According to Drucker (1988) the organisation of the future will be staffed primarily by professionals (knowledge workers). Drawing on recent discussions on the nature of the professional firm in the academic literature, critically discuss how each of the three main models of management (classical, human relations, open systems/contingency) apply to professional firms.
The purpose of this essay is to critically discuss the relevance of the 3 main management theories to the professional firm. A theory represents a more complex realityfocusing on the essential elements and their relationships (Boddy, 2012, p.28) and therefore it is unlikely that any given firm will be a perfect reflection of one particular theory. Firstly, I will define the professional firm and what makes it unique compared to other non-professional firms. Once an understanding of the professional firm has been established I will look at each management theory, in turn, and critically discuss their relevance. In my discussion I will make reference to the relevant academic literature on the professional firm and justify any claims with real examples and cases. The earliest management theory is the classical theory. The main theorists were Taylor, Fayol and Weber (Hannagan, 2005). Taylor spearheaded scientific management, while Fayols research was the basis for administrative management (Cole, 2004) and Weber developed the principles and characteristics of bureaucracy (George and Jones, 2014). Boddy (2012) writes, The human relations approach is a school of management which emphasises the importance of social processes at work (p.39). This theory was developed by Mayos Hawthorne studies; Mary Parker Follett; McGregors Theory X and Y assumptions; Herzbergs 2-factor motivation theory; and Maslows hierarchy of needs (Cole, 2004). The open system/contingency theory views the organisation as a system of interrelated activities which enable inputs to be converted into outputs (Cole, 2004, p.74) and this was developed by Katz, Kahn and Thompson, with further developments from Burns, Stalker, Lawrence and Lorsch. The main message of this theory is that there is no one best way to organize (George and Jones, 2014, p.57).All 3 theories are likely to be relevant to the professional firm in some way so I will have to decide the extent of their relevance and come to a reasoned conclusion. According to Drucker (1988) the organisation of the future will be staffed primarily by professionals (knowledge workers). Research by Von Nordenflycht (2010) identifies 3 characteristics of professional firms: knowledge intensity; low capital intensity; and professionalized workforce. The professional firm is under scrutiny from external professional bodies and is expected to balancecommercial success with professional integrity (Scott, 1987, cited in Suddaby, Greenwood and Wilderom, 2008, p.989) which creates problems for management. Examples of professional firms include: accounting and law firms, medical practices, hospitals and universities (Brock, Hinnings and Powell, 2012). The main difference between a professional and a non-professional firm is they produce decisions rather than products as their raw materials are data and they engage in production processes-called meetings (Martin, 2013, p.98). I will now critically discuss the extent to which each of the 3 main management theories relate to the professional firm. Classical theory is still relevant to the professional firm to a certain extent. Fayols functions of management: Planning, organising, commanding, co-ordinating and controlling (Hannagan, 2005) are still used in the operations of a professional firm. In the 2013 annual Ryan Dempsey Student No: 40078927
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report of PWC state, Our strategic objectives are focused on achieving responsible and profitable growth (PWC, 2014) which shows that a plan was created for the company objectives. Also the analysis of KPIs, to control operations, links into the administrative theory of management. Remaining with the research of Fayol, many of the principles of management are relevant to the professional firm. For example the division of work is apparent as Alan Morris, of Simmonds and Simmonds law firm, says We have people constantly reforming in project teams (Jackson, 1998), which is separating the employees between projects and also links in with the Esprit de corps principle (Cole, 2004). Max Webers Bureaucracy can be adapted to relate to the professional firm. Professional bureaucracies have flat structures and give more autonomy to the workers due to their specialized knowledge (Clegg, S., Kornberger, M. and Pitsis, T., 2011). Suddaby, Greenwood and Wilderom (2008) state that management must surround its star performers with high quality colleagues (p. 991), which is an alternate version of Webers bureaucracy, as the purpose of the organisation is to support rather than enforcing authority. Taylors scientific approach is mostly suited to low skill manufacturing jobs but can be loosely related to professional firms. Microsoft (2009) states that To succeed in todays climate, professional services executives are turning to CRM solutions which is essentially creating a science for the operations with the clients in both accounting and law firms. However this is coming from sellers perspective, Microsoft, so bias could be a factor and Gold (2010) argues the insignificance for smaller firms. The classical theory may be too impersonal an approach for a professional firm as they rely heavily on human capital. Simon London (2005) in an article in the FT said, Knowledge workers detest being told what to do, so managers have to be far more egalitarian. This is supported in the recent research form Martin (2013) who stated that knowledge workers have become not just an important part of the work-force but the dominant part (p. 99) and identified the problem of structuring this workforce in the same way as a manual workforce. This evidence, on the importance of the employees needs, points towards a greater emphasis on a human relations theory of management. The human relations management theory is relevant to the professional firm due to its emphasis on employees as social animals (Cole, 2004, p. 32). Elton Mayos Hawthorne studies drew attention to aspects of human behavior that scientific management had neglected (Boddy, 2012, p.39) and concluded that group membership is important to individuals (Cole, 2004). The group work aspect is reiterated in Martin (2013) as he said, when a project comes in, a team is assembled to carry it out and the team is disassembled when the project is complete. Peter Smith, of Coopers and Lybrand, said, You move people from group to group, and organize around clients (Jackson, 1998) which shows the importance of group and teamwork structure in the professional firm. Although this article is from 1998, the underlying message of group life is still apparent. There is a management issue in professional firms, in terms of authority, when dealing with knowledge workers. Mary Parker Follett advocated, Authority should go with knowledgewhether it is up the line or down (George and Jones, 2014, p.51) and Malhotra et al (2006) wrote that knowledge intensive firms need to do more guiding, nudging, and persuading than commanding (cited in Von Nordenflycht, 2010, p.160). The low capital intensity of the professional firm reduces the need for outside investment and therefore allows the firm to adopt more autonomy which satisfies employees (Von Nordenflycht, 2010) and retains the authority of the firm with the knowledge workers. This is supported by the fact that virtually all the largest 200 law firms in the US have LLP post-fix after their name (Bierman et al., 2011, p. 181) which maintains the control of the firm internally. Ryan Dempsey Student No: 40078927
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McGregors Theory Y Manager relates to the professional firm as employees are seen as liking workdont have to be controlled or coerced (And) seek responsibility (Cole, 2004, p.36-37). These assumptions are linked to Maslows higher level needs such as esteem and fulfilment (Boddy, 2012) which can be achieved through granting autonomy and providing support. Brock, Hinnings and Powell (2012) state that, professional practice was characterized by autonomyand role creation as professionals sought to define their own roles (p. 5). This role creation is apparent in the NHS (2013) as 3% of staff are managers (Although) a third of hospital staff have managerial roles (p. 4). Autonomy and support in accounting firms is achieved through global networks, and all of the Big 4 Accounting firms ranked in the top 35 Networks in a survey by AccountancyAge (2014). The open system/contingency theory of management is relevant to the professional firm due to the ever-changing environment. The input-conversion-output process (George and Jones, 2014) is different in a professional firm compared to a manufacturing company. Martin (2013) states that the inputs are data, instead of raw materials; the conversion process takes place in meetings; and the final output is a decision, leading to a service. However, this is not an exact description of all professional firm processes because in healthcare the outputs can consist of medicine or treatment of an injury which is a tangible result. The professional firm can be described as an organic system. Burns and Stalker believe that organic systems are more appropriate to changing conditions (Cole, 2004) and therefore relate to the professional firm. Martin (2013) said that professional firms have grown so quicklybecause theyre organized around projects (p. 102) which allows them to better deal with the changing environment. This claim, of a dynamic fast moving industry, is supported in a report by Offshoring Research Network (2011) which shows that in order to gain advantage in todays dynamic andglobal marketplace the professional firm must become more like valued business partners (p.31). However, no firm will be truly organic or mechanistic and, in reality, most firms will have characteristics of both types of system. According to George and Jones (2014), the characteristics of the environment affect an organizations ability to obtain resources (p. 57). Management face challenges from the knowledge intensity in professional firms (Von Nordenflycht, 2010) as skills are scarce andtransferable across firms (Teece, 2003, cited in Von Nordenflycht, 2010, p. 160) which makes employees hard to retain. This is a contingency factor for the professional firm and is the main reason why workers expect significant degrees of autonomy (Robertson and Swann, 2003). This is supported by an increase in lateral movements by associates and partners of law firms which shows competition for this professional talent (Henderson and Bierman, 2009, cited in Bierman et al., 2011, p.181). The structure of the professional firm is contingent on the cost of monitoring the activities of the organisation and the risk level of the environment. The professional firm must adapt the structure of the organisation to match external conditions (Boddy, 2012, p. 42) which is the major aspect of the open systems/contingency theory. Bierman et al. (2011) discuss that unlimited liability across multinational companies would expose partners to a high level of risk if they are unable to monitor everyones activities. Accounting and law firms are made up of a network of limited liability partnerships to prevent cross-liabilities and cap liability exposure (Greenwood and Empson, 2003, cited in Bierman et al., 2011, p.181). For example, PWC is the brand under which the member firms of PricewaterhouseCoopers International Limited (PwCIL) operate and provide professional services (PWC, 2014), which is reducing the monitoring costs and the risk of the company. In summary, all 3 theories have relevance to the professional firm, but not to the same extent. The classical theory is the earliest management theory (Hannagan, 2005) and, therefore, there are underlying assumptions that follow through into the subsequent theories. Fayols administrative management theory has relevance through the controlling of Ryan Dempsey Student No: 40078927
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performance with KPIs (PWC, 2013) and Max Webers bureaucracy can be adapted into the professional bureaucracy. Taylors scientific management is loosely related through the adoption of CRM software (Microsoft, 2009), although its widespread adoption is up for debate (Gold, 2010). The classical theory, however, may be too impersonal and could point towards a greater importance on human relations. The professional firm relies on its human capital and therefore the human relations theory is relevant due to its emphasis on employees as social animals (Cole, 2004, p.32). This theory places importance on group involvement and teamwork which is relevant as teams are assembled to complete projects (Martin, 2013). Also, Follett advocated that, authority should go with knowledgewhether it is up or down the line (George and Jones, 2014, p.51) and this is achieved due to the low capital intensity of professional firms (Von Nordenflycht, 2010) allowing for greater employee autonomy. McGregors Theory Y assumptions and Maslows higher level needs are relevant and can be achieved by granting autonomy and providing support through a network structure such as those found in the Big 4 accounting firms (AccountancyAge, 2014). The human relations theory, on the other hand, does not take into account the external factors that can affect management decisions. The open system/contingency theory is relevant to the professional firm because of the ever-changing environment and the organic system that is needed to deal with this. The process of converting inputs and outputs occurs through meetings as data is converted into decisions (Martin, 2013) rather than raw materials used to produce a final product. Due to the knowledge intensity of the professional firm (Von Nordenflycht, 2010) employees are hard to retain so management must adapt their style or risk losing employees to their competitors. Another contingency facing professional firms is the cost of monitoring and the level of risk exposure which force management to adapt the structure of the organisation to match external conditions (Boddy, 2012, p.42). They do this by creating a network of limited liability partnerships such as PriceWaterhouseCoopers International Limited (PWC, 2014). Overall, I believe that the human relations theory and the open systems/contingency theory are the most relevant to the professional firm. The emphasis on the employees social needs is vital to the performance of the firm and due to the ever- changing, dynamic environment in which they operate; management will need to constantly adapt their style. With further research, a new management theory could be developed specifically for the professional firm which would benefit future managers due to the widespread reliance on knowledge workers and the professionalization of corporations.
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