Management of Organizations - Literature review Example

Management Name Course Institution Introduction The study of management and organization provides a suitable platform where stakeholders are able to evaluate how decisions and policies made in these organizations impact on its future. In essence, every decision made has its own consequences on the organization whether in the short run or long run. In most of the policies that are made, the basis has been mostly based on the predominant management theories. Some managers have dwelt so much on these management theories whose effectiveness in solving issues in the organizations is questionable. Ghoshal (2005, p.75) has heavily dwelt on this by providing an exposition of the ineffectiveness of such theories in solving problems in organizations in the current dynamic world. He brings out the difference between the scientific theories and social theories and how distinct they are in their applicability. While most of the scientific theories do not affect the human existence because most of them cannot be put into practice, that is not the case for social theories. Social theories are detrimental in different capacities. Most of them are put into practice in various organizations. The practicing of such theories that have not been adequately proven has messed up many organizations. Ghoshal (2005, p. 78) is adamant that the introduction of scientific theories in organizations will be effective in saving many organizations from bad theories. The Agency Theory focuses on the relationship that is build up between the principal and the agents. In this theory, the duties of the organization are delegated to the agents to be undertaken on behalf of the owners. In that scenario, the management is free to implement policies that are deemed effective in dealing with situations prevailing in the organization. The effectiveness of such policies is based on judgment abilities of the policy-makers. The company’s management makes policies and convinces the shareholders through the Directors of the confidence in such policies. In most cases, the shareholders operate on the slogan of the end justifying the means. The owners are therefore more concerned about the results and not the process leading to it. Considering the fact that the management is more likely to be wary of ignoring the common management theories, they end up implementing policies that are in line with existing theories. The organization may not have a chance to try out completely new ideas because the management fears the consequences in case they backfire. At the end of it, bad theories are recycled in organizations and this affects the effectiveness of such organization. On the other hand, the 2008 global financial crisis does not seem to be of its kind in relation to what caused it. The global financial crisis that was experienced during that time was the worst in the last six decades. The poor economic policies played a major role in the economic collapse that was experienced. Poor monetary and fiscal policies plunged the economy into the crisis. Most of the theories that the authorized institutions were relying on for decision making did not test such policies. Institutions are in the business of implementing some theories and that explains why institutions and entities are messed up. The big question remains, are we learning from our mistakes? Recycling of theories of management and its policies is merely messing up organizations. Does it really ring in the minds of the policy-makers when organizations are collapsing even under the watchdog of the same relied upon policies. When the world witnesses the collapse of huge multinational corporations like Enron, it is high time to ponder. While I do not completely agree with the perspectives presented by Ghoshal, there is some truth in his exposition regarding the management policies. Just like the global financial crisis was as a result of holding on to bad and ineffective theories, many organizations are likely to suffer if the same bad policies are not revised. Discussion The management of organizations is truly an involving task. While managers to a large extend are allowed to make decisions regarding the operation of the organizations, often is not that easy. In most cases, they have to defend the use of their policies based on performance. Bowie & Freeman (1992, p. 46-48) point out some flaws that are presented in organization based on the need to uphold to certain policies. Many managers fail to understand that what succeeded in another organization may not be successful in any other organization. The factors that surround the success of any policy are very significant. In most cases, managers have failed to investigate these factors in order gain an understanding of the effectiveness of such policies. The management in most organizations have focused on pleasing the shareholders in the short run and failed to focus on the long term sustainability of the organization. According to what is highlighted by Bamberg & Spremann (1987, p. 435), the management in many organizations do not have long term goals for the organization. They prefer what is achievable in the short run and fail to work on policies that will govern the organization into unforeseeable future. Most management in organizations is on performance contracts and this causes them to focus on the success of the organizations as far as their contracts. This puts the Directors of the organizations on the spotlight. There is a need to put checks to ensure that the loyalty of the top management to the organization is assured. This through providing them with contracts that will motivate the management to focus on designing long term goals of the business entity. Ghoshal (2005, p. 77) brings on board an approach that can be used to mitigate some management failures in relation to implementation of theories. The scientific approach in determining the trends even in the business world as proposed by Ghoshal makes some sense at the end of it. While I do not fully stand for implementation of the scientific approach in its entirety, this is likely to reduce the errors that continue to be made in relation to management of organizations. The use of scientific approach has much to offer to the corporate world. Such an approach uses trends that are generally based on laws and scientific patterns (Ghoshal 2005, p. 79). As long as such patterns are provable scientifically, it completely closes the door for a lot of judgment which has proven to be a failure. The immediate example in relation to some failed theories is the recent global recession. According to what has been discovered so far, it is unlikely that the economic growth was that booming before the 2008 economic crisis (Temin P 2010, p. 124). This is true even in the midst of annual reports being released by leading financial forecasters and advisors, IMF and World Bank. The question then beckons, whom should the relevant stakeholders trust? This is because some few economists had forecasted the likely economic downturn during early 2007, but it seems their warning was never taken seriously. The fiscal and monetary policies are part of what the world experienced in 2008. Implementation of fiscal and monetary policies is guided by the theories that are already in existence. While I would not wish to refer to the policy-makers in key institutions around 2008 as academic slaves, Ghoshal must have used this phrase appropriately. Such policies do not have the grounds where they can be tested and their effectiveness proven scientifically (Acharya & Richardson 2010, p. 3). The implementers probably were ignorant of the dynamic nature of the current business environment. They did not pay the required attention towards accumulation of private sector debt. This had showed clear indications but could not be effectively checked and assessed so as to design appropriate policies of that time. If scientific approaches were effective at such time, it would have been easy to unveil the looming danger of the likely economic downturn (Ghoshal 2005, p. 83). It calls for the flexibility of the related institutions in order to be effective in coming up with guidelines that will allow implementation of theories that have been tested and proven a lone. Having said that it does not simply imply that scientific approach to management will be the solution to the many problems facing organizations. According to me,Ghoshal sounds a bit overambitious and too optimistic of the proposed scientific approach to management. Being too ambitious creates a room where some weaknesses of the approach are ignored. The approach is very inflexible in nature. It limits the impact the management is likely to have in the performance of an organization. By use of such approaches, it will turn more complicated to hold the management accountable to the results experienced. The management is more likely to distant itself from the financial outcomes of the organization. The difference between the various academic disciplines is also another concern when it turns to application of scientific approaches. What may be effective in a certain discipline may be a failure in other areas (Klien & Coffee 2010, p. 341). Business is regarded as a social science and therefore use of approaches that are used in relation to inorganic sciences may not work at all. For such policies to be effectively implemented, they need to be tested over time. This will be the only through the management will gain the confidence to try out such policies. Many have explained it and once again Ghoshal has also voiced his contribution over the same. The agency problem that is created between the management and the owners has complicated the relationship between management and owners. The interests of the management have been given a lot of attention to the point where the managers were almost doing nothing of their own. The new developments aimed at ensuring the managers have long term priorities for the organization. Such plans include extending incentives in form of stocks to the managers of the organization (Bamberg & Spremann 1987, p. 420). In such a case, the interests of other workers seem to be ignored. This is based on the notion that the progress of the organization at the end of it is dependent on the contributions made by the managers. Since the interest of other workers is ignored to some extent, this creates some rift between the employees and the management. In such a scenario, one wonders which approach can best solve the situation. At the same time, I doubt if the scientific approach can be any better in dealing with such a problem. As a matter of fact, the scientific approaches are too mechanical to effectively accommodate and provide the solution to such problems. If every pattern will have to be tested and proven in the context of management, some players may find it a bit rough. The application of the scientific approach as suggested by Ghoshal (2005, p. 79) is not a bad idea. Nevertheless, there must be an evaluation of the applicability of such policies. It is not appropriate to conclude that every organization that failed as a result of being castigated by the humanistic approaches could have been changed in the case of scientific approach. One of the examples is the fall of the multimillion-dollar Enron Corporation. Whether the scientific approach could have been effective is a point of discussion indeed. In the case of Enron, the humanistic approaches could have been too general to guard the company’s resources from all direction. The humanistic approach incorporates ethics which has been simply regarded as a mental phenomenon and therefore lacking the ability to lay a restraint upon some actions (Ghoshal 2005, p. 85). In such a case, it is true that ethical theories were a real flop. Few people are guided by their morality when dealing with the issues of corporate governance. In this setting, may be scientific approach would have instituted better restrictions to policy-makers. While flexible policies play a significant role in public and private governance, such policies seem to have caused a lot of mismanagement issues. It probably has come to a point where policies that have a restraint to some approaches be applied, though sparingly. Many policies can be made by those in charge depending on the prevailing circumstances. Seemingly, no one has a problem with this. The obstacle that many are dealing with relates to the loopholes that have been created by the social science policies. Such policies failed to effectively provide checks and balances where the performance of the economy especially between 2002 and 2007 could be analyzed. During that period, the labour markets were being strained by what seemed to be a blooming global economy (Acharya & Richardson 2010, p. 2). The reality of the effect of the economic progress at that time was a bit different. The labour markets were being strained beyond the expected limits and this was more likely to explode at the point where no more could be accommodated. The expansion in employment opportunities in many countries was assumed to be caused by the overall factors that are responsible for employment growth. Many countries though that the economic performance was growing based on the fiscal and monetary policies that probably were being implemented.There were no mechanisms in operation that could provide a basis for checking the operation of such policies(Higgs 2010, p. 470). In essence, I do support the school of thought presented by Higgs (2010, p. 467) on the issues that were ignored that could have saved the country’s economy. Many economists failed to investigate how the improvement in economic growth could not translate to better household incomes and earnings (Higgs 2010, p. 470). Indeed this has turned out to be a great concern as many have been seeking to unravel the complications surrounding the economic downturn that took place in 2008 and 2009. The fact that the policy-makers failed to unravel this points to the looming incapacitations presented in the humanistic approach to policy making. While the issue sounds elementary, the fact that they failed to uncover it denotes weaknesses to the systems in operation. The failure for the economic growth to effectively translate into better incomes and better living standards for the individual households was quite prevalent in the developing economies. These economies struggled to recover after being hit by the economic downturn in 2008. An analysis of such occurrences calls for re-evaluation of the kind of policies being used in this case. Such discoveries provide a vindication to the policies provided by Ghoshal (2005, p. 83). In the sense where there were effective scientific patterns and laws to guide policy-makers, the problem could have probably been isolated at early stages. It could have been easier for the policy-makers to check trends over the period and be able to ascertain the implications that such trends were to have on the economy. The humanistic theories have been good at predicting trends but have failed to meet the expectations of such trends. The critics have a strong ground to throw punches at these theories. These theories not only have they failed, they have also ignored common sense. It will be a different scenario in case if the theories were effective, but ignoring common sense. In such a case, the academicians will be talking of instituting a trade-off between what such theories can be able to achieve and what cannot be achieved at all. In contrary, these bad theories have not delivered where they are relied upon. Such policies have not only infringed on the public policies and management of its resources, they have affected the delivery of services in the private sector as well. The agency theory is not any different from the so called bad theories. Critics have failed to understand the fruitfulness of the theory in relation to corporate management. It has instead created unnecessary strains on the side of the stakeholder in general. While many organizations have been keen to implement all the provisions given by the theory on how to reduce the agency problems, collapse of big corporations clearly points to the weaknesses of such theories. The extent to which the so called bad theories have affected the society is not just limited to management of the organization, but also in terms of intellectualism. Many managers have been trained in the environment where they have been forced to embrace the existing theories without testing their validity and applicability in the current business world (Ghoshal 2005, p. 79). The learning system in the management sector has been embroidered in theoretical applications that have proven impractical in nature. With managers trained in such learning conditions, it makes it difficult for many managers try out new approaches in their daily life. This is so even when the approved theories have proven not practical. Therefore, the business schools have huge responsibilities of turning around these trends. Sometimes it is not easy to identify the weaknesses in some of the theories until a failure is experienced. What has been revealed after the collapse of the multinational corporations in the last decade has opened the minds of the players to rethink on the applicability of some of the theories. Even with the various mechanisms put in place, according to agency theory, as a way of minimizing the conflict between the management and the shareholders, the fraud still took place (Frie 2008, p. 272). Ghoshal has over criticized the working of some of the theories that seemingly have enabled many organizations in their operations. For instance, the criticism against Porters Five Forces is to a large extent biased. Ghoshal has failed to appreciate that such theories have been proven effective. The relationship between the suppliers, the business entity, the competitors, etc. that has been described in the Porter’s Forces has been fully explained. Every aspect that has been mentioned in the Porter’s Forces has some ways of affecting the business. The author has to appreciate that some of these theories have been used to effectively assess the performance of some organizations. The same is true with the agency theory. With the many negative factors pointed out about agency theory, it has been effective for quite some time until in the recent when things have turned around. At such point, it would be good if the contributors could be focusing more on striking a trade-off between the theoretical approach and scientific approach. This is based on the appreciation that it is very difficult for apply the scientific approaches to be applied in totality to social science disciplines. Therefore, Ghoshal and other critics of the humanistic approach to management must be ready to appreciate the impending realities in relation to this. This is meant to enable the functioning of organizations to be not only flexible, but also have the capacity to effectively deal with issues arising. Conclusion From the discussion above, it is clear that there is need to adjust the approach to management that has been in operation for some times. The global financial crisis is just an example of what can happen when policy-makers are restricted to applying a certain theory whose effectiveness cannot be fathomed by common knowledge. Many are being forced to follow the theories religiously and this can lead collapse. What many probably have ignored is the fact that we are living in a very dynamic world. It is good to appreciate that some approaches that worked during the World War 2 may not work in the 21st century. Ghoshal has provided a lot of grounds to allow wider reasoning that is likely to result to change in approach to management. The use of scientific approach to management through scientific testing of trends is quite timely. The scientific approach indeed will allow trends and patterns in various arenas to be effectively tested and approved. This can be very successful especially when allowed to operate a long with the humanistic approaches especially where scientific approach happens to be very inflexible. All these must be done bearing in mind the challenges associated with the two approaches to management. References Acharya, V.V. & Richardson, M 2010, ‘Causes of the financial crisis’, Critical Review, Vol. 21, No. 2-3. Astley, M., Giese, J. & Hume, M 2009, ‘Global imbalances and the financialcrisis’, Bank of England Quarterly Bulletin, Q3. 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Klien, W. & Coffee, J 2010, Business Organization and Finance, Legal and Economic Principles, Foundation Press, New York, p. 320-365. Temin, P 2010, The Great Recession & the Great Depression, Fall2010, vol. 139, no. 4, pp.115- 124. Zeinab, K 2002, Trust and Loyalty in Electronic Commerce: An Agency Theory Perspective, Greenwood Publishing, Hartsburg, 223. Read More