Principle 1: Division of work

The idea of division of work, or as Adam Smith called it "division of labour", in 1776 probably goes back to the beginning of work itself. Fayol recognizes this in considering specialization as part of "the natural order" comparing it to the organs of the body . "The object of division of work is to produce more and better work with the same effort", Fayol describes.

This very objective has not been altered in today's labor. In a sense this principle is the fundamental feature of modern economy, allowing for the largest increases of productivity. Peter F. Drucker informs us, that the 20th century has seen a rate of 3% productivity increase per year, hence productivity has risen 50 fold since the time of Frederick Taylor, who acted as a catalyst in the development of division of work .

An example of this fact can come from early industrialization, namely the Ford motor company , where Taylor's system of a scientific approach was applied. Taylor was interested in skill development by means of standardization and functional specialization . One worker would assemble the dashboard, another would assemble the wheels, and yet another would paint the exterior. The effects of this are well known and lead to Ford becoming not just the predominant car maker but also the inventor of the conveyer-belt production system- revolutionizing many industries.

However, one could argue that extremes of division of work could lead to undesired effects. Division of labor can ultimately reduce productivity and increase costs to produce units. Several reasons as causes for reduction in productivity can be thought of. For example, productivity can suffer when workers become bored with the constant repetition of a task. Additionally, productivity can be affected when workers lose pride in their work because they are not producing an entire product they can identify as their own work.

Douglas M. McGregor for instance cautions that "people, deprived of opportunities to satisfy at work the needs which are now important to them, behave…with indolence, passivity,…lack of responsibility,…unreasonable demands for economic benefits" . This circumstance was probably well recognized by Fayol, when he states that the "division of work has its limits which experience and a sense of proportion teach us may not be exceeded" . In more recent years management thinkers have recognized and addressed this issue more intensely, as will be discussed further below.

Principle 2: Authority and Responsibility

Fayol defines authority as the "right to give orders", but he emphasizes that responsibility arises with it . He "demands high moral character, impartiality and firmness." Fayol thinks of responsibility as something that is "feared as much as authority is sought after". This fear, he explains can lead to a paralysis and must be counter-acted by personal integrity and a "particularly high moral character". These qualities may be rewarded monetarily, Fayol argues.

Fayol himself apparently has not merely preached high morals but lived them too, when in the position of a CEO . He for example purchased no shares in Commentry-Fourchambault, where he served, in order to avoid a dependence on the board, so he could subordinate his interests to the common good .

When looking at these standards, Fayol arguably should be followed as a leading example. In the light of current developments in regards to the financial crisis of the year 2009 and onwards, one notices a discrepancy between today's leadership moral and Fayol's demands.

The current debate about the reasons for the break down of banks following the financial crisis points in the direction of a lack of such high standards. In the banking business, management rewards itself with company shares- contrary to what Fayol demanded- and large bonuses .

As mentioned, Fayol saw good reason for responsibility to be rewarded, however, this reward demands that responsibility has been assumed. This has been brought into question in the debate that ensues the aftermaths of the financial break-down.

In comparing the depression of the 1930s Phil Angelides, the Democratic former treasurer of California expresses his frustration in the line: "in 1929, people were throwing themselves out of windows; in 2009, they were lining up for bonuses" . This quote expresses the observed lack of responsibility. As UK Prime Minister Gordon Brown put it: "Senior executives need to take responsibility" . Mr Brown was "angry" about bonuses being earmarked for bankers despite them being held responsible for the near-collapse of the financial system.

Apparently, Fayol's "authority and responsibility"-appeal is being disregarded by some; nevertheless, this example provides evidence for the validity of his observation that with great power great responsibility should arise.

Principle 3: Discipline

Discipline Fayol understood as obedience and outward marks of respect between the firm and its employees . He considered it as an absolute prerequisite in order to assure a smooth running of the business. "Without it", he says, "no enterprise could prosper".

Interestingly, Fayol emphasizes discipline not merely as something the employee owes the management, but rather as something that "depends essentially on the worthiness of its leaders", in other words on the respect employees have for their leader. He continues in describing the reasons for defects in employee and management relationships by stating: "the ill mostly results from the ineptitude of the leaders" .

Respect for a leader increases with the leader possessing the appropriate qualifications for the position, i.e. with their perceived "worthiness" . In this respect, Fayol has a somewhat more behavioral approach to the problem of discipline than for instance Taylor, who points to "soldiering", (i.e. the agreement between workers to low standards of work in order to protect their own interests) as something one can recognize as a lack of discipline . This lack of discipline, Taylor suggests, can be counter-acted by applying various techniques, none of which clearly addresses the interaction between worker and manager, other than, what he calls "heartily cooperation".

Deviating from this mechanistic point of view, Fayol recognizes the complexity of human interaction as an important topic to be addressed. Expanding on this idea Elton Mayo provides evidence for us that Fayol was onto the right idea, at least a functioning idea, for that matter. Mayo identifies, what he calls "universal cooperation" in order to thwart conflict and improve work conditions, thereby improving productivity . Even though some argue that Mayo's famous Hawthorne and Topeka experiments were exaggerated and partially even interpreted wrongly, it remains, that the application of his ideas has contributed to a change of mind in theoretical management . Mayo's behavioral approach has shown that workers under experimental observation performed better than unobserved. It has frequently been argued, that there is evidence in this that discipline and the correlating performance can maybe best be achieved by a treatment emphasizing fairness, participation, a caring attitude, and respect.

More recently, for instance Peter Drucker supports the idea that these factor influence productivity. His concept of the "knowledge worker" presents the idea of a highly educated and independently working employee, which he developed as a role model for the modern worker . Discipline derives from the fact that the knowledge worker is being respected, his needs are taken seriously and are being addressed by a high degree of self-fulfillment.

In summary, Fayol's demand for "good superiors at all levels", "agreements as clear and fair as possible", and "sanctions…judiciously applied" has anticipated ideas that were developed building on his thoughts, and is still valid.

Principle 4: Unity of Command

This rule requires that an "employee should receive orders from one superior only" . Dual command must not necessarily derive from an intentional organizational design, but can occur coincidently, for instance if departments are not clearly demarcated, responsibilities and authorities are not clearly defined, or relationship dynamics (e.g. amongst friends, family etc) lead to someone assuming authority that was not originally associated with this individual.

Similar to Fayol's argument that specialization, and hence division of work is a natural state, one could make the point that a single leader is an evolutionary requirement. Simple speaking: social groups of animals often are organized in a way that resembles the hierarchy of companies, so called dominance hierarchies . This is especially true in primates.

Some argue that our ability as well as our proneness to hierarchies with a clear leadership and the connected aggression, with which we search to establish such hierarchical structures, is imbedded into our brains due to our evolution.

Hence unity of command is a principle we find applied in the military just as much as in rather modern and alternatively run companies like Google Inc., which is run by three CEOs (Sergey, Eric and Larry) . Google claims to have flat hierarchies and maintain a small-business feel . However, there still must be a leader, a decision maker, one who carries the largest responsibility, or, as in the case of Google, a team of leaders.

At first this may seem as a contradiction to Fayol's principle, but in reality it is not. When looking at the organization in more detail one finds that the three individuals have varying job descriptions, hence the source for potential conflict is reduced. Larry is the main strategist, Eric manages the sales organization while Sergey is the primary technologist . Not all three need to take part in every decision thanks to the division of responsibilities .

Ultimately, there is one line of command since there is no mutual interference, i.e. Fayol's principle is not being violated. Each CEO or leader commands and controls a different aspect of activity. As mentioned, some argue that this set-up, which resembles a so-called matrix structure, may violate Fayol's principle this must not necessarily be the case, as the Google example demonstrates.

In summary, when addressing the issue of clear leadership, Fayol describes something that comes naturally to us and is supported by, for example, Alfred Sloan. Sloan emphasizes the importance to determine and thereby define the precise functions of a firm's divisions, as well as the necessity of unlimited responsibility of a chief executive.

While Sloan himself is said to have applied group management in the way that he listened to advice (today, probably we would describe his organization style as possessing a flat hierarchical structure), maybe not unlike the Google example, he was the one making the final decision and holding the ultimate power in his hands .

Principle 5: Unity of Direction

Fayol summarizes this principle with the words: "one head and one plan for a group" . Hence, this point is naturally closely connected to the unity of command principle.

Again Sloan and GM can serve as an example. Sloan introduced a wide variety of metrics in order to measure the performance of departments and the firms that were part of the GM concern. His attitude is summarized in his words: "We have such control over this ship [the GM corporation] that we know exactly where we are at all times" . Or as Fayol said: "Unity of direction is provided for by sound organization of the body corporate…" .

That means first one must know where to take the company and subsequently constantly assure that the plan is still on track. The success story of GM under Sloan exemplifies the validity of this principle.

Principle 6: Subordination of individual interest to general interest

Fayol points out, that personal interests and company interests must be reconciled. Generally speaking however, the companies' interests must be put ahead of personal interests . The struggle of interest can be exemplified by the worker rights movements and unions. Fayol was not at all opposed to such organizations as unions. In fact, he believed in granting benefits to workers .

We see, Fayol did not mean to suppress workers interests but rather that every worker must compromise with the interests of the collective, i.e. the corporation. Interestingly, Fayol suggests "constant supervision" as one measure to restrict unwanted egoistic effects, like selfishness, laziness and others, which cloud the vision for the company's interests .

This reminds once more of the example of bankers that was mentioned before. It has been suggested that bankers have put their own selfish interests above the interests of the corporation by expecting and accepting large bonus payments, a circumstance that lawmakers currently struggle to address and regulate .

This indicates, that with the demand for subordination of individual interest to general interest Fayol included another principle in his catalogue that has not lost its validity today.

Principle 7: Remuneration of Personnel

In discussing how to apply fair modes of payment, Fayol mentions several still used strategies, e.g. time rates, job rates, and piece rates . Most interestingly he also mentions the aforementioned bonuses and profit sharing. He emphasizes that there should be no overpayment "beyond reasonable limits".

One can only speculate how Fayol would think about the bonus practice of banks today. As Fayol explains himself, in his time bonuses and profit-sharing were still rather new concepts. And he wonders what would happen with bonuses in lean times, pointing out, that a salary entirely depending on profit-sharing would lead to a loss of salary under certain circumstances.

Revisiting the banks' situation of today we see how Fayol's thoughts on remuneration are largely ignored in regards to the example of the hotly debated banker-bonuses. Additionally, he describes salary policies as important in maintenance of "relative social quiet", as he calls it .

This attitude echoes like a warning for today's management leaders, whose remuneration practice is perceived as socially unsustainable and hence immoral, and Fayol's suggestion is thereby proven to be a relevant principle also today.

Principle 8: Centralization

Centralization is understood by Fayol as the necessity to have control over processes in a central place, and compares this concept with the brain where centrally control is exhibited over the body. Fayol is flexible on the concept of centralization though. He suggests that the degree of centralization must fit the design and size of the corporation . Possibly larger firms, with longer chains of command do better with more centralization and vice versa.

In today's corporate world IT has contributed to an easier approach to centralization. At the same time has the fact that large corporations act globally led to adjustments that can best be performed locally. In other words, a company must be able to do both. For different business aspects, different solutions must be found.

This concept can be exemplified by Michael Hammer's approach who goes so far as to claim that "the key structural issue is no longer centralization versus decentralization- it's process standardization versus process diversity" . However, in a traditional administrative approach the examples mentioned by Hammer exemplify the dichotomy modern management is facing.

A revealing example mentioned by Hammer is that of Johnson & Johnson. The company standardized (centralized the process aspect in other words) R&D activities and manages these efforts as a single research portfolio. At the same time the sales and manufacturing processes are dealt with decentralized in order to enable decisions to be taken tailored to the specific circumstances and products.

Concluding, Fayol's flexible approach regarding centralization is absolutely of relevance for today's businesses.

Principle 9: Scalar Chain

In many organizations, the scalar chain principle is still very much alive. However, some have argued that modern management demands new approaches. It has been argued that with ever increasing size of globally acting companies the scalar chain is increasing in length, thus increasing the cost of coordination .

With the changing environment, globally operating companies find themselves exposed to in the twenty-first century, some adopt structures that emphasize flexibility and quick response to change (as discussed with Google above).

Many organizations attempt to place decision-making authority in the organizational structure with those who can most effectively and efficiently respond to environmental demands. This reminds of Michael Hammer's theory of the process enterprise .

Hammer states, that case managers, with heightened autonomy would lead to a more productive work process. He repeatedly emphasizes the usage of modern IT in order to simplify, unify and increase efficiency of processes. At first sight this may contradict Fayol's principle. But if we take a closer look, we see that this new approach also demands a close communication base. As Justin Longnecker puts it, discussions and meetings, contact managers and their subordinates have, may improve or harm the effectiveness of the direct report relationships in the chain of command .

In other words, it is still compulsory for companies to have a clearly defined hierarchy of communication that incorporates a "respect for the line of authority", which is being "reconciled with the need for swift action", as Fayol himself put it .

A problem associated with the scalar chain, as Fayol observes it, occurs when a subordinate bypasses a manager in either the communication of information or the making of a decision. This would undermine the authority and position of the manager who is bypassed. If this would be allowed, morale of the managers would decline.

A modern example can be found in two personal examples. When working as a chemical technician it was of crucial importance that both, information and orders were passed along a well defined chain of command, in order to assure a smooth production process. In this specific case it was also necessary in order to avoid wrong decision taking that could have had physical consequences in a dangerous work environment.

Not coincidently the term "chain of command" carries a resemblance to military terminology, where the clear distinction of levels of command, and the respect for the flow of orders and information along those chains is of crucial importance .

A seemingly opposing example is the work of semi-independent research groups, as the ones I have worked with as a genetics researcher. This example is along the lines of what has been discussed in part above, when looking at the process enterprise. A research group has the autonomic right to order equipment and develop and perform experiments independently.

However, this is no contradiction to Fayol. In this instance the authority (the professor running the group) has merely passed on some authority, but within well-defined limits. The outline of communication chains or lines is still maintained, even though it might temporarily be redefined or slightly altered.

For instance, it may be that several research groups cooperate without direct or constant involvement of the heads of the groups. However, the leadership in this instance has set clear targets and goals. That also means, the head of the group is being informed about unforeseen developments and results to then set new goals, if needed.

This is situation can be seen reflected in Fayol's descriptin of what he calls a "gang plank". While he sees this bypassing of parts of the scalar chain as negative, he emphasizes that it can be justified in some instances. He states that it can be acceptable to short-cut the scalar chain, so long as this action has been approved by the immediate superiors .

In my mind the argument that modern companies disregard Fayol's principle is therefore not valid. I see modern approaches as merely following this possibility that Fayol described. The organigram is merely temporarily altered, one may argue. This is reflected in, what is now termed "flat hierarchies", or matrix and team oriented organization. Fayol foresaw, that in the interest of "swift action" a degree of flexibility may be built into the system of scalar chain.

Principle 10: Order

In discussing, what he calls material order, Fayol points to lost time and an increase of mistakes as a main disadvantage of disorder . He also points to social order and the risks attached to a lack thereof, namely, a reduction of productivity.

The control of order is a paramount interest in Fayol's opinion, but he warns that "real order" does not simply mean that things have the appearance of order. "Perfect order presupposes a judiciously chosen place and the appearance of order is merely a false or imperfect image of real order", he states. For social order he demands "the right man in the right place", in order to achieve the maximum possible outcome of the employee's applied skills.

Modern corollaries of how this principle can be applied can be found in the fact that every larger company today has a human resources department that to the largest part deals with the question of how to find the right employees . Hence, the modern answer to Fayol's problem to find the "right man" is a specialized department that addresses this aspect of social order.

Furthermore, the material order is being addressed by a range of strategies, which are designed to maintain or achieve order. Ultimately, material order is a question of "quality management". The international organization for standardization (ISO) is one modern example of how today's management attempts to achieve order. The ISO has developed guidelines that intent to help management to achieve order and the correlated high level of quality of leadership, production and documentation . The ISO certifications, which are designed to test a companies' compliance with the ISO principles, are a fixed part of literally every business undertaking there is.

The principle of order that Fayol mentioned is thereby taken very seriously in today's business world.

Principle 11: Equity

"Equity and equality of treatment are aspirations to be taken into account in dealing with employees", Fayol says. Clearly, this standard is not easily achieved, however, today's work environment is arguably more equipped to tackle this issue than previous generations of corporations.

One indication for this claim is to be found in the fact that most companies have appointed officials who deal with complaints of employees against the management, for instance the so-called ombudsman . However, this system is naturally not fool proof and private organizations attempt to draw attention to the victims of mistreatment. One example is an organization taking care of claims of victims of mobbing within the company Novartis .

While the problem still persists, Fayol's principle is being recognized by corporations and enhanced by the public opinion and most importantly the lawmakers . Several nations, e.g. Germany, Sweden and others, intend to tackle the problem of unequal treatment by passing laws that intend to establish a juridical basis for people who fell victim of inequality.

Principle 12: Stability of Tenure of Personnel

It is Fayol's opinion that it is better to have a "mediocre manager who stays" than "outstanding mangers who merely come and go" . Fayol does not only apply this idea to management though, he also points to negative effects of a lack of stability when it comes to employees.

While this point might be debatable to some extend it is clear that stability contributes to better planning possibilities. It also allows for a psychologically beneficial state of mind of the employees, hence certainly improving efficiency and the willingness to perform well for the corporation's good.

Apparently however, this rule of requirement has not sunken in generally. This is demonstrated by the fact that most countries have passed employee protection regulations when it comes to the reasons why people can be laid off. Internationally the International Labor Organization, a section of the United Nations, watches over various aspects of employment and also deals with unfair dismissals of employees .

While from an employee perspective the protection laws make sense, employers may occasionally view this issue differently. In fact, it is easy to find web-blogs with advice how to fire workers without ensuing lawsuit and some influential individuals, for instance Chandrajit Banerjee, head of the Confederation of the Indian Industry , demands it to become easier to hire and fire in India .

Maybe a way out of this dilemma and back to following Fayol's principle can derive from an example Henry Chesbrough gave when discussing differences in culture between the USA and Japan .

Chesbrough describes how little loyalty US-employees exhibit compared to the Japanese counterparts. He also analyses the reason as stemming from the fact that Japanese firms have a tighter relation to their employees. He for example points to a better social security system, like pension plans, in Japan.

The spill-over effect that endangers US American companies to loose important innovative advantages by losing skilled employees to other companies is thereby contained in Japan. This example shows that stability of tenure is not only important but connected to social and cultural factors management must take into account if they want to maximize their productive capacity.

It also shows, that this principle is a two-way street. While stability is important for the employee it is just as important for the employer. One would think that this leads to both parties pulling in the same direction. But as we can see from the above example, it requires a change of mind in some instances to establish an environment of trust and mutual care.

Principle 13: Initiative

Fayol summarizes the need for employees to show initiative in the saying, that "the initiative of all, added to that of the manager…represents a great source of strength for businesses" . He suggests to management to "inspire and maintain everyone's initiative".

Some modernly run companies have come to find their special ways in order to ensure employee satisfaction, and, concomitantly their initiative. One example is again Google and their policy of "20% time" . This policy implies that employees get a large part of their time to invest in projects of their choosing. While these projects are not necessarily connected to their immediate work tasks experience has shown, that they often built the basis for spin-off ideas that benefit the firm.

Others, like 3M and various Biotech and Pharmaceutical companies have followed suit, and it is said that 3M has developed the post-it notes as a spin-off of an idea conceived during a personal project period . As a Google employee put it: "the 20 percent policy is as important to attracting and retaining employees as it is to sparking fresh ideas". Business professor Robert Fulmer at Pepperdine University adds: "Paradoxically, letting go of employees through independent projects can mean getting more from them. It's a way to get people to go beyond what's expected of them".

Apparently, with the right strategies a company can increase employee participation and initiative by given the "inspiration" Fayol requested from the management.

Principle 14: Esprit de Corps

This principle unifies a number of demands that can best be summarized with Fayol's own words: "Union is strength" . This principle deals with the personnel being united in their direction and in regards to the correlating efforts to achieve the set goals, in translation, to reveal team spirit.

Fayol emphasizes the importance of meetings and personal communication over written communications. The importance of teamwork is mentioned, and Fayol warns managers against believing they could achieve their goals by the strategy "divide an rule".

Again modern IT companies can be utilized as living example of this principle. A survey looking at approval ratings for CEOs and overall employee satisfaction shows companies like Apple and Google in top positions. Companies, in other words, which are famed, to emphasize and nurture team spirit . This circumstantial evidence hints to a confirmation of Fayol's assumption, i.e. that companies who strive to become successful must strengthen team spirit.

Resources

Top Categories

Product

Company