Lecture note from 1-3

Lecture note from 1-3

 

Week 1

Lesson 1- Introduction to Module and to Management

Examples

The truth is, that despite the many societal changes and the advances of management thinking, some aspects of these initial theories are still contemporary and widely used today. Moreover, most of the management theories developed after this first wave of thinkers, were seen as reactions and critiques to the main tenets of classical management. Please watch the video below (click here for transcript), for a summary of the historical context and of classical theories, as well as some examples of application of these principles to contemporary organisations.

Once finished, have a read of the McDonald’s case and see how its success has been largely dependent on their ability to standardise processes and rationalise tasks and pay systems.

A CASE STUDY (30 minutes)

Read the following case study (extracted from https://michaelmarkadrianus.wordpress.com/2014/05/06/scientific-management-of-mcdonalds/) and, in your notebook, identify which of the main principles of early management theories the aspects of McDonald’s management style presented below can be traced back to.

CASE STUDY:

There are numerous evidence to show that McDonald’s business operations consist of the principles of Scientific Management and they are: a system that rewards employees for meeting the objective goals, scientific education enforced in their workers and following a uniform method of achieving each job. Taylor stated that if workers are given no incentives despite putting in more effort, will in turn result to discouraged workers that produces low productivity.

McDonald’s uses a competitive wage and promotion programs where hard work is recognized and rewarded. The rewards come in many forms – from a simple “Job well done!” from the managers or a more broadly known form such as the ‘Employee of the Month’.

The second principle that McDonald’s use is the specialized training of staffs. In 1961 McDonald’s have even gone a step further and built a Hamburger University, located in a 130,000 square foot, state-of-the-art facility on the McDonald’s Home Office Campus in Oak Brook with a faculty of 30 resident professors where management training, operations developments, equipment familiarity practices and interpersonal skills courses are offered to workers.

Lastly, McDonald’s developed a uniform method for each worker to perform their individual job. McDonald’s have developed a sequence of thorough and precise working procedures that ensures the food they send out to their customers has the same high level of quality in every chain or franchise. For example, the layout of equipment and machineries are measured and calculated to best maximize efficiency and are very similar in every outlet.

However, the most distinct demonstration of using a standard method is definitely in the production line of food. The ingredients making up a burger is strategically placed for the workers so as to reduce extra time for excess motion. The practice does not only stop at the production of goods but is also applied in the service line. McDonald’s enforces workers to follow a rigid script when they are speaking to a customer or offering their service to them.

The application of Scientific Management to every aspect of restaurant operations have definitely been one of the key factors underlying McDonald’s widespread success. This proves that even though Taylor’s studies started over a hundred years ago it has not met its expiry date yet.

Case Study Extension and an interesting read!

George Ritzer, in his famous book, The McDonaldization of Society (1993) introduced the concept of McDonaldization of society and explored how some of the management techniques and strategies used by one of the greatest fast foods of all times rely heavily on rational management and how they have influenced the way operations and people are managed worldwide.

McDonaldization, as viewed by Ritzer is based on Max Weber’s idea of bureaucracy. Classical sociologist Max Weber (1864-1920) argued that scientific management led to ‘bureaucracy’, possibly the most widespread organizing force of modern societies through much of the twentieth century.

But what exactly is bureaucracy? Weber sees modern bureaucracy characterised by hierarchical roles, compartmentalized knowledge and tasks/roles, a perceived merit-based system of employment and career progression, and the legal-rationality authority of the rule of law.

In this sense, the principles behind McDonaldisation (watch the animation below to see how Ritzer summarises them), can clearly be mapped against both Taylor’s and Weber’s theoretical underpinnings:

***

In sum:

1. Efficiency entails a managerial focus on minimizing the time required to complete individual tasks as well as that required to complete the whole operation or process of production and distribution.
2. Calculabilityis a focus on quantifiable objectives (counting things) rather than subjective ones (evaluation of quality).
3. Predictability and standardizationare found in repetitive and routinized production or service delivery processes and in the consistent output of products or experiences that are identical or close to it (predictability of the consumer experience).
4. Finally, controlwithin McDonaldization is wielded by the management to ensure that workers appear and act the same on a moment-to-moment and daily basis. It also refers to the use of robots and technology to reduce or replace human employees wherever possible.

As a reflection on why it is important for students to understand the meaning and role of scientific management/bureaucratic/McDonaldisation principles, I would invite you to listen to the first 4 minutes of Ritzer’s interview below (click HERE to access the transcript):

Lesson 1- Introduction to Module and to Management

Summary and Conclusions

This week we have looked at the context that gave rise to the first management theories, generally known as ‘Classical management’ theories. And we have observed how most of the principles and tenets of these theories emerged as a response to the challenges (and benefited from the limited workers’ protection) of those times.

Next week we will be looking at other models and approaches, starting from some alternative ‘ways of management’ that co-existed alongside the more rational and scientific principles. And, going back to the start of the course, we will go back to our initial question: is there one of many ways to define and conceive management? We will explore one of the main debates in the literature: ‘is management a science or an art?’ or in Stephen Taylor’s words, should managers be treating organisations as machines to be operated or rather treating them as gardens to be tended to?

Week 2

Management: Science or Art?

Management: Art or Science?

Recap from last week

Last week, we introduced the very first wave of management theorists. We explored how their guiding principles emerged as a result of the needs of their times and how the industrial revolution and the increase of factories that operated following the division of labour called for a more ‘rational’ and efficient organisation of work.

RECAP ACTIVITY

In your notebook, can you name at least three of the traits that characterised these first set of ‘classical’ management theories? What did they all have in common? How and why did they contribute to management practice?

For possible answers click here

 

 

We explained last week how maximising efficiency was always the principle aim of managers employed in those times. Most jobs were quite basic and could be learned quickly, so it was all about producing as much as possible at the right level of quality in a single day. If you could work fast and were reliable, you kept your job. If you were not, you were laid off without compensation or notice. Stephen Taylor (2019) argues that the first echo and most of the second echo of management philosophies viewed organisations as “machines”. Management was seen as a perfect science with a set of principles that could be rationally applied to ensure survival and competitive advantage and employees were just seen as a resource to be deployed and exploited as needed. Workers’ motivation was generally very low and the sense of alienation that resulted from repetitive, assembly-line type of jobs and poor working conditions was rampant. Remember the ‘Modern Times’ clip from last week?  I would strongly recommend that you watch it (if you didn’t last week) ass it gives an overview of what working in a factory looked and felt like.

However, even back then, there were some ‘dissenters’ who refused to believe that following scientific approaches to management, neglecting the ‘human’ side of the employment relationship, was the best way to manage. They even went as far as arguing that ‘mechanistic management’ could be detrimental to the organisation (alongside not being ethical, but ethics was not a popular concept back then!).

 

Agenda for this week and Learning Outcomes:

–          Recap from last week and become familiar with most major currents in management thinking and key contemporary developments in the world of business and management

–          Be able to take a historical perspective on management theories

–          Debate the most significant single debate in the history of organisational management

–          Understand how ‘good’ management is contingent on a range of variables and that a ‘one-size-fits-all’ approach does not exist

–          Develop your critical competencies: understand what managerial skills and approaches are needed in what context and how these are used.

–         Reflect on your own management assumptions and challenge them.

Please engage with all tasks and activities. All the reflective activities you are asked to engage with here will feed nicely into your reflective assignment. 

The ‘Machine’ versus ‘Garden’ metaphors

 

It is these two contrasting views of management that constitute the most significant single debate in the history of organisational management originated: is management a science, exact and universally applicable or it is rather an art that needs to be mastered?

Stephen Taylor (2019) characterise these two perspectives as:

-the machine metaphor /approach and

– the garden metaphor / approach

He argues that it is helpful, if inevitably rather simplistic, to use metaphors to describe each of these two philosophies of management. The first (the machine approach) tends to see workplaces as operating in a similar way to machines and managers as engineers responsible for designing and maintaining them. The focus and ultimate goal are efficiency and cost saving. The second, the metaphor of a garden sees managers acting as stewards, coaxing the plants into full bloom at the right time. It is a more people-focussed approach that recognises the value of individual contribution and the importance of a good working environment.

Throughout management history we keep encountering these two distinct and fundamental philosophies underpinning each new generation of thinking – and the tension between them still very much remains with us today, as theorists and practitioners alike are still trying to strike the very fine balance between; a) maximising efficiency and controlling costs by exploiting the labour force on the one hand and b) enthuse and motivate workers in order to have a happy and satisfied workforce on the other hand.

‘GARDEN’ approaches in the First Echoes of Management Thinking

 

Taking a time-traveller’s view of the history of management, we will observe that classical management theories – i.e. Fayol’s and Taylor’s principles- clearly fall within the boundaries of the machine metaphor.

However, even within the first echoes of management development, there were some who thought differently and who heralded approaches that owe more to the garden metaphor. Prominent examples of these rare and eccentric entrepreneurs were Robert Owen (1730 – 1795) and Josiah Wedgwood (1771 – 1858) – both of whom experimented with different management practices in the factories they managed and achieved striking results.

Robert Owen was a Welsh textile manufacturer who, as a young man, trained in various clothing factories before establishing his own with a group of partners at New Lanark near Glasgow, in Scotland. Later in life, he went on to become a public campaigner for worker’s rights and was one of the first to embrace socialism.

As such he is often referred to as a pioneer of personnel management or even as the father of British Socialism.

What he did was experimenting with cutting working hours and he found that productivity increased as a result. So he cut hours again, and found that his profits went up again (Witzel 2003:47).

He also banned child labour and tried to build up a mutually supportive community around his factory by, for example, paying for the establishment of schools. He arranged for a sixtieth of everyone’s wages to be set aside into a fund for older, sick workers who could no longer work in the factory. Owen claimed to have secured a 50% return on the capital he had invested by treating his people in this rather paternalistic fashion. This was much more than the standard 20% that most entrepreneurs sought at that time.

Please note that we are still far from the working conditions we enjoy today and that, if ‘enlightened’ for his own era, Owen’s factory was still run in quite a harsh manner and even after he had reduced hours, most of his workers were putting in nearly 11 hours a day, six days a week. There was also a zero tolerance of for people who had illegitimate children – sacked on the spot.  Nonetheless we see here the first well-publicised and theoretically justified attempt to prove that investment in labour matters more when it comes to securing sustained business success than investment in capital (i.e.: by nurturing the garden rather than simply maintaining the machine).

A Female Voice!

It is also important to remember that there was a woman voice too in the early days of classical management theory! Mary Parker Follett (1868-1933) was one of the first women management consultant and is often referred to as the ‘mother’ of modern management. Follett, rather than focusing on the industrial and mechanical aspects of managing, placed much greater emphasis on the human element, recognising workers as the most valuable asset within a company. She was one of the first theorists to define management as “the art of getting things done through other people” (1918, p.12) and to acknowledge the importance of the manager-worker relationship. Some of her writing and lectures delivered went as far as recognising the importance of situational and transformational leadership, which are still ‘cutting-edge’ principles of modern management.

RESEARCH AND REFLECTION EXERCISE: During the second echo of management thinking, whilst Tayloristic/scientific principles of management were widespread, in the UK, in 1914, Edward Cadbury published an essay called “Some Principles of Industrial Organisation: The Case for and against Scientific Management”. Cadbury’s is another example of ‘garden’ management style. Can you find out what were the main principles he was advocating? In your notebook, can you map the similarities with Owen’s and Follett’s? Can you identify the value of their contribution to management thinking? What can you learn from them?

Edward Cadbury

Edward Cadbury, one of many Cadburys responsible for the building up of Britain’s biggest confectionery

empire boasted that his family’s success was built on the application of four mutually reinforcing

sets of management principles:

1. i) providing decent housing and benefits for their workers close to the factory;
2. ii) performance-based pay that allowed workers to earn more for producing more and which

rewarded quality of production as well as quantity; iii) extensive employee involvement

with works committees being elected and given a say in management issues;

1. iv) a branding operation which developed customer loyalty and made it much harder for competitors

to steal established market share.

 

See the Wikipedia page for more info: https://en.wikipedia.org/wiki/Edward_Cadbury

 

Similarities with both Owen and Follett are immediately visible.

 

The third Echo and the Human Relations Models

Stephen Taylor explains that in the 1930s and after World War Two, at least as far as factory work was concerned, there was something of a reaction against taylorism and the principles of scientific management. We see here the rise again of thinking based more on the garden metaphor than on that of the machine – the development of humanistic or ‘human relations’ ideas and approaches.  Please listen to his podcast below:

The starting point is often seen as being the so-called Hawthorne Studies, as discussed earlier. To sum up, the most interesting finding behind Elton Mayo’s  (1880-1949) ‘Hawthorne Effect’ was that manipulating pay and working systems along Taylorist lines had much less impact on productivity than the simple fact that workers had been selected to take part in the studies. Showing an interest in their work, observing it and having researchers ask them questions about it was what made the real difference.

Subsequent interviews with workers who were involved in the Hawthorne Studies suggest that the findings were probably somewhat unreliable, particularly in their claim that money was no great motivator. But this has not stopped the project from being one of the most significant and influential in the history of management science and it represented a strong shift (and move away from) the most popular classical theories advocated in those times. The humanistic school that was spawned on the back of the Hawthorne studies eventually amounted to a full blown rebellion against scientific management and everything that FW Taylor and his disciples stood for.

 

REFLECTIVE QUESTION: In your notebook, sketch your understanding of the following questions: What was the major criticism made of scientific management in these subsequent studies and how were new management theories addressing these identified shortfalls of classical management?

After you have completed your reflection activity, click HERE for greater depth.

 

Influential figures in the human relations school

The most prominent and influential figure in the human relations school was Douglas Macgregor (1906 – 1964) who, among many other achievements, developed his famous Theory X and Theory Y distinction, which most of you will be familiar with, especially those who studied business as A-levels, for a quick summary, please re-listen to Stephen Taylor above. The key point Macgregor was making is that workers behave according to the theory that underpins the way their employers treat them. If you come at management with Theory X assumptions, you will end up with a workforce which conforms to your prejudices. This is what happens, in his view, when scientific management is practiced. By contrast, treat people in accordance with Theory Y, having high expectations and respectful relationships, and you will end up with a Theory Y workforce consisting of actively engaged people who are keen to please and to advance their own careers.

PERSONAL REFLECTION QUESTION: Which of the two sets of management theories most closely represent your management ideas? Which one do you think would be more effective to achieve organisational goals?

I need to warn you here that there is no single answer to this really, as your personal view and style will be unique to you. Nonetheless, by speaking to many of you over the last few years, we have noted that there is a strong tendency among management students to see ideas that are in the broad tradition of the garden metaphor as being ‘good’ in the sense of being ethically superior to those ‘bad’ ideas that characterise machine metaphor thinking.

However, taking a simplistic black and white view of the debate is short-sighted. While it is true that most would rather work in a garden-type organisation with their needs tended, it can also often true that jobs and incomes tend to be more secure when an organisation is run profitably with machine-like efficiency. In truth, both approaches still have plenty to offer. The problem is that it is hard to achieve that fine balance between cost control and efficiency and employee motivation and wellbeing, hence why the greatest management debate is still discussed.

 

 

CONTEMPORARY ECHOES

On the light of the above discussion, have we seen the end of scientific management and the triumph of humanistic management? No, not quite! As discussed last week and in the reflection activity above, both classical and humanistic theories have their merits and have survived, although it is important to remember that they have also evolved, in-line with the changed economic and historical environment, increased knowledge and awareness of organisationalbehaviour and, of course, the introduction of more protective employment legislation.

Last week, we saw how some organisations, like McDonalds and fast foods in general are still operating following some of the core classical management principles.

Stop and think: Can you think of any other examples?

You should be able to find plenty, from call centre operations, where control is still strongly exercised (if you have had an experience of working for a call centre, like I do, you would know!). Here, you need to log every toilet-break or tea-break; the number of calls placed, alongside the duration taken to resolve a call, are displayed in a big monitor for everyone to see and are closely monitored by a team-leader. There are relatively low wages, tight attendance rules, specialised training to answer / make one type of call only, strict time limits, scripted answers, daily targets to meet, performance-related pay, recording of calls ‘for quality assurance purposes’, the use of technology to control throughput of work. All this would be exactly how FW Taylor would have designed a call centre operation!

Many other examples can be found in the public sector, where the organisational structure is still quite bureaucratic and the principle of division of labour is also applied. Suffice to mention the influence in the ubiquitous ‘skills mix reviews’ that are currently being carried out across the public sector. The aim here is to cut costs and maximise the efficiency with which tasks are accomplished by ensuring that an organisation reduces its ‘use’ of the most highly qualified people (also the highest paid). Highly qualified professionals, it is argued, must be deployed in such a way as to spend as close to 100% of their working time doing what only they can do. Lower paid ancillary staff are then brought in to work with them on tasks that could be performed more cheaply. Hence we now have thousands of ‘community support officers’ assisting the Police, thousands of ‘teaching assistants’ carrying out work such as playground supervision that fully qualified teachers used to do, and numerous ‘health care assistants’ working alongside qualified nurses and lots of ‘nurse practitioners’ doing parts of a GP’s job, including being able to write prescriptions.

The garden metaphor is also very much a part of contemporary management thinking, underpinning most ‘best practice’ approaches about the management of people and also the emerging Human Resource Management (HRM) profession.

REFLECTIVE/RESEARCH QUESTION: Can you think of an organisation that operates mainly following a humanistic management approach? What are the main management practices that make them stand out?

A Case Study: Google

Some of you might have listed Virgin airlines, Innocent drinks, TATA etc…to the question in the previous page. How many of you mentioned Google?

Watch the video below, where Liane Hornsey (the then global HR manager at Google) talks about Google’s management style. (Please activate the SUBTITLES in ‘Settings’).

LEARNING ACTIVITY: In your notebook, can you list all the traits that make of Google a ‘garden’-type organisation? Is this approach viable in all organisations?

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PLEASE READ AFTER ENGAGING WITH THE ABOVE ACTIVITY.

Your answers to the question above might include any or all of the following: deliberate efforts for the removal of bureaucracy; a bottom-up approach which fosters participation and involvement of all employees; the idea that success comes from TEAMS and the humans in them; employees seen as talents not as cogs in wheels; not monitoring sick leave, thereby trusting employees and allowing them the freedom to organise their own work and their own time (akin to a theory Y rather than X management); provision of generous benefits (free food, free sports facilities etc.); subtle motivation strategies are used; employees’ well-being is considered; employees are happy and feel privileged to work for Google.

It is widely agreed that the garden-type of thinking works best for knowledge workers, professional workers, those who work in the cultural industries and those whose job involves thinking innovatively and creatively.

So…Is there a ‘Best Way’?

Garden or Machine?

In truth for most contemporary managers it is not a question of choosing either to operate in the tradition of machine-like or garden-like principles. Most are confronted with a tension between the two; between a need to maximise operational efficiency, on the one hand and, on the other, their need to attract, retain and engage strong performers. Go too far one way, and you undermine one of the two objectives. Finding an effective middle way is often very challenging.

It is mistaken, as many do, simply to see the garden approach to management as ethically ‘good’ and the machine approach as ethically ‘bad’. While it is true that most people would much prefer to be managed according to garden principles, an ethical case can be made in favour of organisations run with a focus on machine-like efficiency. The case relates primarily to job security and the increasing provision of job opportunities which are only possible when a business organisation is commercially competitive. This does not, however, necessarily mean that working life must be unpleasant. It is entirely possible to maximise operational efficiency while treating employees with respect and fairness, as well as maximising their job security and providing career development opportunities.

So, where are we now? What have we learnt from looking at how principles of ‘good’ management are set and used and by looking at successful organisations? Taylorists and humanists disagreed greatly over how people should be managed so as to maximise efficiency and both were convinced that their approach was ‘right’ for all situations. Who was right?

We have seen that McDonalds’ and Google staff are managed in a very different manner, does it mean that one company is successful and the other is not? It is quite evident that both approaches can yield good results according to the context they are situated into.  I think the only one answer we can provide here is that ‘there is no best way’ and that it is rather a matter of striking the right balance between implementing efficient structures and caring for people at the same time and the way companies find their own ‘best way’ is very much dependent on the context and environment of the company. 

This was also the conclusion of Joan Woodward‘s study (1916 – 1971), which marked the popularization of the so called “Contingency theory”. The main message of the contingency theory is that as far as management is concerned, there is no single right way to go. It all depends on the circumstances of the firm. What is right in one set of conditions is not necessarily right for another, as organizations need to adopt structures and principles that are suitable to their environment. It may seem strange now, but sixty years ago this represented a major breakthrough in management thought!

another female voice: Joan Woodward

Joan Woodward- and her colleagues at Imperial College in London- carried out one of the first major government-funded studies of UK industrial relations practices in the 1950s, looking in great depth at the way workers were managed in 100 manufacturing firms, all of which were based in a small part of Essex (many were food manufacturing concerns). Over 90% of the firms in this area were visited and lengthy interviews were conducted with staff at all levels.

It was found that some firms were much more tightly controlled than others. In some, employees were allowed plenty of discretion over how they did their work and permitted flexible working practices of various kinds. Others were tightly supervised – even skilled people – with continual pressure being placed on staff to work faster and increase productivity. In other words, plenty of examples of Theories X and Y being practiced were found, with different firms managing according to either humanist or taylorist assumptions. If you want to read more about Woodward, click here.

Later researchers developed Woodward’s theories and integrated them with theories about the gaining and maintaining of competitive advantage. The result has been a steady stream of contingency models and typologies which identify different types of business situation or strategy and argue that a different approach to the management of people is appropriate in each case.

MANAGEMENT IN THE POST-INDUSTRIAL WORLD

 

The final set of ideas we are going to focus on today is the development since the 1990s of thinking about management in a business environment that is less predictable and much more volatile than that which prevailed for most of the twentieth century.

Organisations are also tending to become more complex, carrying out a wider range of activities, as well as more knowledge-oriented. Most of us are no longer employed for our brawn or manual dexterity. Manual or ‘blue collar work’ is in decline as machines become increasingly sophisticated. Over time more and more people are employed more and more of the time to carry out brain-work. It is our knowledge and expertise that our employers are paying us for.

This reality has led management theorists and thought leaders to focus on how far the approaches that we associate with an industrial world are still suited to the needs of an emerging ’post-industrial’ business environment.

 

A prominent advocate of the need for a re-think is Henry Mintzberg (1939- ) who, in his book ‘The Rise and Fall of Strategic Planning’, originally published in 1994, argues that traditional, well-established, top-down approaches to the management of organisations are increasingly going to become out-dated. In fact, he goes rather further, arguing that their application in contemporary organisations is likely to be counterproductive.

Mintzberg suggested that the key variables that matter most in the twenty-first century business environment are the complexity of the organisation and its environment and the rate of change in that environment. Because these can be different for different organisations at different times, so the type of management approach used will itself vary over time.

MECHANISTIC ORGANISATIONS	ORGANIC ORGANISATIONS
–          Operate in relatively stable environments –          tend to be characterised by bureaucracy and tayloristic lines of management –          are hierarchical in form, centralised and run according to standardised procedures –          the metaphor of a machine works well to describe such organisations: –          they are designed / engineered to maximise efficiency –          each department has its function and is charged with repeating the same routines to set levels of quality over and over again at the lowest possible cost –          Examples: Government organisations such as local authorities, the civil service, the post office and the prison service as classic examples of organisations that have traditionally been run according to mechanistic principles. –          Mechanistic organisations perform badly in rapidly changing environments because they are slow or unable to respond sufficiently quickly to developments in customer taste and the activities of competitors.	–          Operate in rapidly changing and relatively unpredictable environments –          Tend to be characterised by greater flexibility –          Routines are few and agility is needed in order to respond to changed circumstances –          There are strong echoes of ‘garden-style management here: –          fewer rules, less bureaucracy, less hierarchy and a great deal of decentralised decision-making –          Focus is often placed on multi-skilling and knowledge sharing –          Innovation and adaptation are key sources of competitive advantage –          Examples are IT companies, restaurants, media organisations and organisations in the leisure and entertainment industries. –          Organic organisations perform badly in stable environments because they are unable to maximise efficiency by standardising their routines.

 

Many organisations operate in environments which are neither wholly stable nor wholly volatile. A great number operate in environments which are volatile in some respects, but stable in others. They thus maximise their competitive advantage by blending aspects of mechanistic and organic approaches. Classic examples are hospitals (geriatric care = mechanistic, A&E = organic), the armed services (front line duty = organic, training / at base = mechanistic).

Contemporary business environments are tending to become more unpredictable and volatile (think of the many financial crisis of the last decades, think of Covid-19 and its effects), we have seen a tendency to move away from mechanistic approaches to management towards organic forms. Delayering, decentralisation of decision-making and flexible working are symptoms of this shift.

The key point is not therefore that machine, efficiency-driven approaches to management no longer have a role to play. But that over time the situations in which more organic or garden-type styles / approaches are becoming more common as the nature of the work that we are employed to do steadily evolves and our business environment become both more complex and less predictable.

REFLECTIVE ACTIVITY: Watch Mintzberg’s video below and answer the following question: “Does he see management as a science or an art? Can you see the echoes of contingency management?”

Please note that the video was mainly recorded to discuss one of his most famous books, you can hear first-hand what he thinks about management. (Click HERE to access the transcript).

 

AID for the reflective activity: Note how he clearly stated that he views management as an art rather than a science. He argues that managers are not ‘flawless’ and their merits lie in doing the right thing in any given situation (contextual/contingent management). He also explores the different operating styles of 29 managers and argues how they have all been successful, despite the differences in their approaches, because their style was appropriate to the organisational environment they were operating in.

Key Points and Conclusions

This week we have looked at how management thinking has evolved over time and at how theorists and practitioners alike were not always in agreement with regards to the most strategic/best management approach.

We have engaged with one of the most controversial debate in the field and have looked at whether the old mechanistic management style can be completely over-ruled by the more recent humanistic managerial practices.

Looking at what some successful modern organisations do, we can agree that it is naïve and simplistic to believe that machine, efficiency-driven approaches to management no longer have a role to play. However, it is true to say that -over time- the situations in which more organic or garden-type styles / approaches are becoming more common, as the nature of the work that we are employed to do steadily evolves and our business environment become both more complex and less predictable.

We have also learnt from more recent studies and developments that it is important to take a contextual view of management; and this is why from next week onwards we will focus on how we can understand the organisational context, what factors, events and constraints we need to look for and how these affect the way an organisation needs to be run.

 

 

 

 

 

 

Week3

Business Strategy – Week 3 LESSON 1

Business Strategy Theory – PART 1 (8-10 minutes)

Watch a narrated presentation on the Theory of Business Strategy and Strategic Planning PART 1 Post World War II to 1980

To start, we are going to take some time to understand how Business Strategy has developed, focusing on the period since the end of World War II, not to give you a history lesson, but for you to learn about the many approaches to Business Strategy developed over time, many of which are still used today.

This narrated PowerPoint presentation outlines the development of theory relating to Strategic Planning in the early years Post World War 2 to the end of the 1970s.  A script for the presentation can be found here.  Move through the presentation at your own pace my pressing the enter key.

Business Strategy Theory – PART 2 (5-7 minutes) & quiz

Read the information below on the Theory of Business Strategy and Strategic Planning PART 2 1980s to today.  If you prefer, a narrated presentation is included at the end before the quiz – both contain the same information.

 

Take your choice!
A narrated presentation or work through the text below – both contain the same information!

 

Text: Theory Business Strategy PART 2

1980s

By the 1980s, research relating to business strategy was building in quantity relating to two ends of a continuum: at one end businesses with high market share, and at the other end, niche businesses with small market share, with research relating to both these groups showing good profitability could exist (Schumacher, 1974).  This research did, however, reveal a profitability gap for middle sized companies, where profit had been considered the primary measurement of business success.

Porter’s (1980) 5 Forces Model, provided an economic-oriented framework that enabled organisations to develop business strategy in the context of competition and marketplaces, encouraging strategic planning to consider different perspectives, adding further detail to the strategic planning and management process and alternative views on how success might be measured.   At the end of this week’s learning, we will look at Porter’s 5 Forces Model in more detail.

Other useful approaches to strategic planning emerging at this time included Mintzberg and Waters (1985) looked at the process of strategic planning and made the distinction between deliberately planned strategy and non-planned strategy (or unrealised strategy), identifying 8 ‘ideal types’ of strategy on a spectrum between deliberate and emergent strategies.  Mintzberg and Waters (1985) identified that a strategy could be emergent and that an iterative strategic review process was required to recognise emergent strategies and feed back into the intended strategy plan.

 

Mintzberg (1987) also identified the 5 Ps of strategy to give five ‘lenses’ through which to examine any strategy, namely a Plan to enable the organisation to reach its goals, a Ploy which is a tactic used to outsmart a competitor, a Pattern which reminds that a strategy is a series of actions and not a discrete event and thus to look for patterns, Position involves considering relative to each competitor the position of a product in the marketplace and finally Perspective relating to the specific way of working and culture of the organisation.  Although we are beginning to see a number of models and approaches to Strategic Planning emerging and being applied, reflecting the complexity of Strategic Planning, this also led to some confusion as we will see in subsequent years.

 

1990s

In the early 1990s, labour markets in the UK and elsewhere started to tighten, unemployment fell, with new job roles created and birth rates continuing to fall.  Strategic planning had become a mainstream business activity, with increasing focus on Human Resource activities and building business knowledge across the enterprise (Boyd &Reuning-Elliott, 1999).  Strategic planning continued to reflected strategies for attracting, retaining and engaging employees including approaches to improve work-life balance, flexible working and incentives (Friedman, 1990).   Understanding what makes a good leader, manager and employee also began to receive increased attention an employers struggled to recruit quality employees, with Chambers et al. (The war for talent, 1998) reflecting a struggle that continues to exist.  The 1990s also saw the Strategic Planning process being questioned as organisations struggled to realise the intended strategy outcomes they had hoped for, resulting in Mintzbergs book, The Fall and Rise of Strategic Planning (1994).  A summary article by Mintzberg is required reading or listening to the podcast after this presentation.

2000s

From 2000 onwards globalisation accelerated with business leveraging cheaper labour and materials.  The internet and wider use and development of technology enabled more complex business and supply chain structures, with disruptive innovators redefining global markets and the consideration of contingent factors impacting these (Donaldson,2001) receiving attention.

Guerras-Martin et al (2014)

Guerras-Martin et al. (2014) categorise strategic planning as taking place in a complex environment where two different “pendulums” oscillate in two different areas: firstly between internal organisational factors and external environmental attributes, and secondly between, “a macro level of analysis i.e., the firm and it’s environment, and a more micro level, i.e., individuals and their relations to the firm” (2014, p. 69), raising the image of two separate pendulums swinging to represent the complexity of strategic planning.

2010 onwards

So what do we see today?  The ability to collect very large amounts of data and process it at low cost has enabled strategic planning processes to synthesisebehavioural data (Freiha, 2020), performing risk-based predictions of many possible outcomes and potential complex pathways for business to consider, as well as proposing artificial intelligence enabled strategizing (Schühly, Becker, & Klein, 2020).  Design thinking – an approach once used only within IT departments is now being synthesised into the strategic planning approach and culture of organisations to make strategic planning a near to real-time process reflecting the continual change that organisations exist within and are also part of (Kolko, 2015).

 

Strategic planning has become more complex over time as organisationsrecognise that a true reflection of the business environment had often been simplified in the past. The advent of supercomputing might mean that this accelerating, changing environment may only be capable of modelled in the future by Artificial Intelligence, however, the use of algorithms in the decision making process, as seen with UK ‘A’ level results post-COVID 19 (Guardian Editor, 2020) shows that reliance upon technology can cause problems.  How business will leverage technology to best effect remains to be seen, however, it is clear that the future of strategic planning is both innovative and exciting.

Strategic Planning v Strategic Thinking (12-15 minutes reading or 40 minutes podcast)

So having seen that the theory of Strategic Planning has developed and changed over time, and that there are multiple approaches and models.

• Do we see a single ‘winning approach to Strategic Planning’ within business?
• Is there an approach to Strategic Planning that an organisation can take and use that will lead to business success?
• Is there ‘One Best Way’?

Well, Mintzberg(1994) addresses these questions for us!

 

Back in 1994, Henry Mintzberg wrote an article (below) for Harvard Business Review extracted from his book of the same name – you
can either read it here or listen to a podcast recording.  What is interesting is that Mintzberg makes the distinction between Strategic
Planning and Strategic Thinking, linking Strategic Thinking to the VISION of an organisation.  Although this article is from 1994, it remains
valid today and the implementation problems highlighted by Mintzberg (1994) are also found to cause problems as businesses seek
to implement a strategic vision.

Read this article from Harvard Business Review by Mintzberg 1994 

or listen to the audio file reading of the article 

Much in the same way that Mintzberg (1994) describes the complex situation in 1994, Strategic Planning activities within business
today continue to become ever more sophisticated, reflecting the complex, inter-connected, data-driven changing business world.

From what you have learnt so far and from what you see in the behaviour of organisations today, do you think there are many
organisations that are both effective strategic thinkers and effective strategic planners?

Strategic Plan v Business Plan (5-7 minutes)

The article by Mintzberg (1994) touched on the problem experienced by some organisations seeking to separate thinking and doing, describing what many organisations do as not strategic planning but strategic programming – whereby organisations articulate plans that already exist, rather than think about what could be (Mintzberg, 1994).

 

 

 

To build on this idea, the next narrated PowerPoint presentation outlines the key differences between a Strategic Plan and a Business Plan, however, first it uses Porter’s Five Forces model, considering the relationship between strategy and competition.

It is important for you to understand the distinction between Strategic and Business Plans, as sometimes in conversation you will find these terms are used interchangeably, sometimes incorrectly.  A script for the presentation can be found here.  Move through the presentation at your own pace my pressing the enter key.

Narrated presentation Strategic plan v Business Plan found here and presentation script found here.

 

Measurements of business success

 

What is the point of developing a business strategy anyway?  Porter’s Five Forces model is an economically-based framework, focused upon understanding competitive advantage, in order to quantify  potential profit for the organisation.  However, business success can be measured in many different ways, for example:

 

• Market share
• Longevity (how long the organisation has been in business)
• Employee retention
• A diverse and inclusive organisation
• Share price
• Reputation
• Brand awareness
• Customer feedback
• Customer retention
• League tables
• Safety record
• International representation
• Innovation
• Patents
• Number of products/services
• R&D budget

 

Business success is also viewed differently depending on which ‘lens’ you look through to view the organisation.  An entrepreneur may view an organisation as an exciting opportunity that cannot fail, whilst an investor or a potential employee may view the same organisation as risky.  We will discuss this further in week 4 when we look at stakeholders.

 

In the paper “Lens or prism? How organisations sustain multiple and competing reputations”, Harvey, Tourky, Knight and Kitchen (2017) article in the European Journal of Marketing consider reputation – often considered a measure of success.  The paper concludes there are a ‘prism’ of perspectives (multiple views) and that a single organisation has multiple reputations.

 

SELF-REFLECTIVE QUESTION: If this is the case for reputation, could the same also be true for other measures of success?  Do you think that the reason profit is seen as the main measure of success is because it is a number and does not have multiple values depending on the perspective of the observer?

 

Strategy & Competition (4-6 minutes)

So thinking about the link between strategy and competition, please take a look at this video clip from a programme called the Dragon’s Den.  In this TV programme, entrepreneurs pitch their business plan to a panel of five wealthy business people (called Dragons) and they try to convince the Dragons to invest (money and time) to help their business grow in return for an equity share in the business being pitched.

The clip lists the six things the ‘Dragons’ advise all plans should have and shows a pitch the ‘Dragons’ thought was good.  When watching this, think about whether you think the Dragons are interested in a business plan or a strategic plan, based upon the clip here  https://learningonscreen.ac.uk/ondemand/index.php/clip/173504 or below by logging into BOB, entering “University of Exeter” then Single Sign On with your University login or create a.  A transcript of the video can be found here

Business Strategy – Week 3 LESSON 2

Porter’s Five Forces in detail – Threat of New Entry (3-4 minutes)

Porter (1980) specified 5 business influences (or forces) that if understood by an organisation would enable them to better define a business strategy knowing more about the competitive landscape and the profit potential of their organisation.

 

Porter (1980) recognised that strategy is not static, and is a dynamic relationship between competitive forces and the related profit potential of the organisation, subject to change originating from both within the organisation and from external factors.  Porter encouraged organisations to reflect regularly upon the ‘five forces’ to consider potential change and thus the potential impact and potential risk, if any, upon the business strategy.  Porter (1980) highlighted how attention-grabbing events such as industry growth announcements or time-bound interventions by Governments should be treated as temporary factors.

 

Porter (1980) proposed that businesses go in depth, considering each of the five influences in conjunction with each of the other – the ‘five forces’ model – identifying the competitive forces and related profit potential.

 

For the purposes of this exercise, imagine you have a company.  Select a company you are familiar with e.g. Alibaba, and as you read this section, answer each of the questions based upon what you know, imagining you own or work within the company.

 

As we can only imagine, we therefore do not have access to real company data, so therefore if your answer to a question is negative or positive, give it a negative or positive 1, doubling up (-2 or 2) if it is particularly positive (++) or negative (–) to give yourself an overall indication for each of the five forces.

1. THREATS of NEW ENTRY

 

Consideration of how easily other organisations could enter your market and begin to compete, challenging you and taking your customers!

If you think about the airline industry, it is costly to enter this market, requiring airplanes, slots at airports for landing and take-off, plus people to fly the planes and manage the ticket purchasing process, to name a few aspects of the business.  However, Governments have regulated the industry to encourage competition, seeking to remove barriers to new entrants, encouraging price reductions and choice for consumers.

 

The following questions to ask your organisation are:

1.1 How much does it cost to enter this marketplace?

1.2 How long does it take to enter this marketplace?

1.3 What are the barriers to entry into this marketplace? e.g. patents, key knowledge workers/expertise

1.4 What is needed by a competitor to make the business scalable?

1.5 Have we sufficiently protected our own technology and intellectual property?

1.6 How strictly is the market regulated?

 

Knowing the answer to these questions leads to more informed consideration of the following point:

** If competition can enter the market with little or no money, how will the strategy attempt to deal with rivals? **

** If you have long lasting and strong barriers to market entry, then you have an opportunity to preserve and take advantage of your position**

2. THREATS of SUBSTITUTION

 

This part of the model encourages consideration of the likelihood customers can replace your product or service with an alternative and whether the alternative meets all or some of the customer’s needs.

If you think about national broadcaster, the BBC, historically TV channels in the UK were heavily regulated and the number of TV broadcasters was limited.  The introduction of satellite TV with Sky, then cable based TV with Virgin, BT and others began to open this marketplace.  Now TV and media streaming over the internet with companies such as Netflix, Amazon Prime and many others provides many potential substitutes.  In some cases, these services are much more expensive than a UK TV licence, but the programmes provided meet the changing need of customers, e.g. by providing box sets for binge watching or streaming thousands of movies old and new on demand.

 

 

 

The following questions to ask your organisation are:

 

2.1 What substitutes are there in the marketplace, how many are they and which is the market leader or products ‘ahead’ of us?

2.2 How is our product or service differentiated from others that could be a substitute?

2.3 How difficult is it for a customer to change to a substitute?

2.4 How much does it cost the customer to substitute our product or service with an alternative?

2.5 Do we have any products or services that we might be able to substitute a market leader?

 

Knowing the answer to these questions leads to more informed consideration of the following point:

** If competition can substitute your product/service easily what can you do or offer to hinder that process? **

** If there is an opportunity to be a substitute for a market leader, what steps are required to become the substitute?**

Bargaining Power of Buyers (3-4 minutes)

3. BARGAINING POWER of BUYERS

 

This part of the model encourages consideration of the power of your customers to determine the price of your product.

 

Bargaining power of buyers can be thought of as a scale – when you have very few customers, the scale is tipped in favour of the customer who can dictate how much they are prepared to pay and ultimately threaten to stop purchasing from you.  Similarly if you have buyers that buy a large amount in bulk then they can negotiate better prices.  When you have many customers, the scale is tipped the other way and you have the power because if the customer does not like the price, there are many other customers still prepared to purchase from you.

 

The following questions to ask your organisation are:

3.1 How many buyers control your sales?

3.2 How big is each order and how is it made up?  e.g. product plus service, multiple products, regular repeat purchases, one-off purchase

3.3 How difficult is it for a customer to change suppliers and would it cost them to switch? e.g. electricity market and banks offering customers money to switch

3.4 What is the Return on Investment (ROI) of your product or service for a buyer?  In other words, how important is your particular product or service to them?

 

Knowing the answer to these questions leads to more informed consideration of the following point:

** If you know who holds the power – you or your customer – you can develop a strategy to move the power more in your favour? **

Bargaining Power of Suppliers (3-4 minutes)

4. BARGAINING POWER of SUPPLIERS

 

This part of the model encourages consideration of the power of your suppliers and how changing in their pricing could impact your profit margin and thus potentially also determine the price of your product.

 

Globalisation has resulted in widely distributed supply chains, with products, component parts of products and services re-locating to other parts of the world as companies take part in a ‘race to the bottom’ on price.

 

This part of the Five Forces requires you to remember that suppliers of good or services will also seek to think strategically.  There may be reasons why they would choose not to supply you, for example if you do not pay on time.  Similarly they may realise that they are the only supplier that can provide a particular component that is vital for your product.  In which case, they may decide to charge you more.

 

The COVID-19 pandemic saw global supply chains struggle to fulfil orders as countries locked-down.

 

QUESTION & TASK: Can you identify any examples of companies who struggled with their supply chain?  Post the example you find on the noticeboard – I have put one here for you to take a look at!

 

The following questions to ask your organisation are:

4.1 How many suppliers do you have?

4.2 Is the product or service they provide unique?

4.3 What alternative suppliers are there, how do their prices and quality compare and how expensive would it be to switch?

4.4 How vulnerable is your supplier to other suppliers in their supply chain?  In other words, is the product/service they supply reliant upon another scarce product/service

 

Knowing the answer to these questions leads to more informed consideration of the following point:

** If you know who holds the power in your supply chain – you or your supplier – you can develop a strategy to move the power more in your favour? **

Competitive Rivalries (3-5 minutes), Apple (7-10 minutes), Coca Cola (4-5 minutes), Uber (7-10 minutes)

5. COMPETITIVE RIVALRIES

 

This part of Porter’s Five Forces model looks at the strength and number of competitors, pulling together the information from the previous four forces.

 

Rivalry is influenced by the maturity of a market place – whether there are many competitors providing a product or service.  Similarly rivalry can include dropping price (and thus reducing profit) in order to make it harder for a competitor to enter a market and make profit.

 

The following questions to ask your organisation are:

5.1 Who are the biggest competitors?

5.2 How many competitors are there?

5.3 How is your organisation differentiated from the competition?

5.4 How does the quality of the competitor product/service compare with your own?

5.5 How much does it cost for customers to switch to your competitor?

 

Knowing the answer to these questions leads to more informed consideration of the following point:

** If you understand your rivals, your strategy can seek to deflect their rivalry/competitive actions and take/make opportunities to compete more effectively against them  **

 

 

 

NOW TO APPLY THE MODEL TO ORGANISATIONS

 

 

Applying Porter’s Five Forces to Apple Inc.

Read the following article by Ferguson, Panmore Institute 22 February 2019 uses Porter’s Five Forces to analyse Apple Inc. accessed here

SELF-REFLECTIVE TASK: reflect upon how or whether you think Porter’s Five Forces has changed post COVID-19?  How has COVID-19 impacted Apple Inc. if at all?

Applying Porter’s Five Forces to Coca Cola for Investment Purposes

 

Earlier in LESSON 1 we considered briefly how businesses are considered successful, touching upon the idea that viewed through different ‘lens’ an organisation might be considered successful or not, depending upon the perspective of the viewer.

 

The following article shows how as well as being used within an organisation to develop a strategy, Porter’s Five Forces is also used by external stakeholders, in this case as an analysis of Coca Cola applied from an investor’s perspective.

SELF-REFLECTIVE TASK: What, if any, do you think are the limitations of this approach

Applying Porter’s Five Forces to Uber

 

Towards the end of the following link is an analysis of Uber using Porter’s Five Forces free to share under licence by Unelue (2018) Innovation Tactics.  Take a look at this analysis then spend some time reflecting upon the task question below.

What next for Porter’s Five Forces model? (3-5 minutes)

We have seen that in over 40 years since Porter’s Five Forces model (1980) was first published, it is being used in a variety of ways.

We have heard Porter himself highlight that there are some problems with the way it is being used, but it remains popular today.

The following article by Myers (2020), “Is it time to reconstruct Porter’s Five Forces?” published in The Startup proposes two new dimensions should now be considered.

SELF-REFLECTIVE TASK: Read the article and think about whether you agree of not.

Well done on reaching the end of LESSON 1 and LESSON 2.

 

In LESSON 1 you learnt:

• what are the main theories relating to business strategy
•         what is strategic thinking and where does this fit with strategic planning
•         business success and whether a business strategy is the same as a business plan
• the relationship between business strategy and competitive advantage
•         a mini quiz task to test your understanding for your benefit
• what is Porter’s Five Forces model

 

As a result of completing LESSON 2, you have learnt:

• how to apply Porter’s Five Forces model
• seen how Porter’s Five Forces model can be applied to three organisational examples: Apple, Coca Cola and Uber
• reflected upon the relative merits of Porter’s Five Forces model