B. How Did Management of Thought Develop?

The four stages of the development of management thought:

• Pre-Scientific Period
• Classical Period
• Neo-Classical Period
• Modern Period
1. Introduction
When people started living in groups, they began using simple forms of management.
Management was both a tool for survival and development. Later, instructions and
protocols developed into norms. Norms became ordinances and canons.
Sociologists and archeologists found evidence of management in the Sumerian,
Egyptian, Chinese, Greek, and Roman civilizations, in the Roman Catholic Church, and
in military history.
In the late 1700s and early 1800s, the period of major industrialization and innovation
took the world by storm. Industries sprouted all around the world. With industrialization,
processes, procedures, and systems became more complex. Managers thought of
doing things better. During this period, the theory of modern management started to
take shape.
Each period has a valuable contribution to management. Take note of their strengths
and weaknesses. The theories in these different periods have residual importance on
how present-day organizations are being run. In fact, there are situations when one
theory is effective and there are other situations when a combination or integration of
different approaches to management are suitable.
The development of thought progressed correspondingly with the development of the
internal and external environments of the organizations as a natural course. They came
to exist out of necessity.
How does the evolution of management thought concern you as a CES aspirant? You
can find inspiration from the management theory that is relevant to your simulated
exercise.
• If an activity calls for a behavioral response, refer to the behavioral school.
• If the assessor talks about systems and structures, go for the system or the
empirical theory. Be mindful of the situation.

2. Pre-Scientific Management Period

The Industrial Revolution changed how people run business in matters such as raising
capital, organizing labor, methods of production to achieve their goals. Under this
system, the entrepreneur had to have land and buildings, hired labor, and capital. By
this time, the factory system has been established. During this period, some pioneers of
management introduced new ideas:
• Charles Babbage (UK, December 26, 1791 --18 October 18, 1871):
Babbage was an English polymath: a mathematician, philosopher, inventor, and
mechanical engineer. (Babbage originated the concept of a digital programmable
computer).
In 1832, Babbage published "On the Economy of Machinery and Manufactures" on the
organization of industrial production. The first part of his book deals with the schematic
classification of machines and discussion on factories. The second part speaks of the
"domestic and political economy" of manufacturers.
Babbage revealed that manufacturers relied heavily on opinions and guesswork instead
of applying science and mathematics in resolving problems. He encouraged the use of
accurate data in making business decisions. He provided rational designs in factories
and in profit-sharing. He also pointed out the advantages of the practical division of
labor. This is known today as, "the Babbage Principle".
 James Watt Junior (FRS February 5, 1769 — June 2, 1848) and Mathew
Robinson Boulton (UK August 8, 1770 — May 16, 1842):
James Watt Junior was a Scottish engineer, businessman and activist. Watt made
improvements to steam engines, and patented other important inventions, such as the
rotary engine and a steam locomotive.
On the other hand, Matthew Robinson Boulton was an English manufacturer. Watt and
Boulton formed The Boulton & Watt Company to produce steam engines. They
established their engineering factory at Soho Foundry in Birmingham.
Watt and Boulton contributed to the development of management thought by
introducing certain management techniques, namely:
• production planning
• standardization of components
• maintenance
• planned machine layout
• provision of welfare for personnel
• scheme for executive development
• marketing research and forecasting
• elaborate statistical records.
Watt and Boulton became leading figures in the Industrial Revolution.
 Robert Owens (UK. May 14, 1771 — November 17, 1858):
Robert Owens was a Welsh textile manufacturer, philanthropist, and social reformer,
and a founder of utopian socialism and the cooperative movement.
Owen managed a group of textile mills in Lanark, Scotland, where he used his ideas of
human relations by improving factory working conditions for his workers: shorter
working hours, housing facilities, training of workers in hygiene, education of their
children, provision of canteen, among others. Today, he is regarded as the father of
personnel management.
As a social reformer, he became a leader in trade unionism, supported the passage of
child labor laws and free education for children, and promoted social equality through
his attempts to form experimental utopian communities. Though he failed in several
attempts to form utopic communities, he was able to introduce socialism widely in Great
Britain and in the United States.
• Henry Robinson Towne (USA 1844 -1924):
In 1868, Henry Robinson Towne and Linus Yale Jr. founded a company in the South
End section of Stamford, Connecticut, called the Yale and Town Lock Manufacturing
Company.
In the same year, Yale died suddenly of a heart attack while installing locks in a
skyscraper. Under Henry Robinson Towne's management, Yale Locks became the
premier manufacturer of locks in the United States.
Towne, as the president of the company, was an innovative leader. He employed
industrial managers who had backgrounds in engineering, economics, and a little on
accountancy. He encouraged sharing of experiences and ideas among his managers.
This was his key to the success of the company.
• Benjamin Seebohm Rowntree (UK July 7, 1871 — October 7, 1954):
Benjamin Seebohm Rowntree was an English sociological researcher, social reformer,
and industrialist. He is known for his three York studies of poverty conducted in 1899,
1935, and 1951. His first study consisted of a comprehensive survey of the living
conditions of the poor residents of York. Every working-class household was surveyed
using a survey tool which he designed himself. Such methodology became the model
for many subsequent research studies in the British empirical sociology.
By clearly defining the concept of poverty in his studies, he was able to show that the
poverty in York were more of economic rather than moral reasons, such as low wages.
The traditional view of poverty was anchored on individual behavior and accountability.
Rowntree raised public opinion on labor welfare. The Industrial Welfare Society, The
Management Research Groups and the Oxford Lecture Conferences in the United
Kingdom came to existence on account of Rowntree's concern for the working class.
3. Classical Period
The Classical Period (early 1900s) produced three major management theories namely,
the Scientific Management Theory, the Bureaucratic Management Theory, and the
Administrative Management Theory.
These management theories consider only the physical and economic needs of
workers. Classical theorists neglected the social needs or job satisfaction of the
workers. Instead they advocated for the specialization of labor, centralized leadership
and decision-making, and productivity. These theories were indicative of the needs of
the industries of this period.
3.1 Scientific Management Theory
Frederick Winslow Taylor (1856-1915) is known as the "father of scientific
management". Taylor began work at the age of 18 as a machinist apprentice to a
'pattern-maker' then joined the Midvale Steel Company as a laborer.
He became its chief engineer of that company after eight years. Later, he moved on to
Bethlehem Works where he experimented with his ideas that contributed to the scientific
management theory.
The scientific management theory was involved in the analysis and synthesis of
workflow processes while improving productivity of labor. The main ideas of the theory
were published in his monographs, "Shop Management" (1905) and the "Principles of
Scientific Management" (1911).
Taylor encouraged the development of accurate procedures to replace traditional
processes such as the 'rule of thumb'. Scientific management is called: Taylorism, the
Taylor System, or the Classical Perspective.
The four basic principles of scientific management theory:
• Study how jobs are performed and find effective and efficient ways.
• Organize the new techniques into rules.
• Select workers with skills to match the rules.
• Establish fair levels of performance and incentivize performance.
The benefits of the scientific management theory are:
• Replacement of traditional rule of thumb method by scientific techniques.
• Proper selection and training of workers.
• Incentive wages to the workers for higher production.
• Elimination of wastes and rationalization of system of control.
• Standardization of tools, equipment, materials, and work methods
 • Detailed instructions and constant guidance of the workers.
• Establishment of harmonious relationship between the workers.
• Better utilization of various resources.
• Satisfaction of the needs of the customers by providing higher quality
products at lower prices.
Criticisms on the Scientific Management Theory
On the part of the Workers:
• Scientific Management is only a device to speed up the workers without much
regard for their health and well-being.
• Loss of individual worker's initiative
• Problem of monotony
• Reduction of Employment
• Weakening of Trade Unions
• Exploitation of workers
On the Part of the Employer:
• It requires too heavy an investment
• Loss due to re-organization
• Unsuitable for small scale business
In scientific management, the manager is primarily responsible for increasing
productivity. The manager must use scientific methods for this purpose. This point of
view triggered a search for more solutions which resulted into two more theories: the
bureaucratic management theory and the administrative management theory.
3.2 Bureaucratic Management Theory
Maximilian Karl Emil Weber (April 1, 1864 — June 14, 1920) was a German
sociologist, philosopher, jurist, and political economist. He is regarded today as one of
the most important theorists on the development of modern Western society. He is also
cited as one the four founders of sociology, alongside W. E. B. Du Bois, Emile
Durkheim, and Karl Marx.
Weber developed the bureaucratic model. His model of bureaucracy provides a rigid
model of an organization. It lacks important human elements that are essential to the
development of an organization. However, it finds use in large corporations.
The features of Bureaucracy are rigidity, impersonality, and higher cost of controls;
anxiety due to pressure of conformity to rules and procedure; dependence on superior,
and tendency to forget ultimate goals of the organization. The bureaucratic model is
followed in government departments and big business organizations. It does not hold
well for small organizations.
The major characteristics of bureaucracy are:
 • A well-defined hierarchy
• Division of labor and specialization
• Rules and regulations
• Impersonal relationships between managers and employees
• Competence
• Records
3.3 Administrative Management Theory
Jules Henri Fayol (July 29, 1841 — November 19, 1925) was a French mining
engineer, mining executive, author, and director of mines.
In 1941, Jules Henri Fayol was born in Constantinople, France. In 1860, he graduated
as a mining engineer from the National School of Mining. After graduation, he applied
as an engineer at a French Coal Mining Company. In two years, he was promoted as
manager.
In 1888, when the company was near bankruptcy, he was appointed as General
Manager. Fayol saved the company from bankruptcy and generated big profits and
dividends for a long period.
Through his long career in the mining business, he developed the general theory of
business administration called "Fayolism". Today, he is widely acknowledged as a
founder of the modern management method.
He divided general and industrial management into six groups:
• Technical activities - Production, manufacture, adaptation.
• Commercial activities - buying, selling and exchange.
• Financial activities - search for and optimum use of capital.
• Security activities - protection of property and persons.
• Accounting activities - stock-taking, balance sheet, cost, and statistics.
• Managerial activities - planning, organization, command, coordination, and
control.
The process of management involving planning, organizing, directing, coordination, and
controlling was determined basing on the analysis of the general management
principles of Fayol. Many authors claim that Fayol established the pattern of
management thought and practice that are observed by managers until today.
Fayol's 14 principles of the administrative management theory:
• Division of Work
• Authority and responsibility
• Discipline
• Unity of command
• Unity of direction
• Subordination of Individual Interest to General Interest
 • Remuneration of Personnel
• Centralization
• Scalar chain
• Order
• Equity
• Stability of Tenure of Personnel
• Initiative
• Esprit de Corps
4. Neo-Classical Period
Management theories developed during the classical period were not effective in
dealing with many management issues relating to the behavior of individual workers. In
the 20th century, new studies were done regarding motivations and interactions of the
individual worker within the organization.
As a result, the human relations movement began to take shape. Behavioral theorists
believed that a greater understanding of human behavior at work could improve
individual as well as organizational productivity.
Classical theory focused on job content and management of physical resources. On the
other hand, the neoclassical theory focused on individual and group relationships
through psychology and sociology.
Mary Parker Follett was the first management theorist to break away from the mold of
classical management and adopt a more humanistic approach to management. George
Elton Mayo, Douglas Murray McGregor, Abraham Harold Maslow, and Victor Harold
Vroom followed in her footsteps.
4.1 Mary Parker Follett (September 3, 1868 — December 18, 1933)
Mary Parker Follett was an American social worker, management consultant,
philosopher, and pioneer in the fields of organizational theory.
Follet is recognized in the field of management for her human-centered perspective on
management structures and conflict-resolution mechanisms within organizations. Her
idea of business management transcends bureaucratic structures by focusing on an
ethical process which improves the social conditions of the workers.
Follet observed that traditional management focused more on industrial and mechanical
components. In contrast, she advocated for a more careful consideration of the human
element in management. She was the first theorist to raise public awareness on the role
of people in organizational development.
• As a management theorist, she studied processes and structures within
organizations which led to the development of the matrix-style organization.
• She raised the value of informal processes in the organization and the
concept of "authority expertise".
 • She also advocated the principle of "integration" or non-coercive power-
sharing using her concept of "power with" rather than "power over".
• She also pioneered an effective approach to conflict management. Her vast
contributions to the development of management earned her the title of
"Mother of Modern Management".
4.2 George Elton Mayo (December 26, 1880 — September 7, 1949)
George Elton Mayo was an Australian-born psychologist, industrial researcher, and
organizational theorist. Mayo finished his degree on Bachelor of Arts in Philosophy and
Psychology at the University of Adelaide. He was later awarded an honorary Master of
Arts Degree from the University of Queensland.
George Elton Mayo's contributions to the behavioral theory was the case of the
Hawthorne experiments. The experiments consisted of two studies conducted at the
Hawthorne Works of the Western Electric Company in Chicago from 1924 to 1932.
The first study was conducted by a group of engineers seeking to determine the
relationship of lighting levels to worker productivity. The engineers discovered that
worker productivity increased as the lighting levels decreased.
In 1927, Harvard researchers Mayo and F. J. Roethlisberger conducted a series of
experiments, namely: Relay Assembly Test Room Experiment, Mass Interview
Program, and the Bank Wiring Test Room Experiment. In the Bank Wiring Test Room
Experiment, they supervised a group of five women in a bank wiring room. They gave
the women special privileges.
This experiment also resulted in significantly increased rates of productivity. Mayo and
Roethlisberger concluded that the increase in productivity resulted from the supervisory
arrangement rather than the changes in lighting or other related worker benefits.
The general conclusion from the Hawthorne studies was that emotional factors were
more important in determining productivity; that the work environment must satisfy the
worker's subjective need of social satisfaction to match the objective requirements of
production.

4.3 Abraham Harold Maslow (April 1, 1908 — June 8, 1970)

Abraham Harold Maslow was a psychology professor at Alliant International University,
Brandeis University, Brooklyn College, New School for Social Research, and Columbia
University.
In 1965, Maslow wrote a journal of his observations of a California plant in 1962. The
study resulted in a theoretical framework on which "self-actualization" may be applied to
industrial organizations. (Self-actualization refers to the realization of a person's full
potential, self-fulfillment, and peak experiences). He developed a deep interest in the
application of psychology to organizational and educational settings.
Maslow developed one of the most widely recognized theory of motivation based on
human needs. Based on this theory, Maslow assumed that human needs are never
completely satisfied; human behavior has purpose and is motivated by the need for
satisfaction; and, needs can be classified according to a hierarchy of importance. Needs
are distributed into five specific levels in a pyramid scheme: physiological needs, safety
needs, esteem needs, and self-actualization needs.
• Maslow grouped all physical needs, such as food and water, into the lowest level.
Once physical needs are satisfied, they no longer act as primary motivators.
• He gathered all safety needs such as basic security, stability, freedom from fear
into the second level.
• Once the safety needs are satisfied, the individual moves to the third level: the
need for belonging and love.
• After establishing meaningful relationships, the individual must now satisfy the
esteem needs, such as reputation and fame (fourth level).
• On top of the pyramid are the self-actualization needs. Maslow believed that
workers perform at their peak when they have met the need of self-actualization.
Maslow's theory has been criticized for failing to explain human motivation considering
that hierarchy of needs are unique to each person and individuals are strongly
influenced by self-concept.
4.4 Douglas Murray McGregor (1906 — October 1, 1964)
Douglas Murray McGregor was a management professor at the MIT Sloan School of
Management and president of Antioch College from 1948 to 1954. He also taught at the
Indian Institute of Management Calcutta.
McGregor, as a student of Abraham Maslow, was deeply influenced by both the
Hawthorne studies and Maslow. He has made important contributions to the
development of the motivational theory of management.
In 1960, he introduced his Theory X and Theory Y through the publication of his book
"The Human Side of Enterprise". In the book, he proposed that the manager's
assumptions about human behavior determines how the manager deals with workers.
McGregor believed there are two types of managers. One type (Theory X) has a
negative view of workers and assumes that they are lazy irresponsible. The other type
(Theory Y) assumes that employees are not only trustworthy and responsible but also
have high levels of motivation.
Managers who hold either set of assumptions can create situations where their
subordinates shall act in confirmation of those assumptions.
4.5 Victor Harold Vroom (born August 9, 1932, Montreal, Quebec, Canada)
Victor Harold Vroom as appointed Chairman of the Department of Administrative
Sciences and associate Director of the Institution for Social and Policy Studies at Yale
in 1972. Vroom has also been a consultant to several corporations such as General
Electric and American Express.
Vroom is one of the leading contributors to expectancy theory of management. His
research attempts to explain why workers follow certain courses of action or choose
certain outcomes over others in organizations, specifically in decision-making.
From his study, he suggested that motivation is heavily influenced by the person’s belief
that effort leads to performance; performance leads to outcomes; and, such outcomes
are valued by the worker.
Vroom is the author of “Work and Motivation”, “Leadership and Decision-Making”, and
“The New Leadership”. Vroom shares credit with Lyman Porter and Edward Lawler in
the development of expectancy theory.
Limitations of Human Relations Theories:
• The human relations theorists drew conclusions from the Hawthorne
experiments. The findings were based on clinical insight instead of scientific
evidence.
• The studies focused on the human aspect and neglected the structural and
technical aspects of management.
• Solutions to organizational issues were viewed mainly through human
relations.
5. Modern Period
During the modern period, management thought has shifted to a more balanced
approach in improving management of organizations from a highly focused human
relations approach of the neo-classical period. The modern period is marked by some
important events: modern technological advancement and the globalization of trade.
Because of these events, managers must deal with the unpredictability of world and
regional economic climates. One way to deal with these challenges, is to manage
knowledge. Knowledge management has been made easier through computer software
and the Web.
With the globalization of economies, large companies have been formed resulting into
the separation of ownership and management. This new feature of organization is
leading to the greater professionalization of management. Modern managers bring new
scientific ideas and methods to management, without neglecting the social
responsibilities of the organization to its workers and clients.
The modern management thought is characterized by the following features:
• Management forecasts environment through observation, using scientific
methods, in aid of the decision-making process.
• Management works with dynamic organizations using complex but functional
structures.
• Managers balance economic and non-economic organizational objectives to
forward the interests of multi-stakeholders.
• Management is multi-disciplinary in nature.
There are three streams of thinking under modern management thought starting from
1960 namely, the Quantitative or Mathematical Approach, Systems Approach, and the
Contingency Approach.
5.1 Quantitative Theory
During World War II, the British Army wanted to improve its bombing efficiency and
develop methods for detecting the enemy supply system. P.M.S. Blacket, a Nobel
laureate of the University of Manchester, organized a team of astrophysicists,
mathematical physicists, general physicists, mathematicians, physiologists, a surveyor,
and an Army officer to solve these problems.
The Team was known as Operations Research Team. The team proved to be effective
for the purpose. The American Army created a similar team using quantitative methods
for the effective use of its scarce war resources.
After the war, the quantitative specialists found jobs in business organizations and
applied their multi-disciplinary techniques to industrial use. Government agencies and
big corporations used this approach to solve operational problems. Later, they use this
method to develop and market products.
This quantitative management perspective, using mathematics, statistics, and related
data, became a tool for making management decisions to improve organizational
productivity.
Of course, managers get support from the inter-disciplinary team that conducts
operation research. The core function of this approach is the application of scientific
methods which prove to be more effective and efficient compared to other remedial
alternatives.
5.2 Systems Theory
As an outgrowth of the classical and neo-classical periods of management, the
'Systems Approach' attempted to combine schools of thoughts of both periods. The
Systems Approach has its roots from the general system theory that was introduced by
Ludwig von Bertalanffy in 1960.
The system approach is based on the idea that an organization is a system; and that a
system is a set of interdependent parts functioning as a one for some purpose. There
are five components in this approach: inputs, a transformation process, outputs,
feedback, and the environment.
The systems approach proves to be quite useful in general management analysis
through the four concepts of open versus closed systems, subsystems, subsystems and
interdependencies, synergy and entropy.
The four concepts of the systems approach:
• There are two basic types of systems: closed systems and open systems.
Closed systems are not influenced by and do not interact with their
environments. On the other hand, open systems interact with their
environment. All organizations, as open systems, interact with their
environments in varying degrees.
• Entropy is the natural tendency of a system to die. It is a universal
characteristic of a system. Thus, it is the goal of management to avoid
entropy.
• In synergy, the whole is considered greater than the sum of its parts. Using
this concept, the manager brings cohesion to the organization through unity of
work and purpose.
• Sub-systems are parts of a system that depend on one another.
• From the core concepts of the system approach, we can sum up its basic
features:
• A system consists of inter-related and inter-dependent parts arranged in a
way that produces a unified whole.
• The sub-systems should be viewed as interdependent parts and not as parts
independent of each other.
• An organizational system has a boundary that divides parts that are internal
or external.
• A system receives inputs from other systems. These inputs go through an
internal process within the system then leaves the system as output to other
systems.
• An organization, as a dynamic system, responds to its environment.
The systems approach helps in studying how the different parts of a complex
organization relate to each other so that their potentials could be harnessed to achieve
the goals of the organization. It also helps the manager in keeping a balance between
conflicting forces and events that affect the organization.
Chester Bernard is recognized as the first one to use this approach in management.
However, this approach is criticized as being vague. Besides the difficulty of applying
this approach to complex organizations, it does not come with any tool or technique for
managers. Similarly, some writers consider the systems approach to management more
of a perspective for viewing problems rather than a school of management thought.
Aside from Ludwing Von Bertalanffy, there are other prominent contributors to this
school of thought, namely L. Thomas Hopkins, Lawrence J. Henderson, W.G. Scott,
Deniel Katz, Robert L. Kahn, W. Buckley, and J.D. Thompson.

5.3 Contingency Theory

During the 1950s, two research studies were done to determine effective leadership
behavior in different organizational aspects. One study was conducted by the Ohio
State. University and the other study by the University of Michigan's Survey Research
Center.
The research findings of both institutions were identical: effective leaders manifest two
major behaviors. This line of research was followed by Robert Blake and Jane Moulton
in 1964 for the same purpose.
These studies were the early influences of the contingency theory. However, the origin
of the contingency theory is associated with Joan Woodward, an industrial sociologist.
In the 1950s, Woodward headed a research team that studied 100 British firms of
different categories to know which ones performed better.
She argued that technology, in the areas of control, structure, and the formalization of
rules and procedures, is the major factor in productivity. Based on her study (1958), she
made broad generalizations that formal structures using different technologies generate
higher levels of productivity.
During the 1970's, J.W. Lorsch and P.R. Lawrence further developed the contingency
theory arguing that organizations have different situations and problems and there is no
definite approach to solve all these problems.
In the contingency theory, the behavior of an organization is contingent on the forces of
the environment. The behavior of a sub-unit is dependent on its environment and its
relationship with other sub-units.
If a manager wants to change the behavior of a sub-unit of an organization, the
manager must change the situation influencing such sub-unit- which is contingent upon
the external environment. In part, the contingency theory is an improvement on the
system theory.
The contingency theory may be considered a work in progress. Fast and Rosenzweig
gave us a broader description of the theory.
Fred Fiedler provided us a contingency model of leadership by developing a metric to
measure a leader's style called the Least Preferred Co-Worker.
William Richard Scott, Paul R. Lawrence, Jay Lorsch, and James D. Thompson focused
more on the impact of contingency factors on organizational structure (structural
contingency theory).
Johannes M. Pennings conducted an empirical test to examine interaction between
environmental uncertainty, organizational structure, and different aspects of
performance.
Gareth Morgan in his book 'Images of Organization' (1998, p. 44) gave us a summary of
the contingency theory:
• Organizations, as open systems, must adapt to the external environment in
satisfying its internal needs.
• The organizational structure and tasks must conform to the circumstances of
the external environment.
• Different approaches to management may be necessary to perform different
tasks within the organization.
• Different kinds of organizations must be formed to respond to the different
types of environments.
• Management must be concerned with alignments and "good fits".
We can conclude that there is no single approach to solving problems in management.
The organization, as an 'open system', must be viewed in the perspective of
contingencies. Managers must consider contingencies which may be triggered by
physical, social, political, health, or economic factors.
5.4 Total Quality Management
Total Quality Management (TQM) refers to organizational efforts in establishing
permanent work environments where workers continuously improve their ability to
provide products and services demanded by hungry customers.
Through TQM, all business components such as sales and marketing, accounting and
finance, engineering and design must be managed actively through funding, training,
staffing, and targeting goals to improve quality.
TQM draws heavily from previous tools and techniques of quality control. Though it is
not wholly considered as a management approach, it deserves mention here because it
caught the world's attention during the late 1980s and early 1990s until it was
overshadowed by ISO 9000, Lean Manufacturing, and Six Sigma.
5.5 ISO 9000
ISO 9000 is a set of international standards on quality management and quality
assurance developed by the International Organization for Standardization (ISO), a
special international agency composed of national standard bodies from more than 160
countries.
ISO 9000 is a tool that organizations can use to document system elements in coping
with international quality standards. This tool can be applied to any organization
regardless of size and other features. It helps an organization in increasing productivity,
reducing unnecessary costs, and maintaining quality of processes and products.
It was originally published in 1987. The most current version of the standard is ISO
9001:2015. ISO 9001 is mainly focused on risk management with an emphasis on
leadership and increased flexibility in terms of documentation.

5.6 Operational Management Theory

Operations Management Theory is a combination of four theories namely, Business
Process Redesign, Reconfigurable Manufacturing Systems, Six Sigma, and Lean
Manufacturing.
5.6.1 Business Process Redesign (1993)
Business Process Redesign was formulated in 1993. It is a business management
strategy that focuses on analyzing and designing workflow and business processes of
an organization. BPR helps business restructure the organization by designing the
business process from the bottom to top levels.
With BPR managers can stimulate business's return of investment, reduce costs, or
improve quality of service by redesigning processes in the following areas:
manufacturing, production, marketing, sales, and customer service, etc.
5.6.2 Reconfigurabie Manufacturing Systems
According to Koren et al, Reconfigurable Manufacturing System (RMS) is "designed at
the outset for rapid change in its structure, as well as its hardware and software
components, in order to quickly adjust its production capacity and functionality within a
part family in response to sudden market changes or intrinsic system change" (Koren,
Jovane, Helsel, Moriwaki, Ulsoy, & VanBrusell, 1999).
5.6.3 Six Sigma
Six Sigma is a management approach that focuses on quality. It was developed from
1985 to 1987 at Motorola. The word "six" references the control limits, which are placed
at six standard deviations from the normal distribution mean.
Jack Welch of General Electric started to adopt the Six Sigma method in 1995, which
immensely gained wide popularity. Every Six Sigma project within a company must
have a defined step sequence and financial targets, such as process mapping, trending
charts, calculations of potential defects, ratios, and statistics. Six Sigma used tools such
as trending charts, potential defect calculations, and other ratios.
5.6.4 Lean Manufacturing
Lean manufacturing originated from the Toyota Production System which is often
referred to as Just In Time (JIT) Production. After World War II, Toyota adopted the
manufacturing methods of Henry Ford and the Statistical Quality Control ideas of
Edward Demings.
Unlike the American automotive industry, Toyota encouraged its workers to be involved
in the production process through the 'quality circles' — a group of workers who meet
regularly to discuss improvement of the workplace.
They present their ideas on quality production to management. This helped Toyota in
developing a set of procedures that greatly reduced production processes. It was called
the Single Minute Exchange of Die (SMED).
In the 1980s, American companies started adopting some of the processes developed
by Toyota.
Lean Manufacturing considers the prudent use of resources for any goal without
reducing value for the customer.
Lean Manufacturing's viewpoint starts with the customer. From that viewpoint, all
aspects of production are studied. Any excess motion, inventory, and overproduction
are eliminated.
5.6.5 Effective Operations Managers
Operations Management expert Perry Pearce explains that operations management
must be "strategic, tactical and operational" at the same time. As such, operations
manager must be able to:
• Know their customers
• Are effective in their communication
• Know the organization's financial performance
• Know how to motivate their team
• Know how to track and analyze staff performance
• Know how to maximize the learning experience
• Know how to use their staff appropriately
• Delegate
• Keep consistent standards
• Communicate pride in their organization and their standards
The Operational Management Theory integrates all these concepts, principles, and
techniques into the managerial job. Understanding this theory and applying the
concepts from business process redesign, reconfigurable manufacturing systems, Six
Sigma, and lean manufacturing shall help a business survive in this unpredictable
environment.
6. Strategic Management Theories
Strategic management theories have evolved over time to suit the internal and external
needs of organizations and to fulfill the requirements of the external environments. I
have already mentioned some strategic management theories in the classical and
neoclassical period.
At this point, I shall be discussing contemporary strategic management theories that
organizations need to adopt in the face of changing external environment.

6.1 Resource-Advantage Theory

Barney's 1991 article, "Firm Resources and Sustained Competitive Advantage," is seen
as central in the coming of the resource-advantage theory. According to Barney, for
resources to hold potential as sources of sustainable competitive advantage, they
should be valuable, rare, imperfectly imitable, and not substitutable.
Today this is popularly known as the VRIN criteria. The resource-advantage theory
suggests that organizations must develop unique competencies that will give them
advantage over other competitors. The theory was developed within the fields of
economics, ethics, law, marketing, sup6.2 Network Management
Network infrastructures are complex. Managing an effective network is challenging. As
technology rapidly improves, workers expect faster network speeds and continuous
access.
On the other hand, security threats also become more challenging. As your company
grows, your 'network system also grows. Problems in keeping the network healthy
becomes a demanding job. This is where network management comes into play.
Network management consists of a set of processes namely, administration,
maintenance, operation, provisioning, and security. Keeping a network healthy requires
performance management and fault analysis.
The simple goal of network management is to keep the network infrastructure running
smoothly. An active network management program helps organizations avoid costly
network disruptions, improve Information Technology productivity, improve network
security, and get a comprehensive view of network performance.
6.3 Transaction Cost Theory
Transaction Cost Theory proposes that the best organizational structure is one that
attains economic efficiency by reducing the costs of exchange. Oliver E. Williamson,
recipient of the 2009 Nobel Prize in economics for his development of this theory,
suggests that each type of transaction entails costs of monitoring, controlling, and
managing transactions.
He argued that transaction costs are different from production costs. Managers may
suggest to business owners to adopt an organizational structure or market source by
calculating transaction costs with production costs. Cost becomes the basis in arriving
at this kind of decision. (Williamson 1979, 1986)
6.4 Resource Dependence Theory
The Resource Dependence Theory was formalized by the publication of The External
Control of Organizations: A Resource Dependence Perspective' by Pfeffer and Salancik
in 1978.
The theory posits that the behavior of organizations is largely influenced by its external
sources. This has great implications in optimizing organizational structure, recruitment
of personnel, production strategies, contracts, external links, and other areas of
management.
This theory suggests that no organization can survive, without interacting with other
organizations and individuals from the outside, in acquiring resources or capabilities. It
must cooperate and, at the same time, compete with other organizations in an
environment which is unpredictable and where resources are critically limited and of
great value.
6.5 Strategic Management Framework
The strategic management framework requires the formulation of the mission of the
organization. The mission is translated into the major objectives and broken down to
projects. Before this happens, several steps must be undertaken, namely assessment
of available resources, assessment of the external environment to determine
competitive advantage over other competitors, and an internal assessment of
operations.
Based on the findings, a strategy must be crafted to develop a specific management
competency that shall ensure organizational success in an environment of stiff
competition.
6.6 Real Options Theory
Real options theory helps in making decisions regarding investments when the future is
unpredictable. It takes a similarity between the valuation of the available financial
options and the true economy. The theory has become popular in most business
schools worldwide, including the boardroom of fuel companies.
In business, a 'real option' is a choice available to a company when it is searching for an
investment opportunity. The term 'real' refers to a tangible asset and not a financial
instrument. This theory finds great use in large organizations.
The theory helps in determining whether a company must build a new factory, improve
its production by purchasing new technology, or acquire potentially lucrative resources.
It does not involve financial instruments such as stocks or bonds, only real options.
6.7 Sustainable Development
The most frequently used definition of sustainable development is from 'Our Common
Future', also known as the Brundtland Report: "Sustainable development is
development that meets the needs of the present without compromising the ability of
future generations to meet their own needs."
The Brundtland Report, in recognition of former Norwegian Prime Minister Gro Harlem
Brundtland's role as Chair of the World Commission on Environment and Development
(WCED), was published in 1987 by the United Nations through the Oxford University
Press.
Sustainable development requires environmental thinking into all human activities. In
business, sustainability involves careful attention to the whole life cycles of products on
which product development should be based. it is a new way of thinking which allows
commerce and nature to blend productively.
6.8 Knowledge-Based View
Knowledge-Based View is a management approach that helps organization achieve
competitive advantage over its competitors through the continuous acquisition of
knowledge in the face of stiff competition in markets that is triggered by globalization,
public policies, and technological advancements. This can be made possible by
involving workers in the formulation and implementation of operational goals as well as
long-term goals of the organization.
The theory requires human involvement in the structural and operational activities of the
organization through the establishment of diverse knowledge structures across all
management levels of the organization as a means of attaining knowledge-based
advantage.
Although this approach draws influence from some classical theories, especially from
the resource-based view theory, it has its own direction. While the resource-based view
only categorizes knowledge as a generic resource of an organization, the knowledge-
based view considers knowledge of strategic significance, including the characteristics
of the various types of knowledge-based resources.
The theory has gained widespread use as a perspective for research on a variety of
topics including capabilities transfer (Zander and Kogut, 1995; Szulanski, 1996),
alliances (Mowery et al, 1996; Simonin, 1999), and acquisitions (Ranft and Lord, 1998;
Zollo and Singh, 1999).
6.9 Agency Theory
"Agency theory originates from the problems of risk-sharing between principal and
agents" (Daily et al., 2003). It is a useful framework for designing governance and
controls in organizations.
As a management and economic theory, it explains the best way to organize
relationships in which the principal party determines the work and which an agent
performs or makes decisions on behalf of the principal. Both sides in the contract
operate with self-interest and shrewdness. It would be best for both parties to a contract
to share risks and information when they both recognize the variability of their
intentions.

6.10 Institutional Theory

In institutional theory, management practices are considered products of social
pressures rather than economic pressures. It has gained popularity as a management
perspective on account of its ability to rationalize organization behaviors beyond
economic dimensions.
One example is the propensity of organizations to adopt management innovations
despite their inability to improve organizational performance. The rational explanation,
based on institutional theory, is that such management practices were implemented due
to social pressures and not because of the technical advantage.
William Richard Scott stated that there is "no single and universally agreed definition of
an 'institution' in the institutional school of thought." Scott (1995, p. 235). Institutions are
social structures that have survived due to their high resilience. Their normative and
regulative roles, including their activities and resources, create social stability.
Institutions exist in different levels of jurisdiction and are subject to gradational and
sporadic changes.
Scott stated further that institutional theory is "a widely accepted theoretical posture that
emphasizes rational myths, isomorphism, and legitimacy." Scott (2008). A key insight
from institutional theory is about limitation. Organizations, instead of fully developing
their abilities in making decisions and developing their structures, yield to peer
pressures.
6.11 The Game Theory
The Game Theory is a theoretical framework for studying social situations among
competing players. It is a science of strategy among competing actors in a strategic
setting.
Mathematicians John von Neumann and John Nash, and economist Oskar Morgenstern
are the pioneers of this theory. Under this theory, John von Neuman and Oskar
Morgenstern gave the world its first general mathematical formulation in 1994.
The Game Theory uses game which serves as a model of an interactive situation
among competing players. The key idea is that one player's payoff is dependent on the
strategy used by the other player. The game identifies the players' strategies and how
these strategies affect the outcome.
The Game Theory has applications in many disciplines. In business, game theory is
useful for modeling competing behaviors between economic agents. Businesses often
face dilemmas such as the development or termination of a product or the introduction
of new marketing scheme.
Managers use game theory to predict outcomes of their decisions. At the onset, Game
theory revolutionized economics by solving critical issues in previous mathematical
models. It is still a young science, though.

6.12 Value Net Model

The Value Net Model provides a different perspective on competition. Instead of viewing
competition as an obstacle to profits, competition can be seen in a positive light. To this
end, the value net model encourages organizations to collaborate to cover a wider area
of the market and gather different perspectives to develop new ideas.
One example is the collaboration project among Peugeot, Citroen, and Toyota in
sharing components for a new city vehicle. The collaboration produced the Peugeot
107, Citroen C1, and the Toyota Aygo. These three companies reduced production
costs under this sharing scheme.
The Value Net Model identifies four direct influences on business success: customers,
suppliers, competitors, and complementors. It also identifies strategies of cooperation
and coordination among the stakeholders.
Under this model, a company can perform multiple roles. The Value Net Model from
Adam Brandenburger and Barry Nalebuff improved on Porter's Five Forces Model.
Besides assessing the competitive environment, it identifies a common basis for
collaboration.
6.13 Wicked Problems
In the 1970s, Theorist Horst W. J. Rittel and City Planning professor Melvin M. Webber
in the 1970s, coined "wicked problems" referring to complex social or cultural problems
with no clear-cut solutions.
On the global scene, we can find wicked problems such as poverty, inequality, or
sustainability. With no clear-cut solutions, proposals run the gamut of politics which has
a bearing on the operations of business on a global scale.
In 1973, Horst W.J. Rittel and Melvin M. Webber, two Berkeley professors, published an
article in Policy Sciences introducing the notion of "wicked problems". The article,
"Dilemmas in a General Theory of Planning," named 10 characteristics of wicked
problems.
• There is no definitive formulation of a wicked problem.
• Wicked problems have no stopping rule.
• Solutions to wicked problems are not true or false, but good or bad.
• There is no immediate and no ultimate test of a solution to a wicked problem.
• Every solution to a wicked problem is a "one-shot" operation; because there
is no opportunity to learn by trial and error, every attempt counts significantly.
• Wicked problems do not have an exhaustively describable set of potential
solutions, nor is there a well-described set of permissible operations that may
be incorporated into the plan.
• Every wicked problem is essentially unique.
• Every wicked problem can be considered a symptom of another problem.
• The existence of a discrepancy representing a wicked problem can be
explained in numerous ways.
• The planner has no right to be wrong.
Organizations often encounter wicked problems when they are facing overwhelming
challenges. Most often they appear as social issues. The more confused the
stakeholders become, the more wicked the problem becomes. The complexity of social
issues and the technical requirements of solving such issues make then harder to solve.
`Wicked problems' gives an organization the perspective of a complex problem. From
this perspective, it must work with all stakeholders to form a collective set of actions.
6.14 The Red Queen Hypothesis
The Red Queen hypothesis (also called Red Queen's, the Red Queen effect, Red
Queen's race, Red Queen dynamics) suggests that species must constantly adapt,
evolve, and proliferate to survive against ever-evolving opposing species.
In business, organizations need to take a competitive edge over other organizations by
building a strong client base which, in turn, generates more profit. Not all businesses
can cope with competition due to the 'red queen effect'.
The 'red queen effect' is a metaphor used to describe a situation when an organization
cannot get a competitive edge because the competition employs the same strategies.
The secret in surpassing this challenge is to address the red queen effect effectively by
initiating new products or services that can get ahead of the competition.
Managers need to come up with new and unique business concepts. If they opt to retain
the same product or service, they must find a new way of doing things by doing
research or survey.
7. The Chaos Theory
Management theories and chaos theory appear to be contrasting theories. Management
theories aim to explain how managers can optimize resources and processes, and
workers to attain organizational goals.
On the other hand, Chaos theory posits that even in predictable behaviors, outcomes
may be random. In this vein, managers must understand the implications of both
theories. Should they make new investments when chaos may affect the outcome of
such initiatives?
When an organization enters a state of entropy, that organization is bound to die. In
science, entropy is a state of disorder. It is the 'default' state of all matter. If no proactive
force would control matter, all things would be in chaos.
Managers responds to the situation by trying to proactively manage the situation. This
can be done. by closely monitoring processes and resources as management theories
would suggest. All these efforts must happen within the resources of the organization.
The question managers need to address is how can management theories help them
fight chaos or entropy?
In his book 'Thriving on Chaos: Handbook for a Management Revolution' published in
1987, Tom Peters offers business organizations a strategy in dealing with the
uncertainty of competitive markets through customer responsiveness, fast-paced
innovation, and learning to work in an environment of change.
Peter contends that we live "in a world turned upside down". To survive, we must
embrace "revolution". According to Peters, "To meet the demands of the fast-changing
competitive scene, we must simply learn to love change as much as we have hated it in
the past."
In the face of chaos, which is characterized by the fast-developing technologies and
changing markets, organizations must reshape its structure and processes to adapt to
these uncertainties.
8. The Learning Organization
Chris Argyris, an American business theorist and Professor Emeritus at Harvard
Business School coined the term "Learning Organization" to mean an organization that
consistently observes its environment and adapts to its changes.
However, it was Dr. Peter Senge who popularized the term in his bestselling book, The
Fifth Discipline: The Art and Practice of the Learning Organization'. (Senge 1990) He
defines a "learning organization" as a dynamic system that is in a state of continuous
adaptation and improvement. Such organizations employ feedback loops as part of their
learning process.
Companies according to Senge is a place where "people continually expand their
capacity to create the results they truly desire, where new and expansive patterns of
thinking are nurtured, where collective aspiration is set free, and where people are
continually learning to see the whole together." He identified five components of a
learning organization: 1) systems thinking; 2) personal mastery; 3) mental models; 4)
shared vision; and 5) team learning.
9. Summary
Management thought developed with the changing needs of the internal and external
environments. The classical period focused on systems and procedures. The
neo¬classical period emphasized on the importance of human capital. The modern
period provides a balance between the concerns of both earlier periods.
Aside from providing balance, contemporary theories become more concerned with
adapting to the challenges of the external environment: the economic climates,
globalization, and the fast-paced technology.
It comes natural for modern theorists to develop tools and approaches in the face of
great uncertainties. For business organizations to survive, managers must learn to cope
with consumer demands, the diminishing resources, stiff competition, government
policies, and wicked problems in an environment that has been plagued by health
issues of global proportions.
In preparation for the CES Assessment Center, retain as much information as you can
gather from this chapter. This can serve as a refresher of your previous formal courses
in business or as new material for business newbies. Where will this material find use
during your assessment process?
During your one-on-one competency interview, the assessor may lead you to a
conversation delving on your knowledge of management concepts. Your basic
understanding of these constructs can convince your assessor of your proficiency in this
area. The interview may run for an hour, allowing you to even discuss the whole stages
of the development of management thought.
In the role-playing exercise, you may be given a management problem to solve. As you
read the instructions, determine what kind of management approach you are going to
use in providing the solution.
It always pays to find the right one that matches the situation. Analyze the
circumstances by asking yourself whether the problem lies in the internal or external
dimensions of the organization.
If the problem is internal, what do you suggest is the remedy? If the forces affecting the
organization are external, what tools do you suggest can help cope with the challenges?
If both dimensions are affected, what are the corresponding actions should the
organization take?
In any case, your understanding of this chapter is crucial to your answer. I will reserve
the bulk of the discussion on how to excel during the simulated exercises in Chapter 12-
16.