Weaknesses of the Classical Management Theories

In their stress on formal relationships in the organization, classical approaches tend to ignore informal relations as characterized by social interchange among workers, the emergence of group leaders apart from those specified by the formal organization, and so forth. Thus their focus is understandably narrow.

Failure to consider the informal organization

It was not common for workers to think in terms of what “career” they were going to pursue. Their basic assumption is that workers are primarily motivated by money and that they work only for more money. First, the work force was not highly educated or trained to perform many of the jobs that existed at the time. Indeed, for many writers, technology was the driving force behind organizational and social change. For instance, the classical approaches seem to view the life of a worker as beginning and ending at the plant door. These assumptions fail to recognize that employees may have wants and needs unrelated to the workplace or may view their jobs only as a necessary evil. For instance, Taylor’s and Fayol’s work came primarily from their experiences with large manufacturing firms that were experiencing stable environments. Perhaps much more could be achieved if the rules were not so explicit.

Untested assumptions

Many of the assumptions made by classical writers were based not on scientific tests but on value judgments that expressed what they believed to be proper life-styles, moral codes, and attitudes toward success.

Human machinery

Classical theories leave the impression that the organization is a machine and that workers are simply parts to be fitted into the machine to make it run efficiently.

Reliance on experience

Many of the writers in the classical school of management developed their ideas on the basis of their experiences as managers or consultants with only certain types of organizations. Finally, very little had been done previously in terms of generating a coherent and useful body of management theory. Rather, for many, the opportunity to obtain a secure job and a level of wages to provide for their families was all they demanded from the work setting. Classical theories and the principles derived from them continue to be popular today with some modifications. For instance, a heavy emphasis on rules and regulations may cause people to obey rules blindly without remembering their original intent. Thus, many of the principles are concerned first with making the organization efficient, with the assumption that workers will conform to the work setting if the financial incentives are agreeable.

Unintended consequences

Classical approaches aim at achieving high productivity, at making behaviors predictable, and at achieving fairness among workers and between managers and workers; yet they fail to recognize that several unintended consequences can occur in practice. Several major ones are discussed here. It may be unwise to generalize from those situations to others-especially to young, high-technology firms of today that are confronted daily with changes in their competitors’ products. They also assume that productivity is the best measure of how well a firm is performing. Thus, their focus was on finding ways to increase efficiency. Since many of these criticisms of the classical school are harsh, several points need to be made in defense of writers during this period. Oftentimes, since rules establish a minimum level of performance expected of employees, a minimum level is all they achieve.

Static conditions

Organizations are influenced by external conditions that often fluctuate over time, yet classical management, theory presents an image of an organization that is not shaped by external influences. It was assumed that all humankind could do was to adapt to the rapidly changing conditions. Second, much of the writing took place when technology was undergoing a rapid transformation, particularly in the area of manufacturing. When such things are not considered, it is likely that many important factors affecting satisfaction and performance, such as letting employees participate in decision making and task planning, will never be explored or tried. Many of the classical theorists were writing from scratch, obliged for the most part to rely on their own experience and observations.

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Portfolio Management Theory

Portfolio management theory seeks to make the most of risk-adjusted returns and take full advantage of portfolios through evaluation, diversification, and other asset management strategies. Financial management is one of the most common areas of application of portfolio management theory. Portfolio management theory helps investment managers to create a portfolio of investments to meet the current financial goals of the company. One of the fundamental principles of portfolio management theory is to yield value to the business and manipulate existing value to enhance returns. It is a theory on how investors can construct portfolios with a view to optimize market risk and derive more returns from a business.

Portfolio management is the process of defining portfolios, evaluating, tracking and studying portfolio performance, and reporting results to stakeholders. Portfolio management involves the balancing of risks and rewards for getting greater returns. Companies employ portfolio management for efficiently managing their resources. Portfolio management theory states that every project should be analyzed for risks involved and the returns expected. Successfully applying the portfolio management theory in practice helps an IT company to accept projects having lesser size and complexity, while the success rate and returns are more.

The core principle of portfolio management theory is diversification. Many IT companies risk a major part of their budget on huge projects, without making a proper risk analysis. These projects eat up whole lot of funds. They also result in late schedules and missed delivery dates. In case projects are cancelled midway, a good part of the investment is lost and the company loses its credibility. A company that accepts many smaller and closely evaluated projects stands to gain more. Portfolio management theory holds that investors concerned with wealth management have to turn to alternative investments.

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Behavioral Management Theory

During the 1920s and 1930s, the United States was experiencing another force of upheaval not unlike that caused by the Industrial Revolution. Though more limited in scope, it had similar ramifications on the way people work and on the way managers manage those who work.

Culturally and socially the United States was undergoing change. People were moving to the cities in greater numbers. Rapid economic growth was giving people the opportunity to spend money on leisure and household items their parents could only dream about. Women were given the right to vote, unions were now organized and were playing an integral role in politics and the economy, and the first minimum-wage legislation had been passed. Prior to the stock market collapse of 1929, a genuine sense of optimism had swept the country, and values and attitudes toward government, people, families, and work were being transformed. As a result, many of the techniques applied by the classical theorists to the workplace no longer seemed to work effectively.

Several prominent theorists began to direct their attention to the human element in the workplace. Elton Mayo, Mary Parker Follett, Douglas McGregor, Chris Argyris, and Abraham Maslow were writers who addressed this issue by contending that increased worker satisfaction would lead to better performance. It was their belief that a greater concern by management for the work conditions of the employee would generate higher levels of satisfaction; thus evolved behavioral management theory.

Elton Mayo

One prominent pioneer of the behavioral school was Elton Mayo (1880 1949), an Australian psychologist who joined the Harvard Business School faculty in 1926. Convinced that economic incentives only partially explained individual motivation and satisfaction,’ Mayo worked with Fritz Roethlisberger, William Dickson, and others to formulate theories concerning the factors that increased human motivation and satisfaction which were later to become the foundations of the human relations movement in management. Their ideas did not have wide circulation, however, until they were asked to assist in a research project that had apparently failed.

In 1924, a research team launched an experiment at the Hawthorne plant of the Western Electric Company in Cicero, Illinois. Their experiment was designed to identify factors other than fatigue that would diminish worker productivity. Initially, it was believed that physical surroundings (e.g., noise, light, humidity) would have an impact on productivity. Testing was conducted by selecting two groups of women who would perform an assembly operation, with each group in a separate room. One group was to be the control group, working in a room where no change in the physical surroundings would be made. The second group would perform their tasks under changing physical conditions. As various features of the physical surroundings were altered in the second room, the researchers would record the level of output and compare it with the output of the control group.

One such alteration of the physical surroundings was the level of lighting. Illumination was increased in stages, and the researchers recorded an increase in output as well. To further test their hypothesis, the light was dimmed. Much to their surprise, output by the women increased again. Even when the light level was reduced to the point where it resembled moonlight, output increased. What made this finding even more difficult to interpret was that the control group was also increasing its output without any alteration in the physical surroundings. Increased output was also obtained when the researchers expanded the length of the workday and eliminated rest periods. Indeed, many of the women reported that they were more satisfied with their jobs than before the experiments began.

In 1927, Mayo and his team were called in to assist in the interpretation of the results and to conduct further experiments as needed. One such experiment was to alter supervisory authority so that the women could determine on their own when they would take a rest break. Another was to increase the salary of the women in the experimental group while the women in the control group would keep the same pay. Again, productivity went up in both groups. After several years of intensive study, Mayo and his colleagues began to piece together what was happening. First, they concluded that financial incentives did not influence productivity since output went up in both groups though only the experimental group received more pay. Instead, they learned through interviews and observation that an “emotional chain reaction” was causing the increase in productivity?” Having been singled out to be participants in the experiment, the women developed a group pride that motivated them to increase their performance. No longer did they feel that they were isolated individuals in the plant; now they felt they were part of an important group. The support received from their supervisors and the opportunity to make decisions about their job contributed to this motivation.

Mayo and his colleagues realized that an important contribution to the study and practice of management had evolved from a seemingly failed experiment. First, the Hawthorne study suggested that workers were not so much driven by pay and working conditions as by psychological wants and desires which could be satisfied by belonging to a work group. Second, giving workers responsibility for decisions concerning the task, whether as individuals or in a group, was a stimulus to treat the task as more important. And finally, recognition by superiors made workers feel that they were making a unique and important contribution to the organization.

The Hawthorne experiment was a turning point in the study of management, suggesting that a worker is not simply an extension of the machinery. As the results of the study became known among theorists and practitioners alike, an outpouring of research was conducted based on many theories and discoveries made in psychology. Thus, the Hawthorne study opened the study of management to a whole new arena of ideas from the social sciences that had previously been ignored. And, as an unintended contribution to research methodology, the experiments led to a rethinking of field research practices. That is, the researcher can influence the outcome of the experiment by being too closely involved with the subjects who are participating in the experiment. This outcome, referred to as the Hawthorne effect in research methodology, is exemplified by subjects behaving differently because of the active participation of the Hawthorne researchers in the experiment.

Mary Parker Follett

Mary Parker Follett (1868-1933) was born near Boston and was educated at Radcliffe College and Cambridge University, studying politics, economics, philosophy, and law. Her successful work on committees set up to work out solutions to community problems led eventually to a concentration on the study of industrial management, with a particular interest in techniques for resolving conflicts in organizations.
Follett was a pragmatist who believed that conflict was neither good nor bad. She hypothesized that managers could resolve conflict in one of four ways: (1) one side giving in, (2) one side forcing the other to submit, (3) compromise, and (4) integration. Follett believed the first two alternatives were undesirable as they required the threat or actual use of power. Compromise was also unsatisfactory, merely postponing the conflict by not addressing the issues that led to the conflict. With integration, however, the efforts of both sides to identify the solution, according to Follett, would lead to discussion and resolution of the issues that caused the conflict.

Douglas McGregor

A theorist who shared the views of Mayo and his colleagues was Douglas McGregor (1906-1964). McGregor felt that organizations were often designed based on faulty assumptions about human behavior. Those assumptions were that most workers disliked work, that workers preferred to be directed by supervisors rather than assume responsibility for their tasks, and that workers were more interested in monetary gains than in performing their jobs well. Because of these assumptions, McGregor felt that managers were prone to design organizations that were centralized in decision making, established numerous rules and regulations, and required close supervision of subordinates. For fear of technical and financial inefficiency, McGregor felt that organizations overemphasized control mechanisms.

Labeling these assumptions Theory X, McGregor developed an alternative set of assumptions which he labeled Theory Y. His Theory Y assumptions are that workers Can enjoy their work under favorable conditions and can provide valued input to the decision-making process. Rather than develop needless mechanisms of control in the organization, McGregor felt that managers should emphasize coordination of activities by providing assistance to workers when problems are identified.

Chris Argyris

Chris Argyris (1923-) also expanded on the work of the Hawthorne experiment by challenging the basic assumptions of the classical school concerning worker motivation and satisfaction. Argyris argued that an overemphasis on control by managers encouraged workers to become passive and dependent and to shirk responsibility. As a result, workers will become frustrated and dissatisfied with the workplace and will either quit their jobs or engage in behaviors that hamper the achievement of organizational goals. Many of his ideas were developed from the belief that as people mature, they develop new attitudes and behaviors that affect their life-styles. Some of these attitudes and behaviors are a movement toward independence, a broadening of interests, greater diversity in activities, and a desire to assume more control over their lives. Organizations that emphasize control are, in actuality, treating individuals as if they were immature.

Abraham Maslow

Abraham Maslow (1908-1970) is most noted for suggesting a theory that humans are motivated by needs that exist in a hierarchy. At the bottom of the hierarchy are the physiological needs for food and shelter. Once these basic needs are satisfied, humans are then motivated to satisfy higher-level needs for safety, love, esteem, and self-actualization.’ In Maslow’s theory, a person moves up the ladder of needs as each level is satisfied.

Evaluation of the Behavioral School

Contributors to the behavioral school advanced our understanding of management by emphasizing the importance of the individual within the organization-an element essentially ignored by writers of the classical school. That is, social needs of individuals, group processes, and subordinate-superior relationships were all identified as integral components in the practice of management. No longer could managers confine their attention to technical skills. Rather, they had to use people skills as well and develop an understanding of the relationship between the technical and human sides of management.

However, the behavioral school did not completely resolve issues concerning the nature of human motivation. Later studies were to dispute the belief that worker satisfaction was the prime cause of productivity. Under certain conditions, satisfaction was found to play an inconsequential role. In addition, though money may not be the primary motivator, salaries do at times affect worker productivity, particularly in industries where salaries are low, causing high rates of absenteeism and turnover. Much like classical theory, behavioral theory also assumed that the external environment of the organization was static. Thus, the psychological and social dimensions of the individual only partially explain organizational outcomes and constitute only a part of the larger and more complex managerial picture.

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