Managing a business is not easy. Depending on the sort of company you run and its specific needs, there are countless strategies for managing employees, growth and productivity. In part because the running of a business can be so overwhelming, a series of business management theories have developed over time. Learning about and following these schools of thought can help you to run your business.
What is the Theory of Business?
"The Theory of Business" is a Harvard Business Review classic work by business theorist Peter Drucker. Published by Drucker in 1994, this piece centers on the notion that businesses in the modern era suffer from a lack of direction when it comes to what to do. Drucker argues that, in many cases, the right things have historically been done by the business, but that the assumptions that once led the company to success are no longer valid in the current market for a variety of reasons. These assumptions, which cover the potential customers, staffing needs and strengths of the business, are what Drucker calls his “theory of business.” In this way, he explains, business theories are actually specific to a company, rather than one overarching notion that can be applied universally. Each business needs to determine what its own theory has been and adapt it going forward to find maximum success.
What Are Principles of Management?
Management theories are widespread, but one thing is fairly commonly accepted: Management can be broken down into four basic principles, all cogs in a wheel. Each must be properly executed to achieve a well-managed staff. These four principles are planning, leading, organizing and controlling.
Often, employees don’t actually see any of the planning or organizing that goes on behind the closed door of their manager’s office. Effective managers, however, must engage in these activities. Planning is essential, because it creates a detailed approach for reaching one or more of the organization’s goals. Without this, employees are working without much direction. Organizing requires managers to determine how they will allocate the resources that have been made available to them and subsequently how they task their employees with various projects.
Leading and controlling are much easier to identify when you’re considering the behaviors of your manager. Leading entails connecting with employees on a personal level and determining what inspires them. From there, a good manager can encourage success and career-oriented growth in their staff. Controlling, of course, is a necessary aspect of any manager’s role. Managers have been tasked with overseeing a portion of their company, so it’s imperative that they ensure all directives are met and that no one is acting contrary to the organization’s goals. At times, the principle of control can lead to disciplinary action if a staff member is not acting properly.
Famous Management Theories
There are a number of well-known theories in management, including Max Weber’s Bureaucratic Theory, which he described in 1905. Weber's theory relies on strict rules, clear job distinctions and hierarchy of authority. He advocated hiring based solely on finding the most skilled person, regardless of that person's personality or how well he might "fit" with the rest of the employees. Workers weren't supposed to chitchat under Weber's theory, anyway, because work was a place to accomplish tasks, not make friends. He would have disdained many of today's practices, such as collaboration, flexibility and thinking "outside the box." To Weber, working inside the clearly defined box was ideal, while managers skulked around taking notes on behaviors that needed to be reprimanded.
Douglas McGregor’s X Y Theory is nearly the polar opposite of Weber's Bureaucratic Theory. In 1960, McGregor defined Theory X as the idea that workers were just cogs in a wheel who needed to be bullied and punished in order to do their work accurately (which sounds like he was referring to Weber's theory). McGregor's Y Theory said that it was natural for people to want to work and feel proud of what they accomplished. Those who felt engaged at work enjoyed their work, felt fulfilled by it, and would become self-starters making creative decisions. McGregor's XY Theory is still widely used today.
Since management is less a science than an art, it’s usually effective to combine multiple theories until you identify the formula that is most productive for your company and your specific team. An individualized strategy tends to yield the best results.