Biotech Health and Life Products Company Profile Welcome to Biotech! The assessment projects for this class will examine different facets of the leadership of Biotech Health and Life Products, Inc. You will be exploring leadership within Biotech with the driving question of “what skills does a Biotech leader need to lead the company now and in the future?” History Wilford Barney was a young apprentice working for Peter Ulan, owner of a small apothecary shop in Yonkers, New York. During his apprenticeship, Barney created a general energy elixir that was based on a home remedy of his mother’s back in Ireland. The elixir was produced specifically for many of Ulan’s special customers. Made of all natural ingredients the elixir provided B12 and other vitamins to promote a healthy immune system. The energy boost was noticeable after only a week’s use. The reputation of the elixir grew. In 1922, Barney took over Ulan’s apothecary shop renaming the business, Barney’s Apothecary. At that time, Barney decided to bottle his elixir and sell the formula to everyone rather than selected customers. Barney also gave bottles of the elixir to local peddlers who sold the product along with their wares receiving a commission on each bottle they sold. By 1929, the product was well known in Yonkers. Encouraged by the success in Yonkers Barney decided to branch out to New York City. In 1932, Barney built a small manufacturing plant near the store where he mixed and bottled the elixir for sale. By 1934, Barney expanded sales by putting the elixir in a quarter of the apothecary shops in New York City. Sales were booming and customers inquired about other products that Barney’s had. In 1936, Barney started a new product called Night Relief, another of his mother’s recipes. This product offered relief from night sweats and anxiety caused by menopausal symptoms or nerves. When this product proved a “secret success” with the ladies, Barney decided to bring his mother, Irene, from Ireland, and put her to work making new natural products. With his mother’s help, Barney grew the business into a small but successful manufacturer of natural “life products”. Barney coined “life products” because the products tracked natural life events in the human body and attempted to improve the customer’s discomfort in dealing with them. The name of the company was changed to Barney’s Elixir and Life Products. The business continued to grow and with his mother’s death in 1938 the company had a gross revenue of $178,000 a year. The depression took a toll on company profits but people still needed the boosts to their health and were able to afford Barney’s products as opposed to the medicine offered by doctors and hospitals. During World War II the company supplied the troops with a natural caffeine (Stay Clear) product that would keep soldiers awake for long periods of time and heighten their mental alertness. Government contracts derived from Stay Clear boosted the revenue of the company considerably and ushered in a new wave of interest of natural products. By 1950 Barney turned over the reins of the daily operations of the business to his children but remained on the Board of his family owned company. By this time, the company had expanded its manufacturing plants and sales nationally to include Detroit, Michigan, Los Lunas, New Mexico, Chicago, Illinois and Atlanta, Georgia. The revenue of the company was now close to 2.5 million dollars. In the 1960’s the social climate in America had changed and pharmaceutical companies took on greater importance in the treatment of people’s health. The discovery of new drugs and better health care shifted the confidence in the American perspective away from natural products to traditional western medicine. Although the counter culture of America still supported natural supplements, popularity for Barney’s products waned. In 1965, Wilford’s granddaughter, Geraldine, took over the Research and Development Department (R&D) after receiving a degree in chemistry from Harvard. She had been trained as a child by her grandmother, Wilford’s mother, and knew how the recipes should look. However, she had new ideas and with the approach of the 1970’s, was ready to join the “Anjolie perfume commercial” lifestyle depiction of a 70’s women that “they could bring home the bacon and fry it up too.” Due to the downturn in sales by 1970, the company turned to other countries for its sales base. Starting in Germany and other European countries where natural products are highly credible, Barney began to license the sale of the company’s products to local manufacturers. The name recognition grew and by the 1980’s the company was grossing over 4 million dollars in gross sales. The company moved to overseas operations and manufactured in Germany. Wilford Barney died in 1981 shortly after seeing his first grandchild, Maximillian Barney, take over the President’s positon of the company. Studying the trends in the 1990’s about the resurgence of natural health products “Max” as he liked to be called, decided it was time for Barney’s to focus on the new interest in homeopathic and natural products especially at home in America where sales were static. In 1996, Max, wanting to get a sleeker and more modern feel to the company’s products changed the company name and logo. No longer was Barney’s a mom and pop operation but is an international business. Barney’s Elixir and Life Products was now Biotech Health and Life Products. While the products would continue to show the old Barney logo, for name recognition the new logo would take prominence on the packaging. By 2000 the company was grossing about 1.1 billion in sales with an increase in market share. By 2012, Biotech had a 20% market share of the supplement business with Approximately $25 billion in sales. The company is interested in expanding into infant formula. . Currently sales for the company are at $45 billion. Maximillian Barney is still President and CEO. The stock is still held by the family and all senior management positions are held by family members. Current Company Vision: To help provide everyone with the healthiest life possible in the most natural of ways. Current Mission: To develop products that are safe, effective, affordable and natural with the customer’s health always their primary goal. Current Fact Sheet Headquarters Worldwide web address President 2016 Gross Sales Employees Yonkers, New York www.biotechlife.com Maximillian Barney US$ 45 billion 38,000 in 6 countries worldwide Manufacturer Operations United States Battle Creek, Michigan, Albuquerque, New Mexico, Elkton, Maryland, Peoria, Illinois and Atlanta, Georgia Europe Asia South and Central America and Caribbean Canada Product England, France, Netherlands Sapporo, Japan Salvador, Brazil Calgary, Canada Lines Protein and Fitness; Personal Care, Vitamins and Food Supplements, Infant Formula (Pending) Major Competitors Protein and Fitness-GNC, Personal Care- Nestle Skin Care- Galderma, SA; Glaxo, Merke, General Mills. Vitamins and Food Supplements- GNC, Natures Plus, Natrol, Nature’s Way, Nature’s Bounty, Hain Celestial Group, Inc, Schiff Nutrition International, Nestle Current Business Philosophy Biotech has determined its long-term goal planning pattern should be no longer than three years. Three years seems more flexible than the seven year planning pattern previously used as change in the business climate is making it imperative to be more flexible. The need for innovation and competitive advantage ideas are the main focus for the next two years along with the company’s commitment to becoming a triple bottom line company. Sustainability both for profit and planet is foremost in the minds of the leadership. The development of a triple bottom line company is in the best interest of the company because of the need to keep a strong natural product image link to the community and the desire for the company to be socially responsible. Protection of the suppliers and control over product quality is critical to the development of a sound “life product.” Current Growth Plans Business and Sales Biotech is looking to expand and is exploring the opening of a new manufacturing, sales, and distribution facility in the next year. Currently, products are sold through t h e U S a n d i t s European division but there is a great demand for its current product in Malaysia and China as well as in the United States. It was decided by senior leadership to explore a potential manufacturing and sales presence in these three areas, which would potentially increase sales and would fall under the control of a new Executive Director. As in keeping with the all-natural products, the company wants to bring a greener footprint to its new facility going beyond what many competitors have in place. This as an opportunity to gain market share; and introduce a new product line. This effort would provide a good test case for new products that would position Biotech as a leaders in innovative technology. Product Development Biotech is looking to develop an infant food line. The company has recently expanded and is now interested in pursuing infant formula. Current Eco Sustainability Commitments Currently, Biotech has current commitments to build housing for several communities in Brazil and India where natural pharmaceutical ingredients are produced. The program reflects the company’s strong commitment to making the company a triple bottom line company by the year 2021. Innovation and Adaptability Development of organizational structure and culture changes are being made to introduce more collaborative decision making as well as bringing the divisions closer together in the area of shared resources and communication. The emphasis is to encourage the exchange of ideas, create an environment that fosters new ideas and makes change easier in implementation of initiatives. Biotech is concerned that the stateside organization is driving the other overseas divisions and that new ideas are being encouraged because of the cultural differences in staff. Customer innovation workshops run by the various divisions have highlighted that R&D in Europe and Australia see differences in consumer preferences from US consumer preferences, and Biotech would like to incorporate this knowledge in its future facility. It is believed that US controlled resources are ignoring these product preferences and are thus impeding overseas sales. Corporate leaders are trying to examine how to answer this cultural gap. Current Corporate Culture Being a family owned business, Barney’s new image has made the family a little less cohesive since it seeks to be a sleeker less clan like organization. Still the family leaders are committed to keeping the family history as a symbol for the company. It is believed that the family cultural connection gives support to collaborative decision making something the Company has been successful in promoting throughout the organization. It is also seen by the owners that their family and employees makes up the company’s customers. The family wants to encourage a customer centric culture, one that allows employees to see everything through the perspective of the customer and to make decisions with the customer’s view always paramount. Furthermore, there would be a companywide accountability to the customer in all departments. The owner wants a workforce that gives an extraordinary customer experience in every product it makes. Current Organizational Structure This company has a geographical division structure. However, within each division is a functional structure with production and sales at the hub. R&D, HR, IT and Finance have small staff in each division whose primary job is to liaison with headquarters to implement the decisions made by them. Above all the Divisions is the President and CEO Maximillian Barney Housed in headquarters is the R&D, HR, IT, and Finance Divisions Executive Director South America Division Executive Director North American Division Executive Director European Division Executive Director New Division (Infant Formula) COURSE RESOURCES ***PLEASE ONLY USE THE FOLLOWING RESOURCES AND THE ATTACHED BIOTECH FILE FOR CITATIONS. NO OTHER BOOKS OR WEBSITES ARE ALLOWED.*** WEEK 1 What Is Organizational Behavior? As a field of study, organizational behavior is concerned with the impact individuals, groups, and structures have on human behavior within organizations. It is an interdisciplinary field that includes sociology, psychology, communication, and management. Organizational behavior complements organizational theory, which focuses on organizational and intra-organizational topics, and human-resource studies, which is more focused on everyday business practices. Edgar Schein’s Organizational Culture Model There are three central components of an organization’s culture: artifacts (visual symbols such as an office dress code), values (company goals and standards), and assumptions (implicit, unacknowledged standards or biases). Types of Organizational Behavior Organizational studies examine organizations from multiple perspectives, using various methods and levels of analysis. Micro organizational behavior refers to individual and group dynamics in organizations. Macro organizational theory studies whole organizations and industries, especially how they adapt; and the strategies, structures, and contingencies that guide them. Some scholars also include the categories of meso-scale structures involving power, culture, and the networks of individuals in organizations. Field-level analysis studies how entire populations of organizations interact. Many factors come into play whenever people interact in organizations. Modern organizational studies attempt to understand and model these factors. Organizational studies seek to control, predict, and explain. Organizational behavior can play a major role in organizational development, enhancing not only the entire organization’s performance, but also individual and group performance, satisfaction, and commitment. Topics in Organizational Behavior Organizational behavior study is particularly relevant in the field of management because it encompasses many of the daily issues managers face. These include leadership, decision making, team building, motivation, and job satisfaction. Understanding not only how to delegate tasks and organize resources but also how to analyze behavior and motivate productivity is critical for success in management. Organizational behavior study also concentrates on culture. Although difficult to define, corporate culture is extremely relevant to how organizations behave. A Wall Street stock-trading company, for example, will have a dramatically different work culture from an academic department at a university. Understanding and defining these work cultures and their behavioral implications is also a central topic within the organizational behavior field. Why Study Organizational Theory? Organizational theory studies organizations to identify how they solve problems and how they maximize efficiency and productivity. Key Points • • • Correctly applying organizational theory can have several benefits for an organization and society at large. Developments in organizations help boost economic potential and help generate the tools needed to fuel a capitalistic system. Once an organization sees a window for expansion, it begins to grow, altering the economic equilibrium by catapulting itself forward. This expansion induces changes in the organization’s infrastructure, in competing organizations, and in the economy as a whole. One example of how development in organizational theory improves efficiency is in factory production. Henry Ford created the assembly line, a system of organization that enabled efficiency and drove both Ford and the US economy forward. Key Terms • • efficiency—the extent to which a resource, such as electricity, is used for the intended purpose; the ratio of useful work to energy expended normative—of, pertaining to, or using a standard Definition of Organizational Theory Organizational theory studies organizations to identify the patterns and structures they use to solve problems, maximize efficiency and productivity, and meet the expectations of stakeholders. These patterns are used to formulate normative theories of how organizations function best. Therefore, organizational theory can be a tool for learning the best ways to run an organization or identify organizations that are managed in a way that increases the likelihood that they will succeed. Applying Organizational Theory Correctly applying organizational theory can have several benefits for both the organization and society at large. As many organizations strive to integrate themselves into capitalistic societies, there is a ripple effect on competing firms and the economy as a whole. Once an organization sees a window for expansion, it begins to grow by producing more, and thus alters the economic equilibrium by catapulting itself forward into a new environment of production. This expansion induces changes in the organization’s infrastructure, in competing organizations, and in the economy as a whole. Other firms observe innovative developments and recreate them efficiently. Developments in organizations help boost economic potential in a society and help generate the tools necessary to fuel the capitalistic system. One example of how development in an organization affects the modern era is factory production. The concept of factory production amplified production as a whole and allowed for the organized division of labor. It centralized facets of the workforce and began to define the rules of production and trade, which also led to specialization. Henry Ford implemented an innovative design by modifying factory production and creating the assembly line, which is still used in many factories today. These developments make it easier for a company to produce, so firms are incentivized to aggregate and use more efficient methods for running their companies. Organizational theory can also help identify malicious or negligent corporate practices, informing the development of future precautionary measures. The nuclear accident at Three Mile Island helped determine ways to prevent similar incidents in the future. In that case, developments in organizational theory led to stronger government regulations and stronger production-related safety mandates. Licenses and Attributions Why Study Organizational Theory from Boundless Management by Lumen Learning, originally published by Boundless.com, is available under a Creative Commons Attribution-ShareAlike 4.0 International license. UMUC has modified this work and it is available under the original license. The Mission Statement A mission statement defines the fundamental purpose of an organization or enterprise. Key Points • • • • A mission statement’s purpose is to retain consistency in overall strategy and to communicate core organizational goals to all stakeholders. The business owners and upper managers develop the mission statement and uphold it as a standard across the organization. It provides a strategic framework for running the organization. In a best-case scenario, an organization conducts internal and external assessments to ensure the mission statement is being upheld. A mission statement contains information about the key market, contribution, and distinction of an organization. It describes what the organization does, why, and how it excels at what it does. Key Terms • • mission—set of tasks that fulfills a purpose or duty; an assignment set by an employer stakeholder—person or organization with a legitimate interest in a given situation, action, or enterprise A mission statement defines the purpose of a company or organization. The mission statement guides the organization’s actions, spells out overall goals, and guides decision making. The mission statement is generated to retain consistency in overall strategy and to communicate core organizational goals to all stakeholders. The business owners and upper managers develop the mission statement and uphold it as a standard across the organization. It provides a strategic framework the organization is expected to abide by. Print Classical Versus Behavioral Perspectives The classical perspective focuses on direct inputs to efficiency, while the behavioral perspective examines both direct and indirect inputs to efficiency. Key Points • The classical perspective of management emerged from the Industrial Revolution and focuses on the efficiency, productivity, and output of employees as well as the organization as a whole. It generally does not focus on human or behavioral attributes or variation among employees. • • The classical perspective of management is often criticized for ignoring human desires and needs in the workplace and does not consider human error in work performance. The classical perspective has strong influences on modern operations and process improvement. The behavioral perspective of management (sometimes called the “human relations perspective”) takes a much different approach from the classical perspective: It is generally more concerned with employee well-being and encourages management approaches that consider the employee as a motivated person who genuinely wants to work. Key Terms • • micromanage—to rely on extreme supervision and close monitoring of employee work psychosocial—related to one’s psychological development in, and interaction with, a social environment The Classical Perspective of Management The classical perspective of management, which emerged from the Industrial Revolution, focuses on improving the efficiency, productivity, and output of employees, as well as the business as a whole. However, it generally does not focus on human or behavioral attributes or variances among employees, such as how job satisfaction improves employee efficiency. Frederick Winslow Taylor Scientific management theory, which was first introduced by Frederick Winslow Taylor, focused on production efficiency and employee productivity. By managing production efficiency as a science, Taylor thought that worker productivity could be completely controlled. He used the scientific method of measurement to create guidelines for the training and management of employees. This quantitative, efficiency-based approach is representative of the classical perspective. Max Weber Another leader in the classical perspective of management, Max Weber, created the bureaucracy theory of management, which focuses on the theme of rationalization, rules, and expertise for an organization as a whole. Weber’s theory also focuses on efficiency and clear roles in an organization, meaning that management should run as effectively as possible with as little bureaucracy as possible. One example of Weber’s management theory is the modern “flat” organization, which promotes as few managerial levels as possible. The classical perspective of management focused on improving worker productivity. Source: Seattle Public Library, Wikimedia Commons. Henri Fayol Henri Fayol, another leader in classical management theory, also focused on the efficiency of workers, but he looked at it from a managerial perspective. He focused on improving management efficiency rather than each individual’s efficiency. Fayol’s six functions of management evolved into the four essential functions of management: planning, organizing, leading, and controlling. The classical perspective of management theory pulls largely from these three theorists (Taylor, Weber, and Fayol) and focuses on the efficiency of employees and improving an organization’s productivity through quantitative (i.e., measurable, data-driven) methods. The classical perspective is often criticized for ignoring human desires and needs in the workplace. It typically does not consider human error in work performance. The classical perspective strongly influences process improvement in modern operations, in which quantitative metrics determine how effectively a process is running. The Behavioral Perspective of Management The behavioral perspective of management (sometimes called the “human relations perspective”) takes a much different approach from the classical perspective. It began in the 1920s with theorists such as Elton Mayo, Abraham Maslow, and Mary Parker Follett. The Hawthorne Studies The Hawthorne studies were an important start to the behavioral perspective of management. These were a series of research studies were conducted with the workers at the Hawthorne plant of the Western Electric Company. The Hawthorne studies found that workers were more strongly motivated by psychosocial factors than by economic or financial incentives. Abraham Maslow Around the time of the Hawthorne studies, Abraham Maslow created his hierarchy-of-needs theory, which showed that workers were motivated through a series of lower-level to higher-level needs. This theory has been applied in the workplace to better understand “soft” factors of employee motivation, such as goal setting and team involvement, in order to better manage employees. Douglas McGregor Additional theories in the behavioral perspective include Douglas McGregor’s theory X and theory Y, which address the perceptions managers have about their employees and how employees react to those perceptions. Theory X management assumes employees are inherently lazy and need micromanagement. Theory Y management focuses on creating work conditions that foster workers’ inherent creativity, commitment, and need for self-fulfillment. McGregor’s theory of management is an example of how behavior-management theory looks more into the “human” factors of management and encourages managers to understand how psychological characteristics can improve or hinder employee performance. Generally, the behavioral perspective is much more concerned with employee well-being and encourages management approaches that consider the employee as a motivated worker who wants to produce quality work. This theory, therefore, encourages a management approach that is less focused on micromanaging and more focused on building relationships with employees to help them achieve their workplace goals and work as effectively and efficiently as possible. Scientific Management: Taylor and the Gilbreths Scientific management focuses on improving efficiency and output through scientific studies of workers’ processes. Key Points • • • Scientific management, or Taylorism, is a management theory that analyzes work flows to improve economic efficiency, especially labor productivity. This management theory, developed by Frederick Winslow Taylor, was dominant in manufacturing industries in the 1880s and 1890s. Important components of scientific management include analysis, synthesis, logic, rationality, empiricism, work ethic, efficiency, eliminating waste, and standardized best practices. Taylor and the Gilbreths introduced methods of measuring worker productivity, including time and motion studies, which are still used today in operations and management. Key Terms • motion study—created by Frank and Lillian Gilbreth, a study analyzing work motions by filming workers and emphasizing areas for efficiency improvement by reducing motion • • • Taylorism—also known as scientific management, an early twentiethcentury theory of management that analyzed workflows to improve efficiency time study—created by Frederick Winslow Taylor, a study of a job and its component parts used to determine the most efficient method of working scientific management—an early twentieth-century theory that analyzed workflows in order to improve efficiency Taylorism Scientific management, or Taylorism, is a management theory that analyzes work flows to improve economic efficiency, especially labor productivity. This management theory, developed by Frederick Winslow Taylor, was popular in the 1880s and 1890s in manufacturing industries. While the terms scientific management and Taylorism are often treated as synonymous, an alternative view considers Taylorism to be the first form of scientific management. Taylorism is sometimes called the “classical perspective,” meaning it is still observed for its influence but no longer practiced exclusively. Scientific management was best known from 1910 to 1920, but in the 1920s, competing management theories and methods emerged, rendering scientific management largely obsolete by the 1930s. However, many scientific management themes are still seen in industrial engineering and management today. Frederick Winslow Taylor Frederick Winslow Taylor is considered the creator of scientific management. Important components of scientific management include analysis, synthesis, logic, rationality, empiricism, work ethic, efficiency, elimination of waste, and standardized best practices. All of these components focus on the efficiency of the worker and not on any specific behavioral qualities or variations among workers. Today, an example of scientific management is determining the amount of time it takes workers to complete a specific task and determining ways to decrease the amount of time by eliminating waste in the workers’ processes. A significant part of Taylorism was time studies. Taylor was concerned with reducing process time and worked with factory managers on scientific time studies. At their most basic level, time studies involve breaking down each job into component parts, timing each element, and rearranging the parts into the most efficient method of working. By counting and calculating, Taylor sought to transform management into a set of calculated and written techniques. Frank and Lillian Gilbreth While Taylor was conducting his time studies, Frank and Lillian Gilbreth were completing their work in motion studies to further scientific management. The Gilbreths filmed the details of a worker’s activities while recording the time it took to complete them. The films helped to create a visual record of how work was completed, and emphasized areas for improvement. They were also used to train workers in the best way to perform their work. This method allowed the Gilbreths to build on the best elements of the work flows and create a standardized best practice. Time and motion studies are used together to achieve rational and reasonable results and find the best practice for implementing new work methods. While Taylor’s work is often associated with that of the Gilbreths, there is often a clear philosophical divide between the two scientific-management theories. Taylor was focused on reducing process time, while the Gilbreths tried to make the overall process more efficient by reducing the motions involved. They saw their approach as more concerned with workers’ welfare than Taylorism, in which workers were less relevant than profit. This difference led to a personal rift between Taylor and the Gilbreths, which, after Taylor’s death, turned into a feud between the Gilbreths and Taylor’s followers. Scientific management continues to make significant contributions to management theory today. With the advancement of statistical methods used in scientific management, quality assurance and quality control began in the 1920s and 1930s. During the 1940s and 1950s, scientific management evolved into operations management, operations research, and management cybernetics. In the 1980s, total quality management became widely popular, and in the 1990s reengineering became increasingly popular. One could validly argue that Taylorism laid the groundwork for these influential fields practiced today. Bureaucratic Organizations: Weber Weber’s bureaucracy focused on creating rules and regulations to simplify complex procedures in societies and workplaces. Key Points • • Max Weber was a member of the classical school of management, and his writing contributed to the field’s scientific school of thought. He wrote about the importance of bureaucracy in society. Weberian bureaucracy is characterized by hierarchical organization, action taken on the basis of (and recorded in) written rules, and bureaucratic officials requiring expert training. Career advancement • depends on technical qualifications judged by an organization, not individuals. Weber’s ideas on bureaucracy stemmed from society during the Industrial Revolution. As Weber understood it, society was being driven by the passage of rational ideas into culture, which, in turn, transformed society into an increasingly bureaucratic entity. Key Terms • • • bureaucracy—a complex means of managing life in social institutions that includes rules and regulations, patterns, and procedures designed to simplify the functioning of complex organizations iron cage—Weber’s theory that a bureaucratic society would make it impossible to avoid bureaucracy and, thus, society would become increasingly more rational bureaucratic control—setting standards, measuring actual performance, and taking corrective action through administrative or hierarchical techniques like creating policies Max Weber was a German sociologist, political economist, and administrative scholar who contributed to the study of bureaucracy and administrative literature during the late 1800s and early 1900s. He was a member of the classical school of management, and his writing contributed to the field’s scientific school of thought. Weber’s ideas on bureaucracy stemmed from society during the Industrial Revolution. As Weber understood it, particularly during the Industrial Revolution of the late nineteenth century, society was being driven by the passage of rational ideas into culture, which in turn transformed society increasingly into a bureaucracy. Bureaucracy Defined Bureaucracy is a means of managing life in social institutions that includes rules and regulations, patterns, and procedures designed to simplify the functioning of complex organizations. Income-tax forms are an example of a bureaucratic tool. Specific information and procedures are required to fill them out, and many laws and regulations dictate what can and cannot be included. Bureaucracy simplifies the process of paying taxes by putting the process into a formulaic structure, but the rules and regulations simultaneously complicate the process. Bureaucracy in the Workplace Weber’s theories on bureaucracy include topics such as specialization of the workforce, the merit system, standardized principles, and structure and hierarchy in the workplace. In his writings, Weber focused on the idea of a bureaucracy, which differs from a traditional managerial organization because workers are judged by impersonal, rule-based activity, and promotion is based on merit and performance rather than on immeasurable qualities. Weberian bureaucracy is also characterized by hierarchical organization, delineated lines of authority in a fixed area of activity, action taken on the basis of (and recorded in) written rules, and bureaucratic officials requiring expert training. In a bureaucracy, career advancement depends on technical qualifications judged by an organization, not individuals. Weber’s studies of bureaucracy contributed to classical management theory by suggesting that clear guidelines and authority need to be set to encourage an effective workplace. Weber did not see any alternative to bureaucracy and predicted that this would lead to an “iron cage,” or a situation in which people would not be able to avoid bureaucracy, and society would thus become increasingly more rational. Weber viewed this as a bleak outcome that would affect individuals’ happiness, forcing them into a highly rational society—with rigid rules and norms—that they wouldn’t be able to change. Of course, with the behavior management movement that arose in the 1920s, this bleak situation did not come to pass. Administrative Management: Fayol’s Principles Fayol’s approach differed from scientific management in that it focused on efficiency through management training and behavioral characteristics. Key Points • • • • Fayol took a top-down approach to management by focusing on managerial practices to increase efficiency in organizations. His writing provided guidance to managers on how to accomplish their duties and the practices they should engage in. The major difference between Fayol and Taylor is Fayol’s concern with the human and behavioral characteristics of employees, rather than individual workers’ efficiency, and his focus on training management. Fayol stressed the importance and practice of forecasting and planning in order to train management and improve workplace productivity. Fayol is also famous for his 14 principles of management and 5 elements that constitute managerial responsibilities. Key Terms • • top-down—Fayol’s approach that looked at the organization from the perspective of the senior managers and not the workers as Taylor did Fayolism—an organizational approach that emphasizes effective leadership from the top and that management is fundamentally about people Henri Fayol Fayol was a classical management theorist, widely regarded as the father of modern operational management theory. His ideas are fundamental to modern management concepts. Comparisons with Taylorism Fayol is often compared to Frederick Winslow Taylor, who developed scientific management. However, Fayol differed from Taylor in his focus and developed his ideas independently. Taylor was concerned with task time and improving worker efficiency, while Fayol was concerned with management, especially its human and behavioral elements. Another major difference between Taylor and Fayol’s theories is that while Taylor viewed management improvements as happening from the bottom up, Fayol emphasized a top-down perspective that was focused on educating management on improving processes first and then moving to workers. Fayol believed that by focusing on managerial practices, organizations could minimize misunderstandings and increase efficiency. His writings guided managers on how to accomplish their managerial duties and on the practices in which they should engage. In General and Industrial Management (1949) Fayol outlined his theory of general management, which he believed could be applied to the administration of myriad industries. As a result of his concern for workers, Fayol is considered one of the early fathers of the human relations movement. Henri Fayol Henri Fayol is considered a founder of the human relations movement. Fayol’s 14 Principles of Management Fayol developed 14 principles of management to help managers be more effective. They are still used today but often interpreted differently. The principles are as follows: 1. 2. 3. 4. 5. 6. division of work delegation of authority discipline chain of command congenial workplace interrelation between individual interests and common organizational goals 7. compensation package 8. centralization 9. scalar chains 10. order 11. equity 12. job guarantee 13. initiatives 14. team spirit Fayol’s Five Elements of Management Fayol is also famous for his five elements of management, which outline the key responsibilities of good managers: 1. Planning. Managers should draft strategies and objectives to determine the stages of a plan and the technology needed to implement it. 2. Organizing. Managers must organize and provide the resources necessary to execute a plan, including raw materials, tools, capital, and human resources. 3. Command. Managers must use their authority and a thorough understanding of long-term goals to delegate tasks and make decisions for the betterment of the organization. 4. Coordination. High-level managers must work to integrate all activities to facilitate organizational success. Communication is key to success in this component. 5. Monitoring. Managers must compare the activities of personnel to the plan of action. This is the evaluation component of management. Flaws in the Classical Approach The classical approach to management is often criticized for viewing a worker merely as a tool to improve efficiency. Key Points • • • • Under Taylorism, work effort increased in intensity, but eventually workers became dissatisfied with the work environment and became angry, decreasing overall work ethic and productivity. Taylorism’s negative effects on worker morale only added fuel to the fire of existing labor-management conflict and inevitably contributed to the strengthening of labor unions. The criticisms of classical management theory opened doors for theorists such as George Elton Mayo and Abraham Maslow, who emphasized the human and behavioral aspects of management. The scientific management approach comes up short when applied to larger, more operationally complex organizations. Managerial efficacy and the empowerment of employees are more important to overall productivity when tasks are not simple and homogeneous. Key Term • Taylorism—scientific management, an early twentieth-century theory of management that analyzed workflows in order to improve efficiency. The Downside of Efficiency The classical view of management tends to focus on the efficiency and productivity of workers rather than on their human needs. Generally the classical view is associated with Taylorism and scientific management, which are largely criticized for viewing the worker as a cog in a machine, rather than an individual. Under Taylorism workers’ effort increased in intensity, but eventually workers became dissatisfied and angry with the work environment, which affected their overall work ethic. This dissatisfaction undoes the value captured via increased efficiency. Taylorism’s negative effects on worker morale only added fuel to the fire of existing labor-management conflict, which frequently raged out of control between the mid-nineteenth and mid-twentieth centuries (when Taylorism was most influential), and thus inevitably contributed to stronger labor unions. That outcome neutralized most or all of the benefit of any productivity gains that Taylorism had achieved. The net benefit to owners and management ended up being small or negative. It would take new efforts, borrowing some ideas from Taylorism but mixing them with others, to produce more successful formulas. Factory workers Taylorism and classical management styles negatively affected the morale of workers, which created a negative relationship between workers and managers. Scientific management also led to other pressures that made workers unhappy. Offshoring and automation are two pressures that have led to the erosion of employment. Both were made possible by the de-skilling of jobs, which arose because of the knowledge transfer that scientific management achieved. Knowledge was transferred to cheaper workers, and from workers to tools. The Human Factor To summarize, the underlying weakness of the classical view of management is that it views employees first as resources rather than people. This criticism opened doors for theorists such as George Elton Mayo and Abraham Maslow, who emphasized the human and behavioral aspects of management. After all, what value is wealth if the individual loses the sense of self-worth and happiness required to enjoy it? The behavioral approach to management took an entirely different approach and focused on managing morale, leadership, and other behavioral factors to encourage productivity, rather than solely managing the time and efficiency of workers. Corporate Growth Another disadvantage of the classical perspective arises from the growing size and complexity of the modern organization. Using metrics to examine specific employee behavior may be feasible in a smaller organization pursuing homogeneous tasks, but it becomes more difficult in an organization that has hundreds of employees pursuing various complex functions. In the situation with more complexity, it may be more beneficial to use tactics that are less focused on the individual employee and more on improving overall productivity. This will involve less micromanaging and more trust that employees will do the right thing in the workplace. The onus of enabling efficiency, therefore, shifts from workers to managers. Behavioral Perspectives The Behavioral Science Approach Behavioral science uses research and the scientific method to determine and understand behavior in the workplace. Key Points • • • • Behavioral science draws from a number of different fields and theories, primarily those of psychology, social neuroscience, and cognitive science. One application of the behavioral science approach can be seen in a field called organizational development—an ongoing, systematic process of implementing effective organizational change. Behavioral sciences include relational sciences, which deal with relationships, interaction, communication networks, associations, and relational strategies. The behavioral science approach is broadly about understanding individual and group behavioral dynamics to initiate meaningful organizational development. Key Term • organizational development—an ongoing, systematic process of implementing effective organizational change using theories from behavioral sciences Behavioral science draws from a number of different fields and theories, primarily those of psychology, social neuroscience, and cognitive science. Behavioral science uses research and the scientific method to determine and understand behavior in the workplace. Many of the theories in the behavioral perspective are included in the behavioral science approach to management. For example, the Hawthorne studies used the scientific method and are considered to be a part of the behavioral science approach. Behavioral science within the business management environment is a specific application of this field, and employs a number of specific types of behavioral observations. This includes concepts such as information processing, relationships and motivation, and organizational development. Information Processing Information processing involves determining how people process stimuli in their environment. This field deals with the processing of stimuli from the social environment by cognitive entities in order to engage in decision making, social judgment, and social perception. The field is particularly concerned with how people [or living things] process information and use it to function and survive in social environments. The Organizational Culture Structure, process, and people all play a role in an organization’s culture. Relationships Behavioral sciences also include sciences that deal with relationships, interaction, communication networks, associations, and relational strategies or dynamics between organisms or cognitive entities in a social system. The emphasis on using quantitative data and qualitative research methods to determine how people process information and understand social relationships is important to helping managers better understand the proven methods for increasing employee motivation and productivity. The behavioral science approach and the myriad fields it encompasses is the most common area of management science today. Organizational Development The behavioral science approach is applied primarily in the field of organizational development. Organizational development is an ongoing, systematic process of implementing effective organizational change. Organizational development is considered both a field of applied behavioral science that focuses on understanding and managing organizational change and a field of scientific study and inquiry. It uses components of behavioral sciences and studies in the fields of sociology, psychology, and theories of motivation, learning, and personality to implement effective organizational change and facilitate employee development. The behavioral science approach is broadly about understanding individual and group behavioral dynamics to initiate meaningful organizational development. The study of human behavior in the context of organizational change is integral to empowering organizations to grow, adapt, and learn to capture competitive advantage. Behaviorism: Follett, Munsterberg, and Mayo Behaviorism initiated a focus on the psychological and human factors influencing workers. Key Points • • • • Mary Parker Follett, Hugo Munsterberg, and Elton Mayo are all considered pioneers and founders of the behaviorism movement in management theory. They wrote about the importance of considering behavioral aspects of workers in addition to workers’ efficiency. Mary Parker Follett was an American social worker, management consultant, and pioneer in the fields of organizational theory and organizational behavior. Hugo Munsterberg was a pioneer of applied psychology, extending his research and theories to industrial/organizational (I/O), legal, medical, clinical, educational, and business settings. Elton Mayo is known as the founder of the human relations movement. His research includes the Hawthorne studies and his book The Human Problems of an Industrialized Civilization. Key Term • industrial psychology—a field of study focused on topics such as hiring workers with the personalities and mental abilities best suited to certain types of vocations Mary Parker Follett, Hugo Munsterberg, and Elton Mayo are all considered pioneers and founders of the industrial/organizational psychology and behaviorism movements in management theory. They wrote about the importance of considering behavioral aspects of workers in addition to workers’ efficiency. This was in many ways a continuation of the scientific method, with the critical difference of incorporating the human factors involved in effective management. Follett Mary Parker Follett was an American social worker, management consultant, and pioneer in the fields of organizational theory and organizational behavior in the late nineteenth and early twentieth centuries. She criticized the overmanagement of employees, a process now known as micromanaging. Follett was known for the concept of reciprocal relationships and the idea that authority is inferior to integrative collaboration. Managers should enable, not dictate, she believed. Follett was sought out by President Theodore Roosevelt to be his personal consultant on managing not-for-profit, nongovernmental, and voluntary organizations. As a management theorist, she pioneered the understanding of lateral processes within hierarchical organizations. Her contributions helped the behaviorism movement get started by recognizing the worker as different from a machine. Mary Parker Follett defined management as “the art of getting things done through people.” Munsterberg Hugo Munsterberg, who practiced around the same time as Follett, was a German-American psychologist. He was one of the pioneers of applied psychology, extending his research and theories to industrial/organizational (I/O), legal, medical, clinical, educational, and business settings. Munsterberg’s writings are considered the genesis of the industrial psychology field. Industrial psychology, according to Munsterberg, focuses on topics like hiring workers with the personalities and mental abilities suited to certain types of vocations, as well as on increasing motivation, performance, and worker retention. Munsterberg suggested that psychology could be used in many different industrial applications, including management, vocational decisions, advertising, job performance, and employee motivation. Many of Munsterberg’s ideas, especially matching an individual’s personality with the correct job set and skills, are common in the use of I/O psychology today. Hugo Munsterberg Munsterberg is considered the father of industrial/organizational psycholo gy. Mayo George Elton Mayo was an Australian psychologist, sociologist, and organization theorist. Mayo is known as the founder of the human relations movement. His research includes the Hawthorne studies and his book (1933). The Hawthorne studies of the 1930s showed the importance of groups in affecting the behavior of individuals at work. Mayo’s employees Roethlisberger and Dickson conducted the practical experiments. Mayo made deductions about how managers should behave. He concluded that people’s work performance depends on both social issues and job content. He suggested a tension between workers’ “logic of sentiment” and managers’ “logic of cost and efficiency” that could lead to conflict within organizations. Mayo’s studies contributed to the behaviorism movement in management, as managers became more aware of the “soft skills” that are important to successful management. Follett, Munsterberg, and Mayo each introduced important components and ideas into the behaviorism perspective of management. They all believed that successful management comes from understanding how to treat employees, motivate them, and help them succeed and become as efficient as possible in their jobs. The Human Side: Hawthorne The Hawthorne studies found that workers were more responsive to group involvement and managerial attention than to financial incentives. Key Points • • • The Hawthorne studies, conducted by Elton Mayo and Fritz Roethlisberger in the 1920s with the workers at the Hawthorne plant of the Western Electric Company, were part of an emphasis on sociopsychological aspects of human behavior in organizations. Hawthorne researchers hypothesized that choosing one’s own coworkers, working as a group, being treated as special, and having a sympathetic supervisor were reasons for increases in worker productivity. The Hawthorne studies found that monetary incentives and good working conditions are generally less important in improving employee productivity than meeting employees’ need and desire to belong to a group, and be included in decision making and work. Key Term • Hawthorne studies—series of investigations conducted in the 1920s emphasizing the sociopsychological aspects of human behavior in organizations The Hawthorne studies were conducted with the workers at the Hawthorne plant of the Western Electric Company by Elton Mayo and Fritz Roethlisberger in the 1920s. The Hawthorne studies were part of a refocus on managerial strategy incorporating the sociopsychological aspects of human behavior in organizations. Site of the Hawthorne Studies Western Electric Company factory near Chicago The studies suggested that employees have social and psychological needs— as well as economic and financial ones—that must be met in order to be motivated to complete their assigned tasks. The human relations movement is concerned with morale, leadership, and factors that help workers cooperate. This theory of management was a by-product of the issues that arose from the classical scientific perspectives on management (i.e., Taylorism). The simplest explanation of the hypothesis investigated is quite intuitive. Employees (i.e., human resources) are not merely motivated by financial gain, and productivity is not simply a by-product of incentives and optimized working spaces. People are motivated by inclusion, constructive feedback, interest, autonomy, and a wide variety of other factors aside from money and other tangible resources. Results of the Hawthorne Studies The studies originally looked into whether workers were more responsive and worked more efficiently under certain environmental conditions, such as improved lighting. The results were surprising, as Mayo and Roethlisberger found that workers were more responsive to social factors—such as the people they worked with on a team and the amount of interest their manager had in their work—than the factors (lighting, etc.) the researchers had gone in to inspect. The Hawthorne studies indicated that workers were highly responsive to additional attention from their managers and the feeling that their managers actually cared about, and were interested in, their work. The studies also concluded that although financial motives are important, social factors are equally important to worker productivity. There were a number of other experiments conducted in the Hawthorne studies, including one in which two women were chosen as test subjects and were then asked to choose four other workers to join the test group. Together, the women worked assembling telephone relays in a separate room over the course of five years (1927–1932), and their output was measured. The measuring began in secret. It started two weeks before moving the women to an experiment room and continued throughout the study. In the experiment room, they had a supervisor who discussed changes with them and, at times, used their suggestions. The researchers then spent five years measuring how different variables impacted both the group’s and the individuals’ productivity. Some of the variables included giving two five-minute breaks (after a discussion with the group on the best length of time), and then changing to two 10-minute breaks (not the preference of the group). Intangible Motivators Changing a variable usually increased productivity, even if the variable was just a change back to the original condition. Researchers concluded that the employees worked harder because they thought they were being monitored individually. They hypothesized that choosing one’s own coworkers, working as a group, being treated as special (by working in a separate room, as in the experiment), and having a sympathetic supervisor were the real reasons for the productivity increase. The Hawthorne studies showed that people’s work performance depends on social issues and job satisfaction. Further, the studies helped demonstrate that monetary incentives and good working conditions are generally less important in improving employee productivity than meeting people’s desire to belong to a group and be included in decision making and work. Managerial Assumption: McGregor McGregor introduced theories X and Y, which summarize and compare the classical management and behavioral management perspectives. Key Points • • • Douglas McGregor was a management professor at the MIT Sloan School of Management. He wrote The Human Side of Management (1960), which suggested motivating employees through authoritative direction and employee self-control, respectively called theory X and theory Y. Theory X, based more on classical management theory, assumes that workers need a high amount of supervision because people are inherently lazy. It assumes that managers need to motivate through coercion and punishment. Theory Y assumes that employees are ambitious, self-motivated, exercise self-control, and generally enjoy mental and physical work duties. Theory Y is in line with behavioral management theories. • Theories X and Y relate to Maslow’s hierarchy of needs in that they see human behavior and motivation as the main priority in maximizing output in the workplace. Key Terms • • Theory X—Employees are inherently lazy and irresponsible and will tend to avoid work unless closely supervised and given incentives. Theory Y—Employees are capable of being ambitious and selfmotivated under suitable conditions. Douglas McGregor was a management professor at the MIT Sloan School of Management. He suggested motivating employees through authoritative direction and employee self-control (1960). McGregor’s book was voted the fourth most influential management book of the twentieth century in a poll of the Fellows of the Academy of Management. McGregor’s main theory comprises theory X and theory Y. Theory X, based more on classical management theory, assumes that workers need a high amount of supervision because people are inherently lazy. Theory Y assumes that employees are ambitious, self-motivated, exercise self-control, and generally enjoy mental and physical work duties. Theory Y is in line with behavioral management theories. Often, how managers act is affected by the theory they subscribe to. Theory X In theory X, managers tend to micromanage and closely supervise employees. Complex hierarchical structures are needed in order to offer a narrow span of control at every level of the organization. Employees show little ambition without an incentive program and avoid responsibility whenever possible. Managers who believe theory X rely more heavily on punishment, fear, and coercion—and less on rewards—to motivate employees. Manager-employee relationships are generally not rewarding in this environment of mistrust. Usually managers in these situations believe that the sole purpose of the employee’s interest in his or her job is money. Theory Y Theory Y managers generally believe the opposite. They believe that given the proper conditions, employees will learn to seek and accept responsibility and to be self-directed in accomplishing objectives, that most people will want to do well at work, and that the satisfaction of doing a good job is a strong motivator. Many people interpret theory Y as a positive set of beliefs about workers. McGregor thinks that theory Y managers are more likely than theory X managers to develop a climate of trust with employees—a required condition for human-resource development. This type of human-resource development is much more in line with how Maslow’s hierarchy of needs operates and with the Hawthorne studies’ findings than with any of the classical theories of management. Theory X or Theory Y? Theories X and Y relate to Maslow’s hierarchy of needs in that they see human behavior and motivation as the main priorities in maximizing output. Both McGregor and Maslow would say that in order to help employees achieve maximum efficiency and happiness in their work, a theory Y manager would need to promote morality, creativity, problem solving, and a lack of prejudice. McGregor was a lifetime proponent of theory Y. Modern organizations in developed countries generally side with McGregor, in that they believe theory Y is superior in getting positive results from employees (and job satisfaction for employees). However, both theories are still prominent in the workplace, where many managers treat their employees as if they are lazy and likely to perform poorly without stringent rules and supervision. In management, just as everywhere else, it is difficult to effect social change in the face of human nature, even when the benefits are established. Productivity: Argyris Argyris’s theory of single- and double-loop learning has been applied to management theory to suggest the best ways for employees to learn. Key Points • • • • Argyris studied how humans design and decide on their actions under difficult or stressful situations. He believed that human actions are controlled by environmental variables, which determine the key differences between single-loop learning and double-loop learning. In single-loop learning, individuals, groups, and organizations modify their actions according to the difference between expected and obtained outcomes. In double-loop learning, individuals, groups, and organizations question the values, assumptions, and policies that led to the actions in the first place. Argyris’s theory of single- and double-loop learning has been applied to management theory to suggest the best way for employees to learn and think about new goals and strategies for an organization. Key Terms • • • double-loop learning—a theory in which an organization or individual questions the values, assumptions, and policies that led to a given situation learning organization—a company that facilitates the learning of its members and continuously transforms itself single-loop learning—a theory that individuals, groups, or organizations modify their actions according to the difference between expected and obtained outcomes Chris Argyris (July 16, 1923 to November 16, 2013) was an American business theorist, professor at Harvard Business School, and a thought leader at Monitor Group, a consulting firm. He is known for his work on learning theories within learning organizations. Argyris conducted a series of research studies in action science, which studies how humans design and decide on their actions under difficult or stressful situations. Argyris believed that human actions are controlled by environmental variables that determine the key differences between single-loop and doubleloop learning. Single-Loop Learning In single-loop learning, entities (such as individuals, groups, or organizations) modify their actions according to the difference between expected and obtained outcomes. This essentially means that learning is through experience and direct reflection on outcomes, where the ends justify the means, and dictate the fulcrum of the discussion and learning outcomes. In many ways, this is a reactionary approach. Individuals must identify successes and failures, and pursue formulas for maximizing the former and minimizing the latter. While this type of learning, and the broader behaviors, are extremely common in the real world, it is not the ideal method for learning that can be adapted to the broader organization. It tends to be simple, shortterm, and not always conducive to sustainability. Double-Loop Learning In double-loop learning, the entities question the values, assumptions, and policies that lead to actions. If the entities can discern and modify the values, then second-order or double-loop learning has taken place. This is a more integrative, process-oriented, and collaborative approach. It is also much more complex, difficult, and sensitive, as the core values and strategies in place must be analyzed, questioned, and defended (or discarded). The simple truth is that people fear change, actively avoid conflict, and generally preserve the status quo. Double-loop learning requires the bravery to challenge what is established organizationally, identify broader systemic issues, and fix problems at their source. Chris Argyris wrote about the theories of single- and double-loop learning, which determine how people make decisions in difficult situations. For example, a company facing a problem with its management strategy may decide to focus on how to improve or implement the strategy in different ways. In this situation, the company is using single-loop learning: Management is focused on making changes without reconsidering the fundamental standard or strategy itself. However, if the company were to entirely reconsider the problematic strategy and start from scratch, this would exemplify double-loop learning. Double-loop learning may lead to a change in the original strategy or even the goals the company had that led to its strategy. Argyris’s theory of single- and double-loop learning has been applied to management theory to suggest the best way for employees to learn and think about new goals and strategies for an organization. Modern Thinking Quantitative and Analytical Management Tools Quantitative tools are used by management to determine where a company is doing well or struggling compared with its industry and competitors. Key Points • • • • • Many quantitative and analytic tools are available for managers to better understand workflow processes, financial management, and employee efficiency. A decision tree is a decision support tool that uses a tree-like graph or model of decisions and their possible consequences, including chance event outcomes, resource costs, and utility. Simulation is the imitation of a real-world process or system over time. Trend charts are often used in management to display data over time to explore any potential trends, either positive or negative, that require additional attention by management. It is important to use statistical confidence intervals when utilizing this type of forecast. Benchmarking allows a manager to see how different aspects of a business are performing compared to national, regional, and industry standards. It also allows management to explore how the company is performing compared to its competitors. • Financial projections and net-present-value (NPV) analyses are also commonplace when deciding upon new operations quantitatively— where the company predicts profitability in today’s dollars. Key Terms • • decision tree—a graphic visualization—resembling a tree—of a complex decision-making situation and likely outcomes from choosing different options benchmarking—technique allowing a manager to compare metrics like quality, time, and cost, across an industry and against competitors Managers can use many different quantitative and analytic tools to better understand workflow processes, financial management, and employee efficiency. These tools, such as decision trees, simulation, trend charts, benchmarking, and financial projections, help managers improve their decision-making abilities, determine how their business is performing relative to competitors, and discover opportunities for improvement. Using these tools to create quantitative and measurable metrics helps an organization see exactly where it is performing well and where it is performing poorly. Decision Tree A decision tree is a branching graph, or model of decisions and their possible consequences, including chance-event outcomes, resource costs, and utility. Decision trees are commonly used in operations research (specifically in decision analysis) to help identify a strategy most likely to reach a specified goal. They can also be used to map out a thought process or the possible consequences of a decision. A manager may use this tool when deciding between different projects or investments. Example of a Decision Tree A decision tree to determine the consequences and potential outcomes (money lost or gained at each step) along multiple potential paths of action. The path resulting in the highest financial gain by the end is generally the one that should be chosen. Simulation Simulation is the imitation of a real-world process or system over time. The act of simulating something first requires that a model be developed representing the key characteristics or behaviors of a physical or abstract system or process. A simulation could be used to study investment decisions by actively playing out the outcomes of specific situations. Trend Charts Trend charts are often used to display data over time to explore potential trends (either positive or negative) that require additional management attention. Many metrics—including employee productivity, financial metrics, operational efficiency, and comparisons between competitors—are analyzed using trend charts. Trends are only ever in the past, however, and using confidence intervals in projecting trends is critical to their effectiveness. This chart of US defense spending from 2000 to 2011 shows that overall spending increased from $300 billion to $700 billion due to increases in both the Department of Defense (DOD) budget and overseas (war-related) spending. Benchmarking Benchmarking allows managers to see how different aspects of their business (usually quality, time, and cost) are performing compared to national, regional, and industry standards. It also allows a manager to explore how the company is performing compared to competitors. In the process of benchmarking, management identifies the best firms in the industry, or in another industry where similar processes exist, and compares the results and processes of the target firms to management’s own results and processes. In this way, management learns how well the targets perform and, more importantly, the business processes that explain why these firms are successful. Financial Projections Managers can also use financial analysis as a management tool. When investing in a project or an acquisition of any kind, a manager will always want to know how quickly the investment will turn a profit. For example, when a company invests in a new building, management will calculate how long it will take for the building to generate enough income to cover the upfront costs. This calculation is sometimes called a payback period. All else being equal, shorter payback periods are preferable to longer ones. This is often referred to as NPV, or net present value, where the company calculates the future value of the project in today’s dollars. It is critical to remember that a dollar today and a dollar tomorrow have different values. Operations Management Tools Six Sigma and Lean are two popular operations-management theories that help managers improve the efficiency of their production processes. Key Points • • • • The main tools of operations management come from two popular theories of organizing business: Six Sigma and Lean. Six Sigma relies on particular quality-management methods, such as statistical analytics, and incorporates designations like black belt and green belt to indicate those within an organization who are experts in these methods. Lean is a production theory that deems any expenditure of resources that doesn’t create value for customers wasteful—and a target for elimination. By leveraging operational paradigms constructed to deliberately capture value through maximizing efficiency, managers can lower costs for companies and prices for consumers. Key Terms • • six sigma—process improvement that focuses on using statistical methods to reduce the number of defects lean—a production strategy focused on eliminating all unnecessary waste Operations management is a type of management that oversees, designs (or redesigns), and controls a company’s production processes and business operations. Operations managers are responsible for ensuring that business operations are efficient, both in conserving resources and meeting customer requirements. They manage the process that converts inputs (materials, labor, and energy) into outputs (goods and services). In order to accomplish this task, managers use various tools, including Six Sigma and Lean—the two most influential ones. Six Sigma Six Sigma is a strategy designed to improve the quality of process outputs. It accomplishes this by identifying and removing the causes of defects and errors, and by minimizing variability in manufacturing and business processes. The strategy relies on quality management methods like statistical analytics, and incorporates designations like black belt and green belt to indicate those within an organization who are experts in these methods. Each Six Sigma project in an organization follows a defined sequence of steps with quantified financial targets such as reducing costs or increasing profits. Among the tools used in Six Sigma are process mapping, trending charts, calculations of potential defects, ratios, and statistics. Six Sigma also includes best practices for working within a team. Six Sigma Symbol Six Sigma is a tool many managers use to reduce the number of defects created by their processes. Lean Lean is similar to Six Sigma, but slightly less focused on defect rate and more on eliminating the amount of waste and excessive steps in an operation. Lean is a production theory that deems any expenditure of resources that doesn’t create value for customers wasteful—and a target for elimination. Beginning from the perspective of the consumer of a product or service, value is defined as any action or process that a customer would be willing to pay for. Lean employs tools to evaluate production workflow and determine where there is waste. Examples of waste include excess motion, inventory, and overproduction. Examples of Six Sigma and Lean In many ways, lean manufacturing and Six Sigma are reminiscent of Henry Ford’s focus on systematic process improvements. The overarching theme is simply to minimize the time employees spend on tasks and maximize output with the same amount of input. Toyota, using the Japanese concept of kaizen, exemplifies lean manufacturing and just-in-time (JIT) inventory management. Toyota became famous for timing each specific element of the manufacturing process to ensure minimal warehousing, delivering each component precisely when and where it was needed. This created a process flow that minimized space usage, which lowered costs, optimized timing, and created widespread consistency of operational flow. Lean and Six Sigma are the two main strategies for operations management. Both offer managers an extensive toolbox to analyze the efficiency of their production. These tools analyze workflow, uncover where and why there is waste, and decrease defects in products or services, all of which make a company more efficient. The Systems Viewpoint Systems thinking is an approach to problem solving that considers the overall system instead of focusing on its specific parts. Key Points • • • Systems thinking is an approach to problem solving that views problems as part of an overall system. It is different from problem-solving strategies that only focus on specific parts or outcomes of a problem. Systems thinking approaches problems as a set of habits or practices within a framework. It is based on the belief that the component parts of a system are best understood in the context of their relationships with each other rather than in isolation. Systems thinking is opposed to fragmented thinking, which involves thinking about specific problems without considering the context, environment, and effects of similar problems. Key Term • fragmented thinking—looking at problems as isolated events instead of considering the system as a whole It is the process of understanding how people and situations influence one another within a closed system. As in nature, where the air, water, movement, plants, and animals interact with one another—and survive or perish in relationship with each other; in business, management also involves relationships and interactions. Organizational Systems Organizational systems consist of people, structures, and processes working together to make an organization healthy or unhealthy. The end product of effective systems management is synergy, in which the whole is greater than the sum of its parts. Systems generally contain the following: • • • • inputs, such as people, time, energy, and information processes or reactions, including tools, software, and analyses outputs, like products, reports, and plans feedback mechanisms, including information and reports Systems thinking: Just as gears work together, problems in one area of a business can affect other areas. Problem Solving When problem solving, advocates of systems thinking consider specific problems within an overall system, rather than reacting to specific issues or outcomes. In systems thinking, problems are conceptualized as a set of habits or practices that exist within a framework. Practitioners of systems thinking believe that the component parts of a system can best be understood and analyzed in the context of how the parts of a system are interrelated. Systems thinking rejects a reductive framework that attempts to focus on a single problem without considering the context, environment, or impact of similar problems. Fragmented thinking often results in solutions that cannot be applied in other situations, so they lose their relevance over time. With root causes left unaddressed, management is continually putting out fires in a reactive mode. Example Imagine that the Human Resources department is beset with problems in workflow and efficiency. A manager who uses systems thinking to fix the problem looks at Human Resources in the context of all of the workflow in the company to see whether the “Human Resources problem” could actually be a company-wide issue. Only a systems-thinking approach can lead to this realization because systems thinking provides insight into how problems that manifest in a specific location can spring from distant, seemingly unrelated places. With a more accurate understanding of a problem, managers can formulate a more effective and lasting solution. The Contingency Viewpoint The contingency viewpoint of management proposes that there is no standard for management; instead, management depends on the situation. Key Points • • • • The contingency viewpoint is a more recent development in organizational theory that attempts to integrate a variety of management approaches, proposing that there is no one best way to organize a corporation or lead a company. Debating which one of the previous approaches to management is “best” is irrelevant in contingency theory, since the heart of the contingency approach is that there is no one best way for managing and leading an organization. The contingency viewpoint focuses on management’s ability to achieve alignment and a good fit between employees and circumstances by considering multiple solutions to determine the best one for each particular problem. The focal point, and modern relevance, of this perspective is the concept of adaptability. Technology and globalization evolve the business environment so rapidly that adaptable strategies are more appropriate than static ones, making contingencies key to success. Key Term • contingency viewpoint—a management theory that proposes that there is no standard for management practice; instead, management depends on the situation. The contingency viewpoint is a more recent development of organizational theory that attempts to integrate a variety of management approaches by proposing that there is not one best way to organize a corporation or lead a company. Instead, the optimal course of action is contingent, or dependent upon internal and external contexts. Perspective on Previous Theories The contingency approach claims that past theories, such as Max Weber’s bureaucracy theory and Taylor’s scientific management, are no longer practiced because they fail to recognize that management style and organizational structure are influenced by various aspects of the environment known as contingency factors. Debating which one of the previous approaches to management is the best one is irrelevant, since the heart of contingency theory is that there is not one best way to manage and lead an organization. The basic premise of contingency theory is that there are limitless possibilities that companies must be prepared to adapt strategically. An Outline of Contingency Theory By its nature, contingency theory avoids static rules. There are, however, common contingencies that businesses must react to, including technology, competition, governments, unions, consumer interest groups, new markets and consumers, and economic factors. Fred Fiedler identified three leadership styles and empirical situation measurements to assess the degree of favorability a given contingency offers: • • • the leader-member relationship, which is the most important variable in determining the situation’s favorableness the degree of task structure, which is the second most important input into the favorableness of the situation the leader’s position power obtained through formal authority In other words, leadership needs to be able to assess a situation, determine the task structure, and obtain a position of formal authority to adequately manage a contingency situation. Example Imagine a manager with an employee who regularly is late for work. He or she could have a written protocol that includes only one option: Reprimand the employee. Under the contingency viewpoint, however, the manager may decide, by talking to the employee, to find out why he or she comes to work late. Perhaps there are extenuating circumstances that can be easy to work around. In this case, the contingency approach allows the employee to keep the job and saves the manager the time and trouble of termination and hiring someone else. A leader’s ability to manage under the contingency viewpoint depends largely on the nature of the environment and how the organization relates to the environment. Therefore, the organizational structure is a major component of the approach that management may take in resolving problems under contingency theory. Quality Assurance and Control Quality assurance and quality control are intended to ensure that products are created with the fewest number of defects possible. Key Points • • • • Quality assurance (QA) refers to planned and systematic activities implemented in a quality system to fulfill the quality requirements for a product or service. Quality control (QC) is a process by which products are tested to uncover defects and the results are reported to management, which makes the decision to allow or deny product release. Quality control and quality assurance work together to make sure that a company’s products have the lowest possible error rate. As global markets expand, and as outsourcing becomes common practice, QC and QA are increasingly important. When companies do not control their manufacturing process, they must invest in controlling the quality of their vendors. Key Term • failure testing—stress testing to determine the point at which a product will fail Quality assurance and quality control are two methods of planning and implementing structured methods in a work process to ensure that products are created with the highest possible quality and the smallest number of defects or problems. Quality Assurance QA refers to the planned and systematic activities implemented in a quality system to fulfill the quality requirements for a product or service. It is a systematic measurement compared to a set standard, with process monitoring used to prevent errors. This can be contrasted with quality control, which is focused on process outputs. There are two key principles of QA: • • Fit for purpose. The product should be suitable for its intended purpose. Right the first time. Mistakes should be eliminated. QA includes managing the quality of raw materials, assemblies, products, components, services related to production, management processes, production processes, and inspection processes. QA equates to process observations. Quality assurance is measured through failure testing and statistical control. Failure testing determines the stress levels under which a product will fail by exposing it to unanticipated stresses, like intense vibration, temperature, and humidity. Stress testing uncovers problems that can be fixed with simple changes. Statistical controls ensure that an organization is producing quality products at the lowest possible defect rate. Many organizations use Six Sigma levels of quality, so the likelihood of an unexpected failure is less than four in one million. Assembly line and quality control: Many processes, such as assembly lines, help ensure quality assurance and control by streamlining production. Quality Control QC is the process of testing finished products to uncover defects and reporting the results, so management can decide whether to allow or deny product release. It differs from quality assurance, which attempts to improve, stabilize, and eliminate flaws from a product during production. Controls also include product inspection: Every product is examined visually before being sold. Inspectors receive lists and descriptions of unacceptable product defects, such as cracks or surface blemishes. Efficient quality control depends on top-notch visual examination of products, employee training, and organizational culture. Quality control and quality assurance work together to ensure that companies produce products that have the lowest possible error rate, so there will be fewer customer complaints and no need for rework. Outsourcing Because they depend so much on vendors, many corporations find their manufacturing processes are conducted outside of their organization. This can lead to difficulties in maintaining process quality. Therefore, a corporation needs to invest in QC professionals to maintain organizational standards. QC is not simply an internal concern for many businesses, but a criteria for selecting vendors. Evidence-Based Management Evidence-based management emphasizes the importance of managers using the scientific method to make decisions. Key Points • • • • Evidence-based management is an emerging movement to base managerial decisions and organizational practices on the best available scientific evidence and explicitly use current best practices. It is an outgrowth of evidence-based medicine. While there is a rich body of academic literature pertaining to tried-andtrue managerial strategies, real-world application is rare. Promoting evidence-based management is challenging because it can conflict with traditional definitions and expectations of management. Little shared terminology exists between managers of different companies, making it difficult for managers to discuss evidence-based practices, so the adoption of evidence-based practices is likely to be organization-specific. Key Term • evidence-based management—management decisions that are based on a combination of critical thinking and the best available evidence (information, facts, or data that support or contradict a claim, assumption, or hypothesis) Evidence-based management (EBM) is an emerging movement that explicitly uses current best practices in managerial decision making. It is rooted in evidence-based medicine—the rigorous statistical and experimental process that new pharmaceuticals go through before they are deemed safe. The intended result is treatments that are as effective and safe as possible for patients. Applying EBM to business simply means utilizing the scientific method, which integrates rigorous and objective hypothesis testing to identify best practices. Evidence-based management, like evidence-based medicine, emphasizes scientific research to inform decision making. The Scientific Method Evidence-based management informs managerial decisions and organizational practices using the best available scientific evidence. Practicing EBM requires managers to collect data, run tests, generate hypotheses, and objectively interpret findings to create an accurate depiction of the efficacy of a given managerial style or decision. Because management is much less tangible or measurable than many other scientific disciplines, this can be a challenge. Imagine a group of managers considering how to improve job satisfaction in their organization. They could conduct a comprehensive and objective survey across a large number of organizations to collect data on compensation, employee satisfaction, and company culture to determine if a positive company culture is more relevant to job satisfaction than pay. After collecting n number of responses, the data could be assessed to determine a confidence interval, revealing whether the conclusion is significant for future management decisions. Integration with Organizations While there is a rich body of academic literature pertaining to tested and true managerial strategies, real-world application is relatively rare. MBAs and degree holders in business have some exposure to the literature, but they rarely move it from the theoretical realm to practice. Motivating real-life applications of the studies for management could prove advantageous for companies looking to improve their managerial effectiveness. Evolving Organizations Knowledge Management and Behavior Modification Knowledge management and behavior modification are tactics employers use to ensure organizational growth and adaptability. Key Points • Knowledge management is an organizational concept that takes the best knowledge from individual employees and organizes it into a • • • functional learning and education system that all employees can learn from. Typically, a company’s information technology department—via electronic collection of specific components of employee expertise, creation of online learning modules, and redistribution of the modules throughout the company—is responsible for knowledge management. Behavioral modification includes altering an individual’s behavior through data collection and positive and/or negative reinforcement. In an organization, behavior modification is typically studied to examine how employees perceive their performance in relation to rewards. At a high level, it is used to develop strategies for improving performance and behavior. Key Term • knowledge management—collecting employees’ specialized knowledge, and organizing, redistributing, and sharing it throughout the company Knowledge management (KM), and behavior modification using organizational knowledge, are central to an organization’s ability to grow and adapt. The value of knowledge management from the organization’s perspective is that it can help employees learn and improve their skills—and allow the organization to evolve and achieve higher efficiency. Knowledge is a resource that organizations can collect and document through experience over time. Documenting and disseminating knowledge is a way to avoid repeating mistakes while improving current strategies. Knowledge Management The fields of business administration, information systems, management, and library and information sciences include knowledge management. Other fields contributing to KM research include information and media, computer science, public health, and public policy. Knowledge management is the range of strategies and practices an organization uses to identify, create, represent, distribute, and enable the adoption of employee insights and experiences. These insights and experiences constitute the company’s knowledge embodied in individuals or embedded as the organization’s processes or practices. Knowledge management also focuses on organizational objectives including improved performance, competitive advantage, innovation, and continuous improvement. KM is similar to organizational learning but focused more on knowledge as a strategic asset of a company’s employees. It encourages sharing knowledge to further the company’s success. Many organizations include resources dedicated to knowledge management in their business strategy, information technology, or human resource management departments. They also may hire consulting firms that specialize in knowledge management. Another approach to KM is taking the best knowledge from individual employees and organizing it into functional learning and education systems that all employees can learn from. Sharing knowledge is the most important component of knowledge management and is essential to helping an organization evolve and grow. A company’s IT department can facilitate this by collecting and disseminating employee knowledge through learning modules. B. F. Skinner B. F. Skinner introduced the study of behavior modification, and his theories are still used in behavior modification today. Behavior Modification Behavior modification was first introduced in psychology as a collection of techniques to increase or decrease the frequency of behaviors. B. F. Skinner popularized behavior modification, analyzing the triggers and rewards for certain behaviors in a series of experiments using animals. Behavioral modification techniques include both positive and negative reinforcement. In an organization, behavior modification is typically studied to examine how employees perceive their performance in relation to rewards. The process of behavioral modification in the workplace focuses on identifying the frequency of performance-related behaviors and determining the triggers for them. Once a trigger is identified, management can determine whether to develop a different trigger to change performance or sustain the current performance through rewards and appraisal. Behavior modification is generally used on a broader scale to determine how best to develop employee performance to move an organization in a desired direction. Knowledge management can help this movement by providing employees with adequate training and skills, and making sure they know that they are valuable members of the organization who deserve investment and empowerment. Training employees and improving their knowledge, skills, and behavioral approaches to work help an organization evolve and improve. Example Consider an employee who is particularly knowledgeable about a certain computer system. He or she might be asked to write a training manual or presentation for coworkers. Accelerated Change and Adaptation Change management facilitates employee adaptation to organizational change. Key Points • • • Change is essential to organizational growth and development, but it can cause discomfort, particularly when it affects employees’ daily work. Sometimes an organization faces accelerated change—from attempts to change its overall mission, for example, or to implement a disruptive technology. In these situations employees must be able to adapt quickly. Change management strategies such as communication, employee alignment with expectations, training, and transparency of management can help employees more quickly adapt to change. Key Term • change management—using strategies like communication, training, and transparency to help employees adapt to organizational change Managing Change and Adaptation Change is essential to organizational growth and development, but employees don’t always embrace change, particularly when it upsets their routines or the status quo. Employees can view change as a threat: It may impact their daily tasks, training, or their jobs. Change management is an approach to shifting and transitioning individuals, teams, and organizations from a current state to a desired future state. It is an organizational process aimed at helping stakeholders accept and embrace change in their business environment. Drivers of change that demand rapid adaptation are numerous. One of the most relevant to modern organizations is technology. As the smartphone became increasingly popular, companies in the phone industry had to react rapidly to switch their operational focus to smart phones, data plans, app stores, and multiple device integration. Companies that could not react and adapt quickly enough to the disruptive technology were left in the dust. Sometimes an organization faces accelerated change in attempting to change its overall mission and refocus its vision. During the Great Recession, a number of organizations determined the best way to survive was to rebrand or reorganize their business strategy as a whole. Changing a company’s brand or overarching strategy (i.e., from high-cost to low-cost, or vice versa) is a massive overhaul that will undoubtedly upset people internally and externally. Responsible change is a complex process. Organizational Change and Employees Major changes to an organization will force employees to adapt if they want to keep their jobs, even if they don’t approve of the change. The likely result is tension between what the employees want and what is occurring in the organization. Change management helps employees adapt to accelerated organizational change by using...
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