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Lectures introduction to business
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All 13 lectures from the course Introduction To Business are written in this document. Images from the lectures are used to explain the theory.
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Summary Introduction to BusinessBusinesses operate in all kinds of areas and are also very considerable in terms of size. A business is
the organized effort of individuals to produce and provide goods and services to meet the need of
society. We view business as a broad concept, incorporating profit-making concerns such as
manufacturing firms and banks, and non-profit-making or not-for-profit concerns such as schools,
hospitals and charities.
Businesses are complex. They cannot be understood by reference to their activities (innovation,
operations, marketing, human resource management, finance and accounting) alone. The activities
interact with one another. These activities do not exist in a vacuum, but are shaped by the context
within which they operate. Understanding the context has always been important, but now it’s even
more important. The relationship between business activities and these contexts is dynamic. This
course will help you understand it. This course will focus on environmental context, organisational
context and strategic context.
Strategic context: we are concerned with those management decisions, and the influences on those
decisions, that determine the direction of business activities. Strategies are often a question of
reconciling opportunities and constraints which exist within both the organization and the
environment in which it operates. The availability of finance is, in any case, a function of the
economic and political climate. Strategic issues are inseparable from the organization and
environment in which they operate. Economic, cultural and political globalisation have changed the
nature of business and created globally complex business structures.
A strategy comprises a set of objectives and methods of achieving those objectives. A strategy is
usually formulated by top management and is based on a mixture of careful analysis of the
environment and the organization, the personal preferences of the managers involved, and a process
of negotiation with various other stakeholders.
Organizational context: we are concerned with issues grouped under goals, structure, ownership,
size, organizational or corporate culture. All firms as they increase in size tend to adopt more
formalized structures. Formalized structures can inhibit certain types of product and process
development and size. In more general terms these organizational factors combine with
management strategy to create distinctive organizational cultures.
An organization refers to the way in which people are grouped and the way in which they operate to
carry out the activities of the business. We define the key elements of the organization as the goals
of the business and the way they are formulated, ownership and control, size, structure and
organizational culture.
Environmental context: We have identified five factors that operate at the environmental level:
- economy: the workers of the economy and its interaction with business activity as well as the
nature of competition.
- state: discussion of government, legal and political issues.
- technology
- labour: focuses on the working of the labour market
- culture and institutional differences: issues that differentiate businesses in different countries and
covers historical, cultural, political, economic and legal and regulatory differences.
The influence of all these elements and their interaction with individual organizations takes place
within the context of globalization. There is considerable interactions between these environmental
factors.
,Various elements of the Business in Context model interact with one another and influences go
backwards and forwards across the various levels. We are presenting an interaction-influence
model.
1900: Rise of capitalism
1914: World War I
1920: Roaring 20s
1930: The Great Depression
1940: World War II
1950: Reconstruction
1960: Moon landing, Cold War, OPEC (Organizational of the Petroleum Exporting Countries)
1970: Oil crises
1980: End of cold war
Two hundred years back in time: People lived and worked on the countryside. The work almost
completely relied on animals and human power. The industrial revolution caused the development of
machines. Companies and farmers grew much and this caused better living conditions. Many people
moved to the cities and started working for the factories. It meant the rise of the organizations.
Because of the large companies, it was needed to organize everything.
Bureaucratic management – Max Weber – Organizations as hierarchies
Max Weber saw that the work changed after the revolution and that there was more pressure on
organizing, but traditional forms of authority or leadership remained even. Leadership was based on
the importance of relationships, of kingship, or traditions. The underlying idea was that leadership is
the way it is, because it has always been that way. Weber criticized this type of authority. It’s
particular weakness for larger organizations. He criticized particularism/favoritism.
Particularism: hire, fire employees, leaders because of factors unrelated to organization: religion,
race, sex, relation, family connections.
Weber presented a more rational leadership and decision-making.
Weber gave birth to bureaucratic management. He was aiming for 6 elements:
1.Formal rules: why, what and how to organize? These rules shape many decisions about what to do,
how to organize and even who get promoted.
2.Hierarchy: the pyramid structure
3.Authority of office/position: authority was not linked to people or tradition anymore, but to explicit
formulated positions of offices.
4. Division of labor: There was a little division of labor at the farms. The new larger organizations
made it possible to divide the work. It ensured that expertise could be developed in specific areas
through specialized departments. It helped spread authority and it linked authority to expertise and
experience.
5.Systematic pay structure: the payment and promotion should be based on qualifications and skills.
6. Separation of work life and personal life: if two people in a company have a romantic relationship,
it’s better that one of them will work somewhere else.
Weber did receive a lot of criticism (red tape). People became focused on the rules. They forgot the
actual organizations goals. It also made organizations inflexible, because they focused on the rules
too much. It also gave room for covert particularism.
You can find bureaucratic management everywhere.
,Scientific management – organizations as machines
Frederick Taylor also grew up during industrialisation. He had much experience in the factories. He
saw the factories from the inside and the outside. He saw the increasing scale of production, growing
complexity and the rising need for smarter management. Weber looked at how better to organize
the whole system. Taylor zoomed in to the details of the work itself. He observed the work and the
workers and he believed that they were not working as hard as they could.
Taylor developed the ideas of scientific management. He believed that the worker was a rationally
calculating machines who is narrowly self-interested, desires to process wealth and is mainly
motivated my money. Taylor said that you should pay the workers well and then you could ask them
anything. He thought that piece wage (the more they produce, the more they get paid) would be
particularly effective. He wanted standardization and specialization of tasks (also of managers).
Taylor also believed in the separation of thinking and doing. They should be just follow the
procedure. The thinking should be done separately and with eye for detail. He wanted scientific
analyses of work and scientific selection of workers.
Taylor and his colleagues also did time and motion studies. They tried to find out the least amount of
time a worker took for a small separate task with the time studies. They conducted motion studies to
find out the fewest number of motions required for a task. They should observe the employees, take
the unnecessary motions out and select the most quickest motion.
Scientific management is introduced in many industries. The work can be done faster, but there are
also dark sides:
- Focus on controlling behaviour
- Poor/abusive notion of workers
- Unlimited notion of what motivates workers
- Individual focus
Human relations – Organizations as social systems
After World War I, the roaring 20s spread around the world. It was a decade of economic growth.
Bureaucratic management and scientific management had delivered great benefits. However, there
were motivation problems on the shop floor. Elton Mayo had another way of thinking, called human
relations. He hid research like Taylor to see what more can be done. His break through happened in
the mid-1920s. He was invited to study a textile mill that used scientific management, but had been
experiencing a high rate of employee turnover. Mayo believed it might be because the work was too
repetitive. It gave rise to ‘mental abnormalities’. Mayo thought that the solution was rest breaks.
More breaks kept the workers safe. It was still in line with the theory of Taylor, because he also saw
that break were important. However, Mayo thought that workers could be motivated by more than
just money.
Mayo did research in a Western Electric Factory outside of Chicago (Hawthorne studies) to build
further on the theory of Taylor. Mayo set up an experimental design. Some groups (experimental
groups) got brighter lights, other groups dimmer lights and another group (control groups) didn’t get
a change in light. The output was improved in all groups. When the experiment was done, the output
was again (most) improved. Mayo thought about interviewing the workers. Mayo’s interview
showed that the workers were not just motivated by money or rest breaks, but that they were also
very much motivated by attention. Attention improved the output. Workers’ attitude and morale can
counteract the negative effects of fatigue, monotony, and boredom. It highlighted the importance of
human relations. Emphasises informal relations, social groups, effective informal leadership,
participation and team spirit. There were also limitations of the Hawthorne studies. When you are
being watched, you will work harder automatically. The workers did not show their natural work
behaviour. Moreover, Hawthorne Works was not a typical set up. The workers were very different
, and it was a popular place to work. So it’s different to be sure that what was found there, also
applies to other places. But next studies showed that many insights were indeed highly valuable.
System theory – Organizations as living organisms
Before, the people thought that the organizations were closed systems. Due to the second World
War and need to work together to rebuild operations and countries, with a massive shortage in
materials, and rapidly increasing dependence on oil, it became apparent that organizations are not
closed systems. They are very much influenced by outside forces. This gave rises to the system
theory. There is not a specific person who started with system theory. In business thinking the work
of Katz & Kahn were particularly influential. They saw that organizations were a bit more complex
than the early thinkers thoughts. Because of the influence of outside forces and because
organizations grew. This was the context that invoked thinkers to look at organizations as more open
systems. All organizations are connected and influenced by outside forces. Organizations need to
adapt to the uncertainty and changing dynamics in their environment. The environment becomes
very important. Through feedback loops, the system adapts and learns to make changes necessary to
survive and grow in the environment.
Principles of system theory:
-Permeability: Organizations are open systems. Information and resources come in and out through
the boundaries of the organization. Some organization have more boundaries (for example because
they have a secret). Other organizations are more open. A firm needs to be permeable, because the
context is dynamic and unpredictable. Firms need to be open to sense these changes and to be able
to adjust and to survive.
-Entropy: if you do not take constant good care of it, a system tends to deteriorate. An organization
must stay healthy. The system should get back in order, back to what is called homeostasis or
equilibrium, maintaining the balance. The inputs, processes and outputs must be balanced so the
organization can obtain equilibrium.
-Holism: The organization need to be considered in their entirety. This applies three insights. First,
the organization is more than the sum of its parts. Second, the parts of the organization are
interdependent. Parts give each other feedback. Third, the whole system is made up of interrelated
subsystems. So you can study the organization in his entirety, but also the different subsystems.
-Equifinality: there is not one best way. There are many ways to organize.
The system approach is a view of business involving two related concepts. First, businesses are made
up of a series of interactions, involving business activities, the various aspects of the organization,
and aspects of the environment. What we identify as a business is the sum total of all these
influences and interactions. Second, the system approach views business as a series of inputs from
the environment, internal processes and eventual outputs.
Contingency theory is the most dominant form of system theory. This theory explicitly focuses on
how the organization fits the environment. It focuses again on structure and procedures, but the
extent to which they are appropriate depends on a good fit with the environment. The strategist
attempts to match the environmental opportunities and threats with the organization’s own strength
and weaknesses to develop an optimum strategy for the firm in question. Joan Woodward was a
pioneer in contingency thinking. She found that a bureaucratic approach works best for routine tasks.
While the organic approach generally works better for non-routine tasks.
The contingency approach focuses on the relationship between the organization and its
environment. It embraces the notion that business activities and the way they are organized and
products of the environment in which they operate. The most successful businesses are therefore
those that are organized to take advantage of the prevailing environment influences.
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