History of Business

  • Socrates (5th Century BC): Discussed whether leaders of families who managed households could transfer their management capabilities to be military generals, discussed the duties of managers, (presidents usually were governors of states because their skills were transferable)

  • Sun Tzu (5th Century BC): Wrote the Art of War, talked about the effect of terrain on outcomes, how environment affects strategy and how to use it for the biggest advantage, discussed the importance of accurate and quick information, unpredictability requires flexible strategies in case of unexpected consequences, and political, military, and governmental environments all interact 

  • Adam Smith 1776: First call for division of labor, greatest gains where work can be most broken down, focus on the most complicated jobs to break down, said that we need to dedicate resources ahead of time and plan for things, he recommend that machinery and equipment allowed factories to divide work, he was focused in reducing the time of production (producing things in the fastest way possible), and discussed increase skill of workers, because division of labor allows each worker to be the best at their one job

  • Karl Marx 1860s: Theory of capital: managerial control of labor (if jobs are divided you need a manager to run all the jobs), created the idea of subordination for workers with one job, the idea of alienation: people get alientated/separated from the work they do because they have no control or connection to the work that they do/ the things they produce, and alienated from the manager and co-workers with different jobs. Resistance: As a result of the alienation, workers will organize and resist the process 

  • In the 1800’s, the industrial revolution occurs, with technology, subordination of labor, and factory system, allowing this system to occur, with creation of a working class/professional managers to run factories, leading to the rise of labor unions so employees can have more power

  • People now can outsource to factories around to produce goods for cheap because they are using the industrial revolution system

How Do Businesses Respond?

  • Scientific Management: Frienderick Winslow Taylor-1915: An engineer who ran scientific studies to figure out how to most efficiently divide a job into parts and redesign the process to maximize efficiency, this makes people tools for a job, easily replaceable

  • “Under scientific management, workers look at employers as their best friend in the world” (because “workers are making more money if they’re good at their job”)

Max Weber 1922: 

  • Came up with The Bureaucracy, the idea that we create bureaus, divisional offices that do the necessary jobs (ex. hiring, resources, etc)

  • Sources of Authority: 

    • Traditional Authority: You do what you do because of tradition (doesn’t work in bureaucracy)

    • Charismatic Authority: You do what you do because you like/admire the leader (not suitable for bureaucracy, tied to individuals, horrible boss)

    • Rational Legal Authority: You do what you do because the rules tell you to do it

  • Hierarchy of Offices: Formal set of offices and hierarchies/chains of command to ensure rules are followed

  • Formalized Rules: Rules need to be documented so they aren’t in question & apply equally to everyone

  • Career Paths: With a hierarchy, skilled and qualified workers can be promoted through the ranks

1900-1930: WW1, gilded age, great depression, factories begin making weapons, urbanization, owners lay off workers, women get the vote causing a shift in labor protection laws, especially for children, industrial disasters, labor unions form, congress restricts immigration (cheap labor), shifting to more humane practices

Mary Parker Follett: 1926

  • Compliance: Our willingness to follow rules depends on the context

  • “Situations” give orders; it’s clear what to do, so personal goals and ideas become less important than the situation and vice versa

  • This can’t be depersonalized, because everything is different for each individual, cannot consider everyone the same/a tool

  • Humanism: Focus on workers & well being, leads to modern HR

Hawthorne Studies-1941

  • Hawthorne; Western electric plant

  • A series of investigations on industrial efficiency

  • Increased/decreased lighting: testing how lighting impacts productivity

  • Observation impacted performance: workers knew their productivity was being watched and productivity increased

  • Informal Standards: Group decided correct level of productivity and constrained other’s work to match that level

  • Dissatisfaction is a function of employees, not work: sometimes workers just don’t like work or their boss, or have other factors contributing to less production, how efficient the work isn’t the only variable in employee satisfaction

  • Labor is no longer just an object, there are other variables to each employee

Herb Simon-1946: Rules for running a business/organization

  • Contradictory Proverbs: If there is a rule to how something should be done, there will probably be another rule that is just as effective (isn’t just 1 right way to do things)

  • Bounded Rationality: Businesses and people can’t run in a purely rational sense, because individuals aren’t completely rational

    • Limits to Info Processing: People & businesses only pay attention to a small amount of information at a time

    • Limits to alternatives considered: People and businesses cannot consider every alternative

    • Limits to prediction ability: people and businesses cannot predict everything/ always be accurate

  • Satisficing: Choosing the best option given the information had at the moment is the strategy for making most decisions, so satisficing is trying to make the best decision with the least effect form the limits, to get the closest to a rational decision, even though you can never make the purely rational choice