Gap between CEO salaries and average employee pay

 

Abstract

With invention of steam powered engine, during the industrial revolution there was a massive change in how people worked and how factories functioned. Transition from manual to steam power, invention of machines, expansion of rail roads and boats made the daily commute of a worker possible – all these factors helped the industrial revolution,

Increased size of workforce, People working with machine, fast growth of industry and demand for productivity were few challenges organizations were facing.

And this was the birth time of classical management theories. Max Weber, Henri Fayol, Herbert Simon and Frederick Taylor came up with different theories but in nut shell they tried to addressed concerns such as hierarchy in organization , division of labor, standardized approach to work, centralization and decentralization of authority, separation of personal and work life, identifying the best employees and fair pay for employees.

The foundation of organizational theories are still valid today especially in manufacturing, service, production line industry and have heavy influence on knowledge driven industry sectors such as Tech sector.

Keywords: scientific management, administrative theory, bureaucracy and organizational structure, administrative behavior

 

 

 

Analysis of Influential Organizational Theories

And Finding the Most Influential One

Scientific Management: Frederick W. Taylor (1865 – 1919) a mechanical engineer who stepped into management consulting, saw a huge need for standardization, efficiency and productivity boost in rapidly growing industries. He believed that there is “one best way” of performing a task. And any work process could be broken into small simple and separate tasks. Then each task can be performed by different employees. In the “Hierarchy” designed by him there was a clear chain of command led by the managers, who designed the work process and gave directions to the employees at the bottom of pyramid. He advocated hiring the best talent and providing them best suited opportunity. His belief was to compensate most productive employee accordingly and firing low or nonperformers. One huge problem with his method was, he treated employees as machines. But his scientific management was an impressive methodology to boost productivity and hence profit, so no wonder it was adopted by large mass producers like Ford Motors.

Administrative Theory: Henri Fayol (1841 – 1925) came up with administrative approach that had 2 overall principles. Coordination that was essentially hierarchical pyramid, spoke about a group of employees with routine work, reporting to only one supervisor, and the supervisor having control only over that group. The Specialization or the grouping of organization’s activities was based on formation, purpose, process, customer size and geographical location. Henri Fayol’s administrative theory was severely criticized for being overly simplified by Herbert Simon. (Laegard, & Bindslev, 2006)

Bureaucracy model:  Max Weber (1864-1920) father of sociology also developed a great understanding of bureaucracy. And he defined bureaucracy as a specific administrative structure, which is based on a legal rule-oriented authority (Scott, 1998: 48) and has following features –

Fixed division of labor among participants / employees, Hierarchy of offices, set of general rules that govern performance, Separation of personal life from professional life to avoid favoritism, Selection of personnel on the basis of technical qualification, equal treatment and Employees view employment as career.

His model is followed in both government and private organizations today but it is not perfect as people take advantage or the system and the bureaucratic red tape slows down process. Sometimes rejects anything that is out of the line and that might make the employees feel like they are caged within the rules of the organization.

Theory of Administrative Behavior: Herbert Simon (1916 – 2001) was awarded noble prize for his contribution on business education on a foundation of fundamental studies in economics and behavioral science. (Lindbeck, A., 2014) I feel this is most influential from both historical and managerial perspectives because Simon’s central point was that decision making is the heart of Administration. (Simonsen, 1994). Taylor, Fayol or Weber had given more importance on process, principle and structure of an organization and did not give due importance to the fact the organizations are built with people. And the importance fact is that these people take decisions and the decision run an organization. Simon observed that decision making is a 3 step process –

Intelligence activity or information gathering, recognizing and defining the problem

Design Activity consists finding alternative solutions and impact analysis

Choice activity or the last step includes finalizing choice and implementing it to fix the problem. According to Simon any decision is taken based on values (that is subjective) and facts (which is objective). And according to him there are 2 main types of decisions to be made –

Routine decisions – which is mostly fact based and major decisions or those are not routine – are driven by both value and fact. That is why he concludes it is not possible to take 100% of the time to take rational decision. Herbert Simon has shown administration is a science and not just an art.

How these concepts impacted the development of the current organizational theories

Each of the above stated theory pointed out the importance of productivity increase, hierarchical structure and bureaucracy in organizations. Current organizations are more than just production line or factory. And for these knowledge driven or service industries Simon’ Administrative Behavioral theory is more relevant. In today’s world of information technology data and information are abundant. More and more organizations are moving away from hierarchical organization model to team based model. It is important to form a highly effective and functional team. Each team member should have responsibility, accountability and has to be empowered to take certain decisions. Centralized decision making or in other words if only manager has to take all the decisions in team, then that can cause bottle neck and can slow the team down. As long as each member of the team is aware of the common goal and working towards achieving it, manager can focus on only removing impediments and help the team progress more smoothly. And routine decisions can be automated with help of information technology and that would free up managers time, and manager could better utilize his / her time.

 

References

 

Laegaard, J. & Bindslev, M. (2006). Organizational Theory. Ventus Publishing & Bookboon.com

Scott, Richard W.: Rational, Natural and open Systems, 1998.

Lindbeck, A. (2014): “Herbert A. Simon – Biographical”. Nobelprize.org. Nobel Media AB 2014. 20 Nov 2017. http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1978/simon-bio.html

Simonsen, J. (1994). Administrative Behavior. 19 Nov 2017, http://www.jespersimonsen.dk/Downloads/Simon-introduction.pdf

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