Managerial Theory

Managerial Theory

The function of wisdom is to discriminate between good and evil. – Cicero

However imperfect, theoretical constructs help organize thoughts and learn about subjects. The main economic theories are Adam Smith’s laissez-faire and the invisible market hand, post Depression Keynesianism, and microeconomic and macroeconomic universal principles such as business cycles, demand and supply, Okun’s Law, and so on. The present essay will touch on a brief introduction to some management theories.

While some concepts are fairly straightforward, some nuances can complicate the whole picture. On the one hand, Punanandam (2008) writes that ‘financial distress’ means low cash flow, deadweight losses but still solvent. On the other hand, ‘insolvency’ means that the final maturity amount is lower than the face value of debt, resulting in control and ownership loss. Distinctively nuanced definitions. Financial distress would be the step between solvent and insolvent.

Some theories come from investment banking, wealth, portfolio and asset management; others from knowledge and corporate management. Many managerial theories are psychological in nature. To illustrate, management of one’s own and other people’s emotions, heavily studied by the Psychology department, is also of uttermost importance in the workplace.

The discipline knowledge management (KM) may have appeared in response to the computerization of information, but there may be a new level: wisdom management (WM). To the theoretical body of KM characterized by neo-liberal and positivist approaches, McKenna & Rooney (2005) adds the wisdom dimension. A resource with which the older generations are better endowed, making them in turn, corporately advantageous. The following are the concepts associated with superhuman astuteness:

• Life purpose and how to go about fulfilling it
• Existential crisis resolution
• Superior consulting and decision-making skills
• Multidimensional knowledge
• Harmony
• Ethics of care

Buddhist monks would likely advise one to look for the golden middle; such balance seems to be the elusive wise essence. Wisdom, intelligence, cleverness, adaptability, speed, sharpness, alertness, creativity, experience, persuasiveness, perspective, sustainability, flexibility, broad spectrum, talent … all these terms have some overlap in their meanings.

Two fat women trying to understand managerial theory. Photo by Elena

The Pyramid of Knowledge consists of the following building blocks, from bottom to top: Data ⇒ Information ⇒ Knowledge⇒ Wisdom.

Knowledge trumps information because it can be used for operational rationalization. WM would be in action if the decision makers had access to the collective dialectics, values, and ethics (McKenna & Rooney, 2005). Leaders must have a capacity to motivate their teams to get things done, and wise leaders have a better chance of materializing the condition. Surely, abilities such as interpersonal and intrapersonal insight and self-restraint create an advantage.

McKenna et al. (2009) expands on WM by exposing the set of 5 wisdom principles in the form of prepositions. Preposition 1: reason and meticulous examination. Preposition 2: openness to irrational and intuitive explanations. The third and fourth refer to civility and virtue for the former, practicality for the latter. The last principle has to do with oration, aesthetics “and seek[ing] the intrinsic personal and social rewards of contributing to the good life” (McKenna, 2009; p. 180).

Business and management studies are a relatively new field. In Germany, business studies became an official scientific discipline in 1957, with the famous speech delivered by Erich Gutenberg (Albach & Bloch, 2000).

Challenges to Managerial Theory

The theoretical body of knowledge is colossal, but an academically aware person knows better than to believe anything she or he hears, reads or even sees. Aside from the rule to avoid believing any single experiment before independent replication, theories and premises must be scrutinized and evaluated in lieu of blind acceptance.

Christensen & Raynor (2003) talk about some of the challenges faced by managers. When a goal must be attained, the contradictory messages overflowing the supervisor are striking. Occupying a managerial position means responsibility. One cannot simply try out strategies until finding out which one works. An old wisdom (and a Metallica song) says ‘one man’s fun is another’s hell’, so it seems to be with companies. Even the most reliable, theoretically viable strategy may work for one company, yet bury another. The ensuing problem seems to be one of lack of customization. In the article, a parallel is drawn between the medical and managerial professions, remarking that a physician must first inquire of symptoms and then write a prescription, while academicians ‘prescribe’ generic management theory to companies they have not even seen. The comparison is thought provoking, but seems a bit far-fetched in terms of sameness of the two set-ups. An illustration is given in the form of Lucent Technologies. Given the success that decentralized companies experienced, Lucent followed suit. Integrally different from the rest, the results were catastrophic. Bottom line, the theory must be appropriate to the firm’s circumstances. Mikulecky (2010) also deplores the ‘one size fits all’ structure of management theory.

Challenging the theory. Photo by Elena

A problem with data collection for new theory creation comes in the possibility of over-generalizing results from a few exceptions to all businesses. Non-representative samples and differential circumstances are other common mishaps. Organizational charts are often used to graphically outline the corporate hierarchy. The writer maintains that the pictorials are in fact a very bad representation of what actually goes on inside corporate walls.

But surely there is hope… Although theories are prone to, sometimes severe, limitations, they remain an important part of one’s education and understanding. Guidelines, such as the Occam’s razor, can guide one in choosing which management theories to pay attention to (Meier, 2006). Occam’s razor refers to the scientific principle of parsimony.

Christensen & Raynor (2003) warn that sound managerial theory must have the following three components: establishment of the cause(s), prediction of likely outcomes and either the ability to work in all cases or to identify the cases where exceptions prevail. Similar to choosing the most parsimonious explanation, such guidelines may indeed help cross through the varying theory edifices.

In conclusion, even though one cannot rely a 100% on scientific paradigms, the implications of research are significant. See Brownlie (2008) for a picture of diverse disciplines that benefit from, and contribute to, these key ideas. The author also underscores the distinction between theory and practice, and the importance of the practical aspect. The debates, questioning and doubts are not only to be expected, but also most likely beneficial to the building of a solid theoretical construction.

Defining aspects of an academic article are the abstract and references sections. It shows the reader what the article is about, so that the decision can be taken whether to go on reading or to stop. As many a student knows, these types of articles can be lengthy and quite technical, but the summaries concisely state most of the gist of the work anyway. Of course, it is nevertheless imperative to read the whole thing to really understand what the message is, and that is – if then. The golden rule is that peer-reviewed academic journals, preferably with publication dates in the last 10 years unless classics of their field, make for good residents in bibliographies. Books, proceedings from conferences, government reports and census or statistical data are also acceptable sources for compiling research papers.

References:

• Brownlie, D., Hewer, P., Wagner, B. & Svensson, G. (2008). Management theory and practice: Bridging the gap through multidisciplinary lenses. Special Issue of European Business Review, 20 (6): 461-470.
• Christensen, C.M. & Raynor, M. E. (2003). Why hard-nosed executives should care about management theory. Harvard Business Review, September, 1-11.
• Meier, K. J. (2006). Management theory and Occam’s razor: How public organizations buffer the environment. Empirical Study of Organizations and Public Management, May 4-6, Texas: 1-28.
• Mikulecky, D. C. (2010). A new approach to a theory of management: Manage the real complex system, not its model. In Wallis, S. E., Cybernetics and systems theory in management: tools, view and advancements. Information Science Reference: Hershey, PA.
• Albach, H. & Bloch, B. (2000). Management as a science: Emerging trends in economic and managerial theory. Journal of Management History (Archive), 6 (3): 138-158.
• McKenna, B., Rooney, D. & Boal, K. B. (2009). Wisdom principles as a meta-theoretical basis for evaluating leadership. The Leadership Quarterly, 20: 177-190.
• McKenna, B. & Rooney, D. (2005). Wisdom management: Tensions between theory and practice in practice. Knowledge Management in the Asia Pacific (KMAP), Nov. Wellington, NZ: 1-28.
• Punanandam, A. (2008). Financial distress and corporate risk management: Theory and evidence. Journal of Financial Economics, 87 (3): 706-739.