Evolution of Management Thinking - Part 2: Quantitative Management and Systems Approach

1. Week 3, Unit 3, Lecture 3 Evolution of Management Thinking – Part 2 By: Dr . Obi Berko School of Management University of Ghana

2. 1) Quantitative Management Introduction quantitative perspective of management focuses on the most efficient and effective ways of utilizing resources. In adopting this approach there are three main branches. 1. Management science management science uses statistics and mathematics to advise managerial decision-making. this approach uses forecasting models, linear programming, cost volume profit analysis, standard costing, marginal costing, and distribution models amongst other tools as a means of identifying options, assessing risk and determining the potential outcomes.

3. Management Science Cont.’ 2. Operations management This branch of quantitative management considers those areas with primary responsibility for managing the production and delivery of products and services. It considers all aspects of the process from inventory through to distribution and looks for improving both the efficiency and the effectiveness. Examples Reorder level Maximum and Minimum re-order level Economic order quantity

4. Management Science Cont.’ 3. Management information systems This is perhaps the most rapidly-developing field of management science, largely due to the speed of technological developments and innovation. It focuses on the design and implementation of computer-based information systems. JIP & Production E-Procurement

5. Attempts to reconcile the classical and human relations approaches Attention is focused on: the total work of the organisation the inter-relationships of structures & behaviour the range of variables within the organisation The organisation is viewed within its total environment and the importance of multiple channels in interaction is emphasised 2) The systems approach

6. System Approach Assumption • The System Approach views the organization as a unified, purposeful system composed of interrelated parts. • The focus of this system is that the managers cannot function only within their departments but they have to communicate and interact with departments and also with representatives of other organizations as well. • This approach analyzes the entire activities of an org. in terms of system inputs, processing and outputs to develop operational efficiency.

7. Main Features of a system Theory Managing Systems System - a set of interrelated and interdependent parts arranged in a manner that produces a unified whole provides a more general and broader picture of what managers do than the other perspectives provide Closed system - not influenced by and do not interact with their environment 1-7

8. Main Features of a system Theory Managing Systems Open system - dramatically interact with their environment organizations - take in inputs from their environments transform or process inputs into outputs outputs are distributed into the environment 1-8

9. Open systems Open systems are those systems that interact with the environment, using inputs from the outside and passing products and services back into the external environment. In general, the modern view of organizations is that they should, as far as possible, be open systems capable of monitoring and adapting those aspects of their environment that can provide access to opportunities and eliminate threats. It is important to remember, the contingency perspective, whereby there is never one best way for organizations to behave in all situations. Open system organizations adopt what Paul Strebel terms either an anticipator or an initiator role with regards to environmental change.

10. Paul Strebel (1990) described what he termed ‘discontinuities’ – sharp shifts of behaviour and organizations forced on companies by the environment in which they operate. The key factor is that the organization must manage any potential discontinuity by either avoidance tactics, reactive responses or proactive responses. The anticipator role is approach in which the organization begins to convert the status quo into change agents as soon as environmental change is detected. The initiator role involves outpacing the opposition and then creating environmental change by triggering smaller incremental environmental changes.

11. Closed systems Closed systems operate in organizations that place emphasis on internal efficiency. Whilst it is almost impossible to do without some contact with the external environment, closed systems organizations minimize that contact by concentrating on establishing tightly-defined systems within. Moving towards an almost scientific management approach. Closed systems organizations tend to use avoidance of adaptive responses to changes in the external environment.

12. Organizational Systems Organizational systems can be seen from two perspectives, open systems and closed systems. Environment Organization Environment Organization Open systemClosed system

13. The Organization As An Open System Environment System Inputs Transformation Outputs Raw materials Human resources Capital Technology Information Products and services Financial results Information Human results Employee’s work activities Management activities Technology and operations methods Environment Feedback 1-13

14. Transformation Process Inputs Output Feedback

15. Inputs • Inputs are the resources required to enable the transformation process the desired outputs. Inputs should be considered from three perspectives: • Physical resources: • People, • Space and time, • Materials • Technological resources: • Equipment and machinery, • Information • Cognitive resources: • Knowledge, • Skills and abilities.

16. Transformation Process A transformation process is the mechanism that brings about the conversion of the inputs into the outputs. In manufacturing terms this is clearly the production of the product; in service and or management terms, the transformation process involves the use of managerial and technical skills and abilities to produce the desired outcome.

17. Outputs Outputs are the end products (or services). They are the reason for the existence of the entire process. For any system to continue to work effectively, there needs to be an integrated mechanism for feeding back to the input stage and transformation process, the degree of success, accuracy and conformance to standards of the ultimate output.

18. Implications of the Systems Approach • Coordination of the organization’s parts is essential for proper functioning of the entire organization. • Decisions and actions taken in one area of the organization will have an effect in other areas of the organization. • Organizations are not self-contained and, therefore, must adapt to changes in their external environment.

19. 3) The Contingency Approach • Contingency Approach Defined • Also sometimes called the situational approach. • There is no one universally applicable set of management principles (rules) by which to manage organizations. • Organizations are individually different, face different situations (contingency variables), and require different ways of managing.

20. Contingency Theory Developed in the 1960s, the contingency theory moves away from the idea that there is one best way to manage organizations. Contingency theory asserts that the best way to manage in any given situation is dependant on the characteristics of that situation. Different situations require different practices which may or may not contain a few or many of the elements of the management school of thought we have already considered. The contingency approach is based on managers assessing the situation and deciding which approach is most likely to achieve the desired goals.

21. Activity 1 State some of the contingency variables

22. Hint: Activity 1: Organization size Technology level Environmental uncertainty – physical factors Individual differences Firm age Firm industry Profit level Location – country/region

23. 1960s – Western management lacked curiosity about competition from Japan, with British and European managers obsessed by American examples 1970 & 80s - many sought to emulate the characteristics of Japanese management Japanese methods have produced: high levels of teamwork an atmosphere of innovative ideas a willingness to continually improve (Kaizen) Management theory – comparing Western & Japanese thinking

24. More Japanese Approach: Management in Action: Japanese Management

26. 4) Current Trends and Issues 4.1) Globalization – Universal pressure 4.2) Ethics – Moral management – child labour, poor wages, 4.3) Knowledge Management – (management of all skills’ set 4.4) Learning Organizations (learning curves 4.5) Quality Management ( robustness)

27. Current Trends and Issues (cont’d) 4.1) Globalization • Management in international organizations • Political and cultural challenges of operating in a global market 4.2) Ethics • Increased creation and use of codes of ethics by businesses

28. A Process for Addressing Ethical Dilemmas Step 1: What is the ethical dilemma? Step 2: Who are the affected stakeholders? Step 3: What personal, organizational, and external factors are important to my decision? Step 4: What are possible alternatives? i.e implication of a decision Step 5: Make a decision and act on it.

29. Current Trends and Issues (cont’d) 4.3) Knowledge Management • The cultivation of a learning culture where organizational members systematically gather and share knowledge with others in order to achieve better performance. 4.4) Learning Organization • An organization that has developed the capacity to continuously learn, adapt, and change.

30. Current Trends and Issues (cont’d) 4.5) Quality Management • A philosophy of management driven by continual improvement in the quality of work processes and responding to customer needs and expectations • Inspired by the total quality management (TQM) • Quality is not directly related to cost

31. What is Management Quality? Intense focus on the customer Concern for continual improvement Monitoring idle time Improvement in the quality of everything Accurate measurement Empowerment of employees

32. Provides a setting in which to view the field of management Traces the major lines of argument developed by different writers Provides a framework in which principles can be set and comparisons of management practice made Helps in organisational analysis and identification of problem areas Enables managers to select those ideas which best suit the requirements of their job Advantages of different approaches / categorisations

33. The various approaches represent a progression of ideas and a pattern of complementary studies Not all writers can be neatly categorised Whilst there may be acceptance of the need for a framework there is no agreement on its shape Caveats

34. Activity 2 1) Which approach (es) is and/or are being used in your firm? 2) Which of them have influenced your thinking? 3) In your own private study compare and contrast these approaches

35. Summary of Some approaches

36. Activity 3: Identify ten situational influences which will have a direct bearing on the way in which you manage a particular situation. How do these impact your behaviour and your approach to people?

37. Activity 4: Case Study The ‘Dictator of Detroit’ – Henry Ford (1863 – 1947) The name Henry Ford is renowned for two reasons, firstly his approach to management practice and secondly, for his notion that ‘people could have any colour they wanted as long as it was black’. Henry Ford was born to a farming family near Detroit, Michigan. By the age 28 he had decided against a career in farming and opted to become a mechanic – some advocates specifically to ease the workload of farmers. Henry ford loved machines, and spent the next two years of his life designing and building modes of transport. In 1893 he created his ‘gasoline buggy’ a machine which made so much noise that it frightened the horses.

38. Seven years later he teamed up with eleven associates and created the Ford motor Company. In 1908 the model ‘T’ was launched and, only twelve years later, every other car in the world was a model ‘T’ Ford. Henry Ford bought out his partners and had become a millionaire. Henry Ford’s obsession with machinery became most apparent when he declared that machinery was the new ‘messiah’. His factories were built around machines with men having to adapt to the demands of Ford’s mechanical systems. Ford himself is quoted as saying:

39. ‘We measure on each job the exact amount of room that a man needs……. This brings our machines closer together than any other factory in the world. To a stranger they may seem piled right on top of one another, but they are scientifically arranged, not only in sequence of operations, but to give every man and every machine every square inch that he requires and if possible, not a square inch and certainly not a square foot more than he requires. Our factory buildings are not intended to be use as car parks.’

40. Job designs were based on simplification and fragmentation. Sadly many of the workers on the assembly line of Ford’s Detroit plant could not tolerate that type of mundane and repetitive work. Even the move to use financial rewards (the $5 a day scheme) only reduced annual labour turnover from 423% in 1913, to 215% in 1919. Ford gain a reputation fro providing a mind-dulling, physically exhausting means of employment. Discipline at work was harsh, and Ford integrated the concept of a moral code applicable outside the work environment. His belief that a man who lived ‘alright’ would work ‘alright’ founded the framework, and any employee caught gambling, drinking alcohol, smoking or engaging in sex outside of marriage was automatically excluded from the wealth-sharing scheme ($5 a day). His moral crusade extended to: ‘Making men as well as automobiles.’

41. To operationalise new ideas, Ford created a sociological department, which systematically assessed the workforce against the specifications. The results of the assessment were that by 1915, 90% of employees were deemed fit to qualify for the $5 a day. All staff were aware, however, that this would be withdrawn if any of the regulation was transgressed. The ways in which Ford viewed organizational management are perhaps best emphasized by a quote from his autobiography. Ford proposed that man is best viewed as a machine, yet a business should not be viewed as a machine.

42. It is a collection of people who are brought together to do work and not to write letters to one another. It is not necessary for any one department to know what any other department is doing. If a man is doing his work he will not have time to take up any other work. It is the business of those who plan the entire work to see that all of the departments are working properly toward the same end. It is not necessary to have meetings to establish good feelings between individuals or departments. It is not necessary for people to love each other in order to work together. Too much fellowship may indeed be a very bad thing, for it may lead to one man trying to cover up the faults of another. This is bad for both men.

43. Factories had no formal organizations, no specific duties attached to role or status, no succession or assumed authority, no red tape and no (or as little as possible) interpersonal contact. All work was pre-planned and all activities prescribed – nothing happened without the knowledge and permission of Henry Ford. As company profitability increased, Henry Ford’s obsessional and over-zealous approach also increased. His glory in self-aggrandisement, however, had a darker side and his sensitivity to criticism made him increasingly suspicious. To remedy this situation he appointed Charles Sorensen as factory superintendent and Ernest Liebold as his private secretary. Both men with markedly authoritarian personalities.

44. Charles Sorensen, or iron Charlie’ as he became known, was soon the most feared man in the organization. In 1921, (under orders from Henry Ford) he increased the speed of the assembly line by 100%, whilst at the same time reducing the workforce by 30%. The wages of those remaining were cut by 25%. Ford’s managers were not immune. Between 1919 and 1922 the majority of the organization’s leading lawyers, engineers, designers and managers were either fired or forced to resign usually for questioning decisions made by Ford ‘s top three. The maliciousness of these events is legendary. It was once reported that during a purge on office staff, one group of clerks returned after lunch to their office to find that all their desks had been hacked to pieces with an axe. A poster on the wall told them that they were no longer required.

45. The sociological department was later replaced by a rigid service department, which eventually became the world’s largest private quasi-military organization. The ford private police force was established and in 1928, harry Bennett was made Chief. By 1932 he was head of the service department where he was given a free hand to make sure the organization runs efficiently. Following true Ford tradition he hired criminals, disgraced policemen and even known gangsters. Nobody was allowed to smile or talk of the factory floor.

46. The brutality of the servicemen was legendary, with night-time raids on the homes of employees being commonplace. These raids increased following new Ford edicts (1930 banning the consumption of alcohol at home, 1932 compelling all employees to grow potatoes). Employees, fearing for their own safety, often informed on one another. Nobody anywhere could be trusted. Henry Ford condoned the activities of Bennett and his army, doing nothing to stop their activities. The Reverend Samuel Marquis, once the head of the disbanded sociological department is quoted as saying about Henry Ford: “he has in him the makings of a great man, the parts lying about in more or less disorder. If only Henry Ford were properly assembled! If only he would do in himself that which he has done in his factory. (adapted from Critical Cases In Organizational Behaviour by J. Martin Corbett)

47. Requirement Can Henry Ford be described as being a leader or a manger? Why? How do leader affect the culture of organizations? How did Ford build the organization to comply with his own desires for the future? What contingencies or situational factors need to be taken into consideration when charting the progression of the Ford Motor Co? What action would any new leader have to take in an attempt to try and reverse the established culture and behaviours in the Ford Motor Co?

48. End of Lecture Many thanks