Background Of Henri Fayol Commerce Essay

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Henri Fayol was a French industrialist and manager, working in the mine industry and looking for applicable solution to business management. He went to school in Lyon (the second largest city of France) and enrolled at the engineering school of Saint-Etienne (Ecole Nationale des Mines). He received an education as a mine engineer and graduated in 1860 from this school at the age of 19. He was first employed as an engineer at Boigues, Rambourg and Co. In 1874, this company became Commentry-Fourchambault SA or Comambault). It is important to notice he spend all his professional life in the same company experiencing its expansion and knowing well its structure and production methods. Fayol was first remarked as an engineer when he wrote a paper proposing a solution to fire hazard, fire fitting and spontaneous combustion in mine, destructing men and installations. In 1866, he was appointed director of a single mine of Commentry at the age of 25. The company was going through expansion and added several other mines to the company in other part of France such as Monvicq coal mine and Berry Iron Ore Mine. He became the directors of those mines as well at the age of 31. In the same time, those expansions did not translated in increase of dividend. Quite the contrary, Fayol had to face the fact that Comambault was in dire financial straits. In the late 1880s', the company had failed to pay dividends for at least 4 years. In 1888, at the age of 47 he became the CEO of the Comambault conglomerate. The objective of his mission as a CEO was to make the company viable again which he did. He worked closely with his managers to turn the company around, closing inefficient units, investing in research and technology and expanding the geographical base of the company. In 1908, in a discourse he gave he reminded this episode of industrial history:

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In 1888, the company Commentry-Fourchambault was on the verge of disappearing in abandoning its plants and in resuming the exhaustion of the mine stocks, when a change of head office came. Since then, the company prospered again. The company's history shows that its fall and rising are uniquely an effect of the administrative process employed. This is with the same mines and the same plants, with the same financial resources, in the same commercial situation, the same board of directors, and the same personal that the company raises again to this moment. Therefore, some administrative methods leave the company to its ruin; other methods give it its prosperity back. Work, experience, knowledge and good will of several thousands of people had been sterilized by some dysfunctional administrative process. And other administrative processes emphasize all its strength.

Fayol was head of a very large business with over 10,000 employees, which at the time, was comparable to today's international companies. He remained CEO until his retirement at the end of WWI, in 1918. Before his retirement in 1916, Fayol published his main book Administration Industrielle et Generale in the professional publication called Bulletin de la Société de l'industrie minérale. In 1917, he sets up the Centre for Administrative Studies (CAS) in Paris. His reflections were published as a book only in 1925, the year of his death. This centre was important in diffusing his ideas. It organised seminars and colloquium with industrialists, public sector officials of the French state, engineers, the military, and various academics. The CAS was a platform from which collaboration and further works could be done. From 1921 to 1925, he collaborated to several studies on behalf of the French's public sector. Notably, he produced a study of the Post and Telecom Department as well as the French Tobacco and Match monopoly.

Why a founding Father of Management?

One remarkable feature about Henri Fayol's influence in management is the fact that he is little known compared to Taylor (1856-1915) who lived roughly at the same time. The epoch of the great development of the XIX century industry does not explain why one hits more fame than the other. In 1912, Charles de la Poix de Fréminville met Taylor and stated to spread the principles of Taylorian organisation of work. Taylor's work dealt with the workshop of manufacturing and Fayol's with the mining industry and its general management. One must say that one aspects of the relative slow diffusion of Fayol's ideas, is due to timing. In 1916 and 1918, France was dealing with the WWI and its aftermath. Although many of Fayol's principles he developed in studies during 1921-25 could have been used for bettering the management of the French state agencies and enterprises were not followed. The reason have to be found in the institutional change of France at the time, whereby France was separating the church from the state in education, the growth of the public sector, labour union and large businesses correlated with the rise of professional managers and the interest in technology development. My view is that, for ideological reason, when the French state was trying to reinforce itself (by establishing national system of education, nationalisation of companies (train system, post & telecom, etc.) but also vis-à-vis the threat of Germany), Fayol's pragmatic criticism and suggestion to change the state's forms of management were not always welcome. The reinforcement of the state own industry and the regulation of market by state agencies went well until 1986.

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That is in the large part, the reason why the French themselves did not consider Henri Fayol's work the convenient resource to deal with the management of the French's state agencies and industries. The US business school considered Henri Fayol's works worth teaching their undergraduates. It only since the last 10 years (around the end of the 1990) French's scholars have been studying back their own managerial roots. Despite the history of how Fayol's ideas come about, one may ask us what is important in them to be consider foundational to management thought. In fact, there is, as any classical management thinker, a basic originality in Fayol's proposition on the need of management regarding the dealing of the industry.

Fayol's Originality

To a large extend, all management thinkers and practitioners view the management function as the means to organise technical function of the business toward an optimal economic efficiency. In this respect, Henri Fayol, Frederick Taylor or Alfred Sloan do not differ in their aim. One can find Fayol's formulation of the role of management in the industry in a talk he gave in 1900 at the Congrés International des Mines et de la Metallurgie. Fayol makes the following remarks:

The technical and commercial services are rather well defined, which is not the case of the administrative services. The way it is built and the attribution it fulfils are not well known, its operations are not immediately clear. It does not visibly built, forge, sell or buy... but nevertheless, everybody knows that if it does not work well, the company goes downhill.

[Something on] recruitment: It is necessary to link theory and practice in engineers' education. But it is about the proportion of each we may differ. Some think one needs to overcharge the programs as well as the lectures given in the engineering schools, other think that we have already reached the limit of theoretical teaching and that one waist our elite's youth one or two years that would be better employed in active life.

He also make clear in his Book, General and Industrial Management, the difference of skills and attention one needs to deal with engineering work and management work. Fayol drew attention to the need for schools and universities to educate people about administration as a topic of its own right (in conjunction to engineering, and not engineering alone). The point of his reflection on the education needs of the engineers was trying to deal with the qualities required to make a good manager rather than relying on the formal rules of engineering, its aura amongst the bourgeoisie to provide good job to their kids. For that matter, the list of qualities needed to get effective manager is rather dissimilar to what is required to be an engineer alone:

Physical qualities: health, vigor, address (manner of behaving)

Mental qualities: ability to understand, judge and adapt

Moral qualities: energy, firmness, willingness to accept responsibility, initiative, tact, loyalty and dignity

General education

Special knowledge: pertaining to the functional context of work, function, technical and so on.

Experience: knowledge of work, recollection of lessons from experience.

Fayol take the need of education very seriously. He indicates three main sources of issues that can potentially trouble the good education of managers: (a) the problem of industrial concentration, (b) the role of higher technical education and its abuse of mathematics and (c) intellectual curiosity.

The problem of industrial concentration

Managing great business has always presented great difficulties. To get a grasp of it, suffice to glimpse over the various charges a CEO has to take into account. Those difficulties are inherent to the nature of things and have existed at all time. But what did not exist all the time was the recent industrial development and industrial concentration which increased considerably the proportion of big deals and show the lack of good CEO.

The role of higher education and the abuse of mathematics

We abuse mathematics in the belief that more one knows it, more one is able to govern businesses. Also, [we are in the belief that] their study, more than anything else, develops and makes the judgement correct. Those are mistakes which cause serious issues to our country and which seems to me useful to fight. (...) A long personal experience taught me that the use of higher mathematics is worthless in business management, and that engineers, pitworkers or steelworkers almost never use it.

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I firmly believe that elementary mathematics contribute to form your judgement, as all other branches of general culture. I nevertheless do not believe that an intense higher mathematical culture, imposed without necessity to future engineers has the same effect. The excessive culture of any kind of science is unhealthy to both the physic and the intellect. The studies of mathematics do not make exception. Studied at length with intensity, it leaves intact only the well balanced brains. One sees transcending mathematicians without common sense and we see numerous men of common sense who are not mathematicians.

Intellectual curiosity

You are not prepared to take the direction of a company, even small. School did not give you the administration, commercial and accountancy notions you need to be a CEO. Even if school would have provided them, you will still lack practice and experience that can only be acquired by the contact of men and things. (...) one asks you to bring with you your diploma, reflection, logic and a spirit of observation and dedication to the accomplishment of your task.

Work to complete your professional knowledge, but do not neglect general instruction. Directors inspiring high esteem and admiration never stopped, you will see, to learn through constant effort. (...) You belong to the intellectual elite, so you should not be uninterested in news, you should be aware of the general ideas agitating modern society in all domains.

One sees that Fayol saw that the engineering education (such as he received with its predominance of mathematics) did not answer the challenge one is facing when dealing with organisation and human matters. He saw in management the field of practice and reflection that was needed in the domain where engineering, although provide efficient techniques for dealing with materials, was unable to address the human aspects. It does not mean that management was a sort of humanism but the normal counter-part of the rationalisation of an organisation (private or public) having in mind that one needs to take a special attention to the question of human organisation if one wants an industry to function.

Fayol's Administrative Theory

As a result of his experience and of a continuous reflection on the way to make corporation work best, in situation of change, he reckons one needs to establish an administrative "theory" which takes into account:

The need of projections. It demands to establish a system of yearly projections for the long term objectives and monthly projections for special activities in the company fitting the global planning. The role of projection for the personal is to be able to assess what has been achieved as people go on working.

To fight bureaucracy by facilitating the face to face relations, avoiding the multiplicity of hierarchies which increase the irresponsibility of the directors. Also one needs to stability in hierarchy and the possibility to reward or penalize the use of power.

Pragmatism has to be applied in the division of labour by controlling decisions to be always balanced with the situation.

The need to use control managers to be able to take decisions rapidly before it turns to be catastrophic.

In the general literature in management, Fayol is often seen as the top-down manager that worked out the tools of governance to the distribution of task. In fact, his main focus was not to formalise the tools of decision making in a simple chart to follow. Fayol's point was that an organisation could not be managed with a simplest view concerning both the function of the organisation and its human components. And for that matter, it is first necessary to consider the organisation, not simply from the tasks analysis view following technology application the industry, but as an integration of several key functions. In other words, Fayol invites us to grasp at once the complexity of the management of business organisation by taking into account the following functions:

Techniques (production, transformation), commerce (business and sales), finance (capital management and research), security (protection of goods and persons), accounting (balance sheet, inventory, factory price, statistics, etc) and administration (foresight, organisation, command, coordination and control).

Donald Reid (in his paper on Fayol called "Fayol: From Experience to Theory") make clear that Fayol, as a practitioner, did accumulate a number of industrial and managerial experience before putting his ideas on paper. He kept copious notes of his observations, having a particular interest in organisational failure and the nature of responsibility and authority among key decision makers. In 1861, Fayol write in his notebook an example of management failure. In one mine, he saw that all work had to be stopped because of an injury to a working horse. The mine manager was absent and the stable manager had no authority to obtain the replacement of the injured horse. In the case of the horse replacement, it was the inability of the company structure to deal with this technical problem that causes inefficiency. Fayol did identify that authority was required to overrun narrow conception of decision making that did not keep the final objective in mind. Fayol was able to overrun the absence of the stable manager in order to get things done. In this case, one sees that authority is neither authoritative nor working without the flexibility demanded by the condition of the situation (the production of coal in this case). In his work, General and Industrial Management, he reviewed all aspects of management involved in the running of a business. Concerning the authority, he came with a list of principles:

Unity of command

Hierarchical chain of command

Separation of powers (authority, subordination, responsibility and control)

Centralisation

Order.

But he did not concentrate only on authority since his interest was about the functioning of the industrial business in its entirety. Since most of the problems he encountered were not technical in the sense of related to engineering skill; but mostly managerial, he came to the conclusion that one needed a certain element of creativity in the managerial practices in order to accommodate industrial realities. For example, he gave the possibility of experienced workers to become supervisors of work groups. In developing working teams with the authority to act and make decisions in the mines, it improved both motivation and effectiveness. The objective was to make them responsible for quality and the timing of work. He observed that all employees are involved in the administration of the business to a greater or lesser degree.

In his book General and Industrial Management, he draws a comprehensive perspective of all his experience. One may call this a "general theory". But it is clear that in Fayol's words, it is an attempt to generalise the sum of experiences he has observed in managing Comambault in order to deliver a compendium of his ideas that could transcend industry and organisational types. One sees that in keeping the area of management large (from the decision making, the work relationship as well as the selection of human resources) Fayol identified the following principles of management (see text 1 of the reading list):

Division of work - specialisation of labour

Authority - the right to direct the work of others but requiring commensurate responsibility for actions and performance

Discipline - obedience and respect for the organisation and fellow workers

Unity of command - one "superior" rather than many - in contrast to F W Taylor

Unity of direction - one agreed plan of action leading to focus and coordination of effort

Subordination of individual interest to the general interest

Remuneration - to incentivise and make employees more valuable

Centralisation - to achieve the "right" proportion of centralised and decentralised decision making to optimize personnel

Scalar chain - the chain of authority from top to bottom, allowing also for lateral communication and decision making (the" gang plank")

Order - people and resources in their appropriate place

Equity - equitable employee relations based on respect and kindliness

Stability of tenure of personnel - to assist in resources planning

Initiative - encouraging energy and zeal throughout the organisation

Esprit de Corps - building a sense of belonging and team work