Since, this one lacks structure means that many employees can become confused about their responsibilities. Once this occurs, it can often lead to employee issues, where this confusion can become an issue of contention between the staff and management. As management is telling them to engage in particular activity, yet they don't understand why they are doing such tasks. Over time, this can cause moral to drop as those employees who do not thrive under such a system, begin to lower the overall positive attitude in the work environment. ("Contingency Theory," 2010)
Despite some of the obvious weaknesses, the contingency theory is effective for those organizations that are small. This is because the in formalized structure allows managers / owners the opportunity to adapt to changes that are occurring in real time. Where, they can use their experience and common sense to adjust to various business conditions. As a result, this allows such entities to remain agile for the various situations they will encounter. However, such a structure would work poorly for large organizations. This is because the overall amounts of flexibility, allows managers to have undue amounts of influence on upper management. Once this takes place, it means that the company will see a decrease in productivity. As those ideas, that should never reach the level of upper management are being considered as viable business decisions (no matter how wreck less they may be). ("Contingency Theory," 2010)
The systems theory is when you are taking a number of different working parts and then organizing them into a complex system. The different parts that are relevant for this particular management theory would include: inputs, outputs, outcomes, feedback and the framework of the system. Inputs would involve everything that is initially going into the production process to include: the various natural resources utilized, people used to produce a particular product / service, technology and money. Outputs is when the various products or services are delivered to the different markets or customers. Outcomes is when the product / service is improving the overall quality of life for the organization / consumers. Feedback is the total amount of information that is received regarding the overall quality of the various products or services produced. This could include everything from consumer opinions to those views about the product / service with regulators. The frame work of the system would include all of the sub-systems that would be used as a part of the production process. The most important element of this management system is that all of the different parts are working simultaneously in conjunction with one another. Where, each part of the production process plays a critical role in supporting the other functions. As a result, many different large entities have found that using such a system allows them to create company wide guidelines. At which point, upper management can most effectively control costs and productivity for a number of locations around the globe. (McNamara, n.d.) For example a large computer manufacturer has operations around the globe ranging from production facilities in China and Mexico to various call centers (at strategic locations). To ensure that productivity remains high at the various locations around the world requires that a structured management system is in place. This will control costs and ensure that the maximum amount of productivity is utilized for each location.
There are number of different strengths that the systems management theory offers to include: structure, control and effective monitoring. Under this theory, everything is highly structured, with clear responsibilities and roles designated. This allows managers at different locations to know what they need to do to achieve their objectives. Once this takes place, it means that the overall levels of productivity will increase, as everyone knows their responsibilities and how to achieve the different production goals. (McNamara, n.d.)
Control is when upper management can be able to monitor what is happening at various locations around the world. This is important because when different issues arise, managers must be able to quickly address various issues that could affect productivity. Such as: if raw material prices were rising dramatically in one country, upper management would be able to see this in real time. This allows managers, to be able to more effectively control their inventories and costs, by monitoring how various internal / external factors could affect an entity. (McNamara, n.d.)
Monitoring is when managers can see what is taking place within the company itself or at a specific location. In this particular case, if something was happening at a particular location that managers were unaware of, its effects would be felt in real time throughout the management structure. This would allow upper management to realize that a particular problem could be developing at a particular location. Once this takes place, they can quickly address any issues without creating dramatic disruptions to productivity or the company's bottom line. (McNamara, n.d.)
The biggest drawback of the systems theory is that the different parts of the system are interdependent upon one another. This is significant, because during the course of conducting business there could be a number of different situations that could cause any one of the different pieces to break down. When this occurs, the chances increase dramatically that you could see a number of different divisions in the company come to a standstill. At which point, productivity will fall dramatically and the company is facing the realistic possibility that it could lose money. Once this hemorrhaging begins, it could be difficult to stop as a particular event can create gridlock. (McNamara, n.d.) A good example of this can be seen with Lehman Brothers, where the company had a number of different profitable divisions that were dependent upon the others for maintaining ample amounts of liquidity. When interest rates were low, the company began to engage in sub-prime mortgages as a way to increase their overall bottom line. While at the same time, the company was increasing its overall amounts of debt. These two factors would contribute to a liquidity crunch, as the number of foreclosures on sub-prime mortgage rose dramatically. At which point, Lehman Brothers lenders (most notably JP Morgan Chase and Citigroup) began to demand more assets, as collateral for the outstanding loans that the company had with both institutions. This caused the revenues from the other divisions to pay only a portion of the interest on the outstanding debt. Once this took place, it was only a matter of time until the company would face a liquidity crisis. As they were one of the largest financial institutions in the country, yet they did not have enough cash to maintain day-to-day operations. Looking beyond the most obvious, one could argue that the reason why Lehman Brothers failed was because they were using the systems management theory. Where, each of the different parts of the company were dependent upon the other divisions working together. As the economy slowed, the illiquidity of the mortgage division would cause ripple effects companywide. Where, the other profitable divisions were ineffective, because one critical piece of the business model could not function properly. As a result, it would only be a matter of time until the company would face bankruptcy. (Sandler, 2010) The reason why this is such a major drawback, is because of the lack of flexibility of this system, where the various parts are dependent upon one another. If an extreme situation occurs, the failure of any one of the different pieces could cause a system wide breakdown.
The systems theory works for large established entities that have various policies and procedures currently in place. This is because the overall structure of the management system is dependent upon all of the different working parts. Where, upper management can be able to see what is taking place at the company from a big picture, real time view. This allows for effective management of the operation, as the different pieces will tell managers if there is a problem However, the inflexibility of this system and the different parts being interconnected are also the biggest drawback. The reason why is because when extreme situations occur that could affect one of the parts of the management system, a total company wide break down would take place. At which point, the system does not allow managers the flexibility to quickly adjust to situations. If the problem is left unaddressed, this can act like a cancer and will slowly eat away at the most profitable of organizations.
Deming's CQI Theory
Deming's Continuous Quality Improvement theory (CQI) is designed to increase the overall quality of various products or services that are offered by an organization. Where, there is an emphasis on objectively analyzing various pieces of data, to tell you how the process can be improved. According to Deming, one of the major problems with competitors in a particular industry is: they are often obsessed about taking market share from their competitors. To effectively build…