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Management Theories Every Small Business Owner Should Know

Paula Fernandes
Business News Daily Contributing Writer
Updated Jan 23, 2023

Small business owners and managers can benefit from learning about the theorists whose work has given rise to many of the leadership approaches as well as the best (and worst) practices used to guide and grow organizations of all sizes.

By putting these approaches within a larger historical context, business leaders can determine which theories best fit their organization and select components from each philosophy to create a toolkit of effective management strategies that work for them and their staff.

Here’s a quick overview of five theorists you should know about and their groundbreaking work.

Frederick Taylor’s Scientific Management

Frederick W. Taylor (1856-1915) was among the first to study worker productivity and how best to optimize it. Taylor, who had a background in mechanical engineering, conducted controlled experiments that led him to develop four principles of scientific management known as “Taylorism.” These principles recommend that the scientific method be used to determine the most efficient way to perform a task in the workplace instead of simply relying on the judgment or personal discretion of workers.

Taylor promoted standardization and specialization by suggesting that workplace tasks be broken down into a sequence of smaller steps. He concluded that managers should assign workers to a job that best matched their ability, train them thoroughly and supervise them to ensure that they worked efficiently.

However, Taylor’s focus on achieving workplace efficiency ignored the humanity of the individual in favor of finding the optimal way to complete any given task. Taylor’s theory in its purest form isn’t practiced much today; however, it did shine a light on workplace efficiency, the value of training procedures, and the need for cooperation between workers and managers.

Henri Fayol’s Principles of Administrative Management

Henri Fayol (1841-1925), a mining engineer and senior executive in France, is considered to be one of the most influential contributors to modern management theory. Unlike Taylor, who improved productivity by analyzing workers’ actions, Fayol took a top-down approach.

Fayol examined an organization through the lens of the managers and the situations they might encounter. He believed that management has six paramount functions: to forecast, plan, organize, command, coordinate and control. Fayol developed 14 principles of administration that outline how managers should organize and interact with employees.

His comprehensive principles, which have become foundational guidelines in many of today’s workplaces, cover topics ranging from the importance of maintaining an orderly and clean facility to the value of promoting employee initiative and teamwork.

Max Weber’s Bureaucratic Management

Max Weber (1864-1920) was a German sociologist who developed the bureaucratic management theory, which focuses on structuring organizations in a hierarchical fashion with clear rules of governance.

Weber’s principles for creating an ideal bureaucratic system include a clear division of labor, a hierarchical chain of command, separation between the personal and organizational assets of the owner, meticulous record keeping and documentation, strict and consistent regulations and rules, and the selection and promotion of employees based on qualifications and not personal relationships or personalities.

Although Weber recognized that bureaucracy was a threat to individual freedoms, he still saw it as the most efficient and rational way of establishing organizations. Today, the bureaucracy management approach is often perceived as impersonal and overwhelmed by red tape, but it played a key role in universalizing the establishment of standards and procedures, which are at the core of most modern organizations.

Elton Mayo’s Human Relations theory 

Elton Mayo (1880-1949) was an Australian born psychologist and Harvard researcher who helped lay the foundation for the human relations movement. Mayo conducted experiments aimed at improving productivity among dissatisfied employees at the Hawthorne plant in Chicago in the 1920s.

He changed working conditions, including lighting, temperature, break times, and the length of the workday but observed that regardless of the change, there was always an increase in productivity. This led Mayo and his team to conclude that increases in workers’ performance weren’t due to changes in their environment but a result of the researchers paying attention to them and of feeling valued as part of a unified group collaborating in the study.

Mayo’s work led to the recognition of the importance of psychological and social factors in creating productive organizations. This gave rise to the Human Relations Theory, which concluded that employees are more motivated by factors, such as being part of a group and personal attention, than money or even working conditions. This people-oriented management approach requires managers to acknowledge the complexity of human nature and the value of social ties in the workplace.

Although the validity of the Hawthorne experiments has been questioned in recent years, Mayo’s contributions to management theory are the underpinning of today’s focus on group dynamics and the use of team-building efforts to strengthen work cultures.

Douglas McGregor’s Theories X and Y

Douglas McGregor (1906-1964) was an American social psychologist who introduced his X and Y theories in his 1960 book “The Human Side of Enterprise.” He concluded that there are two fundamentally different styles of management that are guided by managers’ perceptions of their team members’ motivations. Theory X is authoritarian in nature and is used by managers who assume that employees are apathetic or dislike their work. Theory Y is a participative management style used by managers who believe that workers are self-motivated, responsible and committed to taking ownership of their work.

While Theory X leads to micromanaging, Theory Y gives rise to a more collaborative and decentralized workplace. Theory Y, favored by McGregor, tends to be adopted by smaller businesses and startups where employees at all levels are part of the decision-making process and where creativity is encouraged. Large organizations or those with many staff members may rely more on Theory X in order to keep everyone focused on meeting organizational goals.

Image Credit: Dusit/Shutterstock
Paula Fernandes
Business News Daily Contributing Writer
Paula is a New Jersey-based writer with a bachelor's degree in English and a master's degree in education. She spent nearly a decade working in education, primarily as the director of a college's service-learning and community outreach center. Her prior experience includes stints in corporate communications, publishing, and public relations for nonprofits. Reach her at