Aug 7, 2020 in History


B2. At each stage of the historical development, mankind used a variety of management resources. Initially, it was the physical strength and the potential of a strong-willed leader, then – the origin, later – religious and secular resources and systems of administrative-command. As the industry outgrew the boundaries of manufacturing production and a new form of property evolved, a new type of leader started forming – a manager. Frederick Winslow Taylor is a founder of the school of scientific management. He is an American engineer and is called the father of scientific management, and the ancestor of the entire system of scientific organization of production. For more than a hundred years, the whole modern theory and practice in the field of scientific labor organization keep using Taylor’s principles. In the book Principles of Management, it is affirmed that “according to Taylor, once these principles were defined, all the workers could be trained to do the work ‘the one best way’ rather than relying on their own rules of thumb”.  It is no coincidence that the control theory was founded by an engineer who thoroughly knew the technology of industrial enterprise and on his experience perceived all the features of the relationship between workers and managers.

Taylor’s system is based on the proposition that for effective organization of the enterprise, it is necessary to create a management system, in which the maximum growth of labor productivity is produced at the lowest cost. Taylor showed that industrial relations, and above all, subordination, have a direct impact on productivity growth. One of the most important management principles developed by Taylor was the principle of conformity of an employee to the occupied position. Taylor proposed the recruitment system, believing that every employee must be taught basics of the profession. In his opinion, the manager has full responsibility for all the work conducted by employees, whereas each of them is personally responsible for his/her part of the job.


However, modern management cannot be the same, as in the days of Taylor. It cannot be shown in the form of clear rules and recipes, and is more of management philosophy which was equally relevant both during the 19th –20th centuries and at the beginning of the 21st century. Nevertheless, Taylor’s system, with all its practical utility, does not refer to the narrow-profile subjects. These days, it is more of academic interest, since it allows to evaluate the effectiveness of business management from the position of society as a whole.

Nowadays, people are only witnesses of post-informational technological revolution. Giant corporations that arose at the beginning of the 20th century are gradually losing their influence. Two-thirds of companies included in the list of top five hundred in 1954 have ceased to exist or are not so large to be on the list today. They are replaced by such organizations as, for example, a subsidiary of the Finnish electronics company Nokіa with an annual sales volume of goods worth $160 million and a staff of five people. These days, the established views are changing in terms of intellectualization of production. 

C1. Sam Walton is considered a king of retail of the late 20th century. For several decades, he transformed a small shop in the center of town into the world’s largest retailer Wal-Mart. There was one principle of all retail outlets – the maximum amount of goods at the lowest price. At the end of the 1940s, when Sam Walton rented on the principle of the franchise Universal Ben Franklin store in Newport, he was preoccupied with a simple but important problem. Like any retailer, he always looked for the best deals from suppliers. Walton knew he could achieve greater success by increasing profits at the expense of greater amount of sales. This understanding will be the cornerstone of Sam’s business strategy when he founded the Wal-Mart company in 1962. He certainly knew how to become a successful businessman. The desire for low prices was a natural target for Walton. Cost reduction was a kind of obsession for him. All managerial solutions were subordinated to this objective. Walton was the first person to place cash desks at the exit from the trading floor. It made it possible to serve more customers by fewer sellers. Sam Walton realized that one of the main requirements to reduce costs was the lack of wages. According to him, in the retail sector, wages is one of the most important parts of costs, which must be addressed to maintain the desired level of profit. In such a way, he always struggled with the trade unions. However, the ability of the entrepreneur to keep his staff happy helped him in 1985 against the backdrop of concerns about the trade deficit and job losses in the United States. Sam Walton began his campaign ‘Made in America’ for the purchase of American-made products. In 1971, he introduced a plan that allowed employees to receive a certain percentage of their salary to buy subsidized shares of Wal-Mart.

Staff’s ability to sell the product was equally important for Walton. Workers were trained on the art of being shop assistants. He taught his managers that they always had to look in the eyes of the client greet him/her and ask if they could help. In the book Business, Society, and Government Essentials, it is noted that “Mr. Walton’s success came from understanding the customer”. As it is known, the human factor is one of the main principles of sale. Sam Walton stimulated employees by the fact that he spoke of improving leadership skills through communication and career growth, respectively. Everyone had the opportunity to rise to the position from an ordinary seller to the department manager or even regional manager. 

It is obvious that success of Wal-Mart lies not only in charisma and economy. Control technologies used in the company helped it to get ahead of the competitors. In the 1970s, Wal-Mart used computers to establish a permanent link and accounting between shops and warehouses. Just at that time, an active development of computer technology was aided by Apple and other companies. Data on sales allowed Wal-Mart to keep track of certain objects and reduce mistakes and errors in inventory. Throughout his career, Sam Walton focused on innovations that would make Wal-Mart a consistent leader in terms of efficiency of work and development.

When Walton died, the company experienced difficult times. His death changed the perception of company. New leaders of Wal-Mart took to heart one of the elements of business philosophy of the founder – the importance of reducing costs. Nevertheless, they were unable to realize it, ignoring the importance of decision-making and staff, who, according to Walton, had to feel as if they determined the company’s fate. With this step, the management immediately put them in the unfavorable position. Still, the company developed. Between 1997 and 2001, the company’s share price increased by more than 500%. This fact undoubtedly helped to calm the employees who were dissatisfied with the downturn at the beginning of a decade.

D1. At the present stage of development of market relations, a number of factors must be considered for the successful operation of business beyond the classical economic theory. Effective management consists in building rational relations with all participants of business processes based on interaction, interdependence, and communication. In today’s world, the financial success of the company is affected by indicators of success of interaction with stakeholders, the ability to build a constructive dialogue, find mutually beneficial solutions, and implement them effectively. In the analysis of the company, the risks associated with social and economic impact of the company on society should also be taken into account. It is no wonder that in such macroeconomic conditions, one of the most important institutions of a civilized market economy is corporate social responsibility. In the evolution of the concept of corporate social responsibility, three basic interpretations were formed.

According to the first and most traditional approach, responsibility of business is to increase profits for its shareholders. The social responsibility of business to increase profits is a famous statement that belongs to Milton Friedman. It was first suggested in an article published in New York Times in 1970. The economist claimed that there can be only one social responsibility of business – to use the energies and resources in actions that lead to an increase in profits, as long as it is performed within the rules of a business. It means that until the business adheres to the principles of free and open competition without fraud or deception, it will increase the profits. However, except gaining profits, companies should not do anything else. This theory is called the theory of corporate selfishness. Business must serve the interests of those for whom it is organized and that the use of resources of the company in a direction that does not suit the shareholders is equivalent to spending other people’s money without their permission. These days, social responsibility of business is caused by the desire of corporations to increase revenue and generate more profits to its shareholders. The neglect of corporate social responsibility leads to the loss of consumers’ confidence, attacks from the public and the media, and worsening of relations with the local and federal authorities. The main disadvantage of this theory is a time limit. Therefore, if the company in the short-term bears additional costs, it will benefit in the long-term from improved corporate image and development of relations with the local community.

In fact, 40 years after the publication of Friedman’s assertion, the American firm Edelman conducted a survey that was aimed at determining the relationship of modern business to corporate responsibility. The firm surveyed young successful professionals from 23 countries about what they think of the famous statement. The survey results showed that Milton’s opinion on corporate responsibility enjoyed a wide support in the United Arab Emirates, Japan, India, South Korea, Singapore, and Sweden. More than 60% of respondents agreed with the statement. In Spain, Italy, Germany, Brazil, and China, less than 40% of respondents supported the statement of approval of Milton Friedman. Thus, these days, not all people support this statement. 

However, studying the history of American business, the theory of corporate selfishness proposed by Milton Friedman does not always work. It is now widely recognized that the interests of corporation are closely related to the welfare of society, which is an integral part of a business. There is a growing recognition that the corporation depends on a favorable attitude of the society that can support or undermine its existence by public pressure on the government. Thus, many companies should help the society to increase profits.


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