The evolution and influence of thinking in management
First Draft (October 2006)ChapterThe evolution and influence ofthinking in managementAt this point early in this book it is well worth the exercise of undertaking a review of theevolution of management research, thinking, philosophy and action that forms the currentbasis of knowledge we have today. This review is far from exhaustive and includes only thosethinkers and practitioners that have had either a profound influence on the practice ofmanagement, lay some basis to the formation of the body of entrepreneurship ‘theory”, or inthe opinion of the author have been underestimated in their importance or have a potentiallygreat future importance. One will also see that many created fads, which appear to follow acycle, starting with an academic discovery that is developed into a technique or principal andpublished as a journal article or academic book. These ideas are picked up and then widelypromoted as a means to improve the organisation through increasing productivity, reducingcosts or promoting excellence, etc. After being promoted as a universal cure for all corporateproblems, the results fail to deliver the promises and the fad disappears with those realisingthat it is difficult to convert ideas into new practices. These fads are included because theyhave greatly influenced management thinking.The body of research papers on entrepreneurship have been left out completely in this time-paradigm chronology, as it is too early to determine their real influence on the body ofknowledge on entrepreneurship, and in particular relevance to the Malaysian scenario. A littleof this research, where the author believes is relevant will be referred to during the rest ofthis book. Currently there are more than 105 journals relevant to entrepreneurship beingpublished around the world, generating more than 1,000 papers per annum (probably agross underestimation), which is not including the number of new books being publishedeach year.Economic ThoughtEarly economic thought was very limited on the concept of entrepreneurship, as classicaleconomic assumptions deemed everybody had free access to information about themarketplace for making decisions1. Theories recognised collective (aggregate) behaviour,thus making it impossible to distinguish individual behaviour in economic theory. Althoughneo-classical micro-economic theory recognised the importance of entrepreneurship onmarket dynamics, it had little to say on the subject. Economic theory was dominated byAdam Smith’s ‘invisible hand’ in the marketplace, which could not explain barriers to entry,innovation and the competitive process in the marketplace.The term entrepreneur was most probably introduced by Richard Cantillon in the 1700’s,who recognised the importance of the self employed and uncertainty in the marketplace. Thiswas accorded prominence by another economist Say and adopted by James Stuart Mill inEngland, where in English translation the word entrepreneur took on the meaning assomeone who was a merchant, adventurer, employer and undertaker of a new project. Thisgave the term entrepreneur a functional meaning in economics, although it was onlydescriptive at the time.
During the 19th Century, Vilfredo Pareto a political economist at the University of Lausannein France recognised that in a market 80% of the activity was usually controlled by 20% ofthe players. Pareto applied this principal to income distribution and found that in mostcountries 20% of the population derived 80% of the income. This became known as the80/20 principal (or 80/20 rule).Pareto’s thinking had a profound influence on economic thinking at the time and also variousaspects of management in the 70’s and 80’s. In his study of income distribution in Worldeconomies at the time, Pareto found that new entrants into a market producing the sameproduct or substitutes would grow the market until a point of saturation, where new firmswould not produce new income from the economy, but take income away from existingproducers. Pareto’s principal indicated that innovation was necessary by producers toincrease the size of aggregate income in any economy and thus produce new wealth.This is a basic principal behind many books on innovation today.Pareto’s principal also found its way into marketing, sales, financial and operationsmanagement in the second half of last century. A small group of sales people would usuallyproduce the majority of sales, a small group of customers would produce the majority ofrevenue (this is an area where firms try to diversify away from to reduce risk and has a costbearing on customer service), 20% of the fishermen would catch 80% of the fish, and so on2.The 80/20 rule was utilised in inventory control mechanisms in the use of materialsrequirement planning (MRP) systems popular in the United States in the late 1970’s and 80’s3,and also had some basis in the development of Japanese just in time and kanban systems,primarily utilised by car makers in Japan and adopted by US car makers, made popular withnumerous books on the subject in the 1980’s4.It was not until the early 20th Century that the role and environment of the entrepreneur wasmore closely examined. Knight in the early 1920’s saw the understanding of entrepreneursrequired an interdisciplinary perspective, utilising psychology and sociology, as well aseconomics to provide a deeper understanding, something which the business schools oftoday are adopting. Knight believed that the correctness of an entrepreneur’s conjectureabout an opportunity could not be accurate as conjecture could only be proved by futureevents, thus facing uncertainty and risk5. Knight further espoused that opportunityidentification depended on individual intellect and foresight, which required certain personalcharacteristics on the part of the entrepreneur. Knight also stipulated that prior experience inthe industry where an opportunity was sort would lead to better knowledge of potentialoutcomes in the marketplace. Many of Knight’s insights have formed the basis ofentrepreneurial research in the personality, attribute and cognitive psychology areas.Schumpeter in the 1930’s expanded upon Knight’s hypothesis and explained innovation asbeing based on new information coming out of changes in technology, political forces,regulation, macro-economic factors and social trends. An entrepreneur perceives newinformation from changing events and configures resources to exploit a perceivedopportunity. Thus innovation is based on new knowledge and requires people to makedecisions on little hard data, thus involving uncertainty. People perceive opportunities throughcreativity (a theme taken up by many writers in the last two decades). Opportunities can beexploited by changing the ‘means-end’ framework, through five sources of opportunities; 1.new products or services, 2. new geographical markets, 3. new raw materials, 4. newmethods of production, and 5. new ways of organising6. Schumpeter saw market evolutionthrough a process of ‘creative destruction’, where firms develop and launch new productsthat make existing products outdated and disappear from the marketplace. Schumpeter’swork is particularly important in seeing the internet, electronics and biotechnology industries,where new developments quickly change the ‘means-end’ structure of the market, and relateto the importance of university start-ups as a future source of change in the marketplace7.The rapid change of companies listed in the Fortune 500 list over the last thirty years wouldtend to support Schumpeter’s concept of ‘creative destruction’. Schumpeter also postulated
that the entrepreneurial nature is usually short lived where after start-up, a firm will focus onbuilding up it’s position in the market and then strategically defend it’s interests. Thispostulation has great impact on the lifecycle of the firm and been the subject of many writer’sfocus on strategies to maintain the entrepreneurial aspects of the firm in maturity.Schumpeter’s work has also influenced so many thinkers in the area of strategy over the lastcentury, probably Porter’s ‘value-chain’ and Drucker’s sources of innovation concepts.Hayek saw that all firms were in a state of disequilibrium in a market that also was indisequilibrium. Through the pricing mechanism, entrepreneurs would make decisions whichwould change the market8. This requires a decentralised economy where people woulddiscover opportunities based on idiosyncratic information gathering throughout their life andthe freedom to act9. Thus, under these conditions, entrepreneurship would continue to drivethe market toward efficiency, inferring entrepreneurship is important aspect of economyefficiency and growth, a matter of current socio-economic policy in most economies, whereentrepreneurship is a major employer and contributor to GDP. Andrews took the state offirm disequilibrium further into a strategic perspective that classical economics had not done,looking at a firm’s strategic behaviour in the marketplace. Success or failure is crucial to thefirm in it’s outcomes and influence on the economy and in general firms operate in a marketmaintaining fairly uniform prices, collecting a share of loyalty from consumers. It is theimperfect competitive factors such as quality of service, range of different products,advertising, etc, that maintains a firm’s health in a narrowly specified industrial market10.Andrew’s theory, expanded by Penrose developed the idea that every firm is unique in themarket with its own strategies, set of skills and personal qualities which influence the firm’sgrowth11.Kirzner in 1973 took a different perspective on innovation from the Schumpeter argumentstating that individuals only use the information they possess to form beliefs about thedifferent configurations of resources to exploit opportunities12. Firms make errors in decisionsresulting in failure or less than optimum performance in the marketplace, which createopportunities for others to exploit. This offers another type of opportunity than theSchumpeter type that co-exist in the marketplace at the same time13, but require lessresources and risk to capitalise upon. Kirzner views the marketplace as in equilibrium wherefirms travel along it and are by nature less innovative than Schumpeter’s model, accepting onthe whole, the established way of doing things and not creating major disruptions to anindustry14. Kirzner’s arguments lend weight to the postulation that most firms innovate in anincremental manner rather than transform an industry they are in.E. F. Schumacher’s book was one of the most profound statements about the environment,economics, humanism, poverty and creativity, ever written. The title, Small is Beautiful is alittle bit misleading as it was a critique about the abuse of power of large businesses aroundthe world in their disregard for the environment, ethics, employees and the community.Schumacher suggested that large corporations should break down their organisations so thatemployees within the smaller units could become empowered and creative. He pointed toAlfred Sloan’s breakdown of General Motors into smaller units as an example. Schumacheralso focused on the third world problems of poverty and argued that current paradigm ofeconomic aid was not effective and that ‘knowledge was the best form of aid’. Schumachersaid that “to equalize rural-urban affluence requires a great effort of imagination; …. Systemsof ideas and values that suit relatively affluent and educated city people are unlikely to suitpoor, semi-illiterate people. Poor people cannot simply acquire an outlook and habits ofsophisticated city people. If the poor cannot adapt to the methods, then the methods mustbe adapted to the people”15, thus offering a whole new paradigm in aid and development.Schumacher said that there are other important goals rather than just improving a person’sincome such as personal and community empowerment, independence, creativity and self-esteem.Although the book was a best seller, few people have actually read it and even fewer haveimplemented Schumacher’s theories. However many governments reviewed the problems of
small businesses and developed schemes to assist in financing and marketing productsproduced by micro-enterprises. In Japan, the One Village – One Product (OVOP) programwas started and later Thailand commenced it’s One Tambon One Product (OTOP) Program,both with good success. Schumacher’s ideas bear relevance to corporate creativity today andcould grow in importance in the approach taken to the development of rural micro-enterprises in the future in developing countries16.Production ThoughtAt the turn of the 20th Century, the business community was primarily concerned withmanufacturing and assembly. There were no guide books or management manuals to assistmanagers at the time and management thought had been guided by historical antidote.Frederick Taylor was an engineer who carried out time and motion experiments on theworkforce at the two steel mills he worked at. Taylor came up with a set of principals in whatbecame known as scientific management. Taylor believed that the principal objective ofmanagement was to secure the maximum output per worker17, taking all thinking away fromthe shopfloor. He laid down a set of guidelines18 for managers to determine the single bestway of doing things, eliminating all useless movements. Workers would be set targets andquotas with incentives and penalties. Management would walk around the shopfloor timingworkers performance and measuring it against standards. Management would be able to findthe best person to perform each action, thus leading to optimum efficiency.The concept of scientific management sweep through corporate America. It was seen as asolution to poor worker motivation, which was considered a major problem at the time.Scientific management had its critics then and now, been seen as dehumanising. It was alsocriticised for focusing on quantity and ignoring quality. However, scientific management wasthe first set of management principals that could be put into effect by managers at the time.In fact, there are still thousands upon thousands of factories around the world today thatutilise this philosophy, without managers even knowing it is scientific management. Ninetyyears later elements of Taylor’s principals have re-emerged in Champy and Hammer’sconcept of re-engineering.Taylor also advocated automating as much as the workflow as possible in what became thebeginnings of mass production. This was achieved through specialisation and division oflabour. Henry Ford utilised these principals and built a mass production line with workersperforming specific set tasks. Ford focused on developing standardisation of production,utilising uniform parts to produce automobiles at the minimum possible cost, so that carscould be marketed to the masses. This was in stark contrast to other automobile productionat the time which produced made for order based on teams of skilled craftsmen.The company organisation developed into specialised separated departments fulfilling thefunctions of the company like purchasing, production, sales, accounting, personnel and R&Dwithout lateral communication between the departments. Managers had their specialisedfunctions and were encouraged to focus on their responsibilities and not worry aboutproblems in other departments.Henry Ford was able to create a large functional organisation that could produce products ata cost which enabled marketing to the general population. Ford’s orientation was to set aprice and then expect the company to develop production in a way where cost could meet hisprice objectives19. This set the tide rolling towards the industrial era in the US, where largecorporations dominated the economy for many decades. However Ford’s organisation wasnot without it’s problems. Mass production lacked flexibility which customers could takeadvantage of, which at a time the Ford Motor Company nearly succumbed to. The nature ofmass production created worker alienation, which manifested itself in the growth of labourunions and the nature of organisation utilised by Ford created sub-cultures which tended tosee other departments in the same organisation as foes and adversaries, leading to anabsence of teamwork, a problem many corporations still suffer from.
While America’s industrial sector became a world leader, after World War II, the Japaneseeconomy was almost completely devastated. Japanese industrialists turned to W. EdwardsDeming and Joseph Juran, who at the time were almost totally ignored in their owncountry. Deming advocated that meeting customer expectations through quality was the keygoal of the organisation and products should be totally redesigned along with productionlayouts, so that quality could become part of the process, rather than an inspection after theproduct is produced. The pursuit of quality holistically by an organisation would create totalcommitment. Deming’s system relied on producing statistical information which would beused by groups on the shopfloor with management to create a process of continualimprovement in the organisation20. Juran’s ideas were similar and focused on developing thewhole organisation as a systematic process to seek continual quality improvement, wherequality was the responsibility of each and every employee. Juran developed a concept calledCompany-Wide Quality Management (CWQM)21.Deming and Juran’s systems fitted well into the collective culture of Japanese society andmanaged to link customer orientation into the production floor where workers wereempowered to control the process under a system called Total Quality Management (TQM).Quality was redefined as a process and not a standard. The success of the Japaneseeconomy and rise of Japanese brands in the 1980’s helped to bring on a managementromance with Japanese techniques, however even though numerous consultants and booksappeared, Western companies had many problems in totally accepting and implementing thequality concepts espoused.In the early 80’s quality began to be considered a key to organisational effectiveness andcustomer responsiveness, particularly with the superior quality of Japanese manufacturedgoods in the market. A number of gurus began preaching the value of enterprise qualityaround the world. Philip Crosby argued to corporate America that quality lies in simplicityand firms should seek excellence and develop a culture of continuous improvement in allaspects of the business, including customer relations and all employees should be involved.Crosby asserted that quality is free and in his book of the same name said the road to qualitywill result in cost reductions, higher profits and turn the organisation into one that iscustomer orientated22. David Hutchins in Europe developed quality circles alone similarphilosophies23 and many businesses and Government organisations (including Malaysia)employed consultants and attempted to implement these new ideas. By the end of the 1980’smost organisations became disillusioned with the concept probably because of insufficientmanagement support at the top, as it was seen to interfere with management prerogatives.However the quality movement put more people orientation into the management of theworkplace through watered down programs with similar objectives.The ‘quality movement’ manifested itself with a number of ‘branded derivatives’ ; QualityManagement Systems, Performance Measurement, ’Excellence Model’, TQM Self Assessmentand the latest hybrid The Six Sigma. This fascination with Japanese management techniques,the ideas of kaizen (continuous improvement) and Porter’s concept of competitive advantage,gave rise to the idea of determining who is the very best and measuring one’s own processesagainst that benchmark. It is a continuous systematic process for evaluating products,services or flows and processes against the identified competitive standard. McNair andLiebfried outlined four areas where benchmarking can be applied24; 1. Internal Benchmarking is a process similar to quality management, where the company’s standards are checked to see if there can be further improvements in quality and cuts in wastage, 2. Competitive Benchmarking to compare the company’s standards against rival companies in the marketplace,
3. Industry Benchmarking to compare the company’s standards against the general industry, and 4. Best-in-Class Benchmarking to compare the company’s standards against the best companies in the world.Measures of corporate performance had been mainly financially based and benchmarkingtook a wider company measure over processes, customer service, products and otherpotential key measures. Benchmarking was initially utilized for manufacturing processes, butXerox in the 1980’s used to method to compare themselves to their competitors products andcustomer service, so they could learn how to outperform their rivals.Benchmarking was originally used by Xerox in the US, when it lost dramatic marketshare inthe mid 1980’s. Benchmarking became very popular in the United States, Japan and Europe,particularly with large corporations. It is usually utilized with another program like leanmanufacturing or re-engineering. Benchmarking can be a powerful management tool forchange and also seeking ways to develop competitive advantage over rivals in the market.The tool helps highlight to employees what needs to be done in the firm to survive in thelong term, thus helping to show the realities of the environment the firm is facing, forcingproblems to be solved.As corporate America continued to rise in the first half of the 20th Century, the sheer size ofmany organisations began to show lack of responsiveness to their customers due tocumbersome bureaucracies. This required an overhaul of the functional bureaucraciescontrolling manufacturing ventures into something more effective. Alfred P. Sloan ofGeneral Motors was faced with this problem during the crash of the 1930’s and in competitionwith Ford. Sloan re-organised General Motors along federal (state) and product lines withdecentralised decision making authority in regards to all respects of their operations25.Decentralisation was not a new idea. The East India Company operated decentrally26 in the1700’s due to very slow communications at that time. This was however due to necessity,rather than an act of strategy. Decentralisation allowed managers to vary strategies,organisational design and control systems to suit their particular markets and thus be moreresponsive to their customers. Sloan’s decentralisation showed that organisations need to bemodelled on the particular strategy the firm wishes to follow and in the case of a largecompany serving multiple geographical markets, multiple strategies may need to be followed,which Chandler expanded upon in strategic management theory27. Corporatedecentralisation became the model that was followed for decades by large corporateorganisations and was utilised by most multi-national corporations around the world tobalance central with regional control28.In the late 80’s and 90’s, decentralisation began to show weaknesses as it was inflexible andcumbersome to operate within. These corporate empires became the field of conquest bystrong divisions like finance that wrapped other divisions in paperwork and procedure,creating powerful divisions exercising lateral control through internal power strategies.In the 1980’s manufacturing became the US concern again for management. Japanese andEuropean goods were flooding the US market and US industry was feared to lose it’sdominance. Hayes and Wheelwright published a manifesto warning US manufacturers thatif the manufacturing sector continues to be neglected by management, it will not survive.Hayes and Wheelwright argued that the tight financial controls exercised by corporations overtheir manufacturing operations leads to lack of innovation and failure to look at the long termimplications of their decisions29. They further argued that manufacturing is viewed as havinga neutral role in the company’s overall corporate strategy and with technologyaggressiveness, the role of manufacturing could be turned into a source of companycompetitive advantage. Manufacturing should be seen as a productive confederation with
strong linkages to the rest of the corporation, customers, competitors, suppliers andmachinery manufacturers. From the strategic point of view capacity, facilities (includinglocation), process technology and the product/process matrix should be examined to developthe best overall configuration to suit the long term strategic objectives of the company. Thisshould be an evolutionary process where decisions about vertical integration and ‘make orbuy’ can evolve over a period of time, thereby improving on competitive advantage. Hayesand Wheelwrights ideas did influence the approaches to manufacturing, supply chainmanagement and overall strategic development of companies and brought attention to thecomplexity of manufacturing and strategy to the management of corporations during the 80’sand 90’s. It did not reach the limelight of many other ideas as Hayes and Wheelwright did notoffer the ‘quick fixes’ that some other ideas were offering at the time.The Japanese manufacturing phenomenon continued to infatuate western managementduring the 1980’s with many authors publishing explanations of the Japanese success andreasons for US failure to keep up with the new competition. Lean production was developedfrom a combination of Japanese manufacturing and process techniques based on threetenants. Firstly the shopfloor was based on just-in-time assembly, where suppliers woulddeliver to the shopfloor at the time parts were needed for the assembly of a product that wasto meet customer requirements at a specific time. This was appealing because the just-in-time philosophy aimed to eliminate all inventory on the part of the manufacturer, thus savinginvestment in parts waiting around for use on the assembly line. This was in stark contrast tominimum re-order point purchasing and materials requirement planning (MRP) used in the USwhich required the holding of large stocks on inventory. Secondly, responsibility for qualityrested with all employees of the organisation and the quality assurance aspect of theproduction process was integrated into the line with immediate corrections, rather thaninspections where defects were put aside for rework after assembly. The term ‘zero defects’became the catch cry. Thirdly, was the development of a value system which promoted thecompany as an integrated organisation dedicated to serving the customer through quality,coupled in close relationships with both suppliers and customers.Richard Schonberger summarised all these concepts and processes30 in 1982, six yearsbefore Monden Yosuhsiro and Ohno Taichi espoused the Toyota Manufacturing System whichwas based on lean production in 1988. In 1990, Womack, Jones and Roos from MIT andCardiff Business School hypothesised that the US was still in the age of mass production,while the Japanese had been able to combine the flexibility of craftsmen with the cost savingsof mass production31. Thus, if teams are reorganised into production teams, both the qualityof the craftsman and low costs of mass production could be achieved. Womack, Jones andRoos were certainly not new in their ideas, but their book became a bestseller and seen bymany in the corporate world as a ‘quick fix’. Most of their ideas were misinterpreted asmanagers saw lean production as a means to cut back on staff and declare themselves a leanorganisation.Besides misinterpretation, lean production was modelled around the automobile industry andit proved very difficult to translate the ideas to other industries, except engineering basedassembly industries. However some of these companies like British Aerospace derived greatbenefits from this philosophy.Michael Hammer published an article in the Harvard Business Review in 1990 proposing arethinking and complete redesign of the businesses processes to achieve radicalimprovements in performance, cost, quality, service and speed32. Hammer in 1993 expandedupon this philosophy 1993 with James Champy publishing a bestseller advocating thecomplete analysis of all business processes in a company and redesigning them in the mostefficient way possible to eliminate all wastage. Companies develop set ways of doing thingswhich have usually developed into inefficient silos, hindering company performance. Thismethod was referred to as Business Process Re-engineering (BPR)33.
Many critics saw re-engineering as a return to the days of Taylorism and ScientificManagement, while others criticised it as a lean excuse for redundancies, which were beingforced upon many corporations due to the advent of information technology that wasreducing the need for employees. One of the greatest problems with the philosopy was thatexecutives were only too willing to cut down aspects of the organisation that didn’t personallyaffect them, but were loathed to do anything that would affect their own livelihoods and asHammer himself said executives were the ones themselves that undermined the the verystructure of their rebuilt enterprises34. Re-engineering became another management catch crybringing in large revenues for CSC Management Consultancy, which James Champy wasprincipal. Companies like Hallmark Cards and Kodak in the US successfully applied re-engineering with very positive results, but BPR became so much associated withredundancies, it forced a change of name to Business Process Improvement (BPI).Strategic ThoughtSun Tzu’s The Art of War was written 2,500 years ago and was most probably the firstcomprehensive book of military strategy ever written. Sun Tzu saw strategy as a tool inwarfare, primarily out of sight of the enemy, aimed at gaining advantage and defeating anadversary by fighting as few battles as possible35. Military strategy has influenced businessstrategy as it has a similar objective of achieving a desired result and winning. Some of theimportant principals of Sun Tzu’s strategies that can be seen as relevant to business aresummarised below: • Business is extremely important to the owner so thorough planning is necessary • Avoid if possible direct competition against competitors (i.e., find a market where there is no competition) • Emulate as much as possible the strengths of your competitors and build your strengths where your competitors are weak • Ensure you have a planned exit strategy if necessary • Know your competitors well, you will have a better chance of success • Good leadership is a powerful motivator of followers (wisdom, sincerity, benevolence, courage, strictness) • Show by example • Develop shared values in your organisation to gain commitment • Develop competitive advantage and make full use of it in the marketplace • A powerful and efficient leader is indispensable to the success of the firm • Have a good technical background • To be competitive, a company must be able to capitalise on various changes in the economy, business and social environments and develop strategies accordingly • Must realistically understand what is in and outside of your control • Position yourself close to the resources you need and markets • Strength is a relative concept, no absolute superior or inferior strength, it is how you arrange your resources that can bring success • Hide your strengths and weaknesses from your competitors so you have the element of surprise in the marketplace • Seek out as much information about your competitors, markets and customers as possible • Delegate subordinates with enough authority to get the job done • Training is an important method of achieving efficiency • A combination of benevolence and strictness is the key to guaranteeing loyalty of your staff • Be transparent in your reward systems so employees know what they will receiveMany authors writing about Asian business attribute Chinese business success to thefollowing of the doctrines of Sun Tzu36. This may have some positive bearing in the businessstrategies of some businesses, which are quoted as examples in books37, and Sun Tzu’sphilosophies have certainly influenced writers38. But as other authors have commented in the
Asian SME context, most businesses start out finding the correct business strategies bynothing more than trial and error until they find the winning set of strategies for theirbusinesses39.Modern corporate strategy began with Igor Ansoff in 1965 with a comprehensive theory ofcorporate strategy. Ansoff postulated that strategy is a matter of combining products with themarkets selected by the firm, where the firm continually monitors these markets and makesdecisions to enter and exit40. Ansoff introduced gap analysis as the key to making decisionsabout markets to enter and developed the concept of synergy, where the return from acompany’s combined resources, should be greater than the sum of its parts.Ansoff’s book was well received by the corporate world, but it was hard to completelyunderstand and implementation proved harder than the concepts. Ansoff in later worksstated that firms were paralysed by analysis and stipulated five key elements41 that werecritical to the firm’s success; 1. No single formula will work for all firms, 2. The most important strategic variable is turbulence in the external environment, 3. The aggressiveness of the strategy must match the strength of the turbulence in the environment, 4. Management must have the capability to implement the strategy, and 5. The key internal variables are cognitive, psychological, sociological and anthological.This became known as the Strategic Readiness Diagram.At the same time, management consulting was beginning to grow as a business andAustralian Bruce Henderson set up the Boston Consulting Group (BCG) as a strategicconsultancy firm. Henderson espoused that strategy is needed by firms to successfully exploitopportunities and create value through competitive advantage. He developed a matrix modelto evaluate strategy along two axis of relative market share and market growth. This becameknown as the Boston Matrix based on a single hypothesis that high market share in a growingmarket is the most profitable position a firm could be in. The Boston Matrix proved verypopular as it could indicate visually potential strategy and was easy to understand andsimple. This innovation created the ‘off the shelf’ consulting culture in corporate America andembedded consultants into the board rooms of many firms. Other consulting firms developedtheir own modified versions of the matrix, of which the General Electric and McKinsey Matrixare best known. The Boston Matrix also created a preoccupation about market share, whichinfluenced marketing strategy for many years.George Steiner in 1979 wrote a book on strategic planning which was more like a step bystep manual. Steiner organised the tools analytic of strategic planning in a way that theycould be used by line managers in the firm, rather than in a separate detached planningdepartment. Steiner argued that strategic planning is an attitude and all employees should beinvolved in the process. Planning should be “inextricably interwoven into the entire fabric ofmanagement and not something separate and distinct from the process of management”42.Steiner also went on to stipulate that small business should also develop strategic planning intheir businesses and that not-for-profit organisations require strategic planning. Steiner alsorecognised that executives have personal aims which will influence the planning process.Finally, Steiner was one of the first writers in the area of strategy to recognise thatcorporations have a social responsibility to society. Steiner offered the corporate worldsomething with much more depth than the matrix and is probably under recognised for hiscontribution to management theory.Michael Porter’s books are probably the largest selling management books of all time anddid not come to popularity through catch phases and ‘quick fix’ scenarios. His work iscompletely meticulous and detailed in it’s descriptions of the environment and firm operatingwithin it. Porter in his first book Competitive Strategy developed a theory of how a firm can
examine the environment and develop strategies to achieve long term competitiveadvantage. Porter identified five competitive forces in the environment; 1. Customers which will vary in their bargaining power over suppliers and will try to exercise any power they have to lower prices, 2. Suppliers which will vary in their bargaining power over customers and will try to use any power to maximise the prices they receive from customers, 3. Substitutes to the goods and services a firm produces that will limit the prices a firm can obtain from the market place, 4. Rivalry in an industry that will force firms to engage in cutting prices, advertising, promotion, R&D which is likely to reduce profits, and 5. New entrants into an industry that will bring with them resources and the intention of taking market share away from incumbents, which acierates the decline of profits in an industry43.These forces can be applied to five types of industry scenarios: fragmented, emerging,mature, declining and global. Porter’s framework gave strategists the opportunity to examinethe forces of the environment in a new way and see that aspects of the external environmentcan actually be changed with particular strategies.Porter’s second book Competitive Advantage postulated that there are three ways a firm cangain competitive advantage; 1. By becoming the lowest cost producer in the market, 2. By being a differential producer in the market, or 3. By being a focused producer in the market44.Porter introduced the concept of the value chain where the internal processes of a firm couldbe examined in an integrated way to determine the parts of the chain that could create value.Porter took the strategic focus away from market share competition through cost competitionto the plain of differentiation, both firm and product. His works opened up a new way oflooking at strategy with new options available to the strategist, where firm based strategiescould be developed rather than product/market strategies. Although Porter’s work is highlyquoted and has become in some respects a benchmark in the strategy world, it is sometimescriticised about the lack of focus on the human aspects of strategy. Other perceivedlimitations of Porter’s work is that it doesn’t explain the role of new technology in creatingnew markets and industries. However Porter himself said that his models are only a guide forconsideration and that firms will have to develop their own specialised strategies according tothe circumstances. Porter’s work is more a work of economics than management and isheavily used in government and research institution studies of industries around the world,including here in Malaysia.Where Porter was clinical and analytical, Kenichi Ohmae, formally the head of Mckinsey’sJapanese office and now a global consultant was more intuitive in his approach to strategy.Ohmae developed the 3C’s Framework or Strategic Triangle45 where the corporation itself, thecustomers and the competition is the basis of all strategy where sustained competitiveadvantage can exist. Corporate centred strategies aim to develop company strengths relativeto it’s competitors in the functional aspects of the business that are critical to success. • Selectivity and sequencing: the corporation does not need to have a lead in every function to win, it gain a decisive edge in one function that will enable it to move ahead of it’s competitors. • The case of make or buy: Outsourcing of production increases flexibility. Inflexibility of competitors to change and adjust production may have strategic implications. • Improving cost-effectiveness: can be achieved through reducing costs more effectively than the competition, be more selective in inventory carried and products
offered, i.e., cherry picking the most high impact aspects of operations or profitable areas, or share key functions with the other businesses of the corporation or even with other companies to reduce costs.Competitor based strategies can be constructed by seeking possible sources of differentiationin all company functions. • The power of corporate and company image. • Capitalising on profit- and cost-structure differences: advantage in lower fixed cost to variable cost ratio will be beneficial in sluggish periods where prices can be lowered to gain market share. • Tactics for Flyweights: When competing against giants, use pricing incentives. • Have the right balance of resources, i.e., not too many managers, plant and equipment and funds. Too much of any resource is wasteful, inefficient and will cause problems to the company.Customer based strategies should be the basis of all strategies and the others follow tosupport them. • Segmenting by objectives: look at different ways customers use products and segment this. • Segmenting by customer coverage: trade off marketing costs verses coverage and create the optimum market coverage, as over coverage will only create diminishing returns. • Resegment the market: In a fiercely competitive market select a key group of customers and re-examine what they are looking for. • Changes in the customer mix: Look for changing demography, distribution channels and customer types/size, etc.Ohmae brought a sort of empowerment to marketing management where they could look atmarkets in new ways with flexibility. However not many could fully implement the wholestrategy triangle as a holistic strategy. Ohmae’s works and ideas are greatly respected and hestill consults to a large number of corporations and governments today.Other thinkers at the time also developed concepts of strategy which were to heavilyinfluence corporate relationships. Harrigan in response to declining companies suggestedthat if strategic alliances could be developed between two companies that served theirmutual interests in a win-win situation, then competitive advantage could be achieved46.Many alliances between corporations developed in the 1990’s in all areas of business frombanks and supermarkets, oil companies and supermarkets, and between airlines.Henry Mintzberg, one of management’s most prolific writers over the last 50 yearschallenged the built up theory and practice of strategic planning developed by Ansoff, BostonConsulting Group, Steiner and Porter by arguing that strategy is not the result of planning butthrough organizational osmosis. Mintzberg saw planning as more a myth than a reality due tothe following reasons; • Processes are more ritualistic and bureaucratic which strangles innovation, • Data as a source of information can be broken up into ‘hard’ ( facts & figures) and ‘soft’ (intuition from antidote) data. Most often the hard data is worse than the soft data as a source of decision making. • Managers are detached from the daily exposure to the business, where they should be immersed inside the business to create full understanding of the issues involved47.
Gary Hamel sees that this age is presenting revolutionary challenges to the way peoplemanage and the closer we get to the information age, the more questionable existingmanagement practices will be48. Existing management practices take place within theboundaries of convention, company tradition, settled authorities and within an existingfunctional specialisation. Companies are bound up in their own set rules, which acts as aboundary they cannot escape from. Hamel contends that strategic innovation is central to thecreation of new wealth and companies must deeply consider the development of newstrategy. Existing strategic planning aims for incremental improvement of the firm and thatstrategy tends to be lucky foresight more than anything else. Hamel maps out fourpreconditions for the emergence of strategic innovation in the firm49; 1. The whole organisation needs a voice in creating strategy, 2. Discussion about strategy must cut across industries and organisations so that knowledge can be combined in new ways, 3. People will embrace change if they identify opportunities and rewards for themselves, and 4. Companies must carry out market experimentation to determine what new strategies work.Costas Markides sees strategic innovation about developing a fundamental re-conceptualisation of what business is really about, which will lead to a drastically differentway of doing things in an existing business50. Strategic innovation occurs when a companyidentifies a gap in market positioning, moves to fill that gap and finds a new mass market.This occurs in three ways, a) new emerging customer segments or existing customersegments which are neglected by competitors, b) new customer needs emerging or existingcustomer needs which are neglected by competitors and c) new ways of producing, deliveringor distributing existing or new products or services to existing or new customer segments.Strategic innovation, according to Markides is difficult to achieve in organisations, due tostructural and cultural factors. Markides suggests that companies must be prepared to askbasic questions about the way they are doing business, in order to move to strategicinnovation, however this is difficult for companies making profits to do as they are in thecomfort zone and hesitant to perceive future issues related to their strategic and financialwellbeing. Companies that can move to strategic innovation are those who look strategically,rather than financially or artificially create a positive crisis to activate the organisation intopositive thinking.In the area of marketing, companies from the 19th Century began developing brands todifferentiate their products from their competition. Brands probably developed in the tobaccoindustry, where different tobaccos in regional America began to be transported to differentlocations were identified by a brand. Coca Cola was a soft drink that carried the name todistinguish it from the number of other colas on the market. Proctor & Gamble in Cincinnatifound in the 1930’s that it had a number of successful brand in the same category likeCamay and Ivory soaps that needed a new way to manage so that due focus could be givento each brand. The company gave responsibility for total brand management to a singleperson (product manager) under a brand management system, which took over all decisionmaking in regards to the brand in the company51. Brand management spread throughoutmost consumer goods companies and is still a widely practiced functional structuring of amarketing organisation today.Thomas Watson Senior, the founder of IBM realised that for an organisation to beprofitable, focus must be orientated towards the customer rather than the product. Theobjective of a company is to serve the customer, rather than become immersed in theproduct and technology it has developed. Watson developed this concept and embedded itwithin the core values of IBM which was based on the belief competing vigour sly andproviding first class customer service was the key to success. This philosophy is successfullyused as a strategy in a number of companies around the world today as a source of theircompetitive advantage, including FedEx, Thomas Cook.
In 1960, E Jerome McCarthy identified the four P’s of the marketing mix; product, price,place and promotion52, as the most important ingredients in setting marketing strategy. Itwas not a great breakthrough in marketing thought, than rather a convenient way to viewstrategy. It was developed at a time when mass industrial marketing was growing rapidly andin recent times the marketing orientation of strategy has dramatically changed as the 4 P’shave become much more integrated and other factors from a customer point of view likecustomer needs and wants, cost, convenience, communication, distribution and relationshipsare seen as being more important. However, the concept until today is taught in marketingcourses around the world and used by management in their marketing strategy development.Right into the 1960’s most companies in America were production orientated, seeing themarket as the means to dispose of their production. This went well until slow downs inconsumer purchases create stock build ups in warehouses and interfered with production.Theodore Levitt argued that companies should become much more customer orientated intheir approach to the market53. Levitt’s ideas were inspired by Ford providing customers withwhat he thought they wanted and the rise of General Motors in gaining market share byproviding customers with variations of the basic product by providing new colours, morechoice and new models. Although Levitt’s ideas were accepted by corporate America in the1960’s, it was not until the 1980’s that the marketing revolution came to fruition. Marketingdepartments began growing and the marketing manager became a powerful driver of thecompany. Philip Kotler is probably the world’s most prolific writer on marketing andstructured the discipline in a way that marketing management could rise to the fore ofcorporate management. His works are used in business schools around the world and is seenby most as the world’s authority on the subject.Organisational ThoughtConfucius was born with the name K’ung Ch’iu in the Lũ Kingdom of China in 551 BC, andwas in later life called K’ung Fu-Tzu (Master Kung) by his followers. He is probably the mostfamous Chinese moralist, intellectual, philosopher and educationalist known outside Chinaand his teachings have had great influence on China’s social and political thought over thelast 2500 years, as well as spreading to East and South-East Asia54. Confucius developed asystem that saw man as a social being, interconnected to society through a system of moraland social ethics, concerned with perfecting human character to create a virtuous socialorder.While the traditions of Confucianism have historical and regional variations, there are certaincentral ideas and values which are common. These values have constituted the key elementsof the traditions of societies which have endured history and political upheavals. The basicConfucian concepts embraces a dynamic cosmological worldview for promoting harmonyamidst change, where individuals exist in concentric circles of relationships with ethicalresponsibilities that place importance on the family, within a hierarchical social system, whereloyalty to elders is paramount and a generational concept of gratitude and respect for earlierancestors exists. Education is the mechanism where individuals are cultured and developedas a means to enrich society and create a social and political order. History is valued ascontinuality and a basis for moral reflection and learning.The worldview purported by Confucius is characterized by four key elements; 1. an anthrop cosmic perspective of the great triad of heaven (a guiding force), earth and humans, 2. an organic holism where the universe is seen as unified, interconnected and interpenetrating, where everything interacts and affects everything else, 3. a dynamic vitalism of underlying units of reality which is constituted of the material energy force of the universe (chi), the natural force of the universe, which creates
reciprocity between man and nature and is the substance of life responsible for continuing process of change in the universe and 4. ethics embracing man and nature.Within this context, Confucian thought sees the person in relation to others and not as anisolated individual. Thus, in Confucian society, the common good is more important thanindividual good. In this view, self interest and altruism for a common cause is not alwaysmutually exclusive.Confucius was more concerned about the process of human development, rather thantheological concepts and ends55. He believed the principals of relationships could be extendedfrom that of running a family to the governing of a kingdom or nation; “Those who want tobe a leader or ruler have to have their own house in order”56. Through education and ritualswhich signified respect, man would develop five inner virtues; integrity, righteousness,loyalty, reciprocity and human-heartedness, which once developed would radiate externallyfrom the individual, so that society could be governed by man, rather than rules of law. Tothis end, Confucius defines five primary relationships that will achieve this; ruler and subject,parent and child, elder and younger brother, husband and wife, and friend and friend. As achild develops and learns, he or she will first learn to love and respect the parents, thenbrothers and sisters, then relatives, and later all of humanity. This piety is called Hsiao, whichis considered the root of all humanity.This philosophy was able to change the family in agrarian China from a unit of production toa collective moral dimension, with a social code for each rank of the family hierarchy, verydifferent from the Western concept of individualism57. This led to the concept of guanxi ,much written about in Western literature, “a focus on relationships with a shared history,respect for the past, a value that many – not all – Chinese cherish”58.Two other concepts in Confucianism are Tao, the way of life and Te, potency and self-sacrificial generosity with humility, with the moral power of attraction and transformation,associated with these qualities. The humanistic attribute required to achieve the above isthrough Jen, which means love, kindness and goodness, qualities of the perfect individual.This is the essence of what makes humans different from other members of the animalkingdom. Failure to develop Jen would lead an individual to quickly develop forgoneconclusions, dogmatism, obstinacy and egotism, which would block wisdom and preventpeople from making new insights and discoveries, as one’s mind must remain open tobecome wiser. Li is the expression of Jen in a social context through norms, rites and ritualsgoverning ceremonies according to one’s social position. Through Li, the individual expresseshis respect and reverence for others59.Confucius was not influential in government during his time, serving only in minor positions,and wondering around China giving advice to those few that listened. However, he attracteda number of followers, who later held office in government, advised by Confucius on mattersof ethics and piety. However he became quickly disillusioned as they didn’t take his counsel.Confucius spent most of his last years working on his classics.After his death, Confucianism had to contend with other philosophies of Taoism andBuddhism during the 3rd to 7th Centuries, creating a blend of philosophies creating Neo-Confucianism, dominating philosophical thought in China during the Tsang Dynasty (618-906AD), the Sung Dynasty (960-1279 AD) and later during the Ming Dynasty (1472-1529 AD).Confucian institutions in China slowly disintegrated after the overthrow of the Last Emperor in1911, although it survived in practice in Taiwan, Hong Kong, Macao and parts of South-EastAsia after that time.Confucianism has been examined and debated about its significance to Asian Economicdevelopment by Western scholars, over the last few decades. Confucianism is oftenmisunderstood, as to its real interpretations. Most have believed that Confucianism is
completely worldly and humanistic, lacking any divinity. However Confucius last book TheAnnals of Spring and Autumn (chũnqĭu) is full of references to the divinity of heaven and itsinfluence upon man and reason for existence. Some scholars have criticized Confucius worksas being nothing more than a reaffirmation of earlier thoughts, with no originality60, althoughConfucius himself stated the need to look back to learn history as examples of models andacts of piety. Many misunderstand the concept of holism, not necessarily meaning holism ofsociety, but holism of the worldview from a family perspective61.During the 1980’s and 1990’s many academics became interested in the connections betweenConfucianism and the spectacular rise of the Asian Tigers. Some argued that Confucius wasopposed to modernization as it didn’t advocate individualism, common to the Westerncharacteristics of entrepreneurship, was too dependent on guidance, emphasized an all rounddevelopment of personality to harmonise with the environment, which discouragedaggressiveness and encouraged traditionalism, rather than modernisation62. However Tusuggested that individualism is a Western mode of capitalism and East Asian had developedanother model based on relationships to develop change through consensus and networks,with a sense of personal discipline63. Confucianism was criticized for lack of profit motive, ashis philosophies discouraged self-motivation and that merchants were not included inConfucius set of key relationships. However, through responsibility and obligation to family,other motives exist, such as their well-being64, and treatment of those inside and outside anindividual’s universe of relationships will be different, i.e., treated with respect but caution,more adversarial, rather than brotherly relationship. Confucianism is also criticized for its lackof innovation, whereas the reality of Chinese business has been to seek ways to control anexisting market, rather than create new value through innovation65.It can also be argued that Confucianism actually has little influence on the way Chinesebusiness is operated, at least in South-East Asian countries like Malaysia. Although Chinesebusiness sustains and nurtures family members and maintains a paternalistic and hierarchicalnature of authority within the enterprise66, there is little evidence that Malaysian Chinesebusinesses rely on guanxi networks for growth and development, have little interest in longterm sustainability and little adherence to the Chinese philosophies associated withConfucianism67. It is also unlikely that many contemporary Chinese have a thoroughunderstanding of the Confucius philosophy or the will or want to fulfill the piety and wisdomdefined by Confucius in everyday life, as one of Confucius followers Mèngzî warned, Jen is aconcept not easily achieved by man. However modern life and business may tend to bejudged by old values, creating a complexity of behaviour that is often hard to understand68,especially by the older generation that is Chinese educated. Finally, John Naisbitt in hisprophecy book Megatrends Asia predicted that the unique strengths of Chinese businessnetworks, able to make speedy decisions and able to obtain resources through connectingpeople would make the Chinese business model the ideal flexible form of social organizationfor the globally connected world of the future69. However this would assume that harmonydoesn’t exhibit restriction on individuals from criticism of strategy, even though it may beconstructive, as the practice of authority in Chinese companies means obedience rather thancareful questioning of the status quo70.Max Weber is one of the earliest modern scholars who studied the relationship betweenreligion and economic behaviour. He found a connection between the rise of capitalism in theWest and the Protestant work ethic. Weber believed there was a strong influence oneconomic and work behaviour from religious beliefs – i.e., religious values spill over to allareas in one’s life71. Weber compared this to Confucian ethics and found that people followingConfucianism tended to harmonise themselves with their environment and develop acollective form of social relationships. Weber postulated that different philosophies andreligions in East and West would lead to different types of entrepreneurial spirit andmanagerial styles72. These ideas have great relevance to the scenario on entrepreneurship inMalaysia due to our diverse multicultural, ethnic and religious makeup.
Weber also studied the nature of organisations, which influenced thinkers on bureaucracyand organisation throughout the whole 20th Century. Weber concluded that the most efficienttype of organisation was a mechanical bureaucracy, which was based on the followingpremises73; • There was a division of labour where each job was broken down into simple, routine and well-defined tasks, • There was a well defined hierarchy of authority along a multi-level formal structure, ensuring each person had a person of authority over them, • The hierarchy operated upon formal rules and procedures to ensure uniformity and objectivity to regulate the behaviour of employees, • Sanctions are used uniformly and impersonally to avoid personal preferences of employees, • Employment and promotion decisions are based on merit and qualifications, competence and performance of potential candidates, • Members of the hierarchy have the opportunity to pursue a career path through the hierarchy, and • There is a distinct separation of members’ organisational and personal lives.The central idea in Weber’s ideal organisation was standardisation and objectivity. Weber’smodel is very similar to the type of organisation in government and large corporations. Smallcompanies will also usually display an organisation chart somewhere in the front office. Butthis is usually as far as Weber’s ideal type of organisation goes as personal issues, politics,conflicts over goals and objectives and informal groups with their own agendas will develop.One cannot dispute that Weber’s influence still influences management today in the way theyview the organisation of a firm, non-profit organisation or government department.Chester Barnard, an executive with AT&T and later President of New Jersey Bell TelephoneCompany in the 1930’s further added to our understanding of organisations by seeing thatfunction was more dependent on the intangibles of personal relationships. Barnard postulatedthat loyalty was the most important factor in an organisation running smoothly and the mostimportant role of the executive was to create shared values within the organisation74.Barnard’s ideas were almost totally ignored for 50 years, but became an important aspect ofthe cultural paradigm, the Japanese management romance and a number of other ideas inthe 80’s and 90’s.One of the most eminent management commentators of the 20th Century Peter Drucker in1954 developed the concept of Management by Objectives (MBO). Drucker saw that therewas great risk that managers lose sight of the original purpose of their function withexecutives daily schedules and they needed a planning process that would developcoordinated objectives for each member of the organisation to achieve so the organisationcould meet its overall objectives75. The planning process would involve all executives, whichwould help in gaining their personal commitment to achieving their individual objectives andthe results could be measured against the set objectives. If things weren’t travelling towardsthose set objectives, these problems could be diagnosed and modified objectives set ifnecessary. MBO became very popular during the 1960’s and 1970’s with many authorspublishing books extolling it’s virtues and consultancies thrived on educating corporateAmerica on the system. One of the first of many management acronyms SMART waspopularised, meaning; specific, measurable, achievable, realistic and time related. MBOseemed to completely disappear by the end of the 1970’s.Systems Theory originally came from the natural and physical sciences, accredited to Ludwigvon Bertalanffy76. However, Kenneth Boulding applied systems theory to management in1956, where Boulding thought it could be applied to all general relationships within andexternally to the organisation77. It was never meant to replace all other specific theories, butrather act as a general roadmap to view organisational dynamics and processes. The generalcomponents of systems theory are as follows;
• Every system is made up of a number of interdependent sub-systems, • Every system is open and dynamic, • Every system transforms inputs into outputs, • Every system seeks to maintain equilibrium, • feedback will modify inputs or transformations to adjust processes to manage equilibrium, • Every system has multiple purposes, objectives and functions, which are often in conflict, • Every system is unique, and • If a system does not adapt to changing circumstances it will be in threat of survival78.Systems theory is not concerned with goals, but process orientated towards maintaining longterm survival, through resource acquisition, processing dynamics and outputs. A number ofhybrid models were developed for organisational research purposes79 in quantitativemodelling of organisational effectiveness. Systems theory influenced further models of theorganisation and environment in the 1960’s and 1970’s (see Lawrence & Lorsch, JamesThompson) and there is some influence of the systems approach in Porter’s work. Systemstheory was also utilised in early management information system (MIS) development duringthe 1970’s and 1980’s80. The author also believes that systems theory has an application inproduct development (see Chapter xx). An adaptation of systems theory, contingency theory81 took over bringing the concepts of external stakeholders into management theory.During the 1960’s a number of important studies were made looking at the most optimumtype of structure required to operate successfully within various environments. These studiespartly explain the different forms of firms existing in different industries and the studies gaveinsights upon strategy and organisational development.The type of environment has great bearing on uncertainty for the firm, and thus survival. Itwas hypothesised by Burns and Stalker that different types of environments wouldinfluence the type of organisation within it, in-order to cope with the degree of turbulence.They studied English and Scottish industrial firms to determine how their organisationalstructure and managerial practice might differ according to the environment. The type ofenvironment was defined by the rate of change in technology in the firms’ respective productmarkets. They found that the type of structure of the firm that existed in rapidly changingenvironments was dramatically different from the structure of a firm in a stableenvironment82. Burns and Stalker characterised firms in stable environments as mechanistic,where they tended to be centrally controlled, highly formalised procedures and jobdescriptions, where staff would carry on routine functions and the firm would be relativelyslow in responding to uncertainty. This type of situation could be equated to a manufacturingcompany producing plastics to industrial customers, the car industry in Malaysia during the1980’s and 90’s, utility companies or the Government service. In a rapidly changingenvironment, firms where organically structured where they would be more flexible andadaptive with more lateral and informal communication within it. Influence in the organisationwould come from experience and knowledge rather than formal authority of position, withmore loosely defined job functions than a mechanistic organisation. This could be equated tothe computer industry in Malaysia.Fred Emery and Eric Twist described four types of environments that firms could operatewithin83; 1. A relatively unchanging placid-randomised environment which has the least threat to a firm as uncertainty is low. Such an environment would be a food stall or restaurant business. 2. A slowly changing placid-clustered environment where threats can come from time to time and have to be dealt with by the firm. Such an environment would be a
manufacturing operation that has a need to release waste effluent into the environment and can occasional face community protest or changing Government regulation, or an insecticide manufacturer where regulation could affect the products the company manufacturers, so must undertake some long term planning. 3. An environment where there are a number of competitors seeking the same objectives, where one or two firms can influence the market is a disturbed-reactive environment. In this environment, prices can change or other events which potentially can drastically change the fortunes of the firm. An example of this type of environment would be the soft drink or coffee market. In this type of environment, the firm will have to be tactically alert and calculate competitor reactions to any initiatives the firm made, thus survival requires flexibility. 4. The most dynamic and uncertain environment is the turbulent-field environment, where there is continual change and elements of the environment become more interrelated, i.e., customers and suppliers are also competitors, product life cycles are extremely short, etc. Change is not easily predicted, so planning is extremely difficult, if not impossible. This environment would be similar to the computer market.Many believe that more business will be undertaken in the turbulent-field environment in thefuture, especially with technology based firms in the electronics and biotechnology industries.If this is the case, then the type of firm that operates in this type of environment, must bestructured to match the uncertainty that will generated. If this is correct, then the types offirms we know will drastically change in structure and style in the future, from thetraditionally structured firm we know.Paul Lawrence and Jay Lorsch took the previous studies further and sort to find outwhether more successful firms in an industry would have better organisational type matcheswith the environment, than less successful ones. They assumed that the internal organisationwas complex and not singular as in the previous studies. The external environment wasmeasured by the degree of uncertainty to the firm and the internal environment of the firmwas measured by how differentiated it was between different departments in their views tothe environment and how integrated the departments were through common goals andcoordinating mechanisms. They found that various department have to meet the demand oftheir sub-environments, as differentiation and integration are opposing forces within anorganisation. Firms in uncertain environments tended to be very differentiated in theiroutlooks, but the successful firms were also highly integrated through planning and externalgoals. Firms in more stable environments tended to be more homogeneous, and the moresuccessful firms were also more integrated than less successful ones. This concluded thatdifferentiation between departments was necessary to solve their particular problems ofmanufacturing, sales or R&D, but at the same time needed to be coordinated to achieve theoverall firm goals in the external environment. Thus it is important for success to be internallycoordinated and have a structure that suits the degree of uncertainty in the externalenvironment84.Up until the 1950’s, most organisational theorists viewed an organisation with clear lines ofauthority, high formalisation, centralised decisions making, a high division of labour, with awide span of control at the supervisory level. Joan Woodward found in her study of firmsutilising different technologies in manufacturing that more effective firms developed specificforms of organisation. Mass production technology firms were highly differentiated and thusrelied on extensive formalisation and delegated little authority. Unit and process technologyfirms, were structured much more loosely and flexible, which was achieved through lessvertical differentiation (i.e., less levels in the organisational hierarchy), less divisions oflabour, more group activities, more widely defined job responsibilities and more decentraliseddecision making within the firm. High formalisation and central control did not appear feasiblein unit production, custom made and non-routine technologies as was the case in continuousprocess technology of mass production. Woodward’s studies indicated a relationship betweentechnology, structure and effectiveness and thus argued that organisational effectiveness wasa function of an appropriate structure-technology fit85. Woodward’s studies dispelled the
belief that there was one universal type of organisation and management, which led tofurther studies in this area.James Thompson sort to create a classification system that would categorise technologytypes found in organisations. He proposed three types of organisation that are differentiatedby the tasks an organisational unit performs; 1. Long Linked Strategy – tasks or operations that are sequentially interdependent as technology is characterised by a fixed sequence of repetitive steps. This type of technology would include mass production and fast-food outlets. Such organisations need management to focus on controlling inputs and outputs, i.e., acquiring raw materials through purchasing and selling the finished production, sales and marketing. Procuring raw materials and finding customers is the type of uncertainty these organisations face. 2. Mediating Technology – is one that links clients, which are both part of the input and output of the organisation. These types include banks, post offices, courier services, etc. Organisations in this category act as a mediator, performing an interchange activity linking individuals or other organisations, thus the activity requires standardisation. The organisation’s success will depend on attracting clients on both sides of the process, i.e., a bank needs deposits and people to lend money to. The dependence on clients creates uncertainty in these types of organisations. 3. Intensive Technology – requires a customised response to a diverse set of requirements, which depends on the nature of the particular client problem. Uncertainty is generated by not being able to predict the types of problems coming to the organisation by clients. This type of organisation includes hospitals, repair shops, research & development organisations or management consultancy firms. Such organisations will require resources continually available in various departments of their organisation on stand-by for particular problems that arise. Each department through coordination will make a contribution to the solution of the client’s problem. What specific technologies are needed will depend on the nature of the problem and this is coordinated through a feedback mechanism developed and managed for this purpose.The significance of Thompson’s studies is that in every organisation, technology creates atype of interdependence that must be addressed. Thompson’s ideas can be translated intoorganisational structural design, where different levels of demand upon decision making andcommunications as the result of technology application will require different forms ofcoordination through rules and procedures. Each of the above interdependencies requires acertain type of organisation type to facilitate organisational effectiveness86; • Long Linked Technology is accompanied by sequential interdependence, where procedures are highly standardised and must be performed in a specific serial order, best managed through moderate organisational complexity and formalisation. • Mediating Technology requires pooled interdependence, where two or more units contribute separately to the whole organisation, best managed by low organisational complexity and high formalisation. • Intensive technology creates reciprocal interdependence, where the output of individual units influence the overall result in a reciprocal fashion, best managed by high organisational complexity and low formalisation.Charles Perrow postulated that technology across organisations needs to be categorised, ifthe above concepts are to have more meaning. Perrow took a wider view of technology,looking at the knowledge required to operate it, rather than the actual technology itself87.Perrow identified two underlying dimensions of knowledge related to technology; 1. Task Variability, comprising of two sub-types
a) Few in number if the job is high routine, like in manufacturing or fast-food, and b) Large variability, where the job is non-routine and requires different activities like management, consulting, fire fighting or police work. 2. Problem Analysability, where the type of problem diagnostic procedures followed to find successful outcomes requires different types of analytic approaches a) Well defined problems where an individual can use logical and analytical methods in searching for a solution, i.e., accounting and bookkeeping, and b) Ill defined problems where problems vary according to task, such as an architect, researcher, advertising executive, where prior experience, judgement and intuition to find a solution through guess work and trial and error.These two dimensions of knowledge related to technology can be applied to four types oftechnology; 1. Routine Technologies – where there are easy to analyse problems with few exceptions, i.e., mass production processes, petrochemical refining or bank teller, 2. Engineering Technologies – which have specific problems requiring specific application of knowledge, but can be handled in a rational and specific manner, such as construction and tax accountants, 3. Craft Technologies – which deal with relatively complex problems but with a limited set of exceptions, such as car repairs or performing artists, and 4. Non-routine Technologies – which are characterised by many exceptions and difficult to analyse problems, such as research and development in universities and strategic planning.Perrow argued that in routine and engineering technologies, problems can be solved usinglogical and rational analysis and in craft and non-routine technologies, problems need to besolved with intuition and guess work based on experience. In engineering and non-routinetechnologies, the mode of analysis would need to switch to a more intuitive framework. Inroutine and craft technologies, the mode of analysis would need to switch to a moreanalytical and logical framework.Perrow further postulated that control and coordination methods should vary with the type oftechnology utilised within the organisation. The more routine the technology, the more highlystructured the organisation should be. Conversely, non-routine technologies would requiregreater structural flexibility. Four key aspects of structure could be aligned to the type oftechnology utilised; 1. the amount of discretion that can be exercised for completing tasks, 2.the power of groups to control the unit’s objectives and basic strategies, 3. the extent of theirinterdependence between the groups, and 4. the extent of coordination of their work.The studies above on environment and technology showed that organisational design is muchmore complex and multi-dimensional that was generally accepted by theorists at the time andorganisational design has a bearing and influence on organisational effectiveness. Manymanagement ideas and theories in subsequent years based their ideas on variousorganisational designs as a means to develop organisational effectiveness (this will bediscussed in much more detail later).During the 1970’s, some organisational researchers began applying psychological, sociologicaland anthropological approaches to look intrinsically at the organisation and how it functions.Anthony Pettigrew’s prior work on organisations looked at the context of who exercisedpower88. To further understand how power develops, he studied how organisations evolve,utilising the cultural paradigm as an analytical tool89. Although the idea was not new, PeterBerger and Thomas Luckman had back in the 1960’s written about culture as a basis of acommon perception, legitimater of behavioural patterns, and source of collective identity90,
while others had used organisational artefacts as a method of organisation analysis91,Pettigrew had used a cultural framework in holistic context.This led to a great amount of interest in the topic by researchers, who began writing on thesubject. Terence Deal and Allen Kennedy published Corporate Cultures in 1982 talkingabout strong cultures and values as a key to success, using examples from some of the mostsuccessful US companies92 and Ralph Kilmann with Beyond the Quick Fix, espoused cultureacross five corporate elements as paths to improving the bottom line; strategy, structure,rewards, skills and teams93. During 1980’s corporate culture quickly became a mainstreammanagement theory which attracted numerous management consultants offering culturalchange as an ‘off the shelf item’ for instant cures to corporate ills. The cultural paradigmhowever has found its way into many other management theories over the last two decades,and is considered an important aspect of organisation success by most, if not all.Edgar Schein defined culture as “a pattern of shared basic assumptions that the group haslearned as it has solved its problems of external adaptation and internal integration, that hasworked well enough to be considered valid and, therefore, to be taught to new members asthe correct way you perceive, think, and feel in relation to those problems”94. Thus a cultureis a shared learning of the organisation on how to survive in it’s environment and manageand integrate itself internally. Culture is thus the mechanism (or way) that an organisationdetermines solutions to all the issues facing it and it’s members. It affects all processes withinthe organisation, where to some degree the views about things are shared by all its membersabout the right way about doing things. The ideas about the way of doing things developsthrough the history of the organisation and exists at three levels; 1. Assumptions: are the deepest level of culture and tend to be unconscious ideas about broad human issues that are fundamental to the organisation and individual. They include ideas about human nature, human activity, relationships and the nature of reality and truth, concepts of time, space and the nature of things. Assumptions are deep seated and tend to be non-negotiable ideas and truths to people. 2. Values: are learned and have to do with the way things are done and thus directly influence behaviour. Values influence what things are important to people, how people communicate with others, the standard of work done, punctuality. Once one understands values, one is able to see why an organisation operates as it does. 3. Artifacts and Creations: are the most superficial aspect of an organisational culture and usually the things outsiders notice most. Artifects include, the physical characteristics of the organisation, such as office sizes and décor, parking spaces, the way people dress, symbols and logos such as organisational charts, stories about the organisation told by employees, rites and rituals during work, i.e., how meetings are conducted, language, basically things that one can see hear and feel95. Culture is learned through the organisation by rewards, both formal and informal, i.e.,acceptance by other employees into the group and as a way to reduce stress and anxiety incoping with uncertainties. Organisational dysfunction occurs when informal group valuesdiffer from the organisation as a whole, thus creating friction between formal organisationalgoals and informal group goals. Thus organisational culture has great influence upon the waywork is done, affecting issues like productivity, decision making, perception of risk in makingdecisions, creativity and innovation. Finally, the founder of an organisation plays a pivotal rolein influencing the organisational culture and the understanding of culture has increased theimportance of leadership in organisations immensely.Although most, if not all would agree the culture of an organisation is an important factor insuccess, managing cultural change is difficult. Firstly, understanding the elements of anorganisational culture is difficult because those who try to interpret a culture usually carrytheir own bias with them in the interpretation. Clifford Geertz warns “that what we call ourdata are really our own constructions of other people’s constructions of what they and theircompatriots are up to”96. But as Kilmann, et. al. state “even if we learn to decipher
organizational culture, it is not clear that full knowledge of our own culture will help uschange it”97. Secondly, as culture takes years to develop and form into assumptions, beliefsand values, and these are reinforced by a strong glue of history, socialised behaviour andsupporting rituals, it is extremely difficult to change things that employees have becomecommitted to over this long period of time. Yet as observed in corporate takeovers andmergers, the overall culture of the organisation can change rapidly98 and literature citessuccesses through various methods of promoting change through consultation99, changingreward systems100 and socialising new entrants into the organisation101. Culture is considereda critical issue today in management and as Robbins states “there is a great deal riding onthe outcome of this debate”102.Gareth Morgan saw that in reality managers have very little power over change inorganisations. The complexity of organisations defies any possibility of obtaining acomprehensive analysis of what is actually the reality in place. Existing organisation andmanagement theories are limited because they are based on implicit images or metaphorsthat may only lead a manager to see and understand the dynamics and flux in a partial way.Thus, Morgan suggests that by using multiple metaphors to view complexity, it will lead tobetter understanding where leaders and managers can then take steps to steer thetransformation of the organisation.Morgan sees organisations are in continual flux, buffeted by external and internal forces andthat in reality an organisation is in a state of chaos, which is more the natural order of things,rather than the hierarchy and control frame we usually view an organisation as. In his book,Images of Organization, Morgan looks at organisations as mechanistic and organic systems,the organisation as a brain, the organisation as a culture, the organisation as an instrumentof dominance, the organisation as a physic prison, the organisation as a sea of flux andtransformation, and the organisation as a political system. Each metaphor has it’s ownstrengths and weaknesses, but by utilising multiple paradigms, managers can gain a muchmore extensive understanding of organisational dynamics, than just utilising a singlemetaphor103. As the process of nature prevents us from planning or predetermining theprecise attributes of an organisation, management must learn to manage within this context,where their fundamental role is to shape and create contexts, in which the appropriate formsof self-organisation can occur.The understanding of change is thus involves the creation of new contexts that would breakup the old established patterns, in favour of new ones. Competing invisible forces (attractors)compete with each other to generate a situation where the organisation can travel alongdifferent paths in the future. The manager must find the right place and time and create anew context that make the present paradoxes or contradictions irrelevant. Change becomes adialectic, where potential new futures have their opposites which are resisting any change,for example; Innovate ----------------------------Avoid mistakes Think long term--------------------Deliver results now Cut costs----------------------------Increase morale Reduce staff-------------------------Improve teamwork Be flexible---------------------------Respect the rules Collaborate--------------------------Compete Decentralize-------------------------Retain control
Managers must recognise that there are benefits in the dimensions of both contradictions andthus find ways of creating contexts that maintain the desirable aspects of both dialectics.Usually the manager needs only make small changes that have the potential to lead to gettransformations in the organisation.Morgan’s work is a powerful tool, which although leads to a much better understanding ofhow organisations function, does not provide easy remedies and methods for organisationalchange or development, from a practitioner’s viewpoint. It has become an important piece oforganisational knowledge, which has led to lots of further research using these ideas inorganisational understanding over the last twenty years. Arie de Geus in the late 1990’s,used metaphor and paradigm in his bestselling book The Living Company to liken a companyto a living organism to explain survival and the learning process in organisations104.During the 1980’s many US firms were operating in other countries and found that they hadto adjust their modes of management style to account for the culture of the country theywere operating in. Austin stated that as well as a foreign company needing to adjust theirfinancial, production, marketing and products to operate effectively in other countries,managers also had to adapt to the cultural dimension, which governed all relationships,attitudes, values and approaches to work activities of local employees105. Geert Hofstedestudied 88,000 employees of one MNC over sixty-seven countries to develop a framework forunderstanding cultural differences and defined cultural differences along five dimensions106; 1. Individual verses collective orientation: the extent to which people have an individual orientation, concerned primarily for themselves and families, verses to the extent that an individual identifies with a group and feels their interests are best served in a group context, which they will give loyalty, 2. Power-distance relationships: the extent to which people accept that power is distributed to individuals and institutions unequally, thus in high power-distance relationships there is more respect for authority, where one would not be expected to go over their boss, than in low power-distance cultures where people would be sensitive to people showing authority and seek help from those they believe they could get it from107, 3. Uncertainty avoidance: the extent to which people feel threatened and stressful towards ambiguity and the importance attached to rules and procedures, i.e., workers characterised high on uncertainty avoidance like in Malaysia would tend to value security over self actualisation108, 4. Masculinity: the nature of dominant values in the organisation such as assertiveness and directness, and 5. View of time: refers to the different time frames used by people and organisations, which influences values about certain actions relating to procedures and decision making, status and rewards, etc.Hofstede’s work indicates that many motivational theories may not work in certain cultures,which is of great importance to developing motivational policies in the workplace. Thissomewhat puts a question on the teaching of Western management theory at localuniversities and the value of Malaysian’s studying management at foreign universities,returning home trying to implement what they have learnt, without any consideration to it’srelevance to the Malaysian context. Hofstede’s work has become a benchmark for studyingcomparative cultures and is beginning to be used in comparative inter-cultural studies ofentrepreneurship.
Fons Trompenaars, a consultant and author teamed up with Charles Hampden-Turnerto describe how culture influences people to think and behave in particular situations andhow this affects management. Trompenaars and Hampden-Turner argue that culture is anembedded set of rules and ways a society has become organised to deal with recurringproblems and issues it comes up against. Thus culture will determine how people deal withthese problems.Trompenaars and Hampden-Turner postulate that culture is an extremely complexphenomenon which cannot be easily rationalised. Even within a single country a cultural traitcan differ significantly within an ethnically homogeneous population. Trompenaars andHampden-Turner surveyed 15,000 managers in 28 countries to explore the differences incultures and hypothesised there are seven areas where diametrically opposed paradoxesoccur109; • Universalism verses Particularism • Individualism verses Communitarianism • Neutral verses Affective • Specific verses Diffuse • Achievement verses Ascription • Sequential verses Synchronic • Internal verses External Control.Universalists (US, Canadians, Australians and Swiss) tend to follow sets of rules, seek clarity,and follow logically and systematically, therefore assuming there is one correct way of doingthings. In contrast particularists (South Koreans, Chinese and Malaysians) are pragmatic,flexible, make exceptions according to situations and thus act more in ambiguity, thereforefocus on the peculiar nature of the situation. Individualists are orientated towards the selfand family, while communitarialists are orientated towards a group. Neutralists are orientatedtowards not expressing opinions and emotions openly, while affectivists are orientatedtowards giving opinions and showing emotion in public. Specificists tend to separaterelationships between business and personal lives, where diffusists tend to blend relationshipstogether. Achievement is orientated towards what one does, whereas ascription is orientatedtowards who we are. Sequential view time as separate periods and are orientated with thepresent, while synchronic is orientated to blending in past, present and future together inones outlook. Internal views dominance over nature, while external views are subservient tonature.Such a framework provides allows understanding of different attitudes, which can assist inunderstanding how to do business and manage in a different cultural environment. Forexample, univeralists will want specifics in business negotiations and may feel when they aredealing with those of a particularist orientation that they are getting nowhere with small talkand pleasantries, seeing discussions as irrelevant. It may be best to reward those with anindividual orientation for teamwork and those with a communitarian orientation for individualcreativity within a team. Neutralist orientated people will be hesitant to tell their superiorwhat they really think, while affective people will be very assertive. Specific orientated peoplewill separate home, family and personal lives from the office, while diffuse orientations willtend to expect personal relationships with superiors. Achievement orientated people will seekstatus and recognition by achievement and be task orientated, where those with ascriptionorientation will seek status by position and be process orientated. Sequential people will betask orientated in a specific order, where synchronic people will view the past, present andfuture together and seek tradition and visions. Internally orientated people feel they cancontrol events around them, while externally orientated people will look for ways to work withthe environment around them. The above paradoxes are two extremes and most culturaltraits will fit somewhere in between the two. Although Americans, British and Spanish can allbe considered to have a sequential outlook, Americans tend to have a much more futureorientation than the others and the Spanish tend to have a slight orientation to the past,