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management theory

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  1. 1. Management Theory and Practice: An Overview EPGB 6113 Feb 2012
  2. 2. What is an Organization? <ul><li>“ Organizations are social entities that are goal-oriented; are designed as deliberately structured and coordinated activity systems, and are linked to the external environment” ( Daft, 2004) . </li></ul>
  3. 3. Organizations and Governance <ul><li>An organization (“hierarchy”) is a “system of consciously coordinated activities or forces of two or more persons”. </li></ul><ul><li>Organizations are social systems, hence complex. </li></ul><ul><li>Public organizations (“bureaucracies”) are the state’s agents for public collective action. </li></ul><ul><li>Studying public organizations goes to the heart of governance and corruption issues: </li></ul><ul><ul><li>public organizations deliver public services with more or less efficiency, equity, honesty, and accountability. </li></ul></ul>
  4. 4. Public Organizations Matter <ul><li>Three management mechanisms for public administrations; </li></ul><ul><ul><li>public finances: how the money is controlled; </li></ul></ul><ul><ul><li>civil service: how people are managed; </li></ul></ul><ul><ul><li>organization: how activities are coordinated. </li></ul></ul>
  5. 5. What is Theory? <ul><li>Theory is: “a plan or scheme existing in the mind only, but based on principles verifiable by experiment or observation” (Funk & Wagnalls page 1302) </li></ul>
  6. 6. The role of theories <ul><li>Theories describe the distribution of power & resources in organizations, how organizations function, how people interact in organizations, and how organization systems maintain themselves. </li></ul><ul><li>Theories must be empirically tested and verified. </li></ul><ul><li>Independent and dependent variables must be identified in order to test a theory. </li></ul><ul><li>Therefore theories contain assumptions about cause and effect relationships </li></ul>
  7. 7. Theories can either be broad and abstract and pertaining to general patterns in society or describe patterns that occur in specific situations
  8. 8. Definition of Organization Theory <ul><li>Organization theory: is the set of propositions (body of knowledge) stemming from a definable field of study which can be termed organizations science (Kast&Rosenzweig1970) . </li></ul><ul><li>The study of organizations: is an applied science because the resulting knowledge is relevent to problem solving or decision making in ongoing enterprises or institutions (Kast&Rosenzweig1970) . </li></ul>
  9. 9. Definition of Organization Theory Cont.. <ul><li>Two things: </li></ul><ul><ul><li>Knowledge </li></ul></ul><ul><ul><ul><li>Knowledge generated by practical experience and scientific research </li></ul></ul></ul><ul><ul><li>Solving problems & managing resources (Kast&Rosenzweig1970) . </li></ul></ul>
  10. 10. Organization Theory: A Branch of Social Science <ul><li>Organization theory has blossomed since the 1930s. </li></ul><ul><ul><li>It primarily covers the private sphere and the North Atlantic. </li></ul></ul><ul><li>Organization theory has many competing schools of thought. </li></ul><ul><ul><li>There is not a dominant paradigm. </li></ul></ul><ul><li>But there is a generally held view of organizations, in effect, as living, evolving social systems. </li></ul><ul><ul><li>Sociology and politics, rather than engineering and economics, have driven OT. </li></ul></ul>
  11. 11. Organization Theory: Some Common Ground <ul><li>Organizations have the characteristics of living, evolving systems. </li></ul><ul><li>There is a great variety of types of organization, responding to different and changing needs and environments. </li></ul><ul><li>The external “authorizing environment” – i.e. who influences what the organization does and provides its resources – is important and complex. </li></ul><ul><li>Rationality is bounded – progress is often by trial and error. </li></ul><ul><li>Worker motivation is complex, extending beyond economic incentives into their social and personal needs. </li></ul><ul><li>The formal trappings of organizations – stated goals and rules– are only part of the story. Organizations also have a non-formal life –an organizational culture – which is vital in determining the actual tasks undertaken, the sense of mission, and organizational effectiveness. </li></ul>
  12. 12. Organization theory and Management <ul><li>“ Management technology stems from organization theory and even more applied in the sense that it focuses on the practice of management in ongoing organizations” (Kast&Rosenzweig1970) . </li></ul>
  13. 13. Organization Theory from a Historical Perspective <ul><li>Throughout history most managers operated strictly on a trial-and-error basis </li></ul><ul><li>The management profession as we know it today is relatively new </li></ul><ul><ul><li>wide swings in management approaches over the last 100 years </li></ul></ul><ul><ul><li>parts of each approach have survived and been incorporated into modern perspectives on management </li></ul></ul>
  14. 14. Evolution Of Management Thought Classical Approaches Contemporary Approaches 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 Systematic management Administrative management Quantitative management Systems theory Current and future revolutions Scientific management Human relations Organizational behavior Bureaucracy Contingency theory
  15. 15. Early Management Concepts And Influences <ul><li>Industrial revolution </li></ul><ul><ul><li>minor improvements in management tactics produced impressive increases in production quantity and quality </li></ul></ul><ul><ul><li>economies of scale - reductions in the average cost of a unit of production as the total volume produced increases </li></ul></ul><ul><ul><li>opportunities for mass production created by the industrial revolution spawned intense and systematic thought about management problems and issues </li></ul></ul><ul><ul><ul><li>efficiency </li></ul></ul></ul><ul><ul><ul><li>production processes </li></ul></ul></ul><ul><ul><ul><li>cost savings </li></ul></ul></ul>
  16. 16. Bureaucracy <ul><li>Bureaucratic structures can eliminate the variability that results when managers in the same organization have different skills, experiences, and goals </li></ul><ul><li>Allows large organizations to perform the many routine activities necessary for their survival </li></ul><ul><li>People should be treated in unbiased manner </li></ul><ul><li>Personalities </li></ul><ul><ul><li>Max Weber </li></ul></ul>
  17. 17. Bureaucracy (cont.) <ul><ul><ul><li>Structured network of relationships among specialized positions </li></ul></ul></ul><ul><ul><ul><li>Rules and regulations standardize behavior </li></ul></ul></ul><ul><ul><ul><li>Jobs staffed by trained specialists who follow rules </li></ul></ul></ul><ul><ul><ul><li>Hierarchy defines the relationship among jobs </li></ul></ul></ul><ul><ul><ul><li>Promotes efficient performance of routine operations </li></ul></ul></ul><ul><ul><ul><li>Eliminates subjective judgment by employees and management </li></ul></ul></ul><ul><ul><ul><li>Emphasizes position rather than the person </li></ul></ul></ul><ul><ul><ul><li>Limited organizational flexibility and slowed decision making </li></ul></ul></ul><ul><ul><ul><li>Ignores the importance of people and interpersonal relationships </li></ul></ul></ul><ul><ul><ul><li>Rules may become ends in themselves </li></ul></ul></ul>Key concepts Limitations Contributions
  18. 18. Macro Perspective of Organizations <ul><li>Organizations are open systems </li></ul><ul><ul><li>affected by, and in turn affect, their external environments </li></ul></ul><ul><li>External environment </li></ul><ul><ul><li>all relevant forces outside a firm’s boundaries </li></ul></ul><ul><ul><ul><li>relevant - factors to which managers must pay attention </li></ul></ul></ul><ul><ul><li>two elements comprise the external environment </li></ul></ul><ul><ul><ul><li>competitive environment - immediate environment surrounding a firm </li></ul></ul></ul><ul><ul><ul><li>macroenvironment - fundamental factors that generally affect all organizations </li></ul></ul></ul>
  19. 19. The External Environment Macroenvironment Competitive Environment Organization Laws and politics Economy Technology Demographics Social values Suppliers New Entrants Substitutes Rivals Buyers
  20. 20. The Macroenvironment <ul><li>The macroenvironment </li></ul><ul><ul><li>most general elements in the external environment that can potentially influence strategic decisions </li></ul></ul><ul><ul><li>all organizations are affected by the general components of the macroenvironment </li></ul></ul><ul><li>Laws and regulations </li></ul><ul><ul><li>impose strategic constraints and provide opportunities </li></ul></ul><ul><ul><li>regulators - specific government organizations in a firm’s more immediate task environment </li></ul></ul><ul><ul><ul><li>have the power to investigate company practices and take legal action to ensure compliance with the laws </li></ul></ul></ul>
  21. 21. The Macroenvironment (cont.) <ul><li>The economy </li></ul><ul><ul><li>created by complex interconnections among economies of different countries </li></ul></ul><ul><ul><li>important elements include interest rates, inflation rates, unemployment rates, and the stock market </li></ul></ul><ul><ul><li>economic conditions change and are difficult to predict </li></ul></ul><ul><li>Technology </li></ul><ul><ul><li>creates new products, advanced production techniques, and improved methods of managing and communicating </li></ul></ul><ul><ul><li>strategies that ignore or lag behind competitors in considering technology lead to obsolescence and extinction </li></ul></ul>
  22. 22. The Macroenvironment (cont.) <ul><li>Demographics </li></ul><ul><ul><li>measures of various characteristics of the people comprising groups or other social units </li></ul></ul><ul><ul><ul><li>age, gender, family size, income, education, occupation </li></ul></ul></ul><ul><ul><li>workforce demographics must be considered in formulating human resources strategies </li></ul></ul><ul><ul><ul><li>population growth influences the size and composition of the labor force </li></ul></ul></ul><ul><ul><li>immigration also is a significant factor </li></ul></ul><ul><ul><ul><li>increasing diversity of the labor force has both advantages and disadvantages </li></ul></ul></ul><ul><ul><ul><ul><li>must assure equal employment opportunity </li></ul></ul></ul></ul>
  23. 23. The Macroenvironment (cont.) <ul><li>Social issues and the natural environment </li></ul><ul><ul><li>management must be aware of how people think and behave </li></ul></ul><ul><ul><ul><li>the role of women in the workplace </li></ul></ul></ul><ul><ul><ul><li>providing benefits for domestic partners of employees </li></ul></ul></ul><ul><ul><ul><li>protection of the natural environment </li></ul></ul></ul>
  24. 24. Competitive Environment <ul><li>Competitive environment </li></ul><ul><ul><li>comprises the specific organizations with which the organization interacts </li></ul></ul><ul><ul><ul><li>Michael Porter - defined the competitive environment </li></ul></ul></ul><ul><ul><li>successful managers: </li></ul></ul><ul><ul><ul><li>react to the competitive environment; and </li></ul></ul></ul><ul><ul><ul><li>act in ways that actually shape or change the competitive environment </li></ul></ul></ul>
  25. 25. Competitive Environment (cont.) <ul><li>Competitors </li></ul><ul><ul><li>competitors within an industry must deal with one another </li></ul></ul><ul><ul><li>organizations must: </li></ul></ul><ul><ul><ul><li>identify their competitors </li></ul></ul></ul><ul><ul><ul><li>analyze how competitors compete </li></ul></ul></ul><ul><ul><ul><li>react to and anticipate competitors’ actions </li></ul></ul></ul><ul><ul><li>competition is most intense: </li></ul></ul><ul><ul><ul><li>where there are many competitors </li></ul></ul></ul><ul><ul><ul><li>when industry growth is slow </li></ul></ul></ul><ul><ul><ul><li>when the product or service cannot be differentiated </li></ul></ul></ul>
  26. 26. Competitive Environment (cont.) <ul><li>Threat of new entrants </li></ul><ul><ul><li>barriers to entry - influence the degree of threat </li></ul></ul><ul><ul><ul><li>conditions that prevent new companies from entering an industry </li></ul></ul></ul><ul><ul><ul><li>include government policy, capital requirements, and brand identification, cost disadvantages, and distribution channels </li></ul></ul></ul><ul><li>Threat of substitutes </li></ul><ul><ul><li>technological advances and economic efficiencies may result in substitutes for existing products </li></ul></ul><ul><ul><li>substitutes can limit another industry’s revenue potential </li></ul></ul><ul><ul><li>companies need to think about potentially viable substitutes </li></ul></ul>
  27. 27. Competitive Environment (cont.) <ul><li>Suppliers </li></ul><ul><ul><li>provide the resources needed for production </li></ul></ul><ul><ul><li>powerful suppliers can reduce an organization’s profits </li></ul></ul><ul><ul><ul><li>international labor unions are noteworthy suppliers </li></ul></ul></ul><ul><ul><li>dependence on powerful suppliers is a competitive disadvantage </li></ul></ul><ul><ul><ul><li>power of supplier determined by: </li></ul></ul></ul><ul><ul><ul><ul><li>availability of other suppliers from whom to buy </li></ul></ul></ul></ul><ul><ul><ul><ul><li>the number of customers for the supplier’s products </li></ul></ul></ul></ul><ul><ul><ul><li>switching costs - fixed costs buyers face if they change suppliers </li></ul></ul></ul><ul><ul><li>close supplier relationship is the new model for organizations </li></ul></ul>
  28. 28. Competitive Environment (cont.) <ul><li>Customers </li></ul><ul><ul><li>purchase the products or services the organization offers </li></ul></ul><ul><ul><ul><li>final consumers - purchase products in their final form </li></ul></ul></ul><ul><ul><ul><li>intermediate consumers - buy raw materials or wholesale products before selling them to final consumers </li></ul></ul></ul><ul><ul><li>customer service - giving customers what they want, the way they want it, the first time </li></ul></ul><ul><ul><li>disadvantageous to depend too heavily on powerful customers </li></ul></ul><ul><ul><ul><li>powerful customers make large purchases and/or have other suppliers </li></ul></ul></ul>
  29. 29. Changes in public organizations: older challenges <ul><li>The growth of government and the growth of the bureaucratic machine </li></ul><ul><ul><li>A dramatic increase in the scope and size of government since the early Nineteenth Century has progressively exacerbated the principal-agent problem. </li></ul></ul><ul><li>The call for greater efficiency and flexibility: </li></ul><ul><ul><li>The costs of hierarchical organization, perceived from the beginning of the Twentieth Century. </li></ul></ul><ul><li>The growth of special interests: </li></ul><ul><ul><li>Continued growth in the Twentieth Century has threatened the effectiveness of government. </li></ul></ul>
  30. 30. Changes in public organizations: newer challenges <ul><li>The growth of citizen voice: </li></ul><ul><ul><li>Progressively stronger electorates, in terms of their knowledge and ability to organize, have however made the control problem potentially more soluble. </li></ul></ul><ul><li>A crisis of trust and the rise of accountability </li></ul><ul><ul><li>An apparent erosion of trust in recent decades has led to demands for more formal forms of accountability, and it may have undermined “social capital” within the public administration. </li></ul></ul><ul><li>Better management, better information: </li></ul><ul><ul><li>Improved management technologies, including the falling cost of information, make the control problem potentially more soluble. </li></ul></ul>
  31. 31. Changes in public organizations: early responses <ul><li>Problems of poor control and inflexibility have led to a constant experimentation with new organizational techniques, including those that use economic incentives. </li></ul><ul><ul><li>Performance-related pay. </li></ul></ul><ul><ul><li>Special-purpose, quasi-independent agencies (“agencification”). </li></ul></ul><ul><ul><li>Decentralization. </li></ul></ul><ul><ul><li>Budget reform (e.g. program budgeting). </li></ul></ul><ul><li>The dilemma of reform: </li></ul><ul><ul><li>The dilemma: trading off control and flexibility. </li></ul></ul><ul><ul><li>The progress: slow. </li></ul></ul>
  32. 32. Changes in public organizations: the New Public Management <ul><li>Recent, more systematic efforts to make public administrations more accountable, efficient, and responsive. </li></ul><ul><li>The core techniques borrow from the managerial methods of the private sector. </li></ul>
  33. 33. Changes in public organizations: core techniques of the NPM <ul><li>Privatization . </li></ul><ul><li>Quasi-market competition (and contractualization). </li></ul><ul><ul><li>Management, relational, and personnel contracts; competition between public agencies; inter-agency fee charging; out-sourcing. </li></ul></ul><ul><li>Performance orientation : changing the accountability relationship from an emphasis on inputs and legal compliance to one on outputs. </li></ul><ul><ul><li>Results-oriented budgeting, full-costing of products. </li></ul></ul><ul><li>Devolution of discretion . Devolution of decision making: reducing the burden of hierarchical rules and fostering greater discretion at lower points in the hierarchy. </li></ul><ul><ul><li>Agencification, decentralization of personnel-management. </li></ul></ul><ul><li>Specialization by splitting policy making and policy implementation, service financing and service delivery. </li></ul><ul><ul><li>Executive agencies, hospital trusts. </li></ul></ul><ul><li>Client-focus : reporting to and &quot;listening&quot; to the clients of the public sector. </li></ul><ul><ul><li>Citizen’s Charter; e-government, participative budgeting. </li></ul></ul>
  34. 34. Public organizations in developing countries: superficial similarities <ul><li>Superficially, the issues look similar for more advanced and less advanced countries. </li></ul><ul><ul><li>Less advanced countries have pursued similar formal arrangements: a legally-determined hierarchy of agencies, with even tighter procedural rules. </li></ul></ul><ul><li>There is a similar debate on the tensions between hierarchy and efficiency (and the merits of NPM) , with similar efforts to modify rules to encourage more efficiency. </li></ul><ul><li>But the similarities are often superficial: </li></ul><ul><ul><li>Public organizations typically perform poorly in developing countries </li></ul></ul>
  35. 35. Public organizations in developing countries: different politics <ul><li>Proposition 1: the control (principal-agent) problem is more acute in developing countries: democratic control is often weak, even in many nominally democratic countries: </li></ul><ul><ul><li>Patronage politics (and sometimes predatory-state politics) are more likely to prevail. </li></ul></ul><ul><ul><li>Kinship ties and other ties of mutual obligation tend to be stronger than professional ties. </li></ul></ul><ul><li>Proposition 2: politics and ideology in today’ developing countries have led to over-sized, often corporatized public sectors, thus undermining organizational performance. </li></ul><ul><ul><li>Origins of large public sectors in developmentalist ideologies. </li></ul></ul><ul><ul><li>Sustained in many regions by governments becoming employers-of-last-resort. </li></ul></ul>
  36. 36. Public organizations in developing countries: different outcomes <ul><li>These political conditions often lead to a conflict between announced and effective rules: </li></ul><ul><ul><li>Announced rules favor a hierarchical ordering of public agencies and their rules-base operation. </li></ul></ul><ul><ul><li>Effective rules may favor quite different objectives such as bureaucratic survival, patronage, or corruption. </li></ul></ul><ul><li>This “organizational informality” makes it more difficult for public organizations to function effectively in the public interest. </li></ul><ul><li>By the same token, these conflicts make “island” solutions attractive – for instance autonomous agencies that heads of states are better able to protect from political interference. </li></ul>
  37. 37. Public organizations in developing countries: what makes for good performance? <ul><li>Results from a study on building sustainable capacity in public organizations in developing countries show the importance of organizational culture and managerial autonomy in good performance: </li></ul><ul><ul><li>A broadly shared sense of mission improves performance. </li></ul></ul><ul><ul><li>Management emphasizing performance, participation, flexibility, teamwork, problem solving, and equity improves performance. </li></ul></ul><ul><ul><li>Clear signals about performance expectations (work to be accomplished, rewards and sanctions) improve performance. </li></ul></ul><ul><ul><li>Organizations with some autonomy in personnel matters are more able to set and reward performance standards. </li></ul></ul>