CHAPTER 1

Introduction to Management Studies

Introduction

This chapter provides an introduction to the central and important topic of management studies. The study of management covers a wide array of topics such as organizational theory and behavior, strategic and human resources management, managerial functions and roles, and identification and training of management skills. The tools used by practitioners of management studies to collect and analyze information and disseminate findings within the research community and to practicing managers are similarly diverse. This chapter includes a brief description of the history and evolution of management studies, a daunting topic given that it is generally recognized that economic and military activities have been focusing on issues of planning, directing, and control for thousands of years and that one can find useful illustrations of management in the building of the pyramids in ancient Egypt, the operation of the complex trade routes during the Middle Ages, and the commercial activities of the wealthy family businesses throughout the Renaissance. Over the last few decades, hundreds of journals and periodicals devoted to management studies have been launched and management has become a mainstream topic as books by authors such as Peter Drucker and Tom Peters have climbed to the top of “best-seller” lists. The field of management education, taught as a distinct discipline in both universities and through commercial private sector initiatives, has been a fertile ground for textbooks.¹

Definitions of Management

Given that “management” has been so widely studied and practiced for literally thousands of years, it is not surprising to find a wide array of possible definitions of the term. At the most basic level, the verb “manage” derives from the Italian word “maneggiare,” which is means “to handle.” A number of definitions of “management” have focused on the specific tasks and activities that all managers, regardless of whether they are overseeing a business, a family or a social group, engage in, such as planning, organizing, directing, coordinating and controlling. One of the simplest, and often quoted, definitions of management was offered by Mary Parker ­Follett, who described it as “the art of getting things done through ­people.”² The notion of “management through people” can also be found in the work of Weihrich and Koontz, who began with a basic definition of management as “the process of designing and maintaining an environment in which individuals, working together in groups, accomplish ­efficiently selected aims.”³ They then went on to expand this basic definition with the following observations:

• Managers carry out certain universally recognized basic ­managerial functions, including planning, organizing, ­staffing, leading and controlling.
• Management applies to any kind of organization.
• Management principles apply to managers at all levels of the organization, not just executives and senior managers ­positioned at the top of the organizational hierarchy.
• The goal of all managers is the same: to create a “surplus.”
• Managers are concerned with improving productivity, which implies both effectiveness and efficiency.⁴

Elements mentioned by Weihrich and Koontz the aforementioned explanations and observations have figured prominently in other definitions of management. For example, Jones et al. referred to management as “the process of using an organization’s resources to achieve specific goals through the functions of planning, organizing, leading and controlling.”⁵ The importance of managerial functions was also emphasized by Weihrich in his explanation of the “systems approach to organizational management” based on an “input–output” model in which “inputs” from an organization’s external environment (i.e., people, capital, and technology) were transformed into “outputs” demanded by various organizational stakeholders in a transformation process based on and guided by managerial functions such as planning, organizing, staffing, leading, and controlling.⁶

Others infer that merely carrying out the functions typically associated with management is not sufficient and it is necessary to add certain other concepts such as “value creation,” “wealth creation,” “efficiency,” and “productivity” to the equation. In fact, well-known management guru Peter Drucker proposed a definition of management that focused on “the process of administering and coordinating resources effectively, efficiently, and in an effort to achieve the goals of the organization.”⁷ In other words, the efforts of managers need to be “effective,” as demonstrated by the degree to which the goals of the organization are achieved, and they need to be “efficient,” which is measured by productivity (i.e., generating a given output by using the fewest inputs, including capital and human resources).⁸ In another one of his publications Drucker observed that with respect to economic and business activities “… management has failed if it fails to produce economic results. It has failed if it does not supply goods and services desired by the consumer at a price the consumer is willing to pay. It has failed if it does not improve or at least maintain the wealth producing capacity of the economic resources entrusted to it.”⁹ Therefore, in the business context, effective managers carry out a wide array of tasks and activities as they seek to combine capital, people, machines, equipment, and technology to produce goods and services that create profits and wealth for the owners of the business.

Management: Science, Art, or Both?

Weihrich has discussed the interesting question of whether management is best seen as a science or as art and has suggested that “[m]anaging, like so many other disciplines—medicine, music composition, engineering, accountancy, or even baseball—is in large measure an art but founded on a wealth of science.”¹⁰ He went on to caution that “[e]xecutives who attempt to manage without …………………… management science must trust to luck, intuition, or to past experience” and that managers seeking to avoid the tedious and dangerous path of learning through “trial and error” must be able to access the knowledge that has been accumulated regarding the practice of management.¹¹ Weihrich wrote that application of scientific methods to management, including determination of facts through observation followed by identification of causal relationships that can have value in predicting what might happen in similar circumstances, allows us to classify significant and pertinent management knowledge and derive certain principles that can be used as guidelines for managerial decisions and instructions. For example, a manager in a growing organization will eventually be confronted with the need to begin delegating authority and Weihrich suggests that the manager can turn to various principles of management that are relevant such as “the principle of delegating by results expected, the principle of equality of authority and responsibility, and the principle of unity of command.” Principles are merely predictive; they do not guarantee a particular result. However, they do provide a tested starting point for the manager. Also important in the management field are “techniques,” which Weihrich defined as “ways of doing things, methods for accomplishing a given result.”¹² Like principles, techniques are originally based in theory and are tested to validate their effectiveness. Examples of management techniques listed by Weihrich include budgeting, cost accounting, networking planning and control techniques, ­managing-by-objectives, and total quality management.

Management and Performance

As time has passed, management has come to be recognized as one of the core factors of production along with machines, materials, money, technology, and people. It is well-known that productivity has become a leading indicator of organizational performance and Drucker has argued that “[t]he greatest opportunity for increasing productivity is surely to be found in knowledge, work itself, and especially in management.”¹³ Bloom et al. coordinated a survey and analysis of more than 4,000 medium-sized manufacturing operations in Europe, the United States, and Asia and their findings released in 2007 confirmed that “firms across the globe that apply accepted management practices well perform significantly better than those that do not.”¹⁴ Surveyed management practices included activities relating to shop floor operations, performance management and talent management, and performance metrics included labor productivity, sales growth, and return on capital employed. The United States led the way with respect to the quality of management among firms included in the survey; however, companies from other countries were gaining ground quickly and, in fact, at that time over 15% of the Indian and ­Chinese firms included in the survey were characterized as “better managed” than the average US firm.

Strong support for the importance of management practices in generating better firm performance was also found in an extensive survey by Bloom and Van Reenen involving firms in 17 countries.¹⁵ Specifically, Bloom and Van Reenen confirmed that firms with “better” management practices tended to larger, more productive, grew faster, and had higher survival rates. Bloom and Ven Reenen also identified interesting ­differences between the surveyed countries with respect to management practices and they described their key findings as follows¹⁶:

• Management practices vary tremendously across firms and countries. Most of the difference in the average management score of a country was due to the size of the “long tail” of very badly managed firms. For example, relatively few US firms were very badly managed, while Brazil and India had many firms in that category.
• Countries and firms specialized in different styles of management. For example, firms in the United States scored much higher than firms in Sweden with respect to incentives; however, Swedish firms were stronger than US firms when it came to monitoring.
• Strong product market competition appeared to boost average management practices through a combination of eliminating the tail of badly managed firms and pushing incumbents to continuously improve their management practices.
• In general, multinationals were better ­managed regardless of the location of their headquarters office and were prone to transplanting their preferred management styles into their foreign subsidiaries. For ­example, ­
  subsidiaries of US ­multinationals operating in the 
  UK were better at incentives and worse than ­monitoring
  than subsidiaries of Swedish ­multinationals also operating in the UK.
• Firms that exported into foreign markets but did not ­manufacture in foreign markets were better managed than those firms who stayed home and neither exported into or manufactured in foreign markets; however, firms that only exported were not as well managed as the multinationals who also manufactured in foreign markets.
• Family-owned firms that appointed a family member, such as the oldest son, to serve as the chief executive officer tended, on average, to be very badly managed.
• Government-owned firms tended to be extremely badly managed while publicly owned firms and firms owned by private equity investors were usually well managed.
• Firms that were more reliant on human capital, as measured by the percentage of educated workers, tended to have much better management practices.
• At the country level, easing up on regulation of labor ­market practices tended to result in a better use of incentives by management.

Research results of this type have placed even more pressure on firms to take steps to improve their management practices in order to remain competitive with peers operating from other countries throughout the world. The growing intensity of competition has made it incumbent on firms to embrace globalization as a core strategic principle given the findings of researchers such as Bloom and Van Reenen that multinationals scored higher on management practices and performance than companies that continued to restrict their activities to their own domestic market.

Management and Leadership

One threshold question that should be addressed when studying management systems and practices is the differences between “management” and “leadership” and, correspondingly, the distinctions between “managers” and “leaders” in the context of operating an organization.¹⁷ One way to approach this topic is to review some of the opinions of various researchers and commentators who have devoted a substantial amount of time to the topic of leadership and understanding just what makes an “effective leader.” For example, Bennis has said: “There is a profound difference between management and leadership, and both are important. To manage means to bring about, to accomplish, to have charge of or responsibility for, to conduct. Leading is influencing, guiding in a direction, course, action, opinion. The distinction is crucial.” Bennis has also compiled the following list of differences between managers and leaders¹⁸:

• The manager administers; the leader innovates.
• The manager is a copy; the leader is an original.
• The manager maintains; the leader develops.
• The manager focuses on systems and structure; the leader focuses on people.
• The manager relies on control; the leader inspires trust.
• The manager accepts reality; the leader investigates it.
• The manager has a short-range view; the leader has a long-range perspective.
• The manager asks how and when; the leader asks what and why.
• The manager has his or her eye always on the bottom line; the leader has his or her eye on the horizon.
• The manager imitates; the leader originates.
• The manager accepts the status quo; the leader challenges it.
• The manager is the classic good soldier; the leader is his or her own person.
• The manager does things right; the leader does the right thing.

Kotter has also addressed the distinction between management and leadership. After joining Bennis in noting the importance of both activities: “Leadership and management are two distinctive and complementary systems of action … Both are necessary for success in an increasingly complex and volatile business environment.” Kotter elaborates on some of the differences: “Management is about coping with complexity … Without good management, complex enterprises tend to become chaotic … Good management brings a degree of order and consistency … Leadership, by contrast, is about coping with change … More change always demands more leadership.”¹⁹ Kotter also provided a short list of some of the principal activities associated with management and leadership, noting the manager, who is concerned with managing complexity, is expected to focus on planning and budgeting, organizing and staffing, and controlling and problem-solving while the leader, who should be guiding his or her organization through “constructive change,” must be adept at setting the direction for the organization (i.e., a vision of the future and strategies that should be followed to achieve that vision) and aligning the human resources of the organization and motivating and inspiring them to move in the direction established by the leader.²⁰

The topic of “leaders versus managers” was also explored by Zaleznik, whose views were described in the following way by Estill: “The difference between managers and leaders, he wrote, lies in the conceptions they hold, deep in the psyches, of chaos and order. Managers embrace ­process, seek stability and control, and instinctively try to resolve ­problems quickly—sometimes before they fully understand a problem’s significance. Leaders, in contrast, tolerate chaos and lack of structure and are willing to delay closure in order to understand the issues more fully in this way, Zalenznik argued, business leaders have much more in common with artists, scientists and other creative thinkers than they do with ­managers. Organizations need both managers and leaders to succeed, but developing both requires a reduced focus on logic and strategic exercises in favour of an environment where creativity and imagination are permitted to flourish.”²¹

History and Evolution of Management Studies

In order to understand management studies, it is useful to have some sense of the historical development of “management” (see Table 1.1). There is debate about how the “history of management” should be presented. Some argue that it is appropriate to focus primarily on the antecedents of the management tools that are widely used today, which means that management “begins” with the works of some of the classical economists in the eighteenth century and then really takes hold with the blooming of the Industrial Revolution in the nineteenth century, which ushered in the separation of ownership and management and the need to rely on professional managers using increasingly sophisticated tools for planning and controlling the activities within their organizations. Others point out that economic and military activities have been raising issues of planning, directing, and control for thousands of years and that one can find useful illustrations of management in the building of the pyramids in ancient Egypt, the operation of the complex trade routes during the Middle Ages, and the commercial activities of the wealthy family businesses throughout the Renaissance.

Table 1.1 History and Evolution of Management Studies

Pre-Industrial

One can find examples of managerial activities, often quite impressive and of a scope difficult to image today, going well back into pre-industrial times.²² A number of scholars are diligently studying the history of Ancient Egypt, a society that is believed to have relied on a strong bureaucratized central state to create magnificent pyramids, roads, canals, and cities. Historians have found evidence of sophisticated management and planning techniques being used by Egyptian officials including predictions of weather events, forecasts of crops, and budgeting based on projections of tax revenues. China has contributed a legacy of a large and efficient civil service that managed a vast territory using uniform formal policies that anticipated the processes seen in modern global firms. China also produced Sun Tsu, a 13th century military strategist and historian who wrote a handbook called the Art of War, which is a regular part of the assigned reading for management students learning about strategy. The Roman Empire served as the foundation for management and governance of modern nations and its state hierarchy introduced rules and processes that were adroitly used for security and expansive military campaigns, public works projects, and education. The reign of the Medici family in Italy featured its own unique set of somewhat brutal managerial practices, which were described near the turn of the 16th century by Machiavelli in The Prince, a book that is also still widely read by management students.

While the achievements of rulers, generals, and senior government ministers during pre-industrial times are impressive, particularly given the challenges confronting them with respect to resources, there is little from that period that qualifies as “business management.” Historians have attributed this to the low value that was placed on commerce and business noting, for example, that both the Greeks and the Romans have little regard for trade and commerce. For example, the Greeks denied citizenship to manual workers and merchants and their activities were generally performed by foreigners and slaves. While the Romans did promote the formation of joint stock companies, they were used only to raise capital for projects undertaken by the state and could not be established for private enterprise. The early Church made it difficult to borrow money for mercantile activities by prohibiting usury (i.e., charging interest on borrowed money). With prospective entrepreneurs deprived of opportunities to attract capital to support any private business ventures, most areas relied heavily on agricultural production rather than manufactured goods, and aristocrats and bureaucrats were allowed to govern in traditional ways without much need for business management principles.

Renaissance and Reformation: Rise of Mercantilism

The disdain for commercial activities and preoccupation with local markets continued during most of the Middle Ages; however, important changes arose out of the Crusades that brought feudal Europe in contact with the East and exposed Europeans to trading opportunities that formed the foundation for “mercantilism.” Mercantilism had existed in a primitive form within the Roman Empire but beginning in the later part of the 13th century Europeans proactively established and expanded trade systems across North Africa, Spain, the Middle East, and Asia. In fact, the focus of warfare shifted from political and religious objectives to seizing and controlling trade routes. Once the Renaissance began, merchants began to develop the first supply and production chains using raw materials obtained from the East, which were sent to individual workers or families who used their own equipment to produce finished goods that were delivered to the merchants in exchange for wages. This domestic production system spawned the first accounting systems and the first book on “double entry bookkeeping” appeared in 1494 from the hand of a Venetian mathematician named Luca Paciolo. Restrictions on lending began to erode and large banks, such as those operated by the Peruzzi and Medici families in Italy, provided funding for businesses and a safe and efficient means for transferring funds between accounts to complete commercial transactions.²³

While mercantilism was a dramatic and welcome development, it remained a tool that largely benefitted the state and not individual merchants or workers. According to Colbert, writing in the late 17th ­century, the characteristics of mercantilism included “bullionism,” favorable ­balance of trade, economic self-sufficiency, agriculture as the basis for national wealth, tariffs, national power emanating from a strong navy and colonies that provided captive markets for manufactured goods, and sources of raw material and recognition of the state as the guide for economic development through the promulgation and enforcement of economic and trade policies.²⁴ To the extent that large-scale enterprises existed, they operated in the form of state monopolies as part of the government’s economic development role. However, the joint stock companies formed to pursue financial opportunities, particularly in the colonies, eventually became the model for capitalizing private corporations. In addition, the Reformation undermined the prescriptions of the Roman Church and encouraged uprising against traditional authorities that eventually led to a new social order that recognized the value of the individual. Max Weber later wrote about the “Protestant Ethic” and the impact that it had on the emergence of what came to be known as “capitalism” in his 1905 book titled The Protestant Ethic and the Spirit of Capitalism and noted that Protestants were taught to emphasize work and engage in continuous physical and mental labor, take responsibility for finding and pursuing their “calling,” practice self-discipline, and pursue and use wealth wisely in order to obtain salvation.

Industrial Revolution

A number of the basic elements of modern management began to take root during the Industrial Revolution, which is generally thought to have taken place during the period beginning around 1750 and ending in 1870.²⁵ New technologies combined with changes in social, political, and legal conditions to create an economic infrastructure that relied on the power of machines rather than humans and animals. Large industrial organizations arose and work became highly specialized. In Great Britain, often thought to be the birthplace of the Industrial Revolution, laws were implemented to recognize and protect private and intellectual property, taxes were reduced to relatively modest levels in relation to other parts of Europe, the powers of the King were limited, and government policies toward matters of commerce were relatively “hands off.” The Bank of England, which was the central bank, actively promoted economic development through the issuance of currency and the creation of stable national monetary system. In general, citizens were given more freedom to engage in entrepreneurial risk-taking and pursue the creation of wealth through commercial activities.

An important development during the 18th century was the evolution of the joint stock company, previously used only for state-controlled activities, into what eventually became the modern corporation. The drive to harvest the vast natural resources believed to exist in the colonies created an urgent need for capital, which was satisfied by the sale of stocks in private companies. Orderly exchange of these stocks was facilitated by the expansion of exchanges throughout Europe beyond commodities and currencies to include stocks in commercial ventures. During the mid-19th century, new laws were passed to limit the liability of investors and require that managers of companies provide a public accounting of profits and losses and how funds raised through stock offerings were actually invested.

However, the defining events of the Industrial Revolution were the technical and engineering achievements that transformed the way that work was done throughout Europe and, eventually, the entire world. In 1765, James Watt improved on the prior work of others to develop the first workable steam engine that provided a reliable source of power for use in a wide range of industrial activities. Perhaps just as important was Watt’s partnership with Boulton, which not only focused on manufacturing of steam engines but also on continuous research and development activities to solve technical problems and, quite significantly, disseminate information and solutions to other firms. The sharing of information and widespread collaboration, a familiar sight today, was a radical change in the way commercial activities were carried out and accelerated the rate of the technological advances. The introduction of the steam engine freed manufacturers from the need to be close to sources of water power and allowed them to set up operations almost anywhere. Improvements in rail and steamship services supported transport of raw materials and finished goods. The Industrial Revolution even sowed the seeds of the later computer revolution with the invention of the first mechanical calculator, predecessor to the modern computer, by Babbage in 1822.

Adam Smith

The economic theory underlying much of what occurred during the Industrial Revolution was provided in the work of so-called classical economists such as Adam Smith, whose seminar work—An Inquiry into the Nature and Causes of the Wealth of Nations—was published in 1776 as the Industrial Revolution was just taking off. Simply put, Smith believed that people wanted to follow their own self-interest and that they should be allowed to do so in the commercial arena without excessive interference from the government (i.e., the government should take a “liassez faire attitude” toward the market). The essential terms of what eventually became known as Smith’s version of “capitalism” include the following²⁶:

1. Private ownership and control of the means of production, including land and the plant and equipment used to produce goods and services (plant and equipment were referred to in Smith’s work as “capital”).
2. “Markets” are the foundation for organization and coordination of the economy and consist of direct interactions between buyers and sellers (producers).
3. Suppliers, which include both the owners of land and capital and laborers offering and providing their services, pursue their own self-interest with the goal of maximizing their gain and profits from the use of their resources.
4. Buyers of the goods and services offered by suppliers also pursue their self-interest and seek to spend their money in ways that maximize their satisfaction.
5. Suppliers and buyers reconcile their simultaneous pursuit of their self-interest by “haggling” over the value of the goods and services in order to establish the price at which exchanges can occur.

Smith believed that a competitive market that includes buyers and sellers both pursuing their own self-interest would be self-regulating and that there was little need for government to intervene in the marketplace. Smith suggested that the state should focus its efforts on “public goods” and other activities that would protect society and its private markets, including a military force to protect from foreign attack, a police force to protect private property rights, laws to guarantee contracts, and, when necessary, support for “infrastructure” projects that benefit everyone (i.e., roads and canals). Smith’s ideas were clearly at odds with the mercantilism that dominated most parts of Europe during the early years of the ­Industrial Revolution. Moreover, Smith’s theories assumed that ­individuals were linked together and organized into communities through ­economic markets, a far different formulation from the views of philosophers such as Locke and Rousseau who envisioned a “social contract” in which the state played a powerful role in creating and unifying communities of individuals.

Smith also took note of concepts that have become the lynchpins of discussions regarding organizational design and structure. He specifically emphasized the progress that had been made with respect to productivity and attributed it to the discovery and development of new manufacturing technologies and innovations that had occurred in the way that work activities were organized. Specifically, he focused on how the division of labor that occurred on the assembly line permitted necessary tasks and activities to be done more quickly due to specialization as well as the way that machinery reduced the time and number of works required to complete activities. One thing that Smith did not build into his model was the concept of “management” as a valuable and distinguishable activity and he, like many others, assumed that the owner and manager were one and the same.²⁷

Capitalism in America

The initial activities of the European nations with their colonies in ­America focused on a variety of trade opportunities primarily for the benefit of the home country. ²⁸ Spain concentrated on the areas of West of the Mississippi and South America; the Dutch and Swedes were interested in fur trading along the Hudson River and in Delaware, respectively; and the English set up the London and Plymouth companies to develop ­Virginia and England, respectively. The early efforts of the English ­colonies failed to achieve the expected and desired financial success and eventually investors in England either gave up or allowed their stakes to be repurchased by the colonists, which left the economic future of colonies largely in the hands of the settlers who had been granted stock and land. Entrepreneurism took hold quickly and the colonies were soon engaged in a wide range of trading activities, which have been described as follows: “The early colonial enterprise rested largely on the triangular trade routes: rum to Africa from New York and Philadelphia, people from Africa to Cuba, and molasses and coin from Cuba to New York/Philadelphia; and, sugar and molasses to England from Cuba, manufactured goods from England to New York/Philadelphia, and grains and meat from New York/­Philadelphia to Cuba.”²⁹ However, England repeatedly interfered with the economic interests of its colonies through mercantilist policies, particularly taxes on exports and imports, eventually leading to the rebellion that culminated in the independence of the colonies and the creation of the United States.

The Constitution of the United States provided an opportunity for the founders to develop a blueprint for economic activities in the new nation. The Constitution provided for a limited national government; however, it still had the power and authority to regulate interstate commerce, control national defense, and impose taxes. Individual economic rights could be found throughout the Constitution, including private intellectual property rights (i.e., patents and copyrights), restrictions on the ability of the national government to seize property without “due process,” and prohibitions on attempts by the states to interfere with contractual obligations. There was real debate, however, about the preferred direction for national business development and the role that the central government would play in that development. Jefferson, who came out of the Southern plantation society, had a preference for continuing to focus on agricultural activities and wrote about his preference to “let our work-shops remain in Europe.” In contrast, Hamilton from the North argued for a strong national government and a national bank that would serve as the focal point for an economic policy that relied on mustering available land, labor, and foreign capital to pursue industrialization. While Hamilton’s national bank for economic development was never created, the United States eventually entered the Industrial Revolution on the back of a burgeoning textiles industry built on technology first brought from England by Slater, improved by Whitney and his cotton gin and innovatively implemented by the “Waltham system” in Massachusetts, which featured women and child laborers and indoctrination in the moral advantages of factory work.

America’s industrial prowess soon grew beyond textiles through the amazing and wide-ranging activities of its own inventors throughout the nineteenth century. American inventors not only devised the technologies and products necessary for establishing new industries and revolutionizing existing industries, they also facilitated improvements to the transport and communications infrastructure required for trading volumes to accelerate and for information, raw materials, people, and finished goods to move efficiently around the country. Well-known examples include the steamboat (Fitch (1789) and Fulton (1807)); iron plow (Wood (1817)); reaper (McCormick (1831)); electric motor (Davenport (1834)); telegraph (Morse (1844)); sewing machine (Howe (1849)); Pullman car (Pullman (1858)); suspension bridge (Roebling (1868)); refrigerated freight car (Swift (1875)); telephone (Bell (1876)); gasoline carriage, the precursor to the automobile (Selden (1879)); the Kodak camera (Kodak (1880)); and the light bulb (Edison (1880)).³⁰

Historians have referred to the period during which these inventions appeared as the Second Industrial Revolution, a time when steam technologies gave way to advances in other areas of manufacturing and the emergence of the power of electricity. The numbers support this categorization by showing that the number of industrial wage earners in the United States grew from 957,000 in 1849 to 4,252,000 in 1889 and that by 1894 the United States was the world leader in the value of factory-made goods. Industrialization also had a dramatic impact on the demographic profile of the United States: in 1840 8.5% of the population lived in 44 cities; however, by 1890 urbanization had increased dramatically as 32% of the population was then living in 547 cities.³¹

Technological innovation was accompanied by improvements in production processes that were needed to support the pace of manufacturing and attempts by American firms to expand into larger and more remote markets. For example, this period saw the introduction of standardization, quality control procedures, cost accounting, work planning, and “interchangeable parts.” The factory system first developed in the textile industry quickly spread to all market-oriented industries in the United States by the 1860s and 1870s³² and featured mass manufacturing by power-driven machines in a way that became known as the “American system of manufacturing.”³³ The lack of uniformity on the factory floor that had been the hallmark of activities at the beginning of the century had disappeared in favor increasingly sophisticated methods for effectively applying the powerful concepts of division of labor, specialization, and mechanization. Another interesting development was the first attempt at creating and offering formalized training in “management” launched by Wharton in 1881 when he underwrote a new business school at the University of Pennsylvania; however, the “Wharton school” did not have professors and the only literature it offered was “how to” manuals and trade publications and it was not until 1921 that the first formal master’s degree program in management—the “MBA”—would be introduced at the Harvard Business School.

Railroads and the Rise of Professional Management

The ongoing industrial transformation that was occurring in the United States was accompanied by similar progress in England and Germany and in each instance the development of the railroad industry played a major role. What was different about the United States, however, was the way in which its railroads served as the foundation for many elements of the modern business enterprise, particularly the corporation. The size of the railroads in the United States, and the amount of capital invested for expansion and improvements, was extremely impressive and by the late 1880s the Pennsylvania RR, for example, employed over 50,000 workers and railroads in general had been operated profitably for decades. Also of interest in the context of the discussion of organizational structure and governance was the reliance that railroads placed on incorporating so that they could sell stock to investors to raise the substantial amount of capital that their businesses managers required. By the middle of nineteenth century more than half of the negotiable securities in the United States had been offered and sold by railroads and transactions in rail stocks were key factors in the establishment of the main US financial markets on Wall Street and in Philadelphia. These developments were important because they legitimized the hallmark feature of the corporate form—separation of ownership from management—and ushered in the era of the previously nonexistent “professional manager.”³⁴

The size and complexity of the US market and the corresponding need for rail lines that extended for thousands of miles impacted not only the amount of capital that was required but also the way that ­railroads were managed and operated. The need for comprehensive planning and coordination to complete projects such as the “transcontinental railroad” undertaken by the Union Pacific and Central Pacific called for large ­number of professional “middle managers” who were charged with overseeing operational activities along portions of the track and/or markets identified by reference to particular stations along the line. In addition, the organizational structure had to account for and support all of the specialized tasks and activities that needed to be completed in order for the railroad to perform efficiently such as scheduling, pricing, the logistics of handling passengers and freight, maintenance, and establishment and enforcement of corporate policies. All of this called for attention to division and specialization of labor that has become a dominant feature of modern organizational design.

McCallum, who managed the Erie line for the New York and Erie Railroad Company, analyzed the progress and requirements of organizational structure for railroad and proposed what became the first principles for organization of the “modern” corporation in the mid-1850s in his reports to the board of directors. He did this by comparing and contrasting the “functional” organizational structure, which theretofore had been the dominant form used by many enterprises, with the emerging “multidivisional” organizational structure that was being developed to address the specific needs of the larger railroads. The functional structure, which allocates and organizes labor and other resources based on function or task, was thought to be suitable only for smaller businesses operating in a single market and selling a single product.

McCallum argued that the functional structure might be suitable for rail lines that were relatively short, say no longer than 500 miles, because it was still possible for one superintendent to effectively oversee ­operations³⁵; however, when a railroad reached the point where it was operating on a much larger scale the preferred organizational approach was adoption of a multidivisional structure. When applied to railroads, the multidivisional structure operated as follows:

• Rail lines were broken up into manageable pieces, which were placed into geographical divisions that were managed by a divisional supervisor, thereby allowing each division to be efficiently operated in much the same way as a small business.
• Each divisional supervisor reported to headquarters, which ensured that information from each division was being ­collected and analyzed for facilitate planning and ­coordination for the entire railroad.
• The planning and coordination activities occurring at headquarters were facilitated by development of “staff” functions concentrating on planning, financial controls, and development and implementation of general business policies.

The multidivision structure, with multiple operating units in different locations carrying out different activities and reporting to a centralized headquarters unit eventually became the preferred model for US companies operating in other industries that grew and expanded into new markets and product lines. This development confirmed and solidified the role of “professional manager” since the multidivisional structure was built on a multilevel hierarchy of managers—senior managers at the top, middle managers at each level and line managers interacting directly with workers—who all engaged in a range of coordination and control activities with respect to the piece of the operations for which they were responsible with the common goal of achieving the goals and objectives of the entire firm.

Classical Management Theory

The Industrial Revolution and the rise of the “factory system” created a number of challenges and problems for managers, notably questions about how to organize and oversee the myriad range of tasks that needed to be performed by a continuously expanding group of workers. Managers needed ways to cope with training and motivating workers, a ­problem that was made all the more difficult in the United States as more and more non-English-speaking immigrants entered the workforce, and diffuse worker dissatisfaction with factory conditions and their role in designing their jobs. The first attempts to solve these issues came from what has come to be referred to as “classical management theory,” which focused on finding the “one best way” to perform and manage tasks and developed in two branches referred to as “classical scientific” and “classical administrative.”

Taylor and “Scientific Management”

The “classical scientific” school is known for its emphasis on finding ways to increase productivity and efficiency and its belief that it was ­possible to examine the work process and the skills of workers and develop the “best way” to get the most work done in an efficient manner. The most well-known contributor to this school is Frederick Winslow Taylor (1856–1915), who has often been referred to as the “Father of ­Modern Management” and widely recognized as one of the first management theorists.³⁶ His background was in engineering and he had spent time as a common laborer and apprentice foreman before rising to the level of chief engineer. As such, it was not surprising that his theories were based on the fundamental premise that that human labor could be organized and managed in much the same way as machine work and that the activities of workers can and should be “engineered” in order to achieve efficiency and productivity. Taylor argued that “inefficiency” caused losses not only for firms but the country as a whole and provided the following explanation for why he wrote the essays that appeared in his Principles of Scientific Management, which was published in 1911³⁷:

First: To point out, through a series of simple illustrations, the great loss which the whole country is suffering through inefficiency in almost all of our daily acts. Second: To try to convince the reader that the remedy for this inefficiency lies in systematic management, rather than in searching for some unusual or extraordinary man. Third: To prove that the best management is a true science, resting upon clearly defined laws, rules, and principles, as a foundation… . The illustrations chosen are such as, it is believed, will especially appeal to engineers and to managers of industrial and manufacturing establishments, and also quite as much to all of the men who are working in these establishments. It is hoped, however, that it will be clear to other readers that the same principles can be applied with equal force to all social activities: to the management of our homes; the management of our farms; the management of the business of our tradesmen, large and small; of our churches, our philanthropic institutions, our universities, and our governmental departments.

In his book Shop Management, which was published in 1903, Taylor began with the argument that workers were inefficient for several reasons. First, he believed that workers tended to ration their work load or work less than they should because if they worked harder and faster there would be no work to do in the future and they would not have any source of income in the future. Second, he blamed management for failing to structure work activities effectively and not providing appropriate incentives for workers.³⁸ It should be noted that at that time firms tended to compensate workers using a daily or hourly rate, a practice that Taylor felt rewarded workers for simply showing up and not for their actual performance from a production perspective. “Piece-rate” compensation was also used in some instances; however, this approach was often not effective due to the failure to set and maintain adequate quality standards.³⁹

Taylor believed that worker inefficiency could be solved by observing how the work is performed to determine the appropriate work standard and then fitting the compensation for the work to the standard. This required a careful investigation of each job by dividing it into discrete tasks in order to identify the most efficient way to perform that task and then reconstructing all of the tasks into an efficient job. Taylor used time and motion studies and advised that once the best method for performing a job had been identified, it should be recorded so that procedures could be taught to all of the workers who would be asked to perform the same activity. Managers could do their part by setting specific performance targets for their workers, paying them for meeting those targets and providing workers with regular feedback on their performance. The main elements of Taylor’s theory have been explained as follows⁴⁰:

1. Management is a true science. The solution to the problem of determining fair work standards and practices could be discovered by experimentation and observation. From this, it follows, that there is “one right way” for work to be performed.
2. The selection of workers is a science. Taylor’s “first class worker” was someone suitable for the job. It was management’s role to determine the kind of work for which an employee was most suited, and to hire and assign workers accordingly.
3. Workers are to be developed and trained. It is management’s task to not only engineer a job that can be performed efficiently, but management is responsible for training the worker as to how the work is to be performed and for updating practices as better ones are developed. This standardizes how the work is performed in the best way.
4. Scientific management is a collaboration of workers and managers. Managers are not responsible for execution of work, but they are responsible for how the work is done. Planning, scheduling, methods, and training are functions of the manager.

Taylor wrote that the process of job design provided an opportunity for collaboration between labor and management, which would generate more wealth for everyone involved; however, critics claimed that workers had little or no input into selecting their jobs, or how their jobs were designed, and that this ultimately led to higher levels of worker alienation. Labor unions saw “Taylorism” as exploitive and his approach eventually fell out of favor in the United States as unions pushed for minimum hourly wage guarantees that were at odds with the “pay for performance” approach, which was implicit in Taylor’s system. Nonetheless, it is generally conceded that Taylor made a major contribution to elevating management to a level that it was considered a legitimate subject for scholarly work and professional practice. Moreover, while scientific management ran into significant opposition in the United States and Europe, Taylor’s theories were quite influential in other parts of the world. For example, Taylor was quite popular in Japan where Yoichi Ueno introduced Taylorism in 1912 and went on to create what became known as the “Japanese management style.” Ueno’s son Ichiro later pioneered quality assurance in Japan.

While Taylor is the most celebrated and discussed proponent of the classical scientific school, others also made significant, interesting, and sometimes controversial contributions. Gantt, an associate of Taylor, developed the “Gantt chart,” which is still in use today as a tool for graphing the scheduling of tasks and work flows and thus providing managers with a means for carrying out their planning and controlling roles. The Gilbreths, a husband-and-wife team, developed photographic methods for conducting “time and motion” studies that could be used to break down and analyze each component action associated with a particular task in order to identify the “best way” to perform specific tasks and entire jobs. The results of these studies were used to reorganize each component action so that the entire tasks could be performed more efficiently and with less time and effort.⁴¹ The Gilbreths were also pioneers in the study of fatigue in the workplace and led the way in analyzing how the physical characteristics of the environment in which employees worked (i.e., lighting, heating, color of walls, and design of tools and machines) might contribute to their job stress.⁴² Other contributors included Munsterberg, the founder of the discipline of industrial psychology, and McKinsey, the developer of budgeting practices used as a means of accountability and measurement of performance.

Classical Administrative School

While the focus of scientific management was on increasing the efficiency of production and the productivity of individual workers, proponents of the classical administrative school were more interested in developing universal management and organizational design principles that could make the operation of the entire organization more efficient and effective. One of the earliest, and well-known, contributors to the administrative school was Max Weber. Weber wrote extensively about his ideas regarding the definition and benefits of bureaucratic administration of organizations.⁴³ Weber was one of the first to argue that businesses should not allow their managers to exercise control arbitrarily and without any explanation to the impacted workers. He believed that rational legal authority was the preferred approach to control within an organization and that “bureaucracy” was the most efficient form of organization. While bureaucracy today has a negative connotation and is generally associated with organizational practices that are slow and inflexible, Weber championed bureaucracy to his contemporaries as a necessary and preferred alternative to the other forms of authority, which he believed led to unfairness within the workplace and corruption among those in authority at major corporations during the late nineteenth century.

Another important figure in the classical administrative school was Henri Fayol, who promulgated a detailed set of “principles of management” as another means for effectively controlling an organization. His ideas touched on many of the topics that are still hotly debated in the world of organizational design and did so in a way that recognized that there are trade-offs that must be made when creating the optimal structure for an organization at any point in time. Fayol was one of the first to focus on the specific functions and roles of managers and famously observed that managers had five principal roles: planning, organizing, commanding, coordinating, and controlling. He went to develop and explain fourteen “principles of administration” to be followed by managers when performing their roles including now well-known concepts such as specialization/division of labor, authority with responsibility, unity of command, unity of direction, centralization, and line of authority.⁴⁴

Also associated with the classical administrative school is Mary Parker Follett, who was one of the first management theorists who advocated greater participation by employees in decision making and establishment of the overall goals and objectives of the organization. She disfavored the command-style hierarchical organizations advocated by her contemporaries and argued that managers should focus on the development and motivation of “people” rather than on mechanical techniques. She also argued that managers should not impose their own will on subordinates but instead should take steps to organize the groups that they oversee in a manner that allows for discovering and harmonizing the views of the members of the group. In her own words:

The leader guides the group and is at the same time himself guided by the group, is always a part of the group. No one can truly lead except from within. … [A leader] must be able to lead us to wise decisions, not to impose his own wise decisions upon us. We need leaders, not masters or drivers.”⁴⁵ Her teachings were not widely accepted during her career; however, as time has gone by her guidelines, which ironically were not originally intended for business managers, have become part of the mainstream of contemporary management recommendations and are now widely followed by today’s managers. In fact, a collection of her writings published in 2003 bears the descriptive title of “Prophet of Management.”⁴⁶ Follett’s emphasis on human relations and how managers interacted with their workers could also be easily placed within the behavioral management theories discussed in the following and she was also among the first to give serious attention to conflict resolution in the workplace.

Finally, Chester Barnard, who was president of the New Jersey Bell Telephone Company, introduced the “acceptance” theory of management, which was based on establishing conditions within the organization that led to employees accepting the legitimate authority of their managers to make decisions and set directions for the organization. ­Barnard argued that acceptance was based on several factors, including the ability of the employees to understand communications from their managers; employee acceptance of the communication as being consistent with the goals and purposes of the organization; the belief by employees that their actions will be consistent with the needs and desires of other employees; and the belief of employees that they are mentally and physically able to carry out orders issued by their managers. In order to achieve acceptance, managers needed to focus on developing a sense of common purpose among employees and an organizational culture that recognized the need for cooperation and valued those who were willing to cooperate to achieve the goals and purposes of the organization. Barnard also was among the first to acknowledge the existence of an “informal organization,” which refers to the cliques or other groups that inevitably form within an organization and which can provide a valuable service in collecting and disseminating information. Barnard’s focus on the mindset of employees was the precursor for the emergence of the next major school of management thought discussed next: behavioral management theory.⁴⁷

Behavioral Management Theory

Behavioral management theory was a response to some of the shortcomings associated with the classical theories, particularly their inability to explain the behaviors of individual employees in many situations and the lack of guidance they provided to managers with respect to motivating employees to accept and carry out their directives. Proponents of behavioral management theories, sometimes referred to as the “human relations movement” because of the emphasis on the human dimension of work, believed that the key to increasing productivity was to pay more attention to issues such as motivation, conflict, expectations, and group dynamics. In short, behavioral management theorists made a clear and substantial break from the predecessors in the classical schools by recognizing that employees are not simply machines but are individuals who should be considered resources of the organization that should be nurtured and developed. As a practical matter, this shift would mean that managers could no longer limit their activities to explaining and controlling technical aspects of the work performed by their subordinates but must instead be able to understand human needs and behavior in their organizations and the workings of the “informal organization,” which is the system of behavioral rules and norms that emerge in a group and must be taken into account in any attempt to manage or change the behavior of members of the group.⁴⁸

The foundation for behavioral management theory included studies by Mayo and others that provided evidence that human relations and the social needs of workers are important factors for effective organizational management. Mayo’s studies are referred to as the “Hawthorne Studies” and were conducted from 1924 to 1932 at the Hawthorne Works of the Western Electric Company.⁴⁹ While conducting various tests to determine how characteristics of the work setting, such as lighting, influenced fatigue and performance among employees, the researchers found that their presence affected the results and that employees enjoyed the attention and were eager to cooperate with the researchers by producing the results that the employees believed the researchers were expecting. This result, which became known as the “Hawthorne effect,” supported the argument that workers’ performance could be positively influenced by managerial attitudes and provided a foundation for the human relations movement that was based on the proposition that managers should be trained in behaviors that elicit cooperation from employees and increased their productivity.⁵⁰ Maslow developed his well-known theory of human needs based on the assumptions that human behavior is purposeful and motivated by the need for satisfaction and that human needs could be classified according to a hierarchical structure of importance that had five levels that ranged from lowest to highest.⁵¹ Managers with this information and understanding of the needs of their subordinates could presumably tailor their instructions in ways that were most likely to resonate with subordinates at that time and motivate them to act in the manner deemed necessary for organizational efficiency.

One of the most well-known behavioral management models is McGregor’s Theory X and Theory Y, which was heavily influenced by the work of both Mayo and Maslow.⁵² McGregor posited various principles that he believed managers should follow in order to increase their effectiveness in motivating employees to act in ways that would benefit the firm. He began by arguing that all managers held one of two very different views regarding the abilities and motivations of their subordinates, which he dubbed Theory X and Theory Y, and that these views influenced the way that managers treated their subordinates and the way in which subordinates performed. The key assumptions for Theory X were that the average worker: dislikes work and attempts to avoid it (i.e., “lazy”); has no ambition or desire for responsibility and prefers to follow rather than lead; is self-centered and has no interest in the goals and objectives of the firm as a whole; is untrustworthy; is resistant to change; and is gullible and lacks intelligence. The bottom line is that Theory X implicitly assumes that employees only work for money and security and that motivational policies of firms, if they can really be called that, should be confined to providing cash compensation and basic benefits and that such employees should be given little in the way of discretion and flexibility. Theory X managers closely supervise their subordinates to make sure that they work hard, create strict work rules, and implement a well-defined system of rewards and punishments in order to exert control over those who work for them.⁵³

Theory Y, on the other hand, is based on the belief that employees have the higher level needs identified in Maslow’s hierarchy (i.e., esteem and self-actualization) and calls for the following very different assumptions about workers and workplace: work can be as natural as play and rest; employees will be self-directed to fulfill the workplace objectives if they are personally committed to them and the requisite level of commitment can be achieved by providing rewards that address higher needs such as self-fulfillment; if employees are personally committed and ­properly rewarded, they will act in a responsible fashion; and workers are trustworthy and it is therefore justifiable to expect that most employees can handle responsibility since they are inherently creative and ingenuous. Firms and managers that believe in Theory Y will not only offer materialistic rewards but will also provide other opportunities for subordinates to pursue and achieve their inner needs (i.e., the needs at the top of Maslow’s needs hierarchy such as social needs, ego-based needs and self-fulfillment). For example, such firms and managers are likely to implement strategies such as decentralization and delegation, job enlargement, participative management, and performance appraisals against objectives that are established jointly by the firm and its employees. Gareth and George explained that in Theory Y organizations “individuals and groups are still accountable for their activities, but the manager’s role is not to control employees but to provide support and advice, to make sure employees have the resources they need to perform their jobs and to evaluate them on their ability to help the organization meet its goals.”⁵⁴

Quantitative School of Management

Another well-known school of management, which had its origins in research conducted during World War II by mathematicians, physicists, and other scientists, focused on finding solutions for military problems, is the “quantitative” school. Quantitative management theorists and researchers rely on sophisticated quantitative techniques, such as statistics information models, computer simulations, linear and nonlinear programming, queuing theory, and chaos theory, to develop methods that managers can use to improve the quality of their decision-making activities. For example, quantitative management tools have become essential for managers trying to determine how much inventory should be held at a particular time of the year, where to build a new factory, or how to invest the firm’s capital.⁵⁵

There are a number of different branches of the quantitative school and some of the commonly recognized include management science, which uses techniques such as mathematical forecasting for improving the planning process, inventory modeling, and queuing theory; operations management (or operations research), which focuses on the analysis of the essential process of transforming various inputs (i.e., materials, labor, and capital) into finished products and services that are competitive and meet the demands of customers with respect to utility, quality, and pricing; and management information systems (“MIS”), which focuses on collection, analysis, and dissemination of data and information regarding financial and operational activities of the organization.

Another theory, referred to as “systems management,” emphasizes the importance of looking at organizations as “systems” with various interrelated parts that can be classified as inputs, transformation processes, outputs, and feedback. Systems management theory generally discusses and focuses on two types of systems: a “closed” system, which is an organization that has relatively little interaction with its external environment and thus gets little or no feedback and is at risk to suffer entropy, loses its ability to control itself and eventual dissolve; and an “open” system, which is an organization that interacts frequently with its external environment and thus receives information, feedback, and resources that can be used to make changes in transformation processes and outputs that are necessary in order for the organization to survive. Katz and Kahn were among the first to view organizations as open systems that appropriated resources (i.e., raw materials, capital and human resources) from their external environment, converted or transformed those resources into goods and services using appropriate tools and techniques, and then released those goods and services into the environment where they were purchased by customers to satisfy their needs. Money received from these purchases allowed the organization to acquire new resources that could be used to start the process again.⁵⁶

Contingency School of Management

As the name implies, proponents of the contingency school of management believe that there is no single best way to manage and that what constitutes the most appropriate and effective management decision or action at a given time will depend on the situation that is confronting the manager.⁵⁷ Managers acknowledging the contingency view have a good deal of flexibility; however, they also have a challenging task in figuring out which of the other various available theories of organizational design, control, and motivation offers the best solution. Under the contingency view, the experience, education, and judgment of the particular manager is extremely important for organizational effectiveness and managers must appreciate the potential influence of a diverse range of situational factors including type of organization, business purpose, and activities of the organization, size of the organization, operating environment, corporate and societal culture, information technology and communication, and, finally, the personal style and behavior of the owner or chief executive.

The rate of change in the organization’s external environment is certainly an important contingency that managers need to take into account. Change can occur in a number of ways including the introduction of new technologies and products, entry of new competitors, and changes in overall economic conditions. Burns and Stalker, two of the pioneers in the development of contingency theory, argued that the optimal structure for an organization was related to the level of stability in the organization’s external environment.⁵⁸ Organizations operating in a stable environment were likely to prefer a “mechanistic” structure based on Theory X management principles such as centralized authority, clearly defined tasks and rules, and close supervision. Jones and George explained that

[a] mechanistic structure provides the most efficient way to operate in a stable environment because it allows managers to obtain inputs at the lowest cost, giving an organization the most control over its conversion processes and enabling the most efficient production of goods and services with the smallest expenditure of resources.⁵⁹

In contrast, managers of organizations that are operating in a rapidly changing and relatively unstable environment may be forced to use an “organic” structure in which authority is decentralized and delegated downward in the hierarchy, roles are left ambiguous, employees are encouraged and expected to cooperate, and control is based not on fixed rules but on more informal shared norms for the conduct of organizational activities. Organic structures are better suited than mechanistic structures to cope with a turbulent environment; however, they are more expensive to operate and require new and different managerial skills.

Quality School of Management

The quality school of management focuses on “continuous improvement” of quality and performance to meet and exceed the needs and expectations of customers. Quality becomes the overriding priority for organizational activities and quality management techniques rely heavily on input from employees and close collaboration within the organization through teams of managers and employees that work together to set plans and identify and solve problems. Emphasis on quality management actually began during the era of Taylorism when researchers analyzed methods for controlling production and costs and acknowledged the need to attend to customer service as well as profits. As time went by, more and more work was done on statistical quality control and companies were urged to rely on internal customers and partnerships with suppliers in order to identify and resolve quality issues. Quality was an important element of emerging proposals for managerial priorities such as the system advocated by Deming, who is sometimes referred to as the “father of Quality,” which included calls for managers to stop depending on inspections to achieve quality and focus instead on building quality into the product in the first place; continuously improve systems of production and service in order to improve quality and productivity and decrease costs; and break down barriers between departments to allow specialists in research, design, sales, and production to work as a team in order to foresee and resolve problems of production and use that may be encountered in connection with a product or service.⁶⁰

Two well-known quality-based initiatives are the Kaizen (pronounced “ky-zen”) and reengineering approaches. Imai has defined Kaizen as “ongoing improvement involving everyone—top management, managers, and workers”⁶¹ and Kaizen is supported by organizational norms that value learning and experimenting with respect to ideas that might lead to changes that enhance the quality of organizational outputs. Kaizen has its roots in Japanese manufacturing processes and has been incorporated into a similar concept of total quality management (TQM), which ­Davenport has defined to include programs and initiatives that emphasize incremental improvement in work processes and outputs over an open-ended period of time. Jones and George explained that “TQM focuses on analyzing an organization’s input, conversion, and output activities to increase product quality.”⁶²

Reengineering, on the other hand, has been defined by Davenport to include discrete initiatives intended to achieve radically redesigned and improved work processes in a bounded time frame.⁶³ Reengineering is sometime referred to as “business process redesign” or “process innovation” and requires participation by everyone in the organization to seek and achieve dramatic improvements in cost, quality, and service. Reengineering is often controversial given its cost and the potential disruption that may result due to the need to reconfigure jobs and eliminate workers.⁶⁴ In order for either of the quality management approaches to be successful, the organizational culture must create an environment in which all employees work together in harmony and seek to develop and maintain cooperative relationships with their peers and everyone above or below them in the organizational hierarchy. The assumptions and values underlying this form of culture have been referred to by Ouchi as “Theory Z.”⁶⁵

Other Contributions to the Development of Management Studies

The foregoing brief history of the development of “management” necessarily omits much in the way of important detail and debate and cannot possibility capture the diversity of thought and scholarship on the topic. For example, when one seeks to learn about “management” he or she inevitably is drawn to the collective works of Peter Drucker, who began his career by publishing one of the earliest books on applied management in 1946 and eventually became known as the “creator and inventor of ­modern management” in the words of well-known management commentator Tom Peters.⁶⁶ The field of management studies has also been overtaken by a seemingly endless stream of “new ideas” for management systems and practices such as “management-by-objectives,” Six Sigma and “agile” software development. In addition, various subareas of management have developed their own body of scholarship as evidenced by the work being done under the umbrellas of human resource management, marketing management, strategic management, and financial management. However, the utility of these function-based initiatives has been questioned by those who argue that effective management in the 21st century requires an understanding of all of these categories and thus it is best to focus on specific processes or objectives such as product development. Finally, while much of what has been described previously has been introduced in the for-profit arena, there is a substantial amount of interest in management of public enterprises, nonprofit organizations, and organizations seeking to achieve both financial sustainability and societal benefits (e.g., social entrepreneurship).

One of the most striking developments over the last few decades has been the emergence of “management” as a formal business discipline with its own body of scholarly work and a wide array of professional activities among educators, researchers, and others. The notion that management is just “common sense” and “cannot be taught” has been replaced by a complex model of formal education that produces graduates who have completed a curriculum that spans a wide range of subtopics. The formalization of “management” training has been accompanied by the development of other related business specialties such as finance, marketing, operations management, and human resources. Accounting and economics also play an important role in organizational strategy and operations; however, they both had already been recognized as established ­professions before the managerial profession began its rise. Today, integration of management skills into the local population is seen as essential to potential prosperity for developing countries.

Managerial Challenges in the Early 21st Century

The governance structure of for-profit organizations, generally corporations, in the United States has evolved to the point where one can identify several layers of stakeholders: the shareholders, who provide the capital to operate the business in exchange for retaining the right to receive profits generated from such operations; the directors, who are elected by the shareholders to oversee the operations of the business; the senior managers, who are employed by the directors to establish and execute a strategic plan for the business and manage day-to-day operations; and the lower-level managers and employees who carry out the various tasks and activities necessary for the organization to pursue, and hopefully achieve, its goals and objectives. For-profit organizations seek to generate profits for the shareholders, which also increase the compensation for the senior managers; create and distribute products and services that are valued by customers such that they will pay the price sought by the organization; and, at least under contemporary theories of human resources, provide rewarding opportunities for employees. Some countries use somewhat different governance models that feature a higher level of employee participation in governance through opportunities to elect worker representatives to the governing body (i.e., the board of directors). There is also a growing trend toward requiring that the needs and concerns of other ­stakeholders, such as the community in which the organization is operating, be taken into account when setting goals for, and making ­decisions about, the organization.

The 21st century began with celebration of a “New Economy” in which many of the traditional tools upon which management studies had been based with no longer be valid and managers would be challenged to cope with a variety of issues arising out of rapid and sweeping changes in society and the economy. While it may not be wise or necessary to throw out all of the “old,” it is certainly important to pay attention to the several important factors identified and discussed by manager scholars and researchers such as Lewis et al.: continuous advances in information technology; the rise of the Internet; increasing globalization; increasing diversity in the workplace and the marketplace; growing recognition of the importance of intellectual capital including, but not limited to, intellectual property; and more focused attention on ethical behavior by firms and their managers.⁶⁷ Each of these factors has had, and will continue to have, a significant influence on core managerial activities, notably each of the elements of organizational design. In addition, of course, management must remain focused on creating value for customers in an efficient manner and on developing and implementing strategies to attract necessary inputs such as capital, technology and human resources.

Internet and Information Technology

The maturation of the Internet and evolution of information technology has had a dramatic impact on management tools, strategies, and challenges. After an initial period of colossal failures, including the so-called Internet bust at the beginning of the new century, the success rate of e-businesses finally began to rise as companies realized how they could develop business tools and strategies that had traditionally been practiced in the pre-Internet world: operational efficiencies, cost containment, and control and intelligently designed strategic alliances. Concurrently, “brick-and-mortar” companies began to figure how they could use the Internet to compliment, rather than replace, their existing businesses, which meant that consumers began to have real choices about where and how they could purchase products and services and how they could communicate with their preferred vendors. Improvements in information technology facilitate rapid dissemination of information within organizations and efficient broadcast of information to the marketplace. Information technology also supports strong supply chain relationships, which, in turn, allow companies to reduce costs and improve service and product availability. Finally, there is no doubt that the Internet has changed the competitive landscape for businesses of all sizes: consumers can get more information about products, services, and vendors and can “comparison shop” quickly and efficiently; consumers can share information about their experiences with products, services, and vendors through social networking and, finally, competition can now arise from anywhere in the world where a person or firm can set up a website and ship products efficiently by taking advantage of improvements in logistics and transportation.⁶⁸

Globalization

Businesses and their managers have had to come to grips with the fact that they need to think “globally” when making decisions about organizational strategy and design. The importance of globalization has increased with advances in information technology and transportation and firms of all sizes can now easily reach to customers and business partners around the world. Larger companies in particular have decided to move major parts of their operations to foreign countries to take advantage of cost advantages, gain access to talent and technology, and have more direct contact with consumers in large emerging markets. Interestingly, manufacturing is just one of the activities happening in foreign countries and companies have increasingly looked to foreign scientists and engineers to carry out sophisticated research and development projects. There has also been a steady rise in strategic alliances between companies in different countries including, in many cases, acquisitions of controlling interests in US companies by foreign firms. In addition, the domestic marketplace in the United States has been transformed by inbound investment by foreign firms interested in setting up manufacturing and sales subsidiaries in the United States to increase the efficiency of their efforts to penetrate the US market.⁶⁹ Finally, globalization means that countries all around the world are developing their own indigenous management practices that leverage their specific resources and core competencies and help to create powerful local firms that quickly capture domestic market share and make it difficult for foreign companies to enter and gain access to growing middle classes with disposable income.

Diversity

Communication and organizational culture are two key concerns for managers of all businesses and the challenges in both of these areas have increased as the workplace and consumer marketplace have each become more diverse. Immigration and shifts in societal ideas about the roles of women have transformed the labor force to a dynamic and complex mix of men, women, Caucasians, Hispanics, African Americans, Asian ­Americans, and others with diverse racial, national, and ethnic backgrounds. As a result, issues have arisen in achieving the consensus ­necessary to set and pursue common goals and objectives and creating and maintaining a strong organizational culture is a much more difficult task for managers. The response has been an increase in diversity training within organizations to provide everyone with a better understanding of the perspectives of others with different backgrounds. Workplace diversity matches changes in the marketplace and companies must take into account the specific preferences of each of the aforementioned groups when designing and marketing their products and services.⁷⁰

Intellectual Capital

Intellectual capital has joined the traditional factors of land, labor, money, and raw materials as essential contributors to the efficiency and competitiveness of business organizations and managers must have a clear understanding of the elements of intellectual capital and how they can be used in developing and implementing strategies. Intellectual capital appears in the growing sophistication and educational background of the workforce and in the nature of the products and services developed and marketed by business organizations. As noted by Lewis et al.,

More and more products will become intellectual, or knowledge-based (for example, investment services and advice, registering for classes at a school, computer software), and may be better referred to as services. Services such as travel and entertainment are becoming more important, and they rely on knowledge. Even the traditional products will make more use of knowledge in design, production and marketing of them.⁷¹

Intellectual capital does not simply mean technology and intellectual property rights; instead, it is a concept that is much broader and includes identification, categorization, protection, and effective use of the totality of the organization’s “knowledge.” The three major categories of “intellectual capital” identified by Stewart include structural capital, which includes the accumulated knowledge and know-how of the organization represented by its patents, trademarks, copyrights, trade secrets, and proprietary claims to information in its databases and systems; customer capital, which includes the value of established relationships with customers and suppliers; and human capital, which includes the cumulative skills and knowledge of the organization.⁷² Management of intellectual capital is tightly aligned with human resource management since managers must recruit and retain the best talent, mine their knowledge for the benefit of the organization, and establish systems for ensuring that their knowledge is available to others and that they have access to all of the organizational intellectual capital that they need in order to successfully carry out their activities.

Ethics

Ethical behavior and social responsibility have become two important topics for managers, particularly in light of the scandals and difficult economic times that made their marks on the first decade of the new century.⁷³ Government regulations such as the Sarbanes Oxley Act of 2002 transformed the landscape for corporate governance of public companies in the United States, with a particular focus on greater disclosure and transparency, and ethical guidelines have been promulgated by respected groups around the world including the OECD Guidelines for Multinational Enterprises and the United Nations Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises. Management concerns regarding compliance are no longer limited to their own organizations and are now being extended to business partners such as suppliers under laws and voluntary standards that call for firms to monitor their supply chains for evidence of human trafficking and subpar working conditions.

Another interesting development in the United States is the recognition of new legal forms of corporations that explicitly allow directors to consider not only the interests of shareholders but also other important stakeholders such as employees, consumers and the community. A ­number of states, including California and Delaware, permit the ­formation of “benefit corporations,” sometimes referred to as “B corporations,” for the purpose of creating general public benefit, which is defined by statute as a material positive impact on society and the environment, taken as a whole, as assessed against a third-party standard that satisfies certain requirements. Directors of benefit corporations are required to consider the impacts of any action or proposed action upon specified considerations including, among others, the shareholders and employees of the corporation, customers of the corporation who are beneficiaries of the general or specific public benefit purposes, and the environment. The viability of B corporations will depend in large part on the development of case law regarding the permissible purposes of such corporations and the flexibility afforded to directors in discharging their fiduciary duties.

¹ Jones, G., and J. George. 2017. “There are a Number of Outstanding and Comprehensive Textbooks that Cover a Wide Range of Subjects Pertaining to “Management.”” Essentials of Contemporary Management, 10th ed. New York, NY: McGraw-Hill Higher Education; Scott, J. 2013. The Concise Handbook of Management: A Practitioner’s Approach. London: Routledge; Schermerhorn, J. 2013. Management, 12th ed. New York, NY: Wiley; Griffin, R. 2016. Management, 12th ed. Boston, MA: Cengage Learning; Robbins, S., M. Coulter, and D. DeCenzo. 2010. Fundamentals of Management, 7th ed. Upper Saddle River, NJ: Prentice Hall: and Bateman, T.S., S. Snell, and R. Konopaske. 2016. Management: Leading & Collaborating in a Competitive World, 12th ed. New York, NY: McGraw-Hill Higher Education.

² Follett, M. 1942. “Dynamic Administration.” In Dynamic Administration: The Collected Papers of Mary Parker Follett, eds. H. Metcalf and L. Urwick, New York, NY: Harper & Row.

³ Weihrich, H., and H. Koontz. 1993. Management: A Global Perspective, 10th ed. New York, NY: McGraw-Hill. (as summarized in Weihrich, H. 2018. “Management: Science, Theory, and Practice.” https://scribd.com/document/106629608/22550642-Management-Science-Theory-and-Practice (accessed December 31, 2018)).

⁴ Id.

⁵ Jones, G., J. George, and C. Hill. 2000. Contemporary Management, 2nd ed. New York, NY: Irwin/McGraw-Hill.

⁶ Weihrich, H. n.d. “Management: Science, Theory, and Practice.” https://scribd.com/document/106629608/22550642-Management-Science-Theory-and-Practice (accessed December 31, 2018).

⁷ Drucker, P. 1967. The Effective Executive. New York, NY: Harper & Row; and Drucker, P. June 2004. “What Makes an Effective Executive.” Harvard Business Review 82, p. 58.

⁸ Lewis, P., S. Goodman, P. Fandt, and J. Michlitsch. 2007. Management: Challenges for Tomorrow’s Leaders, 5, 5th ed. Mason, OH: Thomson South-Western. (also quoting from Foust, D. December 20, 2004. “Gone Flat.” Business Week, pp. 76–82 (“effectiveness means ‘doing the right things’ to achieve the appropriate goal, and efficiency means ‘doing things right’”)).

⁹ Drucker, P. 1954. The Practice of Management. New York, NY: Harper & Row.

¹⁰ Weihrich, H. n.d. “Management: Science, Theory, and Practice.” https://scribd.com/document/106629608/22550642-Management-Science-Theory-and-Practice (accessed December 31, 2018).

¹¹ Id.

¹² Id.

¹³ Drucker, P. 1973. Management, Tasks, Responsibilities, Practices, 69. New York, NY: Harper & Row, 1973.

¹⁴ Bloom, N., S. Dorgan, J. Dowdy, and J. Van Reenen. 2018. “Management Practice & Productivity: Why they Matter.” http://growingjobs.org/downloads/management_practice.pdf (accessed December 31, 2018). The surveyed companies were located in the United States, India, Italy, Germany, Portugal, Sweden, United Kingdom, Poland, France, Greece and China.

¹⁵ Bloom, N., and J. Van Reenen. Winter 2010. “Why Do Management Practices Differ across Firms and Countries.” Journal of Economic Perspectives 24, no. 1, pp. 203–24.

¹⁶ Id. at 205.

¹⁷ Portions of the discussion in this section are adapted from material in Ambler, G. April 8, 2008. “Leaders vs. Managers ... Are they Really Different?” The ­Practice of Leadership, https://georgeambler.com/leaders-vs-managers-are-they-really-different/(accessed December 31, 2018).

¹⁸ Bennis, W. 1989. On Becoming a Leader. Reading, MA: Addison-Wesley.

¹⁹ Kotter, J.P. 1999. on What Leaders Really Do. Cambridge, MA: Harvard ­Business Publishing.

²⁰ Id.

²¹ Estill, J. July 18, 2011. “Managers and Leaders—Are They Different?” CEO Blog—Time Leadership, http://jimestill.com/2008/03/managers-and-leaders-are-they-different.html (accessed December 31, 2018) (citing, Zaleznik, A. 1977. “Managers and Leaders: Are They Different?” Harvard Business Review 55, no. 3, pp. 67–78).

²² Elements of the discussion of the history of pre-industrial management are derived from essays prepared by E. Makamson on the topic and included in Makamson, E. 2000. The History of Management: The Rise of the Professional ­Manager in America.

²³ Elements of the discussion of the rise of mercantilism during the Renaissance and Reformation are derived from essays prepared by E. Makamson on the topic and included in Makamson, E. 2000. The History of Management: The Rise of the Professional Manager in America.

²⁴ Mercantilism is so closely associated with Colbert, the chief minister of French king Louis XIV for over 20 years during the late 17th century, that it is also often referred to as “Colbertism.” See Ames, G.J. 1996. Colbert, Mercantilism and the French Quest for the Asian Trade. DeKalb, IL: Northern Illinois University Press.

²⁵ Elements of the discussion of management during the Industrial Revolution are derived from essays prepared by E. Makamson on the topic and included in Makamson, E. 2000. The History of Management: The Rise of the Professional Manager in America.

²⁶ E. Makamson, “Adam Smith” in Makamson, E. 2000. The History of Management: The Rise of the Professional Manager in America.

²⁷ Other economists followed Smith during the nineteenth century to make additional contributions to the theoretical underpinnings of economics and management. For example, Mill wrote about resource allocation, production and pricing issues and other well-known scholars of the time included Marshall and Walras.

²⁸ Elements of the discussion of capitalism in America are derived from essays prepared by E. Makamson on the topic and included in Makamson, E. 2000. The History of Management: The Rise of the Professional Manager in America.

²⁹ Id.

³⁰ Id.

³¹ Id.

³² Nelson, D. 1980. Taylor and Scientific Management. Madison, WI: The University of Wisconsin Press.

³³ Woodbury, R. 1972. “The Legend of Eli Whitney and Interchangeable Parts.” In Technology and Culture, M. Kranzberg and W. Davenport, 318–36. New York, NY: Schocken Books.

³⁴ Elements of the discussion of the rise of professional management in America are derived from essays prepared by E. Makamson on the topic and included in Makamson, E. 2000. The History of Management: The Rise of the Professional Manager in America.

³⁵ He explain that: “[a] superintendent of a road 50 miles in length can give its business his professional attention and may be constantly on the line engaged in die direction of its details; each person is personally known to him, and all questions in relation to its business are at once presented and acted upon; and any system however imperfect may under such circumstances prove comparatively successful.” As quoted in Chandler, A. 1962. Strategy and Structure: Chapters in the History of the American Industrial Enterprise. Cambridge, MA: MIT Press.

³⁶ Elements of the discussion of Taylor and “Scientific Management” are derived from essays prepared by E. Makamson on the topic and included in ­Makamson, E. 2000. The History of Management: The Rise of the Professional Manager in ­America.

³⁷ Taylor, F.W. 1911. The Principles of Scientific Management, 5–29. New York, NY: Harper Bros.

³⁸ Taylor explained that workers failed to act “efficiently” when performing their jobs for several reasons: “First: The fallacy, which has from time immemorial been almost universal among workmen, that a material increase in the output of each man or each machine in the trade would result in the end in throwing a large number of men out of work. Second: The defective systems of management which are in common use, and which make it necessary for each workman to soldier, or work slowly, in order that he may protect his own best interests. Third: The inefficient rule-of-thumb methods, which are still almost universal in all trades and in practicing which our workmen waste a large part of their effort.” Taylor, F.W. 1911. The Principles of Scientific Management, 5–29. New York, NY: Harper Bros.

³⁹ Makamson explained that the “piece-rate” system “generally failed because standards were poorly set, employers cut rates when workers earned ‘too much’, and workers would conceal their real capacity for production to keep standards low.”

⁴⁰ Makamson, E. 2000. “Taylor and Scientific Management.” In The History of Management: The Rise of the Professional Manager in America.

⁴¹ Jones, G., and J. George. 2017. Essentials of Contemporary Management, 10th ed. New York, NY: McGraw-Hill Professional Publishing. Appendix A (“History of Management Thought”) to Chapter 1.

⁴² See Gilbreth, F., and L. Gilbreth. 1919. Fatigue Study: The Elimination of Humanity’s Greatest Waste—A First Step in Motion Study. New York, NY: The Macmillan Company. For a contemporary survey of research on the effects of the physical environment on job performance, see Vischer, J. 2007. “The Effects of the Physical Environment on Job Performance: Towards a Theoretical Model of Workspace Stress.” Stress and Health 23, no. 3, p. 175.

⁴³ Weber, M. 1946. “Bureaucracy.” In From Max Weber, eds. Hans Gerth and C. Wright Mills, 196–244. New York, NY: Oxford University Press. See also Weber, M. 1947. The Theory of Social and Economic Organization, Translated by A. M. Henderson & Talcott Parsons. The Free Press.

⁴⁴ Fayol, H., and C. Storrs. 1949. General and Industrial Management, Pitman.

⁴⁵ Follett, M. 1918. The New State—Group Organization, the Solution for Popular Government. University Park, PA: Pennsylvania State University Press.

⁴⁶ Graham, P., ed. 2003. Mary Parker Follett Prophet of Management. See also Mele, D. 2018. “Ethics in Management: Exploring the Contribution of Mary Parker Follett.” http://iese.edu/research/pdfs/DI-0618-E.pdf (accessed ­December 31, 2018).

⁴⁷ See generally Barnard, C. 1938. The Functions of the Executive. Cambridge, MA: Harvard University Press. See also Mahoney, J. 2002. “The Relevance of Chester I. Barnard’s Teachings to Contemporary Management Education: Communicating the Aesthetics of Management.” International Journal of Organizational Theory and Behavior 5, nos. 1–2, pp. 159–72.

⁴⁸ Jones, G., and J. George. 2014. Essentials of Contemporary Management, 10th ed. New York, NY: McGraw-Hill Professional Publishing, Appendix A (“­History of Management Thought”) to Chapter 1. Jones and George commented that the study of informal organizations and other factors that impacted how individuals and groups responded to and acted in organizations became the focus of a research field which eventually became known as “organizational behavior.”

⁴⁹ Mayo, E. 1933. The Human Problems of an Industrial Civilization. New York, NY: Macmillan.

⁵⁰ Jones, G., and J. George. 2017. Essentials of Contemporary Management, 10th ed. New York, NY: McGraw-Hill Professional Publishing. Appendix A (“History of Management Thought”) to Chapter 1.

⁵¹ See Maslow, A. 1954. Motivation and Personality. New York, NY: Harper.

⁵² The ideas underlying Theory X and Theory Y first appeared in McGregor, D. 1960. The Human Side of Enterprise. New York, NY: McGraw Hill.

⁵³ Jones, G., and J. George. 2017. Essentials of Contemporary Management, 10th ed. New York, NY: McGraw-Hill Professional Publishing. (noting also that Henry Ford’s practice of closely supervising and managing his workforce was a good illustration of Theory X management style).

⁵⁴ Id. (noting also that Fayol’s approach to administration, the “principles of management” discussed earlier, reflected many of the assumptions associated with Theory Y).

⁵⁵ Jones, G., and J. George. 2017. Essentials of Contemporary Management, 10th ed. New York, NY: McGraw-Hill Professional Publishing.

⁵⁶ Id. (citing Katz, D., and R. Kahn. 1966. The Social Psychology of Organizations, New York, NY: Wiley).

⁵⁷ Id.

⁵⁸ Id. See also Burns, T., and G.M. Stalker. 1961. The Management of Innovation. Oxford University Press.

⁵⁹ Id.

⁶⁰ Deming, W. 1986. Out of the Crisis, 23–24. Cambridge, MA: Cambridge ­University Press.

⁶¹ Imai, M. 1986. KAIZEN: The Key to Japan’s Competitive Success, xxix. New York, NY: Random House Business Division.

⁶² Jones, G., and J. George. 2017. Essentials of Contemporary Management, 10th ed. New York, NY: McGraw-Hill Professional Publishing.

⁶³ Davenport, T. 1993. Process Innovation. Boston, MA: Harvard Business School Press.

⁶⁴ Davenport, T. July 1994. “Reengineering: Business Change of Mythic Proportions?” MIS Quarterly, pp. 121–27.

⁶⁵ See generally Ouchi, W. 1981. Theory Z: How American Business Can Meet the Japanese Challenge. Reading, MA: Addison-Wesley.

⁶⁶ Byrne, J. November 28, 2005. “The Man Who Invented Management: Why Peter Drucker’s Ideas Still Matter.” Bloomberg Businessweek.

⁶⁷ Lewis, P., S. Goodman, P. Fandt, and J. Michlitsch. 2007. Management: ­Challenges for Tomorrow’s Leaders, 12–16, 5th ed. Mason, OH: Thomson South-Western.

⁶⁸ Lewis, P., S. Goodman, P. Fandt, and J. Michlitsch. 2007. Management: ­Challenges for Tomorrow’s Leaders, 12–13, 5th ed. Mason, OH: Thomson South-Western.

⁶⁹ Id. at 13.

⁷⁰ Id. at 13–14.

⁷¹ Lewis, P., S. Goodman, P. Fandt, and J. Michlitsch. 2007. Management: Challenges for Tomorrow’s Leaders, 14, 5th ed. Mason, OH: Thomson South-Western.

⁷² Id. (citing Stewart, T. 1997. Intellectual Capital: The New Wealth of Organizations. New York, NY: Currency Doubleday).

⁷³ Id. at 15–16.