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Management as a science:
emerging trends in economic
and managerial theory
Horst Albach
Koblenz School of Corporate Management, Vallendar, Germany, and
Brian Bloch
University of Auckland, Auckland, New Zealand
Keywords Business education, Development, Management education, Trends
Abstract This paper considers the scientific development of business education on the basis of
five criteria: if-then statements, freedom from values, spatial and temporal validity, objectivity,
and falsifiability. Methodologically, the emphasis is placed on emerging scientific and societal
trends which influence scientific research and the paper is aimed primarily at academics. The
paper also has an implicit politico-scientific theme. Considering the multiplicity of approaches in
management education, any attempt to take an overall perspective is likely to be controversial.
Specific themes include the interdependence problem, uncertainty, dynamics, the development of
various theoretical paradigms and trends such as globalisation and ecological consciousness. The
context of analysis and discussion is predominantly that of German management theory and, in
this sense, the paper provides a different perspective from that of other English-language
contributions in the area.
Introduction
Thirty-eight years ago, Erich Gutenberg (1957) delivered his famous lecture on
``Business administration as a science''. With this talk, Gutenberg established
Business Studies firmly as a scientific discipline at German universities. He
promoted the view that Management or Business Administration had
established itself as a science on the basis of three fundamental complexes of
questions:
(1) eliminating changes in the value of money from accounting;
(2) accurate cost allocation;
(3) uncertainty surrounding sales-related marketing decisions.
Since then, business education has taken a remarkable upswing at universities,
is frequently represented by its own faculties, and graduates are highly sought
after in industry. In public administration, business skills have broken the
traditional (in Germany) juristic monopoly. Business education appeals
substantially to young people to the extent that universities are now almost
overwhelmed by the demand. The pressure from industry to provide more
practical education has also largely been met. In this sense, management
studies have become partly like those offered by American business schools.
Journal of Management History,
Vol. 6 No. 3, 2000, pp. 138-157.
# MCB University Press, 1355-252X
The term ``management theory'' has been used as the closest possible translation of the German
``Betriebswirtschaftslehre''.
This, however, has raised doubts as to the scientific nature of business studies.
It therefore seems meaningful and necessary to reconsider the scientific
character of management theory. That will be done in the following two
sections. In the first section, the demands of a social-science discipline will be
considered. In the second section, emerging trends in modern businessmanagement theory will be measured against these demands. The next step is
to distinguish between the two related scientific trends, on the one hand, and
societal developments, on the other. The latter exert a significant influence on
the evolution of management theory.
The demands on management theory as a science
For Gutenberg, the basic criterion of a science was the if-then statement. For
example, the elimination of changes in the value of money from accounting
allowed if-then statements to be made on the effects of entrepreneurial activity
on societal welfare. The investigation of the determinants of cost facilitates
statements about the dependence of cost on the level of economic activity. The
results of market research allow statements to be made about the possible
reactions of consumers and competitors to the marketing strategies of firms.
Max Weber insisted that a science be value free, but this criterion has often
been misunderstood. Freedom from values does not eliminate ``an explicit
orientation towards the concrete economic and social goals which vary from
firm to firm'' (Drumm, 1993). However, the values or goals should not be
postulated by academics, but drawn from current market and societal realities.
They form a component of the problem to be investigated and must correspond
with reality. The academic or scientist does indeed work value free in this
sense.
The narrower the defined scope of research, the less the scientist can allege
that the results are valid independently of time and space. Statements about
large enterprises are inextricably bound up with the existence of the
capitalistically organised economy. Statements about smaller ``firms'', on the
other hand, are not so much linked to a particular economic order, but rather to
the monetary element of the economy.
Scientific statements must be objective. They are objective if a nonparticipating third person could evaluate and understand them. Empirical
results must be replicable. However, the criteria for replicability in the social
sciences can and should be less stringent than in the natural sciences.
Finally, Karl Popper's theory of falsifiability should be mentioned (Popper,
1935; 1964). The rigour with which this theory was originally defended has
somewhat lessened over the years, such that results are not discarded when
their multiple correlation coefficient is below 0.5 and the level of significance of
the regression coefficient is well below 99.5 per cent. Many scholars do not
strive to find counter-examples as Popper wanted, but seek instead ``credible
new paradigms'' more along the lines of Thomas Kuhn (1974).
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If-then statements, freedom from values, spatial and temporally general
validity, objectivity, and falsifiability are thus the five criteria which constitute
a scientific system of statement.
Developments in management theory
Scientific trends
In the future, it can be expected that the scientific trends that were observable
in academic research in the last 40 years will find their way increasingly into
practical applications. This marks the major difference between the current
trend and that which prevailed up to the end of the 1970s.
Developmental trends in management theory in the 1960s and 1970s
The 1960s and 1970s were dominated by formal extension of the theory of the
firm. The classic model of the firm, which worked on the premiss of several
freely available productive factors being combined into a single product and
being sold in a market with incomplete demand, had proven too narrow. The
multiproduct firm with interrelated production formed the focus of research in
theory of the firm. The assumption that resources are freely available was
dropped. Competition inside the firm for use of the various scarce resources
was up to that point an unresearched phenomenon. The use of operating capital
involves delicate decisions as to long-term utilisation. This is a quite distinct
issue from short-term factor allocation.
In the 1960s and 1970s, therefore, management theory turned its attention to
three problems:
(1) interdependence;
(2) long-term decision making;
(3) uncertainty.
The interdependence problem
In multiproduct enterprises, various products can be manufactured with the
same machine. Quite different raw materials or finished goods can be stored on
the same premises. The firm's financial resources can be used to finance a wide
variety of activities. Competition for these scarce resources constitutes one side
of the interdependence problem. The other side arises from the fact that
production is frequently executed in multiple stages or phases. It is possible
that each product follows a different order of production. That means that
either partially completed products await machining or vice versa. This
temporal element comprises the second component of the interdependence
problem. In order to resolve this problem, the theory of the multiproduct firm
was developed. Multiproduct theory can be termed general, because it
determines the optimal integration of all components of the business. The
theory is also objective; in principle, it is not difficult to understand. It is also
empirically sound; having led to a fundamental reorientation of financial
accounting procedures. Accounting and production planning are now
recognised as distinct approaches to management.
The problem of long-term decision making
The theory of the firm treats the productive capacity of the firm as given. Thus
the theory of the one-product firm with its Leontief production functions
proposes production at the limits of capacity in order to achieve optimal profits.
The assumption that capacity is given does not hold in the long run. Through
investment decisions, capacity can be altered. Investment decisions commit the
financial resources of a firm well into the medium or long term. However,
investment also generates returns which can be utilised over the long term. The
firm is therefore regarded as a ``going concern'' with many alternative forms of
current and future funding and with multiple and varied financial sources
outside the confines of the firm. Every theory that attempts to deal with this
complex interaction, especially empirically, can only do so partially. Capitalvalue theory can be used if one assumes that the only interest earned and paid
counterbalance over the life of an investment. If this assumption is confined to
the period beyond the planning horizon, then the theory of multi-stage
budgeting can be used. These theories certainly use value free and objective ifthen statements, which are also spatially and temporally generalisable. Despite
the obvious ease of falsifiability, these theories have proven themselves
empirically. Nonetheless, the dynamic investment theories discussed below are
superior.
The problem of uncertainty
Long-term decisions of the firm are fraught with uncertainty. This uncertainty
can be regarded as a fundamental business parameter with an impact on
preferences, factor allocation and production possibilities. Alternatively, it may
refer to competitors and other economic agents (Reiter, 1985, pp. 18-19). Efforts
to get to grips with this problem have shown that many subjective modes of
behaviour in the context of the principle of rationality are associated with
uncertainty. This has led to ongoing controversy in the theory of the firm.
However, it would appear that as before, because of the interdependence
surrounding so many commercial circumstances, uncertainty has never been
integrated satisfactorily into managerial theory. The discussion on the validity
of the Bernoulli Principle is by no means resolved.
The problem of uncertainty tends to go beyond the narrow issue of what
decision criteria are appropriate for modelling or coping with uncertainty. The
basic question as to how an enterprise copes rationally with uncertainty led to
the development of the theory of risk management. Recognition of risk and the
various methods of coping with it form the foundation of the theory. Amongst
other things, this has led quite logically to the point of view that less intensive
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use of scarce resources today creates greater economic viability over time in an
uncertain future. A current shift away from profit maximisation means greater
``flexibility'' and higher long-run profits.
Game theory facilitated an early methodical handing of uncertainty as found
in the work of Luce and Raiffa (1957) and Albach (1959). However, in the 1960s
and 1970s, game theory failed to establish a wide acceptance within the theory
of the firm. This changed radically in the 1980s (Schauenberg, 1991, p. 329).
After all, the widely-accepted proof that ethical business is ultimately
profitable is based on game theory (Krelle, 1992).
Recent theories have indicated that the enterprise itself is an institution that
serves to minimise risk, as will be elaborated on in due course. The theory of
risk management in the firm is still inchoate. We can do little more in this paper
than pose various if-then statements which can be tested, logically and
experimentally, to discover whether they meet the various criteria of validity.
Developments in management theory in the 1980s and the 1990s
The 1980s and 1990s saw a development in management theory which
necessitated a radical revaluation of the issue of decision making in firms.
Decisions are not made by one person; delegation is often necessary and
committees are frequently involved. It cannot be taken for granted that
delegation will lead to the same decision that the chief executive would have
made. In this light, the organisational problem of the firm has to be
reconsidered. Confrontation of this issue is characterised by three main
ramifications or problems:
(1) dynamics;
(2) information;
(3) motivation.
The problem of dynamics
The decisions of today affect those of tomorrow. The former Shah of Persia
used to speak of his ``underground bank'' and posed the question as to whether
it is more favourable to produce as much oil as possible in the short run and
invest the gains in order to earn interest or whether to leave it in the ground and
reap the gains at some point in the future when the asset itself is worth more.
This problem of inter-temporal allocation of scarce resources is of central
importance. With what future reactions from clients, banks, shareholders and
other interested parties must a firm reckon when it makes a decision today?
How can it ensure that, despite making current decisions which appear to run
contrary to profitability, the future decisions of clients are not prejudicial to the
firm? And are these decisions different when considered in the light of
competition or when it must be expected that competitors will have an impact
on the future effects of today's decisions?
The meaning of this dynamic theory of the firm can be explained by means
of an example. Traditional theory teaches us that in a recession it is meaningful
to drop prices to the level of marginal cost. Fixed costs will be lost, regarded as
sunk costs, which have no impact on the decision; the paper losses simply have
to be accepted. If the problem is formulated dynamically, it is evident that the
lower price limit remains below short-run marginal costs. If it is possible,
through still lower prices, to attract so many customers that higher profits can
be made in the future, then high current losses can be regarded simply as an
investment. However, future profits can be jeopardised by competition. For that
reason, a policy of price setting below marginal cost makes more sense in a
monopoly as opposed to an oligopoly.
The dynamic theory of the firm makes if-then statements about the temporal
effect of business decisions. These statements are objective in the sense that
they follow logically from the specified assumptions. However, it is quite clear
that they are not valid irrespective of spatial and temporal considerations, but
linked to societal and environmental structures and variables which are
strongly characterised by individualism and self-interest. With respect to the
latter, the theories lay claim to general validity. The statements are value free
in the sense that altruism and egoism are not judged, but regarded as polar
reference points of human behaviour in a society which creates both business
potential and constraints. When mathematically formulated, these statements
are objectively verifiable. They are also, to a substantial degree, falsifiable.
Whether or not an employee or colleague behaves loyally is also empirically
testable, as is the statement that in a recession a firm should not only accept
high losses, but deliberately incur them in order to gain new clients and ensure
their future loyalty.
The information problem
In the traditional theory of the firm, it is assumed that information is freely and
ubiquitously available. This factor is therefore not an explicit part of the
production or cost functions which deal with planning, organisation and
control (Luecke (1991) is an exception). These costs form part of fixed cost.
In the latest management theory, information is taken into account
explicitly. In the 1960s, an approach emerged with the premiss that the flow of
information inside a department is free, but not that between departments. In
team theory, information cost, profit forgone due to unsatisfied demand,
storage and interest costs were considered and it was demonstrated that
decentralised information systems, which consciously allow the existence of
informational deficits, could provide an optimal solution to the information
problem (Schueler, 1978; Marschak and Radner, 1972).
Traditional theory teaches that employees ought to be given clearly defined
tasks and that it is appropriate to assume that employees will execute these
tasks faithfully and as intended by the employer. It is further assumed that
superiors and subordinates are equally well informed and that informational
asymmetry has no impact on decision making. Recognising the naõÈvete of this
approach as early as the beginning of the century, Max Weber drew attention
to the need for control. Much earlier, however, Charles Babbage (1835) was
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thinking along similar lines. These writers emphasised that informational
asymmetry could indeed lead employees towards organisationally
dysfunctional behaviour. Current dynamic theory shows that such fears are
frequently unjustified. Informational asymmetry is not harmful when the
relationship between superior and subordinate is based on mutual trust and
confidence. If such a basis is established, it is possible to dispense with
resource-depleting control mechanisms and systems. The financial savings can
be paid out in the form of higher wages. Loyalty and altruism appear in the
dynamic theory as the highest form of self-interest. This is an important and
interesting result of the dynamic theory of the firm.
Organisational theory has thus inverted Lenin's famous words ``trust is
good, control is better'' into ``control is good, trust is better''. Trust is the most
cost-efficient form of control in the firm. It is developed partly by sacrificing
short-term profits or wages/salaries in favour of building a cooperative
working climate. It is thus quite meaningful to talk of investing in ``trust
capital'' in the firm. Thus trust capital is reciprocal; it flows not only in the
direction of management to workers but vice versa as well. The basic condition
is that tangible returns will be forthcoming in the future. The implication is
that the labour contract between firm and workers loses its short-term
character. It assumes the nature of a long-term partnership, which binds both
groups to the firm. In the language of Institutional Theory: the labour contract
regulates long-term transactions between firm and workers according to
relational law. Organisational theory thus forms the basis for a societal trend
that has been observed in the industrialised West for several decades: our
society is mutating from capitalism to human capitalism.
Recently, however, the problem of market information systems has been
reformulated. In the classical theory of competition, complete transparency of
information was regarded as characteristic of a perfect market. In an
oligopolistic market, information gained by observing the competition was
regarded as lowering the intensity of competition and thus as contrary to
societal interests. Currently, game-theory approaches are being developed
which deal with the question of precisely what information should be
exchanged amongst competitors and under what conditions, if the process is to
be beneficial to society. The results of this revaluation show that the effects on
society depend not only on the type of information exchanged, but also on the
market structure and the type of products being traded.
Information theory in its state-of-the-art form makes a series of if-then
statements which are linked to very special conditions. The theory is, however,
not spatially and temporally generalisable, which presents serious difficulties
in terms of empirical validation. Nonetheless, this theoretical contribution
shows, like no other in recent years, how dangerous allegedly general economic
theories can be when they are put into practice, without taking the postulate of
falsifiability seriously. Information theory has called virtually all the
statements made by classical market theory into question.
The problem of motivation
The diverging goals and personal preferences of members of the organisation
were excluded from the traditional theory of the firm by the assumption that all
employees strive to make decisions which are optimal for the firm. As soon as
economists relax this assumption, they have to integrate sociological
contributions to business. In this fashion, the theory of bureaucracy and
motivation has become a component of management theory.
Laux (1979, 1990) and Laux and Liermann (1987) posed the economicallyoriented question as to whether one can delegate at all, given the divergent
goals of employees. The pervasive problem of organising a firm in the light of
divergent goals had been considered to some degree in the 1970s, but was
tackled with due consistency and seriousness for the first time in the 1980s. It
was demonstrated that there are two basic means of coordinating the varying
goals of employees so that they focus on the common goal of the enterprise:
hierarchical control and monetary reward (Albach, 1974). Both cost money. The
lower the commitment or weaker the ties of the individual to the firm, the
higher the costs of attaining goal congruence. Medium- to longer-term labour
contracts lower these costs. At the same time, however, this raises market risk
for the entrepreneur, because he/she is no longer able to share risk with
employees in the form of job loss. This general model of organisation of the
firm is currently referred to as Principal-Agent Theory (Arrow, 1985). Without
doubt, this theory provides a scientific approach to the evaluation of
cooperation in organisations with diverging goals and varying levels of
information that finally dispels the ``folklore'' which prevailed for decades in
business-oriented organisational theory (March and Simon, 1958; Simon, 1981,
p. 82).
Paradigms and models
Of course, the depiction of economic problems in which the theory of the firm
has proven itself as a science provides only a partial view of the manifold
problems which management theory as a broader discipline encompasses. In
the following section, the perspective will be broadened in order to examine the
developmental tendencies of the subject as a whole. The picture which emerges
indicates a broad range and clearly demonstrates two trends:
(1) the development of paradigms;
(2) the tendency towards generalisation.
The development of paradigms
In the 1950s, the theory of the firm (in Germany) was centred on the productionoriented approach of Erich Gutenberg (1957). Research in the ensuing years
was based on this approach. The 1970s, however, were characterised by
attempts to break this pattern. A trend became evident which the sociologist
David Zeaman described as follows: ``One of the differences between the
natural and social sciences is that in the former researchers have attempted to
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meet the challenge posed by Newton, whereas social scientists have set about
in opposition to this''. In the interim, management theory in Germany has, in
addition to the productive approach, generated the following approaches[1]:
.
the decision oriented approach;
.
the systems approach;
.
the coalition-theory approach;
.
the labour-centred approach;
.
the behavioural-science approach;
.
the normative-ethical approach;
.
the political-administrative approach;
.
the information-systems approach;
.
the ``invisible-hand'' approach;
.
the negotiation-theory approach.
These manifold approaches have generally been followed with little if any
reference to and mostly in direct opposition to one another! What is of interest
here is not the content of the individual paradigms, but the fact that there are so
many ± such a variety of ways of mapping the industrial landscape.
The tendency towards generalisation
Management theory exhibits a remarkable tendency towards generalisation.
This might seem surprising, but is in fact inherent in the trend towards
specialisation which is manifest in most sciences. This is shown quite clearly
by the division of articles in the Zeitschrift fuÈr Betriebswirtschaft (Journal of
Business Management) over the years 1978 to 1992 (Table I).
Between 1978 and 1984, the majority of articles were located in the financial
area. This predominance was then superseded by articles on general business
administration and organisational theory. The change reflects the overall
theoretical development; increasingly, researchers adopted Principal-Agent
theory as the fundamental model. The more specialised the research became,
the more pronounced the trend towards generalisation within the research
itself. A more subtle analysis of the publications shows quite clear ``fashions'' or
``in'' themes. Thus, in the 1960s, a series of papers with a societal emphasis
emerged; since 1984, there has not been one article in this area.
Innovation theory, which, as late as 1985, was an area characterised by
serious deficits (Albach, 1985b) is today heavily researched and important
results have emerged, such as the work of Hauschildt and Brockoff (1993). With
respect to business ethics and organisational culture, what was once dismissed
as a transient fad is becoming ever more an area for serious scientific research
(Albach, 1992). In this area, human capital theory has exerted a constant
influence. Human capital in an enterprise is not simply the sum of skills and
modes of behaviour determined by the production process, but also
Subject
area
1978
General
management
Organisation
11
Personnel
management
Logistics and
materials
3
Production
P
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
%
16
18
11
13
16
19
34
19
18
16
11
13
13
17
234
16.3
6
11
10
14
12
9
16
11
12
16
26
12
16
7
189
13.2
8
5
6
5
2
14
4
7
3
4
2
4
7
4
76
5.3
1
5
2
1
3
2
-
5
8
2
4
2
5
5
48
3.4
9
4
5
2
1
3
2
-
5
8
2
4
2
5
5
57
4.0
Sales
14
14
5
11
4
12
5
12
9
6
9
6
12
11
16
146
10.2
Finance
14
43
22
21
21
17
23
5
13
11
10
12
26
14
14
266
18.6
Accounting
21
12
11
15
15
18
8
6
13
16
20
9
10
7
12
198
13.5
Managerial
control
-
4
5
2
4
2
1
2
4
-
-
-
26
1.8
Special
topics
2
-
-
8
12
12
13
12
10
14
10
14
16
12
14
15
15
18
198
13.8
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
1433
100.0
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Table I.
Articles by subject
area: Journal of
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encompasses managerial values and the ethical underpinnings of workers. The
education, training and development of human capital in enterprises thus relate
to ethical issues. The expression ``organisational culture'', with respect to this
aspect of human capital, has established a place in management theory. There
would also seem to be a nod here to the roots of the business discipline, which,
after all, can be traced back to the factory system and moral theology of Adam
Smith.
Societal trends
Business management is not a science that is conducted for its own intrinsic
intellectual or academic merit, but continually poses questions relating to a
fundamental societal institution ± the enterprise. Management theory considers
the conditions under which an enterprise loses its societal legitimacy, with the
intention of establishing how this legitimacy can be maintained. In this sense,
business theory is like a combination of the disciplines of medicine, science and
art.
The enterprise is a part of society as a whole and is thus affected directly by
developing societal trends. When new trends emerge, management theory
considers whether existing analytical techniques suffice in order to integrate
and generally deal with the effects of the trends. If unable to do so,
management theory enlarges the vistas of its scientific methods. Societal
mutations therefore set in motion new developments in management theory.
Five trends have recently exerted a major impact on management theory:
(1) globalisation of the economy;
(2) intensification of international competition;
(3) pervasive influence of the social market economy (i.e. the mixed
economy, market driven, but with a fairly substantial government role);
(4) increasing participation of women in the labour force;
(5) ecological consciousness.
The significance of these trends for the development of management theory
will now be considered.
The globalisation of industry
The development of transport and information technology, referred to as ``the
globalisation of industry'', has made the world smaller. This has in turn led
enterprises to be regarded as ``global players''. In the last couple of years,
globalisation has become a major theme in Germany and elsewhere,
particularly in relation to the effects it has had on employment (Martin and
Schumann, 1996). Highly intensified international competition has led to a
combination of downsizing and rationalisation of firms, on the one hand, and a
relocation in lower-wage countries, on the other. This is currently changing the
face of both labour markets and the local industrial scene, trends that will
inevitably exert a correspondingly powerful impact on management theory.
Already, these trends, and those described in the paragraph below, are reflected
in the writings of O'Brian (1992) and Haggard (1995) with respect to developing
countries, and that of Ohmae (1995) and Naisbett (1994) in a more northerly
perspective.
A few relatively large firms compete in global markets. The picture of the
``global player'' does not, however, refer to the individual major firms like
General Motors or Toshiba, but rather to a new organisational form of
worldwide competition. ``Global players'' are groups of enterprises which
comprise component and systems suppliers, as well as consultants, trading
houses and possibly banks. All these form a ``strategic family'' which competes
with other ``global players''. In other words, global competition has led to the
development of a new kind of inter-organisational cooperation. However, these
players are not necessarily large firms, as pointed out by Naisbitt (1994), and
innovative smaller firms sometimes play a key role, often but not always,
within strategic alliances.
It is clear, though, that the boundaries of economic units have become
blurred and fluid (Passau, 1994). In order to contend with this new picture of
global players, management theory has adapted the instrument of ``networks''
from the social sciences. Barrell and Image (1993) devote considerable attention
to the issue of cross-border and international networking and the substantial
intercultural awareness that it demands. McKenna (1991) considers the
networking issue from a marketing perspective. Because transactions between
individual enterprises in such a network are generally long-term, short-term
optimisation strategies and tools have lost much of their significance and
meaning. Traditional accounting, planning and control methods are inadequate
in the context of the new networks of organisations. The standard techniques
have to be expanded by long-term transaction-cost accounting and controls.
Intensification of international competition
The globalisation of industry has led to more intense international competition,
as indicated by the proliferation of such terms as ``global marketing'' and
``global sourcing''. The latter is emerging as a major competitive mechanism
(Hutmacher, 1996). International competition is based less on prices than on
innovation (Sturm, 1997). Indeed, innovation is currently being hailed as the
fundamental mechanism by which firms and indeed nations can retain and
extend their economic clout. Because the new products of a particular firm lose
their identity as innovations if they are not first-to-market, innovational
competition means temporal competition.
Time management has thus become an important new research area (Simon,
1989). Time management incorporates durations of research and development,
production, construction and delivery (Academy of Sciences, 1993). In
particular, the scientific analysis of production systems in the light of time
management has led to quite new insights into industrial management. This
emphasis has extended into a variety of different productive and work
situations (Beyer and Beyer, 1996). For example, stock reduction highlights
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shortcomings in production flows. Very short production series necessitate a
reduction in planning and preparation time (Wildemann, 1988; Kistner and
Steven, 1993) and lead to the introduction of parallel finishing times.
Lean production is often cited as an instrument for shortening production
times but, in fact, it can be argued that in terms of production depth, it merely
shifts production times on to suppliers (Reese, 1993). Only to the extent that it is
linked with parallel production (not possible within one individual firm) does
lean production really represent an effective shortening of production time.
Nonetheless, the concept has gained considerable popularity and extended into
the services sector (Biehel, 1994).
The reduction of production depth thus substitutes market relationships for
the former hierarchical relationships. There is a rise in the number of small,
autonomous economic entities operating in the market, which mirrors the
desire for autonomy in the market. However, this development is more a
consequence of the intensification of international competition than societallybased drives for independence (Albach, 1989; Stadermann, 1996).
Pervasive influence of the social market economy
In the 1970s, the developing countries started to seek a new economic order, a
``third path'' between socialism and capitalism. In the 1980s, a remarkable
degree of change has been manifest, characterised by broad recognition that
the market economy has superseded the planned economy. This development
is associated not only with greater material prosperity, but also with cultural
richness and a reasonably efficient solution to the social problems of health
care and ageing populations. The model of the social market economy has
permeated the world.
This fundamental change has led not only to the collapse of the socialist
economies in the East, but to new developmental strategies in the South. The
wide range of dialogues, stalemates and theoretical issues is considered in some
detail by Helleiner (1990) and Fatemi (1994). These developments constitute a
major challenge for management theory which is expected to contribute
towards understanding and dealing with the transformation process.
Management science must provide insight as to the optimal transition path of a
former ``people's own enterprise'' into the market economy. Traditional
management theory is ill equipped to cope with these revolutionary changes in
society.
New instruments are being developed, by which the transformation process
can optimally be managed over time and with respect to the concomitant
societal costs (Albach and Witt, 1992). In the German context, potential
strategies are outlined and analysed by Zinn (1992), Bossle and Kell (1995) and
Wuertele (1995). In this context, but within a more general framework, Murphy
and Tooze (1991) suggest that there is a need for a new form of international
political economy. Furthermore, the Global Modeling Project at the Matsunaga
Institute for peace at the University of Hawaii is aimed at allowing
management theorists and practitioners to consider a wide range of social,
economic and political values (Anonymous, 1997). It is hoped that such
contributions will also assist in defusing North-South conflict.
Organisational theory in particular, but management theory in general, is
faced with some daunting challenges. Researchers and theoreticians need not
only to understand the transformation processes of enterprises from the former
planned economies, but also to be able to assist in their formation and
development. In Germany, this problem was greeted in 1989 with excessive and
unrealistic optimism. In the interim, it has become clear that organisational
transformation is a two-dimensional process. An enterprise has to adapt itself
to its environment, which itself may be changing radically as in East Germany
or as part of an ongoing process as in other former Eastern-Bloc countries.
Christ and Neubauer (1994) examine the specifics of the East German
transformation with its striking East/West disparities which have yet to be
resolved and reconciled.
In East-German enterprises, reorganisation initially took the form of a
change in legal structure. In general, a public company or limited liability
company was selected. Then, organisational changes to management structure
were investigated of which privatisation, reprivatisation, management-buyouts and management-buy-ins are the best known. Finally, restructuring with
the intention of ``concentrating on core competencies'' was considered. This
involved determining which of the current strengths of the company were most
likely to lead to long-term viability. Unfortunately, it became evident time and
time again that the integration of the former socialist enterprises required
access to information and know-how-networks, in order to develop elusive nonmaterial capital which is vital for international competitiveness. Futurists at
the Heinz Nixdorf Institute in Germany have published a book on Scenario
Management (Anonymous, 1997), in which insights of this kind are provided.
The emphasis is on adapting systems thinking in a turbulent, globalised
environment in which there is more than one possible competitive future.
The critical factor is thus not the organisation of material capital but the
organisation of knowledge in the minds of management and workers. The
examination of transformation processes leads to a theory of organisation of
human capital in enterprises. The analysis makes clear that this process does
not simply mean returning the enterprise from the planned economy to the
capitalism of the industrialised West, but a transition from what was in fact
State Capitalism to something best termed human capitalism, which is not yet
fully developed even in the West.
Increasing labour-force participation of women
The number of career women has been rising steadily for several years
(Autenrieth et al., 1993). Businesses tend to react too slowly to this trend in
terms of concerted and consistent action (Domsch, 1993). Demands for more
part-time work, on the one hand, and for quotas of women, on the other, are
being made ever more fervently. According to Edmondson (1996), between
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152
1994 and 2005, women will make major relative gains in the workforce.
Patrickson (1994) confirms a similar shift in the male/female composition of the
labour force.
These are compelling problems and as such pose fundamental issues for
management theory, involving the development of new forms of work
organisation. The currently dominant form of labour organisation is that of the
large industrial mass-production plant. This is characterised by highlydisciplined working hours and a sacrifice of individual autonomy by workers.
Although this specific form of organisation is no older than 150 years, strong
similarities can be found in the bureaucracies of the thirteenth century.
Historically, the man carried out his profession and the woman was responsible
for the family (Mayer et al., 1991, pp. 57-90). The desire of women for a career
has become quite incompatible with this division of labour. The very
substantial societal and attitudinal shifts have made the workplace of the 1990s
enormously different from that of earlier periods, and the literature is reflecting
this consciousness (Asgodom, 1993; Demmer, 1988).
Those enterprises which succeed in creating temporal autonomy for women
as well as men are likely to hold a substantial advantage over competitors. This
and the above-mentioned demographic changes will translate into considerable
market and consumer changes which businesspeople and analysts of business
will increasingly have to confront and integrate in their work. Homogeneity
between the sexes is not to be expected (Myers, 1996), such that the quite
distinct needs and preferences of women will exert a growing impact on the
market, in terms of internal business structure (Bentner and Peterson, 1996),
management and consumption patterns. Management theorists are indeed
integrating the development of post-industrial forms of labour organisation
(Rehkugler and Voigt, 1990) into their writing to an increasing extent.
Ecological consciousness
Ecological awareness has also grown significantly in the last few years
(Kreikebaum, 1990, 1993; Albach, 1993; Markley, 1996; Sarkis, 1995; and many
others). This was certainly more prominent in the industrial West than in the
socialist and developing economies. Enterprises which rail against the trend
will surely lose perceived legitimacy in the long run. Integrating environmental
cost into financial management is a logical extension of cost-utility thinking;
environmental protection has emerged as a viable market. It is now generally
accepted that environmental management is a fundamental part of business
theory and application. Business organisations are increasingly being forced to
consider the environmental impact of their actions and behaviour (Sarkis,
1995). Similarly, responsible executives integrate environmental considerations
into their corporate culture and business planning (DeCrane, 1993; Schreyoegg,
1994).
Management theory has made major strides in this direction in recent years.
Sietz (1994) and Schimmelpfeng and Machmer (1995) have taken up the concept
of an eco-audit and considered the costs and benefits of systematic ecological
management. The growth of international trade and globalisation is ``feeding
into politics and policy'' (Stevens, 1994) and indeed, the European Union has
integrated such issues in a set of legislation (Oeko-Audit, 1993). This trend,
though, remains more marked in production than in cost theory, in that the
problem of dealing with external costs and returns has not yet been resolved
fully (Albach, 1988). In marketing theory, it has at last been widely recognised
that many deals are not completed upon payment, but rather upon return of the
used or obsolete good. Meffert and Kirchgeorg (1997) have integrated ecological
consciousness and action into standard marketing concepts and analysis.
Product-cycle thinking of this kind is a new and significant dimension in
business theory.There remains much to be done in this area, theoretically and
even more so in practice. Nonetheless, it is clear that management theorists are
now bridging the theoretical gap quite considerably.
Conclusions
Several methodological processes and issues have been fundamental in
forming management theory into its prevailing form. The demands of
management theory as a science have, to a large degree, been satisfied initially
through if-then statements, freedom from values, objectivity and falsifiability.
The 1960s and 1970s were characterised by some specific developments,
primarily the extension of the theory of the firm to encompass such
considerations as multiproduct firms and long-term decision making. In the
1980s and 1990s, a further and radical revaluation in terms of information and
motivation emerged. A broadening of theoretical paradigms has catered for
these developments and a look at business journals illustrates various evolving
trends which have enabled theory to keep pace with the times.
In addition to the above, the issue of temporal validity requires that
management theory fully accept and relate to some critical societal trends
which are becoming increasingly more significant in the mid- to late 1990s.
Such trends as globalisation, ecological consciousness and the increasing
participation of women in the workforce are constantly and fundamentally
altering the framework within which business-related writing operates. It is
only through integrating such developments in an ongoing, consistent and
comprehensive fashion that economic and management theory can retain its
relevance and cogency in an ever mutating world. Furthermore, it is important
that both writers and readers of such theory be aware of the nature and extent
of these developments. If theory is not only to retain, but also increase its value,
its extension, expansion and contemporary flavour need to be perceived and
comprehended. By doing so, business writing will develop further its
credibility in the scientific arena and beyond into society in the broader context.
The developmental tendencies which have been listed relate to major
societal problems, the resolution of which will take us well into the twenty-first
century. Management theory in isolation cannot solve them. The issues are
interdisciplinary and demand just such an approach. Management theory
needs to work in conjunction with other sciences in order to develop viable
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solutions. To achieve this goal, work must proceed, as before, in accordance
with the criteria of freedom from values, temporal and spatial generality,
objectivity and falsifiability. Yet, these criteria must be imbued, if anything,
more than before, with the spirit of the times and the impact of a very
challenging and changing society.
154
Note
1. The first four approaches are discussed in Albach (1990, pp. 246-270). Coalition theory is
examined by Herder-Dorneich (1992). The behavioural approach is well covered by Woehe
in the same book edited by Albach (1990, pp. 270-91). The political-administrative
approach is analysed by Drumm in the references given. Albach (1985) discussed the
information-systems approach. The invisible-hand approach is found in Schneider (1984, p.
18) and the negotiation approach in Koch (1985).
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