Business Management

views updated May 23 2018

Business Management


Management is a term that is used to describe a particular kind of behavior within an organization. Specifically, the term describes the behavior of those responsible for the decisions that determine the allocation of the physical and human resources within an organization. It is increasingly recognized that the management function is built upon the social sciences and provides them with interesting problems. Management bears the same relationship to the social sciences that medicine does to such fields as chemistry, physiology, and anatomy.

The central core of the management function, which has made this area of great interest to social scientists, is decision-making behavior. Since this behavior governs the allocation of the resources of a firm, economists in particular have been attracted to the study of management. There is an obvious relationship between the theory of the firm and the field of management. In the theory of the firm under perfect competition, the economist has abstracted significantly from the problems of management and has substituted a simple decision rule for determining price and output. In markets that deviate from the perfectly competitive, the internal structure of the firm and the role of the manager as a decision maker become important. Market forces may no longer dominate the decision but may become only one set of variables in a process that must involve a number of other variables (Cyert & March 1963).

Recognition of the importance of management to the theory of the firm has led to an increase in field studies concentrating on decision making. Concurrently, there has been an increase in interest on the part of social scientists in particular decisions within certain areas of management (Simon 1960). Economists, for example, have become interested in the financial decisions of the firm, and psychologists have become interested in certain marketing decisions. This interaction has been extremely fruitful for the field of management. [SeeAdministration, article onadministrative behavior; Investment, article onthe investment decision.]

General management. Traditionally, social scientists have viewed the managerial function in simplified terms. Economics has generally posited a single owner whose function it is to make decisions on price and output by using highly rigid decision rules. If one examines the general management function, however, one discovers a much wider and richer range of behavior. To understand this behavior it is necessary to examine briefly the nature of the business firm.

The business firm in the American economy does not have the autocratic organizational structure attributed to it in popular writing. The management cannot exercise disciplinary power over the members of the organization in the manner of a military organization. Rather, the general management of the business firm should be viewed as a coalition of members, each of whom brings to the coalition a set of preferences that represent his model for the firm’s behavior. In the process of making decisions for the firm as a whole, coalition members will have their preferences modified, ignored, or incorporated as goals (constraints) for the decisions the coalition makes.

Membership in the coalition is an operational definition of general management. In most large organizations this membership would include the president of the firm and the vice-presidents. However, in very large organizations this membership might include only a subset of vice-presidents, and in smaller organizations others, such as plant managers, might be included.

The general functions of the coalition, or general management, fall into the two broad categories of decision making and decision implementation.

Decision making. The decision making of the coalition will be concentrated in areas involving the allocation of the resources of the firm to broad categories of activities. These decisions may involve changing or modifying an old activity; for example, investing in new equipment for an established plant. The decision may involve the elimination of an old activity; for example, the elimination of a particular product line because it does not meet the profitability constraints determined by the coalition. Finally, the decision may involve allocating resources to a new activity; for example, acquiring another firm through purchase or merger.

In all these classes of decisions it is clear that the firm’s goals must be defined by the coalition. A business firm does not have a stated list of goals that governs all decisions; rather, the process of decision making includes the process of determining goals. A continuous bargaining–learning process takes place among the members of the coalition. The goals of the organization are not a weighted function of the individual members’ preferences. In general, the coalition continues to exist by utilizing some preferences of members as goals (constraints) and by making policy side-payments to others. The preferences that are used as goals define the criteria which a proposed solution or alternative must meet. The determination of the goals of the organization for a particular decision is also a function of the alternatives discovered by the search activity of the organization.

The preferences of coalition members may be in direct conflict and, therefore, some preferences of some members will have to be ignored. In such cases, the firm may make side-payments to keep those members within the coalition. Side-payments may take many forms. For example, at the next budget period the individual whose preferences have been ignored may get a relatively large increase in his department’s budget. The side-payment might take the form of an expansion in the size of his department to give him more power, or he might be put on additional committees and given more voice in the management. In short, he will usually be given inducements to remain within the coalition in compensation for having his preferences excluded in the decision.

Decision implementation. Implementation is the procedure by which general management accomplishes its goals. The procedure can be viewed as a process of programming the firm (in the sense of computer programming). These programs are known as standard operating procedures and can be classified into four major types.

(a) Task performance rules. To keep a firm operating smoothly, over time and with changing personnel, it is necessary to specify the methods for accomplishing the tasks assigned to individuals and subgroups within the organization. When the task is a recurring one, the task performance rules represent the results of past learning. The rules represent the firm’s attempt to educate new employees in the firm’s methods.

(b) Records and reports. A firm’s records and reports are its written history. Current records and reports contain most of the quantitative data that are the basis for making decisions and for controlling the behavior of individuals and subgroups within the organization.

(c) Information-handling rules. These rules define the formal communication system within the firm. They cover three kinds of information: (1) Information about the environment relevant to the firm. (2) Information about the firm for internal use. (3) Information about the firm for external use. The information-handling rules specify the distribution pattern of the information as well as the security measures on information leaving the firm.

(d) Plans and planning rules. We do not include within this category strategic, long-run planning for the firm. We include activities, such as budgeting, which involve repetitive planning that lends stability to the organization’s activities. Such planning results in schedules for behavior over a period of time and puts constraints on acceptable alternative behaviors. General management tends to continue existing decisions on resource allocation from year to year, except in cases where achievement is unsatisfactory.

We have defined management in broad terms, but it is necessary to look more closely at some of the substantive areas of management to gain a better understanding of the field. A convenient way of analyzing management is by functional fields. Although there is no hard and fast classification system, we shall examine finance, marketing, and production. These three describe important segments of the management function and will serve to illustrate the interrelations of the management field with the social sciences.

Finance. In general, the field of finance is concerned with the problems and decision-making processes involved in the allocation among competing uses of the scarce financial resources of the firm. This concept of the field is in contrast to the approach which dominated the finance field until the last ten to fifteen years (Solomon 1963) and which emphasized description of the institutional aspects of financial markets and the various financial instruments available to a corporation. The problem focus was almost entirely one of determining the kinds of securities that might be used in particular financing situations.

The modern approach, on the other hand, investigates such questions as the following: (1) What are the financial constraints that determine the rate of growth and the ultimate size of the firm? (2) What is the optimum portfolio of assets and liabilities for the firm? (3) What considerations are involved in obtaining external funds and what is the optimum method of obtaining them? Such problems are characterized by a concern for choosing among alternative uses and sources of funds.

The distinguishing feature of the finance problem is the emphasis on maximizing the return to invested funds. From the finance point of view, the importance for production or marketing of an investment is not taken into account. It is up to other members of the firm to show that an investment should be made when the return does not meet the financial standards.

Cash management. While the problems described above are, in one sense, the crux of financial decision making, the short-run problems of cash management are also significant. Cash management involves forecasting the amount of cash that will be available for expenditures at particular points in time. This kind of forecasting is closely related to accounting and is one of the ties between finance and accounting. The first step in planning cash receipts is to forecast cash sales and the expected collections from credit sales. In addition, one has to look at other sources of cash, such as interest and dividends, sales of assets, and tax refunds. In a similar fashion it is necessary to set out anticipated expenditures for such things as raw materials, labor, travel, and miscellaneous supplies. Expected receipts and disbursements are then matched, usually on a monthly basis for six months or a year in advance, so that the firm knows its planned cash balance for each month.

Working-capital management. A similar planning problem exists in the management of working capital. The expected amount of working capital at various points in time must be projected. Working capital is defined as the difference between current assets, which include cash, marketable securities, accounts receivable, and inventories, and current liabilities, which include accounts payable, notes payable, and other debts that must be paid in a short period of time.

Managing shortterm credit is another important aspect of working-capital management, as is the planning of inventories. In recent years, much work has been done on the problem of determining an optimal inventory level (Holt et al. 1960). This involves an analysis of the costs of holding inventory, which include insurance, taxes, interest, and warehousing costs. Against these must be weighed the cost of lost sales which come about when a customer wants an item that is not in stock. [SeeInventories.]

Cost of capital. Another major concern of finance is the evaluation of investment alternatives. The general approach used in choosing among alternatives is to determine the present worth of each alternative (Solomon 1963). To find the present value of the investment in question, its net earnings for each year are computed and discounted to the present according to the following formula:

Here K is the discount rate, Ei the net earning in year i, and PW is the present worth. The discounted value for any year, Ei/(l + K)i is the amount that has to be invested now at rate K in order to equal Ei in year i. For example, where i is equal to 1, let K equal .25 and Ei equal one dollar. Then PW= $1.00/1.25 = $.80.

There are obvious problems in this analysis, when uncertainty is taken into account, because both E and K must be estimated. The more difficult concept is K; it is currently the source of controversy. The prevailing view is that the proper K to be used in a calculation such as the one above is the rate which measures the cost to the firm of obtaining new capital.

But the cost of capital is difficult to measure because capital is raised in a wide variety of ways, ranging from bank borrowing to issuing stock. It is, therefore, difficult to determine a precise cost. This difficulty is compounded because one is interested in the cost of raising additional capital; in an uncertain world it is difficult to forecast this cost for some unknown time in the future when a firm may want to raise capital. Much work in finance is concerned with determining the cost of particular kinds of capital, such as equity capital, debt, and retained earnings.

One of the cost-of-capital controversies concerns the use of borrowed capital, which is said to give “leverage” to the owners of the firm. Modigliani and Miller (1958) have contended that under the assumptions of certainty, perfect markets, and maximizing behavior on the part of investors, the amount of leverage bears no significant relationship to the market value of a company. This would mean that the financial structure does not need to be examined in order to determine the cost of capital. The argument about this position has not been settled, and it has reached something of an impasse because of the difficulties of doing empirical work to test the hypothesis precisely.

The total plan. Finally, there is the problem of integrating financial planning with the over-all objectives of the firm. This involves the integration of plans from all parts of the firm and bears specifically on decisions involving the outflow of cash, the desired level of liquidity, and additional financing. It requires a more elaborate analysis than is used to deal with the cash account alone. Sophisticated mathematical techniques are being applied to this problem, and new developments in capital budgeting give promise of producing a relevant analytical framework (Weingartner 1963; Beranek 1963).

Marketing . Marketing is concerned with all of the variables affecting the sale of the product to the customer, whether the customer is a household or a firm. This range of concerns is broken up into the following broad categories:

(1) Understanding consumer behavior.

(2) Responsibility for variations in product quality and design.

(3) Price determination.

(4) Selection of distribution channels.

(5) Choice of advertising media and the level of advertising.

Consumer behavior. In economics, one way of summarizing consumer behavior is through the use of a demand curve, which relates the amount of a product a consumer will buy to its price [seeDemand and supply]. The curve is based on the assumption that income, the prices of related products, and consumer tastes are all fixed. To make sound marketing decisions, however, it is necessary to investigate the process by which consumers decide what to buy.

Work on this problem has taken essentially two paths. The first attempts to observe and survey consumers and to discover their goals. It relies heavily on sociological and psychological theory. The type and source of the buyer’s information have been investigated in the context of the whole communication problem. For example, Katona and Mueller found that 50 per cent of the consumers in their sample received information about durable products from friends (Mueller 1954, p. 45). This line of research is attractive and shows promise. The major difficulty to date lies in the integration of the results into broader decision models; that is, in transforming explanatory propositions into normative operational propositions on which a firm can act.

Another approach in the analysis of consumer brand choice utilizes the concept of consumer learning (Kuehn 1962, pp. 390–392).

Product decision. Decisions must be made about the addition of a new product or the elimination of an old one. Also existing products may be modified. Increasing expenditures for research and development have made decisions about products more important. One line of attack attempts to determine the characteristics that buyers are seeking in new products and the way in which buyer decisions about new products are made. Unfortunately, there are few studies in this area, and they are not directly applicable to marketing problems. Most of them are diffusion studies on the use of innovations, done by sociologists and anthropologists. Marketing students are seeking help from these studies in the development of the proper strategy for introducing new products.

There are a number of other interesting problems in this area, of which we will mention two. The first involves testing the marketability of new products before they are added to the company’s product line. Here two basic approaches have been used. One attempts through questionnaire and interview data to determine consumer reaction to the new product through comparisons with other products on the market. The difficulties with this approach stem from the problem of eliciting accurate answers from the consumer. The consumer is asked in an artificial setting to describe his potential behavior in a real situation. The measurement of the reliability of response in such situations is a fruitful area of research for psychologists. The other approach primarily utilizes statistical analysis. The product is test marketed and predictions of the success of the product are made from the analysis of such phenomena as repeat purchases. The market areas are usually picked with the aid of sampling theory.

The second problem is that of deciding the amount of funds that should be invested in research for new product development. This problem is clearly not the sole concern of the marketing group; however, marketing considerations must play an important role in the solution. Currently, this decision is made by some rule of thumb, such as allocating a fixed percentage of sales to research and development. To improve such decisions, more knowledge is needed about the desired frequency of new product introduction. Answers to this will probably be obtained through an application of behavioral science and mathematical techniques.

Pricing. One of the most important problems for the marketing manager is to determine the price to charge for a product or the items in a product line (a set of related products, each differing from the other primarily in quality—for example, men’s suits in a department store). There are no firm rules that will guarantee proper pricing. The best that can be done, given the current state of knowledge, is to indicate some variables that should be examined and to review some current practices.

Some of these variables are considered in economic analysis. It is clear, for example, that the prices of competitive products must be taken into account and that potential competitors exert a downward pressure on price. The latter force is more important in markets where there are only a few sellers and where new competitors may enter freely. The characteristics of the demand must be investigated, particularly its price elasticity (the percentage change in quantity demanded divided by the percentage change in price). If price is lowered by a given percentage, will quantity demanded increase relatively more or less than price? [SeeElasticity.] If quantity increases relatively more, it may be profitable to lower the price. In this case, of course, cost considerations become important.

Since the marketing manager must come to a decision, he uses some practical techniques that give him specific, but imperfect, information. Experimental methods have been used in which different prices are set in a number of similar markets to determine the influence of prices on sales. Interviewing has been used for the same purpose as has the analysis of sales data in situations where prices have been changed. All of these techniques give useful but not decisive information.

Distribution channels. Producers must determine the route by which their product reaches the consumer. A variety of ways are possible, of which the simplest is that in which the consumer buys directly from the manufacturer at his plant. The most complicated distribution channel might include four different middlemen—sales agent, wholesaler, jobber, and retailer. The marketing manager generally decides upon the best channel for the product on the basis of a qualitative analysis that examines the characteristics of the product and of the various possible channels. He considers such factors as the need for demonstration of the product, the amount of repair and maintenance, and the number and variety of the items that must be shown to the customer. In other words, he must decide how to make the product easily accessible to the customer under conditions in which the selling effort can be effective. [SeeInternal trade.]

Promotion. Promotion generally covers the entire selling effort, and promotion expenses include all expenditures specifically aimed at increasing sales. Promotion problems can be summarized by the following set of questions:

(1) What is the optimum level of funds to allocate to promotion?

(2) How much should be allocated to advertising and how much to other forms of promotion?

(3) How should advertising expenditures be allocated among various media?

In addition, there are problems in measuring the effectiveness of advertising and other promotional devices. As yet, no completely satisfactory techniques have been developed for solving these problems. [SeeAdvertising, article oneconomic aspects.]

In this whole area, however, the use of mathematical and statistical techniques is increasing rapidly. Until about 1950 there was no indication that advertising problems were amenable to quantitative analysis. Currently, many attempts at such analysis are being made, and the outlook for improving management decisions is hopeful.

Production. Production is concerned with the operations by which inputs of men and materials are converted into goods and services through the use of machines and other fixed equipment. Recent definitions of production include all of the physical operations of the firm. In addition, a systems concept is developing which relates previously disparate parts of the firm. Thus, a production or operations system would include the following range of problems (Buffa 1963, pp. 26–28):

(1) Forecasting sales.

(2) Converting these forecasts into plans for a relatively stable production rate, inventory level, and work force.

(3) Specific plans for the mix of items in the inventory and development of a control system to insure against “running out” of items.

(4) Detailed scheduling of transportation facilities, machines, and men.

(5) Development of control systems to insure the quality of the product and the viability of the whole production process.

Within this framework a number of decisions have to be made:

(1) The product must be designed and production costs must be estimated as they may in turn affect the design.

(2) The processes to be used must be determined and equipment selected. Decisions to replace equipment must also be made.

(3) The layout of the production facility must be designed. Capacities must be determined and the flows of materials and men within the system organized.

(4) Provision must be made for maintenance of the system.

These problems and decisions constitute only a brief overview of the production problem. In economic theory it is assumed that surviving firms in the long run use the optimum production function and operate at the lowest average cost curve possible for the given plant. It is the broad goal of production management to achieve this state; it studies the techniques and develops the methods for attaining the position that is assumed in economic theory.

Production, like other functional areas of management, relies heavily on still other disciplines. Production management since about 1946 has in particular utilized psychology, mathematics, statistics, and computer technology.

Psychology is used in problems of machine design, job design, and general work environment. Much work has been done by psychologists in designing and positioning the dials and meters used by workers. The object is to design the information and control panels so as to minimize errors and the time required to do the job. Work schedules have been examined and redesigned to minimize fatigue. The effect on productivity of noise, temperature, and lighting in the work environment has also been investigated.

Use of linear programming. Perhaps the most important impact on the production area has come as a result of the application of a particular mathematical technique, linear programming. By means of linear programming a linear function subject to certain inequality restrictions can be minimized or maximized. A number of problems can thus be solved mathematically that in the past were handled on a judgmental basis:

(1) Mix problems. Frequently, in making a product such as gasoline, alternative inputs can be used to meet specific product requirements. With linear programming the minimum cost combination can be found.

(2) Production scheduling. Production can be scheduled over time to minimize storage costs and to obtain a relatively stable work force.

(3) Shipping problems. Frequently products must be shipped from several locations (warehouses) to other points (customers). Linear programming can help to achieve minimum transportation costs [seeProgramming].

In the inventory problem, classical mathematical and statistical methods have been used. The general approach is to start with a probability distribution for sales in a given period. Taking into account such variables as sales, losses incurred if the producer is out of inventory, losses on items left in inventory, interest, and warehousing costs, a solution for the desired inventory level can be determined. Significant work has been done in this area, especially the development of the linear decision rule [seeInventories; see also Holt et al. 1960].

Use of computers. Computers are becoming increasingly important in production in two primary uses. The first is in simulating a process in order to determine a policy. For example, job-shop simulators are used to determine the results of various scheduling rules. In a job shop, where each job has different characteristics and goes through different operations, there is no “best” rule for scheduling the various jobs when there is competition for the facilities. One approach is to program the computer to simulate the shop and then, using different scheduling rules, schedule a series of jobs that is similar to an actual series. The simulation can help to evaluate the results of following any of the rules or some set of them. An analogous procedure has been followed for determining the optimal maintenance force. [SeeSimulation.]

Computers have also been used as decisionmaking devices. Programs have been written for assembly-line balancing (designing successive operations so as to minimize waiting time) as well as warehouse location problems (Tonge 1961; Kuehn & Hamburger 1963). These applications fall in the category of heuristic programming and have been used for problems in which a mathematical optimum cannot be found. The programs utilize decision rules suggested by an analysis of previous human attempts to solve the problem. By a systematic use of the rules and greater processing ability the computer is able to improve on the unaided human solution.

Education for management. We have described briefly three areas in which much of the work of management is done. Other areas such as personnel and accounting (particularly controllership) could have been mentioned. The trend in education for management, however, has been to reduce the emphasis on specialized training and to stress training for general management.

Courses valuable for business management fall into two categories: the disciplines on which management is based and management courses as such. In the first category we include psychology, economics, mathematics, and statistics.

Psychology is important in human relations and in organization theory. The student of human relations is given an adequate background in psychology, especially individual psychology. He is then taught to use this background in understanding human behavior. The aim is to establish the attitude that problems of human relations should be approached scientifically.

Organization theory also builds on psychology. It seeks to give the student an understanding of human behavior in the context of organizations as well as a better understanding of the administrative process. In particular, the student learns the importance of organizational structure in the implementation of decisions and in the changing and designing of organizations.

Economics courses are oriented toward giving the future manager an understanding of the economic environment in which he will operate. He needs to become familiar with the operation of the economy as a whole—with the determinants of the level of gross national product, employment, and the price level and with the relation of these aggregates to actions of the government and the banking system. He must also study economics to understand the role of the firm in the functioning of the economy.

In mathematics the student should, at a minimum, know elementary calculus and matrix algebra. More importantly, he must be able to relate the mathematics to management problems. He need not be able to develop new theorems or invent new mathematics. An analogous statement can be made for statistics. It is important that future managers have a working knowledge of both disciplines, as well as the ability to know when to call in an expert and how to use him.

The student of management must understand the role of the computer in management decision making and in the development of information systems within the firm. This knowledge should be developed through course work in which some programming language is taught and where the computer is used by the student.

The three functional areas of business management described above must also be covered. In addition to required work in each, there should be an opportunity for the student to go somewhat deeper into at least one of the areas. It is important, however, that this depth be limited, since the student is training for general management and not a specialty. Accounting must be covered, with an emphasis on the managerial uses of accounting—the use of accounting data for decision making and control.

There is also need for a course in the techniques of management science, the most important of which is linear programming. This course should build directly on the mathematics course, and the techniques learned should be used in the functional courses.

We have tried to sketch briefly the basic ingredients of an education oriented toward general management. We have not tried to describe a curriculum in detail but rather to mention some of the principal courses that any curriculum should cover. In general, there are three guiding principles for the construction of a curriculum in management. The first is that the disciplines underlying the practice of management must be present. Courses in the social sciences and mathematics and statistics give the student the basic knowledge and techniques he will need. The second principle is that the emphasis should be on breadth rather than on specialization. The specialization can generally be learned as necessary on the job, but breadth is acquired more efficiently in the classroom. The third principle is that the management curriculum must anticipate changes in management practices and not reflect only past management practices (Cyert & Dill 1964, p. 223). The faculty should know current management practices as well as have the objectivity to stand off and speculate on new techniques. The student, after all, will not ordinarily reach a top management position until fifteen or twenty years after his graduation (Bach 1958, p. 351).

Richard M. Cyert


Bach, G. L. 1958 Some Observations on the Business School of Tomorrow. Management Science 4:351−364.

Beranek, William 1963 Analysis for Financial Decisions. Homewood, Ill.: Irwin.

Bowman, Edward H.; and Fetter, Robert B. (1957) 1961 Analysis for Production Management. Rev. ed. Homewood, Ill.: Irwin.

Buffa, Elwood 1963 Models for Production and Operations Management. New York: Wiley.

CyerT, Richard M.; and Dill, William R. 1964 The Future of Business Education. Journal of Business 37:221−237.

Cyert, Richard M.; and March, James G. 1963 A Behavioral Theory of the Firm. Englewood Cliffs, N.J.: Prentice-Hall.

Friedman, Lawrence 1961 Game Theory in the Allocation of Advertising Expenditures. Pages 230−244 in Mathematical Models and Methods in Marketing. Edited by Frank M. Bass et al. Homewood, Ill.: Irwin.

Holt, Charles C. et al. 1960 Planning Production, Inventories, and Work Force. Englewood Cliffs, N.J.: Prentice-Hall.

Howard, John A. (1957) 1963 Marketing Management. Rev. ed. Homewood, Ill.: Irwin.

Kuehn, Alfred A. 1962 Consumer Brand Choice: A Learning Process? Pages 390−403 in Ronald E. Frank (editor), Quantitative Techniques in Marketing Analysis. Homewood, Ill.: Irwin.

Kuehn, Alfred A.; and Hamburger, Michael J. 1963 A Heuristic Program for Locating Warehouses. Management Science 9:643−666.

Modigliani, Franco; and Miller, Merton H. (1958) 1959 The Cost of Capital, Corporation Finance and the Theory of Investment. Pages 150−181 in Ezra Solomon (editor), The Management of Corporate Capital. Glencoe, III.: Free Press. → First published in the American Economic Review.

Mueller, Eva 1954 A Study of Purchasing Decisions. Part 2: The Sample Survey. Consumer Behavior 1: 38−87.

Simon, Herbert A. 1960 The New Science of Management Decision. New York: Harper.

Solomon, Ezra 1963 The Theory of Financial Management. New York: Columbia Univ. Press.

Tonge, Fred M. 1961 A Heuristic Program for Assembly Line Balancing. Englewood Cliffs, N.J.: Prentice-Hall.

Weingartner, H. Martin 1963 Mathematical Programming and the Analysis of Capital Budgeting Problems. Englewood Cliffs, N.J.: Prentice-Hall.

Management Thought

views updated May 23 2018

Management Thought

The schools of management thought are theoretical frameworks for the study of management. Each of the schools of management thought are based on somewhat different assumptions about human beings and the organizations for which they work. Since the formal study of management began in the late nineteenth century, the study of management has 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 disseminated. These attempts at classification have resulted in the identification of management schools.

Disagreement exists as to the exact number of management schools. Different writers have identified as few as three and as many as twelve. Those discussed below include (1) the classical school, (2) the behavioral school, (3) the quantitative or management science school, (4) the systems school, (5) and the contingency school. The formal study of management is largely a phenomenon that began in the twentieth-century, and to some degree the relatively large number of management schools of thought reflect a lack of consensus among management scholars about basic questions of theory and practice.

Table 1 provides a brief summary of five major schools of management thought, their approximate dates of origin, and their relative areas of emphasis. The following sections discuss each of the management schools in more detail. In addition, three contemporary management perspectives are discussed.


The classical school is the oldest formal school of management thought. Its roots pre-date the twentieth century. The classical school of thought generally concerns ways to manage work and organizations more efficiently. Three

Table 1
Five Major Schools of Management Thought
MANAGEMENT SCHOOLSBeginning DatesEmphasis
    Scientific Management1880sManaging workers and organizations more efficiently.
    Administrative Management1940s 
    Bureaucratic Management1920s 
    Human Relations1930sUnderstanding human behavior in the organization.
    Behavioral Science1950s 
    Management Science1940sIncreasing quality of managerial decision-making through the application of mathematical and statistical methods.
    Operations Management1940s 
    Management Information Systems1950s1970s 
SYSTEMS SCHOOL1950sUnderstanding the organization as a system that transforms inputs into outputs while in constant interaction with its environment.
CONTINGENCY SCHOOL1960sApplying management principles and processes as dictated by the unique characteristics of each situation.

areas of study that can be grouped under the classical school are scientific management, administrative management, and bureaucratic management.

Scientific Management . In the late nineteenth century, management decisions were often arbitrary, and workers often worked at an intentionally slow pace. There was little in the way of systematic management; workers and management were often in conflict. Scientific management was introduced in an attempt to create a mental revolution in the workplace. It can be defined as the systematic study of work methods to improve efficiency. Frederick W. Taylor was its main proponent; other major contributors were Frank Gilbreth, Lillian Gilbreth, and Henry Gantt.

Scientific management has several major principles. First, it calls for the application of the scientific method to work in order to determine the best method for accomplishing each task. Second, scientific management suggests that workers should be scientifically selected based on their qualifications and trained to perform their jobs in the optimal manner. Third, scientific management advocates genuine cooperation between workers and management based on mutual self-interest. Finally, scientific management suggests that management should take complete responsibility for planning the work and that workers' primary responsibility should be implementing management's plans. Other important characteristics of scientific management include the scientific development of difficult but fair performance standards and the implementation of a pay-for-performance incentive plan based on work standards.

Scientific management had a tremendous influence on management practice in the early twentieth century. Although it does not represent a complete theory of management, it has contributed to the study of management and organizations in many areas, including human resource management and industrial engineering. Many of the tenets of scientific management are still valid today.

Administrative Management. Administrative management focuses on the management process and principles of management. In contrast to scientific management, which deals largely with jobs and work at the individual level of analysis, administrative management provides a more general theory of management. Henri Fayol is the major contributor to this school of management thought.

Fayol was a management practitioner who brought his experience to bear on the subject of management functions and principles. He argued that management was a universal process consisting of functions, which he termed planning, organizing, commanding, coordinating, and controlling. Fayol believed that all managers performed these functions and that the functions distinguished management as a separate discipline of study apart from accounting, finance, and production. Fayol also presented fourteen principles of management, which included maxims related to the division of work, authority

and responsibility, unity of command and direction, centralization, subordinate initiative, and team spirit.

Although administrative management has been criticized as being rigid and inflexible and the validity of the functional approach to management has been questioned, this school of thought still influences management theory and practice. The functional approach to management is still the dominant way of organizing management knowledge, and many of Fayol's principles of management, when applied with the flexibility that he advocated, are still considered relevant.

Bureaucratic Management. Bureaucratic management focuses on the ideal form of organization. Max Weber was the major contributor to bureaucratic management. Based on observation, Weber concluded that many early organizations were inefficiently managed, with decisions based on personal relationships and loyalty. He proposed that a form of organization, called a bureaucracycharacterized by division of labor, hierarchy, formalized rules, impersonality, and the selection and promotion of employees based on abilitywould lead to more efficient management. Weber also contended that managers' authority in an organization should be based not on tradition or charisma but on the position held by managers in the organizational hierarchy.

Bureaucracy has come to stand for inflexibility and waste, but Weber did not advocate or favor the excesses found in many bureaucratic organizations today. Weber's ideas formed the basis for modern organization theory and are still descriptive of some organizations.


The behavioral school of management thought developed, in part, because of perceived weaknesses in the assumptions of the classical school. The classical school emphasized efficiency, process, and principles. Some felt that this emphasis disregarded important aspects of organizational life, particularly as it related to human behavior. Thus, the behavioral school focused on trying to understand the factors that affect human behavior at work.

Human Relations . The Hawthorne Experiments began in the 1920s and continued through the early 1930s. A variety of researchers participated in the studies, including Clair Turner, Fritz J. Roethlisberger, and Elton Mayo, whose respective books on the studies are perhaps the best known. One of the major conclusions of the Hawthorne studies was that workers' attitudes are associated with productivity. Another was that the workplace is a social system and informal group influence could exert a powerful effect on individual behavior. A third was that the style of supervision is an important factor in increasing workers' job satisfaction. The studies also found that organizations should take steps to assist employees in adjusting to organizational life by fostering collaborative systems between labor and management. Such conclusions sparked increasing interest in the human element at work; today, the Hawthorne studies are generally credited as the impetus for the human relations school.

According to the human relations school, the manager should possess skills for diagnosing the causes of human behavior at work, interpersonal communication, and motivating and leading workers. The focus became satisfying worker needs. If worker needs were satisfied, wisdom held, the workers would in turn be more productive. Thus, the human relations school focuses on issues of communication, leadership, motivation, and group behavior. The individuals who contributed to the school are too numerous to mention, but some of the best-known contributors include Mary Parker Follett, Chester Barnard, Abraham Maslow, Kurt Lewin, Renais Likert, and Keith Davis. The human relations school of thought still influences management theory and practice, as contemporary management focuses much attention on human resource management, organizational behavior, and applied psychology in the workplace.

Behavioral Science. Behavioral science and the study of organizational behavior emerged in the 1950s and 1960s. The behavioral science school was a natural progression of the human relations movement. It focused on applying conceptual and analytical tools to the problem of understanding and predicting behavior in the workplace. However, the study of behavioral science and organizational behavior was also a result of criticism of the human relations approach as simplistic and manipulative in its assumptions about the relationship between worker attitudes and productivity. The study of behavioral science in business schools was given increased credence by the 1959 Gordon and Howell report on higher education, which emphasized the importance of management practitioners to understanding human behavior.

The behavioral science school has contributed to the study of management through its focus on personality, attitudes, values, motivation, group behavior, leadership, communication, and conflict, among other issues. Some of the major contributors to this school include Douglas McGregor, Chris Argyris, Frederick Herzberg, Renais Likert, and Ralph Stogdill, although there are many others.


The quantitative school focuses on improving decision making via the application of quantitative techniques. Its roots can be traced back to scientific management.

Management Science and MIS . Management science (also called operations research) uses mathematical and statistical approaches to solve management problems. It developed during World War II as strategists tried to apply scientific knowledge and methods to the complex problems of war. Industry began to apply management science after the war. George Dantzig developed linear programming, an algebraic method to determine the optimal allocation of scarce resources. Other tools used in industry include inventory control theory, goal programming, queuing models, and simulation.

The advent of the computer made many management science tools and concepts more practical for industry. Increasingly, management science and management information systems (MIS) are intertwined. MIS focuses on providing needed information to managers in a useful format and at the proper time. Decision support systems (DSS) attempt to integrate decision models, data, and the decision maker into a system that supports better management decisions.

Production and Operations Management. This school focuses on the operation and control of the production process that transforms resources into finished goods and services. It has its roots in scientific management but became an identifiable area of management study after World War II. It uses many of the tools of management science.

Operations management emphasizes productivity and quality of both manufacturing and service organizations. W. Edwards Deming exerted a tremendous influence in shaping modern ideas about improving productivity and quality. Major areas of study within operations management include capacity planning, facilities location, facilities layout, materials requirement planning, scheduling, purchasing and inventory control, quality control, computer integrated manufacturing, just-in-time inventory systems, and flexible manufacturing systems.


The systems school focuses on understanding the organization as an open system that transforms inputs into outputs. This school is based on the work of a biologist, Ludwig von Bertalanffy, who believed that a general systems model could be used to unite science. Early contributors to this school included Kenneth Boulding, Richard Johnson, Fremont Kast, and James Rosenzweig.

The systems school began to have a strong impact on management thought in the 1960s as a way of thinking about managing techniques that would allow managers to relate different specialties and parts of the company to one another, as well as to external environmental factors. The systems school focuses on the organization as a whole, its interaction with the environment, and its need to achieve equilibrium. General systems theory received a great deal of attention in the 1960s, but its influence on management thought has diminished somewhat. It has been criticized as too abstract and too complex. However, many of the ideas inherent in the systems school formed the basis for the contingency school of management.


The contingency school focuses on applying management principles and processes as dictated by the unique characteristics of each situation. It emphasizes that there is no one best way to manage and that it depends on various situational factors, such as the external environment, technology, organizational characteristics, characteristics of the manager, and characteristics of the subordinates. Contingency theorists often implicitly or explicitly criticize the classical school for its emphasis on the universality of management principles; however, most classical writers recognized the need to consider aspects of the situation when applying management principles.

The contingency school originated in the 1960s. It has been applied primarily to management issues such as organizational design, job design, motivation, and leadership style. For example, optimal organizational structure has been theorized to depend upon organizational size, technology, and environmental uncertainty; optimal leadership style, meanwhile, has been theorized to depend upon a variety of factors, including task structure, position power, characteristics of the work group, characteristics of individual subordinates, quality requirements, and problem structure, to name a few. A few of the major contributors to this school of management thought include Joan Woodward, Paul Lawrence, Jay Lorsch, and Fred Fiedler, among many others.


Management research and practice continues to evolve and new approaches to the study of management continue to be advanced. This section briefly reviews four contemporary approaches: total quality management (TQM), the learning organization, benchmarking, and core competencies. While none of these management approaches offer a complete theory of management, they do offer additional insights into the management field.

Total Quality Management. Total quality management (TQM) is a philosophy or approach to management that focuses on managing the entire organization to deliver quality goods and services to customers. This approach to management was implemented in Japan after World War II and was a major factor in Japan's economic renaissance. TQM has at least three major elements that

include employee involvement, customer focus, and a philosophy of continuous improvement. Employee involvement is essential in preventing quality problems before they occur. Customer focus means that the organization must attempt to determine customer needs and wants and deliver products and services that address them. Finally, a phil osophy of continuous improvement means that the organization is committed to incremental changes and improvements over time in all areas of the organization. TQM has been implemented by many companies worldwide and appears to have fostered performance improvements in many organizations. Perhaps the best-known proponent of this school of management was W. Edwards Deming.

Benchmarking. Benchmarking means that the organization is always seeking out other organizations that perform a function or process more effectively and using them as a standard, or benchmark, to judge their own performance. The organization will also attempt to adapt or improve the processes used by other companies relative to the availability of technological resources and production skills.

Learning Organization. The contemporary organization faces unprecedented environmental and technological change. Thus, one of the biggest challenges for organizations is to continuously change in a way that meets the demands of this turbulent competitive environment. The learning organization can be defined as one in which all employees are involved in identifying and solving problems, which allows the organization to continually increase its ability to grow, learn, and achieve its purpose. The organizing principle of the learning organization is not efficiency, but problem solving. Three key aspects of the learning organization are a team-based structure, empowered employees, and open information. Peter Senge is one of the best-known experts on learning organizations.

Core Competencies. Core competencies is a strategy approach to management that focuses on optimizing definite organizational strengths. This approach to management allows organizations to pursue advantage by channeling technological and production resources towards enhancement of business objectives that have the potential to achieve sustained competitive advantage. The organizational culture and dedication among employees are the main components that facilitate the success of the core competencies in achieving corporate objectives. The concept of core competencies was floated by C.K Prahad and Gary Hemel in the early 1990s and it has since become a major reference point for management practices.

SEE ALSO Knowledge Management; Management Functions; Management Information Systems; Management Science; Management Styles; Organizational Behavior; Organizational Development; Organizational Learning; Organizing; Quality and Total Quality Management


Brannick, Michael T., Edward L. Levine, and Frederick P. Morgeson. Job and Work Analysis: Methods, Research, and Applications for Human Resource Management. 2nd ed. Thousand Oaks, CA: Sage Publications, 2007.

Daft, Richard L. Management. 7th ed. Australia: Thomson/South-Western, 2005.

Fayol, Henri. General and Industrial Administration. London: Sir Issac Pitman & Sons, Ltd., 1949.

Gomez-Mejia, Luis, R., David B. Balkin, and Robert L. Cardy. Management: People, Performance, Change, 3rd ed. McGraw-Hill: New York, USA, 2008.

Griffin, Ricky W. Management. 8th ed. Boston: Houghton Mifflin Company, 2004.

Hamel, Gary, and Bill Breen. The Future of Management. Boston: Harvard Business School Press, 2007.

Lewis, Pamela S., Stephen H. Goodman, and Patricia M. Fandt. Management. 2nd ed. Cincinnat, OH: South-Western College Publishing, 1998.

Locke, Edwin A. The Ideas of Frederick W. Taylor: An Evaluation. Academy of Management Review 7, no. 1 (1982): 1424.

O'Connor, Ellen S. The Politics of Management Thought: A Case Study of the Harvard Business School and the Human Relations School. Academy of Management Review 24, no. 1 (1999): 117131.

Robbins, Stephen P., and Mary Coulter. Management. 6th ed. Upper Saddle River, NJ: Prentice Hall, 1999.

Senge, Peter. The Fifth Discipline: The Art and Practice of the Learning Organization. Revised & updated ed. New York: Doubleday/Currency, 2006.

Strong, Bruce, Thomas H. Davenport, and Laurence Prusak. Organizational Governance of Knowledge and Learning. Knowledge and Process Management. 15, no. 2 (2008). Available from:

Warner, Malcolm. Organizational Behavior Revisited. Human Relations 47, no. 10 (1994): 11511164.

Wren, Daniel. The Evolution of Management Thought. 3rd ed. New York: John Wiley and Sons, 1987.

Management/Leadership Styles

views updated Jun 08 2018


Leading should not be considered the same as managing. Business leaders who do not understand the difference between the functions/roles of leading and managing are quite likely to misinterpret how they should carry out their duties to meet organizational goals. While some managers are high-quality leaders, others manage only resources and do not lead their subordinates. Leadership is one of the four primary activities that are used to influence others. As such, it is a subcategory of the management concept that focuses mainly on behavioral issues, influence, and engaging opportunities. Managing is more comprehensive than leading. It involves dealing with resource issues as well as behavioral factors. Generally speaking, not all managers are necessarily leaders, yet the most effective managers, over the long term, are leaders.

Leadership is the process of guiding the behavior of others toward an organization's goals. Guiding, in this context, means causing individuals to behave in a particular manner or to follow a specific set of instructions. Ideally, the behavior exhibited is perfectly aligned with such factors as organizational goals, culture, policies, procedures, and job specifications. The main goal of leadership is to get things done through other people, making it one of the main activities that can enhance the management system. It is accomplished to a great degree through the use of effective communication.

Because leadership is a prerequisite for business success, to be a successful business manager one must have a solid understanding of what leadership includes. Indeed, such issues as the increased capabilities afforded by enhanced communication technology and the rise of international business have made leadership even more important in today's business environment. The following sections describe the major theories underlying the most commonly accepted management/leadership practices and the concepts on which they are based.


The trait theory of leadership is based on research that implies that the abilities and dispositions necessary to make a good leader are inborn, not capable of being developed over time. The central thrust of this research is to describe leadership as accurately and analytically as possible. The reasoning is that a description of the full spectrum of managerial leadership traits would make it possible to easily identify individuals who possess them. An organization could then hire only those individuals who possess these traits and thus be assured of always having high-quality leaders.

Current management thoughts, however, suggests that leadership ability cannot be explained by an individual's inherited characteristics. To the contrary, business analysts believe that individuals can learn to be good or even exceptional leaders. Thousands of employees each year complete training to improve their leadership skills. Corporations and not-for-profit organizations continue to do this as an investment, which pays dividends.


Since trait theory proved not to be aligned with leadership skill, researchers have analyzed other angles to explain leadership success or failure. Rather than looking at the traits successful leaders supposedly should possess, researchers began to investigate what good leaders really do. This behavioral approach was concerned with analyzing how a manager completed a task and whether the manager focused on such interpersonal skills as providing moral support and recognizing employees for their successes. Based on these research efforts, leaders can be accurately described by either their job-centered behavior or their employee-centered behavior, since this research indicated two primary dimensions of leader behavior: a work dimension (structure behavior/job-centered behavior) and a people dimension (consideration behavior/employee-centered behavior).

In addition, effective leaders are skilled coaches and mentor those around them. They build team thinking and behavior, as well as communicate formative developmental feedback. They also illustrate the visible meaning of the organization's vision and mission, including shared values, as well as being a boundaryless thinker. Successful leaders build networks within and outside their organizations searching for solutions, opportunities, and synergies. In their day-to-day work, they exemplify diplomacy while being an interpreter and spokesperson of the organization's vision.

From a different standpoint, what perspectives and behaviors typically align with poor or ineffective leaders? Behaviors and patterns of thinking that contribute to ineffective leadership include lacking knowledge and skill related to the main activities of the organization and leadership, generally considered incompetence. Being rigid, intemperate, and callous clearly cause difficulties in leading others. Although the next types of poor leadership are obvious, they continue to shackle organizational success. These negative attributes include corruptness, insularity, and being evil. Unfortunately, one often reads or see stories about leaders who have taken the leap to the "dark side."


Caution should be exercised when considering what style of leadership is best. Research suggests that no single leadership style can be generalized as being most effective. Organizational situations are so complex that one particular leadership style may be successful in one situation but totally ineffective in another.


Contingency theory, as applied to management/leadership, focuses on what managers do in practice, because this theory suggests that how a manager operates and makes decisions depends upon, or is contingent upon, a set of circumstances. It is centered on situational analysis. Using contingency theory, managers read situations with an "if-then" mentality: If this situational attribute is present, then there is an appropriate response that a manager should make. This theory takes into consideration human resources and their interaction with business operations. Managers may take different courses of action to get the same result based on differences in situational characteristics.

In general, contingency theory suggests that a business leader needs to outline the conditions or situations in which various management methods have the best chance of success. This theory thus runs directly counter to trait theory, discussed earlier. Some of the challenges to successfully using contingency theory are the need to accurately analyze an actual situation, then to choose the appropriate strategies and tactics, and finally to implement these strategies and tactics.

Managers encounter a variety of leadership situations during the course of their daily activities, each of which may require them to use leadership styles that vary considerably, depending on the situation. In using the contingency model, factors of major concern are leader-member relations, task structure, and the position power of the leader. The leader has to analyze these factors to determine the most appropriate style of response for meeting overall work-unit and organizational goals.

Leader-member relations refer to the ongoing degree to which subordinates accept an individual leader or group of leaders. Task structure refers to the degree to which tasks are clearly or poorly defined. Position power is the extent to which a leader or group of leaders has control over the work process, rewards, and punishment. Taking these factors into consideration, leaders can adjust their style to best match the context of their decision making and leadership. For those leaders who have a breadth of leadership styles, knowing when to change styles gives them the tools to successfully deal with the varying nature of business decision making. For those leaders who have a limited repertoire of leadership styles, they and their superiors can use this information to better match work situations with the styles that a specific leader possesses.

Within this continuum, or range, of leadership behaviors, each type of behavior also relates to the degree of authority the manager can display, and inversely, to the level of freedom that is made available to workers. On one end of this continuum, business leaders exert a high level of control and allow little employee autonomy; on the opposite end, leaders exert very little control, instead allowing workers considerable autonomy and self-direction. Thus leadership behavior as it progresses across the continuum reflects a gradual change from autocratic to democratic leadership.

In today's business environment there are more complicated contexts and relationships within which managers and subordinates must work than existed in previous eras. And, as contexts and relationships become increasingly complicated, it becomes significantly more difficult for leaders to determine how to lead. In addition, there are major societal and organizational forces that add confusion about how to approach leadership.


Based on the work of psychologists, organizational theorists, and human relations specialists in the 1960s and 1970s, two distinct assumptions, called Theory X and Theory Y, evolved about why and how people work for others. Theory X posits that people do not like to work and will avoid doing so if the opportunity presents itself. Because of this, most people need to be coerced into completing their required job duties and punished if they do not complete the quantity of work assigned at the level of quality required. Again, because of their dislike for work, most people do not want responsibility, prefer to be directed by others, and have little ambition; all they want is job security.

With an almost completely opposite perspective, Theory Y posits that people like to work and see it as a natural event in their lives. Therefore, punishment and threats are not the only means of motivating them to complete work assignments. People are willing to work hard for an organization; indeed, they will use self-direction and control to work toward goals that are understandable and communicated clearly. In this theory of human behavior and motivation, people are seen as seekers of learning and responsibility who are capable of and willing to be engaged with creative problem-solving activities that will help the organization reach its goals. According to Theory Y, leaders need to develop ways to expand the capabilities of their workers so that the organization can benefit from this significant potential resource.

Although Theory Y has much to offer and is widely followed, many organizations still use a variety of policies and practices that are based on Theory X principles. A further development in explaining human work behavior and then adjusting management/leadership practices to it is Theory Z.


Probably the most prominent of the theories and practices coming from Japan is the Theory Z approach, which combines typical practices from the United States and Japan into a comprehensive system of management/leadership. This system includes the following principles of best management/leadership practice:

  • Seek to establish a long-term employment culture within the organization
  • Use collective decision making as much as possible
  • Increase and reinforce the importance of individual responsibility
  • Establish a slow and long-term process for evaluation and promotion
  • Employ implicit, informal control that uses explicit, formal measures/tools of performance
  • Institute and use moderately specialized job descriptions and career paths
  • Develop policies and practices that support a holistic concern for and support of the individual both at work and at home (as regards family issues)

Theory Z has had a marked impact on the manner in which companies are led today. Theory Z strategies have been instrumental in building stronger working relationships between subordinates and their leaders because of the increased level of worker participation in decision making as well as leaders' higher level of concern for their subordinates.


Business researchers at the University of Texas developed a two-dimensional grid theory to explain a leadership style based on a person's (1) concern for production and (2) concern for people. Each axis on the grid is a 9-point scale, with 1 meaning low concern and 9 meaning high concern. "Team" managers, often considered the most effective leaders, have strong concern both for the people who work for them and for the output of the group/unit. "Country club" managers are significantly more concerned about their subordinates than about production output. "Authority-compliance" managers, in contrast, are singularly focused on meeting production goals. "Middleof-the-road" managers attempt to balance people and production concerns in a moderate fashion. Finally, "impoverished" managers tend to be virtually bankrupt in both categories, usually not knowing much or caring much about either. Grid analysis can be quite useful in helping to determine managers' strengths, weak points, areas where they might best be used, and types of staff development they might need to progress.


In path-goal leadership theory, the key strategy of the leader is to make desirable and achievable rewards available to employees. These rewards are directly related to achieving organizational goals. The manager articulates the objectives (the goal) to be accomplished and how these can and should be completed (the path) to earn rewards. This theory encourages managers to facilitate job performance by showing employees how their work behaviors directly affect their receiving desired rewards.


A system is a group of interrelated and dependent components that function holistically to meet common goals. Systems theory suggests that organizations operate much like the human biological system, having to deal with entropy, support synergy, and subsystem interdependence. The law of entropy states that there are limited resources available and that as they are used/consumed, their beneficial features are dispersed and are not available to the same degree as they were originally. The other two considerations in a systems approach are the achievement of synergy, or the creation of a total value greater than the value of separate parts, and of subsystem interdependence or the linkage of components in such a way that synergy can take place.

In the effort to enhance system performance, managers/leaders must consider the openness and responsiveness of their business organization and the external environment in which it operates. In this environment, leaders must consider the four major features of business system theory: inputs, organizational features, outputs, and feedback. The input factors for most systems include human labor, information, hard goods, and financing. Organizational features include the work process, management functions, and production or service technology. Output results include employee satisfaction, products or services, customer and supplier relationships, and profits/losses. In guiding a unit or the whole organization, business leaders need to consider features of their organization's system as it interacts with and responds to customers, suppliers, competitors, and government agencies.


Transformational leadership inspires organizational success by dramatically affecting workers' attitudes about what an organization should be as well as their basic values, such as trust, fairness, and reliability. Transformational leadership, which is similar to charismatic or inspirational leadership, creates in workers a sense of ownership of the organization, encourages new ways of solving problems, and promotes lifelong learning for all members of the organization. Although the topic of transformational leadership is both appealing and exciting, more research is needed to develop insights regarding how one becomes a successful transformational leader.

Transactional leadership refers to the transactions that play out between the leader and the follower. This mindset supports leaders in motivating followers by appealing to their own self-interest. Its principles are to motivate by the exchange process. Transactional behavior focuses on the accomplishment of tasks and good worker relationships in exchange for desirable rewards. Leaders using transactional processes are most likely to adapt their style and behavior to that of their followers. Some researchers suggest that transactional leadership encompasses four types of behavior.

  1. Contingent reward The leader uses rewards or incentives to achieve results when expectations are met
  2. Passive management by exception The leader uses correction or punishment as a response to unacceptable performance
  3. Active management by exception The leader actively monitors work and uses corrective methods
  4. Laissez-faire leadership The leader is indifferent and has a "hands-off" approach, often ignoring the needs of others

Transactional leadership behavior is used to one degree or another by most leaders. Using transactional leadership behavior as a singular tool to motivate others can create a few common problems. For instance, it can place too much emphasis on the "bottom line" and by its very nature is short-term oriented, with the goal of simply maximizing efficiency and profits. The leader can pressure others to engage in unethical or amoral practices by offering strong rewards or punishments. Transactional leaders seek to influence others by exchanging work for wages, but this does not build on the worker's need for meaningful work. In addition, transactional leadership may lead to an environment permeated by position, power, and politics. This is why transformational leadership is seen as a more productive way to long-term success.


Of all the skills that a manager/leader needs, none is more important than managing the conflicts that inevitably arise in any organization. Conflicts can arise between members in the same work unit, between the work group and its leader, between group leaders, and between different work groups. Some of the most common causes of conflict are communications breakdowns, personality clashes, power and status differences, goal discrepancies, disputed authority boundaries, and allocation of resources.

The following processes are among those usually suggested to eliminate, reduce, and prevent conflict:

  • Focus on the facts of the matter; avoid unsupported assertions and issues of personality
  • Develop a list of all possible resolutions to the conflict that will allow the adversarial parties to view the issue from a different perspective
  • Maintain a balance of power and accessibility while addressing the conflict
  • Seek a realistic resolution; never force a consensus, but do not get bogged down in a never-ending debate to achieve one
  • Focus on the larger goals/mission of the organization
  • Engage in bargaining/negotiating to identify options to address the conflict
  • If needed, use a third party to mediate the differences; bringing in an outside person can add objectivity and reduce personality issues
  • Facilitate accurate communications to reduce rumors and to increase the common understanding of the facts and issues

A two-dimensional model for understanding how individuals approach situations involving conflict resolution is widely accepted. On one axis is the dimension of cooperativeness; on the other, the dimension of assertiveness. As discussed earlier, effective leaders vary their style to meet the needs of a specific situation. Hence, during a conflict situation in which time is a critical concern, an assertive style is needed to resolve the conflict so that time is not lost during a drawn-out negotiation process. Oppositely, when harmony is critical, especially when relationships are new or in their early stages, a collaborative and cooperative approach to conflict resolution is needed. This model for conflict resolution fits well with and supports the notion of contingency and situational leadership.


Since the end of World War II (19391945), business leaders around the world have marveled at the ability of Japanese managers to motivate and successfully lead their subordinates to levels of outstanding performance in terms of both the quantity and quality of production. Therefore, Japanese approaches to management and leadership have been studied intensely to find similarities and differences. Among the approaches that have been cited as contributing to Japanese success are:

  1. Japanese corporations make the effort to hire employees for a lifetime, rather than a shorter period. This helps workers to feel a close relationship with the organization and helps build employee ownership of the organization's success.
  2. Employees are elevated to a level of organizational status equivalent to that of management by leveling the playing field with regard to such items as dress, benefit packages, support services/amenities, restrooms, and stock ownership plans.
  3. Employees are shown that they are valued and a critical part of the company. This is accomplished by having ceremonies to honor employees, providing housing at nominal cost to employees, having facilities for social activities that are sponsored by the organization, offering competitive salaries, and so forth.
  4. A significant effort is made to build positive and strong working relationships between leaders and their subordinates. This includes making sure that leaders take time to get to know their employees and become cognizant of their main concerns. Such a relationship can have a marked impact on the extent to which employees value the organization and their leaders.
  5. Collective responsibility is looked to for the success of the organization. Individual accountability is played down, in contrast to the climate that prevails in U.S. organizations.
  6. Implied control mechanisms are based on cultural values and responsibility.
  7. Nonspecialized career pathways are typical. Employees work in a number of job categories over the course of their tenure so that they can gain a broader sense of the nature of all the work that is done in the organization.
  8. There is a holistic concern for the welfare of every employee. Organizations and their leaders take the time to assist employees with personal issues and work opportunities.
  9. The Japanese are generally concerned with how the company performs and how individual work groups perform, rather than how an individual performs. Therefore, incentives for individuals are less likely to be effective than incentives associated with the performance of a work group or of a whole unit. In addition, Japanese leaders and workers focus much less on monetary rewards than on esteem and social rewards.

Another major practice used in the manufacturing and handling of goods was developed in Japankanban, or what in the United States is known as the just-in-time inventory and materials handling system. In this system, managers/leaders locate high-quality suppliers within a short distance of their operations. They also establish specific quality standards and delivery requirements, as well as materials handling procedures, that these suppliers are contractually obligated to adhere to.

Although these techniques have proven to be successful in Japan, attempts to duplicate them in another culture may have disappointing results. The importance of cultural mores cannot be underestimated. What may work in Japan, France, or the United States may not work anywhere else simply because of cultural factors. Yet Japanese management/leadership principles have taught managers around the world to consider new approaches in order to achieve the higher standards of organizational effectiveness necessary in today's global economy. Business leaders around the world are examining their practices in light of the success that the Japanese and others have had in the areas of strategy building, organizational development, group/team cooperation, and establishing competitive advantage.

see also Job Satisfaction ; Leadership ; Management


Bennis, Warren G. (2003). On becoming a leader: The leadership classic (rev. ed.). Cambridge, MA: Perseus.

Blake, Robert R., Mouton, Jane S., and Allen, Robert L. (1987). Spectacular teamwork. New York: Wiley.

Blake, Robert R., Mouton, Jane S., and Allen, Robert L. (1990). Managerial grid IV. Houston, TX: Gulf.

Burns, James MacGregor (1978). Leadership. New York: Harper and Row.

Certo, Samuel C. (2003). Modern management (9th ed.). Upper Saddle River, NJ: Prentice Hall.

Dotlich, David L., Noel, James L., and Walker, Norman (2004). Leadership passages. San Francisco: Jossey-Bass.

DuBrin, Andrew J. (2005). Coaching and mentoring skills. Upper Saddle River, NJ: Pearson/Prentice Hall.

Gardner, John W. (1990). On leadership. New York: Free Press.

Goldsmith, Marshall, Govindarajan, V., Kaye, B., and Vicere, A. A. (2003). The many facets of leadership. Upper Saddle River, NJ: Prentice Hall.

Kanter, Rosabeth Moss (2003). Introduction. In Best practice: Ideas and insights from the world's foremost business thinkers (pp. 110). Cambridge, MA: Perseus.

Kellerman, Barbara (2004). Bad leadership: What it is, how it happens, why it happens. Boston: Harvard Business School Press.

Koestenbaum, Peter (2002). Leadership: The inner side of greatness (rev. ed.). San Francisco: Jossey-Bass.

Kuhnert, Karl W., and Lewis, P. (1987, October). Transactional and transformational leadership: A constructive/developmental analysis. Academy of Management Review, 12, 648657.

Norstrom, K. (2003). Meaningful leadership. In Best practice: Ideas and insights from the world's foremost business thinkers (pp. 262266). Cambridge, MA: Perseus.

Sashkin, Marshall, and Sashkin, Molly G. (2003). Leadership that matters. San Francisco: Berrett-Koehler.

Thomas Haynes

Management Levels

views updated May 21 2018

Management Levels


Managers are organizational members who are responsible for the work performance of other organizational members. Managers have formal authority to use organizational resources and to make decisions. In organizations, there are typically three levels of management: top-level, middle-level, and first-level. These three main levels of managers form a hierarchy in which they are ranked in order of importance. In most organizations, the number of managers at each level is such that the hierarchy resembles a pyramid, with many more first-level managers, fewer middle managers, and the fewest managers at the top level. Each of these management levels is described below in terms of their possible job titles and their primary responsibilities and the paths taken to hold these positions. Additionally, there are differences across the management levels as to what types of management tasks each does and the roles that they take in their jobs. Finally, there are a number of changes that are occurring in many organizations that are changing the management hierarchies in them, such as the increasing use of teams, the prevalence of outsourcing, and the flattening of organizational structures.

The Dean of business history, Alfred Chandler, saw the managerial class as one of the great leaps forward in the business world. Chandler noted that managers and management levels arose from the need to further allocate responsibility and coordinate activities as large corporations emerged in the nineteenth century. For example, railroads were faced with the enormous task of coordinating activities (including scheduling) over wide geographic areas. Clear managerial roles helped this process. Chandler also reasoned that managers, because they had more specialized educational backgrounds, would tend to desire lifelong careers within a single corporation. As a result, managers favored long-range planning as opposed to short-term profits. Simply put, it is unlikely that the modern corporation

would have developed without the development of different and well-defined management levels.


Top-level managers, or top managers, are also called senior management or executives. These individuals are at the top one or two levels in an organization, and hold titles such as: chief executive officer (CEO), chief financial officer (CFO), chief operational officer (COO), chief information officer (CIO), chairperson of the board, president, vice president, corporate head.

Often, a set of these managers will constitute the top management team, which is composed of the CEO, the COO, and other department heads. Top-level managers make decisions affecting the entirety of the firm. Top managers do not direct the day-to-day activities of the firm; rather, they set goals for the organization and direct the company to achieve them. Top managers are ultimately responsible for the performance of the organization, and often, these managers have very visible jobs.

Top managers in most organizations have a great deal of managerial experience and have moved up through the ranks of management within the company or in another firm. An exception to this is a top manager who is also an entrepreneur; such an individual may start a small company and manage it until it grows enough to support several levels of management. Many top managers possess an advanced degree, such as a master's in business administration, but such a degree is not required.

Some CEOs are hired in from other top management positions in other companies. Conversely, they may be promoted from within and groomed for top management with management development activities, coaching, and mentoring. They may be tagged for promotion through succession planning, which identifies high potential managers.


Middle-level managers, or middle managers, are those in the levels below top managers. Middle managers' job titles include: General manager, Plant manager, Regional manager, and Divisional manager.

Middle-level managers are responsible for carrying out the goals set by top management. They do so by setting goals for their departments and other business units. Middle managers can motivate and assist first-line managers to achieve business objectives. Middle managers may also communicate upward, by offering suggestions and feedback to top managers. Because middle managers are more involved in the day-to-day workings of a company, they may provide valuable information to top managers to help improve the organization's bottom line.

Jobs in middle management vary widely in terms of responsibility and salary. Depending on the size of the company and the number of middle-level managers in the firm, middle managers may supervise only a small group of employees, or they may manage very large groups, such as an entire business location. Middle managers may be employees who were promoted from first-level manager positions within the organization, or they may have been hired from outside the firm. Some middle managers may have aspirations to hold positions in top management in the future.


First-level managers are also called first-line managers or supervisors. These managers have job titles such as: Office manager, Shift supervisor, Department manager, Foreperson, Crew leader, Store manager.

First-line managers are responsible for the daily management of line workersthe employees who actually produce the product or offer the service. There are first-line managers in every work unit in the organization. Although first-level managers typically do not set goals for the organization, they have a very strong influence on the company. These are the managers that most employees interact with on a daily basis, and if the managers perform poorly, employees may also perform poorly, may lack motivation, or may leave the company.

In the past, most first-line managers were employees who were promoted from line positions (such as production or clerical jobs). Rarely did these employees have formal education beyond the high-school level. However, many first-line managers are now graduates of a trade school, or have a two-year associates or a four-year bachelor's degree from college.


Managers at different levels of the organization engage in different amounts of time on the four managerial functions of planning, organizing, leading, and controlling.

Planning is choosing appropriate organizational goals and the correct directions to achieve those goals. Organizing involves determining the tasks and the relationships that allow employees to work together to achieve the planned goals. With leading, managers motivate and coordinate employees to work together to achieve organizational goals. When controlling, managers monitor and measure the degree to which the organization has reached its goals.

The degree to which top, middle, and supervisory managers perform each of these functions is presented in Exhibit 1. Note that top managers do considerably more planning, organizing, and controlling than do managers at any other level. However, they do much less leading. Most

of the leading is done by first-line managers. The amount of planning, organizing, and controlling decreases down the hierarchy of management; leading increases as you move down the hierarchy of management.


In addition to the broad categories of management functions, managers in different levels of the hierarchy fill different managerial roles. These roles were categorized by researcher Henry Mintzberg, and they can be grouped into three major types: decisional, interpersonal, and informational.

Decisional Roles. Decisional roles require managers to plan strategy and utilize resources. There are four specific roles that are decisional. The entrepreneur role requires the manager to assign resources to develop innovative goods and services, or to expand a business. Most of these roles will be held by top-level managers, although middle managers may be given some ability to make such decisions. The disturbance handler corrects unanticipated problems facing the organization from the internal or external environment. Managers at all levels may take this role. For example, first-line managers may correct a problem halting the assembly line or a middle level manager may attempt to address the aftermath of a store robbery. Top managers are more likely to deal with major crises, such as requiring a recall of defective products. The third decisional role, that of resource allocator, involves determining which work units will get which resources. Top managers are likely to make large, overall budget decisions, while middle managers may make more specific allocations. In some organizations, supervisory managers are responsible for determining allocation of salary raises to employees. Finally, the negotiator works with others, such as suppliers, distributors, or labor unions, to reach agreements regarding products and services. First-level managers may negotiate with employees on issues of salary increases or overtime hours, or they may work with other supervisory managers when needed resources must be shared. Middle managers also negotiate with other managers and are likely to work to secure preferred prices from suppliers and distributors. Top managers negotiate on larger issues, such as labor contracts, or even on mergers and acquisitions of other companies.

Interpersonal Roles. Interpersonal roles require managers to direct and supervise employees and the organization. The figurehead is typically a top or middle manager. This manager may communicate future organizational goals or ethical guidelines to employees at company meetings. A leader acts as an example for other employees to follow, gives commands and directions to subordinates, makes decisions, and mobilizes employee support. Managers must be leaders at all levels of the organization; often lower-level managers look to top management for this leadership example. In the role of liaison, a manager must coordinate the work of others in different work units, establish alliances between others, and work to share resources. This role is particularly critical for middle managers, who must often compete with other managers for important resources, yet must maintain successful working relationships with them for long time periods.

Informational Roles. Informational roles are those in which managers obtain and transmit information. These roles have changed dramatically as technology has improved. The monitor evaluates the performance of others and takes corrective action to improve that performance. Monitors also watch for changes in the environment and within the company that may affect individual and organizational performance. Monitoring occurs at all levels of management, although managers at higher levels of the organization are more likely to monitor external threats to the environment than are middle or first-line managers. The role of disseminator requires that managers inform employees of changes that affect them and the organization. They also communicate the company's vision and purpose.

Managers at each level disseminate information to those below them, and much information of this nature trickles from the top down. Finally, a spokesperson communicates with the external environment, from advertising the company's goods and services, to informing the community about the direction of the organization. The spokesperson for major announcements, such as a change in strategic direction, is likely to be a top manager. But, other, more routine information may be provided by a manager at any level of a company. For example, a middle manager may give a press release to a local newspaper, or a supervisor manager may give a presentation at a community meeting.


Regardless of organizational level, all managers must have five critical skills: technical skill, interpersonal skill, conceptual skill, diagnostic skill, and political skill.

Technical Skill. Technical skill involves understanding and demonstrating proficiency in a particular workplace activity. Technical skills are things such as using a computer word-processing program, creating a budget, operating a piece of machinery, or preparing a presentation. The technical skills used will differ in each level of management. First-level managers may engage in the actual operations of the organization; they need to have an understanding of how production and service occur in the organization in order to direct and evaluate line employees. Additionally, first-line managers need skill in scheduling workers and preparing budgets. Middle managers use more technical skills related to planning and organizing, and top managers need to have skill to understand the complex financial workings of the organization.

Interpersonal Skill. Interpersonal skill involves human relations, or the manager's ability to interact effectively with organizational members. Communication is a critical part of interpersonal skill, and an inability to communicate effectively can prevent career progression for managers. Managers who have excellent technical skill, but poor interpersonal skill are unlikely to succeed in their jobs. This skill is critical at all levels of management.

Conceptual Skill. Conceptual skill is a manager's ability to see the organization as a whole, as a complete entity. It involves understanding how organizational units work together and how the organization fits into its competitive environment. Conceptual skill is crucial for top managers, whose ability to see the big picture can have major repercussions on the success of the business. However, conceptual skill is still necessary for middle and supervisory managers, who must use this skill to envision, for example, how work units and teams are best organized.

Diagnostic Skill. Diagnostic skill is used to investigate problems, decide on a remedy, and implement a solution. Diagnostic skill involves other skillstechnical, interpersonal, conceptual, and politic. For instance, to determine the root of a problem, a manager may need to speak with many organizational members or understand a variety of informational documents. The difference in the use of diagnostic skill across the three levels of management is primarily due to the types of problems that must be addressed at each level. For example, first-level managers may deal primarily with issues of motivation and discipline, such as determining why a particular employee's performance is flagging and how to improve it. Middle managers are likely to deal with issues related to larger work units, such as a plant or sales office. For instance, a middle-level manager may have to diagnose why sales in a retail location have dipped. Top managers diagnose organization-wide problems, and may address issues such as strategic position, the possibility of outsourcing tasks, or opportunities for overseas expansion of a business.

Political Skill. Political skill involves obtaining power and preventing other employees from taking away one's power. Managers use power to achieve organizational objectives, and this skill can often reach goals with less effort than others who lack political skill. Much like the other skills described, political skill cannot stand alone as a manager's skill; in particular, though, using political skill without appropriate levels of other skills can lead to promoting a manager's own career rather than reaching organizational goals. Managers at all levels require political skill; managers must avoid others taking control that they should have in their work positions. Top managers may find that they need higher levels of political skill in order to successfully operate in their environments. Interacting with competitors, suppliers, customers, shareholders, government, and the public may require political skill.


There are a number of changes to organizational structures that influence how many managers are at each level of the organizational hierarchy and what tasks they perform each day.

Flatter Organizational Structures. Organizational structures can be described by the number of levels of hierarchy; those with many levels are called tall organizations. They have numerous levels of middle management, and each manager supervises a small number of employees or other managers. That is, they have a small span of control. Conversely, flat organizations have fewer levels of middle management, and each manager has a much wider span of control. Examples of organization charts that show tall and flat organizational structures are presented in Exhibit 2.

Many organizational structures are now more flat than they were in previous decades. This is due to a number of factors. Many organizations want to be more flexible and increasingly responsive to complex environments. By becoming flatter, many organizations also become less centralized. Centralized organizational structures have most of the decisions and responsibility at the top of the organization, while decentralized organizations allow decision-making and authority at lower levels of the organization. Flat organizations that make use of decentralization are often

more able to efficiently respond to customer needs and the changing competitive environment.

As organizations move to flatter structures, the ranks of middle-level managers are diminishing. This means that there a fewer opportunities for promotion for first-level managers, but this also means that employees at all levels are likely to have more autonomy in their jobs, as flatter organizations promote decentralization. When organizations move from taller to flatter hierarchies, this may mean that middle managers lose their jobs, and are either laid off from the organization, or are demoted to lower-level management positions. This creates a surplus of labor of middle level managers, who may find themselves with fewer job opportunities at the same level.

Rosabeth Moss Kanter notes that hierarchical arrangements have eroded to make way for organizational structures that are more flexible. Specifically, she states that managers will be increasingly working in what she terms peer networks. Ultimately, Kanter argues that these networks, and the network that a manager is a part of, may matter more than a manager's formal level in a hierarchy. However, she also notes that because of these changes, managers may feel a loss of power.

Increased Use of Teams. A team is a group of individuals with complementary skills who work together to achieve a common goal. That is, each team member has different capabilities, yet they collaborate to perform tasks. Many organizations are now using teams more frequently to accomplish work because they may be capable of performing at a level higher than that of individual employees. Additionally, teams tend to be more successful when tasks require speed, innovation, integration of functions, and a complex and rapidly changing environment.

Another type of managerial position in an organization that uses teams is the team leader, who is sometimes called a project manager, a program manager, or task-force leader. This person manages the team by acting as a facilitator and catalyst. He or she may also engage in work to help accomplish the team's goals. Some teams do not have leaders, but instead are self-managed. Members of self-managed teams hold each other accountable for the team's goals and manage one another without the presence of a specific leader.

Outsourcing. Outsourcing occurs when an organization contracts with another company to perform work that it previously performed itself. Outsourcing is intended to reduce costs and promote efficiency. Costs can be reduced through outsourcing, often because the work can be done in other countries, where labor and resources are less expensive than in the United States. Additionally, by

having an outsourcing company aid in production or service, the contracting company can devote more attention and resources to the company's core competencies. Through outsourcing, many jobs that were previously performed by American workers are now performed overseas. Thus, this has reduced the need for many first-level and middle-level managers, who may not be able to find other similar jobs in another company.

Telecommuting. Telecommuting is similar to outsourcing in that both involve work being performed for a company offsite. However, the major difference between the two is that telecommuters are still employees of a company. Because of this, they often have to report to a manager. However, this also means that the relationship between the manager and the employee will change, as will managerial responsibilities. Technovation observed that managers' roles will alter in that they will not be able to observe employees at work, and must focus on outcome with regards to telecommuting employees.

Insourcing. Insourcing is another business trend that came into its own in the early twenty-first century. Insourcing is when outside firms take over major parts of a company's internal process. The journalist and author Thomas Friedman uses UPS and Toshiba computers as an example. Toshiba has insourced its computer repair operations to UPS. Toshiba itself does not work on damaged computers, but UPS does the work instead. This practice has implications for management levels that are similar to outsourcing in that this practice can result in the elimination of some management positions inside an organization.

SEE ALSO Management and Executive Development; Management Functions; Organizational Chart; Organizational Structure; Outsourcing and Offshoring; Teams and Teamwork


Chandler, Alfred. The Visible Hand. Cambridge, Massachusetts: Bellknap Press, 1977.

DuBrin, Andrew J. Essentials of Management. 6th ed. Peterborough, Ontario: Thomson South-Western, 2003.

Friedman, Thomas. The World is Flat. New York: Farrar, Straus and Giroux, 2005.

Jones, Gareth R., and Jennifer M. George. Contemporary Management. 4th ed. New York: McGraw-Hill Irwin, 2006.

Kanter, Rosabeth Moss. The New Managerial Work. Management Skills. San Francisco, California: John Wiley and Sons, 2005. 91112.

Mintzberg, Henry. The Manager's Job: Folklore and Fact. Harvard Business Review July-August 1975, 5662.

. The Nature of Managerial Work. New York: Harper & Row, 1973.

Pérez, Manuela, et al. The differences of Firm Resources and the Adoption of Teleworking. Technovation 25, no 12 (December 2005): 1476.

Rue, Leslie W., and Lloyd L. Byars. Management: Skills and Applications. 10th ed. New York, NY: McGraw-Hill Irwin, 2003.

Williams, Chuck. Management. Cincinnati, OH: South-Western College Publishing, 2000.

Management by Objectives

views updated Jun 08 2018

Management by Objectives

Management by objectives is a technique applied primarily to personnel management. In its essence it requires deliberate goal formulation for periods of time (like the next calendar or business year); goals are recorded and then monitored. The management guru Peter Drucker (19092005) first taught and then described the technique in a 1954 book (The Practice of Management ). In Drucker's formulation the technique was called "management by objectives and self-control," and Drucker saw it as one of the forms of "managing managers." It became popular in the 1960s, by then abbreviated as MBO, the "self-control" parts more or less neglected, at least in talking about the subject. It experienced both an upward and downward drift: it came to be applied to the organization as a whole and to employees below the managerial level as well so that in many corporations many employees labored and still labor, at least once yearly, in formulating objectives. It was and remains an activity practiced predominantly in large corporations, although it spread in the 1970s and 80s to midsized organizations, commercial and other. In the mid-2000s it is viewed in many circles as a somewhat dated technique not well adapted to the rapid changes and uncertainties of a dynamic Information Age. However, it continues to have committed and enthusiastic supporters. In current practice it has also undergone changes and refinements.


Planning is the central concept supporting MBO in the sense that individuals and organizations do better by formulating goals than just by working or living alonesimply responding to crises and events. If an organization has clear objectives and managers and employees have set themselves objectives which support and harmonize with the company goals, then a coordination and orchestration of conscious motives will be driving the corporate activity. Thus management by objectives moves corporate planning downward so that it becomes translated into personal goals. But MBO was always articulated as a collective and supervised activity rather than as a personal disciplineprecisely so that objectives could be coordinated. Goal setting is an annual exercise. The employee is asked to set five to ten personal goals; ideally these should be measurable in some way. Goals are discussed with the supervisor one level up. If the objectives are too vague or too easy, the employee must try again. Goals are next fixed in writing. Finally, periodic reviews of accomplishments against goals are carried out, the manager evaluating the employee. Reward systems are built around achieving the objectives.

MBO came of age in a time of change and ferment in U.S. management history, with corporations then responding to the dramatic rise of Japanese industry and Japan's commercial invasionmost visibly of the automobile market. To be sure Japanese business culture had different roots than the American; it had its origins in tribal associations and featured a very loyal work force, the latter no doubt supported by Japan's practice of lifetime employment. Meanwhile the American system, based on the creative energy of the entrepreneur, had evolved into very large and bureaucratic organizations. In this environment Japanese techniques were admired and imitatedunder the leadership of MBA programs in business schools. "Quality Circles" sprang up and corporations were adopting numerical quality controla Japanese technique the Japanese had learned from an American, Dr. W. Edwards Deming, and then perfected. Along with these methods came the promotion of other innovations all based on the conviction that loyalty could be trained and commitment induced: catch-phrases like the "learning organization," "total quality control," "team management," "matrix management," "reengineering," and "empowerment" arose in this environment with battalions of consultants and gurus in business to teach the way.

Pros and Cons

The fundamental concept underlying management by objectives is based on wisdom: "If you don't know where you're going, you're certainly not going to get there." In any kind of complex activity, planning is goodbe it a wedding or a new product introduction. Highly motivated individuals have conscious goals, pursue them with concentration, and do not rest until their aims are met. Effective individuals have to-do listson slips of paper, on personal digital assistants (PDAs), or in the head. In a sense MBO is simply the extension of the to-do list to a longer period with a few additional refinement: goals should be precise and measurable in some way. Discovering a measure in itself leads to closer attention to the goal. If the goal is broad and vague ("Greater Customer Satisfaction") looking for a measurement might refine it into ("Reduce Product Returns by 80 percent")which goal will then more correctly focus attention on a company's quality problems or poor packaging. Focused, goal driven activity produces all sorts of benefits, not least more effective use of resources, saved time, and also higher morale. Conversely, companies and individuals that simply "go with the flow" may find themselves "swept away." One might say that effective managers and employees practice MBO knowingly or not.

The negative aspects of MBO have been due primarily to the more or less thoughtless and mechanicaland wholesaleapplication of the technique. MBO was and still is typically introduced as an exercise from the top and then administered by the numbers. Frequently employees with relatively narrow and straight-forward job descriptions (not just managers) are required to scratch their heads and come up with a precisely fixed number of goals. If the technique does not fit job descriptions wellif the only reasonable goals employees can come up with are restatements of tasks they ought to do in any casethe exercise becomes a ritual. Groups of people instinctively know when a technique is pro-forma. For this reason, in many organizations, the exercises resulted in detailed objectives recorded on paper and filed in notebooks to be routinely forgotten. Experience has shown that MBO works reasonably well where management leads and actively promotes goal achievement. But in such situations it is difficult to know whether it was the MBO program or leadership which actually achieved the results.

Rodney Brim, CEO of Performance Solutions Technology, LLC, and a critic of MBO, identified four reasons for the weakness of the MBO technique. He believed that the method went into decline in the market turn-down of the early 1990s when "downsizing," "right sizing," and other coping mechanisms captured management attention. "With the upturn of the market and the start of the Internet gold rush," Brim wrote, "management by objectives slipped further into the past. The term 'management' itself seemed to lose a sense of compelling interest. Riches were made based upon technology, upon acquisitions, upon something new, upon association with the WEB, not (for heaven's sake) management of work effectiveness." Brim's tally of weaknesses includes the following points:

  1. Emphasis on goal setting rather than on working a plan.
  2. Underestimation of environmental factors, including resources available or absent and the crucial role of management participation (already referred to above).
  3. Inadequate attention to unforeseeable contingencies and shockswhich sometimes make objectives irrelevant.
  4. Finally, a neglect of human nature.

Concerning the last point, Brim wrote: "People, the world over, set goals every year but don't follow them through to completion. One can surmise that this is the standard goal follow through behavior." Brim points out that business is well aware of this tendency, one reason why "work-out clubs predictably sell more memberships at the first of the year than they plan on supporting through the year. The problematic assumption is that if you manage by goals and objectives, direct reports and team members will organize their work around what you are managing by, e.g. those same goals and objectives."


The small business owner who has a vague feeling that his or her business may be adrift might wish to look into management by objectives as a way of reviving focus. The owner will probably benefit from reading one or two books on the subject, including Drucker's own work, available in paperbackand then trying the method on him or herself. MBO was originally conceptualized as a management tool for managersthe managers presumed to be inherently motivated. MBO works well when its principles are internalized. It tends to fail when it is imposed. Its great benefits lie in the planning that it requires. In the case of the small business, corporate plans and the owner's personal plans often coincide, thus giving MBO ideal scope. The requirement of formulating measurable objectives is a good discipline. And "working the plan" with "self-control" applied, may produce quite tangible benefits. Experience with this technique, more than 50 years old and counting, indicates that committed management involvement is vital for success. If the MBO works well for the owner, the owner's own enthusiasm may act infectiously on other managers in the business. Use of the technique beyond a few key managers is more problematical.


Batten, Joe D. Beyond Management by Objectives: A Management Classic. Resource Publications, December 2003.

Brim, Rodney. "A Management by Objectives History and Evolution." Performance Solutions Technology, LLC. Available from 2004.

Drucker, Peter F. The Practice of Management. Reissue Edition. Collins, 26 May 1993.

Weihrich, Heinz. "A New Approach to MBO." Management World. January 2003.

                                        Darnay, ECDI


views updated May 23 2018


Throughout the years, the role of a manager has changed. Years ago, managers were thought of as people who were the boss. While that might still be true in the early twenty-first century, many managers view themselves as leaders rather than as people who tell subordinates what to do. The role of a manager is comprehensive and often very complex. Not everyone wants to be a manager, nor should everyone consider being a manager.


Some would define management as an art, while others would define it as a science. Whether management is an art or a science is not what is most important. Management is a process that is used to accomplish organizational goals. That is, it is a process used to achieve the goals of an organization. An organization could be a business, a school, a city, a group of volunteers, or any governmental entity. Managers are the people to whom this management task is assigned, and it is generally thought that they achieve the desired goals through the key functions of (1) planning, (2) organizing, (3) directing, and (4) controlling. Some would include leading as a managing function, but for the purposes of this discussion, leading is included as a part of directing.

The four key functions of management are applied throughout an organization regardless of whether it is a business, a government agency, or a church group. In a business, many different activities take place. For example, in a retail store there are people who buy merchandise to sell, people to sell the merchandise, people who prepare the merchandise for display, people who are responsible for advertising and promotion, people who do the accounting work, people who hire and train employees, and several other types of workers. There might be one manager for the entire store, but there are other managers at different levels who are more directly responsible for the people who perform all the other jobs. At each level of management, the four key functions of planning, organizing, directing, and controlling are included. The emphasis changes with each different level of manager.


Planning in any organization occurs in different ways and at all levels. A top-level manager, such as the manager of a manufacturing plant, plans for different events than does a manager who supervises a group of workers who are responsible for assembling modular homes on an assembly line. The plant manager must be concerned with the overall operations of the plant, while the assembly-line manager or supervisor is only responsible for the line that he or she oversees.

Planning could include setting organizational goals. This is usually done by higher-level managers in an organization. As a part of the planning process, the manager develops strategies for achieving the goals of the organization. In order to implement the strategies, resources will be needed and must be acquired. The planners must also then determine the standards, or levels of quality, that need to be met in completing the tasks.

In general, planning can be strategic planning, tactical planning, or contingency planning. Strategic planning is long-range planning that is normally completed by top-level managers in an organization. Examples of strategic decisions managers make include who the customer or clientele should be, what products or services should be sold, and where the products and services should be sold.

Short-range or tactical planning is done for the benefit of lower-level managers, since it is the process of developing very detailed strategies about what needs to be done, who should do it, and how it should be done. To return to the previous example of assembling modular homes, as the home is nearing construction on the floor of the plant, plans must be made for the best way to move it through the plant so that each worker can complete assigned tasks in the most efficient manner. These plans can best be developed and implemented by the line managers who oversee the production process rather than managers who sit in an office and plan for the overall operation of the company. The tactical plans fit into the

strategic plans and are necessary to implement the strategic plans.

Contingency planning allows for alternative courses of action when the primary plans that have been developed do not achieve the goals of the organization. In the economic environment of the early twenty-first century, plans may need to be changed very rapidly. Continuing with the example of building modular homes in the plant, the plant might be using a nearby supplier for all the lumber used in the framing of the homes but the supplier loses its entire inventory of framing lumber in a major warehouse fire. Contingency plans would make it possible for the modular home builder to continue construction by going to another supplier for the same lumber that it can no longer get from its former supplier.


Organizing refers to the way the organization allocates resources, assigns tasks, and goes about accomplishing its goals. In the process of organizing, managers arrange a framework that links all workers, tasks, and resources together so the organizational goals can be achieved. The framework is called organizational structure. Organizational structure is shown by an organizational chart. The organizational chart that depicts the structure of the organization shows positions in the organization, usually beginning with the top-level manager (normally the president) at the top of the chart. Other managers are shown below the president.

There are many ways to structure an organization. It is important to note that the choice of structure is important for the type of organization, its clientele, and the products or services it providesall of which influence the goals of the organization.


Directing is the process that many people would most relate to managing. It is supervising, or leading workers to accomplish the goals of the organization. In many organizations, directing involves making assignments, assisting workers to carry out assignments, interpreting organizational policies, and informing workers of how well they are performing. To effectively carry out this function, managers must have leadership skills in order to get workers to perform effectively.

Some managers direct by empowering workers. This means that the manager does not stand like a taskmaster over the workers barking out orders and correcting mistakes. Empowered workers usually work in teams and are given the authority to make decisions about what plans will be carried out and how. Empowered workers have the support of managers who will assist them to make sure the goals of the organization are being met. It is generally thought that workers who are involved with the decision-making process feel more of a sense of ownership in their work, take more pride in their work, and are better performers on the job.

By the very nature of directing, it should be obvious that the manager must find a way to get workers to perform their jobs. There are many different ways managers can do this in addition to empowerment, and there are many theories about the best way to get workers to perform effectively and efficiently. Management theories and motivation are important topics and are discussed in detail in other articles.


The controlling function involves the evaluation activities that managers must perform. It is the process of determining if the company's goals and objectives are being met. This process also includes correcting situations in which the goals and objectives are not being met. There are several activities that are a part of the controlling function.

Managers must first set standards of performance for workers. These standards are levels of performance that should be met. For example, in the modular home assembly process, the standard might be to have a home completed in eight working days as it moves through the construction line. This is a standard that must then be communicated to managers who are supervising workers, and then to the workers so they know what is expected of them.

After the standards have been set and communicated, it is the manager's responsibility to monitor performance to see that the standards are being met. If the manager watches the homes move through the construction process and sees that it takes ten days, something must be done about it. The standards that have been set are not being met. In this example, it should be relatively easy for managers to determine where the delays are occurring. Once the problems are analyzed and compared to expectations, then something must be done to correct the results. Normally, the managers would take corrective action by working with the employees who were causing the delays. There could be many reasons for the delays. Perhaps it is not the fault of the workers but instead is due to inadequate equipment or an insufficient number of workers. Whatever the problem, corrective action should be taken.


To be an effective manager, it is necessary to possess many skills. Not all managers have all the skills that would make them the most effective manager. As technology advances and grows, the skills that are needed by managers are constantly changing. Different levels of management in the organizational structure also require different types of management skills. Generally, however, managers need to have communication skills, human skills, computer skills, time-management skills, and technical skills.

Communication Skills

Communication skills fall into the broad categories of oral and written skills, both of which managers use in many different ways. It is necessary for a manager to orally explain processes and give direction to workers. It is also necessary for managers to give verbal praise to workers. Managers are also expected to conduct meetings and give talks to groups of people.

An important part of the oral communication process is listening. Managers are expected to listen to their supervisors and to their workers. A manager must hear recommendations and complaints on a regular basis and must be willing to follow through on what is heard. A manager who does not listen is not a good communicator.

Managers are also expected to write reports, letters, memos, and policy statements. All of these must be written in such a way that the recipient can interpret and understand what is being said. This means that managers must write clearly and concisely. Good writing requires good grammar and composition skills. This is something that can be learned by those aspiring to a management position.

Human Skills

Relating to other people is vital in order to be a good manager. Workers come in every temperament that can be imagined. It takes a manager with the right human skills to manage the variety of workers effectively. Diversity in the workplace is common. The manager must understand different personality types and cultures to be able to supervise these workers. Human skills cannot be learned in a classroom, but are best learned by working with people. Gaining an understanding of personality types can be learned from books, but practice in dealing with diverse groups is the most meaningful preparation.

Computer Skills

Technology changes so rapidly it is often difficult to keep up with the changes. It is necessary for managers to have computer skills in order to keep up with these rapid changes. Many of the processes that occur in offices, manufacturing plants, warehouses, and other work environments depend on computers and thus necessitate managers and workers who can skillfully use the technology. Although computers can cause headaches, at the same time they have simplified many of the tasks that are performed in the workplace.

Time-Management Skills

Because the typical manager is a very busy person, it is important that time be managed effectively. This requires an understanding of how to allocate time to different projects and activities. A manager's time is often interrupted by telephone calls, problems with workers, meetings, others who just want to visit, and other seemingly uncontrollable factors. It is up to the manager to learn how to manage time so that work can be completed most efficiently. Good time-management skills can be learned, but managers must be willing to prioritize activities, delegate, deal with interruptions, organize work, and perform other acts that will make them better managers.

Technical Skills

Different from computer skills, technical skills are more closely related to the tasks that are performed by workers. A manager must know what the workers who are being supervised are doing on their jobs or assistance cannot be provided to them. For example, a manager who is supervising accountants needs to know the accounting processes; a manager who is supervising a machinist must know how to operate the equipment; and a manager who supervises the construction of a home must know the sequence of operations and how to perform them.


There are many views of management, or schools of management thought, that have evolved over the years. Some of the theories of management that have greatly affected how managers manage today include classical, behavioral, contemporary, closed, and open management thought.

Classical Thought

The classical school of management thought emerged in the late 1800s and early 1900s as a result of the Industrial Revolution. Since the beginning of time, managers have needed to know how to perform the functions discussed earlier. The Industrial Revolution emphasized the importance of better management as organizations grew larger and more complex. As industry developed, managers had to develop systems for controlling inventory, production, scheduling, and human resources. It was the managers who emerged during the Industrial Revolution, many of whom had backgrounds in engineering, who discovered that they needed organized methods in order to find solutions to problems in the workplace.

Classical management theorists thought there was one way to solve management problems in the industrial organization. Generally, their theories assumed that people could make logical and rational decisions while trying to maximize personal gains from their work situations. The classical school of management is based on scientific management, which has its roots in Henri Fayol's work in France and the ideas of German sociologist Max Weber. Scientific management is a type of management that bases standards upon facts. The facts are gathered by observation, experimentation, or sound reasoning. In the United States, scientific management was further developed by individuals such as Charles Babbage (17921871), Frederick W. Taylor (18561915), and Frank (18681924) and Lillian (18781972) Gilbreth.

Behavioral Management Thought

It was because the classical management theorists were so machine-oriented that the behavioralists began to develop their thinking. The behavioral managers began to view management from a social and psychological perspective. These managers were concerned about the well-being of the workers and wanted them to be treated as people, not a part of the machines.

Some of the early behavioral theorists were Robert Owen (17711858), a British industrialist who was one of the first to promote management of human resources in an organization; Hugo Munsterberg (18631916), the father of industrial psychology; Walter Dill Scott (18691955), who believed that managers need to improve workers' attitudes and motivation in order to increase productivity; and Mary Parker Follett (18681933), who believed that a manager's influence should come naturally from his or her knowledge, skill, and leadership of others.

In the behavioral management period, there was a human relations movement. Advocates of the human relations movement believed that if managers focused on employees rather than on mechanistic production, then workers would become more satisfied and thus more productive laborers. Human relations management supported the notion that managers should be paternalistic and nurturing in order to build work groups that could be productive and satisfied.

The behavioral science movement was also an important part of the behavioral management school. Advocates of this movement stressed the need for scientific studies of the human element of organizations. This model for management emphasized the need for employees to grow and develop in order to maintain a high level of self-respect and remain productive workers. The earliest advocates of the behavioral science movement were Abraham Maslow (19081970), who developed Maslow's hierarchy of needs, and Douglas McGregor (19061964), who developed Theory X and Theory Y.

Contemporary Management Thought

In more recent years, new management thoughts have emerged and influenced organizations. One of these is the sociotechnical system. A system is a set of complementary elements that function as a unit for a specific purpose. Systems theorists believe that all parts of the organization must be related and that managers from each part must work together for the benefit of the organization. Because of this relation-ship, what happens in one part of the organization influences and affects other parts of the organization.

Another contemporary approach to managing involves contingency theories. This approach states that the manager should use the techniques or styles that are most appropriate for the situation and the people involved. For example, a manager of a group of Ph.D. chemists in a laboratory would have to use different techniques from a manager of a group of teenagers in a fast-food restaurant.

Closed Management Systems

Within the classical and behavioral approaches to management, managers look only within the organization to improve productivity and efficiency. This is a closed systemthe organization operates as though it is in its own environment. Outside influence and information are blocked out.

Open Management Systems

Another perspective is the open system. As one would expect, here the organization functions in conjunction with its external environment, acting with and relying upon other systems. Advocates of an open system believe that an organization cannot avoid the influence of outside forces.


Management is a very complex process to which this article is but a brief introduction. Other articles in this encyclopedia provide extensive insight into the many styles and theories of management.

see also Careers in Management ; Ethics in Management ; Management: Authority and Responsibility ; Management: Historical Perspectives ; Management/Leadership Styles


Nickels, William G., McHugh, James M., and McHugh, Susan M. (2005). Understanding Business. Boston: McGraw-Hill/Irwin.

Pierce, Jon L., and Dunham, Randall B. (1990). Managing. Glenview, IL: Scott, Foresman/Little, Brown Higher Education.

Roger L. Luft


views updated May 23 2018



Management is a set of functions and tasks performed by individuals and groups for the purpose of enabling an organization to achieve its objectives. From one perspective, management consists of planning, organizing, staffing, directing, and controlling (Koontz and ODonnell 1982). From another perspective, management is distinguishable from, yet operates in tandem with, leadership, which consists of envisioning, enabling, and energizing functions and tasks (Nadler and Tushman 1990). In short, leaders formulate organizational strategy, set direction, mobilize resources, and motivate people to perform, whereas managers execute organizational strategy by clarifying expected behavior, instituting measurements, and administering rewards and punishments (Kotter 1990).

The distinction between management and leadership is relatively new, largely because for much of the twentieth century the majority of industries in the United States and other nations were characterized by oligopoly (a few firms possess concentrated market power) or monopoly (one firm possesses sole market power). When a firman organizationpossesses market power, it does not need much in the way of leadership because customers have little or no choice in terms of alternative products or services and because there are few or no rival firms that pose competitive threats. In such circumstances a firm needs only management to ensure that organizational objectives will be met.

Irrespective of the competitive structure of particular industries, traditionally managers and leaders of business (and nonbusiness) enterprises have maximized the objectives of those enterprises. Such maximizing behavior is consistent with the utility maximization principle that underlies both classical and neoclassical microeconomics (Marshall 1923) and with the optimization principle that is at the core of management science (Starr and Miller 1960). But when it comes to management, there is a plethora of concepts, evidence, and experience that indicates that management settles for second-or even third-best when it comes to organizational performance (Simon 1947). An especially influential example in this regard is the work of Frederick W. Taylor (1911), the father of scientific management, who early in the twentieth century showed that management consistently and systematically underperformed. Applying the principles of industrial engineering to the design of work, Taylor demonstrated how most jobs could be reconstructed to enhance productivity with no change in the quantity or mix of factors of productionland, capital, and especially labor. Taylors work ultimately led to the development and widespread adoption of motion time management (MTM), or time study, whereby jobs were reengineered to maximize efficiency and standard times were set for workers to perform those jobs, with consequent pay rewards if workers overperformed and pay penalties if workers underperformed.

Taylors conception of management was a singleminded one in which supervisors (and, by inference, managers) did the thinking and issued orders with which workers would presumably comply. But workers proved to be far more independent-minded, even obstreperous, than Taylor envisioned, and they often banded together to attempt to influence and change their terms and conditions of employment. A prime example of this was the industrial union movement of the 1930s, during which workers from a wide variety of companies sought official recognition in order to negotiate collective bargaining agreements with the managements of those companies. That these efforts were strongly resisted by company management is readily evident from historical accounts of labor violence during this period (Rayback 1966).

Ironically, the scientific management movement was followed by, and in significant respects supplanted by, the human relations movement, which was founded on the principle that workers are social beings rather than only or even primarily economic beings. The well-known work of Elton Mayo (1933) and his colleagues, which was conducted at the Hawthorne Works of the Bell Telephone System, showed that workers job performance could be greatly enhanced if management paid close attention to workers social needs rather than merely to their economic needs (Roethlisberger and Dickson 1939). This research was instrumental to the adoption by many companies of employee counseling and industrial welfare programs aimed at addressing workers noneconomic needs. Yet at the same time companies strongly and in some cases militantly opposed workers efforts to form independent unions and bargain collectively with their employers. Responding to these developments during the Great Depression, the U.S. Congress in 1935 passed the landmark National Labor Relations Act (NLRA), establishing unionization and collective bargaining as labor policy for the private sectora policy that was ultimately upheld by the U.S. Supreme Court.

As management thought and practice continued to evolve, more attention was paid to external and internal alignment. External alignment refers to the relationship of an enterprise to its external environment and involves the scanning of economic, political, legal, and social developments, the analysis of competitive opportunities and threats, the positioning of the enterprise in its particular sector or industry, and ultimately the formulation of a business strategy and specification of strategic objectives. Internal alignment refers to the linkages among and balancing of elements such as organization structure, reward systems, decision-making processes, human-capital skills and capabilities, and organization culture, all of which are key to the implementation of business strategy.

Each of these external and internal alignment dimensions is the province of specialized academic research; a leading example is Alfred Chandlers work on organizational structure. Chandler (1962) postulated that an organizations structure was fundamentally shaped by the organizations strategy, which meant (among other things) that there is no one ideal organization structure for all enterprises. Based on this reasoning, a classical functional structure aligned well with certain businesses strategies, whereas product-based, geographical-based, and matrix structures aligned well with other businesses strategies. From this work there developed a more robust contingency model of organizational structure, and similar contingency models were applied to other elements of internal organizational alignment. The main insight or message of such contingency models is that there is no one best way to operate a business in any of its key dimensions.

As the competitive advantage of business enterprises has come to lie more with human or intellectual assets (capital) than with physical assets (capital), much attention has been devoted to the management of human resources for competitive advantage. In this regard there is considerable empirical evidence that decentralized organizational structures and decision making together with team-based work lead to superior performance compared to hierarchical organization structures, centralized decision making, and individual-based work. In particular the notion that competitive advantage can be achieved through the high-involvement management of people has taken hold quite firmly in management circles (Pfeffer 1994); from this perspective, employees are managed as assets. But it is also the case that competitive advantage can be achieved through low-involvement management of people, most especially through outsourcing and short-term employment contracting, in which employees are managed as labor expense to be controlled (Lewin 2001). Both types of human-resource management practices can lead to positive economic returns to a business enterprise.

Finally, much attention has been devoted to the types of incentives systems that best harmonize the interests of business owners and employees, including management employees. The underlying concern, captured by the notion of agency theory, is that management and employees are agents of the principals or owners of a business and as such seek to maximize their own interests rather than those of the principals or owners (Jensen and Meckling 1976). To combat this problem, incentive systems that tie at least some of the pay of managers and employees to the performance of the business have been widely advocated. Such incentives include profit-sharing, bonuses, gain-sharing, productivity-sharing, commissions, stock ownership, and stock-option plans (Lewin and Mitchell 1995). What these plans have in common is that they pay off when a business does well and do not pay off when a business does poorly, which is analogous to what happens to the owners of a business, including shareholders.

SEE ALSO Business; Competition; Corporations; Labor; Leadership; Management Science; Marshall, Alfred; Maximization; Organization Theory; Organizations; Principal-Agent Models; Profits; Simon, Herbert A.; Taylorism


Chandler, Alfred D. 1962. Strategy and Structure. Cambridge, MA: MIT Press.

Jensen, Michael, and William Meckling. 1976. Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure. Journal of Financial Economics 3: 305360.

Koontz, Harold, and Cyril ODonnell. 1982. Essentials of Management. 3rd ed. New York: McGraw-Hill.

Kotter, John P. 1990. What Leaders Really Do. Harvard Business Review 68 (3): 103111.

Lewin, David. 2001. Low Involvement Work Practices and Business Performance. Paper presented at the Fifty-third Annual Meeting, Industrial Relations Research Association. Champaign, IL.

Lewin, David, and Daniel J. B. Mitchell. 1995. Human Resource Management: An Economic Perspective. 2nd ed. Cincinnati, OH: South-Western.

Marshall, Alfred P. 1923. Principles of Economics. 8th ed. London: Macmillan.

Mayo, Elton. 1933. The Human Problems of an Industrial Civilization. New York: Macmillan.

Nadler, David A., and Michael L. Tushman. 1990. Beyond Charismatic Leaders: Leadership and Organization Change. California Management Review 32 (1): 7790.

Pfeffer, Jeffrey. 1994. Competitive Advantage through People. Boston: Harvard Business School Press.

Rayback, Joseph G. 1960. A History of American Labor. New York: Free Press.

Roethlisberger, Fritz W., and W. J. Dickson. 1939. Management and the Worker. Cambridge, MA: Harvard University Press.

Simon, Herbert A. 1947. Administrative Behavior. New York: Free Press.

Starr, Martin K., and David W. Miller. 1960. Executive Decisions and Operations Research. New York: Prentice Hall.

Taylor, Frederick W. 1911. The Principles of Scientific Management. New York: Harper and Brothers.

David Lewin

Management Styles

views updated May 23 2018

Management Styles

A manager's style is determined by the situation, the needs and personalities of his or her employees, and by the culture of the organization. Organizational restructuring and the accompanying cultural change has caused management styles to come in and go out of fashion. There has been a move away from an authoritarian style of management (in which control is a key concept) to one that favors teamwork and empowerment. Managerial styles that focus on managers as technical experts who direct, coordinate, and control the work of others have been replaced by those that focus on managers as coaches, counselors, facilitators, and team leaders.

Successful management styles involve building teams, networks of relationships, and developing and motivating others. There is a greater emphasis on participative management styles and people management skills. In an article titled Types of Managers and Management Styles published in the Fascicle of Management and Technological Engineering, Mircea and Delia point out that accommodative management styles that encourage teamwork and employee participation in decision-making processes motivate employees and promote long-term growth prospects of organizations compared to authoritative management styles. Management theorists have repeatedly found evidence to support the advantages of management styles such as participative management; Theory Y versus Theory X; Theory Z; Total Quality Management (TQM); Management by Walking Around; Management by Objectives; and employee empowerment.


Participative management involves sharing information with employees and involving them in decision-making. Employees are encouraged to run their own departments and make decisions regarding policies and processes. Participative management has often been promoted as the quick cure for poor morale and low productivity. It is not, however, appropriate in every organization and at every level. This is because employees must have the skills and abilities to participate, and they must have the technical background, communication skills, and intelligence to make decisions and communicate those decisions effectively. The organization's culture must support employee involvement and the issues in which employees get involved must be relevant to them.

Representative participation allows workers to be represented by a small group who actually participate. The goal of representative participation is to redistribute power within the organization. Employees' interests become as important as those interests of management and stockholders.

According to Stephen P. Robbins, author of Essentials of Organizational Behavior, the two most popular forms of representative participation are works councils and board representatives. Works councils are groups of employees who have been elected by their peers and who must be consulted by management when making personnel decisions. Board representatives are employees that sit on the board of directors and represent labor interests.

As with participative management, representative participation is a poor choice for improving performance or morale. Evidence suggests that the overall influence of representative participation is small. The employees involved in representing personnel receive more benefit than those they represent.


Douglas McGregor's Theory X assumes that people are lazy and do not want to work; it is the job of the manager to force or coerce them to work. McGregor's Theory X makes three basic assumptions: (1) The average human being dislikes work and will do anything to get out of it; (2) most people must be coerced, controlled, directed, and threatened or punished to get them to work toward organizational objectives; and (3) the average human being

prefers to be directed, wishes to avoid responsibility, has relatively little ambition, and places job security above ambition. According to this theory, responsibility for demonstrating initiative and motivation lies with the employee, and failure to perform is his or her fault. Employees are motivated by extrinsic rewards such as money, promotions, and tenure.

Theory Y suggests employees would behave differently if treated differently by managers. Theory Y assumes that higher-order needs dominate individuals. The set of assumptions for Theory Y is: (1) the average human does not dislike work, and it is as natural as play; (2) people will exercise self-direction and self-control in order to achieve objectives; (3) rewards of satisfaction and self-actualization are obtained from effort put forth to achieve organizational objectives; (4) the average human being not only accepts but also seeks responsibility; (5) human beings are creative and imaginative in solving organizational problems; and (6) the intellectual potential of the average human is only partially realized. If productivity is low and employees are not motivated, then it is considered failure on the manager's part.


William Ouchi studied management practices in the United States and Japan and developed Theory Z. Theory Z combines elements of both U.S. and Japanese management styles and is sometimes called Japanese Management. It assumes that the best management style involves employees at all levels of the organization. Specific characteristics included in Theory Z are long-term employment, less specialized career paths, informal control, group decision making, and concern for the individual (beyond work-related issues). This theory satisfies both lower order and higher order needs. Looking out for employees' well-being satisfies the lower-level needs. Incorporating group processes in decision making satisfies middle-level needs and encouraging employees to take responsibility for their work and decisions satisfies higher-level needs.


Total Quality Management (TQM) is a management style that integrates all functions of a business to achieve a high quality of product. The major hallmarks are customer satisfaction, quality as the responsibility of all employees, and teamwork. As an integrated method, it involves every aspect of the company. The entire work-force, from the CEO to the line worker, must be involved in a shared commitment to improving quality.

TQM encourages employees to grow and learn and to participate in improvements, so it exemplifies a participative management style. TQM also encourages an ever-changing or continuous process, and emphasizes the ideas of working constantly toward improved quality.

Americans W. Edward Deming and Joseph M. Juran were the pioneers of the quality movement. Both did their major work in post-World War II Japan, and are credited with the major turnaround in the quality of Japanese products by the 1970s. In the 1980s both men were highly influential in the quality management movement in the United States.


Management by Walking Around (MBWA) is a classic technique used by good managers who are proactive listeners. Managers using this style gather as much information as possible so that a challenging situation does not turn into a bigger problem. Listening carefully to employees' suggestions and concerns will help evade potential crises. MBWA benefits managers by providing unfiltered, real-time information about processes and policies that is often left out of formal communication channels. By walking around, management gets an idea of the level of morale in the organization and can offer help if there is trouble.

A potential concern of MBWA is that the manager will second-guess employees' decisions. The manager must maintain his or her role as coach and counselor, not director. By leaving decision-making responsibilities with the employees, managers can be assured of the fastest possible response time.

According to Max Messmer, another mistake managers make is to inadvertently create more work for employees. By offering suggestions that may be interpreted as assignments, managers can increase the workload and slow down progress.

Messmer illustrates an example of a team working on a project that needs a supplier of plastic molding. When the manager shows up, the team has reviewed three companies and selected the best one. The manager also knows of a good company, and suggests that team members give this company a call. They may not feel comfortable in saying that the decision has already been made, and will take the extra time to call the company in order to please the manager.


Management by Objectives (MBO) is a company-wide process in which employees actively participate in setting goals that are tangible, verifiable, and measurable. Management theorist Peter Drucker pioneered this style in his 1954 book titled The Practice of Management.

MBO provides a systematic method of assuring that all employees and work groups set goals that are in alignment with achieving the organization's goals. Xerox, Intel,

and Du Pont are just a few examples of companies that use MBO at all levels of the organization. Overall organizational objectives are converted into specific objectives for employees. Objectives at each level of the organization are linked together through a bottom up approach as well as a top down approach. In this manner, if each individual achieves his or her goals, then the department will achieve its goals and the organization objectives will in turn be met.

There are four steps involved in the MBO process: setting goals, participative decision-making, implementing plans, and performance feedback. Top managers work with middle managers and middle managers work with lower level managers to set goals for their departments. Each manager then works with employees in the department to set individual performance goals. The participative decision-making step allows managers and employees to jointly set goals, define responsibility for achieving those goals, and set the evaluation process.

Managers are allowed to implement their plans and control their own performance. This step of MBO utilizes every manager's expertise to benefit the organization and permits managers to continuously improve their skills.

The final step is to continuously provide feedback on performance and achievement of objectives. By periodically reviewing employees' performance, goals can be modified or new goals can be set. This step complements the formal appraisal system because the continuous feedback throughout the year keeps individuals informed of their progress.

As with any other management style, the organization's culture must be conducive for MBO to work. Top management must be committed and involved in the MBO program for it to be beneficial. This management style is not without its problems. Managers often set their departmental goals and objectives too narrowly at the expense of the organization's strategic goals or objectives.

Another problem arises when managers are not flexible in setting up the goal-setting and evaluation processes, and employees lose the ability to respond to issues quickly. Unrealistic expectations about results are often a problem with MBO programs as is the unwillingness of management to allocate rewards based on the accomplishment of individual goals.


Employee empowerment is a style of management that puts managers in the role of coach, adviser, sponsor, or facilitator. Empowerment involves delegating the decision-making authority regarding the action to be taken on a task that is considered to be important to both the manager and employee. The main reasons for implementing an empowerment program are to provide fast solutions to business problems, to provide growth opportunities for employees, and to lower organizational costs while allowing the manager to work on multiple projects.

Employee empowerment is the most effective when management has set clear obtainable goals and defined specific accountability standards. The success of employee empowerment relies on the ability of management to provide resources such as time and money, support by way of legitimacy, and relevant and factual information so employees can make educated decisions. Training employees to take responsibility and make sound decisions that are supported by upper management as well as lower level managers are other areas that are important to the success of empowerment programs.

Employees benefit from empowerment because they have more responsibility in their jobs. Employee empowerment increases the level of employee involvement and therefore creates a deeper sense of satisfaction and higher levels of motivation.

However, there are potential problems with empowerment programs that often result in unfavorable outcomes. Many times managers delegate trivial, unimportant and boring tasks to employees and they retain the complicated and important tasks for themselves. Empowerment will not work unless the authority and decision-making tasks are perceived as meaningful by the employee.

Another problem arises when managers not only assign meaningless tasks to their employees but also then expect the employee to continuously consult them for approval. Managers must evaluate their employees' skills and abilities and determine if the organization's culture can support an empowerment program before beginning.


Employee empowerment led to the development of self-managed work teams. This management style delegates the authority to make decisions such as how to spend money, whom to hire, and what projects to undertake. Self-managed work teams are generally composed of ten to fifteen people and require minimal supervision. Xerox, General Motors, PepsiCo, Hewlett-Packard, and M&M/Mars are just a few organizations that have implemented self-managed work teams. According to Stephen P. Robbins, one in every five companies uses self-managed work teams.

Managers must select a management style that is best suited for them, their department, their subordinates, and finally the organization they work for. The situations managers encounter may require varying management styles depending on a specific assignment, the employees being managed, or the manager's personality. Management style can ultimately determine the performance outcome of employees and a company's growth depends on the

management styles of its executives. Therefore, in order to determine the most appropriate management style, it is necessary to first review previous results produced as a result of a particular management approach.

For example, Toyota has registered unprecedented growth and success as a result of a radical shift in management policy from an authoritative management style to a uniquely tailored management style called Toyota Production System. This particular system allows employees to exercise their skills independently and utilize tools within their reach to perform their duties and solve problems as they arise. Toyota production system management style has enabled the company to benefit from continued innovation from all categories of its employees from managers to junior staff.

Management positions require a certain degree of authority and therefore managers may often find themselves in leadership positions. However, not all leaders are managers and not all managers are leaders. Managers who possess good leadership skills influence and motivate employees to achieve organizational goals. It is therefore noteworthy to mention that certain leadership styles lend themselves to effective management styles as well.

SEE ALSO Leadership Styles and Bases of Power; Leadership Theories and Studies; Quality and Total Quality Management; Theory X and Theory Y; Theory Z


Cherrington, D.J. Organizational Behavior: The Management of Individual and Organizational Performance. 2nd ed. Needham Heights, MA: Allyn and Bacon, 1994.

Deming, W.E. Out of the Crisis. Cambridge, MA: MIT Press, 1986.

Juran, Joseph M. Juran on Leadership for Quality. New York: Free Press, 1989.

. Juran on Planning for Quality. New York: Free Press, 1988.

Loney, N. Toyota: Leading from the Front. World Business Web Exclusive. April 26 2007. Available from:

Matejka, Joseph K., Richard J. Dunsing, and Christy McCabe. The Empowerment Matrix. Manage 50, no. 2 (1999): 1416.

Mathieu, John E., Lucy L. Gilson, and Thomas M. Ruddy. Empowerment and Team Effectiveness: An Empirical Test of an Integrated Model. Journal of Applied Psychology. 9, no. 1 (2006): 97108.

McGregor, Douglas. The Human Side of Enterprise. New York: McGraw-Hill Book Co., 1960.

Mescon, Michael H., Courtland L. Bovee, and John V. Thill. Business Today. 10th ed. Upper Saddle River, NJ: Prentice Hall, 2002.

Miller, Danny, Jon Hartwick, and Isabelle Le Breton-Miller. How to Detect a Management FadAnd Distinguish It from a Classic. Business Horizons 47 no. 4 (2004): 716.

Ouchi, William G. Theory Z: How American Business Can Meet the Japanese Challenge. Reading, MA: Addison-Wesley, 1981.

Pop, Mircea and Delia. Types of Managers and Management Styles. Fascicle of Management and Technological Engineering Vol. 7, 2008. Available from:

Robbins, Stephen P. Essentials of Organizational Behavior. 7th ed. Upper Saddle River, NJ: Prentice Hall, 2002.

Waddock, Sandra and Charles Bodwell. Total Responsibility Management: The Manual. London: Greenleaf Publications, 2007.

Management and Executive Development

views updated May 23 2018

Management and Executive Development

Manager effectiveness has an enormous impact on a firm's success. Therefore, companies must provide instruction for managers and high-potential management candidates in order to help them perform current and future jobs with the utmost proficiency. Management development has long been an important component of corporate strategic planning. In fact, many companies consider the identification and development of next-generation managers to be their top human resource challenge.

Management development is important for new managers because these individuals need instruction on how to perform their new supervisory jobs. Even so, companies often allow employees to make the transition to management with little or no training, leaving them with feelings of frustration, inadequacy, and dismay. More experienced managers also benefit from management development. A majority of first-line managers have their sights set on higher-level management jobs. Given these ambitions, companies need to provide lower-level and mid-level managers with formal development programs in order to help them climb the corporate ladder.

Effective management instruction programs are able to bridge gaps between what individuals already know and what they need to know for their new positions. Managers need different skills at each managerial level. The instructional programs needed to produce these skills are shown in Table 1.

A variety of approaches are used to teach these subjects. Some are in traditional classroom-type settings, while others

are taught outside of the classroom via career resource centers, job rotation, mentoring, and special projects.


Classroom training takes place within the organization or outside at seminars and universities. The subjects typically covered in these programs are briefly described in Table 2.

Lecture. Most training experts criticize lectures because they are passive learning devices, focusing on one-way communication to learners who do not have the opportunity to clarify material. Lectures generally fail to gain and maintain learner attention unless they are given by someone who is able to make the material meaningful and promote questions and discussions. Lectures are most appropriate for situations where simple knowledge acquisition is the goal (e.g., describing company history during a new employee orientation session). However, lectures are not well suited to serve as the sole training method for teaching management skills, because the format does not provide trainees with feedback or the opportunity for practice.

Case Method. As the name suggests, the case method requires management trainees to analyze cases or scenarios

depicting realistic job situations. Cases often are structured like a play that opens in the middle of a story and uses flashbacks to describe the action that led up to the opening scene, where an employee has just made a key decision. The rest of the case lays out the documentation and data available to the decision maker at the time of the decision. Questions are posed at the end of the case that ask the trainees to analyze the situation and recommend a solution. For instance, trainees may be asked to state the nature of the problem, identify the events that led to the problem, and indicate what the individual should do to resolve the problem.

The case method rests on the assumption that people are most likely to retain and use what they learn if they reach an understanding through guided discovery. Trainers act as guides or facilitators. Cases typically do not have right or wrong answers. Therefore, the aim of the method is not to teach trainees the right answer, but rather to teach them how to identify potential problems and recommend realistic actions.

Critics of this method balk at the lack of direction trainees receive when analyzing a case. What if they arrive at a poor decision? Moreover, trainees do not get the opportunity to practice their skills. For instance, after analyzing a case involving a subordinate who has repeatedly arrived at work late, the trainees may conclude that the manager should have said something sooner and must now provide counsel. However, the case method does not afford trainees the opportunity to practice their counseling skills.

Role-playing. As an instructional technique, role-playing presents a hypothetical problem involving human interaction. Trainees spontaneously act out that interaction face-to-face. Participants are then given feedback by the trainer and the rest of the group on their performance so they may gain insight regarding the impact of their behavior on others. The issues addressed during feedback typically revolve around these types of questions:

  • What was correct about the participant's behavior?
  • What was incorrect about the participant's behavior?
  • How did the participant's behavior make the other participants feel?
  • How could the trainee have handled the situation more effectively?

Role-playing may be used to develop skill in any area that involves human interaction. The method is most often used for teaching human relations skills and sales techniques. Role-playing provides management trainees with an opportunity to practice the skill being taught, thus going beyond the case method, which merely requires the trainee to make a decision regarding how to handle a situation. These two methods are often used in

conjunction with one another. That is, after analyzing a case and recommending a solution, trainees are asked to act out the solution in the form of a role-play.

Critics of the role-playing method point out that role-players are often given little guidance beforehand on how to handle transactions. This may cause them to make mistakes, resulting in embarrassment and a loss of self-confidence. When their mistake-ridden role-play is finished, they sit, never getting the opportunity to do it correctly.

Behavior Modeling. Behavior modeling is based on the idea that workers learn best when they see how a task should be performed and then practice the task with feedback until they are competent. This method is similar to role-playing in that the trainees act out situations playing certain roles. However, the methods differ in two important ways. First, behavior modeling teaches trainees a preferred way to perform a task. Second, the interactions occurring during behavior modeling are practice sessions, not role plays. The trainees practice only the right way. If the trainees make a mistake, the trainer immediately corrects them and asks them to repeat the step correctly.

A behavior modeling program typically consists of the following steps:

  1. Present an overview of the material. This usually consists of a brief lecture that describes training objectives and the importance of the skill to be learned.
  2. Describe the procedural steps. The trainee learns the one best way (or at least an effective way) to handle a situation. Case and role-playing methods, on the other hand, stress the variety of effective ways to handle a situation and do not emphasize any one particular approach.
  3. Model or demonstrate the procedural steps. The trainee is shown a model of how the task is to be performed correctly. The model usually is presented in the form of a videotape or live demonstration.
  4. Allow guided practice. Trainees then practice the modeled behaviors. As previously stated, these sessions are similar to role-plays, except that trainees are given feedback by the instructor (or classmates) during the skill practice session, rather than after. This procedure forces trainees to correct mistakes as soon as they are made, assuring them an opportunity to practice the correct way of performing the task. Practice sessions start with simple problems similar to those depicted in the model. Later practice sessions are made more realistic by adding complexity to the situation.
  5. Provide on-the-job reinforcement. Participants' managers often go through identical training programs to ensure that they will understand what their employees are learning and, hence, support these new behaviors on the job.

Behavior modeling, first introduced in the mid-1970s, was very popular by the mid-1990s and continues to be widely used in the twenty-first century. Research examining its effectiveness has consistently shown favorable outcomes. Behavior modeling works because it successfully incorporates each of the aforementioned learning principles: it captures and maintains trainees' attention and provides ample opportunity for practice and feedback.

Recent developments in behavior modeling have led to more action-oriented approaches that synthesize formal training programs and on-the-job learning. Action learning emphasizes learning by doing. It involves bringing together trainers and trainees to analyze actual work problems; they continue meeting as actions are implemented, learning from the results and making mid-course corrections. In their 2007 book on action learning, authors Judy O'Neil and Victoria J. Marsick point out, As much as adult learners can absorb in a classroom, they learn and retain a lot more on the job.


Nonclassroom methods include career resource centers, job rotation, coaching and mentoring, and special assignments.

Career Resource Centers. Some organizations make learning opportunities available to interested candidates by establishing career resource centers, which usually include an in-house library with relevant reading material along with computer and Internet resources for additional materials. In some companies, candidates simply are given recommended readings lists. Other companies provide management candidates with comprehensive career-planning guides that contain company-related information about available resources, career options, and counseling contacts. These individuals also may be given workbooks that provide written assignments.

Job Rotation. Job rotation exposes management trainees to various organizational settings by rotating them through a number of departments. Thus, trainees have an opportunity to gain an overall perspective of the organization and learn how various parts interrelate. Additionally, they face new challenges during these assignments that may foster new skill development.

Trainees usually have full management responsibility during these assignments. For example, in one hospital new department supervisors rotate through all major departments on a monthly basis, serving in a managerial capacity during their tours. Although they often learn a lot from such training, they also may make harmful mistakes during their learning period because they lack knowledge of the functional area that they are supervising.

Coaching and Mentoring. Coaching is a method of management development that is conducted on the job, in which experienced managers or peers advise and guide trainees in solving managerial problems. Typically, less experienced managers are coached by their direct supervisor or a coworker on their specific performance of managerial tasks. An upper-level manager is likely to coach several lower-level managers at once, offering feedback, helping them to find expert advice, and providing resources.

Mentoring is different from coaching in several ways. Mentors are experienced supervisors who establish close, one-on-one relationships with new managers, called protégés. A mentor usually is someone two or three levels higher in the organization than the protégé who teaches, guides, advises, counsels, and serves as a role model; the mentor is not necessarily the protégé's direct supervisor. Mentoring can help the protégé to form common values with the organization's senior leadership and better understand his or her role in the company. Additionally, protégés are often advocated for and protected by a mentor. A mentor may ensure that the protégé is assigned high-visibility projects, or even change negative opinions about the protégé that may be held by others in the company. While a coach focuses on job-specific advice, a mentor is likely to give advice on a broader range of topics related to the protégé's career success.

Special Assignment. Companies sometimes assign special, nonroutine job duties to trainees in order to prepare them for future assignments. One such special project is called action learning, which derives its name from the fact that the trainees can learn by doing. Candidates are given real problems generated by management. Trainees might be given a written assignment that specifies objectives, action plans, target dates, and the name of the person responsible for monitoring the completion of the assignment. For instance, trainees might be asked to study the company's budgeting procedures and submit a written critique.

Another type of special project is the task force, where trainees are grouped together and asked to tackle an actual organizational problem. For example, the task force may be asked to develop a new performance appraisal form, solve a quality problem, or design a program to train new employees. Trainees not only gain valuable experience by serving on a task force, they also have the opportunity to improve their visibility to others within the organization.


Most organizations base their management development and training efforts on succession planning, a systematic process of defining future management requirements and identifying the candidates who best meet them. Unfortunately, many companies take a very informal approach to succession planning. Identification of high-potential candidates is largely subjective, based on the opinions of the nominating managers, who choose fast-track or super-star employees with little consideration of the actual requirements of future positions. Research has found that promotions within the management ranks are often based on employee behaviors that have no bearing on managerial effectiveness. Typically, networking had the greatest influence on managerial promotions, even though networking made no contribution to actual performance. Additionally, ill-conceived succession planning activities can have disastrous consequences; as many as 30 percent of all newly placed executives are unprepared for their jobs and ultimately fail to meet company expectations.

Elements of an effective succession planning program involve human resource planning, defining qualifications for positions, identifying career paths, and developing replacement charts. The first step in succession planning is human resource planning, in which forecasting is used to determine projected staffing needs for the next several years. Based on these needs, management succession plans should specify key management positions for which staffing should be targeted. Succession plans should next define pertinent individual qualifications needed for each targeted position, which are based on information derived from a job analysis. A firm then identifies individuals with high potential for promotion into or through the management ranks. This is accomplished by assessing employee abilities and career interests through records of career progress, experience, past performance, and self-reported interests regarding future career steps.

Following the above steps, an organization identifies a career path for each high-potential candidate (i.e., those who have the interest and ability to move upward in the organization). A career path typically appears as a flow chart, indicating the sequencing of specific jobs that may lead one up the organizational ladder to a targeted job. The final step is to develop replacement charts that indicate the availability of candidates and their readiness to step into the various management positions. Such charts usually are depicted as diagrams superimposed onto the organizational chart. These show possible replacement candidates, in rank order, for each management position. Rank orders are often based on the candidates' overall potential scores, derived on the basis of their past performance, experience, test scores, and so on.

SEE ALSO Employee Evaluation and Performance Appraisals; Human Resource Management


Blanchard, P. Nick, and James W. Thacker. Effective Training: Systems, Strategies, and Practices. 3rd ed. Upper Saddle River, NJ: Pearson Prentice Hall, 2006.

Goldstein, Irwin L., and J. Kevin Ford. Training in Organizations. 4th ed. Belmont, CA: Wadsworth Group, 2002.

Kleiman, Lawrence S. Human Resource Management: A Managerial Tool for Competitive Advantage. 4th ed. Cincinnati: South-Western College Publishing, 2006.

Noe, Raymond A. Employee Training and Development. 4th ed. Boston: Irwin/McGraw-Hill, 2006.

O'Neil, Judy, and Victoria J. Marsick. Understanding Action Learning. New York: American Management Association, 2007.

Management Control

views updated Jun 11 2018

Management Control

Management control describes the means by which the actions of individuals or groups within an organization are constrained to perform certain actions while avoiding other actions in an effort to achieve organizational goals. Management control falls into two broad categoriesregulative and normative controlsbut within these categories are several types.

The following section addresses regulative controls including bureaucratic controls, financial controls, and quality controls. The second section addresses normative controls including team norms and organization cultural norms.

Table 1
Types of Control
Regulative ControlsNormative Controls
Bureaucratic ControlsTeam Norms
Financial ControlsOrganizational Cultural Norms
Quality Controls 
Table 2
Definition and Examples of Regulative Controls
Type of Regulative Control        Definition        Example
Bureaucratic ControlsPolicies and operating proceduresEmployee handbook
Financial ControlsKey financial targetsReturn on investment
Quality ControlsAcceptable levels of product or process variationDefects per million


Regulative controls stem from standing policies and standard operating procedures, leading some to criticize regulative controls as outdated and counterproductive. As organizations have become more flexible in recent years by flattening organizational hierarchies, expanding organizational boundaries to include suppliers in inventory management and customers in new product development, forging cooperative alliances with competitors, and developing virtual organizations in which employees are geographically dispersed and may meet only a few time each year, critics point out that regulative controls may prevent rather than promote goal attainment.

There is some truth to this. Customer service representatives at Holiday Inn are limited in the extent to which they can correct mistakes involving guests. They can move guests to a different room if there is excessive noise in the room next to the guest's room. In some instances, guests may get a gift certificate for an additional night at another Holiday Inn if they have had a particularly bad experience. In contrast, customer service representatives at Tokyo's Marriott Inn have the latitude to take up to $500 off a customer's bill to solve complaints.

The actions of customer service representatives at both Holiday Inn and Marriott Inn must follow policies and procedures, yet those at Marriott are likely to feel less constrained and more empowered by Marriott's policies and procedures compared to Holiday Inn customer service representatives. The key in terms of management control is matching regulative controls such as policies and procedures with organizational goals such as customer satisfaction. Each of the three types of regulative controls discussed in the next few paragraphs has the potential to align or misalign organizational goals with regulative controls. The challenge for managers is striking the right balance between too much control and too little.


Bureaucratic controls stem from lines of authority and this authority comes with one's position in the organizational hierarchy. The higher up the chain of command, the more an individual will have authority to dictate policies and procedures. Bureaucratic controls have gotten a bad name and often rightfully so. Organizations placing too much reliance on chain of command authority relationships inhibit flexibility to deal with unexpected events. However, there are ways managers can build flexibility into policies and procedures that make bureaucracies as flexible and as able to quickly respond to customer problems as any other form of organizational control.

Consider how hospitals, for example, are structured along hierarchical lines of authority. The Board of Directors is at the top, followed by the CEO and then the Medical Director. Below these top executives are vice presidents with responsibility for overseeing various hospital functions such as human resources, medical records, surgery, and intensive care units. The chain of command in hospitals is clear; a nurse, for example, would not dare increase the dosage of a heart medication to a patient in an intensive care unit without a physician's order. Clearly, this has the potential to slow reaction timesphysicians sometimes spread their time across hospital rounds for two or three hospitals and also their individual office practice. Yet, it is the nurses and other direct care providers who have the most contact with patients and are in the best position to rapidly respond to changes in a patient's condition.

The question bureaucratic controls must address is: How can the chain of command be preserved while also building flexibility and quick response times into the system? One way is through standard operating procedures that delegate responsibility downward. Some hospital respiratory therapy departments, for example, have developed standard operating procedures (in health care terms, therapist-driven protocols or TDPs) with input from physicians.

TDPs usually have branching logic structures requiring therapists to perform specific tests prior to certain patient interventions to build safety into the protocol. Once physicians approve a set of TDPs, therapists have the autonomy to make decisions concerning patient care without further physicians' orders as long as these decisions stay within the boundaries of the TDP. Patients need not wait for a physician to make the next set of rounds or patient visits, write a new set of orders, enter the orders on the hospitals intranet, and wait for the manager of respiratory therapy to schedule a therapist to perform the intervention. Instead, therapists can respond

immediately because protocols are established that build in flexibility and fast response along with safety checks to limit mistakes.

Bureaucratic control is thus not synonymous with rigidity. Unfortunately, organizations have built rigidity into many bureaucratic systems, but this need not be the case. It is entirely possible for creative managers to develop flexible, quick-response bureaucracies.


Financial controls include key financial targets for which managers are held accountable. These types of controls are common among firms that are organized as multiple strategic business units (SBUs). SBUs are product, service, or geographic lines having managers who are responsible for the SBU's profits and losses. These managers are held responsible to upper management to achieve financial targets that contribute to the overall profitability of the corporation.

Managers who are not SBU executives often have financial responsibility as well. Individual department heads are typically responsible for keeping expenses within budgeted guidelines. These managers, however, tend to have less overall responsibility for financial profitability targets than SBU managers.

In either case, financial controls place constraints on spending. For SBU managers, increased spending must be justified by increased revenues. For departmental managers, staying within budget is typically one key measure of periodic performance reviews. The role of financial controls, then, is to increase overall profitability as well as to keep costs in line. To determine which costs are reasonable, some firms will benchmark other firms in the same industry. Such benchmarking, while not always direct comparison, provides at least some evidence to determine whether costs are in line with industry averages.


Quality controls describe the extent of variation in processes or products that is considered acceptable. For some companies, zero defectsno variation at allis the standard. In other companies, statistically insignificant variation is allowable.

Quality controls influence the ultimate product or service outcome offered to customers. By maintaining consistent quality, customers can rely on a firm's product or service attributes, but this also creates an interesting dilemma. An overemphasis on consistency where variation is kept to the lowest levels may also reduce response to unique customer needs. This is not a problem when the product or service is relatively standardized such as a McDonald's hamburger, but may pose a problem when customers have nonstandard situations for which a one-size-fits-all solution is inappropriate. Wealth managers, for example, may create investment portfolios tailored to a single client, but the process used to implement that portfolio, such as stock market transactions, will be standardized. Thus, there is room within quality control for both creativity (such as wealth portfolio solutions), and standardization (such as stock market transactions).


Rather than relying on written policies and procedures as in regulative controls, normative controls govern employee and managerial behavior through generally accepted patterns of action. One way to think of normative controls is in terms of how certain behaviors are appropriate and others are less appropriate. For instance, a tuxedo might be the appropriate attire for an American business awards ceremony, but totally out of place at a Scottish awards ceremony, where a formal kilt may be more in line with local customs. However, there would generally be no written policy regarding disciplinary action for failure to wear the appropriate attire, thus separating formal regulative controls from the more informal normative controls.


Teams have become commonplace in many organizations. Team norms are the informal rules that make team members aware of their responsibilities to the team. Although the task of the team may be formally documented and

Table 3
Definition and Examples of Normative Controls
Type of Normative Control       Definition       Example
Team NormsInformal team rules and responsibilitiesTask delegation based on team member expertise
Organizational Cultural NormsShared organizational values, beliefs, and ritualsCollaboration may be valued more than individual stars

communicated, the ways in which team members interact are typically developed over time as the team goes through phases of growth. Even team leadership must be informally agreed upon; at times, an appointed leader may have less influence than an informal leader. If, for example, an informal leader has greater expertise than a formal team leader, team members may look to the informal leader for guidance requiring specific skills or knowledge. Team norms tend to develop gradually, but once formed, can be powerful influences over behavior.


In addition to team norms, norms based on organizational culture are another type of normative control. Organizational culture involves the shared values, beliefs, and rituals of a particular organization. The Internet search firm, Google, Inc. has a culture in which innovation is valued, the belief that the work of the organization is important is shared among employees, and teamwork and collaboration are common. In contrast, the retirement specialty firm, VALIC, focuses on individual production for its sales agents, de-emphasizing teamwork and collaboration in favor of personal effort and rewards. Both of these examples are equally effective in matching norms with organizational goals; the key is thus in properly aligning norms and goals.

The broad categories of regulative and normative controls are present in nearly all organizations, but the relative emphasis of each type of control varies. Within the regulative category are bureaucratic, financial, and quality controls. Within the normative category are team norms and organization cultural norms. Both categories of norms can be effective and one is not inherently superior to the other. The managerial challenge is to encourage norms that align employee behavior with organizational goals.

SEE ALSO Organizational Culture; Quality and Total Quality Management; Teams and Teamwork


Berry, Leonard L. The Collaborative Organization: Leadership Lessons from Mayo Clinic. Organizational Dynamics 33, no. 3 (2004): 228242.

Besterfield, Dale H. Quality Control. 8th ed. Upper Saddle River, NJ: Prentice Hall, 2008.

Lalich, J. Watch Your Culture. Harvard Business Review 82, no.1 (2004): 3439.

Merchant, Kenneth, and Wim Van Der Stede. Management Control Systems: Performance Measurement, Evaluation and Incentives. 2nd ed. Upper Saddle River, NJ: Prentice Hall, 2007.

Rollag, K., S. Parise, and R. Cross. Getting New Hires Up to Speed Quickly. MIT Sloan Management Review 46, no. 2 (2005): 3541.

About this article


All Sources -
Updated Aug 13 2018 About content Print Topic