CHAPTER 2 THE MANAGEMENT MOVEMENT - PBworks

LE A R N I N G OB J E C T I V E S

READING STRATEGIESAs you read

● PREDICT what the section will be about.

● CONNECT what you read with your own life.

● QUESTION as you read to make sure youunderstand the content.

● RESPOND to what you read.

30 CHAPTER 2 THE MANAGEMENT MOVEMENT

CHAPTER 2CHAPTER 2THE MANAGEMENTMOVEMENT

When you have completed this chapter, you will be able to:

� Explain how the U.S. economy changed during thenineteenth and early twentieth century.

� Identify various theories of management.

� Explain the effects of Japanese business practices onmanagement in the United States.

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WORKPLACE CONNECTIONS

For further reading on man-agers and management go to:www.businessweek.com

“The people of this companyhave been through wrenchingtimes in recent years, and it’sbeen hard on them and theirfamilies. Yet through all thesehardships…they are contin-uing to outperform all metricsand to stay focused on theneeds of our customers. Thepeople of United have done—and continue to do—remarkable work.”

—Glenn Tilton,United Airlines,

Chairman, President, and CEO

“MANAGEMENT TALK”

31

UnderstandingManagement

In December 2002, UnitedAirlines succumbed to bankruptcy.However, management restructuredthe company to focus on its coreadvantages, meet its fiscal objec-tives, and eventually emerge frombankruptcy as a stronger, moreefficient and competitive business.

Analyzing Management Skills

What are the benefits of a managementphilosophy that emphasizes teamwork?How might allowing employees to ownshares increase their productivity?

Applying Management Skills

Recall or imagine a workplace task thatyou found inefficient or tedious. Imaginethat your workplace supervisor asks youfor suggestions to change the procedurefor completing the task. How wouldbeing asked for your input make youfeel about your workplace?

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www.businessweek.com

THE EVOLUTION OF MANAGEMENT

➤ How the IndustrialRevolution createda new need formanagement.

➤ How the captainsof industry of thelast century createdhuge empires.

➤ The principles of scientific management.

➤ The results of theHawthorne studieson worker produc-tivity.

➤ Maslow’s hierarchyof needs.

To understand whybusinesses operatethe way they do, youwill need to under-stand how manage-ment systems evolved.

• monopoly• trust• scientific

management• hierarchy of needs


Section 2.1

� MANAGEMENT HISTORY The new industrial enterprises that emerged in thenineteenth century demanded management skills that had not been necessary earlier.Why was professional management less important when the U.S. economy wasbased on agriculture?

The Industrial RevolutionSome forms of management have existed since the beginning of

time. Ever since one human tried to direct another, ideas about man-agement have been developing. The challenges facing business man-agers have not always been the same, however. Those challengeschanged dramatically more than a century ago, during the IndustrialRevolution, and they continue to evolve.

As its name suggests, the Industrial Revolution refers to the periodduring which a country develops an industrial economy. In Europe,the Industrial Revolution began in the eighteenth century. In theUnited States, the Industrial Revolution began about 1860, just beforethe Civil War.

Before the Industrial Revolution, the U.S. economy was based onagriculture. Most people worked on small farms, using only simple

WHAT YOU’LL LEARN

WHY IT’S IMPORTANT

KEY TERMS

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technology, such as horse-drawn plows. Professional managers werenot needed because most people worked for themselves.

By the late 1800s, the U.S. economy depended largely on industriessuch as oil, steel, railroads, and manufactured goods. Many people lefttheir farms to take jobs in factories, where professional managerssupervised their work.

Causes of the Industrial RevolutionChanges in technology, communication, and transportation made

the Industrial Revolution possible. Advances in manufacturing proc-esses allowed new products, such as steel, to be created. The growinguse of steam power permitted more and more factories to operate. Italso created a huge demand for coal.

Other factors also spurred the Industrial Revolution. Telegraph andcable lines in the United States were extended across the country afterthe Civil War, linking the country from coast to coast. The changemade it possible for businesses to communicate with suppliers and cus-tomers. Communication became even more accessible after 1876, withthe invention of the telephone.

Advances in transportation also improved opportunities for indus-try. By 1870 the United States had constructed 52,900 miles of railroadlines, including lines reaching the Pacific Ocean. Construction ofcanals and roads as well as improvements in the design ofsteamships made it easier for businesses to send andreceive products and supplies.

Captains of IndustryToward the end of the nineteenth century, powerful

businesspeople who created enormous business empiresdominated and shaped the U.S. economy. These captainsof industry included John D. Rockefeller (oil), James B.Duke (tobacco), Andrew Carnegie (steel), J.P. Morgan(banking), and Cornelius Vanderbilt (steamships andrailroads).

During this period entrepreneurs founded companiesthat later became industrial giants. One of these compa-nies was Bethlehem Steel. In 1863 the company beganproducing the first iron railroad rails. It later became oneof the largest shipbuilders in the world. By 1899 the com-pany was selling almost $1 trillion worth of iron and steelproducts a year.

Most of the great entrepreneurs of the nineteenth andearly twentieth centuries started with few resources.Andrew Carnegie, for example, was a poor immigrant

The Evolution of Management Section 2.1 33

PREDICT

What are some advances in tech-nology that have changed busi-ness practices from the 19th tothe 20th centuries?

� TECHNOLOGY AND MANAGEMENT In1872 Aaron Montgomery Ward created thefirst mail-order business in the UnitedStates. What technological changesmade creation of his company possible?

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from Scotland who worked in a cotton factory. At the age of 29 heentered the iron business, eventually creating one of the largest indus-trial enterprises in the United States.

Cornelius Vanderbilt began his empire at the age of 16, when hepurchased a small vessel that sailed between Staten Island and NewYork. Eventually, he became the leading steamboat owner in theUnited States.

Creation of MonopoliesThe captains of industry of the nineteenth cen-

tury often pursued profit and self-interest above allelse in order to create huge enterprises. They drovecompetitors out of business and created giantcompanies that maintained monopolies in theirindustries. A occurs when one partymaintains total control over a type of industry.

John D. Rockefeller, for example, lowered theprices he charged for oil in order to force his com-petitors to sell out or join forces with him. Hecombined the dozens of companies he owned intoa single , or giant industrial monopoly. Rock-efeller’s tactics were so successful that by 1879 hecontrolled more than 90 percent of the country’srefining capacity and almost as large a share of itspipelines.

The Break-Up of the TrustsBy about 1870, many people became worried

about the concentration of wealth in the hands ofa few very rich business owners. They began toquestion the ways in which these businesses drovetheir competitors out of business. Legislators andthe public alike began to voice growing concern

that creation of monopolies was hurting consumers. In response tothese concerns, the government decided to begin regulating business.

THE INTERSTATE COMMERCE ACT In 1887 Congress passed theInterstate Commerce Act, the first major piece of regulatory legislation.It passed the law in response to the widespread practice in which therailroads gave rebates to some customers but not others. The InterstateCommerce Act forced railroads to publish their rates and forbadethem to change rates without notifying the public. The law also estab-lished the Interstate Commerce Commission (ICC) to supervise therailroads.

trust

monopoly


QUESTION

Why are large monopolies harmfulto the consumer?

� BUSINESS LAW This 1884 cartoon portrays John D. Rockefeller’s Standard Oil Company as an octopus whose tentacles choke small oilcompanies, the railroads, shipping companies, and banks. How did legislators respond to thepublic sentiment captured in this cartoon?

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For six generations, Norway’sMustad clan has manufac-

tured a small but crucial prod-uct: the fishhook. Sincefishermen are scrupulous intheir evaluation of each andevery hook they use, produc-tion of the tiny pieces of metalis deceptively specialized.

To get it right, sales repre-sentatives from O. Mustad &Son travel the globe investigat-ing the sorts of hooks favoredby anglers from Alaska to Asiaand then report back to theoutfit’s factories around theworld. The globetrotting paysoff: Family-owned Mustad hasbeen the world’s No. 1 makerof fishhooks for 125 years.WIRED. “Even though thefishhook is a very old product,you have to come to the marketwith new products so cus-tomers understand that you arenot complacent,” says HansMustad, the company’s 45-year-old chairman.

In a country like Norway,the world’s ninth-largest fishproducer, hooks represent akey niche. Mustad masteredthe craft early on, and in thelate 1800s, it invented and per-fected a machine that gave the

company a massive advantageover competitors, whose hookswere made by hand.

In addition, Mustad has itsown wire mill, which gives itgreater control over the endproduct. Having high-qualitywire is a key part of producingsuperior hooks, according toMustad. And making the hooksby machine helps to ensurethat each is the same size. Thisconsistency is a key factor inretaining customers, Mustadsays. “Each fisherman has avery particular view on whatkind of fishhook will make himcatch the most fish,” he says.LOOKING EAST. Such apainstaking devotion to accu-racy helps Mustad see $60 mil-lion to $70 million in total

Hooked on Qualitysales each year. With produc-tion in Asia, Europe, and SouthAmerica, Mustad’s fishhooksare in 140 markets worldwide.The U.S., with some 45 millionsport anglers, is now Mustad’sbiggest market.

In the months to come, theoutfit is looking to expand evenfurther, adding jobs in Chinaand Singapore. Low labor costsand a fast-growing local marketmake Asia an attractive place togrow the business, and one ofthe most promising markets forintroducing new, fishing-relatedproducts.

With such a strategy, Mus-tad’s slogan—“So sharp even fishtalk about us”—seems fitting.

Excerpted with permission fromBusinessWeek, January 21, 2004

CRITICAL THINKINGWhat are some of the reasonsthat the Mustads have beenso successful for so long?

DECISION MAKINGImagine that you want tostart a bakery. How mightyou apply the principles ofthe Mustads’ success to yourbusiness?

Management Model

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THE SHERMAN ACT In 1890 Congress passed the ShermanAntitrust Act, which made it illegal for companies to createmonopolies. The law was intended to restore competition at atime when monopolies had taken over many industries.

Under Presidents Theodore Roosevelt, William Howard Taft,and Woodrow Wilson, the government broke up many of thelarge trusts that had been established during the nineteenth cen-tury. The Standard Oil Company, for example, was broken upinto smaller companies so that other oil companies could com-pete with the former giant.

New Challenges for Management In the eighteenth century and early nineteenth century,

when most Americans worked on farms, sophisticated manage-ment techniques were not necessary. However, by the end of the

nineteenth century, giant companies employed thousands of peopleand distributed products all over the country. Workers performedspecialized tasks that needed to be coordinated. These changesdemanded new ideas about how to manage people working in largecorporations.

Frederick W. Taylor andScientific Management

In response to the need for man-agement, many new ideas aboutproductivity and motivation weredeveloped in the late nineteenthcentury and early twentieth centuries.In 1874 Frederick Winslow Taylor(1856–1915) went to work as anapprentice at the Midvale Steel Com-pany, where he soon became foreper-son. Taylor quickly noticed that mostworkers did not work as hard as theycould. He decided to find ways tomotivate them to work harder.

To increase efficiency, Taylor triedto figure out the “one best way” toperform a particular task. To do so, heused a stopwatch to determine which

work method was the most efficient. These studies, known as time andmotion studies, enabled him to come up with scientific management


� SCIENTIFIC MANAGEMENTFrederick W. Taylor (1856–1915) wasthe father of scientific management.What were his main ideas?

DRESS FOR SUCCESSToday’s workplace envi-ronments can vary from“business casual” to tra-ditional. A clean andpressed appearance inany situation will work toyour advantage. Firstimpressions sometimesstick, so be prepared bybeing presentable.

EADING THE AY

LWEADING

THE AY

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principles. seeks to increase productivity andmake work easier by carefully studying work procedures and deter-mining the best methods for performing particular tasks.

Taylor’s scientific management was based on four main ideas:

1. Jobs should be designed according to scientific rules ratherthan rule-of-thumb methods. Employers should gather, classify,and tabulate data in order to determine the “one best way” ofperforming a task or series of tasks.

2. Employees should be selected and trained according to scien-tific methods. Employers should study worker strengths andweaknesses and match workers to jobs. Employers should alsotrain employees in order to improve their performance.

3. The principles of scientific management should be explained toworkers.

4. Management and workers should be interdependent so thatthey cooperate.

Companies today continue to use the principles of sci-entific management. The Marriott Corporation, for exam-ple, discovered that customer satisfaction with a hoteldepends largely on how well a customer is treated duringthe first ten minutes. To make sure those first ten minutesexceeded customer expectations, Marriott changed theway it processed incoming guests. Every day the companymakes a list of arriving guests, placing the names of guestsexpected earliest at the top of the list. The cleaning staffcleans the rooms of those guests first, so that they will nothave to wait before checking in. Marriott also combinedthe jobs of doorperson, bellhop, and desk clerk by creatinga new position, known as guest service agent. Under thenew system, a guest service agent greets guests at thedoor, checks them in, and escorts them to their rooms.

The Hawthorne Studies of ProductivityIdeas on management continued to develop in the twentieth

century. During the 1920s, researchers began to look at the rela-tionship between working conditions and productivity. In 1924researchers conducted a series of experiments at the Hawthorne plantof Western Electric in Cicero, Illinois. They lowered the lighting in thefactory, expecting productivity to fall. Instead, to their astonishment,productivity increased. Over the next several months, the researchersrepeated the experiment by testing many different levels of lighting aswell as other factors. Whatever variable was changed, productivityincreased.

Scientific management


CONNECT

How would you design a scientificmethod for measuring the effi-ciency of a task at your workplaceor school?

All About

A T T I T U D EDO UNTO OTHERSThe Golden Rule may soundtrite, but it’s still true—you dobenefit when you treat otherpeople just the way you’d like tobe treated. That goes for yourattitude too. Your positive atti-tude should extend to your fam-ily and friends, as well as youremployees. Expect the bestfrom them—and for them.

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Baffled by the results, the researchers called in a team of psycholo-gists from Harvard University. For the next five years, these investiga-tors conducted hundreds of experiments at the Hawthorne plant.They tested the effects of different wage payments, rest periods, workhours, and other variables. Regardless of the variable tested, the resultswere the same: productivity increased.

The researchers concluded that productivity rose because workersworked harder when they received attention. Even the attention paidto them by the researchers increased their productivity. This phenom-enon, in which change of any kind increases productivity, has sincebeen known as the “Hawthorne effect.”

The Hawthorne studies also yielded other important results. Theresearchers concluded that factors other than the physical environ-ment affected worker productivity. These included psychological andsocial conditions at work, such as informal group pressures, individualrecognition, and participation in decision making. They also foundthat effective supervision significantly affected both productivity andemployee morale.

Abraham H. Maslow and the Hierarchy of Needs

Other important ideas about management came fromthe field of psychology. Abraham H. Maslow (1908–1970)was a psychologist who developed a theory of motivation.His ideas had a significant impact on management.

According to Maslow, all people have five basic typesof needs, as shown in Figure 2–1:

• Physical needs (such as food, water, air, and sleep) • Security needs (related to freedom from physical,

psychological, or financial harm)• Social needs (such as the need to talk to others,

express feelings of friendship, and accept and beaccepted by others)

• Status needs (self-esteem and the esteem in whichone is held by others)

• Self-fulfillment needs (such as the need to realizeone’s own potential)

Maslow believed that individuals fulfill lower-level needs beforeseeking to fulfill higher-level needs. That is, people satisfy their needfor food before they seek self-fulfillment. Because one set of needs mustbe met before another is sought, Maslow referred to a hierarchy ofneeds. The is Maslow’s grouping and ordering ofphysical, security, social, status, and self-fulfillment needs.

hierarchy of needs


Tips from Robert Half When looking for a job,

identify your ideal work environ-ment. Do you want to work for alarge or small company? Is payor learning potential more impor-tant? Research companies atlibraries, career centers, orthrough the Internet.

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APPLYING MASLOW’S THEORY TO MANAGEMENT Maslow’s hierarchyof needs has important implications for business managers. At the low-est level, according to this theory, workers are motivated by basicneeds, such as the need for wages or salary. Basic needs also include thephysical conditions in which a person works (for example, heating,lighting, and noise level).

Once these basic needs are met, employers can address the nextlevel of needs—safety or security needs. It’s important for employers toclearly communicate to their employees the benefits of working fortheir company. Some of these security needs can be met by providingemployees with insurance, retirement benefits, and job security.Employees need to know that in their workplace, they are safe fromphysical, psychological, or financial harm.

Managers meet workers’ social needs by providing work environ-ments in which colleagues interact. They can also provide opportuni-ties for co-workers to socialize with one another (by providingcompany lunch rooms or allowing employees to attend companyretreats, for example).


MASLOW’S HIERARCHY OF NEEDSFigure 2–1

Maslow developed a theory that people have five basic types of needs. How did his hierarchy ofneeds affect theories of management?WORKING WITH CHARTS

RESPOND

What needs would you seek tohave filled by a job? Do theycorrespond to Maslow’s hier-archy of needs?

SELF-ACTUALIZATION, SELF-REALIZATION, AND SELF-FULFILLMENT

EGO OR STATUS NEEDS

LOVE OR SOCIAL NEEDS

SAFETY OR SECURITY NEEDS

PHYSICAL OR PHYSIOLOGICAL NEEDS

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Section 2.1 Assessment

FACT AND IDEA REVIEW

1. How did the changes in the U.S. economyduring the late nineteenth century increasethe need for management?

2. What laws were passed in the nineteenthcentury to try to control the power of largecompanies?

3. How did Frederick W. Taylor change think-ing about management?

4. What factors affect workers’ productivity?

CRITICAL THINKING

1. Analyzing Information: Why is it difficultto apply the principles of scientific man-agement to tasks such as writing a televisionscript or creating a new computer game?

2. Making Generalizations: Which do youthink is more important to employees, ahigh salary or a pleasant work environ-ment? According to Maslow, which kind ofworkers would more likely prefer higher payto better working conditions?

ASSESSING WRITING SKILLS

Many people influenced the development ofeffective management. Some of these peopleinclude Mary Parker Follett, James F. Lincoln,and Charles McCormick. Research and write aone-page paper about one of these importantfigures.

CASE ANALYSIS

In recent years, All-Steel, a manufacturer ofmetal fences, has had a serious problem retain-ing employees. Two years ago, in an effort tocombat the problem, the company’s president,Mark Esposito, raised wages by 10 percent. Themove had almost no effect on turnover: lastyear almost 25 percent of the workforce quit.Mark’s company pays higher wages than itscompetitors but they are still unable to retain ahigher percentage of the workforce.

Apply: What factors explain the turnoverrate at All-Steel? Explain your answer.

Status needs can be met by providing workers with signs of recog-nition that are visible to others. These include job titles, private offices,designated parking spaces, awards, and promotions.

Finally, employers can meet employees’ need for self-fulfillment byproviding them with opportunities to be creative at work. Managerswho include their employees in decision making will help them meetthis highest-level need.

Companies try to meet different needs in various ways. ITT, forexample, has created a Ring of Quality Program, which honors out-standing employees. Employees who make a major contribution to thecompany receive gold rings or silver pins. The president or chairman ofthe corporation presents these awards at a formal dinner. Recognizingemployees in this way fills a need that is not met by simply providingcash bonuses.


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Management Careers in Focus

Farm Manager

ment, bookkeeping, and accounting as well asagriculture.

� Salary RangeFull-time salaried farm managers earn $485

to $650 a week. They usually receive no bene-fits but may be provided with housing, in addi-tion to food products.

CRITICAL THINKING:Why do today’s farm managers need com-puter skills? How can computers help farm-ers work more efficiently? What kind ofchallenges do you think farm managers faceon their job?

INDUSTRY OUTLOOKIn 2000, approxi-

mately 1.5 million peoplewere employed as farm-ers, ranchers, and agricul-tural managers. Although farm consolidation isexpected to cause a decline in employment forfarmers and ranchers through 2010, a modestgrowth in farm, ranch, and agricultural managerpositions is expected over this time period.

� Nature of the WorkFarm managers help farmers manage day-

to-day activities. They may oversee only oneactivity, such as livestock feeding, if the farm islarge. Or they may take on all responsibilitiesfrom choosing crops to planting to harvesting.They may monitor production and marketing;hire, assign and supervise workers; and overseemaintenance of property and equipment. Onvery large corporate farms, they may overseethe tenant operators.

� Working ConditionsFull-time farm managers often work more

than 60 hours a week. Time off is infrequentand the work is strenuous. Much of their workis outdoors in rural areas, where they workwith plants and animals. However, they alsospend time indoors working with computers,taking care of finances, and planning. Becausethey work with chemicals and large equip-ment, the work can be hazardous.

� Training, Other Qualifications, and AdvancementFarm managers often have a bachelor’s

degree in agriculture, or in business with aconcentration in agriculture. Many havegrown up on farms, but must have at leastseveral years experience working on farms.They need a knowledge of business, manage-

For more information on management careers, go to: busmanagement.glencoe.com

BUSINESS MANAGEMENT

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busmanagement.glencoe.com

THE DEVELOPMENT OF MODERN MANAGEMENT

➤ The principles oftotal qualitymanagement.

➤ The principles ofTheory X andTheory Y.

➤ Japanese manage-ment concepts andthe ideas behindTheory Z.

Becoming familiarwith modern manage-ment principles willhelp you understandhow businessesfunction in today’senvironment.

• Theory X• Theory Y• centralization• decentralization• total quality

management (TQM)• Theory Z


Section 2.2

Empowering EmployeesAs organizations grew in size and complexity, new styles and

methods of management began to emerge. Different philosophiesdeveloped on how best to manage people.

Theory X and Theory YIn the 1960s, MIT Professor Douglas McGregor identified two

types of management styles, which he called Theory X and Theory Y(see Figure 2–2). assumes that people are basically lazy andwill avoid working if they can. To make sure that employees work, The-ory X managers impose strict rules and make sure that all importantdecisions are made only by them.

Before it changed its approach to management, Preston Truckingwas a typical Theory X company. “Management knew all the answers,”according to the company’s vice president. “If there was a question,management would make the judgment. No matter that the managerhad 7 years’ experience and the driver had 20. The feeling was ‘I amthe manager. I have the title.’”

assumes that people find satisfaction in their work.Theory Y managers believe that people will work productively if put inthe right environment. According to them, people are creative and willcome up with good ideas if encouraged to do so. Theory Y managerstend to give their employees much more freedom than do Theory Xmanagers. They also let their employees make mistakes. “In this com-pany, you’ll be fired for not making mistakes,” said Steve Ross, the for-mer chief executive officer of Time Warner.

TBWA/Chiat/Day, an advertising agency based in Los Angeles, hasadopted a Theory Y approach to management. Job descriptions areintentionally ambiguous, and employees are given the freedom tomake decisions on their own. “If you don’t have the initiative or arescared or are waiting for your boss to say it’s okay to try something,you’re in trouble,” says the company’s director of administration. Thecompany believes that its management approach sparks the creativityneeded to succeed in the advertising business.

Theory Y

Theory X

WHAT YOU’LL LEARN

WHY IT’S IMPORTANT

KEY TERMS

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THEORY Y Theory Y man-

agers believe thatpeople find satisfac-tion in their work.They have highexpectations of theiremployees and grantthem considerablefreedom. They alsolet them make impor-tant decisions.

2

THEORIES X AND YMost companies combine elements of both theories of motivation. They allow employees

freedom in some aspects of their professionallives and control their actions in others. Manycompanies, for example, set informal dress codesbut strict guidelines on employee travel expenses.

3

The Development of Modern Management Section 2.2 43

Different managers make differentassumptions about what motivatespeople to work. Their assumptions affectthe way they manage their employees.

FIGURE 2–2

Theory X and Theory Y

RESPOND

Give an example of Theory X andTheory Y management. How dothey differ?

THEORY XTheory X managers assume that workers will avoid working if they

can. They impose strict rules and makesure that all important decisions aremade only by them. Many traditionalorganizations, such as the U.S. PostalService, are run by Theory X managers.

1

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Centralization versus DecentralizationIn the early twentieth century, decisions at most large American

companies were made by a small group of senior managers. Thesecompanies had centralized management systems. refers to the concentration of power among a few key decision makers.

Companies in which decisions were made by only a few key peopleoften ran into problems. For example, Henry Ford, the inventor of theautomobile, nearly destroyed the company he built by refusing to let

his managers perform management tasks.Ford was so afraid of allowing anyone buthimself to make decisions that he hadsecret police agents spy on his senior aides.Senior managers were limited to executingdirectives laid down by Ford himself.

To compete with Ford, General Motorsdecided to decentralize its operations.

is the process by whichdecisions are made by managers at variouslevels within an organization. In the 1920s,Alfred Sloan, GM’s chair, broke the com-pany up into five divisions: Chevrolet, Pon-tiac, Oldsmobile, Buick, and Cadillac.Breaking up the company allowed GM tobetter target different kinds of customers. Italso allowed managers at each of the newdivisions to make important decisions thatcentral managers had once made. Decen-

tralization was so effective at GM that by the end of World War II thecompany was selling more cars than Ford.

The Emphasis on Quality and Teamwork

Beginning about a half century ago, managers began to applynew management tools. Some of these new systems emphasized main-tenance of flawless quality standards and teamwork.

Total Quality ManagementIn the 1950s, a new era of management began, as mathematical

models were developed to quantify management. One important pio-neer in this field was W. Edwards Deming, who used mathematics tohelp solve problems of quality control.

Decentralization

Centralization


� CENTRALIZED MANAGEMENT Henry Ford kept tight controlover the company he founded. How did his managementstyle affect his company?

QUESTION

Explain the difference betweencentralized and decentralizedmanagement systems.

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Deming began by studying how companies ensure that the prod-ucts they produce are not defective. He came up with a mathematicallybased approach to quality control that became known as total qualitymanagement. is a system of man-agement based on involving all employees in a constant process ofimproving quality and productivity by improving how they work. Thisapproach, which has been widely adopted by American businesses,focuses on totally satisfying both customers and employees.

DEMING’S FOURTEEN POINTS Deming emphasized the maintenanceof high quality standards. His overall philosophy for achieving highquality is contained in his 14 points:

1. Create consistent purpose for improving products and servicesin order to remain competitive.

2. Adopt a new philosophy. We are in a new economic age. Wecan no longer live with commonly accepted levels of delays,mistakes, defective materials, and defective workmanship.

3. Stop depending on mass inspection. Require instead statisticalevidence that quality is built in to eliminate need for inspec-tion on a mass basis.

4. Consider quality as well asprice in awarding business.

5. Constantly improve thesystem of production andservice. It is management’sjob to work continually onthe system.

6. Institute a vigorous pro-gram of job training.

7. Adopt and implementleadership. The responsi-bility of supervision mustchange from focusing onsheer numbers to quality.Improvement of qualitywill automatically improveproductivity.

8. Drive out fear so that every-one may work effectivelyfor the company.

9. Break down barriers be-tween departments. Peoplein research, design, sales, and production must work asa team to foresee problems of production that maybe encountered with various materials andspecifications.

Total quality management (TQM)

� TOTAL QUALITY MANAGEMENT Consumers must be happy with theprice and quality of what a business produces. What are someof the things managers can do to assure the quality oftheir products or services?


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10. Eliminate numerical goals, posters, and slogans for the work-force that ask for new levels of productivity without providingnew methods.

11. Eliminate work standards that prescribe numerical quotas. 12. Remove barriers that stand between the hourly worker and his

or her right to pride of workmanship. 13. Encourage education and self-improvement for everyone. 14. Create a structure in top management that will work every

day to achieve the above 13 points.

APPLYING TOTAL QUALITY MANAGEMENT Companies in a variety ofindustries have adopted TQM programs. Most have found that the per-formance of their companies improved.

A large Silicon Valley computer company adopted TQM after fac-ing growing customer dissatisfaction with its products. To improvequality, management involved every employee in the company.

Hourly production workersand senior managers met reg-ularly to discuss the com-pany’s production process.Together they worked outsolutions to the problemsthat had cost the companybusiness. Instituting TQMhelped the company regainthe confidence of its cus-tomers and reduce operatingcosts. Having managers workwith production workers tosolve problems affecting qual-ity improved both profits andemployee morale.

Other companies ensurethat employees are commit-ted to quality in differentways. For example, to con-

stantly remind them of their commitment to quality, Motorolaemployees carry wallet-sized cards that state: “Our Fundamental Objec-tive (Everyone’s Overriding Responsibility): Total Customer Satisfac-tion.” At General Electric, executives’ bonuses depend on how well thecompany improves quality. At Burger King, no employee receives abonus if the company fails to meet its quality goals.


International Management

THAILAND

The social culture of Thailand has given rise to highlycentralized corporations with strict lines of authority. Self-managed teams would not be a viable managementstyle because workers are used to taking direction fromleaders whose authority is absolute and based on status.

For further reading aboutInternational Management go to: www.businessweek.com

MYANMAR

THAILAND

KAMPUCHEA

VIETNAM

LAOS

MALAYSIA

e n g a l

A n d a m a n S e a Gulf of Thai land

Vientiane

Phnom Penh

Rangoon

Bangkok

Hanoi

CONNECT

Imagine a meeting betweenemployees and supervisors at a manufacturer that stressedtotal quality management. Whatwould the supervisors say to theworkers?

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Japanese Management PracticesThe success of many Japanese companies in the decades following

World War II drew worldwide attention to their management practices.To try to find out why Japanese companies were so successful,researchers tried to identify ways in which Japanese companies differedfrom American companies. They found, for example, that Japanesemanagers encouraged more employee participation in decision makingthan did American managers. Japanese managers also showed deeperconcern for the personal well-being of their employees. Rather thanpresenting their workerswith demands, Japan-ese managers tendedto facilitate decisionmaking by teams ofworkers. In contrast,Americans tended towork as individuals.

Japanese businesspractices have beensuccessfully exported to the United States. At Honda’s plant inMarysville, Ohio, forexample, 5,500 Ameri-can “associates” turnout one Honda Accorda minute. The highlevel of productivity atthe plant is attributedto several innovativemanagement practices.

In a traditional assembly-line plant, workers are organized by func-tions. One worker might be responsible for installing seat belts, forexample. Another might be responsible for checking headlights. Incontrast, Honda workers are organized by teams rather than by func-tions. Workers are thus skilled in various aspects of production.

The Honda factory differs from traditional American factories inother ways as well. Unlike most American plants, where there is a cleardistinction between workers and managers, all Honda employees areempowered to make decisions. As a result, Honda employees are ener-getic and committed to producing high-quality products.


� DEMING’S FOURTEEN POINTS Adopting Deming’s ideas on quality helped Japantransform itself into one of the most successful economies in the world. What aresome of Deming’s Fourteen Points?

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Theory ZIn the 1980s, William Ouchi, a management researcher, developed

a new theory of management, known as Theory Z. is a busi-ness management theory that integrates Japanese and American busi-ness practices. As Figure 2–3 shows, Theory Z incorporates theJapanese emphasis on collective decision making and concern foremployees with the American emphasis on individual responsibility.

One company that increased its sales by adopting Japanese-stylemanagement practices is Johnsonville Foods, a Wisconsin sausage-making company. In 1978 a new chief executive officer, Ralph Stayer,took over the company. Sensing that the company’s employees wereunhappy, Stayer decided to institute some changes. He did away withfront-line supervisors, replacing them with self-managing teams. Theteams hire, evaluate, and fire their own employees. He also offeredfinancial support to employees who wanted to take courses in theevenings, whether or not their courses were job-related. The resultswere impressive, with company sales rising from $7 million a year to$130 million in just ten years.

Theory Z


JAPANESE, AMERICAN, AND THEORY Z ORGANIZATIONSFigure 2–3

Japanese and American firms apply very different management practices. What is the maindifference in their approaches?WORKING WITH CHARTS

RESPOND

Which management philosophy doyou think is best for running abusiness: Theory X, Y, or Z?Explain your answer.

THEORY Z TYPE ORGANIZATION

1. Long-term employment2. Consentual, participative decision making3. Individual responsibility4. Slow evaluation and promotion5. Implicit, informal control with explicit, formalized measures6. Moderately specialized career path7. Holistic concern, including family

JAPANESE TYPE ORGANIZATION

1. Lifetime employment2. Collective decision making3. Collective responsibility4. Slow evaluation and promotion5. Implicit control mechanisms6. Nonspecialized career path7. Holistic concern

for employee as aperson

AMERICAN TYPE ORGANIZATION

1. Short-term employment2. Individual decision making3. Individual responsibility4. Rapid evaluation and promotion5. Explicit control mechanisms6. Specialized career path7. Segmented con-

cern for employeeas an employee

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Section 2.2 Assessment

FACT AND IDEA REVIEW

1. Identify five of Deming’s Fourteen Points.2. Describe the difference between Theory X

and Theory Y.3. List three ways in which Japanese business

practices differ from traditional Americanpractices.

CRITICAL THINKING

1. Drawing Conclusions: Why is total qualitymanagement (TQM) important? Explain.

2. Evaluating Information: How have Japan-ese business practices affected Americancorporations?

ASSESSING MATH SKILLS

Three out of every 500 pairs of jeans your fac-tory produces are defective and need to be

thrown away. If the cost of each pair of dis-carded jeans is $9.00, how much money isyour company losing on every 10,000 pairs ofjeans it produces?

CASE ANALYSIS

Over the past ten years, Peter Brown has builtan automobile dealership that now has 15branches in five states. Every day, Peter travelsto another branch to supervise activities, ordernew vehicles, and observe the work of the ser-vice department. Recently, thousands of dollarsin sales have been lost because the cars cus-tomers want have not been in stock at somedealerships. Peter’s response to the decline insales has been to keep closer tabs on activitiesat some of his branches.

Apply: Is Peter’s approach to managing hiscompany a sound one? What steps could Petertake to improve the operation of his company?


� THEORY Z Many Americancompanies now organize theirworkers into teams. How wasthis development affected byTheory Z?

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REVIEWING VOCABULARY

Create a crossword puzzle using the following terms. Make sure theclues you write accurately define each term.

monopolytrust scientific managementhierarchy of needsTheory XTheory Y

RECALLING KEY CONCEPTS

1. What legislation was passed in response to theunethical business practices of the nineteenthcentury?

2. What are the main principles of scientific man-agement?

3. What did the Hawthorne studies show aboutworker motivation and productivity?

4. How do Theory X managers differ from Theory Ymanagers?

5. How do Japanese management practices differfrom American management practices?

6. What is Theory Z?

THINKING CRITICALLY

1. How does business management today differ frombusiness management in the nineteenth century?

2. How did Maslow’s ideas affect thinking aboutmanagement?

3. How would you apply the results of theHawthorne studies to increase productivity?

4. Why do some companies centralize decision mak-ing and others decentralize it?

5. Why would American companies want to adoptTheory Z?

centralizationdecentralizationtotal quality

management(TQM)

Theory Z

CHAPTER SUMMARY

Section 2.1

� By the end of the nineteenth cen-tury, the U.S. economy had becomeindustrialized. The change created anew need for management.

� Frederick Taylor, Abraham Maslow,and others developed ideas thatchanged thinking about management.

Section 2.2

� Different kinds of managers makedifferent assumptions about whatmotivates workers. Theory X man-agers believe that people do not liketo work and need to be tightly con-trolled. Theory Y managers believethat people like to work and shouldbe allowed freedom to be creative.

� W. Edwards Deming emphasizedmaintenance of high quality stan-dards. His principles of total qualitymanagement are stated in his Four-teen Points.

� Japanese business practices differfrom American practices. Theory Zincorporates practices from bothbusiness cultures.

CHAPTER 2 ASSESSMENTCHAPTER 2 ASSESSMENT


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Assessment CHAPTER 2 51

PREPARING FOR COMPETITIVE EVENTS

The federal law that was enacted to estab-lish the illegality of monopolistic prac-

tices is the:

a. Sherman Antitrust Act.

b. Federal Trade Commission Act.

c. National Labor Relations Act.

d. Interstate Commerce Act.

CHAPTER 2 ASSESSMENTCHAPTER 2 ASSESSMENT

ASSESSING ACADEMIC SKILLS

SCIENCE Conduct an experiment inwhich you determine the fastest wayto first test that ballpoint pens workand then package them intoboxes. Use a stopwatch to timedifferent methods. Write a briefreport in which you identifythe “one best way” of per-forming this task.

APPLYING MANAGEMENT PRINCIPLES

SOLVE THE PROBLEM The rules at your com-pany are very strict. All employees must go tolunch between noon and 12:45 p.m. No per-

sonal phone calls are allowed, andemployees are not allowed timeoff from work to take care of

sick children. You believethat productivity at

your company wouldactually increase ifsome of these ruleswere relaxed. Tryto convince the

manager of yourcompany that relax-

ing the rules wouldincrease productivity.

Public Speaking Prepare a short presen-tation in which you identify the benefits of a more relaxed work environment. Use exam-ples of companies that do not impose strictrules.

In this chapter you read the Busi-nessWeek Management Model aboutthe management approach of a family-owned fishhook manufacturer. Formore information, go to BusinessWeekonline at: www.businessweek.com

Locate an article on currentapproaches to management. Write abrief summary of what makes theapproach successful. Present yourfindings to the class.

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