Henri Fayol made a major contribution to the theory of management by developing a "common approach" to administration and formulating several principles of administrative theory that define its functions, principles and controls.
He based his studies on the experience in organization and management he gained in Europe, and more specifically, France. He drew the main attention to the process itself, which he considered as a function of administration aimed at assisting administrative staff in achieving the organization's objectives.
Fayol proceeded on the premise that every enterprise should have two entities: material and social ones.
The former involves the work itself, means and objects of labor, while the latter is the relation between people engaged in the labor process. These relations had been the subject of Fayol’s research, i.e. he deliberately limited the area of his research.
Fayol argued that administrative functions existed at all levels of the organization and even workers themselves discharged them. Thus, the higher the level of administrative hierarchy is the bigger responsibility the management takes. Henri Fayol made a lot of attempts to formulate the requirements of vocational education and training for workers, directors, supervisors and senior management members.
Furthermore, Henri Fayol is considered as one of the founders of the accounting human factors principles in production and management, as well as one of the first scientists to draw attention to issues of human relations between managers in general and subordinates in particular. This provided an incentive to research the fields of formal and informal relations between organizational subsystems.
Fayol intentionally uses the word "administration" instead of "management." It is not necessarily because the word "management" is specifically American, while the word "administration" is a French one; though, there is a grain of truth here.
Management is a product of developed market economies, which emerged in the field of private enterprise rather than government or non-profit management. Throughout the 20th century, it symbolized reduction of government interference in economic regulation. The term "administration" in European languages is of Latin origin. The Latin language was used by the Romans, who were famous for their rigid, centralized management control systems. Therefore, it indicates the activities of state bodies charged with control functions. The term "administration" refers to the highest part of administrative hierarchy and management staff in targeted institutions. There is nothing left of business and commerce in this term, but plenty of bureaucracy and command for sure.
According to Fayol, another reason is that the administrative action formed only one part of management. Management itself is a far greater area of activity. To control means to lead the company to its goal, deriving means from all available resources. But leading to the goal denotes maneuvering in product marketing, monitoring market conditions and advertising strategies, increasing capacity, and controlling working capital cycle.
According to Fayol (Fayol, 1949), administration includes six main groups of operations management present in all industrial enterprises, such as:
- Technical and technological group (production, manufacturing and processing);
- Commercial group (purchase, sale and exchange);
- Financial group (formation of capital and its effective management);
- Security group (protection of property and physical bodies);
- Accounting group (inventory, balance sheets, production and statistics expenses);
- Administrative group (advance knowledge, organization, coordination and control).
This operational guidance is referred to as general management. However, not all six groups of operations are the subject of Fayol’s thorough research. He only focused on management, because other six types were well-researched and comprehended. Technical, commercial, and financial operations were interesting for the researcher, because they were impacted by the administrative function. Therefore Fayol does not consider them separately.
To a large degree, success of management depends on a leader’s experience, his abilities and talent.
As far as managers’ abilities were concerned, Henri Fayol emphasized that every manager should have "a special knowledge" specific to any function. In general, every manager needs the following qualities and capabilities (Fayol, 1949):
- Physical properties: health, energy, agility;
- Mental qualities: mental energy, ability to understand and learn, make one’s own judgment, and adapt;
- Moral qualities: energy, firmness, willingness to do something on one's own responsibility, initiative, loyalty, a sense of tact and dignity;
- General knowledge: ability to discuss in broad terms issues that do not belong exclusively to performed function;
- Special knowledge: very specific skills required for technical, commercial, financial, organizational functions, etc.
- Experience: the totality of characteristics, both past and present, that make up a particular quality of a person, place, or people.
Fayol believed that management could not be strictly regulated but should be based on certain principles and rules.
Fayol formulated the concept of the continuity of the management process, which incorporated the following related functions: planning, organization, management (administration), coordination and control. Up until now, all the textbooks on management and practical consultancy have been largely based on this classic circuit, which has influenced the modern approach to systems analysis and design of modern organizations.
Fayol’s functions are the most common areas, each of them being relatively independent, though correlating with other areas within the management process.
Special attention was paid to working out a long-term projection and plan. Fayol emphasized the need for long- and short-term planning for each organization, as well as the need to plan on a national scale by taking into consideration the needs of the society in general and production in particular.
In addition, Fayol’s merit has been the statement that every member of the society needs to acquire knowledge of the principles of administration. The researcher set the goal of teaching industrial administrators an important management function that would ensure maximum individual and collective productivity by concentrating laborers’ "will" on one very specific direction mentioned by an entrepreneur. This requires the creation of the science of managing people, based on "a careful study and scientific experimentation"(Fayol, 1949).
In his main work "General and Industrial Management", Fayol’s key concept is that every enterprise has two entities. He has tried to make the need for and possibility of making a special science to manage people a part of the general theory of business management.
Thus, Fayol came up with three principles, which are useful to any administrative activity. The first principle is discipline, which is realized through a contract of employment meant to ensure obedience, diligence, energy and external manifestation of respect. Henri Fayol emphasizes that there should be good leaders at all levels to administer fair discipline. Of all the means that influence subordinates in order to strengthen discipline, a personal example of a boss is the most effective one. According to the researcher, if a boss sets an example by being punctual, no one dares to be late. If a boss is active, steadfast and loyal, his employees try to imitate him; and if he knows how to run a business, his persistence endears him to all the staff. But a bad example is also contagious and can, therefore, produce the gravest consequences.
The second principle is remuneration, which is a method of work stimulation. It should be fair and ensure that workers and employers derive maximum pleasure and enjoyment from their work. Loyalty and dedication of staff should be encouraged by a respectful and fair treatment of staff on the part of the administration. Having made a list of these principles, Henri Fayol indicates that he did not try to give a comprehensive representation of them, but rather referred to the principles that he often used.
The third principle is that of the final result, which consists of the order whereby "the cobbler should stick to his last". Fayol believes that excessive fluctuation movement of personnel is a cause and consequence of poor management. Initiative, on the other hand, is the first step towards execution of a plan. Fayol encourages administrators to put their personal vanity aside, so that their subordinates are able to show personal initiative, thus deriving intellectual pleasure. And, of course, one should not forget about the corporate spirit. Fayol points out the inadmissibility and illegal use of the "divide and rule" policy. On the contrary, he believes that leaders should encourage collectivism in all its forms and manifestations. How can groups sustain as much cooperation as possible? The direction depends on who is acting, by what authority, and through what means. Shirking is a colorful term that describes laziness, incompetence, or theft by agents; it refers to the use of authority by principals and quasi-principals to redistribute assets within the firm. Shirking can occur laterally against other powerful players in the firm. Each problem may call for regularly shirking not only in the corporate law, but in other areas, such as securities, taxes, or bankruptcy. Workers respond by looking for more ways to shirk. An organization can only achieve utmost productivity by giving all players a certain degree of political ownership and power in exchange for cooperation and commitment.
Shirking commonly refers to the costs of all agents in a firm who choose to further their own self-interests at the expense of the collective interests of the firm. For example, in the context of a corporate firm, shirking refers to the agency chain of command. Managers watch over and seek to motivate employees. Shareholders watch over and seek to motivate the board of directors and, through the board, the managers (Whitley, 1989). Punishment of agents is usually a self-help remedy, such as firing employees or replacing managers or directors.
Today, cases that allege violations of the duty of care - in other words, some degree of negligence by managers or directors - usually run into procedural problems. Moreover, some situations may involve shirking within corporations, such as conflicts between majority and minority shareholders, executive compensation, downgrading of creditors, and financial reengineering of capital structure. Anyway, individuals with different skills and resources fill different roles within economic organizations. In reality, the workplace is a political institution, in which all players - chief executives, managers, and workers - have their own personal agendas. Therefore, why should some people work while others shirk? Even if your engagement in a learned profession is taken into account, one ought not to make the most of each opportunity to shirk and derive personal benefit to the detriment of one’s colleagues or company. The main problem is failure to realize that teams may vary in size, type and purpose. However, regardless of their nature, they do share one thing in common - they must work together as one to accomplish anything. Besides, a lot of managers still believe they should resort to the carrot and stick approach to force their employees to perform well. However, the available research indicates that this approach is somewhat limited. Managers capable of effectively using political skills to promote cooperation and trust among their personnel will always gain a competitive advantage. Cooperation is key to success, and each expert should play their role by offering what they do best.
Briefly stated, the results of the above may be as follows: organizational structures of firms enable feats of economic productivity, which would be unimaginable without them. At the same time, participants of organizational structures are tempted to shirk and shark against one another's interests. Putting it differently, the authority and power in business firms explain the efficiency gains they achieve; however, these very authority and power open avenues for potential abuse. Restoring the importance of law broadens the policy debate on the law of enterprise organization by including ethical dimensions of agency responsibility and economic efficiency. By imposing appropriate standards of behavior on participants in firms, including fiduciary duties, legal regulation can improve overall economic efficiency and promote ethical norms of good business practice.
To sum up, the researcher has acknowledged Fayol’s principles as being universal and pointed out that their use should depend on a situation in which control is exercised. He has also noted that the system of principles cannot be complete and is always open to revision, modification, transformation based on a new experience, analysis, interpretation and generalization. The researcher concluded by saying that the current management principles have limitless possibilities.