Organizational management in theory and practice

Organizational management in theory and practiceManaging organizations in the changing worldMark Baron forKirsti SoramaPh.D., Principal LecturerSeinjoki University of Applied SciencesSchool of Business and Culturehttp://www.seamk.fi/In-EnglishHistory of managementThe history of management extends to several thousand years into the past. However, it is only since the late 19th century, that management is considered a formal discipline - in other words, the practice of management is as old as the human race but its theories and conceptual frameworks are of recent origin.Yet most of the contemporary management thoughts are a twentieth century phenomenon. History of managementWhile early writings on management principles came from experienced practitioners, the more recent writings tend to come from academic theorists, some of whom have had no direct experience in organizational management.

Although, today's management theory is the result of the interdisciplinary efforts of many people.History of managementThe beginning of the modern organization occurred primarily during the middle of the nineteenth century with the rise of the factory system, principally in the textile industry, where automation and mass production became the cornerstone of productivity.Management thinking, however, was slow to evolve during the century. The need existed to define what management was in the first instance as well as to operationalize it in meaningful terms for an organization. 19th centurySteam & Speed: Industry, Power & Social ChangeGrowing middle-class demand for consumer goodsRail networks and steamshipInternational tradeIndustrial base growBefore 19th centuryPractices and techniques of manufacturing were based upon generations of tradition and craftsmanshipSkills were carefully guarded

By 1800 brilliant engineers and entrepreneurs such as Matthew Boulton had made steam power a practical reality. It radically improved Britain's core industries, namely the production of textiles, metalwork and other manufactured goods, and the mining of coal and other raw materials. By 1820 the potential of the steam engine as a viable source of power for ships and railway locomotives had been realised.The importance of agriculture was directly linked to the rapid growth in population. Food production was always a labour-intensive industry, but traditional skills and technologies were increasingly replaced by industrial processes.

4Where work had been based for centuries on the tradition of guilds and trades in which skills were carefully safeguarded, the factories of the Industrial Revolution opened up jobs to unskilled laborers. The further refinement of electricity, which had been a mere curiosity before: the telegraph, electric lights, and eventually radio followed. Each of these inventions changed the world in turn.

Engineering became a science While one can easily argue that far more advances and changes have occurred during the twentieth century, more truly fundamental technological changes occurred in the nineteenth century. Many of our technologies are merely the consequences of the changes that began back then.5History of managementConsciousness raising: Management was to be viewed as a set of practices that could be studied and improved, too. It was to be rooted in economics - achieving maximum efficiency with the resources provided.History of managementDuring the brief history of management as a discipline a number of more or less separate schools of management thought have emerged, some broad, some narrow in scope, and some quite specializedEach sees management from its own viewpoint; none is comprehensiveThese viewpoints can provide several perspectives. Todays management is both a reflection of and a reaction to past management theories Management ThoughtThe schools of management thought are theoretical frameworks for study of managementManagement thinking progressed through several stages as scholars and practitioners working in different eras focused on what they believed to be important aspects of good management practice.Over time, management thinkers have sought ways to organize and classify the voluminous information about management that has been collected and disseminatedThese attempts at classification have resulted in the identification of management schoolsThe term management encompasses an array of different functions undertaken to accomplish a task successfullyIt is the process of designing and maintaining an environment (organization) in which individuals, working to gather in groups, efficiently accomplish selected aimsManagement is all about getting things doneExerciseForm a group with 5-6 membersChoose one company (whatever company, which you all know), which has at least 50 employeesWhat is needed in the company to get things done?Draw a picture where you put the items which you regard as important elements of organization

SYSTEMS

PEOPLE

Operational environmentOutside the organizationInside the organizationPROCESSESCustomersCompetitorsSuppliersPowerOrganizational structureControlInformation flowInformation flowInformation flowNETWORKSKnowledge, skills, motivation Assisting efficiency ofworkflowAssisting workflow and the flow of informationInside the organizationNETWORKSCustomersCompetitorsSuppliersOutside the organizationFlow of materials and productsFlow of materials and productsBusiness EnvironmentBusiness EnvironmentOperational environment

The consciousness of management arise

The consciousness of people in organization arise

The consciousness of people as individuals in the system of organization arise

The consciousness of people as systems arisen

Decade of multidimensional nature of management

Decade of marketing thinking and human behavior

The decade of strategic thinking

Strategic thinking continuesFocus: how to become excellent in your business

Companies as bundlers of intangible resources in fast changing world

The decade of innovation and innovativeness in the world of huge opportunities and threats What next?

How the future of management will look like?

Is everything worth of saying about management already been said? https://www.youtube.com/watch?v=WMF-Z74C1QE

Organizational structure and control theoryFive Major Schools of Management ThoughtMANAGEMENT SCHOOLSBeginning DatesEmphasisCLASSICAL SCHOOL Scientific Management Bureaucratic Management Administrative Management1880s1920s1940sManaging workers and organizations more efficientlyBEHIVIOURAL SCHOOL Human Relations Behavioral Science1930s1950sUnderstanding human behavior in the organizationQUANTITATIVE SCHOOL Management Science Operations ManagementManagement Information Systems 1940s1940s1950s-1970sIncreasing quality of managerial decision-making through the application of mathematical and statistical methodsSYSTEMS SCHOOL1950SUnderstanding the organizations as a system that transforms inputs into outputs while in constant interaction wit its environmentCONTINGENCY SCHOOL1960sApplying management principles and processes as dictated by unique characteristics of each situation26

http://www.youtube.com/watch?v=EryyxLI4IK8 1. CLASSICAL ORGANIZATION THEORYScientific management approachBureaucratic approach Administrative approach

NEO-CLASSICAL APPROACH

2. MODERN ORGANIZATION THEORYSystems approachSocio-technical approachContingency or Situational approachOrganizational theories which explain the organization and its structure can be broadly classified as classical or modern theories.Classical TheoryThere are three Classical theorist who deal with the formal organization and concepts to increase management efficiency. Classical approachesAssumption: People are rationalScientific managementFrederick TaylorAdministrative principleHenry FayolBureaucratic organizationMax WeberScientific ManagementUnderlying AssumptionsThere is One Best Way to do a jobWorkers are primarily motivated by increased earnings

Scientific Management1. One Best Way to do a jobBy applying scientific methods of analysis, it is possible to breakdown the work into tasks and subtasks and rearrange them into the most efficient method of working2. Workers are primarily motivated by increased earnings.By finding the best way of producing, productivity will rise and so workers should receive better wages.This is the basis of the argument that scientific management uses money as a motivator for workers.

Taylors Scientific management require managers toDevelop scientifically each operation to replace opinion and rule of thumbDetermine accurately correct time and methods for each job (time and motion studies)Set up a suitable organization to take all responsibility from the workers except that of the actual job performanceManagement and labor cooperation rather than conflictScientific selection and training of workers Webers theory of bureaucracyPrimary focus: Organizational StructureCornerstone: Existence of written rules

Worker should respect the right of managers to direct activities dictated by organizational rules and proceduresBureaucracy allows for the optimal form of authority - rational authority - rational application of rules or lawsThe rational application of written rules ensures the promotion of legitimate authority and the effective and efficient functioning of the organization.

33Principles of Bureaucracy A managers formal authority derives from the position he or she holds in the organization (STRUCTURE)People should occupy positions because of their performance, not because of their social standing or personal contacts (SPECIALIZATION)The extend of positions formal authority and task responsibilities, and its relationship to other positions in an organization, should be clearly specified. (PREDICTABILITY AND STABILITY)That authority can be exercised effectively in an organization, positions should be arranged hierarhically, so employees know whom to report and who reports to them. (RATIONALITY)Managers must create a well-defined system of rules, standard operating procedures, and norms so that they can effectively control behavior within an organization. (DEMOCRACY)

Fayols early thoughts of administrationAdministrative department is specifically responsible for:ensuring that unity of action, discipline, anticipation, activity, order, etc., exist in all parts of the enterprise;recruiting, organizing and directing the workforce;ensuring good relations between the various departments and with the outside world;coordination of all efforts towards the overall goal;satisfying shareholders and employees; labor and management.Principles of administration:

Unity of commandEvery action must be ordered by one person only or equally For any act the person who carries it out should receive orders from only one boss.From Unity of Command flow several secondary principles, which are, as it were, corollaries of the fundamental principles: (2) the hierarchical transmission or orders, (3) the separation of powers, (4) centralization and (5) order2) Hierarchical transmission of orders (chain-of-command)As an enterprise grows, there comes a time when the leader can no longer provide personal direction to every employee - he therefore appoints intermediaries to transmit directives and to supervise their execution.Its origin is therefore independent of ``Unity of Command:The principles of ``Unity of Command requires that the Leader pass through intermediaries to reach the lower-level employees``Hierarchical transmission of orders which is commonly known as the Hierarchical Principle avoid duality3) Separation of powers - authority, subordination, responsibility and controlEach service and each function is clearly defined and delimitedThe definition of departments and functions carries with it, naturally, the specifications of rights, duties and responsibilities for each.Each must know to whom and for what he gives orders, to whom and for what he must obey.4) Centralization The command exercised by the higher authority and which, be it direct or through successive levels in the organization, reaches all parts of the organization, and the responses which return in the reverse sense, either directly or through the levels, to the central authority, constitute what one has rightly called ``Centralization.The great problem of centralization and decentralization can be summarized as follows: compulsory centralization with the greatest possible individual initiative5) Order One knows the formula for material order: a place for everything and everything in its place.Unity of Command indirectly deals with this matter by imposing delimitation of departments and of the authorities, which are responsible for them: it is the means of avoiding waste of material and time and for avoiding conflicts

37The rights, duties, responsibilities, and the place of each person must be determined and specified.Fayol emphases organizational charts as a method

Organization must be in harmony with the environmentFayol emphases foresight as a method to fit organization to its environmentOrganization charts allow one to see clearly1) that every function has a head;2) that the hierarchical route is well defined;3) that departments or sections within departments are well delimited;4) that centralization is complete;5) that a department can continue in the absence or disability of its head.

38Fayol would embellish ideas as the ``elements or functions of the managers job: planning, organizing, commanding, coordinating and controllingFourteen Principles of Management (Tools for Accomplishing Objectives)Division of work - limited set of tasksAuthority and Responsibility - right to give ordersDiscipline - agreements and sanctionsUnity of Command - only one supervisorUnity of Direction - one manager per set of activitiesSubordination of Individual Interest to General InterestRemuneration of Personnel - fair price for servicesCentralization - reduce importance of subordinates roleScalar Chain - Fayols bridgeOrder - effective and efficient operationsEquity - kindliness and justiceStability of Tenure of Personnel - sufficient time for familiarityInitiative - managers should rely on workers initiativeEsprit de corps - union is strength loyal membersThe major difference between Fayol and Taylor isFayolisms concern with the "human" and behavioral characteristics of employees and Fayol's focus ontraining management instead of focusing on individual worker efficiency.

Fayol stressed the importance and the practice offorecasting andplanningin order to train management and improve workplace productivity.Neo-Classical approachINDIVIDUAL

WORK GROUP

PARTICIPATIVE MANAGEMENTThe human relations movement evolved as a reaction to the tough, authoritarian structure of classical theory.

Neoclassical theory displayed genuine concern for human needs

Neoclassical organizational theory is a criticism of classical theory; attempt to humanize the rigid structureFollows workflow and productivity of classical, but meets employee needsAccording to neoclassical organizational theory, effective organizations are designed with flat hierarchical structures and a high degree of decentralization

41Neoclassical organizational theory: effective organizations are designed with flat hierarchical structures and a high degree of decentralizationFollows workflow and productivity of classical theory, but meets employee needs

Human Relations ApproachHawthorne Studies (1924-1932)Studies of how characteristics of the work setting affected worker fatigue and performance Hawthorne effect workers attitudes toward their managers affect the level of workers performanceImplicationsBehavior of managers and workers in the work setting is as important in explaining the level of performance as the technical aspects of the taskElton Mayo, Abraham Maslow, Douglas McGregor

An organization was viewed as a social system of people-to-people and people-to-work networks in which employees have both social needs and the desire to make meaningful contributions toward the accomplishment of organizational goals.Mayo wanted to find out what effect fatigue and monotony had on job productivity and how to control them through such variables as rest breaks, work hours, temperatures and humidityDemonstrated the importance of understanding how the feelings, thoughts, and behavior of work-group members and managers affect performance

43Behavioral School

Douglas McGregor (19061964)Developed the Theory X (traditionalnegativemanagement approach) and Theory Y (positive management approach) to workers and work motivation.Theory X assumes the average worker is lazy, dislikes work and will do as little as possible.Workers have little ambition and wish to avoid responsibilityManagers must closely supervise and control through reward and punishmentTheory Y assumes workers are not lazy, they want to do a good job and the job itself will determine if the worker likes the work.Managers should allow workers greater latitude, and create an organization to stimulate the workers.

First Neoclassicalist to seriously challenge the tenets of Classical Organizational TheoryCriticized the General Principles of Management (see Fayol) approachThey were inconsistent, conflicting, & inapplicable to many administrative situations facing managersSaid that so-called principles could, with equal logic, be applied in diametrically opposed ways to the same set of circumstances.so-called principles really were proverbsThere is no ONE BEST WAYEfficiency is not a principle it is a definition it does not tell me how to do thingsBounded rationality (Physiological limitations, Value limitations, Knowledge limitations)Consciousness of these limits may alter them

44

Human Relations ApproachBehavioral management theoryAn organization was viewed as a social system of people-to-people and people-to-work networks in which employees have both social needs and the desire to make meaningful contributions toward the accomplishment of organizational goals.

Mary Parker Follett (18681933)Asserted that managers influence and power should flow from their knowledge and skill - capacity for organized thinkingChester Barnard (18861961)Provided insight into the concept of formal (consciously created) and informal (spontaneous) organizations within firms - the role of the executive in creating an atmosphere - manager's authority is derived from subordinates' acceptance

An organization was viewed as a social system of people-to-people and people-to-work networks in which employees have both social needs and the desire to make meaningful contributions toward the accomplishment of organizational goals.Mayo wanted to find out what effect fatigue and monotony had on job productivity and how to control them through such variables as rest breaks, work hours, temperatures and humidityDemonstrated the importance of understanding how the feelings, thoughts, and behavior of work-group members and managers affect performance

46Barnard formulated two theories: one of authority and the other of incentives. He set the rules: The channels of communication should be definite;Everyone should know of the channels of communication;Everyone should have access to the formal channels of communication;Lines of communication should be as short and as direct as possible;Competence of persons serving as communication centers should be adequate;The line of communication should not be interrupted when the organization is functioning;Every communication should be authenticated.Behavioral School

Herbert Simon (1916 2001)Studied decision-making within organizationsProgrammed vs. un-programmedDeveloped the science of improved organizational decision-making through quantitative methods such as operations research and computer technologyTheory of bounded rationality of human beings who satisfice because they do not have the intellectual capacity to maximize

First Neoclassicalist to seriously challenge the tenets of Classical Organizational TheoryCriticized the General Principles of Management (see Fayol) approachThey were inconsistent, conflicting, & inapplicable to many administrative situations facing managersSaid that so-called principles could, with equal logic, be applied in diametrically opposed ways to the same set of circumstances.so-called principles really were proverbsThere is no ONE BEST WAYEfficiency is not a principle it is a definition it does not tell me how to do thingsBounded rationality (Physiological limitations, Value limitations, Knowledge limitations)Consciousness of these limits may alter them

48Characteristics of modern approaches include:Systems viewpoint

Dynamic process of interaction

Multi-leveled and multi-dimensional

Multi-motivated

Probabilistic

Multi-disciplinary

Descriptive

Multi-variable

AdaptiveModern understandings of the organization can be broadly classified into:The systems approachSocio-technical theoryContingency or situational approachSystems approachOrganizations as open systems with interaction their environment in order to surviveOrganizations depend on their environment for several essential resources: customers, suppliers, employees, shareholders, governments etc.

Open-system approach by Katz and Kahn, theyadapted General System Theory to organizational behaviorSystem receive input from the environment either as information or in the form of resourcesThe systems then process the input internally, which is called throughput, and release outputs into the environment in an attempt to restore equilibrium to the environment.The system then seeks feedback to determine if the output was effective in restoring equilibrium.

Systems approachSystems have structure, defined by parts and their composition

Systems have behavior, which involves inputs, processing and outputs of material, energy or information

Systems have interconnectivity: the various parts of a system have functional as well as structural relationships between each other

System(s) have by itself function(s) or group of functions.

Features of system approachFeaturesAdvantages of system approachIt aims at meaningful analysis of organization and management

It facilitates the interaction between organization and its environment

It guide manager to avoid analyzing problems in isolation and to develop an integrated approach

Socio-technical approachBased on the premise that every organization consists of the people, the technical system and the environment (Pasmore, 1988) relation between a nonhuman and a human system

In this view, both systems need to be considered when jointly optimizing the two

Unlike top-down managerial approaches, this emphasize bottom up participation, internalized regulation and work-group autonomySocio-technical approachThe socio-technical approach has focused more on work group interactions than individual performance. Properly structured work groups, it is assumed, can provide incentives, assistance, and social support better than individual job design programs.

Autonomous work groups, quality circles are popular examples of this perspective.

Groups are often given resources and responsibilities for areas like safety and quality control and work as a team to indentify and correct inefficiencies and work issues. The contingency or situational approachIs based on the belief that there cannot be universal guidelines which are suitable for all situations (Burns and Stalker, 1961; Woodward, 1965).

The contingency or situational approachManagement techniques should be dependent upon the circumstances.

Management effectiveness is contingent - or dependent - upon the interplay between the application of management behaviors and specific situations - in other words, the way you manage should change depending upon the circumstances.

The theory states that task or relations motivations is contingent upon whether the manager is able to both control and effect the group's situational favorability, or outcome.The contingency or situational approachAccording to the theory, you can assess situational favorability by three factors:

Leader-member relations.This factor addresses the manager's perception of his cooperative relations with his subordinates. In other words, is the cooperation between you and your employees good or bad?

Task structure.This factor relates to whether the structure of the work task is highly structured, subject to standard procedures and subject to adequate measures of assessment. Certain tasks are easy to structure, standardize and assess, such as the operation of an assembly line.

Position power.This factor asks if the manager's level of authority is based on punishing or rewarding behavior. For example, does the manger derive his authority from providing bonuses for meeting sales goals or terminating employees for failure to meet the goals?

MODERN THEORIES AND STRUCTURES

70, 80, 90s and today

Structure TypesAll organizations require some form of organizational structure to implement and manage their strategies

Firms frequently alter their structure as their grow in size and complexity

Three basic structure type:Simple StructureFunctional structureMulti-divisional Structure (M-form)Simple StructureOwner/ManagerOwner/Manager makes all major decision directly and monitors all activities

Difficult to maintain this structure as the firm grows in size and complexityFunctional StructureChief Executive OfficerCorporate R&DCorporate FinanceStrategic PlanningCorporate MarketingCorporate Human ResourcesFinanceProductionEngineeringAccountingSales and MarketingHuman ResourcesMulti-Divisional StructureFinanceProductionEngineeringAccountingSales and MarketingHuman ResourcesChief Executive OfficerCorporate R&DCorporate FinanceStrategic PlanningCorporate MarketingCorporate Human ResourcesDivisionDivisionDivisionDivisionStrategic NetworksA Strategic Network is a grouping of organizations that has been formed to create value through participation in an array of cooperative arrangements, such as a strategic alliance

A Strategic Center Firm often manages the network

The Strategic Center Firm identifies actions that increase the opportunity for each firm to achieve success through its participation in the network

The Strategic Center Firm creates incentives that reduce the probability of any single firm taking advantage of its network partners

Strategic NetworksCritical aspects of Strategic Center Firms function are:

Strategic Outsourcing, based on core competencies

Capability Development,

Technology Sharing

Building Linkages to Facilitate LearningWhat are learning units?

66Strategic NetworksBilateral cooperationCenter Firm cooperate with each company separately

Multilateral cooperationCenter Firm and partnering companies all togetherCooperating companies have joint strategy and interestsInformation is shared to all membersProcesses are optimized for the best of all partiesCost sharing are even67Exercise

Choose industry of Company you will work on for the rest of the Course