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Administrative
Management Theories

Introduction
We have chosen to discuss Administrative Management Theory
because it plays a vital role in the development of every
business and organization.
As per the book , Administrative Management is the study of how
to create an organizational structure and control system that
leads to high efficiency and effectiveness based on Max
Webber’s Theory of Bureaucracy and Fayol’s Principles of
Management

The Theory of Bureaucracy
Developed by Max Weber (1864-1920), a German professor of sociology.
Principle 1:
 In a bureaucracy, a manager’s formal authority derives from the position he or she holds in the
organization.
 Authority - the power to hold people accountable for their actions and to make decisions in reference to
the use of organizational resources.
In today’s business models, this type of theory is not very common. Nowadays, we see more of an
informal authority approach in which there is personal expertise, technical knowledge, moral worth, and
the ability to lead and to generate commitment from subordinates, without the use of this absolute power
from one individual.

Principle 2:
 In a bureaucracy, people should occupy positions because of their performance, not because of their
social standing.
 Some organizations and industries are still affected by social networks in which personal contacts and
relations, not job-related skills, influence hiring and promotional decisions. (Textbook / Contemporary
Management - 6th Edition)
The old ways, of not what you know, but who you know, are still around in today’s society, but it can only
get you so far. In today’s business world, what you know and educational knowledge, play a very important
part in moving up the corporate latter and being able to maintain a managerial position requires the
utilization of staying current on up to date techniques and information.

Principle 3:
 The extent of each position’s formal authority and task responsibilities, and its relationship to other
positions in the organization should be clearly specified.
 When the task and authority associated with various positions in the organization are clearly
specified, managers and workers know what is expected of them and what to expect from each
other. (Textbook / Contemporary Management - 6th Edition)
Most organizations should and are clearly defining task and position responsibilities. Job
descriptions should include all facets of an employee held position. Clarification of one’s job
expectations is essential for all five business functions in order to manage and maintain a high level,
and measurable level of success for all organizations.

Principle 4:
 Authority can be exercised effectively in an organization when positions are arranged
hierarchically, so employees know whom to report to and who reports to them.
 Managers must create an organizational hierarchy of authority that makes it clear who reports to
whom and to whom managers and workers should go if conflicts or problems arise. (Textbook /
Contemporary Management - 6th Edition)
Today’s business models utilize the initiative factor in which employees are given the ability to act on
their own, without direction from a superior. This empowerment of employees relieves the stress of
constant supervision and allows supervisors and managers to concentrate more on other
administrative duties. The balance between a vertical and horizontal organizational structure is more
widely used in today’s business models.

Principle 5:
 Managers must create a well defined system of rules, standard operating procedures, and norms so that
they can effectively control behavior within an organization.
 Standard Operating Procedures (SOPs) are specific sets of written instructions about how to perform a
certain aspect of a task. (Textbook / Contemporary Management - 6th Edition)
Most companies have SOPs and require employees to learn and follow them. We have seen how in
addition to following rules and regulations, many organizations have allowed for creativity and innovation
to supersede the common way of conducting business where it was once said, “rules are rules and they
could never be broken”. Guidelines are needed and common sense is always important, but have an open
line of communication to new ideas and thoughts is essential in today’s business society.

Henri Fayol’s 14 Principles of Management
Division of Labor
 Job Specialization and well divided labor should increase efficiency.
 Possible downside: Boredom that could drop quality, worker initiative,
and flexibility.
How Does this Apply Today?
This is a potentially good practice for institutions whose workers deal with
highly technical or repetitive tasks. Tasks that require innovation and a
creative exchange or with workers who are required to have cross-
departmental knowledge may not benefit from Division of Labor.

Authority and Responsibility
 Managers have the right to give orders and demand obedience (formal).
 Managers gain authority derived from expertise, technical knowledge,
moral worth, and ability to lead and generate commitments from
subordinates (informal).
Formal authority can be used or perceived as totalitarian shutting down the
much needed two way communication; however, much can be gained
by supervisors whose subordinates naturally follow those who they
perceive as a leader (characterized by informal authority).

Unity of Command
 An employee should receive orders from only one superior.
Leads to less opportunities for confusing or conflicting directives.
Very appropriate as long as subordinate managers are able to
interpret directions from their leaders and disseminate the
directions to their subordinates.

Line of Authority
 Clearly defined and limited chain of command from the top to the
bottom levels.
 Allows for cross departmental interaction of middle managers to
speed decision making.
In a competitive market place, limiting the line of authority maintains
overhead to its minimum and allows for quicker reaction to
directives in a marketplace requiring speed.

Centralization
 Authority should not be concentrated at the top of the chain of command
because it slows down decision making.
 Centralization at the top may be necessary when it is vital that the
organization’s strategy be firmly adhere to.
When authority is concentrated at the top of the organization’s chain of
command, only those at the top can make decisions. This funnels the
workload through a small number of managers causing delays. Also,
centralization at the top trains middle managers to quickly pass on the
problems and they simply follow orders. In cases where an organization
needs to operate in a crisis mode, it may be vital to assure that all but
the most trivial decisions be made at the top.

Unity of Direction
 An organization should have a single plan of action to guide managers
and workers.
An organization that does not have a single purpose and plan becomes
inefficient and unfocused. If managers and workers have a different
focus or direction, not all of the organization’s resources are used
towards the legitimate goal.

Equity
 All members of an organization are entitled to be treated with
justice and respect.
Equity in an organization gains its members’ loyalty and trust. They
can proceed and dedicate all of their time to the task at hand
knowing that they will be treated fairly and equally.

 Order
 The arrangement of organizational positions should maximize
organizational efficiency.
- Fayol recommended the use of organizational charts to show the
position and duties of each employee and to indicate which positions an
employee might move to or be promoted into the future. This form of
guidance or career planning, allows for an orderly advancement from
one position to the next.

Initiative
 Managers should allow employees to be innovative and creative.
- Fayol believed that managers needed to encourage their employees
to act on their own, without direct supervision from a supervisor. This
key to this principle is to promote creativity and innovation. Hence,
employees with more freedom and responsibility, tend to have a greater
desire to accomplish the job at hand.
Example:
 Many retailers have empowered their cashiers to perform price over-
rides without the need for a supervisor to approve the change.
 More and more companies are empowering their call center agents to
perform one-time fee reversals without the approval of a supervisor.

Discipline
 Managers need to create a workforce that strive to achieve
organizational goals.
- Fayol believed that discipline resulted from respectful relations
between organizational member and reflects the quality of an
organization’s leadership and a manager’s ability to act fairly and
equitably.
Example:
 A manager may ask an employee to stay late or work weekends in
order to complete an assignment. If the manager has always been
courteous and respectful of the employee, then they may be more
willing to oblige to the managers request.

Renumeration of Personnel
 System that managers use to reward employees should be equitable for
both employees and the organization.
- Fayol was a big proponent of bonuses and profit sharing plans,
because he believed it encouraged productivity. However, he was
cautious to state the reward system could not be the subject of abuse or
bias.
 Many companies perform six month or twelve month reviews of their
employees and based on their performance figures they’re rewarded
with a bonus. Typically the amount of the bonus is a percentage of their
annual salary.
Example:
Company “A” pays up to twenty percent of an employees salary.
Employee “X” annual salary is $75K. In other words, employee “X” can
make as much as $15K in annual bonus.

Stability of Tenure of Personnel
 Recognition that long-term employees develop skills that can improve
organizational efficiency.
-Fayol believed that when employees stayed with an organization for
extended periods of time, they develop skills that improve the
organization’s ability to utilize its resources.
Example:
 Consider employees that grow within a company. Companies are often
more willing to hire and promote from within because employees may
already possess certain job function skills and technical knowledge of
the applications, which usually leads to a lower cost of training.
Furthermore, since the employee has already been exposed to the
environment, he/she may be more well equipped to come up with the
right approaches to handle certain situations.

Subordination of Individual Interests to the Common Interest
 Employees should understand how their performance affects the performance
of the whole organization.
- No one individual or group is above the organization. Having said that,
remember Fayol believed that there needed to exist a harmonious relationship
between the organization and its members, in order to ensure that employees
were being treated fairly and rewarded for their performance.
Example:
 Sports teams, like any other business, consist of upper management
executives (CEO, President, GM), managers (coaches) and players
(employees). Keep in mind though that in this business, some players tend to
make more money than some of those positions above them. Players that are
selfish, unwilling to adapt and change to the philosophy set forth by the teams
management may find themselves being released or traded.

Esprit de Corps
 Managers should encourage the development of shared feelings of
comradeship, enthusiasm, or devotion to a common cause.
- Comes about by encouraging communication between managers
and workers to solve problems and implement solutions.
Example:
A compliance officer notices that communication between the
compliance department and the business unit is lacking cohesiveness.
The employee, knowing that their boss is willing to listen to their
opinions, can suggest that a liaison, someone with experience in both
areas of the business, be hired to facilitate communication and
ultimately satisfy the needs of both departments.

Conclusion
All in all, administrative management
theory such as; bureaucracy is a formal
organizational system that is applied in
today’s business industry throughout the
world. The management process of Fayol’s
fourteen principles of management has
influenced efficiency in today’s business
society.

References
Jones, G.R., George, J.M (2009). The Evolution of Management Thought.
Contemorary Management (pp 38-71). New York, NY: McGraw-
Hill/Irwin.

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