MODULE 2 – ESSENTIAL MANAGEMENT THEORIES

Content Summary:

This module discusses the essential management theories and principles of

organization and its application to business and industry particularly the importance of
management theory for small business, different types of management theory and on
how theories put into action.

Learning Outcomes:

At the end of this module, students should be able to:

1. Determine the importance of Mgt. Theories for Small Business

2. Identify the different types of Mgt. Theories.
3. Describe how theories put into action.

Table of Contents:

1. Definition of Management Theories

2. Important Management Theory for small business
3. Different types of management theories
4. How Theories out into action

DISCUSSION

1. DEFINITION OF MANAGEMENT THEORIES

WHAT IS A THEORY
- A theory is a set of interrelated constructs (concepts), definitions, and propositions that
present a systematic view of phenomena by specifying relations among variables, with
the purpose of explaining and predicting the phenomena (Fred N. Kerlinger).
- A theory is a supposition or a system of ideas intended to explain something, esp. one
based on general principles.

Management Theories

- are a collection of ideas that recommend general rules for how to manage an
organization or business. They address how supervisors implement strategies to
accomplish organizational goals and how they motivate employees to perform at their
highest ability.

-also known as "Transactional theories" focus on the role of supervision, organization,

and group performance.

- help organizations to focus, communicate, and evolve. Using management theory in

the workplace allows leadership to focus on their main goals. When a management
style or theory is implemented, it automatically streamlines the top priorities for the
organization.

- are ideas that suggest frameworks, tools, and management practices that
organizations can use to benefit their workforce or culture. These theories can be used
as a guide by leaders to inspire workers or achieve organizational objectives. Instead of
relying entirely on one management theory, they can also use concepts from other
theories. One of the many theories that businesses adopt is the modern management
theory. According to this view, technology may both contribute to and address the rapid
change and increased complexity that modern businesses must deal with.

Typically, leaders apply concepts from different management theories that best
suit their employees and company culture. Although many management theories were
created centuries ago, they still provide beneficial frameworks for leading teams in the
workplace and running businesses today.

When putting this theory into practice, managers assess their staff and reach
judgments using technology and mathematical methods. This approach is meant to
counter the classical management paradigm, which holds that employees only labor for
financial benefit. According to the modern management philosophy, people go to work
for a variety of reasons, such as to realize their goals for happiness, contentment, and
lifestyle. With the aid of this theory, managers may put strategies in place to cater to the
needs of their staff members and assist their long-term skill development.

Benefits of Management Theories

There are several reasons why leaders should study and apply established
management theories in the workplace, including:

Increased productivity: Using these theories, leaders learn how to make the most of
their team members, improving performances and increasing productivity.

Simplified decision making: Management theories give leaders strategies that speed
up the decision-making process, helping those leaders be more effective in their roles.

Increased collaboration: Leaders learn how to encourage team member participation

and increase collaboration among an entire group.

Increased objectivity: Management theories encourage leaders to make scientifically proven

changes rather than relying on their judgment.

2. IMPORTANT MANAGEMENT THEORIES FOR SMALL BUSINESS

Small business owners and managers can benefit from learning about the
theorists whose work has given rise to many of the leadership approaches as well as
the best (and worst) practices used to guide and grow organizations of all sizes.

By putting these approaches within a larger historical context, business leaders

can determine which theories best fit their organization and select components from
each philosophy to create a toolkit of effective management strategies that work for
them and their staff.

FIVE THEORISTS THAT WE SHOULD KNOW ABOUT AND THEIR GROUND

BREAKING WORK.

1. Frederick Taylor’s Scientific Management

2. Douglas McGregor’s Theories X and Y
3. Henri Fayol’s Principles of Administrative Management
4. Elton Mayo’s Human Relations theory
5. Max Weber’s Bureaucratic Management

1. Frederick Taylor’s Scientific Management

Frederick Winslow Taylor is known as the Father of Scientific Management,
which also came to be known as “Taylorism.” Taylor believed that it was the role and
responsibility of manufacturing plant managers to determine the best way for the worker
to do a job, and to provide the proper tools and training.

Frederick W. Taylor (1856-1915) was among the first to study worker productivity
and how best to optimize it. Taylor, who had a background in mechanical engineering,
conducted controlled experiments that led him to develop four principles of scientific
management known as “Taylorism.”

These principles recommend that the scientific method be used to determine the
most efficient way to perform a task in the workplace instead of simply relying on the
judgment or personal discretion of workers.

Taylor promoted standardization and specialization by suggesting that workplace

tasks be broken down into a sequence of smaller steps. He concluded that managers
should assign workers to a job that best matched their ability, train them thoroughly and
supervise them to ensure that they worked efficiently.

However, Taylor’s focus on achieving workplace efficiency ignored the humanity

of the individual in favor of finding the optimal way to complete any given task. Taylor’s
theory in its purest form isn’t practiced much today; however, it did shine a light on
workplace efficiency, the value of training procedures, and the need for cooperation
between workers and managers.

2. Henri Fayol’s Principles of Administrative Management

Henri Fayol (1841 – 1925) was a French coal-mine engineer, director of
mines and modern management theoretician. His scientific management theory
forms the base for business administration and business management. In the academic
world, this is also known as Fayolism. He is a mining engineer and senior executive in
France, is considered to be one of the most influential contributors to modern
management theory. Unlike Taylor, who improved productivity by analyzing workers’
actions, Fayol took a top-down approach.

Fayol examined an organization through the lens of the managers and the
situations they might encounter. He believed that management has six paramount
functions: to forecast, plan, organize, command, coordinate and control. Fayol
developed 14 principles of administration that outline how managers should organize
and interact with employees.
 His comprehensive principles, which have become foundational guidelines in
many of today’s workplaces, cover topics ranging from the importance of maintaining an
orderly and clean facility to the value of promoting employee initiative and teamwork.

3. Max Weber’s Bureaucratic Management

Max Weber (1864-1920) was a German sociologist who developed the bureaucratic
management theory, which focuses on structuring organizations in a hierarchical fashion with
clear rules of governance.

Weber’s principles for creating an ideal bureaucratic system include a clear division of
labor, a hierarchical chain of command, separation between the personal and organizational
assets of the owner, meticulous record keeping and documentation, strict and consistent
regulations and rules, and the selection and promotion of employees based on qualifications and
not personal relationships or personalities.

Although Weber recognized that bureaucracy was a threat to individual freedoms, he still
saw it as the most efficient and rational way of establishing organizations. Today, the
bureaucracy management approach is often perceived as impersonal and overwhelmed by red
tape, but it played a key role in universalizing the establishment of standards and procedures,
which are at the core of most modern organizations.

4. Elton Mayo’s Human Relations theory

Elton Mayo (1880-1949) was an Australian born psychologist and Harvard
researcher who helped lay the foundation for the human relations movement. Mayo
conducted experiments aimed at improving productivity among dissatisfied employees
at the Hawthorne plant in Chicago in the 1920s.

He changed working conditions, including lighting, temperature, break times, and

the length of the workday but observed that regardless of the change, there was always
an increase in productivity. This led Mayo and his team to conclude that increases in
workers’ performance weren’t due to changes in their environment but a result of the
researchers paying attention to them and of feeling valued as part of a unified group
collaborating in the study.

Mayo’s work led to the recognition of the importance of psychological and social
factors in creating productive organizations. This gave rise to the Human Relations
Theory, which concluded that employees are more motivated by factors, such as being
part of a group and personal attention, than money or even working conditions. This
people-oriented management approach requires managers to acknowledge the
complexity of human nature and the value of social ties in the workplace.

Although the validity of the Hawthorne experiments has been questioned in

recent years, Mayo’s contributions to management theory are the underpinning of
today’s focus on group dynamics and the use of team-building efforts to strengthen
work cultures.
5. Douglas McGregor’s Theories X and Y

Douglas McGregor (1906-1964) was an American social psychologist who

introduced his X and Y theories in his 1960 book “The Human Side of Enterprise.” He
concluded that there are two fundamentally different styles of management that are
guided by managers’ perceptions of their team members’ motivations.

Theory X is authoritarian in nature and is used by managers who assume that

employees are apathetic or dislike their work.

Theory Y is a participative management style used by managers who believe that

workers are self-motivated, responsible and committed to taking ownership of their
work.

While Theory X leads to micromanaging, Theory Y gives rise to a more

collaborative and decentralized workplace. Theory Y, favored by McGregor, tends to be
adopted by smaller businesses and startups where employees at all levels are part of
the decision-making process and where creativity is encouraged. Large organizations or
those with many staff members may rely more on Theory X in order to keep everyone
focused on meeting organizational goals.

DIFFERENT TYPES OF MANAGEMENT THEORIES

1. System Theory

Systems Theory (or The Systems Approach) had nothing to with business
management and everything to do with biology. That’s because Ludwig von Bertalanffy
(1901-1972) — a biologist at the time — founded general systems theory (GST) in an
attempt to refute reductionism and revive the unity of science.

The premise of general systems theory is that a system is composed of

interacting elements that are affected by their environment. Because of this interaction,
the system as a whole can evolve (develop new properties) and self-regulate (correct
itself).

When applied to business, experts shorten “general systems theory” to just

Systems Theory. In actual fact, Systems Theory is more a perspective than a fully
formed practice. Systems Theory encourages you to realize that your business is a
system and is governed by the same laws and behaviors that affect every other
biological organization.

This intoduces such concepts as:

Entropy - The tendency for a system to run down and die ( a thing to be avoided in
business)

Synergy - Working together, the parts can produce something greater than those same
parts could produce on their own.

Subsystem - The whole (your business) is built on subsystem, which themselves are
built on yet more subsystem.
2. Principles of Administrative Management

Miner and engineer Henri Fayol (1841-1925) developed his principles of

administrative management as a top-down approach to examining a business. He
put himself in his manager’s shoes and imagined what situations they might
encounter when dealing with their team.

From this, he concluded that his managers - and inded management in

general - had six responsibilities when it came to managing employees:

1. Organize
2. Command
3. Conttrol
4. Coordinate
5. Plan
6. Forecast

With those responsibilities in mind, Fayol developed 14 principles of

administration that influence how managers should lead their teams. These
principles, which range from the importance of maintaining a clean facility to the
value of initiative and teamwork, are the foundation for many of today’s most
successful businesses.

3. Bureaucratic Management

Max Weber (1864-1920) took more sociological approach when creating his
bureaucratic management theory. Weber’s ideas revolve around the importance
of structuring your business in a hierarchical manner with clear rules and roles.

According to Weber, the ideal business structure (or bureaucratic system) is

based on:

Clear division of labor

Separation of the owner’s personal and organizational assets
Hierarchical chain of command
Accurate record keeping
Hiring and promotion based on qualificatiions and performance, not
personal relatiionships
Consistent regulations

Many today see Bureaucratic Management as an impersonal style that can

become overwhelmed by rules and formalities. That said, it can be very useful for
new businesses that are in need of standards, procedures, and structure.

4. Scientific Management
 Toward the end of the 19th century, Frederick Taylor (1856-1915)
conducted controlled experiments to optimize his workers’ productivity. The
result of these experiments helped him form the belief that the scientific method-
not judgement or discretion - is the best determiner of efficiency in the
workplace.

Scientific management promotes standardization, specialization,

assignment based on ability, and extensive training and supervision. Only through
those practices can a business achieve efficiency and productivity.

This management theory attempts to find the optimal way to complete a

given task, often at the expense of the employees’ humanity.

The theory as a whole isn’t used much anymore, but parts of it — workplace
efficiency, training, and cooperation — are the foundation of some of the most
successful businesses on the planet.

5. Theories X and Y

 In 1960, social psychologist Douglas McGregor (1906-1964) published his

book The Human Side Of Enterprise. In it, he outlined two drastically different
styles of management (theories X and Y). Each style is guided by a manager’s
perceptions of their employees’ motivations.

 Theory X posits that employees are apathetic or dislike their work. Managers
who adhere to Theory X are often authoritarian and will micromanage everything
because they don’t trust their employees.

 Theory Y posits that employees are self-motivated, responsible, and want to take
ownership of their work. Managers who adhere to Theory Y include their
employees in the decision-making process and encourage creativity at all levels.
In practice, small businesses tend to operate on Theory Y while large businesses
tend to operate on Theory X.

6. Human Relation Theory

 In the first quarter of the 20th century, psychologist Elton Mayo (1880-1949) was
tasked with improving productivity among dissatisfied employees. Mayo
attempted to improve worker satisfaction by changing environmental conditions
like lighting, temperature, and break time. All of those changes had a positive
effect.

 Mayo then tried changing variables that he perceived would have a negative
effect on satisfaction, like the length of the workday and quotas (he increased
both). What he observed was that regardless of the change — good or bad —
worker satisfaction always increased.
  This led Mayo to conclude that performance was a result of the attention the
researchers paid to the workers. In other words, the attention made the workers
feel valuable.

 These findings gave rise to Mayo’s Human Relations Theory, in which he states
that employees are more motivated by social factors — like personal attention or
being part of a group — than environmental factors, such as money and working
conditions.

7. Classical Management

Classical Management Theory is predicated on the idea that employees only

have physical needs. Because employees can satisfy these physical needs with
money, Classical Management Theory focuses solely on the economics of organizing
workers.

Due to this narrow view of the workforce, Classical Management Theory ignores
the personal and social needs that influence employees’ job satisfaction. As a result,
Classical Management Theory advocates seven key principles:

1. Profit Maximization
2. Labor Specialization
3. Centralized Leadership
4. Streamlined Operations
5. Emphasis on productivity
6. Single-person or select-few decision making
7. Priority to the bottom line

When these seven principles are put into practice, they create an “ideal”
workplace based on a hierarchical structure, employee specialization, and financial
rewards.

Control of the business is held by a select few who exercise exclusive control over
the decisions and direction the company takes. Underneath those select few, middle
managers govern the day-to-day activities of the employees who are at the bottom of
the pecking order.

And all of this revolves around the idea that employees will work harder and be
more productive if they are rewarded in larger and larger increments (via wages or
benefits).

While this may not sound like an “ideal” management theory by today’s standards, it
worked well for many years prior to the early 20th century. And even though the system
isn’t applied lock-stock-and-barrel as it once was, there are several strong points that
managers can use in the 21st century. They include:

• Clear managerial structure

• Division of labor

• Clear definition of employee roles

These three principles, combined with other management theories on this list, can
improve the way your employees — and your business — works in this modern age.

8.Contingency Management
Fred Fiedler and others conceived of Contingency Management Theory in the 1950s and
60s. Fiedler based his theories on the idea that effective leadership was directly related to the
traits the leader displayed in any given situation.

From that idea sprang the belief that there exist a set of traits that are effective for every
situation and that different situations demand different leadership traits. As such, leaders must be
flexible and adapt to change as the market, the business, and the team demands.

Fiedler then extended that concept from an individual, management focus to a much broader
organization-focused theory. Fiedler’s theory suggests that there is no one management approach
that suits every situation and every organization.

Instead, three general variables determine business management and structure. They are:

• The size of the organization

• The technology employed

• The leadership at all levels of the business

What that means for the individual manager who subscribes to Contingency Management
Theory is that they must be able to identify the particular management style suitable for every
given situation. They must also be willing and able to apply that management style quickly and
effectively whenever necessary.

In a larger sense, businesses and managers who adhere to Contingency Management Theory
— whether intentionally or unintentionally — will be concerned, above all else, with
maintaining the alignment of their team and achieving a good fit in all projects and situations.

Ultimately, according to Contingency Management Theory, there is no one best way to do

things. The way a business chooses to organize will depend on the environment in which they
operate.

9. Modern Management
Modern Management Theory developed as a direct response to Classical Management
Theory. Modern-day businesses are faced with navigating rapid change and complexities that
seem to grow exponentially overnight. Technology is both the cause of and the solution for this
dilemma.

As such, businesses that incorporate the Modern Management Theory into their operations
seek to meld technology and, to some extent, mathematical analysis with the human and
traditional elements of their organization.

This combination of scientific and social variables creates a dual-pronged approach to

management, organization, and decision-making. Modern Management Theory emphasizes:

Using mathematical techniques to analyze and understand the relationship between

managers and employees.
 That employees don’t work for money alone (in contrast to Classical Management Theory).
Instead, they work for happiness, satisfaction, and a desired lifestyle.

Modern Management Theory embraces the idea that people are complex. Their needs vary
over time, and they possess a range of talents and skills that the business can develop through on-
the-job training and other programs.

At the same time, management can use mathematical techniques such as statistical, cost,
revenue, and return-on-investment (ROI) analysis to make rational decisions unaffected by
emotion.

Though Modern Management Theory isn’t perfect by itself, it does, like Classical
Management Theory, offer some useful points that you can combine with other theories to create
a structure that is just right for your business.

10. Quantitative Management

Quantitative Management Theory is an offshoot of Modern Management Theory developed
during World War II in response to managerial efficiency.

Quantitative Management Theory brought together experts from scientific disciplines to

address staffing, materials, logistics, and systems issues for the U.S. military. The clear-cut,
numbers-oriented approach to management (which applies to business as well) helped decision
makers calculate the risks, benefits, and drawbacks of specific actions.

This shift toward pure logic, science, and math is tempered by the belief that these
mathematical results should be used to support, not replace, experienced managerial judgment

11. Organizations as Learning System

Organizations As Learning Systems Management Theory is fairly new when compared to many
of the other theories on this list. Organizations As Learning Systems Management Theory —
sometimes called Integral or Holistic Management Theory — developed as a postmodern
response to many of the older management theories that are still in use today.

It starts with the idea that the business is a system that is built on a succession of subsystems. In
order for the business to run smoothly and efficiently, each subsystem must also work smoothly
and efficiently within itself, but also with the other subsystems around it.

In this theory, managers are responsible for coordinating the cooperation necessary to ensure the
larger “organism” continues to function successfully.

Learning and change are major components of this theory, and learning is encouraged and made
available to everyone — not just middle and upper-management. The emphasis in this theory is
on teamwork, participation, information sharing, and individual empowerment.

The Change Is Worth The Effort

Implementing changes to your management theory and style is difficult. But when you
commit to accommodating the attitudes and natural habits of your employees, your business will
reap the rewards both now and in the future. Managing your team in a way they understand (and
that appeals to them) results in improved morale, decreased turnover, and better employee
engagement. Those results are well worth the effort.

HOW THEORIES PUT INTO ACTION

Pascal Finette, Author of Practice over Theory.

 “The Question You Want To Ask Yourself Is How You Can (Re-) Design Every
Aspect Of Your Company In A Way That Defaults To Doing And Improvising
Versus Planning. How Many Meetings Do You Have And How Much Time Do
You Spend Planning? And How Could You Use This Time To Build, Learn, And
Iterate?”

 According to Pascal Finette- How do you empower your team to get things done?
In today’s fast-paced business environment, it’s not enough to encourage your
team to use their skills. You need to empower them to develop new ones.
Otherwise, you’re overplanning, which, according to author Pascal Finette, is the
same as theorizing business.

CHECK YOUR MINDSET

When you move your organization forward, you need to adopt a mindset that is
simultaneously oriented toward growth and action. Research shows that business
leaders with a growth mindset believe they can learn new skills and have the attitude of
“I can’t do this yet. But I will be able to.” Whereas, an action-oriented mindset lets you
put your values, beliefs, and ideas into action. Without action, both you and your
organization risk stagnation.

So, to take action, you and your team need to have the right knowledge, skills,
and abilities. #Ladyboss Sharlyn Lauby defines how they are different. Knowledge is
“the theoretical or practical understanding of a subject.” Skills are the “proficiencies
developed through training or experience.” And abilities are the “qualities of being able
to do something.”

As a business leader, you are responsible for empowering your team to develop
and practice their knowledge, skills, and abilities daily. This demonstrates that you are
dedicated to your team’s personal and professional growth, and want to see them
expand their influence.

KNOW YOUR SKILLS

For you, as a business leader, there are some skills you should always be
practicing. This does not mean internalizing or intellectualizing these skills, but taking
actionable steps to exercise these skills. But what skills are most important to build and
practice? Research shows that when you develop your human, technical, and
conceptual skills, you are more likely to level up in business.

3 SKILLS THAT WE SHOULD KNOW

1. Human skills- are based on relationships and affect how you communicate with others. These
are the skills that help you influence and motivate your team so they can effectively accomplish
organizational goals. But they are not the same as interpersonal skills. Human skills open you to
ideas from all sources, increases empathy toward others’ motivators, and helps you
accommodate your team members.
 2.Technical skills- are the processes and techniques that grow your organization. These skills
are based on possessing the knowledge necessary to do the required work. While you’re
technical skills may not allow you to step in for your front-line team, you should know and
communicate the standard operating procedures and how they apply to organizational goals.

As you are further promoted, you will continue to move away from applying the tools of the
industry toward implementing your organization’s vision and goals.

3. Conceptual skills- are the skills that allow you to see the big picture. You can take abstract
ideas, develop them into actionable strategies, and communicate them through all levels of your
organization effectively. These skills merge individual ideas and organizational vision for the
future and become increasingly important each time you move up in the organization. To be
effective, leaders must communicate their ideas clearly so that every person in the organization
can understand.

PUT THEORY INTO PRACTICE

The management theories assist in increasing the service quality and

organizational productivity. All members do not use the single concept theory while
implementing strategies in the office. A combination of a number of concepts
depending on the workforce, purpose and workplace are used by the managers.

“IN THEORY, THERE IS NO DIFFERENCE BETWEEN THEORY AND PRACTICE. IN

PRACTICE THERE IS.’ - Yogi Berra

According to Malcolm Gladwell, in his bestselling book Outliers, it takes ten-thousand

hours of practice to become an expert at something. But according to Josh Kaufman,
author of the bestseller The Personal MBA, it only takes about twenty hours of practice
to become “pretty good” at something. So, to make those first twenty of your ten-
thousand hours really count, here are six ways to put theory into practice:

1. Acknowledge the challenge. This means accepting the difficulty and let every
setback be a learning opportunity.
2. Limit the scope. There is training available on such a wide variety of things, it is
not possible to master them all. Leaders should focus on putting a few things that will
enhance their work and their team into practice.
3. Commit time. This means setting a time on your calendar, preferably every day, to
work on your development of the new skill.
4. Leverage tools and materials in the program. Practice using the resources that
are available so that you are comfortable with them when you need them.
5. Create practice partnerships. This means working with peers and holding each
other accountable for practicing. It is also a great way to get feedback.
6. Consider coaching. A good coach will help in creating a plan, offer feedback, and
help you remain accountable.
 We’re practicing all the time because our brain is always learning
and absorbing.
According to Marc Gelfo, founder of Modacity, practice is anything you repeat
regularly. This seems to miss the intentionality needed in practice to improve.

As creator Andrew Pouska puts it. Coaches lead practice sessions, add the
intentionality, and follow- up to enhance “the absorption, mastery, and
maintenance of skills,”

Suzanne Coonan, author of Coaching Works: Here’s Why, explains that

individuals who work with a coach “achieve challenging goals and gain greater
satisfaction in work and life.” This is because a great coach focuses on you and
helps you navigate your obstacles, ranging from human resources strategies to
running multiple projects across diverse teams.
References:

 Principles of Management, Copyright 2019 by Anastasia H. Cortes et al.

 https://harappa.education/harappa-diaries/functions-of-management/

 An Introduction to the Principles of Management - Principles Of Management -

StateUniversity.com

https://www.businessnewsdaily.com/10626-management-theories-for-
smbs.html

https://getsling.com/blog/management-theories/

https://rainedigital.com/2019/12/13/how-to-put-theory-into-practice/