Administrative Management Theories

Introduction

We have chosen to discuss Administrative Management Theory because it plays a vital role in the development of every business and organization.

As per the book , Administrative Management is the study of how to create an organizational structure and control system that leads to high efficiency and effectiveness based on Max Webber’s Theory of Bureaucracy and Fayol’s Principles of Management

The Theory of Bureaucracy Developed by Max Weber (1864-1920), a German professor of sociology.

Principle 1:

In a bureaucracy, a manager’s formal authority derives from the position he or she holds in the

organization.

Authority - the power to hold people accountable for their actions and to make decisions in reference to

the use of organizational resources.

In today’s business models, this type of theory is not very common. Nowadays, we see more of an

informal authority approach in which there is personal expertise, technical knowledge, moral worth, and

the ability to lead and to generate commitment from subordinates, without the use of this absolute power

from one individual.

The Theory of Bureaucracy Developed by Max Weber (1864-1920), a German professor of sociology.

Principle 2:

In a bureaucracy, people should occupy positions because of their performance, not because of their

social standing.

Some organizations and industries are still affected by social networks in which personal contacts and

relations, not job-related skills, influence hiring and promotional decisions. (Textbook / Contemporary

Management - 6th Edition)

The old ways, of not what you know, but who you know, are still around in today’s society, but it can only

get you so far. In today’s business world, what you know and educational knowledge, play a very important

part in moving up the corporate latter and being able to maintain a managerial position requires the

utilization of staying current on up to date techniques and information.

The Theory of Bureaucracy Developed by Max Weber (1864-1920), a German professor of sociology.

Principle 3:

The extent of each position’s formal authority and task responsibilities, and its relationship to other

positions in the organization should be clearly specified.

When the task and authority associated with various positions in the organization are clearly

specified, managers and workers know what is expected of them and what to expect from each

other. (Textbook / Contemporary Management - 6th Edition)

Most organizations should and are clearly defining task and position responsibilities. Job

descriptions should include all facets of an employee held position. Clarification of one’s job

expectations is essential for all five business functions in order to manage and maintain a high level,

and measurable level of success for all organizations.

The Theory of Bureaucracy Developed by Max Weber (1864-1920), a German professor of sociology.

Principle 4:

Authority can be exercised effectively in an organization when positions are arranged

hierarchically, so employees know whom to report to and who reports to them.

Managers must create an organizational hierarchy of authority that makes it clear who reports to

whom and to whom managers and workers should go if conflicts or problems arise. (Textbook /

Contemporary Management - 6th Edition)

Today’s business models utilize the initiative factor in which employees are given the ability to act on

their own, without direction from a superior. This empowerment of employees relieves the stress of

constant supervision and allows supervisors and managers to concentrate more on other

administrative duties. The balance between a vertical and horizontal organizational structure is more

widely used in today’s business models.

The Theory of Bureaucracy Developed by Max Weber (1864-1920), a German professor of sociology.

Principle 5:

Managers must create a well defined system of rules, standard operating procedures, and norms so that

they can effectively control behavior within an organization.

Standard Operating Procedures (SOPs) are specific sets of written instructions about how to perform a

certain aspect of a task. (Textbook / Contemporary Management - 6th Edition)

Most companies have SOPs and require employees to learn and follow them. We have seen how in

addition to following rules and regulations, many organizations have allowed for creativity and innovation

to supersede the common way of conducting business where it was once said, “rules are rules and they

could never be broken”. Guidelines are needed and common sense is always important, but have an open

line of communication to new ideas and thoughts is essential in today’s business society.

Henri Fayol’s 14 Principles of Management

Division of Labor

Job Specialization and well divided labor should increase efficiency. Possible downside: Boredom that could drop quality, worker initiative,

and flexibility.

How Does this Apply Today?

This is a potentially good practice for institutions whose workers deal with highly technical or repetitive tasks. Tasks that require innovation and a

creative exchange or with workers who are required to have cross-departmental knowledge may not benefit from Division of Labor.

Henri Fayol’s 14 Principles of Management

Authority and Responsibility

Managers have the right to give orders and demand obedience (formal). Managers gain authority derived from expertise, technical knowledge,

moral worth, and ability to lead and generate commitments from subordinates (informal).

How Does this Apply Today?

Formal authority can be used or perceived as totalitarian shutting down the much needed two way communication; however, much can be gained

by supervisors whose subordinates naturally follow those who they perceive as a leader (characterized by informal authority).

Henri Fayol’s 14 Principles of Management

Unity of Command

An employee should receive orders from only one superior.

How Does this Apply Today?

Leads to less opportunities for confusing or conflicting directives. Very appropriate as long as subordinate managers are able to

interpret directions from their leaders and disseminate the directions to their subordinates.

Henri Fayol’s 14 Principles of Management

Line of Authority

Clearly defined and limited chain of command from the top to the bottom levels.

Allows for cross departmental interaction of middle managers to speed decision making.

How Does this Apply Today?

In a competitive market place, limiting the line of authority maintains overhead to its minimum and allows for quicker reaction to

directives in a marketplace requiring speed.

Henri Fayol’s 14 Principles of Management

Centralization

Authority should not be concentrated at the top of the chain of command because it slows down decision making.

Centralization at the top may be necessary when it is vital that the organization’s strategy be firmly adhere to.

How Does this Apply Today?

When authority is concentrated at the top of the organization’s chain of command, only those at the top can make decisions. This funnels the workload through a small number of managers causing delays. Also, centralization at the top trains middle managers to quickly pass on the

problems and they simply follow orders. In cases where an organization needs to operate in a crisis mode, it may be vital to assure that all but

the most trivial decisions be made at the top.

Henri Fayol’s 14 Principles of Management

Unity of Direction

An organization should have a single plan of action to guide managers and workers.

How Does this Apply Today?

An organization that does not have a single purpose and plan becomes inefficient and unfocused. If managers and workers have a different

focus or direction, not all of the organization’s resources are used towards the legitimate goal.

Henri Fayol’s 14 Principles of Management

Equity

All members of an organization are entitled to be treated with justice and respect.

How Does this Apply Today?

Equity in an organization gains its members’ loyalty and trust. They can proceed and dedicate all of their time to the task at hand

knowing that they will be treated fairly and equally.

Henri Fayol’s 14 Principles of Management

Order

The arrangement of organizational positions should maximize organizational efficiency.

- Fayol recommended the use of organizational charts to show the position and duties of each employee and to indicate which positions an employee might move to or be promoted into the future. This form of guidance or career planning, allows for an orderly advancement from one position to the next.

Henri Fayol’s 14 Principles of Management

Henri Fayol’s 14 Principles of Management

Initiative

Managers should allow employees to be innovative and creative.

- Fayol believed that managers needed to encourage their employees to act on their own, without direct supervision from a supervisor. This key to this principle is to promote creativity and innovation. Hence, employees with more freedom and responsibility, tend to have a greater desire to accomplish the job at hand.

Example: Many retailers have empowered their cashiers to perform price over-

rides without the need for a supervisor to approve the change. More and more companies are empowering their call center agents to

perform one-time fee reversals without the approval of a supervisor.

Henri Fayol’s 14 Principles of Management

Discipline

Managers need to create a workforce that strive to achieve organizational goals.

- Fayol believed that discipline resulted from respectful relations between organizational member and reflects the quality of an organization’s leadership and a manager’s ability to act fairly and equitably.

Example: A manager may ask an employee to stay late or work weekends in order

to complete an assignment. If the manager has always been courteous and respectful of the employee, then they may be more willing to oblige to the managers request.

Henri Fayol’s 14 Principles of Management

Renumeration of Personnel

System that managers use to reward employees should be equitable for both employees and the organization.

- Fayol was a big proponent of bonuses and profit sharing plans, because he believed it encouraged productivity. However, he was cautious to state the reward system could not be the subject of abuse or bias.

Many companies perform six month or twelve month reviews of their employees and based on their performance figures they’re rewarded with a bonus. Typically the amount of the bonus is a percentage of their annual salary.

Example: Company “A” pays up to twenty percent of an employees salary. Employee “X” annual salary is $75K. In other words, employee “X” can make as much as $15K in annual bonus.

Henri Fayol’s 14 Principles of Management

Stability of Tenure of Personnel

Recognition that long-term employees develop skills that can improve organizational efficiency.

-Fayol believed that when employees stayed with an organization for extended periods of time, they develop skills that improve the organization’s ability to utilize its resources.

Example: Consider employees that grow within a company. Companies are often

more willing to hire and promote from within because employees may already possess certain job function skills and technical knowledge of the applications, which usually leads to a lower cost of training. Furthermore, since the employee has already been exposed to the environment, he/she may be more well equipped to come up with the right approaches to handle certain situations.

Henri Fayol’s 14 Principles of Management

Subordination of Individual Interests to the Common Interest

Employees should understand how their performance affects the performance of the whole organization.

- No one individual or group is above the organization. Having said that, remember Fayol believed that there needed to exist a harmonious relationship between the organization and its members, in order to ensure that employees were being treated fairly and rewarded for their performance.

Example: Sports teams, like any other business, consist of upper management

executives (CEO, President, GM), managers (coaches) and players (employees). Keep in mind though that in this business, some players tend to make more money than some of those positions above them. Players that are selfish, unwilling to adapt and change to the philosophy set forth by the teams management may find themselves being released or traded.

Henri Fayol’s 14 Principles of Management

Esprit de Corps

Managers should encourage the development of shared feelings of comradeship, enthusiasm, or devotion to a common cause.

- Comes about by encouraging communication between managers and workers to solve problems and implement solutions.

Example:

A compliance officer notices that communication between the compliance department and the business unit is lacking cohesiveness. The employee, knowing that their boss is willing to listen to their opinions, can suggest that a liaison, someone with experience in both areas of the business, be hired to facilitate communication and ultimately satisfy the needs of both departments.

Conclusion

All in all, administrative management theory such as; bureaucracy is a formal organizational system that is applied in today’s business industry throughout the world. The management process of Fayol’s fourteen principles of management has influenced efficiency in today’s business society.

References

Jones, G.R., George, J.M (2009). The Evolution of Management Thought. Contemorary Management (pp 38-71). New York, NY: McGraw-Hill/Irwin.