Fayol's 14 Principles of Management

Management Theories

14 Principles of Management

According to Henry Fayol management has 14 principles. Henry Fayol listed the 14 principles of
management as follows:

1. Specialization of labor. Specializing encourages continuous improvement in skills and the

development of improvements in methods.
2. Authority. The right to give orders and the power to exact obedience.
3. Discipline. No slacking, bending of rules.
4. Unity of command. Each employee has one and only one boss.
5. Unity of direction. A single mind generates a single plan and all play their part in that
plan.
6. Subordination of Individual Interests. When at work, only work things should be pursued or
thought about.
7. Remuneration. Employees receive fair payment for services, not what the company can
get away with.
8. Centralization. Consolidation of management functions. Decisions are made from the
top.
9. Scalar Chain (line of authority). Formal chain of command running from top to bottom of
the organization, like military
10. Order. All materials and personnel have a prescribed place, and they must remain there.
 11. Equity. Equality of treatment (but not necessarily identical treatment)
12. Personnel Tenure. Limited turnover of personnel. Lifetime employment for good workers.
13. Initiative. Thinking out a plan and do what it takes to make it happen.
14. Esprit de corps. Harmony, cohesion among personnel.

Out of the 14, the most important elements are specialization, unity of command, scalar chain,
and, coordination by managers (an amalgam of authority and unity of direction).

Henry Fayol synthesised 14 principles for organisational design and effective administration. It is
worthwhile reflecting on these are comparing the conclusions to contemporary utterances by
Peters, Kanter and Handy to name but three management gurus. Fayol's 14 principles are:

1. Specialisation/division of labour

A principle of work allocation and specialisation in order to concentrate activities to enable

specialisation of skills and understandings, more work focus and efficiency.

2. Authority with corresponding responsibility

If responsibilities are allocated then the post holder needs the requisite authority to carry these
out including the right to require others in the area of responsibility to undertake duties. Authority
stems from:

that ascribed from the delegation process (the job holder is assigned to act as the agent
of the high authority to whom they report - hierarchy)
allocation and permission to use the necessary resources needed (budgets, assets, staff)
to carry out the responsibilities.
selection - the person has the expertise to carry out the responsibilities and the personal
qualities to win the support and confidence of others.

The R = A correspondence is important to understand. R = A enables accountability in the

delegation process. Who do we cope with situations where R > A? Are there work situations
where our R< A?

"judgement demands high moral character, therefore, a good leader should possess and infuse
into those around him courage to accept responsibility. The best safeguard against abuse of
authority and weakness on the part of a higher manager is personal integrity and particularly
high moral character of such a manager ..... this integrity, is conferred neither by election nor
ownership. " 1916

A manager should never be given authority without responsibility--and also should never be
given responsibility without the associated authority to get the work done.

3. Discipline

The generalisation about discipline is that discipline is essential for the smooth running of a
business and without it - standards, consistency of action, adherence to rules and values - no
enterprise could prosper.

"in an essence - obedience, application, energy, behaviour and outward marks of respect
observed in accordance with standing agreements between firms and its employees " 1916

4. Unity of Command

The idea is that an employee should receive instructions from one superior only. This
generalisation still holds - even where we are involved with team and matrix structures which
involve reporting to more than one boss - or being accountable to several clients. The basic
concern is that tensions and dilemmas arise where we report to two or more bosses. One boss
may want X, the other Y and the subordinate is caught between the devil and the deep blue
sea.

5. Unity of Direction

The unity of command idea of having one head (chief executive, cabinet consensus) with
agree purposes and objectives and one plan for a group of activities) is clear.

6. Subordination of individual interest to the general interest

Fayol's line was that one employee's interests or those of one group should not prevail over the
organisation as a whole. This would spark a lively debate about who decides that the interests of
the organisation as a whole are. Ethical dilemmas and matters of corporate risk and the
behaviour of individual "chancers" are involved here. Fayol's work - assumes a shared set of
values by people in the organisation - a unitarism where the reasons for organisational activities
and decisions are in some way neutral and reasonable.

7. Remuneration of staff

The general principle is that levels of compensation should be "fair" and as far as possible afford
satisfaction both to the staff and the firm (in terms of its cost structures and desire for
profitability/surplus).

8. Centralisation

Centralisation for HF is essential to the organisation and a natural consequence of organising.

This issue does not go away even where flatter, devolved organisations occur. Decentralisation -
is frequently centralisaed-decentralisation !!! The modes of control over the actions and results of
devolved organisations are still matters requiring considerable attention.

9. Scalar chain/line of authority

The scalar chain of command of reporting relationships from top executive to the ordinary shop
operative or driver needs to be sensible, clear and understood.

10. Order

The level of generalisation becomes difficult with this principle. Basically an organisation "should"
provide an orderly place for each individual member - who needs to see how their role fits into
the organisation and be confident, able to predict the organisations behaviour towards them.
Thus policies, rules, instructions and actions should be understandable and understood.
Orderliness implies steady evolutionary movement rather than wild, anxiety provoking,
unpredictable movement.

11. Equity

Equity, fairness and a sense of justice "should"pervade the organisation - in principle and
practice.

12. Stability of tenure

Time is needed for the employee to adapt to his/her work and perform it effectively. Stability of
tenure promotes loyalty to the organisation, its purposes and values.

13. Initiative

At all levels of the organisational structure, zeal, enthusiasm and energy are enabled by people
having the scope for personal initiative. (Note: Tom Peters recommendations in respect of
employee empowerment)

14. Esprit de Corps

Here, Fayol emphasises the need for building and maintaining of harmony among the work
force , team work and sound interpersonal relationships.

In the same way that Alfred P Sloan, the executive head of General Motors reorganised the
company into semi-autonomous divisions in the 1920s, corporations undergoing reorganisation
still apply "classical organisation" principles - very much in line with Fayol's recommendations.

References

http://www.analytictech.com/mb021/fayol.htm

3 Dimensions of Strategic Change

Management Theories

3 Dimensions of Strategic Change

In their book 'Managing Change for Competitive Success' (1991) Andrew Pettigrew and Richard
Whipp distinguish between three dimensions of strategic change:

1. Content (objectives, purpose and goals) - The content of change aims to answer the question
"WHAT"

2. Process (implementation) - The process of change aims to answer the question "HOW"

3. Context (the internal and external environment) - The context of change aims to answer the
question "WHERE"

Pettigrew and Whipp emphasize the

continuous interplay between these
change dimensions. The implementation
of change is an "iterative, cumulative
and reformulation-in-use process."
Successful change is a result of the
interaction between the content or what
of change (objectives, purpose and
goals); the process or how of change
(implementation); and the organizational
context or where of change (the internal
and external environment).

Based on substantial empirical research,

they also present five central interrelated
factors belonging to successfully
managing strategic change:

1. Environmental assessment (continuous monitoring of both the internal and external

environment [competition] of the organization through open learning systems)

2. Human resources as assets and liabilities (employees should know they are seen as valuable
and feel trusted by the organization)
3. Linking strategic and operational change (Intentions are implemented and transformed
through time, bundling of operational activities is powerful and can lead to new strategic
changes)

4. Leading change (Move the organization forwards; creating the right climate for change,
coordinating activities, steering. Setting the agenda not only for the direction of the change, but
also for the right vision and values)

5. Overall coherence (a change strategy should be consistent (clear goals), consonant (with its
environment), provide a competitive edge and be feasible.

Three Dimensions of strategic change

References

http://www.valuebasedmanagement.net/methods_pettigrew_dimensions_strategic_change.ht
ml

3C's Theory of Kenichi Ohmae

Management Theories

The strategic triangle of 3C's

3C's framework of Kenichi Ohmae

Kenichi Ohmae introduces the 3C's model which stands for the corporation, the customer, and
the competition. The 3C's model (three C's framework) of Kenichi Ohmae, a famous Japanese
strategy guru, stresses that a strategist should focus on three key factors for success. "In the
construction of any business strategy, three main players must be taken into account:

the corporation itself,

the customer, and
the competition".

Only by integrating the three C's (Customer, Competitor, and Company) in a strategic triangle,
sustained competitive advantage can exist. Kenichi Ohmae refers to these key factors as the
three C's or the strategic triangle.

3C's model: Customer-based

strategies are the basis of all strategy.
..."There is no doubt that a
corporation's foremost concern
ought to be the interest of its
customers rather than that of its
stockholders and other parties. In the
long run, the corporation that is
genuinely interested in its customers
is the one that will be interesting to
investors".

Segmenting by objectives:

Here, the differentiation is done in terms of the different ways different customers use the
product. Take coffee, for example. Some people drink it to wakeup or keep alert, while others
view coffee as a way to relax or socialize (coffee breaks).

Segmenting by customer coverage:

This type of strategic segmentation normally emerges from a trade-off study of marketing costs
versus market coverage. There appears always to be a point of diminishing returns in the cost-
versus-coverage relationship. The corporation's task, therefore, is to optimize its range of market
coverage, be it geographical or channel, so that its cost of marketing will be advantageous
relative to the competition.

Resegmenting the market:

In a fiercely competitive market, the corporation and its head-on competitors are likely to be
dissecting the market in similar ways. Over an extended period of time, therefore the
effectiveness of a given initial strategic segmentation will tend to decline. In such a situation it
often pays to pick a small group of key customers and reexamine what it is that they are really
looking for.

Changes in customer mix:

Such a market segment change occurs where the forces at work are altering the distribution of
the user-mix over time by influencing demography, distribution channels, customer size, etc. This
kind of change calls for shifting the allocation of corporate resources and/or changing the
absolute level of resources committed in the business, failing which severe losses in the market
share can occur.
3C's framework: Corporate-based strategies. They aim to maximize the corporation's strengths
relative to the competition in the functional areas that are critical to success in the industry.

Selectivity and sequencing:

In order to win the corporation does not need to have a clear lead in every function from
sourcing to functioning. If it can gain a decisive edge in one key function, it will eventually be
able to pull ahead of the competition in other functions that may now be no better than
mediocre.

A case of make or buy:

In case of rapidly rising wage costs, it becomes a critical decision for a company to subcontract
a major share of its assembly operations. Its competitors may not be able to shift production so
rapidly to subcontractors and vendors, and the resulting difference in cost structure and/or in
the company's ability to cope with demand fluctuations could have have significant strategic
implications.

Improving cost-effectiveness:

This can be done in three basic methods. The first is by reducing basic costs much more
effectively than the competition. The second method is simply to exercise greater selectivity in
terms of orders accepted, product offered, or functions to be performed which means cherry-
picking the high-impact operations so that as others are eliminated, functional costs will drop
faster than sales revenues. The third method is to share a certain key function among the
corporation's other businesses or even with other companies. Experience indicates that there are
many situations in which sharing resources in one or more basic sub-functions of marketing can
be advantageous.

3 C's model: Competitor-based strategies according to Kenichi Ohmae can be constructed by

looking at possible sources of differentiation in functions ranging from purchasing, design, and
engineering to sales and servicing.

The power of an image:

Both Sony and Honda outsell their competitors as they invested more heavily in public relations
and promotion and managed these functions more carefully than did their competitors. When
product performance and mode of distribution are very difficult to differentiate, image may be
the only source of positive differentiation. But as the case of the Swiss watch industry reminds us,
a strategy built on image can be risky and must be monitored constantly.

Capitalizing on profit- and cost-structure differences:

Firstly, the difference in source of profit might be exploited, for e.g. profit from new product sales,
profit from services etc. Secondly, a difference in the ratio of fixed cost to variable cost might
also be exploited strategically for e.g. a company with a lower fixed cost ratio can lower prices
in a sluggish market and win market share. This hurts the company with a higher fixed cost ratio
as the market price is too low to justify its high-fixed-cost-low-volume operation.

Tactics for flyweights:

If such a company chooses to compete in mass-media advertising or massive R&D efforts, the
additional fixed costs will absorb such a large portion of its revenue that its giant competitors will
inevitably win. It could though calculate its incentives on a graduated percentage basis rather
than on absolute volume, thus making the incentives variable by guaranteeing the dealer a
larger percentage of each extra unit sold. The Big Three, of course, cannot afford to offer such
high percentages across the board to their respective franchised stores; their profitability would
soon be eroded if they did.
Hito-Kane-Mono

A favorite phrase of Japanese business planners is hito-kane-mono, or people, money, and

things (fixed assets). They believe that streamlined corporate management is achieved when
these three critical resources are in balance without any superfluity or waste. For example cash
over and beyond what competent people can intelligently expend is wasted. Again too many
managers without enough money will exhaust their energies and involve their colleagues in
time-wasting paper warfare over the allocation of the limited funds. Of the three critical
resources, funds should be allocated last. Based on the available mono-plant, machinery,
technology, process know-how, functional strengths and so on-the corporation should first
allocate management talent. Once these hito have developed creative, imaginative ideas to
capture the business's upward potential, the kane, or money, should be allocated to the specific
ideas and programs generated by individual managers.

References:

http://www.valuebasedmanagement.net/methods_3C's.html