Management dates back to antiquity; it’s one of the oldest activities known to human beings. The ability to organize a group of people to work together was a significant reason early humans survived in harsh environments around the world. Farmers, families, religious groups, militaries, all require coordination to operate together. Some ancient recordings of management theory include the Egyptians limiting the number of slaves a single master could control (roughly 200 in total) during the building of the Great Pyramids, and Hammurabi’s Code detailing how a person ought to behave (and subsequent consequences for misbehavior). The focused study of management, though, is only a couple hundred years old. Why is a history of management relevant to improving a business? That’s a question I’ve wrestled with, but ultimately determined to include a short history because there is value in understanding how we got to where we are. Additionally, creating a business that gets better over time requires competent, adaptive management. Without it, any plans or ideas to make a business better would not be followed through. So, a brief background into how we got here is necessary.
Henri Fayol, a French Mine Engineer, born in 1841, is often referred to as the father of modern operations management. He published a book in 1916 called Administration industrielle et générale (French was his native tongue)which was translated to English in posthumously 1949 as General and Industrial Management. In his book, Fayol outlined five elements of management;
- Planning- Generating action plans to meet desired goals
- Organizing- Ensuring there are enough resources (people and equipment) to meet goals
- Commanding- Identifying what needs to be done and getting others to do it
- Coordinating- Keeping everyone and everything operating towards the goal
- Controlling- Making sure progress has kept up with the plan
Fayol’s book became the foundation for what’s known as Fayolism. A distinct form of management aimed at minimizing misunderstandings and inefficiencies by focusing on administrative work (i.e. focus on making management better to increase efficiency). He believed management should be taught in all school programs so they could be practiced in the workplace. His (translated) words were, “Everyone needs some concepts of management; in the home, in affairs of state, the need for managerial ability is in keeping with the importance of the undertaking, and for individual people the need is everywhere in greater accordance with the position occupied.”14
Frederick Taylor’s Scientific Management has been compared to Fayolism since both are concerned with increasing organizational efficiency. Fayol was critical of Taylor though, on the grounds that Taylor called for too rigid of a system of rules for management. Fayol believed management should have flexibility and put value on interpersonal relationships. In addition to the above elements of management, Fayol also devised a set of 14 Principles of Management to keep the manager’s affairs in order;14
- Division of work- Keeping certain employees in certain function areas so they specialize and increase their efficiency.
- Authority- Management comes with a level of power and ability to give orders.
- Discipline- Maintain good conduct and respectful interaction.
- Unity of Command- Each employee should have only one superior.
- Unity of Direction- Groups of activities with a common goal should have a single manager.
- Subordination of Individual Interest to General Interest- Play for the team, not for yourself.
- Remuneration- Pay a fair wage.
- Centralization and Decentralization- Degree to which non managers contribute to decision making.
- Scalar Chain- Chain of command, from the top all the way down.
- Order- A place for everything and everything in its place.
- Equity- All employees must be treated equally.
- Stability- Avoid high employee turnover, it’s inefficient.
- Initiative- Allow employees to originate and carry out their own plans as they will exert a high level of effort.
- Esprit de Corps- Promote team spirit to build harmony.
Mary Parker Follett
Another important figure in Management is Mary Parker Follett. A Social Worker turned Management Consultant, Follett had a big impact on organizational theory. Her time spent in Social Work developed her ability to observe in great detail. One of her most keen observations came from watching people interact in different settings, leading her to believe that a person’s identity is porous, affected by society around them, which, in turn, is affected by the identities of the people within it. This led Follett to believe that individuals and society are constantly involved in a cycle of influence.
Follet moved from Social Work to Management Consulting where she fought for things like community spaces and after school programs for children. She advocated for lateral processing in organizations which later became the Matrix Organization structure, informal processes, and believed in the authority of expertise (Similar to Ray Dalio’s concept of believability weighted decision making from his book, Principles). Follett defined management as, “The art of getting things done through people16” which is not dissimilar from Fayol’s belief that managers need to be flexible. Follett and Fayol disagreed on one big point though- Fayol believed that a person should have only one manager, whereas Follett believed in a matrix organization where one person can work for multiple departments.
Abraham Maslow was a trained Psychologist that is most famous for his hierarchy of human needs. In his book, A Theory of Human Motivation, Maslow established a positive theory for human motivation, based on different levels of physiological and psychological needs. His work is commonly depicted as a pyramid with the lowest level being the bottom of the hierarchy. According to Maslow, the hierarchy of humans needs is;
- Basic, Physiological needs- Food, water, sleep, sex, homeostatis, and excretion
- Safety needs- Security of body, employment, resources, family, health and property
- Love and Belonging needs- Friendship, family, intimate sexual relationships
- Esteem needs- self esteem, confidence, respect from others, sense of achievement
- Self Actualization needs- Autonomy of decision making, being able to pursue what one loves for the sake of it
Two revealing quotes from Maslow’s book are; “If all the needs are unsatisfied, and the organism is then dominated by the physiological needs, all other needs may become simply non-existent or be pushed into the background. It is then fair to characterize the whole organism by saying simply that it is hungry, for consciousness is almost completely preempted by hunger.”18
“What a man can be, he must be. This need we may call self-actualization18.” The former quote shows, simply, that we have to have certain needs met to even think about the existence of other needs. The latter quote, building upon the first, shows that when someone has met their lower level needs, the only thing that motivates them is themselves. If there is plenty of food in a secure home that’s full of people you love and respect, and plenty of money in the bank, the only thing to motivate more work, is the love of the work.
Why are we talking about motivation? Maslow’s work was grounded in Psychology, but it made a big splash in studies of Management due its uncommon stance that positive motivation works. Traditional management is forceful and rooted in using authority to get an employee to complete a task. Lillian Gilbreth, Mary Parker Follett and Abraham Maslow all showed in slightly different ways that positive motivation is significantly better than negative. Using a carrot to lead, as opposed to a stick to strike fear, creates a lasting change in behavior.
In addition to being well known for his hierarchy of needs, Maslow is also known for, “Maslow’s Hammer.” The theory came from his famous quote, “If all you have is a hammer, everything looks like a nail.” It’s a reference to specialists who try to solve problems in the only way they know how. Basically, a CEO who came from sales is likely to try and solve all business problems by focusing on sales.The risk in this type of behavior is that by forcing a solution onto a problem without proper understanding, new problems may start rising. If a bank tries to solve a liquidity problem by finding more customers to deposit cash, they may inadvertently increase the odds of a run on the bank, and thereby create a worse liquidity problem. The bank’s best option for improving their liquidity is likely reducing the number of illiquid assets they hold. The hammer theory from Maslow is a significant thought exercise because it forces one to slow down and really analyze a problem before trying to solve it.
As is probably clear by now, a large part of management is motivating employees to do their work. An influential thinker in the motivation space is Douglas Mcgregor, one of the first Professors at MIT’s Sloan School of Management, and a student of Abraham Maslow. McGregor was trained in Psychology and most famous for his two theories of management, Theory X and Theory Y. The two opposing viewpoints lay out the assumptions different managers make about their employees. Theory X20 states that;
- Work is inherently distasteful to most people, and they will avoid work whenever possible
- Most people are not ambitious, have little desire for responsibility, and prefer to be directed
- Most people have little aptitude for creativity in solving organizational problems
- Motivation occurs only at the physiological and security levels of Maslow’s hierarchy of needs
- Most people are self-centered and must be coerced to achieve organizational objectives
- Most people resist change
- Most people are gullible and unintelligent
This is a highly pessimistic point of view to hold. Anyone that has been a manager for a day knows, though, that in certain cases, amongst some people, these assumptions have a bit of truth to them. Not everyone, clearly, falls into this category of employee. Opposite Theory X is Theory Y,20 which states that;
- Work can be as natural as play if the conditions are favorable
- People will be self-directed and creative to meet their work and organizational goals
- People will be committed to their quality and productivity objectives if rewards are in place that address higher needs
- The capacity for creativity spreads throughout organizations
- Under these conditions, people will seek responsibility
If Maslow’s hierarchy were put into a particular set of managerial assumptions, Theory Y is what it would look like. Being a manager often means treating people equitably and with fairness, but by using a unique approach for different people. It’s not an accident that McGregor has two highly opposing theories. There are opposing personalities out there and understanding them and how to deal with them is a key to building a great company.
This is by no means a complete history of management. Many other theories and business managers have written at length about what it takes to be an effective manager, but many modern theories trace their roots back to these prominent figures, elaborating on them slightly. Creating a great company, one that can grow and adapt to changes in the economy, run with the punches, and strives for greatness requires managers that have an understanding of management theory. The reality is, though, many current managers got their jobs by being the best at certain tasks e.g. sales, marketing, customer service, manufacturing, etc. They have deep experience in the area they’re managing, but don’t have a deep understanding of management theory. Being really strong in one domain does not mean you’ll be strong in others. Having a foundation to stand on, even a basic one, is valuable for building a great company.
The way a sports coach has a hundred different options for plays that can be run, depending on the opponent, situation, weather conditions, which players are on the field, etc., a manager needs to have a deep book of tools (plays) to draw on to handle different situations.