Case Study: A System Approach
Qiana.Reynolds
01CH_Frates_Health_Care.pdf
1 Origins of Organization Theory
Learning Objectives
After reading this chapter, you should be able to:
• Apply organization theory to health care organizations.
• Define and identify the major elements of theory.
• Trace the history of organization theory and the development of management as a profession.
• Examine the major foundational organization theories.
Ford Motor Co./Associated Press
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Henry Ford’s Revolutionary Vision: Affordable Cars, a Caring Workplace
After creating the Model T car in 1908, Henry Ford revolutionized the automobile industry by instituting the assembly-line mode of production. In 1914 he caused a national sensation by dou- bling the prevailing wage for factory work to $5 a day. Ford recognized that to implement his vision of building affordable cars, he needed a workforce of skilled and stable employees. To achieve this objective, he offered attractive incentives such as profit sharing to encourage his employees to save for their futures. This policy was highly effective: In 1914 the average Ford worker had $207.14 in savings; 5 years later this figure was $2,171.14 (Snow, 2013).
The Model T was the first car specifically designed to be affordable for the average consumer. Its price was made possible by production innovations like assembly-line manufacturing and interchangeable parts. The $5 daily minimum wage for Ford workers and the company’s initiatives to improve employee health and social wel- fare were as revolutionary as Ford’s manufacturing pro- cesses. Together, all of these groundbreaking tactics were successful: By 1918 half of all cars on American roads were Model Ts. The Ford Motor Company’s story illus- trates how organization theory evolved in the context of changes in business processes and how employee health and well-being began to be recognized as an important asset for a successful company.
Employers today are increasingly including wellness programs in their health insurance benefits; a grow- ing number offer incentives for participation and for achieving specific health outcomes. According to the National Business Group on Health (2012), a coali- tion of large public and private employers that pro- vide health insurance to more than 55 million people, 80% of member firms reward program participation, and 38% have penalties for noncompletion. The most popular incentives are premium reductions (used by
61% of employers); cash or gift cards (used by 55% of employers); and employer-sponsored contri- butions to a health savings account or similar health care–based savings vehicle (used by 27% of employers). Table 1.1 describes the wellness incentive programs used by several major corporations (Wieczner, 2013).
Copyright Bettmann/Corbis/AP Images
Henry Ford built affordable cars using well-paid workers.
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Table 1.1: Selected employer wellness-incentive programs
Incentive plan Typical annual value
Pros Cons Example
Educational/ awareness
$120 health risk assessment; $130 biometric screening.
Simple activities, provides good data on workers’ health needs.
Informing work- ers about risks does not mean they will take action.
Caterpillar Inc. cuts premiums $75/month for complet- ing health risk assessment.
Action based $200 to $350 for actions following assessment.
Motivates work- ers to change behavior.
Incentives do not encourage long- lasting changes.
Houston city workers must undertake three tasks to avoid $25 monthly pay- roll surcharge.
Cafeteria $25 to $125 per task.
Freedom to choose health actions.
Too many options can be confusing; tasks not targeted to specific health problems.
JetBlue Airways offers $25 for teeth cleaning, $400 for com- pleting Ironman Triathlon.
Progress based $100 for reaching a healthy weight.
Rewards progress, not perfection.
Improve- ments may not be enough to achieve good health.
Florida Blue insurance offers rewards up to $500 for reduc- ing health risk factors.
Outcome based Up to $200 for quitting tobacco.
Effectively makes workers achieve objective health measures.
Could be discriminatory; employers must offer alterna- tives to obtain incentive.
Furniture maker K1 charges workers variable premiums based on health risk status.
Targeted $100 to $125 for targeted programs.
Personaliza- tion boosts participation.
Workers may perceive person- alized interven- tions as intrusive.
Johnson & John- son cuts premi- ums by $500 for health profile, plus $100 to $250 for participat- ing in tailored activities.
Source: Wieczner, J. (2013, April 9). Your company wants to make you healthy. The Wall Street Journal, p. R6.
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Section 1.2Organization Theory and Its Applications in Health Organizations
Critical Thinking and Discussion Questions Go to the National Business Group on Health’s Wellness and Healthy Lifestyles web page to answer the following questions:
1. Summarize the business case for employers to offer wellness programs and to encourage workers to participate in them.
2. Discuss the business opportunities for health insurers and health care provider organiza- tions in wellness programs.
3. What evidence is there that wellness programs are effective in changing worker behavior and in reducing employers’ health care costs?
1.1 Introduction to Organization Theory This chapter focuses on organization theory and its applications in health organizations. It begins by defining theory and its principal building blocks and explores the reasons to study organization theory. Two fundamental conceptual models are presented as exam- ples. The evolution of organization theory is traced to place it in the context of business history in the United States. The chapter concludes by discussing the major early organi- zation theories that are now classics in the management literature.
1.2 Organization Theory and Its Applications in Health Organizations
Health organizations are complex entities that are exciting places to work and challenging businesses to manage. Because health organizations affect everyone’s lives, they are also the subject of intensive public scrutiny and regulatory oversight. Regardless of their size, health organizations are part of a huge and often disjointed system with many stakehold- ers. Whether for-profit or not-for-profit, they share a fundamental purpose—to facilitate the delivery of health care services to improve individual and population health. For all of these reasons and more, health organizations have unique structural and behavioral characteristics. Researchers from many disciplines have studied the behaviors of health organizations and the people who constitute them, mainly by considering how general business concepts apply to the health care field. Understanding organization theory is critical if health organization managers and leaders are to succeed in their careers.
Theory Defined and Explained
In simplest terms, theory is an attempt to explain something one observes or believes. A more formal definition of theory is:
A scheme or system of ideas or statements held as an explanation or account of a group of facts or phenomena; a hypothesis that has been confirmed or established by observation or experiment and is propounded or accepted as accounting for the known facts; a statement of what are held to be the general laws, principles or causes of something known or observed. Source: From Dictionary of Theories by Jennifer Bothamley, copyright © 2002 Visible Ink Press®, Reprinted by permission of Visible Ink Press.
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Section 1.2Organization Theory and Its Applications in Health Organizations
Theories often encompass other concepts such as principles, hypotheses, rules, laws, and paradoxes to delineate what their authors are trying to explain. Organization theory focuses on individuals and teams working in business organizations. Health administra- tion theory draws on many different fields of study to explain how complex health orga- nizations work, including management, psychology, neurobiology, sociology, economics, anthropology, political science, and mathematics. This list expands as researchers from diverse academic disciplines develop new insights applicable to health organizations.
Theory, as the conceptual statement of an idea, is the foundation of research. Research, whether qualitative or quantitative, supports theory. For more formal scientific endeavors, theory guides the formation of hypotheses, which are statements of expected results or relationships. In applied business research, theory underlies problem statements, which are concise descriptions of operational processes that need improving.
Constructs are the building blocks of theory. A valid theory requires identification through at least two constructs. In organization theory related to health organizations, common constructs include quality, efficiency, satisfaction, performance, leadership, success, and other terms that require precise definition in research activities. Variables are the defin- ing tools for constructs; their key characteristic is that they are physically identifiable or have a precise meaning in the physical world. In research the independent variable (or predictor variable) is controlled and manipulated by the researcher, while the dependent variable is observed or measured for change as a presumed result of the variation in the independent variable. The independent variable is therefore the presumed cause, the dependent variable the presumed effect. As with constructs and theoretical models, at least two variables must be used to describe a construct. Measures are operationalized variables, identifiable either as numbers or categorical descriptive terms. Complicating elements include confounders, variables that the researcher discovers during the study and cannot control for, and contextual factors, a term used to describe myriad items in the environment that can impact the results of the study. Both confounders and contex- tual factors are difficult to identify in advance but important to consider when conduct- ing research or attempting to develop mental models of theories (Johnson, 2009).
Theory in Action: Hospitals’ Adoption of Total Quality Management
Researchers Kennedy and Fiss (2009) studied factors motivating hospital administrators to adopt total quality management (TQM) as a quality-improvement tool. Hospitals that were among the first to use this approach (early adopters) were considered industry leaders, thus distinguishing themselves from competitors. As TQM became a common health industry practice, hospitals that hesitated to use it (later adopters) were perceived as old-fashioned and lower quality care providers. Kennedy and Fiss proposed the following hypotheses related to the constructs of quality, innovation, and success:
• Early adopters were motivated by the perceived opportunity to achieve economic and social gains.
• Later adopters were motivated by the perceived threat of incurring economic and social losses.
(continued)
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Section 1.2Organization Theory and Its Applications in Health Organizations
Rationale for Studying Theory
Studying theory allows one to think about observations and beliefs from a wider perspec- tive than personal experience and to apply this knowledge in a broader context. More importantly for health care managers and leaders, it enables a deeper understanding of organizations as human systems and opportunities to apply what is learned to a variety of administrative situations.
Why Study Organization Theory? In today’s world organizations impact almost everyone. Most people work for or in organizations; if self-employed they interact with organizations as clients. Additionally, organizations carry out many functions of social life and are found in every sector of society. Health organizations have certain distinct characteristics based on their mission to improve health, regardless of whether they are directly involved in health care ser- vice delivery. Health care professionals who understand organization theory will have an important competitive advantage over their peers, many of whom lack this knowledge.
Organization theory, although usually covered as part of the general management cur- riculum, is not considered as essential an element as such basic business functions as finance or marketing. Compared to these subjects and the hard sciences that clinicians
Theory in Action: Hospitals’ Adoption of Total Quality Management (continued)
• The motivation to achieve social and economic gains was associated with more extensive practice implementation.
• The motivation to avoid social and economic losses was associated with less exten- sive practice implementation.
The researchers divided the dependent variables into two subsets: (a) motivation for adoption and (b) extent of implementation. They measured motivation by surveying hospital chief executive officers (CEOs) about the reasons they made TQM decisions, and supplemented these surveys with a series of 10 qualitative interviews to better understand how the CEOs would interpret the survey items. To measure the extent of TQM implementation among hospitals, the researchers used three scores: (a) CEOs’ reported progress in implementing TQM; (b) the percentage of senior managers and full-time staff who had received formal TQM training; and (c) how many departments or TQM teams used 10 common TQM tools. Confounding variables for which the researchers controlled in their statistical analyses included hospital size, whether a hospital belonged to a multihospital system, and the number of competing hospitals and health maintenance organizations (HMOs) in the hospital’s geographic area. The independent variable of adoption timing was less complicated; hospitals that had implemented TQM more than 4 years prior to the study were classified as early adopters, the rest as later adopters.
All hypotheses except the first were supported by analysis of the data. Hospitals that were early adopters of TQM were not more motivated by economic gains than later adopters. However, they were more motivated by social gains. such as being perceived as a market leader. Kennedy and Fiss (2009) concluded that (a) both early and late adopting hospital administrators’ TQM decisions were based on perceived opportunities and threats and (b) the extent of implementation reflected their concerns about economic and social gains and losses. Those motivated by opportunities did more to implement TQM, and those motivated by threats did less.
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Section 1.2Organization Theory and Its Applications in Health Organizations
study, organization theory is “fuzzier,” with less precise and objective content and count- less theories. Organization theory scholars have not developed a commonly accepted conceptual model of the organization in its environment, and much organization theory research does not fit neatly within a specific school of thought. While this lack of a com- mon model is often frustrating for students, it allows researchers to creatively study orga- nizations by applying flexible theoretical constructs that produce interesting and useful insights (McKinley, Wood, & Moon, 2011).
Applying Theory to Practice A key objective of management education is to convert findings from research and analysis into actionable information. Just as physicians develop, through their training, a clinical mental framework to diagnose and treat their patients, health care professionals develop an administrative mental framework to study organizations, then use what they learn to maximize their effectiveness working in and leading them (Johnson & Olden, 2009). This can be done on the job, through experience, and in the classroom (physical or virtual) through experiential learning. Applying organization theory concepts and principles to solve meaningful and relevant problems is a highly effective way to make this “fuzzy” discipline both clearer and more useful.
Conceptual Models
Naizaro (2012) offers a simple, results-oriented explanation of what he calls a conceptual framework. Its key elements are concepts based on specific propositions, derived from empirical observation and intuition, and placed within a logical and sequential design. Its purposes are to
• clarify concepts and propose relationships among the variables in a study; • provide a context for interpreting the study findings; • explain observations; and • develop theories from these observations that are useful to practice.
Using conceptual models makes research findings understandable and generalizable, or applicable in a broader context and to situations beyond the original study. They are often illustrated with a pictorial model to show the relationship among the parts of the theory, as in the following section depicting two well-known organization theories.
Maslow’s Hierarchy of Needs The basic premise of Abraham Maslow’s (1954) hierarchy of needs theory of motivation is that basic needs such as food, shelter, and safety must be met before an individual can be concerned about higher level needs such as establishing social relationships, developing self-esteem, and attaining personal fulfillment. For example, a low- or moderate-income family without employer-sponsored health insurance might recognize the importance of this protection but will make paying for food, housing, and transportation a higher priority.
As Table 1.2 indicates, the first three lower level needs are a function of external factors, and the latter two higher level needs are internal, or within the individual. The highest
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Section 1.2Organization Theory and Its Applications in Health Organizations
need, self-actualization, is unique for each individual. It encompasses the desires for achievement, personal growth, intellectual stimulation, and autonomy. Self-actualized employees take pride in what they accomplish, relish learning new skills, and enjoy the freedom to do their jobs effectively and efficiently.
Table 1.2: Maslow’s hierarchy of needs
Level and need Description
1. Physiological needs Food, water, sex, and other things necessary for individual and population survival
2. Safety needs Shelter, secure home and work environment
3. Social needs Contact and interaction with other people, belonging, affection, love
4. Esteem needs Recognition, status, respect
5. Self-actualization needs Achievement, personal development, autonomy
Herzberg’s Two-Factor Theory of Motivation A few years later Frederick Herz- berg (Herzberg, Mausner, & Snyder- man, 1959; Herzberg, 2003) adapted Maslow’s hierarchical needs model by compressing the five needs into two levels of motivating factors in the workplace. The three lower level hygiene factors included basic con- ditions of employment such as pay, benefits, job security, physical and social work environment, and rela- tionships with bosses and coworkers. The higher level intrinsic motivators included recognition for skills and accomplishments, the nature of the work itself, opportunities for growth and advancement, and flexibility in how the work is accomplished. Figure 1.1 illustrates Herzberg’s two- factor theory of motivation. Its basic tenets are that employees will be dis- satisfied unless the hygiene factors are in place. However, they will not be highly satisfied unless the higher level motivators are available.
High Hygiene and High
Motivation
Low Hygiene and High
Motivation
High Hygiene and Low
Motivation
Low Hygiene and Low
Motivation
Motivation
Hygiene
Figure 1.1: Herzberg’s two-factor theory
of motivation
Herzberg’s two-factor theory of motivation asserts that employees will be dissatisfied unless hygiene factors are in place, and they will not be highly satisfied without the availability of higher level motivators.
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Section 1.3History of Organization Theory
Mark Murphy (2012c), founder and CEO of Leadership IQ, reframes hygiene and motiva- tional factors as shoves and tugs: “Shoves are those issues that cause people to lose their passion, enthusiasm and even consider quitting. Tugs are those issues that get people excited, ignite their passion, and make them committed to staying with an organization or boss” (para. 4). As an example, he presents the case of Pat, a nurse at a major teaching hos- pital. Pat’s major tugs are working with highly intelligent people on challenging research projects and having many opportunities to participate in studies and even receive publi- cation credit. Yet since the hospital instituted flexible work schedules and changed all the shifts, Pat’s carefully crafted arrangements for child care and school pickups are no longer workable. Until she can fix the shove of her schedule, the tug of research opportunities will not mean much.
1.3 History of Organization Theory Organization theory developed from attempts to study and understand life in real-world organizations. In turn, theorists and researchers who analyzed organizations provided ideas for managers, leaders, and consultants to change their organizations. As organiza- tions have become more complex, so has organization theory evolved to become richer, deeper, more specialized, and more comprehensive. Furthermore, the various “schools” of organization theory developed during certain time periods.
Organization theory has deep his- torical roots. Shafritz, Ott, and Jang (2011) present a detailed chronology of organization theory that begins during the Jewish exodus from Egypt. Jethro told his son-in-law, Moses, to delegate authority over the tribes of Israel to the most able people, who would be named as rul- ers of units of thousands, hundreds, fifties, and tens. Jethro thus recom- mended creating a hierarchy with clearly defined levels of authority and reporting structures. The higher the organizational level, the greater the authority. A hierarchical struc- ture is most often depicted as a pyra- mid, as shown in Figure 1.2.
The typical hospital organizational chart also reflects a hierarchical struc- ture, as shown in Figure 1.3.
Executives
Managers
Supervisors
Workers
Figure 1.2: Hierarchical organizational
structure
The most common organizational structure for all types of businesses is a hierarchy.
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Section 1.3History of Organization Theory
Figure 1.3: Hospital organizational chart
The hospital executive team’s principal members oversee financial, patient care, and operational functions.
Business Evolution
Health care organizations, like other forms of business, have undergone extensive changes over time. These organizational changes reflect technological advances, economic devel- opments, social trends, and political dynamics. These driving forces of change have in turn produced shifts in public expectations for health care organizations and new chal- lenges for their leaders.
Industrial Revolution In the 18th century England spawned the Industrial Revolution by developing factory systems for producing and distributing products. These industrial workplaces of mass production were the birthplace of organization theory; they grew to become huge, com- plex economic enterprises, operating according to a set of basic principles that reflected the era’s prevailing beliefs in Europe and the United States about the nature of work and the relationship between employers and employees. Early organization theory focused
Chief Executive Officer
Legal Counsel
Chief Financial Officer
Chief Nursing Officer
Chief Operating Officer
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Section 1.3History of Organization Theory
on scientific approaches to determine the best way to organize work processes for maxi- mum efficiency, which emphasized task specialization and the division of labor.
A key factor in the industrial employer-employee relationship involved the change in the tools of production. In pre–Industrial Revolution days, workers had their own tools and were skilled in their use. With the advent of power-driven machinery, factories purchased the equipment, and workers, who often lacked special skills, were trained to operate it. The equipment was expensive; to justify its purchase and maintenance as a return on investment (ROI) required a sufficiently high level of productivity and the lowest possi- ble costs, including the cost of labor. In this system, workers were considered less as indi- viduals and more as interchangeable and easily replaceable elements in the grand indus- trial production system. Today health care organizations are keenly aware of the value of labor and its contribution to the extremely high cost of sophisticated capital equipment and technologies. In considering the ROI for a positron emission tomography scanner, for example, one must include not only the initial purchase or lease price but also the consid- erable ongoing costs for maintenance and the highly skilled technicians who operate such sophisticated equipment.
Economic Foundations of Organization Theory The purpose of a business organization is to pro- duce goods and services for economic benefit and to achieve economic goals. Adam Smith (n.d.), considered the father of economics, articulated the intellectual foundations of capitalism in his 1776 seminal work, An Inquiry into the Nature and Causes of the Wealth of Nations. Through the divi- sion of labor, organizing work for maximum effi- ciency increases production. Smith extols labor specialization as a means to develop skills and refine knowledge and as the basis of a manufac- turing process that enables one man to do the work of many, creating higher quality products at lower prices. He astutely notes that more highly skilled workers can perform more work. The use of machinery further reduces total labor costs, which creates advantages for everyone, including the workers. Smith’s work extends economic the- ory into the realm of moral philosophy. A major underlying assumption of early organization theory was that people act in accordance with rational economic principles; Smith delineated these principles.
Universal Images Group/SuperStock
Scottish economist Adam Smith wrote An Inquiry into the Nature and Causes of the Wealth of Nations. It detailed the division of labor and how to maximize efficiency in the workplace.
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Section 1.3History of Organization Theory
Web Field Trip: Building Cars, Saving Lives
What a Difference a Century Makes Detroit’s industrial ruins: http://www.detroityes.com/industry/02modelt.php
Toyota Motor Manufacturing: http://www.toyotageorgetown.com/tourvid.asp
1. Take a photo tour of Detroit’s industrial ruins to get a sense of how the Industrial Revolution shaped urban life in the United States in the early 20th century—and what life was like for workers in the formative years of the auto industry. Note the enormous factories that produced the Model T Ford and other American brand cars in Motor City (or Motown, as it came to be known in the 1960s), as well as other huge manufacturing plants operating in America’s industrial heyday. For contrast, take a brief video tour of the Toyota Motor Manufacturing plant in Georgetown, Kentucky. Then consider the following questions: a. If you were an automobile assembly-line worker in 1920s Detroit, what would be
the most important aspects of your life at work? b. What are the principal differences between work on a Detroit assembly line in the
1920s and the Toyota assembly line in contemporary Kentucky?
America’s Essential Hospitals: http://essentialhospitals.org/about-americas-essential-hospitals /history-of-public-hospitals-in-the-united-states
2. Visit the America’s Essential Hospitals website for a photo and description of U.S. hospitals in the late 19th and early 20th centuries. Then watch a brief video of the surgical robotics being developed at the Johns Hopkins Engineering Research Center for Computer-Integrated Surgical Systems and Technology. a. Are there any similarities between the hospital settings in the early 20th and 21st
centuries? b. List the three most important changes in hospitals then and now.
Recognition of Management as a Profession
In the 19th and early 20th centuries, managers of large, increasingly complex organiza- tions faced many new challenges. Planning and organizing for the production of goods and the delivery of services on a large scale required them to control and coordinate the activities of large numbers of many different types of workers. They also had to arrange capital for plant financing and manage the flow of funds to suppliers and employees and from customers. However, the biggest challenge transitioning from small-scale pro- duction or service delivery in homes or small workplaces to a large-scale organizational system was to develop and maintain a trained and motivated workforce. To achieve this objective, managers had to understand how to manage people.
Paralleling the growth of manufacturing firms, other business and institutions such as universities, hospitals, and government agencies also became bigger and more complex. Like other businesses, health care organizations faced new challenges managing their employees in order to deliver public and private sector services efficiently.
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Section 1.3History of Organization Theory
Emergence of Management as an Academic Discipline Management gained recognition as a profession only after the Industrial Revolution began in the 18th century. It took another century for management to become an accepted aca- demic discipline. As organizations grew larger and more complex, the role management played in their success became more apparent, and scholars became interested in studying the human factors as well as the manufacturing processes that were most effective. The first organization theorists were practitioners who wrote about what they learned from their experience as managers in large organizations. They published their findings in reports and papers presented to professional societies. Examples of these works include Daniel McCal- lum’s 1856 Superintendent’s Report to the president of the New York and Erie Railroad com- pany, in which he notes six general principles of management. Henry Towne’s 1886 paper, “The Engineer as Economist,” presented to the American Society of Mechanical Engineers, articulates the importance for the mechanical engineer of the art of workshop management and proposes that the society systematically collect and share information on the topic.
In the early 20th century, both scholars and managers sought to establish the scientific bases of their various theories through formal research and to disseminate their findings through advanced educational programs. Management as a professional academic disci- pline encompasses both management concepts and practices and the activities of individ- ual managers. Harvard University offered the nation’s first master’s degree in business administration (MBA) in 1908 and established a doctoral program in business in 1922; that same year the Harvard Business Review published its first edition (HBS, n.d.). In 1936 a group of university management instructors founded the Academy of Management as an academic specialty organization, which in 1957 began publishing the Academy of Man- agement Journal (Academy of Management, n.d.b). Today there are 672 MBA programs accredited by the Association to Advance Collegiate Schools of Business (AACSB) in more than 50 countries and territories worldwide (AACSB, n.d.).
Health Care Management Academy of Management members participate in 25 divisions and interest groups focus- ing on various management subdisciplines. Dedicated to understanding the role of both health care professionals and organizations in providing health care throughout the world, the Health Care Management Division’s research focus areas encompass a wide range of management topics that are industry-specific for health organizations and work- ers (Academy of Management, n.d.a).
Marquette University in Wisconsin established the first baccalaureate degree program in hospital administration in 1922, but it folded after 6 years. A group of leading hospital executives founded the American College of Hospital Administrators (now the American College of Healthcare Executives) in 1932, and the following year the University of Chi- cago launched a master’s program in hospital administration. By 1948 a cluster of gradu- ate programs formed the Association of University Programs in Health Administration (AUPHA), which now includes undergraduate degree programs (Haddock, McLean, & Chapman, 2002). The AUPHA has a dual structure for validating the quality of health
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Section 1.4Foundational Organization Theories
administration educational programs: The AUPHA certifies undergraduate degree pro- grams; a separate but closely related organization, the Commission on Accreditation of Healthcare Management Education, accredits graduate programs (AUPHA, 2013b).
1.4 Foundational Organization Theories Because machines were the basis of productivity in manufacturing organizations, early organizational theorists conceptualized organizations as machines with people, capital, and equipment as their essential parts. The first organization theories focused on the structure of organizations and on the processes that made them work with maximum efficiency. Early organization researchers explored such basic questions as:
• What is the most efficient way to organize work? • What are the distinguishing characteristics of business organizations? • What are the essential functions of management? • How can managers increase employee productivity?
Scientific Management
Frederick Taylor is commonly recognized as the principal thought leader in the creation of a for- mal body of management theory. An engineer who invented carbon-steel machine tools, Taylor studied manufacturing processes extensively and intensively. Although best known for conducting time and motion studies and pioneering the con- cept of the efficiency expert, Taylor and his follow- ers used an array of tools that became available during the late 19th and early 20th centuries to discover the principles of scientific management. These tools included stopwatches, motion picture cameras, slide rules to study business processes, and both physical and mental tests for workers (Wooldridge, 2011).
Scientific Management Principles Scientific management represented a completely different way for employers and employees to view each other and to work together. According to Taylor (1947):
Bettmann/CORBIS
Led by Frederick Taylor, scientific management researchers sought to decipher the principles of management as a field of science.
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Section 1.4Foundational Organization Theories
The majority of these men [employers and employees] believe that the fun- damental interests of employees and employers are necessarily antagonis- tic. Scientific management, on the contrary, has for its very foundation the firm conviction that the true interests of the two are one and the same; that prosperity for the employer cannot exist for a long term of years unless it is accompanied by prosperity for the employee, and vice versa; and that it is possible to give the workman what he most wants—high wages—and the employer what he wants—a low cost—for his manufactures. (p. 11)
The principles of scientific management that Taylor set forth were clear and simple, and they raise issues that managers still face today. As with many theories, they are easier to talk about than to practice.
1. Use scientific methods and tools to determine the best way to perform the work. 2. Select the best worker for each job. Managers have three critical responsibilities:
a. carefully study the workers they supervise; b. systematically train them to do a continuously better type of work; and c. pay them higher wages for their improved productivity.
3. Bring together the science and the workers. Scientific management uses both positive and negative incentives to align employers and employees in a common effort for the mutual benefit of the workers and the firm.
4. Demonstrate that managers and workers are equally responsible for work results. Scientific line managers are expected to prepare and communicate plans to their workers, conduct time and motion studies to develop methods, obtain or adapt tools, and set up processes for workers to achieve maximum productivity standards. They are also responsible for training workers not just to do the work better but to understand the nature of the cooperative partnership between them and the company in achieving results.
The One Best Way Taylor’s research involved applying scientific methods to find the single best method and the optimal instrument or tool to use in performing a task, and to validate the “one best way” through further detailed observation and measurement. Henry Ford used scientific management to turn workers into specialists, arrange these specialists in an assembly-line manufacturing process, and offer them a package of incentives to ensure that they worked both harder and smarter for optimal productivity. Today health care researchers and man- agers assiduously study to identify and adopt best practices in both clinical and adminis- trative spheres, an approach derived from Taylor’s one best way.
Health Organization Applications of Scientific Management Hospitals have long used scientific management principles for such functions as allocat- ing beds and staffing operational units to care for a specific number of patients per year, as well as to assess nurses based on performance indicators such as number of patients seen, days absent, and patient record documentation detail. A recent and growing trend is the
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Section 1.4Foundational Organization Theories
use of “mystery shoppers” posing as patients who report to the medical practice, health plan, or hospital that hired them about their observations and experiences. Focusing on customer service, most fill out detailed checklists about each aspect of their encounter, from scheduling the appointment to any follow-up communication (Boodman, 2010).
Nebraska Medical Center (NMC) has adopted many cross-industry best practices from manufacturing industries. To better control supply costs, second only to labor expenses in a hospital’s budget, the hospital looked to Walmart as a business example. This research led to a partnership with Cardinal Health to manage the cost and flow of the supply chain. NMC now has a “just-in-time” inventory system with state-of-the-art technology that tracks supplies to prevent them from being lost, stolen, or stockpiled, and a more accurate billing system that allows the hospital to immediately charge a patient for any ordered supply. With a strong financial incentive for the supplier to achieve savings above the amount guaranteed by contract, NMC achieved $7 million in savings during the first 5 years of activation, increased revenue capture by $750,000, and maintained a success rate of over 99% in having needed supplies available for end users (Fosdick & Uphoff, 2007).
A team of managers at the Henry Ford Health System in Detroit, Michigan, used scientific management methods and advanced electronic technology to conduct a time and motion study of advanced-practice providers using personal digital assistant devices to assess their productivity in both inpatient and outpatient settings. The data collected over 3 to 5 work- days found that inpatient practitioners spent 61.2% of their time on revenue-generating activities; for outpatient providers the proportion was 59%. The results from this study illus- trate a current application of Taylor’s principles, enhanced through modern technological tools (Ogunfiditimi, Takis, Paige, Wyman, & Marlow, 2013).
The Gantt chart, a tool developed by one of Taylor’s disciples, is still used widely today in the growing field of project management. First developed in the 1890s by Karol Adamiecki, an engineer who ran a steelworks in Southern Poland, the chart became widely used in the early 20th century when Henry Gantt devised a version of it for his management con- sulting practice. Before computers were an integral workplace tool, Gantt charts had to be prepared by hand, and each change required a new or revised chart. Today it is easy to create and update Gantt charts such as the one shown in Figure 1.4 using standard office software such as an Excel spreadsheet (Gantt.com, n.d.); Microsoft’s project management program, Project, has a built-in Gantt chart creator (Office.com, n.d.). Health organiza- tions frequently use Gantt charts for project management activities that require input from multiple departments and stakeholders, such as
• building, renovating, and opening a facility (including patient transfers); • preparation for accreditation surveys; • large-scale proposals or bids; and • health plan service area expansions and new product launches.
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Figure 1.4: Generic Gantt chart
Health professionals find Gantt charts useful for large-scale project management.
Office.com (n.d.). Create a Gantt chart in Excel. Retrieved May 19, 2013, from http://office.microsoft.com/en-us/excel-help/create-a -gantt-chart-in-excel-HA001034605.aspx
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Case Study: Reinventing the Orange County Medical Association for the 21st Century
Reflecting on her first 3 months as executive director of the Orange County Medical Association (OCMA), Michele Blair discovered a number of challenges beyond those she had anticipated. Urged by the association’s president to apply for the position when the former director retired after 23 years, Blair had previously worked as the OCMA’s government relations representative and had the fund-raising and business development experience that the board knew the position required.
The OCMA’s executive committee had made it clear that its top priority was to strengthen the OCMA’s advocacy position, especially at the local level. To become a stronger presence, however, the OCMA needed to grow its membership. Blair was frustrated that most of her workday was
(continued)
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Section 1.4Foundational Organization Theories
Case Study: Reinventing the Orange County Medical Association for the 21st Century (continued)
spent dealing with time-consuming but insignificant matters. Although she had an experienced staff to handle these, they lacked ability or interest in doing so or in developing new skills and systems. The staff and systems she inherited were based on an outmoded business model:
• The prior executive director functioned primarily as an office manager and order taker for the president and executive committee. All seven staff members reported to her.
• Staff members spent most of their time on lower level clerical and administrative tasks; most had limited computer proficiency.
• The OCMA had no online administrative functions (e.g., dues/event payments by credit card) or social media presence—only a slow, static website that served primarily as an electronic bulletin board.
Her responsibilities as a landlord were Blair’s biggest stressor. The OCMA was proud of its mortgage-free building and the revenue earned from tenant rentals, but Blair quickly realized this arrangement had costs, despite its benefits. The aging facility had heavy maintenance and repair needs, difficult tenants made unexpectedly heavy demands on her time, and the staff had limited ability for facility management. Blair found most of the staff members’ skills and attitudes unsatisfactory, in spite of their high performance evaluations. The budget was tight, so hiring additional staff was not an option. Blair knew she needed to make some fundamental changes in order to do her job. The only question was where to start and how to persuade the board of the necessity for the changes.
Reflection Questions: 1. What are the key issues in this case? 2. What should Blair’s first priority be? 3. How can Blair inform the board about the challenges she faces? 4. How can Blair address the lack of fit between staff skills and what she feels are impor-
tant organizational needs?
Resolution Here are the steps Blair took to bring the OCMA into the 21st century.
1. She documented problems with facts. When no staff member was able or would even try to research membership demographics, Blair recruited a health administration student intern, who easily and quickly found the pertinent information and produced tables and charts to present it, such as Table 1.3 and Figures 1.5 through 1.7.
Table 1.3: Membership penetration of selected California county medical societies, 2006
Component society
2006 dues: full dues-paying members, dis- counted groups, and discounted new members
Medical board: num- ber of licensed physicians
Membership penetration based on num- ber of licensed physicians
Alameda-Contra Costa
2,128 6,935 31%
Fresno-Madera 651 1,910 34%
(continued)
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Section 1.4Foundational Organization Theories
Component society
2006 dues: full dues-paying members, dis- counted groups, and discounted new members
Medical board: num- ber of licensed physicians
Membership penetration based on num- ber of licensed physicians
Kern 273 1,049 26%
Los Angeles 2,983 26,616 11%
Marin 273 1,513 18%
Orange 1,368 8,705 16%
Placer-Nevada 216 1,192 18%
Riverside 755 2,692 28%
Sierra Sacramento 1,516 3,849 39%
San Bernardino 855 3,230 26%
San Diego 2,243 8,843 25%
San Francisco 851 5,322 16%
San Joaquin- Alpine-Calaveras- Amador
571 1,086 53%
San Mateo 951 2,495 38%
Santa Barbara 424 1,180 36%
Santa Clara 2,423 6,315 36%
Solano 260 778 33%
Sonoma 564 1,365 41%
Stanislaus 498 833 60%
Ventura 279 1,751 16%
Source: Orange County Medical Association. (2007, September 29). Executive board strategic planning session. San Diego, CA.
Case Study: Reinventing the Orange County Medical Association for the 21st Century (continued)
Table 1.3: Membership penetration of selected California county medical societies, 2006 (continued)
(continued)
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Section 1.4Foundational Organization Theories
Case Study: Reinventing the Orange County Medical Association for the 21st Century (continued)
2. She conducted a time study for herself and the staff by reviewing her calendar and asking staff members how they spent their time. Figures 1.5 through 1.7 display the results.
3. She proposed a reallocation of her time to place more emphasis on advocacy, meetings to develop and nurture relationships with physicians and stakeholder groups, and member recruitment/retention activities, as shown in Figure 1.6.
Figure 1.5: OCMA executive director current time distribution
As part of her study, the OCMA executive director reviewed how she currently spends her time.
Orange County Medical Association. (2007, September 29). Executive board strategic planning session. San Diego, CA.
Administrative Work 2%
Management of Staff 15%
Advocacy 10%
Database Management
5%
Public Relations 13%
Budget Planning and Facility Management
20%
Event Planning
3%
Meetings 12%
General Public Inquiries
5%
Member Recruitment
10%
Doctor to Doctor 5%
(continued)
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Section 1.4Foundational Organization Theories
Case Study: Reinventing the Orange County Medical Association for the 21st Century (continued)
Figure 1.6: OCMA executive director preferred time distribution
After analyzing how she currently spends her time, the OCMA executive director proposed a new distribution of time that emphasizes different priorities.
Orange County Medical Association. (2007, September 29). Executive board strategic planning session. San Diego, CA.
4. She laid the groundwork for staff reorganization by tracking, aggregating, and display- ing how staff members were spending their time (Figure 1.7) and by proposing several innovative ideas to attract and retain members. The board reacted enthusiastically to these ideas. When Blair pointed out that the current staff lacked the ability to imple- ment them, the board recognized that some current staff members would either have to acquire the needed skills or there would need to be some changes in the staff.
Administration 5%
Management of Staff 5%
Advocacy 20%
Database Management
2.5%
Public Relations 5%
Budget Planning and Facility Management
7.5% Event
Planning 5%
Meetings 25%
Public Inquiries
10%
Member Recruitment/Retention
15%
(continued)
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Section 1.4Foundational Organization Theories
Case Study: Reinventing the Orange County Medical Association for the 21st Century (continued)
Figure 1.7: OCMA staff current time distribution
As part of her study, the OCMA executive director also analyzed how other staff members currently spend their time.
Orange County Medical Association. (2007, September 29). Executive board strategic planning session. San Diego, CA.
5. When some staff members found their new job responsibilities not to their liking, Blair encouraged and helped them to find other work. She hired a chief operating officer with academic medical center physician group management experience and strong financial and information-technology skills. He focused on improving the organiza- tion’s data management systems and on developing expanded membership benefits through business partnerships from carefully vetted vendors.
6. She hired the student intern as director of member services, who enthusiastically set forth to increase membership by implementing the ideas Blair had proposed to the board of directors. These included: a. Obtain more feedback and input from hospital medical staff members and non-
members through surveys, focus groups, individual outreach and interviews, and web-based suggestion boxes and comment boards.
Administration 15%
Other 10%
Advocacy 4%
Database Management
25%
Public Relations
12%
Budget Planning
0%
Event Planning 9%
Meetings 6%
Public Inquiries
10%
Member Recruitment
8%
Management of Staff 0%
(continued)
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Section 1.4Foundational Organization Theories
Administration and Bureaucracy
As the scientific management movement gained influence, it also generated questions, opposition, and alternative theories. While Taylor studied work and organizations pri- marily from the perspective of the individual employee, later organization theorists examined organizations from the executive managerial perspective. As organizations responded to changing social and economic developments such as the growth of unions, new and emerging markets, and shifting political viewpoints and allegiances, organiza- tion theory became more comprehensive and more focused on the human relationships in organizational social systems (Johnson, 2009).
Administrative Principles A French executive engineer, Henri Fayol, proposed the first comprehensive theory of management in a 1916 book, General and Industrial Management. His work had little influ- ence in the United States, since an English translation was not published until after World War II. Fayol articulated 14 principles of management that he considered universally applicable to any type of organization (Fayol, trans. 1949).
1. Division of work: Reiteration of the benefits of specialization. 2. Authority and responsibility: Based on the position rather than the individual
office holder. 3. Discipline: Based on obedience and respect. 4. Unity of command: One boss gives orders to an employee. 5. Unity of direction: One boss and one plan for activities with the same objective.
Case Study: Reinventing the Orange County Medical Association for the 21st Century (continued)
b. Develop initiatives for member subgroups (e.g., new physician members and non- members, international medical graduates, women, retirees, medical students and residents, and office managers). In addition, the OCMA initiated committees of interest, including Wellness, Emergency Physicians, and First Friday Socials.
c. Introduce online membership and renewal by credit card; update website with new branding, new content for both physicians and consumers (preferred business partners, find a physician service), include a revised and updated physician direc- tory, and add a calendar of events.
7. Blair obtained board approval to sell the old building and purchase a new, beauti- ful building in central Orange County, conveniently located near the University of California–Irvine Medical School and a growing number of medical-device manu- facturing concerns, many of which were started by entrepreneurial physicians. Soon after the move, the OCMA started hosting monthly First Friday Socials/networking events for members and guests.
8. With the chief operating officer (COO) handling facility management, Blair focused her time and energies on developing collaborative relationships with other associations and community-based organizations and government officials.
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Section 1.4Foundational Organization Theories
6. Subordination of individual interest to general interest: The group or the com- pany comes first.
7. Remuneration of personnel: Fair, rewards good performance, reasonable, uni- formly applied, and easily understood.
8. Centralization: Tailored to the needs of the particular company. 9. Scalar chain: Line of authority that clearly delineates reporting relationships and
communication channels. 10. Order: For both materials and people, a place for everything and everyone, and
everything and everyone in its or his or her place. 11. Equity: Fair and equal treatment, based on kindliness and principles of justiceSta-
bility of tenure of personnel: Important because it takes time to learn new work, and turnover creates inefficiencies.
12. Initiative: Freedom and ability to propose and implement new ideas. 13. Esprit de corps: Harmony, unity, and team spirit in the organization.
In contrast to Taylor’s attention to workers’ tasks and how to organize them at the fore- man supervisory unit level, Fayol examined the organization from the perspective of top management. His work is therefore more focused on managing an organization than on managing an individual employee (Johnson, 2009).
Bureaucracy Max Weber was a prolific German social philoso- pher who is probably best known for his work relating the Protestant work ethic to capitalism. His writings, covering a broad range of topics and fields of inquiry, were instrumental in form- ing the new academic disciplines of sociology and public administration in the late 19th and early 20th centuries. Weber ’s model of bureau- cracy, described through a simple set of charac- teristics, is his most salient contribution to the field of organization theory.
When asked what first comes to mind upon hearing the term bureaucracy, some of the likely responses today would be: stuffy, old-fashioned, rigid, hierarchical, rule-bound, inflexible, by the book, civil service, and stifling. Weber, writing in the early 20th century, intended to illuminate the characteristics found in effective bureaucracies by contrasting them with older industrial structures from earlier stages of industrialization. In a 1922 work published after his death, Weber proposed several essential characteristics that enabled man- agers in bureaucratic organizations to effectively make decisions, control resources, treat workers fairly, and accomplish organizational goals.
The Bridgeman Art Library/German/Getty
Max Weber created a model of bureau- cracy that was particularly influential in 20th-century organization theory.
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Section 1.4Foundational Organization Theories
Distinguishing between government “bureaus” and private sector “offices,” Weber iden- tified the principal elements of each (Weber, Gerth, & Mills, 1946). Table 1.4 lists these key characteristics of a bureaucracy, with examples of each that can be found in contemporary health care and other organizations.
Table 1.4: Weber’s bureaucracy and its modern legacy
Weber’s characteristic of bureaucracy Applications in contemporary organizations
Fixed and official jurisdictional areas are generally ordered by rules.
• Written job descriptions specifying official duties
• Personnel classification systems
Authority to give commands is strictly lim- ited by rules concerning the coercive power of officials.
• Employer penalties for hostile work environment
• Employee rights legislation and regulations
The staff is organized in a clear hierarchy, with supervision of lower offices by the higher ones.
• Organization charts showing levels of supervision and reporting relationships
Management of the modern office is based on written documents.
• Written policies and procedures, includ- ing performance criteria
Recruitment to positions based on special- ized knowledge and training.
• Equal employment opportunity policies • Affirmative action laws and regulations
Office holding is a “vocation.” • Employer expectations and policies on disclosure of additional employment and conflict of interest
• Management development programs
Public monies are divorced from the private property of the official.
• Fixed compensation and benefits • Employee expense reimbursement
criteria • Business equipment use policies
Source: Adapted from Jaffe, D. (2000). Organizational theory: Tension and change. New York: McGraw-Hill, p. 90.
Administrative Behavior The emerging field of public administration produced some important contributions to organization theory during the 1930s. Columbia University professor Luther Gulick and his British colleague Lyndall Urwick discussed structuring work units by both purpose and process, analyzing the pros and cons of each approach. Grouping work by purpose involves combining the tasks, people, and resources within a single department or work unit under a department director who controls all of the staff and resources needed to accomplish the department’s goals. This approach increases efficiency by minimizing
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coordination time and costs; however, there is less specialization, which increases costs. By contrast, grouping work by process emphasizes specialization. Before the advent of electronic health records, many hospitals employed this approach, establishing a dedi- cated medical transcription unit or contracting with an outside service vendor to tran- scribe physicians’ dictated notes into patients’ medical records.
Gulick, who served as president of the Institute of Public Administration from 1921 to 1962, is probably best known for articulating in 1937 the seven major functions of execu- tive management and the acronym POSDCORB as a memory aid for them:
• Planning: delineating in broad outline what needs to be done and how • Organizing: establishing the formal structure of authority and its subdivisions • Staffing: recruiting and training staff and maintaining favorable working
conditions • Directing: making decisions, giving general and specific orders and instructions,
serving as leader of the company • Coordinating: interrelating different work elements • Reporting: informing superiors and subordinates about what is going on • Budgeting: fiscal planning, accounting, and control
Executive-Level Management Chester Barnard drew on his Harvard Business School training and his experience as pres- ident of the New Jersey Bell Telephone Company to propose a comprehensive theory of human behavior in organizations and how managers achieve corporate objectives through the work of subordinates. A firm believer in many of Weber’s bureaucratic principles such as hierarchy, authority, rules, and explicit communications about them, Barnard empha- sized the role of cooperation as the basis for forming effective social relationships among organizational groups and individuals, especially managers. He was also among the first practitioner-writers to introduce consideration of ethics for high-level managers. In his seminal 1938 work, The Functions of the Executive, Barnard declared that the responsibility of the executive was to:
1. create a vision for the organization that included a moral code of right and wrong as well as a clear business purpose;
2. establish systems of formal and informal communication that recognized the value of social networks that naturally developed in the workplace; and
3. develop and nurture cooperation among individuals and groups through incen- tives that included both material compensation and moral, social, and psycho- logical rewards.
Barnard’s discussion of employee incentives, still germane today, is grounded in Herzberg’s theory of motivation. The challenge of finding effective incentives lies in either increas- ing positive incentives or reducing negative burdens for employees. Making work more attractive could involve raising wages or shortening hours. Organizations seek to make work more attractive both by offering objective incentives and by changing workers’ atti- tudes. However, an organization must be economical in offering both material and nonma- terial incentives, since resources are limited for both types. Furthermore, the nonmaterial
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Section 1.4Foundational Organization Theories
incentives often conflict with each other or with overall organizational goals. For example, the opportunity for personal prestige may entice some individuals to perform at a higher level, yet it usually involves a relative reduction in the personal prestige of other, possibly more productive and capable members of the organization. Thus, the organization must be thoughtful and selective in establishing and distributing both tangible and intangible incen- tives (Barnard, 1938).
Sue Brody, president and CEO of Bayfront Health System in St. Petersburg, Florida, argues that health care executives have an additional responsibility—to serve as the organiza- tion’s chief patient advocate. As such, he or she must manage limited resources to provide the best possible care for patients and also ensure the organization’s financial viability. Brody’s examples illustrate some of the difficult resource allocation choices facing health care leaders today:
• Should scarce capital be used to purchase a piece of equipment that treats a small number of patients with a very serious illness? Or should those funds be used for a device that treats a larger number of moderately ill patients, even though other (albeit less effective treatments) exist?
• Should a hospital spend money on a much-needed emergency department renovation that would more effectively address the community’s medical needs or use those funds to improve its balance sheet, thereby lowering the hospital’s cost of debt and ensuring the financial viability of the organiza- tion in an era of stagnant revenues and increasing costs?
• Should the hospital fund a community outreach program that may identify those “at risk” primarily treatable by a competing facility? (Brody, 2002, p. 1)
Applied Industrial Psychology
As interest grew in studying the science—or art—of management, organization theorists sought to improve employee efficiency and managerial effectiveness by applying theoret- ical learning to the workplace. Their work ushered in what became known as the human relations movement and a shift from the study of management as a scientific process to a multidisciplinary field that incorporated thinking from the behavioral and social sciences as well as engineering.
Hawthorne Studies This project started in 1924 as a study of worker productivity at Western Electric Compa- ny’s huge Hawthorne plant near Chicago, which manufactured telephone equipment for AT&T. Harvard Business School industrial psychology professor Elton Mayo and his pro- tégé Fritz Roethlisberger conducted an extensive series of experiments in the Hawthorne plant over a 9-year period. The longest running set monitored the output of six young single women working in a relay switch assembly–testing room from 1927 to 1932. Com- pany supervisors reviewed the workers’ productivity; Mayo and Roethlisberger periodi- cally conducted individual and group interviews. The test room’s informal atmosphere allowed workers to form strong friendships. Over the study period, productivity in the relay assembly–test room rose significantly. The researchers concluded from these experi- ments that positive attitudes, careful supervision, and cordial work group relationships
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Section 1.4Foundational Organization Theories
were associated with high productivity and job satisfaction. The Hawthorne research team also found that assembly-line productivity rose when workers knew they were being observed, without any other type of intervention. This phenomenon of subjects in behavioral studies changing their performance in response to being observed became known as the Hawthorne effect (HBS, 2012).
The Hawthorne experiments introduced some groundbreaking concepts for the 1930s, in the midst of the world’s most severe economic depression. Mayo and his team pro- posed ideas about motivational influences, job satisfaction, resistance to change, group norms, worker participation, and effective leadership that few researchers, much less practicing managers, were aware of. Today’s leaders take for granted that organizations that pay attention to human and organizational cultural variables are consistently more successful—but this was a controversial idea in the 1930s.
Scientific Family Management Frank and Lillian Gilbreth were followers of Frederick Taylor who extended scientific management theory through the use of motion picture cameras for more elaborate time and motion studies. These studies and other research they conducted after founding their management consulting firm demonstrated a strong link between worker satisfaction and productivity (Education Portal, n.d.a). Later the Gilbreths achieved widespread fame with their 1948 book, Cheaper by the Dozen, and its movie adaptation about how the couple applied scientific management principles to raise their 12 children (Shafritz et al., 2011).
Human Relations
Joining Elton Mayo in the call to involve workers more in managerial decisions were a rival group of theorists who became known as the human relations school. The growth of orga- nized labor, and of industrial psychology as an academic field of study, also contributed to a growing struggle between scientific and humanistic management (Wooldridge, 2011).
Participative Management Mary Parker Follett, a social worker who became a management consultant, was one of the few women to write about management in the early 20th century. Her ideas on par- ticipative management and employee group networks were far ahead of the times. In a 1924 essay titled “Power,” she proposed the concept of situational leadership power by distinguishing between participative decision making (“power-with”) and forceful coercion (“power-over”). “Do we not see now,” she observed, “that while there are many ways of gaining an external, an arbitrary power—through brute strength, through manipulation, through diplomacy—genuine power is always that which inheres in the situation?” (as cited in Lewis, n.d., p. 1). Follett’s ideas have had a strong and lasting influence on health and human services organizations. They are the foundation of such ideas as shared governance, a hospital model in which nurses have expanded authority, responsibility, and account- ability for patient care (Henry Ford Hospital, n.d.). Another application of Follett’s ideas in
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Section 1.4Foundational Organization Theories
health organizations is the use of interdisciplinary group network management to achieve patient care and organizational outcomes (Kadian-Baumeyer, n.d.).
Inconsistent Administrative Theory In a widely quoted 1946 article, renowned management scholar Herbert Simon noted that for almost every principle of administration, a plausible opposing principle exists. Intro- ducing his thesis with a contradictory pair of proverbs, “Look before you leap” and “He who hesitates is lost,” Simon drives his point home with numerous examples of alterna- tive conflicting applications of administrative principles, such as the health care example below regarding public health nursing specialization:
1. A plan of action should be put into effect by which nurses will be assigned to districts and do all nursing within that district, including school exami- nations, visits to the homes of school children, and tuberculosis nursing.
2. A functional plan of nursing should be put into effect by which different nurses will be assigned to school examinations, visits to homes of school children, and tuberculosis nursing. The present method of generalized nursing by districts impedes the development of specialized skills in the three very diverse programs. (p. 54)
Bounded Rationality Simon’s principal criticism of classical administrative theory was the lack of attention to the human decision-making process in organizational settings. Simon propounded the concept of bounded rationality as a more realistic approach to decision making, which addressed the limits faced by human decision makers regarding (a) how much informa- tion they can access and process, (b) how many alternatives they can identify and con- sider, (c) how objectively they can predict the consequences of their actions, and (d) how rationally they are able to evaluate the alternative courses of action. These limitations create bounds on the administrator ’s ability to make truly rational and optimal deci- sions. Managers, like people generally, usually make satisfactory decisions rather than going through the elaborate process necessary to arrive at an optimal decision; in most cases these satisfactory decisions were good enough for the firm to operate efficiently and achieve its goals (Jaffee, 2000; Johnson, 2009).
A corollary concept of bounded rationality is satisficing, when managers accept the first feasible solution presented rather than spend time researching and considering other alternatives. Simon and his colleague James March recognized that when organizations are faced with a new or uncommon problem, it takes time and resources to define the problem, formulate alternatives, and undertake a decision-making process to resolve it. Since time and resources are both limited in the business setting, there are inherent incentives and pressures for managers to satisfice rather than continue to spend time and money searching for and evaluating other possible choices (Cyert & March, 1963).
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Section 1.5Summary and Resources
1.5 Summary and Resources
Chapter Summary Studying organizations and how they work involves learning about different types of the- ories. A theory is an explanation of something one observes or believes. To test a theory, a researcher formulates one or more hypotheses stating the expected results or relationships among the variables measured. Research rules about how to test hypotheses guide the researcher in identifying and measuring variables that are physically identifiable or have a precise meaning.
Organization theory developed as an outgrowth of the Industrial Revolution, when manu- facturing shifted from homes or small workshops to large-scale mass-production facilities, and other types of public and private sector organizations also grew larger and more com- plex. Management became recognized as a profession and then as an academic discipline; health administration became an industry-specific profession and discipline as well.
The first organization theorists were industrial engineers who focused on work processes and productivity. Frederick Taylor developed scientific management methods to measure and analyze worker tasks and production process to improve efficiency and boost pro- ductivity. In France, Henri Fayol emphasized organizing work and workers logically to maximize efficiency and proposed a set of universally applicable management principles. German sociologist Max Weber defined bureaucracy and the characteristics of bureau- cratic organizations that enabled managers to function effectively and treat workers fairly. In the United States public administration scholars Luther Gulick and Lyndall Urwick also sought to capture the major functions of management with the POSDCORB acronym (planning, organizing, staffing, directing, coordinating, reporting, and budgeting). From the private sector Chester Barnard emphasized cooperation among organizational groups and individuals in his writings on executive responsibilities.
As organization theory expanded and as academicians from the emerging disciplines of sociology and psychology conducted research in the workplace, interest in the human aspects of management grew. Pioneers of the human relations school such as industrial psychologist Elton Mayo and social worker turned management consultant Mary Parker Follett advocated more worker involvement in managerial decisions, which laid the foun- dation for the concept of participative management. Herbert Simon pointed out the con- tradictions in some of the fundamental principles of management espoused by the classi- cal theorists and proposed bounded rationality as a more realistic approach to managerial decision making. Later Simon and his colleague James March made this concept even more pragmatic as they noted how managers often followed the principle of satisficing when making decisions.
Critical Thinking and Discussion Questions 1. How does one formulate and test a theory? Describe an example from your read-
ing or personal experience. 2. In Herzberg’s theory of motivation, distinguish between the independent and
dependent variables.
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Section 1.5Summary and Resources
3. Management theory evolved from the fields of economics, engineering, psychol- ogy, and sociology. Which of these disciplines do you consider the most impor- tant contributor to management theory and why?
4. What are some examples of best practices in health care organizations? How do they reflect Taylor’s scientific management—or not?
5. What are the advantages and disadvantages of the major elements of bureau- cracy for contemporary health care organizations?
6. Chester Barnard stated that an organizational vision had to include a moral code as well as a business purpose. How does this apply to health care organizations?
7. Can you offer an explanation for the Hawthorne effect, or why worker produc- tivity increases when workers know they are being observed?
Key Terms
best practices Identifying and emulating the methods used in the most successful organizations.
bounded rationality (Simon) The concept that there are limitations on humans’ abil- ity to make optimal decisions.
bureaucracy (Weber) Organizations characterized by formal and written rules, hierarchical structure, and recruitment by merit.
confounders Variables discovered during a study that the researcher cannot control for.
construct The conceptual elements of an idea or mental model.
contextual factors Items in the environment that can influence the results of a study.
dependent variable The condition that changes from the presumed effect of the independent variable.
division of labor Task specializa- tion; highly specific job functions and responsibilities.
experiential learning The application of theory to a real or simulated situation.
Gantt chart (Gantt) A project management tool that graphically displays planned, completed, and pending tasks.
generalizable Applicable in a broader context and to other situations.
Hawthorne effect (Mayo) A phenomenon in behavioral studies in which observation alone affects human subjects’ behavior.
hierarchy An organizational structure with clearly defined levels of authority and reporting structure.
hierarchy of needs (Maslow) A theory of motivation that ranks individual human needs from basic survival to personal ful- fillment; it postulates a progression from one level to the next as needs are met.
hygiene factors (Herzberg) Lower level employment needs involving basic condi- tions of employment that produce dissatis- faction if not met.
hypotheses Statements of expected results or relationships.
independent variable The condition that is controlled or manipulated by the researcher and that predicts a presumed effect, indicated by a change in the depen- dent variable.
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Section 1.5Summary and Resources
mass production Large-scale factory pro- duction using machinery and assembly- line processes.
measures Variables identified either as numbers or categorical descriptive terms.
motivators (Herzberg) Higher level employment needs such as recognition, growth opportunities, and autonomy that produce job satisfaction when met.
POSDCORB (Gulick) Essential manage- ment functions of planning, organizing, staffing, directing, coordinating, reporting, and budgeting.
problem statement A concise descrip- tion of an operational process that needs improvement.
return on investment (ROI) Profits received as a result of the purchase of goods or labor.
satisficing (March & Simon) Accepting the first feasible solution presented.
scientific management (Taylor) The application of concepts and tools from the natural and physical sciences to industrial and corporate business administration.
self-actualization (Maslow) The high- est level need, encompassing fulfillment through accomplishment, intellectual and personal growth, and autonomy.
shared governance Employee participa- tion in organizational policy making.
theory An attempt to explain what one observes or believes.
two-factor theory of motivation (Herzberg) A theory of motivation that states employees will be dissatisfied if hygiene factors are not in place, but they will be highly satisfied only if the higher level motivators are present.
variables Empirical units used to describe constructs in a theory.
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