Theories are perspectives with which people make sense of their world experiences. Formally, a theory is a coherent group of assumptions put forth to explain the relationship between two or more observable facts. Such perspectives are called invisible powers to emphasize several crucial uses of theories, the ‘unseen’ ways in which we approach our world.
First, theories provide a stable focus for understanding what we experience. A theory provides criteria for determining what is relevant. To Henry Ford, a large and compliant work force was one relevant factor as he theorized about his business. In other words, his theory of management included, among other things this assumption about the supply of labor.
Second, theories enable us to communicate efficiently and thus move into more and more complex relationships with other people. Imagine the frustration you would encounter if, in dealing with other people you always had to define even the most basic assumptions you make about the world in which you live! Because Ford and his managers fully understood Ford’s theory about manufacturing automobiles, they could interact easily as they faced day-to-day challenges.
Third, theories make it possible indeed and challenge us to keep learning about our world. By definition, theories have boundaries there is only so much that can be covered by any one theory. Once we are aware of this, we are better able to ask ourselves if there are alternative ways of looking at the world (especially when our theories no longer seem to fit our experience) and to consider the consequences of adopting alternative beliefs. Two cases are instructive.
One example involves world politics. For years, what might be called a theory of the Cold war dominated diplomatic activity between the United States and the Soviet Union. During those years, most diplomats and military officials did not consider what the world would be like if the Cold War ended. But, however the ‘Cold War’ theory no longer fits our experience and government and military officials as well as managers of other organizations, are scrambling to develop new theories for dealing with former enemies on a more cooperative basis. For examples, the breakup of the Soviet Union and Russia’s struggles towards financial stability have left some of the world’s top scientists unemployed, struggling with poor equipment, and willing to work for little pay. In this breach US firms such as Corning, American Telephone and Telegraph and United Technologies have capitalized on the opportunity this presents by funding research facilities in Russia.
The other case takes us back to Henry Ford. Ford has been criticized or not using his approach as a way to learn about better ways to run his company. While Ford was giving his customers no choice about anything other than price (which was attractive!). Beginning in the 1920s, Sloan rejected part of Ford’s theory about running a business in favor of alternative ways to design automobiles and organize manufacturing and distribution. GM’s marketing strategy had always been to market nationwide with cars of interest to different segments of the public. Sloan set up separate divisions with central direction from headquarters, to market the Buick, Oldsmobile, Pontiac, Cadillac, and Chevrolet lines. In contrast to Ford, each type of car has its own distinction and price differential.
We will focus on four well established schools of management thought the scientific management school, the classical organizations theory school, the behavioral school, and the management science school. Although these schools, or theoretical approaches, developed in historical apaches developed in historical sequence, later ideas have not replaced earlier ones. Instead, each new school has tended to complement or coexist with previous ones. At the same time, each school has continued to evolve and some have even merged with others. This takes us to three recent integrative approaches: the systems approach, the contingency approach and what we call the dynamic engagement approach to management.