classical school approach, human relations focused on the

value of social factors and human interaction. • Mayo discovered that people are more motivated by the context in which

they work and by the relationships which evolve in work, rather than money.

• Stresses the importance of workers’ needs in order to increase output. • The ‘Hawthorne effect’ refers to a phenomenon whereby workers improve

and adapt their behaviour in response to a change in the working conditions set by management.

• The importance of groups and team working was discovered in the

workplace – workers may be influenced more by informal than official group leaders.

• Workers’ motivation increased from the social interaction and when

managers took an interest in them, leading to an improved work rate.

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• Employees have more individual freedom over how jobs are performed and feel valued as they are involved in decision-making.

• Emphasised non-financial motivators, good working conditions, the

importance of teams and staff welfare. • Emphasised the importance of communication between management and

employees in promoting high levels of output. Relevance today

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The neo-human relations school While the Hawthorne experiments were significant in highlighting the importance of the social aspects within an organisation, Mayo’s work still did not show how work practices and organisational structure should be modified in order to improve worker satisfaction and improve productivity. During the late 1940s it was realised that the links between organisational design, motivation and productivity were a lot more complex than first thought. These new ideas were known as the neo-human relations school. Writers in this school took a more psychological orientation and looked at issues of motivation to work, group membership and leadership style. Neo-human school theorists

Abraham Maslow • American psychologist best known for creating

the hierarchy of needs claiming people have five innate needs that can be placed in a hierarchy/pyramid.

• The model is used to determine the progression

of psychological health predicated on fulfilling innate human needs.

• Maslow suggests management methods need to

be appropriate to the level on which workers are currently operating.

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Frederick Herzberg • American psychologist famous for introducing job

enrichment and the motivator-hygiene theory. • Job enrichment involves allocating more

interesting, challenging and complex duties to stimulate a sense of purpose in achieving objectives.

• Herzberg’s ideas, such as empowerment of workers and job enrichment, suggest that employees respond to being given greater responsibility and having their contribution recognised.

• Managers need to provide satisfiers, such as greater responsibility, and

ensure that hygiene factors are in place.

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Douglas McGregor • An American management professor whose work

is closely related to that of Maslow and Herzberg. • He devised the Theory X and Theory Y theories

of management thought towards workers’ motivation.

Theory X Theory Y

• Similar to a classical approach, management assumes employees are inherently lazy, lack ambition and shy from responsibility.

• Assumes workers are indifferent to the organisation and will resist change.

• Managers need to lead and control; a high level of supervision, policy and controls is developed.

• Emphasis on incentivising, forcing, threatening and coercing employees to work, with a strict disciplinary procedure in place if they fail to do so.

• Often used in a hierarchical structure with a narrow span of control.

• Managers believe that employees only work for financial reasons and nothing else.

• A blame culture may be prevalent in the workplace.

• Can result in diseconomies of scale, which is costly to a firm.

• Assumes workers enjoy their duties as they are self-motivated and exercise self-control.

• Assumes workers will prove eager to respond to increased responsibilities and empowerment becoming more productive as a consequence.

• Management believe workers are not naturally passive and resistant to change but active agents at work.

• Management should provide the right environment for employees to achieve their own objectives whilst striving for organisational objectives.

• There should be more self-management and upward communications along with participation in the decision-making process.

• Effective use of teams and interdisciplinary groups are encouraged.

• Emphasis on recognition, achievement and empowering workers.

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McGregor in action

Theory X Theory Y

Motivation • Financial incentive • Money/salary • Fear of job security

• Achievement/recognition • Reaching potential • Social interaction • Empowerment

Communication

• Little or no involvement in decision making

• Hierarchical communication lines

• Stifles creativity

• Participative in decision making

• Upward communication • Quality circles encouraged • Allows initiative

Tasks

• Requires direction • Shy away from

extra work • Avoids

responsibility • Blame culture

• Relishes challenges • Thrives on extra tasks • Seeks development • Accepts accountability

Management

• Authoritarian and controlling leadership

• Gives high level of supervision

• Forces or coerces • Threatens

disciplinary action

• Employees are self-managed

• Laissez-faire and participative leadership

• Use of empowered teams • Target setting

Attitude

• Dislikes work • Skiving and

goldbricking • Work is boring • Needs to be forced

• Wants to work in the right conditions

• Less resistant to change • Ambitions and drive

McGregor believed that Theory Y would lead to higher motivation. He considered conventional assumptions (Theory X) to be both limited and unrealistic because they relied on authority as the primary means of control, which he saw as likely to generate resistance, restriction of output, indifference to organisational objectives and a refusal to accept personal responsibility. McGregor recognised that much of the behaviour in organisations did reflect the Theory X view.

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However, he believed that this type of behaviour was not a consequence of the inherent nature of staff but a product of the way in which staff were being treated by organisations. McGregor has highlighted that if managers believe that all their workers want is more money and/or greater social satisfaction, they will therefore only provide for these basic needs to be met. If managers do not accept that staff have more complex needs, they will not be providing opportunities at work for the staff to satisfy them. The result may well be frustration and a lack of commitment on the part of the staff. McGregor’s theory has been applied successfully through the modern Japanese approach of total quality management (TQM), which is based on his Theory Y and is widely implemented throughout the world. The neo-human relations approach as a whole drew attention to issues such as job satisfaction, participation and leadership style, all of which remain important in management today. Limitations of the neo-human relations approach

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Systems theory The classical school approach to management looked at the structure and processes of an organisation and how it could operate more efficiently while achieving maximum productivity but rather ignored the attitudes of those working in the organisation. On the other hand, the human relations school focused on the people in organisations but neglected the technical aspects. The neo-human relations school addressed some of the problems of reconciling people and organisations but tended to do so from an individual, psychological perspective rather than a holistic view. All these approaches are rather narrow and do not look at the organisation as a whole and all the various factors that may influence how it operates. Systems theory is an attempt to address this problem. Systems theory argues that in any organisation the multitude of parts and processes are so interrelated and so interdependent that a small change in one part necessitates changes and adaptations in other parts. Often called the open-systems approach, it views any one organisation as an interdependent piece of a much larger whole, looking outside to the environment in which the organisation operates. This wider environment can include suppliers, customers and the government as well as peer/rival organisations and other factors such as the state of the economy, demand, fashion, technology and geographical conditions etc. The environment then impacts on organisational design and the functioning of the organisation itself.

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The approach seeks to find the best fit from three elements:

As an open system it draws in resources from the environment, eg raw materials, converting them into goods and services which are then fed back into the environment, so it is a cyclical process. For example, Ford makes cars which it sells to its customers for money. The money is recycled in the form of wages, tax and the purchase of more raw materials. This socio-technical approach to an organisation recognises that it is necessary to incorporate both the social and technical aspects of work if an effective system is to be created. This concept was developed by the Tavistock Institute of Human Relations in the study of coal mining in the north-east of England. Prior to the introduction of new technology to coal mining, teams of men worked closely together, with each member of the team being highly dependent on the others to work effectively and earn a decent wage. With new technology such as mechanical equipment, the teams were broken up, resulting in deterioration in many areas, eg industrial disputes, numbers of accidents, absence levels etc. The problem was solved by building teams back into the work to encourage interdependence among workers.

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Systems theory relies on a number of factors to be considered by management for the model to be effective. Factor Suggestion for management

Interdependence

• Reliance on others within the firm is essential in a systems approach, eg employees depend on each other as well as the managers and the companies they work for to provide guidance, training and assistance on the job.

• Establish a positive corporate culture. • Use a company-wide open-door policy.

Synergy

• The system dynamics must work in harmony to create an efficient and quality output.

• Inter-group conflicts are counter-productive in a system approach so rotate members across various teams.

• Interdisciplinary working and matrix structures are key.

• Clear and well-publicised procedures to ensure everyone within the firm understands the end goal and the ways to achieve it.

Employee relations

• Encourage collaborative working with management. • Empower workers to take responsibility for their

actions. • Give positive praise and recognition of achievement. • Upward communication through quality circles and

regular meetings. • Invest in training and development.

Control mechanisms

• Frequent supervision and quality assurance to review the system and its components.

• Set targets and allocate budgets to provide accountability.

Information

• Use employee focus groups and quality circles. • Obtain feedback from staff appraisal and meetings. • Analyse financial information to assess

effectiveness. • Use PESTEC analysis to be aware of the impact of

the ever-changing external business environment. • Conduct market research to improve the firm’s

systems. • Use informal communication channels, eg

grapevine.

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Summary • System theory is a holistic approach, classical approach was considered

‘organisations without people’ and the human relations approach was considered ‘people without organisations’.

• Less of a management theory and more of a way to analyse and design the

workflow of the organisation and its many elements. • Views the organisation as a complex system of people, tasks and

technology with each interlinking and impacting on one another, known as the ‘system dynamics’.

• Systems are made of many sub-systems (components) which work in

harmony. This encourages interdisciplinary relationships, matrix structures and team working if necessary.

• Acknowledges that the human/social factors alone are not the most

important consideration in achieving the company goals and that the business environment and the external influences must also be considered.

• A business is viewed as an open socio-technical system that interacts with

its environment and combines inputs, processes and outputs. • Systems approach argues no single theory can guarantee success and

does not provide a ready-made solution for managers – each ‘system’ is tailored to suit the organisation’s objectives.

• A change in one part of the system has a subsequent impact throughout as

the system dynamics are interdependent and therefore this requires effective forward planning by management.

• The systems approach suits organisations which face constant change and

therefore it has become more relevant in recent years because of increased change in the external environment and the trend toward globalisation.

• The systems approach focuses on the process, ie what is going on, rather

than the scientific method of doing the job. • It encourages a customer service focus from managers because it

emphasises the relationship between the organisation and its environment.

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Contingency theory This approach to management theory is a product of more recent times and can be seen as a development of the systems approach. Similar to systems theory, it is based on the assumption that there is no single approach to organisational structure that will suit all organisations at any point in time. Both the classical management theories and those based on human relations sought to offer this panacea. Contingency means ‘it depends’. Organisations consist not only of tasks to be performed but also of people to perform them, both in the same environment. The tasks need to be carried out while people try to grow and develop. Contingency theory tries to get the best fit between task, people and environment. It draws on earlier approaches and stresses three factors:

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The challenge for managers is to develop an approach that best suits a particular situation. For example, with respect to structure it would be to design an organisational structure that best suits the environment in which the organisation operates. In this case, contingency implies that within the same organisation there may be units of bureaucracy, units operating in a matrix structure and units which are divisionalised. The only criteria for good design are task performance and individual/group satisfaction. The contingency theory of management can be applied to all aspects of management, eg leadership or choosing a company structure. Factors which impact approach

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Summary • Building on the ideas of systems theory, a contingency approach focuses

on interrelationships and reliance between the external environment, the organisational structure, the task and the employees in synergy.

• A contingency approach argues that no single ideal method of

management exists – the best approach will depend on the variables that must be considered.

• The variables to be considered can include the size and type of the

organisation, the technology available, its history and corporate culture, the nature of the work, the skill of staff, the experience of management, the demands of the market, the finance available etc.

• Each situation and organisation is unique and management must be

tailored accordingly to achieve maximum organisational effectiveness. • Organisations cannot exist in isolation, they must take into account all

factors of the internal and external business environment to adapt and survive.

• Management must be flexible – business finds itself in changing

environments so managers should be able to adapt to all circumstances; some situations will call for a more authoritarian approach, eg in a crisis.

• A contingency approach helps managers adjust to changes in social and

economic circumstances, eg by making changes to accommodate flexible working practices.

• Modern organisations are more likely to use a contingency approach,

choosing the best mix of different ideas about management to suit the particular situation in which they find themselves.

MANAGEMENT THEORY



Relevance today An organisation will face a variety of choices when determining how it should be structured, how it should organise the work and how it should be managed. Effective organisations use structures that take account of a number of variables (contingencies) that directly impact on how it achieves its objectives.

Leadership style

Organisations need to ensure they match suitable managers to relevant areas of work. For example, relationship-orientated managers are better suited to working in informal situations whereas a formal approach requires a task-orientated manager.

Organisation structure

Organisational structure can have a direct and significant impact on employee relations, making contingency theory highly relevant in modern day business. No single organisational structure is inherently better than another. For example, a flatter organisational structure with less supervision is likely to enhance an organisation’s relationship with employees in highly creative roles whereas a taller, hierarchical structure is often suited to large organisations as it gives greater control. Many modern multinationals use a combination of structures, eg RBS keeps functions such as finance and HR centralised while allowing managers in different businesses in the corporate market and retail market divisions to respond to the characteristics of the markets in which they operate.

Staff skill

Inexperienced or new workers may require a more directed approach than experienced ones. A bureaucratic (mechanistic) structure where roles and expectations are clearly spelled out will be more appropriate than an organic one where individuals are given freedom of action to respond to different circumstances.

MANAGEMENT THEORY



Nature of the work

Manufacturing firms and factory work will be suited to elements from scientific management and using classical approaches to planning workflow, where tasks are routine and repetitive and productivity is the driving factor. Service sector firms may use a more decentralised approach to work planning, empowering employees or using autonomous teams. Delegated decision-making is useful in work where there is direct contact with customers as it gives flexibility to deal with non-routine situations. Organisations which combine production and service may need to adopt different approaches in each area, eg a restaurant might have a kitchen where everyone does what they are told to by the head chef but are allowed flexibility to welcome diners and respond to customers’ requests for specific seating as they see fit.

External environment

Economic conditions, such as a recession, may result in downsizing or cost cutting, which impacts on the structure of the firm as fewer layers of management may be used. The increase of global online competition from the rise of e-commerce sales in retailing means firms need to develop flexible structures that can respond rapidly to changing market demands. Mechanistic structures may still be appropriate to firms in slow-growing markets with little competition, although privatisation of most state-owned monopolies in the UK over recent years means there are very few such markets left.

MANAGEMENT THEORY



Case study 1: Management theory Are there too many managers? There are five million managers in the UK today, ten times as many as there were 100 years ago. Even if you don't actually manage anyone, your title pretends you do: a conductor is a train manager, an administrator is an office manager, a technician is an IT manager and so on. We've all become obsessed with management despite being able to get through the industrial revolution without any ‘masters of business administration’ at all. In the UK, we mostly distrust our managers, sometimes with good cause. We are suspicious of them not just because we don't know what they do – we fear they don't know either. By the end of the 19th century an engineer from Philadelphia came along with a very clear idea of what management was all about – efficiency. Frederick Taylor was the world's first management consultant and his fad became known as scientific management. He believed that for any given process, there was one best way to do it. The average worker, he thought, was pretty dim and hopeless so the answer was a rigid system with a manager in charge of making it happen. ‘It is only through enforced standardisation of methods, enforced adoption of the best implements and working conditions, and enforced co-operation that this faster work can be assured’, he said. ‘And the duty of enforcing the adoption of standards and enforcing this co-operation rests with management alone.’ Taylor's beloved time-and-motion studies were initially used in factories, but it wasn't long before they reached the office. In the UK, however, scientific management was never taken up with much enthusiasm, which was mainly because, at least until the second half of the 20th century, British managers were pretty much amateurs. After World War II most of the major firms were run not by people who had the first clue about business but by generals. There was one apiece at British Railways, British Airways, at Vickers and even at the BBC. They believed in one thing only – hierarchy. These managers didn't think they had anything to learn, which was partly why the first proper business school in the UK didn't open until 1965, more than a century behind the USA and Europe.

MANAGEMENT THEORY



With the growth of corporations in the first half of the 20th century, the march of management wasn't to be stopped and with so many more managers, some of them need to be managed themselves – hence the middle manager. Being effective in this new role required a whole new set of skills. According to the American sociologist C. Wright Mills, a successful manager had to ‘…speak like the quiet competent man of affairs and never personally say no. Hire the no-man as well as the yes-man. Be the tolerant maybe-man and they will cluster around you filled with hopefulness. And never let your brains show.’ Excellent advice all round. The maybe-man still fares pretty well in offices some 60 years later, although brains have possibly staged something of a come back. But back then there was no talk of diversity, let alone authenticity. It was all about conformity and hard work. Today, however, the executive must appear to enjoy listening sympathetically to subordinates and team-playing around the conference table. As for work–life balance, there wasn't any back then. A sales manager could be heard saying: ‘I sort of look forward to the day my kids are grown up. Then I won't have to have such a guilty conscience about neglecting them.’ These days, however, modern managers can supervise workloads whilst making a hot chocolate in their pyjamas at home with the use of audio-conferencing and the increase of ICT, such is the evolution of management.

Adapted from: bbc.co.uk/news You should note that although the following questions are based on the case study above, you will need to make use of knowledge and understanding you have gained whilst studying the course.

Marks

1 With reference to scientific management, discuss the relevance of financial incentives in modern day. 6

2 Describe the ways a manager could use Maslow’s hierarchy of needs to

improve the productivity of employees. 6 3 Examine the use of contingency management theory in modern practice. 8

Total 20

LEADERSHIP



Leadership ‘A leader is best when people barely know he exists, when his work is done, his aim fulfilled, they will say: we did it ourselves.’

Lao Tzu Leadership is the ability to influence the thoughts and behaviour of others. In the case of the business environment, this is to achieve organisational goals. Leadership is a necessity in today’s organisations, in order to lead them through changing circumstances such as competition, legislation etc. It is a key element of any manager’s job. Managers and leaders The terms ‘management’ and ‘leadership’ are often used interchangeably. Often today the ‘term leader’ replaces ‘manager’, which historically was the norm.

LEADERSHIP



Dr John Paul Kotter • American professor and author specialising in the

study of corporate leadership. • He argues that good management is bringing

order and consistency to key dimensions such as the quality and profitability of products, while leadership is about coping with change.

• In Fayol’s terms, managers are involved in

planning, organising, controlling etc whereas leaders are involved in setting direction and aligning people to achieve goals.

Nevertheless the work of leaders and managers may be complementary. It could be argued that managers must carry out Fayol’s functions but must also deal with change. Similarly, leaders manage an organisation through periods of change but may also have to make plans and control events to ensure that the new situation functions in the way that is intended. Leadership theories Many leadership theories try to explain why some people are more successful than others in getting others to follow them. These include the following:

LEADERSHIP



Trait theory The first theories of leadership can be described as trait theory. This approach states that the ability to lead a group of people is something you are born with, not something that you learn, therefore people should be selected as leaders rather than trained. Trait theory suggests that leadership is unique to only a select number of individuals and that these individuals possess certain immutable traits that cannot be developed. Traits are personal characteristics that leaders may have, for example:

It has even been said that people’s physical appearance, dress code and stature can affect their ability to lead. Most of the early work on the trait approach investigated the difference between leaders and followers to ascertain any discrepancies in personality and physicality. Many early theorists would argue that regardless of the situation, there is a set of traits which would result in a successful leader.

LEADERSHIP



Trait theory is criticised on a number of fronts:

These criticisms led to the development of a different approach, called style theory.

LEADERSHIP



Style theory Style theories highlight what successful leaders do rather than what they are. The underlying principle behind this approach is that, if leaders behave in a certain way, they will be successful. Most style theories argue that leaders have two main issues to tackle:

There are many possible leadership styles. One way to think of them is to see them as a spectrum with total task orientation at one end and complete people orientation at the other. Between these two extremes, a number of combinations of task and people orientation are possible.

LEADERSHIP



Autocratic/authoritarian leadership Autocratic leaders define the tasks that have to be carried out, state who is to carry out the tasks and ensure that tasks are closely supervised. Comment or discussion from employees is not encouraged. This style is at the task orientation end of the spectrum, often associated with McGregor’s Theory X approach. • Leader has absolute authority. • Leader has no consultation with subordinates on decisions. • Leader discourages upward communication. • Leader does not trust employees. • Leader motivates through threat and punishment. • Leader dictates to employees on which task and how to do it. • Leader expects subordinates to obey orders without receiving any

explanation. • Often viewed as controlling, bossy and tyrannical.

Advantages • Decision-making is normally quick,

with management at the centre. • Tasks and relationships are clearly

defined, which avoids confusion. • Employees receive direct

assistance towards achieving their goals.

• Effective supervision can be

provided through detailed orders and instructions.

• May reduce stress as work orders

are clearly set out. • Inexperienced staff may be more

motivated by an experienced leader.

Disadvantages • Lack of input from employees

means their experience or skills are not utilised – creativity and initiative are suppressed.

• Encourages a blame culture and

resistance to management decisions.

• Employees cannot develop to their

full potential. • Dependency on the leader – if

they are absent, productivity lowers.

• A high level of supervision is

required – lack of trust prevalent. • Motivation is likely to be poor.

LEADERSHIP



Democratic/participative leadership Democratic leaders set objectives but leave employees to achieve these in a manner that suits them. A democratic approach involves much communication between the leader and the group, with employees participating in the leader’s decisions. This style falls at the people orientation end of the spectrum, often associated with McGregor’s Theory Y approach. • Leader shares problem-solving responsibilities by setting up teams. • Employees are involved in decision-making but the leader has ultimate

responsibility. • Leader makes decisions but takes time to explain why (persuasive style). • Leader discusses before making a decision (consultative style). • Leader relies on the specialised knowledge of the team members. • Leader encourages upward communication through quality circles. • Leader offers guidance to team members but also participates in the group. • Leader recognises and encourages achievement.

Advantages

• Group members feel engaged in the process and are more motivated.

• Utilises employees’ knowledge and experience in achieving objectives, which can make the firm more competitive.

• Ensures reasonable targets are set as employees are involved in setting them, which can improve productivity and make them less resistant to change.

• Increases employees’ job satisfaction by providing greater responsibilities/empowerment.

• Prepares employees for promotion opportunities by expanding their role and responsibilities.

• May require less supervision if employees are self-controlled and take pride in their work.

Disadvantages

• Problematic when there is a wide range of opinions and there is no clear way of reaching an equitable final decision.

• Employees may be unable to work without close supervision.

• Encouraging employees’ involvement in minor operational issues but not major decisions may lead to dissatisfaction.

• Due to discussion the decision-making process could be lengthy.

• Some employees will not be interested in helping to make decisions and could feel pressured, leading to increased stress.

• Requires an effective leader to communicate and coordinate autonomous teams to avoid conflict within the firm.

LEADERSHIP



Laissez-faire (free rein)/delegative Laissez-faire is a French term that means leave it be. This type of leadership style allows employees to carry out activities freely within broad limits. For this style to work there has to be good team work and good interpersonal relations. Employees need to be competent to handle free-rein responsibility and allowed the autonomy to make decisions independently. • Leader does not interfere in group activities. • Leader delegates authority and power to employees, giving them a high

degree of freedom. • Leader provides little or no direction for the team. • The team is largely self-governing. • The team may be expected to set own goals, resolve their own problems

and make their own decisions without consulting senior management. • Ironically requires a highly competent leader to set up teams initially, select

the best employees for the tasks and maintain motivation throughout.

Advantages • Employees feel trusted,

respected and empowered, increasing their commitment and collaboration, resulting in high-quality performance.

• Reduces the need for

supervision, which can reduce costs for the firm in managerial wages.

• Managers delegate control and

can focus on quality assurance and feel less stressed and pressured.

• Employees feel liberated to be

more creative and can rapidly develop their skillset.

Disadvantages • Can lead to poorly defined roles,

which results in confusion and time-wasting.

• Employees may feel pressure from

being given free rein and this can lead to stress and demotivation.

• Poor quality of work can occur

without being identified if employees are not sufficiently qualified or informed.

• Competent employees may demand

higher wages from being effective in an empowered position, or leave for a promotion from a competing organisation.

LEADERSHIP



Style Appropriate in the following situations

Autocratic/ authoritarian leadership

• Where work is repetitive and boring. • In a crisis or a situation of urgency when decisions need to

be taken quickly and a plan of action starts in the short term.

• When there is little time for collaborative working and discussion.

• When clear direction is needed. • When the leader is most knowledgeable. • Staff who are new, untrained or lack confidence, and who

do not know which tasks to perform or which procedures to follow.

• Employees do not respond to any other leadership style. • If a manager’s power is challenged by an employee. • In situations of conflict and confusion. • If the department/area/company was poorly managed

previously. • When there are high-volume production needs on a daily

basis.

Democratic/ participative leadership

• Where the leader wants to keep employees informed about matters that affect them such as when changes must be made or problems solved that affect employees or groups of employees.

• Leader wants employees to share in decision-making and problem-solving duties.

• Leader wants to provide opportunities for employees to develop a high sense of personal growth and job satisfaction.

• When there is a large or complex problem that requires lots of input to solve.

• When the leader wants to encourage team-building and participation.

• When flexibility is required, ie allowing employees to make decisions when with a client.

• When the leader lacks the skills and knowledge, and requires teams to be accountable for specialist support.

LEADERSHIP



Style Appropriate in the following situations

Laissez-faire (free rein)/delegative

• Employees are highly skilled, experienced, and educated. • Employees are trustworthy and loyal to the firm. • Employees are motivated in making their own decisions. • Employees have pride in their work and the drive to do it

successfully on their own. • Outside experts, such as staff specialists or consultants,

are being used.

Summary • The basis of style theory is that some employees will respond differently to

being led by people with different styles of leadership and that employees will work harder for managers with particular styles of leadership.

• Style theory looks at leaders in terms of the different ways in which they

behave and highlights what successful leaders do rather than what they are.

• Style theory suggests there is one best leadership style for each situation,

which is probably not the case, and a combination of styles are needed. • Managers often use an integration of styles to personalise their approach to

ensure effective working relationships are maintained and the company’s objectives are being met.

• Leadership style is a spectrum ranging from task-orientated autocratic,

where manager’s authority is paramount, to people-orientated laissez-faire, where subordinates’ freedom is paramount.

LEADERSHIP



Contingency theory Contingency theory seeks to take many more variables into the equation. It suggests that the most suitable style of leadership will depend on a wide range of variables. The underlying assumption is that a style of leadership that works in one set of circumstances will not necessarily work in another, so the best leader is not one with certain traits or a single style, but one who is able to adopt different styles in different situations. There are several versions of contingency theory:

LEADERSHIP



Fiedler contingency model • Fred E. Fiedler was an American researcher in

industrial psychology. • He tried to determine the most appropriate

leadership style when dealing with certain situations or groups at work based on changing factors (contingencies).

Fiedler identified three characteristics which determine the nature of situations so that the most suitable leadership could be adopted.

LEADERSHIP



Fiedler argued that there are two categories of leadership:

Fiedler maintained leaders who are more task orientated are good leaders in extreme situations, such as:

Leaders who are more relationship orientated are good leaders in situations where there is average trust with subordinates, structured work and high power.

LEADERSHIP



Fiedler found that it was difficult for people to change leadership styles. An autocrat will always lead in an autocratic style whereas a leader who encourages involvement will tend to be democratic. Fiedler’s contingency model therefore suggests that improving effectiveness can often require a change in the workplace, culture and environment to fit the leader. This process is called job engineering or job restructuring. Organisations need to ensure a ‘leadership fit’ by matching task-oriented managers to situations requiring a formal approach to organisation and relationship-oriented managers to more fluid ones.

LEADERSHIP



The ‘best fit’ approach • Charles Handy was an Irish author and

philosopher specialising in organisational behaviour.

• He suggested that any leader must take four

factors into consideration before an appropriate and effective leadership style can be determined.

This approach suggests that there is no perfect style of leadership applicable to all situations, so a leader must achieve the ‘best fit’. For example, if a leader has a fairly structured style, works with a group that likes to be dealt with fairly democratically, works on a loosely defined task, then for ‘best fit’ there has to be some movement in attitude by at least one if not all of the three elements involved, given the environment in which this is carried out.

LEADERSHIP



Hersey and Blanchard’s situation approach Paul Hersey was an American behavioural scientist and entrepreneur, who, together with Kenneth H. Blanchard, an American author and management expert, engineered situational leadership.

The situation approach argues that leadership behaviour should differ depending on the situation and also the maturity of the employees. Here maturity refers to the employee’s work experience, ability level and their willingness to accept responsibility. Maturity is defined in two separate ways:

For example, a new employee would relate more to a directive/autocratic leadership style, moving to participative as they settle in the job and eventually to laissez-faire as the employee works independently and without close supervision. This approach is suitable not just for leading individuals but also for teams, eg a new team that would need to be led in the initial stages (during forming and storming).

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