The approach to business management continues to evolve looking for new and better ways to maintain competitiveness and deliver results.

In today’s world the concepts of leaders and leadership appear prevalent amongst business consultants selling the secret to business success, but what do these concepts really mean and how do they fit with management theory?

A quick review of research into management theory identifies a significant shift around the end of the 1980s early 1990s. Some theorists suggest this may have been as a result of the return of Halley’s Comet which has coincided with significant change in the past, however there is probably a more logical explanation for this evolutionary change.

In the 1960s and 1970s businesses were managed by men, the majority of whom served in the military during the second world war. It is a reasonable assumption that these male managers learnt their skills at an early age from military doctrine. (There’s a great story of how returned servicemen took over surf lifesaving clubs forcing out the surfing fraternity who couldn’t stand the military approach to management!).

By the late 1980s the baby boomer generation was taking over and looking for new ways to organise and run businesses. Academic research has identified the rise of the importance of the front-line leader occurred about this time. Prior to this, front-line workers were typically not permitted to think let alone contribute to business management.

Out of this new approach came the concept of loose-tight management. Under this approach the controls on the workforce were loosened enabling empowerment, creativity, and engagement to flourish. There were, however, still some (albeit limited) tight controls imposed. These could relate to capital expenditure, hiring and firing staff, anything that might impact an organisation brand etc.

So how does management theory support this ‘new’ approach to management?

A study in 2017 identified that one of the key management theories – Contingency Theory – developed in the 1960s was still very much relevant today. Contingency theory suggests that there is no right or wrong way to manage an organisation, and that the best way is contingent on both the internal factors associated with the business and the external environment within which a business operates.

The three internal factors Contingency Theory focussed on were structure and authority, management systems and employee engagement.

The management theory most of us were taught at business school focussed on the importance of structure and authority and management systems to maintain control. The research study conducted in 2017 identified that the importance of employee engagement from contingency theory had been, for the most part, over-looked in management practice.

The modern focus on leadership would appear to be all about the importance of enabling employee engagement through communication, empowerment, engaging culture, trust, and knowledge sharing.

Whilst ‘leadership’ has traditionally been a subset of ‘management’ a lot of today’s terminology suggests that leadership is different to management and in some cases even the opposite of. The Australian Institute of Management (AIM) for example, recently changed its name to the Institute of Managers and Leaders (IML).

If we go back to Contingency Theory, we learn that it is important to achieve a balance between structure and authority, management systems and employee engagement to enable the best and most effective management approach for an organisation.

For example: a business services firm (eg: a Law firm or Financial services firm) comprising of highly skilled individuals, operating in an ever-changing environment, would need a high focus on employee engagement and less reliance on management systems, structure, and authority to achieve the best results. At the other end of the continuum a pre-cast concrete panel factory would need a high focus on systems and processes to ensure quality output, and a lesser emphasis on structure and authority and employee engagement.

One of the common misunderstandings that has been identified in management is the over-use of controls. Many of today’s managers have a genuine fear of losing control, anticipating this will lead to under-performance.Yet practice has shown that employee engagement is the key to business success within a loose-tight management paradigm.

Many managers see management systems as a means of maintaining control and satisfying their biggest fear, when in fact the primary purpose of management systems should be about driving business efficiency and effectiveness. (Where Effectiveness refers to the degree to which something is successful in producing a desired result – the degree of success; and Efficiency means producing an output with a minimum of waste, expense, or unnecessary effort).

In summary, while it may seem counterintuitive, letting go of control will realise greater performance outcomes. The secret being getting the right balance between the loose and tight controls and a focus on driving efficiency and effectiveness, not control.

Dr Michael Rollo

BE Civil (UNSW), MBA (ULdn), PhD (USyd), FAICD, FIEAust

Honorary Professor, University College London

Research Affiliate, University of Sydney