B.S.S.

(Honours) in Health Economics

HE 306: Hospital Management (HM)
Management theories

Dr. Aninda Nishat Moitry

MBBS, MPH, MSc, FRSPH
2 April 2023
 Overview of the presentation

• History of management
• Evolution of management theory
• Scientific management theory
• Administrative management theory
• Behavioral management theory
• Management science theory
• Organizational environment theory
 History of management

• In Europe, the industrial revolution began in the

eighteenth century
• In the United States, it began around 1860, just before
the Civil war
• The western countries began to develop industrial
economy
• Before the industrial revolution, western economy was
based on agriculture
• Most people worked at small farms, using simple
technology, i.e. animal pulled plows
• Professional managers were not needed because most
people worked at own farms
 History of management (Contd.)

• Towards the end of the nineteenth century, powerful

business people developed and created enormous
business empires
• The US economy began to be dominated by business
giants
• Some of the business giants were John D. Rockefeller
(oil), JP Morgan (banking), Andrew Carnegie (steel) and
Cornelius Vanderbilt (steamships and railroads)
 History of management (Contd.)

• By the late 1800s, the US economy depended

largely of industries such as oil, steel, railroads
and manufactured goods
• Many people left their farms to take jobs in
factories, where professional managers
supervised their work
• The new industrial enterprises that emerged in
the nineteenth century demanded management
skills that had not been necessary earlier
 Management theories and management
scientist
Management theories Management scientist
Scientific management theory Adam Smith, Frederick W.
Taylor, Frank and Lillian
Gilbreth
Administrative management Max Weber, Fayol
theory

Behavioral management theory Mary Parker Follett,

Douglas McGregor
Management science theory Kurt Lewin

Organizational environment
theory
 Job specialization and the division of
labour
• Adam Smith in 18th century observed that the industries
manufactured ‘pins’ in two different ways:
Craft style- each worker did all steps
Production style- each worker specialized in one step
• He realized that job specialization resulted in much
higher efficiency and productivity
• Breaking down the total job allowed for the division of
labor in which workers became very skilled at their
specific tasks
 Frederick W. Taylor and Scientific
management
• Scientific management is the systematic study of the
relationships between people and tasks for the purpose
of redesigning the work process for higher efficiency
• Defined by F. W. Taylor (1856-1915), “Father of
Scientific management” in the late 1800
• Wanted to replace “rule of thumb”
• Sought to reduce the time of a worker spent on each
task by optimizing the way the task was done
 Frederick W. Taylor and Scientific
management (Contd.)
• When Taylor was working as an apprentice at the
Midvale steel company, he noticed that most workers did
not work as hard as they could
• To increase efficiency, Taylor tried to figure out the “one
best way” to perform a particular task
• To do so, he used a stop watch to determine which
method was the most efficient
• These studies were known as “Time and motion studies”
 Taylors’s Principles of Scientific
management
• Replacing “Rules of thumbs” with science
• Obtaining harmony in group action
• Achieving co-operation
• Working for maximum output
• Development of the most efficient norms and system of
doing work with minimum of effort and cost
 Frank and Lillian Gilbreth

• Studied fatigue caused by lighting, heating and the

design of tools and machines
• Time and motion studies
Breaking up each job action into its components
Finding better ways to perform the action
Reorganizing each job action to be more efficient
 Problems with Scientific management

• Managers frequently implemented only the increased

output side of Taylor’s plan
Workers did not share in the increased output
• Specialized jobs became very boring, dull
Workers ended up distrusting the Scientific
management method
• Workers could purposely “under-performed”
Management responded with increased use of
machines and conveyer belts
 Administrative management theory

• Administrative management is the study of how to create

an organizational structure that lead to high efficiency
and effectiveness
• Max Weber (1864-1920) developed the concept of
bureaucracy as a formal system of organization and
administration designed to ensure efficiency and
effectiveness
Weber’s Principle of Bureaucracy

Written
rules

System of A
Hierarchy of
task bureaucracy
authority
relationships should have

Fair
evaluation
and rewards
 Weber’s Principle of Bureaucracy
(Contd.)
1. A manager’s formal authority derives from the position
he holds in the organization
2. People should occupy positions because of their
performance, not because of their social standing or
personal contacts
3. The extent of each position’s formal authority and task
responsibilities and its relationship to other positions
should be clearly specified
4. Authority can be exercised effectively when positions
are arranged hierarchically, so employees know whom
to report to and who reports to them
5. Managers must create a well-defined system of rules,
standard operating procedures and norms so they can
effectively control behavior
 Rules, SOPs and Norms

• Rules: Formal written instructions that specify what

actions to be taken under different circumstances
• Standard Operating Procedures (SOPs): Specific sets of
written instructions about how to perform a certain
aspect of a task
• Norms: Unwritten, informal codes of conduct that
prescribe how people should act in particular situations
 Fayol’s Principle of management

• Henri Fayol (1841-1925) laid down 14

principles of management which gained
acceptance all over the world
 Behavioral Management Theory

• Behavioral management is the study if how managers

should behave to motivate employees and encourage
them to perform at high levels and be committed to the
achievement of organizational goals
• Focuses on the way a manager should personally
manage to motivate employees
 Behavioral management

• Mary Parker Follett concerned that Taylor

ignored the human side of the organization
Suggested workers help in analyzing their jobs
If workers have relevant knowledge of the
task, then they should control the task
 The Hawthorne Studies

• Studies of how characteristics of the work setting

affected worker fatigue and performance at the
Hawthorne Works (factory/ industry) of the Western
Electric Company from 1924-1932 (produced telephone
equipment)
Worker productivity was measured at various levels of
light illumination
 The Hawthorne effect

• The result of an experiment conducted at the Hawthorne

plant of Western Electric Company in Cicero, Illinois in
1924
• They lowered the lighting in the factory, expecting
productivity to fall; but instead, to their astonishment,
productivity increased
• The researchers concluded that productivity rose
because workers worked harder when they received
attention
• This phenomenon, in which change of any kind
increases productivity, has been known as the
“Hawthorne effect”
 McGregor’s X and Y theory
• Douglas McGregor, a behavioral scientist in 1940s
expressed his assumptions about mature of people
which is known as early behavioral model for motivating
workers
• He proposed the two different sets of assumptions about
workers
• Theory X: managers believe their employees are less
intelligent than the managers are, lazier than the
managers are, or work solely for a sustainable income
• Theory Y: managers act on the belief that people in the
workforce are internally motivated, enjoy their labour in
the company, and work to better themselves without a
direct "reward" in return
 Management science theory
• An approach to management that uses rigorous
quantitative techniques to maximize the use of
organizational resources
Quantitative management- utilizes linear programming,
modelling, simulation systems and chaos theory
Operations management- techniques used to analyze all
aspects of the production system
Total Quality Management (TQM)- focused on analyzing
input, conversion and output activities to increase
product quality
Management information Systems (MIS)- provides
information vital for effective decision making
 Organizational environment theory

• Organizational environment is the set of forces and

conditions that operate beyond an organization’s
boundaries but affect a manager’s ability to acquire and
utilize resources
 Organizational environment theory
(Contd.)
The open-systems view
• Open system is a system that takes resources
for its external environment and converts
them into goods and services that are then
sent back to that environment for purchase by
customers
 Organizational environment theory
(Contd.)
Organization as an open system

Conversion stage Output stage (the

Input stage (the (transforms the release of finished
acquisition of inputs into goods and
external resources outputs of services to its
to produce goods finished goods external
and services): and services): environment):

Raw material Machines Goods

Human skills Services

Sales of outputs firm can then buy

inputs
 Organizational environment theory
(Contd.)
The closed system view
• Closed system is a self contained system that is not
affected by changes in its external environment
• Likely to experience entropy and lose its ability to
control itself
• Synergy- the performance gains that result from the
combined actions of individuals and departments
• Possible only in an organized system
 Organizational environment theory
(Contd.)
Contingency theory:
• There is no one best way to organize
• The organizational structures and control systems in
which manager contingent on (depend on) the
characteristics o the external environment in which the
organization operates
 Organizational environment theory
(Contd.)
Organizations in stable
Contingency theory environments choose a
mechanistic structure
(centralized authority,
vertical communication
flows, control thought strict
Determine the rules and procedures)
design of an
Characteristics of
organization’s
the environment Organization in changing
structure and
control system environments choose an
organic structure
(decentralized authority,
horizontal communication
There is no one best way to organize; flows, cross-departmental
organizational structure depends on the cooperation)
environment in which an organization
operates
 Type of structure

Mechanistic structure Organic structure

Authority is centralized at Authority is decentralized
the top (Theory X) throughout the
Employees are closely organization (Theory Y)
monitored and managed Control is much looser
Can be very efficient in a Reliance on shared norms
stable environment in greater
Works best when
environment is unstable
and rapidly changing
Thank you