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By: Tendayi Mutsopotsi
21st July 2010
Executive Management in Business Administration
Ashridge Business School
Much of contemporary management theory and practice has been borne out of developed/western economies. Is this sustainable given current economic conditions? If so, why? If not, what can the West learn from society and business in emerging markets?
There is no doubt much of the contemporary management theory and practice has been borne out of western economies. The foundations of which can be traced back to the neo-classical approach whose emphasis was on how to improve employee productivity whilst maximising organisational efficiency. The human resources approach led to an emphasis on the ‘human behavior’ for achieving organisational goals and functions and in so doing made management practices more humane. The Quantitative approach was significant in contributing to the planning and control decisions in management decision making (13). Western economies are facing new challenges to remain competitive in the market place following the global economic crisis which originated from the United States because of the sub-prime mortgage lending, financial deregulation, inadequate supervision of banks, poor risk assessment, complex packaged financial instruments and inadequate transparency across markets (20). In today’s rapidly changing, super competitive, strategically challenging, complex market, global economic landscape and business environment, the decisive element is the individual (the employee) in determining success of an organisation. Senior management can no longer be detached from their employees (4). In that respect the two most important contemporary management approaches are: ‘Total Quality Management’ (TQM) and the "Learning Organisation" (17). In such a competitive environment, there is wider recognition of the importance in adopting a ‘Learning Organisation’, defined as one that has skills in acquiring, creating, developing and transferring knowledge as well as modifying its behavior to show that learning has taken place and resulting in new knowledge and innovative practices(12). Easterby-Smith describes it as an ‘ideal action - and change-oriented’ enterprise that maximises learning (10). The learning organisation is seen by Anderson (1) from a strategic point of view, as significantly important in very competitive situations because it builds the capacity to change direction, strategies fostering creativity, and new ways of doing things. Bartlett and Ghoshal (1995) captured these sentiments in a statement to a Harvard Business Review article: “In the emerging information age, the critical scarce resource is knowledge and not capital and the most basic task of corporate leaders is to unleash the human spirit, which makes initiative, creativity and entrepreneurship possible" (4). The Total Quality Management (TQM) is an approach that emphasis the management of the whole organisation in order to deliver quality goods and services to all its customers (12). W. Edwards Deming is probably the best-known advocate of this school of thought. This philosophy to management was implemented in Japan after the Second World War and was a major contributor in their economic recovery and success. Problems in product quality are prevented before they occur by involving the employee in the whole process. TQM focuses on the customer and the organisation must attempt to determine it’s customers needs and wants and deliver products and services that meets their requirements (12). A benchmarking process is utilised by always seeking out other organisations that perform an activity more effectively and using them as a benchmark, to judge and guide own performance. The organisation will also attempt to adapt or improve the processes used by other companies and utilise a philosophy of continuous improvement. The current state of the contemporary management theories is not sustainable. Too much emphasis placed on the ‘value-maximising individual’ is increasingly recognised as unacceptable. The Agency Theory is in doubt. The employees work in the best interests of shareholders and other stakeholders as epitomised by the ‘bonus culture’ where financial decisions are based on rewards for short term gains without concern for the consequences to wider economy (20). In order to understand human behaviour, greed, opportunism and self centred interests have to be recognised in the theories as is the relationship between the manager and shareholder/stakeholder. The efficient market hypothesis is inadequate. There needs to be a profound cultural shift in-order to change behaviour not just the current call for changes in MBA oaths, governance issues, social responsibility, and behavioural economics. The Catholic Social teaching argues that work is not only for the individual. Work is for one's family, work is for the whole nation and indeed for the benefit of the entire human family’ .
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Many Western companies have failed to implement the “Japanese Way” of TQM. In a study by Klaus J. Zink (31), companies selectively used some instruments and mostly focused on product quality without a fundamental change of inherent culture. This failure is exemplified by Toyota and Chrysler who have recalled millions of cars for mechanical faults. Many companies gave up on TQM because it was driven by consultants yet the full contents of TQM are relevant and necessary for any organization (31). Corporate sustainability based on a stakeholder approach is a concept being advocated. Graham Elkin et al (32) laments the lack of fully developed learning organisations in the West 40 years on. Their study looked at the impact of Eastern and Western philosophies upon the development of learning organisations and suggested that for learning organisations to thrive in the West, a different philosophical approach is necessary. A pragmatic approach and a relational view of the world allowed the development of natural learning organisations in China. The West can learn from Chinese organisations which have matured seamlessly into natural learning organisations. The call for good sound leadership has never been louder. The kind exemplified by Sir Fred Goodwin is the epitome of detachment of leadership from its employees and the wider society. Managers need to rediscover an ethical and moral suasion, to look more deeply and intensely at the relationship between risk and reward. There is some thought accepting the gap between business theories, practice and the wider society is wider than ever. The task at hand is to realign academic research with real wider needs of the society as a whole. There needs to be a deeper and proper understanding of risk management. There is some support for the Keynesian concept which is really important to management theories. Keynes advocated for a different type of capitalist system involving the socialisation of investment as an alternative to the current state of “neo-liberal” capitalism. The dynamism and entrepreneurialism of emerging markets means that the West can take advantage of that innovation such as in India where Tata Motors launched a car for a thousand dollars. In Zimbabwe poor people in remote areas can do banking or send money via very cheap mobile phones, whilst in the West the focus is only on high end smart phones. One of the strengths in emerging markets is their diversified economies as opposed to the largely service, retail and consumerism based in West. They are also investing in skill and talent development, are constructing schools, education centers and a significant proportion of the point skills (25). Multinational companies in emerging market tend to be family-run. They look to the long term, rather than short term, meaning they have a different view on investment cycles. Corporate structures in developed markets are a burden as well as government bureaucracy, strong trade unionism, and health and safety laws. In emerging markets the cost-bases are lower and therefore companies can command stronger positions in lower cost countries. Emerging markets thrive in tighter margins and have therefore developed rigorous cost efficiencies and mature markets can benefit from adopting such (15). A process of disruptive transformation is a key factor for an economy like the UK’s to prosper high up the value chain instead of low value added manufacturing because of high unit labour costs. Consumers in the West also need to learn to save more and borrow less (25). Richard Fiddis (15) encourages the west to spot opportunities as he points out that emerging markets sometimes fail to look at their own markets as they focus on pushing their business outwards The challenge for the West is therefore, to learn how to target and meet the needs of a broad range of consumers, develop a sustainable educational policy that creates a diverse talent pool, take advantage of capital particularly in sovereign wealth funds, innovation and inventions borne of necessity and delve into politically sensitive areas such as commodities. They also need to see where the power base and power shifts exist or are happening and take opportunities accordingly. As markets become rapidly more globalised and competition increasingly toughens with technological developments continuously redefining the competitive element, management theories will continue to evolve as happened at the start of the twentieth century and following the great depression. 2 of 2
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