Management Theory | Personal Finance Lab 03/04/2018, 10*39 PM

Management Theory
Carla Spoto

When holding a job, there are usually certain people that have specific
“titles” that describe the work that they do. With those titles, comes the
chain of command, which can be looked at as a flow chart:

The CEO –> who oversees Management –> who oversees Associates.

These managers organize and coordinate the activities of the business to

achieve specific goals. While the chain of command is fairly
straightforward, the middle part, or Management, has many different ways
of functioning.

Defining Management
What exactly is management? Is
there only one way to manage?
Management is the organization and
coordination of the activities within
a business to meet specific goals.
Management creates policy and
organizes, plans, controls, and
directs a company’s resources to
complete the objectives of that
policy. Do all managers manage the
same way? Do they all follow the same guidelines to meet their goals? As a
matter of fact, management can be done in a number of different ways to
achieve different goals within a business. The different ways managers
define guidelines, set goals, and organize the company is collectively
known as “Management Theories“, while the ideas behind ways
managers interact with associates and lower-level managers are known as

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“Motivational Theories“. Some of the most prevalent management

theories were first formulated by by Frederick Taylor, Max Weber and
Henri Fayol, while some of the most potent motivational theories were
formulated by Abraham Maslow, and Frederick Herzberg.

Management Theories
Management theories are implemented to help increase productivity and
service in the business environment. Frederick Taylor, Max Weber, and
Henri Fayol all had different views on management and how employees
should work and how a business should run.

Frederick Taylor – Scientific Management

Frederick Taylor’s theory of scientific management developed techniques
for improving the efficiency of the work process. He set up a systematic
study of people, tasks and work behavior to break down the work process
into small units or sub-tasks. He did this so he can determine the most
efficient method possible for the completion of a specific job. Taylor was
focused on finding a method that can get the most amount of work done in
a certain time frame. This management theory is using employees based
on their optimal performance. What this means is that he found what
employees are good at and made them stick to that one task. This is like an
assembly line for the production of furniture or cars. Employee 1 will
assemble the back of the chair while employee 2 does the legs, and so on
and so forth. This improved productivity because each person focused on
one task at hand and this was able to speed production. Taylor also had a
reward system for improved productivity. Through this management
theory, there had been development for current management theories:
Setting up bonus programs, commission based jobs, better personal
practices, departmentalization, and widespread improvements in quality
control.

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Max Weber – Bureaucratic Management

Max Weber had a bureaucratic
management theory built on
principles of Frederick Taylor Weber
focused on making a system based
on standardized procedures and a
clear chain of command. The chain
of command is top-down
management where employees
answer to their department
managers, who answer to their managers who then answer to the CEO in a
pyramid structure. Weber stressed efficiency and while he focused on a
bureaucratic way of doing things, he stressed the dangers that a true
bureaucracy could face. Max Weber feared that a company would hire
someone who will not be qualified for the job, so he stressed that
employees only be hired if they possess the skill set of the job. While this
may seem obvious, the reason this is important is because Weber’s
management theory puts in place to make sure the employees being hired
are competent, or can be weeded out of the company. Through this
management theory, there had been development for current management
theories: Job roles, authority hierarchy, strict record keeping, standardized
procedures and hiring employees if their skills match those that are needed
in the job.

Henri Fayol’s 14 Principles

Henri Fayol Management Theory- Henri Fayol’s Management theory is a
simple model that displays how management interacts with personnel. His
management theory is based on 14 principles of management which are as
follows:

1. Division of work – Departmentalizing the business to promote

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efficiency of the workforce to increase productivity. The specialization

of the workforce increases accuracy and speed.
2. Authority and responsibility – Managers have the authority to
give orders to employees and are responsible for that employee to get
the job done. It is necessary to make agreements about this because
the responsibility can be traced back from performance.
3. Discipline – This principle is about the obedience of management
and is a core value of the company’s mission statement. This is an
essential principle to run the organization smoothly
4. Unity of command – This means that an employee should receive
orders from one manager and answers to that manager. If more than
one manager gives tasks to one employee, it can lead to confusion and
conflicts.
5. Unity of direction – Employee’s work in teams directed by a plan of
action and monitored by management to get the job done. The
manager is responsible for the performance of the group.
6. Subordination of individual interest – Fayol stressed that
personal interested are subordinate to the interest of the organization
and the primary focus is of the organization not the individual.
7. Remuneration – Ultimately, this is about rewarding the efforts of
the employees. Rewards can come in a non-monetary form
(compliments, credits) or monetary form (bonus, compensation).
8. The degree of centralization – This implies the concentration of
decision-making authority at the top of the management pyramid, But
also depends on the size of the organization.
9. Scalar chain – Top-down hierarchal management, which varies
from senior management to low levels of management. This can also
be seen as a type of management structure.
10. Order – Employee’s must have the right resources at their disposal
so that they can function properly. Managers must also function in an
orderly way.
11. Equity – Employee’s must be in the right place in the organization to

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do things right. This increases production efficiency (if John is good at

making spreadsheets and is nervous talking to people, management
wouldn’t have John answering phones).
12. Stability of tenure personnel – Minimize employee turnover by
investing in the right staff and putting them in the right department.
13. Initiative – Principle employee’s should be allowed to express new
ideas to add value to the company, encouraging employees to be
involved.
14. Esprit de Corps – Striving for the involvement and unity of the
employees. Managers are responsible for the development of morale
in the workplace.

Democratic Styles
A democratic style of management
allows management and its staff to
have significant responsibility. This
is also sometimes called “Lateral
Management”, or “Flat”
organizations, since it is defined by
fewer levels of middle management
between associates and the top
management. It gives employees a chance to have a voice and it is often
combined with participatory leadership by collaborating between leaders
and the people they guide. The democratic style splits responsibility
between staff.

Democratic styles of management have become much more common in

recent years, since lower-level associates tend to be more motivated by
having a larger “voice” in the company. This has an important trade-off:
since there are fewer levels of management, the higher-level managers
need to choose between spending more time developing broad strategies,
while risking individual associates may not be working as efficiently as they

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could be, or micro-managing the associates to improve efficiency on

smaller projects, but at the risk of losing coherent vision.

Fayol, Weber, and Taylor all had interrelated management theories. They
all focused on one main goal – maximizing the productivity of the
business. It is said that Frederick Taylor had an autocratic style, Weber
had a bureaucratic style and Fayol had more of human resource style.
Over the years, these management theories have been merged by different
organizations and businesses. Mostly all companies combine these
theories to best fit the needs of the organization and its goals, and
managers use combined management skills such as bureaucratic,
democratic, autocratic and human relations to manage their employees.

Motivational Theories
Motivational theory is discovering what drives individuals to work towards
a specific goal or outcome. Most motivational theories differentiate
between intrinsic and extrinsic factors. The two biggest core motivational
theories are the hierarchy of needs theory, which was coined by a
psychologist named Abraham Maslow in 1943, and the 2-factor theory that
was identified by Frederick Herzberg.

Hierarchy of Needs – Abraham Maslow

Maslow focused on the notion that “People have needs”. Those who work
must have these needs met in order to increase productivity and self-
satisfaction. His hierarchy of needs shows that there are five main needs
that follow an order of importance to the human. One important thing to
note is that Maslow’s contention that ones well being increases, as the
higher level needs are met. The hierarchy is shown as a pyramid and we
start at the bottom, which is the most needed.

1. Physiological needs – These are the basic needs of a person

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including sleep, hunger, thirst, shelter

2. Safety needs – Security, protection from danger
3. Social needs – Sometimes referred to as the “love” need. Friendship,
giving & receiving love, and social activities.
4. Esteem needs – Includes self-respect and the esteem of others
5. Self actualization – This is the desire to reach ones full potential, to
become everything you can be.

Dual Factor Theory – Frederick Herzberg

Herzberg focused on a dual factor theory which states that certain factors
in a workplace cause job satisfaction with a separate set of factors cause
dissatisfaction.

Factors for satisfaction

1. Achievement – The employee’s efforts need to result in a tangible

achievement, rather than a constant struggle
2. Recognition – Employees must receive recognition for the work
they do
3. The Work – The employee must actually enjoy (or at least not
despise) the actual work itself
4. Responsibility – The employee needs to feel responsible, that their
job is important and the fruit of their labors is necessarily to the
organization
5. Advancement – Employees prefer not to have “dead-end jobs”,
where there is eventual possibility of advancement
6. Growth – The employee is building new skills and competencies over
time

Herzberg argued that employees work better and produce more when
these 6 factors are present in the organization. This means that the job
should have challenges that utilize the full ability of the employee. When

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the employee demonstrates that they can handle the challenging work,
they will be given more responsibility.

Factors for dissatisfaction

1. Company policies –
Company policies that seem
arbitrary or “in the way” are a
major cause of dissatisfaction
2. Supervision – Over-
supervised employees to not
feel trusted, and productivity
tends to suffer
3. Relationship with supervisor and peers – Negative
interpersonal relationships in a work environment will cause a major
drain on productivity
4. Work conditions – If employees are not happy with the conditions
under which they are expected to work, their productivity will suffer
5. Salary – Under-paid employees are less likely to take pride in their
work, since it can be a reflection that their work is under-valued
6. Status – Status within the company means how much their voice is
heard. Employees who feel they are at the “bottom of the ladder” are
less likely to take their jobs seriously
7. Security – Jobs with no job security are far more stressful, which is a
major drain on efficiency and productivity

If an employee doesn’t feel secure with their job, is receiving a low salary
and cant support themselves, and there is too much micro managing, the
employee will be dissatisfied and will not work as well and produce quality
work.

It is important for companies to meet the motivational needs of their

employees in order to make the company grow. It is also important to

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adapt to a way of managing so that the employees are happy in their

environment so they can produce high quality work. Traditional and
current management theories are applied in the business environment by
combining the different types to better serve the organization and the work
environment. Depending on the type of business that the employee is in,
will determine the type of management in the work place, but the employer
must always make sure they meet the motivational needs of the employees
in order to succeed.

Pop Quiz

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