Growth of the Firm

16 December 2013
14:56

What explains the growth of the firm?

Prior to 1800s: small, family run businesses, providing for one household. Excess supply was sold at
regional markets.
End of The Second Industrial Revolution: large corporations, run by managers, large volume of
product
Technological developments & improved transport Links
Transaction Costs
Business History
Chandler (1977): technological change and access to wider markets which enabled and encouraged
firms to increase in size.
'Modern business enterprises first appeared, grew and continued to flourish in those sectors
and industries characterised by new and advancing technology and expanding markets'
Three pronged investment strategy: production, distribution and marketing, managers.
Example: Petroleum Industry
Technological advances increased normal output from 900 barrels a week (early 1860s) to 500
barrels a day (1870).
Example: Kerosene
A quarter of the world's kerosene in three refineries
(NB this only works for certain products. Huge diseconomies of scale if this were done with
consumer products.)
Increasing volume meant firms wanted to sell their products in new markets and in far away
locations. This was possible due to new transport technology (the railway was 'fast, regular,
dependable, all weather transportation'.)
Example: Steels/metals
Higher start up costs due to new technology (average blast furnace costs quadrupled). So firm had to
product a much larger output and grow much larger in order to justify the higher start up costs.
Transaction Costs
Coase (1937): there are a number of transaction costs to using the market
e.g. search, information costs, bargaining costs, keeping trade secrets, policing and enforcement
costs.
Firms will arise when they can arrange to produce what they need internally and somehow avoid
these costs.
Example: Railways
Grossman and Evans (1983)
'By interconnecting with each other and enabling produce and passengers to transfer easily
between railroads, these companies were able to increase revenues and profits.'
Railways went from small sections of track controlled by small units to large federations.
Transferring between the sections presented a transaction cost, so firms grouped together.

Hicks (1935)
'The most obvious sort of friction and undoubtedly one of the most important is the cost of
transferring assets from one form to another.'
Continuous/mass production meant volume of transaction costs increased drastically, so 'friction'
increased as well.
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increased as well.
'Chain reaction'
Initial growth in a few firms meant small businesses were under threat.
Larger firms had lower unity costs, and were able to integrate forwards and backwards.
Example: Sewing Machine Industry
Williamson (1985):
'Only three [firms] attempted to integrate forward, however, an only they remained major
factors in the industry.'
Example: Aluminium
Alco backwards vertical integration: acquisition of bauxite deposits and hydroelectric sites.
Vertical integration meant that small manufacturers and traditional family run businesses saw
demand for their goods falling, and a more restricted supplier network.
How big were these firms?
Chandler (1990):
'British entrepreneurs failed to grasp the opportunities the new technologies had opened up,
precisely because they failed to make the necessary three-pronged investment in production,
marketing and management.'
Lack of access to financial capital? Or entrepreneurial failure?
Most inventors' workshops were financed by private investors, not financial institutions.
Edison was backed by Drexel, Morgan & Co. British inventors didn't have access to the same financial
backing.

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Growth of the Firm (2)

16 January 2014
10:57

Neo-classical theory: black box model where internal processes are not considered but an entity that
maximises profit/market share based on information of the competitive market.
Principal-agent: friction exists between firm members due to asymmetric information between the
parties
Transaction cost: firm exists to minimise the costs associated with market transactions internalisation of these costs require firm growth
Evolutionary theory: the business firm and its managers are not merely reacting to broader
technological and market forces; rather they are shaping technological development and markets
outcomes using their own capabilities
Reasons for the growth of firms and managerial capitalism from 1850:
Rail and shipping developments
Wider choice of products (due to transport) prompted advertising and marketing, which
favours larger companies
Standardisation of parts and continuous process => mass production
Lower transaction costs (Coase)
Diversification to spread risk, esp. in the uncertain war period
Coase: asymmetric information as well as search, negotiation and monitoring costs, led to the
growth of firms to internalise these costs. Also in a long term contract, where the buyer decided the
direction of resources, a firm is made
Williamson: 'bounded rationality' where actors rationally consider costs and benefits of the
transaction with the information they are given, which is usually not complete; asset specificityassets are locked into a specific task.
Chandler: firms have corporate capabilities that allow them to do certain functions better than other
firms can. 'Three pronged investment' in order to achieve cost benefits, a firm must invest in a
marketing and distribution network, large production facilities and management to administer
facilities and personnel, monitor the two functions and plan allocation of resources
First entrepreneurs gain competitive advantage and oligopoly status by competing for market
share/profits through strategy, function and operation
Multidepartmental structure due to vertical integration, and multidivisional structure with a
general office to administer diversified division
Firms with multiple units could use legal policy enforcement to ensure common buying, pricing
etc., but would lose coordination and productivity gains from management administration
Growth achieved geographically, functionally, through scale and scope; led to the development of
legal and organisation systems of the firm
The First Industrial Revolution
1760-1830 - UK, US, France, Germany
Mechanisation of textiles
The Second Industrial Revolution
1840-1930- US, UK, Germany, Japan
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1840-1930- US, UK, Germany, Japan

Fordism, Assembly Line
The Third Industrial Revolution
1960-Present- US, Europe, Japan
Manufacturing => digital, costs of producing small batch of wide variety down, mass customisation
Growth in the US - competitive managerial capitalism
Growth in the UK - personal capitalism, British bias for small scale management
Growth in Germany - cooperative managerial capitalism, much like the US, but companies would
negotiate with each other

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Capitalism, Corporate Governance and Executive Compensation

13 January 2014
10:40

What is corporate governance?

The control mechanisms to prevent self interested managers from taking actions detrimental to
shareholders and stakeholders
How and why do systems of corporate governance differ across the globe?
UK & US: Single tiered Board of Directors. Emphasizes interests of shareholders.
Large number of small owners
=> Separation of ownership and control (Berle and Means)
=> No incentive to monitor management (it's a public good - free riders). Hart (1995)
Germany & Japan: Two tiered Board of Directors
- Executive Board, made up of company executives, runs day to day operations
- Supervisory board (non-executives) represent shareholders and employees, and fire/hire
members of the executive board
Families owned large proportions of the companies
Banks sat on boards
UK and America combat monopolies, promote competition
Germany and Japan don't promote competition, allow higher concentration
What explains the recent rise in executive compensation?
Justified?
Murphy and Zaboknik (2007):
Increase in pay reflects 'a shift in the relative importance of general and specific 'managerial
capital''.
Increase in CEO hires from outside the firm
Average experience of CEOs at point of hiring has increased
Example: Yahoo hired ex-Google executive with decades of experience
Increase in skills required for work reduces potential supply and increases wages.
Increased revenues raised by skilled executives justifies higher wages.
Globalisation: potential revenues for single company are much higher. (Winner take all market Robert H Frank)
But are the CEOs of today so much better than those of only a few decades ago?
Increased use of stock options
Base salary and bonus as a percentage of CEO pay halved in the past 20 years. Increased use of
options.
Murphy (2002): stocks options have low perceived cost
'From the perspective of many boards and practitioners, however, the cost of granting stock
options is perceived to be far below their true economic cost. Options are perceived as
inexpensive because they can be granted without a cash outlay.'
Did not incur an accounting cost until 2005.
Example: incorporating options into Microsoft's 2002 accounts would have reduced EPS rom 1.32 to
0.91
Do not properly align interests of executives and stakeholders - short term profits and stock price
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Do not properly align interests of executives and stakeholders - short term profits and stock price
are the only focus.
Managerial Influence
Bebchuk and Fried (2004):
'CEOs and their management teams have considerable influence over boards. Directors have
both financial and non-financial incentives to favour executives The cost to directors of pay
arrangements that hurt shareholders is low, and directors therefore have little economic
inventive to resist a CEO's compensation demands.'
Managers can influence/punish the board.
Interlocking boards
When boards decide on a CEO to hire, they will do whatever they can to get them. (i.e. pay them
excessively high wages)
Cultural differences
Bebchuk and Fried (2004):
'When potential outrage costs are large enough, they will deter the adoption of some
arrangements that managers would otherwise favour.'
Cultural changes in the 80s (Reagan and Thatcher - creation of corporations and modern managers)
meant that managers were more likely to seek higher compensation. Public were less outraged.
Recently, outrage is back up, and some executives (Example: CEO of Morgan Stanley) are rejecting
bonuses on the back of poor firm performance.

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Corporate Governance (2)

16 January 2014
10:57

Corporate governance- the rules and regulation through which we try to balance the usually
conflicting interests of the stakeholders in a company - agency problem
Corporate governance needed to correct agency problems when contracts are incomplete (usually
due to high costs when planning and writing up a contract)/
Governance structure - decides who has residual rights of control over nonhuman assets (e.g. sole
ownership, joint ownership, partnership) - used to make decisions that have not been detailed in the
initial contract when the opportunity arises
German model
Weak shareholder rights, stronger creditor rights
Governance by permanent large shareholders and banks
Hostile takeovers rare
Anglo-American model
Widespread ownership (leads to separation of ownership and control and little incentive for
an individual shareholder to monitor performance) - danger that managers pursue their own
interests
High legal protection of investors that protect minority rights
Weak relations with banks and other investors
Japanese model
Medium shareholder and creditor rights
Traditionally had cartels, but now there is a mix of large and small investors
Hostile takeovers rare
Some methods of solving the agency problem (with regard to managerial opportunism)
Setting up a board of directors made up of executive and non executive members
Proxy fight - shareholders may vote to replace some of management's candidate on the board
of directors with their own candidates
Having a large shareholder to make proxy fights more effective and performance monitoring
more likely
Hostile takeover by a raider who places greater value on the company, with the intention of
replacing the management
Company's choice of debt, which could restrict management inefficiency
Credible threat (E.g. dismissal if income is too low)
Share ownership or stock options

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Competitive Strategy
13 January 2014
13:07

Strategy:
- The determination of the basic long-term goals and objectives of an enterprise
- And the adoption of courses of action
- And the allocation of resources necessary for carrying out these goals
(Chandler - Strategy and Structure)
Corporate Strategy: What industry/areas are we in?
Competitive Strategy: How do I compete in this market
Functional Strategy: Sales, Marketing, Operations
Porter's Five Forces
1. Rivalry
a. Competition
b. Life Cycle
c. Exit Barriers
d. Fixed Costs
2. Customers
a. Concentration
b. Sophistication
c. Switching Costs
d. Economies from Integration
3. Suppliers
a. Concentration
b. Sophistication
c. Switching Costs
d. Economies from Integration
4. New Entrants
a. Scale Economies
b. Patents/Brands
c. Tariffs/Government
5. Substitutes
a. Price/Performance
b. Switching Costs
c. Make or Buy?
Profits go hand in hand with market share - Monopoly power.
Strategy:
Focus on industries where the Five Forces are favourable
Change the Five Forces by: consolidating competition, investing in entry barriers, differentiating your
products
Core Competence
Prahalad and Hamel - Core Competence of the Corporation
A core competence is:
- A bundle of skills and technologies
- Of fundamental customer benefit
- Competitively unique
- A gateway to new markets
Shift from a battle of market position towards a mastery of skills and capabilities
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Shift from a battle of market position towards a mastery of skills and capabilities
What are you best at?
Is it valued by customers? - Will they pay you more than it costs
Is it superior? - Do you command a premium over competitors
Is it imitable? - Something your competitors cannot copy
Is it substitutable? - So that your competitors cannot trump you
Is it durable? - Are you managing and investing in it
Is it core? - Is it at the heart of nearly everything you do
Porters Generic Strategies
Cost leadership vs Differentiation
Don't get stuck in the middle.

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Competitive Strategy (2)

16 January 2014
10:58

Strategy is the determination of the basic long term goals and objectives of an enterprise and the
adoption of courses of action and the allocation of resources necessary for carrying out these goals.
(Chandler)
Competitive strategy is concerned with how the firm can build market power over its rivals in the
industry/sector
Porters Five Force which determine industry profitability: rivalry, customers, substitutes, suppliers,
new entrants
Core value adding competences which are desired by the customer and difficult to imitate can
inform the decision of the firm on which operational activities it should focus on and which it should
outsource

At the level of the business unit, the primary strategic choices are cost leadership and product
differentiation (Porter)
Kay (1993) - Foundations of Corporate Success: How Business Strategies Add Value

To be a source of competitive advantage, distinctive capabilities must be: unique, sustainable,

appropriable (adds value for the business)
A capability becomes a competitive strategy when it is applied to a particular industry and brought
to a particular market
The value of competitive advantage is determined by: strength of the capability, size of the market
and industry profitability
Examples of distinctive capabilities: innovations that are either legally protected or difficult to copy,
company 'architecture' (internal and external networks such as strong supplies relationships) which
creates flexibility, a sustainable corporate reputation that resonates with customers
Examples of competitive strategy: using skilled labour to be an industry leader on quality, targeting a
niche, underserved market segment, low margins with high volume, entering high growth markers,
horizontal mergers to achieve economies of scale, outsourcing non-core functions, building a
powerful brand identity
Porter (1979) - How Competitive Forces Shape Strategy
The corporate strategist must consider the five forces to identify where repositioning will yield the
highest payoff and to anticipate future opportunities and threats such as: progression in product life
cycle, expiration of patents, new technology introducing high capital costs
In addition the company should decide on which industries to enter by considering where the five
forces are favourable
Rather than passively accepting its environment the firm may be able to actively shape the five
forces, for example: merging with competitors to increase market concentration, investing in
expensive capital equipment to raise entry barriers, differentiating seemingly homogeneous
products through branding
Sources of entry barriers: economies of scale, product differentiation and brand loyalty, capital
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Sources of entry barriers: economies of scale, product differentiation and brand loyalty, capital
requirements particularly sunk costs, cost advantages (such as learning curves, exclusive technology,
government subsidy, favourable location), access to distribution networks, government regulation
such as licensing
Substitute products merit particular attention if there is a trend of the price/performance trade off
improving relative to the focal industry or if the substitute industry is currently making high profits
(since a change in the market structure could lead to dramatic price cuts)
A powerful supplier group is often: dominated by a few companies, product is differentiated, high
switching costs, credible threat of forward integration, product being supplied constitutes a small
proportion of sales
A powerful buyer group often features: sales concentrated among a few high volume buyers,
standardised product, threat of backward integration, product represents a large proportion of the
buyers' costs, high switching costs, product does not impact on the quality of the buyer's goods
Rivalry is likely to be most intense when: there are many similar competitors, slow industry growth
creates zero sum arm wrestling, lack of product differentiation, high exit barriers
Prahalad and Hamel
In the long run, competitiveness derives from an ability to build, at lower costs and more speedily
than competitors, the core competences that spawn unanticipated products
Decentralisation of control can lead to unconnected business units and prevent the development of
company wide competences which give the business the flexibility to capitalise on rapidly changing
opportunities
Core competences are the collective learning the organisation, especially how to coordinate diverse
production skills and integrate multiple streams of technologies

Decisions to diversify should not be solely determined by industry structure analysis, but the new
product should also be a good fit either to existing competences or to the competences which the
company wants to cultivate for the future
Three features of core competences: they provide access to a wide variety of markets (for example,
a competence in display systems offers possibilities in calculators, smartphones, televisions, vehicle
dashboards and computer monitors), they make a significant contribution to value perceived by the
end user, they are difficult for competitors to imitate (often achieved through bundling skills)
Companies should seek to maximise their world manufacturing share of core products to maintain
leadership in their competence and shape the evolution of applications and end markets
The damaging results of a blinkered strategic business unit mentality include: underinvestment in
core competences and products, imprisoned resources (particularly immobility of human capital
over organisational boundaries) and bounded innovation (restricted to existing markets)
Recommendations: carry out an audit of the number and quality of those embodying the core
competences in the corporation, make unit managers justify their control over human resources as
well as company finance, develop a culture of job rotation and collaboration across boundaries

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Hendry (1990) - The Problem with Porter's Generic Strategies

14 January 2014
11:22

Sever limitations to Porter's generic strategy model.

Means by which firms may attain profits above the industry average in the long run.
Two basic types of competitive advantage: low cost and differentiation.
Cost leadership: lower than average costs, but commanding about average price, will earn above
average profits.
(Arguably need to be the lowest cost producer in the industry)
Differentiation: uniqueness in some dimension important to buyers across the industry and
recognised as such. Allows a firm to charge an above average price for its product, and provided that
it can produce at average/near average costs, to earn an above average profit.

Focus: rest on the choice of a particular target market segment with unusual or distinctive needs.
Focuses on one of the two generic strategies for that smaller market segment,
Porter claims a firm must focus on one of the generic strategies and avoid being stuck in the middle.

'Being all things to all people is a recipe for strategic mediocrity, and below average performance,
because it often means that a firm has no competitive advantage at all' (Porter, 1985)
Since each of the difference strategies requires a different mix of skills, resources and organisational
structure. Any compromise will lead to organisational inefficiencies.
Why can't a firm differentiate on one product line and go for cost leadership on another?
Porter argues this can only work if the products are located in separate business units, with a danger
that culture from one side will spill over into the other an compromise strategy.
Exception to the rule: new innovation which enhances differentiation and reduces cost.
Counterpoint: what if market share is driven by differentiation rather than cost. So a successful
differentiator gains enough market share to establish itself as a cost leader as well.
Japanese car and electronics: quality and cost go together.
Experience curves means brand differentiator can achieve lower costs as well.

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Strategy Process
13 January 2014
16:12

Learning to Plan and Planning to Learn (Brews and Hunt (1999))

Ansoff: Formal planning is beneficial in both stable and unstable environments
Mintzberg: Logical incrementalism, especially in unstable environments
Ends: major, higher level purposes, mission, goals or objectives set by organisations, each of which
significantly influences the overall direction and viability of the firm concerned.
Means: the patterns of action which marshal/allocate organizational resources into postures that,
once implemented, increase the probability of attaining organizational ends.
Synoptic Model
Planning is a deliberate, rational, linear process, where ends are specified first, followed by means.
Deliberate means emerge from the strategy formation process fully specified, ripe for
implementation through detailed attention to objectives, programs and operational plans of ever
increasing specificity.

Synoptic Formalism is considered best suited to predictable, stable contexts, where uncertainty is
low, as fully specified plan emerging from synoptic processes promote conception and thinking,
rather than learning.
Incremental Model
Strategy formation according is an adaptive, incremental, complex learning process, where ends and
means are either specified simultaneously or are intertwined.
Ends are rarely announced or recorded in a formal planning document, and when they are
announced, they remain broad, general and non-quantified.
Means, rather than emerging from the planning process fully formed and ripe for implementation,
develop and evolve over time as organisations learn from environmental interaction.
Recommended for unstable, complex, dynamic contexts with high uncertainty.
Study concludes that environment does not moderate the type of planning firms pursue.
In stable environments, planning might not be needed until the environment changes.

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Strategy Process (2)

16 January 2014
10:59

Strategy process
Chandler: Structure follows strategy, for example the strategic goal of diversification led to the
development of the multidivisional firm in the earl 20th century
Planning/deliberate strategy linear path: define objectives, select among alternative courses of
action, allocate resources accordingly, implement the plan (anticipating responses to various
contingencies)
Emergent/learning strategy: good internal and external communication structures provide up to
date information to top management, organisation can re-allocate resources at short notice,
strategic approach is adapted as more is learnt about the situation through experimentation
Evaluation of strategy: suitability (is it a good fit to the company's mission statement and
capabilities?), feasibility (are there resources available to implement the strategy), acceptability
(how will stakeholder groups, such as investors, employees and customers, respond)
Whittington's typology of strategy:
Classical (profit maximising, deliberate) - rational analysis by senior managers
Evolutionary (profit maximising, emergent) - competitive pressures mean that the firm must
adapt or die
Processual (pluralistic, emergent) - strategy is fragmented and emerges from disputes
between political factions in the firm
Systemic (pluralistic, deliberate) - strategy influenced by social systems such as: gender, class,
legal framework, education system, national culture
Kay (1993) - Foundations
A useful strategic exercise is to ask managers how they would respond to various shocks such as a
sharp fall in sales to assess the resilience of the company
Portfolio planning matrix: the dog (low growth x low market share), the cash cow (low growth x high
market share), the question mark (high growth x low market share), the star (high growth x high
market share)
It may be easier to devise a corporate strategy that suits existing organisational structures than to
build the new structures necessary to implement a chosen strategy
SWOT analysis (strengths, weaknesses, opportunities, threats) encourages firms to consider both
internal capabilities and the external environment
Diversification where no synergies exist does not add value because investors can replicate this
position themselves with a diversified portfolio and shareholders may also be concerned the
company is buffering poorly performing business with cash from strong performers
Firms should be seen as shifting coalitions, in which conflicting demands and objectives are
constantly but imperfectly reconciled, and all change is necessarily incremental
Copycat strategies fail because the firm cannot easily identify what it is trying to copy or because
incremental improvements always leave it one step behind
Wernergelt & Karnai (1988) - Competitive strategy under uncertainty
When faced with an uncertain future, the firm has three options: focus early on backing a particular
outcome (high payoff for success but equally high risk), invest in a range of outcomes now, wait until
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outcome (high payoff for success but equally high risk), invest in a range of outcomes now, wait until
the uncertainty is involved before investing
Major sources of uncertainty: future levels of demand (particularly in the early stages of the product
life cycle prior to the emergence of the dominant design), methods of supply (such as new
production technologies), state of competition (for example the possibility of new entrants),
government regulation
It is more advantageous to act early when there are significant first mover advantages such as:
learning curve effects, customer loyalty, patent protection, control of key supply or distribution
relationships
Firms with complementary assets may be able to wait for the resolution of uncertainty before
investing and then overtake market leaders
Joint ventures or alternative modes of cooperation with other firms in the industry can yield gains in
risk sharing and economies of scale, reducing the trade-offs associated with uncertainty
Mintzberg et al. (1996) - The Honda Effect
Past accounts of Honda's penetration of the US motorcycle market attribute deliberate strategy to
its actions including: the use of high volume production in the Japanese market to mount a low cost
challenge on the rest of the world, re-defining the target market through the nicest people
campaign, aiming for high quality
According to the executives responsible, the strategy was far more emergent: government officials
were highly sceptical of the proposals and would only provide an $11000 cash allocation, the
company only stated selling smaller bikes when the US public expressed an interest after seeing
employees riding them, the marketing campaign was dreamt up by a student unaffiliated to Honda
We tend to impute coherence and purposive rationality to events when the opposite may be closer
to the truth

Corporate direction evolves from an incremental adjustment to unfolding events, top management
must have the humility to accommodate changes to their initial strategic positions based on input
from, for example, salesman, dealers and production workers

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Scientific Management
16 January 2014
11:01

Taylor (1911)
The system comes first. Key efficiency lies in systematic managements and not in searching for the
'perfect man'
Maximum prosperity achieved through workers' highest possible degree of efficiency - smallest
combined expenditure of effort resources and capital cost. Worker-employer desires are actually in
line. Labour and capital productivity must be at their highest possible
Focus on scientific management
Must give workers incentive above average of industry i.e. promotion
Careful selection of the workman, equal division of work between managers and workers. Managers
plan + coordinate work, working periods + detailed scientific analysis of the best working methods.
Create laws, rules, formulae to replace judgement of 'stupid' worker. Increase intimacy and workers
now only focus on manual work, specialise, no need to worry about planning
Worker given tasks: what to do, how to do it, using what, how long etc. very detailed.

Emphasis on carefully training and developing each worker in the establishment, guiding them to
their highest state of efficiency
Aim to avoid systematic soldiering: workers deliberately working less hard because they will be
abused by colleagues who also want to do less work. Caused by the belief that increase in
productivity leads to lower employment
Ford
Cheap, affordable car
Wanted workers to be able to buy the cars they were making, so money would go back into the
company.
Jobs were separated - individuals had their own roles within the production process.
Constant pace of production => Even the most efficient workers were limited by the rate at which
the parts were moving. (Contrast Taylorism)
Faulty goods were hard to pick out and fix.
Difficult to change production techniques (whole plant has to be changed)
High turnover rates - individual performance not accounted for. Workers' tasks were boring and
repetitive.
Maslow's Hierarchy

McGregor - Theory X, Theory Y

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Organisations
14 January 2014
11:41

Morgan's Images
Machines
Bureaucracy, precision, speed, clarity, regularity, reliability, efficiency
Fixed division of tasks, hierarchy, supervision, detailed rules and regulations.
Organisms
Seeking to adapt and survive in a changing environment
Clusters of interconnected human, business and technical needs.
Different environments favour different species of organisations based on different methods of
organising.
Organisational life cycles => see porter.

Mazlow's hierarchy of needs: from basic to complex. Organisations as more than just machines.
McGregor: Theory X vs Theory Y
Organisations must always pay close attention to their external environments
Survival and evolution are central concerns
Congruence with the environment becomes a key managerial task
Environments are far less concrete than the metaphor presumes
Brains
Learning abilities and processes that stunt or enhance organisational intelligence
Intelligence is distributed throughout an enterprise
As we move into a knowledge based economy, where information, knowledge and learning are key
resources, brain becomes a more relevant metaphor.
Learning to plan vs planning to learn
Cultures
Mini-societies with their own distinctive values, rituals, ideologies and beliefs
'Pattern of development reflected in a society's system of knowledge, ideology, values, laws and
day-to-day rituals.'
Reflecting the culture which the company is embedded in

Instruments of Domination

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Managers & Science

16 January 2014
11:00

Grint (1995) - Management: A sociological introduction

What are managers?
Managers are those who are paid to manage, are in charge of resources, and act as economic agents
for the owners
Management is:
The superordinate position within an employment hierarchy. Those groups that dominate
employment organisations are managers.
Hales (1986) - management's task is to lead, liaise, monitor, allocate resources, maintain production,
maintain peace, innovate, plan and control. However, all these could be applied to parents, and
management actions are not that different from those undertaken by anyone else.
What separates managers I the context in which they do tasks/actions and therefore their position
differentiates them
What do managers do?
Tasks carried out by management are relatively unstandardized, changeable, involve developing
routines and restructuring, and rarely lead to overt outcomes that can be associated with individual
inputs.
Management is like firefighting: rush from emergency to emergency, solving short term problems,
whilst keeping production and the system going
Handy (1985) - general medical practice, with the GP the first port of call for all problems and spends
little time on dealing with one particular case/issue
Fayol (1916) - functions of management: forecasting, planning, organising, commanding,
coordinating, controlling
Hales (1986) - What do managers do?
a. Act as a figurehead/leader or an organisational unit
b. Liaison: the formation and maintenance of contacts
c. Monitoring, filtering and disseminating information
d. Allocating resources
e. Handling disturbances and maintaining work flows
f. Negotiating
g. Innovating
h. Planning
i. Controlling and directing subordinates
Mintzberg (1990) - The Manager's Job: Folklore and Fact
Myth 1: The manager is a reflective, systematic planner
Manager's tasks last a very short time
They respond to issues and needs of the moment
Seeking a constant flow of information

Myth 2: The effective manager has no regular duties to perform

Good manager will carefully orchestrate in advance, allowing him to sit back and enjoy the fruits of
his labour, responding only occasionally to unforeseeable exception
Managers will engage in routine activities
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Managers will engage in routine activities

See important customers if they want to keep them
Ceremonial duties are important
Soft external information and pass it along to subordinates
Myth 3: Manager needs more aggregated information, which a formal management information
system best provides
Managers favour verbal media, and rarely look at mail or periodicals
They like soft information (gossip, speculation) due to its timeliness
Reluctant to delegate as it requires dumping all their knowledge, which will take longer in total
Myth 4: Management is/is becoming a science and a profession
A science involves the enaction of systematic, analytically determined procedures or programs
However, we don't know what procedures managers use, and we don't know what managers have
to learn, so it can't be a profession as it should involve knowledge of some department of learning or
science
Work is characterised by 'brevity, fragmentation and verbal communication', meaning there can be
no successful scientific attempt to improve it.
Science and Management
Popper (1934) - falsification. A number of positive outcomes do not prove a theory correct, as a
single false outcome proves it wrong. If the subject concerned cannot be subjected to falsification, it
is not a science in Popper's view.

Kuhn (1970) - paradigms. Sets of ideas credible enough for the community to accept, and science
evolves from conflict occurring as a result of new ideas/discoveries which undermine the dominant
hypothesis.
Pre-science: central paradigm is lacking
Normal science: Scientists enlarge the central paradigm. Failure to conform is seen as a mistake of
the researcher, rather than contradicting or refuting the paradigm.
Revolutionary Science: One paradigm is rejected in favour of another

Management Page 19

Professionals
14 January 2014
12:23

Characteristics of Professionals:
- Higher mission
- Code of ethics
- Self regulation
- Social prestige
- State certification
- Specialised education
- Specialised publications
- Defined body of knowledge
Role of consultancy firms:
- Knowledge carrier
- Legitimacy provider
- Signalling
- Embeddedness
Fayol's Role of Managers:
- Forecasting
- Planning
- Organising
- Commanding
- Coordinating
- Controlling

Management Page 20

Professionals (2)
16 January 2014
10:59

McKenna (2006) - The World's Newest Profession

Consultants at Lukens Steel - steel manufacturing firm whose basic product, location and means of
production never changed
Consultants allowed the firm to level the playing field of knowledge. Firm was bound by its
traditional, centralised management structure, and limited in dealing to long established customers,
and used consultants (translators or transmitters of managerial ideas developed in other
organisational settings) to supplement knowledge accessible to it. Consultants introduced stream of
incremental changes so that dramatic managerial revolutions weren't necessary
Attempts to introduce scientific management from outside firms fail, until productivity bonuses
were introduced

1920s: consultants focussed on controlling white collar bureaucracy rather than the line workers.
Offered business surveys to help with cost accounting and offered executive level advice on
administration and organisation
Reorganised management structures and advised on mergers, looking at benefits to the merger of
Republic Steel with Corrigan-McKinney, concluding that there were advantages in complementary
strengths and potential savings.
Management Engineering Firms that used detailed general surveys to identify and solve
organisational problems. 2 main helps to consulting firms were it would uncover lots of problems
that were not immediately evident, and since it required assistance from top executives, consultants
would gain instant recognition, access and respect from clients.
Reorganisation of structure at Lukens turned their thin managerial layer into an organisation of
divisional managers led by senior executives focused on strategic concerns. Move away from
centralised structure, making it more modern - it was consultants that would disseminate this
multidivisional form among American firms, not create it.
After 1950s, consultants offered increasingly specialised studies to their clients. Frequent use of
consultants for smaller surveys made their presence less ad hoc and more part of the corporate
routine.
Many executives would call in consultants to advise them on adopting and using multi-million dollar
IT systems
Strategy consulting grew - rethinking corporate strategy rather than structure. Consultants
recommended divesting divisions that were dogs, and buying stars.
Allow outside information and new ideas - helping companies be competitive. Economies of
knowledge - cheaper
No competitive advantage if everyone uses them. Competitive disadvantage to not using them?

Bloomfield & Danieli (1995)

Role of consultants: making themselves invaluable to clients and maintaining that identity for the
lifespan of the consultancy
Suddaby & Greenwood (2008)
Management Page 21

Suddaby & Greenwood (2008)

Professional service firms are unique. Differ from traditional firms in organisational and managerial
arrangements: performance relies heavily on the reputation and status of the workforce, utilise
employment practices and leadership behaviours, . Expected to balance commercial success with
professional integrity, and subject to scrutiny from external professional bodies. Governed by
partnerships, which increases risk of litigation.
PSFs have grown in size, and are important in mediating and brokering most forms of commercial
transaction.
Recruitment and retention issues are complicated by compensation packages that are already
extremely high, a workforce that is already highly intrinsically motivated and an increasingly global
market for highly talented labour.
Issues in traditional public ownership governance structures due to traditional moral obligations of
the firms and bureaucratic control is difficult due to employees being highly skilled and therefore
able to find work easily, rather than take a reduction in autonomy over their work
Management consultants differ since they lack the corpus of abstract knowledge that differentiates
and defines a profession (Sharma, 1997)
Wilensky (1964)
Technical model of professionalism involves finding a technical basis for the occupation, asserting an
exclusive jurisdiction, link both skill and jurisdiction to standards of trainign and convince the public
that its services are uniquely trustworthy.
The job of a professional must be technical - based on systematic knowledge or doctrine acquired
through training
The professional must adhere to a set of professional norms (high quality work, service ideal, client
and social interest combine with personal or commercial profit)
Science has no clients except society. Professionals main public is clients, who usually cannot judge
competence.
5 steps to becoming a profession:
1. Make it full time (create an occupation)
2. Establish a training school
3. Professional association formed
4. Political agitation in order to win the support of the law. Legal protection of the title e.g.
chartered accountant
5. Formal code of ethics produced

Management Page 22

Jackson (1996) - Re-engineering the sense of self: the manager and

the management guru
15 January 2014
12:03

Managers need to find quick and simple solutions to their organisations complex problems and the
guru's adeptness with marketing technology to promote these solutions.
Manager's need to make sense of themselves
Gurus appeal to the manager's social or externally directed esteem by legitimating and celebrating
the manager's role
Huczynski (1993) - gurus recognise, understand and cater to their needs and preoccupations. Helping
the managers to make sense of their environment
Gurus reduce the feeling of insecurity
Represents a response to widespread self doubt among executives
Pursue new fads because they are not certain that they would not work

Management Page 23

Fincham, Clark, Handley & Sturdy

15 January 2014
12:19

Sector knowledge - consultants accumulate which derives from repeated assignments in the
industrial sector in which the client organisation resides.
Even 'weak' knowledge may contain structures that are the basis of longer term appeal to clients.
Consultants need clients just as much as the other way around.
=> specialist knowledge transfer.

Management Page 24