Small business owners have so many sources of stress. While you might be a successful manager or CEO, you might never have learned the foundations of business management. Modern management theory can make your business more efficient and successful. In this article, we dive into the most effective management theories for small business owners.

What Are Management Theories?

As you likely know, management is difficult. It requires organization, communication skills, and so much more. Knowing management theories can make you a much more effective manager. So what are these theories? They are frameworks and principles designed to help organizations achieve their goals efficiently, effectively, and sustainably. 

Knowing these business theories and models is essential for small business owners interested in improving their management strategies. Read on to discover everything there is to know about the importance of management theories in small business management.

The Foundations Of Management Theories

Management theories are the building blocks of effective business strategy. For instance, consider Henry Fayol’s principles of administrative management – this is the basis of modern management theories. It established 14 managerial principles like division of work, authority with responsibility, unity of direction, and others.

Another important concept was Frederick Taylor’s scientific management theory. He emphasized standardizing work processes by breaking down complex tasks to maximize productivity.

The Role Of Management Theories In Organizational Structure

These theories play a vital role in the organizational structure of a business, as they provide guidelines and frameworks for decision-making, communication, and overall operations.

For instance, scientific management theory emphasizes task specialization and efficiency in production processes. That may lead to a more hierarchical structure where employees have clearly defined roles and responsibilities.

Conversely, human relations theory focuses on fostering positive relationships between managers and staff members to improve morale, leading to an emphasis on open communication channels. Each management theory offers different approaches to leadership styles or operational strategies; however, all aim at making organizations more functional. Here’s how they do it:

The Importance Of Management Theories In Small Business Management

Implementing management theories in small business management can streamline operations and aid in strategic decision-making, helping businesses become successful.

Efficient Operations Through Management Theories

Efficiency is a vital component for the success of any small business, and utilizing management theories can contribute to achieving this goal. For example, implementing the principles of Scientific Management Theory focuses on optimizing efficiency in all aspects of business operations. That involves performing time studies to identify areas requiring improvement or eliminating unnecessary tasks.

Another approach relevant to small businesses is the Systems Theory – this emphasizes the importance of coordination and interdependence among different departments within an organization, fostering better communication and collaboration.

The Role Of Management Theories In Strategic Decision Making

These theories provide valuable frameworks and methodologies that enable business owners to make well-informed decisions aligned with company goals and objectives. An excellent example of this is Henri Fayol’s principles of administrative management- a theory every small business owner should know.

Fayol emphasized proper division of work, unity of command, and centralization or decentralization (wherever applicable). By applying these principles, owners can navigate challenging scenarios with more efficient resources and operational control.

What Are The 5 Main Management Theories?

There are five main management theories defined by Henri Fayol that every small business owner should know. These are planning, organizing, command, coordination, and control theories.

Planning Theory

This management theory focuses on identifying the most efficient way to complete tasks, regardless of size. Fayol suggested proper planning consists of a goal, an action, stages, and methods. This principle still holds today and can be seen in many industries where standardized procedures help organizations optimize their operations.

Organizing Theory

Involves gathering everything needed to enact a business plan, including human resources. It emphasizes the importance of workplace communication, social interactions, and valuing employees.

Management doesn’t have to be impersonal. Recognizing employee needs beyond their job titles or responsibilities creates a workplace where employees have meaningful relationships with their colleagues and feel valued by their supervisors.

Command Theory

How do you manage? Command theory recommends managers lead by example. Besides that, managers should hire the best and the brightest, get to know their personnel, recognize their responsibility to their staff, communicate with their managers, audit performance, and avoid workplace gossip.

Coordination Theory

This theory is exactly what it sounds like and concerns the particulars of business. Overall, it’s how you and your staff get things done. Effective business owners use coordination theory when they ensure that their staff know their responsibilities and know how to reach those goals.

Control Theory

Is your business efficient, is everything going according to plan, are instructions followed, have principles been established? That’s control theory. It’s the verification that your business has everything in order and working to maintain that order.

What Theory Is Mostly Done By Small Businesses?

Small businesses often use the organizing theory for employee motivation and satisfaction. It emphasizes creating an environment that fosters employee satisfaction and motivation.

Business owners can make changes with their staff in mind. A happy and satisfied staff will lead to better performance or success.

Some management theories are better for small businesses than others. For example, Frederick Taylor’s scientific management system emphasizes efficiency and practicality and focuses on finding the most effective way to complete each task, no matter how small.

Additionally, Henri Fayol’s principles of administrative management prioritize clear communication, well-defined roles, and a hierarchical organizational structure.

Knowing which management theory works for your business can lead to increased success.

Implementing A Management Theory: How They Can Help You Achieve Success

Learning the best management strategies can improve productivity. Yet implementing a management theory is not always an easy task. However, it is essential to achieving success as a business owner. 

An effective management theory can bring success to a business. By using management principles and aligning employees with organizational goals, businesses can streamline operations, increase productivity, and achieve their objectives. 

For example, adhering to Fayol’s administrative management theory requires businesses to ensure all employees understand their roles within an organization and work towards common goals. This principle promotes alignment across teams and departments while streamlining operations toward achieving defined objectives. Similarly, scientific management theory aims at maximizing efficiency by simplifying work processes and optimizing resources for increased productivity.

So how do you use management theory in your business? Start by identifying the theory that best fits the needs and goals of your organization. Then assess your organizational structure, policies, and procedures against the new management theory. Identify areas needing improvement, and develop action plans for addressing them. Finally, remember that change does not happen overnight; it takes time and effort to implement any new process or procedure.


In the fast-paced business world, there are many challenges for small business owners. However, understanding management theories can help them streamline operations and improve overall success.

By learning about the five essential management theories – planning, organizing, command, coordination, and control- small business owners can utilize these frameworks to optimize their businesses performance. These strategies create a positive workplace with better team dynamics.

About the Author, James Webster

James Webster, founder and Executive Chairman of ROK Financial has almost two decades of experience within the financial services industry. His passion for helping small business owners and his innovative way of thinking, has allowed him to run multiple successful businesses including National Business Capital & Services. Under the National name, the team was able to help secure over $1 Billion in financing for small businesses nationwide.