Temp IBM Study Guide

Introduction to business and
management
J. Timms
996D107, 2790107
2009
Undergraduate study in
Economics, Management,
Finance and the Social Sciences
107 Introduction to business and management
This guide was prepared for the University of London External System by:
J.N. Timms, BA, MSocSci, Researcher at the Centre for the Study of Global Governance,
London School of Economics and Political Science.
The 2006 and 2009 editions of this guide were amended and updated by A.E. Benjamin, BSc,
MA, Dip Stats, previously at Imperial College Business School.
This is one of a series of subject guides published by the University. We regret that due to
pressure of work the author is unable to enter into any correspondence relating to, or arising
from, the guide. If you have any comments on this subject guide, favourable or unfavourable,
please use the form at the back of this guide.
This subject guide is for the use of University of London External students registered for
programmes in the fields of Economics, Management, Finance and the Social Sciences (as
applicable). The programmes currently available in these subject areas are:
Access route
Diploma in Economics
Diploma in Social Sciences
Diplomas for Graduates
BSc Accounting and Finance
BSc Accounting with Law/Law with Accounting
BSc Banking and Finance
BSc Business
BSc Development and Economics
BSc Economics
BSc Economics and Finance
BSc Economics and Management
BSc Geography and Environment
BSc Information Systems and Management
BSc International Relations
BSc Management
BSc Management with Law/Law with Management
BSc Mathematics and Economics
BSc Politics
BSc Politics and International Relations
BSc Sociology
BSc Sociology with Law.
The External System

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© University of London 2002, reprinted August 2005, October 2005, and 2006 and 2009
with amendments
Printed by: Central Printing Service, University of London, England
Contents
Contents
Introduction............................................................................................................. 1
Aims of the unit.............................................................................................................. 1
Learning outcomes......................................................................................................... 2
Reading and learning resources...................................................................................... 2
Developing a glossary..................................................................................................... 6
Hours of study and using this subject guide..................................................................... 7
The structure of this unit................................................................................................. 9
Assessment by examination............................................................................................ 9
Section 1: The development of business and management.................................. 11
Chapter 1: Concepts, definitions and origins........................................................ 13
Aims of the chapter...................................................................................................... 13
Learning objectives....................................................................................................... 13
Essential reading.......................................................................................................... 13
Further reading............................................................................................................. 14
Beginning your study.................................................................................................... 14
1.1 The importance of key concepts.............................................................................. 14
1.2 A closer look at business and organisations............................................................. 15
1.3 A closer look at management.................................................................................. 17
1.4 The evolution of business and management studies................................................. 19
Chapter review . .......................................................................................................... 23
A reminder of your learning outcomes........................................................................... 24
Sample examination questions...................................................................................... 24
Advice on answering a question................................................................................... 24
Chapter 2: Understanding the business organisation – a multidisciplinary
approach................................................................................................................ 27
Further reading............................................................................................................. 28
Introduction................................................................................................................. 28
2.1 A multidisciplinary view of business and management............................................. 28
2.2 Sociological perspectives........................................................................................ 29
2.3 The anthropology of organisations.......................................................................... 31
2.4 The contributions of psychology.............................................................................. 32
2.5 Economic approaches to organisations.................................................................... 34
2.6 The stakeholder model of the firm........................................................................... 36
Chapter review............................................................................................................. 37
Section 2: Decision making................................................................................... 41
Chapter 3: The management role.......................................................................... 43
Further reading............................................................................................................. 44
Introduction................................................................................................................. 44
i
3.1 Organisational goals and objectives........................................................................ 44

3.2 What is a manager?............................................................................................... 45
3.3 What do managers do?.......................................................................................... 48
3.4 Decision making and effectiveness.......................................................................... 51
3.5 Planning role.......................................................................................................... 53
3.6 Leadership role....................................................................................................... 54
3.7 Motivating role....................................................................................................... 59
3.8 Controlling role...................................................................................................... 61
Chapter review . .......................................................................................................... 62
Chapter 4: Theoretical approaches to strategic decision making and
organisational change........................................................................................... 65
Further reading............................................................................................................. 66
Introduction................................................................................................................. 66
4.1 Decision making in business................................................................................... 66
4.2 Theories and models for making decisions............................................................... 69
4.3 Strategy................................................................................................................. 82
4.4 Analysing the environment...................................................................................... 86
4.5 Organisational change and development................................................................ 89
4.6 Managing the change process................................................................................ 91
4.7 Managing resistance to change.............................................................................. 93
Chapter review . .......................................................................................................... 95
Chapter 5: Managing the main functional areas................................................... 97
Further reading............................................................................................................. 98
Introduction................................................................................................................. 98
5.1 Functional areas of business organisations.............................................................. 98
5.2 Finance................................................................................................................ 101
5.3 Human resource management.............................................................................. 106
5.4 Production and operations.................................................................................... 109
5.5 Marketing............................................................................................................ 111
5.6 Communications.................................................................................................. 115
Chapter review . ....................................................................................................... 117
A reminder of your learning outcomes......................................................................... 118
Sample examination questions.................................................................................... 118
Advice on answering a question................................................................................. 118
Section 3: Business and the environment........................................................... 121
Chapter 6: Key internal elements of the firm...................................................... 123
Aims of the chapter.................................................................................................... 123
Learning objectives..................................................................................................... 123
ii
Contents
Essential reading........................................................................................................ 123

Further reading........................................................................................................... 124
Introduction............................................................................................................... 124
6.1 Organisational dynamics....................................................................................... 124
6.2 Type, ownership, strategy and size......................................................................... 126
6.3 Organisational structure ...................................................................................... 129
6.4 New technology and business organisations......................................................... 138
6.5 Understanding organisational culture.................................................................... 141
Chapter review . ........................................................................................................ 145
Chapter 7: Key external elements of the business context................................. 149
Further reading........................................................................................................... 150
Introduction............................................................................................................... 150
7.1 Studying business within its external environment................................................. 150
7.2 The economic environment................................................................................... 152
7.3 The political environment...................................................................................... 155
7.4 The technological environment.............................................................................. 159
7.5 The cultural environment....................................................................................... 160
7.6 Analysing the business environment...................................................................... 165
7.7 Summing up . ...................................................................................................... 166
Chapter review........................................................................................................... 167
Chapter 8: The diverse and dynamic nature of the business context................. 171
Further reading........................................................................................................... 172
Introduction............................................................................................................... 172
8.1 The international context ..................................................................................... 173
8.2 Globalisation and business................................................................................... 174
8.3 Management of multinational companies (MNCs)................................................. 179
8.4 Small business organisations................................................................................ 185
Chapter review . ........................................................................................................ 188
Section 4: Contemporary issues in business and management.......................... 191
Chapter 9: Contemporary issues; knowledge management, learning
organisations, e-business ................................................................................... 193
Further reading........................................................................................................... 194
iii
Introduction............................................................................................................... 194
9.1 Dynamics of business and management................................................................ 194
9.2 Knowledge management...................................................................................... 195
9.3 The learning organisation...................................................................................... 201
9.4 Electronic business (e-business)............................................................................ 205
Chapter review . ........................................................................................................ 209
Chapter 10: The social responsibilities of business organisations...................... 213
Further reading........................................................................................................... 214
Introduction............................................................................................................... 214
10.1 Business in society.............................................................................................. 214
10.2 Business ethics and managerial integrity............................................................. 215
10.3 Business and social responsibilities..................................................................... 221
10.4 Corporations as good citizens............................................................................. 229
Chapter review . ........................................................................................................ 233
Appendix 1: Sample examination paper............................................................. 235
Appendix 2: Sources and references .................................................................. 237
iv
Introduction
Introduction
Welcome to your unit on business and management. You have chosen to

study a dynamic subject that will stretch your knowledge and challenge
your ideas. This is an introductory unit, which is designed to engage you
with the key concepts, models, debates and problems in the study of
business and management. Developing this foundation will be beneficial to
your subsequent study of specialised subjects, because you will be able to
make connections between different issues.
This introductory unit is also a chance for you to develop your academic
skills, in particular your critical approach to the ideas you are presented
with. Studying at this level means actually engaging with what you are
reading: considering what is being said in relation to other theories,
practical examples, and your own reflections. The subject of business
and management offers an ideal opportunity to develop this academic
approach, as a wide variety of groups, individuals and organisations offer
diverse opinions and theories regarding the workings of business and
successful management.
Throughout the unit you will be taking an active part in your learning,
developing your own responses to what you read and so building a deeper
appreciation of issues concerning business and management. It is therefore
helpful to view this introductory unit as an opportunity to develop a solid
framework of knowledge, as well as a critical academic approach. Together
these will make your work on this unit engaging and stimulating, and will
equip you with the tools needed to do well in your future studies.
In the remainder of this introductory chapter you will be given advice and
guidance on the following:
• the unit aims and learning objectives
• the reading system
• your role in using the subject guide
• the structure of the unit
• preparing for the assessment.
It is important to understand all of these at the beginning to ensure that
you are able to get the most out of the unit.
The subject of business and management is an important and exciting
one. You will learn about the workings of business organisations, how
they function, and how they interact with the environment. The subject
also includes how these business organisations are managed, including
the strategies used to guide them and the decisions involved in the role of
the manager. Studying these issues by following the unit as it is designed
should ensure that although challenging, it will also be an enjoyable and
satisfying experience.
Aims of the unit

This unit has three main aims, and these directly relate to the major
themes that will be emphasised throughout. The unit aims to:
• provide a comprehensive introduction to the key elements of the
business organisation, and to competing theories and models of the
firm and its environment
1
• build a foundation of knowledge on the different theoretical

approaches to management, decision making, and the main functional
areas of management
• develop analytical skills to identify the links between organisations,
management practices and the business environment, and to develop
critical evaluation skills to compare and contrast theoretical and
empirical contributions.
Learning outcomes
On completion of this unit, you should be able to:
• understand the evolution of the business organisation and management
thought, recognising the interconnections between developments in
these areas
• evaluate alternative theories of management critically, recognising the
centrality of decision making and strategic thinking to the managerial
role and functions
• discuss and compare different models and approaches to understanding
the firm, evaluating these in the context of the business environment,
and exploring the impact of key environmental factors on decision
making and organisational behaviour
• evaluate the significance of contemporary issues in business and
management.
Reading and learning resources

A vast array of material has been written about business and management,
and this is a major reason for the subject being such an interesting one.
Many different people, organisations and groups hold widely differing
views on issues in this area. You are going to be taking an academic
approach to the subject, and this needs to be reflected in your reading.
Reading is a vital and central part of your work and successful progress
in this unit. It is important that you make use of your academic and study
skills handbook Strategies for success. This will really help you, because
it includes guidance on reading technique. It is possible for everyone to
develop their reading skills, and consciously working on this will be of
great benefit to you.
This subject guide is designed to guide you through academic material in
the major areas of business and management, as set out in the syllabus. It
is important at this stage to understand the reading system, for this will
ensure that you cover all the necessary elements of the main topics in a
comprehensive way. The reading system that will be employed consists of
three elements, which are explained below.
Essential reading
For each topic you are required to study some readings that are essential
and compulsory. It is from this material that the majority of your
knowledge will be gained. It is therefore vital that you do all the essential
reading specified.
All the essential reading will be listed at the beginning of each chapter.
However, it is best to study these readings and the guide in parallel.
Therefore you will work from the guide and, at the most relevant points in
each chapter, you will be advised which is the relevant reading and when
2
Introduction
to read it. Please note that when you are advised to read certain pages
in a chapter, this will usually refer to the section that starts and finishes
on those pages rather than all the text on them. It will be clear from the
subject matter of the section which passages you are intended to read. If
you flick through one of the chapters of the guide now, you will see how
this will work.
Key texts
One main key text has been selected for this unit:
Mullins, L.J. Management and Organisational Behaviour. (Essex: Pearson
Education, 2007) eighth edition [ISBN 9780273708889].
One secondary key text has been selected to supplement this, because not
all topics are covered by Mullins (2007) and this will also offer you an
alternative perspective. This is:
Daft, R.L. New Era of Management. (Mason, Ohio: South Western: Cengage,
2008) second edition [ISBN 9780324537772 ].
The third edition of this text is due to be available in early summer 2009.
It is not possible to say at the time of making amendments to this subject
guide whether the third edition will be very different to the second.
However, in the past, Daft’s text (initially titled Management and then New
Era of Management) has not changed substantially, apart from updating of
case studies, etc. There may be a reordering of chapters. Both of the key
texts have new editions produced on a regular basis, but the content of the
essential readings should be clear enough for you to use older versions if
necessary.
An alternative text which covers the unit syllabus in most areas is:
Boddy, D. Management: An Introduction. (Harlow: FT Prentice Hall, 2008)
fourth edition [ISBN 9780273711063].
Readings in this text will be listed in the Further reading sections at the
beginning of chapters.
Further reading
At the beginning of each chapter, a list of possible further readings will be
offered. A selection is always presented, but none of them is compulsory.
You can select from the list for each chapter when you come to it, if you
wish to. Therefore you should not be worried that this list is long: it is only
to give you a choice should you want one!
You may find it helpful to look at these readings if you are particularly
interested. As much reading as possible is always to be encouraged.
Again, however, it should be noted that it is the essential readings that
make up the unit, and your efforts of analysis and evaluation should be
concentrated on these first and foremost.
To help you read extensively, all External students have free access to the
University of London Online Library where you will find the full text or an
abstract of some of the journal articles listed in this guide. You will need to
use the same username and password to access this resource that you are
sent to use for the Student Portal. The Online Library can be accessed via
the Student Portal at https://my.londonexternal.ac.uk/
A selection of further readings

The relevant ones will be listed at the beginning of each chapter.
3
Journal articles
Most of these articles are available to download from the Online library:
Alvesson, M. and D. Karreman ‘Odd couple: making sense of the curious
concept of knowledge management’, Journal of Management Studies 38(7)
2001, pp.995–1018.
Barlett, A. and S. Ghoshal ‘Matrix management: not a structure, a frame of
mind’, Harvard Business Review 68(4)1990, pp.138–45.
Beugre, C.D. and O.F. Offodile ‘Managing for organisational effectiveness in
sub-Saharan Africa: a culture-fit model’, International Journal of Human
Resource Management 12(4) 2001, pp.535–50.
Easterby-Smith, M., M. Crossan and D. Nicolini ‘Organisational learning:
debates past, present and future’, Journal of Management Studies 38(7)
2001, pp.783–96.
Gordan, G.G. and N. Ditomaso ‘Predicting organisational performance from
organisational culture’, Journal of Management Studies 29(6) 1992,
pp.783–98.
Hales, C. ‘Leading horses to water? The impact of decentralisation on
management behaviour’, Journal of Management Studies 36(6) 1999,
pp.831–51.
Jackson, T. ‘Management ethics and corporate policy: a cross cultural
comparison’, Journal of Management Studies 37(3) 2000, pp.349–69.
Lowe, J., J. Morris and B. Wilkinson ‘A British factory, a Japanese factory and
a Mexican factory: an international comparison of front-line management
and supervision’, Journal of Management Studies 37(4) 2000, pp.541–62.
Nutt, P. ‘Decision-making success in public, private and third sector
organisations: finding sector dependent best practice’, Journal of
Management Studies 37(1) 2000, pp.77–108.
Porter, M. ‘What is strategy?’, Harvard Business Review 74(3) 1996, pp.61–78.
Scholte, J.A. ‘Globalisation, governance and corporate citizenship’, Journal of
Corporate Citizenship 1, Spring 2001, pp.15–23.
Shimomurs, M. ‘Corporate citizenship: Why is it so important?’, Journal of
Corporate Citizenship 1, Spring 2001, pp.127–30.
Swan, J. and H. Scarborough ‘Knowledge management: concepts and
controversies’, Journal of Management Studies 38(7) 2001, pp.913–21.
Tsoukas, H. and E. Vladimirou ‘What is organisational knowledge?’, Journal of
Books
Agmon, T. and R. Drobnick Small Firms in Global Competition. (New York:
Oxford University Press, 1994) [ISBN 9780195078251].
fourth edition, [ISBN 9780273711063].
Cole, G.A. Management Theory and Practice. (London: DP Publications, 2003)
sixth edition [ISBN 9781844800889].
Douma, S. and H. Schreuder Economic Approaches to Organizations. (London:
Prentice Hall, 2008) fourth edition [ISBN 9780273681977].
Grint, K. Management: A Sociological Introduction. (Cambridge: Blackwell,
1995) [ISBN 9780745611495].
Grint, K. The Sociology of Work. (Cambridge: Polity Press, 2005) third edition
[ISBN 9780745632506].
Held, D., A. McGrew, D. Goldblatt and J. Perraton Global Transformations:
Politics, Economics and Culture. (Stanford: Stanford University Press, 1999)
[ISBN 9780804736275].
4
Introduction
Hofstede, G. Culture’s Consequences: International Differences in Work Related

Values. (London: Sage Publications, 1980; abridged edition, 1984) [ISBN
9780803913066].
Huczynski, A. and D. Buchanan Organisational Behaviour: An Introductory Text.
(London, Prentice-Hall, 2008) sixth edition [ISBN 9780273708353].
Johnson, G. and K. Scholes Exploring Corporate Strategy. (London: Prentice
Hall Europe, 2005) seventh edition [ISBN 9780273687399].
Mann, C., S. Eckert and S. Knight The Global Electronic Commerce. (Washington
DC: Institute for International Economics, 2000)[ISBN 9780881322743].
Massie, J.L. Essentials of Management. (New Jersey: Prentice-Hall, 1987) fourth
edition [ISBN 9780132863377].
Miller, G. Managerial Dilemmas: the Political Economy of Hierarchy. (Cambridge,
Cambridge University Press, 1997) [ISBN 9780521457699].
Mintzberg, H. The Nature of Managerial Work. (New Jersey: Prentice-Hall,
1990) [ISBN 9780060445553].
Needle, D. Business in Context: an Introduction to Business and its Environment.
(London, Business Press, 2004) fourth edition [ISBN 9781861529923].
Pearson, G. Integrity in Organisations: an Alternative Business Ethic. (London,
McGraw-Hill, 1995) [ISBN 9780077091361].
Perman, R. and J. Scouller Business Economics. (Oxford: Oxford University
Press, 1999) [ISBN 9780198775249].
Robbins, P. Greening the Corporation: Management Strategy and the
Environmental Challenge. (London: Earthscan Publications, 2001) [ISBN
9781853837715].
Scholte, J.A. Globalization: a Critical Introduction. (Palgrave, 2005) second
edition [ISBN 9780333977026].
Senge, P. The Fifth Discipline: the Art and Practice of the Learning
Organization. (New York: Doubleday, 1990; second edition, 2005) [ISBN
9780385517256].
Sklair, L. The Transnational Capitalist Class. (Oxford: Blackwell, 2001) [ISBN
9780631224624].
Stonehouse, G., J. Hamill, D. Campbell and T. Purdie Global and Transnational
Business: Strategy and Management. (Chichester: John Wiley and Sons,
2000; second edition, 2004) [ISBN 9780470851265].
Tissen, R., D. Andreiseen and F. Deprez The Knowledge Dividend: Creating
High-Performance Companies Through Value-Based Knowledge Management.
(London: Pearson Education, 2000) [ISBN 9780273645108].
Waters, M. Globalization. (London: Routledge, 1995; second edition 2001)
[ISBN 9780415238540].
Wright, S. The Anthropology of Organizations. (London: Routledge, 1994)
[ISBN 9780415087476].
Supplementary literature
As well as the readings that will be specified within each chapter, you will
find it helpful to read up on current issues in major journals, specialist
magazines and the business sections of newspapers, etc. Below is a
selection of journals which could be useful, and it is recommended that
you familiarise yourself on a regular basis with the type of articles and
current topics covered by them:
• Journal of Management Studies
• Asia-Pacific Business Review
• European Business Review
• The Harvard Business Review.
5
Other learning resources

Gathering case material on particular companies and countries will also
help you to develop a critical approach to the theories as you relate them
to practice. Building up this material and your knowledge of current
business debates, familiarising yourself with key journals, improving your
reading skills and developing a systematic approach to your reading are all
things that you can begin to do now, today. Remember that reading is key
to progress on this unit.
Also, friends, contacts in business and family members who are active in
business can be a useful and relevant resource, because it is very useful to
talk to people with practical experience. As well as this, if you know other
people studying the subject, it is very helpful to talk through your ideas
and to discuss what you are learning.
Finally, do not forget your brain – and your capacity to think critically: you
will not get far without this!
Online resources
Another additional learning resource for this unit is the internet. If you
have access to this, you should start to collect relevant websites and
become familiar with searching for company information on them. At
certain points in the guide you will be directed to internet sites that are
relevant to your studies.
You should also regularly check the Virtual Learning Environment (VLE),
as we are developing new resources and activities (such as quizzes to test
your progress and understanding) for this unit, which you will be able to
access using your University of London username and password. There is
also a discussion forum in the VLE where you can begin, or contribute to,
discussions about topics in this unit with your fellow students. The VLE
can be accessed via the Student Portal at https://my.londonexternal.ac.uk/
Developing a glossary
A glossary is an alphabetical listing of all the words and phrases that you
come across that relate to one subject. In this unit you are going to come
across a lot of new words and ideas. It will be helpful for you to keep
a record of these in the form of a glossary. This should keep expanding
as you go through the unit, so think carefully about how you are going
to record them and the best way for you to add in additional entries.
Mullins (2007) provides a glossary, as do Daft (2008) and Boddy (2008).
These will be helpful to you in this unit. If a word is not listed, look in
other books or in a dictionary. You might buy one of the dictionaries of
business or commerce available (for example, those published by Collins
or Penguin).
Your own glossary is very helpful for reference throughout your studies
and also for your examination revision. In Chapter 1 we will discuss
further the main terms and the need for definitions. However, it will be
helpful for you to get started with your glossary now, in preparation.
Below are some initial definitions (taken from the Concise Oxford
Dictionary (1995) (ninth edition) – ‘COD’ for short). You can use these to
start your glossary. They are purposely kept short because you need to add
to them as you study. You will find lots of definitions in books and, when
you do, add good ones to your glossary. Reference the definition so that
you know where you found it. You can start this process immediately by
looking in your own dictionary and adding to these definitions from there.
6
Introduction
Samples for your own glossary

• Behaviour – COD: the way one conducts oneself; manners. The
treatment of others; moral conduct. The way in which [something]
acts or works. [Psychology] the response (of a person or animal,
etc.) to a stimulus. (Mullins has a number of entries for the adjective
‘behavioural’: copy these in now.)
• Business – COD: many different meanings here; one’s regular
occupation, profession, or trade. Buying and selling. A structure. A
series of things needing to be dealt with. A commercial house or firm.
Something that involves dealing, operations, undertakings. In Chapter
1 we develop the definition: a commercial enterprise or establishment
that makes and/or trades in goods or services.
• Businessman and businesswoman – COD: people engaged in
trade or commerce, especially at a senior level.
• Business organisation – This definition is the one we develop in
Chapter 1: an organisation (see below) that is both commercial and
social, which provides the necessary structures to achieve the central
objective of trades in goods or services.
• Concept – COD: a notion or an idea that helps us understand some
subject. For instance, the concept of motion helps us understand
moving objects. (See what Mullins has in his glossary for ‘conceptual
ability’. Another common term is ‘conceptual framework’. Add
this to your glossary when you come across it.)
• Discourse – COD: a dissertation or treatise on an academic subject.
(This word is used a lot in sociology and also in literary criticism. In
economics and business studies it is hardly mentioned.)
• Manage – COD: organise; regulate; be in charge of (a business,
household, team, a person’s career, etc.). To meet one’s needs with
limited resources (for example, ‘just about manages on a pension’). To
take charge of or control (for example, an animal, especially cattle).
We will return to many of these terms, so do not worry if you have not
fully understood them from this. The idea here is that you have a growing
record of useful terms and that you start the habit of adding to this from
1
the very beginning of the unit.
1
Have a look at the
Glossaries in Mullins
(2007) and Daft (2008)
Hours of study and using this subject guide now, and then make a
The period of study for a unit of this nature is about eight months. You start on developing your
should spend at least seven hours on this unit each week. You are about own.
to begin a journey of learning and development, with this subject guide to
direct and steer you. This subject guide has been designed to help you to
work through these topics in a systematic and thorough manner. It is vital
to remember that what you are reading here is not the unit in itself, but a
guide through the unit, which also consists of the reading and your own
critical thinking.
It is essential that studying this guide is done in conjunction with the
reading system outlined above. It is also essential that you develop your
own set of notes as you work through the subjects, and that you engage
with the material in a critical way. Your role and the design of the subject
guide are explained further in this section. However, it is important for
you to have familiarised yourself with your academic and study skills
handbook Strategies for success before you embark on the first chapter.
7
Your role and academic development

You have an active role to play as you work through this unit. It is not
sufficient to view each topic in an isolated way and only to be able to
describe what you read about. It is essential that you make a conscious
effort to identify links, make comparisons and consider the implications of
the different issues as you progress through the unit. This will make the
issues come to life.
Thinking critically is an essential part of this unit, and although nobody
is born with this skill, it is one that everyone can develop and improve.
Remember that there is rarely one correct answer or approach to a
question. It is likely that you will be presented with a variety of theories,
models or definitions, all trying to explain similar phenomena. Your role
is, first, to grasp what each source is saying, but then to question, evaluate
and compare it to alternative explanations. Thinking critically is also not
just about developing criticisms, but is a process of evaluation, where
both the positive and the negative aspects of a theory, study or model are
considered.
You can begin to develop these skills as soon as you start the first chapter.
As you read, ask yourself what you think, how it relates to what you
already know, your experience, and what others claim. Actually building
into your notes your own reflections and your own responses can be a
useful method of developing this skill, and will also be valuable when you
come to revise. It can be helpful to make a clear separation between your
own thoughts and the notes you take on the main points of the reading,
perhaps by highlighting them with a different colour, dividing up the page,
or boxing them off. You should note that there is further guidance on
thinking critically in Strategies for success.
Chapter structure
Every chapter includes a number of consistent features, designed to assist
you in your progress through the module.
• Each chapter begins by setting out what it aims to achieve, so that it is
clear what you should learn.
• This is followed by the learning outcomes, so that you know what
knowledge you should develop.
• The essential reading is then set out.
• Suggestions for further reading will also be given at this point.
• There is a chapter review section at the end of each chapter, including:
the key points that have been made in the chapter
a range of sample examination questions to help test what you have
learnt
suggestions as to how one of the examination questions could be
answered.
You should study this review section to be certain that you have grasped
everything you are supposed to have learnt from that chapter, and that you
are at the right level to move on to the next chapter.
Interactive format
In addition to these key features of every chapter, exercises have been
provided throughout the guide to help you engage and interact with the
8
Introduction
material you are studying. Although these are not assessed, the more
involved you get, the deeper the understanding you will develop. Different
activities have been designed, each with a specific purpose, as follows:
• questions, to test your understanding of what you have read
• readings, to direct you to relevant sections of the essential reading
and instruct you when to do your reading, as well as sometimes
offering questions to ensure that you understand the texts
• case studies, to encourage you at specific points to learn about the
case of a particular business or to think about the ones you know. There
are case studies in both the subject guide and the key texts.
It is strongly recommended that you complete these activities as you work
through the unit. The work you do for some activities will be developed
further at later points in the unit. Take an active role from the beginning
and develop this active learning throughout. This will give you confidence
in your knowledge, ability and opinions.
The structure of this unit

It is important to understand how your unit is structured, so that it is
easier for you to navigate around the topics and this guide. The syllabus
consists of four sections, designed to introduce you to the main theories,
debates and issues relating to the study of business and management.
Each section deals with several major topics and an indication is given
below of the elements that each will include. However, this unit deals
with a dynamic topic, so it is important to recognise the interrelationships
between these themes.
Section 1: The development of business and management

Concepts, definitions and origins; understanding the business organisation
– a multidisciplinary approach.
Section 2: Management and decision making

The management role; theoretical approaches to strategic decision making
and organisational change; also managing the main functional areas.
Section 3: Business and the environment

Key internal elements of the firm; key external elements of the business
environment; the diverse and dynamic nature of the business context.
Section 4: Contemporary issues in business and management

Business development and information technology; the social
responsibilities of business organisations.
Assessment by examination
Important: the information and advice given in the following section
are based on the examination structure used at the time this guide
was written. Please note that subject guides may be used for several
years. Because of this we strongly advise you always to check both the
current Regulations for relevant information about the examination, and
the current Examiners’ commentaries where you should be advised of
any forthcoming changes. You should also carefully check the rubric/
instructions on the paper you actually sit and follow those instructions.
9
The assessment for this unit is via examination, and the guide aims to offer
assistance in your preparation for this. It is essential that you make use
of your academic and study skills handbook Strategies for success, which
gives vital information about the examination process and guidance on
preparing for all your examinations. It will really help you to study this
now, before you begin, as well as at the time of the examination.
In addition, guidance for the examination for the 107 Introduction to
business and management unit has been built into this subject guide.
Each chapter ends by offering four sample examination questions and
suggestions of how at least one of these could be approached.
At the end of the guide, in Appendix 1, you will also find a sample
examination paper. Have a look at this now to understand what you will
need to do and what your examination paper will look like.
It is important to remember that the examination is the end-method of
assessment, rather than the focus of the unit. Concentrating on engaging
with the issues, building up your knowledge, and developing an academic
approach, will not only be more satisfying but will also ensure that you are
fully introduced to the subject of business and management.
10
Section 1: The development of business and management
Section 1: The development of business

and management
Chapter 1 focuses on the concepts, definitions and origins of the subject

you are studying. The chapter aims to act as an introduction to the content
that you will be studying and so is a distinct part of the unit. Each of the
sections will represent a different focus, and so the introductions to each
section are designed to prepare you for this change. However, it is also
important to recognise the links and connections between these sections,
as well as the issues in the chapters within them.
The first section will serve two purposes:
• The first is to equip you with the understanding you will need of the
main key terms you are going to be working with. However, you are
not just given definitions. The idea is to offer you a way of developing
your own understanding of key concepts and to be able to evaluate the
meanings others attach to the terms you will meet.
• Secondly, Section 1 discusses the background to the subject so that
you can appreciate why and how it has developed. The different
influences on its development are important. At first it may be difficult
to see how this is relevant to your wanting to understand business and
management today, but the developments of today emerge from this
background and are often influenced by the major events and theories
of the past. Therefore this section is a foundation for the rest of the
unit.
In Chapter 2, we look at different approaches to understanding the
business organisation. Several different disciplines are considered; it can
be seen from this that the business organisation is an integral part of our
social lives and can be studied in many different ways. We will be focusing
on how different disciplines have contributed to the field of business and
management.
11
Notes
12
Chapter 1: Concepts, definitions and origins
Chapter 1: Concepts, definitions and

origins
Aims of the chapter

Each chapter has specific aims. The aims of this chapter are to:
• identify the key terms and help you to consider why it is so important
to explore them
• examine alternative definitions
• review different ways in which the concepts are understood and used
• explore how business and management emerged as fields of study
• enable you to recognise business and management as a dynamic
subject, continually changing and adapting.
Learning objectives
By the end of this chapter, and having completed the essential readings
and activities, you should be able to:
• be able to understand the concepts: management, business
organisations and organisational behaviour, and appreciate the variety
of possible meanings
• be able to assess the value of a concept and the way it is used
• have developed an understanding of the subject’s origins, including the
key stages of evolution and the work of the main contributors
• be able to identify the influence of the subject’s historical context on
contemporary developments, for the purpose of deeper understanding
and evaluation.
Essential reading
This is the first set of essential readings that make up part of your unit.
Start by reading the subject guide and you will be directed to the readings
listed below at the appropriate stage in the chapter.
The main readings are taken from your key text:
Education Limited, 2007).
‘About this book’, pp.xviii–xxiv. Read this section now, before you continue,
because it provides important advice on using the key text. Also familiarise
yourself with the features and resources of the book, such as the useful
‘critical reflections’ at the end of each chapter.
Chapter 1 ‘The nature of organisational behaviour’, pp.2–7, ‘The meaning
and study of organisational behaviour, Influences on behaviour’, and
pp.11–13, ‘Management as an integrating activity’.
Chapter 2 ‘Approaches to organisation and management’.
Chapter 3 ‘The nature and context of organisations’, pp.74–78, 91–93,
‘Perspectives of the organisation’, ‘Formal and informal organisations only’.
Chapter 11 ‘The role of the manager’, pp.410–22, From ‘The meaning of
management’ up to and including ‘Management in private enterprise and
public sector organisations’.
13
You will be using the secondary text in some of the chapters that follow,
and you may find it useful to familiarise yourself with its layout now. The
structure of the book is explained in its Preface:
2008).
Further reading
The following are the texts which you may like to refer to for additional
material. They are not an essential part of the unit and should not be the
focus of your studies.
Boddy, D. Management: An Introduction. (Marlow: FT Prentice Hall, 2008)
Chapters 1 and 2.
Cole, G.A. Management Theory and Practice. (London: DP Publications, 2000)
Chapters 1 and 2.
2008) Chapters 1 and 2.
Massie, J.L. Essentials of Management. (New Jersey: Prentice-Hall, 1987)
Chapters 1 and 2.
Beginning your study

An important starting point for your study of this unit is to identify and
understand the main concepts used. This is where we shall begin.
As this is the first chapter, there are two general aims:
1. T
o help you discover a pattern of working that suits you
best. Try different approaches: reading for an hour, and then thinking
for 15 minutes, for instance. Also try moving between this study guide
and the textbooks you have obtained. We all learn in our own way, so
use this introductory chapter to find what suits you best.
2. T
o help you get to grips with the textbooks. Since they have an
important role in the unit, now spend 15–30 minutes looking through
the books. The texts are quite substantial – but do not be apprehensive,
since we only use some sections. When there is an essential reading
from, say, pp.10–20, always have a glance at pp.5–10 and 20–25 as
well. That way you’ll see more clearly what the author is saying.
1.1 The importance of key concepts

The unit you are studying is made up of two major concepts: business
and management. A concept is a notion or an idea, and in this context it
refers to the key terms used to describe our subject. The central concepts
that are relevant here include management, business, organisation and
organisational behaviour. Beyond these major concepts many others exist,
and you will be continually meeting new ones.
Key concepts and your glossary

In the Introduction we looked at the value and importance to your study
of keeping a glossary of key concepts. Go back to p.6 of the subject guide if
you need to refresh your understanding.
One of the aims of this chapter is to provide you with the tools for
understanding and evaluating the different concepts you come across,
both in this unit and elsewhere. It is likely that you do have some ideas
14
about what the major terms ‘business’, ‘organisation’ and ‘management’

mean, but it is vital to recognise that competing definitions of these
concepts exist. By the end of the unit you may well have quite widely
differing definitions recorded in your glossary.
How we define a term has significant implications for how we understand
it, discuss it and research it. Before evaluating a theory or putting
forward your own view, it is important to question how the key terms are
being used. This can be one of the questions that you ask of the sources
you read: are they clear about what the concepts mean? Likewise it is
important for you to be clear and to choose the most appropriate meaning
for your purpose.
For example, how would you construct an entry in your glossary for
‘Production manager’?
First, make sure you have the noun ‘product’ and both the noun
‘management’ and the verb ‘to manage’ in your glossary. Then add
definitions of production and manager. Finally, enter a definition for a
production manager.
It is important to remember that each of these words has:
• a wide meaning, explained in a dictionary
• narrow meanings, particularly when used as part of a phrase selected
by writers (such as Mullins and Daft) from the wide meaning.
As you can see, a glossary is going to be an important learning tool for
you, because understanding the key concepts and being clear about how
you use them is vital. Now, before you go any further, make sure you have
set up your own glossary! Remember also that the books by Mullins, Daft
and Boddy have useful glossaries.
1.2 A closer look at business and organisations

Definitions
Let’s think about the concept of ‘organisation’. Many definitions are
possible, but most of these include the characteristics of people, goals and
structures. People are social beings and, by and large, tend to cooperate in
interdependent relationships to achieve common aims. Originally people
formed simple family and tribal structures. Today we have evolved into
a complex society characterised by large, formal and increasingly global
structures. For our purposes, then, we can define an organisation as:
a social entity that provides the necessary structures to achieve
specific aims.
Now take a look in several dictionaries to find variations in the way the
term ‘business’ is defined, and be sure to add all your definitions from
this section to your glossary.
A further point to consider is whether organisations that do not aim to
make a profit, e.g. in the voluntary sector, including charities, are included
in a discussion of businesses. From your investigation do you think that
they should be included? Are organisations that do not aim to make a
profit (e.g. charities) also business organisations? For our purposes in this
subject guide, we will understand the term business to mean:
a commercial enterprise or establishment that trades in goods or
services.
15
However, the complication of using a general definition emerges again. For

instance, the objective of ‘trading’ does not have to be for profit. Therefore
the argument can be made that non-profit making organisations can also
be regarded as businesses, at least a certain type of business. This would
include public sector organisations, since there is increasing demand
for these organisations to perform and be managed like profit-making
businesses (see Mullins, 2007, pp.79–80, ‘Private and public organisations’
and pp.420–22, ‘Management in private enterprise and public sector
organisations’ for further debate on this). Pulling together aspects of
different definitions, we can again devise a meaning to suit our needs.
Therefore we can define the business organisation as:
an entity that is both commercial and social, which provides the
necessary structures to achieve the central objective of trades in
goods or services.
Activity 1.1
Reading
Read the following sections of your key text, making notes as you read:
•• Mullins (2007) Chapter 1 ‘The nature of organisational behaviour’, pp.2–7.
•• Mullins (2007) Chapter 4 ‘The nature and context of organisations’, pp.74–78,
91–93.
Look at the first reading from ‘The meaning of organisational behaviour’, up to and
including ‘Influences on behaviour’ on pp.3–7. Note the term ‘behavioural approach’ and
add it to your glossary.
The second reading is an explanation of organisations to be found in the sections entitled
‘The context of organisations’; ‘perspectives of the organisation’; ‘the formal organisation
and basic components of an organisation’ on pp.74–78, and ‘the informal organisation’
on pp.91–93 in Mullins’ book. Look out for the following as you read: how organisations
differ; factors they have in common; the importance of the ‘hidden’ informal organisation;
the functions and the basic components.
Boddy (2008) Chapter 1, pp.6–9 discusses management and organisations.
Activity 1.2
Now try to classify the following as (a) business organisations, (b) non-business
organisations, and (c) non-organisations:
1. a multinational company
2. the ministry of health in your country
3. a local football supporters club
4. a man who issues tickets for an airline
5. a religious group who worship together.
Feedback
Here is the answer:
a. 1
b. 2, 3, 5
c. 4.
Can you see the reasons for this? If not, go back to the definitions in your glossary.
16
Increasingly, in practice, the line between a business and a non-business

becomes harder to draw. Many non-business, social organisations also
raise money, hire workers and have finance and marketing activities. Also,
some government departments have business activities, which may be run
as separate business organisations.
Organisations of all kinds have functioned for thousands of years – think
of some examples. It was not until about 100 or so years ago that people
started writing about how to manage them.
For the purposes of this guide, we focus on business organisations that aim
to make a profit. However, the principles discussed are mostly relevant
to not-for-profit business organisations as well. When studying business
organisations, a particular interest is the behaviour of these organisations
– check now that you have the definition in your glossary.
1.3 A closer look at management

The importance of management to organisational performance is
generally acknowledged; however, its definition is widely contested.
The term is used in many different ways by people from a wide variety
of backgrounds. Also, the subject is dynamic and changes over time.
The result is that no one accepted definition of management exists, but
many of the definitions do include similar elements. Therefore it is again
important to investigate different definitions to gain an understanding of
the term. Often writers try to capture the dynamic element of management
in their definition. A few such definitions are listed below.
Different definitions of management

Managing is deciding what should be done and getting other
people to do it.
(Stewart, 1986, p.12)
The first definition of management is therefore that it is an
economic organ, indeed the specifically economic organ of an
industrial society. Every act, every decision, every deliberation of
management has as its first dimension an economic dimension.
(Drucker, 1955, p.6)
The word ‘management’ identifies a special group of people
whose job it is to direct the effort and activities of other people
towards common objectives.
(Massie, 1987, p.2)
Management is a process which exists to get results by making
the best use of the human, financial and material resources avail-
able to the organisation and to the manager.
(Armstrong, 1995, p.1)
To administrate is to plan, organise, command, coordinate and
control.
(Fayol, 1930, p.9)1 1
All recommended
reading.
Do you see any common elements in these definitions? Read Mullins
(p.75) for inspiration. Do you agree with him (see p.2) that ‘it is important
to recognise the role of management as an integrating activity in an
increasingly global business environment’?
17
From administrator to manager

We can use the last definition, by Henri Fayol, to illustrate the problems
that can be encountered when defining key terms, and the importance
of ensuring you know how an author uses a concept. The title of his
original work was Administration industrielle et générale. In the 1930s
translation of his work, referred to in the quote above, administration was
seen to be the key concept. In 1949 a new translation changed the word
administration in the quote to management, and the title to General and
Industrial Management. The reason for this was a fear that using the term
‘administration’ would result in Fayol’s work only being seen as relevant to
industry rather than a wider audience, including government.
This decision can be seen to reflect a narrowing of the meaning of
administration, while the concept of management was seen to have wider
application. However, read and consider the following quotation taken
from the 1930s translation.
It is important not to confuse administration with management. To
manage an undertaking is to conduct it towards its objective by try-
ing to make the best possible use of all the resources at its disposal;
it is, in fact, to ensure the smooth working of the six essential func-
tions [administration, planning, organizing, commanding, coordi-
nating, controlling]. Administration is only one of these functions,
but the managers of big concerns spend so much of their time on it
that their jobs sometimes seem to consist solely of administration.
(Fayol, 1930, p.9)
In the 1930s translation Fayol saw these two concepts of management and
administration as having different meanings, despite one later being used
as a direct translation of the other, owing to changing usage. This example
therefore vividly demonstrates the need for you to evaluate how key
concepts are used.
Defining management
Activity 1.3
Reading
Read the following sections of your main key text:
•• Mullins (2007) Chapter 1 ‘The nature of organisational behaviour’, pp.11–13,
‘Management as an integrating activity’.
•• Mullins (2007) Chapter 11 ‘The nature of management’, pp.410–22, ‘The
meaning of management’ up to and including ‘management in private enterprise’
and ‘public sector organisations’.
•• See also Boddy (2008) Chapter 1, pp.9–11 for a discussion of meanings of
management.
Now that you appreciate the importance of definitions, see how well you can compare
and contrast different ones. As you go through these readings, as part of your note taking,
make a list of all the definitions of management you come across.
From the list you draw up and the definitions you have read above, what common
elements can you identify, and are any of the definitions conflicting?
So, concepts are contested and usage can change. All of this can make
debates very interesting, but how is it possible to study or employ a
concept if defining it is such a problem? This is something which all
writers and students face, and recognising that this is an important issue is
the first step in getting to grips with a concept.
18
Study tip
For your study of business and management, a number of steps can be
useful in overcoming this; here is a recap.
Step 1
When trying to understand the use of a concept by a particular author, it is
important always to look for a definition. How does the author define their
concept? How useful is their definition? What criticisms can you see? If an
author does not provide a definition, then this can be an important flaw
to identify in their work. It can also be helpful to consider how an author
uses a concept in comparison to the definition employed by others. Again,
this is a good focus for your evaluation of their work.
Step 2
When trying to understand a concept in general use, it is important to
remember that there is no correct or single definition. Therefore your
strategy should again be to evaluate a range of meanings, and from this to
pull out some core elements. Let us take the concept of management. We
have now considered meanings for the term put forward from a variety of
perspectives by various authors.
It is by taking account of these different views that the definition given
in our sample glossary in the introduction was developed. So, by putting
together some of the major elements of different definitions we are able to
develop a general understanding of management as:
a process whereby a manager is involved in the coordination of
resources and the actions of others, for the achievement of goals.
Understanding management in this way stresses the importance of strategy.
In this definition the manager is working towards defined goals. Resources
and actions will then need to be directed strategically. Decision making
is also a central activity. The manager needs to make decisions about the
goals to be set, the strategy to achieve them and the best use of resources,
including people. Therefore the theme of strategic decision making runs
through this guide, and will be explored explicitly in Chapter 4.
Step 3
When using a concept yourself, it is important to be very clear about how
you are defining it. Always make your own meaning clear. It can be helpful
to discuss why you are using this definition, in comparison to the others
available. Remember that recognising the complexity of a concept is key to
developing a deeper understanding of it.
1.4 The evolution of business and management studies

In the rest of this chapter we will consider how business and management
studies have developed over time. Chapter 2 of Mullins is essential reading
for this chapter. The purpose of this section is to provide you with a basic
summary of the main stages in the evolution of management studies. The
stages outlined by Mullins are:
• classical (including scientific) management and bureaucracy
• human relations
• systems
• contingency.
19
He also identifies other more recent approaches, as indicated below.

Why do you think it is important to study the evolution of management
thinking? Jot down your thoughts and then look at Mullins, p.40 for
feedback.
Take a critical approach as you read Mullins. For each of the approaches
summarised below, answer the following questions:
• What are the key characteristics of each approach?
• Does the approach work in practice – if not, why not?
• How did the approach help develop management thinking?
• Is the approach still relevant today?
• Is the approach only workable in a particular social, cultural and
economic context?
You will find that Mullins answers most of these questions somewhere in
Chapter 2!
Finally ask yourself: Does this approach derive from a particular
theoretical discipline – if so, which? However, you do not need to consider
this at the moment. You will learn more about this in the next chapter of
the subject guide.
Classical pioneers
The early writers on management and organisations included both actual
managers and social scientists. The classical school was predominantly
concerned with the development of universal principles to achieve
successful management, leading to a prosperous business. This was
therefore a prescriptive approach, and is reflected today in the desire
for managers to find the formula for success – think of today’s business
gurus who claim to have discovered principles such as these. One of the
most important classical theorists was Frederick Taylor (1868–1915).
His ‘prescription’ was developed from extensive time-and-motion studies
of particular jobs, and led to significant changes in the organisation of
work to achieve efficiency and increased productivity. Some of the most
significant principles he developed include the following:
• The planning of a task should be separated from the doing of the task –
this principle further justifies the need for managers and their planning
role.
• Selection of workers for particular tasks should be done through
rational decision making – this principle stresses the importance of the
manager’s decision making role.
• Tasks should be simplified, standardised and require the minimum of
movements – this principle can still be seen as important, but in some
industries more than others.
• There is ‘one best way’ of doing each task, and this should be
‘discovered’ by managers through rational analysis and measurements
– this principle highlights the prescriptive approach and supports the
rationality of management.
The approach outlined here became known as ‘scientific management’
or ‘Taylorism’ after its most important exponent. Other significant
contributions to this approach were made by Henry Gantt (1861–1919),
who was the first to develop the method of the time-and-motion study, and
also Frank Gilbreth (1868–1924) and his wife Lillian (1878–1972). The
Gilbreths concentrated on the reduction of movements within tasks, with
the aim of increasing production by overcoming fatigue.
20
Scientific management in action

This process is suitable in situations where many people can be employed
to do simple, standardised tasks, which would be repeated frequently. For
example, if one worker was responsible for each of these tasks they would
not need much training, and would be able to repeat the task many times.
Managers, rather than workers, would plan each of these tasks to ensure
minimal movement. The use of technology can also play an important part
in minimising the level of skill and number of movements made, and also
in standardising both the task and the product.
Scientific management dominated the classical school, but this was by no
means the only approach. Here are two more.
Bureaucracy
At around the same time, Max Weber (1864–1920) was researching and
developing a theory of bureaucracy. Weber was a German sociologist
and important links can be made here if you study the unit on sociology.
His interest was in power and authority, and organisational structures.
The major influence Weber’s writing has had on the study of business
has mainly centred around understanding the need for stability and
consistency in achieving efficiency. This approach required workers to be
selected on merit for clearly defined roles, and to work within set rules.
Fayol’s principles of management

Finally, Henri Fayol (1841–1925), whom we have already come across,
made another significant contribution that has influenced the development
of this subject. As we have already learnt, Fayol was interested in the
concept of administration. Working as a manager, industrialist and
theorist in France, he developed a set of General Principles for managing
organisations. These were seen as a ‘prescription’ that could be passed on
to other managers, being universally applicable, and so indicative of the
classical school’s aims.
Activity 1.4
Reading
•• Now read again Mullins (2007) pp.415–17, which contain the principles of
management mentioned above.
Think of an organisation you know. How many of these principles apply? We will return to
this in the next chapter of this guide, where we consider the role of a manager.
Incorporating the human element

The next significant stage in the evolution of the subject was the
development of the human relations school. Nowadays we are used to
hearing statements like ‘people are the life-blood of an organisation’, and
with businesses describing their people as their most important asset.
However, 50 years ago, concern for workers represented a major shift
away from the classical approach of measuring and designing work in
a logical way, aiming to increase the efficiency of their production as if
employees were themselves machines. The few employers who tried to
manage in a more people-friendly way were regarded as mavericks.
The human element came to the fore when problems arose in the
application of the scientific management technique. Criticisms came from
management theorists, social scientists and managers, and from workers
who were alienated and exhausted by doing mind-numbing, repetitive
tasks. Pay was virtually the only motivator recognised and this sometimes
led to angry confrontations between workers and managers. 21
The most famous studies conducted were the Hawthorne Experiments,

associated with Elton Mayo (1880–1949) who studied workers under
different conditions. As a result, the concept of the Hawthorne effect
was developed. This was used to describe a rather surprising result of
the research – that increases in productivity were actually found to be
related to the fact that the employees were being studied rather than to
the working conditions per se. In other words, productivity was improved
when workers had something interesting to think about and react with.
According to scientific management principles the researchers should
have reduced productivity by getting in the way. Instead they galvanised
the workers into greater efforts. This finding questioned the value of the
scientific management, which did not consider the social and interaction
needs of workers.
A further influential contribution was that of Abraham Maslow (1908–
1970). Maslow cast doubt on the simplicity of scientific management. He
argued that there was a hierarchy of employee needs. Although economic
needs are a major motivating factor, other higher-order needs are
important to people at work. Each category of need is seen as a different
level and these have to be satisfied in order of importance. These include a
range of needs: physiological, safety, love, esteem, and finally the need for
self-actualisation.
Activity 1.5
Reading
•• Look now at Mullins (2007) pp.480–83 to see a diagram, explanation and evalu-
ation of Maslow’s theory.
Systems and contingency approaches

The human relations approach remains popular but there have been other
recent developments. The systems theory approach pulls together some
of the core components of both the classical and human relations theory.
Because organisations are open to the outside world, these ‘open systems’
have to be complex. They include the interactions of people, technology
and tasks. Furthermore, as open systems, organisations are seen to interact
with the external environment. There are major implications for the study
of business and for the role of managers, as the decisions they make
depend on a complex number of variables.
This idea has links with another related approach, that of contingency
theory. This theory goes against the classical school’s search for ‘one best
way’ or for universal principles; contingency theorists stress that managers
need to adapt their style to match the changing conditions. They claim
that the specific variables of each situation need to be considered and
decisions made in light of this analysis.
This in turn is related to the decision making approach, a specialist area of
contingency theory. Proponents of this theory focus on the need for good
communication and information flows. The processing of this information,
and how it is used by the managers as decision makers, is seen to be a key
element of organisational effectiveness and the achievement of business
objectives. Again, the business organisation is defined as a system and,
as in all three approaches, it is seen as vital to recognise the complexity
of the organisation. For decision making theorists this complexity results
in uncertainty. However, unlike Weber’s bureaucratic approach for
predictability and stability, decision making theory accepts that complexity
means uncertainty and so is more focused on managing this uncertainty.
22
Activity 1.6
Imagine that you are a sales manager and you have to make a decision. You have to
decide whether or not to recruit an additional member to your existing sales team. Do not
spend more than 15 minutes on this.
1. What information would you need in order to make this decision?
2. What situational factors would you need to take into account?
3. T hink of three possible decisions you could make, and write a few lines on the
different circumstances under which you may have made each decision.
Continued evolution
Many of the current developments in business and management are
influenced by the evolutionary stages discussed above. The story certainly
does not stop here! In fact the story continues at an ever-faster pace. Among
the most significant contributors who have influenced contemporary
business and management practice are Peters and Waterman in the 1980s,
who studied the ‘excellent’ businesses to identify common characteristics
of success. (For details, see Mullins, 2007, pp.756–58). Their results have
been criticised – unfortunately, also, most of the ‘excellent companies’ they
identified did not survive the 1980s, for one reason or another!
Other influential contributors to management theory and science worth
looking out for when you are browsing in the library, include Philip Kotler,
Henry Mintzberg, Rosabeth Kanter and Michael Porter and Peter Drucker.
We will consider some of these writings and further developments in the
next section, particularly in Chapter 4. Have a quick look through the
index to Mullins’ book and see how many you can find.
The subject of business and management continues to evolve and react
to wider changes and new needs. The final chapter in the guide looks at
current trends and emerging issues. So we return to this review of ideas
and theories about management and business later on.
Developing an understanding of the subject’s origins, as discussed here and
in Chapter 2 of Mullins, can really help you to investigate the new themes
we discuss later in the subject guide. It is important when reading about
any new management tool, organisational theory or business practice to
consider how it developed and what influenced its development. Doing so
will not only help your understanding of the new development, but will
also assist you in your attempts to evaluate its worth.
Activity 1.7
Reading
Now read the following part of your main key text:
•• Mullins (2007) Chapter 2 ‘Approaches to organisation and management’.
Boddy (2008) Chapter 2 also reviews the different approaches to management.
Chapter review
Key points
• Concepts are contested and usage can change over time, so no single or
correct definition can exist.
• Many concepts and ideas are relevant to the study of this unit, but the
central ones can be identified as management, business organisation
and organisational behaviour.
23
• The origins of business and management have a long history, tied to

the progress of human society. The creation of a body of theoretical and
experimental knowledge has occurred since 1900.
• The evolution of ideas about business and management has included
a number of important stages, including classical approaches,
perspectives that focus on the human element, and a range of theories,
which stress the complexity of the subject.
A reminder of your learning outcomes

Having completed this chapter and the essential readings and activities,
you should be able to:
• be able to understand the concepts: management, business
organisations and organisational behaviour, and appreciate the variety
of possible meanings
• be able to assess the value of a concept and the way it is used
• have developed an understanding of the subject’s origins, including the
key stages of evolution and the work of the main contributors
• be able to identify the influence of the subject’s historical context on
contemporary developments, for the purpose of deeper understanding
and evaluation.
Sample examination questions

When considering these, remember the guidance given in the Introduction
about examination preparation. Questions can be answered fully in
approximately 45 minutes, under examination conditions.
1. Compare and contrast the approaches associated with the scientific
management perspective and the human relations school. Which do
you consider to be most relevant to business management today?
2. (a) One of the approaches to management theory found under the
classical heading is bureaucracy. Identify, describe and evaluate the
main features of bureaucracy and the bureaucratic organisation.
(b) Discuss why public sector organisations might need to follow
bureaucratic principles.
3. Discuss the view that the study of the evolution of management
theories has no practical value to managers. Reinforce your arguments
with reference to appropriate theory and practice.
4. Evaluate the contributions made by three key contributors to the
development of business and management as a distinct area of study.
Advice on answering a question

To help you further with your exam preparation, we offer below some
suggestions for one of the answers. However, it is very important to
remember that there is no model or correct answer to any of the questions.
It is more important to demonstrate what you have learnt by developing
your own response to the question, supported by evidence from the
relevant parts of this chapter.
4. Evaluate the contributions made by three key contributors to
the development of business and management as a distinct area
of study.
24
Examples of the contributors you could consider would include Fredrick

Taylor, Henry Gantt, the Gilbreths, Max Weber, Henri Fayol, Elton Mayo,
Abraham Maslow, Peters and Waterman, and others you have read about.
On introducing your choice of contributors you could explain why you
decided on these rather than others.
It would be relevant to show that you understand the main points of the
work of each, including the way that each one of the three contributors
has used concepts, but approaching this in a critical way, showing the
merits and problems.
It would be relevant to focus on understanding these contributions within
their historical context, making comparisons of the schools and traditions
from which they developed.
It would also be useful to consider how their contribution influenced
future developments in business and management, and the relevance of
their work today.
Therefore, by the end of your answer the reader would be clear why you
have chosen these contributors; their significance; that you understand
and can make comparative evaluation of their work; and that you can
locate this in the wider historical context of the subject.
25
Notes
26
Chapter 2: Understanding the business organisation – a multidisciplinary approach
Chapter 2: Understanding the business

organisation – a multidisciplinary
approach
Aims of the chapter

The aims of this chapter are to:
• explore the multidisciplinary nature of the study of business and
management
• identify the disciplines that have significantly influenced our
understanding of business organisations and the behaviour of people
• evaluate the contributions made by sociology, anthropology, psychology
and economics
• assess the stakeholder model of the organisation
• appreciate the interconnections and conflicts between different
disciplinary approaches.
Learning objectives
• discuss the multidisciplinary nature of business and management
studies
• identify the range of disciplines that have contributed to the subject
and which have influenced its development
• explain the different ways in which sociology, anthropology, psychology
and economics treat business, and then to link this to the study of
business organisations
• look at examples of how to evaluate the usefulness of the contributions
made by these disciplines
• understand and assess the value of the stakeholder model of business.
Essential reading
The essential readings for this chapter are taken from the key text:
Chapter 1 ‘The nature of organisational behaviour’, pp.7–11, ‘A
multidisciplinary approach’, and up to and including ‘Orientations to work
and the work ethic’, and pp.13–17, ‘The psychological contract’ and ‘The
changing nature of the psychological contract’.
Chapter 4 ‘Individual differences’.
Chapter 13 ‘The nature of work groups’.
Chapter 14 ‘Group processes and behaviour’.
27
Further reading
You are strongly advised that the essential reading should be the focus of
your study, and that these additional texts (apart from Boddy, which is a
more general text) are suggested to deepen your knowledge only if you
have the time after fully analysing the essential reading.
Chapter 15, ’Motivation’, pp.489–92, Chapter 17, ’Teams’.
Douma, S. and H. Schreuder Economic Approaches to Organizations. (London:
Prentice Hall, 2008).
Grint, K. Management: A Sociological Introduction. (Cambridge: Blackwell, 1995).
Grint, K. The Sociology of Work. (Cambridge: Polity, 2005) Chapters 3 and 4.
Perman, R. and J. Scouller Business Economics. (Oxford: Oxford University
Press, 1999) Chapter 4.
Wright, S. The Anthropology of Organizations. (London: Routledge, 1994)
Chapter 1.
Introduction
In Chapter 1 we looked at the conceptual foundations for studying business
organisation and management and the evolution of theory. We have
established that it is not a subject with clear boundaries – it is a growing
and developing area of study. In this chapter we try to understand why it
is such a complex area of study with so many different, often competing,
perspectives. First, we consider how organisations, particularly business
organisations, pervade our lives and significantly affect the way we live.
Given this scenario, it is not difficult to see that the subject is of interest
to many academic disciplines, in particular the social sciences: sociology,
psychology, economics and anthropology, all of which have, and are
contributing to, the development of theory and practice. Also, we see that
because our society is undergoing rapid change, so too does the theory and
practice of management and business. Finally, taking this idea even further,
we can see that as business and management is of fundamental importance
to all members of society, we all – individually and in groups – have
different views on how business organisations are structured and managed.
2.1 A multidisciplinary view of business and

management
Activity 2.1
Think for a moment about how organisations pervade your own life. Can you think of
any significant events that have happened to you that did not involve an organisation of
some kind? For example, when you were born, how your basic needs were provided for,
how you were educated, who looks after your money, how you travel around, and so on.
In particular, think about all the business organisations you have had dealings with or
been a part of during, say, the last week. For example, who you have bought from or sold
to? What services have you experienced?
We are going to focus, in this chapter, on sociology, psychology,

anthropology (the behavioural sciences) and economics, as they will
provide the major theoretical foundations for other chapters in the
guide. They are by no means the only relevant perspectives. Politics is an
area that is particularly relevant to understanding power and control in
28
organisations – this will come up in later chapters of this subject guide.

From the natural sciences, biology offers a view of the organisation as a
functioning system and the idea of ‘survival of the fittest’ where only the
healthiest businesses will survive in competitive environments. As you will
see in Chapter 4, mathematics in particular has offered models and aids for
decision making and for providing statistical information to managers. In
the earlier days of the subject, engineering had a major role to play. A good
example of this is the contribution that Frederick Taylor made through the
idea of scientific management. The sciences in general have contributed also
to the types of research and methodology used to study organisations.
You will see in your next reading (Mullins, pp.2–9) just how varied
understandings of organisations can be. For example, the use of different
imaginative metaphors for organisations shows just how many ways writers
have conceptualised organisations, for example a brain, a machine or a
psychic prison. The reading also discusses how, as individuals, we differ in
our view of the importance of organisational life at work versus our non-
working life. To some people commitment to the organisation they work for
is central to their lives; to others it is being part of a group at work that is
important, and for others work and the organisations are merely a means
to an end.
As students and potential managers, you need to be able to recognise your
own current perspectives and to evaluate how the different perspectives
can broaden and deepen your understanding of the business organisation.
Activity 2.2
Reading
What are your current perspectives on, and about, organisations? Begin by reading the
following section of your main key text:
•• Mullins (2007) Chapter 1 ‘The nature of organisational behaviour’, pp.2–10.
1. How we view the world of work will influence what discipline we prefer to use
to understand business. Use the classification in this reading to identify your own
orientation to work. Also look at the orientations mentioned in Section 3.7 in the
subject guide – these are discussed in the work by Goldthorpe et al.
2. W
hich of Morgan’s metaphors do you favour to describe an organisation? What
disciplines do you think have influenced the different organisational metaphors
mentioned in the reading?
2.2 Sociological perspectives

Sociology is concerned with the study of human society, its origins, how it
is organised and how people interact. The definition and boundaries of the
discipline are contested, and this is such a wide-ranging subject that many
sociologists specialise in the study of a particular area of social life. As part
of your studies, you may complete unit 21 Principles of sociology. The
main ways in which sociology informs us about business and management
are to help explain:
• how people interact at work
• the effects of different organisational structures on people; sociology can
particularly contribute to our understanding of social relations within
the organisation, such as the interaction of employees, power relations
and social groupings
• the ways in which business and management have impacts on wider
society.
29
Sociologists view organisations as ‘social constructs’, i.e. they exist because

of the efforts of people and because people decide to recognise that they
exist. An organisation is seen as being made up of many different elements
working together and interacting. It is not viewed as an object that has
a solid outline. The sociological approach stresses the definition of an
organisation as a social entity and one that does not exist in isolation, but
is continually interacting with the environment.
The classical theories of sociology are concerned with understanding the
organisation of social life, change and significant institutions.
Max Weber (1864–1920) was one of the founders of modern sociology;
we have already read about him in Chapter 1. He studied government
organisations in Europe and helped us to understand how administrative
structures, hierarchies and authorities could improve the efficiency of
organisations.
Sociologists are also interested in the role that organisations play in
society. Interaction between organisations and the life of individuals and
groups in the wider society is a major concern. In particular, this means
understanding how changes within the wider society affect organisations.
This will be discussed further in Chapter 4 when we look at organisational
change.
Activity 2.3
Reading
Read this short section of your main key text:
•• Mullins (2007) Chapter 4 ‘Individual differences’, pp.123–24 – from the
beginning of the chapter up to but not including the section on personality.
Remember this when you look at the issue of organisational change examined in
Chapter 4. Can you see how the strategies developed by management need to take
account of wider changes in society and also the diversity of the workforce?
Industrial sociology is a specialised area concerned with:

• how work is organised
• workplace conflicts
• management–employee relations and especially the role of trade unions
• divisions between work and leisure time
• links between work and the importance of social class
• different labour markets.
Studies in the 1950s and 1960s were mainly conducted within the factory
setting; hence the name industrial sociology. An example is a study which
will be mentioned in Chapter 3, ‘The Affluent Worker: Industrial attitudes
and behaviours’, carried out by Goldthorpe et al. (1968). Goldthorpe
investigated the ‘embourgeoisement’ thesis. This suggests that a rise in the
income levels of working-class employees results in their adopting middle-
class values. Therefore the class structure of society is seen to be affected
by the behaviour and actions of business organisations.
1
More recently, Grint (1995) uses a sociological approach for management.
1
Recommended reading.
In doing this he questions the accepted assumptions about what
management is or what managers do. He treats concepts such as
leadership, control and culture as social constructs. Thus, when society
changes, so does the meaning of these words.
30
An application of sociology – gender relations at work

A specific area to which this sociological approach has made a great
contribution is our understanding of gender relations within the
workplace.
Activity 2.4
Reading
•• Mullins (2007) Chapter 4 ‘Individual differences’, pp.152–58. Read from
‘Diversity, gender and organisations’ to the end of the chapter.
As you read this, think about the organisations that you know and remember this when
you reach Chapter 3 where we introduce the issue of women and management.
1. Do you think that there are differences in the type of work that male and female
employees do?
2. Thinking about an organisation you know, are there differences between the
sexes with regard to the numbers working at each level of the business?
3. H
ow can the approach of sociology help us to explain any differences? Think
about the wider differences and changes in social relations.
2.3 The anthropology of organisations

Anthropology is the study of cultures and societies throughout the world,
and shares many of the features of sociology. The discipline emerged in
Western countries and was originally focused on non-Western cultures,
especially tribes and isolated societies. Anthropologists developed different
methods of research from sociologists, because they faced different
challenges by studying cultures that were significantly different from their
own. More recently anthropologists have studied not only traditional but
also industrial societies.
2 2
Wright (1994) in her book The Anthropology of Organizations draws together
a number of anthropological studies that have been done in Western and
non-Western organisations, in both the public and private sectors. These
usually involve the anthropologist spending time within the organisation
to develop an understanding of the behaviour patterns, social groupings,
rituals, symbols and language within the organisation or within a particular
group of employees. The detailed descriptive accounts made possible by this
method, and the collection of data over a significant time length, can yield
useful results for understanding problems with organisational efficiency
and social relations within the organisation. Furthermore, the issue of
national culture can influence aspects of management, and this has become
increasingly important as more organisations operate globally. We explore the
contribution of anthropology later in Chapters 6 and 7 of the subject guide.
Activity 2.5
It is important to note that anthropological research is not without issues that need
to be taken into account when evaluating their contribution. For example, Mouly and
Sankaran (1995) studied research and development departments in Indian organisations.
They described their method as an ‘organisational ethnography’, which was also the
title of their book. This is defined as a study of organisations that tries to understand the
behaviour of people within it from ‘the member’s point of view’ (1995, p.9).
1. What types of problems do you think the researchers faced?
2. What benefits did the researchers have?
3. Can you think of any reasons why the data collected could be of limited use?
31
Feedback
Studies of this kind assume that it is possible for a researcher to understand the world from
the view of an employee – not easy even if the researcher comes from the same country.
There are also practical limitations on the approach because employees may not welcome
such in-depth observation.
Also, the time the study takes and the problem of analysing the wealth of data that
emerges (for instance, from hourly interviews) make it an expensive approach.
Finally, the use of the conclusions may only extend to understanding internal or group
culture, but may not offer any practical solutions for improvements.
2.4 The contributions of psychology

Psychology is concerned with the study of the human mind. Psychologists
engage in scientific research to understand the nature of the human mind
and how it works. The processes that are studied include those seen to be
determined by the inner mechanisms of the mind and include the processes
of perception, memory and learning. Individual differences are a major focus
of psychological studies, to try to identify what is normal and abnormal.
Individual differences
Activity 2.6
Reading
Read the following section of your main key text:
•• Mullins (2007) Chapter 4 ‘Individual differences’, pp.125–42, ‘Personality’ and
up to and including the section on ‘Ability’. It is important to understand what
personality is and what influences its development. Be aware of some of the
dimensions of personality, especially those that are relevant to the management
job. Do not spend too much time on the theories discussed in this reading.
In this section about psychology, Mullins looks at theories of personality types in detail, and
also points to the significance of key psychologists such as Sigmund Freud and Carl Jung.
Remember this when you consider the roles of the manager in Chapter 3. Also, the
functional area of human resource management that is examined in Chapter 5 is relevant,
as it is this area that is mostly responsible for the selection and training of staff.
How would you explain what psychology has to offer business and management? Jot
down a few words and then read on.
The approach of psychology is most useful for issues that are determined
by the processes of the mind. These include how individuals make
decisions internally, their performance capabilities, how they can learn,
and how they respond to changing conditions. When exploring individual
differences in relation to organisations, the personality is important. This
refers to the characteristics or traits that together make a person unique
and that are stable, so resulting in consistent patterns of behaviour.
Theories of how we develop personalities cite a range of possible sources,
some hereditary, and so biologically gained, and others social, such as from
interactions with family, other groups to which we belong, and culture.
Why might a manager want to assess the personality of an employee?
Some examples of how an employee’s personality could be important are:
• the likelihood that the employee will be suited to a particular type of job
• how successful an employee would be in a management role
32
• the method of training that would be most effective

• the way that they interact and work with other employees.
The research methods employed by psychologists have helped business a
great deal. They are used in several ways:
First, psychological tests have been adopted to assess the personality and
intelligence of potential employees or for decisions about promotions. Tests
are also useful to assess the attitudes of employees, and so to try to identify
conflicts with group or organisational goals. They are also used by the
marketing departments of organisations to understand consumer attitudes
for the purposes of promoting the products that will best satisfy the customer.
Secondly, the experimental methods of psychology have been used to observe
the effect of changes in the workplace, such as in working conditions, or
changes to the benefits received by employees. A good example of this was
introduced in Chapter 1, that of the Hawthorne experiments.
Chapter 3 of this guide will introduce one of the most important
contributions that psychological approaches have made to the
understanding of organisational behaviour. This is the area of motivation.
Psychologists have done many studies of what motivates employees to
work or to work well. This is because motivation can be related to the
internal decision making processes of an employee, and so the studies are
interested in identifying the factors that influence whether an employee
decides to work to the best of their ability or not.
Examples of these theories that we will consider include those put forward
by Hertzberg, Maslow and Vroom (see Chapter 3).
Remember to check that you followed up the notes in the guide by

reading about these psychologists in the Mullins readings, and also
3
check your glossary is up to date.
3
Refer to Chapter 3 and
your glossary.
Psychological contracts
A more recent development is related to motivation, but more specifically
to the expectations of both the organisation and the employee. The
concept of the psychological contract is used to describe the unwritten
agreement of what the organisation and the employee will both give and
receive. This approach of psychology is able to add an appreciation of the
need to consider commitment, goodwill, understanding, respect, trust and
loyalty. Therefore the complexity of employee relations can be understood
and this approach can also provide a means of trying to identify threats to
the contract and understanding the consequences if the contract is broken.
Activity 2.7
Reading
•• Mullins (2007) Chapter 1, ‘The nature of organisational behaviour’, pp.13–17, the
sections on the psychological contract and its changing nature.
•• See also Boddy (2008) Chapter 15, ’Motivation’, pp.489–92.
As you read, think about the need for organisational change, which is discussed in
Chapter 4.
How could an understanding of the psychological contract help to implement a change
programme? It may help to consider the elements of the psychological contract that could
be affected and to think of the need to overcome resistance to change.
33
Work groups
The final contribution of psychological approaches to be mentioned here
is that made to our understanding of groups within organisations. Work
groups are of interest to psychologists because they consist of a number
of people who are psychologically aware of each other, who interact with
each other and who perceive themselves to be a group for a particular
purpose.
This is true whether the groups are formally recognised by the
management, such as a production work team or department, or whether
they are an informal group, such as can develop within an official work
group. Informal groups are just as important to identify and study, because
members of these can also be working towards their own goals and can
affect the behaviour of others.
As teamworking has become an important tool of management, this
contribution of psychology is particularly important. The need for
teamworking skills is often stressed in recruitment drives and training
often aims to develop and enhance these skills. Can you see the
relationship between this and the need to understand personality types?
Groups are made up of individuals and so the interaction of different
personalities can have a significant impact on the success of group work.
Therefore, psychological approaches are very interconnected, since they
are all concerned with the workings of the employee’s, and also the
customer’s, mind. This results in a view of the organisation that emphasises
the interaction and interdependences of individual personalities.
Activity 2.8
Reading
Read these two chapters, which consider groups within the organisation:
•• Mullins (2007) Chapter 8 ‘The nature of work groups and teams’.
•• Mullins (2007) Chapter 9 ‘Working in groups and teams’.
It is important that you spend some time reading Chapter 8. Do not spend so long on
Chapter 9 – the synopsis at the end of the chapter summarises the content well, so make
sure you read that carefully.
•• Another source is Boddy (2008) Chapter 17 ’Teams’.
The disciplines of sociology, anthropology and psychology also contribute to our
understanding of group processes, because each is concerned with the interactions of
people, but on different levels.
The aim of these readings is to show you, in a general way only, the importance of
understanding human behaviour, both at a social and psychological level. It is not
necessary for you to go through these chapters in great detail, but try to identify how the
general approaches of sociology and psychology can be linked to, and are useful for, your
understanding of business organisations. This task should not take longer than an hour of
study time.
2.5 Economic approaches to organisations

Economic theory is concerned with understanding the mechanism for
the allocation of limited resources to achieve unlimited wants. In a
free market, the price system is the mechanism for allocating resources
between competing wants. Thus, markets allow the interaction of
producers and consumers.
34
One of the key elements in business economics is the focus on those

activities of the business that are related to profit maximisation. This
assumes that the overall mission of the organisation is ultimately to create
as much profit as possible, for as long as possible. This would therefore be
the guiding principle for all decisions made by managers, at all levels of
the organisation.
Within the traditional approach of economics, only a simple model of
the business organisation is used to facilitate the theories employed by
economists. However, there has been interest in how economic theory and
organisation theory together can contribute to understanding business
organisations, and to providing an economic analysis of organisational
phenomena in more depth. Douma and Schreuder (2002) offer such a
contribution, stating that:
economic approaches to organisations are fruitful whenever the
problem to be studied has an economic aspect, that is to say
whenever part of the problem deals with the (optimal) allocation
of scarce resources.
4
(2002, p.2)
4
Can you relate the relevance of the economic approach to our definition
of management? Think for a few minutes, and then read on.
The aim of management is to achieve goals through the coordination of

available resources. Some of the resources we have already discussed in
previous chapters include financial and human ones, and these can be
scarce. For example, how likely do you think it would be that a manager
would have an unlimited budget or an unlimited supply of employees?
Therefore, economic approaches to organisations could help managers
make decisions about the most efficient or optimal distribution of staff, or
the most effective division of available funds.
Douma and Schreuder (2002) offer five economic approaches to
organisations, which they note are closely related.
Economic approaches to organisations

1. b
ehavioural theory – this sees the organisation as made up of
different participants who each have their own interests (this is a
stakeholder approach and is expanded below)
2. a
gency theory – this approach centres on the idea of the decision
making process being delegated to an agent, while the principal or
manager is only able partially to observe the agent
3. t ransaction cost economics – this perspective sees transactional
costs together with production costs as being the main factor that
determines organisational forms
4. e
conomic approaches to strategic management – an example
of this is game theory, discussed in Chapter 3.
Mention must also be made of evolutionary approaches to organisations.
These overlap with economic approaches.
5. e
volutionary approaches expand on the idea that business
existence is an example of ‘survival of the fittest’ – as in biology.
Thus, economic and evolutionary approaches can be seen as relevant,
and attempts to co-ordinate these with organisational theory have made
economics more useful. An example is stakeholder theory, considered in
the next section.
35
2.6 The stakeholder model of the firm

This final section does not relate to a specific discipline, but considers
a particular way of viewing the business organisation. It is a model
which represents the business organisation as consisting of a number of
interconnected groups. All these groups have a ‘stake’ or a claim in the
business, and are referred to as stakeholders:
any individuals or groups that may affect or be affected by the
organisation’s policies or actions.
Add this definition to your glossary, together with the definition given
by Mullins.
Identifying stakeholders
Activity 2.9
Before reading on, think about the concept of stakeholders, and who these stakeholders
may be. Consider the example of an organisation you know or belong to.
1. Who holds a stake in this example organisation?
2. Who is affected by what the organisation does?
3. Who has an impact on what the organisation does?
4. Are you a stakeholder in that organisation, and if so, what stake do you hold?
A useful approach for understanding the different types of stakeholder

that make up the organisation is provided by Carroll (1993, 62), where a
distinction is made between primary and secondary stakeholders.
• Primary stakeholders include all those directly involved on a
permanent basis with the organisation, for example employees,
managers and shareholders.
• Secondary stakeholders are more wide-ranging because they do
not have a constant involvement, or this is not as strong; they often
change as well, for example customers, the community, temporary
employees, occasional suppliers, competitors and the government.
With regard to the primary and secondary categories, both of these involve
stakeholders who are internal and external to the organisation.
One contribution to this view of the organisation was made by the economic
approach of behaviour theory mentioned by Douma and Schreuder
(2002). Within this view, each participant or stakeholder is seen to receive
inducements from the organisation; for example, in the case of employees
this would be their payment. In return for the inducement, the participant
makes a contribution. However, this view has significant implications for
decision making, as each participant or participant group is seen to have
their own objectives, and so bargaining is needed to arrive at the decision or
goal that satisfies the different objectives to the greatest extent.
This is related to the idea of ‘satisficing’, introduced in Chapter 4. It also
addresses one of the main problems of economic approaches, the focus
on one goal (such as profit maximisation). Instead, stakeholder theory
views the organisation as a coalition of participants. Thus it is easier to
argue that the organisation has more than one objective. Different groups
have their own, including those external to the organisation, that can put
pressure on businesses to behave in a certain way.
36
Shareholders
Distributors
Employees
Competitors
Suppliers
The
Government business
The community
The general public
Consumers Pressure groups
Figure 2.1 Stakeholder groups

It should be noted that Figure 2.1 shows stakeholder groups that could
be divided again, depending on the individual business. For example,
employees could be divided into temporary and permanent. Each
group will also have different amounts of power or involvement in the
organisation. (This will be discussed in more detail in Chapter 10 of the
subject guide in the context of social responsibility.) Furthermore, the term
stakeholder can be used to represent the natural environment, which may
also be affected by the operations of the business.
This concludes our consideration of some of the disciplines that inform,
and are informed by, business and management. Keep in mind the overlap
between these contributions. Comparisons between different views of a
firm are a useful tool for evaluation.
As we are focusing on business and the business environment in this
section of the unit, the stakeholder approach in particular can help us to
understand the complexity of the organisational context. The stakeholder
model of the firm provides a framework for analysing the ways that
different groups are affected by or contribute to the behaviour of a
business.
It has been developed further by attempts to understand the different
groups to which the organisation has responsibilities, and this will be
examined in Chapter 10. The stakeholder model can help us to assess both
the internal and external factors that affect the management of business
organisations, and so this model will be useful in the remaining chapters
of this section of the unit, as we investigate the business environment in
more detail.
Chapter review
Key points
• The study of business and management is not a subject with clearly
defined boundaries.
• It is necessary and helpful to appreciate the contributions that
different disciplines have made to our understanding of organisational
behaviour and management, so as to avoid simplistic explanations and
definitions.
• Sociological approaches emphasise the importance of social relations
within organisations.
37
• Anthropological approaches focus on understanding the culture,

language, symbols and rituals of organisations, by in-depth and lengthy
studies.
• Psychological approaches emphasise the importance of individual
differences and personalities for understanding employee capability,
motivation and group interaction.
• Economic approaches focus on the activities of the organisation that
result in profit maximisation and the optimal allocation of resources to
achieve this.
• Viewing the business organisation as a coalition of stakeholders can
help us to understand the complexity of the organisational context.

Having completed this chapter, and the essential readings and activities,
• discuss the multidisciplinary nature of business and management studies
• identify the range of disciplines that have contributed to the subject
and which have influenced its development
• explain the different ways in which sociology, anthropology, psychology
and economics treat business, and then to link this to the study of
business organisations
• look at examples of how to evaluate the usefulness of the contributions
made by these disciplines
• understand and assess the value of the stakeholder model of business.

When considering these, please remember the guidance given in the
Introduction about examination preparation. Each question is designed
to be answered fully in approximately 45 minutes, under examination
conditions.
1. E
valuate the contributions that two particular disciplines have made to
your understanding of business organisations and their management.
2. (a) Explain what you understand by the term ‘personality’.
(b) Discuss four factors that might affect the development of a person’s
personality.
(c) Discuss four personality characteristics that you consider necessary
in an entrepreneur. Justify your choice and use examples to
reinforce your answer.
3. ‘The study of business and management can be described as
multidisciplinary.’ Discuss.
4. (a) Explain what is meant by the term ‘psychological contract’.
(b) Discuss the individual and organisational expectations in this
context.
Illustrate your answer with relevant examples.
38

To help you further with your exam preparation we offer below some
relevant parts of the chapter.
3. ‘The study of business and management can be described as
multidisciplinary.’ Discuss.
This is a general question which offers the opportunity for many different
kinds of response. However, all answers would need to state whether you
think that it actually is multidisciplinary.
The complexity of the issues covered in the subject could be reflected on,
and how important these are – therefore being relevant concerns for a
number of disciplines.
The evolution of the subject could be considered and also those who
contributed to its becoming an area of study; links could be made here to
Chapter 3.
The contributions that make the subject multidisciplinary will need
to be identified, and these would need to include more than the four
concentrated on in the chapter.
Your answer could be expanded. For instance, look at the influence that
one or two of the disciplines have had and illustrate your answer with
example studies.
39
Notes
40
Section 2: Decision making
Section 2: Decision making
This section of the guide contains three chapters. The focus of the section
is decision making, a core theme throughout the unit. Decision making
is a key activity in the management of business organisations, ranging
from the daily decisions related to operations in the workplace, to the
long-term decisions which will affect the future direction of the business
organisation.
In Chapter 3, the role of the manager will be considered, asking what
managers actually do. It will be helpful to think about the managers that
you know and what you think they do. The first chapter in the section is
organised so that you will explore the central activities of managers, such
as planning, leading, motivating people and controlling. Decision making
is seen as central to all of these roles.
In Chapter 4, the focus is on strategic decision making, such as the long-
term decisions mentioned above. We will also consider change in the
organisation, which both results from decisions and demands further ones.
The aids that managers can use in making decisions will also be examined,
as well as different theoretical contributions as to how decisions are best
made.
Chapter 5 allows you to explore the different functions that a business can
be made up of, such as marketing, human resource management, finances,
communications and operations. Some of these are the subject of other
units; here you should aim to gain an overview of the role of managers in
business organisations.
41
Notes
42
Chapter 3: The management role
Aims of the chapter

As the first chapter in Section 2, this chapter focuses on the role of the
manager. Specifically, it aims to examine:
• the different types of managers
• the various roles that managers play
• what managers actually do at work
• styles of management behaviour and managerial effectiveness
• how managers make decisions.
Learning objectives
• identify factors that contribute to differences between types of
management, the attributes valued in managers and the expectations
placed on the work of the manager
• understand the limits of management behaviour theories, and
appreciate the practical constraints that managers face in reality
• discuss the idea of managerial effectiveness and evaluate approaches to
measuring how successful a manager is
• identify the types of decisions relevant to the different areas of the
manager’s job
• develop further your skills of evaluation and comparison.
Essential reading
The reading for this chapter is taken from Mullins (2007) and, as in the
last chapter, it is important for you to read these sections when instructed
to do so by the guide.
Mullins, L. J. Management and Organisational Behaviour. (Essex: Pearson
Chapter 7 ‘Work motivation and job satisfaction’, pp.249–60, ‘The meaning
of motivation’, up to and including ‘Maslow’s hierarchy of needs theory’,
pp.261–63, ‘Herzberg’s two-factor theory, pp.265–68, ‘Vroom’s expectancy
theory’.
Chapter 10 ‘The nature of leadership’, pp.362–74, ‘The meaning of
leadership’, up to and including ‘Contingency theories of leadership’,
pp.376–77, ‘Vroom and Yetton contingency model’, pp.378–79, ‘Path-goal
theory’, pp.381–86, ‘Transformational leadership’, and ‘Inspirational and
transformational leadership’, pp.387–91, ‘The leadership relationship’, up to
and including ‘Leadership effectiveness’.
Chapter 11 ‘The role of the manager’, pp.428–35, ‘The attributes and
qualities of a manager’ up to the end of Chapter 11.
Chapter 12 ‘Managerial behaviour and effectiveness’, pp.443–51,
‘Managerial style’ up to and including ‘The managerial/leadership grid’,
pp.454–63, ‘Management by objectives’ up to and including ‘Measures
of effectiveness’, pp.467–77, ‘The management of time’ up to the end of
Chapter 12.
43
Chapter 14 ‘Organisational strategy, ethics and responsibilites’, pp.526–41,

‘The importance of strategy’, up to and including ‘Strategy, opportunities
and risk’.
Chapter 18 ‘Organisational control and power’ pp.676–82, ‘The
controversial nature of control’, up to and including ‘Forms of control’,
pp.687–703, ‘Characteristics of an effective control system’, up to and
including ‘The concept of empowerment’.
Further reading
These readings will provide you with further detailed information if you
are particularly interested in a subject, but again do remember that they
are not an essential part of the unit and so you should always do the
essential reading first!
Chapters 1, 6, 14, 15 and 19.
2008) Chapters 7, 18 and 19.
Education Limited, 2007) Remaining sections of chapters mentioned in the
Essential reading above.
Huczynski, A. and D. Buchanan Organizational Behaviour: An Introductory Text.
(London: Prentice Hall, 2006) Chapters 8 and 21.
Mintzberg, H. The Nature of Managerial Work. (New Jersey: Prentice Hall, 1990).
Introduction
In this chapter of the guide we consider further the role of management in
an organisation. In other words, what role or roles do managers play? Once
more we focus on business management. The first section looks very briefly at
organisational goals and objectives since, for the manager, these come first. We
look at them in greater detail in Chapter 4 of this guide. The second section of
the chapter looks at what managers do and what makes a good manager. The
third section considers each of the main ‘roles’ played by managers – making
decisions, planning, providing leadership, motivating and controlling.
3.1 Organisational goals and objectives

This section is purposely kept short. It is put here to remind us that
managers need goals to work towards. How they go about achieving those
goals is the subject of the rest of this chapter. This short note is a reminder
that clear and achievable goals must come first. If a manager does not
have goals, how can he or she hope to be effective?
Activity 3.1
Reading
The essential reading for this section is:
•• Mullins (2007) Chapter 14 ‘Organisational strategy, ethics and responsibilities’,
pp.528–39.
An alternative reading can be found in Boddy (2008) Chapter 6 ‘Planning’, pp.194–98.
We look at goal setting in more detail in Chapter 4 of this guide, so for now read through
these pages quickly – do not spend more than half an hour on this reading at the
moment. You can look back at this reading when you move on to Chapter 4.
44
3.2 What is a manager?

Activity 3.2
Start by writing down a few sentences in answer to the question ‘What is a manager?’
We established one definition in Chapter 1, which defined a manager as:
‘a person who is responsible for co-ordinating resources and the actions of others, for
the achievement of goals’.
According to our definition, managers:
•• are involved with leading people to achieve goals
•• need to coordinate the actions of people, together with other resources, such as
money, materials and technology.
Therefore, managers are more than leaders. They are a group of people who have in
common their responsibility of achieving goals through the coordination of all resources.
Activity 3.3
Next, think what factors make for differences between managers. Some are suggested by
the definition – spend a few minutes thinking about this.
In general, differences that occur can be attributed to:
•• the type of organisation and its size and structure
•• the level (junior, middle, senior) of management
•• what it is that is being managed (products, services, finance, etc.)
•• the company and personal goals
•• the style of management
•• where the manager is working and where he or she comes from
•• who the manager is working with.
We explore some of these differences below. If you look at these factors again you will
see that they fall into two categories – those that relate to the business structure and its
objectives, and those that relate to the individual manager and his/her objectives.
Now, look at Mullins (2007) p.423, Figure 11.5. Notice that, as already noted above, there
are several environmental factors that will have an effect on the nature of the manager’s
job.
Differences between managers
1. Levels and functions of management

In Chapter 6 of this guide we look at different organisational structures
and you will see how these affect management structures. Figure 3.1
shows how management hierarchies are commonly described. Modern
thinking has reduced the layers of management, especially ‘stripping out’
middle managers and ‘empowering’ junior managers. We will come back
to this when we look at ‘business process re-engineering’ (BPR) later in the
guide.
45
Top, strategic or
Senior-level board -level managers
management
Middle-level General and functional managers such as production,

management sales, distribution, purchasing, marketing, sales, finance
administration, personnel and human resources, etc.
(Some of these work at the strategic level alongside senior
managers; most work in the middle, and some work
below, at the operational level)
First-line or front-line managers, shop- floor managers,

Junior-level sometimes senior supervisors
managers
Operational -level workers and staff
Figure 3.1 Common terms used to describe managers in an organisational

hierarchy
Note that in a hierarchy such as illustrated above, many managers are
in the middle of chains of communication and command. Orders and
messages go up and down the organisation (and from side to side).
The first-line managers are those who are directly responsible for
and oversee the production of goods and services. Above this level are
the middle managers, who are not so directly involved in production
but are more responsible for directing the front-line managers and
communicating between them and senior managers. This last type of
manager is responsible for the achievement of goals at a more strategic
level, and would include the chief executive officer (CEO). Differences
in the types of goals to be achieved are also determined by the scope of
a manager’s responsibility. Functional managers are responsible for
managing a particular section of operations, such as marketing, finance or
communications. In contrast to this, general managers are responsible
for the achievement of broader goals, or can be responsible across
different functions.
Activity 3.4
Reading
We explore functional areas of a business in detail in Chapter 5. Look at Mullins (2007)
p.486, Figure 13.1 to see how different types of managers share the responsibility for one
functional area, that of HR, in an organisation.
In this section we have examined how different goals that managers

are trying to achieve are directly related to issues such as the type of
organisation and the level at which they manage. However, there is
another significant variable: a manager’s individual style and how factors
such as attitude, culture and the individual qualities that make a good
manager influence this style.
2. Qualities of the individual manager

This issue has been the subject of a great deal of research, to discover what
qualities are needed to be a successful manager. If it is possible to identify
the necessary qualities that make a good manager, then managers can be
trained to develop these qualities. Also, new recruits can be tested to see if
they have potential.
46
Activity 3.5
Think about all the different types of managers that exist. For instance, are you managed
by anyone? Do you in turn manage anyone else? Think of managers that you come across
in your everyday life and what activities they are involved in.
1. Now write down three examples of a manager, specifying the scope and level of
their job and the type of organisation. In your opinion, what attributes or qualities
would each sort of manager need in order to be successful? Make a list of these
next to each.
Reading
2. Read the following section of your main key text:
•• Mullins (2007) Chapter 11 ‘The role of the manager’, pp.428–35; Chapter
18, ‘Delegation and empowerment’ up to and including ‘The concept of
empowerment’, pp.693–702.
A supplementary reading is Boddy (2008) Chapter 1 – this looks more generally at the
management job.
As you read these pages, compare the qualities mentioned in the text with the list of
attributes that you developed for each of your three example managers above.
•• Are there any similarities?
•• Which of these qualities are managers born with and which can be learned?
•• What is your opinion of the different research findings presented here?
In the examples below, two factors affecting the manager’s job and management style
are considered.
Example: gender differences

Historically, business management has been predominately a male profession (not so
household management!). The influence of wider societal attitudes cannot be ignored, such
as women traditionally being seen as the homemakers. However, a particularly relevant issue
with regard to management has been the different attributes and also values assigned to
the sexes. If it is thought that successful managers need to have certain attributes, but these
are only associated with males, then this can be used to justify male dominance in the field.
Examples of these include rationality, competition, control and self-assertion being
seen as male and positive for management potential. So-called ‘female values’ include
intuition, caring, emotion, acceptance, and co-operation, which some would not consider
suitable for the task of management.
However, much has been done to counter this view and to prevent discrimination again
women. The arguments put forward are that women can also have the same attributes
as men. Furthermore, those traits believed to be common in women can be seen as an
aid rather than a hindrance to successful management. An example of this would be co-
operation for good teamworking.
Despite changes in attitude and the law regarding women and work generally, when it
comes to management the concept of a ‘glass ceiling’ is used.
Have you heard this term before? Can you think what it could mean in the context of
women and management?
The idea here is that changes have resulted in women being able to enter organisations
and climb the hierarchy to a certain level. However, at a certain point on the hierarchy,
especially before the higher levels of management, they hit a ‘glass ceiling’: although they
can see above them, they are not able to progress further.
Although the progression for women to top management is easier in the twenty-first century,
it seems that there is still some way to go, and the situation is similar for other groups that
have been underrepresented in management, such as those from ethnic minorities. However, it
is also important to recognise that issues of this kind also vary in different parts of the world.
47
Example: cultural influence

Cultural influences are important for understanding types of management. We need to
recognise that these exist so that we avoid making inappropriate generalisations and
also avoid creating unhelpful stereotypes. Managers exist the world over, but in Chapter
1 of this guide we saw the importance of the historical context. It was mentioned that
business and management as a field of study have developed at varying rates and under
different influences, in different areas of the world.
We have looked at cultural factors in Chapter 2, and in Chapters 7 and 8 we consider the
international context of business. Here, it is appropriate to introduce the importance of
culture, specifically in relation to management.
Culture influences:
•• the types of people that are described as managers
•• the qualities valued in managers
•• the level and scope of managerial work
•• styles of management.
For instance:
•• in Malaysia, all administrative and managerial personnel are described as managers
•• in France, executives and professional employees are not included as managers
•• in South Korea, graduates recruited to white-collar jobs would be defined as
managers even though they would not be promoted to managerial work until
later in their career.
(Peterson, 1993)
How about in your country?
Activity 3.6
Think for a moment about management in your own country. Are there any cultural
influences on how management is defined or the type of people who are managers?
What about the historical context – how has this changed over time?
Ask yourself whether the ideas you have read about are relevant to your own culture, or
whether any of the theories would be inappropriate because they have been developed or
based on research done elsewhere in the world.
Having read this section, ask yourself if there is a simple answer to the questions:
•• What is a manager?
•• What makes a good manager?
Feedback
The answers seem to be complex and ambiguous. Even the definition of a manager
is partly determined by wider issues such as the cultural context. Therefore it can be
seen that the definition we began with is purposefully broad, so it can account for this
variation. Appreciating this complexity is an important step in your understanding of
business management.
3.3 What do managers do?

The definition of management that we have adopted for this unit (see
above and your glossary) gives us a broad understanding of the job of a
manager – to coordinate resources for the achievement of goals. But how
do managers do this? What activities are involved?
48
Looking back at the first reading in Activity 3.5 (Mullins, 2007, Chapter
11 ‘The role of the manager’, pp.428–35), see how Mullins defines
‘managerial roles’ and look also at the roles suggested by Mintzberg
(1990) in Figure11.6 on p.424. We will consider some of these roles next.
Writers vary in the roles they identify as managerial. For instance, one
approach to understanding the job of managers is to identify the major
types of activities they engage in. An example of this is provided by Gulick
and Urwick (1937) who, under the influence of the classical school,
developed the ideas of Henri Fayol. The main activities of a manager are
seen within this view to be:
• planning
• organising
• staffing
• directing
• coordinating
• reporting
• budgeting.
But how do these ideas translate into what a manager does from day to
day? What is involved in each activity and how much priority is it given?
Are these relevant to all types of managers?
Mintzberg’s ‘folklore and facts’ of management

Henry Mintzberg (1989) studied real managers at work and from his
findings he distinguishes the ‘folklore and facts’ of the manager’s job
(‘folklore’ means traditional beliefs).
Folklore Fact
1 The manager is a reflective, Study after study has shown that managers
systematic planner. work at an unrelenting pace, that their
activities are characterised by brevity, variety,
and discontinuity, and that they are strongly
oriented to action and dislike reflective
activities.
2 The effective manager has no regular In addition to handling exceptions,
duties to perform managerial work involves performing a
number of regular duties, including ritual and
ceremony, negotiations and processing of
soft information that links the organisation
with its environment.
3 The senior manager needs Managers strongly favour the oral media –
aggregated information, which a namely, telephone calls and meetings.
formal management information
system best provides.
4 Management is, or at least is The managers’ programmes – to schedule
quickly becoming, a science and a time, process information, make decisions,
profession. and so on – remain locked deep inside their
brains.
Table 3.1 Mintzberg’s ‘folklore and facts’ of management

Source: Mintzberg, 1989, pp.10–14
49
Lawrence’s results
Another piece of research done on this issue was a comparative study
between the work of managers in Germany and Britain. Lawrence (1984)
studied the daily activities of 16 German and 25 British general and
production managers in detail. He calculated the time given to different
activities to discover what managers really do.
Activity Percentage of manager’s time

German British
Attending regularly scheduled meetings 9.78 15.5
Attending irregular meetings 12.62 14.46
Ad hoc discussion 20.07 17.93
Being on the shop floor 16.87 17.35
On the telephone 10.56 7.23
Working in the office 11.56 11.16
Talking to researchers 10.45 13.08
Various other activities 8.02 4.08
Table 3.2 Lawrence’s results from his German-British comparison of managers’
use of time
Activity 3.7
Spend a few minutes looking at these results and think back to the subsection ‘Cultural
influences’ in Section 3.2 of this chapter of the guide.
•• 1. Are the results shown here consistent with cultural differences between
Germany and Britain?
•• 2. How about in your country? Think of another country and imagine making a
comparison, as Lawrence did between Germany and Britain. Suppose you com-
pared China and Russia, or Japan and Korea. Would you find differences in how
managers spend their time?
Feedback
The results do seem to support the idea that scheduling of formal meetings is more
common in Britain. However, it is also important to recognise that similarities do exist as
well, such as the time managers spend in their offices.
Comparing Lawrence and Mintzberg

Another point to be made is that research findings support the facts put
forward by Mintzberg to counter the ‘folklore’ of what managers do.
Look again at the four folklores of management in Table 3.1 and the
facts that Mintzberg offers to discredit these myths. Can you see how
the evidence presented by Lawrence can be used to support Mintzberg’s
claims? Think about this before reading on.
Remember, the skill of comparison is an important academic tool for evaluation. Consider
for a few minutes the folklore that managers need information via a formal management
information system. See what Mintzberg says, and then see if Lawrence’s results support
Mintzberg. Once you have tried this, read on.
Mintzberg suggests that the folklore is rejected in practice because
managers said they preferred oral methods of communication. This is also
50
supported by Lawrence’s results. Look at the high percentage of time that

managers spent on the phone. Also, look at the time they spent in ad hoc
(informal) talks.
See if you can continue this comparison yourself. Which other points made
by Mintzberg are supported by Lawrence’s research results?
The result of this discussion is that managers may in practice do different
things to what the theory states: the ‘roles’ of a manager may not be what
actually happens in practice. So how can we move forward in the light of
these results? One approach to come out of the research discussed is to
understand the work of managers by examining different managerial roles.
This is how Mintzberg deals with the problem, as Mullins (2007) explains
on pp.425–26, ‘Behaviour pattern of general managers’.
One role that the management literature has tended to emphasise is
the manager as someone who delegates to others. This is consistent
with research that has found managers overworked and with too many
responsibilities. Delegating refers to a manager passing on a task to a
subordinate, but with the manager retaining responsibility for the task being
done. Mullins deals with this at length in the text you read for Activity 3.4.
Summing up this section, when asking what managers do we have to be
clear about what type of manager we are discussing and we also need to
understand what they do not do – in other words, what they delegate.
Activity 3.8
Test the ideas of Fayol, Mintzberg and Lawrence. Study what a manager you know
actually does over a period of time, then complete Assignment 1 on p.435 of Mullins
(2007).
Next we consider some specific roles of a manager. However, as you

read on, it is important to remember that these roles are not set, are not
universal, and will need to be adapted for each particular type of manager
as well as situational differences.
3.4 Decision making and effectiveness

In Chapter 1 of this guide, decision making was introduced as a key
activity of managers and this is a theme that runs throughout the unit.
Decision making is very important, because it is not a separate role that
managers take on: it can actually be seen as integrated and essential to all
their roles and the activities involved with them.
Activity 3.9
Think, for a moment, about how many decisions you make in a day to ‘get things done’.
Jot them down.
Then think of the decisions you have already made about the next year, what you want to
achieve, decisions about your studies and career.
Just an ordinary day may involve decisions about what time to get up,
what to wear, what to eat, when to leave home, what to take with you,
how to travel, who to speak to, etc.
Most things we do involve making decisions and, as we have established,
the main job of a manager is to get things done – not only by his or her
own actions, but also by the co-ordination of the actions of others and of
all available resources.
51
Strategic decision making will be discussed in the next chapter of

the guide, and decisions are actually an integral part of the business
organisation, not only for managers. However, here we are focusing on
the role of the manager, and analysing the specific managerial roles of
planning, leading, motivating and controlling; it is important to focus on
the decision making involved in each of these.
Effective managers
To be effective means to be good at achieving your goals. It is important
to note that is not necessarily the same as being efficient. That means
achieving a high output per unit input. It is much easier to assess how
effective a manager is than to try to find out how efficient he or she is!
Making effective decisions is essential for effective management. This is
the topic of the next reading, which considers differences in managerial
behaviour and also how successful management can be measured. As we
have been establishing the complexity of management, involving many
different definitions, types and goals, then it is not surprising that what
constitutes effective management is also contested. However, for the
purpose of our understanding of the manager’s role, it is necessary to
understand what is expected of managers and also how their effectiveness
can be assessed.
Activity 3.10
Reading
Read the following chapter from your main key text:
•• Mullins (2007) Chapter 12 ‘Managerial behaviour and effectiveness’, pp.443–51;
‘Managerial style’ up to and including ‘The managerial/leadership grid’, pp.454–
63; ‘Management by objectives’ up to and including ‘Measures of effectiveness’,
pp.467–77; ‘The management of time’ up to the end of Chapter 12.
This chapter has a lot of material and covers many theories with several diagrams. You
should spend no more than three hours studying it. Concentrate on the passages that are
listed in the essential reading. Use the synopsis and review questions at the end of the
chapter in the book as a checklist. Also look at the learning objectives at the beginning.
The case studies presented give you a good idea of how to use the ideas in the chapter.
As you read, think about managers you have encountered – those you personally have
been managed by, others you have observed, and managers you have read or heard
about. Relate the style of these managers to what you read. Using what you read about
measuring effectiveness, write down which of the managers you know about, or have
experience of, was the best and which was the worst. Explain why.
Feedback
By the end of this activity you should be able to make a good argument about the ways
in which the behaviour of a manager determines how effective that manager is. It is
important, because ineffective managers can be trained to change their behaviour and
thus become more effective. It is also important to note that managers are also judged by
the results achieved by others; see the section on ‘Measures of effectiveness’ on p.462.
In the rest of this chapter we consider four managerial roles that are often
identified: planning, leading, motivating and controlling.
52
3.5 Planning role

Activity 3.11
Begin by reflecting on these questions for five minutes.
1. How do managers plan?
2. What decisions does this involve?
3. What needs to be planned?
Remember that management involves co-ordinating for the achievement of goals.
First, there is planning in the setting of goals. Managers at all levels need to
make decisions about the goals they need to achieve, or about setting the
goals that their subordinates should achieve. At the top and higher levels
of management these will involve decisions about the strategic goals and
direction of the business, but other levels of management will also make long-
term and short-term decisions about goals in their own area of responsibility.
The topic of goal setting will be revisited in Chapter 4 when we discuss
strategic decision making.
Once goals have been set, it is necessary to decide on a plan of action for
their successful achievement. This is where the co-ordination of resources
comes in – not only including the actions of others, but also the actions of
the manager as well.
A plan can be understood to be a formulated scheme of action designed
to get something done, and so planning is the process of developing this.
Approaches to planning vary immensely, but different models often have
some key elements in common.
Here are some possible stages involved in planning.
1. Setting the goal
2. Gathering information
3. Developing the actions necessary to achieve the goal
4. Setting targets to be reached on the way to achieving the goal
5. Measuring the achievement of the goal
6. Evaluation and reviewing the goal and the plan.
There are a number of important constraints to planning which managers
need to consider when developing a plan.
Think for a few minutes about what these constraints might be.
As stated in Stage 2 of the planning process, managers need information.

Think back to the developments in the history of the subject that came to
view the organisation as a complex open system; see ‘Incorporating the
human element’ in Chapter 1 of this guide where the need for information
flows is stressed.
Also, in relation to planning, managers need to consider the resources
available to contribute towards the achievement of the goal. In particular,
the cost of implementing a plan and the time involved are often the most
crucial constraints for developing the best scheme of action.
53
Therefore the planning role can be seen as central to the work of

managers. Managers plan at all levels, but it is often emphasised more at
the strategic level because it is at this level that management is concerned
with looking forward rather than concentrating on today’s problems (and
worrying about yesterday’s mistakes!).
On the other hand, remember what we found out earlier about managers
and their use of time. Maybe planning is important in theory but not in
practice. Maybe managers typically never have time to plan? What do you
think?
Boddy (2008) Chapter 6 ‘Planning’, listed under the further reading
section at the beginning of the chapter, provides a review of the planning
process.
Activity 3.12
It would be useful for you to talk to a manager. You may already know one, but if you do
not, there are several options available to you. Perhaps someone you know, a friend or
family member, could put you in touch with one. Think about the places that you have
worked or the places you have studied at. Otherwise it may be appropriate for you to
approach the manager of a shop or restaurant that you know well. Talking to a manager
now can provide another valuable perspective on what a manager is and what managers
actually do, and this will also give you an example of a manager in your own country.
1. Ask the manager to describe a typical day at work.
2. How does this description compare to the research done on how managers spend
their time?
3. Ask the manager what planning is involved in their job, what type of goals they
strive to achieve, and how they develop their plans to achieve them.
4. From the description of the manager’s day, can you see when they spend time
planning? If you cannot, ask them when they do their planning and how much
time they spend doing it.
Note that if you are unable to talk to a manager then it can be useful to consult the
biography of a manager from your country.
Finally, remember to add ‘planning’ to your glossary.
3.6 Leadership role

Activity 3.13
We began this chapter by making a distinction between a leader and a manager. See if
you can express this now – take a couple of minutes before reading on.
Feedback
A manager is involved in more than leading people because managers work to achieve
goals by the co-ordination of all resources, the actions of people being only one type of
resource.
Leadership can be understood as the influence needed to direct the actions of
subordinates in a common undertaking. Decisions within this role are mainly concerned
with choosing the most effective and appropriate type or style of leadership. Add this
definition to your glossary (and see also Mullins’ definition of leadership; you may want
to add this too).
54
Leaders come in all shapes and sizes. Some styles of leadership are listed
below.
As you read on, consider what sort of leadership styles you have in:
•• your country’s government
•• your present or past school, college or university
•• your family.
Approaches to leadership
Some theorists argue that leadership is an aspect of personality and cannot
be learned. Others argue that leadership can be learned. This leads to the
study of the relationships between leader and the led, and how leadership
styles can be adapted to different situations. Mullins (2007), Chapter 10
p.366 provides a helpful framework for the study of leadership. We will
look briefly at these approaches in the following pages. Leadership style is
often discussed and different models highlight different styles.
The broad classification of autocratic, democratic and laissez-faire is useful
to remember (see Mullins, 2007, Chapter, 10 p.371).
The differences in style are often analysed within a continuum that places
autocratic management at one end and democratic management at the
other.
Note again that decision making can be seen as the central issue, and the
issue of decision making can be used to explore styles of leadership on this
continuum.
Autocratic leadership
At this end of the spectrum the manager

makes all decisions
The manager suggests decisions and invites
comments, and then the manager decides
The manager asks for suggestions and then
makes a decision
Toward this end of the spectrum the manager
permits subordinates to make decisions within
set limits
Democratic leadership
Figure 3.2 The spectrum of leadership styles

You can see a similar representation on pp.372–74 of Mullins (2007),
although he emphasises power rather than decision making as the central
issue. Clearly the two are closely related. Look at Figure 10.4 on p.373.
Theories of leadership have strong links to the different stages of
development of management, which we discussed in Chapter 1.
55
Activity 3.14
Reading
Now read the following sections of your main key text:
•• M
ullins (2007) Chapter 10 ‘The nature of leadership’, pp.362–74, 376–77,
378–79, 381–86, 387–91.See the essential readings at beginning of this chapter
for the appropriate sections.
•• Read also Mullins (2007) Chapter12, pp.447–51, ‘The managerial leadership
grid’.
An alternative reading is Boddy (2008) Chapter 14 ‘Influence and power’, pp.454–69.
From your reading you will have a better understanding of the differences in approaches
to the study of leadership. Leadership is a process which involves the leader, the led and
the situation. The different approaches to leadership theory look at different elements.
Having read the above readings, and before reading further, write a quick summary of
the following approaches and in each case identify whether the leader, the led or the
situation is the focus of attention:
•• traits approach
•• behavioural approach
•• contingency approach.
Now read on.
Traits approach
Some of the early studies of leadership attempted to produce a profile of
personality characteristics of people who have leadership qualities. Early
researchers listed those characteristics to be found in recognised ‘good’
leaders. However, this approach proved to be not very reliable since there
were too many exceptions to the rule. It was felt that although certain traits
may be necessary in a leader, they were not sufficient for good leadership.
However, many organisations believe that certain types of people tend to
make better leaders/managers and attempt to isolate these people at the
recruitment stage with the aid of personality or psychometric tests.
Behavioural approach
In this approach it is the behaviour, not the personality, that is important.
This approach describes how the leader behaves in response to the
situation. For instance, should a manager act in a task-centred or employee-
centred manner to get the best out of subordinates? There is some
evidence that employee-centred (supportive) leadership style is related to:
subordinate satisfaction, lower turnover, absenteeism and grievance rates
(other things being equal) and less intergroup conflict. But note that some
people prefer to be managed in a directed and structured way.
There are various theories, some of which consider the two extremes:
authoritarian versus democratic styles. See Mullins (2007) Figure 10.3
on p.371 for examples. (See also Boddy, 2008, pp.462–66, ‘Behavioural
models’).
You have already read about the managerial/leadership grid in Mullins
(2007) Chapter 12, pp.447–51. (See also Boddy, 2008, pp.463–65.)
This was developed by Blake and Mouton (1985). The model identifies
the combinations of the measures of concern for production (initiating
structures) and concern for people (consideration). The various
56
combinations of styles are plotted on a two dimensional grid. Each style

is measured on a scale of one to nine. There are five basic models for
leadership. For instance, the combination (1,1), which indicates low
concern for production and low concern for people, demonstrates a style of
management which is minimal, provides little direction, with just enough
effort exerted to stay out of trouble (called impoverished style). The team
style (9,9), which is high on both scales, is deemed to be preferable.
Like the trait approach, the behavioural approach does not come up with
consistent findings. It proved to be more complex than just isolating a
set of desirable traits or behaviours for leaders. This led to a focusing on
situational influences.
Contingency approach
Different types of personality and behaviour are effective in different
situations. For example, if time pressure is tight, then task-centred leadership
is more effective. If jobs are intrinsically satisfying, the considerate style will
not make much difference. However, if the jobs are not intrinsically satisfying,
then the considerate style is likely to lead to more satisfaction. There are
several different models that demonstrate this approach. The essential reading
suggests you look at the Vroom and Yetton model and the Path-Goal model.
(See Mullins, 2007, pp.376–79; Boddy, 2008, pp.466–68.) Quickly look at the
other models mentioned to get a general view of the different ideas.
Vroom – Yetton model

This is sometimes known as the leader-participation model. There are
five leadership styles appropriate to different degrees of subordinate
involvement in decision making. This model argues against inflexibility of
leadership behaviour – the leader should adjust his/her behaviour to the
situation or task. The model is represented by a decision tree incorporating
seven contingencies and resulting in the appropriate style of leadership at
the end of each ‘branch’. This model has been tested by researchers with
encouraging results as to its validity. The model has been extended to
include twelve contingency variables and, although not having been tested
as extensively as the original, the revised version appears to provide a useful
set of guidelines to help managers choose the appropriate leadership style.
(If you are interested, see Mullins, 2007, p.377 for the revised version.)
Path – Goal model

The leaders’ style should be appropriate to needs of subordinates and
situation task characteristics. This theory suggests that the performance of
the subordinates is related to the extent to which their manager satisfies
their expectations. It describes four styles of management: achievement
oriented, directive, participative and supportive. The two contingency
variables are employee characteristics and task characteristics. The leader/
manager should clarify the path or means by which subordinates can
attain both high job satisfaction and high performance.
Other approaches to leadership
Action-centred leadership
This comes under the heading of the functional (or group approach). See
Mullins (2007), pp.368–69. The leader is concerned with three areas of
need within the work group: the need to achieve a common task, the need
for team maintenance, and the individual needs of the members of the
57
group. In order to be an effective leader, and to ensure that these needs are
met, Adair (1997) suggests that the manager needs to be aware of what
is going on the group, i.e. the group process, underlying behaviour and
content of discussion. Also the leader needs the understanding and skill to
determine when a particular action is required. This approach to leadership
has been used extensively in leadership training.
Transactional versus transformational leadership

There has been interest in differentiating transformational leaders from
transactional leaders. Very briefly, transactional leaders are those who
guide or motivate their followers in the direction of established goals by
clarifying role and task requirements, whereas transformational leaders
provide individualised consideration, intellectual stimulation and possess
charisma. (Since transformational leaders are considered to be charismatic
or inspirational, there is a certain overlap between this approach and
the next one.) Transactional and transformational leadership should not
be viewed as in opposition, rather that transformational qualities can be
built on to transactional qualities. Evidence suggests that transformational
leadership can be superior to transactional leadership.
Inspirational leadership
Studies of inspirational/charismatic leadership have often been concerned
with identifying characteristics of charismatic leaders. Characteristics
such as unconventional behaviour, having strong convictions about
their idealised goal or vision, environment sensitivity, etc. have been
highlighted.
Leadership and gender

There is no evidence to suppose that one sex is better at leadership than
another, but it has been noted that women tend to exhibit a different
style of leadership, very often more interactive in nature. As more women
reach top management positions, more evidence can be gathered on their
leadership style and effectiveness.
Leadership power
Power is central to the leadership process. The leader will have different
power bases, some which are given, e.g. legitimate; some which are as a
result of the leader’s personal characteristics, e.g. referent. The leader may
have one or more of the following power bases: legitimate, reward, expert,
coercive, referent, etc. The subordinates’ reaction to that power can range
from total commitment to active resistance.
Activity 3.15
Reading
The different forms of leadership power are considered in this reading:
•• Mullins (2007) Chapter 10, pp.388–89.
(Or alternatively, Boddy (2008) pp.469–78, ‘Sources of power to influence others’, ‘Using
positional power to influence others’ and ‘Influencing through networks’.)
As you read this, think of an organisation you are familiar with. Who holds the power?
What sort of power is it? What are your power bases?
You will meet the subject of power again when the controlling role is considered.
58
3.7 Motivating role

Activity 3.16
First add into your glossary a definition of ‘motivation’.
The role of a manager as a leader is closely related to their role as a motivator. Can you
think why? Once more, stop and consider for a few minutes before reading further.
Again, in this role the manager is concerned with the human aspect of
the resources available for achieving goals. Motivating people is about
generating enthusiasm and persistence in their actions. Leadership can
be done without this, but it can be argued that more effective leadership,
and so management, will involve taking the role of motivator, so goals will
be achieved more effectively. Theories of motivation again can be seen to
have roots in the various developments in business management literature.
Three of these are offered here as examples.
Activity 3.17
Reading
This reading will look at the concept of motivation, get an overview of the main theories,
and look at three specific theories:
•• Mullins (2007) Chapter 7 ‘Work motivation and job satisfaction’, pp.249–60, ‘The
meaning of motivation’, up to and including ‘Maslow’s hierarchy of needs theory’;
pp.261–63, Herzberg’s two-factor theory; pp.265–68, Vroom’s expectancy theory.
The rest of Chapter 7 explains a number of other motivation theories and looks at job
satisfaction. Skim this if you have time.
(An alternative reading is Boddy, 2008, Chapter 15 ‘Motivation’, pp.494–97, 500–02,
505–08 for discussion of the three models.)
The inherent differences between individuals means that what motivates

one person may not motivate another. Nowadays people are generally
better educated than they were 50 years ago and therefore have greater
expectations. They require more interesting and challenging work, and
managers who will make them feel valued, give them regular feedback
and rewards for increased performance. Managers who do not fulfil these
expectations will not get the best out of their staff.
The terms ‘motives’ and ‘motivation’ can be used in several contexts:
the goals that people have, e.g. status, power, friends etc.; the mental
processes that lead people to pursue those goals; the social processes
through which some individuals try to change the behaviour of others.
Motivation is important because:
• individual performance is a function of ability, motivation and
situational factors
• the less the workforce is motivated, the more controls management has
to exercise – and these can be self-defeating.
• the concept of motivation enables an individual to make causal
attributions and explain others’ behaviour to him/herself.
There have been attempts to explain how people are motivated, what
motivates them and their different attitudes to work. Motivation in the
workplace will be affected by many factors – the characteristics of the
59
organisation, the characteristics of the job and the characteristics of the

individual – all these factors interact with each other. There are several
different approaches to understanding motivation:
• Content approaches emphasise needs that motivate people.
• Process approaches emphasise workers making decisions based on
needs.
• Reinforcement approaches focus on how employees learn to behave.
You will have met the three models below as part of the essential reading
of this topic.
Maslow’s hierarchy of needs (1943)

This model has already been discussed in Chapter 1 – you should have
read about this in Activity 1.7. Go back and look at it again.
Herzberg’s two-factor model (1968)

Herzberg et al. (1959) offered a two-factor theory of motivation, where
research was done on what factors can affect job satisfaction levels. Two
categories were developed. The first set is called hygiene factors, which
are the elements needed to prevent dissatisfaction. They include salary,
security and supervision. The second set is called motivation factors, which
are the elements that affect satisfaction levels but that cannot lead to
dissatisfaction. These include recognition, responsibility and advancement.
Hygiene factors are seen to be the most crucial, but both types have to be
present together to motivate workers fully.
Activity 3.18
What stage of development, in the study of management, do you think influenced
Herzberg’s theory? Think about this for a moment.
Can you see similarities with the hierarchy of needs idea offered by Maslow? What
were the historical roots of that? You can trace this in Chapter 1 if necessary, because
recognising the links between these issues is very useful.
Expectancy theory
A different type of theory is offered by Vroom (1982): the expectancy
theory. This theory stresses that understanding how employees perceive
possible outcomes is vital for knowing how to motivate them. Vroom uses
the term ‘valence’ to describe what the employee anticipates will be the
satisfaction gained from the outcome of a particular action. Two categories
of outcomes are possible, either performance-related or need-related. The
theory suggests that motivational force results from the combination of
anticipated outcomes (performance and need-related) and the expectancy
the subordinate has that the predicted outcome will actually be realised.
Goldthorpe’s research
Another example is a theory developed from research on a particular
group of workers: manual employees in a car factory (Goldthorpe et al.,
1968). This was a classic sociological study of the workplace. The main
findings were that motivation could be influenced by factors outside of
work, so different workers will be motivated in different ways. This makes
the role of the manager as a motivator particularly difficult. However,
three main types of workers were described and could be identified as:
1. a
ffluent workers – instrumental in approach to work and so motivated
by money
60
2. p
rofessional workers – bureaucratic in approach and so motivated by
position
3. t raditional workers – feeling solidarity with each other; as a result they
are motivated by a sense of belonging.
It seems, then, that managers have again to make important decisions in
their role as motivators. They need to decide what type of workers they
are trying to motivate, what behaviour they are trying to motivate in these
workers, the most appropriate method of motivation and possibly the
outcomes that can be used to provide the motivation.
How would you motivate the telephonists in the next example?
Activity 3.19
Consider the following example and think how you would motivate staff in these
circumstances. Try to use one of the theories you have just read about.
Your company is a telephone answering service (a ‘call centre’) and operates from the
Indian city of Mumbai. Staff must answer problems about household equipment (vacuum
cleaners, gas boilers, kitchen appliances) from consumers in Texas. Staff members are
taught how to speak to and understand Texans. They know the sports results and weather
in Texas so they can chat in a friendly way. However, staff find the work too abstract and
unreal. Many move on to other jobs once their language skills are improved. The manager
needs to motivate staff to stay and work hard.
Feedback
To help you get started, you may find the following answer outline useful.
First, decide which theoretical model you want to use. Expectancy theory or Herzberg
are quite appealing for this problem. Your analysis of why staff become fed up will lead
to your recommendations. These may include a mixture of measures such as promotions
and bonuses for long-serving staff. Also, it might be worth developing social contacts that
help bring Texas ‘alive’ for the Mumbai staff (visits, special uniforms, TV and video links).
There might even be a scheme to lend long-serving staff money to buy an apartment; this
would certainly tie staff to the company. However, the opposite could be the case and
they might come to feel very secure and become lazy.
Look at the theories and see how they suggest one can motivate young, educated
employees that want independence, flexible working conditions and an interesting work
life. Maybe the company can decentralise management and have teams working on
specific products or in competition with each other.
The important thing is to decide on a theoretical framework and use that to analyse the
problem.
3.8 Controlling role

The final role to be considered is that of the manager as controller.
What do managers control? How do you think this relates to the other
roles we have discussed? Once more, take a few minutes to think about
these questions and then read on.
Managers are required to control the actions of individuals, but

management is also more than this. Our understanding of management
involves the co-ordination of all resources, and so the controlling role
involves how these resources, including but not only people, are used and
interact. Other areas of control include the plans developed to achieve
61
the goals and all delegated activities, for example budgetary control. The
stages involved in the controlling process can be perceived as follows:
1. Define the necessary standards or goal to be achieved.
2. Decide upon and implement a measure of outcomes.
3. Make an ongoing comparison of current activities with the standards
set.
4. Make changes to current behaviour if needed to ensure standard or
goal attained.
See Mullins (2007) p.680, for a more detailed discussion.
Activity 3.20
Reading
This final reading gives an overview of why it is important to have control in
organisations. We also look at the components of an effective control system. The issue of
power is considered again and there is an extensive discussion of delegation and why it is
so important for a manager to delegate effectively.
•• Mullins (2007) Chapter 18 ‘Organisational control and power’, pp.676–82, ‘The
controversial nature of control’, up to and including ‘Forms of control’; pp.687–
703, ‘Characteristics of an effective control system’, up to and including ‘The
concept of empowerment’.
An alternative reading for this topic can be found in Boddy (2008) Chapter 18
‘Performance measurement and control’, pp.598–616. You can read the remainder of the
chapter but do not spend much time on it.
As you read, think about the other roles of the manager that we have discussed and try
to draw connections between them. Keep in mind the manager that you met and what he
or she told you about their job. Could you identify the controlling activities in their work?
It can be seen that the controlling role of managers is interrelated with

others, such as planning and leading. Again, decision making is crucial to
this role, and is an integral part of each stage of the controlling process.
Therefore it is important to remember that the roles a manager takes on
cannot be seen in isolation, but are interconnected and overlap.
We also established that many different types of management exist, and
so it is necessary to recognise that the roles a manager has will depend on
what type of manager they are. The roles that have been discussed here
are only some possible ones, and offer one way of understanding what
managers do.
In reality we have learnt that the job of a manager can be very complex
and demanding, and can depend on external constraints.
Chapter review
Key points
• Research studies of actual managers suggest that what they spend time
doing in practice is different from what we expect a manager’s job to be
in theory.
• Many different types of manager exist and no one set of attributes can
be agreed on.
• No one set of attributes for a good manager has been agreed upon.
What is seen to make a good manager is dependent on the context, and
this can change over time.
62
• The work of a manager can be understood by investigating the various

overlapping and changing roles that a manager takes on.
• Theories of what managers should do often conflict with research into
what managers actually do.
• There are a number of theoretical approaches that contribute to our
understanding of how managers perform in all the roles they play, such
as planning, leading, motivating and controlling.
• Goal setting and decision making are central to the effective
performance of the manager.

• identify factors that contribute to differences between types of
management, the attributes valued in managers and the expectations
placed on the work of the manager
• understand the limits of management behaviour theories, and
appreciate the practical constraints that managers face in reality
• discuss the idea of managerial effectiveness and evaluate approaches to
measuring how successful a manager is
• identify the types of decisions relevant to the different areas of the
manager’s job
• develop further your skills of evaluation and comparison.

When considering these, remember the guidance given in the Introduction
about examination preparation. Each question can be answered fully in
approximately 45 minutes, under examination conditions.
1. (a) The jobs of individual managers will differ widely, even though they
all have to perform similar general activities. Discuss three factors that
will influence the nature of a manager’s job. Use examples to illustrate
your answer.
(b) One of the functions of management is that of planning. Describe
the stages a manager will go through when performing this function.
Illustrate with reference to a specific situation in the business context.
2. Discuss why decision making is central to the role of the manager.
Illustrate your answer by referring to at least two different types of
managers.
3. (a) Briefly discuss the purposes of management control in a work
organisation.
(b) Describe the essential elements in a management control system.
Illustrate your answer with practical examples.
4. (a) Discuss what measures you would use – both qualitative and
quantitative – to assess the effectiveness of a manager. Give reasons for
your choice of measures and illustrate with examples.
(b) Discuss how a manager’s job might change as s/he moves up the
career ladder. How might the changing demands present problems for
the manager?
63

2. Discuss why decision making is central to the role of the
manager. Illustrate your answer by referring to at least two dif-
ferent types of managers.
A brief introduction to the role of the manager and how this depends on
the type of manager would be a useful starting point.
Setting out the major roles a manager can play could be useful, although
it would be important to recognise that these roles cannot be strictly
separated, but can change from one manager to another and also relate to
what a manager is trying to achieve.
The managerial roles, and their dependence on the type of manager
we are discussing, could be demonstrated by introducing your example
managers at an early point.
It would be helpful to use examples of very different types of manager for
this illustration. The sorts of examples that would be relevant would be a
front-line manager in a fast-food outlet; the CEO of an airline company; or
a branch manager for a chain of tailors.
For each of your examples you could suggest the roles that would be
important, and the types of decisions that the manager would have to
make in these roles.
It could also be useful to consider how the constraints and the reality of
the manager’s job could affect their decision making, therefore recognising
the complexity involved in understanding the role of a manager.
64
Chapter 4: Theoretical approaches to strategic decision making and organisational change
Chapter 4: Theoretical approaches

to strategic decision making and
organisational change
Aims of the chapter

In particular this chapter aims to:
• consider decision making within a business
• look at business strategy
• see how decisions are made
• identify factors which contribute to the need for change
• explain ways of managing organisational change and the decisions
involved.
Learning objectives
• understand and evaluate different approaches to the process of making
decisions, particularly at the strategic level
• appreciate the importance of strategy and be aware of the decisions
involved in formulating a business strategy
• recognise the constraints placed on the manager during the decision
making process
• identify the different techniques used to support managers when making
decisions and developing strategy, and evaluate the usefulness of these
• recognise the importance of the business environment, as an
introduction to the third section of the unit
• understand different types of organisational change, and identify the
triggers which can generate the need for these
• evaluate different approaches to managing organisational change and
identify and explain techniques for overcoming resistance to change.
Essential reading
Two of the readings for this chapter are from the main key text, and two
readings from the secondary text are used for the subjects of decision
making and strategy.
Chapter 19 ‘Organisational development, culture and change’, pp.733–44,
‘The nature of organisational change’, up to and including ‘Overcoming
resistance to change’.
Chapter 20 ‘Organisational performance and effectiveness’, pp.761–66,
‘Total quality management’, and ‘Business process re-engineering’.
Daft, R.L. New Era of Management. (Mason, Ohio: South Western: Cengage, 2008).
Chapter 8 ‘Strategy formulation and implementation’.
Chapter 9 ‘Managerial decision making’
65
Further reading
The further reading for this chapter includes suggested book chapters and
some journal articles. Do remember that, as stated in the Introduction, you
are advised to refer to journals whenever possible. This is where up-to-
date research is reported, and they can also be a source of interesting case
studies. Four recommended journals were mentioned in the Introduction.
This is a good time to have a look at these if you have not already done so.
Chapters 7, 8 and 13.
Johnson, G., K. Scholes and R. Whittington Exploring Corporate Strategy.
(London: Prentice Hall, 2008) Chapters 1 and 14.
Miller, G. Managerial Dilemmas: The Political Economy of Hierarchy.
(Cambridge: Cambridge University Press, 1997) Introduction to Part Three
(pp.179–81) and Chapter 9 ‘The possibilities of co-operation’.
Needle, D. Business in Context: An Introduction to Business and its Environment.
(London: Business Press, 2004) Chapter 7 ‘Management Strategy’.
Nutt, P. ‘Decision-making success in public, private and third sector
organisations: Finding sector dependent best practice’, Journal of
Porter, M. ‘What is strategy?’, Harvard Business Review 74(3) 1996, pp.61–78.
Introduction
In Chapter 3 we looked at the role of the manager in business, including
analysis of the decisions that managers have to make in their various roles.
In this chapter we consider how management is shaped by a business’s
strategy and how the activities of managers shape strategy. This will
include exploring theoretical contributions to making strategic decisions
and understanding organisational change.
This chapter will cover:
• decision making
• strategy
• decision models and theories
• decision making tools and techniques
• organisational change and development
• the change process and managing resistance to change.
Do not rush this chapter. You should not be surprised if it takes you three
weeks of part-time study. If you hurry you may confuse the ideas presented
here. You will find, if you take them slowly, however, that they are logical
and can be understood and remembered satisfactorily.
4.1 Decision making in business

This section of the syllabus focuses on decision making, and this is a key
theme running throughout the unit. In the last chapter we considered the
different roles that managers play and decision making was found not
only to be a central role, but one that is part of every role the manager
plays. Chapter 5 will consider the different functional areas of the business
and the types of decisions involved in managing each of them. Therefore,
decision making is at the core of managing and central to the operations
of the business. Here we will consider decision making in more detail, and
this will then be related to the concept of strategy.
66
We start by returning to basics and the need to be clear about the terms
we are using. How would you define a decision? A decision is the product
of the decision making process, but what is decision making? For our
purpose it is most helpful to define decision making thus:
as the process whereby a course of action is chosen from a range
of possibilities, to achieve a specific purpose.
The decision, then, is the product of this process, the chosen outcome or
course of action.
Earlier we looked at individual managers, and identified two major
factors that affect their decision making: the roles they have and the
organisational environment. This latter point is very important to the
decision making process, and the third section of the unit looks at
environmental factors in greater detail.
In this chapter we are specifically interested in strategic decision making.
However, it is helpful to understand how this type of decision contributes
to the range of decisions needed within the organisation. Daft offers a
distinction between two main types of decisions:
Types of decisions
• Programmed decisions – these are made in response to a
situation that has occurred enough times to enable decision rules to
be developed. These decisions are frequently made by lower-level
managers. The problems to be solved are usually well-defined. Formal
rules and regulations would be consulted to enable managers to choose
the most appropriate course of action.
• Non-programmed decisions – these are made in response
to situations that can be unique, or poorly defined, and largely
unstructured. These decisions usually have important consequences for
the organisation. Creativity is needed to find the best solution to this
type of decision.
From the above it can be seen that different kinds of decisions can be
associated with different levels in the business organisation. For example,
programmed decisions are more likely to be made by lower-level managers
or line-managers, including non-managerial staff such as supervisors or
team leaders. In contrast, non-programmed decisions are more likely to
be made by higher levels or top management. Again, however, in some
organisations lower-level managers or other employees can sometimes be
invited to develop creative solutions to problems.
Activity 4.1
Try this exercise, but do not spend more than 15 minutes on it.
The following individuals all work at the same organisation, but at different levels. The
organisation is Lo Cost Ltd., a chain of supermarkets. Think about the job that each
employee does. What types of decisions would be involved in these jobs?
Write down two decisions that each of these employees might have to make. To get you
started, you have been provided with one example for each employee.
1. A supervisor for the checkouts in one branch of the supermarket (example: how
many tills should be open at once?)
2. The CEO of the company (example: should a new store be opened?)
3. A store manager who has responsibility for one particular branch (example: what
can my store do to improve sales?)
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Feedback
All these various decisions will require different approaches. However, several major
stages in the decision making process can be identified as relevant to most; they are set
out in the text below. As you evaluate each stage think about your example decisions and
how each would fit into this process.
Activity 4.2
Reading
•• Now read Daft (2008) Chapter 9, pp.272–75, ‘Types of decisions and problems’.
Make sure you understand what is meant by certainty, risk, uncertainty and
ambiguity in the context of decision making.
(An alternative source is Boddy, 2008, Chapter 7 ‘Decision making’, pp.215–21, ‘Types of
decisions’ and ‘Decision making conditions’.)
Stages in the decision making process

1. The decision maker needs to be consciously aware of the
situation. This involves understanding the factors that affect the
decision to be made, and recognising those elements which are out of
the control of the decision maker, such as the constraints placed on the
decision.
2. The decision maker needs to recognise the real problem.
Before being able to develop a solution it is important to study and
understand the problem fully, especially when multiple or complex
problems exist. The decision maker has to be sure to get to the central
issue and so make a decision that matches the real problem.
3. Information needs to be gathered and alternative solutions
developed. This is a key stage and is vital if the best decision is to be
made. Good communications are required to gather all the relevant
information. The search for alternatives involves generating as many
solutions as possible.
This was the subject of research by Nutt (2000), who studied how
a range of organisations developed alternative options as responses
to problems they faced. Different methods of generating alternatives
included benchmarking (exporting the practices of other individuals
and organisations), innovation (custom-made solutions), and existing
decisions. This investigation into the decision making process found
that private sector organisations make better decisions when innovative
alternatives are sought, but it was found that they are actually more
likely to use an existing solution.
Why do you think this might be? What could attract a manager to use
an existing solution that has been used before, rather than spend time
generating an innovative alternative? Could it be the pressure of work
and shortage of time?
4. The best solution is decided on. This decision comes out of
careful analysis of the alternatives that were generated and evaluation
of the relevant costs and benefits of each.
5. The decision is implemented. For successful implementation it is
necessary for the decision to be accepted by the organisation, because
decisions relate to a chosen course of action that often requires the co-
operation of others. Therefore communication may be important again,
for explaining the decision and the reason for it.
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6. The implemented decision needs to be monitored and

evaluated. This is particularly important for major decisions, where
the outcome has great significance for the organisation. It is also
especially important when situational factors are likely to change, and
so the most appropriate solution may change.
7. Any necessary changes or modifications need to be made.
Related to the above point, if the situation does change or it is found
that the best solution was not chosen, then the course of action
resulting from the original decision needs to be adapted, and this is
needed on an ongoing basis.
If you think back to the example decisions you wrote down earlier for
different levels of management, you should now see that big decisions
would go through these stages more systematically than other simpler
ones.
For example, think about the difference between a supervisor deciding
how many tills to open, and the CEO deciding whether to open a new
branch.
Spend a few minutes on this before reading further.
For the CEO, each stage would involve a great deal more work and the
implications of the decision are much greater. It is the decisions at the top
level of the organisation that we are most interested in for this chapter.
However, this general discussion of decision making should make it
possible for you to make comparisons with the other levels and types of
decisions necessary for the operation of a business.
Activity 4.3
Reading
See Daft (2008) Chapter 9, pp.281–86, for further discussion of this process.
(Boddy, 2008, Chapter 7, pp.208–15, ‘Tasks in making decisions’ also covers the topic.)
4.2 Theories and models for making decisions

We go on now to look at the theories and models that have been
developed to assist managers in making decisions at all levels. Many
different approaches have been developed and as technology also
advances, so do the aids available to support managers in their decision
making. Here we are able to introduce a selection of these, some of which
are developed in the essential reading. It is also possible that you will
investigate some of them in more detail in the other units that you study.
We will first look at some models of decision making, before moving on to
decision theory and game theory.
Rational model
The classical model of decision making is known as the rational model.
Within this, decision making is seen to be a rational and objective process
to achieve predictable results.
The decision maker would be seen to go through similar processes to those
we have outlined in the last sections. The rational decision maker would
identify the problem, generate possible solutions and then make the best
decision according to the information he or she has.
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Activity 4.4
1. What possible problems can you identify with the rational model of decision mak-
ing? Think about the assumptions that it makes about the situation, and make a
list of these.
2. What difficulties could there be in applying this model to the type of decisions
managers make in their daily work?
Look back at Chapter 3 and the difference between what managers should do in theory
and what they do in practice. Perhaps this applies here as well? Think about it for a
minute before reading the feedback to this activity.
Feedback
The rational model assumes that:
•• decision makers have the necessary information to generate possible alternative
options and to evaluate them
•• managers have time to gather this information and do this evaluation
•• managers are therefore trying for a condition of certainty
•• managers operate in a stable situation where the variables are not changing
•• goals of managers and the strategy they are working to are defined and agreed
•• decision makers make rational choices by selecting the option that will bring most
benefit.
Since it is difficult to use a rational model, the next question is - can you think of a
situation where a manager may not make a rational decision? What sort of factors could
influence a manager to make an irrational choice? Think about this. For instance, say a
manager has interviewed five candidates for a job. Now she has to make a decision. Think
about how she might make it, given that she cannot use the rational model. Reflect on
this for a few minutes before reading on.
Model of bounded rationality

The assumptions made by the rational model mean that in practice
it might only offer an ideal type, one to be striven for but usually
unobtainable because of the complexity. Herbert Simon (1992) was one of
the first to identify the problems with this model, and from these criticisms
developed the model of bounded rationality.
This approach recognises that in reality decisions are often made under
stressful and unstable conditions. Therefore, the potential for rationality is
‘bounded’ and constrained. It is suggested that managers make decisions
as best they can under the conditions they find. This may involve operating
with imperfect information. For example the idea of ‘hidden information’
(Arrow, 1985) is used to describe the situation when one party in a
potential transaction has more information, is thus better informed than
the other parties, and so is better able to make a decision.
The bounded rationality model states that decisions need to be made
within the constraints and pressures of organisational life, and so
managers have to make the decision ‘that will do’. The term used to
describe this is ‘satisficing’, the practice of choosing an option that may
not be the optimal solution, but one that does satisfy the minimum
requirements to achieve a goal or solve a problem.
Bounded rationality in practice

Can you think of a situation where a manager may make a decision under
less than perfect conditions and base his decision on satisficing?
70
One example could be when a manager has to decide whether to buy

a piece of new production machinery. If the item was at a significantly
reduced price for a limited amount of time, the manager would be under
pressure to decide this before it was possible to make full calculations as
to the return this could bring and the training needed. It is also impossible
for the manager to know whether more advanced machinery will be
available soon. Therefore the manager may gather information on the
price of similar machinery available now, contact the production and
finance departments for initial estimates of the possible return, and then
base a decision on this.
Think of your own example and identify the factors that would prevent
an optimal or fully ‘rational’ decision from being made.
What problems can you see with using the bounded rationality model
in practice? Think for a few minutes.
One of the major problems with the bounded rationality model is that it
can lead managers to make the easiest or first decision possible. It may
also result in managers continually using old decisions and applying them
to new situations if they know that the old decision would at least meet
the minimum requirements. A study of management decision making
by Nutt (2000) supports this view. One of the major reasons for this is
the desire to avoid risk, thereby limiting opportunities for creativity and
innovation.
Garbage can model

Another approach that recognises complexity and uncertainty is the
garbage can model (Cohen, March and Olsen, 1972). This is particularly
relevant to turbulent situations, and introduces the element of chance or
randomness. The organisation is seen to contain individuals, problems
and possible solutions, and opportunities to bring these together. To put
this more formally, there are four independent streams of activity, and it
is argued that decisions occur when these four streams meet. The four
streams are:
• choice opportunities – these are scheduled or unscheduled
meetings where it is expected that decisions will be made
• participants – people who have the opportunity to influence
decisions – they have different knowledge and experiences which may
contribute to solutions of problems
• problems – possibly a result of a performance gap – these require
attention
• solutions – these are separate from the problems that they may
eventually solve – answers looking for questions.
The choice opportunities act as a ‘garbage can’ for the other three
constituents: participants, problems and solutions. A particular
combination of these three constituents might produce a decision that
will deal with the problem. The results may involve radical and creative
decisions.
In Figure 4.1 it can be seen that individuals, problems and solutions
are present and exist independently. The managers’ role is to link them
together to create solutions. This action is represented by the arrows.
In the example shown, a manager has found a solution to Problem 3 by
linking the problem with Individual 1.
71
Individual 1 Problem 1
Problem 2
Solution 1
Problem 3
Individuals 2,3,4
Individual 5
Solution 2 Problem 4
MANAGER
Figure 4.1 How a manager finds a solution within an organisation
Political model
This model describes the decision making process in terms of particular
interests and objectives of powerful stakeholders. Internal and external
stakeholders use their power to influence the different stages in the
process (e.g. define problems for their own advantage and set their
own objectives). Stakeholders often distort and selectively withhold
information to further their own interests. Within the organisation
different departments will have different goals which will affect their
decisions. Similarly, external stakeholders will have their own agendas.
Managers often have to form alliances, or coalitions, in order to gain
support for a particular decision.
Activity 4.5
Reading
See Daft (2008) Chapter 9, pp.275–81, the section ‘Decision making models’. You will
find more discussion of the rational, bounded rationality and political models.
(Boddy, 2008, Chapter 7, pp.221–27, the section ‘Decision making models’, also
discusses these models and includes the garbage can model.)
Understand and evaluate these models. To what extent can they help the manager to
make decisions in practice?
Decision theory
As we have already noted, managers are often charged with the
responsibility of making complex decisions. Decision theory, which we
introduce here, is one way of analysing decision situations and is mainly
used for situations in which there is one decision maker. Game theory,
which we look at next, extends the idea of decision theory to situations
where two or more decision makers interact.
The decision maker faces a series of options, each of which leads to payoffs
with certain (subjective) probabilities. Decision theory can sometimes help
managers to clarify the situation and decide upon an optimal course of
action.
We start by analysing a simple decision.
72
The issues involved are best understood in terms of what is called a

decision tree which contains the main constituents of the problem.
These are:
• the decisions
• the sources of uncertainty
• the pay offs; namely, the results of each possible combination of
probabilistic outcomes and decisions.
The basic idea is to:
• construct a decision tree
• attach some value (payoff) to the ‘outcomes’ indicated by the decision
tree
• estimate the best (expected) outcome.
A decision tree is best introduced by an elementary example, as shown in
Figure 4.2.
Payoffs of actions
0.25 10
Action 1 7.0 0.50 5
0.25 8
7.0
0.25 10
Action 2 2.0
0.25 4
0.25 –2
0.25 –4
Figure 4.2 Decision tree

The decision maker must choose between Action 1 and Action 2.
Some conventions
This shape is called a decision (or action) node:
This shape is called a probability node:
Lines (arcs) from action nodes are actions available at that node. Lines
(arcs) from probability nodes are beliefs by the decision makers about the
probability of outcomes. They sum to unity at each node. Outcomes are
exclusive. Payoffs are the monetary values of the actions to the decision
maker.
The probability nodes are labelled with the respective expected payoffs
(see below). Note – the payoffs are those which the decision maker
attaches. Another decision maker may have different payoffs. In more
advanced theory, payoffs are often measured in terms of utility.
The probabilities may be objective or the subjective estimates of the
particular decision maker.
The question that now arises is this:
a. Which should the decision maker choose (normative theory)?
b. Which will the decision maker choose (positive theory)?
73
If the decision maker is rational, a) and b) should be the same.

Use the expected value theory as follows:
Expected value of Action 1
= (0.25)(10) + (0.50)(5) + (0.25)(8) = 7.0
Expected value of Action 2
= (0.25)(10) + (0.25)(4) – (0.25)(2) – (0.25)(4) = 2.0
The decision maker will/should choose Action 1: that is, maximise
expected payoff.
Note:
• Could have many actions at the decision node
• Two or more actions may have equal expected value (then indifferent
between them)
• The probabilities might be subjective, estimates then maximise
subjective payoff (sometimes called decision making under
uncertainty).
Some assumptions
• The decision maker ‘knows’ the tree (even if only subjectively).
• The decision maker ‘knows’ the payoffs.
Some points to note

These are large assumptions, but trying to analyse a decision by trying to
construct the tree is often useful. This might show value where there is
complete uncertainty (i.e. can’t decide upon probability numbers).
Decision making under certainty is a special case where the probability
number from the node is unity on a single arc.
You should get into the habit of trying to construct decision trees. They are
a useful way of presenting possibilities when analysing problems.
Decision trees may have a number of decision nodes. Finding the optimal
solution is slightly more complicated but not too difficult. Starting at the
end of the tree, work backwards. Label the nodes in the following way: at
the probability node, calculate the expected payoff using the probabilities
given on the arcs leading from that node. This expected value becomes
the label for the probability node. At a decision node to the left of the
probability nodes under consideration, select the maximum value of the
labels of the probability nodes. The maximum becomes the label for that
decision node. The decision which generates this maximum is the optimal
decision at that node. Repeat that procedure until you reach the starting
node (moving to the left across the page). The label at the starting node
is the expected payoff obtained when the optimal decisions are taken.
Consider the example below and try to construct the tree without looking
at Figure 4.3.
Example
Suppose the Chief Executive of an oil company must decide two things:
•• first, whether or not to drill a site for oil
•• secondly, if the company does go ahead, how deep it should drill.
It costs £160,000 to drill the first 3000 feet and there is a 0.4 chance of striking oil. If
oil is struck, the profit (net of drilling expenses) is £600,000. If she does not strike oil,
the executive can drill 2000 feet deeper at an additional cost of £90,000. Her chance
74
of finding oil between 3000 and 5000 feet is 0.2 and her net profit (after all drilling
costs) from a strike at this depth is £400,000. What action should the executive take to
maximise her expected profit?
400
0.4 oil 600 0.2 oil
168 -120
Drill
0.6 no oil
Drill 3000 ft 0.8 no oil

-120
168
5000 ft - 250
Don’t drill
Don’t drill
-160
Figure 4.3 Oil exploration

Looking at the decision tree, and working from left to right, you can see
that the optimal solution is to drill to 5000ft (if oil not found at 3000ft).
Game theory model

Other theoretical approaches relate to more specific situations and
decisions, rather than applying generally to the process of decision
making. One of these is game theory. This is useful for approaching
decisions in management that involve two or more parties. It can be
particularly relevant to decisions involving competitors – other companies
who wish to trade in similar goods and services to similar customers.
To place this theory in its historical context, Neumann and Morgenstern
(1947) put forward a theory of zero-sum games and non-zero-sum games.
In a zero-sum game, a gain by one party will result in a loss being
incurred by another party.
In a non-zero-sum game, it may be possible for the parties to co-
operate to increase the benefits to all.
However, within this type of game, making decisions about co-operation
is difficult because it is unclear whether competitors will actually co-
operate and to what extent. Therefore trying to predict the decisions of
competitors becomes important. Study and repetitive research into such
games has produced ideas about how participants may behave. One of the
best known examples is the prisoner’s dilemma which we will look at later.
But first we must look at some of the definitions and assumptions in game
theory.
Game theory is the study of how decisions interact and is a means of
analysing human (and animal) behaviour in the social sciences, politics,
biology and, most importantly, economics. Those of you who go on to
study the Managerial Economics unit will realise how game theory is
one of the main tools used by economists today. Game theory is useful
for dealing with situations where outcomes depend on the interaction
of individuals, rather than decisions taken independently. The decision
making can be said to be strategically interdependent.
75
By strategically interdependent we mean:

• the outcomes of one player’s decisions are dependent upon the
decisions of other players and vice versa
• therefore, players need to take account of others’ decisions in making
their own decisions if they have an interest in the outcomes and are to
influence them accordingly.
Definition of a game
In defining the game, we must identify:
• players (individual/collective), at least two, who are characterised by a
particular objective function such as, for example, profit maximisation
• actions available to each player under all circumstances – if you do not
know what all the possible actions are then you cannot specify what
can happen in the game
• strategies of the players, which are action profiles for each player
conditional on the actions chosen by the other players
• outcomes which are the end results of all possible combinations of
actions
• payoffs to each player, given the set of actions chosen by all players in
the game – payoffs are the rewards that the players derive from their
participation in the game – in business this is usually monetary profit –
but it need not be so.
These will become clear as we proceed.
Some basic distinctions in game theory

There are two branches of game theory, co-operative and non-cooperative:
• co-operative theory assumes that communication and binding
(enforceable) agreements can be secured between players, everyone
shares the same objectives and is interested in the collective good –
coalitions or groups of players are analysed
• non-co-operative theory makes no such assumptions – it is
concerned with situations where individuals are assumed to have self-
interested motives.
Those of you who have chosen to study 28 Managerial economics will
be mainly concerned with the application of non-co-operative games.
One-shot and repeated games:
• in the one-shot situation a game is played once.
• in repeated games they are played more than once – perhaps an
indefinite number of times.
We shall, in this introduction, only consider one-shot situations, though
repeated games are very central to management theory. You might refer to
any introduction to game theory if you want to take things further.
Assumptions of rationality
Game theory usually starts by assuming rationality. By this is meant:
• players maximise expected return (utility)
• players assume others playing are also rational
• players assume that others assume they are rational, and so on.
76
Equilibrium
The object in game theory is usually to identify equilibrium outcomes to
particular games. An equilibrium is a proposed solution of a game – it is
a combination of strategies that are believed most likely – so, in fact, they
are predictions. It is useful if we can identify a small number of equilibria
for all the possible outcomes – ideally we would like to find a unique
equilibrium. We could then use it as a prediction of what would happen if
the game was in fact played. There are several different types of equilibria
in game theory. We will be looking at three, namely the Dominant Strategy
Equilibrium, the Nash Equilibrium and the Pareto Equilibrium. These
equilibria will be explained as we meet them in the examples.
Structure of the game

There are two alternative ways of depicting the structure of a game:
• games in extensive form
• games in normal (or strategic) form.
Extensive-form games
We start by introducing the basic ideas of games in extensive form. They
are best introduced by elementary examples. Consider first a situation
where two players, P and A, decide upon a joint venture. Each has two
possible actions (moves):
1. to co-operate (involving costs)
2. to slack (reducing costs).
We can model an interdependent decision tree as shown in Figure 4.4:
Outcome
c
Both co-operate
A
c
P co-operates
s A slacks
P
s c A co-operates
P slacks
s Both slack
Figure 4.4 Interdependent decision tree

As the model stands, however, we can make no predictions without some
idea of the preferences of P and A over outcomes.
The tree is almost self-explanatory. P is described as the first mover and
A as the second mover. Games could be much more complicated with
repeated moves and, indeed, more than two players. In this simple model
both P and A have two possible actions (s and c each). It should be clear to
you that players could have any number of actions and, indeed, different
sorts of actions.
77
The tree gives, as it were, the logically possible combinations of actions

and the outcomes are described here in an obvious manner; they derive
from tracing the ‘path’ through the tree.
So we now assume, not unreasonably, that the outcomes are valued as
follows (payoffs).
P A
c
3 3
c A
s 1 4
P
c
4 1
s
A
2 2
4>3>2>1 s
Figure 4.5 Game 1

This is the same game as in Figure 4.4 except that the ranking of the
outcomes for both P and A are now included. So, for instance, P’s best
outcome (scored 4) is for her to slack and for A to co-operate. This is
known as a non-zero sum (or variable sum) game because the
payoffs for any outcome are not such that the gain of one player is the loss
of the other (we assume for this idea that the numbers not only rank the
outcomes but can be added and subtracted).
The question now is, what will happen in this simple situation? The basic
idea is to think forwards, reason backwards, although this does not always
work.
Now A will choose s whichever node he is at. This is because s is known as
a dominant strategy for A, being the choice at both nodes. (When all
players have a dominant strategy, this is said to be a Dominant Strategy
Equilibrium.)
P will then choose s because 2 > 1.
ss is what is termed the Nash Equilibrium. It is the prediction of what
rational decision makers will choose. P can think ahead and note that A
will choose s, and she will thus also choose s.
A Nash Equilibrium is a combination of strategies (one for each player)
which has the property that no player has an incentive to choose another
strategy if the other players also choose their Nash strategies. This
game has one unique Nash Equilibrium (both slack). Note that the cc
combination could make both players ‘better off’. Both would acquire 3
rather that 2 units of value. cc is the Pareto Equilibrium, though ss is
the Nash Equilibrium. Much of management theory is concerned with how
to move interactions from the Nash to the Pareto Equilibrium. A Pareto
Improvement is a change that makes at least one individual better off
without making the other individual worse off. We reach Pareto efficiency
when no further Pareto improvements can be made.
78
This game has a number of noteworthy characteristics.

1. It is a game of complete information. Roughly speaking, this means
that both players know the structure of the game (the tree) and each
other’s payoffs. Imagine what might happen if the players did not know
each other’s payoffs!
2. It is a game of perfect information. This means that the players
know what choices have been taken in the past (the history of the
game). So A knows whether P has chosen c or s. Note that if P (by
mistake, shall we say) chose c, then A would still choose s (and receive
4 units of value).
3. You should satisfy yourself that the same outcome (Nash Equilibrium)
will result if A is the first mover rather than P. There is no first mover
advantage.
Now consider what might happen if the ranking (value) of the outcomes
changed as shown in Figure 4.6.
P A
c
3 3
A
c
2 4
s
P
c 4 2
s
A
4>3>2>1 s 1 1
Figure 4.6 Game 2

What will happen now? You should think forwards, reason backwards.
A will choose s at upper node and c at lower node.
P will anticipate this and choose s.
(s,c) is the Nash Equilibrium.
If A moved first, he would get the 2,4 result.
There is first mover advantage.
Again, this is a game of:
• complete information
• perfect information.
We will now consider games with imperfect information.
79
P A
A 3 3
s 1 4
P
s c
4 1 A
s 2 2
Figure 4.7 Revert to Game 1 (Game 1a)

You should now note the dashed line (called information set). This is a
convention which indicates that A does not know the history of the game
(whether P has chosen c or s). Alternatively, A and P may decide at the
same time.
What will happen now?
• A will still choose s.
• P will still choose s.
We obtain the same result as before (the ss Nash Equilibrium).
This, however, is not always true. You might consider Game 2 with
imperfect information.
Games in strategic form

We now turn to the definition of games in normal or strategic form.
Consider Game 1a. Both P and A have two strategies, c and s.
The normal form is a matrix as follows:
A
c s
c 3,3 1,4
P
s 4,1 2,2
Here the rows represent the strategies of P and the columns those of A. In
each cell of the matrix the first number (by convention) is the payoff of the
row player and the second that of the column player. You should be able to
see how to move from the extensive form of Game 1a to the normal form.
We know, of course, that the Nash Equilibrium is at ss (the bottom right
hand corner of the matrix).
You can find the Nash Equilibrium in the normal form as follows:
• if A chooses c, then P will choose s (4 > 3)
• if A chooses s, then P will choose s (2 > 1).
Now:
• if P chooses c, then A will choose s (4 > 3)
• if P chooses s, then A will choose s (2 > 1).
Then ss is the Nash Equilibrium.
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Now consider Game 1 again (perfect information). A strategy in a game

for a given player is a complete specification of what he or she may do
under all possible circumstances.
In Game 1, P has two strategies, c and s respectively. A, however, has four
strategies:
• c if P does c and c if P does s, cc
• s if P does c and c if P does s, sc
• c if P does c and s if P does s, cs
• s if P does c and s if P does s, ss.
The game in normal form is given by:
A
cc sc cs ss
c 3,3 1,4 3,3 1,4
P
s 4,1 4,1 2,2 2,2
The prisoner’s dilemma

This is a common example of game theory and describes a game or
situation in which to act in self-interest will have negative results for both
parties, whereas to co-operate can have positive results for both.
This dilemma arises from two criminals being arrested. They are
held separately and have no way of communicating with each other.
When questioned they have several options which all have differing
consequences. If one of them were to confess then the other would receive
severe punishment. If neither confessed they could both be set free. The
dilemma, therefore, is based on whether to hope that you will both say
nothing or whether it would be best to confess before the other does and
so receive less punishment.
Can you see how this could relate to decision making within a business
context? You might need a paper and pencil to think up a scenario -
though do not spend too long on this.
One possible situation could be if a company (Business A) was deciding

whether to update an existing product with the latest technological
innovation – say a new car engine that uses a new type of fuel instead
of petrol. This could be costly. Let us say that Business A has one major
competitor, Business B. The options available are as follows:
1. Business A updates to new type of fuel and Business B does not
2. Business A does not update but Business B does
3. Both Business A and B update to new type of fuel
4. Neither Business A nor Business B updates.
The first three options would involve one or both businesses incurring the
cost of updating. The first two options have the risk for each business of
losing customers by becoming uncompetitive in comparison to the rival
who updates when they do not.
However, the final option could be beneficial to both Business A and
Business B, since no costs would be incurred and their competitive status
would remain the same.
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The next question is: would either business be prepared to trust the other
and co-operate to achieve this benefit? If this did happen, how long would
the co-operation last for?
Clearly, risk and trust are important factors when analysing business
decisions using game theory. We will return to game theory after looking
at the topic of strategy.
4.3 Strategy
Activity 4.6
In Chapter 3 Activity 3.1 we looked briefly at goal setting and noted that we would return
to the subject more fully later in the unit.
Reading
Now look more closely at:
•• Mullins (2007) Chapter 14 ‘Organisational strategy, ethics and responsibilities’,
pp.528–41.
This covers the topic of setting goals. Read these pages more slowly now, because goal
setting is a crucial step in designing a strategy.
(An alternative reading is Boddy, 2008, Chapter 6 ‘Planning’, pp.194–98, ‘Developing a
mission and goals’.)
Defining the term ‘strategy’ is difficult – it is another one used differently

by different people. We are specifically interested in business strategy, and
some common characteristics can be drawn out from most definitions.
These would include that a strategy is concerned with the long-term
operations of the business and that it is significant for the whole
organisation. One definition put forward is that a business strategy is:
the pattern or plan that integrates an organisation’s major goals,
policies, and action sequences into a cohesive whole.
(Mintzberg et al., 1996, p.3)
If you are not quite clear on strategy yet, test yourself with the following
short activity.
Activity 4.7
Look at these four statements and in each case say whether they are true or false.
1. An objective is a way of achieving a strategy.
2. Planning comes first, then you decide on your strategy.
3. You can have a strategy without having any goals.
4. A good strategy is an end in itself.
Give yourself a few minutes to answer these before looking at the feedback!
Feedback
All the statements are false. Come back to this question at the end of this chapter and
make sure you can see why.
What does our definition of strategy have in common with our

understanding of management? Well, both involve goals although, at the
strategic level, goals are set for the whole of the organisation rather than
for one section or for one particular project. Strategic goals are those that
are used to direct the organisation.
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Mission statement
One way of explaining and communicating these strategic goals is within
a corporate mission statement. An organisation’s mission statement is a
general declaration of the overarching purpose of the business, and is
closely related to the culture of the organisation, which we will discuss in
Chapter 6.
Activity 4.8
Think of the different organisations that you have belonged to, perhaps places where you
have worked or studied or places where you are a member, such as a bank or library.
1. Are you aware whether any of these organisations have mission statements? If
so, where did you see the statements displayed?
2. For those organisations that did not have statements, what do you think these
might have been? Write a short mission statement for one of those organisations.
The mission statement should offer managers and all employees a guide
to the organisation’s values and aims, to help the decision making process.
Strategic decisions, then, are those that contribute to achieving the
organisation’s mission.
Porter (1996), however, points to a change in approaches to strategy as
managers have come to recognise that no single ‘best’ strategy necessarily
exists. An alternative view is that an optimal strategy can be different for
all organisations, and depends on certain contingencies. Can you recognise
links here to broader trends in management theory?
Formulating strategy
To recap, we know that strategy is related to achieving the organisation’s
mission. We also know that the strategy should have significant impact on
the organisation and that it should be concerned with the long term. But
how is the strategy formulated? What process does this involve?
Think for a few minutes, then read on.
The formulation of a business strategy is similar to that of the general

decision making process. Several stages are usually involved, although –
again – this will be adapted to each organisation’s needs. These stages can
be explained as follows.
1. Strategy makers first need to be aware of the current
situation of the organisation as well as the external
environment. They will evaluate the organisation’s current position
with respect to mission, goals and strategies. These may have to be
redefined. Several tools are available to help managers carry out
this sort of situational analysis and these will be detailed later in this
chapter.
2. All possible strategies need to be identified and then
evaluated. This will involve considering the likely results of each
strategy and linking them with the mission of the organisation. Again,
models exist for aiding evaluation of these and will be looked at later.
3. The best strategy then has to be chosen. In making this decision
the strategy makers will again need to refer to the organisation’s
mission and will need to be confident that this strategy will satisfy the
main goals of the business.
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4. A plan of action needs to be devised to implement the

strategy. This will involve setting targets or objectives to indicate
measurable results achievable along the way. This stage could also
involve the creation of specific organisational policies in keeping with
the strategy, to integrate the mission with the operational activities of
the organisation. An important part of the implementation also involves
communicating the strategy to all parts of the organisation, to ensure
that goal setting and decision making at all levels can be done in line
with the corporate strategy.
5. The final stage is continual, involving the monitoring and adapting
of the strategy. Once the strategy is designed and implemented,
it has to be adapted and amended in accordance with changing
organisational variables. Porter (1996, p.78) defined this as ‘strategic
continuity’ and stressed that continual improvement in efficiency is
not an alternative to strategic continuity, but strategic continuity will
actually ‘make an organisation’s continual improvement more effective’.
Strategic decision making – an ongoing process

Once a business strategy has been defined, its continual application
involves decisions being made on an ongoing basis at the strategic level.
These decisions, like the overall strategy, involve the long-term operations
of the business and are significant for the whole organisation. Johnson
et al. (2008) describe the characteristics that are often associated with
strategic decisions:
• Strategic decisions are likely to be concerned with or affect the long-
term direction of an organisation.
• Strategic decisions are normally about trying to achieve some
advantage for the organisation, e.g. over competition.
• Strategic decisions are likely to be concerned with the scope of
an organisation’s activities: does (and should) the organisation
concentrate on one area of activity or should it have many?
• Strategy can be seen as the matching of the activities of an organisation
to the environment in which it operates.
• However, strategy can also be seen as building on or ‘stretching’ an
organisation’s resources and competences to create opportunities or to
capitalise on them.
• Strategies may require major resource changes for an organisation.
• Strategic decisions are therefore likely to affect operational decisions.
• An organisation’s strategy is affected not only by environmental forces
and resource availability, but also by the values and expectations of
those that have power in and around the organisation.
Activity 4.9
You do not need to complete this activity all at once: you may find it more useful to
spread it over a week or so.
Gather together at least three examples of a corporate mission statement. These can
be found in corporate literature, such as annual reports, or they may be displayed in
the premises of organisations or on their websites (a listing and links to many large
corporations can be found at www.fortune.com).
1. What similarities can you identify between these statements and what differences?
2. Choose one of the mission statements. Look back to the stages in formulating a
strategy, and write down the types of options that may be suitable for achieving
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the mission of that organisation. Evaluate the alternative strategies you have
developed. Which option do you think you would choose and why?
3. If your chosen strategy was implemented, what impact could this have on the
future strategic decisions that top management could have to make? For
example, if the opportunity arose to buy a smaller company working in a similar
area, would your strategy help to guide the decision makers or indicate the main
factors to be considered?
We have now considered decision making and particularly how this

relates to the overall mission of the organisation. This mission is a strong
determining factor for the formulation of the business strategy, which
further determines and guides the strategic decisions that need to be made
by top management on a continual basis.
Using game theory in strategic decision making

Activity 4.10
Can you identify any problems with the application of game theory to strategic decision
making?
Think back to your evaluation of the classical and bounded rationality models: are any of
the problems with those approaches relevant here?
How helpful do you think game theory could be to a manager facing a dilemma, and in
what sort of situation do you think it could be most useful?
Feedback
Game theory is applicable to certain situations, but only where two or more parties will
be in conflict of some sort, and as we discussed earlier, rational behaviour is assumed.
Decisions are based on predictions of how the opponent or competitor will behave, and
these predictions will be dependent on the evaluation of possible options and outcomes for
each party – assuming that each will choose the rational choice to bring optimal benefit.
Therefore, some of the limitations of the rational model of decision making are relevant.
For example, managers will not always have the time or information to develop
predictions of competitor behaviour.
Despite this, game theory does offer a useful approach to understanding organisational
decisions within a competitive environment. This is not only relevant externally with other
businesses, but can also be applicable within an organisation.
For example, Miller (1997) demonstrates how the study of game theory can also be useful
for making decisions about incentive schemes for employees. If a work group is offered a
reward for increased team effort, then each worker has to consider the likelihood of the
other team members working harder to earn the reward.
If an individual is the only one in the group to work harder, so that the group as a whole
does not improve much and they fail to gain the reward, the individual’s extra effort was
wasted.
On the other hand, if the team co-operates and all members work harder and are
rewarded, then they all benefit. It follows that the greater the expectancy of group
members that everyone will work harder – and therefore the greater the probability of
winning the reward – the more likely it is that each individual will work harder. This is an
example of expectancy theory (Vroom’s expectancy theory) and an important approach to
motivating staff. For more on this, see Mullins (2007) pp.266–68.(See also Boddy (2008)
pp.505–08).
For a further description of game theory in relation to business decisions, see Miller
(1997).
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4.4 Analysing the environment

An important part of the process of formulating a strategy is to assess the
internal and external factors that will affect the organisation’s situation.
There are aids (also called tools or techniques) to help managers to do
this. As technology has evolved, more statistical decision making models
have become available as risk analysis can be done via increasingly
sophisticated programming. Some of these contributions assist with the
gathering of information, some with analysis of information to generate
possible decisions, and some with the prediction of outcomes to help select
the most appropriate decision.
SWOT
SWOT analysis is a simple tool, much used to gather information on the
current situation of an organisation. You can read more about SWOT on
p.541 in Mullins, which was part of your reading for Chapter 3.
Different elements of the situation are evaluated within the categories
of strengths, weaknesses, opportunities and threats. It is important to
consider only the major elements within each category, otherwise the tool
is less useful for deciding what strategy can be matched to the needs of the
situation. These elements are represented on a chart such as Figure 4.5.
Strengths Opportunities
Weaknesses Threats
Figure 4.8 SWOT analysis

Have a look at the example in Mullins for a completed SWOT.
You can set out the four components how you wish. Here the positive
factors (S, O) are across the top and the negative factors (W, T) are across
the bottom. Note also that here the factors internal to the organisation
(and therefore under its control) are on the left-hand side (S, W) whilst the
external factors (outside the organisation’s control) are on the right-hand
side (O, T).
Can you see how this grouping of the four headings helps frame a
discussion about strategic direction? Think for a few minutes before
reading on.
It helps two approaches to formulating strategy. The first approach is to

consider the business and what it can offer (S, W) and then look at the
external environment (Chapter 7 of this guide) to see what a strategy can
target (O, T). This is sometimes called an ‘inside–outside’ approach to
strategic thinking. You can see what an ‘outside–inside’ approach would
be, though it is less common.
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Are the factors static or changeable? Think how you can use SWOT as a
dynamic tool to help strategic thinking.
They are changeable. First the factors are all changeable. Secondly,
once factors have been identified, good management will take steps to
strengthen weaknesses, capitalise on strengths, target opportunities and
either turn threats into opportunities or avoid them.
This will also be relevant to the next section of the unit, concerned with
the business environment, because the SWOT analysis offers an evaluation
of the opportunities and threats presented by environmental factors.
Once the analysis has been done, the main problem can be identified and
understood within the context of the overall position of the business.
Activity 4.11
Try your own SWOT analysis.
Think of a business that you are familiar with. Draw up a SWOT analysis for them, or use
the example of your college or workplace.
Make a list of the decisions relating to the proposed change that could be helped by the
information provided by this tool.
Other aids
Another tool of this type is specifically aimed at assessing the current
situation of the overall business when it involves different areas or
products. This is the Boston Consulting Group matrix, and offers
a view of the different parts of a business in relation to one another, the
business portfolio.
Each part is seen to require an appropriate strategy and so these are
referred to as strategic business units. Each unit is seen as independent
in that it needs its own strategy to include appropriate mission, goals,
customer type and product.
This approach can provide management with an overview of how these
different units fit together to make up the overall portfolio, and so can
be helpful in making strategic decisions. Each business unit is analysed
in relation to market growth and market share, and so allows them to be
displayed visually within a matrix and different labels are given to units or
products with different characteristics.
You will also read about Porter’s Five Forces and PEST analysis in Chapter
7 of the guide – these can be used to analyse industry and the external
environment respectively. The stakeholder model can also be used.
Other qualitative techniques that can be used for gathering
information are focus groups and brainstorming sessions. These
involve managers getting groups of people together to gain information on
a current situation, opinions on a certain topic – perhaps a possible course
of action or the performance of a product – or they can also be used to
generate possible solutions to a problem.
Once the situation has been evaluated, all possible information gathered,
and alternative solutions generated, aids are available to help the manager
decide which will be the best option. One of these is simulation. This
usually involves computerised programmes to run a series of simulation
trials to predict the likely outcomes of different decision possibilities.
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An example is queuing theory, where the need for equipment or staff

may vary and is partly due to chance. Simulation in this case would
allow a manager to test out possible strategies – say for the scheduling
of machine use, via the use of past experience of when demand is
greatest – and in addition would use subjective probability for times when
experience cannot be drawn on. Therefore, although the information
gained is not perfect, it can contribute to the other factors that will help
the manager make the most appropriate decision. Another aid of this kind
is the decision tree which you have already come across earlier in the
chapter. This can be used to trace the possible consequences of making
different decisions.
Activity 4.12
Draw your own decision tree.
Can you think of decisions where the possible outcomes and their consequences can be
represented on a decision tree? Think about decisions you make yourself – for instance,
how you will celebrate your birthday or choose a holiday destination for yourself – and
also ones that managers are faced with – how a manager, for example, decides between
hiring transport for his goods and buying his own trucks.
Draw out your own tree for one of these. How can this help you to make your decision?
It can be seen, then, that many different theories, models and tools
have been developed to help managers make decisions. Why is this so
important?
Research by Nutt (2000) suggests that, in reality, the decisions made by
managers are often of poor quality. The main reasons given for this are:
• a focus on the short term
• a tendency to implement solutions that have the least risk and have
perhaps been used before.
These reasons can be related to the development of strategy. In Chapter
3 of this guide, research was presented that suggested managers do not
have time for many planning activities and often spend time dealing with
small problems that arise on a daily basis and need immediate solutions.
When evaluating these approaches to strategic decision making, then, it is
important to relate them to the workplace and the constraints managers
face.
Activity 4.13
Reading
Read the following chapter from the secondary key text:
•• Daft (2008) Chapter 8 ‘Strategy formulation and implementation’.
As you read this chapter, think about the realities of the manager’s job. Evaluate the value
of the theories and their relevance to strategic decision making within the constraints of
workplace pressures.
(An alternative reading is Boddy, 2008, Chapter 8 ‘Strategic management’.)
The remainder of this chapter will focus on a particular area of decision

making, that relating to organisational change.
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4.5 Organisational change and development

Change is one of the only constant factors regarding the behaviour of
organisations. Why do you think organisations change? It is useful to
distinguish between two different types: change that is planned and
change that is unplanned or forced.
• Planned change is related to the discussion in the first part of this
chapter, because making strategic decisions about the direction of the
company can often involve initiating change.
• Unplanned change may also involve making strategic decisions, but
these are decisions forced by particular circumstances rather than being
the initiative of the top managers.
The need for either type of change is strongly related to the business
environment, since organisations operate within changing and sometimes
turbulent conditions. Planned change can be used to attempt to overcome
potential problems and to create the best fit between the organisation
and the environment, whereas unplanned change can be necessary to
react to and cope with external changes that are beyond the control of the
management. In Chapter 6 we will be examining the internal environment
of the firm, and in Chapter 7 we will focus on the external environment.
However, here it is useful to consider the factors that can contribute to the
need for organisational change.
Activity 4.14
Think about the organisations that you know or have been part of. How have they
changed during the time you have known or belonged to them? Was this planned or
unplanned change?
Think of an example of when strategic change may be forced and an example of when
this could be planned. Make a list of the factors that could initiate the need for an
organisation to change.
Cole (2000) categorises the possible triggers for change as either

internally or externally located. However, it is important to recognise
that some of the triggers will have greater impact than others, and also
there are differences in the level of predictability which affects whether
management can plan for them or not. External triggers may include:
• changing demand for goods and services
• threats from the competition, such as the updating of a product
• the entry of a new competitor
• the threat of takeover by a larger company or a merger with a
competitor
• problems in the supply of materials needed for production
• financial changes such as interest and currency exchange rates
• lack of skilled labour
• changes in the technology available
• political and legal changes which affect the regulation of behaviour.
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In addition to these, triggers of change that may be internal, initiated

within the business organisation, could include:
• planned strategic change
• introduction of changes to organisational culture
• need to improve production efficiency, quality, supplier relations, use of
personnel
• the development of a new or improved product.
How similar are these triggers to the list you made during the last
exercise?
It seems, then, that organisational change can be planned or forced

(unplanned), and that it can be triggered by a wide variety of both
internal and external factors. These elements of the business environment
will be the focus of the next section of the unit, which will also include
an examination of organisational culture. Once you have studied this you
should be able to link it back to the importance of organisational change.
However, we also need to consider the nature of change itself, as the
changes we are discussing can involve varying levels of significance for the
operations of the organisation.
Change that has the most impact is that which will transform the
organisation, because in its current form the business would not be
able to cope with the change. Less dramatic change can be described as
incremental, involving the organisation continually adapting its strategy to
cope with the changes and pressures faced. Therefore the different types
of change that can be experienced by an organisation can be represented
as in Figure 4.9.
Type of strategic change
incremental transformational
Management proactive tuning planned transformation

role
reactive adaptation forced transformation
Figure 4.9 Types of strategic change

Source: adapted from Johnson et al. (2008)
Organisational development
One particular way of understanding the proactive incremental type of
strategic change is provided by the concept of organisational development
(OD).
You can read about OD in Mullins (2007) at the beginning of Chapter

19, pp.719–21. Once you know what it means, read on here.
OD can be viewed as a specific sort of strategy, and although it can be

defined in many ways, again several common elements can be found in
most definitions. OD is seen to be important because it is a process that
involves the whole organisation. The development of the organisation
involves planning and the conscious implementation of incremental
changes; the approach of the behavioural sciences is therefore important
for understanding the human element of developments.
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OD also usually involves a third party to act as the change agent. This
is the person or group of people responsible for initiating the change,
and usually for implementing the changes decided on. For the specific
approach of OD this agent may be a special consultant or corporate team;
however, for the initiation of organisational change more generally it is
likely that managers will act as change agents.
The manager’s role in organisational change is a very important one. Even
if an OD expert carries out some stages, management would still have
initiated this process and they would be involved throughout.
Activity 4.15
What does organisational change mean for a manager?
1. What different types of roles do you think a manager would need to play? It will
be useful to think back to Chapter 3.
2. Thinking back to the triggers discussed earlier, can you identify any that a man-
ager would be the first to become aware of and so initiate change? One example
would be a production manager recognising the need to change the relationship
with a major supplier if it was not running smoothly. Can you think of another?
Feedback
Depending on the type and level of the manager, it is possible that he or she may
be involved in many different roles. These could involve leading change, motivating
employees during times of change – with communication being particularly important –
and also controlling change as much as is possible.
4.6 Managing the change process

Because change is such a pervasive element of organisational life, attempts
have been made to develop models and theories to assist in managing the
change process. This is by no means a new phenomenon, although it can
be said that the environment of the organisation is becoming ever more
turbulent and increasingly unstable. In Chapter 8, for example, we will be
considering the impact of globalisation.
From the perspective of social psychology, Lewin (1951) offered a view of
change that involved three major steps.
1. The first is unfreezing, and refers to the process by which the forces
which support existing behaviour in the organisation are reduced.
2. The second stage involves moving, where new responses are developed
based on new information. This can include new behaviours,
approaches, values etc.
3. The final stage is then refreezing, to establish the new behaviours
as accepted and established practice, processes or values within the
organisation.
What is your evaluation of this? Can you see any problems with each
of the stages? The final part of this chapter will consider these in more
detail.
Different ways of managing change

Another approach put forward stresses the importance of management
style. This suggests that different managerial styles each have advantages
and problems, but the most important factor is to adopt a style that best
suits the organisation, the manager and the change being implemented.
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Johnson et al. (2008) have developed the following typology of ways of

managing change (called by them ‘styles’).
• Education and communication – where management spend time
explaining the problems being faced and the strategy for overcoming,
but this can be time consuming.
• Collaboration/participation – where employees or special groups
of them are involved in setting the strategy, but again this can be time
consuming.
• Intervention – parts of the change are delegated and different agents
co-ordinate the process, so it is controlled but still participative.
• Direction – change is conducted through the use of authority, but
employees are less likely to accept this.
• Coercion/edict – change is forced through the overt use of power,
but again employees are less likely to accept this unless in a crisis
situation.
Clearly it might be sensible to combine some of these styles in a change
situation.
Organisational Development (OD) model

The OD model of managing change has six key stages, which are set out
by Cole (2000).
1. Preliminary stage – this will involve top management in discussions
with the change agent to decide that change is needed (the OD
approach usually uses an external change agent).
2. Analysis and diagnosis – during this stage the change agent will
evaluate the current situation and gather necessary information,
possibly through research such as interviews with employees and
managers. The managers and change agent will then determine the
diagnosis from the information gathered.
3. Agreement about aims of the programme – the aims and
objectives of the change programme will be deliberated and decided
upon.
4. Action planning – this stage involves planning the actions needed to
implement the change and the plan of their timing and order.
5. Evaluation and review – following initial implementation, it is
necessary to monitor and frequently review the strategy for change. In
the longer term, monitoring is necessary. Also it is advisable to carry
out major reviews to measure the achievement of the goals.
6. Revised aims and plans – the degree of revision needed will
be dependent on the findings of the reviews, and if any aims of the
programme are altered then it will also be necessary to adapt the plans.
Once the programme is stable and major revisions undertaken, the
change agent (third party) will no longer be involved.
This approach to managing organisational change can also be relevant
when a third party is not involved, but where the organisation’s managers
are the strategic decision makers. The view that organisations continually
need to change and adapt to different environmental factors is also taken
up by the concept of the learning organisation, which will be explored in
Chapter 9 of this guide.
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Total quality management (TQM) and business process

re-engineering (BPR)
Have you heard of either of these systems before? What do you think
they mean in relation to organisational change? Think for a few
minutes before reading on.
Well, both involve a radical redesign of organisational operations, when

change will impact every area of the organisation.
Activity 4.16
Reading
Turn to the following section of your main key text:
•• Mullins (2007) Chapter 20 ‘Organisational performance and effectiveness’,
pp.761–66.
You can read about TQM on pp.761–64 and about BPR on pp.764–66.
1. Once you have read these sections, study Figure 20.4 on p.763. What roles can
you identify for the managers within the organisation during the implementation
of TQM?
2. From your evaluation of the models of change management you have studied in
this section, what problems do you think could be experienced when trying to use
them within a business?
4.7 Managing resistance to change

One of the greatest challenges for managing change is the resistance
it encounters. This resistance mainly comes from the employees of the
organisation, but can also come from customers, suppliers etc. The extent
of this problem will be determined by each individual situation and by the
type of change being implemented. However, a range of approaches and
techniques is offered to help managers and change agents overcome this
resistance.
Making change acceptable

Activity 4.17
If an organisation that you belonged to announced that it was going to implement radical
change, what do you think your initial reaction would be? What would make you more
accepting of this?
Do not read on until you have thought about these questions for a few minutes, and have
made a note of your main thoughts.
The questions you have been considering are ones asked by researchers
who try to develop ways of implementing change that will create the least
or no resistance. Most resistance is experienced when employees feel
that their goals are in conflict with those of the management. Therefore,
change can be seen by employees as a threat to their job security,
status or established patterns of behaviour. If a feeling of distrust and
suspicion develops, then even if the goals of each party do not conflict,
the employees may still feel threatened. The problem of uncertainty also
contributes to this, as the need for change is often triggered by a turbulent
and unstable business environment, and so disruption to work patterns
can compound the feeling of uncertainty.
93
However, Woodward (1968) stresses that this resistance is actually a

‘natural’ process that needs to be understood. If a threat is perceived
from the change, then the natural reaction is to resist the change.
Understanding this can assist in the planned implementation of a change
programme, because resistance can to some extent be expected and so a
strategy can be put in place to ‘manage’ the resistance.
Lewin (1951) again contributes to this debate, by offering the technique of
forcefield analysis. The aim of this is to provide a framework for analysing
the major forces of resistance that are likely to emerge from a programme
of organisational change. The stages involved are as follows:
1. Analysis of the forces that will affect the change to the new
organisational state or condition. There are seen to be two types
of forces: restraining ones, such as the response of the people who
disagree with the need for change, and the driving forces of the
change.
2. Assessment of which of these forces is most important.
3. Action needs to be taken to reduce the most important restraining
forces and to increase the most important driving forces.
A number of possible methods and considerations can then be put
forward, as to how managers can reduce the negative effects of change.
See if you can think of some of the possibilities for a few minutes before
reading on.
The definition of objectives is important, and clear communication of

these is vital. If employees understand the need for change, how it will
be implemented and the effects it is expected to have, then the fear and
threat of the unknown will be reduced. Employee involvement wherever
possible can also be seen to contribute to the employees’ ‘ownership’
of the change, such as asking for comments on the current situation or
suggestions for possible solutions. The aim of this will be to gain greater
employee commitment to the changes. The timing of the programme will
also be important, again with the employees being made aware of what
this is and why. Finally, it may be helpful to build in a number of short-
term goals, where improvements will be visible. The aim of this is to
demonstrate to employees that the change programme will have positive
and measurable benefits. The overall mission for managers of strategic
change, then, is to decide what the most successful changes will be and
how to implement them, whether transformational or continual. However,
these managers also have the responsibility of delivering strategic change
in a way that creates not resistance, but commitment.
Although not listed as essential reading you might find it useful to read
Daft (2008) Chapter 11 ‘Managing change and innovation’, pp.367–70.
This gives a practical example of force-field analysis and discusses tactics
for overcoming resistance to change. See also Boddy (2008) Chapter 13
‘Managing change and innovation’, pp.429–33.
Activity 4.18
Reading
•• Mullins (2007) Chapter 19 ‘Organisational development, culture and change’,
pp.733–46.
94
As you go through this reading, think about the different decisions that will have to be
made during each stage of organisational change. Note why resistance to change occurs
at both the individual and organisational level. It may be useful to have a particular
organisation in mind to help you evaluate the contributions you read about. We will be
dealing with organisational culture later on in this unit.
Chapter review
Key points
• Decisions can be categorised into different types, which are associated
with management at different levels in the organisation.
• Models for decision making can assist the manager; however, each
model has limitations and makes assumptions that may not be
applicable.
• A business strategy gives direction to an organisation and also provides
a guide for subsequent decision making.
• Environmental factors and conditions have a direct influence on
the decision making process, and these can also trigger the need for
organisational change.
• Organisational change can take many forms and, as this is faced by
all organisations, models for implementing change programmes are
important despite their limitations.
• The main challenge of change management is to overcome resistance
to strategic change, and so management of resistance has to be an
integral part of the programme.

• understand and evaluate different approaches to the process of making
decisions, particularly at the strategic level
• appreciate the importance of strategy and be aware of the decisions
involved in formulating a business strategy
• recognise the constraints placed on the manager during the decision
making process
• identify the different techniques used to support managers when
making decisions and developing strategy, and evaluate the usefulness
of these
• recognise the importance of the business environment, as an
introduction to the third section of the unit
• understand different types of organisational change, and identify the
triggers which can generate the need for these
• evaluate different approaches to managing organisational change and
identify and explain techniques for overcoming resistance to change.

When considering these, please remember the guidance given in
the Introduction about examination preparation. Each question can
be answered fully in approximately 45 minutes, under examination
conditions.
95
1. Discuss why strategy is important to the business organisation. In

your answer consider the decisions needed for the formulation and
implementation of a business strategy.
2. (a) Discuss the possible reasons for resistance to change in respect of:
i) the individual, and ii) the organisation.
(b) Consider the different approaches senior management might use
to overcome these various sources of resistance. Discuss how effective
the approaches might be. Support your answer with reference to theory
and practice.
3. (a) Discuss why an internal and external environmental audit is a vital
part of the strategy formulation process.
(b) Describe two techniques that will aid managers in this part of the
process. Demonstrate the techniques with appropriate examples.
4. Discuss the usefulness of decision theory and decision making models
to the manager in making effective decisions.
Support your answer with reference to theory and practice.

1. Discuss why strategy is important to the business organisation.
In your answer consider the decisions needed for the formulation
and implementation of a business strategy.
The concept of strategy is central to this question, so the essay would
begin by exploring this and offering a definition.
The concept could then be linked to the business organisation and with
ideas of organisational mission and goals.
Different stages in the formulation of a strategy could be considered in
turn, and at each stage the type of decisions needed could be discussed.
For example, it might be useful to evaluate the organisation’s current
situation. This would include looking at the aids that could be used to
understand this. If a SWOT analysis were done, then decisions would
need to be made as to what the organisation’s strengths, weaknesses,
opportunities and threats are. A brief evaluation of the use of these models
can add a critical dimension to your essay.
When considering implementation, it would be helpful to identify the
problems that could be faced by management and what the limitations of
strategic decision making models may be, such as the assumptions they
make. The decisions to be made here could concern how to overcome the
problems faced – possibly linking this to management of organisational
change.
Any answer should include references to the main types of models and
some of the main authors you have read about.
As the main question is concerned with the importance of strategy, it
would also be helpful to consider the consequences of not having a
strategy and of avoiding strategic decisions.
96

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Introduction to business and

The External System

Published by: University of London Press

3.1 Organisational goals and objectives........................................................................ 44

Essential reading........................................................................................................ 123

Welcome to your unit on business and management. You have chosen to

Aims of the unit

• build a foundation of knowledge on the different theoretical

Reading and learning resources

A selection of further readings

Hofstede, G. Culture’s Consequences: International Differences in Work Related

Other learning resources

Samples for your own glossary

Your role and academic development

The structure of this unit

Section 1: The development of business and management

Section 2: Management and decision making

Section 3: Business and the environment

Section 4: Contemporary issues in business and management

Section 1: The development of business

Chapter 1 focuses on the concepts, definitions and origins of the subject

Chapter 1: Concepts, definitions and

Aims of the chapter

Beginning your study

1.1 The importance of key concepts

Key concepts and your glossary

about what the major terms ‘business’, ‘organisation’ and ‘management’

1.2 A closer look at business and organisations

However, the complication of using a general definition emerges again. For

Increasingly, in practice, the line between a business and a non-business

1.3 A closer look at management

Different definitions of management

From administrator to manager

1.4 The evolution of business and management studies

He also identifies other more recent approaches, as indicated below.

Scientific management in action

Fayol’s principles of management

Incorporating the human element

The most famous studies conducted were the Hawthorne Experiments,

Systems and contingency approaches

• The origins of business and management have a long history, tied to

A reminder of your learning outcomes

Sample examination questions

Advice on answering a question

Examples of the contributors you could consider would include Fredrick

Chapter 2: Understanding the business

Aims of the chapter

2.1 A multidisciplinary view of business and

We are going to focus, in this chapter, on sociology, psychology,

organisations – this will come up in later chapters of this subject guide.

2.2 Sociological perspectives

Sociologists view organisations as ‘social constructs’, i.e. they exist because

Industrial sociology is a specialised area concerned with:

An application of sociology – gender relations at work

2.3 The anthropology of organisations

2.4 The contributions of psychology

• the method of training that would be most effective

Remember to check that you followed up the notes in the guide by

2.5 Economic approaches to organisations

One of the key elements in business economics is the focus on those

The aim of management is to achieve goals through the coordination of

Economic approaches to organisations

2.6 The stakeholder model of the firm