Classical and Neo-Classical Theories of Management

Classical management theory

There are three well-established theories of classical management: Taylor’s Theory of

Scientific Management, Fayol’s Administrative Theory and Weber’s Theory of
Bureaucracy.

Although these schools, or theories, developed historical sequence, later ideas have not
replaced earlier ones. Instead, each new school has tended to complement or coexist with
previous ones.
Theory recognizing the role that management plays in an organization. The importance of the
function of management was first recognized by French industrialist Henri Fayol in the early
1900s.
In contrast to the purely scientific examination of work and organizations conducted by F W
Taylor, Fayol proposed that any industrial undertaking had six functions: technical; commercial;
financial; security; accounting; and managerial. Of these, he believed the managerial function,
‘to forecast and plan, to organize, to command, to coordinate, and control’, to be quite distinct
from the other five. Fayol also identified general principles of management: division of work;
authority and responsibility; discipline; unity of command; unity of direction; subordination of
individual interest to general interest; remuneration of personnel; centralization; scalar chain of
authority; order; equity; stability of tenure of personnel; initiative; and esprit de corps. Fayol's
views on management remained popular throughout a large part of the 20th century.

Evolution of Classical Approach to Management

Traditional process of learning is either through observation and experiment. Nature or

environment is considered uniform and when we observe certain phenomenon or events
uniformly leading to the same result or results, we conclude a cause and effect relationship
between the two. This is learning by observation or in other words by experience.
Earlier thinkers on management followed this approach in developing theories of management.
Learning principally is through empirical process and through analysis of the data collected
through observation. Draw the principles of management by looking at and analyzing the jobs
that all managers commonly do. This approach served as a starting point for pioneers on
management science to verify the validity and improve the applicability of the principles and
practices of management. Analysis of observed data is what constitute a case study. The
observational method of case study helps arriving at logical conclusions about past experience
and to test the same as standards for future events.
The German sociolists, Max Weber followed the classical approach and developed his
theory of Bureaucracy, which portrays the structure anddesign of organisation
charqacterised by a hierarchy of authority, formalised rules and regulations that serve to
guide the coordinated functioning of an organization.

Basic Postulates of the Classical Approach by Max Weber

1. Management of an organization is considered as a chain of inter-related functions. The study

of the scope and features of these functions, the sequence through which these are performed
and their inter-relationship leads one to draw principles of management suitable for universal
application
2. Learning principles of management is done through the past experiences of actual practicing
managers
3. As business environment consists of uniform cycles exhibiting an underlying unity of realities,
functions and principles of management derived through process of empirical reasoning are
suitable for universal application
4. Emerging new managers through formal education and case study can develop skill and
competency in management concepts and practices
5. The classical approach also recognized the importance of economic efficiency and formal
organizational structure as guiding pillars of management effectiveness.
6. Business activity is based on economic benefit. Organizations should therefore control
economic incentives

Neoclassical theory of management. There are 3 neoclassical theories:

Human Relations Theory:
Explains the modern advancement of Human Relations Management theory which takes into
account human factors like the employer-employee relationship. Human relations theory is
largely seen to have been born as a result of the Hawthorne experiments which Elton Mayo
conducted at the Western Electrical Company.

The important strand in the development of modern management was the increase in attention
to the human factors, which has become known as the 'human relations school of
management.’ The core aspect of Human Relations Theory is that, when workers were being
observed and included in the research, they felt more important and valued by the company. As
a result, their productivity levels went up significantly. This represented a significant departure
from many of the classical theories, particularly Fordism, as it went against the notion that
management needed to control workers, and remove their autonomy at every step. Instead, it
showed that by engaging with workers and considering their requirements and needs,
company’s could benefit from increased productivity.

Behavioral theory:
The behavioral management theory is often called the human relations movement because it
addresses the human dimension of work. Behavioral theorists believed that a better
understanding of human behavior at work, such as motivation, conflict, expectations, and group
dynamics, improved productivity.
The theorists who contributed to this school viewed employees as individuals, resources, and
assets to be developed and worked with — not as machines, as in the past. Several individuals
and experiments contributed to this theory.

Social systems theory.:

Developed by Niklas Luhmann is an option for the theoretical foundation of Human Resource
Management (HRM). After clarifying the advantages of using a grand (social) theory as the
basic theoretical perspective, the roots of this social systems theory - the deterministic view of
systems as machines, the open systems approach and non-linear systems theory - are
addressed. Based on the view of social systems as autopoietically closed systems, five major
contributions to a theoretical foundation of HRM are identified:
(1) The conceptualization of organizing and managing human resources as social processes,
thus overcoming an individualistic angle;

(2) The new importance of individuals as essential element in the system's environment;

(3) the abstention form far reaching or highly unrealistic assumptions about the 'nature' of
human beings; (4) the interaction between various levels and units of analysis built into the
theory which is essential for comprehensive and in-depth analyses of HR phenomena and

(5) The openness for additional theories for which social systems theory provides the overall
framework.

George Elton Mayo was in charge of certain experiments on human behavior carried out at the
Hawthorne Works of the Western Electric company in Chicago between 1924 and 1927. His
research findings have contributed to organizational development in terms of human relations
and motivation theory.
Elton Mayo's contributions came as part of the Hawthorne studies, a series of experiments that
rigorously applied classical management theory only to reveal its shortcomings. The Hawthorne
experiments consisted of two studies conducted at the Hawthorne Works of the Western Electric
Company in Chicago from 1924 to 1932. The first study was conducted by a group of engineers
seeking to determine the relationship of lighting levels to worker productivity. Surprisingly
enough, they discovered that worker productivity increased as the lighting levels decreased —
that is, until the employees were unable to see what they were doing, after which performance
naturally declined.

A few years later, a second group of experiments began. Harvard researchers Mayo and F. J.
Roethlisberger supervised a group of five women in a bank wiring room. They gave the women
special privileges, such as the right to leave their workstations without permission, take rest
periods, enjoy free lunches, and have variations in pay levels and workdays. This experiment
also resulted in significantly increased rates of productivity.

In this case, Mayo and Roethlisberger concluded that the increase in productivity resulted from
the supervisory arrangement rather than the changes in lighting or other associated worker
benefits. Because the experimenters became the primary supervisors of the employees, the
intense interest they displayed for the workers was the basis for the increased motivation and
resulting productivity. Essentially, the experimenters became a part of the study and influenced
its outcome. This is the origin of the term Hawthorne effect, which describes the special
attention researchers give to a study's subjects and the impact that attention has on the study's
findings.