Monday, October 21, 2019
Managing for Competitive Advantage (part 3)
The External Environment (part B)
By
Charles Lamson
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| FIGURE 1 The External Environment
All organizations are affected by the general components of the macroenvironment we discussed in the last post (see Figure 1). Each organization also functions in a closer, more immediate competitive environment. The competitive environment includes the specific organizations with which the organization interacts. As shown in Figure 2, the competitive environment includes rivalry among current competitors, threat of new entrants, threat of substitutes, power of suppliers, and power of customers. This model was originally developed by Michael Porter, a Harvard professor and a noted authority on strategic management. According to Porter, successful managers do more than simply react to the environment: they act in ways that actually shape or change the organization's environment. In strategic decision-making, Porter's model is an excellent method for analyzing the competitive environment in order to adapt or influence the nature of competition.
FIGURE 2
The Competitive Environment
Competitors
Among the various components of the competitive environment, competitors within the industry must first deal with one another. When organizations compete for the same customers and try to win market share at the others' expense, all must react to anticipate their competitors' actions.
The first question to consider is: who is the competition? Sometimes answers are obvious. Coca-Cola and PepsiCo are competitors, as are the Big Three automakers General Motors, Ford, and DaimlerChrysler. But sometimes organizations focus too exclusively on traditional rivalries and miss the emerging ones. Historically, Sears and Roebuck focused on its competition with JCPenney. However, Sears real competitors were Kmart and Walmart at the low end, Target in the middle, Nordstrom at the high end, and a variety of catalogers, such as LL Bean, and Eddie Bauer.
Thus, as the first step in understanding their competitive environment, organizations must identify their competitors. Competitors may include (1) small domestic firms, especially their entry into tiny, premium markets; (2) overseas firms, especially their efforts to solidify positions and small niches (a traditional Japanese Japanese tactic); (3) big new domestic companies exploring new markets; (4) strong regional competitors; and (5) unusual entries such as Internet shopping.
Once competitors have been identified, the next step is to analyze how they compete. Competitors used tactics such as price reductions, new product introductions, and advertising campaigns to gain advantage over their rivals. It is essential to understand what competitors are doing when you are holding your own strategy. Competition is most intense when there are many direct competitors including foreign contenders, when industry growth is slow, and when the product or service cannot be differentiated in some way.
New high growth industries offer enormous opportunities for profits. When an industry matures and growth slows, profits drop. Then, intense competition causes an industry shakeout: Weaker companies are eliminated, and the strong companies survive.
Threat of New Entrants
New entrants into an industry compete with established companies. If many factors prevent new companies from entering the industry, the threat to established firms is less serious. If there are few such barriers to entry, the threat of new entrants is more serious. Some major barriers to entry are government policy, capital requirements, brand identification, cost disadvantages, and distribution channels. The government can limit or prevent entry as occurs when the FDA forbids a new drug entrant. Some Industries such as trucking and liquor retailing, are regulated; more subtle government controls operate in fields such as mining and ski area development. Patents are also entry barriers. When a patent expires, other companies can then enter the market. For example, when the pharmaceutical firm Eli Lilly and Co.'s patent on its antidepressant drug Prozac expired, it lost its U.S. monopoly on the drug and its sales plunged. Barr Laboratories Inc. what the right to be the exclusive seller of a generic version of Prozac for 6 months. After that, other copycats flooded the market, eroding Barr's sales of the drug.
Other barriers are less formal but can have the same effect. Capital requirements may be so high that companies will not risk or try to raise such large amounts of money. Brand identification forces new entrants to spend heavily to overcome customer loyalty. The cost advantages established companies hold due to large size, favorable locations, existing assets, and so forth also can be formidable entry barriers.
Finally, existing competitors may have such tight distribution channels that new entrants have difficulty getting their products or services to customers. For example, established food products already have super supermarket shelf space. New entrants must displace existing products with promotions, price breaks, intensive selling, and other tactics.
Threat of Substitutes
Technological advances and economic efficiencies are among the ways that firms can develop substitutes for existing products. For example, although Southwest Airlines has developed strong rivalries with other airlines, it also competes as a substitute with bus companies such as Greyhound and rental car companies such as Avis. Southwest has gotten its cost base down to such a low point that it is now cheaper to fly from Los Angeles to Phoenix than it is to take a bus or rent a car. This particular example shows that substitute products or services can limit another industry's revenue potential. Companies in those industries are likely to suffer growth and earnings problems unless they improve quality or launch aggressive marketing campaigns.
In addition to current substitutes, companies need to think about potential substitutes that may be viable in the near future. For example, as alternatives to fossil fuels, experts suggest that nuclear fusion, solar power, and wind energy may prove useful one day. The advantages promised by each of these technologies are many: inexhaustible fuel supplies, electricity "too cheap to meter," zero emissions, universal public acceptance, and so on. Yet, while they may look good on paper and give us a warm, fuzzy feeling inside, they often come up short in terms of economics and/or technical viability. Table 1 shows a list of products and potential substitutes.
 Potential Substitutes for Products
Suppliers
Organizations must acquire resources from their environment and convert those resources into products or services to sell. Suppliers provide the resources needed for production and may come in the form of people supplied by trade schools and universities, raw materials supplied by producers, wholesalers, and distributors, information supplied by researchers and consulting firms, and financial capital supplied by banks and other sources. But suppliers are important to an organization for reasons that go beyond the resources they provide. Suppliers can raise their prices or provide poor quality goods and services. Labor unions can go on strike or demand higher wages. Workers may produce defective work. Powerful suppliers, then, can reduce an organization's profits, particularly if the organization cannot pass on price increases to its customers.
One particularly noteworthy set of suppliers to some Industries is the international labor unions. Although unionization in the United States has dropped to about 10% of the private labor force, labor unions are still particularly powerful in industries such as steel, autos, and transportation. Even the Screen Actors Guild, the union representing workers in the entertainment industry, exerts considerable power on behalf of its members. For example, Tiger Woods was fined $100,000 for making a non-union Buick commercial during a strike by the American Federation of Television and Radio Artists. Labor unions represent and protect the interests of their members with respect to hiring, wages, working conditions, job security, and due process appeals. Historically, the relationship between management and labor unions has been adversarial; however, the relationship between management and labor unions has been adversarial however, both sides seem to realize that to increase productivity and competitiveness, management and labor must work together in collaborative relationships. Troubled labor relations can create higher costs and productivity declines and eventually lead to layoffs.
Choosing the right supplier is an important strategic decision. Suppliers can affect manufacturing time, product quality, and inventory levels. The relationship between suppliers and the organization is changing in some companies. The close supplier relationship has become a new model for many organizations, such as Ford Motor, that are using a just-in-time manufacturing approach.
Customers
Customers purchase the products or services an organization offers. Without customers, a company will not survive. You are a final consumer when you buy a McDonald's hamburger or a pair of jeans from a retailer at the mall. Intermediate consumers buy raw materials or wholesale products and then sell to final customers. Intermediate customers usually make more purchases than individual final consumers do. Examples of intermediate customers include retailers, who buy clothes from wholesalers and manufacturers representatives before selling them to their customers, and Industrial buyers, who buy raw materials such as chemicals before converting them into final product.
Customer service means giving customers what they want or need, the way they want it, the first time. This usually depends on the speed and dependability with which an organization can deliver its products or services. Actions and attitudes that mean excellent customer service include the following:
*SOURCE: MANAGEMENT: THE NEW COMPETITIVE LANDSCAPE, 6TH ED., 2004, THOMAS S. BATEMAN, SCOTT A. SNELL, PGS. 48-53*
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Saturday, October 19, 2019
Managing for Competitive Advantage (part 2)
The External Environment
by
Charles Lamson
Besides problems of their own making, many firms are beset by government fees and restrictions---factors of the external environment---that affect their ability to compete effectively. The next couple posts discuss how pressures from outside organizations create the external context in which organizations operate.
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Organizations are open systems that are affected by, and in turn affect, their external environments. By external environment, I mean all relevant forces outside the organization's boundaries. By relevant, I mean factors to which managers must pay attention to help their organizations compete effectively and survive.
Many of these factors are uncontrollable. Companies large and small are buffeted or battered by recession, government interference, competitors' actions, and so forth. But their lack of control does not mean that managers can ignore such forces, use them as excuses for poor performance, and try to just get by. Managers must stay abreast of external developments and react accordingly. Moreover, as we will discuss later, it sometimes is possible to influence components of the external environment. We will examine ways in which organizations can do just that.
Figure 1 shows the external environment of a firm. The firm exists in its competitive environment, which is composed of the firm and competitors, suppliers, customers, new entrants, and substitutes. At the more general level is the macro environment, which includes legal, political, economic, technological, demographic, and social and natural factors that generally affect all organizations.
FIGURE 1
The External Environment
The Macroenvironment
All organizations operate in a macro environment, which is defined by the most general elements in the external environment that potentially can influence strategic decisions. Although a top executive team may have unique internal strengths and ideas about its goals, it must consider external factors before taking action.
Laws and Regulations
U.S. government policies both impose strategic constraints and provide opportunities. The government can affect business opportunities through tax laws, economic policies, and international trade rulings. An example of restraint on business action is the U.S. government standards regarding bribery. In some countries, bribes and kickbacks are common and expected ways of doing business, but for U.S. firms these are illegal practices. Indeed, some U.S. businesses have been fined for using bribery when competing internationally.
Regulators are specific government organizations in a firm's more immediate task environment. Regulatory Agencies such as the Occupational Safety and Health Administration (OSHA), the Interstate Commerce Commission (ICC), the Federal Aviation Administration (FAA), the Equal Employment Opportunity Commission (EEOC), the National Labor Relations Board (NLRB), the Office of Federal Contract Compliance Programs (OFCCP), and the Environmental Protection Agency (EPA) have the power to investigate company practices and take legal action to ensure compliance with the laws.
For example, the Securities and Exchange Commission (SEC) regulates U.S. financial markets, and the Food and Drug Administration (FDA) can prevent a company from selling an unsafe or ineffective product to the public.
Publicly traded pharmaceutical firms, for example, face regulations both from the FDA and from the SEC.
The Economy
Although most Americans are used to thinking in terms of the U.S. economy, the economic environment is created by complex interconnections among the economies of different countries. Wall Street investment analysts begin their workday thinking not just about what the Dow Jones did yesterday but also about how the London and Tokyo exchanges did overnight. Growth and recessions occur worldwide as well as domestically.
The economic environment dramatically affects companies' ability to function effectively and influences their strategic choices. Interest and inflation rates affect the availability and cost of capital, the ability to expand, prices, costs, and consumer demand for products. Unemployment rates affect labor availability and the wages the firm must pay, as well as product demand.
Economic conditions change over time and are difficult to predict. Bull and Bear markets come and go. Periods of dramatic growth may be followed by a recession. Every trend undoubtedly will end---but when? Even when times seem good, budget deficits or other considerations create concern about the future.
Technology
Today a company cannot succeed without incorporating into its strategy the astonishing technologies that exist and continue to evolve. Technological advances create new products, advanced production techniques, and better ways of communicating. In addition, as technology evolves, new Industries, markets, and competitive niches develop. For example, the advent of computers created a huge industry. Early entrants in biotechnology are trying to establish dominant positions, while later entrants work on technological advances that will give them a competitive niche.
New technologies also provide new production techniques. In manufacturing, sophisticated robots perform jobs without suffering fatigue, requiring vacations or weekends off, or demanding wage increases. Until the U.S. steel industry began modernizing its plants, its productivity lagged far behind that of the technologically superior Japanese plants.
New technologies also provide new ways to manage and communicate. Computerized management information systems (MIS) make information available when needed. Computers monitor productivity and note performance deficiencies. Telecommunications allow conferences to take place without requiring people to travel to the same location. Strategies developed around the cutting edge of technological advances create a competitive advantage. Strategies that ignore or lag behind competitors in considering technology lead to obsolescence and extinction.
Demographics
Demographics are measures of various characteristics of the people comprising groups or other social units. Work groups, organizations, countries, markets, and societies can be described statistically by referring to their members age, gender, family size, income, education, occupation, and so forth.
Companies must consider workforce demographics in formulating their human resources strategies. Population growth influences the size and composition of the labor force. According to the Bureau of Labor Statistics, the U.S. labor force—the number of people working or looking for work—is projected to reach 163.8 million in 2024. The labor force is anticipated to grow by 7.9 million, reflecting an average annual growth rate of 0.5 percent, over the 2014–24 period.
The projected labor force growth over the 2014–24 period will be affected by the aging of the baby-boom generation, those born between 1946 and 1964. In 2014, the baby boomers were 50 to 68 years old. The leading edge of the baby boomers (those born in 1946) became eligible for early Social Security benefits at age 62 in 2008 and reached full retirement age at 66 in 2012. In 2024, the baby-boom cohort will be ages 60 to 78, and a large number will already have exited the labor force. A review of the 2014–24 projected labor force data reveals that certain demographic groups are projected to grow more rapidly than others. Women are expected to see their numbers in the labor force grow more slowly than in 2004–14, but their growth rate will still be faster than that of men. As a result, the share of women in the labor force is projected to increase from 46.8 percent in 2014 to 47.2 percent in 2024. Race and ethnicity groups are projected to continue to show widely different labor force growth rates because of their divergent rates of population growth. Hispanics, Asians, and the “all other groups” racial category are projected to increase their numbers in the labor force most rapidly. By 2024, Hispanics are projected to be nearly one-fifth of the labor force as a result of the fastest population growth of all the race and ethnicity groups. Despite a declining annual growth and a declining share of the workforce, White non-Hispanics will still make up about 60 percent of the labor force in 2024.
A more diverse workforce has its advantages, but managers have to make certain they provide equality for women and minorities with respect to employment, advancement opportunities, and compensation. Strategic plans must be made for recruiting, retaining, training, motivating, and effectively utilizing people of diverse demographic backgrounds with the skills needed to achieve the company's mission.
Social Issues and the Natural Environment
Societal trends regarding how people think and behave have major implications for management of the labor force, corporate social actions, and strategic decisions about products and markets.
During the 1980s and 1990s women in the workforce often chose to delay having children as they focused on their careers, but today more working women are having children and then returning to the workforce. As a result, companies have introduced more supportive policies, including family leave, flexible working hours, and child care assistance. Many firms also extend these benefits to all employees or allow them to design their own benefits packages, where they can choose from a menu of available benefits that suit their individual situations. Domestic partners, whether they are in a marital relationship or not, also are covered by many employee benefit programs. Firms provide these benefits as a way of increasing a source of competitive advantage: an experienced work force.
The prominent issue today pertains to natural resources: drilling for oil in formerly protected areas in the United States. Firms in the oil industry face considerable public opinion both in favor of preserving the natural environment, and against the country's dependence on other countries for fuel. Automakers face similar concerns about air quality as they strive to create more fuel efficient cars.
*SOURCE: MANAGEMENT: THE NEW COMPETITIVE LANDSCAPE, 6TH ED., 2004, THOMAS S. BATEMAN, SCOTT A. SNELL, PGS. 42-47*
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Wednesday, October 16, 2019
Managing for Competitive Advantage (part 1)
The Evolution of Management
by
Charles Lamson
For thousands of years, managers have wrestled with the same issues and problems confronting executives today. Around 1100 B.C., the Chinese practiced the four management functions---planning (specifying the goals to be achieved and deciding in advance the appropriate actions needed to achieve those goals), organizing (assembling and coordinating the human, financial, physical, informational, and other resources needed to achieve goals), leading (stimulating people to be high performers), and controlling (monitoring progress and implementing necessary changes). Between 350 and 400 BC, the Greeks recognized management as a separate art and advocated a scientific approach to work. The Romans decentralized the management of their vast empire before the birth of Christ. During medieval times, the Venetians standardized production through the use of an assembly line, building warehouses and using an inventory system to monitor the contents.
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But throughout history most managers operated strictly on a trial-and-error basis. The challenges of the industrial revolution changed that. Management emerged as a formal discipline at the turn of the century. The first university programs to offer management and business education, the Wharton School at the University of Pennsylvania and the Amos Tuck School at Dartmouth, were founded in the late 19th century. By 1914, 25 Business schools existed.
Thus, the management profession as we know it today is relatively new. This post explores the roots of modern management theory. Understanding the origins of management thought will help you grasp the underlying contexts of the all the ideas and concepts presented in the posts ahead.
Although this post is titled "The Evolution of Management," it might be more appropriately called "The Revolutions of Management," because it documents the wide swings in management approaches over the last 100 years. Out of the great variety of ideas about how to improve management, parts of each approach have survived and been incorporated into modern perspectives on management. Thus, the legacy of past efforts, triumph, and failures has become our guide to future management practice.
Early Management Concepts and Influences
Communication and transportation constraints hindered the growth of earlier businesses. Therefore, improvements in management techniques did not substantially improve performance. However, the industrial revolution changed that. As companies grew and became more complex, minor improvements in management tactics produced impressive increases in production quantity and quality.
The emergence of economies of scale---reductions in the average cost of a unit of production as the total volume produced increases---drove managers to strive for further growth. The opportunities for mass production created by the industrial revolution spawned intense and systematic thought about management problems and issues---particularly efficiency, production processes, and cost savings. 
This post depicts the evolution of management through the mid-to-late 19th, 20th, and early 21st centuries. This historical perspective is divided into two major sections: classical approaches and contemporary approaches. Many of these approaches developed simultaneously, and they often had a significant impact on one another. Some approaches were a direct reaction to the perceived deficiencies of previous approaches. Others developed as the needs and issues confronting managers changed over the years. All the approaches attempted to explain the real issues facing managers and provide them with tools to solve future problems.
Classical Approaches
The classical period extended from the mid-nineteenth century through the early 1950s. The major approaches that emerged during this. Were systematic management, scientific management, administrative management, human relations, and bureaucracy.
Systematic Management During the 19th century, growth in U.S. business centered on manufacturing. Early writers such as Adam Smith believed the management of these firms was chaotic, and their ideas helped to systematize it. Most organizational tasks are subdivided and performed by specialized labor. However, poor coordination among subordinates and different levels of management cause frequent problems and breakdowns of the manufacturing process.
The systematic management approach attempted to build specific procedures and processes into operations to ensure coordination of effort. Systematic management emphasized economical operations, adequate staffing, maintenance of inventories to meet consumer demands, and organizational control. These goals were activated through
Systematic management emphasized internal operations because managers were concerned primarily with meeting the explosive growth in demand brought about by the industrial revolution. In addition, managers were free to focus on internal issues of efficiency, in part because the government did not constrain business practices significantly. Finally, labor was poorly organized. As a result, many managers were oriented more toward things than toward people.
Although systematic management did not address all the issues 19th century managers faced, it tried to raise managers' awareness about the most pressing concerns of their job.
Scientific Management Systematic management failed to lead to widespread production efficiency. The shortcoming became apparent to a young engineer named Frederick Taylor who was hired by Midvale Steel Company in 1878. Taylor discovered that production and pay were poor, inefficiency and waste were prevalent, and most companies had tremendous unused potential. He concluded that management decisions were unsystematic and that no research to determine the best means of production existed.
In response, Taylor introduced a second approach to management known as scientific management. This approach advocated the application of scientific methods to analyze work and to determine how to complete production tasks efficiently. For example, U.S. Steel's contract with the United Steelworkers of America specified that sand shovelers should move 12.5 shovelfuls per minute: shovelfuls should average 15 pounds of river sand composed of 5.5% moisture.
Taylor identified four principles of scientific management:
To implement this approach Taylor use techniques such as time and motion studies. With this technique, a task was divided into its basic movements, and different motions were timed to determine the most efficient way to complete the task.
After the one best way to perform the job was identified, Taylor stressed the importance of hiring and training the proper worker to do that job. Taylor advocated the standardization of tools, the use of instruction cards to help workers, and breaks to eliminate fatigue.
Another key element of Taylor's approach was the use of the differential piece-rate system. Taylor assumed workers were motivated by receiving money. Therefore, he implemented a pay system in which workers were paying additional wages when they exceeded a standard level of output for each job. Taylor concluded that both workers and management would benefit from such an approach.
Scientific management principles were widely embraced. Other properties, including other proponents, including Henry Gantt and Frank and Lillian Gilbreth, introduced many refinements and techniques for applying scientific management on the factory floor. One of the most famous examples of the application of scientific management is the factory Henry Ford built to produce the Model T.
At the turn of the century, automobiles were a luxury that only the wealthy could afford. They were assembled by craftspeople who put an entire car together at one spot on the factory floor. These workers were not specialized and Henry Ford believed they wasted time and energy bringing the needed parts to the car. Ford took a revolutionary approach to automobile manufacturing by using scientific management principles.
Administrative Management The administrative management approach emphasized the perspective of senior managers within the organization, and argued that management was a profession and could be taught.
An explicit and broad framework for administrative management emerged in 1916, when Henri Fayol, a French mining engineer and executive, published a book summarizing his management experiences. Fayol identified five functions and of management. The five functions, which are very similar to the four functions discussed in the opening paragraph of this post, include planning, organizing, commanding, coordinating, and controlling. 
A host of other executives contributed to the administrative management literature. These writers discussed a broad spectrum of management topics, including the social responsibilities of management, the philosophy of management, clarification of business terms and concepts, and organizational principles. Chester Barnard's and Mary Parker Follet's contributions have become classic works in this area.
Barnard, former president of New Jersey Bell Telephone Company, published his landmark book The Function of the Executive in 1938. He outlined the role of the senior executive: formulating the purpose of the organization, hiring key individuals, and maintaining organizational communications. Mary Parker Follet's 1942 book Dynamic Organization extended Barnard's work by emphasizing that continually changing situations that managers face. Two of her key contributions---the notion that managers desire flexibility and the difference is between motivating groups and individuals---laid the groundwork for the modern contingency approach discussed later in this post.
All the writings in the administrative management area emphasized management as a profession along with fields such as law and medicine. In addition, these authors offered many recommendations based on their personal experiences, which often included managing large corporations. Although these perspectives and recommendations were considered sound, critics noted that they might not work in all settings. Different types of personnel, industry conditions, and technologies may affect the appropriateness of these principles.
Human Relations A fourth approach to management, human relations, developed during the 1930s. This approach aimed at understanding how psychological and social processes interact with the work situation to influence performance. Human relations was the first major approach to emphasize informal work relationships and worker satisfaction.
This approach owes much to other major schools of thought. For example, many of the ideas of the Gilbreths (scientific management) and Barnard and Fullet (administrative management) influenced the development of human relations from 1930 to 1955. In fact, human relations emerged from a research project that began as a scientific management study.
Western Electric Company, a manufacturer of communications equipment, hired a team of Harvard researchers led by Elton mayo and Fritz Roethlisberger. They were to investigate the influence of physical working conditions on worker productivity and efficiency in one of the company's factories outside Chicago. This research project known as the Hawthorne Studies, provided some of the most interesting and controversial results in the history of management.
The Hawthorne Studies were a series of experiments conducted from 1924 and 1932. During the first stage of the project (The Illumination Experiments), various working conditions, particularly the lighting in the factory were altered to determine the effects of those changes on productivity. The researchers found no systematic relationship between the factory lighting and production levels. In some cases, productivity continued to increase even when the illumination was reduced to the level of moonlight. The researchers concluded that the workers performed and reacted differently because the researchers were observing them. This reaction is known as the Hawthorne Effect.
This conclusion led the researchers to believe productivity may be affected more by psychological and social factors than by physical or objective influences. With this thought in mind, they initiated the other four stages of the project. During these stages, the researchers performed various work group experiments and had extensive interviews with employees. Mayo and his team eventually concluded that productivity and employee behavior or influenced by the informal work group.
Human relations proponents argued that managers should stress primarily employee welfare, motivation, and communication. They believed social needs had precedence over economic needs. Therefore, management must gain the cooperation of the group and promote job satisfaction and group norms consistent with the goals of the organization.
Another noted contributor to the field of human relations was Abraham Maslow. In 1943, Maslow suggested that humans have five levels of needs. The most basic needs are the physical needs for food, water, and shelter, the most advanced need is for self-actualization, or personal fulfillment. Maslow argued that people try to satisfy their lower-level needs and then progress upward to the highest level needs. Managers can facilitate this process and achieve organizational goals by removing obstacles and encouraging behaviors that satisfy people's needs and organizational goals simultaneously.
Although the human relations approach generated research into leadership, job attitudes, and group dynamics, it drew heavy criticism. Critics believed that one result of human relations---a belief that a happy worker was a productive worker---was too simplistic. While scientific management overemphasized the economic and formal aspects of the workplace, human relations ignored the more rational side of the worker and the important characteristics of the formal organization. However, human relations was a significant step in the development of management thought, because it prompted managers and researchers to consider the psychological and social factors that influence performance.
Bureaucracy Max Weber, a German sociologist, lawyer, and social historian, showed how management itself could be more efficient and consistent in his book The Theory of Social and Economic Organizations. The ideal model for management, according to Weber, is the bureaucracy approach.
Weber believed bureaucratic structures can eliminate the variability that results when managers in the same organization have different skills, experiences, and goals. Weber advocated that the jobs themselves be standardized so that personal changes would not disrupt the organization. He emphasized a structured, formal network of relationships among specialized positions in an organization. Rules and regulations standardized behavior, and authority resides in positions rather than in individuals. As a result, the organization need not rely on a particular individual, but will realize efficiency and success by following the rules in a routine and unbiased manner.
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According to Weber, bureaucracies are especially important because they allow large organizations to perform the many routine activities necessary for their survival. Also, bureaucratic positions foster specialized skills, eliminating many subjective judgments by managers. In addition, if the rules and controls are established properly, bureaucracies should be unbiased in their treatment of people, both customers and employees.
Many organizations today are bureaucratic. Bureaucracy can be efficient and productive. However, bureaucracy is not the appropriate model for every organization. Organizations or departments that need rapid decision-making and flexibility may suffer under a bureaucratic approach. Some people may not perform their best with excessive bureaucratic rules and procedures.
Other shortcomings stem from a faulty execution of bureaucratic principles rather than from the approach itself. Too much authority may be vested in too few people, the procedure may become the ends rather than the means of managers or managers may ignore appropriate rules and regulations. Finally, one advantage of a bureaucracy---its permanence---can also be a problem. Once a bureaucracy is established, dismantling it is very difficult.
Contemporary Approaches
The Contemporary approaches to management include quantitative management, organizational behavior, systems theory, and the contingency perspective. Contemporary approaches have developed at various times since World War II, and they continue to represent the cornerstones of modern management thought.
Quantitative Management Although Taylor introduced the use of science as a management tool early in the twentieth century, most organizations did not adopt the use of quantitative techniques for management problems until the 1940s and 1950s. During World War II, military planners began to apply mathematical techniques to defense and logistic problems. After the war, private corporations began assembling teams of quantitative experts to tackle many of the complex issues confronting large organizations. This approach, referred to as quantitative management, emphasizes the application of quantitative analysis to management decisions and problems.
Quantitative management helps a manager make a decision by developing formal mathematical models of the problem. Computers have facilitated the development of specific quantitative methods. These include such techniques as statistical decision theory, linear programming, queuing theory, simulation, forecasting, inventory modeling, network modeling, and break-even analysis. Organizations apply these techniques in many areas, including production, quality control, marketing, human resources, finance, distribution, planning, and research and development.
Despite the promise quantitative management holds, managers do not rely on these methods as the primary approach to decision-making. Typically, they use these techniques as a supplement or tool in the decision process. Many managers will use results that are consistent with their experience, intuition, and judgment, but they will reject results that contradict their beliefs. Also, managers may use the process to compare alternatives and eliminate weaker options.
Several explanations account for the limited use of quantitative management. Many managers have not been trained in using these techniques. Also, many aspects of a management decision cannot be expressed through mathematical symbols and formulas. Finally, many of the decisions managers face are non-routine and unpredictable.
Organizational Behavior During the 1950's, a transition took place in the human relations approach. Scholars began to recognize that worker productivity and organizational success are based on more than the satisfaction of economic or social needs. The revised perspective known as organizational behavior, studies and identifies management activities that promote employee effectiveness through an understanding of the complex nature of individual, group, and organizational processes. Organizational behavior draws from a variety of disciplines including psychology and sociology to explain the behavior of people on the job.
During the 1960s, organizational behaviorists heavily influenced the field of management. Douglas McGregor's Theory X and Theory Y marked the transition from human relations. According to McGregor, Theory X managers assume workers are lazy and irresponsible and require constant supervision and external motivation to achieve organizational goals. Theory Y managers assume employees want to work and can direct and control themselves. McGregor advocated a Theory Y perspective, suggesting that managers who encourage participation and allow opportunities for individual challenge and initiative would achieve superior performance.
Other major organizational behaviorists include Chris Argyris, who recommended greater autonomy and better jobs for workers, and Rinsis Likert, who stressed the value of participative management. Through the years, organizational behavior has consistently emphasized development of the organization's human resources to achieve individual and organizational goals. Like other approaches, it has been criticized for its limited perspective, although more recent contributions have a broader and more situational viewpoint. In the past few years, many of the primary issues addressed by organizational behavior have experienced a rebirth with a greater interest in leadership, employee involvement, and self-management.
Systems Theory The classical approaches as a whole were criticized because they (1) ignored the relationship between the organization and its external environment, and (2) usually stressed what aspect of the organization or its employees at the expense of other considerations. In response to these criticisms, management scholars during the 1950's stepped back from the details of the organization to attempt to understand it as a whole system. These efforts were based on a general scientific approach called systems theory. An organization is a managed system that transforms inputs (raw materials, people, and other resources) into outputs (the goods and services that comprise its products).
Contingency Perspective Building on systems theory ideas, the contingency perspective refutes universal principles of management by stating that a variety of factors, both internal and external to the firm, may affect the organization's performance. Thus, there is no one best way to manage and organize, because circumstances vary. For example, a universal strategy of offering low-cost products would not succeed in a market that is not cost-conscious.
Situational characteristics are called contingencies. Understanding contingencies helps a manager know which set of circumstances dictate which management actions. You will learn the recommendations for the major contingencies throughout this analysis. The contingencies include:
With an eye to these contingencies, a manager may categorize the situation and then choose the proper competitive strategy, organization structure, or management process for the circumstances.
Researchers continue to identify key contingency variables and their effect on management issues. As you read the topics covered in each part of this analysis, you will notice the similarities and differences among management situations and the appropriate responses. This perspective should represent a cornerstone of your approach to management. Many of the things you will learn about throughout this analysis apply a contingency perspective.
Contemporary Approaches
All of these historical perspectives have left legacies that affect contemporary management thought and practice. There undercurrents continue to flow, even as the context and the specifics change.
But new approaches to management continue to appear and contribute to an ever-changing management profession. The remaining posts report on these dynamic, contemporary perspectives. For example, the 1980s brought a new gospel called quality management, new perspectives on competition and on business strategy, a focus on excellence, and a renewed interest in people, including both employees and customers. The 1990s brought theories and practices such as learning organization, lean manufacturing, knowledge management, and the characteristics of corporate cultures that helped to build great and enduring companies. The rest of this analysis, and perhaps the rest of your career, will be spent enacting the management functions, the drivers of competitive advantage, the enduring aspect of the historical perspectives, and the continually evolving contemporary perspectives on the successful practices of management.
*SOURCE: MANAGEMENT: THE NEW COMPETITIVE LANDSCAPE, 6TH ED., 2004, THOMAS S. BATEMAN & SCOTT A. SNELL, PGS. 30-37*
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