The Principles of Scientific Management - Case Study Example

CONTENTS Topics Page no Executive Summary 3 Introduction 4 Application 6 Management in Cairn Energy 9 Challenge 11 Recommendation 14 Conclusion 15 EXECUTIVE SUMMARY There are many theories of management of which four are most popular: Internal process model, Rational Goal Model, Human relations model, and Open systems model. These theories help in practically solving the problem; hence the example of Cairn Energy has been cited in order to explain the management processes adopted by Cairn to solve its problems. It has been seen that human relations model and open systems model have been dominant in the strategies of Cairn Energy where they have focused towards innovation, team work, creating a value based culture etc. The entire study has been conducted in order to find out the management theories applied to the organization and also the theories which should be followed in future in order to excel in its performance. Introduction The theories of management namely Internal Process Model, Rational Goal Model, Human Relations Model and Open System Model became popular in the sequence stated above in response to the business environmental requirements. The Internal Process Model can also be termed as professional bureaucracy or Weberian Bureaucracy. In this model it is assumed that the efficiency of the worker would grow if they are kept under policies and procedures. Their responsibilities should be clearly defined, positions should be organized in a hierarchy of authority, standard rules and procedures should be guiding all in the organization, promotion and selections should be done on the basis of employees’ technical abilities, decisions should be recorded and well maintained in written form and last but not the least in this bureaucratic scenario the employees in an organization should be uniformly guided by policies and procedures (Boddy, 2008). Then the Rational Goal Model arrived when Taylor gave his views of Scientific Management. (Taylor 1911, p.44) The basic approach in this theory was that a clear direction to employees will enhance their efficiency. The basic motive was to achieve goal and maximization of profit sometimes even at the cost of human satisfaction and happiness. The leaders were task and goal oriented where human relations did not have any value. Time came when the Rational Goal Model started to be obsolete since it is very difficult to suppress the humane feelings of employees for a longer time, and relationships among the co workers started taking the greater priority for determining the efficiency level of the employee in an organization. Hence the Human relations theory propagated by Elton Mayo took birth through a series of studies at Hawthorn plant of the General Electric Company. The better the relations among the co workers the higher the productivity would be. The theory also suggested that the empathetic behavior of supervisor and his attention to the employees also enhances their productivity. Thus the human relations theory of management was successful in its approach. In modern times the business environment has become very dynamic and unstable (Boddy 2008). To complement the other three approaches the fourth theory which evolved was the Open systems model. In this model the organization in a business environment would be required to accept the input received from the outer environment and accordingly modify its own system of work, policies and procedures (Boddy 2008). This paper shows the application of the mentioned management theories in case of Cairn Energy especially in the midst of energy crisis. Application Cairn Energy is a one of the biggest and prominent oil and gas companies in Europe. It is based in Edinburg with main interest in India and Greenland. It finds its name on the list of London Stock Exchange. The company produces oil and gas assets across the world with key focus in South Asia, comprising of more than 40 discoveries in the nations of India (focus on Rajasthan with 62.25 percent assets in Cairn India, a subsidiary) and Bangladesh. The company also has the advantage of early entrance in Greenland (declared by US Geological Survey as a nation with “yet to find hydrocarbon potential” (Cairn, 2011). Hence possesses strategic advantage. Cairn focuses mainly on teamwork and integrity. The status of Cairn can be viewed with the help of SWOT Analysis: Opportunities: Currently the company has a market capital of £ 6,046.70 (London Stock Exchange, 2011). Its successes in explorations have been awesome which many other companies in the same field could not achieve. In India there is presently a high demand for energy. Mainly coal is being used for energy purpose which is an exhaustible source therefore it is very essential to find out alternative energy sources where Cairn has an advantage. Competitors are few in this field since it requires a huge amount of capital and it is not possible for entrepreneurs to open up business overnight. It has established a joint venture with ONGC and also partnership with State govt. (ONGC may have to pay USD 13 billion for Cairn's Rajasthan block, 2010; Cairn India, 2010) Threats: Also in the year 2009 there were more than 12 companies who proposed exploration blocks to different oil companies. Countries like Iraq and Venezuela always have the advantage of economies of scale which India would lack since the oil ambience fluctuates here between big discoveries to futile explorations. Even the big oil companies like ONGC are moving to explore the oil rich Middle East nations (Singh 2009). In fact the company has planned to sell a part of shareholding in Cairn India and entered into an agreement with Vedanta Resources. While exploration of oil and gas it also has to keep in mind that the activities does not disturb and harm the environment and also the habitat at that particular site. Strengths: It has a team of committed and experienced managers who guide the team excellently and also the employee base who are qualified, knowledgeable and having faith in the culture of the organization. It is technically advanced which is one of its main strength since with its advanced technology it is being able to create a name for itself in the field of exploration (Cairn, 2011). Weaknesses: The cost incurred in “drilling, completing and operating wells” is not fixed and often unpredictable (Cairn Energy PLC Annual report 2008, p.42). Exploration in India and Bangladesh involve risks concerning processes in operations and maintenance. These include “reduced plant availability, unplanned shutdowns and/ or equipment failure” (Cairn Energy PLC Annual report 2008, p.42). Again the costs incurred in government taxation due to carbon emissions is another threat and the challenge here lies in developing costly technology to reduce carbon emissions during drilling and explorations (Cairn Energy PLC Annual report 2008, p.43). Management in Cairn Energy The organization has adopted many strategic decisions based on the management theories to attain its objectives. Cairn Energy has adopted all the four approaches of management- Open systems model, Human relations model, Internal Process Model, and Rational Goal Model. Both the models with respect to Cairn Energy have been described below: Open systems model As already discussed the open systems model mainly comprises of the organization playing the role of innovation and broker. Here with respect to Cairn Energy, it has played the role of being an innovator if not broker. The company has vowed to grow through exploration. Use of technology has also added value to the organization and it is one of its major strength. Technological advancement also requires innovation which is very much available in Cairn Energy Limited. From the view point of Entrepreneurship Cairn energy has eminent leaders, entrepreneurs to guide the company in the path of excellence. Using the external opportunities, the company has also stretched its hands out towards joint venture with ONGC and also with the state govt. of the respective states where they have been operating. The organization has also been involved in always finding out new opportunities and capturing them to their own advantage as and when possible. (Cairn, 2011) Human Relations model Under this system of management the organization mainly plays the role of mentor and facilitator. Cairn Energy has been successful in preparing a qualified, knowledgeable and cultured team lead by excellent leaders. The team of workers is fast moving and adaptable to changes which is directly related to innovation. The achievements of the company depend on the labor force it has and the company has 1300 people in five different nations working for it. The company ensures that the workplace “respects personal dignity, is non-discriminatory and provides fair rewards along with a healthy, safe and secure working environment”. The workers are granted the freedom to join any union they please and have scope towards collective bargaining. The employees are often made a part of decision making processes as their opinions are also heard. Proper working conditions are granted with respect to “wages, hours, rest, holidays, health and safety” (Corporate Responsibility Report 2010). They have also been trained so as to have a can do approach and innovative thinking. Rational Goal Model They have given less stress on this model since it is very clear that once the innovative ideas are set and human capital is ready, production would not be much of a problem (Taylor, 1911, p. 44). One of their biggest achievements is that out of seven landmarks discoveries of exploration sites three have been done by Cairn Energy (Cairn, 2011). They try to maintain low operation cost which is an extra edge for them. It is of an important concern for them that they can maintain their production at the existing fields of operation. Since they lay more stress on the human relations model it is clear that the company does not want to reap profit at the cost of the employees’ happiness. Internal process Model Continuous monitoring and control of costs of operation, applying innovations in technology and also life cycle planning are few of the activities which come under the Internal Process Model. Even though cairn energy has not given much stress on these but monitoring of costs along with addressing the technical challenges mentioned under the weaknesses of the company in the SWOT analysis of the previous section form a major part of their activity since that is the only way they have strategic advantage over other oil and gas producing companies (Corporate Responsibility Report 2010). Challenge of Cairn Energy The world has been witnessing rapid increases in crude oil prices over the past few years. A report by Evans (2011) observes while price of $100 per barrel really is tender, a $120 price is the doorsill where the consumers and business houses might alter their behaviors. Cairn Energy in this scenario has also involved itself in resolving the impending energy crisis through exploring new zones such as Greenland. Impact of energy crisis on Cairn energy Lack of exploration and production: From one point of view it is an advantage for Cairn since its competitors are very few. But from other viewpoints it would also prove to be disadvantageous for Cairn since the initial investments need to be done by them for explorations as well as production. Since these resources are non-- renewable the company has to continuously look out for new sources and explorations will have to be carried on every now and then, otherwise if any source tends to exhaust then it might hamper the business. This has prompted the decision to sell a large part of its share to Vedanta. Their idea is to focus on the new explorations in Greenland. Lack of storage facilities: Energy crisis has also arisen due to lack of storage facilities in India. Even if Cairn imports certain amount of crude oil from outside, it has to create its own storage facilities and store the crude oil as required. Transmission and distribution losses: India also suffers from transmission and distribution losses. India suffers a loss of about 30% in energy transmission. If Cairn wants to establish its name and fame then it should take the responsibility of slashing down the transmission losses also. (India faces T&D losses of 25-30 percent, 2011) (Singh 2009; Corporate Responsibility Report 2010; Herron, 2010) Threat to the environment and corporate social responsibility: The activities carried out during oil production involve a lot of negative effects on the environment and destruction of habitats or reduction in biodiversity. The carbon emissions and increase in green house gases lead to global warming. In this circumstance serious and honest efforts are to be adopted by the company to behave with due responsibility towards the environment and the company has incorporated these principles in their strategy. According to Sir Bill Gammell, the company also attempts to have a responsible attitude towards the society or community where they work and they respect the people’s rights in these communities (Cairn, 2010). Before carrying out their operations in Greenland which might harm the Arctic environment, Greenpeace has been asking Cairn to put an end to the drilling activities and release their plans of safety for the operations (Cairn discovery poses grave threat to climate and the Arctic 2010). Recommendations Cairn Energy is in such a situation where there are numerous potential areas but at the same time it has to invest its own capital and set up everything afresh. The usage of Open System Model and human relations model are sufficient in case of Cairn energy. Cairn Energy is only focusing on exploration of different oil sites, but it is also essential at the same time that they focus on distribution of the energy in which its real success would depend upon. Rational goal model might be applicable to the extent where it will give the employees a direction towards which they should move. The company should also try to find out certain alternative energy sources which are renewable in nature since there is a scarcity of oil, gas and coal in our country. Also addressing the technical challenges would be essential if they want to continue their activities in South Asia; otherwise the company might have to shift to the oil rich Middle East nations where competition already exists. Conclusion From the above study it is very clear to us that Cairn energy has been innovative and always trying to find out new places of exploration. The challenges which it is presently facing are delay in the processing of the deal between Cairn and Vedanta due to scarce national resources. The company will also have to establish everything on its own for which it would require a huge amount of investment. Management is not about only formulation of theories (arts aspect of management), implementing those (science aspect) are very essential. From the study of Cairn Energy it has been depicted that the theories of management has been beautifully woven to solve the problems practically. If the company can meet the challenges of energy crisis through investment in renewable sources or biofuel and the impending threat it poses to the environment then it can improve its scope for sustainability in the long run. References 1. Boddy, D. (2008) Management: An Introduction. 4th Edn. Harlow: Pearson Education Ltd. 2. Taylor, F.W. (1911) The Principles of Scientific Management. New York: Harper and Brothers 3. ONGC may have to pay USD 13 billion for Cairn's Rajasthan block (2010), Times of India, available at: http://articles.timesofindia.indiatimes.com/2010-08-19/india-business/28274665_1_cairn-vedanta-deal-rajasthan-block-cairn-s-rajasthan 4. 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