Management theory and practice

Management Theory

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Over the last several years, a number of management theories have been increasingly brought to the forefront. This is because globalization is changing the way an organization is structured and operates. At which point, a variety of businesses began using different management theories, as way to effectively structure their organization, to adapt to various cultural and business traditions of a particular country. This is significant, because it highlights how the overall theories that are being used by an entity, will determine how successful they will be in the future. As result, it is essential for all executives to have a working knowledge of the different management theories. To achieve this objective, they must have a thorough understanding of the different theories and when they can be applied in specific real world situations. Together, these different elements will provide the greatest insights, as to how the different management theories are changing the way businesses will operate in particular countries or geographic regions.

Why are Management Theories Used?

The various accounting scandals and financial crisis, over the last several years, have highlighted the lack of flexibility that managers and executives have, when dealing with a number of situations. Where, the names of World Com and Enron are synonymous, with organizations that have all of the tools to succeed. Yet, they were failures because the thoughts that certain managers / executives had, would led both companies to financial ruin. This is because; there were no common organizational strategies, for mangers to achieve their objectives. In the both cases, this is problematic because they had large operations around the world. The lack of not having an effective management structure in place, much less one that could adapt to the culture and environment of a particular region, would create the basic foundation for their financial problems. The reason why, is because management structures are similar to the rudder of ship, where they will guide managers as to how the company can achieve its objectives. When there is a lack of these structures in place, it means that managers and employees could assume that they are making the right decision. Yet, in reality they are only making the situation worse, without having an effective strategy in place, for their aspect of the operation. (Ghosnal, 2005, pp. 75 -- 91) A good example of this can be seen with Enron and their construction of the Dabhol power plant in India. What happened was, increasing amounts of deregulation would cause the company to aggressively build an expensive power plant, totaling $2.9 billion in construction costs. The problem was: the company did not account for cost overruns to build / operate the plant, the inability of the local economy to support such a facility and the business culture of India. These issues are important, because the failure of this plant and the large loses that came with it, would force management to engage in creative ways to hide the losses (off the books limited partnerships). In many ways, one could argue that the reason why Enron engaged in such financially reckless decisions to build the plant was: because of the lack a management theories and the ability to apply a specific theory / structure to India. At which point, it would mean that the risks would increase dramatically, because there were no such mechanisms in place. This is significant, because it shows how the lack of using the proper management theory to address different issues, only made the situation worse, as there was no clear direction for managers and executives to follow. (Bierman, 2008, pp. 34 -- 35)

Types of Management Theories

There are a number of different management theories that are used by a variety of organizations around the world. Depending upon the company and where the division / unit is located; the management theories that are utilized could be a combination of different theories / systems. Some of the most notable management theories that are used by various businesses would include: the structural theory, the behavioral theory, the contingency theory, and the systems theory. The structural approach is when you are creating an organization that will be highly centralized with decisions being made by: top managers and executives. Where, they will focus on: the task / duties of a particular position, maintaining effective command / control, establishing written policies / procedures and placing authority with the organization itself (through various committees / boards). This management theory would be useful in organizations, where employees are expected follow a particular routine as part of completing their job. In general, this would work well in establishing a basic organizational structure for a company. However, when it comes to various divisions and units, this theory could be problematic if the individual is expected to adapt to a variety of situations. This is because the structure of the organization is dependent upon guidance from managers and executives. If at any point, someone further down in chain of command needs assistance, any kind of breakdown in communication could be disastrous. As a result, this kind of management theory could be used, to provide a basic foundation within an organization. Beyond this scope, is when the use of this theory can lead to a number of problems down the road. (Lynch, 1983, pp. 6 -- 8)

The behavioral theory is when managers are acting as just one member of a large organization (the team approach). Where, they have certain amounts of clearly defined roles and responsibilities. Yet, they also have more flexibility in how they implement new ideas and strategies, to increase the productivity of the team / department. This is important, because it show how this kind of management theory would work well in organization, where managers and employees are required to improvise, as part of their jobs. It would also work well in specific departments of large corporation, where new ideas are required to dramatically improve the quality and possible design of the product. That being said, this management structure would not work well for those organizations that have a standard protocol, for producing / delivering the various products and services to customers. The reason why, is because the increased amounts of freedom and flexibility could slow the most effective procedures, for delivering the highest quality products / services to consumers. Over the course of time, this could increase the total production costs and hurt the underlying quality of the product. As a result, this theory can be used in organizations that require increased amounts of creative thinking and flexibility from managers / employees. (Lynch, 1983, pp. 6 -- 8)

The contingency theory is when managers / executives must take into account a number of different internal and external factors that could have an impact upon the situation. Where, they will weigh their various courses of action and the possible effects that their actions would have. Those actions that can help increase productivity and have the best effect on the organization are: selected as the most appropriate decision. This is important, because the flexibility of this theory; can be used in conjunction with other management theories, to adapt to various situations. Where, another theory can provide a general structure for the organization, while the contingency theory can be used to address specific issues in departments and teams. For example, the structural or behavior theories that were covered earlier provide a solid foundation for an organization. Yet, they both can only adapt to different situations to a certain extent. When you are using the contingency theory, in conjunction with one of the above two, it is giving managers the structure they require and the flexibility to adapt to a variety of situations. This is significant, because it shows how utilizing the contingency theory in conjunction with other management theories, can give executives the power to be able to adapt to the various situations they will encounter. At which point, the organization can more effectively adapt to the various internal or external issues they could be facing. (McNamara, 2010)