Course Curator: Dr. G. Danford (London Business School MBA, Helsinki School of Economics PhD)

Before Starting

The only proven method for measuring learning is to take a pre-quiz and post-quiz of the content covered.

[WpProQuiz 31]

Performance Theory

  • What is relationship between management theories and performance measurement?
  • How to Categorize performance measurement theories?
  • How to distinguish Total Quality Management (TQM) from Customer Relationship Management (CRM)?


Complexity of Business

Running a business has become measurably harder over the years. According to the Boston Consulting Group’s Complexity Index, business complexity has increased by a factor of six over the past 60 years. The number of structures, processes, committees, decision-making fora and systems has increased by a factor of 35 in that time. According to Yves Morieux (Boston Consulting Group), the hard approach to management, characterized by scientific management, is in many ways responsible for causing much of the complexity. The hard approach raises obstacles for people and contributes to dissatisfaction and disengagement and then because people feel bad and ineffective. Morieux says that, the key to managing complexity is the combination of autonomy and organisational cooperation.

“The environment shapes people’s actions.”

~ B.F. Skinner


Drowning in the Workplace (3:30)

NOTE: this video will start and stop at the pre-assigned times 00:03-2:53


Scientific Management

Scientific management is the theory of management that analyzes and synthesizes workflows. Its main objective is improving economic efficiency, especially labor productivity. It was one of the earliest attempts to apply science to the engineering of processes and to management. Scientific management began in the United States with Frederick Winslow Taylor in the 1880s and ’90s within the manufacturing industries. Its themes are still important parts of industrial engineering and management today. These include analysis; synthesis; logic; rationality; empiricism; work ethic; efficiency and elimination of waste; standardization of best practices. Scientific management was one of the first attempts to systematically treat management and process improvement as a scientific problem.

Taylor rejected the notion, that the trades, including manufacturing, were resistant to analysis and could only be performed by craft production methods. Taylor examined various kinds of manual labor. For example, most bulk materials handling was manual at the time; material handling equipment as we know it today was mostly not developed yet. He looked at shoveling in the unloading of railroad cars full of ore; lifting and carrying in the moving of iron pigs at steel mills; the manual inspection of bearing balls; and others.


Scientific Management (3:0)

Eric Ries (author of Lean Startup)

NOTE: this video will start and stop at the pre-assigned times 12:21-15:48


Taylor often expressed views of workers that may be considered prejudiced or insulting. While he recognized differences between workers, he often failed to conceal his condescending attitude and would call less intelligent workers “stupid”, comparing them to draft animals.

Implementations of scientific management often failed to account for inherent challenges such as the individuality of workers and the lack of shared economic interest between workers and management. Taylor’s methods were frequently resented and sometimes sabotaged by the workforce. A central assumption of scientific management was that, “the worker was taken for granted as a cog in the machinery.” 

Successors to scientific management such as ‘corporate re-engineering’ and ‘business process re-engineering’ envisage as a distant goal the elimination of all unskilled, or even most skilled human labor, an aspiration that stems from scientific management’s reduction of process to discrete units. source:


Effects of Performance Measurement on Performance? (4:00)

Dr. Andrey Pavlov, Cranfield School of Management

NOTE: this video will start and stop at the pre-assigned times 00:26-4:15



Taylorist labor efficiency, moved to “Fordism” (Henry Ford, Ford Motor Company), a reorganization of the entire productive process by means of the moving assembly line, standardization, and the mass market. Fordism was based on industrialized, standardized mass production and mass consumption. The concept is used in social, economic, and management theory about production, working conditions,consumption, and related phenomena, especially regarding the 20th century.

Fordism was “the manufacturing system designed to spew out standardized, low-cost goods and afford its workers decent enough wages to buy them”. It has also been described as “a model of economic expansion and technological progress based on mass production: the manufacture of standardized products in huge volumes using special purpose machinery and unskilled labor”. 

Although Fordism was a method used to improve productivity in the automotive industry, this principle could be applied to any kind of manufacturing process. Major success stemmed from three major principles:

  • The standardization of the product (nothing hand-made)  and everything is made through machines and molds by unskilled workers.
  • The employment of assembly lines, which used special-purpose tools and/or equipment to allow unskilled workers to contribute to the finished product.
  • Workers are paid higher “living” wages, so they can afford to purchase the products they make.

Ford’s most original contribution to the modern world was breaking down complex tasks into simpler ones with the help of specialized tools. Simpler tasks created interchangeable parts that could be used the same every time. This allowed for a very adaptable flexibility, creating an assembly line that could change its constituent components to meet the needs of the product being assembled. source:


The Assembly Line

According to Henry Ford, the principles of assembly are were:

  • Place the tools and the men in the sequence of the operation so that each component part shall travel the least possible distance while in the process of finishing.
  • Use work slides or some other form of carrier so that when a workman completes his operation, he drops the part always in the same place, which place must always be the most convenient place to his hand, and if possible have gravity carry the part to the next workman for his own.
  • Use sliding assembling lines by which the parts to be assembled are delivered at convenient distances.


Future of Management (5:30)

Professor Gary Hamel, London Business School

NOTE: this video will start and stop at the pre-assigned times 01:29-7:07


Theory of Administration

Henri Fayol (1841-1925) believed that managerial practices were the key to predictability and efficiency in organizations. Unlike Ford, Fayol was more concerned with the treatment of workers, and viewed communication as a necessary ingredient to successful management. Fayol had more respect for the worker than Taylor had, as evidenced by Fayol’s proclamation that workers may indeed be motivated by more than just money. Fayol also argued for equity in the treatment of workers. Fayol outlined five elements of management that managers should engage in so that the goals and objectives of an organization are effectively met (source:

  • Planning: creating a plan of action for the future, determining the stages of the plan and the technology necessary to implement it.
  • Organizing: Once a plan of action is designed, managers need to provide everything necessary to carry it out.
  • Commanding: Managers need to implement the plan. They must have an understanding of the strengths and weaknesses of their personnel. Leading people in a manner that achieves the goals of the organization requires proper allocation of resources and an effective support system. Directing requires exceptional interpersonal skills and the ability to motivate people.
  • Coordinating: High-level managers must work to “harmonize” all the activities to facilitate organizational success. Communication is critical and must take into account delegation of authority and responsibility and span of control within units.
  • Controling: The comparison of the activities of the personnel to the plan of action is the evaluation component of management. Monitoring function that evaluates quality in all areas and detects potential or actual deviations from the organization’s plan, ensuring high-quality performance and satisfactory results while maintaining an orderly and problem-free environment. Controlling includes information management, measurement of performance, and institution of corrective actions.


Human Relations Movement

Human relations movement refers to the researchers who study the behavior of people in groups, in particular workplace groups. The movement viewed workers in terms of their psychology and fit with companies, rather than as interchangeable parts, and it resulted in the creation of the discipline of human resource management. The movement originated in the 1930s from research at the Western Electric Hawthorne Works in Cicero, Illinois, on lighting changes and work structure changes such as working hours and break times.

Researchers observed if workers would become more productive in higher or lower levels of light. The workers’ productivity seemed to improve when changes were made, and slumped when the study ended. It was suggested that the productivity gain occurred as a result of the motivational effect on the workers of the interest being shown in them, “the Hawthorne effect.”

The findings were interpreted by Elton Mayo and others to mean that paying attention to overall worker needs would improve productivity and supported the effects of social relations, motivation and employee satisfaction on factory productivity. In other words, individuals modify or improve an aspect of their behavior in response to their awareness of being observed (source:


Scientific Management DNA (4:30)

Professor Gary Hamel, London Business School

NOTE: this video will start and stop at the pre-assigned times 07:09-11:32


Behavior Management Theory

Behavior management focuses on maintaining order, and that anyone can manipulate behavior by first identifying what the individual finds rewarding. Once the rewards of an individual are known, then those rewards can be selected that the manager is willing to give in exchange for good behavior. Therefore, paying attention to overall worker needs can improve productivity.

It is as if Freud supplied us the sick half of psychology and we must now fill it out with the healthy half.

Abraham Maslow (1908-1970), is well-known for his hierarchy of needs (physiological, safety, love/belonging, esteem, and self-actualization), in which he describes that humans have basic needs, and they are not met, that individual will not desire anything else. The hierarchy of human needs model suggests that human needs will only be fulfilled one level at a time. Maslow states that humans are never really satisfied, in that our needs are never fully fulfilled, therefore, they can impact on how we can behave. If our needs are never fully fulfilled, then we might not always behave well, even if we do get a treat for good behavior.

Herbert Simon (1916-2001) studies the behavioral and cognitive processes of humans making rational choices, that is, decisions. By his definition, an operational administrative decision should be correct and efficient, and it must be practical to implement with a set of coordinated means. Simon recognized that a theory of administration is largely a theory of human decision making, and as such must be based on both economics and on psychology. Simon defined the task of rational decision making is to select the alternative that results in the more preferred set of all the possible consequences. Correctness of administrative decisions was thus measured by:

  • The adequacy of achieving the desired objective.
  • The efficiency with which the result was obtained.

The task of choice was divided into three required steps:

  • Identifying and listing all the alternatives.
  • Determining all consequences resulting from each of the alternatives.
  • Comparing the accuracy and efficiency of each of these sets of consequences.

Simon attempted to determine the techniques and/or behavioral processes that a person or organization could bring to bear to achieve approximately the best result given limits on rational decision making. Simon argued that the two outcomes of a choice require monitoring and that many members of the organization would be expected to focus on adequacy, but that administrative management must pay particular attention to the efficiency with which the desired result was obtained.

Richard Cyert and James March developed a ‘A Behavioral Theory of the Firm’ in 1963. Before this behavioral model was formed, the existing theory of the firm had two main assumptions: profit maximization and perfect knowledge. Their behavioral model made a great impact on the theory of the firm. It gave insights in the process of goal formation and fixation of aspiration levels and resource allocation. The theory argues that larger firms are coalitions of individuals or groups, which may include managers, stockholders, workers, suppliers and so on. These groups participate in setting goals and making decisions. Priorities and information may vary by group, potentially creating conflicts. Cyert and March mentioned five goals which real world firms generally possess: production; inventory; market share; sales and profits. According to the behavioral theory, all the goals must be satisfied, following an implicit order of priority among them.


Behavioral Theory of Firm (6:00)

Professor James G. March (Stanford University)

NOTE: this video will start and stop at the pre-assigned times 10:54-13:17


Management Science

Management science , is the broad interdisciplinary study of problem solving and decision making in human organizations, with strong links to economics, business, engineering, and other sciences. It uses various scientific research-based principles, strategies, and analytical methods including mathematical modeling, statistics and numerical algorithms to improve an organization’s ability to enact rational and meaningful management decisions by arriving at optimal or near optimal solutions to complex decision problems. In short, management sciences help businesses to achieve goals using various scientific methods.

Management science origins can be traced to operations research, which made its debut during World War II when the Allied forces recruited scientists of various disciplines to assist with military operations. In these early applications, the scientists utilized simple mathematical models to make efficient use of limited technologies and resources. For example, the United States military applied models to training and logistics schedules (Simplex algorithm) in 1947. The application of these models within the corporate sector became known as management science (source:


Modern Organizations (4:00)

NOTE: this video will start and stop at the pre-assigned times 10:17-14:12


Quality Management

In God we trust; all others must bring data. You can expect, what you inspect!

Edward Deming  (1990-1993), was a professor of statistics at New York University’s graduate school of business administration, and Columbia University. He also was a consultant for private business. In 1927, Deming was introduced to Walter A. Shewhart of the Bell Telephone Laboratories. Deming found great inspiration in the work of Shewhart, the originator of the concepts of statistical control of processes and the related technical tool of the control chart. Deming began developing statistical methods for industrial production and management.

The 4 steps in the Deming Cycle: Plan-Do-Check-Act (PDCA), also known as Plan-Do-Study-Act or PDSA.

  • Deming called the cycle the Shewhart Cycle. The cycle can be used in various ways, such as running an experiment: PLAN (design) the experiment; DO the experiment by performing the steps; CHECK the results by testing information; and ACT on the decisions based on those results.

Deming developed the sampling techniques that were used for the first time during the 1940 U.S. Census (Deming-Stephan algorithm for iterative proportional fitting). During World War II, Deming was a member of the five-man Emergency Technical Committee for compiling the American War Standards (American Standards Association). and taught statistical process control (SPC) techniques to workers engaged in wartime production.  In 1947, Deming was involved in early planning for the 1951 Japanese Census. While in Japan, his expertise in quality control techniques, combined with his involvement in Japanese society, resulted in an invitation from the Japanese Union of Scientists and Engineers (JUSE) to train hundreds of engineers, managers, and scholars in statistical process control (SPC) and concepts of quality.

Deming’s message to Japan’s chief executives was that improving quality would reduce expenses while increasing productivity and market share. A number of Japanese manufacturers applied his techniques widely and experienced heretofore unheard-of levels of quality and productivity. The improved quality combined with the lowered cost created new international demand for Japanese products.

Deming advocated that all managers need to have what he called a ‘System of Profound Knowledge’, consisting of four parts:

  • Appreciation Of A System: understanding the overall processes involving suppliers, producers, and customers (or recipients) of goods and services (explained below).
  • Knowledge Of Variation: the range and causes of variation in quality, and use of statistical sampling in measurements.
  • Theory Of Knowledge: the concepts explaining knowledge and the limits of what can be known.
  • Knowledge Of Psychology: concepts of human nature.



History of Quality Management (8:00)

Sandeep Kumar, Project Quality Manager

NOTE: this video will start and stop at the pre-assigned times 0:51-9:13


[WpProQuiz 47]

Coming SoonPerformance Measurement Concepts 2/8

Recommended Viewing

Deming’s 5 Deadly Management Diseases (13:00)

NOTE: this video will start and stop at the pre-assigned times 02:06-15:11


Dening’s 5 Deadly Diseases (1984)

Lack of constancy of purpose.

Emphasis on short term profits.

Annual rating of performance.

Mobility of management.

Use of visible figures only.