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UNIT II : EVOLUTION OF MANAGEMENT THEORY

Scientific Management theory y Modern management began in the late 19th century. o Organizations were seeking ways to better satisfy customer needs. o Machinery was changing the way goods were produced. o Managers had to increase the efficiency of the worker-task mix.

Job specialization y Adam Smith, 18th century economist, found firms manufactured pins in two ways: o Craft -- each worker did all steps. o Factory -- each worker specialized in one step. Smith found that the factory method had much higher productivity. o Each worker became very skilled at one, specific task. Breaking down the total job allowed for the division of labor.

Scientific Management y y Defined by Frederick Taylor, late 1800s. The systematic study of the relationships between people and tasks to redesign the work for higher efficiency. o Taylor sought to reduce the time a worker spent on each task by optimizing the way the task was done.

The 4 Principles y Four Principles to increase efficiency:

1. Study the way the job is performed now & determine new ways to do it.   Gather detailed, time and motion information. Try different methods to see which is best.

2. Codify the new method into rules.  Teach to all workers.

3. Select workers whose skills match the rules set in Step 2. 4. Establish a fair level of performance and pay for higher performance.  Workers should benefit from higher output.

Problems of Scientific Management y Managers often implemented only the increased output side of Taylors plan. o They did not allow workers to share in increased output. o Specialized jobs became very boring, dull. o Workers ended up distrusting Scientific Management. Workers could purposely under-perform Management responded with increased use of machines.

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The Gilbreths y Frank and Lillian Gilbreth refined Taylors methods. o Made many improvements to time and motion studies. Time and motion studies: o 1. Break down each action into components. o 2. Find better ways to perform it. o 3. Reorganize each action to be more efficient. Gilbreths also studied fatigue problems, lighting, heating and other worker issues.

Administrative Management y y Seeks to create an organization that leads to both efficiency and effectiveness. Max Weber developed the concept of bureaucracy. o A formal system of organization and administration to ensure effectiveness and efficiency. o Weber developed the Five principles shown in Figure 2.2.

Key points of Bureaucracy Authority is the power to hold people accountable for their actions. Positions in the firm should be held based on performance not social contacts. Position duties are clearly identified. People should know what is expected of them. Lines of authority should be clearly identified. Workers know who reports to who. Rules, Standard Operating Procedures (SOPs), & Norms used to determine how the firm operates. o Sometimes, these lead to red-tape and other problems.

Fayols Principles y Henri Fayol, developed a set of 14 principles: 1. Division of Labor: allows for job specialization.  Fayol noted firms can have too much specialization leading to poor quality and worker involvement.

2. Authority and Responsibility: Fayol included both formal and informal authority resulting from special expertise. 3. Unity of Command: Employees should have only one boss. 4. Line of Authority: a clear chain from top to bottom of the firm. 5. Centralization: the degree to which authority rests at the very top. 6. Unity of Direction: One plan of action to guide the organization. 7. Equity: Treat all employees fairly in justice and respect. 8. Order: Each employee is put where they have the most value. 9. Initiative: Encourage innovation. 10. Discipline: obedient, applied, respectful employees needed. 11. Remuneration of Personnel: The payment system contributes to success. 12. Stability of Tenure: Long-term employment is important.

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13. General interest over individual interest: The organization takes precedence over the individual. 14. Esprit de corps: Share enthusiasm or devotion to the organization.

Behavioral Management y y Focuses on the way a manager should personally manage to motivate employees. Mary Parker Follett: an influential leader in early managerial theory. o Suggested workers help in analyzing their jobs for improvements. o The worker knows the best way to improve the job. o If workers have the knowledge of the task, then they should control the task.

The Hawthorne Studies y Study of worker efficiency at the Hawthorne Works of the Western Electric Co. during 1924-1932. o Worker productivity was measured at various levels of light illumination. o Researchers found that regardless of whether the light levels were raised or lowered, productivity rose. Actually, it appears that the workers enjoyed the attention they received as part of the study and were more productive.

Theory X and Y y Douglas McGregor proposed the two different sets of worker assumptions. o Theory X: Assumes the average worker is lazy, dislikes work and will do as little as possible.  Managers must closely supervise and control through reward and punishment. o Theory Y: Assumes workers are not lazy, want to do a good job and the job itself will determine if the worker likes the work.  Managers should allow the worker great latitude, and create an organization to stimulate the worker.

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Theory Z y William Ouchi researched the cultural differences between Japan and USA. o USA culture emphasizes the individual, and managers tend to feel workers follow the Theory X model. o Japan culture expects worker committed to the organization first and thus behave differently than USA workers. Theory Z combines parts of both the USA and Japan structure.

Management Science y Uses rigorous quantitative techniques to maximize resources. Quantitative management: utilizes linear programming, modeling, simulation systems. Operations management: techniques to analyze all aspects of the production system. Total Quality Management (TQM): focuses on improved quality. Management Information Systems (MIS): provides information about the organization. Organization-Environment Theory y Considers relationships inside and outside the organization. o The environment consists of forces, conditions, and influences outside the organization. Systems theory considers the impact of stages: Input: acquire external resources. Conversion: inputs are processed into goods and services. Output: finished goods are released into the environment. Systems Considerations y An open system interacts with the environment. A closed system is self-contained. o Closed systems often undergo entropy and lose the ability to control itself, and fails. Synergy: performance gains of the whole surpass the components. o Synergy is only possible in a coordinated system.

Contingency Theory y Assumes there is no one best way to manage. o The environment impacts the organization and managers must be flexible to react to environmental changes. o The way the organization is designed, control systems selected, depend on the environment. Technological environments change rapidly, so must managers.

Structures y Mechanistic: Authority is centralized at the top. (Theory X) o Employees closely monitored and managed. o Very efficient in a stable environment. Organic: Authority is decentralized throughout employees. (Theory Y) o Much looser control than mechanistic. o Managers can react quickly to changing environment.

UNIT III: THE ORGANIZATIONAL ENVIRONMENT

Organizational Environment y Organizational Environment: those forces outside its boundaries that can impact it. o Forces can change over time and are made up of Opportunities and Threats. Opportunities: openings for managers to enhance revenues or open markets. o New technologies, new markets and ideas. Threats: issues that can harm an organization. o economic recessions, oil shortages. Managers must seek opportunities and avoid threats.

Task Environment y y Task Environment: forces from suppliers, distributors, customers, and competitors. Suppliers: provide organization with inputs o Managers need to secure reliable input sources. o Suppliers provide raw materials, components, and even labor.

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Working with suppliers can be hard due to shortages, unions, and lack of substitutes.  Suppliers with scarce items can raise the price and are in a good bargaining position. Managers often prefer to have many, similar suppliers of each item. 

Task Environment y Distributors: organizations that help others to sell goods. o Compaq Computer first used special computer stores to sell their computers but later sold through discount stores to reduce costs. o Some distributors like Wal-Mart have strong bargaining power.  They can threaten not to carry your product. Customers: people who buy the goods. o Usually, there are several groups of customers.  For Compaq, there are business, home, & government buyers. Competitors: other organizations that produce similar goods. o Rivalry between competitors is usually the most serious force facing managers. o High levels of rivalry often means lower prices.  Profits become hard to find. o Barriers to entry keep new competitors out and result from:  Economies of scale: cost advantages due to large scale production.  Brand loyalty: customers prefer a given product.

Industry Life Cycle y y Reflects the changes that take place in an industry over time. Birth stage: firms seek to develop a winning technology. o VHS vs. Betamax in video, or 8-track vs. cassette in audio. Growth stage: Product gains customer acceptance and grows rapidly. o New firms enter industry, production improves, distributors emerge. Shakeout stage: at end of growth, there is a slowing customer demand. o Competitor rivalry increases, prices fall. o Least efficient firms fail and leave industry. Maturity stage: most customers have bought the product, growth is slow. o Relationships between suppliers, distributors more stable. o Usually, industry dominated by a few, large firms. Decline stage: falling demand for the product. o Prices fall, weaker firms leave the industry.

The General Environment

Consists of the wide economic, technological, demographic and similar issues. o Managers usually cannot impact or control these. o Forces have profound impact on the firm. Economic forces: affect the national economy and the organization. o Includes interest rate changes, unemployment rates, economic growth. o When there is a strong economy, people have more money to spend on goods and services. Technological forces: skills & equipment used in design, production and distribution. o Result in new opportunities or threats to managers. o Often make products obsolete very quickly. o Can change how we manage. Socialcultural forces: result from changes in the social or national culture of society. o Social structure refers to the relationships between people and groups.  Different societies have vastly different social structures. o National culture includes the values that characterize a society.  Values and norms differ widely throughout the world. o These forces differ between cultures and over time.

Demographic forces: result from changes in the nature, composition and diversity of a population. o These include gender, age, ethnic origin, etc.  For example, during the past 20 years, women have entered the workforce in increasing numbers. o Currently, most industrial countries are aging.  This will change the opportunities for firms competing in these areas.  New demand for health care, assisting living can be forecast.

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Political-legal forces: result from changes in the political arena. o These are often seen in the laws of a society. o Today, there is increasing deregulation of many state-run firms. Global forces: result from changes in international relationships between countries. o Perhaps the most important is the increase in economic integration of countries. o Free-trade agreements (GATT, NAFTA, EU) decreases former barriers to trade. o Provide new opportunities and threats to managers.

Managing the Organization Environment y Managers must measure the complexity of the environment and rate of environmental change. Environmental complexity: deals with the number and possible impact of different forces in the environment. o Managers must pay more attention to forces with larger impact. o Usually, the larger the organization, the greater the number of forces managers must oversee. The more forces, the more complex the mangers job becomes. Environmental change: refers to the degree to which forms in the task and general environments change over time. o Change rates are hard to predict. o The outcomes of changes are even harder to identify. Managers thus cannot be sure that actions taken today will be appropriate in the future given new changes.

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Reducing Environmental Impact y Managers can counter environmental threats by reducing the number of forces. o Many firms have sought to reduce the number of suppliers it deals with which reduces uncertainty. All levels of managers should work to minimize the potential impact of environmental forces. o Examples include reduction of waste by first line managers, determining competitors moves by middle managers, or the creation of a new strategy by top managers.

Organizational Structure y Managers can create new organizational structures to deal with change. o Many firms use specific departments to respond to each force. Managers also create mechanistic or organic structures. o Mechanistic structures have centralized authority.  Roles are clearly specified.  Good for slowly changing environments. o Organic structures authority is decentralized.  Roles overlap, providing quick response to change.

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Boundary Spanning y Managers must gain access to information needed to forecast future issues. o Rod Canions forecast of Compaqs future was wrong due to his incorrect view of the environment. Boundary spanning is the practice of relating to people outside the organization. o Seek ways to respond and influence stakeholder perception. o By gaining information outside, managers can make better decisions about change. More management levels involved in spanning, yields better overall decision making.

Scanning and Monitoring y Environmental scanning is an important boundary spanning activity. o Includes reading trade journals, attending trade shows, and the like. Gatekeeping: the boundary spanner decides what information to allow into organization and what to keep out. o Must be careful not to let bias decide what comes in. Interorganizational Relations: firms need alliances globally to best utilize resources. o Managers can become agents of change and impact the environment.