Basic Management

Chapter 1: Lesson

Management in Organizations: Top, Middle & Low-Level

Managers
The role of a manager in organizations is complex. While managers can come in different shapes and sizes
they all share the task of utilizing people and resources to achieve organizational goals. This lesson will
discuss the roles and functions of management found in each of the three levels of management.

Managers in the Workforce

In today's fast-paced, competitive world, businesses are continually changing. Most of these organizations
are on the hunt for the competitive advantage, or a way to strategically move ahead of the competition in the
marketplace. However, earning the competitive advantage takes work; goals must be set, plans must be
made, people must be motivated and mobilized, resources have to be gathered and distributed, and
objectives have to be monitored and assessed.
Enter managers. These men and women come in many forms, but they all share the common task of
working with people and resources to achieve organizational goals. An organizational goal can be
something as simple as finding a way to shorten the amount of time it takes for a product to leave a
warehouse or as elaborate as introducing a new product to the marketplace that makes all previous versions
of this type of product obsolete. Regardless of the goal, someone needs to manage all of the factors
necessary to seeing that goal become a reality.
Think of a manager as the foundation, support beams, and roof of a house. He or she provides the necessary
support from the bottom up, and also provides oversight to all of the parts in between.
While this may seem like a great deal of responsibility and accountability for just one person to have, much
like an onion, there are several layers of management. The roles and responsibilities a particular manager
has correlates to their position in the organization. While job titles and roles can vary from organization to
organization, they typically fall into one of three levels of management.

Top-Level Managers
The first level of management is called top-level management. Top management is made up of senior-level
executives of an organization, or those positions that hold the most responsibility. Jobs titles such as Chief
Operating Officer (COO), Chief Executive Officer (CEO), Chief Financial Officer (CFO), President, or Vice
President are commonly used by top managers in organizations. These top managers are responsible for
setting the overall direction of a company and making sure that major organizational objectives are
achieved. Their leadership role can extend over the entire organization or for specific divisions such as
finance, marketing, human resources, or operations.

Middle-Level Management
The second layer of management is called middle-level management. This level of managers report to top
management and serve as the head of major departments and their specialized units. Middle managers serve
as a liaison between top managers and the rest of the organization from a very unique standpoint. They are
typically much more visible to the greater workforce than top management, but they spend most of their
time developing and implementing strategic actions plans needed to achieve the organizational goals set by
top management.
Middle managers essentially have the important role of designing, selecting, and carrying out the best plan
possible as a means of propelling a company towards its overall goals. Job titles of middle managers include
directors, assistant directors, regional directors, division mangers, deans, branch managers, site managers,
and so on.

Low-Level Management
The third and final layer of management is called low-level management. Low-level managers work most
closely with the greater workforce and hold a much more interpersonal role than any of the other levels of
management. These managers work to ensure that individual employees are meeting their performance
goals in a way that aligns with the organizational goals, such as completing a set number of projects by a
specific deadline or selling a set number of products within a certain period of time. Titles of low-level
managers can also vary significantly from company to company, but typically they resemble the department
that they are situated in, such as accounting manager, academic affairs manager, human resources manager,
head of financial operations, sales leader, and so on.

Lesson Summary
Let's review.
Management is the use of people and resources to accomplish organizational objectives. Managers can
come in many forms and serve a variety of functions. The roles and responsibilities of what a manager does
can differ from organization to organization, but they are typically categorized into three levels: top-level
management, middle-level management, and lower-level management.
Top-level management are your executives such as a CEO, CFO, President and Vice President. These top
managers are responsible for setting the overall direction of a company and making sure that major
organizational objectives are achieved.
Middle-level managers are the head of major departments and their specialized units; they hold titles such
as director, assistant director, regional director, division manger, dean, branch manager, and site manager.
They spend most of their time developing and implementing strategic action plans needed to achieve the
organizational goals set by top management.
Low-level managers work most closely with the greater workforce to ensure that individual employees are
meeting their performance goals in a way that aligns with the organizational goals.

Chapter 1: Lesson 2

Managerial Skills: How Good Managers Promote Productivity

This lesson will discuss the types of skills a manager needs, including technical, human, and conceptual
skills. You'll learn how each of these skill sets impacts a manager's ability to effectively lead his or her
employees.

Managerial Skill Sets

Much like a professional basketball player needs to know how to dribble and shoot a basketball, or how a
home builder understands the process of framing a house, managers also need to have a specific set of skills
in order to effectively perform their jobs. Managerial skills are what the manager uses to assist the
organization in accomplishing its goals. Specifically, a manager will make use of his or her own abilities,
knowledge base, experiences, and perspectives to increase the productivity of those with whom they
manage.
The toolbox for what a manager needs in order to perform their job effectively, typically, fall into one of
three categories: technical skills, human skills, and conceptual skills. To give you a better understanding
of these skills, let's take a look at how each of these skills are applied by Manny the Manager and his
employee Kelly the Financial Analyst.

Technical Skills
Technical skills are those skills needed to accomplish a specific task. It is the 'how to' skill set that allows a
manager to complete his or her job. These skills are the combination of formal education, training, and onthe-job experience. Most employees expect their managers to have a technical skill set above their own so
that, when needed, an employee can come to their manager to find out how to do something specific to their
individual job.
For example, let's say that part of Kelly the Financial Analyst's job is to update a balance sheet each week.
Kelly is a novice financial analyst and is new to the company, so she's expecting her manager, Manny, to
show her how to perform this task initially, so that she can, eventually, do it on her own. Therefore, it is
essential for Manny to have the technical skills of how to update a balance sheet so that he may, in turn,
share that skill with Kelly. As a low-level manager, technical skills are most important for Manny due to
how close his role is to the general workforce - in this case, Kelly.

Human Skills
The next type of skills a manager must have are human skills. These interpersonal skills are what a
manager will use to work with his or her employees. Some people are born with good human skills; others
must work much harder at it. Human skills are critical for all managers because they work with people.
Managers with good human skills understand their role inside the manager/employee relationship and how
important things, like trust, cohesion, fairness, empathy, and good will, are to the overall success of the

organization. Human skills help the manager to communicate, lead, and motivate an employee to work
towards a higher level of productivity.
For example, let's go back to Kelly and Manny. Imagine Kelly's job description was changing to include a
greater deal of responsibility but for the same pay. Kelly is upset, and feels overwhelmed by this change.
Manny is a manager with good human skills, so he is able to empathize and communicate his understanding
of Kelly's frustration with the change to her. Manny quickly works to find ways to motivate Kelly to
continue to work at a higher level, despite the additional workload being placed on her.

Conceptual Skills
Conceptual skills are the final type of skills a manager must possess inside their toolbox. The level of
analytical ability to envision both the parts and its sum directly translates into a manager's conceptual skill
set. Essentially, a manager's conceptual skills allow him or her to solve problems in a strategic and
calculated fashion. Conceptual skills are becoming increasingly more important in today's chaotic business
environment.
Managers are, continually, being challenged to think conceptually about their organizations to develop
action plans and harness resources to achieve organizational goals. A manager with good conceptual skills
can look at a problem, break it down into manageable pieces, consider a variety of possible solutions, all
before putting it back together again in a more effective and efficient manner. Conceptual skills are most
important for top managers but still important for middle and low-level managers as well.
For Manny, using his conceptual skills might involve analyzing problems specific to his employees. Take,
for example, Kelly's job changing. Before Manny can use his human skills to empathize with Kelly's
situation, he must first also gather the facts so that he can provide a good rationale and action plan to her.
This means that Manny must consider why this change is needed; who it will affect and in what manner; the
greater good that it will serve; how new performance measures will be created and assessed for the
additional responsibilities; what training will need to be provided so that Kelly can perform her new
responsibilities well; and the best way to communicate the change to Kelly. Manny's conceptual skills help
him to see all of these elements so that he can have a better understanding of the global impact it will have
on his employee.

Lesson Summary
Managerial skills are necessary for a manager to perform their job successfully. There are three different
types of managerial skills, which include technical skills, human skills, and conceptual skills.
Technical skills are the specific skill set used to perform a particular job, such as writing a computer
program, developing a budget, or analyzing sales trends. These skills are most important for low-level
managers because of how closely they work with employees performing the actual job functions. Human
skills include the ability for managers to work with, motivate, encourage, empathize, and communicate with
their employees. These skills are important for all levels of management. Conceptual skills are the
manager's ability to think analytically about the organization and how to most effectively accomplish its
goals. These skills become increasingly more important the higher the management level.

Chapter1: Lesson 3

Henry Mintzberg's Managerial Roles

There are many roles a manager has within an organization. Henry Mintzberg describes ten
specific managerial roles most commonly seen within organizations. This lesson will discuss
each of these roles and what behaviors are associated with them.

Henry Mintzberg's Managerial Roles

There are many roles a manager has within an organization. Performing these roles is the basis of a
manager's job. To be effective at these roles, a manger must be a complete businessperson by understanding
the strategic, tactical and operational responsibilities he or she holds. While not always explicitly stated in a
manager's job description, at any given moment a manager might have to be a coach, a strategic planner, a
liaison, a cheerleader, a conflict manager, a realist, a problem-solver, an organizer, an optimist, a trainer and
a decision-maker. These roles can change from day to day, but one thing is for sure: a manager must
understand all of his or her roles and how to perform them effectively. This means that a manager must have
a global understanding of all business functions, organizational goals, his or her level of accountability and
the appropriate way to serve both internal and external clients of the organization.
Henry Mintzberg spent much of his career researching the managerial roles and behaviors of several chief
executive officers, or CEOs. Mintzberg discovered that managers spent most of their time engaging in ten
specific roles. He was able to then classify these roles into three categories, including interpersonal,
informational and decisional roles. To better understand these roles, let's look at how they are applied by
Bernard the Boss as he goes through his daily routine as a manager at a local grocery store.

Henry Mintzberg researched the managerial roles of several CEOs.

Interpersonal Roles
The first category of roles described by Mintzberg is called interpersonal roles. These roles involve the
behaviors associated with human interaction. In other words, interpersonal roles are those roles that allow a
manager to interact with his or her employees for the purpose of achieving organizational goals. There are
three roles listed under interpersonal roles, which include figurehead, leader and liaison. Let's look at how
these three roles are played out by Bernard.

When Bernard arrives at the store in the morning, he holds a daily meeting for all employees who are
working that day. He spends time talking about daily specials and sales goals and motivates his employees
for the day by holding a friendly contest between the workers to try to sell as many of the sale items as
possible during their shift. He informs his employees that the highest seller will win a $50 gift certificate for

the store. As a figurehead, Bernard the Boss has certain social, ceremonial and legal responsibilities that his
employees expect him to fulfill. Bernard is seen as a source of inspiration and authority to his employees.
As Bernard goes about his day, he must make sure that he's monitoring the performance of his employees
and how well they are doing in their sales. He checks with his employees periodically to make sure they
understand the products that are on sale and what key features to point out, as well as to remind them of
their goal of winning the contest. Bernard the Boss's role as a leader requires him to direct and manage the
performance of his employees. He will spend time communicating performance goals, training and
mentoring employees, supporting employee efforts, supplying resources, evaluating employee performance
and motivating employees toward a higher level of productivity.
Bernard does not leave all the selling up to his employees, because he likes to maintain contact with his
customers to better understand their needs and how he can accommodate them. He stops and chats with
several customers throughout the day to get feedback on sale items and to learn about products that his
customers would like to see the store put on sale in the future. Acting as a liaison is Bernard the Boss's final
interpersonal role. As a liaison, Bernard communicates with internal and external members of the
organization. This networking activity is a critical step in reaching organizational goals, especially those
concerned with customers.

Informational Roles
The second category of managerial roles is informational roles. The informational roles include those roles
in which a manager must generate and share knowledge to successfully achieve organizational goals. There
are three roles listed under informational roles, which include monitor, disseminator and spokesperson.
After Bernard is comfortable with his employees' understanding of the sales products and their goals, he
heads back to his office to do some research for what he will put on sale next week. Bernard spends time
reflecting on the feedback his employees gave and the information his customers shared with him that day,
and he also looks at what his competitors are putting on sale at this time. The monitor role that Bernard the
Boss must fill involves the task of researching, locating and choosing useful information. As a monitor,
Bernard has to stay abreast to current industry standards and changes occurring in both the internal and
external business environments. This also includes monitoring the performance of employees and their level
of productivity.
Bernard combines all of the information into a proposal for next week's sale advertisement and forwards the
information to upper management for approval. He also spends some time previewing this information with
his employees so that they can begin to familiarize themselves with the items. As a disseminator, Bernard
must take the information he gathered as a monitor and forward it on to the appropriate individuals.
Now that Bernard has approval from upper management, he creates the advertisement for next week's sale
items and begins to distribute it to his customers. Acting as a spokesperson on behalf of the organization is
Bernard's final informational role. As a spokesperson, Bernard communicates information about the
organization to outside parties.

Decisional Roles
The third category of managerial roles according to Mintzberg is called decisional roles. Decisional roles
include roles such as the entrepreneur, disturbance-handler, resource-allocator and negotiator. All of these
roles involve the process of using information to make decisions.
Bernard checks in with his employees at midday and notices that some of the sale items have not done as
well as anticipated. After speaking with his employees, he learns that the items that have not been selling are
sitting next to the generic brand on the shelves. These generic brands are still less expensive than the sale
items and are causing customers to choose the less expensive version. Bernard makes the decision to move
these items to a special display area where they can sit by themselves and hopefully attract more buyers. As
an entrepreneur, Bernard the Boss is focused on process improvement. He looks for ways to improve
productivity and efficiency within his organization and directs the change process from development to
implementation.
As Bernard is setting up the display, he notices two of his employees arguing over the contest, and he is not
the only one. Customers have also noticed, and some are starting to even leave the store. Bernard quickly
intervenes and helps to bring the employees to an agreement. Acting as a disturbance-handler, Bernard
serves as a conflict manager. He spends time taking corrective action during times of dispute to remove any
barriers toward organizational success.
After the display is set up, Bernard heads back to his office and sees that he has a voicemail. After checking
the voicemail, he learns that one of his employees who works the night shift has called out sick. He needs to
cover that shift and quickly begins to ask employees who are currently working if they would mind working
a double shift. He finds a replacement and is then able to go back to his daily responsibilities. Determining
the best place for organizational resources to be distributed is what Bernard does in his role as a resourceallocator. Taking the time to plan, dispense and monitor resources is essential for Bernard to ensure that his
employees continue to be productive.
Bernard the Boss ends his shift with a conference call with one of his distributors. He learns that the store
will now be charged an additional $300 for each delivery. Bernard knows that he has to adhere to a set
budget that was based on the old delivery fees. He spends some time negotiating with the distributor and
comes to a compromise that the additional fee will not be charged until next quarter, when he can account
for it in the budget. The negotiator role is the last of the decisional roles that Bernard must fill. As a
negotiator, Bernard acts as a representative for the team, department or organization during times of
negotiation, whereby he looks out for the best interests of the party he represents.

Mintzberg's Managerial Roles Today

Even though Mintzberg's research was conducted many years ago, his discoveries of the ten managerial
roles are still seen in business today. Managers of all levels perform the roles described by Mintzberg on a
daily basis at organizations worldwide. Many managers assess their own behaviors against those described
by Mintzberg to become more self-aware of how they can improve their managerial practices.

Lesson Summary
There are many roles a manager has within an organization. Henry Mintzberg described ten specific
managerial roles most commonly seen within organizations. Mintzberg classified the roles into three
categories: interpersonal roles, or those roles associated with human interaction; informational roles, or
those roles associated with sharing information and decisional roles, or those roles involved in decisionmaking. Interpersonal roles include the figurehead, leader and liaison. Informational roles include the
monitor, disseminator and spokesperson. Decisional roles include the entrepreneur, disturbancehandler, resource-allocator and negotiator.

Chapter-1: Lesson-4

Four Functions of Management: Planning, Organizing, Leading &

Controlling
A person who holds a management position inside an organization is required to think strategically and
conceptually in order to achieve organizational goals. This lesson will describe the four functions of
management and how they relate to organizational success.

The Four Functions of Managers

Management involves far more than just telling others what to do. Before any of you decide that you think
you can do your boss's job, let's take a look into more of what a manager does.
The major functions that a manager completes can be categorized into four different functions known as
planning, organizing, leading, and controlling. For some of us, we only see the final two - leading and
controlling - but you should know that for every managerial behavior you do see, there is an equal amount
that you do not. Behind the manager's closed door, he or she spends a good deal of his or her time planning
and organizing so that he or she can effectively carry out the functions of leading and controlling.

Managers spend a good deal of time planning, leading, controlling and organizing.
Now, before you think your boss is different, you should also know that the
four
functions of management are standard across industries, whether that be in
a
manufacturing plant, a home office, a grocery store, a retail store, a
restaurant, a hotel, or even an amusement park. Effective managers understand how
planning, organizing, leading, and controlling are used to achieve organizational success. Unfortunately, I do
not have a rebuttal for those of you who have ineffective managers, but perhaps learning a little more about
the four functions of management will help to identify what steps your ineffective manager needs to take to
become an effective one.
Try to think about the four functions as a process where each step builds on the others. Managers must first
plan, then organize according to that plan, lead others to work towards the plan, and finally evaluate the
effectiveness of the plan. These four functions must be performed properly and, when done well, become
the reason for organizational success.

Planning
The first of the managerial functions is planning. In this step the manager will create a detailed action plan
aimed at some organizational goal.
For example, let's say Melissa the marketing manager has a goal of increasing sales during the month of
February. Melissa needs to first spend time mapping out the necessary steps she and her team of sales
representatives must take so that they can increase sales numbers. These steps might include things like
increasing advertisements in a particular region, placing some items on sale, increasing the amount of
required customer-to-sales rep contact, or contacting prior customers to see if they are interested in
purchasing additional products. The steps are then organized into a logical pattern so that Melissa and her
team can follow them.
Planning is an ongoing step and can be highly specialized based on organizational goals, division goals,
departmental goals, and team goals. It is up to the manager to recognize which goals need to be planned
within his or her individual area.

Organizing
The second of the managerial functions is organizing. This step requires Melissa to determine how she will
distribute resources and organize her employees according to the plan. Melissa will need to identify
different roles and ensure that she assigns the right amount of employees to carry out her plan. She will also
need to delegate authority, assign work, and provide direction so that her team of sales representatives can
work towards higher sales numbers without having barriers in their way.

Leading
The third function of management is leading. In this step, Melissa spends time connecting with her
employees on an interpersonal level. This goes beyond simply managing tasks; rather, it involves
communicating, motivating, inspiring, and encouraging employees towards a higher level of productivity.

Not all managers are leaders. An employee will follow the directions of a manager because they have to, but
an employee will voluntarily follow the directions of a leader because they believe in who he or she is as a
person, what he or she stands for, and for the manner in which they are inspired by the leader.

Controlling
Controlling is the final function of management. Once a plan has been carried out the manager evaluates
the results against the goals. If a goal is not being met, the manager must also take any necessary corrective
actions to continue to work towards that goal.
For example, if Melissa noticed that her team was behind in their sales half way through February, she will
need to put in place necessary provisions to ensure the second half of February is twice as productive as the
first half so that by the end the month, the original sales goal will be met or exceeded. Because the control
process also includes setting performance standards for employees and continuously evaluating their job
performances, Melissa will speak with each of her sales reps individually to review their performances.

The Fifth Function

Some have added a fifth function for managers known as staffing. Staffing is the task of evaluating,
recruiting, selecting, training, and placing appropriate individuals into defined job roles. A manager must
spend time evaluating his or her workforce needs, discovering where employees need to be added, trained,
or removed, and then making those changes so that the organization can continue business as usual.

Lesson Review
Let's review. There are four functions of management that span across all industries. They include:
planning, organizing, leading, and controlling. You should think about the four functions as a process,
where each step builds on the others. Managers must first plan, then organize according to that plan, lead
others to work towards the plan, and finally evaluate the effectiveness of the plan.
Planning is the first step where by a manager creates a detailed action plan aimed at some organizational
goal. Organizing is the second step, which involves the manager determining how to distribute resources
and arrange employees according to the plan. Leading is the third step that is accomplished by
communicating, motivating, inspiring, and encouraging employees towards a higher level of productivity.
Controlling is the final function of management in which the manager, once a plan has been carried out,
evaluates the results against the goals. If a goal is not being met, the manager must also take any necessary
corrective action needed to continue to work towards that goal. Some have added a fifth function for
managers known as staffing. Staffing is the task of evaluating, recruiting, selecting, training, and placing
appropriate individuals into defined job roles.
It was the rise of the Industrial Revolution and factories were becoming more common. Inside
these factories, managers were constantly look for ways to improve productivity and
efficiency. As time moved on, it became apparent that searching for the single best way to do
things was the most important thing for managers to do. Thus, classical management theory
was born. This lesson will discuss the evolution of classical management theory.

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Chapter 2: Lesson 1

Classical Management Theory (1900-1930): Definition

The Evolution of Classical Management Theory

The Industrial Revolution was a time where innovation really began to change the way that products were
produced and sold. The invention of machines to produce goods in the 19th century drastically improved
productivity, which in turn lowered the cost to the consumer. The lower price resulted in a greater demand
for products and thus a greater need for more factories and workers.
As factories increased in number, managers continued to search for ways to improve productivity, lower
cost, increase quality of their products, improve employee/manager relationships and increase efficiency.
The focus shifted from using machines to increase productivity to how they could increase employee
productivity and efficiency. When they did this, they began to notice some new problems inside their factory
systems. Employees were dissatisfied with their current working conditions, and many lacked the necessary
training for how to do their work efficiently. Managers then began to formulate and test possible solutions,
one of which was to find the best possible way for workers to perform and manage their tasks. The research
resulted in the development of classical management theory.

The Classical Manager

To better understand classical management theory, let's take a peek into this 19th century factory and see
what's going on. Ahh, there he is: Calvin the Classical Manager. Let's look a bit closer and see what he's up
to. It looks like Calvin is working on a work-flow chart. It seems he's trying to figure out the best possible
way to complete work at his factory.
As a classical manager, Calvin must have a good understanding of business functions at his factory so that
he can structure the organization according to task and assign workers in view of that. For example, I can
see that Calvin has broken down the process for producing the product this factory makes into three stages.
In each stage, he has listed out what work needs to be completed and the type of skills a worker will need to
complete that work. Now all Calvin has left to do is assess his current workforce for the appropriate
individuals and place them in the suitable job role. If training is needed, Calvin will need to identify that so
that he can ensure his workers understand the manner in which the work should be completed.

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Expansion of Classical Management Theory

Classical Management theory expanded throughout the first half of the 20th century as managers continued
to look for ways to deal with issues surrounding industrial management. During this time, three separate
branches emerged - bureaucratic management, classical scientific management and classical
administrative management - each unique in its approach towards finding the best possible way. These
three branches will be explained in more detail in the following lessons. Even though several management
theories have emerged since the development of classical management theory, many contemporary
organizations rely on the classical management approach today with great success.

Lesson Review
Let's review. Classical management theory was introduced in the late 19th century during the Industrial
Revolution. At the time, managers were interested in findings ways to improve productivity, lower cost,
increase quality of their products, improve employee/manager relationships and increase efficiency at their
factories. The main concern for classical management theorists is finding the best possible way for workers
to perform and manage their tasks. Classical management theory is comprised of three separate branches bureaucratic management, classical scientific management and classical administrative management each unique in its approach towards finding the best possible way. Many of today's organizations continue
to rely on the classical management approach
Chapter 2: Lesson 2

Bureaucracy: Max Weber's Theory of Impersonal Management

At a time when organizations were run like families, Max Weber looked for ways to bring a
more formalized structure to organizations. Weber created the idea of bureaucratic
management where organizations are more authoritative, rigid and structured. This lesson
will describe the development of bureaucracy and common characteristics of bureaucratic
organizations.

Note: for the purposes of this video, the instructor has chosen to use the American pronunciation of Max
Weber's name.
The Development of Bureaucracy

In the late 1800s, Max Weber criticized organizations for running their businesses like a family, or what
some of us might refer to as 'mom and pop'. Weber believed this informal organization of supervisors and
employees inhibited the potential success of a company because power was misplaced. He felt that
employees were loyal to their bosses and not to the organization.

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Max Weber believed in a more formalized, rigid structure of organization.

Weber believed in a more formalized, rigid structure of organization known as a

bureaucracy. This non-personal view of organizations followed a formal structure
where
rules, formal legitimate authority and competence were characteristics of
appropriate management practices. He believed that a supervisor's power should be based on an individual's
position within the organization, his or her level of professional competence and the supervisor's adherence
to explicit rules and regulations. To better understand the idea of bureaucracy, let's look at some of its
characteristics.
Characteristics of Bureaucratic Organizations

A well-defined formal hierarchy and chain of command distinguishes the level of authority within an
organization. Individuals who hold higher positions will supervise and direct lower positions within the
hierarchy. For example, Megan the Manager supervises a team of four sales representatives. Megan's
position within the organization as a supervisor gives her authority over those four sales representatives to
direct and control their actions to ensure organizational goals are met.
Management by rules and regulations provides a set of standard operating procedures that facilitate
consistency in both organizational and management practices. For example, when an employee is sick and
cannot make it into work that day, he or she must call out to their direct supervisor. If one of Megan's sales
reps is sick, they are expected to call her directly to inform her of their absence. Any employee who fails to
do this will be subject to termination. All of Megan's employees are expected to follow this rule, and Megan
is expected to enforce this rule equally among her employees.
Division of labor and work specialization are used to align employees with their organizational tasks. This
way, an employee will work on things with which he or she has experience and knows how to do well. For
example, let's say two of Megan's sales reps are experienced in selling products to vendors in the western
region of the state due to their extensive experience working in that area. Megan would then put those two
employees in charge of that specific region and would place the other two sales reps in the eastern region.
Managers should maintain an impersonal relationship with employees to promote fair and equal treatment
of all employees so that unbiased decisions can be made. This is not to say that Megan should not be
friendly with her employees; rather, Megan should be professionally friendly with her employees and work
to maintain a clear separation between business and pleasure. For example, Megan should refrain from
spending time outside of work with her employees. While it is acceptable for the four sales reps to meet up
after work for happy hour and have a drink, Megan should excuse herself from participating in such an
occasion.
Competence, not personality, is the basis for job appointment. An employee should be chosen, placed and
promoted within an organization based on his or her level of experience and competency to perform the job.
For example, if Megan found room for a fifth sale rep on her team, she should look to recruit and place a

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new sales rep based on a person's ability to successfully perform the duties of the position. Hiring someone
she is friends with, for example, would be a poor decision by Megan, as there is no guarantee her friend is a
competent sales rep.
Formal written records are used to document all rules, regulations, procedures, decisions and actions taken
by the organization and its members to preserve consistency and accountability. A policy and procedures
manual is a good example of formal records.

Lesson Summary

To review, Max Weber disliked the idea of managing an organization informally. He believed in a much
more rigid, formalized structure known as a bureaucracy. The characteristics of a bureaucracy include: 1)
A well-defined formal hierarchy and chain of command; 2) Management by rules and regulations; 3)
Division of labor and work specialization; 4) Managers should maintain an impersonal relationship with
employees; 5) Competence, not personality, is the basis for job appointment and 6) Formal written records.
Chapter 2: Lesson 3

Classical Scientific School of Management

The scientific school of management focused on the 'science' of creating specialized work
processes and workforce skills to complete production tasks efficiently. This lesson will discuss
the development of scientific management and how it is applied by management as
illustrated by the classic example of Henry Ford's Model T production line.
Scientific Management

The scientific school of management is one of the schools that make up classical management theory. Still
very much concerned with increasing productivity and efficiency in organizations by finding the best way to
do something, the scientific school of management is focused on the 'science' of creating specialized work
processes and workforce skills to complete production tasks efficiently.
Classical scientific theorists such as Frederick Taylor, Henry Gantt, and Frank and Lillian Gilbreth spent
their time researching how a specific job was done, what steps were taken by an employee to complete the
work, the amount of time it took a worker to complete a task using different methods, and then used this
information to determine which way was most effective.
The result of this research led to the development of four principles of scientific management:
1. Management should provide workers with a precise, scientific approach for how to
complete individualized tasks.

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2. Management should carefully choose and train each employee on one specific task.
3. Management should communicate with employees to ensure the method used to
complete the task is, in fact, the most productive and efficient.
4. Management should create the appropriate division of labor.
Application of Scientific Management

Application of these scientific management principles is quite simplistic once up and running, but it requires
a great deal of analysis up front. A manager must first consider the nature of the work that needs to be
completed and then decide the best possible way to go about it. A division of labor allows the manager to
take complex tasks and break them down into smaller, more precise tasks that the individual workers can
complete. Each employee is trained explicitly on how to best perform their task. A manager will check with
their worker to ensure that the suggested method for completing the work is efficient and make adjustments
when necessary. If all goes as planned, a manager will watch as a product efficiently moves from worker to
worker down the production line. As the individual parts come together, the sum is essentially created.
Think of an assembly line where each individual employee completes one repetitive step in the product
development process. The product is finished and ready to be sold after each employee completes his or her
respective tasks in the product development process. To see classical scientific management, division of
labor, and the assembly line in action, we can turn to Henry Ford of Ford Motor Company.

Henry Ford's Model T Production Line

Turns out that right around the same time Taylor, Gantt, and the Gilbreths were developing the principles of
scientific management, Henry Ford was looking for an effective way to produce his Model T. At that time, a
car was really considered a luxury item that was handcrafted by one individual on a factory floor, and Ford
sought to change this. By combining the idea of scientific management's best possible way to accomplish a
task through the division of labor and Ford's engineering background, the true assembly line was born.
Ford spent a good amount of time researching the best possible way to assemble the Model T. First, he
rationalized the most effective way to build the Model T based on the size of parts. From there, he
determined the best order to assemble similarly sized parts. Workers were then assigned and trained on
individualized tasks. Production began, but there were a few hiccups along the way.

Henry Ford wanted an effective way to produce his Model T.

After much trial and error over a five year period, Ford resolved to first build the
basic
chassis, which included the frame, axles, and wheels. From there, the vehicle
would
move down the production line as individualized parts were added. Eventually raw materials and subassemblies were added, which allowed for smaller parts to be assembled before they were brought to the
main assembly line.

15

Once the process was defined it only took 93 minutes to build the Model T, allowing Ford to mass-produce
the car. In fact, from 1908 through 1927, approximately 15 million Model Ts were produced using the
assembly line that Ford designed. Ford's assembly line method quickly spread to numerous manufacturing
operations around the world and is still in use today. I am sure many of you can think of several products
you own that were produced using the assembly line.

Lesson Summary

Let's review. Classical scientific management theory is focused on the 'science' of creating specialized work
processes and workforce skills to complete production tasks efficiently. Contributors of the scientific
management theory were Frederick Taylor, Henry Gantt, and Frank and Lillian Gilbreth. It was from these
individuals' work that the four principles of scientific management were developed, which included:
1. Management should provide workers with a precise, scientific approach for how to
complete individualized tasks.
2. Management should carefully choose and train each employee on one specific task.
3. Management should communicate with employees to ensure that the method used to
complete the task is, in fact, the most productive and efficient.
4. Management should create an appropriate division of labor.

Henry Ford provides a good example of classical scientific management with his development of the
assembly line used to produce his Model T. The assembly line and similar scientific management principles
are still in use today.
Chapter 2: Lesson 4

Fredrick Taylor & Management: Maximizing Productivity &

Efficiency
Known as the father of scientific management, Frederick Taylor revolutionized management
practices. This lesson will discuss the contributions Taylor made to the field of management,
most of which are still used today to maximize productivity and efficiency.
What Would Taylor Do?

16

Ask yourself this question: would you be motivated to work harder for your employer if you were not given
the proper training or tools to do your job and you were paid the same amount regardless of the level of
effort you put forth? I assume most of you answered 'no' to this question, and Frederick Taylor agreed!

Taylor studied ways of maximizing productivity and efficiency.

The Observations of Frederick Taylor

As a young engineer working for Midvale Steel Company in the late 1800s,
Frederick
Taylor began to recognize the shortcomings of systematic management
practices.
He observed how the gross, almost deliberate, inefficiencies of workers led to low levels of productivity. As
Taylor investigated further, he discovered that employees were underpaid, their potential was unused, and
there was a great deal of waste and inefficiency of workers and work processes. He attributed these issues to
three things:

First, employees believed that if they were more productive, fewer jobs would be
needed, and thus their job might be in jeopardy.

Second, employees did not have an incentive to go above and beyond; if they were
paid the same amount for low productivity as they would be for high productivity, there
was no reason for them to strive for higher levels.

Third, workers wasted much of their time using less-than-optimal methods for
completing work instead of the best possible way.

Taylor soon realized that these unsystematic decisions being made by management were without empirical
evidence or research that demonstrated a significant rationale for what the best means of production were.
Essentially, managers were blindly making decisions on how to lead their workers, almost like the blind
leading the blind.

The Father of Scientific Management

Taylor's solution was to create a second approach to management that accounted for all those issues he was
seeing at Midvale Steel Company. What is now known as scientific management, this new approach
advocated the use of scientific methods to scrutinize individualized tasks of production work to find the
most effective method. The specifics of scientific management are detailed in another lesson of this course,
but to help you understand how Taylor arrived at this new approach, we will discuss the steps he took to get
there.
Using his engineering background, Taylor studied tasks and incentives to develop fixed procedures to
maximize productivity and efficiency. He used time and motion studies to determine how long it should
take a person to complete a task when the correct movements were made. He also looked for ways to
standardize tools so that each worker had the right tool for the job. Finally, he believed that an employee's

17

effort towards reaching higher levels of productivity should be directly tied to their pay. For example, Taylor
studied workers at the Bethlehem Steel plant who were responsible for unloading iron from rail cars. He
found that when the correct tools, movements, and procedures were used by workers, they could average
47.5 tons per day instead of the typical 12.5 tons per day. This only required 140 workers to complete the
work each day as opposed to the usual 500. Once the work process was clearly defined according to the best
possible way, he added an incentive system that would compensate those employees who were able to meet
the new standard set by Taylor. The result of this change was unsurpassed as the productivity at the
Bethlehem Steel plant drastically increased overnight.

Taylor's Four Principles of Scientific Management

Frederick Taylor conducted many experiments over the duration of his career and had several associates,
which you can learn about in other lessons of this course. After his work was completed, he was then able
to, finally, provide managers with a set of systematic guiding principles so that they no longer had to make
uninformed decisions. Taylor's approach to management can be summed up into his four principles of
scientific management.
1. Management should get rid of general guidelines for how to complete a task; instead,
they should be replaced with a precise, scientific approach for each task of a worker's
job.
2. Management should use those same principles of scientific methodology to carefully
recruit, select, train, and develop each worker according to the job they will hold for the
company.
3. There should be a level of cooperation between staff and management to be sure that
jobs match plans and principle of the developed methods.
4. Managers should also provide the appropriate division of labor and responsibility
between managers and workers; that is, the managers were responsible for planning
the work, and the employees were responsible for following that plan as they
completed the work.

The Four Principles Applied

A simple example of Taylor's principles in action is shown in the following story. Bob the Bricklayer was
hired by Berry Miller to build a block fence in his yard to keep his neighbor from spying on his wife while
she sunbathes. Bob knows that he must plan out this job so that he can properly bid the cost of the job to
Berry. Bob the Bricklayer spends time detailing out the best method for building the block fence, how long
it should take, what the costs should be, and how many laborers he will need to help him build the fence.
After his plan is in place, Bob selects two of his finest block fence builders to help him construct the fence.
He knows that the two employees he chose are well-trained in block fence building, and he'll only need to
provide moderate supervision to them. Bob will oversee his employees and make sure they follow the plan
he detailed out at the beginning of the project. The employees have a full understanding of what their role is
in the job, and so does Bob. Because the plan was followed as Bob laid out by employees, who are aware of

18

their role in the job and had a good understanding of the work that needed to be completed, the block fence
went up without issue. Berry Miller was extremely happy, but his neighbor was extremely disappointed that
he would no longer be able to enjoy the view from next door.
Lesson Summary

To review: Frederick Taylor began to recognize the shortcomings of systematic management practices early
in his career as an engineer. He found that workers were underdeveloped, underpaid, and under-resourced,
and consequently, they did not care to put forth a high level of productivity. As a result, factories were
suffering. Taylor's solution was to create a second approach to management known as scientific
management. Taylor studied tasks and incentives to develop fixed procedures to maximize productivity and
efficiency. After many experiments, Taylor developed a set of management principles that included:
1. Management should get rid of general guidelines for how to complete a task; instead,
they should be replaced with a precise, scientific approach for each task of a worker's
job.
2. Management should use those same principles of scientific methodology to carefully
recruit, select, train, and develop each worker according to the job they will hold for the
company.
3. There should be a level of cooperation between staff and management to be sure that
jobs match plans and principle of the developed methods.
4. Managers should provide the appropriate division of labor and responsibility between
managers and workers; that is, the managers were responsible for planning the work
and the employees were responsible for following that plan as they completed the
work.

Taylor quickly became known as the father of scientific management for having revolutionized
management practices, most of which are still being used today.

Chapter 2:Lesson 5

Gantt Charts & Bar Graphs: Henry Gantt's Contributions to

Management
This lesson will describe how Henry Gantt revolutionized management practices by providing
a graphical representation, also known as the Gantt chart, of work processes that showed
scheduling and monitoring projections. Other contributions of Henry Gantt, such as the task
and bonus system, will also be discussed.
Blamestorming

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Blamestorming is defined as a group of people sitting around trying to figure out who to blame for missing
a project's deadline. Perhaps you've taken part in a blamestorming session. You might even be the reason
why your co-workers needed to blamestorm, or maybe you are the blamestorm instigator. No matter what
side of the fence you sit on during a blamestorming session, I have a solution for you. It can be found in the
works of Henry Gantt! So, all you blamers and blamees, grab a piece of paper and a pen; a solution is about
to come your way that will show you how to track project milestones and final deadlines so that you will
never have to participate in a blamestorming session again!
Henry Gantt

Henry Gantt was an advisor and consultant on management practices.

Henry Gantt, an associate of Fredrick Taylor, was a mechanical engineer

during the early 1900s who spent his time as an advisor and consultant on
management practices. His main focus was to apply scientific analysis to all facets of the work being done
as a means of increasing productivity. His two major contributions were the Gantt chart and the task and
bonus system, both of which will be discussed next. Much of what Gantt developed during this time was
considered groundbreaking, and it revolutionized scientific management. Many of his ideas are still widely
used in project management today.
The Gantt Chart

As Gantt spent time scrutinizing the work process with the comprehensive goal of planning and
implementing a work breakdown structure, he wanted to have a visual representation of what was actually
occurring over the course of a project. Specifically, Gantt focused on creating a graphical representation of
work processes that showed scheduling and monitoring projections. What Gantt came up with was a bar
chart that demonstrated a project's schedule, showing terminal and summary elements from start to finish.
Terminal elements are the smaller more intricate tasks that need to be completed as part of a larger task. A
summary element is made up of terminal elements to form the larger task. For example, a summary
element for a car manufacturer would be to paint the vehicle. The terminal elements of painting the vehicle
would be to strip any original paint, primer, apply your first, second and top coats, and finally, wash, wax
and buff the new paint job. Once the terminal and summary elements are defined, a manager can then add
projected and actual projection for completion of each of those elements. The time schedules are plotted on
the graph using bars. These can be used to come up with deadlines. Once plotted together, it becomes easy
for others to understand the individual work tasks and their due dates within the greater project deadline.
This also demonstrates areas that can be done concurrently with other tasks and what tasks are dependent on
the completion of others.

20

Gantt created a bar chart that showed terminal and summary elements from start to finish.

The Gantt chart was first used on large construction projects, such as the Hoover Dam in the 1930s and the
Eisenhower interstate highway network in the 1950s. Many contemporary managers rely on software
programs to create Gantt charts. Such programs have advanced features that allow managers to manipulate
data in several ways, aiding in their understanding of the overall project.
Task and Bonus System

Gantt did not find the piecework pay system previously developed by Taylor to be as effective as it needed
to be to increase productivity. Gantt's alternative, known as the task and bonus system, paid employees
based on how well they improved their performance at the organization. Specifically, the task and bonus
system was an incentive program where an employee would receive a bonus above and beyond their set
hourly rate once the employee's proficiency hit certain performance goals. This way an employee would
always be guaranteed at least his or her hourly rate while working towards higher levels of productivity.
This is in contrast to Taylor's piecework pay system, which forced novice employees to have a second job in
order to support themselves because Taylor did not believe that an employee should be adequately
compensated until they reached a higher level of productivity - almost like an unpaid apprenticeship.
Lesson Summary

To review, Henry Gantt worked alongside Fredrick Taylor for several years and is best known for his
development of the Gantt chart. His main focus was on applying scientific analysis to all facets of work
being done as a means of increasing productivity. His two major contributions were the Gantt chart and the
task and bonus system.
The Gantt chart is still a widely used today in project management and demonstrates a project schedule,
showing terminal and summary elements from start to finish and the amount of time it takes to complete
each task. Terminal elements are the smaller more intricate tasks that need to be completed as part of a
larger task. A summary element is made up of terminal elements to form the larger task. The information
that is depicted on the Gantt chart allows others to understand the individual work tasks and their due dates
within the greater project deadline.
The task and bonus system was an incentive program aimed at increasing an employee's productivity,
whereby an employee would receive a bonus above and beyond their set hourly rate once the employee's
proficiency hit certain performance goals. This way an employee would always be guaranteed at least his or
her hourly rate while working towards higher levels of productivity.

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Chapter 2: Lesson 6

Henri Fayol's Management Principles: Managing Departmental

Task Organization
Prior to Henri Fayol's development of an administrative theory of management, managers
took a scientific approach to work, attempting to maximize productivity by treating their
workers like machines. Fayol's 14 Principles of Management focus on the entire organization
rather than just the work. This lesson covers the first seven of these principles.
From Scientific to Administrative

Back around 1860, Henri Fayol, a then-young engineer, began working at a coal mine in France. While
working at the mines, he noticed that managing the miners was not an easy job. Managing was not as
effective as it could be. Managers had few resources and tools to better manage people.
At the time, Frederick Winslow Taylor, founder of the school of scientific management, was making strides
in maximizing productivity by focusing on the work and worker relationship. In other words, Taylor
believed that there was a science to work. If workers worked more like machines, there would be increased
productivity.
Unlike Taylor's scientific management theory, Fayol believed that it was more than just work and workers.
Managers needed specific roles in order to manage work and workers. This became known as the
administrative school of management and was founded on the six functions, or roles, of management:
1. Forecasting
2. Planning
3. Organizing
4. Commanding
5. Coordinating
6. Controlling

Principles 1-7

These roles, used as a process, focused on the entire organization rather than just the work. Once broken
down into smaller parts, the six functions evolved into Fayol's 14 Principles of Management. In this
lesson, we will focus on the first seven principles:

22

1. Division of Work
2. Authority
3. Discipline
4. Unity of Command
5. Unity of Direction
6. Subordination of Individual Interests to the General Interest
7. Remuneration

While Fayol's 14 Principles of Management are not as widely used as they once were, it is important to
understand how the foundation of administrative management theory was developed to address the needs of
the times. This macro approach was the first of its time. Let's not forget, Taylor did not focus on the human
element.
His scientific approach to work focused on building a better, stronger, faster and more productive team
through physical elements. Fayol didn't see it that way. Fayol saw workers as humans possessing elements
that required a more general approach to getting the work done. He saw it as a whole organizational effort.
Principles Explained

Let's take each principle and use examples to better understand how these principles work together to create
an administrative management mindset. Let's use Fayol and the Principles, a rock band, to help us better
understand the first seven of the 14 Principles of Management.
1. Division of Work: When employees are specialized, output can increase because they become
increasingly skilled and efficient.
Fayol and the Principles is made up of four members, including Fayol. Each band member specializes in a
specific instrument or talent. Fayol is the lead singer, while the other members play instruments. The band is
able to produce quality music because each performs the job in the band that he or she is most specialized
in.
If we were to mix it up a bit and put Fayol on bass guitar and another member on singing - neither of whom
possesses the skill to perform the job - the sound would be much different.
2. Authority: Managers must have the authority to give orders, but they must also keep in mind that with
authority comes responsibility.
Fayol and the Principles understand that they should specialize in their specific areas; however, there needs
to be a leader. Fayol assumes the role as leader and gives everyone orders. He says 'Play this. Do that.' But

23

with that comes responsibility. He knows that, whatever task he delegates to the band, he must make sure
that the task is completed, that the task is done in a productive way and that it yields results.
3. Discipline: Discipline must be upheld in organizations, but methods for doing so can vary.
From time to time, the band members do not perform to Fayol's standard. Even though Fayol looks at the
organization as a whole organizational effort, he also knows that he must administer discipline for
ineffectiveness. Two of Fayol's band members decided to take a break from practice to play a competitive
game of Pin the Tail on the Donkey. He must administer swift discipline in line with the offense. He also
knows that there is no one discipline that can be levied against the band members. It must be done on a caseby-case basis. In this case, the two band members were penalized pay for the time spent playing a game
when they should have been practicing for their show.
4. Unity of Command: Employees should have only one direct supervisor.
Multiple people sometimes give orders. In the case of the rock band, Fayol is in charge. This is expressed by
the name of the band and implied by the orderly way in which work is delegated. Fayol is the only person to
give direction.
5. Unity of Direction: Teams with the same objective should be working under the direction of one manager
and using one plan. This will ensure that action is properly coordinated.
Just like unity of command, it is important for Fayol to keep the band on a single track, course or direction.
One manager. One plan. One vision.
6. Subordination of Individual Interests to the General Interest: The interests of one employee should
not be allowed to become more important than those of the group. This includes managers.
Fayol knows how to maintain a balance between personal endeavors and those of the greater good. Fayol
and the Principles are a rock band. This is their purpose, their identity. If one of the members feels
differently, regardless of how strongly he feels, this self-interest, or individual interest, is not more important
than those of the band and its members.
7. Remuneration: Employee satisfaction depends on fair remuneration for everyone. This includes financial
and non-financial compensation.
When it comes to payday, Fayol knows that he must pay the band and pay them fairly. This includes money
and perks. It is tempting to take all of the backstage perks and keep them for himself, like free T-shirts and
sodas, but by sharing the rewards, Fayol has a much more satisfied team.
Lesson Summary

In summary, Fayol's 14 Principles of Management serve the organization as a whole. By dividing the
work into specialized and specific jobs, workers are able to work more efficiently. Small management units

24

who oversee functional areas of the organization are now able to assign work and hold workers accountable
for their production. This makes it easier to measure productivity. Once a system of accountability is in
place and productivity can be monitored, it is easier to determine who is performing and who is not
performing. Managers are able to selectively and individually discipline workers who fall short of goals
quickly and in the correct measure. Having just one manager assigned to a team takes away any task
confusion. Workers have only one supervisor directing them. With only one supervisor directing work, it is
easy to motivate employees to buy into one plan. This minimizes self-interest. With only one manager
managing the work of one team, which shares one vision, compensating the team can be done fairly.
Chapter 2:Lesson 7

Fayol's Theories on Staff Management and Worker Satisfaction

in this lesson, we'll discuss how Henri Fayol's final seven principles play out in the workplace.
Using a professional restaurant kitchen as an example, you'll learn about the importance of
worker satisfaction and other elements of effective management.
14 Principles of Management

In a previous lesson, we learned that Fayol, while working in mines in France, discovered that managers did
not have the right tools to manage workers in an effective way. As a result, Fayol developed 14 principles
that addressed the organization as a whole including both the work and the worker.
1. Division of Work
2. Authority
3. Discipline
4. Unity of Command
5. Unity of Direction
6. Subordination of Individual Interests to the General Interest
7. Remuneration
8. Centralization
9. Scalar Chain
10.Order
11.Equity
12.Stability of Tenure of Personnel

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13.Initiative
14.Esprit de Corps
Review of Principles 1-7

To review, Fayol believed by dividing the work into specialized and specific jobs, workers are able to work
more efficiently. Small management units who oversee functional areas of the organization are now able to
assign work and hold workers accountable for their production. This makes it easier to measure productivity.
Once a system of accountability is in place and productivity can be monitored, it is easier to determine who
is performing and who is not performing. Managers are able to selectively and individually discipline
workers who fall short of goals quickly and in the correct measure. Having just one manager assigned to a
team takes away any task confusion. Workers have only one supervisor directing them. With only one
supervisor directing work, it is easy to motivate employees to buy into one plan. This minimizes selfinterest. With only one manager managing the work of one team who share one vision, compensating the
team can be done fairly.

Principles 8-14

The following 7 principles focus on the decision-making process, hierarchy, hygiene, employee satisfaction,
motivation, and team spirit. We will focus on how a professional kitchen might apply these 7 principles.
Centralization

This principle refers to how close employees are to the decision-making process. It is important to aim for
an appropriate balance.
A chef generally leads a professional kitchen. A kitchen staff or brigade performs the work. There are
decisions that need to be made as a team and others that need to be made by the leader. Chef Fayol strikes a
balance by allowing the brigade to decide the day-to-day operations, like which vegetables to cook, evening
specials and plate design. However, Chef Fayol makes all of the decisions about the restaurant image, menu
design, and vision because he is the owner of Bistro Fayol.
Scalar Chain

Scalar chain: a term that refers to a direct chain of command in the military, ranking staff from the highest to
the lowest level. Employees should be aware of where they stand in the organization's hierarchy or chain of
command.
In scalar chain, Fayol knows that for centralization to even be possible, there needs to be a chain of
command, and each member must be aware of their place in the hierarchy of the kitchen. Chef Fayol
explains this to the brigade using an organizational chart.
Order

The workplace facilities must be clean, tidy and safe for employees. Everything should be in its place.

26

Nobody knows better than Chef Fayol that the work area must always be clean, neat, and safe. Watch what
happens when one of the brigade leaves vegetable peels on the floor near his station. Fayol explains to the
brigade the dangers involved in leaving food on the floor. The brigade appreciates his guidance and work
much more productively when everything is in its place.
Equity

Managers should be fair to staff at all times, both maintaining discipline when necessary and acting with
kindness where appropriate.
Chef Fayol levies discipline when needed, like when the member of the brigade left the peels on the floor.
However, Chef Fayol also compliments the brigade when the restaurant receives rave reviews. A food critic
reviewed Bistro Fayol. One of the cooks was mentioned as the most talented young chef in town. Chef
Fayol gave the cook a plaque to hang on his wall. In all fairness, Chef Fayol also gave the other members
smaller plaques for assisting in the effort.
Stability of Tenure of Personnel

Managers should strive to minimize employee turnover. Personnel planning should be a priority.
Chef Fayol knows that Bistro Fayol is only as good as a sum of its parts or members. He is always thinking
of ways to reduce turnover. Having the brigade members quit their jobs is costly and a disruption to the
workflow. Others in the brigade would have to pitch in areas of the kitchen. This will disrupt the flow of
work. Kitchen staff may not be working in areas of specialization. This may reduce the quality of the food
and affect productivity. He always tries to maintain a healthy work balance for his members.
Initiative

Employees should be given the necessary level of freedom to create and carry out plans.
Chef Fayol, in this example, allows members of the brigade to try new recipes and even allows the brigade
members to create their own specials from time to time, but he reminds the members of Principle 6: no one
member can place his self-interest above the interest of the bistro. They understand.
Esprit de Corps

A French term for morale that was originally used to define the morale of military troops. Organizations
should strive to promote team spirit and unity.
Chef Fayol knows that when the team feels happy, they are more motivated to perform. He also knows that
when the team feels part of a special group, they are more excited about their jobs. Chef Fayol and the
brigade always work on ways to unify their positive spirit. Sometimes, Chef Fayol cooks a large family
meal for his brigade.
Lesson Summary

In summary, Fayol believed that allowing workers to be part of the decision-making when appropriate is
important for the overall organization. When roles are clearly defined and a chain of command is clear and

27

present, workers understand their role in the organization. A clean and safe work environment increases
worker satisfaction. The same theory applies to reward systems. Discipline and rewards should be
administered appropriately and in the right measure. This will reduce turnover. Employees will feel
empowered as a team to take healthy risks. As a result, organizational objectives can be met.

Chapter 2:Lesson 8

Frank and Lillian Gilbreth's Motion Study

This lesson describes the contributions this husband-and-wife team made to the field of management,
including their famous motion study, which provided insight into particular movements that could increase
outputs.

Meet the Gilbreths

It was the early 1900s, and Frank, a young contractor in Boston, set his eyes on Lillian, a recent college
graduate from California. Clearly, Katy Perry had it right about California girls being undeniably beautiful
because Frank's attempts at wooing Lillian must have worked. After just six months after meeting for the
first time, they were married. Being the smart woman she was, Lillian quickly joined Frank in his
construction business and began to take on a leadership role within the company.
Three years later, in 1907, the couple was introduced to Frederick Taylor. Entranced with Taylor's work with
time studies, the Gilbreths rapidly became involved in scientific research. Using what they learned while
working with Taylor, the Gilbreths decided to shift their focus to scientific management consulting and
severed their working relationship with Taylor in 1914. Lillian continued her education by earning a
doctorate in psychology and later used what she learned during this degree program to better understand the
practice of management.
With this newfound knowledge relating to psychology, the Gilbreths were able to combine the human
element of management with the technical observations they had made during their research. The two
quickly tied the idea of worker satisfaction to productivity and saw that when worker satisfaction increased,
so did the level of productivity and efficiency in those same workers. What resulted was the design of a
system that would ease the amount of fatigue a worker experienced by providing them with specific
movements to use while completing their jobs. They also noticed the need to consider the working
conditions and overall environment in which the workers performed their jobs. This lead to innovations in
office furniture, and many credit them with leading the way to the study of ergonomics.

Motion Study
Although their contributions were many, what the Gilbreths are most known for is their work on motion
studies. If you're familiar with the phrase 'work smarter, not harder', then you will know exactly what Frank

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and Lillian were after. The interest in standardization and method studies developed while Frank was
working as a bricklayer. In fact, it didn't take long as an apprentice for Frank to notice that no one bricklayer
performed his or her job quite the same. He found some workers to be highly productive, while others were
extremely slow and ineffective. While we can certainly attribute some of the slowness and inefficiency to
pure laziness, Frank focused on identifying the basic movements needed to lay brick effectively and isolated
them to eliminate unnecessary movements. Frank presented his findings to his fellow bricklayers and found
that those who used the movements he recommended were able to increase their output from 1,000 to 2,700
bricks per day.
Just imagine what that would mean for you as a manager. If you were able to come up with a standard set of
movements, practices, methods, or procedures for your workers to follow that would maximize their efforts,
how much more could your employees do during their 8-hour shift? How much more could be done on a
given week, a month, or a year? And how much more profit could you earn as a result? What the Gilbreths
discovered by studying the motions of others was a way to immediately impact the bottom line for the
better. There was no fancy equipment to buy, elaborate marketing schemes to draw up, or innovative
products needing to be developed. It required nothing more than spending time observing, analyzing, and
scrutinizing effective movements of workers as they went through the motions of their jobs. Again, work
smarter, not harder!
This was just the beginning for Frank; his desire to improve worker efficiency and productivity only grew as
he began to work alongside Taylor and Lillian while they developed the foundational principles of scientific
management, as I discussed earlier. The Gilbreths later used a motion-picture camera and split-second clock
to capture specific motions that they considered to be the best possible way to perform a given task.

Lesson Summary
Let's review. Frank and Lillian Gilbreth were a husband-and-wife team whose contributions helped lay the
foundational principles of scientific management. As associates of Frederick Taylor in the early 1900s, they
were able to explore how time and motion studies could be used to identify the best possible way for a
worker to complete a particular task. The results of such studies allowed for improvements to be made in
employee satisfaction, efficiency, and productivity. The Gilbreths are best known for their work on these
motion studies, which started with Frank's initial observations during his apprenticeship as a bricklayer.
Frank focused on identifying the basic movements needed to lay brick effectively and isolated them to
eliminate unnecessary movements. Frank presented his findings to his fellow bricklayers and found that
those who used the movements he recommended were able to increase their output from 1,000 to 2,700
bricks per day. Taking this knowledge along with the experience he gained while working alongside Taylor,
the Gillbreths began a career in scientific management consulting. They continued to refine their methods
and later used a motion-picture camera and split-second clock to capture specific motions that they
considered to be the best possible way to perform a given task.

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Chapter 2:Lesson 9

Classical Administrative School of Management: Managing the

Organization
Even if a business knows what each of their individual workers ought to be doing, there may
not be any overarching mission guiding their work. This lesson describes how the need to
consider an entire organization by emphasizing management principles led to the
development of the classical administrative school of management.
The New Guy in Town

As the idea of systematic management grew in popularity, so did the amount of people who were interested
in defining and improving the practice. People like Max Weber, Henri Fayol, Mary Parker Follett, and
Chester Bernard were among the theorists who sought an alternative, more general approach from the highly
specialized functions of scientific management. Whereas scientific management concentrated on the
productivity of the individual worker, administrative management focused on management processes and
principles of the entire organization. Essentially, the goal of management theory shifted from concern for
precise work methods to the development of managerial principles. Thus, classical administrative
management was born.
Not Just a Concept, but a Profession

Stay-at-home moms have long made the argument that what they do is, in fact, a job, even though there are
no benefits, salary, or paid days off. On any given day a stay-at-home mom can be a cook, a chauffeur, a
doctor, a hairdresser, a psychologist, a cheerleader, a maid, a secretary, a teacher, a daycare provider, a
financial advisor, and the list goes on and on. Still, many people think what they do is not a job at all. This is
exactly what management was regarded as: just something that people do. But that was all about to change.
The administrative theorists tackled the idea of management from many angles with the common goal of
designating it as a profession that could be universally taught and applied in organizations everywhere.
Using personal experience, Weber, Fayol, Follett, and Bernard researched and developed a broad spectrum
of topics, including things such as:

30

organizational principles

the philosophy of management

clarification of business terms and concepts relating to management

social responsibilities of management

functional responsibilities of management

organizational structure

leadership, power, and authority

For these theorists, management was a profession.

Specific contributions by individuals will be

discussed in other lessons of this course. However,
even without the specific descriptions of each individual contributor of administrative management, we can
begin to see how management was quickly becoming a legitimate force in organizations. For Weber, Fayol,
Follett, and Bernard, management was a profession in the same way as law, medicine, and science were. It
was through their life's work that management was suddenly becoming a legitimate, and necessary, field of
study.
Putting It All Together and Building on One Another

While scientific management provided managers with the best way for individual jobs to be done,
administrative management focused on the best way to pull all those jobs together and organize a business.
Put simply, scientific management was concerned with the parts, and administrative management focused
on the sum. It's much like how a cook needs to consider the most appropriate ingredients to include in his
recipe (scientific management) so that his vision of the final product becomes a reality once he completes
the cooking process (administrative management). Administrative management essentially provided the
manual, so to speak for, how to effectively operate the entire organization, or, for the case of the cook, how
to pull together all of the individual ingredients so that the final product comes out as anticipated. How a
company should be organized, who should have authority over others, determining who does what work and
why, and understanding and nurturing the employee/manager relationship were detailed out for managers,
helping them to not only understand their jobs better but to be more effective at them.
Lesson Summary

Let's review. Administrative management was developed out of the desire to establish management as a
profession that focused on the organization and operation of a business. Management theorists such as Max
Weber, Henri Fayol, Mary Parker Follett, and Chester Bernard were instrumental in developing the
principles and practices of administrative management. Each of these contributions will be discussed in
other lessons of this course, but in general, their focus was on things such as:

31

organizational principles

the philosophy of management

clarification of business terms and concepts relating to management

social responsibilities of management

functional responsibilities of management

organizational structure

leadership, power, and authority

When compared to scientific management, which was concerned with the best way for individual jobs to be
done, administrative management offered a more general approach that focused on management processes
and principles of an entire organization.
Chapter 2:Lesson 10

Mary Parker Follett: People-Oriented, Group-Network

Management
Leaders in today's organizations utilize common goals and participative decision-making to
achieve a people-oriented, group network management approach. Mary Parker Follett
developed this classical leadership theory during the pre-war 1920s, and it is still relevant in
contemporary business.
People Orientation and Group Network Management

When Mary Parker Follett, a social worker and management consultant, talked about issues like the
importance of people-oriented, group network management through group interaction and shared power
between managers and employees in business, she was actually pioneering the notion of participative
leadership. Participative leadership involves managers and employees working together towards common
goals like decision-making and problem-solving. Managers participate in decisions and support employees
with resources needed to accomplish goals.

A social worker and management consultant, Follett pioneered the notion of participative
leadership.

When Smitty broke his leg and needed surgery, he knew he would have to visit many different treatment
facilities. Getting appointments with a general doctor, a surgeon, a physical therapist, a social worker and
maybe even a plastic surgeon could be a lengthy and tedious process. Smitty made hundreds of phone calls
to individual practitioners only to find the process difficult to manage. He decided to use One-Stop Medical
Associates for all of his treatment and care because of the team approach they take to caring for patients.
One-Stop uses people-oriented management. People-oriented management is a participative leadership
style that involves including employees in making important company decisions by equally balancing leader
and employee power. This orientation toward shared power and ownership of responsibility makes resolving
conflict much easier.

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On his first visit, the team examined Smitty's leg and documented his file. Then they met in a conference
room to discuss the steps they will take to treat the patient. The doctor and surgeon talk about their
responsibilities. The nurse coordinates with the doctors on her responsibilities, and the social worker writes
her treatment plan. Once the plans are finished, group decisions are made.

Surgeon performs the surgery

General doctor prescribes medicines and monitors patient progress

Nurse changes bandages and takes blood pressure

Social worker eases patient's anxieties

As treatment is provided, the group shares information on the patient's current state and his progress towards
recovery. Each detail is discussed and used to make decisions about future treatments. Although each
practitioner has their own area of specialization, as a team, they are able to make contributions about the
whole treatment plan rather than just their own individual specialties.
One-Stop also uses a group network management approach to achieve their goals. A group network
management approach involves groups of people within the organization with equal power over outcomes.
These groups work on separate parts of an organization, and each group contributes pieces together to
achieve one organizational goal.
One-Stop Medical balances the power between management and the practitioners. Top management rarely
deals with patients, but they are responsible for the achievement of overall objectives, like being profitable
and providing premium healthcare. Top brass at One-Stop involve the employees in decisions about patient
care, records management and staffing. They also hold employees accountable for their decisions.
Both people-oriented management and group network management involve small groups working together
to meet overall objectives. It is done through group interactions.
Group Interactions

When decisions are made as a group, each employee feels a stronger commitment to the outcomes. OneStop Medical uses group decision-making for total patient care. Each patient is assigned to a team of
different employees. Smitty's general doctor, surgeon, nurse, social worker and physical therapist discuss his
treatment outcomes with each other. These conversations are known as group interactions.
Group interactions occur when there is positive collaboration between employees who are socially
attracted to one another, have shared goals and have a unique identity that sets them apart from others in the
organization. They lead to:

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Greater communication

Mutually beneficial relationship building

Better decision-making

Participation in organizational achievements

When employees and management communicate their ideas, they develop relationships that benefit
themselves and the overall organization. Better decisions come from more minds.
Lesson Summary

Mary Parker Follett was a social worker and management consultant who talked about issues like the
importance of people-oriented, group network management through group interaction and shared power
between managers and employees in business. This evolved to become a form of participative leadership.
People-oriented management is a participative leadership style that involves including employees in making
important company decisions by equally balancing leader and employee power. This orientation towards
shared power and ownership of responsibility makes resolving conflicts much easier.
Group networking is also participative in that it involves groups of people within the organization with
equal power over outcomes. These groups work on separate parts of an organization, and each group
contributes pieces together to achieve one organizational goal.
Both people-orientation and group network management involve working in groups to achieve common
goals. Groups use a form of communication known as group interactions. These interactions are positive
collaboration between employees who are socially attracted to one another, have shared goals and have a
unique identity that sets them apart from others in the organization. They lead to good communication
needed for better decision-making.
Chapter 2:Lesson 11

Chester Barnard: Informal Organizations and Acceptance Theory

Chester Barnard believed that formal organizations are made up of informal groups. These
informal groups evolve to become the informal organization. The group's beliefs and values
establish the organizational culture and determine, to a large extent, formal acceptance of
authority.
Acceptance Theory to Authority

Management theorist Chester Barnard believed organizations need to be both effective and efficient.
Effective means meeting organizational goals in a timely way. Efficient, in his opinion, means the degree to
which the organization can satisfy the motives of its employees. In other words, the organizational goals
will be accomplished and authority will be accepted when workers feel satisfied that their individual needs
are being met. This is known as the acceptance theory of authority.

34

Acceptance theory of authority states that a manager's authority rests on workers' acceptance of his right
to give orders and to expect compliance. Workers have to believe that the manager can legitimately give
orders and there is a legitimate expectation that the orders will be carried out. There are a few reasons for
this expectation:

Workers will be rewarded for compliance

There will be discipline for non-compliance

Workers respect the manager for his experience

Informal and Formal Organizations

Organizations are made up of groups of individual workers. Naturally, these individual workers form
informal social groups that become the informal organization. The informal organization exists within a
larger formal organization. Let's take a look at Cheap's Variety Store to gain a better understanding of how
informal groups and acceptance theory work together.
Cheap's management likes to keep things professional at all times. There is a hierarchy or chain of command
for each department. Formal organizations operate under a set of rules and policies designed to carry out
the organizational purpose, like meeting financial and production goals. A formal management-employee
relationship dictated by hierarchy exists. Work flows from top-management to workers through hierarchical
channels.

Formal organizations operate under a set of rules and policies.

At Cheap's, the chain of command starts with the general

manager, then department managers, and then the salespeople.
Cheap's Variety Store houses several departments. Each department is staffed with a manager and a few
salespeople. Managers assign tasks to employees, and it is expected that employees will complete the work.
Some managers reward employees for accomplishing all of their goals by giving them extra time off or an
extra break. Other managers are less generous with rewards. Some even threaten punishment for a less-thanproductive day.
Randy, the shoe department manager, likes to reward employees by giving them lots of praise for a job well
done. He also shares sales goals and outcomes with the staff so they understand the reason for special
promotions. This makes his employees more apt to accept the tasks he delegates. They enjoy working with
him because he communicates the purpose of their work and includes them in the celebration when the
department hits their goals.
It is not uncommon to see a group of cosmetic sales girls hanging around the mirror chatting away, testing
the newest lipsticks while work piles up and shelves are empty. But who can blame them. Liza, their

35

manager, is not very qualified to manage the department. She is very young, nearly half the age of the
others, and has no retail experience. She doesn't even have a knack for applying make-up.

Managers assign tasks to employees.

Sales goals are never shared with the girls. It's just work, work, work!
When the girls ask Liza about a new sales promotion, Liza just tells them
to
get back to work. Liza requires the girls to move the displays around the
department every three hours. When the girls question why, Liza
dismisses their
concerns completely. As a result, work doesn't get done and sales are very low. There is always conflict in
cosmetics.
Cheap's allows managers to direct work any way they see fit. But as we witnessed in the cosmetics
department, not all employees perform their jobs well. Some do the work while others loaf around.
The informal organization is structured much differently. It is the personal contacts and interactions
between workers that form into small groups. These informal groups of workers form their own
organization within the larger organization and have a powerful impact on the acceptance of formal
authority.
Water Cooler Culture

Informal organizations exist everywhere on the job. When workers hang around the water cooler to talk
about last night's big game or where to go to lunch, they are really doing much more than chit-chatting.
They are bonding together to form and sustain the informal organization.

When employees socialize at work, they are bonding together to form the informal
organization.

The organizational culture evolves from the beliefs and values the
small informal groups cherish. This social interaction over time forms into cohesive relationships necessary
for people to work together. And it creates an independence from the formal authority because the informal
organization is not governed by rules and policies.
The break room is the place where salespeople at Cheap's go to talk about work. The shoe salespeople talk
about their sales goals and share ideas. The cosmetic girls talk about Liza and her poor management skills.
Each conversation the groups have builds a strong union between each of the salespeople.
This water cooler culture is necessary. Its function can be beneficial to the formal organization in that it:

36

Provides individuals with social status not experienced in the formal organization

Promotes communication between group members

Influences and regulates behavior inside and outside the group

Motivates people to want to work together

Leads to new and innovative idea sharing

On the other hand, it can be damaging to the formal organization if there is conflict between the two.
Individual loyalty to the informal group may be stronger than the loyalty felt towards the formal
organization, making it difficult to accept formal authority.
Liza's cosmetic girls are not so happy with their jobs. As tensions increased in cosmetics, the girls formed a
stronger bond. It became so difficult to work in the department that customers felt uncomfortable getting a
beauty treatment. Lipsticks were scattered everywhere. The department was a mess. There was even talk of
a walk-out!
The informal group's beliefs, habits, and attitudes can become so cohesive that it operates like a formal
organization. The unified group of individuals, who share the same opinions, bond. Their influence may
spread amongst members of other informal groups, and their conformity is crucial.
Informal Groups and Acceptance of Authority

Let's take another look at the informal group. The informal group bands together for social interaction.
There is no hierarchy. Group members are free to express their thoughts and ideas without fear of
punishment. Reward comes in the form of group acceptance. It feels good to be part of a group.
Working at Cheap's makes the employees feel special, even if there is conflict between management and a
few salespeople. They feel part of something special and treat each other like family. Cheap's salespeople
are free to make choices. What to eat for lunch, what to wear to work, whom to talk about. None of this is
governed by a formal policy. The informal group is personal, and the break room is a safe haven for
salespeople to chat about anything they want.
In the formal organization, every person has a role. These roles are static and don't change. Faces may
change, but roles remain constant. Management's role is to delegate tasks, and workers are expected to carry
them out. Employees are not free to pick and choose from a list of tasks. Employees have little to say in
what they are assigned to do. Compliance brings reward, while non-compliance begets punishment.
Management's authority controls them. The formal organization depersonalizes workers.
Here is the connection: Informal groups can wreak havoc on management, but they can also influence others
in positive ways. Good relationships with management that include mutual respect and trust, clear
communication, and an understanding of the purpose of their work make the informal group more apt to
accept the formal authority.

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Lesson Summary

In a nutshell, Chester Barnard believed that formal organizations are made up of informal groups. These
informal groups evolve to become the informal organization. The group's beliefs and values establish the
organizational culture and determine, to a large extent, the formal acceptance of authority.
Formal organizations operate under a set of rules and policies designed to carry out the organization's
purpose, like meeting financial and production goals, while informal groups involve personal contact and
interactions between workers. These informal groups of workers form their own organization within the
larger organization and have a powerful impact on the acceptance of formal authority.
The acceptance theory of authority states that a manager's authority rests on workers' acceptance of his
right to give orders and to expect compliance. Informal groups will accept management's orders when
rewards are given or to avoid punishment when there is respect and trust for management's authority and it's
legitimate.
Chapter 3Lesson 1

Neoclassical Theory of Management: The Human Relations

Approach
n the early 1920s, a shift away from classical management theory took place as theorists
began to consider the human side of an organization and the social needs of employees. In
this lesson, you will learn about the evolution of the neoclassical theory of management and
its two sources: the human relations movement and the behavioral management movement.
A Shift Away from Classical Management Theory

In the early 1920s, classical management theorists, such as Frederick Taylor, Henry Gantt, and Frank and
Lillian Gilbreth, spent their time researching how a specific job was done, what steps were taken by an
employee to complete the work, and the amount of time it took a worker to complete a task using different
methods. They then used this information to determine the most effective way of completing a task. While
these individuals focused on the science of creating specialized work processes and workforce skills to
complete production tasks efficiently, critics began to scrutinize classical management theory for its
potentially harmful effects on workers.
It was not so much the methodology of finding the most efficient way to complete a task that concerned
critics, but the underlying assumption of classical management theorists that managers and workers would
meet halfway on their attitudes towards standardization. However, many believed that placing too much
emphasis on standardization of jobs and workers had not created this 'mental revolution' that Taylor and his
associates had hoped for, but rather had inadvertently created an attitude among managers at the time that
employees were nothing more than an appendage to a machine. While machines and processes could be
standardized, critics argued that it was unrealistic to expect that standardization among emotional beings;

38

the two needed to be looked at individually. So, as Taylor and other classical management theorists
continued their work on standardization, others started to conduct research on the worker, and thus, the
neoclassical theory of management was born.
The Emergence of the Neoclassical Theory of Management

The neoclassical theory was an attempt at incorporating the behavioral sciences into management thought
in order to solve the problems caused by classical theory practices. The premise of this inclusion was based
on the idea that the role of management is to use employees to get things done in organizations. Rather than
focus on production, structures, or technology, the neoclassical theory was concerned with the employee.
Neoclassical theorists concentrated on answering questions related to the best way to motivate, structure,
and support employees within the organization.
Studies during this time, including the popular Hawthorne Studies, revealed that social factors, such as
employee relationships, were an important factor for managers to consider. It was believed that any manager
who failed to account for the social needs of his or her employees could expect to deal with resistance and
lower performance. Employees needed to find some intrinsic value in their jobs, which they certainly were
not getting from the job that was highly standardized. Rather than placing employees into job roles, where
they completed one specific task all day with little to no interaction with coworkers, employees could be
structured in such a way that they would frequently share tasks, information, and knowledge with one
another. The belief was that once employees were placed into this alternate structure, their needs for
socialization would be fulfilled, and thus they would be more productive.
Two Movements in the Neoclassical Theory

The neoclassical theory encompasses approaches and theories that focus on the human side of an
organization. There are two main sources of neoclassical theory: the human relations movement and the
behavioral movement. The human relations movement arose from the work of several sociologists and
social physiologists who concerned themselves with how people relate and interact within a group. The
behavioral movement came from various psychologists who focused on the individual behavior of
employees. To better understand these movements, let's take a look at how the work of these various
sociologists and psychologists influenced management thought.
Human Relations Movement

The human relations movement was a direct result of Elton Mayo and Fritz J. Roethlisberger's
Hawthorne studies, which were designed to find ways to increase worker productivity at Western Electric's
Hawthorne Works factory by assessing working conditions related to things such as lighting levels, rest
periods, and the length of a work day. Those participating in the experiments were watched closely by the
researchers. During the experiment, productivity levels of those participating in the experiment increased
but not directly due to the conditions that Mayo and Roethlisberger were imposing on them.
Because they could not correlate the increase in productivity to the working conditions that they were
controlling in the experiment, alternative causes were explored. Eventually, the researchers attributed the
increase in productivity to the higher morale that was witnessed in the group during the experiment. This
39

morale and productivity boost was indirectly caused by the changes the researchers made to working
conditions, including:

Workers feeling special because they were selected to participate in the study and
were being paid so much attention by the researchers.

Workers developing strong interpersonal relationships with one another and their
supervisor as they determined how to manage their work together under the new
structure. They all valued the contributions of their coworkers.

The strong interpersonal relationships also created a pleasant and enjoyable work
environment.

The conclusions of the Hawthorne studies illustrated the importance of considering the social and human
relations needs of workers. Mayo and Roethlisberger's conclusions about worker productivity increasing due
to a feeling of value when management and coworkers show additional attention was really in sharp contrast
to the idea that money was the best way to motive employees to work at higher levels, which was a common
perception at the time. In fact, financial rewards were found to be much less conducive to worker motivation
and productivity than fulfilling their social and human relations needs. The Hawthorne studies paved the
way for behavioral management theory and have significantly shaped the manner in which employee
motivation is accounted for in the workplace.
Behavioral Movement

With the human relations movement strongly in place, theorists became increasingly interested in exploring
the individual employee and the nature of work itself. Remember, many employees at the time were left
searching for some intrinsic value in their work due to standardization of jobs. Because workers were
performing the same tasks day after day, their individual skills and capabilities were not being challenged.
The behavioral movement worked to change all that by researching ways to help employees find personal
satisfaction in their jobs by providing meaningful work. The behavioral theory of thought was based on the
work of Abraham Maslow, Douglas McGregor, Frederick Herzberg, and David McClelland , all of
whom searched for ways to help motivate employees based on their personal needs. Behavioral
psychologists argued that we have a human desire to work towards personal growth, accomplishment, and
achievement. Therefore, in addition to providing sufficient pay and showing that managers value their
employees, employers must also provide employees with a path to personal development and achievement.
Lesson Summary

Let's review. The neoclassical theory, which includes the human relations movement and the behavioral
movement, encompasses approaches and theories that focus on the human side of an organization. The
neoclassical theory was an attempt at incorporating the behavioral sciences into management thought in
order to solve the problems caused by classical theory practices. Emphasis shifted from production,
structures, and technology to a focus on social interaction. Neoclassical theorists concentrated on answering
questions related to the best way to motivate, structure, and support employees within the organization.

40

Managers were encouraged to create supportive social systems and facilitate the personal development of
their workers.
Chapter 3Lesson 2

Behavioral Management Theory: Understanding Employee

Behavior & Motivation
Behavioral management theory was developed in response to the need to account for
employee behavior and motivation. The shift moved management from a productionorientation (classical leadership theory) to a leadership style focused on the workers' human
need for work-related satisfaction and good working conditions.
A Shift in Theories

Long before theorists started writing about employee satisfaction and good working conditions,
management considered classical leadership, with its sole interest in high production and efficiency, to be
the most important to an organization's success. Later, it was concern for worker satisfaction and good
working conditions that formed the foundation for behavioral management theory.
Behavioral management theory relies on the notion that managers will better understand the human aspect
to workers and treat employees as important assets to achieve goals. Management taking a special interest in
workers makes them feel like part of a special group.
As time went on, thinking shifted, and management started looking at employee satisfaction and working
conditions as a way to increase productivity. Theorists like Elton Mayo and others studied employee
productivity under different conditions to determine a connection.
Mayo's Hawthorne experiment provides a good example of this. In the Hawthorne experiment, a group of
telephone line workers were separated and observed working in a private room. During their workday, the
group members were given special privileges, like freedom to leave their workstations, changes in pay rates,
and even company-sponsored lunch. What they discovered was the control group produced more than the
other employees. The rationale for this increased production was that the group felt that management was
interested in their well-being.
This began the human relations movement for management. If all management had to do was spend time,
express interest in workers' personal well-being, and reward them for a job well done, workers would feel
motivation to work harder. In fact, behavior towards work would be positive.
Behavior and Motivation

Let's see how behavioral management theory works in a modern day telephone line company. Total
Telephone Line Company workers perform the monotonous job of weaving telephone lines together.
Managers know the work is boring and often results in poor productivity and absenteeism.

41

Percy oversees the workers as they weave away, making sure each set of wires is perfect. Workers like Lucy
and Marcy chit-chat during most of their shift, getting very little done. Daphne daydreams about working as
a fashion designer and uses much of her workday sketching haute couture on lunch napkins.
Percy used to yell at the ladies and banish them to silence. Daphne even had her pencils taken away from
her on several occasions. But productivity did not increase. In fact, it decreased. Percy knew she had to try
something new. She had a tough challenge. She is responsible for high productivity. After all, Total
Telephone Wire is profit motivated.
Percy researched ways to improve productivity and came across a book on behavioral management theory.
She found that a greater concern for employee needs leads to higher satisfaction levels and better overall
performance, which leads to behavioral changes in their response to work.
Percy changed the way she managed the ladies. She asked questions about their work environment. She
even took suggestions about how they can perform their job more efficiently. What Percy discovered is that
the more she connected with the ladies, the more motivated they were to perform and do a good job. This
changed their behavior towards Percy's drilling orders, and it increased their productivity.
Behavior is defined as the way a person conducts themselves towards others. When workers are treated as
humans rather than machines, they respond to their particular work situation in a positive way - by
increasing individual productivity.
Percy read the work of theorists who described the things that inspire people to go to work. What she
learned was astonishing. While salary is important, it is not the only important consideration. Workers had
more intrinsic motives for working, like:

Self-fulfillment

Autonomy and empowerment

Social status

Personal relationships with co-workers

Motivation is the internal process that directs enduring behavior. For Percy, this means workers are often
inspired from within, not always as a result of external factors, to work. Motivation comes from many
factors:

42

Position in the company

Pay and stability

Benefits

Incentives and rewards

Interesting work assignments

Common beliefs and values

Percy started an incentive program. Telephone line workers would receive extra money for high production.
She also offered benefits like tuition reimbursement so Daphne could attend fashion school.
These factors, in combination with things like:

Positive feedback and appraisals

Good communication

Good working conditions

Involvement with decision-making

Common goal setting

Group processes

Good leader-worker relations

led to a more productive and satisfied set of workers because behavioral management theory relies so
heavily on behavioral and motivational factors.
Lesson Summary

In summary, behavioral management theory shifted management's belief that workers were like machines
and productivity was the result of management's drive for profits alone.
Theorists like Elton Mayo and others began studying the motives and behaviors of employees to find out
what motivates employees to work harder. Observing a control group as they worked and manipulating
variables like break times revealed that when workers feel a sense of autonomy over their work, their
productivity increases. This shocking revelation instigated the need to re-think the leader-worker
relationship. This gave way to the notion that workers are intrinsically motivated to work. When work is
self-fulfilling and brings a high degree of satisfaction, productivity is high.
Managers shifted focus from mere production and began building strong relationships with workers. To do
this, managers provided employees with positive feedback and appraisals, good working conditions,
involvement in decision-making, and good communication. Ultimately, managers who show concern for
workers have high productivity because workers experience increased satisfaction.

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Chapter 3Lesson 3

The Hawthorne Effect: The Study of Employee Productivity

Does your behavior change when you think people are watching? This lesson describes the
purpose and findings of the Hawthorne studies and their contribution to the practice of
management.
Social Context of Work Environments

Meet Tom. He is a young college graduate who was hired at Trekkie Technology about six months ago. Tom
is miserable at Trekkie because he cannot stand the people that he works with. Jim is a pompous jerk, Mary
is a constant complainer, Sarah spends more time gossiping than working and Tom's boss, Bill, is never
around when Tom needs him. Instead of focusing on his job, Tom spends much of his workday distracted,
trying to keep his emotions in check so that he does not tell his coworkers what he really thinks of them.
Needless to say, Tom avoids these people at all costs, which is relatively easy due to his coworkers'
preoccupations with themselves and others keeping them away from their desks.
Meet Jenny. She was in Tom's graduating class but is employed at The Force Technology, a direct
competitor of Trekkie Technology. Unlike Tom, Jenny loves her job, especially because of the people she
works with. Jenny has always found The Force to be a great place to work because her coworkers and
manager are supportive and work together to help each other succeed. Jenny's manager, Irene, considers
herself a part of the team and even shares the same workspace as her subordinates. Jenny is able to focus on
her work and ask questions when needed and is highly productive as a result.
What makes Tom and Jenny so different? They both graduated from the same school. They both work for
technology companies. However, what is clearly different is the social context in which they perform their
work. Tom works in a distracting, negative work environment, whereas Jenny works in a supportive and
inspiring work environment. Productivity is directly affected by these work environments. For Tom,
productivity is diminished, but for Jenny productivity increases.
The Hawthorne Effect

The correlation between the social context of a workplace environment and employee productivity can best
be understood by examining the Hawthorne effect.
The Hawthorne effect is a psychological phenomenon in which participants in behavioral studies change
their behavior or performance in response to being observed by the individual conducting the study. In the
workplace, the Hawthorne effect can explain how the more attention an employee receives from managers,
coworkers and customers, the higher the level of effort and employee productivity. Essentially, productivity
increases when employees think that they are being watched or observed closely.
If we go back to our example of Tom, his manager was never around when Tom needed him, and his
coworkers were more interested in themselves or gathering the latest gossip on others. This allowed for

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Tom's productivity to decline. However, Jenny's work environment was much different in that she worked
closely with her coworkers and manager, a factor that Jenny felt increased her level of productivity. Because
Jenny worked collaboratively with her coworkers and manager, she felt a sense of teamwork and common
purpose.
The Hawthorne Studies

The term 'Hawthorne effect' was derived from the location where the phenomenon was first witnessed
during a series of experiments: Hawthorne, Illinois. What are commonly known as 'the Hawthorne
experiments' consisted of two studies conducted at the Western Electric Company's Hawthorne Works,
just outside of Chicago, from 1924 to 1932. The Hawthorne studies were designed to find ways to increase
worker productivity.
Up until this point, the focus of increasing productivity in workers was based on Frederick Taylor's work in
finding the best possible way to perform a task and using financial rewards as incentives to increase
employee motivation. The Hawthorne experiments were along those same lines.
The first experiment, conducted by a group of engineers, looked at what effects lighting levels had on
employee performance at Western Electric. The results of the study showed that even as lighting levels
decreased, employee performance continued to increase - that is, until the workers could no longer see, after
which productivity naturally declined.

Mayo and Roethlisberger conducted the second Hawthorne experiment

The second experiment was conducted a few years later by Elton

Mayo and Fritz J. Roethlisberger, who supervised a group of five
women in a bank writing room. As part of the experiment, the women
were given special privileges such as periodic breaks from work, free lunches and pay increase incentives.
This study also resulted in increased employee performance. Mayo and Roethlisberger did not attribute the
increased performance to the special privileges; rather, they concluded that the increased levels of
productivity were a result of the supervisory arrangement. That is, because the experiment placed the
observers in close proximity to the five women being observed, the interest in the workers on the part of the
observers is what increased the five women's motivation to modify performance. The five women wanted to
be seen as high performers by the observers.
The Hawthorne Studies' Legacy

The conclusion from the Hawthorne studies illustrates the importance of considering the social and human
relations needs of workers. Mayo and Roethlisberger's conclusions about productivity increasing when
management and coworkers made employees feel valued by showing them additional attention was in sharp
contrast to the common perceptions of that time.

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Suddenly, financial rewards were found to be much less conducive to worker motivation and productivity.
The Hawthorne studies paved the way for behavioral management theory and have significantly shaped the
manner in which employee motivation is accounted for in the workplace. For Tom and Jenny, these same
social aspects are what directly affected their levels of productivity and overall job satisfaction. Indeed, the
legacy of the Hawthorne studies lives on as we continue to regard social and human relations as crucial
aspects of business management.
Lesson Summary

Let's review. The Hawthorne effect is a psychological phenomenon in which participants in behavioral
studies change their behavior or performance in response to being observed by the individual conducting the
study. In the workplace, the Hawthorne effect can explain how the more attention an employee receives
from managers, coworkers and customers, the higher the level of effort and employee productivity.
Essentially, productivity increases when employees think that they are being watched or observed closely.
The term 'Hawthorne effect' was derived from the location where the phenomenon was first witnessed
during a series of experiments designed to find ways to increase worker productivity. The Hawthorne
experiments consisted of two studies: one on lighting levels at Western Electric Company's Hawthorne
Works and the other on offering special privileges to five bank workers. What was not blatantly obvious at
the time soon became a staple of behavioral management theory. That is, it is important to consider the
social and human relations needs of workers. Such needs have a direct effect on employee performance and
levels of productivity.
Chapter 3Lesson 4

The Needs Theory: Motivating Employees with Maslow's

Hierarchy of Needs
Hunger, thirst, security, friendship, respect and being all that you can be are just some of the
things that motivate us to take action. This lesson helps us to further understand these needs
and how they motivate behavior by showing where they fall in Maslow's hierarchy of needs.
Needs Theory of Motivation

Effectively motivating employees has long been one of management's most important and challenging
duties. Motivation refers to the psychological processes that stimulate excitement and persistence of
voluntary actions aimed at some goal. Because motivation can be highly individualized, managers use a
wide range of techniques to keep their employees motivated and happy. Therefore, it is essential for
managers to understand the psychological processes involved in motivation so that they can effectively
direct employees towards organizational goals.
Needs theories attempt to identify internal factors that motivate an individual's behavior and are based on
the premise that people are motivated by unfulfilled needs. For example, if you were dissatisfied with living

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in your parents' basement at age 40, you might go out and find your own apartment. In doing so, you will
fulfill the need for privacy, independence and the ability to bring a date home without having to explain why
you still live with your parents. Needs are psychological or physiological insufficiencies that provoke some
type of behavioral response. The needs a person has can range from weak to strong and can vary based on
environmental factors, time and place.

Maslow developed the hierarchy of needs theory.

Maslow's Hierarchy of Needs Theory

One of the most popular needs theories is Abraham Maslow's hierarchy of

needs
theory. Maslow proposed that motivation is the result of a person's attempt at fulfilling five basic needs:
physiological, safety, social, esteem and self-actualization. According to Maslow, these needs can create
internal pressures that can influence a person's behavior.
Physiological needs are those needs required for human survival such as air, food, water, shelter, clothing
and sleep. As a manager, you can account for physiological needs of your employees by providing
comfortable working conditions, reasonable work hours and the necessary breaks to use the bathroom and
eat and/or drink.
Safety needs include those needs that provide a person with a sense of security and well-being. Personal
security, financial security, good health and protection from accidents, harm and their adverse affects are all
included in safety needs. As a manager, you can account for the safety needs of your employees by
providing safe working conditions, secure compensation (such as a salary) and job security, which is
especially important in a bad economy.
Social needs, also called love and belonging, refer to the need to feel a sense of belonging and acceptance.
Social needs are important to humans so that they do not feel alone, isolated and depressed. Friendships,
family and intimacy all work to fulfill social needs. As a manager, you can account for the social needs of
your employees by making sure each of your employees know one another, encouraging cooperative
teamwork, being an accessible and kind supervisor and promoting a good work-life balance.

The five basic human needs

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Esteem needs refer to the need for self-esteem and respect, with self-respect being slightly more important
than gaining respect and admiration from others. As a manager, you can account for the esteem needs of
your employees by offering praise and recognition when the employee does well, and offering promotions
and additional responsibility to reflect your belief that they are a valued employee.
Self-actualization needs describe a person's need to reach his or her full potential. The need to become
what one is capable of is something that is highly personal. While I might have the need to be a good parent,
you might have the need to hold an executive-level position within your organization. Because this need is
individualized, as a manager, you can account for this need by providing challenging work, inviting
employees to participate in decision-making and giving them flexibility and autonomy in their jobs.
As the name of the theory indicates, Maslow believed that these needs exist in a hierarchical order. This
progression principle suggests that lower-level needs must be met before higher-level needs. The deficit
principle claims that a once a need is satisfied, it is no longer a motivator because an individual will take
action only to satisfied unmet needs. If you look at this pyramid you can see how Maslow's needs are
organized with basic physiological needs, such as air, food, water and sleep, at the bottom and the idea of
self-actualization, or when a person reaches the full potential in life, at the top. Again, according to Maslow,
before a person can take action to satisfy a need at any level on this pyramid the needs below it must already
be satisfied. To better understand how Maslow's hierarchy works, let's take a look at the following example.
Maslow's Needs in Context

Meet Eric. He is a young boy who just started his summer vacation and cannot wait to go outside and play
with his friends. As he walks towards the door he hears his stomach growl and realizes that in his excitement
he forgot to eat. Eric knows that he won't be able to have fun playing outside if he is hungry, so he stops off
at the fridge and grabs a bite to eat, as well as a bottle of water to take with him outside in case he gets
thirty. Eric has now satisfied his basic physiological needs.
Once outside Eric notices a creepy individual in a van sitting down the street who is offering his friends
some bottled water to drink. Just then, Eric realizes he left his bottle of water sitting on the kitchen counter.
Eric sure is thirsty, but this man makes Eric feel unsafe. Unfortunately, the need to satisfy his thirst is
stronger than his need for safety, so Eric approaches the van and asks the man for some water to drink.
When the man turns around, Eric sees that the man is none other than his fourth-grade teacher Mr. Jenkins.
Eric's need for safety was fulfilled once he recognized that he was no longer in danger, but even if this need
was not met, Eric still would have been able to fulfill the lower-level physiological need by getting water
(even if the guy did not turn out to be someone Eric knew).
After playing outside for a few more hours with his friends, which satisfies Eric's social needs, a new kid on
the block joins them. Eric's friend Mark introduces the new kid as Bruno. Bruno starts to bully Eric, which
makes Eric feel unsafe. Even though Eric wants to continue to fulfill his social need by hanging out with his
friends, he chooses to go back inside because his need for safety overrules his social needs. When Eric gets
back inside, he reflects on how much self-respect he has and knows that he did not deserve to be treated like
that by Bruno. He gets bored quickly and feels left out, so he heads back outside. Eric's social needs become

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more important than his esteem needs; while Eric knows Bruno will continue to insult him, he cares more
about fulfilling his social needs by hanging out with the larger group.
Eric really wants to be the most popular kid in his group; this is Eric's self-actualization need. He sees that
goal getting closer when Bruno starts to pick on Mark, who currently holds the title of 'most popular'. Eric
knows he could join Bruno and show that he is cooler than Mark and thus, more popular. However, Eric
fears this may cause Mark to dislike him, and Eric's need for esteem and respect are more important to him
than his need for self-actualization. So, he asks Bruno to stop teasing Mark. Eric knows there will be other
chances to steal the title of 'most popular,' which won't tarnish his reputation as a nice guy.
Lesson Summary

Let's review. Needs theories attempt to identify internal factors that motivate an individual's behavior and
are based on the premise that people are motivated by unfulfilled needs. One of the most popular needs
theories is Abraham Maslow's hierarchy of needs theory. Maslow proposed that motivation is the result of a
person's attempt at fulfilling five basic needs: physiological, safety, social, esteem and self-actualization.

Physiological needs are those needs required for human survival such as air, food,
water, shelter, clothing and sleep.

Safety needs include those needs that provide a person with a sense of security and
well-being. Personal security, financial security, good health and protection from
accidents, harm and their adverse affects are all included in safety needs.

Social needs, also called love and belonging, refer to the need to feel a sense of
belonging and acceptance. Social needs are important to humans so that they do not
feel alone, isolated and depressed. Friendships, family and intimacy all work to fulfill
social needs.

Esteem needs refer to the need for self-esteem and respect, with self-respect being
slightly more important than gaining respect and admiration from others.

Self-actualization needs describe a person's need to reach his or her full potential.

Maslow's theory is based on two principles. Progression principle suggests that lower-level needs must be
met before higher-level needs. Deficit principle claims that a once a need is satisfied it is no longer a
motivator because an individual will take action only to satisfied unmet needs.
As a manager, you should review the specific steps that can be taken to provide your employees with a
means of satisfying all of Maslow's needs. Remember, a motivated employee is an asset to any organization
and it is up to you to provide motivators to your employees.
Chapter 3Lesson 5
Theory X & Theory Y: Two Types of Managers Have you ever thought your boss despises you
and all your co-workers? Or maybe you've lucked out and your superiors really encourage you

49

to be yourself. This lesson describes the two types of managers you might have, Theory X and
Theory Y. Find out how the idea of self-fulfilling prophecies affects employees actions
according to Douglas McGregor.

The Assumptions of Douglas McGregor

Much like a bomb, assumptions are a dangerous thing to make - just the slightest little mistake and you can
end up blowing yourself up! However, one person who seemed to be unafraid of self-inflicted explosions
was Douglas McGregor, a behavior management theorist who was heavily influenced by both Abraham
Maslow and the Hawthorne Studies. McGregor proposed that there were two types of managers: ones who
assumed a negative view of their employees, also known as the Theory X managers, and others who
assumed a positive view of workers, or the Theory Y managers. So grab your bomb repellent while we
explore these two different types of managers by discussing the assumptions of each.

Theory X
Xavier is a Theory X manager. When I say X, I don't mean the type that marks a treasure - in fact, quite the
opposite is true. As a Theory X manager, Xavier believes that his workers:

Hate the idea of having to go to work and do so only to earn a paycheck and the
security that it offers.

Are inherently lazy, lack ambition and prefer to be directed on what to do rather than
assume responsibility on their own.

Are self-centered and care only about themselves and not the organization (or its
goals), making it necessary for the manager to coerce, control, direct or threaten with
punishment in order to get them to work towards organizational goals.

They also dislike change and tend to resist it at all costs.

Xavier assumes that his employees show up for work for their paycheck and the security that a regular,
paying job offers. As soon as that need is satisfied, the employees have no additional motivation for coming
to work. Therefore, Xavier believes his role as a manager is to coerce and control his employees to work
towards organizational goals.

Theory Y
Yoko is a Theory Y manager, and when I say Y here, think 'why not.' Why not assume the best in people? As
a Theory Y manager, Yoko believes her employees:

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Accept work as a normal part of their day, and it's right next to recreation and rest.

They are not lazy at all. In fact, when the proper motivations and rewards are in place,
employees are not only willing but purposely driven to seek out responsibility and
challenges on their own.

They're full of potential, and it's through their own creativity, ingenuity and imagination
that organizational goals are met.

Yoko assumes that her employees are full of potential and that it is her role as a manager to help develop
that potential so that the employee can work towards a common organizational goal. Yoko must also try to
harness the motivational energy of her employees through things such as giving them more autonomy,
responsibility, power, trust and feedback and involving them in the decision-making process.

The Self-Fulfilling Prophecies

As the old saying goes, 'be careful what you wish for, because you just might get it.' McGregor cautioned
both types of managers against what he called self-fulfilling prophecies, whereby an employee will act just
as the manager assumed he or she would due to the manager's own actions and behaviors. Essentially, if you
hold people to a certain expectation - whether that's good or bad - your own actions as a manager will
influence those employees to act accordingly. A manager's behavior and expectations are as contagious as
the plague. As such, McGregor acknowledged both types of managers as being a legitimate means of
motivating employees, but he felt that you would get much better results through the use of Theory Y rather
than Theory X.

Lesson Summary
Douglas McGregor believed that there were two types of managers: Theory X and Theory Y. The role of
the Theory X manager is to coerce and control employees to work towards organizational goals. The
Theory X manager assumes employees hate the idea of having to go to work and do so only to earn a
paycheck and the security it offers. They are inherently lazy, lack ambition and prefer to be directed on what
to do rather than assume responsibility on their own. They are self-centered and care only about themselves
and not the organization or its goals, making it necessary for a manager to coerce, control, direct or threaten
with punishment in order to get them to work towards organizational goals. They also dislike change and
tend to resist it at all costs.
The Theory Y managers believe their role is to help develop an employee's potential so that s/he can work
towards common organizational goals. The Theory Y manager assumes that employees accept work as a
normal part of their day right next to recreation and rest. They are not lazy at all. In fact, when proper
motivations and rewards are in place, employees are not only willing but purposely driven to seek out
responsibility and challenges on their own. The employees are full of potential, and it is through their own
creativity, ingenuity and imagination that organizational goals are met.
McGregor cautioned both types of managers against what he called self-fulfilling prophecies, whereby an
employee will act just as the manager assumed he or she would due to the manager's own actions and
behaviors. McGregor acknowledged both types of managers as being a legitimate means of motivating
employees, but he felt that you would get much better results through the use of Theory Y rather than
Theory X.

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Modern Theory of Management

Chapter 4 Lesson 1

'Manage' Is an Adjective

52

Throughout history, there have been managers. Well, the reality is that way back in the day they were called
'leaders' or 'adventurers,' but as time went on the term 'manager' began to take hold. No one would ever
think Christopher Columbus 'managed' his way to the Americas or that George Washington 'managed' the
U.S. army. In many cases, these guys knew what they wanted to do or knew what they had to do and did it.
Even today, we typically do not talk about managers per se but rather leaders. 'Manager' has become more
of an adjective than a noun, describing what someone does or their role. 'Bill manages the department'; 'she's
a great manager'; 'he managed the team very well', etc.
What we have to understand is that a leader does indeed manage what they are responsible for. And, over
time, there have been multiple theories of management that have evolved and that these leaders use as a
guiding force behind their management or leadership philosophy. The three most recognized management
theories are:

The Quantitative Approach: This approach is centered on statistics and

mathematical techniques - sounds like a boatload of fun if you ask me.

The Systems Approach: As one could probably guess, this approach focuses on
systems that, when put together, make a whole unit, kind of like a jigsaw puzzle.

The Contingency Approach: This approach believes there is no one system or

approach to managing an organization. These guys believe you take it as it comes but
plan to deal with issues if they pop up. Anyone who has ever had a baby knows moms
and dads have contingency plans all over the place just in case junior gets sick, is
hungry or needs a nap.

So in this lesson let's take a look at these different theories and how they shape how leaders (okay,
managers) manage these areas or companies they are responsible for. It's important to understand, though,
that in one company, all these different approaches can be used. There's not one that is better than another,
just different, and sometimes they have to be blended together for a company or organization to run.
Quantitative Approach

Okay, get out your slide rules and calculators, because that is what this approach uses as its guiding
principles. You see, the quantitative approach is solely reliant on statistics and data. The big word we are
looking for here is quantitative, which means the measurement of quantity or amount. So a bunch of really
smart people get together and they crunch and crunch data to decide how a business should run or be
managed. Scientists use this approach a great deal and, in many cases, so do accountants and finance people,
mainly because their world revolves around data. It is not glamorous or creative. Heck, it could even be said
it isn't fun, but someone has to do it, and each part of a company or organization needs people to use this
approach.
Think about if you had a manufacturing company that made flying monkeys. Well, someone has to
statistically look at the data to make sure the monkeys are flying as far as they should and monitor if you are
producing any defective monkeys (and no one wants a defective monkey). This data, once it's gathered, is
presented to the company for review and action if needed.

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Systems Approach

Now let's talk a little about the systems approach. When I was younger, I used to play with Legos - those
little building blocks that I could make a house or car out of (okay, I thought it looked like a house or a car,
but it probably looked more like a squid that was in a train wreck). In many ways, the systems approach to
management is very much like Legos. The systems approach takes the viewpoint that a company is really
an interconnected group of systems that all work together (or should work together). The best way to view
this system is by thinking of a company as a machine. You have:

Inputs: Material, information or data that goes into the machine

Processes: Work that is done to the material, information or data while it's in the
machine

Outputs: The final product that comes out of the machine

Okay, so in this system, managers see the company as one big machine that has to work together to take
inputs and make them outputs. As an example, let's look at a toaster. The systems approach to management
believes you put in bread, turn on the toaster and, when the process is done, toast comes out, hopefully not
burned too much. Their job or belief is to work with each part of the system to make sure the end result is
what is needed - what went in, what happened while it was in there and what it looked like when it came
out.
To compare this to the quantitative approach, a manager that follows that approach would only want to
know data about how long the bread was in the toaster and the level of, well, toasting that happened when it
came out.
So we can begin to see how, in some companies, we have a blending of approaches to managing the work or
organization. One wants to keep and track data to see how the company is functioning, and in many cases,
that data can be presented to the manager that follows the systems approach to make changes needed if
things are not running right in the process.
Contingency Approach

All this planning and thought is great, but you know what, stuff happens - systems break down, parts are not
correct, people call in sick and buildings slide into the ocean. Thus, it is the contingency approach to
management that takes this viewpoint into account by believing there is no one set way to manage a
company. In a nutshell, these are the people that believe the car will run, and we'll get to the destination, but
we'll always have a spare tire, lug wrench and cell phone in case what is supposed to happen (the car getting
to where it is supposed to go) does not happen.
Individuals that follow this approach believe there is no one way to manage a system or company. For these
individuals, all the facets of management (planning, leading, organizing, controlling) are different for every
circumstance, very much like men's clothing stores that sell suits. Every suit has to be tailored to the person

54

buying it - some are short, thin, tall, plus-sized, whatever, and you have to address each circumstance as it
comes at you. Sure, you can speak with the person that believes in the quantitative approach to get statistics
on how many tall people come into your store each day, and you can talk to the person that believes in the
systems approach and have a process to handle all the different material coming in so you can make the suits
fast, but the contingency approach deals with the simple fact that you do not know what the day will bring.
You could have data that says 100 tall men will come into the stores each week, but that does not tell you
who will come in that day. Similarly, the systems approach can be in place to take that same data and make
sure you are ready to produce tall suits as quickly as you can. However, with the contingency approach, we
will sit there and say we do not know what is really going to happen, so we have to be prepared to shift
gears and react if needed. These are the people that are ready for a day of 25 plus-sized people and 50 short
people when everyone else was geared up for a parade of basketball players to come in.
Lesson Summary

So as you see, each of these approaches to management can stand on its own, but it is best to have them all
working together, as every company needs them to be present. When we look at a football team, you could
indeed put a team on the field of all quarterbacks, but that is probably not the best team to put out there. No,
instead you use lineman, running backs, wide receivers, etc. to build a complete team. The same is true for
blending these different types of approaches.

The Quantitative Approach: The approach is centered on statistics and

mathematical techniques.

The Systems Approach: This approach focused on systems that, when put together,
make a whole unit.

The Contingency Approach: The approach that believes there is no one system or
approach to manage an organization.

Now hopefully you can see that a company needs finance and data analysis people (quantitative approach),
process and system people (systems approach) and contingency people (contingency approach) to truly be a
well-rounded organization ready for just about anything. There has to be someone analyzing the data so the
systems people can make adjustments while the contingency people are prepared in case something goes
wrong with the process.

Quantitative School of Management: Improving Managerial

Decision-Making
Chapter 4 Lesson 2

World War Births a New Management Method

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No one would ever think that from a war, a new method of management could be born. When we think of
wars, there are a lot of images that come to mind - but certainly, new management methods are not one of
those images.
However, during World War II, scientists, mathematicians and physicists all got together to solve some
military problems (most notably, the atomic bomb). This cooperation and teamwork was the foundation that
helped develop the quantitative school of management. Now, you see, management was looked at as a group
of systems to improve decision making. I do not think anyone could argue that when your problem is how to
split an atom, the decision making has to be very precise and incorporate statistical analysis, information
models and computer simulations.

Parts of the Quantitative Machine

The quantitative school of management strives to combine classic management theory and behavioral
science through the uses of statistical models and simulations. Wow, let's try to put that in a little more
easily-understood terminology. First, we have to understand classic management theory.
Classic management theory focused on how to find the best possible way for workers to perform their
tasks. In practice, it was broken down further into two parts: first, how to increase productivity (the classical
science branch), and second, how management - or the company - can be organized to achieve productivity
(the classic administrative branch). These two areas of focus worked together to develop theories and ideas
that helped companies be more effective.
The behavioral aspect came into play when companies started looking at how to motivate, lead and, indeed,
manage their employees. Companies realized that people were a part of the equation and needed to be
incorporated into the entire process. This part of the process looked at how people behaved and why they
behaved the way they did, then blended those findings into management theories to get more out of the
workers.

What Decision Making Grew Up to Be

From these beginnings, companies began to look more scientifically at decision making, and not just with
reactive thought processes and gut instincts. Quantitative management theory (QMT) began to shape and
form specific areas of how decisions could be processed to ensure a more informed result. Since this theory
really started with scientists and mathematicians, it's easy to see how a great deal of the theories and
processes they developed centered on statistics, models and data to get the best possible result. That thought
process pushed the QMT to be structured in the following areas:

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Management science

Operations management

Management information systems

Systems management theory

Let's take a look at these in a little more detail so you can see how they helped shape and develop the
quantitative school of management, as well as how decisions are made.

Four Parts of the Process

Management science originally started to treat the problems that could occur or arise with global warfare.
(Pretty nice beginning, huh?) In today's world, it encourages and supports managers in using math and
statistics to solve problems. When we take a second to think about it, most of the time managers are using
statistics and some sort of math (I know we all love math) to better understand problems so they can come
up with the right solution.
Operations management focuses on managing the process of blending materials (employees), in the form of
labor, and capital (money and equipment) into useful goods or services. In many ways, it can be looked at
like a traffic cop directing all the parts of traffic. Materials can go that way and employees can go this way,
while capital has to wait for the light to change. In the end, these three areas come together to help the final
product leave the factory or be presented to the customer.
Management information systems organize data from the past, present and what could be projected from
sources within the company and outside the company, and processes it into usable information. This
information helps managers make decisions because it supplies information, such as tracking trends or
showing what might happen to a company in 90 days if sales stay the way they are. It literally manages all
this information and makes it available for managers to look at, review and analyze.
Systems management theory is a little more basic to understand. It takes inputs, puts them through a
transformation process, produces outputs and finally gives feedback on the systems the company is using.
That system could be production, or a system for paying their bills or even accounting. If we look at a
system like a machine, it is easy to understand the process. Take baking a cake, for example. The cake goes
into the oven (input), then the oven heats up and bakes the cake (transformation process), the cake is then
taken out of the oven (output) and tasted (feedback). Hopefully, if you did all this right, you have a goodtasting cake as opposed to a door stop or paper weight.
All four of these (management science, operations management, management information systems and
systems management theory) can be present in a company to help managers make decisions. Just like our
cake example, some people might use more sugar than others to bake a cake, or some may use a different
type of oven, but in the end, the cake does get baked. So, these four areas can be present in a company in
varying degrees and used by some or all of the departments and managers to help them make decisions.

Lesson Summary
The impact of the quantitative school of management has been tremendous. Literally, it has changed the way
managers look at and address issues and make decisions. Before it was developed, managers would go a lot
more on gut feeling and history to make decisions. While that worked for some time, as the world grew
more competitive, managers had to solve problems in a more exact manner than just guessing.

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Think of a situation where you have an older person and a younger one. In today's world, if there is a
problem to solve, and the older person presents his or her thoughts based on gut instinct and history (this
would be the old classic approach) while the younger person brings in data and systems and reports that
show trends, whom do you think the executive team of the company is going to listen to?
So, the quantitative school of management is comprised of many different parts:
The quantitative school of management strives to combine classic management theory and behavioral
science through the uses of statistical models and simulations.
Classic management theory focused on how to find the best possible way for workers to perform their
tasks and was the predecessor to the quantitative school of management theory.
From there, the quantitative school of management theory developed into four areas:
Management science encourages and supports managers in using math and statistics to solve problems.
Operations management focuses on managing the process of blending materials, employees in the form of
labor and capital (money and equipment) into useful goods or services.
Management information systems organize data from the past, present and what could be projected from
sources within the company and outside the company and processes it into usable information.
Systems management theory takes inputs, puts them through a transformation process, produces outputs
and finally gives feedback on the systems the company is using.
All this allows us to look at problems with more data and make better decisions.

Operations Management: Focusing on Production Efficiency &

Customer Satisfaction
Chapter 4 Lesson 3
The Pieces of a Company

I like the ocean and I always have. There's something soothing about being at the beach, seeing and hearing
the waves roll in, and feeling the sand between my toes. One of the other cool things about being at the
ocean is the sea life. Now, I'm not talking about running into a great white shark or anything like that, but
the sea life you see as you walk along the beach or climb out over the breakers.
Some of the sea animals that I always come across are starfish in all different shapes and sizes. One of the
cool things about starfish is that if they lose an arm, it will grow back (pretty cool trick, if I say so myself).
And while that might be cool for a starfish, this same situation does not exist in business. You see, if
business was a starfish, it would have multiple arms that could represent:

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Operations

Finance

Marketing

Sales

Human Resources

If any of these arms falls off, they cannot grow back and will most certainly damage the organization. And
while they are all very important to the organization, for this lesson, we are going to focus on the operations
arm of the company. This arm is responsible for ensuring the company produces a product efficiently and
ultimately helps with the profitability of the company while also making sure customers are happy with their
final product.
Parts of Operations Management

If you ever want to get a real-world look at operations management, just take a look at how your
Thanksgiving dinner comes together. You see, operations management can be described as the overseeing
and controlling of the manufacturing process to include materials planning, process planning, capital
requirements, and human capital. Wow - now that was one heck of a definition. Let us break each portion of
this definition down a little more to help you understand its parts.

Materials planning is the coordination of purchasing and delivery of raw materials to

make the final product.

Process planning deals with designing the processes required to ensure the product
can be made in the shortest amount of time, with as little waste and as efficiently as
possible.

Capital requirements is the portion of operations management that deals with

buildings and machinery.

Human capital is the management of the employees that help run the facility.

Now that we have talked about those areas, let's put them into the Thanksgiving dinner scenario so you can
have a better understanding of how they work in operations management. Anyone who has ever seen their
mother or grandmother cook a Thanksgiving dinner knows there is some serious operations management
going on there.
First, we have to look at materials planning. Someone, usually mom or grandma, has to make a list of all the
items (materials) they will need - the turkey, of course, as well as all the other items (cranberry sauce,
potatoes, green beans - man, this is making me hungry). So all the materials are identified and then
purchased.
Now we move on to process planning. For our dinner, we're looking at how the different items will be put
together (the process) so it all hits the table at the same time. The bird has to go in first, and the others items
follow suit. But the turkey also has to be prepped, stuffing needs to be made to go inside the turkey, and so
on. Thus, we're looking at the individual steps we have to take to get this dinner going, and they have to be

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in order so it all makes sense. Without process planning (or knowing the turkey has to go in first), we would
have a table of green beans and biscuits while we're waiting on the turkey for another few hours.
All of these materials would not be available to eat at the dinner if we did not have the house and oven to
cook them in. Imagine if the dinner we are thinking about had too many pieces to be made in one kitchen.
We would need additional capital (more ovens or stoves) to make the dinner happen - these are our capital
requirements. You can see that this can be discussed when we are looking at the materials planning. So, for
example, if we have one oven and need three turkeys, we obviously have a capital problem (not enough
ovens). So as a company looks at the materials planning, they have to make sure the process they have can
accept or use all the materials coming in and that there is enough capital (machinery, etc.) to process all the
materials coming in.
Finally, we have how many cooks are involved in this dinner, or human capital. Now, I don't know about
you, but when Thanksgiving went down at my house, it was like watching a wrestling match between all my
aunts. Which one would cook what, who would be responsible for what, etc. was a sight to behold. But the
one thing that was obvious is that we had enough human capital (people to do the job) to get the dinner
done. If we didn't, then all the planning, processes, and material in the world would not get all that turkey on
the table. It is a pretty involved process, but when we look at it in steps and break it down, we can
understand how the individual parts make the whole.
A Narrow Part of the Company

What we just discussed are the facets of operations management. As you can see from what we just
discussed, it focuses on the process of making materials, labor, and capital goods into some sort of finished
product. Operations management does not care about the inputs or the outputs, just that there is some sort of
operation that happens to make a finished product appear.
Old and the New

As we go back in time, operations management was all about getting a product out the door. Assembly lines
and automation were the words of the day, and production (making more products in a faster way) was what
operations management was all about. This started with Henry Ford and grew and grew into more and more
production facilities.
However, while operations management is still focused on production, it's now more oriented toward the
quality of the product. No longer can companies just put out a product, but rather they need to put out a
product that is of good quality and can last. Competition is harder, and to survive, a company must not only
produce a product but produce a good product that can stand up against its rivals.
Oddly enough, one of the driving forces for this is social networking and the Internet. Now, if a product is
not good, an individual can go online and tweet, post, text, or blog to let everyone know the product was not
good. Thus, they tell someone, who tells someone else, and so on and so on until the reputation of the
company and its products is over. Thus, while operations management is a process, that process has shifted
to not only producing product but also producing a good product so the company can grow and thrive.
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Lesson Summary

Our starfish company does indeed have different arms:

Operations

Finance

Marketing

Sales

Human Resources

But these arms must all work together to make the starfish, for lack of a better word, live. And one of the
most important aspects of our starfish is the operations arm, which focuses on:

Materials planning: the coordination of purchasing and delivery of raw materials to

make the final product

Process planning : designing the processes required to ensure the product can be
made in the shortest amount of time, with as little waste and as efficiently as possible

Capital requirements: the portion of operations management that deals with

buildings and machinery

Human capital: the management of the employees that help run the facility

All of these elements help the organization do what it has to do, and that is produce a quality product. Now,
if you'll excuse me, I'm going to get some leftovers before Uncle Tony eats all of them.

Management Information Systems: Using Data to Manage

Operations
Chapter 4 Lesson 4
Management information systems (MIS) are an important source of data for any organization.
How that data is reviewed and analyzed is the responsibility of the managers, and in this
lesson we will describe the role of MIS and how managers can use different types of data MIS
can produce.
Managing Information

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Have you ever thought about time travel? Going backward or forward in time would be a pretty cool thing
to do. You could go back in time and relive parts of your life or go forward in time and see where you might
end up or what your life might look like.
Now, we all know time travel is not possible (ummm, we do, right?). But one thing that is possible is going
back in time to review information or data to help understand and manage our world better. We can also
deploy some cool forecasting tools that can look into the future and give us an educated guess as to what
might happen down the road.
While it might seem odd, we are talking about management information systems (MIS), which is an
organized computer system that gathers data from within and outside the company and processes it so it can
be used by management. The truth is, MIS is a critical part of the management process and a key aspect of
quantitative management. Simply put, without data, we cannot manage effectively because all we would be
going on is our instincts and subjective observations. The data that MIS manages allows us to look back in
time, study the present or predict what might happen in the future by collecting and analyzing data.
Building a House

If we take a second to think about building a house, we can begin to get our heads around management
information systems. I know it's a pretty far stretch, but stay with me and you'll begin to see what I mean.
Let's say you want to build a house. You show up at the building site and all the materials are there: wood,
plumbing, carpeting, paint and anything else you could imagine that you would need. Now, go build the
house. What's that? You don't know how?
Well, the same analogy can be used when we look at running a business. Managers don't just get up in the
morning and start working. They need information - data - in order to know what they are doing or what
needs to be done. That data comes from and is managed by the MIS and helps the manager to understand
what he or she needs to do in order to run the business.
Managers do not show up, see a bunch of building material and have no idea what to do. Rather, they show
up and have printouts and reports of data so they can manage, lead and direct their teams they way they
need to. It is not by luck that businesses grow. Instead, it is by careful planning that follows analysis of data.
Just like we discussed, if management did not have people to assemble data so it made sense, they would
have a pile of materials - just like the house example we talked about. Managers ask the information
management team to compile the data they need so they can analyze all that information and put it all
together to make their businesses grow.
Raw Data

Data has to be pulled from the data system the company uses in order to be assembled into something a
manager can view and understand. The MIS houses raw data, and it is by no means organized and formatted
for the manager to view. Rather, reports are compiled, saved and run at regular intervals to pull data from
the system so it can be reviewed.

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There are standard reports that most companies use (financial reports, inventory reports, etc.), and they help
run the company on a day-to-day or week-to-week basis. Individuals in the company that are responsible for
these areas regularly receive these reports to see if they have too much or not enough inventory, if sales are
up or down or any other key aspect of business. This type of data is standard, if you will, and is the result of
basic business needs.
Data Looks Forward and Backward

Having reports that are standard is great, but they are not always going to give us the information we need to
either look back or look ahead as we run a business. Knowing where you have been will help you to
understand how you got to where you are now. Understanding that process will help you plan for the future.
We have to remember, though, that we are talking about data, and it's up to the management team to
interpret it and use it to plan for the future. So from time to time, managers ask for custom reports that might
focus on a specific area or issue.
For example, let's say that you run some data regarding the sales of a particular item that is selling less than
all of your other products. As you review the data, you see that there are months where the product simply
does not sell. Consequently, those are also the months where your sales suffer and you struggle to make the
money you need to keep the company going. This data tells you what happened in the past and why you're
getting the results you have now. But how can it help you to plan for the future? After all, you're not looking
at a magic crystal ball but merely data that you've reviewed to get an understanding of your current
situation.
Well, that data tells you that you need to either find a way to get that product to sell in the months that it
does not sell or you need to find other products to sell during that timeframe to help your business. So this
past data that you looked at is helping you to plan for the future. It is important to understand that you are
collecting this data to help you plan for the future, but it's not a guarantee that the decisions you make will
be correct. Instead, they are informed decisions based on information pulled from your data.
Two Types of Data

It might sound a little funny, but all this data has a split personality. It can either be qualitative, which
explains the how and the why through some type of inspection or viewing of a problem or issue, or
quantitative, which measures how long or how often something is occurring through statistical analysis. So
when managers are asking to review data so they can make accurate decisions, they need to understand what
type of data they're getting.
It is easy to see how the quantitative data tells them how often something occurred or how long a situation
has been present, but from that information they need to develop a qualitative analysis (the how and the why
it is happening through first-hand observations or those of others). This might be the manager speaking with
individuals or even asking for a different report.
So while we have data, it cannot tell us everything we need to know and we still need a manager to come in
and put together why it is happening or why the results are what they are.
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Lesson Summary

Most management information systems give us quantitative data and it is up to the manager to take that
information, blend it with qualitative data and then move towards a decision.
Remember, we have two types of data:

Qualitative, which explains the how and the why through some type of inspection or
viewing of a problem or issue

Quantitative, which measures how long or how often something is occurring through
statistical analysis

Taking these two sources and combining them helps a manager make informed decisions in the world of
quantitative management. Thus, while the manager can ask for information, it is up to the management
information system and people to pull that information and put it into a format that can be reviewed and
assessed. Then the manager takes over and incorporates qualitative data to help reach a conclusion.

Systems Management Theory

Chapter 4 Lesson 5
What Is a System?

People seem to have systems for just about everything: how to get ready for work in the morning, how to
cut the lawn, and even how to do the dishes. The facts are we are a society of systems. Even people that do
not have a system, well, that is their system for doing things. One way or another, systems are all around us
and they are part of our world.
Taking this a step further, the systems management theory believes that a system is a collection of parts
brought together to accomplish some end goal or objective. Looking at it from that perspective, if one part
of the system fails or is taken out, the system itself cannot work. Think about if you have a system to get
ready for work in the morning and part of that system is taking a shower. If there is no hot water (or worse
yet, no water at all), the system breaks down and it is changed. There is still a system, just not the one you
are used to, and you have to change the system in order to get out the door and go to work.
That concept is really the foundation of the systems management theory. For this theory, everything is part
of a system. All pieces go together, and while it can indeed function if one part is taken out, the functionality
is impaired and the system itself has changed.
The Company and the System

If we take that thought process behind this theory, it is safe to say we can begin to see how this theory helps
with a global representation. What I mean is if we have systems, and they work, we can reproduce them all
around the world (okay, with some modifications). Take McDonald's, for example. While the food in other
countries might be different (there are no hamburgers at McDonald's in India), the system to get the food is
the same: walk up, look at the menu on the board, order combo meal number 4, and you're on your way.

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Thus, the system is duplicated around the world, and it works. Again, we do have to make some
modifications, but I don't want you to think that one system works the same everywhere. But even with
modifications, the system makes it much easier for an organization to produce a similar customer experience
around the world. While McDonald's is only one example, there are many more, such as Starbucks, WalMart, and boarding an airplane. The list goes on and on.
As you can see, there is usually a company behind the system, but the system is part of how the company
runs. In a few moments we are going to talk about different viewpoints on systems, and that will also help
you to understand the systems management theory. The best way to understand this concept is to imagine
transportation and different modes of transportation. We can say we are going to California, but we could
take a bus, car, or plane. The same applies to the different viewpoints of the system types involved in
systems management theory.
System Types

While systems themselves can be duplicated and go global, there are aspects of system types (or
architecture, if you will) that help frame the type of system being used. In systems management theory, we
have three basic system types:

Open System: A system that continually interacts with the environment around it. For
example, a manufacturer might use several different suppliers of flour to make the
product they produce, or an organization might have to move or change as the
demands of consumers change.

Closed System: Is the opposite of an open system. It is a system (or company)

independent of the environment around it. Usually when we look at closed systems, we
are looking at very high tech types of products that have limited sources of input and
produce a consistent product or output (like space satellites). In fact, satellites are
produced in a protected environment, like a lab, to ensure there is no contamination.

One of the simplest images that can help you grasp these first two types is a jar. When it's open, it's an open
system. It can interact with air, water and anything else around it. When it has a lid on it, it's a closed
system. It can only interact with what's inside the jar - there are no outside influences on it.
The third basic type is a:

Subsystem: This is much easier to understand. This is a system that is part of a larger
system - much like how the train system around an airport can get you from terminal to
terminal (the larger part of the system).

Another way to get a mental image of subsystems is to think about the human body. One large system
makes us what we are. However, we have the subsystems of the digestive system, nervous system, and
circulatory system contained within us.
The different types of systems exist - as odd as this sounds - where they are needed. It is best not to really
look at them as separate systems, but rather as a viewpoint on what type of system (or we could say product)

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is present. Like our example of the company that needs flour, it is only an open system because the company
does interact with the environment around it (a wide range of suppliers and then, ultimately, a wide range of
consumers). A closed system could be represented by the messages one might get from corporate
headquarters. Those messages go out and tell you what to do, and they are not looking for feedback or
interaction.
Do not get confused about the fact that when we talk about systems here, we are not talking about the
specific steps it takes to produce a product - we're talking about whether those steps, taken together, have
the characteristics of an open, closed, or subsystem.
Order and Chaos in Systems

No matter what system is present, there are times when the system will work right and have synergy, or
order to a process where all the parts work harmoniously and in unison with each other. Or, there are times
that entropy will be present, and that is discord or a lack of predictability, a gradual decline into disorder. In
other words, either things work together or they do not. No matter what system you have (open, closed, or
subsystem) there can be either synergy or entropy present. It is a matter of how the managers producing the
product want the system to work.

Do they want everyone to be on the same page and work in unison with each other as
a team (like a pilot and copilot of an airplane)?

Do they like it when there is discord and people compete or fight against one another
(like a sales team where natural competition and discord is sometimes preferred)?

No matter what system, organization, or process is present, there will be varying degrees of synergy or
entropy present. It is up to a manager to manage these areas and promote or remove them from the situation.
Lesson Summary

Remember, the systems management theory believes that a system is a collection of parts brought together
to accomplish some end goal or objective. Also, within that thought process, we have different system types:

Open System: A system that continually interacts with the environment around it.

Closed System: Is the opposite of an open system. It is a system (or company)

independent of the environment around it.

Subsystem: A system that is part of a larger system.

These types of systems can operate with synergy or entropy. Just because the system is present does not
mean it will run smoothly. What system an organization uses is dependent on the type of product they
produce and how the company wishes to run. No matter what, at the end of the day every company has to
have a system in order to function - it is just a matter of what type of system they choose.

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Contingency School of Management

Chapter 4 Lesson 6
Companies must plan for the expected and the unexpected. In this lesson, we will talk about
the contingency school of management and how that thought process and viewpoint helps
companies to prepare for both the expected and unexpected.
Always Be Prepared

I have to say, I was never a Boy Scout. I do not mean that I did a lot of bad or wrong things when I was
younger (okay, I did some things when I was younger), but what I mean here is I was never an actual Boy
Scout. I have a lot of respect for people who did become Boy Scouts, as they had to go through a lot of
training and exercises to get badge after badge. And, while it might sound odd, the contingency school of
management is a lot like the motto of the Boy Scouts, which is 'Always be prepared.'
What is the Contingency School of Management?

Companies or individuals that subscribe to the contingency school of management do so because they
believe there is no one process, system or approach to running a business. The thought here is planning,
organizing, leading and controlling must be tailored to the specific issues or circumstances a company might
face or is facing. Some questions to ask in the very beginning by the management team might include:

What is the correct thing for us to do in this situation?

Should all departments have the same structure or should each be unique?

Should all decisions be made at one location or all locations?

What should incentives look like for our team?

Managers who subscribe to the contingency school of management believe that while you can have systems
and theories in place to run your business, the right things to do depend on a complex variety of critical
environmental and internal contingencies. There can be different structures and management philosophies in
place unique to each department or business unit, but even they can go wrong down the road or need to
change based on internal and external pressures or circumstances. Thus there will be plans and systems in
place, and they can be the same or different for each department, but should a problem arise, those systems
too should, and very likely will be, changed.
Look at it this way: Before the housing market crashed, companies were cruising along and doing good
business. They had their plans and systems in place to run their business, then bam! The bottom fell out of
the economy. They then had to develop contingencies to deal with that issue. So they could have believed in
a contingency management approach that there is no one set way to run a business and then when the
market changed, they had to develop contingency plans to deal with that change. That is where contingency
planning comes in. Contingency planning is an approach that believes if you want to run a business
effectively for any period of time, you must be prepared for emergencies or disruptions that relate to how

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your business runs. The goal or thought process is that you need to make sure that your company can still
run or operate despite anything that might come up that could stop it from doing so.
While it has not been around for a long time in relation to other management theories, it is one of the most
important aspects of management. Let's face it, things go wrong, and when they do, businesses have to have
some sort of contingency plan in order to survive what went wrong. There are small issues like the power
going out for a while and not having phones to large issues like all of your data crashing, and contingency
planning is the one area that will help you work through these emergencies should they arise. Think of it this
way: If you do not plan for things like this and they happen, you are in much deeper trouble, as you will not
know how to react to what did.
Key Aspects of Contingency Management

There are several key elements or aspects of contingency management that we need to understand so we
really can fully grasp its concept. The first component is business continuity planning. Business continuity
planning is planning and enacting activities that either prevent problems from arising or allow for a plan
should an anticipated risk actually occur. The preventing of problems from happening portion is a lot like
the emergency brake in a car. You rarely if ever (hopefully) have to use it, but if you do it is there in case of
an emergency, like your main brakes going out. Thus, it was planned for and is in place should a critical part
of your company (in this case, your brakes) fail. I think we can all agree that would be a very serious issue,
and car manufacturers have planned for that by including an emergency brake in the car.
The second portion or aspect is having a disaster recovery plan. A disaster recovery plan is the planned
processes or procedures a company will take to recover from a disaster. When we say disaster, we mean
something very serious such as your data center burning down. In this case, should something of this
magnitude happen, there would be a plan in place to continue working while the issue was addressed as well
as a plan to address the issue should it actually happen. It is something like an insurance policy and plan if
something catastrophic happens to your business and you cannot continue to work until it's resolved.
Environmental Scanning

Companies do not just come up with issues or areas that might cause them to lose time or money and need
some sort of contingency plan. Rather, they conduct what is called an environmental scan, or environmental
scanning, to understand, for lack of a better word, what is out there. Environmental scanning is the careful
monitoring of an organization's internal environments (aspects within the company's four walls) and
external environments (aspects external to the company) to look for early signs of opportunities or threats.
Those threats are the areas where contingency planning will come into play. Typically, when looking at the
internal environment, companies look at several different areas:

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Human resources

Manufacturing

Finance

Data networks

These areas will be reviewed, and any aspects that might cause the company to be negatively impacted what to do if there is a strike, what to do if an important piece of machinery goes down - will be addressed.
When looking at the external environment, companies look at:

Technology

Politics

Competitors

Economy

Once again, if they see an issue that could arise - say, the election of a new president - they will address that
possible issue with contingency planning.
Lesson Summary

As we discussed, the contingency school of management is a management approach that believes there is
no one process, system or approach to running a business. Contingency management, or people that follow
it, will develop contingency plans, which are plans to address any major or minor issues that could
negatively impact the company. They will look at the internal and external environments, and once they
understand the potential problems and the level of severity they have, they will develop business continuity
plans, which contain planning and enacting activities that either prevent problems from arising or allow for
a plan should an anticipated risk actually occur and a disaster recovery plan that has planned processes or
procedures a company will take to recover from a disaster. Contingency management is just like the Boy
Scouts. People and companies that follow it believe they should always be prepared.

Quality School of Management: Kaizen & Reengineering

Approaches
Chapter 4 Lesson 7
All companies strive to improve and deliver a better product. That single thought is driven by
the quality school of management. In this lesson, we will learn about that school of thought
and how it evolved.
It's All About Quality

When was the last time you bought something and were not concerned about its quality? When I say that, I
do not mean small items like dishwasher detergent or paper plates, but rather an important item that took
some thought before you purchased it. In today's world, everyone is concerned with quality, primarily
because money is tight and a product can be reviewed by hundreds of people on the Internet. If the product
is not of good quality, it will get bad reviews that can be read by future potential customers. With that in
mind, manufacturers have to make sure they produce a quality product in order to have any chance of longterm success.

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When we say product, we're talking about the entire purchase experience, which includes the product or
service, after-sales service, warranty, delivery and anything else that comes along with selling a product. It
is that continuous thought process that is the foundation for Total Quality Management (TQM). As we
discuss this topic in more detail, we will talk about two very important aspects of it. The first is Kaizen,
which was developed in Japan and primarily focuses on continued improvement. The second is
reengineering, a principle that argues that an organization, or its processes, should be reviewed and
improved by changing or improving processes.

The History of TQM

First, we need to get an understanding of what TQM is. TQM is an all encompassing and structured
approach to how organizations and their processes are managed and seeks to improve the quality of the final
products and services through continued refinements in response to continuous feedback. That is one heck
of a definition, but in more easily understood terms, it is a belief or ideal that the entire company and its
products or services need to be continually refined and improved to provide the best possible products or
services.
Way back in the day, products would be produced and then inspected to see if they were of the quality
required by the manufacturer. As competition grew, so did the need for higher quality products, which then
grew into the need for formalized quality control departments. Now we had quality managers running
departments that checked quality to make sure the product going out the door was of the quality the
company, and the market, required. However, it would take a major world event for TQM to really kick into
high gear.
After World War II ended, the Japanese economy and manufacturing system were in shambles. The
Japanese saw this issue and realized that to compete in the global economy, and to rebuild what was left of
their manufacturing abilities, they had to focus on producing quality products as efficiently as possible. It
became the single focus - and, some say, obsession - of Japanese manufacturing sectors. As the Japanese
focused on quality, they began to rebuild their economy and manufacturing and slowly grew into a world
manufacturing power. As Japan grew, other countries began to take notice and realized that Japan's approach
to manufacturing, TQM, was making it a very strong competitor; thus it was something other countries soon
adopted.
By the early 90s, countries around the world were working with TQM systems to ensure they would not get
left behind. TQM became the accepted norm for products and services so that customers would be thrilled
with the products they purchased.
But What Really is TQM?

The very essence of TQM is the customer-supplier interface. TQM realized that communication to and from
the customer was vital in producing the best product possible. That communication helped refine processes
within the company as well as change company culture to be more customer focused and quality driven.

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Gone were the days of just making sure the final product was of good quality (items like TVs, toasters and
cars), and now it was more about the total customer experience (purchasing, shipping, customer service,
warranty and repair), driven by customer feedback.
Ah, but you might be saying, what does the company do with the feedback, or how do they process it so that
when they get it, they can improve as a company? Good question. What companies that have a TQM
mindset do is take the feedback they receive and plug it into a defined process to fix or address any issues
they might have. That process looks something like this:

Title: The process is given a title to ensure everyone understands what the company is
trying to improve.

Purpose: The purpose of the refinement is clearly defined so everyone knows why the
company is undertaking the improvement.

Scope: The beginning and end of the process are defined.

Inputs: This is what will be transformed, such as a faulty switch or poor customer
service response times.

Outputs: These are the desired goals or results of the process.

Controls: The company uses controls to manage the process so it stays on track.

Resources: These are what the company or team will have at their disposal to ensure
the change can be supported.

Thus, the company produces a product or service, gets feedback then takes that feedback and puts it into the
process we just spoke about to fix, repair or augment the issue that is arising. Here's an example to help you
understand this a little more clearly:

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Title: Customer service response time

Purpose: To lower customer service response time from five minutes to two minutes

Scope: The project will start on Jan 1 and end on Jan 30

Inputs: Customer service policies and training

Outputs: Improved customer satisfaction with our customer service team

Controls: Timed customer service response time once the program has been refined to
ensure our response times have been reduced

Resources: Customer service team, trainers, software, IT department and customer

participants

So as you can see, the feedback drives the need to refine a portion of the company, and the process we just
talked about will help get to that goal.
Reengineering

It's easy to see that when a company decides to go through this process, they are reengineering themselves,
or a portion of themselves. In many ways, they are breaking the mold, seeing what was wrong with it then
making a new mold that will hopefully help the company deliver a higher quality product. This is not easy
to do, and this is also where culture shifts occur. Parts of the company might be fine with the way they are
doing their job, and it takes a shift in their thinking and a shift in culture to make this happen. What if you
were the owner of a company and you thought you made the best product in the world, and then got
feedback it was not as good as you thought it was? Would you have to have a mindset shift in order to
comprehend that and want to make a change? Would that also lead to a change in the culture of the
company? You bet it would.
Kaizen

As we talked about earlier, TQM started with the Japanese rebuilding themselves after World War II. What
we did not discuss is that they did not call what they were doing TQM, but rather Kaizen, which means a
philosophy of continuous improvement, working practices and personal efficiency. They believed the
company was an organism that needed to have all its parts working to improve how it functioned. That
improvement was not limited to just what the company needed to do, but also how employees could do their
jobs better and more efficiently. It put everyone in a position of accountability to be the best they could be
and was not limited to just having management decide to improve a process but rather demanded that the
entire company continually work to do their jobs better, even if they were not asked to.

Lesson Summary

So as you can see, TQM is all encompassing and takes an entire company's commitment to quality. It is the
driving force behind how all companies view their customer experience. As it is deployed, company cultures
will change, new processes will be developed and everyone in the company will need to work to be more
efficient at what they do so quality can indeed improve. Indeed, as the Internet brings us all closer and closer
together, and we can easily share our likes and dislikes about products, TQM will continue to evolve as well
to keep pace.

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