CHAPTER 2

Historical foundations
of management
LEA RNIN G OBJE CTIVE S

2.1 What can be learned from classical management thinking?

2.2 What ideas were introduced by the human resource approaches?
2.3 What is the role of quantitative analysis in management?
2.4 What is unique about the systems view and contingency thinking?
2.5 What are the continuing management themes of the 21st century?
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 Looking back to look forward
The paradox of studying the past is that it illuminates the present, and perhaps also the future. Historia
magistra vitae est (history is life’s teacher) — provided we pay attention. Consider the light shed on the
contemporary management of organisations by the ideas of two US scholars almost a century ago.
The first is Mary Parker Follett (1868–1933). A thoughtful, concerned observer of conflict in organ-
isations, Follett drew on the emerging fields of Gestalt psychology and scientific management to propose
that even though efficiency is key to productivity, an understanding of the functioning of the human
group, and of the organisational significance of leadership and authority, is essential to the resolution of
conflict and the proper functioning of management. It was radical then and, for some, may still be. For
example, Follett saw that reduction in conflict could come from the integration of interests, and leader-
ship could be based on reciprocal influence of leader and follower in the context of the situation. Any
situation would spin out of control when interests were not reconciled. Thus, the best leaders ask people
not to serve them, but to join in serving a common purpose. Management then becomes a matter of com-
municating organisational purpose, coordinating group and individual functions and creating a motive of
service to the community. A century ago this was a challenging perspective (and still is for some people
today). The observation that she was far ahead of her time is an understatement.
When in 1995, Harvard University Press released Mary Parker Follett — Prophet of Management:
A Celebration of Writings from the 1920s, it clearly reminded us of the wisdom to be gained from his-
tory.1 Although a management treatise written in a different age, Follett’s ideas are rich with foresight.
She advocated cooperation and better horizontal relationships in organisations, taught respect for the
experience and knowledge of workers, warned against the dangers of too much hierarchy, and called for
visionary leadership. Today we pursue similar themes while using terms like ‘empowerment’, ‘involve-
ment’, ‘flexibility’ and ‘self‐management’. Rather than naively believing that we are reinventing man-
agement practice, it may be better to recognise the historical roots of many modern ideas and admit that
we are still trying to perfect them.2
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34 Management
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 A second management theorist from the past is Chester Barnard (1886–1961). A successful and erudite
company executive, he scandalised traditional thinking about authority in organisations by insisting that
individuals needed to assent to authority (rather than just to work in a command and control setting). This,
Barnard said, they would do only if four conditions were met: they understood the instruction; they saw it as
consistent with the purpose of the organisation; they believed the instruction was compatible with their per-
sonal interests; and they believed they were mentally and physically able to comply. Thus, if the order ran
counter to an individual’s moral code, it was unlikely to be obeyed. The benefits of remaining employed would
be weighed by the employee against his or her personal value system. This put a new slant on the nature of
authority, which therefore depended on the confidence and respect in which it was held by those subject to it.
One can only observe that this is a lesson still being learned by current political leaders worldwide.
Barnard extended this by proposing executive functions as being those providing a system of formal
and informal communication, promoting essential personal efforts through incentives and rewards, and
formulating and defining purpose. Barnard saw moral leadership as the creative force that provided the
basis for an organisation to endure. This included taking personal responsibility for decisions affecting
all stakeholders internal and external, and the community. As an early proponent of the ‘boundaryless
organisation’, Barnard’s concept included employees, suppliers and customers. By doing so, he could
recommend establishing an equilibrium between organisation and environment — now a basic tenet in
our thoughts on sustainable organisations.3 Interestingly, he also wrote of decision‐making as relying
on logical as well as ‘non‐logical’ processes. In this, he prefaced the awareness of the importance of
intuition and tacit knowledge in the way managers analysed problems.4
Chester Barnard was influential in the work of Australian management theorist Elton Mayo, who later
became famous for the Hawthorne studies and the notion of organisational equilibrium, and Herbert
Simon, with his ideas on organisational decision‐making. Both Follett and Barnard sought to redefine
concepts of authority, cooperation and unity, emphasising the role of the leader in coordinating organ-
isational functions to enhance the wellbeing of people.
Is this history relevant for today’s world? It is. Are we still talking about these ideas? We are. Why? In
The History of Management Thought, Professor Daniel Wren traces ‘management’ as far back as 5000 BC,
when ancient Sumerians used written records to assist in governmental and commercial activities.5 Man-
agement was important to the construction of the Egyptian pyramids, the rise of the Roman Empire and the
commercial success of 14th century Venice. By the time of the Industrial Revolution in the 1700s, social
changes helped prompt a great leap forward in the manufacture of basic staples and consumer goods.
Industrial change was accelerated by Adam Smith’s ideas of efficient production through specialised tasks
and the division of labour. By the beginning of the 20th century, Fredrick Winslow Taylor, Henry Ford and
others were making mass production a mainstay of the modern economy. Since then, the science and prac-
tices of management have been on a rapid and continuing path of development.
The legacies of this rich history of management must be understood as we confront the challenges of con-
temporary management. The historical context of management thinking can be understood in the following
framework. The classical management approaches focus on developing universal principles for use in
various management situations. The behavioural management approaches focus on human needs, the work
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group and the role of social factors in the workplace. The quantitative management approaches focus on
applying mathematical techniques for the management of problem‐solving. The modern approaches focus
on the systems view of organisations and contingency thinking in a dynamic and complex environment.
Continuing themes build from an emphasis on quality and performance excellence to embrace diversity and
global awareness, and describe new leadership roles for a new era of management.

QUESTION
Ask yourself what difference the ideas of Mary Parker Follett and Chester Barnard could make if applied to
contemporary thinking about management. For example, what would happen if Follett’s ideas on
communication were implemented in an organisation known to you? If they were applied today, what difference
would they make to more ‘modern’ concepts like self‐managed teams or adaptive groups?

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 Introduction
The problems and opportunities facing organisations today are complex. All institutions feel the pressure of
a new and very challenging environment. But even in the rush to an exciting future, history should not be
ignored. Knowledge gained through past experience can and should be used as a foundation for future success.

2.1 Classical approaches to management

LEARNING OBJECTIVE 2.1 What can be learned from classical management thinking?
There are three major branches within the classical approach to management: scientific management,
administrative management and bureaucratic management. Figure 2.1 associates each with a prominent
person in the history of management thought. These names are important to know since they are still
widely used in management conversations today. Also, the figure shows that the branches all share a
common assumption: people at work act in a rational manner that is driven mainly by economic con-
cerns. Workers are expected to rationally consider opportunities made available to them and do whatever
is necessary to achieve the greatest personal and monetary gain.6

Classical
approaches
Assumption: People are
rational

Scientific Administrative
Bureaucratic
management management
management
Frederick Taylor Henry Fayol
Max Weber
Frank and Lillian Gilbreth Mary Parker Follett

FIGURE 2.1 Major branches in the classical approach to management

Scientific management
In 1911 Frederick W. Taylor published The Principles of Scientific Management in which he made the
following statement: ‘The principal object of management should be to secure maximum prosperity for
the employer, coupled with the maximum prosperity for the employee’.7 Taylor, often called the ‘father
of scientific management’, noticed that many workers did their jobs their own way and without clear and
uniform specifications. He believed that this caused them to lose efficiency and perform below their true
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capacities. He thought this problem could be corrected if workers were taught and then helped by super-
visors to always perform their jobs in the right way.
Taylor used the concept of ‘time study’ to analyse the motions and tasks required in any job and to
develop the most efficient ways to perform them.8 He then linked these job requirements with both
training for the worker and support from supervisors in the form of proper direction, work assistance and
monetary incentives. This approach is known as scientific management and includes these four guiding
action principles.
1. Develop for every job a ‘science’ that includes rules of motion, standardised work processes and
proper working conditions.
2. Carefully select workers with the right abilities for the job.
3. Carefully train workers to do the job and give them the proper incentives to cooperate with the job ‘science’.
4. Support workers by carefully planning their work and by smoothing the way as they go about their jobs.

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 Taylor tried to use scientific techniques to improve the productivity of people at work. The impli-
cations of his efforts, if not his exact scientific management principles, are found in many management
settings today. A number of these are summarised in Manager’s notepad 2.1.

MANAGER’S NOTEPAD 2.1

Practical lessons from scientific management

• Use results‐based compensation as a performance incentive.
• Carefully design jobs with efficient work methods.
• Carefully select workers with the abilities to do these jobs.
• Train workers to perform jobs to the best of their abilities.
• Train supervisors to support workers so they can perform jobs to the best of their abilities.

Mentioned in Taylor’s first principle, motion study is the science of reducing a job or task to its
basic physical motions. As contemporaries of Taylor, husband and wife team Frank and Lillian Gilbreth
became known through the book and film Cheaper by the Dozen. They pioneered motion studies as a
management tool. In one famous study, they reduced the number of motions used by bricklayers and
tripled their productivity.9 The Gilbreths’ work established the foundation for later advances in the areas
of job simplification, work standards and incentive wage plans — all techniques still used in the modern
workplace.

INNOVATION

Classical management in the Haier Group

The Haier Group is a Chinese electronics and
household appliances company. With 10.2 per
cent market share of the world’s white goods
market (more than any other manufacturer) and
a state‐owned enterprise, it is a formidable com­
petitor in the electronics market.10 In the early
1980s, the group was merely a general refriger­
ator manufacturer in Qingdao, China. It was close
to bankruptcy when it appointed a young assis­
tant city manager, Zhang Ruimin. A customer
brought back a faulty refrigerator and Zhang went
through his entire inventory of 400 refrigerators
looking for a replacement. Struck by a 20 per cent
failure rate in its products, Zhang issued sledge
Chinese electronics company Haier achieved success
hammers to staff with instructions to destroy by introducing Western management theory.
76 faulty refrigerators in the inventory rather than
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let them be sold.11 He introduced Western management theory to the plant, with a focus on quality and relia­
bility. By 1992, Haier was a certified ISO 9001 organisation — a remarkable demonstration of establishing
quality management principles in a very short time.
Sales improved and by 2002 Haier was opening plants in the United States, Pakistan, Africa and
India, as well as partnering with European firms and buying a factory in Italy. By 2008, it had sur­
passed the giant American manufacturer Whirlpool. Zhang’s management approach was summarised
by the letters OEC — O (Overall), E (Everyone, Everything, Every day), C (Control, Clear). Haier’s Human
Resource Management Director Wang Yingmin explained the acronym:

OEC means that every employee has to accomplish the target work every day. The OEC management‐
control system aims at overall control of everything that every employee finishes on his or her job every day,
with a 1% increase over what was done the previous day.12

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 Performance measurement is crucial and tasks are allocated to achieve greatest efficiency across
several departments with instructions so that all employees understand their jobs and how their jobs
align with the corporate goals. Employees are shown how their wages are tied to market performance.
Short production lines were created to ensure a close match between design and customer.
Daily control and clarity is the basis of fulfilling those objectives. Every Haier employee has a
‘3E card’, used to record each day that they have done everything required. This is combined with the
plan–do–check–act cycle to check everything. The 3E card has seven criteria: job quantity, usage of
parts, usage of materials, equipment, safety, work attitudes and labour discipline. Every staff member is
required to constantly improve their work skills and ensure that they can achieve the 1 per cent increase
in productivity each day.
However, not everything about the approach is positive: the emphasis on individual performance
and incentives has created a competitive internal culture where teamwork suffers and synergy is
problematic.13

QUESTION
The numbers are difficult to dispute: Haier was the number one brand of major appliances in the world
from 2009–14, with spectacular efficiencies and affordability. What do you think is the source of the
organisation’s success?

By applying Taylor’s ‘scientific’ methods of measurement and management, many US companies made
huge efficiency gains, and North Americans developed a reliance on mass production that is still present
today. Many workers, however, have felt over the years that scientific management was just a device for
some managers to get more work from each employee and to reduce the total number of workers needed
by a business. ‘Taylorism’ remains a term tinged with resentment because of the inappropriate appli-
cation of his measurement technique to oppressive management. Unfortunately, the efficiencies derived
from such standardisation were not matched by the required flexibility when the environment demanded
it, and many of the world’s banks, as well as companies such as General Motors, have paid a huge price
for their slowness or inability to respond to the global financial crisis and the ensuing economic down-
turn. They were humiliated by their need to seek public bailout funding.
The ideas of Taylor and the Gilbreths are evident in the growing call centre industry. It is an industry,
however, with a big problem — an alarmingly high staff‐attrition rate. For some companies, call centres
are their main point of contact with customers. But in many cases, the staff in those call centres are
bored, disgruntled and inexperienced. Some say call centres are sweatshops. The cost of training new
operators and the poor customer service that results from the high turnover have made staff recruitment
and employee training programs a priority for call centre managers.14

Administrative management
A second branch in the classical approach to management is based on attempts to document and under-
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stand the experiences of successful managers. Two prominent writers in this school of thought are Henri
Fayol and (as previously mentioned) Mary Parker Follett.
Henri Fayol
In 1916, after a career in French industry as a CEO of a large mining conglomerate, Henri Fayol pub-
lished Administration Industrielle et Générale.15 The book outlines his views on the proper management
of organisations and the people within them. It identifies the following five ‘rules’ or ‘duties’ of manage-
ment, which closely resemble the four functions of management — planning, organising, leading and
controlling — that we talk about today:
1. foresight — to complete a plan of action for the future
2. organisation — to provide and mobilise resources to implement the plan
3. command — to lead, select and evaluate workers to get the best work towards the plan

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 4. coordination — to fit diverse efforts together and ensure information is shared and problems solved
5. control — to make sure things happen according to plan and to take necessary corrective action.
Most importantly, Fayol believed that management could be taught. He was very concerned about
improving the quality of management and set forth a number of ‘principles’ to guide managerial action.
A number of them are still part of the management vocabulary. They include Fayol’s scalar chain prin-
ciple (there should be a clear and unbroken line of communication from the top to the bottom in the
organisation), the unity of command principle (each person should receive orders from only one boss),
and the unity of direction principle (one person should be in charge of all activities that have the same
performance objective).
Mary Parker Follett
As detailed at the beginning of this chapter, Mary Parker Follett was another significant contributor
to the administrative management school. In her writings about businesses and other organisations in
the early 20th century, Follett displayed an understanding of groups and a deep commitment to human
cooperation — ideas that are highly relevant today. For her, groups were mechanisms through which
diverse individuals could combine their talents for a greater good. She viewed organisations as ‘com-
munities’ in which managers and workers should labour in harmony, without one party dominating the
other, and with the freedom to talk over and truly reconcile conflicts and differences. She believed it was
the manager’s job to help people in organisations cooperate with one another and achieve an integration
of interests.
A review of the publication Dynamic Administration: The Collected Papers of Mary Parker Follett helps to
illustrate the modern applications of her management insights.16 Follett believed that making every employee
an owner in the business would create feelings of collective responsibility. Today, we discuss the same issues
under such labels as ‘employee ownership’, ‘profit sharing’ and ‘gain‐sharing plans’. Follett believed that
business problems involve a wide variety of factors that must be considered in relationship to one another.
Today, we talk about ‘systems’ when describing the same phenomenon. Follett believed that businesses were
services and that private profits should always be considered vis‐à‐vis the public good. Today, we pursue the
same issues under the labels of ‘managerial ethics’ and ‘corporate social responsibility’.

INNOVATION

Blackmores rewards staff with slice of profits

Founded by Maurice Blackmore in Brisbane, Australia over 80 years ago, Blackmores has grown
to become a global leader in the vitamin trade. In 2014–15, profits increased by 83 per cent on the
previous year. This momentum was reflected in the company’s performance on the Australian Stock
Exchange, jumping from a share price of $27 in August 2014 to over $200 by the end of 2015, earning
it a position on S&P/ASX 200 index — a list of Australia’s top 200 companies.
As part of its long‐standing profit share scheme, 10 per cent of Blackmores’ $46 million profit was dis­
tributed to its 900‐strong staff — equating to approximately 6 weeks’ additional pay for each team member.
Blackmores chief executive, Christine Holgate, says the bonus scheme is a great motivator for staff.
Copyright © 2016. Wiley. All rights reserved.

‘It really aligns everyone, from the lady on the factory floor to the chief executive’, she said.
Additionally, the family‐oriented company encourages its staff to purchase shares in the business.
10 of the top 30 shareholders in Blackmores are either employees or former employees.
Blackmores staff aren’t merely rewarded with monetary benefits — the offices in Australia,
New Zealand, Asia and the United Kingdom have wellbeing centres, subsidised cafes and family‐friendly
environments.
The company is taking advantage of societal trends that see people increasingly focused on their health
and wellbeing. This, combined with a rising demand for safe vitamin products in China, will ensure that the
Blackmores stock continues to rise — and they are bringing their staff along for the ride.17

QUESTION
Can you discern the relevance of Mary Parker Follett’s ideas in Blackmores’ management approach?

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 Bureaucratic management
Max Weber was a late 19th century German intellectual whose insights have had a major impact on the
field of management and the sociology of organisations. His ideas developed somewhat as a reaction to
what he considered to be performance deficiencies in the organisations of his day. Among other things,
Weber was concerned that people were in positions of authority not because of their job‐related capa-
bilities, but because of their social standing or ‘privileged’ status in German society. For this and other
reasons he believed that organisations largely failed to reach their performance potential.
At the heart of Weber’s thinking was a specific form of organisation he believed could correct the
problems just described — a bureaucracy.18 This is an ideal, intentionally rational and very efficient
form of organisation founded on principles of logic, order and legitimate authority. The defining charac-
teristics of Weber’s bureaucratic management are as follows.
•• Clear division of labour. Jobs are well defined, and workers become highly skilled at performing
them.
•• Clear hierarchy of authority. Authority and responsibility are well defined for each position, and each
position reports to a higher level one.
•• Formal rules and procedures. Written guidelines direct behaviour and decisions in jobs, and written
files are kept for historical record.
•• Impersonality. Rules and procedures are impartially and uniformly applied with no one receiving
preferential treatment.
•• Careers based on merit. Workers are selected and promoted on ability and performance, and managers
are career employees of the organisation.
Weber believed that organisations would perform well as bureaucracies. They would have the advan-
tages of efficiency in using resources, and of fairness or equity in the treatment of employees and clients.
In his words:

The purely bureaucratic type of administrative organisation  .  .  .  is, from a purely technical point of view,
capable of attaining the highest degree of efficiency  .  .  .  It is superior to any other form in precision, in
stability, in the stringency of its discipline, and in its reliability. It thus makes possible a particularly high
degree of calculability of results for the heads of the organisation and for those acting in relation to it. It
is finally superior both in intensive efficiency and in the scope of its operations and is formally capable
of application to all kinds of administrative tasks.19

This is the ideal side of bureaucracy. However, the terms bureaucracy and bureaucrat are now
often used with negative connotations. The possible disadvantages of bureaucracy include excessive
paperwork or ‘red tape’, slowness in handling problems, rigidity in the face of shifting customer or
client needs, resistance to change and employee apathy. These disadvantages are most likely to cause
problems for organisations that must be flexible and quick in adapting to changing circumstances —
a characteristic of challenges in today’s dynamic organisational environments. Researchers now try
to determine when and under what conditions bureaucratic features work best. They also want to
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identify alternatives to the bureaucratic form. Indeed, current trends in management include many
innovations that seek the same goals as Weber but with different approaches to how organisations can
be structured.

CRITICAL ANALYSIS

1. Do Weber’s principles still hold true, providing both benefits and challenges for contemporary
organisations?
2. Is there a way of obtaining the benefits of bureaucracy, such as efficiency, objectivity and procedural
predictability, without becoming ‘overcontrolled or cluttered with pointless rules’? Are there Weberian
principles that you would trade off? Why? How would you compensate for their loss?

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 Hierarchy in organisations
Elliott Jaques (1917–2003) was a Canadian management psychologist who unfashionably espoused the
value of hierarchies in organisations at a time when companies were flattening pyramids and building
matrices. His controversial theory is that the layers in an organisation relate to the levels of work
required of different people, distinguished by the degree of discretion exercised. A key variable for
Jaques is the length of time a decision made by an employee is expected to endure. Thus, a CEO’s
decision is expected to last well into the future, and the role is rewarded appropriately.20
Clearly defining roles and responsibilities is critical to Jaques’s approach, along with getting the systems
and structures right. Managers are held accountable for the work of their subordinates in a hierarchy of
capabilities. Jaques thought organisations could be layered into a maximum of seven levels between
CEO and frontline, these being determined by the complexity of the work required of individuals at
each level. His view was that your manager’s manager (your ‘manager once removed’, or MOR) is not
involved in your everyday management but protects you by drawing you up through career levels. While
opinion is divided about the influence of Jaques on management thinking, there seems little doubt that he
has served to re‐emphasise the undeniable significance of hierarchy and structure, and of clarifying roles
and accountabilities.21 In Australia, Westpac, CBA and Telstra have all used Jaques’ thinking to delayer
and restructure.22

CRITICAL ANALYSIS

1. How are the ideas proposed by Jaques useful for organisations? What light do they shed on
organisations and their behaviour?
2. Is the notion of hierarchy too rigid for today’s free‐floating concepts of how organisations ought to
operate in conditions of constant change?

2.2 Behavioural approaches to management

LEARNING OBJECTIVE 2.2 What ideas were introduced by the human resource approaches?
During the 1920s, an emphasis on the human side of the workplace began to establish its influence on
management thinking. Major branches that emerged in this behavioural or human resource approach to
management are shown in figure 2.2. They include the famous Hawthorne Studies and Maslow’s theory
of human needs, as well as theories generated from these foundations by Douglas McGregor, Chris
Argyris and others. The behavioural approaches maintain that people are social and self‐actualising.
People at work are assumed to seek satisfying social relationships, respond to group pressures and
search for personal fulfilment.
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Hawthorne Studies Theory X and Theory Y

Elton Mayo Douglas McGregor
Human resource
approaches
Assumption:
People are social
and self-actualising
Theory of human needs
Abraham Maslow

FIGURE 2.2 Foundations in the behavioural or human resource approaches to management

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 The Hawthorne Studies and human relations
In 1924, the Western Electric Company (predecessor of today’s Lucent Technologies) commissioned
a research program to study individual productivity at the firm’s Hawthorne Works in Chicago.23 The
initial ‘Hawthorne Studies’ had a scientific management perspective and sought to determine how
economic incentives and the physical conditions of the workplace affected the output of workers. An
initial focus was on the level of illumination in the manufacturing facilities — it seemed reasonable to
expect that better lighting would improve performance. After failing to find this relationship, however,
the researchers concluded that unforeseen ‘psychological factors’ somehow interfered with their illumi-
nation experiments. This finding and later Hawthorne Studies directed attention towards human inter-
actions in the workplace and ultimately had a major influence on the field of management.

Relay assembly test‐room studies

In 1927, a team led by Harvard’s Elton Mayo (an Australian psychologist) began more research to
examine the effect of worker fatigue on output. Care was taken to design a scientific test that would be
free of the psychological effects thought to have confounded the earlier illumination studies. Six workers
who assembled relays were isolated for intensive study in a special test room. They were given various
rest pauses, and workdays and work weeks of various lengths, and production was regularly measured.
Once again, researchers failed to find any direct relationship between changes in physical working con-
ditions and output. Productivity increased regardless of the changes made.
Mayo and his colleagues concluded that the new ‘social setting’ created for workers in the test room
accounted for the increased productivity. Two factors were singled out as having special importance.
One was the group atmosphere — the workers shared pleasant social relations with one another and
wanted to do a good job. The other was more participative supervision. Test‐room workers were made to
feel important, were given a lot of information and were often asked for their opinions. This was not the
case in regular jobs elsewhere in the plant.

Employee attitudes, interpersonal relations and

group processes
Mayo’s studies continued to examine these factors until the worsening economic conditions of the
Depression forced their termination in 1932. Until then, interest focused on employee attitudes, inter-
personal relations and group relations. In one study, over 21  000 employees were interviewed to learn
what they liked and disliked about their work environment. ‘Complex’ and ‘baffling’ results led the
researchers to conclude that the same things (e.g. work conditions or wages) could be sources of satis-
faction for some workers and of dissatisfaction for others. The final Hawthorne Study was conducted in
the bank wiring room and centred on the role of the work group. A surprise finding here was that people
would restrict their output in order to avoid the displeasure of the group, even if it meant sacrificing pay
Copyright © 2016. Wiley. All rights reserved.

that could otherwise be earned by increasing output. Thus, it was recognised that groups can have strong
negative, as well as positive, influences on individual productivity.

Lessons from the Hawthorne Studies

As scholars now look back, the Hawthorne Studies are criticised for poor research design, weak empirical
support for the conclusions drawn and the tendency of researchers to overgeneralise their findings.24 Yet
the significance of these studies as a turning point in the evolution of management thought remains
intact. The Hawthorne Studies helped shift the attention of managers and management researchers away
from the technical and structural concerns of the classical approach and towards social and human con-
cerns as keys to productivity. They showed that people’s feelings, attitudes and relationships with co‐
workers should be impor­tant to management, and they recognised the importance of the work group.

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 They also identified the Hawthorne effect — the tendency of people who are singled out for special
attention to perform as anticipated merely because of expectations created by the situation.
The Hawthorne Studies contributed to the emergence of the human relations movement as an impor-
tant influence on management thought during the 1950s and 1960s. This movement was largely based
on the viewpoint that managers who used good human relations in the workplace would achieve prod-
uctivity. Furthermore, the insights of the human relations movement set the stage for what has now
evolved as the field of organisational behaviour, the study of individuals and groups in organisations.

Maslow’s theory of human needs

Among the insights of the human relations movement, the work of Abraham Maslow in the area of
human ‘needs’ has been very influential. Needs are physiological or psychological deficiencies a person
feels the compulsion to satisfy. Though now surpassed as a theory of workplace motivation this has been
a significant concept for managers, because needs create tensions that can influence a person’s work atti-
tudes and behaviours.
Maslow identified the five levels of human needs, shown in figure 2.3. From lowest to highest, in
order, they are: physiological, safety, social, esteem and self‐actualisation needs. Maslow’s theory is
based on two underlying principles.25 The first is the deficit principle — a satisfied need is not a motiv-
ator of behaviour (though in spite of this, Maslow’s theory is often spoken of erroneously as a theory
of motivation). People act to satisfy ‘deprived’ needs, those for which a satisfaction ‘deficit’ exists. The
second is the progression principle — the five needs exist in a hierarchy of ‘prepotency’. A need at any
level only becomes activated once the next‐lower‐level need has been satisfied.

Self-actualisation needs
Highest level: need for self-fulfilment;
to grow and use abilities to fullest
and most creative extent

Esteem needs
Need for esteem in eyes of others;
need for respect, prestige, recognition
and self-esteem, personal sense of
competence, mastery

Social needs
Need for love, affection, sense of
belongingness in relationships
with other people
Copyright © 2016. Wiley. All rights reserved.

Safety needs
Need for security, protection and
stability in the events of
day-to-day life

Physiological needs
Most basic of all human needs: need
for biological maintenance; food,
water and physical wellbeing

FIGURE 2.3 Maslow’s hierarchy of human needs

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 According to Maslow, people try to satisfy the five needs in sequence. They progress step by
step from the lowest level in the hierarchy to the highest. Along the way, a deprived need domi-
nates individual attention and determines behaviour until it is satisfied. Then, the next‐higher‐level
need is activated and progression up the hierarchy occurs. At the level of self‐actualisation, the
deficit and progression principles cease to operate. The more this need is satisfied, the stronger it
grows.
Consistent with the human relations thinking, Maslow’s theory implies that managers who can help
people satisfy their important needs at work will achieve productivity. Although scholars now recognise
that things are more complicated than this Maslow’s ideas are still relevant to everyday management.
Consider, for example, the case of dealing with volunteer workers who do not receive any monetary
compensation. Managers in not‐for‐profit organisations have to create jobs and work environments that
satisfy the needs of volunteers. If the work isn’t fulfilling, the volunteers will redirect their energies and
volunteer to work somewhere else.

McGregor’s Theory X and Theory Y

Harvard‐based social psychologist Douglas McGregor was heavily influenced by both the Hawthorne
Studies and Maslow’s theory of needs. His classic book The Human Side of Enterprise advances the
thesis that managers should give more attention to the social and self‐actualising needs of people at
work.26 McGregor urged managers to shift their view of human nature away from a set of assumptions
he called ‘Theory X’ and towards ones he called ‘Theory Y’.
According to McGregor, managers holding Theory X assumptions approach their jobs believing that
those who work for them generally dislike work, lack ambition, are irresponsible, are resistant to change
and prefer to be led rather than to lead. McGregor considers such thinking inappropriate. He argues
instead for the value of Theory Y assumptions in which the manager believes people are willing to
work, are capable of self‐control, are willing to accept responsibility, are imaginative and creative, and
are capable of self‐direction.
An important aspect of McGregor’s ideas is his belief that managers who hold either set of
assumptions can create self‐fulfilling prophecies, that is, through their behaviour they create situ-
ations where subordinates act in ways that confirm the original expectations. Managers with Theory
X assumptions act in a very directive ‘command‐and‐control’ fashion that gives people little per-
sonal say over their work. These supervisory behaviours often create passive, dependent and
reluctant subordinates who tend to do only what they are told or required to do. This reinforces
the original Theory X viewpoint. In contrast, managers with Theory Y perspectives behave in ‘par-
ticipative’ ways that allow subordinates more job involvement, freedom and responsibility. This
creates opportunities to satisfy esteem and self‐actualisation needs, and causes workers to perform
as expected with initiative and high performance. This time the self‐fulfilling prophecy is a positive
one.
Theory Y thinking is very consistent with developments in the new workplace and its emphasis on
Copyright © 2016. Wiley. All rights reserved.

valuing workforce diversity. It is also central to the popular notions of employee participation, involve-
ment, empowerment and self‐management.27

CRITICAL ANALYSIS

1. Do you think Maslow’s needs hierarchy is realistic? As a need‐based theory, it survives only
if people do change their behaviour in order to meet specified needs. Does the need for self‐
actualisation, for example, drive people to seek experiences that confer meaning to life, as in a
higher cause? Or are people more interested in ‘getting and spending’?
2. Is Theory X just old Taylorist coercion revisited? Is Theory Y not much more than common sense? If
we all prefer a Theory Y model, why do Theory X managers survive?

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 2.3 Quantitative approaches to management
LEARNING OBJECTIVE 2.3 What is the role of quantitative analysis in management?
About the same time that some scholars were developing human resource approaches to management,
others were investigating how quantitative techniques could improve managerial decision‐making. The
foundation of the quantitative approach to management is the assumption that mathematical techniques
can be used to improve managerial decision‐making and problem‐solving. Today these applications are
increasingly driven by computer‐based technology.

Management science
The terms management science and operations research are often used interchangeably to describe
the scientific applications of mathematical techniques to management problems. A typical approach
proceeds as follows. A problem is encountered, it is system­atically analysed, appropriate mathematical
models and calculations are applied, and the most appropriate solution is identified. In this process, a
number of management science applications are commonly used. Mathematical forecasting helps make
future projections that are useful in the planning process. Inventory modelling helps control inventories
by mathematically establishing how much to order and when. Linear programming is used to calculate
how best to allocate scarce resources among competing uses. Queuing theory helps allocate service
personnel or workstations to minimise customer waiting time and service cost. Network models break
large tasks into smaller components to allow for better analysis, planning and control of complex pro-
jects. And simulation makes models of problems so different solutions under various assumptions can
be tested.
Regardless of the specific technique used, the essence of the quantitative management approach
includes these characteristics. There is a focus on decision‐making that has clear implications for
management action. The techniques use ‘economic’ decision criteria, such as costs, revenues and
return on investment. They also involve mathematical models that follow sophisticated rules and
formulas.

Quantitative analysis today

Tertiary courses in management science, operations research and quantitative business analysis typi-
cally provide an introduction to these quantitative management foundations. Courses in operations
management apply quantitative analysis to the physical production of goods and services. Since
many of the techniques are highly sophisticated, organisations often employ staff specialists to help
managers take advantage of them effectively. But software developments are making these tech-
niques more readily available through easy‐to‐use applications for the desktop and mobile electronic
devices. This availability greatly expands their use throughout the workplace and makes it even more
important for managers to understand the value of each technique. In all cases, of course, mathemat-
Copyright © 2016. Wiley. All rights reserved.

ical solutions to problems must be supported by good managerial judgement and an appreciation of
the human factor.

CRITICAL ANALYSIS

1. The advent of readily available spreadsheets on personal computers should have seen a huge
upsurge in management science and quantitative management. Have we become so used to
using software to explore our decision‐making options that we don’t consider alternatives to
quantitative management anymore?
2. Are the methods of management science like blood test results — valuable, and perhaps critical,
but not conclusive without human judgement to interpret them? Does wisdom have a role after all?

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 2.4 Modern approaches to management
LEARNING OBJECTIVE 2.4 What is unique about the systems view and contingency thinking?
The modern approaches to management grew directly from foundations established by the classical,
human resource and quantitative schools of thought. Importantly, they also recognise that no one model
or theory applies universally in all situations or to the exclusion of the others.
According to the modern management approaches, people are complex and variable. They have many
different needs that can change over time. They possess a range of talents and capabilities that can
be developed. Organisations and managers, therefore, should respond to individual differences with a
wide variety of managerial strategies and job opportunities. Key foundations of the modern management
approaches include the systems view of organisations and contingency thinking.

GLOBALISATION

Asian leaders value creativity and intuition more than

New Zealand leaders
A 2014 study by Grant Thornton found that business leaders in South‐East Asian countries place a
greater emphasis on creativity and innovation than leaders in New Zealand.28 While 90 per cent of leaders
in South‐East Asia responded that creativity is important and 85 per cent recognised the importance of
intuition, only 62 per cent of New Zealand leaders valued creativity and 66 per cent valued intuition.
The National Managing Partner at Grant Thornton New Zealand, Tim Downes, explains that this
survey reveals how South‐East Asian leaders take a ‘modernist’ approach that emphasises creativity
and intuition in the coaching of team members, compared to the ‘traditionalist’ management philosophy
of more developed economies. Although Quinn Mills from Harvard Business School has predicted that
emerging economies will become more like developed countries as they mature, Downes believes that
leaders in South‐East Asia will develop responsive solutions relevant to local markets.
Shedding more light as to how the future of Asian leadership may look, another Grant Thornton study
of Chinese leaders suggests that although analytics has become more prominent, the role of intuition
will still have a role to play in a new ‘Chinese way’ of leadership.
Certainly, in a swiftly changing and digital world, creativity and intuition will play an important role in
leveraging innovation as a competitive market tool. This view of the future of Asian leadership styles is
supported by recent research findings that show that intuition has a role to play in strategic decision‐
making, positively affecting organisational performance.29 Furthermore, a study of Singaporean and
Malaysian companies demonstrates that intuition plays a significant role when making decisions in
uncertain environments.

QUESTION
What are the advantages and disadvantages of introducing Eastern ‘modernist’ styles into contemporary
Western management practices?
Copyright © 2016. Wiley. All rights reserved.

Systems thinking
A system is an aggregate of interrelated elements, where the properties of the relationships between the
elements are as significant as the properties of the elements themselves. This perspective on a system
allows examination of the processes involved in the interaction between the elements. A subsystem is a
smaller component of a larger system.30 One of the earliest management writers to adopt a systems per-
spective was Chester Barnard. His 1938 groundbreaking book Functions of the Executive was based on
years of experience as a telephone company executive.31 Barnard described organisations as cooperative
systems in which the contributions of individuals are integrated for a common purpose. Importantly,
Barnard considered this cooperation ‘conscious, deliberate and purposeful’. It was the job of the exec-
utives, or managers, through communication to make this cooperation happen.

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 Systems thinking continues to influence management theory and practice today.32 One application is
described in figure 2.4. This figure first depicts the larger organisation as an open system that interacts with
its environment in the continual process of transforming inputs from suppliers into outputs for customers.
Within the organisation any number of critical subsystems can be described. In the figure, the operations and
service management systems are a central point. They facilitate the interactions between other subsystems —
such as purchasing, accounting, sales and information — that are essential to the work of the organisation.
Importantly, and as suggested by Barnard, high performance by the organisation as a whole occurs only
when each subsystem performs its tasks well and works well in cooperation with the other subsystems. It is
the job of managers throughout the organisation to make this coordinated action possible.

Organisational
network of subsystems

Purchasing and Marketing, sales

inventory and distribution
systems systems

Operations and
Inputs service Outputs
management
systems Customers
Suppliers

Accounting Information
and financial and technology
systems systems

FIGURE 2.4 Organisations as complex networks of interacting subsystems

Contingency thinking
Modern management is situational in orientation — that is, it attempts to identify management practices
that are the best fit with the unique demands of a situation. It uses contingency thinking that tries to
match managerial responses with the problems and opportunities specific to different settings, particu-
larly those posed by individual and environmental differences. In the modern management approach,
there is no expectation that you can or should find the ‘one best way’ to manage in all circumstances.
Rather, the contingency perspective tries to help managers understand situational differences and res-
pond to them in appropriate ways.33
Copyright © 2016. Wiley. All rights reserved.

Contingency thinking is an important theme in this text, and its implications extend to all of the manage-
ment functions — from planning and controlling for diverse environmental conditions, to organising for dif-
ferent environments and strategies, to leading in different performance situations. For example, consider again
the concept of bureaucracy — something Weber offered as an ideal form of organisation. From a contingency
perspective the strict bureaucratic form is only one possible way of organising things. What turns out to be the
‘best’ structure in any given situation will depend on many factors, including environmental uncertainty, an
organisation’s primary technology and the strategy being pursued. Only when the environment is relatively
stable and operations are predictable does the bureaucracy work best; in other situations, alternative structures
may be needed. Contingency thinking recognises that what is a good structure for one organisation may not
work well for another, and what works well at one time may not work as well in the future as circumstances
change.34 This contingency approach to organisation structure and design is examined further later in the text.

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 CRITICAL ANALYSIS

1. If we affirm contingency management, does this contradict the ‘excellence’ movement, or the
notion of ‘best practice’? Is the notion of one best way a delusion?
2. Systems thinking may have helped popularise project management and supply chain management,
but does it have its limitations? If so, what are they?

2.5 Continuing management themes

LEARNING OBJECTIVE 2.5 What are the continuing management themes of the 21st century?
The many accumulating insights into management practice have set the foundation for important trends
and directions in management thought that are well in evidence in the 21st century. Among the most
important is the recognition that we live and work in a dynamic and ever changing environment that
puts unique and never‐ending competitive pressures on organisations. Key themes reflected in dis-
cussions throughout Management include continuing pressures for quality and performance excellence,
an expanding global awareness, and the importance of new leadership in an age of information, knowl-
edge workers and highly competitive business environments.

Quality and performance excellence

The quality theme was first introduced in chapter 1 and will continue throughout this text.35 It remains a
very important direction in management today. Managers and workers in truly progressive organisations
are quality conscious. They understand the basic link between competitive advantage and the ability to
always deliver quality goods and services to their customers. The best organisational cultures include
quality as a core value and reinforce the quality commitment in all aspects of the work environment.
Every effort is made in total quality management (TQM) to build quality into all aspects of operations
— from initial acquisition of resources, through the transformation processes and work systems, all the
way to ultimate product delivery to customers or clients. Figure 2.5 describes the systems context for
TQM in respect to the value chain — a specific sequence of activities that transform raw materials into
a finished good or service.36 Quality must be maintained at each point in the value chain, whether this is
done directly by the organisation or is part of its network of relationships with suppliers and contractors.

Organisation as a
transformation system
Copyright © 2016. Wiley. All rights reserved.

Materials People and

Resources and Finished
received and technology Customers
materials products
organised create served
flow in distributed
for use products

Management of the
value chain

FIGURE 2.5 The organisational value chain

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 Closely aligned with the pursuit of quality is management commitment to performance excellence, a
theme that became prominent when the book In Search of Excellence: Lessons from America’s Best‐Run
Companies was published by Tom Peters and Robert Waterman.37 Peters and Waterman investigated the
practices of successful companies and identified the eight attributes of performance excellence shown in
Manager’s notepad 2.2. These attributes are further representative of many themes and directions that
are now common practice in organisations today. In the Asia–Pacific region, Singapore is renowned for
its focus on productivity. There is a government body known as SPRING (Standards, Productivity and
Innovation Board) whose purpose is to promote productivity and innovation in Singaporean enterprises.

MANAGER’S NOTEPAD 2.2

Eight attributes of performance excellence

1. Bias towards action — making decisions and making sure that things get done.
2. Closeness to the customers — knowing their needs and valuing customer satisfaction.
3. Autonomy and entrepreneurship — supporting innovation, change and risk‐taking.
4. Productivity through people — valuing human resources as keys to quality and performance.
5. Hands‐on and value‐driven — having a clear sense of organisational purpose.
6. Sticking to the knitting — focusing resources and attention on what the organisation does best.
7. Simple form and lean staff — minimising management levels and staff personnel.
8. Simultaneous loose–tight properties — allowing flexibility while staying in control.

Global awareness
We have emerged from a period in which the quality and performance excellence themes have been reflected
in the rise of ‘process re‐engineering’, ‘virtual organisations’, ‘agile management’, ‘network firms’ and other
new concepts reviewed in this text. But while the best formulas for success continue to be tested and debated,
an important fact remains — much of the pressure for quality and performance excellence is created by a
highly competitive global economy. Nowhere is this challenge more evident than in the continuing efforts of
businesses around the globe to transform themselves into truly world‐class operations.
Like the lessons of performance excellence, current trends and directions in global awareness have
ties back to the 1980s. That was a time when the success of Japanese industry caught worldwide atten-
tion and both scholars and consultants rushed to identify what could be learned from Japanese manage-
ment practices. The books Theory Z by William Ouchi and The Art of Japanese Management by Richard
Tanner Pascale and Anthony G. Athos were among the first that called attention to the possible link
between unique Japanese practices and business success.38
Ouchi used the term ‘Theory Z’ to describe a management framework that incorporates into
Australasian and US practices a variety of insights found in the Japanese models.39 Prominent in the
Theory Z management approach are things such as long‐term employment, slower promotions and more
lateral job movements, attention to career planning and development, use of consensus decision‐making,
and emphasis on use of teamwork and employee involvement. And even though the Japanese economy
Copyright © 2016. Wiley. All rights reserved.

and management systems now face pressures of their own, these early insights into the Japanese busi-
ness experience helped to establish a global awareness that continues to enrich management thinking
today. This international dimension of management is examined thoroughly in the next chapter, with
special attention on understanding cultural influences on management practices.

Learning organisations
This remains the age of the learning organisation, described in the chapter on information and decision‐
making as an organisation that operates with values and systems that result in ‘continuous change and
improvement based on the lessons of experience’.40 Learning organisations require for their success a
value‐driven organisational culture that emphasises information, teamwork, empowerment, participation
and leadership. Learning organisations also depend for their success on special leadership qualities. This

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 topic is so important that several chapters of this text are devoted to it. Perhaps no other management
theme is more influenced by directions in the new economy. Once again, history sets the stage for the
future. In his book No Easy Victories, John Gardner speaks of leadership as a special challenge and his
words from more than forty years ago are well worth considering today.

Leaders have a significant role in creating the state of mind that is the society. They can serve as symbols
of the moral unity of the society. They can express the values that hold the society together. Most impor-
tant, they can conceive and articulate goals that lift people out of their petty preoccupations, carry them
above the conflicts that tear a society apart, and unite them in the pursuit of objectives worthy of their
best efforts.41

Former US President, Barack Obama, in seeking to avoid the groupthink phenomenon (discussed in
further detail in the later chapter on information and decision‐making), brought together rivals such as
Hilary Clinton as Secretary of State and Joe Biden as Vice President, along with powerful Republicans
in his cabinet, who felt free to question even his own authority and who were unafraid to argue with him.
In the aftermath of the global financial crisis, a brave new style of leadership is required — with leaders
needing to be capable of confronting the challenges that may still be ahead.
Leadership and the new directions of learning organisations will be singled out again and again in
Management as important keys to personal and organisational performance. And performance by people
and organisations, in turn, is the key to any society’s economic development and growth. Managers of
the 21st century have to excel as never before to meet the expectations held of them and of the organ-
isations they lead. Importantly, we must all recognise that new managerial outlooks and new managerial
competencies appropriate to the new workplace are requirements for future leadership success.
At the very least, the 21st‐century manager must be:
•• a global strategist — understands interconnections among nations, cultures and economies; plans and
acts with due consideration of them
•• a master of technology — comfortable with information technology; understands technological trends
and their implications; able to use technology to best advantage
•• an effective politician — understands growing complexity of government regulations and the legal
environment; able to relate them with the interests of the organisation
•• an inspiring leader — attracts highly motivated workers and inspires them with a high performance
culture where individuals and teams can do their best work.
In the chapter on information and decision‐making we will discuss the special challenges of this age
of information. It is an age in which management expert Peter Drucker considered knowledge the prin-
cipal resource of a competitive society. Drucker also cautioned that knowledge constantly makes itself
obsolete.42 In a society where knowledge workers are increasingly important, new managers must be
well educated and they must continue that education throughout their careers. Success in turbulent times
comes only through continuous improvement. Born in Vienna in 1809, the author of 35 books and more
articles in the Harvard Business Review than anyone else ever, Drucker is best known for popularising
the concept of management by objectives (MBO) in his 1954 book The Practice of Management. He
Copyright © 2016. Wiley. All rights reserved.

advocated a process that required managers to allocate tasks according to objectives that served higher
order objectives, set collaboratively with subordinates, and involved giving regular feedback on progress.
However, in Drucker’s approach the key question is ‘What business are we in and what business should
we be in?’ He wanted businesses to aim high, to focus on opportunities rather than on problems and not
merely imitate each other.
Drucker’s interest was always in managing for business effectiveness. Although he was an advocate
of the human relations approach to management, his areas of study were wide and deep. His view was
that the first duty and continuing responsibility of the business manager is to strive for the best poss-
ible economic results from the resources currently employed or available. He also gave us a memorable
quote distinguishing effectiveness from efficiency: ‘There is surely nothing so useless as doing with
great efficiency what should not be done at all’.43

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 According to Drucker, 90 per cent of results are produced by 10 per cent of events; this is true for profits
and for losses. The other 90 per cent of events contribute little either way. His three recommendations were
to: (1) know and analyse the facts, (2) allocate resources according to the results anticipated and (3) decide
what products or staff activities need to be pursued, and what can be dropped. His categorisation was simple:
1. tomorrow’s breadwinners (new products or today’s breadwinners modified)
2. today’s breadwinners (the innovations of yesterday)
3. products capable of becoming net contributors if something drastic is done
4. yesterday’s breadwinners (high volume but costly to produce)
5. also rans (the high hopes of yesterday that consume too much support and managerial ego, and should
be dropped)
6. the failures (that liquidate themselves).
It may be that his greatest legacy lies in his unswerving adherence to common sense in decision‐
making: ‘in allocating resources, especially human resources of greatest potential, the needs of those
areas which offer greatest promise must first be satisfied to the fullest extent possible. This calls for
painful decisions, and risky ones. But that, after all, is what managers are paid for’.44
Drucker’s contribution to management thinking has been enormous. He was the first to:
•• define the role of top managers as the keepers of corporate culture
•• advocate mentoring, career planning and executive development as top management tasks
•• say that success hinges on the vision expressed by the CEO
•• show that structure follows strategy
•• suggest a reduction of management layers between the top and the bottom
•• argue that success comes from sticking to the basics
•• state that the primary purpose of the organisation is to create a customer
•• say that success boils down to consumer sensitivity and the marketing of innovative products
•• suggest that quality is a measure of productivity
•• describe the knowledge worker
•• state that new approaches to management would be needed in the post‐industrial age.
One thing Drucker forecasted that has not quite happened as he foretold, however, was that the middle
manager would continue to develop and evolve into the knowledge worker of post‐industrial society.
In summary, the new economy requires everyone to be unrelenting in efforts to develop, refine and
maintain job‐relevant skills and competencies. It requires leaders with strong people skills, who are
attuned to the nature of an information or service society, who understand the international dimensions,
and who establish commitments to work–life balance.
The new economy places a premium on personal leadership qualities. The 21st‐century manager must
do the ‘right’ things — the things that really count, the things that add value to the organisation’s goods
and/or services, the things that make a real difference in performance results and competitive advantage,
and the ethical things. Those are challenging directions for leadership, learning organisations and career
success in the new economy.
Copyright © 2016. Wiley. All rights reserved.

Looking ahead
The next 50 years may prove challenging for management thinkers. Changes in the workplace, and in
society, are likely to demand considered approaches to the new realities. Some topics for consideration are
as follows.
•• Automation. Anything that can be automated is being automated to save costs. Smart machines are likely
to take over a lot of tasks formerly undertaken by managers. Analysing complex data, recruiting staff
(e.g. using social media), compensation and benefits, inventory control and supply chain management
are obvious candidates. IT is hastening management development with gains being made through, for
example, lean production, agile technology, cloud‐based computing and 3D printing.
•• Changing demographics. One trend of significance is the world’s ageing population along with falling
rates of fertility. Countries such as Korea, Japan, Russia and Germany expect their populations to

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 shrink, and it is expected that the world’s population will plateau. This trend sits alongside the mass
movements of peoples from war‐affected regions seeking a better life in Europe, which will pose
enormous challenges for managers of social services in many countries for decades to come.
•• Productivity. It is likely that productivity will become of greater importance as the number of people
employed will increase by only 0.03 per cent over the next 50 years. This will produce enormous
economic strain, and perhaps a redefinition of growth from quantity to quality, from being bigger to
being better.
•• Sustainability. With an increasing realisation that we live on a planet with finite space and material
resources, management is giving greater attention to sustainability, to the use and reuse of materials and
to replacing suboptimal materials with better ones (e.g. carbon‐fibre composites to replace metal in cars).
•• Technology. Advances in technology will bring a new age of artificial intelligence. Computing power
will continue to expand exponentially with lower prices and proliferating devices. Only 20 years ago
less than 3 per cent of the world’s population had a mobile phone and less than 3 per cent had access
to the internet. Now, two‐thirds of the world has a mobile phone and one‐third has net access.
•• Globalisation. Half the world’s GDP growth between 2010 and 2025 is expected to come from
440 cities in emerging markets by 2025. Forty five per cent of the Fortune 500 global companies will
come from emerging countries, compared to only 5 per cent in 2000.45 Just as Japanese companies
Toyota and Sony shook the world in the 1970s, Samsung, LG, Hyundai and other massive Korean
companies will continue to overturn trends in the future.
In terms of population growth, India looks likely to overtake China by 2022, and both India and China
face massive challenges with ageing populations: ‘China’s working age population is already shrinking
as the country greys. By 2050 about 500 million Chinese and 330 million Indians will be over 60’.46
While globalisation may bring economic benefits, management across cultures is not without chal-
lenges. Failure to take national culture into account can neutralise the best efforts of managers. An
example was the retailing disaster when US giant Walmart bought German chains Wertkauf and Interspar.
The imposition of heavy‐handed US expatriate management practices was a social and economic failure
and Walmart lost US$150 million a year before selling out to German rival Metro.47 In Fish Can’t See
Water, Danish recruitment professional Kai Hammerich argues that company directors need to see the
water they are swimming in.48
Failure to appreciate cultural differences almost certainly brings management failure. Interestingly, com-
panies that show local sensitivity early on when entering foreign markets sometimes become more defen-
sively nationalistic and revert to their old‐country culture as they become more successful. With greater
maturity they may become polycentric, taking country cultures more seriously and adapting to local cultures
and traditions, appointing host rather than home country managers and using short‐term expatriate assign-
ments for professional development instead of enforcing headquarters culture and practices.

COUNTERPOINT

Think about your management theories

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Management books tend to reflect the positive side of management theories, but it is important that stu­
dents of management realise that management theories aren’t the same as scientific principles because
they should be constantly reviewed and re‐evaluated. Therefore, the various theories of management need
to be appraised in terms of the evidence supporting them and their relevance to practising managers. For
example, a theory such as Maslow’s was developed on the basis of clinical data about neurotic people. It
was not based on information from a work setting. Indeed, Maslow himself had reservations about whether
his theory could be generalised to explain work motivation.49 Furthermore, empirical testing of Maslow’s
theory has provided little support for its ability to explain work behaviour. Despite this, in the mid 1970s it was
still the most widely accepted theory of work motivation and ranked as the second most significant contribu­
tion in management and it is still widely accepted as an important motivational theory today. It is important
that managers take a multi‐perspective view that would allow them to cover a number of different expla­
nations of people’s behaviour instead of relying on just one theory.

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 QUESTION
If Maslow’s theory of needs is now regarded as largely obsolete, what do we replace it with? Daniel Pink’s
famous TED Talk about motivation suggests that we are less likely to be motivated in our behaviour by
money than by our desire for mastery of some particular skill, our sense of purpose in an activity in which
we are engaged and autonomy.50 He suggests that monetary rewards are effective only in very limited
circumstances with simple tasks. Is this a new management theory in the making?

CRITICAL ANALYSIS

1. Is the list of ideal leader characteristics just too much? Are we setting our managers and leaders up
to fail?
2. If developing a learning organisation is so important to maintaining ‘the edge of innovation’, what
steps can managers in diverse organisations take to create this new way of working?
3. How important is it for a manager to be aware of their individual management style and of the
alternatives available? Can the same be said for organisations and their management style?
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 SUMMARY
2.1 What can be learned from classical management thinking?
•• Frederick Taylor’s four principles of scientific management focused on the need to carefully select,
train and support workers for individual task performance.
•• Henri Fayol suggested that managers should learn what are now known as the management functions
of planning, organising, leading and controlling.
•• Max Weber described bureaucracy with its clear hierarchy, formal rules and well‐defined jobs as an
ideal form of organisation.
•• Jaques emphasised hierarchy in organisations and the crucial role of the manager.
2.2 What ideas were introduced by the human resource approaches?
•• The human resource approaches shifted attention towards the human factor as a key element in
organisational performance.
•• The historic Hawthorne Studies suggested that work behaviour is influenced by social and
psychological forces and that work performance may be improved by better ‘human relations’.
•• Abraham Maslow’s hierarchy of human needs introduced the concept of self‐actualisation and the
potential for people to experience self‐fulfilment in their work.
•• Douglas McGregor urged managers to shift away from Theory X and towards Theory Y thinking,
which views people as independent, responsible and capable of self‐direction in their work.
•• Peter Drucker’s influence on management thinking continues to be felt as a humanising
common sense approach to the many and complicated tasks involved in managing contemporary
organisations.
2.3 What is the role of quantitative analysis in management?
•• The availability of high‐powered desktop computing provides new opportunities for mathematical
methods to be used for problem‐solving.
•• Many organisations employ staff specialists in quantitative management science and operations
research to solve problems.
•• Quantitative techniques in common use include various approaches to forecasting, linear programming
and simulation, among others.
2.4 What is unique about the systems view and contingency thinking?
•• Organisations are complex open systems that interact with their external environments to transform
resource inputs into product outputs.
•• Resource acquisition and customer satisfaction are important requirements in the organisation–
environment relationship.
•• Organisations are composed of many internal subsystems that must work together in a coordinated
way to support the organisation’s overall success.
Copyright © 2016. Wiley. All rights reserved.

•• Contingency thinking avoids ‘one best way’ arguments, and recognises the need to understand
situational differences and respond appropriately to them.
2.5 What are the continuing management themes of the 21st century?
•• The commitment to meet customer needs 100 per cent of the time guides organisations towards total
quality management and continuous improvement of operations.
•• The global economy is a dramatic influence on organisations today, and opportunities abound to learn
new ways of managing from practices in other countries.
•• This is the age of information in which knowledge and knowledge workers are major resources of
modern society.
•• New managers must accept and excel at leadership responsibilities to perform as global strategists,
technology masters, consummate politicians and leader–motivators.

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 KEY TERMS
A bureaucracy is a rational and efficient form of organisation founded on logic, order and legitimate
authority.
Contingency thinking tries to match management practices with situational demands.
The Hawthorne effect is the tendency of people singled out for special attention to perform as
expected.
The human relations movement suggests that managers using good human relations will achieve
productivity.
A learning organisation continuously changes and improves using the lessons of experience.
Management science uses mathematical techniques to analyse and solve management problems.
Motion study is the science of reducing a task to its basic physical motions.
Needs are unfulfilled physiological or psychological desires.
Open systems transform resource inputs from the environment into product or service outputs.
Organisational behaviour is the study of individuals and groups in organisations.
Scientific management emphasises careful selection and training of workers, and supervisory support.
Self‐fulfilling prophecies occur when people act in ways that confirm another’s expectations.
A subsystem is a smaller component of a larger system.
A system is a collection of interrelated parts working together for a purpose. The relationships
between the parts may be as important as the characteristics of the parts themselves
Theory X assumes people dislike work, lack ambition, are irresponsible and prefer to be led.
Theory Y assumes people are willing to work, accept responsibility and are self‐directed and creative.
Theory Z describes a management framework emphasising long‐term employment and teamwork.
A value chain is the sequence of activities that transform materials into finished products.

APPLIED ACTIVITIES
1 What were some of Henri Fayol’s main contributions to the field of management?
2 How does systems thinking continue to influence management theory and practice today?
3 Is the Theory Z management approach still relevant today?
4 What are some continuing management themes in the 21st century?
5 According to the self‐fulfilling prophecy, managers, through their behaviour, can create situations
where employees act in ways that confirm the manager’s original expectations. If you are a newly
appointed manager, what would you do to create positive self‐fulfilling prophecies in relation to your
employees’ behaviour?

ENDNOTES
Copyright © 2016. Wiley. All rights reserved.

1. Pauline Graham, Mary Parker Follett — Prophet of Management: A Celebration of Writings from the 1920s (Boston: Harvard
Business School Press, 1995).
2. For a timeline of 20th‐century management ideas, see ‘75 Years of Management Ideas and Practice: 1922–1997’, Harvard
Business Review, supplement (September–October 1997).
3. D. Dunphy and A. Griffiths, The Sustainable Corporation (St Leonards, Australia: Allen and Unwin, 1998).
4. C. Barnard, The Functions of the Executive (Cambridge, MA: Harvard University Press, 1938).
5. A thorough review and critique of the history of management thought, including management in ancient civilisations, is
provided by Daniel A. Wren, The History of Management Thought, 5th edn (New York: Wiley, 2005).
6. For a sample of this work, see Henry L. Gantt, Industrial Leadership (Easton, MD: Hive, 1921; Hive edition published in
1974); Henry C. Metcalfe and Lyndall Urwick (eds), Dynamic Administration: The Collected Papers of Mary Parker Follett
(New York: Harper & Brothers, 1940); James D. Mooney, The Principles of Administration, rev. edn (New York: Harper &
Brothers, 1947); Lyndall Urwick, The Elements of Administration (New York: Harper & Brothers, 1943) and The Golden Book
of Management (London: N. Neame, 1956).

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 7. References on Taylor’s work are from Frederick W. Taylor, The Principles of Scientific Management (New York:
W. W. Norton, 1967), originally published by Harper & Brothers in 1911. For a criticism, see Charles W. Wrege and
Amedeo G. Perroni, ‘Taylor’s Pig‐Tale: A Historical Analysis of Frederick W. Taylor’s Pig‐Iron Experiments’, Academy
of Management Journal, vol. 17 (March 1974), pp. 6–27. See Edwin A. Locke, ‘The Ideas of Frederick W. Taylor: An
Evaluation’, Academy of Management Review, vol. 7 (1982), p. 14, for an examination of the contemporary significance of
Taylor’s work. See also the biography by Robert Kanigel, The One Best Way (New York: Viking, 1997).
8. Kanigel, op. cit.
9. See Frank B. Gilbreth, Motion Study (New York: Van Nostrand, 1911).
10. Peter Day, ‘Smashing Way to Start a Global Business’, BBC News (23 October 2013), [Link]/news.
11. Mark Landler, ‘In China, a Management Maverick Builds a Brand’. The New York Times (23 July 2000).
12. T. W. Lin, ‘Effective OEC Management at China’s Haier group’, Strategic Finance, vol. 86, no. 11 (2005), pp. 39–45.
13. Q. Xu, L. Zhu, G. Zheng and F. Wang, ‘Haiers Tao of Innovation: A Case Study of the Emerging Total Innovation
Management Model’, Journal of Technology Transfer, vol. 32, no. 1–2 (2007), pp. 27–47; X. Chan, ‘A SWOT Study of the
Development Strategy of Haier Group as One of the Most Successful Chinese Enterprises’, International Journal of Business
and Social Science, vol. 2, no. 11 (2011); H. Liu, H. and K. Li, ‘Strategic Implications of Emerging Chinese Multinationals:
The Haier Case Study’, European Management Journal, no. 6 (December 2002), pp. 699–706.
14. Simon Jeffery, ‘Call Centres’, The Guardian (20 February 2001), [Link].
15. Available in the English language as Henri Fayol, General and Industrial Administration (London: Pitman, 1949);
subsequent discussion is based on M. B. Brodie, Fayol on Administration (London: Pitman, 1949).
16. Judith Garwood, ‘A Review of Dynamic Administration: The Collected Papers of Mary Parker Follett’, New Management,
vol. 2 (1984), pp. 61–2.
17. Simon Evans, ‘Blackmores to Give Six Weeks’ Bonus Pay for 900 Staff After Profit Surge’, The Sydney Morning Herald
(26 August 2015), [Link].
18. M. Henderson and Talcott Parsons (eds and trans), Max Weber: The Theory of Social Economic Organization (New York:
Free Press, 1947).
19. ibid, p. 337.
20. Elliott Jaques, Requisite Organization, (Arlington MD: Cason Hall & Co, 1989).
21. J. Fairfield, Levels of Excellence: A Management Novel, (Australia: Random House, 2002).
22. N. Timo, ‘The Social Scientist as Change Agent: Elliot Jaques and the Individualist Imperative’, Journal of Australian
Political Economy, 47 (June 2001).
23. The Hawthorne Studies are described in detail in F. J. Roethlisberger and William J. Dickson, Management and the Worker
(Cambridge, MA: Harvard University Press, 1966); and G. Homans, Fatigue of Workers (New York: Reinhold, 1941). For an
interview with three of the participants in the relay assembly test‐room studies, see R. G. Greenwood, A. A. Bolton and
R. A. Greenwood, ‘Hawthorne a Half Century Later: “Relay Assembly Participants Remember”’, Journal of Management,
vol. 9 (1983), pp. 217–31.
24. The criticisms of the Hawthorne Studies are detailed in Alex Carey, ‘The Hawthorne Studies: A Radical Criticism’, American
Sociological Review, vol. 32 (1967), pp. 403–16; H. M. Parsons, ‘What Happened at Hawthorne?’, Science, vol. 183 (1974),
pp. 922–32; B. Rice, ‘The Hawthorne Defect: Persistence of a Flawed Theory’, Psychology Today, vol. 16 (1982), pp. 70–4.
See also Wren (op. cit.).
25. This discussion of Maslow’s theory is based on Abraham H. Maslow, Eupsychian Management (Homewood, IL: Richard D.
Irwin, 1965), and Abraham H. Maslow, Motivation and Personality, 2nd edn (New York: Harper & Row, 1970).
26. Douglas McGregor, The Human Side of Enterprise (New York: McGraw‐Hill, 1960).
27. Information from ‘About AIMD’, American Institute for Managing Diversity website, [Link].
28. G. Ramirez, ‘Asian Leaders Value Creativity and Intuition More than New Zealand Leaders’, Grant Thornton (23 June 2014),
[Link].
29. V. Cheng, J. Rhodes and P. Lok, ‘A Framework for Strategic Decision Making and Performance Among Chinese Managers’,
Copyright © 2016. Wiley. All rights reserved.

The International Journal of Human Resource Management, vol. 21, no. 9 (2010), pp. 1373–95.
30. The ideas of Ludwig von Bertalanffy contributed to the emergence of this systems perspective on organisations. See his
article, ‘The History and Status of General Systems Theory’, Academy of Management Journal, vol. 15 (1972), pp. 407–26.
This viewpoint is further developed by Daniel Katz and Robert L. Kahn in their classic book, The Social Psychology of
Organizations (New York: Wiley, 1978). For an integrated systems view, see Lane Tracy, The Living Organization
(New York: Quorum Books, 1994). For an overview, see W. Richard Scott, Organizations: Rational, Natural and Open
Systems, 4th edn (Upper Saddle River, NJ: Prentice Hall, 1998).
31. Chester I. Barnard, Functions of the Executive (Cambridge, MA: Harvard University Press, 1938).
32. See discussion by Scott (op. cit.), pp. 66–8.
33. Peter F. Drucker, ‘The Future That has Already Happened’, Harvard Business Review, vol. 75 (September–October 1997),
pp. 20–4.
34. For an overview, see Scott (op. cit.), pp. 95–7.
35. For the classics, see W. Edwards Deming, Quality, Productivity and Competitive Position (Cambridge, MA: MIT Press,
1982); Joseph M. Juran, Quality Control Handbook, 3rd edn (New York: McGraw‐Hill, 1979).

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 36. Jay R. Galbraith, ‘Designing the Networked Organization: Leveraging Size and Competencies’, in Susan Albers Mohrman,
Jay R. Galbraith, Edward E. Lawler III and Associates, Tomorrow’s Organization: Crafting Winning Capabilities in a
Dynamic World (San Francisco: Jossey‐Bass, 1998), pp. 76–102.
37. Thomas J. Peters and Robert H. Waterman Jr, In Search of Excellence: Lessons from America’s Best‐Run Companies
(New York: Harper & Row, 1982).
38. William Ouchi, Theory Z: How American Businesses Can Meet the Japanese Challenge (Reading, MA: Addison‐Wesley,
1981); Richard Tanner Pascale and Anthony G. Athos, The Art of Japanese Management: Applications for American
Executives (New York: Simon & Schuster, 1981).
39. Ouchi, op. cit.; see also the review by J. Bernard Keys, Luther Tray Denton and Thomas R. Miller, ‘The Japanese
Management Theory Jungle — Revisited’, Journal of Management, vol. 20 (1994), pp. 373–402.
40. The classic work is Peter Senge, The Fifth Discipline (New York: Harper, 1990).
41. John Gardner, No Easy Victories (New York: Harper & Row, 1968).
42. Peter F. Drucker, Esther Dyson, Charles Handy, Paul Daffo and Peter M. Senge, ‘Looking Ahead: Implications of the
Present’, Harvard Business Review (September–October, 1997), pp. 18–32.
43. Peter Drucker, The New Realities (London: Mandarin, 1990).
44. Peter Drucker, ‘Managing for Business Effectiveness’, Harvard Business Review (May–June, 1963).
45. Richard Dobbs, Sree Ramaswamy, Elizabeth Stephenson, and S. Patrick Viguerie, ‘Management Intuition for the Next
50 Years’, McKinsey Quarterly (September 2014).
46. ‘Population forecasts’, The Economist (15 August 2015), p. 21.
47. K. Hammerich and R. Lewis, Fish Can’t See Water: How National Cultures Can Make or Break Your Corporate Strategy
(New York, NY: John Wiley & Sons, 2013).
48. ibid.
49. A. Maslow, Eupsychian management (Homewood, IL: Richard D. Irwin, 1965).
50. See ‘Daniel Pink on the Surprising Science of Motivation’, TED website (2009), [Link]/talks/dan_pink_on_motivation
.html.

ACKNOWLEDGEMENTS
Photo: © suphakit73 / [Link]
Photo: © Kobby Dagan / [Link]
Text: © ‘Asian Leaders Value Creativity and Intuition More than New Zealand Leaders’, in Jack
Wood, Rachid Zeffane, Michele Fromholtz, Retha Wiesner and Rachel Morrison, Organisational
Behaviour: Core Concepts and Applications, 4th edn (Milton: John Wiley & Sons, 2016).
Copyright © 2016. Wiley. All rights reserved.

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