Business Management

BIBLIOGRAPHY

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(1) Understanding consumer behavior.

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

(3) Price determination.

(4) Selection of distribution channels.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(1) Forecasting sales.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Richard M. Cyert

BIBLIOGRAPHY

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Management Thought

The schools of management thought are theoretical frameworks for the study of management. Each of the schools of management thought are based on somewhat different assumptions about human beings and the organizations for which they work. Since the formal study of management began in the late nineteenth century, the study of management has progressed through several stages as scholars and practitioners working in different eras focused on what they believed to be important aspects of good management practice. Over time, management thinkers have sought ways to organize and classify the voluminous information about management that has been collected and disseminated. These attempts at classification have resulted in the identification of management schools.

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

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

THE CLASSICAL SCHOOL

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

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

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

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

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

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

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

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

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

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

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

THE BEHAVIORAL SCHOOL

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

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

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

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

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

THE QUANTITATIVE SCHOOL

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

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

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

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

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

SYSTEMS SCHOOL

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

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

CONTINGENCY SCHOOL

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

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

CONTEMPORARY “SCHOOLS” OF MANAGEMENT THOUGHT

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

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

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

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

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

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

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

BIBLIOGRAPHY

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MANAGEMENT/LEADERSHIP STYLES

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

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

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

LEADERSHIP BASED ON TRAITS

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

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

IDENTIFYING LEADERSHIP BEHAVIORS

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

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

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

WHICH LEADERSHIP STYLES ARE MOST EFFECTIVE?

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

CONTINGENCY THEORY

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

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

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

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

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

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

THEORY X AND THEORY Y

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

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

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

THEORY Z

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

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

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

MANAGERIAL GRID

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

PATH-GOAL LEADERSHIP THEORY

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

SYSTEMS THEORY AND THE LEADERSHIP/MANAGEMENT FUNCTION

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

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

TRANSFORMATIONAL AND TRANSACTIONAL LEADERSHIP

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

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

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

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

CONFLICT MANAGEMENT

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

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

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

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

JAPANESE MANAGEMENT/LEADERSHIP METHODS

Since the end of World War II (1939–1945), business leaders around the world have marveled at the ability of Japanese managers to motivate and successfully lead their subordinates to levels of outstanding performance in terms of both the quantity and quality of production. Therefore, Japanese approaches to management and leadership have been studied intensely to find similarities and differences. Among the approaches that have been cited as contributing to Japanese success are:

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

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

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

see also Job Satisfaction ; Leadership ; Management

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Thomas Haynes

Management Levels

TOP-LEVEL MANAGERS
MIDDLE-LEVEL MANAGERS
FIRST-LEVEL MANAGERS
MANAGEMENT LEVELS AND THE FOUR MANAGERIAL FUNCTIONS
MANAGEMENT ROLES
MANAGEMENT SKILLS
CHANGES IN MANAGEMENT HIERARCHIES
BIBLIOGRAPHY

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

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

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

TOP-LEVEL MANAGERS

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

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

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

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

MIDDLE-LEVEL MANAGERS

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

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

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

FIRST-LEVEL MANAGERS

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

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

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

MANAGEMENT LEVELS AND THE FOUR MANAGERIAL FUNCTIONS

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

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

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

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

MANAGEMENT ROLES

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

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

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

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

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

MANAGEMENT SKILLS

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

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

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

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

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

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

CHANGES IN MANAGEMENT HIERARCHIES

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

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

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

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

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

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

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

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

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

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

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

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

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

BIBLIOGRAPHY

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

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

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

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

Kanter, Rosabeth Moss. “The New Managerial Work.” Management Skills. San Francisco, California: John Wiley and Sons, 2005. 91–112.

Mintzberg, Henry. “The Manager's Job: Folklore and Fact.” Harvard Business Review July-August 1975, 56–62.

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

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

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

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

Management by Objectives

Management by objectives is a technique applied primarily to personnel management. In its essence it requires deliberate goal formulation for periods of time (like the next calendar or business year); goals are recorded and then monitored. The management guru Peter Drucker (1909–2005) first taught and then described the technique in a 1954 book (The Practice of Management ). In Drucker's formulation the technique was called "management by objectives and self-control," and Drucker saw it as one of the forms of "managing managers." It became popular in the 1960s, by then abbreviated as MBO, the "self-control" parts more or less neglected, at least in talking about the subject. It experienced both an upward and downward drift: it came to be applied to the organization as a whole and to employees below the managerial level as well so that in many corporations many employees labored and still labor, at least once yearly, in formulating objectives. It was and remains an activity practiced predominantly in large corporations, although it spread in the 1970s and 80s to midsized organizations, commercial and other. In the mid-2000s it is viewed in many circles as a somewhat dated technique not well adapted to the rapid changes and uncertainties of a dynamic Information Age. However, it continues to have committed and enthusiastic supporters. In current practice it has also undergone changes and refinements.

MBO BASICS

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

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

Pros and Cons

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

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

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

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

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

MBO AND SMALL BUSINESS

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

BIBLIOGRAPHY

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

Brim, Rodney. "A Management by Objectives History and Evolution." Performance Solutions Technology, LLC. Available from http://www.performancesolutionstech.com/FromMBOtoPM.pdf. 2004.

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

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

                                        Darnay, ECDI