Classical Management Theory - Literature review Example

title page) Introduction: Classical Management Theory Classical management theory, which emerged in the 19th century and to us today seems simplistic, puts management in a paternalistic role and regards labour negatively, in the sense that workers are considered a resource which requires careful application and external direction in order to be most productive. The general intent of classical management theory is to develop a beneficial relationship between management and employees in pursuit of the main goal to produce goods and services as efficiently as possible to obtain the highest surplus, i.e. the lowest cost and highest profit. (Nienaber & Roodt, 2006: 38) The three main parts of any management theory are the types of control, the manner in which the enterprise is organised, and the way in which tasks are accomplished to produce the goods or services. In classical management theory, the control is autocratic; the enterprise is organised in a clear hierarchy; and the tasks are divided into components as small as necessary to match the abilities of the workers performing them. Frederick Taylor’s concepts of scientific management encompass all these ideas, and are in some respects still widely-used today, as will be discussed in later sections of this paper. The classical management structure is one in which there are three levels of control. The highest executive level is concerned with organising and planning to meet the goals of the company. The middle level of management translates those strategic plans into specific objectives and procedures in the various departments of the company. The lowest level of management is concerned with implementing the procedures and ensuring that the workers accomplish the planned tasks. Taylor focused on the tasks of workers rather than managers, but his concepts of dividing tasks to make them simpler and more efficient and matching abilities of workers to their tasks still apply in this view of the management structure. Within the clearly-divided hierarchical structure, the control is autocratic – there is a clear difference between ‘leaders’ and ‘followers’ – but the number of people under the direct control of any manager, even the top executive, is limited. This also is another example of division of labour. Scientific management, which is considered a big part of “classical” management, concerns itself with finding the one most efficient “best” way to do a particular task. (NetMBA, 2007) Taylor’s purpose in conducting what he called “time and motion studies” were to simplify and define them so that they could be uniformly taught to other workers and to counteract the effects of “soldiering,” the inclination of workers to less than work than they could. Taylor ascribed this to two causes: the natural habit of people to do anything as leisurely as possible, and “systematic soldiering,” which occurred because workers in a group, receiving the same reward regardless of their individual levels of effort, tend to slow down to the speed of the slowest worker. (Taylor, 1911: 11-12) By eliminating “guesswork” in determining what it took to complete particular tasks in order to achieve certain tasks, workers would know exactly what was expected of them, and more importantly, could be trained to perform the tasks in a uniform way to produce a consistent, predictable outcome. Supervisors and managers, knowing exactly what tasks entailed, how much a worker could produce in a given amount of time, how often they would need to rest, and what training tasks required, could then plan and manage production efficiently. Unfortunately, this also had the tendency to make work “mindless,” and treat workers impersonally. (NetMBA, 2007) It should be noted, however, that this was not Taylor’s intention; he recognised that workers’ welfare and satisfaction with their jobs was important, and that cooperation between management and workers – and a fair, equal division of responsibilities between the two – was necessary for productivity. (Taylor, 1911) Literature Review Sigmund Wagner-Tsukamoto (2008) acknowledges the sources of many of the criticisms of scientific management – which have existed almost as long as Taylor’s ideas have – but refutes many of them in the process of developing a different criticism that scientific management actually took a view of human nature that was too positive rather than too negative. Taylor did seem to view workers negatively – one passage quoted by Wagner-Tsukamoto (2008: 354) has Taylor describing the best sort of personality to handle the job of hauling pig iron as “stupid and phlegmatic.” The contention is, however, that what Taylor really meant to say was that no special skills were required for this particular job, rather than implying that stupidity was a requirement. (Wagner-Tsukamoto, 2008: 355) In Taylor’s own book, a similar example is given in his description of the application of scientific management to a department of bearing-ball inspectors (all women), wherein he describes the necessity of removing the workers who had a “high personal coefficient,” i.e., slow hand-eye co-ordination. (Taylor, 1911 [2008]: 69-70) The problem with this understanding of workers’ abilities and self-interests, according to Wagner-Tsukamoto, is not that Taylor applied it to workers, but that he did not apply it to managers, who have their own self-interests and forms of “soldiering.” Rather, he assumed that managers were inherently “good” and co-operative, and resorted to a moral appeal to gain their acceptance of the ideas of scientific management, an approach that Wagner-Tsukamoto describes as contradictory and “utopian.” (2008: 361) Much of the contemporary management literature addresses various ways in which to move away from the “classical” and “scientific” concepts of management. Carney and Williams (1997) contend that a fundamental flaw in the work of ‘management scientists’ is in trying to apply known, standard intellectual disciplines to something which they do not really fit. The work of theorists such as Taylor, Ansoff, and Porter is not science, but “scientism” – borrowing the language and methodologies of the physical world and apply them, inappropriately, to the social world. (Carney & Williams, 1997: 780) The problem is not really that management theorists are attempting to be “scientific,” but that they do not recognise that the line separating ‘hard’ and ‘soft’ sciences is indistinct and that management science, if it exists, is a “cyborgology” of the two different kinds. While this is perhaps more apparent in the modern world, it is not exactly a recent trend; Charles Darwin’s ground-breaking work in the ‘hard’ natural sciences was, after all, inspired in part by the work of the ‘soft’ social scientist Malthus. (Carney & Williams, 1997: 779) Another knock against the fundamental tenets of classical management is that it limited in scope and vision, concerning itself mainly with the specific production and utility of products and services, and a short-term, transactional relationship between the enterprise and its customers. By contrast, the focus of business strategy is shifting towards service management, represented by such ideas as service quality management and TQM. (Grönroos, 1994) Grönroos explains a number of differences between service management and classical/scientific management, the most obvious of which are that the former is customer-driven rather than focusing on internal efficiencies, and that it is a holistic approach which emphasises cross-functions and intra-organisational dependencies rather than specialisation and the division of labour. (Grönroos, 1994: 7) In a similar vein, the evolution away from classic management theory as it is manifested in bureaucratic organisations changing to more collaborative, learning organisations is examined by Maravelias (2003) and Jamali, Khoury, and Sahyoun (2006). These researchers have distinctly different viewpoints of the non- or post-bureaucratic concept, however. On the one hand, post-bureaucracy is seen as a somewhat insidious form of deeper control over the organisation because of the manner in which it removes the distinctions between professional and non-professional – i.e. business and personal – concerns that is present in bureaucracy. (Maravelias, 2003: 549) On the other hand, post-bureaucracy is seen as the most logical way of making an organisation appropriately flexible in a rapidly-changing business environment, and is considered a natural development from the communal behaviour of committed workers more so than a new form of structure imposed by the organisation. (Jamali, et al., 2006) Despite these criticisms of classical management theory, there is some evidence that its basic tenets are still accepted and practised, even by young managers just entering the business world. In a study conducted among final-year MBA students in South Africa, Nienaber and Roodt (2006) found that most define their perceived roles in terms familiar to classical management, and more importantly, do not make a distinction between the concepts of ‘management’ and ‘leadership’, terms that are used interchangeably in classical management literature. This is in stark contrast to modern management thinking, which treats leadership as a separate subject. Application of Classical Management Theory at Nucor Steel About Nucor Nucor Corporation, one of the world’s largest steelmakers, serves as a good test company in which to observe different applications of management theory. Frederick Taylor’s original work in scientific management was developed as a result of his experiences in a steel manufacturer. Nucor, despite being part of a traditional heavy-manufacturing sector, is also well-known for its innovative management strategies, which has made it a consistently successful for decades. Nucor Corporation began life as the Nuclear Corporation of America in the 1950’s, as a manufacturer of electronic instrumentation for the new and growing nuclear power industry. The company was, evidently, not very successful, and on the brink of bankruptcy in 1964 turned to F. Kenneth Iverson, the president of Nuclear Corporation’s Vulcraft subsidiary, to remake the business. Vulcraft was a manufacturer of steel joists, and because of the advantages of supplying Vulcraft with its own raw materials as well as the opportunities presented by new steel-making technologies, Iverson redirected Nuclear Corporation’s efforts into steel production. The company’s name was changed to Nucor Corporation in 1972, and by 1985 the company was the sixth-largest steelmaker in the U.S. Much of Nucor’s success came from its innovative processes to economically produce new steel products from recycled scrap steel, and the company was hailed by major media as a world leader in steel re-manufacture. By 2000, Nucor had grown to be the second-largest steelmaker in the U.S., with annual sales of 11 million tons accounting for revenues approaching five billion dollars. Mostly through acquisitions, Nucor has aggressively worked to expand its product line. In 2005-2006 the company made four major acquisitions, including a buyout of Canada’s Harris Steel which provided Nucor with its first large-scale presence outside the U.S. Nucor briefly surpassed U.S. Steel as the largest steel manufacturer in North America, but the entry of Mittal into the market in 2006 moved Nucor back to second place, although it has since retaken its lead in recent years. (Nucor Corporation, 2010) Planning Functions Nucor’s organisation is decentralised to an almost extreme degree; despite having over 200 operating facilities and more than 20,000 employees, only 95 people work in the company’s headquarters in North Carolina, and of those only about two dozen represent senior management. The company is organised as 90 separate and nominally-independent business units which operate on only the most general collective strategy; specific planning is left to the management of each unit and production facility, and internal competition among the company’s various parts is encouraged. (Nucor Corporation, 2010) Because compensation throughout the entire company is incentive-based, planning is viewed as a collaborative task, with the entire workforce participating in the process. The company’s senior management largely confines its planning activities to developing or acquiring new production capabilities, while specific production goals are developed by the various semi-independent facilities. Cross-functional quality teams are the norm throughout Nucor’s various divisions, and these take the lead in goal-setting; the philosophy within the company is that the people who are intimately familiar with production processes are in the best position to determine what those can achieve. (Nucor, 2010) In addition, planning throughout the company is short-term; annual targets are subject to frequent adjustment and new targets are continually introduced. Scientific Management Several principles of scientific management are immediately obvious in Nucor’s operations, with the biggest exception being the role and organisation of the company’s management. Paradoxically, the “incentive and initiative” pattern – the setting of production goals and then leaving the decisions of how to best achieve them to the workers – that Taylor sought to change with his application of empirical study to work tasks (Taylor, 1911) is the basis of the thinking behind Nucor’s planning and management, but the key difference that makes it an example of scientific management is the way in which it is controlled and carefully integrated into the company’s operations. Rather than rely on an external observer, steps in the production process are analysed and tested by the workers themselves, from the perspective of meeting a certain level of production or quality to attain incentive levels. This is an important function within the company overall, because Nucor does not maintain a separate research and development department. (Nucor Corporation, 2010) Thus, once new processes are developed or existing ones refined, these are recorded as procedures and shared with other relevant divisions throughout the company. To encourage the continual development of “best methods,” compensation throughout the company is heavily incentive-based, particularly for the line workers. Guaranteed hourly wages are lower than the industry average, but Nucor employees average much higher total pay than their counterparts in competing steel manufacturers, with the net effect of giving Nucor some of the lowest production costs per ton in the industry. (Nucor Corporation, 2010) Bureaucratic Management Bureaucratic management is characterised by hierarchical, linear management, an inward focus, cost-cutting, narrow division of labour, and standardisation of production. (Khoury & Sayoun, 2006) Very little of this is reflected in Nucor’s management. The organisation is kept as flat as possible, with as little separation between management and labour as can be managed. Since the general strategy of the company is to seek “disruptive technologies” and “leapfrog technologies” – products and processes that gain market share because the competition does not yet have something comparable – the overall focus of the company is outward, not inward. (Nucor Corporation, 2010) Division of labour and production standardisation are almost entirely absent. Only in cost-cutting does Nucor remotely adhere to bureaucratic practises, but even in this the focus is positive and done from the perspective of increasing productivity at the same cost level rather than reducing costs to maintain the same productivity level. (Nucor Corporation, 2010) Administrative Management Nucor Corporation more properly fits the definitions of service management and learning organisation orientations than any other. (Grönroos, 1994, and Jamali, et al., 2006) If considered in terms of Fayol’s 14 Points, just how far Nucor has evolved from the classical management model quickly becomes apparent. Specialisation and division of labour is minimal; Nucor aggressively promotes cross-training and cross-functionality among its workforce. Fayol’s traditional views of authority, discipline, and unity of command are all utterly rejected by the Nucor model, which instead opts for teamwork, collaboration, and incentives. By the same token, these enhance Fayol’s points on subordination of individual interest, unity of direction, order, initiative, esprit de corps, and equity, which lead to an extremely stable workforce – Nucor has not made any employees redundant in over five years, and typically has a staff turnover rate of 1.5% or lower annually. (Nucor Corporation, 2010) Nucor’s unique incentive-based pay structure, which rewards not only personal productivity but encourages co-operative effort by making every employee’s incentive partly dependent on the performance of other departments or facilities, seems to be the key to the company’s being able to maintain efficiency and productivity with a remarkably decentralised, lean management structure. Every aspect of every employee’s performance is incentivised in some way, and a significant portion of the incentive is based on others’ performance. For example, departmental employees are paid bonuses based not only on their own output and quality, but on that of the entire facility as well; in like fashion, managers are paid bonuses based roughly equally on their own facilities’ performance and that of the others in their division. This, according to Nucor, not only engages the workforce more intimately in their own responsibilities but encourages co-operation between different departments and facilities. (Nucor Corporation, 2010) Conclusion The one problem with studying a company like Nucor from a perspective of classical management theory is that the company itself does not approach its management from the same perspective. According to Mr. Paul McKenzie, who is an Export Product Manager at Nucor’s North Carolina headquarters: “Most of us in the senior management have some formal training, of course, but what’s more valuable is that almost all of us have worked our way up through the business. So when we do our planning, we either understand immediately how a certain idea will specifically impact our products or our people...or we’re sitting at the table right next to someone who does. I can’t think of a time when we have ever said, ‘well, let’s think about this model or that one, and try to apply that.’ I guess it sounds like a shortcut, but we all know our business, and if something sounds right, that’s what we’ll try. “The nice thing about our corporate philosophy is that we’re not afraid to make mistakes. If we implement a new idea and it doesn’t pan out, that is still valuable learning in our view. That’s when the models and theory are the most helpful: when something goes wrong. That’s the time to look at the idea from a model or a theory perspective, and see if it gives us any insights on how to improve it.” (Paul McKenzie, e-mail interview, 2 May 2010) Consequently, it is much easier to spot differences than similarities between Nucor’s management style and philosophy and classical management theories. Autocratic control, a clear hierarchy, and a strict division of labour – all aspects of classical management theory – are largely absent from Nucor’s management model. From the CEO to the shop floor workers, there are only five levels in the Nucor hierarchy, and each of these is given an extraordinary degree of autonomy. (Nucor Corporation, 2010) Line workers, for instance, are employed in exactly the same sort of “incentive and initiative” manner that Frederick Taylor sought to overcome with scientific management. The only aspect of Taylor’s work that is reflected in Nucor’s factory operations is that new ideas are tested systematically, adopted, and shared as new procedures throughout the company if they are found to be more productive, a process which is ensured by the incentive scheme. Division of labour, however, is only done to the extent necessary to ensure maximum productivity. Cross-training and flexibility among all employees is encouraged, and this too is reinforced by the incentive system which makes everyone in the company inter-dependent; employees are more willing to help out in different areas than their own, when the performance of those areas has a direct impact on their own pay. As noted above, the incentive-based pay scheme, which applies to everyone within the company from the CEO to the newest line worker, is the key to the making Nucor’s management system successful, a point of view with which Mr. McKenzie agreed. He offered the opinion, however, that the particular way in which Nucor’s facilities were designed also plays a role in Nucor’s success. “Compared to other steel companies, our factories are small,” he said. “That makes communications between people much easier, and means that new ideas can be tried out on a smaller scale, without disrupting our normal output.” (Paul McKenzie, e-mail interview, 2 May 2010) Another possible advantage is that Nucor relies mainly on scrap steel for its raw materials, rather than raw iron ore and the other ingredients required to make steel from scratch. (Nucor Corporation, 2010) This means that Nucor’s supply chain is far less complex than those of most of its competitors, and requires far less resources to manage. In summary, a few of Nucor’s management techniques can be described by elements of classical management theory, but most cannot. In this sense, Nucor is an example – perhaps an extreme example – of a trend reflected in the literature of a rejection of classical or traditional management theory. Nucor’s approach, as Mr. McKenzie indicated, is more one of addressing specific and unique conditions of the company rather than adopting a general perspective and trying to fit the conditions to it. The approach has certainly worked for Nucor – the company claims a 371% return to shareholders in the past five years (Nucor Corporation, 2010) – and as a generalised viewpoint seems to be valid, although the specifics may work for Nucor alone. References Carney, D. Philip, and Williams, Russell. (1997) “No such thing as...scientific management”. Management Decision, 35(10): 779-784. Available from Emerald: . Grönroos, Christian. (1994) “From Scientific Management to Service Management”. International Journal of Service Industry Management, 5(1): 5-20. Available from Emerald: . Jamali, D., Khoury, G.and Sahyoun, H. (2006) “From Bureaucratic Organizations to Learning Organizations”. The Learning Organization, 13(4): 337-352. Available from Emerald: . Maravelias, Christian. (2003) “Post-bureaucracy – Control through Professional Freedom”. Journal of Organizational Change Management, 16(5): 547-566. Available from Emerald: . McKenzie, Paul. (2010) E-mail response, RE: Management Study. 2 May 2010. NetMBA. (2007) “Frederick Taylor and Scientific Management”. [Internet] NetMBA Business Knowledge Center. Available from: . Nienaber, Hester, and Roodt, Gerrie. (2006) “Management and leadership: buccaneering or science?” European Business Review, 20(1): 36-50. Available from Emerald: . Nucor Corporation. (2010) Company website. Available from: . Taylor, Frederick W. (1911) The Principles of Scientific Management. 2008, Forgotten Books. Available from: . Wagner-Tsukamoto, Sigmund. (2008) “Scientific Management Revisited”. Journal of Management History, 14(4): 348-372. Available from Emerald: . Appendix After reviewing the Nucor Corporation website, the following questions were prepared and e-mailed via the customer contact page on 30 April 2010. A reply was received from Mr. Paul McKenzie, the Bar Mill Export Products Manager (and as such, responsible for sales and customer contact in Australia), on 2 May 2010: 1. Your company’s website indicates that the individual factories are managed autonomously, with the General Manager of each facility being responsible for virtually all aspects of planning and control in his factory. To what extent is there overall planning for Nucor, and how is that accomplished? (Overall planning mostly focuses on developing new technologies and new production capabilities, and on broad performance goals for the entire group. The General Managers of the individual plants and the senior corporate management all take part in this planning.) 2. In management or strategy planning – at any level in the company – how often and to what degree does Nucor rely on models and methods (for example, Porter’s Five Forces, Value Chain, Ansoff Matrix, SWOT Analysis, etc.) to support decision-making? (See answer quoted in the text.) 3. What proportion, on average, of compensation comes from incentives and bonuses? Of that incentive and bonus portion, what proportion is tied to personal productivity and what proportion is dependent on the performance of larger parts of the company (such as the department, the factory, a division, or the company as a whole)? (For most employees, between half and two-thirds of their pay is from incentives and/or bonuses. About half of that is tied to overall performance, either in the employee’s own facility or for Nucor as a whole.) 4. Apart from the incentive program, what other characteristics of Nucor make the company uniquely successful in its industry? (We differentiate ourselves from the rest of the industry by focusing on new technologies, and most of our raw material comes from recycled steel. We also operate smaller, more specialized facilities, spread out across North America, which is more cost-effective and gives us better control over quality.) Read More