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What is Business Administration?

Business administration is the process of managing workers and allocating resources efficiently and effectively by applying microeconomic principles. The goal is to achieve stability, growth and profitability for a business. Business administration is a function of organizational structure, the desired system of task allocation, coordination and supervision. Some businesses choose to have a hierarchical structure, in which stockholders, a board of directors, an executive committee and managers work together through a system of checks and balances to achieve desired objectives. Depending on the organizational structure, some or all of these business administrators work together to apply business principles such as accounting, marketing, finance and management to effectively work toward their common goals.

How did current management theories develop?

People have been managing work for hundreds of years, and we can trace formal management ideas to the 1700s. But the most significant developments in management theory emerged in the 20th century. We owe much of our understanding of managerial practices to the many theorists of this period, who tried to understand how best to conduct business.

One of the earliest of these theorists was Frederick Winslow Taylor. He started the Scientific Management movement, and he and his associates were the first people to study the work process scientifically. They studied how work was performed, and they looked at how this affected worker productivity. Taylor’s philosophy focused on the belief that making people work as hard as they could be not as efficient as optimizing the way the work was done.

Taylor believed that all workers were motivated by money, so he promoted the idea of “a fair day’s pay for a fair day’s work.” In other words, if a worker did not achieve enough in a day, he did not deserve to be paid as much as another worker who was highly productive.

With a background in mechanical engineering, Taylor was very interested in efficiency. For example, selecting the right people for the job was an important part of workplace efficiency. Taking what he learned from workplace experiments, Taylor developed four principles of scientific management. These principles are also known simply as “Taylorism”.

Taylor’s Four Principles of Scientific Management are as Follows:

  1. Replace working by “rule of thumb,” or simple habit and common sense, and instead, use the scientific method to study work and determine the most efficient way to perform specific tasks.
  2. Rather than simply assign workers to just any job, match workers to their jobs based on capability and motivation, and train them to work at maximum efficiency.
  3. Monitor worker performance, and provide instructions and supervision to ensure that they are using the most efficient ways of working.
  4. Allocate the work between managers and workers so that the managers spend their time planning and training, allowing the workers to perform their tasks efficiently.

Another theorist who influenced the modern concepts of management was Henri Fayol, a French mining engineer and director of mines who developed a general theory of business administration.

Taylor’s Developed 14 Management Principles:

DIVISION OF WORK: Work should be divided among individuals and groups to ensure that effort and attention are focused on special portions of the task. Fayol presented work specialization as the best way to use the human resources of the organization.

AUTHORITY: The concepts of authority and responsibility are closely related. Authority was defined by Fayol as the right to give orders and the power to exact obedience. Responsibility involves being accountable and is therefore naturally associated with authority. Whoever assumes authority, also assumes responsibility.

DISCIPLINE: A successful organization requires the common effort of workers. Penalties should be applied judiciously to encourage this common effort.

UNITY OF COMMAND: Workers should receive orders from only one manager.

UNITY OF DIRECTION: The entire organization should be moving towards a common objective in a common direction.

SUBORDINATION OF INDIVIDUAL INTERESTS TO THE GENERAL INTERESTS: The interests of one person should not take priority over the interests of the organization as a whole.

REMUNERATION: Many variables, such as the cost of living, the supply of qualified personnel, general business conditions, and success of the business, should be considered in determining a worker’s rate of pay.

CENTRALIZATION: The degree to which centralization or decentralization should be adopted depends on the specific organization in which the manager is working.

SCALAR CHAIN: Managers in hierarchies are part of a chain like authority scale. Each manager, from the first line supervisor to the president, possesses certain amounts of authority. The President possesses the most authority; the first line supervisor the least. Lower level managers should always keep upper-level managers informed of their work activities

ORDER: For the sake of efficiency and coordination, all materials and people related to a specific kind of work should be treated as equally as possible.

EQUITY: All employees should be treated as equally as possible.

STABILITY OF TENURE OF PERSONNEL: Retaining productive employees should always be a high priority of management. Recruitment and Selection Costs, as well as increased product-reject rates, are usually associated with hiring new workers.

INITIATIVE: Management should take steps to encourage worker initiative, which is defined as new or additional work activity undertaken through self-direction.

ESPRIT DE CORPS: Management should encourage harmony and general good feelings among employees.

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