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CH 2 Management Theory

Peter Drucker
“The best way to predict the future is to create it,” Peter Drucker said. The purpose of this book is, to the extent possible, to give you the tools to create your own future as a manager.
Who is Peter Drucker? “He was the creator and inventor of modern management,” says management guru Tom Peters (author of In Search of Excellence). “In the early 1950s, nobody had a tool kit to manage these incredibly complex organizations that had gone out of control. Drucker was the first person to give us a handbook for that.”

An Austrian trained in economics and international law, Drucker came to the United States in 1937, where he worked as a correspondent for British newspapers and later became a college professor. In 1954, he published his famous text, The Practice of Management, in which he proposed that management was one of the major social innovations of the 20th century and that it should be treated as a profession, like medicine or law. In this and other books, he introduced several ideas that now underlie the organization and practice of management—that workers should be treated as assets, that the corporation could be considered a human community, that there is “no business without a customer,” that institutionalized management practices were preferable to charismatic, cult leaders.

Many ideas that you will encounter in this book—decentralization, management by objectives, knowledge workers—are directly traceable to Drucker’s pen. “Without his analysis,” says one writer, “it’s almost impossible to imagine the rise of dispersed, globe-spanning corporations.

Evidence Based Management
Evidence-based management, described in the Manager’s Toolbox, while not invented by Drucker, is very much in the spirit of his rational approach to management. As mentioned, evidence-based management means translating principles based on best evidence into organizational practice, bringing rationality to the decision-making process.
Jeffrey Pfeffer & Robert Sutton
As its two principal proponents, Stanford business scholars Jeffrey Pfeffer and Robert Sutton, put it, evidence-based management is based on the belief that “facing the hard facts about what works and what doesn’t, understanding the dangerous half-truths that constitute so much conventional wisdom about management, and rejecting the total nonsense that too often passes for sound advice will help organizations perform better.”
Historical Perspective
Historical. The historical perspective includes three viewpoints—classical, behavioral, and quantitative.
Contemporary Perspective
Contemporary. The contemporary perspective also includes three viewpoints—systems, contingency, and quality-management.
5 Practical Reasons for Studying This Chapter
1. Understanding of the present. “Sound theories help us interpret the present, to understand what is happening and why,” say Christensen and Raynor. Understanding history will help you understand why some practices are still favored, whether for right or wrong reasons.

2. Guide to action. Good theories help you make predictions and enable you to develop a set of principles that will guide your actions.

3. Source of new ideas. They can also provide new ideas that may be useful to you when you come up against new situations.

4. Clues to meaning of your managers’ decisions. They can help you understand your firm’s focus, where the top managers are “coming from.”

5. Clues to meaning of outside events. Finally, they may allow you to understand events outside the organization that could affect it or you.

3 Historical Viewpoints
1. Classical Viewpoint = Emphasis on ways to manage work more efficiently
-Scientific Management
-Administrative Management

2. Behavioral Viewpoint = Emphasis on important of understanding human behavior and motivating and encouraging employees & achievement
-Early Behaviorists
-Human Relations Movement

3. Quantitative Viewpoint = Applies quantitative techniques to management
-Management Science
-Operations Management

Scientific Management
The problem for which scientific management emerged as a solution was this: In the expansive days of the early 20th century, labor was in such short supply that managers were hard-pressed to raise the productivity of workers. Scientific management emphasized the scientific study of work methods to improve the productivity of individual workers. Two of its chief proponents were Frederick W. Taylor and the team of Frank and Lillian Gilbreth.
Frederick Taylor & The 4 Principles of Scientific Management
No doubt there are some days when you haven’t studied, or worked, as efficiently as you could. This could be called “underachieving,” or “loafing,” or what Taylor called it—soldiering, deliberately working at less than full capacity. Known as “the father of scientific management,” Taylor was an American engineer from Philadelphia who believed that managers could eliminate soldiering by applying four principles of science:

1. Evaluate a task by scientifically studying each part of the task (not use old rule-of-thumb methods).
2. Carefully select workers with the right abilities for the task.
3. Give workers the training and incentives to do the task with the proper work methods.
4. Use scientific principles to plan the work methods and ease the way for workers to do their jobs.

Taylor based his system on motion studies, in which he broke down each worker’s job—moving pig iron at a steel company, say—into basic physical motions and then trained workers to use the methods of their best-performing coworkers. In addition, he suggested employers institute a differential rate system, in which more efficient workers earned higher wages.

Why Taylor Is Important: Although “Taylorism” met considerable resistance from employees fearing that working harder would lead to lost jobs except for the highly productive few, Taylor believed that by raising production both labor and management could increase profits to the point where they no longer would have to quarrel over them. If used correctly, the principles of scientific management can enhance productivity, and such innovations as motion studies and differential pay are still used today.

Frank & Lillian Gilbreth
Bet you’ve never heard of a “therblig,” although it may describe some physical motions you perform from time to time—as when you have to wash dishes, say. A made-up word you won’t find in most dictionaries, therblig was coined by Frank Gilbreth and is, in fact, “Gilbreth” spelled backward, with the “t” and the “h” reversed.

It refers to 1 of 17 basic motions. By identifying the therbligs in a job, as in the tasks of a bricklayer (which he had once been), Frank and his wife, Lillian, were able to eliminate motions while simultaneously reducing fatigue.

The Gilbreths were a husband-and-wife team of industrial engineers who were pioneers in one of the classical approaches to management, part of the historical perspective. As we mentioned, there are three historical management viewpoints or approaches

Administrative Management
Scientific management is concerned with the jobs of individuals.

Administrative management is concerned with managing the total organization. Among the pioneering theorists were Henri Fayol and Max Weber.

Fayol & Weber
Fayol was not the first to investigate management behavior, but he was the first to systematize it. A French engineer and industrialist, he became known to American business when his most important work, General and Industrial Management, was translated into English in 1930.
Why Fayol Is Important: Fayol was the first to identify the major functions of management—planning, organizing, leading, and controlling, as well as coordinating—the first four of which you’ll recognize as the functions providing the framework for this and most other management books.

In our time, the word bureaucracy has come to have negative associations: impersonality, inflexibility, red tape, a molasseslike response to problems. But to German sociologist Max Weber, a bureaucracy was a rational, efficient, ideal organization based on principles of logic.
After all, in Weber’s Germany in the late 19th century, many people were in positions of authority (particularly in the government) not because of their abilities but because of their social status. The result, Weber wrote, was that they didn’t perform effectively.
-A better-performing organization, he indicated, should have five positive bureaucratic features:
-A well-defined hierarchy of authority.
Formal rules and procedures.
-A clear division of labor, with parts of a complex job being handled by specialists.
-Impersonality, without reference or connection to a particular person.
-Careers based on merit.
Why Weber Is Important: Weber’s work was not translated into English until 1947, but it came to have an important influence on the structure of large corporations, such as the Coca-Cola Company.

Problem w/ Classical Viewpoint
A flaw in the classical viewpoint is that it is mechanistic: It tends to view humans as cogs within a machine, not taking into account the importance of human needs. Behavioral theory addressed this problem, as we explain next.

Why the Classical Viewpoint Is Important: The essence of the classical viewpoint was that work activity was amenable to a rational approach, that through the application of scientific methods, time and motion studies, and job specialization it was possible to boost productivity.

Early Behaviorism
The behavioral viewpoint emphasized the importance of understanding human behavior and of motivating employees toward achievement. The behavioral viewpoint developed over three phases:
(1) early behaviorism
(2) the human relations movement
(3) behavioral science.

The three people who pioneered behavioral theory were Hugo Munsterberg, Mary Parker Follett, and Elton Mayo.

Hugo Munsterburg & the 1st Application to Psychology to Industry
Called “the father of industrial psychology,” German-born Hugo Munsterberg had a PhD in psychology and a medical degree and joined the faculty at Harvard University in 1892.

Munsterberg suggested that psychologists could contribute to industry in three ways. They could:
-Study jobs and determine which people are best suited to specific jobs.
-Identify the psychological conditions under which employees do their best work.
-Devise management strategies to influence employees to follow management’s interests.

Why Munsterberg Is Important: His ideas led to the field of industrial psychology, the study of human behavior in workplaces, which is still taught in colleges today.

Mary Parker Follett & Power Sharing
A Massachusetts social worker and social philosopher, Mary Parker Follett was lauded on her death in 1933 as “one of the most important women America has yet produced in the fields of civics and sociology.” Instead of following the usual hierarchical arrangement of managers as order givers and employees as order takers, Follett thought organizations should become more democratic, with managers and employees working cooperatively.

The following ideas were among her most important:
-Organizations should be operated as “communities,” with managers and subordinates working together in harmony.
-Conflicts should be resolved by having managers and workers talk over differences and find solutions that would satisfy both parties—a process she called integration.
-The work process should be under the control of workers with the relevant knowledge, rather than of managers, who should act as facilitators.

Why Follett Is Important: With these and other ideas, Follett anticipated some of today’s concepts of “self-managed teams,” “worker empowerment,” and “interdepartmental teams”—that is, members of different departments working together on joint projects.

Elton Mayo & Hawthorne Effect
Do you think workers would be more productive if they thought they were receiving special attention?

This was the conclusion drawn by a Harvard research group in the late 1920s.

Conducted by Elton Mayo and his associates at Western Electric’s Hawthorne (Chicago) plant, what came to be called the Hawthorne studies began with an investigation into whether workplace lighting level affected worker productivity. (This was the type of study that Taylor or the Gilbreths might have done.) In later experiments, other variables were altered, such as wage levels, rest periods, and length of workday.

Worker performance varied but tended to increase over time, leading Mayo and his colleagues to hypothesize what came to be known as the Hawthorne effect—namely, that employees worked harder if they received added attention, if they thought that managers cared about their welfare, and if supervisors paid special attention to them. However, later investigators found flaws in the studies, such as variations in ventilation and lighting or inadequate follow-through, that were overlooked by the original researchers.

Critics also point out that it’s doubtful that workers improved their productivity merely on the basis of receiving more attention rather than because of a particular instructional method or social innovation.

Why the Hawthorne Studies Are Important: Ultimately, the Hawthorne studies were faulted for being poorly designed and not having enough empirical data to support the conclusions. Nevertheless, they succeeded in drawing attention to the importance of “social man” (social beings) and how managers using good human relations could improve worker productivity. This in turn led to the so-called human relations movement in the 1950s and 1960s.

Human Relations Movement
The two theorists who contributed most to the human relations movement—which proposed that better human relations could increase worker productivity—were Abraham Maslow and Douglas McGregor.
Abraham Maslow & Hierarchy of Needs
What motivates you to perform: Food? Security? Love? Recognition? Self-fulfillment? Probably all of these,

Abraham Maslow would say, although some needs must be satisfied before others. The chairman of the psychology department at Brandeis University and one of the earliest researchers to study motivation, in 1943 Maslow proposed his famous hierarchy of human needs: physiological, safety, love, esteem, and self-actualization.

Douglas McGregor & Theory X Vs. Theory Y
Having been for a time a college president (at Antioch College in Ohio), Douglas McGregor came to realize that it was not enough for managers to try to be liked; they also needed to be aware of their attitudes toward employees.17 Basically, McGregor suggested in a 1960 book, these attitudes could be either “X” or “Y.”

Theory X represents a pessimistic, negative view of workers. In this view, workers are considered to be irresponsible, to be resistant to change, to lack ambition, to hate work, and to want to be led rather than to lead.

Theory Y represents the outlook of human relations proponents—an optimistic, positive view of workers. In this view, workers are considered to be capable of accepting responsibility, self-direction, and self-control and of being imaginative and creative.

Why Theory X/Theory Y Is Important: The principal contribution offered by the Theory X/Theory Y perspective is that it helps managers understand how their beliefs affect their behavior.
For example, Theory X managers are more likely to micromanage, which leads to employee dissatisfaction, because they believe employees are inherently lazy.
Managers can be more effective by considering how their behavior is shaped by their expectations about human nature. Underlying both Maslow’s and McGregor’s theories is the notion that more job satisfaction leads to greater worker performance—an idea that is somewhat controversial.

The Behavioral Science Approach
The human relations movement was a necessary correction to the sterile approach used within scientific management, but its optimism came to be considered too simplistic for practical use.

More recently, the human relations view has been superseded by the behavioral science approach to management.

Behavioral science relies on scientific research for developing theories about human behavior that can be used to provide practical tools for managers. The disciplines of behavioral science include psychology, sociology, anthropology, and economics.

Quantitative Management
The application to management of quantitative techniques, such as statistics and computer simulations. Two branches of quantitative management are management science and operations management.
Management Science
Management science is not the same as Taylor’s scientific management. Management science focuses on using mathematics to aid in problem solving and decision making. Sometimes management science is called operations research.

Why Management Science Is Important: Management science stresses the use of rational, science-based techniques and mathematical models to improve decision making and strategic planning. Its use is consistent with the practice of evidence-based management already discussed.

Operations Management
Operations management focuses on managing the production and delivery of an organization’s products or services more effectively. Operations management is concerned with work scheduling, production planning, facilities location and design, and optimum inventory levels.

Why Operations Management Is Important: Through the rational management of resources and distribution of goods and services, operations management helps ensure that business operations are efficient and effective.

3 Contemporary Viewpoints
1. The Systems Viewpoint
-Quality Control = Regards the organization as systems of interrelated parts that operate together to achieve a common purpose

2. The Contingency Viewpoint = Emphasizes that a managers approach should vary accordingly to be continent on the individual & environmental situation
-Quality Assurance

3. The Quality Management Viewpoint = Three approaches
-Total Quality Management

The Systems Viewpoint
A system is a set of interrelated parts that operate together to achieve a common purpose. Even though a system may not work very well—as in the inefficient way the Russian government collects taxes, for example—it is nevertheless still a system.

The systems viewpoint regards the organization as a system of interrelated parts. By adopting this point of view, you can look at your organization both as (1) a collection of subsystems—parts making up the whole system—and (2) a part of the larger environment.

A college, for example, is made up of a collection of academic departments, support staffs, students, and the like. But it also exists as a system within the environment of education, having to be responsive to parents, alumni, legislators, nearby townspeople, and so on.

4 Parts of a System
The vocabulary of the systems perspective is useful because it gives you a way of understanding many different kinds of organizations. The four parts of a system are defined as follows:
1. Inputs are the people, money, information, equipment, and materials required to produce an organization’s goods or services. Whatever goes into a system is an input.

2. Transformation processes are the organization’s capabilities in management, internal processes, and technology that are applied to converting inputs into outputs. The main activity of the organization is to transform inputs into outputs.

3. Outputs are the products, services, profits, losses, employee satisfaction or discontent, and the like that are produced by the organization. Whatever comes out of the system is an output.

4. Feedback is information about the reaction of the environment to the outputs that affects the inputs. Are the customers buying or not buying the product? That information is feedback.

Open & Closed Systems
An open system continually interacts with its environment.

A closed system has little interaction with its environment; that is, it receives very little feedback from the outside.
The classical management viewpoint often considered an organization a closed system.

Complexity Theory: The Ultimate Open System
The systems viewpoint has led to the development of complexity theory, the study of how order and pattern arise from very complicated, apparently chaotic systems.

Complexity theory recognizes that all complex systems are networks of many interdependent parts that interact with each other according to certain simple rules. Used in strategic management and organizational studies, the discipline seeks to understand how organizations, considered as relatively simple and partly connected structures, adapt to their environments.

Why the Systems Viewpoint—Particularly the Concept of Open Systems—Is Important: History is full of accounts of products that failed (such as the 1959 Ford Edsel) because they were developed in closed systems and didn’t have sufficient feedback. Open systems stress multiple feedback from both inside and outside the organization, resulting in a continuous learning process to try to correct old mistakes and avoid new ones.

Gary Hammel
Discussion of the contingency viewpoint leads us naturally to the thoughts of Gary Hamel, cofounder of the Management Innovation Lab and ranked by The Wall Street Journal in 2008 as the most influential business thinker.

“Over time,” he says, “every great invention, management included, travels a road that leads from birth to maturity, and occasionally to senescence.” Hamel holds that much of management theory is dated and doesn’t fit the current realities of organizational life and that management innovation is essential to future organizational success. Indeed, he suggests, what we need to do is look at management as a process, and then make improvements and innovation ongoing and systematic. After all, if managers now innovate by creating new products or new business strategies, why can’t they be equally innovative in how they manage their companies?

How do forward-looking managers get the ball rolling in management innovation, particularly in a traditional, conventional company? Hamel believes that the answer can be found by identifying core beliefs that people have about the organization, especially those that detract from the pursuit of management innovation. He suggests that these beliefs can be rooted out by repeatedly asking the right questions—namely, the following:
Is this a belief worth challenging? Is it debilitating? Does it get in the way of an important organizational attribute that we’d like to strengthen?
Is this belief universally valid? Are there counterexamples? If so, what do we learn from those cases?
How does this belief serve the interests of its adherents? Are there people who draw reassurance or comfort from this belief?
Have our choices and assumptions conspired to make this belief self-fulfilling? Is this belief true simply because we have made it true—and, if so, can we imagine alternatives?

The Contingency Viewpoint
The contingency viewpoint emphasizes that a manager’s approach should vary according to—that is, be contingent on—the individual and the environmental situation.

Why the Contingency Viewpoint Is Important: The contingency viewpoint would seem to be the most practical of the viewpoints discussed so far because it addresses problems on a case-by-case basis and varies the solution accordingly.

Quality Management Viewpoint
Quality refers to the total ability of a product or service to meet customer needs. Quality is seen as one of the most important ways of adding value to products and services, thereby distinguishing them from those of competitors. Two traditional strategies for ensuring quality are quality control and quality assurance.

Although not a “theory” as such, the quality-management viewpoint, which includes quality control, quality assurance, and total quality management, deserves to be considered because of the impact of this kind of thinking on contemporary management perspectives.

Quality Control
Quality control is defined as the strategy for minimizing errors by managing each stage of production. Quality control techniques were developed in the 1930s at Bell Telephone Labs by Walter Shewart, who used statistical sampling to locate errors by testing just some (rather than all) of the items in a particular production run.
Quality Assurance
Developed in the 1960s, quality assurance focuses on the performance of workers, urging employees to strive for “zero defects.” Quality assurance has been less successful because often employees have no control over the design of the work process.
W Edwards Deming
In the years after World War II, the imprint “Made in Japan” on a product almost guaranteed that it was cheap and flimsy. That began to change with the arrival in Japan of two Americans, W. Edwards Deming and Joseph M. Juran.

W. Edwards Deming Desperate to rebuild its war-devastated economy, Japan eagerly received mathematician W. Edwards Deming’s lectures on “good management.” Deming believed that quality stemmed from “constancy of purpose”—steady focus on an organization’s mission—along with statistical measurement and reduction of variations in production processes. He also thought that managers should stress teamwork, be helpful rather than simply give orders, and make employees feel comfortable about asking questions.

In addition, Deming proposed his so-called 85-15 rule—namely, when things go wrong, there is an 85% chance that the system is at fault, only a 15% chance that the individual worker is at fault. (The “system” would include not only machinery and equipment but also management and rules.) Most of the time, he thought, managers erroneously blamed individuals rather than the system.

Joseph M Duran
Another pioneer with Deming in Japan’s quality revolution was Joseph M. Juran, who defined quality as “fitness for use.” By this he meant that a product or service should satisfy a customer’s real needs. Thus, the best way to focus a company’s efforts, Juran suggested, was to concentrate on the real needs of customers.
From the work of Deming and Juran has come the strategic commitment to quality known as total quality management.

Total quality management (TQM) is a comprehensive approach—led by top management and supported throughout the organization—dedicated to continuous quality improvement, training, and customer satisfaction.

The four components of TQM are as follows:
1. Make continuous improvement a priority. TQM companies are never satisfied. They make small, incremental improvements an everyday priority in all areas of the organization. By improving everything a little bit of the time all the time, the company can achieve long-term quality, efficiency, and customer satisfaction.

2. Get every employee involved. To build teamwork, trust, and mutual respect, TQM companies see that every employee is involved in the continuous improvement process. This requires that workers must be trained and empowered to find and solve problems.

3. Listen to and learn from customers and employees. TQM companies pay attention to their customers, the people who use their products or services. In addition, employees within the companies listen and learn from other employees, those outside their own work areas.

4. Use accurate standards to identify and eliminate problems. TQM organizations are always alert to how competitors do things better, then try to improve on them—a process known as benchmarking. Using these standards, they apply statistical measurements to their own processes to identify problems.

Why Total Quality Management Is Important: The total quality management viewpoint emphasizes infusing concepts of quality throughout the total organization in a way that will deliver quality products and services to customers. The adoption of TQM helped American companies deal with global competition.

Learning Organization
More formally, a learning organization is an organization that actively creates, acquires, and transfers knowledge within itself and is able to modify its behavior to reflect new knowledge.

Note the three parts:
1. Creating and acquiring knowledge. In learning organizations, managers try to actively infuse their organizations with new ideas and information, which are the prerequisites for learning. They acquire such knowledge by constantly scanning their external environments, by not being afraid to hire new talent and expertise when needed, and by devoting significant resources to training and developing their employees.

2. Transferring knowledge. Managers actively work at transferring knowledge throughout the organization, reducing barriers to sharing information and ideas among employees. Electronic Data Systems (EDS), for instance, practically invented the information-technology services industry, but by 1996 it was slipping behind competitors—missing the onset of the Internet wave, for example. When a new CEO, Dick Brown, took the reins in 1999, he changed the culture from “fix the problem yourself” to sharing information internally.

3. Modifying behavior. Learning organizations are nothing if not results oriented. Thus, managers encourage employees to use the new knowledge obtained to change their behavior to help further the organization’s goals.

3 Roles of a Learning Organization
To create a learning organization, managers must perform three key functions or roles: (1) build a commitment to learning, (2) work to generate ideas with impact, and (3) work to generalize ideas with impact.

1. You can build a commitment to learning. To instill in your employees an intellectual and emotional commitment to the idea of learning, you as a manager need to lead the way by investing in it, publicly promoting it, creating rewards and symbols of it, and performing other similar activities. For example, Mark Pigott, chairman of PACCAR, Inc., which makes Kenworth and Peterbilt trucks, accomplished this by looking at other kinds of businesses and learning from their success. By focusing intently on how to improve quality, PACCAR can charge up to 10% more than competitors for its trucks.51

2. You can work to generate ideas with impact. As a manager, you need to try to generate ideas with impact—that is, ideas that add value for customers, employees, and shareholders—by increasing employee competence through training, experimenting with new ideas, and engaging in other leadership activities.
Soon after Dick Brown became new CEO of EDS, he saw that the company had to be reinvented as a cool brand to make people feel good about working there. His marketing director decided to launch a new campaign at the biggest media event of all: the Super Bowl. EDS ran an ad showing rugged cowboys riding herd on 10,000 cats. The message: “We ride herd on complexity.”

3. You can work to generalize ideas with impact. Besides generating ideas with impact, you can also generalize them—that is, reduce the barriers to learning among employees and within your organization. You can create a climate that reduces conflict, increases communication, promotes teamwork, rewards risk taking, reduces the fear of failure, and increases cooperation. In other words, you can create a psychologically safe and comforting environment that increases the sharing of successes, failures, and best practices.

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