MT4 tutorial essay question: “Managers adopt management practices like teenagers adopt fashionable clothing. If many start to use them, everybody has to have them. There is no concern about whether the practices work or are effective. Managers just follow the crowd because they do not want to be ...
“Managers adopt management practices like teenagers adopt fashionable clothing. If many start to
use them, everybody has to have them. There is no concern about whether the practices work or are
effective. Managers just follow the crowd because they do not want to be seen as deviants. As a
result, there are lots of opportunities for those who dare to challenge conventions”. Discuss.
Fad-like rise and falls in management practices have been observed throughout management
history. In the case of organisational structures, the U-form made way for Chandler's (1962) M-
form that led to some overdiversified firms with recent breakups of Johnson & Johnson, and
General Electric signalling this. More recently, there have been periods where more open
structures like Oticon's spaghetti structure and Zappos' holacracy have gained some popularity.
In the case of labour relations, there have been oscillations between normative and rational
practices: from industrial betterment in the late nineteenth century to Taylorist scientific
management in the 1910s, to human relations school in the 1930s, to systems rationalism, and
most recently organisational culture (Barley & Kunda, 1992).
This essay consists of two parts. Firstly, we discuss why managers follow the crowd. This essay
argues that agency problems and managers' personal incentives support the view that
managers adopt fads to not be seen as deviants. However, a less cynical view of managers
adopting fads due to biased information and bounded rationality without selfish intent is
possible. Secondly, we discuss whether opportunities exist for those who challenge
conventions. We argue that while deviation could enable avoidance of value-destroying fads,
there are cases where deviation results in poor outcomes, even if the practice is not effective.
Firstly, managers adopt faddish management practices to not be seen as deviants, and their
misaligned incentives as agents support this behaviour. Separation of ownership and control,
along with dispersed small shareholders that free ride monitoring duties has led to agency
problems in many firms today (Hart, 1995). This means that even if managers know that
adopting a given practice may be bad for shareholder value, they may pursue it if it aligns with
their personal interests. Often, managers are incentivised and pressured by stakeholders to
follow management practice fads even if they have little real value. Stakeholders expect
managers to manage rationally and view the adoption of faddish management techniques as
efficient means to important ends (Meyer & Rowen 1977). From a case study on total quality
management (TQM) programs, we see that although companies adopting it did not have higher
economic performance, they were rated higher in management quality, with higher pay given
to CEOs associated with these trends (Staw & Epstein, 2000). Hence, managers, as agents, are
pressured by stakeholders to not be a deviant, and personal incentives align with adopting
ineffective or even value-destroying faddish management pratice.
However, a less cynical view is that good intentioned managers, as boundedly rational actors
exposed to biased information, simply tend to adopt these management practices. The
management knowledge industry (consultants etc.) often provides biased information in the
form of excessive emphasis on success stories and creating causal links between those stories
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