Management Theories You Should Know As a Small Business Owner

Last Updated on February 15, 2023

Every small business owner should know the management theories for better businness management in all aspects, here are the theories

Every small business owner from the get-go understands that running a business is no easy feat, and the role of a manager can be especially challenging. With so many tasks and responsibilities to juggle, it can be difficult to find the time to step back and reflect on how you’re managing your team and resources. That’s where management theories come in: they provide a framework and a set of guiding principles that can help you make better decisions, optimize your processes, and lead your team more effectively. In this article, we’ll explore some of the most influential management theories that have shaped the way we think about management, from classical to modern approaches.

We’ll delve into the key concepts, principles, and examples of each theory and show you how to apply them in your small business context. By the end of this article, you’ll have a better understanding of which management theory can work best for you and how to use it to elevate your small business to the next level. So, let’s get started!

Classical Management Theories

Classical management theories are a set of ideas that were developed during the late 19th and early 20th centuries to help organizations become more efficient and effective. These theories were created during a time of rapid industrialization when businesses were expanding rapidly and needed to find ways to manage large groups of workers consistently and efficiently.

Some of the key concepts behind classical management theories were the idea of creating a strict hierarchy within an organization, specialization, and incentivization. Another important aspect was the use of standardized procedures and processes, with an emphasis on streamlining work to increase productivity.

Classical management theories can be seen as a precursor to modern management practices, as they laid the foundation for many of the management principles and practices that are still in use today. Classical management theory also carries many strengths. It provides clarity for both the organization and its personnel, and specialization and sound hiring practices place employees in positions they can handle and even master.

However, they also have their limitations, particularly in terms of their emphasis on command and control, which can stifle creativity and innovation. Nonetheless, by understanding the key principles of classical management theories, business owners can gain insight into how their organizations can become more efficient and effective.

Here are the management approaches that belong to classical management theories:

1. Scientific Management Theory

Scientific management is a management theory that was developed in the early 20th century by Frederick Winslow Taylor, who is often referred to as the father of scientific management. The theory is based on the idea that work processes can be optimized by using scientific methods to identify the most efficient way of performing each task.

At its core, scientific management aims to improve efficiency by breaking down work processes into smaller, more manageable tasks and then optimizing each task to reduce the time and effort required to complete it. This involves analyzing each task in detail, measuring the time and effort required to complete it, and then finding ways to streamline the process to reduce wasted time and effort.

Scientific management also emphasizes the importance of training and development to ensure that workers can perform their tasks efficiently and effectively. In this way, workers become specialists in their specific tasks, which can further increase efficiency and productivity.

While scientific management has been criticized for its mechanistic view of workers and its emphasis on breaking down work into simple, repetitive tasks, it has also played an important role in shaping modern management practices. Today, many businesses still use elements of scientific management to optimize their work processes and improve efficiency.

2. Administrative Management Theory

Administrative management is another that falls under the classical management theory that emphasizes the importance of a clear organizational structure and a defined chain of command. It was developed in the early 20th century by Henri Fayol, who believed that effective management required a specific set of skills and functions that could be applied to any organization.

One of the key principles of administrative management is the division of labor, which involves breaking down work into smaller, specialized tasks that can be assigned to specific individuals or groups. This allows for greater efficiency and productivity, as workers can focus on their specific tasks and become experts in their areas of responsibility.

Administrative management also emphasizes the importance of a clear organizational structure with a well-defined hierarchy and clear lines of authority. This allows for effective communication and decision-making, as well as greater accountability and responsibility.

In addition, administrative management recognizes the importance of training and development as well as the need for standardized procedures and processes. By developing a set of rules and procedures, organizations can ensure that work is performed consistently and efficiently, regardless of who is performing the task.

Overall, administrative management is an important type of classical management theory that has played a significant role in shaping modern management practices. By understanding its key principles and applying them in your own organization, you can create a more efficient and effective workplace that is better equipped to achieve its goals.

3. Bureaucratic Management Theory

Bureaucratic Management Theory is a type of classical management theory that emphasizes the importance of a formal organizational structure and a clear set of rules and procedures. It was developed in the early 20th century by Max Weber, a German sociologist, and political economist, who believed that bureaucracy was the most efficient and rational form of organization.

One of the key principles of bureaucratic management theory is the use of a formal hierarchy with a clear chain of command and well-defined roles and responsibilities. This allows for effective communication and decision-making, as well as clear lines of accountability and responsibility.

Bureaucratic Management Theory also emphasizes the importance of written rules and procedures that are applied consistently across the organization. This allows for a high degree of standardization and control, as well as greater efficiency and productivity.

In addition, bureaucratic management theory recognizes the importance of technical competence, which is achieved through specialized training and education. This allows for a highly skilled workforce, which can further increase efficiency and productivity.

Overall, bureaucratic management theory is an important type of classical management theory that has played a significant role in shaping modern management practices. While it has been criticized for being inflexible and overly bureaucratic, it remains an important approach to management that can be applied in a variety of organizational contexts. By understanding its key principles and applying them in your own organization, you can create a more efficient and effective workplace that is better equipped to achieve its goals.

Behavioral Management Theories

Behavioral management theories are a type of management theory that emerged in the mid-20th century and emphasize the importance of understanding the human factor in organizations. These theories view the organization as a social system and recognize that employees have individual needs, motivations, and behaviors that must be taken into account to create an effective and productive workplace.

Behavioral management theories are based on the idea that effective management requires an understanding of human behavior, motivation, and group dynamics. These theories aim to improve organizational performance by addressing issues such as employee morale, job satisfaction, and interpersonal communication. By applying these theories in your own organization, you can create a more effective and productive workplace that takes into account the unique needs and motivations of your employees.

Several key theories fall under the “Behavioral Management” umbrella, including Human Relations Theory, Theories X and Y, Contingency Theory

1. Human Relations Theory

Basic texts on human relations have evolved from experiments based on classical theory. Elton Mayo worked at Hawthorne Works, a large industrial complex, as part of a team assessing the impact of different workplace conditions on productivity. Early results were conflicting. Both changes in opposite directions have increased productivity.

Mayo recognized that a researcher’s attention to workers was a common factor. It evoked pride and met the special social needs of workers. This led to the development of the “Hawthorne” research principle, which suggests that a researcher’s attention influences the subjects of the study and thus influences the outcome.

In business leadership, Hawthorne’s research has helped clarify the role that interpersonal relationships play in business operations. Theorists since Mayo have drawn several relevant conclusions, such as:

  • Group dynamics affect work performance.
  • Communication between employees and employers must be two-way.
  • Production standards depend more on workplace culture than official goals. In addition to rewards, perceived value influences performance.
  • Employees like to participate in the decision-making process.
  • Integration between departments or groups has a positive impact on the organization.

In the modern workplace, relationship theory relies on sanctioned social activities and open-defined communication channels.

2. Theories X and Y

Douglas McGregor has primarily studied how managers motivate their employees. The same tactics don’t work everywhere, and different individuals need different kinds of supervision and encouragement. McGregor developed his theories X and Y in 1960.
“Company Humanity”

This management theory divides the worker into two camps, where he needs two leadership styles. Theory X workers are unmotivated. Managers must provide a lot of structure and direction to get the work done. These workers demand an authoritarian leadership style.

Theory Y workers are self-motivated people who enjoy and find fulfillment in their work. Benefit from a more participatory environment that fosters growth and development.

McGregor’s theory of differentiated management practices remains relevant, but I don’t think either employees or managers are typically at the extreme ends of the spectrum where more nuances are needed. This approach also ignores the interactions that managers and employees might have with each other. Natural self-starters are able to micromanage their ambitions from themselves.

Modern Management Theories

Modern management theory seeks a management approach that reconciles the scientific method and humanistic psychology. Use new technology and statistical analysis to make decisions, streamline operations, and quantify performance. At the same time, she values individual job satisfaction and a healthy corporate culture.

Theories in this category are more holistic and flexible than their predecessors. Data-driven decision-making can remove human bias while considering employee health and satisfaction metrics. Modern management theory also allows organizations to adapt to complex and changing situations using local solutions rather than presenting a single overarching principle to drive management forward.

The drawbacks of modern management approaches are:

  • Prioritizing information that is difficult, expensive, and time-consuming to collect
  • The gap between theoretical flexibility and practical agility
  • Some tribes tend to be more descriptive than prescribed

The two general lines of modern management theory are systems theory and contingency theory.

1. Systems theory

Not surprisingly, Ludwig von Bertalanffy, who developed the theory of systems management, was a biologist. This theory borrows heavily from this discourse. Systems theory assumes that all companies are like a single organism. Different elements play different roles but ultimately work together to support organizational health. The role of management is to enable collaboration and overall process flow. Systems management theory sometimes leans more toward metaphorical descriptions than prescriptive applications. Evidence of this approach, however, can be found in the technical architecture and tools that standardize services and open access to information. For example, innovations like the Data Fabric can help break down departmental silos. 

2. Contingency theory

The theory of emergency management addresses the complexity and variability of modern work environments. Fred Fiedler recognized that it is not a single approach, nor a single set of qualities, that makes for the best leadership in all situations. Instead, success depended on the adaptability of the leader to the situation in which he found himself.

Fiedler noted the three factors that determined this situation.

  • Task structure: How well-defined is the job? 
  • Leader-member relations: How well does the leader work with team members? 
  • Leader position power: How much authority does the leader have? To what extent can they distribute punishments and rewards? 

Managers can be categorized into task-oriented or people-oriented styles. Task-oriented managers organize teams to complete projects quickly and effectively. People-oriented managers are adept at handling team conflicts, building relationships, and fostering synergies. Task-oriented leaders thrive in both highly favorable and unfavorable conditions, whereas people-oriented leaders thrive better in calmer environments.

The Most Preferred Employee (LPC) Scale is a popular management tool developed by Fiedler to help leaders determine their style. This scale asks you to identify and rate the colleagues you find most difficult to work with. Relationship-oriented managers tend to perform better than task-oriented managers on the LPC scale. 


As a small business now knowing the management theories makes your job easier. The world is changing rapidly. There is no single management philosophy that meets all requirements. The best managers are flexible and combine methods. Adapt multiple management theories to new situations as needed. 

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