Chpt 2: Management Theories and Principle (ND)

Assalamualaikum...

This is for my ND YR 1 Students (introduction to management). Im starting off with chapter 2 since i have not yet been able to type out my chapter 1 (Introduction to management) notes. As soon as i have finish typing them, i will upload the notes here. so no worries. Have a little faith in me. hehehehe :D


CHPT 2: MANAGEMENT THEORIES AND PRINCIPLES.

- Early Theorist were practicing managers, who analyzed their own experience in management to produce a set of what they saw as ‘principles’ of organization.

- Other people accumulated the knowledge about organization and management through trial and error while managing families, tribes, armies, commercial organizations and political entities.

- Old management principles are regarded as the laws or fundamental rules of organization and management.

- It is an ‘approach’ offering ways of looking at issues such as organizational structure, management functions or motivations.

- These principles can be use as guidelines for management actions, can provide a way of analyzing organizational phenomena and create a ‘framework’ or ‘blueprint’ within which practical problems and situations can be tackled.

- The reason we still use some of the old management approach is that management today reflects the evolution of concepts, viewpoints, and experience gained over many decades.

- one reason is that many of the concepts and practices established in the early days of management are still used today. many of the rules and regulations found in organizations today were originally created to protect managers from undue pressures to favor certain groups of people. (e.g. of organizations: FedEx, American Airlines, Amazon.com)

- A second reason is that the past is a good teacher, identifying practices that have been successful and practices that have failed. Recognizing that employees join organizations for social as well as economic reasons has led many organizations such as Toyota and Dell to use teams to solve problems and base employee pay on team results.


- A third reason is that history gives a feel for the types of problems for which
managers long have struggled to find solutions. Many of these problems, such as low morale, high absenteeism, and poor quality, still exist in many organizations and continue to plague managers.



Management theories and viewpoints are based on different assumptions about the behavior of people in organizations, the key goals of an organization, the types of problems faced, and the methods that should be used to solve those problems.


MANAGEMENT THEORIES:

1. Classical Theory 2. Scientific Theory 3. Human Relations Theory
- found in 1800s - found in 1900s - found in 1940s
- Henry Fayol - Fredrick W. Taylor - Elton Mayo
- 14 Principles - Bethlehem Steel - Hawthorne Studies


1. Classical Theory

1800 environment: The Birth of Industrial Revolution

- a shift from agriculture to manufacturing culture
- the raise of monopolies
- rapid social change and a growing disparity between rich and poor caused increasing conflict and instability.
- people were poor educated and needed considerable oral instructions and hands-on training in unfamiliar tasks.
- explosive growth of urban industry: workers in cities were forced to adapt to the factory’s formal structure and rules and to labour long hours for employers they never saw.
- employers generally regarded labour as a commodity to be purchased as cheaply as possible and maintained at minimal expense therefore, labour union emerge.
- workers from the labour union organized strikes and lockouts.



Henri Fayol

- French Industrialist
- 1841 – 1925
- father of modern operational management theory
- viewed management process from top to bottom
- wrote “General and Industrial Management” 1916
- His famous primary functions of management: Planning, Organizing, commanding, coordinating and controlling
- emphasized in the formal structure and processes as these two are necessary for the adequate performance of all important tasks. (meaning people need to have a clear definition of what they are trying to accomplish and how their tasks help meet organizational goals.)


14 Principles
1. Divison of labour / work

2. Authority and responsibility

3. Discipline

4. Unity of command

5. Unity of Direction

6. Subordination of individual interest to the general interest.

7. Remuneration

8. Centralization

9. Scalar of chain

10. Order

11. Equity

12. Stability and tenure of staff

13. Initiative

14. Esprit de corps.


Contributions / advantages

- can be use by management in any field (both business or non-business)

- basic guidelines, laws and principles govern the correct way of performing work, the design of the organizational machine and management practices.

- more attention in the managerial activities

- emphasis on logical processes and strict division of labour


Limitations / disadvantages

- “ What Fayol did achieve was the first real attempt to produce a theory of management based on a number of principles which could be passed on to others. Many of these principles have been absorbed into modern organizations. Their effect on organizational effectiveness has been subject to increasing criticism over the last decade, mainly because such principles were not designed to cope with conditions of rapid change and issues such as employee participation in the decision-making processes of organizations” (GA Cole, Management Theory and Practice, 1993)

- modern business environment is too dynamic for the theory

- workers are now more educated and skilled and less likely to respond to an authoritarian leadership style

- classical theory was viewed as being too general e.g. employees may report to more than 1 manager

- prescriptive in nature – a very detailed approach in how to manage an organization.


2. Scientific Theory

1900 Environment: Post-industrial Revolution and World-War I

- more workers work in manufacturing than agriculture
- the fall of labour due to the abolishment of child labour
- The Great Depression in 1930s; Loss of employment, loss of savings, loss of security and loss of self-worth
- Many firms became larger and more complex
- Not all managers could continue to be directly involved with production
- Many managers spend more of their time on planning, scheduling and staffing activities
- A transition of technological leadership but managers could not keep up with the updates
- competitions became more intense, managers needed new ways to cut costs and boost efficiency so managers needed better management theories.


Fredrick W. Taylor

- 1856 - 1915
- Father of scientific management
- An American mechanical engineer
- one of the intellectual leaders of the “efficiency movement”
- the first man recorded to analyzed work as a study
- Developed a more systematic and analytical approach in the application of scientific knowledge for understanding the whole complex process of coordinating technical, human and economic factors in management.
- Taylor argued that managers should be based on ‘well-recognized, clearly defined and fixed principles, instead of depending on more or less hazy ideas’
- involved the development of a ‘true science of work’, where all the knowledge gathered and applied in the work should be investigated and reduced to ‘law’ and techniques.

- Has 5 fundamental principles:
1. replace opinion and rule-of-thumb with a scientific operation
2. scientifically determine the accurate time and methods for each job
3. setting up a suitable organization to take all responsibility from workers
4. selection and training of workers
5. Cooperate with workers



Scientific Management

- The application of scientific methods to increase individual workers’ productivity.
- management which conducts a business or affairs by standards established by facts or truths gained through systematic observation, experiment or reasoning


Bethleham Steel Co.

- systematic and scientific investigation of all facts and elements connected with the work being managed.
- Aim was to scientifically measure the worker’s jobs and setting their pay rates accordingly.
- Taylor used time-and-motion studies to analyzed work flows, supervisory techniques and worker fatigue (weariness)
-A time-and-motion study involves identifying and measuring a worker’s physical movements when performing a task and then analyzing the results
-goal of a time-and-motion study is to make a job highly routine and efficient
-Eliminating wasted physical effort and specifying an exact sequence of activities reduce the amount of time, money and effort needed to make a product.
- Taylor was convinced that having workers perform routine tasks that did not require them to make decision could increase efficiency.
- Performance goals expressed quantitatively ( e.g. number of units produced per shift)


Taylor concluded that money was the answer….
- He supported the individual piecework system as the basis for pay
- If workers met a certain production standard, they were to be paid at a standard wage rate
- Workers who produced more than the standard were to be paid higher rate for all the pieces they produced, not just for those exceeding the standard.
- Taylor assumed that workers would be economically rational; that is, they would follow management’s orders to produce more in response to financial incentives that allowed them to earn money


Contribution / advantages:

- used as guidelines towards making consistent production targets and payment standards.
- increase productivity due to improvement of working conditions and increase wages for job done
- Stimulated managers to adopt more positive role as a leader
- act as a research ground for management system


Limitations / Disadvantages:

-work transformed into the duty of methods and procedures
- workers was looked as human machines (just to maximized output)
- work was fragmented (division of labour)
- Only monetary rewards was use to motivate people to maximize output
- Management was fully responsible for planning and controlling all activities
- every job performance was measured, timed and rated scientifically in order to determine the amount of pay to be received by workers
- too rational and scientific
- performance goals expressed quantitatively (e.g. number of units produced per shift) addressed a problem that had begun to trouble managers – how to judge whether an employee had put in a fair day’s work.



3. Human Relation Theory

1940s Environment – The Great Depression and World War II

- Great Depression 1932
- World War II
- Business mechanized their factories and jobs became more specialized and interdependent
- Government became more involved in economic matters
- social reforms worked as both establishing a minimum wage and encouraging trade unions
- having grown large and then made their companies more efficient, many managers were turning to Resource and Development new products
- With more products meant managers had to pay more attention to their employees’ motivation

Elton Mayo

- Australian psychologist and sociologist and organization theorist
- 1880 –
- Hawthorne Plant; Western Electric company in Chicago.
- Hawthorne Studies
- founder of “The Human Relation Movement”
- focused on issues such as individual motivation, group behavior and leadership



Human Relation Theory

- Theory relates with the human factor where the concept of a worker is valued as a person with emotions and worth.
- Developed mainly be social scientist rather than practicing managers and based on research into human behaviour, with the intention of describing and thereafter predicting behaviour in organizations
- a management model that views the employee as socially motivated and operates from the assumption that a social need – satisfied worker is a productive worker.
- Mayo believed that Human Relation Approach to management create organization’s harmony, higher employees satisfaction and greater operations’ efficiency.
- Emphasized the importance of human attitudes, values and relationships for the efficient and effective functioning of work organizations.
- all about the social process within the group that affect the standards of their work performance


Hawthorne Studies


- experimented with the lightings in the working environments of the workers to see the fluctuations in their productivity
- Focused on workers’ social relationships in work and it had demonstrated that the working conditions had no significant effect on productivity
- need for belonging to a group and have status within groups (which is more important than money and working conditions)

Mayo concluded…

- social demand affected the standards of work performances
- workers must be seen as a member of a group to be accepted by the employees


Contirbutions / Advantages

- Human Relation Approach contributed an important awareness of the influence of the human factor at work on organizational performance
- genuine concern for individual worker leads to increased productivity
- looked at human aspects and relationship
- the emergent of many motivation theories that helps organization to understand its employees to maximize productivity and output (Maslow and McGregor)


Limitations / Disadvantages

- Managers need to pay attention to all their employees social life to increase productivity
- overemphasis on organization and rationality, the experience on the factory floor did not show drastic improvements in productivity
- ‘self-actualizing’ was developed and accepted as a more accurate description of human motivation
- the approach tends to emphasis the importance of work to the workers without really addressing the economic issues
- there is still no proven link between job satisfaction, motivation, productivity or the achievement of organizational goals.

Accounting Equation

ACCOUNTING EQUATIONS


There are 3 Components of accounting equation:

• Asstes
• Liabilities
• Owner’s Equity


ASSETS

- Assets are items of value owned by the business

- e.g. buildings, machinery, motor vehicles, stock of goods, debtors, cash at bank and
cash in hand.


LIABILITIES

- Liabilities are debts owned by the business to external parties

- A business incurs liabilities when it purchases items on credit from its suppliers
(creditors)

- A business also incurs liabilities when services are provided to the business have not yet
been paid by the business (Accrued Expenses).

- Liabilities are also incurred when the business borrow money from the banks by taking
bank loan and bank overdraft.

- E.g. Loan, Bank overdraft, Accrued Expenses, Creditors, Owings.



OWNER’S EQUITY

- The funds of a business provided by its owner(s)

- An owner of a business can calculate his net worth of his business by deducting the
liabilities from the assets of the business

- Owner’s equity = Assets - Liabilities

- Owner’s Equity can INCREASE when assets are introduced into the business through the investment by the owner(s)

- Owner’s equity can DECREASE when the owner(s) withdraws its assets for personal
use.

- Business operations can also affect owner’s equity. Profits from business operation can
increase owner’s equity while Losses will reduce it.



Accounting Equation is defined as:

ASSETS = LIABILITIES + OWNER’S EQUITY
A = L + OE

A – OE = L

A – L = OE

Introduction to book-keeping and accounting, Classification of accounts and Types of business organizations

Introduction to Book-Keeping and Accounting:

1. Definition

Book-keeping[Esa1] :
- the process of recording the financial transactions accurately and systematically according to certain set of rules.

- part of accounting that is concerned with recording data

- the process of recording data relating to accounting transactions in the accounting books.

Accounting[Esa2] :
- concerned with recording data, classifying and summarizing data and communicating what has been learned from the data.

- recording data (book-keeping), classifying data (respective accounts), summarizing (trading and profit and loss account & balance sheet), communicating data (distribute to stakeholders[Esa3] )

- classifying accounting information for the preparation and interpretation of financial reports.

- analyzing and interpreting business transactions[Esa4] and accounting reports to aid business decision-making and make appropriate actions for the growth of the business.

2. Purpose

Book-keeping:

- show movement of cash inflows and outflows within the business

- provides evidence that a business transactions have taken place.

- supplies all information regarding the expenses and revenue of the business

Accounting:

- show a clean presentation of the business’s financial statement

- help in decision-making for budgeting and speculating the present and the future earnings or losses of the business

- show the financial health of the business

- to communicate financial information to various interested parties (stakeholders)

- Show results of the operations of a business (making profit or loss)

3. Difference between Book-keeping and Accounting

Book-keeping: Simple recording of transactions

Accounting: the use of the information recorded by the book-keeping operation to produce reports for management, owners and others.

4. Basic terms / concepts in book-keeping and accounting.

Accounting unit or Entity

- business is an entity by itself, separate from its owner(s)

Capital

- cash or any assets brought by the owner(s) for investment in the business

Accounting or trading Period

- only those transactions which affect the profit and loss of the business for a given period will be taken into account.

- period[Esa5] depending on the volume and nature of the business

Going Concerned

- always assume the business indefinite (unknown) period of time, therefore all value of the assets must be recorded at cost price (purchase price).



ACCOUNTING APPROACH
Step1: documents

- collecting and examining source documents ( invoices, receipts, vouchers etc)


Step 2: journals

- Source Documents posted into respective journals


Step 3: Ledger

- Journals entries posted to respective accounts in the ledger


Step 4: Trial Balance

- Use trial balance to see the accuracy of the entries in the ledger


Step 5: Adjustments

- adjustments are made to the accounts to comply with the accounting concepts


Step 6: Closing Accounts and Stock Valuation

- Ledger accounts are closed and the closing stock valued


Step 7: Financial Statements
- prepare trading, profit and loss accounts and the balance sheet.


QUESTIONS:

1. What is book-keeping and accounting?

2.Why is book-keeping and accounting important?

3. What are the differences between book-keeping and accounting?

4. Is a company an entity? why?

5. How long is an accounting or trading period of a business?

6. Define Going Concerned concept.

7. Who are the stakeholders of Sekolah Perdagangan?

8. Who are the stakeholders of BSP?

9. On 1 May 2007, Hans Issac started a business and deposited $5000 into a bank account opened specially for the business. What is that $5000?

10. Write down the accounting approach.


Classification of Accounts

Accounts classified into 3:-

1. Personal Accounts[Esa6]

- Record transactions with persons, whether they can be people or firms
- these accounts show the relationship between the business and these
people


Double Entry system:

Debit – receiver
Credit - giver

2. Nominal Accounts[Esa7]

- Records all costs, expenses, losses and all gains and income
- Note: Sales account and purchases account are real accounts but since they are frequent nominal transactions, therefore nominal accounts.


Double Entry System:

Debit – all expenses and losses
Credit – all gains and income

3. Real / Property Accounts[Esa8] .

- Record assets (things) owned by business


Double Entry System:

Debit – what comes into the business
Credit – What goes out of the business


Questions:

1. Define personal, nominal and real accounts and write some examples for each of the respective accounts.

2. Write down the double-entry for personal, nominal and real accounts.

3. State the reasons why sales account and purchases account are nominal accounts.



TYPES OF BUSINESS ORGANIZATIONS[Esa9] :
There are 3 business forms: Sole-proprietorship (sole trader),
Partnership,
Company.

Sole-Proprietorship
- One-man business (only have one owner)

- Owner in complete control (controls the company completely. all decisions are made by trader only)

- Unlimited liability (personal belongings can taken away to pay debts)

- Limited capital (trader can only bring capital into the business. nobody else)

- Easy to set up. Only have few regulations

- Not subject to tax

- All profits or losses are borne by the owner

- may lose own possessions in failure

- confidentiality: stays with proprietor

- business ends with the owner’s death, insanity or bankruptcy

- close contact with customers and suppliers


Partnership:
- owner has to perform many tasks.

- minimum of 2 and maximum of 20 people in the business

- share responsibilities among partners

- Unlimited Liabilities

- partners contribute capital in the business (more partners, more capital injected in the company)

- Easy to set up.

- Not subject to tax

- All profits or losses are shared by all partners

- partners have to draw up partnership agreement

- conflicts and disagreements may occur

- business ends with the owner’s death, insanity or bankruptcy

- close contact with customers and suppliers

- time consuming in decision making


Companies:

- Managed by Board of Directors

- Dividends declared by directors

- Legal entity – can be sued

2 types of companies:

1. Private Limited (Ltd) Co
2. Public Limited (Ltd) Co.


1. Private Ltd Co.
- Minimum 2 and maximum 50

- shares cannot be sold to the public

- Limited Liability

- The business name ends with
“Pte Ltd” (in Brunei Sdn Bhd)


2. Public Ltd Co.
- Minimum 2 and no limit

- Share can be offered to the public

- Limited Liability

- The business name ends with
“Plc”


Note:

Public Sector Organization [Esa10] (also a business organization but only providing services to the community with little or no profit)

The public sector is made up of public corporations (nationalized industries), government departments ( e.g Department of Health) and local government services ( e.g. council-run leisure centres). The emphasis here is not on making a profit but on providing a service for the community. Increasingly this objective has become more commercialized with government agencies having to operate within strict budget guidelines and to rely on cost savings for extra funding rather than on increased government subsidy.



Questions:

1. Write down 3 advantages and disadvantages of a sole-trader.

2. State in your own words 3 advantages and disadvantages a partnership.

3. How many limited companies are there? State the companies.

4. Write down the 3 different characteristics of Private Limited and Public Limited Company.

5. What distinguishes a private limited company from a plc?

6. What does the term “limited liability” mean and why is it so important?

7. write down an example of a partnership, Ltd and Plc companies in your country.

8. What is the purpose of the public sector organization?



Endnotes:
[Esa1]Process of recording financial transactions

[Esa2]The act of recording, classifying, summarizing and communicating accounting information.

[Esa3]Any person or group who have an interest in the business’s performance.

[Esa4]business activities related to the firm and expressed in money terms.

eg. Buying and selling of goods.

[Esa5]maybe a month, half-year, full-year or any length of time.

[Esa6]Eg. Debtors, Creditors, Capital.

[Esa7]commission received, interest received, wages and salaries, rent paid, travelling expenses.

[Esa8]Eg. cash in hand, stock, machinery, buildings etc.

[Esa9]There are many types of business in the commercial world. Each type of business has a role to play in the modern economy with its own unique benefits and drawbacks.

[Esa10]the government

PD / BNF / 08 (Pt. 1)

Assalamualaikum...



To my bebehz; PD / BNF/ 08, please bring your calculator tomorrow, 16th August 2008, this saturday for your finance class.


Thank You.
xoxoxoxoxoxo

Announcement1 - PD/08

Assalamualaikum,


Tomorrow, 6th August 2008, Wednesday, students can wear eca attire.


Men - Eca t-shirt, black / dark coloured pants.
Women - Eca t-shirt, black / dark coloured pants, tudong SP.


Reminder: Ai, Naz, Azim, Rina, Wal, Gyah - dont forget about ur a/c book.
Penalty $1/=

Intro

Assalamualaikum...

I guess this blog site can be a substitute for a blackboard. Here, i will post my notes, class exercises, research titles, some related articles, links, further reading titles and hopefully discussions. The academic fields that i will cover are the ones that i teach:

1. Finance (Pre-National Diploma)
2. Introduction to Management (National Diploma).

Hope this blog could help some on the students with their studies. Any questions just post or email me. Good luck this semester! :D GAMATE!! Fighting! Fighting!