Current Developments in Management Practices

LEARNING OUTCOMES

 Explain the concept of operations management.

In the twenty-first century, organizations face many new challenges. Some people would argue that
society and the economy have changed so radically that the last century’s management practices and
theories are no longer relevant. The truth is management has become more important than ever.
Almost everything we do today as individuals or organizations requires us to interact with large-scale
institutions, such as government agencies, banks, health-care providers, insurance companies,
school systems, universities, online retailers, and technology service providers. How has
management theory and practice evolved to manage this new organizational and business
environment? Interestingly, it has become both more specific and more general.

Forces Shaping Management

Several forces are significantly shaping management practices today, including the pace of change,
technology, globalization, diversity, and social expectations. Let’s look at each of these in more detail.

The Pace of Change

Managers must understand that society, politics, the economy, and technology are changing at an
unprecedented rate. In 2001, Ray Kurzweil proposed that in the twenty-first century our rate of
progress would double every decade.[1] This means that over the next one hundred years, we will
experience changes that would have taken twenty thousand years in the past. This presents a vexing
problem for management. On one hand, managers need predictability and stability to develop and
implement plans effectively. On the other hand, they need adaptability and flexibility to respond to
opportunities. How does management provide both stability and flexibility?

Technology

The primary factor driving change is the development of computer and information technology. Fifty
years ago, almost no one knew about computers except from science fiction books and movies.
Today nearly everyone uses a smartphone with more power than the computers that guided rockets
to the moon in 1969. Many of the routine jobs analyzed by Frederick Taylor and the Gilbreths are now
automated, done by computers and robots. It has been estimated that robots will perform 50 percent
of current jobs within twenty years. What is the role of management when machines instead of
people are doing work?

Globalization
Globalization refers to the increasing ease of flow between countries. It includes economic, political,
social, and cultural interactions. In particular, economic globalization is creating one global
marketplace, making it easier to conduct business across borders. Globalization has allowed
companies to perform many manufacturing jobs in low labor-cost countries. As a result, the United
States has shifted from a manufacturing economy to a service and information economy. Consider
the following comparison:

YEAR MOST VALUED COMPANY IN THE U.S. MARKET VALUE NUMBER OF E

1964 American Telegraph and Telephone (AT&T) $267 billion 759,000

2015 Google $370 billion 55,000

This table shows that technology workers today produce nearly twenty times more value for a
company than manufacturing workers did in the past. How does management lead and control this
new knowledge worker?

Diversity

Since the turn of the century, the U.S. workforce has become more diverse in almost all dimensions,
including race, gender, ethnicity, and age. In 1950, women made up about 30 percent of the
workforce; in 2015 women made up about 47 percent of the workforce. By 2024, ethnic and racial
minorities are expected to comprise 40 percent of the workforce. And for the first time, there are now
five generations of workers in the workforce, from veterans born between 1928 and 1946 to iGens
born after 1994. This diversity provides a tremendous resource to organizations. People from different
backgrounds have unique perceptions, experiences, and strengths. This can promote creativity and
innovation that stimulates unique problem solving. But it also brings different expectations and norms
about behavior and attitudes. How can management capitalize on the advantages of diversity while
accommodating differences?

Social Expectations

From the start of the Industrial Revolution until the middle of the twentieth century, management could
look inward to determine how to best use resources to meet organizational goals. Although
government passed laws to address the worst abuses, organizations primarily interacted with the
external environment through the marketplace. The expectation of public, private, and civic
organizations was that they would provide the goods and services society required. This attitude also
began to change around the middle of the twentieth century as organizations, especially businesses,
were viewed as social, as well as economic, actors. The positive and negative impacts of
organizations on the wider environment—alongside the products and services they provided—were
also considered outputs of production. Now managers have to satisfy not only their customers but
also a wider set of stakeholders, from government agencies to community groups. How does
managing stakeholders get incorporated into management theory and practice?
Current Developments in Management

We don’t yet have the answers to most of these questions. No “grand theories” like those we have
discussed previously in this module have emerged to address these new challenges. That is not to
say that management has not responded; it has, in two ways:

 Management has become more specific with the formation of different disciplines. Managers
now focus on specific aspects of organizational management: operations management,
financial management, marketing management, human resource management, etc. By limiting
the number of factors and issues they must deal with, managers can develop practices that
address the specific issues they face in their discipline.
 Management has also become more general. Managers are not provided with an instructional
manual that tells them how to manage. Instead, they are given a toolbox of different theories
and practices. Effective managers need to know what tool to use and how to use it in different
circumstances.

Let us consider some current developments in management.

Quantitative Viewpoint

Contemporary or modern Viewpoint

Operations Management

Operations management is concerned with all of the physical processes involved in producing and
delivering goods and services to customers. Operations management is the “guts” of a manufacturing
or service company. It is concerned with all aspects of converting materials and labor into goods and
services as efficiently as possible. Operations managers must work closely with every department in
the business to ensure that products are manufactured as efficiently as possible. The same forces
that are transforming organizations and management are transforming all aspects of operations
management, from design to production.

Operations managers are involved with the initial product design to incorporate features that facilitate
production. Sometimes small changes that don’t affect function, such as the number of different types
of screws used in an assembly, can have a significant impact on production costs. Today, many
manufacturing firms are using computer-aided design that will translate design plans directly into
instructions for computer-controlled machinery and robotics. Operations managers also manage
the supply chain to find the best sources for high-quality materials and supplies at the lowest cost.
Operations managers have become international operations managers, as supplies come from
anywhere in the world and manufacturing can be done anywhere in the world.

Operations managers are also responsible for materials inventory. This consists of materials that will
be used in production or for performing services. Some amount of inventory is needed to prevent
delays in production or servicing. The worst thing that can happen to an auto manufacturer is to have
an assembly line stop because of a shortage of a basic part, such as spark plugs or tires. On the
other hand, maintaining inventories is a significant cost for companies, so they want to minimize the
amount of inventory on hand. Operations managers must balance the need for maintaining sufficient
inventory with the need for reducing costs. They now schedule deliveries and manage inventory using
techniques such as just-in-time to optimize the amount of inventory on hand. This frequently involves
developing long-term, cooperative partnerships with suppliers. Inventory management is a huge
concern for Amazon, for instance, which maintains an inventory of millions of products. It has
developed specialized techniques to maintain enough inventory to avoid lost sales without holding
costly excess inventory.

All of these activities support operation management’s main function: the manufacturing of products
or the delivery of services. Operations managers must be concerned not only with cost and quantities
but also be responsible for delivering quality. They design and supervise production processes and
service delivery using modern methods such as lean manufacturing and Six Sigma. Six Sigma is a
systematic set of practices used to reduce defects or complaints. The goal of Six Sigma is fewer than
3.4 defects per one million parts produced, transactions performed, or services delivered.

Finally, operations management works with marketing and sales to make sure goods and services
are delivered where and when they are needed. They use sophisticated technology, such as point-of-
sale data collections and integrated ordering systems, to forecast demand for products and
services. This information is feedback through the entire system, from ordering materials and supplies
to scheduling production. Operations management is responsible for making sure everything and
everyone is working together to deliver what the customer expects.

Information Management

quantitative

Data security has become a critical element of systems management.

If operations management is the guts of a business, information management is the nervous system.
Organizations today depend on the availability and accuracy of information to make decisions at
every level. Information management is concerned with the collection, preservation, storage,
processing, and delivery of information. The purpose of information management is to make sure
information is available to the right people at the right time in a form that they can apply.

Information management is not a new concept. Businesses and organizations of all sorts have always
required information about their internal and external conditions to manage effectively. Although the
need for information is not new, the volume of information available, the means of gathering
information, and the methods of processing information into useful knowledge have all been
transformed.
A recent development in information management is the use of big data. Big data refers to incredibly
large amounts of data available to organizations today and how that data can be analyzed for useful
information. Big data comes from a variety of sources, including social media, business transactions,
government interactions, and education and health experiences, to name a few. It also comes in a
variety of formats from structured, numeric data to unstructured text data, social media, and
telephone calls.

Methods are being developed to mine this data to extract useful information about individual
behaviors. An example of using big data that went viral a few years ago was how Morton’s Steak
House delivered a steak dinner to a man getting off a plane at Newark airport. The man had tweeted:
“Hey @Mortons – can you meet me at newark airport with a porterhouse when I land in two hours?”
Morton’s continually mines social media for use of its name. Its data analytics captured the tweet,
identified the man’s name, determined that he was a frequent customer (and a frequent tweeter), and
determined what his favorite meal was. Within two hours, Morton’s had a tuxedo-clad waiter deliver
the meal as the man got off the plane.[2] Think of the amount of data that had to be analyzed to make
this happen—the amount of information on social media, the number of customers Morton’s has
served, and the number of meals that have been ordered. This is more than finding a needle in a
haystack. It is more like finding a specific pebble in a mountain of gravel.

Systems Approach to Management

Organizations operate as open systems

A systems approach to management recognizes that organizations are open systems that interact
with and are dependent on their environment. In a continual process, they obtain necessary inputs,
transform the inputs into finished goods and services, and deliver their outputs to the market. The
organization gets feedback from the market in two forms. First, it receives revenue. The revenue
provides finances to support the organization and to acquire additional inputs needed for production.
Revenue can also finance organizational improvements, such as upgraded equipment, development
of new or improved products and services, or expansion of facilities. Any revenue that is not
reinvested in supporting or improving the organization can be disbursed to owners as dividends.
The second form of feedback is information on how well the organization is doing. Organizations get
direct information from customer surveys, customer service complaints, and social media. Starbucks,
for example, started a customer blog to get feedback on the customer’s experience. Based on the
results, it made changes to speed up service even though that increased cost.

The systems approach to management focuses on performance of the whole production process,
including the customers’ process. The process is usually split by specialties within the company, and
each specialist tries to optimize his contribution. But more efficiency for one function may cause
delays or bottlenecks elsewhere in the process, hurting overall production. The systems approach
analyzes these interactions and makes decisions to improve overall production.

The system model also shows that companies are open to environmental influence. Factors such as
political instability, economic conditions, consumer tastes, demographics, legal requirements, and the
physical environment all can affect an organization. Successful organizations must be able to detect,
understand, and respond effectively to changes in the external environment. These factors are
discussed in more detail in the following module.

Contingency Management

Unlike the topics discussed earlier, contingency management is not a specific function. It is a
general approach to management practice that basically says there is no one best way to manage.

The management theories we discussed earlier had implicit assumptions that management concepts
were universal. That is, what worked in one organization would work in others. Certainly some
modifications would be made for specific circumstances, but the principles of scientific management
and bureaucracy were assumed to apply in any organization. The contingency view rejects this
assumption. In contingency management, every situation is considered unique. Managers must adapt
theory and practice to match the situation by identifying the key contingencies, or factors, in the
situation.

Contingencies might include the industry in which the company operates. For example, an effective
organizational structure for an Internet company such as Google would not be the same as a
manufacturing company such as General Motors. Another contingency factor is the country in which
the company operates. U.S. management methods do not work well in France. The type of employee
is also a contingency factor—incentive systems that work for manual laborers do not work
for knowledge workers. Effective managers need to be able to interpret the contingencies of a
situation to determine which approach would be more effective.

Key Points

Conditions are much different now than they were a hundred years ago when many management
theories were developed. However, many of the ideas that originated then are still relevant. Rather
than abandon years of management experience, managers today need to adapt and modify theory
and practice to meet today’s conditions. Understanding the historical concepts in management
provides a foundation for developing new practices and methods