Management and Chaos Theory

1. Management and Chaos Theory OBJECTIVES: DESCRIBE THE BASIC FEATURES OF CHAOS THEORY SPECIFY THE CHAOS THEORY IMPACT ON MANAGEMENT

2. Evolution of Management Thoughts • CLASSICAL APPROACH • HUMAN RELATIONS APPROACH • BEHAVIORAL SCIENCE APPROACH • OPERATION RESEARCH APPROACH • SYSTEM APPROACH • CONTINGENCY APPROACH • EXCELLENT COMPANIES APPROACH • RECENT TRENDS

3. Approaches 1 – 7 (1) • REPRESENT THE EVOLUTION OF MANAGEMENT THOUGHT FROM THE END OF 19th CENTURY TILL THE BEGINNING OF 90 ties • THERE IS A SPECIFIC CONTRIBUTION OF EACH APPROACH TO MANAGEMENT DEVELOPMENT

4. Approaches 1 – 7 (2) • ON THE OTHER HAND – THERE ARE SEVERAL GENERAL (COMMON) FEATURES OF EACH APPROACH • THE ORGANIZATION AS A SYSTEM AND THE PROCESS OF MANAGEMENT IS SEEN AS: • DETERMINISTIC • PREDICTABLE • THEY REFLECT THE MECHANISTIC CONCEPT OF THE UNIVERSE • THE UNIVERSE = GIANT MECHANISM • THE RELIABILITY OF THE MECHANISM IS DETERMINED BY THE RELIABILITY OF ITS SINGLE PARTS • THERE IS A RELATIONSHIP: CAUSE EFFECT

5. Approaches 1 – 7 (3) • BOTHCLASSICAL NEWTON’S PHYSICS AND CLASSICAL THEORIES OF MANAGEMENT ARE BASED ON THE SAME MECHANISTIC CONCEPT OF THE UNIVERSE

6. Management Implications (1) MANAGEMENT PRINCIPLES IMPLICATION TAYLOR, FAYOL, WEBER EFFECTIVE FUNCTIONING OF THE ORGANIZATION EMPLOYEE MOTIVATION EFFECTIVE FUNCTIONING • CLASSICAL APPROACH: • HUMAN RELATIONS AND BEHAVIORAL SCIENCE APPROACH:

7. Management Implications (2) CRITICAL PATH EFFECTIVE ACCOMPLI-SHMENT OF THE GOAL INPUTS TRANSFORMATION OUTPUT • OPERATION RESEARCH APPROACH: • SYSTEM APPROACH:

8. Management Implications (3) ANALYSIS OF THE CONTINGENCY FACTORS IN THE ENVIRONMENT MANAGERIAL IMPLICATION OF EIGHT PRINCIPLES EFFECTIVE FUNCTIONING OF THE ORGANIZATION EFFECTIVE FUNCTIONING OF THE ORGANIZATION • CONTINGENCY APPROACH: • EXCELLENT COMPANIES APPROACH:

9. The Result of Mechanistic Concept TOP MANAGEMENT MIDDLE MANAGEMENT FIRST-LINE MANAGEMENT • CLASSICAL MECHANISTIC MODEL OF THE ORGANIZATION (THE „OLD“ MODEL) • TYPICAL FEATURES: • SPECIALIZATION • HIERARCHY • CENTRALIZATION, ETC.

10. Mechanistic Concept • ADVANTAGES: • RELATIVELY RELIABLE CONTROL • CLEAR DELEGATION OF AUTHORITY • SPECIALIZED (SKILLED) WORKFORCE, etc. • DISADVANTAGES: • LOW FLEXIBILTY • THE ORGANIZATION IS „TOO FAR“ FROM THE CUSTOMER • THE ORGANIZATION IS LESS COMPETITIVE IN THE COMPETITIVE ENVIRONMENT

11. Recent Trends • CLASSICAL PHYSICS HAS BEEN ELIMINATED BY THEORY OF RELATIVITY AND QUANT MECHANICS • CLASSICAL PRINCIPLE OF DETERMINISTIC PREDICTABILITY HAS BEEN ELIMINATED BY CHAOS THEORY • CHAOS THEORY DEALS WITH THE NON-LINEAR SYSTEMS (non-linear behavior) • ORGANIZATIONS AS INSTITUTIONS ARE TYPICAL NON-LINEAR SYSTEMS • THE REASON: PEOPLE IN THE ORGANIZATION • RESULT: CHAOS IS NOT A SYNONYM OF INSTABILITY

12. Chaos Theory ACCORDING TO CHAOS THEORY THERE ARE: • PASSIVE CHAOS = EQUILIBRIUM = MAXIMAL ENTROPY • ACTIVE CHAOS = SYSTEM IS „FAR FROM THE EQUILIBRIUM“

13. Laws of Thermodynamics • ENTROPY = THE TERM THAT COMES FROM PHYSICS (THERMODYNAMICS) • THE FIRST LAW OF THERMODYNAMICS SAYS: MASS AND ENERGY IN THE UNIVERSE ARE CONSTANT (Mass and energy cannot be „made“, produced or destroyed. They can be only changed for another form) • THE SECOND LAW OF THERMODYNAMICS SAYS: MASS AND ENERGY CAN BE CHANGED ONLY IN ONE WAY(EX: FROM USABLE TO NON-USABLE) MAX. ENTROPY = DISORDER = ALL THE ENERGY HAS BEEN CHANGED FOR NON-USABLE

14. Chaos Theory • CHAOS THEORY DEALS WITH THE ACTIVE CHAOS RESULT: • SYSTEMS ARE NOT NECESSARILY HEADING TO THE EQUILIBRIUM • IN THE STAGE WHEN THE SYSTEM IS FAR FROM THE EQUILIBRIUM THE NEW SYSTEM SPRINGS UP • CHAOTIC SYSTEM THAT IS FAR FROM THE EQUILIBRIUM – THE NEW SYSTEM – REACHES A HIGHER LEVEL OF ORDER ORDER OUT OF CHAOS

15. Managerial Implication GROWTH HERE IS YOUR LIMIT TIME

16. Managerial Implication GROWTH TIME

17. TAYLOR’S LEGACYPrinciples of Scientific Management • SPECIALIZE ALL JOBS AND TASKS, REDUCING WORK TO ITS SMALLEST AND SIMPLEST ELEMENTS; • ESTABLISH PRECISE POLICIES AND PROCEDURES SO THAT WORK IS PERFORMED IN THE SAME WAY EVERY TIME. CLOSELY MONITOR WORKERS TO ENSURE COMPLIANCE; • CONTAIN AND COMPARTMENTALIZE ALL RESPONSIBILITY, DECISION-MAKING, DISCRETION, AND POWER EXCLUSIVELY WITH THOSE IN AUTHORITY; • ENSURE THAT EACH WORKER IS WELL-MATCHED TO THE SPECIFIC PRE-DETERMINED REQUIREMENTS OF THE FUNCTION ASSIGNED.

18. TAYLOR’S LEGACYPrinciples of Scientific Management • ELIMINATE ALL DUPLICATION OF EFFORT, REQUIRING THAT TASKS ARE PERFORMED EXCLUSIVELY BY THOSE TO WHOM THEY ARE ASSIGNED. A CHILLING PROPHECY “WE ARE GOING TO WIN AND THE INDUSTRIAL WEST IS GOING TO LOSE. THERE IS NOT MUCH YOU CAN DO ABOUT IT BECAUSE THE REASONS FOR YOUR FAILURE ARE WITHIN YOURSELVES. YOUR FIRMS ARE BUILT ON THE TAYLOR MODEL. EVEN WORSE, SO ARE YOUR HEADS”. Konosuke Matsushita, Founder Matsushita Electric, Ltd.