Since the early twentieth century, a wide variety of management theories have been offered to solve the principal-agent problem so that important objectives of business managers can be achieved. Such theories are important to a wide variety of complex business enterprises.

Management is hierarchical by definition. Principal-agent problemsManagerial and worker interests may diverge, and critical managerial instructions will not always be followed. Getting workers to act on the behalf of management and the company’s investors is known as the principal-agent problem. Management theory attempts to find ways that essential compliance can ensured. During the nineteenth century, most American businesses were small enterprises managed directly by owners who supervised their employees directly. By the end of the nineteenth century, much larger enterprises had arisen, and it was becoming increasingly difficult for business owners to manage enterprises on an industrial scale. Owners then began trying to seek out alternative management structures that gave them assurance that the objectives of the firm would prevail over any divergent objectives by the workers.Management theory

One of the earliest management theories was developed by Frederick Winslow Taylor, Frederick WinslowTaylor, who called his management theory Scientific managementscientific management. Taylor’s theory stressed the importance of strict time-and-motion studies of the industrial process. With the development of the assembly line, such time-and-motion studies seemed appropriate for breaking large industrial processes down into their smallest components and then training workers to perform only one small part of the manufacturing process. Based on time-and-motion studies, Taylor recommended the use of written instructions, as in a handbook, and strict training of employees to ensure they followed the manual.

Taylor was an engineer, and his theories tended to treat workers as if they were machines. Taylor’s scientific management seemed to have some success, and it was very popular in the first three decades of the twentieth century. Still, its effectiveness declined over time, as workers and some researchers found processes based on Taylor’s theory dehumanizing.

The management theories of W. Edwards Deming, shown in 1987, were followed by the Japanese.

(AP/Wide World Photos)

A variety of researchers conducted studies that indicated that eventually the time-and-motion studies led to worker demoralization and increased inefficiency rather than efficiency in industrial processes. Mary Parker Follett, Mary ParkerFollett challenged Taylor by suggesting that industrial situations were too complex to be measured solely by a manual covering an entire enterprise. Instead, she asserted, they required giving supervisors close to the work the authority to make changes based on the logic of the situation. Follett did rely on material incentives as the principal motivating force, just as Taylor did. While scientific management never died out entirely, other theories of management arose to challenge its supremacy.

By the middle of the twentieth century, AbrahamMaslow, AbrahamMaslow and Douglas McGregor, DouglasMcGregor were challenging the use of material incentives as the primary motivating factor for workers. Using a variety of experiments in different industrial settings, they showed that incentives based on nurturing a worker’s self-worth were more likely to increase efficiency and productivity than were instructions based on machine-like time-and-motion studies.

Although the work of McGregor and Maslow improved efficiency by improving the workplace conditions and attitudes of the workers, it became clear that a greater level of compliance with managerial directives was required. One of the management theorists who sought to advance beyond the work of McGregor and Maslow was Peter F. Drucker, Peter F.Drucker, whose dozens of books on management theory have become classics in the twentieth century. Drucker recognized the importance of uniform objectives governing workplace processes but stressed the importance of involving workers in the establishment of those uniform objectives. The concept of management by objectives is the phrase most widely recognized from Drucker’s work.

Another management theorist, W. EdwardsDeming, W. EdwardsDeming, took worker involvement in the setting of objectives one step further by urging management to create small groups of employees to discuss how efficiency could be improved within their work unit. Calling such groups quality circles, Deming believed that worker involvement in brainstorming in small groups (or quality circles) was the best way to improve efficiency. Deming also argued that management must promote quality in the goods and services their institution produces or else face insurmountable competition from businesses in foreign countries who have adopted similar management techniques. Improvements are constantly being developed in management theory and these are critically important to all business enterprises.

• Baker, George P., and George David Smith. The New Financial Capitalists. New York: Cambridge University Press, 1998. Management theory is applied to leveraged buyouts and other financial manipulations.
• Deming, W. Edwards. The New Economics: For Industry, Government, and Education. 2d ed. Cambridge, Mass.: MIT Press, 2000. Issued after Deming’s death, this book represents the culmination of his management theory.
• Drucker, Peter F. The New Realities. New Brunswick, N.J.: Transaction, 2003. This is the last book in a long list of books of managerial theory published by Drucker.
• Follett, Mary Parker. “The Giving of Orders.” In Scientific Foundations of Business Administration, edited by H. Metcalf. Baltimore: Williams and Wilkins, 1926. This article was one of the first challenges to Taylor’s scientific management.
• McKenna, Christopher. The World’s Newest Profession: Management Consulting in the Twentieth Century. New York: Cambridge University Press, 2006. This book examines the role played by management consultants in developing new management theory.
• Miner, John B. Organizational Behavior: Foundations, Theories, and Analyses. New York: Oxford University Press, 2002. Addresses topics of motivation, leadership, and decision making in organizations and offers introductory material on the origins and history of management theory.
• Taylor, Frederick W. Scientific Management. New York: Harper & Row, 1947. This book is a later version of the time-and-motion study principles that Taylor developed early in the twentieth century.

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