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ORGANIZATIONAL MANAGEMENT THEORY:

A Critical Analysis, Evaluation and Review

Introduction, Who is Henri Fayol?, Functions of Management, Analysis on Functions of Management, Qualities of Management, Analysis on Qualities of Management, Activities of Management, Discussion and Analysis on Principles of Management, Practical and Theoretical Limitations of the Organization Theory

Aklilu Gebretsadik Addis Ababa University School of Commerce Department of Marketing Management Jan. 4, 2013 Addis Ababa

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Introduction
Side by side with scientific managers studying the persontask mix to increase efficiency, other researchers were focusing on management theory, studying how to create an organizational structure that leads to high efficiency and effectiveness. Two of the most influential views regarding the creation of efficient systems of organizational administration were developed in Europe. Max Weber, a German professor of sociology, developed one theory. Henri Fayol, the French manager who developed most of the concepts introduced in Chapter 1 of our study, developed the other.

Who is Henri Fayol?

Henri Fayol(1841-1925) was one of the great management thinkers of the 20th century was. Orignally educated at the St. Etienne School of Mines, he started his career at a mining company, Compagnie de Commentry-FourchambeauDecazeville as a mining engineer but became the managing director and turned it into one of the most successful in France. In so doing, he evolved organizational theory what became known as the Administration School of Management, detailed in a book, Administration industrielle et generale, published in 1916. The book had unprecedented impact, and "Fayolism" revolutionised business in France. In contrast to Frederick Winslow Taylor (1856-1915), the American engineer who evolved the principles of scientific management that influenced industries in America as well as in other countries, including the USSR, Fayol set forth general principles that were useful in a broad range of organisations as well as in government. Fayolism remained little known outside France until 1949 when his book was translated into English and published under the title "General and Industrial Management". The book, which still is in print, became one of the most influential management books of the 20th century. The book deals with the functions, qualities, activities and principles of management. It is very important to appreciate what Fayol meant by these four influential concepts. These concepts were the original foundation for management as a discipline and as a profession. Also Fayol was the first to advocate management education. Yet he has critics against him as well as followers who respect and admire him.

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Functions of Management
Fayol identified five primary functions. They are: Forecasting and Planning Organizing Command Co-ordination Control Forecasting and Planning is looking ahead, examining and making provision for the future, and drawing up a plan of action. Failure to plan signifies managerial incompetence. Organizing is building up the structure of the business/undertaking, and providing it with everything it needs to operate (equipment, materials, finance, people) and includes management training as a key part in it. Command is how organizing gets achieved; in a nutshell, it is directing and maintaining activity among your personnel. Co-ordination is binding together, unifying, and harmonizing activities and efforts for successful results. Control is seeing that everything occurs in conformity with established rule and expressed command.

Analysis on Functions of Management

The first and last functions, planning and control, are immediately recognizable from the analysis that has just been carried out, and indeed there tends to be less argument generally about these two functions than about others. Organizing is, of course, similar to planning in that it is concerned with preparation for some future events. But whereas planning is the more glamorous activity of deciding on the overall future direction of the business, organization is that tough, demanding business of putting together the elements in such a way that the overall plan succeeds. Command is seen as the function that actually makes things happen. It is really derived from military practice, and no doubt in Fayols time all employees in organizations responded to command. The very word suggests ordering about and has been the subject of a great deal of debate and argument. Fayol did not really intend it to be taken in a very narrow sense, but rather in the sense of making

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sure that things get done, the actual operations of the organization. As a result, all kinds of substitute words have been used in its place, like directing and actuating. The fifth function of management in Fayols view is that of co-ordination. It is concerned with harmony, with making sure that all the bits work together, and, like an orchestra under its conductor, play the same tune. This is the only function that does not seem easily to stand on its own and will be found to be part of planning, of organizing, of control, and the key to successful operations themselves. An organization, therefore, begins with a strategic plan or definition of goals, progresses to a structure to put that plan into action, is carried forward by controlled activity between manager and workforce, has the work of its disparate departments harmonized by coordinated management and, finally, is subject to checks on the efficiency of its working, preferably by the independent staff departments separate from the functional departments. Many of todays management texts including have reduced the five functions to four: planning, organizing, leading, and controlling. The five functions of management have been adequately analyzed, but there are three other aspects of management that Fayol mentioned that must be looked at separately, qualities, activities and principles of management.

Qualities of Management
Qualities needed in a manger are: Physical: healthy, being active; Mental: ability to understand and learn, judgment, adaptability; Moral: firmness, acceptance of responsibility, initiative, loyalty, tact; General Education: good general knowledge; Special Knowledge: for the work; Experience

Analysis on Qualities of Management

The qualities required in a manager and has to posses are physical health, good mental ability and memory, moral dignity, general acquaintance, specific training to the function being performed and experience arising from the work.

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Fayol also stressed on the importance of managerial training, steady, methodical training of all employees at all levels, and made the point that a manager should not ignore his responsibility for his own training. We have discussed and analyzed functions and qualities of management, yet activities and principles of management are remaining.

Activities of Management
Management consists the following six types of activities. Technical Activities(Production, Manufacturing) Commercial Activities(Purchasing, Selling and Exchange) Financial Activities(Optimum use of capital) Security(Protection of property and persons) Accounting (Stock taking, Balance sheet, costing, statistics) Managerial (Planning, organizing, coordinating and controlling)

Now, lets proceed to the topic in which we are going to discuss and examine Fayols major contribution.

Discussion and Analysis on Principles of Management

From his own long experience in Industry, Fayol identified fourteen General Principles of Management, or guidelines, and he emphasized that these are not rigid but have to be adapted to suit the particular needs of the situation. Principle 1: Division of work The idea of division of work, or as Adam Smith called it "division of labour", in 1776 probably goes back to the beginning of work itself. Fayol recognizes this in considering specialization as part of "the natural order" comparing it to the organs of the body . "The object of division of work is to produce more and better work with the same effort", Fayol describes. This very objective has not been altered in today's labor. In a sense this principle is the fundamental feature of modern economy, allowing for the largest increases of productivity. An example of this fact can come from early industrialization, namely the Ford motor company , where Taylor's system of a scientific approach was applied. Taylor was interested in skill development by means of

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standardization and functional specialization . One worker would assemble the dashboard, another would assemble the wheels, and yet another would paint the exterior. The effects of this are well known and lead to Ford becoming not just the predominant car maker but also the inventor of the conveyer-belt production system- revolutionizing many industries. However, one could argue that extremes of division of work could lead to undesired effects. Division of labor can ultimately reduce productivity and increase costs to produce units. Several reasons as causes for reduction in productivity can be thought of. For example, productivity can suffer when workers become bored with the constant repetition of a task. Additionally, productivity can be affected when workers lose pride in their work because they are not producing an entire product they can identify as their own work. Douglas M. McGregor for instance cautions that "people, deprived of opportunities to satisfy at work the needs which are now important to them, behavewith indolence, passivity,lack of responsibility,unreasonable demands for economic benefits" . This circumstance was probably well recognized by Fayol, when he states that the "division of work has its limits which experience and a sense of proportion teach us may not be exceeded" . In more recent years management thinkers have recognized and addressed this issue more intensely, as will be discussed further below. Principle 2: Authority and Responsibility Fayol defines authority as the "right to give orders", but he emphasizes that responsibility arises with it . He "demands high moral character, impartiality and firmness." Fayol thinks of responsibility as something that is "feared as much as authority is sought after". This fear, he explains can lead to a paralysis and must be counter-acted by personal integrity and a "particularly high moral character". These qualities may be rewarded monetarily, Fayol argues. Fayol himself apparently has not merely preached high morals but lived them too, when in the position of a CEO . He for example purchased no shares where he served, in order to avoid a dependence on the board, so he could subordinate his interests to the common good .

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When looking at these standards, Fayol arguably should be followed as a leading example. In the light of current developments in regards to the financial crisis of the year 2009 and onwards, one notices a discrepancy between today's leadership moral and Fayol's demands. Principle 3: Discipline Fayol understood discipline as obedience and outward marks of respect between the firm and its employees . He considered it as an absolute prerequisite in order to assure a smooth running of the business. "Without it", he says, "no enterprise could prosper". Interestingly, Fayol emphasizes discipline not merely as something the employee owes the management, but rather as something that "depends essentially on the worthiness of its leaders", in other words on the respect employees have for their leader. He continues in describing the reasons for defects in employee and management relationships by stating: "the ill mostly results from the ineptitude of the leaders" . Fayol recognizes the complexity of human interaction as an important topic to be addressed. Expanding on this idea Elton Mayo provides evidence for us that Fayol was onto the right idea, at least a functioning idea, for that matter. Mayo identifies, what he calls "universal cooperation" in order to thwart conflict and improve work conditions, thereby improving productivity . Even though some argue that Mayo's famous Hawthorne and Topeka experiments were exaggerated and partially even interpreted wrongly, it remains, that the application of his ideas has contributed to a change of mind in theoretical management . More recently, for instance Peter Drucker supports the idea that these factor influence productivity. His concept of the "knowledge worker" presents the idea of a highly educated and independently working employee, which he developed as a role model for the modern worker . Discipline derives from the fact that the knowledge worker is being respected, his needs are taken seriously and are being addressed by a high degree of self-fulfillment.

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In summary, Fayol's demand for "good superiors at all levels", "agreements as clear and fair as possible", and "sanctionsjudiciously applied" has anticipated ideas that were developed building on his thoughts, and is still valid. Principle 4: Unity of Command This rule requires that an "employee should receive orders from one superior only". Dual command must not necessarily derive from an intentional organizational design, but can occur coincidently, for instance if departments are not clearly demarcated, responsibilities and authorities are not clearly defined, or relationship dynamics (e.g. amongst friends, family etc) lead to someone assuming authority that was not originally associated with this individual. Similar to Fayol's argument that specialization, and hence division of work is a natural state, one could make the point that a single leader is an evolutionary requirement. Simple speaking: social groups of animals often are organized in a way that resembles the hierarchy of companies, so called dominance hierarchies . This is especially true in primates. Hence unity of command is a principle we find applied in the military just as much as in rather modern and alternatively run companies like Google Inc., which is run by three CEOs (Sergey, Eric and Larry) . Google claims to have flat hierarchies and maintain a small-business feel . However, there still must be a leader, a decision maker, one who carries the largest responsibility, or, as in the case of Google, a team of leaders. Principle 5: Unity of Direction Fayol summarizes this principle with the words: "one head and one plan for a group" . Hence, this point is naturally closely connected to the unity of command principle. Principle 6: Subordination of individual interest to general interest Fayol points out, that personal interests and company interests must be reconciled.

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Generally speaking however, the companies' interests must be put ahead of personal interests . The struggle of interest can be exemplified by the worker rights movements and unions. Fayol was not at all opposed to such organizations as unions. In fact, he believed in granting benefits to workers . We see, Fayol did not mean to suppress workers interests but rather that every worker must compromise with the interests of the collective, i.e. the corporation. Interestingly, Fayol suggests "constant supervision" as one measure to restrict unwanted egoistic effects, like selfishness, laziness and others, which cloud the vision for the company's interests . This indicates, that with the demand for subordination of individual interest to general interest Fayol included another principle in his catalogue that has not lost its validity today. Principle 7: Remuneration of Personnel In discussing how to apply fair modes of payment, Fayol mentions several still used strategies, e.g. time rates, job rates, and piece rates . Most interestingly he also mentions the aforementioned bonuses and profit sharing. He emphasizes that there should be no overpayment "beyond reasonable limits". One can only speculate how Fayol would think about the bonus practice of banks today. As Fayol explains himself, in his time bonuses and profit-sharing were still rather new concepts. And he wonders what would happen with bonuses in lean times, pointing out, that a salary entirely depending on profit-sharing would lead to a loss of salary under certain circumstances. Additionally, he describes salary policies as important in maintenance of "relative social quiet", as he calls it . This attitude echoes like a warning for today's management leaders, whose remuneration practice is perceived as socially unsustainable and hence immoral, and Fayol's suggestion is thereby proven to be a relevant principle also today. Principle 8: Centralization

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Centralization is understood by Fayol as the necessity to have control over processes in a central place, and compares this concept with the brain where centrally control is exhibited over the body. Fayol is flexible on the concept of centralization though. He suggests that the degree of centralization must fit the design and size of the corporation . Possibly larger firms, with longer chains of command do better with more centralization and vice versa. In today's corporate world IT has contributed to an easier approach to centralization. At the same time has the fact that large corporations act globally led to adjustments that can best be performed locally. In other words, a company must be able to do both. For different business aspects, different solutions must be found. Principle 9: Scalar Chain In many organizations, the scalar chain principle is still very much alive. However, some have argued that modern management demands new approaches. It has been argued that with ever increasing size of globally acting companies the scalar chain is increasing in length, thus increasing the cost of coordination . With the changing environment, globally operating companies find themselves exposed to in the twenty-first century, some adopt structures that emphasize flexibility and quick response to change (as discussed with Google above). Many organizations attempt to place decision-making authority in the organizational structure with those who can most effectively and efficiently respond to environmental demands. Not coincidently the term "chain of command" carries a resemblance to military terminology, where the clear distinction of levels of command, and the respect for the flow of orders and information along those chains is of crucial importance . Principle 10: Order In discussing, what he calls material order, Fayol points to lost time and an increase of mistakes as a main disadvantage of disorder . He also points to social order and the risks attached to a lack thereof, namely, a reduction of productivity.

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The control of order is a paramount interest in Fayol's opinion, but he warns that "real order" does not simply mean that things have the appearance of order. The international organization for standardization (ISO) is one modern example of how today's management attempts to achieve order. The ISO has developed guidelines that intent to help management to achieve order and the correlated high level of quality of leadership, production and documentation . The ISO certifications, which are designed to test a companies' compliance with the ISO principles, are a fixed part of literally every business undertaking there is. The principle of order that Fayol mentioned is thereby taken very seriously in today's business world. Principle 11: Equity "Equity and equality of treatment are aspirations to be taken into account in dealing with employees", Fayol says. Clearly, this standard is not easily achieved, however, today's work environment is arguably more equipped to tackle this issue than previous generations of corporations. One indication for this claim is to be found in the fact that most companies have appointed officials who deal with complaints of employees against the management, for instance the so-called ombudsman . While the problem still persists, Fayol's principle is being recognized by corporations and enhanced by the public opinion and most importantly the lawmakers . Several nations, e.g. Germany, Sweden and others, intend to tackle the problem of unequal treatment by passing laws that intend to establish a juridical basis for people who fell victim of inequality. Principle 12: Stability of Tenure of Personnel It is Fayol's opinion that it is better to have a "mediocre manager who stays" than "outstanding mangers who merely come and go" . Fayol does not only apply this idea to management though, he also points to negative effects of a lack of stability when it comes to employees. While this point might be debatable to some extend it is clear that stability contributes to better planning possibilities. It also allows for a psychologically

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beneficial state of mind of the employees, hence certainly improving efficiency and the willingness to perform well for the corporation's good. Principle 13: Initiative Fayol summarizes the need for employees to show initiative in the saying, that "the initiative of all, added to that of the managerrepresents a great source of strength for businesses" . He suggests to management to "inspire and maintain everyone's initiative". Some modernly run companies have come to find their special ways in order to ensure employee satisfaction, and, concomitantly their initiative. One example is again Google and their policy of "20% time" . This policy implies that employees get a large part of their time to invest in projects of their choosing. While these projects are not necessarily connected to their immediate work tasks experience has shown, that they often built the basis for spin-off ideas that benefit the firm. Apparently, with the right strategies a company can increase employee participation and initiative by given the "inspiration" Fayol requested from the management. Principle 14: Esprit de Corps This principle unifies a number of demands that can best be summarized with Fayol's own words: "Union is strength" . This principle deals with the personnel being united in their direction and in regards to the correlating efforts to achieve the set goals, in translation, to reveal team spirit. Fayol emphasizes the importance of meetings and personal communication over written communications. The importance of teamwork is mentioned, and Fayol warns managers against believing they could achieve their goals by the strategy "divide an rule". Again modern IT companies can be utilized as living example of this principle. A survey looking at approval ratings for CEOs and overall employee satisfaction shows companies like Apple and Google in top positions. Companies, in other

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words, which are famed, to emphasize and nurture team spirit . This circumstantial evidence hints to a confirmation of Fayol's assumption, i.e. that companies who strive to become successful must strengthen team spirit.

Practical and Theoretical Limitations of the Organization Theory

Henry Mintzberg argues that the four definitions of managerial work laid down by Fayol: planning, organization, coordination and control, have very little bearing on actually daily routine. Indeed, Mintzberg concluded in a memorable finding, the executives I was studyingall very competent by any standardwere fundamentally indistinguishable from their counterparts of 100 years ago, or a 1000. The information they need differs, but they seek it in the same way-by word of mouth. Classical theory of organization suffers from superficiality, over simplification and lack of realism. The scholars have confined themselves closely to the mechanism of authority, whether real or ideal, and have failed to address other equally important elements affecting the performance of the organization. One of the fundamental problems with the classical theory or organization is that it does talk of certain aspect of human behavior but importance given to it is almost negligible. There is no question that Henry Fayol recognized the behavior side of management. However he did not emphasize the human dimension; he let it play only a minor role in comparison with the roles of hierarchical structures, specialization, and the management functions of planning and controlling. In addition, he also simplified the mechanistic assumption for the smooth running of the organization ignoring all the complexities of human behavior at work. As a matter of fact, he assumed human beings as a cog in the machine who simply obeys the orders and thus ignoring the social, psychological, and motivational aspect of human behavior. Thus focus of classical organization theory is on "organization without people". Scholars point out that organization theory was promoted by an engineer (among other qualities of Fayol) who was trying to 'extend the boundaries of his profession by trading on the general rise of interest in management and planning that was characteristic of the early part of the century. They suggest that Fayol observed that engineers found it difficult to 'sustain the privileged role as the focal point of management' as their own knowledge base became 'increasingly disconnected from their productive expertise.'

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Another weakness in classical organizational theory is the assumption that all organizations are somehow alike. A genuine sociology of organizations is not assisted by the efforts of some organization analysts to develop hypotheses about organizations in general, lumping together such diverse examples as voluntary organizations, charities and political organizations ... It also obstructs the analysis of those structural elements which are dramatically revealed in employing organizations, but not necessarily in all forms of organization. In addition, Fayol's theory has been criticised on the following grounds : 1. Too formal: Fayol's theory is said to be very formal. However, in any scientific and analytical study facts and observations have to be presented in a formal manner. 2. Vague: Some of the concepts have not been properly defined. For example, the principle of division of work does not tell how the task should be divided. Again, to say that an organisation needs coordination is merely to state the obvious. In the words of Herbert Simon, administrative theory suffers from superficiality, oversimplification and lack of realism. 3. Inconsistency: Principles of administrative theory were based on personal experience and limited observations. There is too much generalisations and lack empirical evidence. They have not been verified under controlled scientific conditions. Some of them are contradictory. For example, the unity of command principle is incompatible with division of work. The theory does not provide guidance as to which principle should be given precedence over the other. 4. Pro-management Bias: Administrative theory does not pay adequate attention to workers. Workers are treated as biological machines or inert instruments in the work process. 5. Historical value: Fayol's theory was relevant when organisations operated in a stable and predictable environment. It seems less appropriate in the turbulent environment of today. For example, present-day managers cannot depend entirely on formal authority and must use persuasion to get the work done. Similarly, the

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theory views organisations as power centres and do not recognise the role of a democratic form of organisation. "Organization structure is more than boxes on a chart; it is a pattern of interactions and coordination that links the technology, tasks, and human components accomplishes its purposes". To conclude it can be said that the classical theorists of organization were basically concerned with and emphasized single minded to make organizations effective and efficient in terms of making profit. However modern competitive organizations do understand the fact that modern organizations have several motivations to perform besides making profit, thus modern organizations have to integrate various aspects of social and economic factors related to productivity and satisfaction of human needs.

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