With and finally equity. Discipline is defined

With the
increasing number of corporate scandals and organizational failures, the work
of managers has been put into question. Are the managers of today competent
enough to take on this job? Should there be more qualification required in this
domain? In order to answer these question, one must first understand what are
the principles of management and what are the duties of a managers nowadays?

 

Porter
argues that, nowadays, an organization can be successful over a competitor in
one of two ways: either it can sell a product or a service, identical to the
competition, at a lower price, or it can sell a differentiated product or a
service for a higher price. This means that if an organization wants to thrive,
it should adopt a cost advantage strategy or a differentiated strategy (
Porter, 1980). Thus, a different set of managerial principles are required.

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The
purpose of this first section is to present how Fayol’s past principles of
management, can be applied to Porter’s present competitive strategies.

 

Henri Fayol was the original founder of the modern management
methods. Therefore, to understand management and organization is to understand
his work. Henri Fayol’s 14 principles of management define the principles of
management, and are used today by most organizations as guidelines for
management related actions. Among these 14 principles, six can be defined as
universal because they are essential to all types of businesses. However, the
remaining eight do not fit both cost advantage and differentiated strategies
simultaneously.

The first section will enumerate the six principles that can be
applied to both strategies, and the second section will identify the remaining
principles and highlight their limits.

The six principles essential to all business strategies are:
Discipline, Subordination of the individual interest to general interest,
Remuneration, Centralization and finally equity.

Discipline is defined as reciprocal respect between a firm and its
employees (Fayol, 1949, p.22). It ensures a smooth running of a company without
any surprises. The best way to achieve a disciplined environment in a firm,
is to have intelligent and aware managers that can set the tone and makes sure
everything runs as expected. This means a supervision of employees is
necessary. This leads us to the second principle: Subordination of the
individual interest to general interest. This is the idea that the firm’s goals
come before the individual’s interests (Fayol, 1949, p.26). The main
objective of this principle, is to make sure that the decisions made by the
employees benefit the firm and not their personal interest. This applies to
all employees, including managers and executives. Speaking of executives,
according to Fayol’s theory, the power of such a position can only be
attributed to the highest rank of managers in an organization. As a result,
Centralization of power must be adopted to ensure that the right decisions are
made (Fayol, 1949, p.33). A successful organization needs motivated and
productive employees that give their best during work periods. Thus, making
sure that employees are fairly paid is vital to the success of a company. This
theory refers to the fifth principle, remuneration (Fayol, 1949, p.26). This
concept ensures that employees are not under or overpaid for their work. In
addition to being paid fairly, they must also be treated kindly and equally.

This idea refers to the last principle: equity (Fayol, 1949, p.38).

All
of these principles can be applied in any organization whether it’s following a
cost advantage strategy or a differentiated strategy. Now, moving onto the
remaining principles which can only be adapted to a specific strategy. These
are: Division of work, Authority, Unity of command, Unity of direction, Scalar
chain, Order, Initiative, Esprit de corps.

Division of
work is the idea that an organization must divide labour into specialized
tasks. By doing so, the organization would run more efficiently, since it
avoids time that would be lost from shifts of tasks (Fayol, 1949, p.20). This
principle is particularly true in the case of a cost advantage strategy, where
mass production is used to achieve low cost (Porter, 1980). However, this
principle is not applicable to a differentiated firm. A differentiation
strategy is founded on the basis that the company provides a feature so unique
that the customers are willing to buy a premium price. This requires creativity
and critical thinking. These two traits are very limited in a company relying
on an economy of scale to gain profit (Herzberg, 1966).

Authority is expressed as the right give orders and demand
obedience (Fayol, 1949, p.21). Two forms of authority can be deduced from this
definition. Formal authority and informal authority. Formal authority refers to
authority related to a position or a rank, while informal authority is related
to the intelligence, experience and leadership of an employee. According to
Fayol, in order to achieve high performance, the adoption of both formal and
informal authority is required, because it guarantees more efficient and
productive employees. However, this is not necessarily the case for
differentiated organizations. As noted previously, a differentiated business
focuses on providing unique features to the customers. A strict exercise of
this principle would limit the creativity and productiveness of its employees
(Porter, 1980). Thus, adopting strict authority is not recommended to
differentiated businesses because of its effect on creativity. Unity of command
and Unity of direction, similarly to authority, restrains the creativity of its
employees. The principle of unity of command is founded on the idea that an employee
should be supervised by no more than one person (Fayol, 1924, p.24). A cost
advantage company might argue that the adoption of this principle is beneficial
because it eliminates confusion that would surge if various managers were in
charge of the same employee. However, since a differentiation strategy requires
creative and reflective thinking, this principle is not applicable. Creativity
is only fortified when employees share their ideas with different staff members
(Porter, 1985).

The principle of unity of direction, on the other hand, states
that each task must have its own specialized goal. In the case of a cost
advantage organization, this principle minimizes conflicts between employees,
thus increasing their efficiency (Fayol, 1949, p.25). However, once again, this
decreases an organization’s creative ability (Pelled et al., 1999). The last
principle that can bring negative outcome to differentiated strategies is the
scalar chain. The scalar chain principle states that there should be an uninterrupted
line of authority from the lowest to the highest level (Fayol, 1949, p.34). In
the case of a cost differentiated strategy, this hierarchical form of
organization control increases efficiency. Conversely, the use of a scalar
chain in a differentiated firm can restrain communication and creative
thinking, which would lead to a slower adaptation to outside changes (Parker,
1995).

Now that we have revealed the principles in favour of cost
advantage strategy, let’s move on to principles that favorise differentiated
strategies.

Stability of tenure of personnel is a very crucial principle for
an organization that is based on a differentiation strategy. This principle
encourages managers to provide new recruits time to get used to their new
tasks. In addition, it encourages failure and risk-taking (Fayol, 1949, p.39).

However, the principle of stability seems useless to a cost advantage firm,
since the implementation of this principle will bring some additional fees
which a cost advantage company cannot afford.

As stated previously, a differentiated firm encourages its
employees to take risks and think outside the box. This is referred to the
initiative principle (Fayol, 1949, p.39). This principle aims to give a firm’s
employees more freedom in their work. However, in the case of cost advantage
strategy, this principle will only decrease efficiency since it provides
employees with a less specialized task.

Finally, the last principle of management is esprit de corps. This
principle encourages the involvement and unification of its employees, in order
to create better relationships among the workers (Peters & Waterman, 1982).

This principle can also be considered as a waste of time and resources for cost
advantage companies that emphasizes on its employees focus on one task alone
(Taylor, 1947).

All in all, we notice that the organizations of today adopt
different principles of management according to their business strategy.

 

As well as defining the principles of management, Fayol has also
described the duties of a manager. He labelled them, planning, organizing,
command, coordination and control. Together, they represent the management
process.

Fayol argued in this theory, that planning was an important
function of a manager’s job. An efficient plan had to predict the expected
results by taking into account a firm’s resources, its present situation and
future possible trends. In addition, it should try to identify current
weaknesses to ensure future development (Fayol, 1949, p.49). This is what we
refer to today as a strategic audit.

Organizing is the second element of the management process. Fayol
defines organizing as providing the necessary resources in order to achieve its
objectives. This managerial function can be divided into two categories:
Material organization and human resource management. Human resource management
plays a vital role in the success of an organization (Fayol, 1949, p.52).

Workers are not only motivated by money. Many personal and social factors
contribute to the motivation of an individual. What many managers misunderstand
is this tension between workers’ logic of sentiments and managers logic of cost
and efficiency, which often results in organizational conflicts. The Hawthorne
studies highlight this aspect. Indeed, in these studies, the adoption of better
working conditions resulted in more efficient employees. This clearly reveals
the importance of human resource management.

Command, Coordination and Control are the final elements of the
management process. Fayol believed that in order to get the most out of his
employees, in addition to human resource management, a set of actions must be
taken. Firstly, a manager must have a good relationship with his employees
(Frederic Blancpain, 1974, p.24). Secondly, a manager must be able to coordinate
all the activities to facilitate the planning process (Fayol, 1949, p.103).

Finally, a manager must make sure everything is going as expected (Fayol, 1949,
p.107). In the presence of errors, a quick correction is required to avoid big
repercussions.

 

It is clear that the studies of organization is very deep subject.

Many of the managers of today know very little about organization and
scientific management when appointed with a managerial task. In order to
abolish this saga of poor management decision, scientific management has to
become a profession in itself where studies are mandatory as well as experience
in the domain.