THEORY X

THEORY Y

Overall objective of management:

Organizing resources to produce economic results.

Organizing resources to produce economic results.

Management attitude towards employees:

Must direct their efforts, motivate, control and modify their behavior. Without active intervention, employees will be indifferent towards the goals of the organization. Thus, they must be rewarded and punished, i.e., treated as children. Emphasize external control.

Provide conditions and methods for people to achieve their own goals directed towards organization objectives. Employees are not by nature indifferent to the organization's needs. They become indifferent as a result of experience. Treat them as mature adults. Emphasize internal self control.

Managements assumptions about employee characteristics and behavior:

Employees are lazy, lack ambition, dislike responsibility and prefer to be led. They are self centered, indifferent to the needs of others, resistant to change, gullible and not very bright.

Employees have needs based on Maslow's hierarchy: Physiological - rest, exercise and shelter. Safety - protection from the elements. Social - friendship, belonging and love.

Ego - self esteem, status and recognition. Self fulfillment - realizing potential. Behavioral problems are caused by need deprivation.**

Management attitude towards groups:

Groups are a threat to management and should be discouraged.

Groupiness can be beneficial to the organization.

NO.

REQUIREMENTS

MARKET

BUREAUCRACY

CLAN**

1.

Social agreements:

Reciprocity.

Reciprocity and authority (i.e., the employee gives up autonomy for pay).

Reciprocity, authority and shared values and beliefs.

2.

Information needs:

Nature.

Explicit competitive price for each task or exchange.

Explicit rules and regulations - e.g., accounting systems.

Implicit - traditions, e.g., the U.S. Senate.

Completeness.

Complete.

Incomplete, but stated.

Complete, but unstated.

Accessibility and understandability to newcomers.

Accessible and understandable

Accessible and 
understandable

Inaccessible and not understandable.

How developed.

Supply and demand.

Must be created or designed.

Develops naturally.

Information systems capability of coping with participants heterogeneity and turnover.

Capable.

Capable.

Incapable.

3.

Applicable method of controlling people:

Self select based on price mechanism.

Select employees with little screening and design a system to instruct, monitor and evaluate them.

Select employees with careful screening to insure the skills and values needed.

NO.

REQUIREMENTS

MARKET

BUREAUCRACY

CLAN**

4.

Cost of system:

Search & acquisition.

Training

Supervision.

Variable.

Zero.

Zero.

Low cost.

Low cost.

High cost.

High cost.

High cost.

Low cost.

5.

Timing, need and feasibility of defining the process and measuring efficiency.

Not needed.

Short run, critical need.

Long run, less significant need.

Process may be black box plus high interdependence and synergy.

6.

How participant's commitment to organization's objectives is obtained.

Self interest based on price mechanism.

Self interest supported and motivated by training, rules and close supervision insure compliance.

Self interest based on common values.

7.

When the control mechanism should be emphasized, i.e., will be the most efficient method.

(Note that high interdependence causes low clarity of performance measurement.)

When interdependence is low, or zero and there is a single task or exchange, or when it is feasible and economical to establish a competitive market price for each multi-task or exchange.

When the levels of worker diversity and employee turnover are high, the level of interdependence is low and the clarity of individual performance measurement is high.

These requirements tend to produce many specialties and sub-specialties to reduce the interdependence. Rules and close surveillance are required for each specialty and sub-specialty.

When the levels of worker diversity and turnover are low and the level of interdependence is high. The clarity of individual performance is low and teamwork is critical.

CONCEPT OR ASSUMPTION

TRADITIONAL MANAGEMENT ACCOUNTING THEORY

MODERN ORGANIZATIONAL THEORY

Objective of organization:

Maximize profit. Assumes that sub-goals are divisible and additive (responsibility accounting).

The dominant members have goals, the organization cannot. Survival of the dominant members is the main goal and satisficing is second. Sub-goals are not divisible and additive and may conflict.

Human behavior:

Lazy man theory X.

Motivation is economic need.

Motivation factors include psychological, social and economic factors. Mixed theory X and Y.

Management behavior:

Must control employees with close supervision to maximize profits.

Make decisions to balance the contributions from participants with organizational inducements. Control through assigning and obtaining acceptance of authority.

Management accounting:

Used to aid in maximizing profit with emphasis on bureaucratic control, but accounting is neutral.

Used to provide information for planning and controlling to balance contributions.

NO.

1.

Length of employment:

Short term - high employee turnover.

Lifetime - low employee turnover.

Long term - moderate employee turnover.

2.

Mode of Decision making:

Individual decisions.

Consensus decisions.

Consensus decisions.

3.

Type of Responsibility:

Individual based on merit.

Collective.

Individual.

4.

Speed of Evaluation and promotion:

Rapid.

Slow.

Slow.

5.

Dimension of control:

Explicit with formalized measures. (Emphasis on bureaucratic type control.)

Implicit, informal and subtle. (Emphasis on clan type control.)

Mixed implicit, informal control with explicit formalized measures.

6.

Degree of specialization:

Specialized career path. Bureaucratic control of individuals requires specialties and sub-specialties to reduce the interdependence.

Non specialized career path.

Moderately specialized career path.

7.

Extent of concern for the individual employee:

Segmented, non personal task oriented concern.

Holistic concern for employee's well being.

Holistic concern.

Mix between cooperation and competition:

Cooperation at all levels will optimize the system. *** 

Competition at all levels will optimize the system. ***

The key driving force in the economy:

The desire to build for the future.

The desire for current consumption and leisure.

Motivation for work:

Work provides utility. Individuals live to work.

Work provides dis-utility. Individuals work to live.

Responsibility for skills and training prior to employment:

Responsibility of society. Strong high schools and apprenticeship programs.

Responsibility of the individual beyond weak high schools. Few apprenticeship programs.

Relationship between government and business:

Government supports and cooperates with business to optimize the system.

Government regulates business to promote competition.

Government policy:

Promote growth in supply.

Promote growth in demand.

Main objective and focus:

Building for the future with long term focus.

Profit maximization with short term focus.

Hierarchy of organization's constituencies:

1. Employees
2. Customers
3. Stockholders
4. Suppliers

1. Stockholders
2. Customers
3. Employees

How profits are used:

As fuel to keep investing and building.

To increase consumption and leisure for stockholders.

Employment and job security:

Lifetime employment promotes bonding.

Uncertain employment discourages bonding.

Responsibility for training after employment:

Companies provide cross training and job rotation.

Individuals are mainly responsible for their own skills.

Management's attitude toward teamwork:

Teamwork and cooperation are essential for optimizing the system.

Teamwork is risky. Individual performance will optimize the system.

Management behavior in economic downturn:

1. Cut dividends. 2. Cut management compensation. 3. Cut workers pay and jobs as last resort.

1. Cut workers pay and jobs. 2. Cut management compensation. 3. Cut dividends.

Route to management:

Long multi-function internship.

From college, to single function, to management.

View of leadership:

A leader manages processes or work.

A leader manages results.

Management attitude toward problems:

Blame the system.

Blame individual employees.

Tools of management:

Employee empowerment, group praise and profit sharing. Statistical control. Managers facilitate, counsel, teach and provide resources for teams to improve processes.

Management by objectives, merit ratings, incentive pay, quotas, standard rates and quantities, piecework and annual ranking of employees. Count results.